As filed with the Securities and Exchange Commission on August 9, 2005
==============================================================================
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 June 30, 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: 66,476,278 shares of
common stock ($.00006 par value) as of July 31, 2005.
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2
BOK Financial Corporation
Form 10-Q
Quarter Ended June 30, 2005
Index
Part I. Financial Information
Management's Discussion and Analysis (Item 2) 2
Market Risk (Item 3) 24
Controls and Procedures (Item 4) 26
Consolidated Financial Statements - Unaudited (Item 1) 27
Six Month Financial Summary - Unaudited (Item 2) 37
Quarterly Financial Summary - Unaudited (Item 2) 38
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
Item 6. Exhibits 40
Signatures 41
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Performance Summary
BOK Financial Corporation ("BOK Financial" or the "Company") reported net income
of $50.5 million, or $0.75 per diluted share for the second quarter of 2005,
compared with $45.5 million, or $0.68 per diluted share for the second quarter
of 2004. The annualized returns on average assets and shareholders' equity were
1.31% and 14.05%, respectively, for the second quarter of 2005, compared with
returns of 1.32% and 14.36%, respectively, for the same period in 2004. The
increase in net income was attributed primarily to growth in net interest
revenue and fees and commission revenue and a reduction in the provision for
credit losses. Revenue growth was partially offset by increased operating
expenses and lowered value of mortgage servicing rights. The Company also
recognized pre-tax gains of $5.9 million on sales of its interest in an office
building and a portfolio of residential mortgage loans.
Net interest revenue increased $7.3 million or 7% over the second quarter of
2004 due primarily to loan growth. Average outstanding loan balances for the
second quarter of 2005 increased $793 million or 11% compared with the same
period of 2004. Fees and commissions revenue increased $6.7 million or 8% due
primarily to trust fees. The provision for credit losses decreased $2.0 million
compared to the second quarter of the previous year due to continued strong
credit quality. Operating expenses, excluding the provision for impairment of
mortgage servicing rights increased $9.1 million or 8% due primarily to growth
in personnel costs. The value of mortgage servicing rights depreciated due to a
50 basis point decrease in mortgage commitment rates since the start of the
second quarter. The reduced value of servicing rights, net of gains or losses
recognized on financial instruments held as an economic hedge, resulted in a
$3.7 million decrease in pre-tax income for the second quarter of 2005 compared
with a $752 thousand increase for the same period of 2004.
The Company issued $150 million of 10-year subordinated debt through its lead
banking subsidiary, Bank of Oklahoma, and completed the acquisition of Valley
Commerce Bank in Phoenix, Arizona during the second quarter of 2005. Proceeds of
the subordinated debt provided additional capital to support future growth and
permitted repayment of short-term borrowings. Valley Commerce, which was
acquired for $32 million cash, added $93 million in loans and $110 million in
deposits. Effective August 12, 2005, Valley Commerce Bank will be renamed Bank
of Arizona, N.A.
Year-to-date net income for 2005 totaled $102.5 million or $1.53 per diluted
share compared with net income of $84.7 million or $1.27 per diluted share for
the first six months of 2004. The increase in net income was attributed
primarily to an $11.7 million increase in net interest revenue and a $9.8
million increase in fees and commission revenue, combined with a $7.0 million
reduction in the provision for credit losses.
3
Results of Operations
Net Interest Revenue
Tax-equivalent net interest revenue totaled $113.8 million for the second
quarter of 2005 compared with $106.3 million for 2004. The increase was due
primarily to a $886 million increase in average earning assets. The growth in
average earning assets included a $793 million, or 11%, increase in loans and a
$179 million increase in securities. Growth in average earning assets was funded
primarily by a $594 million increase in short-term borrowings and a $389 million
increase in deposits. Table 2 shows the effects on net interest revenue of
changes in average balances and interest rates for the various types of earning
assets and interest-bearing liabilities.
Net interest margin, the ratio of tax-equivalent net interest revenue to average
earning assets, was 3.45% for the second quarter of 2005, compared with 3.46%
for both the second quarter of 2004 and the first quarter of 2005. Net interest
margin for the first quarter of 2005 included a 4 basis point benefit from the
collection of foregone interest on a non-performing loan and fees related to a
large loan transaction. Yields on average earning assets continued to trend
upwards due to the effect of rising short-term interest rates. The yield on
average earning assets was 5.68%, up 83 basis points compared with the second
quarter of 2004 and 22 basis points over the first quarter of 2005. Average loan
yields were 6.40%, an increase of 126 basis points over the second quarter of
2004 and 34 basis points over the preceding quarter. The tax-equivalent yield on
securities was 4.36% for the second quarter of 2005, compared with 4.30% for the
second quarter of 2004 and 4.36% for the first quarter of 2005. Rates paid on
average interest-bearing liabilities during the second quarter of 2005 increased
92 basis points over the same period of 2004 and 18 basis points over the
preceding quarter. Increases in rates paid on deposit accounts continued to lag
behind the increases in loan yields. The cost of interest bearing deposits was
2.34% for the second quarter of 2005, up 55 basis points from the same period in
2004 and 6 basis points from the preceding quarter. The benefit provided by
non-interest bearing funding sources, primarily demand deposits, was 35 basis
points for the second quarter of 2005, compared with 27 basis points for the
second quarter of 2004 and 40 basis points for the first quarter of 2005, due
primarily to a decrease in average demand deposit account balances. The decrease
in demand deposit accounts included funds transferred to interest-bearing
transaction accounts during the second quarter of 2005.
The overall objective is to position the Company's balance sheet to be
essentially neutral to changes in interest rate. A large portion of the
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. Among the strategies
used to achieve a rate-neutral position, the Company purchases fixed-rate,
mortgage-backed securities and funds them with short-term borrowings. The
effective duration of these securities is expected to be approximately 2.8 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 the loan portfolio.
Short-term interest rates have increased more than long-term interest rates. The
yield curve resulting from these rate changes has flattened. Although the
Company's policy is to position the balance sheet to be essentially neutral to
rate changes, the flattened yield curve, along with competitive pressure on loan
and deposit pricing, may reduce the net interest margin.
Derivative instruments are also used to manage interest rate risk. Interest rate
swaps with a combined notional amount of $432 million convert fixed rate
liabilities to floating rate based on LIBOR. The purpose of these derivatives,
which generally have been designated as fair value hedges, is to reduce the
asset-sensitive nature of the balance sheet. Interest rate swaps with a notional
amount of $100 million convert prime-based loans to fixed rate. The purpose of
these derivatives, which have been designated as cash flow hedges, also is to
reduce the asset-sensitive nature of the 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. Changes in net interest revenue due to changes in interest rates,
pricing spreads and the timing of when assets and liabilities reprice are all
captured in the Yield/Rate column in Table 1.
4
- ---------------------------------------------------------------------------------------------------------------------
Table 1 - Volume / Rate Analysis
(In thousands)
Three Months Ended Six Months Ended
June 30, 2005 / 2004 June 30, 2005 / 2004
--------------------------------------------------------------------------
Change Due To (1) Change Due To (1)
--------------------------------------------------------------------------
Yield / Yield
Change Volume Rate Change Volume /Rate
--------------------------------------------------------------------------
Tax-equivalent interest revenue:
Securities $ 1,880 $ 1,187 $ 693 $ 3,677 $ 2,266 $ 1,411
Trading securities (54) (139) 85 (89) (122) 33
Loans 36,728 11,565 25,163 58,867 17,569 41,298
Funds sold and resell agreements 103 26 77 228 135 93
- ---------------------------------------------------------------------------------------------------------------------
Total 38,657 12,639 26,018 62,683 19,848 42,835
- ---------------------------------------------------------------------------------------------------------------------
Interest expense:
Transaction deposits 8,174 1,354 6,820 14,220 1,552 12,668
Savings deposits 50 (11) 61 56 (35) 91
Time deposits 5,802 1,180 4,622 10,547 3,302 7,245
Federal funds purchased and
repurchase agreements 12,033 2,891 9,142 18,259 2,823 15,436
Other borrowings 3,848 (522) 4,370 6,514 (760) 7,274
Subordinated debentures 1,250 622 628 1,141 613 528
- ---------------------------------------------------------------------------------------------------------------------
Total 31,157 5,514 25,643 50,737 7,495 43,242
- ---------------------------------------------------------------------------------------------------------------------
Tax-equivalent net interest revenue 7,500 7,125 375 11,946 12,353 (407)
Change in tax-equivalent adjustment (156) (215)
- ---------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 7,344 $ 11,731
- ---------------------------------------------------------------------------------------------------------------------
(1) Changes attributable to both volume and yield/rate are allocated to both
volume and yield/rate on an equal basis.
Other Operating Revenue
Other operating revenue increased $25.3 million compared with the second quarter
of 2004 due primarily to a $12.8 million increase in net gains or losses on
securities and derivatives and a $5.9 million increase in gains on asset sales.
Fees and commission revenue, which is included in other operating revenue,
increased $6.7 million or 8%. Diversified sources of fees and commission revenue
are a significant part of the Company's business strategy and represented 43% of
total revenue, excluding gains and losses on securities, derivatives and asset
sales, for both the second quarters of 2005 and 2004. The Company believes 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 and can directly or indirectly affect income.
Fees and commissions revenue
Trust fees increased $2.3 million or 17% for the second quarter of 2005. The
fair value of all trust relationships managed by the Company, which is the basis
for a significant portion of trust fees increased to $26.0 billion at June 30,
2005 compared with $22.9 billion at June 30, 2004.
Service charges on deposit accounts grew $1.4 million or 6% compared with the
second quarter of 2004. Overdraft fees grew 18% or $2.5 million. The volume of
overdraft items processed increased during the second quarter after declining in
the previous two quarters. Additionally, the per item overdraft charge was
increased during the second quarter of 2005. The increase in overdraft fees was
partially offset by a $1.1 million or 13% decrease in service charge revenue.
This decrease reflected an increase in earnings credit available to commercial
deposit customers. The earnings credit, which provides a non-cash method for
commercial customers to pay for deposit services, increases when interest rates
rise.
Transaction card revenue increased $1.2 million or 7% due to growth in check
card revenue. Continued growth in transaction volume provided the increase.
5
Other revenue for the second quarter of 2005 included $1.4 million from fees
earned on margin accounts. The Bank of Oklahoma is required to deposit margin
funds with other institutions as part of its derivatives and trading programs.
Margin deposits, which are included in other assets, averaged $204 million for
the second quarter of 2005 compared with $61 million for the second quarter of
2004.
Mortgage banking revenue, which is discussed more fully in the Line of Business
- - Mortgage Banking section of this report increased $995 thousand, or 13%
compared with the second quarter of 2004. Net gains on mortgage loans sold
increased $1.4 million. Servicing revenue decreased $413 thousand due to a
decrease in the average outstanding balance of loans serviced.
Brokerage and trading revenue decreased $762 thousand or 7%. Revenue from
securities trading activities decreased $3.2 million or 46% due to reduced
fixed-income securities trading volumes. This reduction was largely offset by
increases in customer hedging revenue and retail brokerage sales. Customer
hedging revenue increased $2.0 million. Volatility in the energy markets
prompted energy customers to more actively hedge their gas and oil production.
Revenue from retail sales of mutual funds, annuities and similar products
increased $446 thousand.
Securities and derivatives
BOK Financial recorded net gains of $2.0 million on securities and derivatives
for the second quarter of 2005. These amounts included net gains of $3.4 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 second quarter of 2004, BOK Financial
recognized net losses on securities and derivatives of $10.8 million, including
net losses of $10.1 million on securities held as economic hedges.
Gain on sales of assets
The Company realized net gains of $5.9 million during the second quarter of 2005
from sales of assets. A gain of $4.7 million resulted from the sale of its
interest in an Oklahoma City office building. A net gain of $1.2 million was
recognized from the sale of $118 million of loans from the residential mortgage
loan portfolio. In addition to a cash premium received on the sale, the Company
retained both the right to service the loans and a recourse obligation to the
purchaser in case of default by the borrowers.
Year-to-date operating revenue summary
Year to date other operating revenue for 2005 increased $23.7 million, or 16%.
This increase included a $9.9 million increase in fees and commission revenue
and a $13.8 million increase in net gains on securities, derivatives and asset
sales. The increase in fees and commission revenue was due primarily from growth
in trust fees and transaction card revenue and reflected the growth in trust
assets managed by the Company and card processing volumes.
6
- --------------------------------------------------------------------------------------------------------------------------
Table 2 - Other Operating Revenue
(In thousands)
Three Months Ended
-------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
-------------------------------------------------------------------------------
Brokerage and trading revenue $ 10,404 $ 11,336 $ 9,721 $ 10,209 $ 11,166
Transaction card revenue 17,979 16,543 16,598 16,677 16,817
Trust fees and commissions 16,259 16,016 14,793 15,091 13,939
Service charges and fees
on deposit accounts 25,347 22,173 23,337 24,292 23,928
Mortgage banking revenue 8,550 5,578 6,284 6,606 7,555
Leasing revenue 669 673 648 723 860
Other revenue 7,491 6,724 6,450 5,243 5,774
- --------------------------------------------------------------------------------------------------------------------------
Total fees and commissions 86,699 79,043 77,831 78,841 80,039
- --------------------------------------------------------------------------------------------------------------------------
Gain on sales of assets 5,937 972 90 78 35
Gain (loss) on securities, net 2,266 (2,637) 967 2,673 (11,005)
Gain (loss) on derivatives, net (311) 778 (174) (506) 201
- --------------------------------------------------------------------------------------------------------------------------
Total other operating revenue $ 94,591 $ 78,156 $ 78,714 $ 81,086 $ 69,270
- --------------------------------------------------------------------------------------------------------------------------
Other Operating Expense
Other operating expense for the second quarter of 2005 totaled $126.0 million,
up $27.0 million, or 27% from the same period of 2004. This increase resulted
primarily from an $18.0 million increase in the provision for impairment of
mortgage servicing rights. Additionally, operating expenses for the second
quarter of 2005 included $1.6 million for Bank of Arizona, which was acquired on
April 7, 2005.
Personnel expense
Personnel expense totaled $65.3 million for the second quarter of 2005 compared
with $59.8 million for the second quarter of 2004. The increase in personnel
expense included $1.1 million from expansion into the Phoenix market. Regular
compensation expense totaled $41.0 million, a $4.7 million, or 13% increase over
2004. The increase in regular compensation expense was due to an 8% increase in
average regular compensation per full-time equivalent employee and a 5% increase
in average staffing.
Incentive compensation decreased $1.1 million, or 8% to $12.9 million.
Stock-based compensation expense increased $1.7 million. Much of this expense is
related to stock-based compensation that is recognized as 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 increased during the quarter. Other incentive
compensation expenses decreased $3.1 million due to reductions in the Oklahoma
corporate banking and wealth management lines of business.
Employee benefit expenses increased $1.9 million, or 20% to $11.4 million.
Employee insurance costs increased $802 thousand, or 28% due primarily to growth
in medical claims. The Company self-insures a portion of its employee health
care coverage. The remaining increase in employee benefit expenses resulted
primarily from payroll taxes and retirement benefits.
Data processing and communications expense
Data processing and communication expenses increased $1.1 million, or 7%
compared to 2004. This expense consists of two broad categories, data processing
systems and transaction card processing. Transaction card processing costs
increased $485 thousand or 8% due to growth in processing volumes. Data
processing systems costs increased $626 thousand, or 7% due primarily to higher
software amortization and maintenance costs.
7
Other expenses
Other expenses for the second quarter of 2005 totaled $7.4 million, a $1.8
million increase over the same period of 2004. Recruiting expenses increased
$1.2 million as the Company continued expansion in regional markets, trust and
executive management.
Year-to-date operating expense summary
Operating expenses for the first half of 2005 totaled $228.2 million compared
with $215.4 million for the first half of 2004. Provision for impairment of
mortgage servicing rights increased $8.6 million due to changes in mortgage loan
commitment rates and related prepayment speeds. Operating expenses for the first
half of 2004 included a charge of $4.1 million for the cost of appreciated
securities contributed to the BOK Charitable Foundation. Personnel costs
increased $5.8 million, or 5%. This increase included $6.9 million, or 9% of
regular compensation expense and $3.7 million of employee benefit costs,
partially offset by a $4.8 million decrease in incentive compensation expense.
- ----------------------------------------------------------------------------------------------------------------------
Table 3 - Other Operating Expense
(In thousands)
Three Months Ended
----------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
----------------------------------------------------------------------------------
Personnel $ 65,333 $ 58,439 $ 62,118 $ 60,524 $ 59,810
Business promotion 3,870 4,430 4,766 3,671 3,831
Contribution of stock to BOK
Charitable Foundation - - 1,436 - -
Professional fees and services 4,492 3,619 3,936 3,658 3,994
Net occupancy and equipment 12,650 12,094 11,973 11,733 11,732
Data processing & communications 16,381 15,099 15,196 14,918 15,270
Printing, postage and supplies 3,629 3,615 3,817 3,770 3,130
Amortization of intangible assets 1,808 1,537 1,888 1,991 2,121
Mortgage banking costs 3,387 3,613 3,929 3,962 4,433
Provision (recovery) for impairment
of mortgage servicing rights 7,088 (5,624) (305) 5,900 (10,865)
Other expense 7,372 5,337 2,828 4,075 5,536
- ---------------------------------------------------------------------------------------------------------------------
Total other operating expense $ 126,010 $ 102,159 $ 111,582 $ 114,202 $ 98,992
- ---------------------------------------------------------------------------------------------------------------------
Income Taxes
Income tax expense was $28.6 million for the second quarter of 2005, compared
with $25.9 million for 2004. This represented 36% of book taxable income for
both quarters. Year to date, income tax expense was $58.2 million, or 36% of
book taxable income for 2005 and $46.3 million, or 35% for 2004. Income tax
expense for 2004 was reduced by $1.2 million from the contribution of
appreciated securities to the BOk Charitable Foundation.
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. It also provides fiduciary services in all markets
except Colorado. Fiduciary services, which were a core business of Colorado
State Bank and Trust, are included in regional banking. Regional banking consist
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.
8
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 of the accounts. The expected duration ranges
from 90 days for certain rate-sensitive deposits to five years.
Economic capital is assigned to the business units by a third-party developed
capital allocation model that reflects management's assessment of risk. This
model assigns capital based upon credit, operating, interest rate and market
risk inherent in the 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 loss history where possible. Additional capital is assigned to the regional
banking line of business based on the Company's investment in those entities.
- ------------------------------------------------------ -------------------------------- --------------------------------
Table 4 - Net Income by Line of Business
(In thousands) Three months ended June 30, Six months ended June 30,
2005 2004 2005 2004
---------------- --------------- ---------------- ---------------
Oklahoma corporate banking $ 22,257 $ 16,146 $ 38,816 $ 31,523
Regional banking 18,261 13,530 35,307 27,631
Mortgage banking (309) 1,803 1,974 2,156
Oklahoma consumer banking 5,420 2,780 9,762 4,769
Wealth management 3,408 3,047 7,771 5,648
Funds management and other 1,428 8,227 8,890 12,958
- ------------------------------------------------------ ---------------- --------------- ---------------- ---------------
Total $ 50,465 $ 45,533 $102,520 $ 84,685
- ------------------------------------------------------ ---------------- --------------- ---------------- ---------------
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 $22.3
million or 44% to consolidated net income for the second quarter of 2005. This
compares to $16.1 million or 35% of consolidated net income for the same period
of 2004. Net income provided by this division included $2.9 million from the
after-tax benefit from the sale of an interest in an Oklahoma City office
building. Average assets increased $460 million or 10% due primarily to loan
growth. A reduction in net loan charge-offs improved Oklahoma Corporate
Banking's performance by $1.9 million. This improvement in credit quality also
reduced economic capital allocated to this unit.
9
Table 5 - Oklahoma Corporate Banking
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ 46,993 $ 35,524 $ 88,021 $ 70,936
NIR (expense) from internal sources (14,044) (4,884) (24,838) (10,055)
------------- ------------- -------------- -------------
Total net interest revenue 32,949 30,640 63,183 60,881
Other operating revenue 23,316 22,581 45,339 43,819
Gain on sale of assets 4,708 - 4,708 -
Operating expense 25,311 25,652 50,068 49,202
Net loans charged off / (recovered) (765) 1,141 (368) 3,906
Net income 22,257 16,146 38,816 31,523
Average assets $ 5,037,883 $ 4,578,000 $ 5,110,494 $ 4,613,452
Average economic capital 311,310 322,780 310,410 324,660
Return on assets 1.77% 1.42% 1.53% 1.37%
Return on economic capital 28.68% 20.12% 25.22% 19.53%
Efficiency ratio 41.51% 48.20% 44.22% 46.99%
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 $5.4 million or 11% to consolidated net income for the second
quarter of 2005. This compares to $2.8 million or 6% of consolidated net income
in 2004. Net interest revenue increased $4.0 million due largely to an increase
in transfer pricing credit to business units that provide lower-costing funds to
the Company.
Table 6 - Oklahoma Consumer Banking
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ (5,882) $ (4,379) $ (11,275) $ (8,460)
NIR (expense) from internal sources 20,901 15,356 39,971 30,137
------------- ------------- -------------- -------------
Total net interest revenue 15,019 10,977 28,696 21,677
Other operating revenue 16,760 14,088 31,495 27,016
Operating expense 21,689 19,035 42,210 37,618
Net loans charged off 1,219 1,479 2,003 3,268
Net income 5,420 2,780 9,762 4,769
Average assets $ 2,880,292 $ 2,678,563 $ 2,897,552 $ 2,693,245
Average economic capital 64,260 67,380 68,970 64,835
Return on assets 0.75% 0.42% 0.68% 0.36%
Return on economic capital 33.83% 16.59% 28.54% 14.79%
Efficiency ratio 68.25% 75.94% 70.13% 77.26%
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
10
loans. Consolidated mortgage banking revenue, which is included in other
operating revenue, increased $995 thousand, or 13% compared with the second
quarter of 2004. Mortgage banking activities incurred a net loss of $309
thousand for the second quarter of 2005 compared with net income of $1.8 million
in 2004. Net income for the second quarter of 2005 included $753 thousand from
the sale of mortgage loans from the residential loan portfolio.
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. Mortgage loan commitment rates fell 50 basis
points during the second quarter of 2005. This decrease in commitment rates
improved the pricing of loans sold during the quarter and increased the amount
of loan applications in process at quarter end. It also reduced the value of
mortgage loan servicing rights due to higher expected prepayment speeds.
Loan Production Sector
Loan production revenue totaled $5.1 million for the second quarter of 2005,
including $4.6 million of capitalized mortgage servicing rights, compared to
loan production revenue of $4.3 million in 2004, including $3.6 million of
capitalized mortgage servicing rights. The increase in loan production revenue
was due to improved pricing of loans sold. Mortgage loans funded in the second
quarter of 2005 totaled $185 million compared with $197 million in 2004.
Approximately 69% of the loans funded during 2005 were to borrowers in Oklahoma.
Pre-tax income from loan production totaled $1.8 million for the second quarter
of 2005 compared with $2.5 million for the second quarter of 2004. The pipeline
of mortgage loan applications totaled $292 million at June 30, 2005, compared to
$250 million at March 31, 2005 and $232 million at June 30, 2004.
Loan Servicing Sector
The loan servicing sector had a pre-tax loss of $3.9 million for the second
quarter of 2005 compared with pre-tax income of $307 thousand for the same
period of 2004. A 50 basis point decrease in mortgage interest rates during the
second quarter of 2005 reduced the value of servicing rights. This resulted in a
$7.1 million provision for impairment of mortgage servicing rights. This
provision was partially offset by $3.4 million of gains on financial instruments
held as an economic hedge of the value of the servicing rights. During the
second quarter of 2004, the allowance for impairment of servicing rights was
decreased by $10.9 million. Net losses of $10.1 million were recognized on
financial instruments designated as an economic hedge.
Servicing revenue totaled $4.1 million in the second quarter of 2005 compared
with $4.5 million in 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 second quarter
of 2005 compared to $4.0 billion during 2004. The decrease in loans serviced
reflected both the continued refinancing of mortgage loans and curtailment of
purchases of mortgage loan servicing. Annualized servicing revenue per
outstanding loan principal was 44 basis points in the second quarter of 2005,
compared with 45 basis points in 2004.
Amortization of mortgage servicing rights, which is included in operating
expense, was $3.0 million in 2005 compared to $3.8 million in 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.
11
Table 7 - Mortgage Banking
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ 5,149 $ 5,524 $ 10,167 $ 11,309
NIR (expense) from internal sources (3,614) (2,618) (7,191) (5,670)
------------- ------------- -------------- -------------
Total net interest revenue 1,535 2,906 2,976 5,639
Capitalized mortgage servicing rights 4,556 3,559 6,537 6,255
Other operating revenue 5,231 4,651 9,874 11,378
Gain on sale of assets 1,232 - 1,232 -
Operating expense 9,292 8,926 17,125 18,898
Provision (recovery) for impairment of
mortgage servicing rights 7,088 (10,865) 1,464 (7,162)
Gains (losses) on financial instruments, net 3,404 (10,113) 1,328 (7,880)
Net income (loss) (309) 1,803 1,974 2,156
Average assets $ 532,855 $ 586,587 $ 539,976 $ 584,405
Average economic capital 21,390 24,430 22,980 27,590
Return on assets (0.23)% 1.24% 0.74% 0.74%
Return on economic capital (5.79)% 29.68% 17.32% 15.71%
Efficiency ratio 74.02% 80.30% 83.05% 81.20%
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.
Securities may be sold and gains or losses realized 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.
At June 30, 2005, financial instruments with a fair value of $151 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 June 30, 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 $ 5,988 $ (10,368)
Fair value of hedging securities (5,061) 5,696
----------------- ----------------
Net $ 927 $ (4,672)
----------------- ----------------
Table 8 shows the non-linear effect of changes in mortgage commitment rates on
the value of mortgage servicing rights. A 50 basis point increase in rates is
expected to increase value by $6.0 million while a 50 basis point decrease is
expected to reduce value by $10.4 million. This considers that there is an upper
limit to the appreciation in the value of servicing rights as rates rise due to
the contractual repayment terms of the loans and other factors. There is much
less of a limit on the speed at which mortgage loans may prepay in a declining
rate environment.
12
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 $3.4 million or 7% to consolidated net income for
the second quarter of 2005. This compared to $3.0 million or 7% of consolidated
net income for the same period of 2004.
Trust and private financial services provided $3.5 million of net income in the
second quarter of 2005, a 57% increase over 2004. At June 30, 2005 and 2004, the
wealth management line of business was responsible for trust assets with
aggregate market values of $24 billion and $21 billion, respectively, under
various fiduciary arrangements. The growth in trust assets reflected increased
market value of assets managed in addition to new business generated during the
year. The Company has sole or joint discretionary authority over $8.6 billion of
trust assets at June 30, 2005 compared to $7.6 billion of trust assets at June
30, 2004.
Brokerage and trading activities incurred a net loss of $97 thousand in the
second quarter of 2005 compared to net income of $813 thousand in the second
quarter of 2004. Trading revenue decreased $1.1 million due primarily to reduced
fixed-income securities trading volumes. This revenue reduction was largely
offset by increases in customer hedging revenue and retail sales.
Table 9 - Wealth Management
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ 1,173 $ 1,035 $ 2,228 $ 2,074
NIR (expense) from internal sources 3,052 2,014 5,839 3,823
------------- ------------- -------------- -------------
Total net interest revenue 4,225 3,049 8,067 5,897
Other operating revenue 23,744 24,095 48,979 46,296
Operating expense 22,225 22,179 44,110 42,914
Net income 3,408 3,047 7,771 5,648
Average assets $ 749,605 $ 727,525 $ 751,373 $ 741,823
Average economic capital 119,870 72,120 115,310 73,120
Return on assets 1.82% 1.68% 2.09% 1.53%
Return on economic capital 11.40% 16.99% 13.59% 15.53%
Efficiency ratio 79.46% 81.71% 77.32% 82.22%
Regional Banking
Regional Banking consists primarily of the corporate and commercial banking
services provided by Bank of Texas, Bank of Albuquerque, Bank of Arkansas,
Colorado State Bank and Trust and Bank of Arizona in their respective markets.
They also include fiduciary services provided by Colorado State Bank and Trust.
Small businesses and middle-market corporations are Regional Banking primary
customer focus. Regional Banking contributed $18.3 million or 36% to
consolidated net income during the second quarter of 2005. This compares with
$13.5 million or 30% 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 2005 in Texas and New Mexico
increased $3.2 million and $1.7 million, respectively.
13
Growth in net income from Texas operations resulted primarily from an increase
in net interest revenue. Average earning assets increased $166 million. Average
loans increased $267 million, or 15% while funds sold to the funds management
unit decreased $88 million. Average deposits increased $99 million, or 4%.
The increase in net income from New Mexico operations was also based largely on
an increase in net interest revenue. Average earning assets decreased $15
million, or 1%. However, the mix of earning assets improved. Average loans
increased $71 million or 13% while funds sold to the funds management unit
decreased $87 million. Average deposits in the New Mexico market increased $67
million or 8%.
In addition, the Company continued expansion efforts in Colorado. A new office
which offers trust products was opened in Salt Lake City during the second
quarter of 2005 and additional commercial lending staff was added. The
conversion of Bank of Arizona's data processing systems is scheduled for the
third quarter of 2005. This conversion will increase the scope of products and
services offered in the Phoenix market. Bank of Arizona operating expenses
included $266 thousand of amortization of intangible assets. The Company's
policy is to amortize core deposit intangible assets over the expected life of
the acquired deposits using an accelerated amortization method. The weighted
average life of the acquired deposits is approximately five years.
Table 10 - Bank of Texas
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ 36,157 $ 28,793 $ 70,195 $ 57,333
NIR (expense) from internal sources (2,308) (1,114) (4,304) (2,353)
------------- ------------- -------------- -------------
Total net interest revenue 33,849 27,679 65,891 54,980
Other operating revenue 6,298 5,410 11,634 11,093
Operating expense 21,388 18,163 40,941 36,149
Net loans charged off 1,255 1,934 1,373 2,512
Net income 11,658 8,489 23,172 17,849
Average assets $ 3,269,560 $ 3,047,820 $ 3,268,985 $ 3,065,271
Average economic capital 166,940 160,580 166,920 164,450
Average invested capital 334,020 327,660 334,010 331,540
Return on assets 1.43% 1.12% 1.43% 1.17%
Return on economic capital 28.01% 21.26% 27.99% 21.83%
Return on average invested capital 14.00% 10.42% 14.00% 10.83%
Efficiency ratio 53.27% 54.89% 52.81% 54.71%
Table 11 - Bank of Albuquerque
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ 14,153 $ 10,791 $ 27,384 $ 21,780
NIR (expense) from internal sources (2,440) (1,024) (4,446) (2,065)
------------- ------------- -------------- -------------
Total net interest revenue 11,713 9,767 22,938 19,715
Other operating revenue 4,427 3,674 8,283 7,019
Operating expense 7,856 7,934 15,383 15,538
Net loans charged off 277 297 421 845
Net income 4,892 3,182 9,420 6,324
Average assets $ 1,678,024 $ 1,607,715 $ 1,657,690 $ 1,614,252
Average economic capital 84,630 63,690 79,440 66,190
Average invested capital 103,720 82,780 98,530 85,280
Return on assets 1.17% 0.80% 1.15% 0.79%
Return on economic capital 23.19% 20.09% 23.91% 19.21%
Return on average invested capital 18.92% 15.46% 19.28% 14.91%
Efficiency ratio 48.67% 59.03% 49.27% 58.12%
14
Table 12 - Bank of Arkansas
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ 2,700 $ 2,272 $ 5,795 $ 4,468
NIR (expense) from internal sources (890) (408) (1,661) (942)
------------- ------------- -------------- -------------
Total net interest revenue 1,810 1,864 4,134 3,526
Other operating revenue 401 354 776 644
Operating expense 996 1,094 1,994 1,972
Net loans charged off 13 (46) 23 (54)
Net income 735 715 1,768 1,376
Average assets $ 270,038 $ 264,334 $ 267,799 $ 263,971
Average economic capital 10,460 11,040 10,640 11,650
Average invested capital 10,460 11,040 10,640 11,650
Return on assets 1.09% 1.09% 1.33% 1.05%
Return on economic capital 28.18% 26.05% 33.51% 23.75%
Return on average invested capital 28.18% 26.05% 33.51% 23.75%
Efficiency ratio 45.05% 49.32% 40.61% 47.29%
Table 13 - Colorado State Bank and Trust
(Dollars in Thousands)
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
------------- --- ------------- -------------- -- -------------
NIR (expense) from external sources $ 8,310 $ 4,401 $ 15,625 $ 10,549
NIR (expense) from internal sources (2,716) 684 (5,106) (916)
------------- ------------- -------------- -------------
Total net interest revenue 5,594 5,085 10,519 9,633
Other operating revenue 2,645 2,259 4,999 4,264
Operating expense 5,941 5,399 11,559 10,416
Net loans charged off 23 124 1,651 124
Net income 1,391 1,144 1,411 2,082
Average assets $ 779,137 $ 655,514 $ 792,809 $ 653,535
Average economic capital 46,870 35,090 43,060 25,700
Average invested capital 88,860 77,070 85,050 67,690
Return on assets 0.72% 0.70% 0.36% 0.64%
Return on economic capital 11.90% 13.11% 6.61% 16.29%
Return on average invested capital 6.28% 5.97% 3.35% 6.19%
Efficiency ratio 72.11% 73.52% 74.49% 74.95%
15
Table 14 - Bank of Arizona
(Dollars in Thousands)
Three months
ended
June 30, 2005
----------------
NIR (expense) from external sources $ 2,419
NIR (expense) from internal sources (794)
-------------
Total net interest revenue 1,625
Other operating revenue 344
Operating expense 2,626
Net loans charged off 21
Net income (loss) (415)
Average assets $ 111,760
Average economic capital 16,127
Average invested capital 32,777
Return on assets (1.49)%
Return on economic capital (10.32)%
Return on average invested capital (5.08)%
Efficiency ratio 133.37%
*** Bank of Arizona was acquired in April 2005.
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 June 30, 2005 totaled
$4.9 billion compared with $4.7 billion at March 31, 2005. Mortgage-backed
securities continued to represent substantially all available for sale
securities. As previously discussed in the Net Interest Revenue section of this
report, the Company holds mortgage backed securities as part of an 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. The Company evaluates this risk through extensive modeling of
risk both before making an investment and throughout the life of the security.
The expected duration of the mortgage-backed securities portfolio was
approximately 2.8 years at June 30, 2005 and 3.2 years at March 31, 2005.
Net unrealized losses on available for sale securities totaled $46 million at
June 30, 2005 compared with $80 million at March 31, 2005. The decrease in net
unrealized losses was due primarily to falling interest rates. The aggregate
gross amount of unrealized losses at June 30, 2005 totaled $52 million.
Management evaluated the securities with unrealized losses to determine if 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. It is believed, based on currently available
information and the Company's evaluation, that the unrealized losses in these
securities were temporary.
16
Loans
The aggregate loan portfolio at June 30, 2005 totaled $8.5 billion, a $429
million or 21% annualized increase since March 31, 2005.
- ---------------------------------------------------------------------------------------------------------------------
Table 15 - Loans
(In thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
---------------------------------------------------------------------------------
Commercial:
Energy $ 1,278,312 $ 1,174,498 $ 1,223,195 $ 1,097,191 $ 1,079,746
Manufacturing 482,261 468,615 484,423 479,866 485,657
Wholesale/retail 770,220 696,066 699,318 737,235 697,761
Agriculture 244,687 263,382 262,436 262,171 232,445
Services 1,739,669 1,705,178 1,615,071 1,644,884 1,488,963
Other commercial and industrial 298,772 283,107 291,393 277,102 349,129
- ---------------------------------------------------------------------------------------------------------------------
Total commercial 4,813,921 4,590,846 4,575,836 4,498,449 4,333,701
- ---------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Construction and land development 586,828 518,137 457,399 467,396 436,727
Multifamily 237,904 224,533 231,985 236,240 245,731
Other real estate loans 1,085,803 975,115 931,726 917,488 907,084
- ---------------------------------------------------------------------------------------------------------------------
Total commercial real estate 1,910,535 1,717,785 1,621,110 1,621,124 1,589,542
- ---------------------------------------------------------------------------------------------------------------------
Residential mortgage:
Secured by 1-4 family
residential properties 1,150,651 1,215,022 1,198,918 1,120,761 1,080,399
Residential mortgages held for sale 74,410 44,429 40,262 82,053 79,034
- ---------------------------------------------------------------------------------------------------------------------
Total residential mortgage 1,225,061 1,259,451 1,239,180 1,202,814 1,159,433
- ---------------------------------------------------------------------------------------------------------------------
Consumer 565,163 517,884 492,841 461,779 442,424
- ---------------------------------------------------------------------------------------------------------------------
Total $ 8,514,680 $ 8,085,966 $ 7,928,967 $ 7,784,166 $ 7,525,100
- ---------------------------------------------------------------------------------------------------------------------
The commercial loan portfolio increased $223 million during the second quarter
of 2005. Much of this increase was focused in the energy portion of the
portfolio, which increased $104 million, or 8%. Energy loans totaled $1.3
billion or 15% of total loans at June 30, 2005. Approximately $1.0 billion was
to oil and gas producers. The amount of credit available to these customers
generally depends on the value of their proven energy reserves based on
anticipated prices. This portion of the energy loan portfolio provided much of
the quarter's loan growth. Exploration and acquisition activities have
increased. Management believes that the increased activity included an
expectation that the markets have set a new floor for energy 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. Services comprised 20% of the total loan
portfolio and included $278 million of loans to nursing homes and $156 million
of loans to medical facilities. Agriculture included $205 million of loans to
the cattle industry. Other notable loan concentrations by primary industry of
the borrowers are presented in Table 15.
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 June 30, 2005, the
outstanding principal balance of these loans totaled $1.0 billion. Substantially
all is to borrowers with local market relationships. BOK Financial is the agent
lender in approximately 22% of its shared national credit relationships. The
Company's lending policies generally avoid loans in which there is no
opportunity to maintain or achieve other business relationships with the
customer.
Commercial real estate loans totaled $1.9 billion or 22% of the loan portfolio
at June 30, 2005. The outstanding balance of commercial real estate loans
increased $193 million since March 31, 2005. Construction and land development
included $416 million for single family residential lots and premises, up $19
million, or 5% since March 31, 2005. This growth resulted from expanded builder
loans, primarily in Arizona. The major components of other commercial real
estate loans were retail facilities at $334 million and office buildings at $420
million. Commercial real estate loans secured by office buildings increased $43
million, or 11%, during the quarter.
17
Residential mortgage loans, excluding loans held for sale, included $341 million
of home equity loans, $319 million of loans held in conjunction with business
relationships, $235 million of adjustable rate mortgages and $184 million of
loans held for community development. Community development loans decreased $132
million during the second quarter of 2005 due primarily to the sale of $118
million of such loans. Consumer loans included $286 million of indirect
automobile loans. Substantially all of these loans were purchased from dealers
in Oklahoma.
Table 16 presents the distribution of the major loan categories among primary
market areas.
- ---------------------------------------------------------------------------------------------------------------------
Table 16 - Loans by Principal Market Area
(In thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
---------------------------------------------------------------------------------
Oklahoma:
Commercial $ 3,026,311 $ 2,871,566 $ 2,847,470 $ 2,914,917 $ 2,843,013
Commercial real estate 856,617 791,816 744,724 746,444 795,145
Residential mortgage 827,431 936,375 901,648 819,537 770,749
Residential mortgage held for sale 74,410 44,429 40,262 82,053 79,034
Consumer 425,318 389,571 367,947 343,680 336,057
---------------------------------------------------------------------------------
Total Oklahoma $ 5,210,087 $ 5,033,757 $ 4,902,051 $ 4,906,631 $ 4,823,998
---------------------------------------------------------------------------------
Texas:
Commercial $ 1,182,307 $ 1,135,509 $ 1,120,069 $ 994,335 $ 939,471
Commercial real estate 509,472 477,487 459,067 467,935 453,724
Residential mortgage 196,457 177,919 191,296 195,393 194,760
Consumer 90,245 85,626 86,732 87,371 85,742
---------------------------------------------------------------------------------
Total Texas $ 1,978,481 $ 1,876,541 $ 1,857,164 $ 1,745,034 $ 1,673,697
---------------------------------------------------------------------------------
Albuquerque:
Commercial $ 340,378 $ 325,069 $ 354,904 $ 331,027 $ 317,647
Commercial real estate 219,175 218,357 196,832 195,390 175,537
Residential mortgage 63,821 62,015 63,043 64,105 65,184
Consumer 15,813 12,306 13,260 11,687 11,251
---------------------------------------------------------------------------------
Total Albuquerque $ 639,187 $ 617,747 $ 628,039 $ 602,209 $ 569,619
---------------------------------------------------------------------------------
Northwest Arkansas:
Commercial $ 54,703 $ 51,026 $ 61,934 $ 64,789 $ 61,252
Commercial real estate 76,803 75,024 74,478 69,075 65,980
Residential mortgage 11,674 10,771 11,238 9,022 9,289
Consumer 4,560 3,599 3,858 4,998 3,018
---------------------------------------------------------------------------------
Total Northwest Arkansas $ 147,740 $ 140,420 $ 151,508 $ 147,884 $ 139,539
---------------------------------------------------------------------------------
Colorado:
Commercial $ 210,142 $ 207,676 $ 191,459 $ 193,381 $ 172,318
Commercial real estate 125,120 120,844 118,134 142,280 99,156
Residential mortgage 27,292 27,942 31,693 32,704 40,417
Consumer 27,996 26,782 21,044 14,043 6,356
---------------------------------------------------------------------------------
Total Colorado $ 390,550 $ 383,244 $ 362,330 $ 382,408 $ 318,247
---------------------------------------------------------------------------------
Arizona:
Commercial $ 80 $ - $ - $ - $ -
Commercial real estate 123,348 34,257 27,875 - -
Residential mortgage 23,976 - - - -
Consumer 1,231 - - - -
---------------------------------------------------------------------------------
Total Arizona $ 148,635 $ 34,257 $ 27,875 $ - $ -
---------------------------------------------------------------------------------
Total BOK Financial loans $ 8,514,680 $ 8,085,966 $ 7,928,967 $ 7,784,166 $ 7,525,100
---------------------------------------------------------------------------------
18
Loan Commitments
BOK Financial enters into certain off-balance sheet arrangements in the normal
course of business. These arrangements included loan commitments which totaled
$3.8 billion and standby letters of credit which totaled $470 million at June
30, 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 a 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 BOk. Offsetting contracts are
executed between BOk and selected counterparties to minimize the risk of changes
in commodity prices, interest rates, or foreign exchange rates. The counterparty
contracts are identical to the customer contracts, except for a fixed pricing
spread or a fee paid to BOk as compensation for administrative costs, credit
risk and profit.
These programs create credit risk for potential amounts due to BOk 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 options to limit the maximum exposures to individual customers.
Customers may also be required to provide margin collateral to further limit the
Company's credit risk.
Counterparty credit risk is evaluated through existing policies and procedures.
This evaluation considers the total relationship between BOK Financial and each
of the counterparties. Individual limits are established by management and
approved by the Asset / Liability Committee. Margin collateral is required if
the exposure between BOk 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 June 30, 2005, the fair value
of derivative contracts reported as assets under these programs totaled $690
million. This included energy contracts with fair values of $664 million,
interest rate contracts with fair values of $13 million and foreign exchange
contracts with fairs value of $11 million. The aggregate fair values of related
derivative contracts reported as liabilities totaled $691 million. At March 31,
2005, the fair values of assets and liabilities reported under these programs
totaled $720 million and $722 million, respectively. Approximately 68% of the
fair value of asset contracts was with customers. The credit risk of these
contracts is generally backed by energy production. The remaining 32% was with
counterparties. The maximum net exposure to any single customer or counterparty
totaled $82 million.
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 June 30, 2005 and March 31, 2005,
compared with $115 million at June 30, 2004. These amounts represented 1.29%,
1.35% and 1.54% of outstanding loans, excluding loans held for sale, at June 30,
2005, March 31, 2005, and June 30, 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 269% of the outstanding balance of
nonperforming loans at June 30, 2005, compared with 219% at March 31, 2005 and
199% at June 30, 2005. Net loans charged off during the second quarter of 2005
totaled $2.3 million, down from $4.9 million for the same period in 2004.
19
Credit risk from loan commitments and letters of credit are considered in the
evaluation of the adequacy of reserves. A separate reserve for off-balance sheet
credit risk is maintained. Table 17 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 17 - Summary of Loan Loss Experience
(In thousands)
Three Months Ended
----------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
----------------------------------------------------------------------------------
Reserve for loan losses:
Beginning balance $ 108,958 $ 108,618 $ 113,719 $ 114,704 $ 114,988
Loans charged off:
Commercial 1,641 1,438 4,195 2,712 2,826
Commercial real estate 90 1,715 100 254 617
Residential mortgage 423 181 493 392 231
Consumer 2,890 2,490 3,384 3,521 2,998
- ------------------------------------------------------------------------------------------------------------------------------
Total 5,044 5,824 8,172 6,879 6,672
- ------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial 1,435 1,099 533 811 359
Commercial real estate 73 29 9 - 4
Residential mortgage 16 10 11 125 87
Consumer 1,233 1,508 1,189 1,163 1,302
- ------------------------------------------------------------------------------------------------------------------------------
Total 2,757 2,646 1,742 2,099 1,752
- ------------------------------------------------------------------------------------------------------------------------------
Net loans charged off 2,287 3,178 6,430 4,780 4,920
Provision for loan losses 1,142 3,518 1,329 3,795 4,636
Additions due to acquisitions 1,072 - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 108,885 $ 108,958 $ 108,618 $ 113,719 $ 114,704
- ------------------------------------------------------------------------------------------------------------------------------
Reserve for off-balance sheet credit
losses:
Beginning balance $ 16,984 $ 18,502 $ 15,392 $ 14,201 $ 14,850
Provision for off-balance sheet credit losses 873 (1,518) 3,110 1,191 (649)
Additions due to acquisitions 32 - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 17,889 $ 16,984 $ 18,502 $ 15,392 $ 14,201
- ------------------------------------------------------------------------------------------------------------------------------
Total provision for credit losses $ 2,015 $ 2,000 $ 4,439 $ 4,986 $ 3,987
- ------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses to loans outstanding
at period-end (1) 1.29% 1.35% 1.38% 1.48% 1.54%
Net charge-offs (annualized)
to average loans (1) 0.11 0.16 0.33 0.25 0.26
Total provision for credit losses (annualized)
to average loans (1) 0.10 0.10 0.23 0.26 0.21
Recoveries to gross charge-offs 54.66 45.43 21.32 30.51 26.26
Reserve for loan losses as a multiple of net
charge-offs (annualized) 11.90x 8.57x 4.22x 5.95x 5.83x
Reserve for off-balance sheet credit losses to
off-balance sheet credit commitments 0.42% 0.41% 0.48% 0.42% 0.39%
Combined reserves for credit losses to loans
outstanding at period-end (1) 1.50 1.57 1.61 1.68 1.73
- ------------------------------------------------------------------------------------------------------------------------------
(1) Excludes residential mortgage loans held for sale.
Specific impairment reserves are determined through evaluation of estimated
future cash flows and collateral value. At June 30, 2005, specific impairment
reserves totaled $5.4 million on total impaired loans of $32 million.
20
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 June 30,
2005, the ranges of potential losses for the more significant factors were:
General economic conditions - $8.6 million to $12.7 million
Concentration in large loans - $1.6 million to $ 3.2 million
The provision for credit losses totaled $2.0 million for the second quarter of
2005, compared with $2.0 million for the first quarter of 2005 and $4.0 million
for the second quarter of 2004. Factors considered in determining the provision
for credit losses included a reduction in the outstanding balances of criticized
and classified loans, a reduction in the number of past due and nonperforming
loans, and a reduction in net losses incurred. These factors were partially
offset by concerns about the effect of changes in interest rates and energy
prices on the commercial real estate and commercial loan portfolios, and
increased concentration in loans to residential home builders.
Nonperforming Assets
Information regarding nonperforming assets, which totaled $46 million at June
30, 2005 and $53 million at March 31, 2005 is presented in Table 18.
Nonperforming assets included nonaccrual and renegotiated loans and excluded
loans 90 days or more past due but still accruing interest. Nonaccrual loans
totaled $41 million at June 30, 2005 and $50 million at March 31, 2005. Newly
identified nonaccruing loans totaled $3.9 million during the second quarter of
2005. Nonaccruing loans decreased $7.7 million from a loan that was returned to
accruing status after a period of satisfactory performance, $3.0 million for
loans charged off or foreclosed, and $2.3 million for cash payments received.
- ---------------------------------------------------------------------------------------------------------------------
Table 18 - Nonperforming Assets
(In thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
----------------------------------------------------------------------
Nonaccrual loans:
Commercial $ 21,173 $ 29,116 $ 33,195 $ 36,526 $ 38,264
Commercial real estate 11,722 12,671 10,144 8,293 10,208
Residential mortgage 7,154 7,533 8,612 6,228 8,346
Consumer 478 483 709 729 792
- ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 40,527 49,803 52,660 51,776 57,610
Other nonperforming assets 5,062 3,187 3,763 6,038 4,776
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 45,589 $ 52,990 $ 56,423 $ 57,814 $ 62,386
- ---------------------------------------------------------------------------------------------------------------------
Ratios:
Reserve for loan losses to nonaccrual loans 268.67% 218.78% 206.26% 219.64% 199.10%
Combined reserves for credit
losses to nonaccrual loans 312.81 252.88 241.40 249.36 223.75
Nonaccrual loans to period-end loans (2) 0.48 0.62 0.67 0.67 0.77
- ---------------------------------------------------------------------------------------------------------------------
Loans past due (90 days) (1) $ 7,125 $ 6,782 $ 7,649 $ 9,173 $ 10,280
- ---------------------------------------------------------------------------------------------------------------------
(1) Includes residential mortgages
guaranteed by agencies of the U.S.
Government. $ 3,713 $ 2,650 $ 2,308 $ 2,354 $ 3,226
(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, however, causes management concerns as
to the borrowers' ability to comply with current repayment terms. These
potential problem loans totaled $38 million at June 30, 2005 and $41 million at
March 31, 2005. The current composition of potential problem loans by primary
industry included healthcare - $11 million, manufacturing - $9 million, real
estate - $6 million, services - $5 million and energy - $4 million.
21
Deposits
Deposit accounts represent the Company's primary funding source. The Company
competes 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 the 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.
Average deposits grew at a 1% annualized rate for second quarter of 2005,
excluding $110 million of average deposits acquired from Bank of Arizona. Core
deposits, excluding public funds and brokered deposits, grew at an annualized
rate of 3%. Average core deposits comprised 52% of total deposits for both the
second and first quarters of 2005. Deposit accounts with balances in excess of
$100,000 represented 37% and 36% of total deposits for the second quarters of
2005 and 2004, respectively.
Average interest-bearing transaction accounts increased $403 million compared
with the preceding quarter. Much of this increase was offset by a $310 million
decrease in average demand deposit accounts. Certain demand deposit account
balances were transferred to interest-bearing transaction accounts during the
second quarter to better manage the Company's reserve position. This transfer
reduced demand deposits and increased interest-bearing transaction accounts by
$129 million in Oklahoma, $197 million in Texas, and $25 million in Colorado.
The distribution of deposit accounts among principal markets is shown in Table
19.
22
- ---------------------------------------------------------------------------------------------------------------------
Table 19 - Deposits by Principal Market Area
(In thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
---------------------------------------------------------------------------------
Oklahoma:
Demand $ 1,028,640 $ 1,091,132 $ 1,095,228 $ 1,045,981 $ 1,069,823
Interest-bearing:
Transaction 2,367,511 2,235,950 2,291,089 2,167,279 2,229,366
Savings 89,972 93,655 87,597 92,275 96,091
Time 2,450,730 2,511,465 2,505,849 2,543,292 2,615,179
---------------------------------------------------------------------------------
Total interest-bearing 4,908,213 4,841,070 4,884,535 4,802,846 4,940,636
---------------------------------------------------------------------------------
Total Oklahoma $ 5,936,853 $ 5,932,202 $ 5,979,763 $ 5,848,827 $ 6,010,459
---------------------------------------------------------------------------------
Texas:
Demand $ 478,855 $ 628,043 $ 617,808 $ 587,181 $ 578,727
Interest-bearing:
Transaction 1,292,938 1,111,808 1,119,893 1,118,960 1,124,279
Savings 29,635 30,695 30,331 32,244 34,370
Time 606,528 601,397 571,993 581,017 548,001
---------------------------------------------------------------------------------
Total interest-bearing 1,929,101 1,743,900 1,722,217 1,732,221 1,706,650
---------------------------------------------------------------------------------
Total Texas $ 2,407,956 $ 2,371,943 $ 2,340,025 $ 2,319,402 $ 2,285,377
---------------------------------------------------------------------------------
Albuquerque:
Demand $ 139,107 $ 133,309 $ 136,599 $ 146,163 $ 135,648
Interest-bearing:
Transaction 306,230 314,067 320,118 345,851 350,453
Savings 17,875 18,428 17,885 18,102 19,153
Time 449,180 434,131 411,939 385,139 353,650
---------------------------------------------------------------------------------
Total interest-bearing 773,285 766,626 749,942 749,092 723,256
---------------------------------------------------------------------------------
Total Albuquerque $ 912,392 $ 899,935 $ 886,541 $ 895,255 $ 858,904
---------------------------------------------------------------------------------
Northwest Arkansas:
Demand $ 10,890 $ 14,922 $ 14,489 $ 15,242 $ 11,816
Interest-bearing:
Transaction 24,816 23,555 26,882 24,462 21,929
Savings 1,284 1,405 1,434 1,302 1,191
Time 83,388 88,031 99,677 107,576 112,634
---------------------------------------------------------------------------------
Total interest-bearing 109,488 112,991 127,993 133,340 135,754
---------------------------------------------------------------------------------
Total Northwest Arkansas $ 120,378 $ 127,913 $ 142,482 $ 148,582 $ 147,570
---------------------------------------------------------------------------------
Colorado:
Demand $ 32,044 $ 73,383 $ 62,995 $ 61,865 $ 81,478
Interest-bearing:
Transaction 228,881 220,618 189,106 203,349 166,139
Savings 16,791 22,140 19,092 19,085 19,021
Time 117,130 86,406 54,394 43,076 41,361
---------------------------------------------------------------------------------
Total interest-bearing 362,802 329,164 262,592 265,510 226,521
---------------------------------------------------------------------------------
Total Colorado $ 394,846 $ 402,547 $ 325,587 $ 327,375 $ 307,999
---------------------------------------------------------------------------------
Arizona:
Demand $ 60,412 $ - $ - $ - $ -
Interest-bearing:
Transaction 56,624 - - - -
Savings 4,771 - - - -
Time 6,574 - - - -
---------------------------------------------------------------------------------
Total interest-bearing 67,969 - - - -
---------------------------------------------------------------------------------
Total Colorado $ 128,381 $ - $ - $ - $ -
---------------------------------------------------------------------------------
Total BOK Financial deposits $ 9,900,806 $ 9,734,540 $ 9,674,398 $ 9,539,441 $ 9,610,309
---------------------------------------------------------------------------------
23
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 of $95 million was paid off during
the second quarter of 2005. Interest is based on LIBOR plus a defined margin
that is determined by the principal balance outstanding and the Company's 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. A fee of 20 basis points is
assessed on the unused committed balance. This credit agreement includes certain
restrictive covenants that limit the Company's ability to borrow additional
funds and to pay cash dividends on 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 June 30, 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 $175 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 $120
million under this policy.
Shareholders' equity for BOK Financial totaled $1.5 billion at June 30, 2005, an
increase of $66 million since March 31, 2005. Net income provided $50 million to
this increase and a reduction in net unrealized losses on available for sale
securities increased shareholders' equity by $20 million. A cash dividend of
$6.6 million or $0.10 per common share was paid during the second quarter of
2005. The remaining increase in capital during the first quarter of 2005
resulted primarily from activity in employee stock options.
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.
All of the Company's Series A Preferred Stock were converted into shares of BOK
Financial common stock during the second quarter of 2005. Common shares issued
totaled 6,920,666.
BOK Financial and subsidiary banks are subject to various capital requirements
administered by federal agencies. Failure to meet minimum capital requirements
can result in certain mandatory and possibly additional discretionary actions by
regulators that could have a material impact on operations. These capital
requirements include quantitative measures of assets, liabilities, and
off-balance sheet items. The capital standards are also subject to qualitative
judgments by the regulators. The capital ratios for BOK Financial are presented
in Table 20.
- --------------------------------------------------------------------------------------------------------------------
Table 20 - Capital Ratios June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
--------------------------------------------------------------------------
Average shareholders' equity
to average assets 9.36% 9.70% 9.38% 9.20% 9.19%
Risk-based capital:
Tier 1 capital 9.85 10.19 10.02 9.82 9.82
Total capital 12.55 11.78 11.67 11.56 11.93
Leverage 8.07 8.36 7.94 7.81 7.52
Subsidiary Banks
Bank of Oklahoma issued $150 million of 10-year, fixed rate subordinated debt
during the second quarter of 2005. The cost of the subordinated debt, including
issuance discounts and hedge loss is 5.43%. The proceeds of this debt were used
to repay $95 million of BOK Financial's unsecured revolving line of credit.
24
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.
The Company 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. The closing price of BOK Financial common stock on June 30,
2005 was $46.12 per share.
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 duration of 2.8 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 second quarter of 2005 net interest
revenue decreased $187 thousand from periodic settlements of these contracts.
These contracts are carried on the balance sheet at fair value and changes in
fair value are reporting in income as derivatives gains or losses. A net loss of
$311 thousand was recognized in 2005 compared to a net gain of $201 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 the overall process
of managing credit exposure to other financial institutions.
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
25
interest rate scenarios. Three specified interest rate scenarios are used to
evaluate interest rate risk. 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, are used to evaluate
interest rate risk against policy guidelines. 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.
Additionally, interest rate risk is evaluated against a "most likely" rate
scenario. An independent source is used to determine the most likely interest
rate scenario.
The Company's primary interest rate exposures included the Federal Funds rate,
which affects short-term borrowings, and the prime lending rate and LIBOR, which
are the basis for much of the variable-rate loan pricing. Additionally, 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 21 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 21 - 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 $ 8,363 $ 9,477 $ (4,124) $ (4,915) $ 4,726 $ 7,750
1.8% 2.2% (0.9)% (1.2)% 1.0% 1.8%
- -------------------------------- --------------- ------------ --- ----------- -------------- -- ----------- ------------
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
26
guidelines limit the VAR to $1.6 million. At June 30, 2005, the VAR was $65
thousand. The greatest value at risk during the quarter was $736 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.
27
- --------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- ------------
Consolidated Statements of Earnings (Unaudited)
(In Thousands Except Share and Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------------------------------------------------------------------
Interest Revenue
Loans $ 132,966 $ 96,440 251,776 193,266
Taxable securities 51,276 49,321 100,632 96,837
Tax-exempt securities 1,782 1,818 3,575 3,638
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities 53,058 51,139 104,207 100,475
- -----------------------------------------------------------------------------------------------------------------------------------
Trading securities 154 201 335 337
Funds sold and resell agreements 156 53 320 92
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest revenue 186,334 147,833 356,638 294,170
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 47,833 33,807 91,447 66,624
Borrowed funds 22,988 7,107 39,857 15,084
Subordinated debentures 2,980 1,730 5,207 4,066
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 73,801 42,644 136,511 85,774
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 112,533 105,189 220,127 208,396
Provision for Credit Losses 2,015 3,987 4,015 11,014
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue After Provision for Credit Losses 110,518 101,202 216,112 197,382
- ----------------------------------------------------------------------------------------------------------------------------------
Other Operating Revenue
Brokerage and trading revenue 10,404 11,166 21,740 21,177
Transaction card revenue 17,979 16,817 34,522 31,541
Trust fees and commissions 16,259 13,939 32,275 27,648
Service charges and fees on deposit accounts 25,347 23,928 47,520 46,083
Mortgage banking revenue 8,550 7,555 14,128 15,299
Leasing revenue 669 860 1,342 1,747
Other revenue 7,491 5,774 14,215 12,398
- ----------------------------------------------------------------------------------------------------------------------------------
Total fees and commissions 86,699 80,039 165,742 155,893
- ----------------------------------------------------------------------------------------------------------------------------------
Gain on sales of assets 5,937 35 6,909 719
Gain (loss) on securities, net 2,266 (11,005) (371) (6,728)
Gain (loss) on derivatives, net (311) 201 467 (794)
- ----------------------------------------------------------------------------------------------------------------------------------
Total other operating revenue 94,591 69,270 172,747 149,090
- ----------------------------------------------------------------------------------------------------------------------------------
Other Operating Expense
Personnel 65,333 59,810 123,772 118,019
Business promotion 3,870 3,831 8,300 7,181
Contribution of stock to BOK Charitable Foundation - - - 4,125
Professional fees and services 4,492 3,994 8,111 7,893
Net occupancy and equipment 12,650 11,732 24,744 23,583
Data processing and communications 16,381 15,270 31,480 29,911
Printing, postage and supplies 3,629 3,130 7,244 6,447
Amortization of intangible assets 1,808 2,121 3,345 4,259
Mortgage banking costs 3,387 4,433 7,000 10,276
Provision (recovery) for impairment of mortgage
servicing rights 7,088 (10,865) 1,464 (7,162)
Other expense 7,372 5,536 12,709 10,908
- ----------------------------------------------------------------------------------------------------------------------------------
Total other operating expense 126,010 98,992 228,169 215,440
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 79,099 71,480 160,690 131,032
Federal and state income tax 28,634 25,947 58,170 46,347
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 50,465 $ 45,533 102,520 $84,685
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
- ----------------------------------------------------------------------------------------------------------------------------------
Basic $ 0.79 $ 0.76 $ 1.66 $ 1.42
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.75 $ 0.68 $ 1.53 $ 1.27
- ----------------------------------------------------------------------------------------------------------------------------------
Average Shares Used in Computation:
- ----------------------------------------------------------------------------------------------------------------------------------
Basic 63,779,343 59,146,624 61,618,602 59,098,913
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted 66,986,428 66,719,734 66,967,146 66,688,766
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
28
- --------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
(In Thousands Except Share Data)
June 30, December 31, June 30,
2005 2004 2004
--------------------------------------------------
(Unaudited)
(Unaudited)
Assets
Cash and due from banks $ 653,047 $ 503,715 $ 574,549
Funds sold and resell agreements 27,176 27,376 148,035
Trading securities 10,588 9,692 15,133
Securities:
Available for sale 4,311,759 4,080,696 3,925,068
Available for sale securities pledged to creditors 576,207 512,494 646,959
Investment (fair value: June 30, 2005 - $218,181;
December 31, 2004 - $222,636;
June 30, 2004 - $205,998) 220,401 221,094 205,933
- --------------------------------------------------------------------------------------------------------------------
Total securities 5,108,367 4,814,284 4,777,960
- --------------------------------------------------------------------------------------------------------------------
Loans 8,514,680 7,928,967 7,525,100
Less reserve for loan losses (108,885) (108,618) (114,704)
- --------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 8,405,795 7,820,349 7,410,396
- --------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 174,526 172,643 173,798
Accrued revenue receivable 82,868 79,644 76,422
Intangible assets, net 260,279 242,594 246,539
Mortgage servicing rights, net 46,200 45,678 53,000
Real estate and other repossessed assets 5,062 3,763 4,776
Bankers' acceptances 40,949 31,799 18,783
Receivable on unsettled security transactions - 56,873 8,018
Derivative contracts 690,015 380,051 294,900
Other assets 367,603 206,953 199,888
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 15,872,475 $ 14,395,414 $ 14,002,197
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Noninterest-bearing demand deposits $ 1,749,948 $ 1,927,119 $ 1,877,492
Interest-bearing deposits:
Transaction 4,277,000 3,947,088 3,892,166
Savings 160,328 156,339 169,826
Time 3,713,530 3,643,852 3,670,825
- --------------------------------------------------------------------------------------------------------------------
Total deposits 9,900,806 9,674,398 9,610,309
- --------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase agreements 2,123,589 1,555,507 1,497,685
Other borrowings 1,059,694 1,015,000 1,016,327
Subordinated debentures 297,882 151,594 151,538
Accrued interest, taxes and expense 66,026 71,062 49,692
Bankers' acceptances 40,949 31,799 18,783
Due on unsettled security transactions 99,664 - -
Derivative contracts 699,637 387,292 307,102
Other liabilities 103,253 110,268 91,686
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 14,391,500 12,996,920 12,743,122
- --------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock - 12 12
Common stock ($.00006 par value; 2,500,000,000
shares authorized; shares issued and outstanding:
June 30, 2005 - 67,556,168; December 31, 2004
- 60,420,811; June 30, 2004 - 60,095,270) 4 4 4
Capital surplus 642,605 631,747 618,866
Retained earnings 904,757 809,261 716,049
Treasury stock (shares at cost: June 30, 2005 - 1,101,838;
December 31, 2004 - 998,393; June 30, 2004 - 932,223) (35,354) (30,905) (27,892)
Accumulated other comprehensive loss (31,037) (11,625) (47,964)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,480,975 1,398,494 1,259,075
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 15,872,475 $ 14,395,414 $ 14,002,197
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
29
- ---------------------------------------------------------------------------------------------------------------------------
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 - - - - - - 84,685 - - 84,685
Other comprehensive
income, net of tax (1) - - - - (56,423) - - - - (56,423)
----------
Comprehensive income 28,262
----------
Exercise of stock options - - 290 - - 4,813 - 56 (2,362) 2,451
Conversion of preferred
stock to common (13) - - - - - - - - -
Tax benefit on exercise of
stock options - - - - - 1,263 - - - 1,263
Stock-based compensation - - - - - (742) - - - (742)
Cash dividends on
preferred stock - - - - - - (750) - - (750)
Dividends paid in shares
of common stock:
Common stock - - 1,749 - - 66,938 (65,938) 27 (1,039) (39)
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at
June 30, 2004 249,987 $ 12 60,095 $ 4 $ (47,964) $618,866 $716,049 932 $(27,892) $1,259,075
- ----------------------------------------------------------------------------------------------------------------------------------
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 - - - - - - 102,520 - - 102,520
Other comprehensive
income, net of tax (1) - - - - (19,412) - - - - (19,412)
----------
Comprehensive income 83,108
----------
Treasury stock purchase - - - - - - - 60 (2,439) (2,439)
Exercise of stock options - - 214 - - 5,242 - 44 (2,010) 3,232
Conversion of preferred
stock to common (249,975) (12) 6,921 - - 12 - - - -
Tax benefit on exercise of
stock options - - - - - 1,005 - - - 1,005
Stock-based compensation - - - - - 4,599 - - - 4,599
Cash dividends on:
Preferred stock - - - - - - (375) - - (375)
Common stock - - - - - - (6,649) - - (6,649)
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at
June 30, 2005 - $ - 67,556 $ 4 $ (31,037) $ 642,605 $ 904,757 1,102 $(35,354) $1,480,975
- ----------------------------------------------------------------------------------------------------------------------------------
(1) June 30, 2005 June 30, 2004
------------- -------------
Changes in other comprehensive income:
Unrealized losses on securities $ (29,291) $ (94,126)
Unrealized losses on cash flow hedges (1,507) -
Tax benefit on unrealized losses 11,149 33,592
Reclassification adjustment for losses
realized and included in net income 371 6,728
Reclassification adjustment for tax
benefit on realized losses (134) (2,617)
-------------------------------
Net change in other comprehensive income (loss) $ (19,412) $ (56,423)
-------------------------------
See accompanying notes to consolidated financial statements.
30
- --------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Six Months Ended June 30,
--------------------------------------
2005 2004
--------------------------------------
Cash Flows From Operating Activities:
Net income $ 102,520 $ 84,685
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 4,015 11,014
Provision (recovery) for mortgage servicing rights impairment 1,464 (7,162)
Unrealized losses from derivatives 6,405 12,894
Stock-based compensation 1,392 3,667
Tax benefit on exercise of stock options 1,005 1,263
Depreciation and amortization 21,709 25,376
Net (accretion) amortization of securities discounts and premiums (390) (3,164)
Net (gain) loss on sale of assets (12,682) 68
Mortgage loans originated for resale (336,291) (355,981)
Proceeds from sale of mortgage loans held for resale 286,895 371,224
Change in trading securities (896) (7,310)
Change in accrued revenue receivable (3,224) (1,442)
Change in other assets (17,901) (22,502)
Change in accrued interest, taxes and expense (5,036) (35,717)
Change in other liabilities (6,769) 8,477
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 42,216 85,390
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of investment securities 36,969 39,696
Proceeds from maturities of available for sale securities 484,713 556,393
Purchases of investment securities (36,279) (57,797)
Purchases of available for sale securities (1,780,288) (2,188,475)
Proceeds from sales of available for sale securities 969,184 1,484,216
Loans originated or acquired net of principal collected (612,790) (118,164)
Proceeds from (payments on) derivative asset contracts 2,661 (82,039)
Net change in other investment assets 31,442 4,525
Proceeds from disposition of assets 83,664 59,250
Purchases of assets (21,310) (16,897)
Cash and cash equivalents of subsidiaries and branches acquired and sold, net (29,093) -
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (871,127) (319,292)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net change in demand deposits, transaction deposits and savings accounts 156,730 94,347
Net change in time deposits 71,138 296,099
Net change in other borrowings 707,776 (112,306)
Pay down of other borrowings (95,000) -
Issuance of subordinated debenture 147,855 -
Proceeds from (payments on) derivative liability contracts (8,145) 81,121
Net change in derivative margin accounts (152,617) (32,072)
Change in amount receivable (due) on unsettled security transactions 156,537 (16,277)
Issuance of preferred, common and treasury stock, net 3,232 2,451
Repurchase of common stock (2,439) -
Dividends paid (7,024) (789)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 978,043 312,574
- --------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents 149,132 78,672
Cash and cash equivalents at beginning of period 531,091 643,912
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 680,223 $ 722,584
- --------------------------------------------------------------------------------------------------------------------
Cash paid for interest $ 134,720 $ 87,400
- --------------------------------------------------------------------------------------------------------------------
Cash paid for taxes $ 54,334 $ 44,586
- --------------------------------------------------------------------------------------------------------------------
Net loans transferred to repossessed real estate
and other assets $ 4,494 $ 2,219
- --------------------------------------------------------------------------------------------------------------------
Payment of dividends in common stock $ - $ 65,899
See accompanying notes to consolidated financial statements.
31
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., Bank of Arizona, 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. A preliminary allocation of the
purchase price to the net assets acquired is as follows (in thousands):
Cash and cash equivalents $ 2,921
Securities 35,355
Loans 92,821
Less reserve for loan losses (1,072)
----------------
Loans, net of reserve 91,749
Premises and equipment, net 500
Core deposit premium 4,380
Other assets 10,834
----------------
Total assets acquired 145,739
----------------
Deposits 110,217
Other borrowings 18,155
Other liabilities 2,003
----------------
Net assets acquired 15,364
Less purchase price 32,014
----------------
Goodwill $ 16,650
----------------
Effective August 12, 2005, Valley Commerce Bank will be renamed Bank of Arizona,
N.A.
Statement of Position 03-3, "Accounting for Certain Loans or Debt Securities
Acquired in a Transfer" ("SOP 03-3") was issued by the American Institute of
Certified Public Accountants and is effective for loans acquired in fiscal years
beginning after December 15, 2004. SOP 03-3 addresses accounting for differences
between contractual cash flows and expected cash flows from loans or securities
acquired in a transfer if those differences are attributable, at least in part,
to credit quality. The Company has recorded its acquisition of Valley Commerce
in accordance with SOP 03-3 and other applicable accounting standards. We are
continuing to review industry trends and regulatory guidance in the application
of SOP 03-3, but do not expect any material adjustment to the reserve for loan
losses.
32
(3) Derivatives
The fair values of derivative contracts at June 30, 2005 were (in thousands):
Assets Liabilities
----------------------------
Customer Risk Management Programs:
Interest rate contracts $13,047 $13,544
Energy contracts 664,066 664,961
Cattle contracts 893 570
Foreign exchange contracts 11,496 11,496
- --------------------------------------------------------------------------
Total Customer Derivatives 689,502 690,571
Interest Rate Risk Management Programs:
Interest rate risk management 513 9,066
- --------------------------------------------------------------------------
Total Derivative Contracts $ 690,015 $699,637
- --------------------------------------------------------------------------
(4) Mortgage Banking Activities
At June 30, 2005, BOK Financial owned the rights to service 54,911 mortgage
loans with outstanding principal balances of $4.5 billion, including $628
million serviced for affiliates. The weighted average interest rate and
remaining term was 6.19% and 272 months, respectively.
Activity in capitalized mortgage servicing rights and related valuation
allowance during the six months ending June 30, 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 - 8,128 8,128 - 8,128
Amortization expense (1,510) (4,632) (6,142) - (6,142)
Provision for impairment - - - (1,464) (1,464)
- -----------------------------------------------------------------------------------------------------------
Balance at June 30, 2005 $ 9,884 $ 51,552 $ 61,436 $ (15,236) $ 46,200
- -----------------------------------------------------------------------------------------------------------
Estimated fair value of
mortgage servicing rights (1) $ 7,973 $ 38,524 $ 46,497 - $ 46,497
- -----------------------------------------------------------------------------------------------------------
(1) Excludes approximately $921,000 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 June 30, 2005 follows (in
thousands):
< 5.51% 5.51% - 6.50% 6.51% - 7.50% => 7.50% Total
Cost less accumulated amortization $ 14,497 $ 27,808 $ 14,638 $ 4,493 $ 61,436
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Fair value $ 12,533 $ 20,467 $ 9,692 $ 3,805 $ 46,497
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Impairment (2) $ 2,116 $ 7,087 $ 4,948 $ 1,085 $ 15,236
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Outstanding principal of loans serviced (1)$ 972,900 $ 1,627,500 $ 869,400 $ 303,000 $ 3,772,800
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
(1) Excludes outstanding principal of $628 million for loans serviced for
affiliates and $75 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.
33
(5) Disposal of Available for Sale Securities
Sales of available for sale securities resulted in gains and losses as follows
(in thousands):
Six Months Ended June 30,
----------------------------------
2005 2004
-------------- ---------------
Proceeds $ 969,184 $ 1,484,216
Gross realized gains 4,768 5,123
Gross realized losses (5,139) 11,851
Related federal and state income
tax benefit (134) (2,617)
(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 June 30, Six Months Ended June 30,
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Service cost $ 1,744 $ 1,563 $ 3,488 $ 3,240
Interest cost 632 579 1,264 1,158
Expected return on plan assets (1,053) (912) (2,106) (1,814)
Amortization of prior service cost 15 15 30 30
Amortization of net (gain) loss 274 265 548 530
- --------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,612 $ 1,510 $ 3,224 $ 3,144
- --------------------------------------------------------------------------------------------------------------
During the second quarter of 2005, the Company made Pension Plan contributions
totaling $1.3 million, which funded the remaining maximum contribution for 2004
permitted under applicable regulations. The Company made no other Pension Plan
contributions during the first half of 2005.
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 July 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 or about August 31, 2005 to shareholders of record on August 12,
2005.
During the second quarter of 2005, all outstanding shares of Series A Preferred
Stock were converted into shares of BOK Financial common stock. A total of
6,920,666 shares of BOK Financial common stock were issued.
34
(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 Six Months Ended
-----------------------------------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------------
Numerator:
Net income $ 50,465 $ 45,533 $ 102,520 $ 84,685
Preferred stock dividends - (375) (375) (750)
- ---------------------------------------------------------------------------------------------------------------
Numerator for basic earnings per share - income
available to common shareholders 50,465 45,158 102,145 83,935
- ---------------------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Preferred stock dividends - 375 375 750
- ---------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share - income available
to common shareholders after assumed conversion $ 50,465 $ 45,533 $ 102,520 $ 84,685
- ---------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share - weighted
average shares 63,779,343 59,146,624 61,618,602 59,098,913
Effect of dilutive securities:
Employee stock compensation plans (1) 621,341 620,203 607,313 637,490
Convertible preferred stock 2,585,744 6,927,178 4,741,231 6,927,289
Tanglewood market value guarantee - 25,729 - 25,074
- ---------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 3,207,085 7,573,110 5,348,544 7,589,853
- ---------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 66,986,428 66,719,734 66,967,146 66,688,766
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.79 $ 0.76 $ 1.66 $ 1.42
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.75 $ 0.68 $ 1.53 $ 1.27
- ---------------------------------------------------------------------------------------------------------------
<FN>
(1) Excludes employee stock options with exercise prices
greater than current market price. 897,170 - 877,184 -
</FN>
35
(9) Reportable Segments
Reportable segments reconciliation to the Consolidated Financial Statements for
the six months ended June 30, 2005 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
----------------------------------------------------------------------------
Total reportable segments $ 208,375 $ 174,202 $ 227,909 $ 93,630 $ 15,425,553
Unallocated items:
Tax-equivalent adjustment 2,501 - - 2,501 -
Funds management 14,412 (611) 1,395 4,197 1,638,074
All others (including eliminations), net (5,161) (940) (1,135) 2,192 (2,080,950)
----------------------------------------------------------------------------
BOK Financial consolidated $ 220,127 $ 172,651 $ 228,169 $ 102,520 $ 14,982,677
============================================================================
(1) Excluding financial instruments gains/(losses).
Reportable segments reconciliation to the Consolidated Financial Statements for
the six months ended June 30, 2004 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
---------------------------------------------------------------------------
Total reportable segments $ 181,948 $ 157,784 $ 205,545 $ 71,727 $ 14,229,954
Unallocated items:
Tax-equivalent adjustment 2,286 - - 2,286 -
Funds management 31,629 (1,217) 3,169 11,738 1,522,003
All others (including eliminations), (7,467) 45 6,726 (1,066) (2,034,594)
net
---------------------------------------------------------------------------
BOK Financial consolidated $ 208,396 $ 156,612 $ 215,440 $ 84,685 $ 13,717,363
===========================================================================
(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.
36
(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 June 30, 2005, outstanding commitments and letters of credit were as
follows (in thousands):
June 30,
2005
--------------
Commitments to extend credit $ 3,761,084
Standby letters of credit 469,877
Commercial letters of credit 9,763
Commitments to purchase securities 58,480
37
- ------------------------------------------------------------------------------------------------------------------------------
Six Month Financial Summary - Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Six Months Ended
------------------------------------------------------------------------------------
June 30, 2005 June 30, 2004
----------------------------------------- --------------------------------------
Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense(1) /Rate
------------------------------------------------------------------------------------
Assets
Taxable securities (3) $ 4,730,054 $ 100,631 4.32% $ 4,631,025 $ 96,837 4.22%
Tax-exempt securities (3) 216,460 5,653 5.27 197,094 5,770 5.89
- ------------------------------------------------------------------------------------------------------------------------------
Total securities (3) 4,946,514 106,284 4.36 4,828,119 102,607 4.29
- ------------------------------------------------------------------------------------------------------------------------------
Trading securities 14,407 356 4.98 19,506 445 4.59
Funds sold and resell agreements 25,562 320 2.52 12,140 92 1.52
Loans (2) 8,153,378 252,179 6.24 7,521,485 193,312 5.17
Less reserve for loan losses 111,300 - - 117,701 - -
- ------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 8,042,078 252,179 6.32 7,403,784 193,312 5.25
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 13,028,561 359,139 5.57 12,263,549 296,456 4.87
- ------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 1,954,116 1,453,814
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 14,982,677 $ 13,717,363
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 4,123,291 29,678 1.45% $ 3,839,843 15,458 0.81%
Savings deposits 162,871 534 0.66 174,262 478 0.55
Time deposits 3,697,867 61,235 3.34 3,480,555 50,688 2.93
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,984,029 91,447 2.31 7,494,660 66,624 1.79
- ------------------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase
agreements 1,933,438 25,954 2.71 1,620,822 7,695 0.95
Other borrowings 943,135 13,903 2.97 1,010,143 7,389 1.47
Subordinated debenture 175,531 5,207 5.98 153,487 4,066 5.33
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 11,036,133 136,511 2.49 10,279,112 85,774 1.68
- ------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,740,263 1,721,443
Other liabilities 780,363 453,820
Shareholders' equity 1,425,918 1,262,988
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 14,982,677 $ 13,717,363
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue (3) 222,628 3.08% 210,682 3.19%
Tax-Equivalent Net Interest Revenue
To Earning Assets (3) 3.45 3.46
Less tax-equivalent adjustment (1) 2,501 2,286
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 220,127 208,396
Provision for credit losses 4,015 11,014
Other operating revenue 172,747 149,090
Other operating expense 228,169 215,440
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 160,690 131,032
Federal and state income tax 58,170 46,347
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 102,520 $ 84,685
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Per Average Common Share Equivalent:
Net Income:
Basic $ 1.66 $ 1.42
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ 1.53 $ 1.27
- ------------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent at the statutory federal and state rates for the periods
presented. The taxable equivalent adjustments shown are for comparative
purposes.
(2) The loan averages included loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(3) Yield calculations exclude security trades that have been recorded on trade
date with no corresponding interest income.
38
- ------------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Summary - Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share
Data)
Three Months Ended
-------------------------------------------------------------------------------------
June 30, 2005 March 31, 2005
------------------------------------------ -------------------------------------
Average Revenue/ Yield / Average Revenue/ Yield /
Balance Expense(1) Rate Balance Expense(1) Rate
-------------------------------------------------------------------------------------
Assets
Taxable securities (3) $ 4,831,186 $ 51,275 4.32% $ 4,628,233 $ 49,356 4.32%
Tax-exempt securities (3) 215,360 2,810 5.23 217,571 2,843 5.30
- ------------------------------------------------------------------------------------------------------------------------------
Total securities (3) 5,046,546 54,085 4.36 4,845,804 52,199 4.36
- ------------------------------------------------------------------------------------------------------------------------------
Trading securities 11,639 165 5.69 17,205 191 4.50
Funds sold and resell agreements 21,170 156 2.96 30,003 164 2.22
Loans (2) 8,341,490 133,173 6.40 7,963,177 119,006 6.06
Less reserve for loan losses 111,056 - - 111,955 - -
- ------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 8,230,434 133,173 6.49 7,851,222 119,006 6.15
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 13,309,789 187,579 5.68 12,744,234 171,560 5.46
- ------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 2,084,745 1,808,680
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 15,394,534 $ 14,552,914
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 4,323,513 $ 16,049 1.49% $ 3,920,844 $ 13,629 1.41%
Savings deposits 166,426 285 0.69 159,276 249 0.63
Time deposits 3,710,338 31,499 3.41 3,685,257 29,736 3.27
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 8,200,277 47,833 2.34 7,765,377 43,614 2.28
- ------------------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase
agreements 2,160,031 15,764 2.93 1,704,327 10,190 2.42
Other borrowings 914,968 7,224 3.17 971,616 6,679 2.79
Subordinated debenture 200,038 2,980 5.98 150,752 2,227 5.99
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 11,475,314 73,801 2.58 10,592,072 62,710 2.40
- ------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,586,248 1,895,989
Other liabilities 892,714 653,434
Shareholders' equity 1,440,258 1,411,419
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' $ 15,394,534 $ 14,552,914
equity
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue (3) $ 113,778 3.10% $ 108,850 3.06%
Tax-Equivalent Net Interest Revenue
To Earning Assets (3) 3.45 3.46
Less tax-equivalent adjustment (1) 1,245 1,256
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 112,533 107,594
Provision for credit losses 2,015 2,000
Other operating revenue 94,591 78,156
Other operating expense 126,010 102,159
- ------------------------------------------------------------------------------------------------------------------------------
Income before taxes 79,099 81,591
Federal and state income tax 28,634 29,536
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 50,465 $ 52,055
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Per Average Common Share Equivalent:
Net income:
Basic $ 0.79 $ 0.87
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.75 $ 0.78
- ------------------------------------------------------------------------------------------------------------------------------
(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.
39
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2004 September 30, 2004 June 30, 2004
- -------------------------------------------------------------------------------------------------------------------------
Average Revenue/ Yield / Average Revenue/ Yield / Average Revenue/ Yield /
Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate
- -------------------------------------------------------------------------------------------------------------------------
$ 4,709,193 $ 50,200 4.25% $ 4,652,435 $ 50,847 4.34% $ 4,667,360 $ 49,321 4.24%
219,873 2,951 5.37 215,190 2,951 5.46 200,380 2,884 5.79
- -------------------------------------------------------------------------------------------------------------------------
4,929,066 53,151 4.30 4,867,625 53,798 4.39 4,867,740 52,205 4.30
- -------------------------------------------------------------------------------------------------------------------------
10,208 107 4.17 14,956 77 2.05 23,513 219 3.75
31,994 170 2.11 23,334 91 1.55 16,284 53 1.31
7,873,974 111,292 5.62 7,656,588 104,181 5.41 7,548,257 96,445 5.14
114,106 - - 115,504 - - 117,109 - -
- -------------------------------------------------------------------------------------------------------------------------
7,759,868 111,292 5.71 7,541,084 104,181 5.50 7,431,148 96,445 5.22
- -------------------------------------------------------------------------------------------------------------------------
12,731,136 164,720 5.15 12,446,999 158,147 5.05 12,338,685 148,922 4.85
- -------------------------------------------------------------------------------------------------------------------------
1,858,345 1,630,890 1,529,841
- -------------------------------------------------------------------------------------------------------------------------
$ 14,589,481 $ 14,077,889 $ 13,868,526
- -------------------------------------------------------------------------------------------------------------------------
$ 3,841,742 $ 10,779 1.12% $ 3,931,166 $ 9,280 0.94% $ 3,859,706 $ 7,875 0.82%
160,404 231 0.57 169,398 266 0.62 173,566 235 0.54
3,662,455 29,586 3.21 3,712,161 27,667 2.97 3,565,324 25,697 2.90
- -------------------------------------------------------------------------------------------------------------------------
7,664,601 40,596 2.11 7,812,725 37,213 1.89 7,598,596 33,807 1.79
- -------------------------------------------------------------------------------------------------------------------------
1,747,391 8,397 1.91 1,458,245 5,048 1.38 1,565,922 3,731 0.96
1,005,679 5,703 2.26 1,003,050 4,615 1.83 1,009,871 3,376 1.34
152,634 1,929 5.03 152,333 1,766 4.61 152,799 1,730 4.55
- -------------------------------------------------------------------------------------------------------------------------
10,570,305 56,625 2.13 10,426,353 48,642 1.86 10,327,188 42,644 1.66
- -------------------------------------------------------------------------------------------------------------------------
1,938,205 1,839,311 1,799,249
712,981 516,715 466,981
1,367,990 1,295,510 1,275,108
- -------------------------------------------------------------------------------------------------------------------------
$ 14,589,481 $ 14,077,889 $ 13,868,526
- -------------------------------------------------------------------------------------------------------------------------
$ 108,095 3.02% $ 109,505 3.19% $ 106,278 3.19%
3.38 3.50 3.46
1,633 1,120 1,089
- -------------------------------------------------------------------------------------------------------------------------
106,462 108,385 105,189
4,439 4,986 3,987
78,714 81,086 69,270
111,582 114,202 98,992
- -------------------------------------------------------------------------------------------------------------------------
69,155 70,283 71,480
22,599 22,501 25,947
- -------------------------------------------------------------------------------------------------------------------------
$ 46,556 $ 47,782 $ 45,533
- -------------------------------------------------------------------------------------------------------------------------
$ 0.78 $ 0.79 $ 0.76
- -------------------------------------------------------------------------------------------------------------------------
$ 0.70 $ 0.72 $ 0.68
- -------------------------------------------------------------------------------------------------------------------------
40
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 June 30, 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
- ------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
April 1, 2005 to 30,504 $ 41.69 30,000 1,970,000
April 30, 2005
- ------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
-
May 1, 2005 to 15,128 $ 43.47 1,970,000
May 31, 2005
- ------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
-
June 1, 2005 to 2,658 $ 45.02 1,970,000
June 30, 2005
- ------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
Total 48,290 30,000
- ------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
(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. As of June 30, 2005, the Company had
repurchased 30,000 shares under the new plan.
(2) The Company routinely repurchases mature shares from employees to
cover the exercise price and taxes in connection with employee stock
option exercises.
Item 6. 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.
41
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: August 9, 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