2009 Annual Report
www.bokf.com
Table of Contents:
Letter to Our Shareholders
2009 Overview
Board of Directors
Corporate Information
01
03
08
10
LeTTer To our SharehoLderS
In 2009, the banking industry continued to face severe recessionary headwinds. 140 banks and thrifts failed and others struggled
to make a profit. In fact, nearly half of our peers reported losses for the year. Many banks accepted financial assistance from the
federal government. Others, including 70% of our peers, issued additional capital, diluting their shareholders’ interests. Despite this
difficult environment, BOK Financial continued to produce superior returns for our shareholders.
We ended the year with over $2 billion in shareholder’s equity that was built on retained earnings, not government assistance.
We were the largest commercial bank in the country that elected to not participate in the Treasury’s Capital Purchase Program, an
element of the Troubled Asset Relief Program (TARP). We had no need to raise external dilutive capital. Our capital ratios remain
strong, as tangible common equity increased to 7.99%.
BOK Financial generated net income of $201 million or $2.97 per diluted share for 2009. Net interest revenue increased nearly 10%,
bolstered by lower funding costs and improved loan pricing. Fees and commission revenue increased nearly 16%, with tremendous
growth in mortgage banking and brokerage and trading revenue offsetting decreases in trust and other fee revenue. On the expense
side, we implemented several non-personnel expense initiatives which are projected to save nearly $9 million annually.
While there has been much speculation in many organizations regarding what went wrong, BOK Financial has continued to
be a strong performer. We attribute our success to our adherence to our core strategies and outstanding execution by our
talented employees. Though we are a complex organization offering many sophisticated services and products, our strategies are
basic and direct.
Building diverse revenues is a key element to our strategy. Our particular combination of fee-based services helps produce relatively
consistent earnings through economic cycles. This past year when low interest rates and declining market values put pressure on
trust revenue, our mortgage banking revenue more than offset the decline. Historically, our fee revenue consistently represents at
least 40% of total revenue.
A balanced strategy requires discipline. During the years prior to the recession when the economy was growing rapidly,
BOK Financial limited growth in higher risk segments of the loan portfolio, helping limit portfolio risk. Many of our peers substantially
increased their commercial real estate loan volumes, leading to a series of dramatic losses. Similarly, our pace of expansion has
been measured. The result is controlled growth through moderate branching and opportunistic acquisitions.
Another key element of our strategy is our focus on talent. The best strategies are of little value, if you lack the talent to successfully
execute. We have continued to recruit great talent over the years, and last year, took advantage of the disruption in the industry to
add depth and expertise throughout the organization.
While we are not immune to declining property values and rising unemployment, we move quickly to identify and address potential
credit problems, and work closely with customers to resolve issues. When we do end up with foreclosed assets, we look for the
ideal time to sell assets rather than rushing to liquidate assets at a low point in the market. We are confident our approach to dealing
with the economic realities will help us emerge from the recession earlier than the industry as a whole, and better positioned to
fuel future economic growth.
2010 will be another challenging year. While the outlook has improved from a year ago, there is continued uncertainty about the
pace of the recovery and the impact of regulatory reform. We face these challenges with confidence, knowing our core strategies
will continue to serve us well in the future.
We want to express our appreciation to our loyal customers and talented employees, and for the support from our shareholders
and the communities we serve.
George B. Kaiser
Chairman
Stanley A. Lybarger
President & CEO
2
CorporaTe profiLe
BOK Financial Corporation (BOKF) is a financial holding company headquartered in Tulsa, Oklahoma, that provides
commercial and consumer banking, investment and trust services, mortgage origination and servicing and one of
the nation’s largest electronic funds networks. BOKF operates seven banks with full service locations in eight states
throughout the Midwest, Southwest and Rocky Mountain regions.
BOKF remains in a position of financial and organizational strength despite the continued recessionary environment.
During 2009, we increased our dividend, opened five new branches, invested in service capabilities and recruited top
talent to add depth and expertise throughout the organization. The following metrics highlight our financial performance
for the year.
• Net income was $200.6 million, up 31% from 2008.
• Non-interest income, up nearly 16%, continues to represent over 40% of total revenue.
• Tangible common equity was 7.99%.
• Shareholders’ equity of $2.2 billion is built on retained earnings, not government assistance.
• BOKF has a solid combined reserve for loan losses of 2.72%.
• Net charge-offs were 1.14% of average loans for 2009, a level comfortably below our peer median of 1.86%. We define
our peers as the ten immediately larger and ten immediately smaller publicly traded U.S. bank holding companies based
on total assets.
We attribute our success to the balanced strategy which has sustained us throughout varying economic cycles as indicated
by the graph below. Key elements of the strategy include a strong stream of diversified fee revenue, controlled loan growth,
disciplined branching and acquisition strategies and an exceptionally talented workforce. During the years prior to the
recession when the economy was growing rapidly, BOKF deliberately grew the sectors of the loan portfolio proportionately,
avoiding concentrations. BOKF’s employees are dedicated to developing relationships with customers and providing
unparalleled personalized service. This winning combination has consistently enhanced shareholder value.
Net Income and EPS
EPS CAGR 12%
250
200
150
100
50
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: SNL Financial
EPS have been restated for stock dividends and for a 2-for-1 split
Net Income
EPS
3.50
3.00
2.50
2.00
1.50
1.00
.50
.00
3
s
n
o
i
l
l
i
M
n
I
oVerVieW
All information is presented as of December 31, 2009.
• Assets of $23.5 billion
• Loans of $11.3 billion
• Combined reserves for credit losses of 2.72%
• Deposits of $15.5 billion
• Shareholders’ equity of $2.2 billion
• Tangible common equity ratio of 7.99%
• Market cap of $3.3 billion
• 197 Banking locations
LoaNS
• Commercial and Industrial loan focus centered around strong
middle-market customers
• Controlled Commercial Real Estate exposure consistently
maintained below 25% of total loans
• Energy lending expertise dating back 100 years
• Regionally diverse portfolio, including 46% in Oklahoma,
29% in Texas, 8% in Colorado, 7% in New Mexico and the
remaining 10% evenly distributed in Kansas, Arkansas and
Arizona
depoSiTS
• Five year compound annual growth rate of 10%
• Regionally diverse portfolio including 56% in Oklahoma,
26% in Texas, 8% in New Mexico and 7% in Colorado
• Demand deposits represent 24% of total deposits
• 60% Consumer and Wealth Management deposits,
40% Commercial deposits
4
Diverse Revenue
Net Interest
Revenue 59%
Mortgage
Banking 5%
Deposit
Service Charges 10%
Other 4%
Trust Fees 5%
Transaction
Card 9%
Brokerage and
Trading 8%
Loans by Sector
Residential
Mortgage 16%
Energy 17%
Consumer
7%
Other CRE 12%
Office CRE 4%
Construction and
Land Dev 6%
Services
16%
Wholesale/
Retail 8%
Healthcare
7%
Other Commercial
7%
Deposit Composition
s
n
o
i
l
l
i
B
n
I
$16
$12
$8
$4
$0
2005
2006
2007
2008
2009
Demand
Interest Bearing Transaction
Savings
Time
CapiTaL
• Capital consists almost entirely of common equity built with
retained earnings, not hybrid forms of less secure capital
• Largest traditional commercial bank to decline participation
in the U.S. Treasury’s Troubled Asset Relief Plan (TARP)
• No need to support capital with dilutive common stock
issuances
• Capital sufficient to support organic growth, maintain dividends
and seek acquisitions
16%
14%
12%
10%
8%
6%
4%
CoMMerCiaL
• Commercial banking continues to be the leading revenue
generator
• Well established local management reduces turnaround time
for loans to commercial customers
• Talented relationship managers tailor products to customers’
unique business needs
• Broad array of fee businesses including treasury
management, international and financial risk management
CoNSuMer
• Consumers served through 123 traditional branches
and 56 supermarket branches
• Strong branch network with 71 in Oklahoma metropolitan
markets, 33 in Dallas, 15 in Houston, 22 in Albuquerque
and 15 in Denver
• Over $3 billion of mortgage loans were funded in 2009;
46% were originated in our market states outside of
Oklahoma
• Top-tier mortgage servicer of $7.4 billion mortgage
loans including loans serviced for affiliates
Capital Ratios
Tier I
Total Capital
Leverage
TCE/TA
2007 2008 2009
Regulatory definition of “well capitalized”
Commercial Revenue
2005
2006
2007
2008
2009
Deposits and Fee Income
s
n
o
i
l
l
i
M
n
I
$500
$400
$300
$200
$100
$0
s
n
o
i
l
l
i
B
n
I
$7
$6
$5
$4
$3
$2
$1
$0
2005
2006
2007
2008
2009
Consumer Deposits Fee Income
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
I
n
M
i
l
l
i
o
n
s
5
WeaLTh MaNaGeMeNT
• BOSC, our broker-dealer, provides retail brokerage and institutional
trading and investment banking services
Wealth Management Revenue
• Private Banking consists of personalized banking, trust and
BOSC 49%
investment services
• Institutional Wealth Management consists of Corporate Trust and
retirement and employee benefit services
• Trust assets total $30 billion including $10.8 billion in
discretionary assets
Private
Banking
36%
Institutional
Wealth Management
15%
Stable NIM
i
n
g
r
a
M
t
s
e
r
e
t
n
I
t
e
N
3.60%
3.50%
3.40%
3.30%
3.20%
3.10%
3.00%
2005
2006
2007
2008
2009
BOKF NIM
Prime Rate
P
r
i
m
e
R
a
t
e
10%
9%
8%
7%
6%
5%
4%
3%
Total Assets
Assets CAGR 13%
$25
$20
$15
$10
$5
$0
97
98
99
00
01
02
03
04
05
06
07
08
09
Net Income exceeds $100 million
Net Income exceeds $200 million
Shareholders’ equity exceeds $2 billion
s
n
o
i
l
l
i
B
n
I
BaLaNCe SheeT MaNaGeMeNT
Our strategy of maintaining an essentially neutral interest rate
risk position has produced strong net interest revenue and
relatively stable net interest margin over time.
• The fixed-rate investment portfolio, consisting of largely U.S.
government agency mortgage-backed securities, helps to
offset the inherent asset sensitivity of the balance sheet
• 64% of the commercial and commercial real estate loan
portfolios re-price within one year
• Strong bank liquidity driven by 73% loan to deposit ratio,
minimal reliance on brokered funds and significant secured
borrowing capacity
• Limited usage of derivatives to manage balance sheet risk
position; customer derivative positions are offset by
contracts with high quality counterparties
reGioNaL eXpaNSioN
Our philosophy has been to seek out top quality banks with
proven performance in high growth metropolitan markets
that are within close proximity of Oklahoma.
• Began regional expansion in 1997 with the purchase of
two banks in the Dallas market
• Acquired and integrated 12 institutions with total assets of
$2.7 billion in four states over the past 12 years
• Built on existing strengths and customer base of
purchased banks
• Continue to seek franchise-building acquisition
opportunities in our existing markets
6
aSSeT QuaLiTY
All subsidiary banks operate under the same
credit policy and are subject to centralized credit
administration and oversight.
• In response to economic conditions, we quickly
moved problem credits to our special assets
department for assessment and planned resolution
• Our strategy focuses on maximizing long-term
economic recoveries of problem assets; we do not
sell distressed assets at discounted prices
• Non-accruing loans totaled $339 million or 3.0%
of total loans
• Real estate and other repossessed assets totaled
$129 million; 40% are assets located in the
distressed Arizona market
• Combined reserve for loan losses represents 2.72%
of total loans or 90% coverage of non-performing
loans
• Net charge offs have stabilized over the last three
quarters at approximately $35 million per quarter
or 1.19% annualized; the loan loss reserve would
cover more than eight quarters of this stabilized
charge-off rate
• Performing loans greater than 90 days past due total
only $10 million, showing steady improvement over
the last three quarters
i
s
t
n
o
P
s
i
s
a
B
n
I
120
100
80
60
40
20
0
2.5%
2.0%
1.5%
1.0%
0.5%
0%
Net Charge-Offs
2005
2006
2007
2008
2009
Commercial
Residential RE
CRE
Consumer
Nonperforming Assets/Assets
2005
2006
2007
2008
2009
Commercial
CRE
Residential RE
OREO/OAO
Renegotiated Loans
CrediT raTiNGS
BOK Financial Corp.
Fitch
Moody’s
Standard & Poor’s
DBRS
Long-Term Rating
Outlook
A-
Stable
A2
Negative
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)
BoK fiNaNCiaL CorporaTioN Board of direCTorS
Gregory S. Allen 1
President & CEO
Advance Food Co., Inc.
C. Fred Ball, Jr.
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
President & CEO
BOK Financial Corporation and
Bank of Oklahoma, N.A.
Steven J. Malcolm 1
Chairman, President & CEO
The Williams Companies, Inc.
EC Richards 1
Manager
Core Investment Capital, LLC
8
1 Director of BOK Financial Corporation and Bank of Oklahoma, N.A.
Tom E. Turner
Chairman Emeritus
Bank of Texas, N.A. - Dallas
John C. Vogt
Personal Investments
Mark D. Walker
Partner
Weaver, LLP
Colorado State Bank
and Trust
George P. Caulkins, III
Principal
Greendeck Capital
Ralph W. Christie, Jr.
Chairman, President & CEO
Merrick & Company
Polly B. Lestikow
President
Closet Factory
Richard H. Lewis
Personal Investments
James M. Mulligan
Of Counsel
Snell & Wilmer
Jeff S. Potter
CEO
Exclusive Resorts
eXTerNaL MeMBerS of The SuBSidiarY BaNKS’ BoardS of direCTorS
Bank of Albuquerque
Adelmo Archuleta
Owner, Professional Engineer
Molzen-Corbin & Associates
Suzanne Barker-Kalangis, Esq.
Executive Director
Thornburg Charitable Foundation
Rudy A. Davalos
Chairman of the Executive Board
New Mexico Bowl
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.
Michael D. Sivage
Chief Executive Officer
STH Investments, Inc.
Bank of Arizona
Sam K. Campana
Executive Director
Audubon Arizona
Shelley M. Cohn
Dennis J. Cornelius
Cornelius Korte Shum, LLC
Susan M. Haugland
President
Bestbill®
Scott P. LeMarr
President
Palo Cristi Investments
Kathleen S. Pushor
President
Inner Capital
Andrew Spillum, CPA
Partner
Eide Bailly CPA’s &
Business Advisors
Bank of Arkansas
George C. Faucette, Jr.
Owner
Coldwell Banker Faucette
Real Estate Company
Dr. Stephen Lee Goss
Physician Executive
Mercy Health Systems of
Northwest Arkansas
Bank of Kansas City
Donald O. Borgman
Retired
Lorelei M. Dean
President
Dean Machinery
Timothy A. Johnson
Director of Finance
Garmin International
Susan Stanton
President & CEO
Kansas City Public Television
Bank of Texas*
Jan Hart Black
Former President
Dallas Regional Chamber of Commerce
Joe Colonnetta
Partner
HM Capital Partners
David R. Corrigan
CEO
Corrigan Investments, Inc.
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
Albert W. Niemi, Jr.
Dean, Cox School of Business
Southern Methodist University
Charles J. O’Connell
Community Volunteer - Houston
Whit Perryman
CEO
Vermeer Equipment of Texas, Inc.
Jeff Springmeyer
President
Geophysical Pursuit, Inc.
Jere W. Thompson, Jr.
CEO
Ambit Energy
Robert B. Trainer, Jr.
Chief Financial Officer
Gyrodata, Inc.
*Advisory Directors
9
Morgan Stanley & Co., Inc.
MPName
NASDAQ Execution Services LLC
Octeg, LLC
Pershing Advisor Solution LLC
Piper Jaffray & Co.
RBC Capital Markets Corp
Sandler O’Neill & Partners
Stephens Inc.
Sterne, Agee & Leach, Inc.
Stifel Nicolaus & Co.
SunTrust Capital Markets Inc
Susquehanna Capital Group
Susquehanna Financial Group,
Thomas Weisel Partners
Timber Hill Inc.
UBS Securities LLC
Vandham Securities
Virtu Financial BD LLC
Wells Fargo Securities, LLC.
Transfer Agent, Registrar and Dividend
Disbursing Agent
Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
1-800-468-9716
www.wellsfargo.com/shareownerservices
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 Susie Hinkle, 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
BOK Financial Corporation Dividend Reinvestment Plan. Certain
restrictions apply. Shareholders may obtain a plan brochure by
writing to Wells Fargo Shareowner Services, P.O. Box 64856, St.
Paul, MN 55164-0856, by calling 1-800-468-9716 or by visiting
www.shareowneronline.com.
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, 2009: 932
Market Makers:
Archipelago Stock Exchange
Automated Trading Desk
Barclays Capital Inc./Le
Bats Trading, Inc.
BMO Capital Markets Corp.
Cantor, Fitzgerald & Co.
Chicago Board Options Exchang
Citadel Securities LLC
Citigroup Global Markets Inc.
Cowen and Company, LLC
Credit Suisse Securities USA
Deutsche Banc Alex Brown
Domestic Securities, Inc.
E*Trade Capital Markets Llc
FBR Capital Markets & Co.
Goldman, Sachs & Co.
Howe Barnes Investments Inc
Hudson Securities, Inc.
Int’l Securities Exchange
J.P. Morgan Securities Inc.
Jefferies & Company, Inc.
JMP Securities LLC
Keefe, Bruyette & Woods, Inc.
Knight Equity Markets, L.P.
Merrill Lynch, Pierce, Fenner
10
As filed with the Securities and Exchange Commission on February 26, 2010
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
Washington, D.C. 20549
(Mark One)
FORM 10-K
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the fiscal year ended December 31, 2009
OR
(cid:133)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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 $945,143,201 (based on the June 30, 2009 closing price of Common Stock of $37.67 per share).
As of January 31, 2010, there were 67,809,896 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2010
Annual Meeting of Shareholders.
BOK FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
ITEM
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
10
11
12
62
64
122
122
122
123
123
123
123
123
123
130
132
133
134
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.”
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, Kansas/Missouri. 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 the Company’s 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 second
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, Kansas/Missouri.
We are currently exploring opportunities for further growth in these 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 40% of our 2009
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.
In a more normal operating environment 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 while adhering to common standards. In the current distressed operating environment we are actively
looking to participate in FDIC-assisted acquisitions in existing markets.
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.
Commercial banking includes lending, treasury and cash management services and customer risk management products for
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 and all mortgage banking
activities. 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 17
of the Company’s Notes to Consolidated Financial Statements, both of which appear elsewhere herein.
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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 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, 2009.
BOk is the largest banking subsidiary of BOK Financial and has the second largest market share in Oklahoma with 11% of
the state’s total deposits. In the Tulsa and Oklahoma City areas, BOk has 24% and 8% 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, Kansas/Missouri. 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 four
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, Mesa and
Scottsdale. Bank of Arkansas serves Benton and Washington counties in Arkansas, and Bank of Kansas City serves the
Kansas City, Kansas/Missouri market. The Company’s ability to expand into additional states remains subject to various
federal and state laws.
Employees
As of December 31, 2009, BOK Financial and its subsidiaries employed 4,355 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.
During 2009, legislation was proposed in Congress to restructure and strengthen supervision and regulation of the financial
services industry in the United States. It is generally probable that laws and regulations affecting banks will increase and
become more restrictive and costly. 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 existing 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.
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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 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, 2009, BOK
Financial’s Tier 1 and total capital ratios under these guidelines were 10.86% and 14.43%, 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, 2009 was 8.05%.
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
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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, 2009.
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 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.
In 2009, BIS announced enhancements to the Basel II framework. In general, these enhancements involve higher capital
requirements, further supervisory review and guidance, and increased disclosures. Higher capital requirements would
apply to certain items such as liquidity facilities and other off-balance sheet exposures. Reputation risk has been added as a
specific risk management topic. In addition, future capital requirements will likely include stress tests of relevant values
such as credit performance, interest rate moves and funding sources.
It is generally probable that the announced enhancements to the Basel II framework, along with changes in laws and
regulations affecting banks in the United States will increase capital requirements. The likelihood and timing of any
specific changes and the impact they might have on the Company and its subsidiaries cannot be predicted at this time.
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 15 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.
In response to an increase in bank failures, the board of directors of the FDIC approved a special assessment during 2009.
This assessment was calculated as 5 basis points times each insured depository institution’s assets minus Tier 1 capital as of
June 30, 2009. Collectively, the Banks paid $12 million of special assessment charges.
On November 12, 2009 the board of directors of the FDIC voted to require insured institutions to prepay over three years of
estimated insurance assessments on December 30, 2009 in order to strengthen the cash position of the DIF. As of
December 31, 2009 and each quarter thereafter, the regular quarterly assessment will be applied against the prepaid
assessment until the asset is exhausted. Any prepaid assessment not exhausted as of June 30, 2013 will be returned.
Collectively, the Banks prepaid $78 million of deposit insurance assessments.
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.
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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 $225 million of dividends without regulatory approval as of December 31, 2009. 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 $190 million as of December 31, 2009. These
amounts are not necessarily indicative of amounts that may be available to be paid in future periods.
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 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.
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Foreign Operations
BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments.
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. Although there are indications that the economy has stabilized, there
is no assurance that 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:
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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.
6
Fluctuations in interest rates could adversely affect BOK Financial's business.
BOK Financial's business is highly sensitive to:
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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 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. A significant decrease in interest rates could also
accelerate premium amortization. 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.
In an effort to reduce interest rates and stimulate the housing market, the Federal Reserve Bank has purchased a significant
amount of mortgage-backed securities. The Federal Reserve Bank has announced that it will curtail purchases in 2010
which may result in rising interest rates and lower fair values of our mortgage-backed securities.
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.
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.
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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.
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 increasingly extensive regulation is likely to continue and become more costly in the future. Laws,
regulations or policies currently affecting BOK Financial and its 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. For example, recently
approved changes to regulations are expected to significantly reduce fees we can charge overdrawn deposit accounts
beginning in the second half of 2010.
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.
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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 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 $207 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, Kansas/Missouri. 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 5 and 14 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 14 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, 2009.
9
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, 2010, common shareholders of record numbered 942 with 67,809,896 shares outstanding.
The highest and lowest closing bid price for shares and cash dividends per share of BOK Financial common stock follows:
2009:
Low
High
Cash dividends
2008:
Low
High
Cash dividends
First
$22.95
40.71
0.225
$46.82
55.23
0.20
Second
$34.46
43.02
0.24
$49.11
60.74
0.225
Third
$34.81
48.10
0.24
$38.61
53.94
0.225
Fourth
$41.87
47.91
0.24
$38.40
54.42
0.225
Shareholder Return Performance Graph
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, 2004 and ending December
31, 2009.*
Total Return Performance
140
120
100
80
60
40
20
e
u
l
a
V
x
e
d
n
I
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank
KBW 50
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
Period Ending
Index
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank Index
KBW 50
12/31/05
93.79
101.37
95.67
99.82
* Graph assumes value of an investment in the Company’s Common Stock for each index was $100 on December 31, 2004. 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, a 3% dividend was
paid in shares of BOK Financial Common Stock on May 31, 2004. Cash dividends on Common Stock, which were first paid in 2005, are assumed to
have been reinvested in BOK Financial Common Stock.
12/31/04
100.00
100.00
100.00
100.00
12/31/09
104.85
104.31
51.31
48.02
12/31/08
87.10
72.49
62.96
48.88
12/31/07
109.47
121.92
82.76
93.19
12/31/06
114.77
111.03
106.20
119.18
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, 2009.
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, 2009 to October 31, 2009
November 1, 2009 to November 30, 2009
3,520
9,896
December 1, 2009 to December 31, 2009
66,314
Total
79,730
$ 46.18
45.23
47.48
–
–
–
–
Maximum
Number of
Shares that May
Yet Be
Purchased
Under the Plans
1,215,927
1,215,927
1,215,927
(1) On April 26, 2005, the Company’s board of directors authorized the Company to repurchase up to two million shares of the
Company’s common stock. As of December 31, 2009, the Company had repurchased 784,073 shares under this 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,
2009
2008
2007
2006
2005
$ 914,569
204,205
710,364
195,900
480,512
200,578
$ 1,061,645
414,783
646,862
202,593
415,194
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
11,279,698
23,516,831
15,518,228
398,539
2,205,813
484,295
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
Profitability Statistics
Earnings per share (based on average equivalent shares):
Basic
Diluted
$
2.96
2.96
$
2.27
2.27
$
$
3.24
3.22
$
3.19
3.16
3.14
3.01
Percentages (based on daily averages):
Return on average assets
Return on average shareholders’ equity
Average shareholders’ equity to average assets
0.87%
9.66
8.98
0.71%
7.87
9.01
1.14%
12.01
9.53
1.27%
13.23
9.58
1.29%
13.78
9.38
Common Stock Performance
Per Share:
Book value per common share5
Market price: December 31 close
Market range – High close
– Low close
Cash dividends declared
Dividend payout ratio
Selected Balance Sheet Statistics
Period-end:
$
$
32.53
47.52
48.13
22.98
0.945
31.93%
$
27.36
40.40
60.84
38.48
0.875
38.55%
$
28.75
51.70
55.57
47.47
0.75
23.29%
$
25.66
54.98
54.98
44.43
0.55
17.41%
23.07
45.43
49.31
39.79
0.30
9.97%
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
10.86%
14.43
8.05
7.99
82.22
2.59
2.72
9.40%
9.38%
9.78%
9.84%
12.81
7.89
6.64
74.49
1.81
1.93
12.54
8.20
7.72
133.79
1.06
1.24
11.58
8.79
8.22
305.37
1.03
1.22
12.10
8.30
7.94
329.34
1.14
1.37
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of banking locations
Number of TransFund locations
Trust assets
Mortgage loan servicing portfolio3
4,355
197
1,896
$30,385,365
7,366,780
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
$ 28,464,745
4,492,524
1
2
3
4
5
Shareholders’ equity less preferred equity, intangible assets and equity provided by the TARP Capital Program (none)
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, Kansas/Missouri. 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 second largest financial institution as measured by deposit market share. At December 31, 2009, 46% of our
outstanding loans and 56% 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,
Kansas/Missouri. At December 31, 2009, 29% of our outstanding loans and 26% 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 existing 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. 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. 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 40% of our revenue came from commissions and fees in 2009.
BOK Financial operates three principal lines of business: commercial banking, consumer banking and wealth management.
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, and all mortgage banking
activities. Wealth management provides fiduciary services, brokerage and trading, private bank services and investment
advisory services in all markets.
The recession continued to dampen the economy and the financial services industry in 2009. Civilian unemployment rates
climbed from just over 7% at the beginning of the year to over 10% by year-end. Credit losses which first were largely
concentrated in residential construction loans in the Arizona market spread to other commercial real estate and commercial
loans across all markets. In response, the U.S. government has provided significant liquidity to the economy. Interest rates
we paid remained at historic lows throughout the year. Along with tax credits available to first-time home buyers, the low
interest rates stimulated mortgage lending activity. Interest rates decreased which increased the fair value of many financial
instruments, such as mortgage-backed securities. After reaching highs of over $140 per barrel in 2008, oil prices dropped
to under $40 per barrel in early 2009 and natural gas prices remained low throughout most of 2009.
13
Performance Summary
BOK Financial’s net income for 2009 totaled $201 million or $2.96 per diluted share compared to $153 million or $2.27
per diluted share in 2008.
Highlights of 2009 included:
• Net interest revenue increased $64 million or 10% over 2008. Average earning assets were up $1.5 billion or 8%.
Net interest margin was 3.57% for 2009, up 12 basis points over 2008.
•
Fees and commissions revenue totaled $481 million for 2009 and $415 million for 2008. Net credit losses on
derivative contracts related to two bankrupt counterparties reduced fees and commissions revenue by $54 million
in 2008. Mortgage banking revenue increased $34 million compared to 2008.
• Operating expenses, excluding changes in the fair value of mortgage servicing rights, totaled $709 million, up
$81 million from the prior year. Personnel costs, FDIC insurance expenses, mortgage banking costs and net
losses and expenses of repossessed assets increased over the prior year.
• Combined reserves for credit losses totaled $306 million or 2.72% of outstanding loans at December 31, 2009, up
from $248 million or 1.93% of outstanding loans at December 31, 2008. Provision for credit losses and net
charge-offs were $196 million and $138 million, respectively for 2009 and $203 million and $102 million,
respectively for 2008.
• Nonperforming assets totaled $484 million or 4.24% of outstanding loans and repossessed assets at December 31,
2009, up from $342 million or 2.65% of outstanding loans and repossessed assets at December 31, 2008.
Repossessed assets increased $100 million and nonaccruing loans increased $39 million over last year.
• Available for sale securities totaled $8.9 billion at December 31, 2009, up $2.5 billion since the prior year due to
purchases of residential mortgage-backed securities issued by U.S. government agencies. Other than temporary
impairment charges on certain privately-issued residential mortgage backed securities reduced pre-tax net income
by $34 million during 2009.
• Outstanding loan balances were $11.3 billion at December 31, 2009, down $1.6 billion from the prior year. Most
major loan categories decreased during 2009 due to reduced customer demand and normal repayment trends.
•
Tangible common equity and Tier 1 capital ratios were 7.99% and 10.86%, respectively, at December 31, 2009
and 6.64% and 9.40%, respectively, at December 31, 2008. Growth in the tangible common equity ratio was due
largely to a $211 million after-tax increase in the fair value of available for sale securities. The Company
evaluated and elected not to participate in the U.S. Treasury’s TARP Capital Purchase Program.
Net income for the fourth quarter of 2009 totaled $43 million or $0.63 per diluted share compared with $35 million or
$0.52 per diluted share for the fourth quarter of 2008.
Highlights of the fourth quarter of 2009 included:
• Net interest revenue totaled $184 million, up $8.0 million over the fourth quarter of 2008. Net interest margin
was 3.64% for the fourth quarter of 2009 and 3.57% for the fourth quarter of 2008.
• Net loans charged off and provision for credit losses were $35 million and $49 million, respectively for the fourth
quarter of 2009. Net loans charged off and provision for credit losses were $34 million and $73 million,
respectively for the fourth quarter of 2008.
•
Fees and commissions revenue totaled $116 million, up $5 million over the fourth quarter of 2008, primarily due
to higher mortgage banking revenue partially offset by a decrease in brokerage and trading revenue.
• Other than temporary impairment charges on certain privately-issued residential mortgage backed securities
reduced pre-tax net income by $14 million during the fourth quarter of 2009.
• Other operating expense, excluding changes in the fair value of mortgage servicing rights, increased $23 million
over the prior year. Mortgage banking costs, personnel expense, net losses and operating expenses on
repossessed assets and FDIC insurance costs increased over the fourth quarter of 2008.
14
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.
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.
There have been no material changes in the approach or techniques utilized in developing the allowance for loan losses
during 2009.
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. Loans are considered to be impaired when it is probable that we will not be able to collect all amounts
due according to the contractual terms of the loan agreements. This is substantially the same criteria used to determine
when a loan should be placed on nonaccrual status. Generally, all nonaccruing commercial and commercial real estate
loans are considered impaired. Substantially all impaired loans are collateralized. Collateral includes real property,
inventory, accounts receivable, operating equipment, interest in mineral rights and other property. Collateral may also
include personal guaranties by borrowers and related parties.
Delinquency status is not a significant consideration in the evaluation of impairment or risk-grading of commercial or
commercial real estate loans. These evaluations are based on an assessment of the borrowers’ paying capacity and attempt
to identify changes in credit risk before payments become delinquent. Changes in the delinquency trends of residential
mortgage loans and consumer loans may indicate increases or decreases in expected losses.
Impaired loans are charged-off when the loan balance or a portion of the loan balance is no longer supported by the paying
capacity of the borrower based on an evaluation of available cash resources or collateral value. No reserves are attributed
to the remaining balance of loans that have been charged-down to amounts management expects to recover. Collateral
values are generally evaluated annually, or more frequently for certain collateral types or collateral located in certain
distressed markets.
General reserves for unimpaired loans are based on migration models. Separate migration models are used to determine
general reserves for commercial and commercial real estate loans, residential mortgage loans, and consumer loans. All
commercial and commercial real estate loans are risk-graded based on an evaluation of the borrowers’ ability to repay the
loans. Migration factors are determined for each risk-grade to determine the inherent loss based on historical trends. We
use an eight-quarter aggregate accumulation of net losses as a basis for the migration factors. Greater emphasis is placed
on losses incurred in more recent periods. The higher of current loss factors based on migration trends or a minimum
migration factor based upon long-term history is assigned to each risk grade. The general reserve for residential mortgage
loans is based on an eight-quarter average percent of loss. The general reserve for consumer loans is based on an eight-
quarter average percent of loss with separate migration factors 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, concentrations in large credits and overall growth in the loan portfolio.
Evaluation of nonspecific factors considers the effect of the duration of the business cycle on migration factors.
Nonspecific factors also consider current economic conditions 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.
15
We also maintain a separate credit loss reserve for residential mortgage loans sold with recourse. This reserve is based on
the same migration model used for on-balance sheet residential mortgage loans. Migration factors are separately
determined from historic loss trends for these loans. We use an eight-quarter aggregate accumulation of net losses as a
basis for the migration factors. Greater emphasis is placed on losses incurred in more recent periods. The provision for
losses on mortgage loans sold with recourse is included in mortgage banking costs on the Consolidated Statement of
Earnings.
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. Purchased servicing rights are initially recognized at their purchase price. Subsequent changes in fair value
are recognized in earnings as they occur.
There is no active market for trading in mortgage servicing rights. 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 significant unobservable inputs 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 7 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 $5.6 million. A 50 basis point decrease in mortgage interest rates is expected to decrease the fair value
of our servicing rights by $9.7 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 reporting units is estimated by the discounted future earnings method. Income growth is
projected for each of our reporting units for 2010 through 2015 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 reporting units are based on growth rates, volatility, discount rate and market risk premium
inherent in our current stock price. These assumptions are considered significant unobservable inputs and represent our
best estimate of assumptions that market participants would use to determine fair value of the respective reporting units.
Critical assumptions in our evaluation were a 12.00% average expected long-term growth rate, a 0.74% volatility factor for
BOK Financial common stock, a 10.60% discount rate and a 9.86% market risk premium.
The Company identified the geographical market underlying its operating segments as its reporting units for the purpose of
performing its annual goodwill impairment test. This is consistent with the manner in which management assesses the
performance of the Company and allocates resources. See additional discussion of the operating segments in the
Assessment of Operations – Lines of Business section following.
16
The fair value, carrying value and related goodwill of reporting units for which goodwill was attributed as of our annual
impairment test performed on October 1, 2009 is as follows (in thousands):
Fair Value
Carrying
Value1
Goodwill
$ 580,129
484,261
82,646
117,977
89,520
$ 351,259
432,167
76,794
103,798
73,714
$ 5,140
196,183
11,094
39,458
14,853
394,559
96,275
73,037
19,937
1,184
133,248
60,543
18,934
15,709
1,652
1,683
27,567
2,874
6,899
228
Commercial:
Oklahoma
Texas
New Mexico
Colorado
Arizona
Consumer:
Oklahoma
Texas
New Mexico
Colorado
Arizona
Wealth Management:
Oklahoma
Texas
New Mexico
Colorado
Arizona
248,328
65,333
19,221
42,820
9,197
102,415
41,352
7,910
20,214
7,964
1,350
16,372
1,305
9,254
1,569
1 Carrying value includes intangible assets attributed to the reporting unit.
Based on the results of the test performed as of October 1, 2009, the Company recorded an impairment charge of $228
thousand related to the consumer banking segment in the Arizona market.
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. 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
multiple of the market capitalization over tangible book value or net assets less intangibles of publicly traded banks of
similar size and characteristics in our geographical footprint. This valuation method corroborated fair values determined by
the discounted future earnings method.
As of December 31, 2009, the market value of BOK Financial common stock, a primary assumption in our goodwill
impairment analysis, was approximately 3% above the market value used in our most recent annual evaluation. The market
value is influenced by factors affecting the overall economy and the regional banks sector of the market. Goodwill
impairment may be indicated at our next annual evaluation date if the market value of our stock declines or sooner if we
incur significant unanticipated operating losses or if other factors indicate a significant decline in the value of our reporting
units. The effect of a 10% negative change in the market value of our common stock on September 30, 2009 was
simulated. This simulation indicated that an additional impairment of $2.3 million is possible. Other factors that could
affect future impairment analyses include credit losses that exceed projected amounts or failure to meet growth projections.
Consistent with plans when we first acquired Valley Commerce Bank in Phoenix, Arizona, our objective is to focus on
growth in commercial and small business lending in the Arizona market. As discussed more fully in the Lines of Business
section of this report, we have made changes in our Arizona operations to achieve this objective. Future goodwill
impairment in the Arizona commercial reporting unit will depend largely on our ability to meet growth projections for this
market.
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 in an active market for identical instruments.
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 significant other observable inputs. Fair
17
values for 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 significant other 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 generally based on a single price for each financial instrument provided to us by
an applicable third-party pricing service determined by 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. Management has evaluated the methodologies employed by the third-party pricing services by
comparing the price provided by the pricing service with other sources, including brokers’ quotes, sales or purchases of
similar instruments and discounted flows to establish a basis for reliance on the pricing service values. Significant
differences between the pricing service provided value and other sources are discussed with the pricing service to
understand the basis for their values. Based on this evaluation, we determined that the results represent prices that would
be received to sell assets or paid to transfer liabilities in orderly transactions in the current market.
A portion of our securities portfolio is comprised of debt securities for which third-party services have discontinued
providing price information due primarily to a lack of observable inputs and other relevant data. Management estimates the
fair value of these securities based on significant unobservable inputs, including projected cash flows discounted at rates
indicated by comparison to securities with similar credit and liquidity risk.
Other-Than-Temporary Impairment
On a quarterly basis, the Company evaluates impaired debt and equity securities to determine if impairments are temporary
or other-than-temporary.
For impaired debt securities, management first determines whether it intends to sell or if it is more-likely-than-not that it
will be required to sell the impaired securities. This determination considers current and forecasted liquidity requirements,
regulatory and capital requirements and securities portfolio management. All impaired debt securities we intend to sell or
we expect to be required to sell are considered other-than-temporarily impaired and the full impairment loss is recognized
as a charge against earnings. All impaired debt securities we do not intend or expect to be required to sell are evaluated
further.
Impairment of debt securities consistently rated investment grade by all nationally-recognized rating agencies is considered
temporary unless specific contrary information is identified. Impairment of securities rated below investment grade by at
least one of the nationally-recognized rating agencies is evaluated to determine if we expect to recover the entire amortized
cost basis of the security based on the present value of projected cash flows from individual loans underlying each security.
Below investment grade securities we own consist primarily of privately issued mortgage-backed securities. The primary
assumptions used to project cash flows are disclosed in Note 2 to the Consolidated Financial Statements.
We also consider the adjusted loan-to-value ratio and credit enhancement coverage ratio as part of our assessment of cash
flows available to recover the amortized cost of our securities. Adjusted loan-to-value ratio is an estimate of the collateral
value available to support the realizable value of the security. We calculate the adjusted loan-to-value ratio for each
security using loan-level data. The original loan-to-value ratio is adjusted for market-specific home price depreciation and
credit enhancement on the specific tranche of each security we own. The credit enhancement coverage ratio is an estimate
of currently remaining subordinated tranches available to absorb losses on pools of loans that support the security. We
believe that an adjusted loan-to-value ratio above 85% or a credit enhancement coverage ratio below 1.5 times to be
additional indicators that an impairment may be other than temporary.
18
Credit losses, which are defined as the excess of current amortized cost over the present value of projected cash flows, on
other-than-temporarily impaired debt securities are recognized as a charge against earnings. Any remaining impairment
attributed to factors other than credit losses are recognized in accumulated other comprehensive losses.
Credit losses are based on long-term projections of cash flows which are sensitive to changes in assumptions. Changes in
assumptions and differences between assumed and actual results regarding unemployment rates, delinquency rates,
foreclosures costs and home price depreciation can affect estimated and actual credit losses. Deterioration of these factors
beyond those described in Note 2 to the Consolidated Financial Statements could result in the recognition of additional
credit losses.
We performed a sensitivity analysis of all privately issued mortgage-backed securities rated below AAA. Significant
assumptions of this analysis included an increase in the unemployment rate to 12% over the next twelve months, decreasing
to 8.5% thereafter and an additional 20% house price depreciation. The results of this analysis indicated $20 million to $25
million of credit losses in addition to credit losses recognized in 2009 are possible.
Impaired equity securities, including perpetual preferred stocks, are evaluated based on our ability and intent to hold the
securities until fair value recovers over a period not to exceed three years. The assessment of the ability and intent to hold
these securities considers liquidity needs, asset / liability management objectives and securities portfolio objectives.
Factors considered when assessing recovery include forecasts of general economic conditions and specific performance of
the issuer, analyst ratings, and credit spreads for preferred stocks which have debt-like characteristics.
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.
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 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
19
is expected to better represent the cost of future cash flows as the static participant pool decreases over time. The discount
rate was 5.15% at December 31, 2009 and 6.50% at December 31, 2008. A 25 basis point decrease in the discount rate
increases the pension liability by approximately $873 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 significant other observable inputs. 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 12 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 $16 million. Future
compensation cost ranges from approximately $6 million if none of the performance conditions are met to $19 million if all
of the performance conditions are met.
Assessment of Operations
Net Interest Revenue
Tax-equivalent net interest revenue totaled $718 million for 2009 compared with $655 million for 2008. Net interest
revenue growth was driven primarily by a $1.5 billion increase in average earning assets and a 12 basis point increase in net
interest margin.
Average earning assets increased $1.5 billion or 8% compared to 2008, primarily due to a $1.8 billion increase in average
securities. We purchased U.S. government agency issued residential mortgage-backed securities to supplement earnings
during a period of declining loan demand. Average loans, net of allowance for loan losses, decreased $465 million
primarily due to decreases in commercial, commercial real estate and consumer loans partially offset by growth in
residential mortgage loans.
Growth in average earning assets was funded primarily by an $888 million increase in interest-bearing deposits and a $647
million increase in demand deposit account balances. Average interest-bearing transaction accounts were up $751 million
and average time deposits were up $130 million.
Borrowed funds declined $333 million compared to 2008, including a $230 million decrease in borrowings to fund average
margin assets. Margin assets are placed by the Company to secure its obligations under various derivative contracts and are
generally reported as a 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. 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.
Net interest margin, the ratio of tax-equivalent net interest revenue to average earning assets, increased to 3.57% in 2009
compared with 3.45% in 2008 due primarily to lower funding costs.
20
The cost of interest-bearing liabilities was 1.21% for 2009, down 134 basis points from 2008. The cost of interest bearing
deposits decreased 123 basis points to 1.38% and the cost of funds purchased and other borrowings decreased 160 basis
points to 0.81%. Rates paid on funding sources decreased in 2009 due to market conditions. In addition, we reduced
certain types of higher-costing time deposits during the year to lower our funding costs.
The tax-equivalent yield on earning assets was 4.59% for 2009, down 105 basis points from 2008. Loan yields decreased
118 basis points from 2008 to 4.65%; however, loan spreads continue to improve. The securities portfolio yield was
4.36%, down 80 basis points from 2008. Our securities portfolio re-prices as cash flow received is reinvested as current
market rates. The resulting change in yield of the securities portfolio occurs more slowly than changes in market rates.
Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates.
Approximately two-thirds of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate
that will re-price within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing,
or that re-price more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that
assets generally re-price more quickly than liabilities. Among the strategies that we use to achieve a relatively rate-neutral
position, we purchase fixed-rate, mortgage-backed securities and fund them with market rate sensitive liabilities. 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
$40 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. Net interest revenue increased $13 million in 2009
and $7.0 million in 2008 from periodic settlements of derivative contracts. This increase in net interest revenue contributed
6 basis points and 4 basis points to net interest margin in 2009 and 2008, respectively. Derivative contracts are carried on
the balance sheet at fair value. Changes in the fair value of these contracts are reported as derivative gains or losses in the
Consolidated Statement of Earnings.
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 the Market Risk section of this report.
21
Table 2 Volume/Rate Analysis
(In Thousands)
Tax-equivalent interest revenue:
Securities
Trading securities
Loans
Funds sold and resell agreements
Total
Interest expense:
2009/2008
Change Due To¹
2008/2007
Change Due To¹
Change
Volume
Yield/Rate
Change
Volume
Yield/Rate
$ 14,359
(1,235)
(158,854)
(1,500)
(147,230)
$ 70,709
851
(12,458)
(314)
58,788
$ (56,350)
(2,086)
(146,396)
(1,186)
(206,018)
$ 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)
Transaction deposits
Savings deposits
Time deposits
Funds purchased and repurchase
agreements
Other borrowings
Subordinated debentures
Total
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
Net interest revenue
(69,796)
(62)
(54,704)
(53,016)
(33,036)
36
(210,578)
63,348
154
$ 63,502
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
Change in tax-equivalent adjustment
Net interest revenue
9,924
30
3,924
(79,720)
(92)
(58,628)
(73,214)
(823)
(49,785)
12,679
(50)
(664)
(85,893)
(773)
(49,121)
(8,843)
5,982
9
11,026
$ 47,762
(44,173)
(39,018)
27
(221,604)
$ 15,586
11,273
34,907
195
58,340
$ 68,426
(84,249)
(36,939)
(2,834)
(259,809)
$ 33,059
(72,976)
(2,032)
(2,639)
(201,469)
101,485
892
$ 102,377
4th Qtr 2009 / 4th Qtr 2008
Change Due To¹
Change
Volume
Yield/Rate
$ 20,375
(161)
(15,655)
(22)
4,537
4,236
13
(7,250)
(1,433)
894
9
(3,531)
$ 8,068
$ (25,707)
(210)
(16,182)
(54)
(42,153)
(16,305)
43
(15,140)
(4,198)
(6,693)
44
(42,249)
96
$
$ (5,332)
(371)
(31,837)
(76)
(37,616)
(12,069)
56
(22,390)
(5,631)
(5,799)
53
(45,780)
8,164
(133)
$ 8,031
¹ Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
Fourth Quarter 2009 Net Interest Revenue
Tax-equivalent net interest revenue for the fourth quarter of 2009 totaled $187 million compared with $179 million for the
fourth quarter of 2008. Average earning assets increased $894 million or 5%, including a $2.3 billion increase in average
securities. Average loans, net of allowance for loan losses, decreased $1.3 billion compared to the fourth quarter of 2008.
Average balances in all major loan categories decreased as a result of reduced customer demand and normal repayment
trends. Growth in average earning assets was funded primarily by a $954 million increase in average demand deposits.
Average interest-bearing deposits increased by $523 million offset by a $527 million decrease in other borrowings.
Net interest margin was 3.64% for the fourth quarter of 2009 and 3.57% for the fourth quarter of 2008. Growth in the net
interest margin was due primarily to lower funding costs.
2008 Net Interest Revenue
Tax-equivalent net interest revenue for 2008 was $655 million for 2008 compared with $554 million for 2007. Average
earning assets increased $2.0 billion, including a $1.2 billion increase in average outstanding loans, net of allowance for
loan losses, and a $838 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 $68 million due to changes in earning assets and interest bearing liabilities and increased $33 million due
to changes in interest yields and rates. 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 largely narrowed to its historically
22
normal level by the end of 2008. 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, an increase in
average margin assets funded by interest-bearing liabilities decreased net interest margin by 5 basis points.
Other Operating Revenue
Other operating revenue increased $64 million compared with 2008 due to a $65 million increase in fees and commissions
revenue. Mortgage banking revenue was up $34 million over last year. Trust fees and commissions were down $13
million and margin asset fees were down $8 million from 2008. Brokerage and trading revenue increased $49 million over
2008. Net credit losses on derivative contracts with two bankrupt counterparties reduced brokerage and trading revenue
and total fees and commissions by $54 million in 2008.
Net gains on securities, derivatives and other assets increased $28 million, offset by a $29 million increase in other-than-
temporary impairment charges recognized in earnings.
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 other assets, net
Gain (loss) on derivatives, net
Gain (loss) on available for sales securities, net
Gains on Mastercard and Visa IPO securities
Gain (loss) on mortgage hedge securities
Gain (loss) on securities, net
Total other-than-temporary impairment losses
Portion of loss recognized in other
comprehensive income
Net impairment losses recognized in earnings
Years ended December 31,
2006
2007
2009
$ 91,677 $
105,517
66,177
115,791
64,980
10,239
236
25,895
480,512
2008
42,8041 $
100,153
78,979
117,528
30,599
10,681
8,548
25,902
415,194
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
4,134
(3,365)
59,320
–
(13,198)
46,122
(9,406)
1,299
9,196
6,799
10,948
26,943
2,404
2,282
(276)
1,075
(486)
313
(129,154)
(5,306)
(8,641)
(94,741)
(34,413)
–
(5,306)
–
(8,641)
1,499
(622)
152
–
(1,102)
(950)
–
–
–
2005
48,024
72,036
65,187
98,361
30,681
62
5,504
25,009
344,864
7,798
1,179
(1,700)
–
(5,195)
(6,895)
–
–
–
Total other operating revenue
$ 492,990
$ 428,724 $ 401,980 $ 371,623 $ 346,946
1 Includes net derivative credit losses of $54 million.
Fees and Commissions Revenue
Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 40% of
total revenue, excluding provision for credit losses and 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 markets outside of Oklahoma. However,
current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets
could affect the rate of future increases.
Brokerage and trading revenue decreased $5.1 million compared with 2008, excluding derivative credit losses from 2008
revenue. Customer hedging revenue decreased $15 million or 70% compared to 2008. Lower commodity prices during
2009 reduced the level of customer hedging activity, compared with the strong market volatility experienced in both crude
oil and natural gas in 2008. Securities trading revenue increased $7.8 million or 16% over the prior year. Increased
mortgage lending activity increased the level of securities transactions by our mortgage banking customers. Investment
banking revenue increased $3.1 million or 69% over 2008. Retail brokerage revenue decreased $631 thousand or 3%.
23
Transaction card revenue depends largely on the volume and amount of transactions processed, the number of ATM
locations and the number of merchants served. Transaction card revenue increased $5.4 million or 5% over 2008 primarily
due to a $4.1 million increase in ATM network revenue and a $1.3 million increase in check card revenue. The number of
check card transactions processed during 2009 increased 8% over 2008. The number of TransFund ATM locations totaled
1,896 at December 31, 2009, down 2% compared to last year primarily due to consolidation of some financial institution
sites. Merchant discount revenue for 2009 totaled $28 million, up less than 1% over 2008.
Trust fees decreased $13 million or 16%. During 2009, approximately $4.7 million of fees related to administration of the
Cavanal Hill Funds and our cash management sweep fund were voluntarily waived in order to maintain positive yields on
these funds in the current low short-term interest rate environment. The remaining decline is primarily due to decreases in
the fair value of all trust assets administered by the Company, which is the basis for a significant portion of trust fees and
commissions revenue. Due to the market conditions present in 2009, the fair value of trust assets remained below prior
year levels for the majority of the year. The fair value of trust assets administered by the Company totaled $30.4 billion at
December 31, 2009 compared with $30.5 billion at December 31, 2008.
Deposit service charges and fees declined $1.7 million, or 1% compared with 2008 primarily related to a decrease in
overdraft fees. Overdraft fees declined $1.8 million to $74 million due to a 6% decrease in transaction volume, partially
offset by a 4% increase in the average per item fee charged. Commercial account service charge revenue increased slightly
over prior year to $37 million. The increase was primarily related to a partial pass-through of the FDIC special assessment
during 2009. Customers kept greater commercial account balances to offset the decrease in the earnings credit, which
provides a non-cash method for commercial customers to avoid incurring charges for deposit services based on account
balances. Service charges on retail deposit accounts decreased 15% to $4.4 million due to continued migration to service-
charge free checking products.
Changes in Federal banking regulations effective in the second half of 2010 are expected to significantly reduce overdraft
fee revenue. The full effect of these regulations cannot be quantified at this time.
Mortgage banking revenue increased $34 million or 112% over 2008. Revenue from originating and marketing mortgage
loans increased $32 million compared to the prior year. Mortgage loans originated for sale in the secondary market totaled
$2.8 billion compared to $1.2 billion in 2008. Mortgage loan originations slowed in the latter half of 2009, but remained
well above historical levels due to government initiatives to lower national mortgage interest rates and to stimulate housing
markets. Mortgage loan servicing revenue totaled $20 million or 0.32% of loans serviced for others in 2009 and $18
million or 0.35% of loans serviced for others in 2008. The average outstanding balance of loans serviced for others was
$5.9 billion for 2009 and $5.0 billion for 2008. Growth in mortgage loans serviced for others was due to retaining
mortgage servicing rights from mortgage loans originated. No mortgage loan servicing rights were purchased in 2008 or
2009.
Margin assets which are held primarily as part of the Company’s customer derivatives programs averaged $192 million for
2009 and $422 million for 2008. The decrease in revenue earned on margin assets is offset by an increase in net interest
revenue due to lower costs to fund the margin assets. Margin asset fees totaled $236 thousand for 2009 and $8.5 million for
2008.
Net gains on securities, derivatives and other assets
Mortgage hedge securities held as an economic hedge of the changes in fair value of mortgage servicing rights are carried
at fair value. Changes in fair value of these securities are recognized in earnings as they occur. For 2009, losses on our
mortgage hedge securities of $13 million were partially offset with gains on the change in the fair value of our mortgage
servicing rights of $12 million.
We recognized $59 million of net gains on sales of available for sale securities in 2009. These securities were generally
sold either because they had reached their maximum potential total return or to mitigate extension exposure from rising
interest rates.
As more fully described in the Financial Condition – Securities section of this report, we recognized $34 million of other-
than-temporary impairment charges against earnings in 2009 on certain privately issued residential mortgage-backed
securities and preferred stocks. We recognized $5.3 million of other-than-temporary impairment charges against earnings
in 2008 related to the preferred stocks.
Net losses on derivatives totaled $3.4 million for 2009 compared to net gains on derivatives of $1.3 million for 2008. Net
gains or losses on derivatives consist of fair value adjustments of all derivatives used to manage interest rate risk and
certain liabilities we have elected to carry at fair value. Derivative instruments generally consist of interest rate swaps
where we pay a variable rate based on LIBOR and receive a fixed rate. The fair value of these swaps generally decreases as
interest rate rise resulting in a loss to the Company and increases in value as interest rates fall resulting in a gain to the
Company. Certain certificates of deposit have been designated as reported at fair value. This determination is made when
24
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. As interest rates fall, the fair value of these fixed-rate certificates of deposit generally
increases and we recognize a loss. Conversely, as interest rates rise, the fair value of these fixed-rate certificates of deposit
generally decreases and we recognize a gain.
Net gains on other assets is primarily due to a $5.1 million improvement in the fair value of our private equity funds; $3.4
million of the improvement is allocated to limited partners through Net income (loss) attributable to non-controlling interest
on the Statement of Earnings.
Fourth Quarter 2009 Other Operating Revenue
Other operating revenue for the fourth quarter of 2009 totaled $108 million compared to $121 million for the fourth quarter
of 2008. Fees and commission revenue increased $5.0 million or 5% compared with the fourth quarter of 2008.
Mortgage banking revenue increased $6.2 million over the same period last year. Mortgage loans funded totaled $560
million in the fourth quarter of 2009, up from $215 million in the fourth quarter of 2008. Brokerage and trading revenue
decreased $3.3 million or 14% due primarily to lower securities trading revenue. Derivative fees and commission revenue
decreased on lower volume due to less market volatility in 2009 compared to 2008. Transaction card revenue increased
$1.1 million or 4% compared to the previous year due primarily to higher ATM fees and debit card processing volumes.
Merchant discount fees were flat compared to prior year.
Trust revenue decreased $651 thousand or 4% compared with the fourth quarter of 2008 due largely to the voluntary waiver
of $1.7 million of fees related to the administration of the Cavanal Hill Funds and our cash management sweep fund. In
addition, the fair value of trust assets was down less than 1% compared to the prior year. Deposit service charges and fees
increased $262 thousand or 1% due to a $1.1 million increase in overdraft fees as a result of an increase in the per item fee
and marginally higher transaction volume, offset by a $624 thousand decrease in commercial account activity charges.
Net securities gains for the fourth quarter of 2009 totaled $7.3 million compared with $20 million in the fourth quarter of
2008.
2008 Other Operating Revenue
Other operating revenue totaled $429 million for 2008, up $27 million over 2007. Fees and commissions revenue increased
$9.6 million and net gains on securities, derivatives and other assets increased $17 million. Fees and commissions revenue
was reduced by $54 million from net credit losses on derivative contracts with two bankrupt counterparties during 2008.
Excluding these credit losses, brokerage and trading revenue performed well including a $26 million increase in securities
trading revenue, a $7.3 million increase in revenue from customer hedging activities and a $2.8 million increase in retail
brokerage revenue. Transaction card revenue increased $9.7 million or 11% due to increases in check card revenue, ATM
fees and merchant discount revenue. Trust fees and commissions increased $748 thousand or 1%. Service charges on
deposit accounts increased $8.3 million or 8% due to a 23% increase in commercial account service charge revenue and a
2% increase in overdraft fees. Mortgage banking revenue increased $8.3 million or 37% over 2007 due to increases in
originating and marketing mortgages and mortgage loan servicing revenue. Margin asset fees totaled $8.5 million for 2008,
due to an increase in margin assets primarily held as part of the Company’s customer derivatives programs.
Net securities gains totaled $27 million for 2008. Other-than-temporary impairment charges of $5.3 million and $8.6
million were recognized in 2008 and 2007, respectively, on our holdings of variable-rate, perpetual preferred stocks.
25
Other Operating Expense
Other operating expense totaled $697 million for 2009, up $34 million over 2008. Personnel expenses increased $28
million or 8% over the previous year. Non-personnel expenses, excluding changes in the fair value of mortgage servicing
rights, increased $53 million or 19% primarily due to an increase in FDIC assessments, mortgage banking costs and net
losses and operating expenses related to repossessed assets. Changes in the fair value of mortgage servicing rights
decreased other operating expenses $47 million compared to 2008.
Table 4 Other Operating Expense
(In Thousands)
Personnel expense
Business promotion
Professional fees and services
Net occupancy and equipment
Insurance
FDIC special assessment
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
2009
$ 380,517
19,582
30,243
65,715
24,040
11,773
81,291
15,960
11,401
6,970
36,304
(12,124)
–
–
25,061
$ 696,733
Personnel Expense
Years ended December 31,
2007
2008
2006
$ 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
$ 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
2005
$ 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
Personnel expense totaled $381 million for 2009 and $353 million for 2008. Regular compensation, which consists of
salaries and wages, overtime pay and temporary personnel costs, totaled $232 million, up $12 million or 6% over 2008.
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 6% compared with 2008.
Table 5
(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)
2009
2008
2007
2006
2005
Years Ended December 31,
$ 231,897
$
219,629
$
206,857
$
185,466
$
165,529
80,582
10,572
91,154
57,466
–
$ 380,517
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
$
4,403
4,140
4,106
3,828
3,677
Incentive compensation increased $8.0 million or 10% to $91 million. Cash-based incentive compensation is 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. Total cash-based incentive compensation for 2009 increased $1.4 million or 2%
over the previous year. The increase in cash-based incentive compensation over 2008 included a $5.2 million or 18%
increase in sales commissions related to brokerage and trading revenue offset by decreased cash-based incentive
compensation for other business lines.
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 increased $7.7 million compared with 2008.
This increase reflected changes in the market value of BOK Financial common stock and other investments. The year-end
26
closing market price per share of BOK Financial common stock increased $7.12 during 2009 and decreased $11.30 during
2008. Compensation expense for equity awards decreased $1.0 million compared with 2008. 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 $57 million, a $7.3 million or 15% increase over 2008 primarily due to increased expense
related to medical insurance costs, employee retirement plans and payroll taxes. Employee medical insurance costs were
up $2.5 million or 15%. The Company self-insures a portion of its employee health care coverage and these costs may be
volatile. Pension expense increased $3.1 million from 2008 due to changes in the expected return on plan assets and
discount rate.
Mortgage Banking Costs
Mortgage banking costs, excluding changes in the fair value of mortgage servicing rights, totaled $36 million in 2009 and
$23 million in 2008. Expense recognized for actual prepayments of mortgage loans serviced totaled $21 million in 2009
and $12 million in 2008. Low mortgage interest rates and other incentives to stimulate the housing market caused an
increase in loan prepayments in 2009. We also maintain a reserve for losses on mortgage loans sold with recourse.
Provision for losses on these loans totaled $12 million in 2009 and $8.6 million in 2008. Loans sold with recourse are more
fully discussed in the Loan Commitments section of this report.
Changes in the fair value of mortgage servicing rights due to anticipated prepayment speeds and other assumptions are also
included in other operating expense. Changes in fair value of mortgage servicing rights decreased operating expense $12
million in 2009 and increased operating expense $35 million in 2008.
We maintain a portfolio of mortgage-backed securities as an economic hedge against changes in the fair value of mortgage
servicing rights. Losses on these securities totaled $13 million in 2009 which largely offset the decrease in operating
expense. Gains on securities designated as an economic hedge totaled $11 million in 2008. Government programs to lower
mortgage interest rates significantly increased anticipated prepayment speeds in the fourth quarter of 2008 which limited
the effectiveness of our hedge.
Deposit Insurance Expense
Deposit insurance expense totaled $35 million for 2009, including a $12 million special assessment, compared to $11 million of total
deposit insurance expense for 2008. In addition to the special assessment, the increase was due to an 8 basis point increase in the
average assessment rate and a $1.5 billion increase in average assessable deposits.
Other Operating Expenses
All other operating expenses totaled $257 million for 2009, up $16 million or 7% over 2008. Net losses and operating
expenses on repossessed assets increased $10 million and net occupancy and equipment expense increased $5.1 million.
Net losses and operating expenses on repossessed assets increased primarily due to a $100 million increase in real estate
and other repossessed assets during 2009.
Fourth Quarter 2009 Operating Expenses
Other operating expense totaled $176 million for the fourth quarter of 2009, down $9.0 million compared to the fourth
quarter of 2008. Changes in the fair value of mortgage servicing rights reduced operating expenses by $32 million
compared with the fourth quarter of 2008. Excluding the change in fair value of mortgage servicing rights, other operating
expenses increased $23 million or 14%. Mortgage banking costs increased $6.5 million due to increased losses on loans
previously sold with recourse and loan servicing costs. Personnel expense increased $6.0 million due largely to changes in
the cost of liability-based stock compensation. Net losses and operating expenses on repossessed assets increased $4.1
million and deposit insurance expense increased $3.2 million.
2008 Operating Expenses
Other operating expense for 2008 totaled $662 million, an $87 million or 13% increase over 2007. Personnel expense
increased $24 million. Mortgage banking expenses including changes in the fair value of our mortgage servicing rights and
losses on mortgage loans previously sold with recourse increased $41 million. All other operating expenses increased $22
million.
Regular compensation expense totaled $220 million, up $13 million, or 6% over 2007. Incentive compensation increased
$12 million, or 16% to $83 million. Expense for cash-based incentive compensation plans increased $17 million or 26%
including a $13 million or 84% increase in sales commissions related to brokerage and trading revenue. Stock-based
compensation expense decreased $4.8 million, reflecting changes in the market value of BOK Financial common stock
27
which decreased $11.30 during 2008. Compensation expense for equity awards increased $538 thousand or 8% over 2007.
Employee benefit expenses increased $2.2 million or 5% to $50 million.
Mortgage banking costs, including changes in the fair value of mortgage servicing rights and provision for losses on
mortgage loans sold with recourse increased $41 million over 2007. The fair value of mortgage servicing rights decreased
$35 million in 2008 as anticipated prepayment speeds increased significantly in the fourth quarter of 2008 in response to
government programs to lower mortgage interest rates. A disconnection between current yield on our portfolio of
mortgage-backed securities held as an economic hedge against the fair value of our servicing rights and mortgage loan
commitment rates limited the effectiveness of our hedge.
All other operating expenses in 2008 increased $22 million or 10% over 2007, primarily due to a $9.0 million increase in
FDIC insurance premiums in addition to increases in professional fees related to legal and other loan collection costs and
data processing and communications costs due to higher processing volumes.
Income Taxes
Income tax expense was $107 million for 2009, $65 million for 2008 and $116 million for 2007. This represented 34%,
31% and 34%, respectively, of book taxable income. Tax expense currently payable totaled $129 million in 2009, $116
million in 2008, and $129 million in 2007.
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 34% of book taxable income excluding these items.
Net deferred tax assets totaled $107 million at December 31, 2009 and $219 million at December 31, 2008. The decrease
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 $12 million at December 31, 2009 and $13 million at December 31, 2008.
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 tax expense for the fourth quarter of 2009 totaled $25 million or 37% of book taxable income compared to $10
million or 26% of book taxable income for the fourth quarter of 2008. 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 of 2008 would have been $15 million or 33% of book taxable income.
28
Table 6
Selected Quarterly Financial Data
(In Thousands, Except Per Share Data)
Fourth
Third
Second
First
2009
Interest revenue
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit losses
Fees and commissions revenue
Gain (loss) on other assets, net
Loss on derivatives, net
Gain on securities, net
Total other-than-temporary impairment losses
Portion of loss recognized in other comprehensive income
Net impairment losses recognized in earnings
Other operating expense
Change in fair value of mortgage servicing rights
Income before taxes
Income tax expense
Net income before non-controlling interest
Net income attributable to non-controlling interest
Net income attributable to BOK Financial Corp.
$ 224,411
39,933
184,478
48,620
135,858
115,949
(205)
(370)
7,277
(67,390)
(52,902)
(14,488)
181,722
(5,285)
67,584
24,780
42,804
33
$ 42,771
$ 226,246
45,785
180,461
55,120
125,341
119,956
3,223
(294)
12,266
(6,133)
(2,752)
(3,381)
175,751
2,981
78,379
24,772
53,607
2,947
$ 50,660
$ 230,685
55,105
175,580
47,120
128,460
123,100
973
(1,037)
6,471
(1,263)
279
(1,542)
183,635
(7,865)
80,655
28,315
52,340
225
$ 52,115
$ 233,227
63,382
169,845
45,040
124,805
121,507
143
(1,664)
20,108
(54,368)
(39,366)
(15,002)
167,749
(1,955)
84,103
28,838
55,265
233
$ 55,032
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$ 0.63
$ 0.63
$ 0.75
$ 0.75
$ 0.77
$ 0.77
$ 0.81
$ 0.81
67,446
67,600
67,392
67,514
67,345
67,448
67,316
67,387
$ 262,160
Interest revenue
85,713
Interest expense
176,447
Net interest revenue
73,001
Provision for credit losses
103,446
Net interest revenue after provision for credit losses
110,930
Fees and commissions revenue
(7,420)
Gain (loss) on other assets, net
(2,219)
Gain (loss) on derivatives, net
20,156
Gain (loss) on securities, net
–
Total other-than-temporary impairment losses
–
Portion of loss recognized in other comprehensive income
–
Net impairment losses recognized in earnings
159,010
Other operating expense
26,432
Change in fair value of mortgage servicing rights
39,451
Income (loss) before taxes
10,363
Income tax expense (benefit)
29,088
Net income (loss) before non-controlling interest
(6,355)
Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to BOK Financial Corp. $ 35,443
2008
$ 263,358
99,010
164,348
52,711
111,637
126,658
(841)
4,366
2,103
–
–
–
158,736
5,554
79,633
22,958
56,675
(10)
$ 56,685
$ 260,086
101,147
158,939
59,310
99,629
63,749
(1,149)
(2,961)
(5,242)
–
–
–
158,501
767
(5,242)
(2,862)
(2,380)
(1,219)
(1,161)
$
$ 276,041
128,913
147,128
17,571
129,557
113,857
4
2,113
9,926
(5,306)
–
(5,306)
151,642
1,762
96,747
34,450
62,297
32
$ 62,265
Earnings (loss) per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
0.53
0.52
$
$
0.84
0.84
$
$
(0.02)
(0.02)
$
$
0.92
0.92
67,294
67,456
67,263
67,432
67,452
67,452
67,202
67,504
29
Lines of Business
We operate three principal lines of business: commercial banking, consumer banking and wealth management.
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 and all mortgage banking activities. Wealth
management provides fiduciary services, brokerage and trading, private bank services and investment advisory services in
all markets. Wealth management also originates loans for high net worth clients.
In addition to our lines of business, we have a funds management unit. The primary purpose of this unit is to manage our
overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the funds
management unit as needed to support their operations. Operating results for funds management and other include the
effect of interest rate risk positions and risk management activities, securities gains and losses including impairment
charges, 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. Funds management and other also included the FDIC
special assessment charge in the second quarter of 2009. Regular FDIC insurance assessments are charged to the business
units.
We allocate resources and evaluate the performance of our 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 7, net income attributed to our lines of business decreased $46 million or 34% from the prior year.
Credit losses attributed to the business units decreased their pre-tax income by $35 million. In addition, less net interest
revenue was attributed to the lines of business and more net interest revenue was attributed to the funds management unit.
Total tax-equivalent net interest revenue recognized by the lines of business in 2009 decreased $45 million from 2008 and
tax-equivalent net interest revenue recognized by the funds management unit increased $108 million. Lower market
interest rates decreased the transfer pricing credit provided to business units that generate lower-costing funds for the
Company. This tends to shift revenue from units that provide funds. In addition, net interest revenue in the business units
was reduced by a decrease in average loan balances and increased in the funds management unit due to growth in the
securities portfolio.
Table 7 Net Income by Line of Business
(In Thousands)
Years ended December 31,
2008
2007
2009
Commercial banking
Consumer banking
Wealth management
Subtotal
Funds management and other
Total
$ 57,536
20,987
11,037
89,560
111,018
$ 200,578
$ 79,799
25,749
29,737
135,285
17,947
$ 153,232
$ 150,537
57,251
25,622
233,410
(15,746)
$ 217,664
30
Commercial Banking
Commercial banking contributed $58 million to consolidated net income for 2009, down from $80 million in 2008. The
decrease in commercial banking net income was largely due to a $25 million decrease in net interest revenue and a $19
million increase in net loans charged-off partially offset by a $27 million increase in other operating revenue. Other
operating revenue attributed to commercial banking was reduced by $41 million of net credit losses on a customer’s
derivatives position in 2008.
Table 8 Commercial Banking
(Dollars in Thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
2009
$ 345,375
(52,598)
Years ended December 31,
2008
451,624
(134,191)
$
$
Total net interest revenue
292,777
317,433
Other operating revenue
133,703
Operating expense
224,065
Net loans charged off
100,749
Gains on financial instruments, net
-
Gains (losses) on repossessed assets, net (7,500)
Income before taxes
94,166
Federal and state income tax
36,630
107,185
216,655
81,966
4,689
(82)
130,604
50,805
2007
526,225
(200,390)
325,835
131,081
201,876
9,747
1,075
10
246,378
95,841
Net income
$ 57,536 $
79,799
$
150,537
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 10,116,014
9,184,600
5,365,180
1,042,101
0.57%
5.52
52.54
1.10
$ 11,049,565
9,684,461
4,559,653
1,103,656
0.72%
7.23
51.02
0.85
$
9,646,637
8,795,426
4,146,378
1,095,314
1.56%
13.74
44.18
0.11
Net interest revenue decreased $25 million or 8% compared with 2008. The decreased internal transfer pricing credit
provided to the commercial banking unit on $5.4 billion of average deposits sold to the funds management unit reduced net
interest revenue by approximately $40 million. In addition, the average outstanding balance of loans attributed to
commercial banking decreased $500 million in 2009 on reduced customer demand and normal repayment trends, which
decreased net interest revenue by $12 million. This decrease in net interest revenue was partially offset by loan spreads
which improved 22 basis points, increasing net interest revenue by $21 million.
Other operating revenue excluding the previously noted credit losses on derivative contracts, decreased $15 million or 10%.
Derivative fees and commissions were down $10 million on lower transaction volumes due to lower commodity price
volatility in 2009 compared to 2008. Revenue from margin assets was down $8.0 million due to a decrease in margin
assets held as part of our customer derivative programs. Transaction card revenues were up $4.2 million over 2008.
Service charges on commercial deposit accounts were flat with the prior year. Operating expenses were up $7.4 million or
3% due primarily to increased FDIC insurance expense as a result of an increase in commercial deposit balances and the
regular assessment rate in addition to higher professional fees to collect problem assets.
The average outstanding balance of loans attributed to commercial banking was $9.2 billion compared to $9.7 billion for
2008. Average commercial banking division loans decreased $500 million or 5% compared to 2008. See Loans section
following for additional discussion of changes in commercial and commercial real estate loans which primarily attributed to
the commercial banking segment. Net commercial banking loans charged off increased $19 million in 2009 to $101
million or 1.10% of average loans attributed to this line of business. Net commercial banking loans charged off in 2008
totaled $82 million or 0.85% of average loans attributable to this line of business and included a $26 million energy loan
and an $11 million recovery on two loans charged off in 2001 and 2005. The increase in net loans charged off was
primarily due to increased losses on commercial real estate loans.
Average deposits attributed to commercial banking were $5.4 billion for 2008, up $806 million or 18% over 2008. Average
balances attributed to our commercial and industrial customers increased $574 million or 69%. Average balances attributed
to our small business customers increased $137 million or 8% and average deposit balances attributed to our energy
31
customers increased $32 million or 7%. Treasury services account balances increased $41 million or 3% and average
deposit balances of our commercial real estate customers increased $17 million or 8%.
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 197 consumer banking
locations, including branch banking locations and mortgage lending offices. Our consumer banking locations are primarily
distributed 85 in Oklahoma, 48 in Texas, 22 in New Mexico and 15 in Colorado.
Consumer banking contributed $21 million to consolidated net income in 2009, down from $26 million in 2008. The
decrease in consumer banking net income was largely due to a decrease in net interest revenue, partially offset by higher
mortgage revenues and expenses and changes in the fair value of mortgage servicing rights, net of economic hedge.
Table 9 Consumer Banking
(Dollars in Thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
$
Years ended December 31,
2008
$ 32,076
118,728
$
2009
57,893
73,565
Total net interest revenue
131,458
150,804
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
182,895
256,337
24,366
12,124
(13,198)
1,773
34,349
13,362
148,885
219,024
16,726
(34,515)
12,525
193
42,142
16,393
2007
(7,807)
163,028
155,221
144,585
193,600
9,233
(2,893)
(486)
107
93,701
36,450
Net income
$
20,987
$
25,749
$
57,251
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
$ 6,149,598
2,447,625
6,048,201
225,540
0.34%
9.31
81.54
1.00
197
7,366,780
2,828,260
$
$ 5,764,667
2,508,788
5,678,166
207,586
0.45%
12.40
73.08
0.67
195
5,983,824
1,018,246
5,509,485
2,270,859
5,442,666
180,393
1.04%
31.74
64.58
0.41
189
5,481,736
919,823
Net interest revenue from consumer banking activities decreased $19 million or 13% from 2008. Historically low short-
term interest rates decreased the internal transfer pricing credit provided to the consumer banking division for funds sold to
our funds management unit by $39 million. This decrease was partially offset by additional net interest revenue generated
by asset growth
Other operating revenue increased $34 million or 23% over 2008 primarily due to increased mortgage banking revenue.
Loan funding volumes were up due to government initiatives to lower national mortgage interest rates and stimulate
housing markets. Deposit service charges were down $2.2 million or 3% compared to the prior year and transaction card
revenues increased $1.2 million or 4% over 2008.
Operating expenses increased $37 million or 17% over 2008. Personnel expense increased $7.6 million or 11% due
primarily to branch expansion in Arizona, Colorado and Texas. Mortgage banking expenses increased $9.3 million due to
the effect of accelerated actual loan repayments on the value of our mortgage servicing rights. FDIC insurance premiums
increased $5.5 million primarily due to increased deposit balances and FDIC regular assessment rates. In addition, facilities
and other operating expenses increased due to branch expansion in Arizona, Colorado and Texas.
32
Our Consumer Banking division originates, markets and services conventional and government-sponsored mortgage loans
for all of our geographical markets. During 2009, we funded $3.0 billion of mortgage loans compared to $1.0 billion in
2008. Approximately 54% of our mortgage loans funded was in the Oklahoma market, 14% in the Texas market and 12%
in the Colorado market. Revenue from mortgage loan origination and marketing activities totaled $45 million in 2009 and
$13 million in 2008. As of December 31, 2009, we also service $7.4 billion of mortgage loans, including $828 million of
loans serviced for affiliates. Approximately 95% of the mortgage loans serviced was to borrowers in our primary
geographical market areas. Mortgage loan servicing revenue totaled $20 million in 2009 and $18 million in 2008.
Changes in fair value of our mortgage loan servicing rights, net of securities held as an economic hedge, reduced consumer
banking net income by $656 thousand in 2009 and reduced consumer banking net income by $14 million in 2008.
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, 2009, a 50 basis point increase in mortgage interest rates is expected to
decrease the fair value of our mortgage servicing rights, net of economic hedging by $3.6 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 $1.4 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 $370 million or 7% over 2008. Interest-bearing transaction accounts were up $199
million or 9% and time deposits were up $106 million or 4%. Average demand deposit accounts increased $57 million or
8%. Movement of funds among the various types of consumer deposits was largely based on interest rates and product
features offered.
Wealth Management
The Wealth Management division contributed $11 million to net income in 2009, compared to $30 million in 2008. The
decrease in net income was due primarily to increased operating expenses and net loans charged off.
Table 10 Wealth Management
(Dollars in Thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
$
Years ended December 31,
2008
$ 12,617
32,853
$
2009
25,899
18,746
Total net interest revenue
44,645
45,470
Other operating revenue
Operating expense
Net loans charged off
Gains (losses) on financial instruments, net
Income before taxes
Federal and state income tax
156,360
171,543
11,399
–
18,063
7,026
156,133
149,966
2,961
(7)
48,669
18,932
2007
8,562
37,627
46,189
130,681
133,436
1,513
13
41,934
16,312
Net income
$
11,037
$ 29,737
$
25,622
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs (annualized) to average loans
$ 3,032,007
1,059,342
2,958,549
194,731
$ 2,193,386
933,020
2,100,237
183,845
$
0.36%
5.67
85.34
1.08
1.36%
16.18
74.39
0.32
0.17
1,743,943
910,391
1,653,606
171,159
1.47%
14.97
75.44
Trust assets
$ 30,385,365
$ 30,454,512
$ 36,288,592
Net interest revenue decreased $825 thousand or 2%. Lower internal funds transfer credit provided for deposits sold to the
funds management unit decreased net interest revenue by $19 million. This was primarily offset by increased deposit
volume as well as increased loan volume and yields.
33
Other operating revenue increased $227 thousand from the prior year. Increased trading and brokerage revenue due to
higher level of securities transactions by our mortgage banking customers and increased investment banking were offset by
declines in trust fees and commissions due to fee waivers and decreases in the fair value of trust assets.
Operating expenses increased $22 million or 14% over 2008. Personnel expense was up $16 million or 16%, primarily due
to increased staffing and incentive compensation related to penetration in markets outside of Oklahoma. Non-personnel
operating expenses increased $5.8 million or 11% compared with 2008 primarily due to increased FDIC insurance
premiums as a results of an increase in the FDIC regular assessment rate and increased deposit balances.
Average loans by the wealth management division increased $126 million or 14% to $1.1 billion at December 31, 2009.
Net loans charged off in 2009 were $11 million compared to $3.0 million in 2008.
The Wealth Management division provided $3.0 billion of average deposits in 2009, an increase of $858 million or 41%
over $2.1 billion in average deposits in 2008. Wealth management deposits are largely sold to the funds management unit
and increased primarily due to an increase in time deposits and interest bearing transaction accounts. Interest-bearing
transaction accounts averaged $1.9 billion for 2009, an increase of $406 million or 28% over 2008. The growth in interest
bearing transaction account reflects continued movement of customer funds from money market products that were not on
the Company’s balance sheet to deposits as well as high net worth customer relationship growth. Average time deposits
were $828 million, up $439 million or 38% over last year. Time deposits grew during 2009 primarily due to product
offerings to institutional customers.
At December 31, 2009 and 2008, Wealth Management was responsible for trust assets with aggregate fair values of $30.4
billion and $30.5 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 $10.8 billion of trust assets
at December 31, 2009 compared to $11.5 billion at December 31, 2008. The fair value of non-managed assets totaled
$12.3 billion at December 31, 2009, down from $11.3 billion at December 31, 2008. The fair value of assets held in
safekeeping totaled $7.2 billion at December 31, 2009 and $7.7 billion at December 31, 2008.
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
include insignificant results of operations in locations outside our primary geographic regions.
Table 11 Net Income by Geographic Region
(In Thousands)
Years ended December 31,
2008
2007
2009
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
Subtotal
Funds management and other
Total
$ 85,774
17,011
6,142
10,636
(7,811)
(28,149)
6,433
90,036
110,542
$ 200,578
$ 70,516
42,526
14,657
9,389
7,617
(8,082)
537
137,160
16,072
$ 153,232
$ 141,812
53,806
18,728
4,775
13,783
4,092
(381)
236,615
(18,951)
$ 217,664
34
Oklahoma Market
Oklahoma is a significant market to the Company. Our Oklahoma offices are located primarily in the Tulsa and Oklahoma
City metropolitan areas. Approximately 51% of our average loans, 52% of our average deposits and 43% 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.
Table 12 Oklahoma
(Dollars in Thousands)
Net interest revenue
$
Years ended December 31,
2008
245,328
$
$
2009
235,581
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 (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
316,541
374,860
35,762
12,124
(13,198)
(42)
140,384
54,610
280,323
348,677
44,783
(34,515)
17,207
528
115,411
44,895
2007
260,840
294,569
310,038
11,146
(2,893)
602
164
232,098
90,286
Net income
$
85,774
$
70,516
$
141,812
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
8,841,130
6,088,634
7,888,821
728,567
0.97%
11.77
67.89
0.59
$
8,105,136
6,427,544
6,780,539
788,573
0.87%
8.94
66.33
0.70
$
7,356,038
6,331,536
5,999,478
826,533
1.93%
17.16
55.82
0.18
Net income generated in the Oklahoma market in 2009 increased $15 million or 22% over 2008.
Net interest revenue decreased $9.7 million or 4% from 2008 due to a $339 million decrease in average loans, offset by
improving interest spreads on loans. The benefit to net interest revenue from average deposit growth of $1.1 billion
compared to the prior year was offset by lower internal funds transfer credit provided for funds sold to the funds
management unit.
Other operating revenue, excluding $41 million of net credit losses on certain customer derivative contracts in 2008
decreased $5.1 million or 2% due primarily to lower derivative and related margin interest fees, lower trust fees due to fee
waivers and a decline in the fair value of trust assets. Increased mortgage banking revenue provided a partial offset.
Operating expense increased $26 million or 8% due primarily to higher personnel costs and mortgage banking costs. FDIC
insurance premiums were also higher as a result of an increase in the regular assessment rate and deposit balances.
Changes in the fair value of mortgage servicing rights, net of changes in the fair value of financial instruments designated
as an economic hedge, decreased pre-tax income by $1.1 million in 2009 and $24 million in 2008. Net gains on financial
instruments also included $6.8 million from the partial redemption of stock received from the Visa, Inc. initial public
offering in 2008.
Net loans charged-off totaled $36 million or 0.59% of average loans in 2009 and $45 million or 0.70% of average loans in
2008. Net loans charged-off in 2008, excluding $26 million from the SemGroup charge-off and two recoveries that are not
expected to recur, totaled $30 million or 0.47% of average loans. Net charge-offs increased in all loan categories.
35
Texas Market
Texas is our second largest market. Our Texas offices are located primarily in the Dallas, Fort Worth and Houston
metropolitan areas. Approximately 30% of our average loans, 24% of our average deposits and 8% of our consolidated net
income is attributed to the Texas market.
Table 13 Texas
(Dollars in Thousands)
Net interest revenue
2009
$ 134,651
Years ended December 31,
2008
153,278
$
$
Other operating revenue
Operating expense
Net loans charged off
Gains (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
51,219
134,341
23,607
(1,343)
26,579
9,568
45,348
115,754
16,544
119
66,447
23,921
2007
150,658
44,177
108,278
2,438
(47)
84,072
30,266
Net income
$ 17,011
$
42,526
$
53,806
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 4,168,652
3,607,661
3,701,415
536,416
0.41%
3.17
72.28
0.65
$ 3,911,535
3,625,751
3,222,986
536,239
1.09%
7.93
58.28
0.46
$ 3,473,968
3,037,589
2,959,111
511,888
1.55%
10.51
55.57
0.08
Net income in the Texas market decreased by $26 million compared to 2008 primarily due to decreased net interest revenue
and increased operating expenses.
Net interest revenue decreased $19 million or 12% compared to 2008. Average outstanding loans decreased $18 million or
less than 1% compared to 2008. Average deposits increased $478 million or 15%. The benefit of an increase in average
deposits was offset by the decrease in average loans and reduced benefit from funds sold to the funds management unit.
Other operating revenue increased $5.9 million or 13% compared to 2008 primarily related to increased mortgage banking
revenue, transaction card revenue and deposit service charges, partially offset by a decrease in brokerage and trading
revenue. Operating expenses increased $19 million or 16% over last year primarily related to higher personnel costs and
FDIC insurance premiums as a result of an increase in the FDIC regular assessment rate and deposit balances.
Net loans charged-off totaled $24 million or 0.65% of average loans in 2009 and $17 million or 0.46% of average loans in
2008.
Other Markets
Net income attributed to our New Mexico market totaled $6.1 million or 3% of consolidated net income for 2009, down
from $15 million in 2008. The decrease in net income attributed to New Mexico resulted from a decrease in net interest
revenue, an increase in net loans charged off and an increase in operating expenses in 2009 compared to 2008. Net interest
revenue decreased due to the lower internal funds transfer credit provided for funds sold to the funds management unit and
decreased loan balances. Higher operating expenses were primarily related to increased FDIC insurance expense due to
increased deposit balances and regular assessment rates. Average deposits increased $111 million over 2008. Net loans
charged off in 2009 totaled $7.1 million or 0.88% of average loans.
Net income in the Arkansas market increased to $10.6 million in 2009 from $9.4 million in 2008 due primarily to growth in
securities trading revenue at our Little Rock office, offset by higher personnel costs. Average deposits in our Arkansas
market were up $82 million or 112% over the prior year primarily related to commercial banking deposits. Consumer and
wealth management deposits also increased over 2008.
We incurred a net loss of $7.8 million in the Colorado market compared to net income of $7.6 million in 2008. The
decrease in net income was primarily related to increased net loans charged off and higher FDIC insurance premiums. Net
loans charged-off totaled $25 million or 2.75% of average loans in 2009 and $8.1 million or 0.95% of average loans in
36
2008. Net loans charged off included $12 million of commercial real estate loans and $5.7 million of service sector
commercial loans. Average loans increased $49 million compared to the prior year and average deposits increased $79
million. At December 31, 2009, nonperforming loans in the Colorado market totaled $60 million or 6.91% of total loans
consisting primarily of nonaccruing residential construction and land development loans.
The Arizona market experienced a net loss of $28 million in 2009 and $8.1 million in 2008. These losses were largely due
to an increase in net loans charged-off and decreased net interest revenue. In addition, operating expenses were up due to
increased losses on repossessed assets. Net loans charged-off totaled $40 million or 7.04% of average loans in 2009 and
$18 million or 3.07% of average loans in 2008. Average loans declined $25 million compared to the prior year due
primarily to decreases in commercial real estate loans. Average deposits grew by $56 million. At December 31, 2009,
nonperforming loans in the Arizona market totaled $85 million or 17.09% of total loans consisting primarily of nonaccruing
residential construction and land development loans.
Consistent with plans when we first acquired Valley Commerce Bank in Phoenix in 2005, our objective is to focus on
growth in commercial and small business lending in the Arizona market. We have expanded our commercial lending staff
in this market and opened three new banking locations in 2009. We have significantly scaled-back commercial real estate
lending activities which were not contemplated in our initial expansion into this market. During 2009, we exited the
Tucson market which we first entered in 2006. Assets attributed to the Arizona market include $16 million of goodwill that
may be impaired in future periods if these growth plans are unsuccessful.
The Kansas/Missouri market experienced net income growth of $5.9 million primarily due to a $6.2 million decrease in net
loans charged off and a $6.4 million increase in other operating revenue, offset by a $3.2 million increase in operating
expenses. Brokerage and trading revenue grew $5.7 million over last year. Personnel costs related to this revenue growth
were up $1.3 million. Total average deposits increased $121 million over 2008 and average loans decreased $38 million
compared to the prior year.
Table 14 New Mexico
(Dollars in Thousands)
Net interest revenue
2009
$ 32,775
Years ended December 31,
2008
39,673
$
$
Other operating revenue
Operating expense
Net loans charged off
Gains (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
23,959
38,632
7,125
(925)
10,052
3,910
23,788
35,753
3,715
(5)
23,988
9,331
2007
45,583
24,127
35,412
3,646
–
30,652
11,924
Net income
$
6,142
$
14,657
$
18,728
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 1,248,607
810,867
1,146,942
97,655
$ 1,141,031
841,353
1,036,209
110,333
$
0.49%
6.29
68.09
0.88
1.28%
13.28
56.34
0.44
1,187,667
817,118
1,082,883
114,498
1.58%
16.36
50.80
0.45
37
Table 15 Arkansas
(Dollars in Thousands)
Net interest revenue
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income before taxes
Federal and state income tax
2009
$ 11,751
Years ended December 31,
2008
11,784
$
$
37,119
27,378
3,665
(419)
17,408
6,772
29,104
22,027
3,253
(242)
15,366
5,977
2007
10,075
17,214
18,237
1,238
–
7,814
3,039
Net income
$ 10,636
$
9,389
$
4,775
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 425,071
409,339
155,981
32,584
2.50%
32.64
56.02
0.90
$
446,101
434,339
73,605
30,290
2.10%
31.00
53.87
0.75
$
367,731
358,387
68,659
27,185
1.30%
17.56
66.83
0.35
Table 16 Colorado
(Dollars in Thousands)
Net interest revenue
2009
$ 34,966
Years ended December 31,
2008
37,009
$
$
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income (loss) before taxes
Federal and state income tax (benefit)
18,237
40,032
25,000
(955)
(12,784)
(4,973)
16,600
32,997
8,145
–
12,467
4,850
2007
36,544
16,276
29,985
276
–
22,559
8,776
Net income (loss)
$ (7,811)
$
7,617
$
13,783
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 1,217,498
908,949
1,137,893
135,101
(0.64)%
(5.78)
75.24
2.75
$ 1,138,363
859,490
1,058,816
126,337
0.67%
6.03
61.55
0.95
$ 1,076,661
738,503
992,844
109,407
1.28%
12.60
56.77
0.04
38
Table 17 Arizona
(Dollars in Thousands)
Net interest revenue
2009
$ 11,174
Years ended December 31,
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)
3,384
18,851
39,733
(2,044)
(46,070)
(17,921)
1,300
14,740
18,109
(287)
(13,228)
(5,146)
2007
19,292
2,294
13,301
1,588
–
6,697
2,605
Net income (loss)
$ (28,149)
$
(8,082)
$
4,092
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
631,680
564,730
182,209
82,997
$
612,785
589,363
126,313
78,425
(4.46)%
(33.92)
129.49
7.04
(1.32)%
(10.31)
74.04
3.07
$
539,251
519,209
122,617
46,685
0.76%
8.77
61.62
0.31
Table 18 Kansas/Missouri
(Dollars in Thousands)
Years ended December 31,
2008
2007
2009
Net interest revenue
$ 7,927
$
7,692
$
4,151
Other operating revenue
Operating expense
Net loans charged off
Income (loss) before taxes
Federal and state income tax (benefit)
19,876
16,358
917
10,528
4,095
13,456
13,165
7,103
880
343
6,533
11,144
163
(623)
(242)
Net income (loss)
$ 6,433
$
537
$
(381)
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$ 310,648
299,861
158,665
23,145
2.07%
27.79
58.84
0.31
$
$
341,383
338,047
37,964
23,970
0.16%
179,992
178,161
16,936
13,790
(0.21)%
2.24
62.25
2.10
(2.76)
104.31
0.09
39
Assessment of Financial Condition
Securities
Investment securities, which consist primarily of Oklahoma municipal bonds, are carried at cost and adjusted for
amortization of premiums or accretion of discounts. At December 31, 2009, investment securities were carried at $240
million and had a fair value of $247 million.
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 $8.9 billion at December 31, 2009, up $2.1 billion compared with December 31, 2008.
In this period of declining loan demand and readily-available liquidity, we increased our available for sale portfolio to
supplement earnings by recognizing attractive spreads over funding costs on these securities. Credit risk is controlled by
investing in securities fully backed by U.S. government agencies and interest rate risk is mitigated by investing in short-
duration securities that would have limited extension exposure from rising interest rates. At December 31, 2009, residential
mortgage-backed securities represented 97% of total available for sale securities. We hold no debt securities of corporate
issuers or mortgage-backed securities holding pools of commercial real estate loans. A summary of our securities follows
in Table 19. Additional details regarding securities concentrations appears in Note 2 to the Consolidated Financial
Statements.
Table 19 Securities
(Dollars in Thousands)
2009
December 31,
2008
2007
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Investment:
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
Private issue
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:
Mortgage-backed U.S. agency securities
$ 232,568
7,837
240,405
$
$
6,998
61,268
$
$
$
7,645,817
961,378
8,607,195
17,174
32,526
78,999
19,224
238,847
7,857
246,704
$ 235,791
6,553
242,344
$
7,020
62,201
$
6,987
19,537
7,809,328
792,362
8,601,690
17,147
32,526
78,999
22,275
4,900,895
1,636,934
6,537,829
37
32,380
61,760
32,472
$
$
$
239,178
6,591
245,769
$ 242,274
5,675
247,949
$
7,126
20,163
$
6,961
26,478
4,972,928
1,241,238
6,214,166
36
32,380
61,760
21,701
3,838,219
1,664,537
5,502,756
42
31,299
57,265
32,778
$
$
$
243,061
5,727
248,788
7,088
26,578
3,817,939
1,641,189
5,459,128
41
31,299
57,265
32,778
35,414
$ 8,858,798
50,165
$ 8,872,023
31,421
$ 6,722,423
34,119
$ 6,391,451
30,347
$ 5,687,926
36,363
$ 5,650,540
$
288,076
$
285,950
$
386,571
$
399,211
$
153,920
$
154,701
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 2.3 years at December 31, 2009. Management estimates that the expected duration would
extend to approximately 3.4 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 either fully or partially guaranteed. At December 31, 2009, approximately $7.6 billion of the
amortized cost of the Company’s residential mortgage-backed securities were issued by U.S. government agencies. The
fair value of these mortgage-backed securities totaled $7.8 billion at December 31, 2009.
We also hold amortized cost of $961 million in residential mortgage-backed securities privately issued by publicly-owned
financial institutions. The fair value of our portfolio of privately issued residential mortgage-backed securities totaled $792
million at December 31, 2009. Approximately $589 million of these privately issued mortgage-backed securities were
rated below investment grade at December 31, 2009. The unrealized loss on the below investment grade securities totaled
40
$129 million. The amortized cost of our privately issued residential mortgage-backed securities decreased $676 million
during 2009 due primarily to cash received. The unrealized loss on these securities decreased $227 million in 2009.
Our portfolio of privately issued residential mortgage-backed securities consists primarily of amortized cost of $699 million
of Jumbo-A mortgage loans and $262 million of Alt-A mortgage loans. Jumbo-A mortgage loans generally meet
government agency underwriting standards, but have loan balances that exceed agency maximums. Alt-A mortgage loans
generally do not have sufficient documentation to meet government agency underwriting standards. Credit risk on
residential 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 89% of the Alt-A residential mortgage-backed securities are
credit enhanced with additional collateral support and 100% of our Alt-A residential mortgage-backed securities originated
in 2007 and 2006 have additional collateral support. Approximately 84% of our Alt-A residential mortgage-backed
securities represented pools of fixed-rate mortgage loans. None of the adjustable rate mortgages are payment option
ARMs. Approximately 28% of our Jumbo-A residential mortgage-backed securities represents pools of fixed rate
mortgage loans and none of the adjustable rate mortgages are payment option ARMs.
Our portfolio of available for sale securities also included preferred stocks issued by six financial institutions. These
preferred stocks have certain debt-like features such as a quarterly dividend based on LIBOR. However, the issuers of
these stocks have no obligation to redeem them. At December 31, 2009, these stocks have an aggregate carrying value of
$19 million and an aggregate fair value of $22 million.
The aggregate gross amount of unrealized losses on available for sale securities totaled $191 million at December 31, 2009.
On a quarterly basis, we perform separate evaluations on debt and equity securities to determine if the unrealized losses are
temporary as more fully described in Note 2 of the consolidated financial statements. Other-than-temporary impairment
charges of $34 million were recognized in earnings in 2009 including credit losses of $25 million on certain privately
issued residential mortgage-backed securities we do not intend to sell, $8.0 million on perpetual preferred stocks with
carrying values we do not expect to fully recover, and $1.3 million on certain residential mortgage-backed securities we
intend to sell.
Certain government agency issued residential 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.
We also maintain a separate trading portfolio acquired with the intent to sell at a profit to the Company that are also carried
at fair value with changes in fair value recognized in current period income.
Bank-Owned Life Insurance
We have approximately $247 million invested in bank-owned life insurance at December 31, 2009. These investments are
expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $229
million is held in separate accounts. Our separate account holdings are invested in diversified portfolios of investment-
grade fixed income securities and cash equivalents, including U.S. Treasury and Agency securities, residential mortgage-
backed securities, corporate debt, asset-backed and commercial mortgage-backed 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, 2009, cash surrender value represented by the underlying fair value of
investments held in separate accounts was approximately $223 million. As the underlying fair value of the investments
held in a separate account at December 31, 2009 exceeded the net book value of the investments, no cash surrender value
was supported by the stable value wrap. The stable value wrap is provided by a highly-rated, domestic financial institution.
The remaining cash surrender value of $18 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 $11.3 billion at December 31, 2009, a $1.6 billion or
12% decrease since December 31, 2008.
41
Table 20 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
2009
2008
2007
2006
2005
December 31,
$1,911,994
1,807,824
921,830
404,061
792,538
160,549
209,044
6,207,840
$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
645,295
423,260
463,316
360,436
146,707
452,420
2,491,434
926,226
371,228
459,357
316,596
149,367
478,474
2,701,248
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
1,303,340
490,282
1,793,622
1,273,275
479,299
1,752,574
1,092,382
442,223
1,534,605
867,748
388,511
1,256,259
807,509
361,822
1,169,331
454,508
332,294
786,802
692,615
317,966
1,010,581
625,203
296,094
921,297
465,622
273,873
739,495
358,144
271,000
629,144
$11,279,698
$12,876,006
$11,940,570
$10,651,178
$9,088,312
The decline in outstanding loan balances was broadly distributed among the various segments of the portfolio and across
geographic markets. Generally, the decline in outstanding loan balances was due to reduced customer demand in response
to current economic conditions, normal repayment trends and management decisions to mitigate credit risk by exiting
certain loan types. A breakdown by geographical market follows on Table 21.
42
Table 21 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/Missouri:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Kansas/Missouri
Total BOK Financial loans
Commercial
2009
2008
2007
2006
2005
December 31,
$ 2,649,252
820,578
1,228,822
451,829
$ 5,150,481
$ 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
$ 2,017,081
735,338
313,113
170,062
$ 3,235,594
$ 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
$ 341,802
305,061
86,415
17,473
$ 750,751
$ 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
$ 103,443
132,436
16,849
124,265
$ 376,993
$ 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
$ 545,724
239,970
66,504
17,362
$ 869,560
$ 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
$ 199,143
227,249
65,047
3,461
$ 494,900
$ 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
$ 351,395
30,802
16,872
2,350
$ 401,419
$11,279,698
$ 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
Commercial loans represent loans for working capital, facilities acquisition or expansion, purchases of equipment and other
needs of commercial customers primarily located within our geographical footprint. Commercial loans are underwritten
individually and represent on-going relationships based on a thorough knowledge of the customer, the customer’s industry
and market. While commercial loans are generally secured by the customer’s assets including real property, inventory,
accounts receivable, operating equipment, interests in mineral rights and other property and may also include personal
guarantees of the owners and related parties, the primary source of repayment of the loans is the on-going cash flow from
operations of the customer’s business. Inherent lending risks are centrally monitored on a continuous basis from
underwriting throughout the life of the loan for compliance with commercial lending policies.
The commercial loan portfolio decreased $1.2 billion during 2009 to $6.2 billion at December 31, 2009. The change in
outstanding commercial loans was primarily related to a $400 million decrease in energy sector loans, a $243 million
decrease in wholesale/retail sector loans, $231 million decrease in service sectors loans and a $214 million decrease in
other commercial and industrial loans. Commercial loan origination activity has slowed to less than amounts necessary to
offset normal repayment trends in the portfolio. In general, loan demand has softened due to lower working capital needs
43
and less capital project spending by our customers. The commercial sector of our loan portfolio is distributed as follows in
Table 22.
Table 22 Commercial Loans by Principal Market Area
(In Thousands)
Oklahoma
Texas
New
Mexico
Arkansas
Colorado
Arizona
Kansas/
Missouri
Total
$ 894,001
516,548
471,303
202,677
445,993
27,093
$ 725,468
627,778
256,967
131,111
231,148
4,892
$ 1,554
203,552
45,880
42,831
27,467
124
$ 3,052
26,542
55,303
1,522
16,096
284
$ 274,854
175,967
24,121
15,528
46,943
223
$ 905
128,275
35,986
6,180
24,085
–
$ 12,160
129,162
32,270
4,212
806
127,933
$ 1,911,994
1,807,824
921,830
404,061
792,538
160,549
91,637
39,717
20,394
644
8,088
3,712
44,852
209,044
$ 2,649,252
$ 2,017,081
$ 341,802
$103,443
$ 545,724
$ 199,143
$ 351,395
$ 6,207,840
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Agriculture
Other commercial
and industrial
Total commercial
loans
Loans to energy producers and borrowers related to the energy industry are the largest portion of our commercial loan
portfolio. In addition, energy production and related industries have a significant impact on the economy in our primary
markets. We have always been an energy lender. Loans collateralized by oil and gas properties are subject to a semi-
annual engineering review by our internal staff of petroleum engineers. This review is utilized as the basis for developing
the expected cash flows supporting the loan amount. The projected cash flows are discounted according to risk
characteristics of the underlying oil and gas properties. Loans are evaluated to demonstrate with reasonable certainty that
crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic
and operating conditions at current pricing levels and with existing conventional equipment and operating methods and
costs. As part of our evaluation of credit quality, we analyze rigorous stress tests over a range of commodity prices and
take proactive steps to mitigate risk when appropriate.
Energy loans totaled $1.9 billion or 17% of total loans. Outstanding energy loans decreased $400 million during 2009
primarily due to lower customer loan demand as a result of low commodity prices which has led to curtailed exploration
and production of oil and gas reserves and reduced borrowing capacity based upon collateral values. Approximately $1.5
billion of energy loans was to oil and gas producers, down from $2.0 billion at December 31, 2008. Approximately 52% of
the committed production loans are secured by properties primarily producing natural gas and 48% are secured by
properties primarily producing oil. The energy category also included $74 million of loans to borrowers that provide
services to the energy industry, $224 million of loans to borrowers engaged in wholesale or retail energy sales and $26
million of loans to borrowers that manufacture equipment for the energy industry.
The services sector of the loan portfolio totaled $1.8 billion or 16% of total loans and consists of a large number of loans to
a variety of businesses, including communications, gaming and transportation services. Approximately $1.0 billion of the
services category is made up of loans with individual balances of less than $10 million. Service sector loans are generally
secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s
business. Loans in this sector may also be secured by personal guarantees of the owners or related parties. Outstanding
loans to the service sector of the loan portfolio decreased $231 million during 2009 due to reduced loan demand as a result
of general economic conditions.
We participate 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, 2009, the outstanding principal balance of these loans totaled
$1.6 billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender
in approximately 20% of our shared national credits, based on dollars committed. We hold shared national credits to the
same standard of analysis and perform the same level of review as internally originated credits. Our lending policies
generally avoid loans in which we do not have the opportunity to maintain or achieve other business relationships with the
customer. In addition to management’s quarterly assessment of credit risk, grading of shared national credits is provided
annually by banking regulators. Risk grading provided by the regulators in the third quarter of 2009 did not differ
significantly from management’s assessment.
Commercial Real Estate
Commercial real estate represents loans for the construction of buildings or other improvements to real estate and property
held by borrowers for investment purposes within our geographical footprint. We require collateral values in excess of the
loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project
44
and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all
significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest
rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a
continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.
Commercial real estate loans totaled $2.5 billion or 22% of the loan portfolio at December 31, 2009. 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 $210 million from the previous year. The commercial real estate sector
of our loan portfolio is distributed as follows in Table 23.
Table 23 Commercial Real Estate Loans by Principal Market Area
(In Thousands)
Oklahoma
Texas
New
Mexico
Arkansas
Colorado
Arizona
Kansas/
Missouri
Total
Construction and
land development $ 182,742
148,705
Retail
$ 161,989
117,992
$ 73,895
59,371
$ 17,127
19,326
$ 133,291
9,914
$ 70,002
54,270
$ 6,249
13,682
$ 645,295
423,260
Office
Multifamily
Industrial
Other real estate
loans
Total commercial
real estate loans
114,749
120,301
70,200
151,804
141,957
39,044
77,908
20,585
22,004
16,812
56,189
688
62,641
4,869
1,064
38,841
9,935
13,620
561
6,600
87
463,316
360,436
146,707
183,881
122,552
51,298
22,294
28,191
40,581
3,623
452,420
$ 820,578
$ 735,338
$ 305,061
$ 132,436
$ 239,970
$ 227,249 $ 30,802
$ 2,491,434
Construction and land development loans, which consist primarily of residential construction properties and developed
building lots, decreased $281 million during the year to $645 million at December 31, 2009 due to payments, transfers to
other real estate owned and charge-offs. This sector of the loan portfolio is expected to continue to decrease as construction
projects currently in process are completed. This decrease was partially offset by a $52 million increase in loans secured by
retail facilities and a $44 million increase in loans secured by multifamily residential properties.
Residential Mortgage and Consumer
Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow
against the equity in their home. Residential mortgage loans are secured by a first or second-mortgage on the customer’s
primary residence. Consumer loans include direct loans secured by and for the purchase of automobiles, recreational and
marine equipment as well as other unsecured loans. Consumer loans also include indirect automobile loans made through
primary dealers. Residential mortgage and consumer loans are made in accordance with underwriting policies we believe
to be conservative and are fully documented. Credit scoring is assessed based on significant credit characteristics including
credit history, residential and employment stability.
Residential mortgage loans totaled $1.8 billion, up $41 million or 2% since December 31, 2008. Permanent 1-4 family
mortgage loans increased $30 million and home equity loans increased $11 million. In general, we sell the majority of our
conforming fixed-rate loan originations in the secondary market and retain the majority of our non-conforming and
adjustable-rate mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our mortgage loan
portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates
that are below market.
The permanent mortgage loan portfolio is primarily composed of various mortgage programs to support customer
relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth
individuals or certain professionals. The aggregate outstanding balance of loans in these programs at December 31, 2009 is
$1.3 billion. Jumbo loans may be fixed or variable rate and are fully amortizing. Jumbo loans generally conform to
government sponsored entity standards, with exception that the loan size exceeds maximums required under these
standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of
38%. Loan-to-value ratios (“LTV”) are tiered from 60% to 100%, depending on the market. Special mortgage programs
include fixed and variable rate fully amortizing loans tailored to the needs of certain health-care professionals. Variable
rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.
The maximum loan amount of any of our residential mortgage loan products is $4 million.
Approximately $110 million or 8% of permanent mortgage loans at December 31, 2009 consist of first lien, fixed rate
residential mortgage loans originated under various community development programs. These loans were underwritten to
standards approved by various U.S. government agencies under these programs and include full documentation. However,
45
these loans do have a higher risk of delinquency and losses given default than traditional residential mortgage loans. The
initial maximum LTV of loans in these programs was 103%.
The composition of residential mortgage and consumer loans at December 31, 2009 is as follows in Table 24.
Table 24 Residential Mortgage and Consumer Loans by Principal Market Area
(In Thousands)
Oklahoma
Texas
New Mexico Arkansas Colorado Arizona
Kansas/
Missouri
Total
$ 927,316
$ 227,276
$ 20,317
$ 12,206
$ 47,725
$ 55,612
$ 12,888
$ 1,303,340
301,506
85,837
66,098
4,643
18,779
9,435
3,984
490,282
$ 1,228,822
$ 313,113
$ 86,415
$ 16,849
$ 66,504
$ 65,047
$ 16,872
$ 1,793,622
Residential mortgage:
Permanent mortgage
Home equity
Total residential
mortgage
Consumer:
Indirect automobile
$ 273,728
$ 62,367
$ – $ 118,413
$ –
$ –
$ –
$ 454,508
Other consumer
178,101
107,695
17,473
5,852
17,362
3,461
2,350
332,294
Total consumer
$ 451,829
$ 170,062
$ 17,473
$ 124,265
$ 17,362
$ 3,461
$ 2,350
$ 786,802
Indirect automobile loans decreased $238 million since December 31, 2008, primarily due to the previously-disclosed
decision by the Company to exit the business in the first quarter of 2009 in favor of a customer-focused direct lending
approach.
Table 25 Loan Maturity and Interest Rate Sensitivity at December 31, 2009
(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
$ 6,207,840
2,491,434
$ 8,699,274
$ 3,770,541
4,928,733
$ 8,699,274
Loan Commitments
Remaining Maturities of Selected Loans
Within 1 Year
1-5 Years
After 5 Years
$ 1,913,696 $ 3,369,187
1,131,022
$ 924,957
293,768
$ 4,500,209 $ 1,218,725
1,066,644
$ 2,980,340
$ 633,971 $ 2,401,217 $ 735,353
483,372
$ 2,980,340 $ 4,500,209 $ 1,218,725
2,346,369
2,098,992
We enter 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 $588 million at December 31, 2009.
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 $3.7 million of the outstanding standby letters of credit were issued on behalf of customers whose loans are
nonperforming at December 31, 2009.
Table 26 Off-Balance Sheet Credit Commitments
(In Thousands)
2009
2008
2007
2006
2005
As of December 31,
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
$ 5,001,338
588,091
330,963
$ 5,015,660
598,618
391,188
$ 5,345,736 $ 5,318,257 $ 4,349,114
558,907
248,150
555,758
392,534
527,627
329,713
We also have 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
46
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, 2009, the principal
balance of loans sold subject to recourse obligations totaled $331 million.
Substantially all of these loans are to borrowers in our primary markets including $233 million to borrowers in Oklahoma,
$36 million to borrowers in Arkansas, $19 million to borrowers in New Mexico, $16 million to borrowers in the
Kansas/Missouri area and $15 million to borrowers in Texas. The separate reserve for this off-balance commitment totaled
$14 million at December 31, 2009. Approximately 5.22% of the loans sold with recourse with an outstanding principal
balance of $17 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 5.55% with an
outstanding principal balance of $18 million were past due 30 to 89 days. The provision for loan losses on loans sold with
recourse, which is included in mortgage banking costs, was $12 million for 2009 and $8.6 million for 2008. Net losses
charged against the reserve totaled $7.2 million for 2009 and $3.4 million for 2008.
Customer Derivative Programs
We offer programs that permit our 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 the Company.
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 our 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 the
Company 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, 2009, the net fair values of derivative contracts reported as
assets under these programs totaled $355 million, down from $656 million at December 31, 2008 primarily due to cash
settlements and reduced transactions volumes. At December 31, 2009, derivative contracts carried as assets included
energy contracts with fair values of $174 million, interest rate contracts with fair values of $110 million and foreign
exchange contracts with fair values of $64 million. The aggregate net fair values of derivative contracts held under these
programs reported as liabilities totaled $363 million.
At December 31, 2009, total derivative assets were reduced by $13 million of cash collateral received from counterparties
and total derivative liabilities were reduced by $55 million of cash collateral delivered to counterparties related to
instruments executed with the same counterparty under a master netting agreement as permitted by generally accepted
accounting principles.
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, 2009 is included in Table 27.
47
Table 27 Fair Value of Derivative Contracts by Category of Debtor
(In Thousands)
Customers
Energy companies
Banks
Exchanges
Other
Fair value of customer hedge asset derivative contracts, net
$ 152,698
87,562
65,721
34,018
2,219
$ 342,218
At December 31, 2009, the largest net reported amount due from a single counterparty, a domestic subsidiary of a major
energy company, was $84 million. This amount was offset by $70 million in letters of credit issued by multiple
independent financial institutions.
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 $22 per barrel of oil would increase the fair value of derivative assets by $437
million. An increase in prices equivalent to $122 per barrel of oil would decrease the fair value of derivative assets by $253
million as current prices move closer to the fixed prices embedded in our existing contracts. Further increases in prices
equivalent to $142 per barrel of oil would increase the fair value of our derivative assets by $417 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 $204 million.
Summary of Loan Loss Experience
We maintain 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 $306 million or 2.72% of outstanding loans and 90% of nonaccruing loans
at December 31, 2009. At December 31, 2008, the combined allowance for loan and off-balance sheet credit losses totaled
$248 million or 1.93% of outstanding loans and 83% of nonaccruing loans at December 31, 2008. The reserve for loan
losses totaled $292 million or 2.59% of outstanding loans at December 31, 2009 and $233 million or 1.81% of outstanding
loans at December 31, 2008. The reserve for off-balance sheet credit commitments was $14 million at December 31, 2009
and $15 million at December 31, 2008. The decrease in the reserve for off-balance sheet credit commitments is due largely
to changes in risk factors and the funding of existing commitments.
48
Table 28 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
2009
Years ended December 31,
2007
2008
2006
2005
$233,236
$126,677
$109,497
$103,876
$108,618
49,725
57,313
16,672
24,789
148,499
2,546
461
929
6,744
10,680
137,819
196,678
–
$292,095
74,976
19,141
7,223
20,871
122,211
13,379
332
366
6,413
20,490
101,721
208,280
–
$233,236
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
$15,166
(778)
–
$14,388
$195,900
$20,853
(5,687)
–
$15,166
$202,593
$20,890
(37)
–
$20,853
$20,574
316
–
$20,890
$34,721 $18,402 $12,441
$18,502
2,040
32
$20,574
2.59%
1.14
1.61
7.19
2.12x
0.26%
2.72%
1.81%
0.81
1.62
16.77
2.29x
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
0.27%
0.35%
0.36%
0.42%
1.93%
1.24%
1.22%
1.37%
$ 10,308
339,355
15,906
$365,569
$ 17,015
$ 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
1
2
Interest collected and recognized on nonaccrual loans was not significant in 2009 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.
Allowance for Loan Losses
The adequacy of the allowance for loan losses is assessed by management based on an ongoing quarterly evaluation of the
probable estimated losses inherent in the portfolio. The allowance consists of specific reserves attributed to impaired loans,
general reserves based on migration factors and non-specific reserves based on general economic, risk concentration and
related factors. An independent Credit Administration department is responsible for performing this evaluation for the
entire company to ensure that the methodology is applied consistently. For 2009, there have been no material changes in
the approach or techniques utilized in developing the allowance for loan losses.
Specific reserves for impaired loans are determined by evaluation of estimated future cash flows, collateral value or
historical statistics. Loans are considered to be impaired when it is probable that we will not be able 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. Generally, all nonaccruing commercial and commercial real estate loans are
considered impaired. Substantially all impaired loans are collateralized. Collateral includes real property, inventory,
accounts receivable, operating equipment, interests in mineral rights, and other property. Collateral may also include
personal guaranties by borrowers and related parties.
49
Delinquency status is not a significant consideration in the evaluation of impairment or risk-grading of commercial or
commercial real estate loans. These evaluations are based on an assessment of the borrowers’ paying capacity and attempt
to identify changes in credit risk before payments become delinquent. Changes in the delinquency trends of residential
mortgage loans and consumer loans may indicate increases or decreases in expected losses.
Impaired loans are charged-off when the loan balance or a portion of the loan balance is no longer supported by the paying
capacity of the borrower based on an evaluation of available cash resources or collateral value. No reserves are attributed
to the remaining balance of loans that have been charged-down to amounts management expects to recover. Impaired loans
totaled $317 million at December 31, 2009 and $270 million at December 31, 2008. At December 31, 2009, $204 million
of impaired loans had specific reserves of $36 million and $113 million of impaired loans had no specific reserves because
they had been charged down to amounts we expect to recover. Impaired loans with no specific reserves had aggregate
gross outstanding principal balances of $230 million. Cumulative life-to-date charge-offs of impaired loans with no
specific reserves at December 31, 2009 totaled $117 million, including $85 million charged off in 2009. At December 31,
2008, $194 million of impaired loans had $29 million of specific reserves and $76 million had no specific reserves because
they had been charged down to amounts we expect to recover.
General reserves for unimpaired loans are based on migration models. Separate migration models are used to determine
general reserves for commercial and commercial real estate loans, residential mortgage loans, and consumer loans. All
commercial and commercial real estate loans are risk-graded based on an evaluation of the borrowers’ ability to repay the
loans. Migration factors are determined for each risk-grade to determine the inherent loss based on historical trends. We
use an eight-quarter aggregate accumulation of net losses as a basis for the migration factors. Greater emphasis is placed
on losses incurred in more recent periods. The higher of current loss factors based on migration trends or a minimum
migration factor based upon long-term history is assigned to each risk grade. The general reserve for residential mortgage
loans is based on an eight-quarter average percent of loss. The general reserve for consumer loans is based on an eight-
quarter average percent of loss with separate migration factors determined by major product line, such as indirect
automobile loans and direct consumer loans. The aggregate amount of general reserves determined by migration factors for
all unimpaired loans totaled $238 million at December 31, 2009 and $182 million at December 31, 2008.
Nonspecific reserves are maintained for risks beyond factors specific to a particular loan or identified by the migration
models. These factors include trends in the economy in our primary lending areas, conditions in certain industries where
we have a concentration and overall growth in the loan portfolio. Evaluation of nonspecific factors considers the effect of
the duration of the business cycle on migration factors. Nonspecific factors also consider current economic conditions and
other relevant factors. Nonspecific reserves totaled $18 million at December 31, 2009 and $23 million at December 31,
2008.
An allocation of the loan loss reserve by loan category follows in Table 29.
Table 29 Loan Loss Reserve Allocation
(Dollars in Thousands)
2009
2008
December 31,
2007
2006
2005
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
$ 121,320
55.04% $ 100,743
57.56% $ 49,961
56.07% $ 44,151
58.29% $ 43,915
58.32%
104,208
27,863
20,452
22.09
15.90
6.97
75,555
14,017
19,819
20.98
13.61
7.85
40,807
6,156
9,962
22.89
13.38
7.66
30,838
4,663
11,784
22.97
11.80
6.94
25,529
5,302
10,929
21.89
12.87
6.92
18,252
–
23,102
–
19,791
–
18,061
–
18,201
–
$ 292,095 100.00% $ 233,236 100.00% $ 126,677 100.00% $ 109,497 100.00% $ 103,876 100.00%
1 Excludes residential mortgage loans held for sale.
2 Specific allocation for the loan concentration risks is included in the appropriate category.
The provision for loan losses is the amount necessary to maintain the allowance for loan losses at an amount determined by
management to be adequate based on its evaluation. The provision for loan losses totaled $197 million for 2009 compared
to $208 million for 2008. Factors considered in determining the provision for credit losses for 2009 included trends of net
charge-offs, nonperforming loans and risk grading.
Net Loans Charged Off
Loans are charged off against the allowance for loan losses 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
50
value. Collateral values are generally evaluated annually, or more frequently for certain collateral types or collateral
located in certain distressed markets. Loans are evaluated quarterly and charge-offs are taken in the quarter in which the
loss is identified.
Net loans charged off during 2009 totaled $138 million compared to $102 million in the previous year. The ratio of net
loans charged off to average outstanding loans was 1.14% for 2009 compared with 0.81% for 2008. Net loans charged off
in 2008 included a $26 million charge-off from the SemGroup credit and recoveries of $7.1 million from a loan charged off
in 2005 and $4.0 million from a loan charged off in 2001. Net charge-offs for 2009 were up $51 million over 2008
excluding these significant items.
Net loans charged off by category and principal market area during 2009 follow in Table 30.
Table 30 Net Loans Charged Off by Category and Principal Market Area
(Dollars in Thousands)
Oklahoma
Texas
Colorado Arkansas
Mexico Arizona
New
Kansas/
Missouri
Total
2009:
Commercial
Commercial real estate
Residential mortgage
Consumer
$ 18,861
2,435
7,857
8,231
$ 8,851
5,155
4,005
5,363
$ 12,214
11,884
610
287
$ 79
369
190
2,998
$ 2,882
2,805
1,112
981
$ 3,416
34,191
1,969
182
$ 876
13
-
3
$ 47,179
56,852
15,743
18,045
Net loans charged off
$ 37,384
$ 23,374
$ 24,995
$ 3,636
$ 7,780
$ 39,758
$ 892
$137,819
2008:
Commercial
Commercial real estate
Residential mortgage
Consumer
$ 33,748
3,693
2,843
7,536
$
10,462
1,014
1,701
2,992
$ 7,468
404
(3)
109
$ 150
17
35
2,993
$ 941
1,826
87
799
$
1,725
11,855
2,194
26
$ 7,103
-
-
3
$ 61,597
18,809
6,857
14,458
Net loans charged off
$ 47,820
$ 16,169
$ 7,978
$ 3,195
$ 3,653
$ 15,800
$ 7,106
$101,721
Excluding the impact of these significant items from 2008, net commercial loans charged off during 2009 were largely
unchanged. Net commercial loans charged off in 2009 included $18 million from the service sector of the loan portfolio,
$13 million from the energy sector of the loan portfolio and $7.6 million from the wholesale / retail sector of the loan
portfolio.
Net commercial real estate loans charged off during 2009 increased $38 million over the prior year. Net charge-offs
increased $22 million in the Arizona market and $11 million in the Colorado market. Net commercial real estate loan
charge-offs in 2009 included $45 million from the land and residential construction sector of the loan portfolio, primarily
composed of $26 million in the Arizona market and $11 million in the Colorado market.
Residential mortgage net charge-offs increased $8.9 million over the prior year including $7.9 million in the Oklahoma
market, $4.0 million in the Texas market and $2.0 million in the Arizona market. Consumer loan net charge-offs, which
include indirect auto loan and deposit account overdraft losses, increased $3.6 million over the previous year. Net charge-
offs of indirect auto loans totaled $9.7 million for 2009 and $8.6 million for 2008.
The Company considers the credit risk from loan commitments and letters of credit in its evaluation of the adequacy of the
reserve for loan losses. A separate reserve for off-balance sheet credit risk is maintained. Table 28 presents the trend of
reserves for off-balance sheet credit losses and the relationship between the reserve and loan commitments. 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.
51
Nonperforming Assets
Table 31 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/Missouri
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:
2009
2008
December 31,
2007
2006
2005
$101,384
204,924
29,989
3,058
339,355
15,906
355,261
129,034
$484,295
$ 134,846
137,279
27,387
561
300,073
13,039
313,112
29,179
$342,291
$ 83,176
66,892
26,693
13,820
60,082
84,559
4,133
$339,355
$ 108,367
42,934
16,016
3,263
32,415
80,994
16,084
$ 300,073
$ 22,692
15,765
12,057
65
30,926
13,103
6,776
101,384
$ 49,364
7,343
18,773
680
36,873
12,118
9,695
134,846
109,779
26,236
25,861
26,540
279
16,229
204,924
76,082
15,625
7,637
24,950
6,287
6,698
137,279
$ 42,981
25,319
15,272
718
84,290
10,394
94,684
9,475
$104,159
$ 47,977
4,983
11,118
1,635
9,222
9,355
–
$ 84,290
$
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
$ 17,683
6,096
871
267
1,138
–
–
$ 26,055
$ 16,857
5,475
928
–
1,902
–
–
$ 25,162
$
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
28,314
1,675
29,989
3,058
$ 339,355
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
Reserve for loan losses to nonperforming loans
Nonperforming loans to period-end loans
Loans past due (90 days)1
82.22%
3.15
$10,308
74.49%
2.43
$19,123
133.79%
0.79
$ 5,575
305.37%
0.34
$ 5,945
329.34%
0.35
$ 8,708
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.
Includes loans subject to First United Bank sellers
escrow.
$ 1,400
$12,799
$
872
$10,396
$ 1,017
$ 7,550
$ 2,233
$ 5,747
$ 2,021
$ 3,577
$ 4,311
$13,181
$ 8,412
$
–
$
–
52
Nonperforming assets totaled $484 million or 4.24% of outstanding loans and repossessed assets at December 31, 2009, up
$142 million since December 31, 2008. In addition to $339 million of nonaccruing loans, nonperforming assets included
$16 million of restructured residential mortgage loans and $129 million of real estate and other repossessed assets.
Approximately $13 million of the restructured residential mortgage loans are guaranteed by agencies of the U.S.
government. Nonperforming assets included $4.3 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 $4.1 million for any losses incurred
during a three-year period after the acquisition date. The Company generally retains nonperforming assets to maximize
potential recovery which may cause future nonperforming assets to increase. A rollforward of nonperforming assets for the
year ended December 31, 2009 follows in Table 32.
Table 32 Rollforward of Nonperforming Assets
(Dollars in Thousands)
Beginning balance
Additions
Payments
Charge-offs / Write-offs
Foreclosures
Sales
Return to accrual
Other, net
Ending balance
Nonaccruing
Loans
$ 300,073
350,578
(72,625)
(101,146)
(119,596)
-
(8,832)
(9,097)
$ 339,355
Renegotiated
Loans
$ 13,039
-
-
-
-
-
-
2,867
$ 15,906
Real Estate
and Other
Repossessed
Assets
$ 29,179
-
-
(9,935)
119,596
(17,854)
-
8,048
$ 129,034
Total
Nonperforming
Assets
$ 342,291
350,578
(72,625)
(111,081)
-
(17,854)
(8,832)
1,818
$ 484,295
This distribution of nonaccruing loans among our various markets follows in Table 33.
Table 33 Nonaccruing Loans by Principal Market
(Dollars in Thousands)
December 31, 2009
December 31, 2008
Change
% of
outstanding
loans
Amount
% of
outstanding
loans
Amount
$ 83,176
1.61%
$ 108,367
1.81%
% of
outstanding
loans
(20) b.p.
Amount
$ (25,191)
66,892
26,693
13,820
60,082
84,559
4,133
2.07
3.56
3.67
6.91
17.09
1.03
42,934
16,016
3,263
32,415
80,994
16,084
1.16
1.95
0.76
3.27
13.52
4.62
23,958
10,677
10,557
27,667
3,565
(11,951)
91
161
291
364
357
(359)
339,355
3.01%
$ 300,073
2.33%
$ 39,282
68 b.p.
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas / Missouri
Total
The decrease in nonaccruing loans attributed to the Oklahoma market during 2009 included $13 million of proceeds from the
partial sale of SemGroup bankruptcy claims and $21 million in cash and an equity interest received to partially satisfy
bankruptcy claims against SemGroup. Cash received totaled $7 million and the equity interest was valued at $14 million.
We continue to hold a $12 million nonaccruing loan to the entity created when SemGroup exited bankruptcy. With the
exception of Oklahoma and Kansas/Missouri, nonaccruing loans grew in all geographies during 2009. The 68 basis point
increase in the ratio of nonaccruing loans to period end loans was also impacted by a $1.6 billion decrease in period end
loans at December 31, 2009 compared to December 31, 2008.
Commercial
Nonaccruing commercial loans totaled $101 million or 1.63% of total commercial loans at December 31, 2009 and $135
million or 1.82% of total commercial loans at December 31, 2008. Newly identified nonaccruing commercial loans in 2009
totaled approximately $88 million primarily in the energy and service sector of the portfolio. This was primarily offset by a
$34 million decrease in energy loans related to SemGroup item previously discussed and approximately $39 million of
charge-offs and $32 million of payments in addition to approximately $8 million transferred to real estate owned and other
repossessed assets. The distribution of nonaccruing commercial loans among our various markets was as follows in Table 34.
53
Table 34 Nonaccruing Commercial Loans by Principal Market
(Dollars in Thousands)
December 31, 2009
December 31, 2008
Change
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas / Missouri
Amount
$ 36,990
32,591
14,365
434
8,132
8,804
68
Total commercial
$ 101,384
% of
outstanding
loans
1.40%
1.62
4.20
0.42
1.49
4.42
0.02
1.63%
Amount
$ 74,717
20,472
4,564
148
21,922
2,117
10,906
% of
outstanding
loans
2.23%
0.87
1.09
0.14
3.32
1.00
3.55
134,846
1.82%
% of
outstanding
loans
(83) b.p.
75
311
28
(183)
342
(353)
(19) b.p.
Amount
$ (37,727)
12,119
9,801
286
(13,790)
6,687
(10,838)
$ (33,462)
Approximately $31 million or 1.71% of all loans in the services sector of the loan portfolio and $23 million or 1.19% of the
energy sector of the loan portfolio were nonaccruing at December 31, 2009. Nonaccruing services sector loans were down
$5.9 million and nonaccruing energy sector loans were down $27 million from December 31, 2008. In addition,
nonaccruing loans in the manufacturing sector of the portfolio increased $8.4 million to $16 million or 3.90% of all loans to
the manufacturing sector and nonaccruing loans to the wholesale / retail sector of the loan portfolio decreased $6.7 million
from December 31, 2008 to $12 million or 1.31% of all loans in the wholesale /retail sector of the loan portfolio at
December 31, 2009.
Commercial Real Estate
Nonaccruing commercial real estate loans totaled $205 million or 8.23% of outstanding commercial real estate loans at
December 31, 2009 compared to $137 million or 5.08% of outstanding commercial real estate loans at December 31, 2008.
Nonaccruing commercial real estate loans increased approximately $226 million during 2009 related to newly identified
commercial real estate loans, primarily in the construction and land development sector. This was partially offset by
transfers to other real estate owned and charge-offs.
Table 35 Nonaccruing Commercial Real Estate Loans by Principal Market
(Dollars in Thousands)
December 31, 2009
December 31, 2008
Change
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas / Missouri
% of
outstanding
loans
3.72%
3.29
3.31
8.85
21.53
32.17
11.82
Amount
$ 30,524
24,163
10,101
11,727
51,661
73,106
3,641
Amount
$ 22,837
14,014
% of
outstanding
loans
Amount
$ 7,687
10,149
2.71%
1.70
% of
outstanding
loans
101 b.p.
159
8,404
1,919
10,008
76,208
3,889
2.93
1.43
3.82
23.85
12.98
1,697
9,808
41,653
(3,102)
(248)
38
742
1,771
832
(116)
Total commercial real estate
$ 204,923
8.23%
$ 137,279
5.08%
$ 67,644
315 b.p.
Nonaccruing commercial real estate loans are primarily concentrated in the Arizona and Colorado markets.
Approximately $73 million or 36% of nonaccruing commercial real estate loans are in Arizona and consist primarily of $34
million of nonaccruing residential construction and land development loans, $19 million of nonaccruing loans secured by
retail facilities and $10 million of nonaccruing loans secured by office buildings. Nonaccruing commercial real estate
decreased $3 million compared to the prior year primarily due to charge-offs and transfers to other real estate owned.
Nonaccruing commercial real estate loans in the Colorado market were $52 million or 25% of total nonaccruing
commercial real estate loans, composed primarily of $42 million of nonaccruing residential construction and land
development loans and $9 million of nonaccruing loans secured by office buildings. The majority of the increase in
nonaccruing commercial real estate loans in Colorado was composed of $14 million related to a single loan secured by
residential construction and land development properties and $9 million related to a single loan secured by an office
building.
54
The increase in nonaccruing commercial real estate loans included $34 million from nonaccruing residential construction
and land development loans, $18 million from nonaccruing loans secured by office buildings and $11 million from
nonaccruing loans secured by retail facilities. The increase in nonaccruing residential construction and land development
loans included $37 million in the Colorado market and $10 million in the Texas market, offset by a $17 million decrease in
the Arizona market. The increase in nonaccruing loans secured by retail facilities included $7 million in the Arizona
market and $5 million in the New Mexico market. The increase in loans secured by office building included $7 million in
the Arizona market, $7 million in the Colorado market and $5 million in the Arkansas market.
Residential Mortgage and Consumer
Nonaccruing residential mortgage loans primarily consist of permanent residential mortgage loans which totaled $30
million or 1.67% of outstanding residential mortgage loans at December 31, 2009, a $2.6 million increase over December
31, 2008. Home equity loans continued to perform well with only $1.7 million or 0.34% of total home equity loans in
nonaccrual status. The distribution of nonaccruing residential mortgage loans among our various markets is included in
Table 36.
Table 36 Nonaccruing Residential Mortgage Loans by Principal Market
(Dollars in Thousands)
December 31, 2009
December 31, 2008
Change
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas / Missouri
Amount
$ 14,650
9,320
2,168
620
291
2,517
423
Total residential mortgage loans
$ 29,989
% of
outstanding
loans
1.19%
2.98
2.51
3.68
0.44
3.87
2.51
1.67%
Amount
$ 10,704
8,066
3,016
1,196
447
2,668
1,290
$ 27,387
% of
outstanding
loans
0.89%
2.56
3.08
7.09
0.83
4.29
13.84
1.56%
Amount
$ 3,946
1,254
(848)
(576)
(156)
(151)
(867)
% of
outstanding
loans
30 b.p.
42
57
(341)
(39)
(42)
(1,133)
$ 2,602
11 b.p.
In addition to nonaccruing residential mortgage and consumer loans, payments of residential mortgage loans and consumer
loans may be delinquent. The composition of residential mortgage and consumer loans past due is included in the
following Table 37. Residential mortgage loans less than 90 days past due increased $3.4 million and residential mortgage
loans past due 90 days or more increased $72 thousand during 2009. Consumer loans past due 30 to 89 days decreased
$408 thousand primarily due to a decrease in other consumer loans offset by an increase in indirect automobile loans.
Consumer loans past due 90 days or more increased $2.2 million, primarily due to a $2.9 million increase in other
consumer loans offset by a $654 thousand decrease indirect automobile loans.
Table 37 Residential Mortgage and Consumers Loans Past Due
(Dollars in Thousands)
December 31, 2009
30 to 89
90 Days
Days
or More
December 31, 2008
30 to 89
90 Days
Days
or More
Permanent mortgage
Home equity
Total residential mortgage
$ 1,532
24
$ 1,556
$ 23,489
2,049
$ 25,538
$ 1,370
114
$ 1,484
$ 20,422
1,723
$ 22,145
Consumer:
Indirect automobile
Other consumer
Total consumer
$ 537
3,297
$ 3,834
$ 23,191
1,612
$ 24,803
$ 1,191
395
$ 1,586
$22,082
3,129
$ 25,211
Real estate and other repossessed assets totaled $129 million at December 31, 2009, up from $29 million at December 31,
2008. The distribution of real estate and other repossessed assets attributed by geographical market is included in the
following Table 38.
55
Table 38 Real Estate and Other Repossessed Assets by Principal Market
(Dollars in Thousands)
Oklahoma
Texas
Colorado Arkansas
Mexico Arizona
New
Kansas/
Missouri Other
Total
1-4 family residential
properties and
residential land
development
properties
Developed commercial
real estate properties
Equity interest in partial
satisfaction of debts
Undeveloped land
Construction equipment
Vehicles
Other
Total real estate and
other repossessed
assets
$ 5,034
$ 17,610
$ 3,153
$ 4,474
$ 1,612
$ 30,242
$ 675
$ 370
$ 63,170
2,486
4,855
4,594
1,391
7,580
15,382
14,477
-
-
904
-
-
-
-
457
-
-
2,219
-
-
229
-
-
-
569
-
-
-
-
-
-
-
5,883
-
-
-
-
-
-
4,838
-
-
-
-
-
-
-
-
36,288
14,477
8,102
4,838
1,930
229
$ 22,901
$ 22,922
$ 10,195
$ 6,434
$ 9,192
$ 51,507
$ 5,513
$ 370
$ 129,034
Approximately $2 million of residential and residential land development properties in the Colorado market are supported
by the First United Bank sellers’ guaranty. Undeveloped land is primarily zoned for commercial development. Developed
commercial real estate properties are primarily completed with no additional construction necessary for sale.
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 $236 million at December 31, 2009.
The current composition of potential problem loans by primary industry included: real estate - $120 million, energy - $38
million, services - $24 million, manufacturing - $16 million and healthcare - $15 million. Potential problem real estate
loans included $54 million of residential development loans on properties primarily located in Texas, Colorado and
Oklahoma and $24 million of loans secured by multi-family residential properties located primarily in Texas.
56
Liquidity and Capital
Subsidiary Banks
Deposits and borrowed funds are the primary sources of liquidity for the subsidiary banks. For 2009, approximately 66%
of our funding is provided by average deposit accounts, 19% from average borrowed funds, 2% from average long-term
subordinated debt and 9% from average shareholders’ equity. Our funding sources, which primarily include deposits,
borrowings from the Federal Home Loan Banks and other banks, provide adequate liquidity to meet our operating needs.
Deposit accounts represent our largest funding source. 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 bill paying 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 totaled $15.2 billion at December 31, 2009 and represent 66% of total average liabilities and capital for
2009 compared with $13.7 billion or 63% of total average liabilities and capital for 2008. Average deposits increased $1.5
billion compared to 2008. Average interest-bearing transaction deposit accounts continued to grow in 2009, up $751
million or 12% over 2008. Average demand deposits also increased, up $647 million or 25% over last year, primarily
related to the growth in balances held by our commercial banking customers. Growth in our average interest-bearing
transaction deposit accounts included $406 million of wealth management deposits, $199 million of consumer banking
deposits and $182 million of commercial deposits. Average time deposits increased $130 million or 3% over 2008.
Table 39 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,
2009
2008
$ 537,757
399,580
648,416
525,127
$ 2,110,880
$ 879,792
844,957
651,632
710,395
$ 3,086,776
Brokered deposits, which are included in time deposits, averaged $533 million for 2009, down $278 million or 34%
compared to the previous year. Brokered deposits totaled $36 million at December 31, 2009 compared to $1.0 billion at
December 31, 2008. These deposits which were largely added in 2008 to remix wholesale funding sources to provide more
available liquidity are being replaced by other deposit products as they mature. Average wealth management time deposits
increased $439 million or 113% compared with 2008 and average retail time deposits increased $106 million or 4%
compared with 2008.
For 2009, core deposits were defined as deposits of less than $250,000 excluding public funds and brokered deposits, to
reflect the increased FDIC insurance level under the FDIC’s Transaction Account Guarantee Program. Core deposits for
2009 averaged $9.6 billion. Accounts with balances in excess of $250,000 excluding brokered deposit accounts averaged
$4.3 billion. For 2008, core deposits were defined as deposits of less than $100,000 excluding public funds and brokered
deposits, averaged $6.6 billion. Accounts with balances in excess of $100,000 excluding brokered deposit accounts
averaged $5.6 billion for 2008.
The distribution of deposit accounts among our principal markets is shown in Table 40.
57
Table 40 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/Missouri:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Kansas/Missouri
Total BOK Financial deposits
2009
2008
December 31,
2007
2006
2005
$ 2,068,908
$ 1,683,374
$ 1,394,861
$ 1,298,593
$ 1,333,331
5,134,902
93,006
1,397,240
6,625,148
$ 8,694,056
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
$ 1,108,401
$ 1,067,456
$ 1,035,134
$ 848,152
$ 841,197
1,748,319
35,129
1,100,602
2,884,050
$ 3,992,451
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
$ 209,090
$ 155,345
$ 151,231
$ 175,980
$ 172,363
444,247
17,563
510,202
972,012
$ 1,181,102
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
$
21,526
$
16,293
$
13,247
$
15,604
$
14,414
50,879
1,346
101,839
154,064
$ 175,590
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
$ 146,929
$ 116,637
$ 117,939
$
80,559
$
91,483
448,846
17,802
525,844
992,492
$ 1,139,421
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
$
68,651
$
39,424
$
46,701
$
51,542
$
59,689
81,909
958
60,768
143,635
$ 212,286
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
$
30,339
$
3,850
$
9,656
$
57
$
–
21,337
148
71,498
92,983
$ 123,322
$15,518,228
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
$
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 $188 million at
58
December 31, 2009. Securities repurchase agreements generally mature within 90 days and are secured by certain available
for sale securities. 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). During 2009, the outstanding balance of federal funds purchased averaged $1.5
billion and securities repurchase agreements averaged $817 million. Amounts borrowed from the Federal Home Loan
Banks of Topeka and Dallas averaged $1.2 million.
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
averaged $943 million for 2009. Although designated as a temporary program, no plans have been announced for its
termination.
At December 31, 2009, the estimated unused credit available to the subsidiary banks from collateralized sources and within
our internal policy limits was approximately $4.7 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, 2009, the
subsidiary banks could declare up to $225 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 $190 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.
Effective December 2, 2009, the Company amended an unsecured revolving credit agreement with George B. Kaiser, its
Chairman and principal shareholder. The terms of the amended credit agreement reduced the committed amount from $188
million to $100 million, changed the interest rate and facility fee to reflect current market terms and extended the maturity
date from December 2, 2010 to December 2, 2012. Interest on outstanding balances due to Mr. Kaiser is based on one-
month LIBOR plus 250 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 50 basis points. Previously, interest was due quarterly based on one-
month LIBOR plus 125 basis points and the facility fee was paid quarterly on the unused portion of the commitment at 25
basis points. As with the original agreement, the amended agreement has no restrictive covenants. No amounts were
outstanding under this credit agreement as of December 31, 2009. The outstanding balance at December 31, 2008 was $50
million.
Our equity capital at December 31, 2009 was $2.2 billion up from $1.8 billion at December 31, 2008. Net income less
cash dividend paid increased equity $137 million. Accumulated other comprehensive losses decreased $212 million during
2009 due primarily to a $344 million change from a net unrealized loss on available for sale securities at December 31,
2008 to a net unrealized gain at December 31, 2009. 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.
Based on asset size, we are the largest commercial bank 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 at the time 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 $39
million. No shares were repurchased by the Company during 2009.
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.
59
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 15 to the Consolidated Financial Statements.
Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity ratio.
Tangible common shareholders’ equity is shareholders’ equity as defined by GAAP 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. Tier 1 common equity is tier 1 equity as defined by banking
regulations, adjusted for other comprehensive income (loss) and equity which does not benefit common shareholders.
These non-GAAP measures are valuable indicators 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, 2009, BOK Financial’s tangible
common shareholders’ equity ratio was 7.99% and tier 1 common equity ratio was 10.75%. At December 31, 2008 BOK
Financial’s tangible common shareholders’ equity ratio was 6.64% and tier 1 common equity ratio was 9.32%
The following table provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
Table 41 Non-GAAP Measures
(In Thousands)
Tangible common equity ratio:
Total shareholders' equity
Less: Intangible assets, net
Tangible common equity
Total assets
Less: Intangible assets, net
Tangible assets
Tangible common equity ratio
Tier 1 common equity ratio:
Tier 1 capital
Less: Non-controlling interest
Tier 1 common equity
Risk weighted assets
Tier 1 common equity ratio
December 31,
2009
2008
$ 2,205,813
354,239
1,851,574
23,516,831
354,239
$23,162,592
$ 1,846,257
361,209
1,485,048
22,734,648
361,209
$22,373,439
7.99%
6.64%
$ 1,876,778
19,561
$ 1,728,926
13,855
1,857,217
1,715,071
17,275,808
18,401,051
10.75%
9.32%
Off-Balance Sheet Arrangements
Bank of Oklahoma guarantees rents totaling $28.7 million through September, 2017 to the City of Tulsa (“City”) as owner
of a building immediately adjacent to the Bank’s main office for space currently rented by third-party tenants in the
building. All rent payments are current. Remaining guaranteed rents totaled $22.8 million at December 31, 2009. In
return for this guarantee, Bank of Oklahoma will receive 80% of net cash flow as defined in an agreement with the City
over the next 10 years from currently vacant space in the same building. None of this additional space has been rented to
outside parties since the date of the agreement. The maximum amount that Bank of Oklahoma may receive under this
agreement is $4.5 million.
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, 2009.
60
Table 42 Contractual Obligations as of December 31, 2009
(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
$ 617,810
1,254,283
21,875
14,955
205,977
17,876
$2,132,776
$329,726
160,966
43,750
25,652
137,366
32,373
$729,833
$214,947
1,190
43,750
18,227
15,142
20,864
$314,120
$428,190
8,442
458,542
88,585
4,461
6,317
$994,537
Total
$1,590,673
1,424,881
567,917
147,419
362,946
77,430
$4,171,266
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
$ 5,001,338
588,091
330,963
9,923
18,904
27,452
Payments on time deposits and other borrowed funds include interest which has been calculated from rates at December 31,
2009. 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.
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 $1.3 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. Amounts
shown in the table exclude $55 million of cash margin which secures our obligations under these contracts.
The Company has funded $52 million and has commitments to fund an additional $9.9 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 $19 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 $20 million liability for these plans. This liability would increase to $21 million if all awards
were fully vested. We also have obligations with respect to employee and executive benefit plans. See Notes 11 and 12 to
the Consolidated Financial Statements for additional information about our employee benefit plans.
Recently Issued Accounting Standards
See Note 1 of the consolidated financial statements for disclosure of newly adopted and pending accounting standards.
61
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.
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 50 basis point decrease in interest
62
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 include 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 43 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.
Table 43 Interest Rate Sensitivity
(Dollars in Thousands)
200 bp Increase
50 bp Decrease
Most Likely
2009
2008
2009
2008
2009
2008
Anticipated impact over the next 12
months on net interest revenue
$ (4,933)
(0.3)%
$ (5,609)
(0.8)%
$ (8,032)
(1.2)%
$ (13,125)
(1.8)%
$
(262)
–
$ 1,892
0.3%
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
$3.7 million. At December 31, 2009, the VAR was $692 thousand. The greatest value at risk during 2009 was $3.6 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.
63
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, 2009. 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, 2009.
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, 2009.
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, 2009. Their report, which expresses unqualified opinions on the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2009, is included in this annual
report.
64
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, 2009
and 2008, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2009. 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, 2009 and 2008, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, BOK Financial Corporation changed its method of
accounting for non-controlling interests and changed its method of recognition and presentation of other-than-temporary
impairments as of January 1, 2009.
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, 2009, 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, 2010 expressed an unqualified opinion thereon.
Ernst & Young LLP
Tulsa, Oklahoma
February 26, 2010
65
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, 2009, 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, 2009, 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, 2009 and 2008, and the related
consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2009 of BOK Financial Corporation and our report dated February 26, 2010 expressed an unqualified
opinion thereon.
Ernst & Young LLP
Tulsa, Oklahoma
February 26, 2010
66
Consolidated Statements of Earnings
(In Thousands, Except Share and Per Share Data)
Interest revenue
Loans
Residential mortgage loans held for sale
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 other assets, net
Gain (loss) on derivatives, net
Gain on securities, net
Total other-than-temporary impairment losses
Portion of loss recognized in other comprehensive income
Net impairment losses recognized in earnings
Total other operating revenue
Other operating expense
Personnel
Business promotion
Professional fees and services
Net occupancy and equipment
Insurance
FDIC special assessment
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 before non-controlling interest
Net income (loss) attributable to non-controlling interest
Net income attributable to BOK Financial Corp.
Earnings per share:
Basic
Diluted
Average shares used in computation:
Basic
Diluted
Dividends declared per share
See accompanying notes to consolidated financial statements.
67
2009
2008
2007
$ 562,367
10,102
328,997
10,143
339,140
2,883
77
914,569
$ 726,405
5,805
313,360
10,651
324,011
3,847
1,577
1,061,645
$ 887,248
4,776
248,972
13,604
262,576
1,657
4,480
1,160,737
164,362
17,545
22,298
204,205
710,364
195,900
514,464
91,677
105,517
66,177
115,791
64,980
10,239
236
25,895
480,512
4,134
(3,365)
46,122
(129,154)
(94,741)
(34,413)
492,990
380,517
19,582
30,243
65,715
24,040
11,773
81,292
15,960
11,400
6,970
36,304
(12,124)
–
25,061
696,733
310,721
106,705
204,016
3,438
200,578
2.96
2.96
$
$
$
288,924
103,597
22,262
414,783
646,862
202,593
444,269
42,804
100,153
78,979
117,528
30,599
10,681
8,548
25,902
415,194
(9,406)
1,299
26,943
(5,306)
–
(5,306)
428,724
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
210,589
64,909
145,680
(7,552)
$ 153,232
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
2,404
2,282
313
(8,641)
–
(8,641)
401,980
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
336,757
115,761
220,996
3,332
$ 217,664
$
$
2.27
2.27
$
$
3.24
3.22
67,375,387
67,487,944
$ 0.945
67,302,990
67,461,361
0.875
$
67,083,200
67,519,742
$ 0.75
December 31,
2009
2008
$
$
875,250
45,966
65,354
581,133
113,809
99,601
8,726,135
145,888
240,405
285,950
9,398,378
217,826
11,279,698
(292,095)
10,987,603
280,260
108,822
354,239
73,824
129,034
3,869
343,782
247,357
–
385,267
23,516,831
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
$
$
$
3,653,844
$
3,082,379
7,930,439
165,952
3,767,993
15,518,228
2,471,743
2,133,357
398,539
111,880
3,869
212,335
308,360
133,146
21,291,457
4
758,723
1,563,683
(105,857)
(10,740)
2,205,813
19,561
2,225,374
23,516,831
$
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
132,902
20,874,536
4
743,411
1,427,057
(101,329)
(222,886)
1,846,257
13,855
1,860,112
22,734,648
$
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: 2009 – $246,704; 2008 – $245,769)
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 deposits carried at fair value: 2009 – $98,031;
2008 – $632,754)
Total deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Bankers’ acceptances
Due on unsettled securities trades
Derivative contracts
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized;
shares issued and outstanding: 2009 – 70,312,086; 2008 – 69,884,749)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2009 – 2,509,279; 2008 – 2,411,663)
Accumulated other comprehensive loss
Total shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
68
Consolidated Statements of Cash Flows
(In Thousands)
Cash Flows From Operating Activities:
Net income before non-controlling interest
Adjustments to reconcile net income to cash provided by operating
activities:
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 expense (benefit) on exercise of stock options
Stock-based compensation
Net (accretion) amortization of securities discounts and premiums
Realized (gains) losses on financial instruments and other assets
Mortgage loans originated for resale
Proceeds from sale of mortgage loans held for resale
Capitalized mortgage servicing rights
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
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 in 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, banks
Change in amount receivable (due) on unsettled security transactions
Issuance of common and treasury stock, net
Issuance of other borrowings, holding companies
Pay down of other borrowings, holding companies
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 and bank premises transferred to repossessed real estate
Securities transferred from trading securities to available for sale securities
See accompanying notes to consolidated financial statements.
2009
2008
2007
$
204,016 $
145,680 $
220,996
195,900
(12,124)
23,000
87,771
(10,351)
276
5,862
35,636
(46,318)
(2,676,868)
2,619,399
(39,869)
102,121
(12,149)
(166,375)
(21,340)
(7,571)
281,016
3,242,282
91,562
1,600,165
(89,816)
(6,966,218)
1,328,731
497,034
–
26,640
(81,142)
–
(350,762)
202,593
34,515
35,408
51,282
(7,466)
(895)
4,798
(18,106)
(30,981)
(1,201,613)
1,170,722
(19,220)
(297,292)
41,570
(82,948)
28,411
25,607
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)
34,721
2,893
(11,162)
43,524
(17,310)
(3,460)
8,483
(2,404)
7,663
(1,022,829)
1,008,828
(17,708)
896
(30,719)
14,598
36,985
(36,218)
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)
1,950,871
670,712
860,612
(1,407,380)
112,797
451,809
5,198
–
(55,150)
–
–
(162,138)
(535,759)
(276)
–
(63,952)
296,020
226,274
694,942
921,216 $
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 $
(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
230,841 $
124,547
132,758
45,890
411,860 $
114,120
30,972
–
608,963
115,627
9,825
–
$
$
69
Consolidated Statements of Changes in Shareholders’ Equity
(In Thousands)
December 31, 2006
Effect of implementing FAS 157, net of tax
Effect of implementing FIN 48
Comprehensive income:
Net income attributed to BOK Financial Corp.
Net income (loss) attributable to non-controlling interest
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
Capital calls, net
December 31, 2007
Effect of implementing FAS 159, net of tax
Comprehensive income (loss):
Net income attributed to BOK Financial Corp.
Net income (loss) attributable to non-controlling interest
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
Capital calls, net
December 31, 2008
Comprehensive income:
Net income attributed to BOK Financial Corp.
Net income (loss) attributable to non-controlling interest
Other comprehensive income, net of tax
Comprehensive income
Exercise of stock options
Tax benefit on exercise of stock options
Stock-based compensation
Cash dividends on common stock
Capital calls, net
December 31, 2009
See accompanying notes to consolidated financial statements.
Common Stock
Shares
68,705
–
–
–
–
–
–
760
–
–
–
–
69,465
–
–
–
–
–
420
–
–
–
–
69,885
–
–
–
427
–
–
–
–
70,312
Amount
$4
–
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
$4
Accumulated
Other
Comprehensive
Income (Loss)
$ (73,444)
–
–
–
–
–
42,210
–
–
–
–
–
(31,234)
–
–
–
(191,652)
–
–
–
–
–
–
(222,886)
–
–
212,146
–
–
–
–
–
$ (10,740)
70
Capital
Surplus
$688,861
–
–
–
–
–
–
23,429
3,460
6,338
–
–
722,088
–
–
–
–
–
12,652
895
7,776
–
–
743,411
–
–
–
Retained
Earnings
$1,166,994
(679)
(609)
217,664
–
–
–
–
–
–
(50,416)
–
1,332,954
62
153,232
–
–
–
–
–
–
(59,191)
–
1,427,057
200,578
–
–
9,726
(276)
5,862
–
–
$ 758,723
–
–
–
(63,952)
–
$ 1,563,683
Treasury Stock
Shares
1,637
–
–
–
–
–
340
182
–
–
–
–
2,159
–
–
–
–
166
87
–
–
–
–
2,412
–
–
–
97
–
–
–
–
2,509
Amount
$(61,393)
–
–
–
–
–
(17,353)
(9,682)
–
–
–
–
(88,428)
–
–
–
–
(7,992)
(4,909)
–
–
–
–
(101,329)
–
–
–
(4,528)
–
–
–
–
$ (105,857)
Total
Shareholders’
Equity
$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
Non-
Controlling
Interest
$
13,852
–
–
–
(3,332)
–
(3,332)
–
–
–
–
–
8,329
18,849
–
–
7,552
–
7,552
–
–
–
–
–
(12,546)
13,855
Total
Equity
$ 1,734,874
(679)
(609)
217,664
(3,332)
42,210
256,542
(17,353)
13,747
3,460
6,338
(50,416)
8,329
1,954,233
62
153,232
7,552
(191,652)
(30,868)
(7,992)
7,743
895
7,776
(59,191)
(12,546)
1,860,112
200,578
–
212,146
412,724
5,198
(276)
5,862
(63,952)
–
$ 2,205,813
–
(3,438)
–
(3,438)
–
–
–
–
9,144
$ 19,561
200,578
(3,438)
212,146
409,286
5,198
(276)
5,862
(63,952)
9,144
$ 2,225,374
71
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.
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 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, Kansas/Missouri.
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 fair value 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 Accounting
Standards Codification Topic 350, “Intangibles - Goodwill and Other.” 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 reporting units is estimated by the discounted future earnings method. Income growth is
projected 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 reporting units are compared to observable inputs, such as the market value of BOK Financial common stock.
However, determination of the fair value of individual reporting units requires the use of significant unobservable inputs.
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.
72
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 not to sell the security until the fair value exceeds amortized cost. A charge is
recognized against earnings for all or a portion of the impairment 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 re-pledge the
collateral.
Certain mortgage-backed securities, identified as mortgage trading securities, have been designated as economic hedges of
mortgage servicing rights. We have elected to carry these securities 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 and foreign exchange rates. Credit risk is also considered
in determining fair value. Deterioration in the credit rating of customers or other counterparties reduces the fair value of
asset contracts. Deterioration of our credit rating to below investment grade or the credit ratings of other counterparties
could decrease the fair value of our derivative liabilities. 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.
73
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 items 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.
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.
BOK Financial offers programs to permit its customer to manage various risks, including fluctuations in energy, cattle and
other agricultural products, interest rates and foreign exchanges 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 other selected counterparties to minimize its risk of changes in commodity prices, interest rates or
foreign exchange rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or
fee paid to BOK Financial as profit and compensation for administrative costs and credit risk which is 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. Loans may be returned to
accruing status when, in the opinion of management, full collection of principal and interest is probable based on
improvements in the borrower’s financial condition or a sustained period of performance.
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 fair value based on sales
commitments or market quotes. Changes in fair value 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 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.
74
Management has excluded small balance, homogeneous loans from the impairment evaluation. 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 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
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 and residual interests 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. Fair values are generally
evaluated annually, or more frequently for certain asset types or assets located in certain distressed markets. Additional
costs incurred to complete real estate and other repossessed assets may increase the carrying value, up to 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 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. Purchased servicing rights are initially recognized at purchase price. All mortgage
servicing rights are subsequently carried at fair value. 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 significant unobservable inputs. 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.
75
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.
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 awards stock options and non-vested common shares as compensation to certain officers. 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. 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. 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.
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. 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.
76
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.
Effect of Recently Issued Statements of Financial Accounting Standards
Financial Accounting Standards Board
Accounting Standards Codification 805, “Business Combinations” (“ASC 805” and formerly Statement of Financial
Accounting Standards No. 141, “Business Combinations (Revised 2007),”(“FAS 141R”))
FAS 141R was codified by the FASB as ASC 805 as a replacement to Statement of Financial Accounting Standards No.
141, “Business Combinations,” (“FAS 141”) and applies to all transactions and other events in which one entity obtains
control over one or more other businesses. ASC 805 requires an acquirer, upon initially obtaining control of another entity,
to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date.
Banks may no longer carry over the pre-acquisition allowance for loan losses. Contingent consideration is required to be
recognized and measured at fair value on the date of acquisition rather than at a later date. Acquirers are required to
expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed.
The requirements of FASB Accounting Standards Codification 420, “Exit or Disposal Cost Obligations,” (formerly
Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”)
would have to be met in order to accrue for a restructuring plan in purchase accounting. Certain pre-acquisition
contingencies are to be recognized at fair value. Other contingencies would be subject to the probable and estimable
recognition criteria of FASB Accounting Standards Codification 450, “Contingencies” (formerly Statement of Financial
Accounting Standards No. 5, “Accounting for Contingencies”). ASC 805 was applicable to the Company’s accounting for
business combinations closing on or after January 1, 2009. No such transactions were completed during 2009.
Statement of Financial Accounting Standards No. 160,”Non-controlling Interest in Consolidated Financial Statements – An
Amendment of ARB No. 51” (“FAS 160”)
Issued during 2007, FAS 160 was codified by FASB into Accounting Standards Codification 810, “Consolidations,” to
establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It 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, consolidated net income is required 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. The Company adopted this guidance as of January 1, 2009, and it did not have a significant impact on
the Company’s financial statements. All prior periods have been reclassified for a consistent presentation.
Accounting Standards Codification 815-10-50 “Derivatives and Hedging – Disclosures” (“ASC 815-10-50” and formerly
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 was codified by FASB as ASC 815-10-50 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 FASB Accounting
Standards Codification 815, “Derivatives and Hedging” 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, ASC 815-10-50 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. ASC 815-10-50 was effective for the Company as of January 1, 2009. It did not have a significant
impact on the Company’s financial statements.
77
Financial Accounting Standards Board Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not
Orderly” (“FSP 157-4”)
FSP 157-4 was codified by FASB into the FASB Accounting Standards Codification 820 “Fair Value Measurements.”
(“ASC 820”). It was issued April 9, 2009 to provide guidance for determining fair value when there is no active market or
where price inputs represent distressed sales. It reaffirms the fair value measurement objective that fair value represents
how much an asset would be sold for in an orderly transaction under current market conditions. The guidance was effective
for interim and annual periods ending after June 15, 2009. Early adoption for interim and annual periods ending after
March 15, 2009 was permitted. The Company adopted this guidance as of March 31, 2009. It did not have a significant
impact on the Company’s financial statements.
Financial Accounting Standards Board Staff Position No. FAS 115-2 and FAS 124-2 “Recognition and Presentation of
Other-Than-Temporary Impairments” (“FSP No. 115-2”)
FSP 115-2 was codified by FASB into the FASB Accounting Standards Codification 320, “Investments – Debt and Equity
Securities.” It was issued April 9, 2009 to provide additional guidance and create greater clarity and consistency in
accounting for impairment losses on securities. It replaces the assertion of intent and ability to hold an impaired debt
security until fair value recovers with assertions that the holder does not intend to sell the security prior to recovery and that
it is more likely than not that the holder will not be required to sell the impaired security prior to recovery. The full
impairment loss is recognized in earnings if the holder is unable to make these assertions. Otherwise, a credit loss portion
of the impairment is recognized in earnings and the remaining impairment is recognized in other comprehensive income
(equity). The guidance was effective for interim and annual periods ending after June 15, 2009 and required additional
disclosures in interim periods. Early adoption for interim and annual periods ending after March 15, 2009 was permitted.
The Company adopted this guidance as of January 1, 2009 and reduced the loss recognized in earnings on debt securities
determined to be other-than-temporarily impaired by $39 million.
FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP107-1”)
FSP 107-1 was codified into the FASB Accounting Standards Codification 820, “Fair Value Measurements” (“ASC 820”) and enhances
consistency in financial reporting by increasing the frequency of fair value disclosures for any financial instruments that are not
currently reflected on the balance sheet at fair value. It requires disclosures in interim financial statements that were previously only
required in annual financial statements to provide qualitative and quantitative information about fair value estimates. The guidance
included in ASC 820 was effective for interim and annual periods ending after June 15, 2009. Early adoption for interim and annual
periods ending after March 15, 2009 was permitted. The Company adopted the guidance included in ASC 820 as of June 30, 2009. It
did not have a significant impact on the Company’s financial statements.
Financial Accounting Standards Board Staff Position No. EITF 03-6-1 “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities” (“FSP No. EITF 03-6-1”)
FSP No. EITF 03-6-1 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. FSP EITF 03-6-1 became effective on January 1, 2009 and was
codified by FASB into the Accounting Standards Codification 260, “Earnings per Share.” See additional discussion at
Note 16 – Earnings per Share.
Accounting Standards Codification 855 “Subsequent Events” (“ASC 855” and formerly Statement of Financial Accounting
Standards No. 165, “Subsequent Events” (“FAS 165”)
On May 28, 2009, the FASB issued FAS 165 to provide authoritative accounting guidance on management’s assessment of
subsequent events. FAS 165 was codified by FASB into ASC 855 which incorporates existing U.S. auditing literature and
clarifies that management is responsible for evaluating, as of each reporting period, events or transactions that occur after
the balance sheet date through the date that the financial statements are issued or are available to be issued. ASC 855 was
effective for the Company as of June 30, 2009 and did not have a significant impact on the Company’s financial statements.
Accounting Standards Update No. 2009-05, “Topic 820 – Fair Value Measurements and Disclosures – Measuring
Liabilities at Fair Value” (“ASU 2009-05”)
ASU 2009-05 provides clarification that the fair value measurement of liabilities in which a quoted price in an active
market for the identical liability is not available should be developed based on a valuation technique that uses the quoted
price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or another
valuation technique that is consistent with the principles of Topic 820 – Fair Value Measurements and Disclosures. ASU
2009-05 also clarifies that there is no requirement to adjust the fair value related to the existence of a restriction that
prevents the transfer of the liability and that both a quoted price in an active market for the identical liability at the
measurement date and the quoted price for the identical liability when traded as an asset in an active market when no
78
adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This guidance was effective
for the Company as of September 30, 2009 and did not have a significant impact on the Company’s financial statements.
Accounting Standards Update No. 2009-12, “Topic 820 – Fair Value Measurements and Disclosures – Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2009-12”)
ASU 2009-12 permits, as a practical expedient, fair value of an investment that is within the scope of the ASU such as
hedge funds, private equity funds, real estate funds, venture capital funds, offshore fund vehicles and fund of funds to be
measured based on the net asset value of the investment or its equivalent as of the reporting entity’s measurement date. It
also requires certain disclosures including any restrictions on the investor’s ability to redeem its investments at the
measurement date, any unfunded commitments and the investment strategies of the investees. ASU 2009-12 is effective for
interim and annual periods ending December 15, 2009. Early application is permitted. The Company’s adoption of ASU
2009-12 as of December 31, 2009 did not have a significant impact on the Company’s financial statements.
FASB Accounting Standards Update No. 2009-16, “Accounting for Transfers of Financial Assets” (“ASU 2009-16”)
ASU 2009-16 codifies Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial
Assets – an amendment to Statement No. 140,” which amended Financial Accounting Standards No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to enhance reporting about transfers of
financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred
financial assets. The standard eliminates the concept of a “qualifying special-purpose entity” and changes the requirements
for derecognizing financial assets. It also requires additional disclosures about all continuing involvement with transferred
financial assets including information about gains and losses resulting from transfers during the period. ASU 2009-16 was
effective January 1, 2010 and did not have a significant impact on the Company’s financial statements.
FASB Accounting Standards Update No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved With Variable
Interest Entities” (“ASU 2009-17”)
ASU 2009-17 codifies Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No.
46(R),” (“FAS 167”) which amended Financial Accounting Standards Interpretation No. 46 (Revised December 2003),
“Consolidation of Variable Interest Entities,” to change how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The
standard requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any
significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. ASU
2009-17 was effective January 1, 2010 and did not have a significant impact on the Company’s financial statements.
FASB Accounting Standards Update No. 2010-06, “Improving Disclosures About Fair Value Measurements” (“ASU 2010-
06”)
ASU 2010-06 amends ASC 820 to add new disclosure requirements about transfers into and out of Levels 1 and 2, as
defined in ASC 820 and separate disclosures about purchases, sales, issuance and settlements relating to Level 3
measurements, as defined in ASC 820. It also clarified existing fair value disclosures about the level of disaggregation and
about inputs and valuation techniques used to measure fair value. ASU 2010-06 was effective for the Company on January
1, 2010 with exception of the requirement to provide Level 3 activity of purchases, sales, issuances, and settlement on a
gross basis, which will be effective for the Company on January 1, 2011. Early adoption is permitted.
79
(2) Securities
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
2009
December 31,
Amortized
Cost
Fair
Value
Not Recognized in OCI (1)
Gross Unrealized
Loss
Gain
Amortized
Cost
2008
Fair
Value
Not Recognized in OCI (1)
Gross Unrealized
Loss
Gain
Municipal and
other tax-exempt
Other debt securities
Total
$ 232,568 $ 238,847
7,857
$ 6,336
20
$ 240,405 $ 246,704 $ 6,356
7,837
$ (57)
–
(57)
$
$ 235,791 $ 239,178
6,591
$ 3,736
38
$ 242,344 $ 245,769 $ 3,774
6,553
$ (349)
–
(349)
$
(1) Other comprehensive income
The amortized cost and fair values of investment securities at December 31, 2009, 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
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
$ 58,491
59,104
5.28
$
6,399
6,415
0.85
$ 64,890
65,519
4.84
$ 139,581
144,253
4.61
$
1,425
1,429
5.09
$ 141,006
145,682
4.61
$ 26,499
27,394
5.71
$ 7,997
8,096
6.39
$ 232,568
238,847
4.96
$
–
–
–
$
13
13
–
$ 26,499
27,394
5.71
$ 8,010
8,109
6.38
$
7,837
7,857
1.62
$ 240,405
246,704
4.85
$ 240,405
246,704
4.85
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.
Weighted
Average
Maturity²
2.83
0.92
2.77
80
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
2009
2008
December 31,
Recognized in OCI (1)
Other Than
Amortized
Cost
Fair
Value
Gross Unrealized
Temporary
Amortized
Gain
Loss
Impairment
Cost
Fair
Value
Recognized in OCI (1)
Gross Unrealized
Gain
Loss
$
6,998 $
7,020
$
22 $
–
$
–
$
6,987
$
7,126
$
139
$
–
U.S. Treasury
Municipal and other
tax-exempt
61,268
62,201
1,244
(311)
Residential mortgage-backed securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Other
Total U.S. agencies
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential mortgage-
backed securities
Other debt securities
Federal Reserve Bank
stock
Federal Home Loan
Bank stock
Perpetual preferred stock
Equity securities
and mutual funds
3,690,280
3,782,180
2,479,522
2,547,978
1,221,577
1,225,042
254,438
254,128
98,764
70,024
10,371
5,080
(6,864)
(1,568)
(6,906)
(5,390)
7,645,817
7,809,328
184,239
(20,728)
262,106
699,272
961,378
195,808
596,554
792,362
–
–
–
(13,305)
(71,023)
(84,328)
8,607,195
17,174
8,601,690
17,147
184,239
–
(105,056)
(27)
32,526
32,526
78,999
19,224
78,999
22,275
–
–
3,051
–
–
–
35,414
50,165
15,275
(524)
–
–
–
–
–
–
(52,993)
(31,695)
(84,688)
(84,688)
–
–
–
–
–
19,537
20,163
664
(38)
2,194,834
2,222,253
195,767
288,041
2,225,589
2,254,989
200,086
292,264
37,855
37,577
4,319
4,322
(7,100)
(4,841)
–
(99)
4,900,895
4,972,928
84,073
(12,040)
393,118
1,243,816
1,636,934
268,545
972,693
1,241,238
–
28
28
(124,573)
(271,151)
(395,724)
6,537,829
37
6,214,166
36
84,101
–
(407,764)
(1)
32,380
32,380
61,760
32,472
61,760
21,701
–
–
–
–
–
(10,771)
31,421
34,119
2,698
–
Total
$ 8,858,798
$8,872,023 $ 203,831
$ (105,918)
$ (84,688)
$ 6,722,423
$6,391,451
$87,602
$ (418,574)
(1) Other comprehensive income
81
The amortized cost and fair values of available for sale securities at December 31, 2009, 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 Years6
Total
Weighted
Average
Maturity5
$
$
6,998
7,020
2.16
–
–
–
$
$
25
25
6.18
7,023
7,045
2.18
$
$
$
$
–
–
–
4,046
4,302
3.99
6
6
7.61
4,052
4,308
3.99
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
$
$
15,892
16,768
4.11
$
–
–
–
$
15,892
16,768
4.11
$
–
–
–
–
–
–
$ 41,330
41,131
1.43
$ 17,143
17,116
1.60
$ 58,473
58,247
1.48
0.16
19.41
29.94
19.95
²
³
$
$
$
$
6,998
7,020
2.16
61,268
62,201
2.29
17,174
17,147
1.61
85,440
86,368
2.15
$ 8,607,195
8,601,690
4.31
$
166,163
183,965
2.34
$ 8,858,798
8,872,023
4.25
¹ Calculated on a taxable equivalent basis using a 39% effective tax rate.
² The average expected lives of mortgage-backed securities were 3.38 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.
6 Nominal yield on municipal and other tax-exempt securities and other debt securities with contractual maturity dates over ten years are
based on variable rates which generally are reset within 35 days.
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)
2009
2008
2007
$ 3,242,282
63,859
1,390
$ 3,499,128
21,128
11,932
$ 806,979
2,862
3,138
24,300
2,736
(96)
Gains and losses on sales of available for sale securities are realized on settlement date.
Gross realized gains for the year ended December 31, 2008 exclude $6.8 million gain from the redemption of Visa, Inc.
Class B common stock.
In addition to securities that have been reclassified as pledged to creditors, securities with an amortized cost of $5.1 billion
and $5.0 billion at December 31, 2009 and 2008, 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 re-pledge these securities.
82
Temporarily Impaired Securities as of December 31, 2009
(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
Available for sale:
Municipal and
other tax-exempt
Residential mortgage-
backed securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Other
Total U.S. agencies
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential
mortgage-backed
securities
Other debt securities
Equity securities and
mutual funds
Total available for sale
Total
15
$
1,490 $
14
$
2,991
$
43
$
4,481 $
57
27
21
8
16
4
49
21
65
86
34,373
265
657
46
35,030
311
497,659
212,618
460,144
87,434
1,257,855
6,864
1,568
6,906
5,390
20,728
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
195,808
596,554
792,362
66,298
102,718
169,016
497,659
212,618
460,144
87,434
1,257,855
195,808
596,554
792,362
6,864
1,568
6,906
5,390
20,728
66,298
102,718
169,016
135
1,257,855
20,728
792,362
169,016
2,050,217
189,744
5
8,116
26
31
1
8,147
27
4
171
186
524
2,790
1,303,134
21,543
$ 1,304,624 $ 21,557
–
793,050
$ 796,041
–
169,063
$169,106
524
2,790
2,096,184
190,606
$ 2,100,665 $ 190,663
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:
Municipal and
other tax-exempt
Residential mortgage-
backed securities:
U. S. agencies:
FNMA
FHLMC
Other
Total U.S. agencies
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential
mortgage-backed
securities
Other debt securities
Perpetual preferred stock
Total available for sale
Total
4
645
30
1,269
8
1,914
38
31
28
1
60
27
87
114
484,689
273,829
36,444
794,962
24,655
273,081
297,736
6,266
3,413
99
9,778
16,251
67,470
83,721
65,219
152,222
–
217,441
243,890
692,187
936,077
834
1,428
–
2,262
108,322
203,681
312,003
549,908
426,051
36,444
1,012,403
268,545
965,268
1,233,813
7,100
4,841
99
12,040
124,573
271,151
395,724
174
1,092,698
93,499
1,153,518
314,265
2,246,216
407,764
2
10
190
253
–
4,739
1,098,082
–
1,155
94,684
$ 1,108,413 $ 94,831
36
16,962
1,171,785
1
9,616
323,890
$ 1,179,699 $ 324,092
36
21,701
2,269,867
$ 2,288,112
1
10,771
418,574
$418,923
83
On a quarterly basis, the Company performs separate evaluations of impaired debt and equity securities to determine if the
unrealized losses are temporary.
For debt securities, management determines whether it intends to sell or if it is more-likely-than-not that it will be required
to sell impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and
capital requirements and securities portfolio management. During 2009, the Company recognized a $1.3 million other-
than-temporary charge on $91 million of impaired debt securities that it intended to sell. These securities were sold during
the year. At December 31, 2009, the Company does not intend to sell any impaired available for sale securities before fair
value recovers to our current amortized cost and it is more-likely-than-not that the Company will not be required to sell
impaired securities before fair value recovers.
For all impaired debt securities for which there was no intent or expected requirement to sell, the evaluation considers all
available evidence to assess whether it is more likely than not that all amounts due would not be collected according to the
security’s contractual terms.
As of December 31, 2009, the composition of the Company’s securities portfolio by the lowest current credit rating
assigned by any of the three nationally-recognized rating agencies is as follows (in thousands):
Held-to-Maturity:
Municipal and
other tax-exempt
Other debt securities
Total
Available for Sale:
U.S. Treasury
Municipal and
other tax-exempt
Residential mortgage-
backed securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Other
Total U.S. agencies
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential
mortgage-backed
securities
Other debt securities
Federal Reserve Bank
U.S. Govt / GSE (1)
AAA - AA
A - BBB
Below Investment Grade
Not Rated
Total
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Cost
Value
Cost
Value
Cost
Value
Cost
Value
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ –
$ –
$ 52,157
$ 53,771
$ 59,053
$ 60,366
$ –
$ –
$ 121,358
$ 124,710
$ 232,568
$ 238,847
–
–
–
–
1,350
1,350
–
–
6,487
6,507
7,837
7,857
$ –
$ –
$ 52,157
$ 53,771
$ 60,403
$ 61,716
$ –
$ –
$ 127,845
$ 131,217
$ 240,405
$ 246,704
$ 6,998
$ 7,020
$ –
$ –
$ –
$ –
$ –
$ –
$ –
$ –
$ 6,998
$ 7,020
–
–
41,445
42,293
7,761
7,850
9,818
9,724
2,244
2,334
61,268
62,201
3,690,280
3,782,180
2,479,522
2,547,978
1,221,577
1,225,042
254,438
254,128
7,645,817
7,809,328
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22,444
19,601
13,254
12,585
226,408
163,622
222,875
199,912
113,841
100,288
362,556
296,354
245,319
219,513
127,095
112,873
588,964
459,976
7,645,817
7,809,328
245,319
219,513
127,095
112,873
588,964
459,976
–
–
14,592
14,566
–
2,550
2,550
–
–
–
–
–
–
–
–
–
19,224
22,275
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32
–
–
–
–
–
–
–
–
–
–
–
–
31
–
–
–
3,690,280
3,782,180
2,479,522
2,547,978
1,221,577
1,225,042
254,438
254,128
7,645,817
7,809,328
262,106
699,272
195,808
596,554
961,378
792,362
8,607,195
8,601,690
17,174
17,147
32,526
32,526
78,999
19,224
78,999
22,275
35,414
50,165
35,414
50,165
–
–
$301,356 $276,372 $ 154,080
–
$142,998 $ 601,332
$ 472,250
$
37,690 $
52,530
$ 8,858,798 $ 8,872,023
stock
32,526
32,526
Federal Home Loan
Bank stock
78,999
78,999
Perpetual preferred stock
–
–
Equity securities and
mutual funds
Total
–
$7,764,340 $ 7,927,873
–
(1)
U.S. government and government sponsored enterprises are not rated by the nationally-recognized rating agencies as these securities are guaranteed by agencies of the U.S.
government or government-sponsored enterprises.
Impairment of debt securities rated investment grade by all nationally-recognized rating agencies are considered temporary
unless specific contrary information is identified. None of the debt securities rated investment grade were considered to be
other-than-temporarily impaired at December 31, 2009.
84
At December 31, 2009, approximately $589 million of the portfolio of privately issued mortgage-backed securities (based
on amortized cost after impairment charges) was rated below investment grade by at least one of the nationally-recognized
rating agencies. The aggregate unrealized loss on these securities totaled $129 million. Ratings by the nationally
recognized rating agencies are subjective in nature and accordingly ratings can vary significantly amongst the agencies.
Limitations generally expressed by the rating agencies include statements that ratings do not predict the specific percentage
default likelihood over any given period of time and that ratings do not opine on expected loss severity of an obligation
should the issuer default. As such, the impairment of securities rated below investment grade by at least one of the
nationally-recognized rating agencies was evaluated to determine if management expects not to recover the entire
amortized cost basis of the security. This evaluation was based on projections of estimated cash flows based on individual
loans underlying each security using current and anticipated increases in unemployment and default rates, decreases in
housing prices and estimated liquidation costs at foreclosure. The primary assumptions used in this evaluation were:
• Unemployment rates – increasing to 10.5% over the next 12 months, dropping to 8% for the following 12
months, and holding at 8% thereafter.
• Housing price depreciation – starting with current depreciated housing prices based on information derived from
the Federal Housing Finance Agency data, decreasing by an additional 7.5% over the next twelve months and
holding at that level thereafter.
Estimated Liquidation Costs – held constant at 27% of the then-current depreciated housing price at estimated
foreclosure date.
•
• Discount rates – estimated cash flows were discounted at rates that range from 5.50% to 6.14% based on our
current expected yields.
The Company also considers the adjusted loan-to-value ratio and credit enhancement coverage ratio as part of the
assessment of the cash flows available to recover the amortized cost of the debt securities. Each factor is given equal
weight in the evaluation.
Adjusted loan-to-value ratio is an estimate of the current collateral value available to support the realizable value of the
security. The Company calculates the adjusted loan-to-value ratio for each security using loan-level data. The adjusted
loan-to-value ratio is the original loan-to-value ratio adjusted for market-specific home price depreciation and the credit
enhancement on the specific tranche of the security owned by the Company. The home price depreciation is derived from
the Federal Housing Finance Agency (“FHFA”). FHFA provides historical information on home price depreciation at both
the Metropolitan Statistical Area (“MSA”) and state level. This information is matched to each loan to calculate the home
price depreciation. Data is accumulated from the loan level to determine the adjusted loan-to-value ratio for the security as
a whole. The Company believes that an adjusted loan-to-value ratio above 85% provides evidence that the collateral value
may not provide sufficient cash flows to support our carrying value. The 85% guideline provides for further home price
depreciation in future periods beyond our assumptions of current loss trends for residential real estate loans and is
consistent with current underwriting standards used by the Company to originate new residential mortgage loans.
A distribution of the amortized cost (after recognition of the other-than-temporary impairment) and fair value by adjusted
loan to value ratio is as follows (in thousands):
Adjusted LTV Ratio
< 70 %
70 < 75
75 < 80
80 < 85
>= 85
Total
Number of
Securities
4
–
7
9
5
25
Amortized Cost
46,229
$
–
169,886
274,813
98,036
$ 588,964
$
Fair Value
41,236
–
130,815
219,410
68,515
$ 459,976
Number of
Securities
–
–
2
6
5
13
Amount
$
$
–
–
2,330
14,177
8,635
25,142
Credit Loss Recognized
Credit enhancement coverage ratio is an estimate of credit enhancement available to absorb current projected losses within
the pool of loans that support the security. The Company acquires the benefit of credit enhancement by investing in super-
senior tranches for many of these mortgage-backed securities. Subordinated tranches held by other investors are
specifically designed to absorb losses before the super-senior tranches which effectively doubled the typical credit support
for these types of bonds. Current projected losses consider depreciation of home prices based on FHFA data, estimated
costs and additional losses to liquidate collateral and delinquency status of the individual loans underlying the security.
Management believes that a credit enhancement coverage ratio below 1.50 provides evidence that current credit
enhancement may not provide sufficient cash flows of the individual loans to support our carrying value at the security
level. The credit enhancement coverage ratio guideline of 1.50 times is based on standard underwriting criteria which
consider loans with coverage ratios of 1.20 to 1.25 times to be well-secured.
Additional evidence considered by the Company is the adjusted loan-to-value ratio and the FICO score of individual
borrowers whose loans are still performing within the collateral pool as forward-looking indicators of possible future losses
that could affect our evaluation.
85
Based on projected declines in expected cash flows from certain private-label residential mortgage-backed securities, the
Company recognized $25 million of credit loss impairment in earnings during 2009. Additional impairment based on the
difference between the total unrealized losses and the estimated credit losses on these securities was charged against other
comprehensive income, net of deferred taxes.
Impaired equity securities, including perpetual preferred stocks, are evaluated based on management’s ability and intent to
hold the securities until fair value recovers over periods not to exceed three years. The assessment of the ability and intent
to hold these securities focuses on liquidity needs, asset / liability management objectives and securities portfolio
objectives. Factors considered when assessing recovery include forecasts of general economic conditions and specific
performance of the issuer, analyst ratings and credit spreads for preferred stocks which have debt-like characteristics. All
impairment of equity securities was considered temporary at December 31, 2009. During 2009, the Company recognized
$8.0 million in other-than-temporary impairment charges against the portfolio of preferred stocks.
The following represents the composition of net impairment losses recognized in earnings (in thousands):
OTTI related to perpetual preferred stocks
OTTI on debt securities due to change in
intent to sell
OTTI on debt securities not intended for sale
Less: Portion of OTTI recognized in
other comprehensive income
OTTI recognized in earnings related to
credit losses on debt securities not intended
for sale
Total OTTI recognized in earnings
Year Ended December 31,
2008
2007
2009
$
(8,008)
$
(5,306)
$
(8,641)
(1,263)
(119,883)
(94,741)
–
–
–
–
–
–
(25,142)
(34,413)
$
–
(5,306)
$
–
(8,641)
$
The following is a tabular roll forward of the amount of credit-related OTTI recognized on available-for-sale debt securities
in earnings for the year ended December 31, 2009 (in thousands):
Balance of credit-related OTTI recognized on available for
sale debt securities at January 1, 2009
Additions for credit-related OTTI not previously
recognized
Additions for increases in credit-related OTTI
previously recognized when there is no intent to
sell and no requirement to sell before recovery of
amortized cost
Balance of credit-related OTTI recognized on available for
sale debt securities at December 31, 2009
$ –
21,468
3,674
$ 25,142
Mortgage Trading Securities
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. The Company elected to carry these securities
at fair value. Changes in fair value are recognized in earnings as they occur. As of December 31, 2009, mortgage trading
securities were carried at their $286 million fair value and had a net unrealized loss of $2.1 million. As of December 31,
2008, mortgage trading securities were carried at their $399 million fair value and had a net unrealized gain of $13 million.
The Company recognized a net loss of $13 million on mortgage trading securities in 2009 and a net gain of $11 million
during 2008.
86
(3) Derivatives
The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and
liabilities in the balance sheet at December 31, 2009 (in thousands):
Gross Basis
Net Basis2
Assets
Liabilities
Assets
Liabilities
Notional¹
Fair Value
Notional¹
Fair Value
Notional¹
Fair Value
Notional¹
Fair Value
$ 4,377,115
3,588,767
23,196
$ 110,449
454,978
1,004
$ 4,367,002
3,719,796
31,715
$ 115,413
450,614
875
$ 4,377,115
591,294
23,196
$ 110,449
174,319
1,004
$ 4,367,002
711,885
31,715
$ 115,413
176,983
875
63,942
66,248
8,119,268
–
8,119,268
64,182
5,493
636,106
–
636,106
64,182
66,248
8,248,943
–
8,248,943
64,182
5,493
636,577
–
636,577
63,942
66,248
5,121,795
–
5,121,795
64,182
5,493
355,447
64,182
66,248
5,241,032
(13,229)
342,218
–
5,241,032
Customer Risk
Management Programs:
Interest rate contracts
Energy contracts
Agriculture contracts
Foreign exchange
contracts
CD options
Total Customer Derivatives
before cash collateral
Less: cash collateral
Total customer derivatives
64,182
5,493
362,946
(54,586)
308,360
–
$ 308,360
Interest Rate Risk
Management Programs
Total Derivative Contracts
–
$ 8,248,943
¹ Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception
–
$ 5,241,032
43,357
$ 5,165,152
43,357
$ 8,162,625
1,564
$ 343,782
1,564
$ 637,670
–
$ 636,577
of the contract.
2 Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the
Company to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the
related cash collateral.
The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the
income statement (in thousands):
Year ended
December 31, 2009
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
Customer Risk Management Programs:
Interest rate contracts
Energy contracts
Agriculture contracts
Foreign exchange contracts
CD options
Total Customer Derivatives
$
Interest Rate Risk Management Programs
Total Derivative Contracts
$
2,780
3,480
728
593
–
7,581
–
7,581
$
–
–
–
–
–
–
(11,235)
$ (11,235)
For the years ended December 31, 2009 and 2008, net interest revenue decreased $13.1 million and $7.0 million,
respectively, from the settlements of amounts receivable or payable on interest rate swaps. For the year ended December
31, 2007, net interest revenue was increased by $6.8 million from the settlement of amounts receivable or payable on
interest rate swaps.
The notional amount and the fair value of derivative contracts included in residential mortgage loans held for sale on the
balance sheet and related gain (loss) included in mortgage banking revenue due to changes in the fair value of derivative
contracts as of and for the year ended December 31, 2009 were (in thousands):
Mortgage loan commitments
Forward sales contracts
Mortgage Loans Held for
Sale
Notional
Fair Value
Mortgage
Banking
Revenue
$ 117,716
333,218
$ 496
3,626
$ 4,122
$ (1,673)
5,786
$ 4,113
None of these derivative contracts have been designated as hedging instruments.
87
(4) Loans
Significant components of the loan portfolio are as follows (in thousands):
2009
2008
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)
Foregone interest on nonaccrual loans
$ 2,917,814 $3,188,642 $ 101,384
204,924
29,989
3,058
$ 6,207,840
2,491,434
1,793,622
786,802
$ 5,021,282 $5,919,061 $ 339,355 $ 11,279,698
1,513,269
993,972
223,178
773,241
769,661
560,566
$3,012,649 $4,264,108 $ 134,846 $7,411,603
137,279 2,701,248
27,387 1,752,574
561 1,010,581
$5,437,835 $7,138,098 $ 300,073 $12,876,006
1,716,153
952,953
204,884
847,816
772,234
805,136
$
$
10,308
17,015
$ 19,123
$
8,391
At December 31, 2009, approximately $5.1 billion or 46% of the total loan portfolio is to businesses and individuals in
Oklahoma and $3.2 billion or 29% of our total loan portfolio is to businesses and individuals in Texas. This geographic
concentration subjects the loan portfolio to the general economic conditions within this area.
Approximately $2.6 billion or 43% of the commercial portfolio are to business in Oklahoma and $2.0 billion or 32% of our
commercial loan portfolio are to business in Texas. At December 31, 2009, loans to energy-related businesses within the
commercial loan classification, totaled $1.9 billion or 17% of total loans and loans to service-related businesses totaled $1.8
billion or 16% of total loans. Approximately $1.0 billion of loans in the services category consists of loans with individual
balances of less than $10 million. Other notable segments include wholesale/retail, $922 million; healthcare, $793 million;
and manufacturing, $404 million.
Approximately 33% of commercial real estate loans are secured by properties located in Oklahoma, primarily in the Tulsa
and Oklahoma City metropolitan areas. An additional 30% 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 construction and land
development, $645 million; office buildings, $463 million; retail facilities, $423 million; and multifamily residences, $360
million.
At December 31, 2009 and 2008, residential mortgage loans included $15.8 million and $12.8 million, respectively, and
consumer loans included $94 thousand and $254 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, 2009, 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, 2009, outstanding standby letters of credit totaled $588 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, 2009, outstanding commercial letters of credit totaled
$13 million.
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, 2009, the
principal balance of loans sold subject to recourse obligations totaled $331 million and the reserve for credit risk from these
88
loans totaled $14 million. Provision for loan losses incurred during 2009 and 2008 totaled $12.2 million and $8.6 million,
respectively.
Reserve for Credit Losses
The activity in the reserve for loan losses is summarized as follows (in thousands):
2009
2008
2007
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Addition due to acquisitions
Ending balance
$ 233,236
196,678
(148,499)
10,680
–
$ 292,095
$ 126,677
208,280
(122,211)
20,490
–
$ 233,236
$ 109,497
34,758
(31,617)
10,511
3,528
$ 126,677
The activity in the reserve for off-balance sheet credit losses is summarized as follows (in thousands):
Beginning balance
Provision for off-balance
sheet credit losses
2009
2008
2007
$ 15,166 $ 20,853 $ 20,890
(778)
(5,687)
(37)
Ending balance
$ 14,388 $ 15,166 $ 20,853
Provision for credit losses
$ 195,900 $202,593 $ 34,721
Reserve for Recourse Loan Losses
The activity in the reserve for losses on loans sold with recourse is summarized as follows (in thousands):
2009
2008
2007
Beginning balance
Provision for recourse losses
Loans charged off, net
Ending balance
$
8,767
12,210
(7,196)
$ 13,781
$
$
3,560
8,577
(3,370)
8,767
$
$
2,473
1,092
(5)
3,560
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,
2008
2007
2009
$ 316,666
$269,908
$ 74,085
204,076
36,168
194,292
28,532
22,749
4,425
112,590
75,616
51,336
327,935
179,808
44,535
Approximately $85 million of losses on impaired loans with no related specific reserves at December 31, 2009 were
charged off against the allowance for loan losses during 2009. Interest income recognized on impaired loans during
2009, 2008 and 2007 was not significant.
89
(5) 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,
2009
2008
$ 76,900
226,724
61,347
122,842
487,813
207,553
$ 280,260
$ 71,306
221,035
55,488
136,785
484,614
207,156
$ 277,458
Depreciation expense of premises and equipment was $32.5 million, $28.4 million and $25.6 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
(6) 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,
2009
2008
$ 109,417
100,664
8,753
$ 109,417
95,059
14,358
Other identifiable intangible assets
Less accumulated amortization
Net other identifiable intangible assets
16,791
6,906
9,885
16,791
5,769
11,022
Goodwill
Less accumulated amortization
Net goodwill
Total intangible assets, net
388,736
53,135
335,601
$ 354,239
388,964
53,135
335,829
$ 361,209
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
Core
Deposit
Premiums
Other
Identifiable
Intangible Assets
2010
2011
2012
2013
2014
Thereafter
4,131
2,227
815
485
433
662
$ 8,753
1,163
1,190
1,218
936
334
5,044
$ 9,885
Total
5,294
3,417
2,033
1,421
767
5,706
$ 18,638
90
The net amortized cost of identifiable intangible assets at December 31, 2009 is assigned to the Company’s geographic markets as
follows (in thousands):
Core deposit premiums:
Texas
Colorado
Arizona
Other identifiable intangible assets:
Oklahoma
Colorado
Kansas / Missouri
Goodwill:
Oklahoma
Texas
New Mexico
Colorado
Arizona
$ 5,735
2,609
409
8,753
$
$
$
5,923
3,172
790
9,885
$
8,173
240,122
15,273
55,611
16,422
$ 335,601
Changes in the carrying value goodwill by operating segment are as follows (in thousands):
Commercial
Consumer
Wealth
Management
Total
Balance January 1, 2009
$ 266,728
$ 39,251
$ 29,850
$ 335,829
Impairment
-
(228)
-
(228)
Balance December 31, 2009
$ 266,728
$ 39,023
$ 29,850
$ 335,601
As a result of the annual goodwill evaluation, the Company recorded an impairment charge of $228 thousand related to the
consumer banking operating segment in the Arizona market. The annual goodwill evaluation did not indicate impairment
for any reporting unit in 2008 or 2007. Economic conditions did not indicate that impairment existed for any identifiable
intangible assets and therefore no impairment evaluation was performed.
91
(7) Mortgage Banking Activities
BOK Financial engages in mortgage banking activities through the BOk Mortgage Division of BOk. Residential mortgage
loans held for sale totaled $218 million and $129 million, and outstanding mortgage loan commitments totaled $145 million
and $241 million at December 31, 2009 and 2008, 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,
2009, the unrealized gain on forward sales contracts used to manage the mortgage pipeline interest rate risk was
approximately $3.6 million. Gains on mortgage loans sold, including capitalized mortgage servicing rights, totaled $31.1
million in 2009, $9.5 million in 2008 and $5.2 million in 2007.
At December 31, 2009, BOK Financial owned the rights to service 64,104 mortgage loans with outstanding principal
balances of $7.4 billion, including $828 million serviced for affiliates, and held related funds of $86 million for investors
and borrowers. The weighted average interest rate and remaining term was 5.66% and 292 months, respectively. Mortgage
loans sold with recourse totaled $331 million at December 31, 2009, and $17 million of loans sold with recourse were
either 90 days or more delinquent or were in bankruptcy or foreclosure. 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. Servicing revenue and
late charges on loans serviced for others, which are included in mortgage banking revenue in the Consolidated Statements
of Earnings totaled $20.0 million for 2009, $17.6 million for 2008 and $17.1 million for 2007.
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.
Activity in capitalized mortgage servicing rights and related valuation allowance during 2007, 2008 and 2009 are as follows
(in thousands):
Balance at December 31, 2006
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance at December 31, 2007
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance at December 31, 2008
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance at December 31, 2009
Capitalized Mortgage Servicing Rights
Purchased Originated
Total
$ 12,813 $ 53,133 $ 65,946
3,628
14,080
(2,478)
(57)
(8,274)
(2,836)
17,708
(10,752)
(2,893)
$ 13,906 $ 56,103
$ 70,009
–
19,220
(2,286)
(9,676)
(5,267)
(29,248)
19,220
(11,962)
(34,515)
$ 6,353 $ 36,399 $ 42,752
–
39,869
39,869
(2,526)
(18,395)
(20,921)
4,001
8,123
12,124
$ 7,828
$ 65,996
$ 73,824
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, 2009 was 11.2%.
Prepayment rate – Annual prepayment estimates ranging from 8.1% to 26.9% based upon loan interest rate, original
term and loan type.
Loan servicing costs – $43 to $66 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, 2009 was 2.98%.
92
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 $9.7 million.
Stratification of the mortgage loan-servicing portfolio, outstanding principal of loans serviced, and related hedging
information by interest rate at December 31, 2009 follows (in thousands):
< 5.51%
5.51% - 6.50%
6.51% - 7.50%
=> 7.51%
Total
Fair value
$
42,150
$
23,480
Outstanding principal of loans serviced1
$ 3,433,000
$ 2,216,000
$
$
6,630
$
1,564
$
73,824
721,994
$ 141,006
$ 6,512,000
1 Excludes outstanding principal of $828 million for loans serviced for affiliates and $27 million of mortgage loans for which
there are no capitalized mortgage servicing rights.
On February 9, 2010, the Company finalized an agreement to purchase the rights to service approximately $4.1
billion of residential mortgage loans largely concentrated in New Mexico from Charter Bank of Albuquerque, New
Mexico, for $34 million in cash. The loans to be serviced are predominantly held by Fannie Mae, Freddie Mac and
Ginnie Mae.
(8) Deposits
Interest expense on deposits is summarized as follows (in thousands):
2009
2008
2007
Transaction deposits
Savings
Time:
Certificates of deposits
under $100,000
Certificates of deposits
$100,000 and over
Other time deposits
Total time
Total
$ 51,607
614
$ 121,403
676
$ 194,617
1,499
57,486
70,806
88,465
37,193
17,462
112,141
$ 164,362
78,965
17,074
166,845
$ 288,924
110,791
17,374
216,630
$ 412,746
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2009 and 2008 were $2.1
billion and $3.1 billion, respectively.
Time deposit maturities are as follows: 2010 – $2.9 billion, 2011 – $187 million, 2012 – $120 million, 2013 – $131
million, 2014 – $60 million and $350 million thereafter. At December 31, 2009, the Company had $36 million in fixed
rate, brokered certificates of deposits. The weighted-average interest rate paid on these certificates is 3.88%.
Interest expense on time deposits was reduced by $11.5 million and $6.9 million in 2009 and 2008, respectively, from the
net accrued settlement of interest rate swaps. Interest expense on time deposits was increased by $2.6 million in 2007 from
the net accrued settlement of interest rate swaps.
The aggregate amount of overdrawn transaction deposits that have been reclassified as loan balances was $13 million at
December 31, 2009 and $35 million at December 31, 2008.
93
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
2009
Maximum
Outstanding
At Any
Balance
Rate Month End
December 31
2008
Maximum
Outstanding
At Any
2007
Maximum
Outstanding
At Any
Balance
Rate Month End
Balance
Rate Month End
Parent Company:
Revolving, unsecured line $
Subsidiary Banks:
–
–% $ 50,000
$
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
2,471,743 0.29
2,798,274
3,025,399 0.72
3,686,019
3,225,131 4.30
3,225,131
1,253,051 0.23
850,000 0.25
398,539 5.53
30,306 1.69
5,003,639 0.71
$ 5,003,639 0.72
2,053,130
1,100,000
398,539
43,949
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
Aggregate annual principal repayments of long-term debt at December 31, 2009 are as follows (in thousands):
2010
2011
2012
2013
2014
Thereafter
Total
Parent
Company
Subsidiary
Banks
$
$
–
–
–
–
–
–
–
$ 4,589,362
2,055
1,399
525
525
409,773
$ 5,003,639
Funds purchased generally mature within one to ninety days from the transaction date. At December 31, 2009, securities
sold under agreements to repurchase totaled $1.3 billion with related accrued interest payable of $194 thousand.
Additional information relating to repurchase agreements at December 31, 2009 is as follows (dollars in thousands):
Security Sold/Maturity
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
U.S. Agency Securities:
Overnight1
Long-term
$ 1,188,400
139,674
$ 1,328,074
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.
$ 1,170,682
145,888
$ 1,316,570
$ 1,006,619
163,088
$ 1,169,707
Total Agency Securities
0.31%
4.71
0.93%
Borrowings from the Federal Home Loan Banks are used for funding purposes. In accordance with policies of the Federal
Home Loan Banks, 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 Banks have issued letters of credit totaling $468 million to secure BOK Financial’s obligations to depositors of
public funds. The unused credit available to BOK Financial at December 31, 2009 pursuant to the Federal Home Loan
Bank’s collateral policies is $2.3 billion.
94
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 $850 million at December 31, 2009.
Effective December 2, 2009, the Company amended the $188 million unsecured revolving credit agreement with George B.
Kaiser, its Chairman and principal shareholder. The amended terms of the credit agreement reduce the size of the credit
agreement from $188 million to $100 million. Interest on the outstanding balance due to Mr. Kaiser is based on one-month
LIBOR plus 250 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 50 basis points. Previously, interest was due quarterly based on one-month
LIBOR plus 125 basis points and the facility fee was paid quarterly on the unused portion of the commitment at 25 basis
points. The maturity date was extended to December 2, 2012 from December 2, 2010 and as with the original agreement, it
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. No amounts were outstanding under this credit agreement as of
December 31, 2009
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, Bank of Oklahoma 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.
95
(10) 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:
Available for sale securities
mark-to-market
Valuation adjustments
Mortgage servicing rights
Lease financing
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,
2009
2008
$ 6,500
30,000
37,900
18,200
5,200
97,800
$
–
33,800
29,500
19,800
2,300
85,400
–
7,100
115,900
26,000
17,800
17,000
2,300
18,500
204,600
126,300
6,500
94,200
23,900
22,300
11,300
1,200
18,800
304,500
$106,800
$219,100
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,
2008
2009
2007
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income tax
$ 112,163
16,759
128,922
$ 108,879
7,377
116,256
$ 119,025
10,179
129,204
(19,835)
(2,382)
(22,217)
$ 106,705
(47,685)
(3,662)
(51,347)
$ 64,909
(12,935)
(508)
(13,443)
$ 115,761
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
Non-controlling interest
Utilization of tax credits
Bank-owned life insurance
Charitable contribution
Reduction of tax accrual
Other, net
Total
Years ended December 31,
2007
2008
2009
$108,752
(4,616)
$73,710 $117,865
(4,204)
(4,173)
9,165
(1,204)
(1,327)
(3,424)
–
–
(641)
5,783
(1,167)
(1,218)
(3,411)
–
–
2,113
$106,705 $ 64,909 $115,761
1,278
2,643
(1,234)
(3,555)
(2,852)
(2,437)
1,529
96
Due to the favorable resolution of certain tax issues for the tax periods ended December 31, 2004, BOK Financial reduced
its tax accrual by $2.4 million in 2008, 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
Non-controlling interest
Bank-owned life insurance
Charitable contribution
Reduction of tax accrual
Other, net
Total
Years ended December 31,
2007
2008
2009
35%
(2)
3
(1)
(1)
–
–
–
34%
35%
(2)
1
1
(2)
(1)
(1)
–
31%
35%
(1)
1
(1)
(1)
–
–
1
34%
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of January 1
Additions for tax for current year positions
Settlements during the period
Decreases in tax for prior year positions
Lapses of applicable statute of limitations
Balance as of December 31
2009
$ 13,200
4,050
–
(700)
(4,250)
$ 12,300
2008
$ 13,200
3,800
(100)
–
(3,700)
$ 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, 2009 and 2008, the Company recognized $1.4 million and $1.5 million, respectively,
in interest and penalties. The Company had approximately $2.7 million and $3.0 million for the payment of interest and
penalties accrued as of December 31, 2009 and 2008, 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 carry-back period. Refunds claimed in the carry-back 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.
97
(11) 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
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,
2009
2008
$ 39,099
–
2,403
7,517
(2,438)
$ 46,581
$ 46,183
–
2,685
(1,205)
(8,564)
$ 39,099
$ 35,301
8,826
–
(2,438)
$ 41,689
$ 58,089
(14,224)
–
(8,564)
$ 35,301
$(4,892)
$ (3,798)
$
–
2,403
(2,190)
2,180
$ 2,393
$
$
–
2,685
(3,910)
496
(729)
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
5.15%
5.25%
N/A
6.50%
7.00%
N/A
As of December 31, 2009, expected future benefit payments related to the Pension Plan were as follows (in
thousands):
2010
2011
2012
2013
2014
2015 through 2019
$ 3,128
3,251
3,584
3,491
3,704
16,889
$34,047
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 6.58%. As of December 31, 2009, the expected return on plan assets for
2010 is 5.25%. The maximum allowed and minimum required Pension Plan contributions for 2009 were $22.6 million
and $364 thousand, respectively. The minimum contribution will be made for 2009. No contribution was made for 2008.
We expect approximately $2.5 million of net pension costs currently in accumulated other comprehensive income to be
recognized as net periodic pension cost in 2010.
Employee contributions to the Thrift Plan are 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 up to $750 is made for employees whose annual base compensation is less than $40,000.
Total non-elective contributions were $998 thousand in 2009, $955 thousand in 2008 and $999 thousand in 2007.
98
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 $13.0 million, $12.1 million and $11.6 million for 2009, 2008 and 2007, 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, 2009. 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 $91.2 million in 2009, $83.2 million in 2008 and $71.4 million in 2007 for incentive compensation plans.
(12) 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.
99
The following table presents options outstanding during 2007, 2008 and 2009 under these plans:
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 awarded
Options exercised
Options forfeited
Options expired
Options outstanding at
December 31, 2009
Options vested at
December 31, 2009
Weighted-
Average
Exercise
Price
$38.63
54.18
32.41
43.74
45.80
$43.50
47.71
33.05
47.96
49.91
$45.77
37.24
33.49
44.83
51.76
Number
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
913,880
(280,572)
(487,793)
(199,220)
3,521,763
$44.58
903,380
$43.37
The following table summarizes information concerning currently outstanding and vested stock options:
Options Outstanding
Options Vested
Range of
Exercise
Prices
$17.37
28.27 – 30.87
36.65
37.74
38.91 – 44.30
45.15 – 47.34
47.05 – 48.53
47.67
48.46
53.88 – 54.28
54.33
Weighted
Weighted
Average Weighted
Remaining Average
Average
Contractual Exercise Number Exercise
Price
Vested
Price
Number
Outstanding Life (years)
33,482
214,242
676,219
216,517
93,533
437,242
509,079
44,319
694,057
93,724
509,349
1.00
1.80
6.00
2.50
1.00
3.00
3.50
2.00
5.00
0.12
4.00
$17.37
29.96
36.65
37.74
41.75
47.31
47.06
47.67
48.46
54.09
54.33
$17.37
33,482
29.67
161,268
–
–
37.74
100,306
–
–
191,724
47.31
184,034 47.07
–
–
53,566 48.46
93,724 54.09
85,276 54.33
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:
2009
2008
2007
Average risk-free interest rate
Dividend yield
Volatility factors
Weighted average expected life
Weighted average fair value
1.32%
2.50%
.218
4.9 years
$5.36
3.50%
1.70%
.147
4.9 years
$7.09
4.68%
1.10%
.143
4.9 years
$9.91
Compensation cost of stock options granted that may be recognized as compensation expense in future years totaled $8.5
million at December 31, 2009. Subject to adjustments for forfeitures, we expect to recognize compensation expense for
current outstanding options of $3.7 million in 2010, $2.4 million in 2011, $1.3 million in 2012, $720 thousand in 2013,
$330 thousand in 2014 and $100 thousand thereafter. Stock option expense for the years ended December 31, 2009, 2008
100
and 2007 was $5.9 million, $7.8 million and $6.3 million, respectively. The intrinsic value of options exercised during the
years ended December 31, 2009, 2008 and 2007 was $3.8 million, $11.8 million and $14.9 million, respectively. The
aggregate intrinsic value of options outstanding as of December 31, 2009 and 2008 was $10.4 million and $19.2 million,
respectively. The aggregate intrinsic value of options exercisable as of December 31, 2009 and 2008 was $3.7 million and
$656 thousand, respectively.
BOK Financial also issues non-vested common shares under the various stock-based compensation plans. At December 31,
2009, a total of 282,772 non-vested common shares have been awarded, including 156,339 awarded in 2009. The weighted
average grant date fair value of non-vested shares awarded in 2009 was $35.31 per share. During 2009, 13,625 shares
which had an average grant date fair value of $47.34 per share vested and 12,481 shares which had an average grant date
fair value of $46.61 per share were forfeited. Unrecognized compensation cost of non-vested shares totaled $6.6 million at
December 31, 2009. Subject to adjustment for forfeitures, we expect to recognize compensation expense of $2.0 million in
2010, $1.8 million in 2011, $1.6 million in 2012, $1.1 million in 2013 and $40 thousand in 2014.
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, 2009,
the recorded obligation for liability awards was $2.4 million. Compensation cost of liability awards was an expense of $1.3
million in 2009, a benefit of $471 thousand in 2008 and an expense of $506 thousand in 2007.
During January 2010, BOK Financial awarded the following stock-based compensation:
Number
Exercise
Price
Fair Value /
Award
Equity awards:
Stock options
Non-vested stock
Total equity awards
Total stock-based awards
241,720
173,857
415,577
415,577
$48.30
–
$10.17
48.30
The aggregate compensation cost of these awards totaled approximately $10.9 million. This cost will be recognized over
the vesting periods, subject to adjustments for forfeitures. None of the stock-based compensation awards in January 2010
are subject to deferred compensation plans.
(13) 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 nonaccrual or impaired related party loans outstanding at
December 31, 2009 or 2008. Activity in loans to related parties is summarized as follows (in thousands):
Beginning balance
Advances
Payments
Charge-offs2
Adjustments1
Ending balance
2009
2008
$ 207,140
676,743
(666,159)
–
(26)
$ 217,698
$ 252,051
734,553
(704,433)
(26,000)
(49,031)
$ 207,140
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. Approximately $12 million of these loans remain outstanding at December 31, 2009 and are
nonperforming.
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.
101
The Company has an unsecured revolving credit agreement with George B. Kaiser, its Chairman and principal shareholder
as more fully described in Note 9. The Company also rents office space in facilities owned by affiliates of Mr. Kaiser.
Lease payments for 2009 totaled $1.0 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 99% of the Funds’ assets of $2.6 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.
(14) Commitments and Contingent Liabilities
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. During 2009, the staff of the SEC advised the Company that it does not intend to
recommend the Commission take any action as originally contemplated by the Wells Notice received by the Company in
connection with the Staff’s investigation of BISYS Fund Services Ohio, Inc.
BOSC, Inc. has been joined as a defendant in a putative class action brought on behalf of unit holders of SemGroup Energy
Partners, LP in the United States District Court for the Northern District of Oklahoma. The lawsuit is brought pursuant to
Sections 11 and 12(a)(2) of the Securities Act of 1933 against all of the underwriters of issuances of partnership units in the
Initial Public Offering in July 2007 and in a Secondary Offering in January 2008. BOSC underwrote $6.25 million of units
in the Initial Public Offering. BOSC was not an underwriter in the Secondary Offering. Counsel for BOSC believes BOSC
has valid defenses to the claims asserted in the litigation and management does not anticipate any material loss.
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 $2.2 million at December 31, 2009. 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 $2.2
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 0.5824 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, 2009, Cavanal Hill Funds’ assets included $794 million of U.S. Treasury, $1.1 billion of cash
management and $550 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, 2009. 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. No assets were purchased from the funds in 2009,
2008 or 2007.
102
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 $206 thousand in 2010. Net rent expense
on this lease was $3.0 million in 2009, 2008 and 2007. Total rent expense for BOK Financial was $21.4 million in 2009,
$20.3 million in 2008 and $18.8 million in 2007.
At December 31, 2009, future minimum lease payments for equipment and premises under operating leases were as
follows: $17.0 million in 2010, $15.5 million in 2011, $12.3 million in 2012, $10.1 million in 2013, $9.3 million in 2014
and a total of $89.4 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 $723 million and $373 million at December 31, 2009 and 2008, respectively.
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 $2.3 million at December 31, 2009.
At December 31, 2009, the Company has funded $51.7 million and has commitments to fund an additional $9.9 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 Funds’ assets totaled $22.9 million and the limited partners’
ownership interests in the Funds totaled $19.4 million at December 31, 2009. The Funds have no debt. The general partner
has contingent obligations through the Funds to make additional investments totaling $18.9 million as of December 31,
2009. Substantially all of those contingent obligations are offset by commitments of the limited partners.
Bank of Oklahoma guarantees rents totaling $28.7 million through September, 2017 to the City of Tulsa (“City”) as owner
of a building immediately adjacent to the Bank’s main office for space currently rented by third-party tenants in the
building. All rent payments are current. Remaining guaranteed rents totaled $22.8 million at December 31, 2009. In
return for this guarantee, Bank of Oklahoma will receive 80% of net cash flow as defined in an agreement with the City
over the next 10 years from currently vacant space in the same building. None of this additional space has been rented to
outside parties since the date of the agreement. The maximum amount that Bank of Oklahoma may receive under this
agreement is $4.5 million.
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.
(15) 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 2009, 2008 or 2007.
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 $64 million, $59 million and $50 million in 2009, 2008 and 2007,
respectively.
103
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, 2009, BOK Financial’s subsidiary banks could declare dividends up to $225 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, 2009, the subsidiary banks could
declare dividends of up to $190 million under this policy. The subsidiary banks declared and paid dividends of $172
million, $76 million and $254 million in 2009, 2008 and 2007, respectively.
As defined by banking regulations, loan commitments and equity investments to a single affiliate may not exceed 10% of
unimpaired capital and surplus and loan commitments and equity investments to all affiliates may not exceed 20% of
unimpaired capital and surplus. All loans to affiliates must be fully secured by eligible collateral. At December 31, 2009,
loan commitments and equity investments were limited to $246 million to a single affiliate and $492 million to all affiliates.
The largest loan commitment and equity investment to a single affiliate was $200 million and the aggregate loan
commitments and equity investments to all affiliates were $323 million. The largest outstanding amount to a single affiliate
was $44 million and the total outstanding amounts to all affiliates were $83 million. At December 31, 2008, total loan
commitments and equity investments to all affiliates were $203 million. Total outstanding amounts to all affiliates were
$64 million.
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, 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.
104
(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,
2009
2008
Amount
Ratio
Amount
Ratio
$
$
$
2,492,771
1,623,887
452,420
131,523
37,202
93,201
28,023
14,679
1,876,778
1,079,037
398,937
121,816
34,286
85,328
24,676
13,771
1,876,778
1,079,037
398,937
121,816
34,286
85,328
24,676
13,771
$
$
$
14.43%
13.82
10.62
16.99
16.13
12.16
10.63
17.86
10.86%
9.18
9.36
15.73
14.87
11.13
9.36
16.75
8.05%
6.45
7.24
6.54
12.85
6.96
9.60
10.17
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
105
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 will be reclassified into income as pension plan costs are recognized over the remaining service
period of plan participants.
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
Unrealized
Gain (Loss)
On Available Temporary
Other
Than
Accumulated Unrealized
(Loss) on
Effective
Impairment Cash Flow
Losses
Hedges
(Loss)
On
Employee
Benefit Plans
For Sale
Securities
$ (59,152) $ – $ (2,935) $ (11,357)
–
–
–
–
7,518
–
(2,925)
–
–
2,201
–
(856)
48,308
–
–
(17,239)
Total
$ (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) $
150
(6,998)
–
–
(16,434)
6,393
(2,741)
$ (31,234)
(236,990)
139
(16,434)
76,831
–
139
–
(54)
–
–
–
–
–
realized and included in net income
(21,926)
Reclassification adjustment for tax expense (benefit)
on realized gains (losses)
Balance at December 31, 2008
Unrealized gains on securities
Other-than-temporary impairments losses on securities
Unrealized gains on employee benefit plans
Tax benefit (expense) on unrealized gains (losses)
Reclassification adjustment for (gains) losses
6,551
$ (204,648)
418,477
–
–
–
$ – $
10,053
(94,741)
–
(146,743)
31,688
289
–
(21,637)
(112)
–
(1,199) $ (17,039)
–
–
926
(360)
–
–
–
–
6,439
$ (222,886)
428,530
(94,741)
926
(115,415)
realized and included in net income
(11,970)
–
262
–
(11,708)
Reclassification adjustment for tax expense (benefit)
on realized gains (losses)
Balance at December 31, 2009
4,656
$ 59,772
–
$ (53,000) $
(102)
–
(1,039) $ (16,473)
4,554
$ (10,740)
106
(16) Earnings per Share
Effective January 1, 2009, unvested share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. The Company has determined that its outstanding non-vested stock
awards are participating securities. Accordingly, earnings per common share are computed using the two-class method.
All previously reported earnings per common share data has been retrospectively adjusted to conform to the new
computation method, the effects of which were not material. The following table presents the computation of basis and
diluted earnings per share (dollar in thousands, except per share data):
Years ended December 31,
2008
2007
2009
Numerator:
Net income
Earnings allocated to participating securities
Numerator for basic earnings per share – income
available to common shareholders
Effect of reallocating undistributed earnings of participating securities
Numerator for diluted earnings per share – income available
to common shareholders
Denominator:
Weighted average shares outstanding
Less: Participating securities included in weighted average shares
outstanding
Denominator for basic earnings per common share
Dilutive effect of employee stock compensation plans (1)
Denominator for diluted earnings per common share
Basic earnings per share
Diluted earnings per share
$ 200,578
(818)
$ 153,232
(384)
$ 217,664
(462)
199,760
1
152,848
(40)
217,202
2
$ 199,761
$ 152,808
$ 217,204
67,653,035
67,428,086
67,220,529
(277,648)
67,375,387
112,557
67,487,944
$ 2.96
$ 2.96
(125,096)
67,302,990
158,371
67,461,361
$ 2.27
$ 2.27
(137,329)
67,083,200
436,542
67,519,742
$ 3.24
$ 3.22
(1) Excludes employee stock options with exercise prices greater than current
market price.
2,735,375
1,571,239
799,087
(17) Reportable Segments
BOK Financial operates three principal lines of business: commercial banking, consumer banking and wealth management.
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, securities gains and
losses including impairment charges, 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
107
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.
(In Thousands)
Year ended December 31, 2009
Net interest revenue/(expense)
from external sources
Net interest revenue/(expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Net loans charged off
Change 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 before non-controlling
interest
Net income (loss) attributable to
non-controlling interest
Net income
$
Commercial
Banking
Consumer
Banking
Wealth
Management
Funds
Management
and Other
Total
$ 345,375
$
57,893
$ 25,899
$ 281,197
$
710,364
(52,598)
292,777
133,703
224,065
100,749
–
–
(7,500)
94,166
36,630
57,536
–
57,536
73,565
131,458
182,895
256,337
24,366
12,124
(13,198)
1,773
34,349
13,362
18,746
44,645
156,360
171,543
11,399
–
–
(39,713)
241,484
11,688
50,947
59,386
–
710,364
484,646
702,892
195,900
–
12,124
21,542
8,344
–
18,063
7,026
(238)
164,143
49,687
(5,965)
310,721
106,705
20,987
11,037
114,456
204,016
–
20,987
–
$ 11,037
3,438
$ 111,018
$
3,438
200,578
$
Average assets
Average invested capital
$ 10,116,014
1,042,101
$ 6,149,598
225,540
$ 3,032,007
194,731
$ 3,839,768
614,669
$ 23,137,387
2,077,041
Performance measurements:
Return on assets
Return on invested capital
Efficiency ratio
0.57%
5.52
52.54
0.34%
9.31
81.54
0.36%
5.67
85.34
–
–
–
0.87%
9.66
58.82
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
$ 468,880
$ 472,958
$ 645,548
$ 89,560
$ 19,297,619
8,074
–
–
8,074
–
233,410
$ 710,364
11,688
$ 484,646
51,185
$ 696,733
102,944
$ 200,578
3,839,768
$ 23,137,387
108
Commercial
Banking
Consumer
Banking
Wealth
Management
Funds
Management
and Other
Total
(In Thousands)
Year ended December 31, 2008
Net interest revenue/(expense)
from external sources
$ 451,624
$
32,076
$ 12,617
$ 150,545
$
646,862
Net interest revenue/(expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Net loans charged off
Change in fair value of
mortgage servicing rights
Gains (losses) on financial
instruments, net
Gains (losses) on repossessed
assets, net
Income (loss) before taxes
Federal and state income tax
Net income before non-controlling
interest
Net income (loss) attributable to
non-controlling interest
Net income
(134,191)
317,433
107,185
216,655
81,966
118,728
150,804
148,885
219,024
16,726
32,853
45,470
156,133
149,966
2,961
(17,390)
133,155
(6,415)
42,733
100,940
–
646,862
405,788
628,378
202,593
–
(34,515)
4,689
12,525
–
(7)
–
(34,515)
5,729
22,936
(82)
130,604
50,805
193
42,142
16,393
–
48,669
18,932
378
(10,826)
(21,221)
489
210,589
64,909
79,799
25,749
29,737
10,395
145,680
–
79,799
$
–
25,749
–
$ 29,737
(7,552)
$
$ 17,947
(7,552)
153,232
$
Average assets
Average invested capital
$ 11,049,565
1,103,656
$ 5,764,667
207,586
$ 2,193,386
183,845
$ 2,602,201
512,810
$ 21,609,819
1,946,342
Performance measurements:
Return on assets
Return on invested capital
Efficiency ratio
0.72%
7.23
51.02
0.45%
12.40
73.08
1.36%
16.18
74.39
–
–
–
0.71%
7.87
59.69
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
$ 513,707
$ 412,203
$ 620,049
$ 135,285
$ 19,007,618
8,228
–
–
8,228
–
124,927
$ 646,862
(6,415)
$ 405,788
42,355
$ 662,404
9,719
$ 153,232
2,602,201
$ 21,609,819
109
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
Net loans charged off
Change in fair value of
mortgage servicing rights
Gains (losses) on financial
instruments, net
Gains (losses) on repossessed
assets, net
Income (loss) before taxes
Federal and state income tax
Net income (loss) before non-
controlling interest
Net income (loss) attributable to
non-controlling interest
Net income (loss)
(200,390)
325,835
131,081
201,876
9,747
163,028
155,221
144,585
193,600
9,233
–
(2,893)
1,075
(486)
10
246,378
95,841
107
93,701
36,450
37,627
46,189
130,681
133,436
1,513
–
13
–
41,934
16,312
(265)
17,240
1,679
43,265
14,228
–
544,485
408,026
572,177
34,721
–
(2,893)
(6,648)
(6,046)
(34)
(45,256)
(32,842)
83
336,757
115,761
150,537
57,251
25,622
(12,414)
220,996
–
$ 150,537
$
–
57,251
–
$ 25,622
3,332
$ (15,746) $
3,332
217,664
Average assets
Average invested capital
$ 9,646,637
1,095,314
$ 5,509,485
180,393
$ 1,743,943
171,159
$ 2,125,703
365,597
$ 19,025,768
1,812,463
Performance measurements:
Return on assets
Return on invested capital
Efficiency ratio
1.56%
13.77
44.08
1.04%
31.74
64.58
1.47%
14.97
75.44
–
–
–
1.14%
12.01
60.07
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
$ 16,900,065
9,120
–
–
9,120
–
8,120
$544,485
1,679
$ 408,026
43,299
$ 574,987
(24,866)
$ 217,664
2,125,703
$ 19,025,768
110
(18) Fair Value of Financial Instruments
Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly
transaction between market participants in the principal market for the given asset or liability. Certain assets and liabilities
are recorded in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a
non-recurring basis
The following table presents the carrying values and estimated fair values of all financial instruments, including those
financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis as
of December 31, 2009 and 2008 (dollars in thousands):
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
Estimated
Fair
Value
$ 921,216
9,470,031
217,826
–
–
1.04 – 18.00%
2.00 – 18.00
0.08 – 12.75
1.75 – 21.00
–
0.47
1.24
6.93
1.26
0.23 – 3.81%
0.24 – 3.81
0.74 – 4.85
3.81
0.02 – 10.00
0.25 – 6.58
5.58
2.09
0.05
3.55
0.06 – 2.34
0.06 – 0.25
1.79
$ 694,942
7,132,607
129,246
–
$ 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
2009:
Cash and cash equivalents
Securities
Residential mortgage loans held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Reserve for loan losses
Net loans
Mortgage servicing rights
Derivative instruments with positive
fair value, net of cash margin
Other assets – private equity funds
Deposits with no stated maturity
Time deposits
Other borrowings
Subordinated debentures
Derivative instruments with negative
fair value, net of cash margin
2008:
Cash and cash equivalents
Securities
Residential mortgage loans held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Reserve for loan losses
Net loans
Mortgage servicing rights
Derivative instruments with positive
fair value, net of cash margin
Other assets – private equity funds
Deposits with no stated maturity
Time deposits
Other borrowings
Subordinated debentures
Derivative instruments with negative
fair value, net of cash margin
Carrying
Value
$ 921,216
9,463,732
217,826
6,207,840
2,491,434
1,793,622
786,802
11,279,698
(292,095)
10,987,603
73,824
343,782
22,917
11,750,235
3,767,993
4,605,100
398,539
308,360
7,411,603
2,701,248
1,752,574
1,010,581
12,876,006
(233,236)
12,642,770
42,752
452,604
15,891
9,799,364
5,183,243
4,547,453
398,407
667,034
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
Because no market exists for certain of these financial instruments and management does not intend to sell these financial
instruments, BOK Financial the fair values shown above may not represent values at which the respective financial
instruments could be sold individually or in the aggregate.
111
6,118,613
2,457,730
1,920,449
807,288
11,304,080
–
11,304,080
73,824
343,782
22,917
11,750,235
3,776,149
4,989,509
442,738
308,360
7,344,753
2,703,146
2,086,901
1,063,566
13,198,366
–
13,198,366
42,752
452,604
15,891
9,799,364
5,238,740
4,085,035
466,280
667,034
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.
Securities
The fair values of securities are based on quoted prices for identical instruments in active markets, when available. If
quoted prices for identical instruments are not available, fair values are based on significant other observable inputs such as
quoted prices of comparable instruments or interest rates and credit spreads, yield curves, volatilities prepayment speeds
and loss severities. Fair values for a a portion of the securities portfolio are based on significant unobservable inputs,
including projected cash flows discounted as rates indicated by comparison to securities with similar credit and liquidity
risk.
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.
Residential Mortgage Loans Held for Sale
Residential mortgage loans held for sale are carried on the balance sheet at fair value. 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.
Loans
The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates and
credit and liquidity spreads currently being offered for loans with similar remaining terms to maturity and risk, adjusted for
the impact of interest rate floors and ceilings. The fair values of loans were estimated to approximate their discounted cash
flows less loan loss reserves allocated to these loans of $274 million and $210 million at December 31, 2009 and 2008,
respectively.
Other Assets – Private Equity Funds
The fair value of the portfolio investments of the Company’s two private equity funds are based upon net asset value
reported by the underlying funds, as adjusted by the general partner when necessary to represent the price that would be
received to sell the assets. Private equity fund assets are long-term, illiquid investments. No secondary market exists for
these assets. They may only be realized through cash distributions from the underlying funds.
Deposits
The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on
similar transactions. Estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction
deposits, money market deposits and savings accounts, is equal to the amount payable on demand. Although market
premiums paid reflect an additional value for these low cost deposits, adjusting fair value for the expected benefit of these
deposits is prohibited. 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, 2009 and 2008.
112
Assets and liabilities recorded at fair value in the financial statement on a recurring and non-recurring basis are grouped
into three broad levels as follows:
Quoted Prices in active Markets for Identical Instruments – Fair value is based on unadjusted quoted prices in active
markets for identical assets or liabilities.
Significant Other Observable Inputs – fair value is based on significant other observable inputs are generally
determined based on a single price for each financial instrument provided to us by an applicable third-party pricing
service 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.
Significant Unobservable Inputs – Fair value is based upon model-based valuation techniques for which at least one significant
assumption is not observable in the market.
The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to
determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by
comparing the price provided by the pricing service with other sources, including brokers’ quotes, sales or purchases of
similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant
differences between the pricing service provided value and other sources are discussed with the pricing service to
understand the basis for their values. Based on this evaluation, we determined that the results represent prices that would
be received to sell assets or paid to transfer liabilities in orderly transactions in the current market.
Fair Value of Financial Instruments Measured on a Recurring Basis
The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of December 31,
2009 (in thousands):
Assets:
Trading securities
Investment securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt
Mortgage-backed securities
Other debt securities
Federal Reserve Bank stock
Federal Home Loan Bank stock
Perpetual preferred stock
Equity securities and mutual funds
Mortgage trading securities
Residential mortgage loans held for sale
Mortgage servicing rights
Derivative contracts, net of cash margin
Other assets – private equity funds
Liabilities:
Certificates of deposit
Derivative contracts, net of cash margin
Total
$ 65,354
246,704
7,020
62,201
8,601,690
17,147
32,526
78,999
22,275
50,165
8,872,023
285,950
217,826
73,824
343,782
22,917
98,031
308,360
Quoted Prices in
Active Markets for
Identical
Instruments
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
$
1,282
$
54,272
246,704
$ 9,800
7,020
24,424
31,444
1,175
875
25,603
8,601,690
31
32,526
78,999
22,275
25,741
8,786,865
285,950
217,826
342,607
98,031
307,485
36,598
17,116
53,714
73,824 (1)
22,917
(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 7, Mortgage Banking Activities.
113
The fair value of certain municipal and other debt securities classified as trading or available for sale are based on
significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash
flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt.
Discount rates are primarily based on reference to interest rate spreads on comparable securities of similar duration and
credit rating as determined by the nationally recognized rating agencies adjusted for a lack trading volume. Taxable
securities rated investment grade by all nationally recognized rating agencies are generally valued to yield a range of 1.73%
to 2.79%. As of December 31, 2009, average yields on comparable short-term taxable securities are generally less than 1%.
Tax-exempt securities rated investment grade by all nationally recognized rating agencies are generally valued using a
spread of 70 to 80 basis points over average yields of comparable securities as of December 31, 2009. Approximately $9.7
million of our municipal and other tax-exempt securities are rated below investment grade by at least one of the three
nationally recognized rating agencies. The fair value of these securities is determined using a spread of 370 to 380 basis
points over average yields for comparable municipal securities as of December 31, 2009. All of these securities are
currently performing in accordance with their respective contractual terms.
The following represents the changes for the year ended December 31, 2009 related to assets measured at fair value on a
recurring basis using significant unobservable inputs (in thousands):
Available for Sale Securities
Trading
Securities
Municipal and
other tax-
exempt
Balance at December 31, 2008
Transfer to significant unobservable inputs
Transfer from trading to available for sale
Purchases, sales, issuances and settlements, net
Gain (loss) recognized in earnings (1)
Other comprehensive income (loss)
Balance December 31, 2009
$
-
44,650
(45,890)
11,850
(810)
–
9,800
$
$
–
–
32,540
4,268
–
(210)
$ 36,598
Other debt
securities
$
–
–
13,350
3,792
–
(26)
$ 17,116
Other assets –
private equity
funds
$ 15,891
–
–
2,906
4,120
–
$ 22,917
(1) Loss on trading securities included in Brokerage and Trading Revenue. Gain on private equity funds included in Gain on Other
Assets.
Approximately $45 million of trading securities were transferred to significant unobservable inputs during 2009.
Independent pricing of these securities was discontinued due to a lack of observable inputs. The Company purchased an
additional $12 million of similar securities into the trading portfolio after independent pricing was discontinued. Losses
recognized in earnings during 2009 based on significant unobservable inputs totaled $810 thousand and included $513
thousand on securities transferred and $297 thousand on securities purchased.
Substantially all trading securities with fair values based on significant unobservable inputs were transferred available for
sale during 2009 based on sales limitations and banking regulations.
Fair Value of Financial Instruments Measured on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis include pension plan assets, which are based on quoted prices in active
markets for identical instruments, collateral for certain impaired loans and real property and other assets acquired to satisfy
loans, which are based primarily on comparisons to completed sales of similar assets. In addition, goodwill impairment is
evaluated based on the fair value of the Company’s reporting units.
The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the
period. The carrying value represents only those assets adjusted to fair value during the year ended December 31, 2009:
Impaired loans
Real estate and other repossessed assets
Carrying Value at December 31, 2009
Quoted Prices
in Active
Markets for
Identical
Instruments
$ -
-
Significant
Other
Observable
Inputs
$73,195
21,042
Significant
Unobservable
Inputs
$ -
-
Fair Value
Adjustments
for the year ended
December 31, 2009
$73,985
8,611
Fair value adjustments of impaired loans are charged against the allowance for loan losses. Fair value adjustments of real
estate and other repossessed assets are charged against operating expenses as net gains, losses and operating expenses of
repossessed assets.
114
The fair value of pension plan assets was approximately $42 million at December 31, 2009 determined by significant other
observable inputs. Fair value adjustments of pension plan assets along with changes in projected benefit obligation are
recognized in other comprehensive income (loss).
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 reporting units is estimated by the discounted future earnings method. Income growth is
projected for each of our reporting units for 2010 through 2015 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 to be significant unobservable inputs and represent our best
estimate of assumptions that market participants would use to determine fair value of the respective reporting units.
Critical assumptions in our evaluation were a 12.00% average expected long-term growth rate, a 0.74% volatility factor for
BOK Financial common stock, a 10.60% discount rate, and a 9.86% market risk premium. In general, the growth rate for
all reporting units is expected to remain flat in 2010 as the impact of the present recession lessens, with acceleration in
growth rates in future years, based on the expectation of improving overall economic growth in future years.
Fair Value Election
Certain certificates of deposit were designated as carried at fair value. This determination is made based on the Company’s
intent to convert these certificates from fixed interest rates to variable interest rates based on LIBOR with interest rate
swaps that have not been designated as hedging instruments. The fair value election for these liabilities better represents
the economic effect of these instruments on the Company. At December 31, 2009, the fair value and contractual principal
amount of these certificates was $98 million and $97 million, respectively. Change in the fair value of these certificates of
deposit resulted in an unrealized gain $7.9 million in 2009, which is included in Gain (Loss) on Derivatives, net on the
Consolidated Statement of Earnings.
As more fully disclosed in Note 2 and Note 7 to the Consolidated Financial Statements, the Company has elected to
carry certain mortgage-backed securities which have been designated as economic hedges against changes in the fair
value of mortgage servicing rights and residential mortgage loans held for sale at fair value. Changes in the fair value
of these financial instruments are recognized in earnings.
(19) 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,
2009
2008
$
19,088
49,669
2,138,253
47,240
$ 2,254,250
$
20,324
9,900
1,865,514
1,623
$ 1,897,361
$
–
48,437
48,437
4
758,723
1,563,683
(105,857)
(10,740)
2,205,813
$ 2,254,250
$
50,000
1,104
51,104
4
743,411
1,427,057
(101,329)
(222,886)
1,846,257
$ 1,897,361
115
Statements of Earnings
(In Thousands)
Dividends, interest and fees received from subsidiaries
Other operating revenue
Total revenue
$ 172,023
674
172,697
$ 76,587
359
76,946
$ 254,256
482
254,738
2009
2008
2007
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
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 (expense) 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:
Purchases of available for sale securities
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
581
–
–
581
2,131
842
290
3,263
715
601
220
1,536
172,116
738
73,683
(1,505)
253,202
497
171,378
29,200
$ 200,578
75,188
78,044
$ 153,232
252,705
(35,041)
$ 217,664
2009
2008
2007
$ 200,578
$ 153,232
$ 217,664
(70,959)
276
(45,617)
47,333
131,611
(78,044)
(895)
(3,930)
(402)
69,961
35,041
(3,460)
(3,090)
(585)
245,570
(2,903)
(26,500)
(29,403)
–
(16,244)
(16,244)
–
(240,718)
(240,718)
–
(50,000)
10,508
(63,952)
–
(103,444)
(1,236)
20,324
$ 19,088
50,000
(50,000)
9,533
(59,191)
(7,992)
(57,650)
(3,933)
24,257
$ 20,324
50,000
–
20,667
(50,416)
(17,353)
2,898
7,750
16,507
$ 24,257
Cash paid for interest
$
589
$
2,282
$
560
(20) Subsequent Events
The Company evaluated events from the date of the consolidated financial statements on December 31, 2009
through the issuance of those consolidated financial statements included in this Annual Report on Form 10-K on
February 26, 2010 and has disclosed the subsequent purchase of mortgage servicing rights in Note 7 to the
Consolidated Financial Statements.
No additional events were identified requiring recognition in and/or disclosure in the consolidated financial
statements.
116
117
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
Residential mortgage loans held for sale
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 before non-controlling interest
Net income (loss) attributable to non-controlling interest
Net income attributable to BOK Financial Corp.
Average
Balance
$ 7,896,861
274,508
8,171,369
89,240
44,348
218,305
12,133,912
279,689
11,854,223
20,377,485
2,759,902
$23,137,387
$ 7,093,768
165,677
4,682,462
11,941,907
2,333,179
2,166,804
398,471
16,840,361
3,279,347
940,638
2,077,041
$23,137,387
Yield/
Rate
4.32%
5.60
4.36
4.15
0.17
4.63
4.65
–
4.76
4.59
0.73%
0.37
2.39
1.38
0.36
0.42
5.60
1.21
3.38%
3.57
2009
Revenue/
Expense1
$ 328,997
15,376
344,373
3,700
77
10,102
564,391
–
564,391
922,643
$ 51,607
614
112,141
164,362
8,355
9,190
22,298
204,205
$ 718,438
8,074
710,364
195,900
492,990
696,733
310,721
106,705
204,016
3,438
$ 200,578
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.
118
Average
Balance
$ 6,087,167
258,552
6,345,719
73,563
70,287
106,179
12,487,504
168,042
12,319,462
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
2008
Revenue/
Expense1
$ 313,361
16,653
330,014
4,935
1,577
5,805
727,542
–
727,542
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
428,724
662,404
210,589
64,909
145,680
(7,552)
$ 153,232
Yield/
Rate
Average
Balance
$ 5,166,218
341,913
5,508,131
29,043
77,890
84,443
11,355,602
120,086
11,235,516
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
5.10%
6.48
5.16
6.71
2.24
5.47
5.83
–
5.91
5.64
1.91%
0.43
3.66
2.61
1.99
2.42
5.59
2.55
3.09%
3.45
Yield/
Rate
4.85%
6.39
4.94
6.71
5.75
5.66
7.82
–
7.91
6.92
3.53%
0.90
4.74
4.03
4.87
5.28
6.30
4.33
2.59%
3.28
2007
Revenue/
Expense1
$ 248,972
21,293
270,265
1,948
4,480
4,776
888,388
–
888,388
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
401,980
574,987
336,757
115,761
220,996
3,332
$ 217,664
119
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
Residential mortgage loans held for sale
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 before non-controlling interest
Net income (loss) attributable to non-controlling interest
Net income attributable to BOK Financial Corp.
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
December 31, 2009
September 30, 2009
Three Months Ended
Average
Balance
Revenue/ Yield/
Expense1
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
$ 8,875,417 $ 82,392
3,726
86,118
927
16
2,311
137,235
–
137,235
226,607
286,550
9,161,967
68,027
30,358
194,760
11,492,696
298,157
11,194,539
20,649,651
3,046,083
$23,695,734
$ 7,734,678 $ 11,092
199
19,700
30,991
1,658
1,742
5,542
39,933
167,572
4,002,337
11,904,587
2,173,476
2,380,938
398,522
16,857,523
3,666,663
924,803
2,246,745
$ 23,695,734
3.83%
5.16
3.87
5.41
0.21
4.71
4.74
–
4.86
4.42
0.57%
0.47
1.95
1.03
0.30
0.29
5.52
0.94
$ 8,012,380 $ 81,890
3,468
85,358
771
18
2,198
139,883
–
139,883
228,228
273,432
8,285,812
64,763
67,032
176,403
11,887,418
281,289
11,606,129
20,200,139
2,850,395
$23,050,534
$ 7,162,477 $ 11,736
203
24,401
36,340
1,817
2,070
5,558
45,785
167,677
4,404,854
11,735,008
2,284,985
2,173,103
398,484
16,591,580
3,392,578
931,406
2,134,970
$ 23,050,534
4.18%
5.03
4.21
4.72
0.11
4.94
4.67
–
4.78
4.54
0.65%
0.48
2.20
1.23
0.32
0.38
5.53
1.09
$186,674
3.48%
3.64
$182,443
3.45%
3.63
2,196
184,478
48,620
108,163
176,437
67,584
24,780
42,804
33
$ 42,771
$0.63
$0.63
1,982
180,461
55,120
131,770
178,732
78,379
24,772
53,607
2,947
$ 50,660
$0.75
$0.75
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.
120
June 30, 2009
Three Months Ended
March 31, 2009
December 31, 2008
Average
Balance
Revenue/ Yield/
Expense1
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
5.12%
6.43
5.17
6.55
0.76
5.52
5.26
–
5.35
5.28
1.51%
0.37
3.28
2.29
0.94
1.51
5.48
2.02
3.26%
3.57
$ 7,594,355 $ 80,711
4,044
84,755
983
14
3,215
143,510
–
143,510
232,477
285,078
7,879,433
112,960
29,277
286,077
12,403,050
273,335
12,129,715
20,437,462
2,636,569
$23,074,031
$ 6,854,003 $ 13,362
104
31,637
45,103
1,995
2,375
5,632
55,105
167,813
5,123,947
12,145,763
2,316,990
1,951,699
398,456
16,812,908
3,183,338
1,071,121
2,006,664
$ 23,074,031
4.50%
5.69
4.54
3.49
0.19
4.51
4.64
–
4.75
4.65
0.78%
0.25
2.48
1.49
0.35
0.49
5.67
1.31
$ 7,084,340 $ 84,004
4,138
88,142
1,019
30
2,378
143,763
–
143,763
235,332
252,612
7,336,952
111,962
50,701
201,135
12,784,765
252,734
12,532,031
20,232,781
2,710,588
$ 22,943,369
$ 6,610,805 $ 15,417
109
36,401
51,927
2,825
3,064
5,566
63,382
159,537
5,215,091
11,985,433
2,562,066
2,158,963
398,425
17,104,887
2,864,751
1,058,216
1,915,515
$ 22,943,369
4.90%
6.64
4.96
3.69
0.24
4.79
4.56
–
4.65
4.75
0.95%
0.28
2.83
1.76
0.45
0.58
5.67
1.50
$ 6,634,035 $ 87,317
4,133
91,450
1,298
92
1,683
169,700
–
169,700
264,223
255,693
6,889,728
78,840
48,246
121,184
12,826,696
209,319
12,617,377
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
788,530
1,908,882
$ 22,271,651
$178,510
2,063
176,447
73,001
121,447
185,442
39,451
10,363
29,088
(6,355)
$ 35,443
$0.53
$0.52
$177,372
3.34%
3.55
$171,950
3.25%
3.47
1,792
175,580
47,120
127,965
175,770
80,655
28,315
52,340
225
$ 52,115
$ 0.77
$ 0.77
2,105
169,845
45,040
125,092
165,794
84,103
28,838
55,265
233
$ 55,032
$0.81
$0.81
121
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.
122
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 2010 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 2009 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 2010 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 2010 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 13 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 2010 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 2010 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, 2009, 2008 and 2007
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
Annual Financial Summary – Unaudited
Quarterly Financial Summary - Unaudited
Reports of Independent Registered Public Accounting Firm
123
(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.
124
10.4.2
10.4.2 (a)
10.4.2 (b)
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 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.
125
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.
126
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.
127
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
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.
128
99.0
99 (a)
99 (b)
99 (c)
99.1
99.5
99.6
99.7
99.8
99.9
Additional Exhibits.
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.
First Amended Debenture dated December 2, 2009 between BOK Financial Corporation
and George B. Kaiser, incorporated by reference to Exhibit 99 (a) of Form 8-K filed
December 4, 2009.
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.
129
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 26, 2010
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 26, 2010, 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
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
/s/ Gregory S. Allen
Gregory S. Allen
C. Fred Ball, Jr.
/s/ Sharon J. Bell
Sharon J. Bell
/s/ Peter C. Boylan, III
Peter C. Boylan, III
/s/ Chester Cadieux, III
Chester Cadieux, III
Joseph W. Craft, III
William E. Durrett
/s/ John W. Gibson
John W. Gibson
DIRECTORS
/s/ David F. Griffin
David F. Griffin
/s/ V. Burns Hargis
V. Burns Hargis
/s/ E. Carey Joullian, IV
E. Carey Joullian, IV
/s/ Robert J. LaFortune
Robert J. LaFortune
Steven J. Malcolm
/s/ E.C. Richards
E.C. Richards
130
131
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 26, 2010
/s/ Stanley A. Lybarger
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation
132
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 26, 2010
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
133
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, 2009 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 26, 2010
/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
134
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