As filed with the Securities and Exchange Commission on May 10, 2005
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
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 73-1373454
(State or other jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma 74192
(Address of Principal Executive Offices) (Zip Code)
(918) 588-6000
(Registrant's telephone number, including area code)
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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: 59,495,010 shares of
common stock ($.00006 par value) as of April 30, 2005.
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2
BOK Financial Corporation
Form 10-Q
Quarter Ended March 31, 2005
Index
Part I. Financial Information
Management's Discussion and Analysis (Item 2) 2
Market Risk (Item 3) 22
Controls and Procedures (Item 4) 24
Consolidated Financial Statements - Unaudited (Item 1) 25
Quarterly Financial Summary - Unaudited (Item 2) 34
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
Item 6. Exhibits 36
Signatures 37
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Performance Summary
BOK Financial Corporation ("BOKF" or the "Company") reported net income of $52.1
million, or $0.78 per diluted share for the first quarter of 2005, compared with
$39.2 million, or $0.59 per diluted share for the first quarter of 2004. The
annualized returns on average assets and shareholders' equity were 1.45% and
14.96%, respectively, for the first quarter of 2005, compared with returns of
1.16% and 12.59%, respectively, for the first quarter of 2004. The increase in
net income was attributed to growth in net interest revenue, reduction in the
provision for credit losses and appreciation in the value of mortgage servicing
rights.
Net interest revenue increased $4.4 million or 4% over 2004 due primarily to
loan growth. Average outstanding loan balances for the first quarter of 2005
increased $468 million compared with the same period of 2004. Net interest
revenue for the first quarter of 2005 also included $1.3 million from the
collection of foregone interest on a non-performing loan and a large loan fee.
The provision for credit losses decreased $5.0 million compared to the same
period in 2004 as credit quality continued to improve. The fair value of
mortgage servicing rights appreciated due to a 40 basis point increase in
mortgage interest rates. The increase in the fair value of servicing rights, net
of gains or losses recognized on financial instruments held as an economic
hedge, resulted in a $3.5 million increase in pre-tax income for the first
quarter of 2005 compared with a $1.5 million decrease in pre-tax income for the
same period of 2004.
Results of Operations
Net Interest Revenue
Tax-equivalent net interest revenue totaled $108.9 million for the first quarter
of 2005 compared with $104.4 million for 2004. The increase was due primarily to
a $555 million increase in average earning assets. The growth in average earning
assets included a $468 million, or 6%, increase in loans and a $57 million
increase in securities. Growth in average earning assets was funded primarily by
a $361 million increase in interest-bearing liabilities and a $252 million, or
15%, increase in demand deposit accounts. In addition, net interest revenue for
the first quarter of 2005 included $605 thousand from the collection of foregone
interest on a non-performing loan and a $650 thousand fee on a large commercial
loan that paid off during the quarter. These two collections increased net
interest margin for the quarter by 4 basis points. Table 1 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.
3
Net interest margin, the ratio of tax-equivalent net interest revenue to average
earning assets was 3.46% for the first quarter of 2005, unchanged from the first
quarter of 2004 and up from 3.38% for the fourth quarter of 2004. Yields on
average earning assets continued to trend upwards due to the effect of rising
interest rates. The yield on average earning assets was 5.46%, up 57 basis
points compared with the first quarter of 2004 and 31 basis points over the
fourth quarter of 2004. The yield on average loans was 6.06%, an increase of 86
basis points over the first quarter of 2004 and 44 basis points over the fourth
quarter of 2004. The tax-equivalent yield on securities was 4.36% for the first
quarter of 2005, compared with 4.29% for the first quarter of 2004 and 4.30% for
the fourth quarter of 2004. Rates paid on average interest-bearing liabilities
during the first quarter of 2005 increased 70 basis points over the first
quarter of 2004 and 27 basis points over the fourth quarter of 2004. Increases
in rates paid on deposit accounts continued to lag behind the increases in loan
yields. Additionally, growth in non-interest bearing funding sources, primarily
demand deposits, increased the net interest margin 13 basis points compared with
the first quarter of 2004 and four basis points compared to the preceding
quarter.
Our overall objective is to manage the Company's balance sheet to be essentially
neutral to changes in interest rates. Approximately 73% of our commercial loan
portfolio is either variable rate or fixed rate that will reprice within one
year. These loans are funded primarily by deposit accounts that are either
non-interest bearing, or that reprice more slowly than the loans. The result is
a balance sheet that is asset sensitive, which means that assets generally
reprice more quickly than liabilities. Strategies we use to achieve a
rate-neutral position include the purchase of fixed-rate, mortgage-backed
securities funded by short-term borrowings. The average duration of these
securities is expected to be approximately 3.2 years based on a range of
interest rate and prepayment assumptions. The funds borrowed to purchase these
securities generally reprice within 90 days. The liability-sensitive nature of
this strategy provides an offset to the asset-sensitive characteristics of our
loan portfolio.
We also use derivative instruments to manage our interest rate risk. We have
interest rate swaps with a combined notional amount of $472 million that convert
fixed rate liabilities to floating rate based on LIBOR. These derivatives, which
generally have been designated as fair value hedges, reduce the asset-sensitive
nature of our balance sheet. We also have interest rate swaps with a notional
amount of $100 million that convert prime-based loans to fixed rate. These
derivatives, which have been designated as cash flow hedges, also reduce the
asset-sensitive nature of our balance sheet.
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 1 and in the
interest rate sensitivity projections as shown in Market Risk section of this
report.
- ------------------------------------------------------------------------------
Table 1 - Volume / Rate Analysis
(In thousands) Three Months Ended
March 31, 2005 / 2004
-----------------------------------
Change Due To (1)
-----------------------------------
Yield /
Change Volume Rate
-----------------------------------
Tax-equivalent interest revenue:
Securities $ 1,797 $ 1,256 $ 541
Trading securities (35) 21 (56)
Loans 22,139 6,060 16,079
Funds sold and resell agreements 125 114 11
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Total 24,026 7,451 16,575
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Interest expense:
Transaction deposits 6,046 220 5,826
Savings deposits 6 (24) 30
Time deposits 4,745 2,118 2,627
Funds purchased and repurchase
agreements 6,226 78 6,148
Other borrowings 2,666 (239) 2,905
Subordinated debenture (109) (61) (48)
- ------------------------------------------------------------------------------
Total 19,580 2,092 17,488
- ------------------------------------------------------------------------------
Tax-equivalent net interest revenue 4,446 5,359 (913)
Increase in tax-equivalent adjustment (59)
- ------------------------------------------------------------------------------
Net interest revenue $ 4,387
- ------------------------------------------------------------------------------
(1) Changes attributable to both volume and yield/rate are allocated to both
volume and yield/rate on an equal basis.
4
Other Operating Revenue
Other operating revenue decreased $1.7 million compared with the first quarter
of 2004 due to a $5.1 million decrease in net gains and losses on securities and
derivatives. Fees and commissions revenue, which is included in other operating
revenue, increased $3.2 million or 4%. Diversified sources of fees and
commissions revenue are a significant part of our business strategy and
represented 42% of total revenue, excluding gains and losses on securities and
derivatives, for both the first quarters of 2005 and 2004. We believe that a
variety of fee revenue sources provide an offset to changes in interest rates,
values in the equity markets, commodity prices and consumer spending, all of
which can be volatile. We anticipate growth in other operating revenue through
offering new products and services and by expanding into new markets. However,
increased competition and saturation in our existing markets could affect the
rate of future increases.
Fees and commissions revenue
Trust fees increased $2.3 million, or 17%, for the first quarter of 2005. The
fair value of all trust assets, which is the basis for a significant portion of
trust fees, increased to $25.4 billion at March 31, 2005 compared with $21.3
billion at March 31, 2004. The increase in trust assets included $195 million
from a change in the valuation method for oil and gas properties. Regulatory
authorities have directed all banks to report oil and gas properties at
estimated fair value. Previously, a nominal value was assigned to these assets.
Trust revenue will not be affected by this change. Trust fees from mutual fund
activities increased $955 thousand or 40% due primarily to increased fees
associated with our assumption of administration duties for the American
Performance Funds.
Brokerage and trading revenue increased $1.3 million, or 13%. Revenue from
securities trading activities increased $796 thousand, or 13%. Customer hedging
revenue increased 44% to $1.2 million. Volatility in the energy markets prompted
our energy customers to more actively hedge their gas and oil production.
Transaction card revenue increased $1.8 million, or 12%, due to growth in check
card revenue and ATM fees. Revenue growth from each of these activities was due
to growth in transaction volume.
Service charges on deposit accounts were unchanged compared with the first
quarter of 2004. Overdraft fees, which had been a consistent source of increased
fee income, grew 4%, or $517 thousand. The volume of overdraft items processed
has declined, which is consistent with an apparent trend in the industry.
Commercial account service charge revenue decreased $615 thousand, or 7%. This
reduction in fee revenue reflected the increase in earnings credit available to
commercial deposit customers as interest rates rise.
Mortgage banking revenue, which is discussed more fully in the Line of Business
- - Mortgage Banking section of this report decreased $2.2 million, or 28%,
compared with the first quarter of 2004. Net gains on mortgage loans sold
decreased $1.7 million due primarily to a decrease in sales volume. Servicing
revenue decreased $513 thousand due to a decrease in the average outstanding
balance of loans serviced.
Securities and derivatives
BOK Financial realized net losses of $1.9 million on securities and derivatives
for the first quarter of 2005. These amounts included net losses of $2.1 million
on financial instruments held as economic hedges of the mortgage servicing
rights. The Company's use of securities as an economic hedge of mortgage
servicing rights is more-fully discussed in the Line of Business - Mortgage
Banking section of this report. During the first quarter of 2004, BOK Financial
recognized net gains on securities and derivatives of $3.3 million, including
net gains of $2.2 million on securities held as economic hedges.
5
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Table 2 - Other Operating Revenue
(In thousands)
Three Months Ended
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March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
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Brokerage and trading revenue $ 11,336 $ 9,721 $ 10,209 $ 11,166 $ 10,011
Transaction card revenue 16,543 16,598 16,677 16,817 14,724
Trust fees and commissions 16,016 14,793 15,091 13,939 13,709
Service charges and fees
on deposit accounts 22,173 23,337 24,292 23,928 22,155
Mortgage banking revenue 5,578 6,284 6,606 7,555 7,744
Leasing revenue 673 648 723 860 887
Other revenue 6,724 6,450 5,243 5,774 6,624
- --------------------------------------------------------------------------------------------------------------------------
Total fees and commissions 79,043 77,831 78,841 80,039 75,854
- --------------------------------------------------------------------------------------------------------------------------
Gain on sale of assets 972 90 78 35 684
Gain (loss) on securities, net (2,637) 967 2,673 (11,005) 4,277
Gain (loss) on derivatives, net 778 (174) (506) 201 (995)
- --------------------------------------------------------------------------------------------------------------------------
Total other operating revenue $ 78,156 $ 78,714 $ 81,086 $ 69,270 $ 79,820
- --------------------------------------------------------------------------------------------------------------------------
Other Operating Expense
Other operating expense for the first quarter of 2005 totaled $102.2 million, a
12% decrease from the same period of 2004. This decrease resulted primarily from
a $9.3 million reduction in the provision for impairment of mortgage servicing
rights. Additionally, operating expenses for the first quarter of 2004 included
$4.1 million for the cost of appreciated securities contributed to the BOK
Charitable Foundation.
Personnel expense
Personnel expense totaled $58.4 million for the first quarter of 2005 compared
with $58.2 million for the first quarter of 2004. Regular compensation expense
totaled $38.5 million, a $2.1 million, or 6%, increase over the first quarter of
2004. The increase in regular compensation expense was due to a 3% increase in
average regular compensation per full-time equivalent employee and a 3% increase
in average staffing.
Incentive compensation decreased $3.7 million, or 30%, from the first quarter of
2004 to $8.8 million in the first quarter of 2005. Stock-based compensation
expense decreased $4.2 million in the first quarter of 2005 compared to the same
period of 2004. Much of this expense is related to stock-based compensation that
is recognized from liability awards. Compensation expense for these awards is
based on the excess of the fair value of BOK Financial common stock over a set
exercise price. Incentive compensation expense for these awards varies directly
with changes in the fair value of BOKF's common stock, which decreased during
the quarter. Expense for other incentive compensation plans increased $489
thousand, or 5% primarily due to performance measured against established goals.
Employee benefit expenses increased $1.8 million, or 19%, over the first quarter
of 2004 to $11.2 million. Employee insurance costs increased $1.5 million, or
62%. Approximately half of the increase was due to an increase in the number of
employees covered and higher medical service costs. The remainder of the growth
in employee insurance costs reflected a small number of significant claims.
Expenses from these claims can be volatile because the Company self-insures a
portion of its employee health care coverage.
Data processing and communications expense
Data processing and communication expenses increased $458 thousand, or 3%, in
the first quarter of 2005 compared to the same period of 2004. This expense
consists of two broad categories, data processing systems and transaction card
processing. Transaction card processing costs increased $446 thousand, or 9%,
due to growth in processing volumes. Data processing systems costs were flat
compared with the first quarter of 2004.
6
Other expenses
Mortgage banking expenses, excluding provision for impairment of mortgage
servicing rights, decreased $2.2 million in the first quarter of 2005 compared
to the same period of 2004. The decrease reflected both lower costs associated
with loan origination and sales activities and a reduction in the amortization
of mortgage servicing rights. These expenses are discussed more fully in the
Line of Business - Mortgage Banking section of this report.
- ----------------------------------------------------------------------------------------------------------------------
Table 3 - Other Operating Expense
(In thousands)
Three Months Ended
----------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
----------------------------------------------------------------------------------
Personnel $ 58,439 $ 62,118 $ 60,524 $ 59,810 $ 58,209
Business promotion 4,430 4,766 3,671 3,831 3,350
Contribution of stock to
BOK Charitable Foundation - 1,436 - - 4,125
Professional fees and services 3,619 3,936 3,658 3,994 3,899
Net occupancy and equipment 12,094 11,973 11,733 11,732 11,851
Data processing & communications 15,099 15,196 14,918 15,270 14,641
Printing, postage and supplies 3,615 3,817 3,770 3,130 3,317
Amortization of intangible assets 1,537 1,888 1,991 2,121 2,138
Mortgage banking costs 3,613 3,929 3,962 4,433 5,843
Provision (recovery) for
impairment
of mortgage servicing rights (5,624) (305) 5,900 (10,865) 3,703
Other expense 5,337 2,828 4,075 5,536 5,372
- ---------------------------------------------------------------------------------------------------------------------
Total other operating expense $ 102,159 $ 111,582 $ 114,202 $ 98,992 $ 116,448
- ---------------------------------------------------------------------------------------------------------------------
Income Taxes
Income tax expense was $29.5 million for the first quarter of 2005, compared
with $20.4 million for the first quarter of 2004. This represented 36% and 34%,
respectively, of book taxable income. Income tax expense for the first quarter
of 2004 was reduced by $1.2 million from the contribution of appreciated
securities to the BOK Charitable Foundation. Excluding this item, income tax
expense would have been $21.6 million, or 36% of book taxable income.
Lines of Business
BOK Financial operates five principal lines of business: Oklahoma Corporate
Banking, Oklahoma Consumer Banking, Mortgage Banking, Wealth Management, and
Regional Banking. Mortgage Banking activities include loan origination and
servicing across all markets served by the Company. Wealth Management provides
brokerage and trading, private financial services and investment advisory
services in all markets, along with fiduciary services in all markets except
Colorado. Fiduciary services in Colorado, which were a core business of Colorado
State Bank and Trust, are included in Regional Banking. Regional Banking
consists primarily of corporate and consumer banking activities in the
respective local markets. In addition to its lines of business, BOK Financial
has a funds management unit. The primary purpose of this unit is to manage the
overall liquidity needs and interest rate risk of the company. Each line of
business borrows funds from and provides funds to the funds management unit as
needed to support their operations.
BOK Financial allocates resources and evaluates performance of its lines of
business after allocation of funds, certain indirect expenses, taxes and capital
costs. The cost of funds borrowed from the funds management unit by the
operating lines of business is transfer priced at rates that approximate market
for funds with similar duration. Market is generally based on the applicable
LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of
transfer-pricing funds that support assets of the operating lines of business
tends to insulate them from interest rate risk.
The value of funds provided by the operating lines of business to the funds
management unit is based on applicable Federal Home Loan Bank advance rates.
Deposit accounts with indeterminate maturities, such as demand deposit accounts
and interest-bearing transaction accounts, are transfer-priced at a rolling
average based on expected duration
7
of the accounts. The expected duration ranges from 90 days for certain
rate-sensitive deposits to five years. The transfer-pricing rate for deposits
with indeterminate maturities increased during the first quarter of 2005 by more
than the actual cost of these funds. Net interest revenue increased in the
business units that provide deposits to the Company, such as Oklahoma Consumer
Banking, Wealth Management and Regional Banking, to more appropriately reflect
the economic value of deposits as interest rates rise.
Economic capital is assigned to the business units by a third-party developed
capital allocation model that reflects management's assessment of risk. This
model assigns capital based upon credit, operating, interest rate and market
risk inherent in our business lines and recognizes the diversification benefits
among the units. The level of assigned economic capital is a combination of the
risk taken by each business line, based on its actual exposures and calibrated
to its own loss history where possible. Additional capital is assigned to the
Regional Banking line of business based on our investment in those entities.
- ---------------------------------------------------------------------------
Table 4 - Net Income by Line of Business
(In thousands) Three months ended March 31,
2005 2004
------------------------------
Oklahoma corporate banking $ 16,559 $ 15,377
Regional banking 17,095 14,101
Mortgage banking 2,283 353
Oklahoma consumer banking 4,342 1,989
Wealth management 4,363 2,601
Funds management and other 7,413 4,731
- ---------------------------------------------------------------------------
Total $ 52,055 $ 39,152
- ---------------------------------------------------------------------------
Oklahoma Corporate Banking
The Oklahoma Corporate Banking Division provides loan and lease financing and
treasury and cash management services to businesses throughout Oklahoma and
certain relationships in surrounding states. In addition to serving the banking
needs of small businesses, middle market and larger customers, the Oklahoma
Corporate Banking Division has specialized groups that serve customers in the
energy, agriculture, healthcare and banking/finance industries, and includes the
TransFund network. The Oklahoma Corporate Banking Division contributed $16.6
million, or 32%, of consolidated net income for the first quarter of 2005. This
compares to $15.4 million, or 39%, of consolidated net income for the first
quarter of 2004. Growth in net income provided by this banking division came
primarily from improved credit quality. Net loans charged off decreased from
$2.8 million in the first quarter of 2004 to $397 thousand in the first quarter
of 2005.
Table 5 - Oklahoma Corporate Banking
(Dollars in Thousands)
Three months ended March 31,
----------------------------------
2005 2004
-------------------------------
NIR (expense) from external sources $ 41,028 $ 35,412
NIR (expense) from internal sources (10,794) (5,171)
------------- -------------
Total net interest revenue 30,234 30,241
Other operating revenue 22,023 21,238
Operating expense 24,757 23,550
Net loans charged off 397 2,765
Net income 16,559 15,377
Average assets $ 4,965,272 $ 4,542,547
Average economic capital 310,530 334,590
Return on assets 1.35% 1.36%
Return on economic capital 21.63% 18.48%
Efficiency ratio 47.38% 45.75%
8
Oklahoma Consumer Banking
The Oklahoma Consumer Banking Division provides a full line of deposit, loan and
fee-based services to customers throughout Oklahoma through four major
distribution channels: traditional branches, supermarket branches, the 24-hour
ExpressBank call center and the Internet. Additionally, the division is a
significant referral source for the Bank of Oklahoma Mortgage Division ("BOk
Mortgage") and BOSC's retail brokerage division. The Consumer Banking Division
contributed $4.3 million, or 8%, of consolidated net income for the first
quarter of 2005. This compares to $2.0 million, or 5%, of consolidated net
income for the first quarter of 2004. Net interest revenue for the Oklahoma
Consumer Banking Division increased $3.0 million, or 28%, due to growth in
average assets and an increase in transfer pricing credit to units that provide
lower-costing funds to the Company. Performance of the Oklahoma Consumer Banking
Division also improved due to a reduction in net loans charged off.
Table 6 - Oklahoma Consumer Banking
(Dollars in Thousands)
Three months ended March 31,
----------------------------------
2005 2004
-------------------------------
NIR (expense) from external sources $ (5,393) $ (4,081)
NIR (expense) from internal sources 19,070 14,781
------------- --------------
Total net interest revenue 13,677 10,700
Other operating revenue 14,735 12,928
Operating expense 20,521 18,583
Net loans charged off 784 1,789
Net income 4,342 1,989
Average assets $ 2,863,032 $ 2,663,881
Average economic capital 66,980 62,290
Return on assets 0.62% 0.30%
Return on economic capital 26.29% 12.84%
Efficiency ratio 72.23% 78.65%
Mortgage Banking
BOK Financial engages in mortgage banking activities through the BOk Mortgage
Division of Bank of Oklahoma. These activities include the origination,
marketing and servicing of conventional and government-sponsored mortgage loans.
Mortgage banking activities contributed $2.3 million, or 4%, of consolidated net
income in the first quarter of 2005 compared to $353 thousand, or 1%, in 2004.
The improved performance of the Mortgage Banking line of business was due to
increased value of mortgage servicing rights.
Mortgage banking activities consisted of two sectors, loan production and loan
servicing. The loan production sector generally performs best when mortgage
rates are relatively low and loan origination volumes are high. Conversely, the
loan servicing sector generally performs best when mortgage rates are relatively
high and prepayments are low.
Loan Production Sector
Loan production revenue totaled $1.5 million for the first quarter of 2005,
including $2.0 million of capitalized mortgage servicing rights, compared to
loan production revenue of $3.9 million in the first quarter of 2004, including
$2.7 million of capitalized mortgage servicing rights. The decrease in loan
production revenue was due to decreased production volume caused by rising
mortgage interest rates. Mortgage loans funded in the first quarter of 2005
totaled $119 million compared with $160 million in the first quarter of 2004.
Approximately 70% of the loans funded during the first quarter of 2005 were in
Oklahoma. The decreased volume of loans funded resulted in a pre-tax loss from
loan production of $138 thousand for the first quarter of 2005 compared with
pre-tax income of $1.9 million for the first quarter of 2004. The pipeline of
mortgage loan applications totaled $250 million at March 31, 2005, compared $189
million at December 31, 2004 and $300 million at March 31, 2004.
9
Loan Servicing Sector
The loan servicing sector had pre-tax income of $3.4 million for the first
quarter of 2005 compared to a pre-tax loss of $2.5 million for the same period
of 2004. A 40 basis point increase in mortgage interest rates during the first
quarter of 2005 increased the value of servicing rights and resulted in a $5.6
million reduction in the valuation allowance. Losses of $2.1 million were
recognized on financial instruments held as an economic hedge of the value of
the servicing rights. During the first quarter of 2004, $3.7 million was
provided for impairment of mortgage servicing rights, partially offset by net
gains of $2.2 million on financial instruments designated as an economic hedge.
Servicing revenue totaled $4.1 million in the first quarter of 2005 compared
with $4.7 million in the same period of 2004. The decrease in servicing revenue
was due primarily to a lower outstanding principal balance of loans serviced.
The average outstanding balance of loans serviced was $3.7 billion during the
first quarter of 2005 compared to $4.1 billion during the first quarter of 2004.
The decrease in loans serviced reflected both the continued refinancing of
mortgage loans and our decision to curtail purchases of mortgage loan servicing.
Annualized servicing revenue per outstanding loan principal was 45 basis points
for each quarter.
Amortization of mortgage servicing rights, which is included in operating
expense, was $3.2 million in the first quarter of 2005 compared to $5.2 million
in the first quarter of 2004. Amortization expense is determined in proportion
to the estimated future cash flows that will be generated by the mortgage
servicing rights. The reduction in amortization expense reflected an expectation
of lower loan prepayment speeds.
Table 7 - Mortgage Banking
(Dollars in Thousands)
Three months ended March 31,
----------------------------------
2005 2004
-------------------------------
NIR (expense) from external sources $ 5,018 $ 5,785
NIR (expense) from internal sources (3,577) (3,052)
------------- --------------
Total net interest revenue 1,441 2,733
Capitalized mortgage servicing rights 1,981 2,696
Other operating revenue 4,643 6,727
Operating expense 7,833 9,972
Provision (recovery) for impairment of
mortgage servicing rights (5,624) 3,703
Gains (losses) on financial instruments, net (2,076) 2,233
Net income 2,283 353
Average assets $ 525,734 $ 588,769
Average economic capital 48,220 26,490
Return on assets 1.76% 0.24%
Return on economic capital 19.20% 5.36%
Efficiency ratio 97.12% 82.03%
BOK Financial designates a portion of its securities portfolio as an economic
hedge against the risk of loss on its mortgage servicing rights. Mortgage-backed
securities and U.S. government agency debentures are acquired and held as
available for sale when prepayment risks exceed certain levels. Additionally,
interest rate derivative contracts may also be designated as an economic hedge
of the risk of loss on mortgage servicing rights. Because the fair values of
these instruments are expected to vary inversely to the fair value of the
servicing rights, they are expected to partially offset risk. However, no
special hedge accounting treatment is applicable to either the mortgage
servicing rights or the financial instruments designated as an economic hedge.
We may sell these securities and realize gains or losses when necessary to
offset the impairment provision of the mortgage servicing rights. Derivative
contracts used to hedge mortgage servicing rights are carried at fair value with
changes in fair value recognized in earnings.
This hedging strategy presents certain risks. A well-developed market determines
the fair value for the securities and derivatives, however there is no
comparable market for mortgage servicing rights. Therefore, the computed change
in value of the servicing rights for a specified change in interest rates may
not correlate to the change in value of the securities.
10
At March 31, 2005, financial instruments with a fair value of $165 million were
held for the economic hedge program. The interest rate sensitivity of the
mortgage servicing rights and securities held as a hedge is modeled over a range
of +/- 50 basis points. At March 31, 2005, the pre-tax results of this modeling
on reported earnings were:
Table 8 - Interest Rate Sensitivity - Mortgage Servicing
(Dollars in Thousands)
50 bp increase 50 bp decrease
----------------- ----------------
Anticipated change in:
Fair value of mortgage servicing rights $ 3,771 $ (6,612)
Fair value of hedging securities (2,049) 2,833
----------------- ----------------
Net $ 1,722 $ (3,779)
----------------- ----------------
Wealth Management
BOK Financial provides a wide range of financial services through its wealth
management line of business, including trust and private financial services, and
brokerage and trading activities. This line of business includes the activities
of BOSC, Inc., a registered broker / dealer. Trust and private financial
services includes sales of institutional, investment and retirement products,
loans and other services to affluent individuals, businesses, not-for-profit
organizations, and governmental agencies. Trust services are provided primarily
to clients throughout Oklahoma, Texas and New Mexico. Additionally, trust
services include a nationally competitive, self-directed 401-(k) program and
administrative and advisory services to the American Performance family of
mutual funds. Brokerage and trading activities within the wealth management line
of business consists of retail sales of mutual funds, securities, and annuities,
institutional sales of securities and derivatives, bond underwriting and other
financial advisory services.
Wealth Management contributed $4.4 million, or 8%, to consolidated net income
for the first quarter of 2005. This compared to $2.6 million, or 7%, of
consolidated net income for the same period of 2004.
Trust and private financial services provided $3.9 million of net income in the
first quarter of 2005, a 65% increase over the same period in 2004. Net interest
revenue increased $1.2 million due to growth in average assets and an increase
in transfer pricing credit to units that provide funds to the Company. Other
operating revenue increased $2.0 million due to trust and mutual fund fees. At
March 31, 2005 and 2004, Wealth Management was responsible for trust assets with
aggregate market values of $23.3 billion and $19.9 billion, respectively. The
growth in trust assets reflected increased market value in addition to new
business generated during the year. Trust assets also increased $195 million due
to the regulatory change required of all banks in the valuation method for oil
and gas properties. We have sole or joint discretionary authority over $8.3
billion of trust assets at March 31, 2005 compared to $7.9 billion of trust
assets at March 31, 2004. Growth in the fair value of trust assets came
primarily in non-managed assets, which increased by $1.6 billion, or 21%, and
custodial assets which increased by $1.4 billion, or 34%.
Brokerage and trading activities provided $510 thousand of net income in the
first quarter of 2005 compared to $266 thousand in the first quarter of 2004.
Table 9 - Wealth Management
(Dollars in Thousands)
Three months ended March 31,
--------------------------------
2005 2004
------------- -- --------------
NIR (expense) from external sources $ 1,055 $ 1,039
NIR (expense) from internal sources 2,787 1,809
------------- --------------
Total net interest revenue 3,842 2,848
Other operating revenue 25,235 22,201
Operating expense 21,885 20,735
Net income 4,363 2,601
Average assets $ 747,837 $ 713,227
Average economic capital 88,520 73,600
Return on assets 2.37% 1.47%
Return on economic capital 19.99% 14.21%
Efficiency ratio 75.27% 82.78%
11
Regional Banking
Regional Banking consists primarily of the corporate and commercial banking
services provided by Bank of Texas, Bank of Albuquerque, Bank of Arkansas, and
Colorado State Bank and Trust in their respective markets. It also includes
fiduciary services provided by Colorado State Bank and Trust. Small businesses
and middle-market corporations are Regional Banking's primary customer focus.
Regional Banking contributed $17.1 million, or 33%, of consolidated net income
during the first quarter of 2005. This compares with $14.1 million, or 36%, of
consolidated net income for the same period in 2004. Growth in net income
contributed by the regional banks came primarily from operations in Texas and
New Mexico. Net income for the first quarter of 2005 in Texas and New Mexico
increased $2.2 million and $1.4 million, respectively.
Growth in net income from Texas operations resulted from an increase in net
interest revenue. Average earning assets increased $229 million, including $156
million of loans and $82 million of funds sold to the funds management unit. The
growth in average earning assets was funded by a $127 million increase in
interest-bearing deposits and a $70 million increase in average demand deposits.
The increase in net income from New Mexico operations was also based largely on
an increase in net interest revenue. Average earning assets increased $92
million, including $60 million of loans and $32 million of funds sold to the
funds management unit. Average deposits in the New Mexico market increased $65
million, including $70 million of interest-bearing deposits. Average demand
deposits decreased $5 million.
Colorado State Bank and Trust's performance for the first quarter of 2005 was
adversely affected by $1.6 million of net loans charged off. This level of net
charge-offs was due to the resolution of several commercial lending
relationships that pre-dated our acquisition of CSBT.
Table 10 - Bank of Texas
(Dollars in Thousands)
Three months ended March 31,
----------------------------------
2005 2004
------------- -- ---------------
NIR (expense) from external sources $ 34,038 $ 28,540
NIR (expense) from internal sources (1,996) (1,239)
------------- ---------------
Total net interest revenue 32,042 27,301
Other operating revenue 5,336 5,683
Operating expense 19,553 17,986
Net loans charged off 118 578
Net income 11,514 9,360
Average assets $ 3,270,135 $ 3,030,369
Average economic capital 164,580 168,350
Average invested capital 331,660 335,440
Return on assets 1.43% 1.24%
Return on economic capital 28.37% 22.36%
Return on average invested capital 14.08% 11.22%
Efficiency ratio 52.31% 54.53%
12
Table 11 - Bank of Albuquerque
(Dollars in Thousands)
Three months ended March 31,
--------------------------------
2005 2004
-------------------------------
NIR (expense) from external sources $ 13,231 $ 10,989
NIR (expense) from internal sources (2,006) (1,041)
------------- --------------
Total net interest revenue 11,225 9,948
Other operating revenue 3,856 3,345
Operating expense 7,527 7,604
Net loans charged off 144 548
Net income 4,528 3,142
Average assets $ 1,698,358 $ 1,601,177
Average economic capital 75,960 67,810
Average invested capital 95,050 86,900
Return on assets 1.08% 0.79%
Return on economic capital 24.18% 18.64%
Return on average invested capital 19.32% 14.54%
Efficiency ratio 49.91% 57.20%
Table 12 - Bank of Arkansas
(Dollars in Thousands)
Three months ended March 31,
--------------------------------
2005 2004
-------------------------------
NIR (expense) from external sources $ 3,095 $ 2,196
NIR (expense) from internal sources (771) (534)
------------- --------------
Total net interest revenue 2,324 1,662
Other operating revenue 375 290
Operating expense 998 878
Net loans charged off 10 (8)
Net income 1,033 661
Average assets $ 272,276 $ 264,697
Average economic capital 10,660 10,950
Average invested capital 10,660 10,950
Return on assets 1.54% 1.00%
Return on economic capital 39.30% 24.28%
Return on average invested capital 39.30% 24.28%
Efficiency ratio 36.98% 44.98%
13
Table 13 - Colorado State Bank and Trust
(Dollars in Thousands)
Three months ended March 31,
-----------------------------------
2005 2004
-------------------------------
NIR (expense) from external sources $ 7,315 $ 6,148
NIR (expense) from internal sources (2,390) (1,600)
------------- --------------
Total net interest revenue 4,925 4,548
Other operating revenue 2,354 2,005
Operating expense 5,618 5,017
Net loans charged off 1,628 -
Net income 20 938
Average assets $ 765,465 $ 657,493
Average economic capital 40,760 27,280
Average invested capital 82,740 69,260
Return on assets 0.01% 0.57%
Return on economic capital 0.20% 13.83%
Return on average invested capital 0.10% 5.45%
Efficiency ratio 77.18% 76.56%
Financial Condition
Securities
Securities are classified as either held for investment or available for sale
based upon asset/liability management strategies, liquidity and profitability
objectives and regulatory requirements. Investment securities, which consist
primarily of Oklahoma municipal bonds, are carried at cost and adjusted for
amortization of premiums or accretion of discounts. Management has the ability
and intent to hold these securities until they mature. Available for sale
securities, which may be sold prior to maturity, are carried at fair value.
Unrealized gains or losses, less deferred taxes, are recorded as accumulated
other comprehensive income in shareholders' equity.
The amortized cost of available for sale securities at March 31, 2005 totaled
$4.7 billion compared with $4.6 billion at December 31, 2004. Mortgage-backed
securities continued to represent substantially all available for sale
securities. As previously discussed in the Net Interest Revenue section of this
report, we hold mortgage backed securities as part of our overall interest rate
risk management strategy.
The primary risk of holding mortgage-backed securities comes from extension
during periods of rising interest rates or prepayment during periods of falling
interest rates. We evaluate this risk through extensive modeling of risk both
before making an investment and throughout the life of the security. The
expected duration of the mortgage-backed securities portfolio was approximately
3.2 years at March 31, 2005 and December 31, 2004.
Net unrealized losses on available for sale securities totaled $80 million at
March 31, 2005 compared with net unrealized losses of $16 million at December
31, 2004 due primarily to rising interest rates. Net unrealized losses
represented 1.6% of the securities portfolio at March 31, 2005, compared with
0.3% at December 31, 2004. The aggregate gross amount of unrealized losses at
March 31, 2005 totaled $89 million. Management evaluated the securities with
unrealized losses to determine if we believe that the losses were temporary.
This evaluation considered factors such as causes of the unrealized losses and
prospects for recovery over various interest rate scenarios and time periods. We
also considered our intent and ability to hold the securities until the fair
values exceeded amortized cost. It is our belief, based on currently available
information and our evaluation, that the unrealized losses in these securities
are temporary.
14
Loans
The aggregate loan portfolio at March 31, 2005 totaled $8.1 billion, a $157
million, or 8%, annualized increase since December 31, 2004.
- ---------------------------------------------------------------------------------------------------------------------
Table 14 - Loans
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
---------------------------------------------------------------------------------
Commercial:
Energy $ 1,174,498 $ 1,223,195 $ 1,097,191 $ 1,079,746 $ 1,107,866
Manufacturing 468,615 484,423 479,866 485,657 501,296
Wholesale/retail 696,066 699,318 737,235 697,761 717,409
Agriculture 263,382 262,436 262,171 232,445 228,334
Services 1,705,178 1,615,071 1,644,884 1,488,963 1,400,521
Other commercial and industrial 283,107 291,393 277,102 349,129 364,239
- ---------------------------------------------------------------------------------------------------------------------
Total commercial 4,590,846 4,575,836 4,498,449 4,333,701 4,319,665
- ---------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Construction and land development 518,137 457,399 467,396 436,727 451,119
Multifamily 224,533 231,985 236,240 245,731 253,272
Other real estate loans 975,115 931,726 917,488 907,084 914,834
- ---------------------------------------------------------------------------------------------------------------------
Total commercial real estate 1,717,785 1,621,110 1,621,124 1,589,542 1,619,225
- ---------------------------------------------------------------------------------------------------------------------
Residential mortgage:
Secured by 1-4 family
residential properties 1,215,022 1,198,918 1,120,761 1,080,399 1,032,396
Residential mortgages held for sale 44,429 40,262 82,053 79,034 83,556
- ---------------------------------------------------------------------------------------------------------------------
Total residential mortgage 1,259,451 1,239,180 1,202,814 1,159,433 1,115,952
- ---------------------------------------------------------------------------------------------------------------------
Consumer 517,884 492,841 461,779 442,424 445,734
- ---------------------------------------------------------------------------------------------------------------------
Total $ 8,085,966 $ 7,928,967 $ 7,784,166 $ 7,525,100 $ 7,500,576
- ---------------------------------------------------------------------------------------------------------------------
The commercial loan portfolio increased $15 million during the first quarter of
2005. Much of this increase was focused in the services portion of the
portfolio, which increased $90 million, or 6%. As of March 31, 2005, services
comprised 21% of the total loan portfolio and included $293 million of loans to
nursing homes and $149 million of loans to medical facilities. Energy loans
totaled $1.2 billion or 15% of total loans as of March 31, 2005. Outstanding
energy loans decreased $49 million, or 4%, during the first quarter of 2005.
High energy prices provided cash flow to the industry which resulted in reduced
outstanding loan balances during the first quarter of the year. Approximately
$977 million of outstanding loans at March 31, 2005 was to oil and gas
producers. The amount of credit available to these customers generally depends
on a percentage of the value of their proven energy reserves based on
anticipated prices. The energy category also included loans to borrowers
involved in the transportation and sale of oil and gas and to borrowers that
manufacture equipment or provide other services to the energy industry.
As of March 31, 2005, agriculture loans included $221 million of loans to the
cattle industry. Other notable loan concentrations by primary industry of the
borrowers are presented in Table 14.
BOK Financial participates in shared national credits when appropriate to obtain
or maintain business relationships with local customers. Shared national credits
are defined by banking regulators as credits of more than $20 million and with
three or more non-affiliated banks as participants. At March 31, 2005, the
outstanding principal balance of these loans totaled $889 million, including
$886 million to borrowers within local markets. BOK Financial is the agent
lender in approximately 24% of its shared national credits, based on the number
of relationships. The Company's lending policies generally avoid loans in which
we do not have the opportunity to maintain or achieve other business
relationships with the customer.
Commercial real estate loans totaled $1.7 billion, or 21%, of the loan portfolio
at March 31, 2005. The outstanding balance of commercial real estate loans
increased $97 million since December 31, 2004. As of March 31, 2005,
construction and land development included $397 million for single family
residential lots and premises, up $48
15
million, or 14%, since December 31, 2004. This growth resulted from expanded
builder loans, primarily in New Mexico and Arizona. The major components of
other commercial real estate loans were retail facilities - $312 million and
office buildings $377 million. Commercial real estate loans secured by office
buildings increased $53 million, or 10%, during the quarter.
Residential mortgage loans, excluding loans held for sale, included $347 million
of home equity loans, $285 million of loans held in conjunction with business
relationships, $237 million of adjustable rate mortgages and $316 million of
loans held for community development. Community development loans increased $37
million, or 13% during the first quarter of 2005 as part of the Company's
ongoing efforts to more directly serve its local communities. Consumer loans
included $257 million of indirect automobile loans. Substantially all of these
loans were purchased from dealers in Oklahoma.
Table 15 presents the distribution of the major loan categories among our
primary market areas.
- ---------------------------------------------------------------------------------------------------------------------
Table 15 - Loans by Principal Market Area
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
---------------------------------------------------------------------------------
Oklahoma:
Commercial $ 2,871,566 $ 2,847,470 $ 2,914,917 $ 2,843,013 $ 2,811,555
Commercial real estate 791,816 744,724 746,444 795,145 833,317
Residential mortgage 936,375 901,648 819,537 770,749 716,512
Residential mortgage held for 44,429 40,262 82,053 79,034 83,556
sale
Consumer 389,571 367,947 343,680 336,057 332,036
---------------------------------------------------------------------------------
Total Oklahoma $ 5,033,757 $ 4,902,051 $ 4,906,631 $ 4,823,998 $ 4,776,976
---------------------------------------------------------------------------------
Texas:
Commercial $ 1,135,509 $ 1,120,069 $ 994,335 $ 939,471 $ 932,302
Commercial real estate 477,487 459,067 467,935 453,724 460,659
Residential mortgage 177,919 191,296 195,393 194,760 205,163
Consumer 85,626 86,732 87,371 85,742 91,331
---------------------------------------------------------------------------------
Total Texas $ 1,876,541 $ 1,857,164 $ 1,745,034 $ 1,673,697 $ 1,689,455
---------------------------------------------------------------------------------
Albuquerque:
Commercial $ 325,069 $ 354,904 $ 331,027 $ 317,647 $ 317,488
Commercial real estate 218,357 196,832 195,390 175,537 161,529
Residential mortgage 62,015 63,043 64,105 65,184 64,887
Consumer 12,306 13,260 11,687 11,251 10,837
---------------------------------------------------------------------------------
Total Albuquerque $ 617,747 $ 628,039 $ 602,209 $ 569,619 $ 554,741
---------------------------------------------------------------------------------
Northwest Arkansas:
Commercial $ 51,026 $ 61,934 $ 64,789 $ 61,252 $ 58,398
Commercial real estate 75,024 74,478 69,075 65,980 59,181
Residential mortgage 10,771 11,238 9,022 9,289 8,271
Consumer 3,599 3,858 4,998 3,018 2,970
---------------------------------------------------------------------------------
Total Northwest Arkansas $ 140,420 $ 151,508 $ 147,884 $ 139,539 $ 128,820
---------------------------------------------------------------------------------
Colorado:
Commercial $ 207,676 $ 191,459 $ 193,381 $ 172,318 $ 199,922
Commercial real estate 120,844 118,134 142,280 99,156 104,539
Residential mortgage 27,942 31,693 32,704 40,417 37,563
Consumer 26,782 21,044 14,043 6,356 8,560
---------------------------------------------------------------------------------
Total Colorado $ 383,244 $ 362,330 $ 382,408 $ 318,247 $ 350,584
---------------------------------------------------------------------------------
Arizona:
Commercial real estate $ 34,257 $ 27,875 $ - $ - $ -
---------------------------------------------------------------------------------
Total Arizona $ 34,257 $ 27,875 $ - $ - $ -
---------------------------------------------------------------------------------
Total BOK Financial loans $ 8,085,966 $ 7,928,967 $ 7,784,166 $ 7,525,100 $ 7,500,576
---------------------------------------------------------------------------------
16
Loan Commitments
BOK Financial enters into certain off-balance sheet arrangements in the normal
course of business. These arrangements included loan commitments which totaled
$3.5 billion and standby letters of credit which totaled $613 million at March
31, 2005. 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.
Derivatives with Credit Risk
BOK Financial offers programs that permit its customers to hedge various risks,
including fluctuations in energy and cattle prices, interest rates and foreign
exchange rates. 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 as compensation for
administrative costs, credit risk and profit.
These programs create credit risk for potential amounts due to the Company from
its customers and from the counterparties. Customer credit risk is monitored
through existing credit policies and procedures. The effects of changes in
commodity prices, interest rates or foreign exchange rates are evaluated across
a range of possible price changes to determine the maximum exposure we are
willing to have individually to any customer. Customers may also be required to
provide margin collateral to further limit our credit risk.
Counterparty credit risk is evaluated through existing policies and procedures.
This evaluation considers the total relationship between BOK Financial and each
of the counterparties. Individual limits are determined by management based on
established policies. Margin collateral is required if the exposure between the
Company and any counterparty exceeds established limits. Based on declines in
the counterparties' credit rating, these limits are reduced and additional
margin collateral is required.
A deterioration of the credit standing of one or more of the 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 could occur if the credit standing of the counterparty
deteriorated such that either the fair value of underlying collateral no longer
supported the contract or the counterparty's ability to provide margin
collateral was impaired.
Derivative contracts are carried at fair value. At March 31, 2005, the fair
value of derivative contracts reported as assets under these programs totaled
$720 million. This included energy contracts with fair values of $705 million,
interest rate contracts with fair values of $5 million and foreign exchange
contracts with fair values of $10 million. The aggregate fair values of
derivative contracts reported as liabilities totaled $722 million. At December
31, 2004, the fair values of assets and liabilities reported under these
programs totaled $379 million and $380 million, respectively. The increase in
fair values of assets and liabilities was driven primarily by increases in
energy prices. New customer relationships added approximately $80 million in
fair value of derivative assets and liabilities during the quarter.
Approximately 69% of the fair value of asset contracts was with customers. The
credit risk of these contracts is generally backed by energy production. The
remaining 31% was with counterparties. The maximum net exposure to any single
customer or counterparty totaled $66 million at March 31, 2005.
Summary of Loan Loss Experience
The reserve for loan losses, which is available to absorb losses inherent in the
loan portfolio, totaled $109 million at March 31, 2005 and December 31, 2004,
and $115 million at March 31, 2004. These amounts represented 1.35%, 1.38% and
1.55% of outstanding loans, excluding loans held for sale, at March 31, 2005,
December 31, 2004 and March 31, 2004, respectively. Losses on loans held for
sale, principally mortgage loans accumulated for placement into security pools,
are charged to earnings through adjustment in the carrying value. The reserve
for loan losses also represented 219% of outstanding balance of nonperforming
loans at March 31, 2005, compared with 206% at December 31, 2004 and 248% at
March 31, 2004. Net loans charged off during the first quarter of 2005 totaled
$3.2
17
million, down from $5.8 million for the first quarter of 2004.
Credit risk from loan commitments and letters of credit are considered in the
evaluation of the adequacy of the reserve for loan losses. A separate reserve
for off-balance sheet credit risk is maintained. Table 16 presents the trend of
reserves for off-balance sheet credit losses and the relationship between the
reserve and loan commitments. The relationship between the combined reserve for
credit losses and outstanding loans is also presented to facilitate comparison
with peer banks and others who have not adopted this preferred presentation. The
provision for credit losses included the combined charge to expense for both the
reserve for loan losses and the reserve for off-balance sheet credit losses. All
losses incurred from lending activities will ultimately be reflected in
charge-offs against the reserve for loan losses. Losses on outstanding
commitments would occur after the commitment is funded and collection efforts
are exhausted.
- ------------------------------------------------------------------------------------------------------------------------------
Table 16 - Summary of Loan Loss Experience
(In thousands)
Three Months Ended
----------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
----------------------------------------------------------------------------------
Reserve for loan losses:
Beginning balance $ 108,618 $ 113,719 $ 114,704 $ 114,988 $ 114,784
Loans charged off:
Commercial 1,438 4,195 2,712 2,826 4,188
Commercial real estate 1,715 100 254 617 -
Residential mortgage 181 493 392 231 349
Consumer 2,490 3,384 3,521 2,998 3,425
- ------------------------------------------------------------------------------------------------------------------------------
Total 5,824 8,172 6,879 6,672 7,962
- ------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial 1,099 533 811 359 580
Commercial real estate 29 9 - 4 17
Residential mortgage 10 11 125 87 20
Consumer 1,508 1,189 1,163 1,302 1,517
- ------------------------------------------------------------------------------------------------------------------------------
Total 2,646 1,742 2,099 1,752 2,134
- ------------------------------------------------------------------------------------------------------------------------------
Net loans charged off 3,178 6,430 4,780 4,920 5,828
Provision for loan losses 3,518 1,329 3,795 4,636 6,032
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 108,958 $ 108,618 $ 113,719 $ 114,704 $ 114,988
- ------------------------------------------------------------------------------------------------------------------------------
Reserve for off-balance sheet credit losses:
Beginning balance $ 18,502 $ 15,392 $ 14,201 $ 14,850 $ 13,855
Provision for off-balance sheet credit losses (1,518) 3,110 1,191 (649) 995
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 16,984 $ 18,502 $ 15,392 $ 14,201 $ 14,850
- ------------------------------------------------------------------------------------------------------------------------------
Total provision for credit losses $ 2,000 $ 4,439 $ 4,986 $ 3,987 $ 7,027
- ------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses to loans outstanding
at period-end (1) 1.35% 1.38% 1.48% 1.54% 1.55%
Net charge-offs (annualized)
to average loans (1) 0.16 0.33 0.25 0.26 0.31
Total provision for credit losses (annualized)
to average loans (1) 0.10 0.23 0.26 0.21 0.38
Recoveries to gross charge-offs 45.43 21.32 30.51 26.26 26.80
Reserve for loan losses as a multiple of net
charge-offs (annualized) 8.57x 4.22x 5.95x 5.83x 4.93x
Reserve for off-balance sheet credit losses to
off-balance sheet credit commitments 0.41% 0.48% 0.42% 0.39% 0.40%
Combined reserves for credit losses to loans
outstanding at period-end (1) 1.57 1.61 1.68 1.73 1.75
- ------------------------------------------------------------------------------------------------------------------------------
(1) Excludes residential mortgage loans held for sale.
Specific impairment reserves are determined through evaluation of estimated
future cash flows and collateral value. At March 31, 2005, specific impairment
reserves totaled $5.6 million on total impaired loans of $43.5 million. Required
specific impairment reserves decreased $2.3 million from December 31, 2004.
18
Nonspecific reserves are maintained for risks beyond factors specific to an
individual loan or those identified through migration analysis. A range of
potential losses is determined for each risk factor identified. At March 31,
2005, the ranges of potential losses for the more significant factors were:
General economic conditions - $7 million to $11 million
Concentration in large loans - $2 million to $3 million
The provision for credit losses totaled $2.0 million for the first quarter of
2005, compared with $4.4 million for the fourth quarter of 2004 and $7.0 for the
first quarter of 2004. Factors which contributed to the lower provision included
a general trend toward improved grading of commercial loans and a reduction in
the outstanding balances of criticized loans, a reduction in the number of past
due consumer loans, and a reduction in net losses incurred. These factors were
partially offset by concerns about increased concentration in loans to
commercial real estate borrowers and to residential home builders. The factors
that evidence credit quality have generally improved over the past two years and
no indication of a change in this overall trend is anticipated in the near
future.
Nonperforming Assets
Information regarding nonperforming assets, which totaled $53 million at March
31, 2005 and $56 million at December 31, 2004, is presented in Table 17.
Nonperforming assets included nonaccrual and renegotiated loans and excluded
loans 90 days or more past due but still accruing interest. Nonaccrual loans
totaled $50 million at March 31, 2005 and $53 million at December 31, 2004.
Newly identified nonaccruing loans totaled $6 million during the first quarter
of 2005. Nonaccruing loans decreased $2 million for loans charged off and
foreclosed, and $7 million for cash payments received.
- ---------------------------------------------------------------------------------------------------------------------
Table 17 - Nonperforming Assets
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
----------------------------------------------------------------------
Nonaccrual loans:
Commercial $ 29,116 $ 33,195 $ 36,526 $ 38,264 $ 30,751
Commercial real estate 12,671 10,144 8,293 10,208 5,953
Residential mortgage 7,533 8,612 6,228 8,346 8,649
Consumer 483 709 729 792 1,024
- ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 49,803 52,660 51,776 57,610 46,377
Other nonperforming assets 3,187 3,763 6,038 4,776 5,954
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 52,990 $ 56,423 $ 57,814 $ 62,386 $ 52,331
- ---------------------------------------------------------------------------------------------------------------------
Ratios:
Reserve for loan losses to nonaccrual loans 218.78% 206.26% 219.64% 199.10% 247.94%
Combined reserves for credit
losses to nonaccrual loans 252.88 241.40 249.36 223.75 279.96
Nonaccrual loans to period-end loans (2) 0.62 0.67 0.67 0.77 0.63
- ---------------------------------------------------------------------------------------------------------------------
Loans past due (90 days) (1) $ 6,782 $ 7,649 $ 9,173 $ 10,280 $ 16,376
- ---------------------------------------------------------------------------------------------------------------------
(1) Includes residential mortgages
guaranteed by agencies of the U.S.
Government. $ 2,650 $ 2,308 $ 2,354 $ 3,226 $ 4,420
(2) Excludes residential mortgage loans held for sale.
- ---------------------------------------------------------------------------------------------------------------------
The loan review process also identified loans that possess more than the normal
amount of risk due to deterioration in the financial condition of the borrower
or the value of the collateral. Because the borrowers are still performing in
accordance with the original terms of the loan agreements, and no loss of
principal or interest is anticipated, these loans were not included in
Nonperforming Assets. Known information does, however, cause management concerns
as to the borrowers' ability to comply with current repayment terms. These
potential problem loans totaled $41 million at March
19
31, 2005 and $49 million at December 31, 2004. The current composition of
potential problem loans by primary industry included healthcare - $10 million,
manufacturing - $10 million, real estate - $6 million and energy - $5 million.
Deposits
Deposit accounts represent our primary 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 program, free checking and on-line Billpay services, an
extensive network of branch locations and ATMs and a 24-hour Express Bank call
center. Commercial deposit growth is supported by offering treasury management
and lockbox services.
Growth in average deposits slowed to a 2% annualized rate for the first quarter
of 2005 after increasing 7% during 2004. Core deposits, which we define as
deposits of less than $100,000, excluding public funds and brokered deposits,
decreased at an annualized rate of 5%. This was offset by an 11% annualized
increase in deposits with balances in excess of $100,000. Average core deposits
comprised 52% of total deposits for the first quarter of 2005, down from 54% for
the preceding quarter. Deposit accounts with balances in excess of $100,000
represented 37% of total deposits for the first quarter of 2005, compared with
36% of total deposits for both the fourth quarter and first quarter of 2004.
The distribution of deposit accounts among our principal markets is shown in
Table 18. Growth in deposits in Colorado showed the results of a targeted
campaign designed to increase penetration in that market.
20
- ---------------------------------------------------------------------------------------------------------------------
Table 18 - Deposits by Principal Market Area
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
---------------------------------------------------------------------------------
Oklahoma:
Demand $ 1,091,132 $ 1,095,228 $ 1,045,981 $ 1,069,823 $ 1,137,710
Interest-bearing:
Transaction 2,235,950 2,291,089 2,167,279 2,229,366 2,212,752
Savings 93,655 87,597 92,275 96,091 101,656
Time 2,511,465 2,505,849 2,543,292 2,615,179 2,439,732
---------------------------------------------------------------------------------
Total interest-bearing 4,841,070 4,884,535 4,802,846 4,940,636 4,754,140
---------------------------------------------------------------------------------
Total Oklahoma $ 5,932,202 $ 5,979,763 $ 5,848,827 $ 6,010,459 $ 5,891,850
---------------------------------------------------------------------------------
Texas:
Demand $ 628,043 $ 617,808 $ 587,181 $ 578,727 $ 562,089
Interest-bearing:
Transaction 1,111,808 1,119,893 1,118,960 1,124,279 1,087,918
Savings 30,695 30,331 32,244 34,370 34,734
Time 601,397 571,993 581,017 548,001 526,082
---------------------------------------------------------------------------------
Total interest-bearing 1,743,900 1,722,217 1,732,221 1,706,650 1,648,734
---------------------------------------------------------------------------------
Total Texas $ 2,371,943 $ 2,340,025 $ 2,319,402 $ 2,285,377 $ 2,210,823
---------------------------------------------------------------------------------
Albuquerque:
Demand $ 133,309 $ 136,599 $ 146,163 $ 135,648 $ 124,557
Interest-bearing:
Transaction 314,067 320,118 345,851 350,453 347,763
Savings 18,428 17,885 18,102 19,153 20,306
Time 434,131 411,939 385,139 353,650 329,063
---------------------------------------------------------------------------------
Total interest-bearing 766,626 749,942 749,092 723,256 697,132
---------------------------------------------------------------------------------
Total Albuquerque $ 899,935 $ 886,541 $ 895,255 $ 858,904 $ 821,689
---------------------------------------------------------------------------------
Northwest Arkansas:
Demand $ 14,922 $ 14,489 $ 15,242 $ 11,816 $ 12,402
Interest-bearing:
Transaction 23,555 26,882 24,462 21,929 24,003
Savings 1,405 1,434 1,302 1,191 1,545
Time 88,031 99,677 107,576 112,634 90,699
---------------------------------------------------------------------------------
Total interest-bearing 112,991 127,993 133,340 135,754 116,247
---------------------------------------------------------------------------------
Total Northwest Arkansas $ 127,913 $ 142,482 $ 148,582 $ 147,570 $ 128,649
---------------------------------------------------------------------------------
Colorado:
Demand $ 73,383 $ 62,995 $ 61,865 $ 81,478 $ 84,505
Interest-bearing:
Transaction 220,618 189,106 203,349 166,139 166,179
Savings 22,140 19,092 19,085 19,021 19,847
Time 86,406 54,394 43,076 41,361 42,032
---------------------------------------------------------------------------------
Total interest-bearing 329,164 262,592 265,510 226,521 228,058
---------------------------------------------------------------------------------
Total Colorado $ 402,547 $ 325,587 $ 327,375 $ 307,999 $ 312,563
---------------------------------------------------------------------------------
Total BOK Financial deposits $ 9,734,540 $ 9,674,398 $ 9,539,441 $ 9,610,309 $ 9,365,574
---------------------------------------------------------------------------------
21
Borrowings and Capital
Parent Company
BOK Financial (parent company) has a $125 million unsecured revolving line of
credit with certain banks that matures in December 2006. The outstanding
principal balance of this credit agreement was $95 million at March 31, 2005.
Interest is based on LIBOR plus a defined margin that is determined by the
principal balance outstanding and our credit rating or a base rate. The base
rate is defined as the greater of the daily federal funds rate plus 0.5% or the
prime rate. This credit agreement includes certain restrictive covenants that
limit our ability to borrow additional funds and to pay cash dividends on our
common stock. These covenants also require BOK Financial and subsidiary banks to
maintain minimum capital levels and to exceed minimum net worth ratios. BOK
Financial met all of the restrictive covenants at March 31, 2005.
The primary source of liquidity for BOK Financial is dividends from subsidiary
banks, which are limited by various banking regulations to net profits, as
defined, for the preceding two years. Dividends are further restricted by
minimum capital requirements. Based on the most restrictive limitations, the
subsidiary banks could declare up to $159 million of dividends without
regulatory approval. Management has developed and the Board of Directors has
approved an internal capital policy that is more restrictive than the regulatory
capital standards. The subsidiary banks could declare dividends of up to $111
million under this policy.
Equity capital for BOK Financial increased $17 million to $1.4 billion at March
31, 2005. Net income provided $52 million to this increase, partially offset by
a $39 million increase in net unrealized losses on available for sale
securities. The remaining increase in capital during the first quarter of 2005
resulted primarily from activity in employee stock options.
Capital is managed to maximize long-term value to the shareholders. Factors
considered in managing capital include projections of future earnings, asset
growth, acquisition strategies, and regulatory and debt covenant requirements.
Capital management may include subordinated debt issuance, share repurchase and
stock and cash dividends. On April 26, 2005, the Board of Directors authorized a
share repurchase program, which replaced a previously authorized program. The
maximum of two million common shares may be repurchased. The specific timing and
amount of shares repurchased will vary based on market conditions, securities
law limitations and other factors. Repurchases may be made over time in open
market or privately negotiated transactions. The repurchase programs may be
suspended or discontinued at any time without prior notice.
On April 26, 2005, the Board of Directors approved quarterly cash dividend of
$0.10 per common share. The dividend will be payable on May 31, 2005 to
shareholders of record on May 13, 2005. This cash dividend replaced the annual
dividend historically paid in shares of common stock. We have been advised that
holders of the Company's convertible preferred stock will exercise their
conversion rights on or before May 13, 2005. An additional 6,920,666 common
shares will be issued, including 6,907,280 common shares to our principal
shareholder.
BOK Financial and subsidiary banks are subject to various capital requirements
administered by federal agencies. Failure to meet minimum capital requirements
can result in certain mandatory and possibly additional discretionary actions by
regulators that could have 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. The capital ratios for BOK Financial are presented
in Table 19. At March 31, 2005, BOK Financial and each of its banking
subsidiaries exceeded the regulatory definition of well-capitalized.
- --------------------------------------------------------------------------------------------------------------------
Table 19 - Capital Ratios
March 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2004 2004 2004 2004
--------------------------------------------------------------------------
Average shareholders' equity
to average assets 9.70% 9.38% 9.20% 9.19% 9.23%
Risk-based capital:
Tier 1 capital 10.19 10.02 9.82 9.82 9.43
Total capital 11.78 11.67 11.56 11.93 11.58
Leverage 8.36 7.94 7.81 7.52 7.35
22
Off-Balance Sheet Arrangements
During 2002, BOK Financial issued shares of common stock and options to purchase
additional shares with a fair value of $65 million for its purchase of Bank of
Tanglewood. In addition, BOK Financial agreed to a limited price guarantee on a
portion of the shares issued in this purchase. Pursuant to this guarantee, any
holder of BOK Financial common shares issued in this acquisition may annually
make a claim for the excess of the guaranteed price and the actual sales price
of any shares sold during a 60-day period after each of the first five
anniversary dates after October 25, 2002. The maximum annual number of shares
subject to this guarantee is 210,069. BOK Financial may elect, in its sole
discretion, to issue additional shares of common stock or to pay cash to satisfy
any obligation under the price guaranty.
We will have no obligation to issue additional common shares or pay cash to
satisfy any benchmark price protection obligation if the market value per share
of BOK Financial common stock remains above the highest benchmark price of
$42.53. Based on the closing price of BOK Financial common stock on March 31,
2005 of $40.68 per share, the maximum obligation under this agreement would be
to issue 9,549 additional shares or to pay $388 thousand.
Market Risk
Market risk is a broad term for the risk of economic loss due to adverse changes
in the fair value of a financial instrument. These changes may be the result of
various factors, including interest rates, foreign exchange prices, commodity
prices or equity prices. Financial instruments that are subject to market risk
can be classified either as held for trading or held for purposes other than
trading.
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 derivative
contracts, which are affected by changes in commodity prices, are matched
against offsetting contracts as previously discussed.
Responsibility for managing market risk rests with the Asset / Liability
Committee that operates under policy guidelines established by the Board of
Directors. The acceptable negative variation in net interest revenue, net income
or economic value of equity due to a specified basis point increase or decrease
in interest rates is generally limited by these guidelines to +/- 10%. These
guidelines also set maximum levels for short-term borrowings, short-term assets,
public funds, and brokered deposits, and establish minimum levels for unpledged
assets, among other things. Compliance with these guidelines is reviewed
monthly.
Interest Rate Risk - Other than Trading
BOK Financial has a large portion of its earning assets in variable rate loans
and a large portion of its liabilities in demand deposit accounts and interest
bearing transaction accounts. Changes in interest rates affect earning assets
more rapidly than interest bearing liabilities in the short term. Management has
adopted several strategies to reduce this interest rate sensitivity. As
previously noted in the Net Interest Revenue section of this report, management
acquires securities that are funded by borrowings in the capital markets. These
securities have an expected average duration of 3.2 years while the related
funds borrowed have an average duration of 90 days.
BOK Financial also uses interest rate swaps in managing its interest rate
sensitivity. These products are generally used to more closely match interest on
certain fixed-rate loans with funding sources and long-term certificates of
deposit with earning assets. During the first quarters of 2005 and 2004, net
interest revenue increased $366 thousand and $2.5 million, respectively, from
periodic settlements of these contracts. These contracts are carried on the
balance sheet at fair value and changes in fair value are reported in income as
derivatives gains or losses. A net gain of $495 thousand was recognized in 2005
compared to a net loss of $995 thousand in 2004 from adjustments of these swaps
and hedged liabilities to fair value. Credit risk from these swaps is closely
monitored as part of our overall process of managing credit exposure to other
financial institutions.
23
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 twelve months based on eight interest
rate scenarios. Three specified interest rate scenarios are used to evaluate
interest rate risk against policy guidelines. These are a "most likely" rate
scenario and two "shock test" scenarios, first assuming a sustained parallel 200
basis point increase and second assuming a sustained parallel 100 basis point
decrease in interest rates. Management historically evaluated interest rate
sensitivity for a sustained 200 basis point decrease in rates. However, these
results are not meaningful in the current low-rate environment. An independent
source is used to determine the most likely interest rate scenario.
Our primary interest rate exposures included the Federal Funds rate, which
affects short-term borrowings, and the prime lending rate and LIBOR, which are
the basis for much of the variable-rate loan pricing. Additionally, mortgage
rates directly affect the prepayment speeds for mortgage-backed securities and
mortgage servicing rights. Derivative financial instruments and other financial
instruments used for purposes other than trading are included in this
simulation. The model incorporates assumptions regarding the effects of changes
in interest rates and account balances on indeterminable maturity deposits based
on a combination of historical analysis and expected behavior. The impact of
planned growth and new business activities is factored into the simulation
model. The effects of changes in interest rates on the value of mortgage
servicing rights are excluded from Table 20 due to the extreme volatility over
such a large rate range. The effects of interest rate changes on the value of
mortgage servicing rights and securities identified as economic hedges are
presented in the Lines of Business - Mortgage Banking section of this report.
The simulations used to manage market risk are based on numerous assumptions
regarding the effects of changes in interest rates on the timing and extent of
repricing 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 20 - Interest Rate Sensitivity
(Dollars in Thousands)
Increase Decrease
-------------------------- --------------------------- -------------------------
200 bp 100 bp Most Likely
-------------------------- --------------------------- -------------------------
2005 2004 2005 2004 2005 2004
------------- ------------ ------------ -------------- ------------ ------------
Anticipated impact over the
next twelve months on
net interest revenue $ 7,242 $ 10,538 $ (4,363) $ (6,630) $ 7,270 $ 4,088
1.6% 2.5% (1.0)% (1.6)% 1.6% 1.0%
- -----------------------------------------------------------------------------------------------------------------------
24
Trading Activities
BOK Financial enters into trading activities both as an intermediary for
customers and for its own account. As an intermediary, BOK Financial will take
positions in securities, generally mortgage-backed securities, government agency
securities, and municipal bonds. These securities are purchased for resale to
customers, which include individuals, corporations, foundations and financial
institutions. BOK Financial will also take trading positions in U.S. Treasury
securities, mortgage-backed securities, municipal bonds and financial futures
for its own account. These positions are taken with the objective of generating
trading profits. Both of these activities involve interest rate risk.
A variety of methods are used to manage the interest rate risk of trading
activities. These methods include daily marking of all positions to market
value, independent verification of inventory pricing, and position limits for
each trading activity. Hedges in either the futures or cash markets may be used
to reduce the risk associated with some trading programs. The Risk Management
Department monitors trading activity daily and reports to senior management and
the Risk Oversight and Audit Committee of the BOK Financial Board of Directors
any exceptions to trading position limits and risk management policy exceptions.
Management uses a Value at Risk ("VAR") methodology to measure the market risk
inherent in its trading activities. VAR is calculated based upon historical
simulations over the past five years using a variance / covariance matrix of
interest rate changes. It represents an amount of market loss that is likely to
be exceeded only one out of every 100 two-week periods. Trading positions are
managed within guidelines approved by the Board of Directors. These guidelines
limit the VAR to $1.6 million. At March 31, 2005, the VAR was $455 thousand. The
greatest value at risk during the quarter was $814 thousand.
Controls and Procedures
As required by Rule 13a-15(b), BOK Financial's management, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation as of the
end of the period covered by their report, of the effectiveness of the company's
disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures were effective as
of the end of the period covered by this report. As required by Rule 13a-15(d),
BOK Financial's management, including the Chief Executive Officer and Chief
Financial Officer, also conducted an evaluation of the company's internal
controls over financial reporting to determine whether any changes occurred
during the quarter covered by this report that have materially affected, or are
reasonably likely to materially affect, the company's internal controls over
financial reporting. Based on that evaluation, there has been no such change
during the quarter covered by this report.
Forward-Looking Statements
This report contains forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates, and projections about BOK
Financial, the financial services industry and the economy in general. Words
such as "anticipates," "believes," "estimates," "expects," "forecasts," "plans,"
"projects," variations of such words and similar expressions are intended to
identify such forward-looking statements. Management judgments relating to and
discussion of the provision and reserve for loan losses and valuation of
mortgage servicing rights involve judgments as to expected events and are
inherently forward-looking statements. Assessments that BOK Financial's
acquisitions and other growth endeavors will be profitable are necessary
statements of belief as to the outcome of future events, based in part on
information provided by others that BOK Financial has not independently
verified. These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions that are difficult to predict with
regard to timing, extent, likelihood and degree of occurrence. Therefore, actual
results and outcomes may materially differ from what is expressed, implied, or
forecasted in such forward-looking statements. Internal and external factors
that might cause such a difference include, but are not limited to: (1) the
ability to fully realize expected cost savings from mergers within the expected
time frames, (2) the ability of other companies on which BOK Financial relies to
provide goods and services in a timely and accurate manner, (3) changes in
interest rates and interest rate relationships, (4) demand for products and
services, (5) the degree of competition by traditional and nontraditional
competitors, (6) changes in banking regulations, tax laws, prices, levies, and
assessments, (7) the impact of technological advances and (8) trends in customer
behavior as well as their ability to repay loans. BOK Financial and its
affiliates undertake no obligation to update, amend, or clarify forward-looking
statements, whether as a result of new information, future events or otherwise.
25
- ------------------------------------------------------------------------------------------
Consolidated Statements of Earnings (Unaudited)
(In Thousands Except Share and Per Share Data)
Three Months Ended
March 31,
2005 2004
---------------------------
Interest Revenue
Loans $ 118,810 $ 96,826
Taxable securities 49,356 47,516
Tax-exempt securities 1,793 1,820
- ------------------------------------------------------------------------------------------
Total securities 51,149 49,336
- ------------------------------------------------------------------------------------------
Trading securities 181 136
Funds sold and resell agreements 164 39
- ------------------------------------------------------------------------------------------
Total interest revenue 170,304 146,337
- ------------------------------------------------------------------------------------------
Interest Expense
Deposits 43,614 32,817
Borrowed funds 16,869 7,977
Subordinated debenture 2,227 2,336
- ------------------------------------------------------------------------------------------
Total interest expense 62,710 43,130
- ------------------------------------------------------------------------------------------
Net Interest Revenue 107,594 103,207
Provision for Credit Losses 2,000 7,027
- ------------------------------------------------------------------------------------------
Net Interest Revenue After Provision for Credit Losses 105,594 96,180
- ------------------------------------------------------------------------------------------
Other Operating Revenue
Brokerage and trading revenue 11,336 10,011
Transaction card revenue 16,543 14,724
Trust fees and commissions 16,016 13,709
Service charges and fees on deposit accounts 22,173 22,155
Mortgage banking revenue 5,578 7,744
Leasing revenue 673 887
Other revenue 6,724 6,624
- ------------------------------------------------------------------------------------------
Total fees and commissions 79,043 75,854
- ------------------------------------------------------------------------------------------
Gain on sale of assets 972 684
Gain (loss) on securities, net (2,637) 4,277
Gain (loss) on derivatives, net 778 (995)
- ------------------------------------------------------------------------------------------
Total other operating revenue 78,156 79,820
- ------------------------------------------------------------------------------------------
Other Operating Expense
Personnel 58,439 58,209
Business promotion 4,430 3,350
Contribution of stock to BOK Charitable Foundation - 4,125
Professional fees and services 3,619 3,899
Net occupancy and equipment 12,094 11,851
Data processing and communications 15,099 14,641
Printing, postage and supplies 3,615 3,317
Amortization of intangible assets 1,537 2,138
Mortgage banking costs 3,613 5,843
Provision (recovery) for impairment of mortgage
servicing rights (5,624) 3,703
Other expense 5,337 5,372
- ------------------------------------------------------------------------------------------
Total other operating expense 102,159 116,448
- ------------------------------------------------------------------------------------------
Income Before Taxes 81,591 59,552
Federal and state income tax 29,536 20,400
- ------------------------------------------------------------------------------------------
Net Income $ 52,055 $ 39,152
- ------------------------------------------------------------------------------------------
Earnings Per Share:
- ------------------------------------------------------------------------------------------
Basic $ 0.87 $ 0.66
- ------------------------------------------------------------------------------------------
Diluted $ 0.78 $ 0.59
- ------------------------------------------------------------------------------------------
Average Shares Used in Computation:
- ------------------------------------------------------------------------------------------
Basic 59,432,812 59,051,210
- ------------------------------------------------------------------------------------------
Diluted 66,946,765 66,671,947
- ------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
26
- --------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
(In Thousands Except Share Data)
March 31, December 31, March 31,
2005 2004 2004
--------------------------------------------------
(Unaudited) (Unaudited)
Assets
Cash and due from banks $ 505,412 $ 503,715 $ 554,511
Funds sold and resell agreements 14,861 27,376 12,800
Trading securities 13,381 9,692 18,155
Securities:
Available for sale 3,890,031 4,080,696 4,144,251
Available for sale securities pledged to creditors 689,949 512,494 532,897
Investment (fair value: March 31, 2005 - $221,906;
December 31, 2004 - $222,636;
March 31, 2004 - $202,166) 224,425 221,094 198,679
- --------------------------------------------------------------------------------------------------------------------
Total securities 4,804,405 4,814,284 4,875,827
- --------------------------------------------------------------------------------------------------------------------
Loans 8,085,966 7,928,967 7,500,576
Less reserve for loan losses (108,958) (108,618) (114,988)
- --------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 7,977,008 7,820,349 7,385,588
- --------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 172,118 172,643 173,079
Accrued revenue receivable 78,577 79,644 69,619
Intangible assets, net 241,057 242,594 248,660
Mortgage servicing rights, net 50,105 45,678 42,352
Real estate and other repossessed assets 3,187 3,763 5,954
Bankers' acceptances 23,513 31,799 23,117
Receivable on unsettled security transactions 50,115 56,873 -
Derivative contracts 720,087 380,051 230,464
Other assets 336,080 206,953 134,836
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 14,989,906 $ 14,395,414 $ 13,774,962
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Noninterest-bearing demand deposits $ 1,940,789 $ 1,927,119 $ 1,921,263
Interest-bearing deposits:
Transaction 3,905,998 3,947,088 3,838,615
Savings 166,323 156,339 178,088
Time 3,721,430 3,643,852 3,427,608
- --------------------------------------------------------------------------------------------------------------------
Total deposits 9,734,540 9,674,398 9,365,574
- --------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase agreements 1,881,559 1,555,507 1,480,246
Other borrowings 873,217 1,015,000 1,012,745
Subordinated debenture 149,117 151,594 154,027
Accrued interest, taxes and expense 76,904 71,062 69,415
Bankers' acceptances 23,513 31,799 23,117
Due on unsettled security transactions - - 39,100
Derivative contracts 735,397 387,292 231,803
Other liabilities 100,455 110,268 103,064
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 13,574,702 12,996,920 12,479,091
- --------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock 12 12 12
Common stock ($.00006 par value; 2,500,000,000
shares authorized; shares issued and outstanding:
March 31, 2005 - 60,544,085; December 31, 2004
- 60,420,811; March 31, 2004 - 58,271,808) 4 4 4
Capital surplus 638,679 631,747 550,585
Retained earnings 860,941 809,261 736,829
Treasury stock (shares at cost: March 31, 2005 - 1,056,048;
December 31, 2004 - 998,393; March 31, 2004 - 882,060) (33,443) (30,905) (26,955)
Accumulated other comprehensive income (loss) (50,989) (11,625) 35,396
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,415,204 1,398,494 1,295,871
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 14,989,906 $ 14,395,414 $ 13,774,962
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
27
- -----------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Changes in
Shareholders' Equity (Unaudited)
(In Thousands)
Accumulated
Preferred Stock Common Stock Other Treasury Stock
------------------------------------ Comprehensive Capital Retained --------------------
Shares Amount Shares Amount Income (Loss) Surplus Earnings Shares Amount Total
------------------------------------------------------------------------------------------------------
Balances at
December 31, 2003 250,000 $ 12 58,056 $ 4 $ 8,459 $ 546,594 $698,052 849 $(24,491) $1,228,630
Comprehensive income:
Net income - - - - - - 39,152 - - 39,152
Other comprehensive
income, net of tax (1) - - - - 26,937 - - - - 26,937
----------
Comprehensive income 66,089
Exercise of stock options - - 216 - - 4,587 - 33 (2,464) 2,123
Tax benefit on exercise of
stock options - - - - - 920 - - - 920
Stock-based compensation - - - - - (1,516) - - - (1,516)
Cash dividends on
preferred stock - - - - - - (375) - - (375)
- -----------------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 2004 250,000 $ 12 58,272 $ 4 $ 35,396 $ 550,585 $736,829 882 $(26,955) $1,295,871
- -----------------------------------------------------------------------------------------------------------------------------
Balances at
December 31, 2004 249,975 $ 12 60,421 $ 4 $(11,625) $ 631,747 $809,261 998 $(30,905) $1,398,494
Comprehensive income:
Net income - - - - - - 52,055 - - 52,055
Other comprehensive
income, net of tax (1) - - - - (39,364) - - - - (39,364)
----------
Comprehensive income 12,691
Treasury stock purchase - - - - - - - 30 (1,189) (1,189)
Exercise of stock options - - 123 - - 3,361 - 28 (1,349) 2,012
Tax benefit on exercise of
stock options - - - - - 418 - - - 418
Stock-based compensation - - - - - 3,153 - - - 3,153
Cash dividends on
preferred stock - - - - - - (375) - - (375)
- -----------------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 2005 249,975 $ 12 60,544 $ 4 $(50,989) $ 638,679 $860,941 1,056 $(33,443) $1,415,204
- -----------------------------------------------------------------------------------------------------------------------------
(1) March 31, 2005 March 31, 2004
-------------- --------------
Changes in other comprehensive income:
Unrealized gains (losses) on securities $ (63,729) $ 46,935
Unrealized losses on cash flow hedges (607) -
Tax benefit (expense) on unrealized gains (losses) 23,290 (17,385)
Reclassification adjustment for (gains) losses
realized and included in net income 2,637 (4,277)
Reclassification adjustment for tax expense
(benefit) on realized (gains) losses (955) 1,664
----------------------------------
Net change in other comprehensive income (loss) $ (39,364) $ 26,937
----------------------------------
See accompanying notes to consolidated financial statements.
28
- --------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Three Months Ended
March 31,
--------------------------------------
2005 2004
--------------------------------------
Cash Flows From Operating Activities:
Net income $ 52,055 $ 39,152
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 2,000 7,027
Provision (recovery) for mortgage servicing rights impairment (5,624) 3,703
Unrealized losses from derivatives 5,768 974
Stock-based compensation (1,508) 2,640
Tax benefit on exercise of stock options 418 920
Depreciation and amortization 10,986 13,296
Net (accretion) amortization of securities discounts and premiums (2,001) (678)
Net (gain) loss on sale of assets 271 (9,440)
Mortgage loans originated for resale (117,377) (159,289)
Proceeds from sale of mortgage loans held for resale 116,153 160,585
Change in trading securities (3,689) (10,332)
Change in accrued revenue receivable 1,067 5,361
Change in other assets (12,750) 23,088
Change in accrued interest, taxes and expense 5,842 (15,994)
Change in other liabilities 20,470 (22,671)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 72,081 38,342
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of investment securities 7,497 11,577
Proceeds from maturities of available for sale securities 274,197 212,174
Purchases of investment securities (10,888) (22,361)
Purchases of available for sale securities (658,088) (1,555,592)
Proceeds from sales of available for sale securities 330,648 1,230,805
Loans originated or acquired net of principal collected (232,738) (74,760)
Proceeds from (payments on) derivative asset contracts 2,183 (27,527)
Net change in other investment assets 1,294 5,132
Proceeds from disposition of assets 78,086 56,308
Purchases of assets (7,608) (6,714)
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (215,417) (170,958)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net change in demand deposits, transaction deposits and savings accounts (17,436) 92,829
Net change in time deposits 83,624 52,882
Net change in other borrowings 184,269 (133,327)
Proceeds from (payments on) derivative liability contracts (5,928) 27,666
Net change in derivative margin accounts (119,217) (16,624)
Change in amount receivable (due) on unsettled security transactions 6,758 30,841
Issuance of preferred, common and treasury stock, net 2,012 2,123
Repurchase of common stock (1,189) -
Dividends paid (375) (375)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 132,518 56,015
- --------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (10,818) (76,601)
Cash and cash equivalents at beginning of period 531,091 643,912
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 520,273 $ 567,311
- --------------------------------------------------------------------------------------------------------------------
Cash paid for interest $ 63,545 $ 47,069
- --------------------------------------------------------------------------------------------------------------------
Cash paid for taxes $ 4,620 $ 7,128
- --------------------------------------------------------------------------------------------------------------------
Net loans transferred to repossessed real estate
and other assets $ 1,589 $ 1,208
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
29
Notes to Consolidated Financial Statements (Unaudited)
(1) Accounting Policies
Basis of Presentation
The unaudited consolidated financial statements of BOK Financial Corporation
("BOK Financial") have been prepared in accordance with accounting principles
for interim financial information generally accepted in the United States and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The unaudited consolidated financial statements include the accounts of BOK
Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its
subsidiaries ("BOk"), Bank of Texas, N.A., Bank of Arkansas, N.A., Bank of
Albuquerque, N.A., Colorado State Bank and Trust, N.A., and BOSC, Inc. Certain
prior period amounts have been reclassified to conform to current period
classifications.
The financial information should be read in conjunction with BOK Financial's
2004 Form 10-K filed with the Securities and Exchange Commission, which contains
audited financial statements.
(2) Acquisitions
BOK Financial acquired all of the outstanding common stock of Valley Commerce
Bancorp, Ltd. ("VCB") for $32.0 million in cash effective April 6, 2005. VCB and
its wholly-owned subsidiary, Valley Commerce Bank, had total assets of $143
million, including loans of $93 million, total deposits of $110 million, and
total shareholders' equity of $12.7 million. VCB will initially be included in
the consolidated financial statements of BOK Financial in the second quarter of
2005.
(3) Derivatives
The fair values of derivative contracts at March 31, 2005 were (in thousands):
Assets Liabilities
------------------------------
Customer Risk Management Programs:
Interest rate contracts $4,736 $6,423
Energy contracts 704,977 705,685
Cattle contracts 661 128
Foreign exchange contracts 9,634 9,635
- ----------------------------------------------------------------------------
Total Customer Derivatives 720,008 721,871
Interest Rate Risk Management Programs:
Interest rate risk management - 13,526
Mortgage servicing rights 79 -
- ----------------------------------------------------------------------------
Total Derivative Contracts $ 720,087 $735,397
- ----------------------------------------------------------------------------
30
(4) Mortgage Banking Activities
At March 31, 2005, BOK Financial owned the rights to service 55,281 mortgage
loans with outstanding principal balances of $4.5 billion, including $684
million serviced for affiliates. The weighted average interest rate and
remaining term was 6.23% and 270 months, respectively.
Activity in capitalized mortgage servicing rights and related valuation
allowance during the three months ending March 31, 2005 is as follows (in
thousands):
Capitalized Mortgage Servicing Rights
---------------------------------------------------------------------------
Valuation
Purchased Originated Total Allowance Net
---------------------------------------------------------------------------
Balance at
December 31, 2004 $ 11,394 $ 48,056 $ 59,450 $ (13,772) $ 45,678
Additions, net - 1,981 1,981 - 1,981
Amortization expense (795) (2,383) (3,178) - (3,178)
Recovery of impairment - - - 5,624 5,624
- ----------------------------------------------------------------------------------------------------------
Balance at March 31, 2005 $ 10,599 $ 47,654 $ 58,253 $ (8,148) $ 50,105
- ----------------------------------------------------------------------------------------------------------
Estimated fair value of
mortgage servicing rights (1) $ 9,772 $ 40,988 $ 50,760 - $ 50,760
- ----------------------------------------------------------------------------------------------------------
(1) Excludes approximately $1.1 million of loan servicing rights on mortgage
loans originated prior to the adoption of FAS 122.
Stratification of the mortgage loan servicing portfolio and outstanding
principal of loans serviced by interest rate at March 31, 2005 follows (in
thousands):
< 5.51% 5.51% - 6.50% 6.51% - 7.50% => 7.50% Total
Cost less accumulated amortization $ 14,017 $ 23,343 $ 15,969 $ 4,924 $ 58,253
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Fair value $ 13,242 $ 20,098 $ 13,026 $ 4,394 $ 50,760
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Impairment (2) $ 968 $ 3,246 $ 2,946 $ 988 $ 8,148
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Outstanding principal of loans serviced (1) $ 957,600 $1,432,600 $ 963,800 $335,800 $3,689,800
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
(1) Excludes outstanding principal of $684 million for loans serviced for affiliates and $80 million of mortgage
loans for which there are no capitalized mortgage servicing rights.
(2) Impairment is determined by both an interest rate and loan type stratification.
(5) Disposal of Available for Sale Securities
Sales of available for sale securities resulted in gains and losses as follows
(in thousands):
Three Months Ended March 31,
----------------------------------
2005 2004
-------------- ---------------
Proceeds $ 330,648 $ 1,230,805
Gross realized gains 535 6,484
Gross realized losses 3,172 2,207
Related federal and state income
tax expense (benefit) (955) 1,664
31
(6) Employee Benefits
BOK Financial sponsors a defined benefit Pension Plan for all employees who
satisfy certain age and service requirements. The following table presents
components of net periodic pension cost (dollars in thousands):
Three Months Ended March 31,
----------------------------------
2005 2004
----------------------------------
Service cost $ 1,744 $ 1,677
Interest cost 632 579
Expected return on plan assets (1,053) (902)
Amortization of prior service cost 15 15
Amortization of net loss 274 265
- ---------------------------------------------------------------------------
Net periodic pension cost $ 1,612 $ 1,634
- ---------------------------------------------------------------------------
During the first quarter of 2005, the Company made no Pension Plan
contributions.
Management has been advised that no minimum contribution will be required for
2005. The maximum allowable contribution is expected to be approximately $8.5
million.
(7) Shareholders' Equity
On April 26, 2005, the Board of Directors of BOK Financial Corporation approved
a $0.10 per share quarterly common stock dividend. The quarterly dividend will
be payable on May 31, 2005 to shareholders of record on May 13, 2005. On April
26, 2005, the Board of Directors also approved a new stock repurchase plan
authorizing the Company to repurchase up to two million shares of the Company's
common stock.
(8) Earnings Per Share
The following table presents the computation of basic and diluted earnings per
share (dollars in thousands, except share data):
Three Months Ended
---------------------------
March 31, March 31,
2005 2004 (2)
---------------------------
Numerator:
Net income $ 52,055 $ 39,152
Preferred stock dividends (375) (375)
- -------------------------------------------------------------------------------------
Numerator for basic earnings per share - income
available to common shareholders 51,680 38,777
- -------------------------------------------------------------------------------------
Effect of dilutive securities:
Preferred stock dividends 375 375
- -------------------------------------------------------------------------------------
Numerator for diluted earnings per share - income available
to common shareholders after assumed conversion $ 52,055 $ 39,152
- -------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share - weighted
average shares 59,432,812 59,051,210
Effect of dilutive securities:
Employee stock compensation plans (1) 593,285 674,422
Convertible preferred stock 6,920,668 6,921,164
Tanglewood market value guarantee - 25,151
- -------------------------------------------------------------------------------------
Dilutive potential common shares 7,513,953 7,620,737
- -------------------------------------------------------------------------------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 66,946,765 66,671,947
- -------------------------------------------------------------------------------------
Basic earnings per share $ 0.87 $ 0.66
- -------------------------------------------------------------------------------------
Diluted earnings per share $ 0.78 $ 0.59
- -------------------------------------------------------------------------------------
(1) Excludes employee stock options with exercise
prices greater than current market price. 857,197 -
(2) Restated for 3% dividend paid in common shares in May 2004.
32
(9) Reportable Segments
Reportable segments reconciliation to the Consolidated Financial Statements for
the three months ended March 31, 2005 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
------------------------------------------------------------------------------
Total reportable segments $ 99,710 $ 80,538 $ 103,068 $ 44,642 $ 15,108,109
Unallocated items:
Tax-equivalent adjustment 1,256 - - 1,256 -
Funds management 8,886 (622) (893) 4,497 1,566,420
All others (including eliminations), net (2,258) 99 (16) 1,660 (2,121,615)
------------------------------------------------------------------------------
BOK Financial consolidated $ 107,594 $ 80,015 $ 102,159 $ 52,055 $ 14,552,914
==============================================================================
(1) Excluding financial instruments gains/(losses).
Reportable segments reconciliation to the Consolidated Financial Statements for
the three months ended March 31, 2004 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
-----------------------------------------------------------------------------
Total reportable segments $ 89,981 $ 77,113 $ 108,028 $ 34,421 $ 14,062,160
Unallocated items:
Tax-equivalent adjustment 1,197 - - 1,197 -
Funds management 15,021 (673) 3,059 4,293 1,446,193
All others (including eliminations), net (2,992) 98 5,361 (759) (1,961,501)
-----------------------------------------------------------------------------
BOK Financial consolidated $ 103,207 $ 76,538 $ 116,448 $ 39,152 $ 13,546,852
=============================================================================
(1) Excluding financial instruments gains/(losses).
(10) Contingent Liabilities
In the ordinary course of business, BOK Financial and its subsidiaries are
subject to legal actions and complaints. Management believes, based upon the
opinion of counsel, that the actions and liability or loss, if any, resulting
from the final outcomes of the proceedings, will not be material in the
aggregate.
33
(11) Financial Instruments with Off-Balance Sheet Risk
BOK Financial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to manage interest rate risk. Those financial instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in BOK
Financial's Consolidated Balance Sheets. Exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the notional
amount of those instruments.
As of March 31, 2005, outstanding commitments and letters of credit were as
follows (in thousands):
March 31,
2005
--------------
Commitments to extend credit $ 3,531,953
Standby letters of credit 612,590
Commercial letters of credit 11,821
Commitments to purchase securities 9,749
34
- ------------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Summary - Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Three Months Ended
-------------------------------------------------------------------------------------
March 31, 2005 December 31, 2004
------------------------------------------ -------------------------------------
Average Revenue/ Yield / Average Revenue/ Yield /
Balance Expense(1) Rate Balance Expense(1) Rate
-------------------------------------------------------------------------------------
Assets
Taxable securities (3) $ 4,628,233 $ 49,356 4.32% $ 4,709,193 $ 50,200 4.25%
Tax-exempt securities (3) 217,571 2,843 5.30 219,873 2,951 5.37
- ------------------------------------------------------------------------------------------------------------------------------
Total securities (3) 4,845,804 52,199 4.36 4,929,066 53,151 4.30
- ------------------------------------------------------------------------------------------------------------------------------
Trading securities 17,205 191 4.50 10,208 107 4.17
Funds sold and resell agreements 30,003 164 2.22 31,994 170 2.11
Loans (2) 7,963,177 119,006 6.06 7,873,974 111,292 5.62
Less reserve for loan losses 111,955 - - 114,106 - -
- ------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 7,851,222 119,006 6.15 7,759,868 111,292 5.71
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 12,744,234 171,560 5.46 12,731,136 164,720 5.15
- ------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 1,808,680 1,858,345
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 14,552,914 $ 14,589,481
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 3,920,844 $ 13,629 1.41% $ 3,841,742 $ 10,779 1.12%
Savings deposits 159,276 249 0.63 160,404 231 0.57
Time deposits 3,685,257 29,736 3.27 3,662,455 29,586 3.21
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,765,377 43,614 2.28 7,664,601 40,596 2.11
- ------------------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase
agreements 1,704,327 10,190 2.42 1,747,391 8,397 1.91
Other borrowings 971,616 6,679 2.79 1,005,679 5,703 2.26
Subordinated debenture 150,752 2,227 5.99 152,634 1,929 5.03
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 10,592,072 62,710 2.40 10,570,305 56,625 2.13
- ------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,895,989 1,938,205
Other liabilities 653,434 712,981
Shareholders' equity 1,411,419 1,367,990
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity$ 14,552,914 $ 14,589,481
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue (3) $ 108,850 3.06% $ 108,095 3.02%
Tax-Equivalent Net Interest Revenue
To Earning Assets (3) 3.46 3.38
Less tax-equivalent adjustment (1) 1,256 1,633
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 107,594 106,462
Provision for credit losses 2,000 4,439
Other operating revenue 78,156 78,714
Other operating expense 102,159 111,582
- ------------------------------------------------------------------------------------------------------------------------------
Income before taxes 81,591 69,155
Federal and state income tax 29,536 22,599
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 52,055 $ 46,556
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Per Average Common Share Equivalent:
Net income:
Basic $ 0.87 $ 0.78
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.78 $ 0.70
- ------------------------------------------------------------------------------------------------------------------------------
(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.
35
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------
September 30, 2004 June 30, 2004 March 31, 2004
- -------------------------------------------------------------------------------------------------------------------------
Average Revenue/ Yield / Average Revenue/ Yield / Average Revenue/ Yield /
Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate
- -------------------------------------------------------------------------------------------------------------------------
$ 4,652,435 $ 50,847 4.34% $ 4,667,360 $ 49,321 4.24% $ 4,594,690 $ 47,516 4.22%
215,190 2,951 5.46 200,380 2,884 5.79 193,808 2,886 5.99
- -------------------------------------------------------------------------------------------------------------------------
4,867,625 53,798 4.39 4,867,740 52,205 4.30 4,788,498 50,402 4.29
- -------------------------------------------------------------------------------------------------------------------------
14,956 77 2.05 23,513 219 3.75 15,499 226 5.86
23,334 91 1.55 16,284 53 1.31 7,995 39 1.96
7,656,588 104,181 5.41 7,548,257 96,445 5.14 7,494,713 96,867 5.20
115,504 - - 117,109 - - 117,644 - -
- -------------------------------------------------------------------------------------------------------------------------
7,541,084 104,181 5.50 7,431,148 96,445 5.22 7,377,069 96,867 5.28
- -------------------------------------------------------------------------------------------------------------------------
12,446,999 158,147 5.05 12,338,685 148,922 4.85 12,189,061 147,534 4.89
- -------------------------------------------------------------------------------------------------------------------------
1,630,890 1,529,841 1,357,791
- -------------------------------------------------------------------------------------------------------------------------
$ 14,077,889 $ 13,868,526 $ 13,546,852
- -------------------------------------------------------------------------------------------------------------------------
$ 3,931,166 $ 9,280 0.94% $ 3,859,706 $ 7,875 0.82% $ 3,819,981 $ 7,583 0.80%
169,398 266 0.62 173,566 235 0.54 174,958 243 0.56
3,712,161 27,667 2.97 3,565,324 25,697 2.90 3,395,785 24,991 2.96
- -------------------------------------------------------------------------------------------------------------------------
7,812,725 37,213 1.89 7,598,596 33,807 1.79 7,390,724 32,817 1.79
- -------------------------------------------------------------------------------------------------------------------------
1,458,245 5,048 1.38 1,565,922 3,731 0.96 1,675,722 3,964 0.95
1,003,050 4,615 1.83 1,009,871 3,376 1.34 1,010,414 4,013 1.60
152,333 1,766 4.61 152,799 1,730 4.55 154,175 2,336 6.09
- -------------------------------------------------------------------------------------------------------------------------
10,426,353 48,642 1.86 10,327,188 42,644 1.66 10,231,035 43,130 1.70
- -------------------------------------------------------------------------------------------------------------------------
1,839,311 1,799,249 1,643,638
516,715 466,981 421,311
1,295,510 1,275,108 1,250,868
- -------------------------------------------------------------------------------------------------------------------------
$ 14,077,889 $ 13,868,526 $ 13,546,852
- -------------------------------------------------------------------------------------------------------------------------
$ 109,505 3.19% $ 106,278 3.19% $ 104,404 3.19%
3.50 3.46 3.46
1,120 1,089 1,197
- -------------------------------------------------------------------------------------------------------------------------
108,385 105,189 103,207
4,986 3,987 7,027
81,086 69,270 79,820
114,202 98,992 116,448
- -------------------------------------------------------------------------------------------------------------------------
70,283 71,480 59,552
22,501 25,947 20,400
- -------------------------------------------------------------------------------------------------------------------------
$ 47,782 $ 45,533 $ 39,152
- -------------------------------------------------------------------------------------------------------------------------
$ 0.79 $ 0.76 $ 0.66
- -------------------------------------------------------------------------------------------------------------------------
$ 0.72 $ 0.68 $ 0.59
- -------------------------------------------------------------------------------------------------------------------------
36
PART II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 March 31, 2005.
- -----------------------------------------------------------------------------------------------------------------------------
Total Number Average Price Total Number of Shares Purchased Maximum Number of Shares
of Shares Paid per as Part of Publicly Announced that May Yet Be Purchased
Period Purchased (2) Share Plans or Programs (1) Under the Plans
- -----------------------------------------------------------------------------------------------------------------------------
January 1, 2005 to
January 31, 2005 21,951 $ 47.72 - 191,058
- -----------------------------------------------------------------------------------------------------------------------------
February 1, 2005 to - - - 191,058
February 28, 2005
- -----------------------------------------------------------------------------------------------------------------------------
March 1, 2005 to
March 31, 2005 35,704 $ 40.41 29,700 161,358
- -----------------------------------------------------------------------------------------------------------------------------
Total 57,655 29,700
- -----------------------------------------------------------------------------------------------------------------------------
(1) The Company had a stock repurchase plan that was initially authorized
by the Company's board of directors on February 24, 1998 and amended on
May 25, 1999. Under the terms of that plan, the Company could
repurchase up to 800,000 shares of its common stock. As of March 31,
2005, the Company had repurchased 638,642 shares under that plan. On
April 26, 2005, the Company's board of directors terminated this
authorization and replaced it with a new stock repurchase plan
authorizing the Company to repurchase up to two million shares of the
Company's common stock.
(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. Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 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
Items 1, 3, 4, and 5 are not applicable and have been omitted.
37
Signatures
Pursuant to the requirements 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
(Registrant)
Date: May 10, 2005 /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 Director
of Financial Accounting & Reporting