2008 Annual Report
www.bokf.com
Table of Contents:
Financial Highlights
Letter to Our Shareholders
2008 Overview
Board of Directors
Corporate Information
01
02
04
08
10
Financial Highlights
(Dollars In Thousands Except Per Share Data)
2008
2007
2006
For the year:
Net income
Period-end:
Assets
Loans
Deposits
Shareholders’ equity
Nonperforming assets1
Profitability Statistics
Earnings per share (based on average equivalent shares):
Basic
Diluted
Percentages (based on daily averages):
Return on average assets
Return on average shareholders’ equity
Common Stock Performance
Per Share:
Book value per common share
Market price: December 31 close
Selected Balance Sheet Statistics
Period-end:
Tangible common equity ratio
Reserve for loan losses to nonperforming loans
Combined reserves for credit losses to loans2, 3
Miscellaneous (at December 31)
Number of banking locations
Number of TransFund locations
$
153,232
$
217,664
$
212,977
$ 22,734,648
12,876,006
14,982,607
1,846,257
342,291
$ 20,667,701
11,940,570
13,459,291
1,935,384
104,159
$ 18,059,624
10,651,178
12,386,705
1,721,022
44,343
$
2.28
2.27
0.71 %
7.87
$
3.24
3.22
$
3.19
3.16
1.14 %
12.01
1.27 %
13.23
$
27.36
40.40
$
28.75
51.70
$
25.66
54.98
6.64 %
74.49
1.93
195
1,933
7.72 %
133.79
1.24
8.22 %
305.37
1.22
189
1,822
163
1,649
1 Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing.
2 Excludes residential mortgage loans held for sale.
3 Includes reserve for loan losses and reserve for off-balance sheet credit losses.
leTTer To our SHAreHolderS
A CHAllenging YeAr
Since BOK Financial was formed 18 years ago, our aim has
been to produce consistently superior returns for investors.
With unprecedented capital markets and recessionary
headwinds, the operating environment in 2008 was one
of the toughest we have faced. Earnings dwindled for
most financial institutions due to securities write-downs
and massive provisions for loan losses. While we were
disappointed in our profit for 2008, BOK Financial still
performed well relative to the industry. Nearly half of our
peers, the ten immediately larger and ten immediately
smaller publicly traded US bank holding companies, reported
a net loss for 2008. BOK Financial generated net income of
$153 million, or $2.27 per diluted share. While 2008 marked
the end of 17 consecutive years of record earnings, BOKF
reached a new milestone. For the first time in our history,
revenues exceeded $1 billion.
In order to ease the credit crunch caused by the disaster
in the subprime markets, the government passed the
Troubled Asset Relief Program (TARP) in the fall of 2008.
BOK Financial was the largest traditional commercial bank
in the country to decline participation in the Treasury’s
Capital Purchase Plan, an element of TARP. More than 330
bank and thrift holding companies were approved to sell
nearly $300 billion in preferred equity through the program,
which is one of the US government’s attempts to stabilize
the economy and financial markets. While most banks were
eager to raise capital after experiencing mounting credit
losses, we determined that our capital strength and liquidity
provides sufficient support for our customers’ needs and our
growth plans.
BAlAnCed STrATegieS
Over the years, we have talked frequently of our balanced
strategy and how our intentional diversification emphasizes
long term shareholder value through varying economic
cycles. Our balanced loan portfolio reduces our exposure to
credit risk, but no one is immune from the negative effects
of a severe economic downturn. During the second quarter,
one of our mid-stream energy customers filed bankruptcy
unexpectedly, leading us to record a $61 million charge
against trading revenue and a $26 million charge against
the reserve for loan losses. After this event, we reexamined
our loan and risk management policies, adding additional
controls to monitor and limit risk. As the prolonged recession
affects our other customers, we are proactively managing
credit risk. We also increased our combined reserve for
credit losses to 1.93% of loans in recognition of the current
operating environment.
Our varied revenue streams continue to differentiate us
from our peers. Non-interest revenue represented more
than 39% of total revenue in 2008. Excluding two non-
recurring counterparty charges against derivative revenue,
total fees and commissions increased 15% over 2007,
due mainly to a 55% increase in brokerage and trading
revenue. Though trust administration fees decreased due
to a general decline in the market value of customers’
portfolios resulting from the disruption in the financial
markets, brokerage and trading revenue improved from
an increase in trading volumes as investors reacted to the
turbulence in the market. All the primary sources of non-
interest revenue grew, including transaction card revenue
and deposit service charges, which increased 11% and 8%,
respectively. Mortgage banking revenue increased 22%
and given the low rate environment, is likely to continue
to bolster earnings in 2009. BOK Financial’s diverse
sources of fee revenue remain an integral part of our
balanced strategy.
ASSeT QuAliTY
Our diversified loan portfolio consists of middle market,
small business, consumer and mortgage loans originated
throughout our eight-state footprint. At year end, 54% of the
portfolio was in markets outside Oklahoma. Our subsidiary
banks are located primarily in traditional metropolitan
growth markets including Dallas/Fort Worth, Houston,
Denver, Albuquerque and Phoenix. With the exception of
Arizona, our markets were not significantly affected by the
bubble in real estate prices. Though all our markets have
been affected by the downturn in the economy, most are
faring better than the nation as a whole.
In addition to increasing geographic diversification, we have
managed growth in the loan portfolio in order to increase
our areas of expertise and avoid concentrations of risk.
For example, we have maintained our commercial real
estate portfolio at less than 25% of total loans for over ten
years. The largest component of our commercial portfolio
is energy, the industry that led to the bank’s formation.
Our energy portfolio, which consists principally of loans
to oil and gas producers, totaled $2.3 billion or 18% of
loans. We employ our own engineers who perform on-site
visits and sensitivity analysis. The results of our sensitivity
analysis indicate that the energy portfolio should continue
to perform well, despite the recent decline in energy
prices. BOK Financial has never maintained a subprime
mortgage portfolio.
02
Wealth Management and Commercial Banking. We
appointed several professionals with more than 20 years of
experience in the industry to management. Norm Bagwell,
well known in Texas banking, joined BOK Financial to lead
Bank of Texas as Chairman and CEO. In December, we
named mortgage industry veteran Ben Cowen as President
of the mortgage company and Dan Easley as manager of
the Commercial Real Estate Group. More recently, we
hired a team of municipal finance professionals in Texas to
expand our public finance division of BOSC, Inc, our broker-
dealer subsidiary.
In this difficult environment, it is easy to shift focus inward,
but we continue to work toward our goal of long term
growth. For this reason, we have continued investing in
projects to improve internal processes and client products
and services. During 2008, we opened six new branches
and began construction on five others. In October, we
celebrated the opening of our 72,000 square foot operations
center in Oklahoma City. This newly remodeled facility was
created to meet the needs of our growing business units.
Planned projects for 2009 will benefit both employees and
clients throughout the organization, including International,
Oil and Gas, Consumer and Treasury Services. When the
economy improves, we anticipate being well positioned to
take advantage of opportunities to grow our franchise.
We remain confident in our balanced strategies as we face
the coming year and its opportunities and challenges. We
look forward to recruiting talent and evaluating acquisition
prospects afforded by the stressed environment. As we
move through the first quarter of 2009, we continue to
see migration back to more traditional pricing and lending
standards. We continue to actively manage credit risk in our
loan portfolio. At the same time, we remain focused on our
customers’ needs, providing the personalized responsive
service that has become our hallmark.
We would like to express our appreciation to our board
members, employees, customers and the communities
we serve.
While our balanced strategies helped to insulate us, we have
felt the effects of the recession as it has begun spreading
to additional regions and business sectors. Non-performing
assets totaled $343 million or 2.65% of outstanding loans
and repossessed assets at year end, $25 million of which
was subject to guarantees either by a government agency
or a purchase agreement. Our nonperforming assets may
remain elevated as we choose to hold these assets rather
than selling them at distressed prices. Ultimately this
approach produces a higher total return. Our net charge-
offs for 2008 were 81 basis points of average loans. Though
credit losses may continue to increase, we are prepared
with a combined reserve for credit losses of 1.93% of
period end loans.
We continue to use our securities portfolio to generate
earnings and manage interest rate risk. Our portfolio
consists primarily of mortgage backed securities (MBS)
issued by U.S. government agencies. We have never
invested in securities backed by sub-prime mortgage
loans, collateralized debt obligations or collateralized loan
obligations. At December 31, approximately $252 million
of the privately issued MBS were rated below investment
grade by at least one nationally recognized rating agency.
The aggregate pretax unrealized loss on these securities at
December 31, was $92 million which was fully reflected in
our tangible common equity.
FligHT To QuAliTY
Many clients turned to BOK Financial during the year,
attracted by the stability of the bank as well as our reliable,
responsive and experienced account officers. While many
banks experienced capital and liquidity challenges, it was
“business as usual” for us. Other financial institutions
even sought us out in order to sell their excess funds to us.
Confident in our solid capital and access to funding, BOK
Financial possessed a willingness and ability to lend while
many banks had to curtail loan growth. Loans and deposits
grew 8% and 11%, respectively. Mortgage originations
were up 22%, due in part to recent initiatives to grow
BOK Financial’s mortgage business outside Oklahoma.
Originations outside Oklahoma comprised 44% of total
originations, up 31% from 2005.
PlAnning For Tomorrow
Though it may be some time before the economy and
the credit markets fully recover, we are continuing to
invest in the future. We took advantage of the turbulent
times in 2008 by attracting experienced talent to bolster
several lines of business including Mortgage, International,
George B. Kaiser
Chairman
Stanley A. Lybarger
President & CEO
03
2008 overview
CorPorATe ProFile
BOK Financial Corporation (BOKF) is a financial holding company operating seven bank subsidiaries with full service locations
in eight states throughout the Midwest, Southwest and Rocky Mountain regions. BOKF, headquartered in Tulsa, Oklahoma,
has $22.7 billion in assets. After becoming the recognized market leader in Oklahoma for consumer and commercial banking,
management initiated a regional expansion into growing metropolitan markets. Loans in regional markets now comprise 54%
of the portfolio.
Demographic Profile
Primary Markets
Tulsa, OK
Oklahoma City, OK
Albuquerque, NM
Dallas-Fort Worth-Arlington, TX
Denver-Aurora-Broomfield, CO
Houston-Sugar Land-Baytown, TX
Fayetteville-Springdale-Rogers, AR-MO
Phoenix-Mesa-Scottsdale, AZ
Kansas City, MO-KS
Aggregate: National
Source: SNL Financial, data as of June 30, 2008
Number of Branches
Deposit M arket Share
M arket Rank
Total Population
2008
1
2
4
7
9
12
21
31
71
41
31
21
33
15
15
2
4
2
23.92 %
10.64 %
10.39 %
1.84 %
2.35 %
0.96 %
1.19 %
0.23 %
0.17 %
924,259
1,215,023
851,536
6,318,633
2,518,355
5,843,450
452,523
4,365,443
2,031,215
Population Change
2000-2008
Projected Population
Change 2008-2013
Income 2008
M edian HH
Change 2000-2008
HH Income
7.29 %
10.57 %
16.16 %
21.67 %
15.05 %
23.12 %
29.35 %
33.05 %
10.29 %
9.59 %
4.23 %
6.90 %
10.66 %
13.45 %
9.23 %
15.09 %
18.20 %
19.79 %
6.46 %
6.30 %
$ 49,838
$ 48,672
$ 52,515
$ 64,267
$ 69,503
$ 60,131
$ 48,644
$ 61,377
$ 61,214
$ 54,749
31.39 %
31.09 %
33.93 %
33.28 %
33.82 %
33.44 %
33.04 %
35.79 %
32.53 %
28.82 %
Income Change
Projected HH
2008-2013
19.80 %
20.20 %
20.61 %
13.93 %
15.80 %
13.61 %
21.22 %
18.79 %
16.44 %
16.97 %
BOKF operates three primary lines of business. The Commercial Banking Division provides loan and lease financing, as well as
treasury and cash management services to small and middle-market businesses. This Division also includes TransFund, an ATM
and debit card network with more than 1,900 ATMs in 13 states. The Consumer Banking Division provides a full line of deposit,
financing and fee-based services to customers through four main distribution channels: traditional branches, supermarket
branches, the 24-hour ExpressBank and the Internet. BOKF also originates and services conventional and government-sponsored
mortgages. The Wealth Management Division provides trust, private banking and brokerage and trading services. BOSC, Inc.,
a full-service registered broker/dealer, is also a part of this division.
BOKF has a long history of success. Our management team follows a balanced strategy which includes diverse revenue
streams, a diversified loan portfolio and a long term focus on profitable growth. This strategy has performed well throughout
various economic cycles. In 2008, when earnings dwindled for most financial institutions and many sought additional capital,
BOKF generated $153 million in earnings. BOKF’s capital levels remain solid – far above regulatory “well capitalized” levels.
Due to BOKF’s strong capital position, management elected not to participate in the Treasury’s Capital Purchase Program, an
element of the Troubled Asset Relief Program. While BOKF is not immune from the negative effects of the recession, we believe
our balanced strategy will continue to render positive results.
Net Income and EPS
EPS CAGR 11%
250
200
150
100
50
0
3.50
3.00
2.50
2.00
1.50
1.00
.50
.00
s
n
o
i
l
l
i
M
n
I
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: SNL Financial
EPS have been restated for stock dividends and for a 2-for-1 split
Net Income
EPS
04
overview
All information is presented as of December 31, 2008.
•
•
•
•
•
•
•
•
Assets of $22.7 billion
Loans of $12.9 billion
Combined reserves for credit losses of 1.93%
Deposits of $15.0 billion
Stockholders’ equity of $1.8 billion
Tangible common equity ratio of 6.64%
Market cap of $2.6 billion
195 Banking locations
loAnS
Diverse Revenue
Mortgage
Banking 2% Other 6%
Deposit
Service Charges 10%
Trust Fees 7%
Transaction
Card 9%
Brokerage and
Trading* 9%
Net Interest
Revenue 57%
*Brokerage and Trading was normalized to exclude two non-recurring charges
Loan Portfolio
Residential
Mortgage 14%
Energy 17%
While the portfolio’s geographic diversification is
increasing, we purposefully maintain a consistent loan mix
Consumer
8%
•
•
•
Strong middle market focus
The services sector includes a large number of loans to a
variety of businesses including communications, gaming
and transportation services
•
54% of loans are in markets outside Oklahoma
dePoSiTS
•
•
•
•
Deposits have grown at a five year compound annual
rate of 10%
40% of total deposits are in markets outside Oklahoma
Demand deposits represent 21% of total deposits
Consumer and Wealth Management deposits account
for 58% of total deposits
Other CRE 10%
Office CRE 4%
Construction and
Land Dev 7%
Services
16%
Wholesale/
Retail 9%
Healthcare
6%
Other Commercial
9%
Deposit Growth
s
n
o
i
l
l
i
B
n
I
16.00
12.00
8.00
4.00
0.0
2004
2005
2006
2007
2008
Demand
Interest Bearing Transaction
Savings
Time
05
ASSeT QuAliTY
All subsidiary banks operate under the same credit policies.
Credit administration and oversight is centralized.
•
•
•
Due to the weakened economy, net charge-offs increased
in all loan types
Combined reserves for credit losses at 1.93% of
outstanding loans
Non-performing assets totaled $342 million or 2.65%
of outstanding loans and repossessed assets, including
$10 million guaranteed by U.S. government agencies
and $15 million covered by a $5.3 million purchase
escrow agreement
CAPiTAl
Due to BOK Financial’s strong capital position, management
elected not to participate in the Treasury’s Capital Purchase
Program, an element of the Troubled Asset Relief Program.
•
•
Current uses of capital include organic growth, dividends,
acquisitions within our footprint and periodic stock
repurchases
BOK Financial’s capital ratios exceed the federal
banking agencies’ definition of “well capitalized”
CommerCiAl
In addition to meeting small to mid-size companies’ financing
needs, BOK Financial offers a comprehensive set of services
including International, Merchant Banking, Treasury Services,
Financial Risk Management, Investments and Retirement and
Institutional Trust Services.
•
•
•
Commercial loans have grown at a five year compound
annual rate of 11%
Controlled commercial real estate exposure at less than
25% of portfolio
International income and services charges for the
Commercial Division increased 29% and 22%, respectively
06
i
s
t
n
o
P
s
i
s
a
B
n
I
90
80
70
60
50
40
30
20
10
0
14%
12%
10%
8%
6%
4%
Net Charge-Offs
2004
2005
2006
2007
2008
Commercial
Residential RE
CRE
Consumer
Capital Ratios
Tier I
Total Capital
Leverage
TCE/TA
2006 2007 2008
Regulatory definition of “well capitalized”
Commercial Loans
s
n
o
i
l
l
i
B
n
I
12
10
8
6
4
2
0
2004
2005
2006
2007
2008
Commercial Commercial Real Estate
ConSumer
Our focus is on providing our customers with personalized
service resulting in exceptional satisfaction. We reward,
recognize and promote customer service representatives
who exceed our client service standards.
•
•
•
While our mortgage originators funded $1.3 billion in
conventional and government-sponsored mortgages,
our servicing group was inducted into Freddie Mac’s Tier
One Hall of Fame for excellence in investor reporting and
default management
Mature sales and service process that identifies and
satisfies clients’ needs
Fee income and consumer deposits have grown at five
year compound annual rates of 10% and 7%, respectively
Deposits and Fee Income
7
6
5
4
3
2
1
0
2004
2005
2006
2007
2008
Total Deposits Fee Income
90
80
70
60
50
40
30
20
10
0
I
n
M
i
l
l
i
o
n
s
s
n
o
i
l
l
i
B
n
I
Wealth Management Revenue
weAlTH mAnAgemenT
In addition to assisting high net worth individuals with
investing and fiduciary solutions, we serve corporations,
public entities and retirement plans.
•
•
•
BOSC, includes brokerage and trading revenue, which
consists of institutional trading, retail brokerage, financial
risk management and investment banking
Brokerage and trading revenue increased 55%, excluding
two non-recurring derivative counterparty losses
Assets under management total $30 billion including
$11.5 billion in discretionary assets
Retirement & Institutional
Trust Services 8%
Corporate Trust 5%
Personal Trust
16%
Private Banking
15%
BOSC
56%
CrediT rATingS
BOK Financial Corp.
Fitch
Moody’s
Standard & Poor’s
DBRS
Long-Term Rating
Outlook
A-
Stable
A2
Stable
BBB+
Stable
A (low)
Stable
Bank of Oklahoma, N.A.
Long-Term Rating
Short-Term Rating
A-
F1
A1
P-1
A-
A-2
A
R-1 (low)
07
2008 BoArd memBerS
BoK FinAnCiAl CorPorATion BoArd oF direCTorS
Gregory S. Allen 1
President & CEO
Advance Food Co., Inc.
C. Fred Ball, Jr. 2
Senior Chairman
Bank of Texas, N.A.
Sharon J. Bell 1
Managing Partner
Rogers & Bell
Peter C. Boylan, III 1
CEO
Boylan Partners, LLC
Chester Cadieux, III 1
Chairman & CEO
QuikTrip Corporation
Joseph W. Craft, III 1
President & CEO
Alliance Resource Partners
William E. Durrett
Senior Chairman
American Fidelity Corp.
John Gibson 1
CEO
ONEOK, Inc.
David F. Griffin 1
President & General Manager
Griffin Communications, L.L.C.
V. Burns Hargis 1
President
Oklahoma State University
E. Carey Joullian, IV 1
Chairman, President & CEO
Mustang Fuel Corporation
George B. Kaiser 1
Chairman
BOK Financial Corporation and
Bank of Oklahoma, N.A.
Robert J. LaFortune
Personal Investments
Stanley A. Lybarger 1,2
President & CEO
BOK Financial Corporation and
Bank of Oklahoma, N.A.
Steven J. Malcolm 1
Chairman, President & CEO
The Williams Companies, Inc.
Paula Marshall 1
CEO
Bama Companies
EC Richards 1
Manager
Core Investment Capital, LLC
08
1 Director of BOK Financial Corporation and Bank of Oklahoma, N.A.
2 Director of BOK Financial Corporation and Bank of Texas, N.A.
Rudy A. Davalos
Chairman of the Executive Board
New Mexico Bowl
Ryan J. Suchala
President
Bank of Arizona, N.A.
BoArd oF direCTorS
Bank of Albuquerque
Adelmo Archuleta
Owner, Professional Engineer
Molzen-Corbin & Associates
Suzanne Barker-Kalangis, Esq.
Executive Director
Thornburg Charitable Foundation
Steven G. Bradshaw
Senior Executive Vice President
BOK Financial Corporation
William E. Garcia
Retired Senior Manager, Public
Affairs
Intel Corporation
Robert M. Goodman
Retired, Vice Chairman
Bank of Albuquerque, N.A.
Thomas D. Growney
President
Tom Growney Equipment, Inc.
Edward Larrañage
Senior Vice President
Bank of Albuquerque, N.A.
Larry F. Levy
Senior Vice President
Bank of Albuquerque, N.A.
Douglas L. Ruhl
Chairman & CEO
Bank of Albuquerque, N.A.
Mark E. Sauters
Senior Vice President
Bank of Albuquerque, N.A.
Michael D. Sivage
Chief Executive Officer
STH Investments, Inc.
Jennifer S. Thomas
President
Bank of Albuquerque, N.A.
James F. Ulrich
Vice Chairman
Bank of Albuquerque, N.A.
Dale W. Updegrove
Senior Vice President
BOK Financial Corporation
Bank of Arizona
Shelley M. Cohn
Dennis J. Cornelius
Cornelius Korte Shum, LLC
Charles E. Cotter
Executive Vice President
BOK Financial Corporation
Susan M. Haugland
President
Bestbill®
Scott P. LeMarr
President
Palo Cristi Investments
Don T. Parker
Executive Vice President
BOK Financial Corporation
Marc C. Maun
Chairman & CEO
Bank of Kansas City, N.A.
Mark B. Wade
President & COO
Bank of Texas, N.A. - Dallas
David A. Ralston
Chairman & CEO
Bank of Arizona, N.A.
Andrew Spillum, CPA
Partner
Eide Bailly CPA’s &
Business Advisors
Bank of Arkansas
John W. Anderson
Senior Vice President
Bank of Oklahoma, N.A.
Mark Bethell
COO
Northwest Medical
Center of Benton County
Jett C. Cato
Executive Vice President & COO
Bank of Arkansas, N.A.
Lawrence L. Daniel
Executive Vice President
Bank of Arkansas, N.A.
Jeffrey R. Dunn
Chairman, President & CEO
Bank of Arkansas, N.A.
Daniel H. Ellinor
Senior Executive Vice President
BOK Financial Corporation
George C. Faucette, Jr.
Owner
Coldwell Banker Faucette
Real Estate Company
Jeannie Fleeman
Owner
Dynamic Enterprises and
Dynamic Development
Mark W. Funke
President
Bank of Oklahoma, N.A.
Oklahoma City
Dr. Stephen Lee Goss
Physician Executive
Mercy Health Systems of
Northwest Arkansas
Bank of Kansas City
Donald O. Borgman
Retired
Steven E. Nell
Executive Vice President & CFO
BOK Financial Corporation
Randall L. Walker
Chairman
Bank of Texas, N.A. - Houston
Colorado State Bank
and Trust
Aaron K. Azari
Vice Chairman
CSBT
George P. Caulkins, III
Principal
Greendeck Capital
Ralph W. Christie, Jr.
Chairman, President & CEO
Merrick & Company
Thomas M. Foncannon
Senior Vice President
Bank of Oklahoma, N.A.
Polly B. Lestikow
President
Closet Factory
Richard H. Lewis
Personal Investments
Kirk MacDonald
COO
Creative Loafing Media
Publisher, Chicago Reader
James M. Mulligan
Of Counsel
Snell & Wilmer
Jeff S. Potter
CEO
Exclusive Resorts
William J. Sullivan
President
CSBT
Gregory K. Symons
Chairman & CEO
CSBT
H. Shaw Thomas
Senior Vice President
CSBT
Susan Stanton
President & CEO
Kansas City Public Television
Bank of Texas
C. Thomas Abbott
Vice Chairman
Bank of Texas, N.A. - Dallas
Norman P. Bagwell
Chairman & CEO
Bank of Texas, N.A. - Dallas
C. Fred Ball, Jr.
Senior Chairman
Bank of Texas, N.A. - Dallas
Steven G. Bradshaw
Senior Executive Vice President
BOK Financial Corporation
Charles E. Cotter
Executive Vice President
BOK Financial Corporation
H. Lynn Craft
President & CEO
Baptist Foundation of Texas
Charles W. Eisemann
Personal Investments
Douglas D. Hawthorne
President & CEO
Texas Health Resources
Bill D. Henry
Chairman & CEO
McQuery Henry Bowles Troy, LLP
James M. Johnston
Vice Chairman
Bank of Texas, N.A. - Dallas
Stanley A. Lybarger
President & CEO
BOK Financial Corporation
Steven E. Nell
Executive Vice President & CFO
BOK Financial Corporation
Albert W. Niemi, Jr.
Dean, Cox School of Business
Southern Methodist University
Robert W. Semple
Chairman & CEO
Bank of Texas, N.A. - Ft. Worth
Steven G. Bradshaw
Senior Executive Vice President
BOK Financial Corporation
Robert B. Trainer
Chief Financial Officer
Gyrodata, Inc.
Lorelei M. Dean
President
Dean Machinery
Tom E. Turner
Retired Chairman
Bank of Texas, N.A. - Dallas
Daniel H. Ellinor
Senior Executive Vice President
BOK Financial Corporation
Lissa Walls Vahldiek
Executive
Southern Newspapers, Inc.
Steven E. Nell
Executive Vice President & CFO
BOK Financial Corporation
Timothy A. Johnson
Director of Finance
Garmin International
John C. Vogt
Personal Investments
09
SHAreHolder inFormATion
Corporate Headquarters:
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma 74192
(918) 588-6000
Independent Auditors:
Ernst & Young LLP
1700 One Williams Center
Tulsa, Oklahoma 74172
(918) 560-3600
Legal Counsel:
Frederic Dorwart Lawyers
Old City Hall
124 E. Fourth St.
Tulsa, Oklahoma 74103
(918) 583-9922
Common Shares:
Traded NASDAQ National Market
NASDAQ Symbol: BOKF
Number of common shareholders of record at
December 31, 2008: 977
Market Makers:
Alternate Display Facility
Archipelago Stock Exchange
Automated Trading Desk
Barclays Capital Inc./Le
Bats Trading, Inc.
BMO Capital Markets U.S.
Cantor, Fitzgerald & Co.
Chicago Board Options Exchang
Citadel Derivatives Group LLC
Citigroup Global Markets Inc.
Credit Suisse
Domestic Securities, Inc.
E*Trade Capital Markets Llc
Fox-Pitt, Kelton
Friedman, Billings, Ramsey & Co., Inc.
Goldman Sachs Research
Howe Barnes Investments
Hudson Securities, Inc.
Int’l Securities Exchange
Jefferies & Company, Inc.
Keefe, Bruyette & Woods, Inc.
Knight Equity Markets, L.P.
Merrill Lynch
Morgan Stanley
Nasdaq Execution Services LLC
National Stock Exchange
OTA Limited Partnership
Pershing LLC
Piper Jaffray
RBC Dain Rauscher
Sandler O’Neill & Partners
Stephens Inc.
Stifel Nicolaus and Company, Incorporated
SunTrust Capital Markets Inc
Susquehanna Financial Group LLLP
Susquehanna Financial Group,
Thomas Weisel Partners LLC
Timber Hill Inc.
UBS Securities LLC
Wachovia Securities
Transfer Agent, Registrar and Dividend
Disbursing Agent
Computershare Investor Services, LLC
P.O. Box 43078
Providence, RI 02940
(800) 568-3476
www.computershare.com
Copies of BOK Financial Corporation’s Annual Report to
Shareholders, Quarterly Reports and Form 10-K to the Securities
and Exchange Commission are available without charge upon
written request. Analysts, shareholders and other investors
seeking financial information about BOK Financial Corporation
are invited to contact Stacy C. Kymes, Senior Vice President,
(918) 588-6752.
Information about BOK Financial Corporation is also readily
available at: www.bokf.com
Registered shareholders of BOK Financial Corporation stock
may reinvest dividends and purchase additional shares through
the Computershare Investment Plan. Certain restrictions
apply. Shareholders may obtain a plan brochure by writing to
Computershare, c/o CIP for BOK Financial, P.O. Box 43078,
Providence, RI 02940, by calling 1-800-568-3476 or visiting
www.computershare.com.
10
As filed with the Securities and Exchange Commission on February 27, 2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
(cid:133)
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
(State or other jurisdiction of incorporation or organization)
73-1373454
(IRS Employer Identification No.)
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma
(Address of principal executive offices)
74192
(Zip code)
(918) 588-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, $0.00006 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ⌧ No (cid:133)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.
Yes (cid:133) No ⌧
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 ⌧ No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ⌧ Accelerated filer (cid:133) Non-accelerated filer (cid:133) Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:133) No ⌧
The aggregate market value of the registrant’s common stock (“Common Stock”) held by non-affiliates is
approximately $1,196,113,935 (based on the June 30, 2008 closing price of Common Stock of $53.45 per share). As of
January 31, 2009, there were 67,482,730 shares of Common Stock outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2009 Annual
Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
ITEM
BOK FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
PAGE
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Signatures
Chief Executive Officer Section 302 Certification, Exhibit 31.1
Chief Financial Officer Section 302 Certification, Exhibit 31.2
Section 906 Certifications, Exhibit 32
1
6
9
9
9
9
9
11
12
55
58
110
110
110
111
111
111
111
111
111
118
120
121
122
ITEM 1. BUSINESS
PART I
General
Developments relating to individual aspects of the business of BOK Financial Corporation (“BOK Financial” or “the Company”)
are described below. Additional discussion of the Company’s activities during the current year appears within Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Information regarding BOK
Financial’s acquisitions is set forth in Note 2 of the Company’s Notes to Consolidated Financial Statements, which appear
elsewhere herein.
Description of Business
BOK Financial is a financial holding company whose activities are limited by the Bank Holding Company Act of 1956
(“BHCA”), as amended by the Financial Services Modernization Act or Gramm-Leach-Bliley Act. BOK Financial offers full
service banking in Oklahoma, Dallas, Fort Worth and Houston, Texas, Albuquerque, New Mexico, Northwest Arkansas, Denver,
Colorado, Phoenix, Arizona, and Kansas City, Missouri / Kansas. Principal subsidiaries are Bank of Oklahoma, N.A. ("BOk"),
Bank of Texas, N.A., Bank of Albuquerque, N.A., Bank of Arkansas, N.A., Colorado State Bank and Trust, N.A., Bank of
Arizona, N.A., and Bank of Kansas City, N.A. (collectively, the “Banks”). Other subsidiaries include BOSC, Inc., a
broker/dealer that engages in retail and institutional securities sales and municipal bond underwriting. Other non-bank subsidiary
operations do not have a significant effect on BOKF financial statements.
Our overall strategic objective is to emphasize growth in long-term value by building on our leadership position in Oklahoma and
expanding into high-growth markets. We have a solid position in Oklahoma and are the state’s largest financial institution as
measured by deposit market share. Since 1997, we have expanded into Dallas, Fort Worth and Houston, Texas, Albuquerque,
New Mexico, Denver, Colorado, Phoenix, Arizona, and Kansas City, Missouri / Kansas. We are currently exploring
opportunities for further growth in our regional markets.
Our primary focus is to provide a broad range of financial products and services, including loans and deposits, cash management
services, fiduciary services, mortgage banking and brokerage and trading services to middle-market businesses, financial
institutions and consumers. Our revenue sources are diversified. Approximately 39% of our 2008 revenue came from
commissions and fees.
Commercial banking is a significant part of our business. Our credit culture emphasizes building relationships by making high
quality loans and providing a full range of financial products and services to our customers. Our energy financing expertise
enables us to offer commodity derivatives for customers to use in their risk management and positioning activities.
Our acquisition strategy targets quality organizations that have demonstrated solid growth in their business lines. We provide
additional growth opportunities by hiring talent to enhance competitiveness, adding locations, and broadening product offerings.
Our operating philosophy embraces local decision-making for each of our bank subsidiaries. We also consider acquisitions of
distressed financial institutions in selected markets when opportunities become available.
BOK Financial’s corporate headquarters is located at Bank of Oklahoma Tower, P.O. Box 2300, Tulsa, Oklahoma 74192.
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments
to those reports are available on the Company’s website at www.bokf.com as soon as reasonably practicable after the Company
electronically files such material with or furnishes it to the Securities and Exchange Commission.
Operating Segments
BOK Financial operates three principal lines of business: commercial banking, consumer banking and wealth management. Our
principal lines of business have been re-defined from the previous year to better present the Company’s organization as it has
grown in markets outside of Oklahoma. Commercial banking includes lending, treasury and cash management services and
customer risk management products to small businesses, middle market and larger commercial customers. Commercial banking
also includes the TransFund electronic funds network. Consumer banking includes retail lending and deposit services, all
mortgage banking activities and our indirect automobile lending products. Wealth management provides fiduciary services,
brokerage and trading, private bank services and investment advisory services in all markets. Discussion of these principal lines
of business appears within the Lines of Business section of “Management's Discussion and Analysis of Financial Condition and
Results of Operations” and within Note 18 of the Company’s Notes to Consolidated Financial Statements, both of which appear
elsewhere herein.
Competition
BOK Financial and its operating segments face competition from other banks, thrifts, credit unions and other non-bank financial
institutions, such as investment banking firms, investment advisory firms, brokerage firms, investment companies, government
agencies, mortgage brokers and insurance companies. The Company competes largely on the basis of customer services, interest
rates on loans and deposits, lending limits and customer convenience. Some operating segments face competition from
1
institutions that are not as closely regulated as banks, and therefore are not limited by the same capital requirements and other
restrictions. All market share information presented below is based upon share of deposits in specified areas according to SNL
DataSource as of December 31, 2008.
BOk is the largest banking subsidiary of BOK Financial and has the largest market share in Oklahoma with 12% of the state’s
total deposits. In the Tulsa and Oklahoma City areas, BOk has 24% and 11% of the market share, respectively. BOk competes
with two banks that have operations nationwide and have greater access to funds at lower costs, higher lending limits, and greater
access to technology resources. BOk also competes with regional and locally owned banks in both the Tulsa and Oklahoma City
areas, as well as in every other community in which we do business throughout the state.
Through other subsidiary banks, BOK Financial competes in Dallas, Fort Worth and Houston, Texas, Albuquerque, New Mexico,
Denver, Colorado, Phoenix, Arizona, Northwest Arkansas, and Kansas City, Missouri / Kansas. Bank of Texas competes against
numerous financial institutions, including some of the largest in the United States, and has a market share of approximately 2% in
the Dallas, Fort Worth area and 1% in the Houston area. Bank of Albuquerque has a number 4 market share position with 10% of
deposits in the Albuquerque area and competes with two large national banks, some regional banks and several locally-owned
smaller community banks. Colorado State Bank and Trust has a market share of approximately 2% in the Denver area. Bank of
Arizona operates as a community bank with locations in Phoenix, Scottsdale and Tucson. Bank of Arkansas serves Benton and
Washington counties in Arkansas, and Bank of Kansas City serves the Kansas City market. The Company’s ability to expand
into additional states remains subject to various federal and state laws.
Employees
As of December 31, 2008, BOK Financial and its subsidiaries employed 4,300 full-time equivalent employees. None of the
Company’s employees are represented by collective bargaining agreements. Management considers its employee relations to be
good.
Supervision and Regulation
BOK Financial and its subsidiaries are subject to extensive regulations under federal and state laws. These regulations are
designed to protect depositors, the Bank Insurance Fund and the banking system as a whole and not necessarily to protect
shareholders and creditors. As detailed below, these regulations may restrict the Company’s ability to diversify, to acquire other
institutions and to pay dividends on its capital stock. They also may require the Company to provide financial support to its
subsidiaries, maintain certain capital balances and pay higher deposit insurance premiums.
Proposals to change laws and regulations governing the banking industry are frequently introduced in Congress, in the state
legislatures and before bank regulatory agencies. It is generally probable that laws and regulations affecting banks will increase
and become more restrictive in the current economic environment. The likelihood and timing of any specific new proposals or
legislation and the impact they might have on the Company and its subsidiaries cannot be predicted at this time.
The following information summarizes certain laws and regulations that affect the Company’s operations. It does not discuss all
provisions of these laws and regulations and it does not summarize all laws and regulations that affect the Company.
General
As a financial holding company, BOK Financial is regulated under the BHCA and is subject to regular inspection, examination
and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). Under the BHCA,
BOK Financial files quarterly reports and other information with the Federal Reserve Board.
The Banks are organized as national banking associations under the National Banking Act, and are subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency (the “OCC”), the Federal Deposit Insurance
Corporation (the “FDIC”), the Federal Reserve Board and other federal and state regulatory agencies. The OCC has primary
supervisory responsibility for national banks and must approve certain corporate or structural changes, including changes in
capitalization, payment of dividends, change of place of business, and establishment of a branch or operating subsidiary. The
OCC performs its functions through national bank examiners who provide the OCC with information concerning the soundness
of a national bank, the quality of management and directors, and compliance with applicable regulations. The National Banking
Act authorizes the OCC to examine every national bank as often as necessary.
A financial holding company, and the companies under its control, are permitted to engage in activities considered “financial in
nature” as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations, and therefore may engage in a
broader range of activities than permitted for bank holding companies and their subsidiaries. Activities that are “financial in
nature” include securities underwriting and dealing, insurance underwriting, operating a mortgage company, credit card company
or factoring company, performing certain data processing operations, servicing loans and other extensions of credit, providing
investment and financial advice, owning and operating savings and loan associations, and leasing personal property on a full pay-
out, non-operating basis. In order for a financial holding company to commence any new activity permitted by the BHCA, each
insured depository institution subsidiary of the financial holding company must have received a rating of at least satisfactory in
its most recent examination under the Community Reinvestment Act. A financial holding company is required to notify the
2
Federal Reserve Board within thirty days of engaging in new activities determined to be “financial in nature.” BOK Financial is
engaged in some of these activities and has notified the Federal Reserve Board.
The BHCA requires the Federal Reserve Board’s prior approval for the direct or indirect acquisition of more than five percent of
any class of voting stock of any non-affiliated bank. Under the Federal Bank Merger Act, the prior approval of the OCC is
required for a national bank to merge with another bank or purchase the assets or assume the deposits of another bank. In
reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities consider, among
other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the
applicant’s performance record under the Community Reinvestment Act and fair housing laws and the effectiveness of the subject
organizations in combating money laundering activities.
A financial holding company and its subsidiaries are prohibited under the BHCA from engaging in certain tie-in arrangements in
connection with the provision of any credit, property or services. Thus, a subsidiary of a financial holding company may not
extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition that
(1) the customer obtain or provide additional credit, property or services from or to the financial holding company or any
subsidiary thereof, or (2) the customer may not obtain some other credit, property or services from a competitor, except to the
extent reasonable conditions are imposed to insure the soundness of credit extended.
The Banks and other non-bank subsidiaries are also subject to other federal and state laws and regulations. For example, BOSC,
Inc., the Company’s broker/dealer subsidiary that engages in retail and institutional securities sales and municipal bond
underwriting, is regulated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA),
the Federal Reserve Board, and state securities regulators. As another example, Bank of Arkansas is subject to certain consumer-
protection laws incorporated in the Arkansas Constitution, which, among other restrictions, limit the maximum interest rate on
general loans to five percent above the Federal Reserve Discount Rate and limit the rate on consumer loans to the lower of five
percent above the discount rate or seventeen percent.
Capital Adequacy and Prompt Corrective Action
The Federal Reserve Board, the OCC and the FDIC have issued substantially similar risk-based and leverage capital guidelines
applicable to United States banking organizations to ensure capital adequacy based upon the risk levels of assets and off-balance
sheet financial instruments. In addition, these regulatory agencies may from time to time require that a banking organization
maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. Capital
adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-
balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators regarding components, risk weighting and other factors.
The Federal Reserve Board risk-based guidelines define a three-tier capital framework. Core capital (Tier 1) includes common
shareholders’ equity and qualifying preferred stock, less goodwill, most intangible assets and other adjustments. Supplementary
capital (Tier 2) consists of preferred stock not qualifying as Tier 1 capital, qualifying mandatory convertible debt securities,
limited amounts of subordinated debt, other qualifying term debt and allowances for credit losses, subject to limitations. Market
risk capital (Tier 3) includes qualifying unsecured subordinated debt. Assets and off-balance sheet exposures are assigned to one
of four categories of risk-weights, based primarily upon relative credit risk. Risk-based capital ratios are calculated by dividing
Tier 1 and total capital by risk-weighted assets. For a depository institution to be considered well capitalized under the regulatory
framework for prompt corrective action, the institution’s Tier 1 and total capital ratios must be at least 6% and 10% on a risk-
adjusted basis, respectively. As of December 31, 2008, BOK Financial’s Tier 1 and total capital ratios under these guidelines
were 9.40% and 12.81%, respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets. Banking organizations are required to
maintain a ratio of at least 5% to be classified as well capitalized. BOK Financial’s leverage ratio at December 31, 2008 was
7.89%.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), among other things, identifies five capital
categories for insured depository institutions from well capitalized to critically undercapitalized and requires the respective
federal regulatory agencies to implement systems for prompt corrective action for institutions failing to meet minimum capital
requirements within such categories. FDICIA imposes progressively more restrictive covenants on operations, management and
capital distributions, depending upon the category in which an institution is classified.
The various regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by
FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures.
Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized.
Under these guidelines, each of the Banks was considered well capitalized as of December 31, 2008.
The federal regulatory authorities’ risk-based capital guidelines are based upon the 1988 capital accord of the Basel Committee
on Banking Supervision (the “BIS”). The BIS is a committee of central banks and bank supervisors/regulators from the major
industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the
supervisory policies they apply. In 2004, the BIS published a new capital accord to replace its 1988 capital accord, with an update
3
in November 2005 (“Basel II”). Basel II provides two approaches for setting capital standards for credit risk — an internal
ratings-based approach tailored to individual institutions’ circumstances (which for many asset classes is itself broken into a
“foundation” approach and an “advanced or A-IRB” approach, the availability of which is subject to additional restrictions) and a
standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in
existing risk-based capital guidelines. Basel II also would set capital requirements for operational risk and refine the existing
capital requirements for market risk exposures.
The U.S. banking and thrift agencies are developing proposed revisions to their existing capital adequacy regulations and
standards based on Basel II. In September 2006, the agencies issued a notice of proposed rulemaking setting forth a definitive
proposal for implementing Basel II in the United States that would apply only to internationally active banking organizations —
defined as those with consolidated total assets of $250 billion or more or consolidated on-balance sheet foreign exposures of
$10 billion or more — but that other U.S. banking organizations could elect but would not be required to apply. Furthermore, the
U.S. agencies are proposing only to implement the most advanced version of Basel II, the A-IRB option. In December 2006, the
agencies issued a notice of proposed rulemaking describing proposed amendments to their existing risk-based capital guidelines
to make them more risk-sensitive, generally following aspects of the standardized approach of Basel II. These latter proposed
amendments, often referred to as “Basel I-A”, would apply to banking organizations that are not internationally active banking
organizations subject to the A-IRB approach for internationally active banking organizations and do not “opt in” to that approach.
The agencies previously had issued advance notices of proposed rulemaking on both proposals (in August 2003 regarding the A-
IRB approach of Basel II for internationally active banking organizations and in October 2005 regarding Basel I-A).
BOK Financial is not an internationally active banking organization and has not made a determination as to whether or when it
would opt to apply the A-IRB provisions applicable to internationally active U.S. banking organizations once they become
effective. Recent U.S. bank regulatory proposals indicate that the U.S. banking system will permit adoption of a “standardized”
approach for Basel II in lieu of the 1-A proposal for non-core Basel II institutions. BOK Financial does not anticipate any 2009
developments on the regulatory front regarding regulatory capital models for non-opt in banks. We do believe that previously
authorized approaches toward regulatory capital that permitted reduced regulatory capital in mandatory and opt-in banks will be
modified.
Further discussion of regulatory capital, including regulatory capital amounts and ratios, is set forth under the heading “Liquidity
and Capital” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 16
of the Company’s Notes to Consolidated Financial Statements, both of which appear elsewhere herein.
Deposit Insurance
Substantially all of the deposits held by the Banks are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of
the FDIC and are subject to deposit insurance assessments to maintain the DIF. The FDIC utilizes a risk-based assessment
system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory
rating (“CAMELS rating”). As of January 1, 2007, the previous nine risk categories utilized in the risk matrix were condensed
into four risk categories, which continue to be distinguished by capital levels and supervisory ratings. For large Risk Category 1
institutions (generally those with assets in excess of $10 billion) that have long-term debt issuer ratings, including Bank of
Oklahoma, assessment rates are determined from weighted-average CAMELS component ratings and long-term debt issuer
ratings. The minimum annualized assessment rate for large institutions is 12 basis points per $100 of deposits and the maximum
annualized assessment rate for large institutions is 50 basis points per $100 of deposits. Quarterly assessment rates for large
institutions in Risk Category 1 may vary within this range depending upon changes in CAMELS component ratings and long-
term debt issuer ratings. Deposit insurance rates are expected to increase in 2009.
In 2008, the FDIC extended deposit insurance coverage through its Temporary Liquidity Guaranty Program (“TGLP”). TGLP
consists of two basic components, a guarantee of certain newly issued unsecured debt of eligible financial institutions and full
guarantee of certain deposit accounts as defined by the program. Eligible debt issued before June 30, 2009 will be fully protected
through the earlier of the maturity of the debt or June 30, 2012. Eligible deposits will be fully protected until December 31,
2009. The Company’s subsidiary banks have elected to participate in both components of the TGLP. The Company has not
issued any debt under this guaranty program.
In addition, the Banks are assessed a charge based on deposit balances by the Financing Corporation (“FICO”). The FICO is a
mixed-ownership government corporation established by the Competitive Equality Banking Act of 1987 whose sole purpose was
to function as a financing vehicle for the now defunct Federal Savings & Loan Insurance Corporation.
Dividends
The primary source of liquidity for BOK Financial is dividends from the Banks, which are limited by various banking regulations
to net profits, as defined, for the year plus retained profits for the preceding two years and further restricted by minimum capital
requirements. Based on the most restrictive limitations, the Banks had excess regulatory capital and could declare up to $171
million of dividends without regulatory approval as of December 31, 2008. BOK Financial management has developed and the
Board of Directors has approved an internal capital policy that is more restrictive than the regulatory standards. Under this
policy, the Banks could declare dividends of up to $119 million as of December 31, 2008. These amounts are not necessarily
indicative of amounts that may be available to be paid in future periods.
4
Source of Strength Doctrine
According to Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank
holding company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal
Deposit Insurance Act, in the event of a loss suffered by the FDIC as a result of default of a banking subsidiary or related to FDIC
assistance provided to a subsidiary in danger of default, the other Banks may be assessed for the FDIC’s loss, subject to certain
exceptions.
Governmental Policies and Economic Factors
The operations of BOK Financial and its subsidiaries are affected by legislative changes and by the policies of various regulatory
authorities and, in particular, the credit policies of the Federal Reserve Board. An important function of the Federal Reserve
Board is to regulate the national supply of bank credit to moderate recessions and curb inflation. Among the instruments of
monetary policy used by the Federal Reserve Board to implement its objectives are: open-market operations in U.S. Government
securities, changes in the discount rate and federal funds rate on bank borrowings, and changes in reserve requirements on bank
deposits. The effect of future changes in such policies on the business and earnings of BOK Financial and its subsidiaries is
uncertain.
In response to a significant ongoing recession in business activity which began in 2007, the U.S. government enacted various
programs and continues to enact programs to stimulate the economy. These programs include the Trouble Assets Relief Program
(“TARP”), which provided capital to eligible financial institutions and other sectors of the domestic economy, and the TLGP,
which expanded insurance coverage to a larger amount of deposit account balances and other qualifying debt issued by eligible
financial institutions. In addition, the government recently enacted economic stimulus legislation, which increases government
spending and reduces certain taxes. The immediate and long-term effects of these programs on the economy in general and on
BOK Financial Corporation in particular are uncertain.
The Company elected not to participate in the TARP Capital Purchase Program. We believe that current capital sources are
sufficient to support organic growth, acquisitions within our current market areas, cash dividends on our common stock and
periodic stock repurchases.
The Sarbanes-Oxley Act (the “Act”) addresses many aspects of financial reporting, corporate governance and public company
disclosure. Among other things, the Act establishes a comprehensive framework for the oversight of public company auditing
and for strengthening the independence of auditors and audit committees. Under the Act, audit committees are responsible for the
appointment, compensation and oversight of the work of the auditors. The non-audit services that can be provided to a company
by its auditor are limited. Audit committee members are subject to specific rules addressing their independence. The Act also
requires enhanced and accelerated financial disclosures, and it establishes various responsibility measures, such as requiring the
chief executive officer and chief financial officer to certify to the quality of the company’s financial reporting. The Act imposes
restrictions on and accelerated reporting requirements for certain insider trading activities. It imposes a variety of penalties for
fraud and other violations and creates a federal felony for securities fraud. Various sections of the Act are applicable to BOK
Financial.
BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments.
Foreign Operations
5
ITEM 1A. RISK FACTORS
Since 2007, the United States economy has been in recession. Business activity across a wide range of industries and geographic
regions has decreased and unemployment has increased significantly. The financial services industry and capital markets have
been adversely affected by significant declines in asset values, rising delinquencies and defaults, and restricted liquidity.
Numerous financial institutions have either failed or required a significant amount of government assistance due to credit losses
and liquidity shortages. There is no assurance that these conditions will improve in the near term. Continued recession in the
economy could adversely affect our credit quality, financial condition and results of operations.
Adverse factors could impact BOK Financial's ability to implement its operating strategy.
Although BOK Financial has developed an operating strategy which it expects to result in continuing improved financial
performance, BOK Financial cannot assure that it will be successful in fulfilling this strategy or that this operating strategy will
be successful. Achieving success is dependent upon a number of factors, many of which are beyond BOK Financial's direct
control. Factors that may adversely affect BOK Financial's ability to implement its operating strategy include:
•
•
•
•
•
•
•
•
deterioration of BOK Financial's asset quality;
inability to control BOK Financial's noninterest expenses;
inability to increase noninterest income;
deterioration in general economic conditions, especially in BOK Financial's core markets;
inability to access capital;
decreases in net interest margins;
increases in competition;
adverse regulatory developments.
Adverse regional economic developments could negatively affect BOK Financial's business.
A substantial majority of BOK Financial loans are generated in Oklahoma and other markets in the southwest region. As a result,
poor economic conditions in Oklahoma or other markets in the southwest region may cause BOK Financial to incur losses
associated with higher default rates and decreased collateral values in BOK Financial's loan portfolio. A regional economic
downturn could also adversely affect revenue from brokerage and trading activities, mortgage loan originations and other sources
of fee-based revenue.
Adverse economic factors affecting particular industries could have a negative effect on BOK Financial
customers and their ability to make payments to BOK Financial.
Certain industry-specific economic factors also affect BOK Financial. For example, a portion of BOK Financial's total loan
portfolio is comprised of loans to borrowers in the energy industry, which is historically a cyclical industry. Low commodity
prices may adversely affect that industry and, consequently, may affect BOK Financial's business negatively. The effect of
volatility in commodity prices on our customer derivatives portfolio could adversely affect our liquidity and regulatory capital.
In addition, BOK Financial's loan portfolio includes commercial real estate loans. A downturn in the real estate industry in
general or in certain segments of the commercial real estate industry in Oklahoma and the southwest region could also have an
adverse effect on BOK Financial's operations.
Fluctuations in interest rates could adversely affect BOK Financial's business.
BOK Financial's business is highly sensitive to:
•
•
•
the monetary policies implemented by the Federal Reserve Board, including the discount rate on bank borrowings and
changes in reserve requirements, which affect BOK Financial's ability to make loans and the interest rates we may
charge;
changes in prevailing interest rates, due to the dependency of BOK Financial's banks on interest income;
open market operations in U.S. Government securities.
Significant increase in market interest rates, or the perception that an increase may occur, could adversely affect both BOK
Financial's ability to originate new loans and BOK Financial's ability to grow. Conversely, a decrease in interest rates could result
6
in acceleration in the payment of loans, including loans underlying BOK Financial's holdings of mortgage-backed securities and
termination of BOK Financial's mortgage servicing rights. In addition, changes in market interest rates, changes in the
relationships between short-term and long-term market interest rates or changes in the relationships between different interest rate
indices, could affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing
liabilities. This difference could result in an increase in interest expense relative to interest income. An increase in market
interest rates also could adversely affect the ability of BOK Financial's floating-rate borrowers to meet their higher payment
obligations. If this occurred, it could cause an increase in nonperforming assets and net charge-offs, which could adversely affect
BOK Financial's business.
BOK Financial's substantial holdings of mortgage-backed securities and mortgage servicing rights could
adversely affect BOK Financial's business.
BOK Financial has invested a substantial amount of its holdings in mortgage-backed securities, which are investment interests in
pools of mortgages. Mortgage-backed securities are highly sensitive to changes in interest rates. BOK Financial mitigates this
risk somewhat by investing principally in shorter duration mortgage products, which are less sensitive to changes in interest rates.
A significant decrease in interest rates could lead mortgage holders to refinance the mortgages constituting the pool backing the
securities, subjecting BOK Financial to a risk of prepayment and decreased return on investment due to subsequent reinvestment
at lower interest rates. Conversely, a significant increase in interest rates could cause mortgage holders to extend the term over
which they repay their loans, which delays the Company’s opportunity to reinvest funds at higher rates.
Mortgage-backed securities are also subject to credit risk from delinquency or default of the underlying loans. BOK Financial
mitigates this risk somewhat by investing in securities issued by U.S. government agencies. Principal and interest payments on
the loans underlying these securities are guaranteed by these agencies. Credit risk on mortgage-backed securities originated by
private issuers is mitigated somewhat by investing in senior tranches with additional collateral support.
Legislation is being considered that would potentially override the credit enhancement of some privately issued mortgage-backed
securities. The considered legislation may allow terms of a mortgage loan to be modified in the case of bankruptcy. In some
cases, the reduction of principal owed on the loan would be applied pro rata to tranches of the mortgage-backed security instead
of following the “water fall” structure of the tranches. The considered legislation, if enacted, could have a material adverse effect
on the fair value of certain of our mortgage-backed securities.
In addition, as part of BOK Financial's mortgage banking business, BOK Financial has substantial holdings of mortgage
servicing rights. The value of these rights is also very sensitive to changes in interest rates. Falling interest rates tend to increase
loan prepayments, which may lead to cancellation of the related servicing rights. BOK Financial's investments and dealings in
mortgage-related products increase the risk that falling interest rates could adversely affect BOK Financial's business. BOK
Financial attempts to manage this risk by maintaining an active hedging program for its mortgage servicing rights. BOK
Financial's hedging program has only been partially successful in recent years. The value of mortgage servicing rights may also
decrease due to rising delinquency or default of the loans serviced. This risk is mitigated somewhat by adherence to underwriting
standards on loans originated for sale.
Market disruptions could impact BOK Financial’s funding sources.
BOK Financial’s subsidiary banks rely on other financial institutions and the Federal Home Loan Banks of Topeka and Dallas as
a significant source of funds. Our ability to fund loans, manage our interest rate risk and meet other obligations depends on funds
borrowed from these sources. The inability to borrow funds at market interest rates could have a material adverse effect on our
operations.
Substantial competition could adversely affect BOK Financial.
Banking is a competitive business. BOK Financial competes actively for loan, deposit and other financial services business in
Oklahoma, as well as in BOK Financial's other markets. BOK Financial's competitors include a large number of small and large
local and national banks, savings and loan associations, credit unions, trust companies, broker-dealers and underwriters, as well
as many financial and nonfinancial firms that offer services similar to BOK Financial's. Large national financial institutions have
entered the Oklahoma market. These institutions have substantial capital, technology and marketing resources. Such large
financial institutions may have greater access to capital at a lower cost than BOK Financial does, which may adversely affect
BOK Financial's ability to compete effectively.
BOK Financial has expanded into markets outside of Oklahoma, where it competes with a large number of financial institutions
that have an established customer base and greater market share than BOK Financial. BOK Financial may not be able to continue
to compete successfully in these markets outside of Oklahoma. With respect to some of its services, BOK Financial competes
with non-bank companies that are not subject to regulation. The absence of regulatory requirements may give non-banks a
competitive advantage.
7
Banking regulations could adversely affect BOK Financial.
BOK Financial and its subsidiaries are extensively regulated under both federal and state law. In particular, BOK Financial is
subject to the Bank Holding Company Act of 1956 and the National Bank Act. These regulations are primarily for the benefit and
protection of BOK Financial's customers and not for the benefit of BOK Financial's investors. In the past, BOK Financial's
business has been materially affected by these regulations. For example, regulations limit BOK Financial's business to banking
and related businesses, and they limit the location of BOK Financial's branches and offices, as well as the amount of deposits that
it can hold in a particular state. These regulations may limit BOK Financial's ability to grow and expand into new markets and
businesses.
Additionally, under the Community Reinvestment Act, BOK Financial is required to provide services in traditionally underserved
areas. BOK Financial's ability to make acquisitions and engage in new business may be limited by these requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991 and the Bank Holding Company Act of 1956, and various
regulations of regulatory authorities, require us to maintain specified capital ratios. Any failure to maintain required capital ratios
would limit the growth potential of BOK Financial's business.
Under a long-standing policy of the Board of Governors of the Federal Reserve System, a bank holding company is expected to
act as a source of financial strength for its subsidiary banks. As a result of that policy, BOK Financial may be required to commit
financial and other resources to its subsidiary banks in circumstances where we might not otherwise do so.
The trend toward extensive regulation is likely to continue in the future. Laws, regulations or policies currently affecting us and
BOK Financial's subsidiaries may change at any time. Regulatory authorities may also change their interpretation of these
statutes and regulations. Therefore, BOK Financial's business may be adversely affected by any future changes in laws,
regulations, policies or interpretations.
Statutory restrictions on subsidiary dividends and other distributions and debts of BOK Financial's subsidiaries
could limit amounts BOK Financial's subsidiaries may pay to BOK Financial.
BOK Financial is a financial holding company, and a substantial portion of BOK Financial's cash flow typically comes from
dividends that BOK Financial's bank and nonbank subsidiaries pay to BOK Financial. Various statutory provisions restrict the
amount of dividends BOK Financial's subsidiaries can pay to BOK Financial without regulatory approval. Management also
developed, and the BOK Financial board of directors approved, an internal capital policy that is more restrictive than the
regulatory capital standards. In addition, if any of BOK Financial's subsidiaries liquidates, that subsidiary's creditors will be
entitled to receive distributions from the assets of that subsidiary to satisfy their claims against it before BOK Financial, as a
holder of an equity interest in the subsidiary, will be entitled to receive any of the assets of the subsidiary. If, however, BOK
Financial is a creditor of the subsidiary with recognized claims against it, BOK Financial will be in the same position as other
creditors.
Although publicly traded, BOK Financial's common stock has substantially less liquidity than the average
trading market for a stock quoted on the Nasdaq National Market System.
A relatively small fraction of BOK Financial's outstanding common stock is actively traded. The risks of low liquidity include
increased volatility of the price of BOK Financial's common stock. Low liquidity may also limit holders of BOK Financial's
common stock in their ability to sell or transfer BOK Financial's shares at the price, time and quantity desired.
BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.
Mr. George B. Kaiser owns a majority of the outstanding shares of BOK Financial's common stock. Mr. Kaiser is able to elect all
of BOK Financial's directors and effectively control the vote on all matters submitted to a vote of BOK Financial's common
shareholders. Mr. Kaiser's ability to prevent an unsolicited bid for BOK Financial or any other change in control could have an
adverse effect on the market price for BOK Financial's common stock. A substantial majority of BOK Financial's directors are
not officers or employees of BOK Financial or any of its affiliates. However, because of Mr. Kaiser's control over the election of
BOK Financial's directors, he could change the composition of BOK Financial's Board of Directors so that it would not have a
majority of outside directors.
Possible future sales of shares by BOK Financial's principal shareholder could adversely affect the market price
of BOK Financial's common stock.
Mr. Kaiser has the right to sell shares of BOK Financial's common stock in compliance with the federal securities laws at any
time, or from time to time. The federal securities laws will be the only restrictions on Mr. Kaiser's ability to sell. Because of his
current control of BOK Financial, Mr. Kaiser could sell large amounts of his shares of BOK Financial's common stock by
causing BOK Financial to file a registration statement that would allow him to sell shares more easily. In addition, Mr. Kaiser
could sell his shares of BOK Financial's common stock without registration under Rule 144 of the Securities Act. Although BOK
Financial can make no predictions as to the effect, if any, that such sales would have on the market price of BOK Financial's
8
common stock, sales of substantial amounts of BOK Financial's common stock, or the perception that such sales could occur,
could adversely affect market prices. If Mr. Kaiser sells or transfers his shares of BOK Financial's common stock as a block,
another person or entity could become BOK Financial's controlling shareholder.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
BOK Financial and its subsidiaries own and lease improved real estate that is carried at $198 million, net of depreciation and
amortization. The Company’s principal offices are located in leased premises in the Bank of Oklahoma Tower, Tulsa, Oklahoma.
Banking offices are primarily located in Tulsa and Oklahoma City, Oklahoma, Dallas, Fort Worth and Houston, Texas,
Albuquerque, New Mexico, Denver, Colorado, Phoenix, Arizona, and Kansas City, Missouri / Kansas. Primary operations
facilities are located in Tulsa and Oklahoma City, Oklahoma, Dallas, Texas, and Albuquerque, New Mexico. The Company’s
facilities are suitable for their respective uses and present needs.
The information set forth in Notes 6 and 15 of the Company’s Notes to Consolidated Financial Statements, which appear
elsewhere herein, provides further discussion related to properties.
ITEM 3. LEGAL PROCEEDINGS
The information set forth in Note 15 of the Company’s Notes to Consolidated Financial Statements, which appear elsewhere
herein, provides discussion related to legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months
ended December 31, 2008.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
BOK Financial’s $0.00006 par value common stock is traded on the Nasdaq Stock Market under the symbol BOKF. As of January 31,
2009, common shareholders of record numbered 982 with 67,482,730 shares outstanding.
The highest and lowest closing bid price for shares and cash dividends per share of BOK Financial common stock follows:
2008:
Low
High
Cash dividends
2007:
Low
High
Cash dividends
First
$46.82
55.23
0.20
$49.37
55.43
0.15
Second
$49.11
60.74
0.225
$48.59
54.96
0.20
Third
$38.61
53.94
0.225
$47.37
54.20
0.20
Fourth
$38.40
54.42
0.225
$51.44
55.43
0.20
9
Set forth below is a line graph comparing the change in cumulative shareholder return of the NASDAQ Index, the NASDAQ
Bank Index, and the KBW 50 Bank Index for the period commencing December 31, 2003 and ending December 31, 2008.*
Shareholder Return Performance Graph
Total Return Performance
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank
KBW 50
200
175
150
125
100
75
50
25
e
u
l
a
V
x
e
d
n
I
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
Period Ending
Index
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank Index
KBW 50
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
100.00
100.00
100.00
100.00
129.71
108.59
110.99
111.54
121.66
110.08
106.18
111.34
148.86
120.56
117.87
132.94
141.99
132.39
91.85
103.95
112.97
78.72
69.88
54.52
* Graph assumes value of an investment in the Company’s Common Stock for each index was $100 on December 31, 2003. The KBW 50 Bank
index is the Keefe, Bruyette & Woods, Inc. index, which is available only for calendar quarter end periods. During the periods shown, no
dividends were paid on BOK Financial Common Stock, except on May 31, 2004, the Company paid a 3% dividend on BOK Financial
Common Stock outstanding as of May 10, 2004. Cash dividends on Common Stock, which were first paid in 2005, are assumed to have been
reinvested in BOK Financial Common Stock.
10
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 December 31, 2008.
Period
Total Number of
Shares Purchased (2)
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs (1)
October 1, 2008 to October 31, 2008
November 1, 2008 to November 30, 2008
December 1, 2008 to December 31, 2008
Total
–
4,979
2,348
7,327
–
$42.27
$41.88
–
–
–
–
Maximum
Number of
Shares that May
Yet Be
Purchased
Under the Plans
1,215,927
1,215,927
1,215,927
(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 December 31, 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. SELECTED FINANCIAL DATA
The selected financial data is set forth within Table 1 of Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
11
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Table 1 Consolidated Selected Financial Data
(Dollars In Thousands Except Per Share Data)
Selected Financial Data
For the year:
Interest revenue
Interest expense
Net interest revenue
Provision for credit losses
Fees and commissions revenue
Net income
Period-end:
Loans
Assets
Deposits
Subordinated debentures
Shareholders’ equity
Nonperforming assets2
December 31,
2008
2007
2006
2005
2004
$ 1,061,645
414,783
646,862
202,593
414,000
153,232
$ 1,160,737
616,252
544,485
34,721
405,622
217,664
$ 986,429
499,741
486,688
18,402
371,696
212,977
$ 769,934
320,593
449,341
12,441
344,864
201,505
$ 614,284
191,041
423,243
20,439
312,227
179,023
12,876,006
22,734,648
14,982,607
398,407
1,846,257
342,291
11,940,570
20,667,701
13,459,291
398,273
1,935,384
104,159
10,651,178
18,059,624
12,386,705
297,800
1,721,022
44,343
9,088,312
16,327,069
11,375,318
295,964
1,539,154
40,017
7,888,705
14,145,660
9,674,398
151,594
1,398,494
61,112
Profitability Statistics
Earnings per share (based on average equivalent shares):
Basic
Diluted
Percentages (based on daily averages):
Return on average assets
Return on average shareholders’ equity
Average shareholders’ equity to average assets
$
2.28
2.27
$
3.24
3.22
$
$
3.19
3.16
$
3.14
3.01
3.00
2.68
0.71%
7.87
9.01
1.14%
12.01
9.53
1.27%
13.23
9.58
1.29%
13.78
9.38
1.28%
13.80
9.25
Common Stock Performance
Per Share:
Book value per common share5
Market price: December 31 close
Market range – High close
– Low close
Cash dividends declared
Selected Balance Sheet Statistics
Period-end:
$
$
$
27.36
40.40
60.84
38.48
0.875
28.75
51.70
55.57
47.47
0.75
$
25.66
54.98
54.98
44.43
0.55
$
23.07
45.43
49.31
39.79
0.30
23.28
48.76
49.18
37.29
–
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Tangible common equity ratio1
Reserve for loan losses to nonperforming loans
Reserve for loan losses to loans
Combined reserves for credit losses to loans 4
9.40%
12.81
7.89
6.64
74.49
1.81
1.93
9.38%
12.54
8.20
7.72
133.79
1.06
1.24
9.78%
9.84%
11.58
8.79
8.22
305.37
1.03
1.22
12.10
8.30
7.94
329.34
1.14
1.37
10.02%
11.67
7.94
8.31
189.40
1.38
1.61
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of banking locations
Number of TransFund locations
Trust assets
Mortgage loan servicing portfolio3
4,300
195
1,933
$30,454,512
5,983,824
4,110
189
1,822
$36,288,592
5,481,736
3,958
163
1,649
$31,704,091
4,988,611
3,825
150
1,421
3,548
149
1,389
$ 28,464,745 $ 24,589,053
4,486,513
4,492,524
1
2
3
4
5
Shareholders’ equity less preferred equity, intangible assets and equity provided by the TARP Capital Program divided by total
assets less intangible assets.
Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more
and still accruing.
Includes outstanding principal for loans serviced for affiliates.
Includes reserve for loan losses and reserve for off-balance sheet credit losses.
Conversion of Series A preferred stock added 6.9 million common shares outstanding in 2005.
12
Management’s Assessment of Operations and Financial Condition
Overview
BOK Financial Corporation (“BOK Financial” or ”the Company”) is a financial holding company that offers full service banking
in Oklahoma, Northwest Arkansas, Dallas, Forth Worth and Houston, Texas, Albuquerque, New Mexico, Denver, Colorado,
Phoenix, Arizona and Kansas City, Missouri / Kansas. The Company was incorporated in 1990 in Oklahoma and is
headquartered in Tulsa, Oklahoma. Activities are governed by the Bank Holding Company Act of 1956, as amended by the
Financial Services Modernization Act or Gramm-Leach-Bliley Act of 1999. Principal banking subsidiaries are Bank of
Oklahoma, N.A., Bank of Albuquerque, N.A., Bank of Arkansas, N.A., Bank of Texas, N.A., Colorado State Bank and Trust,
N.A., Bank of Arizona, N.A. and Bank of Kansas City, N.A. Other subsidiaries include BOSC, Inc. a broker/dealer that engages
in retail and institutional securities sales and municipal bond underwriting.
Our overall strategic objective is to emphasize growth in long-term value by building on our leadership position in Oklahoma and
expanding into high-growth markets in contiguous states. We have a solid position in Oklahoma and are the state’s largest
financial institution as measured by deposit market share. At December 31, 2008, 46% of our outstanding loans and 60% of our
deposits are attributed to the Oklahoma market. Since 1997, we have expanded into Dallas, Fort Worth and Houston, Texas,
Albuquerque, New Mexico, Denver, Colorado, Phoenix, Arizona and Kansas City, Missouri / Kansas. At December 31, 2008,
29% of our outstanding loans and 23% of our deposits are attributed to Texas. None of our other regional markets provide more
than 10% of our outstanding loans or deposits. Our acquisition strategy targets quality organizations that have demonstrated
solid growth in their business lines. We provide additional growth opportunities by hiring talent to enhance competitiveness,
adding locations, and broadening product offerings. Our operating philosophy embraces local decision-making in each of our
geographic markets while adhering to common Company standards. We also consider acquisitions of distressed financial
institutions in selected markets when opportunities become available.
Our primary focus is to provide a comprehensive range of nationally competitive financial products and services in a
personalized and responsive manner. Our products and services include loans and deposits, cash management services, fiduciary
services, mortgage banking, and brokerage and trading services to middle-market businesses, financial institutions, and
consumers. Commercial banking is a significant part of our business. Our credit culture emphasizes building relationships by
making high-quality loans and providing a full range of financial products and services to our customers. Our energy financing
expertise enables us to offer commodity derivatives for customers to use in their risk management and positioning activities.
Our revenue sources are diverse. Historically, fees and commissions revenue provide 40% - 45% of our total revenue.
Approximately 39% of our revenue came from commissions and fees in 2008 due to credit losses incurred on two positions in
our customer hedging program.
BOK Financial operates three principal lines of business: commercial banking, consumer banking and wealth management. Our
principal lines of business have been re-defined from the previous year to better present the Company’s organization as it has
grown in markets outside of Oklahoma. Commercial banking includes lending, treasury and cash management services and
customer risk management products to small businesses, middle market and larger commercial customers. Commercial banking
also includes the TransFund electronic funds network. Consumer banking includes retail lending and deposit services, all
mortgage banking activities and our indirect automobile lending products. Wealth management provides fiduciary services,
brokerage and trading, private bank services and investment advisory services in all markets.
The financial services industry experienced significant disruptions during 2008. Numerous financial institutions either failed or
required a significant amount of government assistance due to credit losses and liquidity shortages. Loan losses, which initially
were limited to residential construction loans in certain markets, spread to other commercial real estate loans and commercial
loans. Credit spreads on certain financial instruments, such as some mortgage-backed securities, widened extremely due to
uncertainty of the underlying cash flows. This uncertainty and lack of trading volumes significantly decreased the fair value of
these instruments. Energy prices were extremely volatile during the year. The price of oil exceeded $140 per barrel in mid-year
then fell to under $40 per barrel by year end. These market events reduced our net income for 2008, but did not significantly
impair our operations.
Performance Summary
BOK Financial’s net income for 2008 totaled $153 million or $2.27 per diluted share compared with $218 million or $3.22 per
diluted share in 2007.
Highlights of 2008 included:
• Net interest revenue increased $102 million or 19% over 2007. Average earning assets were up $2.0 billion or 12%.
Net interest margin was 3.45% for 2008, up 17 basis points over 2007.
13
• Combined reserves for credit losses totaled $248 million or 1.93% of outstanding loans at December 31, 2008, up from
$148 million or 1.24% of outstanding loans at December 31, 2007. Provision for credit losses and net charge-offs were
$203 million and $102 million, respectively for 2008 and $35 million and $21 million, respectively, for 2007.
• Non-performing assets totaled $342 million or 2.65% of outstanding loans and repossessed assets at December 31,
2008, up from $104 million or 0.87% of outstanding loans and repossessed assets at December 31, 2007.
•
•
•
•
Fees and commissions revenue totaled $414 million for 2008 and $406 million for 2007. Net credit losses on
derivative contracts related to two bankrupt counterparties reduced fees and commissions revenue by $54 million in
2008.
The fair value of mortgage servicing rights, net of economic hedging gains or losses decreased $24 million in 2008 and
$3 million in 2007. Anticipated prepayment speeds increased significantly during the fourth quarter in response to
government programs to lower mortgage interest rates.
The Company evaluated and elected not to participate in the U.S. Treasury’s TARP Capital Purchase Program. Tier 1
and tangible common equity ratios were 9.40% and 6.64%, respectively, at December 31, 2008. Tier 1 and tangible
common equity ratios were 9.38% and 7.72%, respectively, at December 31, 2007. The decrease in tangible common
equity ratio was due largely to a $182 million after-tax increase in unrealized losses on available for sale securities.
The Company elected to participate in the FDIC’s Temporary Liquidity Guarantee Program. This Program provides
full deposit insurance coverage of non-interest bearing, transaction deposit accounts and guarantees certain newly
issued senior unsecured debt. The Company has not issued any guaranteed debt under this program.
Net income for the fourth quarter of 2008 totaled $35 million or $0.53 per diluted share compared with $51 million or $0.76 per
diluted share for the fourth quarter of 2007.
Highlights of the fourth quarter of 2008 included:
• Net interest revenue totaled $176 million, up $35 million over the fourth quarter of 2007. Net interest margin was
3.57% for the fourth quarter of 2008 and 3.22% for the fourth quarter of 2007.
• Net loans charged off and provision for credit losses were $34 million and $73 million, respectively for the fourth
quarter of 2008. Net loans charged off and provision for credit losses were $7.3 million and $13 million, respectively,
for the fourth quarter of 2007.
•
The fair value of mortgage servicing rights, net of economic hedging gains or losses decreased $11 million in 2008 and
$2 million in 2007.
Critical Accounting Policies
Application of Critical Accounting Policies
Preparation of our consolidated financial statements is based on the selection of certain accounting policies, which requires
management to make significant assumptions and estimates. The following discussion addresses the most critical areas where
these assumptions and estimates could affect financial condition and results of operations. Actual results could differ
significantly from these estimates. Application of these critical accounting policies and estimates has been discussed with the
appropriate committees of the Board of Directors. Additional accounting policies are described in Note 1 to the Consolidated
Financial Statements.
New accounting standards first adopted in 2008 included Statement of Financial Accounting Standards No. 159, “Fair Value
Option” (“FAS 159”). 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, “Accounting for Derivative
Instruments and Hedging Activities” (“FAS 133”), were designated as being reported at fair value. The initial adoption of FAS
159 did not significantly affect the Company’s financial statements. 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 effect of FAS 159 on our 2008 operations is presented in Note 4 to the Consolidated Financial Statements.
14
Reserves for Loan Losses and Off-Balance Sheet Credit Losses
Reserves for loan losses and off-balance sheet credit losses are assessed by management based on an ongoing quarterly
evaluation of the probable estimated losses inherent in the portfolio and probable estimated losses on unused commitments to
provide financing. A consistent, well-documented methodology has been developed that includes reserves assigned to specific
loans and commitments, general reserves that are based on a statistical migration analysis and nonspecific reserves that are based
on analysis of current economic conditions, loan concentrations, portfolio growth and other relevant factors.
An independent Credit Administration department is responsible for performing this evaluation for all of our subsidiaries to
ensure that the methodology is applied consistently.
Specific reserves for impairment are determined through evaluation of estimated future cash flows, collateral values and
historical statistics in accordance with Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for the
Impairment of a Loan”, regulatory accounting standards and other authoritative literature. Commercial and commercial real
estate loans and commitments in excess of $1 million are reviewed for impairment. Significant loans and commitments that
exhibit weaknesses or deteriorating trends are individually reviewed quarterly.
General reserves for commercial and commercial real estate loan losses and related commitments not evaluated individually for
impairment are determined primarily through an internally developed migration analysis model. The purpose of this model is to
determine the probability that each credit relationship in the portfolio has an inherent loss based on historical trends. We use an
eight-quarter aggregate accumulation of net losses as a basis for this model. Greater emphasis is placed on loan losses in more
recent periods. A minimum reserve level is established for each loan grade based on long-term loss history. This model assigns
a general reserve to all commercial loans and leases and commercial real estate loans, excluding loans that have a specific
impairment reserve.
Separate models are used to determine the general reserve for residential mortgage loans, excluding residential mortgage loans
held for sale, and consumer loans. The general reserve for residential mortgage loans is based on an eight-quarter average
percent of loss. General reserves for consumer loans are based on a migration of loans from current status to loss. Separate
migration factors are determined by major product line, such as indirect automobile loans and direct consumer loans.
Nonspecific reserves are maintained for risks beyond those factors specific to a particular loan or those identified by the
migration models. These factors include trends in the general economy in our primary lending areas, conditions in specific
industries where we have a concentration, such as energy, commercial real estate and homebuilders and agriculture,
concentrations in large credits and overall growth in the loan portfolio. Evaluation of the nonspecific reserves also considers
duration of the business cycle, regulatory examination results, potential errors in the migration analysis models and the
underlying data, and other relevant factors. A range of potential losses is determined for each factor identified.
A separate reserve for off-balance sheet credit risk is maintained. The provision for credit losses includes 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 after funds are advanced against
outstanding commitments and after the exhaustion of collection efforts.
Valuation of Mortgage Servicing Rights
We have a significant investment in mortgage servicing rights. These rights are primarily retained from sales of loans we have
originated or occasionally purchased from other lenders. Originated mortgage servicing rights are initially recognized at fair
value. Fair value is based on market quotes for similar servicing rights, which is a Level 2 input as defined by Statement of
Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). Subsequent changes in fair value are
recognized in earnings as they occur.
There is no active market for trading in mortgage servicing rights after origination. We use a cash flow model to determine fair
value. Key assumptions and estimates including projected prepayment speeds and assumed servicing costs, earnings on escrow
deposits, ancillary income and discount rates, used by this model are based on current market sources. Assumptions used to
value our mortgage servicing rights are considered Level 3 inputs as defined by FAS 157 and represent our best estimate of
assumptions that market participants would use to value this asset. A separate third party model is used to estimate prepayment
speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors.
The prepayment model is updated daily for changes in market conditions. We adjusted the prepayment projections determined
by this model to better correlate with actual performance of our servicing portfolio. The discount rate is based on benchmark
rates for mortgage loans plus a market spread expected by investors in servicing rights. Significant assumptions used to
determine the fair value of our mortgage servicing rights are presented in Note 8 to the Consolidated Financial Statements. At
least annually, we request estimates of fair value from outside sources to corroborate the results of the valuation model.
The assumptions used in this model are primarily based on mortgage interest rates. Evaluation of the effect of a change in one
assumption without considering the effect of that change on other assumptions is not meaningful. Considering all related
assumptions, a 50 basis point increase in mortgage interest rates is expected to increase the fair value of our servicing rights by
15
$10 million. A 50 basis point decrease in mortgage interest rates is expected to decrease the fair value of our servicing rights by
$11 million.
Intangible Assets
Intangible assets, which consist primarily of goodwill, core deposit intangible assets and other acquired intangibles, for each
business unit are evaluated for impairment annually as of October 1st or more frequently if conditions indicate that impairment
may have occurred. The evaluation of possible impairment of intangible assets involves significant judgment based upon short-
term and long-term projections of future performance.
The fair value of each of our business units is estimated by the discounted future earnings method. Income growth is projected
over a seven-year period for each unit and a terminal value is computed. The projected income stream is converted to current fair
value by using a discount rate that reflects a rate of return required by a willing buyer. Assumptions used to value our business
units are based on growth rates, volatility, discount rate and market risk premium inherent in our current stock price. These
assumptions are considered Level 3 inputs as defined by FAS 157 and represent our best estimate of assumptions that market
participants would use to determine fair value of the respective business units. The most critical assumptions in our evaluation
were a 7.00% expected long-term growth rate, a 0.66% volatility factor for BOK Financial common stock, a 9.36% discount rate
and a 11.04% market risk premium.
Approximately $240 million or 72% of total goodwill was attributed to the Texas market and $56 million or 17% of total
goodwill was attributed to the Colorado market. We also have $17 million of goodwill in the Arizona market and $15 million of
goodwill in the New Mexico market. Because of the large concentration of goodwill in the Texas and Colorado markets, the fair
value determined by the discounted future earnings method was corroborated by comparison to the fair value of publicly traded
banks of similar size and characteristics. No goodwill impairment was indicated by either valuation method.
The effect of a 10% negative change in assumptions used to evaluate goodwill impairment using the discounted future earnings
method was simulated. No impairment was indicated by this simulation.
The current market value of BOK Financial common stock, a primary assumption in our goodwill impairment analysis, is
approximately 32% below the market value used in our most recent annual evaluation. The decline in market value is due largely
to factors affecting the overall economy and the regional banks sector of the market. It is not due to operating losses, losses of
major customers or market share, or other factors specific to BOK Financial. Therefore, we do not believe the decline in market
value of our stock to be an event that requires a re-evaluation of our goodwill impairment. Goodwill impairment may be
indicated at our next annual evaluation date if the market value of our stock remains at or near current prices, or sooner if we
incur significant operating losses or if other factors indicate a significant decline in the value of our business.
Intangible assets with finite lives, such as core deposit intangible assets, are amortized using accelerated methods over their
estimated useful lives. Core deposit intangible assets generally have a weighted average life of five years based on the expected
lives of the acquired deposit accounts. Such assets are reviewed for impairment whenever events indicate that the remaining
carrying amount may not be recoverable.
Valuation of Derivative Instruments
We use interest rate derivative instruments to manage our interest rate risk. We also offer interest rate, commodity, and foreign
exchange derivative contracts to our customers. All derivative instruments are carried on the balance sheet at fair value. Fair
values for exchange-traded contracts are based on quoted prices. Fair values for over-the-counter interest rate contracts used to
manage our interest rate risk are provided either by third-party dealers in the contracts or by quotes provided by independent
pricing services. Information used by these third-party dealers or independent pricing services to determine fair values are
considered Level 2, observable market inputs as defined by FAS 157. Interest rate, commodity and foreign exchange contracts
used in our customer hedging programs are based on valuations generated internally by third-party provided pricing models.
These models use Level 2, observable market inputs to estimate fair values. Changes in assumptions used in these pricing
models could significantly affect the reported fair values of derivative assets and liabilities, though the net effect of these changes
should not significantly affect earnings.
Credit risk is considered in determining the fair value of derivative instruments. Deterioration in the credit rating of customers or
dealers reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during the current period.
Deterioration in our credit rating below investment grade would affect the fair value of our derivative liabilities. In the event of a
credit down-grade, the fair value of our derivative liabilities would decrease. The reduction in fair value would be recognized in
earnings in the current period.
Valuation of Securities
The fair value of our securities portfolio is primarily based on a third-party pricing service. We review the methodologies used
by the pricing service and concluded them to be based on Level 2 observable market inputs. Management evaluates the fair
16
values provided by the pricing service against other sources, including brokered quotes, sales or purchases of similar securities,
and discounted cash flow analysis.
Other-than-Temporary Impairment
We perform a quarterly evaluation of unrealized losses on investment and available for sale securities to determine whether the
losses are temporary or other-than-temporary as required by Statement of Financial Accounting Standards No 115, “Accounting
for Certain Investments in Debt and Equity Securities” (“FAS 115”). This evaluation assesses the probability of full recovery of
the carrying value of the security and management’s ability and intent to hold the security until fair value recovers. Temporary
impairment, net of deferred income taxes, is recognized as charges against shareholders’ equity as part of other comprehensive
income. Other-than-temporary impairment is recognized through a charge against earnings.
Impairment of debt securities rated investment grade is generally considered to be temporary. Impairment of debt securities rated
below investment grade by any one of the three nationally-recognized ratings agencies is evaluated further. Securities rated
below investment grade currently consist of mortgage-backed securities privately issued by publicly owned financial institutions.
Other than temporary impairment is required to be recognized when it is probable that there has been an adverse change in the
amount or timing of estimated cash flows of these securities as provided by Financial Accounting Standards Board (“FASB”)
Staff Position EITF Issue No. 99-20-1, “Amendments to the Impairment and Interest Income Measurement Guidance of EITF
Issue No. 99-20” (“FSP EITF 99-20-1”). We assess the estimated cash flows by computing a loan to value ratio for each
security rated below investment grade based on the original loan to value ratio inherent in the security, adjusted for changes in
housing prices, prepayment speeds, default rates and credit enhancement. Consideration is given to other-than-temporary
impairment if the adjusted loan to value ratio of a specific security exceeds 85%.
Equity securities include variable rate, preferred stocks issued by major commercial and investment banks. Impairment
evaluation is based on current and anticipated market conditions, the financial condition and near term prospects of each of the
issuers and the length of time the security has been impaired. We assess the probability that spreads over LIBOR on these
securities will narrow and fair values will increase over a 24-month to 36-month period beginning on the most recent date that
fair value equaled our carrying value, June 30, 2008, and concluded that the impairment was temporary at December 31, 2008.
Income Taxes
Determination of income tax expense and related assets and liabilities is complex and requires estimates and judgments when
applying tax laws, rules, regulations and interpretations. It also requires judgments as to future earnings and the timing of future
events. Accrued income taxes represent an estimate of net amounts due to or from taxing jurisdictions based upon these
estimates, interpretations and judgments.
Quarterly, management evaluates the Company’s effective tax rate based upon its current estimate of net income, tax credits and
statutory tax rates expected for the full year. Changes in income tax expense due to changes in the effective tax rate are
recognized on a cumulative basis. Annually, we file tax returns with each jurisdiction where we conduct business and settle our
return liabilities. We may also provide for estimated liabilities associated with uncertain filing positions.
Deferred tax assets and liabilities are determined based upon the differences between the values of assets and liabilities as
recognized in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the
differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some
portion of the entire deferred tax asset may not be realized based on taxes previously paid in net loss carry-back periods and other
factors.
We recognize the benefit of uncertain income tax positions when based upon all relevant evidence it is more-likely-than-not that
our position would prevail upon examination, including resolution of related appeals or litigation, based upon the technical merits
of the position. A reserve for the uncertain portion of the tax benefit, including estimated interest and penalties, is part of our
current accrued income tax liability. Estimated penalties and interest are recognized in income tax expense. This reserve for
uncertain tax positions may reduce income tax expense in future periods if the uncertainty is favorably resolved, generally upon
completion of an examination by the taxing authorities, expiration of a statute of limitations or changes in facts and
circumstances.
Pensions
The Company offers a defined-benefit, cash-balance pension plan to all employees who satisfied certain age and length of service
requirements. Pension plan benefits were curtailed as of April 1, 2006. No participants may be added to the plan and no
additional service benefits will be accrued. Interest continues to accrue on employees’ account balances at 5.25%. Accounting
for this plan requires management to make assumptions regarding the expected long-term rate of return on plan assets and the
discount rate. Changes in these assumptions affect pension liability and pension expense. Management, in consultation with
independent actuaries, bases its assumptions on currently available information.
17
All plan assets are invested in the Cavanal Hill Balanced Fund. The expected long-term return on plan assets is based on this
fund’s life-to-date performance, adjusted for any known or expected changes in the fund’s compositions or objectives. The
expected return on plan assets was 7.00% for 2008 and 2007, and reduced to 5.25% for 2009.
The discount rate, which is used to determine the present value of our obligation to provide future benefits to plan participants
and the related interest cost, is based on a spot-rate yield curve of high-quality fixed income securities such as AA rated industrial
and utility bonds. A weighted average discount rate is determined by matching expected future cash outflows from the plan to
interest rates at various spots along the yield curve. This method of determining the discount rate is expected to better represent
the cost of future cash flows as the static participant pool decreases over time. The discount rate was 6.50% as December 31,
2008 and 6.00% as of December 31, 2007. A 25 basis point decrease in the discount rate increases the pension liability by
approximately $800 thousand or 2% and has no significant effect on pension expense because of the curtailment of benefits.
Stock-Based Compensation
Stock-based compensation consists of stock options and non-vested shares awarded officers and employees of the Company.
Awards may be granted on a discretionary basis as described in the employee stock option plan or as required by employment
agreements and incentive compensation plans with certain executive officers. Accounting for stock-based compensation requires
management to make assumptions regarding the valuation of financial instruments for which there are no readily available
market values, achievement of specified performance conditions and expected forfeiture rates.
The majority of our stock options have graded vesting. One-seventh of the options awarded vest annually starting one year after
the grant date. Options expire three years after vesting. Each tranche of these options are considered a separate award when
determining fair value.
We use the Black-Scholes option pricing model. This model requires assumptions of expected volatility of our stock price and
expected term between grant date and exercise date, along with other inputs to determine fair value. Assumptions used to
determine the fair value of stock options are considered Level 2 inputs as defined by FAS 157. Expected volatility is based on
historical changes in our stock price measured over a period that approximates the expected term of our stock options. Expected
term and forfeitures are based on historical trends. Information about assumptions used to value stock options can be found in
Note 13 to the Consolidated Financial Statements. Non-vested shares, which cliff-vest five years after the grant date, are valued
at the grant-date market price for BOK Financial common stock.
Stock options are generally granted annually. Certain key terms and conditions of the awards, such as vesting periods and
expiration dates, are defined by the stock option plan document. The number of options to be awarded to each individual
employee is recommended by management and approved by the Independent Compensation Committee of the Board of Directors
prior to setting the exercise price. The exercise price of the options is the closing price for the Company’s common stock on the
second business Friday of January, which is the grant date.
Executive incentive plans and individual employment agreements include performance conditions that may increase or decrease
the number of awards granted based on future events. Unrecognized compensation cost, which generally will be recognized as
expense over the service period, based on the probable outcome of these conditions is $12 million. Future compensation cost
ranges from approximately $5 million if none of the performance conditions are met to $15 million if all of the performance
conditions are met.
Assessment of Operations
Net Interest Revenue
Tax-equivalent net interest revenue totaled $655 million for 2008 compared with $554 million for 2007. Net interest revenue
growth was driven primarily by a $2.0 billion increase in average earning assets and a 17 basis point increase in net interest
margin.
Average outstanding loans increased $1.2 billion and average securities increased $838 million. Average commercial loans were
up $777 million over 2007. Average residential mortgage loans and consumer loans increased $192 million and $172 million,
respectively. Growth in the securities portfolio generally consisted of highly-rated, fixed-rate mortgage-backed securities issued
by U.S. government agencies. The addition of these securities supplemented the Company’s earnings in 2008.
Growth in average earning assets was funded primarily by an $810 million increase in interest-bearing deposits and a $1.2 billion
increase in borrowed funds. In addition, average demand deposit accounts increased $264 million. Table 2 shows the effects on
net interest revenue of changes in average balances and interest rates for the various types of earning assets and interest-bearing
liabilities.
Growth in deposits and borrowings was also used to fund a $276 million net 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 a
18
reduction of the derivative liabilities which they secure on the Company’s consolidated balance sheet. Fees earned on margin
assets are included in fees and commissions revenue while the related cost of funds reduces net interest revenue.
Net interest margin, the ratio of tax-equivalent net interest revenue to average earning assets, increased to 3.45% in 2008
compared with 3.28% in 2007. The increase in net interest margin reflected a widening of the spread between LIBOR and the
federal funds rates in the second half of 2008. 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 widening spread increased net interest margin by
approximately 7 basis points in 2008. This spread has largely narrowed to its historically normal level by year end. In addition,
market uncertainty increased yields on mortgage-backed securities despite falling interest rates. The average yield on our
securities portfolio for 2008 increased 22 basis points compared with 2007. The increase in net interest margin from widened
spreads was partially offset by a reduction in the benefit from non-interest bearing funding sources. This benefit decreased from
69 basis points in 2007 to 36 basis points in 2008. Very low market interest rates, especially in the second half of 2008 reduced
the benefit of non-interest bearing funding sources. Also, the previously noted increase in average margin assets funded by
interest-bearing liabilities decreased net interest margin by 5 basis points.
Management regularly models the effects of changes in interest rate on net interest revenue. Based on this modeling, we expect
net interest revenue to increase slightly over a one-year forward looking period. However, other factors such as spreads between
benchmark interest rates, loan spread compression, deposit product mix and overall balance sheet composition may affect this
general expectation.
Our overall objective is to manage the Company’s balance sheet to be essentially neutral to changes in interest rates.
Approximately 72% of our commercial loan portfolio is 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 relatively rate-neutral position, we purchase fixed-rate, mortgage-
backed securities to offset the short-term nature of the majority of our 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 $665 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 2 and in the interest rate sensitivity projections as shown in Market Risk section of this report.
19
Table 2 Volume/Rate Analysis
(In Thousands)
Tax-equivalent interest revenue:
Securities
Trading securities
Loans
Funds sold and resell agreements
Total
Interest expense:
2008/2007
Change Due To¹
2007/2006
Change Due To¹
Change
Volume
Yield/Rate
Change
Volume
Yield/Rate
$ 59,749
2,987
(159,817)
(2,903)
(99,984)
$ 45,461
2,986
78,623
(304)
126,766
$ 14,288
1
(238,440)
(2,599)
(226,750)
$ 32,162
904
140,760
2,639
176,465
$ 20,068
456
134,830
2,260
157,614
$ 12,094
448
5,930
379
18,851
Transaction deposits
Savings deposits
Time deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Total
Tax-equivalent net interest revenue
(Increase) decrease in tax-equivalent
adjustment
Net interest revenue
(73,214)
(823)
(49,785)
(72,976)
(2,032)
(2,639)
(201,469)
101,485
892
$ 102,377
Tax-equivalent interest revenue:
Securities
Trading securities
Loans
Funds sold and resell agreements
Total
Interest expense:
Transaction deposits
Savings deposits
Time deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Total
Tax-equivalent net interest revenue
Decrease in tax-equivalent adjustment
Net interest revenue
12,679
(50)
(664)
11,273
34,907
195
58,340
$ 68,426
(85,893)
(773)
(49,121)
(84,249)
(36,939)
(2,834)
(259,809)
$ 33,059
45,631
91
30,116
28,864
7,188
4,621
116,511
59,954
30,668
158
13,155
29,980
5,889
6,595
86,445
$ 71,169
14,963
(67)
16,961
(1,116)
1,299
(1,974)
30,066
$ (11,215)
(2,157)
$ 57,797
4th Qtr 2008 / 4th Qtr 2007
Change Due To¹
Change
Volume
Yield/Rate
$ 13,402
820
18,130
(327)
32,025
1,526
(7)
5,603
(436)
8,502
(4)
15,184
$ 16,841
$ 3,388
(11)
(69,893)
(884)
(67,400)
(27,723)
(198)
(17,126)
(27,444)
(12,572)
(215)
(85,278)
$ 17,878
$ 16,790
809
(51,763)
(1,211)
(35,375)
(26,197)
(205)
(11,523)
(27,880)
(4,070)
(219)
(70,094)
34,719
439
$ 35,158
¹ Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
Fourth Quarter 2008 Net Interest Revenue
Tax-equivalent net interest revenue for the fourth quarter of 2008 totaled $179 million compared with $144 million for the fourth
quarter of 2007. Average earning assets increase $2.0 billion or 11%, including a $1.1 billion or 9% increase in average loans,
net of allowance for loan losses, and a $928 million or 16% increase in average securities. Growth in average earning assets was
funded by a $1.8 billion increase in interest-bearing liabilities, including an $815 million increase in average interest-bearing
deposits and a $987 million increase in other borrowings. In addition, average demand deposits increased $264 million.
Net interest margin was 3.57% for the fourth quarter of 2008 and 3.22% for the fourth quarter of 2007. The previously
mentioned widening of spread between LIBOR and federal funds rates added approximately 15 basis points to the fourth quarter
of 2008. In addition, market uncertainty increased yields on mortgage-backed securities despite falling short-term interest rates.
The benefit provided by non-interest bearing funding sources was 31 basis points in the fourth quarter of 2008 and 62 basis
points in the fourth quarter of 2007. Very low market interest rates in 2008 reduced the benefit of non-interest bearing funding
sources.
2007 Net Interest Revenue
Tax-equivalent net interest revenue for 2007 was $554 million, a $60 million or 12% increase from 2006. Average earning assets
increased $2.2 billion or 15%, including a $1.7 billion increase in average outstanding loans, net of allowance for loan losses, and
a $447 million increase in average securities. Growth in the securities portfolio generally consisted of highly-rated, fixed-rate
mortgage backed securities issued by U.S. government agencies. As shown in Table 2, net interest revenue increased $71 million
due to changes in earning assets and interest bearing liabilities. Net interest revenue growth due to earning assets was partially
20
offset by an $11 million decrease due to changes in interest yields and rates. Changes in interest rates and yields include the
narrowing of spreads due to competitive pressures and other market conditions.
Other Operating Revenue
Other operating revenue increased $38 million compared with last year due to an $8.4 million increase in fees and commission
revenue and a $29 million increase in net gains on securities, derivatives and other assets. Fees and commission revenue was
reduced by $54 million from net credit losses on derivative contracts with two bankrupt counterparties during 2008.
Diversified sources of fees and commission revenue are a significant part of our business strategy and represented 39% of 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. We expect continued growth in other operating revenue through offering new products and services and
by expanding into new markets. However, current and future economic conditions, increased competition and saturation in our
existing markets could affect the rate of future increases.
Table 3 Other Operating Revenue
(In Thousands)
Brokerage and trading revenue
Transaction card revenue
Trust fees and commissions
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Margin asset fees
Other revenue
Total fees and commissions
Gain (loss) on sales of assets
Gain (loss) on securities, net
Gain (loss) on derivatives, net
Total other operating revenue
1 Includes net derivative credit losses of $54 million.
Fees and Commissions Revenue
$
2008
42,8041
100,153
78,979
117,528
27,074
10,681
8,548
28,233
414,000
(660)
21,637
1,299
$ 436,276
Years ended December 31,
2005
2006
2007
$
62,542 $
90,425
78,231
109,218
22,275
10,058
4,800
28,073
405,622
53,413 $
78,622
71,037
102,436
26,996
2,558
10,166
26,468
371,696
48,024 $
72,036
65,187
98,361
30,681
62
5,504
25,009
344,864
2004
44,221
64,816
57,532
93,712
28,189
–
162
23,595
312,227
(928)
(8,328)
2,282
1,225
(3,088)
(1,474)
$ 398,648 $ 371,623 $ 346,946 $ 308,890
7,798
(6,895)
1,179
1,499
(950)
(622)
Brokerage and trading revenue declined $20 million compared with 2007 due to net credit losses on derivative contracts with two
counterparties in our customer hedging program. These losses reduced brokerage and trading revenue by $54 million in 2008.
As previously disclosed the principal owner of one of these counterparties, SemGroup, L.P., resigned from our Board of
Directors on July 16, 2008. Net credit losses on derivative contracts with SemGroup totaled $41 million. Excluding these credit
losses, our brokerage and trading revenue sources performed well. Securities trading revenue more than doubled, up $26 million
over the previous year to $49 million. Retail brokerage revenue increased $2.8 million to $21 million, up 15% over 2007.
Revenue from customer hedging activities excluding the two credit losses increased $7.2 million or 48% over 2007. This growth
rate of revenue from securities trading and customer hedging is not expected to continue in 2009.
Transaction card revenue increased $9.7 million or 11% over 2007. Revenue growth depends largely on the volume and amount
of transactions processed, the number of ATM locations and the number of merchants served. Check card revenue increased $3.9
million or 16% due to growth in transaction volume. The number of check card transactions processed during 2008 increased
18% over 2007. ATM fees grew $4.7 million or 12% compared to the previous year. The number of TransFund ATM locations
totaled 1,933 at December 31, 2008, up 6% over last year. Merchant discount revenue for 2008 totaled $28 million, up 4% over
2007.
Trust fees increased $746 thousand or 1%. The fair value of all trust relationships overseen by the Company, which is the basis
for a significant portion of trust fees decreased to $30.5 billion at December 31, 2008 compared with $36.3 billion at December
31, 2007. The decline in fair value of trust assets was due to current market conditions. Personal trust management fees, which
provided 23% of total trust fees and commissions increased $495 thousand or 2% over 2007. Net fees from mutual fund advisory
and administrative services, which provided 20% of total trust fees and commissions decreased $729 thousand or 4%. Employee
benefit plan management fees, which provided 20% of total trust fees and commissions, increased $437 thousand. Revenue from
foundations was down $1.6 million or 25% from 2007. Revenue from the management of oil and gas properties, which is more
closely related to energy prices than the fair value of trust assets, increased $2.3 million compared with 2007.
21
Service charges on deposit accounts increased $8.3 million, or 8% compared with 2007. Commercial account service charge
revenue increased 23% to $36 million and overdraft fees increased 2% to $76 million. The increase in commercial service
charge revenue was due to a decrease in the earnings credit available to commercial deposit customers. The earnings credit,
which provides a non-cash method for commercial customers to avoid incurring charges for deposit services, decreases when
interest rates fall. Service charges on retail deposit accounts decreased 4% to $5.1 million due to continued migration to service-
charge free checking products.
Mortgage banking revenue increased $4.8 million or 22% over 2007. Servicing fee revenue totaled $18 million or 0.35% of
loans serviced for others in 2008 and $17 million or 0.37% of loans serviced for others in 2007. The average outstanding balance
of loans serviced for others was $5.0 billion for 2008 and $4.6 billion for 2007. Net secondary marketing gains totaled $9.5
million for 2008 and $5.2 million for 2007. Mortgage loans sold in the secondary market totaled $1.2 billion in 2008 and $1.0
billion in 2007.
Margin asset fees totaled $8.5 million for 2008 and $4.8 million for 2007. Margin assets, which are held primarily as part of the
Company’s customer derivatives programs averaged $422 million for 2008 and $117 million for 2007. The increase in revenue
earned on margin assets is offset by a decrease in net interest revenue due to the cost to fund margin assets.
Securities and Derivatives
Net gains and losses on securities included changes in the fair value of securities held as an economic hedge of our mortgage
servicing rights, other-than-temporary impairment of variable-rate, perpetual preferred stocks and realized gains and losses on
certain available for sale securities. It also included gains realized from the sale of equity securities received from initial public
stock offering by Visa, Inc. and Mastercard, Inc.
Table 4
Securities Gains (Losses), Net
(In Thousands)
Gains (losses) on available for sale securities
Other-than-temporary impairment of preferred stocks
Gains on Mastercard and Visa IPO securities
Gains (losses) on mortgage hedging securities
Total
2008
$
9,196
(5,306)
6,799
10,948
$ 21,637
Years ended December 31,
2006
2007
2005
$
(276)
(8,641)
1,075
(486)
$ (8,328)
$
$
152
–
–
(1,102)
(950)
$
(1,700)
–
–
(5,195)
$ (6,895)
2004
$
1,772
–
–
(4,860)
$ (3,088)
Net gains on derivatives totaled $1.3 million for 2008 and $2.3 million in 2007. Net gains and 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 when
interest rates fall.
The Company adopted 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 FAS 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 when interest rates fall.
Fourth Quarter 2008 Other Operating Revenue
Other operating revenue for the fourth quarter of 2008 totaled $128 million, a $20 million or 19% increase over the fourth quarter
of 2007. Fees and commission revenue decreased $3.5 million or 3% compared with the fourth quarter of 2007. Brokerage and
trading revenue was up $3.1 million or 60% for the fourth quarter due to continued strong securities trading gains, partially offset
by reduced investment banking transactions. Transaction card revenue increased $1.7 million or 28% compared to the previous
year due to ATM fees, merchant discount fees and debit card processing volumes. Trust revenue decreased $3.0 million or 59%
compared with the fourth quarter of 2007 due largely to a 16% decrease in the fair value of trust assets. Deposit service charges
and fees decreased $699 thousand or 9% due to a reduction in overdraft fees, partially offset by an increase in commercial
account activity charges.
Net securities gains for the fourth quarter of 2008 totaled $20 million, compared with net securities losses of $6.3 million for the
fourth quarter of 2007.
22
Table 5
Securities Gains (Losses), Net
(In Thousands)
Gains on available for sale securities
Other-than-temporary impairment of preferred stocks
Gains on mortgage hedge securities
Total
2007 Other Operating Revenue
Quarter ended December 31,
2008
$
5,067
–
15,089
$ 20,156
2007
$
1,102
(8,641)
1,288
$ (6,251)
Other operating revenue totaled $399 million for 2007, up $27 million over 2006. Fees and commissions revenue increased $34
million or 9%. Transaction card revenue increased $12 million or 15% due to increases in check card revenue and ATM fees.
Brokerage and trading revenue grew $9.1 million or 17% due to increased retail brokerage revenue and securities trading gains.
Trust fees and commissions were up $7.2 million or 10% due to a 15% increase in the fair value of trust assets. Deposit service
charges increased $6.8 million or 7% due to a 9% increase in overdraft fees and a 6% increase in commercial account service
charge revenue.
Net securities losses totaled $8.3 million for 2007 and $950 thousand for 2006. Other-than-temporary impairment charges of
$8.6 million were recognized in 2007 on our holdings of variable-rate, perpetual preferred stocks.
Other Operating Expense
Other operating expense totaled $662 million for 2008, up $87 million over 2007. Personnel expenses increased $24 million or
7% over the previous year. Expenses for our mortgage-banking activities, which included reduction in the fair value of our
mortgage servicing rights and provision for credit losses on mortgage loans sold with recourse, increased $41 million. All other
operating expenses increased $22 million or 10%.
Table 6 Other Operating Expense
(In Thousands)
Personnel expense
Business promotion
Contribution of stock to BOK Charitable Foundation
Professional fees and services
Net occupancy and equipment
Insurance
Data processing and communications
Printing, postage and supplies
Net (gains) losses and operating expenses of
repossessed assets
Amortization of intangible assets
Mortgage banking costs
Change in fair value of mortgage servicing rights
Recovery for impairment of mortgage servicing rights
Visa retrospective responsibility obligation
Other expense
Total
2008
$ 352,947
23,536
–
27,045
60,632
11,988
78,047
16,433
1,019
7,661
22,513
34,515
–
(2,767)
28,835
$ 662,404
Years ended December 31,
2006
2007
2005
$ 328,705
21,888
–
22,795
57,284
3,017
72,733
16,570
691
7,358
13,111
2,893
–
2,767
25,175
$ 574,987
$ 296,260
19,351
–
17,744
52,188
4,270
66,926
15,862
474
5,327
12,898
(3,009)
–
–
24,016
$ 512,307
$ 258,971
17,964
–
16,596
50,195
2,436
67,026
15,066
572
6,943
16,822
–
(3,915)
–
20,430
$ 469,106
2004
$ 240,661
15,618
5,561
15,487
47,289
2,496
60,025
14,034
(4,016)
8,138
18,346
–
(1,567)
–
19,152
$ 441,224
23
Personnel Expense
Personnel expense totaled $353 million for 2008 and $329 million for 2007. Regular compensation, which consists of salaries
and wages, overtime pay and temporary personnel costs, totaled $220 million, up $13 million or 6% over 2007. The increase in
regular compensation was primarily due to an increase in the average regular compensation per full time equivalent employee.
Average staffing levels increased 1% compared with 2007.
Table 7
(In Thousands)
Personnel Expense
Regular compensation
Incentive compensation:
Cash-based
Stock-based
Total incentive compensation
Employee benefits
Workforce reduction costs, net
Total personnel expense
Average staffing
(full-time equivalent)
2008
2007
2006
2005
2004
Years Ended December 31,
$ 219,629
$
206,857
$
185,466
$
165,529
$
148,468
79,215
3,962
83,177
50,141
–
$ 352,947
62,657
8,763
71,420
47,929
2,499
328,705
$
54,093
11,111
65,204
45,590
–
296,260
$
44,726
5,097
49,823
43,619
–
258,971
$
42,725
11,694
54,419
37,774
–
240,661
$
4,140
4,106
3,828
3,677
3,509
Incentive compensation increased $12 million or 16% to $83 million. Expense for cash-based incentive compensation plans
increased $17 million or 26%. These plans are primarily 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 2007 included a $13 million or 84% increase in sales 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 $5.2 million compared with 2007. This decrease
reflected changes in the market value of BOK Financial common stock. The year-end closing market price per share of BOK
Financial common stock decreased $11.30 during 2008 and decreased $3.28 in 2007. Compensation expense for equity awards
increased $538 thousand or 8% compared with 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 $50 million, a $2.2 million or 5% increase over 2007 due to growth in payroll taxes, employee
insurance expense and training costs. Employee insurance costs were up $242 thousand or 1%. The Company self-insures a
portion of its employee health care coverage and these costs may be volatile. The Company expects an increase of approximately
$2.0 million in pension expense for 2009 based on changes in the expected return on plan assets and discount rate.
Mortgage Banking Costs
Certain mortgage banking costs, including changes in the fair value of mortgage servicing rights and provision for losses on
mortgage loans sold with recourse, totaled $57 million in 2008 and $16 million in 2007. The fair value of mortgage servicing
rights decreased $35 million in 2008 and $2.9 million in 2007. Anticipated prepayment speeds increased significantly in the
fourth quarter of 2008 in response to government programs to lower mortgage interest rates. Although we maintain a portfolio of
mortgage-backed securities as an economic hedge against changes in the fair value of our servicing rights, disconnection between
current yields on these securities and current mortgage loan commitment rates limited the effectiveness of our hedge.
We also maintain a reserve for losses on mortgage loans sold with recourse. Provision for losses on these loans totaled $8.6
million in 2008 and $1.1 million in 2007. These loans are more fully discussed in the Loan Commitments section of this report.
Other Operating Expenses
All other operating expenses totaled $252 million for 2008, up $22 million or 10% over 2007. Deposit insurance expense
increased $9.0 million over the previous year due to the full implementation of assessment increases approved by the FDIC in
2006. The Company expects deposit insurance cost to increase further in 2009 as recently-announced increases in deposit
insurance premiums and costs of the Temporary Liquidity Guarantee Program become effective.
Professional fees increased $4.2 million or 19% due to legal and other loan collection costs. Data processing and
communications costs increased $5.3 million or 7% due to higher processing volumes. Other operating expenses for 2008 were
reduced by $5.5 million compared to the previous year from charges related to Visa, Inc. retrospective responsibility plan. As a
24
member of Visa, we are obligated for a proportionate share of certain covered litigation costs incurred by Visa. These costs are
expected to be covered by an escrow account. The Company accrued $2.8 million in 2007 for its estimated obligation for certain
litigation covered by this plan. This accrual was offset in March, 2008 when Visa funded a litigation escrow account from the
proceeds of its initial public offering of common shares. During 2008, the Company recognized an additional obligation for
settled litigation under the retrospective responsibility plan and Visa contributed additional funds to the escrow account. See
Note 15 to the Consolidated Financial Statements for additional information about the Company’s contingent obligation under
the Visa retrospective responsibility plan.
Fourth Quarter 2008 Operating Expenses
Other operating expense totaled $185 million for the fourth quarter of 2008, up $28 million over the fourth quarter of 2007.
Excluding the previously discussed change in fair value of mortgage servicing rights, other operating expenses increased $4.6
million or 3%. Personnel expense increased $3.2 million and deposit insurance expense increased $2.4 million. Professional fees
increased $1.7 million due to legal fees and other loan collection costs. Changes in accruals for the Company’s obligation under
Visa, Inc. retrospective responsibility plan reduced other operating expenses by $4.5 million.
2007 Operating Expenses
Other operating expense for 2007 totaled $575 million, a $63 million or 12% increase over 2006. This increase resulted
primarily from a $32 million increase in personnel expense.
Personnel expense growth was driven largely by total employment, average compensation per employee and incentive
compensation expense. Regular compensation expense totaled $207 million, up $21 million, or 12% increase over 2006.
Incentive compensation increased $6.2 million, or 10% to $71 million. Expense for cash-based incentive compensation plans
increased $8.6 million or 16%. Stock-based compensation expense decreased $2.3 million or 21%. The Company’s stock-based
compensation plans include both equity awards and liability awards. Compensation expense associated with liability award plans
decreased $2.9 million due to changes in the market value of BOK Financial common stock. Compensation expense for equity
awards increased $567 thousand or 9% over 2006. Employee benefit expenses increased $2.3 million or 5% to $48 million.
Professional fees increased $5.1 million or 28% to $23 million compared with 2006. Growth in other professional fees includes
costs related to acquisitions and subordinated debt issued during 2007, costs related to the Securities and Exchange
Commission’s examination of our mutual fund advisory activities discussed in Note 15 to the Consolidated Financial Statements,
and professional fees related to debt collection activities.
Other expenses in 2007 included a $2.8 million charge for our contingent obligation to support Visa’s antitrust litigation costs
and a $695 thousand increase in FDIC insurance premiums.
Income Taxes
Income tax expense was $65 million for 2008, $116 million for 2007 and $115 million for 2006. This represented 30%, 35% and
35%, respectively, of book taxable income. Tax expense currently payable totaled $116 million in 2008, $129 million in 2007
and $122 million in 2006.
The statute of limitations expired on an uncertain income tax position and the Company adjusted its current income tax liability
to amounts on filed tax returns for 2007 during 2008. In addition, the Company recognized the tax benefit from certain
appreciated securities contributed to the BOKF Charitable Foundation in 2008. Income tax expense for 2008 would have been
$71 million or 33% of book taxable income excluding these items.
Net deferred tax assets totaled $219 million at December 31, 2008 and $53 million at December 31, 2007. The increase was due
primarily to the tax effect of unrealized losses on available for sale securities and provision for credit losses in excess of net loans
charged off. We have evaluated the recoverability of our net deferred tax asset based on taxes previously paid in net loss carry-
back periods and other factors and determined that no valuation allowance was required.
Reserves for uncertain tax positions totaled $13 million at December 31, 2008 and December 31, 2007. 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.
Income taxes expense for the fourth quarter of 2008 totaled $10 million or 23% of book taxable income. Excluding the
previously mentioned tax benefit from the contribution of appreciated securities and quarterly adjustments to the annual effective
tax rate, income tax expense for the fourth quarter would have been $15 million or 33% of book taxable income.
25
Table 8
Selected Quarterly Financial Data
(In Thousands Except Per Share Data)
Fourth
Third
Second
First
2008
Interest revenue
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit losses
Other operating revenue
Gain (loss) on securities, net
Gain (loss) on derivatives, net
Other operating expense
Change in fair value of mortgage servicing rights
Income (loss) before taxes
Income tax expense
Net income (loss)
$ 262,160
85,713
176,447
73,001
103,446
109,865
20,156
(2,219)
159,010
26,432
45,806
10,363
$ 35,443
$ 263,358
99,010
164,348
52,711
111,637
125,827
2,103
4,366
158,736
5,554
79,643
22,958
$ 56,685
$ 260,086
101,147
158,939
59,310
99,629
63,819
(5,242)
(2,961)
158,501
767
(4,023)
(2,862)
(1,161)
$
$ 276,041
128,913
147,128
17,571
129,557
113,829
4,620
2,113
151,642
1,762
96,715
34,450
$ 62,265
Earnings (loss) per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
0.53
0.53
$
$
0.84
0.84
$
$
(0.02)
(0.02)
$
$
0.93
0.92
67,294
67,490
67,263
67,471
67,452
67,452
67,202
67,550
2007
Interest revenue
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit losses
Other operating revenue
Gain (loss) on securities, net
Gain (loss) on derivatives, net
Other operating expense
Change in fair value of mortgage servicing rights
Income before taxes
Income tax expense
Net income
$ 297,096
155,807
141,289
13,200
128,089
112,038
(6,251)
1,529
154,383
3,344
77,678
26,518
$ 51,160
$ 300,380
160,935
139,445
7,201
132,244
103,759
4,748
865
147,572
3,446
90,598
30,750
$ 59,848
$ 288,685
153,772
134,913
7,820
127,093
96,616
(6,262)
(183)
139,192
(5,061)
83,133
29,270
$ 53,863
$ 274,576
145,738
128,838
6,500
122,338
92,281
(563)
71
130,947
1,164
82,016
29,223
$ 52,793
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
0.76
0.76
$
$
0.89
0.89
$
$
0.80
0.80
$
$
0.79
0.78
67,051
67,483
67,078
67,538
67,117
67,606
67,085
67,575
26
Lines of Business
BOK Financial operates three principal lines of business: commercial banking, consumer banking and wealth management. Our
principal lines of business have been re-defined from the previous year to better present the Company’s organization as it has
grown in markets outside of Oklahoma. Line of business information for 2007 and 2006 has been revised for consistent
presentation. Commercial banking includes lending, treasury and cash management services and customer risk management
products to small businesses, middle market and larger commercial customers. Commercial banking also includes the TransFund
network. Consumer banking includes retail lending and deposit services, all mortgage banking activities and our indirect
automobile lending products. Wealth management provides fiduciary services, brokerage and trading, private financial services
and investment advisory services in all 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 overall liquidity needs and interest rate risk of the Company. 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 in excess of net loans
charged off, tax planning strategies 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 based on statutory rates, actual net credit losses 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 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 30 days for certain rate-sensitive deposits to five years.
Economic capital is assigned to the business units by a third-party developed 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. Average
invested capital includes economic capital and amounts we have invested in the lines of business.
As shown in Table 9, net income attributed to our lines of business decreased $98 million or 42% from last year. The decrease
was due primarily to credit losses attributed to the business units. In addition, falling interest rates decreased the transfer pricing
credit provided to business units that generate lower-costing funds for the Company.
Table 9 Net Income by Line of Business
(In Thousands)
Years ended December 31,
2007
2006
2008
Commercial banking
Consumer banking
Wealth management
Subtotal
Funds management and other
Total
$ 79,490
25,749
29,737
134,976
18,256
$ 153,232
$ 150,537
57,252
25,621
233,410
(15,746)
$ 217,664
$ 138,540
61,731
27,599
227,870
(14,893)
$ 212,977
27
Commercial Banking
Commercial banking contributed $79 million to consolidated net income in 2008, down from $151 million in 2007. The decrease
in commercial banking net income was largely due to a $72 million increase in net loans charged-off and $41 million of net credit
losses on a customer’s derivatives position. These charges combined to reduce commercial banking net income by $69 million in
2008.
Net interest revenue decreased $8.4 million or 3% compared with 2007. The decline was primarily driven by two factors.
Falling short-term interest rates decreased the internal transfer pricing credit provided to the commercial banking division for
deposits sold to our funds management unit by approximately $21 million. The funding charge for average non-interest earning
derivative assets increased approximately $12 million as those balances grew due to commodity price volatility. This reduction
was largely offset by an increase in average outstanding balance of commercial loans. Other operating revenue excluding the
previously noted credit losses on derivative contracts, increased $17 million or 13%, including a $6.3 million increase in deposit
account service charges and a $4.9 million increase in TransFund revenue. Operating expenses were up $15 million or 8% due to
higher personnel expenses, data processing costs and professional fees to collect problem assets.
Net commercial banking loans charged off in 2008 totaled $82 million or 0.85% of average loans attributed to this line of
business. Commercial and industrial loans charged off totaled $35 million or 1.47% of average commercial and industrial loans.
Commercial real estate loans charged off totaled $18 million or 0.84% of average commercial real estate loans and small business
banking loans charged off totaled $11 million or 0.48% of average small business loans. Net loans charged off in 2008 also
included a $26 million energy loan. The commercial banking division recognized an $11 million recovery of two loans charged
off in 2001 and 2005.
The average outstanding balance of loans attributed to commercial banking was $9.7 billion for 2008. Average commercial
banking division loans increased $903 million or 10% over 2007. Commercial and industrial loans averaged $2.3 billion for
2008, a $277 million or 13% increase over 2007. Small business loans averaged $2.2 billion for 2008, up $279 million or 14%
over the previous year. Energy loans averaged $1.8 billion, an increase of $173 million or 11% and commercial real estate loans
averaged $2.2 billion, up $54 million or 3% over 2007.
Average deposits attributed to commercial banking were $4.6 billion for 2008, up $413 million or 10% over 2007. Treasury
services account balances increased $260 million or 24% and deposit balances attributed to our energy customers increased $92
million or 27%. High energy prices during 2008 provided liquidity to many of our energy-producing customers.
Table 10 Commercial Banking
(Dollars in Thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
$
Years ended December 31,
2007
526,225
(200,390)
$
$
2008
451,623
(134,196)
2006
456,497
(162,537)
Total net interest revenue
317,427
325,835
293,960
Other operating revenue
Operating expense
Net loans charged off
Gains on financial instruments, net
Gains (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
107,185
217,155
81,966
4,689
(82)
130,098
50,608
131,081
201,876
9,747
1,075
10
246,378
95,841
119,891
184,385
2,988
10
255
226,743
88,203
Net income
$
79,490
$
150,537
$
138,540
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 12,920,566
9,698,214
4,559,653
1,036,980
0.62%
7.67
51.14
0.85
$ 11,274,301
8,795,426
4,146,378
1,059,730
1.34%
$ 9,993,775
7,569,827
3,680,944
997,210
1.39%
14.21
44.18
0.11
13.89
44.55
0.04
28
Consumer Banking
Consumer banking services are provided through four primary distribution channels: traditional branches, supermarket branches,
the 24-hour ExpressBank call center and On-line internet banking. We currently have 195 consumer banking locations, including
branch banking locations and mortgage lending offices. Our consumer banking locations are primarily distributed 84 in
Oklahoma, 47 in Texas, 21 in New Mexico and 16 in Colorado. The Consumer Banking division plans to open five locations in
2009, two in Phoenix, Arizona and one each in Albuquerque, New Mexico, Allen, Texas and Kansas City, Missouri.
Consumer banking contributed $26 million to consolidated net income in 2008, down from $57 million in 2007. The decrease in
consumer banking net income was largely due to a decrease in net interest revenue and a decrease in the fair value of mortgage
servicing rights, net of economic hedges. In addition, net loans charged off increased $7.5 million due primarily to losses on
indirect automobile loans.
Net interest revenue from consumer banking activities decreased $4.4 million or 3% from 2007. Falling short-term interest rates
decreased the internal transfer pricing credit provided to the consumer banking division for deposits sold to our funds
management unit by $22 million. Other operating revenue increased $4.3 million or 3% over 2007. Deposit service charges
were up $2.3 million or 3%. Operating expenses increased $25 million or 13% over 2007. Personnel expense increased $7.3
million or 12% due primarily to acquisition of branch locations in Colorado and Texas in mid-year 2007. Deposit insurance
expense was up $2.3 million and charges for mortgage loan foreclosure losses increased $7.5 million.
The decrease in fair value of our mortgage loan servicing rights, net of economic hedging, reduced consumer banking net income
by $14 million in 2008 and $2.1 million in 2007. Anticipated prepayment speeds increased significantly in the fourth quarter of
2008 in response to government programs to lower mortgage interest rates. Although we maintain a portfolio of mortgage-
backed securities as an economic hedge against changes in the fair value of our servicing rights, disconnection between current
yields on these securities and current mortgage loan commitment rates limited the effectiveness of our hedge.
The interest rate sensitivity of our mortgage servicing rights and securities held as an economic hedge is modeled over a range of
+/- 50 basis points. At December 31, 2008, a 50 basis point increase in mortgage interest rates is expected to increase the fair
value of our mortgage servicing rights, net of economic hedging by $1.9 million. A 50 basis point decrease in mortgage interest
rates is expected to decrease the fair value of our mortgage servicing rights, net of economic hedging by $4.4 million. Modeling
changes in the value of our servicing rights due to changes in interest rates assumes stable relationships between mortgage
commitment rates and discount rates and assumed prepayment speeds and actual prepayment speeds. Changes in market
conditions can cause variations from these assumptions. These factors and others may cause changes in the value of our
mortgage servicing rights to differ from our expectations.
Average consumer deposits increased $236 million or 4% over 2007. Interest-bearing transaction accounts were up $302 million
or 17% and time deposits were down $161 million or 6%. Average demand deposit accounts increased $73 million or 12%.
Movement of funds among the various types of consumer deposits was largely based on interest rates and product features
offered.
Our Consumer Banking division originates, markets and services conventional and government-sponsored mortgage loans for all
of our markets. During 2008, we funded $1.0 billion of mortgage loans, compared with $920 million in 2007. Approximately
56% of our mortgage loans funded was in the Oklahoma market and 18% of mortgage loans funded was in the Texas market.
We also service $6.0 billion of mortgage loans, including $793 million of loans serviced for affiliated entities. Approximately
93% of the mortgage loans serviced was to borrowers in our primary market areas.
29
Table 11 Consumer Banking
(Dollars in Thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
$
Years ended December 31,
2007
$
(7,807) $
163,028
2008
32,076
118,728
2006
(5,015)
151,532
Total net interest revenue
Other operating revenue
Operating expense
Net loans charged off
Increase (decrease) in fair value of mortgage
servicing rights
Gains (losses) on financial instruments, net
Gains on repossessed assets, net
Income before taxes
Federal and state income tax
150,804
148,885
219,024
16,726
(34,515)
12,525
193
42,142
16,393
155,221
146,517
144,585
193,599
9,233
(2,893)
(486)
107
93,702
36,450
134,261
176,649
5,075
3,009
(1,102)
72
101,033
39,302
Net income
$
25,749
$
57,252
$
61,731
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Banking locations (period-end)
Mortgage loan servicing portfolio
Mortgage loan fundings
Wealth Management
$ 7,974,694
2,511,634
5,678,166
216,810
0.32%
11.88
73.08
0.67
195
$ 5,983,824
1,018,246
$
7,514,732
2,274,013
5,442,666
194,130
$ 6,966,156
2,044,930
5,123,224
192,310
0.76%
29.49
64.57
0.41
189
$ 5,481,736
919,823
0.89%
32.10
62.91
0.25
163
$ 4,988,611
766,458
The Wealth Management division contributed $30 million of net income in 2008, up $4.1 million or 16% over 2007. Net interest
revenue decreased $719 thousand or 2%. Lower internal funds transfer credit provided for deposits sold to the funds
management unit decreased net interest revenue by $11 million. Other operating revenue increased $25 million or 19% over
2007. Brokerage and trading revenue was up $26 million, more than double 2007, due primarily to securities trading revenue.
Growth in trust fees and commissions was limited to $748 thousand or 1% due primarily to a decrease in the fair value of trust
assets.
Operating expenses increased $19 million or 14% over 2007. Personnel expense was up $14 million or 17%, including a $13
million increase in sales commissions associated with securities trading. Non-personnel operating expenses increased $5.1
million or 11% compared with 2007 due to data processing and deposit insurance costs.
The Wealth Management division provided $2.1 billion of average deposits in 2008 compared with $1.7 billion of average
deposits in 2007. Interest-bearing transaction accounts averaged $1.5 billion for 2008, an increase of $305 million or 26% over
2007. Average time deposits were $389 million, up $102 million or 35% over last year. Deposit growth for the Wealth
Management division was due largely to movement of customer funds from managed money market products into deposits.
At December 31, 2008 and 2007, Wealth Management was responsible for trust assets with aggregate fair values of $30.5 billion
and $36.3 billion, respectively, under various fiduciary arrangements. The decrease in fair value of trust assets was due primarily
to general market conditions. We have sole or joint discretionary authority over $11.5 billion of trust assets at December 31,
2008 compared to $13.8 billion at December 31, 2007. The fair value of non-managed assets totaled $11.3 billion at December
31, 2008, down from $13.1 billion at the previous year end. The fair value of assets held in safekeeping totaled $7.7 billion at
December 31, 2008 and $9.4 billion at December 31, 2007.
30
Table 12 Wealth Management
(Dollars in Thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
$
Years ended December 31,
2007
$
8,562
37,627
$
2008
12,617
32,853
2006
16,731
29,180
Total net interest revenue
45,470
46,189
45,911
Other operating revenue
Operating expense
Net loans charged off
Cavanal Hill Funds settlement
Gains (losses) on financial instruments, net
Income before taxes
Federal and state income tax
156,133
149,966
2,961
–
(7)
48,669
18,932
130,681
131,205
1,513
2,232
13
41,933
16,312
114,044
114,548
242
–
5
45,170
17,571
Net income
$
29,737
$
25,621
$
27,599
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Trust assets
$ 2,505,168
933,139
2,100,237
191,830
1.19%
15.50
74.39
$
2,020,472
910,568
1,653,606
182,370
1.27%
14.05
74.18
$ 1,710,193
858,267
1,415,860
163,340
1.61%
16.90
71.61
$ 30,454,512
$ 36,288,592
$ 31,704,091
Geographic Market Distribution
The Company also secondarily evaluates performance by primary geographic market. Loans are generally attributed to
geographic markets based on the location of the customer and may not reflect the location of the underlying collateral. Brokered
deposits and other wholesale funds are not attributed to a geographic market. Funds management and other also includes
insignificant results of operations in locations outside our primary geographic regions.
Table 13 Net Income by Geographic Region
(In Thousands)
Years ended December 31,
2007
2006
2008
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas City
Subtotal
Funds management and other
Total
Oklahoma Market
$ 69,957
42,420
14,449
9,389
7,618
(8,083)
539
136,289
16,943
$ 153,232
$ 141,817
53,772
18,474
4,774
13,784
4,092
(380)
236,333
(18,669)
$ 217,664
$ 145,176
48,595
17,326
3,851
12,361
3,743
(622)
230,430
(17,453)
$ 212,977
Oklahoma remains our predominate market. Our Oklahoma offices are located primarily in the Tulsa and Oklahoma City
metropolitan areas. Approximately 51% of our average loans, 50% of our average deposits and 46% of our consolidated net
income is attributed to the Oklahoma market. In addition, all of our mortgage servicing activity and 77% of our trust assets are
attributed to the Oklahoma market.
Net income generated in the Oklahoma market in 2008 totaled $70 million, down $72 million from the previous year due
primarily to credit losses and a decrease in the fair value or mortgage servicing rights, net of economic hedges. Credit losses in
the Oklahoma market included a $26 million loan charge off and a $41 million loss on derivative contracts with SemGroup, L.P.
The Oklahoma market also recognized $11 million of recoveries of two loans charged-off in previous years and a $6.8 million
gain from the partial redemption of shares received from the Visa, Inc. initial public offering.
31
Net interest revenue decreased $17 million or 6% from 2007 due to the lower internal funds transfer credit provided for deposits
sold to the funds management unit. This was partially offset by the benefit of a $67 million or 1% increase in average loans in
the Oklahoma market.
Other operating revenue, excluding the $41 million loss on derivative contracts increased $27 million or 9% due primarily to
transaction card revenue, mortgage banking revenue and deposit account service charges. Operating expense increased $38
million or 12% due primarily to higher personnel costs and deposit insurance expense.
Net loans charged-off totaled $45 million or 0.70% of average loans in 2008 and $11 million or 0.18% of average loans in 2007.
Net loans charged-off in 2008, excluding the SemGroup charge-offs and two recoveries that are not expected to recur, totaled $30
million or 0.47% of average loans.
Table 14 Oklahoma
(Dollars in Thousands)
Net interest revenue
$
Years ended December 31,
2007
260,649
$
$
2008
244,090
Other operating revenue
Operating expense
Net loans charged off
Increase (decrease) in fair value of mortgage
servicing rights
Gains (losses) on financial instruments, net
Gains on repossessed assets, net
Income before taxes
Federal and state income tax
280,314
348,345
44,783
(34,515)
17,207
527
114,495
44,538
294,565
309,836
11,145
(2,893)
602
164
232,106
90,289
2006
251,374
274,811
289,766
929
3,009
(1,088)
193
237,604
92,428
Net income
$
69,957
$
141,817
$
145,176
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 13,047,213
6,409,208
6,780,539
780,400
0.54%
8.96
66.43
0.70
$ 11,652,430
6,329,310
5,999,478
818,360
1.22%
$ 10,947,303
6,057,379
5,507,046
838,690
1.33%
17.33
55.80
0.18
17.31
55.07
0.02
Texas Market
Texas is our second largest market. Our Texas offices are located primarily in Dallas, Fort Worth and Houston metropolitan
areas. Approximately 29% of our average loans, 24% of our average deposits and 28% of our consolidated net income is
attributed to the Texas market.
Net interest revenue increased $2.5 million or 2% over 2007. Average outstanding loans increased $587 million or 19% over
2007. The benefit of an increase in average loans was largely offset by the reduced benefit from funds sold to the funds
management unit.
Other operating revenue increased 3% and operating expenses increased 7% over last year. Growth in operating expenses
included a full-year’s costs of Worth National Bank, which was acquired in May, 2007, and higher deposit insurance costs.
Net loans charged-off totaled $17 million or 0.46% of average loans in 2008 and $2.4 million or 0.08% of average loans in 2007.
32
Table 15 Texas
(Dollars in Thousands)
Net interest revenue
$
Years ended December 31,
2007
151,157
$
$
2008
153,703
Other operating revenue
Operating expense
Net loans charged off
Gains (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
45,348
116,345
16,544
119
66,281
23,861
44,177
108,831
2,438
(47)
84,018
30,246
2006
138,264
38,812
96,210
5,081
145
75,930
27,335
Net income
$
42,420
$
53,772
$
48,595
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 5,263,108
3,635,216
3,222,986
463,360
$ 4,544,447
3,046,091
2,959,111
471,910
$
0.81%
9.15
58.45
0.46
1.18%
11.39
55.72
0.08
4,146,532
2,559,918
2,803,801
435,010
1.17%
11.17
54.33
0.20
Other Markets
Net income attributed to our New Mexico market totaled $14 million or 9% of consolidated net income for 2008, down from $18
million in 2007. The decrease in net income attributed to New Mexico resulted from lower net interest revenue due to the lower
internal funds transfer credit provided for deposits sold to the funds management unit.
Net income in the Arkansas market increased to $9.4 million in 2008 from $4.8 million in 2007 due primarily to growth in
securities trading revenue at our Little Rock office. This was partially offset by a $2.0 million increase in net loans charged-off,
primarily indirect automobile loans.
Net income attributed to the Colorado market totaled $7.6 million in 2008, down from $14 million in 2007. Net loans charged-
off totaled $8.1 million or 0.95% of average loans in 2008 and $276 thousand or 0.04% of average loans in 2007.
We incurred a net loss of $8.1 million in the Arizona market in 2008 compared with net income of $4.1 million in 2007. The loss
was largely due to an increase in net loans charged-off and an increase in operating expenses. Net loans charged-off totaled $18
million or 3.06% of average loans in 2008 and $1.6 million or 0.30% of average loans in 2007. Most of the net loans charged-off
were land and residential development loans originated in the Tucson market. The increase in operating expenses are primarily
related to personnel costs incurred to build our commercial banking presence in the Phoenix market.
33
Table 16 New Mexico
(Dollars in Thousands)
Net interest revenue
$
Years ended December 31,
2007
$
45,083
$
2008
39,242
Other operating revenue
Operating expense
Net loans charged off
Gains (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
23,788
35,662
3,715
(6)
23,647
9,198
24,127
35,329
3,645
–
30,236
11,762
2006
41,999
21,317
32,869
2,117
27
28,357
11,031
Net income
$
14,449
$
18,474
$
17,326
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 1,736,872
828,084
1,036,209
114,150
$
1,784,928
802,916
1,082,883
118,320
$ 1,666,863
687,281
1,011,161
107,160
0.83%
12.66
56.58
0.45
1.03%
15.61
51.05
0.45
1.04%
16.17
51.91
0.31
Table 17 Arkansas
(Dollars in Thousands)
Net interest revenue
$
Years ended December 31,
2007
2006
$
10,075
$
7,667
2008
11,784
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income before taxes
Federal and state income tax
29,104
22,027
3,253
242
15,366
5,977
17,213
18,237
1,238
–
7,813
3,039
16,523
17,645
205
38
6,302
2,451
Net income
$
9,389
$
4,774
$
3,851
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
475,794
434,096
73,605
30,290
1.97%
31.00
53.87
0.75
$
393,575
357,286
68,659
27,190
1.21%
17.56
66.83
0.35
281,896
241,124
69,891
22,680
1.37%
16.98
72.94
0.09
34
Table 18 Colorado
(Dollars in Thousands)
Net interest revenue
$
Years ended December 31,
2007
$
36,544
$
2008
37,009
Other operating revenue
Operating expense
Net loans charged off (recovered)
Income before taxes
Federal and state income tax
16,600
32,997
8,145
12,467
4,849
16,276
29,985
276
22,559
8,775
2006
30,777
12,633
23,214
(35)
20,231
7,870
Net income
$
7,618
$
13,784
$
12,361
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 1,850,419
861,337
1,058,816
126,170
$
1,687,312
738,581
992,844
115,170
$ 1,192,158
528,289
713,372
96,360
0.41%
6.04
61.55
0.95
0.82%
11.97
56.77
0.04
1.04%
12.83
53.48
(0.01)
Table 19 Arizona
(Dollars in Thousands)
Net interest revenue
$
Years ended December 31,
2007
$
19,292
$
2008
18,608
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income (loss) before taxes
Federal and state income tax (benefit)
1,300
14,741
18,109
287
(13,229)
(5,146)
2,294
13,301
1,588
–
6,697
2,605
2006
14,687
1,092
9,644
9
–
6,126
2,383
Net income (loss)
$
(8,083)
$
4,092
$
3,743
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
627,784
592,067
126,313
61,780
(1.29)%
(13.08)
74.05
3.06
$
553,315
519,359
122,617
30,040
0.74%
13.62
61.62
0.31
349,171
314,581
113,789
6,970
1.07%
53.70
61.12
–
35
Table 20 Kansas City
(Dollars in Thousands)
Years ended December 31,
2007
2006
2008
Net interest revenue
$
7,692
$
4,151
$
1,637
Other operating revenue
Operating expense
Net loans charged off
Income (loss) before taxes
Federal and state income tax (benefit)
Net income (loss)
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
13,456
13,164
7,102
882
343
6,533
11,144
162
(622)
(242)
2,118
4,772
–
(1,017)
(395)
539
$
(380) $
(622)
$
354,703
338,860
37,964
23,970
0.15%
2.25
62.25
2.10
$
184,693
178,169
16,936
13,790
(0.21)%
(2.76)
104.31
0.09
85,718
84,453
968
2,310
(0.73)%
(26.93)%
127.08
–
Assessment of Financial Condition
Securities
BOK Financial maintains a securities portfolio to support its interest rate risk management strategies, enhance profitability,
provide liquidity and comply with regulatory requirements. Securities are classified as held for investment, available for sale or
trading.
Table 21 Securities
(Dollars in Thousands)
Investment:
U.S. Treasury
Municipal and other tax-exempt
Other debt securities
Total
Available for sale:
U.S. Treasury
Municipal and other tax-exempt
Mortgage-backed securities:
U.S. agencies
Other
Total mortgage-backed securities
Other debt securities
Federal Reserve Banks
Federal Home Loan Banks
Perpetual preferred stocks
Other equity securities and mutual funds
Total
Mortgage trading:
2008
December 31,
2007
2006
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
–
235,791
6,553
$ 242,344
$
–
239,178
6,591
$ 245,769
$
–
242,274
5,675
$ 247,949
$
–
243,061
5,727
$ 248,788
$
1,999
240,976
5,714
$ 248,689
$
1,995
238,869
5,744
$ 246,608
$
6,987
19,537
$
7,126
20,163
$
6,961
26,478
$
7,088
26,578
$
6,014
77,860
$
5,983
78,614
4,900,895
1,636,934
6,537,829
37
32,380
61,760
32,472
31,421
$ 6,722,423
4,972,928
1,241,238
6,214,166
36
32,380
61,760
21,701
34,119
$ 6,391,451
3,838,219
1,664,537
5,502,756
42
31,299
57,265
32,778
30,347
$ 5,687,926
3,817,939
1,641,189
5,459,128
41
31,299
57,265
32,778
36,363
$ 5,650,540
3,204,592
1,361,373
4,565,965
46
23,609
50,897
–
27,454
$ 4,751,845
3,128,138
1,333,533
4,461,671
45
23,609
50,897
–
34,242
$ 4,655,061
Mortgage-backed U.S. agency securities
$ 386,571
$ 399,211
$ 153,920
$ 154,701
$ 163,094
$ 162,837
36
Investment securities, which consist primarily of Oklahoma municipal bonds, are carried at cost and adjusted for amortization of
premiums or accretion of discounts. At December 31, 2008, investment securities were carried at $242 million and had a fair
value of $246 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 $6.7 billion at December 31, 2008, up $1.0 billion compared with December 31, 2007.
Mortgage-backed securities represented 97% of total available for sale securities. The Company holds no debt securities of
corporate issuers.
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 2.4 years at December 31, 2008. Management estimates that the expected duration would extend to approximately
2.6 years assuming a 300 basis point immediate rate shock. The effect of falling interest rates from current low levels is not
expected to be significant.
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 U.S. government agencies. Principal and interest payments on the
underlying loans are fully guaranteed. At December 31, 2008, approximately $4.9 billion of the amortized cost of the
Company’s mortgage-backed securities were issued by U.S. government agencies. The fair value of these mortgage-backed
securities totaled $5.0 billion at December 31, 2008.
The Company also holds approximately $1.6 billion, based on amortized cost, of mortgage-backed securities privately issued by
publicly-owned financial institutions. The fair value of our portfolio of privately issued mortgage-backed securities totaled $1.2
billion at December 31, 2008.
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 $390 million of the privately issued mortgage-backed securities consisted of Alt-
A mortgage loans. Approximately 82% of these securities, including all Alt-A mortgage-backed securities originated in 2007
and 2006, are credit enhanced with additional collateral support. Approximately 86% of our Alt-A mortgage-backed securities
represented pools of fixed-rate mortgage loans. None of the adjustable rate mortgages are payment option ARMs.
The aggregate gross amount of unrealized losses on available for sale securities at December 31, 2008 totaled $418 million.
Management evaluated the securities with unrealized losses to determine if we believe 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.
Approximately $252 million of our portfolio of mortgage-backed securities are rated below investment grade by at least one of
the nationally-recognized rating agencies. The aggregate unrealized loss on these securities totaled $92 million. We use an
adjusted loan to value ratio as part of our evaluation of whether the unrealized losses on these securities are temporary or other-
than-temporary. Consideration is given to other-than-temporary impairment if the adjusted loan to value ratio of a specific
security exceeds 85%. We expect the number of below investment grade securities to increase as the rating agencies continue
their evaluations in a worsening economy. A distribution of the amortized cost, fair value and unrealized loss by adjusted loan to
value ratio is presented in Table 22.
Table 22 Below Investment Grade Securities at December 31, 2008
(In Thousands)
Adjusted LTV Ratio Amortized Cost
Fair Value
< 70 %
70 < 75
75 < 80
80 < 85
Total
$
89,244
66,862
83,298
12,702
$ 252,106
$
62,886
43,522
46,785
6,985
$ 160,178
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. None of the institutions that issued these stocks
were in default. These preferred stocks have certain debt-like features such as a quarterly dividend based on LIBOR. However,
37
the issuers of these stocks have no obligation to redeem them. The aggregate fair value of these preferred stocks decreased to
$22 million at December 31, 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.
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 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 $237 million invested in bank-owned life insurance at December 31, 2008. These investments
are expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $204
million is held in separate accounts. The Company’s separate account holdings are invested in diversified portfolios of
investment-grade fixed income securities and cash equivalents, including U.S. Treasury and Agency securities, mortgage-backed
securities, corporate debt, asset-backed and CMBS securities. The portfolios are managed by unaffiliated professional managers
within parameters established in the portfolio’s investment guidelines. The cash surrender value of the life insurance policies is
further supported by a stable value wrap, which protects against changes in the fair value of the investments. At December 31,
2008, cash surrender value represented by the underlying fair value of investments held in separate accounts was approximately
$199 million and cash surrender value represented by the value of the stable value wrap was approximately $4.6 million. The
stable value wrap was provided by a highly-rated, domestic financial institution. The remaining cash surrender value of $33
million primarily represented the cash surrender value of policies held in the general accounts and amounts due from various
insurance companies.
Loans
The aggregate loan portfolio before allowance for loan losses totaled $12.9 billion at December 31, 2008, a $935 million or 8%
increase since December 31, 2008. Commercial loans, residential mortgage loans and consumer loans increased during the year.
Commercial real estate loans decreased during the same period.
In previous years, 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.
The commercial loan portfolio increased $650 million during 2008 to $7.4 billion at December 31, 2008. Energy loans totaled
$2.3 billion or 18% of total loans. Outstanding energy loans increased $357 million during 2008. Approximately $2.0 billion of
energy loans was to oil and gas producers, up from $1.6 billion at December 31, 2007. 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 $161 million of loans to borrowers that provide services to the energy industry, $128 million of
loans to borrowers engaged in wholesale or retail energy sales and $55 million of loans to borrowers that manufacture equipment
for the energy industry. The energy category of our loan portfolio is distributed $1.1 billion in Oklahoma, $728 million in Texas
and $433 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, financial services and transportation services. Outstanding loans to the
services sector of the loan portfolio increased $305 million during 2008. Approximately $1.3 billion of the services category is
made up of loans with individual balances of less than $10 million. Approximately $731 million of the outstanding balance of
services loans is attributed to Texas, $658 million to Oklahoma, $247 million to New Mexico, $135 million to Arizona and $132
million to Colorado.
Other notable loan concentrations by primary industry of the borrowers are presented in Table 23.
38
Table 23 Loans
(In Thousands)
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Agriculture
Other commercial and industrial
Total commercial
Commercial real estate:
Construction and land development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
2008
2007
2006
2005
2004
December 31,
$2,311,813
2,038,451
1,165,099
497,957
777,154
197,629
423,500
7,411,603
$1,954,967
1,733,569
1,084,379
493,185
685,131
240,469
569,884
6,761,584
$1,763,180
1,555,141
932,531
609,571
602,273
321,380
424,808
6,208,884
$1,399,417
1,425,821
793,032
514,792
520,309
291,858
354,706
5,299,935
$1,223,195
1,190,814
699,318
484,423
424,257
262,436
291,393
4,575,836
926,226
371,228
459,357
316,596
149,367
478,474
2,701,248
1,273,275
479,299
1,752,574
692,615
317,966
1,010,581
1,007,414
423,118
421,163
214,388
154,255
502,746
2,723,084
889,925
374,294
420,914
239,000
146,406
376,001
2,446,540
638,366
305,217
499,174
204,620
90,601
251,924
1,989,902
457,399
312,016
342,950
231,985
75,884
200,876
1,621,110
1,092,382
442,223
1,534,605
867,748
388,511
1,256,259
807,509
361,822
1,169,331
847,254
351,664
1,198,918
625,203
296,094
921,297
465,622
273,873
739,495
358,144
271,000
629,144
234,630
258,211
492,841
$12,876,006
$11,940,570
$10,651,178
$9,088,312
$7,888,705
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 December 31, 2008, the outstanding principal balance of these loans totaled $2.2 billion.
Substantially all of these loans are to borrowers with local market relationships. BOK Financial serves as the agent lender in
approximately 21% 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 December 31, 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 $22 million or 1% from the previous year end. Construction
and land development loans decreased $81 million to $926 million at December 31, 2008. Approximately $244 million of these
loans are attributed to the Oklahoma market, $246 million to the Texas market, $172 million to the Colorado market and $155
million to the Arizona market.
Loans secured by multifamily residential properties increased $102 million, primarily in the Texas and Oklahoma markets.
Loans secured by office buildings increased $38 million, primarily in the Colorado, Texas, Oklahoma and New Mexico markets.
The geographic distribution of the $1.8 billion of commercial real estate loans excluding construction land and land development
loans primarily consisted of $600 million in Oklahoma, $580 million in Texas, $206 million in New Mexico, $165 million in
Arizona and $90 million in Colorado. Other commercial real estate loans in the Arizona market included $64 million secured by
retail facilities and $47 million secured by office facilities.
Residential mortgage loans totaled $1.8 billion, up $218 million or 14% since December 31, 2007. Permanent 1-4 family
mortgage loans increased $181 million and home equity loans increased $37 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 $127 million of
community development loans. These loans are generally underwritten to prime standards and require full documentation.
Approximately $1.2 billion of our residential mortgage loan portfolio is attributed to borrowers in Oklahoma and $315 million to
borrowers in Texas.
At December 31, 2008, consumer loans included $693 million of indirect automobile loans. Approximately $434 million of
these loans were purchased from dealers in Oklahoma and $170 million were purchased from dealers in Arkansas. The
remaining $88 million were purchased from dealers in Texas. Indirect automobile loans increased $110 million through June 30,
39
2008, then decreased $42 million during the second half of 2008. Approximately 6% of the outstanding balance at December 31,
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.
Table 24 Loan Maturity and Interest Rate Sensitivity at December 31, 2008
(In Thousands)
Loan maturity:
Commercial
Commercial real estate
Total
Interest rate sensitivity for selected loans with:
Predetermined interest rates
Floating or adjustable interest rates
Total
Total
$ 7,411,603
2,701,248
$ 10,112,851
$ 3,921,529
6,191,322
$ 10,112,851
Remaining Maturities of Selected Loans
Within 1 Year
1-5 Years
After 5 Years
$ 2,482,847 $ 4,099,164
934,537
$ 829,592
292,500
$ 5,033,701 $ 1,122,092
1,474,211
$ 3,957,058
$ 614,129 $ 2,707,477 $ 599,923
522,169
$ 3,957,058 $ 5,033,701 $ 1,122,092
3,342,929
2,326,224
40
Table 25 Loans by Principal Market Area
(In Thousands)
Oklahoma:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Oklahoma
Texas:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Texas
New Mexico:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total New Mexico
Arkansas:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Arkansas
Colorado:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Colorado
Arizona:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Arizona
Kansas:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Kansas
Total BOK Financial loans
Loan Commitments
2008
2007
2006
2005
2004
December 31,
$ 3,356,520
843,576
1,196,924
579,809
$ 5,976,829
$ 3,224,013
885,866
1,080,483
576,070
$ 5,766,432
$ 3,186,085
979,251
896,567
512,032
$ 5,573,935
$ 3,059,441
859,829
842,456
466,180
$ 5,227,906
$ 2,784,657
744,724
901,538
367,947
$ 4,798,866
$ 2,353,860
825,769
315,438
212,820
$ 3,707,887
$ 1,997,659
830,980
278,842
142,958
$ 3,250,439
$ 1,722,627
670,635
213,801
95,652
$ 2,702,715
$ 1,356,611
569,921
199,726
89,017
$ 2,215,275
$ 1,120,069
459,067
191,296
86,732
$ 1,857,164
$ 418,732
286,574
98,018
18,616
$ 821,940
$ 473,262
252,884
84,336
16,105
$ 826,587
$ 411,272
257,079
75,159
13,256
$ 756,766
$ 383,325
232,564
65,784
15,137
$ 696,810
$ 354,904
196,832
63,043
13,260
$ 628,039
$ 103,446
134,015
16,875
175,647
$ 429,983
$ 106,328
124,317
16,393
163,626
$ 410,664
$
95,483
94,395
23,076
86,017
$ 298,971
$
79,719
75,483
13,044
25,659
$ 193,905
$
61,934
74,478
11,238
3,858
$ 151,508
$ 660,546
261,820
53,875
16,141
$ 992,382
$ 490,373
252,537
26,556
16,457
$ 785,923
$ 451,046
193,747
15,812
26,591
$ 687,196
$ 270,108
133,537
21,918
27,871
$ 453,434
$ 191,459
118,134
31,693
21,044
$ 362,330
$ 211,356
319,525
62,123
6,075
$ 599,079
$ 157,341
342,673
46,269
5,522
$ 551,805
$
96,453
207,035
31,280
5,947
$ 340,715
$
50,489
115,697
26,102
5,280
$ 197,568
$
$
–
27,875
–
–
27,875
$ 307,143
29,969
9,321
1,473
$ 347,906
$12,876,006
$ 312,608
33,827
1,726
559
$ 348,720
$11,940,570
$ 245,918
44,398
564
–
$ 290,880
$10,651,178
$ 100,242
2,871
301
–
$ 103,414
$ 9,088,312
$
62,813
–
110
–
$
62,923
$ 7,888,705
BOK Financial enters into certain off-balance sheet arrangements in the normal course of business. These arrangements included
loan commitments which totaled $5.0 billion and standby letters of credit which totaled $599 million at December 31, 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 represent future cash requirements. Approximately $1.6
million of the outstanding standby letters of credit were issued on behalf of customers whose loans are non-performing at
December 31, 2008.
41
Table 26 Off-Balance Sheet Credit Commitments
(In Thousands)
2008
2007
2006
2005
2004
As of December 31,
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
$ 5,015,660
598,618
391,188
$ 5,345,736
555,758
392,534
$ 5,318,257 $ 4,349,114 $ 3,459,425
414,228
32,134
527,627
329,713
558,907
248,150
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 from default than traditional residential
mortgage loans. A separate recourse reserve is maintained as part of other liabilities. At December 31, 2008, the principal
balance of loans sold subject to recourse obligations totaled $391 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, $19 million to borrowers in the Kansas City area and $18 million to borrowers in Texas. The
separate reserve for this off-balance commitment totaled $8.8 million at December 31, 2008. Approximately 3.14% of the loans
sold with recourse with an outstanding principal balance of $13 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
$8.6 million for 2008. Net losses charged against the reserve totaled $3.4 million for 2008.
Customer Derivative Programs
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 are
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 December 31, 2008, the net fair values of derivative contracts reported as assets
under these programs totaled $656 million, up from $501 million at December 31, 2007. At December 31, 2008, derivative
contracts carried as assets included energy contracts with fair values of $423 million, interest rate contracts with fair values of
$174 million and foreign exchange contracts with fair values of $52 million. The aggregate net fair values of derivative contracts
held under these programs reported as liabilities totaled $682 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. Total derivative
assets were reduced by $217 million of cash collateral received from counterparties and total derivative liabilities were reduced
by $15 million of cash collateral delivered to counterparties at December 31, 2008.
42
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 December 31, 2008 was (in thousands):
Customers
Banks
Energy companies
Exchanges
Other
Fair value of customer hedge asset derivative contracts, net
$206,719
120,516
76,296
30,204
5,319
$439,054
The largest net reported amount due from a single counterparty, a subsidiary of a major energy company, at December 31, 2008
was $64 million. Letters of credit issued by independent financial institutions further reduce our exposure to this customer to $14
million.
Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain
counterparties when the net negative fair value of the contracts exceed established limits. Also, changes in commodity prices
affect the amount of regulatory capital we are required to hold as support for the fair value of our derivative assets. These risks
are modeled as part of the management of these programs. Based on current prices, a decrease in market prices equivalent to $20
per barrel of oil would increase the fair value of derivative assets by $256 million. An increase in prices equivalent to $80 per
barrel of oil would decrease the fair value of derivative assets by $98 million as current prices move closer to the fixed prices
embedded in our existing contracts. Further increases in prices equivalent to $120 per barrel of oil would increase the fair value
of our derivative assets by $621 million. Liquidity requirements of this program are also affected by our credit rating. A
decrease in credit rating from A1 to below investment grade would increase our obligation to post cash margin on existing
contracts by approximately $286 million.
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 and off-balance sheet credit losses totaled $248 million or 1.93% of outstanding loans and 83% of non-
accruing loans at December 31, 2008. At December 31, 2007, the combined allowance for loan losses and off-balance sheet
credit losses was $148 million or 1.24% of outstanding loans and 175% of non-accruing loans. The reserve for loan losses
totaled $233 million or 1.81% of outstanding loans at December 31, 2008 and $127 million or 1.06% of outstanding loans at
December 31, 2007. The reserve for off-balance sheet credit commitments was $15 million at December 31, 2008, down from
$21 million at December 31, 2007 due largely to changes in risk factors and the funding of existing commitments.
Net loans charged off during 2008 totaled $102 million compared to $21 million in the previous year. The ratio of net loans
charged off to average outstanding loans was 0.81% for 2008 compared with 0.19% for 2007.
Gross loans charged off in 2008 totaled $122 million, an increase of $91 million over 2007. The single largest gross amount
charged off during 2008 was $26 million from the SemGroup credit. The remaining gross loans charged off included $49 million
of other commercial loans, $19 million of commercial real estate loans and $21 million of consumer loans. Recoveries of loans
previously charged off increased to $20 million in 2008 from $11 million in the previous year. In addition to the normal trend of
recoveries, we recovered $7.1 million from a loan charged off in 2005 and $4.0 million from a loan charged off in 2001 during
2008.
Commercial loans charged off in 2008, in addition to SemGroup, included $17 million in the services sector of the loan portfolio.
Commercial loans charged off were distributed across our markets. Commercial real estate loans charged off were largely
concentrated in the Arizona market. Approximately $16 million of land and residential construction loans in Arizona were
charged off in 2008.
Consumer loan net charge-offs, which includes indirect auto loan and deposit account overdraft losses, totaled $14 million for
2008, up $6.3 million over the previous year. Net charge-offs of indirect auto loans totaled $8.6 million for 2008 and $2.9
million for 2007. Net indirect auto loans charged off were $4.7 million in the Oklahoma market, $2.9 million in the Arkansas
market and $923 thousand in the Texas market.
43
Table 27 Summary of Loan Loss Experience
(Dollars in Thousands)
Reserve for loan losses:
Beginning balance
Loans charged off:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Recoveries of loans previously charged off:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Net loans charged off
Provision for loan losses
Additions due to acquisitions
Ending balance
Reserve for off-balance sheet credit losses:
Beginning balance
Provision for off-balance sheet credit losses
Additions due to acquisitions
Ending balance
Total provision for credit losses
Reserve for loan losses to loans outstanding at year-end
Net charge-offs to average loans
Total provision for credit losses to average loans
Recoveries to gross charge-offs
Reserve for loan losses as a multiple of net charge-offs
Reserve for off-balance sheet credit losses to off-balance
sheet credit commitments
Combined reserves for credit losses to loans outstanding
at year-end
Problem Loans:
Loans past due (90 days)
Nonaccrual1
Renegotiated2
Total
Foregone interest on nonaccrual loans1
2008
Years ended December 31,
2006
2007
2005
2004
$126,677
$109,497
$103,876
$108,618
$ 114,784
74,976
19,141
7,223
20,871
122,211
13,379
332
366
6,413
20,490
101,721
208,280
–
$233,236
$20,853
(5,687)
–
$15,166
$202,593
14,380
1,795
1,709
13,733
31,617
4,534
110
309
5,558
10,511
21,106
34,758
3,528
$126,677
10,517
87
1,265
12,127
23,996
5,405
327
161
5,638
11,531
12,465
18,086
–
$ 109,497
9,670
2,619
1,212
12,257
25,758
4,071
117
180
5,176
9,544
16,214
10,401
1,071
$ 103,876
$20,890
(37)
–
$20,853
$20,574
316
–
$20,890
$34,721 $18,402 $12,441
$18,502
2,040
32
$20,574
13,921
971
1,465
13,328
29,685
2,283
30
243
5,171
7,727
21,958
15,792
–
$ 108,618
$13,855
4,647
–
$18,502
$20,439
1.81%
0.81
1.62
16.77
2.29x
0.27%
1.93%
1.06%
0.19
0.31
33.24
6.00x
1.03%
0.13
0.19
48.05
8.78x
1.14%
0.19
0.15
37.05
6.41x
1.38%
0.29
0.27
26.03
4.95x
0.35%
0.36%
0.42%
0.48%
1.24%
1.22%
1.37%
1.61%
$ 19,123
300,073
13,039
$332,235
$ 8,391
$ 5,575
84,290
10,394
$ 100,259
$ 3,011
$ 5,945
26,055
9,802
$ 41,802
$ 2,130
$ 8,708
25,162
6,379
$ 40,249
$ 2,515
$ 7,649
52,660
4,689
$ 64,998
$ 4,617
1
2
Interest collected and recognized on nonaccrual loans was not significant in 2008 and previous years disclosed.
Includes residential mortgage loans guaranteed by agencies of the U.S. government. These loans have been modified to extend
payment terms and/or reduce interest rates to current market.
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 27 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.
At December 31, 2008, specific impairment reserves totaled $29 million on total impaired loans of $270 million. Specific
impairment reserves were $4.4 million on total impaired loans of $74 million at December 31, 2007. Impaired loans with no
specific impairment reserves totaled $76 million at December 31, 2008. Impairment losses on these loans were charged-off
against the allowance for loan losses as they were identified.
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 during 2008. Weakness in the economy
44
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 $203 million for 2008, compared with $35 million for the previous year. Factors
considered in determining the provision for credit losses for 2008 included trends of increasing net charge-offs and
nonperforming loans, concentrations in commercial real estate and residential homebuilder loans and deteriorating trends in the
general economy. The application of statistical migration factors to our loan portfolio identified a trend toward more rapid
deterioration from pass grading in the current recession. The increased provision also considered growth in identified potential
problem loans.
Table 28 Loan Loss Reserve Allocation
(Dollars in Thousands)
2008
2007
December 31,
2006
2005
2004
Reserve2
% of
Loans1
Reserve2
% of
Loans1
Reserve2
% of
Loans1
Reserve2
% of
Loans1
Reserve2
% of
Loans1
Loan category:
Commercial
Commercial real
estate
Residential mortgage
Consumer
Nonspecific allowance
Total
$ 100,743
57.56% $ 49,961
56.07% $ 44,151
58.29% $ 43,915
58.32% $ 52,325
58.00%
75,555
14,017
19,819
23,102
20.98
13.61
7.85
–
40,807
6,156
9,962
19,791
22.89
13.38
7.66
–
30,838
4,663
11,784
18,061
22.97
11.80
6.94
–
25,529
5,302
10,929
18,201
21.89
12.87
6.92
–
21,317
5,904
12,034
17,038
20.55
15.20
6.25
–
$ 233,236 100.00% $ 126,677 100.00% $ 109,497 100.00% $ 103,876 100.00% $ 108,618 100.00%
1 Excludes residential mortgage loans held for sale.
2 Specific allocation for the loan concentration risks are included in the appropriate category.
Non-performing Assets
Non-performing assets totaled $342 million or 2.65% of outstanding loans and repossessed assets at December 31, 2008, up $238
million since December 31, 2007. In addition to $300 million of non-accruing loans, non-performing assets included $13 million
of restructured residential mortgage loans and $29 million of real estate and other repossessed assets. Approximately $10 million
of the restructured residential mortgage loans are guaranteed by agencies of the U.S. government. Non-performing assets
included $15 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 $5.3 million for any losses incurred during a three-year period after the
acquisition date. The Company generally retains non-performing assets to maximize potential recovery which may cause future
non-performing assets to increase.
Non-accruing commercial loans totaled $135 million or 1.82% of total commercial loans at December 31, 2008. Non-accruing
commercial loans increased $92 million since December 31, 2007. Non-accruing loans in the energy sector of the commercial
loan portfolio increased $49 million, substantially all due to the SemGroup credit. This represents approximately one-third of our
pre-bankruptcy credit exposure to SemGroup. In addition, wholesale/retail, services and healthcare sectors of the commercial
loan portfolio increased $15 million, $11 million and $10 million, respectively. The distribution of non-accruing commercial
loans among our various markets included $75 million in Oklahoma, $22 million in Colorado, $20 million in Texas and $11
million in Kansas City.
Non-accruing commercial real estate loans totaled $137 million or 5.08% of outstanding commercial real estate loans at
December 31, 2008. Total non-accruing commercial real estate loans increased $112 million since December 31, 2007, including
a $63 million increase in loans secured by land, residential lots and residential construction properties, a $21 million increase in
multifamily residential loans and a $10 million increase in loans secured by retail facilities. Non-accruing land and residential
construction loans totaled $76 million or 8.21% of the respective loan portfolio sector at December 31, 2008. Other increases in
non-accruing commercial real estate loans are spread across all sectors of the commercial real estate loan portfolio. Non-
accruing commercial real estate loans attributed to our various markets included $76 million to Arizona, $23 million to
Oklahoma, $14 million to Texas, $10 million to Colorado and $8 million to New Mexico.
At December 31, 2008, non-accruing commercial real estate loans in the Arizona market totaled $76 million or 23.85% of
commercial real estate loans in that market, up from $9 million or 1.70% at the previous year end. Non-accruing land and
residential lot and construction loans in Arizona totaled $50 million at December 31, 2008. Other non-accruing commercial real
estate loans in the Arizona market included $12 million of loans secured by retail properties, $6 million of loans secured by
industrial properties and $3 million of loans secured by office properties. These properties are primarily located in the Phoenix
and Tucson areas of Arizona.
45
Our consumer credit exposure consists primarily of permanent residential mortgage loans, home equity loans and indirect
automobile loans. Non-accruing permanent residential mortgage loans totaled $26 million or 2.06% of outstanding residential
mortgage loans at December 31, 2008. Non-accruing home equity loans totaled $1.2 million or 0.24% of outstanding home
equity loans. The distribution of non-accruing residential mortgage loans and home equity loans among our various markets
included $11 million in Oklahoma, $8 million in Texas, $3 million in New Mexico and $3 million in Arizona.
At December 31, 2008, the distribution of our $693 million portfolio of indirect automobile loans among various markets was
$434 million in Oklahoma, $170 million in Arkansas and $88 million in Texas. Approximately 3.36% of the indirect automobile
loan portfolio is past due 30 days or more, including 3.25% in Oklahoma, 3.74% in Arkansas and 3.17% in Texas. At September
30, 2008, the most recent date for which comparable information is available, approximately 2.29% of our indirect automobile
loan portfolio was past due 30 days or more. This compares to a national average of 3.06% for indirect automobile loans past
due 30 days or more at September 30, 2008.
Real estate and other repossessed assets totaled $29 million at December 31, 2008, up from $9 million at December 31, 2007.
Real estate and other repossessed assets included $18 million of 1-4 family residential properties and residential land
development properties, $5 million of developed commercial real estate properties, $3 million of undeveloped land and $3
million of automobiles. Real estate owned and other repossessed assets are primarily located in Oklahoma, Texas, Arkansas and
Colorado. Approximately $2 million of residential and residential land development properties are supported by the First United
Bank sellers’ guaranty.
46
Table 29 Nonperforming Assets
(Dollars in Thousands)
Nonperforming loans
Nonaccrual loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total nonaccrual loans
Renegotiated loans2
Total nonperforming loans
Other nonperforming assets
Total nonperforming assets
Nonaccrual loans by principal market:
Oklahoma
Texas
New Mexico
Arkansas
Colorado3
Arizona
Kansas
Total nonaccrual loans
Nonaccrual loans by loan portfolio sector:
Commercial:
Energy
Manufacturing
Wholesale / retail
Agriculture
Services
Healthcare
Other
Total commercial
Commercial real estate:
Land development and construction
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
Consumer
Total nonaccrual loans
Ratios:
2008
2007
December 31,
2006
2005
2004
$ 134,846
137,279
27,387
561
300,073
13,039
313,112
29,179
$342,291
$ 42,981
25,319
15,272
718
84,290
10,394
94,684
9,475
$104,159
$ 108,367
42,934
16,016
3,263
32,415
80,994
16,084
$ 300,073
$ 47,977
4,983
11,118
1,635
9,222
9,355
–
$ 84,290
$ 49,364
7,343
18,773
680
36,873
12,118
9,695
134,846
76,082
15,625
7,637
24,950
6,287
6,698
137,279
$
529
9,915
3,792
380
25,468
2,301
596
42,981
13,466
5,259
1,013
3,998
–
1,583
25,319
$ 10,737
4,771
10,325
222
26,055
9,802
35,857
8,486
$44,343
$ 11,673
5,370
7,347
772
25,162
6,379
31,541
8,476
$ 40,017
$ 33,195
10,144
8,612
709
52,660
4,689
57,349
3,763
$ 61,112
$ 17,683
6,096
871
267
1,138
–
–
$ 26,055
$ 16,857
5,475
928
–
1,902
–
–
$ 25,162
$ 37,779
2,223
1,463
2,717
8,478
–
–
$ 52,660
$
535
101
2,457
93
5,759
1,600
192
10,737
2,031
–
732
320
–
1,688
4,771
$
75
1,113
3,036
268
5,213
1,942
26
11,673
2,081
–
–
668
–
2,621
5,370
$
276
13,747
4,604
365
13,274
743
186
33,195
6,706
1,171
409
1,235
16
607
10,144
26,233
1,154
27,387
561
$ 300,073
14,541
731
15,272
718
$ 84,290
9,923
402
10,325
222
$ 26,055
6,844
503
7,347
772
$25,162
7,824
788
8,612
709
$ 52,660
Reserve for loan losses to nonperforming loans
Nonperforming loans to period-end loans
Loans past due (90 days)1
74.49%
2.43
$19,123
133.79%
0.79
$ 5,575
305.37%
0.34
$ 5,945
329.34%
0.35
$ 8,708
189.40%
0.73
$ 7,649
1
2
3
Includes residential mortgages guaranteed by agencies
of the U.S. Government.
Includes residential mortgage loans guaranteed by
agencies of the U.S. government. These loans have
been modified to extend payment terms and/or reduce
interest rates to current market.
Includes loans subject to First United Bank sellers
escrow.
$
872
$10,396
$ 1,017
$ 7,550
$ 2,233
$ 5,747
$ 2,021
$ 3,577
$ 2,308
$ 2,131
$13,181
$ 8,412
$
–
$
–
$ –
47
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 borrowers’ ability to comply
with current repayment terms. These potential problem loans totaled $95 million at December 31, 2008. The current
composition of potential problem loans by primary industry included real estate - $68 million, healthcare - $17 million and
services - $6 million. Potential problem real estate loans included $37 million of residential development loans on properties
primarily located in Arizona and Colorado, $12 million of loans secured by undeveloped land located primarily in Arizona and
$11 million of loans secured by office buildings.
Liquidity and Capital
Subsidiary Banks
Deposits and borrowed funds are the primary sources of liquidity for the subsidiary banks. Approximately 63% of our funding is
provided by average deposit accounts, 22% from borrowed funds, 2% from long-term subordinated debt and 9% from
shareholders’ equity. Our funding sources, which primarily include deposits, borrowings from the Federal Home Loan Banks
and other banks, and may include issuance of qualifying debt under the TLGP, provide adequate liquidity to meet our operating
needs.
Deposit accounts represent our largest funding source. During 2008, the Company revised the presentation of certain deposit
accounts. Previously, demand deposit accounts were shown net of adjustments made to manage 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.
We compete for retail and commercial deposits by offering a broad range of products and services and focusing on customer
convenience. Retail deposit growth is supported through our Perfect Banking sales and customer service program, free checking
and on-line Billpay services, an extensive network of branch locations and ATMs and a 24-hour Express Bank call center.
Commercial deposit growth is supported by offering treasury management and lockbox services. We also acquire brokered
deposits when the cost of funds is advantageous to other funding sources.
Average deposits represented approximately 63% of total average liabilities and capital for 2008, compared with 66% for 2007.
The decrease in deposits relative to our other funding sources was due to several factors. Funds purchased, repurchase
agreements and other borrowed funds were lower-costing funding sources during much of 2008. We increased borrowings to
fund our securities portfolio growth. Additionally, we increased borrowings in mid-year to fund margin calls related to our
derivatives liabilities.
Average deposits totaled $13.7 billion for 2008, up $1.1 billion or 9% over 2007. Average interest-bearing transaction deposit
accounts continued to grow in 2008, up $834 million or 15% over 2007. Average demand deposits also increased, up $264
million or 11% over last year. Average time deposits decreased $16 million from 2007.
Growth in our average interest-bearing transaction deposit accounts included $305 million of wealth management deposits, $306
million of consumer banking deposits and $326 million of commercial deposits.
Table 30 Maturity of Domestic CDs and Public
Funds in Amounts of $100,000 or More
(In Thousands)
Months to maturity:
3 or less
Over 3 through 6
Over 6 through 12
Over 12
Total
December 31,
2008
2007
$ 879,792
844,957
651,632
710,395
$ 3,086,776
$ 820,339
580,427
456,103
584,180
$ 2,441,049
Brokered deposits, which are included in time deposits, averaged $735 million for 2008, up $120 million or 20% over the
previous year. Brokered deposits totaled $1.0 billion at December 31, 2008. These deposits were largely added to remix
wholesale funding sources in order to provide more available overnight liquidity. Average wealth management time deposits
48
increased $102 million or 35% compared with 2007. Average retail time deposits decreased $161 million or 6% compared with
2007.
Core deposits which we define as deposits of less than $100,000 excluding public funds and brokered deposits, averaged $6.6
billion for 2008 and $6.4 billion for 2007. Accounts with balances in excess of $100,000 excluding brokered deposit accounts
averaged $5.6 billion for 2008 and $5.0 billion for 2007.
The distribution of deposit accounts among our principal markets is shown in Table 31.
49
Table 31 Deposits by Principal Market Area
(In Thousands)
Oklahoma:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Oklahoma
Texas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Texas
New Mexico:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total New Mexico
Arkansas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Arkansas
Colorado:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Colorado
Arizona:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Arizona
Kansas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Kansas
Total BOK Financial deposits
2008
2007
December 31,
2006
2005
2004
$ 1,683,374
$ 1,394,861
$ 1,298,593
$ 1,333,331
$ 1,233,662
4,117,729
86,476
3,104,933
7,309,138
$ 8,992,512
3,477,208
80,467
2,426,822
5,984,497
$ 7,379,358
3,072,830
83,017
2,595,890
5,751,737
$7,050,330
2,672,563
85,837
2,564,337
5,322,737
$6,656,068
2,152,655
87,597
2,505,849
4,746,101
$ 5,979,763
$ 1,067,456
$ 1,035,134
$ 848,152
$ 841,197
$ 688,353
1,460,576
32,071
857,416
2,350,063
$ 3,417,519
1,753,843
34,618
800,460
2,588,921
$ 3,624,055
1,480,138
24,074
829,255
2,333,467
$ 3,181,619
1,310,105
27,398
735,731
2,073,234
$ 2,914,431
1,049,348
30,331
571,993
1,651,672
$ 2,340,025
$ 155,345
$ 151,231
$ 175,980
$ 172,363
$ 153,063
397,382
16,289
522,894
936,565
$ 1,091,910
432,919
15,146
486,868
934,933
$ 1,086,164
380,450
16,417
490,460
887,327
$ 1,063,307
338,025
17,839
453,314
809,178
$ 981,541
303,654
17,885
411,939
733,478
$ 886,541
$
16,293
$
13,247
$
15,604
$
14,414
$
16,056
38,566
1,083
75,579
115,228
$ 131,521
$
19,027
883
40,692
60,602
73,849
$
14,890
1,010
57,446
73,346
88,950
18,369
1,058
75,034
94,461
$ 108,875
25,315
1,434
99,677
126,426
$ 142,482
$ 116,637
$ 117,939
$
80,559
$
91,483
$
78,756
480,113
17,660
532,475
1,030,248
$ 1,146,885
446,427
23,806
539,523
1,009,756
$ 1,127,695
296,451
12,632
485,200
794,283
$ 874,842
228,832
17,772
264,020
510,624
$ 602,107
173,345
19,092
54,394
246,831
$ 325,587
$
39,424
$
46,701
$
51,542
$
59,689
$
56,985
1,014
34,290
92,289
$ 131,713
65,788
1,435
11,603
78,826
$ 125,527
61,539
1,978
6,574
70,091
$ 121,633
42,872
4,111
5,624
52,607
$ 112,296
$
$
3,850
$
9,656
$
57
$
–
$
–
–
–
–
–
–
–
10,999
42
55,656
66,697
$
70,547
$14,982,607
8,304
13
24,670
32,987
$
42,643
$13,459,291
244
2
5,721
5,967
6,024
–
–
–
–
$
–
$ 12,386,705 $ 11,375,318 $ 9,674,398
–
–
–
–
–
$
$
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. Funds are primarily purchased from bankers’ banks and Federal Home Loan banks
from across the country. The largest single source of Federal funds purchased totaled $200 million at December 31, 2008.
Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities.
50
Federal Home Loan Bank borrowings generally mature within one year 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 December 31, 2008, the outstanding balance of federal funds purchased totaled $1.6 billion and securities repurchase
agreements totaled $1.4 billion. Amounts borrowed from the Federal Home Loan Banks of Topeka and Dallas totaled $991
million.
The Company elected to participate in the TLGP, which expanded insurance coverage to certain qualifying debt issued by
eligible financial institutions. In general, senior unsecured debt newly issued on or before June 30, 2009 will be fully protected
by the FDIC through the earlier of the maturity of the debt or June 30, 2012. Collectively, our subsidiary banks may issue up to
$1.8 billion of TLGP protected debt. No TLGP protected debt is currently outstanding.
In 2008, the subsidiary banks began borrowing funds under the Federal Reserve Bank Term Auction Facility program. This is a
temporary program which allows banks that are in generally sound financial condition to bid for funds. Funds are borrowed for
either 28 or 84 days and are secured by a pledge of eligible collateral. Funds borrowed under this program totaled $450 million
at December 31, 2008.
At December 31, 2008, the estimated unused credit available to the subsidiary banks from our traditional sources and within our
internal policy limits was approximately $4.6 billion.
Parent Company
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 year plus retained profits for the preceding two years. Dividends are further
restricted by minimum capital requirements. Based on the most restrictive limitations, at December 31, 2008, the subsidiary
banks could declare up to $171 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 $119 million under this policy. Future losses or increases in required regulatory capital at
the subsidiary banks could affect their ability to pay dividends to the parent company.
On July 21, 2008, the Company entered into a $188 million, unsecured revolving credit agreement with George B. Kaiser, its
Chairman and principal shareholder. The revolving credit agreement with Mr. Kaiser replaced a similar credit agreement with
certain commercial banks that was terminated at the Company’s request. The Company was in compliance with all terms of that
credit agreement when it was terminated. Interest on the outstanding balance due to Mr. Kaiser 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. This credit agreement matures in
December, 2010. At December 31, 2008, the outstanding balance under this credit agreement was $50 million. Subsequent to
December 31, 2008, the Company fully repaid the amounts owed under this credit agreement.
Equity capital for BOK Financial was $1.8 billion at December 31, 2008, down $89 million from December 31, 2007. Net
income less cash dividend paid increased equity $94 million. Accumulated other comprehensive losses increased $192 million
during 2008 due primarily to an increase in net unrealized losses on available for sale securities. Employee stock option
transactions increased equity capital $16 million and common share repurchases reduced shareholders’ equity $8.0 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.
BOK Financial is the largest commercial bank, based on asset size, that elected not to participate in the TARP Capital Purchase
Program. The decision not to participate in TARP was based on an evaluation of our capital needs in both the current
environment and in several capital stress environments. We considered capital requirements for organic growth and potential
acquisitions, the cost of TARP capital and a defined exit strategy when the cost of TARP capital increases substantially at the end
of year five. We also considered reasonable capital and liquidity support from our majority shareholder.
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 166,114 shares for $8.0 million in 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.
51
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 and for each of the subsidiary banks are presented in Note 16 to the
Consolidated Financial Statements.
Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity ratio.
Common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principles less intangible
assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes
preferred equity and equity provided by the U.S. Treasury’s TARP program. This non-GAAP measurement is a valuable
indicator of a financial institution’s capital strength since it eliminates intangible assets from shareholders’ equity and retains the
effect of unrealized losses on securities and other components of accumulated other comprehensive income (loss) in
shareholders’ equity. At December 31, 2008, BOK Financial’s tangible common shareholders’ equity ratio was 6.64%.
Off-Balance Sheet Arrangements
During the third quarter of 2007, BOk 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, BOk 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 BOk 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.
Aggregate Contractual Obligations
BOK Financial has numerous contractual obligations in the normal course of business. These obligations included time deposits
and other borrowed funds, premises used under various operating leases, commitments to extend credit to borrowers and to
purchase securities, derivative contracts and contracts for services such as data processing that are integral to our operations. The
following table summarizes payments due per these contractual obligations at December 31, 2008.
Table 32 Contractual Obligations as of December 31, 2008
(In Thousands)
Time deposits
Other borrowings
Subordinated debentures
Operating lease obligations
Derivative contracts
Data processing contracts
Total
Less Than
1 Year
1 to 3
Years
4 to 5
Years
More Than
5 Years
$ 966,345
1,064,235
21,875
17,108
430,036
10,298
$ 2,509,897
$ 1,074,944
312,870
43,750
31,224
60,295
18,241
$ 1,541,324
$ 227,371 $ 153,838
9,526
480,417
29,904
10,503
–
$ 684,188
1,144
43,750
20,855
173,284
13,660
$ 480,064
Total
$2,422,498
1,387,775
589,792
99,091
674,118
42,199
$ 5,215,473
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
Alternative investment commitments
Unfunded third-party private equity commitments
Deferred compensation and stock-based compensation obligations
$ 5,015,660
598,618
391,188
13,911
17,531
22,524
Payments on time deposits and other borrowed funds include interest which has been calculated from rates at December 31,
2008. Many of these obligations have variable interest rates and actual payments will differ from the amounts shown on this
table. Obligations under derivative contracts used for interest rate risk management purposes are included with projected
payments from time deposits and other borrowed funds as appropriate.
Payments on time deposits are based on contractual maturity dates. These funds may be withdrawn prior to maturity. We may
charge the customer a penalty for early withdrawal.
Operating lease commitments generally represent real property we rent for branch offices, corporate offices and operations
facilities. Payments presented represent the minimum lease payments and exclude related costs such as utilities and property
taxes.
52
Data processing and communications contracts represent the minimum obligations under the contracts. Additional payments that
are based on the volume of transactions processed are excluded.
Loan commitments represent legally binding obligations to provide financing to our customers. Some of these commitments are
expected to expire before being drawn upon and the total commitment amounts do not necessarily represent future cash
requirements. Approximately $2.0 billion of the loan commitments expire within one year.
Obligations under derivative contracts are used in customer hedging programs. As previously discussed, we have entered into
derivative contracts which are expected to substantially offset the cash payments due on these obligations.
The Company has funded $43 million and has commitments to fund an additional $14 million for various alternative investments.
Alternative investments generally consist of limited partnership interests in or loans to entities that invest in distressed assets,
energy development, venture capital and other activities. The Company is prohibited by banking regulations from controlling or
actively managing the activities of these investments.
The Company has $17.5 million of commitments to make investments through its BOK Financial Private Equity Funds. These
commitments, which are included in unfunded third-party private equity commitments, generally reflect customer investment
obligations.
The Company has compensation and employment agreements with our President and Chief Executive Officer. Collectively,
these agreements provide, among other things, that all unvested stock-based compensation shall fully vest upon his termination,
subject to certain conditions. These agreements provide for settlement in cash or other assets. We currently have recognized a
$15 million liability for these plans. This liability would increase to $16 million if all awards were fully vested. We also have
obligations with respect to employee and executive benefit plans. See Notes 12 and 13 to the Consolidated Financial Statements
for additional information about our employee benefit plans.
Recently Issued Accounting Standards
Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“FAS 159”)
The Company adopted 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 FAS 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.
Statement of Financial Accounting Standards No. 141 (Revised), “Business Combinations” (“FAS 141R”)
The FASB issued FAS 141R during 2007 to replace Statement of Financial Accounting Standards No. 141, Business
Combinations. FAS 141R applies to all transactions or other events in which an entity obtains control over one or more
businesses, including combinations achieved without the transfer of consideration. FAS 141R retains the fundamental
requirement that all business combinations must be accounted for under the acquisition or purchase method of accounting. All
assets acquired, including identifiable intangible assets, liabilities assumed and any non-controlling interests must be recognized
at the acquisition-date fair values. Banks may no longer carry over the pre-acquisition allowance for loan losses. Costs incurred
to effect the acquisition and restructuring costs that the acquirer is expected but not obligated to incur must be recognized
separately from the business combination. Contingent assets and liabilities generally will be recognized at their acquisition-date
fair values. Changes in the recognized amounts of contingent assets and liabilities will be recognized in post acquisition-date
earnings. FAS 141R may have a significant effect on the Company’s financial statements for business combinations completed
after January 1, 2009.
Statement of Financial Accounting Standards No. 160,”Non-controlling Interest in Consolidated Financial Statements – An
Amendment of ARB No. 51” (“FAS 160”)
The FASB issued FAS 160 during 2007 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 included 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
53
to the parent and to the non-controlling interest. FAS 160, which will be adopted on January 1, 2009, is not expected to have a
significant impact on the Company’s financial statements.
Statement of Financial Accounting Standards No. 161, “Disclosure About Derivative Instruments and Hedging Activities, an
Amendment of FASB Statement No. 133,” (“FAS 161”)
FAS 161 amends and expands the disclosure requirements of FAS 133 to provide greater transparency about (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under FAS 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.
FASB Staff Position FIN 39-1, “Amendment of FASB Interpretation No. 39”
As of January 1, 2008, the Company adopted FSP 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 as of December 31, 2008 was reduced by $217 million and $15 million, respectively, of cash collateral.
Derivative liabilities as of December 31, 2007 were reduced by $172 million of cash collateral.
FASB Staff Position No. EITF 99-20-1, “Amendment to the Impairment and Interest Income Measurement Guidance of EITF
Issue No. 99-20” (“FSP EITF 99-20-1”)
FSP EITF 99-20-1 amends the impairment (and related interest income measurement) guidance for certain beneficial interests in
securitized financial assets that are within the scope of EITF Issue No. 99-20, “Recognition of Interest Income and Impairment of
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”
(“EITF 99-20”). This FSP eliminates the requirement that a holder’s best estimate of cash flows be based upon those that “a
market participant” would use. Instead, this FSP requires that an other-than-temporary impairment (“OTTI”) be recognized as a
realized loss through earnings when it is “probable” there has been an adverse change in the holder’s estimated cash flows from
the cash flows previously projected, which is consistent with the impairment model in FAS 115. The FSP also reiterates and
emphasizes the objective of an OTTI assessment and the related disclosure requirements in FAS 115 and other related guidance,
including the requirement that the holder consider all available information when developing the estimate of future cash flows
(i.e. past events, current conditions and expected events). FSP 99-20-1 is effective for the Company as of December 31, 2008
and did not have a significant impact on the Company’s financial statements.
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 reserves for loan losses and off-balance sheet credit losses, reserves for uncertain tax positions and accruals for loss
contingencies 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.
54
Legal Notice
As used in this report, the term “BOK Financial” and such terms as “the Company,” “the Corporation,” “our,” “we” and “us”
may refer to one or more of the consolidated subsidiaries or all of them taken as a whole. All these terms are used for
convenience only and are not intended as a precise description of any of the separate companies, each of which manages its own
affairs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 12 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.
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 33 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 –
Consumer 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.
55
Table 33 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 $ (5,609)
(0.8)%
$ (12,424)
(2.0)%
$ (27,628)
(3.8)%
***
***
$ 1,892
$ 9,012
0.3%
1.5%
*** 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 $3.1 million or 0.5%.
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
December 31, 2008, the VAR was $1.6 million. The greatest value at risk during 2008 was $2.7 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 year.
56
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management on Financial Statements
Management of BOK Financial is responsible for the preparation, integrity and fair presentation of the consolidated financial
statements included in this annual report. The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and necessarily include some amounts that are based on our best
estimates and judgments.
Management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, conducted an assessment of
internal control over financial reporting as of December 31, 2008. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated
financial statements for external purposes in accordance with accounting principles generally accepted in the United States. In
establishing internal control over financial reporting, management assesses risk and designs controls to prevent or detect financial
reporting misstatements that may be consequential to a reader. Management also assesses the impact of any internal control
deficiencies and oversees efforts to improve internal control over financial reporting. Because of inherent limitations, it is
possible that internal controls may not prevent or detect misstatements, and it is possible that internal controls may vary over time
based on changing conditions. There have been no material changes in internal controls subsequent to December 31, 2008.
The Risk Oversight and Audit Committee, consisting entirely of independent directors, meets regularly with management,
internal auditors and the independent registered public accounting firm, Ernst & Young LLP, regarding management’s
assessment of internal control over financial reporting.
Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing
the effectiveness of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-
15(f), as amended. Management has assessed the effectiveness of the Company’s internal control over financial reporting based
on the criteria established in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations
(“COSO”) of the Treadway Commission. Based on that assessment and criteria, management has determined that the Company
maintained effective internal control over financial reporting as of December 31, 2008.
Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the
Company included in this annual report has issued an audit report on the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2008. Their report, which expresses unqualified opinions on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2008, is included in this annual report.
58
Report of Independent Registered Public Accounting Firm
Report on Consolidated Financial Statements
The Board of Directors and Shareholders of BOK Financial Corporation
We have audited the accompanying consolidated balance sheets of BOK Financial Corporation as of December 31, 2008 and
2007, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of BOK Financial Corporation at December 31, 2008 and 2007, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 11 to the consolidated financial statements, BOK Financial Corporation changed its method of accounting
for uncertainty in income taxes recognized as of January 1, 2007, in accordance with Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109. Also, BOK
Financial Corporation changed its framework for fair value measurements as of January 1, 2007, in accordance with Financial
Accounting Standards Board Statement No. 157, Fair Value Measurement.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), BOK Financial Corporation's internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
Tulsa, Oklahoma
February 26, 2009
59
Report of Independent Registered Public Accounting Firm
Report on Effectiveness of Internal Control over Financial Reporting
The Board of Directors and Shareholders of BOK Financial Corporation
We have audited BOK Financial Corporation’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). BOK Financial Corporation’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, BOK Financial Corporation maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of BOK Financial Corporation as of December 31, 2008 and 2007, and the related consolidated
statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 of
BOK Financial Corporation and our report dated February 26, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
Tulsa, Oklahoma
February 26, 2009
60
Consolidated Statements of Earnings
(In Thousands Except Share And Per Share Data)
Interest Revenue
Loans
Taxable securities
Tax-exempt securities
Total securities
Trading securities
Funds sold and resell agreements
Total interest revenue
Interest Expense
Deposits
Borrowed funds
Subordinated debentures
Total interest expense
Net Interest Revenue
Provision for Credit Losses
Net Interest Revenue After Provision for Credit Losses
Other Operating Revenue
Brokerage and trading revenue
Transaction card revenue
Trust fees and commissions
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Margin asset fees
Other revenue
Total fees and commissions
Gain (loss) on sales of assets
Gain (loss) on securities, net
Gain (loss) on derivatives, net
Total other operating revenue
Other Operating Expense
Personnel
Business promotion
Professional fees and services
Net occupancy and equipment
Insurance
Data processing and communications
Printing, postage and supplies
Net losses and operating expenses of repossessed assets
Amortization of intangible assets
Mortgage banking costs
Change in fair value of mortgage servicing rights
Visa retrospective responsibility obligation
Other expense
Total other operating expense
Income Before Taxes
Federal and state income tax
Net Income
Earnings Per Share:
Basic
Diluted
Average Shares Used in Computation:
Basic
Diluted
See accompanying notes to consolidated financial statements.
2008
2007
2006
$ 732,210
313,360
10,651
324,011
3,847
1,577
1,061,645
$ 892,024
248,972
13,604
262,576
1,657
4,480
1,160,737
$ 751,391
222,531
9,819
232,350
847
1,841
986,429
288,924
103,597
22,262
414,783
646,862
202,593
444,269
42,804
100,153
78,979
117,528
27,074
10,681
8,548
28,233
414,000
(660)
21,637
1,299
436,276
412,746
178,605
24,901
616,252
544,485
34,721
509,764
62,542
90,425
78,231
109,218
22,275
10,058
4,800
28,073
405,622
(928)
(8,328)
2,282
398,648
336,908
142,553
20,280
499,741
486,688
18,402
468,286
53,413
78,622
71,037
102,436
26,996
2,558
10,166
26,468
371,696
1,499
(950)
(622)
371,623
352,947
23,536
27,045
60,632
11,988
78,047
16,433
1,019
7,661
22,513
34,515
(2,767)
28,835
662,404
218,141
64,909
$ 153,232
328,705
21,888
22,795
57,284
3,017
72,733
16,570
691
7,358
13,111
2,893
2,767
25,175
574,987
333,425
115,761
$ 217,664
296,260
19,351
17,744
52,188
4,270
66,926
15,862
474
5,327
12,898
(3,009)
–
24,016
512,307
327,602
114,625
$ 212,977
$
$
2.28
2.27
$
$
3.24
3.22
$
$
3.19
3.16
67,274,457
67,557,220
67,083,200
67,550,538
66,759,384
67,310,005
61
Consolidated Balance Sheets
(In Thousands Except Share Data)
Assets
Cash and due from banks
Funds sold and resell agreements
Trading securities
Securities:
Available for sale
Available for sale securities pledged to creditors
Investment (fair value: 2008 – $245,769; 2007 – $248,788)
Mortgage trading securities
Total securities
Residential mortgage loans held for sale
Loans
Less reserve for loan losses
Loans, net of reserve
Premises and equipment, net
Accrued revenue receivable
Intangible assets, net
Mortgage servicing rights, net
Real estate and other repossessed assets
Bankers’ acceptances
Derivative contracts
Cash surrender value of bank-owned life insurance
Receivable on unsettled securities trades
Other assets
Total assets
Liabilities and Shareholders’ Equity
Noninterest-bearing demand deposits
Interest-bearing deposits:
Transaction
Savings
Time (includes $632,754 at fair value at December 31, 2008)
Total deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Bankers’ acceptances
Derivative contracts
Other liabilities
Total liabilities
Shareholders’ equity:
Preferred stock ($.00005 par value; 1,000,000,000 shares authorized; no shares issued and
outstanding)
Common stock ($.00006 par value; 2,500,000,000 shares authorized;
shares issued and outstanding: 2008 – 69,884,749; 2007 – 69,465,154)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2008 – 2,411,663; 2007 – 2,158,774)
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
December 31,
2008
2007
$
$
581,133
113,809
99,601
717,259
173,154
45,724
5,800,691
590,760
242,344
399,211
7,033,006
129,246
12,876,006
(233,236)
12,642,770
277,458
96,673
361,209
42,752
29,179
12,913
452,604
237,006
239,474
385,815
22,734,648
5,323,001
327,539
247,949
154,701
6,053,190
76,677
11,940,570
(126,677)
11,813,893
258,786
128,350
368,353
70,009
9,475
1,780
502,446
229,540
19,964
199,101
20,667,701
$
$
$
3,082,379
$
2,768,769
6,562,350
154,635
5,183,243
14,982,607
3,025,399
1,522,054
398,407
133,220
12,913
667,034
146,757
20,888,391
6,203,516
156,368
4,330,638
13,459,291
3,225,131
1,027,564
398,273
124,029
1,780
341,677
154,572
18,732,317
–
–
4
743,411
1,427,057
(101,329)
(222,886)
1,846,257
22,734,648
$
4
722,088
1,332,954
(88,428)
(31,234)
1,935,384
20,667,701
$
62
2008
2007
2006
$
153,232
$
217,664 $
212,977
202,593
34,515
35,408
51,282
(7,466)
(895)
4,798
(18,106)
(30,981)
(1,201,613)
1,170,722
(297,292)
41,570
(82,948)
9,191
18,055
82,065
3,499,128
69,931
1,091,054
(65,506)
(5,576,035)
(1,043,001)
63,109
–
33
39,522
(85,943)
–
(2,007,708)
670,712
842,408
294,758
(219,510)
7,743
50,000
(50,000)
–
–
244,413
(44,064)
895
(7,992)
(59,191)
1,730,172
(195,471)
890,413
694,942
411,860
114,120
30,972
34,721
2,893
(11,162)
43,524
(17,310)
(3,460)
8,483
(2,404)
7,663
(1,022,829)
1,008,828
896
(30,719)
14,598
19,277
(32,886)
237,777
806,979
93,245
1,186,319
(92,648)
(2,909,791)
(936,018)
(143,649)
–
67
48,341
(44,929)
(47,476)
(2,039,560)
18,402
(3,009)
(1,531)
39,303
(964)
(4,014)
10,682
1,326
(10,629)
(735,432)
741,901
(131,209)
(18,362)
(56,423)
12,533
70,119
145,670
646,944
59,099
686,163
(62,850)
(1,208,842)
(1,727,123)
(20,146)
(201,987)
165
81,731
(54,520)
135
(1,801,231)
860,612
(291,822)
1,301,093
(117,491)
13,747
–
–
248,618
(150,000)
(58,451)
152,873
3,460
(17,353)
(50,416)
1,894,870
93,087
797,326
890,413 $
638,901
364,344
550,038
98,991
12,647
–
–
–
–
103,188
30,333
4,014
(12,103)
(36,788)
1,753,565
98,004
699,322
797,326
608,963 $
115,627
9,825
493,873
117,604
7,057
$
$
$
$
Consolidated Statements of Cash Flows
(In Thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to cash provided by operations:
Provision for credit losses
Change in fair value of mortgage servicing rights
Unrealized (gains) losses from derivatives
Depreciation and amortization
Change in bank-owned life insurance
Tax benefit on exercise of stock options
Stock-based compensation
Net (accretion) amortization of securities discounts and premiums
Net (gain) loss on sale of assets
Mortgage loans originated for resale
Proceeds from sale of mortgage loans held for resale
Change in trading securities, including mortgage trading securities
Change in accrued revenue receivable
Change in other assets
Change in accrued interest, taxes and expense
Change in other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities:
Proceeds from sales of available for sale securities
Proceeds from maturities of investment securities
Proceeds from maturities of available for sale securities
Purchases of investment securities
Purchases of available for sale securities
Loans originated or acquired net of principal collected
Net payments or proceeds on derivative asset contracts
Investment in bank-owned life insurance
Net change in other investment assets
Proceeds from disposition of assets
Purchases of other assets
Cash and equivalents of subsidiaries and branches acquired and sold, net
Net cash used by investing activities
Cash Flows From Financing Activities:
Net change in demand deposits, transaction
deposits and savings accounts
Net change in time deposits
Net change in other borrowings
Change in amount receivable (due) on unsettled security transactions
Issuance of common and treasury stock, net
Issuance of other borrowings
Pay down of other borrowings
Issuance of subordinated debenture, net
Pay down of subordinated debentures
Net change in derivative margin accounts
Net payments or proceeds on derivative liability contracts
Tax benefit on exercise of stock options
Repurchase of common stock
Dividends paid
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid for interest
Cash paid for taxes
Net loans transferred to repossessed real estate
See accompanying notes to consolidated financial statements.
63
Consolidated Statements of Changes in Shareholders’ Equity
(In Thousands)
December 31, 2005
Effect of implementing FAS 156, net of tax
Comprehensive income:
Net income
Other comprehensive loss, net of tax
Comprehensive income
Treasury stock purchase
Exercise of stock options
Tax benefit on exercise of stock options
Stock-based compensation
Cash dividends on common stock
December 31, 2006
Effect of implementing FAS 157, net of tax
Effect of implementing FIN 48
Comprehensive income:
Net income
Other comprehensive income, net of tax
Comprehensive income
Treasury stock purchase
Exercise of stock options
Tax benefit on exercise of stock options
Stock-based compensation
Cash dividends on common stock
December 31, 2007
Effect of implementing FAS 159, net of tax
Comprehensive income (loss):
Net income
Other comprehensive loss, net of tax
Comprehensive loss
Treasury stock purchase
Exercise of stock options
Tax benefit on exercise of stock options
Stock-based compensation
Cash dividends on common stock
December 31, 2008
See accompanying notes to consolidated financial statements.
Preferred Stock
Common Stock
Shares
–
–
Amount
$ –
–
Shares
67,905
–
Amount
$4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ –
–
–
–
800
–
–
–
68,705
–
–
–
–
–
760
–
–
–
69,465
–
–
–
–
420
–
–
–
69,885
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
$4
64
Accumulated
Other
Comprehensive
Income (Loss)
$ (67,811)
–
–
(5,633)
–
–
–
–
–
(73,444)
–
–
–
42,210
–
–
–
–
–
(31,234)
–
–
(191,652)
–
–
–
–
–
$ (222,886)
Capital
Surplus
$656,579
–
–
–
–
21,897
4,014
6,371
–
688,861
–
–
–
–
–
23,429
3,460
6,338
–
722,088
–
–
–
–
12,652
895
7,776
–
$ 743,411
Retained
Earnings
$990,422
383
212,977
–
–
–
–
–
(36,788)
1,166,994
(679)
(609)
217,664
–
–
–
–
–
(50,416)
1,332,954
62
153,232
–
–
–
–
–
(59,191)
$ 1,427,057
Treasury Stock
Shares
1,202
–
Amount
$(40,040)
–
Total
$1,539,154
383
–
–
249
186
–
–
–
1,637
–
–
–
–
340
182
–
–
–
2,159
–
–
–
166
87
–
–
–
2,412
–
–
(12,103)
(9,250)
–
–
–
(61,393)
–
–
–
–
(17,353)
(9,682)
–
–
–
(88,428)
–
–
–
(7,992)
(4,909)
–
–
–
$ (101,329)
212,977
(5,633)
207,344
(12,103)
12,647
4,014
6,371
(36,788)
1,721,022
(679)
(609)
217,664
42,210
259,874
(17,353)
13,747
3,460
6,338
(50,416)
1,935,384
62
153,232
(191,652)
(38,420)
(7,992)
7,743
895
7,776
(59,191)
$ 1,846,257
65
Notes to Consolidated Financial Statements
(1) Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements of BOK Financial Corporation (“BOK Financial” or “the Company”) have been prepared
in conformity with accounting principles generally accepted in the United States, including general practices of the banking
industry. The consolidated financial statements include the 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. All significant
intercompany transactions are eliminated in consolidation. During 2008, the Company revised the presentation of certain deposit
accounts. Previously, demand deposit accounts were shown net of adjustments made to manage 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.
The consolidated financial statements would also include the assets, liabilities, non-controlling interests and results of operations
of variable interest entities (“VIEs”) when BOK Financial is determined to be the primary beneficiary. Variable interest entities
are generally defined in FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities,” as entities that either do not
have sufficient equity to finance their activities without support from other parties or whose equity investors lack a controlling
financial interest. BOK Financial is not the primary beneficiary in any VIE that would be significant to its operations.
Nature of Operations
BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers,
other financial institutions and consumers throughout Oklahoma; Northwest Arkansas; Dallas, Fort Worth and Houston, Texas;
Albuquerque, New Mexico; Denver, Colorado; Phoenix, Arizona; and Kansas City, Missouri / Kansas. These services include
depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting;
and personal and corporate trust.
Use of Estimates
Preparation of BOK Financial’s consolidated financial statements requires management to make estimates of future economic
activities, including loan collectibility, prepayments and cash flows from customer accounts. These estimates are based upon
current conditions and information available to management. Actual results may differ significantly from these estimates.
Acquisitions
Assets and liabilities acquired, including identifiable intangible assets, are recorded at present value based on current interest
rates, appraised values or fair values on the acquisition dates. Goodwill is recognized as the excess of the purchase price over the
net fair value of assets acquired and liabilities assumed. The Consolidated Statements of Earnings include the results of
operations from the dates of acquisition.
Intangible Assets
Intangible assets, which generally result from business combinations, are accounted for under the provisions of Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” and No. 147, “Acquisitions of Certain
Financial Institutions.”
Intangible assets with indefinite lives, such as goodwill, are evaluated for each of BOK Financial’s business units for impairment
annually or more frequently if conditions indicate impairment. The evaluation of possible impairment of intangible assets
involves significant judgment based upon short-term and long-term projections of future performance.
The fair value of BOK Financial’s business units is estimated by the discounted future earnings method. Income growth is
projected over a seven-year period for each unit and a terminal value is computed. This projected income stream is converted to
current fair value by using a discount rate that reflects a rate of return required by a willing buyer. Assumptions used to
determine the fair value of the Company in the aggregate are based on observable inputs, such as the market value of BOK
Financial common stock. However, attribution of the overall fair value to individual business units requires significant
unobservable inputs. In total, the fair value measurement for goodwill impairment evaluation is based on Level 3 inputs as
defined by FAS 157. There have been no changes in the techniques used to value goodwill.
Core deposit intangible assets are amortized using accelerated methods over the estimated lives of the acquired deposits. These
assets generally have a weighted average life of 5 years. Other intangible assets are amortized using accelerated or straight-line
methods, as appropriate, over the estimated benefit periods. These periods range from 5 years to 20 years. The net book values
of core deposit intangible assets are evaluated for impairment when economic conditions indicate impairment may exist.
66
Cash Equivalents
Due from banks, funds sold (generally federal funds sold for one-day periods) and resell agreements (which generally mature
within one to 30 days) are considered cash equivalents.
Securities
Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the
intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities,
which are acquired for profit through resale, are carried at market value with unrealized gains and losses included in current
period earnings. Investment securities are carried at amortized cost. Amortization is computed by methods that approximate level
yield and is adjusted for changes in prepayment estimates. Investment securities may be sold or transferred to trading or available
for sale classification in certain limited circumstances specified in generally accepted accounting principles. Securities identified
as available for sale are carried at fair value. Unrealized gains and losses are recorded, net of deferred income taxes, as
accumulated other comprehensive income (loss) in shareholders’ equity. Unrealized losses on securities are evaluated to
determine if the losses are temporary based on various factors, including the cause of the loss, prospects for recovery, projected
cash flows, collateral values, credit enhancements and other relevant factors, and management’s intent and ability to hold the
security until the fair value exceeds amortized cost. An impairment charge is recorded against earnings if the loss is determined
to be other than temporary. Realized gains and losses on sales of securities are based upon the amortized cost of the specific
security sold. Available for sale securities are separately identified as pledged to creditors if the creditor has the right to sell or
repledge the collateral.
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 purchase or sale of securities is recognized on a trade date basis. A net receivable or payable is recognized for subsequent
transaction settlement. BOK Financial will periodically commit to purchase to-be-announced mortgage-backed securities. These
commitments are carried at fair value if they are considered derivative contracts. These commitments are not reflected in BOK
Financial’s balance sheet until settlement date if they meet specific criteria exempting them from the definition of derivative
contracts.
Derivative Instruments
Derivative instruments may be used by the Company as part of its interest rate risk management programs or may be offered to
customers. All derivative instruments are carried at fair value. The determination of fair value of derivative instruments
considers changes in interest rates, commodity prices, foreign exchange rates and the Company’s and counterparty credit ratings,
when appropriate. Changes in fair value are generally reported in income as they occur.
Derivative instruments used to manage interest rate risk consist primarily of interest rate swaps. These contracts modify the
interest income or expense of certain assets or liabilities. Amounts receivable from or payable to counterparties are reported in
interest income or expense using the accrual method. Changes in fair value of interest rate swaps are reported in other operating
revenue – gain (loss) on derivatives, net.
In certain circumstances, an interest rate swap may be designated as a fair value hedge and may qualify for hedge accounting. In
these circumstances, changes in the full fair value of the hedged asset or liability, not only changes in fair value due to changes in
the benchmark interest rate, is also recognized in earnings and may partially or completely offset changes in fair value of the
interest rate swap. A fair value hedge is considered effective if the cumulative fair value adjustment of the interest rate swap is
within a range of 80% to 120% of the cumulative change in the fair value of the hedged asset or liability. Any ineffectiveness,
including ineffectiveness due to credit risk or ineffectiveness created when the fixed rate of the hedged asset or liability does not
match the fixed rate of the interest rate swap, is recognized in earnings in the income statement line item “Gain (loss) on
derivatives, net.”
Interest rate swaps may be designated as cash flow hedges of variable rate assets or liabilities, or of anticipated transactions.
Changes in the fair value of interest rate swaps designated as cash flow hedges are recorded in accumulated other comprehensive
income to the extent they are effective. The amount recorded in other comprehensive income is reclassified to earnings in the
same periods as the hedged cash flows impact earnings. The ineffective portion of changes in fair value is reported in current
earnings.
If a derivative instrument that had been designated as a fair value hedge is terminated or if the hedge designation is removed or
deemed to no longer be effective, the difference between the hedged item’s carrying value and its face amount is recognized into
income over the remaining original hedge period. Similarly, if a derivative instrument that had been designated as a cash flow
hedge is terminated or if the hedge designation is removed or deemed to no longer be effective, the amount remaining in
accumulated other comprehensive income is reclassified to earnings in the same period as the hedged item.
67
BOK Financial also enters into mortgage loan commitments that are considered derivative instruments. Forward sales contracts
are used to hedge these mortgage loan commitments as well as mortgage loans held for sale. Mortgage loan commitments are
carried at fair value based upon quoted prices, excluding the value of loan servicing rights or other ancillary values. Changes in
fair value of the mortgage loan commitments and forward sales contracts are reported in other operating revenue – mortgage
banking revenue.
Derivative contracts are also offered to customers. BOK Financial serves as an intermediary between its customers and the
markets. Each contract between BOK Financial and its customers is offset by a contract between BOK Financial and various
counterparties. These contracts are carried at fair value. Compensation for credit risk and reimbursement of administrative costs
are recognized over the life of the contracts and included in other operating revenue – brokerage and trading revenue.
When bilateral netting agreements exist between the Company and its counterparties that create a single legal claim or obligation
to pay or receive the net amount in settlement of the individual derivative contracts, the Company reports derivative assets and
liabilities on a net by counterparty basis.
Derivative contracts may also require the Company to provide or receive cash margin as collateral for derivative assets and
liabilities. Derivative assets and liabilities are reported net of cash margin when certain conditions are met.
Loans
Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is
generally expected from cash flow or proceeds from the sale of selected assets of the borrower. BOK Financial is exposed to risk
of loss on loans due to the borrower’s difficulties, which may arise from any number of factors, including problems within the
respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured
through adherence to applicable lending laws and through sound lending standards and credit review procedures.
Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccrual status
when, in the opinion of management, full collection of principal or interest is uncertain, generally when the collection of principal
or interest is 90 days or more past due. Interest previously accrued but not collected is charged against interest income when the
loan is placed on nonaccrual status. Payments on nonaccrual loans are applied to principal or reported as interest income,
according to management’s judgment as to the collectability of principal.
Loan origination and commitment fees and direct loan acquisition and origination costs are deferred and amortized as an
adjustment to yield over the life of the loan or over the commitment period, as applicable.
Mortgage loans originated by our mortgage banking unit are held for sale and are carried at the lower of aggregate cost or market
value. Mortgage loans held for sale that are designated as hedged assets are carried at fair value based on sales commitments or
market quotes. Changes in fair value after the date of designation of an effective hedge are recorded in other operating revenue –
mortgage banking revenue.
Reserve for Loan Losses and Off-Balance Sheet Credit Losses
Reserves for loan losses and off-balance sheet credit losses are assessed by management, based upon an ongoing quarterly
evaluation of the probable estimated losses inherent in the portfolio, and include probable losses on both outstanding loans and
unused commitments to provide financing. A consistent methodology has been developed that includes reserves assigned to
specific criticized loans, general reserves that are based upon statistical migration analyses for each category of loans, and a
nonspecific allowance that is based upon an analysis of current economic conditions, loan concentrations, portfolio growth and
other relevant factors. The reserve for loan losses related to loans that are identified for evaluation in accordance with Statement
of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” (“FAS 114”), is based on
discounted cash flows using the loan’s initial effective interest rate, the fair value of the collateral for certain collateral dependent
loans, or historical statistics. Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to
collect all amounts due according to the contractual terms of the loan agreement. This is substantially the same criteria used to
determine when a loan should be placed on nonaccrual status. This evaluation is inherently subjective as it requires material
estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be
susceptible to significant change.
In accordance with the provisions of FAS 114, management has excluded small balance, homogeneous loans from the
impairment evaluation specified in FAS 114. Such loans include 1-4 family mortgage loans, consumer loans and commercial
loans with committed amounts less than $1 million. The adequacy of the reserve for loan losses applicable to these loans is
evaluated in accordance with generally accepted accounting principles and standards established by the banking regulatory
authorities and adopted as policy by BOK Financial.
A provision for credit losses is charged against earnings in amounts necessary to maintain adequate reserves for loan and off-
balance sheet credit losses. Loans are charged off when the loan balance or a portion of the loan balance is no longer covered by
the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Loans are evaluated
quarterly and charge-offs are taken in the quarter in which the loss is identified. Additionally, all unsecured or under-secured
68
loans that are past due by 180 days or more are charged off within 30 days. Recoveries of loans previously charged off are added
to the reserve.
Transfers of Financial Assets
BOK Financial transfers financial assets as part of its mortgage banking activities and periodically may transfer other financial
assets. Transfers are recorded as sales for financial reporting purposes when the criteria for surrender of control specified in
Statement of Financial Accounting Standards, No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities” are met. BOK Financial may retain the right to service the assets and may incur a recourse
obligation. The Company may also retain a residual interest in excess cash flows generated by the assets. All assets obtained,
including cash, servicing rights and residual interests, and all liabilities incurred, including recourse obligations, are initially
recognized at fair value, all assets transferred are derecognized and any gain or loss on the sale is recognized in earnings.
Subsequently, servicing rights, residual interest and recourse obligations are carried at fair value with changes in fair value
recognized in earnings as they occur. A separate reserve is maintained as part of other liabilities for the Company’s credit risk on
loans transferred subject to a recourse obligation.
Real Estate and Other Repossessed Assets
Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. These assets are carried at the
lower of cost, which is determined by fair value at date of foreclosure, or current fair value. Income generated by these assets is
recognized as received, and operating expenses are recognized as incurred.
Premises and Equipment
Premises and equipment are carried at cost including capitalized interest, when appropriate, less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or,
for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. Useful lives range from 5
years to 40 years for buildings and improvements, 3 years to 7 years for software and 3 years to 10 years for furniture and
equipment. Repair and maintenance costs are charged to expense as incurred.
Rent expense for leased premises is recognized as incurred over the lease term. The effects of rent holidays, significant rent
escalations and other adjustments to rent payments are recognized on a straight-line basis over the lease term.
Mortgage Servicing Rights
Mortgage servicing rights are carried at fair value as permitted by Statement of Financial Accounting Standards No. 156,
“Accounting for Servicing of Financial Assets” (“FAS 156”). Mortgage servicing rights may be purchased or may be recognized
when mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are
sold. Originated mortgage servicing rights are initially recognized at fair value. Fair value is based on market quotes for similar
servicing rights, which is a Level 2 input as defined by FAS 157. Changes in the fair value are recognized in earnings as they
occur.
There is no active market for trading in mortgage servicing rights after origination. A cash flow model is used to determine fair
value. Key assumptions and estimates, including projected prepayment speeds and assumed servicing costs, earnings on escrow
deposits, ancillary income and discount rates, used by this model are based on current market sources. Assumptions used to
value mortgage servicing rights are considered Level 3 inputs as defined by FAS 157. A separate third party model is used to
estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and
other relevant factors. The prepayment model is updated daily for changes in market conditions and adjusted to better correlate
with actual performance of BOK Financial’s servicing portfolio. At least annually, we request estimates of fair value from
outside sources to corroborate the results of the valuation model. There have been no changes in the techniques used to value
mortgage servicing rights.
Federal and State Income Taxes
BOK Financial and its subsidiaries file consolidated tax returns. The subsidiaries provide for income taxes on a separate return
basis and remit to BOK Financial amounts determined to be currently payable.
Income tax expense is based on an effective tax rate that considers statutory federal and state income tax rates and permanent
differences between income and expense recognition for financial reporting and income tax purposes. The amount of income tax
expense recognized in any period may differ from amounts reported to taxing authorities.
BOK Financial has a reserve for uncertain tax positions, which is included in accrued current income taxes payable, for the
uncertain portion of recorded tax benefits and related interest. These uncertainties result from the application of complex tax
laws, rules, regulations and interpretations, primarily in state taxing jurisdictions. The adequacy of this reserve is assessed
quarterly and may be adjusted through current income tax expense in future periods based on changing facts and circumstances,
completion of examinations by taxing authorities or expiration of a statute of limitations. Estimated penalties and interest on
uncertain tax positions are recognized in income tax expense.
69
Deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as
reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the
differences are expected to be recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes. A valuation allowance is provided when it is more likely than not that some
portion or the entire deferred tax asset will not be realized.
Employee Benefit Plans
BOK Financial sponsors a defined benefit cash balance pension plan (“Pension Plan”), qualified profit sharing plan (“Thrift
Plan”) and employee healthcare plans. Pension Plan costs, which are based upon actuarial computations of current costs, are
expensed annually. Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the lesser
of the average remaining service periods of the participants or 10 years. Employer contributions to the Pension Plan are in
accordance with Federal income tax regulations. Pension Plan benefits were curtailed as of April 1, 2006. No participants may
be added to the Pension Plan and no additional service benefits will be accrued.
BOK Financial recognizes the funded status of its employee benefit plans. For a pension plan, the funded status is the difference
between the fair value of plan assets and the projected benefit obligation measured as of the fiscal year-end date. Adjustments
required to recognize the Pension Plan’s net funded status are made through accumulated other comprehensive income, net of
deferred income taxes.
Employer contributions to the Thrift Plan, which matches employee contributions subject to percentage and years of service
limits, are expensed when incurred. BOK Financial recognizes the expense of health care benefits on the accrual method.
Stock Compensation Plans
BOK Financial adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payments” (“FAS 123R”) as of
January 1, 2006. Adoption of FAS 123R did not significantly affect the Company’s financial statements. Excess tax benefits
from share-based payments recognized in capital surplus are determined by the excess of tax benefits recognized over the tax
effect of compensation cost recognized.
Grant date fair value of stock options is based on the Black-Scholes option pricing model. Stock options generally have graded
vesting over 7 years. Each tranche is considered a separate award for valuation and compensation cost recognition. Grant date
fair value of non-vested shares is based on the current market value of BOK Financial common stock. Non-vested shares
generally cliff vest in 5 years.
Compensation cost is recognized as expense over the service period, which is generally the vesting period of the options to be
exercised. Expense is reduced for estimated forfeitures over the vesting period and adjusted for actual forfeitures as they occur.
Stock-based compensation awarded to certain officers has performance conditions that affect the number of awards granted.
Compensation cost is adjusted based on the probable outcome of the performance conditions.
Certain executive officers may defer the recognition of income from stock-based compensation for income tax purposes and to
diversify the deferred income into alternative investments. Stock-based compensation granted to these officers is considered
liability awards. Changes in the fair value of liability awards are recognized as compensation expense in the period of the
change.
Other Operating Revenue
Fees and commission revenue is recognized at the time the related services are provided or products are sold and may be accrued
when necessary. Accrued fees and commissions are reversed against revenue if amounts are subsequently deemed to be
uncollectible. As described in FASB EITF Issue 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, revenue
is recognized on a gross basis whenever we have primary responsibility and risk in providing the services or products to our
customers and on a net basis whenever we act as a broker for products or services of others.
Brokerage and trading revenue includes changes in the fair value of securities held for trading purposes and derivatives held for
customer risk management programs, including credit losses on trading securities and derivatives, commissions earned from the
retail sale of securities, mutual funds and other financial instruments, and underwriting and financial advisory fees.
Trust fees and commissions include revenue from asset management, custody, recordkeeping, investment advisory and
administration services. Revenue is recognized on an accrual basis at the time the services are performed and may be based on
either the fair value of the account or the service provided.
Deposit service charges and fees are recognized at least quarterly in accordance with our published deposit account agreement
and disclosure statement for retail accounts or contractual agreement for commercial accounts. Item charges for overdraft or
non-sufficient funds items are recognized as items are presented for payment. Account balance charges and activity fees are
accrued monthly and collected in arrears. Commercial account activity fees may be offset by an earnings credit based on account
balances.
70
Effect of Recently Issued Statements of Financial Accounting Standards
Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“FAS 159”)
The Company adopted 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, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 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.
Statement of Financial Accounting Standards No. 141 (Revised), “Business Combinations” (“FAS 141R”)
The FASB issued FAS 141R during 2007 to replace Statement of Financial Accounting Standards No. 141, Business
Combinations. FAS 141R applies to all transactions or other events in which an entity obtains control over one or more
businesses, including combinations achieved without the transfer of consideration. FAS 141R retains the fundamental
requirement that all business combinations must be accounted for under the acquisition or purchase method of accounting. All
assets acquired, including identifiable intangible assets, liabilities assumed and any non-controlling interests must be recognized
at the acquisition-date fair values. Banks may no longer carry over the pre-acquisition allowance for loan losses. Costs incurred
to effect the acquisition and restructuring costs that the acquirer is expected but not obligated to incur must be recognized
separately from the business combination. Contingent assets and liabilities generally will be recognized at their acquisition-date
fair values. Changes in the recognized amounts of contingent assets and liabilities will be recognized in post acquisition-date
earnings. FAS 141R may have a significant effect on the Company’s financial statements for business combinations completed
after January 1, 2009.
Statement of Financial Accounting Standards No. 160,”Non-controlling Interest in Consolidated Financial Statements – An
Amendment of ARB No. 51” (“FAS 160”)
The FASB issued FAS 160 during 2007 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 included 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, which will be adopted on January 1, 2009, is not expected to have a
significant impact on the Company’s financial statements.
Statement of Financial Accounting Standards No. 161, “Disclosure About Derivative Instruments and Hedging Activities, an
Amendment of FASB Statement No. 133,” (“FAS 161”)
FAS 161 amends and expands the disclosure requirements of FAS 133 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.
FASB Staff Position FIN 39-1, “Amendment of FASB Interpretation No. 39”(“FIN 39-1”)
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 assets and liabilities as of December 31, 2008 was reduced by $217 million and $15 million, respectively, of cash
collateral.
71
FASB Staff Position No. EITF 99-20-1, “Amendment to the Impairment and Interest Income Measurement Guidance of EITF
Issue No. 99-20” (“FSP EITF 99-20-1”)
FSP EITF 99-20-1 amends the impairment (and related interest income measurement) guidance for certain beneficial interests in
securitized financial assets that are within the scope of EITF Issue No. 99-20, “Recognition of Interest Income and Impairment of
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”
(“EITF 99-20”). This FSP eliminates the requirement that a holder’s best estimate of cash flows be based upon those that “a
market participant” would use. Instead, this FSP requires that an other-than-temporary impairment (“OTTI”) be recognized as a
realized loss through earnings when it is “probable” there has been an adverse change in the holder’s estimated cash flows from
the cash flows previously projected, which is consistent with the impairment model in Statement of Financial Accounting
Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS 115”). The FSP also reiterates
and emphasizes the objective of an OTTI assessment and the related disclosure requirements in FAS 115 and other related
guidance, including the requirement that the holder consider all available information when developing the estimate of future
cash flows (i.e. past events, current conditions and expected events). FSP 99-20-1 is effective for the Company as of December
31, 2008 and did not have a significant impact on the Company’s financial statements.
72
(2) Acquisitions
On June 18, 2007, BOK Financial paid $43 million in cash for all the outstanding stock of Colorado-based United Banks of
Colorado, Inc. United Banks had total assets of approximately $166 million, including loans of $94 million, and total deposits of
$133 million and eleven banking locations in the Denver area. Loans acquired from United Banks are subject to a guaranty by
the sellers through an escrow fund held in trust by Colorado State Bank and Trust. The Company will be reimbursed for up to
$8.0 million of losses, including principal, interest and collection costs, on acquired loans in a three-year period after the
acquisition date. Accordingly, none of the purchase price was allocated to an allowance for loan losses. At December 31, 2008,
$5.3 million remains in the escrow fund to absorb future credit losses. On September 21, 2007, operations of United Banks’
subsidiary, First United Bank, N.A. were combined with Colorado State Bank and Trust, N.A. through a purchase and
assumption agreement.
On May 31, 2007, BOK Financial paid $127 million in cash for all the outstanding stock of Texas-based Worth Bancorporation,
Inc. Worth had total assets of approximately $410 million, including net loans of $281 million, and total deposits of $369 million
and five branches in the Fort Worth market. None of Worth National Bank’s loans were impaired at the acquisition date.
Therefore, none of the allowance for loan losses was allocated as a reduction of the principal balance of the acquired loans.
Allocations of the purchase prices to net assets acquired are as follows (in thousands):
Cash and cash equivalents
Securities
Loans
Less reserve for loan losses
Loans, net of reserve
Premises and equipment
Core deposit premium
Other assets
Total assets acquired
Deposits
Other borrowings
Other liabilities
Net assets acquired
Less purchase price
Goodwill
United Banks of
Colorado, Inc.
$ 36,249
2,245
93,810
–
93,810
32,277
5,039
2,298
171,918
133,342
2,138
6,909
29,529
42,796
$ 13,267
Worth
Bancorporation,
Inc.
$ 86,563
22,676
284,039
(3,528)
280,511
6,214
13,741
15,029
424,734
369,343
7,217
6,285
41,889
127,067
$ 85,178
Core deposit premiums are identifiable intangible assets initially recognized at estimated fair value. Fair value is determined by
projecting future cash flows that may be earned from investing the proceeds of the acquired deposits, less interest, servicing and
other costs over the estimated lives of the acquired deposits. The projected net cash flow is discounted to determine the current
fair value. The fair value measurement of core deposit premiums is based on Level 3 inputs as defined by FAS 157.
During the first quarter of 2007, the Company paid approximately $425 thousand to acquire a charter for Bank of Kansas City in
order to begin full-service banking operations in Missouri. Previously, the Company’s full-service banking rights were restricted
to Kansas City, Kansas.
On November 6, 2006, BOK Financial paid a net amount of $365 thousand in cash to acquire a state banking charter. The
acquired state banking charter was subsequently converted to a national banking charter and the surviving entity renamed Bank
of Kansas City, N.A. This transaction was necessary to comply with state restrictions on forming a de novo bank in Kansas.
The results of operations of these acquisitions would not have been significant to the Company’s consolidated results during the
pre-acquisition periods of 2007 and 2006. None of the intangible assets acquired are deductible for tax purposes.
73
(3) Securities
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
2008
2007
December 31,
Amortized
Cost
Fair
Value
Gross Unrealized
Loss
Gain
Amortized
Cost
Fair
Value
Gross Unrealized
Loss
Gain
Municipal and other tax-exempt
Other debt securities
Total
$ 235,791 $ 239,178 $ 3,736
38
$ 242,344 $ 245,769 $ 3,774
6,553
6,591
$ (349)
–
(349)
$
$ 242,274 $ 243,061 $ 1,439
52
$ 247,949 $ 248,788 $ 1,491
5,675
5,727
$ (651)
(1)
(652)
$
The amortized cost and fair values of investment securities at December 31, 2008, by contractual maturity, are as shown in the
following table (dollars in thousands):
Municipal and other tax-exempt:
Amortized cost
Fair value
Nominal yield¹
Other debt securities:
Amortized cost
Fair value
Nominal yield
Total fixed maturity securities:
Amortized cost
Fair value
Nominal yield
Total investment securities:
Amortized cost
Fair value
Nominal yield
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
$ 70,795
71,408
5.24
$
4,852
4,853
3.66
$ 75,647
76,261
5.14
$ 128,171
130,589
5.44
$
1,689
1,726
4.40
$ 129,860
132,315
5.42
$ 28,895
29,469
5.83
$ 7,930
7,712
6.50
$ 235,791
239,178
5.46
$
–
–
–
$
12
12
–
$ 28,895
29,469
5.83
$ 7,942
7,724
6.49
$
6,553
6,591
3.84
$ 242,344
245,769
5.42
$ 242,344
245,769
5.42
Weighted
Average
Maturity²
2.77
1.41
2.74
¹ Calculated on a taxable equivalent basis using a 39% effective tax rate.
² Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay
obligations with or without penalty.
74
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
2008
2007
December 31,
Amortized
Cost
Fair
Value
Gross Unrealized
Loss
Gain
Amortized
Cost
Fair
Value
Gross Unrealized
Loss
Gain
U.S. Treasury
Municipal and other tax-exempt
Mortgage-backed securities:
U. S. agencies
Other
Total mortgage-backed securities
Other debt securities
Equity securities and mutual funds
Total
$
6,987
19,537
$
7,126
20,163
$ 139 $
664
–
(38)
$
6,961
26,478
$
7,088
26,578
$ 127 $
133
–
(33)
4,900,895
1,636,934
6,537,829
37
158,033
$6,722,423
4,972,928
1,241,238
6,214,166
36
149,960
$6,391,451
84,073
28
84,101
–
2,485
(12,040)
(395,724)
(407,764)
(1)
(10,558)
$87,389 $(418,361)
3,838,219
1,664,537
5,502,756
42
151,689
$5,687,926
3,817,939
1,641,189
5,459,128
41
157,705
$5,650,540
16,120
1,225
17,345
–
6,016
(36,400)
(24,573)
(60,973)
(1)
–
$23,621 $ (61,007)
The amortized cost and fair values of available for sale securities at December 31, 2008, by contractual maturity, are as shown in
the following table (dollars in thousands):
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
Weighted
Average
Maturity5
U.S. Treasuries:
Amortized cost
Fair value
Nominal yield
Municipal and other tax-exempt:
Amortized cost
Fair value
Nominal yield¹
Other debt securities:
Amortized cost
Fair value
Nominal yield¹
Total fixed maturity securities:
Amortized cost
Fair value
Nominal yield
Mortgage-backed securities:
Amortized cost
Fair value
Nominal yield4
Equity securities and mutual funds:
Amortized cost
Fair value
Nominal yield
Total available-for-sale securities:
Amortized cost
Fair value
Nominal yield
$
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
$
$
$
$
6,987
7,126
2.16
2,404
2,486
3.98
37
36
6.62
9,428
9,648
4.02
$
$
$
–
–
–
–
–
–
16,117
16,659
4.11
$ 1,016
1,018
4.65
$
–
–
–
$
–
–
–
$
16,117
16,659
4.11
$ 1,016
1,018
4.65
1.17
7.42
1.87
5.77
²
³
$
$
$
$
6,987
7,126
2.16
19,537
20,163
4.12
37
36
6.62
26,561
27,325
3.61
$ 6,537,829
6,214,166
4.78
$
158,033
149,960
3.19
$ 6,722,423
6,391,451
4.74
¹ Calculated on a taxable equivalent basis using a 39% effective tax rate.
² The average expected lives of mortgage-backed securities were 1.96 years based upon current prepayment assumptions.
³ Primarily restricted common stock of U.S. government agencies and preferred stock of corporate issuers with no stated maturity.
4 The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned
may differ significantly based upon actual prepayments.
5 Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or
without penalty.
75
Sales of available for sale securities resulted in gains and losses as follows (in thousands):
Proceeds
Gross realized gains
Gross realized losses
Related federal and state income
tax expense (benefit)
2008
2007
2006
$ 3,499,128
21,128
11,932
$ 806,979
2,862
3,138
$ 646,944
2,454
2,302
2,736
(96)
53
Gross unrealized losses excludes other-than-temporary charges of $5.3 million in 2008 and $8.6 million in 2007.
Mortgage trading securities are mortgage-backed securities that have been designated as an economic hedge of the mortgage
servicing rights and are separately identified on the balance sheet. These securities are carried at fair value. Changes in fair
value are recognized in earnings as they occur. As of December 31, 2008, mortgage trading securities are carried at their $399
million fair value and had a net unrealized gain of $12.6 million.
In addition to securities that have been reclassified as pledged to creditors, securities with an amortized cost of $5.0 billion and
$4.1 billion at December 31, 2008 and 2007, respectively, have been pledged as collateral for repurchase agreements, public and
trust funds on deposit and for other purposes, as required by law. The secured parties do not have the right to sell or repledge
these securities.
Net unrealized losses on securities not recognized as an other-than-temporary impairment totaled $328 million at December 31,
2008 compared with net unrealized losses of $37 million at December 31, 2007. The aggregate gross amount of unrealized losses
at December 31, 2008 totaled $419 million. Management evaluated the securities with unrealized losses to determine if we
believe 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.
The Company’s portfolio of available for sale securities includes preferred stocks issued by seven financial institutions. These
stocks were originally purchased for $46 million and have a current carrying value of $32 million. The carrying value of these
stocks has been reduced by $14 million of other-than-temporary impairment charges, approximately $5 million and $9 million in
2008 and 2007, respectively. None of the institutions that issued these stocks are in default. 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
dividends 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 $22 million at December 31, 2008 due to a significant widening of spreads to LIBOR related
to current market disruptions. We assessed the probability that spreads over LIBOR on these securities will narrow and fair
values will increase over a 24-month to 36-month period beginning on the most recent date that fair value equaled our carrying
value, June 30, 2008, and concluded that the impairment was temporary at December 31, 2008.
FSP EITF 99-20-1 became effective for the Company as of December 31, 2008 and requires that an other-than-temporary
impairment be recognized as a realized loss through earnings when it is “probable” there has been an adverse change in the
holder’s estimated cash flows from the cash flows previously projected. It also emphasizes the objective of an other-than-
temporary impairment assessment, including the requirement that the holder consider all available information when developing
the estimate of future cash flows (i.e. past events, current conditions and expected events). FSP EITF 99-20-1 did not have a
significant impact on the Company’s financial statements.
76
Temporarily Impaired Securities as of December 31, 2008
(In Thousands)
Number
of
Securities
Less Than 12 Months
Fair
Value
Unrealized
Loss
12 Months or Longer
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
Investment:
Municipal and other tax exempt
63
$
10,331
$
147
$
7,914
$
202
$
18,245
$
349
Available for sale:
Other debt securities
Municipal and other tax-exempt
Mortgage-backed securities:
U. S. agencies
Other
Equity securities and mutual funds
Total
2
4
60
114
18
198
261
–
645
–
30
36
1,269
1
8
36
1,914
1
38
9,778
794,962
83,721
297,736
10,558
22,039
1,115,382
104,087
$ 1,125,713 $ 104,234
217,441
936,077
–
1,154,823
$ 1,162,737
2,262
312,003
–
314,274
$ 314,476
1,012,403
1,233,813
22,039
2,270,205
$ 2,288,450
12,040
395,724
10,558
418,361
$ 418,710
Temporarily Impaired Securities as of December 31, 2007
(In Thousands)
Number
of
Securities
Less Than 12 Months
Fair
Value
Unrealized
Loss
12 Months or Longer
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
Investment:
Municipal and other tax exempt
Other
Available for sale:
Other debt securities
Municipal and other tax-exempt
Mortgage-backed securities:
U. S. agencies
Other
Total
210
1
211
2
9
$
$
1,996
–
1,996
16
2,925
5
–
5
–
22
$
91,319 $
600
91,919
25
304
646
1
647
1
11
$
$
93,315
600
93,915
41
3,229
651
1
652
1
33
282
84
377
588
290,657
425,527
719,125
$ 721,121
6,489
4,150
10,661
$ 10,666
1,943,030
1,003,557
2,946,916
$ 3,038,835
$
29,911
20,423
50,346
50,993
2,233,687
1,429,084
3,666,041
$3,759,956
36,400
24,573
61,007
$ 61,659
77
(4) Derivatives
The fair values of derivative contracts at December 31, 2008 were (in thousands):
December 31, 2008
Assets
Liabilities
December 31, 2007
Assets
Liabilities
Customer Risk Management Programs:
Interest rate contracts
Energy contracts
Cattle contracts
Foreign exchange contracts
CD options
Fair value before cash collateral
Less: cash collateral
Total Customer Derivatives
Interest Rate Risk Management Programs
Total Derivative Contracts
$ 174,144
423,044
3,526
51,767
3,655
656,136
(217,082)
439,054
13,550
$ 452,604
$ 180,008
442,791
3,529
51,767
3,655
681,750
(14,716)
667,034
–
$ 667,034
$ 73,946
399,363
3,374
20,205
4,325
501,213
–
501,213
1,233
$ 502,446
$ 78,808
406,740
3,242
20,205
4,325
513,320
(172,163)
341,157
520
$ 341,677
Customer Risk Management Programs
BOK Financial offers programs that permit its customers to manage various risks, including fluctuations in energy, cattle and
other agricultural products prices, interest rates and foreign exchange rates, or to take positions in derivative contracts.
Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK
Financial and selected counterparties to minimize the risk 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 BOK
Financial as compensation for administrative costs, credit risks and profit.
Credit risk is considered in determining the fair value of derivative instruments. Deterioration in the credit rating of customers or
dealers reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during the current period.
Deterioration in our credit rating below investment grade would affect the fair value of our derivative liabilities. In the event of a
credit down-grade, the fair value of our derivative liabilities would decrease. The reduction in fair value would be recognized in
earnings in the current period.
As of January 1, 2008, the Company adopted FSP 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 December 31, 2008 were reduced by $217 million and $15 million, respectively, of cash collateral.
Interest Rate Risk Management Programs
BOK Financial uses interest rate swaps in managing its interest rate sensitivity. Interest rate swaps are generally used to reduce
overall asset sensitivity by converting specific fixed rate liabilities to floating rate based on LIBOR.
The following table details interest rate swaps and, when applicable, the associated fair value of liabilities at December 31, 2008
(dollars in thousands):
Maturity
Description
Liabilities Carried at Fair Value
Principal
Amount
Fair
2
Value
Weighted Avg
Fixed Rate
(Paid)
2009
2010
2011
Certificates of deposit
Certificates of deposit
Certificates of deposit
$ 587,339
8,851
27,294
595,748
9,024
27,982
(4.488)%
(3.631)
(3.983)
623,484
632,754
Other derivatives
Total
–
$623,484
–
$632,754
Interest Rate Swap
Weighted Average
Fixed Rate
Floating Rate
Received (Paid) Received (Paid) ¹
Fair Value
4.487%
3.657
4.013
(0.436)%
(0.436)
(0.436)
(5.510)
0.436
$ 11,762
368
1,758
13,848
(298)
$ 13,550
Notional
Amount
$ 625,000
10,000
30,000
665,000
4,046
$669,046
¹ Floating rates are based on 30-day LIBOR, unless otherwise noted.
2 Fair value of certificates of deposit are based upon brokered certificate of deposit market rates or Federal Home Loan Bank rates for
advances with similar maturities.
During 2008 and 2007, net interest revenue was decreased by $7.0 million and $6.8 million, respectively, from the settlement of
amounts receivable or payable on interest rate swaps.
As of January 1, 2008, the Company adopted FAS 159, which 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
78
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 when interest rates
fall. Interest on these certificates of deposit based on contractual interest rates and outstanding principal balances is included in
interest expense on the Consolidated Statement of Earnings. Changes in the fair value of liabilities carried at fair value which is
included in derivatives gains (losses), net on the Consolidated Statement of Earnings decreased net income by $10.2 million in
2008. Changes in the fair value of interest rate swaps, which is included in derivatives gains (losses), net on the Consolidated
Statement of Earnings increased net income by $11.6 million in 2008.
(5) Loans
Significant components of the loan portfolio are as follows (in thousands):
2008
2007
December 31,
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Loans past due (90 days)
$3,012,649
847,816
772,234
805,136
$5,437,835
Foregone interest on nonaccrual loans
$4,264,108 $ 134,846
137,279
27,387
561
$7,411,603
2,701,248
1,752,574
1,010,581
$7,138,098 $ 300,073 $12,876,006
1,716,153
952,953
204,884
$2,714,050 $4,004,553
1,840,465
762,203
184,284
$5,064,775 $6,791,505
857,300
757,130
736,295
$ 42,981 $6,761,584
25,319 2,723,084
15,272 1,534,605
921,297
$84,290 $11,940,570
718
$ 19,123
$
8,391
$
$
5,575
3,011
Approximately 43% of the commercial and consumer loan portfolios and approximately 68% of the residential mortgage loan
portfolio (excluding loans held for sale) are loans to businesses and individuals in Oklahoma. This geographic concentration
subjects the loan portfolio to the general economic conditions within this area.
Within the commercial loan classification, loans to energy-related businesses totaled $2.3 billion or 18% of total loans as of
December 31, 2008. Other notable segments include services, $2.0 billion; wholesale/retail, $1.2 billion; healthcare, $777
million; manufacturing, $498 million; and agriculture, $198 million, which includes $134 million of loans to the cattle industry.
The services category consists almost entirely of loans with individual balances of less than $10 million.
Approximately 25% of commercial real estate loans are secured by properties located in Oklahoma, primarily in the Tulsa and
Oklahoma City metropolitan areas. An additional 28% of commercial real estate loans are secured by property located in Texas,
primarily in the Dallas and Houston areas. The major components of these properties are multifamily residences, $317 million;
construction and land development, $926 million; retail facilities, $371 million; and office buildings, $459 million.
At December 31, 2008 and 2007, residential mortgage loans included $12.8 million and $9.9 million, respectively, and consumer
loans included $254 thousand and $515 thousand, respectively, of loans with repayment terms that have been modified from the
original contracts.
Credit Commitments
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
At December 31, 2008, outstanding commitments totaled $5.0 billion. Because some commitments are expected to expire before
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the
same credit policies in making commitments as it does loans.
The amount of collateral obtained, if deemed necessary, is based upon management’s credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Because
the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments,
BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial
uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. The term of
these standby letters of credit is defined in each commitment and typically corresponds with the underlying loan commitment. At
December 31, 2008, outstanding standby letters of credit totaled $599 million. Commercial letters of credit are used to facilitate
customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At December 31, 2008,
outstanding commercial letters of credit totaled $18 million.
79
The Company also has off-balance sheet credit risk for residential 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 for this off-balance sheet credit risk. At December 31, 2008, the principal balance of
loans sold subject to recourse obligations totaled $391 million and the reserve for credit risk from these loans totaled $8.8
million. Losses incurred during 2008 and 2007 totaled $8.6 million and $1.1 million, respectively.
Reserve for Credit Losses
The activity in the reserve for loan losses is summarized as follows (in thousands):
2008
2007
2006
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Addition due to acquisitions
Ending balance
$ 126,677 $ 109,497
34,758
(31,617)
10,511
3,528
$ 233,236 $ 126,677
208,280
(122,211)
20,490
–
$ 103,876
18,086
(23,996)
11,531
–
$ 109,497
The activity in the reserve for off-balance sheet credit losses is summarized as follows (in thousands):
2008
2007
2006
Beginning balance
Provision for off-balance
sheet credit losses
$ 20,853 $ 20,890
$ 20,574
(5,687)
(37)
316
Ending balance
$ 15,166 $ 20,853
$ 20,890
Provision for credit losses
$ 202,593 $ 34,721
$ 18,402
Reserve for Recourse Loan Losses
The activity in the reserve for recourse loan losses is summarized as follows (in thousands):
2008
2007
2006
Beginning balance
Provision for loan losses
Loans charged off, net
Ending balance
$
$
3,560 $
8,577
(3,370)
8,767 $
2,473
1,092
(5)
3,560
$
$
1,861
723
(111)
2,473
Impaired Loans
Investments in loans considered to be impaired under FAS 114 were as follows (in thousands):
Investment in loans impaired
under FAS 114 (all of
which were on a
nonaccrual basis)
Loans with specific reserves
for loss
Specific reserve balance
No specific related reserve
for loss
Average recorded investment
in impaired loans
December 31,
2007
2006
2008
$269,908
$ 74,085 $ 22,586
194,292
28,532
22,749
4,425
4,694
1,670
75,616
51,336
17,892
179,808
44,535
26,435
Approximately $76.6 million of losses on impaired loans with no related specific reserves at December 31, 2008 were
charged off against the allowance for loan losses during 2008. Interest income recognized on impaired loans during 2008,
2007 and 2006 was not significant.
80
(6) Premises and Equipment
Premises and equipment at December 31 are summarized as follows (in thousands):
Land
Buildings and improvements
Software
Furniture and equipment
Subtotal
Less accumulated depreciation
Total
December 31,
2008
2007
$ 71,306
221,035
55,488
136,785
484,614
207,156
$ 277,458
$ 68,496
201,171
44,499
128,869
443,035
184,249
$ 258,786
Depreciation expense of premises and equipment was $28.4 million, $25.6 million and $23.7 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
81
(7) Intangible Assets
The following table presents the original cost and accumulated amortization of intangible assets (in thousands):
Core deposit premiums
Less accumulated amortization
Net core deposit premiums
December 31,
2008
2007
$ 109,417
95,059
14,358
$ 109,417
88,263
21,154
Other identifiable intangible assets
Less accumulated amortization
Net other identifiable intangible assets
16,791
5,769
11,022
18,656
6,770
11,886
Goodwill
Less accumulated amortization
Net goodwill
Total intangible assets, net
388,964
53,135
335,829
$ 361,209
388,448
53,135
335,313
$ 368,353
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
Core
Deposit
Premiums
Other
Identifiable
Intangible Assets
2009
2010
2011
2012
2013
Thereafter
$ 5,606
4,131
2,227
815
485
1,094
$ 14,358
$ 1,138
1,163
1,190
1,218
936
5,377
$ 11,022
Total
$ 6,744
5,294
3,417
2,033
1,421
6,471
$ 25,380
The net amortized cost of identifiable intangible assets at December 31, 2008 is assigned to the Company’s subsidiary banks as follows (in
thousands):
Core deposit premiums:
Bank of Texas
Colorado State Bank and Trust
Bank of Arizona
Other identifiable intangible assets:
Bank of Oklahoma
Colorado State Bank and Trust
Bank of Kansas City
Goodwill:
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Colorado State Bank and Trust
Bank of Arizona
$ 8,621
4,674
1,063
$ 14,358
$
6,257
3,975
790
$ 11,022
$
8,173
240,122
15,273
55,611
16,650
$ 335,829
The annual goodwill evaluation did not indicate impairment for any business unit in 2008, 2007 or 2006. Economic conditions
did not indicate that impairment existed for any identifiable intangible assets and therefore no impairment evaluation was
performed.
82
(8) Mortgage Banking Activities
BOK Financial engages in mortgage banking activities through the BOk Mortgage Division of BOk. Residential mortgage loans
held for sale totaled $129 million and $77 million, and outstanding mortgage loan commitments totaled $241 million and $53
million at December 31, 2008 and 2007, respectively. Mortgage loan commitments are generally outstanding for 60 to 90 days
and are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures,
including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate
fluctuations is partially managed through forward sales of mortgage-backed securities and forward sales contracts. These latter
contracts set the price for loans that will be delivered in the next 60 to 90 days. As of December 31, 2008, the unrealized loss on
forward sales contracts used to manage the mortgage pipeline interest rate risk was approximately $2.1 million. Gains on
mortgage loans sold, including capitalized mortgage servicing rights, totaled $9.5 million in 2008, $5.2 million in 2007 and $10.5
million in 2006.
At December 31, 2008, BOK Financial owned the rights to service 58,023 mortgage loans with outstanding principal balances of
$6.0 billion, including $793 million serviced for affiliates, and held related funds of $65 million for investors and borrowers. The
weighted average interest rate and remaining term was 6.15% and 284 months, respectively. Mortgage loans sold with recourse
totaled $391 million at December 31, 2008, and $13.2 million of loans sold with recourse were 90 days or more delinquent. At
December 31, 2007, BOK Financial owned the rights to service 58,227 mortgage loans with outstanding principal balances of
$5.5 billion, including $614 million serviced for affiliates, and held related funds of $63 million for investors and borrowers. The
weighted average interest rate and remaining term was 6.18% and 280 months, respectively. Mortgage loans sold with recourse
totaled $393 million at December 31, 2007, and $3.7 million of loans sold with recourse were 90 days or more delinquent.
Servicing revenue and late charges on loans serviced for others, which are included in mortgage banking revenue in the
Consolidated Statements of Earnings totaled $17.6 million for 2008, $17.1 million for 2007 and $16.5 million for 2006.
The portfolio of mortgage servicing rights exposes BOK Financial to interest rate risk. During periods of falling interest rates,
mortgage loan prepayments increase, reducing the value of the mortgage servicing rights. See Note 1 for specific accounting
policies for mortgage servicing rights.
BOK Financial implemented FAS 156 in the first quarter of 2006. An initial adjustment of the mortgage servicing rights to fair
value of approximately $351 thousand, net of income taxes, was recognized as an increase to retained earnings in the same
period. Also upon implementation of FAS 156, certain securities designated as an economic hedge of mortgage servicing rights
were transferred from the available for sale classification to trading. Approximately $32 thousand was transferred from
accumulated other comprehensive income to retained earnings for the net of tax effect of this reclassification.
Activity in capitalized mortgage servicing rights and related valuation allowance during 2006, 2007 and 2008 are as follows (in
thousands):
Balance at December 31, 20051
Adoption of FAS 156 effective January 1, 2006
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance at December 31, 20061
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance at December 31, 20071
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Capitalized Mortgage Servicing Rights
Purchased Originated
Total
Valuation
Allowance
Net
$ 8,606
$ 52,905
$ 61,511
$ (7,414)
$ 54,097
(117)
(6,747)
(6,864)
7,414
6,774
11,917
18,691
(2,448)
(7,953)
(10,401)
(2)
3,011
3,009
–
–
–
550
18,691
(10,401)
3,009
$ 12,813 $ 53,133 $ 65,946
$ –
$ 65,946
3,628
14,080
(2,478)
(57)
(8,274)
(2,836)
17,708
(10,752)
(2,893)
–
–
–
17,708
(10,752)
(2,893)
$ 13,906 $ 56,103
$ 70,009
$
–
$ 70,009
–
19,220
(2,286)
(9,676)
(5,267)
(29,248)
19,220
(11,962)
(34,515)
–
–
–
19,220
(11,962)
(34,515)
Balance at December 31, 20081
$ 42,752
1 Excludes approximately $0.2 million, $0.7 million and $0.8 million at December 31, 2008, 2007 and 2006, respectively, of loan
$ 6,353 $ 36,399 $ 42,752
–
$
servicing rights on mortgage loans originated prior to the adoption of FAS 122.
83
Fair value is determined by discounting the projected net cash flows. Significant assumptions are:
Discount rate – Indexed to a risk-free rate commensurate with the average life of the servicing portfolio plus a market
premium. The discount rate at December 31, 2008 was 9.26%.
Prepayment rate – Annual prepayment estimates ranging from 8.3% to 38% based upon loan interest rate, original term and
loan type.
Loan servicing costs – $43 to $73 annually per loan based upon loan type.
Escrow earnings rate – Indexed to rates paid on deposit accounts with a comparable average life. The escrow earnings rate at
December 31, 2008 was 2.08%.
The effect of a 50 basis point decrease in mortgage interest rates on all significant assumptions is expected to decrease the fair
value of mortgage servicing rights by $11 million.
Stratification of the mortgage loan-servicing portfolio, outstanding principal of loans serviced, and related hedging information
by interest rate at December 31, 2008 follows (in thousands):
< 5.51%
5.51% - 6.50%
6.51% - 7.50%
=> 7.51%
Total
Fair value
$
9,638
$
25,866
$
5,847
$
1,401
$
42,752
Outstanding principal of loans serviced1
$ 951,800
$ 2,983,300
$ 1,049,200
$ 172,700
$ 5,157,000
1 Excludes outstanding principal of $793 million for loans serviced for affiliates and $34 million of mortgage loans for which there are
no capitalized mortgage servicing rights.
(9) Deposits
Interest expense on deposits is summarized as follows (in thousands):
2008
2006
2007
Transaction deposits
Savings
Time:
Certificates of deposits
under $100,000
Certificates of deposits
$100,000 and over
Other time deposits
Total time
Total
$ 121,403 $ 194,617 $ 148,986
1,408
1,499
676
70,806
88,465
69,844
78,965
17,074
166,845
100,916
15,754
186,514
$ 288,924 $ 412,746 $ 336,908
110,791
17,374
216,630
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2008 and 2007 were $3.1 billion
and $2.4 billion, respectively.
Time deposit maturities are as follows: 2009 – $3.7 billion, 2010 – $191 million, 2011 – $194 million, 2012 – $279 million, 2013
– $704 million and $117 million thereafter. At December 31, 2008, the Company had $1.0 billion in fixed rate, brokered
certificates of deposits. The weighted-average interest rate paid on these certificates is 3.55%.
Interest expense on time deposits during 2008 and 2007 was reduced by the net accrued settlement from interest rate swaps of
$6.9 million and $2.6 million, respectively.
The aggregate amount of overdrawn transaction deposits that have been reclassified as loan balances was $35 million at
December 31, 2008 and $91 million at December 31, 2007.
84
(10) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
2008
Maximum
Outstanding
At Any
December 31
2007
Maximum
Outstanding
At Any
2006
Maximum
Outstanding
At Any
Balance
Rate Month End
Balance
Rate Month End
Balance
Rate Month End
Parent Company:
Revolving, unsecured line $
Subsidiary Banks:
50,000 3.78% $ 50,000
$
50,000 5.42% $ 50,000 $
– –% $
–
Funds purchased and
repurchase agreements
Federal Home Loan Bank
advances
Federal Reserve advances
Subordinated debentures
Other
Total subsidiary banks
Total other borrowings
3,025,399 0.72
3,686,019
3,225,131 4.30
3,225,131
2,348,516 5.52
2,688,175
991,401 1.76
450,000 0.24
398,407 5.51
30,653 2.62
4,895,860 1.30
$ 4,945,860 1.32
2,391,618
450,000
398,407
44,227
938,168 4.65
–
–
398,273 5.91
39,396 4.10
4,600,968 4.52
$ 4,650,968 4.53
938,168
–
548,187
43,985
566,017 5.36
–
–
297,800 6.91
27,714 4.00
3,240,047 5.63
$ 3,240,047 5.63
841,159
–
300,230
36,534
Aggregate annual principal repayments of long-term debt at December 31, 2008 are as follows (in thousands):
2009
2010
2011
2012
2013
Thereafter
Total
Parent
Company
Subsidiary
Banks
$
–
50,000
–
–
–
–
$ 50,000
$ 4,226,052
250,475
2,372
1,418
525
415,018
$ 4,895,860
Funds purchased generally mature within one to ninety days from the transaction date. At December 31, 2008, securities sold
under agreements to repurchase totaled $1.9 billion with related accrued interest payable of $4.5 million.
Additional information relating to repurchase agreements at December 31, 2008 is as follows (dollars in thousands):
Security Sold/Maturity
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
$ 1,364,651
573,722
$ 1,938,373
$ 1,233,500
590,760
$ 1,824,260
$ 975,131
470,429
$ 1,445,560
0.34%
2.64
1.09%
1 BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over
securities underlying longer-term dealer repurchase agreements to the respective counterparty.
Borrowings from the Federal Home Loan Bank are used for funding purposes. In accordance with policies of the Federal Home
Loan Bank, BOK Financial has granted a blanket pledge of eligible assets (generally unencumbered U.S. Treasury and mortgage-
backed securities, 1-4 family loans and multifamily loans) as collateral for these advances. The Federal Home Loan Bank has
issued letters of credit totaling $394 million to secure BOK Financial’s obligations to depositors of public funds. The unused
credit available to BOK Financial at December 31, 2008 pursuant to the Federal Home Loan Bank’s collateral policies is $2.3
billion.
The Company elected to participate in the TLGP, which expanded insurance coverage to certain qualifying debt issued by
eligible financial institutions. In general, senior unsecured debt newly issued on or before June 30, 2009 will be fully protected
by the FDIC through the earlier of the maturity of the debt or June 30, 2012. Collectively, our subsidiary banks may issue up to
$1.8 billion of TLGP protected debt. No TLGP protected debt is currently outstanding.
In 2008, the subsidiary banks began borrowing funds under the Federal Reserve Bank Term Auction Facility program. This is a
temporary program which allows banks that are in generally sound financial condition to bid for funds. Funds are borrowed for
85
either 28 or 84 days and are secured by a pledge of eligible collateral. Funds borrowed under this program totaled $450 million
at December 31, 2008.
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 and matures in December of 2010. At December 31, 2008, the
outstanding balance under this credit agreement was $50 million. Subsequent to December 31, 2008, the Company fully repaid
the amounts owed under this credit agreement.
As of December 31, 2007, BOK Financial had a $188 million unsecured revolving line of credit with certain commercial banks
with an outstanding principal balance of $50 million. In 2008, that balance was repaid and the agreement was terminated at the
Company’s request.
In 2007, Bank of Oklahoma issued $250 million of subordinated debt due May 15, 2017. Interest on this debt is based upon a
fixed rate of 5.75% through May 14, 2012 and on a floating rate of three-month LIBOR plus 0.69% thereafter. The proceeds of
this debt were used to fund the Worth National Bank and First United Bank acquisitions and to fund continued asset growth.
In 2005, BOk issued $150 million of 10-year, fixed rate subordinated debt. The cost of this subordinated debt, including issuance
discounts and hedge loss is 5.56%. The proceeds of this debt were used to repay $95 million of BOK Financial’s unsecured
revolving line of credit and to provide additional capital to support asset growth. During 2006, a $150 million notional amount
interest rate swap was designated as a hedge of changes in fair value of the subordinated debt due to changes in interest rates.
The Company received a fixed rate of 5.257% and paid a variable rate based on 1-month LIBOR. This fair value hedging
relationship was discontinued and the interest rate swap was terminated in April 2007.
86
(11) Federal and State Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and
liabilities are as follows (in thousands):
Deferred tax liabilities:
Valuation adjustments
Mortgage servicing rights
Lease financing
Pension contributions in excess
of book expense
Other
Total deferred tax liabilities
Deferred tax assets:
Available for sale securities
mark-to-market
Stock-based compensation
Credit loss reserves
Valuation adjustments
Deferred book income
Deferred compensation
Book expense in excess of pension
contribution
Other
Total deferred tax assets
Deferred tax assets in excess of
deferred tax liabilities
December 31,
2008
2007
$ 33,800
29,500
19,800
$ 30,600
25,900
16,600
–
2,300
85,400
4,900
3,700
81,700
126,300
6,500
94,200
23,900
22,300
11,300
1,200
18,800
304,500
14,600
5,700
56,000
9,400
26,000
10,000
–
12,500
134,200
$219,100
$ 52,500
The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown
below (in thousands):
Years ended December 31,
2007
2008
2006
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income tax
$ 108,879
7,377
116,256
$ 119,025
10,179
129,204
$ 113,554
8,518
122,072
(47,685)
(3,662)
(51,347)
$ 64,909
(12,935)
(508)
(13,443)
$ 115,761
(7,001)
(446)
(7,447)
$ 114,625
The reconciliations of income attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax
expense are as follows (in thousands):
Amount:
Federal statutory tax
Tax exempt revenue
Effect of state income taxes,
net of federal benefit
Intangible amortization
Utilization of tax credits
Bank-owned life insurance
Charitable contribution
Reduction of tax accrual
Other, net
Total
Years ended December 31,
2006
2007
2008
$76,353
(4,173)
$116,698 $114,660
(3,529)
(4,204)
1,278
–
(1,234)
(3,555)
(2,852)
(2,437)
1,529
4,805
82
(1,040)
(830)
–
(2,200)
2,677
$ 64,909 $115,761 $114,625
5,783
–
(1,218)
(3,411)
–
–
2,113
87
Due to the favorable resolution of certain tax issues for the tax periods ended December 31, 2002 and December 31, 2004, BOK
Financial reduced its tax accrual by $2.2 million and $2.4 million in 2006 and 2008, respectively, which was credited against
current income tax expense.
Percent of pretax income:
Federal statutory rate
Tax-exempt revenue
Effect of state income taxes,
net of federal benefit
Bank-owned life insurance
Charitable contribution
Reduction of tax accrual
Other, net
Total
Years ended December 31,
2006
2007
2008
35%
(2)
1
(2)
(1)
(1)
–
30%
35%
(1)
1
(1)
–
–
1
35%
35%
(1)
1
–
–
(1)
1
35%
BOK Financial adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN
48”), on January 1, 2007. As a result of the implementation of FIN 48, BOK Financial recognized a $609 thousand increase in
the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained
earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of December 31, 2007
Additions for tax for current year
positions
Settlements during the period
Lapses of applicable statute of
limitations
Balance as of December 31, 2008
2008
$ 13,200
2007
$ 12,639
3,800
(100)
4,100
–
(3,700)
$ 13,200
(3,539)
$ 13,200
Any of the above unrecognized tax benefits, if recognized, would affect the effective tax rate.
BOK Financial recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the
years ended December 31, 2008 and 2007, the Company recognized $1.5 million and $1.0 million, respectively, in interest and
penalties. The Company had approximately $3.0 million and $2.3 million for the payment of interest and penalties accrued as of
December 31, 2008 and 2007, respectively. Federal statutes remain open for federal tax returns filed in the previous three
reporting periods. Various state income tax statutes remain open for the previous three to six reporting periods.
One of our acquired entities is currently under examination by the Internal Revenue Service (“IRS”) for the year ending May 31,
2007 and the related carryback period. Refunds claimed in the carryback period total $3.5 million. The ultimate resolution is
unlikely to have a material impact on the financial statements. Also during 2008, the IRS exam for the year ended December 31,
2005 for the same acquired entity was closed with no adjustments.
88
(12) Employee Benefits
BOK Financial sponsors a defined benefit cash balance Pension Plan for all employees who satisfy certain age and service
requirements. Pension Plan benefits were curtailed as of April 1, 2006. No participants may be added to the plan and no
additional service benefits will be accrued. Interest will continue to accrue on employees’ account balances at 5.25%.
The following table presents information regarding this plan (dollars in thousands):
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Projected benefit obligation at end of year1,2
Change in plan assets:
Plan assets at fair value at beginning of year
Actual return on plan assets
Company contributions
Benefits paid
Plan assets at fair value at end of year
Funded status of the plan / prepaid pension costs
Components of net periodic benefit costs:
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized net loss
Net periodic pension cost (benefit)
December 31,
2008
2007
$ 46,183
–
2,685
(1,205)
(8,564)
$ 39,099
$ 58,220
–
2,823
(6,474)
(8,386)
$ 46,183
$ 58,089
(14,224)
–
(8,564)
$ 35,301
$ 63,038
3,437
–
(8,386)
$ 58,089
$ (3,798)
$ 11,906
$
$
–
2,685
(3,910)
496
(729)
$
$
–
2,823
(4,165)
958
(384)
1 Projected benefit obligation equals accumulated benefit obligation.
2 Projected benefit obligation is based on a January 1 measurement date.
Weighted-average assumptions as of December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
6.50%
7.00%
N/A
6.00%
7.00%
N/A
As of December 31, 2008, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2009
2010
2011
2012
2013
2014 through 2017
$ 3,142
3,531
3,662
4,329
3,705
18,770
$37,139
Assets of the Pension Plan consist primarily of shares in the Cavanal Hill Balanced Fund. The stated objective of this fund is to
provide an attractive total return through a broadly diversified mix of equities and bonds. The typical portfolio mix is
approximately 60% equities and 40% bonds. The net asset value of shares in the Cavanal Hill Funds is reported daily based on
market quotations for the Fund’s securities. If market quotations are not readily available, the securities’ fair values are
determined by the Fund’s pricing committee. The inception-to-date return on the fund, which is used as an indicator when setting
the expected return on plan assets, was 5.39%. As of December 31, 2008, the expected return on plan assets for 2009 is 5.25%
The maximum allowed and minimum required Pension Plan contributions for 2008 were $6.6 million and $0, respectively. No
contributions were made for 2007 or 2008. We expect approximately $2.0 million of net pension costs currently in accumulated
other comprehensive income to be recognized as net periodic pension cost in 2009.
Employee contributions to the Thrift Plan eligible for Company matching equal 6% of base compensation, as defined in the plan.
The Company-provided matching contribution rates range from 50% for employees with less than four years of service to 200%
for employees with 15 or more years of service. Additionally, a maximum Company-provided, non-elective annual contribution
of $750 is made for employees whose annual base compensation is less than $40,000.
89
Participants may direct investments in their accounts to a variety of options, including a BOK Financial common stock fund.
Employer contributions, which are invested in accordance with the participant’s investment options, vest over five years. Thrift
Plan expenses were $12.1 million, $11.6 million and $9.1 million for 2008, 2007 and 2006, respectively.
BOK Financial also sponsors a defined benefit post-retirement employee medical plan, which pays 50 percent of annual medical
insurance premiums for retirees who meet certain age and service requirements. Assets of the retiree medical plan consist
primarily of shares in a cash management fund. The post-retirement medical plan is limited to current retirees and certain
employees who were age 60 or older at the time the plan was frozen in 1993. The net obligation recognized under the plan was
$2.2 million at December 31, 2008. A 1% change in medical expense trends would not significantly affect the net obligation or
cost of this plan.
BOK Financial offers numerous incentive compensation plans that are aligned with the Company’s growth strategy.
Compensation awarded under these plans may be based on defined formulas, other performance criteria or discretionary.
Incentive compensation is designed to motivate and reinforce sales and customer service behavior in all markets. Earnings were
charged $83.2 million in 2008, $71.4 million in 2007 and $65.2 million in 2006 for incentive compensation plans.
(13) Stock Compensation Plans
The shareholders and Board of Directors of BOK Financial have approved various stock-based compensation plans. An
independent compensation committee of the Board of Directors determines the number of awards granted to the Chief Executive
Officer and other senior executives. Stock-based compensation is granted to other officers and employees and is approved by the
independent compensation committee upon recommendation of the Chairman of the Board and the Chief Executive Officer.
These awards consist primarily of stock options that are subject to vesting requirements. Generally, one-seventh of the options
awarded vest annually and expire three years after vesting. Additionally, stock options that vest in two years and expire 45 days
after vesting have been awarded. Non-vested shares may be granted to the Chief Executive Officer and other senior executives
of the Company. These shares vest five years after the grant date. The holders of these shares may be required to retain the
shares for a three-year period after vesting.
The Chief Executive Officer and other senior executives participate in an Executive Incentive Plan. The number of options and
non-vested shares may increase or decrease based upon the Company’s growth in earnings per share over a three-year period
compared to the median growth in earnings per share for a designated peer group of financial institutions and other individual
performance factors.
The following table presents options outstanding during 2006, 2007 and 2008 under these plans:
Options outstanding at
December 31, 2005
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at
December 31, 2006
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at
December 31, 2007
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at
December 31, 2008
Options vested at
December 31, 2008
Weighted-
Average
Exercise
Price
$34.03
48.30
29.50
36.65
37.35
$38.63
54.18
32.41
43.74
45.80
$43.50
47.71
33.05
47.96
49.91
Number
3,488,712
900,119
(790,981)
(100,149)
(1,076)
3,496,625
956,475
(703,833)
(429,848)
(1,249)
3,318,170
1,098,172
(498,700)
(271,250)
(70,924)
3,575,468
$45.77
846,387
$39.62
90
The following table summarizes information concerning currently outstanding and vested stock options:
Options Outstanding
Options Vested
Weighted Weighted
Average
Average
Exercise
Remaining
Price
Contractual
Outstanding Life (years)
Number
Weighted
Average
Number Exercise
Price
Vested
100,818
315,641
310,730
107,887
577,139
509,099
805,163
107,887
579,206
161,898
1.24
2.30
3.00
2.00
3.50
4.00
6.00
0.12
5.00
1.00
17.73
29.90
37.74
41.73
47.32
47.06
48.46
53.51
54.33
53.57
17.73
100,818
29.35
196,747
37.74
104,714
–
–
212,325
47.31
72,424 47.08
–
–
107,887 53.51
51,472 54.33
–
–
Range of
Exercise
Prices
$17.37 – 19.02
28.27 – 30.87
37.74
38.91 – 44.30
45.15 – 47.34
47.05 – 48.53
48.46
50.61 – 54.00
54.33
52.54 – 54.28
Compensation expense for stock options is generally recognized based on the fair value of options granted over the options’
vesting period. The fair value of options was determined as of the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions:
2008
2007
2006
Average risk-free interest rate
Dividend yield
Volatility factors
Weighted average expected life
Weighted average fair value
3.50%
1.70%
.147
4.9 years
$7.09
4.68%
1.10%
.143
4.9 years
$9.91
4.42%
0.90%
.161
4.9 years
$9.56
Compensation cost of stock options granted that may be recognized as compensation expense in future years totaled $11.0
million at December 31, 2008. Subject to adjustments for forfeitures, we expect to recognize compensation expense for current
outstanding options of $4.6 million in 2009, $3.0 million in 2010, $1.7 million in 2011, $970 thousand in 2012, $490 thousand in
2013 and $170 thousand thereafter. Stock option expense for the years ended December 31, 2008, 2007 and 2006 was $7.8
million, $6.3 million and $6.4 million, respectively. The intrinsic value of options exercised during the years ended December
31, 2008, 2007 and 2006 was $11.8 million, $14.9 million and $16.6 million, respectively. The aggregate intrinsic value of
options outstanding as of December 31, 2008 and 2007 was $19.2 million and $27.2 million, respectively. The aggregate
intrinsic value of options exercisable as of December 31, 2008 and 2007 was $656 thousand and $15.1 million, respectively.
BOK Financial also issues non-vested common shares under the various stock-based compensation plans. At December 31,
2008, a total of 137,958 non-vested common shares have been awarded, including 56,853 awarded in 2008. The weighted
average grant date fair value of non-vested shares awarded in 2008 was $47.62 per share. Unrecognized compensation cost of
non-vested shares totaled $3.4 million at December 31, 2008. Subject to adjustment for forfeitures, we expect to recognize
compensation expense of $1.1 million in 2009, $950 thousand in 2010, $750 thousand in 2011, $520 thousand in 2012 and $50
thousand in 2013.
BOK Financial permits certain executive officers to defer recognition of taxable income from their stock-based compensation.
Deferred compensation may also be diversified into investments other than BOK Financial common stock.
Stock-based compensation subject to these deferral plans is recognized as a liability award rather than as an equity award.
Compensation expense is based on the fair value of the award recognized over the vesting period. At December 31, 2008, the
recorded obligation for liability awards was $1.2 million. Compensation cost of liability awards was a benefit of $471 thousand
in 2008, expense of $506 thousand in 2007 and expense of $4.7 million in 2006.
91
During January 2009, BOK Financial awarded the following stock-based compensation:
Number
Exercise
Price
Fair Value /
Award
Equity awards:
Stock options
Nonvested stock
Total equity awards
Total stock-based awards
779,541
139,839
919,380
919,380
$36.65
–
$ 5.38
36.65
The aggregate compensation cost of these awards totaled approximately $9.3 million. This cost will be recognized over the
vesting periods, subject to adjustments for forfeitures. None of the stock-based compensation awards in January 2009 are subject
to deferred compensation plans.
(14) Related Parties
In compliance with applicable regulations, the Company may extend credit to certain executive officers, directors, principal
shareholders and their affiliates (collectively referred to as “related parties”) in the ordinary course of business under
substantially the same terms as comparable third-party lending arrangements. The Company’s loans to related parties do not
involve more than the normal credit risk and there are no non-accrual or impaired related party loans outstanding at December
31, 2008 or 2007. Activity in loans to related parties is summarized as follows (in thousands):
Beginning balance
Advances
Payments
Charge-offs2
Adjustments1
Ending balance
2008
2007
$ 252,051
734,553
(704,433)
(26,000)
(49,031)
$ 207,140
$ 160,901
700,742
(700,488)
–
90,896
$ 252,051
1 Adjustments generally consist of changes in status as a related party. In 2008, adjustments include $48 million of loans to SemGroup,
L.P., which ceased to be a related party upon resignation of Thomas L. Kivisto, its principal owner, from the Company’s Board of
Directors. These loans remain outstanding and are non-performing.
2 In 2008, the Company charged off $26 million of the balance due from SemGroup, L.P.
Certain related parties are customers of the Company for services other than loans, including consumer banking, corporate
banking, risk management, wealth management, brokerage and trading, or fiduciary/trust services. The Company engages in
transactions with related parties in the ordinary course of business in compliance with applicable regulations.
On July 21, 2008, the Company entered into a $188 million, unsecured revolving credit agreement with George B. Kaiser, its
Chairman and principal shareholder. The revolving credit agreement with Mr. Kaiser replaced a similar credit agreement with
certain commercial banks that was terminated at the Company’s request. The Company was in compliance with all terms of that
credit agreement when it was terminated. Interest on the outstanding balance due to Mr. Kaiser 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 and matures in December of 2010. At
December 31, 2008, the outstanding balance under this credit agreement was $50 million. Subsequent to December 31, 2008, the
Company fully repaid the amounts owed under this credit agreement.
The Company also rents office space in facilities owned by affiliates of Mr. Kaiser. Lease payments for 2008 totaled $1.1
million.
In 2008, the Company entered into a $25 million loan commitment with the Tulsa Community Foundation (“TCF”) to be secured
by tax-exempt bonds purchased from the Tulsa Stadium Trust (the “Stadium Trust”) by TCF. The Stadium Trust is an
Oklahoma public trust, of which the City of Tulsa is the sole beneficiary. Stanley A. Lybarger, President and CEO of the
Company, is Chairman of the Stadium Trust.
Cavanal Hill Investment Management, Inc., a wholly-owned subsidiary of BOk, is the administrator to and investment advisor
for the Cavanal Hill Funds (the "Funds"), a diversified, open-ended investment company established as a business trust under the
Investment Company Act of 1940 (the "1940 Act"). BOk is custodian and BOSC, Inc. is distributor for the Funds. The Funds’
products are offered to customers, employee benefit plans, trusts and the general public in the ordinary course of business.
Approximately 98% of the Funds’ assets of $3.8 billion are held for the Company's clients. A Company executive officer
serves on the Funds' board of trustees and BOk officers serve as president and secretary of the Funds. A majority of the members
of the Funds’ board of trustees are, however, independent of the Company and the Funds are managed by its board of trustees.
92
(15) 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 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. On December 22, 2008, the
tolling agreement was extended to March 2, 2009. On February 11, AXIA representatives met again with SEC Staff. 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. This contingent liability totaled $2.5 million at December 31, 2008. During 2008, 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 and from available cash. BOK Financial recognized a $2.5 million receivable for its proportionate
share of this 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
0.6296 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.
At December 31, 2008, Cavanal Hill Funds’ assets included $1.6 billion of U.S. Treasury, $1.4 billion of cash management and
$881 million of tax-free money market funds. Assets of these funds consist of highly-rated, short-term obligations of the U.S.
Treasury, corporate issuers and U.S. states and municipalities. The net asset value of units in these funds was $1.00 at December
31, 2008. An investment in these funds is not insured by the Federal Deposit Insurance Corporation or guaranteed by BOK
Financial or any of its subsidiaries. BOK Financial may, but is not obligated to purchase assets from these funds to maintain the
net asset value at $1.00.
BOk is obligated under a long-term lease for its bank premises owned by Williams Companies, Inc. and located in downtown
Tulsa. The Chairman and CEO of the Williams Companies, Inc. is a director of BOK Financial Corporation. The lease term,
which began November 1, 1976, is for fifty-seven years with options to terminate in 2014 and 2024. Annual base rent is
$3.2 million. BOk subleases portions of its space for annual rents of $213 thousand in years 2009 and 2010. Net rent expense on
this lease was $3.0 million in 2008, 2007 and 2006. Total rent expense for BOK Financial was $20.3 million in 2008, $18.8
million in 2007, and $16.5 million in 2006.
At December 31, 2008, future minimum lease payments for equipment and premises under operating leases were as follows:
$17.4 million in 2009, $17.2 million in 2010, $14.6 million in 2011, $11.9 million in 2012, $9.4 million in 2013, and a total of
$102.7 million thereafter. Premises leases may include options to renew at then current market rates and may include escalation
provisions based upon changes in the consumer price index or similar benchmarks.
The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were
approximately $373 million and $315 million at December 31, 2008 and 2007, respectively.
93
BOSC, Inc., a wholly-owned subsidiary of BOK Financial, is an introducing broker to Pershing, LLC for retail equity investment
transactions. As such, it has indemnified Pershing, LLC against losses due to a customer’s failure to settle a transaction or to
repay a margin loan. All unsettled transactions and margin loans are secured as required by applicable regulation. The amount
of customer balances subject to indemnification totaled $1.5 million at December 31, 2008.
At December 31, 2008, the Company has funded $42.6 million and has commitments to fund an additional $13.9 million in
various unrelated alternative investments. Alternative investments generally consist of limited partnership interests in or loans to
entities that invest in distressed real estate loans and properties, energy development, venture capital and other activities. The
Company is prohibited by banking regulations from controlling or actively managing the activities of these investments.
BOKF Equity, LLC, indirectly a wholly-owned subsidiary of BOK Financial, is the general partner in two private equity funds
(“the Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related parties,
through limited partnerships. The Funds generally invest in distressed assets, asset buy-out or venture capital limited
partnerships or limited liability companies. The general partner has contingent obligations through the Funds to make additional
investments totaling $17.5 million as of December 31, 2008. Substantially all of those contingent obligations are offset by
commitments of BOK Financial customers.
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 currently
rented by third-party tenants in the building. 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 currently vacant space in the same building. The maximum
amount that Bank of Oklahoma may receive under this agreement is $4.5 million. The fair value of this agreement at inception is
zero and no asset or liability is currently recognized in the Company’s financial statements.
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.
(16) Shareholders’ Equity
Preferred Stock
One billion shares of preferred stock with a par value of $0.00005 per share are authorized. The Series A Preferred Stock has no
voting rights except as otherwise provided by Oklahoma corporate law and may be converted into one share of Common Stock
for each 36 shares of Series A Preferred Stock at the option of the holder. Dividends are cumulative at an annual rate of ten
percent of the $0.06 per share liquidation preference value when declared and are payable in cash. Aggregate liquidation
preference is $15 million. No Series A Preferred Stock was outstanding in 2008, 2007 or 2006.
Common Stock
Common stock consists of 2.5 billion authorized shares with a $0.00006 par value. Holders of common shares are entitled to one
vote per share at the election of the Board of Directors and on any question arising at any shareholders’ meeting and to receive
dividends when and as declared. Additionally, regulations restrict the ability of national banks and bank holding companies to
pay dividends.
Cash dividends paid on common stock totaled $59 million, $50 million and $37 million in 2008, 2007 and 2006, respectively.
Previously, annual dividends were paid in shares of common stock.
Subsidiary Banks
The amounts of dividends that BOK Financial’s subsidiary banks can declare and the amounts of loans the subsidiary banks can
extend to affiliates are limited by various federal banking regulations and state corporate law. Generally, dividends declared
during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years. The
amounts of dividends are further restricted by minimum capital requirements. Pursuant to the most restrictive of the regulations at
December 31, 2008, BOK Financial’s subsidiary banks could declare dividends up to $171 million without prior 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. As of December 31, 2008, the subsidiary banks could declare dividends of up to $119
million under this policy. The subsidiary banks declared and paid dividends of $76 million, $254 million and $81 million in
2008, 2007, and 2006, respectively.
Loans to a single affiliate may not exceed 10% and loans to all affiliates may not exceed 20% of unimpaired capital and surplus,
as defined. Additionally, loans to affiliates must be fully secured. As of December 31, 2008 and 2007, outstanding loans and
equity investments totaled $45 million and $22 million, respectively, and outstanding letters of credit totaled $18 million and $17
million, respectively. Total loan commitments to affiliates at December 31, 2008 were $199 million.
94
Regulatory Capital
BOK Financial and its banking subsidiaries are subject to various capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by
regulators that could have a material effect on BOK Financial’s operations. These capital requirements include quantitative
measures of assets, liabilities and certain off-balance sheet items. The capital standards are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
For a banking institution to qualify as well capitalized, its Tier I, Total and Leverage capital ratios must be at least 6%, 10% and
5%, respectively. Tier I capital consists primarily of common stockholders’ equity, excluding unrealized gains or losses on
available for sale securities, less goodwill, core deposit premiums and certain other intangible assets. Total capital consists
primarily of Tier I capital plus preferred stock, subordinated debt and reserves for credit losses, subject to certain limitations. All
of BOK Financial’s banking subsidiaries exceeded the regulatory definition of well capitalized.
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated
BOk
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank and Trust
Bank of Arizona
Bank of Kansas City
Tier I Capital (to Risk Weighted Assets):
Consolidated
BOk
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank and Trust
Bank of Arizona
Bank of Kansas City
Tier I Capital (to Average Assets):
Consolidated
BOk
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank and Trust
Bank of Arizona
Bank of Kansas City
December 31,
2008
2007
Amount
Ratio
Amount
Ratio
$
$
$
2,356,948
1,584,353
440,303
127,910
34,395
87,370
25,136
16,057
1,728,926
1,032,120
390,444
118,588
30,842
80,232
22,133
15,424
1,728,926
1,032,120
390,444
118,588
30,842
80,232
22,133
15,424
$
$
$
12.81%
12.22
11.07
17.20
12.18
12.41
10.65
28.42
9.40%
7.96
9.82
15.94
10.92
11.39
9.37
27.30
7.89%
6.46
9.30
7.22
10.80
6.90
9.55
23.88
2,167,763
1,432,405
380,221
112,693
28,058
88,603
21,715
17,354
1,621,583
937,477
349,793
105,089
25,198
85,542
19,644
17,252
1,621,583
937,477
349,793
105,089
25,198
85,542
19,644
17,252
12.54%
11.95
10.98
16.35
11.31
15.58
12.07
47.21
9.38%
7.82
10.10
15.24
10.16
15.04
10.92
46.93
8.20%
6.60
9.35
7.93
10.05
6.88
10.44
30.92
95
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) (“AOCI”) includes unrealized gains and losses on available for sale securities
and accumulated gains or losses on effective cash flow hedges, including hedges of anticipated transactions. Gains and losses in
AOCI are net of deferred income taxes. Accumulated losses on the rate lock hedge of the 2005 subordinated debenture issuance
will be reclassified into income over the ten-year life of the debt. Unrealized losses on employee benefit plans were recognized
as required by Statement of Financial Accounting Standards Board No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“FAS 158”), and
will be reclassified into income as Pension Plan costs.
Balance at December 31, 2005
Unrealized gains on securities
Unrealized gains on cash flow hedges
Unrealized losses on employee benefit plans
Tax benefit (expense) on unrealized gains (losses)
Reclassification adjustment for losses
realized and included in net income
Reclassification adjustment for tax benefit
on realized losses
Balance at December 31, 2006
Unrealized gains on securities
Unrealized gains on cash flow hedges
Unrealized gains on employee benefit plans
Tax benefit (expense) on unrealized gains (losses)
Reclassification adjustment for losses
realized and included in net income
Reclassification adjustment for tax benefit
on realized losses
Balance at December 31, 2007
Unrealized losses on securities
Unrealized gains on cash flow hedges
Unrealized losses on employee benefit plans
Tax benefit (expense) on unrealized gains (losses)
Reclassification adjustment for (gains) losses
realized and included in net income
Reclassification adjustment for tax expense (benefit)
Unrealized
Gain (Loss)
On Available
For Sale
Securities
$ (64,082)
7,061
–
–
(2,619)
Accumulated
(Loss) on
Effective
Cash Flow
Hedges
$ (3,729)
–
664
–
–
Unrealized
(Loss)
On
Employee
Benefit Plans
$ –
–
–
(18,587)
7,230
Total
$ (67,811)
7,061
664
(18,587)
4,611
739
211
–
950
(251)
$ (59,152)
48,308
–
–
(17,239)
(81)
$ (2,935)
–
2,201
–
(856)
–
$ (11,357)
–
–
7,518
(2,925)
(332)
$ (73,444)
48,308
2,201
7,518
(21,020)
8,117
211
(384)
7,944
$
(2,809)
$ (22,775)
(236,990)
–
–
70,492
(82)
(1,461)
–
139
–
(54)
$
150
(6,998)
–
–
(16,434)
6,393
(2,741)
$ (31,234)
(236,990)
139
(16,434)
76,831
(21,926)
289
–
(21,637)
on realized gains (losses)
Balance at December 31, 2008
6,551
$ (204,648)
$
(112)
(1,199)
–
$ (17,039)
6,439
$ (222,886)
96
(17) Earnings Per Share
The following table presents the computation of basic and diluted earnings per share (dollars in thousands except per share data):
Years ended December 31,
2007
2006
2008
Numerator:
Net income
Denominator:
Denominator for basic earnings per share – weighted average shares
Effect of dilutive potential common shares:
Employee stock compensation plans1
Denominator for diluted earnings per share – adjusted
weighted average shares and assumed conversions
Basic earnings per share
Diluted earnings per share
$
153,232
$
217,664
$
212,977
67,274,457
67,083,200
66,759,384
282,763
467,338
550,621
67,557,220
$2.28
$2.27
67,550,538
$3.24
$3.22
67,310,005
$3.19
$3.16
1 Excludes employee stock options with exercise prices greater than the
1,571,239
799,087
440,216
current market price.
(18) Reportable Segments
BOK Financial operates three principal lines of business: commercial banking, consumer banking and wealth management. Our
principal lines of business have been re-defined from the previous year to better present the Company’s organization as it has
grown in markets outside of Oklahoma. Commercial banking includes lending, treasury and cash management services and
customer risk management products to small businesses, middle market and larger commercial customers. Commercial banking
also includes the TransFund network. Consumer banking includes retail lending and deposit services, all mortgage banking
activities and our indirect automobile lending products. Wealth management provides fiduciary services, brokerage and trading,
private bank services and investment advisory services in all 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 overall liquidity needs and interest rate risk of the Company. 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 in excess of net loans
charged off, tax planning strategies 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 based on statutory rates, actual net credit losses 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 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 30 days for certain rate-sensitive deposits to five years.
Economic capital is assigned to the business units by a third-party developed 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. Average
invested capital includes economic capital and amounts we have invested in the lines of business.
Substantially all revenue is from domestic customers. No single external customer accounts for more than 10% of total revenue.
97
(In Thousands)
Year ended December 31, 2008
Net interest revenue/(expense)
from external sources
Net interest revenue/(expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Provision for credit losses
Increase (decrease) in fair
Commercial
Banking
Consumer
Banking
Wealth
Management
Funds
Management
and Other
Total
$ 451,623
$
32,076
$ 12,617
$ 150,546
$
646,862
(134,196)
317,427
107,185
217,155
81,966
118,728
150,804
148,885
219,024
16,726
32,853
45,470
156,133
149,966
2,961
(17,385)
133,161
1,137
42,233
100,940
–
646,862
413,340
628,378
202,593
value of mortgage servicing rights
–
(34,515)
4,689
12,525
–
(7)
–
(34,515)
5,729
22,936
(82)
130,098
50,608
79,490
$
193
42,142
16,393
25,749
$
–
48,669
18,932
$ 29,737
378
(2,768)
(21,024)
$ 18,256
$
489
218,141
64,909
153,232
Gains (losses) on financial
instruments, net
Gains (losses) on repossessed
assets, net
Income before taxes
Federal and state income tax
Net income
Average assets
Average invested capital
$ 12,920,566
1,036,980
$ 7,974,694
216,810
$ 2,505,168
191,830
$(1,790,609) $ 21,609,819
1,946,342
500,722
Performance measurements:
Return on assets
Return on invested capital
Efficiency ratio
0.62%
7.67
51.14
0.32%
11.88
73.08
1.19%
15.50
74.39
–
–
–
0.71%
7.87
59.27
Reconciliation to Consolidated Financial Statements
Net Interest
Revenue
Other
Operating
Revenue
Other
Operating
Expense
Net
Income
Average
Assets
Total reportable segments
Unallocated items:
Tax-equivalent adjustment
Funds management and other
(including eliminations), net
BOK Financial consolidated
$ 513,701
$ 412,203
$ 620,549
$ 134,976
$ 23,400,427
8,228
–
–
8,228
–
124,933
$ 646,862
1,137
$ 413,340
41,855
$ 662,404
10,028
$ 153,232
(1,790,608)
$ 21,609,819
98
Commercial
Banking
Consumer
Banking
Wealth
Management
Funds
Management
and Other
Total
(In Thousands)
Year ended December 31, 2007
Net interest revenue/(expense)
from external sources
$ 526,225
$
(7,807)
$ 8,562
$ 17,505
$
544,485
Net interest revenue/(expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Provision for credit losses
Cavanal Hill Funds settlement
Increase (decrease) in fair
(200,390)
325,835
131,081
201,876
9,747
–
163,028
155,221
144,585
193,599
9,233
–
value of mortgage servicing rights
–
(2,893)
1,075
(486)
37,627
46,189
130,681
131,205
1,513
2,232
–
13
(265)
17,240
(1,653)
43,265
14,228
–
–
544,485
404,694
569,945
34,721
2,232
–
(2,893)
(6,648)
(6,046)
10
246,378
95,841
$ 150,537
$
107
93,702
36,450
57,252
–
41,933
16,312
$ 25,621
(34)
(48,588)
(32,842)
$ (15,746) $
83
333,425
115,761
217,664
Gains (losses) on financial
instruments, net
Gains (losses) on repossessed
assets, net
Income before taxes
Federal and state income tax
Net income
Average assets
Average invested capital
$ 11,274,301
1,059,730
$ 7,514,732
194,130
$ 2,020,472
182,370
$(1,783,737) $ 19,025,768
1,812,463
376,233
Performance measurements:
Return on assets
Return on invested capital
Efficiency ratio
1.34%
14.21
44.18
0.76%
29.49
64.57
1.27%
14.05
74.18
–
–
–
1.14%
12.01
60.05
Reconciliation to Consolidated Financial Statements
Net Interest
Revenue
Other
Operating
Revenue
Other
Operating
Expense
Net
Income
Average
Assets
Total reportable segments
Unallocated items:
Tax-equivalent adjustment
Funds management and other
(including eliminations), net
BOK Financial consolidated
$ 527,245
$ 406,347
$ 531,688
$ 233,410
$ 20,809,505
9,120
–
–
9,120
–
8,120
$ 544,485
(1,653)
$ 404,694
43,299
$ 574,987
(24,866)
$ 217,664
(1,783,737)
$ 19,025,768
99
(In Thousands)
Year ended December 31, 2006
Net interest revenue/(expense)
from external sources
Net interest revenue/(expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Provision for credit losses
Increase (decrease) in fair
value of mortgage servicing rights
Gains (losses) on financial
instruments, net
Gains (losses) on repossessed
assets, net
Income before taxes
Federal and state income tax
Net income
Commercial
Banking
Consumer
Banking
Wealth
Management
Funds
Management
and Other
Total
$ 456,497
$
(5,015)
$ 16,731
$ 18,475
$
486,688
(162,537)
293,960
119,891
184,385
2,988
–
10
255
226,743
88,203
$ 138,540
$
151,532
146,517
134,261
176,649
5,075
3,009
(1,102)
72
101,033
39,302
61,731
29,180
45,911
114,044
114,548
242
–
5
(18,175)
300
4,999
39,962
10,097
–
486,688
373,195
515,544
18,402
–
3,009
(485)
(1,572)
–
45,170
17,571
$ 27,599
(99)
(45,344)
(30,451)
$ (14,893) $
228
327,602
114,625
212,977
Average assets
Average invested capital
$ 9,993,775
997,210
$ 6,966,156
192,310
$ 1,710,193
163,340
$(1,862,533) $ 16,807,591
1,609,359
256,499
Performance measurements:
Return on assets
Return on invested capital
Efficiency ratio
1.39%
13.89
44.55
0.89%
32.10
62.91
1.61%
16.90
71.61
–
–
1.27%
13.23
59.96
Reconciliation to Consolidated Financial Statements
Net Interest
Revenue
Other
Operating
Revenue
Other
Operating
Expense
Net
Income
Average
Assets
Total reportable segments
Unallocated items:
Tax-equivalent adjustment
Funds management and other
(including eliminations), net
BOK Financial consolidated
$ 486,388
$ 368,196
$ 472,246
$ 227,870
$ 18,670,124
6,963
–
–
6,963
–
(6,663)
$ 486,688
4,999
$ 373,195
40,061
$ 512,307
(21,856)
$ 212,977
(1,862,533)
$ 16,807,591
100
(19) Fair Value of Financial Instruments
The following table presents the carrying values and estimated fair values of financial instruments as of December 31, 2008 and
2007 (dollars in thousands):
2008:
Cash and cash equivalents
Securities
Residential mortgage – held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Reserve for loan losses
Net loans
Derivative instruments with positive
fair value
Deposits with no stated maturity
Time deposits
Other borrowings
Subordinated debentures
Derivative instruments with negative
fair value
2007:
Cash and cash equivalents
Securities
Residential mortgage – held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Reserve for loan losses
Net loans
Derivative instruments with positive
fair value
Deposits with no stated maturity
Time deposits
Other borrowings
Subordinated debentures
Derivative instruments with negative
fair value
Range of
Contractual
Yields
Average
Repricing
(in years)
Discount
Rate
Estimated
Fair
Value
$ 694,942
7,136,032
129,246
–
–
0.25 – 18.00%
1.75 – 18.00
5.00 – 10.45
1.50 – 21.00
–
0.35
1.49
7.10
1.22
0.44 – 3.81%
1.00 – 3.81
1.76 – 3.53
3.81
7,344,753
2,703,146
2,086,901
1,063,566
13,198,366
–
13,408,500
452,604
9,799,364
5,238,740
4,085,035
466,280
667,034
6,958,062
2,708,722
1,600,507
926,967
12,194,258
–
12,301,143
502,446
9,128,653
4,431,489
3,851,863
368,638
513,840
0.15 – 9.74
1.85 – 4.52
5.59
1.89
0.54
4.57
0.13 – 1.66
0.09 – 6.56
1.41
$ 890,413
6,098,914
76,677
–
$ 890,413
6,099,753
76,677
–
1.45 – 18.00%
5.63 – 18.00
3.81 – 12.75
4.50 – 21.00
–
0.43
1.42
7.00
1.95
4.57 – 7.25%
7.25
3.98
7.25
1.84 – 10.00
2.45 – 6.15
5.47
1.10
0.81
5.52
3.37 – 5.20
3.41 – 4.95
3.41
Carrying
Value
$ 694,942
7,132,607
129,246
7,411,603
2,701,248
1,752,574
1,010,581
12,876,006
(233,236)
12,642,770
452,604
9,799,364
5,183,243
4,547,453
398,407
667,034
6,737,505
2,750,472
1,531,296
921,297
11,940,570
(126,677)
11,813,893
502,446
9,128,653
4,330,638
4,252,695
398,273
513,840
The preceding table presents the estimated fair values of financial instruments. Fair value is the estimated price that would be
received to sell the financial assets or paid to transfer the financial liabilities in an orderly transaction between market
participants. Because no market exists for certain of these financial instruments and management does not intend to sell these
financial instruments, BOK Financial does not know whether the fair values shown above represent values at which the
respective financial instruments could be sold individually or in the aggregate.
The following methods and assumptions were used in estimating the fair value of these financial instruments:
Cash and Cash Equivalents
The book value reported in the consolidated balance sheet for cash and short-term instruments approximates those assets’ fair
values.
101
Securities
The fair values of securities are based on quoted market prices or dealer quotes, when available. If quotes are not available, fair
values are based on quoted prices of comparable instruments.
Derivatives
All derivative instruments are carried on the balance sheet at fair value. Fair values for exchange-traded contracts are based on
quoted prices. Fair values for over-the-counter interest rate, commodity and foreign exchange contracts are based on valuations
provided either by third-party dealers in the contracts, quotes provided by independent pricing services, or a third-party provided
pricing model.
Loans
The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates currently
being offered for loans with similar remaining terms to maturity and credit risk, adjusted for the impact of interest rate floors and
ceilings. The fair values of loans were estimated to approximate their carrying values less loan loss reserves allocated to these
loans of $210 million and $107 million at December 31, 2008 and 2007, respectively.
The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in
securitization transactions, including related unfunded loan commitments and hedging transactions.
Deposits
The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar
transactions. Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,”
(“FAS 107”) defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction
deposits, money market deposits and savings accounts, to equal the amount payable on demand. Although market premiums paid
reflect an additional value for these low cost deposits, FAS 107 prohibits adjusting fair value for the expected benefit of these
deposits. Accordingly, the positive effect of such deposits is not included in this table.
Other Borrowings and Subordinated Debentures
The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on
similar instruments.
Off-Balance Sheet Instruments
The fair values of commercial loan commitments are based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements. The fair values of these off-balance sheet instruments were not significant at
December 31, 2008 and 2007.
Fair Value of Financial Instruments
Fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of December 31, 2008 (in
thousands):
Assets:
Trading securities
Available for sale securities
Mortgage trading securities
Residential mortgage loans held for sale
Mortgage servicing rights
Derivative contracts
Liabilities:
Certificates of deposit
Derivative contracts
Total
$ 99,601
6,391,451
399,211
129,246
42,752
452,604
632,754
667,034
Quoted Prices in
Active Markets for
Identical
Instruments
$
793
30,420
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
$
98,808
6,361,031
399,211
129,246
452,604
632,754
667,034
42,752¹
(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 8, Mortgage Banking Activities.
102
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:
• Quoted prices for similar, but not identical, assets or liabilities in active markets;
• Quoted prices for identical or similar assets or liabilities in inactive markets;
•
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;
• 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.
Assets and liabilities measured at fair value on a nonrecurring basis generally include certain impaired loans, real estate and other
repossessed assets and goodwill. The allowance for loan losses related to collateral dependent impaired loans within the scope of
FAS 114 is based on the fair value of the collateral. Real estate and other repossessed assets are carried at the lower of cost,
which is determined by fair value at the date of foreclosure, or current fair value. The frequency of nonrecurring fair value
measurements of impaired loans and real estate and other repossessed assets is governed by federal banking regulations. Fair
value measurements are generally based on appraised values which require significant Level 2 other observable inputs.
Intangible assets, which consist primarily of goodwill, core deposit intangible assets and other acquired intangibles, for each
business unit are evaluated for impairment annually as of October 1st or more frequently if conditions indicate that impairment
may have occurred. The evaluation of possible impairment of intangible assets involves significant judgment based upon short-
term and long-term projections of future performance.
The fair value of each of our business units is estimated by the discounted future earnings method. Income growth is projected
over a seven-year period for each unit and a terminal value is computed. The projected income stream is converted to current fair
value by using a discount rate that reflects a rate of return required by a willing buyer. Assumptions used to value our business
units are based on growth rates, volatility, discount rate and market risk premium inherent in our current stock price. These
assumptions are considered Level 3 inputs as defined by FAS 157 and represent our best estimate of assumptions that market
participants would use to determine fair value of the respective business units. The most critical assumptions in our evaluation
were a 7.00% expected long-term growth rate, a 0.66% volatility factor for BOK Financial common stock, a 9.36% discount rate,
and an 11.04% market risk premium.
(20) Parent Company Only Financial Statements
Summarized financial information for BOK Financial – Parent Company Only follows:
Balance Sheets
(In Thousands)
Assets
Cash and cash equivalents
Securities – available for sale
Investment in subsidiaries
Other assets
Total assets
Liabilities and Shareholders’ Equity
Other borrowings
Other liabilities
Total liabilities
Common stock
Capital surplus
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2008
2007
$
20,324
9,900
1,865,514
1,623
$ 1,897,361
$
24,257
13,361
1,949,099
1,503
$ 1,988,220
$
50,000
1,104
51,104
4
743,411
1,427,057
(101,329)
(222,886)
1,846,257
$ 1,897,361
$
50,000
2,836
52,836
4
722,088
1,332,954
(88,428)
(31,234)
1,935,384
$ 1,988,220
103
Statements of Earnings
(In Thousands)
Dividends, interest and fees received from subsidiaries
Other operating revenue
Total revenue
$ 76,587
359
76,946
$ 254,256
482
254,738
$ 80,855
476
81,331
2008
2007
2006
Interest expense
Professional fees and services
Other operating expense
Total expense
Income before taxes and equity in undistributed
income of subsidiaries
Federal and state income tax expense (credit)
Income before equity in undistributed income of
subsidiaries
Equity in undistributed income of subsidiaries
Net income
2,131
842
290
3,263
715
601
220
1,536
–
506
191
697
73,683
(1,505)
253,202
497
80,634
(28)
75,188
78,044
$ 153,232
252,705
(35,041)
$ 217,664
80,662
132,315
$ 212,977
Statements of Cash Flows
(In Thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries
Tax benefit on exercise of stock options
Change in other assets
Change in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Investment in subsidiaries
Net cash used by investing activities
Cash flows from financing activities:
Increase in other borrowings
Pay down of other borrowings
Issuance of common and treasury stock, net
Cash dividends
Repurchase of common stock
Net cash used by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2008
2007
2006
$ 153,232
$ 217,664
$ 212,977
(78,044)
895
(3,930)
(402)
71,751
35,041
3,460
(3,090)
(585)
252,490
(132,315)
4,014
(22,949)
815
62,542
(16,244)
(16,244)
(240,718)
(240,718)
(20,865)
(20,865)
50,000
(50,000)
7,743
(59,191)
(7,992)
(59,440)
(3,933)
24,257
$ 20,324
50,000
–
13,747
(50,416)
(17,353)
(4,022)
7,750
16,507
$ 24,257
–
–
12,647
(36,788)
(12,103)
(36,244)
5,433
11,074
$ 16,507
Cash paid for interest
$
2,282
$
560
$
10
104
105
Annual Financial Summary – Unaudited
Consolidated Daily Average Balances,
Average Yields and Rates
(Dollars in Thousands)
Assets
Taxable securities3
Tax-exempt securities3
Total securities3
Trading securities
Funds sold and resell agreements
Loans2
Less reserve for loan losses
Loans, net of reserve
Total earning assets3
Cash and other assets
Total assets
Liabilities and Shareholders’ Equity
Transaction deposits
Savings deposits
Time deposits
Total interest-bearing deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Total interest-bearing liabilities
Demand deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to Earning Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net Income
Average
Balance
$ 6,087,167
258,552
6,345,719
73,563
70,287
12,593,683
168,042
12,425,641
18,915,210
2,694,609
$21,609,819
$ 6,342,421
158,096
4,552,931
11,053,448
3,087,012
1,745,938
398,333
16,284,731
2,632,719
746,027
1,946,342
$21,609,819
Yield/
Rate
5.10%
6.48
5.16
6.71
2.24
5.82
–
5.90
5.64
1.91%
0.43
3.66
2.61
1.99
2.42
5.59
2.55
3.09%
3.45
2008
Revenue/
Expense1
$ 313,361
16,653
330,014
4,935
1,577
733,347
–
733,347
1,069,873
$ 121,403
676
166,845
288,924
61,371
42,226
22,262
414,783
$ 655,090
8,228
646,862
202,593
436,276
662,404
218,141
64,909
$ 153,232
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. See Note 1 of Notes to the Consolidated Financial Statements for a description of income
recognition policy.
3 Yield calculations exclude security trades that have been recorded on trade date with no corresponding
interest income.
106
Average
Balance
$ 5,166,218
341,913
5,508,131
29,043
77,890
11,440,045
120,086
11,319,959
16,935,023
2,090,745
$19,025,768
$ 5,508,831
165,729
4,568,738
10,243,298
2,758,306
838,708
395,050
14,235,362
2,368,897
609,046
1,812,463
$19,025,768
2007
Revenue/
Expense1
$ 248,972
21,293
270,265
1,948
4,480
893,164
–
893,164
1,169,857
$ 194,617
1,499
216,630
412,746
134,347
44,258
24,901
616,252
$ 553,605
9,120
544,485
34,721
398,648
574,987
333,425
115,761
$ 217,664
Yield/
Rate
Average
Balance
$ 4,770,959
290,356
5,061,315
21,213
36,196
9,706,866
106,689
9,600,177
14,718,901
2,088,690
$16,807,591
$ 4,595,993
148,656
4,279,610
9,024,259
2,145,648
725,329
294,962
12,190,198
2,355,538
652,496
1,609,359
$16,807,591
4.85%
6.39
4.94
6.71
5.75
7.81
–
7.89
6.92
3.53%
0.90
4.74
4.03
4.87
5.28
6.30
4.33
2.59%
3.28
Yield/
Rate
4.67%
5.44
4.71
4.92
5.09
7.75
–
7.84
6.75
3.24%
0.95
4.36
3.73
4.92
5.11
6.88
4.10
2.65%
3.36
2006
Revenue/
Expense1
$ 222,531
15,572
238,103
1,044
1,841
752,404
–
752,404
993,392
$ 148,986
1,408
186,514
336,908
105,483
37,070
20,280
499,741
$ 493,651
6,963
486,688
18,402
371,623
512,307
327,602
114,625
$ 212,977
107
Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances,
Average Yields and Rates
(Dollars in Thousands Except Per Share Data)
Assets
Taxable securities3
Tax-exempt securities3
Total securities3
Trading securities
Funds sold and resell agreements
Loans2
Less reserve for loan losses
Loans, net of reserve
Total earning assets3
Cash and other assets
Total assets
Liabilities and Shareholders’ Equity
Transaction deposits
Savings deposits
Time deposits
Total interest-bearing deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Total interest-bearing liabilities
Demand deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to Earning Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net Income
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
December 31, 2008
September 30, 2008
Three Months Ended
Average
Balance
Revenue/ Yield/
Expense1
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
5.09%
6.64
5.15
5.61
1.44
5.69
–
5.77
5.55
1.72%
0.37
3.39
2.39
1.98
2.56
5.55
2.41
3.14%
3.48
5.12%
6.43
5.17
6.55
0.76
5.27
–
5.35
5.28
1.51%
0.37
3.28
2.29
0.94
1.51
5.48
2.02
3.26%
3.57
$ 6,634,035 $ 87,317
4,133
91,450
1,298
92
171,383
–
171,383
264,223
255,693
6,889,728
78,840
48,246
12,947,880
209,319
12,738,561
19,755,375
2,516,276
$ 22,271,651
$ 6,116,465 $ 23,161
143
42,090
65,394
7,289
7,541
5,489
85,713
155,784
5,109,303
11,381,552
3,095,054
1,986,857
398,392
16,861,855
2,712,384
807,740
1,889,672
$ 22,271,651
$178,510
2,063
176,447
73,001
127,802
185,442
45,806
10,363
$ 35,443
$0.53
$0.53
$ 6,056,909 $ 78,030
4,166
82,196
937
290
181,862
–
181,862
265,285
254,803
6,311,712
66,419
79,862
12,713,356
182,844
12,530,512
18,988,505
2,832,658
$21,821,163
$ 6,565,935 $ 28,312
147
40,810
69,269
15,253
8,935
5,553
99,010
159,856
4,792,366
11,518,157
3,061,186
1,390,233
398,361
16,367,937
2,739,209
787,420
1,926,597
$ 21,821,163
$166,275
1,927
164,348
52,711
132,296
164,290
79,643
22,958
$ 56,685
$0.84
$0.84
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. See Note 1 of Notes to the Consolidated Financial Statements for a description of income recognition policy.
3 Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
108
June 30, 2008
Three Months Ended
March 31, 2008
December 31, 2007
Average
Balance
Revenue/ Yield/
Expense1
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
4.86%
7.19
4.99
6.62
5.95
7.50
–
7.58
6.70
3.34%
0.86
4.68
3.88
4.42
4.92
5.69
4.10
2.60%
3.22
$ 6,026,769 $ 75,959
4,165
80,124
1,267
355
180,424
–
180,424
262,170
259,410
6,286,179
74,058
72,444
12,527,011
145,524
12,381,487
18,814,168
2,794,132
$21,608,300
$ 6,420,291 $ 27,755
148
38,211
66,114
15,180
14,032
5,821
101,147
159,798
4,076,167
10,656,256
3,126,110
2,267,076
398,336
16,447,778
2,634,038
541,693
1,984,791
$ 21,608,300
5.08%
6.46
5.14
6.88
1.97
5.79
–
5.86
5.61
1.74%
0.37
3.77
2.50
1.95
2.49
5.88
2.47
$ 5,624,430 $ 72,055
4,189
76,244
1,433
840
199,678
–
199,678
278,195
264,398
5,888,828
74,957
80,735
12,181,279
131,709
12,049,570
18,094,090
2,402,963
$ 20,497,053
$ 6,267,021 $ 42,175
238
45,734
88,147
23,649
11,718
5,399
128,913
156,953
4,225,141
10,649,115
3,061,783
1,340,846
398,241
15,449,985
2,443,201
618,721
1,985,146
$ 20,497,053
5.11%
6.38
5.17
7.69
4.18
6.59
–
6.66
6.17
2.71%
0.61
4.35
3.33
3.11
3.51
5.45
3.36
$ 5,633,173 $ 68,670
5,990
74,660
489
1,303
223,146
–
223,146
299,598
328,900
5,962,073
29,303
86,948
11,806,242
125,996
11,680,246
17,758,570
2,224,045
$ 19,982,615
$ 5,861,544 $ 49,358
348
53,613
103,319
35,169
11,611
5,708
155,807
160,170
4,544,802
10,566,516
3,158,153
936,353
398,109
15,059,131
2,448,011
580,574
1,894,899
$ 19,982,615
$143,791
2,502
141,289
13,200
107,316
157,727
77,678
26,518
$ 51,160
$0.76
$0.76
$161,023
3.14%
3.44
$149,282
2.81%
3.31
2,084
158,939
59,310
55,616
159,268
(4,023)
(2,862)
$ (1,161)
$(0.02)
$(0.02)
2,154
147,128
17,571
120,562
153,404
96,715
34,450
$ 62,265
$0.93
$0.92
109
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the
“Exchange Act”), the Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness and design of the Company’s disclosure controls and procedures (as that term is defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and
procedures were effective in recording, processing, summarizing and reporting information required to be disclosed by the
Company, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
In addition and as of the end of the period covered by this report, there have been no changes in internal control over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f), as amended, of the Exchange Act) during the Company’s fourth fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
The Report of Management on Financial Statements and Management’s Report on Internal Control over Financial Reporting
appear within Item 8, “Financial Statements and Supplementary Data.” The independent registered public accounting firm, Ernst
& Young LLP, has audited the financial statements included in Item 8 and has issued an audit report on the Company’s internal
control over financial reporting, which appears therein.
ITEM 9B. OTHER INFORMATION
None.
110
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth under the headings “Election of Directors,” “Executive Officers, “Insider Reporting,” “Director
Nominations,” and “Risk Oversight and Audit Committee” in BOK Financial’s 2009 Annual Proxy Statement is incorporated
herein by reference.
The Company has a Code of Ethics which is applicable to all Directors, officers and employees of the Company, including the
Chief Executive Officer and the Chief Financial Officer, the principal executive officer and principal financial and accounting
officer, respectively. A copy of the Code of Ethics will be provided without charge to any person who requests it by writing to
the Company’s headquarters at Bank of Oklahoma Tower, P.O. Box 2300, Tulsa, Oklahoma 74192 or telephoning the Chief
Auditor at (918) 588-6000. The Company will also make available amendments to or waivers from its Code of Ethics applicable
to Directors or executive officers, including the Chief Executive Officer and the Chief Financial Officer, in accordance with all
applicable laws and regulations.
There are no material changes to the procedures by which security holders may recommend nominees to the Company’s board of
directors since the Company’s 2008 Annual Proxy Statement to Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and
Insider Participation,” Compensation Committee Report,” “Executive Compensation Tables,” and “Director Compensation” in
BOK Financial’s 2009 Annual Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Election
of Directors” in BOK Financial’s 2009 Annual Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information regarding related parties is set forth in Note 14 of the Company’s Notes to Consolidated Financial Statements, which
appears elsewhere herein. Additionally, the information set forth under the heading “Certain Transactions,” “Director
Independence” and “Related Party Transaction Review and Approval Process” in BOK Financial’s 2009 Annual Proxy Statement
is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the heading “Principal Accountant Fees and Services” in BOK Financial’s 2009 Annual Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1)
Financial Statements
The following financial statements of BOK Financial Corporation are filed as part of this Form 10-K in Item 8:
Consolidated Statements of Earnings for the years ended December 31, 2008, 2007 and 2006
Consolidated Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2008, 2007, and 2006
Notes to Consolidated Financial Statements
Annual Financial Summary – Unaudited
Quarterly Financial Summary - Unaudited
Reports of Independent Registered Public Accounting Firm
111
(a) (2)
Financial Statement Schedules
The schedules to the consolidated financial statements required by Regulation S-X are not required under the related instructions or
are inapplicable and are therefore omitted.
(a) (3)
Exhibits
Exhibit Number
Description of Exhibit
3.0
3.1
3.1(a)
4.0
10.0
10.1
10.2
10.3
10.4
10.4(a)
10.4(b)
10.4(c)
10.4 (d)
10.4 (e)
10.4 (f)
10.4 (g)
10.4.1(a)
10.4.1(b)
The Articles of Incorporation of BOK Financial, incorporated by reference to (i) Amended
and Restated Certificate of Incorporation of BOK Financial filed with the Oklahoma
Secretary of State on May 28, 1991, filed as Exhibit 3.0 to S-1 Registration Statement
No. 33-90450, and (ii) Amendment attached as Exhibit A to Information Statement and
Prospectus Supplement filed November 20, 1991.
Bylaws of BOK Financial, incorporated by reference to Exhibit 3.1 of S-1 Registration
Statement No. 33-90450.
Bylaws of BOK Financial, as amended and restated as of October 30, 2007, incorporated
by reference to Exhibit 3.1 of Form 8-K filed on November 5, 2007.
The rights of the holders of the Common Stock and Preferred Stock of BOK Financial are
set forth in its Certificate of Incorporation.
Purchase and Sale Agreement dated October 25, 1990, among BOK Financial, Kaiser, and
the FDIC, incorporated by reference to Exhibit 2.0 of S-1 Registration Statement
No. 33-90450.
Amendment to Purchase and Sale Agreement effective March 29, 1991, among BOK
Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.2 of S-1
Registration Statement No. 33-90450
Letter agreement dated April 12, 1991, among BOK Financial, Kaiser, and the FDIC,
incorporated by reference to Exhibit 2.3 of S-1 Registration Statement No. 33-90450.
Second Amendment to Purchase and Sale Agreement effective April 15, 1991, among
BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.4 of S-1
Registration Statement No. 33-90450.
Employment and Compensation Agreements.
Employment Agreement between BOK Financial and Stanley A. Lybarger, incorporated by
reference to Exhibit 10.4(a) of Form 10-K for the fiscal year ended December 31, 1991.
Amendment to 1991 Employment Agreement between BOK Financial and Stanley A.
Lybarger, incorporated by reference to Exhibit 10.4(b) of Form 10-K for the fiscal year
ended December 31, 2001.
Amended and Restated Deferred Compensation Agreement (Amended as of September 1,
2003) between Stanley A. Lybarger and BOK Financial Corporation, incorporated by
reference to Exhibit 10.4 (c) of Form 10-Q for the quarter ended September 30, 2003.
409A Deferred Compensation Agreement between Stanley A. Lybarger and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4 (d) of
Form 8-K filed on January 5, 2005.
Guaranty by George B. Kaiser in favor of Stanley A. Lybarger dated March 7, 2005,
incorporated by reference to Exhibit 10.4 (e) of Form 10-K for the fiscal year ended
December 31, 2004.
Third Amendment to 1991 Employment Agreement between Stanley A. Lybarger and Bank
of Oklahoma, National Association, incorporated by reference to Exhibit 10.4 (f) of Form
10-K for the fiscal year ended December 31, 2007.
Amended and Restated Employment Agreement dated December 26, 2008 between BOK
Financial Corporation and Stanley A. Lybarger, incorporated by reference to Exhibit 99 (a)
of Form 8-K filed on December 26, 2008.
Employee Agreement between BOK Financial and V. Burns Hargis, incorporated by
reference to Exhibit 10.4.1(a) of Form 10-K for the fiscal year ended December 31, 2002.
Amendment to Employee Agreement between BOK Financial and V. Burns Hargis,
incorporated by reference to Exhibit 10.4.1(b) of Form 10-K for the fiscal year ended
December 31, 2002.
112
10.4.2
10.4.2 (a)
10.4.2 (b)
10.4.3
10.4.3 (a)
10.4.3 (b)
10.4.3 (c)
10.4.3 (d)
10.4.3 (e)
10.4.4
10.4.5
10.4.5 (a)
10.4.5 (b)
10.4.6
10.4.6 (a)
10.4.7
10.4.7 (a)
10.4.8
Amended and Restated Deferred Compensation Agreement (Amended as of December 1,
2003) between Steven G. Bradshaw and BOK Financial Corporation, incorporated by
reference to Exhibit 10.4.2 of Form 10-K for the fiscal year ended December 31, 2003.
409A Deferred Compensation Agreement between Steven G. Bradshaw and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.2 (a) of
Form 8-K filed on January 5, 2005.
Employment Agreement between BOK Financial and Steven G. Bradshaw dated
September 29, 2003, incorporated by reference to Exhibit 10.4.2 (b) of Form 10-K for the
fiscal year ended December 31, 2004.
Amended and Restated Deferred Compensation Agreement (Amended as of December 1,
2003) between William Jeffrey Pickryl and BOK Financial Corporation, incorporated by
reference to Exhibit 10.4.3 of Form 10-K for the fiscal year ended December 31, 2003.
409A Deferred Compensation Agreement between William Jeffrey Pickryl and BOK
Financial Corporation dated December 31, 2004, incorporated by reference to Exhibit
10.4.3 (a) of Form 8-K filed on January 5, 2005.
Employment Agreement between BOK Financial and W. Jeffrey Pickryl dated September
29, 2003, incorporated by reference to Exhibit 10.4.3 (b) of Form 10-K for the fiscal year
ended December 31, 2004.
Amendment to Employment Agreement between BOK Financial and W. Jeffrey Pickryl
dated August 30, 2004, incorporated by reference to Exhibit 10.4.3 (c) of Form 10-K for
the fiscal year ended December 31, 2004.
Supplemental Executive Income Agreement dated December 20, 2005 between W. Jeffrey
Pickryl and BOK Financial Corporation, incorporated by reference to Exhibit 99 (a) of
Form 8-K filed on December 22, 2005.
Amendment to Employment Agreement dated November 27, 2007 between BOK Financial
Corporation and W. Jeffrey Pickryl, incorporated by reference to Exhibit 99 (a) of Form 8-
K filed on November 30, 2007.
Amended and Restated Employment Agreement (Amended as of June 14, 2002) among
First National Bank of Park Cities, BOK Financial Corporation and C. Fred Ball, Jr.,
incorporated by reference to Exhibit 10.4.4 of Form 10-K for the fiscal year ended
December 31, 2003.
409A Deferred Compensation Agreement between Daniel H. Ellinor and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.5 of Form
8-K filed on January 5, 2005.
Employment Agreement between BOK Financial and Dan H. Ellinor dated August 29,
2003, incorporated by reference to Exhibit 10.4.5 (a) of Form 10-K for the fiscal year
ended December 31, 2004.
Deferred Compensation Agreement dated November 28, 2003 between Daniel H. Ellinor
and BOK Financial Corporation, incorporated by reference to Exhibit 10.4.5 (b) of Form
10-K for the fiscal year ended December 31, 2004.
409A Deferred Compensation Agreement between Mark W. Funke and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.6 of Form
8-K filed on January 5, 2005.
Amended and Restated Deferred Compensation Agreement (Amended as of December 1,
2003) between Mark W. Funke and BOK Financial Corporation, incorporated by reference
to Exhibit 10.4.6 (a) of Form 10-K for the fiscal year ended December 31, 2004.
409A Deferred Compensation Agreement between Steven E. Nell and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.7 of Form
8-K filed on January 5, 2005.
Amended and Restated Deferred Compensation Agreement (Amended as of December 1,
2003) between Steven E. Nell and BOK Financial Corporation, incorporated by reference
to Exhibit 10.4.7 (a) of Form 10-K for the fiscal year ended December 31, 2004.
Employment Agreement dated August 1, 2005 between BOK Financial Corporation and
Donald T. Parker, incorporated by reference to Exhibit 99 (a) of Form 8-K filed on
February 1, 2006.
113
10.5
Director indemnification agreement dated June 30, 1987, between BOk and Kaiser,
incorporated by reference to Exhibit 10.5 of S-1 Registration Statement No. 33-90450.
Substantially similar director indemnification agreements were executed between BOk and
the following:
Date of Agreement
James E. Barnes
William H. Bell
James S. Boese
Dennis L. Brand
Chester E. Cadieux
William B. Cleary
Glenn A. Cox
William E. Durrett
Leonard J. Eaton, Jr.
William B. Fader
Gregory J. Flanagan
Jerry L. Goodman
David A. Hentschel
Philip N. Hughes
Thomas J. Hughes, III
William G. Kerr
Philip C. Lauinger, Jr.
Stanley A. Lybarger
Patricia McGee Maino
Robert L. Parker, Sr.
James A. Robinson
William P. Sweich
June 30, 1987
June 30, 1987
June 30, 1987
June 30, 1987
June 30, 1987
June 30, 1987
June 30, 1987
June 30, 1987
June 30, 1987
December 5, 1990
June 30, 1987
June 30, 1987
July 7, 1987
July 8, 1987
June 30, 1987
June 30, 1987
June 30, 1987
December 5, 1990
June 30, 1987
June 30, 1987
June 30, 1987
June 30, 1987
10.6
10.7.3
10.7.4
10.7.5
10.7.6
10.7.7
10.7.8
10.7.9
10.7.10
10.7.11
10.7.12
10.7.13
10.8
Capitalization and Stock Purchase Agreement dated May 20, 1991, between BOK Financial
and Kaiser, incorporated by reference to Exhibit 10.6 of S-1 Registration Statement
No. 33-90450.
BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit
4.0 of S-8 Registration Statement No. 33-79834.
BOK Financial Corporation 1994 Stock Option Plan (Typographical Error Corrected
January 16, 1995), incorporated by reference to Exhibit 10.7.4 of Form 10-K for the fiscal
year ended December 31, 1994.
BOK Financial Corporation 1997 Stock Option Plan, incorporated by reference to Exhibit
4.0 of S-8 Registration Statement No. 333-32649.
BOK Financial Corporation 2000 Stock Option Plan, incorporated by reference to Exhibit
4.0 of S-8 Registration Statement No. 333-93957.
BOK Financial Corporation 2001 Stock Option Plan, incorporated by reference to Exhibit
4.0 of S-8 Registration Statement No. 333-62578.
BOK Financial Corporation Directors’ Stock Compensation Plan, incorporated by reference
to Exhibit 4.0 of S-8 Registration Statement No. 33-79836.
Bank of Oklahoma Thrift Plan (Amended and Restated Effective as of January 1, 1995),
incorporated by reference to Exhibit 10.7.6 of Form 10-K for the year ended December 31,
1994.
Trust Agreement for the Bank of Oklahoma Thrift Plan (December 30, 1994), incorporated
by reference to Exhibit 10.7.7 of Form 10-K for the year ended December 31, 1994.
BOK Financial Corporation 2003 Stock Option Plan, incorporated by reference to Exhibit
4.0 of S-8 Registration Statement No. 333-106531.
BOK Financial Corporation 2003 Executive Incentive Plan, incorporated by reference to
Exhibit 4.0 of S-8 Registration Statement No. 333-106530.
10b5-1 Repurchase Plan between BOK Financial Corporation and BOSC, Inc. dated May
27, 2008, incorporated by reference to Exhibit 10.1 of Form 8-K filed May 27, 2008.
Lease Agreement between One Williams Center Co. and National Bank of Tulsa
(predecessor to BOk) dated June 18, 1974, incorporated by reference to Exhibit 10.9 of S-1
Registration Statement No. 33-90450.
114
10.9
10.10
10.11
10.12
10.13
10.13.1
10.14
10.14.1
10.15
10.15.1
10.16
10.16.1
10.17
10.18
10.18.1
10.19
10.20
10.21
Lease Agreement between Security Capital Real Estate Fund and BOk dated January 1,
1988, incorporated by reference to Exhibit 10.10 of S-1 Registration Statement No. 33-
90450.
Asset Purchase Agreement (OREO and other assets) between BOk and Phi-Lea-Em
Corporation dated April 30, 1991, incorporated by reference to Exhibit 10.11 of S-1
Registration Statement No. 33-90450.
Asset Purchase Agreement (Tanker Assets) between BOk and Green River Exploration
Company dated April 30, 1991, incorporated by reference to Exhibit 10.12 of S-1
Registration Statement No. 33-90450.
Asset Purchase Agreement (Recovery Rights) between BOk and Kaiser dated April 30,
1991, incorporated by reference to Exhibit 10.13 of S-1 Registration Statement No. 33-
90450.
Purchase and Assumption Agreement dated August 7, 1992 among First Gibraltar Bank,
FSB, Fourth Financial Corporation and BOk, as amended, incorporated by reference to
Exhibit 10.14 of Form 10-K for the fiscal year ended December 31, 1992.
Allocation Agreement dated August 7, 1992 between BOk and Fourth Financial
Corporation, incorporated by reference to Exhibit 10.14.1 of Form 10-K for the fiscal year
ended December 31, 1992.
Merger Agreement among BOK Financial, BOKF Merger Corporation Number Two,
Brookside Bancshares, Inc., The Shareholders of Brookside Bancshares, Inc. and Brookside
State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit
10.15 of Form 10-K for the fiscal year ended December 31, 1992.
Agreement to Merge between BOk and Brookside State Bank dated January 27, 1993,
incorporated by reference to Exhibit 10.15.1 of Form 10-K for the fiscal year ended
December 31, 1992.
Merger Agreement among BOK Financial, BOKF Merger Corporation Number Three,
Sand Springs Bancshares, Inc., The Shareholders of Sand Springs Bancshares, Inc. and
Sand Springs State Bank dated December 22, 1992, as amended, incorporated by reference
to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1992.
Agreement to Merge between BOk and Sand Springs State Bank dated January 27, 1993,
incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended
December 31, 1992.
Partnership Agreement between Kaiser-Francis Oil Company and BOK Financial dated
December 1, 1992, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal
year ended December 31, 1993.
Amendment to Partnership Agreement between Kaiser-Francis Oil Company and BOK
Financial dated May 17, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K
for the fiscal year ended December 31, 1993.
Purchase and Assumption Agreement between BOk and FDIC, Receiver of Heartland
Federal Savings and Loan Association dated October 9, 1993, incorporated by reference to
Exhibit 10.17 of Form 10-K for the fiscal year ended December 31, 1993.
Merger Agreement among BOk, Plaza National Bank and The Shareholders of Plaza
National Bank dated December 20, 1993, incorporated by reference to Exhibit 10.18 of
Form 10-K for the fiscal year ended December 31, 1993.
Amendment to Merger Agreement among BOk, Plaza National Bank and The Shareholders
of Plaza National Bank dated January 14, 1994, incorporated by reference to Exhibit
10.18.1 of Form 10-K for the fiscal year ended December 31, 1993.
Stock Purchase Agreement between Texas Commerce Bank, National Association and BOk
dated March 11, 1994, incorporated by reference to Exhibit 10.19 of Form 10-K for the
fiscal year ended December 31, 1993.
Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation
Number Four, Citizens Holding Company and others dated May 11, 1994, incorporated by
reference to Exhibit 10.20 of Form 10-K for the fiscal year ended December 31, 1994.
Stock Purchase and Merger Agreement among Northwest Bank of Enid, BOk and The
Shareholders of Northwest Bank of Enid effective as of May 16, 1994, incorporated by
reference to Exhibit 10.21 of Form 10-K for the fiscal year ended December 31, 1994.
115
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
21.0
23.0
31.1
31.2
32
99.0
Agreement and Plan of Merger among BOK Financial Corporation, BOKF Merger
Corporation Number Five and Park Cities Bancshares, Inc. dated October 3, 1996,
incorporated by reference to Exhibit C of S-4 Registration Statement No. 333-16337.
Agreement and Plan of Merger among BOK Financial Corporation and First TexCorp., Inc.
dated December 18, 1996, incorporated by reference to Exhibit 10.24 of S-4 Registration
Statement No. 333-16337.
Purchase and Assumption Agreement between Bank of America National Trust and Savings
Association and BOK Financial Corporation dated July 27, 1998.
Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation No.
Seven, First Bancshares of Muskogee, Inc., First National Bank and Trust Company of
Muskogee, and Certain Shareholders of First Bancshares of Muskogee, Inc. dated
December 30, 1998.
Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation
Number Nine, and Chaparral Bancshares, Inc. dated February 19, 1999.
Merger Agreement among BOK Financial Corporation, Park Cities Bancshares, Inc., Mid-
Cities Bancshares, Inc. and Mid-Cities National Bank dated February 24, 1999.
Merger Agreement among BOK Financial Corporation, Park Cities Bancshares, Inc., PC
Interim State Bank, Swiss Avenue State Bank and Certain Shareholders of Swiss Avenue
State Bank dated March 4, 1999.
Merger Agreement among BOK Financial Corporation, Park Cities Bancshares, Inc. and
CNBT Bancshares, Inc. dated August 18, 2000, incorporated by reference to Exhibit 10.29
of Form 10-K for the fiscal year ended December 31, 2000.
Merger Agreement among BOK Financial Corporation, Bank of Tanglewood, N.A. and TW
Interim Bank dated October 25, 2002, incorporated by reference to Exhibit 2.0 of S-4
Registration Statement No. 333-98685.
Remote Outsourcing Services Agreement between Bank of Oklahoma, N.A. and Alltel
Information Services, Inc., dated September 1, 2002, incorporated by reference to Exhibit
10.30 of the September 30, 2002 10-Q filed on November 13, 2002.
Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation
Number Eleven, Colorado Funding Company, Colorado State Bank and Trust and Certain
Shareholders of Colorado Funding Company dated July 8, 2003, incorporated by reference
to Exhibit 10.32 of Form 10-K for the fiscal year ended December 31, 2003.
Merger Agreement between BOK Financial Corporation, BOKF Merger Corporation
Number Eight, Valley Commerce Bank, and Valley Commerce Bancorp, Ltd. dated
December 20, 2004, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on
December 22, 2004.
Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation
Number Twelve, Worth Bancorporation, Inc., and Worth National Bank dated March 9,
2007, incorporated by reference to Exhibit 99.2 of the Form 8-K filed on March 12, 2007.
Stock Purchase Agreement among BOK Financial Corporation, BOKF Stock Corporation
Number Thirteen, United Banks of Colorado, Inc., First United Bank, NA and Baltz Family
Partners, Ltd. dated May 23, 2007, incorporated by reference to Exhibit 99.2 of the Form 8-
K filed on May 24, 2007.
Subsidiaries of BOK Financial, filed herewith.
Consent of independent registered public accounting firm - Ernst & Young LLP, filed
herewith.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, filed herewith.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, filed herewith.
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, filed
herewith.
Additional Exhibits.
116
99 (a)
99 (b)
99.1
99.5
99.6
99.7
99.8
99.9
Credit Agreement dated December 2, 2005 between BOK Financial Corporation and
participating lenders, incorporated by reference to Exhibit 99 (a) of Form 8-K filed
December 6, 2005.
Credit Agreement between BOK Financial Corporation and George B. Kaiser dated July
21, 2008, incorporated by reference to Exhibit 99 (b) of Form 8-K filed July 21, 2008.
Undertakings incorporated by reference into S-8 Registration Statement No. 33-44121 for
Bank of Oklahoma Master Thrift Plan and Trust, incorporated by reference to Exhibit 99.1
of Form 10-K for the fiscal year ended December 31, 1993.
Undertakings incorporated by reference into S-8 Registration Statement No. 33-79834 for
BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to
Exhibit 99.5 of Form 10-K for the fiscal year ended December 31, 1994.
Undertakings incorporated by reference into S-8 Registration Statement No. 33-79836 for
BOK Financial Corporation Directors’ Stock Compensation Plan, incorporated by reference
to Exhibit 99.6 of Form 10-K for the fiscal year ended December 31, 1994.
Undertakings incorporated by reference into S-8 Registration Statement No. 333-32649 for
BOK Financial Corporation 1997 Stock Option Plan, Incorporated by reference to Exhibit
99.7 of Form 10-K for the fiscal year ended December 31, 1997.
Undertakings incorporated by reference into S-8 Registration Statement No. 333-93957 for
BOK Financial Corporation 2000 Stock Option Plan, Incorporated by reference to Exhibit
99.8 of Form 10-K for the fiscal year ended December 31, 1999.
Undertakings incorporated by reference into S-8 Registration Statement No. 333-40280 for
BOK Financial Corporation Thrift Plan for Hourly Employees, Incorporated by reference to
Exhibit 99.9 of Form 10-K for the fiscal year ended December 31, 2000.
(b)
Exhibits
See Item 15 (a) (3) above.
(c)
Financial Statement Schedules
See Item 15 (a) (2) above.
117
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
DATE: February 27, 2009
BY: /s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 27, 2009, by
the following persons on behalf of the registrant and in the capacities indicated.
/s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President and
Chief Financial Officer
/s/ Gregory S. Allen
Gregory S. Allen
OFFICERS
/s/ Stanley A. Lybarger
Stanley A. Lybarger
Director, President and Chief
Executive Officer
/s/ John C. Morrow
John C. Morrow
Senior Vice President and Chief
Accounting Officer
DIRECTORS
/s/ David F. Griffin
David F. Griffin
C. Fred Ball, Jr.
V. Burns Hargis
/s/ Sharon J. Bell
Sharon J. Bell
Peter C. Boylan, III
/s/ Chester Cadieux, III
Chester Cadieux, III
/s/ Joseph W. Craft, III
Joseph W. Craft, III
William E. Durrett
/s/ John W. Gibson
John W. Gibson
/s/ E. Carey Joullian, IV
E. Carey Joullian, IV
/s/ Robert J. LaFortune
Robert J. LaFortune
/s/ Steven J. Malcolm
Steven J. Malcolm
Paula Marshall
/s/ E.C. Richards
E.C. Richards
118
119
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF EXECUTIVE OFFICER
Exhibit 31.1
I, Stanley A. Lybarger, President and Chief Executive Officer of BOK Financial Corporation (“BOK Financial”),
certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of BOK Financial;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 27, 2009
/s/ Stanley A. Lybarger
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation
120
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF FINANCIAL OFFICER
Exhibit 31.2
I, Steven E. Nell, Executive Vice President and Chief Financial Officer of BOK Financial Corporation (“BOK
Financial”), certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of BOK Financial;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 27, 2009
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
121
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of BOK Financial Corporation (“BOK Financial”) on Form 10-K for the fiscal
year ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), we, Stanley A. Lybarger and Steven E. Nell, Chief Executive Officer and Chief Financial Officer,
respectively, of BOK Financial, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002, that to our knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of BOK Financial.
February 27, 2009
/s/ Stanley A. Lybarger
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
122