BOK Financial:
More than 100 years of growth and diversification
1981:
TransFund officially
becomes a shared ATM/
electronic funds transfer
network.
1979:
Bank of Oklahoma
exceeds $1 billion in assets.
1976:
The company establishes
headquarters in the newly
constructed 52-story
Bank of Oklahoma Tower.
1991:
George B. Kaiser recapitalizes the bank and forms the holding company, BOK Financial.
The company also establishes a full-service brokerage firm, BOSC, Inc., as well as a
registered investment adviser, today named Cavanal Hill Investment Management, Inc.
1993:
BOK Financial establishes Oklahoma’s first
InStore grocery store branch in Tulsa.
2006:
BOK Financial completes its first
de novo expansion and opens
Bank of Kansas City.
2005:
Bank of Arizona is formed through a
bank acquisition in Phoenix.
2003:
BOK Financial acquires
Colorado State Bank and Trust.
2007:
BOK Financial enhances its network
with acquisitions in the Denver and
Fort Worth markets.
2009:
BOK Financial is the largest commercial
bank in the country to decline participation
in the U.S. Treasury’s Troubled Asset Relief
Program (TARP).
2010:
The company opens an institutional sales office
in Milwaukee, Wisc. and acquires the rights
to service more than $4 billion in residential
mortgage loans primarily in New Mexico.
1910:
Tulsa oilmen found Exchange National
Bank to fund local drilling activity.
1918:
Exchange National Bank establishes
Oklahoma’s first trust company.
1929:
Exchange National Bank survives the
Wall Street panic without a single
dollar lost for depositors.
1975:
Bank of Oklahoma opens
the first automated teller
machine (ATM) in the state.
1975:
Reflecting its regional scope
of business, the company
changes its name to
Bank of Oklahoma.
1949:
The company adds investment
management services, managing
assets for one of the nation’s oldest
charitable trusts—which we still
manage today.
1994:
BOK Financial acquires an Oklahoma-based
bank holding company with operations in
Northwest Arkansas.
1997:
BOK Financial’s regional expansion
initiative begins with acquisitions in
Dallas, Texas.
1998:
BOK Financial acquires
17 branches in New Mexico and
forms Bank of Albuquerque.
2002:
The company enters the Denver
market with an energy loan
production office.
2001:
BOK Financial acquires a bank in Houston,
Texas and announces annual earnings
exceeding $100 million.
1999:
Regional expansion continues with
three additional bank acquisitions in
the Dallas-Fort Worth area.
2012:
BOK Financial acquires The Milestone Group, Inc.,
a Denver-based registered investment adviser.
2012:
BOK Financial announces record annual earnings of $351 million
reflecting the value of its diversified revenue business model.
2012
Performance
Highlights
• Achieved record earnings of $351 million, a 23 percent
increase over 2011
• Increased noninterest revenue $103 million or 20 percent
led by growth in mortgage banking and brokerage and
trading revenue
• Produced 17 percent growth in general commercial and
industrial loans
• Increased non-interest bearing deposits $2.2 billion or
39 percent
• Continued improvement in credit quality reducing
losses to pre-recession levels
• Paid $1 special dividend and increased the quarterly
dividend by 15 percent
• Acquired The Milestone Group, a Denver-based
registered investment adviser with more than
$1 billion in assets under management
• Originated $4 billion in mortgage loans, assisting a record
number of customers purchase or refinance a home
FULL SERVICE BANKING MARKETS
• Albuquerque, NM
• Dallas, TX
• Denver, CO
• Fayetteville, AR
• Fort Worth, TX
• Houston, TX
• Kansas City, KS/MO
• Tulsa, OK
• Oklahoma City, OK
• Phoenix, AZ
ADDITIONAL MORTGAGE BANKING MARKETS
• Austin, TX
• El Paso, TX
• San Antonio, TX
• Springfield, MO
• Wichita, KS
ADDITIONAL WEALTH MANAGEMENT MARKETS
• Austin, TX
• Milwaukee, WI
• Lincoln, NE
• Little Rock, AR
Services are also provided at additional offices not reflected on this map.
Dear Fellow Shareholders,
One of the best performing banks through the financial crisis, BOK Financial achieved
its third consecutive year of record earnings. Since 2007, earnings per share have
grown at a compound annual rate of 10 percent, ranking second among the nation’s
40 largest banks and thrifts. In addition, the company’s 27 percent compound
annual dividend growth rate is unmatched. Notably, half of the 40 banks and thrifts
failed to produce earnings per share above their pre-recession level and only eight paid
their shareholders a higher dividend.
BOK Financial’s performance metrics also compare favorably against the internally
defined peer group. The company routinely measures its performance against
this group consisting of 20 U.S. based publicly traded bank holding companies,
10 immediately larger and 10 immediately smaller based on asset size at year end.
While some analysts predicted banks would not return to historic performance levels
after the recession, BOK Financial’s balanced strategy has proven resilient. The return
on average assets of 1.34 percent and return on average equity of 12.09 percent
ranked first among the peer group1. Loan and deposit growth significantly outpaced
the peer median. The net charge-off ratio of 20 basis points was less than half the
peer median of 43 basis points.
1 This comparison is based on core operating performance and excludes impacts related to impairment reversal for deferred tax assets in the peer group.
Net Income and Diluted Earnings Per Share
‘91
‘92
‘93
‘94
‘95
‘96
‘97
‘98
‘99
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
‘09
‘10
‘11
‘12
2012 IN REVIEW:
INVESTMENTS IN FEE
BUSINESSES AND
SUPERIOR SERVICE
QUALITY DROVE GROWTH
home purchases compared to the industry average of less than
30 percent. The company expects to continue to see strong
returns on recent investments as the housing market strengthens.
BOK Financial’s expansion initiatives extend across all
business lines and contributed to the Wealth Management
division’s 16 percent increase in fee and commission revenue
in 2012. This growing division provides a comprehensive
array of services for individuals, families and institutional
customers ranging from investment and mineral management
BOK Financial’s strategies and execution produced superior
to trade finance and municipal underwriting. Investment
results amid challenges posed by the economic and regulatory
professionals focus on providing the highest quality of service,
environment. The company’s balanced approach has
advice and investment products to customers. During the
consistently grown shareholder value through varying
past two years, the company has enhanced products and
economic cycles. Underpinned by a strong commitment to
technologies, added quality talent and opened new offices.
exceptional customer service and a long-term view,
Most recently, the acquisition of The Milestone Group in
the strategy includes building the foundation for future growth
August added a new dimension to wealth advisory services
through continued investment in all lines of business.
with estate and tax planning capabilities specifically suited to
From establishing Oklahoma’s first trust company in 1918 to
high-net-worth customers. The Wealth Management
the current mortgage banking expansion initiative, the
division’s revenue growth reflects the company’s ability to
company has fueled economic growth by partnering with
compete effectively with banks and specialty firms in a variety
customers and helping them reach their financial goals. The
of business segments.
strategy of building and sustaining a balanced mix of revenue
was the basis for a third consecutive year of record earnings.
In addition to generating solid growth in fee revenue,
BOK Financial increased net interest revenue $13 million or
BOK Financial’s commitment to expanding mortgage lending
2 percent. The low interest rate environment pressured net
illustrates the company’s long-term view. Recognizing the
interest revenue as earning assets re-priced at lower market
opportunity to serve customers in regional markets, the
rates. The company reduced the cost of funds 20 basis points
company began refocusing mortgage banking efforts in 2008
during the year which partially offset a 40 basis point decline
by appointing new leadership and enhancing origination,
in the yield on earning assets. Earning assets continued to
servicing and risk management processes. During the past
grow, including the short-duration mortgage backed securities
few years as many banks struggled to serve their customers,
portfolio, supporting net interest income. For well over a
BOK Financial added approximately 150 mortgage loan
decade, the company has maintained a large securities
originators, more than doubling capacity, opened six new
portfolio to offset the naturally asset-sensitive core balance
offices and created a correspondent channel of high quality
sheet and achieve its objective of remaining relatively neutral
regulated financial institutions.
to changes in interest rates. In a persistent low rate
environment, the company anticipates further pressure on net
Having fortified the mortgage banking group, BOK Financial was
interest margin and net interest revenue. The company is
well positioned to take advantage of disarray in mortgage
keenly focused on maintaining the growth momentum in the
markets and substantially increase market share in 2012.
loan portfolio to support net interest revenue.
With historic low interest rates and government refinance
programs driving demand, the company funded $4 billion in
General commercial and industrial loans grew 17 percent in
mortgage loans, a 32 percent increase from the previous high in
total including double digit growth in many sectors and across
2009. While the Oklahoma market originated 54 percent of
most markets. The energy group grew outstanding loans
mortgage loans in 2009, its contribution represented only
$456 million or 23 percent. BOK Financial’s energy roots span
33 percent in 2012. Notably, 40 percent of originations were for
more than 100 years to 1910 when the bank was formed to
support oil entrepreneurs in Tulsa. Today the customer base
extends from California to Pennsylvania and the company is
helping fund onshore drilling activity in all major formations in
the U.S. By hiring seasoned industry professionals, including
petroleum engineers, and providing unmatched customer
service and responsiveness, the company created one of the
leading energy groups in the industry. The energy production
portfolio has produced the best credit quality metrics in the
company over the last three decades.
BUILDING THE FOUNDATION
FOR LONG-TERM GROWTH
As the company’s timeline indicates, BOK Financial has built
shareholder value by responding to customers’ needs with
innovative solutions throughout diverse lines of business.
By coupling excellent products with a quality of service
superior to the competition, the company has consistently
achieved success in highly competitive markets against both
local and national competitors.
The company’s regional expansion began with an acquisition
in Dallas in 1997. After seven additional acquisitions and
several years of hard work, Bank of Texas has become a major
contributor to the success of BOK Financial. Using a team-
based approach, Bank of Texas delivers all the products and
services BOK Financial offers. The results are impressive.
Bank of Texas’s average assets have grown to more than
$5 billion, with two-thirds of the assets produced through
organic growth. In 2012, commercial and industrial loans in
Texas increased $477 million or 21 percent. Since 2007,
Bank of Texas has grown fee-based revenue at a compound
annual rate of nearly 15 percent. Last year Bank of Texas’s
after tax earnings increased 17 percent to nearly $50 million.
BOK Financial has also demonstrated the ability to grow
fee-based lines of business outside its full-service banking
footprint. By recruiting talented professionals with a true
passion for service and consistently investing in product
and service capabilities, a number of business lines have
been able to compete independently in new markets.
The Milwaukee office is a notable example. This institutional
sales office opened in late 2010 and increased revenue
62 percent last year to more than $7.5 million. In the past
Possibly the greatest test of
BOK Financial’s strategy was entering
the highly competitive Kansas City
market as a de novo bank.
Unable to find an attractive acquisition
opportunity after launching a loan production
office in 1999, the company opened Bank of
Kansas City in November 2006. Despite the
downturn in the economy, Bank of Kansas City
has established a solid presence and grown
loans and fee-based revenue at a compound
annual rate of more than 20 percent over the
last three years. Last year Bank of Kansas
City’s loans grew at a faster rate than 90
percent of the local banks’. With nearly 150
employees, Bank of Kansas City remains in a
rapid expansion mode. During 2012, the
company broke ground on a new branch in
Lee’s Summit, Mo. and opened a new
mortgage and wealth management office in
North Kansas City.
DIVERSE REVENUE
53%
Net Interest Revenue
Fees and Commission Revenue
47%
13%
Mortgage Banking
9%
Brokerage and
Trading
8%
Transaction
Card
7%
Deposit Service
Charges
6%
Trust Fees
4%
Other
two years, the company also successfully expanded the
In addition to the ongoing initiatives described earlier, plans for
public finance advisory business, added corporate trust teams
2013 include technology investments totaling approximately
in Austin, Texas and Lincoln, Neb. and opened mortgage
$20 million to support service quality and growth in many
offices in new markets in Texas, Missouri and Kansas.
areas, including wealth management, treasury services
and mortgage banking.
Each of these investments builds on the foundation for
long-term growth. The value of BOK Financial’s fee businesses
As we pause to reflect on the last two decades, we are proud
has been proven many times over the years, but 2012 may
of what we have accomplished. From a $2 billion Oklahoma
provide the most compelling illustration of the benefits of a
bank in 1991, BOK Financial has grown to the nation’s 23rd
continued commitment to these businesses. The company
largest bank and one of the top performing banks in the
not only overcame the negative financial impact of recent
industry. The company continues to build on its leadership
regulation on overdraft and interchange revenue totaling
position in Oklahoma, while adding substantial business in a
approximately $45 million annually, but increased noninterest
number of the most competitive banking markets in the
revenue more than $100 million. Even without mortgage
country. BOK Financial has never been stronger. Strategic
lending’s substantial contribution, BOK Financial achieved fee
investments have created a broad foundation with excellent
revenue growth of 6 percent. In total, the diverse fee-based
prospects for long-term balanced growth. Our remarkable
businesses contributed 47 percent of operating revenue,
team of 4,700 dedicated employees is fully committed to
far above the peer median of 32 percent.
continuing to provide superior customer service and
shareholder returns. On behalf of the entire company,
we thank you for your continuing support.
Stanley A. Lybarger
President & CEO
WELL POSITIONED FOR
THE FUTURE
While the outlook for the banking industry remains challenging,
BOK Financial expects to continue to perform well,
with higher earnings growth anticipated as the U.S. economy
strengthens and longer-term rates rise. Unlike many
banks, the company is not burdened with legacy issues.
BOK Financial continues to
invest
in the future,
keeping customers at the center of every business decision.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File No. 0-19341
BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Oklahoma
(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
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
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
No
subject to such filing requirements for the past 90 days. Yes
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
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.
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
Smaller reporting company
Non-accelerated filer
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the registrant's common stock ("Common Stock") held by non-affiliates is approximately $1.5 billion
(based on the June 30, 2012 closing price of Common Stock of $58.20 per share). As of January 31, 2013, there were 68,369,705 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
BOK Financial Corporation
Form 10-K
Year Ended December 31, 2012
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
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
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 Accounting Fees and Services
Part IV
Item 15
Exhibits, Financial Statement Schedules
Signatures
Exhibit 31.1 Chief Executive Officer Section 302 Certification
Exhibit 31.2 Chief Financial Officer Section 302 Certification
Exhibit 32
Section 906 Certifications
1
7
11
11
11
11
12
14
15
84
88
182
182
182
182
182
183
183
183
183
187
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 governed 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 a wholly owned subsidiary bank of BOK Financial. Operating divisions of the Bank include 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. Other wholly owned 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 fairly priced quality organizations with
demonstrated solid growth that would supplement our principal lines of business. 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.
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 47% of our revenue came from fees and commission in 2012.
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, 2012.
We are the largest financial institution in the state of Oklahoma with 14% of the state’s total deposits. Bank of Oklahoma has
31% and 12% of the market share in the Tulsa and Oklahoma City areas, 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. We 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 11% 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, 2012, BOK Financial and its subsidiaries employed 4,704 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 promote safety and soundness, protect consumers and ensure the stability of the banking system as a whole. The
purpose of these regulations is not necessarily to protect shareholders and creditors. As detailed below, these regulations require
the Company and its subsidiaries to maintain certain capital balances and require the Company to provide financial support to
its subsidiaries. These regulations may restrict the Company’s ability to diversify, to acquire other institutions and to pay
dividends on its capital stock. These regulations also include requirements on certain programs and services offered to our
customers, including restrictions on fees charged for certain services.
The following information summarizes certain existing laws and regulations that affect the Company’s operations. It does not
summarize all provisions of these laws and regulations and does not include 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, the Consumer Financial Protection Bureau 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 examinations concerning safety and soundness, the quality of management
and directors, information technology and compliance with applicable regulations. The National Banking Act authorizes the
OCC to examine every national bank as often as necessary.
2
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. Activities that are
“financial in nature” include securities underwriting and dealing, insurance underwriting, merchant banking, operating a
mortgage company, performing certain data processing operations, servicing loans and other extensions of credit, providing
investment and financial advice, owning and operating savings and loan associations, and leasing personal property on a full
pay-out, non-operating basis. In order for a financial holding company to commence any new activity permitted by the BHCA,
each insured depository institution subsidiary of the financial holding company must have received a rating of at least
satisfactory in its most recent examination under the Community Reinvestment Act. A financial holding company is required to
notify the Federal Reserve Board within thirty days of engaging in new activities determined to be “financial in nature.” BOK
Financial is engaged in some of these activities and has notified the Federal Reserve Board.
The BHCA requires the Federal Reserve Board’s prior approval for the direct or indirect acquisition of more than five percent
of any class of voting stock of any non-affiliated bank. Under the Federal Bank Merger Act, the prior approval of the OCC is
required for a national bank to merge with another bank or purchase the assets or assume the deposits of another bank. In
reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities consider,
among other things, the competitive effect and public benefits of the transactions, the capital position of the combined
organization, the applicant’s performance record under the Community Reinvestment Act and fair housing laws and the
effectiveness of the subject organizations in combating money laundering activities.
A financial holding company and its subsidiaries are prohibited under the BHCA from engaging in certain tie-in arrangements
in connection with the provision of any credit, property or services. Thus, a subsidiary of a financial holding company may not
extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition
that (1) the customer obtain or provide additional credit, property or services from or to the financial holding company or any
subsidiary thereof, or (2) the customer may not obtain some other credit, property or services from a competitor, except to the
extent reasonable conditions are imposed to insure the soundness of credit extended.
The 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 Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into
law, giving federal banking agencies authority to increase 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 repealed 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. Effective October 1, 2011, the Federal Reserve issued its final ruling to implement
the Durbin Amendment. This ruling established a cap on interchange fees banks with more than $10 billion in total assets can
charge merchants for certain debit card transactions. The Durbin Amendment interchange fee cap reduced annual non-interest
income by approximately $19 million. See additional discussion in Management's Discussion and Analysis of Other Operating
Revenue following. 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 became effective April 1, 2012, did not have a significant impact on
the Company.
3
The Dodd-Frank Act established the Consumer Financial Protection Bureau ("CFPB") with powers to supervise and enforce
consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply
to all banks and savings institutions, including the authority to prohibit "unfair, deceptive or abusive" acts and practices.
Established July 21, 2011, the CFPB has examination and enforcement authority over all banks and savings institutions with
more than $10 billion in assets for certain designated consumer laws and regulations. The CFPB issued mortgage servicing
standards and mortgage lending rules, including “qualified mortgage” that are designed to protect consumers and ensure the
reliability of mortgages. Those rules are effective in early 2014.
The proposed 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 restricts sponsorship of, or investment in, private equity funds and hedge funds,
subject to limited exceptions. Based on the proposed rules, we expect the Company’s trading activity to be largely unaffected,
as our trading activities, as defined by the Volcker Rule, are done for the benefit of the 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. A compliance program will be required for
activities permitted under the proposed rules resulting in additional operating and compliance costs to the Company.
Title VII of the Dodd-Frank Act subjects nearly all derivative transactions to the regulations of the Commodity Futures Trading
Commission (“CFTC”) or SEC. This includes registration, recordkeeping, reporting, capital, margin and business conduct
requirements on swap dealers and major swap participants. In 2012, the CFTC and SEC both approved interim final rules on
the definition "swap" and “swap dealer" which were effective October 2012. Under these rules, entities transacting in less than
$8 billion in notional value of swaps over any 12 month period during the first three years after these rules are effective will be
exempt from the definition of "swap dealer." After that three year period, this threshold may be reduced to $3 billion subject to
the results of studies the commissions intend to undertake once the derivative rules are effective. The Company currently
estimates that the nature and volume of swap activity will not require it to register as a swap dealer any time prior to October
2015. Although the ultimate impact of Title VII remains uncertain, we currently believe its full implementation is likely not to
impose significantly higher compliance costs on the Company.
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.
As consumer compliance expectations increase with new regulation and increased oversight, the Company is increasing its
investment in compliance management systems, including the appointment of a new Chief Compliance Officer effective
January 1, 2013.
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, 2012, BOK Financial's Tier 1 and total
capital ratios under these guidelines were 12.78% and 15.13%, 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, 2012 was
9.01%.
4
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, 2012.
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
commonly referred to as Basel III. In June 2012, federal banking regulators issued a Notice of Proposed Rulemaking that will
incorporate Basel III capital changes for substantially all U.S. banking organizations. If adopted as proposed, these changes will
establish a 7% threshold for the Tier 1 common equity ratio consisting of a minimum level plus a capital conservation buffer.
Our estimated Tier 1 common equity ratio based on existing Basel I standards was 12.59% at December 31, 2012. Our
estimated Tier 1 common equity ratio under a fully phased in Basel III framework is approximately 12.15%, nearly 515 basis
points above the 7% regulatory threshold. This estimate is subject to interpretation of rules that are not yet final. Additionally,
the proposed definition of Tier 1 common equity includes unrealized gains and losses on available for sale securities which will
vary based on market conditions.
In accordance with the Dodd-Frank Act, the Federal Reserve must publish regulations that require bank holding companies with
$10 billion to $50 billion in assets to perform annual capital stress tests. The requirements for annual capital stress tests will
become effective for the Company in the fourth quarter of 2014 with public disclosure of specified results to occur in June of
2015. The resulting capital stress test process may place constraints on capital distributions or require increases in regulatory
capital under certain circumstances.
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.
In November, 2009 the FDIC required insured institutions to prepay over three years of estimated insurance assessments in
order to strengthen the cash position of the DIF. 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, 2012, $30 million of prepaid
deposit insurance assessments remain and are included in Other assets on the Consolidated Balance Sheet of the Company.
5
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 $48 million of dividends without regulatory approval as of December 31, 2012. 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, a bank holding company is 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.
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% of the capital stock and surplus of the banking subsidiary.
The aggregate amount of covered transactions with all affiliates may not exceed 20% 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, including derivative contracts,
(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 expanded the scope of the Covered Transaction Rules. These expanded
rules may further restrict transactions between BOKF’s subsidiaries.
Bank Secrecy Act and USA PATRIOT Act
The Bank Secrecy Act (“BSA”) and the The USA PATRIOT Act of 2001 (“PATRIOT Act”) imposes many requirements on
financial institutions in the interest of national security and law enforcement. BSA requires banks to maintain records and file
suspicious activity reports that are of use to law enforcement and regulators in combating money laundering and other financial
crimes. The Company must have a designated BSA Officer, internal controls, independent testing and training programs
commensurate with the size and risk profile of the Company. As part of its internal control program, the Company is expected
to have effective customer due diligence and enhanced due diligence requirements for high-risk customers, as well as processes
to prohibit transaction with entities subject to Office of Foreign Asset Control sanctions. Documentation and recordkeeping
requirements, as well as system requirements, aimed identifying and reporting suspicious activity reporting, must increase with
the Company's size and complexity.
The Company has a low tolerance for customers, products or services that pose a more-than-normal degree of risk for financial
crimes. However, as drug cartels, criminal organizations and terrorist regimes seeking to launder money through the U.S.
financial systems have become more sophisticated, the Company is making significant investments in suspicious activity
monitoring systems and other program elements, including staffing.
Failure to implement or maintain adequate programs and controls to combat terrorist financing and money laundering may have
serious legal and reputational consequences.
6
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 policies of the Federal Reserve Board. The Federal Reserve Board has statutory
objectives to maximize employment and maintain price stability. Among the instruments of monetary policy used by the
Federal Reserve Board to implement these 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 Federal Reserve took aggressive actions to
reduce interest rates and provide liquidity. While many of the crisis-related programs have expired or been closed, the Federal
Reserve continues to put downward pressure on longer-term interest rates through purchases of longer-term securities.
Additionally, the government continues to enact economic stimulus legislation and policies, including increases in government
spending, reduction of certain taxes 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.
Foreign Operations
ITEM 1A. RISK FACTORS
The United States economy experienced a significant recession from 2007 to 2009. Business activity across a wide range of
industries and geographic regions decreased and unemployment increased significantly. The financial services industry and
capital markets 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 and unemployment has remained persistently high. 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 as maturing fixed-rate loans are refinanced and cash
flow from the securities portfolio are reinvested at lower current rates. 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.
At December 31, 2012, 44% of our loan portfolio is attributed to businesses and individuals in the state of Oklahoma and 32%
is attributed to businesses and individuals in the state of Texas. Poor economic conditions in Oklahoma, Texas 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.
7
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, 20% of BOK Financial's total loan
portfolio at December 31, 2012 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.
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. We have no direct exposure to European sovereign debt and our aggregate gross
exposure to European financial institutions totaled $6.6 million at December 31, 2012. In addition, we have an aggregate gross
exposure to internationally active domestic financial institutions of approximately $270 million at December 31, 2012. 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. In a low interest rate environment, the Company's ability to support
net interest revenue through continued securities portfolio growth or further reduce deposit costs could be limited. 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.
Changes in mortgage interest rates could adversely affect mortgage banking operations as well as BOK Financial's
substantial holdings of residential mortgage-backed securities and mortgage servicing rights.
Our available for sale residential mortgage-backed security portfolio represents investment interests in pools of residential
mortgages, composing $10 billion or 36% of total assets of the Company at December 31, 2012. 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.
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.
8
The Federal Reserve Board and other government agencies have implemented policies and programs to stimulate the U.S.
economy and housing market. These policies and programs have significantly reduced both primary mortgage interest rates, the
rates paid by borrowers, and secondary mortgage interest rates, the rates required by investors in mortgage backed securities.
They have also reduced barriers to mortgage refinancing such as insufficient home values.
BOK Financial derives a substantial amount of revenue from mortgage activities, including $129 million from the production
and sale of mortgage loans, $40 million from the servicing of mortgage loans and $25 million from sales of financial
instruments to other mortgage lenders. These activities, as well our substantial holdings of residential mortgage backed
securities and mortgage servicing rights may be adversely affected by changes in government policies and programs.
In addition, as part of BOK Financial's mortgage banking business, BOK Financial has substantial holdings of mortgage
servicing rights, totaling $101 million or 0.36% of total assets at December 31, 2012. 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 Bank of Topeka as a
significant source of funds. Our ability to fund loans, manage our interest rate risk and meet other obligations depends on funds
borrowed from these sources. The inability to borrow funds at market interest rates could have a material adverse effect on our
operations.
Substantial competition could adversely affect BOK Financial.
Banking is a competitive business. BOK Financial competes actively for loan, deposit and other financial services business in
the southwest region of the United States. 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
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.
Government 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, the Dodd-Frank Act and many other laws and regulations. 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, 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 and have added pricing constraints to our transaction card business. 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.
Bank regulations require us to maintain specified capital ratios and proposed Dodd-Frank Act and Basel III capital rules will
likely increase the levels of required capital, and to stress-test our capital under various economic scenarios. Any risk of failure
to meet minimum required capital ratios would limit the growth potential of BOK Financial's business.
9
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 of 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. The implementation of the Dodd-Frank Act has and
will continue to affect BOK Financial’s businesses, including interchange revenue, mortgage banking, derivative and trading
activities on behalf of customers, consumer products and funds management.
Regulatory authorities may change their interpretation of these statutes and regulations and are likely to increase their
supervisory activities, including the OCC, our primary regulator, and the CFPB, our new regulator for certain designated
consumer laws and regulations. Violations of laws and regulations could limit the growth potential of BOK Financial's
businesses.
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 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 approximately 62% of the outstanding shares of BOK Financial's common stock at December 31,
2012. 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
10
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 certain 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 $183 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.
11
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, 2013, common shareholders of record numbered 835 with 68,369,705 shares outstanding.
The highest and lowest closing bid price for shares and cash dividends per share of BOK Financial common stock follows:
2012:
Low
High
Cash dividends
2011:
Low
High
Cash dividends
1 Includes $1.00 per share special cash dividend.
First
Second
Third
Fourth
$
52.56
$
53.34
$
55.63
$
54.19
59.02
0.33
58.12
0.38
59.47
0.38
59.77
1.38 1
$
50.37
$
50.13
$
44.00
$
56.32
0.25
54.72
0.275
55.81
0.275
45.68
55.90
0.33
12
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, 2007 and ending December 31, 2012.*
Index
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank Index
KBW 50
12/31/2007
100.00
100.00
100.00
100.00
12/31/2008
79.56
60.02
78.46
52.45
Period Ending
12/31/2009
95.78
87.24
65.67
51.53
12/31/2010
109.82
103.08
74.97
63.57
12/31/2011
115.52
102.26
67.10
48.83
12/31/2012
119.71
120.42
79.64
64.96
* Graph assumes value of an investment in the Company's Common Stock for each index was $100 on December 31, 2007. 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.
13
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, 2012.
Period
October 1, 2012 to October 31, 2012
November 1, 2012 to November 30, 2012
December 1, 2012 to December 31, 2012
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
1,960,504
1,960,504
1,960,504
Total
Number of
Shares
Purchased 2
91
49,126
30,569
Average
Price Paid
per Share
$
$
$
59.17
56.71
54.95
Total
1 On April 24, 2012, the Company's board of directors authorized the Company to repurchase up to two million shares of the Company's
79,786
—
common stock. As of December 31, 2012, the Company had repurchased 39,496 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.”
14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 1 -- Consolidated Selected Financial Data
(Dollars in thousands, except per share data)
Selected Financial Data
For the year:
Interest revenue
Interest expense
Net interest revenue
Provision for for credit losses
Fees and commissions revenue
Net income
Period-end:
Loans
Assets
Deposits
Subordinated debentures
Shareholders’ equity
Nonperforming assets2
2012
2011
2010
2009
2008
December 31,
$
791,648
$
811,595
$
851,082
$
914,569
$ 1,061,645
87,322
704,326
(22,000)
632,103
351,191
12,311,456
28,148,631
21,179,060
347,633
2,957,860
276,716
120,101
691,494
(6,050)
528,643
285,875
142,030
709,052
105,139
516,394
246,754
204,205
710,364
195,900
480,512
200,578
414,783
646,862
202,593
415,194
153,232
11,269,743
10,643,036
11,279,698
12,876,006
25,493,946
23,941,603
23,516,831
22,734,648
18,762,580
17,179,061
15,518,228
14,982,607
398,881
398,701
398,539
398,407
2,750,468
2,521,726
2,205,813
1,846,257
356,932
394,469
484,295
342,291
$
$
Profitability Statistics
Earnings per share (based on average equivalent
shares):
Basic
Diluted
Percentages (based on daily averages):
Return on average assets
Return on average shareholders’ equity
Average shareholders’ equity to average assets
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:
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
$
5.15
5.13
$
4.18
4.17
$
3.63
3.61
$
2.96
2.96
2.27
2.27
0.71%
7.87
9.01
0.87%
9.66
8.98
$
$
32.53
47.52
48.13
22.98
0.945
27.36
40.40
60.84
38.48
0.875
1.34%
1.17%
1.04%
12.09
11.05
43.29
54.46
59.77
52.56
2.47
48.01% 5
$
10.66
10.95
40.36
54.93
56.30
44.00
1.13
$
10.18
10.19
36.97
53.40
55.68
42.89
0.99
27.01%
27.16%
31.93%
38.55%
12.78%
13.27%
12.69%
10.86%
9.40%
16.49
9.15
9.56
125.93
2.25
2.33
16.20
8.74
9.21
126.93
2.75
2.89
14.43
8.05
7.99
86.07
2.59
2.72
12.81
7.89
6.64
77.73
1.81
1.93
15.13
9.01
9.25
160.34
1.75
1.77
15
Table 1 -- Consolidated Selected Financial Data
(Dollars in thousands, except per share data)
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of banking locations
Number of TransFund locations
Fiduciary assets
Mortgage loan servicing portfolio3
2012
2011
2010
2009
2008
December 31,
4,704
217
1,970
25,829,038
13,091,482
4,511
212
1,912
4,432
207
1,943
4,355
202
1,896
4,300
202
1,933
22,821,813
22,914,737
20,642,512
18,987,025
12,356,917
12,059,241
7,366,780
5,983,824
1 Shareholders' equity as defined by generally accepted accounting principles in the United State of America less goodwill, intangible assets and equity which
does not benefit common shareholders divided by total assets less goodwill and 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 accrual for off-balance sheet credit risk.
5 Includes $1.00 per share special dividend.
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.
Following the severe recession from 2007 to 2009, economic growth in the United State has been modest and gradual. National
unemployment rates have improved from 8.5% in December of 2011 to 7.8% in December of 2012. With subdued indications
of inflation, the U.S. government has provided accommodative economic policy to support growth in the economy and further
reduction in the unemployment rate. 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 record level of mortgage lending activity. This low interest rate
environment has presented challenges for all financial institutions as cash flows from loan and securities portfolios are
reinvested at current rates. The Federal Reserve has continued to affirm its intention to keep interest rates low for the
foreseeable future. Both personal and corporate balance sheets have improved during the year. Corporations have amassed a
significant amount of cash, placing the U.S. in a strong position to fund growth opportunities and reinvest. However, this has
been hindered by the uncertainty in tax and regulatory policy as we address the high level of national debt and deficit issues.
Performance Summary
Net income for the year ended December 31, 2012 totaled $351.2 million or $5.13 per diluted share compared with net income
of $285.9 million or $4.17 per diluted share for the year ended December 31, 2011. Net income was up 23% over last year
primarily due to a record level of mortgage banking revenue and sustained improvement in credit quality.
Highlights of 2012 included:
• Net interest revenue totaled $704.3 million for 2012 compared to $691.5 million for 2011. Net interest earned from the
increase in average loan and securities balances was largely offset by the reinvestment of cash flows from the securities
portfolio at lower current market rates and decreased loan yield. Net interest margin was 3.14% for 2012 compared to
3.34% for 2011.
•
Fees and commissions revenue increased $103.5 million or 20% over 2011. Mortgage banking revenue increased $77.7
million or 85% over the prior year. BOK Financial originated a record number of residential mortgage loans during the
year and benefited from improved pricing of loans sold in the secondary market. Brokerage fees and commission revenue
increased $22.7 million or 22% primarily due to increased mortgage-related securities trading and customer hedging
16
revenue. Transaction card revenue was down $8.8 million compared to the prior year. Increased transaction volume was
offset by the impact of debit card interchange fee regulations which were effective in the fourth quarter of 2011.
• Operating expenses, excluding changes in the fair value of mortgage servicing rights, totaled $840.4 million, up $61.1
million or 8% over 2011. Personnel costs increased $61.0 million due largely to incentive compensation. Non-personnel
expenses were largely unchanged compared to the prior year.
• The Company recorded a $22.0 million negative provision for credit losses in 2012 and a $6.1 million negative provision
for credit losses in 2011. Net loans charged off totaled $23.3 million or 0.20% of average loans for 2012 compared to
$38.5 million or 0.35% of average loans for 2011. Gross charge-offs decreased to $42.1 million in 2012 from $56.8
million in 2011.
• The combined allowance for credit losses totaled $217 million or 1.77% of outstanding loans at December 31, 2012
compared to $263 million or 2.33% of outstanding loans at December 31, 2011. Nonperforming assets totaled $277
million or 2.23% of outstanding loans and repossessed assets at December 31, 2012, down from $357 million or 3.13%
of outstanding loans and repossessed assets at December 31, 2011. During 2012, nonaccruing loans decreased $67 million
and repossessed assets decreased $19 million.
• Outstanding loan balances were $12.3 billion at December 31, 2012, up $1.0 billion over the prior year. Commercial loan
balances grew by $1.1 billion or 17%. Commercial real estate loans decreased $62 million, residential mortgage loans
increased $71 million and consumer loans decreased $53 million.
• The available for sale securities portfolio increased by $1.1 billion during 2012 to $11.3 billion at December 31, 2012.
The Company increased its holdings of low duration residential mortgage-backed securities guaranteed by U.S.
government agencies.
•
Period-end deposits totaled $21.2 billion at December 31, 2012 compared to $18.8 billion at December 31, 2011. Demand
deposit accounts grew by $2.2 billion. Interest-bearing transaction accounts increased $534 million and time deposits
decreased $414 million.
• The tangible common equity ratio was 9.25% at December 31, 2012 and 9.56% at December 31, 2011. The tangible
common equity ratio is a non-GAAP measure of capital strength used by the Company and investors based on shareholders’
equity as defined by generally accepted accounting principles in the United States of America (“GAAP”) minus intangible
assets and equity that does not benefit common shareholders. The decrease in tangible common equity was primarily due
to payment of a special dividend during the year partially offset by 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 12.78% at December 31, 2012 and 13.27% at December 31, 2011.
• Regular cash dividends paid on common shares were $1.47 per common share in 2012. In addition, the Company paid
a special dividend of $1.00 per common share in the fourth quarter of 2012. Cash dividends paid on common shares in
2011 totaled $1.13.
Net income for the fourth quarter of 2012 totaled $82.6 million or $1.21 per diluted share compared to $67.0 million or $0.98
per diluted share for the fourth quarter of 2011.
Highlights of the fourth quarter of 2012 included:
• Net interest revenue totaled $173.4 million for the fourth quarter of 2012 compared to $171.5 million for the fourth quarter
of 2011. Net interest margin was 2.95% for the fourth quarter of 2012 compared to 3.20% for the fourth quarter of 2011.
Net interest earned from the increase in average loan and securities balances was largely offset by the reinvestment of
cash flows from the securities portfolio at lower current market rates.
•
Fees and commissions revenue increased $34.0 million over the prior year to $165.8 million for the fourth quarter of
2012. Mortgage banking revenue increased $21.0 million due primarily to an increase in loan production volume and
improved pricing of loans sold. Nearly all other fee-based revenue sources increased over the prior year and quarter.
• Operating expenses, excluding changes in the fair value of mortgage servicing rights, totaled $226.8 million, up $13.1
million over the prior year. Personnel costs increased $10.1 million and non-personnel expenses increased $3.0 million.
• A $14.0 million negative provision for credit losses was recorded in the fourth quarter of 2012 compared to a $15.0
million negative provision for credit losses in the fourth quarter of 2011. Net loans charged off totaled $4.3 million in
17
the fourth quarter of 2012 compared to $9.5 million in the fourth quarter of 2011. Gross charge-offs were $8.0 million
compared to $14.8 million in the prior year.
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.
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk
The allowance for loan losses and accrual for off-balance sheet credit risk 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 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 for risks beyond factors specific to a particular portfolio segment or loan class. There have been no material
changes in the approach or techniques utilized in developing the allowance for loan losses and accrual for off-balance sheet
credit risk during 2012.
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, including loans modified in troubled debt restructurings. 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 through a quarterly evaluation of the borrower's ability to repay. Certain commercial loans and
most residential mortgage and consumer loans which represent small balance, homogeneous pools are not risk graded. Non-risk
graded loans are identified as impaired based on performance status. Generally, non-risk graded loans are considered impaired
when 90 or more days past due, in bankruptcy or modified in a troubled debt restructuring.
Specific allowances for impaired 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 generally are not adjusted by the Company. Updated appraisals are obtained 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 under current market conditions. The value of other collateral is generally determined
by our special assets staff based on liquidation cash flows under current market conditions. Collateral values and available cash
resources that support impaired loans are evaluated quarterly. Historical statistics may be used as a practical way to estimate
impairment in limited situations, such as when a collateral dependent loan is identified as impaired near the end of a reporting
period 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 may be volatile.
General allowances for unimpaired loans are based on estimated loss rates by loan class. The appropriate historical gross loss
rate for each loan class is determined by the greater of the current loss rate based on the most recent twelve months or a ten-
year average gross loss rate. Recoveries are not directly considered in the estimation of historical loss rates. Recoveries
generally do not follow predictable patterns and are not received until well-after the charge-off date as a result of protracted
legal proceedings. For risk graded loans, historical loss rates are adjusted for changes in risk rating. For each loan class, the
weighted average current risk grade is compared to the weighted average long-term risk grade. This comparison determines
whether the risk in each loan class is increasing or decreasing. Historical loss rates are adjusted upward or downward in
proportion to changes in weighted average risk grading. General allowances for unimpaired loans also consider inherent risks
identified for a given loan class. Inherent risks include consideration of the loss rates that most appropriately represent the
current credit cycle and other factors attributable to a specific loan class which have not yet been represented in the historical
gross loss rates or risk grading. Examples of these factors include changes in commodity prices or engineering imprecision
which may affect the value of reserves that secure our energy loan portfolio, construction risk that may affect commercial real
18
estate loans, changes in regulations and public policy that may disproportionately impact health care loans and changes in loan
product types.
Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These
factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other
relevant factors.
Fair Value Measurement
Certain assets and liabilities are recorded at fair value in the Consolidated Financial Statements. 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 markets for the given asset or liability at the measurement date based on markets conditions at that
date. 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.
A hierarchy for fair value has been established 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 (Level 1), other observable
inputs that can be observed either directly or indirectly (Level 2) and unobservable inputs for assets or liabilities (Level 3). 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. Mortgage servicing rights 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. Our mortgage servicing rights are primarily retained from sales in the secondary market of residential
mortgage loans we have originated. Occasionally mortgage servicing rights may be purchased from other lenders.
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 fair value are recognized in earnings as they
occur.
There is no active market for mortgage servicing rights after origination. The fair value of the mortgage servicing
rights are determined by discounting the projected cash flows. Certain significant assumptions and estimates used in
valuing mortgage servicing rights are based on current market sources including projected prepayment speeds,
assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates. 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 and adjusted 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 $11 million. We would expect a $13 million decrease in the fair value of our
mortgage servicing rights from a 50 basis point decrease in mortgage interest rates.
Valuation of Derivative Instruments
We use interest rate derivative instruments to manage our interest rate risk. We also offer interest rate, commodity,
foreign exchange and equity derivative contracts to our customers. All derivative instruments are carried on the
19
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. Fair value adjustments are based on various risk factors including but not limited to
counterparty credit rating or equivalent loan grading, derivative contract notional size, price volatility of the
underlying commodity, duration of the derivative contracts and expected loss severity. Expected loss severity is based
on historical losses for similarly risk-graded commercial loan customers. 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 all observable inputs, management may adjust prices obtained from
third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to
transfer liabilities in orderly transactions in the current market. No significant adjustments were made to prices
provided by third-party pricing services at December 31, 2012 or December 31, 2011.
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
$693 thousand if credit spreads utilized in valuing these securities widened by 100 basis points.
Valuation of Impaired Loans and Real Estate and Other Repossessed Assets
The fair value of collateral for certain impaired loans and real estate and other repossessed assets is measured on a
non-recurring basis. Fair values are generally based on unadjusted third-party appraisals derived principally from or
corroborated by observable market data. Fair values based on these appraisals are considered to be based on Level 2
inputs. Fair value measurements based on appraisals that are not based on observable inputs or that require significant
adjustments by us or fair value measurements that are not based on third-party appraisals are considered to be based
on Level 3 inputs. Significant unobservable inputs include listing prices for comparable assets, uncorroborated expert
opinions or management's knowledge of the collateral or industry.
20
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.
We perform a qualitative assessment that evaluates, based on the weight of the evidence, the significance of all identified
events and circumstances in the context of determining whether it is more likely than not that the fair value of our reporting
units are less than their carrying amount. This qualitative assessment considers general economic conditions including trends in
unemployment rates in our primary geographical areas, our earnings and stock price changes during the year, current and
anticipated credit quality performance and the prolonged low interest rate environment and the impact of increased regulation.
This qualitative assessment is supplemented by quantitative analysis through which 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. At December 31, 2012, critical assumptions in our evaluation were a 4% average
expected long-term growth rate, a 0.78% volatility factor for BOK Financial common stock, an 11.00% discount rate and an
11.99% market risk premium. The expected long-term growth rate will vary among reporting units and in future years.
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, 2012 is as follows in Table 2.
Table 2 – Goodwill Allocation by Reporting Unit
(In thousands)
Fair Value
Carrying
Value1
Goodwill
$
1,154,159 $
870,514
161,942
249,374
122,788
249,952 $
383,890
55,378
94,140
52,323
7,520
196,183
11,094
39,458
14,853
542,424
67,432
96,729
26,961
206,418
48,785
19,921
12,346
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
166,186
214,802
24,041
87,680
12,410
1 Carrying value includes intangible assets attributed to the reporting unit.
95,374
46,744
4,257
36,787
6,688
1,350
16,372
1,305
30,235
1,569
Based on the results of the primary discounted future earnings test performed as of October 1, 2012, no goodwill impairment
was noted.
21
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, 2012, the market value of BOK Financial common stock, a primary input in our goodwill impairment
analysis, was approximately 8% below 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, 2012 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
On a quarterly basis, the Company performs separate evaluations of impaired debt and equity investment and available for sale
securities to determine if the unrealized losses are temporary or other-than-temporary.
For impaired debt securities, management 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 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.
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. Significant assumptions of
this analysis included an increase in the unemployment rate to 11% and an additional 10% home price depreciation over the
next twelve months. The results of this analysis indicated an additional $3 million of credit losses are possible. An increase in
the unemployment rate to 13% with an additional 20% home price depreciation indicates an additional $10 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
22
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.
Management evaluates the Company's current tax expense or benefit based upon estimates of taxable income, tax credits and
statutory tax rates. Annually, we file tax returns with each jurisdiction where we conduct business and adjust recognized income
tax expense or benefit to filed tax returns.
We recognize deferred tax assets and liabilities 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 also 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. Unrecognized tax benefits, including estimated interest and penalties, are 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.
Results of Operations
Net Interest Revenue and Net Interest Margin
Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for
interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing net interest revenue by average
interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest spread due to interest
income earned on assets funded by non-interest bearing liabilities such as demand deposits and equity.
Tax-equivalent net interest revenue totaled $713.7 million for 2012 compared to $700.6 million for 2011. Net interest margin
was 3.14% for 2012 and 3.34% for 2011. Tax-equivalent net interest revenue increased $13.1 million over the prior year due to
a $74.3 million increase due primarily to growth in average loans and securities balances, partially offset by $61.2 million
decrease due to interest rates. Cash flows from the securities portfolio were reinvested at lower current market rates and loan
yields decreased due to renewal of maturing fixed-rate loans at current lower rates and narrowing credit spreads, partially offset
by lower funding costs. 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. In addition, see Annual and Quarterly Financial Summary of
consolidated daily average balances, yields and rates following the Consolidated Financial Statements.
The tax-equivalent yield on earning assets was 3.52% for 2012 compared to 3.92% in 2011. The available for sale securities
portfolio yield decreased 47 basis points to 2.37% and loan yields decreased 26 basis points. The decreased yield on earning
assets was partially offset by lower funding costs. Funding costs were down 20 basis points compared to 2011. The cost of
interest-bearing deposits decreased 14 basis points and the cost of other borrowed funds decreased 15 basis points. The average
rate of interest paid on subordinated debentures decreased 182 basis points. The interest rate on $233 million of these
subordinated debentures converted from a fixed rate of interest of 5.75% to a floating interest rate based on LIBOR plus 0.69%
as of May 15, 2012. In the present low interest rate environment, our ability to further decrease funding costs is limited.
23
During 2012, we offset the effect of a declining net interest margin by increasing average earning assets. Average earning assets
for 2012 increased $1.9 billion or 9% over 2011. The average balance of available for sale securities, which consists largely of
U.S. government agency issued residential mortgage-backed securities, increased $1.0 billion. We purchase these securities to
supplement earnings and to manage interest rate risk. Securities were purchased to productively deploy liquidity provided by
recent deposit growth and the Company's strong capital position. Growth was primarily in short-duration U.S. government
agency residential mortgage-backed securities and U.S. government agency commercial mortgage-backed securities. Average
loans, net of allowance for loan losses, increased $900 million due primarily to growth in average commercial loans.
Growth in average assets was funded primarily by a $979 million increase in average deposits. Average demand deposit
balances increased $1.7 billion over the prior year. Average interest-bearing transaction accounts were down $309 million and
average time deposits were down $474 million. Average borrowed funds increased $461 million primarily due to an increase in
funds purchased compared to the prior year. Average subordinated debenture balances were down $35 million.
Net interest margin may continue to decline in 2013. Our ability to further decrease funding costs is limited and our ability to
provide near term net interest revenue support through continued securities portfolio growth may be constrained by our
conservative interest rate risk policies. Although we have sufficient capital and liquidity, further securities portfolio growth may
result in unacceptable risk should interest rates start to rise. This interest rate risk policy constraint does not affect our ability to
continue loan portfolio growth.
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 29, approximately 51% 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 manage toward 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.
Fourth Quarter 2012 Net Interest Revenue
Tax-equivalent net interest revenue totaled $175.8 million for the fourth quarter of 2012 compared to $173.7 million for the
fourth quarter of 2011. Net interest margin was 2.95% for the fourth quarter of 2012 and 3.20% for the fourth quarter of 2011.
Tax-equivalent net interest revenue increased $2.1 million over the fourth quarter of 2011. Net interest revenue increased $17.4
million primarily due to the growth in average loan and available for sale securities balances. Net interest revenue decreased
$15.3 million due to interest rates.
The tax-equivalent yield on earning assets was 3.30% for the fourth quarter of 2012, down 39 basis points from the fourth
quarter of 2011. The available for sale securities portfolio yield decreased 29 basis points to 2.10%. Cash flows from these
securities were reinvested at current lower rates. Loan yields decreased 32 basis points due primarily to a combination of
narrowing credit spreads and lower market interest rates. Funding costs were down 12 basis points from the fourth quarter of
2011. The cost of interest-bearing deposits decreased 5 basis points and the cost of other borrowed funds decreased 3 basis
points. The average rate of interest paid on subordinated debentures decreased 305 basis points compared to the fourth quarter
of 2011 due to the conversion of $233 million of these subordinated debentures from a fixed rate of interest to a floating
interest rate in 2012. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities increased
to 19 basis points in the fourth quarter of 2012 from 17 basis points in the fourth quarter of 2011.
Average earning assets for the fourth quarter of 2012 increased $2.3 billion or 11% over the fourth quarter of 2011. The average
balance of available for sale securities increased $1.6 billion. Growth was primarily in short-duration U.S. government agency
residential mortgage-backed securities and U.S. government agency commercial mortgage-backed securities. Average loans,
net of allowance for loan losses, increased $874 million over the fourth quarter of 2011 due primarily to growth in average
commercial loans.
24
Average deposits increased $1.6 billion over the fourth quarter of 2011, including a $1.9 billion increase in average demand
deposit balances and a $67 million increase in average interest-bearing transaction accounts, partially offset by a $475 million
decrease in average time deposits. Average borrowed funds increased $84 million over the fourth quarter of 2011.
2011 Net Interest Revenue
Tax-equivalent net interest revenue for 2011 was $700.6 million compared to $718.2 million for 2010. Net interest margin was
3.34% for 2011 compared to 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 average earning assets decreased 30
basis points from 2010. The available for sale securities portfolio yield was down 44 basis points due to the effect of
prepayment speeds on premium amortization and cash flow reinvestment. Loan yields decreased 12 basis points due to a
combination of renewals of fixed rate loans at lower current rates and narrowing credit spreads. The cost of interest-bearing
liabilities decreased 9 basis points. The cost of interest-bearing deposits was down 17 basis points and the cost of other
borrowed funds was down 33 basis points. Average earning assets increased $580 million primarily due to in an increase in the
available for sale securities portfolio. Growth in average assets was funded by a $1.8 billion increase in average deposit
balances. Average demand deposit account balances grew by $1.1 billion, average interest-bearing transaction account grew by
$777 million and average time deposit balances decreased by $124 million. Average borrowed funds decreased $1.6 billion
during 2011 due primarily to reduced borrowings from the Federal Home Loan Banks.
25
Table 3 – Volume/Rate Analysis
(In thousands)
Year Ended
December 31, 2012 / 2011
Change Due To1
Year Ended
December 31, 2011 / 2010
Change Due To1
Change
Volume
Yield /
Rate
Change
Volume
Yield
/Rate
Tax-equivalent interest revenue:
Funds sold and resell agreements
$
(3) $
3
$
(6) $
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
(348)
1,207
(1,555)
4,267
(1,961)
2,306
(22,636)
150
(22,486)
(10,193)
1,693
9,322
(19,709)
(9,115)
(179)
(12,583)
1,178
(1,445)
(2,028)
(8,607)
(32,779)
13,070
(238)
4,411
(779)
3,632
22,735
636
23,371
(5,111)
2,842
39,038
64,982
(632)
134
(8,242)
528
(38)
573
(1,650)
(9,327)
74,309
(144)
(1,182)
(1,326)
(45,371)
(486)
(45,857)
(5,082)
(1,149)
(29,716)
(84,691)
(8,483)
(313)
(4,341)
650
(1,407)
(2,601)
(6,957)
(23,452)
(61,239)
(12) $
(296)
(12) $
487
5,352
(2,593)
2,759
(23,712)
(98)
(23,810)
1,246
(2,769)
(16,674)
(39,556)
(15,471)
—
(1,904)
(1,314)
(3,575)
380
(45)
(21,929)
(17,627)
69
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
—
(783)
(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)
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
(17,558)
12,832
$
$
26
Table 3 – Volume/Rate Analysis (continued)
(In thousands)
Three Months Ended
December 31, 2012 / 2011
Change Due To1
Change
Volume
Yield /
Rate
— $
(248)
2
$
325
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
(669)
(186)
(855)
1,675
(60)
1,615
(4,105)
291
(226)
(3,528)
(717)
(22)
(1,334)
291
(207)
(235)
(3,401)
(5,625)
2,097
(198)
(2)
(573)
(37)
(751)
(788)
(7,213)
(265)
(7,478)
(1,492)
(371)
(9,521)
(20,225)
(740)
(54)
775
266
(126)
(2,198)
(2,870)
(4,947)
(632)
565
(67)
8,888
205
9,093
(2,613)
662
9,295
16,697
23
32
(2,109)
25
(81)
1,963
(531)
(678)
17,375
(15,278)
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
1,899
$
27
Other Operating Revenue
Other operating revenue was $666.1 million for 2012 compared to $570.5 million for 2011. Fees and commissions revenue
increased $103.5 million over 2011. Net gains on securities, derivatives and other assets decreased $24.0 million compared to
2011 due primarily to a decrease in gains on sale of fair value option securities which are primarily held as an economic hedge
against changes in the fair value of mortgage servicing rights. Other-than-temporary impairment charges recognized in earnings
in 2012 were $16.2 million less than charges recognized in 2011.
Table 4 – Other Operating Revenue
(In thousands)
Year Ended December 31,
2012
2011
2010
2009
2008
Brokerage and trading revenue
$
126,930
$
104,181
$
101,471
Transaction card revenue
Trust fees and commissions
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Other revenue
107,985
116,757
80,053
98,917
169,302
11,089
37,827
73,290
95,872
91,643
11,280
35,620
112,302
68,976
103,611
87,600
12,066
30,368
91,677
105,517
66,177
115,791
64,980
10,239
26,131
42,804 1
100,153
78,979
117,527
30,599
10,681
34,865
Total fees and commissions revenue
632,103
528,643
516,394
480,512
415,608
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
Gain on Mastercard and Visa IPO securities
(1,415)
(301)
9,230
33,845
—
4,156
2,686
24,413
34,144
—
(4,011)
4,271
7,331
21,882
—
1,992
(3,365)
(13,198)
59,320
—
(3,138)
1,299
10,948
9,196
6,799
Total other-than-temporary impairment
(1,144)
(10,578)
(29,960)
(129,154)
(5,306)
Portion of loss recognized in (reclassified from)
other comprehensive income
Net impairment losses recognized in earnings
(6,207)
(7,351)
(12,929)
(23,507)
$
Total other operating revenue
1 Includes net derivative credit losses with two bankrupt counterparties of $54 million.
666,111
570,535
$
$
2,151
94,741
—
(27,809)
(34,413)
(5,306)
518,058
490,848
435,406
Fees and commissions revenue
Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 47% of total
revenue for 2012, 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. As an example of this strength, many of the economic
factors that are causing net interest revenue compression are also driving strong growth in our mortgage banking revenue. We
expect continued growth in other operating revenue through offering new products and services and by further development of
our presence in 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 hedging and
investment banking increased $22.7 million or 22% over 2011.
Securities trading revenue totaled $68.7 million for 2012, up $8.9 million or 15%. 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. We believe these activities will be
permitted under the Volcker Rule of the Dodd-Frank Act. The increase compared to the prior year was due primarily to
increased revenue from sale of residential mortgage backed securities to our mortgage banking customers.
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 of the
Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our
28
customers. Customer hedging revenue totaled $13.7 million for 2012, up $8.4 million over 2011. The Company also received a
$2.9 million recovery from the Lehman Brothers bankruptcy during 2012 related to derivative contract losses incurred in 2008.
Customer hedging revenue for 2011 included $4.4 million of credit losses.
Revenue earned from retail brokerage transactions increased $1.6 million or 6% over 2011 to $29.8 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 is primarily based on the volume of customer transactions during the quarter. The number of
transactions typically increases with market volatility and decreases with market stability.
Investment banking, which includes fees earned upon completion of underwriting and financial advisory services, totaled $14.8
million for 2012, a $3.8 million or 35% increase over 2011 related to the timing and volume of completed transactions. The
increased volume of transactions is primarily the result of the Company's expansion of its municipal financial advisory service
capacity, particularly in the Texas market.
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 totaled $108.0
million for 2012 compared to $116.8 million for 2011. Revenues from the processing of transactions on behalf of the members
of our TransFund electronic funds transfer ("EFT") network totaled $56.4 million, up $5.3 million or 10% over 2011, due
primarily to increased transaction volumes. The number of TransFund ATM locations totaled 1,970 at December 31, 2012
compared to 1,912 at December 31, 2011. Merchant services fees paid by customers for account management and electronic
processing of card transactions and revenue from interchange fees from debit cards issued by the Company were both down
primarily due to the impact of interchange fee regulations, commonly referred to as the Durbin Amendment, which became
effective on October 1, 2011. Merchant services fees totaled $34.0 million, largely unchanged compared to the prior year. The
impact of the Durbin Amendment was largely offset by increased transaction processing primarily as a result of cross-selling
opportunities throughout our geographical footprint. Revenue from interchange fees paid by merchants for transactions
processed from debit cards issued by the Company totaled $17.6 million for 2012 compared to $31.4 million for 2011.
Trust fees and commissions increased $6.8 million or 9% over 2011. The acquisition of The Milestone Group by BOK
Financial in the third quarter of 2012 added $1.4 billion of fiduciary assets as of December 31, 2012 and resulted in a $3.5
million increase in trust fees and commissions for 2012. The remaining increase was primarily due to the growth in the fair
value of fiduciary assets administered by the Company. Fiduciary assets are assets for which the Company possesses
investment discretion on behalf of another, or any other similar capacity. The fair value of fiduciary assets administered by the
Company totaled $25.8 billion at December 31, 2012 and $22.8 billion at December 31, 2011.
In addition to trust fees and commissions where we served as a fiduciary, we also earn fees as administrator to and investment
advisor for the Cavanal Hill 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. We have voluntarily waived administration fees on the 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 $8.4 million for 2012
compared to $7.3 million for 2011.
Deposit service charges and fees increased $3.0 million or 3% over 2011. Overdraft fees totaled $55.7 million for 2012, down
$2.7 million or 5% compared to last year. Commercial account service charge revenue totaled $35.0 million, up $3.4 million or
11% over the prior year. The average earnings credit, a non-cash method for commercial customers to avoid incurring charges
for deposit services based on account balances, decreased 23 basis points compared to the prior year to better align with market
interest rates. Service charges on deposit accounts with a standard monthly fee were $5.9 million, up $2.3 million or 39% over
2011, reflecting the success of shifting our sales focus from free checking products to full-service checking services and other
packaged products.
Mortgage banking revenue increased $77.7 million or 85% over the prior year. During 2012, we expanded our mortgage
banking activities, adding 40 full-time equivalent mortgage lending officers and expanding further into our regional markets. In
addition to mortgage lending offices in our traditional banking centers, we also opened mortgage lending offices in the Austin,
San Antonio and El Paso areas in Texas, Sante Fe, New Mexico; Wichita and Salina, Kansas and Springfield, Missouri. We
have also begun to grow our correspondent origination channel, which contributed 11% of mortgage loans originated for sale
during 2012. At December 31, 2012 we have 53 approved correspondent lenders primarily composed of smaller regulated
financial institutions that have been subject to a credit review process. None of our correspondent lenders are unregulated
mortgage brokers. This growth positioned us to benefit from a record level of mortgage originations during 2012 primarily due
to low interest rates resulting from government initiatives to stimulate mortgage lending activity. The high demand for
29
mortgage origination industry-wide during 2012 resulted in improved pricing on sales of mortgage loans in the secondary
market.
Revenue from originating and marketing mortgage loans totaled $129.1 million, up $77.1 million or 148% over
2011. Mortgage loans funded for sale totaled $3.7 billion in 2012 compared to $2.3 billion in 2011. Outstanding commitments
to originate mortgage loans increased $167 million or 88% over December 31, 2011 to $357 million at December 31, 2012.
Mortgage servicing revenue of $40.2 million was largely unchanged compared to the prior year. The outstanding principal
balance of mortgage loans serviced for others totaled $12.0 billion, an increase of $681 million over December 31, 2011.
Table 5 – Mortgage Banking Revenue
(In thousands)
Originating and marketing revenue
Servicing revenue
Total mortgage revenue
Year Ended December 31,
2012
129,117
40,185
169,302
$
$
2011
2010
2009
2008
$
$
51,982
39,660
91,642
$
$
49,439
38,162
87,601
$
$
44,962
20,018
64,980
$
$
13,021
17,578
30,599
Mortgage loans funded for sale
$ 3,708,350
$ 2,293,834
$ 2,501,860
$ 2,811,076
$ 1,018,246
Mortgage loan refinances to total funded
60%
53%
57%
63%
31%
Outstanding principal balance of mortgage loans
serviced for others
$ 11,981,624
$ 11,300,986
$ 11,194,582
$
6,603,132
$
5,157,000
2012
2011
2010
2009
2008
December 31,
Net gains on securities, derivatives and other assets
We recognized a $33.8 million net gain from sales of $1.7 billion of available for sale securities in 2012, including a $14.2
million gain on the sale of $26 million of common stock received in 2009 in partial satisfaction of a defaulted commercial loan.
We recognized $34.1 million of net gains on sales of $2.7 billion of available for sale securities in 2011. Securities were sold
either because they had reached their expected maximum potential or to mitigate exposure to prepayment risk.
We also maintain a portfolio of residential mortgage-backed securities issued by U.S. government agencies and interest rate
derivative contracts designated as an economic hedge of the changes in the fair value of our mortgage servicing rights. The fair
value of our mortgage servicing rights fluctuate due to changes in prepayment speeds and other assumptions as more fully
described in Note 7 to the Consolidated Financial Statements. As benchmark mortgage rates increase, prepayment speeds slow
and the value of our mortgage servicing rights increase. As benchmark mortgage rates fall, prepayment speeds increase and the
value of our mortgage servicing rights decrease.
Changes in the fair value of mortgage servicing rights are highly dependent on changes in primary mortgage rates, rates offered
to borrowers, and assumptions about servicing revenues, servicing costs and discount rates. Changes in the fair value of
residential mortgage-backed securities and interest rate derivative contracts are highly dependent on changes in secondary
mortgage rates, or rates required by investors. While primary and secondary mortgage rates generally move in the same
direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in
assumptions and the spread between the primary and secondary rates can cause significant earnings volatility.
Table 6 following shows the relationship between changes in the fair value of mortgage servicing rights and the fair value of
fair value option residential mortgage-backed securities and interest rate derivative contracts designated as an economic hedge.
30
Table 6 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge
(In thousands)
Year Ended December 31,
2012
2011
2010
2009
2008
Gain (loss) on mortgage hedge derivative contracts, net
$
116
$ 2,974
$ 4,425
$
— $
—
Gain (loss) on fair value option securities, net
Gain (loss) on economic hedge of mortgage servicing rights
7,793
7,909
24,413
27,387
Gain (loss) on change in fair value of mortgage servicing rights
(9,210)
(40,447)
7,331
11,756
(8,171)
1
(13,198)
(13,198)
12,124
10,948
10,948
(34,515)
Gain (loss) on changes in fair value of mortgage servicing rights,
net of economic hedges
$ (1,301)
$(13,060)
$ 3,585
$ (1,074)
$ (23,567)
Net interest revenue on fair value option securities2
$
7,811
$ 17,650
$ 19,043
$ 13,366
$
4,569
Average primary residential mortgage interest rate
3.66%
4.45%
4.69%
5.03%
Average secondary residential mortgage interest rate
1 Excludes $11.8 million day-one pretax gain on the purchase of mortgage servicing rights in the first quarter of 2010.
2 Actual interest earned on fair value option securities less transfer-priced cost of funds.
2.52%
3.96%
3.71%
4.28%
6.04%
5.44%
Primary rates disclosed in Table 6 above represent rates generally available to borrowers on 30 year conforming mortgage loans
and affect the value of our mortgage servicing rights. Secondary rates represent rates generally paid on 30 year residential
mortgage-backed securities guaranteed by U.S. government agencies and affect the value of securities and derivative contracts
used as an economic hedge of our mortgage servicing rights. The difference between average primary and secondary rates was
114 basis points for 2012 compared to 74 basis points for 2011. The difference between average primary and secondary rates
widened during 2012, growing as large as 163 basis points during the third quarter.
As more fully discussed in Note 2 to the Consolidated Financial Statements, we recognized other-than-temporary impairment
losses of $7.4 million during 2012. Other-than-temporary impairments recognized in earnings on certain residential mortgage-
backed securities privately issued by publicly traded financial institutions that we do not intend to sell totaled $5.9 million.
These losses primarily related to additional declines in projected cash flows on these securities as a result of increased home
price depreciation. Other-than-temporary losses on certain below investment grade municipal securities recognized in earnings
were $1.0 million and other-than-temporary impairment losses on other equity securities totaled $457 thousand. Other-than-
temporary impairment losses related to privately issued residential mortgage backed securities and municipal securities in 2011
were $23.5 million.
Fourth Quarter 2012 Other Operating Revenue
Other operating revenue was $162.6 million for the fourth quarter of 2012 compared to $137.8 million for the fourth quarter of
2011. Fees and commissions revenue increased $34.0 million. Net gains on securities, derivatives and other assets decreased
$10.3 million. Other-than-temporary impairment charges recognized in earnings in the fourth quarter of 2012 were $1.1 million
less than charges recognized in the fourth quarter of 2011.
Brokerage and trading revenue increased $6.3 million or 25% over the fourth quarter of 2011. Securities trading revenue totaled
$17.7 million for the fourth quarter of 2012, up $1.6 million over the fourth quarter of 2011 primarily due to increased gain
from securities sold to our mortgage banking customers. Customer hedging revenue totaled $2.8 million, up $3.1 million over
the prior year. The fourth quarter of 2011 included a $1.7 million accrual for estimated credit loss on unsettled contracts related
to the MF Global bankruptcy. Revenue earned from retail brokerage transactions increased $1.1 million or 18% over the fourth
quarter of 2011 to $7.4 million. Investment banking revenue totaled $4.0 million, a $456 thousand or 13% increase over the
fourth quarter of 2011 related to the timing and volume of completed transactions.
Transaction card revenue for the fourth quarter of 2012 increased $2.0 million or 8% over the fourth quarter of 2011. Revenues
from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ("EFT") network
totaled $15.1 million, up $1.3 million or 10% over the fourth quarter of 2011, due primarily to increased transaction volumes.
Merchant services fees totaled $8.4 million, up $372 thousand or 5%. Revenue from interchange fees paid by merchants for
transactions processed from debit cards issued by the Company totaled $4.5 million, up $328 thousand or 8% over the fourth
quarter of 2011. Both of these quarters included the impact of the Durbin Amendment on interchange fees.
31
Trust fees and commissions increased $4.2 million or 23% over the fourth quarter of 2011 to $22.0 million primarily due to the
acquisition of The Milestone Group in 2012. Waived administration fees on the Cavanal Hill money market funds totaled $1.7
million for the fourth quarter of 2012 compared to $2.4 million for the fourth quarter of 2011.
Deposit service charges and fees were $24.2 million for the fourth quarter of 2012 compared to $24.9 million for the fourth
quarter of 2011. Overdraft fees decreased $1.8 million to $13.6 million. Commercial account service charge revenue totaled
$8.3 million, up $487 thousand or 6% over the prior year. Service charges on deposit accounts with a standard monthly fee
were $2.2 million, up $587 thousand or 36% over the fourth quarter of 2011.
Mortgage banking revenue grew $21.0 million over the fourth quarter of 2011 to $46.4 million. Mortgage loans funded for sale
totaled $1.1 billion in the fourth quarter of 2012 and $753 million in the fourth quarter of 2011. Outstanding mortgage loan
commitments increased $167 million and the unpaid principal balance of mortgage loans held for sale was up $92 million over
the prior year. The difference between average primary and secondary rates for the fourth quarter of 2012 was 117 basis points
compared to 90 basis points for the fourth quarter of 2011.
During fourth quarter of 2012, we recognized an $1.1 million gain from sales of $84 million of available for sale securities. We
recognized $7.1 million of gains on sales of $667 million of available for sale securities in the fourth quarter of 2011.
For the fourth quarter of 2012, changes in the fair value of mortgage servicing rights increased pre-tax net income by $4.7
million, partially offset by a net loss of $2.9 million on fair value option securities and derivative contracts held as an economic
hedge. 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 $343 thousand net gain on fair value option securities and derivative contracts held as an
economic hedge.
2011 Other Operating Revenue
Other operating revenue totaled $570.5 million for 2011, up $52.5 million over 2010. Fees and commissions revenue increased
$12.2 million and net gains on securities, derivative and other assets increased $35.9 million. Other-than-temporary impairment
charges recognized in earnings were $4.3 million less than charges recognized in 2010. Brokerage and trading revenue
increased $2.7 million over 2010. Securities trading revenue was up $3.5 million primarily due to increased gains on municipal
securities. Customer hedging revenue decreased $6.4 million due primarily to $4.4 million of credit losses. Retail brokerage
revenue was $4.7 million due to increased market volatility which drove increased customer transaction activity. Investment
banking revenue increased $950 thousand. Transaction card revenue increased $4.5 million over 2010. Increased revenue from
the processing of transactions for TransFund network members and growth in merchant services fees were partially offset by a
decrease in interchange fees paid by merchant banks due to the Durbin Amendment which became effective on October 1,
2011. The lower fees were partially offset by an increase in transaction volume. Trust fees and commissions increased $4.3
million due to growth in the fair value of fiduciary assets. Deposit service charges and fees decreased $7.7 million primarily
due to overdraft fee regulations which were effective July 1, 2010. Mortgage banking revenue grew $4.0 million primarily due
to an increase in gain on sales of mortgage in the secondary market.
Net gains on sales of available for sale securities were $34.1 million for 2011 compared to $21.9 million for 2010. Net gains on
securities and derivative assets held as an economic hedge of the change in fair value of mortgage servicing rights were $24.4
million for 2011 compared to $7.3 million for 2010.
32
Other Operating Expense
Other operating expense for 2012 totaled $849.6 million, up $29.8 million or 4% over 2011. Changes in the fair value of
mortgage servicing rights increased operating expense $9.2 million in 2012 and $40.4 million in 2011. Excluding changes in
the fair value of mortgage servicing rights, operating expenses were up $61.1 million or 8% over 2011. Personnel expenses
increased $61.0 million or 14%. Non-personnel expenses were largely unchanged compared to the prior year.
Table 7 – Other Operating Expense
(In thousands)
Regular compensation
Incentive compensation:
Cash-based
Stock-based
Total incentive compensation
Employee benefits
Total personnel expense
Business promotion
Charitable contributions to BOKF Foundation
Professional fees and services
Net occupancy and equipment
Insurance
FDIC special assessment
Data processing & communications
Printing, postage and supplies
Net losses & 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
Year Ended December 31,
2012
2011
2010
2009
2008
$
262,736
$
247,945
$
238,690
$
231,897
$
219,629
116,718
37,170
153,888
74,409
491,033
23,338
2,062
34,015
66,726
15,356
—
98,904
14,228
20,528
2,927
44,334
9,210
—
26,912
97,222
20,558
117,780
64,261
429,986
20,549
4,000
28,798
64,611
16,799
—
97,976
14,085
23,715
3,583
37,621
40,447
—
91,219
12,764
103,983
59,191
401,864
17,726
—
30,217
63,969
24,320
—
87,752
13,665
34,483
5,336
43,172
80,569
10,585
91,154
57,466
380,517
19,582
—
30,243
65,715
24,040
11,773
81,292
15,960
11,400
6,970
37,248
(3,661)
(12,124)
37,574
31,477
21,976
79,280
3,897
83,177
50,141
352,947
23,536
—
27,045
60,632
11,988
—
78,047
16,433
1,019
7,661
22,976
34,515
(2,767)
27,376
Total other operating expense
$
849,573
$
819,744
$
750,320
$
694,592
$
661,408
Average number of employees (full-time equivalent)
4,614
4,474
4,394
4,403
4,140
Personnel expense
Regular compensation expense, which consists of salaries and wages, overtime pay and temporary personnel costs, increased
$14.8 million or 6% over 2011 primarily due to increases in headcount as a result of growth in mortgage, wealth management
and commercial lending and standard annual merit increases which were fully effective in the second quarter of 2012. The
Company generally awards annual merit increases during the first quarter for a majority of its staff.
Incentive compensation increased $36.1 million or 31% over 2011. Cash-based incentive compensation plans are either
intended to provide current rewards to employees who generate long-term business opportunities for 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 increased $19.5 million or 20% over
2011. Cash-based incentive compensation related to brokerage and trading revenue was up $10.4 million over 2011 and all
other cash-based incentive compensation increased $9.1 million compared to the prior year.
The Company also provides stock-based incentive compensation plans. Stock-based compensation plans include both equity
and liability awards. Compensation expense for equity awards decreased $327 thousand compared to 2011. 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
deferred compensation expense also included deferred compensation that will ultimately be settled in cash indexed to
33
investment performance or changes in earnings per share. 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 decreased $0.47
during 2012 and increased $1.53 during 2011. Expense based on changes in the fair value of BOK Financial common stock and
other investments increased $1.4 million over the prior year.
In addition, stock-based incentive compensation expense increased $15.5 million during 2012 as $25 million was accrued in
2012 and $9.5 million was accrued in 2011 related to the BOK Financial Corp. 2011 True-Up Plan. Approved by shareholders
on April 26, 2011, the True-Up Plan was intended to address inequality in the Executive Incentive Plan ("EIP"), 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 EIP are based on the Company's earnings per share growth compared to peers and business
unit performance. As the economy improves and credit losses normalize, peer banks were 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 the years 2011, 2012 and 2013 and the forfeiture of long-term incentive awards for 2010 and 2011 in
their entirety, despite BOK Financial's strong annual earnings growth through the economic cycle while many peers
experienced negative or declining earnings. The True-Up Plan was designed to adjust annual and long-term performance-based
incentive compensation for certain senior executives either upward or downward based on the earnings per share performance
and compensation of comparable senior executives at peer banks for 2006 through 2013. Compensation expense is determined
by ranking BOK Financial's earnings per share to peer banks and then aligning compensation with the peer bank that most
closely relates to BOK Financial earnings per share performance. The final amount due under the 2011 True-Up Plan will be
determined as of December 31, 2013 and distributed in 2014. Based on currently available information, incremental amounts
estimated to be payable under the 2011 True-Up Plan are approximately $64 million. Performance measurement through 2013
may be volatile and could result in future upward or downward adjustments to compensation expense.
Employee benefit expense increased $10.1 million or 16% over 2011. Employee medical costs totaled $27.0 million, an
increase of $7.2 million or 36% 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 $1.9 million over 2011 to $25.0 million. Employee retirement
plan costs totaled $16.8 million, up $1.4 million and pension expense was $3.4 million, down $553 thousand compared to the
prior year.
Non-personnel operating expenses
Non-personnel operating expenses, excluding changes in the fair value of mortgage servicing rights, were largely unchanged
compared to the prior year. Net losses and operating expense related to repossessed assets were down $3.2 million compared to
the prior year. Discretionary contributions to the BOKF Foundation totaled $2.1 million in 2012 and $4.0 million in 2011.
BOKF Foundation partners with charitable organizations supporting needs within our communities. Mortgage banking costs
increased $6.7 million due primarily to increased amortization expense of our mortgage servicing rights. Other expenses were
down $10.7 million compared to the prior year as 2011 included accruals for overdraft fee litigation settled in 2012.
Professional fees and services costs were up $5.2 million primarily due to increased expense related to product consulting fees
and business growth. All other non-personnel operating expenses were up $3.9 million.
Fourth Quarter 2012 Operating Expenses
Other operating expense for the fourth quarter of 2012 totaled $222.1 million, up $3.1 million or 1% over the fourth quarter of
2011. Changes in the fair value of mortgage servicing rights decreased operating expense by $4.7 million in the fourth quarter
of 2012 and increased operating expense by $5.3 million in the fourth quarter of 2011. Excluding changes in the fair value of
mortgage servicing rights, operating expenses were up $13.1 million or 6% over the fourth quarter of 2011.
Personnel expenses increased $10.1 million or 8%. Regular compensation expense increased $3.9 million or 6% over the fourth
quarter of 2011 primarily due to increases in headcount. Incentive compensation increased $1.3 million or 3% over the fourth
quarter of 2011. Employee benefit expense increased $4.9 million or 33% over the fourth quarter of 2011 primarily due to an
increased level of large dollar employee medical insurance claims.
Non-personnel expenses increased $3.0 million or 3% over the fourth quarter of 2011 due primarily to the discretionary
contribution to the BOKF Foundation during fourth quarter of 2012. No contribution was made in the fourth quarter of 2011.
Increased professional fees and services expense was offset by decreased data processing and communication expense and
lower mortgage banking costs.
34
2011 Operating Expenses
Other operating expense totaled $819.7 million for 2011, up $69.4 million over 2010. Changes in fair value of mortgage
servicing rights increased other operating expenses by $40.4 million in 2011 and decreased operating expenses by $3.7 million
in 2010. Excluding changes in fair value of mortgage servicing rights, operating expenses totaled $779.3 million, up $25.3
million over 2010.
Personnel expense increased $28.1 million. Regular compensation expense totaled $247.9 million, up $9.3 million primarily
due to a modest increase in staffing levels in 2011. Incentive compensation expense increased $13.8 million to $117.8 million.
Cash-based incentive compensation increased $6.0 million, compensation expense for equity awards increased $1.7 million and
for liability awards increased $6.1 million. Employee benefit expense increased $5.1 million.
Non-personnel expense, excluding changes in fair value of mortgage servicing rights decreased $2.8 million. Net losses and
operating expenses of repossessed assets decreased $10.8 million due primarily to a decrease in net losses from sales and write-
downs of repossessed property based on our quarterly review of carrying values. 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 $5.6
million due to amortization of mortgage servicing rights. Data processing and communications expense increased $10.2 million
primarily due to higher bank card transaction volume and increased software amortization expense. Other expense increased
$6.1 million primarily due to accruals for overdraft fee litigation settled in 2012. The Company made a $4.0 million
discretionary contribution to BOKF Foundation in 2011.
Income Taxes
Income tax expense was $188.7 million or 35% of book taxable income for 2012, $158.5 million or 35% of book taxable
income for 2011 and $123.4 million or 33% of book taxable income for 2010. Tax expense currently payable totaled $179
million in 2012, $154 million in 2011 and $150 million in 2010.
The statute of limitations expired on an uncertain tax position and the Company adjusted its current income tax liability to
amounts on filed tax returns for 2011 in 2012, 2010 in 2011 and 2009 in 2010. Excluding these adjustments income tax expense
would have been $190 million or 35% of book taxable income for 2012, $160 million or 35% of book taxable income for 2011
and $126 million or 34% of book taxable income for 2010.
Net deferred tax assets totaled $3 million at December 31, 2012 and $38 million at December 31, 2011. The decrease was due
primarily to the tax effect of unrealized gains on available for sale securities and reduction in allowance for credit losses. We
have evaluated the recoverability of our deferred tax assets 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, 2012 and December 31, 2011. 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 was $44.3 million or 35% of book taxable income for the fourth quarter of 2012 compared to $37.4 million
or 36% of book taxable income for the fourth quarter of 2011.
35
Table 8 – Selected Quarterly Financial Data
(In thousands, except per share data)
Interest revenue
Interest expense
Net interest revenue
Provision for (reduction of) allowance for credit losses
Net interest revenue after provision for (reduction of) allowance for credit
losses
2012
First
Second
Third
Fourth
$
198,208
$
203,055
$
196,071
$
194,314
24,639
173,569
—
21,694
181,361
(8,000)
20,044
176,027
—
20,945
173,369
(14,000)
173,569
189,361
176,027
187,369
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Other operating revenue
144,571
(7,290)
137,281
155,751
30,509
186,260
165,973
13,971
179,944
165,808
(3,182)
162,626
Personnel expense
Net losses and expenses of repossessed assets
Change in fair value of mortgage servicing rights
Other non-personnel expense
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Net income (loss) attributable to non-controlling interest
Net income attributable to shareholders of BOK Financial Corp.
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
114,769
122,297
122,775
131,192
2,245
(7,127)
72,250
5,912
11,450
83,352
182,137
223,011
5,706
9,576
84,283
222,340
6,665
(4,689)
88,917
222,085
128,713
152,610
133,631
127,910
45,520
83,193
(422)
53,149
99,461
1,833
45,778
87,853
471
44,293
83,617
1,051
83,615
$
97,628
$
87,382
$
82,566
1.22
1.22
$
$
1.43
1.43
$
$
1.28
1.27
$
$
1.21
1.21
67,665
67,942
67,473
67,745
67,967
68,335
67,623
67,915
$
$
$
36
Table 8 – Selected Quarterly Financial Data (continued)
(In thousands, except per share data)
Interest revenue
Interest expense
Net interest revenue
Provision for (reduction of) allowance for credit losses
Net interest revenue after provision for (reduction of) allowance for credit
losses
2011
First
Second
Third
Fourth
$
202,089
$
205,717
$
205,749
$
198,040
31,450
170,639
6,250
31,716
174,001
2,700
30,365
175,384
—
26,570
171,470
(15,000)
164,389
171,301
175,384
186,470
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
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Net income (loss) attributable to non-controlling interest
Net income attributable to shareholders of BOK Financial Corp.
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
123,274
(5,696)
117,578
99,994
6,015
(3,129)
75,569
127,826
13,703
141,529
146,035
27,581
173,616
131,786
6,026
137,812
105,603
103,260
121,129
5,859
13,493
76,823
5,939
24,822
86,514
178,449
201,778
220,535
111,052
39,357
128,465
43,006
71,695
$
85,459
$
2,688
69,007
358
85,101
103,518
38,752
64,766
(8)
64,774
0.95
0.94
$
$
$
$
$
$
$
$
1.01
1.00
$
$
1.24
1.24
$
$
0.98
0.98
6,180
5,261
86,412
218,982
105,300
37,396
67,904
911
66,993
67,902
68,177
67,898
68,169
67,828
68,037
67,526
67,775
37
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 for 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.
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 rates for funds with
similar duration. Market rates are 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 also based on rates which
approximate 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 rate 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 the 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.
As shown in Table 9, net income attributable to our lines of business increased $60.9 million or 34% over the prior year. The
increase in net income attributed to our lines of business was due primarily to a $79.2 million increase in mortgage banking
revenue, a $19.7 million increase in brokerage and trading revenue and a $14.7 million decrease in net loans charged off,
partially offset by a $30.8 million increase in personnel expense.
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,
2012
2011
2010
$
143,212
$
127,388
$
74,306
19,872
237,390
113,801
33,504
15,617
176,509
109,366
80,323
50,226
14,316
144,865
101,889
$
351,191
$
285,875
$
246,754
38
Commercial Banking
Commercial Banking contributed $143.2 million to consolidated net income in 2012, up $15.8 million or 12% over the prior
year. Net interest revenue grew by $8.8 million as the balance of average commercial loans increased $799 million or 10%. Net
loans charged off were down $9.9 million compared to 2011. Other operating revenue was up $23.6 million including a $14.2
million gain on the sale of $26 million of common stock received in 2009 in partial satisfaction of a defaulted commercial loan
and a $10.0 million increase in fees and commissions revenue. Other operating expense increased $16.4 million or 7% over
2011. Corporate expense allocations were up $8.1 million over the prior year due to increased lending activity and personnel
expenses increased $6.9 million.
During the second quarter of 2011, banking services for small business customers were transferred from the Consumer Banking
segment to the Commercial Banking segment. As a result of this transfer, net interest revenue increased $14.0 million, other
operating revenue increased $7.2 million and operating expenses increased $8.3 million in 2011. In addition, average deposits
increased $593 million and average loans increased $18 million over 2010 primarily due to the transfer of these balances from
the Consumer Banking segment.
Table 10 – Commercial Banking
(Dollars in thousands)
Year Ended December 31,
Net interest revenue from external sources
$
367,412
$ 342,833
Net interest expense from internal sources
(46,414)
(30,676)
2012
2011
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
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
2010
338,391
(45,317)
293,074
70,489
222,585
141,630
(2,638)
138,992
93,236
26,811
74,254
35,815
320,998
10,852
310,146
156,724
14,407
171,131
102,715
15,898
76,848
51,427
312,157
20,760
291,397
146,771
774
147,545
95,801
16,692
74,610
43,348
246,888
230,451
230,116
234,389
91,177
208,491
81,103
131,461
51,138
$
143,212
$ 127,388
$
80,323
$ 9,949,735
$ 9,383,528
$ 8,893,868
9,087,745
8,553,014
882,288
8,289,001
7,757,808
884,169
8,139,851
5,999,381
899,005
1.44%
16.23%
51.68%
0.12%
1.36%
14.41%
50.22%
0.25%
0.90%
8.93%
52.94%
0.87%
Net interest revenue increased $8.8 million or 3% over 2011. Growth in net interest revenue was due to a $799 million increase
in average loan balances, partially offset by decreased loan yields. Lower yields on deposits sold to our Funds Management
unit was partially offset by a $795 million increase in average deposit balances.
39
Fees and commissions revenue increased $10.0 million or 7% over 2011. Commercial deposit service charges and fees
increased $4.6 million or 13% over the prior year. The average earnings credit, a non-cash method for commercial customers to
avoid incurring charges for deposit services based on account balances, decreased 21 basis points compared to the prior year to
better align with market interest rates. Transaction card revenue increased $4.0 million or 5% due to increased customer
transaction volume.
Operating expenses increased $16.4 million or 7% over 2011. Personnel costs increased $6.9 million or 7% primarily due to
increased incentive compensation. Regular compensation expense and employee benefits expense also increased over the prior
year. Net losses and operating expenses on repossessed assets decreased $794 thousand compared to the prior year. Other non-
personnel expenses increased $2.2 million primarily due to higher data processing expenses related to increased transaction
card activity. Corporate expense allocations increased $8.1 million primarily due to increased customer loan and deposit
activity.
The average outstanding balance of loans attributed to Commercial Banking increased $799 million to $9.1 billion for
2012. See the Loans section of Management’s Discussion and Analysis of Financial Condition following for additional
discussion of changes in commercial and commercial real estate loans which are primarily attributed to the Commercial
Banking segment. Net Commercial Banking loans charged off were down $9.9 million compared to 2011 to $10.9 million or
0.12% of average loans attributed to this line of business. Net charge-offs for 2012 included the return of a $7.1 million loan
settlement received in 2008 as discussed in greater detail in in Management's Discussion & Analysis of Financial Condition –
Summary of Loan Loss Experience following. Excluding the impact of this item, the decrease in net loans charged off was
primarily due to a decrease in losses on commercial real estate loans.
Average deposits attributed to Commercial Banking were $8.6 billion for 2012, an increase of $795 million or 10% over the
2011 primarily related to an increase in average demand deposits, partially offset by a decrease in interest-bearing transaction
account balances and time deposits. Average balances attributed to our commercial & industrial loan customers increased $474
million or 17% and average balances attributed to our energy customers increased $400 million or 44%. Small business
banking customer average balances increased $157 million or 9%. Average balances held by treasury services customers were
down $286 million compared to the prior year. Commercial customers continue to maintain high account balances due to
continued economic uncertainty and persistently low yields available on high quality investments.
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. Consumer banking also conducts
mortgage banking activities through offices located outside of our consumer banking markets and through correspondent loan
originators.
Consumer banking contributed $74.3 million to consolidated net income for 2012, up $40.8 million primarily due to growth in
mortgage banking revenue. Revenue from mortgage loan production was up $77.1 million over the prior year. Changes in fair
value of our mortgage servicing rights, net of economic hedge, decreased net income attributed to consumer banking by $795
thousand in 2012 and decreased net income attributed to consumer banking by $8.0 million in 2011.
40
Table 11 – Consumer Banking
(Dollars in thousands)
Net interest revenue from external sources
$
90,036
$
89,745
$
86,292
Year Ended December 31,
2012
2011
2010
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
Change in fair value of mortgage servicing rights
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
25,120
115,156
9,345
105,811
266,566
5,552
272,118
93,409
1,405
9,210
108,661
43,630
256,315
121,614
47,308
33,109
122,854
13,451
109,403
197,271
26,051
223,322
88,993
3,044
40,447
94,395
51,012
277,891
54,834
21,330
47,624
133,916
24,705
109,211
204,149
10,908
215,057
80,660
3,583
(3,661)
101,503
59,980
242,065
82,203
31,977
$
74,306
$
33,504
$
50,226
$ 5,727,267
$ 5,937,585
$ 6,243,746
2,130,293
5,598,063
287,972
2,067,548
5,741,719
273,906
2,109,520
6,130,383
277,837
1.30%
25.73%
64.73%
0.44%
0.56%
12.23%
74.17%
0.65%
0.80%
18.08%
72.69%
1.17%
Residential mortgage loans funded for sale
$ 3,708,350
$ 2,293,834
$ 2,501,860
Banking locations
Residential mortgage loans servicing portfolio1
$
1 Includes outstanding principal for loans serviced for affiliates
217
212
207
13,091,482
$
12,356,917
$
12,059,241
December 31,
2012
December 31,
2011
December 31,
2010
Net interest revenue from consumer banking activities decreased $7.7 million compared to 2011. Net interest earned on
residential mortgage-backed securities held as an economic hedge of mortgage servicing rights decreased by $11.3 million due
to a $185 million decrease in the average balance of this portfolio and lower average yields. Net interest revenue related to the
consumer loan portfolio increased compared to the prior year as the average loan balance increased $63 million or 3% over the
prior year. The average balance of residential mortgage loans increased over the prior year. Other consumer loans also
increased, offset by decreased balances of indirect automobile loans due to pay-downs. The Company previously disclosed its
decision to exit the indirect automobile loan business in the first quarter of 2009. Net interest earned on deposits sold to our
Funds Management unit decreased $6.7 million primarily due to lower yields on funds invested.
41
Net loans charged off by the Consumer Banking unit decreased $4.1 million compared to 2011 to $9.3 million or 0.44% of
average loans. Net consumer banking charge-offs also includes indirect automobile loans, overdrawn deposit accounts and
other direct consumer loans.
Fees and commissions revenue increased $69.3 million or 35% over the prior year. Mortgage banking revenue was up $79.0
million or 86% over the prior year primarily due to increased residential mortgage loan originations and commitments and
improved pricing of loans sold. Transaction card revenues decreased $12.7 million or 36% from the prior year primarily due to
the impact of interchange fee regulations which became effective on October 1, 2011.
Excluding the change in the fair value of mortgage servicing rights, operating expenses increased $9.7 million or 4% over
2011. Personnel expenses were up $4.4 million or 5% primarily due to expansion of our mortgage banking division, which
positioned us to benefit from increased demand as the result of continued low mortgage interest rates. Non-personnel expense
increased $14.3 million or 15% primarily due to increased mortgage banking activity including decreases in our mortgage
servicing rights due to refinancing activity as a result of the low interest rate environment, increased data processing,
professional fees and occupancy costs. Corporate expense allocations decreased $7.4 million compared to the prior year
primarily due to decreased occupancy cost allocations for branch banking. Net losses and operating expenses of repossessed
assets were down $1.6 million compared to the prior year.
Average consumer deposit balances decreased $144 million or 3%, primarily due to a $317 million or 15% decrease in higher
costing time deposit balances. Average interest-bearing transaction accounts increased $109 million or 4%, average savings
account balances were up $44 million or 23% and average demand deposit balances increased $20 million or 3%.
Our Consumer Banking division originates, markets and services conventional and government-sponsored residential mortgage
loans for all of our geographical markets. We funded $4.0 billion of residential mortgage loans in 2012 compared to $2.6 billion
in 2011. Mortgage loan fundings included $3.7 billion of mortgage loans funded for sale in the secondary market and $256
million funded for retention within the consolidated group. Approximately 33% of our mortgage loans funded were in the
Oklahoma market, 15% in the Texas market, 14% in the New Mexico market and 14% in the Colorado market. In addition,
10% of our mortgage loan fundings came from correspondent lenders. Expansion of our mortgage banking division in the
Texas, Colorado and Kansas/Missouri markets positioned us to benefit from increased demand as the result of continued low
mortgage interest rates.
At December 31, 2012, the Consumer Banking division serviced $12.0 billion of mortgage loans for others and $1.1 billion of
loans retained within the consolidated group. Approximately 97% of the mortgage loans serviced by the Consumer Banking
division were to borrowers in our primary geographical market areas. Loans past due 90 days or more totaled $84 million or
0.70% of loans serviced for others at December 31, 2012 compared to $136 million or 1.20% of loans serviced for others at
December 31, 2011. Mortgage servicing revenue, including revenue on loans serviced for the consolidated group, increased
$1.9 million or 5% over the prior year to $41.8 million.
42
Wealth Management
Wealth Management contributed $19.9 million to consolidated net income in 2012, up $4.3 million or 27% over the prior year.
Net interest revenue increased $1.8 million or 4% over the prior year. Fees and commissions revenue grew by $28.1 million or
16% over 2011. Brokerage and trading revenue was up on increased customer activity and trust fees and commissions grew
primarily due to the acquisition of The Milestone Group in the third quarter of 2012. Other operating expense increased $23.7
million or 12% primarily due to increased incentive compensation and personnel expenses due to expansion of the Wealth
Management division during the year.
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
Year Ended December 31,
2012
2011
2010
27,754
21,432
49,186
2,284
46,902
199,406
601
200,007
$
$
30,813
16,540
47,353
2,960
44,393
36,012
12,546
48,558
10,831
37,727
171,323
164,785
550
743
171,873
165,528
Personnel expense
146,407
126,909
120,944
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
55
31,049
36,874
214,385
32,524
12,652
33
28,762
35,002
190,706
25,560
9,943
44
26,259
32,578
179,825
23,430
9,114
$
19,872
$
15,617
$
14,316
$ 4,357,523
$ 4,073,623
$ 3,686,133
929,319
4,281,423
184,622
1,011,319
3,976,183
174,877
1,146,153
3,586,435
169,775
0.46%
10.76%
86.24%
0.25%
0.38%
8.93%
87.21%
0.29%
0.39%
8.43%
84.29%
0.94%
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 a manager outside of the Company.
The Wealth Management division also provides safekeeping services for personal and institutional 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 whom maintain or delegate investment authority and for which BOK Financial
does not have custody of the assets.
A summary of assets under management or in custody follows in Table 13.
43
Table 13 – Assets Under Management or in Custody
(Dollars in thousands)
Fiduciary assets in custody for which BOKF has sole or joint discretionary authority
Fiduciary assets not in custody for which BOKF has sole or joint discretionary authority
Non-managed fiduciary assets in custody
Total fiduciary assets
Assets held in safekeeping
Brokerage accounts under BOKF administration
Assets under management or in custody
December
31,
2012
$ 10,981,353
1,659,822
13,187,863
25,829,038
20,994,011
4,402,992
$ 51,226,041
$
December
31,
2011
9,916,322
221,465
12,684,026
22,821,813
18,948,739
3,635,300
$ 45,405,852
December
31,
2010
$ 9,351,345
171,205
13,392,187
22,914,737
16,345,623
3,117,159
$ 42,377,519
Net interest revenue increased $1.8 million or 4% over the prior year. Growth in average assets was largely due to funds sold to
the Funds Management unit. Average deposit balances increased $305 million or 8%. Non-interest bearing demand deposits
grew by $282 million or 51% during the year and average interest-bearing transaction balances were up $90 million or 3%.
Higher costing time deposit average balances decreased $69 million. Average loan balances decreased $82 million. The
decrease is primarily due to residential mortgage loans previously originated by our Private Bank and retained by the Wealth
Management segment being refinanced, including refinancings performed by the mortgage division of our Consumer Banking
segment.
Fees and commissions revenue grew by $28.1 million or 16% over 2011. Brokerage and trading revenue increased $20.7
million or 22%, primarily due to securities and derivative contracts sold to our mortgage banking customers. Retail brokerage
fees and investment banking fees also grew compared to the prior year. Trust fees and commissions increased $6.8 million or
9%. The Company acquired The Milestone Group, a Denver based investment adviser to high net worth clients, in the third
quarter of this year adding $3.5 million in revenue and $1.4 billion of fiduciary assets as of December 31, 2012. The remaining
increase was due to the increase in fair value of fiduciary assets during 2012.
Other operating revenue includes fees earned from state and municipal bond underwriting and financial advisory services,
primarily in the Oklahoma and Texas markets. In 2012, the Wealth Management division participated in 445 underwritings that
totaled $6.8 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately
$2.4 billion of these underwritings. In 2011, the Wealth Management division participated in 278 underwritings that totaled
approximately $4.7 billion. Our interest in these underwritings totaled approximately $1.5 billion.
Operating expenses increased $23.7 million or 12% over the prior year. Personnel expenses increased $19.5 million or 15%.
Regular compensation costs increased $6.2 million primarily due to increased headcount and annual merit increases. Incentive
compensation increased $11.7 million over the prior year. Non-personnel expenses increased $2.3 million or 8%. Corporate
expense allocations were up $1.9 million or 5% due primarily to additional expenses incurred related to expansion of the
Wealth Management business line and increased customer transaction activity.
44
Geographical Market Distribution
The Company secondarily evaluates performance by primary geographical market. Loans are generally attributed to
geographical 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 geographical market. Funds Management and
other also includes insignificant results of operations in locations outside our primary geographic regions. Mortgage origination
and marketing revenue is attributed to the geography where the mortgage was originated. Mortgage origination and marketing
revenue related to correspondent banking is attributed to Oklahoma. All interest revenue on mortgage loans retained by BOKF
and servicing revenue for mortgage loans sold in the secondary market and serviced for others is also attributed to Oklahoma.
Table 14 – Net Income (Loss) by Geographic Region
(In thousands)
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank & Trust
Bank of Arizona
Bank of Kansas City
Subtotal
Funds Management and other
Total
Year Ended December 31,
2012
2011
2010
$
122,849
$
104,848
$
114,599
49,671
22,748
12,725
18,306
(1,115)
9,833
235,017
116,174
42,524
14,168
5,976
10,223
(8,341)
5,344
174,742
111,133
29,822
8,299
3,955
2,959
(22,756)
4,548
141,426
105,328
$
351,191
$
285,875
$
246,754
45
Bank of Oklahoma
Our Oklahoma offices are located primarily in the Tulsa and Oklahoma City metropolitan areas. Oklahoma is a significant
market to the Company, representing 47% of our average loans, 55% of our average deposits and 35% of our consolidated net
income for 2012. In addition, all of our mortgage servicing activity, TransFund EFT network and 69% of our fiduciary assets
are attributed to the Oklahoma market.
Net income generated by the Bank of Oklahoma in 2012 increased $18.0 million or 17% over 2011. Net interest revenue
decreased $6.9 million or 3%. Net charge-offs were down $4.3 million compared to the prior year to $15.5 million or 0.28% of
average loans. Fees and commissions revenue was up $21.4 million or 7% primarily due to increased mortgage banking
revenue. Other operating expenses, excluding changes in the fair value of mortgage servicing rights, were up $16.6 million or
5%. Changes in fair value of our mortgage servicing rights, net of economic hedge, decreased net income by $795 thousand in
2012 and decreased net income by $8.0 million in 2011.
Table 15 – Bank of Oklahoma
(Dollars in thousands)
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
Year Ended December 31,
2012
2011
2010
$
233,682
$
240,616
$ 244,455
15,451
218,231
326,009
23,836
349,845
19,796
220,820
304,605
27,858
332,463
41,804
202,651
322,179
10,085
332,264
Personnel expense
153,358
148,935
152,134
Net losses and expenses of repossessed assets
Change in fair value of mortgage servicing rights
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
5,695
9,210
165,489
33,261
367,013
201,063
78,214
4,657
40,447
147,797
39,846
381,682
171,601
66,753
4,252
(1,326)
149,943
42,352
347,355
187,560
72,961
$
122,849
$
104,848
$ 114,599
$ 11,544,276
$ 10,930,742
$ 9,775,984
5,460,429
10,394,644
548,302
5,247,656
5,438,436
9,821,782
8,782,196
541,152
548,537
1.06%
22.41%
63.93%
0.28%
0.96%
19.37%
62.59%
0.38%
1.17%
20.89%
61.54%
0.77%
Residential mortgage loans funded for sale
$ 1,671,776
$
1,105,800
$ 1,246,511
Net interest revenue decreased $6.9 million or 3% compared to the prior year. Decreased yield on residential mortgage-backed
securities held as an economic hedge of mortgage servicing rights was partially offset by lower funding costs. The average
balance of these securities decreased $185 million compared to 2011. Average loan balances were up $213 million or 4% over
46
last year and loan yields were down. The favorable net interest impact of the $573 million increase in average deposit balances
was offset by lower yield on funds sold to the Funds Management unit.
Fees and commission revenue grew by $21.4 million or 7% over 2011. Mortgage banking revenue was up $22.5 million over
last year primarily due to increased mortgage loan origination and commitment volumes and increased gains on sales of
residential mortgage loans in the secondary market. Transaction card revenue was down $4.9 million primarily due to changes
in interchange fee regulations which were effective October 1, 2011. Deposit service charges and brokerage and trading
revenue also increased over the prior year.
Excluding the change in the fair value of mortgage servicing rights, other operating expenses were up $16.6 million or 5% over
the prior year. Personnel expenses were up $4.4 million or 3% over 2011 primarily due to increased regular compensation
expense due to a modest increase in headcount and annual merit increases. Increased employee benefit expense was offset by
lower incentive compensation expense compared to the prior year. Non-personnel expenses were up $17.7 million or 12%.
Data processing and communications expense was up $4.1 million due to increased customer transaction activity and
impairment charges on two discontinued software projects. Mortgage banking and professional fees and services expense were
both up $4.0 million over the prior year. Corporate expense allocations were down $6.6 million compared to the prior year.
Increased loan and deposit activity outside of Oklahoma increased the corporate expense allocation to these other geographies.
Net losses and operating expenses of repossessed assets were up $1.0 million over 2011 primarily due to write-downs related to
regularly scheduled appraisal updates.
Net loans charged off totaled $15.5 million or 0.28% of average loans for 2012 compared to $19.8 million or 0.38% of average
loans for 2011. Net charge-offs for 2012 included the return of $7.1 million received from the City of Tulsa in 2008 to settle
claims related to a defaulted loan. The settlement agreement between BOK Financial and the City of Tulsa was invalidated by
the Oklahoma Supreme Court in 2011 as discussed further in Note 14 to the Consolidated Financial Statements. Excluding this
item, net charge-offs were $8.4 million or 0.15% of average loans for 2012.
Average deposits attributed to the Bank of Oklahoma increased $572.9 million or 6% over 2011. Commercial Banking deposit
balances increased $378 million or 8% over the prior year. Deposits related to commercial and industrial customers and energy
customers increased over the prior year, partially offset by decreased average balances related to treasury services
customers. Consumer deposits also increased $71 million or 2%. Wealth Management deposits increased $124 million or 5%,
primarily due to an increase in average trust deposit balances.
Bank of Texas
Our Texas offices are located primarily in the Dallas, Fort Worth and Houston metropolitan areas. Texas is our second largest
market with 33% of our average loans, 24% of our average deposits and 14% of our consolidated net income for 2012.
Net income for the Bank of Texas increased $7.1 million or 17% over the prior year primarily due to increased mortgage
banking revenue partially offset by increased personnel expenses. Net interest revenue increased $5.2 million or 4% due
primarily to a $415 million or 12% growth in loans and lower funding costs. Fees and commission revenue grew by $19.8
million or 29% primarily due to increased mortgage banking revenue. Other operating expense increased $12.4 million or 9%
due primarily to increased incentive compensation and growth in the Texas market.
47
Table 16 – Bank of Texas
(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
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Year Ended December 31,
2012
2011
2010
$
142,906
$
137,696
$ 134,323
5,496
137,410
4,170
133,526
15,340
118,983
87,252
188
87,440
79,350
3,240
24,965
39,684
67,417
342
67,759
70,855
1,569
23,403
39,015
60,722
(7)
60,715
65,311
6,708
23,201
37,881
147,239
134,842
133,101
77,611
27,940
66,443
23,919
46,597
16,775
$
49,671
$
42,524
$
29,822
$ 5,110,336
$ 4,933,463
$ 4,479,689
3,832,395
4,602,272
482,612
3,417,235
4,368,967
3,320,173
3,901,364
473,926
479,391
0.97%
10.29%
63.97%
0.14%
0.86%
8.97%
65.74%
0.12%
0.67%
6.22%
68.24%
0.46%
Residential mortgage loans funded for sale
$
500,769
$
220,022
$ 252,364
Net interest revenue increased $5.2 million or 4% over 2011 primarily due to decreased deposit costs and growth of the loan
portfolio. Average outstanding loans increased by $415 million or 12% over the prior year. The benefit of a $233 million or 5%
increase in deposits was offset by lower yield on funds invested by the Funds Management unit.
Fees and commissions revenue grew $19.8 million or 29% over 2011 primarily due to increased mortgage banking revenue.
Brokerage and trading revenue and trust fees and commissions also increased over the prior year. Transaction card revenue
was down compared to the prior year primarily due to debit card interchange fee regulations which became effective in the
third quarter of 2011. Deposit service charges and fees were largely unchanged compared to the prior year.
Operating expenses increased $12.4 million or 9% over 2011. Personnel costs were up $8.5 million or 12% primarily due to
incentive compensation expense and increased head count related to higher residential mortgage loan origination activity. Net
losses and operating expense of repossessed assets increased $1.7 million over last year due primarily to write-downs related to
regularly scheduled appraisal updates. Non-personnel expenses increased $1.6 million or 7%. Corporate expense allocations
increased $669 thousand or 2%.
Net loans charged off totaled $5.5 million or 0.14% of average loans for 2012, compared to $4.2 million or 0.12% of average
loans for 2011.
48
Bank of Albuquerque
Net income attributable to the Bank of Albuquerque totaled $22.7 million or 6% of consolidated net income, an $8.6 million or
61% increase over 2011 due primarily to the growth in mortgage banking revenue.
Net interest revenue increased $847 thousand or 2% over the prior year. Average loan balances were largely unchanged
compared to the prior year. Average deposit balances were up $25 million or 2% over the prior year. Decreased deposit costs
were offset by a decrease in the yield on funds invested with the Funds Management unit. Net loans charged off improved to
$1.1 million or 0.16% of average loans for 2012 compared to net loans charged off of $2.1 million or 0.30% of average loans
for 2011.
Fees and commissions revenue increased $13.5 million or 38% over the prior year primarily due to a $14.6 million increase in
mortgage banking revenue, partially offset by decreased transaction card revenue due to debit card interchange fee regulations.
Other operating expense increased $1.3 million or 3%. Personnel expenses were up $2.5 million or 14% primarily due to
increased incentive compensation primarily related to increased mortgage activity. Net losses and expenses of repossessed
assets decreased $1.9 million to $165 thousand for 2012. Increased corporate allocation expenses were offset by lower non-
personnel expenses.
Table 17 – Bank of Albuquerque
(Dollars in thousands)
Net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Year Ended December 31,
2012
2011
2010
$
34,806
$
33,959
$
32,649
1,136
33,670
2,103
31,856
7,219
25,430
Other operating revenue – fees and commission
48,815
35,327
27,994
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
20,388
165
8,239
16,463
45,255
37,230
14,482
17,865
2,018
8,779
15,333
43,995
23,188
9,020
13,135
2,891
9,884
13,931
39,841
13,583
5,284
$
22,748
$
14,168
$
8,299
$ 1,391,606
$ 1,390,700
$ 1,329,578
715,095
707,723
719,160
1,267,487
1,242,964
1,231,643
79,722
82,313
83,188
1.63%
28.53%
54.12%
0.16%
1.02%
17.21%
63.50%
0.30%
0.62%
9.98%
65.70%
1.00%
Residential mortgage loans funded for sale
$
549,249
$
354,964
$ 345,797
49
Bank of Arkansas
Net income attributable to the Bank of Arkansas grew $6.7 million or 113% over the prior year primarily due to growth in
mortgage related securities trading revenue in our Little Rock office and mortgage banking revenue.
Net interest revenue increased $1.7 million or 20% over 2011 due primarily to the recognition of $2.9 million of foregone
interest and fees collected on a nonaccruing wholesale/retail sector loans. Loans attributed to the Bank of Arkansas decreased
$51 million compared to 2011 primarily due to the continued run-off of indirect automobile loans. Average deposits attributed
to the Bank of Arkansas were largely unchanged compared to the prior year. Higher costing time deposits decreased $21
million or 39% compared to the prior year, partially offset by a $12 million or 9% increase in interest-bearing transaction
deposits and a $7.0 million or 48% increase in demand deposit balances. The Bank of Arkansas experienced a net recovery of
$1.4 million for 2012. In addition to foregone interest and fees, $2.0 million charged off in the second quarter of 2011 was
recovered related to the nonaccruing wholesale/retail loan. Net loans charged off totaled $2.8 million or 1.02% of average loans
for 2011.
Fees and commissions revenue was up $11.3 million or 30% over the prior year primarily due to increased mortgage banking
revenue and increased mortgage related securities trading revenue at our Little Rock office. Other operating expenses were up
$6.2 million or 18% primarily due to increased incentive compensation costs related to trading activity.
Table 18 – Bank of Arkansas
(Dollars in thousands)
Net interest revenue
Net loans charged off (recovered)
Net interest revenue after net loans charged off (recovered)
Year Ended December 31,
2012
2011
2010
$
9,892
$
(1,443)
11,335
8,213
2,797
5,416
$
10,221
6,725
3,496
Other operating revenue – fees and commissions
49,691
38,347
41,258
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs (recoveries) to average loans
23,963
255
4,806
11,176
40,200
20,826
8,101
$
$
$
12,725
$ 233,226
221,906
208,096
19,720
5.46 %
64.53 %
67.47 %
(0.65)%
18,368
548
4,565
10,501
33,982
9,781
3,805
5,976
291,560
273,382
210,083
23,563
2.05%
25.36%
72.99%
1.02%
$
$
21,601
1,108
4,309
11,263
38,281
6,473
2,518
3,955
357,178
330,136
196,372
23,232
1.11%
17.02%
74.36%
2.04%
Residential mortgage loans funded for sale
$ 111,049
$
72,293
$
72,148
50
Colorado State Bank & Trust
Net income attributed to Colorado State Bank & Trust increased $8.1 million or 79% over 2011 to $18.3 million. Net interest
revenue increased $2.7 million or 8% primarily due to increased average loan and deposit balances, partially offset by a
decrease in yield on funds sold to the Funds Management unit. Average loans increased $142 million or 18%. Average deposits
attributable to Colorado State Bank & Trust increased $56 million or 4%. Demand deposits grew by $88 million during 2012
primarily to increased commercial account balances. Interest-bearing transaction deposit account balances increased $18
million or 4%. Higher costing time deposits decreased $53 million. Net loans charged off totaled $166 thousand or 0.02% of
average loans for 2012 compared to net loans charged off of $2.2 million or 0.29% of average loans for 2011.
Fees and commissions revenue was up $17.1 million over 2011 primarily related to a $13.0 million increase in mortgage
banking revenue and a $4.4 million increase in trust fees and commissions primarily due to the acquisition of the Milestone
Group. The Milestone Group is a Denver-based registered investment adviser which provides wealth management services to
high net worth clients in Colorado and Nebraska. Operating expenses were up $8.6 million or 21% over the prior year primarily
due to mortgage banking activity and the Milestone Group acquisition. Personnel expenses were up $4.4 million, corporate
expense allocations increased $2.8 million and non-personnel expenses were increased $1.3 million.
Table 19 – Colorado State Bank & Trust
(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
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Year Ended December 31,
2012
2011
2010
$
36,708
$
34,018
$
166
36,542
43,776
8
43,784
26,895
510
7,163
15,798
50,366
29,960
11,654
2,235
31,783
26,685
—
26,685
22,485
401
5,815
13,035
41,736
16,732
6,509
32,706
10,897
21,809
21,703
(6)
21,697
17,050
1,429
6,330
13,854
38,663
4,843
1,884
$
18,306
$
10,223
$
2,959
$
1,345,619
$ 1,343,816
$ 1,219,195
924,700
782,583
767,983
1,330,179
1,273,794
1,145,887
129,154
118,712
123,910
1.36%
14.17%
62.58%
0.02%
0.76%
8.61%
68.75%
0.29%
0.24%
2.39%
71.06%
1.42%
Residential mortgage loans funded for sale
$
497,543
$
298,630
$
338,309
51
Bank of Arizona
Bank of Arizona had a net loss of $1.1 million for 2012 compared to a net loss of $8.3 million for 2011. The improvement was
due primarily to growth in fee revenue, along with decreased net loans charged off and lower net losses and operating expenses
of repossessed assets.
Net interest revenue increased $933 thousand or 6% over 2011. Average loan balances were down $18 million or 3% compared
to the prior year. The decrease was primarily due to jumbo residential mortgage loans previously originated and retained by our
wealth management segment in Arizona that were refinanced. Net loans charged off decreased to $2.4 million or 0.43% of
average loans for 2012, compared to $7.2 million or 1.25% for 2011. Average deposits were up $88 million or 34% over last
year. Interest-bearing transaction account balances grew by $72 million or 68% and demand deposit balances were up $27
million or 25% both primarily due to growth in commercial deposits. Higher costing time deposits balances decreased $11
million compared to the prior year.
Fees and commissions revenue was up $3.4 million primarily due to increased mortgage banking revenue and revenue from the
operation of repossessed commercial real estate properties. Other operating expense decreased $3.1 million or 10% compared
to 2011. Personnel expense decreased $158 thousand or 1% compared to the prior year. Net losses and operating expenses of
repossessed assets remain elevated, but decreased $3.0 million to $7.4 million for 2012. Non-personnel expenses decreased
$177 thousand or 5% compared to the prior year. Corporate overhead expense allocations were up $210 thousand or 4%.
We continue to focus on growth in commercial and small business lending in the Arizona market and have significantly scaled
back commercial real estate lending activities which were not contemplated in our initial expansion into this market. Loan and
repossessed asset losses have been largely due to commercial real estate lending. Growth is primarily related to commercial
loans and deposits. Assets attributable to the Bank of Arizona included $16 million of goodwill that may be impaired in future
periods if our commercial and small business lending growth plans are unsuccessful.
52
Table 20 – Bank of Arizona
(Dollars in thousands)
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
Corporate allocations
Total other operating expense
Loss before taxes
Federal and state income tax
Net loss
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Year Ended December 31,
2012
2011
2010
$
17,170
$
16,237
$
11,792
2,420
14,750
10,150
—
10,150
10,711
7,402
3,628
4,984
26,725
7,168
9,069
6,780
349
7,129
10,869
10,402
3,805
4,774
29,850
22,324
(10,532)
5,071
—
5,071
9,944
14,117
3,643
4,079
31,783
(1,825)
(710)
(13,652)
(5,311)
(37,244)
(14,488)
$
(1,115)
$
(8,341)
$
(22,756)
$ 612,682
$ 641,340
$ 609,694
556,689
343,289
60,916
(0.18)%
(1.83)%
97.82 %
0.43 %
574,770
255,487
65,025
(1.30)%
(12.83)%
129.69 %
1.25 %
522,035
218,865
65,242
(3.73)%
(34.88)%
188.48 %
4.28 %
Residential mortgage loans funded for sale
$
96,026
$
97,699
$ 141,379
53
Bank of Kansas City
Net income attributed to the Bank of Kansas City increased by $4.5 million or 84% over 2011 primarily due to growth in
mortgage banking revenue.
Net interest revenue increased $1.5 million or 13%. Average loan balances grew by $72 million or 20%. Net charge-offs
remained low, totaling $94 thousand or 0.02% of average loans for 2012 compared to $181 thousand or 0.05% of average loans
for 2011. Average deposit balances were down $16 million or 5% due primarily to a $16 million decrease in higher costing time
deposit balances. Demand deposit balances grew $95 million or 197% due primarily to commercial account balances, offset by
a $95 million decrease in interest-bearing transaction account balances.
Fees and commissions revenue increased $13.6 million or 54% over the prior year primarily due to an $8.7 million increase in
mortgage banking revenue and a $3.9 million increase in brokerage and trading revenue. Other operating expense increased
$7.9 million or 28%. Personnel costs were up $3.5 million or 21% primarily due to increased incentive compensation.
Corporate expense allocations increased by $3.9 million on higher customer transaction volume and non-personnel expense
increased $606 thousand.
Table 21 – Bank of Kansas City
(Dollars in thousands)
Net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Year Ended December 31,
2012
2011
2010
$
13,207
$
11,675
$
9,428
94
13,113
181
11,494
71
9,357
Other operating revenue – fees and commission
38,596
25,006
19,386
Personnel expense
Net losses (gains) and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
20,091
91
4,609
10,824
35,615
16,094
6,261
16,603
12,975
176
4,003
6,971
27,753
8,747
3,403
(66)
3,090
5,301
21,300
7,443
2,895
$
9,833
$
5,344
$
4,548
$ 458,565
$ 376,652
$ 309,230
436,143
286,531
33,684
2.14%
29.19%
68.75%
0.02%
364,517
302,632
27,752
1.42%
19.26%
75.66%
0.05%
297,604
239,759
22,744
1.47%
20.00%
73.92%
0.02%
Residential mortgage loans funded for sale
$ 281,938
$ 144,426
$ 105,352
54
Financial Condition
Securities
We maintain a securities portfolio to enhance profitability, support customer transactions, manage interest rate risk, provide
liquidity and comply with regulatory requirements. Securities are classified as trading, held for investment, or available for
sale. See Note 2 to the consolidated financial statements for the composition of the securities portfolio as of December 31,
2012, December 31, 2011 and December 31, 2010.
Table 22 – Securities
(In thousands)
Trading:
2012
December 31,
2011
2010
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
U.S. Government agency obligations
$
16,602
$
16,545
$
22,140
$
22,203
$
3,890
$
3,873
U.S. agency residential mortgage-backed
securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Investment:
85,914
90,552
20,883
86,361
90,326
20,870
213,951
214,102
12,320
38,693
2,864
76,017
12,379
39,345
2,873
76,800
26,979
23,610
929
55,408
27,271
23,396
927
55,467
Municipal and other tax-exempt
232,700
235,940
128,697
133,670
184,898
188,577
U.S. agency residential mortgage-backed
securities – Other1
Other debt securities
Total investment securities
Available for sale:
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
82,767
184,067
499,534
85,943
206,575
528,458
121,704
188,835
439,236
120,536
208,451
462,657
—
154,655
339,553
—
157,528
346,105
1,000
84,892
1,002
87,142
1,001
66,435
1,006
68,837
—
72,190
—
72,942
U.S. agencies
Privately issue
9,650,650
9,889,821
9,297,389
9,588,177
8,193,705
8,446,909
322,902
325,163
503,068
419,166
714,430
644,209
Total residential mortgage-backed
securities
Commercial mortgage-backed securities
guaranteed by U.S. government
agencies
Other debt securities
Perpetual preferred stocks
Equity securities and mutual funds
9,973,552
10,214,984
9,800,457
10,007,343
8,908,135
9,091,118
890,746
895,075
35,680
22,171
24,593
36,389
25,072
27,557
—
36,298
19,171
33,843
—
36,495
18,446
47,238
—
6,401
19,511
29,181
—
6,401
22,114
43,046
Total available for sale securities
11,032,634
11,287,221
9,957,205
10,179,365
9,035,418
9,235,621
Fair value option securities:
U.S. agency residential mortgage-backed
securities
Corporate debt securities
Other securities
253,726
25,077
723
257,040
26,486
770
606,876
25,099
—
626,109
25,117
—
433,662
428,021
—
—
—
—
Total fair value option securities
$
279,526
$
284,296
$
631,975
$
651,226
$
433,662
$
428,021
1 Includes $5.0 million at December 31, 2012 and $12 million at December 31, 2011 of remaining net unrealized gain which remains in
Accumulated Other Comprehensive Income in the Consolidated Balance Sheets related to securities transferred from the available for sale
securities portfolio to the investment portfolio in 2011. See Note 2 to the Consolidated Financial Statements for additional discussion.
55
At December 31, 2012, the carrying value of investment (held-to-maturity) securities was $500 million and the fair value was
$528 million. Investment securities consist primarily of long-term, fixed rate Oklahoma municipal bonds, taxable Texas school
construction bonds and residential mortgage-backed securities issued by U.S. government agencies. The investment security
portfolio is diversified among issuers. The largest obligation of any single issuer is $30 million. Substantially all of these bonds
are general obligations of the issuers. Approximately $89 million of the 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.
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 $11.0 billion at December 31, 2012, an increase of $1.1 billion over December 31,
2011. The increase was primarily in short-duration U.S. government agency residential mortgage-backed securities and U.S.
government agency backed commercial mortgage-backed securities. At December 31, 2012, residential mortgage-backed
securities represented 91% of total available for sale securities. We also added $895 million of commercial mortgage-backed
securities fully backed by U.S. government agencies during 2012. The securities have prepayment penalties similar to
commercial loans.
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, 2012 is 2.2 years. Management estimates the duration extends
to 3.7 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 1.7 years assuming a 50
basis point decline in the current low rate environment. Net unamortized premiums are less than 1% of the available for sale
securities portfolio amortized cost.
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, 2012, approximately $9.7 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 $9.9 billion at December 31, 2012.
We also hold amortized cost of $323 million in residential mortgage-backed securities privately issued by publicly-owned
financial institutions. The amortized cost of these securities decreased $180 million from December 31, 2011. The fair value of
these securities increased nearly 10% between December 31, 2011 and February 29, 2012. In response to this significant
increase in fair value, management evaluated the expected performance of our privately-issued residential mortgage-backed
securities portfolio. We sold $107 million of these securities we believe had reached their maximum expected potential in
March 2012 at a $7.4 million loss. We do not intend to sell the remaining portfolio of privately-issued residential mortgage
backed securities. The additional decline was primarily due to $67 million of cash received and $5.9 million of other-than-
temporary impairment losses charged against earnings during 2012. The fair value of our portfolio of privately issued
residential mortgage-backed securities totaled $325 million at December 31, 2012.
The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $199 million of Jumbo-
A residential mortgage loans and $124 million of Alt-A residential mortgage loans. Jumbo-A residential mortgage loans
generally meet government underwriting standards, but have loan balances that exceed agency maximums. Alt-A mortgage
loans generally do not have sufficient documentation to meet government agency underwriting standards. Credit risk on
residential mortgage-backed securities originated by 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 10.2% and has been fully absorbed as of December 31, 2012. The Jumbo-A residential mortgage-backed
securities had original credit enhancement of 9.4% and the current level is 4.6%. Approximately 79% of our Alt-A mortgage-
backed securities represent pools of fixed rate residential 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
represent pools of fixed rate residential mortgage loans and none of the adjustable rate mortgages are payment option ARMs.
The aggregate gross amount of unrealized losses on available for sale securities totaled $6.6 million at December 31, 2012,
down $80 million from 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 $7.4 million were recognized in earnings in 2012, including $5.9
56
million related to certain privately issued residential mortgage-backed securities that we do not intend to sell and $1.0 million
related to certain municipal securities that we do not intend to sell. In addition, impairment charges of $457 thousand were
recognized on certain equity securities during 2012.
Certain residential mortgage-backed securities issued by U.S. government agencies and included in fair value option securities
on the Consolidated Balance Sheets, have been segregated and designated as economic hedges of changes in the fair value of
our mortgage servicing rights. We have elected to carry these securities at fair value with changes in fair value recognized in
current period income. These securities are held with the intent that gains or losses will offset changes in the fair value of
mortgage servicing rights and related derivative contracts.
Bank-Owned Life Insurance
We have approximately $275 million of bank-owned life insurance at December 31, 2012. This investment is expected to
provide a long-term source of earnings to support existing employee benefit programs. Approximately $244 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
certain 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, 2012, the fair value of investments held in separate accounts was approximately $267
million. As the underlying fair value of the investments held in a separate account at December 31, 2012 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 represents the cash surrender
value of policies held in general accounts and other amounts due from various insurance companies.
57
Loans
The aggregate loan portfolio before allowance for loan losses totaled $12.3 billion at December 31, 2012, up $1.0 billion or 9%
over December 31, 2011. Commercial loans grew by $1.1 billion or 17% due largely to growth in energy and services sector
loans. Commercial real estate loans decreased $62 million or 3%. Growth in multi-family residential property loans was offset
by a decrease in construction and land development loans. Residential mortgage loans were up $71 million or 4% primarily due
to an increase in home equity loans, partially offset by a decrease in permanent residential mortgage loans. Consumer loans
decreased $53 million due primarily to the continued runoff of the indirect automobile loan portfolio resulting from the
Company's previously disclosed decision to exit this business in the first quarter of 2009.
Table 23 – Loans
(In thousands)
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Construction and land development
Retail
Office
Multifamily
Industrial
Other real estate
2012
2011
2010
2009
2008
December 31,
$
2,460,659
$
2,005,041
$
1,706,366
$
1,911,392
$
2,333,755
2,164,186
1,106,439
348,484
1,081,406
191,106
289,632
1,761,538
1,574,680
1,768,966
967,426
336,733
978,160
204,311
301,861
981,047
319,353
843,826
203,741
312,383
919,998
384,327
776,457
160,148
240,210
2,045,121
1,171,331
509,868
803,939
199,314
244,247
7,641,912
6,555,070
5,941,396
6,161,498
7,307,575
253,093
522,786
427,872
402,896
245,994
376,358
342,054
509,402
405,923
369,028
278,186
386,710
451,720
420,038
462,758
364,172
178,032
394,141
655,116
423,155
444,091
357,496
126,006
493,927
920,662
435,334
485,471
318,818
143,532
400,840
Total commercial real estate
2,228,999
2,291,303
2,270,861
2,499,791
2,704,657
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
1,123,965
1,157,133
1,206,297
1,314,592
1,346,105
160,444
760,631
184,973
632,421
72,385
556,593
28,633
490,285
19,316
482,643
Total residential mortgage
2,045,040
1,974,527
1,835,275
1,833,510
1,848,064
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
34,735
360,770
395,505
105,149
343,694
448,843
239,188
356,316
595,504
454,508
330,391
784,899
692,616
323,094
1,015,710
$
12,311,456
$ 11,269,743
$
10,643,036
$
11,279,698
$
12,876,006
Loans grew in almost all of our geographical markets. Commercial loan growth in our Bank of Oklahoma, Bank of Texas and
Colorado State Bank & Trust markets was particularly strong. A breakdown by geographical market follows on Table 24
followed by a discussion of changes in the balance by portfolio and geography. This breakdown may not always represent the
location of the borrower or the collateral. The previous periods have been reclassified to conform to the current period loan
classification and market attribution.
58
Table 24 – Loans by Principal Market
(In thousands)
Bank of Oklahoma:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Oklahoma
Bank of Texas:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Texas
Bank of Albuquerque:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Albuquerque
Bank of Arkansas:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Arkansas
Colorado State Bank & Trust:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Colorado State Bank & Trust
Bank of Arizona:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Arizona
Bank of Kansas City:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Kansas City
2012
2011
2010
2009
2008
December 31,
$
$
3,089,686
580,694
1,488,486
220,096
5,378,962
$
2,826,649
607,030
1,411,560
235,909
5,081,148
$
2,693,232
703,041
1,227,184
327,599
4,951,056
$
2,728,763
822,586
1,383,642
449,371
5,384,362
2,726,925
771,796
275,408
116,252
3,890,381
2,249,888
830,642
268,053
126,570
3,475,153
1,943,666
701,993
300,916
145,699
3,092,274
2,022,324
734,072
271,910
169,396
3,197,702
265,830
326,135
130,337
15,456
737,758
62,049
90,821
13,046
15,421
181,337
776,610
173,327
59,363
19,333
1,028,633
313,296
201,760
57,803
4,686
577,545
407,516
84,466
20,597
4,261
516,840
258,668
303,500
104,695
19,369
686,232
76,199
136,170
15,772
35,911
264,052
544,020
156,013
64,627
21,598
786,258
271,914
198,160
89,315
5,633
565,022
327,732
59,788
20,505
3,853
411,878
284,394
308,605
94,010
19,620
706,629
83,297
118,662
15,614
72,869
290,442
436,094
196,728
75,266
21,276
729,364
215,973
206,948
97,576
5,604
526,101
284,740
34,884
24,709
2,837
347,170
342,689
304,903
74,703
17,799
740,094
103,061
132,828
9,503
124,118
369,510
510,019
241,699
27,980
17,566
797,264
202,599
234,039
48,708
4,657
490,003
252,043
29,664
17,064
1,992
300,763
3,341,176
853,344
1,295,882
584,145
6,074,547
2,396,428
806,713
315,505
213,230
3,731,876
406,092
300,955
92,179
17,885
817,111
105,838
131,934
18,922
176,734
433,428
600,820
260,842
52,497
16,235
930,394
211,279
322,525
61,614
6,082
601,500
245,942
28,344
11,465
1,399
287,150
Total BOK Financial loans
$
12,311,456
$ 11,269,743
$
10,643,036
$
11,279,698
$
12,876,006
59
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, 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 grew by $1.1 billion or 17% during 2012. Energy sector loans increased $456 million or 23%
over December 31, 2011. Energy loans attributed to the Colorado market grew by $189 million, energy loans attributed to the
Oklahoma market grew by $148 million and energy loans in the Texas market grew by $115 million. Service sector loans
increased $403 million or 23%, growing in all our geographical markets. Service sector loans grew by $225 million in the
Texas market, $66 million in the Oklahoma market, $48 million in the Arizona market and $39 million in the Colorado market.
Wholesale/retail sector loans were up $139 million or 14%, primarily in the Texas and Kansas City markets. Healthcare sector
loans were up $103 million or 11% over December 31, 2011. Increased loan balances attributed to the Texas, New Mexico,
Kansas City and Oklahoma markets were partially offset by decreased loan balances attributed to the Arizona market.
The commercial sector of our loan portfolio is distributed as follows in Table 25.
Table 25 – Commercial Loans by Principal Market
(In thousands)
Bank of
Oklahoma
Bank of
Texas
Bank of
Albuquerque
Bank of
Arkansas
Colorado
State Bank
& Trust
Bank of
Arizona
Bank of
Kansas
City
Total
$ 1,113,239
$
900,254
$
5,060
$
220
$
441,675
$
— $
211
$ 2,460,659
653,056
407,471
612,611
153,953
3,960
850,626
452,889
306,931
118,769
6,309
168,789
43,584
32,624
5,664
—
16,576
38,515
4,115
2,450
—
226,156
164,511
17,981
71,385
9,942
4,140
74,099
31,309
42,100
84,472
71,900
22,431
15,606
2,164,186
1,106,439
1,081,406
348,484
191,106
—
176,697
145,396
91,147
10,109
173
5,331
1,277
36,199
289,632
$ 3,089,686
$ 2,726,925
$
265,830
$
62,049
$
776,610
$ 313,296
$ 407,516
$ 7,641,912
Energy
Services
Wholesale/retail
Healthcare
Manufacturing
Integrated food services
Other commercial and
industrial
Total commercial
loans
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 a large portion of our commercial loan portfolio. In addition, energy production and related
industries have a significant impact on the economy in our primary markets. Loans collateralized by oil and gas properties are
subject to a semi-annual engineering review by our internal staff of petroleum engineers. This review is utilized as the basis for
developing the expected cash flows supporting the loan amount. The projected cash flows are discounted according to risk
characteristics of the underlying oil and gas properties. Loans are evaluated to demonstrate with reasonable certainty that crude
oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and
operating conditions at current pricing levels and with existing conventional equipment and operating methods and costs. As
part of our evaluation of credit quality, we analyze rigorous stress tests over a range of commodity prices and take proactive
steps to mitigate risk when appropriate.
Energy loans totaled $2.5 billion or 20% of total loans at December 31, 2012. Outstanding energy loans increased $456 million
during 2012. Unfunded energy loan commitments increased by $387 million to $2.4 billion at December 31, 2012.
Approximately $2.2 billion of energy loans were to oil and gas producers, up $495 million over December 31, 2011.
Approximately 55% of the committed production loans are secured by properties primarily producing oil and 45% of the
committed production loans are secured by properties primarily producing natural gas. Loans to borrowers that manufacture
equipment primarily for the energy industry increased $24 million during 2012 to $49 million. Loans to borrowers engaged in
wholesale or retail energy sales decreased $41 million to $129 million. Loans to borrowers that provide services to the energy
industry decreased $24 million during 2012 to $69 million.
60
The services sector of the loan portfolio totaled $2.2 billion or 18% of total loans and consists of a large number of loans to a
variety of businesses, including gaming, insurance, public finance, educational and community foundations. Service sector
loans increased $403 million over December 31, 2011. Approximately $1.2 billion of the services category is made up of loans
with individual balances of less than $10 million. Service sector loans are generally secured by the assets of the borrower with
repayment coming from the cash flows of ongoing operations of the customer’s business.
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, 2012, the outstanding principal balance of these loans totaled $2.4
billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in
approximately 16% of our shared national credits, based on dollars committed. We hold shared 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.
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 generally 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.
Commercial real estate loans totaled $2.2 billion or 18% of the loan portfolio at December 31, 2012. The outstanding balance
of commercial real estate loans decreased $62 million compared to 2011. Construction and land development loans, industrial
and other commercial real estate loans decreased, partially offset by increased multifamily residential properties, office building
loans and loans secured by retail facilities. The commercial real estate loan balance as a percentage of our total loan portfolio is
currently below its historical range of 20% to 22% over the past five years. The commercial real estate sector of our loan
portfolio is distributed as follows in Table 26.
Table 26 – Commercial Real Estate Loans by Principal Market
(In thousands)
Bank of
Oklahoma
Bank of
Texas
Bank of
Albuquerque
Bank of
Arkansas
Colorado
State
Bank &
Trust
Bank of
Arizona
Bank of
Kansas
City
Total
Construction and land
development
Retail
Office
Multifamily
Industrial
Other real estate
Total commercial real
estate loans
$
79,557
$
48,802
$
50,551
$
15,876
$
41,037
$
9,643
$
7,627
$
253,093
138,092
73,480
133,192
46,293
110,080
182,875
208,517
122,558
126,505
82,539
72,176
89,753
24,837
37,431
51,387
11,590
9,503
23,180
473
30,199
15,647
21,078
28,632
6,574
60,359
82,730
24,004
34,701
17,872
32,810
19,676
1,537
35,796
10,846
8,984
522,786
427,872
402,896
245,994
376,358
$ 580,694
$ 771,796
$
326,135
$
90,821
$ 173,327
$ 201,760
$
84,466
$ 2,228,999
Construction and land development loans, which consist primarily of residential construction properties and developed building
lots, decreased $89 million or 26% from December 31, 2011 to $253 million at December 31, 2012 primarily due to $70
million of net paydowns. Charge-offs of construction and land development loans totaled $7.0 million for 2012 and $12
million were transferred to other real estate owned.
Loans secured by multifamily residential properties increased $34 million or 9%. Growth in the Kansas City, Colorado and
Arizona markets was partially offset by a decrease in the Arkansas market. Loans secured by office buildings increased $22
million during 2012, primarily attributed to growth in the Texas market. Retail sector loans grew by $13 million. Loan growth
61
attributed to the Oklahoma and New Mexico markets was partially offset by a decrease in loan balances attributed to the Texas
market. Loans secured by industrial properties decreased $32 million from December 31, 2011, primarily in the Texas and
Oklahoma market, partially offset by growth in the New Mexico and Colorado markets.Other commercial and industrial loans
grew in the Colorado market, offset by decreased loan balances attributed to the New Mexico, Arizona and Texas markets.
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 $71 million or 4% over December 31, 2011. In general, we sell the majority
of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and
adjustable-rate mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our mortgage loan portfolio
does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are
below market.
The majority of our permanent mortgage loan portfolio is primarily composed of various non-conforming mortgage programs
to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs
for high net worth individuals or certain professionals. The aggregate outstanding balance of loans in these programs is $984
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.
Approximately $70 million or 6% of the non-guaranteed portion of the permanent mortgage loans consist of first lien, fixed-
rate residential mortgage loans originated under various community development programs. The outstanding balance of these
loans is down from $78 million at December 31, 2011. 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 in the event of default than traditional residential mortgage loans. The initial maximum LTV of loans in
these programs was 103%.
At December 31, 2012, $160 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 $19 million of residential mortgage
loans previously sold into GNMA mortgage pools that are eligible to be repurchased. We may repurchase these loans when
certain defined delinquency criteria are met. Because of this repurchase right, we effectively have regained control over these
loans and must include them in the Consolidated Balance Sheets. The remaining amount represents loans that the Company has
repurchased from GNMA mortgage pools. Permanent residential mortgage loans guaranteed by U.S. government agencies
decreased $25 million or 13% from December 31, 2011.
Home equity loans totaled $761 million at December 31, 2012, a $128 million or 20% increase over December 31, 2011.
Growth was primarily in first-lien, fully amortizing home equity loans. 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. Revolving loans have a 5 year revolving period followed by 15 year term of amortizing repayments. Interest-
only home equity loans may not be extended for any additional revolving time. All other home equity loans may be extended at
management's discretion for an additional 5 year revolving term subject to an update of certain credit information. A summary
of our home equity loan portfolio at December 31, 2012 by lien position and amortizing status follows in Table 27.
62
Table 27 – Home Equity Loans
(In thousands)
First lien
Junior lien
Total home equity
Revolving
Amortizing
Total
$
$
36,471
$
482,298
$
54,370
187,492
90,841
$
669,790
$
518,769
241,862
760,631
Indirect automobile loans decreased $70 million compared to December 31, 2011, primarily due to the previously-disclosed
decision by the Company to exit the business in the first quarter of 2009. Approximately $35 million of indirect automobile
loans remain outstanding at December 31, 2012. Other consumer loans increased $17 million or 5% during 2012.
The composition of residential mortgage and consumer loans at December 31, 2012 is as follows in Table 28. All permanent
residential mortgage loans serviced by our mortgage banking unit held for investment are attributed to the Oklahoma
market. Other permanent residential mortgage loans originated by the Bank are attributed to their respective principal market.
Table 28 – Residential Mortgage and Consumer Loans by Principal Market
(In thousands)
Bank of
Oklahoma
Bank of
Texas
Bank of
Albuquerque
Bank of
Arkansas
Colorado
State
Bank &
Trust
Bank of
Arizona
Bank of
Kansas
City
Total
$ 873,605
$ 141,755
$
10,735
$
7,561
$
32,191
$
45,828
$
12,290
$ 1,123,965
160,444
454,437
—
133,653
—
119,602
—
5,485
—
27,172
—
11,975
—
8,307
160,444
760,631
$ 1,488,486
$ 275,408
$
130,337
$
13,046
$
59,363
$
57,803
$
20,597
$ 2,045,040
$
17,253
202,843
$ 220,096
$
6,700
109,552
$ 116,252
$
$
— $
15,456
15,456
$
10,782
4,639
15,421
$
$
— $
— $
— $
19,333
19,333
$
4,686
4,686
$
4,261
4,261
34,735
360,770
$ 395,505
Residential mortgage:
Permanent mortgage
Permanent
mortgages guaranteed
by U.S. government
Home equity
Total residential
mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Table 29 – Loan Maturity and Interest Rate Sensitivity at December 31, 2012
(In thousands)
Remaining Maturities of Selected Loans
Total
Within 1
Year
1-5 Years
After 5
Years
Loan maturity:
Commercial
Commercial real estate
Total
Interest rate sensitivity for selected loans with:
Predetermined interest rates
Floating or adjustable interest rates
Total
$
$
$
$
7,641,912
$
906,560
$
4,429,972
$
2,305,380
2,228,999
156,700
1,371,206
9,870,911
$
1,063,260
$
5,801,178
5,024,275
4,846,636
9,870,911
$
$
112,827
$
3,169,276
950,433
2,631,902
1,063,260
$
5,801,178
701,093
3,006,473
1,742,172
1,264,301
3,006,473
$
$
$
63
Loan Commitments
We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded
loan commitments which totaled $6.6 billion and standby letters of credit which totaled $466 million at December 31, 2012.
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 $629
thousand of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at
December 31, 2012.
Table 30 – Off-Balance Sheet Credit Commitments
(In thousands)
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
As of December 31,
2012
2011
2010
2009
2008
$
6,636,587
$
6,050,208
$
5,193,545
$
5,001,338
$
5,015,660
466,477
226,922
613,457
253,834
534,565
289,021
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 commitments related to
certain residential mortgage loans originated under community development loan programs that were sold to a U.S.
government agency 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, 2012, the principal balance of residential mortgage loans sold subject to recourse
obligations totaled $227 million, down from $259 million at December 31, 2011. Substantially all of these loans are to
borrowers in our primary markets including $159 million to borrowers in Oklahoma, $23 million to borrowers in Arkansas, $15
million to borrowers in New Mexico, $12 million to borrowers in the Kansas/Missouri area and $10 million to borrowers in
Texas. At December 31, 2012, approximately 5% of these loans are nonperforming and 5% were past due 30 to 89 days. A
separate accrual for credit risk of $11 million is available to absorb losses on these loans.
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 as
described further in Note 7 to the Consolidated Financial Statements. For all of 2012, 2011 and 2010 combined, approximately
11% of repurchase requests have currently resulted in actual repurchases or indemnification by the Company. While the level of
repurchases under representations and warranties has been modest, average losses per loan trended higher during 2012.
Accordingly, we increased the accrual for estimated credit losses from repurchase of these loans during 2012. The accrual for
credit losses related to potential loan repurchases under representations and warranties totaled $5.3 million at December 31,
2012 compared to $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 cash
margin or other collateral in conjunction with our credit agreements to further limit our credit risk.
64
Counterparty credit risk is evaluated through existing policies and procedures. This evaluation considers the total relationship
between BOK Financial and each of the counterparties. Individual limits are established by management, approved by Credit
Administration and reviewed by the Asset / Liability Committee. Margin collateral is required if the exposure between the
Company and any counterparty exceeds established limits. Based on declines in the counterparties’ credit ratings, these limits
may be reduced and additional margin collateral may be required.
A deterioration of the credit standing of one or more of the customers or counterparties to these contracts may result in BOK
Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting
contracts. This occurs if the credit standing of the customer or counterparty deteriorated such that either the fair value of
underlying collateral no longer supported the contract or the customer or counterparty’s ability to provide margin collateral was
impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statement of
Earnings.
On October 31, 2011, MF Global filed for bankruptcy protection. After partial distributions from the bankruptcy trustee during
2011, the remaining amount due totaled $8.5 million at December 31, 2011. This amount was written down to $6.8 million
based on our evaluation of amounts we expected to recover at that time. During 2012, we received an additional $2.0 million
distribution from the bankruptcy trustee, further reducing the amount to $4.7 million at December 31, 2012. We also recognized
a $2.9 million recovery from the Lehman Brothers bankruptcy in brokerage and trading revenue in 2012 related to derivative
contract losses incurred in 2008.
Derivative contracts are carried at fair value. Before consideration of cash collateral received from counterparties, the aggregate
net fair values of derivative contracts reported as assets under these programs totaled $334 million at December 31, 2012,
compared to $287 million at December 31, 2011. Derivative contracts carried as assets include to-be-announced residential
mortgage-backed securities sold to our mortgage banking customers with fair values of $30 million, interest rate swaps sold to
loan customers with fair values of $72 million, energy contracts with fair values of $38 million and foreign exchange contracts
with fair values of $180 million. Before consideration of cash margin paid to counterparties, the aggregate net fair values of
derivative contracts held under these programs reported as liabilities totaled $332 million.
At December 31, 2012, total derivative assets were reduced by $3.5 million of cash collateral received from counterparties and
total derivative liabilities were reduced by $49 million of cash collateral paid 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, 2012 follows in Table 31.
Table 31 – Fair Value of Derivative Contracts
(In thousands)
Customers
Banks and other financial institutions
Exchanges
Energy companies
$
199,356
107,119
19,691
4,277
Fair value of customer hedge asset derivative contracts, net
$
330,443
The largest exposure to a single counterparty was to a loan customer for an interest rate swap which totaled $13 million at
December 31, 2012 used to convert their variable rate loan to a fixed rate.
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 exceeds 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
$24.88 per barrel of oil would increase the fair value of derivative assets by $30 million. An increase in prices equivalent to
$159.22 per barrel of oil would increase the fair value of derivative assets by $349 million as current prices move away from
the fixed prices embedded in our existing contracts. Liquidity requirements of this program are also affected by our credit
rating. A decrease in credit rating to below investment grade would increase our obligation to post cash margin on existing
65
contracts by approximately $35 million. The fair value of our to-be-announced residential mortgage-backed securities and
interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of December 31,
2012, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our
customer derivative program.
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
losses and accrual for off-balance sheet risk totaled $217 million or 1.77% of outstanding loans and 162% of nonaccruing loans
at December 31, 2012. The allowance for loans losses was $216 million and the accrual for off-balance sheet credit risk was
$1.9 million. At December 31, 2011, the combined allowance for credit losses was $263 million or 2.33% of outstanding loans
and 131% of nonaccruing loans. The allowance for loan losses was $253 million and the accrual for off-balance sheet credit
risk was $9.3 million. The accrual for off-balance sheet credit risk at December 31, 2011 included $7.1 million refunded to the
City of Tulsa during 2012 that was received in 2008 to settle claims related to a defaulted loan. The settlement agreement was
invalidated by the Oklahoma Supreme Court in 2011. The expected payment was accrued in 2011 in the accrual for off-balance
sheet credit risk as the related loan had been charged off. The refund was reflected in net charge-offs in 2012.
The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance
sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the
combined charge or credit 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 exhaustion of collection efforts. A $22 million negative provision
for credit losses was recorded during 2012 compared to a negative provision for credit losses of $6.1 million in 2011.
Improving charge-off trends and risk ratings resulted in lower estimated loss rates for many loan classes. Other credit quality
indicators and most economic factors were stable or improving in our primary markets.
66
Table 32 – Summary of Loan Loss Experience
(In thousands)
Allowance for loan losses:
Beginning balance
Loans charged off:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Recoveries of loans previously charged off:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Net loans charged off
Provision for loan losses
Ending balance
Accrual for off-balance sheet credit risk:
Beginning balance
Provision for off-balance sheet credit risk
Ending balance
Total combined provision for credit losses
Allowance for loan losses to loans outstanding
at period-end
Net charge-offs to average loans
Total provision for credit losses to average loans
Recoveries to gross charge-offs
Allowance for loan losses as a multiple of net
charge-offs
Accrual for off-balance sheet credit risk to off-
balance sheet credit commitments
Combined allowance for credit losses to loans
2012
2011
2010
2009
2008
Year Ended December 31,
$
253,481
$ 292,971
$
292,095
$
233,236
$
126,677
(9,341)
(11,642)
(10,047)
(11,108)
(42,138)
6,128
5,706
1,928
5,056
18,818
(23,320)
(14,654)
1
(14,836)
(15,973)
(14,107)
(11,884)
(56,800)
7,478
2,780
2,334
5,758
18,350
(38,450)
(1,040)
$
$
$
$
215,507
$ 253,481
9,261
(7,346)
1,915
(22,000)
$
$
$
14,271
(5,010)
9,261
(6,050)
$
$
$
$
1.75 %
0.20 % 1
(0.19)%
44.66 % 1
2.25 %
0.35 %
(0.06)%
32.31 %
9.24x
1
6.59x
0.03 %
0.14 %
(27,640)
(59,962)
(20,056)
(16,330)
(49,725)
(57,313)
(16,672)
(24,789)
(74,976)
(19,141)
(7,223)
(20,871)
(123,988)
(148,499)
(122,211)
9,263
3,179
901
6,265
19,608
(104,380)
105,256
292,971
14,388
(117)
14,271
105,139
2.75%
0.96%
0.96%
15.81%
2.81x
0.25%
2,546
461
929
6,744
10,680
13,379
332
366
6,413
20,490
(137,819)
(101,721)
196,678
292,095
15,166
(778)
14,388
195,900
$
$
$
$
208,280
233,236
20,853
(5,687)
15,166
202,593
$
$
$
$
2.59%
1.14%
1.61%
7.19%
2.12x
0.26%
1.81%
0.81%
1.62%
16.77%
2.29x
0.27%
outstanding at period-end
1.93%
1 Includes $7.1 million of negative recovery related to a refund of a settlement between BOK Financial and the City of Tulsa invalidated by
the Oklahoma Supreme Court. Excluding this refund, BOK Financial net charge-offs to average loans was 0.14%, recoveries to gross
charge-offs were 61.51% and the allowance for loan losses as a multiple of net charge-offs was 13.29x for 2012.
1.77 %
2.33 %
2.72%
2.89%
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 estimated loss rates by loan class and non-specific allowances based on general
economic conditions, concentration in loans with large balances and other relevant factors.
Loans are considered to be impaired when it is probable that we will not collect all amounts due according to the contractual
terms of the loan agreements. This includes all nonaccruing loans, all loans modified in trouble debt restructurings and all
government guaranteed loans repurchased from GNMA pools. At December 31, 2012, impaired loans totaled $294 million,
including $11 million with specific allowances of $4.2 million and $283 million with no specific allowances because the loan
67
balances represent the amounts we expect to recover. At December 31, 2011, impaired loans totaled $386 million, including
$22 million of impaired loans with specific allowances of $5.8 million and $364 million with no specific allowances.
General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rates for risk-graded
loans are either increased or decreased based on changes in risk grading for each loan class. Estimated loss rates 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 $167 million at December 31, 2012, compared to
$201 million at December 31, 2011. Estimated loss rates continued to decline due to lower charge-offs and improved risk
ratings. The general allowance for the commercial loan portfolio segment decreased by $17 million primarily due to lower
estimated loss rates , partially offset by growth in the portfolio balance. The general allowance for the commercial real estate
loan portfolio segment decreased $11 million compared to December 31, 2011 primarily due a $58 million decrease in
commercial real estate loans and a general improvement in loss rates. The general allowance for residential mortgage loans
decreased $5.2 million and the general allowance for consumer loans decreased $850 thousand, primarily due to lower
estimated loss rates.
Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These
factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other
relevant factors. Nonspecific allowances totaled $44 million at December 31, 2012 and $46 million at December 31, 2011. The
nonspecific allowance at both December 31, 2012 and 2011 includes 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 nonspecific allowance also
considers the possible impact of the European debt crisis and similar economic factors on our loan portfolio. As demonstrated
by continued domestic and European accommodative monetary policies, these factors remain a continued significant risk.
An allocation of the allowance for loan losses by loan category follows in Table 33.
Table 33 – Allowance for Loan Losses Allocation
(Dollars in thousands)
2012
2011
2010
2009
2008
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Loan category:
Commercial
$
65,280
62.07% $
83,443
58.17% $ 104,631
55.82% $ 121,320
54.63% $ 100,743
56.75%
Commercial
real estate
Residential
mortgage
Consumer
Nonspecific
allowance
54,884
18.11%
67,034
20.33%
98,709
21.34%
104,208
22.16%
75,555
21.01%
16.61%
3.21%
41,703
9,453
44,187
46,476
10,178
46,350
17.52%
3.98%
50,281
12,614
26,736
17.24%
5.60%
16.25%
6.96%
27,863
20,452
18,252
14.35%
7.89%
14,017
19,819
23,102
Total
$ 215,507
100.00% $ 253,481
100.00% $ 292,971
100.00% $ 292,095
100.00% $ 233,236
100.00%
1 Represents ratio of loan category balance to total loans.
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 loans agreements, and no loss of principal or interest is anticipated, these loans were not included in
nonperforming assets. Known information does, however, cause management concern as to the borrowers’ continued ability to
comply with current repayment terms. The potential problem loans totaled $141 million at December 31, 2012. The current
composition of potential problem loans by primary industry included services - $32 million, construction and land development
- $23 million, commercial real estate secured by office buildings - $15 million, other commercial real estate - $12 million,
residential mortgage - $10 million, wholesale/retail - $9.9 million, manufacturing - $9.3 million and energy - $9.2 million.
Potential problem loans totaled $161 million at December 31, 2011.
68
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. 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 are generally charged off when payments are between 60 days and 180 days past due,
depending on loan class. In addition, non-risk graded loans are generally charged-down to collateral value within 60 days of
being notified of a borrower's bankruptcy filing, regardless of payment status.
Net loans charged off totaled $23.3 million or 0.20% of average outstanding loans in 2012, including the return of $7.1 million
received from the City of Tulsa to settle claims related to a defaulted loan that was recorded as a recovery in 2008. The
settlement agreement between BOK Financial and the City of Tulsa was invalidated by the Oklahoma Supreme Court in 2011.
The return of this settlement was recorded as a negative recovery in 2012 when the funds were returned to the City of Tulsa.
Net loans charged off totaled $38.5 million or 0.35% of average loans in 2011.
Net loans charged off (recovered) by category and principal market area follow in Table 34.
Table 34 – Net Loans Charged Off (Recovered)
(In thousands)
Oklahoma
Texas
Colorado
Arkansas
New
Mexico
Arizona
Kansas/
Missouri
Total
Year Ended December 31, 2012
Commercial
$
5,754
$
2,767
$
(3,104) $
(2,118) $
(178) $
217
$
(125) $
452
6,703
2,542
(71)
7
2,793
3,316
(45)
(1)
680
24
(29)
454
245
615
1,105
1,024
74
—
161
58
3,213
5,936
8,119
6,052
Commercial real estate
Residential mortgage
Consumer
Total net loans charged off
(recovered)
$
15,451
$
5,496
$
166
$
(1,443) $
1,136
$
2,420
$
94
$
23,320
Oklahoma
Texas
Colorado
Arkansas
New
Mexico
Arizona
Kansas/
Missouri
Total
Year Ended December 31, 2011
Commercial
$
1,302
$
2,506
$
(48) $
2,135
$
(128) $
1,455
$
136
$
7,358
Commercial real estate
Residential mortgage
Consumer
6,235
8,952
3,307
(168)
205
1,627
2,040
176
67
49
95
518
753
886
592
4,284
1,437
(8)
—
22
23
13,193
11,773
6,126
Total net loans charged off
$
19,796
$
4,170
$
2,235
$
2,797
$
2,103
$
7,168
$
181
$
38,450
Excluding the impact of the return of the invalidated settlement attributed to the Oklahoma market, net commercial loans
charged off during 2012 resulted in a $1.3 million net recovery. Net commercial loan recoveries for 2012 were comprised
primarily of a $3.2 million recovery from a single service sector customer in the Colorado market, a $2.0 million recovery from
a single wholesale/retail sector customer in the Arkansas market and a $1.8 million recovery from a single manufacturing sector
customer in the Oklahoma market. These recoveries were partially offset by a $3.0 million charge-off from a single healthcare
sector loan in the Texas market.
Net charge-offs of commercial real estate loans decreased $7.3 million from the prior year and were primarily comprised of net
charge-offs of land and residential construction sector loans in the Colorado and Arizona markets.
Residential mortgage net charge-offs were down $3.7 million compared to 2011. Consumer loan net charge-offs, which include
indirect auto loan and deposit account overdraft losses were largely unchanged compared to the prior year.
69
Nonperforming Assets
Table 35 -- Nonperforming Assets
(In thousands)
Nonaccruing loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total nonaccruing loans
Renegotiated loans3
Total nonperforming loans
Real estate and other repossessed assets
2012
2011
2010
2009
2008
December 31,
$
24,467
60,626
46,608
2,709
134,410
38,515
172,925
103,791
$
68,811
99,193
29,767
3,515
201,286
32,893
234,179
122,753
$
38,455
$
101,384
$
150,366
37,426
4,567
230,814
22,261
253,075
141,394
204,924
29,989
3,058
339,355
15,906
355,261
129,034
134,846
137,279
27,387
561
300,073
13,039
313,112
29,179
Total nonperforming assets
$
276,716
$
356,932
$
394,469
$
484,295
$
342,291
Nonaccruing loans by principal market:
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank & Trust
Bank of Arizona
Bank of Kansas City
Total nonaccruing loans
Nonaccruing loans by loan portfolio sector:
Commercial:
Energy
Manufacturing
Wholesale / retail
Integrated food services
Services
Healthcare
Other
Total commercial
Commercial real estate:
Land development and construction
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
$
$
56,424
31,623
13,401
1,132
14,364
17,407
59
$
65,261
28,083
15,297
23,450
33,522
35,673
—
$
60,805
33,157
19,283
7,914
49,416
60,239
—
83,176
66,892
26,693
13,820
60,082
84,559
4,133
$
108,367
42,934
16,016
3,263
32,415
80,994
16,084
$
134,410
$
201,286
$
230,814
$
339,355
$
300,073
$
336
$
465
$
23,051
21,180
—
16,968
5,486
1,790
68,811
61,874
6,863
11,457
3,513
—
15,486
99,193
2,116
8,486
13
19,262
3,534
4,579
38,455
99,579
4,978
19,654
6,725
4,087
15,343
150,366
$
22,692
15,765
12,057
65
30,926
13,103
6,776
49,364
7,343
18,773
680
36,873
12,118
9,695
101,384
134,846
109,779
26,236
25,861
26,540
279
16,229
204,924
76,082
15,625
7,637
24,950
6,287
6,698
137,279
$
2,460
2,007
3,077
684
12,090
3,166
983
24,467
26,131
8,117
6,829
2,706
3,968
12,875
60,626
70
Table 35 -- Nonperforming Assets
(In thousands)
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
Total residential mortgage
Consumer
Total nonaccrual loans
Ratios:
2012
2011
2010
2009
2008
December 31,
39,863
25,366
489
6,256
46,608
2,709
—
4,401
29,767
3,515
32,111
—
5,315
37,426
4,567
28,314
—
1,675
29,989
3,058
26,233
—
1,154
27,387
561
$
134,410
$
201,286
$
230,814
$
339,355
$
300,073
Allowance for loan losses to nonaccruing loans
Nonaccruing loans to period-end loans
160.34%
1.09%
125.93%
1.79%
126.93%
2.17%
86.07%
3.01%
77.73%
2.33%
Accruing loans 90 days or more past due1
Foregone interest on nonaccruing loans2
$
3,925
8,587
$
2,496
$
7,966
$
8,908
$
11,726
16,818
17,015
18,251
8,391
1 Excludes residential mortgages guaranteed by
agencies of the U.S. Government.
2 Interest collected and recognized on nonaccruing
loans was not significant in 2012 and previous
years.
3 Includes residential mortgages 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.
$
38,515
$
28,974
$
18,551
$
12,799
$
10,396
—
—
—
4,311
13,181
Nonperforming assets decreased $80 million during 2012 to $277 million or 2.23% of outstanding loans and repossessed assets
at December 31, 2012. Nonaccruing loans totaled $134 million, accruing renegotiated residential mortgage loans totaled $39
million (all guaranteed by U.S. government agencies) and real estate and other repossessed assets totaled $104 million. The
Company generally retains nonperforming assets to maximize potential recovery which may cause future nonperforming assets
to decrease more slowly.
The Office of the Comptroller of the Currency issued interpretive guidance in the third quarter of 2012 regarding accounting
for and classification of retail loans to borrowers who have filed for Chapter 7 bankruptcy. This guidance requires that these
loans be charged-down to collateral value and classified as nonaccruing and troubled debt restructurings, regardless of current
payment status. We have generally been complying with this guidance by charging down such loans to collateral value within
60 days of being notified that the borrower's bankruptcy filing. Implementation of this guidance did not significantly affect
charge-offs or the provision for credit losses. However, implementation of this guidance increased nonaccruing loans by
approximately $19 million. At December 31, 2012, payments on approximately 65% of these newly-identified nonaccruing
loans were current. Most of the increase in nonaccruing loans is related to residential mortgage loans attributed to the
Oklahoma market. Implementation of this guidance also increased renegotiated residential mortgage loans guaranteed by U.S.
government agencies by $12 million. Additionally, $3.6 million of accruing non-guaranteed residential mortgage troubled debt
restructurings were reclassified to nonaccruing to comply with this interpretation.
Loans are generally 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 loans in troubled debt
restructuring. Modifications may include extension of payment terms and rate concessions. We do not forgive principal or
accrued but unpaid interest. All loans modified in troubled debt restructurings, except residential mortgage loans guaranteed by
U.S. government agencies, are classified as nonaccruing. We may also renew matured nonaccruing loans. All nonaccruing
71
loans, including those renewed or modified in troubled debt restructurings, 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. All nonaccruing loans generally remain on nonaccruing 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. Consumer loans modified at the direction of
bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.
As of December 31, 2012, renegotiated loans consist solely of accruing residential mortgage loans guaranteed by U.S.
government agencies that have been 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 based on the modified terms of the loan. 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 rollforward of nonperforming assets for the year ended December 31, 2012 follows in Table 36.
Table 36 – Rollforward of Nonperforming Assets
(In thousands)
Balance, December 31, 2011
Additions
Additions due to implementation of OCC guidance
Payments
Charge-offs
Net writedowns and losses
Foreclosure of nonperforming loans
Foreclosure of loans guaranteed by U.S. government agencies
Proceeds from sales
Conveyance to U.S. government agencies
Net transfers to nonaccruing loans
Return to accrual status
Other, net
Balance, December 31, 2012
Year Ended December 31, 2012
Nonaccruing
Loans
Renegotiated
Loans
Real Estate
and Other
Repossessed
Assets
Total
Nonperforming
Assets
$
201,286
$
32,893
$
122,753
$
356,932
78,141
19,135
(92,271)
(42,138)
—
(33,050)
—
—
—
454
(2,055)
4,908
15,247
12,265
(648)
—
—
(5,816)
—
(12,785)
—
(454)
—
—
—
—
—
(11,401)
38,866
94,636
(53,092)
(89,223)
—
—
(2,187)
1,252
93,388
31,400
(92,919)
(42,138)
(11,401)
—
94,636
(65,877)
(89,223)
—
(2,055)
3,973
$
134,410
$
38,515
$
103,791
$
276,716
We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans
are not eligible for modification programs or have failed to comply with modified loan terms. Principal is guaranteed by
agencies of the U.S. government, subject to limitations and credit risk is minimal. These properties will be conveyed to the
agencies once applicable criteria have been met. During 2012, $95 million of properties guaranteed by U.S. government
agencies were foreclosed and $89 million of properties were conveyed to the applicable U.S. government agencies.
Nonaccruing loans totaled $134 million or 1.09% of outstanding loans at December 31, 2012 compared to $201 million or
1.79% of outstanding loans at December 31, 2011. Nonaccruing loans decreased $67 million from December 31, 2011 due
primarily to $92 million of payments, $42 million of charge-offs and $33 million of foreclosures. Newly identified nonaccruing
loans totaled $97 million for 2012, including $19 million due to the implementation of new OCC guidance.
The distribution of nonaccruing loans among our various markets follows in Table 37.
72
Table 37 – Nonaccruing Loans by Principal Market
(Dollars In thousands)
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank & Trust
Bank of Arizona
Bank of Kansas City
Total
December 31, 2012
December 31, 2011
Change
$
Amount
56,424
31,623
13,401
1,132
14,364
17,407
59
% of
outstanding
loans
1.05% $
0.81%
1.82%
0.62%
1.40%
3.01%
0.01%
% of
outstanding
loans
Amount
% of
outstanding
loans
Amount
65,261
28,083
15,297
23,450
33,522
35,673
—
1.28% $
(8,837)
(23) bp
0.81%
2.23%
8.88%
4.26%
6.31%
—%
3,540
(1,896)
(22,318)
(19,158)
(18,266)
59
—
(41)
(826)
(286)
(330)
1
$
134,410
1.09% $
201,286
1.79% $
(66,876)
(70) bp
Nonaccruing loans attributed to the Bank of Oklahoma are primarily composed of $34 million of residential mortgage loans,
$12 million of commercial real estate loans and $9.0 million of commercial loans. All residential mortgage loans retained by
the Company that were originated across our geographical footprint and serviced by our mortgage company are attributed to
the Bank of Oklahoma. Nonaccruing loans attributed to the Bank of Texas included $15 million of commercial real estate
loans, $9.1 million of residential mortgage loans and $6.6 million of commercial loans. Nonaccruing loans attributed to the
Bank of Arizona consisted of $11 million of commercial real estate loans and $5.6 million of commercial loans. Nonaccruing
loans attributed to Colorado State Bank & Trust and Bank of Albuquerque consisted primarily of commercial real estate loans.
Commercial
Nonaccruing commercial loans totaled $24 million or 0.32% of total commercial loans at December 31, 2012, down from $69
million or 1.05% of total commercial loans at December 31, 2011. Nonaccruing commercial loans decreased $44 million
during 2012 primarily due to $56 million in payments. Newly identified nonaccruing commercial loans decreased to $24
million for 2012 compared to $77 million for 2011. Nonaccruing commercial loans were also reduced by $9.3 million of
charge-offs and $2.6 million of repossessions during 2012.
Nonaccruing commercial loans at December 31, 2012 were primarily composed of $12 million or 0.56% of total services sector
loans including $4.9 million attributed to the Bank of Arizona, $3.1 million attributed to the Bank of Oklahoma and $2.1
million attributed to the Bank of Texas. Nonaccruing manufacturing sector loans at December 31, 2011 were primarily
composed of a single customer relationship attributed to the Bank of Oklahoma totaling $21 million. This loan was paid off
during 2012, including a $1.8 million partial recovery of amounts previously charged off. Nonaccruing wholesale/retail sector
loans at December 31, 2011 were primarily composed of a single customer relationship attributed to the Bank of Arkansas
totaling $16 million. This loan was fully paid off during 2012, including a recovery of $2.0 million of amounts previously
charged off and $2.9 million of foregone interest and fees.
The distribution of nonaccruing commercial loans among our various markets was as follows in Table 38.
73
Table 38 – Nonaccruing Commercial Loans by Principal Market
(Dollars in thousands)
December 31, 2012
December 31, 2011
Change
$
Amount
8,984
6,561
1,919
344
1,075
5,584
—
% of
outstanding
loans
0.29% $
0.24%
0.72%
0.55%
0.14%
1.78%
—%
Amount
26,722
12,037
3,056
16,648
3,446
6,902
—
% of
outstanding
loans
Amount
% of
outstanding
loans
0.95% $
(17,738)
(66) bp
0.54%
1.18%
(5,476)
(1,137)
(30)
(46)
21.85%
(16,304)
(2,130)
0.63%
2.54%
—%
(2,371)
(1,318)
—
(49)
(76)
—
$
24,467
0.32% $
68,811
1.05% $
(44,344)
(73) bp
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank & Trust
Bank of Arizona
Bank of Kansas City
Total commercial
Commercial Real Estate
Nonaccruing commercial real estate loans totaled $61 million or 2.72% of outstanding commercial real estate loans at
December 31, 2012 compared to $99 million or 4.33% of outstanding commercial real estate loans at December 31,
2011. Nonaccruing commercial real estate loans continue to be largely concentrated in land development and residential
construction loans. Nonaccruing commercial real estate loans were down $39 million compared to the prior year. Newly
identified nonaccruing commercial real estate loans totaled $17 million, compared to $30 million in 2011. Newly identified
nonaccruing commercial real estate loans were offset by $32 million of cash payments received, $12 million of charge-offs and
$16 million of foreclosures.
Nonaccruing commercial real estate loans are primarily concentrated in the Texas, Oklahoma, Colorado and Arizona
markets. Nonaccruing loans attributed to the Bank of Texas were primarily composed of $6.3 million of residential construction
and land development loans, $4.0 million of loans secured by industrial facilities and $3.4 million of loans secured by retail
facilities. Nonaccruing commercial real estate loans attributed to the Bank of Oklahoma consisted primarily of $3.2 million
residential construction and land development loans, $2.7 million of loans secured by multifamily residential properties and
$2.4 million of loans secured by retail facilities. Nonaccruing commercial real estate loans attributed to Colorado State Bank &
Trust consist primarily of $8.2 million of nonaccruing residential construction and land development loans and $4.6 million of
other commercial real estate loans. Nonaccruing commercial real estate loans attributed to the Arizona market primarily consist
of $4.9 million of other commercial real estate loans and $3.5 million of loans secured by office buildings.
The distribution of our nonaccruing commercial real estate loans among our geographic markets follows in Table 39.
Table 39 – Nonaccruing Commercial Real Estate Loans by Principal Market
(Dollars in thousands)
December 31, 2012
December 31, 2011
Change
$
Amount
11,782
15,483
9,862
—
12,811
10,688
—
% of
outstanding
loans
2.03% $
2.01%
3.02%
—%
7.39%
5.30%
—%
% of
outstanding
loans
2.55% $
1.38%
3.49%
4.14%
19.16%
13.17%
—%
Amount
(3,693)
3,992
(728)
(5,638)
(17,088)
(15,412)
—
% of
outstanding
loans
(52) bp
63
(47)
(414)
(1,177)
(787)
—
Amount
15,475
11,491
10,590
5,638
29,899
26,100
—
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank & Trust
Bank of Arizona
Bank of Kansas City
Total commercial real estate
$
60,626
2.72% $
99,193
4.33% $
(38,567)
(161) bp
74
Residential Mortgage and Consumer
Nonaccruing residential mortgage loans totaled $47 million or 2.28% of outstanding residential mortgage loans at
December 31, 2012 compared to $30 million or 1.51% of outstanding residential mortgage loans at December 31, 2011. Newly
identified nonaccruing residential mortgage loans totaled $42 million partially offset by $11 million of foreclosures and $10
million of loans charged off during the year. Newly identified nonaccruing residential mortgage loans included $17 million
identified due to the implementation of the OCC interpretative guidance regarding Chapter 7 bankruptcies. At December 31,
2012, payment on approximately 65% of these newly identified nonaccruing loans are current. Nonaccruing residential
mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans which totaled $40 million or 3.55%
of outstanding non-guaranteed permanent residential mortgage loans at December 31, 2012. Nonaccruing home equity loans
totaled $6.3 million or 0.82% of total home equity loans.
Payments on accruing residential mortgage loans and consumer loans may be delinquent. The composition of residential
mortgage loans and consumer loans past due but still accruing is included in the following Table 40. Substantially all non-
guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 89 days past due
decreased $9.7 million to $11 million at December 31, 2012. Consumer loans past due 30 to 89 days decreased $4.3 million
compared to December 31, 2011.
Table 40 – Residential Mortgage and Consumer Loans Past Due
(In thousands)
December 31, 2012
December 31, 2011
90 Days or
More
30 to 89
Days
90 Days or
More
30 to 89
Days
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.
$
$
$
$
49
—
49
15
4
19
8,366
2,275
10,641
1,273
1,327
2,600
$
$
$
601
42
643
29
—
29
$
$
$
$
17,259
3,036
20,295
4,581
2,286
6,867
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.
Real estate and other repossessed assets totaled $104 million at December 31, 2012, a $19.0 million decrease from
December 31, 2011. The distribution of real estate and other repossessed assets attributed by geographical market is included in
Table 41 following.
75
Table 41 – Real Estate and Other Repossessed Assets by Principal Market as of December 31, 2012
(In thousands)
Developed commercial
real estate properties
1-4 family residential
properties guaranteed
by U.S. government
agencies
1-4 family residential
properties
Undeveloped land
Residential land
development
properties
Oil and gas properties
Multifamily residential
properties
Other
Total real estate and
other repossessed
assets
Oklahoma
Texas
Colorado Arkansas
New
Mexico
Arizona
Kansas/
Missouri
Other
Total
$
2,015
$
5,012
$
2,172
$
1,111
$
2,847
$ 10,406
$
1,309
$ — $ 24,872
6,142
1,095
621
266
12,152
356
861
872
22,365
5,702
999
508
—
—
5
3,190
4,016
2,831
264
—
135
1,780
5,087
3,069
—
—
—
1,948
89
2,341
—
323
10
1,870
200
6,318
6,317
600
1,295
344
—
21,752
18,003
1,360
5,703
—
—
—
—
—
—
153
—
—
81
—
—
—
16
15,965
264
323
247
$
15,371
$ 16,543
$ 12,729
$
6,088
$
18,429
$ 29,100
$
4,299
$ 1,232
$ 103,791
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 Bank
Deposits and borrowed funds are the primary sources of liquidity for the subsidiary bank. Based on the average balances for
2012, approximately 72% of our funding was provided by deposit accounts, 10% from borrowed funds, 1% from long-term
subordinated debt and 11% from equity. Our funding sources, which primarily include deposits and 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 for 2012 totaled $19.0 billion and represented approximately 72% of total liabilities and capital compared
with $18.0 billion and 74% of total liabilities and capital for 2011. Average deposits increased $979 million over the prior year.
Demand deposits increased $1.7 billion. Interest-bearing transaction deposit accounts decreased $309 million and time deposits
decreased $474 million.
Average Commercial Banking deposit balances increased $795 million over the prior year, due primarily to a $1.4 billion
increase in demand deposit balances partially offset by a $532 million decrease in interest-bearing transaction deposits.
Average balances attributed to our commercial & industrial loan customers increased $474 million or 17% and average
balances attributed to our energy customers increased $400 million or 44%. Small business banking customer balances
increased $157 million or 9%. Average balances held by treasury services customers were down $286 million compared to the
prior year. Commercial customers continue to maintain high account balances due to continued economic uncertainty and
persistently low yields available on high quality investments. A significant driver of deposit growth was sales of businesses or
76
assets by our customers in the fourth quarter of 2012. Through the first half of February 2013, demand deposit balances have
decreased by approximately $1.2 billion as customers redeployed these funds.
Average Consumer Banking deposit balances decreased $144 million from 2011. Higher costing time deposit balances
decreased $317 million, partially offset by a $109 million increase in average interest-bearing transaction account balances.
Savings account and demand deposit balances also grew over the prior year. Average Wealth Management deposits grew by
$305 million during 2012 primarily due to a $282 million increase in demand deposit balances. Interest-bearing transaction
deposit account balances were up by $90 million, partially offset by a $69 million decrease in time deposits.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) provided temporary unlimited deposit insurance
coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions effective December 31, 2010.
This temporary program expired on December 31, 2012. The total of all deposit account balances held by an individual
depositor at the Bank are now insured up to $250,000.
Table 42 - 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,
2012
2011
$
$
279,027
$
210,918
346,874
1,068,305
1,905,124
$
402,298
205,714
386,412
1,138,848
2,133,272
Brokered deposits included in time deposits averaged $182 million for 2012 compared to $238 million for 2011. Brokered
deposits totaled $187 million at December 31, 2012 and $219 million at December 31, 2011.
The distribution of our period end deposit account balances among principal markets follows in Table 43.
77
Table 43 -- Period End Deposits by Principal Market Area
(In thousands)
Bank of Oklahoma:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Oklahoma
Bank of Texas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Texas
Bank of Albuquerque:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
2012
2011
2010
2009
2008
December 31,
$
4,223,923
$
3,223,201
$
2,271,375
$ 2,068,908
$
1,683,374
6,031,541
163,512
1,267,904
7,462,957
6,050,986
126,763
1,450,571
7,628,320
11,686,880
10,851,521
6,061,626
5,134,902
4,117,729
106,411
1,373,307
7,541,344
9,812,719
93,006
1,397,240
6,625,148
8,694,056
86,476
3,104,933
7,309,138
8,992,512
2,606,176
1,808,491
1,389,876
1,108,401
1,067,456
2,129,084
1,940,819
1,791,810
1,748,319
1,460,576
58,429
762,233
2,949,746
5,555,922
45,872
867,664
2,854,355
4,662,846
36,429
966,116
2,794,355
4,184,231
35,129
1,100,602
2,884,050
3,992,451
32,071
857,416
2,350,063
3,417,519
427,510
319,269
270,916
209,090
155,345
511,593
31,926
364,928
908,447
491,068
27,487
410,722
929,277
530,244
28,342
450,177
1,008,763
1,279,679
444,247
17,563
510,202
972,012
397,382
16,289
522,894
936,565
1,181,102
1,091,910
Total Bank of Albuquerque
1,335,957
1,248,546
Bank of Arkansas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Arkansas
38,935
18,513
15,310
21,526
16,293
101,366
2,239
42,573
146,178
185,113
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
78
Table 43 -- Period End Deposits by Principal Market Area
(In thousands)
Colorado State Bank & Trust:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Colorado State Bank & Trust
Bank of Arizona:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Arizona
Bank of Kansas City:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Kansas City
2012
2011
2010
2009
2008
December 31,
331,157
272,565
157,742
146,929
116,637
676,140
25,889
472,305
1,174,334
1,505,491
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
161,094
106,741
74,887
68,651
39,424
360,275
1,978
31,371
393,624
554,718
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
249,491
51,004
40,658
30,339
3,850
78,039
771
26,678
105,488
354,979
123,449
545
30,086
154,080
205,084
124,005
200
63,454
187,659
228,317
21,337
148
71,498
92,983
123,322
10,999
42
55,656
66,697
70,547
Total BOK Financial deposits
$
21,179,060
$
18,762,580
$ 17,179,061
$ 15,518,228
$
14,982,607
See Note 9 to the Consolidated Financial Statements for a summary of other borrowings.
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 $319 million at December 31, 2012.
Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities.
Federal Home Loan Bank borrowings are generally short term and are secured by a blanket pledge of eligible collateral
(generally unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family residential mortgage loans, multifamily
and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged
$105 million during 2012 and $45 million during 2011.
At December 31, 2012, the estimated unused credit available to the subsidiary bank from collateralized sources was
approximately $8.7 billion.
In 2007, the Bank issued $250 million of subordinated debt due May 15, 2017 to fund the Worth National Bank and First
United Bank acquisitions and fund continued asset growth. Interest on this debt was based on a fixed rate of 5.75% through
May 14, 2012 which then converted to a floating rate of three-month LIBOR plus 0.69%. At December 31, 2012, $227 million
of this subordinated debt remains outstanding.
79
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. At December 31, 2012, $122
million of this subordinated debt remains outstanding.
The Bank also has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold in
GNMA mortgage pools. Interest is payable monthly at rates contractually due to investors.
Parent Company and Other Non-Bank Subsidiaries
The primary sources of liquidity for BOK Financial are cash on hand and dividends from the subsidiary bank. Dividends from
the subsidiary bank are limited by various banking regulations to net profits, as defined, for the year plus retained profits for the
two preceding years. Dividends are further restricted by minimum capital requirements. At December 31, 2012, based on the
most restrictive limitations as well as management’s internal capital policy, the subsidiary bank could declare up to $48 million
of dividends without regulatory approval. Future losses or increases in required regulatory capital at the subsidiary bank could
affect its ability to pay dividends to the parent company.
The Company has 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 1.25% based upon the Company’s
option. Interest on amounts borrowed for certain acquisitions converted to a term loan at the Company's option is to be paid at a
defined base rate minus 1.25% or LIBOR plus 1.50%. 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, 2013. The Credit Agreement 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 also require BOKF to maintain minimum capital levels. No amounts were outstanding under
the Credit Facility at December 31, 2012 and December 31, 2011, and the Company met all of the covenants.
Our equity capital at December 31, 2012 was $3.0 billion, up $207 million over December 31, 2011. Net income less cash
dividends paid increased equity $184 million during 2012. 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 24, 2012, the Board of Directors authorized the Company to purchase up to two million shares of our common stock.
The specific timing and amount of shares repurchased will vary based on market conditions, regulatory limitations and other
factors. Repurchases may be made over time in open market or privately negotiated transactions. The repurchase program may
be suspended or discontinued at any time without prior notice. As of December 31, 2012, the Company has repurchased
384,796 shares for $21 million under this program.
BOK Financial and the subsidiary 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 are presented in Table 44.
80
Table 44 – Capital Ratios
Average total equity to average assets
Tangible common equity ratio
Tier 1 common equity ratio
Risk-based capital:
Tier 1 capital
Total capital
Leverage
Well
Capitalized
Minimums
December 31,
2012
December 31,
2011
—
—
—
6.00%
10.00%
5.00%
11.05%
9.25%
12.59%
12.78%
15.13%
9.01%
10.95%
9.56%
13.06%
13.27%
16.49%
9.15%
In June 2012, banking regulators issued a Notice of Proposed Rulemaking that will incorporate Basel III capital changes for
substantially all U.S. banking organizations. If adopted as proposed, these changes will establish a 7% threshold for the Tier 1
common equity ratio consisting of a minimum level plus capital conservation buffer. BOK Financial's Tier 1 common equity
ratio based on the existing Basel I standards was 12.59% as of December 31, 2012. Our estimated Tier 1 common equity ratio
under a fully phased in Basel III framework is approximately 12.15%, nearly 515 basis points above the 7% regulatory
threshold. This estimate is subject to interpretation of rules that are not yet final. Additionally, the proposed definition of Tier 1
common equity includes unrealized gains and losses on available for sale securities which are subject to changes from market
conditions and inherently volatile.
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 principles in
the United States of America (“GAAP”) less intangible assets and equity which does not benefit common shareholders. Equity
that does not benefit common shareholders includes 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.
In accordance with the Dodd-Frank Act, the Federal Reserve must publish regulations that require bank holding companies
with $10 billion to $50 billion in assets to perform annual capital stress tests. The requirements for annual capital stress tests
will become effective for the Company in the fourth quarter of 2013 with public disclosure of specified results to occur in June
of 2014. The resulting capital stress test process may place constraints on capital distributions or increases in required
regulatory capital under certain circumstances.
Table 45 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
81
Table 45 – Non-GAAP Measures
(Dollars in thousands)
Tangible common equity ratio:
Total shareholders' equity
Less: Goodwill and intangible assets, net
Tangible common equity
Total assets
Less: Goodwill and intangible assets, net
Tangible assets
Tangible common equity ratio
Tier 1 common equity ratio:
Tier 1 capital
Less: Non-controlling interest
Tier 1 common equity
Risk weighted assets
Tier 1 common equity ratio
Off-Balance Sheet Arrangements
December 31,
2012
2011
$
2,957,860
$
2,750,468
390,171
2,567,689
345,820
2,404,648
28,148,631
25,493,946
390,171
345,820
$ 27,758,460
$ 25,148,126
9.25%
9.56%
$
2,430,671
$
2,295,061
35,821
36,184
2,394,850
2,258,877
$ 19,016,673
$ 17,291,105
12.59%
13.06%
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 include 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 46 following summarizes payments due per these contractual obligations at December 31, 2012.
Table 46 – Contractual Obligations as of December 31, 2012
(In thousands)
Less Than
1 Year
1 to 3
Years
4 to 5
Years
More Than
5 Years
Total
$
1,014,499
$
592,052
$
541,321
$
506,154
$
2,654,026
1,728
19,117
19,625
264,169
—
15,094
1,050
156,491
37,059
49,017
91,775
8,169
1,100
245,004
28,950
16,530
—
1,320
5,275
—
74,757
3,242
—
3,245
9,153
420,612
160,391
332,958
91,775
27,828
$
1,334,232
$
935,613
$
834,225
$
592,673
$
3,696,743
Time deposits
Other borrowings
Subordinated debentures
Operating lease obligations
Derivative contracts
Deferred compensation and stock-based
compensation obligations
Data processing services
Total
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
Commitments to purchase transferable tax credits from zero emission power providers
Alternative investment commitments
Unfunded third-party private equity commitments
82
$
6,636,587
466,477
226,922
72,000
44,854
7,092
Payments on time deposits, other borrowed funds and subordinated debentures include interest which has been calculated from
rates at December 31, 2012. 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.
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 $49 million of cash margin which secures our obligations under these contracts.
The Company has deferred compensation and employment agreements with its 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 $28 million liability for these plans which are fully vested as of December 31, 2012. In addition,
the 2011 True-Up Plan will be distributed in 2014. Based on currently available information, amounts payable under the 2011
True-Up Plan will be approximately $64 million. 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.
Data processing and communications contracts represent the minimum obligations under the contracts. Additional payments
that are based on the volume of transactions processed are excluded.
Loan commitments represent legally binding obligations to provide financing to our customers. Some of these commitments
are expected to expire before being drawn upon and the total commitment amounts do not necessarily represent future cash
requirements. Approximately $2.2 billion of the loan commitments expire within one year.
The Company has funded $60 million and has commitments to fund an additional $45 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 $7.1 million as of December 31, 2012. 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.
Recently Issued Accounting Standards
See Note 1 of the consolidated financial statements for disclosure of newly adopted and pending accounting standards.
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 allowance for loan losses and accrual for off-balance sheet credit risk, 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
83
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 rates, 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, net interest income and economic
value of equity due to specified changes in interest rates. The internal 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
unpledged assets, among other things. Compliance with these internal 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 included the Federal Funds rate, which affects short-term borrowings, and the
prime lending rate and LIBOR, which are the basis for much of the variable rate loan pricing. Additionally, residential
84
mortgage rates directly affect the 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 38 due to the extreme volatility over such a large rate range and our active
risk management approach for that asset. The effects of interest rate changes on the value of mortgage servicing rights and
financial instruments 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 47 – Interest Rate Sensitivity
(Dollar in thousands)
Anticipated impact over the next twelve months on net interest revenue
$
18,171
$
36,986
$ (25,572)
$
(19,227)
2.80%
5.39%
(3.94)%
(2.80)%
200 bp Increase
50 bp Decrease
2012
2011
2012
2011
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 derivative contracts to enhance returns on its securities
portfolios. Both of these activities involve interest rate risk. BOKF Financial has an insignificant exposure to foreign exchange
risk and does not take positions in commodity derivatives.
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 due to changes in interest rates 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, a 10 business day holding period and a 99% confidence interval. It represents an amount of
market loss that is likely to be exceeded in 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. There were no instances of
VAR being exceeded during the years ended December 31, 2012 and 2011. At December 31, 2012, there were no trading
positions for the purposes of enhancing returns on the Company's securities portfolio.
The average, high and low VAR amounts for the years ended December 31, 2012 and 2011 are as follows in Table 48.
Table 48 –Value at Risk (VaR)
(In thousands)
Average
High
Low
Year Ended December 31,
2012
2011
2010
$
3,172
$
2,445
$
6,603
1,060
5,441
1,310
2,253
9,185
622
85
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, 2012. 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, 2012.
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, 2012.
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, 2012. Their report, which expresses unqualified opinions on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2012, is included in this annual report.
86
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, 2012 and
2011, and the related consolidated statements of earnings, comprehensive income, changes in equity, and cash flows for each
of the three years in the period ended December 31, 2012. 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, 2012 and 2011, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, 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 27, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 27, 2013
87
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, 2012, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). BOK Financial Corporation’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, BOK Financial Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2012, 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, 2012 and 2011, and the related consolidated
statements of earnings, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended
December 31, 2012 of BOK Financial Corporation and our report dated February 27, 2013 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 27, 2013
88
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 credit losses
Net interest revenue after provision for credit losses
Other operating revenue
Brokerage and trading revenue
Transaction card revenue
Trust fees and commissions
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Other revenue
Total fees and commissions
Gain (loss) on assets, net
Gain (loss) on derivatives, net
Gain 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 Foundation
Professional fees and services
Net occupancy and equipment
Insurance
Data processing and communications
Printing, postage and supplies
Net losses and 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. shareholders
Earnings per share:
Basic
Diluted
Average shares used in computation:
Basic
Diluted
Dividends declared per share
See accompanying notes to consolidated financial statements.
89
Year Ended December 31,
2011
2010
2012
$
$
$
$
$
513,429
8,185
1,419
16,848
3,577
20,425
237,235
2,487
239,722
8,456
12
791,648
67,013
6,531
13,778
87,322
704,326
(22,000)
726,326
126,930
107,985
80,053
98,917
169,302
11,089
37,827
632,103
(1,415)
(301)
9,230
33,845
(1,144)
(6,207)
(7,351)
666,111
491,033
23,338
2,062
34,015
66,726
15,356
98,904
14,228
20,528
2,927
44,334
9,210
26,912
849,573
542,864
188,740
354,124
2,933
351,191
5.15
5.13
67,684,043
67,964,940
2.47
$
$
$
$
$
504,989
6,492
1,836
12,581
4,768
17,349
259,871
2,394
262,265
18,649
15
811,595
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
4,156
2,686
24,413
34,144
(10,578)
(12,929)
(23,507)
570,535
429,986
20,549
4,000
28,798
64,611
16,799
97,976
14,085
23,715
3,583
37,621
40,447
37,574
819,744
448,335
158,511
289,824
3,949
285,875
4.18
4.17
67,787,676
68,038,763
1.13
$
$
$
$
$
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
(4,011)
4,271
7,331
21,882
(29,960)
2,151
(27,809)
518,058
401,864
17,726
—
30,217
63,969
24,320
87,752
13,665
34,483
5,336
43,172
(3,661)
31,477
750,320
371,651
123,357
248,294
1,540
246,754
3.63
3.61
67,627,735
67,831,734
0.99
Consolidated Statements of Comprehensive Income
(In thousands, except share and per share data)
Net income
Other comprehensive income before income taxes:
Net change in unrealized gain (loss)
Other–than–temporary impairment losses recognized in earnings
Year Ended
December 31,
2012
2011
2010
$ 354,124
$ 289,824
$ 248,294
66,197
7,351
47,287
23,507
185,463
27,809
Reclassification adjustment for net gains realized and included in earnings
(33,392)
(33,840)
(21,618)
Amortization of unrealized gain on investment securities transferred from available
for sale
Other comprehensive income before income taxes
Income tax expense
Other comprehensive income, net of income taxes
Comprehensive income
Comprehensive income attributable to non-controlling interests
(6,601)
(1,357)
—
33,555
35,597
191,654
(12,614)
(14,457)
(73,075)
20,941
21,140
375,065
310,964
2,933
3,949
118,579
366,873
1,540
Comprehensive income attributed to BOK Financial Corp. shareholders
372,132
307,015
365,333
See accompanying notes to consolidated financial statements.
90
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: 2012 – $528,458; 2011 - $462,657)
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, net
Real estate and other repossessed assets, net of allowance (2012 – $36,873; 2011 – $32,911)
Bankers’ acceptances
Derivative contracts
Cash surrender value of bank-owned life insurance
Receivable on unsettled securities trades
Other assets
Total assets
Liabilities and shareholders' equity
Noninterest-bearing demand deposits
Interest-bearing deposits:
Transaction
Savings
Time
Total deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Bankers’ acceptances
Derivative contracts
Due on unsettled securities trades
Other liabilities
Total liabilities
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and
outstanding: 2012 – 72,415,346; 2011 – 71,533,354)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2012 – 4,087,995; 2011 – 3,380,310)
Accumulated other comprehensive income
Total shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
91
December 31,
2012
2011
$
1,266,834
19,405
214,102
499,534
11,287,221
284,296
293,762
12,311,456
(215,507)
12,095,949
265,920
114,185
361,979
28,192
100,812
103,791
605
338,106
274,531
211,052
388,355
976,191
10,174
76,800
439,236
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
28,148,631
$
25,493,946
8,038,286
$
5,799,785
$
$
$
9,888,038
284,744
2,967,992
21,179,060
1,167,416
887,030
651,775
347,633
176,678
605
283,589
297,453
163,711
25,154,950
4
859,278
2,137,541
(188,883)
149,920
2,957,860
35,821
2,993,681
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
236,522
653,371
133,684
22,707,294
4
818,817
1,953,332
(150,664)
128,979
2,750,468
36,184
2,786,652
$
28,148,631
$
25,493,946
Consolidated Statements of Changes in Equity
(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
Balance, December 31, 2009
70,312
$
4
$
(10,740) $758,723
$1,563,683
2,509
$
(105,857) $
2,205,813
$
19,561
$2,225,374
Net income
Other 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
—
—
504
—
—
—
—
Balance, December 31, 2010
70,816
Net income
Other 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
—
—
—
717
—
—
—
—
Balance, December 31, 2011
71,533
Net income
Other comprehensive income
Treasury stock purchases
Exercise of stock options
Tax benefit on exercise of stock
options
Stock-based compensation
Cash dividends on common stock
Acquisition of non-controlling
interest
Capital calls and distributions,
net
—
—
—
882
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
118,579
—
—
—
—
—
—
—
15,497
425
8,160
—
—
246,754
—
—
—
—
(66,557)
—
—
—
99
—
—
—
—
—
—
(6,945)
—
—
—
—
246,754
118,579
8,552
425
8,160
(66,557)
1,540
—
—
—
—
—
248,294
118,579
8,552
425
8,160
(66,557)
—
1,051
1,051
107,839
782,805
1,743,880
2,608
(112,802)
2,521,726
22,152
2,543,878
—
21,140
—
—
—
—
—
—
—
—
—
25,957
659
9,396
—
—
285,875
—
—
—
—
—
(76,423)
—
—
—
562
210
—
—
—
—
—
—
(26,446)
(11,416)
—
—
—
—
285,875
21,140
(26,446)
14,541
659
9,396
(76,423)
3,949
289,824
—
—
—
—
—
—
21,140
(26,446)
14,541
659
9,396
(76,423)
—
10,083
10,083
128,979
818,817
1,953,332
3,380
(150,664)
2,750,468
36,184
2,786,652
—
20,941
—
—
—
—
—
—
—
—
—
—
32,311
120
8,030
—
—
—
351,191
—
—
—
—
—
(166,982)
—
—
—
—
384
324
—
—
—
—
—
—
—
(20,558)
(17,661)
—
—
—
—
—
351,191
20,941
(20,558)
14,650
120
8,030
(166,982)
2,933
354,124
—
—
—
—
—
—
20,941
(20,558)
14,650
120
8,030
(166,982)
—
—
1,645
1,645
(4,941)
(4,941)
Balance, December 31, 2012
72,415
$
4
$
149,920
$859,278
$2,137,541
4,088
$
(188,883) $
2,957,860
$
35,821
$2,993,681
See accompanying notes to consolidated financial statements.
92
Consolidated 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:
Provision for credit losses
Change in fair value of mortgage servicing rights
Net unrealized gains from derivatives
Tax benefit on exercise of stock options
Change in bank-owned life insurance
Stock-based compensation
Depreciation and amortization
Net amortization of securities discounts and premiums
Net realized losses (gains) on financial instruments and other assets
Mortgage loans originated for resale
Proceeds from sale of mortgage loans held for resale
Capitalized mortgage servicing rights
Change in trading 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 maturities or redemptions of investment securities
Proceeds from maturities or redemptions of available for sale securities
Purchases of investment securities
Purchases of available for sale securities
Proceeds from sales of available for sale securities
Change in amount receivable on unsettled securities transactions
Loans originated net of principal collected
Net proceeds from (payments on) derivative asset contracts
Acquisitions, net of cash acquired
Proceeds from disposition of assets
Purchases of 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
Repayment of subordinated debentures, subsidiary bank
Net change in other borrowings, parent company and other non-bank subsidiaries
Net payments or proceeds on derivative liability contracts
Net change in derivative margin accounts
Change in amount due on unsettled security transactions
Issuance of common and treasury stock, net
Sale of non-controlling interest
Tax benefit on exercise of stock options
Repurchase of common stock
Dividends paid
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid for interest
Cash paid for taxes
Net loans transferred to real estate and other repossessed assets
Residential mortgage loans guaranteed by U.S. government agencies that became
eligible for repurchase during the year
Conveyance of other real estate owned guaranteed by U.S. government agencies
See accompanying notes to consolidated financial statements.
93
Year Ended December 31,
2011
2010
2012
$
354,124
$
289,824
$
248,294
(22,000)
9,210
(984)
(120)
(11,089)
8,030
54,935
87,769
(135,696)
(3,708,350)
3,731,830
(42,191)
226,144
9,244
10,999
23,424
(3,429)
591,850
111,511
4,456,363
(172,327)
(7,334,843)
1,744,662
(135,901)
(1,077,075)
(13,273)
(23,615)
170,907
(94,756)
(2,368,347)
2,830,470
(413,990)
200,107
(53,705)
10,500
(7,560)
39,237
(355,918)
14,650
300
120
(20,558)
(166,982)
2,076,671
299,874
986,365
1,286,239
90,137
158,703
133,502
121,432
89,223
(6,050)
40,447
(9,651)
(659)
(11,280)
9,396
49,967
112,227
(3,589)
(2,293,436)
2,369,895
(26,251)
(247,386)
24,236
16,469
63,827
(50,198)
327,788
68,020
3,650,900
(37,085)
(7,504,261)
2,725,760
59,908
(598,499)
4,994
—
122,314
(56,195)
(1,564,144)
1,710,705
(127,026)
(941,834)
—
(7,217)
15,674
(102,262)
492,946
14,541
—
659
(26,446)
(76,423)
953,317
(283,039)
1,269,404
986,365
122,166
156,465
87,476
154,134
14,501
105,139
(3,661)
(18,882)
(425)
(12,066)
8,160
58,987
105,680
1,420
(2,256,943)
2,246,228
(27,603)
(139,319)
(40,118)
9,023
22,227
59,037
365,178
111,976
3,185,131
(211,312)
(5,565,931)
2,013,620
(135,059)
469,223
201,289
—
38,640
(64,916)
42,661
1,919,658
(257,586)
(1,487,742)
—
—
(194,831)
70,340
(51,910)
8,552
—
425
—
(66,557)
(59,651)
348,188
921,216
1,269,404
144,095
133,551
72,845
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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 ("U.S. GAAP"), including
interpretations of U.S. GAAP issued by federal banking regulators and 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., The Milestone Group, 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, municipalities, 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; Bank of Kansas City in Kansas City, Missouri/Kansas and Bank of Arkansas
in Northwest Arkansas. 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 date. The
purchase price includes consideration paid at closing and the estimated fair value of contingent consideration that will be paid
in the future, subject to achieving defined performance criteria. 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 acquisition date.
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 goodwill and intangible assets involves significant judgment based upon short-term and long-term projections of
future performance.
Reporting units are defined by the Company as the geographical market underlying each operating segment. This definition is
consistent with the manner in which the chief operating decision maker assesses the performance of the Company and makes
decisions concerning the allocation of resources. The Company may qualitatively assess whether it is more likely than not that
the fair value of the reporting units are less than their carrying value. This assessment includes consideration of relevant events
and circumstance including but not limited to macroeconomic conditions, industry and market conditions, the financial and
94
stock performance of the Company and other relevant factors. Additional quantitative analysis may be undertaken through
which 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 evaluate the carrying value of 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 identifiable 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 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 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 or accretion of the discount on the transferred securities.
On a quarterly basis, the Company performs separate evaluations of impaired debt investment and available for sale securities
and equity 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.
95
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.
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.
96
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 financial 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. Accounting policies for all loans, excluding residential loans guaranteed by U.S. government agencies, are as
follows.
Interest is accrued at the applicable interest rate on the outstanding principal amount. Loans are placed on nonaccruing status
when, in the opinion of management, full collection of principal or interest is uncertain. Internally risk graded loans are
individually evaluated for nonaccruing status quarterly. Non-risk graded loans are generally placed on nonaccruing status when
90 days or more past due or within 60 days of being notified of the borrower bankruptcy filing. Interest previously accrued but
not collected is charged against interest income when the loan is placed on nonaccruing status. Payments received on
nonaccruing loans are applied to principal or recognized 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.
Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ("TDRs"). All TDRs are
classified as nonaccruing. Modifications generally consist of extension of payment terms or interest rate concessions and may
result either voluntarily through negotiations with the borrower or involuntarily through court order. Generally, principal and
accrued but unpaid interest is not voluntarily forgiven.
Performing loans may be renewed under then current collateral, debt service ratio and other underwriting standards.
Nonaccruing loans may also be renewed and will remain classified as nonaccruing.
All 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 or when the required cash flow is reduced in a TDR. The charge-off amount is determined through 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 type, are charged off. Loans to borrowers whose personal obligation has been discharged through
Chapter 7 bankruptcy proceedings are charged off within 60 days of notice of the bankruptcy filing, regardless of payment
status.
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.
Qualifying residential mortgage loans guaranteed by U.S. government agencies have been sold into GNMA pools. Under
certain performance conditions specified in government programs, the Company has the right, but not the obligation to
repurchase loans from GNMA pools. These loans no longer qualify for sale accounting and are recognized in the Consolidated
Balance Sheet. Guaranteed loans are considered to be impaired because we do not expect to receive all principal and interest
based on the loan's contractual terms. The principal balance continues to be guaranteed, however, interest accrues at a curtailed
rate as specified in the programs. The carrying value of these loans is reduced based on an estimate of expected cash flows
discounted at the original note rate plus a liquidity spread. Guaranteed loans may be modified in TDRs in accordance with U.S.
government agency guidelines. Interest continues to accrue at the modified rate. U.S. government guaranteed loans may either
be resold into GNMA pools after a performance period specified by the programs or foreclosed and conveyed to the guarantors.
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk
The appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk (collectively "Allowance for
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 outstanding loans and unused commitments to provide financing.
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 based on the risk characteristics of the loans and the Company's method for monitoring and assessing credit risk.
97
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 factors that affect more than one portfolio segment. In the fourth quarter of 2011, the Company enhanced its
methodology for estimating general allowances by establishing specific loss rates for each loan class. There were no changes
to accounting policies for estimating general allowances during 2012.
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. 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 a quarterly evaluation of the borrowers' ability to repay. Certain commercial loans and most
residential mortgage and consumer loans are small balance, homogeneous pools of loans that are not risk graded. Non-risk
graded loans are identified as impaired impairment based on performance status. Generally, non-risk graded loans 90 days or
more past due, modified in a troubled debt restructuring or in bankruptcy are considered to be impaired.
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. The fair value of real property
held as collateral 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 generally are not adjusted by the
Company. Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values
may have declined. 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. Historical
statistics may be used as a practical way to estimate impairment in limited situations, such as when a collateral dependent loan
is identified as impaired at the end of a reporting period until an 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 may be
volatile.
General allowances for unimpaired loans are based on an estimated loss rate by loan class. The appropriate historical gross loss
rate for each loan class is determined by the greater of the current loss rate based on the most recent twelve months or a ten-
year average gross loss rate. Recoveries are not directly considered in the estimation of historical loss rates. Recoveries
generally do not follow predictable patterns and are not received until well-after the charge-off date as a result of protracted
legal actions. For risk graded loans, historical gross loss rates are adjusted for changes in risk grading. For each loan class, the
current weighted average risk grade is compared to the the long-term weighted average risk grade. This comparison determines
whether credit risk in each loan class is increasing or decreasing. Historical loss rates are adjusted upward or downward in
proportion to changes in average risk grading. General allowances for unimpaired loans also consider inherent risks identified
for each loan class. Inherent risks consider loss rates that most appropriately represent the current credit cycle and other factors
attributable to a specific loan class which have not yet been represented in the historical gross loss rates or risk grading. These
factors include changes in commodity prices or engineering imprecision which may affect the value of reserves that secure our
energy loan portfolio, construction risk that may affect commercial real estate loans, changes in regulations and public policy
that may disproportionately impact health care loans and changes in loan products.
Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These
factors include trends in the economy in our primary lending areas, concentration in large-balance loans and other relevant
factors.
An accrual for off-balance sheet credit risk is included in Other liabilities. The appropriateness of the accrual is determined in
the same manner as the allowance for loan losses.
A provision for credit losses is charged against or credited to earnings in amounts necessary to maintain an appropriate
Allowance for Credit Losses. Recoveries of loans previously charged off are added to the allowance when received.
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. 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.
98
BOK Financial retains a repurchase obligation under underwriting representations and warranties related to residential
mortgage loans transferred and generally retains the right to service the loans. The Company may incur a recourse obligation in
limited circumstances. Separate accruals are recognized in Other liabilities in the Consolidated Balance Sheets for repurchase
and recourse obligations.
The Company may also retain a residual interest in excess cash flows generated by the assets. All assets obtained, including
cash, servicing rights and residual interests, and all liabilities incurred, including recourse obligations, are initially recognized
at fair value, all assets transferred are derecognized and any gain or loss on the sale is recognized in earnings. Subsequently,
servicing rights and residual interests are carried at fair value with changes in fair value recognized in earnings as they occur.
Real Estate and Other Repossessed Assets
Real estate and other repossessed assets are 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.
99
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.
Current income tax expense or benefit is based on an evaluation that considers estimated taxable income, tax credits, and
statutory federal and state income tax rates. The amount of current income tax expense or benefit recognized in any period may
differ from amounts reported to taxing authorities. Annually, tax returns are filed with each jurisdiction where they Company
conducts business and recognized current income tax expense or benefit is adjusted to the filed tax returns.
Deferred tax assets and liabilities are 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.
BOK Financial has unrecognized tax benefits, which are 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. Unrecognized tax benefits are 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.
Employee Benefit Plans
BOK Financial sponsors a defined benefit cash balance pension plan (“Pension Plan”), qualified profit sharing plan (“Thrift
Plan”) and employee health care 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 4 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 awarded prior to
2013 generally cliff vest in 5 years. Non-vested shares awarded in January 2013 cliff vest in 3 years and are subject to a two
year holding period after vesting.
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.
100
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.
Financial Accounting Standards Board
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.
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 was effective for the Company January 1, 2012.
101
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 were 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 was effective for the Company January 1, 2012.
FASB Accounting Standards Update No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
(ASU 2013-01)
On January 31, 2013, FASB issued ASU 2013-01 which clarified that the scope of ASU 2011-11 applied for derivative
contracts accounted for in accordance with Topic 815, Derivative and Hedging, including bifurcated embedded derivatives,
repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transaction that are
either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting
arrangement or similar agreement. ASU 2013-01 was effective for the Company on January 1, 2013 and required comparative
disclosures will be applied retrospectively for all periods presented.
(2) Securities
Trading Securities
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
December 31, 2012
December 31, 2011
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
U.S. Government agency obligations
$
16,545
$
(57) $
22,203
$
U.S. agency residential mortgage-backed
securities
Municipal and other tax-exempt securities
Other trading securities
Total
86,361
90,326
20,870
447
(226)
(13)
12,379
39,345
2,873
$
214,102
$
151
$
76,800
$
63
59
652
9
783
102
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
December 31, 2012
Amortized
Cost
Carrying
Value1
Fair
Value
Gross Unrealized2
Loss
Gain
Municipal and other tax-exempt
$
232,700
$
232,700
$
235,940
$
3,723
$
U.S. agency residential mortgage-backed securities – Other
Other debt securities
Total
77,726
184,067
82,767
184,067
85,943
206,575
3,176
22,528
$
494,493
$
499,534
$
528,458
$
29,427
$
(483)
—
(20)
(503)
1 Carrying value includes $5.0 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) related to
certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail
following.
2 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
December 31, 2011
Amortized
Cost
Carrying
Value1
Fair
Value
Gross Unrealized2
Loss
Gain
Municipal and other tax-exempt
$
128,697
$
128,697
$
133,670
$
4,975
$
U.S. agency residential mortgage-backed securities – Other
Other debt securities
110,062
188,835
121,704
188,835
120,536
208,451
602
19,616
(2)
(1,770)
—
Total
(1,772)
1 Carrying value includes $12 million of net unrealized gain which remains in AOCI in the Consolidated Balance Sheets related to certain securities
427,594
462,657
439,236
25,193
$
$
$
$
$
transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.
2 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
In 2011, the Company transferred certain U.S. government agency residential mortgage-backed securities from the available for sale
portfolio to the investment securities (held-to-maturity) portfolio as the Company has the positive intent and ability to hold these
securities to maturity. No gains or losses were recognized in the Consolidated Statement of Earnings at the time of the
transfer. Transfers of debt securities into the investment securities portfolio (held-to-maturity) are made at fair value at the date of
transfer. The unrealized holding 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 or accretion of the discount on the transferred securities. At
the time of transfer, the fair value totaled $131 million, amortized cost totaled $118 million and the pretax unrealized gain totaled $13
million.
103
The amortized cost and fair values of investment securities at December 31, 2012, by contractual maturity, are as shown in the
following table (dollars in thousands):
Municipal and other tax-exempt:
Carrying value
Fair value
Nominal yield¹
Other debt securities:
Carrying value
Fair value
Nominal yield
Total fixed maturity securities:
Carrying value
Fair value
Nominal yield
Residential mortgage-backed securities:
Carrying value
Fair value
Nominal yield4
Total investment securities:
Carrying value
Fair value
Nominal yield
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
26,827
27,066
$
123,489
$
125,263
$
79,569
80,574
2,815
3,037
$
232,700
235,940
4.25%
2.51%
2.45%
6.57%
2.74%
Weighted
Average
Maturity²
4.01
$
9,687
9,702
$
30,531
31,573
35,131
38,154
$
108,718
$
184,067
9.24
127,146
206,575
4.22%
5.30%
5.57%
6.24%
5.85%
36,514
36,768
$
154,020
$
114,700
$
111,533
$
416,767
6.32
156,836
118,728
130,183
442,515
4.24%
3.06%
3.41%
6.25%
4.11%
$
$
$
³
$
82,767
85,943
2.71%
$
499,534
528,458
3.88%
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 3.4 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 Quarterly Financial Summary - Unaudited for current yields on the investment securities
portfolio.
104
—
—
—
—
—
—
—
(2,580)
(1,603)
(4,183)
(4,183)
—
—
—
—
(4,183)
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
U. S. government agencies:
FNMA
FHLMC
GNMA
Other
December 31, 2012
Amortized
Cost
Fair
Value
Gross Unrealized1
Loss
Gain
OTTI²
$
1,000
$
1,002
$
2
$
84,892
87,142
2,414
— $
(164)
5,308,463
2,978,608
1,215,554
148,025
5,453,549
3,045,564
1,237,041
153,667
146,247
66,956
21,487
5,642
(1,161)
—
—
—
Total U.S. government agencies
9,650,650
9,889,821
240,332
(1,161)
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
124,314
198,588
322,902
123,174
201,989
325,163
1,440
5,138
6,578
—
(134)
(134)
Total residential mortgage-backed securities
9,973,552
10,214,984
246,910
(1,295)
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
890,746
895,075
35,680
22,171
24,593
36,389
25,072
27,557
5,006
709
2,901
3,242
(677)
—
—
(278)
Total
$ 11,032,634
1 Gross unrealized gain/ loss recognized in 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.
$ 11,287,221
261,184
$
$
(2,414) $
105
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
U. S. government agencies:
FNMA
FHLMC
GNMA
Other
Amortized
Cost
Fair
Value
December 31, 2011
Gross Unrealized¹
Gain
Loss
OTTI²
$
1,001
$
1,006
$
5
$
66,435
68,837
2,543
— $
(141)
5,823,972
2,756,180
647,569
69,668
5,987,287
2,846,215
678,924
75,751
163,319
90,035
31,358
6,083
—
—
—
—
—
—
—
(36,219)
(36,587)
(72,806)
(72,806)
—
—
—
(72,806)
(4)
—
(3)
—
(7)
—
(11,096)
(11,096)
(11,103)
—
(1,755)
(332)
Total U.S. government agencies
9,297,389
9,588,177
290,795
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
168,461
334,607
503,068
132,242
286,924
419,166
—
—
—
Total residential mortgage-backed securities
9,800,457
10,007,343
290,795
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
36,298
19,171
33,843
36,495
18,446
47,238
197
1,030
13,727
Total
9,957,205
1 Gross unrealized gain/loss recognized in 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.
$ 10,179,365
308,297
$
$
$
(13,331) $
106
The amortized cost and fair values of available for sale securities at December 31, 2012, by contractual maturity, are as shown in the
following table (dollars in thousands):
U.S. Treasuries:
Amortized cost
Fair value
Nominal yield
Municipal and other tax-exempt:
Amortized cost
Fair value
Nominal yield¹
Other debt securities:
Amortized cost
Fair value
Nominal yield
Total fixed maturity securities:
Amortized cost
Fair value
Nominal yield
Residential mortgage-backed securities:
Amortized cost
Fair value
Nominal yield4
Commercial mortgage-backed securities:
Amortized cost
Fair value
Nominal yield
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
Total
Weighted
Average
Maturity5
$
1,000
1,002
0.55%
$
— $
— $
— $
—
—%
—
—%
—
—%
794
812
—%
—
—
—%
29,598
31,007
11,121
11,861
43,379
43,462
0.95%
0.78%
2.85%
30,280
30,990
1.80%
—
—
—%
5,400
5,399
1.29%
1,000
1,002
0.55%
84,892
87,142
1.89%
35,680
36,389
1.74%
$
$
1,794
1,814
$
59,878
61,997
$
11,121
11,861
48,779
48,861
$
121,572
124,533
0.31%
1.38%
0.78%
2.68%
1.83%
0.34
14.59
6.47
12.09
$
9,973,552
2
7.09
³
10,214,984
2.27%
890,746
895,075
1.35%
46,764
52,629
1.12%
$
$
$
11,032,634
11,287,221
2.19%
1 Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 The average expected lives of mortgage-backed securities were 2.5 years based upon current prepayment assumptions.
3 Primarily common stock and preferred stock of corporate issuers with no stated maturity.
4 The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ
significantly based upon actual prepayments. See Quarterly Financial Summary –– Unaudited following for 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.
107
Sales of available for sale securities resulted in gains and losses as follows (in thousands):
Proceeds
Gross realized gains
Gross realized losses
Related federal and state income tax expense
Year Ended December 31,
2012
2011
2010
$
1,744,662
$
2,725,760
$
2,013,620
41,191
(7,346)
13,166
41,284
(7,140)
13,282
26,007
(4,125)
8,512
A summary of investment and available for sale securities that have been pledged as collateral for repurchase agreements, public trust
funds on deposit and for other purposes, as required by law was as follows (in thousands):
December 31,
2012
December 31,
2011
Investment:
Carrying value
$
117,346
$
Fair value
121,647
197,192
200,006
Available for sale:
Amortized cost
Fair value
4,070,250
4,186,390
4,188,075
4,334,553
The secured parties do not have the right to sell or re-pledge these securities. At December 31, 2012, municipal trading securities with
a fair value of $13 million were pledged as collateral on a line of credit for the trading activities of BOSC, Inc. Under the terms of the
credit agreement, the creditor has the right to sell or repledge the collateral.
108
Temporarily Impaired Securities as of December 31, 2012
(in thousands):
Number
of
Securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Investment:
Municipal and other tax-exempt
53
$
92,768
$
483
$
— $
— $
92,768
$
U.S. Agency residential mortgage-
backed securities – Other
Other debt securities
Total investment
Available for sale:
—
14
67
—
881
—
20
—
—
—
—
—
881
$
93,649
$
503
$
— $
— $
93,649
$
483
—
20
503
Municipal and other tax-exempt
38
$
6,150
$
11
$
26,108
$
153
$
32,258
$
164
Residential mortgage-backed
securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Total U.S. agencies
Private issue1:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential mortgage-backed
securities
Commercial mortgage-backed
securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stocks
Equity securities and mutual funds
12
—
—
12
12
11
23
35
8
3
—
22
161,828
—
—
161,828
—
—
—
1,161
—
—
1,161
—
—
—
—
—
—
—
87,907
43,252
131,159
—
—
—
—
2,580
1,737
4,317
161,828
1,161
—
—
—
—
161,828
1,161
87,907
43,252
131,159
161,828
1,161
131,159
4,317
292,987
275,065
4,899
—
202
677
—
—
1
—
—
—
2,161
—
—
—
277
275,065
4,899
—
2,363
2,580
1,737
4,317
5,478
677
—
—
278
Total available for sale
$
1 Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in
$ 159,428
607,572
448,144
4,747
1,850
106
$
$
$
$
6,597
income:
Alt-A loans
Jumbo-A loans
12
10
—
—
—
—
87,907
29,128
2,580
1,602
87,907
29,128
2,580
1,602
109
Temporarily Impaired Securities as of December 31, 2011
(In thousands)
Investment:
Municipal and other tax-
exempt
U.S. Agency residential
mortgage-backed securities
– Other
Other debt securities
Total investment
Available for sale:
Municipal and other tax-
exempt
Residential mortgage-backed
securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Total U.S. agencies
Private issue1:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential mortgage-
backed securities
Perpetual preferred stocks
Equity securities and mutual
funds
Less Than 12 Months
12 Months or Longer
Total
Number of
Securities
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
1
$
479
$
2
$
— $
— $
479
$
2
5
—
6
92,571
—
1,770
—
—
—
—
—
92,571
—
$
93,050
$
1,772
$
— $
— $
93,050
$
1,770
—
1,772
26
$
5,008
$
7
$
21,659
$
134
$
26,667
$
141
2
—
1
3
19
48
67
70
6
7
68,657
—
2,072
70,729
—
8,142
8,142
78,871
11,147
221
4
—
3
7
—
842
842
849
1,755
—
—
—
—
132,242
278,781
411,023
—
—
—
—
36,219
46,841
83,060
411,023
83,060
—
—
327
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
2,772
332
5
2,551
Total available for sale
1 Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in
530,480
435,233
83,521
95,247
2,616
109
$
$
$
$
$
$
86,137
income:
Alt-A loans
Jumbo-A loans
$
19
36
— $
— $
132,242
$
36,219
$
132,242
$
3,809
256
202,874
36,331
206,683
36,219
36,587
On a quarterly basis, the Company performs separate evaluations of impaired debt and equity investment and available for sale
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. Based on this evaluation as of December 31, 2012, we do not intend to sell any impaired
available for sale securities before fair value recovers to our current amortized cost and it is more-likely-than-not that we will not be
required to sell impaired securities before fair value recovers, 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, 2012.
110
At December 31, 2012, 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):
U.S. Govt / GSE 1
AAA - AA
A - BBB
Below Investment
Grade
Not Rated
Total
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Investment:
Municipal and
other tax-
exempt
Mortgage-backed
securities --
other
Other debt
securities
Total investment
securities
Available for
Sale:
$
— $
— $ 155,088
$155,945
$
23,515
$ 24,055
$
— $
— $
54,097
$ 55,940
$
232,700
$
235,940
82,767
85,943
—
—
—
—
174,573
196,911
—
600
—
600
—
—
—
—
—
—
82,767
85,943
8,894
9,064
184,067
206,575
$
82,767
$
85,943
$ 329,661
$352,856
$
24,115
$ 24,655
$
— $
— $
62,991
$ 65,004
$
499,534
$
528,458
U.S. Govt / GSE 1
AAA - AA
A - BBB
Below Investment
Grade
Not Rated
Total
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
U.S. Treasury
$
1,000
$
1,002
$
— $
— $
— $
— $
— $
— $
— $
— $
1,000
$
1,002
Municipal and
other tax-
exempt
Residential
mortgage-
backed
securities:
U. S.
government
agencies:
FNMA
FHLMC
GNMA
Other
Total U.S.
government
agencies
Private issue:
Alt-A
loans
Jumbo-A
loans
Total private
issue
Total residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
guaranteed by
U.S.
government
agencies
Other debt
securities
Perpetual
preferred
stock
Equity securities
and mutual
funds
—
—
59,676
61,743
11,404
11,496
12,384
12,384
1,428
1,519
84,892
87,142
5,308,463
5,453,549
2,978,608
3,045,564
1,215,554
1,237,041
148,025
153,667
9,650,650
9,889,821
—
—
—
—
—
—
9,650,650
9,889,821
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
124,314
123,174
198,588
201,989
322,902
325,163
—
322,902
325,163
890,746
895,075
—
—
—
—
—
—
—
—
—
—
5,400
5,399
30,280
30,990
—
—
—
—
22,171
25,072
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,308,463
5,453,549
2,978,608
3,045,564
1,215,554
1,237,041
148,025
153,667
—
9,650,650
9,889,821
—
—
—
124,314
123,174
198,588
201,989
322,902
325,163
—
9,973,552
10,214,984
—
—
—
890,746
895,075
35,680
36,389
22,171
25,072
24,593
27,557
24,593
27,557
Total available
for sale
securities
$11,287,221
1 U.S. government and government sponsored enterprises are not rated by the nationally-recognized rating agencies as these securities are guaranteed by agencies of the U.S. government or
$10,785,898
$11,032,634
$10,542,396
$ 335,286
$337,547
$ 67,142
$ 67,558
$ 29,076
63,855
65,076
26,021
$
$
$
government-sponsored enterprises.
111
At December 31, 2012, the entire portfolio of privately issued residential mortgage-backed securities was rated below investment
grade by at least one of the nationally-recognized rating agencies. The net unrealized gain on these securities totaled $2.3 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 we expect 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 8.5% over the next 12 months, dropping to 8% over the following 21 months, and holding
at 8% thereafter. At December 31, 2011, we assumed that unemployment rates would increase to 9.5% 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 2% over the next twelve months, then flat for the following
twelve months and then growing at 2% per year thereafter. At December 31, 2011, we assumed that housing prices would
decrease an additional 8% over the next twelve months and then grow at 2% per year 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.
• Discount rates – estimated cash flows were discounted at rates that range from 2.00% to 6.25% 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 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
loss and the estimated credit loss on these securities was charged against other comprehensive income, net of deferred taxes.
Based upon projected declines in expected cash flows from certain private-label residential mortgage-backed securities, the Company
recognized $5.9 million of additional credit loss impairments in earnings during 2012. The Company recognized credit loss
impairments on private-label residential mortgage-backed securities in earnings of $21.9 million in 2011 and $26.5 million in 2010.
In addition to other-than-temporary impairment charges on private-label residential mortgage-backed securities, the Company
recognized $1.0 million of credit loss impairment 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 2011. The Company recognized $1.6 million in
impairment charges on these securities in 2011 and $1.0 million of impairment losses on these securities in 2010. See additional
discussion regarding the development of the fair value of these securities in Note 18.
112
A distribution of the amortized cost (after recognition of the other-than-temporary impairment), fair value and credit loss impairments
recognized on our privately issued residential mortgage-backed securities is as follows (in thousands, except for number of securities):
Credit Losses Recognized
Year ended
December 31, 2012
Life-to-date
Alt-A
Jumbo-A
Total
Number of
Securities
Amortized
Cost
Fair
Value
Number of
Securities
Amount
Number of
Securities
16
33
49
$
$
124,314
$ 123,174
198,588
201,989
322,902
$ 325,163
11
7
18
$
$
4,469
1,413
5,882
16
31
47
Amount
$ 48,188
23,452
$ 71,640
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 the 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
investments in relation to the severity and duration of the impairment and based on that evaluation has the ability and intent to hold
these investments until a recovery in fair value. Based on this evaluation, a $457 thousand other-than-temporary impairment losses
was recorded in earnings on certain equity securities during 2012. All remaining impairment of equity securities was considered
temporary at December 31, 2012 and December 31, 2011. No other-than-temporary impairment losses related to equity securities were
recorded in earnings in 2011 and $327 thousand of impairment losses were recorded in 2010.
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):
Year Ended December 31,
2012
2011
Balance of credit-related OTTI recognized on available for sale debt,
beginning of period
$
76,131
$
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
Sales
113
6,780
(7,796)
52,624
3,368
20,139
—
Balance of credit-related OTTI recognized on available for sale debt
securities, end of period
$
75,228
$
76,131
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 the 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.
113
The fair value and net unrealized gain (loss) included in Fair value option securities is as follows (in thousands):
U.S. agency residential mortgage-backed
securities
Corporate debt securities
Other securities
Total
December 31, 2012
December 31, 2011
Fair Value
Net
Unrealized
Gain
Fair Value
Net
Unrealized
Gain
$
$
$
257,040
26,486
770
284,296
$
$
$
3,314
1,409
47
4,770
$
$
$
626,109
$
19,233
25,117
— $
18
—
651,226
$
19,251
114
(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, 2012 (in thousands):
Gross Basis
Net Basis²
Assets
Liabilities
Assets
Liabilities
Notional¹
Fair Value
Notional¹
Fair Value
Fair Value
Fair Value
72,201
37,864
474
180,318
12,593
333,907
(3,464)
330,443
7,663
27,408
72,724
39,169
407
179,852
12,593
332,153
(49,369)
282,784
805
Customer risk management programs:
Interest rate contracts3
To-be-announced mortgage-backed
securities
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 12,850,805
$
46,113
$ 13,239,078
$
43,064
$
30,457
$
1,319,827
1,346,780
212,434
180,318
211,941
72,201
82,349
3,638
180,318
12,593
1,319,827
1,334,349
212,135
179,852
211,941
72,724
83,654
3,571
179,852
12,593
Total customer derivative before cash
collateral
Less: cash collateral
16,122,105
397,212
16,497,182
395,458
—
—
—
—
Total customer derivatives
16,122,105
397,212
16,497,182
395,458
Interest rate risk management programs
66,000
7,663
50,000
805
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
$ 16,547,182
$ 16,188,105
404,875
338,106
396,263
$
$
$
$
283,589
contract.
2 Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the Company
to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.
3 Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced 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,
2012, a decrease in credit rating to below investment grade would increase our obligation to post cash margin on existing
contracts by approximately $35 million.
115
81,261
62,945
782
73,153
12,508
299,168
(11,690)
287,478
6,381
66,541
81,891
75,370
701
72,928
12,508
309,939
(73,712)
236,227
295
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
Net Basis²
Assets
Liabilities
Assets
Liabilities
Notional¹
Fair Value
Notional¹
Fair Value
Fair Value
Fair Value
Customer risk management programs:
Interest rate contracts3
To-be-announced residential
mortgage-backed securities
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$
9,118,627
$
101,189
$
9,051,627
$
99,211
$
68,519
$
1,272,617
1,554,400
146,252
73,153
208,647
81,261
158,625
4,761
73,153
12,508
1,272,617
1,799,367
148,924
72,928
208,647
81,891
171,050
4,680
72,928
12,508
Total customer derivative before cash
collateral
Less: cash collateral
12,373,696
431,497
12,554,110
442,268
—
—
—
—
Total customer derivatives
12,373,696
431,497
12,554,110
442,268
Interest rate risk management programs
44,000
6,381
25,000
295
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
$ 12,417,696
$ 12,579,110
293,859
437,878
442,563
$
$
$
$
236,522
contract.
2 Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the Company
to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.
3 Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced securities used by mortgage
banking customers to hedge their loan production.
The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the Consolidated
Statement of Earnings (in thousands):
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
Customer Risk Management Programs:
Interest rate contracts
To-be-announced residential mortgage-
backed securities
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
Total Customer Risk Management Programs
Interest Rate Risk Management Programs
$
1,070
$
— $
(4,047) $
— $
1,685
$
3,458
8,171
382
612
—
13,693
—
—
—
—
—
—
—
(301)
3,193
5,262
341
565
—
5,314
—
—
—
—
—
—
2,526
1,099
7,951
629
375
—
11,739
—
Total Derivative Contracts
$
13,693
$
(301) $
5,314
$
2,526
$
11,739
$
—
—
—
—
—
—
—
3,032
3,032
At December 31, 2012, BOK Financial had interest rate swaps with a notional value of $91 million used as part of the
economic hedge of the change in the fair value of the mortgage servicing rights.
As discussed in Note 7, certain derivative contracts not designated as hedging instruments related to mortgage loan
commitments and forward sales contracts are included in Residential mortgage loans held for sale on the Consolidated Balance
116
Sheets. See Note 7 for additional discussion of notional, fair value and impact on earnings of these contracts. Forward sales
contracts are not considered swaps under the Commodity and Futures Trading Commission final rules.
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):
December 31, 2012
December 31, 2011
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Commercial
$ 4,158,548
$ 3,458,897
$
24,467
$ 7,641,912
$ 3,261,344
$ 3,224,915
$ 68,811
$ 6,555,070
Commercial real estate
845,023
1,323,350
Residential mortgage
1,747,038
175,412
251,394
217,384
60,626
46,608
2,709
2,228,999
896,820
1,295,290
2,045,040
1,646,554
395,505
245,711
298,206
199,617
99,193
29,767
3,515
2,291,303
1,974,527
448,843
Consumer
Total
Accruing loans past
due (90 days)1
Foregone interest on
nonaccrual loans
$ 6,926,021
$ 5,251,025
$ 134,410
$ 12,311,456
$ 6,050,429
$ 5,018,028
$ 201,286
$ 11,269,743
$
3,925
$
8,587
$
2,496
$
11,726
1 Excludes residential mortgage loans guaranteed by agencies of the U.S. government
At December 31, 2012, $5.4 billion or 44% of the total loan portfolio is to businesses and individuals in Oklahoma and $3.9
billion or 32% of our total loan portfolio is to businesses and individuals in Texas. These geographic concentrations subject the
loan portfolio to the general economic conditions within these areas. At December 31, 2011, $5.1 billion or 45% of the loan
portfolio was to businesses and individuals in Oklahoma and $3.5 billion or 31% of the 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, 2012, commercial loans to businesses in Oklahoma totaled $3.1 billion or 40% of the commercial loan
portfolio segment and loans to businesses in Texas totaled $2.7 billion or 36% of the commercial loan portfolio segment. The
commercial loan portfolio segment is further divided into loan classes. The energy loan class totaled $2.5 billion or 20% of
total loans at December 31, 2012, including $2.2 billion of outstanding loans to energy producers. Approximately 55% of
committed production loans are secured by properties primarily producing oil and 45% are secured by properties producing
natural gas. The services loan class totaled $2.2 billion at December 31, 2012. Approximately $1.2 billion of loans in the
services category consist of loans with individual balances of less than $10 million. Businesses included in the services class
include community foundations, gaming, public finance, insurance and heavy equipment dealers.
At December 31, 2011, commercial loans to businesses in Oklahoma totaled $2.8 billion or 43% of the commercial loan
portfolio and commercial loans to businesses in Texas totaled $2.2 billion or 34% of our commercial loan portfolio. The energy
loan class totaled $2.0 billion and the services loan class totaled $1.8 billion. Approximately $993 million of loans in the
services category consisted of loans with individual balances of less than $10 million.
117
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 primarily 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, 2012, 35% of commercial real estate loans are secured by properties primarily located in the Dallas and
Houston areas of Texas. An additional 26% of commercial real estate loans are secured by properties located primarily in the
Tulsa and Oklahoma City metropolitan areas of Oklahoma. At December 31, 2011, 36% of commercial real estate loans were
secured by properties in Texas and 26% of commercial real estate loans were secured by properties in Oklahoma.
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 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,
except 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, 2012 and 2011, residential mortgage loans included $160 million and $185 million, respectively, of loans
guaranteed by U.S. government agencies previously sold into 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 $761 million at December 31, 2012 and $632 million at December 31, 2011. At December 31, 2012,
68% of the home equity loan portfolio was comprised of first lien loans and 32% of the home equity portfolio was comprised
of junior lien loans. Junior lien loans were distributed 78% to amortizing term loans and 22% to revolving lines of credit. At
December 31, 2011, 66% of the home equity portfolio was comprised of first lien loans and 34% of the home equity loan
portfolio was comprised on junior lien loans. Junior lien loans were 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. Revolving loans have a 5 year
revolving period followed by 15 year term of amortizing repayments. Interest-only home equity loans may not be extended for
any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year
revolving term subject to an update of certain credit information.
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, 2012, outstanding commitments totaled $6.6 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.
118
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.
Because the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan
commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally,
BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan
commitments. The term of these standby letters of credit is defined in each commitment and typically corresponds with the
underlying loan commitment. At December 31, 2012, outstanding standby letters of credit totaled $466 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, 2012, outstanding commercial letters of credit totaled $7 million.
Allowances for Credit Losses
BOK Financial maintains an allowance for loan losses and an accrual for off-balance sheet credit risk. The accrual for off-
balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments
that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees. 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 previously sold with full or partial recourse and for residential mortgage loans sold to government sponsored
agencies under standard representations and warranties.
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 for unimpaired loans based on estimated loss rates by loan class and
nonspecific allowances based on general economic conditions, concentration in loans with large balances and other relevant
factors.
The activity in the allowance for loan losses and the accrual for off-balance sheet credit risk related to loan commitments and
standby letters of credit for the year ended December 31, 2012 is summarized as follows (in thousands):
Commercial
Commercial
Real Estate
Residential
Mortgage
Consumer
Nonspecific
allowance
Total
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Accrual for off-balance sheet
credit risk:
Beginning balance
Provision for off-balance sheet
credit risk
Ending balance
$
$
$
$
83,443
$
67,034
$
46,476
$
10,178
$
46,350
$
253,481
(14,950)
(9,341)
6,128 1
65,280
7,906
(7,431)
475
$
$
$
(6,214)
(11,642)
5,706
3,346
(10,047)
1,928
5,327
(11,108)
5,056
(2,163)
—
—
(14,654)
(42,138)
18,818
54,884
$
41,703
$
9,453
$
44,187
$
215,507
1,250
$
91
$
14
$
— $
9,261
103
1,353
$
(13)
78
$
(5)
9
$
—
— $
(7,346)
1,915
Total provision for credit losses
(22,000)
1 Includes $7.1 million of negative recovery related to a refund of a settlement between BOK Financial and the City of Tulsa invalidated by
(6,111) $
(2,163) $
(22,381)
3,333
5,322
$
$
$
$
the Oklahoma Supreme Court.
119
The activity in the allowance for loan losses and the accrual for off-balance sheet credit risk related to loan commitments and
standby letters of credit for the year ended December 31, 2011 is summarized as follows (in thousands):
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Accrual for off-balance sheet credit
risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision 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
(18,482)
(15,973)
2,780
7,968
(14,107)
2,334
3,690
(11,884)
5,758
19,614
—
—
(1,040)
(56,800)
18,350
83,443
$
67,034
$
46,476
$
10,178
$
46,350
$
253,481
13,456
$
443
$
131
$
241
$
— $
14,271
(5,550)
807
7,906
$
1,250
$
(40)
91
(19,380) $
(17,675) $
7,928
(227)
14
3,463
$
$
$
$
—
— $
(5,010)
9,261
19,614
$
(6,050)
$
$
$
$
The activity in the allowance for loan losses and the accrual for off-balance sheet credit risk related to loan commitments and
standby letters of credit for the year ended December 31, 2010 is summarized as follows (in thousands):
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Commercial
Commercial
Real Estate
Residential
Mortgage
Consumer
Nonspecific
allowance
Total
$
121,320
$
104,208
$
27,863
$
20,452
$
18,252
$
1,688
(27,640)
9,263
51,284
(59,962)
3,179
41,573
(20,056)
901
2,227
(16,330)
6,265
8,484
—
—
292,095
105,256
(123,988)
19,608
$
104,631
$
98,709
$
50,281
$
12,614
$
26,736
$
292,971
Accrual for off-balance sheet credit
risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision for credit losses
$
$
$
12,344
$
1,404
$
222
$
418
$
— $
14,388
1,112
13,456
2,800
$
$
(961)
443
50,323
$
$
(91)
131
41,482
$
$
(177)
241
2,050
$
$
—
(117)
— $
14,271
8,484
$
105,139
120
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2012 is as follows (in thousands):
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Collectively Measured
for Impairment
Individually Measured
for Impairment
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$
7,617,445
$
65,050
$
24,467
$
230
$
7,641,912
$
2,168,373
1,998,432
392,796
51,775
40,934
9,328
60,626
46,608
2,709
3,109
769
125
2,228,999
2,045,040
395,505
65,280
54,884
41,703
9,453
12,177,046
167,087
134,410
4,233
12,311,456
171,320
Nonspecific allowance
—
—
—
—
—
44,187
Total
$ 12,177,046
$
167,087
$
134,410
$
4,233
$ 12,311,456
$
215,507
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):
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Collectively Measured
for Impairment
Individually Measured
for Impairment
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$
6,486,311
$
81,907
$
68,759
$
1,536
$
6,555,070
$
2,192,110
1,967,086
447,747
63,092
46,178
10,178
99,193
7,441
1,096
3,942
298
—
2,291,303
1,974,527
448,843
83,443
67,034
46,476
10,178
11,093,254
201,355
176,489
5,776
11,269,743
207,131
Nonspecific allowance
—
—
—
—
—
46,350
Total
$ 11,093,254
$
201,355
$
176,489
$
5,776
$ 11,269,743
$
253,481
121
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, 2012 is as follows (in thousands):
Internally Risk Graded
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
$
7,624,442
$
64,181
$
17,470
$
1,099
$
7,641,912
$
2,228,999
265,503
231,376
54,884
5,270
2,987
—
1,779,537
164,129
10,350,320
127,322
1,961,136
—
36,433
6,466
43,998
2,228,999
2,045,040
395,505
12,311,456
171,320
65,280
54,884
41,703
9,453
Nonspecific allowance
—
—
—
—
—
44,187
Total
$ 10,350,320
$
127,322
$
1,961,136
$
43,998
$ 12,311,456
$
215,507
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
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
$
6,536,602
$
82,263
$
18,468
$
1,180
$
6,555,070
$
2,291,303
317,798
217,195
67,034
8,262
2,527
—
1,656,729
231,648
9,362,898
160,086
1,906,845
—
38,214
7,651
47,045
2,291,303
1,974,527
448,843
11,269,743
207,131
83,443
67,034
46,476
10,178
Nonspecific allowance
—
—
—
—
—
46,350
Total
$
9,362,898
$
160,086
$
1,906,845
$
47,045
$ 11,269,743
$
253,481
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 nonaccruing
status. Known information does, however, cause concern as to the borrowers’ continued compliance with current repayment
terms. Nonaccruing loans represent loans for which full collection of principal and interest in accordance with the original
122
terms of the loan agreements 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.
The following table summarizes the Company’s loan portfolio at December 31, 2012 by the risk grade categories (in
thousands):
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Internally Risk Graded
Non-Graded
Performing
Potential
Problem
Nonaccruing
Performing
Nonaccruing
Total
$
2,448,954
$
9,245
$
2,460
$
— $
— $
2,460,659
2,119,734
1,093,413
337,132
1,077,773
190,422
266,329
7,533,757
204,010
508,342
405,763
393,566
241,761
351,663
32,362
9,949
9,345
467
—
4,914
66,282
22,952
6,327
15,280
6,624
265
11,820
63,268
12,090
3,077
2,007
3,166
684
919
24,403
26,131
8,117
6,829
2,706
3,968
12,875
60,626
—
—
—
—
—
17,406
17,406
—
—
—
—
—
—
—
—
—
—
—
—
64
64
—
—
—
—
—
—
—
2,164,186
1,106,439
348,484
1,081,406
191,106
289,632
7,641,912
253,093
522,786
427,872
402,896
245,994
376,358
2,228,999
Total commercial real estate
2,105,105
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
242,823
10,271
12,409
831,008
27,454
1,123,965
—
—
—
—
—
—
159,955
754,375
489
6,256
160,444
760,631
Total residential mortgage
242,823
10,271
12,409
1,745,338
34,199
2,045,040
Consumer:
Indirect automobile
Other consumer
Total consumer
—
229,570
229,570
—
1,091
1,091
—
715
715
33,157
128,978
162,135
1,578
416
1,994
34,735
360,770
395,505
Total
$ 10,111,255
$
140,912
$
98,153
$
1,924,879
$
36,257
$ 12,311,456
123
The following table summarizes the Company’s loan portfolio at December 31, 2011 by the risk grade categories (in thousands):
Internally Risk Graded
Non-Graded
Performing
Potential
Problem
Nonaccruing
Performing
Nonaccruing
Total
$
2,003,288
$
1,417
$
336
$
— $
— $
2,005,041
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
1,713,232
912,090
311,292
969,260
203,555
281,645
31,338
34,156
2,390
3,414
756
10
Total commercial
6,394,362
73,481
Commercial real estate:
Construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
252,936
499,295
381,918
357,436
277,906
355,381
Total commercial real estate
2,124,872
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
—
—
—
—
—
—
—
1,761,538
967,426
336,733
978,160
204,311
301,861
6,555,070
342,054
509,402
405,923
369,028
278,186
386,710
2,291,303
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
294,478
15,879
7,441
821,410
17,925
1,157,133
Total residential mortgage
294,478
15,879
7,441
1,634,403
—
—
—
—
—
—
184,973
628,020
—
4,401
22,326
184,973
632,421
1,974,527
Consumer:
Indirect automobile
Other consumer
Total consumer
—
212,150
212,150
—
3,949
3,949
—
1,096
1,096
102,955
126,274
229,229
2,194
225
2,419
105,149
343,694
448,843
Total
$
9,025,862
$
160,547
$
176,489
$
1,882,048
$
24,797
$ 11,269,743
124
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. This includes all nonaccruing loans, all loans modified in a troubled debt
restructuring and all loans repurchased from GNMA pool.
A summary of impaired loans follows (in thousands):
As of December 31, 2012
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
For the Year Ended
December 31, 2012
Average
Recorded
Investment
Interest
Income
Recognized
$
$
2,460
15,715
9,186
2,447
4,256
684
8,482
43,230
44,721
9,797
8,949
3,189
3,968
15,377
86,001
$
2,460
12,090
3,077
2,007
3,166
684
983
24,467
26,131
8,117
6,829
2,706
3,968
12,875
60,626
$
2,460
11,940
3,016
2,007
2,050
684
983
23,140
25,575
8,117
6,604
2,706
—
10,049
53,051
— $
150
61
—
1,116
—
—
1,327
556
—
225
—
3,968
2,826
7,575
— $
149
15
—
66
—
—
230
155
—
21
—
2,290
643
3,109
$
1,398
14,529
12,129
12,529
4,326
342
1,387
46,640
44,003
7,490
9,143
3,110
1,984
14,181
79,911
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
51,153
39,863
37,564
2,299
769
32,614
1,590
170,740
6,256
228,149
160,444
6,256
206,563
160,444
6,256
204,264
1,578
1,300
2,878
1,578
1,131
2,709
1,578
1,006
2,584
—
—
2,299
—
125
125
—
—
769
—
125
125
173,729
5,329
211,672
1,886
1,226
3,112
6,718
—
8,308
—
—
—
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 mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
contractual principal and interest. At December 31, 2012, $489 thousand of these loans are nonaccruing and $160 million are accruing
based on the guarantee by U.S. government agencies.
283,039
360,258
294,365
341,335
11,326
4,233
$
$
$
$
$
$
$
8,308
Generally, no interest income is recognized on impaired loans until all principal balances, including amounts charged-off, have
been recovered.
125
As of December 31, 2011
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
For the Year Ended
December 31, 2011
Average
Recorded
Investment
Interest
Income
Recognized
$
336
$
336
$
336
$
— $
— $
401
$
26,916
24,432
26,186
6,825
—
9,289
93,984
98,053
8,645
14,588
3,512
—
16,702
16,968
21,180
23,051
5,486
—
1,790
68,811
61,874
6,863
11,457
3,513
—
15,486
16,200
19,702
23,051
5,412
—
1,790
66,491
56,740
4,373
9,567
3,513
—
7,887
768
1,478
—
74
—
—
360
1,102
—
74
—
—
2,320
1,536
5,134
2,490
1,890
—
—
7,599
1,777
1,062
291
—
—
812
18,115
14,833
12,584
4,510
7
3,185
53,635
80,727
5,921
15,556
5,119
2,044
15,415
141,500
99,193
82,080
17,113
3,942
124,782
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35,176
25,366
22,905
2,461
298
28,739
527
189,567
4,401
229,144
184,973
4,401
214,740
184,973
4,401
212,279
2,194
1,952
4,146
2,194
1,321
3,515
2,194
1,321
3,515
—
—
2,461
—
—
—
—
—
298
—
—
—
116,462
4,858
150,059
2,360
1,681
4,041
6,127
—
6,654
—
—
—
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 mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
contractual principal and interest. At December 31, 2011, all of these loans are accruing based on the guarantee by U.S. government
agencies.
468,774
386,259
364,365
332,517
21,894
5,776
$
$
$
$
$
$
$
6,654
126
Troubled Debt Restructurings
A summary of troubled debt restructurings ("TDRs") by accruing status as of December 31, 2012 were as follows (in
thousands):
As of
December 31, 2012
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-Off
During the
Year Ended
Dec. 31,
2012
Specific
Allowance
$
— $
— $
— $
— $
2,492
2,290
—
64
—
675
5,521
14,898
6,785
3,899
—
—
5,017
30,599
20,490
—
20,490
—
2,860
2,860
2,099
1,362
—
64
—
—
3,525
9,989
5,735
1,920
—
—
3,399
21,043
12,214
—
12,214
—
2,589
2,589
393
928
—
—
—
675
1,996
4,909
1,050
1,979
—
—
1,618
9,556
8,276
—
8,276
—
271
271
45
15
—
—
—
—
60
76
—
—
—
—
—
76
54
—
54
—
83
83
—
—
107
—
—
—
—
107
1,143
150
269
—
—
2,182
3,744
1,476
—
1,476
—
198
198
Nonaccruing TDRs:
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
Total nonaccruing TDRs
$
59,470
$
39,371
$
20,099
$
273
$
5,525
127
As of
December 31, 2012
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-Off
During the
Year Ended
Dec. 31,
2012
Specific
Allowance
—
38,515
38,515
38,515
—
8,755
8,755
—
29,760
29,760
8,755
29,760
—
—
—
—
—
—
—
—
Accruing TDRs:
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
Total TDRs
$
97,985
$
48,126
$
49,859
$
273
$
5,525
128
A summary of troubled debt restructurings by accruing status as of December 31, 2011 were as follows (in thousands):
As of
December 31, 2011
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-Off
During the
Year Ended
Dec. 31, 2011
Specific
Allowance
Nonaccruing TDRs:
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
6,283
—
6,283
—
168
168
1,907
1,531
—
—
—
—
3,438
10,310
—
1,158
—
—
2,096
13,564
3,967
—
3,967
—
168
168
1,622
208
—
—
—
960
2,790
15,580
1,070
1,338
—
—
6,075
24,063
2,316
—
2,316
—
—
—
—
24
—
—
—
—
24
—
301
—
—
—
—
—
301
1,577
1,104
—
215
—
—
662
2,454
282
—
282
—
—
—
882
527
—
—
86
2,599
54
—
54
—
—
—
Total nonaccuring TDRs
$
50,306
$
21,137
$
29,169
$
2,760
$
2,954
129
As of
December 31, 2011
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-Off
During the
Year Ended
Dec. 31, 2011
Specific
Allowance
Accruing TDRs:
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
3,917
28,974
32,891
32,891
2,445
1,472
10,853
13,298
18,121
19,593
13,298
19,593
—
—
—
—
233
—
233
233
Total TDRs
$
83,197
$
34,435
$
48,762
$
2,760
$
3,187
130
Troubled debt restructurings generally consist of interest rates concessions, payment stream concessions or a combination of
concessions to distressed borrowers. The following table details the recorded balance of loans at December 31, 2012 by class
that were restructured during the year ended December 31, 2012 by primary type of concession (in thousands):
Accruing
Combination
& Other
Year Ended
Dec. 31, 2012
Nonaccrual
Interest Rate
Payment
Stream
Combination
& Other
Total
Total
$
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17,398
—
17,398
—
—
—
875
885
—
—
—
—
1,760
1,219
2,379
1,350
—
—
—
4,948
1,214
—
—
1,214
—
223
223
—
—
—
—
—
—
—
8,359
—
570
—
—
1,573
10,502
—
—
—
—
—
—
—
875
885
—
64
—
—
—
875
885
—
64
—
—
1,824
1,824
9,578
2,379
1,920
—
—
1,573
15,450
9,578
2,379
1,920
—
—
1,573
15,450
—
—
—
64
—
—
64
—
—
—
—
—
—
—
2,518
3,732
3,732
—
—
—
—
2,518
3,732
—
2,508
2,508
—
2,731
2,731
17,398
—
21,130
—
2,731
2,731
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 mortgage guaranteed
by U.S. government agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
$
17,398
$
8,145
$
10,502
$
5,090
$
23,737
$
41,135
131
The following table details the recorded balance of loans by class that were restructured during the year ended December 31,
2011 by primary type of concession (in thousands):
Accruing
Combination
& Other
Year Ended
Dec. 31, 2011
Nonaccrual
Interest Rate
Payment
Stream
Combination
& Other
Total
Total
$
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
534
15,490
—
16,024
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
101
101
—
—
—
—
—
—
—
868
504
—
—
—
—
868
504
—
—
—
—
—
868
504
—
—
—
—
1,372
1,372
1,372
6,123
6,123
6,123
—
25
—
—
2,348
8,496
4,025
146
—
4,171
—
168
168
—
25
—
—
2,449
8,597
4,025
146
—
4,171
—
168
168
—
25
—
—
2,449
8,597
4,559
15,636
—
20,195
—
168
168
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 mortgage guaranteed
by U.S. government agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
$
16,024
$
— $
101
$
14,207
$
14,308
$
30,332
132
The following table summarizes, by loan class, the recorded investment at December 31, 2012 and 2011, respectively of loans
modified as TDRs within the previous 12 months and for which there was a payment default during the years ended
December 31, 2012 and 2011, respectively (in thousands):
Year Ended
Dec. 31, 2012
Year Ended
Dec. 31, 2011
Accruing
Nonaccrual
Total
Accruing
Nonaccrual
Total
$
— $
— $
— $
— $
— $
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 mortgage guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
875
885
—
—
—
—
875
885
—
—
—
—
1,760
1,760
2,000
2,379
1,350
—
—
—
2,000
2,379
1,350
—
—
—
5,729
5,729
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,692
2,692
457
17,251
—
17,251
—
—
17,251
11,877
—
—
2,692
19,943
12,334
—
—
—
—
462
462
—
462
462
—
—
—
—
473
—
—
—
—
473
—
—
473
—
—
—
—
473
3,575
3,575
—
25
—
—
—
25
—
—
668
4,268
668
4,268
146
381
—
527
—
19
19
603
12,258
—
12,861
—
19
19
Total
$
17,251
$
10,643
$ 27,894
$
12,334
$
5,287
$ 17,621
A payment default is defined as being 30 days or more past due subsequent to the loan modification. Loans that experienced a
payment default during the years ended December 31, 2012 and 2011 above includes loans that were 30 days or more past due
at any time during the period, but that are performing in accordance with the modified terms as of the balance sheet date.
133
Nonaccrual & Past Due Loans
Past due status for all loan classes is based on the actual number of days since the last payment was due according to the
contractual terms of the loans.
A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2012 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
$
2,454,928
$
3,071
$
200
$
2,460
$
2,460,659
2,150,386
1,103,307
346,442
1,077,022
190,416
288,522
7,611,023
226,962
514,252
417,866
400,151
242,026
358,030
2,159,287
1,710
5
35
1,040
6
127
5,994
—
349
3,177
39
—
2,092
5,657
—
50
—
178
—
—
428
—
68
—
—
—
3,361
3,429
12,090
3,077
2,007
3,166
684
983
2,164,186
1,106,439
348,484
1,081,406
191,106
289,632
24,467
7,641,912
26,131
8,117
6,829
2,706
3,968
12,875
60,626
253,093
522,786
427,872
402,896
245,994
376,358
2,228,999
1,075,687
8,366
49
39,863
1,123,965
26,560
752,100
1,854,347
31,869
358,308
390,177
13,046
2,275
23,687
1,273
1,327
2,600
120,349
—
489
6,256
160,444
760,631
120,398
46,608
2,045,040
15
4
19
1,578
1,131
2,709
34,735
360,770
395,505
Total
$ 12,014,834
$
37,938
$
124,274
$
134,410
$ 12,311,456
134
A summary of loans currently performing, loans 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
$
2,003,192
$
1,065
$
448
$
336
$
2,005,041
1,729,775
13,608
1,187
945,776
313,028
971,265
204,306
298,105
6,465,447
278,901
502,167
394,227
365,477
278,186
367,643
2,186,601
470
654
1,362
—
1,966
19,125
1,279
372
239
38
—
3,444
5,372
—
—
47
5
—
1,687
—
—
—
—
—
137
137
16,968
21,180
23,051
5,486
—
1,790
68,811
61,874
6,863
11,457
3,513
—
15,486
99,193
1,761,538
967,426
336,733
978,160
204,311
301,861
6,555,070
342,054
509,402
405,923
369,028
278,186
386,710
2,291,303
1,113,907
17,259
601
25,366
1,157,133
21,568
624,942
1,760,417
98,345
340,087
438,432
11,868
3,036
32,163
4,581
2,286
6,867
151,537
42
152,180
—
4,401
29,767
184,973
632,421
1,974,527
29
—
29
2,194
1,321
3,515
105,149
343,694
448,843
Total
$ 10,850,897
$
63,527
$
154,033
$
201,286
$ 11,269,743
135
(5) Premises and Equipment
Premises and equipment at December 31 are summarized as follows (in thousands):
December 31,
2012
2011
Land
$
73,616
$
Buildings and improvements
Software
Furniture and equipment
Subtotal
Less accumulated depreciation
Total
244,524
89,183
158,020
565,343
299,423
265,920
$
$
73,638
232,440
82,801
141,743
530,622
267,887
262,735
Depreciation expense of premises and equipment was $33 million, $32 million and $33 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
(6) Goodwill and Intangible Assets
On August 15, 2012, the Company acquired a majority voting interest in a Delaware limited liability corporation and its
wholly-owned subsidiary, a Tulsa-based aircraft parts supplier and repair facility.
On August 19, 2012, the Company acquired The Milestone Group, Inc. ("Milestone"), a Denver-based Registered Investment
Adviser that provides wealth management services to high net worth customers in Colorado and Nebraska. Milestone manages
approximately $1.4 billion in equity and fixed income securities for customers at December 31, 2012.
The purchase price for these acquisitions totaled $37 million, including $24 million paid in cash and $13 million of contingent
consideration. The purchase price allocation included $21 million of identifiable intangible assets and $26 million of goodwill.
Certain issues with regards to deferred income taxes have not yet been finalized, and the outcome may result in an adjustment
to goodwill. The pro-forma impact of these transactions was not material to the Company's consolidated financial statements.
The following table presents the original cost and accumulated amortization of intangible assets (in thousands):
December 31,
2012
2011
Core deposit premiums
$
109,417
$
Less accumulated amortization
Net core deposit premiums
Other identifiable intangible assets
Less accumulated amortization
Net other identifiable intangible assets
107,848
1,569
38,191
11,568
26,623
109,417
107,023
2,394
17,291
9,466
7,825
Total intangible assets, net
$
28,192
$
10,219
136
The net amortized cost of identifiable intangible assets assigned to the Company’s geographic markets as follows (in
thousands):
Core deposit premiums:
Texas
Colorado
Arizona
Total core deposit premiums
December 31,
2012
2011
$
$
1,192
$
1,817
377
—
548
29
1,569
$
2,394
Other identifiable intangible assets:
Oklahoma
Colorado
Kansas/Missouri
Total other identifiable intangible assets
9,857
15,976
790
26,623
5,548
1,487
790
7,825
Total intangible assets, net
$
28,192
$
10,219
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
2013
2014
2015
2016
2017
Thereafter
Core
Deposit
Premiums
Other
Identifiable
Intangible
Assets
$
475
432
393
247
22
—
$
3,306
$
2,300
2,176
2,064
1,731
15,046
$
1,569
$
26,623
$
Total
3,781
2,732
2,569
2,311
1,753
15,046
28,192
Goodwill assigned to the Company’s geographic markets as follows (in thousands):
Goodwill:
Oklahoma
Texas
New Mexico
Colorado
Arizona
Total goodwill
December 31,
2012
2011
$
12,607
$
240,122
15,273
77,555
16,422
8,173
240,122
15,273
55,611
16,422
$
361,979
$
335,601
137
The changes in the carrying value of goodwill by operating segment for year ended December 31, 2012 is as follows (in
thousands):
Commercial
Consumer
Wealth
Management
Total
Balance, December 31, 2011
Goodwill
$
266,728
$
39,251
$
29,850
$
335,829
Accumulated impairment losses
—
266,728
(228)
39,023
—
29,850
(228)
335,601
Goodwill acquired during 2012
4,434
—
21,944
26,378
Balance, December 31, 2012
Goodwill
Accumulated Impairment
271,162
—
39,251
(228)
51,794
—
362,207
(228)
$
271,162
$
39,023
$
51,794
$
361,979
There were no changes in the carrying value of goodwill during the year ended December 31, 2011.
The annual goodwill evaluations for 2012 and 2011 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.
(7) Mortgage Banking Activities
Residential Mortgage Loan Production
The Company originates, markets and services 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 and market quotes. Changes in the fair value of mortgage loans held for sale
are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the
fair value of residential mortgage loan commitments and forward sale commitments which are considered derivative contracts
that have not been designated as hedging instruments. The volume of mortgage loans originated for sale and secondary market
prices 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 residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan
commitments are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and
procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest
rate fluctuations is partially managed through forward sales of residential mortgage-backed securities and forward sales
contracts. These latter contracts set the price for loans that will be delivered in the next 60 to 90 days.
138
The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to
residential mortgage loans 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, 2012
December 31, 2011
Unpaid
Principal
Balance/
Notional
Fair Value
Unpaid
Principal
Balance/
Notional
Fair Value
Residential mortgage loans held for sale
$
269,718
$
281,935
$
177,319
$
184,816
Residential mortgage loan commitments
Forward sales contracts
356,634
598,442
12,733
(906)
189,770
349,447
6,597
(3,288)
$
293,762
$
188,125
No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2012 or
December 31, 2011. No credit losses were recognized on residential mortgage loans held for sale for years ended
December 31, 2012, 2011 and 2010.
Mortgage banking revenue was as follows (in thousands):
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
Year Ended December 31,
2012
2011
2010
$
120,599
$
57,418
$
45,243
6,136
2,382
129,117
40,185
4,345
(9,781)
51,982
39,661
$
169,302
$
91,643
$
1,755
2,440
49,438
38,162
87,600
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 are 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 or
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.
The following represents a summary of mortgage servicing rights (Dollars in thousands):
Number of residential mortgage loans serviced for others
98,246
95,841
96,443
Outstanding principal balance of residential mortgage loans serviced for others
$
11,981,624
$
11,300,986
$
11,194,582
Weighted average interest rate
Remaining term (in months)
4.71%
289
5.19%
290
5.44%
292
December 31,
2012
December 31,
2011
December 31,
2010
139
Activity in capitalized mortgage servicing rights during the three years ended December 31, 2012 is as follows (in thousands):
Balance, December 31, 2009
Additions, net
Gain on purchase of mortgage servicing rights
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2010
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2011
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2012
Purchased
Originated
Total
$
7,828
$
65,996
$
31,321
11,832
(6,791)
(6,290)
27,603
—
(13,895)
(1,881)
73,824
58,924
11,832
(20,686)
(8,171)
$
37,900
$
77,823
$
115,723
—
(4,699)
(14,298)
26,251
(10,045)
(26,149)
$
18,903
$
67,880
$
—
(4,164)
(1,763)
42,191
(14,788)
(7,447)
26,251
(14,744)
(40,447)
86,783
42,191
(18,952)
(9,210)
$
12,976
$
87,836
$
100,812
During the first quarter of 2010, the Company purchased the rights to service approximately 34 thousand residential mortgage
loans with an outstanding balance of $4.2 billion. The loans to be serviced were 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 expense in the Consolidated Statements
of Earnings. Changes in fair value due to loan runoff are included in Mortgage banking costs. Changes in fair value due to
market changes are reported separately. Changes in fair value due to market changes during the period relate to assets held at
the reporting date.
There is no active market for trading in mortgage servicing rights after origination. Fair value is determined by discounting the
projected net cash flows. Significant assumptions used to determine fair value considered to be significant unobservable inputs
were as follows:
Discount rate – risk-free rate plus a market premium
Prepayment rate – based upon loan interest rate, original term and
loan type
Loan servicing costs – annually per loan based upon loan type:
Performing loans
Delinquent loans
Loans in foreclosure
December 31,
2012
10.29%
December 31,
2011
10.34%
8.38% - 43.94%
10.88% - 49.68%
$55 - $105
$135 - $500
$55 - $105
$50 - $250
$875 - $4,250
$500 - $3,000
Escrow earnings rate – indexed to rates paid on deposit accounts
with comparable average life
0.87%
1.21%
The Company is exposed to interest rate risk as benchmark residential 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.
140
Stratification of the residential mortgage loan servicing portfolio and outstanding principal of loans serviced for others by
interest rate at December 31, 2012 follows (in thousands):
Fair value
$
33,456
$
40,560
$
21,472
$
5,324
$
100,812
< 4.00%
4.00% - 4.99%
5.00% - 5.99%
> 5.99%
Total
Outstanding principal of loans serviced for others
Weighted average prepayment rate1
1 Annual prepayment estimates based upon loan interest rate, original term and loan type. Weighted average prepayment rate is determined
$ 11,981,624
$ 1,617,453
$ 3,351,636
3,030,001
3,982,534
43.94%
24.07%
9.83%
8.38%
17.63%
$
$
by weighting the prepayment speed for each loan by its unpaid principal balance.
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, 2012, 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 $139 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 $2.6
million. In the model, changes in the value of servicing rights due to changes in interest rates assume stable relationships between
residential mortgage rates and prepayment speeds. Changes in market conditions can cause variations from these assumptions.
These factors and others may cause changes in the value of our mortgage servicing rights to differ from our expectations.
The aging status of our mortgage loans serviced for others by investor at December 31, 2012 follows (in thousands):
FHLMC
FNMA
GNMA
Other
Total
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days or
More
Total
$ 4,668,434
$
41,298
$
12,981
$
39,509
$
4,762,222
2,622,914
3,903,284
447,142
18,803
130,869
9,288
5,393
35,408
2,128
$ 11,641,774
$
200,258
$
55,910
$
18,991
18,958
6,224
83,682
2,666,101
4,088,519
464,782
$ 11,981,624
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 $227 million at
December 31, 2012 and $259 million at December 31, 2011. At December 31, 2012, approximately 5% of the loans sold with
recourse with an outstanding principal balance of $12 million were either delinquent more than 90 days, in bankruptcy or in
foreclosure and 5% with an outstanding balance of $12 million were past due 30 to 89 days. A separate accrual for these off-
balance sheet commitment is included in Other liabilities in the Consolidated Balance Sheets. 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 accrual for losses on loans sold with recourse included in Other liabilities in the Consolidated Balance
Sheets is summarized as follows (in thousands):
Beginning balance
Provision for recourse losses
Loans charged off, net
Ending balance
Year Ended December 31,
2012
2011
2010
$
$
18,683
$
16,667
$
(1,891)
(5,433)
8,611
(6,595)
11,359
$
18,683
$
13,781
7,895
(5,009)
16,667
The Company also has off-balance sheet obligation to repurchase or provide indemnification for residential mortgage loans
sold to government sponsored entities due to standard representations and warranties made under contractual agreements.The
Company has established an accrual for credit losses related to potential loan repurchases under representations and warranties
that is included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated
141
Statements of Earnings. For 2012, the Company has repurchased 39 loans from the agencies for $4.8 million and recognized
$1.3 million of related losses. In addition, the Company has paid indemnification for 2 loans and recognized $86 thousand of
related losses during 2012. While the level of repurchases and indemnifications related to standard representations and
warranties has remained low, the severity of the losses trended higher during the year. Accordingly, the Company increased its
accrual for credit losses related to potential loan repurchases under representations and warranties during the year.
A summary of unresolved deficiency requests or from the agencies and related accrual for credit losses follows (in thousands):
Number of unresolved deficiency requests
389
Aggregate outstanding principal balance subject to unresolved deficiency requests
$
44,831
$
Unpaid principal balance subject to indemnification by the Company
Accrual for credit losses related to potential loan repurchases under representations and warranties
1,233
5,291
247
36,978
870
2,216
December 31,
2012
2011
(8) Deposits
Interest expense on deposits is summarized as follows (in thousands):
December 31,
2012
2011
2010
Transaction deposits
$
14,300
$
23,415
$
38,886
Savings
Time:
Certificates of deposits under $100,000
Certificates of deposits $100,000 and over
Other time deposits
Total time
Total
540
719
719
19,150
16,331
16,692
52,173
26,476
21,175
17,105
64,756
31,210
19,235
16,215
66,660
$
67,013
$
88,890
$ 106,265
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2012 and 2011 were $1.9
billion and $2.1 billion, respectively.
Time deposit maturities are as follows: 2013 – $1.5 billion, 2014 – $305 million, 2015 – $259 million, 2016 – $322 million,
2017 – $173 million and $406 million thereafter. At December 31, 2012 and 2011, the Company had $187 million and $219
million, respectively, in fixed rate, brokered certificates of deposits. The weighted-average interest rate paid on these
certificates was 3.17% in 2012 and 3.62% in 2011.
Interest expense on time deposits was reduced by $1.5 million in 2012, $1.6 million in 2011, and $4.0 million in 2010 from the
net accrued settlement of interest rate swaps.
The aggregate amount of overdrawn transaction deposits that have been reclassified as loan balances was $9.2 million at
December 31, 2012 and $7.5 million at December 31, 2011.
142
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
As of
Year Ended
December 31, 2012
December 31, 2012
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent Company and Other Non-Bank Subsidiaries:
Trust preferred debt
Other
Total Parent Company and Other Non-Bank Subsidiaries
Subsidiary Bank:
Funds purchased
Repurchase agreements
Federal Home Loan Bank advances
Subordinated debentures
GNMA repurchase liability
Other
Total subsidiary bank
Total other borrowings
$
—
—% $
1.50
0.05
0.07
0.23
2.40
5.44
5.10
10,500
10,500
1,167,416
887,030
604,897
347,633
20,046
16,332
3,043,354
$ 3,053,854
—
394
394
1,512,711
1,072,650
104,925
363,699
33,768
16,577
3,104,330
—% $
1.11
1.11
0.14
0.09
0.31
3.79
5.41
2.91
0.65
—
10,500
1,810,793
1,272,151
604,897
398,897
47,840
16,761
$ 3,104,724
0.65%
As of
Year Ended
December 31, 2011
December 31, 2011
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent Company and Other Non-Bank Subsidiaries:
Trust preferred debt
Other
Total Parent Company and Other Non-Bank Subsidiaries
$
—
—
—
—% $
—
7,093
—
7,093
—% $
—
—
0.07
0.12
0.38
5.74
5.79
3.23
1.06
8,763
—
1,706,893
1,393,237
201,674
398,881
118,595
45,366
1,046,114
1,096,615
45,110
398,790
56,142
28,777
2,671,548
$ 2,678,641
1.07%
Subsidiary Bank:
Funds purchased
Repurchase agreements
Federal Home Loan Bank advances
Subordinated debentures
GNMA repurchase liability
Other
Total subsidiary bank
Total other borrowings
0.03
0.09
0.27
5.47
6.18
5.10
1,063,318
1,233,064
4,837
398,881
53,082
16,566
2,769,748
$ 2,769,748
143
Parent Company and Other Non-Bank Subsidiaries:
Trust preferred debt
Other
Total Parent Company and Other Non-Bank Subsidiaries
Subsidiary Banks:
Funds purchased
Repurchase agreements
Federal Home Loan Bank advances
Federal Reserve advances
Subordinated debentures
GNMA repurchase liability
Other
Total subsidiary banks
Total other borrowings
As of
Year Ended
December 31, 2010
December 31, 2010
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
$
7,217
6.55% $
7,217
6.42% $
—
7,217
1,025,018
1,258,762
801,797
—
398,701
—
24,564
3,508,842
$ 3,516,059
—
0.11
0.78
0.13
—
5.47
—
1.75
—
7,217
1,185,742
1,130,082
1,446,482
60,961
398,619
—
22,364
4,244,250
—
6.42
0.11
0.59
0.14
—
5.78
—
0.46
0.95
$ 4,251,467
0.98%
7,217
—
1,465,983
1,258,762
2,277,977
400,000
398,701
—
25,326
Aggregate annual principal repayments at December 31, 2012 are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total
Parent
Company
Subsidiary
Bank
$
10,500
$
2,679,914
—
—
—
—
—
525
121,829
525
525
240,036
$
10,500
$
3,043,354
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, 2012
or December 31, 2011.
144
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31, 2012
and 2011 is as follows (dollars in thousands):
Security Sold/Maturity
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
December 31, 2012
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
Security Sold/Maturity
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
$
1,213,593
$ 1,242,314
—
—
$
1,213,593
$ 1,242,314
$
$
877,382
—
877,382
0.07%
—%
0.07%
December 31, 2011
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
$
1,583,958
$ 1,628,547
—
—
$
1,583,958
$ 1,628,547
$
$
1,231,426
—
1,231,426
0.09 %
— %
0.09 %
1 BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over securities underlying
longer-term dealer repurchase agreements to the respective counterparty.
Borrowings from the Federal Home Loan 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 $411 million to secure BOK Financial’s obligations to depositors of
public funds. The unused credit available to BOK Financial at December 31, 2012 pursuant to the Federal Home Loan Bank’s
collateral policies is $685 million.
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 1.25% based upon the Company’s option. Interest on amounts borrowed for certain acquisitions
converted to a term loan at the Company's option is to be paid at a defined base rate minus 1.25% or LIBOR plus 1.50%. 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, 2013. 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. At December 31, 2012, no amounts were outstanding under the Credit Facility and
the Company met all of the covenants.
BOSC, Inc. has a borrowing agreement with Bank of New York Mellon ("BNY") to provide additional funding for its trading
activities. Fundings are at the discretion of BNY with the amount of the advance and interest rate are negotiated at the time of
the funding request. Fundings are fully secured by the qualifying securities and payable on demand. At December 31, 2012, $11
million was outstanding under this borrowing agreement with an interest rate of 1.50%.
In 2007, the Bank issued $250 million of subordinated debt due May 15, 2017. Interest on this debt was based upon a fixed rate
of 5.75% through May 14, 2012 and is based 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. At
145
December 31, 2012, $227 million of this subordinated debt remained outstanding. At December 31, 2011, $250 million of this
subordinated debt was outstanding.
In 2005, the Bank issued $150 million of fixed rate subordinated debt due June 1, 2015. The cost of this subordinated debt,
including issuance discounts and hedge loss is 5.56%. The proceeds of this debt were used to repay the unsecured revolving
line of credit and to provide additional capital to support asset growth. During 2006, an 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
interest 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. At December 31, 2012, $122 million of this subordinated debt remains
outstanding. At December 31, 2011, $150 million of this subordinated debt was outstanding.
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):
December 31,
2012
2011
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 liabilities:
Available for sale securities mark to market
Depreciation
Mortgage servicing rights
Lease financing
Other
Total deferred tax liabilities
$
9,100
$
86,100
45,100
7,200
45,100
400
30,900
223,900
99,000
19,600
59,500
21,100
21,700
220,900
Deferred tax assets in excess of deferred tax liabilities $
3,000
$
10,100
102,700
42,300
9,200
29,500
1,900
38,500
234,200
86,400
29,400
48,900
13,200
18,400
196,300
37,900
146
The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are
shown below (in thousands):
Current tax expense:
Federal
State
Total current tax expense
Year Ended December 31,
2012
2011
2010
$
159,706
$
137,802
$
132,165
19,103
178,809
16,085
153,887
17,618
149,783
Deferred tax expense (benefit):
Federal
State
Total deferred tax expense (benefit)
8,664
1,267
9,931
3,882
742
4,624
(24,714)
(1,712)
(26,426)
Total income tax expense
$
188,740
$
158,511
$
123,357
The reconciliations of income (loss) attributable to continuing operations at the U.S. federal statutory tax rate to income tax
expense are as follows (in thousands):
Amount:
Federal statutory tax
Tax exempt revenue
Effect of state income taxes, net of federal benefit
Utilization of tax credits
Bank-owned life insurance
Reduction of tax accrual
Other, net
Total
Year Ended December 31,
2012
2011
2010
$
190,003
$
156,917
$
130,078
(5,558)
13,684
(5,126)
(3,850)
(950)
537
(5,357)
11,198
(2,972)
(3,879)
(1,764)
4,368
(5,404)
9,740
(6,317)
(4,133)
(2,245)
1,638
$
188,740
$
158,511
$
123,357
Due to the favorable resolution of certain tax issues for the periods ended December 31, 2008 and 2007, BOK Financial
reduced its tax accrual by $1.0 million and $1.8 million in 2012 and 2011, respectively, which was credited against current
income tax expense.
Percent of pretax income:
Federal statutory tax
Tax exempt revenue
Effect of state income taxes, net of federal benefit
Utilization of tax credits
Bank-owned life insurance
Reduction of tax accrual
Other, net
Total
Year Ended December 31,
2012
2011
2010
35%
35%
35%
(1)
3
(1)
(1)
—
—
(1)
2
(1)
(1)
—
1
35%
35%
(1)
3
(2)
(1)
(1)
—
33%
147
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2012
2011
2010
Balance as of January 1
$
12,230
$
11,900
$
Additions for tax for current year positions
Settlements during the period
Lapses of applicable statute of limitations
3,976
(1,000)
(2,931)
6,390
(2,510)
(3,550)
Balance as of December 31
$
12,275
$
12,230
$
12,300
3,700
—
(4,100)
11,900
Any of the above unrecognized tax benefits, if recognized, would affect the effective tax rate.
BOK Financial recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The
Company recognized $1.2 million for 2012, $1.9 million for 2011 and $1.3 million for 2010 in interest and penalties. The
Company had approximately $2.9 million and $3.4 million for the payment of interest and penalties accrued as of
December 31, 2012 and 2011, 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 completed an audit of the Company's federal income tax return for the year ended December 31,
2008 during the first quarter 2012 with no adjustments. The Internal Revenue Service is currently auditing the Company's 2008
refund claim. The Company does not expect 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. During 2012, interest accrued on employees’ account balances at 5.25%. Effective
in the first quarter of 2013, interest will accrue at a variable rate tied to the five-year trailing average of five-year Treasury
Securities plus 1.5%. The new rate will have a floor of 2.5% and a ceiling of 5.0%.
148
The following table presents information regarding this plan (dollars in thousands):
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
$
50,213
$
48,373
December 31,
2012
2011
Interest cost
Actuarial loss
Benefits paid
Plan amendments
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
$
$
$
$
$
$
1,925
2,786
(2,194)
(4,702)
48,028
43,859
4,255
(2,194)
$
$
45,920
$
2,157
2,461
(2,778)
—
50,213
44,477
2,160
(2,778)
43,859
(2,108) $
(6,354)
1,925
$
(2,062)
3,461
2,157
(1,957)
3,659
3,859
Net periodic pension cost
1 Projected benefit obligation equals accumulated benefit obligation.
2 Projected benefit obligation is based on January 1 measurement date.
3,324
$
$
Weighted-average assumptions as of December 31:
2012
2011
Discount rate
Expected return on plan assets
3.36%
5.25%
4.11%
5.25%
As of December 31, 2012, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
$
3,629
3,298
3,372
3,771
3,488
16,227
$ 33,785
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 6.96%. As of December 31, 2012, the expected return on plan assets for 2012 is
5.25%. The maximum allowed Pension Plan contribution for 2012 was $28 million. No minimum contribution was required for
2012 or 2011. The minimum contribution was made for 2010. We expect approximately $1.3 million of net pension costs
currently in accumulated other comprehensive income to be recognized as net periodic pension cost in 2013.
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
149
annual contribution of up to $750 is made for employees whose annual base compensation is less than $40,000. Total non-
elective contributions were $802 thousand for 2012, $933 thousand for 2011 and $1.0 million for 2010.
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 $16.8 million for 2012, $15.4 million for 2011 and $14.3 million for 2010.
BOK Financial also sponsors a defined benefit post-retirement employee medical plan, which pays 50% 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
$1.1 million at December 31, 2012 and $2.2 million at December 31, 2011. 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 $153.9 million in 2012, $117.8 million in 2011, and $104.0 million in 2010 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 3 years after vesting. Additionally, stock options that vest in two years and expire 45
days after vesting have been awarded. Non-vested shares vest 5 years after the grant date. The holders of these non-vested
shares may be required to retain the shares for 3 years after vesting.
The Chief Executive Officer and other senior executives participate in an Executive Incentive Plan ("EIP"). 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.
150
The following table presents stock options outstanding during 2012, 2011 and 2010 under these plans (in thousands, except for
per share data):
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number
Options outstanding at December 31, 2009
3,521,763
$44.58
$
10,359
Options awarded
Options exercised
Options forfeited
Options expired
345,945
(486,280)
(97,443)
(148,651)
48.30
39.29
46.89
51.35
Options outstanding at December 31, 2010
3,135,334
$45.62
$
24,405
Options awarded
Options exercised
Options forfeited
Options expired
185,007
(576,518)
(60,005)
(62,471)
55.94
44.35
47.93
54.13
Options outstanding at December 31, 2011
2,621,347
$47.01
$
20,769
Options awarded
Options exercised
Options forfeited
Options expired
67,155
(708,295)
(22,559)
(66,862)
58.76
45.32
50.36
45.97
Options outstanding at December 31, 2012
1,890,786
$48.29
Options vested at:
December 31, 2010
December 31, 2011
December 31, 2012
805,781
825,682
601,367
$45.26
46.72
47.99
$
$
11,748
6,556
6,779
3,890
The following table summarizes information concerning currently outstanding and vested stock options:
Options Outstanding
Options Vested
Weighted
Average
Remaining
Number
Contractual
Weighted
Average
Exercise
Outstanding
Life (years)
Price
426
25,338
77,569
160,902
297,887
387,385
371,373
208,365
273,792
87,749
0.01
1.00
1.04
2.00
2.50
3.00
3.50
4.00
5.00
6.00
$30.87
37.74
47.32
47.05
54.33
48.46
36.65
48.30
55.94
58.76
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (years)
$30.87
37.74
47.32
47.05
54.33
48.46
36.65
48.30
55.94
0.00
0.01
1.00
1.04
1.03
1.04
1.05
1.04
1.57
2.07
0.00
Number
Vested
426
25,338
77,569
90,785
144,360
133,184
77,788
13,468
38,449
—
Range of
Exercise
Prices
$30.87
37.74
45.15 - 47.34
47.05
54.33
48.46
36.65
48.30
55.94
58.76
The aggregate intrinsic value of options exercised was $8.3 million for 2012, $5.5 million for 2011 and $6.1 million for 2010.
Compensation expense for stock options is generally recognized based on the fair value of options granted over the options’
vesting period.
151
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:
2012
2011
2010
Average risk-free interest rate1
Dividend yield
Volatility factors
Weighted average expected life
0.93%
2.20%
0.280
4.9 years
Weighted average fair value
$
11.48
$
1.87%
1.80%
0.268
2.36%
2.00%
0.261
4.9 years
11.92
4.9 years
10.17
$
1 Average risk-free interest rate represents U.S. Treasury rates matched to the expected life of the options.
Stock option expense totaled $9.7 million for 2012, $10.0 million for 2011 and $8.3 million for 2010. Compensation cost of
stock options granted that may be recognized as compensation expense in future years totaled $3.3 million at December 31,
2012. Subject to adjustments for forfeitures, we expect to recognize compensation expense for current outstanding options of
$1.5 million in 2013, $892 thousand in 2014, $498 thousand in 2015, $260 thousand in 2016, $110 thousand in 2017 and $27
thousand thereafter.
The following represents a summary of the non-vested stock awards as of December 31, 2012 (in thousands):
Non-vested at January 1, 2012
Granted
Lapsed
Forfeited
Non-vested at December 31, 2012
Weighted
Average
Grant Date
Fair Value
$55.63
47.32
50.45
Shares
503,738
197,058
(76,192)
(31,773)
592,831
Unrecognized compensation cost of non-vested shares totaled $14.0 million at December 31, 2012. Subject to adjustment for
forfeitures, we expect to recognize compensation expense of $4.9 million in 2013, $4.2 million in 2014, $3.0 million in 2015,
$1.7 million in 2016 and $158 thousand in 2017.
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 $87 thousand at December 31, 2012 and $1.3 million at December 31,
2011. Compensation cost of liability awards was an expense of $530 thousand in 2012, $760 thousand in 2011 and $1.9 million
in 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 EIP 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 EIP are based on the Company's earnings
per share growth compared to peers and business unit performance. As the economy improves and credit losses normalize, peer
banks were 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 the years 2011, 2012 and 2013 and the forfeiture of
long-term incentive awards for 2010 and 2011 in their entirety, despite BOK Financial's strong annual earnings growth through
the economic cycle while many peers experienced negative or declining earnings. The True-Up Plan was designed to adjust
annual and long-term performance-based incentive compensation for certain senior executives either upward or downward
based on the earnings per share performance and compensation of comparable senior executives at peer banks for 2006 through
2013. Compensation expense is determined by ranking BOK Financial's earnings per share to peer banks and then aligning
compensation with the peer bank that most closely relates to BOK Financial earnings per share performance. The final amount
due under the 2011 True-Up Plan will be determined as of December 31, 2013 and distributed in 2014. Based on the most
recent available information, the Company has accrued $40 million for the True-Up Plan liability. In the present economic
152
environment, performance measurement through 2013 may be volatile and could result in future adjustments upward or
downward.
During January 2013, BOK Financial awarded the following stock-based compensation:
Stock options
Non-vested stock
Number
81,492
208,770
Exercise
Price
Fair Value /
Award
$55.74
0.00
$9.67
55.74
The aggregate compensation cost of these awards totaled approximately $12.4 million. This cost will be recognized over the
vesting periods, subject to adjustments for forfeitures. Non-vested shares awarded in January, 2013 cliff vest in 3 years and are
subject to a 2 year holding period after vesting. None of the stock-based compensation awards in January 2013 are subject to
deferred compensation plans.
(13) Related Parties
In compliance with applicable regulations, the Company may extend credit to certain executive officers, directors, principal
shareholders and their affiliates (collectively referred to as “related parties”) in the ordinary course of business under
substantially the same terms as comparable third-party lending arrangements. The Company’s loans to related parties do not
involve more than the normal credit risk and there are no nonaccruing or impaired related party loans outstanding at
December 31, 2012 or 2011.
Activity in loans to related parties is summarized as follows (in thousands):
Year Ended December 31,
2012
2011
Beginning balance
$
99,340
$
Advances
644,715
168,935
300,080
Payments
Adjustments1
Ending balance
1 Adjustments generally consist of changes in status as a related party.
(285,909)
(684,942)
(83,766)
(9,170)
49,943
99,340
$
$
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 2012, $1.1 million for 2011 and $1.1 million for 2010.
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 $2.4 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.
153
(14) Commitments and Contingent Liabilities
Litigation Contingencies
In 2010, the Bank was named as a defendant in three class actions alleging that the manner in which the bank posted charges to
its consumer deposit accounts was improper. These actions were consolidated and settled on November 23, 2011 in Multi-
District Litigation pending in the United States District Court for the Southern District of Florida. The settlement was approved
by the Court on August 29, 2012. The settlement amount of $19 million was paid to the plaintiff class in November 2012. The
settlement was fully accrued for in 2011.
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 settled
claims asserted by the Bank against the City and against the Tulsa Airports Improvement Trust ("the Trust") related to a
defaulted loan made by the Bank to a start-up airline. The Trust agreed to purchase the loan and its collateral from the Bank in
the event of a default by the airline. The settlement amount was fully accrued for in 2011 in the accrual for off-balance sheet
credit risk. On July 18, 2012, the Company paid the $7.1 million to the City.
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 $7.3 million at December 31, 2012. 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 recognized a $7.3 million receivable for its proportionate share of
this escrow account.
BOK Financial currently owns 251,837 Visa Class B shares which are convertible into Visa Class A shares after the final
settlement of all covered litigation. 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 been currently assigned to the Class B shares and no value may be
assigned until the Class B shares are converted into a known number of Class A shares.
In July 2012, Visa announced it had reached an agreement in principle to resolve pending litigation and provide for settlement
payments from the previously funded litigation escrow account. In conjunction with this agreement, Visa deposited an
additional $150 million to the litigation escrow account which reduced the exchange rate to approximately 0.4206 Class A
shares for each Class B share.
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 the variable 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. These unaffiliated limited partnerships generally invest 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 $7.1 million at
December 31, 2012. Substantially all of the obligations are offset by limited partner commitments. The Company does not
accrue its contingent liability to fund investments. The Volcker Rule in Title VI of the Dodd-Frank Act limits both the amount
and structure of these type of investments. As a result, the Company's private equity activity might be curtailed.
154
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 creditors underlying the other borrowings of
consolidated tax credit entities do not have recourse to the general credit of BOKF.
The Company also has interests in various unrelated alternative investments generally consisting of unconsolidated limited
partnership interest 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.
A summary of consolidated and unconsolidated alternative investments as of December 31, 2012 and December 31, 2011 is as
follows (in thousands):
December 31, 2012
Loans
Other
assets
Other
liabilities
Other
borrowings
Non-
controlling
interest
Consolidated:
Private equity funds
$
— $
28,169
$
— $
— $
Tax credit entities
Other
10,000
—
13,965
8,952
—
—
10,964
—
Total consolidated
$
10,000
$
51,086
$
— $
10,964
$
23,691
10,000
2,129
35,820
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
$
$
22,354
—
22,354
$
$
78,109
9,113
87,222
$
$
43,052
1,802
44,854
$
$
— $
—
— $
—
—
—
December 31, 2011
Loans
Other
assets
Other
liabilities
Other
borrowings
Non-
controlling
interest
Consolidated:
Private equity funds
$
— $
30,902
$
— $
— $
Tax credit entities
Other
10,000
—
14,483
7,206
—
—
10,964
—
26,042
10,000
142
Total consolidated
$
10,000
$
52,591
$
— $
10,964
$
36,184
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
$
$
10,575
—
10,575
$
$
37,890
10,950
48,840
$
$
16,084
2,194
18,278
$
$
— $
—
— $
—
—
—
155
Other Commitments and Contingencies
At December 31, 2012, Cavanal Hill Funds’ assets included $903 million of U.S. Treasury, $1.0 billion of cash management
and $403 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, 2012. 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 2012 or 2011.
Cottonwood Valley Ventures, Inc. (“CVV, Inc.”), an indirectly 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. guarantees 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. During 2012, CVV, Inc. and credit purchasers settled the assessment related to the 2008
tax credits disallowed with no material adverse impact to the consolidated financial statements. Management does not
anticipate that the remaining issue under audit will have a material adverse impact to the consolidated financial statements.
Total rent expense for BOK Financial was $21.7 million in 2012, $20.6 million in 2011 and $21.2 million in 2010. The Bank is
obligated under a long-term lease for its bank premises owned by Williams Companies, Inc. and located in downtown Tulsa.
The lease term, which began November 1, 1976, is for fifty-seven years with an option to terminate in 2024 with a two-year
prior written notice. Annual base rent is $3.1 million. The Bank subleased a portion of this space in 2010. Net rent expense for
2010 was $3.0 million.
At December 31, 2012, future minimum lease payments for equipment and premises under operating leases were as follows:
$19.6 million in 2013, $18.9 million in 2014, $18.2 million in 2015, $16.3 million in 2016, $12.6 million in 2017 and $74.8
million thereafter. Premises leases may include options to renew at then current market rates and may include escalation
provisions based upon changes in consumer price index or similar benchmarks.
The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were
$733 million for the year ended December 31, 2012 and $968 million for the year ended December 31, 2011.
BOSC, Inc., a wholly-owned subsidiary of BOK Financial, is an introducing broker to Pershing, LLC for retail equity
investment transactions. As such, it has indemnified Pershing, LLC against losses due to a customer's failure to settle a
transaction or to repay a margin loan. All unsettled transaction and margin loans are secured as required by applicable
regulation. The amount of customer balances subject to indemnification totaled $2.2 million at December 31, 2012.
The Company agreed to guarantee rents totaling $28.7 million through September of 2017 to the 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 $14.2 million at December 31, 2012. Current leases expire or are
subject to lessee termination options at various dates in 2013 and 2014. Our obligation under the agreement would be affected
by lessee decisions to exercise these options. In return for this guarantee, the Company will receive 80% of net cash flow as
defined in an agreement with the City through September 2017 from rental of space that was vacant at the inception of the
agreement. The maximum amount that the Company may receive under this agreement is $4.5 million.
The Company has agreed to purchase approximately $72 million of Oklahoma income tax credits from certain operators of
zero emission power facilities from 2013 to 2022. Tax credits are generated based on power sold to unrelated third parties and
are transferable for a period of ten years following the year of creation. Tax credits will be sold to qualifying taxpayers as BOK
Financial is limited by statute on the amount of credits that may be utilized. The agreements may be terminated in the event of
changes in federal law or Oklahoma statutes invalidating the tax credits or their transferability.
(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 2012, 2011 or 2010.
156
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, 2012, BOKF subsidiaries could declare up to $48 million of
dividends without regulatory approval. The subsidiary bank declared and paid dividends of $275 million in 2012, $270 million
in 2011 and $280 million in 2010.
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, 2012, loan
commitments and equity investments were limited to $230 million to a single affiliate and $459 million to all affiliates. The
largest loan commitment and equity investment to a single affiliate was $220 million and the aggregate loan commitments and
equity investments to all affiliates were $330 million. The largest outstanding amount to a single affiliate was $65 million and
the total outstanding amounts to all affiliates were $81 million. At December 31, 2011, total loan commitments and equity
investments to all affiliates were $323 million. Total outstanding amounts to all affiliates were $50 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 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 as of December 31, 2012 and December 31, 2011.
A summary of regulatory capital levels follows (dollars in thousands):
As of December 31,
2012
2011
Total Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
$
2,877,949
15.13% $
2,851,099
2,296,451
12.13
2,329,670
Tier I Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
Tier I Capital (to Average Assets):
$
2,430,671
12.78% $
2,295,061
1,849,769
9.77
1,775,182
Consolidated
BOKF, NA
$
2,430,671
9.01% $
2,295,061
1,849,769
6.89
1,775,182
16.49%
13.53
13.27%
10.31
9.15%
7.11
157
Accumulated Other Comprehensive Income (Loss)
AOCI includes unrealized gains and losses on available for sale ("AFS") securities. Unrealized gain (loss) on AFS 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 in the third quarter of 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 interest rate lock hedge of the 2005 subordinated debt 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.
A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):
Balance, December 31, 2009
Net change in unrealized gains (losses)
Other-than-temporary impairment losses recognized in
earnings
Reclassification adjustment for net (gains) losses realized
and included in earnings
Income tax expense (benefit)1
Balance, December 31, 2010
Net change in unrealized gains (losses)
Other-than-temporary impairment losses recognized in
earnings
Transfer of net unrealized gain from AFS to investment
securities
Amortization of unrealized gain on investments securities
transferred from AFS
Reclassification adjustment for net (gains) losses realized
and included in earnings
Income tax expense (benefit)1
Balance, December 31, 2011
Net change in unrealized gains (losses)
Other-than-temporary impairment losses recognized in
earnings
Amortization of unrealized gain on investments securities
transferred from AFS
Reclassification adjustment for net(gains) losses realized
and included in earnings
Income tax benefit (expense)1
Balance, December 31, 2012
1 Calculated using 39% effective tax rate.
Unrealized Gain (Loss) on
Available
for Sale
Securities
Investment
Securities
Transferred
from AFS
Employee
Benefit
Plans
Loss on
Effective
Cash Flow
Hedges
Total
$
6,772
$
— $
(16,473) $
(1,039) $
(10,740)
181,051
27,809
(21,882)
(71,256)
122,494
45,593
23,507
—
—
—
—
—
—
—
(12,999)
12,999
—
(1,357)
(34,144)
(8,711)
135,740
58,921
7,351
—
(4,969)
6,673
—
—
—
(6,601)
(33,845)
(12,614)
—
3,006
4,412
—
—
(1,716)
(13,777)
1,694
—
—
—
—
(659)
(12,742)
7,276
—
—
—
(2,830)
—
—
264
(103)
(878)
—
—
—
—
304
(118)
(692)
—
—
—
185,463
27,809
(21,618)
(73,075)
107,839
47,287
23,507
—
(1,357)
(33,840)
(14,457)
128,979
66,197
7,351
(6,601)
453
(176)
(33,392)
(12,614)
$
155,553
$
3,078
$
(8,296) $
(415) $
149,920
158
(16) Earnings Per Share
The following table presents the computation of basis and diluted earnings per share (dollars in thousands, except per share
data):
Year Ended December 31,
2012
2011
2010
Numerator:
Net income attributable to BOK Financial Corp. shareholders
Earnings allocated to participating securities
$
351,191
$
285,875
$
246,754
(2,541)
(2,214)
(1,583)
Numerator for basic earnings per share – income available to common shareholders
348,650
283,661
245,171
Effect of reallocating undistributed earnings of participating securities
6
6
3
Numerator for diluted earnings per share – income available to common shareholders
$
348,656
$
283,667
$
245,174
Denominator:
Weighted average shares outstanding
68,221,013
68,313,898
68,062,047
Less: Participating securities included in weighted average shares outstanding
(536,970)
(526,222)
(434,312)
Denominator for basic earnings per common share
Dilutive effect of employee stock compensation plans1
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.
67,684,043
67,787,676
67,627,735
280,897
251,087
203,999
67,964,940
68,038,763
67,831,734
$
$
5.15
5.13
$
$
4.18
4.17
$
$
3.63
3.61
224,653
769,041
1,245,483
(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 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 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.
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 rates for funds with
similar duration. Market rates are 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.
159
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.
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2012 is as
follows (in thousands):
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
Net interest revenue from external sources
$
367,412
$
90,036
$
27,754
$
219,124
$
704,326
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
(46,414)
320,998
10,852
310,146
171,131
246,888
234,389
91,177
143,212
25,120
115,156
9,345
105,811
272,118
256,315
121,614
47,308
74,306
Net income attributable to non-controlling
interest
—
—
Net income attributable to BOK Financial Corp.
$
143,212
$
74,306
Average assets
Average invested capital
$ 9,949,735
$ 5,727,267
882,288
287,972
21,432
49,186
2,284
46,902
200,007
214,385
32,524
12,652
19,872
—
19,872
4,357,523
184,622
$
$
(138)
218,986
(44,481)
263,467
22,855
131,985
154,337
37,603
116,734
—
704,326
(22,000)
726,326
666,111
849,573
542,864
188,740
354,124
$
$
2,933
2,933
113,801
$
351,191
6,254,626
$ 26,289,151
1,551,073
2,905,955
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.44%
16.23%
51.68%
1.30%
25.73%
64.73%
0.46%
10.76%
86.24%
1.34%
12.09%
62.03%
160
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
$
342,833
$
89,745
$
30,813
$
228,103
$
691,494
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
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.
(30,676)
312,157
20,760
291,397
147,545
230,451
208,491
81,103
127,388
33,109
122,854
13,451
109,403
223,322
277,891
54,834
21,330
33,504
16,540
47,353
2,960
44,393
171,873
190,706
25,560
9,943
15,617
(18,973)
209,130
(43,221)
252,351
27,795
120,696
159,450
46,135
113,315
—
691,494
(6,050)
697,544
570,535
819,744
448,335
158,511
289,824
—
—
—
3,949
3,949
Average assets
Average invested capital
$
9,383,528
$ 5,937,585
884,169
273,906
$
127,388
$
33,504
$
$
15,617
4,073,623
174,877
$
$
109,366
$
285,875
5,100,125
$ 24,494,861
1,348,913
2,681,865
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.36%
14.41%
50.22%
0.56%
12.23%
74.17%
0.38%
8.93%
87.21%
1.17%
10.66%
63.13%
161
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
$
338,391
$
86,292
$
36,012
$
248,357
$
709,052
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
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.
Average assets
Average invested capital
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
(18) Fair Value Measurements
(45,317)
293,074
70,489
222,585
138,992
230,116
131,461
51,138
80,323
47,624
133,916
24,705
109,211
215,057
242,065
82,203
31,977
50,226
12,546
48,558
10,831
37,727
165,528
179,825
23,430
9,114
14,316
(14,853)
233,504
(886)
234,390
1,331
101,164
134,557
31,128
103,429
—
709,052
105,139
603,913
520,908
753,170
371,651
123,357
248,294
—
—
—
1,540
1,540
$
$
80,323
$
50,226
8,893,868
$ 6,243,746
899,005
277,837
$
$
14,316
3,686,133
169,775
$
$
101,889
$
246,754
4,982,052
$ 23,805,799
1,078,026
2,424,643
0.90%
8.93%
52.94%
0.80%
18.08%
72.69%
0.39%
8.43%
84.29%
1.04%
10.18%
60.83%
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 at the measurement date based on
market conditions at that date. 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.
For some assets and liabilities, observable market transactions and market information might be available. For other assets and
liabilities, observable market transactions and market information might not be available. A hierarchy for fair value has been
established which categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels
are as follows:
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) - fair value is based on unadjusted quoted
prices in active markets for identical assets or liabilities.
Significant Other Observable Inputs (Level 2) - Fair value is based on significant other observable inputs which are
generally determined based on a single price for each financial instrument provided to us by an applicable third-party
pricing service and is 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.
162
Significant Unobservable Inputs (Level 3) - 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. As of December 31, 2012, $2.2 million of
common stock of a privately held financial institution was transferred from Significant Other Observable Inputs (Level 2) to
Significant Unobservable Inputs (Level 3). There were no other transfers in or out of quoted prices in active markets for
identical instruments, significant other observable inputs or significant unobservable inputs during the year ended
December 31, 2012 and 2011, respectively.
The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to
determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by
comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar
instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences
between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for
their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more
appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the
current market. No significant adjustments were made to price provided by third-party pricing services at December 31, 2012
and 2011.
163
Assets and Liabilities Measured at Fair Value 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, 2012
(in thousands):
Quoted
Prices in
Active
Markets for
Identical
Instruments
Total
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Assets:
Trading securities:
U.S. Government agency debentures
$
16,545
$
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total 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
Commercial mortgage-backed securities guaranteed by
U.S. government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities:
U.S. agency residential mortgage-backed securities
Corporate debt securities
Other securities
Total fair value option securities
Residential mortgage loans held for sale
Mortgage servicing rights1
Derivative contracts, net of cash margin2
Other assets – private equity funds
Liabilities:
86,361
90,326
20,870
214,102
1,002
87,142
9,889,821
325,163
895,075
36,389
25,072
27,557
11,287,221
257,040
26,486
770
284,296
293,762
100,812
338,106
28,169
—
—
—
—
—
1,002
—
—
—
—
—
—
4,165
5,167
—
—
—
—
—
—
11,597 3
—
$
16,545
$
86,361
90,326
20,870
214,102
—
46,439
9,889,821
325,163
895,075
30,990
25,072
21,231
11,233,791
257,040
26,486
770
284,296
293,762
—
326,509
—
—
—
—
—
—
—
40,702
—
—
—
5,399
—
2,161
48,262
—
—
—
—
—
100,812
—
28,169
Derivative contracts, net of cash margin2
283,589
—
283,589
—
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.
3 Represents exchange-traded derivative contracts.
164
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):
Quoted
Prices in
Active
Markets for
Identical
Instruments
Total
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Assets:
Trading securities:
U.S. Government agency debentures
$
22,203
$
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total 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:
U.S. agency residential mortgage-backed securities
Corporate debt securities
Total fair value option securities
Residential mortgage loans held for sale
Mortgage servicing rights1
Derivative contracts, net of cash margin 2
Other assets – private equity funds
Liabilities:
12,379
39,345
2,873
76,800
1,006
68,837
9,588,177
419,166
36,495
18,446
47,238
10,179,365
626,109
25,117
651,226
188,125
86,783
293,859
30,902
—
—
—
—
—
1,006
—
—
—
—
—
23,596
24,602
$
22,203
$
12,379
39,345
2,696
76,623
—
26,484
9,588,177
419,166
30,595
18,446
23,642
—
—
—
177
177
—
42,353
—
—
5,900
—
—
10,106,510
48,253
—
—
—
—
—
457 3
—
626,109
25,117
651,226
188,125
—
293,402
—
—
—
—
—
86,783
—
30,902
Derivative contracts, net of cash margin 2
—
1 A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to
236,522
236,522
—
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.
3 Represents exchange-traded derivative contracts.
Following is a description of the Company's valuation methodologies used for assets and liabilities measured on a recurring
basis:
Securities
The fair values of trading, available for sale and fair value options 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.
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
reference to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally-
recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment
securities professionals involved in the active trading of similar securities. A summary of significant inputs used to value these
165
securities follows. A management committee composed of senior members from the Company's Capital Markets, Risk
Management and Finance departments assess the appropriateness of these inputs monthly.
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 market inputs.
Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments
based on various risk factors including but not limited to counterparty credit rating or equivalent loan grading, derivative
contract notional size, price volatility of the underlying commodity, duration of the derivative contracts and expected loss
severity. Expected loss severity is based on historical losses for similarly risk graded commercial loan customers. Decreases in
counterparty credit rating or grading and increases in price volatility and expected loss severity all tend to increase the credit
quality adjustment which reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during
the current period.
We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would
affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities
would increase. The change in the fair value would be recognized in earnings in the current period.
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.
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. The Company's private equity funds provide customers alternative investment opportunities as limited partners of
the funds. As fund of funds, the private equity funds invest in other limited partnerships or limited liability companies that
invest substantially all of their assets in U.S. companies pursuing diversified investment strategies including early-stage venture
capital, distressed securities and corporate or asset buy-outs. Private equity fund assets are long-term, illiquid investments. No
secondary market exists for these assets. The private equity funds typically invest in funds that provide no redemption rights to
investors. The fair value of the private equity investments may only be realized through cash distributions from the underlying
funds.
166
The following represents the changes related to assets measured at fair value on a recurring basis using significant
unobservable inputs (in thousands):
Balance, December 31, 2010
Purchases and capital calls
Redemptions and distributions
Gain (loss) recognized in earnings:
Brokerage and trading revenue
Gain (loss) on other assets, net
Gain on available for sale securities, net
Other-than-temporary impairment losses
Other comprehensive (loss)
Balance, December 31, 2011
Transfer to Level 3 from Level 2
Purchases and capital calls
Redemptions and distributions
Gain (loss) recognized in earnings:
Gain on other assets, net
Gain on available for sale securities, net
Other-than-temporary impairment losses
Other comprehensive (loss)
Balance, December 31, 2012
Available for Sale Securities
Municipal
and other
tax-exempt
Other debt
securities
Equity
securities
and mutual
funds
Other assets
– private
equity funds
$
47,093
$
6,400
$
— $
25,436
7,520
(10,625)
—
(500)
(576)
—
21
(1,558)
478
42,353
—
—
—
—
—
—
—
5,900
—
—
(988)
(500)
—
1
(642)
(22)
—
—
—
(1)
—
—
—
—
—
—
—
—
—
2,161
—
—
—
—
—
—
4,052
(3,903)
—
5,317
—
—
—
30,902
—
3,446
(9,819)
3,640
—
—
—
$
40,702
$
5,399
$
2,161
$
28,169
167
A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable
inputs (Level 3) as of December 31, 2012 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Par
Value
Amortized
Cost6
Fair
Value
Valuation Technique(s)
Unobservable
Input
Range
(Weighted Average)
Available for sale securities
Municipal and other tax-
exempt securities
Investment grade
$
28,570
$
28,473
$
28,318
Discounted cash flows
Below investment
grade
Total municipal and other
tax-exempt securities
17,000
12,384
12,384
Discounted cash flows
45,570
40,857
40,702
Other debt securities
5,400
5,400
5,399
Discounted cash flows
1
1
1
Equity securities and other
mutual funds
N/A
2,161
2,161
Tangible book value per
share of publicly traded
financial institutions of
similar size, less
liquidity discount.
Interest rate
spread
Interest rate
spread
1.00%-1.50% (1.25%)
98.83%-99.43% (99.12%)
7.21%-9.83% (7.82%)
72.79%-73.00% (72.85%)
Interest rate
spread
Peer group
tangible book
per share and
liquidity
discount
1.65%-1.71% (1.70%)
100% (100%)
—
N/A
2
3
4
3
5
3
7
Other assets - private equity
funds
N/A
N/A
28,169
Net asset value reported
by underlying fund
Net asset value
reported by
underlying fund
1 Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and
credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume
2 Interest rate yields used to value investment grade tax-exempt securities represent a spread of 75 to 80 basis points over average yields for comparable tax-
exempt securities.
3 Represents fair value as a percentage of par value
4 Interest rate yields determined using a spread of 700 basis points over comparable municipal securities of varying durations.
5 Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than
1%.
6 Amortized cost reduced by other-than-temporary impairments recorded in earnings. See Note 2 for additional discussion.
7 Fair value of shares of a smaller privately-held financial institution were valued using the tangible book value per share of similarly sized financial
institutions within the immediate geographical market with a discount of 20% due to the liquidity of the shares.
The fair value of these securities measured at fair value using significant unobservable inputs are sensitive primarily to changes
in interest rate spreads. At December 31, 2012, for tax-exempt securities rated investment grade by all nationally-recognized
rating agencies, a 100 basis point increase in the spreads over average yields for comparable securities would result in an
additional decrease in the fair value of $279 thousand. For taxable securities rated investment grade by all nationally-
recognized rating agencies, a 100 basis point increase in the spreads over average yield for comparable securities would result
in an additional decrease in the fair value of $52 thousand. For municipal and other tax-exempt securities rated below
investment grade by at least one of the nationally-recognized rating agencies, a 100 basis point increase in the spread over
average yields for comparable securities would result in an additional decrease in the fair value of these securities of $362
thousand.
168
A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs
(Level 3) as of December 31, 2011 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Par
Value
Amortized
Cost6
Fair
Value
Valuation Technique(s)
Unobservable
Input
Range
(Weighted Average)
Available for sale securities
Municipal and other tax-
exempt securities
Investment grade
$
29,200
$
29,466
$
29,327
Discounted cash flows1
Below investment
grade
Total municipal and other
tax-exempt securities
17,000
13,026
13,026
Discounted cash flows1
46,200
42,492
42,353
Other debt securities
5,900
5,900
5,900
Discounted cash flows1
Interest rate
spread
Interest rate
spread
1.00%-1.50% (1.25%)
98.79%-99.60% (99.16%)
6.25%-9.58% (6.93%)
76.45%-76.99% (76.62%)
Interest rate
spread
1.60%-1.80% (1.76%)
100% (100%)
2
3
4
3
5
3
Other assets - private equity
funds
N/A
N/A
30,902
Net asset value reported by
underlying fund
Net asset value
reported by
underlying fund
N/A
1 Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and
credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume
2 Interest rate yields used to value investment grade tax-exempt securities represent a spread of 75 to 80 basis points over average yields for comparable tax-
exempt securities.
3 Represents fair value as a percentage of par value
4 Interest rate yields determined using a spread of 600 basis points over comparable municipal securities of varying durations.
5 Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than
1%.
6 Amortized cost reduced by other-than-temporary impairments recorded in earnings. See Note 2 for additional discussion.
Fair Value of Assets and Liabilities Measured on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis include pension plan assets, which are based on quoted prices in active
markets for identical instruments, collateral for certain impaired loans and real property and other assets acquired to satisfy
loans, which are based primarily on comparisons to completed sales of similar assets. In addition, goodwill impairment is
evaluated based on the fair value of the Company's reporting units.
The following represents the carrying value of assets measured at fair value on a non-recurring basis and related losses
recorded during the year. The carrying value represents only those assets with the balance sheet date for which the fair value
was adjusted during the year:
Carrying Value at December 31, 2012
Fair Value Adjustments for the
Year Ended December 31, 2012
Recognized in:
Quoted Prices
in Active
Markets for
Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Gross charge-
offs against
allowance for
loan losses
Net losses and
expenses of
repossessed
assets, net
Impaired loans
Real estate and other repossessed
assets
$
— $
—
$
21,589
39,077
$
3,891
4,421
$
11,615
—
—
15,954
169
Carrying Value at December 31, 2011
Fair Value Adjustments for the
Year Ended December 31, 2011
Recognized in:
Quoted Prices
in Active
Markets for
Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Gross charge-
offs against
allowance for
loan losses
Net losses and
expenses of
repossessed
assets, net
Impaired loans
Real estate and other repossessed
assets
$
— $
—
$
52,421
57,160
$
1,447
13,100
$
13,829
—
—
14,077
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 observed 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. Non-recurring fair value measurements of collateral-
dependent impaired loans and real estate and other repossessed assets based on significant unobservable inputs are generally
due to estimate of current fair values between appraisal dates. Significant unobservable inputs include listing prices for
comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. These inputs are
developed by asset management and workout professional and approved by senior Credit Administration executives.
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2012 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Fair
Value
Valuation
Technique(s)
Unobservable Input
Range
(Weighted Average)
Impaired loans
$
3,891
Appraised value,
as adjusted
Broker quotes and management's
knowledge of industry and collateral.
N/A
Real estate and other repossessed assets
1 Marketability adjustments includes consideration of estimated costs to sell which is approximately 15% of the fair value. In addition, $345
thousand of real estate and other repossessed assets at December 31, 2012 are based on uncorroborated expert opinions or management's
knowledge of the collateral or industry and do not have an independently appraised value.
4,421
56%-85% (80%)1
Listing value,
less cost to sell
Marketability adjustments off
appraised value
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2011 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Fair
Value
Valuation
Technique(s)
Unobservable Input
Range
(Weighted Average)
Impaired loans
$
1,447
Appraised value,
as adjusted
Broker quotes and management's
knowledge of industry and collateral.
N/A
Real estate and other repossessed assets
1 Marketability adjustments includes consideration of estimated costs to sell which is approximately 15% of the fair value. In addition, $2.4
million of real estate and other repossessed assets at December 31, 2011 are based on uncorroborated expert opinions or management's
knowledge of the collateral or industry and do not have an independently appraised value.
$ 13,100
58%-85%(76%)1
Listing value,
less cost to sell
Marketability adjustments off
appraised value
The fair value of pension plan assets was approximately $46 million at December 31, 2012 and $44 million at December 31,
2011, 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.
Goodwill and intangible assets, which consist primarily of 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.
170
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
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.
171
Fair Value of Financial Instruments
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, 2012 (dollars in thousands):
Cash and cash equivalents
Trading securities:
U.S. Government agency obligations
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total 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
Commercial mortgage-backed securities guaranteed by
U.S. government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities:
U.S. agency residential mortgage-backed securities
Corporate debt securities
Other securities
Total 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
$
1,286,239
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
Estimated
Fair
Value
$
1,286,239
16,545
86,361
90,326
20,870
214,102
235,940
85,943
206,575
528,458
1,002
87,142
9,889,821
325,163
895,075
36,389
25,072
27,557
11,287,221
257,040
26,486
770
284,296
293,762
7,606,505
2,208,217
2,110,773
388,748
12,314,243
—
12,314,243
100,812
338,106
28,169
18,211,068
3,037,708
2,696,574
345,675
283,589
0.21 - 30.00
0.21 - 18.00
0.38 - 18.00
0.38 - 21.00
0.69
0.92
3.34
0.32
0.51 - 3.59
1.26 - 3.18
0.86 - 3.09
1.37 - 3.60
0.01 - 9.64
0.09 - 5.25
1.00 - 5.00
2.15
—
3.56
0.80 - 1.15
0.09 - 2.67
2.40%
16,545
86,361
90,326
20,870
214,102
232,700
82,767
184,067
499,534
1,002
87,142
9,889,821
325,163
895,075
36,389
25,072
27,557
11,287,221
257,040
26,486
770
284,296
293,762
7,641,912
2,228,999
2,045,040
395,505
12,311,456
(215,507)
12,095,949
100,812
338,106
28,169
18,211,068
2,967,992
2,706,221
347,633
283,589
172
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):
Carrying
Value
$
986,365
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
Estimated
Fair
Value
$
986,365
Cash and cash equivalents
Trading securities:
Obligations of the U.S. government
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total 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
22,203
12,379
39,345
2,873
76,800
128,697
121,704
188,835
439,236
1,006
68,837
U.S. agency residential mortgage-backed securities
9,588,177
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:
U.S. agency residential mortgage-backed securities
Corporate debt securities
Total fair value option securities
Residential mortgage loans held for sale
419,166
36,495
18,446
47,238
10,179,365
626,109
25,117
651,226
188,125
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
6,571,454
0.25 - 30.00
2,279,909
0.38 - 18.00
1,970,461
0.38 - 18.00
447,919
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
11,269,743
(253,481)
11,016,262
86,783
293,859
30,902
15,380,598
3,381,982
2,370,867
0.01 - 9.64
0.25 - 6.58
398,881
5.19 - 5.82
2.07
—
1.44
Derivative instruments with negative fair value, net of
cash margin
236,522
173
1.02 - 1.43
0.04 - 2.76
3.29%
411,243
236,522
22,203
12,379
39,345
2,873
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
626,109
25,117
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
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 generally based on Significant Other Observable Inputs such as quoted prices for comparable
instruments or interest rates and credit spreads, yield curves, volatilities prepayment speeds and loss severities.
Loans
The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates and credit
and liquidity spreads currently being offered for loans with similar remaining terms to maturity and risk, adjusted for the impact
of interest rate floors and ceilings which are classified as Significant Unobservable Inputs. The fair values of loans were
estimated to approximate their discounted cash flows less loan loss allowances allocated to these loans of $171 million at
December 31, 2012 and $207 million at December 31, 2011.
Deposits
The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on
similar transactions which are considered Significant Unobservable Inputs. 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 the tables above.
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 which are considered Significant Unobservable Inputs
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, 2012 or December 31, 2011.
Fair Value Election
As more fully disclosed in Note 2 and Note 7 to the Consolidated Financial Statements, the Company has elected to carry all
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 economically hedged by derivative contracts to manage interest rate
risk and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments
are recognized in earnings.
174
(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
December 31,
2012
2011
$
457,514
$
386,695
44,881
40,766
2,464,729
2,317,900
4,324
8,682
$
2,971,448
$
2,754,043
$
13,588
$
13,588
3,575
3,575
4
4
859,278
818,817
2,137,541
1,953,332
(188,883)
(150,664)
Accumulated other comprehensive income
149,920
128,979
Total shareholders’ equity
2,957,860
2,750,468
Total liabilities and shareholders’ equity
$
2,971,448
$
2,754,043
Statements of Earnings
(In thousands)
Year Ended December 31,
2012
2011
2010
Dividends, interest and fees received from subsidiaries
$
275,330
$
270,474
$
280,125
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
Income before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
2,295
(1,099)
2,128
(2,098)
1,883
(1,679)
276,526
270,504
280,329
269
765
3,099
4,133
272,393
(1,706)
274,099
77,092
354
538
7,688
8,580
261,924
(3,169)
265,093
20,782
507
795
(47)
1,255
279,074
415
278,659
(31,905)
Net income attributable to BOK Financial Corp. shareholders
$
351,191
$
285,875
$
246,754
175
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:
Year Ended December 31,
2012
2011
2010
$
351,191
$
285,875
$
246,754
Equity in undistributed income of subsidiaries
(77,092)
(20,782)
Tax benefit (expense) 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
Acquisitions, net of cash acquired
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Issuance of common and treasury stock, net
Dividends paid
Repurchase of common stock
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid for interest
(20) Subsequent Events
120
4,237
(5,085)
273,371
(5,343)
4,781
(9,100)
(20,000)
(29,662)
14,650
(166,982)
(20,558)
(172,890)
70,819
386,695
457,514
269
$
$
659
15,249
(18,884)
262,117
(3,797)
16,500
(7,250)
—
5,453
14,541
(76,423)
(26,446)
(88,328)
179,242
207,453
386,695
354
$
$
$
$
31,905
(425)
20,713
(20,216)
278,731
(10,669)
—
(21,692)
—
(32,361)
8,552
(66,557)
—
(58,005)
188,365
19,088
207,453
507
The Company evaluated events from the date of the consolidated financial statements on December 31, 2012 through the
issuance of those consolidated financial statements included in this Annual Report on Form 10-K. No events were identified
requiring recognition in and/or disclosure in the consolidated financial statements.
176
177
Annual Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
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
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to Earning Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for allowance 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.
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
Year Ended
December 31, 2012
Average
Balance
Revenue/
Expense1
Yield/
Rate
12
2,138
16,848
5,601
22,449
237,235
3,716
240,951
8,456
8,185
518,784
518,784
800,975
14,300
540
52,173
67,013
2,095
1,008
3,428
13,778
87,322
0.07%
1.59%
5.88%
4.06%
5.29%
2.36%
4.55%
2.37%
2.45%
3.59%
4.44%
4.53%
3.52%
0.16%
0.21%
1.68%
0.54%
0.14%
0.09%
2.20%
3.79%
0.56%
$
17,000
134,176
$
286,626
145,899
432,525
10,565,459
82,652
10,648,111
379,603
227,795
11,696,054
238,806
11,457,248
23,296,458
2,992,693
26,289,151
9,040,626
261,822
3,114,046
12,416,494
1,512,711
1,072,650
155,664
363,699
15,521,218
6,590,283
1,271,695
2,905,955
26,289,151
$
$
$
$
$
713,653
2.96%
3.14%
9,327
704,326
(22,000)
666,111
849,573
542,864
188,740
354,124
2,933
351,191
5.15
5.13
$
$
$
1. Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes.
2. The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. See Note 1 of Notes to the
Consolidated Financial Statements for a description of income recognition policy.
3. Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
178
Annual Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Year Ended
December 31, 2011
Average
Balance
Revenue/
Expense1
Yield/
Rate
Average
Balance
December 31, 2010
Revenue/
Expense1
Yield/
Rate
$
$
13,441
81,978
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
$
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
$
$
$
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
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
0.11% $
3.03%
$
23,743
68,286
5.94%
4.86%
5.48%
2.83%
5.20%
2.84%
3.63%
4.19%
4.70%
4.83%
3.92%
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
$
0.25% $ 8,573,117
184,099
0.34%
3,712,140
1.80%
12,469,356
0.68%
1,185,741
0.09%
1,130,082
0.22%
1,537,025
3.98%
398,619
5.61%
16,720,823
0.76%
3,789,375
870,958
2,424,643
$ 23,805,799
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to Earning Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for allowance 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.
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
$
700,583
3.16%
3.34%
$
718,210
9,089
691,494
(6,050)
570,535
819,744
448,335
158,511
289,824
3,949
285,875
4.18
4.17
$
$
$
9,158
709,052
105,139
518,058
750,320
371,651
123,357
248,294
1,540
246,754
3.63
3.61
$
$
$
1. Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes.
2. The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. See Note 1 of Notes to the
Consolidated Financial Statements for a description of income recognition policy.
3. Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
179
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%
3.37%
3.52%
Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
Three Months Ended
Average
Balance
December 31, 2012
Revenue/
Expense1
Yield/
Rate
Average
Balance
Revenue/
Expense1
Yield/
Rate
September 30, 2012
0.07%
2.12%
5.83%
4.12%
5.33%
2.36%
4.70%
2.38%
2.27%
3.48%
4.33%
4.42%
3.47%
0.16%
0.19%
1.61%
0.53%
0.15%
0.10%
3.03%
2.79%
0.52%
2.95%
3.12%
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
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to
Earning Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for (reduction of ) allowance for
credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income before non-controlling interest
Net income (loss) attributable to non-
controlling interest
Net income attributable to BOK Financial
Corp.
Earnings Per Average Common Share
Equivalent:
Net income:
Basic
Diluted
3
441
4,008
1,379
5,387
56,514
836
57,350
772
2,323
130,510
130,510
196,786
3,496
124
13,588
17,208
477
197
824
2,239
20,945
$
19,553
165,109
$
271,957
202,128
474,085
11,394,797
87,415
11,482,212
292,490
272,581
11,989,319
229,095
11,760,224
24,466,254
3,030,522
27,496,776
9,343,421
278,714
3,010,367
12,632,502
1,295,442
900,131
364,425
347,613
15,540,113
7,505,074
1,480,102
2,971,487
27,496,776
$
$
$
$
$
175,841
2,472
173,369
(14,000)
162,626
222,085
127,910
44,293
83,617
1,051
82,566
1.21
1.21
$
$
$
3
703
4,124
1,212
5,336
59,482
1,044
60,526
1,886
2,310
127,816
127,816
198,580
3,406
127
12,384
15,917
632
281
739
2,475
20,044
0.06% $
1.06%
17,837
132,213
$
281,347
127,299
408,646
10,969,610
88,445
11,058,055
336,160
264,024
11,739,662
231,177
11,508,485
23,725,420
2,862,752
26,588,172
8,719,648
267,498
3,068,870
12,056,016
1,678,006
1,112,847
97,003
352,432
15,296,304
6,718,572
1,626,643
2,946,653
26,588,172
$
5.86%
2.93%
4.67%
2.08%
3.80%
2.10%
1.58%
3.39%
4.33%
4.41%
3.30%
$
0.15% $
0.18%
1.80%
0.54%
0.15%
0.09%
0.90%
2.56%
0.54%
$
2.76%
2.95%
$
178,536
2,509
176,027
—
179,944
222,340
133,631
45,778
87,853
471
87,382
1.28
1.27
$
$
$
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.
180
Average Balance
June 30, 2012
Revenue /
Expense1
Yield / Rate Average Balance
Three Months Ended
March 31, 2012
Revenue /
Expense1
Yield / Rate Average Balance
Revenue /
Expense1
Yield / Rate
December 31, 2011
0.08% $
1.53%
$
11,385
95,293
0.07% $
1.88%
$
12,035
97,972
4
548
4,282
1,461
5,743
61,583
943
62,526
2,311
1,784
132,391
132,391
205,307
3,572
147
12,671
16,390
674
265
853
3,512
21,694
$
19,187
143,770
$
290,557
125,727
416,284
10,007,368
83,911
10,091,279
335,965
191,311
11,614,722
242,605
11,372,117
22,569,913
2,968,604
25,538,517
8,779,659
259,386
3,132,220
12,171,265
1,740,354
1,095,298
86,667
357,609
15,451,193
6,278,342
940,249
2,868,733
25,538,517
$
$
$
$
$
183,613
2,252
181,361
(8,000)
186,260
223,011
152,610
53,149
99,461
1,833
97,628
1.43
1.43
$
$
$
302,861
128,029
430,890
9,876,508
70,719
9,947,227
555,233
182,372
11,436,811
252,538
11,184,273
22,406,673
3,109,910
25,516,583
9,319,978
241,442
3,246,362
12,807,782
1,337,614
1,183,778
72,911
397,440
15,799,525
5,847,682
1,034,143
2,835,233
25,516,583
$
5.93%
4.90%
5.63%
2.52%
4.69%
2.54%
2.62%
3.75%
4.58%
4.68%
3.69%
$
0.16% $
0.23%
1.63%
0.54%
0.16%
0.10%
3.96%
3.95%
0.56%
$
3.13%
3.30%
2
446
4,434
1,549
5,983
59,656
893
60,549
3,487
1,768
128,067
128,067
200,302
3,826
142
13,530
17,498
312
265
1,012
5,552
24,639
$
175,663
2,094
173,569
—
137,281
182,137
128,713
45,520
83,193
(422)
83,615
1.22
1.22
$
$
$
181
0.10%
2.79%
5.91%
4.81%
5.59%
2.37%
5.14%
2.39%
2.98%
4.01%
4.65%
4.76%
3.69%
0.18%
0.26%
1.70%
0.59%
0.06%
0.13%
4.75%
5.61%
0.66%
3.03%
3.20%
314,217
129,109
443,326
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
9,276,608
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
$
5.89%
4.87%
5.59%
2.48%
5.17%
2.50%
2.79%
3.90%
4.50%
4.61%
3.64%
$
0.17% $
0.24%
1.68%
0.55%
0.09%
0.09%
5.58%
5.62%
0.63%
$
3.01%
3.19%
3
689
4,677
1,565
6,242
54,839
896
55,735
4,877
2,032
130,736
130,736
200,314
4,213
146
14,922
19,281
186
404
1,059
5,640
26,570
$
173,744
2,274
171,470
(15,000)
137,812
218,982
105,300
37,396
67,904
911
66,993
0.98
0.98
$
$
$
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.
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 2013 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 2012 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 2013 Annual Proxy Statement is incorporated herein by reference.
182
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 2013 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 2013 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 2013 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, 2012, 2011 and 2010
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
Annual Financial Summary - Unaudited
Quarterly Financial Summary - Unaudited
Quarterly Earnings Trends - Unaudited
Reports of Independent Registered Public Accounting Firm
(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.
183
(a) (3) Exhibits
Exhibit
Number
Description of Exhibit
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.
3.0
3.1
3.1(a)
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.
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 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.
184
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
10.4.9
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.
Employment Agreement dated April 4, 2008 between Bank of Texas, NA, and Norman P.
Bagwell, filed herewith.
10.4.9 (a)
First Amendment of Employment Agreement dated June 30, 2011 between Bank of Texas, a
division of BOKF, NA, and Norman P. Bagwell, filed herewith.
10.6
10.7.7
10.7.8
10.7.9
10.7.10
10.7.11
10.7.12
10.7.13
10.7.14
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.
BOK Financial Corporation 2003 Executive Incentive Plan, as amended and restated, for the
Chief Executive Officer and for Direct Reports to the Chief Executive Officer, incorporated by
reference to the Schedule 14 A Definitive Proxy Statement filed on March 15, 2011.
185
BOK Financial Corporation 2011 True-Up Plan, for the Chief Executive Officer and his Direct
Reports, incorporated by reference to the Schedule 14A Definitive Proxy Statement filed on
March 15, 2011.
10.7.15
10.8
10.9
21.0
23.0
31.1
31.2
32
99.0
99 (a)
99 (c)
101
*
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.
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.
Credit Agreement dated June 9, 2011 between BOK Financial Corporation and participating
lenders, incorporated by reference to Form 10-Q filed November 6, 2012.
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.
186
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
BOK FINANCIAL CORPORATION
DATE: February 27, 2013 BY: /s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 27, 2013,
by the following persons on behalf of the registrant and in the capacities indicated.
/s/ George B. Kaiser
/s/ Stanley A. Lybarger
OFFICERS
George B. Kaiser
Chairman of the Board of Directors
Stanley A. Lybarger
Director, President and Chief Executive Officer
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President and
Chief Financial Officer
/s/ John C. Morrow
John C. Morrow
Senior Vice President and
Chief Accounting Officer
DIRECTORS
/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
/s/ John W. Gibson
John W. Gibson
/s/ David F. Griffin
David F. Griffin
/s/ V. Burns Hargis
V. Burns Hargis
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
Michael C. Turpen
187
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF EXECUTIVE OFFICER
I, Stanley A. Lybarger, President and Chief Executive Officer of BOK Financial Corporation (“BOK Financial”), certify that:
1.
I have reviewed this Annual Report on Form 10-K of BOK Financial;
2. 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;
3. 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;
4. 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. 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;
b. 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;
c. 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
d. 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. 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
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 27, 2013
/s/ Stanley A. Lybarger
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF FINANCIAL OFFICER
I, Steven E. Nell, Chief Financial Officer of BOK Financial Corporation (“BOK Financial”), certify that:
1.
I have reviewed this Annual Report on Form 10-K of BOK Financial;
2. 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;
3. 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;
4. 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;
5. 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. 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;
b. 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;
c.
d.
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
6. 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. 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
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 27, 2013
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President and Chief Financial Officer
BOK Financial Corporation
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of BOK Financial Corporation (“BOK Financial”) on Form 10-K for the fiscal year
ending December 31, 2012 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. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of BOK Financial as of, and for, the periods presented.
February 27, 2013
/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
191
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: 835 as of
January 31, 2013
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.shareowneronline.com
192
BOK FINANCIAL CORPORATION EXECUTIVE MANAGEMENT
Stanley A. Lybarger
President & Chief Executive Officer
Norman P. Bagwell
Chairman & CEO, Bank of Texas
Daniel H. Ellinor
Senior Executive Vice President
Commercial Banking, Energy and Commercial Real Estate
Steven G. Bradshaw
Senior Executive Vice President
Consumer Banking and Wealth Management
Steven E. Nell
Executive Vice President, Chief Financial Officer
Charles E. Cotter
Executive Vice President, Chief Credit Officer
Donald T. Parker
Executive Vice President, Chief Information Officer
BOK FINANCIAL CORPORATION BOARD OF DIRECTORS
Gregory S. Allen
CEO
Maine Street Holdings, Inc.
William E. Durrett
Senior Chairman
American Fidelity Corporation
George B. Kaiser
Chairman
BOK Financial Corporation and BOKF, NA
C. Fred Ball, Jr.
Senior Chairman
Bank of Texas
Sharon J. Bell
Managing Partner
Rogers & Bell
Peter C. Boylan, III
CEO
Boylan Partners, LLC
Chester Cadieux, III
Chairman & CEO
QuikTrip Corporation
Joseph W. Craft, III
President & CEO
Alliance Resource Partners, L.P.
John W. Gibson
Chairman & CEO
ONEOK, Inc.
David F. Griffin
President & CEO
Griffin Communications, L.L.C.
V. Burns Hargis
President
Oklahoma State University
E. Carey Joullian, IV
Chairman, President & CEO
Mustang Fuel Corporation
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