2011 Annual Report
TO BOK FINANCIAL’S
Shareholders, Clients, Directors and Employees,
BOK Financial continued to deliver outstanding results
in 2011, despite environmental factors pressuring revenue
and increasing expenses. The economy remained weak,
interest rates reached new lows and regulatory
reforms were debated and enacted during the year.
However, we increased earnings and enhanced
our foundation for continued growth. We attribute
these accomplishments to aggressive planning by our
leadership and diligent execution by our employees.
We are pleased to highlight several of BOK Financial’s
achievements and our strategy for the year ahead.
The company again produced record net income
and consistent with pre-recession levels. In response
in 2011, totaling $286 million or $4.17 per diluted share,
to overall improvement in credit factors, we reduced
an increase of 16% over 2010 and 31% over the 2007
the provision for credit losses by $111 million.
pre-recession peak. Unlike BOK Financial, many of our
The combined allowance for credit losses was
peers suffered losses during the downturn and some
2.33% of loans at year end.
are still struggling. In fact, seven peers’ 2011 earnings
fell short of their 2007 level. BOK Financial’s return
BOK Financial’s diverse
fee-based
revenues
on average assets was 1.17%, the third highest in
continued to play a major role in the company’s success.
our peer group and well above the median of 0.78%.
Fees and commissions represented 43% of total revenue,
The peer group consists of 20 U.S. based publicly traded
far exceeding the peer median contribution of 32%.
bank holding companies, 10 immediately larger and
The depth of our fee-based lines of business enabled us
10 immediately smaller as measured by total assets.
to overcome the $17 million decline in revenue resulting
Credit quality improvement was an important aspect
fees. In contrast, 70% of our peers experienced a decline
of the year’s results. Our approach to problem loans
in noninterest revenue. Ongoing investments in our lines
maximizes total return and typically results in slightly
of business drive continued revenue growth.
from regulatory changes to overdraft and interchange
higher nonperforming assets, but lower credit losses
than peers. We reduced nonperforming assets
Capital deployment is an important area of focus as we
10% and our net charge-off ratio of 35 basis points
seek opportunities to create shareholder value and build
was well below the peer group median of 100 basis points
our company. Quarterly dividends were increased twice
NET INCOME AND EPS
$350
$300
$250
$200
$150
$100
$50
$0
s
n
o
i
l
l
i
M
n
I
‘92
‘93
‘94
‘95
‘96
‘97
‘98
‘99
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
‘09
‘10
‘11
Source: SNL Financial
EPS have been restated for stock dividends and for a 2-for-1 split
Net Income
EPS
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$.50
$.00
during the course of the year, a total of 32% to $0.33
DIVERSE LOAN PORTFOLIO
per share. Since initiating the cash dividend in 2005,
the board has continued to authorize annual increases.
Residential RE 18%
Energy 18%
During the past six years, more than half of our peers reduced
their dividends and only two share our track record of annual
increases. The dividend payout ratio is approximately
31%, a level which leaves considerable flexibility to fund
planned growth. We also opportunistically repurchased
562,025 shares during the year. Our capital levels
remain among the strongest in the industry. At year end,
our tangible common equity ratio of 9.56% remained in
the top quartile of our peer group.
Construction
Land Dev 3%
Retail CRE 5%
Office CRE 4%
Multifamily 3%
Other CRE 5%
Consumer 4%
Healthcare 9%
Wholesale/
Retail 8%
Other C&I 8%
Services 15%
we ended the year with net growth. Concentration
DRIVING LOAN AND DEPOSIT GROWTH
risk management is an important aspect of our core
Perhaps most significant, we achieved loan growth for
strategies. We have always maintained the CRE portfolio
the first time since 2008. While loan demand improved
at less than 25% of total loans. Today we have ample
slightly, much of our growth was due to market share
capacity to add quality credits. Although we are seeing
gains. We benefited from a focused well-trained
clear signs that some financial institutions have begun
workforce, and added bankers as others reduced force
to relax credit terms to grow loans, we will maintain
in response to weak economic conditions. We increased
consistent underwriting standards.
calling efforts, leveraged disruption from industry
consolidation and reached beyond our footprint in target
Our bankers’ business development efforts were also
sectors. These efforts increased loans $627 million which
evident through the $1.3 billion or 7% growth in average
partially offset the pressure of lower interest rates on
deposits representing market share gains across our
net interest revenue. The Texas market, which holds
footprint. Over the last five years, deposits have grown
tremendous opportunity for future growth, was the
at an 8.7% compound annual growth rate which exceeds
fastest growing, with an increase in total loans of $418
the peer median of 7.4% even without adjusting for
million or 14%.
acquisitions. We continue to emphasize deposit growth
and building a stronger funding base in anticipation
Commercial and industrial loans increased in each of
of increased loan demand as the economy recovers.
the past four quarters, supported by strong activity in
The deposit mix continued to trend favorably in 2011,
the energy, services and healthcare sectors. Robust oil
as noninterest demand deposits increased from 25%
prices drove demand in the energy portfolio which grew
to 31% of total deposits. The mix shift contributed to
more than $300 million or 18%. The healthcare portfolio,
the 25% decline in our cost of deposits.
an area of emphasis in recent years, grew at a 10% five
year compound annual growth rate.
INVESTING IN TALENT AND TECHNOLOGY
In addition to financial achievements, we strengthened
BOK Financial achieved notable progress in commercial
our company and enhanced our foundation for future
real estate (CRE) lending. By mid-year, the CRE portfolio
growth. While many financial institutions sought expense
declined $94 million. While significant payoffs continued,
reductions to offset revenue challenges, we invested
in talent, systems and product development. Our long
more than $3 million annually through the consolidation
term view, a key element in our core strategy, keeps
of five processing centers into two and the reduction
management focused on building shareholder value.
of courier costs. In September, we introduced a state-
of-the-art foreign exchange web portal. Finally, mobile
We believe relationships drive financial results,
banking enhancements have been very well received,
so we continuously seek exceptional individuals
with more than 85,000 clients using our mobile applications.
who are passionate about serving clients. Throughout the
Over the next 18 months, we will further enhance mobile
downturn we selectively added team members throughout
offerings for both commercial and consumer clients.
the organization. While many of our new recruits are just
gaining traction, some are producing strong results. For
We would be pleased with these achievements any year,
example, our Milwaukee expansion in late 2010 has
but considering the difficult operating environment in
exceeded expectations and is already becoming one of
2011, we are particularly proud. Despite a weak economy,
our largest institutional offices as measured by revenue.
our bankers achieved solid loan growth. Despite revenue
pressure from financial reform, we invested in our lines
Within the Mortgage division, we added approximately
of business and grew noninterest revenue. In addition,
40 loan originators, increased depth in the management
BOK Financial’s stock continued to outperform despite
team and opened loan production offices in Texas,
increased volatility in the market. BOK Financial’s three
Kansas and Missouri. Our expansion efforts over the last
year total return was 45%, which is in line with the
few years increased loan originations in offices outside
S&P 500’s 49% and far exceeds the SNL Mid Cap U.S.
Oklahoma to 58% of the total compared to 44% in 2008.
Bank’s total return of -13%.
As the mortgage industry consolidates and barriers to
entry increase, we see continued opportunity. We remain
PLANNING FOR CONTINUED SUCCESS
confident in our ability to navigate industry changes and
Most economists are predicting marginal improvement
increased regulatory scrutiny by closely managing loan
in the national economy, though many challenges will
quality and maintaining tight process controls.
persist, including global concerns. We expect continued
pressure from low interest rates, increased competition
Within the Wealth Management division, we added
and continued regulatory reform.
approximately 40 professionals throughout Corporate
Trust, the Private Bank and BOSC, the broker-dealer.
We have set the course for the next three years
We also opened a Corporate Trust office in Lincoln,
with two main objectives in mind, growing the
Nebraska and a Trust/Private Bank office in Austin, Texas.
business and further strengthening the organization.
These recent investments contributed to impressive
In general, we will stay the course, maintaining our
growth of more than $1 billion in new trust assets during
risk profile and executing our growth strategies.
the fourth quarter.
Our areas of focus include continuing to grow our
To support our mission of delivering superior client
lines of business. To achieve this, we will continue
service, we completed several technology and product
to take advantage of market disruption, add talent,
development initiatives. The new teller system and front
and pursue growth outside our footprint in select
counter capture not only improve client service but save
lines of business.
quality loan portfolio and expand our fee-based
To build shareholder value, we must balance our growth
many banks have restored earnings to pre-recession
initiatives with prudent expense management. We will
levels. We will continue to consider dividend increases
monitor progress to ensure profitability goals are met.
and share repurchases, as appropriate.
We will continue to leverage our process engineering
and expert sourcing teams to improve efficiency.
BOK Financial remains positioned for continued
While branch optimization will continue to produce some
success due to our proven strategies, diverse revenues,
consolidation and relocation, we are committed to each
and strong balance sheet. Many of our markets are
of our markets. In fact, in January, we celebrated the
among the most attractive in the nation, and we are
grand opening of our 19th InStore banking center in the
confident in our ability to continue to win business,
greater Tulsa area.
deliver exceptional client service, and increase earnings
We are actively seeking ways to deploy capital in order
to build shareholder value. Organic growth remains
As always, we appreciate our shareholders, board
our top priority. Since 1991, we have grown assets
members, employees, clients and communities. We look
from $2 billion to $25 billion with only $4.5 billion in
forward to our continued partnership
and shareholder value.
acquisitions. We are positioned for continued growth,
but acknowledge demand may remain subdued until
economic conditions improve further. We continue
to seek acquisition opportunities, though merger and
acquisition activity may not accelerate significantly until
George B. Kaiser
Chairman
Stanley A. Lybarger
President & CEO
HIGHLIGHTS OF 2011:
• Record earnings of $286 million or $4.17 per diluted share, up 16% over previous high in 2010
• Due to significant improvement in credit quality, provision for loan losses was reduced by $111 million
• Noninterest revenue increased $12 million, despite a substantial negative impact on overdraft and
interchange fees from regulatory changes
• Loans increased $627 million driven by growth in the energy, services and healthcare sectors
• Demand deposits increased $1.6 billion or 37% driven by growth in commercial accounts
• Continued to aggressively invest in talent throughout the organization
• Further invested in product innovation and technology to reduce expenses and enhance client service
• Quarterly dividends increased from $0.25 to $0.33
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
William E. Durrett
Senior Chairman
American Fidelity Corp.
John W. Gibson
Chairman & CEO
ONEOK, Inc.
David F. Griffin
Chairman & CEO
Griffin Communications, L.L.C.
V. Burns Hargis
President
Oklahoma State University
E. Carey Joullian, IV
Chairman, President & CEO
Mustang Fuel Corporation
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
Michael C. Turpen
Partner
Riggs, Abney, Neal, Turpen, Orbison
& Lewis
Joseph W. Craft, III
President & CEO
Alliance Resource Partners, L.P.
George B. Kaiser
Chairman
BOK Financial Corporation and BOKF, NA
As filed with the Securities and Exchange Commission on February 28, 2012
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, 2011
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 $1.4 billion (based on the
June 30, 2011 closing price of Common Stock of $54.77 per share). As of January 31, 2012, there were 69,701,342 shares of Common Stock
outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2012 Annual Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
Item
1
1A
1B
2
3
4
5
6
7
7A
8
9
9A
9B
10
11
12
13
14
15
BOK FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
Part I:
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part II:
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
Controls and Procedures
Other Information
Part III:
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director
Independence
Principal Accountant Fees and Services
Part IV:
Exhibits, Financial Statement Schedules
Signatures
Chief Executive Officer Section 302 Certification, Exhibit 31.1
Chief Financial Officer Section 302 Certification, Exhibit 31.2
Section 906 Certifications, Exhibit 32
Page
1
6
9
9
9
9
10
11
12
66
68
138
138
138
139
139
139
139
139
139
143
144
145
146
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.
BOKF, NA (“the Bank”) is the wholly owned subsidiary bank of BOK Financial. Operating divisions of the Bank include Bank of
Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Oklahoma, Colorado State Bank and Trust, Bank of Arizona, and Bank of
Kansas City. 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. We also offer derivative products for customers to use in managing their interest rate and
foreign exchange risk. 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 43% of our revenue came from fees and
commission in 2011.
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, 2011.
We are the largest financial institution in the state of Oklahoma with 13% of the state’s total deposits. The Tulsa and Oklahoma City areas
have 29% and 11% 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 three market share
position with 10% of deposits in the Albuquerque area and competes with five 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 Arkansas serves Benton and Washington counties in Arkansas with a market share of approximately 3%. Bank of Arizona operates
as a community bank with locations in Phoenix, Mesa and Scottsdale 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, 2011, BOK Financial and its subsidiaries employed 4,511 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 Deposit Insurance Fund and the banking system as a whole and not necessarily to protect shareholders and creditors.
As detailed below, these regulations limit fees charged for certain services and may restrict the Company’s ability to diversify, to acquire
other institutions and to pay dividends on its capital stock. They also require the Company and its subsidiaries to maintain certain capital
balances and may require the Company to provide financial support to its subsidiaries.
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 Bank is organized as a national banking association under the National Banking Act, and is subject to regulation, supervision and
examination by the Office of the Comptroller of the Currency (the “OCC”), the Federal Deposit Insurance Corporation (the “FDIC”), the
Federal Reserve Board and other federal and state regulatory agencies. The OCC has primary supervisory responsibility for national banks
and must approve certain corporate or structural changes, including changes in capitalization, payment of dividends, change of place of
business, and establishment of a branch or operating subsidiary. The OCC performs its functions through national bank examiners who
provide the OCC with information concerning the soundness of a national bank, the quality of management and directors, and compliance
with applicable regulations. The National Banking Act authorizes the OCC to examine every national bank as often as necessary.
A financial holding company, and the companies under its control, are permitted to engage in activities considered “financial in nature” as
defined by the BHCA, 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
2
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 Bank 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 (“SEC”), 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.
Dodd-Frank Act
On July 21, 2010, the Dodd-Frank Act was signed into law, giving federal banking agencies authority to increase regulatory capital
requirements, impose additional rules and regulations over consumer financial products and services and limit the amount of interchange
fees that may be charged in an electronic debit transaction. In addition, the Dodd-Frank Act made permanent the $250,000 limit for federal
deposit insurance and provided 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. Further, the Dodd-Frank Act prohibits banking entities from engaging in proprietary trading and restricts banking entities
sponsorship of or investment in private equity funds and hedge funds. Many of the regulations required to implement the Dodd-Frank Act
have yet to be adopted and the full impact of this legislation on fee income and operating expense remains unknown. However, the
potential reduction in revenue and increase in costs could be significant.
The Durbin Amendment to the Dodd-Frank Act required that interchange fees on electronic debit transactions paid by merchants must be
“reasonable and proportional to the cost incurred by the issuer” and prohibited card network rules that have limited price competition
among networks. The Federal Reserve is responsible for implementing the Durbin Amendment. The Federal Reserve issued its final ruling
which established a cap on interchange fees banks with more than $10 billion in total assets can charge merchants for certain debit card
transactions. The final ruling on interchange fees was effective October 1, 2011. The Company expects the Durbin Amendment
interchange fee cap to reduce annual non-interest revenue by $20 million to $25 million. The Durbin Amendment also requires all banks to
comply with the prohibition on network exclusivity and routing requirements. Debit card issuers are required to make at least two
unaffiliated networks available to merchants. The final network exclusivity and routing requirements, which will become effective April 1,
2012, are not expected to have a significant impact on the Company.
We continue to monitor the on-going development of rules to implement the Volcker Rule in Title VI of the Dodd-Frank Act which
prohibits banking entities from engaging in proprietary trading as defined by the Dodd-Frank Act and restrict sponsorship of, or investment
in, private equity funds and hedge funds, subject to limited exceptions. On October 11, 2011, regulators of financial institutions released a
proposal for implementation of the Volcker Rule scheduled to take effect by July 21, 2012, subject in some cases to phase-in over time
thereafter. Based on the proposed rules, we expect the Company’s trading activity to be largely unaffected, as our trading activities would
largely be exempted under the proposed rules. Based on the proposed rules, the Company’s private equity investment activity may be
curtailed but, if this occurs, it is not expected to result in a material impact to the Company’s financial statements. Final regulations will
likely impose additional operating and compliance costs as presently proposed.
Title VII of Dodd-Frank Act subjects nearly all derivative transactions to Commodity Futures Trading Commission (“CFTC”) or SEC
regulation. The purpose of Title VII was to reduce systemic risk, increase transparency and promote market integrity within the broader
financial system. Title VII, among other things, imposes registration, recordkeeping, reporting, capital and margin, as well as business
conduct requirements on swap dealers and major swap participants. Although many provisions of Title VII were scheduled to go into effect
during 2011, the CFTC and SEC delayed the effectiveness of a large portion of the proposed regulations under Title VII until, in most
instances, 60 days after final rules implementing Title VII are adopted. Rules on basic issues such as the definitions of “swap,” “swap
dealer” and “major swap participant” are not yet final. Accordingly, the Company cannot predict when Title VII will substantially go into
effect. The Bank currently provides interest rate, foreign exchange and commodity swaps to its customers. The Company currently
anticipates that one or more of its subsidiaries may be required to register as a “swap dealer” with the CFTC. As currently proposed, the
Company does not anticipate any material changes in its customer derivative activities, though its derivatives transactions with customers
involving commodities may be negatively affected. The Company does anticipate that, when Title VII becomes effective, it will incur
higher operational and compliance costs associated with its derivative trading activities.
In addition, some of the Company’s subsidiaries conduct underwriting and broker-dealer activities which are subject to regulation by the
SEC, FINRA regulations, as well as other regulatory agencies. Such regulations generally include licensing of certain personnel, customer
interactions, and trading operations. The ultimate impact of the Dodd-Frank Act on these activities remains uncertain.
3
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 currently 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, 2011,
BOK Financial’s Tier 1 and total capital ratios under these guidelines were 13.27% and 16.49%, 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, 2011 was 9.15%.
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, the
Bank was considered well capitalized as of December 31, 2011.
The federal regulatory authorities’ current risk-based capital guidelines are based upon the 1988 capital accord of the Basel Committee on
Banking Supervision (the “BCBS”). The BCBS 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 BCBS, 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. These capital changes could make regulatory capital levels more volatile and sensitive to changes in market interest rates.
These changes could also increase the regulatory capital requirements for certain non-government agency securitization assets. Proposed
changes also include required minimum liquidity coverage and net stable funding ratios. U.S. bank regulatory agencies have not yet issued
proposals on capital measures for portfolio positions. As such, 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 Bank 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. In 2011, 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. This final rule reduced our deposit
insurance assessment beginning in the second half of 2011.
4
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. The Bank prepaid $78 million of deposit insurance assessments. As of
December 31, 2011, $43 million of prepaid deposit insurance assessments are included in Other assets on the Consolidated Balance Sheet
of the Company.
Dividends
A key source of liquidity for BOK Financial is dividends from the Bank, which is limited by various banking regulations to net profits, as
defined, for the year plus retained profits for the preceding two years and further restricted by minimum capital requirements. Based on the
most restrictive limitations as well as management’s internal capital policy, the Bank had excess regulatory capital and could declare up to
$15 million of dividends without regulatory approval as of December 31, 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 Bank may be assessed for the FDIC’s loss, subject to certain exceptions.
Transactions with Affiliates
The Federal Reserve Board regulates transactions between the Company and its subsidiaries. Generally, the Federal Reserve Act and
Regulation W, as amended by the Dodd-Frank Act, limit the Company’s banking subsidiary and its subsidiaries, to lending and other
“covered transactions” with affiliates. The aggregate amount of covered transactions a banking subsidiary or its subsidiaries may enter into
with an affiliate may not exceed 10 percent of the capital stock and surplus of the banking subsidiary. The aggregate amount of covered
transactions with all affiliates may not exceed 20 percent of the capital stock and surplus of the banking subsidiary.
Covered transactions with affiliates are also subject to collateralization requirements and must be conducted on arm’s length terms.
Covered transactions include (a) a loan or extension of credit by the banking subsidiary, (b) a purchase of securities issued to a banking
subsidiary, (c) a purchase of assets by the banking subsidiary unless otherwise exempted by the Federal Reserve, (d) acceptance of
securities issued by an affiliate to the banking subsidiary as collateral for a loan, and (e) the issuance of a guarantee, acceptance or letter of
credit by the banking subsidiary on behalf of an affiliate. Effective July 21, 2012, the Dodd-Frank Act expands the scope of the Covered
Transaction Rules. Once implemented, some of the proposed rules may further restrict transactions between BOKF’s subsidiaries.
Bank Secrecy Act and USA Patriot Act
The Bank Secrecy Act (“BSA”) imposes many requirements on financial institutions in the interest of national security. The Company
must, among other things, establish internal controls that are reasonably designed to prevent the financing of terrorism and money
laundering. The BSA also imposes know-your-customer documentation and other recordkeeping requirements aimed at suspicious activity
reporting. The Company has established an anti-money laundering program in accordance with the BSA.
The USA Patriot Act of 2001 (“Patriot Act”) broadened the scope of anti-money laundering laws and regulations by creating new due
diligence and compliance obligations, defining new crimes and penalties, and expanding United States’ extraterritorial jurisdiction.
Financial institutions, including the Company, are required to maintain policies, procedures and controls to detect, prevent and report
terrorist financing and money laundering. The Company must verify the identity of its customers. Failure to implement or maintain
adequate programs and controls to combat terrorist financing and money laundering may have serious legal and reputational consequences.
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 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
5
financial institutions. The government continues to enact economic stimulus legislation and policies, including increases in government
spending, reduction of certain taxes, reductions in interest rates and home affordability programs. The Federal Reserve has indicated its
intention to maintain historically low interest rates for the foreseeable future. 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.
BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments.
ITEM 1A. RISK FACTORS
Foreign Operations
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 were
adversely affected by significantly declining 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 remains 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 a historically low
federal funds rate for an extended period of time and promoting low intermediate and long-term interest rates. The current effect of these
actions reduces earnings by narrowing net interest margins. The long-term effect subjects banks to future interest rate risk once rates
increase to more normal levels.
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.
6
Adverse global economic factors could have a negative effect on BOK Financial customers and counterparties.
Poor economic conditions globally, including those of the European Union, could impact BOK Financial’s customers and
counterparties with which we do business.
BOK Financial has no direct exposure to European sovereign debt and no material exposure to European financial
institutions. We do have significant exposures to internationally active domestic financial institutions. The financial
condition of these institutions is monitored on an on-going basis. We have not identified any significant customer exposures
to European sovereign debt or European financial institutions.
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 the Bank 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 residential 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 which would reduce the Company’s net interest revenue. An increase in market interest rates
also could adversely affect the ability of BOK Financial's floating-rate borrowers to meet their higher payment obligations. If this occurred,
it could cause an increase in nonperforming assets and net charge-offs, which could adversely affect BOK Financial's business.
BOK Financial's substantial holdings of residential 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 residential mortgage-backed securities, which are investment interests
in pools of mortgages. Residential 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 has led 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 has also accelerated 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.
Residential 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.
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 bank may 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.
7
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
BHCA, 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.
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 FDICIA and the BHCA, 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 bank. As a result of that policy, BOK Financial may be required to commit financial and other
resources to its subsidiary bank 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 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 implemented
October 1, 2011 will significantly reduce revenue. 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.
Adverse political environment could negatively impact BOK Financial’s business.
As a result of the financial crisis and related government intervention to stabilize the banking system, there have been a series of laws and
related regulations proposed or enacted in an attempt to ensure the crisis is not repeated. Many of the proposed new regulations are far-
reaching. The intervention by the government also impacted populist sentiment with a negative view of financial institutions. This
sentiment may increase litigation risk to the Company. While the Company did not participate in the Troubled Asset Relief Program and
performed well throughout the downturn, the adverse political environment could have an adverse impact on BOK Financial’s future
operations.
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. Subsidiary creditors are
entitled to receive distributions from the assets of that subsidiary in the event of liquidation before BOK Financial, as holder of an equity
8
interest in the subsidiary, is entitled to receive any of the assets of the subsidiary. However, if BOK Financial is a creditor of the subsidiary
with recognized claims against it, BOK Financial will be in the same position as other creditors.
Although publicly traded, BOK Financial's common stock has substantially less liquidity than the average trading market
for a stock quoted on the NASDAQ National Market System.
A relatively small fraction of BOK Financial's outstanding common stock is actively traded. The risks of low liquidity include increased
volatility of the price of BOK Financial's common stock. Low liquidity may also limit holders of BOK Financial's common stock in their
ability to sell or transfer BOK Financial's shares at the price, time and quantity desired.
BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.
Mr. George B. Kaiser owns a majority of the outstanding shares of BOK Financial's common stock. Mr. Kaiser is able to elect all of BOK
Financial's directors and effectively control the vote on all matters submitted to a vote of BOK Financial's common shareholders. Mr.
Kaiser's ability to prevent an unsolicited bid for BOK Financial or any other change in control could have an adverse effect on the market
price for BOK Financial's common stock. A substantial majority of BOK Financial's directors are not officers or employees of BOK
Financial or any of its affiliates. However, because of Mr. Kaiser's control over the election of BOK Financial's directors, he could change
the composition of BOK Financial's Board of Directors so that it would not have a majority of outside directors.
Possible future sales of shares by BOK Financial's principal shareholder could adversely affect the market price of BOK
Financial's common stock.
Mr. Kaiser has the right to sell shares of BOK Financial's common stock in compliance with the federal securities laws at any time, or from
time to time. The federal securities laws will be the only restrictions on Mr. Kaiser's ability to sell. Because of his current control of BOK
Financial, Mr. Kaiser could sell large amounts of his shares of BOK Financial's common stock by causing BOK Financial to file a
registration statement that would allow him to sell shares more easily. In addition, Mr. Kaiser could sell his shares of BOK Financial's
common stock without registration under Rule 144 of the Securities Act. Although BOK Financial can make no predictions as to the effect,
if any, that such sales would have on the market price of BOK Financial's 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.
Dependence on technology increases cyber security risk.
As a financial institution, we process a significant number of customer transactions and possess a significant amount of sensitive customer
information. We engage numerous third-party vendors to support our data processing systems. As technology advances, the ability to
initiate transactions and access data has become more widely distributed among mobile phones, personal computers, automated teller
machines, remote deposit capture sites and similar access points. These technological advances increase cyber security risk. While the
Company maintains programs intended to prevent or limit the effects of cyber security risk, there is no assurance that unauthorized
transactions or unauthorized access to customer information will not occur. The financial, reputational and regulatory impact of
unauthorized transactions or unauthorized access to customer information could be significant.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
BOK Financial and its subsidiaries own and lease improved real estate that is carried at $188 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. MINE SAFETY DISCLOSURES
Not applicable.
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,
2012, common shareholders of record numbered 866 with 69,701,342 shares outstanding.
The highest and lowest closing bid price for shares and cash dividends per share of BOK Financial common stock follows:
2011:
Low
High
Cash dividends
2010:
Low
High
Cash dividends
First
$50.37
56.32
0.25
$45.43
53.11
0.24
Second
$50.13
54.72
0.275
$47.45
55.60
0.25
Third
$44.00
55.81
0.275
$42.89
50.58
0.25
Fourth
$45.68
55.90
0.33
$44.83
54.86
0.25
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, 2006 and ending December 31, 2011.*
Total Return Performance
125
100
75
50
25
l
e
u
a
V
x
e
d
n
I
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank
KBW 50
Index
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank Index
KBW 50
12/31/06
100.00
100.00
100.00
100.00
12/31/07
95.39
110.66
80.09
78.19
12/31/08
75.89
66.42
62.84
41.01
12/31/09
91.36
96.54
52.60
40.29
12/31/10
104.75
114.06
60.04
49.70
12/31/11
110.19
113.16
53.74
38.18
Period Ending
* Graph assumes value of an investment in the Company’s Common Stock for each index was $100 on December 31, 2006. 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 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, 2011.
Period
Total Number of
Shares Purchased 2
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs 1
Maximum
Number of
Shares that May
Yet Be
Purchased
Under the Plans
October 1, 2011 to October 31, 2011
36,111
November 1, 2011 to November 30, 2011
134,734
December 1, 2011 to December 31, 2011
61,718
Total
232,563
$51.95
$52.77
$55.43
–
69,581
–
69,581
723,483
653,902
653,902
1 On April 26, 2005, the Company’s board of directors authorized the Company to repurchase up to two million shares of the Company’s common stock.
As of December 31, 2011, the Company had repurchased 1,346,098 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,
2011
2010
2009
2008
2007
Selected Financial Data
For the year:
Interest revenue
Interest expense
Net interest revenue
Provision for (reduction of) allowances for credit
$ 811,595
120,101
691,494
$ 851,082
142,030
709,052
$ 914,569
204,205
710,364
$ 1,061,645
414,783
646,862
$ 1,160,737
616,252
544,485
losses
Fees and commissions revenue
Net income
Period-end:
Loans
Assets
Deposits
Subordinated debentures
Shareholders’ equity
Nonperforming assets2
(6,050)
528,643
285,875
11,269,743
25,493,946
18,762,580
398,881
2,750,468
356,932
105,139
516,394
246,754
10,643,036
23,941,603
17,179,061
398,701
2,521,726
394,469
195,900
480,512
200,578
202,593
415,194
153,232
34,721
405,622
217,664
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
Profitability Statistics
Earnings per share (based on average equivalent
shares):
Basic
Diluted
$
4.18
4.17
$
3.63
3.61
$
$
2.96
2.96
$
2.27
2.27
3.24
3.22
Percentages (based on daily averages):
Return on average assets
Return on average shareholders’ equity
Average shareholders’ equity to average assets
1.17%
10.66
10.95
1.04%
10.18
10.19
0.87%
9.66
8.98
0.71%
7.87
9.01
1.14%
12.01
9.53
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:
$
$
40.36
54.93
56.30
44.00
1.13
27.01%
$
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%
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Tangible common equity ratio1
Allowance for loan losses to nonaccruing loans
Allowance for loan losses to loans
Combined allowances for credit losses to loans 4
13.27%
16.49
9.15
9.56
125.93
2.25
2.33
12.69%
16.20
8.74
9.21
126.93
2.75
2.89
10.86%
14.43
8.05
7.99
86.07
2.59
2.72
9.40%
9.38%
12.81
7.89
6.64
77.73
1.81
1.93
12.54
8.20
7.72
150.29
1.06
1.24
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of banking locations
Number of TransFund locations
Trust assets
Mortgage loan servicing portfolio3
4,511
212
1,912
$ 34,398,796
12,356,917
4,432
207
1,943
$ 32,922,706
12,059,241
4,355
202
1,896
$30,520,745
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
1 Shareholders’ equity less preferred equity, intangible assets and equity provided by the TARP Capital Program (none) divided by total assets less
intangible assets.
2 Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing.
3 Includes outstanding principal for loans serviced for affiliates.
4 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 of 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. Primarily characterized by slow economic growth and persistently high national unemployment rates, the effects of the recession
continued to impact 2011. 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. Commercial lending activity increased slightly in light of the
economic uncertainty and both long-term and short-term 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 residential
mortgage-backed securities. Cash flows from these securities were reinvested at current rates. The Federal Reserve has recently indicated
its intention to keep interest rates low for the foreseeable future. While the core inflation rate has been modest, certain commodity prices
such as oil have been volatile.
Performance Summary
BOK Financial’s net income for 2011 totaled $285.9 million or $4.17 per diluted share compared to $246.8 million or $3.61 per diluted
share for 2010. Net income was up 16% over last year primarily due to lower credit cost. The provision for credit losses decreased $111.2
million due to sustained improvement in the loan portfolio.
Highlights of 2011 included:
• Net interest revenue totaled $691.5 million for 2011 compared to $709.1 million for 2010. Net interest margin was 3.34% for
2011 compared to 3.52% for 2010. Net interest margin narrowed during the year as increased cash flows from our securities
portfolio were reinvested at lower current rates.
•
Fees and commissions revenue increased $12.2 million or 2% over 2010. Most revenue categories increased over the prior year
on higher transaction volumes. Increased revenues were partially offset by the impact of federal regulations concerning overdraft
fees which began to reduce deposit service fees in the second half of 2010 and debit card interchange fees which began to reduce
transaction card revenue in the fourth quarter of 2011.
• Operating expenses, excluding changes in the fair value of mortgage servicing rights, totaled $781 million, up $24.2 million or
3% over the prior year. Personnel expenses increased $28.1 million or 7% due primarily to increased incentive compensation.
Non-personnel expenses decreased $3.9 million compared to the prior year.
•
•
The Company recorded a $6.1 million negative provision for credit losses in 2011 compared to a $105.1 million provision for
credit losses in 2010. Net charge-offs were $38.5 million or 0.35% of average outstanding loans for 2011 compared to $104.4
million or 0.96% of average outstanding loans for 2010. Impaired loans decreased $26 million and other credit quality indicators
continued to improve.
The combined allowances for credit losses totaled $263 million or 2.33% of outstanding loans at December 31, 2011 compared to
$307 million or 2.89% of outstanding loans at December 31, 2010. Nonperforming assets totaled $357 million or 3.13% of
outstanding loans and repossessed assets at December 31, 2011, down from $394 million or 3.66% of outstanding loans and
repossessed assets at December 31, 2010. Nonaccruing loans totaled $201 million, down $30 million since the previous year
end. Repossessed assets decreased $19 million during 2011.
• Outstanding loan balances grew to $11.3 billion at December 31, 2011 from $10.6 billion at December 31, 2010. Commercial
loan balances increased $637 million. Unfunded commercial loan commitments increased $937 million during 2011 to $5.3
billion.
•
•
Total period-end deposits increased $1.6 billion during 2011 to $18.8 billion, due primarily to growth in commercial demand
deposits.
Tangible common equity was 9.56% at December 31, 2011 and 9.21% at December 31, 2010. The growth in the tangible
common equity ratio was due largely to retained earnings. The Company and its subsidiary bank exceeded the regulatory
definition of well capitalized. The Company’s Tier 1 capital ratios, as defined by banking regulations, were 13.27% at December
31, 2011 and 12.69% at December 31, 2010.
• Cash dividends paid on common shares increased to $1.13 per common share in 2011 from $0.99 per common share in 2010.
13
• Net income for the fourth quarter of 2011 totaled $67.0 million or $0.98 per diluted share compared with $58.8 million or $0.86
per diluted share for the fourth quarter of 2010.
Highlights of the fourth quarter of 2011 included:
• Net interest revenue totaled $171.5 million, up $7.8 million over the fourth quarter of 2010. The benefit of an increase in average
earning assets was largely offset by lower securities portfolio yield. Interest expense decreased due to growth in non-interest
bearing funding sources and lower rates paid on interest bearing funds.
•
•
The Company recorded a $15.0 million negative provision for credit losses in the fourth quarter of 2011 compared to a $7.0
million provision for credit losses in the fourth quarter of 2010. Net loans charged off were $9.5 million for the fourth quarter of
2011 and $14.2 million for the fourth quarter of 2010. The trend of quarterly net charge-offs has stabilized at levels significantly
lower than their elevated levels during the recession. Impaired loans continued to decline and other credit quality indicators
continued to improve.
Fees and commissions revenue totaled $131.8 million compared to $136.0 million for the fourth quarter of 2010. Transaction
card revenue was down $3.5 million due primarily to federal regulations concerning debit card interchange fees which became
effective in the fourth quarter of 2011.
• Changes in the fair value of our mortgage servicing rights, net of economic hedge, decreased pre-tax net income for the fourth
quarter of 2011 by $4.9 million and increased pre-tax net income by $6.6 million in the fourth quarter of 2010.
• Other operating expense, excluding changes in the fair value of mortgage servicing rights, increased $10.5 million over the prior
year. Personnel costs increased $14.4 million due primarily to increased incentive compensation costs. Non-personnel costs
decreased $3.9 million including decreased FDIC insurance expense due to the change to a risk-sensitive assessment based on
assets.
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
The allowances for loan losses and accrual for off-balance sheet credit losses are assessed by management based on an ongoing quarterly
evaluation of the probable estimated losses inherent in the loan 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 consists of specific allowances attributed to certain
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 estimated loss rates by loan class and nonspecific allowances that are based on analysis of general economic
conditions, growth in the loan portfolio, duration of the business cycle and other relevant factors.
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, including loans modified in a troubled debt restructuring, are considered to
be 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 of loans that have not yet been charged down to amounts we expect to recover are measured by an evaluation of estimated
future cash flows discounted at the loan’s initial effective interest rate or the fair value of collateral for certain collateral dependent loans.
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 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. Historical statistics may be used in limited situations to assist in estimating future cash flows or
collateral values when a collateral dependent impaired loan is identified near the end of a reporting period. We use historical statistics as a
practical way to estimate impairment until an updated appraisal of collateral value is received or a full assessment of future cash flows is
completed. Estimates of future cash flows and collateral values require significant management judgments and are subject to volatility.
14
Effective in the fourth quarter of 2011, we enhanced the model used to estimate general allowances for unimpaired loans. This
enhancement identifies separate incurred loss rates for each loan class. Previously, the company utilized incurred loss rates based on risk
grades that did not differentiate by loan class. Considering the results of the most recent credit cycle, we believe that using the combination
of the loan class and risk grade results in greater transparency and consistency in how the Company manages the loan portfolio and its
inherent credit risk. This enhancement did not have a material impact on the results of the allowance for loan losses. There have been no
other material changes in the approach or techniques utilized in developing the combined allowances for credit losses during 2011.
For risk graded loans, estimated loss rates are developed using historical gross loss rates, as adjusted for changes in risk grading and
inherent risk identified by loan class. Loss rates for each loan class are determined by the current loss rate based on the most recent twelve
months or long-term gross loss rate that most appropriately represents current economic conditions. For each loan class, average risk
grades for the most recent twelve month are compared to long-term average risk grades to determine if risk is increasing or decreasing.
Appropriate loss rates are accordingly adjusted upward or downward in proportion to increasing or decreasing risk. Risk grades are
updated quarterly by management and may be based on significant subjective judgments. Historical incurred loss rates may be further
adjusted for inherent risks identified for the given loan class which have not yet been captured in the actual gross loss rates or risk grading.
Certain small balance commercial loans and substantially all residential mortgage and consumer loans are not risk graded. Separate
incurred loss rates are identified for each class of non-risk graded loans based on the most recent twelve months or long-term gross loss rate
that most appropriately represents current economic conditions. Historical incurred loss rates may be further adjusted for inherent risks
identified for the given loan class which have not yet been captured in the actual gross loss rates.
Nonspecific allowances are maintained for risks beyond factors specific to a particular loan or loan class. These factors include trends in
the economy in our primary lending areas, overall growth in the loan portfolio and other relevant factors. Nonspecific allowances may also
be utilized to adjust loss rates based on historical information, including consideration of the duration of the business cycle on loss rates.
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 and purchased mortgage
servicing rights are recognized at fair value. Subsequent changes in fair value are recognized in earnings as they occur.
There is no active market for trading in mortgage servicing rights. We use a cash flow model to determine fair value. Key
assumptions and estimates including projected prepayment speeds and assumed servicing costs, earnings on escrow deposits,
ancillary income and discount rates used by this model are based on current market sources. Assumptions used to value our
mortgage servicing rights are considered significant unobservable inputs and represent our best estimate of assumptions that
market participants would use to value this asset. A separate third party model is used to estimate prepayment speeds based on
interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment
model is updated daily for changes in market conditions. We 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 $13 million. We would expect a $14 million decrease in the fair value of our mortgage servicing rights from a 50 basis point
decrease in mortgage interest rates.
15
Valuation of Derivative Instruments
We use interest rate derivative instruments to manage our interest rate risk. We also offer interest rate, commodity, foreign
exchange and equity 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, foreign exchange and equity 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. We evaluate 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.
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.
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 a 10% average expected long-term growth rate, a 0.90%
volatility factor for BOK Financial common stock, a 13.03% discount rate and a 12.34% market risk premium.
16
The fair value, carrying value and related goodwill of reporting units for which goodwill was attributed as of our annual impairment test
performed on October 1, 2011 is as follows in Table 2.
Table 2 – Goodwill allocation by reporting unit
(In thousands)
Fair Value
Carrying
Value1
Goodwill
$ 938,758
581,730
101,231
120,134
97,201
$ 259,776
387,767
62,048
93,008
56,592
$ 5,140
196,183
11,094
39,458
14,853
477,190
63,056
89,099
27,944
191,946
46,935
16,271
11,569
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
202,113
102,362
21,113
53,741
10,404
1 Carrying value includes intangible assets attributed to the reporting unit.
1,350
16,372
1,305
9,254
1,569
97,085
38,783
4,945
16,233
7,594
Based on the results of the primary discounted future earnings test performed as of October 1, 2011, 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, 2011, the market value of BOK Financial common stock, a primary input in our goodwill impairment analysis, was
approximately 17% 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, 2011 was simulated. No additional impairment was noted by this simulation.
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 principal and interest cash flows from the underlying loan pool as well as the remaining credit enhancement coverage as
part of our assessment of cash flows available to recover the amortized cost of our securities. The credit enhancement coverage is an
estimate of currently remaining subordinated tranches available to absorb losses on pools of loans that support the security.
17
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 residential mortgage-backed securities rated below AAA. Significant
assumptions of this analysis included an increase in the unemployment rate to 11% over the next twelve months, decreasing to 9.5% over
21 months thereafter and an additional 15% home price depreciation over the next twelve months. The results of this analysis indicated an
additional $9 million of credit losses are possible. An increase in the unemployment rate to 13% with an additional 20% home price
depreciation indicates an additional $21 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 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. Income tax expense in future periods may
decrease if an uncertain tax position 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.
18
Assessment of Operations
Net Interest Revenue
Tax-equivalent net interest revenue totaled $700.6 million for 2011, down $17.6 million compared to the prior year. Net interest margin
decreased 21 basis points, partially offset by the effect of a $595 million increase in average earning assets.
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 3.34% for 2011 and 3.52% for 2010. 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 3.92% for 2011, down 30 basis points from 2010. The available for sale securities portfolio
yield was 2.84%, down 44 basis points from 2010. Low intermediate and long-term interest rates continued to increase actual residential
mortgage-backed securities prepayment speeds. Cash flows from the prepayments were reinvested at current low interest rates.
Approximately $2.5 billion that had been invested to yield 3.30% was reinvested at 2.30%. Loan yields decreased 12 basis points to 4.70%
primarily due to changes in market interest rates. The cost of interest-bearing liabilities was 0.76% for 2011, down 9 basis points from
2010 due largely to market conditions. The cost of interest bearing deposits decreased 17 basis points to 0.68%. The cost of other
borrowed funds increased 33 basis points to 1.17%. The benefit to net interest margin from earning assets funded by non-interest bearing
liabilities was 18 basis points in 2011 compared to 15 basis points in 2010.
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 59% 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 may use derivative instruments to manage our interest rate risk.
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.
The increase in average earning assets was primarily due to a $580 million increase in available for sale securities. We historically
purchase U.S. government agency issued residential mortgage-backed securities to supplement earnings during periods of declining loan
demand and to manage our interest rate risk. The larger securities portfolio was maintained throughout 2011.
Growth in average earning assets was funded primarily by a $1.8 billion increase in average deposits. Average demand deposit account
balances increased $1.1 billion and average interest-bearing transaction account balances increased $777 million. Average time deposits
decreased $124 million. Average borrowed funds also decreased $1.6 billion during 2011 due primarily to reduced borrowings from
Federal Home Loan Banks.
19
Table 3 – Volume/Rate Analysis
(In thousands)
Tax-equivalent interest revenue:
Funds sold and resell agreements
Trading securities
Investment securities:
Taxable securities
Tax-exempt securities
Total investment securities
Available for sale securities:
Taxable securities
Tax-exempt securities
Total available for sale securities
Fair value option securities
Residential mortgage loans held for sale
Loans
Total tax-equivalent interest revenue
Interest expense:
Transaction deposits
Savings deposits
Time deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest expense
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
Net interest revenue
(15,471)
–
(1,904)
(1,314)
(3,575)
380
(45)
(21,929)
(17,627)
69
$ (17,558)
Year Ended
December 31, 2011 / 2010
Change Due To1
Change
Volume
Yield /
Rate
Year Ended
December 31, 2010 / 2009
Change Due To1
Change
Volume
Yield
/Rate
$
(12) $
(296)
5,352
(2,593)
2,759
(23,712)
(98)
(23,810)
1,246
(2,769)
(16,674)
(39,556)
(12) $
487
$
–
(783)
(50)
(918)
$
(30)
(861)
$
(20)
(57)
6,541
(2,514)
4,027
10,203
93
10,296
3,299
(2,535)
(3,647)
11,915
2,734
103
(2,240)
(193)
(127)
(30,162)
10
(29,875)
41,790
(1,189)
(79)
(1,268)
(33,915)
(191)
(34,106)
(2,053)
(234)
(13,027)
(51,471)
(18,205)
(103)
336
(1,121)
(3,448)
30,542
(55)
7,946
(59,417)
7,122
(1,852)
5,270
(30,679)
295
(30,384)
2,775
(841)
(38,255)
(62,403)
(12,721)
105
(45,481)
(513)
417
(4,115)
133
(62,175)
(228)
(1,084)
(1,312)
$
4,177
(1,482)
2,695
65,300
2,360
67,660
4,992
(177)
(57,577)
16,702
8,736
70
(20,331)
(610)
1,908
(2,375)
8
(12,594)
29,296
2,945
(370)
2,575
(95,979)
(2,065)
(98,044)
(2,217)
(664)
19,322
(79,105)
(21,457)
35
(25,150)
97
(1,491)
(1,740)
125
(49,581)
(29,524)
Tax-equivalent interest revenue:
Funds sold and resell agreements
Trading securities
Investment securities:
Taxable securities
Tax-exempt securities
Total investment securities
Available for sale securities:
Taxable securities
Tax-exempt securities
Total available for sale securities
Three Months Ended
December 31, 2011 / 2010
Change Due To1
Change
Volume
Yield /
Rate
$
(4) $
(70)
(3) $
206
(1)
(276)
2,372
(675)
1,697
2,355
(689)
1,666
17
14
31
(3,840)
(87)
(3,927)
1,189
(713)
2,731
903
1,653
(38)
1,615
1,809
(807)
5,754
10,240
(5,493)
(49)
(5,542)
(620)
94
(3,023)
(9,337)
Fair value option securities
Residential mortgage loans held for sale
Loans
Total tax-equivalent interest revenue
Interest expense:
(4,559)
Transaction deposits
(25)
Savings deposits
(1,224)
Time deposits
(293)
Funds purchased
(1,092)
Repurchase agreements
291
Other borrowings
(26)
Subordinated debentures
(6,928)
Total interest expense
7,831
Tax-equivalent net interest revenue
(11)
Change in tax-equivalent adjustment
7,820
Net interest revenue
¹ Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
(34)
23
(513)
163
(9)
(4,779)
3
(5,146)
15,386
(4,525)
(48)
(711)
(456)
(1,083)
5,070
(29)
(1,782)
(7,555)
$
20
Fourth Quarter 2011 Net Interest Revenue
Tax-equivalent net interest revenue for the fourth quarter of 2011 totaled $173.7 million compared to $165.9 million for the fourth quarter
of 2010. Net interest margin was 3.20% for the fourth quarter of 2011 and 3.21% for the fourth quarter of 2010.
Average earning assets increased $1.1 billion or 5%. Average net loans increased $526 million over the fourth quarter of 2010, due
primarily to increased commercial and residential mortgage balances, partially offset by decreased consumer and commercial real estate
balances. Available for sale securities increased $333 million, fair value option securities increased $185 million and investment securities
increased $101 million. The growth in average earning assets was funded by a $1.4 billion increase in average demand deposits. Other
borrowings decreased $331 million compared to the fourth quarter of 2010.
The yield on the available for sale securities portfolio decreased 24 basis points to 2.39%. Low intermediate and long term interest rates
continued to increase prepayment speeds. Cash flows from increased prepayments were reinvested at the current lower rates.
Approximately $875 million that had been yielding 3.10% was reinvested to yield 2.10%. The loan yield decreased 11 basis points to
4.65% due primarily to changes in market interest rates. The cost of interest-bearing liabilities was 0.66%, down 15 basis points from the
fourth quarter of 2010. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 17 basis points
in the fourth quarter of 2011 compared to 16 basis points in the fourth quarter of 2010.
2010 Net Interest Revenue
Tax-equivalent net interest revenue for 2010 was $718.2 million compared with $718.4 million for 2009. The effect of a $525 million
increase in average earning assets was largely offset by a 16 basis point decrease in net interest margin. The increase in average earning
assets was primarily due to a $1.6 billion increase in average available for sale securities partially offset by a $1.2 billion net decrease in
loan balances. 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 $29 million due to changes in earning assets and interest bearing liabilities
and decreased $30 million due to changes in interest yields and rates. Net interest margin increased to 3.52% in 2010 compared with
3.68% in 2009. The yield on available for sale securities decreased 141 basis points due to the effect of increased prepayment speeds on
premium amortization and cash flow reinvestment. The cost of interest-bearing liabilities was decreased 36 basis points due primarily to a
53 basis point decrease in deposit rates.
Other Operating Revenue
Other operating revenue was $572.3 million for 2011 compared to $520.9 million for 2010. Fees and commission revenue increased $12.2
million over 2010. Net gains on securities, derivatives and other assets increased $34.8 million over 2010. Other-than-temporary
impairment charges recognized in earnings for 2011 were $4.3 million less than charges recognized in 2010.
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
2011
2010
$ 104,181 $ 101,471
112,302
68,976
103,611
87,600
12,066
30,368
516,394
116,757
73,290
95,872
91,643
11,280
35,620
528,643
2009
Year ended December 31,
2008
$ 42,8041
100,153
78,979
117,528
30,599
10,681
34,450
415,194
$ 91,677
105,517
66,177
115,791
64,980
10,239
26,131
480,512
Gain (loss) on other assets, net
Gain (loss) on derivatives, net
Gain (loss) on fair value option securities, net
Gain (loss) on available for sales securities, net
Gains on Mastercard and Visa IPO securities
Total other-than-temporary impairment
Portion of loss recognized in (reclassified from) other
comprehensive income
Net impairment losses recognized in earnings
5,885
2,686
24,413
34,144
–
(10,578)
(1,161)
4,271
7,331
21,882
–
(29,960)
4,134
(3,365)
(13,198)
59,320
–
(129,154)
(12,929)
(23,507)
2,151
(27,809)
94,741
(34,413)
(9,406)
1,299
10,948
9,196
6,799
(5,306)
–
(5,306)
2007
$ 62,542
90,425
78,231
109,218
22,275
10,058
32,873
405,622
2,404
2,282
(486)
(276)
1,075
(8,641)
–
(8,641)
Total other operating revenue
$ 572,264 $ 520,908
1 Includes net derivative credit losses with two bankrupt counterparties of $54 million.
$ 492,990
$ 428,724
$ 401,980
21
Fees and Commissions Revenue
Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 43% of total revenue
for 2011, 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, which includes revenues from securities trading, retail brokerage, customer derivative and investment
banking increased $2.7 million or 3% over 2010. Securities trading revenue totaled $59.8 million for 2011, up $3.5 million over 2010.
Securities trading revenue represents net realized and unrealized gains primarily related to sales of U.S. government securities, residential
mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers, activities which
we believe will be permitted under the Volcker Rule of the Dodd-Frank Act. Increased gains from municipal securities were partially
offset by decreased gains on U.S. government securities. In 2010, credit spreads widened on credit concerns related to municipal securities
resulting in a decreased volume of municipal securities sold. Gains on residential mortgage-backed securities guaranteed by U.S.
government agencies were flat compared to the prior year.
Revenue earned from retail brokerage transactions increased $4.7 million or 20% over 2010 to $28.2 million. Retail brokerage revenue is
primarily based on fees and commissions earned on sales of fixed income securities, annuities and mutual funds to retail customers.
Revenue growth was primarily due to increased market volatility which increased customer demand.
Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer
risk management programs. As more fully discussed under Customer Derivative Programs in Note 3 to the Consolidated Financial
Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Customer hedging revenue
totaled $5.3 million, down $6.4 million compared to the prior year. The decrease in customer hedging revenue included $4.4 million of
credit losses.
Investment banking revenue includes fees earned upon completion of underwriting and financial advisory services which totaled $11.0
million for 2011, a $949 thousand increase over 2010 related to the timing and volume of completed transactions.
We continue to monitor the on-going development of rules to implement the Volcker Rule in Title VI of the Dodd-Frank Act which
prohibits banking entities from engaging in proprietary trading as defined by the Dodd-Frank Act and which restricts sponsorship of, or
investment in, private equity funds and hedge funds, subject to limited exceptions. On October 11, 2011, regulators of financial institutions
released a proposal for implementation of the Volcker Rule scheduled to take effect by July 21, 2012, subject in some cases to phase-in
over time thereafter. Based on the proposed rules, we expect the Company’s trading activity to be largely unaffected, as our trading
activities are all done for the benefit of customers and securities traded are mostly exempted under the proposed rules. The Company’s
private equity investment activity may be curtailed but is not expected to result in a material impact to the Company’s financial statements.
Final regulations will likely impose additional operating and compliance costs as presently proposed.
Title VII of the Dodd-Frank Act subjects nearly all derivative transactions to CFTC or SEC regulations. Title VII, among other things,
imposes registration, recordkeeping, reporting, capital and margin, as well as business conduction requirements on major swap dealers and
major swap participants. The CFTC and SEC have recently delayed the effective dates of a large portion of the proposed regulations under
Title VII until December 31, 2012. The Company currently anticipates that one or more of its subsidiaries may be required to register as a
“swap dealer” with the CFTC. The ultimate impact of Title VII is uncertain, but may pose higher operational and compliance costs on the
Company.
Transaction card revenue depends largely on the volume and amount of transactions processed, the number of TransFund automated teller
machine (“ATM”) locations and the number of merchants served. Transaction card revenue increased $4.5 million or 4% over 2010.
Revenues from processing transactions on behalf of the members of our TransFund electronic funds transfer (“EFT”) network totaled $51.1
million, up $2.4 million or 5% over 2010, due primarily to increased transaction volumes. The number of TransFund ATM locations
totaled 1,912 at December 31, 2011 compared to 1,943 at December 31, 2010. Merchant service fees paid by customers for account
management and electronic processing of transactions totaled $34.3 million, a $3.8 million or 13% increase over the prior year primarily as
a result of cross-selling opportunities throughout our geographical footprint.
Revenue from interchange fees paid by merchant banks for transactions processed from debit cards issued by the Company totaled $31.4
million for 2011 compared to $33.1 million for 2010. This decrease was primarily due to the impact of interchange fee regulations which
became effective on October 1, 2011, partially offset by increased transaction volumes. On June 29, 2011, the Federal Reserve Board
issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing
restrictions as required by the Dodd-Frank Act. Under the final rule, the maximum permissible interchange fee that an issuer may receive
for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. In
addition, the Federal Reserve Board approved an interim rule that allows for an upward adjustment up to 1 cent to an issuer’s debit card
interchange fee for fraud prevention as outlined in the interim final rule. Issuers meeting these standards must certify as to their eligibility
to receive this adjustment. Our experience in the fourth quarter of 2011 was consistent with our previously disclosed expectation of a
decline of $20 to $25 million annually in our transaction card revenue based on the final rule.
22
Trust fees and commissions increased $4.3 million or 6% over 2010 primarily due to an increase in the fair value of trust assets. We
continue to voluntarily waive administration fees on our Cavanal Hill money market funds in order to maintain positive yields on these
funds in the current low short-term interest rate environment. Waived fees totaled $7.3 million for 2011 and $3.7 million for 2010. The
fair value of trust assets administered by the Company totaled $34.2 billion at December 31, 2011, up from $32.8 billion at December 31,
2010.
Deposit service charges and fees declined $7.7 million or 7% compared to 2010. Overdraft fees declined $7.4 million or 11% to $58.4
million. The decrease in overdraft fees was primarily due to changes in federal regulations concerning overdraft changes which were
effective July 1, 2010. Commercial account service charge revenue totaled $31.6 million, down $810 thousand compared to the prior year.
Customers continue to maintain high commercial account balances resulting in a high level of earnings credit, a non-cash method for
commercial customers to avoid incurring charges for deposit services based on account balances. Service charge revenue on deposit
accounts with a standard monthly fee increased $479 thousand or 9% to $5.9 million.
Mortgage banking revenue was notably strong for both 2011 and 2010. Low interest rates increased mortgage loan origination activity.
Mortgage banking revenue totaled $91.6 million in 2011 compared to $87.6 million in 2010. Revenue from originating and marketing
mortgage loans increased $2.5 million or 5% over the prior year to $52.0 million. The spread between primary mortgage rates, the rates
offered to borrowers, over secondary rates, the rates required by investors in residential mortgage-backed securities, nearly doubled in 2011
over 2010. This widened spread significantly increased mortgage loan production revenue. Mortgage loans originated for sale in the
secondary market totaled $2.2 billion in 2011 and $2.5 billion in 2010. Mortgage loan servicing revenue totaled $39.7 million or 0.35% of
loans serviced for others in 2011 and $38.2 million or 0.36% of the average outstanding balance of loans serviced for others in 2010. The
average outstanding balance of loans serviced for others was $11.3 billion for 2011 and $10.7 billion for 2010.
Net gains on securities, derivatives and other assets
We recognized $34.1 million of net gains on sales of $2.7 billion of available for sale securities in 2011 and $21.9 million of net gains on
sales of $2.0 billion of available for sale securities in 2010. Securities were sold either because they had reached their expected maximum
potential return or to mitigate exposure to prepayment or extension risk.
We also maintain a portfolio of residential mortgage-backed securities issued by U.S. government agencies 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. Changes in the fair value of
these securities are included in Gain (loss) on fair value option securities, net on Table 4.
Lower mortgage interest rates increased loan origination volumes, but also increased prepayments speeds which decreased the value of our
mortgage servicing rights. Table 5 shows the relationship between changes in the fair value of mortgage servicing rights and financial
instruments designated as an economic hedge.
Table 5 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedges
(In thousands)
2011
2010
Year ended December 31,
2008
2009
2007
Gain on mortgage hedge derivative contracts
Gain (loss) on fair value option securities, net
Gain (loss) on financial instruments held as an economic
$ 2,974
24,413
$
4,425
7,331
$
–
(13,198)
$
–
10,948
$
hedge of mortgage servicing rights, net
27,387
11,756
(13,198)
10,948
–
(486)
(486)
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
(40,447)
(8,171) 1
12,124
(34,515)
(2,893)
$ (13,060)
$
3,585
$
(1,074)
$ (23,567)
$
(3,379)
Net interest revenue on mortgage trading securities 2
$ 17,651
$ 19,043
$ 13,366
$
4,569
$
595
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.
As more fully described in the Note 2 to the Consolidated Financial Statements, we recognized $23.5 million of other-than-temporary
impairment losses in 2011 related to certain privately issued residential mortgage-backed securities and municipal securities. 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.
Net gain (loss) on other assets is composed primarily of a $5.3 million net gain on two private equity funds we sponsor primarily for our
customers; $3.9 million of the gain is allocated to the limited partners of the private equity funds through Net income (loss) attributable to
non-controlling interest in the Consolidated Statement of Earnings.
23
Fourth Quarter 2011 Other Operating Revenue
Other operating revenue for the fourth quarter of 2011 totaled $137.7 million, up $26.1 million over the prior year. Fees and commission
revenue decreased $4.2 million or 3% compared to the fourth quarter of 2010 primarily due to lower interchange fee revenue. Net gains on
securities, derivatives and other assets were up $31.2 million over the fourth quarter of 2010. Other-than-temporary charges recognized in
earnings in the fourth quarter of 2011 were $3.8 million less than charges recognized in the fourth quarter of 2010.
Brokerage and trading revenue decreased $3.0 million or 10% compared to the fourth quarter of 2010. Securities trading revenue increased
$854 thousand. Increased gains on municipal and U.S. government securities were partially offset by decreased gains on residential
mortgage-backed securities guaranteed by U.S. government agencies. Customer hedging revenue decreased $3.0 million compared to the
fourth quarter of 2010 due primarily to decreased revenue from to be announced (“TBA”) residential mortgage-backed securities which are
classified as interest rate contracts sold to our mortgage banking customers and a $1.7 million credit loss on unsettled contracts. Retail
brokerage revenue was down $292 thousand and investment banking revenue was down $569 thousand.
Transaction card revenue decreased $3.5 million compared to the previous year. Check card revenue from interchange fees paid by
merchant banks for transactions processed from cards issued by the Company decreased $4.5 million compared to the fourth quarter of
2010, due primarily to the impact of debit card interchange fee regulations which were effective October 1, 2011. Revenues from the
processing of transactions on behalf of members of our TransFund EFT network increased $802 thousand over the fourth quarter of 2010
and merchant services fees paid by customers for account management and electronic processing of transactions increased $139 thousand.
Trust revenue decreased $280 thousand or 2% compared with the fourth quarter of 2010. The fair value of trust assets was up 4%
compared to the prior year.
Deposit service charges and fees for the fourth quarter of 2011 were up $1.2 million or 5% over the fourth quarter of 2010. Overdraft fees
increased $772 thousand or 5%. Commercial account service charge revenue was flat compared to the fourth quarter of 2010. Fees on
deposit accounts with a monthly service fee increased $405 thousand or 33% over the fourth quarter of 2010.
Mortgage banking revenue for the fourth quarter of 2011 was flat compared to the fourth quarter of 2010. Mortgage loans funded for sale
totaled $753 million in the fourth quarter of 2011 compared to $821 million in the fourth quarter of 2010.
We recognized net gains of $7.1 million on sales of $667 million of available for sale securities in the fourth quarter of 2011 compared to
net gains of $953 thousand on sales of $536 million of available for sale securities in the fourth quarter of 2010.
For the fourth quarter of 2011, changes in the fair value of mortgage servicing rights decreased pre-tax net income by $5.3 million, partially
offset by a net gain of $343 thousand on fair value option securities and derivative contracts held as an economic hedge. 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 an
$18.5 million net loss on fair value option securities and derivative contracts held as an economic hedge.
2010 Other Operating Revenue
Other operating revenue totaled $520.9 million for 2010, up $27.9 million over 2009. Fees and commissions revenue increased $35.9
million partially offset by a $14.6 million decrease in net gains on securities, derivatives and other assets. Other-than-temporary
impairment charges recognized in earnings in 2010 were $6.6 million less than in 2009. Brokerage and trading revenue increased $9.8
million over 2009. Customer hedging revenue increased $5 million over 2009 primarily due to energy derivatives. Investment banking
revenue increased $2.3 million and retail brokerage revenue increased $3.0 million. Securities trading revenue was flat compared to 2009.
Increased lending activity by our mortgage banking customers increased related securities transaction volume in 2010. This activity was
offset by decreased municipal trading activity as credit spreads widened on credit concerns in municipal securities. Transaction card
revenue increased $6.8 million over 2009 due to increases in check card revenue and merchant services fees. Trust fees and commissions
increased $2.8 million over 2009 primarily due to growth in the fair value of trust assets, partially offset by lower balances in our
proprietary mutual funds. Deposit service charges decreased $12.2 million compared to 2009 primarily due to changes in federal
regulations concerning overdraft charges which were effective July 1, 2010. Mortgage banking revenue increased $22.6 million or 35%
over 2009 primarily due to increased mortgage loan servicing revenue as the result of the Company’s acquisition of rights to service $4.2
billion of residential mortgage loans in the first quarter of 2010.
We recognized $21.9 million of net gains on available for sale securities in 2010 and $59.3 million of net gains on 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. Net gains on fair value option securities held as an economic hedge of mortgage servicing rights were $11.8
million in 2010 and were a net loss of $13.2 million in 2009. The net gains (losses) on fair value option securities were partially offset by
changes in the fair value of the mortgage servicing rights. The gain (loss) on other assets, net decreased $5.3 million in 2010 due primarily
to a $2.7 million decrease in the fair value of our private equity funds; $2.4 million of which was allocated to the limited partners through
Net income (loss) attributable to non-controlling interest on the Statement of Earnings. Other-than-temporary impairment charges
recognized in earnings were $6.6 million less than in 2009.
24
Other Operating Expense
Other operating expense totaled $821.5 million for 2011, up $68.3 million over 2010. Changes in fair value of mortgage servicing rights
increased other operating expenses by $40.4 million in 2011 and decreased other operating expenses by $3.7 million in 2010. Excluding
changes in the fair value of mortgage servicing rights, other operating expense totaled $781.0 million for 2011, up $24.2 million or 3% over
2010. Personnel expenses increased $28.1 million or 7% over the previous year. Non-personnel operating expenses decreased $3.9 million
or 1% compared to 2010.
Table 6 – Other Operating Expense
(In thousands)
Personnel expense
Business promotion
Contribution to BOKF Foundation
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
Personnel Expense
2011
$ 429,986
20,549
4,000
28,798
64,611
16,799
–
97,976
14,085
23,715
3,583
34,942
40,447
–
41,982
$ 821,473
Year ended December 31,
2009
2010
2008
$ 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
2007
$ 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
Personnel expense totaled $430.0 million for 2011 and $401.9 million for 2010. Regular compensation, which consists of salaries and
wages, overtime pay and temporary personnel costs, totaled $247.9 million, up $9.3 million or 4% over 2010. The increase in regular
compensation was primarily due to an increase in the average regular compensation per full time equivalent employee. Average staffing
levels increased modestly in 2011.
Table 7 – Personnel Expense
(In thousands)
2011
Year Ended December 31,
2009
2008
2010
2007
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)
$ 247,945
$ 238,690
$ 231,897
$ 219,629
$ 206,857
97,472
20,308
117,780
64,261
–
$ 429,986
4,474
91,205
12,778
103,983
59,191
–
$ 401,864
4,394
80,582
10,572
91,154
57,466
–
$ 380,517
4,403
79,215
3,962
83,177
50,141
–
$ 352,947
4,140
62,657
8,763
71,420
47,929
2,499
$ 328,705
4,106
Incentive compensation increased $13.8 million or 13%. 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 2011 increased $6.0 million or 7% over the previous year. Sales commissions related to brokerage and trading
revenue increased $1.3 million to $39.1 million and cash-based incentive compensation for other business lines increased $4.7 million to
$58.1 million.
The Company also provides stock-based incentive compensation plans. Stock-based compensation plans include both equity and liability
awards. Compensation expense for equity awards increased $1.7 million over 2010. Expense for equity awards is based on the grant-date
fair value of the awards and is unaffected by subsequent changes in fair value. Stock-based incentive compensation expense also included
deferred compensation that will ultimately be settled in cash indexed to investment performance or changes in earnings per share.
25
Compensation expense related to liability awards increased $6.1 million over 2010. Certain executive officers are permitted 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. Compensation expense reflects 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 $1.53 during 2011 and $5.88
during 2010.
On April 26, 2011 shareholders approved the BOK Financial Corporation 2011 True-Up Plan. The True-Up Plan was intended to address
inequality in the Executive Incentive Plan which had been approved by shareholders in 2003, as a result of certain peer banks that
performed poorly during the most recent economic cycle. Performance goals for the Executive Incentive Plan are based on the Company’s
earnings per share growth compared to peers and business unit performance. As the economy improves and credit costs normalize, peer
banks are expected to experience significant comparative earnings per share percentile increases. This “bounce-back” effect would have
resulted in the unanticipated result of no annual bonuses in years 2011, 2012 and 2013 and the forfeiture of long-term incentive awards for
2010 and 2011 in their entirety, despite BOK Financial’s maintaining strong annual earnings throughout the economic cycle while many
peers experienced negative or declining earnings. The True-Up Plan was designed to allow for adjustment upward or downward of certain
executive officers annual and long-term compensation levels based on comparable executives at peer banks with similar earnings per share
performance for the years 2006 through 2013. Compensation is determined by ranking the BOK Financial’s earning per share performance
to peer banks and then aligning compensation with the peer bank that most closely relates to the BOK Financial’s earnings per share
performance. Based on currently available information, incremental amounts due under the 2011 True-Up Plan may range from $0 to $34
million. The final amount due under the 2011 True-Up Plan will be determined as of December 31, 2013 and distributed in 2014. During
2011, we accrued $9.5 million of additional compensation expense. Performance measurement through 2013 may be volatile and could
result in future adjustments upward or downward to compensation expense.
Employee benefit expense increased $5.1 million or 9% over 2010. Employee medical insurance costs of $19.8 million increased 2% over
the prior year. The Company self-insures a portion of its employee health care coverage and these costs may be volatile. Payroll tax
expense increased $1.7 million over 2010 to $23.2 million. Employee retirement plan costs increased $1.1 million over the prior year to
$15.4 million. Pension expenses increased $830 thousand over 2010 to $4.0 million 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, decreased $3.9 million or 1%
compared to 2010. Net losses and operating expenses related to repossessed assets decreased $10.8 million, primarily due to a decrease in
net losses from sales and write-downs of repossessed property based on our quarterly reviews of carrying values. Operating expenses on
repossessed assets were flat compared to the prior year. FDIC insurance expense decreased $7.7 million due primarily to the change to a
risk-sensitive assessment based on assets. Mortgage banking costs were down $5.8 million compared to 2010, due primarily to a decrease
in amortization expense of our mortgage servicing rights and decreased provision for foreclosure costs related to mortgage loans serviced
for others, partially offset by increased provision for loans sold with recourse. Data processing and communications expense increased
$10.2 million due primarily to higher bank card transaction volume and increased software amortization expense related to recent
technology investments. Other expense increased $5.2 million over 2010 due primarily to accrual for litigation as more fully disclosed in
Note 14 to the Consolidated Financial Statements. The Company also made a $4.0 million discretionary contribution to the BOKF
Charitable Foundation which partners with charitable organizations to support needs within our communities.
Fourth Quarter 2011 Operating Expenses
Other operating expense totaled $219.2 million for the fourth quarter of 2011, up $40.8 million over the fourth quarter of 2010. Changes in
the fair value of mortgage servicing rights increased operating expenses by $5.3 million in the fourth quarter of 2011 compared with a
reduction in operating expenses of $25.1 million in the fourth quarter of 2010. Excluding changes in the fair value of mortgage servicing
rights, other operating expenses increased $10.5 million or 5%. Personnel expense increased $14.4 million due largely to the $9.5 million
accrual related to the True-Up Plan. Regular compensation increased $2.1 million and cash-based incentive compensation increased $1.4
million. Non-personnel expenses decreased $3.9 million compared to the previous year across most non-personnel expense categories.
2010 Operating Expenses
Other operating expense for 2010 totaled $753.2 million, up $56.4 million or 8% increase 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, other operating expenses for 2009 included $11.8 million for the FDIC special assessment. Excluding those
items, other operating expense totaled $756.8 million for 2010, up $59.7 million or 9% over 2009. Personnel expense increased $21.3
million or 6%. Non-personnel expenses increased $38.4 million or 12% over 2009 due largely to a $23.1 million increase in losses and
operating expenses of repossessed assets.
Regular compensation expense totaled $238.7 million, up $6.8 million, or 3% over 2009 due primarily to an increase in average regular
compensation per full time equivalent employee. Incentive compensation increased $12.8 million or 14% to $104.0 million. Cash-based
incentive compensation for 2010 increased $10.6 million or 13% including 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 lines of business. Stock-based
compensation expense increased $2.2 million. Liability awards decreased $297 thousand due primarily to changes in the market value of
26
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. Compensation expense for equity awards increased $2.5 million over 2009. Employee benefit expenses
increased $1.7 million or 3% over 2009 due primarily to increased employee retirement plan and pension expense.
Net losses and operating expenses of repossessed assets increased $23.1 million over 2009. Net losses from sales and write-downs of
repossessed assets based on our quarterly review of carrying values increased $17.7 million. Operating expenses on repossessed assets,
composed largely of property taxes, increased $5.4 million. Data processing and communications expense increased $6.5 million due
primarily to higher transaction volume and increased software amortization expense. Other expense increased $11.7 million including a
$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. All other operating expenses decreased $2.8 million or 1% compared to 2009.
Income Taxes
Income tax expense was $158.5 million or 35% of book taxable income for 2011, $123.4 million or 33% of book taxable income for 2010
and $106.7 million or 34% of book taxable income for 2009. Tax expense currently payable totaled $154 million in 2011, $150 million in
2010 and $129 million in 2009.
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 2010 in 2011 and 2009 in 2010. Excluding these adjustments, income tax expense would have been $160 million or
36% for book taxable income for 2011 and $126 million or 34% of book taxable income for 2010.
The Internal Revenue Service is currently auditing the federal income tax return of BOK Financial for the year ended December 31, 2008.
Management does not anticipate a material impact to the financial statements as a result of the audit.
Net deferred tax assets totaled $38 million at December 31, 2011 and $58 million at December 31, 2010. The decrease was due primarily
to the tax effect of increased bonus depreciation and 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, 2011 and December 31, 2010. 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 2011 totaled $37.4 million or 36% of book taxable income compared to $31.1 million or 34%
of book taxable income for the fourth quarter of 2010.
27
Table 8 – Selected Quarterly Financial Data
(In thousands, except per share data)
Interest revenue
Interest expense
Net interest revenue
Provision for (reduction of) allowances for credit losses
Net interest revenue after provision for (reduction of)
allowances for credit losses
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Change in fair value of mortgage servicing rights
Other non-personnel expense
Other operating expense
Fourth
Third
Second
First
2011
$ 198,040
26,570
171,470
(15,000)
$ 205,749
30,365
175,384
–
$ 205,717
31,716
174,001
2,700
$ 202,089
31,450
170,639
6,250
186,470
175,384
171,301
164,389
131,786
6,241
138,027
121,129
6,180
5,261
86,627
219,197
146,035
27,942
173,977
103,260
5,939
24,822
86,875
220,896
127,826
15,134
142,960
105,603
5,859
13,493
78,254
203,209
123,274
(5,696)
117,578
99,994
6,015
(3,129)
75,569
178,449
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.
105,300
37,396
67,904
911
$ 66,993
128,465
43,006
85,459
358
$ 85,101
111,052
39,357
71,695
2,688
$ 69,007
103,518
38,752
64,766
(8)
$ 64,774
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
0.98
0.98
$
$
1.24
1.24
$
$
1.01
1.00
$
$
0.95
0.94
67,526
67,775
67,828
68,037
67,898
68,169
67,902
68,177
Fourth
Third
Second
First
2010
Interest revenue
Interest expense
Net interest revenue
Provision for allowance for allowances for credit losses
Net interest revenue after provision for allowances for credit
$ 197,148
33,498
163,650
6,999
156,651
$ 216,967
36,252
180,715
20,000
160,715
$ 217,597
35,484
182,113
36,040
146,073
$ 219,370
36,796
182,574
42,100
140,474
losses
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and operating expenses of repossessed assets
Change in fair value of mortgage servicing rights
Other non-personnel expense
Other operating expense
135,975
(24,062)
111,913
106,770
6,966
(25,111)
89,736
178,361
136,936
737
137,673
101,216
7,230
15,924
80,795
205,165
128,168
29,271
157,439
97,054
13,067
19,458
76,333
205,912
115,315
(1,432)
113,883
96,824
7,220
(13,932)
73,620
163,732
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.
90,203
31,097
59,106
274
$ 58,832
93,223
29,935
63,288
(979)
$ 64,267
97,600
32,042
65,558
2,036
$ 63,522
90,625
30,283
60,342
209
$ 60,133
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
0.86
0.86
$
$
0.94
0.94
$
$
0.93
0.93
$
$
0.88
0.88
67,685
67,889
67,625
67,765
67,606
67,881
67,592
67,790
28
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 EFT 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 swap rates, LIBOR rates and
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 $32.1 million or 22% over the prior year. The increase in net
income attributed to our lines of business was due primarily to a $68.7 million decrease in net loans charged off and a $25.4 million
increase in other operating revenue, partially offset by a $48.4 million increase in operating expenses attributed to the lines of business.
Net income attributed to Funds management and other increased $7.1 million 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,
2010
2009
2011
$ 129,291
33,504
14,052
176,847
109,028
$ 285,875
$ 82,000
50,227
12,562
144,789
101,965
$ 246,754
$ 59,673
22,620
10,982
93,275
107,303
$ 200,578
29
Commercial banking
Commercial banking contributed $129.3 million to consolidated net income for 2011, up $47.3 million over 2010. Net interest revenue
increased $18.8 million primarily due to a $1.8 billion increase in average deposits sold to the funds management unit. Net loans charged-
off decreased by $49.7 million. Fees and commissions revenue increased $7.3 million. Personnel expenses increased $2.5 million and
non-personnel expenses increased $6.4 million.
The Company has focused on development of banking services for small business during 2011. As part of this initiative, small business
banking activities were transferred to the Commercial banking segment from the Consumer banking segment in the second quarter of 2011.
This transfer increased Commercial banking net income by $7.9 million in 2011. Net interest revenue increased $14.0 million. Average
deposits increased $593 million and average loans increased $18 million primarily due to the transfer of these balances from the Consumer
banking segment. Other operating revenue increased $7.2 million and operating expenses increased $8.3 million.
Table 10 – Commercial banking
(Dollars in thousands)
Net interest revenue from external sources $
Net interest expense from internal sources
Total net interest revenue
Net loans charged-off
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Gain (loss) on financial instruments and
other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Other non-personnel expense
Operating expense
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
Year ended December 31,
2011
2010
2009
346,861
$
343,241
$
346,608
(29,919)
316,942
21,007
(45,144)
298,097
70,752
(50,989)
295,619
101,120
295,935
227,345
194,499
149,238
141,955
133,385
774
150,012
(1,638)
140,317
5
133,390
95,790
93,273
93,051
18,775
119,777
234,342
211,605
82,314
26,811
113,371
233,455
134,207
52,207
$
129,291
$
82,000
$
10,401
126,772
230,224
97,665
37,992
59,673
$
9,627,257
$
9,007,403
$ 10,102,655
8,383,478
7,994,431
884,326
1.34%
14.62%
50.27%
0.25%
8,253,008
6,180,935
899,005
0.91%
9.12%
53.05%
0.86%
9,214,660
5,374,773
950,684
0.59%
6.28%
53.66%
1.10%
Net interest revenue increased $18.8 million or 6% over 2010, primarily due to a $1.8 billion increase in average deposit balances attributed
to our Commercial banking unit, including small business banking deposits transferred from the Consumer banking segment. The average
outstanding balance of loans attributed to Commercial banking increased $130 million or 2% in 2010, resulting in a $1.8 million increase in
net interest revenue.
Other operating revenue increased $9.7 million or 7% over 2010. Service charges on commercial deposit accounts increased $5.8 million
or 19% to $36.3 million primarily due to the transfer of small business banking activities to the Commercial banking segment. Transaction
card revenues also were up $5.8 million or 8% over 2010 to $81.7 million.
Operating expenses were flat compared to the prior year. Personnel expenses increased $2.5 million or 3% to $95.8 million due to annual
merit increases and increased incentive compensation. Net losses and operating expenses of repossessed assets decreased $8.0 million to
$18.8 million. Other non-personnel expenses increased $6.4 million due primarily to increased data processing costs related to higher
30
transaction card volumes and increased corporate expense allocations primarily related to the transfer of small business banking operations
to the Commercial banking segment.
The average outstanding balance of loans attributed to Commercial banking was $8.4 billion, up $130 million or 2% over 2010. See the
Loans section of Management’s Analysis and Discussion of Financial Condition 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 $49.7 million in 2011 to $21.0 million or 0.25% of average loans attributed to this line of business.
Average deposits attributed to Commercial banking were up $1.8 billion or 29% over 2010. Small business banking deposits increased
$583 million primarily related to the transfer of small business banking activities to the Commercial banking segment. Average deposit
balances attributed to our commercial and industrial customers increased $726 million or 34%, average deposit balances attributed to
treasury services customers increased $263 million or 16% and average balances attributed to our energy customers increased $199 million
or 28%. We believe that commercial customers continue to retain large cash reserves due to continued economic uncertainty.
Consumer banking
Consumer banking services are provided through five primary distribution channels: traditional branches, supermarket branches, the 24-
hour ExpressBank call center, internet banking and mobile banking. We currently have 212 consumer banking locations, including branch
banking locations and mortgage lending offices. Our consumer banking locations are primarily distributed 105 in Oklahoma, 52 in Texas,
24 in New Mexico and 14 in Colorado.
Consumer banking contributed $33.5 million to consolidated net income in 2011 compared to $50.2 million for 2010. Net income for 2010
included the $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. Changes in fair value of mortgage servicing rights, net of economic hedges, decreased net income attributable to Consumer
banking by $8.0 million for 2011 compared to increasing net income attributable to Consumer banking by $2.2 million in 2010. Net
interest revenue decreased $11.1 million compared to the prior year primarily due to the transfer of small business banking operations to
the Commercial banking segment. Net charge-offs decreased by $11.3 million during 2011. Fees and commissions revenue decreased
$6.9 million or 3% compared to the prior year primarily due to decreased deposits service charges and transaction card revenues due to
changes in banking regulations, partially offset by increased mortgage banking and other revenues. Excluding changes in the fair value of
mortgage servicing rights, operating expenses decreased $7.2 million compared to the prior year. Personnel expenses increased $8.3
million and non-personnel expenses decreased $15.5 million.
31
Table 11 – Consumer banking
(Dollars in thousands)
Net interest revenue from external sources $
Net interest revenue from internal sources
Total net interest revenue
Net loans charged-off
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Gain (loss) on financial instruments and
other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Change in fair value of mortgage servicing
rights
Other non-personnel expense
Operating expense
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
Banking locations (period-end)
Year ended December 31,
2011
2010
2009
89,745
$
86,291
$
33,109
122,854
13,451
47,624
133,915
24,705
57,647
73,796
131,443
21,062
109,403
109,210
110,381
197,271
204,149
182,483
27,604
224,875
88,993
3,044
40,447
146,960
279,444
54,834
21,330
11,357
215,506
(12,861)
169,622
80,660
78,528
3,583
485
(3,661)
161,929
242,511
82,205
31,978
(12,124)
176,092
242,981
37,022
14,402
22,620
$
33,504
$
50,227
$
$
5,937,585
$
6,243,519
$
6,148,067
2,067,548
5,741,719
2,109,520
6,130,383
273,809
0.56%
12.24%
74.66%
0.65%
212
277,837
0.80%
18.08%
72.82%
1.17%
207
2,316,952
6,048,195
253,233
0.37%
8.93%
81.26%
0.91%
202
Mortgage loans funded for resale
Mortgage servicing portfolio1
1 Includes outstanding principal for loans serviced for affiliates within the consolidated group.
$ 2,293,834
12,356,917
12,059,241
2,501,860
$
$
7,366,780
2,811,076
Net interest revenue from Consumer banking activities decreased $11.1 million or 8% compared to 2010 primarily due to the transfer of
certain small business demand deposit balances to the Commercial banking segment. Average loan balances also decreased $42 million
primarily due 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.
Fees and commissions revenue decreased $6.9 million or 3% compared to 2010. Deposit service charges were down $13.9 million or 20%
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 and due to service fees on small business deposits transferred to the Commercial banking segment. Mortgage banking
revenue was up $3.9 million over 2010. Mortgage loan origination volume was high in both 2011 and 2010 due to low interest rates.
Revenue from originating and marketing mortgage loans was up $2.4 million due to an increase in gains on loans sold. Mortgage servicing
revenue increased $1.5 million. Transaction card revenue decreased $1.3 million or 4% compared to the prior year due primarily to
changes in federal regulations concerning debit card interchange fees which were effective in the fourth quarter of 2011.
Excluding changes in the fair value of mortgage servicing rights, operating expenses decreased $7.2 million compared to the prior year.
Decreased corporate expense allocations related to the transfer of small business banking operations to the Commercial banking segment
were mostly offset by increased personnel costs related to increased mortgage banking activity. Mortgage banking costs decreased $6.8
million compared to the prior year due primarily to decreased provision related to loans sold with recourse and amortization of mortgage
servicing rights.
32
Net loans charged off by the Consumer banking unit decreased $11.3 million from the prior year to $13.5 million or 0.65% 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 decreased $389 million or 6% compared to 2010, primarily due to the transfer of small business banking to the
Commercial banking segment, partially offset by some growth in other Consumer banking deposits. Average demand deposits decreased
$210 million or 24%, average time deposits decreased $182 million or 8% and average interest-bearing transaction accounts decreased $20
million or 1%.
Our Consumer banking division originates, markets and services conventional and government-sponsored mortgage loans for all of our
geographical markets. During 2011, we funded $2.5 billion of mortgage loans compared to $2.8 billion in 2010. Approximately 42% of
our mortgage loans funded were in the Oklahoma market, 15% in the New Mexico market, 15% in the Colorado market and 12% in the
Texas market. Mortgage fundings included $2.2 billion of mortgage loans funded for sale in the secondary market and $250 million of
loans funded for retention within the consolidated group. Revenue from originating and marketing mortgage loans for sale totaled $52.1
million in 2011 and $49.7 million in 2010. As of December 31, 2011, the Consumer banking division services $11.3 billion of mortgage
loans for others and $1.1 billion of loans retained within the consolidated group. Approximately 97% of the mortgage loans serviced was
to borrowers in our primary geographical market areas. Mortgage loan servicing revenue totaled $39.9 million in 2011 compared to $38.4
million in 2010.
Changes in the fair value of our mortgage loan servicing rights, net of securities and derivative contracts held as an economic hedge,
decreased Consumer banking pre-tax net income by $13.1 million in 2011 and increased Consumer banking pre-tax net income by $3.6
million in 2010, excluding the $11.8 million pre-tax day-one gain on the purchase of mortgage servicing rights during 2010. 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 fair value option securities held
as an economic hedge of mortgage servicing rights totaled $17.7 million for 2011 and $19.1 million for 2010. We generally use residential
mortgage-backed securities as an economic hedge against changes in the fair value of our mortgage servicing rights. Generally, this is an
effective hedging strategy. However, the fair value of the mortgage servicing rights reacts to changes in primary mortgage rates and the
fair value of residential mortgage-backed securities reacts to changes in secondary mortgage rates. Divergence between the primary and
secondary mortgage rates can significantly affect the effectiveness of our hedging strategy.
33
Wealth management
The Wealth management division contributed $14.1 million in 2011, up $1.5 million over 2010.
Table 12 – Wealth management
(Dollars in thousands)
Net interest revenue from external sources $
Net interest revenue from internal sources
Total net interest revenue
Net loans charged-off
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Gain on financial instruments and other
assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Other non-personnel expense
Operating expense
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
Year ended December 31,
2011
2010
2009
26,785
$
31,161
$
15,783
42,568
2,860
39,708
12,373
43,534
10,569
32,965
24,665
19,165
43,830
11,028
32,802
170,939
164,461
155,587
551
171,490
743
165,204
742
156,329
126,088
120,190
111,681
33
62,079
188,200
22,998
8,946
44
57,375
177,609
20,560
7,998
$
14,052
$
12,562
$
9
59,468
171,158
17,973
6,991
10,982
$
3,829,894
$
3,499,115
$
3,027,312
916,843
3,689,403
174,927
0.37%
8.03%
88.15%
0.31%
1,032,996
3,354,648
169,775
0.36%
7.40%
85.39%
1.02%
1,029,722
2,948,956
160,276
0.36%
6.85%
85.83%
1.07%
Our Wealth management division serves as custodian to or manages assets of customers. Fees are earned commensurate with the level of
service provided. We may have sole or joint investment discretion over the assets of the customer or may be fiduciary for the assets, but
investment selection authority remains with the customer or an external manager. The Wealth management division also provides
safekeeping services for personal and institution customers including holding of the customer’s assets, processing of income and
redemptions and other customer recordkeeping and reporting services. We also provide brokerage services for customers who maintain or
delegate investment authority and for which BOK Financial does not have custody of the assets.
34
A summary of assets under management or in custody follows (in thousands):
December 31,
2011
December 31,
2010
December 31,
2009
Trust assets in custody for which BOKF
has sole or joint discretionary authority
$ 9,916,322
$ 9,351,345
$ 8,168,073
Trust assets not in custody for which
BOKF has sole or joint discretionary
authority
Non-managed trust assets in custody
Trust assets held in safekeeping
Trust assets
Other assets held in safekeeping
Brokerage accounts under BOKF
administration
221,465
12,684,026
11,576,983
34,398,796
7,371,756
171,205
13,392,187
10,007,969
32,922,706
6,337,654
135,380
12,339,059
9,878,233
30,520,745
6,702,356
3,635,300
3,117,159
2,679,209
Assets under management or in custody
$ 45,405,852
$ 42,377,519
$ 39,902,310
Net interest revenue decreased $966 thousand or 2% compared to the prior year. Average loan balances were down $116 million and
average deposit balances increased $335 million over the prior year. Loan yields decreased compared to the prior year, largely offset by
decreased funding costs related to deposits. Net loans charged-off decreased $7.7 million during 2011 to $2.9 million or 0.31% of average
loans.
Other operating revenue increased $6.3 million or 4% over the prior year. Trust fees were up $4.3 million or 6% primarily due to increases
in the fair value of trust assets and retail brokerage fees were up $2.1 million or 2% over 2010.
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 segment participated in 278 underwritings that totaled $4.7 billion. As a
participant, the Wealth management segment was responsible for facilitating the sale of approximately $1.5 billion of these underwritings.
In 2010, the Wealth management segment participated in 215 underwritings that totaled approximately $5.4 billion. Our interest in these
underwritings totaled approximately $1.3 billion.
Operating expenses increased $10.6 million or 6% over 2010. Personnel expense increased $5.9 million or 5% due primarily to increased
headcount. Non-personnel expenses increased $4.7 million due primarily to additional expense incurred related to expansion of the Wealth
management segment during 2011.
Growth in average assets was largely due to an increase in Wealth management deposits which are sold to the Funds management unit.
Average deposits attributed to the Wealth management segment increased $335 million over the prior year including a $179 million
increase in average demand deposit account balances and a $146 million increase in the average balance of interest-bearing transaction
accounts, partially offset by a $156 million decrease in average time deposit balances.
35
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
Year ended December 31,
2011
2010
2009
$ 105,791
$ 114,434
$ 85,515
42,876
14,255
6,001
10,202
(7,980)
3,912
175,057
110,818
29,218
8,880
3,950
2,919
(22,817)
4,113
140,697
106,057
19,405
6,582
10,751
(6,604)
(28,481)
6,431
93,599
106,979
$ 285,875
$ 246,754
$ 200,578
36
Oklahoma Market
Our Oklahoma offices are located primarily in the Tulsa and Oklahoma City metropolitan areas. Oklahoma is a significant market to the
Company, representing 48% of our average loans, 54% of our average deposits and 31% of our consolidated net income for 2011. In
addition, all of our mortgage servicing activity, TransFund EFT network and 73% of our trust assets are attributed to the Oklahoma market.
Table 14 – Oklahoma
(Dollars in thousands)
Year ended December 31,
2011
2010
2009
Net interest revenue
$ 240,616
$
244,455
$
235,569
Net loans charged-off
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Gain (loss) on financial instruments and
other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Change in the fair value of mortgage
servicing rights
Other non-personnel expense
Operating expense
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
18,266
42,075
34,944
222,350
202,380
200,625
320,929
322,178
314,528
28,247
349,176
10,475
332,653
(12,026)
302,502
165,246
152,133
145,762
4,657
4,252
1,799
40,447
188,032
398,382
173,144
67,353
(3,661)
195,020
347,744
187,289
72,855
$
105,791
$
114,434
$
(12,124)
227,731
363,168
139,959
54,444
85,515
$ 10,930,742
$
9,775,984
$
8,845,648
5,247,656
9,821,782
541,210
0.97%
19.55%
63.74%
0.35%
5,438,436
8,782,196
548,537
1.17%
20.86%
62.02%
0.77%
6,084,099
7,888,820
538,015
0.97%
15.89%
68.22%
0.57%
Net income generated in the Oklahoma market in 2011 decreased $8.6 million or 8% compared to 2010. Net interest revenue decreased
$3.9 million or 2%. Net loans charged off decreased $23.8 million to $18.3 million or 0.35% of average loans attributed to the Oklahoma
market. Fees and commissions revenue was flat compared to the prior year. Excluding changes in the fair value of mortgage servicing
rights, operating expenses increased $6.5 million or 2% over the prior year. Changes in fair value of our mortgage loan servicing rights,
net of financial instruments held as an economic hedge, decreased pre-tax net income by $13.1 million in 2011 and increased pre-tax net
income by $3.6 million in 2010, excluding the $11.8 million pre-tax day-one gain on the purchase of mortgage servicing rights during
2010.
Net interest revenue decreased $3.9 million or 2% compared to 2010. The favorable net interest impact of the $1.0 billion increase in
average deposit balances was partially offset by lower yield on funds sold to the funds management unit. Average loan balances decreased
$191 million or 4% compared to the prior year. The decrease in loan yields was partially offset by lower costs related to interest-bearing
liabilities.
Fees and commissions revenue was flat compared to the prior year. Deposit service charges were down $6.1 million or 9% due primarily
to lower overdraft fees as a result of changes in banking regulations that became effective in the third quarter of 2010. Brokerage and
trading revenue was up $4.4 million over 2011 and transaction card revenue increased $3.1 million due to increased transaction volume.
Mortgage banking revenue was down $1.9 million and trust fees and commissions decreased $1.5 million.
Excluding change in fair value of mortgage servicing rights, other operating expenses increased $6.5 million over the prior year. Personnel
costs increased $13.1 million or 9% due to increased headcount, increased incentive compensation related to increased trading and
mortgage transaction activity and annual merit increases. Net losses and expenses on repossessed assets increased $405 thousand or 10%.
37
Other non-personnel expense decreased $7.0 million or 4% due primarily to lower mortgage banking costs and other expenses, partially
offset by increased data processing expenses on higher transaction volumes.
Average deposits in the Oklahoma market increased $1.0 billion or 12% over 2010, primarily due to an increase in average commercial
deposit balances. Deposits related to commercial and industrial customers, treasury services and energy customers all increased over the
prior year. Wealth management deposits increased over the prior year in the private banking division, broker/dealer division and in trust.
Consumer banking deposits decreased and commercial deposits increased compared to the prior year primarily due to the transfer of small
business banking activities from the Consumer banking segment to the Commercial banking segment.
Texas Market
Our Texas offices are located primarily in the Dallas, Fort Worth and Houston metropolitan areas. Texas is our second largest market with
32% of our average loans, 24% of our average deposits and 18% of our consolidated net income for 2011.
Table 15 – Texas
(Dollars in thousands)
Year ended December 31,
2011
2010
2009
Net interest revenue
$
137,696
$
134,323
$
134,949
Net loans charged-off
Net interest revenue after net loans
charged- off
3,202
16,292
22,197
134,494
118,031
112,752
Fees and commissions revenue
Gain (loss) on financial instruments and
other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Other non-personnel expense
Operating expense
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
63,608
342
63,950
67,470
1,570
62,410
131,450
66,994
24,118
60,722
50,862
(7)
60,715
65,311
6,708
61,074
133,093
45,653
16,435
(12)
50,850
63,202
2,705
67,374
133,281
30,321
10,916
19,405
$
42,876
$
29,218
$
$
4,933,463
$
4,479,689
$
4,166,690
3,417,235
4,368,967
473,939
0.87%
9.05%
65.30%
0.09%
3,320,173
3,901,364
479,390
0.65%
6.09%
68.24%
0.49%
3,606,579
3,701,415
493,074
0.47%
3.94%
71.73%
0.62%
Net income in the Texas market increased $13.7 million or 47% over 2010 primarily due to a decrease in net loans charged off and net
losses and expenses of repossessed assets.
Net interest revenue increased $3.4 million or 3% over the prior year. Average assets increased primarily due to a $468 million or 12%
increase in average deposits which were sold to the funds management unit. Average loans outstanding grew by $97 million or 3% over
the prior year.
Net loans charged-off decreased $13.1 million to $3.2 million or 0.09% of average loans in 2011.
Fees and commissions revenue increased $2.9 million or 5% over 2010 due primarily to a $2.6 million increase in trust fees and
commissions. Brokerage and trading revenue and transaction card revenue increased over 2010, offset by decreased deposit service
charges and mortgage banking revenue.
38
Other operating expenses decreased $1.6 million or 1% compared to the previous year. Personnel costs increased $2.2 million primarily
due to increased incentive compensation. Net losses and operating expense of repossessed assets decreased $5.1 million compared to the
prior year. Other non-personnel costs were up $1.3 million or 2%.
New Mexico Market
Net income attributed to our New Mexico market totaled $14.3 million or 7% of consolidated net income, a $5.4 million or 61% increase
over the prior year. Net interest revenue increased $1.3 million or 4% over the prior year. Average deposit balances increased $11.3
million or 1%. Average demand deposit balances increased $50 million or 22%, partially offset by a $38 million or 8% decrease in average
time deposits balances. Net charge-offs declined by $4.3 million to $2.0 million or 0.28% of average loans compared to $6.3 million or
0.87% of average loans for 2010. Fees and commissions revenue increased $3.2 million over the prior year due primarily to increased
mortgage banking revenue. Increased brokerage and trading revenue, transaction card revenues and trust fees and commissions were
mostly offset by a decrease in deposit service charges and fees. Other operating expenses were flat compared to the prior year.
Table 16 – New Mexico
(Dollars in thousands)
Net interest revenue
Net loans charged-off
Net interest revenue after net loans
charged- off
Other operating revenue – fees and
commissions revenue
Personnel expense
Net losses and expenses of repossessed
assets
Other non-personnel expense
Operating expense
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
Year ended December 31,
2010
2009
2011
$
33,959
$
32,649
$
1,959
6,269
32,788
6,420
32,000
26,380
26,368
31,165
13,704
2,019
24,112
39,835
23,330
9,075
27,994
13,135
2,891
23,815
39,841
14,533
5,653
$
14,255
$
8,880
$
23,949
12,647
1,029
25,868
39,544
10,773
4,191
6,582
$
1,390,700
$
1,329,578
$
1,248,283
707,723
1,242,964
719,160
1,231,643
809,626
1,146,942
82,296
1.03%
17.32%
61.17%
0.28%
83,188
0.67%
10.67%
65.70%
0.87%
85,750
0.53%
7.68%
69.70%
0.79%
39
Arkansas Market
Net income for the Arkansas market totaled $6.0 million, up $2.1 million or 52% over 2010. Net interest revenue decreased $2.0 million
primarily due to a $57 million decrease in average loans. Loans in the Arkansas market continue to decrease due to the run-off of indirect
automobile loans. Average deposits attributed to the Arkansas market were up $14 million or 7% over 2010, primarily related to increases
in commercial banking deposits, partially offset by decreased wealth management and consumer deposit balances. Net loans charged off
decreased $4.0 million to $2.7 million or 1.00% of average loans in 2011, compared to $6.7 million or 2.04% of average loans in 2010.
Other operating revenue decreased $3.6 million or 9% compared to 2010, primarily on decreased securities trading revenue at our Little
Rock office, partially offset by increased mortgage banking and transaction card revenue. Other operating expenses decreased $5.0 million
due primarily to decreased incentive compensation costs related to securities trading activity.
Table 17 – Arkansas
(Dollars in thousands)
Net interest revenue
Net loans charged-off
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Loss on financial instruments and other
assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Other non-personnel expense
Operating expense
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
Year ended December 31,
2010
2009
2011
$
8,213
$
10,222
$
2,747
5,466
37,611
–
37,611
17,641
548
15,066
33,255
9,822
3,821
6,734
3,488
41,258
–
41,258
21,601
1,108
15,573
38,282
6,464
2,514
$
$
6,001
$
3,950
$
291,560
$
357,178
$
273,382
210,083
23,564
2.06%
25.47%
72.57%
1.00%
330,136
196,372
23,232
1.11%
17.00%
74.36%
2.04%
11,741
3,469
8,272
37,137
(18)
37,119
20,060
585
7,150
27,795
17,596
6,845
10,751
424,971
409,281
155,981
24,460
2.53%
43.95%
56.87%
0.85%
40
Colorado Market
Net income attributed to our Colorado market increased $7.3 million or 250% over 2010 due primarily to a decrease in net loans charged
off. Net loans charged-off decreased $8.7 million to $2.3 million or 0.29% of average loans. Net interest income was up $1.3 million or
4% over the prior year. Average deposit balances increased $128 million or 11% over the prior year. Increased commercial and wealth
management deposits were partially offset by decreased consumer deposit balances. Average loan balances increased $15 million or 2%.
Other operating revenue was up $891 thousand over the prior year due primarily to increased mortgage banking revenue. Operating
expenses were down $1.0 million or 3% compared to the prior year due primarily to a decrease in net losses and operating expenses of
repossessed assets. Increased personnel costs were mostly offset by decreases in other non-personnel costs.
Table 18 – Colorado
(Dollars in thousands)
Year ended December 31,
2011
2010
2009
Net interest revenue
Net loans charged-off
$
34,018
$
32,706
$
2,279
10,973
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Loss on financial instruments and other
assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Other non-personnel expense
Operating expense
Income (loss) before taxes
Federal and state income tax
31,739
22,588
–
22,588
18,388
402
18,839
37,629
16,698
6,496
21,733
21,703
(6)
21,697
17,050
1,429
20,174
38,653
4,777
1,858
Net income (loss)
$
10,202
$
2,919
$
36,689
24,857
11,832
18,237
(2)
18,235
17,378
1,260
22,237
40,875
(10,808)
(4,204)
(6,604)
Average assets
Average loans
Average deposits
Average invested capital
Return on assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
$
1,343,816
$
1,219,195
$
1,217,287
782,583
1,273,794
118,749
0.76%
8.59%
66.48%
0.29%
767,983
1,145,887
123,910
0.24%
2.36%
71.04%
1.43%
908,919
1,137,888
129,897
(0.54%)
(5.08%)
74.42%
2.73%
41
Arizona Market
The Arizona market’s performance continued to improve during 2011. The net loss attributed to the Arizona market narrowed from $22.8
million in 2010 to $8.0 million in 2011. Net loans charged off improved by $15.8 million to $6.6 million or 1.14% of average loans
attributed to the Arizona market. Net losses and operating expenses on repossessed assets decreased by $3.7 million compared to the prior
year. Excluding these credit costs, we continue to see improvement in the Arizona market. Net interest revenue increased $4.4 million or
38% over the prior year. Average loans balances grew by $40 million or 60% and average deposit balances increased $37 million or 17%.
Growth was primarily related to commercial loans and deposits. Other operating revenue increased $773 thousand. Deposit service
charges, transaction card revenues and trust fees and commissions all increased over the prior year, partially offset by a decrease in
mortgage banking revenue. Excluding net losses and operating expenses of repossessed assets, other operating expense decreased $496
thousand compared to the prior year.
We continue to focus on growth in commercial and small business lending and wealth management services in the Arizona market. We
have significantly scaled back commercial real estate lending activities which were not contemplated in our initial expansion into the
market. Loan and repossessed assets losses 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 these growth plans are unsuccessful.
Table 19 – Arizona
(Dollars in thousands)
Net interest revenue
Net loans charged-off
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Gain (loss) on financial instruments and
other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed
assets
Other non-personnel expense
Operating expense
Loss before taxes
Federal and state income tax
Net 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
Year ended December 31,
2011
2010
2009
$
16,237
$
11,792
$
22,423
11,175
39,694
6,578
9,659
5,495
349
5,844
9,584
10,402
8,578
28,564
(13,061)
(5,081)
(10,631)
(28,519)
5,071
–
5,071
9,944
14,117
7,722
31,783
(37,343)
(14,526)
3,404
(20)
3,384
11,104
3,413
6,962
21,479
(46,614)
(18,133)
$
$
(7,980) $
(22,817) $
(28,481)
641,340
$
609,467
$
574,770
255,487
65,024
(1.24%)
(12.27%)
131.44%
1.14%
522,035
218,865
65,242
(3.74%)
(34.97%)
188.48%
4.30%
631,642
564,699
182,209
71,436
(4.51%)
(39.87%)
147.33%
7.03%
42
Kansas/Missouri Market
Net income attributed to the Kansas/Missouri market totaled $3.9 million for 2011 compared to $4.1 million for 2010. Net interest revenue
increased $2.2 million or 24%. Average loan balances increased $67 million. Average deposit balances increased $63 million due
primarily to increased commercial deposits offset by lower wealth management and consumer deposits. Other operating revenue increased
$3.4 million or 17% primarily due to increased trust fees and commissions and mortgage banking revenue, partially offset by decreased
brokerage and trading revenues. Other operating expenses increased $4.2 million due primarily to increased personnel costs as a result of
increased headcount and increased corporate expense allocations on increased transaction activity.
Table 20 – Kansas/Missouri
(Dollars in thousands)
Year ended December 31,
2011
2010
2009
Net interest revenue
Net loans charged-off
$
11,675
$
9,428
$
2,523
782
Net interest revenue after net loans
charged- off
Fees and commissions revenue
Loss on financial instruments and other
assets, net
Other operating revenue
Personnel expense
Net losses (gains) and expenses of
repossessed assets
Other non-personnel expense
Operating expense
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
9,152
22,773
–
22,773
14,372
176
10,974
25,522
6,403
2,491
8,646
19,386
–
19,386
12,975
(67)
8,392
21,300
6,732
2,619
$
$
3,912
$
4,113
$
376,652
$
309,230
$
364,517
302,632
27,754
1.04%
14.10%
74.09%
0.69%
297,604
239,759
22,744
1.33%
18.08%
73.92%
0.26%
7,927
920
7,007
19,905
(29)
19,876
11,622
104
4,632
16,358
10,525
4,094
6,431
310,649
299,861
158,665
20,795
2.07%
30.93%
58.77%
0.31%
43
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 trading, held for investment, available for sale. See Note 2 to the consolidated
financial statements for additional discussion of the securities portfolio.
Table 21 – Securities
(Dollars in thousands)
Trading:
Obligations of the U.S. Government
U.S. agency residential mortgage-
backed securities
Municipal and other tax-exempt
securities
Other trading securities
Total
Investment:
Municipal and other tax-exempt
U.S. agency residential mortgage-
backed securities – Other
Other debt securities
Total
Available for sale:
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed
securities:
U.S. agencies
Privately issue
Total residential mortgage-
backed securities
Other debt securities
Perpetual preferred stocks
Equity securities and mutual funds
Total
Fair value option securities:
U.S. agency residential mortgage-
backed securities
Corporate debt securities
Total
2011
December 31,
2010
2009
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
22,140
$
22,203
$
3,890
$
3,873
$ 21,395
$
21,260
12,320
12,379
26,979
27,271
16,001
38,693
2,864
39,345
2,873
23,610
929
23,396
927
26,897
1,296
15,999
26,813
1,282
$
76,017
$
76,800
$
55,408
$
55,467
$ 65,589
$
65,354
$ 128,697
$ 133,670
184,898
188,577
$ 232,568
$
238,847
121,7041
188,835
439,236
$
120,536
208,451
462,657
1,001
66,435
$
1,006
68,837
–
154,655
339,553
–
72,190
$
$
–
157,528
346,105
–
72,942
$
$
$
$
–
7,837
240,405
$
–
7,857
246,704
6,998
61,268
$
7,020
62,201
$
$
9,297,389
503,068
9,588,177
419,166
8,193,705
714,430
8,446,909
644,209
7,645,817
961,378
7,809,328
792,362
9,800,457
36,298
19,171
33,843
$ 9,957,205
10,007,343
36,495
18,446
47,238
$ 10,179,365
8,908,135
6,401
19,511
29,181
$ 9,035,418
9,091,118
6,401
22,114
43,046
$ 9,235,621
8,607,195
17,174
19,224
35,414
$ 8,747,273
8,601,690
17,147
22,275
50,165
$ 8,760,498
$
$
606,875
25,099
631,974
$
$
626,109
25,117
651,226
$
$
433,662
–
433,662
$
$
428,021
–
428,021
$
$
288,076
–
288,076
$
$
285,950
–
285,950
1 Includes $12 million of remaining net unrealized gain which remains in Accumulated Other Comprehensive Income in the Consolidated Balance Sheets
related to certain U.S. government agency residential mortgage-backed securities transferred from the Available for Sale portfolio to the Investment
portfolio in 2011. See Note 2 to the Consolidated Financial Statements for additional discussion.
We intend to sell trading securities to our customers for a profit. Trading securities are carried at fair value. Changes in fair value are
recognized in current period income.
At December 31, 2011, the carrying value of investment (held-to-maturity) securities was $439 million and the fair value was $463 million.
Investment (held-to-maturity) securities consist primarily of long-term, fixed-rate Oklahoma municipal bonds and taxable Texas school
construction bonds and U.S. agency residential mortgage-backed securities. The investment securities portfolio is diversified among
issuers. Excluding, U.S. government agencies, the largest obligation of any single issuer is $30 million. Substantially all of the municipal
bonds are general obligations of the issuer. Approximately $93 million of the taxable Texas school construction bonds are also guaranteed
by the Texas Permanent School Fund Guarantee Program supervised by the State Board of Education for the State of Texas. We
transferred $120 million of residential mortgage-backed securities issued by U.S. government agencies to the investment portfolio during
2011 as discussed in greater detail in Note 2 to the Consolidated Financial Statements.
Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes,
are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of available for sale securities
totaled $10.0 billion at December 31, 2011, up $922 million over December 31, 2010. At December 31, 2011, residential mortgage-backed
44
securities represented 98% of total available for sale securities. A summary of our securities follows in Table 21. Additional details
regarding securities concentrations appears in Note 2 to the Consolidated Financial Statements.
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 low effective durations. Our best estimate of the duration of the residential mortgage-backed
securities portfolio at December 31, 2011 is 1.7 years. Management estimates that the duration would extend to approximately 3.1 years
assuming an immediate 200 basis point upward rate shock. The estimated duration contracts to 1.4 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 fully
guaranteed. At December 31, 2011, approximately $9.3 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 $9.6 billion at
December 31, 2011.
We also hold amortized cost of $503 million in residential mortgage-backed securities privately issued by publicly-owned financial
institutions; a decrease of $211 million from December 31, 2010. The decrease was primarily due to $189 million of cash received and
$21.9 million of other-than-temporary impairment losses charged against earnings during 2011. The fair value of our portfolio of privately
issued residential mortgage-backed securities totaled $419 million at December 31, 2011.
The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $335 million of Jumbo-A residential
mortgage loans and $168 million of Alt-A residential mortgage loans. Jumbo-A residential mortgage loans generally meet government
agency underwriting standards, but have loan balances that exceed agency maximums. Alt-A residential mortgage loans generally do not
have sufficient documentation to meet government agency underwriting standards. Credit risk on residential mortgage-baked securities
originated by private issuers is mitigated by investment in senior tranches with additional collateral support. All of our Alt-A residential
mortgage-backed securities were issued with credit support from additional layers of loss-absorbing subordinated tranches, including all
Alt-A residential mortgage-backed securities held that were originated in 2007 and 2006. The weighted average original credit
enhancement of the Alt-A residential mortgage-backed securities was 10.5% and currently stands at 3.2%. The Jumbo-A residential
mortgage-backed securities had original credit enhancement of 8.8% and the current level is 7.6%. Approximately 81% 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 24% 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 residential mortgage-backed securities with a total amortized cost of $460 million were rated below investment grade at
December 31, 2011 by at least one of the nationally-recognized rating agencies. Net unrealized losses on the below investment grade
residential mortgage-backed securities totaled $79 million at December 31, 2011. Net unrealized losses on these same below investment
grade securities were $62 million at December 31, 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, 2011, these stocks have an aggregate carrying value of $19 million and an aggregate fair value of $18 million.
The aggregate gross amount of unrealized losses on available for sale securities totaled $86 million at December 31, 2011. 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 $23.5 million were recognized
in earnings in 2011 on certain privately issued residential mortgage-backed securities and other municipal securities we do not intend to
sell.
Certain residential mortgage-backed securities issued by U.S. government agencies, identified as fair value option securities, have been
designated as economic hedges of mortgage servicing rights. In addition, certain corporate debt securities are economically hedged by
derivative contracts. 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 and related
derivative contracts.
Bank-Owned Life Insurance
We have approximately $263 million invested in bank-owned life insurance at December 31, 2011. These investments are expected to
provide a long-term source of earnings to support existing employee benefit programs. Approximately $232 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, 2011, cash surrender value represented by the
45
underlying fair value of investments held in separate accounts was approximately $254 million. As the underlying fair value of the
investments held in a separate account at December 31, 2011 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 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.
At December 31, 2010, our investment in bank-owned life insurance was approximately $255 million, with $224 million held in separate
accounts. The cash surrender value was approximately $239 million at December 31, 2010 and no cash surrender value was supported by
the stable value wrap as the underlying fair value of the investments held in the separate account exceeded the book value of the
investments. The remaining cash surrender value held in general accounts and due from various insurance companies was $31 million at
December 31, 2010.
Loans
The aggregate loan portfolio before allowance for loan losses totaled $11.3 billion at December 31, 2011, a $627 million or 6% increase
over December 31, 2010.
Table 22 – Loans
(In thousands)
Commercial:
Energy
Services
Wholesale/retail
Healthcare
Manufacturing
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Retail
Office
Multifamily
Construction and land development
Industrial
Other commercial real estate
Total commercial real estate
2011
2010
December 31,
2009
2008
2007
$ 2,015,619
1,745,189
962,984
976,481
350,834
208,738
311,609
6,571,454
$ 1,711,409
1,580,921
1,010,246
809,625
325,191
204,283
292,321
5,933,996
$ 1,911,994
1,807,824
921,830
792,538
404,061
160,549
209,044
6,207,840
$ 2,311,813
2,038,451
1,165,099
777,154
497,957
197,629
423,500
7,411,603
$ 1,954,967
1,733,569
1,084,379
685,131
493,185
240,469
569,884
6,761,584
509,743
406,508
368,519
327,480
277,733
389,926
2,279,909
405,540
457,450
369,242
447,864
182,093
415,161
2,277,350
423,260
463,316
360,436
645,295
146,707
452,420
2,491,434
371,228
459,357
316,596
926,226
149,367
478,474
2,701,248
423,118
421,163
214,388
1,007,414
154,255
502,746
2,723,084
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
Total residential mortgage
1,150,321
1,202,559
1,274,707
1,253,959
1,075,413
184,973
635,167
1,970,461
72,385
553,304
1,828,248
28,633
490,282
1,793,622
19,316
479,299
1,752,574
16,969
442,223
1,534,605
Consumer:
Indirect automobile
Other consumer
Total consumer
105,149
342,770
447,919
239,576
363,866
603,442
454,508
332,294
786,802
692,615
317,966
1,010,581
625,203
296,094
921,297
Total
$ 11,269,743
$ 10,643,036
$ 11,279,698
$ 12,876,006
$ 11,940,570
Outstanding commercial loans balances grew in most geographical regions in 2011, increasing $637 million. Commercial real estate loans
were up $2.6 million. Residential mortgage loans increased $142 million in 2011 due primarily to an increase in loans guaranteed by U.S.
government agencies. These loans represent loans previously sold to GNMA mortgage pools that are reacquired when certain delinquency
criteria are met. Consumer loans decreased $156 million during 2011 primarily related to the continued runoff of indirect automobile loans
related to the previously announced decision to curtail that business in favor of a customer-focused direct approach to consumer lending. A
breakdown of the loan portfolio by primary market based on where we manage the account follows on Table 23. This breakdown may not
always represent the location of the borrower or the collateral.
46
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
2011
2010
December 31,
2009
2008
2007
$ 2,697,623
600,703
1,429,069
236,056
$ 4,963,451
$ 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
$ 2,214,462
830,831
266,050
126,280
$ 3,437,623
$ 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
$ 252,367
316,853
100,581
18,519
$ 688,320
$ 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
$
86,111
127,687
14,511
36,061
$ 264,370
$
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
$ 559,127
153,855
64,437
21,651
$ 799,070
$ 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
$ 288,536
192,731
82,202
5,505
$ 568,974
$ 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
$ 473,228
57,249
13,611
3,847
$ 547,935
$11,269,743
$ 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
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 increased $637 million during 2011 to $6.6 billion at December 31, 2011. Energy sector loans increased
$304 million over 2010 primarily in the Texas, Oklahoma and Colorado markets. Healthcare sector loans increased $167 million primarily
in the Oklahoma, Texas, Arizona and Colorado markets. Service sector loans increased $164 million primarily in the Texas,
Kansas/Missouri and Oklahoma markets. Wholesale/retail sector loans decreased $47 million primarily due to a decrease in loans
attributed to the Texas and Oklahoma markets, partially offset by an increase in loans to the Arizona market.
47
The commercial sector of our loan portfolio is distributed as follows in Table 24.
Table 24 – Commercial Loans by Principal Market
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas Colorado
Arizona
Kansas/
Missouri
Total
Energy
Services
Healthcare
Wholesale/retail
Manufacturing
Integrated food services
Other commercial
and industrial
$ 969,131
505,910
574,105
385,708
162,546
17,215
$ 790,903
590,660
248,763
371,879
113,014
7,803
$
–
160,652
11,040
51,290
6,794
–
$
254
13,588
5,826
29,000
1,184
31
$ 254,224
194,842
68,599
19,412
15,686
1,821
$
–
123,304
45,683
76,420
25,660
–
$
1,107
156,233
22,465
29,275
25,950
181,868
$2,015,619
1,745,189
976,481
962,984
350,834
208,738
83,008
91,440
22,591
36,228
4,543
17,469
56,330
311,609
Total commercial loans
$ 2,697,623
$ 2,214,462
$252,367
$86,111
$ 559,127
$ 288,536 $ 473,228
$6,571,454
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. . Based on our most recent evaluation of changes
in energy prices on our loan portfolio, a decrease in natural gas prices to $2.00 per MMBTU in 2012 and oil prices to $55.00 per barrel in
2012 would not significantly impact the credit quality of our energy loan portfolio.
Energy loans totaled $2.0 billion or 18% of total loans. Outstanding energy loans increased $304 million during 2011. Unfunded energy
loan commitments decreased $30 million during 2011 to $2.0 billion at December 31, 2011.
Energy loans to oil and gas producers totaled approximately $1.7 billion, up $265 million or 18% over the prior year. Approximately 53%
of the committed production loans are secured by properties primarily producing oil and 47% are secured by properties primarily producing
natural gas. Loans to borrowers that provide services to the energy industry increased approximately $62 million over the prior year to $94
million. Loans to borrowers engaged in wholesale or retail energy sales decreased $18 million compared to the prior year to $169 million
and loans to borrowers that manufacture equipment for the energy industry decreased $2.3 million compared to the prior year to $24
million at December 31, 2011.
The services sector of the loan portfolio totaled $1.7 billion or 15% of total loans and consists of a large number of loans to a variety of
businesses including community foundations, communications, educational, gaming, and transportation services. Service sector loans
increased $164 million in 2011. Approximately $993 million 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, 2011, the outstanding principal balance of these loans totaled $1.9 billion. Substantially all of these loans
are to borrowers with local market relationships. We serve as the agent lender in approximately 18% 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 2011 did not differ
significantly from management’s assessment.
48
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 20% of the loan portfolio at December 31, 2011. 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 increased $2.6 million over the prior 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
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas
Colorado
Arizona
Kansas/
Missouri
Total
Retail
$ 117,520
$ 213,784
$
60,544
$ 12,357
$ 19,000
$ 64,924
$ 21,614
$ 509,743
Office
Multifamily
Construction and land
development
Industrial
Other commercial
real estate
Total commercial real
73,443
128,170
106,357
58,665
187,805
124,477
57,916
163,833
79,969
21,000
57,224
27,492
12,811
60,033
11,083
566
20,251
8,841
65,020
1,024
32,166
17,152
21,805
16,166
63
8,846
8,075
9,987
406,508
368,519
327,480
277,733
116,548
83,016
70,624
30,837
39,719
40,518
8,664
389,926
estate loans
$ 600,703
$ 830,831
$ 316,853
$ 127,687
$ 153,855
$ 192,731
$ 57,249
$ 2,279,909
Construction and land development loans, which consist primarily of residential construction properties and developed building lots,
decreased $120 million during the year to $327 million at December 31, 2011 primarily due to payments. In addition, $14 million of
construction and development loans were transferred to other real estate owned and $6.3 million were charged off. This sector of the loan
portfolio is expected to continue to decrease as construction projects currently in process are completed. Loans secured by retail facilities
increased $104 million or 26% in 2011 and loans secured by industrial facilities increased $96 million over in 2011, both primarily in the
Texas market. Loans secured by office buildings decreased $51 million and other commercial real estate loans decreased $25 million.
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 $2.0 billion, up $142 million or 8% since December 31, 2010. In general, we sell the majority of our
conforming fixed-rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate
mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our residential 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 majority of our permanent mortgage loan portfolio is composed of various non-conforming residential 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. At December 31, 2011, the aggregate outstanding balance of loans in these programs was $988
million. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans exceed maximums set under
government sponsored entity standards, but otherwise generally conform to those standards. These loans generally require a minimum
FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38%. Loan-to-value ratios (“LTV”) are tiered from 60% to 100%,
depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain
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 permanent residential mortgage loan portfolio balance decreased $52 million in 2011 and $72 million in 2010,
generally due to refinancing of variable rate loans into fixed rate loans in the current low-rate environment.
49
At December 31, 2011, approximately $84 million or 7% of the non-guaranteed portion of the permanent mortgage loan portfolio consists
of first lien, fixed rate residential mortgage loans originated under various community development programs, down $12 million from
December 31, 2010. 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%.
At December 31, 2011, $185 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We have
minimal credit exposure on loans guaranteed by the agencies. This amount includes $53 million of residential mortgage loans previously
sold into GNMA mortgage pools. The Company may repurchase these loans when certain defined delinquency criteria are met. Because
of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them in the
Consolidated Balance Sheet. The remaining amount represents loans that the Company has repurchased from GNMA mortgage pools.
The increase in guaranteed residential mortgage loans is due to a growing volume of delinquent loans and the time requirements to either
modify or foreclose. We do not initiate foreclosure on loans with pending modification requests.
Home equity loans totaled $635 million at December 31, 2011, an $82 million or 15% increase over the prior year. Approximately 66% of
the home equity loan portfolio is comprised of junior lien loans and 34% of the home equity loan portfolio is comprised of first lien loans.
Approximately $80 million of the increase in total outstanding home equity loan balance is from the first lien product. These loans
generally result from refinancing of existing loans at terms of 15 years or less. Junior lien loans are distributed 78% to amortizing term
loans and 22% to revolving lines of credit. Home equity loans generally 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 $400 thousand.
Indirect automobile loans decreased $135 million from the prior year, 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. Other consumer loans decreased $21
million during 2011.
The composition of residential mortgage and consumer loans at December 31, 2011 is as follows in Table 26. All permanent residential
mortgage loans originated and serviced by our mortgage banking unit are attributed to the Oklahoma market. Other permanent residential
mortgage loans originated by the Bank are attributed to their respective principal market.
Table 26 – Residential Mortgage and Consumer Loans by Principal Market
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas
Colorado
Arizona
Kansas/
Missouri
Total
Residential mortgage:
Permanent mortgage
Permanent mortgages
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
Consumer:
$ 853,173
$ 162,245
$
10,106
$
9,507
$ 40,666
$ 67,245
$ 7,379
$ 1,150,321
184,973
390,923
–
–
–
–
–
–
103,805
90,475
5,004
23,771
14,957
6,232
184,973
635,167
$ 1,429,069
$ 266,050
$ 100,581
$ 14,511
$ 64,437
$ 82,202
$13,611
$ 1,970,461
Indirect automobile
$
56,909
$
17,746
$
–
$ 30,494
$
–
$
–
$
–
$ 105,149
Other consumer
179,147
108,534
18,519
5,567
21,651
5,505
3,847
342,770
Total consumer
$ 236,056
$ 126,280
$
18,519
$ 36,061
$ 21,651
$
5,505
$ 3,847
$ 447,919
Table 27 – Loan Maturity and Interest Rate Sensitivity at December 31, 2011
(In thousands)
Loan maturity:
Commercial
Commercial real estate
Total
Interest rate sensitivity for selected loans with:
Predetermined interest rates
Floating or adjustable interest rates
Total
Total
$ 6,571,454
2,279,909
$ 8,851,363
$ 4,225,698
4,625,665
$ 8,851,363
Remaining Maturities of Selected Loans
1-5 Years
After 5 Years
Within 1 Year
$ 1,563,453 $ 4,229,067
1,272,386
$ 778,934
309,395
$ 5,501,453 $ 1,088,329
698,128
$ 2,261,581
$ 594,113 $ 2,965,036 $ 666,549
421,780
$ 2,261,581 $ 5,501,453 $ 1,088,329
1,667,468
2,536,417
50
Loan Commitments
We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded loan
commitments which totaled $6.1 billion and standby letters of credit which totaled $613 million at December 31, 2011. 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 $3.8 million of the outstanding standby letters of credit were issued on
behalf of customers whose loans are nonperforming at December 31, 2011.
Table 28 – Off-Balance Sheet Credit Commitments
(In thousands)
2011
2010
2009
2008
2007
As of December 31,
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
$ 6,050,208
613,457
253,834
$ 5,193,545
534,565
289,021
$ 5,001,338 $ 5,015,660 $ 5,345,736
555,758
392,534
588,091
330,963
598,618
391,188
As more fully described in Note 7 to the Consolidated Financial Statements, we have off-balance sheet obligations related to certain
residential mortgage loans originated under community development programs that were sold to U.S. government agencies with full
recourse. These mortgage loans were underwritten to standards approved by the agencies, including full documentation and originated
under programs available only for owner-occupied properties. The Company no longer sells residential mortgage loans with recourse other
than obligations under standard representations and warranties. We are obligated to repurchase these loans for the life of these loans in the
event of foreclosure for the unpaid principal and interest at the time of foreclosure. At December 31, 2011, the principal balance of loans
sold subject to recourse obligations totaled $259 million, down from $289 million at December 31, 2010. Substantially all of these loans
are to borrowers in our primary markets including $182 million to borrowers in Oklahoma, $25 million to borrowers in Arkansas, $16
million to borrowers in New Mexico, $15 million to borrowers in Kansas/Missouri and $12 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 due to standard representations and warranties made under contractual
agreements. At December 31, 2011, we have unresolved deficiency requests from the agencies on 247 loans with an aggregate outstanding
balance of $37 million. At December 31, 2010 we had unresolved deficiency requests from the agencies on 140 loans with an aggregate
outstanding balance of $22 million. For 2011 and 2010 combined, 9% of the repurchase requests made by the agencies have currently
resulted in actual repurchases or indemnification by the Company. We repurchased 10 loans from the agencies during 2011 for $1.0
million and recognized $295 thousand in losses. We provided indemnification for 10 additional loans with an unpaid principal balance of
$1.1 million. We repurchased 11 loans for approximately $301 thousand from the agencies during 2010, which resulted in no losses to the
Company. During 2010, the Company established an accrual for credit losses related to potential loan repurchases under representations
and warranties which is included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated
Statements of Earnings. This accrual totaled $2.2 million at December 31, 2011.
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.
We recognized $4.4 million of credit losses from the customer derivative program in 2011, including $2.7 million of realized losses from
two customers who used interest rate based derivatives to hedge their mortgage loan production. These customers were unable to settle
contracts as required. We also recognized a $1.7 million impairment charge on amounts owed to us by MF Global which filed for
bankruptcy protection on October 31, 2011. The remaining amount owed to us from MF Global after receiving partial distributions from
the bankruptcy trustee is $8.5 million. As of December 31, 2011, the remaining amount due was written down to $6.8 million based on our
evaluation of the amount we expect to recover. Credit losses on customer derivatives reduce brokerage and trading revenue.
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
51
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, 2011, the net fair values of derivative contracts reported as assets under
these programs totaled $287 million, up from $268 million at December 31, 2010. Derivative contracts carried as assets included interest
rate contracts with fair values of $150 million, foreign exchange contracts with fair values of $73 million and energy contracts with fair
values of $63 million. The aggregate net fair values of derivative contracts held under these programs reported as liabilities totaled $236
million.
At December 31, 2011, total derivative assets were reduced by $12 million of cash collateral received from counterparties and total
derivative liabilities were reduced by $74 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.
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, 2011 follows in Table 29.
Table 29 – Fair Value of Derivative Contracts by Category of Debtor
(In thousands)
Customers
Banks and other financial institutions
Exchanges
Energy companies
Fair value of customer hedge asset derivative contracts, net
$ 190,422
65,991
21,026
10,039
$ 287,478
The largest exposure to a single counterparty, an energy customer, totaled $13 million at December 31, 2011.
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 $32.54 per barrel of oil would
increase the fair value of derivative assets for energy contracts by $97 million. An increase in prices equivalent to $167 per barrel of oil
would increase the fair value of derivative assets for energy contracts by $319 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 $51
million.
Summary of Loan Loss Experience
We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. The combined allowance for loan and off-
balance sheet credit losses totaled $263 million or 2.33% of outstanding loans and 130% of nonaccruing loans at December 31, 2011. 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 allowance for loan losses totaled $253 million or 2.25% of outstanding loans at December
31, 2011 and $293 million or 2.75% of outstanding loans at December 31, 2010. The decrease in the allowance for loan losses was due to a
trend of declining net charge-offs, reduced nonaccruing loans and improvement in other credit quality indicators. The accrual for off-
balance sheet credit risk was $9.3 million at December 31, 2011 and $14 million at December 31, 2010. At December 31, 20111, the
accrual for off-balance sheet credit risk includes $7.1 million related to a recent Oklahoma Supreme Court ruling that reversed a loan
settlement agreement between the Company and the City of Tulsa. The refund of this settlement will increase future net charge-offs.
The provision for credit losses is the amount necessary to maintain the allowance for loan losses and accrual for off-balance sheet credit
losses at an amount determined by management to be appropriate based on its evaluation. The provision includes the combined charge to
expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. 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 Company recognized a reduction in the combined allowance for credit losses of $6.1
million for 2011. The provision for credit losses totaled $105 million for 2010. The decrease in provision for credit losses was due to a
trend of declining net charge-offs, reduced nonaccruing loans and improvement in other credit quality indicators.
52
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 (reduction of) allowance for loan losses
Additions due to acquisitions
Ending balance
Allowance for off-balance sheet credit losses:
Beginning balance
Reduction of allowance for off-balance sheet credit
losses
Ending balance
Total provision for (reduction of) allowance for
2011
Year ended December 31,
2009
2008
2010
2007
$ 292,971
$ 292,095
$ 233,236
$ 126,677
$ 109,497
14,836
15,973
14,107
11,884
56,800
27,640
59,962
20,056
16,330
123,988
7,478
2,780
2,334
5,758
18,350
38,450
(1,040)
–
$ 253,481
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
$ 14,271
$ 14,388
$ 15,166
$ 20,853
$ 20,890
(5,010)
9,261
(117)
$ 14,271
(778)
$ 14,388
(5,687)
$ 15,166
(37)
$ 20,853
$
credit losses
$
(6,050)
$ 105,139
$ 195,900
$ 202,593
$ 34,721
Allowance for loan losses to loans outstanding at
year-end
Net charge-offs to average loans
Total provision for (reduction of) credit losses to
average loans
Recoveries to gross charge-offs
Allowance for loan losses as a multiple of net charge-
2.25%
0.35
2.75%
0.96
(0.06)
32.31
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
offs
6.59x
2.81x
2.12x
2.29x
6.00x
Allowance for off-balance sheet credit losses to off-
balance sheet credit commitments
Combined allowances for credit losses to loans
outstanding at year-end
0.14%
2.33%
0.25%
0.26%
0.27%
0.35%
2.89%
2.72%
1.93%
1.24%
Allowance for Loan Losses
The appropriateness 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 certain impaired loans, general
allowances based on expected loss rates by loan class and non-specific allowances based on general economic, risk concentration and
related factors.
At December 31, 2011 impaired loans totaled $176 million, including $22 million of impaired loans with specific allowances of $5.8
million and $155 million with no specific allowances because the loan balances represent the amounts we expect to recover. At December
31, 2010, impaired loans totaled $202 million including $33 million of impaired loans with specific allowances of $7.1 million and $169
million with no specific allowances.
General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rate for risk graded loans are
either increased or decreased based on changes in risk grading for each loan class. Estimated loss rate for both risk graded and non-risk
graded loans may be further adjusted for inherent risks identified for the given loan class which have not yet been captured in the loss rate.
The aggregate amount of general allowances for all unimpaired loans totaled $201 million at December 31, 2011 and $259 million at
December 31, 2010. The decrease in the aggregate amount of general allowance for unimpaired loans was primarily due to the declining
trend of net charge-offs further supported by improvement in risk grading.
Nonspecific allowances are maintained for risks beyond factors specific to a particular loan or loan type. These factors include trends in
the economy in our primary lending areas, overall growth in the loan portfolio and other relevant factors. Nonspecific allowances may also
be utilized to make adjustments to loss rates determined based on historical information, including consideration of the duration of the
business cycle on loss rates. Nonspecific allowances totaled $46 million at December 31, 2011 and $27 million at December 31, 2010.
53
The increase in the nonspecific allowance over the prior year included consideration of the bankruptcy filing by a major employer in the
Tulsa, Dallas/Ft. Worth and Kansas City markets. Although we have no direct exposure, the secondary effect on employees, retirees,
vendors, suppliers and other business partners could be significant. The increase in nonspecific allowance also considers the possible
impact of the European debt crisis and similar factors on our loan portfolio.
An allocation of the loan loss allowance by loan category follows in Table 31.
Table 31 – Allowance for Loan Losses Allocation
(Dollars in thousands)
2011
2010
December 31,
2009
2008
2007
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
$ 83,443 58.32% $104,631
55.75% $ 121,320
55.04% $ 100,743
57.56% $ 49,961
56.07%
67,034
39,207
17,447
20.23
17.48
3.97
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
Loan category:
Commercial
Commercial real
estate
Residential mortgage
Consumer
Nonspecific
allowance
46,350
–
26,736
–
18,252
–
23,102
–
19,791
–
Total
$253,481 100.00% $292,971 100.00% $ 292,095 100.00% $ 233,236 100.00% $ 126,677 100.00%
1 Represents ratio of loan category balance to total loans, excluding residential mortgage loans held for sale.
Our loan monitoring process also identified loans that possess more than the normal amount of risk due to deterioration in the financial
condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of
the loan agreements, 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 $161 million at
December 31, 2011. The current composition of potential problem loans by primary industry included: wholesale/retail - $34 million,
services - $31 million, construction and land development - $27 million, other commercial real estate - $16 million, residential mortgage -
$16 million and commercial real estate secured by office buildings - $13 million. Potential problem loans totaled $176 million at
December 31, 2010.
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. Commercial and commercial
real estate loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Residential mortgage and
consumer loans are generally charged off when payments are between 90 days and 180 days past due, depending on the loan class.
Net loan charge-offs decreased in each segment of the loan portfolio and in each of our principal market areas, except for a modest increase
in the Kansas/Missouri market. Net loans charged off totaled $38.5 million or 0.35% of average outstanding loans in 2011 compared to
$104.4 million or 0.96% of average outstanding loans in the previous year. This generally represents a decrease in net charge-offs to a
level last seen in 2007.
Net loans charged off by category and principal market area follow in Table 32.
54
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
2011:
Commercial
Commercial real estate
Residential mortgage
Consumer
$
1,302
6,235
8,952
3,307
$ 2,506
(168)
205
1,627
$
(48) $ 2,135
49
95
518
2,040
176
67
$
(128) $ 1,455
4,284
753
1,437
886
(8)
592
$
136 $
–
22
23
7,358
13,193
11,773
6,126
Net loans charged-off
$ 19,796
$ 4,170
$ 2,235
$ 2,797
$ 2,103
$ 7,168
$
181 $ 38,450
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
Net commercial loans charged off in 2011 decreased $11.0 million from the prior year and were primarily composed of $3.5 million from
the services sector of the loan portfolio principally attributed to the Oklahoma and Arizona markets. Net charge-offs of wholesale/retail
sector loans of $2.9 million were primarily from a single borrower in the Arkansas market. Net charge-offs of manufacturing sector loans
of $2.4 million were primarily from a single borrower in the Oklahoma market.
Net commercial real estate loans charged off during 2011 decreased by $43.6 million compared to the prior year and included $5.0 million
of land and residential construction sector loans primarily in the Colorado and Arizona market. Net charge-offs of loans secured by
multifamily properties of $4.6 million were primarily from a single borrower attributed to the Oklahoma market.
Residential mortgage net charge-offs during 2011 decreased $7.4 million compared to the prior year and consumer loan net charge-offs,
which include indirect auto loan and deposit account overdraft losses, decreased $3.9 million over the prior year. All residential mortgage
loan net charge-offs related to loans serviced by our mortgage company across our geographical footprint are attributed to the Oklahoma
market.
Nonperforming Assets
Nonperforming assets decreased $38 million during 2011 to $357 million or 3.13% of outstanding loans and repossessed assets at
December 31, 2011. Nonaccruing loans totaled $201 million, renegotiated residential mortgage loans totaled $33 million (composed
primarily of $29 million of residential mortgage loans guaranteed by U.S. government agencies) and real estate and other repossessed
assets totaled $123 million. The Company generally retains nonperforming assets to maximize potential recovery which may cause future
nonperforming assets to increase.
Loans are classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. As more
fully discussed in Note 4 to the Consolidated Financial Statements, we may modify nonaccruing commercial and commercial real estate
loans in troubled debt restructurings. Modifications may include extension of payment terms and rate concessions. We do not forgive
principal or accrued but unpaid interest. We may also renew matured nonaccruing loans. Renewed or modified nonaccruing loans are
charged off when the loan balance is no longer covered by the paying capacity of the borrower based on a quarterly evaluation of available
cash resources and collateral value. Renewed or modified nonperforming loans generally remain on nonaccrual status until full collection
of principal and interest in accordance with the original terms, including principal previously charged off, is probable.
We generally do not voluntarily modify consumer loans to troubled borrowers.
Renegotiated loans represent accruing residential mortgage loans modified in troubled debt restructurings. See Note 4 to the Consolidated
Financial Statements for additional discussion of troubled debt restructurings. Generally, we modify residential mortgage loans primarily
by reducing interest rates and extending the number of payments in accordance with U.S. government agency guidelines. No unpaid
principal or interest is forgiven. Interest continues to accrue on these guaranteed loans based on the modified terms of the loan. 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. Modified loans guaranteed by U.S. government agencies under residential mortgage loan
programs may be sold once they become eligible according to U.S. agency guidelines.
A summary of non-performing assets follows in Table 33.
55
Table 33 – Nonperforming Assets
(Dollars in thousands)
Nonperforming loans
Nonaccrual loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total nonaccrual loans
Renegotiated loans3
Total nonperforming loans
Other nonperforming assets
Total nonperforming assets
Nonaccrual loans by principal market:
Oklahoma
Texas
New Mexico
Arkansas
Colorado4
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:
2011
2010
December 31,
2009
2008
2007
$
68,811
99,193
29,767
3,515
201,286
32,893
234,179
122,753
$ 356,932
$
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
$ 134,846
137,279
27,387
561
300,073
13,039
313,112
29,179
$ 342,291
$ 42,981
25,319
15,272
718
84,290
10,394
94,684
9,475
$ 104,159
$
65,261
28,083
15,297
23,450
33,522
35,673
–
$ 201,286
$
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
$ 108,367
42,934
16,016
3,263
32,415
80,994
16,084
$ 300,073
$ 47,977
4,983
11,118
1,635
9,222
9,355
–
$ 84,290
$
336
16,968
21,180
23,051
5,486
–
1,790
68,811
61,874
6,863
11,457
3,513
–
15,486
99,193
$
$
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
$ 49,364
36,873
18,773
7,343
12,118
680
9,695
134,846
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
76,082
15,625
7,637
24,950
6,287
6,698
137,279
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
25,366
4,401
29,767
3,515
$ 201,286
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
Allowance for loan losses to nonaccruing loans
Nonaccruing loans to period-end loans
125.93%
1.79%
126.93%
2.17%
86.07%
3.01%
77.73%
2.33%
150.29%
0.71%
Loans past due (90 days)1
Foregone interest on nonaccrual loans2
1 Excludes residential mortgages guaranteed by
$
$
2,496
11,726
$
$
7,966
16,818
8,908
$
$ 17,015
$ 18,251
8,391
$
$
$
4,558
3,011
agencies of the U.S. Government.
2 Interest collected and recognized on nonaccrual loans
was not significant in 2011 and previous years.
3 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.
4 Includes loans subject to First United Bank sellers
escrow.
28,974
18,551
12,799
10,396
–
–
4,311
13,181
7,550
8,412
56
A rollforward of nonperforming assets for the year ended December 31, 2011 follows in Table 34.
Table 34 – Rollforward of Nonperforming Assets
(Dollars in thousands)
Balance, January 1, 2011
Additions
Payments
Charge-offs
Net write-downs and losses
Foreclosure of nonaccruing
loans
Foreclosure of loans guaranteed
by U.S. government agencies
Proceeds from sales
Net transfer to nonaccruing
loans
$
230,814
166,048
(84,957)
(56,800)
–
(56,023)
–
–
475
Nonaccruing
Loans
Renegotiated
Loans
Real Estate
and Other
Repossessed
Assets
$
141,394
–
–
–
(12,694)
Total
Nonperforming
Assets
$
394,469
198,737
(86,677)
(56,800)
(12,694)
$
22,261
32,689
(1,720)
–
–
–
56,023
–
–
(18,698)
(475)
31,453
(80,123)
31,453
(98,821)
–
–
Transfers to available for sale
securities1
Other, net
Balance, December 31, 2011
(11,723)
(1,012)
356,932
1 During the first quarter of 2011, we transferred $12 million of cost basis shares of an entity in which we hold
an equity interest to the available for sale securities portfolio as the shares are listed for trading on a national
stock exchange.
(11,723)
(1,577)
122,753
–
1,729
201,286
–
(1,164)
32,893
$
$
$
$
We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans are not
eligible for modification programs. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is
minimal. These properties are conveyed to the agencies once the applicable criteria have been met. At December 31, 2011, $17.0 million
of real estate and other repossessed assets represent properties guaranteed by U.S. government agencies. During 2011, $31 million of
properties guaranteed by U.S. government agencies were foreclosed and $15 million conveyed to the applicable U.S. government agencies
are included in Proceeds from sales in the table above.
Nonaccruing loans totaled $201 million or 1.79% of outstanding loans at December 31, 2011 and $231 million or 2.17% of outstanding
loans at December 31, 2010. Nonaccruing loans decreased $30 million from December 31, 2010 primarily due to $85 million of payments,
$57 million of charge-offs and $56 million of foreclosures. New nonaccruing loans totaled $166 million for 2011, down from $199 million
of new nonaccruing loans in 2010.
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, 2011
December 31, 2010
Change
% of
outstanding
loans
% of
outstanding
loans
Amount
Amount
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
$
65,261
28,083
15,297
23,450
33,522
35,673
–
1.31%
$
0.82
2.22
8.87
4.20
6.27
–
60,805
33,157
19,283
7,914
49,416
60,239
–
1.24%
$
1.10
2.75
2.75
6.49
11.48
–
% of
outstanding
loans
7 bp
(28)
(53)
612
(229)
(521)
–
Amount
4,456
(5,074)
(3,986)
15,536
(15,894)
(24,566)
–
Total
$
201,286
1.79%
$
230,814
2.17%
$
(29,528)
(38) bp
Nonaccruing loans in the Oklahoma market are primarily composed of $21 million of manufacturing sector loans, $21 million of residential
mortgage loans and $15 million of commercial real estate loans. All residential mortgage loans originated and serviced by our mortgage
company across our geographical footprint are attributed to the Oklahoma market. Nonaccruing loans attributed to the Arizona and
Colorado markets consisted primarily of commercial real estate loans. Nonaccruing loans attributed to the Texas market include $11
million of commercial real estate loans, $4.3 million of services sector loans, $4.2 million of residential mortgage loans and $3.5 million of
57
healthcare sector loans. Nonaccruing loans attributed to the Arkansas market is primarily composed of $16 million from a single
wholesale/retail sector customer.
Commercial
Nonaccruing commercial loans totaled $69 million or 1.05% of total commercial loans at December 31, 2011 and $38 million or 0.65% of
total commercial loans at December 31, 2010. At December 31, 2011, nonaccruing commercial loans were primarily composed of $23
million or 6.57% of total manufacturing sector loans, $21 million or 2.20% of wholesale/retail sectors loans and $17 million or 0.97% of
total services sector loans. Nonaccruing manufacturing sector loans are primarily composed of a single customer relationship in the
Oklahoma market totaling $21 million. Nonaccruing wholesale/retail sector loans are primarily composed of a single customer relationship
in the Arkansas market totaling $16 million. Both of these loans were accruing at December 31, 2010. Nonaccruing service sector loans
were primarily composed of $6.6 million of loans attributed to the Arizona market and $4.3 million of loans attributed to the Texas market.
Nonaccruing commercial loans increased $30 million during 2011. Newly identified nonaccruing commercial loans totaled $77 million,
offset by $34 million of payments and $15 million in charge-offs. 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, 2011
December 31, 2010
Change
% of
outstanding
loans
% of
outstanding
loans
% of
outstanding
loans
Amount
Amount
Amount
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
$
26,722
12,037
3,056
16,648
3,446
6,902
–
$
0.99%
0.54
1.21
19.33
0.62
2.39
–
13,978
5,603
5,818
212
6,702
6,142
–
$
0.54%
0.30
2.08
0.25
1.42
2.66
–
12,744
6,434
(2,762)
16,436
(3,256)
760
–
45 bp
24
(87)
1,908
(80)
(27)
–
Total
$
68,811
1.05%
$
38,455
0.65%
$
30,356
40 bp
Commercial Real Estate
Nonaccruing commercial real estate loans totaled $99 million or 4.35% of outstanding commercial real estate loans at December 31, 2011
compared to $150 million or 6.60% of outstanding commercial real estate loans at December 31, 2010. Nonaccruing commercial real
estate loans are largely concentrated in land development and residential construction loans. Nonaccruing commercial real estate loans
decreased $51 million compared to the prior year. Newly identified nonaccruing commercial real estate loans totaled $30 million, offset by
$42 million of cash payments received, $26 million of foreclosures and $16 million of charge-offs. Nonaccruing commercial real estate
loans attributed to our geographic markets follows in Table 37.
Table 37 – Nonaccruing Commercial Real Estate Loans by Principal Market
(Dollars in thousands)
December 31, 2011
December 31, 2010
Change
% of
outstanding
loans
Amount
% of
outstanding
loans
Amount
$
15,475
11,491
10,590
5,638
29,899
26,100
–
$
2.58%
1.38
3.34
4.42
19.43
13.54
–
19,005
21,228
11,494
6,346
41,066
51,227
–
2.62%
3.09
3.65
5.42
20.83
25.48
–
$
Amount
(3,530)
(9,737)
(904)
(708)
(11,167)
(25,127)
–
% of
outstanding
loans
(4) bp
(171)
(31)
(100)
(140)
(1,194)
–
Oklahoma
Texas
New Mexico
Arkansas
Colorado
Arizona
Kansas/Missouri
Total
$
99,193
4.35%
$
150,366
6.60%
$
(51,173)
(225) bp
58
Nonaccruing commercial real estate loans are primarily concentrated in the Colorado and Arizona markets. Nonaccruing commercial real
estate loans in the Colorado market totaled $30 million or 19% of total commercial real estate loans, composed primarily of nonaccruing
residential construction and land development loans. Approximately $26 million or 14% of commercial real estate loans in Arizona are
nonaccruing and consist primarily of $10 million of other commercial real estate loans, $9.4 million of nonaccruing residential construction
and land development loans and $4.9 million of loans secured by office buildings.
Residential Mortgage and Consumer
Nonaccruing residential mortgage loans totaled $30 million or 1.51% of outstanding residential mortgage loans at December 31, 2011
compared to $37 million or 2.04% of outstanding mortgage loans at December 31, 2010. Newly identified nonaccruing residential
mortgage loans totaled $33 million, offset by $19 million of foreclosures during the year, $14 million of loans charged off and $7.2 million
of cash payments. Nonaccruing residential mortgage loans primarily consist of permanent residential mortgage loans which totaled $25
million or 1.90% of outstanding permanent residential mortgage loans at December 31, 2011. Nonaccrual home equity loans continue to
perform well with only $4.4 million or 0.69% of total home equity loans in nonaccrual status at December 31, 2011.
In addition to being on nonaccrual status, residential mortgage 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. Principally all non-
guaranteed residential loans past due 90 days or more are nonaccruing. During 2011, residential mortgage loans 30 to 89 days past due
decreased $3.5 million due primarily to a decrease in past due permanent mortgage loans partially offset by an increase in past due home
equity loans. Consumer loans past due 30 to 89 days decreased $5.4 million primarily due to a decrease in indirect automobile loans,
partially offset by increase in past due other consumer loans. Consumer loans past due 90 days or more decreased $333 thousand.
Table 38 – Residential Mortgage and Consumers Loans Past Due
(Dollars in thousands)
December 31, 2011
30 to 89
90 Days
Days
or More
December 31, 2010
30 to 89
90 Days
Days
or More
$
$
$
$
601
42
643
$ 17,259
3,036
$ 20,295
29
–
29
$ 4,581
2,286
$ 6,867
$
$
$
$
–
–
–
$ 22,177
1,605
$ 23,782
67
295
362
$ 11,382
927
$ 12,309
Residential mortgage
Permanent mortgage1
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
1 Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.
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 as determined by fair value at date of foreclosure or current fair value, less estimated selling costs. See Note 1 of the Consolidated
Financial Statements for information about the valuation of real estate and other repossessed assets.
Real estate and other repossessed assets totaled $123 million at December 31, 2011, a $19 million decrease compared to December 31,
2010. The distribution of real estate and other repossessed assets attributed by geographical market is included in Table 39 following.
59
Table 39 – Real Estate and Other Repossessed Assets by Principal Market
(Dollars in thousands)
Developed commercial
real estate properties
1-4 family residential
properties
Undeveloped land
Residential land
development properties
1-4 family residential
properties guaranteed
by U.S. government
agencies
Oil and gas properties
Multifamily residential
properties
Construction equipment
Vehicles
Other
Total real estate and other
repossessed assets
Oklahoma
Texas
Colorado Arkansas
New
Mexico
Arizona
Kansas/
Missouri Other
Total
$
2,310
$ 6,893
$ 3,084
$ 1,612
$ 4,186
$ 17,401
$
–
$3,332
$ 38,818
5,256
361
7,311
4,808
2,952
2,882
2,899
149
1,260
944
2,202
6,737
322
4,515
1,784
–
23,986
20,396
801
6,880
2,305
92
53
8,311
174
340
18,956
2,795
–
1,944
1,895
553
–
150
45
–
–
114
–
225
1,148
8,585
275
1,545
435
–
–
–
–
–
–
323
–
59
–
–
–
–
–
–
–
–
–
–
–
–
–
506
–
–
–
–
–
–
–
16,952
1,895
876
506
323
45
$ 12,271
$29,845
$ 11,448
$ 6,282
$ 15,028
$ 34,926
$ 7,062
$5,891
$ 122,753
Undeveloped land is primarily zoned for commercial development. Developed commercial real estate properties are primarily completed
with no additional construction necessary for sale.
Liquidity and Capital
Subsidiary Banks
Deposits and borrowed funds are the primary sources of liquidity for the subsidiary bank. Based on the average balances for 2011,
approximately 74% of our funding is provided by deposit accounts, 9% from borrowed funds, 2% from long-term subordinated debt and
11% from 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, online bill paying services, mobile banking services, an extensive network of branch locations
and ATMs and a 24-hour Express Bank call center. Commercial deposit growth is supported by offering treasury management and
lockbox services. We also acquire brokered deposits when the cost of funds is advantageous to other funding sources.
Average deposits totaled $18.0 billion for 2011 and represent 74% of total average liabilities and capital compared with $16.3 billion and
68% of total average liabilities and capital for 2010. Average deposits increased $1.8 billion over 2010. Average demand deposits
increased $1.1 billion or 29% over last year. Commercial demand deposits increased $1.1 billion over the prior year including a $356
million increase in small business banking deposits. Wealth management demand deposits increased $179 million and consumer demand
deposits decreased $210 compared to 2010. Average interest-bearing transaction deposit accounts increased $777 million or 9% over 2010
due primarily to the impact of the transfer of small business banking to the Commercial Banking segment. Commercial interest-bearing
transaction accounts increased $653 million, including a $157 million increase in small business banking deposits. Wealth Management
interest-bearing transaction accounts increased $146 million. Consumer interest-bearing transaction accounts decreased $20 million due
primarily to the transfer of small business banking to the Commercial Banking segment. Average time deposits decreased $124 million or
3% compared to 2010.
Commercial account balances increased $1.8 billion due to a $726 million increase in average deposits attributable to our commercial and
industrial customers, a $583 million increase in small business banking deposits, a $354 million increase in deposits held by state and local
governments and a $199 million increase in average deposits attributable to our energy customers. Commercial customers continue to
retain large cash reserves primarily due to continued economic uncertainty.
60
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,
2011
2010
$ 402,298
205,714
386,412
1,138,848
$ 2,133,272
$ 280,284
208,033
582,032
1,106,161
$ 2,176,510
Brokered deposits, which are included in time deposits, averaged $238 million for 2011 compared to $201 million for 2010. Brokered
deposits totaled $218 million at December 31, 2011 and $210 million at December 31, 2010.
The distribution of deposit accounts among our principal markets is shown in Table 41.
61
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
2011
2010
December 31,
2009
2008
2007
$ 3,223,201
$ 2,271,375
$ 2,068,908
$ 1,683,374
$ 1,394,861
6,050,986
126,763
1,450,571
7,628,320
$10,851,521
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
$ 1,808,491
$ 1,389,876
$ 1,108,401
$ 1,067,456
$ 1,035,134
1,940,819
45,872
867,664
2,854,355
$ 4,662,846
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
$ 319,269
$ 270,916
$ 209,090
$ 155,345
$ 151,231
491,068
27,487
410,722
929,277
$ 1,248,546
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
$
18,513
$
15,310
$
21,526
$
16,293
$
13,247
131,181
1,727
61,329
194,237
$ 212,750
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
$ 272,565
$ 157,742
$ 146,929
$ 116,637
$ 117,939
511,993
22,771
523,969
1,058,733
$ 1,331,298
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
$ 106,741
$
74,887
$
68,651
$
39,424
$
46,701
104,961
1,192
37,641
143,794
$ 250,535
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
$
51,004
$
40,658
$
30,339
$
3,850
$
9,656
21,337
124,005
123,449
148
200
545
71,498
63,454
30,086
92,983
187,659
154,080
$ 123,322
$ 228,317
$ 205,084
$ 18,762,580 $ 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
62
Information relating to other borrowings for the years ended December 31, 2011 and December 31, 2010 is summarized in
Table 42 (dollars in thousands):
Table 42 – Borrowed Funds
(In thousands)
As of
Annual
December 31, Average
Balance
2011
Maximum
Outstanding
At Any
Rate Month End
As of
Annual
December 31, Average
Balance
2010
Maximum
Outstanding
At Any
Rate Month End
Parent Company and Other
Non-Bank Subsidiaries:
Trust preferred debt
Subsidiary Bank:
Funds purchased
Repurchase agreements
Federal Home Loan Bank
advances
Federal Reserve advances
Subordinated debentures
GNMA repurchase liability
Other
Total subsidiary bank
Total other borrowings
$
–
$
7,093
–
$
8,763
$
7,217
$ 7,217 6.42% $
7,217
1,063,318
1,233,064
1,046,114
1,096,615
4,837
–
398,881
53,082
16,566
2,769,748
$ 2,769,748
45,110
–
398,790
56,142
28,777
2,671,548
$ 2,678,641
0.07
0.12
0.38
–
5.74
5.79
3.23
1.06
1.07
1,706,893
1,393,237
1,025,018
1,258,762
1,185,742 0.11
1,130,082 0.59
1,465,983
1,258,762
201,674
–
398,881
118,595
45,366
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 $307 million at December 31, 2011 and $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 residential 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 $44
million in 2011 and $1.4 billion in 2010.
At December 31, 2011, the estimated unused credit available to the subsidiary bank from collateralized sources was approximately $7.3
billion.
Parent Company and Other Non-Bank Subsidiaries
The primary sources of liquidity for BOK Financial are cash on hand and dividends from the Bank. Dividends from the Bank 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. At December 31, 2011, based on the most restrictive limitations as well as
management’s internal capital policy the Bank could declare up to $15 million of dividends without regulatory approval. Future losses or
increases in required regulatory capital at the Bank could affect its ability to pay dividends to the parent company.
On June 9, 2011, the Company terminated its unsecured revolving credit agreement with George B. Kaiser, its Chairman and principal
shareholder. There were no amounts outstanding under this credit agreement and no penalties or costs were paid by the Company for the
termination of the agreement. The credit agreement was replaced with a $100 million senior unsecured 364 day revolving credit facility
with Wells Fargo Bank, National Association, administrative agent and other commercial banks (“the Credit Facility”). Interest on
amounts outstanding under the Credit Facility is to be paid at a defined base rate minus 1.25% or LIBOR plus 1.50% based upon the
Company’s option. A commitment fee equal to 0.20% shall be paid quarterly on the unused portion of the credit commitment under the
Credit Facility and there are no prepayment penalties. Any amounts outstanding at the end of the Credit Facility term shall be converted
into a term loan which, except for amounts borrowed for certain acquisitions, shall be payable June 7, 2012. The Credit Facility contains
customary representations and warranties, as well as affirmative and negative covenants including limits on the Company’s ability to
borrow additional funds, make investments and sell assets. These covenants require BOK Financial to maintain minimum capital levels.
At December 31, 2011 no amounts were outstanding under the Credit Facility and the Company met all of the covenants.
Our equity capital at December 31, 2011 was $2.8 billion, up from $2.5 billion at December 31, 2010. Net income less cash dividend paid
increased equity $209 million during 2011. Capital is managed to maximize long-term value to the shareholders. Factors considered in
managing capital include projections of future earnings, asset growth and acquisition strategies, and regulatory and debt covenant
requirements. Capital management may include subordinated debt issuance, share repurchase and stock and cash dividends.
On April 26, 2005, the Board of Directors authorized a share repurchase program, which replaced a previously authorized program. The
maximum of two million common shares may be repurchased. The specific timing and amount of shares repurchased will vary based on
market conditions, securities law limitations and other factors. Repurchases may be made over time in open market or privately negotiated
63
transactions. The repurchase program may be suspended or discontinued at any time without prior notice. Since this program began,
1,346,098 shares have been repurchased by the Company for $65 million. The Company repurchased 562,025 shares in 2011 for $26
million. No shares were repurchased by the Company during 2010.
BOK Financial and the Bank 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. The Company’s banking subsidiary exceeded the regulatory definitions of well capitalized. The capital ratios for BOK
Financial on a consolidated basis and the Bank are presented in Note 15 to the Consolidated Financial Statements.
Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity ratio. Tangible
common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principals (“GAAP”) less intangible
assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes various forms
of preferred equity. Tier 1 common equity is tier 1 equity as defined by banking regulations, adjusted for other comprehensive income 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 in shareholders’ equity. Tangible common shareholders’ equity ratio was 9.56%
at December 31, 2011 and 9.21% at December 31, 2010. Tier 1 common equity ratio was 13.06% at December 31, 2011 and 12.55% at
December 31, 2010.
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
December 31,
2011
2010
$ 2,750,468
345,820
2,404,648
25,493,946
345,820
$25,148,126
$ 2,521,726
349,404
2,172,322
23,941,603
349,404
$23,592,199
Tangible common equity ratio
9.56%
9.21%
Tier 1 common equity ratio:
Tier 1 capital
Less: Non-controlling interest
Tier 1 common equity
Risk weighted assets
Tier 1 common equity ratio
Off-Balance Sheet Arrangements
$ 2,295,061
36,184
$ 2,076,525
22,152
2,258,877
2,054,373
17,291,105
16,368,976
13.06%
12.55%
See Note 14 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet commitments.
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, 2011.
64
Table 44 – Contractual Obligations as of December 31, 2011
(In thousands)
Time deposits
Other borrowings
Subordinated debentures
Operating lease obligations
Derivative contracts
Data processing contracts
Total
Less Than
1 Year
$ 1,199,588
1,084
21,875
17,028
197,278
15,930
$ 1,452,783
1 to 3
Years
$ 599,206
2,253
43,750
31,371
83,589
21,447
$ 781,616
4 to 5
Years
$ 632,808
1,050
181,875
28,055
22,104
2,527
$ 868,419
More Than
5 Years
$ 613,774
5,850
255,990
84,957
7,263
3,790
$ 971,624
Total
$ 3,045,376
10,237
503,490
161,411
310,234
43,694
$ 4,074,442
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
$ 6,050,208
613,457
253,834
18,278
10,299
32,542
Payments on time deposits and other borrowed funds include interest which has been calculated from rates at December 31, 2011. 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 $1.5 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 $74
million of cash margin which secures our obligations under these contracts.
The Company has funded $34 million and has commitments to fund an additional $18 million for various alternative investments.
Alternative investments generally consist of limited partnership interests in or loans to entities that invest in low income housing or
economic development projects, 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 $10 million as of December 31, 2011. 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 $25 million liability for these
plans which are fully vested as of December 31, 2011. 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.
65
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
months 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 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, residential mortgage rates directly affect the
66
prepayment speeds for residential 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
2011
2010
2011
2010
Anticipated impact over the next 12
months on net interest revenue
$ 36,986
$ 8,235
$ (19,227)
5.39%
1.2%
(2.80)%
$ (9,759)
(1.4)%
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 residential 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. On a limited basis, BOK Financial may also take trading positions in U.S. Treasury securities, residential 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 $7.3 million. At December 31, 2011, the VAR was $2.6
million. The greatest value at risk during 2011 was $5.1 million.
67
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, 2011. 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, 2011.
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, 2011.
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, 2011. Their report, which expresses unqualified opinions on the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2011, is included in this annual report.
68
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, 2011 and 2010, and the
related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December
31, 2011. 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, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
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, 2011, 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
28, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 28, 2012
69
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, 2011 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 of 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, 2011 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, 2011 and 2010, and the related consolidated statements of
earnings, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011 of BOK Financial
Corporation and our report dated February 28, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 28, 2012
70
Consolidated Statements of Earnings
(In thousands, except share and per share data)
Interest revenue
Loans
Residential mortgage loans held for sale
Trading securities
Taxable securities
Tax-exempt securities
Total investment securities
Taxable securities
Tax-exempt securities
Total available for sale securities
Fair value option securities
Funds sold and resell agreements
Total interest revenue
Interest expense
Deposits
Borrowed funds
Subordinated debentures
Total interest expense
Net interest revenue
Provision for (reduction of ) allowances for credit losses
Net interest revenue after provision for (reduction of)
allowances 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 (loss) on fair value option securities, net
Gain on available for sale securities, net
Total other-than-temporary impairment losses
Portion of loss recognized in (reclassified from) other
comprehensive income
Net impairment losses recognized in earnings
Total other operating revenue
Other operating expense
Personnel
Business promotion
Contribution to BOKF Charitable Foundation
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
Other expense
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Net income 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.
2011
Year Ended December 31,
2010
2009
$
$ 504,989
6,492
1,836
12,581
4,768
17,349
259,871
2,394
262,265
18,649
15
811,595
522,559
9,261
2,172
7,229
6,402
13,631
283,583
2,446
286,029
17,403
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
7,331
21,882
(29,960)
2,151
(27,809)
520,908
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
$ 562,367
10,102
2,883
107
7,571
7,678
314,264
2,572
316,836
14,626
77
914,569
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)
(13,198)
59,320
(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
$
$
$
88,890
8,826
22,385
120,101
691,494
(6,050)
697,544
104,181
116,757
73,290
95,872
91,643
11,280
35,620
528,643
5,885
2,686
24,413
34,144
(10,578)
(12,929)
(23,507)
572,264
429,986
20,549
4,000
28,798
64,611
16,799
–
97,976
14,085
23,715
3,583
34,942
40,447
41,982
821,473
448,335
158,511
289,824
3,949
$ 285,875
$
$
4.18
4.17
$
$
3.63
3.61
67,787,676
68,038,763
$ 1.13
67,627,735
67,831,734
$ 0.99
67,375,387
67,487,944
$ 0.945
71
Consolidated Balance Sheets
(In thousands, except share data)
Assets
Cash and due from banks
Funds sold and resell agreements
Trading securities
Investment securities (fair value: 2011 – $462,657; 2010 – $346,105)
Available for sale securities
Available for sale securities pledged to creditors
Total available for sale securities
Fair value option securities
Residential mortgage loans held for sale
Loans
Less allowance for loan losses
Loans, net of allowance
Premises and equipment, net
Receivables
Goodwill
Intangible assets, net
Mortgage servicing rights
Real estate and other repossessed assets, net of allowance (2011 – $32,911; 2010 – $26,208)
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: 2011 – $0; 2010 – $27,414)
Total deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Bankers’ acceptances
Due on unsettled securities trades
Derivative contracts
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized;
shares issued and outstanding: 2011 – 71,533,354; 2010 – 70,815,563)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2011 – 3,380,310; 2010 – 2,607,874)
Accumulated other comprehensive income
Total shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
December 31,
2011
2010
$
$
976,191
10,174
76,800
439,236
10,179,365
–
10,179,365
651,226
188,125
11,269,743
(253,481)
11,016,262
262,735
123,257
335,601
10,219
86,783
122,753
1,881
293,859
263,318
75,151
381,010
25,493,946
$
$
1,247,946
21,458
55,467
339,553
9,096,277
139,344
9,235,621
428,021
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
316,965
23,941,603
$
5,799,785
$
4,220,764
9,354,456
226,357
3,381,982
18,762,580
1,063,318
1,233,064
74,485
398,881
149,508
1,881
653,371
236,522
133,684
22,707,294
4
818,817
1,953,332
(150,664)
128,979
2,750,468
36,184
2,786,652
25,493,946
$
9,255,362
193,767
3,509,168
17,179,061
1,025,018
1,258,762
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
$
72
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to cash provided by operating
activities:
Provision for (reduction of) allowances 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 amortization (accretion) of securities premiums and discounts
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 and fair value option securities
Change in receivables
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
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, subsidiary bank
Change in amount due on unsettled security transactions
Issuance of common and treasury stock, net
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
2011
$
289,824 $
248,294 $
204,016
(6,050)
40,447
(9,651)
49,967
(11,280)
(659)
9,396
112,227
(3,589)
(2,293,436)
2,369,895
(26,251)
(247,386)
24,236
16,469
63,827
(50,198)
327,788
2,725,760
68,020
3,650,900
(37,085)
(7,504,261)
59,908
(598,499)
4,994
122,314
–
(56,195)
(1,564,144)
1,710,705
(127,026)
(941,834)
492,946
14,541
(7,217)
(102,262)
15,674
659
(26,446)
(76,423)
953,317
(283,039)
1,269,404
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
$
986,365 $ 1,269,404 $
195,900
(12,124)
23,000
60,347
(10,239)
276
5,862
35,636
(46,318)
(2,676,868)
2,619,399
(39,869)
102,121
(12,149)
(166,487)
(21,340)
(7,571)
253,592
3,242,282
91,562
1,600,165
(89,816)
(6,966,218)
–
1,328,731
497,034
26,640
–
(53,718)
(323,338)
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
Cash paid for interest
Cash paid for taxes
Net loans and bank premises transferred to repossessed real estate
Increase in U.S. government guaranteed loans eligible for repurchase
Increase in receivables from conveyance of other real estate owned
guaranteed by U.S. government agencies
$
122,166 $
156,465
87,476
154,134
144,095 $
133,551
72,845
–
230,841
124,547
132,758
–
14,501
–
–
See accompanying notes to consolidated financial statements.
73
Consolidated Statements of Changes in Shareholders’ Equity and Non-controlling Interest
(In thousands)
Common Stock
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Capital
Surplus
Retained
Earnings
Treasury Stock
Shares
Amount
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
69,885
$
4
$
(222,886)
$743,411
$1,427,057
2,412 $(101,329)
$1,846,257
$ 13,855 $ 1,860,112
–
–
–
427
–
–
–
–
70,312
–
–
–
504
–
–
–
–
70,816
–
–
–
–
717
–
–
–
–
71,533 $
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
–
4
–
–
212,146
–
–
–
–
–
–
–
9,726
(276)
5,862
200,578
–
–
–
–
–
–
(63,952)
–
–
–
–
–
–
97
(4,528)
–
–
–
–
–
–
200,578
–
200,578
–
212,146
412,724
5,198
(276)
5,862
(63,952)
3,438
–
3,438
–
–
–
–
3,438
212,146
416,162
5,198
(276)
5,862
(63,952)
–
(10,740)
–
758,723
–
1,563,683
–
2,509
–
(105,857)
–
2,205,813
2,268
2,268
19,561 2,225,374
–
–
118,579
–
–
–
–
–
–
–
15,497
425
8,160
246,754
–
–
–
–
–
–
(66,557)
–
–
–
–
–
–
99
(6,945)
–
–
–
–
–
–
246,754
–
246,754
–
118,579
365,333
8,552
425
8,160
(66,557)
1,540
–
1,540
–
–
–
–
1,540
118,579
366,873
8,552
425
8,160
(66,557)
–
107,839
–
782,805
–
1,743,880
–
2,608
–
(112,802)
–
2,521,726
1,051
1,051
22,152 2,543,878
–
–
21,140
–
–
–
–
–
–
–
–
–
25,957
659
9,396
285,875
–
–
–
–
–
–
–
(76,423)
–
–
–
–
–
–
562
210
(26,446)
(11,416)
–
–
–
–
–
–
–
128,979
$
–
–
$ 818,817 $ 1,953,332
–
–
3,380 $ (150,664)
285,875
–
285,875
–
21,140
307,015
(26,446)
14,541
659
9,396
(76,423)
–
$
2,750,468 $
3,949
–
3,949
–
–
–
–
–
3,949
21,140
310,964
(26,446)
14,541
659
9,396
(76,423)
10,083
10,083
36,184 $ 2,786,652
Balance, January 1, 2009
Comprehensive income:
Net income attributable to
BOKF
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 and
distributions, net
Balance, December 31, 2009
Comprehensive income:
Net income attributable to
BOKF
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 and
distributions, net
Balance, December 31, 2010
Comprehensive income:
Net income attributable to
BOKF
Net income attributable to
non-controlling interest
Other comprehensive income,
net of tax
Comprehensive income
Treasury stock purchases
Exercise of stock options
Tax benefit on exercise of
stock options
Stock-based compensation
Cash dividends on common
stock
Capital calls and
distributions, net
Balance, December 31, 2011
See accompanying notes to consolidated financial statements.
74
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 BOKF, NA (“the Bank”), BOSC,
Inc. and Cavanal Hill Investment Management, Inc. All significant intercompany transactions are eliminated in consolidation. Certain
prior year amounts have been reclassified to conform to the current year presentation.
The consolidated financial statements 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. See additional discussion of variable interest entities at Note 14 following.
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. These services include depository and cash management; lending and lease financing; mortgage banking;
securities brokerage, trading and underwriting; and personal and corporate trust.
The Bank operates as Bank of Oklahoma primarily in Tulsa and Oklahoma City metropolitan areas of the state of Oklahoma and Bank of
Texas primarily in the Dallas, Fort Worth and Houston metropolitan areas of the state of Texas. In addition, the Bank does business as
Bank of Albuquerque in Albuquerque, New Mexico; Colorado State Bank and Trust in Denver, Colorado; Bank of Arizona in Phoenix,
Arizona and Bank of Kansas City in Kansas City, Missouri/Kansas. The Bank also operates the TransFund electronic funds network.
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 generally result from business combinations and are evaluated for each of BOK Financial’s reporting 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 reporting 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.
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 fair 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. Securities identified as available for sale are carried at fair value. Unrealized gains and losses are recorded, net of deferred
75
income taxes, as accumulated other comprehensive income in shareholders’ equity. Available for sale securities are separately identified as
pledged to creditors if the creditor has the right to sell or re-pledge the collateral.
The purchase or sale of securities is recognized on a trade date basis. Realized gains and losses on sales of securities are based upon
specific identification of the security sold. A receivable or payable is recognized for subsequent transaction settlement. BOK Financial will
periodically commit to purchase to-be-announced residential mortgage-backed securities. These commitments are carried at fair value if
they are considered derivative contracts. 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 meeting certain criteria may also be
transferred from the available for sale classification to the investment securities portfolio at fair value on the date of transfer. The
unrealized gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the
investment securities portfolio. Such amounts are amortized over the estimated remaining life of the security as an adjustment to yield,
offsetting the related amortization of the premium of accretion of the discount on the transferred securities.
On a quarterly basis, the Company performs separate evaluations of impaired debt and equity investment and available for sale securities to
determine if the decline in fair value below the amortized cost is other-than-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 and securities portfolio management. If the
Company intends to sell or it is more likely than not that it will be required to sell the impaired debt security, a charge is recognized against
earnings for the entire unrealized loss. For all impaired debt securities for which there is 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. Any expected credit loss due to the inability to collect all amounts due according to the
security’s contractual terms is recognized as a charge against earning. Any remaining unrealized loss related to other factors would be
recognized in other comprehensive income, net of taxes.
For equity securities, management evaluates various factors including cause, severity and duration of the decline in value of the security
and prospects for recovery, as well as the Company’s intent and ability not to sell the security until the fair value exceeds amortized cost.
If an unrealized loss is determined to be other-than-temporary, a charge is recognized against earnings for the difference between the
security’s amortized cost and fair value.
BOK Financial has elected to carry certain non-trading 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 or
certain derivative instruments.
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.
76
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. 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 that permit its customers to manage various risks, including fluctuations in energy, cattle and other
agricultural products, interest rates and foreign exchanges rates with 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 in the
Consolidated Statements of Earnings.
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. Internally risk graded loans are individually evaluated for
nonaccrual status quarterly. Non-risk graded loans are generally placed on nonaccrual status when more than 90 days past due. Interest
previously accrued but not collected is charged against interest income when the loan is placed on nonaccrual status. Payments on
nonaccrual loans are applied to principal or reported as interest income, according to management’s judgment as to the collectability of
principal. Loans may be returned to accruing status when, in the opinion of management, full collection of principal and interest, including
principal previously charged off, is probable based on improvements in the borrower’s financial condition or a sustained period of
performance.
All distressed commercial and commercial real estate loans are placed on nonaccrual status. Modification of nonaccruing loans to
distressed borrowers generally consists of extension of payment terms, renewal of matured nonaccruing loans or interest rate concessions.
Principle and accrued but unpaid interest is not forgiven. Renewed or modified nonaccruing loans are charged-off when the loan balance is
no longer covered by the paying capacity of the borrower based on a quarterly evaluation of cash resources and collateral value. Renewed
or modified nonperforming loans generally remain on nonaccrual status until full collection of principal and interest in accordance with
original terms, including principal previously charged off, is probable. Consumer loans to troubled borrowers are not voluntarily modified.
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 sold after a
period of satisfactory performance. If it becomes probable that all amounts due according to the modified loan terms will not be collected,
the loan is placed on nonaccrual status and included in nonaccrual loans.
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 and are reported separately in the Consolidated Balance Sheets. Changes in fair value are recorded in other operating
revenue – mortgage banking revenue in the Consolidated Statements of Earnings.
Loans are disaggregated into portfolio segments and further disaggregated into classes. The portfolio segment is the level at which the
Company develops and documents a systematic method for determining its allowance for credits losses. Classes are a further
disaggregation of portfolio segments based on the risk characteristics of the loans and the Company’s method for monitoring and assessing
credit risk.
77
Allowance for Loan Losses and Off-Balance Sheet Credit Losses
The appropriateness of the allowance for loan losses and accrual for off-balance sheet credit losses is assessed by management based on an
ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, including probable losses on both outstanding loans
and unused commitments to provide financing.
The allowance for loan losses 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 estimated loss rates by loan class and nonspecific allowances based on general
economic, risk concentration and related factors. There were no changes to accounting policies related to the allowance for loan loss and
accrual for off-balance sheet credit losses during 2011. Effective with the fourth quarter of 2011, the Company enhanced its methodology
to include specific loss rates by loan class. There were no other changes to the Company’s methodology during 2011.
Internally risk graded loans are evaluated individually for impairment. 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. Risk grades are
updated quarterly. Non-risk graded loans are collectively evaluated for impairment. 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. All commercial and commercial real estate loans that have been modified in a troubled debt restructuring are considered
to be impaired and remain classified as nonaccrual. Specific allowances for impaired loans are measured by an evaluation of estimated
future cash flows discounted at the loans’ initial effective interest rate or the fair value of collateral for certain collateral dependent loans.
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. Historical statistics may be used in limited situations to assist in estimating future cash flows or collateral values,
such as when a collateral dependent impaired loan is identified at the end of a reporting period. Historical statistics are used as a practical
way to estimate impairment until an updated appraisal of collateral value is received or a full assessment of future cash flows is completed.
Estimates of future cash flows and collateral values require significant judgments and are subject to volatility.
General allowances for unimpaired loans are based on an estimated loss rate by loan class. For risk graded loans, estimated loss rates are
developed using historical gross loss rates, as adjusted for changes in risk grading and inherent risk identified by loan class. Loss rates for
each loan class are determined by the current loss rate based on the most recent twelve months or a long-term gross loss rate that most
appropriately represents the current economic environment. For each loan class, average risk grades for the most recent twelve month are
compared to long-term average risk grades to determine if risk is increasing or decreasing. Loss rates are accordingly adjusted upward or
downward in proportion to increasing or decreasing risk. Historical loss rates may be further adjusted for inherent risks identified for the
given loan class which have not yet been captured in the actual gross loss rates or risk grading.
Nonspecific allowances are maintained for risks beyond factors specific to a particular loan or loan class. These factors include trends in
the economy in our primary lending areas, overall growth in the loan portfolio and other relevant factors. Nonspecific allowances may also
be utilized to adjust loss rates based on historical information, including consideration of the duration of the business cycle on loss rates.
An accrual for off-balance sheet credit losses is included in Other liabilities. The appropriateness of the accrual is determined in the same
manner as the allowance for loan losses. Changes in the accrual for off-balance sheet credit losses are recognized through the provision for
credit losses.
A provision for credit losses is charged against or credited to earnings in amounts necessary to maintain appropriate allowances for loan
and accrual for off-balance sheet credit losses. All 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. Internally risk
graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans that are
past due between 60 days and 180 days, based on the loan product, are charged off. Recoveries of loans previously charged off are added to
the allowance.
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 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 generally retain the right to service the loans. The
Company may incur a recourse obligation in limited circumstances. 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
78
in earnings as they occur. A separate accrual is maintained as part of Other liabilities in the Consolidated Balance Sheets for the
Company’s credit risk on loans transferred subject to a recourse obligation. Other liabilities also include an accrual for obligations related
to residential mortgage loans transferred under certain underwriting representations and warranties. The Company may also retain right to
reacquire certain residential mortgage previously sold to investors when certain delinquency criteria are met. Because of this repurchase
right, the Company is deemed to have regained effective control over these loans when the criteria are met and must be included in the
loans and a corresponding liability in the Consolidated Balance Sheets of the Company.
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 of real estate 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. Fair values based on appraisals are generally considered to
be based on significant other observable inputs. 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. Fair values based on list
prices and other relevant information are generally considered to be based on significant unobservable inputs. 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. The fair value of mineral rights included in repossessed assets 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
repossessed assets is generally determined by our special assets staff based on projected liquidation cash flows under current market
conditions. Income generated by these assets is recognized as received. Operating expenses are recognized as incurred. Gains or losses on
sales of real estate and other repossessed assets are based on the cash proceeds received less the cost basis of the asset, net of any valuation
allowances.
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 are 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. All mortgage servicing rights are 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. Fair
value estimates from outside sources are received at least annually to corroborate the results of the valuation model.
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.
79
Deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in
the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be
recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for
income taxes. A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not
be realized.
Employee Benefit Plans
BOK Financial sponsors a defined benefit cash balance pension plan (“Pension Plan”), qualified profit sharing plan (“Thrift Plan”) and
employee healthcare plans. Pension Plan costs, which are based upon actuarial computations of current costs, are expensed annually.
Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the lesser of the average remaining
service periods of the participants or 10 years. Employer contributions to the Pension Plan are in accordance with Federal income tax
regulations. Pension Plan benefits were curtailed as of April 1, 2006. No participants may be added to the Pension Plan and no additional
service benefits will be accrued.
BOK Financial recognizes the funded status of its employee benefit plans. For a pension plan, the funded status is the difference between
the fair value of plan assets and the projected benefit obligation measured as of the fiscal year-end date. Adjustments required to recognize
the Pension Plan’s net funded status are made through accumulated other comprehensive income, net of deferred income taxes.
Employer contributions to the Thrift Plan, which matches employee contributions subject to percentage and years of service limits, are
expensed when incurred. BOK Financial recognizes the expense of health care benefits on the accrual method.
Stock Compensation Plans
BOK Financial awards stock options and non-vested common shares as compensation to certain officers. Grant date fair value of stock
options is based on the Black-Scholes option pricing model. Stock options generally have graded vesting over 7 years. Each tranche is
considered a separate award for valuation and compensation cost recognition. Grant date fair value of non-vested shares is based on the
current market value of BOK Financial common stock. Non-vested shares generally cliff vest in 5 years.
Compensation cost is recognized as expense over the service period, which is generally the vesting period. Expense is reduced for
estimated forfeitures over the vesting period and adjusted for actual forfeitures as they occur. Stock-based compensation awarded to
certain officers has performance conditions that affect the number of awards granted. Compensation cost is adjusted based on the probable
outcome of the performance conditions. Excess tax benefits from share-based payments recognized in capital surplus are determined by
the excess of tax benefits recognized over the tax effect of compensation cost recognized.
Certain executive officers may defer the recognition of income from stock-based compensation for income tax purposes and to diversify
the deferred income into alternative investments. Stock-based compensation granted to these officers is considered liability awards.
Changes in the fair value of liability awards are recognized as compensation expense in the period of the change.
Other Operating Revenue
Fees and commission revenue is recognized at the time the related services are provided or products are sold and may be accrued when
necessary. Accrued fees and commissions are reversed against revenue if amounts are subsequently deemed to be uncollectible. Revenue
is recognized on a gross basis whenever we have primary responsibility and risk in providing the services or products to our customers and
on a net basis whenever we act as a broker for products or services of others.
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.
Transaction card revenue includes merchant discounts fees, electronic funds transfer network fees and check card fees. Merchant discount
fees represent fees paid by customers for account management and electronic processing of transactions. Merchant discount fees are
recognized at the time the customer’s transactions are processed or other services are performed. The Company also maintains the
TransFund electronic funds transfer network for the benefit of its members, which includes the Bank. Electronic funds transfer fees are
recognized as electronic transactions processed on behalf of its members. Check card fees represent interchange fees paid by a merchant
bank for transactions processed from cards issued by the Company. Check card fees are recognized when transactions are processed.
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 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.
80
Effect of Recently Issued Statements of Financial Accounting Standards
Financial Accounting Standards Board
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 were 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. 2010-20 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 was 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 were effective
for the Company January 1, 2011 except for troubled debt restructuring as discussed below.
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 modifies
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 did not have a significant impact on the
consolidated financial statements.
FASB Accounting Standards Update No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a
Troubled Debt Restructuring (“ASU 2011-02”)
On April 5, 2011, the FASB issued ASU 2011-02 to provide additional guidance or clarification to help creditors in determining whether a
creditor has granted a concession and whether a debtor is experiencing financial difficulties for the purposes of determining whether a
restructuring constitutes a troubled debt restructuring. ASU 2011-02 was effective for the Company on July 1, 2011. In addition, the
disclosure required by ASU 2010-20 that were temporarily deferred by 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 are included in Note
4 for the period beginning July 1, 2011, as required. ASU 2011-02 did not have a material impact on the Company’s consolidated financial
statements.
FASB Accounting Standards Update No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements (“ASU 2011-03”)
On April 29, 2011, the FASB issued ASU 2011-03 that eliminates the collateral maintenance requirement under GAAP for entities to
consider in determining whether a transfer of financial assets subject to repurchase agreements is accounted for as a sale or as a secured
borrowing. ASU 2011-03 was effective for the Company on January 1, 2012 and it did not have a material impact on the Company’s
consolidated financial statements.
FASB Accounting Standards Update No. 2011-04, Fair value Measurements (Topic 820): Amendment to Achieve Common Fair Value
Measurements and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”)
On May 12, 2011, the FASB issued ASU 2011-04 to provide clarified and converged guidance on fair value measurement and expanded
disclosures concerning fair value measurements. ASU 2011-04 is largely consistent with the existing fair value measurement principals
contained in ASC 820, Fair Value Measurement. ASU 2011-04 was effective for the Company on January 1, 2012 and did not have a
material impact on the Company’s financial statements.
FASB Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU
2011-05”)
On June 16, 2011, the FASB issued ASU 2011-05 which revises the manner in which entities present comprehensive income in their
financial statements by removing the presentation option in ASC 220, Comprehensive Income, and requires entities to report components of
comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. ASU 2011-5
is effective for the Company for interim and annual period beginning after December 15, 2011 and will be applied retrospectively for all
periods presented in the consolidated financial statements. Early adoption is permitted, but has not been elected by the Company.
FASB Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”)
On September 15, 2011, the FASB issued ASU 2011-08 which amends the guidance in ASC 350-20, Intangibles – Goodwill and Other:
Goodwill, on testing goodwill for impairment. Under the revised guidance, the Company has the option of performing a qualitative
assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the company determines on the
basis of qualitative factors that the fair value of the reporting unit is more likely than not less than the carry amount, the two-step
impairment test, as defined in ASC 350-20 would be required. ASU 2011-08 does not change the calculation or allocation of goodwill.
ASU 2011-08 does not revise the requirement to test goodwill annually for impairment or to test for goodwill impairment between annual
81
tests if events or circumstances warrant. However, ASU 2011-08 does revise examples of events and circumstances that an entity should
consider. ASU 2011-08 was effective for the Company on January 1, 2012. Early adoption was permitted and the Company elected to
early adopt effective October 1, 2011. ASU 2011-08 did not have a material impact on the Company’s consolidated financial statements.
FASB Accounting Standards Update No. 2011-11, Disclosures About Offsetting Assets and Liabilities (“ASU 2011-11”)
On December 16, 2011, the FASB issued ASU 2011-11 which contains new disclosure requirements regarding the nature of an entity’s
right of setoff and related arrangements associated with its financial instruments and derivative instruments. The new disclosures are
anticipated to facilitate comparison between financial statements prepared under generally accepted accounting principles in the United
States of America and International Financial Reporting Standards by providing information about both gross and net exposures. The new
disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013.
FASB Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards No. 2011-05 (“ASU 2011-12”)
On December 23, 2011, FASB issued ASU 2011-12 which defers the requirement in ASU 2011-05 for presentation of reclassification
adjustments for each component of accumulated other comprehensive income (“AOCI”) in both net income and other comprehensive
income on the face of the financial statements. This deferral will enable the FASB to address certain concerns raised with regards to
presentation requirements for reclassification adjustments. The amendment is effective at the same time as ASU 2011-05 which is
effective for the company for interim and annual periods beginning January 1, 2012.
(2) Securities
Trading Securities
The fair value and net unrealized gain (loss) included in Trading securities is as follows (in thousands):
December 31, 2011
Net
Unrealized
Gain (Loss)
Fair
Value
December 31, 2010
Net
Unrealized
Gain (Loss)
Fair
Value
$ 22,203
$
63
$ 3,873
$
(17)
12,379
59
27,271
292
39,345
2,873
$ 76,800
$
652
9
783
23,396
927
$ 55,467
(214)
(2)
59
$
Obligations of the U.S.
Government
U.S. agency residential
mortgage-backed
securities
Municipal and other tax-
exempt securities
Other trading securities
Total
82
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
Amortized Carrying
Value1
Cost
December 31, 2011
Fair
Value
Gross Unrealized2
Loss
Gain
Municipal and other tax-
exempt
U.S. agency residential
mortgage-backed
securities – Other
Other debt securities
Total
$ 128,697 $ 128,697 $ 133,670 $ 4,975
$
(2)
110,062
188,835
602
19,616
$ 427,594 $ 439,236 $ 462,657 $ 25,193
120,536
208,451
121,704
188,835
(1,770)
–
$ (1,772)
Amortized
Cost
December 31, 2010
Fair
Value
Gross Unrealized2
Loss
Gain
Municipal and other tax-
exempt
$ 184,898
$ 188,577
$ 3,912 $
(233)
U.S. agency residential
mortgage-backed
securities – Other
Other debt securities
Total
–
–
–
–
154,655
$ 339,553
157,528
$ 346,105
4,505
(1,632)
$ 8,417 $ (1,865)
1 Carrying value includes $12 million of unrealized gain, net of amortization, that remains in Accumulated other comprehensive income (“AOCI”) in the
Consolidated Balance Sheets at December 31, 2011 related to certain securities transferred during 2011 from the Available for Sale securities portfolio to
the Investment securities portfolio. The Company has the positive intent and ability to hold these securities to maturity. At the time of transfer, the fair
value of these securities totaled $131 million, amortized cost totaled $118 million and the pre-tax unrealized gain totaled $13 million. No gain or loss
was recognized in the Consolidated Statement of Earnings at the time of the transfer.
2 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
83
The amortized cost and fair values of investment securities at December 31, 2011, 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
Residential mortgage-backed securities:
Carrying value
Fair value
Nominal yield4
Total investment securities:
Carrying value
Fair value
Nominal yield
$ 34,623
34,942
4.59
$
8,651
8,660
3.78
$ 43,274
46,602
4.43
$ 68,029
70,682
4.62
$ 28,713
29,546
5.56
$ 96,742
100,228
4.90
$ 21,848
23,570
5.50
$ 34,784
36,962
5.58
$ 56,632
60,532
5.55
$ 4,197
4,476
6.54
$ 128,697
133,670
4.83
$ 116,687
133,283
6.20
$ 120,884
137,759
6.21
$ 188,835
208,451
5.88
$ 317,532
342,121
5.45
$ 121,704
120,536
2.17
$ 439,236
462,657
4.54
Weighted
Average
Maturity²
2.98
10.00
7.16
3
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.
3 The average expected lives of residential mortgage-backed securities were 2.1 years based upon current prepayment assumptions.
4 The nominal yield on residential mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ
significantly based upon actual prepayments. See Annual and Quarterly Financial Summary – Unaudited following for disclosure of current yields on
investment securities portfolio.
84
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
December 31, 2011
Amortized
Cost
Fair
Value
Gross Unrealized¹
Gain
Loss
OTTI²
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
$
1,001 $
1,006 $
5 $
66,435
68,837
2,543
$
–
(141)
U. S. agencies:
FNMA
FHLMC
GNMA
Other
Total U.S. agencies
Privately issued:
Alt-A loans
Jumbo-A loans
Total privately issued
Total residential mortgage-backed securities
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total
5,823,972
2,756,180
647,569
69,668
9,297,389
5,987,287
2,846,215
678,924
75,751
9,588,177
163,319
90,035
31,358
6,083
290,795
(4)
–
(3)
–
(7)
168,461
334,607
503,068
9,800,457
36,298
19,171
33,843
–
(11,096)
(11,096)
(11,103)
–
(1,755)
(332)
$ 9,957,205 $10,179,365 $ 308,297 $ (13,331)
132,242
286,924
419,166
10,007,343
36,495
18,446
47,238
–
–
–
290,795
197
1,030
13,727
(36,219)
(36,587)
(72,806)
(72,806)
–
–
–
$ (72,806)
–
–
–
–
–
–
–
¹ Gross unrealized gain/loss recognized AOCI in the consolidated balance sheet
² Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.
December 31, 2010
Amortized
Cost
Fair
Value
Gross Unrealized¹
Gain
Loss
OTTI²
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
Privately issued:
Alt-A loans
Jumbo-A loans
Total privately issued
Total residential mortgage-backed securities
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total
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
19,511
29,181
(353)
(14,067)
(14,420)
(35,918)
–
–
(327)
$ 9,035,418 $9,235,621 $ 293,592 $ (36,560)
186,674
457,535
644,209
9,091,118
6,401
22,114
43,046
–
923
923
275,625
–
2,603
14,192
(33,305)
(23,419)
(56,724)
(56,724)
–
–
–
$ (56,829)
¹ Gross unrealized gain/loss recognized AOCI in the consolidated balance sheet
² Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.
85
The amortized cost and fair values of available for sale securities at December 31, 2011, by contractual maturity, are as shown in the
following table (dollars in thousands):
U.S. Treasury:
Amortized cost
Fair value
Nominal yield¹
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
Residential 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
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years6
$
$
$
$
–
–
–
1,009
1,021
4.04
–
–
–
1,009
1,021
4.04
$
$
1,001
1,006
0.55
8,454
9,238
4.16
$ 30,398
30,595
1.81
$ 39,853
40,839
2.27
$
$
–
–
–
11,357
12,812
4.00
$
–
–
–
$
11,357
12,812
4.00
$
–
–
–
$ 45,615
45,766
2.69
$ 5,900
5,900
1.87
$ 51,515
51,666
2.60
Weighted
Average
Maturity5
1.37
18.98
7.68
14.86
²
³
$
$
$
$
Total
1,001
1,006
0.55
66,435
68,837
3.12
36,298
36,495
1.82
103,734
106,338
2.64
$ 9,800,457
10,007,343
3.33
$
53,014
65,684
0.74
$ 9,957,205
10,179,365
3.31
¹ Calculated on a taxable equivalent basis using a 39% effective tax rate.
² The average expected lives of residential mortgage-backed securities were 2.1 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 residential mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ
significantly based upon actual prepayments. See Annual and Quarterly Financial Summary – Unaudited following for disclosure of current yields on
available for sale securities portfolio.
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):
Year ended December 31,
2010
2009
2011
Proceeds
Gross realized gains
Gross realized losses
Related federal and state income
tax expense
$ 2,725,760
41,284
7,140
$ 2,013,620
26,007
4,125
$3,242,282
60,710
1,390
13,282
8,512
23,075
In addition to securities that have been reclassified as pledged to creditors, securities with an amortized cost of $4.4 billion and $5.3 billion
at December 31, 2011 and 2010, 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.
86
Temporarily Impaired Securities as of December 31, 2011
(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
U.S. agency residential mortgage-
backed securities – Other
Total investment
Available for sale:
Municipal and other tax-exempt
Residential mortgage-backed
securities:
U. S. agencies:
FNMA
GNMA
Total U.S. agencies
Privately issued1:
Alt-A loans
Jumbo-A loans
Total privately issued
Total residential mortgage-backed
securities
Perpetual preferred stocks
Equity securities and mutual
funds
Total available for sale
1
$
479
$
2
$
5
6
26
2
1
3
19
48
67
70
6
92,571
93,050
1,770
1,772
5,008
68,657
2,072
70,729
–
8,142
8,142
78,871
11,147
7
4
3
7
–
842
842
849
1,755
–
–
–
$
–
$
479
$
2
–
–
92,571
93,050
1,770
1,772
21,659
134
26,667
141
–
–
–
132,242
278,781
411,023
411,023
–
–
–
–
36,219
46,841
83,060
83,060
–
68,657
2,072
70,729
132,242
286,923
419,165
489,894
11,147
4
3
7
36,219
47,683
83,902
83,909
1,755
7
109
221
$ 95,247
5
$ 2,616
2,551
$ 435,233
327
$ 83,521
2,772
$ 530,480
332
$ 86,137
¹ Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in
income:
Alt-A loans
Jumbo-A loans
19
36
$
–
3,809
$
–
256
$ 132,242
202,874
$ 36,219
36,331
$ 132,242
206,683
$ 36,219
36,587
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-exempt1
Residential mortgage-backed
securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Total U.S. agencies
Privately issued1:
Alt-A loans
Jumbo-A loans
Total privately issued
Total residential mortgage-backed
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
securities
Total available for sale
Equity securities and mutual funds
92,642
327
93,389
Includes the following securities for which an unrealized loss remains in OCI after an other-than-temporary credit loss has been recognized in income:
105
$
33,305
23,419
Municipal and other tax-exempt
Alt-A loans
Jumbo-A loans
2,201,759
2,878
2,252,143
604,592
2,878
632,705
1,597,167
–
1,619,438
$ 10,713
–
–
21,498
–
21,669
71,144
327
71,720
116
2
160
–
172,153
166,401
10,713
172,153
166,401
–
33,305
23,419
103
–
–
11
19
25
$
$
$
$
¹
87
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. For 2011 and 2010, the Company did not intend to sell and it is more likely than not that the Company will not be
required to sell impaired securities before fair value recovers to amortized cost, which may be maturity. 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, 2011 and 2010, the Company did not intend to sell and it is more-likely-than-not that
the Company will not be required to sell impaired securities before fair value recovers to amortized cost, which may be maturity.
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, 2011 or December 31, 2010.
As of December 31, 2011, the composition of the Company’s investment and available for sale securities portfolios 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
Investment Grade
Not Rated
Total
Below
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
Cost
Value
Cost
Value
Cost
Value
Cost
Value
Investment:
Municipal and other tax-
exempt
$
–
$
–
$
50,468
$ 52,224
$
25,892 $ 26,729
$
–
$ –
$
52,337
$ 54,717
$
128,697
$
133,670
Residential mortgage-backed
securities – Other
121,704
120,536
–
–
–
–
Other debt securities
–
–
180,334
199,830
600
600
Total
$ 121,704
$ 120,536
$ 230,802
$ 252,054
$
26,492 $ 27,329
$
–
–
–
–
–
–
–
121,704
120,536
7,901
8,021
188,835
208,451
$ –
$
60,238
$ 62,738
$
439,236
$
462,657
Available for Sale:
U.S. Treasury
$ 1,001 $
1,006
$
–
$
–
$
– $
–
$
–
$
–
$
–
$
–
$
1,001
$
1,006
Municipal and other tax-
exempt
–
–
40,419
42,574
11,579 11,692
13,026
13,026
1,411
1,545
66,435
68,837
Residential mortgage-backed
securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Other
5,823,972
5,987,287
2,756,180
2,846,215
647,569
678,924
69,668
75,751
Total U.S. agencies
9,297,389
9,588,177
Privately issued:
Alt-A loans
Jumbo-A loans
Total privately issued
Total residential mortgage-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
168,461
132,242
23,221
20,654
19,390
17,167
291,996
249,103
23,221
20,654
19,390
17,167
460,457
381,345
backed securities
9,297,389
9,588,177
23,221
20,654
19,390
17,167
460,457
381,345
Other debt securities
Perpetual preferred stock
Equity securities and mutual
funds
–
–
–
–
–
–
5,900
5,900
30,398
30,595
–
–
–
–
19,171
18,446
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,823,972
5,987,287
2,756,180
2,846,215
647,569
678,924
69,668
75,751
9,297,389
9,588,177
168,461
334,607
132,242
286,924
503,068
419,166
–
9,800,457
10,007,343
36,298
19,171
36,495
18,446
–
33,843
47,238
33,843
47,238
Total
1 U.S. government and government sponsored enterprises are not rated by the nationally-recognized rating agencies as these securities are guaranteed by
80,538 $ 77,900
$ 10,179,365
$ 9,957,205
$ 9,589,183
$ 9,298,390
$ 473,483
$ 69,128
$ 394,371
$ 48,783
35,254
69,540
$
$
$
agencies of the U.S. government or government-sponsored enterprises.
88
At December 31, 2011, approximately $460 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 $79 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 9.5% over the next 12 months, dropping to 8% over the following 21 months, and holding at
8% thereafter. At December 31, 2010, we assumed that unemployment rate would increase to 10% over the next 12 months,
dropping to 8% over the following 21 months and holding at 8% thereafter.
• Housing price depreciation – starting with current depreciated housing prices based on information derived from the Federal
Housing Finance Agency (“FHFA”) data, decreasing by an additional 8% over the next twelve months and growing at 2% per
year thereafter. At December 31, 2010, we assumed that housing prices would decrease an additional 5% over the next twelve
months and hold at that level thereafter.
Estimated Liquidation Costs – reflect actual historical liquidation costs observed on Jumbo and Alt-A residential mortgage loans
in the securities owned by the Company. At December 31, 2011, 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.
•
• Discount rates – estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected
yields. At December 31, 2010, 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 current loan-to-value ratio and remaining credit enhancement 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.
The Company calculates the current loan-to-value ratio for each residential mortgage-backed security using loan-level data. Current loan-
to-value ratio is the current outstanding loan amount divided by an estimate of the current home value. The current home value is derived
from FHFA data. FHFA provides historical information on home price depreciation at both the Metropolitan Statistical Area and state
level. This information is matched to each loan to estimate the home price depreciation. Data is accumulated from the loan level to
determine the current loan-to-value ratio for the security as a whole.
Remaining credit enhancement is the amount 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 our
residential 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.
Credit loss impairment is recorded as a charge to earnings. 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.
Based upon projected decline in expected cash flows from certain private-label residential mortgage-backed securities, the Company
recognized $21.9 million of credit loss impairments in earnings during 2011. The Company recognized $26.5 million of credit loss
impairment in earnings on certain private-label residential mortgage-backed securities during 2010.
A distribution of the amortized cost (after recognition of the other-than-temporary impairment) and fair value by credit rating for our
private-label residential mortgage-backed securities is as follows (in thousands):
Credit Losses Recognized
Year ended
December 31, 2011
Life-to-date
Number of
Securities
Amortized
Cost
Fair Value
Number of
Securities Amount
Number of
Securities
Amount
19
$ 168,461 $ 132,242
18
$ 8,209
19
$ 49,931
3
2
43
48
67
23,221
19,390
291,996
20,654
17,167
249,103
334,607 286,924
–
–
32
32
–
–
13,740
13,740
–
–
36
36
–
–
23,623
23,623
$ 503,068 $ 419,166
50
$ 21,949
55
$ 73,554
Alt-A loans:
Below Investment Grade
Jumbo-A loans:
AAA – AA
A – BBB
Below Investment Grade
Total Jumbo-A loans
Total
89
In addition to the other-than-temporary impairment charges on private-label residential mortgage-backed securities, the Company
recognized $1.6 million of credit loss impairments in earnings for certain below investment grade municipal securities based on an
assessment of the issuer’s on-going financial difficulties and bankruptcy filing in the fourth quarter of 2011. The Company recognized
$1.0 million in impairment charges on these securities in 2010. 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, 2011 and 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
Total OTTI on debt securities not intended for sale
Portion of loss recognized in (reclassified from) other
comprehensive income
Net impairment losses recognized in earnings related to
credit losses on debt securities not intended for sale
Total impairment losses recognized in earnings
Year Ended December 31,
2010
2011
$
–
–
–
(10,578)
(12,929)
$
$
–
(327)
–
(29,633)
2009
(8,008)
–
(1,263)
(119,883)
2,151
94,741
(23,507)
(23,507)
$
(27,482)
(27,809)
(25,142)
(34,413)
$
$
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
Year Ended December 31,
2010
2011
$ 52,624
3,368
$ 25,142
3,514
20,139
23,968
sale debt securities, end of period
$ 76,131
$ 52,624
Fair Value Option Securities
Fair value option securities represent securities which the Company has elected to carry at fair value and separately identified on the
Consolidated Balance Sheets with changes in fair value recognized in earnings as they occur. Certain residential mortgage-backed
securities issued by U.S. government agencies and derivative contracts are held as an economic hedge of the mortgage servicing rights. In
addition, certain corporate debt securities are economically hedged by derivative contracts to manage interest rate risk. Derivative
contracts that have not been designated as hedging instruments effectively modify these fixed rate securities into variable rate securities.
The fair value and net unrealized gain (loss) included in Fair value option securities is as follows (in thousands):
December 31, 2011
Net
Unrealized
Gain (Loss)
Fair
Value
December 31, 2010
Net
Unrealized
Gain (Loss)
Fair
Value
$ 626,109
25,117
$ 651,226
$ 19,233
18
$ 19,251
$ 428,021
–
$ 428,021
$ (5,641)
–
$ (5,641)
U.S. agency residential
mortgage-backed
securities
Corporate debt securities
Total
90
(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, 2011 (in thousands):
Gross Basis
Assets
Liabilities
Notional¹
Fair Value
Notional¹
Fair Value
Net Basis²
Assets
Fair Value
Liabilities
Fair Value
$ 10,391,244
1,554,400
146,252
$ 182,450
158,625
4,761
$ 10,324,244
1,799,367
148,924
$ 181,102
171,050
4,680
$
149,780
62,945
782
$148,432
75,370
701
73,153
208,647
12,373,696
–
12,373,696
73,153
12,508
431,497
–
431,497
72,928
208,647
12,554,110
–
12,554,110
72,928
12,508
442,268
–
442,268
73,153
12,508
299,168
(11,690)
287,478
72,928
12,508
309,939
(73,712)
236,227
Customer risk management
programs:
Interest rate contracts3
Energy contracts
Agricultural contracts
Foreign exchange
contracts
Equity options
Total customer derivatives
before cash collateral
Less: cash collateral
Total customer derivatives
Interest rate risk
management programs
Total derivative contracts
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the 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
44,000
$ 12,417,696
25,000
$ 12,579,110
6,381
$ 437,878
295
$ 442,563
295
$ 236,522
6,381
293,859
$
¹
3
derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.
Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced residential mortgage-backed securities
used by mortgage banking customers to hedge their loan production.
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, 2011, a decrease in
credit rating from A1 to below investment grade would increase our obligation to post cash margin on existing contracts by approximately
$51 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, 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 contracts3
Energy contracts
Agricultural contracts
Foreign exchange
contracts
Equity options
Total customer derivatives
before cash collateral
Less: cash collateral
Total customer derivatives
Interest rate risk
management programs
Total derivative contracts
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the 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
124,000
$ 14,091,727
17,977
$ 14,038,235
1,097
$ 215,420
1,950
498,443
1,950
270,445
1,097
497,388
$
$
$
¹
3
derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.
Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced residential mortgage-backed securities
used by mortgage banking customers to hedge their loan production.
91
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,
2011
2010
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
$
(854)
5,262
341
565
–
5,314
–
$ 5,314
$
–
–
–
–
–
–
2,526
$ 2,526
$
2,784
7,951
629
375
–
11,739
–
$ 11,739
$
$
–
–
–
–
–
–
3,032
3,032
Customer risk management programs:
Interest rate contracts
Energy contracts
Agriculture contracts
Foreign exchange contracts
Equity options
Total customer derivatives
Interest rate risk management programs
Total derivative contracts
Net interest revenue increased $1.6 million in 2011, $4.0 million in 2010 and $13.1 million in 2009 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 in 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 and Allowances for Credit Losses
The portfolio segments of the loan portfolio are as follows (in thousands):
2011
2010
December 31,
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Accruing loans past due (90
days)1
Foregone interest on
nonaccrual loans
$ 3,272,862 $ 3,229,781 $ 68,811
99,193
29,767
3,515
$ 5,395,296 $ 5,673,161 $ 201,286
1,292,793
948,138
202,449
887,923
992,556
241,955
$ 6,571,454
2,279,909
1,970,461
447,919
$ 11,269,743
$
2,496
$
11,726
$ 2,883,905 $ 3,011,636 $ 38,455 $ 5,933,996
2,277,350
1,828,248
603,442
$ 4,934,153 $ 5,478,069 $ 230,814 $ 10,643,036
1,297,148
939,774
229,511
150,366
37,426
4,567
829,836
851,048
369,364
$
7,966
$
16,818
1 Excludes residential mortgage loans guaranteed by agencies of the U.S. government
At December 31, 2011, $5.0 billion or 44% of the total loan portfolio was to businesses and individuals in Oklahoma and $3.4 billion or
31% of our total loan portfolio was to businesses and individuals in Texas. This geographic concentration subjects the loan portfolio to the
general economic conditions within this area. At December 31, 2010, $4.9 billion or 46% of the total loan portfolio was to businesses and
individuals in Oklahoma and $3.0 billion or 28% of our total loan portfolio was to businesses and individuals in Texas.
Commercial
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, 2011, commercial loans to businesses in Oklahoma totaled $2.7 billion or 41% of the commercial loan portfolio and loans
to businesses in Texas totaled $2.2 billion or 34% of the commercial loan portfolio segment. The commercial loan portfolio segment is
further divided into loan classes. The energy loan class totaled $2.0 billion or 18% of total loans at December 31, 2011, including $1.7
billion of outstanding loans to energy producers. Approximately 51% of the committed production loans are secured by properties
92
primarily producing oil and 47% are secured by properties primarily producing natural gas. The services loan class totaled $1.7 billion at
December 31, 2011. Approximately $993 million of loans in the services category consisted of loans with individual balances of less than
$10 million. Businesses included in the service class include community foundations, communications, education, gaming and
transportation.
At December 31, 2010 commercial loans to business in Oklahoma totaled $2.6 billion or 43% of the commercial portfolio and commercial
loans to businesses in Texas totaled $1.9 billion or 32% of our commercial loan portfolio. The energy loan class totaled $1.7 billion and
the services loan class totaled $1.6 billion. Approximately $1.0 billion of loans in the services category consisted of loans with individual
balances of less than $10 million.
Commercial Real Estate
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.
At December 31, 2011, 36% of commercial real estate loans were secured by properties in the Dallas, Fort Worth and Houston
metropolitan areas of Texas and 26% of commercial real estate loans were secured by properties located primarily in the Tulsa and
Oklahoma City metropolitan areas of Oklahoma. At December 31, 2010, 32% of commercial real estate loans were secured by properties
located in Oklahoma and 30% of commercial real estate loans wee secured by properties located in Texas.
Residential Mortgage and Consumer
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.
At December 31, 2011 and 2010, residential mortgage loans included $185 million and $72 million, respectively, of loans guaranteed by
agencies of the U.S. government previously sold into Ginnie Mae (“GNMA”) mortgage pools. These loans either have been repurchased
or are eligible to be repurchased by the Company when certain defined delinquency criteria are met. Although payments on these loans
generally are past due more than 90 days, interest continues to accrue based on the government guarantee.
Home equity loans totaled $635 million at December 31, 2011 and $553 million at December 31, 2010. Approximately 66% of the home
equity loan portfolio is comprised of junior lien loans and 34% of the home equity loan portfolio is comprised of first lien loans.
Substantially all of the increase in total outstanding home equity loan balance is from the first lien product. These loans generally result
from refinancing of existing loans at terms of 15 years or less. Junior lien loans are distributed 78% to amortizing term loans and 22% to
revolving lines of credit. Home equity loans generally 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 $400 thousand.
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, 2011,
outstanding commitments totaled $6.1 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
93
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, 2011, outstanding standby
letters of credit totaled $37 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, 2011, outstanding commercial letters of credit totaled
$7.4 million.
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 accruals 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 loss rates by loan class for unimpaired
loans and non-specific allowances based on general economic conditions 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 segment for each impairment measurement method at December 31, 2011 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
$ 6,502,695 $
2,180,716
1,963,020
446,823
81,907 $
63,092
38,909
17,447
11,093,254 201,355
68,759 $
99,193
7,441
1,096
176,489
1,536
3,942
298
–
5,776
$ 6,571,454 $
2,279,909
1,970,461
447,919
11,269,743
83,443
67,034
39,207
17,447
207,131
Nonspecific allowance
–
–
–
–
–
46,350
Total
$ 11,093,254 $ 201,355 $
176,489 $
5,776
$ 11,269,743 $
253,481
The allowance for loan losses and recorded investment of the related loans by portfolio segment 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
94
The activity in the combined allowance for loan losses and off-balance sheet credit losses related to loan commitments and standby letters
of credit by portfolio segments for the year ended December 31, 2011 is summarized as follows (in thousands):
Allowance for loans losses:
Beginning balance
Provision for (reduction of)
allowance for loan losses
Loans charged off
Recoveries
Ending balance
Allowance for off-balance
sheet credit losses:
Beginning balance
Provision for (reduction of)
allowance for off-balance
sheet credit losses
Ending balance
Combined provision for
(reduction of) allowances for
credit losses
Commercial
Commercial
Real Estate
Residential
Mortgage Consumer
Nonspecific
allowance
Total
$
104,631 $
98,709 $
50,281 $ 12,614 $ 26,736 $ 292,971
(13,830)
(14,836)
7,478
83,443 $
(18,482)
(15,973)
2,780
67,034 $
$
(1,040)
699
(56,800)
(14,107)
2,334
18,350
39,207 $ 17,447 $ 46,350 $ 253,481
10,959
(11,884)
5,758
19,614
–
–
$
13,456 $
443 $
131 $
241 $
– $ 14,271
(5,550)
7,906 $
807
1,250 $
$
(40)
91 $
(227)
14 $
(5,010)
–
– $ 9,261
$
(19,380) $
(17,675) $
659 $ 10,732 $ 19,614 $ (6,050)
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,
2010
2009
Allowance for loans losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
$ 292,095
105,256
(123,988)
19,608
$ 292,971
$ 233,236
196,678
(148,499)
10,680
$ 292,095
Allowance for loans off-
balance sheet credit losses:
Beginning balance
Reduction of the allowance for
off-balance sheet credit losses
Ending balance
$ 14,388
$ 15,166
(117)
$ 14,271
(778)
$ 14,388
Total provision for credit losses $ 105,139
$ 195,900
Credit Quality Indicators
The Company utilizes loan class and risk grading as primary credit quality indicators. 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, 2011 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
$ 6,552,986 $ 82,263 $
18,468 $
2,279,909
314,475
216,271
67,034
8,262
2,527
9,363,641 160,086
–
1,655,986
231,648
1,906,102
1,180
–
30,945
14,920
47,045
$ 6,571,454 $
2,279,909
1,970,461
447,919
11,269,743
83,443
67,034
39,207
17,447
207,131
Nonspecific allowance
–
–
–
–
–
46,350
Total
$ 9,363,641 $ 160,086 $ 1,906,102 $ 47,045
$ 11,269,743 $
253,481
95
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
Loans are considered to be performing if they are in compliance with the original terms of the agreement which is consistent with the
regulatory guideline of “pass.” Performing also includes loans considered to be “other loans especially mentioned” by regulatory
guidelines. Other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that
deserves management’s close attention. Performing loans also include past due residential mortgages that are guaranteed by agencies of
the U.S. government.
The risk grading process identified certain criticized loans as potential problem loans. These loans have a well-defined weakness (e.g.
inadequate debt service coverage or liquidity or marginal capitalization; repayment may depend on collateral or other risk mitigation) that
may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial condition of the borrower. This is
consistent with the regulatory guideline for “substandard.” 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. Nonaccrual loans represent loans for which full collection of principal
and interest is uncertain. This is substantially the same criteria used to determine whether a loan is impaired and includes certain loans
considered “substandard” and all loans considered “doubtful” by regulatory guidelines.
96
The following table summarizes the Company’s loan portfolio at December 31, 2011 by loan class and the risk grade categories (in
thousands):
Internally Risk Graded
Potential
Problem Nonaccrual Performing Nonaccrual
Non-Graded
Performing
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
$ 2,013,866 $
1,696,883
907,648
325,393
967,581
207,982
291,393
6,410,746
Commercial real estate:
Construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
238,362
499,636
382,503
356,927
277,453
358,597
2,113,478
1,417 $
336 $
31,338
34,156
2,390
3,414
756
10
73,481
27,244
3,244
12,548
8,079
280
15,843
67,238
16,968
21,180
23,051
5,486
–
1,738
68,759
61,874
6,863
11,457
3,513
–
15,486
99,193
$
–
–
–
–
–
–
18,416
18,416
–
–
–
–
–
–
–
–
–
–
–
–
–
52
52
–
–
–
–
–
–
–
Total
$ 2,015,619
1,745,189
962,984
350,834
976,481
208,738
311,609
6,571,454
327,480
509,743
406,508
368,519
277,733
389,926
2,279,909
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
291,155
291,155
15,879
7,441
817,921
17,925
1,150,321
–
–
–
–
15,879
–
–
7,441
184,973
630,766
1,633,660
–
4,401
22,326
184,973
635,167
1,970,461
Consumer:
Indirect automobile
Other consumer
Total consumer
–
211,226
211,226
–
3,949
3,949
–
1,096
1,096
102,955
126,274
229,229
2,194
225
2,419
105,149
342,770
447,919
Total
$ 9,026,605 $ 160,547 $ 176,489 $1,881,305
$ 24,797
$ 11,269,743
97
The following table summarizes the Company’s loan portfolio at December 31, 2010 by loan class and 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
465 $
6,543 $
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
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
420,407
19,403
12,064
730,638
20,047
1,274,944
–
–
420,407
–
–
19,403
–
–
12,064
72,385
547,989
1,351,012
–
5,315
25,362
72,385
553,304
1,828,248
Consumer:
Indirect automobile
Other consumer
Total consumer
–
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
98
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 internally risk graded impaired loans follows (in thousands):
As of December 31, 2011
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Year ended
December 31, 2011
Interest
Income
Recognized
Average
Recorded
Investment
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
$
336 $
336 $
336 $
– $
– $
$
26,916
24,432
26,186
6,825
–
9,237
93,932
98,053
8,645
14,588
3,512
–
16,702
141,500
8,697
–
8,697
–
1,727
1,727
16,968
21,180
23,051
5,486
–
1,738
68,759
61,874
6,863
11,457
3,513
–
15,486
99,193
7,441
–
7,441
–
1,096
1,096
16,200
19,702
23,051
5,412
–
1,738
66,439
56,740
4,373
9,567
3,513
–
7,887
82,080
4,980
–
4,980
–
1,096
1,096
768
1,478
–
74
–
–
2,320
5,134
2,490
1,890
–
–
7,599
17,113
2,461
–
2,461
–
–
–
360
1,102
–
74
–
–
1,536
1,777
1,062
291
–
–
812
3,942
298
–
298
–
–
–
401
18,115
14,833
12,584
4,510
7
3,092
53,542
80,727
5,921
15,556
5,119
2,044
15,415
124,782
9,753
–
9,753
–
1,424
1,424
Total
$
245,856 $ 176,489 $ 154,595 $ 21,894 $
5,776 $ 189,501
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Generally, no interest income is recognized on impaired loans until all principal balances, including amount charged-off, have been
recovered.
99
A summary of internally risk graded impaired loans at December 31, 2010 follows (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 real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
$
559 $
465 $
404 $
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
15,985
7,562
2,116
2,743
13
4,446
33,269
138,922
6,111
25,702
24,368
4,087
17,129
99,579
4,978
19,654
6,725
4,087
15,343
216,319 150,366
84,959
1,968
18,798
6,129
–
13,802
125,656
15,258
–
15,258
12,064
–
12,064
–
1,909
1,909
–
1,751
1,751
8,574
–
8,574
–
1,506
1,506
$
61
3,277
924
–
791
–
–
5,053
14,620
3,010
856
596
4,087
1,541
24,710
3,490
–
3,490
–
245
245
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 $ 169,005 $ 33,498
$
7,132
Investments in impaired loans were as follows (in thousands):
December 31,
2010
2009
2011
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
$ 176,489
$ 202,503 $316,666
21,894
5,776
33,498
7,132
204,076
36,168
154,595
169,005
112,590
189,501
262,368
327,935
Interest income recognized on impaired loans during 2011, 2010 and 2009 was not significant.
100
Troubled Debt Restructurings
Troubled debt restructurings of internally risk graded impaired loans at December 31, 2011 were as follows (in thousands):
As of December 31, 2011
Performing
in Accordance
With Modified
Terms
Not Performing
in Accordance
With Modified
Terms
Specific
Allowance
Recorded
Investment
Amounts
Charged-Off
During the
Year Ended
December 31,
2011
$
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
$
–
3,529
1,739
–
–
–
960
6,228
25,890
1,070
2,496
–
–
8,171
37,627
4,103
–
4,103
–
168
168
$
–
1,907
961
–
–
–
–
2,868
3,585
–
1,134
–
–
387
5,106
1,396
–
1,396
–
168
168
–
1,622
778
–
–
–
960
3,360
22,305
1,070
1,362
–
–
7,784
$
– $
–
24
–
–
–
–
24
1,577
–
215
–
–
662
–
301
–
–
–
–
–
301
1,104
882
527
–
–
86
32,521
2,454
2,599
2,707
–
2,707
–
–
–
282
–
282
–
–
–
54
–
54
–
–
–
Total
$ 48,126
$
9,538 $
38,588
$
2,760 $
2,954
The financial impact of troubled debt restructurings primarily consist of specific allowances for credit losses and principal amounts charged
off. Internally risk graded loans that have been modified in troubled debt restructuring generally remain classified as nonaccruing. Other
financial impacts, such as foregone interest, are not material to the financial statements.
Non-risk graded residential mortgage loans that are modified in troubled debt restructurings primarily consist of loans that are guaranteed
by U.S. government agencies. At December 31, 2011, approximately $13 million of the renegotiated residential mortgage loans are
currently performing in accordance with the modified terms, $5.8 million are 30 to 89 days past due and $14 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 $29 million of our $33 million portfolio of renegotiated loans. All renegotiated loans past due 90 days or more are guaranteed by
U.S. government agencies.
101
Nonaccrual & Past Due Loans
Past due status for all loans classes is based on the actual number of days since the last payment was due according to the contractual
terms of the 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, 2011 is as follows (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 real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Past Due
Current
30 to 89
Days
90 Days
or More Nonaccrual
Total
$ 2,013,770 $
1,713,426
941,334
327,129
969,586
208,733
307,853
6,481,831
1,065 $
13,608
470
654
1,362
–
1,966
19,125
264,327
502,508
394,812
364,968
277,733
370,859
2,175,207
1,279
372
239
38
–
3,444
5,372
448 $
1,187
–
–
47
5
–
1,687
–
–
–
–
–
137
137
336
16,968
21,180
23,051
5,486
–
1,790
68,811
61,874
6,863
11,457
3,513
–
15,486
99,193
$ 2,015,619
1,745,189
962,984
350,834
976,481
208,738
311,609
6,571,454
327,480
509,743
406,508
368,519
277,733
389,926
2,279,909
1,107,095
17,259
601
25,366
1,150,321
17,509
627,688
1,752,292
12,163
3,036
32,458
155,301
42
155,944
–
4,401
29,767
184,973
635,167
1,970,461
98,345
339,163
437,508
4,581
2,286
6,867
29
–
29
2,194
1,321
3,515
105,149
342,770
447,919
Total
$ 10,846,838 $ 63,822
$ 157,797 $ 201,286
$ 11,269,743
102
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
1,099
–
–
–
–
197
1,296
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
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
1,148,271
22,177
–
32,111
1,202,559
10,451
546,384
1,705,106
4,342
1,605
28,124
57,592
–
57,592
–
5,315
37,426
72,385
553,304
1,828,248
Consumer:
Indirect automobile
Other consumer
Total consumer
225,601
360,603
586,204
11,382
927
12,309
67
295
362
2,526
2,041
4,567
239,576
363,866
603,442
Total
$ 10,287,554 $ 59,110 $ 65,558 $ 230,814
$ 10,643,036
(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,
2011
2010
$ 73,638
232,440
82,801
141,743
530,622
267,887
$ 262,735
$ 72,643
226,234
69,303
133,732
501,912
236,447
$ 265,465
Depreciation expense of premises and equipment was $32 million, $33 million and $33 million for the years ended December 31, 2011,
2010 and 2009, respectively.
103
(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,
2011
2010
$ 109,417
107,023
2,394
$ 109,417
104,795
4,622
Other identifiable intangible assets
Less accumulated amortization
Net other identifiable intangible assets
17,291
9,466
7,825
17,291
8,110
9,181
Total intangible assets, net
$ 10,219
$ 13,803
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
Core
Deposit
Premiums
Other
Identifiable
Intangible Assets
2012
2013
2014
2015
2016
Thereafter
$ 815
485
432
392
248
22
2,394
$
$ 1,385
1,061
334
334
334
4,377
7,825
$
Total
$ 2,200
1,546
766
726
582
4,399
$ 10,219
The net amortized cost of goodwill and identifiable intangible assets 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
December 31,
2011
2010
$ 1,817
548
29
2,394
$
$ 3,408
1,058
156
4,622
$
$
$
5,548
1,487
790
6,048
2,343
790
$
7,825
$
9,181
$
8,173
240,122
15,273
55,611
16,422
$ 335,601
$
8,173
240,122
15,273
55,611
16,422
$ 335,601
The carrying value of goodwill by operating segment as of December 31, 2011 and 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
The annual goodwill evaluations for 2011 and 2010 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. 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.
104
(7) Mortgage Banking Activities
Residential Mortgage Loan Production
The Company originates and markets conventional and government-sponsored residential mortgage loans. Generally, conforming fixed-
rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-rate residential mortgage loans
are held for investment. All 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 Statements of Earnings. Residential mortgage loans held for sale in the Consolidated Balance Sheets also include the fair
value of residential mortgage loan commitments and forward sales commitments which are considered derivative contracts that have not
been designated as hedging instruments. The volume and rate spread of mortgage loans originated for sale are the primary drivers of
originating and marketing revenue.
Residential mortgage loan commitments are generally outstanding for 60 to 90 days, which represents the typical period from commitment
to originate a mortgage loan to when the closed loan is sold to an investor. 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.
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, 2011
December 31, 2010
Notional /
Unpaid
Principal
Balance
Residential mortgage loans held for sale
Residential mortgage loan commitments
Forward sales contracts
$ 177,319
189,770
349,447
Notional /
Unpaid
Principal
Balance
$
253,778
138,870
396,422
Fair Value
$ 184,816
6,597
(3,288)
$ 188,125
Fair Value
$ 254,669
2,251
6,493
$ 263,413
No residential mortgage loans held for sale were 90 days or more past due or considered impaired at of December 31, 2011 or 2010. No
credit losses were recognized on residential mortgage loans held for sale for the years ended December 31, 2011 and 2010.
Mortgage banking revenue was as follows (in thousands):
Year ended December 31,
2010
2011
2009
Originating and marketing revenue:
Residential mortgages loan held for sale
Residential mortgage loan commitments
Forward sales contracts
Total originating and marketing revenue
Servicing revenue
Total mortgage banking revenue
$ 57,418
4,345
(9,781)
51,982
39,661
$ 91,643
$ 45,243
1,755
2,440
49,438
38,162
$ 87,600
$ 40,849
(1,673)
5,786
44,962
20,018
$ 64,980
Originating and marketing revenue includes gain (loss) on residential mortgage loans held for sale and changes in the fair value of
derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts.
Servicing revenue includes servicing fee income and late charges on loans serviced for others.
Residential Mortgage Servicing
Mortgage servicing rights may be recognized when mortgage loans originated pursuant to an existing plan for sale or, if no such plan
exists, when the mortgage loans are sold. Mortgage servicing rights may also be purchased. Both originated and purchased mortgage
servicing rights are initially recognized at fair value. The Company has elected to carry all mortgage servicing rights at fair value.
Changes in the fair value are recognized in earnings as they occur. The unpaid principal balance of loans serviced for others is the primary
driver of servicing revenue.
105
The following represents a summary of mortgage servicing rights (Dollars in thousands):
Number of residential mortgage loans serviced for others
Outstanding principal balance of residential mortgage loans serviced for
others
Weighted average interest rate
Remaining term (in months)
Dec. 31, 2011 Dec. 31, 2010
95,841
96,443
Dec. 31, 2009
61,199
$11,300,986
5.19%
290
$11,194,582
5.44%
292
$6,603,132
5.83%
321
Activity in capitalized mortgage servicing rights and related valuation allowance during 2009, 2010 and 2011 is as follows (in thousands):
Purchased Originated
Total
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
Additions, net
$ 7,828 $ 65,996 $ 73,824
31,321
27,603
58,924
Change in fair value due to loan runoff
(6,791)
(13,895)
(20,686)
Gain on purchase of mortgage servicing rights
11,832
–
Change in fair value due to market changes
(6,290)
(1,881)
11,832
(8,171)
Balance at December 31, 2010
$ 37,900
$ 77,823
$115,723
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
–
26,251
(4,699)
(10,045)
(14,298)
(26,149)
26,251
(14,744)
(40,447)
Balance at December 31, 2011
$ 18,903
$ 67,880
$ 86,783
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.
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:
December 31, 2011
December 31, 2010
Discount rate – risk-free rate plus a market premium
10.34%
10.36%
Prepayment rate – based upon loan interest rate, original term
and loan type
10.88% - 49.68%
6.53% - 23.03%
Loan servicing costs – annually per loan based upon loan type
$55 - $105
$35 - $60
Escrow earnings rate – indexed to rates paid on deposit
accounts with comparable average life
1.21%
2.21%
The Company is exposed to interest rate risk as benchmark mortgage interest rates directly affect the prepayment speeds used in valuing
our mortgage servicing rights, which is partially managed through forward sales of residential mortgage-backed securities and forward
sales contracts. 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.
106
Stratification of the mortgage loan-servicing portfolio, outstanding principal of loans serviced and weighted average prepayment rate by
interest rate at December 31, 2011 follows (in thousands):
< 4.50%
4.50% - 5.49%
5.50% - 6.49%
> 6.49%
Total
Fair value
$ 19,911
$ 50,637
$ 12,736
$ 3,499
$ 86,783
Outstanding principal of loans serviced for
others
$ 2,125,412
$ 5,227,723
$ 2,822,476
$ 1,125,375
$ 11,300,986
Weighted average prepayment rate1
14.42%
1 Annual prepayment estimates based upon loan interest rate, original term and loan type
10.88%
39.40%
49.68%
23.50%
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, 2011, 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 $740 thousand. 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 $4.8
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 aging status of our mortgage loans serviced for others by investor at December 31, 2011 follows (in thousands):
Current
$ 5,254,662
1,564,151
3,593,523
425,770
$ 10,838,106
30 to 59
Days
$ 56,789
27,623
159,869
14,480
$ 258,761
Past Due
60 to 89
Days
$ 15,965
8,786
40,185
3,526
$ 68,462
90 Days or
More
$ 57,076
26,871
38,508
13,202
$ 135,657
Total
$ 5,384,492
1,627,431
3,832,085
456,978
$ 11,300,986
FHLMC
FNMA
GNMA
Other
Total
The Company has off-balance sheet credit risk related to residential mortgage loans sold to U.S. government agencies with recourse prior
to 2008 under various community development programs. These loans consist of first lien, fixed rate residential mortgage loans
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 loss given default than traditional residential mortgage
loans. The Company no longer sells residential mortgage loans with recourse other than obligations under standard representations and
warranties. The recourse obligation relates to loan performance for the life of the loan and the Company is obligated to repurchase the loan
at the time of foreclosure for the unpaid principal balance plus unpaid interest. The principal balance of residential mortgage loans sold
subject to recourse obligations totaled $259 million at December 31, 2011 and $289 million at December 31, 2010. A separate accrual for
these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets totaling $19 million at December
31, 2011 and $17 million at December 31, 2010. At December 31, 2011, approximately 6% of the loans sold with recourse with an
outstanding principal balance of $15 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 7% with an
outstanding balance of $18 million were past due 30 to 89 days. The provision for credit losses on loans sold with recourse 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):
2011
2010
2009
Beginning balance
Provision for recourse losses
Loans charged off, net
Ending balance
$ 16,667
8,611
(6,595)
$ 18,683
$ 13,781
7,895
(5,009)
$ 16,667
$
8,767
12,210
(7,196)
$ 13,781
The Company also has off-balance sheet credit risk for residential mortgage loans sold to government sponsored entities due to standard
representations and warranties made under contractual agreements. At December 31, 2011, the Company had unresolved deficiency
requests from the agencies on 247 loans with an aggregate outstanding balance of $37 million. At December 31, 2010 the Company had
unresolved deficiency requests from the agencies on 140 loans with an aggregate outstanding balance of $22 million. The Company
repurchased 10 loans from the agencies during 2011 for $1.0 million and recognized $295 thousand in losses. The Company provided
indemnification for 10 additional loans with an unpaid principal balance of $1.1 million. The Company repurchased 11 loans for
approximately $301 thousand from the agencies during 2010, which resulted in no losses to the Company. During 2010, the Company
established an accrual for credit losses related to potential loan repurchases under representations and warranties which is included in Other
liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated Statements of Earnings. This accrual
totaled $2.2 million at December 31, 2011.
107
(8) Deposits
Interest expense on deposits is summarized as follows (in thousands):
2011
2009
2010
Transaction deposits
Savings
Time:
Certificates of deposits
under $100,000
Certificates of deposits
$100,000 and over
Other time deposits
Total time
Total
$ 23,415
719
$ 38,886
719
$ 51,607
614
26,476
31,210
57,486
21,175
17,105
64,756
$ 88,890
19,235
16,215
66,660
$ 106,265
37,193
17,462
112,141
$ 164,362
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2011 and 2010 were $2.1 billion and $2.2
billion, respectively.
Time deposit maturities are as follows: 2012 – $1.8 billion, 2013 – $465 million, 2014 – $112 million, 2015 – $249 million, 2016 – $323
million and $479 million thereafter. At December 31, 2011 and 2010, the Company had $219 million and $210 million, respectively, in
fixed rate, brokered certificates of deposits. The weighted-average interest rate paid on these certificates was 3.62% in 2011 and 3.82% in
2010.
Interest expense on time deposits was reduced by $1.6 million in 2011, $4.0 million in 2010 and $11.5 million in 2009 from the net accrued
settlement of interest rate swaps.
The aggregate amount of overdrawn transaction deposits that have been reclassified as loan balances was $7.5 million at December 31,
2011 and $13.5 million at December 31, 2010.
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
2011
2010
2009
Maximum
Outstanding
At Any
Balance
Rate Month End
Maximum
Outstanding
At Any
Maximum
Outstanding
At Any
Balance
Rate Month End
Balance
Rate Month End
Parent Company and Other
Non-Bank Subsidiaries:
Revolving, unsecured line
Trust preferred debt
Total Parent Company and
$
Other Non-Bank
Subsidiaries
–
–
–
– % $
–
–
8,763
$
–
– % $
– $
7,217 6.42
7,217
–
7,217 6.42
– % $ 50,000
12,372
7,217
7,217
Subsidiary Bank:
Funds purchased
Repurchase agreements
Federal Home Loan Bank
advances
Federal Reserve advances
Subordinated debentures
GNMA repurchase liability
Other
Total subsidiary banks
1,063,318 0.07
1,233,064 0.12
1,706,893
1,393,237
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
4,837 0.38
–
–
398,881 5.74
53,082 5.79
16,566 3.23
2,769,748 1.06
201,674
–
398,881
118,595
45,366
801,797 0.14
–
–
398,701 5.78
–
–
24,564 0.46
3,508,842 0.95
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
2,053,130
1,100,000
398,539
–
31,577
Total other borrowings
$ 2,769,748 1.07%
$ 3,516,059 0.98%
$ 5,003,639 0.72%
108
Aggregate annual principal repayments at December 31, 2011 are as follows (in thousands):
2012
2013
2014
2015
2016
Thereafter
Total
Parent
Company
Subsidiary
Bank
$
$
–
–
–
–
–
–
–
$ 2,353,579
1,722
525
525
149,666
263,731
$ 2,769,748
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 ninety days and are secured by certain available for sale securities. There
was no outstanding accrued interest payable related to repurchase agreements at December 31, 2011. Accrued interest payable related to
repurchase agreements totaled $186 thousand at December 31, 2010.
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31, 2011 and 2010 is
as follows (dollars in thousands):
Security Sold/Maturity
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
Security Sold/Maturity
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
December 31, 2011
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
$ 1,583,958
–
$ 1,583,958
$ 1,628,547
–
$ 1,628,547
$ 1,231,426
–
$ 1,231,426
0.09%
–
0.09%
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%
1 BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over securities
underlying longer-term dealer repurchase agreements to the respective counterparty.
Borrowings from the Federal Home Loan 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 residential 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 $311 million to secure BOK Financial’s obligations to depositors of public funds. The unused credit available to
BOK Financial at December 31, 2011 pursuant to the Federal Home Loan Bank’s collateral policies is $1.6 billion.
On June 9, 2011, the Company terminated its unsecured revolving credit agreement with George B. Kaiser, its Chairman and principal
shareholder. There were no amounts outstanding under this credit agreement and no penalties or costs were paid by the Company for
termination of the agreement. The credit agreement was replaced with a $100 million senior unsecured 364 day revolving credit facility
with Wells Fargo Bank, National Association, administrative agent and other commercial banks (“the Credit Facility”). Interest on
amounts outstanding under the Credit Facility is to be paid at a defined base rate minus 1.25% or LIBOR plus 1.50% based upon the
Company’s option. A commitment fee equal to 0.20% shall be paid quarterly on the unused portion of the credit commitment under the
Credit Facility and there are no prepayment penalties. Any amounts outstanding at the end of the Credit Facility term shall be converted
into a term loan which, except for amounts borrowed for certain acquisitions, shall be payable June 7, 2012. The Credit Facility contains
customary representations and warranties, as well as affirmative and negative covenants, including limits on the Company’s ability to
borrow additional funds, make investments or sell assets. These covenants also require BOKF to maintain minimum capital levels. No
amounts were outstanding under the Credit Facility at December 31, 2011 and the Company met all of the covenants.
In 2007, the Bank 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, the Bank 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.
109
The Company has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold into GNMA
mortgage pools. Interest is payable at rates contractually due to investors.
(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
Depreciation
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,
2011
2010
$ 86,400
29,400
48,900
13,200
18,400
196,300
$ 77,700
17,400
43,800
14,700
13,600
167,200
10,100
102,700
42,300
9,200
29,500
1,900
38,500
234,200
8,300
116,900
36,400
12,700
22,300
1,000
27,700
225,300
$ 37,900
$ 58,100
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,
2010
2011
2009
Current tax expense:
Federal
State
Total current tax expense
$ 137,802
16,085
153,887
$ 132,165
17,618
149,783
$ 112,163
16,759
128,922
Deferred tax (benefit):
Federal
State
Total deferred tax (benefit)
3,882
742
4,624
Total income tax expense $ 158,511
(24,714)
(1,712)
(26,426)
$ 123,357
(19,835)
(2,382)
(22,217)
$ 106,705
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):
Year ended December 31,
2009
2010
2011
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
Reduction of tax accrual
Other, net
Total
$156,917 $130,078 $108,752
(4,616)
(5,404)
(5,357)
11,198
(1,382)
(2,972)
(3,879)
(1,764)
5,750
9,165
(1,204)
(1,327)
(3,424)
–
(641)
$158,511 $123,357 $106,705
9,740
(539)
(6,317)
(4,133)
(2,245)
2,177
Due to the favorable resolution of certain tax issues for the tax periods ended December 31, 2007and December 31, 2006, BOK Financial
reduced its tax accrual by $1.8 million and $2.2 million in 2011 and 2010, respectively, which was credited against current income tax
expense.
110
Year ended December 31,
2009
2010
2011
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
Reduction of tax accrual
Other
Total
35%
(1)
2
–
(1)
(1)
–
1
35%
35%
(1)
3
–
(2)
(1)
(1)
–
33%
35%
(2)
3
(1)
–
(1)
–
–
34%
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of January 1
Additions for tax for current year positions
Settlements during the period
Decreases in tax for prior year positions
Lapses of applicable statute of limitations
Balance as of December 31
2009
2011
2010
$ 11,900 $ 12,300 $ 13,200
4,050
–
(700)
(4,250)
$11,900 $ 12,300
6,390
(2,510)
–
(3,550)
$ 12,230
3,700
–
–
(4,100)
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 $1.9 million for 2011, $1.3 million for 2010 and $1.4 million for 2009, in interest and penalties. The Company had
approximately $3.4 million and $3 million for the payment of interest and penalties accrued as of December 31, 2011 and 2010,
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.
The Internal Revenue Service is currently auditing the federal income tax return of BOK Financial for the year ended December 31, 2008.
Management does not anticipate a material impact to the financial statements as a result of the audit.
(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 accrues 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
Interest cost
Actuarial 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
Benefits paid
Plan assets at fair value at end of year
Funded status of the plan
Components of net periodic benefit costs:
Interest cost
Expected return on plan assets
Amortization of unrecognized net loss
Net periodic pension cost
1 Projected benefit obligation equals accumulated benefit obligation.
2 Projected benefit obligation is based on a January 1 measurement date.
111
December 31,
2011
2010
$ 48,373
2,157
2,461
(2,778)
$ 50,213
$ 44,477
2,160
(2,778)
$ 43,859
$
$
$
$
46,581
2,257
1,489
(1,954)
48,373
41,689
4,742
(1,954)
44,477
$ (6,354)
$
(3,896)
$ 2,157
(1,957)
3,659
$ 3,859
$
$
2,257
(2,126)
2,912
3,043
Weighted-average assumptions as of December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
2011
4.11%
5.25%
N/A
2010
4.75%
5.25%
N/A
As of December 31, 2011, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2012
2013
2014
2015
2016
2017 through 2019
$ 6,337
3,735
3,749
3,813
3,817
16,887
$38,338
Assets of the Pension Plan consist primarily of shares in the Cavanal Hill Balanced Fund. The stated objective of this fund is to provide an
attractive total return through a broadly diversified mix of equities and bonds. The typical portfolio mix is approximately 60% equities and
40% bonds. The net asset value of shares in the Cavanal Hill Funds is reported daily based on market quotations for the Fund’s securities.
If market quotations are not readily available, the securities’ fair values are determined by the Fund’s pricing committee. The inception-to-
date return on the fund, which is used as an indicator when setting the expected return on plan assets, was 6.80%. As of December 31,
2011, the expected return on plan assets for 2012 is 5.25%. The maximum allowed Pension Plan contribution for 2011 was $26 million.
No minimum contribution was required for 2011. The minimum contribution was made for 2010 and 2009. We expect approximately $3.9
million of net pension costs currently in accumulated other comprehensive income to be recognized as net periodic pension cost in 2012.
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 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 $933 thousand for
2011, $1.0 million for 2010 and $998 thousand in 2009.
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
$15.4 million for 2011, $14.3 million for 2010 and $13.0 million for 2009.
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, 2011 and December
31, 2010. 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 $117.8 million in 2011,
$104.0 million in 2010 and $91.2 million in 2009 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 subject to vesting requirements and non-vested shares. 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 vest five years after the grant date. The holders of these non-vested 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.
On April 26, 2011 shareholders approved the BOK Financial Corporation 2011 True-up Plan. The True-Up Plan was intended to address
inequality in the Executive Incentive Plan as a result of certain peer banks that performed poorly during the most recent economic cycle.
The True-Up Plan was designed to allow for adjustment upward or downward of certain executive officers annual and long-term
compensation levels based on comparable executives at peer banks with similar earnings per share performance for the years 2006 through
2013. Compensation is determined by ranking the BOK Financial’s earning per share performance to peer banks and then aligning
compensation with the peer bank that most closely relates to the BOK Financial’s earnings per share performance.
112
The following table presents stock options outstanding during 2011, 2010 and 2009 under these plans (in thousands, except for per share
data):
Weighted-
Average
Exercise
Price
$45.77
37.24
33.49
44.83
51.76
$44.58
48.30
39.29
46.89
51.35
$45.62
55.94
44.35
47.93
54.13
Number
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
185,007
(576,518)
(60,005)
(62,471)
Aggregate
Intrinsic
Value
$ 19,200
$ 10,359
$ 24,405
2,621,347
$47.01
$ 20,769
903,380
805,781
825,682
$43.37
$45.26
$46.72
$ 3,745
$ 6,556
$ 6,779
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 awarded
Options exercised
Options forfeited
Options expired
Options outstanding at
December 31, 2011
Options vested at:
December 31, 2009
December 31, 2010
December 31, 2011
The following table summarizes information concerning currently outstanding and vested stock options:
Options Outstanding
Options Vested
Weighted
Average Weighted
Remaining Average
Weighted
Average
Number Contractual Exercise Number Exercise
Price
Outstanding Life (years)
Vested
Price
Range of
Exercise
Prices
$30.50 – 30.87
36.65
37.74
45.15 – 47.34
47.05 – 48.53
47.67
48.30
48.46
54.33
55.94
30,044
536,106
81,535
217,277
274,770
27,484
220,072
523,725
429,016
281,318
0.95
4.00
1.50
2.00
2.50
0.12
5.00
3.50
3.00
6.00
$30.79
36.65
37.74
47.31
47.05
47.67
48.30
48.46
54.33
55.94
30,044 $30.79
36.65
65,348
37.74
81,535
139,202
47.30
125,948 47.05
27,484 47.67
48.30
8,942
159,411 48.46
187,768 54.33
–
–
The aggregate intrinsic value of options exercised was $5.5 million for 2011, $6.1 million for 2010 and $3.8 million for 2009.
113
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:
2011
2010
2009
Average risk-free interest rate1
Dividend yield
Volatility factors
Weighted average expected life
Weighted average fair value
1.87%
1.80%
0.268
4.9 years
$11.92
2.36%
2.00%
0.261
4.9 years
$10.17
1.32%
2.50%
0.218
4.9 years
$5.36
1 Average risk-free interest rate represents U.S. Treasury rates matched to the expected life of the options.
Stock option expense totaled $10.0 million for 2011, $8.3 million for 2010 and $5.9 million for 2009. Compensation cost of stock options
granted that may be recognized as compensation expense in future years totaled $4.9 million at December 31, 2011. Subject to adjustments
for forfeitures, we expect to recognize compensation expense for current outstanding options of $2.2 million in 2012, $1.3 million in 2013,
$758 thousand in 2014, $394 thousand in 2015, $183 thousand in 2016 and $63 thousand thereafter.
The following represents a summary of the non-vested stock awards as of December 31, 2011 (in thousands):
Non-vested at January 1, 2011
Granted
Vested
Forfeited
Non-vested at December 31, 2011
Weighted
Average
Grant Date
Fair Value
$ 55.94
55.07
46.84
Shares
415,508
142,756
(44,887)
(9,639)
503,738
Unrecognized compensation cost of non-vested shares totaled $10.9 million at December 31, 2011. Subject to adjustment for forfeitures,
we expect to recognize compensation expense of $3.6 million in 2012, $3.3 million in 2013, $2.6 million in 2014 and $1.4 million in 2015
and $47 thousand in 2016.
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. The recorded obligation for liability awards totaled $1.3
million at December 31, 2011 and $2.0 million at December 31, 2010. Compensation cost of liability awards was an expense of $760
thousand in 2011, $1.9 million in 2010 and $1.3 million in 2009.
Based on the most recent available information, the Company recorded $9.5 million of additional compensation expense for liability
awards related to the True-Up Plan during 2011. In the present economic environment, performance measurement through 2013 may be
volatile and could result in future adjustments upward or downward to compensation expense.
During January 2012, 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
87,748
148,887
236,635
236,635
$58.76
–
$11.48
58.76
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 2012 are subject to deferred
compensation plans.
114
(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, 2011 or 2010. Activity in loans to related parties is
summarized as follows (in thousands):
2011
2010
Beginning balance
Advances
Payments
Adjustments1
Ending balance
1 Adjustments generally consist of changes in status as a related party.
$ 168,935
300,080
(285,909)
(83,766)
$ 99,340
$ 217,698
510,663
(544,977)
(14,449)
$ 168,935
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 had an unsecured revolving credit agreement with George B. Kaiser, its Chairman and principal shareholder which was
terminated during 2010 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 2011, $1.1 million for 2010 and $1.0 million for 2009.
In 2008, the Company entered into a $25 million loan commitment with the Tulsa Community Foundation (“TCF”) to be secured by tax-
exempt bonds purchased from the Tulsa Stadium Trust (the “Stadium Trust”) by TCF. The Stadium Trust is an Oklahoma public trust, of
which the City of Tulsa is the sole beneficiary. Stanley A. Lybarger, President and CEO of the Company, is Chairman of the Stadium
Trust.
Cavanal Hill Investment Management, Inc., a wholly-owned subsidiary of the Bank, 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"). The Bank 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 $2.9 billion are held for the Company's clients. A Company executive officer serves on the Funds' board of trustees and
officers of the Bank 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
Litigation Contingencies
BOSC, Inc. was joined as a defendant in a 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 pursuant to Sections 11 and 12(a)(2) of the Securities Act of 1933 against all of
the underwriters of issuances of partnership units. During 2011, the action was settled and dismissed with prejudice at no material loss to
BOSC.
In 2010, the Bank 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 alleged that the manner in which the bank posted charges to its consumer demand deposit accounts is
unconscionable, constituted conversion and unjustly enriched the bank. Two of the actions were 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, was transferred to
Multi-District Litigation in the Southern District of Florida. Each of the actions sought to establish a class consisting of all consumer
customers of the Bank. The actions were combined into one class action and on November 23, 2011, the Company settled the class action
lawsuit for $19 million, subject to approval of the settlement by the District Court in the Multi-District Litigation. Management was
advised by counsel that, in its opinion, the Company’s overdraft practices meet all requirements of law. In the settlement, the Bank has not
agreed to change its overdraft practices. The Company chose to settle and resolve the litigation to avoid further expense and distraction.
The amount of the settlement has been fully accrued as of December 31, 2011.
The Bank was named as a defendant in an action in the Eastern District of Texas, Tyler Division, by a patent holder alleging that the check
image capture processes used by the Bank infringe upon its patent. The Bank resolved the dispute by taking a license from the plaintiff
patent holder at no material cost.
In an opinion dated October 11, 2011, the Oklahoma Supreme Court invalidated, pursuant to a petition brought by certain taxpayers, a $7.1
million settlement agreement between the Bank and the City of Tulsa (“the City”). The agreement had settled claims asserted by the Bank
against the City and against the Tulsa Airports Improvement Trust related to a defaulted loan made by the Bank to a start-up airline. The
115
Trust agreed to purchase the loan and its collateral from the Bank in the event of a default by the airline. Counsel to the taxpayers has filed
a motion to reconsider the opinion related to a claim by such counsel for attorney fees and the matter is still pending in the Supreme Court.
If and when a mandate is issued on the opinion without material change as is anticipated, the Company intends to return the $7.1 million to
the City and pursue its claims against the Trust. The settlement amount is included in the accrual for off-balance sheet credit risk.
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 $774 thousand at December 31, 2011. Visa funded an escrow account to cover litigation claims, including
covered litigation losses under the retrospective responsibility plan, with proceeds from its initial public offering in 2008 and from
available cash. BOK Financial recognized a $774 thousand 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 0.4881
Class A shares for each Class B share. However, the Company’s Class B shares may be diluted in the future if the escrow fund is not
adequate to cover future covered litigation costs. Therefore, no value has currently been assigned to the Class B shares and no value may
be assigned until the Class B shares are converted into a known number of Class A shares.
In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes,
based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings will not
have a material effect on the Company’s financial condition, results of operations or cash flows.
Alternative Investment Commitments
The Company sponsors two private equity funds and invests in several tax credit entities and other funds as permitted by banking
regulations. Consolidation of these investments is based on either the variable interest model or voting interest model determined by the
nature of the entity. 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. Variable interest entities are
consolidated based on the determination that the Company is the primary beneficiary including the power to direct the activities that most
significantly impact the variable interest’s economic performance and the obligation to absorb losses of the variable interest or the right to
receive benefits of the variable interest that could be significant to the variable interest.
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. As general partner, BOKF
Equity, LLC has the power to direct activities that most significantly affect the Funds’ performance and contingent obligations to make
additional investments totaling $10 million as of December 31, 2011. Substantially all of the obligations are offset by limited partner
commitments. The Company does not accrue its contingent liability to fund investments.
Consolidated tax credit entities represent the Company’s interest in entities earning federal new market tax credits related to qualifying
loans for which the Company has the power to direct the activities that most significantly impact the variable interest’s economic
performance of the entity including being the primary beneficiary of or the obligation to absorb losses of the variable interest that could be
significant to the variable interest.
The Company also has interests in various unrelated alternative investments generally consisting of unconsolidated limited partnership
interests in or loans to entities for which investment return is in the form of tax credits or 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.
The Company's obligation to fund alternative investments is included in Other liabilities in the Consolidated Balance Sheets.
116
A summary of consolidated and unconsolidated alternative investments as of December 31, 2011 and 2010 follows (in thousands):
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
December 31, 2011
Loans
Other
assets
Other
liabilities
Other
borrowings
Non-
controlling
interest
$
–
10,000
–
$ 10,000
$ 30,902
14,483
7,206
$ 52,591
$
$
–
–
–
–
$
$
–
–
–
$ 37,890
10,950
$ 48,840
$ 16,084
2,194
$ 18,278
$
$
$
$
–
10,964
–
10,964
–
–
–
$
$
$
$
26,042
10,000
142
36,184
–
–
–
December 31, 2010
Loans
Other
assets
Other
liabilities
Other
borrowings
Non-
controlling
interest
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
$
$
$
$
–
–
–
–
–
–
–
$ 25,436
–
7,516
$ 32,952
$
$
–
–
–
–
$ 28,580
9,880
$ 38,460
$ 15,668
2,974
$ 18,642
$
$
$
$
–
–
–
–
–
–
–
$
$
$
$
21,957
–
195
22,152
–
–
–
Other Commitments and Contingencies
At December 31, 2011 Cavanal Hill Funds’ assets included $1.4 billion of U.S. Treasury, $883 million of cash management, and $343
million of tax-free money market funds. Assets of these funds consist of highly-rated, short-term obligations of the U.S. Treasury,
corporate issuers and U.S. states and municipalities. The net asset value of units in these funds was $1.00 at December 31, 2011. 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 2011, 2010 or 2009.
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.
The Bank 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. The Bank
subleased a portion of this space in 2009 & 2010. Net rent expense on this lease for those years was $3.0 million. Total rent expense for
BOK Financial was $20.6 million in 2011, $21.2 million in 2010 and $21.4 million in 2009.
At December 31, 2011, future minimum lease payments for equipment and premises under operating leases were as follows: $19.1 million
in 2012, $17.8 million in 2013, $17.0 million in 2014, $16.2 million in 2015, $14.3 million in 2016 and $85.9 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 $968 million
and $950 million at December 31, 2011 and 2010, 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
117
margin loan. All unsettled transactions and margin loans are secured as required by applicable regulation. The amount of customer
balances subject to indemnification totaled $4.3 million at December 31, 2011.
The Company agreed to guarantee rents totaling $28.7 million through September of 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 $17.1 million at December 31, 2011. Current leases expire or are subject to lessee
termination options at various dates in 2012 and 2014. Our obligation under the agreement would be affected by lessee decisions to
exercise these options. In return for this guarantee, Bank of Oklahoma will receive 80% of the net cash flow as defined in an agreement
with the City through September 2017 from rental of space that was vacant at the inception of the agreement. The maximum amount that
the Company may receive under this agreement is $4.5 million.
(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 2011, 2010 or 2009.
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.
Subsidiary Bank
The amounts of dividends that BOK Financial’s subsidiary bank can declare and the amounts of loans the subsidiary bank 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, 2011, BOKF subsidiaries could declare up to $15 million of dividends without regulatory approval. The subsidiary bank
declared and paid dividends of $270 million in 2011, $280 million in 2010 and $172 million in 2009.
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, 2011, loan commitments and equity investments were
limited to $241 million to a single affiliate and $481 million to all affiliates. The largest loan commitment and equity investment to a
single affiliate was $240 million and the aggregate loan commitments and equity investments to all affiliates were $323 million. The
largest outstanding amount to a single affiliate was $29 million and the total outstanding amounts to all affiliates were $50 million. At
December 31, 2010, total loan commitments and equity investments to all affiliates were $253 million. Total outstanding amounts to all
affiliates were $68 million.
Regulatory Capital
BOK Financial and the Bank 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. The Bank exceeded the regulatory
definition of well capitalized.
118
A summary of regulatory capital levels as of December 31, 2011 follows (dollars in thousands):
Total Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
Tier I Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
Tier I Capital (to Average Assets):
Consolidated
BOKF, NA
$
$
$
2,851,099
2,329,670
2,295,061
1,775,182
2,295,061
1,775,182
16.49%
13.53
13.27%
10.31
9.15%
7.11
On January 1, 2011 the Company effected an 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., as approved by the Office of the Comptroller of the Currency on October 6, 2010. The resulting
subsidiary bank is name BOKF, NA. The Bank operates as distinct geographical regions using the trade names of the former charters. The
merger allows the Company to more efficiently utilize capital.
A summary of regulatory capital levels of the former subsidiary banks as of December 31, 2010 follows (dollars in thousands):
Total Capital (to Risk Weighted Assets):
Consolidated
Bank of Oklahoma
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
Bank of Oklahoma
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
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank and Trust
Bank of Arizona
Bank of Kansas City
$
$
$
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
119
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) (“AOCI”) includes unrealized gains and losses on available for sale (“AFS”) securities.
Unrealized gain (loss) on available for sale securities also includes non-credit related unrealized losses on AFS securities for which an
other-than-temporary impairment has been recorded in earnings. AOCI also includes unrealized gains on AFS securities that were
transferred from AFS to investment securities during 2011. Such amounts will be amortized over the estimated remaining life of the
security as an adjustment to yield, offsetting the related accretion of discount on the transferred securities. 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.
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. Gains and losses in AOCI are net of deferred income taxes.
Balance at December 31, 2008
Net change in unrealized gain (loss)
Other-than-temporary impairment losses recognized
in earnings
Reclassification adjustment for net (gains) losses
realized and included in earnings
Income tax expense (benefit)
Balance at December 31, 2009
Net change in unrealized gain (loss)
Other-than-temporary impairment losses recognized
in earnings
Reclassification adjustment for net (gains) losses
realized and included in earnings
Income tax expense (benefit)
Balance at December 31, 2010
Net change in unrealized gain (loss)
Other-than-temporary impairment losses recognized
in earnings
Transfer of net unrealized gain from AFS to
Investment securities
Amortization of unrealized gain on investment
securities transferred from AFS
Reclassification adjustment for net (gains) losses
realized and included in earnings
Income tax benefit (expense)
Balance at December 31, 2011
Unrealized Gain (Loss) on
Investment
Securities
Transferred
Employee
from AFS Benefit Plans
$
Available for
Sale
Securities
$ (204,648) $
369,104
–
–
Loss on
Effective
Cash Flow
Hedges
Total
(17,039) $
926
(1,199) $ (222,886)
370,030
–
34,413
(59,320)
(132,777)
6,772
181,051
27,809
(21,882)
(71,256)
122,494
45,593
23,507
–
–
–
–
–
–
–
–
–
–
–
(12,999)
12,999
–
(1,357)
–
–
34,413
–
(360)
(16,473)
4,412
262
(102)
(1,039)
–
(59,058)
(133,239)
(10,740)
185,463
–
–
27,809
–
(1,716)
(13,777)
1,694
–
–
–
264
(103)
(878)
–
–
–
–
(21,618)
(73,075)
107,839
47,287
23,507
–
(1,357)
(34,144)
(8,711)
$ 135,740
$
–
(4,969)
6,673
–
(659)
$ (12,742) $
(33,840)
304
(118)
(14,457)
(692) $ 128,979
(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. The following table presents the computation of basis and diluted
earnings per share (dollar in thousands, except per share data):
Year ended December 31,
2010
2009
2011
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
$ 285,875
(2,214)
$ 246,754
(1,583)
$ 200,578
(818)
283,661
6
245,171
3
199,760
1
$ 283,667
$ 245,174
$ 199,761
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
1 Excludes employee stock options with exercise prices greater than current
market price.
68,313,898
(526,222)
67,787,676
251,087
68,038,763
$ 4.18
$ 4.17
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
769,041
1,245,483
2,735,375
120
(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 ATM 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 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. 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 rates which approximate the
wholesale market rates for funds with similar duration and re-pricing characteristics. Market rates are generally based on LIBOR or
interest rate swap rates. The funds credit formula applied to deposit products with indeterminate maturities is established based on their re-
pricing characteristics reflected in a combination of the short-term LIBOR rates and a moving average of an intermediate term swap rate,
with an appropriate spread applied to both. Shorter duration products are weighted towards the short-term LIBOR rate and longer duration
products are weighted towards intermediate swap rates. 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 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.
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.
121
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2011 is as follows (in
thousands):
Net interest revenue from external
sources
Net interest revenue (expense) from
internal sources
Net interest revenue
Provision for (reduction of)
allowances for credit losses
Net interest revenue after provision for
(reduction of) allowances for credit
losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
Net income attributable to non-
controlling interest
Net income attributable to BOK
Financial Corp.
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
346,861 $
89,745
$
26,785 $
228,103
$
691,494
(29,919)
316,942
33,109
122,854
15,783
42,568
(18,973)
209,130
–
691,494
21,007
13,451
2,860
(43,368)
(6,050)
295,935
150,012
234,342
211,605
82,314
129,291
109,403
224,875
279,444
54,834
21,330
33,504
39,708
171,490
188,200
22,998
8,946
14,052
252,498
25,887
119,487
158,898
45,921
112,977
697,544
572,264
821,473
448,335
158,511
289,824
–
–
–
3,949
3,949
$
129,291 $
33,504 $
14,052 $
109,028
$
285,875
Average assets
Average invested capital
$
9,627,257 $
5,937,585 $
3,829,894 $ 5,100,125
$ 24,494,861
884,326
273,809
174,927
1,348,803
2,681,865
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.34%
14.62%
50.27%
0.56%
12.24%
74.66%
0.37%
8.03%
88.15%
1.17%
10.66%
63.27%
122
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2010 is as follows (in
thousands):
Net interest revenue from external
sources
Net interest revenue (expense) from
internal sources
Net interest revenue
Provision for credit losses
Net interest revenue after provision for
credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
Net income attributable to non-
controlling interest
Net income attributable to BOK
Financial Corp.
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
343,241
$
86,291
$
31,161
$
248,359
$
709,052
(45,144)
298,097
70,752
227,345
140,317
233,455
134,207
52,207
82,000
47,624
133,915
24,705
109,210
215,506
242,511
82,205
31,978
50,227
12,373
43,534
10,569
32,965
165,204
177,609
20,560
7,998
12,562
(14,853)
233,506
(887)
234,393
(119)
99,595
134,679
31,174
103,505
–
709,052
105,139
603,913
520,908
753,170
371,651
123,357
248,294
–
–
–
1,540
1,540
$
82,000
$
50,227
$
12,562
$
101,965
$
246,754
Average assets
Average invested capital
$ 9,007,403
899,005
$ 6,243,519
277,837
$ 3,499,115
169,775
$ 4,768,821
1,078,026
$ 23,518,858
2,424,643
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
0.91%
9.12%
53.05%
0.80%
18.08%
72.82%
0.36%
7.40%
85.39%
1.05%
10.18%
60.83%
123
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2009 is as follows (in
thousands):
Net interest revenue from external
sources
Net interest revenue (expense) from
internal sources
Net interest revenue
Provision for credit losses
Net interest revenue after provision for
credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
Net income attributable to non-
controlling interest
Net income attributable to BOK
Financial Corp.
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
346,608
$
57,647
$
24,665
$
281,444
$
710,364
(50,989)
295,619
101,120
194,499
133,390
230,224
97,665
37,992
59,673
73,796
131,443
21,062
110,381
169,622
242,981
37,022
14,402
22,620
19,165
43,830
11,028
32,802
156,329
171,158
17,973
6,991
10,982
(41,972)
239,472
62,690
176,782
33,649
52,370
158,061
47,320
110,741
–
710,364
195,900
514,464
492,990
696,733
310,721
106,705
204,016
–
–
–
3,438
3,438
$
59,673
$
22,620
$
10,982
$
107,303
$
200,578
Average assets
Average invested capital
$ 10,102,655
950,684
$ 6,148,067
253,233
$ 3,027,312
160,276
$ 3,618,007
712,848
$ 22,896,040
2,077,041
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
0.59%
6.28%
53.66%
0.37%
8.93%
81.26%
0.36%
6.85%
85.83%
0.88%
9.66%
59.07%
124
(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, 2011 (dollars in
thousands):
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
–
–
–
0.25 – 30.00%
0.38 – 18.00
0.38 – 18.00
0.38 – 21.00
0.57
1.26
3.26
0.42
0.63 – 3.85%
0.28 – 3.51
1.14 – 3.70
1.88 – 3.88
0.01 – 9.64
0.25 – 6.58
5.19 – 5.82
2.07
0.00
1.44
1.02 – 1.43
0.04 – 2.76
3.29
Estimated
Fair
Value
$ 986,365
76,800
133,670
120,536
208,451
462,657
1,006
68,837
9,588,177
419,166
36,495
18,446
47,238
10,179,365
651,226
188,125
6,517,795
2,267,375
2,034,898
436,490
11,256,558
–
11,256,558
86,783
293,859
30,902
15,380,598
3,441,610
2,369,224
411,243
236,522
Cash and cash equivalents
Trading securities
Investment securities:
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
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
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option 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
$ 986,365
76,800
128,697
121,704
188,835
439,236
1,006
68,837
9,588,177
419,166
36,495
18,446
47,238
10,179,365
651,226
188,125
6,571,454
2,279,909
1,970,461
447,919
11,269,743
(253,481)
11,016,262
86,783
293,859
30,902
15,380,598
3,381,982
2,370,867
398,881
236,522
125
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):
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
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
22,114
43,046
9,235,621
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
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
22,114
43,046
9,235,621
428,021
263,413
5,849,443
2,221,443
1,860,913
605,656
10,537,455
–
10,537,455
115,723
270,445
25,436
13,669,893
2,979,505
2,982,460
413,328
215,420
Because no market exists for certain of these financial instruments and management does not intend to sell these financial instruments, the
fair values shown in the tables 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, including projected cash flows discounted as rates indicated by
comparison to securities with similar credit and liquidity risk.
126
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 that use
significant other observable inputs.
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 mortgage 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 $207 million and $266 million at December 31, 2011 and 2010, 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, 2011
and 2010.
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
127
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, 2011 (in
thousands):
Assets:
Trading 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
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities
Residential mortgage loans held for sale
Mortgage servicing rights
Derivative contracts, net of cash margin2
Other assets – private equity funds
Liabilities:
Derivative contracts, net of cash margin2
Quoted Prices in
Active Markets
for Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total
$ 76,800
$
–
$
76,623
$
177
1,006
68,837
1,006
–
–
26,484
–
42,353
9,588,177
–
9,588,177
–
419,166
36,495
18,446
47,238
10,179,365
651,226
188,125
86,783
293,859
30,902
–
–
–
23,596
24,602
–
–
–
457
–
419,166
30,595
18,446
23,642
10,106,510
651,226
188,125
–
293,402
–
–
5,900
–
–
48,253
–
–
86,7831
–
30,902
236,522
–
236,522
–
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.
128
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
Quoted Prices in
Active Markets
for Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total
$ 55,467
$
877
$
54,590
$
–
Available for sale securities:
Municipal and other tax-exempt
72,942
U.S. agency residential mortgage-backed
securities
Privately issued residential mortgage-
backed securities
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities
Residential mortgage loans held for sale
Mortgage servicing rights
Derivative contracts, net of cash margin2
Other assets – private equity funds
Liabilities:
Certificates of deposit – fair value election
Derivative contracts, net of cash margin2
8,446,908
644,210
6,401
22,114
43,046
9,235,621
428,021
263,413
115,723
270,445
25,436
27,414
215,420
–
–
–
–
–
22,344
22,344
–
–
–
–
–
–
–
25,849
47,093
8,446,908
644,210
1
22,114
20,702
9,159,784
428,021
263,413
–
270,445
–
27,414
215,420
–
–
6,400
–
–
53,493
–
–
115,7231
–
25,436
–
–
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 certain available for sale municipal and other debt securities may be 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.
These securities may be either investment grade or below investment grade. As of December 31, 2011, taxable securities rated investment
grade by all nationally recognized rating agencies were generally valued to yield 1.60% to 1.80%. Average yields on comparable short-
term taxable securities were generally less than 1%. Tax-exempt securities rated investment grade by all nationally recognized rating
agencies were generally value to yield a range of 1.00% to 1.50% which represented a spread of 75 to 80 basis points over average yields
of comparable tax-exempt securities as of December 31, 2011. The resulting estimated fair value of securities rated investment grade
ranges from 98.79% to 100% of par at December 31, 2011.
Taxable securities rated investment grade by all nationally recognized rating agencies were generally valued at par to yield 1.76% at
December 31, 2010. Average yields on comparable short-term taxable securities were generally less than 1%. Tax-exempt securities rated
investment grade by all nationally recognized rating agencies were generally valued to yield a range of 1.15% to 1.45% at December 31,
2010. This represented a spread of 75 to 80 basis points over average yields of comparable securities. 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, $13 million of municipal and other tax-exempt securities were rated below investment
grade by at least one of the three nationally recognized rating agencies at December 31, 2011. The fair value of these securities was
determined based on yields ranging from 6.25% to 9.58%. These yields were determined using a spread of 600 basis points over
comparable municipal securities of varying durations. The resulting estimated fair value of securities rated below investment grade ranges
from 76.45% to 76.92% of par value as of December 31, 2011.
After other-than-temporary impairment charges, approximately $11 million of our municipal and other tax-exempt securities were rated
below investment grade by at least one of the three nationally recognized rating agencies at December 31, 2010. 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.
129
All of these securities are currently paying contractual interest in accordance with their respective terms at December 31, 2011 and 2010.
During the year ended December 31, 2011, there were no transfers in or out of quoted prices in active markets for identical instruments,
significant observable inputs or significant unobservable inputs. The following represents the changes for the year ended December 31,
2011 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
Balance at December 31, 2010
Purchases and capital calls
Redemptions and distributions
Gain (loss) recognized in earnings
Brokerage and trading revenue
Gain on other assets, net
Gain on securities, net
Other-than-temporary impairment losses
Other comprehensive income
Balance December 31, 2011
Available for Sale Securities
Municipal and
other tax-
exempt
Other debt
securities
Other assets –
private equity
funds
$ 47,093
$ 6,400
$ 25,436
7,520
(10,625)
(576)
–
21
(1,558)
478
–
(500)
–
–
–
–
–
4,052
(3,903)
–
5,317
–
–
–
$ 42,353
$ 5,900
$ 30,902
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
$
9,800
$ 36,598
$ 17,116
$ 22,917
Transfer from trading to available for sale
Purchases, sales, issuances and settlements, net
(13,090)
3,555
12,990
(1,468)
100
(11,081)
–
2,479
Gain (loss) recognized in earnings
Brokerage and trading revenue
Gain on other assets, net
Gain on securities, net
Other-than-temporary impairment losses
Other comprehensive income (loss)
Balance December 31, 2010
$
(265)
–
–
–
–
–
–
–
7
(1,019)
(15)
–
–
259
–
6
–
40
–
–
–
$ 47,093
$ 6,400
$ 25,436
All trading securities with fair values based on significant unobservable inputs were transferred to available for sale to comply with
banking regulations that prohibit national banks from purchasing below-investment grade securities. These securities were purchased at
par into the trading securities portfolio to accommodate customer liquidity needs and written down to fair value through earnings. These
securities were transferred at fair value to the holding company and reclassified to the available for sale portfolio consistent with the
Company’s intent at acquisition.
There were no transfers from quoted prices in active markets for identical instruments to significant other observable inputs during the year
ended December 31, 2011 and 2010.
130
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, 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, 2011 (in thousands):
Carrying Value at December 31, 2011
Quoted
Prices
in Active
Markets for
Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Fair Value Adjustments for the Year
Ended December 31, 2011 Recognized In:
Gross
charge-offs
against
allowance
for recourse
loans
Net losses
and
expenses of
repossessed
assets, net
Gross
charge-offs
against
allowance for
loan loss
Impaired loans
Real estate and other
repossessed assets
$
–
–
$ 52,421
$
1,447
$ 13,829
$ 1,368
$
–
57,160
13,100
–
–
14,077
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 (in thousands):
Carrying Value at December 31, 2010
Quoted
Prices
in Active
Markets for
Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Fair Value Adjustments for the Year Ended
December 31, 2010 Recognized In:
Gross
charge-offs
against
allowance for
loan loss
Gross
charge-offs
against
allowance
for recourse
loans
Net losses
and
expenses of
repossessed
assets, net
Other
expense
Impaired loans
Real estate and other
repossessed assets
Other assets – alternative
investments
$
–
–
–
$ 77,665
$
–
$ 51,058
$
265
$
–
$
72,113
1,607
–
3,910
–
–
–
–
25,020
–
1,750
–
–
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 at both December 31, 2011 and 2010, 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.
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:
Average expected long-term growth rate
Volatility factor for BOKF common stock
Discount rate
Market risk premium
2011
10.00%
0.90%
13.03%
12.34%
2010
11.00%
0.75%
11.73%
12.26%
131
In general, the growth rate for all reporting units for 2011 and 2010 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, 2011, there were no certificates of deposit that were designated as carried at fair value. At December 31,
2010, the fair value and contractual principal amounts of these certificates was $27 million and $27 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 and
increased pre-tax net income by $1.2 million in 2010 and $7.9 million in 2009.
As more fully disclosed in Note 2 and Note 7 to the Consolidated Financial Statements, the Company has elected to carry certain
residential mortgage-backed securities which have been designated as economic hedges against changes in the fair value of mortgage
servicing rights, certain corporate debt securities which have been economically hedges by derivative contracts and residential mortgage
loans held for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.
(19) Parent Company Only Financial Statements
Summarized financial information for BOK Financial – Parent Company Only follows:
Balance Sheets
(In thousands)
Assets
Cash and cash equivalents
Available for sale securities
Investment in subsidiaries
Other assets
Total assets
Liabilities and Shareholders’ Equity
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
Statements of Earnings
(In thousands)
December 31,
2011
2010
$ 386,695
40,766
2,317,900
8,682
$ 2,754,043
$ 207,453
59,115
2,255,222
25,846
$ 2,547,636
$
$
3,575
3,575
25,910
25,910
4
818,817
1,953,332
(150,664)
128,979
2,750,468
$ 2,754,043
4
782,805
1,743,880
(112,802)
107,839
2,521,726
$ 2,547,636
Dividends, interest and fees received from subsidiaries
Other revenue
Other-than-temporary impairment losses recognized in earnings
Total revenue
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 (benefit)
Income before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
Net income
2011
2010
2009
$ 270,474
2,128
(2,098)
270,504
$ 280,125
1,883
(1,679)
280,329
$ 172,023
674
–
172,697
354
538
7,688
8,580
507
795
(47)
1,255
581
–
–
581
279,074
415
278,659
(31,905)
$ 246,754
172,116
738
171,378
29,200
$ 200,578
261,924
(3,169)
265,093
20,782
$ 285,875
132
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
Sales of available for sale securities
Investment in subsidiaries
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net change in other borrowings
Issuance of common and treasury stock, net
Dividends paid
Repurchase of common stock
Net cash 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
2011
2010
2009
$ 285,875
$ 246,754
$ 200,578
(20,782)
659
15,249
(18,884)
262,117
(3,797)
16,500
(7,250)
5,453
31,905
(425)
20,713
(20,216)
278,731
(10,669)
–
(21,692)
(32,361)
(29,200)
(276)
(47,732)
47,333
170,703
(36,685)
–
(26,500)
(63,185)
–
14,541
(76,423)
(26,446)
(88,328)
179,242
207,453
$ 386,695
–
8,552
(66,557)
–
(58,005)
188,365
19,088
$ 207,453
(50,000)
5,198
(63,952)
–
(108,754)
(1,236)
20,324
$ 19,088
Cash paid for interest
$
354
$
507
$
589
(20) Subsequent Events
The Company evaluated events from the date of the consolidated financial statements on December 31, 2011 through the issuance
of those consolidated financial statements included in this Annual Report on Form 10-K. No additional events were identified
requiring recognition in and/or disclosure in the consolidated financial statements.
133
Annual Financial Summary – Unaudited
Consolidated Daily Average Balances,
Average Yields and Rates
(Dollars in thousands)
Assets
Funds sold and resell agreements
Trading securities
Investment securities
Taxable3
Tax-exempt3
Total investment securities3
Available for sale securities
Taxable3
Tax-exempt3
Total available for sale securities3
Fair value option securities3
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 equity
Interest-bearing deposits:
Transaction deposits
Savings deposits
Time deposits
Total interest-bearing deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest-bearing liabilities
Non-interest bearing demand deposits
Other liabilities
Total equity
Total liabilities and equity
Average
Balance
2011
Revenue/
Expense1
15
2,486
12,581
7,562
20,143
259,871
3,566
263,437
18,649
6,492
509,462
–
509,462
820,684
$ 23,415
719
64,756
88,890
917
2,453
5,456
22,385
120,101
$
13,441
81,978
$
211,949
155,707
367,656
9,578,869
68,549
9,647,418
543,318
154,794
10,841,341
284,516
10,556,825
21,365,430
3,129,431
$ 24,494,861
$ 9,349,760
212,443
3,587,698
13,149,901
1,046,114
1,096,615
137,122
398,790
15,828,542
4,877,906
1,106,548
2,681,865
$ 24,494,861
Yield/
Rate
0.11%
3.03
5.94
4.86
5.48
2.83
5.20
2.84
3.63
4.19
4.70
–
4.83
3.92
0.25%
0.34
1.80
0.68
0.09
0.22
3.98
5.61
0.76
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to Earning Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for (reduction of) allowances 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 attributable to non-controlling interest
Net income attributable to BOK Financial Corp.
1 Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative
9,089
691,494
(6,050)
572,264
821,473
448,335
158,511
289,824
3,949
$ 285,875
3.16%
3.34
$ 700,583
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.
134
Average
Balance
2010
Revenue/
Expense1
27
2,782
7,229
10,155
17,384
283,583
3,664
287,247
17,403
9,261
526,136
–
526,136
860,240
38,886
719
66,660
106,265
2,231
6,028
5,075
22,431
142,030
$
23,743
68,286
$
108,240
209,427
317,667
9,000,677
66,820
9,067,497
470,488
214,347
10,917,966
309,279
10,608,687
20,770,715
3,035,084
$ 23,805,799
$
8,573,117
184,099
3,712,140
12,469,356
1,185,741
1,130,082
1,537,025
398,619
16,720,823
3,789,375
870,958
2,424,643
$ 23,805,799
$
Yield/
Rate
0.11%
4.07
6.68
4.89
5.50
3.27
5.48
3.28
4.08
4.32
4.82
–
4.96
4.22
0.45%
0.39
2.40
0.85
0.19
0.53
0.33
5.63
0.85
Average
Balance
2009
Revenue/
Expense1
77
3,700
107
12,007
12,114
314,262
3,369
317,631
14,628
10,102
564,391
–
564,391
922,643
51,607
614
112,141
164,362
2,744
5,611
9,190
22,298
204,205
$
44,348
89,240
$
6,854
239,137
245,991
7,402,179
35,372
7,437,551
356,143
218,305
12,133,912
279,689
11,854,223
20,245,801
2,891,586
$ 23,137,387
$
7,093,768
165,677
4,682,462
11,941,907
1,515,957
817,222
2,166,804
398,471
16,840,361
3,279,347
940,637
2,077,042
$ 23,137,387
$
Yield/
Rate
0.17%
4.15
1.56
5.06
4.96
4.66
9.52
4.69
4.69
4.63
4.65
–
4.76
4.72
0.73%
0.37
2.39
1.38
0.18
0.69
0.42
5.60
1.21
$
718,210
3.37%
3.52
$
718,438
3.51%
3.68
9,158
709,052
105,139
520,908
753,170
371,651
123,357
248,294
1,540
246,754
$
8,074
710,364
195,900
492,990
696,733
310,721
106,705
204,016
3,438
200,578
$
135
Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances,
Average Yields and Rates
Assets
Funds sold and resell agreements
Trading securities
Investment securities
Taxable3
Tax-exempt3
Total investment securities
Available for sale securities
Taxable3
Tax-exempt3
Total available for sale securities3
Fair value option securities
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 equity
Interest-bearing deposits:
Transaction
Savings
Time
Total interest-bearing deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest-bearing liabilities
Non-interest bearing demand deposits
Other liabilities
Total equity
Total liabilities and equity
Three Months Ended
December 31, 2011
September 30, 2011
Average
Balance
Revenue/ Yield/
Expense1
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
$
12,035 $
97,972
3
689
0.10% $
2.79
12,344 $
88,576
5
637
0.16%
2.85
314,217
129,109
443,326
4,677
1,565
6,242
54,839
896
55,735
4,877
2,032
130,736
– –
130,736
200,314
9,845,351
69,172
9,914,523
660,025
201,242
11,152,315
266,473
10,885,842
22,214,965
3,422,475
$ 25,637,440
5.91
4.81
5.59
2.37
5.14
2.39
2.98
4.01
4.65
4.76
3.69
194,371
135,256
329,627
2,759
1,683
4,442
66,040
870
66,910
5,299
1,616
129,073
–
129,073
207,982
9,586,411
70,181
9,656,592
594,629
156,621
10,872,805
285,570
10,587,235
21,425,624
3,196,114
$ 24,621,738
$ 9,276,608 $ 4,213
146
14,922
19,281
186
404
1,059
5,640
26,570
220,236
3,485,059
12,981,903
1,197,154
1,189,861
88,489
398,858
15,856,265
5,588,596
1,422,092
2,770,487
$ 25,637,440
0.18% $ 9,310,046 $ 5,488
183
214,979
0.26
16,736
3,617,731
1.70
22,407
13,142,756
0.59
135
994,099
0.06
495
1,128,275
0.13
1,701
128,288
4.75
5,627
398,812
5.61
15,792,230
30,365
0.66
5,086,538
1,004,564
2,738,406
$ 24,621,738
5.63
4.94
5.35
2.82
4.92
2.83
3.66
4.09
4.71
–
4.84
3.91
0.23%
0.34
1.84
0.68
0.05
0.17
5.26
5.60
0.76
3.15%
3.34
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to Earning Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for (reduction of) allowances 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.
3.03%
3.20
$173,744
2,274
171,470
(15,000)
138,027
219,197
105,300
37,396
67,904
911
$ 66,993
$ 177,617
2,233
175,384
–
173,977
220,896
128,465
43,006
85,459
358
$ 85,101
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
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.
$ 0.98
$ 0.98
$ 1.24
$ 1.24
136
Average
Balance
June 30, 2011
Revenue/
Expense1
Yield/
Rate
Three Months Ended
March 31, 2011
Revenue/
Expense1
Average
Balance
December 31, 2010
Yield/
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
$
8,814
80,113
$
3
584
0.14%
2.92
$
20,680
60,768
$
4
576
0.08%
3.84
$
21,128
74,084
$
7
759
0.13%
4.06
183,084
174,614
357,698
9,473,401
70,081
9,543,482
518,073
134,876
10,680,755
291,308
10,389,447
21,032,503
2,946,732
$ 23,979,235
$ 9,184,141
210,707
3,632,130
13,026,978
1,168,670
1,004,217
187,441
398,767
15,786,073
4,554,000
988,273
2,650,889
$ 23,979,235
2,800
2,100
4,900
69,978
894
70,872
5,243
1,505
124,871
–
124,871
207,978
$ 6,130
203
16,827
23,160
276
513
2,226
5,541
31,716
$ 176,262
2,261
174,001
2,700
142,960
203,209
111,052
39,357
71,695
2,688
$ 69,007
$
$
1.01
1.00
6.13
4.82
5.49
3.02
5.12
3.04
4.42
4.48
4.69
–
4.82
4.01
154,562
184,684
339,246
9,311,980
64,694
9,376,674
397,093
125,494
10,653,756
295,014
10,358,742
20,678,697
3,061,077
$ 23,739,774
2,345
2,214
4,559
69,014
906
69,920
3,230
1,339
124,782
–
124,782
204,410
6.15
4.88
5.46
3.15
5.68
3.17
3.74
4.33
4.75
–
4.89
4.09
155,624
186,317
341,941
9,509,657
72,051
9,581,708
474,731
282,734
10,667,193
307,223
10,359,970
21,136,296
3,146,655
$ 24,282,951
2,305
2,240
4,545
58,678
984
59,662
3,688
2,745
128,005
–
128,005
199,411
6.01
4.88
5.39
2.61
5.42
2.63
3.43
3.85
4.76
–
4.90
3.86
0.32% $ 9,325,573
191,235
0.37
3,602,150
1.82
13,118,958
0.72
775,620
0.16
1,201,760
0.40
829,756
1.31
398,680
5.67
16,324,774
0.80
4,171,595
1,251,025
2,535,557
$ 24,282,951
3.29%
3.47
$ 8,772
171
16,147
25,090
479
1,496
767
5,666
33,498
0.37%
0.35
1.78
0.76
0.25
0.49
0.37
5.64
0.81
3.05%
3.21
$ 165,913
2,263
163,650
6,999
111,913
178,361
90,203
31,097
59,106
274
$ 58,832
$
$
0.86
0.86
$ 7,584
187
16,271
24,042
320
1,041
470
5,577
31,450
0.27% $ 9,632,595
203,638
0.39
3,616,991
1.86
13,453,224
0.71
820,969
0.09
1,062,359
0.20
144,987
4.76
398,723
5.57
15,880,262
0.81
4,265,657
1,029,058
2,564,797
$ 23,739,774
3.20%
3.40
$ 172,960
2,321
170,639
6,250
117,578
178,449
103,518
38,752
64,766
(8)
$ 64,774
$
$
0.95
0.94
137
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.
138
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 2012 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 2011 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
2012 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 2012 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 headings “Certain Transactions,” “Director Independence” and “Related
Party Transaction Review and Approval Process” in BOK Financial’s 2012 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 2012 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, 2011, 2010 and 2009
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
Annual Financial Summary – Unaudited
Quarterly Financial Summary - Unaudited
Reports of Independent Registered Public Accounting Firm
139
(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.
140
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.
141
21.0
23.0
31.1
31.2
32
99.0
99 (c)
101
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, filed herewith.*
* 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.
142
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
SIGNATURES
DATE: February 28, 2012
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 28, 2012, by the
following persons on behalf of the registrant and in the capacities indicated.
/s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
/s/ Stanley A. Lybarger
Stanley A. Lybarger
Director, President and Chief Executive Officer
OFFICERS
/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
/s/ Robert J. LaFortune
Robert J. LaFortune
/s/ Steven J. Malcolm
Steven J. Malcolm
/s/ E.C. Richards
E.C. Richards
/s/ Michael C. Turpen
Michael C. Turpen
143
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 28, 2012
/s/ Stanley A. Lybarger
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation
144
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 28, 2012
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
145
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, 2011 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 28, 2012
/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
146
147
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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: 866 as of
January 31, 2012
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
148
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Robust Markets
BOK Financial Corporation’s banking subsidiary operates seven regionally branded divisions: Bank of Albuquerque,
Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, and Colorado State Bank
and Trust, as well as TransFund, an electronic funds network. Other subsidiaries include BOSC, Inc., a broker/dealer,
and Cavanal Hill Investment Management, Inc., a registered investment adviser. In addition to full service banking
centers in an eight state region, BOK Financial’s subsidiaries have offices in Nebraska and Wisconsin.
www.bokf.com