BOK Financial Corporation | 2010 Annual Report
Record Earnings Despite A Stressed Economy
Highlights of 2010 included:
2010 was clearly another challenging year for the banking
industry. In fact, 157 banks failed in 2010 – more than any
other time in the last 18 years since the savings and loan
crisis. Unemployment remained elevated and foreclosure
rates soared. Though economic recovery for the nation as
a whole was underway, many consumers and businesses
were cautious and continued to reduce debt throughout
the year. As a result, loan growth remained elusive while
regulatory changes simultaneously impacted revenue and
increased expenses.
Despite this historically challenging backdrop, BOK Financial
continued to produce strong results.
We were pleased to report record earnings in our
company’s centennial year. BOK Financial reported net
income for 2010 of $247 million or $3.61 per diluted share,
a 23% increase over 2009 and a 13% increase over our
previous record set in 2007 before the financial crisis.
Growth in fee income and reduced credit costs fueled the
increase in earnings. This strong performance returned
the company to its historical growth trend. Over the last
decade, BOK Financial has consistently outperformed the
industry, peers and major indices. This stable, consistent
performance became even more distinctive during the
downturn.
• Fees and commissions increased $36 million or 7%,
bolstered by solid growth in brokerage and trading
revenue and mortgage banking revenue
• Due to improving credit trends in the loan portfolio, we
reduced our provision for loan losses by nearly 50%
• Nonaccrual loans were down $109 million or 32%
• Total deposits increased $1.7 billion or 11%, supported
by double-digit growth in demand and interest bearing
transaction accounts as customers were attracted to our
financial strength and stability
• Shareholders’ equity increased over $315 million to $2.5
billion, without any dilutive equity issuance
• We increased our quarterly dividend to $0.25 per share
or $1.00 per share annualized
Strong Performance Relative To Peers
Many of our peers are relieved to be returning to
profitability, while some continue to struggle with
credit quality. In contrast, BOK Financial has remained
in a position of strength throughout the cycle. We
s
n
o
i
l
l
i
M
n
I
Net Income and EPS
EPS CAGR 13%
$300
$250
$200
$150
$100
$50
$0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: SNL Financial
EPS have been restated for stock dividends and for a 2-for-1 split
Net Income
EPS
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$.50
$.00
define our peers as 20 US based publicly traded banks,
10 immediately larger and 10 immediately smaller based
on total assets at December 31, 2010. Of these 20 banks,
13 have not yet returned to their pre-cycle earnings levels
and four failed to generate a profit in the last two years. In
addition to remaining profitable and outperforming our peer
group through the cycle, BOK Financial was the largest
commercial bank to decline participation in the TARP
Capital Purchase Program.
A Solid Strategy For All Economic Cycles
We continue to attribute our success to our core strategies,
which don’t require adjustment when economic conditions
change. A key element of our strategy is our diverse
revenue sources. Though we are a traditional bank, we do
not depend solely on loan growth to generate earnings.
Our fee based lines of business each perform at different
levels depending on economic conditions, but combined
they consistently provide more than 40% of total revenue.
Another major element of our strategy relates to our
regional presence. When expanding to new markets
outside Oklahoma, we deliberately chose fast growing
metropolitan areas with high quality demographics. We
operate our banks through local management teams who
understand their communities and know their clients.
Last, we staff our organization with the best professionals
in the industry and equip them with the tools to customize
solutions to meet clients’ individual needs. Recruiting
top talent is a perennial area of focus, so while other
banks were struggling and reducing their labor force, we
accelerated our efforts to attract the finest talent available
throughout each line of business. The result is a rare
combination of nationally competitive products delivered
by talented employees who are deeply committed to our
clients’ long term success.
These same guiding principles have propelled our
performance, both through years of economic expansion
and recession. In fact, our 2010 success is the result of
the decisions we made in the past. We didn’t overreach.
We’ve remained committed to our region, avoided exotic
investments and underweighted riskier loan types and
business segments.
Our management team’s interests are aligned with our
shareholders’ and we are all committed to the long term
success of our company. Our decision making framework
is based on long term economic analysis which leads us to
behave differently in some ways than many other banks.
For a recent example, our approach to problem loans is to
maximize return rather than sell these distressed assets to
a private equity buyer at heavily discounted prices. While
this approach leads to an elevated level of nonperforming
assets and may modestly distort our nonperforming credit
optics compared to the industry, our overall net charge-off
levels have remained well below the industry.
By executing our consistent strategy, we increased
shareholders’ equity over $315 million or 14% in 2010.
We’ve built our equity on retained earnings, not trust
preferred securities or other hybrid instruments that now
are out of favor. We have not diluted our shareholders’
interest with additional stock issuances. We increased
our dividends during a period when most banks cut or
discontinued their dividend. Our current capital level
appears to be well in excess of the new higher proposed
capital standards. While many of our peers are making
plans to repay TARP funds, we are challenged with the
more pleasant task of deploying excess capital to build
shareholder value.
Continued Investments For Future Growth
Rather than scaling back in this stressed economy, we’ve
continued to invest in our fee based businesses by adding
talent, products and services. During the first quarter of
2010, we acquired the rights to service $4.2 billion in
residential mortgage loans from a distressed seller. We
viewed this unique opportunity as a means to expand our
origination platform in New Mexico, increase mortgage
servicing revenue and further develop relationships with
approximately 34,000 additional mortgage customers. In
connection with this acquisition, we hired 29 mortgage
professionals, including 22 originators and sales managers.
We are seeing the results of our investments in this line
of business. For the first time in the company’s history,
mortgage loans originated outside Oklahoma exceeded
those originated in our home state.
During 2010, we also added six account managers
and new leadership to our Business Banking team and
established a new investment center in Milwaukee
with a team of seasoned investment professionals. Our
recruiting successes enhanced teams in virtually every line
of business in every region.
Last year we introduced our first mobile banking
applications. In addition to an iPhone application, we
created one for the iPad that is specifically designed to
leverage its unique capabilities. Our ongoing investments
in the franchise build shareholder value by strengthening
the foundation for our future growth.
We have also identified a number of investments in
technology that will improve efficiency and enhance
product capabilities. During 2010, we launched a consumer
delivery project which includes front counter capture and
a new sales and service platform. New projects for 2011
include upgrading our lockbox processing and replacing the
front end system used by our commercial clients. These
two projects will produce new capabilities that can attract
additional clients. In addition, the lockbox upgrade will
allow us to reduce costs and improve client service. Our
recent investments in talent and technology should help to
grow revenue and reduce costs.
Positioned For Success
This year we commemorated Bank of Oklahoma’s
centennial anniversary. The bank was founded by Harry
Sinclair and other noted oilmen in 1910 to provide a stable
source of funding to support drilling around Tulsa. Over
time, we’ve evolved from an Oklahoma energy lender to
a leading regional financial services company. A century
later, the company carries on several of the traditions of its
founders, including expertise in energy lending, a focus on
client service and strong growth dynamics.
We are proud of our heritage and are optimistic about the
future, although we clearly recognize we will face many
challenges in the year ahead, including additional regulatory
reform and continued weak loan demand. We believe the
foundation we’ve built will continue to produce exceptional
results for a number of reasons. We remain in a position
of financial strength; our profitability, liquidity, capital and
credit metrics are all solid. Our markets are resilient and
growing and we continue to increase our market share.
In anticipation of the financial impact of regulatory reform,
we completed a bank-wide revenue enhancement initiative.
We identified a series of opportunities including new
products and services, new and revised fees and reduced
fee waivers. Each line of business identified opportunities
and set reasonable revenue targets. We anticipate
implementing these projects throughout the year. We also
expect to benefit from the continued maturation of our fee
lines of business in our newer markets. Some fee revenue
is at risk with impending regulatory reform, but the depth
of our lines of business provides numerous opportunities
to generate additional revenue. Furthermore, we are
confident that, as an industry, financial institutions will find
ways to prevent a significant reduction in profitability.
While most of our growth will continue to be organic, we
continue to seek acquisition opportunities. We expect to
see continued heightened consolidation activity as directors
grow weary of the lengthened recession and increased
regulatory burdens. We are seeking opportunities to acquire
quality banks, branch networks and fee businesses to
enhance our presence in our existing markets. Some of our
best years were during periods of market consolidation and
we are in a position to take advantage of such disruption
should it occur in our markets.
We’d like to take this opportunity to recognize our 4,400
employees for their dedication to our company and our core
strategies. Their commitment to our mission to provide
exceptional financial expertise to our customers has built
our strong customer base and continues to win market
share from our competitors. We thank our employees, our
directors and our shareholders for their support. We look
forward to continuing to provide outstanding service to our
clients and communities.
George B. Kaiser
Chairman
Stanley A. Lybarger
President & CEO
BOK Financial Corporation Executive Management
Stanley A. Lybarger
President & Chief Executive Officer
Norman P. Bagwell
Chairman & CEO
Bank of Texas
Steven G. Bradshaw
Senior Executive Vice President
Consumer Banking and Wealth Management
Charles E. Cotter
Executive Vice President
Chief Credit Officer
Daniel H. Ellinor
Senior Executive Vice President
Commercial Banking, Energy and Commercial Real Estate
Steven E. Nell
Executive Vice President
Chief Financial Officer
Donald T. Parker
Executive Vice President
Chief Information Officer
BOK Financial Corporation Board of Directors
Gregory S. Allen
CEO
Maine Street Holdings, Inc.
C. Fred Ball, Jr.
Senior Chairman
Bank of Texas
Sharon J. Bell
Managing Partner
Rogers & Bell
Peter C. Boylan, III
CEO
Boylan Partners, LLC
Chester Cadieux, III
Chairman & CEO
QuikTrip Corporation
Joseph W. Craft, III
President & CEO
Alliance Resource Partners, L.P.
William E. Durrett
Senior Chairman
American Fidelity Corp.
John W. Gibson
President & CEO
ONEOK, Inc.
David F. Griffin
President & CEO
Griffin Communications, L.L.C.
V. Burns Hargis
President
Oklahoma State University
E. Carey Joullian, IV
Chairman, President & CEO
Mustang Fuel Corporation
George B. Kaiser
Chairman
BOK Financial Corporation and BOKF, NA
Robert J. LaFortune
Personal Investments
Stanley A. Lybarger
President & CEO
BOK Financial Corporation and BOKF, NA
Steven J. Malcolm
Retired Chairman, President & CEO
The Williams Companies, Inc.
Emmet C. Richards
Manager
Core Investment Capital, LLC
As filed with the Securities and Exchange Commission on February 25, 2011
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 OF 1934
For the fiscal year ended December 31, 2010
OR
(cid:133)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File No. 0-19341
BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Oklahoma
(State or other jurisdiction of incorporation or organization)
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma
(Address of principal executive offices)
73-1373454
(IRS Employer Identification No.)
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 whether the registrant has submitted electronically and posted on its corporate Website, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files) Yes ⌧ No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer ⌧ Accelerated filer (cid:133) Non-accelerated filer (cid:133) Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No ⌧
The aggregate market value of the registrant’s common stock (“Common Stock”) held by non-affiliates is approximately $1.2
billion (based on the June 30, 2010 closing price of Common Stock of $47.47 per share). As of January 31, 2011, there were
68,274,150 shares of Common Stock outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2011 Annual Meeting of
Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
Item
1
1A
1B
2
3
4
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BOK FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
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 Executive Officer Section 302 Certification, Exhibit 31.2
Section 906 Certifications, Exhibit 32
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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 incorporated in the state of Oklahoma in 1990 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, Texas, New Mexico, Northwest
Arkansas, Colorado, Arizona, and Kansas/Missouri.
On October 6, 2010, the Office of the Comptroller of the Currency (“OCC”) approved the affiliated merger of the
Company’s wholly-owned subsidiary banks, 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. into Bank of Oklahoma, N.A.
(“the Banks”). The resulting subsidiary bank is named BOKF, NA. The Company effected the merger on January 1, 2011.
The Banks will continue to operate as distinct geographical regions using the trade names of the former charters. The
merger will allow us to more efficiently utilize capital of the Banks. Other subsidiaries of BOK Financial 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 through expansion into other high-growth markets in contiguous states. We operate primarily in the
metropolitan areas of Tulsa and Oklahoma City, Oklahoma; Dallas, Fort Worth and Houston, Texas; Albuquerque, New
Mexico; Denver, Colorado; Phoenix, Arizona, and Kansas City, Kansas/Missouri. 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 our existing markets when attractive 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 represents 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. Our diversified base of revenue sources is designed to generate returns in a range of economic situations.
Historically, fees and commissions provide 40 to 45% of our total revenue. Approximately 42% of our revenue came from
fees and commission in 2010.
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.
1
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, 2010.
We are the largest financial institution in the state of Oklahoma with 12% of the state’s total deposits. The Tulsa and
Oklahoma City areas have 28% and 9% of the market share, respectively. We compete 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 and also compete 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.
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, 2010, BOK Financial and its subsidiaries employed 4,432 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 and maintain certain capital balances.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act”) was signed
into law, giving federal banking agencies authority to increase the minimum deposit ratio, increase regulatory capital
requirements, impose additional rules and regulations over consumer financial products and services and limit the amount
of interchange fee that may be charged in an electronic debit transaction. In addition, the Dodd-Frank Act makes
permanent the $250,000 limit for federal deposit insurance and provides unlimited federal deposit insurance until January 1,
2013 for non-interest bearing demand deposit accounts. It also repeals prohibitions on payment of interest on demand
deposits, which could impact how interest is paid on business transaction and other accounts. We continue to assess the
potential impact of the complex provisions that the Dodd-Frank Act will have in the coming months or years. The effect of
this legislation on fee income and operating expenses could be significant but cannot be accurately quantified 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 presently or in the future.
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 a national banking association 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
2
concerning the soundness of a national bank, the quality of management and directors, and compliance with applicable
regulations. The National Banking Act authorizes the OCC to examine every national bank as often as necessary.
A financial holding company, and the companies under its control, are permitted to engage in activities considered
“financial in nature” as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations, and therefore
may engage in a broader range of activities than permitted for bank holding companies and their subsidiaries. Activities
that are “financial in nature” include securities underwriting and dealing, insurance underwriting, operating a mortgage
company, credit card company or factoring company, performing certain data processing operations, servicing loans and
other extensions of credit, providing investment and financial advice, owning and operating savings and loan associations,
and leasing personal property on a full pay-out, non-operating basis. In order for a financial holding company to
commence any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding
company must have received a rating of at least satisfactory in its most recent examination under the Community
Reinvestment Act. A financial holding company is required to notify the 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, 2010, BOK
Financial’s Tier 1 and total capital ratios under these guidelines were 12.69% and 16.20%, 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, 2010 was 8.74%.
3
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), among other things, identifies five
capital categories for insured depository institutions from well capitalized to critically undercapitalized and requires the
respective federal regulatory agencies to implement systems for prompt corrective action for institutions failing to meet
minimum capital requirements within such categories. FDICIA imposes progressively more restrictive covenants on
operations, management and capital distributions, depending upon the category in which an institution is classified.
The various regulatory agencies have adopted substantially similar regulations that define the five capital categories
identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant
capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is
considered undercapitalized. Under these guidelines, each of the Banks was considered well capitalized as of December
31, 2010.
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.
On September 12, 2010, the Group of Governors and Heads of Supervision (“GHOS”), the oversight body of the BIS,
announced changes to strengthen the existing capital and liquidity requirements of internationally active banking
organizations. The GHOS agreement calls for national jurisdictions to implement the new requirements beginning January
1, 2013. Proposed changes include increased minimum ratios for common equity, tier 1 and total capital to risk weighted
assets, increased leverage ratio of tier 1 capital to total assets including certain off balance-sheet commitments and
derivative positions, and “add-on” capital buffers that become effective under certain conditions. Proposed changes also
include required minimum liquidity coverage and net stable funding ratios. The timing and extent to which these changes
will be effective for banking organizations that are not internationally active, like BOK Financial Corporation, has not been
determined. Our current capital level appears to be well in excess of the proposed standards.
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”). The risk matrix includes four risk categories, 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.
Subsequent to December 31, 2010, the FDIC released a final rule to implement provisions of the Dodd-Frank Act that affect
deposit insurance assessments. Among other things, the Dodd-Frank Act raised the minimum designated reserve ratio from
1.15% to 1.35% of estimated insured deposits, removed the upper limit of the designated reserve ratio, required that the
designated reserve ratio reach 1.35% by September 30, 2020, and required that the FDIC offset the effect of increasing the
minimum designated reserve ratio on depository institutions with total assets of less than $10 billion. The Dodd-Frank Act
also required that the FDIC redefine the assessment base to average consolidated assets minus average tangible equity. The
final rule becomes effective April 1, 2011. We do not expect the change to have a significant effect on our current deposit
insurance assessment.
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. As of December 31, 2010, $57 million of
prepaid deposit insurance assessments are included in Other assets on the Consolidated Balance Sheet of the Company.
4
In addition, the Banks are assessed a charge based on deposit balances by the Financing Corporation (“FICO”). The FICO
is a mixed-ownership government corporation established by the Competitive Equality Banking Act of 1987 whose sole
purpose was to function as a financing vehicle for the now defunct Federal Savings & Loan Insurance Corporation.
Dividends
The primary source of liquidity for BOK Financial is dividends from the Banks, which are limited by various banking
regulations to net profits, as defined, for the year plus retained profits for the preceding two years and further restricted by
minimum capital requirements. In consideration of our bank charter consolidation, Bank of Oklahoma, N.A. declared and
paid a dividend of $175 million to BOK Financial Corporation for general corporate purposes. Subsequent to the
consolidation of the existing bank charters into BOKF, NA, based on the most restrictive limitations as well as
management’s internal capital policy, BOKF, NA had excess regulatory capital and could declare up to $82 million of
dividends without regulatory approval as of January 1, 2011. This amount is 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 the significant 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 Temporary Liquidity Guarantee Program, 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. In 2010, the Federal
Reserve announced its intention to purchase up to $600 billion of U.S. government securities to further stimulate the
economy. The short-term effectiveness and long-term impact 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 as we believed that our capital sources were
sufficient to support organic growth, acquisitions within our current market areas, cash dividends on our common stock and
periodic stock repurchases.
Foreign Operations
BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments.
ITEM 1A. RISK FACTORS
The United States economy experienced a significant recession from 2007 to 2009. Business activity across a wide range
of industries and geographic regions decreased and unemployment 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 failed or required a significant amount of government assistance
due to credit losses and liquidity shortages. The rate of economic recovery has been slow, unemployment has been
persistently high and the national housing market remains depressed overall. The Federal Reserve Board continues to take
steps to promote more robust economic growth including maintaining historically low federal funds rate for an extended
period of time. High unemployment levels and protracted economic recovery could adversely affect our credit quality,
financial condition and results of operations.
5
Adverse factors could impact BOK Financial's ability to implement its operating strategy.
Although BOK Financial has developed an operating strategy which it expects to result in continuing improved financial
performance, BOK Financial cannot assure that it will be successful in fulfilling this strategy or that this operating strategy
will be successful. Achieving success is dependent upon a number of factors, many of which are beyond BOK Financial's
direct control. Factors that may adversely affect BOK Financial's ability to implement its operating strategy include:
•
•
•
•
•
•
•
•
deterioration of BOK Financial's asset quality;
inability to control BOK Financial's noninterest expenses;
inability to increase noninterest income;
deterioration in general economic conditions, especially in BOK Financial's core markets;
inability to access capital;
decreases in net interest margins;
increases in competition;
adverse regulatory developments.
Adverse regional economic developments could negatively affect BOK Financial's business.
A substantial majority of BOK Financial loans are generated in Oklahoma and other markets in the southwest region. As a
result, poor economic conditions in Oklahoma or other markets in the southwest region may cause BOK Financial to incur
losses associated with higher default rates and decreased collateral values in BOK Financial's loan portfolio. A regional
economic downturn could also adversely affect revenue from brokerage and trading activities, mortgage loan originations
and other sources of fee-based revenue.
Adverse economic factors affecting particular industries could have a negative effect on BOK Financial
customers and their ability to make payments to BOK Financial.
Certain industry-specific economic factors also affect BOK Financial. For example, a portion of BOK Financial's total loan
portfolio is comprised of loans to borrowers in the energy industry, which is historically a cyclical industry. Low
commodity prices may adversely affect that industry and, consequently, may affect BOK Financial's business negatively.
The effect of volatility in commodity prices on our customer derivatives portfolio could adversely affect our liquidity and
regulatory capital. In addition, BOK Financial's loan portfolio includes commercial real estate loans. A downturn in the
real estate industry in general or in certain segments of the commercial real estate industry in Oklahoma and the southwest
region could also have an adverse effect on BOK Financial's operations.
Fluctuations in interest rates could adversely affect BOK Financial's business.
BOK Financial's business is highly sensitive to:
•
•
•
the monetary policies implemented by the Federal Reserve Board, including the discount rate on bank borrowings
and changes in reserve requirements, which affect BOK Financial's ability to make loans and the interest rates we
may charge;
changes in prevailing interest rates, due to the dependency of BOK Financial's banks on interest income;
open market operations in U.S. Government securities.
A 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.
6
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 promote a stronger pace of economic recovery and ensure inflation, over time, is at a level consistent with its
mandate, the Federal Reserve Board has announced it will continue its policy of reinvesting principal payments from its
security holdings in longer-term Treasury securities which may result in rising interest rates and lower fair values of our
residential 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.
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, the National Bank Act and the Dodd-Frank 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.
7
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, effective July 1,
2010, the Company recently implemented changes mandated by federal regulations concerning overdraft charges that
significantly impacted our fee revenue in the second half of 2010.
The implementation of the Dodd-Frank Act will affect BOK Financial’s business including interchange revenue, mortgage
banking, consumer products and higher capital standards. Among the rules pending for mortgage banking are uniform
lending and servicing standards, consumer protection measures and several reforms affecting loan originators. A cap on
interchange revenue has also been proposed. The Bureau of Consumer Financial Protection will have authority over banks
greater than $10 billion in assets and may implement additional consumer protection standards. BOK Financial will be
affected by other aspects of the Dodd-Frank Act including new capital rules and revised deposit insurance assessments.
Provisions of the Dodd-Frank Act may also make portions of our customer hedging programs uneconomical to continue.
Statutory restrictions on subsidiary dividends and other distributions and debts of BOK Financial's
subsidiaries could limit amounts BOK Financial's subsidiaries may pay to BOK Financial.
BOK Financial is a financial holding company, and a substantial portion of BOK Financial's cash flow typically comes
from dividends that BOK Financial's bank and nonbank subsidiaries pay to BOK Financial. Various statutory provisions
restrict the amount of dividends BOK Financial's subsidiaries can pay to BOK Financial without regulatory approval.
Management also developed, and the BOK Financial board of directors approved, an internal capital policy that is more
restrictive than the regulatory capital standards. In addition, if any of BOK Financial's subsidiaries liquidates, that
subsidiary's creditors will be entitled to receive distributions from the assets of that subsidiary to satisfy their claims against
it before BOK Financial, as a holder of an equity interest in the subsidiary, will be entitled to receive any of the assets of the
subsidiary. If, however, BOK Financial is a creditor of the subsidiary with recognized claims against it, BOK Financial will
be in the same position as other creditors.
Although publicly traded, BOK Financial's common stock has substantially less liquidity than the average
trading market for a stock quoted on the NASDAQ National Market System.
A relatively small fraction of BOK Financial's outstanding common stock is actively traded. The risks of low liquidity
include increased volatility of the price of BOK Financial's common stock. Low liquidity may also limit holders of BOK
Financial's common stock in their ability to sell or transfer BOK Financial's shares at the price, time and quantity desired.
BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.
Mr. George B. Kaiser owns a majority of the outstanding shares of BOK Financial's common stock. Mr. Kaiser is able to
elect all of BOK Financial's directors and effectively control the vote on all matters submitted to a vote of BOK Financial's
common shareholders. Mr. Kaiser's ability to prevent an unsolicited bid for BOK Financial or any other change in control
could have an adverse effect on the market price for BOK Financial's common stock. A substantial majority of BOK
Financial's directors are not officers or employees of BOK Financial or any of its affiliates. However, because of Mr.
Kaiser's control over the election of BOK Financial's directors, he could change the composition of BOK Financial's Board
of Directors so that it would not have a majority of outside directors.
Possible future sales of shares by BOK Financial's principal shareholder could adversely affect the market
price of BOK Financial's common stock.
Mr. Kaiser has the right to sell shares of BOK Financial's common stock in compliance with the federal securities laws at
any time, or from time to time. The federal securities laws will be the only restrictions on Mr. Kaiser's ability to sell.
Because of his current control of BOK Financial, Mr. Kaiser could sell large amounts of his shares of BOK Financial's
common stock by causing BOK Financial to file a registration statement that would allow him to sell shares more easily. In
8
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 $265 million, net of depreciation
and amortization. The Company’s principal offices are located in leased premises in the Bank of Oklahoma Tower in 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, 2010.
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, 2011, common shareholders of record numbered 901 with 68,274,150 shares outstanding.
The highest and lowest closing bid price for shares and cash dividends per share of BOK Financial common stock follows:
2010:
Low
High
Cash dividends
2009:
Low
High
Cash dividends
First
$45.43
53.11
0.24
$22.95
40.71
0.225
Second
$47.45
55.60
0.25
$34.46
43.02
0.24
Third
$42.89
50.58
0.25
$34.81
48.10
0.24
Fourth
$44.83
54.86
0.25
$41.87
47.91
0.24
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, 2005 and ending December
31, 2010.*
Total Return Performance
140
120
100
80
60
40
20
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank
KBW 50
l
e
u
a
V
x
e
d
n
I
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
Period Ending
Index
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank Index
KBW 50
12/31/05
100.00
100.00
100.00
100.00
12/31/06
122.36
110.39
113.82
119.39
12/31/07
116.72
122.15
91.16
93.36
12/31/08
92.86
73.32
71.52
48.97
12/31/09
111.79
106.57
59.87
48.11
12/31/10
128.17
125.91
68.34
59.34
* Graph assumes value of an investment in the Company’s Common Stock for each index was $100 on December 31, 2005. The KBW 50 Bank index is
the Keefe, Bruyette & Woods, Inc. index, which is available only for calendar quarter end periods. Cash dividends on Common Stock, which were
first paid in 2005, are assumed to have been reinvested in BOK Financial Common Stock.
10
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated
purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock
during the three months ended December 31, 2010.
Maximum
Number of
Shares that May
Yet Be
Purchased
Under the Plans
1,215,927
1,215,927
1,215,927
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs 1
–
–
–
–
Period
Total Number of
Shares Purchased 2
Average Price
Paid per Share
October 1, 2010 to October 31, 2010
887
November 1, 2010 to November 30, 2010
20,788
December 1, 2010 to December 31, 2010
50,208
$45.38
$50.12
$53.01
Total
1
71,883
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, 2010, 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)
December 31,
2010
2009
2008
2007
2006
$ 851,082
142,030
709,052
105,139
516,394
246,754
$ 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
10,643,036
23,941,603
17,179,061
398,701
2,521,726
394,469
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
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
Profitability Statistics
Earnings per share (based on average equivalent
shares):
Basic
Diluted
$
3.63
3.61
$
2.96
2.96
$
$
2.27
2.27
$
3.24
3.22
3.19
3.16
Percentages (based on daily averages):
Return on average assets
Return on average shareholders’ equity
Average shareholders’ equity to average assets
1.04%
10.18
10.19
0.87%
9.66
8.98
0.71%
7.87
9.01
1.14%
12.01
9.53
1.27%
13.23
9.58
Common Stock Performance
Per Share:
Book value per common share
Market price: December 31 close
Market range – High close
Market range – Low close
Cash dividends declared
Dividend payout ratio
Selected Balance Sheet Statistics
Period-end:
$
$
36.97
53.40
55.68
42.89
0.99
27.16%
$
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%
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Tangible common equity ratio1
Allowance for loan losses to nonperforming
loans
Allowance for loan losses to loans
Combined allowances for credit losses to loans 4
12.69%
16.20
8.74
9.21
115.76
2.75
2.89
10.86%
14.43
8.05
7.99
82.22
2.59
2.72
9.40%
9.38%
12.81
7.89
6.64
74.49
1.81
1.93
12.54
8.20
7.72
133.79
1.06
1.24
9.78%
11.58
8.79
8.22
305.37
1.03
1.22
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of banking locations
Number of TransFund locations
Trust assets
Mortgage loan servicing portfolio3
4,432
207
1,943
$ 32,751,501
12,059,241
4,355
202
1,896
$30,385,365
7,366,780
4,300
202
1,933
$30,454,512
5,983,824
4,110
195
1,822
$36,288,592
5,481,736
3,958
169
1,649
$31,704,091
4,988,611
1
2
3
4
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 allowance for loan losses and allowance for off-balance sheet credit losses.
12
Management’s Assessment of Operations and Financial Condition
Overview
The following discussion is management’s analysis to assist in the understanding and evaluation of the financial condition
and results of operations BOK Financial Corporation (“BOK Financial” or “the Company”). This discussion should be
read in conjunction with the consolidated financial statements and footnotes and selected financial data presented elsewhere
in this report.
From 2007 to 2009 the United States experienced a severe recession, characterized by substantial market volatility and lack
of available liquidity. The effects of the recession continued to impact the economy in 2010, primarily characterized by
slow economic growth and persistently high national unemployment rates. In response, the U.S. government continued to
provide significant liquidity and other intervening measures to support economic recovery based on evidence of subdued
inflation. Lending activity remained slow in light of the economic uncertainty and interest rates remained at historic lows
throughout the year. Low national mortgage rates during much of the year sustained a high level of mortgage lending
activity and increased prepayments of our mortgage-backed securities. Cash flows from these securities were reinvested at
current rates.
Performance Summary
BOK Financial’s net income for 2010 totaled $246.8 million or $3.61 per diluted share compared to $200.6 million or
$2.96 per diluted share compared to 2009, up 23% over 2009 on diversified fee income growth and improving credit
quality. Net income was up 15% over last year, excluding a $6.5 million or $0.10 per diluted share day-one gain from the
purchase of the rights to service $4.2 billion of residential mortgage loans on favorable terms in 2010 and a $7.7 million or
$0.11 per share special assessment by the Federal Deposits Insurance Corporation (“FDIC”) in 2009.
Highlights of 2010 included:
• Net interest revenue totaled $709.1 million for 2010 compared to $710.4 million for 2009. Net interest margin
was 3.50% for 2010, compared to 3.57% for 2009. Net interest margin narrowed during the year as increased
cash flows from our securities portfolio were reinvested at lower current rates and increased prepayment speeds
accelerated premium amortization.
•
Fees and commissions revenue increased $35.9 million or 7% over 2009. Mortgage banking revenue increased
$22.6 million over the prior year on increased loan production and servicing revenue. Deposit service charges
and fees decreased $12.2 million due primarily to changes in overdraft fee regulations which became effective the
second half of 2010.
• Operating expenses, excluding changes in the fair value of mortgage servicing rights and the impact of the FDIC
special assessment in 2009, totaled $756.8 million, up $59.7 million or 9% over the prior year. Net losses and
operating expenses on repossessed assets increased $23.1 million and personnel costs increased $21.3 million.
• Combined allowances for credit losses totaled $307 million or 2.89% of outstanding loans at December 31, 2010
compared to $306 million or 2.72% of outstanding loans at December 31, 2009. Provision for credit losses and
net charge-offs were $105.1 million and $104.4 million, respectively, for 2010 and $195.9 million and $137.8
million, respectively, for 2009.
• Nonperforming assets totaled $394 million or 3.66% of outstanding loans and repossessed assets at December 31,
2010, down from $484 million or 4.24% of outstanding loans and repossessed assets at December 31, 2009.
Nonaccruing loans decreased $109 million and repossessed assets increased $12 million during 2010.
• Outstanding loan balances were $10.6 billion at December 31, 2010, down $637 million from the prior year.
Unfunded commercial loan commitments increased $182 million during 2010 to $4.6 billion.
•
•
Total period-end deposits increased $1.7 billion during 2010 to $17.2 billion, due primarily to growth in interest-
bearing transaction and demand deposits.
Tangible common equity and Tier 1 capital ratios were 9.21% and 12.69%, respectively, at December 31, 2010
and 7.99% and 10.86%, respectively, at December 31, 2009. Growth in the tangible common equity ratio was
due largely to retained earnings and a $116 million after-tax increase in the fair value of available for sale
securities. The Company and each of its subsidiary banks exceeded the regulatory definition of well capitalized.
The Company’s Tier 1 capital ratios, as defined by banking regulations, were 12.69% at December 31, 2010 and
10.86% at December 31, 2009.
13
Net income for the fourth quarter of 2010 totaled $58.8 million or $0.86 per diluted share compared with $42.8 million or
$0.63 per diluted share in 2009.
Highlights of the fourth quarter of 2010 included:
• Net interest revenue totaled $163.7 million, down $20.8 million from the fourth quarter of 2009. Net interest
margin was 3.19% for the fourth quarter of 2010 and 3.64% for the fourth quarter of 2009. Net interest revenue
decreased as cash flows from our securities portfolio were reinvested at lower rates and increased prepayment
speeds accelerated premium amortization.
• Net loans charged off and provision for credit losses were $14.2 million and $7.0 million, respectively, for the
fourth quarter of 2010. Net loans charged off and provision for credit losses were $34.5 million and $48.6
million, respectively for the fourth quarter of 2009.
•
Fees and commissions revenue totaled $136.0 million, up $20.0 million over the fourth quarter of 2009 due
primarily to higher mortgage banking revenue and brokerage and trading revenue. Increased transaction card
revenue and trust fees and commission were offset by a decrease in deposit service charges as a result of changes
in banking regulations concerning overdraft fees.
• Changes in the fair value of our mortgage servicing rights, net of economic hedge, increased pre-tax net income
for the fourth quarter of 2010 by $6.6 million and increased pre-tax net income by $845 thousand in the fourth
quarter of 2009.
• Other operating expense, excluding changes in the fair value of mortgage servicing rights, increased $21.8
million over the prior year due primarily to a $13.1 million increase in personnel costs. Net losses and operating
expenses on repossessed assets also increased over the fourth quarter of 2009.
• Other than temporary impairment charges on certain privately-issued residential mortgage-backed and equity
securities reduced pre-tax net income by $6.6 million during the fourth quarter of 2010 and $14.5 million during
the fourth quarter of 2009.
Critical Accounting Policies & Estimates
The Consolidated Financial Statements and accompanying notes are prepared in accordance with generally accepted
accounting principles in the United States of America (“GAAP”). The Company’s accounting policies are more fully
described in Note 1 of the Consolidated Financial Statements. Management makes significant assumptions and estimates in
the preparation of the Consolidated Financial Statements and accompanying notes in conformity with GAAP that may be
highly subjective, complex and subject to variability. Actual results could differ significantly from these assumptions and
estimates. The following discussion addresses the most critical areas where these assumptions and estimates could affect
the financial condition, results of operations and cash flows of the Company. These critical accounting policies and
estimates have been discussed with the appropriate committees of the Board of Directors.
Allowances for Loan Losses and Off-Balance Sheet Credit Losses
Allowances 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 and is applied by an independent
Credit Administration department to assure consistency across the Company. The allowance for loan losses includes
allowances assigned to specific impaired loans and commitments that have not yet been charged down to amounts we
expect to recover, general allowances for unimpaired loans that are based on migration factors and nonspecific allowances
that are based on analysis of general economic risk concentration and related factors. Additional details regarding the
policies utilized in the development of the allowances for loan losses and off-balance sheet credit losses are included in
Notes 1 and 4 to the Consolidated Financial Statements. There have been no material changes in the approach or
techniques utilized in developing the allowances for loan losses or off-balance sheet credit losses during 2010.
Loans are considered impaired when it is probable that we will not collect all amounts due according to the contractual
terms of the loan agreements. This is substantially the same criteria utilized to determine whether a loan should be placed
on nonaccrual status. Generally, all nonaccruing commercial and commercial real estate loans are impaired. 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 determined through a quarterly evaluation of available cash resources and collateral value. Specific
allowances for impairment are determined for loans that have not yet been charged down to amounts we expect to recover
through evaluation of estimated future cash flows, collateral values and historical statistics. Estimates of future cash flows
and collateral values require significant management judgments and are subject to volatility.
14
Collateral value of real property is generally based on third party appraisals that conform to Uniform Standards of
Professional Appraisal Practice, less estimated selling costs. Appraised values are on an “as-is” basis and are not adjusted
by us. Appraisals are updated at least annually, or more frequently, if market conditions indicate collateral values may have
declined. Collateral value of mineral rights is determined by our internal staff of engineers based on projected cash flows
form proven oil and gas reserves under existing economic and operating conditions. The value of other collateral is
generally determined by our special assets staff based on projected liquidation cash flows under current market conditions.
General allowances for unimpaired loans are based on migration models. Separate migration models are used to determine
general allowances for commercial and commercial real estate loans, residential mortgage loans, and consumer loans.
Substantially all commercial and commercial real estate loans and certain residential mortgage and consumer loans are risk-
graded based on an evaluation of the borrowers’ ability to repay the loans. Risk grades are updated quarterly by
management and may be based on significant subjective judgments. 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. Losses incurred in more recent periods are more heavily weighted by a sum-of-periods-
digits formula. The higher of current loss factors based on migration trends or a minimum migration factor judgmentally
set by management based upon long-term history is assigned to each risk grade.
Migration models fairly measure loss exposure during an economic cycle. However, because they are based on historic
trends, their accuracy is limited near the beginning or ending of a cycle. Because of this limitation, the results of the
migration models are evaluated by management quarterly. Management may adjust the resulting general allowance upward
or downward so that the allowance for loan losses represents credit losses inherent in the portfolio.
The general allowance for residential mortgage loans is based on an eight-quarter average percent of loss. The general
allowance 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.
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.
Nonspecific allowances 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 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.
Fair Value Measurement
Certain assets and liabilities are recorded at fair value in the Consolidated Financial Statements. Fair value is defined as the exchange
price that would be received to sell an asset or paid to transfer a liability in a principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the measurement date, using assumptions market participants would
use when pricing an asset or liability. An orderly transaction assumes exposure to the market for a customary period for marketing
activities prior to the measurement date and not a forced liquidation or distressed sale.
Fair value measurement and disclosure guidance provides a three level hierarchy that prioritizes the inputs of valuation techniques used
to measure fair value into three broad categories: unadjusted quoted prices in active markets for identical assets or liabilities, other
observable inputs that can be observed either directly or indirectly and unobservable inputs for assets or liabilities. Fair value may be
recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances on a non-recurring
basis.
The following represents significant fair value measurements included in the Consolidated Financial Statements based on estimates.
See Note 18 of the Consolidated Financial Statements for additional discussion of fair value measurement and disclosure included in the
Consolidated Financial Statements.
Mortgage Servicing Rights
We have a significant investment in mortgage servicing rights. These rights are primarily retained from sales of
loans we have originated. Occasionally mortgage servicing rights may be 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
15
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 adjust 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, we would expect a 50 basis point increase in mortgage interest rates to
increase the fair value of our servicing rights by $14 million. We would expect a $17 million decrease in the fair
value of our mortgage servicing rights from a 50 basis point decrease in mortgage interest rates.
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 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 a 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. The methodologies employed by the third-party pricing services are evaluated 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.
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. We
estimate 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. We would expect
the fair value to decrease $671 thousand if credit spreads utilized in valuing these securities widened by 100 basis
points.
16
Goodwill Impairment
Goodwill for each reporting unit is evaluated for impairment annually as of October 1st or more frequently if conditions
indicate that impairment may have occurred. The evaluation of possible goodwill impairment involves significant
judgment based upon short-term and long-term projections of future performance.
We identify the geographical market underlying each operating segment as reporting units for the purpose of performing
the 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.
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 over five years 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 an 11.00% average expected long-term growth rate, a 0.75% volatility factor
for BOK Financial common stock, an 11.73% discount rate and a 12.26% market risk premium.
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, 2010 is as follows in Table 2.
Table 2 Goodwill allocation by reporting unit
(In thousands)
Fair Value
Carrying
Value1
Goodwill
$ 791,113
506,577
82,136
96,285
82,595
$ 250,154
384,454
60,778
91,365
56,174
$ 5,140
196,183
11,094
39,458
14,853
534,246
103,846
59,425
35,298
163,012
47,353
15,446
11,118
1,683
27,567
2,874
6,899
Commercial:
Oklahoma
Texas
New Mexico
Colorado
Arizona
Consumer:
Oklahoma
Texas
New Mexico
Colorado
Wealth Management:
Oklahoma
Texas
New Mexico
Colorado
Arizona
244,602
104,262
24,224
52,878
12,022
92,113
40,082
5,787
16,663
7,341
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 primary discounted cash flow test performed as of October 1, 2010, no goodwill impairment was
noted.
The fair value of our reporting units determined by the discounted future earnings method was further corroborated by
comparison to the market capitalization of publicly traded banks of similar size and characteristics in our geographical
footprint. Considering the results of these two methods, management believes that no goodwill impairment existed as of
our annual evaluation date.
As of December 31, 2010, the market value of BOK Financial common stock, a primary input in our goodwill impairment
analysis, was approximately 18% 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 sustained 10% negative change in the market value of our common stock on September 30, 2010 was simulated. This
simulation indicated that an immaterial impairment in our Colorado Commercial reporting unit may be possible. As of
October 1, the fair value of our Colorado Commercial reporting unit exceeds the carrying value by 5%.
17
Numerous other factors could affect future impairment analyses including credit losses that exceed projected amounts or
failure to meet growth projections. Additionally, fee income may be adversely affected by increasing residential mortgage
interest rates and changes in federal regulations.
Other-Than-Temporary Impairment
The Company evaluates impaired debt and equity securities quarterly 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 residential mortgage-backed securities.
The primary assumptions used to project cash flows are disclosed in Note 2 to the Consolidated Financial Statements.
We 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.
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, default
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% over 21 months thereafter and an additional 20% house price depreciation. The results of this analysis indicated an
additional $29 million to $36 million of credit losses 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
18
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. An allowance 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 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.
Assessment of Operations
Net Interest Revenue
Tax-equivalent net interest revenue totaled $718.2 million for 2010, flat with the prior year. The effect of a $506 million
increase in average earning assets was largely offset by a 7 basis point decrease in net interest margin.
The increase in average earning assets was primarily due to a $1.8 billion increase in securities partially offset by a $1.2
billion decrease in net loans. During 2009, we purchased U.S. government agency issued residential mortgage-backed
securities to supplement earnings during a period of declining loan demand and to manage our interest rate risk. The larger
securities portfolio was maintained throughout 2010. Average commercial, commercial real estate and consumer loans
decreased compared to the prior year, partially offset by growth in residential mortgage loans.
Growth in average earning assets was funded primarily by a $1.0 billion increase in average deposits. Average interest-
bearing transaction account balances increased $1.5 billion and average demand deposit account balances increased $510
million. Average time deposits decreased $970 million as we decreased higher-costing time deposits. We also decreased
average borrowed funds by $630 million during 2010.
Table 3 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, was 3.50% for 2010 and
3.57% for 2009. The decrease in net interest margin was due primarily to lower yield on our securities portfolio partially
offset by lower funding costs.
The tax-equivalent yield on earning assets was 4.19% for 2010, down 40 basis points from 2009. The securities portfolio
yield was 3.35%, down 101 basis points from 2009. Low intermediate and long-term interest rates experienced during the
late third quarter and early fourth quarter of 2010 increased actual and projected prepayment speeds which drove higher
levels of amortization of purchase premium. In addition to increased premium amortization over the second half of 2010,
approximately $1.4 billion that had been invested to yield 3.40% was reinvested at 2.20%. The recent 100 basis point
increase in interest rates should support a partial recovery of the securities portfolio yield as premium amortization slows
and reinvestment rates improve. Loan yields increased 17 basis points to 4.82% primarily due to early payoff penalties,
non-use fees and other fees. The cost of interest-bearing liabilities was 0.85% for 2010, down 36 basis points from 2009
due largely to market conditions. The cost of interest bearing deposits decreased 53 basis points to 0.85% and the cost of
funds purchased and other borrowings increased 3 basis points to 0.84%. In addition, we reduced certain types of higher-
costing time deposits and other borrowings during the year to lower our funding costs. The benefit to net interest margin
from earning assets funded by non-interest bearing liabilities was 16 basis points in 2010 compared to 19 basis points in
2009 due to the low rate environment.
Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates as is
further described in the Market Risk section of this report. As shown in Table 27, approximately 62% 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
residential mortgage-backed securities issued primarily by U.S. government agencies 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
$30 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 $4.0 million in 2010,
$13.1 million in 2009 and $7.0 million in 2008 from periodic settlements of derivative contracts. This increase in net
19
interest revenue contributed 2 basis points to net interest margin in 2010, 6 basis points in 2009 and 4 basis points in 2008.
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 3 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.
Table 3 Volume/Rate Analysis
(In thousands)
Tax-equivalent interest revenue:
Securities
Trading securities
Loans
Funds sold and resell agreements
Total
Interest expense:
Transaction deposits
Savings deposits
Time deposits
Federal funds purchased and repurchase
agreements
Other borrowings
Subordinated debentures
Total
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
Net interest revenue
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
Year Ended 2010 / 2009
Year Ended 2009 / 2008
Change Due To ¹
Change Due To ¹
Change
Volume
Yield /
Rate
Change
Volume
$ (22,339)
(918)
(39,096)
(50)
(62,403)
$ 65,845
(861)
(57,703)
(30)
7,251
$(88,184) $ 14,359
(1,235)
(158,854)
(1,500)
(147,230)
(57)
18,607
(20)
(69,654)
$ 70,709
851
(12,458)
(314)
58,788
(12,721)
105
(45,481)
8,736
70
(20,331)
(21,457)
35
(25,150)
(69,796)
(62)
(54,704)
9,924
30
3,924
(62)
(2,375)
8
(13,954)
$ 21,205
(34)
(1,740)
125
(48,221)
$ (21,433)
(96)
(4,115)
133
(62,175)
(228)
(1,084)
$ (1,312)
(8,843)
5,982
9
11,026
$ 47,762
(53,016)
(33,036)
36
(210,578)
63,348
154
$ 63,502
Yield
/Rate
$(56,350)
(2,086)
(146,396)
(1,186)
(206,018)
(79,720)
(92)
(58,628)
(44,173)
(39,018)
27
(221,604)
$ 15,586
4th Qtr 2010 / 4th Qtr 2009
Change Due To¹
Change
Volume
Yield/Rate
$ 8,404
72
(8,806)
(4)
(334)
1,889
25
(1,881)
(173)
(1,287)
2
(1,425)
$ 1,091
$ (26,627)
(240)
10
(5)
(26,862)
(4,209)
(53)
(1,672)
490
312
122
(5,010)
$(21,852)
$ (18,223)
(168)
(8,796)
(9)
(27,196)
(2,320)
(28)
(3,553)
317
(975)
124
(6,435)
(20,761)
(67)
$ (20,828)
¹ Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
Fourth Quarter 2010 Net Interest Revenue
Tax-equivalent net interest revenue for the fourth quarter of 2010 totaled $165.9 million compared with $186.7 million for
the fourth quarter of 2009. Net interest margin was 3.19% for the fourth quarter of 2010 and 3.64% for the fourth quarter
of 2009. The decrease in net interest revenue and net interest margin was due primarily to lower yield on average earning
assets, partially offset by lower funding costs. Securities portfolio yield decreased 114 basis points to 2.73%. Premium
amortization in the residential mortgage-backed securities portfolio increased in the fourth quarter of 2010 due to extremely
low intermediate and long term interest rates which accelerated actual and projected prepayment speeds. In addition,
approximately $800 million that had been yielding 3.15% was reinvested to yield 2.20%. We expect that the 100 basis
point increase in mortgage interest rates late in the fourth quarter of 2010 will reduce amortization expense in 2011.
20
Average earning assets increased $567 million or 3%, including a $1.3 billion increase in average securities. Average net
loans decreased $835 million compared to the fourth quarter of 2009. Average balances in all major loan categories, except
for residential mortgage, decreased. Growth in average earning assets was funded primarily by a $505 million increase in
average demand deposits. Other borrowing decreased $1.6 billion compared to the fourth quarter of 2009, partially offset
by a $1.2 billion increase in average interest bearing transaction account balances.
2009 Net Interest Revenue
Tax-equivalent net interest revenue for 2009 was $718.4 million compared with $655.1 million for 2008. Average earning
assets increased $1.5 billion or 8%, primarily due to a $1.8 billion increase in average securities. Growth in the securities
portfolio generally consisted of residential mortgage-backed securities issued by U.S. government agencies. As shown in
Table 3, net interest revenue increased $48 million due to changes in earning assets and interest bearing liabilities and
increased $16 million due to changes in interest yields and rates. Net interest margin increased to 3.57% in 2009 compared
with 3.45% in 2008 primarily due to lower funding costs. The cost of interest-bearing liabilities was 1.21% for 2009, down
134 basis points from 2008. The tax-equivalent yield on earning assets was 4.59% for 2009, down 105 basis points from
2008. Loan yields decreased 118 basis points to 4.65%. However, loan spreads continued to improve. The securities
portfolio yield was 4.36%, down 80 basis points from 2008.
Other Operating Revenue
Other operating revenue increased $27.9 million over 2009 including a $35.9 million increase in fees and commission
revenue partially offset by a $14.6 million decrease in net gains on securities, derivatives and other assets. Other-than-
temporary charges recognized in 2010 earnings were $6.6 million less than in 2009.
Table 4 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
Other revenue
Total fees and commissions
2010
2009
Year ended December 31,
2007
$ 101,471
112,302
68,976
103,611
87,600
12,066
30,368
516,394
$ 91,677 $
105,517
66,177
115,791
64,980
10,239
26,131
480,512
2008
42,8041 $
100,153
78,979
117,528
30,599
10,681
34,450
415,194
Gain (loss) on other assets, net
Gain (loss) on derivative contracts, net
Gain (loss) on available for sales securities, net
Gains on Mastercard and Visa IPO securities
Gain (loss) on mortgage trading securities, net
Gain (loss) on securities, net
(1,161)
4,271
21,882
–
7,331
29,213
4,134
(3,365)
59,320
–
(13,198)
46,122
(9,406)
1,299
9,196
6,799
10,948
26,943
Total other-than-temporary impairment
Portion of loss recognized in other comprehensive
income
Net impairment losses recognized in earnings
(29,960)
(129,154)
(5,306)
(8,641)
(2,151)
(27,809)
(94,741)
(34,413)
–
(5,306)
–
(8,641)
Total other operating revenue
$ 520,908 $ 492,990
$ 428,724 $ 401,980 $ 371,623
1 Includes net derivative credit losses with two bankrupt counterparties of $54 million.
Fees and Commissions Revenue
Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 42% 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 increased $9.8 million or 11% over 2009. Customer hedging revenue totaled $11.7 million,
an increase of $5.0 million over prior year primarily due to energy derivatives. Investment banking revenue totaled $10.0
21
62,542 $
90,425
78,231
109,218
22,275
10,058
32,873
405,622
2,404
2,282
(276)
1,075
(486)
313
2006
53,413
78,622
71,037
102,436
26,996
2,558
36,634
371,696
1,499
(622)
152
–
(1,102)
(950)
–
–
–
million, a $2.3 million or 30% increase over 2009 due to timing and volume of transactions. Retail brokerage revenue
increased $3.0 million or 14% to $20.5 million. Securities trading revenue was $56 million for 2010 compared to $57
million for 2009. Increased lending activity by our mortgage banking customers increased related securities transaction
volume in 2010. This activity was offset by a decline in municipal trading revenue as credit spreads widened on credit
concerns in municipal securities and volumes dropped.
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 $6.8 million or 6% over 2009. Check
card revenue totaled $33.1 million, an increase of $3.7 million or 12% over 2009 due primarily to a 9% increase in the
number of check card transactions processed in 2010 compared to 2009. Merchant discount fees increased $2.8 million or
10% to $30.4 million on higher transaction volumes. ATM network revenue totaled $48.8 million, up less than 1% over the
prior year. The number of TransFund ATM locations totaled 1,943 at December 31, 2010, up 2% over the prior year.
Increased ATM transaction volumes were partially offset by a decrease in the average rate charged per transaction.
Interchange fee limits proposed by the Federal Reserve Bank as required by the Dodd-Frank Act would significantly reduce
transaction card revenue. Based on the $0.12 cap proposed in December to be effective as of July 21, 2011, we would
expect a decline in our interchange revenue of $12 million to $15 million in 2011.
Trust fees and commissions increased $2.8 million or 4%. The revenue increase was due to growth in the fair value of trust
assets, partially offset by lower balances in our proprietary mutual funds. In order to maintain positive yields in our
Cavanal Hill Funds and our cash management sweep fund in the current low short-term interest rate environment, we
voluntarily waived $3.7 million of administrative fees in 2010 and $4.7 million of administrative fees in 2009. The fair
value of trust assets administered by the Company totaled $32.8 billion at December 31, 2010 compared with $30.4 billion
at December 31, 2009.
Deposit service charges and fees declined $12.2 million or 11% compared to 2009. Overdraft fees declined $12.0 million
or 16% to $61.8 million. The decrease in overdraft fees was primarily due to changes in federal regulations concerning
overdraft changes which were effective July 1, 2010. This performance is consistent with our previously disclosed
expectation that changes in overdraft regulations would decrease fee income by $10 million to $15 million over the second
half of 2010. This decrease was partially mitigated by a new service charge imposed in the second quarter of 2010 on
accounts that remain overdrawn for more than five days. Commercial account service charge revenue decreased by $4.8
million or 14% compared to 2009 to $29.4 million for 2010. Customers kept larger commercial account balances, which
increases the earnings credit, a non-cash method for commercial customers to avoid incurring charges for deposit services
based on account balances. Service charges on retail deposit accounts increased $585 thousand or 12% to $5.4 million.
Mortgage banking revenue increased $22.6 million or 35% over 2009. Revenue from originating and marketing mortgage
loans increased $4.5 million or 10% over the prior year to $49.4 million. Margins on mortgage loans originated for sale
were historically wide during parts of 2010 due to high volume and falling interest rates. Mortgage loans originated for
sale in the secondary market totaled $2.6 billion in 2010 compared to $2.8 billion in 2009. Mortgage loan servicing
revenue totaled $38.2 million or 0.36% of the average outstanding balance of loans serviced for others in 2010 and $20.0
million or 0.34% of loans serviced for others in 2009. The average outstanding balance of loans serviced for others was
$10.7 billion for 2010 and $5.9 billion for 2009. During the first quarter of 2010, the Company purchased the rights to
service $4.2 billion of residential mortgage loans. The loans to be serviced are primarily concentrated in the New Mexico
market and predominately held by Fannie Mae, Freddie Mac and Ginnie Mae. The remaining 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 2009.
Net gains on securities, derivatives and other assets
We recognized $21.9 million of net gains on sales of $2.0 billion of available for sale securities in 2010 and $59.3 million
of net gains on sales of $3.1 billion of available for sale securities in 2009. Securities were sold either because they had
reached their expected maximum potential return or to mitigate exposure from rising interest rates.
We also maintain a portfolio of securities and derivative contracts designated as an economic hedge of the changes in fair
value of mortgage servicing rights that fluctuates due to changes in prepayment speeds and other assumptions as more fully
described in Note 7 to the Consolidated Financial Statements. As benchmark mortgage interest rates fall, prepayment
speeds increase and the value of our mortgage servicing rights decreases. As benchmark mortgage interest rates increase,
prepayment speeds slow and the value of our mortgage servicing rights increase.
22
Table 5 Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge
(In thousands)
Gain on mortgage hedge derivative contracts
Gain (loss) on mortgage trading securities, net
Gain (loss) on financial instruments held as an economic
2010
2009
Year ended December 31,
2007
2008
2006
$
4,425
7,331
$
–
(13,198)
$
–
10,948
$
$
–
(486)
–
(1,102)
hedge of mortgage servicing rights, net
11,756
(13,198)
10,948
(486)
(1,102)
Gain (loss) on change in fair value of mortgage servicing
rights
Gain (loss) on changes in fair value of mortgage
servicing rights, net of gain on financial instruments
held as an economic hedge
(8,171) 1
12,124
(34,515)
(2,893)
3,009
$
3,585
$
(1,074)
$ (23,567)
$
(3,379)
$
1,907
Net interest revenue on mortgage trading securities 2
$ 19,043
$ 13,366
$
4,569
$
595
$
594
1 Excludes $11.8 million day-one pre-tax gain on the purchase of mortgage servicing rights in the first quarter of 2010.
2 Actual interest earned on mortgage trading securities less transfer-priced cost of funds.
In addition to the gain on mortgage hedge derivative contracts, gains (losses) on derivative contracts, net includes fair value
adjustments of 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 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.
We recognized a net loss on derivatives used to manage interest rate risk of $154 thousand during 2010 compared to a net
loss on derivative of $3.4 million in 2009.
The change in Net gain (loss) on other assets is due primarily to a $2.7 million decrease in the fair value of our private equity funds;
$2.4 million of the decrease is allocated to limited partners through Net income (loss) attributable to non-controlling interest on the
Statement of Earnings.
As more fully described in the Note 2 to the Consolidated Financial Statements, we recognized $27.8 million of other-than-
temporary impairment losses in earnings in 2010 related to certain privately issued residential mortgage-backed securities
and other equity securities. We recognized $34.4 million of other-than-temporary impairment charges against earnings in
2009 related to certain privately issued residential mortgage-backed securities and preferred stocks.
Fourth Quarter 2010 Other Operating Revenue
Other operating revenue for the fourth quarter of 2010 totaled $111.9 million, up $3.8 million over the prior year. Fees and
commission revenue increased $20.0 million or 17% over the fourth quarter of 2009. Net gains on available for sale
securities were down $10.7 million.
Mortgage banking revenue increased $11.8 million or 88% over the same period last year. Revenue from originating and
marketing mortgage loans increased $7.1 million and mortgage loan servicing revenue increased $4.7 million. Mortgage
loans funded for sale totaled $822 million in the fourth quarter of 2010, up from $517 million in the fourth quarter of 2009.
Brokerage and trading revenue increased $8.4 million or 41% over the prior year due to a $4.5 million increase in securities
trading revenue, a $1.9 million increase in retail brokerage revenue and a $1.9 million increase in investment banking
revenue. Transaction card revenue increased $3.2 million or 12% compared to the previous year. ATM fees, debit card
processing fees and merchant discount fees all increased over the prior year. Trust revenue increased $1.7 million or 10%
compared with the fourth quarter of 2009. The fair value of trust assets was up 8% compared to the prior year.
Deposit service charges and fees were down $5.8 million or 20% due primarily to changes in federal regulation concerning
overdraft charges that were effective July 1, 2010. Commercial account service charge revenue also decreased $961
thousand or 11%.
We recognized net gains of $953 thousand on sales $536 million of available for sale securities in the fourth quarter of
2010 compared to net gains of $11.7 million on sales of $765 million of available for sale securities in the fourth quarter of
2009.
For the fourth quarter of 2010, changes in the fair value of mortgage servicing rights increased pre-tax net income by $25.1
million, partially offset by a net loss on mortgage trading securities of $11.1 million and a loss on derivative contracts of
$7.4 million held as an economic hedge. For the fourth quarter of 2009, changes in the fair value of mortgage servicing
23
rights increased pre-tax net income by $5.3 million, partially offset by a net loss on mortgage trading securities held as an
economic hedge of $4.4 million. There were no derivative contracts held as an economic hedge of the mortgage servicing
rights at December 31, 2009.
2009 Other Operating Revenue
Other operating revenue totaled $493.0 million for 2009, up $64.3 million over 2008. Fees and commissions revenue
increased $65.3 million and net gains on securities, derivatives and other assets increased $28.1 million, offset by a $29.1
million increase in other-than-temporary impairment charges recognized in earnings. Brokerage and trading revenue
increased $48.9 million over 2008. Fees and commissions revenue for 2008 was reduced by $54 million from net credit
losses on derivative contracts with two bankrupt counterparties. Customer hedging revenue decreased by $15 million or
70% from 2008 due to lower commodity prices, partially offset by a $7.8 million or 16% increase in securities trading
revenue over 2008 on increased activity by our mortgage banking customers. Transaction card revenue increased $5.4
million or 8% due to increases in ATM fees and check card revenue. Trust fees and commissions decreased $12.8 million
or 16% primarily due to the decrease in the fair value of all trust assets administered by the Company. Service charges on
deposit accounts declined $1.7 million or 1% on lower overdraft fees due to decreased transaction volume. Mortgage
banking revenue increased $34.4 million or 112% over 2008 due to increases in originating and marketing mortgages and
mortgage loan servicing revenue.
Net securities gains totaled $46.1 million for 2009. Other-than-temporary impairment charges of $34.4 million and $5.3
million were recognized in 2009 and 2008, respectively, on certain privately issued residential mortgage-backed securities
and variable-rate, perpetual preferred stocks. Losses on mortgage trading securities of $13.2 million were partially offset
by changes in the fair value of our mortgage servicing rights of $12.1 million.
Other Operating Expense
Other operating expense totaled $753.2 million for 2010, up $56.4 million over 2009. Changes in the fair value of mortgage servicing
rights decreased other operating expenses by $3.7 million in 2010 and decreased other operating expenses by $12.1 million in 2009. In
addition, operating expenses for 2009 included $11.8 million for the FDIC special assessment. Excluding these items, other operating
expense totaled $756.8 million for 2010, up $59.7 million over 2009. Personnel expenses increased $21.3 million or 6% over the
previous year. Non-personnel operating expenses increased $38.4 million or 12% over 2009 due largely to a $23.1 million increase in
losses and operating expenses related to repossessed assets.
Table 6 Other Operating Expenses
(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
Visa retrospective responsibility obligation
Other expense
Total
Personnel Expense
2010
2009
2008
2007
2006
Year ended December 31,
$ 401,864
17,726
30,217
63,969
24,320
–
87,752
13,665
$ 380,517
19,582
30,243
65,715
24,040
11,773
81,291
15,960
34,483
5,336
40,739
(3,661)
–
36,760
$ 753,170
11,401
6,970
36,304
(12,124)
–
25,061
$ 696,733
$ 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
Personnel expense totaled $401.9 million for 2010 and $380.5 million for 2009. Regular compensation, which consists of
salaries and wages, overtime pay and temporary personnel costs, totaled $238.7 million, up $6.8 million or 3% over 2009.
The increase in regular compensation was primarily due to an increase in the average regular compensation per full time
equivalent employee. Average staffing levels were held at a level consistent with 2009.
24
Table 7 Personnel Expense
(In thousands)
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)
2010
2009
2008
2007
2006
Year Ended December 31,
$ 238,690
$
231,897
$
219,629
$
206,857
$
185,466
91,205
12,778
103,983
59,191
–
$ 401,864
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
$
4,394
4,403
4,140
4,106
3,828
Incentive compensation increased $12.8 million or 14%. 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 2010 increased $10.6 million or 13% over the
previous year. The increase in cash-based incentive compensation over 2009 included a $4.3 million or 13% increase in
sales commissions related to brokerage and trading revenue and a $6.3 million increase in 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 decreased $297 thousand compared with
2009. This decrease reflected changes in the market value of BOK Financial common stock and other investments. The
year-end closing market price per share of BOK Financial common stock increased $5.88 during 2010 and $7.12 during
2009. Compensation expense for equity awards increased $2.5 million over 2009. 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 increased $1.7 million or 3% over 2009. Employee medical insurance costs of $19.4 million
were flat year over year. The Company self-insures a portion of its employee health care coverage and these costs may be
volatile. Employee retirement plan costs increased $1.2 million over the prior year and pension expense increased $650
thousand over 2009 due to changes in the expected return on plan assets and discount rate.
Non-Personnel Operating Expenses
Non-personnel operating expenses, excluding changes in the fair value of mortgage servicing rights and FDIC special
assessment, increased $38.4 million or 12% over 2009. Net losses and operating expenses related to repossessed assets
increased $23.1 million. Net losses from sales and writedowns of repossessed property based on our quarterly reviews of
carrying values increased $17.7 million. Operating expenses on repossessed assets, which consist largely of property taxes,
increased $5.4 million. In addition, Data processing and communications expense increased $6.5 million due primarily to
higher transaction volume and increased software amortization expense. An $11.7 million increase in other expense
included $6.1 million of depreciation expense on equipment we lease to earn tax credits. The benefit of this leasing activity
is largely recognized through reduced federal and state income tax expense.
Fourth Quarter 2010 Operating Expenses
Other operating expense totaled $178.4 million for the fourth quarter of 2010, up $1.9 million over the fourth quarter of
2009. Changes in the fair value of mortgage servicing rights reduced operating expenses by $25.1 million in the fourth
quarter of 2010 compared with a reduction in operating expenses of $5.3 million in the fourth quarter of 2009. Excluding
the change in fair value of mortgage servicing rights, other operating expenses increased $21.8 million or 12%. Personnel
expense increased $13.1 million due largely to a $7.7 million increase in cash-based incentive compensation. Regular
compensation increased $2.5 million and changes in the cost of liability-based stock compensation increased $1.6 million.
Non-personnel expenses increased $8.7 million over the prior year, including $4.7 million of increased depreciation
expense on equipment we lease to earn tax credits and a $1.9 million increase in net losses and operating expenses on
repossessed assets.
2009 Operating Expenses
Other operating expense for 2009 totaled $696.7 million, up $34.3 million or 5% increase over 2008. Changes in the fair
value of mortgage servicing rights decreased operating expenses by $12.1 million in 2009 and increased operating expenses
by $34.5 million in 2008. Personnel expense increased $27.6 million or 8%. Non-personnel expenses, excluding changes
in the fair value of mortgage servicing rights and an $11.8 million FDIC special assessment, increased $41.6 million or
25
15% primarily due to an increase in regular FDIC assessments, mortgage banking costs and net losses and operating
expenses related to repossessed assets.
Regular compensation expense totaled $232.0 million, up $12.3 million, or 6% over 2008 due to increases in average
headcount and compensation rates. Incentive compensation increased $8.0 million, or 10% to $91 million. Expense for
cash-based incentive compensation plans increased $1.4 million or 2% including 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. Stock-based compensation expense increased $6.6 million. Liability awards increased $7.7 million due
primarily to an increase in the market value of BOK Financial common stock and other investments. The year-end closing
market price per share of BOK Financial common stock increased $7.12 during 2009. Compensation expense for equity
awards decreased $1.0 million compared to 2008. Employee benefit expenses increased $7.3 million or 15% to $57 million
related to medical insurance costs, employee retirement plans and payroll taxes.
Mortgage banking costs, excluding changes in the fair value of mortgage servicing rights, increased $13.8 million over
2008. Expense recognized for actual prepayment of mortgage loans serviced totaled $20.9 million in 2009 and $12.0
million in 2008. Low mortgage interest rates and other incentive to stimulate the housing market caused an increase in
actual loan prepayments in 2009. In addition, the provision for losses on mortgage loans sold with recourse totaled $12.2
million in 2009 compared to $8.6 million in 2008.
Deposit insurance expense, excluding the FDIC special assessment, totaled $23.0 million for 2009 compared to $11.2
million for 2008. 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.
All other operating expenses increased $16 million or 7% over 2008. Net losses and operating expenses on repossessed
asset increased $10.4 million on higher repossessed asset balances and net occupancy and equipment expense increased
$5.1 million.
Income Taxes
Income tax expense was $123.4 million or 33% of book taxable income for 2010, $106.7 million or 34% of book taxable
income for 2009 and $64.9 million or 31% of book taxable income for 2008. Tax expense currently payable totaled $150
million in 2010, $129 million in 2009 and $116 million in 2008.
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 2009 in 2010. Excluding these adjustments, income tax expense for 2010 would
have been $126 million or 34% of book taxable income. In addition, the Company recognized adjustments to its current
income tax liability for amounts on filed tax returns for 2007 during 2008 and a 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 $58 million at December 31, 2010 and $107 million at December 31, 2009. The decrease
was due primarily to the tax effect of unrealized gains on available for sale securities 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.
The allowance for uncertain tax positions totaled $12 million at December 31, 2010 and December 31, 2009. 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 2010 totaled $31.1 million or 34% of book taxable income compared to $24.8
million or 37% of book taxable income for the fourth quarter of 2009.
26
Table 8 Selected Quarterly Financial Data
(In thousands, except per share data)
Fourth
Third
Second
First
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
Gain (loss) on derivative contracts, net
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
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 (loss) attributable to non-controlling interest
Net income attributable to BOK Financial Corp.
$ 197,148
33,498
163,650
6,999
156,651
135,975
15
(7,286)
(10,164)
(4,768)
1,859
(6,627)
203,472
(25,111)
90,203
31,097
59,106
274
$ 58,832
2010
$ 216,967
36,252
180,715
20,000
160,715
136,936
(1,331)
4,626
11,753
(4,525)
9,786
(14,311)
189,241
15,924
93,223
29,935
63,288
(979)
$ 64,267
$ 217,597
35,484
182,113
36,040
146,073
128,168
1,545
7,272
23,100
(10,959)
(8,313)
(2,646)
186,454
19,458
97,600
32,042
65,558
2,036
$ 63,522
$ 219,370
36,796
182,574
42,100
140,474
115,315
(1,390)
(341)
4,524
(9,708)
(5,483)
(4,225)
177,664
(13,932)
90,625
30,283
60,342
209
$ 60,133
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
0.87
0.87
$
$
0.94
0.94
$
$
0.93
0.93
$
$
0.88
0.88
67,686
67,899
67,625
67,765
67,606
67,881
67,592
67,790
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 derivative contracts, 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
2009
$ 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
27
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 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 capital allocation model that reflects our assessment of risk. This
model assigns capital based upon credit, operating, interest rate and market risk inherent in our business lines and
recognizes the diversification benefits among the units. The level of assigned economic capital is a combination of the risk
taken by each business line, based on its actual exposures and calibrated to its own loss history where possible. Average
invested capital includes economic capital and amounts we have invested in the lines of business.
As shown in Table 9, net income attributed to our lines of business increased $56.5 million or 63% from the prior year.
The increase in net income attributed to our lines of business was due primarily to a $32.1 million decrease in net loans
charged off, a $36.5 million increase in other operating revenue, and a $15.1 million decrease in operating expenses
attributed to the lines of business. Net interest revenue attributed to our lines of business improved due to continued growth
in average deposits generated by those lines of business and sold to our funds management unit. Net income attributed to
Funds management and other decreased compared to the prior year. Less operating expenses were allocated to our lines of
business due to a decrease in transaction volumes. A decrease in gains on securities sold, net of other-than-temporary
impairment charges, was partially offset by a decrease in the provision for credit losses.
Table 9 Net Income by Line of Business
(In thousands)
Commercial banking
Consumer banking
Wealth management
Subtotal
Funds management and other
Total
Year ended December 31,
2009
2008
2010
$ 81,842
52,014
12,642
146,498
100,256
$ 246,754
$ 58,019
20,987
11,038
90,044
110,534
$ 200,578
$ 78,264
25,795
31,329
135,388
17,844
$ 153,232
28
Commercial Banking
Commercial banking contributed $81.8 million to consolidated net income for 2010, up from $58.0 million in 2009. The
increase in commercial banking net income was largely due to a $30.6 million decrease in net loans charged-off. Net
interest revenue increased $4.0 million and other operating revenue increased $7.0 million. In addition, operating expenses
decreased $9.3 million. Net losses on repossessed assets increased to $19.4 million compared to $7.5 million in 2009.
Table 10 Commercial Banking
(Dollars in thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
Total net interest revenue
$
Year ended December 31,
2009
345,374
(52,299)
293,075
$
$
2010
341,770
(44,685)
297,085
Other operating revenue
Operating expense
Net loans charged off
Gains on financial instruments, net
Loss on repossessed assets, net
Income before taxes
Federal and state income tax
140,364
213,916
70,193
–
(19,392)
133,948
52,106
133,359
223,227
100,749
–
(7,500)
94,958
36,939
2008
451,624
(134,009)
317,615
106,9231
216,403
84,650
4,689
(82)
128,092
49,828
Net income
$
81,842
$
58,019
$
78,264
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
8,973,559
8,219,290
6,171,409
900,233
0.91%
9.09%
48.90%
0.85%
$ 10,108,506
9,184,600
5,365,181
950,684
0.57%
6.10%
52.35%
1.10%
$ 11,044,919
9,684,460
4,559,658
922,904
0.71%
8.48%
50.97%
0.87%
1
Includes net derivative credit losses of $41 million.
Net interest revenue increased $4.0 million or 1% over 2009, primarily on increased average deposit balances attributed to
our commercial banking unit. An $806 million increase in average deposits increased net interest revenue by $6 million.
The average outstanding balance of loans attributed to commercial banking decreased $965 million in 2010, which
decreased net interest revenue by $24 million. This decrease in net interest revenue was partially offset by loan spreads
which improved 22 basis points, increasing net interest revenue by $16 million and a $6 million increase in loan fees
earned.
Other operating revenue increased $7.0 million or 5% over 2009. The pre-tax equivalent of revenue from equipment leased
to generate federal and state income tax credits increased $7.9 million over the prior year. Transaction card revenues were
up $3.3 million or 5% over 2009. Service charges on commercial deposit accounts were down $5.0 million or 14%
compared to the prior year as customers kept greater commercial deposit balances to increase their earnings credit, which
provides a non-cash method for commercial customers to avoid incurring charges for deposit services based on account
balance.
Operating expenses declined $9.3 million or 4% compared to the prior year. Personnel expenses were flat with the prior
year. Costs allocated to the commercial banking segment decreased $25.8 million primarily due to decreased lending
volume. Depreciation expenses related to assets leased to generate income tax credits increased $6.1 million. Data
processing expense increased $5.8 million on higher transaction volume. Operating expenses of repossessed properties
increased $4.5 million over the prior year.
Average commercial banking division loans decreased $965 million or 11% from 2009. 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 decreased $30.6 million in 2010 to $70.2 million
or 0.85% of average loans attributed to this line of business.
Average deposits attributed to commercial banking were up $806 million or 15% over 2009. Treasury services account
balances increased $242 million or 17%. Average deposit balances attributed to our energy customers increased $243
million or 53% and average balances attributed to our commercial and industrial customers increased $137 million or 7%.
29
Average balances attributed to our small business customers increased $104 million or 10% and average deposit balances
of our commercial real estate customers increased $34 million or 14%.
Consumer Banking
Consumer banking services are provided through four primary distribution channels: traditional branches, supermarket
branches, the 24-hour ExpressBank call center and online internet banking. We currently have 207 consumer banking
locations, including branch banking locations and mortgage lending offices. Our consumer banking locations are primarily
distributed 104 in Oklahoma, 51 in Texas, 24 in New Mexico and 14 in Colorado.
Consumer banking contributed $52.0 million to consolidated net income in 2010, up $31.0 million or 148% over 2009.
Growth in net income was largely due to mortgage banking performance including a $6.5 million day-one gain from the
purchase of rights to service $4.2 billion of residential mortgage loans on favorable terms in 2010. Excluding this gain, net
income from mortgage banking grew $20.4 million to $34.7 million. Net income from mortgage loan servicing activities
totaled $16.6 million, up $13.8 million. Net income from mortgage loan production activities totaled $11.6 million, up
slightly over 2009. Net income from all other consumer banking activities increased $10.6 million. Reduced operating
expense attributed to consumer banking offset a decrease in deposit service charge income.
Table 11 Consumer Banking
(Dollars in thousands)
NIR (expense) from external sources
NIR (expense) from internal sources
Total net interest revenue
$
Other operating revenue
Operating expense
Net loans charged off
Increase (decrease) in fair value of
mortgage servicing rights
Gains (losses) on financial instruments, net
Gains (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
Year ended December 31,
2009
2008
2010
$
86,594
47,360
133,954
203,840
244,118
23,057
3,661
11,756
(907)
85,129
33,115
$
57,893
73,565
131,458
182,895
256,337
24,366
12,124
(13,198)
1,773
34,349
13,362
32,076
118,728
150,804
148,885
219,024
16,650
(34,515)
12,525
193
42,218
16,423
Net income
$
52,014
$
20,987
$
25,795
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 portfolio1
Mortgage loans funded for resale
$
6,244,728
2,115,884
6,130,525
478,796
0.83%
10.86%
72.27%
1.09%
207
$ 12,059,241
2,502,071
$
$
6,149,597
2,445,496
6,048,200
493,074
0.34%
4.26%
81.54%
1.00%
202
7,366,780
2,828,260
$
$
5,764,662
2,507,161
5,678,162
469,737
0.45%
5.49%
73.08%
0.66%
202
5,983,824
1,018,246
Includes outstanding principal for loans serviced for affiliates.
1
Net interest revenue from consumer banking activities increased $2.5 million or 2% over 2009 primarily due to an $82
million increase in average deposit balances sold to the funds management unit, partially offset by a $330 million decrease
in average loan balances. Average loan balances attributed to the consumer banking division decreased due primarily to
the continued pay-downs of indirect automobile loans. The Company previously disclosed its decision to exit the indirect
automobile loan business in the first quarter of 2009.
Other operating revenue increased $20.9 million or 11% over 2009 primarily due to increased mortgage banking revenue.
Revenue from originating and marketing mortgage loans increased $4.3 million due to increased gains on loans sold.
Mortgage servicing revenue increased $18.2 million primarily due to the purchase of $4.2 billion of residential mortgage
loan servicing rights in the first quarter of 2010. Transaction card revenue was up $3.5 million or 11% over the prior year
due primarily due higher transaction volumes. Deposit service charges were down $7.0 million or 9% compared to the
prior year primarily due to lower overdraft fees as a result of change in banking regulation that became effective in the third
quarter of 2010.
30
Operating expenses decreased $12.2 million or 5% compared to 2009 primarily due to a $19.2 million decrease in corporate
expenses allocated to the consumer banking division, offset by increases in other operating expenses.
Net loans charged off by the consumer banking unit decreased $1.3 million from the prior year to $23.1 million or 1.09% of
average loans attributed to the consumer banking division. Net consumer banking charge-offs include residential mortgage
loans that are retained by the Company, indirect automobile loans, overdrawn deposit accounts and other direct consumer
loans.
Average consumer deposits increased $82 million or 1% over 2009. The average balance of interest-bearing transaction
accounts were up $339 million or 14% and the average balance of demand deposit accounts increased $83 million or 11%.
Higher-costing average time deposit balances decreased $355 million from the prior year. Movement of funds among the
various types of consumer deposits was largely based on interest rates and product features offered.
Our Consumer Banking division originates, markets and services conventional and government-sponsored mortgage loans
for all of our geographical markets. During 2010, we funded $2.8 billion of mortgage loans compared to $3.0 billion in
2009. Approximately 44% of our mortgage loans funded were in the Oklahoma market, 14% in the Colorado market, 13%
in the Texas market and 13% in the New Mexico market. Revenue from mortgage loan origination and marketing activities
totaled $49.4 million in 2010 and $45.0 million in 2009. As of December 31, 2010, we also service $12.1 billion of
mortgage loans, including $796 million residential mortgage loans retained by the Company. Approximately 95% of the
mortgage loans serviced was to borrowers in our primary geographical market areas. Mortgage loan servicing revenue
totaled $38 million in 2010 compared to $20 million in 2009. The increase in mortgage servicing revenue was primarily
due to the mortgage servicing rights purchased in the first quarter of 2010.
Excluding the $11.8 million pre-tax day-one gain on the purchase of mortgage servicing rights during 2010, changes in fair
value of our mortgage loan servicing rights, net of securities and derivative contracts held as an economic hedge, increased
consumer banking pre-tax net income by $3.6 million in 2010 and decreased pre-tax net income by $1.1 million in 2009.
Changes in the fair value of mortgage servicing rights and securities and derivative contracts held as an economic hedge are
due to movements in interest rates, actual and anticipated loan prepayments speeds and related factors. Net interest revenue
on mortgage trading securities totaled $19.0 million for 2010 compared to $13.4 million for 2009.
31
Wealth Management
The Wealth Management division contributed $12.6 million to net income in 2010, up $1.6 million or 15% over 2009. The
increase in net income was due primarily to an increase in retail brokerage and trust fees, partially offset by higher
personnel costs.
Table 12 Wealth Management
(Dollars in thousands)
Year ended December 31,
2009
2008
2010
NIR (expense) from external sources
NIR (expense) from internal sources
Total net interest revenue
$
32,634 $
11,913
44,547
$
25,899
18,746
44,645
Other operating revenue
Operating expense
Net loans charged off
Gains (losses) on financial instruments, net
Income before taxes
Federal and state income tax
164,942
177,952
11,128
282
20,691
8,049
156,360
171,540
11,399
–
18,066
7,028
12,617
32,853
45,470
156,133
149,960
361
(7)
51,275
19,946
Net income
$
12,642 $
11,038
$
31,329
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Trust assets
Trust assets for which BOKF has sole or joint
$
3,503,370 $
1,066,714
3,414,407
170,385
0.36%
7.42%
84.95%
1.04%
3,032,007
1,059,342
2,958,549
160,276
0.36%
6.89%
85.34%
1.08%
$ 32,751,501 $ 30,385,365
$
2,193,386
933,020
2,100,237
141,555
1.43%
22.13%
74.38%
0.04%
$ 30,454,512
discretionary authority
Non-managed trust assets
Assets held in safekeeping
11,805,418
13,392,334
7,553,749
10,847,143
12,339,059
7,199,163
11,476,059
11,258,475
7,719,978
Net interest revenue was flat with the prior year. The yield on securities and loans declined compared to the prior year,
mostly offset by the benefit of an increase in average deposits which were sold to the funds management unit.
Other operating revenue increased $8.6 million or 5% over the prior year. Retail brokerage fees increased $5.4 million or
26% and trust fees were up $2.7 million or 4% primarily due to increases in the fair value of trust assets.
Other operating revenue includes fees earned from state and municipal bond underwriting and financial advisory services,
primarily in the Oklahoma and Texas markets. The wealth management division participated in 215 underwritings that
totaled approximately $5.4 billion during 2010. Our interest in these underwritings totaled approximately $1.3 billion.
Operating expenses increased $6.4 million or 4% over 2009. Personnel expense was up $8.5 million or 8% due primarily
to increased incentive compensation costs and increased headcount. Commissions related to brokerage and trading revenue
increased $3.6 million and regular compensation expense increased $2.8 million or 5%.
Growth in average assets was largely due an increase in wealth management deposits which are sold to the funds
management unit. Average deposits attributed to the wealth management division increased $456 million over the prior
year included a $536 million increase in the average balance of interest bearing transaction accounts and a $56 million
increase in average demand deposit account balances, offset by a $135 million decrease in average time deposit balances.
Average loans by the wealth management division grew $7.4 million or 1% over the prior year to $1.1 billion at December
31, 2010. Net loans charged off in 2010 decreased by 2% form the prior year to $11.1 million.
32
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 13 Net Income by Geographic Region
(In thousands)
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
Subtotal
Funds management and other
Total
Oklahoma Market
Year ended December 31,
2009
2008
2010
$ 121,827
29,295
8,864
3,949
3,033
(22,817)
4,111
148,262
98,492
$ 246,754
$ 85,781
18,140
6,142
10,630
(7,811)
(28,512)
6,433
90,803
109,775
$ 200,578
$ 68,156
42,874
14,554
9,390
7,617
(5,844)
538
137,285
15,947
$ 153,232
Our Oklahoma offices are located primarily in the Tulsa and Oklahoma City metropolitan areas. Oklahoma is a significant
market to the Company, representing 50% of our average loans, 54% of our average deposits and 49% of our consolidated
net income. In addition, all of our mortgage servicing activity and 76% of our trust assets are attributed to the Oklahoma
market.
Table 14 Oklahoma
(Dollars in thousands)
Net interest revenue
$
Year ended December 31,
2009
235,591
$
$
2010
244,491
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
330,260
348,168
41,357
3,661
12,038
(1,535)
199,390
77,563
316,541
374,860
35,762
12,124
(13,198)
(42)
140,394
54,613
2008
245,328
280,323
348,677
48,646
(34,515)
17,207
528
111,548
43,392
Net income
$
121,827
$
85,781
$
68,156
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
$
9,771,256
5,441,823
8,782,318
530,688
1.25%
22.96%
60.58%
0.76%
8,841,130
6,086,505
7,888,821
538,015
0.97%
15.94%
67.89%
0.59%
8,105,136
6,425,918
6,780,539
535,391
0.84%
12.73%
66.33%
0.76%
Net income generated in the Oklahoma market in 2010 grew $36.0 million or 42% over 2009. Net interest revenue
increased $8.9 million and other operating revenue increased $13.7 million. Other operating expenses were down $26.7
million compared to the prior year. Net loans charged off increased $5.6 million to $41.4 million or 0.76% of average
loans attributed to the Oklahoma market. Excluding the $11.8 million pre-tax day-one gain on the purchase of mortgage
servicing rights during 2010, changes in fair value of our mortgage loan servicing rights, net of securities and derivative
33
contracts held as an economic hedge, increased pre-tax net income by $3.6 million in 2010 and decreased pre-tax net
income by $1.1 million in 2009.
Net interest revenue increased $8.9 million or 4% over 2009. Net interest revenue increased from improved loan spreads
and an $893 million increase in average deposit balances attributed to the Oklahoma market. Average loans attributed to
the Oklahoma market decreased $645 million from 2009.
Other operating revenue increased $13.7 million or 4% over 2009, primarily due to an $18.2 million increase in mortgage
servicing revenue, partially offset by a $9.0 million decrease in deposit fees due to lower overdraft fees as a result of
change in banking regulation that became effective in the third quarter of 2010. The pre-tax equivalent of revenue from
equipment leased to generate federal and state income tax credits increased $8.9 million over the prior year.
Other operating expenses decreased $26.7 million compared to the prior year, primarily due to a decrease in corporate
expenses allocated to the Oklahoma market, partially offset by higher personnel costs and data processing expenses on
higher transaction volumes. Depreciation expense related to equipment leasing increased $4.9 million. Foreclosure
expenses and expenses related to repossessed property also increased over the prior year.
Average deposits in the Oklahoma market increased $893 million or 11% over 2009. Commercial and wealth management
units, including trust, broker/dealer and private banking increased over the prior year, partially offset by a slight decrease in
consumer banking deposits.
Texas Market
Our Texas offices are located primarily in the Dallas, Fort Worth and Houston metropolitan areas. Texas is our second
largest market with 30% of our average loans, 24% of our average deposits and 8% of our consolidated net income for
2010.
Table 15 Texas
(Dollars in thousands)
Net interest revenue
$
Year ended December 31,
2009
134,951
$
$
2010
134,331
Other operating revenue
Operating expense
Net loans charged off
Gains (losses) on repossessed assets, net
Income before taxes
Federal and state income tax
60,734
130,679
15,674
(2,939)
45,773
16,478
50,875
132,533
23,607
(1,343)
28,343
10,203
2008
153,460
45,087
115,087
16,588
119
66,991
24,117
Net income
$
29,295
$
18,140
$
42,874
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
$
4,479,989
3,321,561
3,901,367
478,796
0.65%
6.12%
66.99%
0.47%
4,167,282
3,607,661
3,701,415
493,074
0.44%
3.68%
71.32%
0.65%
3,906,728
3,625,751
3,222,986
469,737
1.10%
9.13%
57.96%
0.46%
Net income in the Texas market increased $11.2 million or 61% over 2009 primarily due to an increase in operating
revenue and a decrease in net loans charged off.
Net interest revenue was flat with the prior year. Net interest revenue generated from a $200 million increase in average
deposits balances attributed to the Texas market was offset by a $286 million decrease in the average balance of
outstanding loans attributed to the Texas market.
Other operating revenue increased $9.9 million or 19% over 2009. Most fee income categories increased over 2009
including a $2.9 million increase in transaction card revenue, a $2.4 million increase in retail brokerage fees, a $2.4 million
increase investment banking revenue and a $2.1 million increase in trust fees. Revenue related to our leasing business and
mortgage origination attributed to the Texas market also increased. Deposit service charges decreased $1.9 million
primarily due to lower overdraft fees as a result of changes in banking regulations that became effective in the third quarter.
34
Operating expenses were down $1.9 million or 1% compared to the previous year. Corporate expenses allocated to the
Texas market decreased on lower loan volumes, partially offset by an increase in incentive compensation expense, expenses
on repossessed property and data processing expense on higher transaction volume.
Net loans charged-off totaled $15.7 million or 0.47% of average loans in 2010 compared to $23.6 million or 0.65% of
average loans in 2009.
Other Markets
Net income attributed to our New Mexico market increased $2.7 million or 44% over 2009 to $8.9 million or 4% of
consolidated net income. Net interest income was flat with the prior year. Net interest revenue earned on increased
average deposit balances attributed to the New Mexico market was largely offset by a decrease in the average loan balances
attributed to the New Mexico market. Operating revenue increased over the prior year due primarily to higher mortgage
revenues as a result of higher funding volumes and increased transaction card revenue, partially offset by lower overdraft
fees. Although we attribute all mortgage servicing to the Oklahoma market, the purchase of the rights to service $4.2
billion of residential mortgage loans in the first quarter of 2010 gives us the ability to further develop relationships with
approximately 34 thousand additional customers, primarily located in the New Mexico market. Other operating expenses
decreased due to lower corporate cost allocation to the New Mexico market.
Net income for the Arkansas market totaled $3.9 million compared to $10.6 million in 2009. Net interest revenue
decreased $1.5 million due to a $79 million decrease in average loans. The decrease in average loans in the Arkansas
market was largely due to our decision to discontinue indirect automobile lending. Average deposits attributed to the
Arkansas market were up $40 million or 26% over 2009, primarily related to increases in commercial banking and wealth
management deposit balances. Consumer deposits increased over 2009 levels as well. Other operating revenue increased
$4.1 million or 11% over 2009, primarily on increased securities trading revenue at our Little Rock office. Other operating
expenses increased $10.0 million on higher incentive compensation costs related to securities trading activity and increased
corporate cost allocations. Net loans charged off increased to $6.7 million or 2.04% of average loans.
Net income attributed to our Colorado market improved to $3.0 million in 2010, compared to a net loss of $7.8 million in
2009. Net loans charged off decreased $14.2 million compared to the prior year to $10.8 million or 1.41% of average
loans. Net interest income decreased primarily due to a $141 million decrease in average loans attributed to the Colorado
market. Other operating revenue increased $3.5 million primarily due to higher mortgage revenue and operating expenses
decreased $2.0 million due primarily to lower corporate overhead allocations on reduced loan volume.
The Arizona market’s performance continued to improve during 2010. The net loss attributed to the Arizona market
narrowed from $28.5 million in 2009 to $22.8 million in 2010. Net loans charged off improved by $17.3 million to $22.4
million or 4.29% of average loans attributed to the Arizona market. Losses on repossessed assets increased $9.4 million
over to the prior year. Operating revenue increased $1.7 million over the prior year on higher mortgage revenue due to
increased volume of originations and improved margins and an increase in transaction card revenue. Net interest revenue
and operating expenses also increased modestly over the prior year. Average deposits grew steadily by $37 million or 20%
over the prior year in commercial, consumer and wealth management deposits. Average loans decreased $43 million or
8%. Period-end loan balances in the Arizona market are up $30 million or 6% since December 31, 2009. Commercial
loans increased $32 million or 16% while commercial real estate loans decreased $26 million or 12%.
Consistent with plans when we first acquired Valley Commerce Bank in 2005, our objective is to focus on growth in
commercial and small business lending in the Phoenix 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. Losses incurred during 2010 and 2009 are largely due to commercial real estate lending.
Assets attributed to the Arizona market include $16 million of goodwill that may be impaired in future periods if
commercial and small business lending growth plans are unsuccessful.
Net income attributed to the Kansas/Missouri market totaled $4.1 million compared to $6.4 million in the prior year. Net
interest revenue increased $1.5 million or 19% as a result of an $81 million increase in average deposit balances and
average loans attributed to the Kansas/Missouri market decreased only 1% from the prior year. Net loans charged off
improved to 0.26% of average loans attributed to the Kansas/Missouri market. Operating expenses increased $4.9 million
due primarily to increased corporate expense allocations and personnel costs.
35
Table 16 New Mexico
(Dollars in thousands)
Net interest revenue
$
32,639
$
32,775
$
39,673
Year ended December 31,
2009
2008
2010
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
28,007
37,233
6,152
(2,754)
14,507
5,643
23,959
38,632
7,125
(925)
10,052
3,910
23,788
35,753
3,883
(5)
23,820
9,266
8,864
$
6,142
$
14,554
1,329,740
720,339
1,231,643
83,999
0.67%
10.55%
61.39%
0.85%
$
1,248,607
810,867
1,146,942
85,750
0.49%
7.16%
68.09%
0.88%
$
1,141,031
841,353
1,036,209
86,401
1.28%
16.84%
56.34%
0.46%
Table 17 Arkansas
(Dollars in thousands)
Net interest revenue
$
10,223
$
11,741
$
11,784
Year ended December 31,
2009
2008
2010
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
41,258
37,370
6,734
(914)
6,463
2,514
37,119
27,378
3,665
(419)
17,398
6,768
29,104
22,027
3,250
(242)
15,369
5,979
3,949
$
10,630
$
9,390
$
$
357,251
330,200
196,372
23,886
1.11%
16.53%
72.59%
2.04%
425,071
409,339
155,981
24,460
2.50%
43.46%
56.03%
0.90%
446,101
434,339
73,605
23,415
2.10%
40.10%
53.87%
0.75%
36
Table 18 Colorado
(Dollars in thousands)
Net interest revenue
$
32,712
$
34,966
$
37,009
Year ended December 31,
2009
2008
2010
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income (loss) before taxes
Federal and state income tax
Net income (loss)
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
21,769
37,994
10,805
(718)
4,964
1,931
18,237
40,032
25,000
(955)
(12,784)
(4,973)
16,600
32,997
8,146
–
12,466
4,849
3,033
$
(7,811) $
7,617
1,219,529
768,159
1,146,016
124,712
0.25%
2.43%
69.74%
1.41%
$
$
1,217,498
908,949
1,137,893
129,897
(0.64)%
(6.01)%
75.24%
2.75%
1,138,363
859,490
1,058,816
121,270
0.67%
6.28%
61.55%
0.95%
Table 19 Arizona
(Dollars in thousands)
Year ended December 31,
2009
2008
2010
Net interest revenue
$
11,792
$
11,174
$
18,608
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Loss before taxes
Federal and state income tax
5,071
20,378
22,411
(11,418)
(37,344)
(14,527)
3,384
19,445
39,733
(2,044)
(46,664)
(18,152)
1,300
15,143
14,043
(287)
(9,565)
(3,721)
Net loss
$
(22,817) $
(28,512) $
(5,844)
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
$
609,627
522,200
218,865
65,717
(3.74)%
(34.72)%
120.84%
4.29%
631,680
564,730
182,209
71,436
(4.51)%
(39.91)%
133.57%
7.04%
612,785
589,363
126,313
65,468
(0.95)%
(8.93)%
76.06%
2.38%
37
Table 20 Kansas/Missouri
(Dollars in thousands)
Net interest revenue
$
9,428
$
7,927
$
7,692
Year ended December 31,
2009
2008
2010
Other operating revenue
Operating expense
Net loans charged off
Losses on repossessed assets, net
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
$
19,386
21,284
781
(21)
6,728
2,617
19,876
16,358
917
–
10,528
4,095
13,456
13,165
7,103
–
880
342
4,111
$
6,433
$
538
$
$
309,238
297,606
239,759
24,026
1.33%
17.11%
73.87%
0.26%
310,648
299,861
158,665
20,795
2.07%
30.94%
58.84%
0.31%
341,383
338,047
37,964
18,087
0.16%
2.97%
62.25%
2.10%
Assessment of Financial Condition
Securities
We maintain a securities portfolio to enhance profitability, support interest rate risk management strategies, provide
liquidity and comply with regulatory requirements. Securities are classified as held for investment, available for sale or
trading. See Note 2 to the consolidated financial statements for additional discussion of the securities portfolio.
Investment (held-to-maturity) securities consist primarily of long-term, fixed-rate Oklahoma municipal bonds and Texas
school construction bonds. Substantially all of these bonds are general obligations of the issuer. Approximately $82
million of the Texas school construction bonds are also guaranteed by the Texas Permanent School Fund Guarantee
Program. At December 31, 2010, investment securities were carried at $340 million and had a fair value of $346 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 $9.1 billion at December 31, 2010, up $252 million over December 31, 2009. At
December 31, 2010, residential mortgage-backed securities represented 97% of total available for sale securities. We hold
no securities backed by sub-prime mortgage loans, collateralized debt obligations or collateralized commercial real estate
loans. A summary of our securities follows in Table 21. Additional details regarding securities concentrations appears in
Note 2 to the Consolidated Financial Statements.
38
Table 21 Securities
(Dollars in thousands)
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
2010
December 31,
2009
2008
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ 184,898
154,655
339,553
$
$ 188,577
157,528
346,105
$
$ 232,568
7,837
240,405
$
$
–
72,190
$
–
72,942
$
6,998
61,268
8,193,704
714,431
8,908,135
6,401
33,424
42,207
19,511
8,446,908
644,210
9,091,118
6,401
33,424
42,207
22,114
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
7,126
20,163
4,972,928
1,241,238
6,214,166
36
32,380
61,760
21,701
29,181
$ 9,111,049
43,046
$ 9,311,252
35,414
$ 8,858,798
50,165
$ 8,872,023
31,421
$ 6,722,423
34,119
$ 6,391,451
$
433,663
$
428,021
$
288,076
$
285,950
$
386,571
$
399,211
A primary risk of holding residential 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. Current interest rates are historically low and prices
for residential mortgage-backed securities are historically high resulting in very low effective durations. Our best estimate
of the duration of the residential mortgage-backed securities portfolio at December 31, 2010 is 2.2 years. Management
estimates that the duration would extend to approximately 3.5 years assuming an immediate 200 basis point upward rate
shock. The estimated duration contracts to 0.8 years assuming a 50 basis point decline in the current low rate environment.
Residential mortgage-backed securities also have credit risk from delinquency or default of the underlying loans. We
mitigate this risk by primarily investing in securities issued by U.S. government agencies. Principal and interest payments
on the underlying loans are either partially or fully guaranteed. At December 31, 2010, approximately $8.2 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 residential mortgage-backed securities totaled $8.4 billion at December 31, 2010.
We also hold amortized cost of $714 million in residential mortgage-backed securities privately issued by publicly-owned
financial institutions, a decline of $247 million from December 31, 2009. The decline was primarily due to $219 million of
cash received and $28 million of other-than-temporary impairment losses charged against earnings during 2010. The fair
value of our portfolio of privately issued residential mortgage-backed securities totaled $644 million at December 31, 2010.
The net unrealized losses on our portfolio of privately issued residential mortgage-backed securities decreased for the
eighth consecutive quarter from $396 million at December 31, 2008 to $70 million at December 31, 2010.
The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $494 million of
Jumbo-A mortgage loans and $220 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 securities backed by
Alt-A loans 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 88%
of the Alt-A residential mortgage-backed securities were issued with credit support from additional layers of loss-absorbing
subordinated tranches including 100% of our Alt-A residential mortgage-backed securities originated in 2007 and 2006.
Approximately 82% of our Alt-A residential mortgage-backed securities represented pools of fixed-rate mortgage loans.
None of the adjustable rate mortgages are payment option adjustable rate mortgages (“ARMs”). Approximately 27% 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.
Privately issued mortgage-backed securities with a total amortized cost of $522 million were rated below investment grade
at December 31, 2010 by at least one of the nationally-recognized rating agencies. The unrealized loss on the below
39
investment grade residential mortgage-backed securities totaled $62 million at December 31, 2010, a $10 million decrease
during 2010.
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, 2010, these stocks have an aggregate carrying value of
$20 million and an aggregate fair value of $22 million.
We also have $42 million of stocks in Federal Home Loan Banks primarily in Topeka, Kansas, and Dallas, Texas at
December 31, 2010.
The aggregate gross amount of unrealized losses on available for sale securities totaled $93 million at December 31, 2010.
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 $27.8 million were recognized in earnings in 2010 on certain privately issued residential mortgage-backed
securities and other equity securities we do not 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.
Bank-Owned Life Insurance
We have approximately $255 million invested in bank-owned life insurance at December 31, 2010. These investments are
expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $224
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, 2010, cash surrender value represented by the underlying fair value of
investments held in separate accounts was approximately $239 million. As the underlying fair value of the investments
held in a separate account at December 31, 2010 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 $31 million primarily represented the cash surrender value of policies held in the
general accounts and amounts due from various insurance companies.
40
Loans
The aggregate loan portfolio before allowance for loan losses totaled $10.6 billion at December 31, 2010, a $637 million or
6% decrease since December 31, 2009.
Table 22 Loans
(In thousands)
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
2010
2009
December 31,
2008
2007
2006
$1,711,409
1,580,921
1,010,246
325,191
809,625
204,283
292,321
5,933,996
$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
447,864
405,540
457,450
369,242
182,093
415,161
2,277,350
1,274,944
553,304
1,828,248
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
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
239,576
363,866
454,508
332,294
692,615
317,966
625,203
296,094
465,622
273,873
603,442
$10,643,036
786,802
$11,279,698
1,010,581
$12,876,006
921,297
$11,940,570
739,495
$10,651,178
The decline in outstanding loan balances was largely centered on energy loans, construction and land development loans
and indirect automobile loans. The combined outstanding balances of these three categories of the loan portfolio decreased
$613 million. Generally, outstanding loan commitments have increased since the end of 2009. A breakdown of the loan
portfolio by geographical market follows on Table 23 along with discussion of changes in the balances by portfolio and
geography.
41
Table 23 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
2010
2009
December 31,
2008
2007
2006
$ 2,581,082
726,409
1,253,466
336,492
$ 4,897,449
$ 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
$ 1,888,635
686,956
297,027
146,986
$ 3,019,604
$ 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
$ 279,432
314,781
88,392
19,583
$ 702,188
$ 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
$
84,775
116,989
13,155
72,787
$ 287,706
$ 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
$ 470,500
197,180
72,310
21,409
$ 761,399
$ 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
$ 231,117
201,018
89,245
3,445
$ 524,825
$ 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
$ 398,455
34,017
14,653
2,740
$ 449,865
$10,643,036
$ 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
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 $274 million during 2010 to $5.9 billion at December 31, 2010. Generally,
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 and less capital project spending by our
customers.
42
The commercial sector of our loan portfolio is distributed as follows in Table 24.
Table 24 Commercial Loans by Principal Market Area
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas
Colorado
Arizona
Kansas/
Missouri
Total
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food
services
Other commercial
and industrial
Total commercial
$ 887,354
484,602
422,112
191,051
490,401
$ 622,048
487,383
410,231
71,569
213,437
$ 157
171,744
45,536
17,394
8,319
$ 4,326
20,152
34,277
1,357
5,661
$197,524
188,317
17,436
16,040
45,645
$ –
113,837
53,836
20,725
22,565
$
–
114,886
26,818
7,055
23,597
$1,711,409
1,580,921
1,010,246
325,191
809,625
16,280
9,617
–
270
–
–
178,116
204,283
89,282
74,350
36,282
18,732
5,538
20,154
47,983
292,321
loans
$2,581,082
$1,888,635
$279,432
$84,775
$470,500
$231,117
$398,455
$5,933,996
Supporting the energy industry with loans to producers and other energy-related entities has been a hallmark of the
Company since its founding and represents 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. 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 $1.7 billion or 16% of total loans. Outstanding energy loans decreased $201 million during 2010
primarily due to lower customer loan demand due primarily to cash flow available to this sector and a slower pace of
capital project spending based on generally stable energy prices during 2010. For most of 2010, low commodity prices
persisted which led to curtailed exploration and production of oil and gas reserves and reduced borrowing capacity based
upon collateral values. Although outstanding balances are down from 2009, unfunded loan commitments to energy
customers were up $100 million to $2.0 billion at December 31, 2010.
Energy loans to oil and gas producers totaled approximately $1.5 billion, down $111 million from the prior year.
Approximately 50% of the committed production loans are secured by properties primarily producing oil and 50% are
secured by properties primarily producing natural gas. Loans to borrowers that provide services to the energy industry
decreased approximately $44 million from the prior year to $33 million and loans to borrowers engaged in wholesale or
retail energy sales decreased approximately $53 million to $187 million at December 31, 2010. Loans to borrowers that
manufacture equipment for the energy industry increased 3% over the prior year to $27 million. We did not experience a
significant, direct impact on our energy loan portfolio from the moratorium on offshore drilling activities during 2010.
The services sector of the loan portfolio totaled $1.6 billion or 15% of total loans and consists of a large number of loans to a variety of
businesses including communications, educational, gaming, and transportation services. Service sector loans decreased $227 million
primarily due to soft loan demand as a result of current economic conditions. 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.
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, 2010, the outstanding principal balance of these loans totaled
$1.4 billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender
in approximately 19% 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 2010 did not differ
significantly from management’s assessment.
43
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 or
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 $2.3 billion or 21% of the loan portfolio at December 31, 2010. 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 $214 million from the previous year. The commercial real estate sector
of our loan portfolio is distributed as follows in Table 25.
Table 25 Commercial Real Estate Loans by Principal Market Area
(In thousands)
Construction and
land development
Retail
Office
Multifamily
Industrial
Other real estate
loans
Total commercial
real estate loans
Oklahoma
Texas
$148,458
145,640
94,101
113,147
68,889
$ 86,563
122,560
168,582
135,236
72,896
New
Mexico
$ 62,847
49,385
90,661
21,148
26,967
Arkansas
Colorado
Arizona
Kansas/
Missouri
Total
$ 16,852
18,025
16,035
46,195
169
$ 92,918
7,326
59,919
7,213
1,083
$ 35,280
50,913
28,075
39,831
12,021
$ 4,946
11,691
77
6,472
68
$ 447,864
405,540
457,450
369,242
182,093
156,174
101,119
63,773
19,713
28,721
34,898
10,763
415,161
$726,409
$686,956
$314,781
$116,989
$197,180
$201,018
$34,017
$2,277,350
Construction and land development loans, which consist primarily of residential construction properties and developed
building lots, decreased $197 million during the year to $448 million at December 31, 2010 primarily due to payments. In
addition, $28 million of construction and development loans were transferred to other real estate owned and $21 million
were charged off. This sector of the loan portfolio is expected to continue to decrease as construction projects currently in
process are completed.
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 $35 million or 2% since December 31, 2009. Permanent 1-4 family
mortgage loans decreased $28 million and home equity loans increased $63 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. Low interest rates increased demand to refinance these mortgage loans into long-term fixed
rate loans. Generally, we do not offer this type of loan because of excessive future interest rate risk.
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, 2010 is
$1.2 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
44
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.
Approximately $96 million or 8% of permanent mortgage loans at December 31, 2010 consist of first lien, fixed rate
residential mortgage loans originated under various community development programs, down from $110 million at
December 31, 2009. These loans were underwritten to standards approved by various U.S. government agencies under
these programs and include full documentation. However, 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%.
Home equity loans totaled $553 thousand at December 31, 2010. These loans are generally 1st or 2nd lien loans with a
maximum LTV of 90%, including consideration of any superior liens. These loans require a minimum FICO score of 700
and a maximum DTI of 40%. The maximum loan amount available for our home equity loan products is generally $200
thousand.
The composition of residential mortgage and consumer loans at December 31, 2010 is as follows in Table 26.
Table 26 Residential Mortgage and Consumer Loans by Principal Market Area
(In thousands)
Oklahoma
Texas
New Mexico Arkansas Colorado Arizona
Kansas/
Missouri
Total
Residential mortgage:
Permanent mortgage
$ 913,827
$205,457
$13,400
$ 8,278
$50,494
$74,057
$ 9,431
$1,274,944
Home equity
Total residential
mortgage
Consumer:
339,639
91,570
74,992
4,877
21,816
15,188
5,222
553,304
$1,253,466
$297,027
$88,392
$13,155
$72,310
$89,245
$14,653
$1,828,248
Indirect automobile
$136,772
$ 36,848
$ –
$65,956
$ –
Other consumer
199,720
110,138
19,583
6,831
21,409
$ –
3,445
$ –
2,740
$239,576
363,866
Total consumer
$336,492
$146,986
$19,583
$72,787
$21,409
$3,445
$2,740
$603,442
Indirect automobile loans decreased $215 million since December 31, 2009, 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 27 Loan Maturity and Interest Rate Sensitivity at December 31, 2010
(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
$ 5,933,996
2,277,350
$ 8,211,346
$ 3,768,527
4,442,819
$ 8,211,346
Loan Commitments
Remaining Maturities of Selected Loans
1-5 Years
After 5 Years
Within 1 Year
$ 1,613,841 $ 3,537,874
1,090,016
$ 782,281
302,840
$ 4,627,890 $ 1,085,121
884,494
$ 2,498,335
$ 648,636 $ 2,454,197 $ 665,694
419,427
$ 2,498,335 $ 4,627,890 $ 1,085,121
1,849,699
2,173,693
We enter into off-balance sheet arrangements in the normal course of business. These arrangements included loan
commitments which totaled $5.2 billion and standby letters of credit which totaled $535 million at December 31, 2010.
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 $3.1 million of the outstanding standby letters of credit were issued on behalf of customers whose loans are
nonperforming at December 31, 2010.
45
Table 28 Off-Balance Sheet Credit Commitments
(In thousands)
2010
2009
2008
2007
2006
As of December 31,
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
$ 5,193,545
534,565
289,021
$ 5,001,338
588,091
330,963
$ 5,015,660 $ 5,345,736 $ 5,318,257
527,627
329,713
598,618
391,188
555,758
392,534
We also have off-balance sheet obligations related to certain community development residential mortgage loans sold with
full or partial recourse as more fully described in Note 7 to the consolidated financial statements. At December 31, 2010,
the principal balance of loans sold subject to recourse obligations totaled $289 million. Substantially all of these loans are
to borrowers in our primary markets including $204 million to borrowers in Oklahoma, $30 million to borrowers in
Arkansas, $17 million to borrowers in New Mexico, $15 million to borrowers in the Kansas/Missouri area and $13 million
to borrowers in Texas.
Under certain conditions, we also have an off-balance sheet obligation to repurchase residential mortgage loans sold to
government sponsored entities through our mortgage banking activities. As of December 31, 2010, less than 10% of the
repurchase requests in 2010 have resulted in actual repurchases or indemnification by BOK Financial. We have
repurchased 11 loans for approximately $301 thousand from the agencies during 2010. Losses incurred on these loans have
been minimal. At December 31, 2010, we have unresolved deficiency requests from the agencies on 140 loans with an
aggregate outstanding balance of $22 million.
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, 2010, the net fair values of derivative contracts reported as
assets under these programs totaled $270 million, down from $344 million at December 31, 2009 primarily due to cash
settlements and reduced transactions volumes. At December 31, 2010, derivative contracts carried as assets included
interest rate contracts with fair values of $141 million, energy contracts with fair values of $77 million and foreign
exchange contracts with fair values of $45 million. The aggregate net fair values of derivative contracts held under these
programs reported as liabilities totaled $215 million.
At December 31, 2010, total derivative assets were reduced by $15 million of cash collateral received from counterparties
and total derivative liabilities were reduced by $69 million of cash collateral delivered to counterparties related to
instruments executed with the same counterparty under a master netting agreement.
A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in
Note 3 to the consolidated financial statements.
46
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, 2010 is included in Table 29.
Table 29 Fair Value of Derivative Contracts by Category of Debtor
(In thousands)
Customers
Banks
Exchanges
Energy companies
Other
Fair value of customer hedge asset derivative contracts, net
$ 139,765
57,377
44,056
22,419
4,878
$ 268,495
At December 31, 2010, the largest net reported amount due from a single counterparty, a domestic subsidiary of a major
energy company, was $13 million. This amount was entirely offset by letters of credit issued by multiple independent
financial institutions. The next largest amount due was $12 million from an energy customer. This amount was fully
secured by cash and securities as of December 31, 2010.
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 $26 per barrel of oil would increase the fair value of derivative assets for energy
contracts by $40 million. An increase in prices equivalent to $160 per barrel of oil would increase the fair value of
derivative assets for energy contracts by $280 million as current prices move further above the fixed prices embedded in
our existing contracts. Liquidity requirements of this program are also affected by our credit rating. A decrease in our
credit rating from A1 to below investment grade would increase our obligation to post cash margin on existing contracts by
approximately $54 million.
Summary of Loan Loss Experience
We maintain separate allowances for loan losses and for off-balance sheet credit risk. The combined allowance for loan
and off-balance sheet credit losses totaled $307 million or 2.89% of outstanding loans and 133% of nonaccruing loans at
December 31, 2010. 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. The allowance for loan losses totaled $293 million
or 2.75% of outstanding loans at December 31, 2010 and $292 million or 2.59% of outstanding loans at December 31,
2009. The allowance for off-balance sheet credit commitments was $14 million at December 31, 2010 and $14 million at
December 31, 2009.
The provision for credit losses is the amount necessary to maintain the allowance for credit losses at an amount determined
by management to be adequate based on its evaluation and includes the combined charge to expense for both the allowance
for loan losses and the allowance for off-balance sheet credit losses. All losses incurred from lending activities will
ultimately be reflected in charge-offs against the allowance for loan losses following funds advanced against outstanding
commitments and after the exhaustion of collection efforts. The provision for credit losses totaled $105 million for 2010
compared to $196 million for 2009. Factors considered in determining the provision for credit losses for 2010 included
improving trends of net charge-offs, nonperforming loans and risk grading.
47
Table 30 Summary of Loan Loss Experience
(Dollars in thousands)
Allowance 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
Allowance for off-balance sheet credit losses:
Beginning balance
Provision for off-balance sheet credit losses
Ending balance
Total provision for credit losses
Allowance 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
Allowance for loan losses as a multiple of net charge-
offs
Allowance for off-balance sheet credit losses to off-
balance sheet credit commitments
Combined allowances for credit losses to loans
outstanding at year-end
Problem Loans:
Loans past due (90 days)
Nonaccrual1
Renegotiated2
Total
Foregone interest on nonaccrual loans1
2010
Year ended December 31,
2008
2007
2009
2006
$ 292,095
$ 233,236
$ 126,677
$ 109,497
$ 103,876
27,640
59,962
20,056
16,330
123,988
9,263
3,179
901
6,265
19,608
104,380
105,256
–
$ 292,971
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
$ 14,388
(117)
$ 14,271
$ 105,139
$ 15,166
(778)
$ 14,388
$ 195,900
$ 20,853
(5,687)
$ 15,166
$ 202,593
$ 20,890
(37)
$ 20,853
$ 34,721 $ 18,402
$ 20,574
316
$ 20,890
2.75%
0.96
0.96
15.81
2.59%
1.14
1.61
7.19
1.81%
0.81
1.62
16.77
1.06%
0.19
0.31
33.24
1.03%
0.13
0.19
48.05
2.81x
2.12x
2.29x
6.00x
8.78x
0.25%
2.89%
0.26%
0.27%
0.35%
0.36%
2.72%
1.93%
1.24%
1.22%
$
9,961
230,814
22,261
$ 263,036
$ 16,818
$ 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
$
1
2
Interest collected and recognized on nonaccrual loans was not significant in 2010 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 allowances attributed to impaired
loans that have not yet been charged down to amounts we expect to recover, general allowances based on migration factors
and non-specific allowances 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 2010, there have been no material changes in the approach or techniques utilized
in developing the allowance for loan losses.
Specific allowances 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.
48
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. Collateral value of real
property is generally based on third party appraisals that conform to Uniform Standards of Professional Appraisal Practice,
less estimated selling costs. Appraised values are generally on an “as is” basis and are not adjusted by us. Collateral value
of mineral rights is generally determined by our internal staff of engineers based on projected cash flows from proven oil
and gas reserves under existing economic and operating conditions. The value of other collateral is generally determined
by our special assets staff based on projected liquidation cash flows under current market conditions. Collateral values and
available cash resources that support impaired loans are evaluated quarterly. Updated appraisals are obtained at least
annually, or more frequently if market conditions indicate collateral values have declined. The excess of the outstanding
principal balance over the fair value of collateral, less estimated selling costs and available cash resources of the borrower
is charged-off against the allowance for loan losses.
No allowances are attributed to the remaining balance of loans that have been charged-down to amounts management
expects to recover. However, the remaining balance continues to be classified as nonaccruing until full recovery of
principal and interest, including the charged-off portion of the loans, is probable.
Impaired loans totaled $203 million at December 31, 2010 and $317 million at December 31, 2009. At December 31,
2010, $125 million of impaired loans had specific allowances of $7.1 million and $78 million had no specific allowances
because the loan balance had been charged down to amounts we expect to recover. Impaired loans had gross outstanding
principal balances of $301 million. Cumulative life-to-date charge-offs of impaired loans at December 31, 2010 totaled
$98 million, including $54 million charged off during 2010. At December 31, 2009, $204 million of impaired loans had
specific allowances of $36 million and $113 million of impaired loans had no specific allowances because they had been
charged down to amounts we expect to recover.
General allowances for unimpaired loans are based on migration models. Separate migration models are used to determine
general allowances for commercial and commercial real estate loans, residential mortgage loans, and consumer loans.
Substantially all commercial and commercial real estate loans and certain residential mortgage and consumer 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. Losses incurred in more recent periods are more heavily weighted by a sum-of-
periods-digits formula. 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.
Migration models fairly measure loss exposure during an economic cycle. However, because they are based on historic
trends, their accuracy is limited near the beginning and ending of a cycle. Because of this limitation, the results of the
migration model are evaluated by management quarterly. The general allowance may be adjusted upward or downward
accordingly so that the allowance for loan losses fairly represents the expected credit losses inherent in the loan portfolio as
of the balance sheet date.
The general allowance for residential mortgage loans is based on an eight-quarter average percent of loss. The general
allowance 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 allowances determined by migration factors for all unimpaired loans totaled $259 million
at December 31, 2010 and $238 million at December 31, 2009.
Nonspecific allowances 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 allowances totaled $27 million at December 31, 2010 and $18 million at December 31,
2009.
An allocation of the loan loss allowance by loan category follows in Table 31.
49
Table 31 Allowance for Loan Losses Allocation
(Dollars in thousands)
2010
2009
December 31,
2008
2007
2006
Allowance2
% of
Loans1
Allowance2
% of
Loans1
Allowance2
% of
Loans1
Allowance2
% of
Loans1
Allowance2
% of
Loans1
$104,631 55.75% $ 121,320
55.04% $ 100,743
57.56% $ 49,961
56.07% $ 44,151
58.29%
98,709
50,281
12,614
21.40
17.18
5.67
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
Loan category:
Commercial
Commercial real
estate
Residential mortgage
Consumer
Nonspecific
allowance
26,736
–
18,252
–
23,102
–
19,791
–
18,061
–
Total
$292,971 100.00% $ 292,095 100.00% $ 233,236 100.00% $ 126,677 100.00% $ 109,497 100.00%
1 Represents ratio of loan category balance to total loans, excluding residential mortgage loans held for sale.
2 Specific allocation for the loan concentration risks is included in the appropriate category.
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. Because the borrowers are still performing in accordance with the original terms of the
loan agreements, 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 $176 million at December 31, 2010. The current composition of potential problem loans by primary industry
included: commercial real estate - $60 million; wholesale/retail - $45 million; services - $30 million and residential
mortgage - $19 million.
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
value. Loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified.
Net loans charged off during 2010 totaled $104 million compared to $138 million in the previous year. The ratio of net
loans charged off to average outstanding loans was 0.96% for 2010 and 1.14% for 2009. Net charge-offs for 2010
decreased $33 million compared to the previous year. Gross loans charged off decreased $24 million and recoveries
increased $8.9 million.
Net loans charged off by category and principal market area follow in Table 32.
Table 32 Net Loans Charged Off by Category and Principal Market Area
(Dollars in thousands)
Oklahoma
Texas
Colorado Arkansas
Mexico Arizona
New
Kansas/
Missouri
Total
2010:
Commercial
Commercial real estate
Residential mortgage
Consumer
$ 3,192
20,328
13,842
4,442
$ 7,062
3,673
1,746
2,859
$ 1,070
9,180
164
483
$ 1,393
3,605
150
1,577
$ 3,528
795
2,231
665
$ 2,081
19,202
1,016
25
Net loans charged off
$ 41,804
$ 15,340
$ 10,897
$ 6,725
$ 7,219
$ 22,324
$ 51
–
6
14
$ 71
$ 18,377
56,783
19,155
10,065
$104,380
2009:
Commercial
Commercial real estate
Residential mortgage
Consumer
$ 18,861
2,435
$ 8,851
5,155
$ 12,214
11,884
7,857
8,231
4,005
5,363
610
287
$ 79
369
190
2,998
$ 2,882
2,805
1,112
981
$ 3,416
34,191
$ 876
13
$ 47,179
56,852
1,969
182
–
3
15,743
18,045
Net loans charged off
$ 37,384
$ 23,374
$ 24,995
$ 3,636
$ 7,780
$ 39,758
$ 892
$137,819
Net commercial loans charged off in 2010 decreased $29 million from the prior year and included $7.4 million of loans
from the healthcare sector of the loan portfolio, $3.9 million from the service sector of the loan portfolio, $2.5 million of
loans from the wholesale/retail sector of the loan portfolio and $2.0 million of loans from the energy sector of the loan
portfolio.
50
Net commercial real estate loans charged off during 2010 were flat with the prior year. Net charge-offs increased $18
million in the Oklahoma market, primarily offset by a $15 million decrease in the Arizona market. Net commercial real
estate loan charge-offs in 2010 included $19 million from the land and residential construction sector of the loan portfolio,
primarily composed of $6.7 million in the Arizona market and $5.4 million in the Colorado market. Net commercial real
estate loans charged-off in 2010 also included a $17 million charge-off of a loan to a single issuer secured by an office
building attributed to the Oklahoma market and $11 million charged off related to loans secured by retail properties
primarily in the Arizona market.
Residential mortgage net charge-offs increased $3.4 million compared the prior year primarily related to loans attributed to
Oklahoma market. The timing of residential mortgage loan charge-offs varies based on foreclosure activity and
delinquency status. Consumer loan net charge-offs, which include indirect auto loan and deposit account overdraft losses,
decreased $8.0 million compared to the previous year. Net charge-offs of indirect auto loans totaled $4.5 million for 2010
and $9.7 million for 2009.
51
Nonperforming Assets
Table 33 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
Services
Wholesale / retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Construction and land development
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:
2010
2009
December 31,
2008
2007
2006
$ 38,455
150,366
37,426
4,567
230,814
22,261
253,075
141,394
$ 394,469
$ 101,384
204,924
29,989
3,058
339,355
15,906
355,261
129,034
$484,295
$ 60,805
33,157
19,283
7,914
49,416
60,239
–
$ 230,814
$ 83,176
66,892
26,693
13,820
60,082
84,559
4,133
$339,355
$
465
19,262
8,486
2,116
3,534
13
4,579
38,455
$ 22,692
30,926
12,057
15,765
13,103
65
6,776
101,384
99,579
4,978
19,654
6,725
4,087
15,343
150,366
109,779
26,236
25,861
26,540
279
16,229
204,924
$ 134,846
137,279
27,387
561
300,073
13,039
313,112
29,179
$342,291
$ 108,367
42,934
16,016
3,263
32,415
80,994
16,084
$ 300,073
$ 49,364
36,873
18,773
7,343
12,118
680
9,695
134,846
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
$ 10,737
4,771
10,325
222
26,055
9,802
35,857
8,486
$44,343
$ 17,683
6,096
871
267
1,138
–
–
$ 26,055
$
529
25,468
3,792
9,915
2,301
380
596
42,981
13,466
5,259
1,013
3,998
–
1,583
25,319
$
535
5,759
2,457
101
1,600
93
192
10,737
2,031
–
732
320
–
1,688
4,771
32,111
5,315
37,426
4,567
$ 230,814
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
Allowance for loan losses to nonperforming loans
Nonperforming loans to period-end loans
115.76%
2.38
82.22%
3.15
74.49%
2.43
133.79%
0.79
305.37%
0.34
Loans past due (90 days)1
$ 9,961
$10,308
$19,123
$ 5,575
$ 5,945
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.
$ 1,995
$ 1,400
$
872
$ 1,017
$ 2,233
$18,551
$12,799
$10,396
$ 7,550
$ 5,747
$
–
$ 4,311
$13,181
$ 8,412
$
–
52
Nonperforming assets decreased $90 million during 2010 to $394 million or 3.66% of outstanding loans and repossessed
assets at December 31, 2010. Nonaccruing loans totaled $231 million, renegotiated residential mortgage loans totaled $22
million (including $19 million of residential mortgage loans guaranteed by U.S. government agencies) and real estate and
other repossessed assets totaled $141 million. The Company generally retains nonperforming assets to maximize potential
recovery.
Renegotiated loans represent troubled debt restructurings of residential mortgage loans. Generally, we modify residential
mortgage loans by reducing interest rates and extending the number of payments. We do not forgive principal or unpaid
interest. At December 31, 2010, approximately $10 million of the renegotiated residential mortgage loans are currently
performing in accordance with the modified terms, $4.8 million are 30 to 89 days past due and $7.2 million are past due 90
days or more. Restructured residential mortgage loans guaranteed by agencies of the U.S. government in accordance with
agency guidelines represent $19 million of our $22 million portfolio of renegotiated loans. Interest continues to accrue on
these guaranteed loans based on the modified terms of the loan. Renegotiated loans may be transferred to loans held for
sale after a period of satisfactory performance, generally at least nine months. If it becomes probable that we will not be
able to collect all amounts due according to the modified loan terms, the loans are placed on nonaccrual status and included
in nonaccrual loans.
Commercial and commercial real estate loans are considered distressed when it becomes probable that we will not collect
the full contractual principal and interest. All distressed commercial and commercial real estate loans are placed on
nonaccrual status. We may modify loans to distressed borrowers generally consisting of extension of payment terms, not to
exceed the final contractual maturity date of the original loan. We do not forgive principal or accrued but unpaid interest,
nor do we grant interest rate concessions. We do not modify consumer loans to troubled borrowers.
A rollforward of nonperforming assets for the year ended December 31, 2010 follows in Table 34.
Table 34 Rollforward of Nonperforming Assets
(Dollars in thousands)
Nonaccruing
Loans
Renegotiated
Loans
$
339,355
199,274
$
15,906
13,435
Real Estate
and Other
Repossessed
Assets
$ 129,034
167
Total
Nonperforming
Assets
$
484,295
212,876
–
(102,422)
(123,988)
–
(63,059)
–
(22,596)
855
3,395
230,814
$
$
–
(50)
–
–
–
(6,217)
–
(855)
42
22,261
9,786
–
–
(23,633)
63,059
(37,446)
–
–
427
141,394
$
$
9,786
(102,472)
(123,988)
(23,633)
–
(43,663)
(22,596)
–
3,864
394,469
Beginning balance
Additions
Transfers from premises
and equipment
Payments
Charge-offs
Net writedowns and
losses
Foreclosures
Proceeds from sales
Return to accrual
Transfer to nonaccrual
Other, net
Ending balance
This distribution of nonaccruing loans among our various markets follows in Table 35.
Table 35 Nonaccruing Loans by Principal Market
(Dollars in thousands)
December 31, 2010
December 31, 2009
Change
% of
outstanding
loans
Amount
% of
outstanding
loans
Amount
Amount
% of
outstanding
loans
(37) bp
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
$
60,805
33,157
19,283
7,914
49,416
60,239
–
1.24% $
1.10
2.75
2.75
6.49
11.48
–
83,176
66,892
26,693
13,820
60,082
84,559
4,133
1.61%
$
(22,371)
2.07
3.56
3.67
6.91
17.09
1.03
(33,735)
(7,410)
(5,906)
(10,666)
(24,320)
(4,133)
(97)
(81)
(92)
(42)
(561)
(103)
Total
$
230,814
2.17% $
339,355
3.01%
$
(108,541)
(84) bp
53
Nonaccruing loans attributed to the Oklahoma market are primarily composed of $26 million of residential mortgage loans,
$19 million of commercial real estate loans and $14 million of commercial loans. Nonaccruing loans attributed to the
Arizona, Colorado and Texas markets consisted primarily of commercial real estate loans.
Nonaccruing loans decreased $109 million from December 31, 2009 primarily due to a $34 million decrease in nonaccruing
loans attributed to the Texas market, a $24 million decrease in nonaccruing loans attributed to the Arizona market and a $22
million decrease in nonaccruing loans attributed to the Oklahoma market. Nonaccruing loans attributed to the Colorado,
New Mexico, Arkansas and Kansas/Missouri markets also decreased during 2010. During 2010, $199 million of new
nonaccruing loans were identified, offset by $124 million of charge-offs, $102 million of payments received and $63 million
of foreclosures and repossessions. In addition, $23 million of nonaccruing loans were returned to accrual status during 2010
based on our expectation of full repayment. The ratio of nonaccruing loans to period end loans was negatively impacted by a
$637 million decrease in period end loan balances from December 31, 2009.
Commercial
Nonaccruing commercial loans totaled $38 million or 0.65% of total commercial loans at December 31, 2010 and $101
million or 1.63% of total commercial loans at December 31, 2009. At December 31, 2010, nonaccruing commercial loans
were primarily composed of $19 million or 1.22% of total services sector loans and $8.5 million or 0.84% of wholesale/retail
sectors loans. Nonaccruing commercial loans decreased $63 million during 2010 primarily due to a $22 million decrease in
nonaccruing energy sector loans, a $14 million decrease in nonaccruing manufacturing sector loans, a $12 million decrease in
service sector loans and a $10 million decrease in nonaccruing healthcare sector loans.
Newly identified nonaccruing commercial loans in 2010 totaled approximately $48 million primarily, offset by $56 million of
payments, $28 million in charge-offs, $19 million of nonaccruing loans returning to accrual status and $8 million in
foreclosures. The distribution of nonaccruing commercial loans among our various markets was as follows in Table 36.
Table 36 Nonaccruing Commercial Loans by Principal Market
(Dollars in thousands)
December 31, 2010
December 31, 2009
Change
% of
outstanding
loans
Amount
% of
outstanding
loans
Amount
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
$
13,978
5,603
5,818
212
6,702
6,142
–
0.54% $
0.30
2.08
0.25
1.42
2.66
–
36,990
32,591
14,365
434
8,132
8,804
68
1.40%
1.62
4.20
0.42
1.49
4.42
0.02
$
Amount
(23,012)
(26,988)
(8,547)
(222)
(1,430)
(2,662)
(68)
% of
outstanding
loans
(86) bp
(132)
(212)
(17)
(7)
(176)
(2)
Total
$
38,455
0.65% $
101,384
1.63%
$
(62,929)
(98) bp
Commercial Real Estate
Nonaccruing commercial real estate loans totaled $150 million or 6.60% of outstanding commercial real estate loans at
December 31, 2010 compared to $205 million or 8.23% of outstanding commercial real estate loans at December 31, 2009.
Nonaccruing commercial real estate loans are largely concentrated in land development and residential construction loans.
Nonaccruing commercial real estate loans decreased approximately $55 million during 2010 primarily composed of a $21
million decrease in nonaccruing loans secured by retail properties, a $20 million decrease in loans secured by multifamily
residential properties and a $10 million decrease in nonaccruing construction and land development loans. Newly
identified nonaccruing commercial real estate loans totaled $100 million, offset by $60 million of charge-offs, $45 million
of foreclosures and $44 million of cash payments received. Nonaccruing commercial real estate loans attributed to our
geographic markets follows in Table 37.
54
Table 37 Nonaccruing Commercial Real Estate Loans by Principal Market
(Dollars in thousands)
December 31, 2010
December 31, 2009
Change
% of
outstanding
loans
Amount
% of
outstanding
loans
Amount
$
19,005
21,228
11,494
6,346
41,066
51,227
–
2.62% $
3.09
3.65
5.42
20.83
25.48
–
30,524
24,163
10,101
11,727
51,661
73,106
3,641
3.72%
3.29
3.31
8.85
21.53
32.17
11.82
$
Amount
(11,519)
(2,935)
1,393
(5,381)
(10,595)
(21,879)
(3,641)
% of
outstanding
loans
(110) bp
(20)
34
(343)
(70)
(669)
(1,182)
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
Total
$
150,366
6.60% $
204,923
8.23%
$
(54,557)
(163) bp
Nonaccruing commercial real estate loans are primarily concentrated in the Arizona and Colorado markets.
Approximately $51 million or 34% of nonaccruing commercial real estate loans are in Arizona and consist primarily of
nonaccruing residential construction and land development loans. Nonaccruing commercial real estate loans in the
Colorado market were $41 million or 27% of total nonaccruing commercial real estate loans, composed primarily
nonaccruing residential construction and land development loans.
Residential Mortgage and Consumer
Nonaccruing residential mortgage loans increased $7.4 million over the prior year primarily as a result loans purchased
from serviced pools. As discussed previously, most of these loans are fully guaranteed by government agencies.
Nonaccruing residential mortgage loans primarily consist of permanent residential mortgage loans which totaled $32
million or 2.52% of outstanding permanent residential mortgage loans at December 31, 2010 and home equity loans which
totaled $5.3 million or 0.96% of total home equity loans at December 31, 2010.
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 that are past due but still accruing
interest is included in the following Table 38. During 2010, residential mortgage loans less than 90 days past due decreased
$2.2 million and residential mortgage loans past due 90 days or more increased $439 thousand. Consumer loans past due
30 to 89 days decreased $12 million primarily due to a decrease in indirect automobile loans. Consumer loans past due 90
days or more decreased $3.5 million, primarily due to a $3.0 million decrease in other consumer loans.
Table 38 Residential Mortgage and Consumers Loans Past Due
(Dollars in thousands)
December 31, 2010
30 to 89
90 Days
Days
or More
December 31, 2009
30 to 89
90 Days
Days
or More
Permanent mortgage
Home equity
Total residential mortgage
$ 1,995
–
$ 1,995
$ 21,719
1,605
$ 23,324
$ 1,532
24
$ 1,556
$ 23,489
2,049
$ 25,538
Consumer:
Indirect automobile
Other consumer
Total consumer
$
$
67
295
362
$ 11,382
927
$ 12,309
$ 537
3,297
$ 3,834
$ 23,191
1,612
$ 24,803
Real Estate and Other Repossessed Assets
Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. The assets are carried at
the lower of cost, which is determined by fair value at date of foreclosure less estimated disposal costs, or current fair value
less estimated disposal costs. The fair value of real property is generally based on third party appraisals that conform to
Uniform Standards of Professional Appraisal Practice. Appraisals are ordered at foreclosure and are updated on no less
than an annual basis. For certain property types, such as residential building lots, or in certain distressed markets, we may
request updated appraisals more frequently. Appraised values are on an “as is” basis and are not adjusted. For
uncompleted properties, we may also obtain appraised value for properties on an “as completed” basis to use in
determination of whether to develop properties to completion and costs may be capitalized not to exceed the estimated “as
55
completed” fair value as determined by the independent real estate appraisal. Mineral rights are generally determined by
our internal staff of engineers based on projected cash flows from proven oil and gas reserves under existing economic and
operating conditions. The value of other assets is generally determined by our special assets staff based on projected
liquidation cash flows under current market conditions.
The carrying value of real estate and other repossessed assets is evaluated by management on a quarterly basis, including
our consideration of marketing activity of our properties and sales of competing properties.
Real estate and other repossessed assets totaled $141 million at December 31, 2010, a $12 million increase over December
31, 2009. Undeveloped land increased $14 million over the prior year, primarily in the Texas and Kansas/Missouri
markets. Developed commercial real estate properties increased $5.7 million over the prior year primarily in the Arizona
and Oklahoma markets. 1-4 family residential properties and residential land development properties decreased $4.4
million compared to the prior year primarily due to an $11 million decrease in properties attributed to the Arizona market,
partially offset by a $4.3 million increase in properties attributed to the Texas market and a $1.3 million increase in
properties attributed to the Oklahoma market. In addition, equipment attributed to the Kansas/Missouri market decreased
$2.9 million from the prior year. The distribution of real estate and other repossessed assets attributed by geographical
market is included in Table 39 following.
Additions to other real estate owned during 2010 included $10 million of developed commercial real estate and
undeveloped land previously held for branch expansion in the Texas, Colorado and Oklahoma markets. These properties
were written down by $2.9 million during 2010.
Table 39 Real Estate and Other Repossessed Assets by Principal Market
(Dollars in thousands)
1-4 family residential
properties and
residential land
development
properties
Developed commercial
real estate properties
Equity interest in partial
satisfaction of debts
Undeveloped land
Oil and gas properties
Construction equipment
Vehicles
Other
Total real estate and
other repossessed
assets
Oklahoma
Texas
Colorado Arkansas
Mexico Arizona
New
Kansas/
Missouri Other
Total
$
6,316
$ 21,875 $
3,631
$
5,034
$ 969
$ 19,475 $
772
$ 685
$ 58,757
5,925
3,413
3,879
1,723
7,143
19,866
–
11,723
297
–
–
731
–
–
7,789
3,020
–
143
–
–
3,076
–
–
–
170
–
72
–
–
463
–
–
282
–
–
–
–
–
6,222
–
–
–
–
–
4,802
–
1,898
–
–
–
–
–
–
–
–
–
41,949
11,723
22,540
3,020
1,898
1,337
170
$
24,992
$ 36,240
$ 10,756
$
7,292
$8,394 $ 45,563
$ 7,472
$ 685
$141,394
Undeveloped land is primarily zoned for commercial development. Developed commercial real estate properties are
primarily completed with no additional construction necessary for sale. Shares of the entity in which we hold an equity
interest have recently been listed for trading at a price that exceeds our carrying value per share.
56
Liquidity and Capital
Subsidiary Banks
Deposits and borrowed funds are the primary sources of liquidity for the subsidiary banks. Based on the average balances
for 2010, approximately 68% of our funding is provided by average deposit accounts, 16% from average borrowed funds,
2% from average long-term subordinated debt and 10% from average 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 online 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.
For 2010, average deposits totaled $16.3 billion and represent 68% of total average liabilities and capital compared with
$15.2 billion which represented 66% of total average liabilities and capital for 2009. Average interest-bearing transaction
deposit accounts continued to grow in 2010, up $1.5 billion or 21% over 2009. Growth in our average interest-bearing
transaction deposit accounts included $585 million of commercial deposits, $536 million of wealth management deposits
and $339 million of consumer banking deposits. Average demand deposits also increased, up $510 million or 16% over
last year, including an increase of $355 million in commercial deposits, $83 million in consumer deposits and $56 million
in wealth management deposits. Average time deposits decreased $970 million or 21% compared to 2009.
Table 40 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,
2010
2009
$ 280,284
208,033
582,032
1,106,161
$ 2,176,510
$ 537,757
399,580
648,416
525,127
$ 2,110,880
Brokered deposits, which are included in time deposits, averaged $201 million for 2010, down from $533 million for 2009.
Brokered deposits totaled $210 million at December 31, 2010 and $169 million at December 31, 2009.
57
The distribution of deposit accounts among our principal markets is shown in Table 41.
Table 41 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
2010
2009
December 31,
2008
2007
2006
$ 2,271,375
$ 2,068,908
$ 1,683,374
$ 1,394,861
$ 1,298,593
6,061,626
106,411
1,373,307
7,541,344
$ 9,812,719
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
$ 1,389,876
$ 1,108,401
$ 1,067,456
$ 1,035,134
$ 848,152
1,791,810
36,429
966,116
2,794,355
$ 4,184,231
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
$ 270,916
$ 209,090
$ 155,345
$ 151,231
$ 175,980
530,244
28,342
450,177
1,008,763
$ 1,279,679
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
$
15,310
$
21,526
$
16,293
$
13,247
$
15,604
129,580
1,266
100,998
231,844
$ 247,154
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
$ 157,742
$ 146,929
$ 116,637
$ 117,939
$
80,559
522,207
20,310
502,889
1,045,406
$ 1,203,148
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
$
74,887
$
68,651
$
39,424
$
46,701
$
51,542
95,890
809
52,227
148,926
$ 223,813
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
$
40,658
$
30,339
$
3,850
$
9,656
$
57
21,337
124,005
148
200
71,498
63,454
92,983
187,659
$ 123,322
$ 228,317
$ 17,179,061 $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
58
Information relating to other borrowings for the year ended December 31, 2010 is summarized in Table 42 (dollars in
thousands):
Table 42 Borrowed Funds
(In thousands)
As of
Annual
December 31, Average
Balance
2010
Maximum
Outstanding
At Any
Rate Month End
Parent Company:
Trust preferred debt
Subsidiary Banks:
Funds purchased
Repurchase agreements
Federal Home Loan Bank
advances
Federal Reserve advances
Subordinated debentures
Other
Total subsidiary banks
Total other borrowings
$
7,217
$ 7,217 6.42% $
7,217
1,025,018
1,258,762
1,185,742 0.11
1,130,082 0.59
1,465,983
1,258,762
801,797
–
398,701
24,564
3,508,842
$ 3,516,059
1,446,482 0.14
–
60,961
398,619 5.78
22,365 0.46
4,244,250 0.95
$ 4,251,467 0.98
2,277,977
400,000
398,701
25,326
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 $209 million at
December 31, 2010. Securities repurchase agreements are recorded as secured borrowings that generally mature within 90
days and are secured by certain available for sale securities. All of our repurchase agreement transactions are recognized as
secured borrowings. 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 U.S. Agency issued mortgage-backed securities, 1-
4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed
from the Federal Home Loan Banks of Topeka and Dallas averaged $1.4 billion. During 2009, the outstanding balance of
federal funds purchased averaged $1.5 billion and securities repurchase agreements averaged $817 million. Amount
borrowed from the Federal home Loan Banks of Topeka and Dallas averaged $1.2 billion in 2009.
At December 31, 2010, the estimated unused credit available to the subsidiary banks from collateralized sources was
approximately $7.3 billion.
Parent Company and Other Non-Bank Subsidiaries
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. Dividends are further
restricted by minimum capital requirements. During the fourth quarter of 2010 and in anticipation of combining the
charters of our subsidiary banks into one entity, the Banks paid a $175 million dividend to BOK Financial Corporation.
Based on the most restrictive limitations as well as management’s internal capital policy, at December 31, 2010, BOKF,
NA could declare up to $82 million of dividends without regulatory approval. Future losses or increases in required
regulatory capital could affect BOKF, NA ability to pay dividends to the parent company.
The Company has an unsecured revolving credit agreement with George B. Kaiser, its Chairman and principal shareholder.
The committed amount under the terms of the credit agreement is $100 million and matures on 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.
The credit agreement has no restrictive covenants. No amounts were outstanding under this credit agreement as of
December 31, 2010 or 2009.
Our equity capital at December 3, 2010 was $2.5 billion, up from $2.2 billion at December 31, 2009. Net income less cash
dividend paid increased equity $180 million. An increase in the fair value of available for sale securities was primarily
responsible for a $119 million increase in accumulated other comprehensive income in 2010. 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
59
cost of TARP capital and a defined exit strategy when the cost of TARP capital increases substantially at the end of year
five.
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 2010 and 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.
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 the Banks are presented in Note 15 to the
Consolidated Financial Statements. At December 31, 2010 the pro forma combined Tier 1, Total and Leverage capital
ratios for BOKF, NA were 10.72%, 14.23% and 7.38%, respectively.
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, 2010, BOK Financial’s tangible
common shareholders’ equity ratio was 9.21% and tier 1 common equity ratio was 12.55%. At December 31, 2009, BOK
Financial’s tangible common shareholders’ equity ratio was 7.99% and tier 1 common equity ratio was 10.75%.
Table 43 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
Table 43 Non-GAAP Measures
(In thousands)
Tangible common equity ratio:
Total shareholders' equity
Less: Goodwill and intangible assets, net
Tangible common equity
Total assets
Less: Goodwill and 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,
2010
2009
$ 2,521,726
349,404
2,172,322
23,941,603
349,404
$ 2,205,813
354,239
1,851,574
23,516,831
354,239
$23,592,199
$23,162,592
9.21%
7.99%
$ 2,076,525
$ 1,876,778
22,152
19,561
2,054,373
1,857,217
16,368,976
17,275,808
12.55%
10.75%
60
Off-Balance Sheet Arrangements
Bank of Oklahoma guarantees rents that originally totaled $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 $20 million at December 31,
2010. Current leases expire or are subject to lessee termination options at various dates in 2012 through 2014. Our
obligation under this agreement would be affected by lessee decisions to exercise these options.
In return for this guarantee, Bank of Oklahoma will receive 80% of net cash flow as defined in an agreement with the City
through September, 2017 from rental of space that was vacant at inception of the agreement. Approximately 42 thousand
square feet 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. Table 44 following summarizes payments due per these contractual obligations at December 31, 2010.
Table 44 Contractual Obligations as of December 31, 2010
(In thousands)
Less Than
1 Year
1 to 3
Years
4 to 5
Years
More Than
5 Years
Time deposits
Other borrowings
Subordinated debentures
Operating lease obligations
Derivative contracts
Data processing contracts
Total
$1,203,291
159,961
21,875
14,905
202,141
17,128
$1,619,301
$853,214
1,603
43,750
26,162
59,976
29,157
$1,013,862
$ 345,266 $ 660,517
6,375
270,365
85,986
4,126
5,053
1,050
189,375
22,043
18,164
8,215
$584,113
$1,032,422
Total
$ 3,062,288
168,989
525,365
149,096
284,407
59,553
$4,249,698
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
$ 5,193,545
534,565
289,021
18,642
13,936
31,868
Payments on time deposits and other borrowed funds include interest which has been calculated from rates at December 31,
2010. 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 $1.0 billion of the loan commitments expire within one year.
Obligations under derivative contracts are used in customer hedging programs. As previously discussed, we have entered
into derivative contracts which are expected to substantially offset the cash payments due on these obligations. Amounts
shown in the table exclude $69 million of cash margin which secures our obligations under these contracts.
The Company has funded $39 million and has commitments to fund an additional $19 million for various alternative
investments. Alternative investments generally consist of limited partnership interests in or loans to entities that invest in
61
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. Legally binding commitments to fund
alternative investments are recognized as liabilities in the consolidated financial statements.
An indirect wholly-owned subsidiary of the Company is general partner of two private equity funds and has contingent
obligations to make additional investments totaling $14 million as of December 31, 2010. These commitments, which are
included in unfunded third-party private equity commitments, generally reflect customer investment obligations. We do
not recognize contingent commitments to fund investments that are primarily customer obligations as liabilities in the
consolidated financial statements.
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 $24 million liability for these plans. This liability would increase to $25 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.
62
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 allowances for loan losses and off-balance sheet credit losses, allowance 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.
The Asset / Liability Committee is responsible for managing market risk in accordance with policy guidelines established
by the Board of Directors. The Committee monitors projected variation in net interest revenue and net interest income and
economic value of equity due to specified changes in interest rates. The policy limit for net interest revenue variation is a
maximum decline of 5% to an up or down 200 basis point change over twelve months. 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 have relatively limited exposure 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 longer time periods based on multiple
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
63
decrease in interest rates. Management historically evaluated interest rate sensitivity for a sustained 200 basis point
decrease in interest rates. However, the results of a 200 basis point decrease in interest rates in the current low-rate
environment are not meaningful.
The Company’s primary interest rate exposures include the Federal Funds rate, which affects short-term borrowings, 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 45 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 and derivative contracts identified as
economic hedges are presented in Note 7 to the consolidated financial statements.
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 45 Interest Rate Sensitivity
(Dollars in thousands)
200 bp Increase
50 bp Decrease
2010
2009
2010
2009
Anticipated impact over the next 12
months on net interest revenue
$ 8,235
1.2%
$ (4,933)
(0.3)%
$ (9,759)
(1.4)%
$ (8,032)
(1.2)%
Trading Activities
BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an
intermediary, BOK Financial will take positions in securities, generally mortgage-backed securities, government agency
securities, and municipal bonds. These securities are purchased for resale to customers, which include individuals,
corporations, foundations and financial institutions. BOK Financial will also take trading positions in U.S. Treasury
securities, mortgage-backed securities, municipal bonds and financial futures for its own account. These positions are
taken with the objective of generating trading profits. Both of these activities involve interest rate risk.
A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of
all positions to market value, independent verification of inventory pricing, and position limits for each trading activity.
Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs.
Management uses a Value at Risk (“VAR”) methodology to measure the market risk inherent in its trading activities. VAR
is calculated based upon historical simulations over the past five years using a variance / covariance matrix of interest rate
changes. It represents an amount of market loss that is likely to be exceeded only one out of every 100 two-week periods.
Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the VAR to
$7.4 million. At December 31, 2010, the VAR was $1.8 million. The greatest value at risk during 2010 was $9.1 million.
The value at risk guideline was exceeded with appropriate approvals by management to take advantage of wide yields
available on certain securities during the year.
64
65
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, 2010. 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, 2010.
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, 2010.
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, 2010. Their report, which expresses unqualified opinions on the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, is included in this annual
report.
66
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, 2010
and 2009, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2010. 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, 2010 and 2009, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2010, 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, 2010, 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 25, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 25, 2011
67
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, 2010, 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, 2010, 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, 2010 and 2009, and the related
consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2010 of BOK Financial Corporation and our report dated February 25, 2011 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 25, 2011
68
Year Ended December 31,
2009
2008
$ 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
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
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.
69
2010
522,559
9,261
308,215
8,848
317,063
2,172
27
851,082
106,265
13,334
22,431
142,030
709,052
105,139
603,913
101,471
112,302
68,976
103,611
87,600
12,066
30,368
516,394
(1,161)
4,271
29,213
(29,960)
(2,151)
(27,809)
520,908
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
26,131
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
401,864
17,726
30,217
63,969
24,320
–
87,752
13,665
34,483
5,336
40,739
(3,661)
–
36,760
753,170
371,651
123,357
248,294
1,540
$ 246,754
$
$
3.63
3.61
$
$
$
67,627,735
67,831,734
$ 0.99
67,375,387
67,487,944
$ 0.945
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
34,450
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
$
$
2.27
2.27
67,302,990
67,461,361
0.875
$
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: 2010 – $346,105; 2009 – $246,704)
Mortgage trading securities
Total securities
Residential mortgage loans held for sale
Loans
Less allowance for loan losses
Loans, net of allowance
Premises and equipment, net
Accrued revenue receivable
Goodwill
Intangible assets, net
Mortgage servicing rights
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: 2010 – $27,414; 2009 – $98,031)
Total deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Bankers’ acceptances
Due on unsettled securities trades
Derivative contracts
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized;
shares issued and outstanding: 2010 – 70,815,563; 2009 – 70,312,086)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2010 – 2,607,874; 2009 – 2,509,279)
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
December 31,
2010
2009
$
1,247,946
21,458
55,467
$
875,250
45,966
65,354
9,171,908
139,344
339,553
428,021
10,078,826
263,413
10,643,036
(292,971)
10,350,065
265,465
148,940
335,601
13,803
115,723
141,394
1,222
270,445
255,442
135,059
241,334
23,941,603
$
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
335,601
18,638
73,824
129,034
3,869
343,782
247,357
–
385,267
23,516,831
$
$
4,220,764
$
3,653,844
9,255,362
193,767
3,509,168
17,179,061
2,283,780
833,578
398,701
134,107
1,222
160,425
215,420
191,431
21,397,725
4
782,805
1,743,880
(112,802)
107,839
2,521,726
22,152
2,543,878
23,941,603
$
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
$
70
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities:
Net income before non-controlling interest
Adjustments to reconcile net income before non-controlling interest 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
Net realized losses (gains) 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
Change in amount receivable on unsettled security transactions
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
Purchase of mortgage servicing rights
Purchases of other assets
Net cash provided by (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 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
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 (used in) 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
Year ended December 31, 2010
2009
2008
2010
$
248,294 $
204,016 $
145,680
105,139
(3,661)
(18,882)
58,987
(12,066)
(425)
8,160
105,680
1,420
(2,256,943)
2,246,228
(27,603)
(139,319)
(40,118)
9,023
22,227
59,037
365,178
2,013,620
111,976
3,185,131
(211,312)
(5,565,931)
(135,059)
469,223
201,289
–
38,640
(31,321)
(33,595)
42,661
1,919,658
(257,586)
(1,487,742)
(51,910)
8,552
–
–
70,340
(194,831)
425
–
(66,557)
(59,651)
348,188
921,216
$ 1,269,404 $
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)
1,950,871
(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 $
670,712
842,408
294,758
(219,510)
7,743
50,000
(50,000)
244,413
(44,064)
895
(7,992)
(59,191)
1,730,172
(195,471)
890,413
694,942
Cash paid for interest
Cash paid for taxes
Net loans and bank premises transferred to repossessed real estate
$
144,095 $
133,551
72,845
230,841 $
124,547
132,758
411,860
114,120
30,972
See accompanying notes to consolidated financial statements.
71
Consolidated Statements of Changes in Shareholders’ Equity and Non-controlling Interest
(In thousands)
Common Stock
Shares
69,465
–
Amount
4
–
–
–
–
–
420
–
–
–
–
69,885
–
–
–
427
–
–
–
–
70,312
–
–
–
504
–
–
–
–
70,816
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
$4
–
–
–
–
–
–
–
–
$4
Accumulated
Other
Comprehensive
Income (Loss)
$ (31,234)
–
–
–
(191,652)
–
–
–
–
–
–
(222,886)
–
–
212,146
–
–
–
–
–
$ (10,740)
–
–
118,579
–
–
–
–
–
$ 107,839
December 31, 2007
Effect of implementing FAS 159, net of tax
Comprehensive income (loss):
Net income attributed to BOK Financial Corp.
Net 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 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
Comprehensive income:
Net income attributed to BOK Financial Corp.
Net income 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, 2010
See accompanying notes to consolidated financial statements.
72
Capital
Surplus
$ 722,088
–
–
–
–
–
12,652
895
7,776
–
–
743,411
–
–
–
9,726
(276)
5,862
–
–
758,723
–
–
–
Retained
Earnings
$ 1,332,954
62
153,232
–
–
–
–
–
–
(59,191)
–
1,427,057
200,578
–
–
–
–
–
(63,952)
–
1,563,683
246,754
–
–
15,497
425
8,160
–
–
$ 782,805
–
–
–
(66,557)
–
$ 1,743,880
Total
Equity
$ 1,954,233
62
153,232
(7,552)
(191,652)
(45,972)
(7,992)
7,743
895
7,776
(59,191)
2,558
1,860,112
200,578
3,438
212,146
416,162
5,198
(276)
5,862
(63,952)
2,268
2,225,374
246,754
1,540
118,579
366,873
8,552
425
8,160
(66,557)
1,051
$ 2,543,878
18,849
–
–
(7,552)
–
(7,552)
–
–
–
–
–
2,558
13,855
–
3,438
–
3,438
–
–
–
–
2,268
19,561
–
1,540
–
1,540
–
–
–
–
1,051
22,152
Treasury Stock
Shares
2,159
–
Amount
$ (88,428)
–
Total
Shareholders’
Equity
$1,935,384
62
Non-
Controlling
Interest
$
–
–
–
166
87
–
–
–
–
2,412
–
–
–
97
–
–
–
–
2,509
–
–
–
99
–
–
–
–
2,608
–
–
–
(7,992)
(4,909)
–
–
–
–
(101,329)
–
–
–
(4,528)
–
–
–
–
(105,857)
–
–
–
(6,945)
–
–
–
–
$ (112,802)
153,232
–
(191,652)
(38,420)
(7,992)
7,743
895
7,776
(59,191)
–
1,846,257
200,578
–
212,146
412,724
5,198
(276)
5,862
(63,952)
–
2,205,813
246,754
–
118,579
365,333
8,552
425
8,160
(66,557)
–
$ 2,521,726
$
73
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 collectability, 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.
Goodwill and Intangible Assets
Goodwill and intangible assets, which generally result from business combinations, are accounted for under the provisions
of Accounting Standards Codification Topic 350, “Intangibles - Goodwill and Other.” Goodwill is 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.
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.
74
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 investment and available for sale 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 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.
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 and reported Gain (loss) on derivatives, net.
Interest rate swaps may be designated as cash flow hedges of variable rate assets or liabilities, or of anticipated transactions.
Changes in the fair value of interest rate swaps designated as cash flow hedges are recorded in accumulated other
comprehensive income to the extent they are effective. The amount recorded in other comprehensive income is reclassified
to earnings in the same periods as the hedged cash flows impact earnings. The ineffective portion of changes in fair value
is reported in current earnings.
If a derivative instrument that had been designated as a fair value hedge is terminated or if the hedge designation is
removed or deemed to no longer be effective, the difference between the hedged 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.
75
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 customers 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.
Performing loans may be renewed under then current collateral value, debt service ratio and other underwriting standards.
Nonperforming loans may be renewed and will remain on nonaccrual status. Nonperforming loans renewed will be
evaluated and may be charged off if 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.
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. 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, including principal previously charged off, is probable based on improvements in the borrower’s financial
condition or a sustained period of performance.
Residential mortgage loans are primarily modified in accordance with U.S. government agency guidelines by reducing
interest rates and extending the number of payments. No unpaid principal or interest is forgiven. Interest guaranteed by
U.S. government agencies under residential mortgage loan programs continues to accrue based on the modified terms of the
loan. Renegotiated loans may be transferred to loans held for sale after a period of satisfactory performance. If it becomes
probable that all amounts due according to the modified loan terms will not be collect, the loan is placed on nonaccrual
status and included in nonaccrual loans. Commercial and commercial real estate loan are considered distressed when it
becomes probable that we will not collect the full amount of contractual principal. All distressed commercial and
commercial real estate loans are placed on nonaccrual status. Loans to distressed borrowers generally consist of extension
of payment terms, not to exceed the final contractual maturity of the original loan. Principle and interest is not forgiven,
nor are interest rate concessions granted. Consumer loans to troubled borrowers are not modified.
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.
Certain residential mortgage loans originated by the Company 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.
Allowance for Loan Losses and Off-Balance Sheet Credit Losses
Allowances 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. There have been no material changes in the approach or
techniques utilized in developing the allowances for loan losses and off-balance sheet credit losses.
76
The allowance consists of specific allowances attributed to impaired loans that have not yet been charged down to amounts
we expect to recover, general allowances attributed to unimpaired loans that are based upon migration factors and
nonspecific allowances based on general economic, risk concentration and related factors.
Internally risk graded loans are evaluated individually for impairment. Non-risk graded loans are collectively evaluated for
impairment through past-due status and other relevant factors. Substantially all commercial and commercial real estate
loans are risk graded. Certain residential mortgage and consumer loans are also risk graded. Certain commercial loans and
most residential mortgage and consumer loans are small balance, homogeneous pools of loans that are not risk graded.
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 agreements. This is substantially the same criteria used to determine
when a loan should be placed on nonaccrual status. Specific allowances for impaired loans are measured by an evaluation
of estimated future cash flows discounted at the loans’ initial effective interest rate, the fair value of collateral for certain
collateral dependent loans, or historical statistics.
General allowances for unimpaired loans are based on migration models. Separate migration models are used to determine
general allowances 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.
Risk grades are updated quarterly. Migration factors are determined for each risk grade to determine the inherent loss
based on historical trends. An eight-quarter aggregate accumulation of net losses is used as a basis for the migration
factors. Losses incurred in more recent periods are more heavily weighted by a sum-of-periods-digits formula. The higher
of the current loss factors based on migration trends or a minimum migration factor based upon long-term history is
assigned to each risk grade. The resulting general allowances may be adjusted upward or downward by management to
account for the limitations in migration models which are based entirely on historical data, such as their limited accuracy at
the beginning and ending of credit cycles.
The general allowance for residential mortgage loans is based on an eight-quarter average percent of loss. The general
allowance for consumer loans is based on an eight-quarter average percent loss with separate migration factors determined
by major product line, such as indirect automobile loans and direct consumer loans.
Nonspecific allowances 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 and also considers current economic conditions and other factors.
A provision for credit losses is charged against earnings in amounts necessary to maintain adequate allowances 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 allowance.
Collateral value of real property is generally based on third party appraisals that conform to Uniform Standards of
Professional Appraisal Practice, less estimated selling costs. Appraised values are on an “as-is” basis and are not adjusted
by the Company. Collateral value of mineral rights is generally determined by our internal staff of engineers based on
projected cash flows from proven oil and gas reserves under existing economic and operating conditions. The value of
other collateral is generally determined by our special assets staff based on projected liquidation cash flows under current
market conditions. Collateral values and available cash resources that support impaired loans are evaluated quarterly.
Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values have
declined.
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 retains an obligation under underwriting representations and warranties related to residential
mortgage loans transferred and 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 allowance is maintained as part of other liabilities for the Company’s credit risk on
loans transferred subject to a recourse obligation. Other liabilities also include an allowance for obligations related to
residential mortgage loans transferred under certain underwriting representations and warranties.
77
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 less estimated disposal costs, or current fair
value less estimated disposal costs. Decreases in fair value below cost are recognized as asset-specific valuation
allowances which may be reversed when supported by future increases in fair value. Fair values are based on “as is”
appraisals which are updated at least annually or more frequently for certain asset types or assets located in certain
distressed markets. The Company also considers decreases in listing price and other relevant information in quarterly
evaluations and reduces the carrying value of real estate and other repossessed assets when necessary. Additional costs
incurred to complete real estate and other repossessed assets may increase the carrying value, up to current fair value based
on “as completed” appraisals. 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.
Premises no longer used by the Company is transferred to real estate and other repossessed assets. The transferred amount
is the lower of cost less accumulated depreciation or fair value less estimated disposal costs as of the transfer date.
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.
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 an allowance 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
allowance 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.
78
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.
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.
79
Effect of Recently Issued Statements of Financial Accounting Standards
Financial Accounting Standards Board
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 Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements,” 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 and did not have a significant impact on the Company’s financial statements.
FASB Accounting Standards Update No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements”
(“ASU 2010-09”)
On February 24, 2010, the FASB issued ASU 2010-09, which amends FASB Accounting Standards Codification 855,
“Subsequent Events,” to address certain implementation issues related to an entity’s requirement to perform and disclose
subsequent events procedures. ASU 2010-09 added a definition of the term “SEC filer” and requires SEC filers and certain
other entities to evaluate subsequent events through the date the financial statements are issued. It also exempts SEC filers
from disclosing the date through which subsequent events have been evaluated. The guidance was effective for the
Company on January 1, 2010.
FASB Accounting Standards Update No. 2010-10, “Amendments to Statement 167 for Certain Investment Funds” (“ASU
2010-10”)
On February 25, 2010, the FASB issued ASU 2010-10, which amends certain provisions of Statement 167 (codified in
ASC 810-10). The ASU defers the effective date of FAS 167 for reporting enterprise’s interest in certain entities and for
certain money market mutual funds. In addition, the ASU amends certain provisions of ASC 810-10 to change how a
decision maker or service provider determines whether its fee is a variable interest. ASU 2010-10 affects the Company’s
evaluation of its involvement as administrator and investment advisor to Cavanal Hill money market funds and was
effective for the Company as of January 1, 2010.
80
FASB Accounting Standards Update No. 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses” (“ASU 2010-20”)
On July 21, 2010, the FASB issued ASU 2010-20 which expanded the disclosure requirements concerning the credit
quality of an entity’s financing receivables and its allowance for credit losses. ASU 2010-20 is effective for the Company
as of December 31, 2010 as it relates to disclosures required as of the end of the reporting period. Disclosure related to
activity during the reporting period of the Company will be required on or after January 1, 2011.
FASB Accounting Standards Update No. 2010-28 “Intangibles – Goodwill and Other (Topic 530): When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”)
On December 17, 2010, the FASB issued ASU 2010-28, a consensus of the FASB Emerging Issues Task Force. ASU 2010-28 will
modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an
entity is required to perform a Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists and
the entity will no longer be able to assert that a reporting unit is not required to perform a Step 2 because the carrying amount of the
reporting unit is zero or negative. The amendment was effective for the Company January 1, 2011 and is not expected to have a
significant impact on the consolidated financial statements.
FASB Accounting Standards Update No. 2011-01 “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about
Troubled Debt Restructuring in Update No. 2010-20” (“ASU 2011-01”)
On January 20, 2011, the FASB issued ASU 2011-01, which temporarily defers the effective date in ASU 2010-20 for disclosure about
troubled debt restructuring by creditors to coincide with the effective date of the proposed guidance clarifying what constitutes a
troubled debt restructuring.
81
(2) Securities
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
2010
December 31,
Amortized
Cost
Fair
Value
Not Recognized in OCI (1)
Gross Unrealized
Loss
Gain
Amortized
Cost
2009
Fair
Value
Not Recognized in OCI (1)
Gross Unrealized
Loss
Gain
Municipal and other
tax-exempt
Other debt securities
Total
$ 184,898
154,655
$ 3,912
4,505
$ 339,553 $ 346,105 $ 8,417
$ 188,577
157,528
$ (233)
(1,632)
$ (1,865)
$ 232,568 $ 238,847
7,857
$ 6,336
20
$ 240,405 $ 246,704 $ 6,356
7,837
$ (57)
–
(57)
$
(1) Other comprehensive income
The amortized cost and fair values of investment securities at December 31, 2010, 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
$ 56,512
57,026
4.63
$
3,446
3,446
2.01
$ 59,958
60,472
4.48
$ 93,732
96,409
4.58
$ 25,089
25,093
5.49
$ 118,821
121,502
4.77
$ 27,950
28,516
5.44
$ 22,522
22,171
5.69
$ 50,472
50,687
5.55
$ 6,704
6,626
6.28
$ 184,898
188,577
4.79
$ 103,598
106,818
6.31
$ 110,302
113,444
6.31
$ 154,655
157,528
5.99
$ 339,553
346,105
5.34
$ 339,553
346,105
5.34
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
2.89
11.02
6.59
82
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
December 30, 2010
Recognized in OCI (1)
Amortized
Cost
Fair
Value
Gross Unrealized
Loss
Gain
Other Than
Temporary
Impairment
Municipal and other tax-exempt
Residential mortgage-backed securities:
$ 72,190 $ 72,942 $ 1,172 $
(315)
$
(105)
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
Total
(1) Other comprehensive income
4,791,438
2,545,208
765,046
92,013
8,193,705
4,925,693
2,620,066
801,993
99,157
8,446,909
147,024
83,341
37,193
7,144
274,702
(12,769)
(8,483)
(246)
–
(21,498)
–
–
–
–
–
220,332
494,098
714,430
8,908,135
6,401
33,424
42,207
19,511
29,181
(353)
(14,067)
(14,420)
(35,918)
–
–
–
–
(327)
$9,111,049 $9,311,252 $293,592 $ (36,560)
186,674
457,535
644,209
9,091,118
6,401
33,424
42,207
22,114
43,046
–
923
923
275,625
–
–
–
2,603
14,192
(33,305)
(23,419)
(56,724)
(56,724)
–
–
–
–
–
$ (56,829)
December 31, 2009
Recognized in OCI (1)
Amortized
Cost
Fair
Value
Gross Unrealized
Loss
Gain
Other Than
Temporary
Impairment
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
$
6,998 $
7,020 $ 22 $
61,268
62,201
1,244
$
–
(311)
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
Total
(1) Other comprehensive income
3,690,280
2,479,522
1,221,577
254,438
7,645,817
3,782,180
2,547,978
1,225,042
254,128
7,809,328
98,764
70,024
10,371
5,080
184,239
(6,864)
(1,568)
(6,906)
(5,390)
(20,728)
–
–
–
262,106
699,272
961,378
8,607,195
17,174
32,526
78,999
19,224
35,414
(13,305)
(71,023)
(84,328)
184,239 (105,056)
(27)
–
–
–
(524)
$8,858,798 $8,872,023 $ 203,831 $(105,918)
195,808
596,554
792,362
8,601,690
17,147
32,526
78,999
22,275
50,165
–
–
–
3,051
15,275
(52,993)
(31,695)
(84,688)
(84,688)
–
–
–
–
–
$(84,688)
83
–
–
–
–
–
–
–
The amortized cost and fair values of available for sale securities at December 31, 2010, 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
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
$
$
$
655
659
3.66
1
1
7.61
656
660
3.67
$
6,554
6,933
4.07
$
13,749
14,492
4.09
$
$
–
–
–
$
–
–
–
6,554
6,933
4.07
$
13,749
14,492
4.09
$ 51,232
50,858
1.03
$ 6,400
6,400
1.89
$ 57,632
57,258
1.12
$
$
$
72,190
72,942
1.91
6,401
6,401
1.89
78,591
79,343
1.91
$ 8,908,135
9,091,118
3.98
$
124,323
140,791
2.15
$ 9,111,049
9,311,252
3.93
Weighted
Average
Maturity5
19.73
32.56
20.77
²
³
¹ Calculated on a taxable equivalent basis using a 39% effective tax rate.
² The average expected lives of mortgage-backed securities were 2.92 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)
2010
2009
2008
$ 1,973,005
26,207
3,029
$3,242,282
63,859
1,390
$ 3,499,128
21,128
11,932
7,693
24,300
2,736
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 $5.3 billion
and $5.1 billion at December 31, 2010 and 2009, 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.
84
Temporarily Impaired Securities as of December 31, 2010
(In thousands)
Number
of
Securities
Less Than 12 Months
Fair
Value
Unrealized
Loss
12 Months or Longer
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
Investment:
Municipal and other tax-
exempt
Other
Total investment
Available for sale:
Municipal and other tax-
exempt
Residential mortgage-
backed securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Total U.S. agencies
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential
mortgage-backed
securities
Equity securities and
mutual funds
Total available for sale
Total
37
15
52
42
26
12
3
41
22
53
75
$ 12,482
80,698
93,180
$ 211
1,632
1,843
$
786
–
786
$ 22
–
22
$
$
13,268
80,698
93,966
233
1,632
1,865
22,271
171
25,235
249
47,506
420
1,099,710
491,776
5,681
1,597,167
12,769
8,483
246
21,498
–
–
–
–
–
–
–
–
–
–
–
–
–
–
186,675
417,917
604,592
33,658
37,486
71,144
1,099,710
491,776
5,681
1,597,167
186,675
417,917
604,592
12,769
8,483
246
21,498
33,658
37,486
71,144
116
1,597,167
21,498
604,592
71,144
2,201,759
92,642
2
160
212
–
1,619,438
$ 1,712,618
–
21,669
$ 23,512
2,878
632,705
$ 633,491
327
71,720
$ 71,742
2,878
2,252,143
$ 2,346,109
327
93,389
$ 95,254
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
15
$
1,490 $
14
$
2,991
$
43
$
4,481 $
57
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
27
21
8
16
4
49
21
65
86
Total residential
mortgage-backed
securities
Other debt securities
Equity securities and
mutual funds
Total available for sale
Total
135
5
4
171
186
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
1,257,855
8,116
20,728
26
792,362
31
169,016
1
2,050,217
8,147
189,744
27
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
85
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 and that were subsequently sold
during that year. At December 31, 2010, 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, which may be maturity.
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.
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, 2010.
As of December 31, 2010, 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):
1
U.S. Govt / GSE
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
Investment:
Municipal and other tax-
exempt
$ –
$ –
$ 61,801
$ 63,067
$ 35,341
$ 36,024
$ –
$ –
$ 87,756
$ 89,486
$ 184,898
$ 188,577
Other debt securities
–
–
148,331
151,200
1,350
1,350
–
–
4,974
4,978
154,655
157,528
Total
$ –
$ – $ 210,132 $ 214,267
$ 36,691
$ 37,374
$ –
$ –
$ 92,730
$94,464
$339,553
$346,105
Available for Sale:
Municipal and other tax-
exempt
$ –
$ –
$50,579
$51,279
$8,085
$8,119
$11,553
$11,443
$1,973
$2,101
$72,190
$72,942
Residential mortgage-
backed securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Other
4,791,438
4,925,693
2,545,208
2,620,066
765,046
801,993
92,013
99,157
Total U.S. agencies
8,193,705
8,446,909
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential
mortgage-backed
–
–
–
–
–
–
3,999
3,784
10,875
10,737
205,458
172,153
56,674
56,081
120,987
113,617
316,437
287,837
60,673
59,865
131,862
124,354
521,895
459,990
securities
8,193,705
8,446,909
60,673
59,865
131,862
124,354
521,895
459,990
Other debt securities
–
–
6,400
6,400
Federal Reserve Bank
stock
33,424
33,424
Federal Home Loan Bank
stock
42,207
42,207
Perpetual preferred stock
Equity securities and
mutual funds
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,511
22,114
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
4,791,438
4,925,693
2,545,208
2,620,066
765,046
92,013
801,993
99,157
8,193,705
8,446,909
220,332
494,098
186,674
457,535
714,430
644,209
8,908,135
9,091,118
6,401
6,401
33,424
33,424
42,207
19,511
42,207
22,114
29,181
43,046
29,181
43,046
Total
$8,269,336 $ 8,522,540
$117,652 $117,544 $ 159,458
$154,587 $ 533,448
$ 471,433
$
31,155 $
45,148
$ 9,111,049 $ 9,311,252
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.
86
At December 31, 2010, approximately $522 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 $62 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% over the next 12 months, dropping to 8% over the following 21 months,
and holding at 8% thereafter. At December 31, 2009, we assumed that unemployment rate would increase to
10.5% over the next 12 months, then decreases to 8% over the following 12 months and hold 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 5% over the next twelve months and
holding at that level thereafter. At December 31, 2009, we assumed that housing prices would decrease an
additional 7.5% over the next twelve months and hold at that level thereafter.
Estimated Liquidation Costs – held constant at 25% to 30% for Jumbo-A loans and 35% to 38% for Alt-A loans
of the then-current depreciated housing price at estimated foreclosure date. At December 31, 2009, we assumed
that liquidation costs would be 27% for both Jumbo-A and Alt-A loans.
•
• Discount rates – estimated cash flows were discounted at rates that range from 2.69% to 6.00% based on our
current expected yields.
We also consider 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 considered 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 for our below investment grade private label residential mortgage-backed securities is as follows (in
thousands):
Adjusted LTV Ratio
< 70 %
70 < 75
75 < 80
80 < 85
>= 85
Total
Number of
Securities
4
2
1
8
13
28
Amortized Cost
21,766
$
44,075
11,080
183,152
261,822
521,895
$
Credit Losses Recognized
Year ended
December 31, 2010
Life-to-date
Fair Value
Number of
Securities
$
$
21,214
40,908
11,242
160,683
225,943
459,990
–
–
–
7
11
18
Amount
$
$
–
–
–
8,513
17,950
26,463
Number of
Securities
–
–
–
7
12
19
Amount
$
$
–
–
–
10,843
40,762
51,605
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.
87
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.
Based upon projected declines in expected cash flows from certain private-label residential mortgage-backed securities, the
Company recognized $26.5 million of credit loss impairment in earnings on these securities during 2010. 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. In addition to the other-than-temporary
impairment charges on private-label mortgage-backed securities, the Company recognized $1.0 million in impairment
charges on certain below investment grade municipal securities during 2010 based on management’s assessment of on-
going financial difficulties and recent court developments regarding the municipal authority servicing the bonds. See
additional discussion regarding the development of the fair value of the bonds in Note 18.
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. The
Company has evaluated the near-term prospects of the investment in relation to the severity and duration of the impairment
and based on that evaluation has ability and intent to hold these investments until a recovery fair value. Accordingly, all
impairment of equity securities was considered temporary at December 31, 2010.
The following represents the composition of net impairment losses recognized in earnings (in thousands):
OTTI related to perpetual preferred stocks
OTTI related to equity securities and mutual funds
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,
2009
2008
2010
$
–
(327)
$
(8,008)
$
(5,306)
–
(29,633)
(1,263)
(119,883)
(2,151)
(94,741)
–
–
–
(27,482)
(27,809)
$
(25,142)
$ (34,413)
–
(5,306)
$
The following is a tabular roll forward of the amount of credit-related OTTI recognized on available-for-sale debt securities
in earnings (in thousands):
Balance of credit-related OTTI recognized on available for
sale debt securities, beginning of period
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, end of period
Mortgage Trading Securities
Year Ended December 31,
2009
2010
$ 25,142
$ –
3,514
21,468
23,968
3,674
$ 52,624
$ 25,142
Mortgage trading securities are residential mortgage-backed securities issued by U.S. government agencies 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 with changes in fair value being recognized in earnings as they
occur. Mortgage trading securities were carried at their fair value of $428 million at December 31, 2010, with a net
unrealized loss of $5.6 million. Mortgage trading securities were carried at their fair value of $286 million at December 31,
2009 and had a net unrealized loss of $2.1 million. The Company recognized a net gain of $7.3 million in 2010, a net loss
of $13 million in 2009 and a net gain of $11 million in 2008 on mortgage trading securities.
88
(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, 2010 (in thousands):
Gross Basis
Assets
Liabilities
Notional¹
Fair Value
Notional¹
Fair Value
Net Basis²
Assets
Fair Value
Liabilities
Fair Value
$ 11,664,409
1,914,519
183,250
$
235,961
188,655
10,616
$ 11,524,077
2,103,923
186,709
$
233,421
191,075
10,534
$
141,279
76,746
4,226
$ 138,739
79,166
4,144
45,014
160,535
13,967,727
–
13,967,727
45,014
16,247
496,493
–
496,493
45,014
160,535
14,020,258
–
14,020,258
45,014
16,247
496,291
–
496,291
45,014
16,247
45,014
16,247
283,512
(15,017)
268,495
283,310
(68,987)
214,323
Customer Risk
Management Programs:
Interest rate contracts
Energy contracts
Agricultural contracts
Foreign exchange
contracts
CD options
Total customer derivatives
before cash collateral
Less: cash collateral
Total customer derivatives
Interest Rate Risk
Management Programs
124,000
Total Derivative Contracts $ 14,091,727
1,097
$ 215,420
¹
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the
17,977
$ 14,038,235
1,950
498,443
1,950
270,445
1,097
497,388
$
$
$
inception 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.
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. As of
December 31, 2010, a decrease in credit rating from A1 to below investment grade would increase our obligation to post
cash margin on existing contracts by approximately $54 million.
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
Assets
Liabilities
Notional¹
Fair Value
Notional¹
Fair Value
Net Basis²
Assets
Fair Value
Liabilities
Fair Value
$ 7,392,393
3,588,767
23,196
$156,261
454,978
1,004
$ 7,294,028
3,719,796
31,715
$161,225
450,614
875
$110,449
174,319
1,004
$ 115,413
176,983
875
63,942
66,248
11,134,546
–
11,134,546
64,182
5,493
681,918
–
681,918
64,182
66,248
64,182
5,493
11,175,969
–
11,175,969
682,389
–
682,389
64,182
5,493
355,447
(13,229)
342,218
64,182
5,493
362,946
(54,586)
308,360
Customer Risk Management
Programs:
Interest rate contracts³
Energy contracts
Agricultural contracts
Foreign exchange
contracts
CD options
Total customer derivatives
before cash collateral
Less: cash collateral
Total customer derivatives
Interest Rate Risk
Management Programs³
Total Derivative Contracts
–
$ 308,360
¹ Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the
–
$ 11,175,969 $ 682,389
1,564
$ 343,782
1,564
$ 683,482
$ 11,174,546
40,000
–
inception 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.
³ Gross notional and gross fair value amounts have been revised to conform to current period presentation. The net fair
values of assets and liabilities were not affected.
89
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,
2010
2009
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
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
$
$
2,784
8,041
718
669
–
12,212
$
–
–
–
–
–
–
Interest Rate Risk Management Programs
Total Derivative Contracts
–
$ 12,212
3,032
3,032
$
$
2,780
3,480
728
593
–
7,581
–
7,581
$
–
–
–
–
–
–
(11,235)
$ (11,235)
Net interest revenue increased $4.0 million in 2010, $13.1 million in 2009 and $7.0 million in 2008 from periodic
settlements of amounts receivable or payable on interest rate swaps.
As discussed in Note 7, certain derivative contracts not designated as hedging instruments related to mortgage loan
commitments and forward sales contracts are included in Residential mortgage loans held for sale on the Consolidated
Balance Sheets. See Note 7 for additional discussion of notional, fair value and impact on earnings of these contracts.
None of these derivative contracts have been designated as hedging instruments.
(4) Loans
Significant components of the loan portfolio are as follows (in thousands):
2010
2009
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
$ 2,883,905 $ 3,011,636 $ 38,455
150,366
37,426
4,567
$ 4,934,153 $ 5,478,069 $ 230,814
1,297,148
939,774
229,511
829,836
851,048
369,364
$ 5,933,996
2,277,350
1,828,248
603,442
$ 10,643,036
9,961
$
$
16,818
773,241
769,661
560,566
$ 2,917,814 $3,188,642 $ 101,384 $ 6,207,840
2,491,434
1,793,622
786,802
$ 5,021,282 $5,919,061 $ 339,355 $ 11,279,698
10,308
1,513,269
993,972
223,178
204,924
29,989
3,058
$
$
17,015
At December 31, 2010, approximately $4.9 billion or 46% of the total loan portfolio is to businesses and individuals in
Oklahoma and $3.0 billion or 28% 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.
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, interest 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 risk is centrally monitored on a continuous basis from underwriting
throughout the life of the loan for compliance with commercial lending policies.
At December 31, 2010, loans to energy-related businesses within the commercial loan classification totaled $1.7 billion or
16% of total loans. Loans to service-related businesses totaled $1.6 billion or 15% 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 loan
classes include wholesale / retail, $1.0 billion; healthcare, $810 million; manufacturing, $325 million; other commercial
and industrial, $292 million and integrated food services, $204 million. Approximately $2.6 billion or 43% of the
commercial portfolio are to businesses in Oklahoma and $1.9 billion or 32% of our commercial loan portfolio are to
businesses in Texas.
90
Commercial real estate loans are 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 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.
Approximately 32% 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 commercial real estate loans are construction
and land development, $448 million; office buildings, $457 million; other real estate loans, $415 million; retail facilities,
$406 million; multifamily residences, $369 million and industrial, $182 million.
Residential mortgage loans provide funds for our customer 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 retained in the Company’s portfolio are
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 and certain professionals. 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 (“LTV”)
ratios are tiered from 60% to 100%, depending on the market. Special mortgage programs include fixed and variable fully
amortizing loans tailored to the needs of certain healthcare 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 products is $2 million.
At December 31, 2010 and 2009, residential mortgage loans included $22 million and $16 million, respectively, of loans
with repayment terms that have been modified from the original contracts. Restructured residential mortgage loans
guaranteed by agencies of the U.S. government in accordance with agency guideline represent $19 million of our
residential mortgage loan portfolio at December 31, 2010. Interest continues to accrue on these guaranteed loans based on
the modified terms of the loan. At December 31, 2010, $7.2 million was 90 days or more past due and still accruing. If it
becomes probable that we will not be able to collect all amounts due according to the modified loan terms, the loan is
placed on nonaccrual status and included in nonaccrual loans. Renegotiated loans may be transferred to loans held for sale
after a period of satisfactory performance, generally at least nine months.
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, 2010, outstanding commitments totaled $5.2 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, 2010, outstanding standby letters of credit totaled $535 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, 2010, outstanding commercial letters of credit totaled $6 million.
91
Allowances for Credit Losses
BOK Financial maintains separate allowances for loan losses and for off-balance sheet credit risk related to
commitments to extend credit and standby letters of credit. As discussed in greater detail in Note 7, the Company also
has separate allowances related to off-balance sheet credit risk related to residential mortgage loans sold with full or
partial recourse and for residential mortgage loans sold to government sponsored agencies under standard
representation and warranties.
The allowance for loan losses is assessed by management on a quarterly basis and consists of specific amounts
attributed to impaired loans that have not been charged down to amounts we expect to recover, general allowances
based on migration factors for unimpaired loans and non-specific allowances based on general economic conditions,
risk concentration and related factors. Impairment is individually measured for certain impaired loans and collectively
measured for all other loans. The allowance for loan losses and recorded investment of the related loans by portfolio
segments for each impairment measurement method at December 31, 2010 is as follows (in thousands):
Collectively Measured
for Impairment
Individually Measured
for Impairment
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
$ 5,895,674 $ 102,565 $
2,126,984
1,816,184
601,691
94,502
49,500
12,536
10,440,533 259,103
38,322 $
150,366
12,064
1,751
202,503
2,066
4,207
781
78
7,132
$ 5,933,996 $
2,277,350
1,828,248
603,442
10,643,036
104,631
98,709
50,281
12,614
266,235
Nonspecific allowance
–
–
–
–
–
26,736
Total
$ 10,440,533 $ 259,103 $
202,503 $
7,132
$ 10,643,036 $
292,971
The activity in the combined allowance for loan losses and off-balance sheet credit losses related to loan commitments
and standby letters of credit is summarized as follows (in thousands):
Year ended December 31,
2009
2008
2010
Allowance for loans losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Allowance for loans off-
balance sheet credit losses:
Beginning balance
Provision for off-balance sheet
credit losses
Ending balance
$ 292,095
105,256
(123,988)
19,608
$ 292,971
$ 233,236
196,678
(148,499)
10,680
$ 292,095
$ 126,677
208,280
(122,211)
20,490
$ 233,236
$ 14,388
$ 15,166
$ 20,853
(117)
$ 14,271
(778)
$ 14,388
(5,687)
$ 15,166
Total provision for credit losses $ 105,139
$ 195,900
$ 202,593
92
Credit Quality Indicators
The Company utilizes risk grading as a primary credit quality indicator. Substantially all commercial and commercial
real estate loans and certain residential mortgage and consumer loans are risk graded based on a quarterly evaluation of
the borrowers’ ability to repay the loans. Certain commercial loans and most residential mortgage and consumer loans
are small, homogeneous pools that are not risk graded. The allowance for loan losses and recorded investment of the
related loans by portfolio segment for risk graded and non-risk graded loans at December 31, 2010 is as follows (in
thousands):
Internally Risk Graded
Related
Recorded
Allowance
Investment
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
$ 5,914,178 $ 102,259 $
19,818 $
2,277,350
451,874
246,350
98,709
8,356
1,881
8,889,752 211,205
–
1,376,374
357,092
1,753,284
2,372
–
41,925
10,733
55,030
$ 5,933,996 $
2,277,350
1,828,248
603,442
10,643,036
104,631
98,709
50,281
12,614
266,235
Nonspecific allowance
–
–
–
–
–
26,736
Total
$ 8,889,752 $ 211,205 $ 1,753,284 $ 55,030
$ 10,643,036 $
292,971
The risk grading process identified certain criticized loans as potential problem loans. These loans have a well-defined
weakness that may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial
condition of the borrower. Because the borrowers are still performing in accordance with the original terms of the loan
agreements, these loans were not placed in nonaccrual status. Known information does, however, cause concern as to
the borrowers’ continued compliance with current repayment terms.
The following table summarizes the Company’s loan portfolio at December 31, 2010 by the risk grade categories (in
thousands):
Internally Risk Graded
Potential
Problem Nonaccrual Performing Nonaccrual
Non-Graded
Performing
Total
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
$ 1,704,401 $
1,531,239
956,397
319,075
801,525
202,885
267,949
5,783,471
6,543 $
465 $
30,420
45,363
4,000
4,566
1,385
108
92,385
19,262
8,486
2,116
3,534
13
4,446
38,322
– $
–
–
–
–
–
19,685
19,685
Construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
326,769
395,094
420,899
355,733
177,712
390,969
2,067,176
21,516
5,468
16,897
6,784
294
8,849
59,808
99,579
4,978
19,654
6,725
4,087
15,343
150,366
–
–
–
–
–
–
–
–
–
–
–
–
–
133
133
$ 1,711,409
1,580,921
1,010,246
325,191
809,625
204,283
292,321
5,933,996
–
–
–
–
–
–
–
447,864
405,540
457,450
369,242
182,093
415,161
2,277,350
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
420,407
–
420,407
19,403
–
19,403
12,064
–
12,064
803,023
547,989
1,351,012
20,047
5,315
25,362
1,274,944
553,304
1,828,248
–
240,243
240,243
–
4,356
4,356
–
1,751
1,751
237,050
117,226
354,276
2,526
290
2,816
239,576
363,866
603,442
Total
$ 8,511,297 $ 175,952 $ 202,503 $1,724,973 $ 28,311
$ 10,643,036
93
Impaired Loans
Loans are considered to be impaired when it is probable that the Company will not be able to collect all amounts due
according to the contractual terms of the loan agreement.
A summary of risk-graded impaired loans at December 31, 2010 follows (in thousands):
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
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
$
559 $
465 $
40 $
28,579
14,717
5,811
4,701
172
13,007
67,546
19,262
8,486
2,116
3,534
13
4,446
38,322
9,977
1,342
1,300
564
13
4,446
17,682
99,579
138,922
4,978
6,111
19,654
25,702
6,725
24,368
4,087
4,087
15,343
17,129
216,319 150,366
37,578
838
10,221
6,129
–
1,092
55,858
15,258
–
15,258
12,064
–
12,064
4,492
–
4,492
–
1,909
1,909
–
1,751
1,751
–
96
96
425
9,285
7,144
816
2,970
–
–
20,640
62,001
4,140
9,433
596
4,087
14,251
94,508
7,572
–
7,572
–
1,655
1,655
$
60
1,227
684
–
95
–
–
2,066
2,428
514
106
115
723
321
4,207
781
–
781
–
78
78
Total
$
301,032 $ 202,503 $ 78,128 $ 124,375
$
7,132
Investments in impaired loans were as follows (in thousands):
December 31,
2009
2008
2010
Investment in impaired loans
Impaired loans with specific
allowance for loss
Specific allowance balance
Impaired loans with no specific
allowance for loss
Average recorded investment in
impaired loans
$ 202,503
$316,666
$269,908
124,375
7,132
204,076
36,168
194,292
28,532
78,128
112,590
75,616
262,368
327,935
179,808
Approximately $54 million of losses on impaired loans with no related specific allowance at December 31, 2010
were charged off against the allowance for loan losses during 2010. Interest income recognized on impaired loans
during 2010, 2009 and 2008 was not significant.
94
Nonaccrual & Past Due Loans
A summary of loans currently performing, loans 30 to 89 days past due and accruing, loans 90 days or more past due
and accruing and nonaccrual loans as of December 31, 2010 is as follows (in thousands):
Past Due
Current
30 to 89
Days
90 Days
or More Nonaccrual
Total
$ 1,707,466 $
1,558,120
1,001,422
321,102
805,124
204,199
287,357
5,884,790
507 $
3,196
315
168
75
71
111
4,443
2,971 $
343
23
1,805
892
–
274
6,308
465
19,262
8,486
2,116
3,534
13
4,579
38,455
$ 1,711,409
1,580,921
1,010,246
325,191
809,625
204,283
292,321
5,933,996
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
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
344,016
394,445
437,496
362,517
177,660
395,320
2,111,454
3,170
6,117
300
–
346
4,301
14,234
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
1,219,119
546,384
1,765,503
21,719
1,605
23,324
Consumer:
Indirect automobile
Other consumer
Total consumer
225,601
360,603
586,204
11,382
927
12,309
1,099
–
–
–
–
197
1,296
1,995
–
1,995
67
295
362
99,579
4,978
19,654
6,725
4,087
15,343
150,366
447,864
405,540
457,450
369,242
182,093
415,161
2,277,350
32,111
5,315
37,426
1,274,944
553,304
1,828,248
2,526
2,041
4,567
239,576
363,866
603,442
Total
$ 10,347,951 $ 54,310 $
9,961 $ 230,814
$ 10,643,036
Past due status for all loan classes is based on the actual number of days since the last payment was due according to
the contractual terms of the loans.
(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,
2010
2009
$ 72,643
226,234
69,303
133,732
501,912
236,447
$ 265,465
$ 76,900
226,724
61,347
122,842
487,813
207,553
$ 280,260
Depreciation expense of premises and equipment was $33 million, $33 million and $28 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
95
(6) Goodwill and 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,
2010
2009
$ 109,417
104,795
4,622
$ 109,417
100,664
8,753
Other identifiable intangible assets
Less accumulated amortization
Net other identifiable intangible assets
17,291
8,110
9,181
16,791
6,906
9,885
Total intangible assets, net
$ 13,803
$ 18,638
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
Core
Deposit
Premiums
Other
Identifiable
Intangible Assets
2011
2012
2013
2014
2015
Thereafter
$ 2,227
815
485
432
392
271
4,622
$
$ 1,356
1,385
1,061
334
334
4,711
9,181
$
Total
$ 3,583
2,200
1,546
766
726
4,982
$ 13,803
The net amortized cost of goodwill and identifiable intangible assets at December 31, 2010 is assigned to the Company’s geographic
markets as follows (in thousands):
Core deposit premiums:
Texas
Colorado
Arizona
Total core deposit premiums
Other identifiable intangible assets:
Oklahoma
Colorado
Kansas/Missouri
Total other identifiable intangible
assets
Goodwill:
Oklahoma
Texas
New Mexico
Colorado
Arizona
Total goodwill
$ 3,408
1,058
156
4,622
$
$
6,048
2,343
790
$
9,181
$
8,173
240,122
15,273
55,611
16,422
$ 335,601
The carrying value goodwill by operating segment as of December 31, 2010 is as follows (in thousands):
Commercial
Consumer
Wealth
Management
Total
Goodwill
$ 266,728
$ 39,251
$ 29,850
$ 335,829
Accumulated Impairment
–
(228)
–
(228)
Net goodwill balance
$ 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 in 2009. The annual goodwill evaluations for 2010 and 2008
did not indicate impairment for any reporting unit. Economic conditions did not indicate that impairment existed for any
identifiable intangible assets and therefore no impairment evaluation was performed.
96
(7) Mortgage Banking Activities
The Company generally sells the majority of its conforming fixed-rate residential mortgage loans in the secondary market.
Residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments or
market quotes. Changes in the fair value are recorded in other operating revenue – mortgage banking revenue in the
Consolidated Statement of Earnings. Residential 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 residential 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. Residential
mortgage loan commitments and forward sales contracts are considered derivative contracts that have not been designated
as hedging instruments.
The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to
mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held for
sale on the Consolidated Balance Sheets were (in thousands):
December 31, 2010
December 31, 2009
Notional /
Unpaid
Principal
Balance
Residential mortgage loans held for sale
Residential mortgage loan commitments
Forward sales contracts
$
253,778
138,870
396,422
Notional /
Unpaid
Principal
Balance
$ 203,879
117,716
333,218
Fair Value
$ 213,704
496
3,626
$ 217,826
Fair Value
$ 254,669
2,251
6,493
$ 263,413
No loans were 90 days or more past due as of December 31, 2010 and December 31, 2009.
Gain (loss) included in mortgage banking revenue in the Consolidated Statements of Earnings from residential mortgage
loans held for sale and changes in the fair value of derivative contracts not designated as hedging instruments related to
mortgage loans commitments and forward contract sales were (in thousands):
Residential mortgage loan held for sale
Residential mortgage loan commitments
Forward sales contracts
2010
2009
2008
$ 30,677
1,755
2,440
$ 34,872
$ 26,999
(1,673)
5,786
$ 31,112
$
9,253
1,691
(1,815)
$ 9,129
At December 31, 2010, BOK Financial owned the rights to service 99,900 mortgage loans with outstanding principal
balances of $12.1 billion, including $796 million serviced for affiliates at December 31, 2010, and held related funds of
$178 million for investors and borrowers. The weighted average interest rate and remaining term was 5.44% and 295
months, respectively at December 31, 2010. 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. Servicing revenue and late charges on loans serviced for others, which are included in
mortgage banking revenue in the Consolidated Statements of Earnings totaled $38.2 million for 2010, $20.0 million for
2009 and $17.6 million for 2008.
During the first quarter of 2010, the Company purchased the rights to service approximately 34 thousand residential
mortgage loans with an outstanding principal balance of $4.2 billion. The loans to be serviced are primarily concentrated in
New Mexico and predominately held by Fannie Mae, Ginnie Mae, and Freddie Mac. The cash purchase price was $32
million. The acquisition date fair value of the mortgage servicing rights was approximately $43.7 million based upon
independent valuation analyses which were further supported by assumptions and models the Company regularly uses to
value its existing portfolio of servicing rights. The $11.8 million difference between the purchase price and acquisition date
fair value was directly attributable to the seller’s distressed financial condition.
97
Activity in capitalized mortgage servicing rights and related valuation allowance during 2008, 2009 and 2010 are as follows
(in thousands):
Capitalized Mortgage Servicing Rights
Purchased Originated
Total
Balance at December 31, 2007
$ 13,906 $ 56,103
$ 70,009
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
–
19,220
(2,286)
(9,676)
(5,267)
(29,248)
19,220
(11,962)
(34,515)
Balance at December 31, 2008
$ 6,353 $ 36,399 $ 42,752
Additions, net
–
39,869
39,869
Change in fair value due to loan runoff
(2,526)
(18,395)
(20,921)
Change in fair value due to market changes
4,001
8,123
12,124
Balance at December 31, 2009
$ 7,828 $ 65,996 $ 73,824
Additions, net
Change in fair value due to loan runoff
Gain on purchase of mortgage servicing rights
Change in fair value due to market changes
31,321
27,603
58,924
(6,791)
(13,895)
(20,686)
11,832
–
(6,290)
(1,881)
11,832
(8,171)
Balance at December 31, 2010
$ 37,900
$ 77,823
$115,723
Changes in the fair value of mortgage servicing rights are included in Other Operating Expenses in the Consolidated
Statement of Earnings. Changes in fair value due to loan runoff are included in mortgage banking costs. Changes in the
fair value due to market changes are reported separately. Changes in fair value due to market changes during the period
relate to assets held at the reporting date.
There is no active market trading in mortgage servicing rights after origination. Fair value is determined by discounting the
projected net cash flows. Significant assumptions considered significant unobservable inputs used to determine fair value
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 was 10.36% at December 31, 2010 and 11.2% at December 31, 2009.
Prepayment rate – Annual prepayment estimates based upon loan interest rate, original term and loan type ranged from
6.53% to 23.03% at December 31, 2010 and 8.1% to 26.9% at December 31, 2009.
Loan servicing costs – Annually per loan based upon loan type ranged from $35 to $60 at December 31, 2010 and $43
to $66 at December 31, 2009.
Escrow earnings rate – Indexed to rates paid on deposit accounts with a comparable average life. The escrow earnings
rate was 2.21% at December 31, 2010 and 2.98% at December 31, 2009.
Stratification of the mortgage loan-servicing portfolio, outstanding principal of loans serviced by interest rate at December
31, 2010 follows (in thousands):
< 4.50%
4.50 - 5.49%
5.50% - 6.49%
=> 6.49%
Total
Fair value
$
11,616
$
61,168
$
32,646
$ 10,293
$ 115,723
Outstanding principal of loans serviced1
$ 989,077
$ 5,137,700
$ 3,656,308
$1,480,045
$11,263,130
1 Excludes outstanding principal of $796 million for loans serviced for affiliates.
The interest rate sensitivity of our mortgage servicing rights and securities and derivative contracts held as an
economic hedge is modeled over a range of +/- 50 basis points. At December 31, 2010, a 50 basis point increase in
mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights, net of economic
hedge, by $1.8 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 hedge, by $3.3 million. In our model, changes in the value of our
servicing rights due to changes in interest rates assume stable relationships between mortgage rates and prepayment
speeds. Changes in market condition can cause variation from these assumptions. These factors and others may
cause changes in the value of our mortgage servicing rights to differ from our expectations.
The Company has off-balance sheet credit risk 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
98
development programs and sold to U.S. government agencies. These loans were underwritten to standards approved
by the agencies, including full documentation and originated under programs available only for owner-occupied
properties. However, these loans have a higher risk of delinquency and losses given default than traditional
residential mortgage loans. The principal balance of residential mortgage loans sold subject to recourse obligations
totaled $289 million at December 31, 2010 and $331 million at December 31, 2009. The separate allowance for
these off-balance sheet commitments was $17 million at December 31, 2010 and $14 million at December 31, 2009.
At December 31, 2010, approximately 6% of the loans sold with recourse with an outstanding principal balance of
$16 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 6% with an outstanding
balance of $18 million were past due 30 to 89 days. The provision for credit losses on loans sold with recourse
totaled $7.9 million during 2010 and $12 million during 2009 and is included in mortgage banking costs in the
Consolidated Statements of Earnings.
The activity in the allowance for losses on loans sold with recourse included in Other liabilities in the Consolidated
Balance Sheets is summarized as follows (in thousands):
2010
2009
2008
Beginning balance
Provision for recourse losses
Loans charged off, net
Ending balance
$ 13,781
7,895
(5,009)
$ 16,667
$
8,767
12,210
(7,196)
$ 13,781
$
$
3,560
8,577
(3,370)
8,767
The Company also has off-balance sheet credit risk for residential mortgage loans sold to government sponsored entities
due to standard representation and warranties made under contractual agreements. For the year ended December 31, 2010,
we have repurchased 11 loans for approximately $301 thousand. Losses incurred on these loans have been minimal. At
December 31, 2010 we have unresolved deficiency requests from the agencies on 140 loans with an aggregate outstanding
principal balance of $22 million. During 2010, the Company established an allowance of $2.0 million for credit losses
related to loans potentially to be repurchased under representation and warranties which is included in Other liabilities on
the Consolidated Balance Sheet and in mortgage banking costs in the Consolidated Statement of Earnings. No amounts
have been charged against this allowance as of December 31, 2010.
(8) Deposits
Interest expense on deposits is summarized as follows (in thousands):
2010
2008
2009
Transaction deposits
Savings
Time:
Certificates of deposits
under $100,000
Certificates of deposits
$100,000 and over
Other time deposits
Total time
Total
$ 38,886
719
$ 51,607
614
$ 121,403
676
31,210
57,486
70,806
19,235
16,215
66,660
$ 106,265
37,193
17,462
112,141
$ 164,362
78,965
17,074
166,845
$ 288,924
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2010 and 2009 were $2.2
billion and $2.1 billion, respectively.
Time deposit maturities are as follows: 2011 – $1.9 billion, 2012 – $670 million, 2013 – $149 million, 2014 – $71 million,
2015 – $235 million and $519 million thereafter. At December 31, 2010 and 2009, the Company had $210 million and
$169 million, respectively, in fixed rate, brokered certificates of deposits. The weighted-average interest rate paid on these
certificates was 3.82% in 2010 and 3.88% in 2009.
Interest expense on time deposits was reduced by $4.0 million in 2010, $11.5 million in 2009 and $6.9 million in 2008 from
the net accrued settlement of interest rate swaps.
The aggregate amount of overdrawn transaction deposits that have been reclassified as loan balances was $13.5 million at
December 31, 2010 and $13.0 million at December 31, 2009.
99
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
2010
Maximum
Outstanding
At Any
Balance
Rate Month End
December 31,
2009
Maximum
Outstanding
At Any
2008
Maximum
Outstanding
At Any
Balance
Rate Month End
Balance
Rate Month End
Parent Company:
Revolving, unsecured line
Trust preferred debt
Total parent company
Subsidiary Banks:
Funds purchased
Repurchase agreements
Federal Home Loan Bank
advances
Federal Reserve advances
Subordinated debentures
Other
Total subsidiary banks
Total other borrowings
$
–
–% $
7,217 6.42
7,217
–
7,217
$
–
–% $ 50,000 $
7,217 6.42
7,217
12,372
50,000 3.78% $ 50,000
12,372
12,372 6.39
62,372
1,025,018 0.11
1,258,762 0.59
1,465,983
1,258,762
1,315,133 0.14
1,156,610 0.46
2,002,285
1,156,610
1,586,806 0.18
1,438,593 1.33
1,913,686
2,034,341
–
801,797 0.14
–
398,701 5.78
24,564 0.46
3,508,842 0.95
$ 3,516,059 0.98
2,277,977
400,000
398,701
25,326
1,253,051 0.23
850,000 0.25
398,539 5.53
23,089 0.22
4,996,422 0.70
$ 5,003,639 0.72
2,053,130
1,100,000
398,539
31,577
991,401 1.76
450,000 0.24
398,407 5.51
18,281 0.06
4,883,488 1.30
$ 4,945,860 1.32
2,391,618
450,000
398,407
31,855
Aggregate annual principal repayments at December 31, 2010 are as follows (in thousands):
2011
2012
2013
2014
2015
Thereafter
Total
Parent
Company
Subsidiary
Banks
$
$
–
–
–
–
–
7,217
7,217
$ 3,101,394
1,025
525
525
149,441
255,932
$ 3,508,842
Funds purchased are unsecured and generally mature within one to ninety days from the transaction date. Securities
repurchase agreements are recorded as secured borrowings that generally mature within 90 days and are secured by certain
available for sale securities. Accrued interest payable related to repurchase agreements totaled $186 thousand at December
31, 2010 and $194 thousand at December 31, 2009.
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31,
2010 and 2009 is as follows (dollars in thousands):
Security Sold/Maturity
U.S. Agency Securities:
Overnight1
Short-term
Total Agency Securities
Security Sold/Maturity
December 31, 2010
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
$ 1,357,440
132,130
$ 1,489,570
$ 1,399,570
139,344
$ 1,538,914
$ 1,108,769
170,155
$ 1,278,924
0.25%
4.72
0.85%
December 31, 2009
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 $465 million to secure BOK Financial’s obligations to depositors of
100
public funds. The unused credit available to BOK Financial at December 31, 2010 pursuant to the Federal Home Loan
Bank’s collateral policies is $1.5 billion.
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. The Term Auction Facility program was terminated and all outstanding debt
repaid in 2010.
The Company has a $100 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. This credit agreement matures in December, 2012. There were no amounts outstanding
under this credit agreement as of December 31, 2010 or 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.
(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:
Stock-based compensation
Credit loss allowances
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,
2010
2009
$ 77,700
28,600
43,800
14,700
2,400
167,200
$ 6,500
30,000
37,900
18,200
9,300
101,900
8,300
116,900
36,400
12,700
22,300
1,000
27,700
225,300
7,100
115,900
26,000
17,800
17,000
2,300
22,600
208,700
$ 58,100
$106,800
101
The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are
shown below (in thousands):
Year ended December 31,
2009
2010
2008
Current tax expense:
Federal
State
Total current tax expense
$ 132,165
17,618
149,783
$ 112,163
16,759
128,922
$ 108,879
7,377
116,256
Deferred tax (benefit):
Federal
State
Total deferred tax
(benefit)
Total income tax
expense
(24,714)
(1,712)
(19,835)
(2,382)
(47,685)
(3,662)
(26,426)
(22,217)
(51,347)
$ 123,357
$ 106,705
$ 64,909
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
Year ended December 31,
2008
2009
2010
$130,078 $108,752
(4,616)
(5,404)
$73,710
(4,173)
9,740
(539)
(6,317)
(4,133)
–
(2,245)
2,177
1,278
2,643
(1,234)
(3,555)
(2,852)
(2,437)
1,529
$123,357 $106,705 $ 64,909
9,165
(1,204)
(1,327)
(3,424)
–
–
(641)
Due to the favorable resolution of certain tax issues for the tax periods ended December 31, 2004 and December 31, 2006,
BOK Financial reduced its tax accrual by $2.4 million and $2.2 million in 2008 and 2010, respectively, which was credited
against current income tax expense.
Year ended December 31,
2008
2009
2010
Percent of pretax income:
Federal statutory rate
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
Total
35%
(1)
3
–
(2)
(1)
–
(1)
33%
35%
(2)
3
(1)
–
(1)
–
–
34%
35%
(2)
1
1
–
(2)
(1)
(1)
31%
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
2010
2009
$12,300 $ 13,200
4,050
–
(700)
(4,250)
$ 12,300
3,700
–
–
(4,100)
$11,900
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. The
Company recognized $1.3 million for 2010 and $1.4 million for 2009, in interest and penalties. The Company had
approximately $3 million and $2.7 million for the payment of interest and penalties accrued as of December 31, 2010 and
102
2009, 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.
(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,
2010
2009
$ 46,581
–
2,257
1,489
(1,954)
$ 48,373
$ 39,099
–
2,403
7,517
(2,438)
$ 46,581
$ 41,689
4,742
–
(1,954)
$ 44,477
$ 35,301
8,826
–
(2,438)
$ 41,689
$ (3,896)
$(4,892)
$
–
2,257
(2,126)
2,912
$ 3,043
$
–
2,403
(2,190)
2,180
$ 2,393
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
4.75%
5.25%
N/A
5.15%
5.25%
N/A
As of December 31, 2010, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2011
2012
2013
2014
2015
2016 through 2019
$ 5,455
3,351
3,672
3,555
3,604
17,092
$36,729
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 7.01%. As of December 31, 2010, the expected return on plan assets for
2011 is 5.25%. The maximum allowed and minimum required Pension Plan contributions for 2010 were $22.6 million
and $245 thousand, respectively. The minimum contribution was made for 2010 and 2009. No contribution was made for
2008. We expect approximately $3.2 million of net pension costs currently in accumulated other comprehensive income to
be recognized as net periodic pension cost in 2011.
Employee contributions to the Thrift Plan are eligible for Company matching equal to 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
103
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 $1.0 million for 2010, $998 thousand in 2009 and $955 thousand in 2008.
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 $14.3 million for 2010, $13.0 million for 2009 and $12.1 million for 2008.
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, 2010 and 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 $104.0 million in 2010, $91.2 million in 2009 and $83.2 million in 2008 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 include 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 are also granted. 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.
104
The following table presents options outstanding during 2008, 2009 and 2010 under these plans:
Weighted-
Average
Exercise
Price
$43.50
47.71
33.05
47.96
49.91
$45.77
37.24
33.49
44.83
51.76
$44.58
48.30
39.29
46.89
51.35
Number
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
345,945
(486,280)
(97,443)
(148,651)
3,135,334
$45.62
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 awarded
Options exercised
Options forfeited
Options expired
Options outstanding at
December 31, 2010
Options vested at
December 31, 2010
805,781
$45.26
The following table summarizes information concerning currently outstanding and vested stock options:
Options Outstanding
Options Vested
Weighted
Average Weighted
Average
Exercise
Price
Remaining
Contractual
Outstanding Life (years)
Number
Range of
Exercise
Prices
$28.27 – 30.87
36.65
37.74
38.91 – 44.30
45.15 – 47.34
47.05 – 48.53
47.67
48.30
48.46
54.33
96,626
652,241
148,014
32,615
314,626
380,363
43,383
241,294
649,622
576,550
1.34
5.00
2.00
0.12
2.50
3.00
1.00
6.00
4.00
3.50
$30.18
36.65
37.74
39.90
47.31
47.06
47.67
48.30
48.46
54.33
Weighted
Average
Number Exercise
Price
Vested
96,626
$30.18
19,175
36.65
91,564
37.74
32,615
39.90
47.30
154,331
147,221 47.06
–
–
–
–
83,383 48.46
180,866 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:
2010
2009
2008
Average risk-free interest rate1
Dividend yield
Volatility factors
Weighted average expected life
Weighted average fair value
2.36%
2.00%
0.261
4.9 years
$10.17
1.32%
2.50%
0.218
4.9 years
$5.36
3.50%
1.70%
0.147
4.9 years
$7.09
1Average risk-free interest rate represent U.S. Treasury rates matched to the expected life of the options.
Compensation cost of stock options granted that may be recognized as compensation expense in future years totaled $6.7
million at December 31, 2010. Subject to adjustments for forfeitures, we expect to recognize compensation expense for
105
current outstanding options of $3.0 million in 2011, $1.8 million in 2012, $1.0 million in 2013, $530 thousand in 2014,
$230 thousand in 2015 and $100 thousand thereafter.
Stock option expense was $8.3 million for 2010, $5.9 million for 2009 and $7.8 million for 2008. The intrinsic value of
options exercised was $6.1 million for 2010, $3.8 million for 2009 and $11.8 million for 2008. The aggregate intrinsic
value of options outstanding as of December 31, 2010 and 2009 was $24.4 million and $10.4 million, respectively. The
aggregate intrinsic value of options exercisable as of December 31, 2010 and 2009 was $6.6 million and $3.7 million,
respectively.
As of December 31, 2010, the Company had awarded a total of 415,508 non-vested common shares, including 173,857
awarded in 2010. The weighted average grant date fair value of non-vested shares awarded in 2010 was $48.30 per share.
During 2010, 24,535 shares which had an average grant date fair value of $47.05 per share vested and 5,912 shares which
had an average grant date fair value of $40.59 per share were forfeited. Unrecognized compensation cost of non-vested
shares totaled $10.0 million at December 31, 2010. Subject to adjustment for forfeitures, we expect to recognize
compensation expense of $4.2 million in 2011, $2.2 million in 2012, $2.1 million in 2013, $1.4 million in 2014 and $100
thousand in 2015.
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, 2010,
the recorded obligation for liability awards was $2.0 million. Compensation cost of liability awards was an expense of $1.9
million in 2010, $1.3 million in 2009 and a benefit of $471 thousand in 2008.
During January 2011, 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
282,718
119,305
402,023
402,023
$55.94
–
$11.92
55.94
The aggregate compensation cost of these awards totaled approximately $9.8 million. This cost will be recognized over the
vesting periods, subject to adjustments for forfeitures. None of the stock-based compensation awards in January 2011 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, 2010 or 2009. Activity in loans to related parties is summarized as follows (in thousands):
Beginning balance
Advances
Payments
Adjustments1
Ending balance
2010
2009
$ 217,698
510,663
(544,977)
(14,449)
$ 168,935
$ 207,140
676,743
(666,159)
(26)
$ 217,698
1 Adjustments generally consist of changes in status as a related party.
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.
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 totaled $1.1 million for 2010, $1.0 million for 2009 and $1.1 million for 2008.
106
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.
In 2008, the Company sold transferable Oklahoma state income tax credits with face amounts of $5.1 million to Mr. Kaiser
and $100 thousand to Mr. Lybarger. The credits were sold for cash at estimated fair value which was derived from sales of
the same credits to non-related parties and sales of similar credits by unrelated entities. No Oklahoma state income tax
credits were sold to related parties in 2010 or 2009.
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 $2.5 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
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. A settlement in principle, subject to court approval, among the
issuer, the underwriters, and all parties to the litigation has been reached at no material loss to BOSC.
In 2010, Bank of Oklahoma, National Association was named as a defendant in three putative class actions alleging that the
manner in which the bank posted charges to its consumer demand deposit accounts breached an implied obligation of good
faith and fair dealing and violates the Oklahoma Consumer Protection Act. The actions also allege that the manner in
which the bank posted charges to its consumer demand deposit accounts is unconscionable, constitutes conversion and
unjustly enriches the bank. Two of the actions are pending in the District Court of Tulsa County. The third action,
originally brought in the United States District Court for the Western District of Oklahoma, has been transferred to Multi-
District Litigation in the Southern District of Florida. Each of the three actions seeks to establish a class consisting of all
consumer customers of the bank. The amount claimed by the plaintiffs has not been determined, but could be material.
Management has been advised by counsel that, in its opinion, the Company’s overdraft practices meet all requirements of
law and the Bank has substantial defenses to the claims. Based on currently available information, management has
established an accrual within a reasonable range of probable losses and anticipates the claims will be resolved without
material loss to the Company.
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 $3.6 million at December 31, 2010. 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 $3.6
million receivable for its proportionate share of this escrow account.
BOK Financial currently owns 251,837 Visa Class B shares which 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 0.5102 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. No value may be
assigned until the Class B shares are converted into a known number of Class A shares.
At December 31, 2010 Cavanal Hill Funds’ assets included $915 million of U.S. Treasury, $868 million of cash
management, $403 million of tax-free money market funds and $272 million of other 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, 2010. 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 2010, 2009 or 2008.
107
Cottonwood Valley Ventures, Inc. (“CVV, Inc.”), an indirect wholly-owned subsidiary of BOK Financial, is being audited
by the Oklahoma Tax Commission (“OTC”) for tax years 2007 through 2009. CVV, Inc. is a qualified venture capital
company under the applicable Oklahoma statute. As authorized by the statute, CVV, Inc. generates transferable Oklahoma
state income tax credits by providing direct debt financing to private companies which qualify as statutory business
ventures. Due to certain statutory limitations on utilization of such credits, CVV, Inc. must sell the majority of the credits
to provide the economic incentives provided for by the statute. In the event the OTC disallows any such credits, CVV, Inc.
would be required to indemnify purchasers for the tax credits disallowed. Management does not anticipate that this audit
will have a material adverse impact to the consolidated financial statements.
BOk is obligated under a long-term lease for its bank premises owned by Williams Companies, Inc. and located in
downtown Tulsa. The former 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 2010, 2009 and 2008. Total rent expense for BOK Financial was $21.2
million in 2010, $21.4 million in 2009 and $20.3 million in 2008.
At December 31, 2010, future minimum lease payments for equipment and premises under operating leases were as
follows: $17.0 million in 2011, $15.8 million in 2012, $13.5 million in 2013, $12.7 million in 2014, $11.9 million in 2015
and $87.5 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 $950 million and $723 million at December 31, 2010 and 2009, 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, 2010.
At December 31, 2010 and 2009, respectively, the Company’s interest in various unrelated alternative investments totaled
$46 million and $39 million and is included in Other assets in the Consolidated Balance Sheets. Alternative investments
generally consist of unconsolidated 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 and the Company’s maximum
exposure to loss is restricted to its investment balance. At December 31, 2010, the Company has an obligation to fund
alternative investments of $19 million which is included in Other liabilities in the Consolidated Balance Sheets.
BOKF Equity, LLC, an indirect wholly-owned subsidiary, is the general partner of two consolidated private equity funds
(“the Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related
parties, through unaffiliated limited partnerships. The Funds generally invested in distressed assets, asset buy-outs or
venture capital companies. At December 31, 2010, the Funds’ assets, included in Other assets in the Consolidated Balance
Sheets, totaled $25 million and the limited partners’ ownership interests in the Funds, included in Non-controlling interest
in the Consolidated Balance Sheets, totaled $22 million. At December 31, 2009, the Fund’s assets totaled $23 million and
the limited partners’ ownership interests in the Funds totaled $19 million. The Funds have no debt. The general partner
has contingent obligations to make additional investments totaling $14 million as of December 31, 2010, substantially all of
which are offset by limited partner commitments. The Company does not accrue its contingent liability to fund
investments.
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 $20 million at December 31, 2010. Leases
expire or are subject to lessee termination options before expiration of the Bank’s guarantee agreement. 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. Approximately 34 thousand square feet 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.
108
(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 2010, 2009 or 2008.
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 $67 million in 2010, $64 million in 2009 and $59 million in 2008.
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. Based on the most restrictive
limitations as well as management’s internal capital policy, at December 31, 2010, BOKF subsidiaries could declare up to
$82 million of dividends without regulatory approval. The subsidiary banks declared and paid dividends of $280 million in
2010, $172 million in 2009 and $76 million in 2008.
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, 2010,
loan commitments and equity investments were limited to $243 million to a single affiliate and $486 million to all affiliates.
The largest loan commitment and equity investment to a single affiliate was $167 million and the aggregate loan
commitments and equity investments to all affiliates were $253 million. The largest outstanding amount to a single affiliate
was $53 million and the total outstanding amounts to all affiliates were $68 million. At December 31, 2009, total loan
commitments and equity investments to all affiliates were $323 million. Total outstanding amounts to all affiliates were
$83 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 allowances for credit losses, subject to
certain limitations. All of BOK Financial’s banking subsidiaries exceeded the regulatory definition of well capitalized.
109
(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,
2010
2009
Amount
Ratio
Amount
Ratio
$
$
$
2,651,771
1,528,078
479,682
143,225
38,065
97,592
31,298
20,408
2,076,525
1,017,458
430,534
133,487
35,423
88,723
27,977
19,247
2,076,525
1,017,458
430,534
133,487
35,423
88,723
27,977
19,247
$
$
$
16.20%
13.47
12.26
18.45
18.18
13.76
12.05
19.45
12.69%
8.97
11.00
17.20
16.92
12.51
10.77
18.34
8.74%
5.80
8.06
7.19
11.91
6.85
10.16
6.21
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
110
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, 2007
Unrealized losses on securities
Unrealized gains on cash flow hedges
Unrealized losses on employee benefit plans
Tax benefit (expense) on unrealized gains (losses)
Reclassification adjustment for (gains) losses realized
and included in net income
Reclassification adjustment for tax expense (benefit) 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 realized
and included in net income
Reclassification adjustment for tax expense (benefit)on
realized gains (losses)
Balance at December 31, 2009
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 realized
and included in net income
Reclassification adjustment for tax expense (benefit)on
realized gains (losses)
Balance at December 31, 2010
Accumulated Unrealized
Unrealized
Gain (Loss)
On Available Temporary
Other
Than
Loss on
Effective
Impairment Cash Flow
Hedges
Loss
On
Employee
Benefit Plans
Total
For Sale
Securities
$ (22,775)
(236,990)
–
–
70,492
(21,926)
6,551
$ (204,648)
418,477
–
–
Losses
$ – $
–
–
–
–
–
–
$ – $
10,053
(94,741)
–
(146,743)
31,688
(1,461) $
–
139
–
(54)
289
(6,998)
–
–
(16,434)
6,393
$ (31,234)
(236,990)
139
(16,434)
76,831
–
(21,637)
(112)
–
(1,199) $ (17,039)
–
–
926
(360)
–
–
–
–
6,439
$ (222,886)
428,530
(94,741)
926
(115,415)
(11,970)
–
262
–
(11,708)
4,656
$ 59,772
170,193
–
–
–
$ (53,000) $
30,011
(2,151)
–
(58,825)
(10,136)
(102)
–
(1,039) $ (16,473)
–
–
4,412
(1,716)
–
–
–
–
4,554
$ (10,740)
200,204
(2,151)
4,412
(70,677)
(21,882)
–
264
–
(21,618)
8,512
$ 157,770
–
$ (35,276) $
(103)
–
(878) $ (13,777)
8,409
$ 107,839
111
(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):
Year ended December 31,
2009
2008
2010
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
$ 246,754
(1,583)
$ 200,578
(818)
$ 153,232
(384)
245,171
3
199,760
1
152,848
(40)
$ 245,174
$ 199,761
$ 152,808
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
68,062,047
(434,312)
67,627,735
203,999
67,831,734
$ 3.63
$ 3.61
67,653,035
(277,648)
67,375,387
112,557
67,487,944
$ 2.96
$ 2.96
67,428,086
(125,096)
67,302,990
158,371
67,461,361
$ 2.27
$ 2.27
1 Excludes employee stock options with exercise prices greater than current
market price.
1,245,483
2,735,375
1,571,239
(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. 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.
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 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
112
risk taken by each business line, based on its actual exposures and calibrated to its own loss history where possible.
Average invested capital includes economic capital and amounts we have invested in the lines of business.
Substantially all revenue is from domestic customers. No single external customer accounts for more than 10% of total
revenue.
A summary of our reportable segments reconciled to the consolidated financial statements is included in the tables
following. Other operating revenue includes Total fees and commission and Gain (loss) on other assets, net from the
Consolidated Statement of Earnings. Operating expenses include Total other operating expense from the Consolidated
Statement of Earning excluding the Changes in fair value of mortgage servicing right and Gains (loss) on repossessed
assets, net which is included in Net losses and operating expenses of repossessed assets from the Consolidated Statement of
Earnings. Gain (losses) on financial instruments, net includes Gain (loss) on derivative, net; Gain on securities, net and the
Net impairment losses recognized in earnings. Net loans charged off and provision for credit losses represents net loans
charged off as attributed to the lines of business and the provision for credit losses in excess of net charge-offs included
attributed to Funds Management and Other.
(In thousands)
Year ended December 31, 2010
Funds
Commercial
Banking
Consumer
Banking Management
Wealth Management
and Other
Tax-
Equivalent
Adjustment
Total
Net interest revenue (expense)
from external sources
$ 341,770 $
86,594
$ 32,634 $ 238,896 $ 9,158 $
709,052
Net interest revenue (expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Net loans charged off and
provision for credit losses
Change in fair value of
mortgage servicing rights
Gains (losses) on financial
instruments, net
Losses on repossessed assets,
net
Income before taxes
Federal and state income tax
Net income before non-
controlling interest
Net income attributable to non-
controlling interest
Net income attributable to
BOK Financial Corp.
(44,685)
297,085
140,364
213,916
47,360
133,954
203,840
244,118
11,913
44,547
(14,588)
224,308
–
9,158
164,942
177,952
6,087
97,212
70,193
23,057
11,128
–
–
3,661
–
11,756
282
(6,363)
761
–
–
709,052
515,233
733,198
105,139
3,661
5,675
–
–
–
–
–
(19,392)
133,948
52,106
(907)
85,129
33,115
–
20,691
8,049
(3,334)
122,725
30,087
–
9,158
–
(23,633)
371,651
123,357
81,842
52,014
12,642
92,638
9,158
248,294
–
–
–
1,540
–
1,540
$
81,842 $
52,014
$ 12,642 $ 91,098 $
9,158 $
246,754
Average assets
Average invested capital
$ 8,973,559 $ 6,244,728 $ 3,503,370 $ 5,084,142 $
900,233
478,796
170,385
875,229
– $ 23,805,799
2,424,643
–
Performance measurements:
Return on average assets
Return on average invested
capital
Efficiency ratio
0.91%
0.83%
0.36%
9.09
48.90
10.86
72.27
7.42
84.95
1.04%
10.18
59.89
113
–
710,364
484,646
702,892
195,900
12,124
8,344
(5,965)
310,721
106,705
–
–
–
–
–
–
8,074
–
(In thousands)
Year ended December 31, 2009
Funds
Commercial
Banking
Consumer
Banking Management
Wealth Management
and Other
Tax-
Equivalent
Adjustment
Total
Net interest revenue (expense)
from external sources
$ 345,374 $
57,893
$ 25,899 $ 273,124 $
8,074 $
710,364
Net interest revenue (expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Net loans charged off and
(52,299)
293,075
133,359
223,227
73,565
131,458
182,895
256,337
18,746
44,645
(40,012)
233,112
–
8,074
156,360
171,540
12,032
51,788
provision for credit losses
100,749
24,366
11,399
59,386
–
–
(7,500)
94,958
36,939
12,124
(13,198)
1,773
34,349
13,362
–
–
–
18,066
7,028
–
21,542
(238)
155,274
49,376
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 attributable to non-
controlling interest
Net income attributable to
BOK Financial Corp.
58,019
20,987
11,038
105,898
8,074
204,016
–
–
–
3,438
–
3,438
$
58,019 $
20,987
$ 11,038 $ 102,460 $
8,074 $
200,578
Average assets
Average invested capital
$ 10,108,506 $ 6,149,597 $ 3,032,007 $ 3,847,277 $
950,684
493,074
160,276
473,007
– $ 23,137,387
2,077,041
–
Performance measurements:
Return on average assets
Return on average invested
capital
Efficiency ratio
0.57%
0.34%
0.36%
6.10
52.35
4.26
81.54
6.89
85.34
0.87%
9.66
58.82
114
(In thousands)
Year ended December 31, 2008
Funds
Commercial
Banking
Consumer
Banking Management
Wealth Management
and Other
Tax-
Equivalent
Adjustment
Total
Net interest revenue (expense)
from external sources
$ 451,624 $
32,076
$ 12,617 $ 142,317 $
8,228 $
646,862
Net interest revenue (expense)
from internal sources
Total net interest revenue
Other operating revenue
Operating expense
Net loans charged off and
provision for credit losses
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 loss attributable to non-
controlling interest
Net income attributable to
BOK Financial Corp.
(134,009)
317,615
106,923
216,403
118,728
150,804
148,885
219,024
32,853
45,470
(17,572)
124,745
–
8,228
156,133
149,960
(6,153)
42,991
84,650
16,650
361
100,932
–
(34,515)
4,689
12,525
–
(7)
(82)
128,092
49,828
193
42,218
16,423
–
51,275
19,946
–
5,729
378
(19,224)
(21,288)
–
646,862
405,788
628,378
202,593
(34,515)
22,936
489
210,589
64,909
–
–
–
–
–
–
8,228
–
78,264
25,795
31,329
2,064
8,228
145,680
–
–
–
(7,552)
–
(7,552)
$
78,264 $
25,795
$ 31,329 $
9,616 $
8,228 $
153,232
Average assets
Average invested capital
$ 11,044,919 $ 5,764,662 $ 2,193,386 $ 2,606,852 $
922,904
469,737
141,555
412,146
– $ 21,609,819
1,946,342
–
Performance measurements:
Return on average assets
Return on average invested
capital
Efficiency ratio
0.71%
0.45%
1.43%
8.48
50.97
5.49
73.08
22.13
74.38
0.71%
7.87
59.69
115
(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, 2010 (dollars in thousands):
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
–
–
–
0.25 – 18.00%
0.38 – 18.00
0.38 – 18.00
0.38 – 21.00
0.57
1.17
3.65
0.67
0.72 – 4.67%
0.29 – 3.81
0.79 – 4.58
1.98 – 3.91
0.01 – 9.64
0.13 – 6.58
5.19 – 5.82
1.85
0.02
2.30
0.82 – 1.56
0.13 – 2.73
3.72
Estimated
Fair
Value
$ 1,269,404
55,467
188,577
157,528
346,105
72,942
8,446,908
644,210
6,401
33,424
42,207
22,114
43,046
9,311,252
428,021
263,413
5,849,443
2,221,443
1,860,913
605,656
10,537,454
–
10,537,454
115,723
270,445
25,436
13,669,893
2,979,505
2,982,460
413,328
215,420
Cash and cash equivalents
Trading securities
Investment securities:
Municipal and other tax-exempt
Other debt securities
Total investment securities
Available for sale securities:
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Privately issued residential mortgage-backed
securities
Other debt securities
Federal Reserve Bank stock
Federal Home Loan Bank stock
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Mortgage trading securities
Residential mortgage loans held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Allowance 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
$ 1,269,404
55,467
184,898
154,655
339,553
72,942
8,446,908
644,210
6,401
33,424
42,207
22,114
43,046
9,311,252
428,021
263,413
5,933,996
2,277,350
1,828,248
603,442
10,643,036
(292,971)
10,350,065
115,723
270,445
25,436
13,669,893
3,509,168
3,117,358
398,701
215,420
116
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 (dollars in thousands):
Cash and cash equivalents
Trading securities
Investment securities:
Municipal and other tax-exempt
Other debt securities
Total investment securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Privately issued residential mortgage-backed
securities
Other debt securities
Federal Reserve Bank stock
Federal Home Loan Bank stock
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Mortgage trading securities
Residential mortgage loans held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Allowance 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
65,354
232,568
7,837
240,405
7,020
62,201
7,809,328
792,362
17,147
32,526
78,999
22,275
50,165
8,872,023
285,950
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
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
–
–
–
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
Estimated
Fair
Value
$ 921,216
65,354
238,847
7,857
246,704
7,020
62,201
7,809,328
792,362
17,147
32,526
78,999
22,275
50,165
8,872,023
285,950
217,826
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
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 at the given reporting date.
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 portion of the securities portfolio are based on significant unobservable inputs,
117
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 allowances allocated to these loans of $266 million and $274 million at December 31, 2010 and 2009,
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, 2010 and 2009.
118
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.
Transfers between levels are recognized as of the end of the reporting period.
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,
2010 (in thousands):
Assets:
Trading securities
Available for sale securities:
Municipal and other tax-exempt
U.S. agency residential mortgage-backed
securities
Privately issued residential 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 2
Other assets – private equity funds
Quoted Prices in
Active Markets for
Identical
Instruments
Total
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
$ 55,467
$
877
$
54,590
$
–
72,942
8,446,908
644,210
6,401
33,424
42,207
22,114
43,046
9,311,252
428,021
263,413
115,723
270,445
25,436
–
–
–
–
–
–
–
22,344
22,344
–
–
–
–
–
25,849
47,093
8,446,908
644,210
1
33,424
42,207
22,114
20,702
9,235,415
428,021
263,413
–
270,445
–
–
–
6,400
–
–
–
–
53,493
–
–
115,723 1
–
25,436
Liabilities:
Certificates of deposit
Derivative contracts, net of cash margin 2
27,414
215,420
–
–
27,414
215,420
–
–
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.
2 See Note 3 for detail of fair value of derivative contracts by contract type.
119
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 2
Other assets – private equity funds
Liabilities:
Certificates of deposit
Derivative contracts, net of cash margin 2
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
36,598
17,116
53,714
73,824 1
22,917
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
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.
2 See Note 3 for detail of fair value of derivative contracts by contract type. The fair value of derivative assets
and liabilities based on Quoted Prices in Active Markets for Identical Instruments represents derivative
contracts for agricultural products traded on exchanges.
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 interest rate spreads on comparable securities of similar duration and credit rating as
determined by the nationally recognized rating agencies adjusted for a lack of trading volume. Taxable securities rated
investment grade by all nationally recognized rating agencies are generally valued at par to yield 1.76%. As of December
31, 2010, 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 to yield a range of 1.15% to 1.45%,
which represents a spread of 75 to 80 basis points over average yields of comparable securities as of December 31, 2010.
The resulting estimated fair value of tax-exempt securities rated investments grade ranges from 99.08% to 100% of par
value at December 31, 2010.
After other-than-temporary impairment charges, approximately $11 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 was determined based on yields ranging from 4.62% to 8.93%. These yields were determined using a
spread of 425 basis points over average yields for comparable municipal securities of varying durations. The resulting
estimated fair value of securities rated below investment grade ranges from 85.13% to 85.34% of par value as of December
31, 2010. All of these securities are currently paying contractual interest in accordance with their respective terms.
120
The following represents the changes for the year ended December 31, 2010 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
Other debt
securities
Other assets –
private equity
funds
Balance at December 31, 2009
Transfer from trading to available for sale
Purchases, sales, issuances and settlements, net
Gain (loss) recognized in earnings
Brokerage and trading revenue
Gain (loss) on other assets, net
Gain on securities, net
Other-than-temporary impairment losses
Other comprehensive income (loss)
Balance December 31, 2010
$
9,800
(13,090)
3,555
$ 36,598
12,990
(1,468)
$ 17,116
100
(11,081)
(265)
–
–
–
–
–
–
–
7
(1,019)
(15)
$ 47,093
–
–
259
–
6
$ 6,400
$
$ 22,917
–
2,479
–
40
–
–
–
$ 25,436
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):
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
Brokerage and trading revenue
Gain (loss) on other assets, net
Other comprehensive income (loss)
Balance December 31, 2009
Available for Sale Securities
Municipal
and other tax-
exempt
$
–
–
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
Trading
Securities
$
-
44,650
(45,890)
11,850
(810)
–
–
9,800
$
All trading securities with fair values based on significant unobservable inputs were transferred to available for sale based
on sales limitations and banking regulations.
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. There were no transfers from quoted prices
in active markets for identical instruments to significant other observable inputs during 2010.
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, 2010:
Quoted
Prices
in Active
Markets for
Identical
Instruments
$
–
–
–
Significant
Other
Observable
Inputs
$ 77,665
72,113
–
Significant
Unobservable
Inputs
$
–
1,607
3,910
Gross
charge-offs
against
allowance for
loan loss
$ 51,058
Gross
charge-offs
against
allowance
for recourse
loans
265
$
Net losses
and
expenses of
repossessed
assets, net
–
$
Other
expense
–
$
–
–
–
–
25,020
–
–
1,750
Impaired loans
Real estate and other
repossessed assets
Other assets – alternative
investments
121
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:
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 Adjustment for the Year Ended
December 31, 2009 Recognized In:
Gross
charge-offs
against
allowance for
loan loss
$ 73,985
–
Net losses
and
expenses of
repossessed
assets, net
–
8,611
$
Mortgage
banking
costs
$
–
–
Impaired loans
Real estate and other repossessed assets
The fair value of collateral-dependent impaired loans and real estate and other repossessed assets and the related fair value
adjustments are generally based on unadjusted third-party appraisals. Our appraisal review policies require appraised
values to be supported by observable inputs derived principally from or corroborated by observable market data.
Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that
are not based on third-party appraisals are considered to be based on significant unobservable inputs.
The fair value of pension plan assets was approximately $44 million and $42 million at December 31, 2010 and 2009,
respectively, 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 over five years 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 11% average expected long-term growth rate, a 0.75% volatility factor for
BOK Financial common stock, an 11.73% discount rate, and an 12.26% market risk premium. In general, the growth rate
for all reporting units for 2011 is based primarily upon continued expected improvements in credit quality, with steady
growth in future years based on the expectation of improving overall economic growth.
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, 2010, the fair value and contractual principal
amounts of these certificates was $27 million and $27 million, respectively. At December 31, 2009, the fair value and
contractual principal amount of these certificates was $98 million and $97 million, respectively. Changes in the fair value
of these certificates of deposit are included in Gain (Loss) on Derivatives, net in the Consolidated Statement of Earnings.
Changes in the fair value of certificates of deposits increased pre-tax net income by $1.2 million in 2010 and $7.9 million in
2009 and decreased pre-tax net income by $10.2 million in 2008.
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.
122
(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 liabilities
Total liabilities
Common stock
Capital surplus
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
Statements of Earnings
(In thousands)
December 31,
2010
2009
$ 207,453
59,115
2,255,222
25,846
$ 2,547,636
$
19,088
49,669
2,138,253
47,240
$ 2,254,250
$
25,910
25,910
4
782,805
1,743,880
(112,802)
107,839
2,521,726
$ 2,547,636
$
48,437
48,437
4
758,723
1,563,683
(105,857)
(10,740)
2,205,813
$ 2,254,250
Dividends, interest and fees received from subsidiaries
Other operating revenue
Total revenue
$ 280,125
1,883
282,008
$ 172,023
674
172,697
$ 76,587
359
76,946
2010
2009
2008
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
507
795
1,632
2,934
581
–
–
581
2,131
842
290
3,263
279,074
415
172,116
738
73,683
(1,505)
278,659
(31,905)
$ 246,754
171,378
29,200
$ 200,578
75,188
78,044
$ 153,232
123
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
2010
2009
2008
$ 246,754
$ 200,578
$ 153,232
31,905
(425)
20,713
(20,216)
278,731
(70,959)
276
(45,617)
47,333
131,611
(78,044)
(895)
(3,930)
(402)
69,961
(10,669)
(21,692)
(32,361)
(2,903)
(26,500)
(29,403)
–
(16,244)
(16,244)
–
–
8,552
(66,557)
–
(58,005)
188,365
19,088
$ 207,453
–
(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
Cash paid for interest
$
507
$
589
$
2,282
(20) Subsequent Events
The Company evaluated events from the date of the consolidated financial statements on December 31, 2010
through the issuance of those consolidated financial statements included in this Annual Report on Form 10-K on
February 25, 2011. No additional events were identified requiring recognition in and/or disclosure in the
consolidated financial statements.
124
125
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 allowance for loan losses
Loans, net of allowance
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
$ 9,691,698
276,247
9,967,945
68,286
23,743
214,347
10,917,966
309,279
10,608,687
20,883,008
2,922,791
$ 23,805,799
$ 8,573,117
184,099
3,712,140
12,469,356
2,315,823
1,537,025
398,619
16,720,823
3,789,375
870,958
2,424,643
$ 23,805,799
Yield/
Rate
3.30%
5.00
3.35
4.07
0.11
4.32
4.82
–
4.96
4.19
0.45%
0.39
2.40
0.85
0.36
0.33
5.63
0.85
3.34%
3.50
2010
Revenue/
Expense1
$ 308,215
13,819
322,034
2,782
27
9,261
526,136
–
526,136
860,240
$ 38,886
719
66,660
106,265
8,259
5,075
22,431
142,030
$ 718,210
9,158
709,052
105,139
520,908
753,170
371,651
123,357
248,294
1,540
$ 246,754
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.
126
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
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
Yield/
Rate
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
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
Yield/
Rate
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
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
127
Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances,
Average Yields and Rates
December 31, 2010
September 30, 2010
Three Months Ended
Average
Balance
Revenue/ Yield/
Expense1
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
3.28%
4.87
3.32
3.26
0.08
4.24
4.87
–
5.01
4.19
0.45
0.39
1.80
0.85
0.36
0.36
5.64
0.86
3.33%
3.50
Assets
Taxable securities3
Tax-exempt securities3
Total securities3
Trading securities
Funds sold and resell agreements
Residential mortgage loans held for sale
Loans2
Less allowance for loan losses
Loans, net of allowance
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
$ 10,220,359 $ 64,671
3,224
67,895
759
7
2,745
128,005
–
128,005
199,411
258,368
10,478,727
74,084
21,128
282,734
10,667,193
307,223
10,359,970
21,216,643
3,066,308
$24,282,951
2.67% $ 9,953,104 $ 79,472
3,145
256,110
4.95
82,617
10,209,214
2.73
570
69,315
4.06
4
18,882
0.13
2,592
242,559
3.85
133,336
10,861,515
4.76
308,139
–
–
133,336
10,553,376
4.90
219,119
21,093,346
3.84
3,098,944
$24,192,290
$ 9,325,573
191,235
3,602,150
13,118,958
1,977,380
829,756
398,680
16,324,774
4,171,595
1,251,025
2,535,557
$24,282,951
8,772
171
16,147
25,090
1,975
767
5,666
33,498
0.37
0.35
1.78
0.76
0.40
0.37
5.64
0.81
9,935
185
17,146
27,266
2,008
1,314
5,664
36,252
$ 8,699,495
189,512
3,774,136
12,663,143
2,227,088
1,465,516
398,638
16,754,385
3,831,486
1,124,000
2,482,419
$24,192,290
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
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
$ 165,913
3.03%
3.19
2,263
163,650
6,999
111,913
178,361
90,203
31,097
59,106
274
$ 58,832
$ 0.86
$ 0.86
$ 182,867
2,152
180,715
20,000
137,673
205,165
93,223
29,935
63,288
(979)
$ 64,267
$ 0.94
$ 0.94
1 Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for
comparative purposes.
2 The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income.
3 Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
128
June 30, 2010
Three Months Ended
March 31, 2010
December 31, 2009
Average
Balance
Revenue/ Yield/
Expense1
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
3.73%
5.28
3.78
4.53
0.10
5.16
4.81
–
4.95
4.41
0.52
0.42
1.86
0.94
0.32
0.29
5.66
0.87
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
$ 8,875,417 $ 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
3.54%
3.68
$186,674
3.48%
3.64
2,196
184,478
48,620
108,163
176,437
67,584
24,780
42,804
33
$ 42,771
$0.63
$0.63
$ 9,366,703 $ 81,460
3,614
85,074
661
8
2,177
132,004
–
132,004
219,924
296,282
9,662,985
58,722
22,776
183,489
10,971,466
312,595
10,658,871
20,586,843
2,857,964
$23,444,807
3.56%
4.89
3.60
4.51
0.14
4.76
4.83
–
4.97
4.33
10,044
185
16,063
26,292
2,254
1,403
5,535
35,484
0.49
0.40
1.74
0.87
0.36
0.35
5.57
0.85
$ 8,287,296
184,376
3,701,167
12,172,839
2,491,084
1,619,745
398,598
16,682,266
3,660,910
722,902
2,378,729
$23,444,807
$ 9,212,677 $ 82,612
3,836
86,448
792
8
1,747
132,791
–
132,791
221,786
294,849
9,507,526
70,979
32,363
137,404
11,187,320
309,194
10,878,126
20,626,398
3,086,349
$23,712,747
$ 7,963,752 $ 10,135
178
17,304
27,617
2,022
1,591
5,566
36,796
170,990
3,772,295
11,907,037
2,575,286
2,249,470
398,559
17,130,352
3,485,504
798,263
2,298,628
$23,712,747
3.48%
3.63
$ 184,440
2,327
182,113
36,040
157,439
205,912
97,600
32,042
65,558
2,036
$ 63,522
$ 0.93
$ 0.93
$ 184,990
2,416
182,574
42,100
113,883
163,732
90,625
30,283
60,342
209
$ 60,133
$ 0.88
$ 0.88
129
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.
130
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 2011 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 2010 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 2011 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 2011 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 2011 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 2011 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, 2010, 2009 and 2008
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
Annual Financial Summary – Unaudited
Quarterly Financial Summary - Unaudited
Reports of Independent Registered Public Accounting Firm
131
(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)
10.4.2
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.
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.
132
10.4.2 (a)
10.4.2 (b)
10.4.4
10.4.5
10.4.5 (a)
10.4.5 (b)
10.4.7
10.4.7 (a)
10.4.8
10.6
10.7.7
10.7.8
10.7.9
10.7.10
10.7.11
10.7.12
10.7.13
10.8
10.9
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 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.
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 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.
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.
133
10.34
10.35
21.0
23.0
31.1
31.2
32
99.0
99 (c)
101
Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation
Number Twelve, Worth Bancorporation, Inc., and Worth National Bank dated March 9,
2007, incorporated by reference to Exhibit 99.2 of the Form 8-K filed on March 12, 2007.
Stock Purchase Agreement among BOK Financial Corporation, BOKF Stock Corporation
Number Thirteen, United Banks of Colorado, Inc., First United Bank, NA and Baltz Family
Partners, Ltd. dated May 23, 2007, incorporated by reference to Exhibit 99.2 of the Form 8-
K filed on May 24, 2007.
Subsidiaries of BOK Financial, filed herewith.
Consent of independent registered public accounting firm - Ernst & Young LLP, filed
herewith.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, filed herewith.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, filed herewith.
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
Additional Exhibits.
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.
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance
Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of
Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to the
Consolidated Financial Statements, tagged as blocks of text*
* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Section
11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
(b)
Exhibits
See Item 15 (a) (3) above.
(c)
Financial Statement Schedules
See Item 15 (a) (2) above.
134
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 25, 2011
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 25, 2011, by the
following persons on behalf of the registrant and in the capacities indicated.
OFFICERS
/s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
/s/ Stanley A. Lybarger
Stanley A. Lybarger
Director, President and Chief Executive Officer
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President and
Chief Financial 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
/s/ Joseph W. Craft, III
Joseph W. Craft, III
William E. Durrett
/s/ John C. Morrow
John C. Morrow
Senior Vice President and
Chief Accounting Officer
DIRECTORS
/s/ John W. Gibson
John W. Gibson
/s/ David F. Griffin
David F. Griffin
/s/ V. Burns Hargis
V. Burns Hargis
/s/ E. Carey Joullian, IV
E. Carey Joullian, IV
Robert J. LaFortune
/s/ Steven J. Malcolm
Steven J. Malcolm
/s/ E.C. Richards
E.C. Richards
135
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 25, 2011
/s/ Stanley A. Lybarger
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation
136
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 25, 2011
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
137
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, 2010 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 25, 2011
/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
138
139
Copies of BOK Financial Corporation’s Annual Report
to Shareholders, Quarterly Reports and Form 10-K as
filed with 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
available at: www.bokf.com
Registered shareholders 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
NASDAQ Global Select Market Symbol: BOKF
Number of Common Shareholders: 901 as of
January 31, 2011
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
140
Bank of Oklahoma
Bank of Oklahoma celebrated its centennial in 2010. With 85 banking centers, primarily in Tulsa and Oklahoma City, the bank
dominates deposit market share in the state. Average assets in Oklahoma grew to $9.8 billion in 2010.
Bank of Texas
Since entering the Texas market in 1997, average assets have grown to $4.5 billion. Our 48 banking centers are located in
Dallas, Fort Worth and Houston. In 2010, Bank of Texas was included among the Best Places to Work by the Dallas Business
Journal and Houston Business Journal.
Bank of Albuquerque
Established in 1998 through the acquisition of a consumer branch network, Bank of Albuquerque is ranked fourth in deposit
market share in the Albuquerque metropolitan area. We have 22 full service banking centers in Albuquerque and average
assets of $1.3 billion.
Colorado State Bank and Trust
We entered Colorado through an acquisition in 2003. Average assets of $1.2 billion and trust assets of $3.2 billion are
centered in 13 full service banking centers, primarily located in the Denver metropolitan area.
Bank of Arizona
After expanding to Phoenix in 2004 through a loan production office, we acquired a niche bank in 2005. We have four full
service banking centers located in Phoenix and Scottsdale with average assets of $610 million.
Bank of Arkansas
Deposits attributed to the Arkansas market increased 26% over 2009. Bank of Arkansas has two full service locations.
Our largest institutional investments sales office is located in Little Rock.
Bank of Kansas City
After launching a successful loan production office, we opened a de novo branch in 2006. We now have three full service
banking centers and average assets of $309 million. The broker/dealer’s second largest producing institutional sales office,
which generated $14 million in revenue in 2010, is in Kansas City.
Effective January 1, 2011, BOK Financial Corporation combined each of its subsidiary banks into BOKF, NA. Divisions of BOKF, NA continue to operate in each market under
established bank trade names.
www.bokf.com