-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DKyMRIFZ3KdKxJUrfZ/XsQkEHGI06Ra3Cp4mCLX0v/krWlxq1GqJ4AUZ2/jp51MV VkrTqwSKfQs/Yhx2wvzYgA== 0000875357-05-000011.txt : 20050316 0000875357-05-000011.hdr.sgml : 20050316 20050316150527 ACCESSION NUMBER: 0000875357-05-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050316 DATE AS OF CHANGE: 20050316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOK FINANCIAL CORP ET AL CENTRAL INDEX KEY: 0000875357 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 731373454 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19341 FILM NUMBER: 05685033 BUSINESS ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: PO BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 BUSINESS PHONE: 9185953025 MAIL ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: P O BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 10-K 1 tenk2004.txt 2004 FORM 10-K As filed with the Securities and Exchange Commission on March 16, 2005 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 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) Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common stock, $0.00006 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes |X| No |_| The aggregate market value of the registrant's common stock ("Common Stock") held by non-affiliates is approximately $791,314,455 (based on the June 30, 2004 closing price of Common Stock of $39.27 per share). As of March 1, 2005, there were 59,499,273 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT OF THE REGISTRANT REFERENCE LOCATIONS Portions of the 2004 Annual Report to Shareholders Parts I, II, III and IV Portions of the 2005 Proxy Statement Part III ============================================================================== BOK FINANCIAL CORPORATION ANNUAL REPORT ON FORM 10-K INDEX ITEM PAGE PART I 1. Business 3 2. Properties 7 3. Legal Proceedings 7 4. Submission of Matters to a Vote of Security Holders 7 PART II 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 7 6. Selected Financial Data 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 7A.Quantitative and Qualitative Disclosures About Market Risk 8 8. Financial Statements and Supplementary Data 9 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 9A. Controls and Procedures 9 9B. Other Information 9 PART III 10. Directors and Executive Officers of the Registrant 9 11. Executive Compensation 9 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 9 13. Certain Relationships and Related Transactions 10 14. Principal Accountant Fees and Services 10 PART IV 15. Exhibits, Financial Statement Schedules 11 Signatures 18 Chief Executive Officer Section 302 Certification Exhibit 31.1 Chief Financial Officer Section 302 Certification Exhibit 31.2 Section 906 Certifications Exhibit 32 3 PART I ITEM 1. BUSINESS GENERAL Developments relating to individual aspects of the business of BOK Financial Corporation ("BOK Financial" or "the Company") are described below. Additional discussion of the Company's activities during the current year is incorporated by reference to the "Management's Assessment of Operations and Financial Condition" section of BOK Financial's 2004 Annual Report to Shareholders (the "2004 Annual Report"). Information regarding BOK Financial's acquisitions is incorporated by reference to Note 2 of "Notes to Consolidated Financial Statements" within the 2004 Annual Report. DESCRIPTION OF BUSINESS BOK Financial is a financial holding company whose activities are limited by the Bank Holding Company Act of 1956 ("BHCA"), as amended by the Financial Services Modernization Act or Gramm-Leach-Bliley Act. BOK Financial offers full service banking in Oklahoma, Dallas and Houston, Texas, Albuquerque, New Mexico, Northwest Arkansas, and Denver, Colorado. Principal subsidiaries are Bank of Oklahoma, N.A. ("BOk"), Bank of Texas, N.A., Bank of Albuquerque, N.A., Bank of Arkansas, N.A. and Colorado State Bank and Trust, N.A. (collectively, the "Banks"). Other subsidiaries include BOSC, Inc., a broker/dealer that engages in retail and institutional securities sales and municipal bond underwriting. Other non-bank subsidiary operations are not significant. Our overall strategic objective is to emphasize growth in long-term value by building on our leadership position in Oklahoma and expanding into high-growth markets in contiguous states. We have a solid position in Oklahoma and are the state's largest financial institution as measured by deposit market share. Since 1997, we have expanded into Dallas and Houston, Texas, Albuquerque, New Mexico, Denver, Colorado, and have recently announced plans to expand into Phoenix, Arizona. Our primary focus is to provide a broad range of financial products and services, including loans and deposits, cash management services, fiduciary services, mortgage banking, and brokerage and trading services to middle-market businesses, financial institutions, and consumers. Our revenue sources are diversified. Approximately 42% of our revenue comes from commissions and fees. Commercial banking is a significant part of our business. Our credit culture emphasizes building relationships by making high-quality loans and providing a full range of financial products and services to our customers. Our acquisition strategy targets quality organizations that have demonstrated solid growth in their business lines. We provide additional growth opportunities by hiring talent to enhance competitiveness, adding locations, and broadening product offerings. Our operating philosophy embraces local decision-making through the boards of directors for each of our bank subsidiaries. BOK Financial's corporate headquarters is located at Bank of Oklahoma Tower, P.O. Box 2300, Tulsa, Oklahoma 74192. The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available on the Company's website at www.bokf.com as soon as reasonably practicable after the Company electronically files such material with or furnishes it to the Securities and Exchange Commission. OPERATING SEGMENTS BOK Financial operates 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 in Colorado are included in regional banking. Regional banking consists primarily of corporate and consumer banking activities in the respective local markets. Discussion of these principal lines of business is incorporated by reference to the Lines of Business section within "Management's Assessment of Operations and Financial Condition" within the 2004 Annual Report and to Note 18 of "Notes to Consolidated Financial Statements" within the 2004 Annual Report. COMPETITION BOK Financial and its operating segments face competition from other banks, thrifts, credit unions and other non-bank financial institutions, such as investment banking firms, investment advisory firms, brokerage firms, investment companies, government agencies, mortgage brokers and insurance companies. The Company competes largely on the basis of customer services, interest rates on loans and deposits, lending limits and customer convenience. Some operating segments face competition from institutions that are not as closely regulated as banks, and therefore are not limited by the same capital 4 requirements and other restrictions. All market share information presented below is based upon share of deposits in specified areas according to SNL DataSource as of December 31, 2004. BOk is the largest banking subsidiary of BOK Financial and has the largest market share in Oklahoma with 13% of the state's total deposits. In the Tulsa and Oklahoma City areas, BOk has 29% and 10% of the market share, respectively. BOk competes with two banks that have operations nationwide and have greater access to funds at lower costs, higher lending limits, and greater access to technology resources. BOk also competes with regional and locally owned banks in both the Tulsa and Oklahoma City areas, as well as in every other community in which we do business throughout the state. Through other subsidiary banks, BOK Financial competes in Dallas-Fort Worth and Houston, Texas, Albuquerque, New Mexico, Denver, Colorado, and Northwest Arkansas. Bank of Texas competes against numerous financial institutions, including some of the largest in the United States, and has a market share of approximately 2% and 1% in the Dallas-Fort Worth and Houston areas, respectively. Bank of Albuquerque has a number three market share position with 11% of deposits in the Albuquerque area and competes with two large national banks, some regional banks and several locally-owned smaller community banks. Colorado State Bank and Trust has a market share of approximately 1% in the Denver area. Bank of Arkansas operates as a community bank serving Benton and Washington counties in Arkansas. The Company's ability to expand into additional states remains subject to various federal and state laws. EMPLOYEES As of December 31, 2004, BOK Financial and its subsidiaries employed 3,548 full-time equivalent employees. None of the Company's employees are represented by collective bargaining agreements. Management considers its employee relations to be good. SUPERVISION AND REGULATION BOK Financial and its subsidiaries are subject to extensive regulations under federal and state laws. These regulations are designed to protect depositors, the Bank Insurance Fund and the banking system as a whole and not necessarily to protect shareholders and creditors. As detailed below, these regulations may restrict the Company's ability to diversify, to acquire other institutions and to pay dividends on its capital stock. They also may require the Company to provide financial support to its subsidiaries, maintain certain capital balances and pay higher deposit insurance premiums. Proposals to change laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before bank regulatory agencies. The likelihood and timing of any new proposals or legislation and the impact they might have on the Company and its subsidiaries cannot be predicted at this time. The following information summarizes certain laws and regulations that affect the Company's operations. It does not discuss all provisions of these laws and regulations and it does not summarize all laws and regulations that affect the Company. GENERAL As a financial holding company, BOK Financial is regulated under the BHCA and is subject to regular inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Under the BHCA, BOK Financial files quarterly reports and other information with the Federal Reserve Board. The Banks are organized as national banking associations under the National Banking Act, and are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (the "OCC"), the Federal Deposit Insurance Corporation (the "FDIC"), the Federal Reserve Board and other federal and state regulatory agencies. The OCC has primary supervisory responsibility for national banks and must approve certain corporate or structural changes, including changes in capitalization, payment of dividends, change of place of business, and establishment of a branch or operating subsidiary. The OCC performs its functions through national bank examiners who provide the OCC with information concerning the soundness of a national bank, the quality of management and directors, and compliance with applicable regulations. The National Banking Act authorizes the OCC to examine every national bank as often as necessary. A financial holding company, and the companies under its control, are permitted to engage in activities considered "financial in nature" as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations, and therefore may engage in a broader range of activities than permitted for bank holding companies and their subsidiaries. Activities that are "financial in nature" include securities underwriting and dealing, insurance underwriting, operating a mortgage company, credit card company or factoring company, performing certain data processing operations, servicing loans and other extensions of credit, providing investment and financial advice, owning and operating savings and loan associations, and leasing personal property on a full pay-out, non-operating basis. In order for a financial holding company to commence any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have received a rating of at least satisfactory in its most recent examination under the Community Reinvestment Act. A financial holding company is required to notify the Federal Reserve Board within thirty days of engaging in new activities determined to be "financial in nature." BOK Financial is engaged in some of these activities and has notified the Federal Reserve Board. 5 The BHCA requires the Federal Reserve Board's prior approval for the direct or indirect acquisition of more than five percent of any class of voting stock of any non-affiliated bank. Under the Federal Bank Merger Act, the prior approval of the OCC is required for a national bank to merge with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the applicant's performance record under the Community Reinvestment Act and fair housing laws and the effectiveness of the subject organizations in combating money laundering activities. A financial holding company and its subsidiaries are prohibited under the BHCA from engaging in certain tie-in arrangements in connection with the provision of any credit, property or services. Thus, a subsidiary of a financial holding company may not extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition that (1) the customer obtain or provide additional credit, property or services from or to the financial holding company or any subsidiary thereof, or (2) the customer may not obtain some other credit, property or services from a competitor, except to the extent reasonable conditions are imposed to insure the soundness of credit extended. The Banks and other non-bank subsidiaries are also subject to other federal and state laws and regulations. For example, BOSC, Inc., the Company's broker/dealer subsidiary that engages in retail and institutional securities sales and municipal bond underwriting, is regulated by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., the Federal Reserve Board, the National Futures Association and state securities regulators. As another example, Bank of Arkansas is subject to certain consumer-protection laws incorporated in the Arkansas Constitution, which, among other restrictions, limit the maximum interest rate on general loans to five percent above the Federal Reserve Discount Rate and limit the rate on consumer loans to the lower of five percent above the discount rate or seventeen percent. CAPITAL ADEQUACY AND PROMPT CORRECTIVE ACTION The Federal Reserve Board, the OCC and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to United States banking organizations to ensure capital adequacy based upon the risk levels of assets and off-balance sheet financial instruments. In addition, these regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators regarding components, risk weighting and other factors. The Federal Reserve Board risk-based guidelines define a three-tier capital framework. Core capital (Tier 1) includes common shareholders' equity and qualifying preferred stock, less goodwill, most intangible assets and other adjustments. Supplementary capital (Tier 2) consists of preferred stock not qualifying as Tier 1 capital, qualifying mandatory convertible debt securities, limited amounts of subordinated debt, other qualifying term debt and allowances for credit losses, subject to limitations. Market risk capital (Tier 3) includes qualifying unsecured subordinated debt. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily upon relative credit risk. Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. For a depository institution to be considered well capitalized under the regulatory framework for prompt corrective action, the institution's Tier 1 and total capital ratios must be at least 6% and 10% on a risk-adjusted basis, respectively. As of December 31, 2004, BOK Financial's Tier 1 and total capital ratios under these guidelines were 10.02% and 11.67%, respectively. The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets. Banking organizations are required to maintain a ratio of at least 5% to be classified as well capitalized. BOK Financial's leverage ratio at December 31, 2004 was 7.94%. The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDICIA"), among other things, identifies five capital categories for insured depository institutions from well capitalized to critically undercapitalized and requires the respective federal regulatory agencies to implement systems for prompt corrective action for institutions failing to meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive covenants on operations, management and capital distributions, depending upon the category in which an institution is classified. The various regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Under these guidelines, each of the Banks was considered well capitalized as of December 31, 2004. The federal regulatory authorities' risk-based capital guidelines are based upon the 1988 capital accord of the Basel Committee on Banking Supervision (the "BCBS"). The BCBS is a committee of central banks and bank regulators from the major industrialized countries that develops broad policy guidelines for use by each country's supervisors in determining the supervisory policies they apply. 6 In January 2001, the BCBS released a proposal to replace the 1988 capital accord with a new capital accord that would set capital requirements for operational risk and refine the existing capital requirements for credit risk and market risk exposures. Operational risk refers to the risk of direct or indirect losses resulting from failed internal processes, people, and systems. The 1988 capital accord does not include separate capital requirements for operational risk. In June 2004, the BCBS published the framework for a new set of risk-based capital standards. Release of proposed rules to implement the new capital accord is currently expected in mid-2005. Release of final rules is expected by mid-2006, and final rules are expected to become effective in early 2008. The ultimate timing and final form of a new accord are uncertain. However, it is possible that a new capital accord will eventually be adopted by the BCBS and implemented by the United States federal bank regulatory authorities. The new capital requirements that may arise from a new capital accord could increase minimum capital requirements applicable to BOK Financial and its subsidiaries. Further discussion of regulatory capital, including regulatory capital amounts and ratios, is incorporated by reference to information set forth under the caption "Borrowings and Capital" within the Management's Assessment of Operations and Financial Condition section and Note 16 of "Notes to Consolidated Financial Statements" of the 2004 Annual Report. DIVIDENDS The primary source of liquidity for BOK Financial is dividends from the Banks, which are limited by various banking regulations to net profits, as defined, for the year plus retained profits for the preceding two years and further restricted by minimum capital requirements. Based on the most restrictive limitations, the Banks had excess regulatory capital and could declare up to $161 million of dividends without regulatory approval as of December 31, 2004. BOK Financial management has developed and the Board of Directors has approved an internal capital policy that is more restrictive than the regulatory standards. Under this policy, the Banks could declare dividends of up to $98 million as of December 31, 2004. These amounts are not necessarily indicative of amounts that may be available to be paid in future periods. SOURCE OF STRENGTH DOCTRINE According to Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank holding company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered by the FDIC as a result of default of a banking subsidiary or related to FDIC assistance provided to a subsidiary in danger of default, the other Banks may be assessed for the FDIC's loss, subject to certain exceptions. GOVERNMENTAL POLICIES AND ECONOMIC FACTORS The operations of BOK Financial and its subsidiaries are affected by legislative changes and by the policies of various regulatory authorities and, in particular, the credit policies of the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the national supply of bank credit to moderate recessions and curb inflation. Among the instruments of monetary policy used by the Federal Reserve Board to implement its objectives are: open-market operations in U.S. Government securities, changes in the discount rate and federal funds rate on bank borrowings, and changes in reserve requirements on bank deposits. The effect of future changes in such policies on the business and earnings of BOK Financial and its subsidiaries is uncertain. In 2002, the Sarbanes-Oxley Act (the "Act") was signed into law to address many aspects of financial reporting, corporate governance and public company disclosure. Among other things, the Act establishes a comprehensive framework for the oversight of public company auditing and for strengthening the independence of auditors and audit committees. Under the Act, audit committees are responsible for the appointment, compensation and oversight of the work of the auditors. The non-audit services that can be provided to a company by its auditor are limited. Audit committee members are subject to specific rules addressing their independence. The Act also requires enhanced and accelerated financial disclosures, and it establishes various responsibility measures, such as requiring the chief executive officer and chief financial officer to certify to the quality of the company's financial reporting. The Act imposes restrictions on and accelerated reporting requirements for certain insider trading activities. It imposes a variety of penalties for fraud and other violations and creates a federal felony for securities fraud. Various sections of the Act are applicable to BOK Financial. Portions of the Act were effective immediately; others became effective or are in process of becoming effective through rulings by the SEC, based on timelines set forth in the law. FOREIGN OPERATIONS BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments. 7 ITEM 2 - PROPERTIES BOK Financial and its subsidiaries own and lease improved real estate that is carried at $122 million, net of depreciation and amortization. The Company's principal offices are located in leased premises in the Bank of Oklahoma Tower, Tulsa, Oklahoma. Banking offices are primarily located in Tulsa and Oklahoma City, Oklahoma, Dallas-Forth Worth and Houston, Texas, Albuquerque, New Mexico, and Denver, Colorado. Operations facilities are located in Tulsa, Oklahoma, Dallas, Texas, and Albuquerque, New Mexico. The Company's facilities are suitable for their respective uses and present needs. The information set forth in Notes 6 and 15 of "Notes to Consolidated Financial Statements" of the 2004 Annual Report provides further discussion related to properties and is incorporated herein by reference. ITEM 3 - LEGAL PROCEEDINGS The information set forth in Note 15 of "Notes to Consolidated Financial Statements" of the 2004 Annual Report is incorporated herein by reference. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended December 31, 2004. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES BOK Financial's $.00006 par value common stock is traded on the Nasdaq Stock Market under the symbol BOKF. As of March 1, 2005, common shareholders of record numbered 1,194 with 59,499,273 shares outstanding. The highest and lowest closing bid price for shares of BOK Financial common stock follows: First Second Third Fourth --------------- -------------- -------------- --------------- 2004: Low $37.48 $37.29 $38.95 $44.33 High 39.91 41.20 45.45 49.18 2003: Low $29.21 $30.02 $36.55 $36.55 High 31.23 37.24 39.83 38.23 Under a common stock repurchase program announced initially in 1998, BOK Financial has authority to repurchase up to 800,000 shares. These purchases have been made from time to time in accordance with SEC Rule 10(b)18 transactions. Since the initial authorization, BOK Financial has repurchased 608,942 shares, leaving 191,058 shares available for repurchase. The Company last purchased shares pursuant to its program on August 7, 2000. 8 The following table provides information with respect to purchases made by or on behalf of the Company or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company's common stock during the three months ended December 31, 2004. ---------------------------------------- ------------------- ----------------- ------------------------ --------------------- Total Number of Shares Maximum Number of Purchased as Part of Shares that May Yet Period Total Number of Average Price Publicly Announced Be Purchased Under Shares Purchased (1) Paid per Share Plans or Programs the Plans ---------------------------------------- ------------------- ----------------- ------------------------ --------------------- October 1, 2004 to October 31, 2004 7,491 $45.32 - 191,058 ---------------------------------------- ------------------- ----------------- ------------------------ --------------------- November 1, 2004 to November 30, 2004 16,819 $47.08 - 191,058 ---------------------------------------- ------------------- ----------------- ------------------------ --------------------- December 1, 2004 to December 31, 2004 23,620 $48.93 - 191,058 ---------------------------------------- ------------------- ----------------- ------------------------ --------------------- Total 47,930 - ---------------------------------------- ------------------- ----------------- ------------------------ ---------------------
(1) The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee stock option exercises. BOK Financial entered into a limited price guarantee on a portion of the shares issued in the Bank of Tanglewood acquisition on October 25, 2002. Additional discussion of this price guarantee is incorporated by reference to information set forth under the "Borrowings and Capital" caption within the Management's Assessment of Operations and Financial Condition section and in Note 16 of "Notes to Consolidated Financial Statements" within the 2004 Annual Report. The information set forth under the captions "Table 1 - Consolidated Selected Financial Data," "Table 5 - Selected Quarterly Financial Data," "Borrowings and Capital," and Note 16 of "Notes to Consolidated Financial Statements" of the 2004 Annual Report is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information set forth under the caption "Table 1 - Consolidated Selected Financial Data" of the 2004 Annual Report is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the captions "Management's Assessment of Operations and Financial Condition," "Annual Financial Summary - Unaudited" and "Quarterly Financial Summary - Unaudited" of the 2004 Annual Report is incorporated herein by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. Additional discussion of this type of market risk is set forth under the caption "Market Risk" within the Management's Assessment of Operations and Financial Condition section of the 2004 Annual Report and is incorporated herein by reference. BOK Financial is also exposed to market risk related to a stock price guarantee agreement made in connection with the Bank of Tanglewood acquisition. Additional information regarding this risk is set forth under the "Borrowings and Capital" caption within the Management's Assessment of Operations and Financial Condition section of the 2004 Annual Report. Additional information regarding market risk is set forth under the "Loans" caption within the Management's Assessment of Operations and Financial Condition section of the 2004 Annual Report and is incorporated herein by reference, including disclosures of loan concentrations by primary industry of the borrower and geographic concentrations of the loan portfolio. The information set forth under the "Deposits" caption within the Management's Assessment of Operations and Financial Condition section of the 2004 Annual Report is also incorporated herein by reference, including geographic distribution of deposit accounts. 9 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following information set forth in the 2004 Annual Report is incorporated herein by reference: the Consolidated Financial Statements and Notes to Consolidated Financial Statements of BOK Financial Corporation, together with the report thereon of Ernst & Young LLP dated March 11, 2005, which appears on page 45 of the 2004 Annual Report, and the Selected Quarterly Financial Data in Table 5. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A - CONTROLS AND PROCEDURES As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act"), the Company's management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness and design of the Company's disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this report, that the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting information required to be disclosed by the Company, within the time periods specified in the Securities and Exchange Commission's rules and forms. In addition and as of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the Company's fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting. The Report of Management on Financial Statements and Management's Report on Internal Control over Financial Reporting appear on Page 44 of the 2004 Annual Report and are incorporated herein by reference. The independent registered public accounting firm, Ernst & Young, LLP, has audited the financial statements included in the 2004 Annual Report and has issued an audit report on management's assessment of the internal control over financial reporting, which appears on Page 46 of the 2004 Annual Report and is incorporated herein by reference. ITEM 9B - OTHER INFORMATION On March 7, 2005, Mr. Stanley Lybarger, Chief Executive Officer, and Mr. George Kaiser, principal shareholder and Chairman of the Board, entered into an agreement whereby Mr. Kaiser agreed to personally guarantee certain deferred compensation to Mr. Lybarger as provided in the agreement. This agreement is attached as Exhibit 10.4 (e). PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Election of Directors," "Executive Compensation" and "Risk Oversight and Audit Committee" in BOK Financial's 2005 Annual Proxy Statement is incorporated herein by reference. The Company has a Code of Ethics which is applicable to all Directors, officers and employees of the Company, including the Chief Executive Officer and the Chief Financial Officer, the principal executive officer and principal financial and accounting officer, respectively. A copy of the Code of Ethics will be provided without charge to any person who requests it by writing to the Company's headquarters at Bank of Oklahoma Tower, P.O. Box 2300, Tulsa, Oklahoma 74192 or telephoning the Chief Auditor at (918) 588-6000. The Company will also make available amendments to or waivers from its Code of Ethics applicable to Directors or executive officers, including the Chief Executive Officer and the Chief Financial Officer, in accordance with all applicable laws and regulations. ITEM 11 - EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" in BOK Financial's 2005 Annual Proxy Statement is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in BOK Financial's 2005 Annual Proxy Statement is incorporated herein by reference. 10 EQUITY COMPENSATION PLAN INFORMATION The following table provides information about the Company's equity compensation plans in effect at December 31, 2004. Plans included in the following table consist of the BOKF 1994, 1997, 2000, 2001 and 2003 Stock Option Plans, as well as the 2003 Executive Incentive Plan and the BOKF Directors Stock Compensation Plan. The material features of the various stock-based compensation plans are described within Note 13 of "Notes to Consolidated Financial Statements" of the 2004 Annual Report, which is incorporated herein by reference. Number of securities remaining available for future issuance under Number of securities to Weighted-average equity compensation be issued upon exercise exercise price of plans (excluding of outstanding options, outstanding options, securities reflected in Plan Category warrants, and rights(2) warrants, and rights(2) the first column)(2) ---------------------------------- ---------------------------- ------------------------ ------------------------------ Equity compensation plans approved by security holders: Stock options 3,338,048 $28.53 2,166,102(1) Nonvested common shares 44,738 Not applicable 456,565 ----------------------------- ----------------------------- Sub-total 3,382,786 2,622,667(1) Equity compensation plans not approved by security holders None None None ----------------------------- ----------------------------- Total 3,382,786 2,622,667(1) ----------------------------- ----------------------------- (1) Includes 487,601 shares of common stock which may be awarded pursuant to the BOKF Directors Stock Compensation Plan. (2) As of December 31, 2004.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Transactions" in BOK Financial's 2005 Annual Proxy Statement is incorporated herein by reference. The information set forth under Note 14 of "Notes to Consolidated Financial Statements" of the 2004 Annual Report is incorporated herein by reference. ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES The information set forth under the caption "Principal Accountant Fees and Services" in BOK Financial's 2005 Annual Proxy Statement is incorporated herein by reference. 11 PART IV ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) (1) Financial Statements The following financial statements and reports are incorporated by reference from the 2004 Annual Report: Exhibit 13 2004 Annual Report Description Page Number Consolidated Selected Financial Data 13 Selected Quarterly Financial Data 23 Report of Management on Financial Statements and Management's Report on Internal Control over Financial Reporting 44 Reports of Independent Registered Public Accounting Firm 45 - 46 Consolidated Statements of Earnings for the years ended December 31, 2004, 2003 and 2002 47 Consolidated Balance Sheets as of December 31, 2004 and 2003 48 Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 49 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2004, 2003 and 2002 50 - 51 Notes to Consolidated Financial Statements 52 - 83 Annual Financial Summary - Unaudited 84 - 85 Quarterly Financial Summary - Unaudited 86 - 87 (a) (2) Financial Statement Schedules The schedules to the consolidated financial statements required by Regulation S-X are not required under the related instructions or are inapplicable and are therefore omitted. (a) (3) Exhibits Exhibit Number Description of Exhibit 3.0 The Articles of Incorporation of BOK Financial, incorporated by reference to (i) Amended and Restated Certificate of Incorporation of BOK Financial filed with the Oklahoma Secretary of State on May 28, 1991, filed as Exhibit 3.0 to S-1 Registration Statement No. 33-90450, and (ii) Amendment attached as Exhibit A to Information Statement and Prospectus Supplement filed November 20, 1991. 3.1 Bylaws of BOK Financial, incorporated by reference to Exhibit 3.1 of S-1 Registration Statement No. 33-90450. 4.0 The rights of the holders of the Common Stock and Preferred Stock of BOK Financial are set forth in its Certificate of Incorporation. 10.0 Purchase and Sale Agreement dated October 25, 1990, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.0 of S-1 Registration Statement No. 33-90450. 12 10.1 Amendment to Purchase and Sale Agreement effective March 29, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.2 of S-1 Registration Statement No. 33-90450 10.2 Letter agreement dated April 12, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.3 of S-1 Registration Statement No. 33-90450. 10.3 Second Amendment to Purchase and Sale Agreement effective April 15, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.4 of S-1 Registration Statement No. 33-90450. 10.4 Employment and Compensation Agreements. 10.4(a) Employment Agreement between BOK Financial and Stanley A. Lybarger, incorporated by reference to Exhibit 10.4(a) of Form 10-K for the fiscal year ended December 31, 1991. 10.4(b) Amendment to 1991 Employment Agreement between BOK Financial and Stanley A. Lybarger, incorporated by reference to Exhibit 10.4(b) of Form 10-K for the fiscal year ended December 31, 2001. 10.4(c) Amended and Restated Deferred Compensation Agreement (Amended as of September 1, 2003) between Stanley A. Lybarger and BOK Financial Corporation, incorporated by reference to Exhibit 10.4 (c) of Form 10-Q for the quarter ended September 30, 2003. 10.4 (d) 409A Deferred Compensation Agreement between Stanley A. Lybarger and BOK Financial Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4 (d) of Form 8-K filed on January 5, 2005. 10.4 (e) Guaranty by George B. Kaiser in favor of Stanley A. Lybarger dated March 7, 2005, filed herewith. 10.4.1(a) Employee Agreement between BOK Financial and V. Burns Hargis, incorporated by reference to Exhibit 10.4.1(a) of Form 10-K for the fiscal year ended December 31, 2002. 10.4.1(b) Amendment to Employee Agreement between BOK Financial and V. Burns Hargis, incorporated by reference to Exhibit 10.4.1(b) of Form 10-K for the fiscal year ended December 31, 2002. 10.4.2 Amended and Restated Deferred Compensation Agreement (Amended as of December 1, 2003) between Steven G. Bradshaw and BOK Financial Corporation, incorporated by reference to Exhibit 10.4.2 of Form 10-K for the fiscal year ended December 31, 2003. 10.4.2 (a) 409A Deferred Compensation Agreement between Steven G. Bradshaw and BOK Financial Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.2 (a) of Form 8-K filed on January 5, 2005. 10.4.2 (b) Employment Agreement between BOK Financial and Steven G. Bradshaw dated September 29, 2003, filed herewith. 10.4.3 Amended and Restated Deferred Compensation Agreement (Amended as of December 1, 2003) between William Jeffrey Pickryl and BOK Financial Corporation, incorporated by reference to Exhibit 10.4.3 of Form 10-K for the fiscal year ended December 31, 2003. 10.4.3 (a) 409A Deferred Compensation Agreement between William Jeffrey Pickryl and BOK Financial Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.3 (a) of Form 8-K filed on January 5, 2005. 10.4.3 (b) Employment Agreement between BOK Financial and W. Jeffrey Pickryl dated September 29, 2003, filed herewith. 10.4.3 (c) Amendment to Employment Agreement between BOK Financial and W. Jeffrey Pickryl dated August 30, 2004, filed herewith. 13 10.4.4 Amended and Restated Employment Agreement (Amended as of June 14, 2002) among First National Bank of Park Cities, BOK Financial Corporation and C. Fred Ball, Jr., incorporated by reference to Exhibit 10.4.4 of Form 10-K for the fiscal year ended December 31, 2003. 10.4.5 409A Deferred Compensation Agreement between Daniel H. Ellinor and BOK Financial Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.5 of Form 8-K filed on January 5, 2005. 10.4.5 (a) Employment Agreement between BOK Financial and Dan H. Ellinor dated August 29, 2003, filed herewith. 10.4.5 (b) Deferred Compensation Agreement dated November 28, 2003 between Daniel H. Ellinor and BOK Financial Corporation, filed herewith. 10.4.6 409A Deferred Compensation Agreement between Mark W. Funke and BOK Financial Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.6 of Form 8-K filed on January 5, 2005. 10.4.6 (a) Amended and Restated Deferred Compensation Agreement (Amended as of December 1, 2003) between Mark W. Funke and BOK Financial Corporation, filed herewith. 10.4.7 409A Deferred Compensation Agreement between Steven E. Nell and BOK Financial Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.7 of Form 8-K filed on January 5, 2005. 10.4.7 (a) Amended and Restated Deferred Compensation Agreement (Amended as of December 1, 2003) between Steven E. Nell and BOK Financial Corporation, filed herewith. 10.5 Director indemnification agreement dated June 30, 1987, between BOk and Kaiser, incorporated by reference to Exhibit 10.5 of S-1 Registration Statement No. 33-90450. Substantially similar director indemnification agreements were executed between BOk and the following: Date of Agreement James E. Barnes June 30, 1987 William H. Bell June 30, 1987 James S. Boese June 30, 1987 Dennis L. Brand June 30, 1987 Chester E. Cadieux June 30, 1987 William B. Cleary June 30, 1987 Glenn A. Cox June 30, 1987 William E. Durrett June 30, 1987 Leonard J. Eaton, Jr. June 30, 1987 William B. Fader December 5, 1990 Gregory J. Flanagan June 30, 1987 Jerry L. Goodman June 30, 1987 David A. Hentschel July 7, 1987 Philip N. Hughes July 8, 1987 Thomas J. Hughes, III June 30, 1987 William G. Kerr June 30, 1987 Philip C. Lauinger, Jr. June 30, 1987 Stanley A. Lybarger December 5, 1990 Patricia McGee Maino June 30, 1987 Robert L. Parker, Sr. June 30, 1987 James A. Robinson June 30, 1987 William P. Sweich June 30, 1987 10.6 Capitalization and Stock Purchase Agreement dated May 20, 1991, between BOK Financial and Kaiser, incorporated by reference to Exhibit 10.6 of S-1 Registration Statement No. 33-90450. 10.7.3 BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79834. 14 10.7.4 BOK Financial Corporation 1994 Stock Option Plan (Typographical Error Corrected January 16, 1995), incorporated by reference to Exhibit 10.7.4 of Form 10-K for the fiscal year ended December 31, 1994. 10.7.5 BOK Financial Corporation 1997 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 333-32649. 10.7.6 BOK Financial Corporation 2000 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 333-93957. 10.7.7 BOK Financial Corporation 2001 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 333-62578. 10.7.8 BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79836. 10.7.9 Bank of Oklahoma Thrift Plan (Amended and Restated Effective as of January 1, 1995), incorporated by reference to Exhibit 10.7.6 of Form 10-K for the year ended December 31, 1994. 10.7.10 Trust Agreement for the Bank of Oklahoma Thrift Plan (December 30, 1994), incorporated by reference to Exhibit 10.7.7 of Form 10-K for the year ended December 31, 1994. 10.7.11 BOK Financial Corporation 2003 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 333-106531. 10.7.12 BOK Financial Corporation 2003 Executive Incentive Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 333-106530. 10.8 Lease Agreement between One Williams Center Co. and National Bank of Tulsa (predecessor to BOk) dated June 18, 1974, incorporated by reference to Exhibit 10.9 of S-1 Registration Statement No. 33-90450. 10.9 Lease Agreement between Security Capital Real Estate Fund and BOk dated January 1, 1988, incorporated by reference to Exhibit 10.10 of S-1 Registration Statement No. 33-90450. 10.10Asset Purchase Agreement (OREO and other assets) between BOk and Phi-Lea-Em Corporation dated April 30, 1991, incorporated by reference to Exhibit 10.11 of S-1 Registration Statement No. 33-90450. 10.11Asset Purchase Agreement (Tanker Assets) between BOk and Green River Exploration Company dated April 30, 1991, incorporated by reference to Exhibit 10.12 of S-1 Registration Statement No. 33-90450. 10.12Asset Purchase Agreement (Recovery Rights) between BOk and Kaiser dated April 30, 1991, incorporated by reference to Exhibit 10.13 of S-1 Registration Statement No. 33-90450. 10.13Purchase and Assumption Agreement dated August 7, 1992 among First Gibraltar Bank, FSB, Fourth Financial Corporation and BOk, as amended, incorporated by reference to Exhibit 10.14 of Form 10-K for the fiscal year ended December 31, 1992. 10.13.1 Allocation Agreement dated August 7, 1992 between BOk and Fourth Financial Corporation, incorporated by reference to Exhibit 10.14.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.14Merger Agreement among BOK Financial, BOKF Merger Corporation Number Two, Brookside Bancshares, Inc., The Shareholders of Brookside Bancshares, Inc. and Brookside State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.15 of Form 10-K for the fiscal year ended December 31, 1992. 10.14.1 Agreement to Merge between BOk and Brookside State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.15.1 of Form 10-K for the fiscal year ended December 31, 1992. 15 10.15Merger Agreement among BOK Financial, BOKF Merger Corporation Number Three, Sand Springs Bancshares, Inc., The Shareholders of Sand Springs Bancshares, Inc. and Sand Springs State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1992. 10.15.1 Agreement to Merge between BOk and Sand Springs State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.16Partnership Agreement between Kaiser-Francis Oil Company and BOK Financial dated December 1, 1992, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1993. 10.16.1 Amendment to Partnership Agreement between Kaiser-Francis Oil Company and BOK Financial dated May 17, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended December 31, 1993. 10.17Purchase and Assumption Agreement between BOk and FDIC, Receiver of Heartland Federal Savings and Loan Association dated October 9, 1993, incorporated by reference to Exhibit 10.17 of Form 10-K for the fiscal year ended December 31, 1993. 10.18Merger Agreement among BOk, Plaza National Bank and The Shareholders of Plaza National Bank dated December 20, 1993, incorporated by reference to Exhibit 10.18 of Form 10-K for the fiscal year ended December 31, 1993. 10.18.1 Amendment to Merger Agreement among BOk, Plaza National Bank and The Shareholders of Plaza National Bank dated January 14, 1994, incorporated by reference to Exhibit 10.18.1 of Form 10-K for the fiscal year ended December 31, 1993. 10.19Stock Purchase Agreement between Texas Commerce Bank, National Association and BOk dated March 11, 1994, incorporated by reference to Exhibit 10.19 of Form 10-K for the fiscal year ended December 31, 1993. 10.20Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation Number Four, Citizens Holding Company and others dated May 11, 1994, incorporated by reference to Exhibit 10.20 of Form 10-K for the fiscal year ended December 31, 1994. 10.21Stock Purchase and Merger Agreement among Northwest Bank of Enid, BOk and The Shareholders of Northwest Bank of Enid effective as of May 16, 1994, incorporated by reference to Exhibit 10.21 of Form 10-K for the fiscal year ended December 31, 1994. 10.22Agreement and Plan of Merger among BOK Financial Corporation, BOKF Merger Corporation Number Five and Park Cities Bancshares, Inc. dated October 3, 1996, incorporated by reference to Exhibit C of S-4 Registration Statement No. 333-16337. 10.23Agreement and Plan of Merger among BOK Financial Corporation and First TexCorp., Inc. dated December 18, 1996, incorporated by reference to Exhibit 10.24 of S-4 Registration Statement No. 333-16337. 10.24Purchase and Assumption Agreement between Bank of America National Trust and Savings Association and BOK Financial Corporation dated July 27, 1998. 10.25Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation No. Seven, First Bancshares of Muskogee, Inc., First National Bank and Trust Company of Muskogee, and Certain Shareholders of First Bancshares of Muskogee, Inc. dated December 30, 1998. 10.26Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation Number Nine, and Chaparral Bancshares, Inc. dated February 19, 1999. 10.27Merger Agreement among BOK Financial Corporation, Park Cities Bancshares, Inc., Mid-Cities Bancshares, Inc. and Mid-Cities National Bank dated February 24, 1999. 16 10.28Merger Agreement among BOK Financial Corporation, Park Cities Bancshares, Inc., PC Interim State Bank, Swiss Avenue State Bank and Certain Shareholders of Swiss Avenue State Bank dated March 4, 1999. 10.29Merger Agreement among BOK Financial Corporation, Park Cities Bancshares, Inc. and CNBT Bancshares, Inc. dated August 18, 2000, incorporated by reference to Exhibit 10.29 of Form 10-K for the fiscal year ended December 31, 2000. 10.30Merger Agreement among BOK Financial Corporation, Bank of Tanglewood, N.A. and TW Interim Bank dated October 25, 2002, incorporated by reference to Exhibit 2.0 of S-4 Registration Statement No. 333-98685. 10.31Remote Outsourcing Services Agreement between Bank of Oklahoma, N.A. and Alltel Information Services, Inc., dated September 1, 2002, incorporated by reference to Exhibit 10.30 of the September 30, 2002 10-Q filed on November 13, 2002. 10.32Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation Number Eleven, Colorado Funding Company, Colorado State Bank and Trust and Certain Shareholders of Colorado Funding Company dated July 8, 2003, incorporated by reference to Exhibit 10.32 of Form 10-K for the fiscal year ended December 31, 2003. 10.33Merger Agreement between BOK Financial Corporation, BOKF Merger Corporation Number Eight, Valley Commerce Bank, and Valley Commerce Bancorp, Ltd. dated December 20, 2004, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on December 22, 2004. 13.0 Annual Report to Shareholders for the fiscal year ended December 31, 2004. Such report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not deemed to be "filed" as part of this Annual Report on Form 10-K. 21.0 Subsidiaries of BOK Financial, filed herewith. 23.0 Consent of independent registered public accounting firm - Ernst & Young LLP, filed herewith. 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 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, filed herewith. 99.0 Additional Exhibits. 99.1 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44121 for Bank of Oklahoma Master Thrift Plan and Trust, incorporated by reference to Exhibit 99.1 of Form 10-K for the fiscal year ended December 31, 1993. 99.2 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44122 for BOK Financial Corporation 1991 Special Stock Option Plan, incorporated by reference to Exhibit 99.2 of Form 10-K for the fiscal year ended December 31, 1993. 99.3 Undertakings incorporated by reference into S-8 Registration Statement No. 33-55312 for BOK Financial Corporation 1992 Stock Option Plan, incorporated by reference to Exhibit 99.3 of Form 10-K for the fiscal year ended December 31, 1993. 99.4 Undertakings incorporated by reference into S-8 Registration Statement No. 33-70102 for BOK Financial Corporation 1993 Stock Option Plan, incorporated by reference to Exhibit 99.4 of Form 10-K for the fiscal year ended December 31, 1993. 17 99.5 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79834 for BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 99.5 of Form 10-K for the fiscal year ended December 31, 1994. 99.6 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79836 for BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 99.6 of Form 10-K for the fiscal year ended December 31, 1994. 99.7 Undertakings incorporated by reference into S-8 Registration Statement No. 333-32649 for BOK Financial Corporation 1997 Stock Option Plan, Incorporated by reference to Exhibit 99.7 of Form 10-K for the fiscal year ended December 31, 1997. 99.8 Undertakings incorporated by reference into S-8 Registration Statement No. 333-93957for BOK Financial Corporation 2000 Stock Option Plan, Incorporated by reference to Exhibit 99.8 of Form 10-K for the fiscal year ended December 31, 1999. 99.9 Undertakings incorporated by reference into S-8 Registration Statement No. 333-40280 for BOK Financial Corporation Thrift Plan for Hourly Employees, Incorporated by reference to Exhibit 99.9 of Form 10-K for the fiscal year ended December 31, 2000. (b) Exhibits See Item 15 (a) (3) above. (c) Financial Statement Schedules See Item 15 (a) (2) above. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BOK FINANCIAL CORPORATION DATE: March 16, 2005 BY: /s/ George B. Kaiser ------------------------------ ---------------------------------- George B. Kaiser Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 16, 2005, by the following persons on behalf of the registrant and in the capacities indicated. OFFICERS /s/ George B. Kaiser /s/ Stanley A. Lybarger - ------------------------------------- ------------------------------------- George B. Kaiser Stanley A. Lybarger Chairman of the Board of Directors Director, President and Chief Executive Officer /s/ Steven E. Nell /s/ John C. Morrow - ------------------------------------- ------------------------------------- Steven E. Nell John C. Morrow Executive Vice President and Senior Vice President and Director of Chief Financial Officer Financial Accounting and Reporting DIRECTORS /s/ C.F. Ball, Jr. /s/ Judith Z. Kishner - ---------------------------------------- ----------------------------------- C. Fred Ball, Jr. Judith Z. Kishner /s/ David L. Kyle - ---------------------------------------- ----------------------------------- Sharon J. Bell David L. Kyle /s/ Joseph E. Cappy - ---------------------------------------- ----------------------------------- Joseph E. Cappy Robert J. LaFortune /s/ Luke R. Corbett /s/ Steven J. Malcolm - ---------------------------------------- ----------------------------------- Luke R. Corbett Steven J. Malcolm /s/ William E. Durrett - ---------------------------------------- ----------------------------------- William E. Durrett Paula Marshall-Chapman /s/ Robert G. Greer - ---------------------------------------- ----------------------------------- Robert G. Greer Steven E. Moore /s/ David F. Griffin /s/ James A. Robinson - ---------------------------------------- ----------------------------------- David F. Griffin James A. Robinson /s/ V. Burns Hargis - ---------------------------------------- ----------------------------------- V. Burns Hargis L. Francis Rooney, III - ---------------------------------------- E. Carey Joullian, IV EX-10 2 exhibit104eguaranty.txt EXHIBIT 10.4 (E) GUARANTY AGREEMENT Exhibit 10.4 (e) GUARANTY This Guaranty ("Guaranty"), dated as of March 7th, 2005, is made by George B. Kaiser ("Guarantor"), in favor of Mr. Stanley A. Lybarger ("Beneficiary"). WHEREAS, BOK Financial Corporation, an Oklahoma corporation ("BOKF") and Beneficiary have entered into that certain 409A Deferred Compensation Agreement dated December 31, 2004 (the "Agreement"); and WHEREAS, BOKF is an affiliate of Guarantor; and Guarantor will indirectly benefit from the Agreement; and WHEREAS, as an inducement to Beneficiary to defer compensation under the Agreement, Guarantor has agreed to provide this Guaranty; and WHEREAS, Guarantor has agreed to execute and deliver this Guaranty with respect to certain BOKF obligations under the Agreement; NOW THEREFORE, in consideration of the premises, Guarantor hereby agrees as follows: 1. Guaranty. Guarantor hereby absolutely and unconditionally guarantees the timely payment when due of BOKF's obligations arising under the Agreement as they relate to compensation that is deferred pursuant to the Agreement ("Obligations"). In the event BOKF fails to satisfy any of the Obligations, within ten (10) days after receiving written notice from Beneficiary, Guarantor shall pay or perform such Obligations. This Guaranty may be enforced by Beneficiary without the necessity at any time of resorting to or exhausting any other security or collateral. This Guaranty shall be limited in amount to the aggregate amount of $10,000,000 including interest and any applicable collection costs. 2. Effectiveness. This Guaranty is effective as of the date set forth above and is a continuing guaranty which shall remain in full force and effect throughout the term of the Agreement, including any extensions or renewals thereof, until Guarantor has irrevocably paid in full all amounts due and owing or all of the Obligations under the Agreement are completely fulfilled. 3. Waivers. Guarantor waives any right to require as a condition to its Obligations hereunder any of the following should Beneficiary seek to enforce the obligations of Guarantor: (i) presentment, demand for payment, notice of dishonor or non-payment, protest, notice of protest, or any similar type of notice; (ii) any suit or other action be brought against, or any notice of default or other similar notice be given to, or any demand be made upon BOKF or any other person or entity; (iii)notice of acceptance of this Guaranty, of the creation or existence of the Obligations, and/or any action by Beneficiary in reliance hereon or in connection herewith; (iv) evidence of entering into the Agreement between BOKF and Beneficiary, and/or any amendments, supplements or modifications thereto, or any waiver of consent under the Agreement, including of the Obligations; (v) notice of any increase, reduction or rearrangement of BOKF's Obligations under the Agreement, or any extension of time for payment of any amounts due Beneficiary under the Agreement; and (vi) the right to require, substantively or procedurally, that a judgment be rendered against BOKF or any other person or entity, or BOKF or any other person or entity be joined in any action against the Guarantor. 4. Assignment. Guarantor shall not assign its duties hereunder without the prior written consent of Beneficiary. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, permitted assigns, and legal representatives. 5. Notice. All demands, notices or other communications to be given to any party to another must be in writing and shall be deemed to have been given when delivered personally or otherwise actually received or on the third (3rd) day after being deposited in the United States mail if registered or certified, postage prepaid, or one (1) day after delivery to a nationally recognized overnight courier service, fee prepaid, return receipt requested, and addressed as follows: - --------------------------------- ------------------------------------------- Guarantor's Name and Address Beneficiary's Name and Address - --------------------------------- ------------------------------------------- George B. Kaiser Stanley A. Lybarger 6733 South Yale 3139 E. 88th Street Tulsa, OK 74121 Wellington South Phone: 918-491-4501 Tulsa, Oklahoma 74137 Fax: 918-491-4694 Phone: (918) 588-6888 Fax: (918) 588-6853 - --------------------------------- ------------------------------------------- With a copy to: - --------------------------------- ------------------------------------------- Frederic Dorwart Old City Hall 124 East Fourth Street Tulsa, OK 74103 Phone: (918) 583-9945 Fax: (918) 583-8251 - --------------------------------- ------------------------------------------- Or such other addresses as they may change from time by a party giving prior written notice of such change to the others. 6. Applicable Law. This Guaranty is deemed executed and delivered in the County of Tulsa, State of Oklahoma and shall be governed by and construed in accordance with the laws of the State of Oklahoma. Wherever possible, each provision of this Guaranty shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provisions of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or this Guaranty. 7. Effect of Certain Events. Guarantor agrees that its liability hereunder will not be released, reduced, impaired or affected by the occurrence of any one or more of the following events: (i) the insolvency, bankruptcy, reorganization, or disability of BOKF; (ii) the renewal, consolidation, extension, modification or amendment from time to time of the Agreement; iii) the failure, delay, waiver, or refusal by Beneficiary to exercise any right or remedy held by Beneficiary with respect to the Agreement; (iv) the sale, encumbrance, transfer or other modification of the ownership of BOKF or the change in the financial condition or management of BOKF; or (v) the settlement or compromise of any of the Obligations. 8. Representations and Warranties. Guarantor hereby represents and warrants that this Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other similar laws and to general principles of equity. 9. Subrogation. Until all amounts which may be or become payable under the Agreement have been irrevocably paid in full and/or all Obligations fully and finally satisfied, Guarantor shall not by virtue of this Guaranty be subrogated to any rights of BOKF or claim in competition with Beneficiary against BOKF in connection with any mater relating to or arising from the Obligations or this Guaranty. If any amount shall be paid to Guarantor on account of such subrogation rights at any time before all of the Obligations have been irrevocably paid in full and/or all Obligations fully and finally satisfied, such amounts shall be held in trust for the benefit of Beneficiary and shall promptly be paid to Beneficiary to be applied to the Obligations. 10. Amendment. No term or provision of this Guaranty shall be amended, modified, altered, waived, supplemented or terminated unless first agreed to by Guarantor and Beneficiary and then set forth in a written amendment to this Guaranty. 11. Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one document. 12. Entire Agreement. This Guaranty embodies the entire agreement and understanding between Guarantor and beneficiary regarding payment of the Obligation under the Agreement and supersedes all prior agreements and understandings relating to the subject matter hereof. IN WITNESS WHEREOF, Guarantor has executed this Guaranty effective as of the date first herein written. GUARANTOR /s/ George B. Kaiser ___________________________ George B. Kaiser EX-10 3 exhibit1042bemployagreement.txt EXHIBIT 10.4.2 (B) EMPLOYMENT AGREEMENT Exhibit 10.4.2 (b) EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made this 29th day of September, 2003 (the "Agreement Date") between the following parties ("Parties"): (i) BOK Financial Corporation, an Oklahoma corporation ("BOKF"); and, (ii) Steven G. Bradshaw, an individual residing in Tulsa, Oklahoma (the "Executive"). BOKF and Executive, in consideration of the promises and covenants set forth herein (the receipt and adequacy of which are hereby acknowledged) and intending to be legally bound hereby, agree as follows: (1) Purpose of This Agreement. The purpose of this Agreement is as follows: (a) BOKF is a multi-bank holding company, subject to regulation by the Board of Governors of the Federal Reserve System. The subsidiary banks of BOKF include Bank of Oklahoma, National Association ("BOk"), Bank of Arkansas, National Association ("BArk"), Bank of Texas, National Association ("BoT"), and Colorado State Bank and Trust, National Association ("CSBT"). The subsidiary broker-dealer of BOKF is BOSC, Inc. ("BOSC"). (b) The Executive currently serves as Executive Vice-President, Consumer Banking, of Bank of Oklahoma, National Association. (c) BOKF desires to employ Executive and Executive desires to accept employment by BOKF as Senior Executive Vice-President, Consumer Banking and Wealth Management. (d) The purpose of this Agreement is to set forth the terms and conditions (i) on which BOKF shall employ the Executive. (2) Employment. BOKF hereby employs the Executive, and the Executive hereby accepts employment with BOKF, on the following terms and conditions: (a) Executive shall serve as Senior Executive-Vice President of BOKF and as Senior Executive-Vice President of BOk. Executive shall be responsible for Consumer Banking in the BOKF subsidiary banks, BOk Mortgage Division, Trust Division in the BOKF subsidiary, Private Banking in the BOKF subsidiary banks, and BOSC. (b) Executive shall devote all time and attention reasonably necessary to the affairs of the BOKF and BOk and shall serve the BOKF and BOk diligently, loyally, and to the best of his ability. 2 (c) Executive shall serve in such other or additional positions as an officer and/or director of the BOKF and BOk or any of its affiliates as the Chief Executive Officer of BOKF may reasonably request; provided, however, Executive's residence and place of work shall be in Tulsa, Oklahoma area. (d) Notwithstanding anything herein to the contrary, Executive shall not be precluded from engaging in any charitable, civic, political or community activity or membership in any professional organization. (3) Compensation. As the sole, full and complete compensation to the Executive for the performance of all duties of Executive under this Agreement and for all services rendered by Executive to the BOKF and/or to any affiliate of the BOKF: (a) BOKF shall pay the Executive an annual salary (the "Annual Salary") during the Term (as hereafter defined). Initially, the Annual Salary shall be at the rate of $280,000 per year. The Annual Salary shall be payable in installments in arrears, less usual and customary payroll deductions for FICA, federal and state withholding, and the like, at the times and in the manner in effect in accordance with the usual and customary payroll policies generally in effect from time to time at BOKF. (i) The Annual Salary shall not be decreased at any time during the Term (as hereafter defined) of this Agreement. (ii) The Annual Salary may be increased annually in accordance with BOKF's compensation review practices in effect from time to time for senior executives. (b) BOKF shall pay and provide to Executive pension, thrift, medical insurance, disability insurance plan benefits, and other fringe benefits, on the same terms and conditions generally in effect for senior executive employees of the BOKF and its affiliates (the "Additional Benefits"). (c) BOKF may, from time to time in BOKF's sole discretion consistent with the practices generally in effect for senior executive employees of the BOKF and its affiliates, pay or provide, or agree to pay or provide, Executive a bonus, stock option, or other incentive or performance based compensation. (i) All such bonus, stock option or other incentive or performance based compensation, regardless of its nature (hereinafter called "Performance Compensation") shall not constitute Annual Salary. (A) BOKF shall consider Executive for the award of bonus and other incentive compensation on the same terms and conditions as offered generally to the senior 3 executive officers of the BOKF; provided, however: (B) BOKF shall pay Executive a minimum bonus of $125,000 for year 2004, payable on or before March 15, 2005; (C) BOKF shall provide an annual incentive award (as a percent of Annual Salary) to Executive pursuant to BOKF's Executive Incentive Compensation Plan as in effect from time to time which award shall have a 50% target award and maximum of 100% performance award, subject to approval by the BOKF Independent Compensation Committee; and, (D) BOKF shall provide a long-term incentive award (as a percent of Annual Salary) to Executive pursuant to BOKF's Executive Incentive Compensation Plan as in effect from time to time which award shall have a 100% target award and maximum of 150% performance award, subject to approval by the BOKF Independent Compensation Committee. (d) BOKF shall reimburse Executive for reasonable and necessary entertainment, travel and other expenses in accordance with BOKF's standard policies in general effect for senior executives of BOKF. (i) BOKF shall consider Executive for the award of options to acquire shares of BOKF Common Stock in respect of the BOKF stock option plan at the time and on the same terms and conditions as offered generally to the senior executive officers of BOKF. (ii) At the election of Executive, BOKF shall issue to Executive, in lieu of all or any part of the Options which would otherwise be awarded pursuant to the preceding sub-paragraph, BOKF restricted shares (on the terms and conditions set forth in the BOKF Executive Incentive Compensation Plan, "Restricted Shares"). (e) The Executive shall be allowed vacation, holidays, and other employee benefits not described above in accordance with BOKF's standard policy in general effect for BOKF's senior executive employees. 4 (f) BOKF shall permit Executive to participate in a deferred compensation plan on the terms and conditions substantially the same as those established from time to time for the Chief Executive Officer of BOKF. (g) Executive hereby agrees to accept the foregoing compensation as the sole, full and complete compensation to Executive for the performance of all duties of Executive under this Agreement and for all services rendered by Executive to the BOKF or any affiliate of the BOKF. (4) Term of Employment. The term (the "Term") of Executive's employment ("Employment") pursuant to this Agreement shall commence on October 15, 2003 (the "Commencement") and shall continue thereafter provided that upon ninety days prior written notice, either Party may terminate this Agreement effective on or after the first anniversary date of the Commencement. (5) Termination of Employment. Notwithstanding the provisions of paragraph 4 of this Agreement, the Employment may be terminated on the following terms and conditions: (a) Termination by BOKF Without Cause. In the event the BOKF terminates Employment of Executive without cause: (i) BOKF shall forthwith upon such termination (A) pay to Executive BOKF's standard severance pay and in addition an amount equal to Executive's then Annual Salary, (B) the Executive shall, for the remaining portion of the Term, be entitled to receive any benefits, insured or otherwise, that Executive would otherwise be able to receive under any Benefit Plan of the BOKF of which Executive is a beneficiary in accordance with paragraph 3(b), (C) Executive shall be entitled to receive pay for vacation in accordance with BOKF's then existing policy for terminating senior executive employees, and (D) Executive shall be entitled to receive those amounts due Executive pursuant to paragraph 7(b) and shall be bound by the Non-Solicitation Agreement (as hereafter defined). (ii) If, within one year of the Commencement, Executive is terminated for any reason other than for cause following a Change of Control (as hereafter defined), BOKF shall pay Executive upon such termination in one lump sum payment an amount equal to two times Executive's Annual Salary at the time of termination. As used herein, a Change Control shall be deemed to have occurred if, and only if: (A) George B. Kaiser, affiliates of George B. Kaiser, and/or members of the family of George B. Kaiser collectively cease to own 5 more shares of the voting capital stock of BOKF than any other shareholder (or group of shareholders acting in concert to control BOKF to the exclusion of George B. Kaiser, affiliates of George B. Kaiser, or members of the family of George B. Kaiser); or, (B) BOKF shall cease to own directly and indirectly more than 50% of the voting capital stock of the BOk. (b) Termination by BOKF for Cause. BOKF may terminate the Employment for cause on the following terms and conditions: (i) BOKF shall be deemed to have cause to terminate Executive's Employment only in one or more of the following events: (A) The Executive shall fail to substantially perform his obligations under this Agreement except as a result of Executive's incapacity due to physical or mental illness after having first received notice of such failure and thirty days within which to correct the failure; (B) The Executive commits any act which is intended by Executive to injure BOKF or any of its affiliates; (C) The Executive is convicted of any criminal act or act involving moral turpitude which the BOKF reasonably deems adversely affects the suitability of Executive to serve BOKF or any of its affiliates; (D) The Executive commits any dishonest or fraudulent act which the BOKF reasonably deems material to the BOKF, including the reputation of the BOKF or any of its affiliates; or, (E) Any refusal by Executive to obey orders or instructions of the Chief Executive Officer of the BOKF or BOk unless such instructions would require Executive to commit an illegal act, could subject Executive to personal liability, would 6 require Executive to violate the terms of this Agreement, are inconsistent with recognized ethical standards, or would otherwise be inconsistent with the duties of an officer of a bank. (ii) BOKF shall be deemed to have cause to terminate Executive's Employment only when a majority of the members of the Board of Directors of the BOKF finds that, in the good faith opinion of such majority, the Executive committed one or more of the acts set forth in clauses (A) through (E) of the preceding subparagraph, such finding to have been made after at least twenty (20) business days' notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before such majority. The determination of such majority, made as set forth above, shall be binding upon the BOKF and the Executive; (iii)The effective date of a termination for cause shall be the date of the action of such majority finding the termination was with cause. In the event the BOKF terminates Executive's Employment for cause, (A) BOKF shall pay Executive the Executive's then Annual Salary through, but not beyond, the effective date of the termination and (B) the Executive shall receive those Additional Benefits accrued through but not beyond the effective date of such termination which are thereafter payable under the terms and provisions of benefit plans then in effect in accordance with paragraph 3(b) above, (C) BOKF shall pay the Executive for vacation in accordance with BOKF's then existing policy for senior executive employees, and (D) Executive shall be bound by the provisions of the Non-Solicitation Agreement. (6) Provisions Respecting Illness and Death. In the event Executive is unable to perform his duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of illness or other physical or mental disability, and at or before the end of such period, Executive does not return to work on a full-time basis, BOKF may terminate Executive's Employment without further or additional compensation being due the Executive from BOKF except Annual Salary accrued through the date of termination, Additional Benefits accrued through the date of such termination under benefit plans then in effect in accordance with paragraph 3(b) above, and vacation in accordance with BOKF's then existing policy for senior executive employees, and the provisions of paragraph 7 shall apply. Without limiting the generality of Paragraph 3(f), Executive shall upon such termination receive those benefits provided in the BOKF long term disability policy then in effect. In the event of the death of the Executive, the 7 Employment of the Executive shall automatically terminate as of the date of death without further or additional compensation being due the Executive, except BOKF shall pay to the estate of the Executive the Annual Salary accrued through the date of termination and the Additional Benefits accrued through the date of such termination under benefit plans then in effect in accordance with paragraph 3(b) above. (7) Agreement Not to Solicit. The provisions of this paragraph are hereafter called the "Non-Solicitation Agreement". (a) Executive agrees that, for a period of two (2) years following any termination of the Employment for cause, and for a period of one (1) year following any termination of the Employment for any reason other than cause (including expiration of the Term), Executive shall not directly or indirectly (whether as an officer, director, employee, partner, stockholder, creditor or agent, or representative of other persons or entities) contact or solicit, in any manner indirectly or directly, individuals or entities who were at anytime during the original or any extended Term clients of BOKF or any of its affiliates for the purpose of providing banking, trust, investment, or other services provided by BOKF or any of its affiliates during the Term or contact or solicit employees of BOKF or any affiliates of BOKF to seek employment with any person or entity except BOKF and its affiliates. This Non-Solicitation Agreement shall not apply to ownership by Executive of up to ten percent (10%) of the common stock of a corporation traded on the facilities of a national securities exchange engaged in the banking business of which Executive is not a director, officer, employee, agent or representative. (b) BOKF shall pay Executive, in addition to any other amounts which may be due Executive, during each year in which the Non-Solicitation Agreement is in effect, $3,000 payable in installments in arrears, less usual and customary payroll deductions for FICA, federal and state withholding, and the like, at the times and in the manner in effect in accordance with the usual and customary payroll policies generally in effect from time to time at BOKF. (c) Executive agrees that the Non-Solicitation Agreement and all the restrictions set forth in this Non-Solicitation Agreement are fair and reasonable. (d) Executive agrees that (i) any remedy at law for any breach of this Non- Agreement would be inadequate, (ii) in the event of any breach of this Non-Solicitation Agreement, the Non-Solicitation Agreement shall constitute incontrovertible evidence of irreparable injury to BOKF, and (iii) BOKF shall be entitled to both immediate and permanent injunctive relief without the necessity of establishing or posting any bond therefor to preclude any such breach (in addition to any remedies of law which BOKF may be entitled). 8 (8) Confidential Information. (a) Executive acknowledges that, during the Term and prior to the Term, Executive has had and will have access to Confidential Information, all of which shall be made accessible to Executive only in strict confidence; that unauthorized disclosure of Confidential Information will damage the BOKF's business; that Confidential Information would be susceptible to immediate competitive application by a competitor of the BOKF; that BOKF's business is substantially dependent on access to and the continuing secrecy of Confidential Information; that Confidential Information is unique to the BOKF and known only to Executive and certain key employees and contractors of BOKF; that the BOKF shall at all times retain ownership and control of all Confidential Information; and that the restrictions contained in this paragraph are reasonable and necessary for the protection of the BOKF's business. (b) All documents or other records containing or reflecting Confidential Information ("Confidential Documents") prepared by or to which Executive has access are and shall remain the property of the BOKF. Executive shall not copy or use any Confidential Document for any purpose not relating directly to Executive's work on the BOKF's behalf, or use, disclose or sell any Confidential Document to any party other than the BOKF and its employees. Upon the termination of this Agreement or upon the BOKF's request before or after such termination, Executive shall immediately deliver to the BOKF or its designee (and shall not keep in Executive's possession or deliver to anyone else) all Confidential Documents and all other property belonging to the BOKF. This paragraph shall not bar Employee from complying with any subpoena or court order, provided that Executive shall at the earliest practicable date provide a copy of the subpoena or court order to the BOKF's Chief Executive Officer. (c) During the Term and for a period of four (4) years thereafter, regardless of the reason for termination of Executive's employment, (i) Executive shall not disclose any Confidential Information to any third party and (ii) Executive shall use Confidential Information only in connection with and in furtherance of Executive's work for the BOKF and its affiliates. (d) As used herein, Confidential Information means all nonpublic information concerning or arising from the BOKF's business, including particularly but not by way of limitation trade secrets used, developed or acquired by the BOKF in connection with its business; information concerning the manner and details of the BOKF's operations, organization and management; financial information and/or documents and nonpublic policies, procedures and other printed or written material generated or used in connection with the BOKF's business; the BOKF's business plans and strategies; electronic files or documents prepared by BOKF or 9 Executive containing the identities of the BOKF's customers (including their addresses and telephone numbers), the nature and amounts of their assets and liabilities, and the specific individual customer needs being addressed by the BOKF; the nature of fees and charges assessed by the BOKF; nonpublic forms, contracts and other documents used in the BOKF's business; the nature and content of any proprietary computer software used in the BOKF's business, whether owned by the BOKF or used by the BOKF under license from a third party; and all other nonpublic information concerning the BOKF's concepts, prospects, customers, employees, contractors, earnings, products, services, equipment, systems, and/or prospective and executed contracts and other business arrangements. Confidential Information shall not include (i) general skills and general knowledge of the industry obtained by reason of Executive's association with the BOKF; (ii) information that is or becomes public knowledge through no fault or action of Executive; (iii) any information received from an independent third party who is under no duty of confidentiality with respect to the information; or (iv) any information that, on advice of counsel, Executive is required to disclose by law or regulation. (9) Surrender of Records and Property. Upon termination of Executive's employment with BOKF for whatever reason, Executive shall deliver promptly to the BOKF all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof that relate in any way to the business, products, practices or techniques of the BOKF or any of its affiliates, and all other information of the BOKF or any of its affiliates, including, but not limited to, all documents that in whole or in part contain any information which is defined in this Agreement as Confidential Information and which is in the possession or under the control of Executive. (10) Executive's Representations. Executive hereby represents that (i) prior to the Agreement Date Executive has, and as of the Commencement Executive will have, continued to fulfill Executive's duty of loyalty to Executive's present employer, (ii) the conditions of Executive's present employment do not restrict Executive's ability to accept employment in accordance with this Agreement, and (iii) as of the Commencement, Executive will not have in his possession any confidential or proprietary information belonging to Executive's present employer. (11) Miscellaneous Provisions. The following miscellaneous provisions shall apply to this Agreement: (a) All notices or advices required or permitted to be given by or pursuant to this Agreement, shall be given in writing. All such notices and advices shall be (i) delivered personally, (ii) delivered by facsimile or delivered by U.S. Registered or Certified Mail, Return Receipt Requested mail, or (iii) delivered for overnight delivery by a nationally recognized overnight courier service. Such notices and advices shall be deemed to have been given (i) the first business day following the 10 date of delivery if delivered personally or by facsimile, (ii) on the third business day following the date of mailing if mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii) on the date of receipt if delivered for overnight delivery by a nationally recognized overnight courier service. All such notices and advices and all other communications related to this Agreement shall be given as follows: If to BOKF: BOKF Financial Corporation Att: Stanley A. Lybarger Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 Telephone No.: (918) 588-6888 Telecopy No.: (918) 382-5435 slybarger@BOKF.com With a Copy to: Frederic Dorwart Old City Hall 124 East Fourth Street Tulsa, OK 74103-5010 Telephone No.: (918) 583-9945 Telecopy No.: (918) 583-8251 FDorwart@FDLaw.com If to Executive: Steven G. Bradshaw ------------------------- Tulsa, Oklahoma ________ Telephone No.: ______________ Telecopy No.: _______________ ------------------------- or to such other address as the party may have furnished to the other parties in accordance herewith, except that notice of change of addresses shall be effective only upon receipt. (b) This Agreement is made and executed in Tulsa, Oklahoma and all actions or proceedings with respect to, arising directly or indirectly in connection with, out of, related to or from this Agreement, shall be litigated in courts having situs in Tulsa, Oklahoma. (c) This Agreement shall be subject to, and interpreted by and in accordance with, the laws of the State of Oklahoma. (d) This Agreement is the entire Agreement of the parties respecting the subject matter hereof. There are no other agreements, representations or warranties, 11 whether oral or written, respecting the subject matter hereof, except as stated in this Agreement. (e) This Agreement, and all the provisions of this Agreement, shall be deemed drafted by all of the parties hereto. (f) This Agreement shall not be interpreted strictly for or against any party, but solely in accordance with the fair meaning of the provisions hereof to effectuate the purposes and interest of this Agreement. (g) Each party hereto has entered into this Agreement based solely upon the agreements, representations and warranties expressly set forth herein and upon her or his own knowledge and investigation. Neither party has relied upon any representation or warranty of any other party hereto except any such representations or warranties as are expressly set forth herein. (h) Each of the persons signing below on behalf of a party hereto represents and warrants that he or she has full requisite power and authority to execute and deliver this Agreement on behalf of the parties for whom he or she is signing and to bind such party to the terms and conditions of this Agreement. (i) This Agreement may be executed in counterparts, each of which shall be deemed an original. This Agreement shall become effective only when all of the parties hereto shall have executed the original or counterpart hereof. This Agreement may be executed and delivered by a facsimile transmission of a counterpart signature page hereof. (j) In any action brought by a party hereto to enforce the obligations of any other party hereto, the prevailing party shall be entitled to collect from the opposing party to such action such party's reasonable litigation costs and attorneys fees and expenses (including court costs, reasonable fees of accountants and experts, and other expenses incidental to the litigation). (k) This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, administrators, successors and assigns. (l) This is not a third party beneficiary contract, except each affiliate of BOKF shall be a third party beneficiary of this Agreement. (m) This Agreement may be amended or modified only in a writing, as agreed to by the parties hereto, which specifically references this Agreement. (n) A party to this Agreement may decide or fail to require full or timely performance of any obligation arising under this Agreement. The decision or failure of a party hereto to require full or timely performance of any obligation arising under this Agreement (whether on a single occasion or on multiple occasions) shall not be deemed a waiver of any such obligation. No such decisions or failures shall give rise to any claim of estoppel, laches, course of dealing, amendment of this 12 Agreement by course of dealing, or other defense of any nature to any obligation arising hereunder. (o) In the event any provision of this Agreement, or the application of such provision to any person or set of circumstances, shall be determined to be invalid, unlawful, or unenforceable to any extent for any reason, the remainder of this Agreement, and the application of such provision to persons or circumstances other than those as to which it is determined to be invalid, unlawful, or unenforceable, shall not be affected and shall continue to be enforceable to the fullest extent permitted by law. Dated as of the Agreement Date. BOK FINANCIAL CORPORATION /s/ Stanley A. Lybarger By_________________________________ /s/ Steven G. Bradshaw ----------------------------------- Executive's Signature EX-10 4 exhibit1043bemployagreement.txt EXHIBIT 10.4.3 (B) EMPLOYMENT AGREEMENT Exhibit 10.4.3 (b) EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made this 29th day of September, 2003 (the "Agreement Date") between the following parties ("Parties"): (i) BOK Financial Corporation, an Oklahoma corporation ("BOKF"); and, (ii) W. Jeffery Pickryl, an individual currently residing in Tulsa, Oklahoma (the "Executive"). BOKF and Executive, in consideration of the promises and covenants set forth herein (the receipt and adequacy of which are hereby acknowledged) and intending to be legally bound hereby, agree as follows: (1) Purpose of This Agreement. The purpose of this Agreement is as follows: (a) BOKF is a multi-bank holding company, subject to regulation by the Board of Governors of the Federal Reserve System. The subsidiary banks of BOKF include Bank of Oklahoma, National Association ("BOk"), Bank of Texas, National Association ("BoT"), Bank of Albuquerque, National Association (BoA"), and Colorado State Bank and Trust, National Association ("CSBT"). (b) The Executive is currently employed by Bank of Oklahoma, National Association as Executive Vice-President, Commercial Banking. (c) BOKF desires to employ Executive and Executive desires to accept employment by BOKF as Senior Executive Vice-President of BOKF. (d) The purpose of this Agreement is to set forth the terms and conditions on which BOKF shall employ the Executive. (2) Employment. BOKF hereby employs the Executive, and the Executive hereby accepts employment with BOKF, on the following terms and conditions: (a) Executive shall serve as Senior Executive-Vice President of BOKF. Executive shall be responsible for the operations of BoT, BoA, and CSBT. (b) Executive shall devote all time and attention reasonably necessary to the affairs of the BOKF and shall serve BOKF diligently, loyally, and to the best of his ability. (c) Executive shall serve in such other or additional positions as an officer and/or director of the BOKF and any of its affiliates as the Chief Executive Officer of BOKF may reasonably request; provided, however, 2 Executive's residence and place of work shall be in Dallas Metropolitan area. (d) Notwithstanding anything herein to the contrary, Executive shall not be precluded from engaging in any charitable, civic, political or community activity or membership in any professional organization. (3) Compensation. As the sole, full and complete compensation to the Executive for the performance of all duties of Executive under this Agreement and for all services rendered by Executive to the BOKF and/or to any affiliate of the BOKF: (a) BOKF shall pay the Executive an annual salary (the "Annual Salary") during the Term (as hereafter defined). Initially, the Annual Salary shall be at the rate of $325,000 per year. (i) The Annual Salary shall be payable in installments in arrears, less usual and customary payroll deductions for FICA, federal and state withholding, and the like, at the times and in the manner in effect in accordance with the usual and customary payroll policies generally in effect from time to time at BOKF. (ii) The Annual Salary shall not be decreased at any time during the Term (as hereafter defined) of this Agreement. (iii)The Annual Salary may be increased annually in accordance with BOKF's compensation review practices in effect from time to time for senior executives. (b) BOKF shall pay and provide to Executive pension, thrift, medical insurance, disability insurance plan benefits, and other fringe benefits, on the same terms and conditions generally in effect for senior executive employees of the BOKF and its affiliates (the "Additional Benefits"). (c) BOKF may, from time to time in BOKF's sole discretion consistent with the practices generally in effect for senior executive employees of the BOKF and its affiliates, pay or provide, or agree to pay or provide, Executive a bonus, stock option, or other incentive or performance based compensation. (i) All such bonus, stock option or other incentive or performance based compensation, regardless of its nature (hereinafter called "Performance Compensation") shall not constitute Annual Salary. (ii) BOKF shall consider Executive for the award of bonus and other incentive compensation on the same terms and 3 conditions as offered generally to the senior executive officers of the BOKF; provided, however: (A) BOKF shall pay Executive a minimum bonus of $150,000 for year 2004, payable on or before March 15, 2005; (B) BOKF shall provide an annual incentive award (as a percent of Annual Salary) to Executive pursuant to BOKF's Executive Incentive Compensation Plan as in effect from time to time which award shall have a 50% target award and maximum of 100% performance award, subject to approval by the BOKF Independent Compensation Committee; and, (C) BOKF shall provide a long-term incentive award (as a percent of Annual Salary) to Executive pursuant to BOKF's Executive Incentive Compensation Plan as in effect from time to time which award shall have a 100% target award and maximum of 150% performance award, subject to approval by the BOKF Independent Compensation Committee in years 2005 and following. (d) BOKF shall reimburse Executive for reasonable and necessary entertainment, travel and other expenses in accordance with BOKF's standard policies in general effect for senior executives of BOKF and its affiliates. (e) BOKF shall consider Executive for the award of options to acquire shares of BOKF Common Stock in respect of the BOKF stock option plan at the time and on the same terms and conditions as offered generally to the senior executive officers of BOKF and its affiliates. and, at the election of Executive, BOKF shall issue to Executive, in lieu of all or any part of the Options which would otherwise be awarded, BOKF restricted shares (on the terms and conditions set forth in the BOKF Executive Incentive Compensation Plan, "Restricted Shares"). (f) The Executive shall be allowed vacation, holidays, and other employee benefits not described above in accordance with BOKF's standard policy in general effect for senior executive employees of BOKF and its affiliates. 4 (g) BOKF shall permit Executive to participate in a deferred compensation plan on the terms and conditions substantially the same as those established from time to time for the Chief Executive Officer of BOKF. (h) BOKF shall compensate and reimburse Executive for relocating from his existing residence in Tulsa to the Dallas Metropolitan Area, as follows: (i) BOKF shall pay Executive $100,000 (grossed up for income taxes (1)) as a relocation bonus, payable with two weeks following the commencement of the Term; (ii) BOKF shall purchase Executive's primary residence in Tulsa, Oklahoma on the following terms and conditions: (A) BOKF shall engage two real estate appraisers approved by Executive (provided such approval is not unreasonable withheld, delayed or denied) to provide two separate appraisals. (B) BOKF shall pay Executive the average of the two appraisals but not less than the price paid by Executive for such residence, less the payoff amount of any purchase money mortgage on the residence. (C) Executive shall convey the residence to BOKF, free and clear of all liens, claims, and encumbrances (except any purchase money mortgage on the resident), by general warranty deed. (D) Usual and customary pro-rations shall be settled between Executive and BOKF in connection with such purchase. (E) The effective date of the purchase shall be the date on which Executive's family vacates the Relocation Date (as hereafter defined). (1) The gross-up shall be calculated at the highest incremental rate actually experienced by Executive. For example, if taxed in Oklahoma, the rate would be as follows: assuming the highest tax bracket for federal, the Okla. state rate less the federal benefit, medicare, and assuming the FICA limit has already been met, the composite rate would be 41% broken down as follows: 35% Federal 4.55% State (after federal deduction) 1.45% Medicare or a total 41%. 5 (iii)BOKF shall reimburse Executive, against reasonable documentation thereof, for usual and customary closing costs incurred in connection with the purchase of a new primary residence in the Dallas Metropolitan Area, grossed up for income taxes as provided in footnote 1. (iv) BOKF shall provide the services of a nationally recognized mover to pack and move Executive's household goods to the Dallas Metropolitan Area. (v) BOKF shall reimburse Executive, against reasonable documentation thereof, for the reasonable costs during the Relocation Period of travel to Dallas, Texas by Executive's family for the purpose of house hunting. (i) BOKF shall reimburse Executive for the purchase of a country club membership at a club in the Dallas Metropolitan Area, not exceeding $75,000, mutually acceptable to BOKF and Executive. The reimbursement shall be grossed up for income taxes as provided in footnote 1. (j) Executive hereby agrees to accept the foregoing compensation as the sole, full and complete compensation to Executive for the performance of all duties of Executive under this Agreement and for all services rendered by Executive to the BOKF or any affiliate of the BOKF. (4) Term of Employment. The provisions of this Agreement shall apply to the employment of Executive ("Employment") for the term (the "Term") commencing on October 15, 2003 (the "Commencement") and ending on the third anniversary of the Commencement provided that, unless one of the Party's given written notice of termination ninety days prior to the expiration of the Term (including any renewal of the Term), this Agreement shall automatically renew for one year. Executive shall report for work in Dallas, Texas full-time on the Commencement. (5) Termination of Employment. Notwithstanding the provisions of paragraph 4 of this Agreement, the Employment may be terminated on the following terms and conditions: (a) Termination by BOKF Without Cause. In the event BOKF terminates Employment of Executive without cause: (i) BOKF shall forthwith upon the effective date of such termination (A) pay to Executive BOKF's standard severance pay and in addition thereto (x) an amount equal to three times Executive's then Annual Salary if the effective date of such termination is prior to the first anniversary date of Commencement, (y) an amount equal 6 to two times Executive's then Annual Salary if the effective date of such termination is on or after the first anniversary of Commencement and prior to the second anniversary of Commencement, or (z) an amount equal to Executive's then Annual Salary if the effective date of such termination is on or after the second anniversary of the Commencement, (B) the Executive shall, for the remaining portion of the Term, be entitled to receive any benefits, insured or otherwise, that Executive would otherwise be able to receive under any Benefit Plan of the BOKF of which Executive is a beneficiary in accordance with paragraph 3(b), (C) Executive shall be entitled to receive pay for vacation in accordance with BOKF's then existing policy for terminating senior executive employees, and (D) Executive shall be entitled to receive those amounts due Executive pursuant to paragraph 7(b) and shall be bound by the Non-Participation Agreement and the Non-Solicitation Agreement (as hereafter defined). (ii) If, on or before the third anniversary of this Agreement, Executive is terminated by BOKF for any reason other than for cause following a Change of Control (as hereafter defined), BOKF shall pay Executive upon such termination in one lump sum payment an amount equal to the greater of (A) two times Executive's Annual Salary at the time of termination or (B) the Annual Salary which Executive would receive after such termination during the period commencing with the termination and ending on the third anniversary of this Agreement. As used herein, a Change Control shall be deemed to have occurred if, and only if: (A) George B. Kaiser, affiliates of George B. Kaiser, and/or members of the family of George B. Kaiser collectively cease to own more shares of the voting capital stock of BOKF than any other shareholder (or group of shareholders acting in concert to control BOKF to the exclusion of George B. Kaiser, affiliates of George B. Kaiser, or members of the family of George B. Kaiser); or, (B) BOKF shall cease to own directly and indirectly more than 50% of the voting capital stock of the BOk. (b) Termination by BOKF for Cause. BOKF may terminate the Employment for cause on the following terms and conditions: 7 (i) BOKF shall be deemed to have cause to terminate Executive's Employment only in one or more of the following events: (A) The Executive shall fail to substantially perform his obligations under this Agreement except as a result of Executive's incapacity due to physical or mental illness after having first received notice of such failure and thirty days within which to correct the failure; (B) The Executive commits any act which is intended by Executive to injure BOKF or any of its affiliates; (C) The Executive is convicted of any criminal act or act involving moral turpitude which the BOKF reasonably deems adversely affects the suitability of Executive to serve BOKF or any of its affiliates; (D) The Executive commits any dishonest or fraudulent act which the BOKF reasonably deems material to the BOKF, including the reputation of the BOKF or any of its affiliates; or, (E) Any refusal by Executive to obey orders or instructions of the Chief Executive Officer of the BOKF unless such instructions would require Executive to commit an illegal act, could subject Executive to personal liability, would require Executive to violate the terms of this Agreement, are inconsistent with recognized ethical standards, or would otherwise be inconsistent with the duties of an officer of a national bank or a bank holding company. (ii) BOKF shall be deemed to have cause to terminate Executive's Employment only when a majority of the members of the Board of Directors of the BOKF finds that, in the good faith opinion of such majority, the Executive committed one or more of the acts set forth in clauses (A) through (E) of the preceding subparagraph, such finding to have been made after at least twenty (20) business days' notice to the Executive and an opportunity for the 8 Executive, together with his counsel, to be heard before such majority. The determination of such majority, made as set forth above, shall be binding upon the BOKF and the Executive; (iii)The effective date of a termination for cause shall be the date of the action of such majority finding the termination was with cause. In the event the BOKF terminates Executive's Employment for cause, (A) BOKF shall pay Executive the Executive's then Annual Salary through, but not beyond, the effective date of the termination and (B) the Executive shall receive those Additional Benefits accrued through but not beyond the effective date of such termination which are thereafter payable under the terms and provisions of benefit plans then in effect in accordance with paragraph 3(b) above, (C) BOKF shall pay the Executive for vacation in accordance with BOKF's then existing policy for senior executive employees, and (D) Executive shall be bound by the provisions of the Non-Solicitation Agreement. (6) Provisions Respecting Illness and Death. In the event Executive is unable to perform his duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of illness or other physical or mental disability, and at or before the end of such period, Executive does not return to work on a full-time basis, BOKF may terminate Executive's Employment without further or additional compensation being due the Executive from BOKF except Annual Salary accrued through the date of termination, Additional Benefits accrued through the date of such termination under benefit plans then in effect in accordance with paragraph 3(b) above, and vacation in accordance with BOKF's then existing policy for senior executive employees, and the provisions of paragraph 7 shall apply. Without limiting the generality of Paragraph 3(f), Executive shall upon such termination receive those benefits provided in the BOKF long term disability policy then in effect. In the event of the death of the Executive, the Employment of the Executive shall automatically terminate as of the date of death without further or additional compensation being due the Executive, except BOKF shall pay to the estate of the Executive the Annual Salary accrued through the date of termination and the Additional Benefits accrued through the date of such termination under benefit plans then in effect in accordance with paragraph 3(b) above. (7) Agreement Not to Compete and Agreement Not to Solicit. Executive hereby agrees as follows: (a) Executive hereby agrees (the "Non-Competition Agreement") that, for a period of two (2) years after the termination of Executive's employment by BOKF for cause, and for a period of one (1) year following termination of 9 Employment for any reason other than cause (including the expiration of the Term), Executive shall not directly or indirectly (whether as an officer, director, employee, partner, stockholder, creditor or agent, or representative of other persons or entities) engage in the banking business or in any business in which the BOKF or any affiliate of the BOKF has, as of the date of such termination engaged (the "banking business" or "banking services"), in Dallas County, Texas, Harris County Texas, Tarrant County, Texas, or any county in which BoT, BoA, or CSBT maintains a banking office, or in any counties contiguous to any of such counties (the "Trade Area"), provided that the foregoing shall not apply to ownership by Executive of up to ten percent (10%) of the common stock of a corporation traded on the facilities of a national securities exchange engaged in the banking business of which Executive is not a director, officer, employee, agent or representative. (b) Executive agrees (the "Non-Solicitation Agreement") that,for a period of two (2) years following any termination of the Employment for cause, and for a period of one (1) year following any termination of the Employment for any reason other than cause (including expiration of the Term), Executive shall not directly or indirectly (whether as an officer, director, employee, partner, stockholder, creditor or agent, or representative of other persons or entities) contact or solicit, in any manner indirectly or directly, individuals or entities who were at anytime during the original or any extended Term clients of BOKF or any of its affiliates for the purpose of providing banking, trust, investment, or other banking services provided by BOKF or any of its affiliates during the Term or contact or solicit employees of BOKF or any affiliates of BOKF to seek employment with any person or entity except BOKF and its affiliates. This Non-Solicitation Agreement shall not apply to ownership by Executive of up to ten percent (10%) of the common stock of a corporation traded on the facilities of a national securities exchange engaged in the banking business of which Executive is not a director, officer, employee, agent or representative. (c) BOKF shall promptly following the executive of this Agreement pay Executive $10,000 as additional consideration for the Non-Competition Agreement which Executive agrees is, with the payment hereafter described, full and fair consideration for such agreement. BOKF shall pay Executive, in addition to any other amounts which may be due Executive, during each year in which the Non-Competition Agreement is in effect, $12,000 payable in installments in arrears, less usual and customary payroll deductions for FICA, federal and state withholding, and the like, at the times and in the manner in effect in accordance with the usual and customary payroll policies generally in effect from time to time at BOKF. (d) Executive agrees that the Non-Competition Agreement and the Non-Solicitation Agreement and all the restrictions set forth therein are fair and reasonable. 10 (e) Executive agrees that (i) any remedy at law for any breach of the Non-Competition Agreement and/or Non-Solicitation Agreement would be inadequate, (ii) in the event of any breach of the Non-Competition Agreement and/or Non-Solicitation Agreement, the Non-Competition Agreement and Non-Solicitation Agreement, as the case may be, shall constitute incontrovertible evidence of irreparable injury to BOKF, and (iii) BOKF shall be entitled to both immediate and permanent injunctive relief without the necessity of establishing or posting any bond therefor to preclude any such breach (in addition to any remedies of law which BOKF may be entitled). (8) Confidential Information. (a) Executive acknowledges that, during the Term and prior to the Term, Executive has had and will have access to Confidential Information, all of which shall be made accessible to Executive only in strict confidence; that unauthorized disclosure of Confidential Information will damage the BOKF's business; that Confidential Information would be susceptible to immediate competitive application by a competitor of the BOKF; that BOKF's business is substantially dependent on access to and the continuing secrecy of Confidential Information; that Confidential Information is unique to the BOKF and known only to Executive and certain key employees and contractors of BOKF; that the BOKF shall at all times retain ownership and control of all Confidential Information; and that the restrictions contained in this paragraph are reasonable and necessary for the protection of the BOKF's business. (b) All documents or other records containing or reflecting Confidential Information ("Confidential Documents") prepared by or to which Executive has access are and shall remain the property of the BOKF. Executive shall not copy or use any Confidential Document for any purpose not relating directly to Executive's work on the BOKF's behalf, or use, disclose or sell any Confidential Document to any party other than the BOKF and its employees. Upon the termination of this Agreement or upon the BOKF's request before or after such termination, Executive shall immediately deliver to the BOKF or its designee (and shall not keep in Executive's possession or deliver to anyone else) all Confidential Documents and all other property belonging to the BOKF. This paragraph shall not bar Employee from complying with any subpoena or court order, provided that Executive shall at the earliest practicable date provide a copy of the subpoena or court order to the BOKF's Chief Executive Officer. (c) During the Term and for a period of four (4) years thereafter, regardless of the reason for termination of Executive's employment, (i) Executive shall not disclose any Confidential Information to any third party and (ii) 11 Executive shall use Confidential Information only in connection with and in furtherance of Executive's work for the BOKF and its affiliates. (d) As used herein, Confidential Information means all nonpublic information concerning or arising from the BOKF's business, including particularly but not by way of limitation trade secrets used, developed or acquired by the BOKF in connection with its business; information concerning the manner and details of the BOKF's operations, organization and management; financial information and/or documents and nonpublic policies, procedures and other printed or written material generated or used in connection with the BOKF's business; the BOKF's business plans and strategies; electronic files or documents prepared by BOKF or Executive containing the identities of the BOKF's customers (including their addresses and telephone numbers), the nature and amounts of their assets and liabilities, and the specific individual customer needs being addressed by the BOKF; the nature of fees and charges assessed by the BOKF; nonpublic forms, contracts and other documents used in the BOKF's business; the nature and content of any proprietary computer software used in the BOKF's business, whether owned by the BOKF or used by the BOKF under license from a third party; and all other nonpublic information concerning the BOKF's concepts, prospects, customers, employees, contractors, earnings, products, services, equipment, systems, and/or prospective and executed contracts and other business arrangements. Confidential Information shall not include (i) general skills and general knowledge of the industry obtained by reason of Executive's association with the BOKF; (ii) information that is or becomes public knowledge through no fault or action of Executive; (iii) any information received from an independent third party who is under no duty of confidentiality with respect to the information; or (iv) any information that, on advice of counsel, Executive is required to disclose by law or regulation. (9) Surrender of Records and Property. Upon termination of Executive's employment with BOKF for whatever reason, Executive shall deliver promptly to the BOKF all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof that relate in any way to the business, products, practices or techniques of the BOKF or any of its affiliates, and all other information of the BOKF or any of its affiliates, including, but not limited to, all documents that in whole or in part contain any information which is defined in this Agreement as Confidential Information and which is in the possession or under the control of Executive. (10) Miscellaneous Provisions. The following miscellaneous provisions shall apply to this Agreement: 12 (a) All notices or advices required or permitted to be given by or pursuant to this Agreement, shall be given in writing. All such notices and advices shall be (i) delivered personally, (ii) delivered by facsimile or delivered by U.S. Registered or Certified Mail, Return Receipt Requested mail, or (iii) delivered for overnight delivery by a nationally recognized overnight courier service. Such notices and advices shall be deemed to have been given (i) the first business day following the date of delivery if delivered personally or by facsimile, (ii) on the third business day following the date of mailing if mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii) on the date of receipt if delivered for overnight delivery by a nationally recognized overnight courier service. All such notices and advices and all other communications related to this Agreement shall be given as follows: If to BOKF: BOKF Financial Corporation Att: Stanley A. Lybarger Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 Telephone No.: (918) 588-6888 Telecopy No.: (918) 382-5435 slybarger@BOKF.com With a Copy to: Frederic Dorwart Old City Hall 124 East Fourth Street Tulsa, OK 74103-5010 Telephone No.: (918) 583-9945 Telecopy No.: (918) 583-8251 FDorwart@FDLaw.com If to Executive: W. Jeffery Pickryl ___________________________ ___________________________ Telephone No.: ______________ Telecopy No.: _______________ ------------------------- or to such other address as the party may have furnished to the other parties in accordance herewith, except that notice of change of addresses shall be effective only upon receipt. (b) This Agreement is made and executed in Tulsa, Oklahoma for the performance of obligations in the State of Texas and all actions or proceedings with respect to, arising directly or indirectly in connection with, out of, related to or from this Agreement, shall be litigated in courts having situs in Dallas, Texas. 13 (c) This Agreement shall be subject to, and interpreted by and in accordance with, the laws of the State of Texas. (d) This Agreement is the entire Agreement of the parties respecting the subject matter hereof. There are no other agreements, representations or warranties, whether oral or written, respecting the subject matter hereof, except as stated in this Agreement. (e) This Agreement, and all the provisions of this Agreement, shall be deemed drafted by all of the parties hereto. (f) This Agreement shall not be interpreted strictly for or against any party, but solely in accordance with the fair meaning of the provisions hereof to effectuate the purposes and interest of this Agreement. (g) Each party hereto has entered into this Agreement based solely upon the agreements, representations and warranties expressly set forth herein and upon her or his own knowledge and investigation. Neither party has relied upon any representation or warranty of any other party hereto except any such representations or warranties as are expressly set forth herein. (h) Each of the persons signing below on behalf of a party hereto represents and warrants that he or she has full requisite power and authority to execute and deliver this Agreement on behalf of the parties for whom he or she is signing and to bind such party to the terms and conditions of this Agreement. (i) This Agreement may be executed in counterparts, each of which shall be deemed an original. This Agreement shall become effective only when all of the parties hereto shall have executed the original or counterpart hereof. This Agreement may be executed and delivered by a facsimile transmission of a counterpart signature page hereof. (j) In any action brought by a party hereto to enforce the obligations of any other party hereto, the prevailing party shall be entitled to collect from the opposing party to such action such party's reasonable litigation costs and attorneys fees and expenses (including court costs, reasonable fees of accountants and experts, and other expenses incidental to the litigation). (k) This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, administrators, successors and assigns. (l) This is not a third party beneficiary contract, except BOKF (including each affiliate thereof) shall be a third party beneficiary of this Agreement. (m) This Agreement may be amended or modified only in a writing, as agreed to by the parties hereto, which specifically references this Agreement. 14 (n) A party to this Agreement may decide or fail to require full or timely performance of any obligation arising under this Agreement. The decision or failure of a party hereto to require full or timely performance of any obligation arising under this Agreement (whether on a single occasion or on multiple occasions) shall not be deemed a waiver of any such obligation. No such decisions or failures shall give rise to any claim of estoppel, laches, course of dealing, amendment of this Agreement by course of dealing, or other defense of any nature to any obligation arising hereunder. (o) In the event any provision of this Agreement, or the application of such provision to any person or set of circumstances, shall be determined to be invalid, unlawful, or unenforceable to any extent for any reason, the remainder of this Agreement, and the application of such provision to persons or circumstances other than those as to which it is determined to be invalid, unlawful, or unenforceable, shall not be affected and shall continue to be enforceable to the fullest extent permitted by law. Dated as of the Agreement Date. BOK FINANCIAL CORPORATION /s/ Stanley A. Lybarger By____________________________________ /s/ W. Jeffrey Pickryl ------------------------------------ Executive's Signature EX-10 5 exhibit1043camendemployagree.txt EXHIBIT 10.4.3 (C) EMPLOYMENT AGREEMENT Exhibit 10.4.3 (c) AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement ("Amendment") is made this 30th day of August, 2004 (the "Amendment Date") between the following parties ("Parties"): (i) BOK Financial Corporation, an Oklahoma corporation ("BOKF"); and, (ii) W. Jeffery Pickryl, an individual currently residing in Tulsa, Oklahoma (the "Executive"). BOKF and Executive, in consideration of the promises and covenants set forth herein (the receipt and adequacy of which are hereby acknowledged) and intending to be legally bound hereby, agree as follows: (1) Purpose of This Agreement. The purpose of this Amendment is as follows: (a) Executive and BOKF have heretofore entered into that certain Employment Agreement dated September ___, 2003 (the "Agreement"). (b) Executive and BOKF desire to amend the Agreement. (c) This Amendment sets forth the agreement of Executive and BOKF respecting the amendment to the Agreement. (2) Additional Agreement Respecting Termination Without Cause. In the event Executive is terminated without cause (as hereafter defined), in addition to the provisions respecting termination without cause provided in the Agreement: (a) All options to acquire Common Stock of BOKF which (i) have, as of the date of such termination, been issued to Executive pursuant to one or more BOKF Stock Option Plan (the "Plans")and (ii) have not, as of the date of such termination, vested in accordance with the provisions of such Plans, shall vest as follows: (i) If Executive has reached the age of 60 years, but has not reached the age of 61 years, all unvested options which would have vested had Executive continued to be employed for five (5) years following the effective date of such termination shall vest; (ii) If Executive has reached the age of 61 years, but has not reached the age of 62 years, all unvested options which would have vested had Executive continued to be employed for four (4) years following the effective date of such termination shall vest; (iii)If Executive has reached the age of 62 years, but has not reached the age of 63 years, all unvested options which would have vested had Executive continued to be employed for three (3) years following the effective date of such termination shall vest; (iv) If Executive has reached the age of 63 years, but has not reached the age of 64 years, all unvested options which would have vested had Executive continued to be employed for two (2) years following the effective date of such termination shall vest; (v) If Executive has reached the age of 64 years, but has not reached the age of 65 years, all unvested options which would have vested had Executive continued to be employed for one (1) year following the effective date of such termination shall vest. (b) All options which vest pursuant to the provisions of the preceding sub-paragraph shall expire if not exercised on or before the 90th calendar day following the effective date of such termination. (3) Definition of Without Cause. Solely for the purposed of this Amendment, Executive shall be deemed to have been terminated for cause if the Executive was terminated for unsatisfactory performance of his duties and responsibilities. (a) Executive shall be deemed to have been terminated for unsatisfactory performance only when a majority of the members of the Board of Directors of the BOKF finds that, in the good faith opinion of such majority, the Executive has failed to satisfactorily perform his duties and responsibilities after reasonable notice and an opportunity to achieve a satisfactory level of performance, such finding to have been made after at least twenty (20) business days' notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before such majority (in such manner and for such period of time as the Board, in its good faith discretion shall determine). (b) A material reduction in responsibility or title shall be deemed a termination within the meaning of this paragraph and paragraph 2. (c) The determination of such majority, made as set forth above, shall be binding upon the BOKF and the Executive. (d) The effective date of a termination for cause shall be the date of the action of such majority finding the termination was with cause (4) Ratification of the Agreement. The Agreement shall remain in full force and effect. (5) Miscellaneous Provisions. The Miscellaneous Provisions of Paragraph 10 of the Agreement shall apply to this Amendment. Dated as of the Amendment Date. BOK FINANCIAL CORPORATION /s/ Stanley A. Lybarger By____________________________________ /s/ W. Jeffrey Pickryl ------------------------------------ Executive's Signature EX-10 6 exhibit1045aemployagreement.txt EXHIBIT 10.4.5 (A) EMPLOYMENT AGREEMENT Exhibit 10.4.5 (a) EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made this 29th day of August, 2003 (the "Agreement Date") between the following parties ("Parties"): (i) BOK Financial Corporation, an Oklahoma corporation ("BOKF"); and, (ii) Dan H. Ellinor, an individual currently residing in Dallas, Texas (the "Executive"). BOKF and Executive, in consideration of the promises and covenants set forth herein (the receipt and adequacy of which are hereby acknowledged) and intending to be legally bound hereby, agree as follows: (1) Purpose of This Agreement. The purpose of this Agreement is as follows: (a) BOKF is a multi-bank holding company, subject to regulation by the Board of Governors of the Federal Reserve System. The subsidiary banks of BOKF include Bank of Oklahoma, National Association ("BOk") and Bank of Arkansas, National Association ("BArk"). (b) The Executive has extensive prior experience in financial services and banking and is currently employed as a senior executive in North Texas of a national financial services organization. (c) BOKF desires to employ Executive and Executive desires to accept employment by BOKF. (d) The purpose of this Agreement is to set forth the terms and conditions (i) on which BOKF shall employ the Executive (2) Employment. BOKF hereby employs the Executive, and the Executive hereby accepts employment with BOKF, on the following terms and conditions: (a) Executive shall serve as Senior Executive-Vice President of BOKF and as Senior Executive-Vice President of BOk. Executive shall be responsible for BOk Commercial Lending, BArk, BOKF affiliates' Cash Management, BOKF's International Banking, and BOk TransFund Network (EFT network). (b) Executive shall devote all time and attention reasonably necessary to the affairs of the BOKF and BOk and shall serve the BOKF and BOk diligently, loyally, and to the best of his ability. (c) Executive shall serve in such other or additional positions as an officer and/or director of the BOKF and BOk or any of its affiliates as the Chief Executive Officer of BOKF may reasonably request; provided, however, Executive's residence and place of work shall be in Tulsa, Oklahoma area. (d) Notwithstanding anything herein to the contrary, Executive shall not be precluded from engaging in any charitable, civic, political or community activity or membership in any professional organization. (3) Compensation. As the sole, full and complete compensation to the Executive for the performance of all duties of Executive under this Agreement and for all services rendered by Executive to the BOKF and/or to any affiliate of the BOKF: (a) BOKF shall pay the Executive an annual salary (the "Annual Salary") during the Term (as hereafter defined). Initially, the Annual Salary shall be at the rate of $300,000 per year. The Annual Salary shall be payable in installments in arrears, less usual and customary payroll deductions for FICA, federal and state withholding, and the like, at the times and in the manner in effect in accordance with the usual and customary payroll policies generally in effect from time to time at BOKF. (i) The Annual Salary shall not be decreased at any time during the Term (as hereafter defined) of this Agreement. The Annual Salary may be increased annually in accordance with BOKF's compensation review practices in effect from time to time for senior executives. (ii) The Annual Salary shall be reviewed on April 1, 2004 and on each anniversary date thereof. (iii)The Annual Salary shall be increased to $325,000 at the April 1, 2004 review. (b) BOKF shall pay and provide to Executive pension, thrift, medical insurance, disability insurance plan benefits, and other fringe benefits, on the same terms and conditions generally in effect for senior executive employees of the BOKF and its affiliates (the "Additional Benefits"). (c) BOKF may, from time to time in BOKF's sole discretion consistent with the practices generally in effect for senior executive employees of the BOKF and its affiliates, pay or provide, or agree to pay or provide, Executive a bonus, stock option, or other incentive or performance based compensation. (i) All such bonus, stock option or other incentive or performance based compensation, regardless of its nature (hereinafter called "Performance Compensation") shall not constitute Annual Salary. (ii) BOKF shall consider Executive for the award of bonus and other incentive compensation on the same terms and conditions as offered generally to the senior executive officers of the BOKF; provided, however: (A) BOKF shall pay Executive a hiring bonus of $150,000, payable on or before January 31, 2004; (B) BOKF shall pay Executive a minimum bonus of $150,000 for year 2004, payable on or before March 15, 2005; (C) BOKF shall provide an annual incentive award (as a percent of Annual Salary) to Executive pursuant to BOKF's Executive Incentive Compensation Plan as in effect from time to time which award shall have a 50% target award and maximum of 100% performance award, subject to approval by the BOKF Independent Compensation Committee in years 2005 and following; and, (D) BOKF shall provide a long-term incentive award (as a percent of Annual Salary) to Executive pursuant to BOKF's Executive Incentive Compensation Plan as in effect from time to time which award shall have a 100% target award and maximum of 150% performance award, subject to approval by the BOKF Independent Compensation Committee in years 2005 and following. (d) BOKF shall reimburse Executive for reasonable and necessary entertainment, travel and other expenses in accordance with BOKF's standard policies in general effect for senior executives of BOKF. (e) BOKF shall consider Executive for the award of options to acquire shares of BOKF Common Stock in respect of the BOKF stock option plan at the time and on the same terms and conditions as offered generally to the senior executive officers of BOKF; provided however: (i) Pursuant to the BOKF Stock Option Plan, BOKF shall award Executive for year 2004 that number of Options which is equal to Executive's Annual Salary in January 2004 divided by BOKF's Black-Scholes valuation of such Options determined as of January 15, 2004 using the methodologies and assumptions historically utilized by BOKF in determining the Black-Scholes valuation of BOKF Stock Options; and, (ii) At the election of Executive, BOKF shall issue to Executive, in lieu of all or any part of the Options which would otherwise be awarded pursuant to the preceding sub-paragraph, BOKF restricted shares (on the terms and conditions set forth in the BOKF Executive Incentive Compensation Plan, "Restricted Shares"). (f) The Executive shall be allowed vacation, holidays, and other employee benefits not described above in accordance with BOKF's standard policy in general effect for BOKF's senior executive employees. Executive shall be entitled to four weeks paid vacation in year 2004. (g) BOKF shall permit Executive to participate in a deferred compensation plan on the terms and conditions substantially the same as those established from time to time for the Chief Executive Officer of BOKF. (h) BOKF shall, upon commencement of the Term, issue 2,000 shares of BOKF Restricted Shares to Executive, provided such Restricted Shares shall cliff vest on the second anniversary of the commencement of the Term. (i) BOKF shall compensate and reimburse Executive for relocating from his existing residence to Tulsa, as follows: (i) BOKF shall pay Executive $75,000 (grossed up for income taxes (1)) as a relocation bonus, payable with two weeks following the commencement of the Term; (ii) BOKF shall reimburse Executive, against reasonable documentation thereof, for usual and customary sales commissions and closing costs incurred in connection with the sale by Executive of his existing primary residence in Dallas, Texas and the purchase of a new primary residence in the Tulsa, Oklahoma area, grossed up for income taxes as provided in footnote 1; (iii)BOKF shall pay Executive $2,000 per month as the reasonable cost of temporary housing in Tulsa for the (1) The gross-up shall be calculated at the highest incremental rate actually experienced by Executive. For example, if taxed in Oklahoma, the rate would be as follows: assuming the highest tax bracket for federal, the Okla. state rate less the federal benefit, medicare, and assuming the FICA limit has already been met, the composite rate would be 41% broken down as follows: 35% Federal 4.55% State (after federal deduction) 1.45% Medicare or a total 41%. period from the commencement of the Term until the Relocation Date (as hereafter defined). As used herein, the Relocation Date shall be the date on which Executive relocates his family to Tulsa but not later than July 15, 2004; and, (iv) BOKF shall provide the services of a nationally recognized mover to pack and move Executive's household goods to Tulsa. (v) BOKF shall reimburse Executive, against reasonable documentation thereof, for the reasonable costs during the Relocation Period of weekend travel by Executive to and from Dallas or by Executive's family to and from Tulsa. (j) BOKF shall reimburse Executive for the purchase of a country club membership at a club in Tulsa mutually acceptable to BOKF and Executive. The reimbursement shall be grossed up for income taxes as provided in footnote 1. (k) Executive hereby agrees to accept the foregoing compensation as the sole, full and complete compensation to Executive for the performance of all duties of Executive under this Agreement and for all services rendered by Executive to the BOKF or any affiliate of the BOKF. (4) Term of Employment. The term (the "Term") of Executive's employment ("Employment") pursuant to this Agreement shall commence on October 15, 2003 (the "Commencement") and shall continue thereafter provided that upon ninety days prior written notice, either Party may terminate this Agreement effective on or after the first anniversary date of the Commencement. Executive shall report for work full-time on the Commencement. (5) Termination of Employment. Notwithstanding the provisions of paragraph 4 of this Agreement, the Employment may be terminated on the following terms and conditions: (a) Termination by BOKF Without Cause. In the event the BOKF terminates Employment of Executive without cause: (i) BOKF shall forthwith upon such termination (A) pay to Executive BOKF's standard severance pay and in addition an amount equal to Executive's then Annual Salary, (B) the Executive shall, for the remaining portion of the Term, be entitled to receive any benefits, insured or otherwise, that Executive would otherwise be able to receive under any Benefit Plan of the BOKF of which Executive is a beneficiary in accordance with paragraph 3(b), (C) Executive shall be entitled to receive pay for vacation in accordance with BOKF's then existing policy for terminating senior executive employees, and (D) Executive shall be entitled to receive those amounts due Executive pursuant to paragraph 7(b) and shall be bound by the Non-Solicitation Agreement (as hereafter defined). (ii) If, within one year of the Commencement, Executive is terminated for any reason other than for cause following a Change of Control (as hereafter defined), BOKF shall pay Executive upon such termination in one lump sum payment an amount equal to two times Executive's Annual Salary at the time of termination. As used herein, a Change Control shall be deemed to have occurred if, and only if: (A) George B. Kaiser, affiliates of George B. Kaiser, and/or members of the family of George B. Kaiser collectively cease to own more shares of the voting capital stock of BOKF than any other shareholder (or group of shareholders acting in concert to control BOKF to the exclusion of George B. Kaiser, affiliates of George B. Kaiser, or members of the family of George B. Kaiser); or, (B) BOKF shall cease to own directly and indirectly more than 50% of the voting capital stock of the BOk. (b) Termination by BOKF for Cause. BOKF may terminate the Employment for cause on the following terms and conditions: (i) BOKF shall be deemed to have cause to terminate Executive's Employment only in one or more of the following events: (A) The Executive shall fail to substantially perform his obligations under this Agreement except as a result of Executive's incapacity due to physical or mental illness after having first received notice of such failure and thirty days within which to correct the failure; (B) The Executive commits any act which is intended by Executive to injure BOKF or any of its affiliates; (C) The Executive is convicted of any criminal act or act involving moral turpitude which the BOKF reasonably deems adversely affects the suitability of Executive to serve BOKF or any of its affiliates; (D) The Executive commits any dishonest or fraudulent act which the BOKF reasonably deems material to the BOKF, including the reputation of the BOKF or any of its affiliates; or, (E) Any refusal by Executive to obey orders or instructions of the Chief Executive Officer of the BOKF or BOk unless such instructions would require Executive to commit an illegal act, could subject Executive to personal liability, would require Executive to violate the terms of this Agreement, are inconsistent with recognized ethical standards, or would otherwise be inconsistent with the duties of an officer of a bank. (ii) BOKF shall be deemed to have cause to terminate Executive's Employment only when a majority of the members of the Board of Directors of the BOKF finds that, in the good faith opinion of such majority, the Executive committed one or more of the acts set forth in clauses (A) through (E) of the preceding subparagraph, such finding to have been made after at least twenty (20) business days' notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before such majority. The determination of such majority, made as set forth above, shall be binding upon the BOKF and the Executive; (iii)The effective date of a termination for cause shall be the date of the action of such majority finding the termination was with cause. In the event the BOKF terminates Executive's Employment for cause, (A) BOKF shall pay Executive the Executive's then Annual Salary through, but not beyond, the effective date of the termination and (B) the Executive shall receive those Additional Benefits accrued through but not beyond the effective date of such termination which are thereafter payable under the terms and provisions of benefit plans then in effect in accordance with paragraph 3(b) above, (C) BOKF shall pay the Executive for vacation in accordance with BOKF's then existing policy for senior executive employees, and (D) Executive shall be bound by the provisions of the Non-Solicitation Agreement. (6) Provisions Respecting Illness and Death. In the event Executive is unable to perform his duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of illness or other physical or mental disability, and at or before the end of such period, Executive does not return to work on a full-time basis, BOKF may terminate Executive's Employment without further or additional compensation being due the Executive from BOKF except Annual Salary accrued through the date of termination, Additional Benefits accrued through the date of such termination under benefit plans then in effect in accordance with paragraph 3(b) above, and vacation in accordance with BOKF's then existing policy for senior executive employees, and the provisions of paragraph 7 shall apply. Without limiting the generality of Paragraph 3(f), Executive shall upon such termination receive those benefits provided in the BOKF long term disability policy then in effect. In the event of the death of the Executive, the Employment of the Executive shall automatically terminate as of the date of death without further or additional compensation being due the Executive, except BOKF shall pay to the estate of the Executive the Annual Salary accrued through the date of termination and the Additional Benefits accrued through the date of such termination under benefit plans then in effect in accordance with paragraph 3(b) above. (7) Agreement Not to Solicit. The provisions of this paragraph are hereafter called the "Non-Solicitation Agreement". (a) Executive agrees that, for a period of two (2) years following any termination of the Employment for cause, and for a period of one (1) year following any termination of the Employment for any reason other than cause (including expiration of the Term), Executive shall not directly or indirectly (whether as an officer, director, employee, partner, stockholder, creditor or agent, or representative of other persons or entities) contact or solicit, in any manner indirectly or directly, individuals or entities who were at anytime during the original or any extended Term clients of BOKF or any of its affiliates for the purpose of providing banking, trust, investment, or other services provided by BOKF or any of its affiliates during the Term or contact or solicit employees of BOKF or any affiliates of BOKF to seek employment with any person or entity except BOKF and its affiliates. This Non-Solicitation Agreement shall not apply to ownership by Executive of up to ten percent (10%) of the common stock of a corporation traded on the facilities of a national securities exchange engaged in the banking business of which Executive is not a director, officer, employee, agent or representative. (b) BOKF shall pay Executive, in addition to any other amounts which may be due Executive, during each year in which the Non-Solicitation Agreement is in effect, $3,000 payable in installments in arrears, less usual and customary payroll deductions for FICA, federal and state withholding, and the like, at the times and in the manner in effect in accordance with the usual and customary payroll policies generally in effect from time to time at BOKF. (c) Executive agrees that the Non-Solicitation Agreement and all the restrictions set forth in this Non-Solicitation Agreement are fair and reasonable. (d) Executive agrees that (i) any remedy at law for any breach of this Non- Agreement would be inadequate, (ii) in the event of any breach of this Non-Solicitation Agreement, the Non-Solicitation Agreement shall constitute incontrovertible evidence of irreparable injury to BOKF, and (iii) BOKF shall be entitled to both immediate and permanent injunctive relief without the necessity of establishing or posting any bond therefor to preclude any such breach (in addition to any remedies of law which BOKF may be entitled). (8) Confidential Information. (a) Executive acknowledges that, during the Term and prior to the Term, Executive has had and will have access to Confidential Information, all of which shall be made accessible to Executive only in strict confidence; that unauthorized disclosure of Confidential Information will damage the BOKF's business; that Confidential Information would be susceptible to immediate competitive application by a competitor of the BOKF; that BOKF's business is substantially dependent on access to and the continuing secrecy of Confidential Information; that Confidential Information is unique to the BOKF and known only to Executive and certain key employees and contractors of BOKF; that the BOKF shall at all times retain ownership and control of all Confidential Information; and that the restrictions contained in this paragraph are reasonable and necessary for the protection of the BOKF's business. (b) All documents or other records containing or reflecting Confidential Information ("Confidential Documents") prepared by or to which Executive has access are and shall remain the property of the BOKF. Executive shall not copy or use any Confidential Document for any purpose not relating directly to Executive's work on the BOKF's behalf, or use, disclose or sell any Confidential Document to any party other than the BOKF and its employees. Upon the termination of this Agreement or upon the BOKF's request before or after such termination, Executive shall immediately deliver to the BOKF or its designee (and shall not keep in Executive's possession or deliver to anyone else) all Confidential Documents and all other property belonging to the BOKF. This paragraph shall not bar Employee from complying with any subpoena or court order, provided that Executive shall at the earliest practicable date provide a copy of the subpoena or court order to the BOKF's Chief Executive Officer. (c) During the Term and for a period of four (4) years thereafter, regardless of the reason for termination of Executive's employment, (i) Executive shall not disclose any Confidential Information to any third party and (ii) Executive shall use Confidential Information only in connection with and in furtherance of Executive's work for the BOKF and its affiliates. (d) As used herein, Confidential Information means all nonpublic information concerning or arising from the BOKF's business, including particularly but not by way of limitation trade secrets used, developed or acquired by the BOKF in connection with its business; information concerning the manner and details of the BOKF's operations, organization and management; financial information and/or documents and nonpublic policies, procedures and other printed or written material generated or used in connection with the BOKF's business; the BOKF's business plans and strategies; electronic files or documents prepared by BOKF or Executive containing the identities of the BOKF's customers (including their addresses and telephone numbers), the nature and amounts of their assets and liabilities, and the specific individual customer needs being addressed by the BOKF; the nature of fees and charges assessed by the BOKF; nonpublic forms, contracts and other documents used in the BOKF's business; the nature and content of any proprietary computer software used in the BOKF's business, whether owned by the BOKF or used by the BOKF under license from a third party; and all other nonpublic information concerning the BOKF's concepts, prospects, customers, employees, contractors, earnings, products, services, equipment, systems, and/or prospective and executed contracts and other business arrangements. Confidential Information shall not include (i) general skills and general knowledge of the industry obtained by reason of Executive's association with the BOKF; (ii) information that is or becomes public knowledge through no fault or action of Executive; (iii) any information received from an independent third party who is under no duty of confidentiality with respect to the information; or (iv) any information that, on advice of counsel, Executive is required to disclose by law or regulation. (9) Surrender of Records and Property. Upon termination of Executive's employment with BOKF for whatever reason, Executive shall deliver promptly to the BOKF all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof that relate in any way to the business, products, practices or techniques of the BOKF or any of its affiliates, and all other information of the BOKF or any of its affiliates, including, but not limited to, all documents that in whole or in part contain any information which is defined in this Agreement as Confidential Information and which is in the possession or under the control of Executive. (10) Executive's Representations. Executive hereby represents that (i) prior to the Agreement Date Executive has, and as of the Commencement Executive will have, continued to fulfill Executive's duty of loyalty to Executive's present employer, (ii) the conditions of Executive's present employment do not restrict Executive's ability to accept employment in accordance with this Agreement, and (iii) as of the Commencement, Executive will not have in his possession any confidential or proprietary information belonging to Executive's present employer. (11) Miscellaneous Provisions. The following miscellaneous provisions shall apply to this Agreement: (a) All notices or advices required or permitted to be given by or pursuant to this Agreement, shall be given in writing. All such notices and advices shall be (i) delivered personally, (ii) delivered by facsimile or delivered by U.S. Registered or Certified Mail, Return Receipt Requested mail, or (iii) delivered for overnight delivery by a nationally recognized overnight courier service. Such notices and advices shall be deemed to have been given (i) the first business day following the date of delivery if delivered personally or by facsimile, (ii) on the third business day following the date of mailing if mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii) on the date of receipt if delivered for overnight delivery by a nationally recognized overnight courier service. All such notices and advices and all other communications related to this Agreement shall be given as follows: If to BOKF: BOKF Financial Corporation Att: Stanley A. Lybarger Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 Telephone No.: (918) 588-6888 Telecopy No.: (918) 382-5435 slybarger@BOKF.com With a Copy to: Frederic Dorwart Old City Hall 124 East Fourth Street Tulsa, OK 74103-5010 Telephone No.: (918) 583-9945 Telecopy No.: (918) 583-8251 FDorwart@FDLaw.com If to Executive: Dan H. Ellinor 5801 Buffridge Trail Dallas, Texas, 75252 Telephone No.: 972-407-1461 or to such other address as the party may have furnished to the other parties in accordance herewith, except that notice of change of addresses shall be effective only upon receipt. (b) This Agreement is made and executed in Tulsa, Oklahoma and all actions or proceedings with respect to, arising directly or indirectly in connection with, out of, related to or from this Agreement, shall be litigated in courts having situs in Tulsa, Oklahoma. (c) This Agreement shall be subject to, and interpreted by and in accordance with, the laws of the State of Oklahoma. (d) This Agreement is the entire Agreement of the parties respecting the subject matter hereof. There are no other agreements, representations or warranties, whether oral or written, respecting the subject matter hereof, except as stated in this Agreement. (e) This Agreement, and all the provisions of this Agreement, shall be deemed drafted by all of the parties hereto. (f) This Agreement shall not be interpreted strictly for or against any party, but solely in accordance with the fair meaning of the provisions hereof to effectuate the purposes and interest of this Agreement. (g) Each party hereto has entered into this Agreement based solely upon the agreements, representations and warranties expressly set forth herein and upon her or his own knowledge and investigation. Neither party has relied upon any representation or warranty of any other party hereto except any such representations or warranties as are expressly set forth herein. (h) Each of the persons signing below on behalf of a party hereto represents and warrants that he or she has full requisite power and authority to execute and deliver this Agreement on behalf of the parties for whom he or she is signing and to bind such party to the terms and conditions of this Agreement. (i) This Agreement may be executed in counterparts, each of which shall be deemed an original. This Agreement shall become effective only when all of the parties hereto shall have executed the original or counterpart hereof. This Agreement may be executed and delivered by a facsimile transmission of a counterpart signature page hereof. (j) In any action brought by a party hereto to enforce the obligations of any other party hereto, the prevailing party shall be entitled to collect from the opposing party to such action such party's reasonable litigation costs and attorneys fees and expenses (including court costs, reasonable fees of accountants and experts, and other expenses incidental to the litigation). (k) This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, administrators, successors and assigns. (l) This is not a third party beneficiary contract, except BOKF (including each affiliate thereof) shall be a third party beneficiary of this Agreement. (m) This Agreement may be amended or modified only in a writing, as agreed to by the parties hereto, which specifically references this Agreement. (n) A party to this Agreement may decide or fail to require full or timely performance of any obligation arising under this Agreement. The decision or failure of a party hereto to require full or timely performance of any obligation arising under this Agreement (whether on a single occasion or on multiple occasions) shall not be deemed a waiver of any such obligation. No such decisions or failures shall give rise to any claim of estoppel, laches, course of dealing, amendment of this Agreement by course of dealing, or other defense of any nature to any obligation arising hereunder. (o) In the event any provision of this Agreement, or the application of such provision to any person or set of circumstances, shall be determined to be invalid, unlawful, or unenforceable to any extent for any reason, the remainder of this Agreement, and the application of such provision to persons or circumstances other than those as to which it is determined to be invalid, unlawful, or unenforceable, shall not be affected and shall continue to be enforceable to the fullest extent permitted by law. Dated as of the Agreement Date. BOK FINANCIAL CORPORATION By: /s/ Stanley A. Lybarger _________________________ /s/ Daniel H. Ellinor _________________________ Executive's Signature EX-10 7 exhibit1045bdefcompagreement.txt EXHIBIT 10.4.5 (B) DEFERRED COMPENSATION AGREEMNT Exhibit 10.4.5 (b) BOK FINANCIAL CORPORATION Deferred Compensation Agreement This Deferred Compensation Agreement (the "Agreement") is made this 28th day of November, 2003 (the "Agreement Date") between the following parties (the "Parties"): i. Daniel H. Ellinor, an individual residing in Tulsa, Oklahoma ("Executive"); and, ii. BOK Financial Corporation, an Oklahoma corporation ("BOKF"). The Executive and BOKF, in exchange for the promises hereafter set forth and other good and valuable consideration (the receipt and adequacy of which the Parties hereby acknowledge), and intending to be legally bound hereby, agree as follows: 1) Purpose of This Agreement. The purpose of this Agreement is as follows: a) Executive is employed by BOKF as its Senior Executive Vice President. b) Executive may hereafter be issued performance or restricted shares (as provided, from time to time, in the BOKF Executive Compensation Plans) and/or awarded options (the "Options") to acquire Common Stock of BOKF and has heretofore been awarded options which, as of the Agreement Date, have not been exercised, as set forth on Schedule 1 hereto (such performance shares, restricted shares, and shares of Common Stock of BOKF issued upon exercise of the Options, being hereinafter collectively called the "Shares"). Executive may hereafter be issued a bonus in the amount of $300,000 pursuant to Paragraphs 3(c)(ii)(A) and (B) of that certain Employment Agreement dated August 29, 2003 (collectively, the "Deferred Bonus"). c) This Agreement in entered into in order to permit Executive to defer the receipt of all or a portion of the Shares otherwise payable to Executive upon the exercise of Options or the vesting of performance shares or restricted shares issued to Executive. d) This Agreement sets forth the terms and conditions on which Executive may defer the receipt of Shares pursuant to the exercise of the Options or the vesting of performance shares or restricted shares. 2) Election to Defer Receipt of Shares. The Executive may, at the sole and absolute discretion of the Executive (without any obligation to provide an explanation for the exercise of such discretion), elect to defer the receipt of Shares upon exercise of Options or the vesting of performance or restricted shares, on the following terms and conditions: a) Executive shall, not less than six months prior to the vesting of performance shares or restricted shares or the intended date of exercise of any of the Options, as applicable, give written notice (the "Notice") to BOKF that Executive elects to defer the receipt of Shares or the vesting of performance or restricted shares (the "Election"). b) The Notice shall set forth: 2 i) the name of the BOKF Stock Option Plan pursuant to which the Options were awarded, the date on which the Options were awarded (the "Stock Option Award Date"), the number of Shares under option to be exercised; ii) the number of Shares which are performance shares or restricted shares which Executive elects to defer; and iii) whether the deferred shall be until retirement or until a date, not earlier than five years from the Notice, which executive shall specify in the Notice (the "Deferral Date") c) Executive agrees to use shares of BOKF Common Stock previously owned by him for at least six months to satisfy the exercise price of the Options, rather than the cash or broker assisted exercise methods. d) In the event Executive elects to defer the vesting of performance shares or restricted shares, the Executive shall assign and deliver such shares to BOKF together with the Notice of deferral. e) The Election shall be irrevocable. f) The Executive hereby irrevocably elects to defer Fifty Thousand ($50,000) of the Deferred Bonus due pursuant to Paragraph 3(c)(ii)(A) of that certain Employment Agreement dated August 29, 2003 and designates November 30, 2009 as the Deferral Date. The Executive shall timely pay all FICA taxes due in respect of the Deferred Bonus in cash. 3) Special BOKF Liability Account. a) Upon the exercise of an Option for which an Election has previously been made by the Executive pursuant to Section 2 and/or the deferral of vesting of Shares which are restricted shares or performance shares assigned and delivered to BOKF in accordance with Section 2(d), BOKF shall establish a special BOKF Liability Account ("Special Account"). i) The Special Account shall reflect the number of BOKF Shares for which Options were exercised by the Executive and/or performance shares and restricted shares which Executive has elected to defer. The Executive shall pay any FICA taxes that may be due in one or the other of the following ways: (1) Executive shall pay FICA in cash; or, (2) The Special Account shall be debited that amount of BOKF Shares necessary to pay FICA. Executive acknowledges that, in the event, Executive elects the provision of this sub-paragraph (2), the value of the debited shares shall not be deferred under this Agreement and shall be taxable income to the Executive, subject to federal and state income tax and withholding. 3 ii) BOKF shall periodically (but not less than once each calendar quarter) report the number of BOKF Shares reflected in the Special Account and related current value of such BOKF Shares to Executive. iii) The Special Account shall be for bookkeeping purposes only. iv) The Executive shall not, in fact, own the BOKF Shares reflected in the Special Account. b) If there are any changes in the capitalization of BOKF (or of any Alternative Investment, as hereafter defined) affecting the number or kind (after the recapitalization) of issued and outstanding shares of BOKF Common Stock (or the shares of any Alternative Investment) existing immediately prior to the change in capitalization, whether such changes have been occasioned by reorganization, combination of shares, declaration of stock dividends, stock splits, reverse stock splits, reclassification or recapitalization of such stock, the merger or consolidation of BOKF (or any Alternative Investment) with some other corporation or other similar transaction, then the number and kind of shares reflected in the Special Account shall be appropriately adjusted to reflect the number and kind of shares the Executive would have owned had the Executive actually owned the BOKF Shares (or shares of Alternative Investment) reflected in the Special Account on the date of such changes. c) On the Distribution Date described in section 5, BOKF shall: i) distribute BOKF Shares (newly issued or held in Treasury) to the Executive equal to the number of BOKF Shares reflected in the Special Account (net of that number of BOKF shares equal to the applicable Federal Insurance Contributions Act (FICA), federal and state taxes required to be withheld, determined on the basis of the fair market value of such BOKF Shares on the Distribution Date); and, ii) eliminate the Special Account. d) The Special Account shall reflect the Deferred Bonus upon payment thereof. 4) Special Diversified Liability Account. a) At any time after the exercise of an Option as described in Section 2 and before the Distribution Date but no more than once each calendar quarter, the Executive may elect to convert (the "Conversion") all or a portion of the value of the Special Account into a credit value in the Special Account equal to the value so converted (less applicable FICA taxes). The converted value ("Converted Value") shall be represented by one or more Alternative Investments (as hereafter defined) selected by Executive. b) As a condition of a Conversion, the Executive shall select one or more of the investment opportunities listed in Appendix A of this Agreement (the "Alternative Investments") to measure the value of the Special Account as if such converted Special Account value had actually been invested in such Alternative Investments. 4 c) After one or more Conversions: i) The Special Account shall reflect the BOKF Shares and Alternative Investments remaining after each such Conversion and the value thereof from time to time. ii) BOKF shall periodically (but not less than once each calendar quarter) report the BOKF Shares and Alternative Investments reflected in the Special Account and related current value thereof to Executive. iii) The Special Account shall be for bookkeeping purposes only. iv) The Executive shall not own the BOKF Shares or Alternative Investments reflected in the Special Account and shall have no right to ownership or possession thereof. v) BOKF may from time to time amend Exhibit A by adding additional investment opportunities to, but not deleting investment opportunities from, the list contained in Appendix A. 5) Distribution Date and Distribution. a) The Distribution Date for the Special Account shall be a date selected by BOKF between January 15 and March 1 of the year next following the year in which the Executive retires from BOKF, his employment with BOKF is terminated for whatever reason or the Deferral Date; provided, however: i) In the event the Executive dies prior to retiring from BOKF or prior to his employment with BOKF having terminated for whatever reason, the Distribution Date shall be a date selected by BOKF not later than 90 calendar days following the date of death; and, ii) The Executive may, at any time and from time to time (but not more frequently than once each calendar quarter), accelerate the Distribution Date with respect to the value of some or all of the BOKF Shares and/or with respect to one or more Alternative Investments reflected in the Special Account to a date no earlier than ten (10) business days after written notice to BOKF requesting such accelerated Distribution Date provided Executive agrees in such notice to an irrevocable forfeiture of ten per cent (10%) of the value which Executive has requested be distributed (the "Forfeiture"). All Forfeitures shall be debited to the Special Account and allocated among BOKF Shares and/or Alternative Investments reflected in the Special Account in such manner as BOKF shall in its discretion determine. b) On the Distribution Date (whether accelerated or otherwise), the Company shall: i) Pay the value of the Special Account (or so much thereof as Executive may have requested be accelerated) on the Distribution Date (net of applicable federal and state taxes required to be withheld and less any Forfeiture) to Executive in cash, BOKF Shares, Alternative Investments or a combination thereof, in sole the discretion of 5 BOKF; and, ii) eliminate the Special Account (or so much thereof as Executive may have requested be accelerated). c) In the event of the death of the Executive, the distribution provided in the preceding subsection shall be made to the beneficiary or beneficiaries previously designated by the Executive in a writing filed with the Secretary of BOKF or, in the absence of such designation, as provided by Executive in any trust or will and, in the absence of any such trust or will, to Executive's estate. 6) No Executive Interest in Any BOKF Assets. a) BOKF shall have no obligation to actually hold BOKF Shares reflected in the Special Account or invest funds in any Alternative Investment selected by Executive. b) If BOKF, in its sole discretion, actually holds BOKF Shares reflected in the Special Account or invests BOKF funds in Alternative Investments, the Executive shall have no right or interest therein. c) The Executive shall have the right under this Agreement only to the payment in cash of an amount measured by reference to the values of BOKF Shares and Alternative Investments reflected in the Special Account (the "Reference Values"). Such contractual right of the Executive constitutes the Executive a general unsecured creditor of BOKF. d) BOKF may satisfy its obligation to pay the Referenced Values by making payment in cash or by the delivery of the BOKF Shares and/or Alternative Investments by which the Reference Values are determined. 7) No Enlargement of Employment Rights. Nothing contained in this Agreement shall (i) give or be construed as giving the Executive the right to be retained in the service of BOKF or (ii) modify or be construed as modifying the terms and conditions of employment of Executive with BOKF. 8) Indemnification. Executive hereby agrees to defend and indemnify BOKF, and hold BOKF harmless from, all claims of third parties arising out of the operations of any Alternative Investment selected by Executive that BOKF may actually acquire. BOKF shall not be responsible for any decline in value of the Shares or of any Alternative Investment. 9) Termination of this Agreement. This Agreement shall remain in full force and effect from the Agreement Date until Executive's retirement or termination; provided, however, either BOKF or Executive may terminate the provisions of Section 2 hereof by notice given on or before November 1 of any year in which event such termination shall be effective as of January 1 immediately following such notice; provided, further, no such termination shall effect the time at which any distribution shall be made to Executive. 10) Miscellaneous Provisions. The following miscellaneous provisions shall apply to this Agreement: 6 a) All notices or advices required or permitted to be given by or pursuant to this Agreement, shall be given in writing. All such notices and advices shall be (i) delivered personally, (ii) delivered by facsimile or delivered by U.S. Registered or Certified Mail, Return Receipt Requested mail, or (iii) delivered for overnight delivery by a nationally recognized overnight courier service. Such notices and advices shall be deemed to have been given (i) the first business day following the date of delivery if delivered personally or by facsimile, (ii) on the third business day following the date of mailing if mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii) on the date of receipt if delivered for overnight delivery by a nationally recognized overnight courier service. All such notices and advices and all other communications related to this Agreement shall be given as follows: If to BOKF: BOK Financial Corporation Att: Chief Financial Officer P.O. Box 2300 Tulsa, Oklahoma 74192 918-588-6319 - Telephone 918-588- 6853 - Facsimile If to Executive: Daniel H. Ellinor 8002 S. Erie Avenue Tulsa, Oklahoma 74136 (918) 812-0978 - Telephone With Copy to: Frederic Dorwart Old City Hall 124 East Fourth Street Tulsa, OK 74103 (918) 583-9945 - Telephone (918) 583-8251 - Facsimile or to such other address as the party may have furnished to the other parties in accordance herewith, except that notice of change of addresses shall be effective only upon receipt. b) This Agreement is made and executed in Tulsa County, Oklahoma. c) This Agreement shall be subject to, and interpreted by and in accordance with, the laws (excluding conflict of law provisions) of the State of Oklahoma. d) This Agreement and the Employment Agreement as amended are the entire Agreement of the parties respecting the subject matter hereof. There are no other agreements, representations or warranties, whether oral or written, respecting the subject matter hereof. e) No course of prior dealings involving any of the parties hereto and no usage of trade shall 7 be relevant or advisable to interpret, supplement, explain or vary any of the terms of this Agreement, except as expressly provided herein. f) This Agreement, and all the provisions of this Agreement, shall be deemed drafted by all of the parties hereto. g) This Agreement shall not be interpreted strictly for or against any party, but solely in accordance with the fair meaning of the provisions hereof to effectuate the purposes and intent of this Agreement. h) Each party hereto has entered into this Agreement based solely upon the agreements, representations and warranties expressly set forth herein and upon his own knowledge and investigation. Neither party has relied upon any representation or warranty of any other party hereto except any such representations or warranties as are expressly set forth herein. i) Each of the persons signing below on behalf of a party hereto represents and warrants that he or she has full requisite power and authority to execute and deliver this Agreement on behalf of the parties for whom he or she is signing and to bind such party to the terms and conditions of this Agreement. j) This Agreement may be executed in counterparts, each of which shall be deemed an original. This Agreement shall become effective only when all of the parties hereto shall have executed the original or counterpart hereof. This agreement may be executed and delivered by a facsimile transmission of a counterpart signature page hereof. k) In any action brought by a party hereto to enforce the obligations of any other party hereto, the prevailing party shall be entitled to collect from the opposing party to such action such party's reasonable litigation costs and attorneys fees and expenses (including court costs, reasonable fees of accountants and experts, and other expenses incidental to the litigation). l) This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. m) This is not a third party beneficiary contract. No person or entity other than a party signing this Agreement shall have any rights under this Agreement. This Agreement may not be assigned by any party hereto. n) This Agreement may be amended or modified only in a writing which specifically references this Agreement. o) Any cause of action for a breach or enforcement of, or a declaratory judgment respecting, this Agreement shall be commenced and maintained only in the United States District Court for the Northern District of Oklahoma or the applicable Oklahoma state trial court sitting in Tulsa, Oklahoma and having subject matter jurisdiction. Dated as of the Agreement Date. 8 BOK Financial Corporation /s/ Steven E. Nell By____________________________ EVP - CFO Its __________________________ Daniel H. Ellinor __________________________ Print Name of Executive /s/ Daniel H. Ellinor __________________________ Signature of Executive 9 Schedule 1 (To Deferred Compensation Agreement) (Description of Options Held at Agreement Date) 10 Exhibit A (To Deferred Compensation Agreement) (Additional Investment Opportunities) As of ______________________ 1. ___________________________________________________ --------------------------------------------------- 2. ___________________________________________________ --------------------------------------------------- 3. ___________________________________________________ --------------------------------------------------- 4. ___________________________________________________ --------------------------------------------------- 5. ___________________________________________________ --------------------------------------------------- 6. ___________________________________________________ --------------------------------------------------- EX-10 8 exhibit1046adefcompagreement.txt EXHIBIT 10.4.6 (A) DEFERRED COMPENSATION AGREEMNT Exhibit 10.4.6 (a) BOK FINANCIAL CORPORATION Amended and Restated Deferred Compensation Agreement (Amended As Of December 1, 2003) This Deferred Compensation Agreement (the "Agreement") is made this 15th day of October, 2003 (the "Agreement Date") between the following parties (the "Parties"): i. Mark W. Funke, an individual residing in Edmond, Oklahoma ("Executive"); and, ii. BOK Financial Corporation, an Oklahoma corporation ("BOKF"). Recitals Whereas, Executive and BOKF have heretofore entered into that certain Deferred Compensation Agreement dated October 15, 2003; Whereas, Executive and BOKF desire to amend and restate the Deferred Compensation Agreement. Now, therefore: The Executive and BOKF, in exchange for the promises hereafter set forth and other good and valuable consideration (the receipt and adequacy of which the Parties hereby acknowledge), and intending to be legally bound hereby, agree as follows: 1) Purpose of This Agreement. The purpose of this Agreement is as follows: a) Executive is employed by BOKF as its Senior Executive Vice President. i) Executive may hereafter be issued performance or restricted shares (as provided, from time to time, in the BOKF Executive Compensation Plans) and/or awarded options (the "Options") to acquire Common Stock of BOKF and has heretofore been awarded options which, as of the Agreement Date, have not been exercised, as set forth on Schedule 1 hereto (such performance shares, restricted shares, and shares of Common Stock of BOKF issued upon exercise of the Options, being hereinafter collectively called the "Shares"). b) Executive may hereafter be issued an annual incentive bonus in respect of calendar year 2004, payable in March 2005 pursuant to the BOKF Executive Compensation Plan (the "2004 Annual Bonus"). c) This Agreement in entered into in order to permit Executive to defer the receipt of all or a portion of the Shares otherwise payable to Executive upon the exercise of Options or the vesting of performance shares or restricted shares issued to Executive and/or the receipt of all or a portion of the 2004 Annual Bonus. d) This Agreement sets forth the terms and conditions on which Executive may defer the receipt of Shares pursuant to the exercise of the Options or the vesting of performance shares or restricted shares, and/or the receipt of the 2004 Annual Bonus. 2) Election to Defer Receipt of Shares. The Executive may, at the sole and absolute discretion of the Executive (without any obligation to provide an explanation for the exercise of such discretion), elect to defer the receipt of Shares upon exercise of Options or the vesting of performance or restricted shares, on the following terms and conditions: a) Executive shall: i) , not less than six months prior to the vesting of performance shares or restricted shares or the intended date of exercise of any of the Options, as applicable, give written notice (the "Notice") to BOKF that Executive elects to defer the receipt of Shares or the vesting of performance or restricted shares (the "Election"); and/or, ii) on or before September 30, 2004, give written notice (also called a "Notice") to BOKF that Executive elects to defer receipt of some or all of the 2004 Annual Bonus (also called an "Election"). b) Each Notice shall set forth: i) the name of the BOKF Stock Option Plan pursuant to which the Options were awarded, the date on which the Options were awarded (the "Stock Option Award Date"), the number of Shares under option to be exercised; ii) the number of Shares which are performance shares or restricted shares which Executive elects to defer; iii) the amount of 2004 Annual Bonus which the Executive elects to defer; and, iv) whether the deferral shall be until retirement or until a date, not earlier than five years from the Notice, which executive shall specify in the Notice (the "Deferral Date") c) Executive agrees to use shares of BOKF Common Stock previously owned by him for at least six months to satisfy the exercise price of the Options, rather than the cash or broker assisted exercise methods. d) In the event Executive elects to defer the vesting of performance shares or restricted shares, the Executive shall assign and deliver such shares to BOKF together with the Notice of deferral. e) The Election shall be irrevocable. 3) Special BOKF Liability Account. a) Upon the exercise of an Option for which an Election has previously been made by the Executive pursuant to Section 2 and/or the deferral of vesting of Shares which are restricted shares or performance shares assigned and delivered to BOKF in accordance with Section 2(d), BOKF shall establish a special BOKF Liability Account ("Special Account"). i) The Special Account shall reflect the number of BOKF Shares for which Options were exercised by the Executive, the number of BOKF Shares which are performance shares and restricted shares, and the amount of 2004 Annual Bonus, which Executive has elected to defer. The Executive shall pay an FICA taxes that may be due in one or the other of the following ways: (1) Executive shall pay FICA in cash; or, (2) In the case of the deferral of BOKF Shares, the Special Account shall be debited that amount of BOKF Shares necessary to pay FICA. Executive acknowledges that, in the event, Executive elects the provision of this sub-paragraph (2), the value of the debited shares shall not be deferred under this Agreement and shall be taxable income to the Executive, subject to federal and state income tax and withholding. ii) BOKF shall periodically (but not less than once each calendar quarter) report the number of BOKF Shares reflected in the Special Account and related current value of such BOKF Shares to Executive. iii) The Special Account shall be for bookkeeping purposes only. iv) The Executive shall not, in fact, own the BOKF Shares reflected in the Special Account. b) If there are any changes in the capitalization of BOKF (or of any Alternative Investment, as hereafter defined) affecting the number or kind (after the recapitalization) of issued and outstanding shares of BOKF Common Stock (or the shares of any Alternative Investment) existing immediately prior to the change in capitalization, whether such changes have been occasioned by reorganization, combination of shares, declaration of stock dividends, stock splits, reverse stock splits, reclassification or recapitalization of such stock, the merger or consolidation of BOKF (or any Alternative Investment) with some other corporation or other similar transaction, then the number and kind of shares reflected in the Special Account shall be appropriately adjusted to reflect the number and kind of shares the Executive would have owned had the Executive actually owned the BOKF Shares (or shares of Alternative Investment) reflected in the Special Account on the date of such changes. c) On the Distribution Date described in section 5, BOKF shall: i) distribute BOKF Shares (newly issued or held in Treasury) to the Executive equal to the number of BOKF Shares reflected in the Special Account (net of that number of BOKF shares equal to the applicable Federal Insurance Contributions Act (FICA), federal and state taxes required to be withheld, determined on the basis of the fair market value of such BOKF Shares on the Distribution Date); and, ii) eliminate the Special Account. 4) Special Diversified Liability Account. a) At any time after the exercise of an Option as described in Section 2 and before the Distribution Date but no more than once each calendar quarter, the Executive may elect to convert (the "Conversion") all or a portion of the value of the Special Account into a credit value in the Special Account equal to the value so converted (less applicable FICA taxes). The converted value ("Converted Value") shall be represented by one or more Alternative Investments (as hereafter defined) selected by Executive. b) As a condition of a Conversion, the Executive shall select one or more of the investment opportunities listed in Appendix A of this Agreement (the "Alternative Investments") to measure the value of the Special Account as if such converted Special Account value had actually been invested in such Alternative Investments. c) After one or more Conversions: i) The Special Account shall reflect the BOKF Shares and Alternative Investments remaining after each such Conversion and the value thereof from time to time. ii) BOKF shall periodically (but not less than once each calendar quarter) report the BOKF Shares and Alternative Investments reflected in the Special Account and related current value thereof to Executive. iii) The Special Account shall be for bookkeeping purposes only. iv) The Executive shall not own the BOKF Shares or Alternative Investments reflected in the Special Account and shall have no right to ownership or possession thereof. v) BOKF may from time to time amend Exhibit A by adding additional investment opportunities to, but not deleting investment opportunities from, the list contained in Appendix A. 5) Distribution Date and Distribution. a) The Distribution Date for the Special Account shall be a date selected by BOKF between January 15 and March 1 of the year next following the year in which the Executive retires from BOKF, his employment with BOKF is terminated for whatever reason or the Deferral Date; provided, however: i) In the event the Executive dies prior to retiring from BOKF or prior to his employment with BOKF having terminated for whatever reason, the Distribution Date shall be a date selected by BOKF not later than 90 calendar days following the date of death; and, ii) The Executive may, at any time and from time to time (but not more frequently than once each calendar quarter), accelerate the Distribution Date with respect to the value of some or all of the BOKF Shares and/or with respect to one or more Alternative Investments reflected in the Special Account to a date no earlier than ten (10) business days after written notice to BOKF requesting such accelerated Distribution Date provided Executive agrees in such notice to an irrevocable forfeiture of ten per cent (10%) of the value which Executive has requested be distributed (the "Forfeiture"). All Forfeitures shall be debited to the Special Account and allocated among BOKF Shares and/or Alternative Investments reflected in the Special Account in such manner as BOKF shall in its discretion determine. b) On the Distribution Date (whether accelerated or otherwise), the Company shall: i) Pay the value of the Special Account (or so much thereof as Executive may have requested be accelerated) on the Distribution Date (net of applicable federal and state taxes required to be withheld and less any Forfeiture) to Executive in cash, BOKF Shares, Alternative Investments or a combination thereof, in sole the discretion of BOKF; and, ii) eliminate the Special Account (or so much thereof as Executive may have requested be accelerated). c) In the event of the death of the Executive, the distribution provided in the preceding subsection shall be made to the beneficiary or beneficiaries previously designated by the Executive in a writing filed with the Secretary of BOKF or, in the absence of such designation, as provided by Executive in any trust or will and, in the absence of any such trust or will, to Executive's estate. 6) No Executive Interest in Any BOKF Assets. a) BOKF shall have no obligation to actually hold BOKF Shares reflected in the Special Account or invest funds in any Alternative Investment selected by Executive. b) If BOKF, in its sole discretion, actually holds BOKF Shares reflected in the Special Account or invests BOKF funds in Alternative Investments, the Executive shall have no right or interest therein. c) The Executive shall have the right under this Agreement only to the payment in cash of an amount measured by reference to the values of BOKF Shares and Alternative Investments reflected in the Special Account (the "Reference Values"). Such contractual right of the Executive constitutes the Executive a general unsecured creditor of BOKF. d) BOKF may satisfy its obligation to pay the Referenced Values by making payment in cash or by the delivery of the BOKF Shares and/or Alternative Investments by which the Reference Values are determined. 7) No Enlargement of Employment Rights. Nothing contained in this Agreement shall (i) give or be construed as giving the Executive the right to be retained in the service of BOKF or (ii) modify or be construed as modifying the terms and conditions of employment of Executive with BOKF. 8) Indemnification. Executive hereby agrees to defend and indemnify BOKF, and hold BOKF harmless from, all claims of third parties arising out of the operations of any Alternative Investment selected by Executive that BOKF may actually acquire. BOKF shall not be responsible for any decline in value of the Shares or of any Alternative Investment. 9) Termination of this Agreement. This Agreement shall remain in full force and effect from the Agreement Date until Executive's retirement or termination; provided, however, either BOKF or Executive may terminate the provisions of Section 2 hereof by notice given on or before November 1 of any year in which event such termination shall be effective as of January 1 immediately following such notice; provided, further, no such termination shall effect the time at which any distribution shall be made to Executive. 10) Miscellaneous Provisions. The following miscellaneous provisions shall apply to this Agreement: a) All notices or advices required or permitted to be given by or pursuant to this Agreement, shall be given in writing. All such notices and advices shall be (i) delivered personally, (ii) delivered by facsimile or delivered by U.S. Registered or Certified Mail, Return Receipt Requested mail, or (iii) delivered for overnight delivery by a nationally recognized overnight courier service. Such notices and advices shall be deemed to have been given (i) the first business day following the date of delivery if delivered personally or by facsimile, (ii) on the third business day following the date of mailing if mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii) on the date of receipt if delivered for overnight delivery by a nationally recognized overnight courier service. All such notices and advices and all other communications related to this Agreement shall be given as follows: If to BOKF: BOK Financial Corporation Att: Chief Financial Officer P.O. Box 2300 Tulsa, Oklahoma 74192 918-588-6319 - Telephone 918-588- 6853 - Facsimile If to Executive: Mark W. Funke 13 Oakdale Farm Road Edmond, OK 73013 (405)478-5943 - Telephone With Copy to: Frederic Dorwart Old City Hall 124 East Fourth Street Tulsa, OK 74103 (918) 583-9945 - Telephone (918) 583-8251 - Facsimile or to such other address as the party may have furnished to the other parties in accordance herewith, except that notice of change of addresses shall be effective only upon receipt. b) This Agreement is made and executed in Tulsa County, Oklahoma. c) This Agreement shall be subject to, and interpreted by and in accordance with, the laws (excluding conflict of law provisions) of the State of Oklahoma. d) This Agreement and the Employment Agreement as amended are the entire Agreement of the parties respecting the subject matter hereof. There are no other agreements, representations or warranties, whether oral or written, respecting the subject matter hereof. e) No course of prior dealings involving any of the parties hereto and no usage of trade shall be relevant or advisable to interpret, supplement, explain or vary any of the terms of this Agreement, except as expressly provided herein. f) This Agreement, and all the provisions of this Agreement, shall be deemed drafted by all of the parties hereto. g) This Agreement shall not be interpreted strictly for or against any party, but solely in accordance with the fair meaning of the provisions hereof to effectuate the purposes and intent of this Agreement. h) Each party hereto has entered into this Agreement based solely upon the agreements, representations and warranties expressly set forth herein and upon his own knowledge and investigation. Neither party has relied upon any representation or warranty of any other party hereto except any such representations or warranties as are expressly set forth herein. i) Each of the persons signing below on behalf of a party hereto represents and warrants that he or she has full requisite power and authority to execute and deliver this Agreement on behalf of the parties for whom he or she is signing and to bind such party to the terms and conditions of this Agreement. j) This Agreement may be executed in counterparts, each of which shall be deemed an original. This Agreement shall become effective only when all of the parties hereto shall have executed the original or counterpart hereof. This agreement may be executed and delivered by a facsimile transmission of a counterpart signature page hereof. k) In any action brought by a party hereto to enforce the obligations of any other party hereto, the prevailing party shall be entitled to collect from the opposing party to such action such party's reasonable litigation costs and attorneys fees and expenses (including court costs, reasonable fees of accountants and experts, and other expenses incidental to the litigation). l) This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. m) This is not a third party beneficiary contract. No person or entity other than a party signing this Agreement shall have any rights under this Agreement. This Agreement may not be assigned by any party hereto. n) This Agreement may be amended or modified only in a writing which specifically references this Agreement. o) Any cause of action for a breach or enforcement of, or a declaratory judgment respecting, this Agreement shall be commenced and maintained only in the United States District Court for the Northern District of Oklahoma or the applicable Oklahoma state trial court sitting in Tulsa, Oklahoma and having subject matter jurisdiction. Dated as of the Agreement Date. BOK Financial Corporation /s/ Steven E. Nell By____________________________ EVP - CFO Its __________________________ Mark W. Funke __________________________ Print Name of Executive /s/ Mark W. Funke __________________________ Signature of Executive Schedule 1 (To Deferred Compensation Agreement) (Description of Options Held at Agreement Date) Exhibit A (To Deferred Compensation Agreement) (Additional Investment Opportunities) As of ______________________ 1. ___________________________________________________ --------------------------------------------------- 2. ___________________________________________________ --------------------------------------------------- 3. ___________________________________________________ --------------------------------------------------- 4. ___________________________________________________ --------------------------------------------------- 5. ___________________________________________________ --------------------------------------------------- 6. ___________________________________________________ --------------------------------------------------- EX-10 9 exhibit1047adefcompagreement.txt EXHIBIT 10.4.7 (A) DEFERRED COMPENSATION AGREEMNT Exhibit 10.4.7 (a) BOK FINANCIAL CORPORATION Amended and Restated Deferred Compensation Agreement (Amended As Of December 1, 2003) This Deferred Compensation Agreement (the "Agreement") is made this 15th day of October, 2003 (the "Agreement Date") between the following parties (the "Parties"): i. Steven E. Nell, an individual residing in Tulsa, Oklahoma ("Executive"); and, ii. BOK Financial Corporation, an Oklahoma corporation ("BOKF"). Recitals Whereas, Executive and BOKF have heretofore entered into that certain Deferred Compensation Agreement dated October 15, 2003; Whereas, Executive and BOKF desire to amend and restate the Deferred Compensation Agreement. Now, therefore: The Executive and BOKF, in exchange for the promises hereafter set forth and other good and valuable consideration (the receipt and adequacy of which the Parties hereby acknowledge), and intending to be legally bound hereby, agree as follows: 1) Purpose of This Agreement. The purpose of this Agreement is as follows: a) Executive is employed by BOKF as its Executive Vice President. b) Executive may hereafter be issued performance or restricted shares (as provided, from time to time, in the BOKF Executive Compensation Plans) and/or awarded options (the "Options") to acquire Common Stock of BOKF and has heretofore been awarded options which, as of the Agreement Date, have not been exercised, as set forth on Schedule 1 hereto (such performance shares, restricted shares, and shares of Common Stock of BOKF issued upon exercise of the Options, being hereinafter collectively called the "Shares"). c) Executive may hereafter be issued an annual incentive bonus in respect of calendar year 2004, payable in March 2005 pursuant to the BOKF Executive Compensation Plan (the "2004 Annual Bonus"). d) This Agreement in entered into in order to permit Executive to defer the receipt of all or a portion of the Shares otherwise payable to Executive upon the exercise of Options or the vesting of performance shares or restricted shares issued to Executive and/or the receipt of all or a portion of the 2004 Annual Bonus. 2 e) This Agreement sets forth the terms and conditions on which Executive may defer the receipt of Shares pursuant to the exercise of the Options, the vesting of performance shares or restricted shares, and/or the receipt of the 2004 Annual Bonus. 2) Election to Defer Receipt of Shares. The Executive may, at the sole and absolute discretion of the Executive (without any obligation to provide an explanation for the exercise of such discretion), elect to defer the receipt of Shares upon exercise of Options or the vesting of performance or restricted shares, on the following terms and conditions: a) Executive shall: i) not less than six months prior to the vesting of performance shares or restricted shares or the intended date of exercise of any of the Options, as applicable, give written notice (the "Notice") to BOKF that Executive elects to defer the receipt of Shares or the vesting of performance or restricted shares (the "Election"); and/or, ii) on or before September 30, 2004, give written notice (also called a "Notice") to BOKF that Executive elects to defer receipt of some or all of the 2004 Annual Bonus (also called an "Election"). b) Each Notice shall set forth: i) the name of the BOKF Stock Option Plan pursuant to which the Options were awarded, the date on which the Options were awarded (the "Stock Option Award Date"), the number of Shares under option to be exercised; ii) the number of Shares which are performance shares or restricted shares which Executive elects to defer; iii) the amount of 2004 Annual Bonus which the Executive elects to defer; and, iv) whether the deferral shall be until retirement or until a date, not earlier than five years from the Notice, which executive shall specify in the Notice (the "Deferral Date") c) Executive agrees to use shares of BOKF Common Stock previously owned by him for at least six months to satisfy the exercise price of the Options, rather than the cash or broker assisted exercise methods. d) In the event Executive elects to defer the vesting of performance shares or restricted shares, the Executive shall assign and deliver such shares to BOKF together with the Notice of deferral. e) The Election shall be irrevocable. 3) Special BOKF Liability Account. a) Upon the exercise of an Option for which an Election has previously been made by the 3 Executive pursuant to Section 2 and/or the deferral of vesting of Shares which are restricted shares or performance shares assigned and delivered to BOKF in accordance with Section 2(d), BOKF shall establish a special BOKF Liability Account ("Special Account"). i) The Special Account shall reflect the number of BOKF Shares for which Options were exercised by the Executive, the number of BOKF Shares which are performance shares and restricted shares, and the amount of 2004 Annual Bonus, which Executive has elected to defer. The Executive shall pay an FICA taxes that may be due in one or the other of the following ways: (1) Executive shall pay FICA in cash; or, (2) In the case of the deferral of BOKF Shares, the Special Account shall be debited that amount of BOKF Shares necessary to pay FICA. Executive acknowledges that, in the event, Executive elects the provision of this sub-paragraph (2), the value of the debited shares shall not be deferred under this Agreement and shall be taxable income to the Executive, subject to federal and state income tax and withholding. ii) BOKF shall periodically (but not less than once each calendar quarter) report the number of BOKF Shares reflected in the Special Account and related current value of such BOKF Shares to Executive. iii) The Special Account shall be for bookkeeping purposes only. iv) The Executive shall not, in fact, own the BOKF Shares reflected in the Special Account. b) If there are any changes in the capitalization of BOKF (or of any Alternative Investment, as hereafter defined) affecting the number or kind (after the recapitalization) of issued and outstanding shares of BOKF Common Stock (or the shares of any Alternative Investment) existing immediately prior to the change in capitalization, whether such changes have been occasioned by reorganization, combination of shares, declaration of stock dividends, stock splits, reverse stock splits, reclassification or recapitalization of such stock, the merger or consolidation of BOKF (or any Alternative Investment) with some other corporation or other similar transaction, then the number and kind of shares reflected in the Special Account shall be appropriately adjusted to reflect the number and kind of shares the Executive would have owned had the Executive actually owned the BOKF Shares (or shares of Alternative Investment) reflected in the Special Account on the date of such changes. c) On the Distribution Date described in section 5, BOKF shall: i) distribute BOKF Shares (newly issued or held in Treasury) to the Executive equal to the number of BOKF Shares reflected in the Special Account (net of that number of BOKF shares equal to the applicable Federal Insurance Contributions Act (FICA), federal and state taxes required to be withheld, determined on the basis of the fair 4 market value of such BOKF Shares on the Distribution Date); and, ii) eliminate the Special Account. 4) Special Diversified Liability Account. a) At any time after the exercise of an Option as described in Section 2 and before the Distribution Date but no more than once each calendar quarter, the Executive may elect to convert (the "Conversion") all or a portion of the value of the Special Account into a credit value in the Special Account equal to the value so converted (less applicable FICA taxes). The converted value ("Converted Value") shall be represented by one or more Alternative Investments (as hereafter defined) selected by Executive. b) As a condition of a Conversion, the Executive shall select one or more of the investment opportunities listed in Appendix A of this Agreement (the "Alternative Investments") to measure the value of the Special Account as if such converted Special Account value had actually been invested in such Alternative Investments. c) After one or more Conversions: i) The Special Account shall reflect the BOKF Shares and Alternative Investments remaining after each such Conversion and the value thereof from time to time. ii) BOKF shall periodically (but not less than once each calendar quarter) report the BOKF Shares and Alternative Investments reflected in the Special Account and related current value thereof to Executive. iii) The Special Account shall be for bookkeeping purposes only. iv) The Executive shall not own the BOKF Shares or Alternative Investments reflected in the Special Account and shall have no right to ownership or possession thereof. v) BOKF may from time to time amend Exhibit A by adding additional investment opportunities to, but not deleting investment opportunities from, the list contained in Appendix A. 5) Distribution Date and Distribution. a) The Distribution Date for the Special Account shall be a date selected by BOKF between January 15 and March 1 of the year next following the year in which the Executive retires from BOKF, his employment with BOKF is terminated for whatever reason or the Deferral Date; provided, however: i) In the event the Executive dies prior to retiring from BOKF or prior to his employment with BOKF having terminated for whatever reason, the Distribution Date shall be a date selected by BOKF not later than 90 calendar days following the date of death; and, 5 ii) The Executive may, at any time and from time to time (but not more frequently than once each calendar quarter), accelerate the Distribution Date with respect to the value of some or all of the BOKF Shares and/or with respect to one or more Alternative Investments reflected in the Special Account to a date no earlier than ten (10) business days after written notice to BOKF requesting such accelerated Distribution Date provided Executive agrees in such notice to an irrevocable forfeiture of ten per cent (10%) of the value which Executive has requested be distributed (the "Forfeiture"). All Forfeitures shall be debited to the Special Account and allocated among BOKF Shares and/or Alternative Investments reflected in the Special Account in such manner as BOKF shall in its discretion determine. b) On the Distribution Date (whether accelerated or otherwise), the Company shall: i) Pay the value of the Special Account (or so much thereof as Executive may have requested be accelerated) on the Distribution Date (net of applicable federal and state taxes required to be withheld and less any Forfeiture) to Executive in cash, BOKF Shares, Alternative Investments or a combination thereof, in sole the discretion of BOKF; and, ii) eliminate the Special Account (or so much thereof as Executive may have requested be accelerated). c) In the event of the death of the Executive, the distribution provided in the preceding subsection shall be made to the beneficiary or beneficiaries previously designated by the Executive in a writing filed with the Secretary of BOKF or, in the absence of such designation, as provided by Executive in any trust or will and, in the absence of any such trust or will, to Executive's estate. 6) No Executive Interest in Any BOKF Assets. a) BOKF shall have no obligation to actually hold BOKF Shares reflected in the Special Account or invest funds in any Alternative Investment selected by Executive. b) If BOKF, in its sole discretion, actually holds BOKF Shares reflected in the Special Account or invests BOKF funds in Alternative Investments, the Executive shall have no right or interest therein. c) The Executive shall have the right under this Agreement only to the payment in cash of an amount measured by reference to the values of BOKF Shares and Alternative Investments reflected in the Special Account (the "Reference Values"). Such contractual right of the Executive constitutes the Executive a general unsecured creditor of BOKF. d) BOKF may satisfy its obligation to pay the Referenced Values by making payment in cash or by the delivery of the BOKF Shares and/or Alternative Investments by which the Reference Values are determined. 7) No Enlargement of Employment Rights. Nothing contained in this Agreement shall (i) give or be construed as giving the Executive the right to be retained in the service of BOKF 6 or (ii) modify or be construed as modifying the terms and conditions of employment of Executive with BOKF. 8) Indemnification. Executive hereby agrees to defend and indemnify BOKF, and hold BOKF harmless from, all claims of third parties arising out of the operations of any Alternative Investment selected by Executive that BOKF may actually acquire. BOKF shall not be responsible for any decline in value of the Shares or of any Alternative Investment. 9) Termination of this Agreement. This Agreement shall remain in full force and effect from the Agreement Date until Executive's retirement or termination; provided, however, either BOKF or Executive may terminate the provisions of Section 2 hereof by notice given on or before November 1 of any year in which event such termination shall be effective as of January 1 immediately following such notice; provided, further, no such termination shall effect the time at which any distribution shall be made to Executive. 10) Miscellaneous Provisions. The following miscellaneous provisions shall apply to this Agreement: a) All notices or advices required or permitted to be given by or pursuant to this Agreement, shall be given in writing. All such notices and advices shall be (i) delivered personally, (ii) delivered by facsimile or delivered by U.S. Registered or Certified Mail, Return Receipt Requested mail, or (iii) delivered for overnight delivery by a nationally recognized overnight courier service. Such notices and advices shall be deemed to have been given (i) the first business day following the date of delivery if delivered personally or by facsimile, (ii) on the third business day following the date of mailing if mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii) on the date of receipt if delivered for overnight delivery by a nationally recognized overnight courier service. All such notices and advices and all other communications related to this Agreement shall be given as follows: If to BOKF: BOK Financial Corporation Att: Chief Financial Officer P.O. Box 2300 Tulsa, Oklahoma 74192 918-588-6319 - Telephone 918-588- 6853 - Facsimile If to Executive: Steven E. Nell 4612 E. 78th Street Tulsa, Oklahoma 74136 (918) 492-7545 - Telephone With Copy to: Frederic Dorwart Old City Hall 124 East Fourth Street Tulsa, OK 74103 (918) 583-9945 - Telephone 7 (918) 583-8251 - Facsimile or to such other address as the party may have furnished to the other parties in accordance herewith, except that notice of change of addresses shall be effective only upon receipt. b) This Agreement is made and executed in Tulsa County, Oklahoma. c) This Agreement shall be subject to, and interpreted by and in accordance with, the laws (excluding conflict of law provisions) of the State of Oklahoma. d) This Agreement and the Employment Agreement as amended are the entire Agreement of the parties respecting the subject matter hereof. There are no other agreements, representations or warranties, whether oral or written, respecting the subject matter hereof. e) No course of prior dealings involving any of the parties hereto and no usage of trade shall be relevant or advisable to interpret, supplement, explain or vary any of the terms of this Agreement, except as expressly provided herein. f) This Agreement, and all the provisions of this Agreement, shall be deemed drafted by all of the parties hereto. g) This Agreement shall not be interpreted strictly for or against any party, but solely in accordance with the fair meaning of the provisions hereof to effectuate the purposes and intent of this Agreement. h) Each party hereto has entered into this Agreement based solely upon the agreements, representations and warranties expressly set forth herein and upon his own knowledge and investigation. Neither party has relied upon any representation or warranty of any other party hereto except any such representations or warranties as are expressly set forth herein. i) Each of the persons signing below on behalf of a party hereto represents and warrants that he or she has full requisite power and authority to execute and deliver this Agreement on behalf of the parties for whom he or she is signing and to bind such party to the terms and conditions of this Agreement. j) This Agreement may be executed in counterparts, each of which shall be deemed an original. This Agreement shall become effective only when all of the parties hereto shall have executed the original or counterpart hereof. This agreement may be executed and delivered by a facsimile transmission of a counterpart signature page hereof. k) In any action brought by a party hereto to enforce the obligations of any other party hereto, the prevailing party shall be entitled to collect from the opposing party to such action such party's reasonable litigation costs and attorneys fees and expenses (including court costs, reasonable fees of accountants and experts, and other expenses incidental to the litigation). 8 l) This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. m) This is not a third party beneficiary contract. No person or entity other than a party signing this Agreement shall have any rights under this Agreement. This Agreement may not be assigned by any party hereto. n) This Agreement may be amended or modified only in a writing which specifically references this Agreement. o) Any cause of action for a breach or enforcement of, or a declaratory judgment respecting, this Agreement shall be commenced and maintained only in the United States District Court for the Northern District of Oklahoma or the applicable Oklahoma state trial court sitting in Tulsa, Oklahoma and having subject matter jurisdiction. Dated as of the Agreement Date. BOK Financial Corporation /s/ Stanley A. Lybarger By____________________________ President and CEO Its __________________________ Steven E. Nell ____________________________ Print Name of Executive /s/ Steven E. Nell ____________________________ Signature of Executive 9 Schedule 1 (To Deferred Compensation Agreement) (Description of Options Held at Agreement Date) 10 Exhibit A (To Deferred Compensation Agreement) (Additional Investment Opportunities) As of ______________________ 1. ___________________________________________________ --------------------------------------------------- 2. ___________________________________________________ --------------------------------------------------- 3. ___________________________________________________ --------------------------------------------------- 4. ___________________________________________________ --------------------------------------------------- 5. ___________________________________________________ --------------------------------------------------- 6. ___________________________________________________ --------------------------------------------------- EX-13 10 exhibit13.txt EXHIBIT 13 2004 ANNUAL REPORT--TABLE OF CONTENTS BOK FINANCIAL CORPORATION EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS TABLE OF CONTENTS Consolidated Selected Financial Data 13 Management's Assessment of Operations and Financial Condition 14 Selected Quarterly Financial Data 23 Report of Management on Financial Statements and Management's Report on Internal Control over Financial Reporting 44 Reports of Independent Registered Public Accounting Firm 45 Consolidated Financial Statements 47 Notes to Consolidated Financial Statements 52 Annual Financial Summary - Unaudited 84 Quarterly Financial Summary - Unaudited 86 EX-13 11 annualreportfrontpages.txt EXHIBIT 13 2004 ANNUAL REPORT - FRONT PAGES THE PLACES OF THE STORY Since 1991, BOK Financial Corporation has evolved from a bank committed to unparalleled local service in one state to an integrated financial services company dedicated to relationship banking region-wide. As always, we remain resolute in our devotion to creating value for our shareholders, clients, employees and communities. This is our story .... 1 CREATING VALUE THE BOK FINANCIAL CORPORATION STORY In an age of interminable change, our story remains the same ... 14 years of record earnings and superior returns for our investors. As we enter our 15th year, BOK Financial Corporation remains committed to growth by offering our clients superior products and services with a steadfast focus on providing long-term value for our shareholders. In 2004, BOK Financial delivered record earnings, including net income of $179 million, or $2.68 per share, an increase of 13 percent over 2003. Our growth continues to be supported by revenue diversity and geographic expansion. We are enhancing our reach with the planned acquisition of Valley Commerce Bank in Phoenix, one of the country's most dynamic markets. With this new entry, we will have full-service banks in six states and offices in 10. Revenue diversity helped us overcome the impact of the slowdown in mortgage activity, which accounted for 18 percent of net income in 2003 but only 1 percent in 2004. Non-interest revenue from fees and commissions constituted 42 percent of revenue in 2004 compared with 34 percent for peer banks with assets half to double ours. Coupled with this is a devotion to improving productivity and efficiency. Our efficiency ratio of 60 percent compares favorably to peers with a similar mix of fee revenue. Our credit quality remains very strong, and our success is bolstered by a commitment to strong local leadership, prudent expense management and retention and recruitment of accomplished local bankers. On the following pages, we tell our story. But first, we would like to acknowledge the dedication of our 3,500 employees. Their commitment to excellence and achievement with integrity enables BOK Financial to provide quality relationship banking and financial services that we believe are the best in the markets we serve. Our employees will continue to provide sophisticated products and services with a commitment to old-fashioned banking that prizes close, personal attention and a dedication first and foremost to meeting client needs. As we tell our story--and live it--we at BOK Financial will always value our people, value our clients and remain committed to the communities we serve. All the while, we will work to generate optimal long-term returns for our shareholders. And with that, this is our story... it's about creating lasting value, both now and into the future. 2 CREATING VALUE FOR INVESTORS, CLIENTS AND COMMUNITIES In 1991, BOK Financial Corporation was a $2 billion bank focused on a single state. Today, we are a diversified, $15 billion regional financial services company with a presence in the Southwest, Midwest and the Rockies. Our 20 full-service banking locations have grown to 149 locations in six states, plus broker-dealer offices in 10. Our emergence as a regional financial force for businesses, consumers, institutions and investors has provided an annual return of 28 percent for our shareholders since our founding. A $10,000 investment in BOK Financial in 1991 was worth $248,773 at the end of 2004. That's our story. It's about creating value--for our investors, clients, employees and communities--through a commitment to principles, strategies and structure that promote prudent growth while keeping a vigilant eye on providing the best, most responsive service available. Although our results speak for themselves, we are not content. We continue to enhance the value of our franchise for all our stakeholders. We are the largest bank in our original market and have enjoyed solid growth corporate-wide. Regionally, we are not bent on being the biggest bank, just one that offers the best service in the areas we choose to compete. We have grown through guidance from a simple vision--to provide sophisticated products competitive with the largest banks but delivered with personal, responsive client service characteristic of a local bank putting the needs of customers first. Our vision is backed by strategies that foster growth.We aim to: - - leverage our leadership position in Oklahoma, - - expand into growing metropolitan markets in the region, - - diversify and grow non-interest revenue, and - - focus on opportunities to serve the commercial middle market, small business and retail clients. Supporting our strategies is a consistent commitment to credit quality in a diversified loan portfolio. We also continue to introduce new technologies that enhance our products and services, creating operating efficiencies as part of our approach to sensible expense management. While we endeavor to hold down business costs, our chief aim is to improve client service and maximize opportunities to generate new revenue. Our vision and strategies are reinforced by a business model that fosters communication among our relationship officers across business lines to fully meet each client's needs. In doing so, we make the most of opportunities before us and avoid the isolation that shortchanges clients with diverse financial needs. Our broad, inclusive focus is built on the experience of top executives averaging more than 25 years of industry experience and 13 years on average at our company. The percentage of company ownership 3 personally maintained by our board of directors is among the highest in the nation, which helps create strong alignment between management and shareholders. Executives oversee three divisions dedicated to client care: - - Consumer and Wealth Management encompasses Consumer, Trust, Private Financial Services, Mortgage, Community Development and Investment Services; - - Oklahoma/Arkansas Commercial includes Commercial, Treasury Services, and the electronic funds business in our largest Commercial Banking segment; and - - Regional Banking, our fastest growing segment, has oversight of banking activities in Arizona, Colorado, New Mexico and Texas. Through all our efforts, we stand first and foremost behind local banks managed by local bankers and local boards of directors who value attention to client satisfaction and community service through six national affiliate banks and our broker-dealer. We are: - - Bank of Albuquerque (Albuquerque and Santa Fe) - - Bank of Arkansas (Fayetteville and Bentonville) - - Bank of Oklahoma (Oklahoma City, Tulsa and nine communities) - - Bank of Texas (Dallas-Fort Worth, Greater Houston and Sherman) - - Colorado State Bank and Trust (Denver) - - Valley Commerce Bank (Phoenix and Scottsdale) - closing anticipated April 2005 - - BOSC, Inc. (offices in 10 states) Our values are aimed at superior client service, our strategies foster growth and our operational diversity and organization enhance efficiency and communication. Our attributes bolster a local focus on service quality and client fulfillment. Ultimately, our goal is to produce exceptional growth in earnings and long-term shareholder returns. We plan on keeping it that way, so our story will remain the same--a chronicle of creating lasting value. 4 CREATING VALUE THROUGH DIVERSE REVENUE STREAMS For BOK Financial, value equals diversity. Our story is about competing effectively in any economic environment with the help of diverse sources of non-interest revenue that fuel growth. Our results? - - 12.3 percent annual growth over the last five years in fees and commissions from trust, mortgage, transaction cards, brokerage and trading, and deposit accounts. - - Non-interest revenue accounting for 42 percent of total revenue compared with 34 percent for peer banks. - - The potential for greater incremental growth in regional markets where our fee and commission generating lines are relatively new. Armed with product diversity and innovation, our Trust Division contributes to this non-interest revenue growth. In 2004, overall Trust revenue grew 26 percent-including 16 percent internal growth-from first-rate services for retirement and institutional benefits, personal trust, estate planning, mutual fund advice, corporate trust and trust oil and gas services. In fact, our trust oil and gas services, which include managing mineral properties for clients and overseeing assets outsourced from other financial institutions, are considered among the best nationally. Other cutting-edge products and services garnering national attention include our self-directed 401 (k) plan utilized by some of the nation's largest law firms, as well as smaller professional corporations in which principals want the flexibility to personally select from a broad universe of investment options. In our mutual fund family, the American Performance Funds, our short-term income fund is among the top performers in its category over the last five-year period, according to Lipper. In addition to increased revenue from new trust and investment products, we are benefiting from consolidation of our trust, investment management and affluent market brokerage sales groups. This provides one point of client contact for our full range of investment services and ensures the most comprehensive service and personal attention available in any market. Growth in our Consumer Division continues to be fueled by our commitment to add full-service locations, utilize innovative marketing approaches and constantly improve client service through our Perfect Banking initiative. Our approach has generated: - - fee growth of 20 percent in 2004 and 21 percent over five years, based on a compound annual growth rate, - - 12 percent growth in the number of checking accounts in 2004, and 15 percent annually over five years, - - overall deposit growth of 15 percent in 2004 and 11 percent annually over the five-year period. 5 While the number of our full-service locations has grown seven-fold since our founding, we maintain a concerted program of finding new expansion opportunities for our branch network in all our markets. Last year, through new in-store and traditional branches, we added 12 locations that appeal to clients appreciative of service with a personal touch. At our broker-dealer, we continue to experience fee and commission growth through superior performance by financial consultants with experience seven times the industry average. The firm offers retail brokerage and institutional sales, as well as public finance services that rank first in our original market. We have 165 registered representatives in 10 states. But we are about performance, not just presence. Our broker-dealer has experienced compound annual growth in revenue of 20 percent over the past five years. Our broker-dealer investment revenue per million dollars of deposits is three times the industry average. To build on our accomplishments, we have introduced financial risk management services that allow our clients to hedge energy, interest rate and foreign exchange risks. We have also expanded corporate and mortgage-backed securities capabilities. Our electronic funds transfer network, TransFund, continues to experience revenue growth--14 percent annually over five years--as an ATM network operator, merchant payment service provider and check card processor. We began with a single ATM in 1976 and are now the nation's 11th largest EFT network, solely created by internal growth. TransFund has: - - almost 1,400 ATMs, - - 340 financial institution clients in 10 states, - - 1.7 million cardholders, and - - 149 million debit card transactions a year. In Treasury Services, we provide complete deposit services to commercial clients. Our mortgage company remains a valuable contributor to non-interest revenue, and our International Department generates a growing portion of fee income through a broad range of products and services. There are substantial non-interest revenue growth opportunities throughout our regional markets where we are still a relatively recent arrival. In our original market, non-interest revenue was 49 percent of total revenue in 2004. Elsewhere, non-interest revenue represents just 31 percent of the total, but has grown 40 percent annually over the past five years. We plan to continue building value for our investors as we expand our fee services into new markets. 6 CREATING VALUE IN A GROWING, DIVERSE REGION Our decision in 1996 to expand outside our original market into thriving metropolitan areas in nearby states signaled the beginning of a new chapter in our company's history. Since we ventured into neighboring states almost nine years ago, we have been transformed into a financial services company creating value and strong returns for shareholders through the inherent diversity of our markets. As a result, we are less vulnerable to local economic downturns. More than half of BOK Financial's revenue and profitability growth now comes from regional banks that provide a relationship-driven alternative for middle market companies, small business owners, trust clients, investors and consumers weary of impersonal banking. Our banks are making this difference for our clients and shareholders in some of the nation's fastest-growing markets with new opportunities for businesses and rising incomes for residents. U.S. Census estimates and data from Dun & Bradstreet reveal abundant growth opportunity. For example: - - The Dallas-Fort Worth Metroplex is home to almost 5.7 million people and more than 240,000 locally based businesses. Included are 39 Fortune 1000 headquarters and more than 3,700 middle market companies with revenue from $10 million to $750 million. - - Greater Houston includes 5 million residents and 191,000 businesses. Middle market companies number more than 3,200. The nation's fourth largest city is home to 41 Fortune 1000 headquarters. - - The Phoenix area has almost 3.4 million residents and more than 110,000 locally based businesses. The nation's sixth largest city and its suburbs include more than 1,600 middle market companies and 14 Fortune 1000 headquarters. - - More than 2.5 million people live in metro Denver, where employers include more than 100,000 businesses. Among the employers are 1,500 middle market companies and 15 Fortune 1000 headquarters. Even small gains in market share are significant in these vibrant markets. For example, a 1 percent increase in deposit market share in all of Oklahoma represents $443 million in additional deposits. A 1 percent increase in Houston is more than twice that amount. Our formula for regional expansion is simple: We buy well-managed local banks to gain access to attractive markets. Then we focus on increasing revenue by hiring talent to enhance competitiveness, adding locations and broadening product offerings. While our operations and administrative functions are consolidated system-wide, our client service and marketing functions are handled locally by bankers who know their markets best. We recruit top management with deep roots in the community, proven business development and credit skills, and demonstrated loyalty from clients and employees. We prize 7 high-quality franchises that we can develop by introducing new products and services. The planned addition this year of Valley Commerce Bank, with locations in Phoenix and Scottsdale, follows our expansion in 2003 into Denver with the acquisition of Colorado State Bank and Trust. While we remain open to attractive opportunities region-wide, our focus is on ensuring the success of each acquisition by building a strong local bank that generates new business and long-term value. An example of our successful approach is Bank of Albuquerque. In December 1998, we acquired 17 branches that were part of a divestiture from the merger of two large national banks. Included were consumer-focused locations but little management or back office operations. From that basic beginning, we quickly built the bank into the fastest growing financial institution in the market. To accomplish quality growth, we: - - invested heavily in new talent, recruiting principally from the larger banks in the market, - - added commercial lending capabilities, including a solid middle market team, - - introduced our full array of fee-based products and services, - - included our broad base of consumer offerings, and - - launched trust and private financial services. The results are a study in success. Over the past six years revenue has increased from $25 million to $58 million, a compound annual growth rate of more than 18 percent. We are now the third largest bank in the Albuquerque market. In 2004, our banks outside of Oklahoma accounted for 33 percent, or $58.6 million, of consolidated net income. Earnings for the regional banks have grown 28 percent annually for the last five years. One of the factors contributing to this growth is an expanding number of locations. Bank of Texas marked its 37th location with the opening of a new full-service location on the west side of Fort Worth's central business district in 2004. This is the bank's first full-service office in the growing city and a continuation of its expansion across North Texas. We continue to anticipate growth in the years ahead in regional markets with diverse economies and new possibilities for us, our clients and our shareholders. 8 CREATING VALUE WITH QUALITY LOANS AND LEADERSHIP In banking, loans and credit quality are integral to value. Our commitment to be top lenders with sound credits in a diverse portfolio has helped generate consistent loan growth and a steady increase in net interest revenue in stable markets. We are committed region-wide to serving middle market and small business clients through strong local account managers with the flexibility to accommodate clients. We support our staff with centralized credit oversight that includes a strong commitment to quality loans. How do we measure our success? - - By 9.5 percent compound annual growth rate for loans over the past five years compared with 7.0 percent for peer banks, - - by 12.9 percent annual revenue growth in corporate banking since 2000, and - - by net charge-offs that average 31 basis points over the past five years. Our entire loan portfolio--$7.9 billion at year-end 2004--is bolstered by quality service for energy clients, manufacturers and commercial real estate developers, among others. We also allow our clients to lock in cash flows through our energy hedging program and offer interest rate derivatives that allow clients to quickly and efficiently change the interest rate characteristics of their debt. Our credit standards, which are applied consistently across the region, are among the most stable in the industry. Attention to the value and quality of our loan portfolio and prudent management of our credits has been developed through experiences in the best and worst of economic times. While we have successfully applied our expertise regionally, we are not satisfied to rest on our accomplishments in Oklahoma. We are the premier bank in the state, but we continue to build on our leadership in every segment. Initially we benefited from disruptions created by mergers and consolidations, but as consolidation slows, our approach continues to generate new growth. In 1998, we had 9.8 percent of statewide deposits, which was 3 percentage points higher than our nearest competitor. Through ongoing growth initiatives, our statewide deposit share has increased to 13.0 percent, which is more than twice the market share of our next largest competitor. Industry statistics show that we are also the leader in commercial and consumer banking, mortgage origination, trust and ATM/EFT. Our ability to compete against small community banks and large national banks in Oklahoma gives us confidence we can compete well in our regional markets. It is hard to win on the road if you cannot win at home. Our growth in Oklahoma, combined with our regional expansion, is a strong foundation as we strive to constantly add value. 9 EPILOGUE: VALUE THROUGH A VISION In 2005, we continue to focus on creating value through superior performance for our shareholders. We plan to add products and services in Phoenix, which abounds with growth prospects among middle market companies, as well as small businesses served well by Valley Commerce. This planned acquisition includes a full-service location in the upscale Kierland section of Scottsdale, where we plan to introduce trust and investment services to affluent clients and market private financial services. We are also continuing our strategic approach to branch expansion with the addition of eight new locations. These include six traditional branches in Dallas, Houston, Denver, Albuquerque, Bentonville and Oklahoma City. We also plan to open new supermarket locations in the Dallas suburb of Plano and in the Tulsa area. We continue to aggressively reinvest in new technology, products and services. For example, all our markets will benefit from new offerings in Treasury Services and Retirement & Institutional Trust. Treasury Services is introducing an imaged wholesale lockbox project that gives clients quicker access to records. We are also enhancing fraud protection, introducing additional check image capabilities and implementing cutting-edge clearing solutions. Retirement & Institutional Trust is already reaping benefits from our new managed allocation portfolios. We are also offering an "Autopilot" 401(k) program for plan sponsors that makes it easy to save for retirement by automatically enrolling eligible participants, increasing participant deferral contributions annually and investing and rebalancing plan accounts based on targeted retirement dates. New offerings also will reduce employers' workloads through a very successful program developed jointly by Retirement & Institutional Trust, BOSC and our American Performance Fund family. These enhancements will contribute to the diversity of our fee and commission generating products and services. We will also introduce new lending capabilities through the initial thrust of a region-wide expansion of indirect auto lending and floor plan lending for auto dealers. And while we continue to develop our revenue base and expand commercial and consumer banking through internal growth, we will look for new acquisitions to enhance our positions in existing markets and enter growing metropolitan areas where our products and services can make a difference for clients seeking relationship banking. Despite our accomplishments over the past 14 years--indeed, because of them--we will not rest. Through our vision for success, we remain determined to stay on course and care for the long-term needs of our shareholders by creating value that lasts and keeps on growing, for them, for our clients, our employees and our communities. 10 Photograph shown and accompanied by the caption, "BOK Financial's focus on building long-term value for investors, clients and communities has produced results: a $10,000 investment in 1991 was worth $248,773 at the end of 2004." Photograph shown and accompanied by the caption, "Performance off the court has led to attention on it for Bank of Texas. A partnership with the Houston Rockets includes a check card logo of the two-time NBA champion." Photograph shown and accompanied by the caption, "Bank of Texas has emerged as a strong financial institution in greater Houston through internal growth and acquisitions in the nation's fourth largest city." Photograph shown and accompanied by the caption, "Opportunity coupled with quality local banking and a commitment to value. That's how Bank of Albuquerque has emerged as a formidable competitor against some of the nation's largest banks." 11 Photograph shown and accompanied by the caption, "The opening in 2004 of a downtown branch in Fort Worth marked Bank of Texas' 37th location statewide and a continuation of its expansion across the thriving Dallas-Fort Worth Metroplex. Additional locations are planned for 2005." Photograph shown and accompanied by the caption, "An expanded offering of products and services for middle market commercial, trust and private banking clients is fueling growth in Denver at Colorado State Bank and Trust." Photograph shown and accompanied by the caption, "Bank of Arkansas offers clients the best of both worlds--personal relationship banking and sophisticated products and services competitive with the largest institutions in the market." Photograph shown and accompanied by the caption, "A commitment to convenient banking throughout BOK Financial's markets has led to the dedication of 48 in-store locations and plans for more in 2005." 12 Photograph shown and accompanied by the caption, "Adding value to the community includes a commitment to improving the quality of life. In Houston, Bank of Texas sponsored a benefit for Houston-area youth sports leagues that provided much needed field space for thousands of youngsters." Photograph shown and accompanied by the caption, "Community is an inclusive word at BOK Financial. In addition to sponsoring multicultural events, Bank of Albuquerque offers the best service in the market as a part of an initiative to serve the Hispanic population." Photograph shown and accompanied by the caption, "Bank of Oklahoma's sponsorship of the Tulsa Run is a part of an ongoing commitment to add value to the communities we serve." Photograph shown and accompanied by the caption, "Mark Funke, president of Bank of Oklahoma in Oklahoma City, symbolizes the company's commitment to local leadership and community banking. Mark and his team continue to build on a reputation as the premier commercial bank in the market." Photograph shown and accompanied by the caption, "A strong community spirit is demonstrated throughout our markets by outreaches such as a drive that helped collect more than 17,000 books to improve literacy for children and adults." EX-13 12 annual2004.txt EXHIBIT 13 2004 ANNUAL REPORT-FINANCIAL PAGES 13 Table 1 Consolidated Selected Financial Data (Dollars In Thousands Except Per Share Data) December 31, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 --------------------------------------------------------------------- Selected Financial Data For the year: Interest revenue $ 614,284 $ 565,173 $ 574,913 $ 654,633 $ 638,730 Interest expense 191,041 173,678 205,581 325,159 369,052 Net interest revenue 423,243 391,495 369,332 329,474 269,678 Provision for credit losses 20,439 35,636 33,730 37,610 17,204 Net income 179,023 158,360 147,871 114,439 98,665 Period-end: Loans, net of reserve 7,820,349 7,369,105 6,797,132 6,206,190 5,445,679 Assets 14,395,414 13,595,598 12,263,233 11,158,701 9,762,022 Deposits 9,674,398 9,219,863 8,128,525 6,905,744 6,046,005 Subordinated debenture 151,594 154,332 155,419 186,302 148,816 Shareholders' equity 1,398,494 1,228,630 1,099,526 832,866 706,793 Nonperforming assets (2) 56,423 59,867 56,574 50,708 43,599 Profitability Statistics Earnings per share (based on average equivalent shares): Basic $ 3.00 $ 2.67 $ 2.59 $ 2.02 $ 1.75 Diluted 2.68 2.38 2.30 1.81 1.57 Pro forma diluted earnings per share with FAS 142 and FAS 147 2.68 2.38 2.30 1.95 1.66 Percentages (based on daily averages): Return on average assets 1.28% 1.24% 1.31% 1.12% 1.13% Return on average shareholders' equity 13.80 13.66 15.75 14.65 16.18 Average shareholders' equity to average assets 9.25 9.07 8.30 7.62 7.01 Common Stock Performance Per Share: Book value per common share $ 23.28 $ 20.60 $ 18.56 $ 14.62 $ 12.49 Market price: December 31 close 48.76 38.72 32.39 31.51 21.25 Market range - High trade 49.18 41.02 36.52 32.75 21.25 - Low trade 37.29 31.00 26.80 21.31 15.31 Selected Balance Sheet Statistics Period-end: Tier 1 capital ratio 10.02% 9.15% 8.98% 8.08% 8.06% Total capital ratio 11.67 11.31 11.95 11.56 11.23 Leverage ratio 7.94 7.17 6.88 6.38 6.51 Reserve for loan losses to nonperforming loans 206.26 217.89 208.31 204.71 181.60 Reserve for loan losses to loans (1) 1.38 1.55 1.53 1.46 1.32 Combined reserves for credit losses to loans (1), (4) 1.61 1.73 1.72 1.66 1.51 Miscellaneous (at December 31) Number of employees (full-time equivalent) 3,548 3,449 3,402 3,392 3,003 Number of banking locations 149 142 130 114 105 Number of TransFund locations 1,389 1,442 1,390 1,325 1,111 Mortgage loan servicing portfolio (3) $4,486,513 $4,746,279 $5,754,548 $ 6,645,868 $6,874,995 ------------------------------------------------------------------------------------------------------------------------------ (1) Excludes residential mortgage loans held for sale. (2) Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing. (3) Includes outstanding principal for loans serviced for affiliates. (4) Includes reserve for loan losses and reserve for off-balance sheet credit losses.
14 MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW BOK Financial Corporation ("BOK Financial" or "the Company") is a financial holding company that offers full service banking in Oklahoma, Northwest Arkansas, Dallas and Houston, Texas, Albuquerque, New Mexico and Denver, Colorado. The Company was incorporated in 1990 in Oklahoma and is headquartered in Tulsa, Oklahoma. Activities are governed by the Bank Holding Company Act of 1956, as amended by the Financial Services Modernization Act or Gramm-Leach-Bliley Act. Principal subsidiaries are Bank of Oklahoma, N.A. ("BOk"), Bank of Albuquerque, N.A., Bank of Arkansas, N.A., Bank of Texas, N.A. ("BOTX") and Colorado State Bank and Trust, N.A. ("CSBT"). Other subsidiaries include BOSC, Inc. a broker/dealer that engages in retail and institutional securities sales and municipal bond underwriting. Our overall strategic objective is to emphasize growth in long-term value by building on our leadership position in Oklahoma and expanding into high-growth markets in contiguous states. We have a solid position in Oklahoma and are the state's largest financial institution as measured by deposit market share. Since 1997, we have expanded into Dallas and Houston, Texas, Albuquerque, New Mexico, Denver, Colorado, and have recently announced plans to expand into Phoenix, Arizona. Our primary focus is to provide a broad range of financial products and services, including loans and deposits, cash management services, fiduciary services, mortgage banking, and brokerage and trading services to middle-market businesses, financial institutions, and consumers. Our revenue sources are diversified. Approximately 42% of our revenue comes from commissions and fees. Commercial banking is a significant part of our business. Our credit culture emphasizes building relationships by making high-quality loans and providing a full range of financial products and services to our customers. Our acquisition strategy targets quality organizations that have demonstrated solid growth in their business lines. We provide additional growth opportunities by hiring talent to enhance competitiveness, adding locations, and broadening product offerings. Our operating philosophy embraces local decision-making through the boards of directors for each of our bank subsidiaries. BOK Financial operates five principal lines of business: Oklahoma corporate banking, Oklahoma consumer banking, mortgage banking, wealth management, and regional banks. 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 in Colorado are included in regional banks. Regional banks consist primarily of corporate and consumer banking activities in the respective local markets. SUMMARY OF PERFORMANCE BOK Financial's net income for 2004 totaled $179.0 million or $2.68 per diluted share, compared with $158.4 million or $2.38 per diluted share in 2003 and $147.9 million or $2.30 per diluted share in 2002. Prior years' earnings per share have been restated for a 3% stock dividend in 2004. Returns on average assets and shareholders' equity were 1.28% and 13.80%, respectively for 2004, compared with returns of 1.24% and 13.66%, respectively, for 2003, and 1.31% and 15.75%, respectively, for 2002. The decrease in return on equity between 2003 and 2002 resulted from a 24% increase in average equity due to retained earnings and a full year's effect of an acquisition-related stock issuance during the fourth quarter of 2002. Growth in net income for 2004 was attributed to two primary factors, net interest revenue and provision for credit losses. Net interest revenue grew $31.7 million or 8% during 2004 due to increases in average loans and securities. The growth in net interest revenue also reflected a one basis point increase in net interest margin for the year. The provision for credit losses decreased $15.2 million compared to the previous year as credit quality continued to improve throughout 2004. Fees and commissions revenue increased $6.3 million or 2% compared with last year and represented 42% of total revenue, excluding net securities and derivatives losses. Trust fees, deposit fees and transaction card revenue grew by a combined total of $30.9 million. This increased revenue was partially offset by a $24.1 million decrease in mortgage banking revenue. Operating expenses increased $27.8 million or 7% compared with 2003 due primarily to increased personnel and data processing costs.Personnel costs increased $17.7 million, including $8.2 million from CSBT, which was acquired in September 2003. Additionally, stock-based compensation expense, which is based largely on the current market value of our common stock, increased $5.8 million. Data processing expense increased $6.6 million, including $4.6 million directly related to higher transaction card processing volumes. Net income for the fourth quarter of 2004 totaled $46.6 million or 70 cents per diluted share compared with $35.3 million or 15 53 cents per diluted share for the fourth quarter of 2003. In addition to the effects of increased net interest revenue and credit quality, earnings for the fourth quarter of 2004 included an after-tax gain of $2.5 million or 4 cents per diluted share from the sale of equity securities that had been acquired in prior years from resolution of a problem loan. CRITICAL ACCOUNTING POLICIES APPLICATION OF CRITICAL ACCOUNTING POLICIES Preparation of our consolidated financial statements is based on the selection of certain accounting policies, which requires management to make significant assumptions and estimates. The following discussion addresses the most critical areas where these assumptions and estimates could affect financial condition and results of operations. Application of these critical accounting policies and estimates has been discussed with the appropriate committees of the Board of Directors. No accounting standards with significant effects on our financial condition or results of operations were initially adopted in 2004. RESERVES FOR LOAN LOSSES AND OFF-BALANCE SHEET CREDIT LOSSES Reserves for loan losses and off-balance sheet credit losses are assessed by management based on an ongoing evaluation of the probable estimated losses inherent in the portfolio and probable estimated losses on unused commitments to provide financing. A consistent, well-documented methodology has been developed that includes reserves assigned to specific loans and commitments, general reserves that are based on a statistical migration analysis and nonspecific reserves that are based on analysis of current economic conditions, loan concentrations, portfolio growth and other relevant factors. A Credit Administration department independent of lending management is responsible for performing this evaluation for all of our subsidiaries to ensure that the methodology is applied consistently. All significant loans and commitments that exhibit weaknesses or deteriorating trends are reviewed at least quarterly. Specific reserves for impairment are determined through evaluation of estimated future cash flows and collateral values in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for the Impairment of a Loan" and regulatory accounting standards. General reserves for commercial and commercial real estate loan losses, and related commitments, are determined primarily through an internally developed migration analysis model. The purpose of this model is to determine the probability that each credit relationship in the portfolio has an inherent loss based on historical trends. We use an eight-quarter aggregate accumulation of net losses as a basis for this model. Greater emphasis is placed on loan losses in more recent periods. This model assigns a general reserve to all commercial loans and leases and commercial real estate loans, excluding loans that have a specific impairment reserve. Separate models are used to determine the general reserve for residential mortgage loans, excluding residential mortgage loans held for sale, and consumer loans. The general reserve for residential mortgage loans is based on an eight-quarter average loss percentage. General reserves for consumer loans are based on a migration of loans from current status to loss. Separate migration factors are determined by major product line, such as indirect automobile loans and direct consumer loans. Nonspecific reserves are maintained for risks beyond those factors specific to a particular loan or those identified by the migration models. These factors include trends in the general economy in our primary lending areas, conditions in specific industries where we have a concentration, such as energy, real estate and agriculture, and overall growth in the loan portfolio. Evaluation of the nonspecific reserves also considers duration of the business cycle, regulatory examination results, potential errors in the migration analysis models and the underlying data, and other relevant factors. A range of potential losses is determined for each factor identified. VALUATION AND AMORTIZATION OF MORTGAGE SERVICING RIGHTS We have a significant investment in mortgage servicing rights. These rights are either purchased from other lenders or retained from sales of loans we have originated. Mortgage servicing rights are carried at the lower of amortized cost or fair value. Amortized cost and fair value are stratified by interest rate and loan type. A valuation allowance is provided when the net amortized cost of any strata exceeds the calculated fair value. There is no active market for trading in mortgage servicing rights. We use a cash flow model to determine fair value. Key assumptions and estimates including projected prepayment speeds and assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates, used by this model are based on current market sources. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated 16 daily for changes in market conditions. At least annually, we request estimates of fair value from outside sources to corroborate the results of the valuation model. The assumptions used in this model are primarily based on mortgage interest rates. A 50 basis point increase in mortgage interest rates is expected to increase the fair value of our servicing rights by $6.3 million. A 50 basis point decrease in mortgage interest rates is expected to decrease the fair value of our servicing rights by $10.4 million. Actual changes in fair values may differ from these expected changes. Permanent impairment of mortgage servicing rights is evaluated quarterly. A strata is considered to be permanently impaired if the fair value does not exceed amortized cost after assuming a 300 basis point increase in mortgage interest rates. The amortized cost of the asset is reduced to the calculated fair value through a charge against the valuation allowance. Prepayment assumptions also affect the amortization of mortgage servicing rights. Amortization is determined in proportion to the projected cash flows over the estimated life of each loan serviced. The same third party model that estimates prepayment speeds for determining the fair value of mortgage servicing rights determines the estimated life of each loan serviced. INTANGIBLE ASSETS Intangible assets, which consist primarily of goodwill, core deposit intangible assets and other acquired intangibles, for each business unit are evaluated for impairment annually or more frequently if conditions indicate that impairment may have occurred. The evaluation of possible impairment of intangible assets involves significant judgment based upon short-term and long-term projections of future performance. The fair value of each of our business units is estimated by the discounted future earnings method. Income growth is projected over a five-year period for each unit and a terminal value is computed. The projected income stream is converted to current fair value by using a discount rate that reflects a rate of return required by a willing buyer. At December 31, 2004, Bank of Texas had $155 million or 70% of total goodwill and CSBT had $42 million or 19% of total goodwill. Because of the large concentration of goodwill in these business units, the fair value determined by the discounted future earnings method was corroborated by comparison to the fair value of publicly traded banks of similar size and characteristics. No goodwill impairment was indicated by either valuation method. Intangible assets with finite lives, such as core deposit intangible assets, are amortized over their estimated useful lives. Such assets are reviewed for impairment whenever events indicate that the remaining carrying amount may not be recoverable. VALUATION OF DERIVATIVE INSTRUMENTS We use various types of interest rate derivative instruments as part of an interest rate risk management program. We also offer interest rate, commodity, and foreign exchange derivative contracts to our customers. All derivative instruments are carried on the balance sheet at fair value. Fair values for exchange-traded contracts are based on quoted prices. Fair values for over-the-counter interest rate contracts used to manage our interest rate risk are provided either by third-party dealers in the contracts or by quotes provided by independent pricing services. Interest rate, commodity and foreign exchange contracts used in our customer hedging programs are valued internally using a third-party provided pricing model. This model uses market inputs to estimate fair values. Changes in assumptions used in this pricing model could significantly affect the reported fair values of derivative assets and liabilities, though the net effect of these changes should not significantly affect the Company's earnings. Fair values determined by the internal model are corroborated by comparison against third-party dealer provided values monthly. ASSESSMENT OF OPERATIONS NET INTEREST REVENUE Tax-equivalent net interest revenue totaled $428.3 million for 2004 compared to $396.7 million for 2003. The increase was due primarily to a $885 million increase in average earning assets. The growth in average earning assets included a $355 million increase in securities and a $543 million increase in loans. This increase in average earning assets was funded primarily by a $428 million increase in interest-bearing liabilities and a $496 million increase in demand deposit accounts. 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. Yields on average earning assets and rates paid on average interest-bearing liabilities both increased slightly during 2004. The net interest margin, the ratio of tax-equivalent net interest revenue to average earning assets increased to 3.45% in 2004 compared with 3.44% in 2003. Growth in non-interest bearing funding sources, primarily demand deposits, increased the net interest margin eight basis points for the year. This increase was partially offset by a decrease in the spread between yields on average earning assets and the cost of interest bearing liabilities. The narrowed spread decreased the net interest margin by seven basis points compared with 2003. 17 Table 2 Volume/Rate Analysis (In Thousands) 2004/2003 2003/2002 ------------------------------------- ------------------------------------ Change Due To (1) Change Due To (1) ------------------------ ------------------------ Change Volume Yield/Rate Change Volume Yield/Rate ------------------------------------- ------------------------------------ Tax-equivalent interest revenue: Securities $ 16,448 $ 16,607 $ (159) $(8,583) $31,722 $(40,305) Trading securities (65) (38) (27) (56) 129 (185) Loans 32,525 28,878 3,647 (2,040) 39,229 (41,269) Funds sold and resell agreements 72 (91) 163 (10) 149 (159) - ---------------------------------------------------------------------------------------------------------------------------- Total 48,980 45,356 3,624 (10,689) 71,229 (81,918) - ---------------------------------------------------------------------------------------------------------------------------- Interest expense: Transaction deposits 4,171 2,305 1,866 (7,927) 9,169 (17,096) Savings deposits 31 (19) 50 (1,032) 60 (1,092) Time deposits 8,302 4,288 4,014 (4,578) 12,034 (16,612) Funds purchased and repurchase agreements 5,550 868 4,682 (9,628) (157) (9,471) Other borrowings 1,025 (743) 1,768 (7,464) (311) (7,153) Subordinated debenture (1,716) (110) (1,606) (1,274) (1,622) 348 - ---------------------------------------------------------------------------------------------------------------------------- Total 17,363 6,589 10,774 (31,903) 19,173 (51,076) - ---------------------------------------------------------------------------------------------------------------------------- Tax-equivalent net interest revenue 31,617 $ 38,767 $ (7,150) 21,214 $52,056 $(30,842) ----------------------- ------------------------- Decrease in tax-equivalent adjustment 131 949 - ---------------------------------------------------------- ------------- Net interest revenue $ 31,748 $22,163 - ---------------------------------------------------------- -------------
4th Qtr 2004/4th Qtr 2003 ------------------------------------ Change Due To (1) ------------------------ Change Volume Yield/Rate ------------------------------------ Tax-equivalent interest revenue: Securities $ 4,355 $ 2,926 $ 1,429 Trading securities (40) (68) 28 Loans 15,233 6,856 8,377 Funds sold and resell agreements 105 20 85 - --------------------------------------------------------------------------------------------------------------- Total 19,653 9,734 9,919 - --------------------------------------------------------------------------------------------------------------- Interest expense: Transaction deposits 3,402 (120) 3,522 Savings deposits (24) (28) 4 Time deposits 4,492 1,653 2,839 Funds purchased and repurchase agreements 4,476 231 4,245 Other borrowings 1,888 (129) 2,017 Subordinated debenture (287) (28) (259) - -------------------------------------------------------------------------------------------------------------- Total 13,947 1,579 12,368 - -------------------------------------------------------------------------------------------------------------- Tax-equivalent net interest revenue 5,706 $ 8,155 $ (2,449) ----------------------- Increase in tax-equivalent adjustment (449) - ------------------------------------------------------------------------------------- Net interest revenue $ 5,257 - ------------------------------------------------------------------------------------- (1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
Management regularly models the effects of changes in interest rates on net interest revenue. This modeling indicates that the Company expects to benefit modestly from rising interest rates over a one-year forward-looking period. However, other factors may affect this general expectation. For example, throughout 2004, the spread between rates charged on loans and related funding sources narrowed due to competitive pressures. The result was that the loan portfolio's yield increased less than the increase in market interest rates. Additionally, we have a large portion of our securities portfolio in mortgage-backed securities. The yield on these securities is higher than alternative investments that fit our investment policy. However, the spread on mortgage-backed securities compared to other investments narrowed during the year, which resulted in a tax-equivalent yield on the securities portfolio that was unchanged compared to 2003. Our overall objective is to manage the Company's balance sheet to be essentially neutral to changes in interest rates. Approximately 73% of our commercial loan portfolio is either variable rate or fixed rate that will reprice within one year. These loans are funded primarily by deposit accounts that are either non-interest-bearing, or that reprice more slowly than the loans. The result is a balance sheet that is asset sensitive, which means that assets generally reprice more quickly than liabilities. Among 18 the strategies that we use to achieve a rate-neutral position, we purchase fixed-rate, mortgage-backed securities and fund them with short-term borrowings. The average life of these securities is expected to be approximately 3 years based on a range of interest rate and prepayment assumptions. The funds borrowed to purchase these securities generally reprice within 90 days. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also use derivative instruments to manage our interest rate risk. We have interest rate swaps with a combined notional amount of $539 million that 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 our balance sheet. We also have interest rate swaps with a notional amount of $100 million that 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 our balance sheet. The effectiveness of these strategies is reflected in the overall change in net interest revenue due to changes in interest rates as shown in Table 2 and in the interest rate sensitivity projections as shown in the Market Risk section of this report. FOURTH QUARTER 2004 NET INTEREST REVENUE Tax-equivalent net interest revenue for the fourth quarter of 2004 totaled $108.1 million, compared to $102.4 million for the fourth quarter of 2003. The increase was due to growth in average earning assets, which increased $832 million or 7%. Net interest margin declined two basis points to 3.38% as rising interest rates affected funding sources more than earning assets. As previously noted, the Company expects to benefit modestly from rising interest rates over a forward-looking one-year period. However, the net interest margin may decrease as rates rise over shorter time periods. Also, competitive and other factors may affect the amount of benefit derived from rising rates. 2003 NET INTEREST REVENUE Tax-equivalent net interest revenue for 2003 was $396.7 million, a $21.2 million or 6% increase from 2002. This increase was due to growth in average earning assets. As shown in Table 2, net interest revenue increased $52.1 million due to changes in earning assets and interest bearing liabilities. The increase in net interest revenue due to asset growth was partially offset by a $30.8 million decrease due to falling yields and rates. Net interest margin for 2003 was 3.44%, down 27 basis points from 3.71% in 2002. This reduction in net interest margin reflected both a decrease in the spreads between earning assets and interest bearing liabilities as interest rates fell and a reduction in the portion of earning assets funded by non-interest bearing sources. OTHER OPERATING REVENUE Other operating revenue increased $4.0 million compared with last year due to a $6.3 million increase in fees and commission revenue, partially offset by an increase in net losses on securities and derivatives. Diversified sources of fees and commission revenue are a significant part of our business strategy and represented 42% of total revenue, excluding gains and losses on securities and derivatives. A diversified source of fee revenues can provide an offset to adverse changes in interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be volatile. We expect continued growth in other operating revenue through offering new products and services and by expanding into new markets. However, increased competition and saturation in our existing markets could affect the rate of future increases. 19 Table 3 Other Operating Revenue (In Thousands) Years ended December 31, ------------------------------------------------------------- 2004 2003 2002 2001 2000 ------------------------------------------------------------- Brokerage and trading revenue $ 41,107 $ 41,152 $ 26,290 $ 19,974 $ 15,146 Transaction card revenue 64,816 57,352 52,213 44,231 38,902 Trust fees and commissions 57,532 45,763 40,092 40,567 39,316 Service charges and fees on deposit accounts 93,712 82,042 67,632 51,284 42,932 Mortgage banking revenue 28,189 52,336 48,910 50,155 37,179 Leasing revenue 3,118 3,508 3,330 3,745 4,244 Other revenue 24,091 24,065 19,094 19,507 17,965 - ------------------------------------------------------------------------------------------------------------------------- Total fees and commissions 312,565 306,218 257,561 229,463 195,684 - ------------------------------------------------------------------------------------------------------------------------- Gain on sale of assets 887 822 1,157 557 381 Gain (loss) on securities, net (3,088) 7,188 58,704 30,640 2,059 Gain (loss) on derivatives, net (1,474) (9,375) 5,236 (3,812) - - ------------------------------------------------------------------------------------------------------------------------- Total other operating revenue $ 308,890 $304,853 $322,658 $256,848 $ 198,124 - -------------------------------------------------------------------------------------------------------------------------
FEES AND COMMISSIONS REVENUE Brokerage and trading revenue was slightly reduced compared with 2003. Revenue from securities trading activities declined $5.2 million, or 18%. The dollar volume and number of transactions processed both increased. However, the mix of products sold shifted to lower-margin securities compared to the previous year. The decrease in securities trading revenue was partially offset by a $3.8 million increase in customer hedging revenue. Volatility in the energy markets during 2004 prompted our energy customers to more actively hedge their gas and oil production. Transaction card revenue increased $7.5 million or 13% due to growth in merchant discount fees, ATM fees and check card revenue. Revenue growth from each of these activities was due to growth in transaction volume. During 2004, one of our customers was acquired by another financial institution, which reduced the number of ATMs serviced by TransFund. This will reduce our short-term revenue growth from TransFund. Trust fees increased $11.8 million or 26%, including a $4.9 million increase from the CSBT acquisition. The fair value of all trust relationships managed by the Company, which is the basis for a significant portion of trust fees increased to $24.6 billion at December 31, 2004 compared with $21.3 billion at December 31, 2003. Service charges on deposit accounts increased $11.7 million, or 14% compared with 2003. Approximately $11.3 million of this increase was due to growth in overdraft fees. Account service charge revenue increased 2% in 2004 after growing by 10% in the previous year. The lower growth rate reflected the change in earnings credit available to commercial deposit customers as interest rates rose. Mortgage banking revenue, which is discussed more fully in the Line of Business - Mortgage Banking section of this report decreased $24.1 million, or 46% compared with 2003. Much of the mortgage banking revenue in 2003 was generated by refinancing activity. Loan refinancing was significantly reduced in 2004 due to rising mortgage interest rates. SECURITIES AND DERIVATIVES BOK Financial realized net losses on securities of $3.1 million in 2004 compared to net gains of $7.2 million last year. These amounts included net losses on securities held as economic hedges of the mortgage servicing rights of $4.9 million in 2004, compared with net gains on hedge securities of $4.0 million in 2003. 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. 20 Net gains of $1.8 million were realized during 2004 on sales of securities, excluding the mortgage servicing hedge. This is compared with net gains of $3.2 million realized in 2003. The Company buys and sells securities as necessary to maximize the portfolio's total return and to manage prepayment or extension risk. During 2004, the Company recognized net losses of $1.3 million on derivatives used to manage interest rate risk and $208 thousand on derivatives used as an economic hedge of mortgage servicing rights. These losses are compared with net losses of $9.4 million in 2003. As more fully discussed in the Deposits and Borrowings and Capital sections of this report, the Company designated derivatives as fair value hedges of certain brokered certificates of deposit and subordinated debt in 2004. Net losses recognized included fair value adjustments for both the derivatives and the hedged liabilities. No derivatives were designated as fair value hedges in 2003. FOURTH QUARTER 2004 OPERATING REVENUE Other operating revenue for the fourth quarter of 2004 totaled $78.7 million, including net fees and commission revenue of $77.9 million and net gains on securities and derivatives of $793 thousand. Fees and commission revenue totaled $74.6 million and net losses on securities and derivatives totaled $3.2 million for the fourth quarter of 2003. Trust fees rose 14% to $14.8 million due to growth in the fair value of trust assets. Transaction card revenue increased 10% to $16.6 million due to growth in processing volumes. Growth in deposit fees totaled $991 thousand or 4%. Mortgage banking revenue decreased $1.2 million, or 16% due to reductions in both mortgage loan production and servicing revenue. Net gains on securities sold during the fourth quarter of 2004 totaled $967 thousand, including net gains of $871 thousand on securities designated as economic hedges of the mortgage servicing portfolio. These results compare with net losses on securities sold during the fourth quarter of 2003 of $951 thousand, including $757 thousand of losses on securities used to hedge mortgage servicing rights. Mark-to-market losses on derivative contracts totaled $174 thousand in the fourth quarter of 2004 compared with net losses of $2.3 million in 2003. Net losses on derivatives in the fourth quarter of 2004 included the mark-to-market adjustments of hedged liabilities. 2003 OTHER OPERATING REVENUE Operating revenue totaled $304.9 million in 2003, down $17.8 million, or 6% from 2002. Fees and commissions revenue increased $48.7 million, or 19% due to growth in all revenue components. Brokerage and trading revenue was $41.2 million for 2003, compared with $26.3 million for the previous year. During the past several years we have increased the number of sales staff to take advantage of current market opportunities. These opportunities included transactions with mortgage lenders that want to hedge the economic risks of their loan production. Deposit fees increased $14.4 million or 21% due to growth in overdraft fees. Transaction card revenue grew $5.1 million or 10%. Check card fees and merchant fees increased 19% and 15%, respectively, while ATM network revenue increased 3%. Trust revenue and mortgage banking revenue, which are discussed more fully in the Lines of Business section of this report, increased $5.7 million or 14% and $3.4 million or 7%, respectively. Net gains on securities sold during 2003 totaled $7.2 million, compared with net gains of $58.7 million in 2002. These amounts included net gains on sales of securities held as economic hedges of mortgage servicing rights of $4.0 million in 2003 and $26.3 million in 2002. The decrease in net gains on securities reflected current market interest rates over 2003 and 2002. While securities were sold during 2003 to manage the portfolio's duration, consistently low interest rates presented fewer opportunities to recognize gains. Derivative instruments, which we used primarily to manage interest rate risk, resulted in mark-to-market losses of $9.4 million in 2003 compared to gains of $5.2 million in 2002. We had not designated these derivatives as hedges for accounting purposes. OTHER OPERATING EXPENSE Other operating expense for 2004 totaled $441.2 million, a 7% increase from 2003. This increase resulted primarily from personnel and data processing expenses. Growth in personnel expenses were driven largely by the CSBT acquisition and stock-based compensation costs. The increase in data processing expenses included both transaction volume and system maintenance costs. 21 Table 4 Other Operating Expense (In Thousands) Years ended December 31, -------------------------------------------------------------------- 2004 2003 2002 2001 2000 -------------------------------------------------------------------- Personnel expense $240,661 $222,922 $ 187,439 $166,864 $148,614 Business promotion 15,618 12,937 11,367 10,658 8,395 Contribution of stock to BOK Charitable Foundation 5,561 - - - - Professional fees and services 15,487 17,935 12,987 13,391 9,618 Net occupancy and equipment 47,289 45,967 42,347 42,764 35,447 Data processing and communications 60,025 53,398 45,912 39,763 35,111 Printing, postage and supplies 14,034 13,930 12,665 12,329 11,260 Net (gain) loss and operating expenses on repossessed assets (4,016) 271 1,014 1,401 (1,283) Amortization of intangible assets 8,138 8,101 7,638 20,113 15,478 Mortgage banking costs 18,167 40,296 42,271 30,261 22,274 Provision (recovery) for impairment of mortgage servicing rights (1,567) (22,923) 45,923 15,551 2,900 Other expense 21,827 20,604 19,991 18,968 17,412 - --------------------------------------------------------------------------------------------------------------------------- Total $441,224 $413,438 $ 429,554 $372,063 $305,226 - ---------------------------------------------------------------------------------------------------------------------------
PERSONNEL EXPENSE Personnel expense increased $17.7 million or 8% to $240.7 million. Regular compensation expense totaled $146.7 million, an $8.0 million, or 6% increase over 2003. The increase in regular compensation expense was due to a 5% increase in average regular compensation per full-time equivalent employee and a 1% increase in average staffing. The CSBT acquisition increased regular compensation expense by $5.0 million and the average number of full-time equivalent employees by 80. Incentive compensation increased $8.6 million, or 19% to $54.4 million. Stock-based compensation expense increased $5.9 million or 102%. 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 will vary directly with changes in the fair value of BOKF's common stock. Expense for other incentive compensation plans increased $2.7 million, or 7% primarily due to revenue growth. Employee benefit expenses increased $1.9 million, or 5% to $37.8 million. Retirement benefit costs, including pension and employee thrift plans, increased $1.4 million, or 15%. Employee insurance costs, which includes medical costs increased $656 thousand, or 5%. DATA PROCESSING AND COMMUNICATIONS EXPENSE Data processing and communication expenses increased $6.6 million, or 12% compared to 2003. This expense consists of two broad categories, data processing systems and transaction card processing. Transaction card processing costs increased $4.6 million or 25% due to growth in processing volumes. Data processing systems costs increased $2.0 million, or 6% due primarily to increased maintenance costs. OTHER OPERATING EXPENSES BOK Financial contributed appreciated securities to the BOk Charitable Foundation during 2004. The Foundation supports communities in the markets served by the Company. The cost-basis in these securities of $5.6 million was charged to operating expense. The after-tax cost of these contributions reduced net income by $1.1 million, or 2 cents per diluted share. Business promotion expense increased $2.7 million or 21% compared with last year. Promotional activities in support of consumer banking initiatives accounted for $1.5 million of the increase. Much of the growth in promotional expenses was targeted at demand deposit growth through our consumer banking network during 2004. 22 Net gains from the sale of repossessed assets totaled $4.0 million in 2004, compared to net losses of $271 thousand in 2003. Gains in 2004 included $3.8 million from the sale of stock. This stock had been acquired several years ago as partial proceeds of the resolution of a troubled loan. Mortgage banking expenses, including provision for impairment of mortgage servicing rights decreased $773 thousand, or 4%. These expenses are discussed more fully in the Line of Business - Mortgage Banking section of this report. FOURTH QUARTER 2004 OTHER OPERATING EXPENSES Operating expenses for the fourth quarter of 2004 totaled $111.6 million, including the previously noted $3.8 million gain on the resolution of repossessed assets and $1.4 million of the contribution of appreciated securities to the BOk Charitable Foundation. Excluding these two items, operating expenses for the fourth quarter of 2004 totaled $114.0 million, a $4.8 million or 4% increase from the fourth quarter of 2003. Personnel costs increased $3.5 million or 6%. The increase in personnel expense was due primarily to a $3.2 million increase in stock-based compensation expense. 2003 OTHER OPERATING EXPENSES Operating expenses for 2003 totaled $413.4 million, a 4% decrease from 2002. This decrease resulted from the provision for impairment of mortgage servicing rights. The mortgage servicing rights provision shifted from a $45.9 million expense in 2002 to a $22.9 million recovery in 2003 due to slower prepayment speeds. Excluding the effects of the provision for mortgage servicing rights, operating expenses increased $52.7 million, or 14%. Personnel expenses increased $35.5 million, or 19%. Growth in personnel expenses included a 10% increase in regular compensation due to a 6% increase in average compensation per full-time equivalent employee combined with a 4% increase in staffing. Incentive compensation, which varies directly with revenue, increased 45% to $45.8 million. Employee benefit expenses increased 27% to $35.9 million due primarily to a 49% increase in medical and insurance costs and a 21% increase in employee retirement expenses. Several actions were taken during the fourth quarter of 2003 that were intended to reduce future growth in personnel expenses, including a 5% reduction in staffing. Professional fees increased $4.9 million or 38% compared to 2002. This increase was due primarily to a $2.5 million increase in consulting fees associated with deposit fee programs. This consulting engagement ended in 2003. The increased data processing and communications expense of $7.5 million, or 16% included $4.9 million of expenses associated with the conversion of our primary data processing systems which occurred in the fourth quarter of 2003. INCOME TAXES Income tax expense was $91.4 million for 2004, compared with $88.9 million for 2003 and $80.8 million in 2002. This represented 34%, 36% and 35% respectively, of book taxable income. Tax expense currently payable totaled $91.3 million in 2004 compared with $82.6 million in 2003 and $95.9 million in 2002. Income tax expense for 2004 was reduced by $3.0 million due to the favorable resolution of state income tax issues and by $2.4 million from the contribution of appreciated securities to the BOk Charitable Foundation. Excluding these items, income tax expense would have been $96.9 million, or 36% of book taxable income. 23 Table 5 Selected Quarterly Financial Data (In Thousands Except Per Share Data) Fourth Third Second First ------------------------------------------------ 2004 ------------------------------------------------ Interest revenue $163,087 $157,027 $147,833 $146,337 Interest expense 56,625 48,642 42,644 43,130 - --------------------------------------------------------------------------------------------------------------------------- Net interest revenue 106,462 108,385 105,189 103,207 Provision for credit losses 4,439 4,986 3,987 7,027 - --------------------------------------------------------------------------------------------------------------------------- Net interest revenue after provision for credit losses 102,023 103,399 101,202 96,180 Other operating revenue 77,921 78,919 80,074 76,538 Gain (loss) on securities, net 967 2,673 (11,005) 4,277 Gain (loss) on derivatives, net (174) (506) 201 (995) Other operating expense 111,887 108,302 109,857 112,745 Provision (recovery) for impairment of mortgage servicing rights (305) 5,900 (10,865) 3,703 - --------------------------------------------------------------------------------------------------------------------------- Income before taxes 69,155 70,283 71,480 59,552 Income tax expense 22,599 22,501 25,947 20,400 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 46,556 $ 47,782 $ 45,533 $ 39,152 - --------------------------------------------------------------------------------------------------------------------------- Earnings per share: Basic $ 0.78 $ 0.79 $ 0.76 $ 0.66 - --------------------------------------------------------------------------------------------------------------------------- Diluted $ 0.70 $ 0.72 $ 0.68 $ 0.59 - --------------------------------------------------------------------------------------------------------------------------- Average shares: Basic 59,251 59,198 59,147 59,051 - --------------------------------------------------------------------------------------------------------------------------- Diluted 66,895 66,803 66,720 66,672 - ---------------------------------------------------------------------------------------------------------------------------
2003 ------------------------------------------------ Interest revenue $143,883 $137,804 $141,534 $141,952 Interest expense 42,678 41,272 43,597 46,131 - --------------------------------------------------------------------------------------------------------------------------- Net interest revenue 101,205 96,532 97,937 95,821 Provision for credit losses 8,001 8,220 9,503 9,912 - --------------------------------------------------------------------------------------------------------------------------- Net interest revenue after provision for credit losses 93,204 88,312 88,434 85,909 Other operating revenue 74,730 80,611 78,403 73,296 Gain (loss) on securities, net (951) (12,007) 10,457 9,689 Loss on derivatives, net (2,259) (4,709) (1,111) (1,296) Other operating expense 111,475 107,785 109,348 107,753 Provision (recovery) for impairment of mortgage servicing rights (2,260) (16,186) 3,353 (7,830) - --------------------------------------------------------------------------------------------------------------------------- Income before taxes 55,509 60,608 63,482 67,675 Income tax expense 20,207 21,792 22,707 24,208 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 35,302 $ 38,816 $ 40,775 $ 43,467 - --------------------------------------------------------------------------------------------------------------------------- Earnings per share: Basic $ 0.59 $ 0.65 $ 0.69 $ 0.74 - --------------------------------------------------------------------------------------------------------------------------- Diluted $ 0.53 $ 0.58 $ 0.61 $ 0.65 - --------------------------------------------------------------------------------------------------------------------------- Average shares: Basic 58,851 58,771 58,648 58,525 - --------------------------------------------------------------------------------------------------------------------------- Diluted 66,530 66,634 66,506 66,390 - ---------------------------------------------------------------------------------------------------------------------------
24 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 in Colorado are included in regional banking. Regional banking consists primarily of corporate and consumer banking activities in the respective local markets. In addition to its lines of business, BOK Financial has a funds management unit. The primary purpose of this unit is to manage the overall liquidity needs and interest rate risk of the Company. Each line of business borrows funds from and provides funds to the funds management unit as needed to support their operations. BOK Financial allocates resources and evaluates performance of its lines of business after allocation of funds, certain indirect expenses, taxes and capital costs. The cost of funds borrowed from the funds management unit by the operating lines of business is transfer priced at rates that approximate market for funds with similar duration. Market is generally based on the applicable LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of transfer-pricing funds that support assets of the operating lines of business tends to insulate them from interest rate risk. The value of funds provided by the operating lines of business to the funds management unit is based on applicable Federal Home Loan Bank advance rates. Deposit accounts with indeterminate maturities, such as demand deposit accounts and interest-bearing transaction accounts, are transfer-priced at a rolling average based on expected duration 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 our business lines and recognizes the diversification benefits among the units. The level of assigned economic capital is a combination of the risk taken by each business line, based on its actual exposures and calibrated to its own loss history where possible. Additional capital is assigned to the regional banking line of business based on our investment in those entities. As shown in Table 6, the Oklahoma Corporate Banking segment has continued to be a stable source of earnings. Regional Banking has increased its contribution to consolidated net income, especially in 2004. The growth of the regional banking segment is consistent with our corporate strategy of expansion into high growth markets outside of Oklahoma. The relationship between Mortgage Banking segment net income and consolidated net income returned to more historical levels after providing substantial earnings during the 2003 mortgage refinancing boom. Table 6 Net Income by Line of Business (In Thousands) Years ended December 31, ---------------------------------------- 2004 2003 2002 ---------------------------------------- Oklahoma corporate banking $ 62,270 $ 58,335 $ 57,137 Regional banking 58,573 42,510 37,754 Mortgage banking 2,681 28,401 1,558 Oklahoma consumer banking 12,064 9,162 6,395 Wealth management 12,394 13,261 7,195 Funds management and other 31,041 6,691 37,832 - ----------------------------------------------------------------------------- Total $179,023 $158,360 $ 147,871 - ----------------------------------------------------------------------------- The variances in contribution to consolidated net income provided by funds management and other primarily reflect securities and derivatives gains and losses and the consolidated provision for credit losses over actual losses charged to the operating segments. Securities and derivatives activities attributable to funds management and other were net gains of $5.0 million in 2004, net losses of $6.7 million in 2003, and net gains of $33.3 million in 2002. The provision for credit losses attributable to funds management and other was $14.7 million in 2004, $24.3 million in 2003, and $22.0 million in 2002. 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 $62.3 million or 35% to consolidated net income for 2004. This compares to $58.3 million or 37% of consolidated net income for 2003. Growth in net income provided by the Oklahoma Corporate Banking Division came primarily from net interest revenue. Net interest revenue from external sources increased due to loan growth. 25 Operating expenses increased to $97.8 million for 2004 from $85.4 million for last year. This increase was due primarily to incentive compensation and transaction processing costs. Net loans charged off for the Oklahoma Corporate Banking Division totaled $9.0 million, a $1.4 million decrease from 2003. Average assets increased $503 million or 12% for 2004 due primarily to loan growth. Table 7 Oklahoma Corporate Banking (Dollars in Thousands) Years ended December 31, -------------------------------------- 2004 2003 2002 -------------------------------------- NIR (expense) from external sources $ 147,389 $ 139,159 $ 149,385 NIR (expense) from internal sources (24,016) (24,133) (40,632) -------------------------------------- Total net interest revenue 123,373 115,026 108,753 Other operating revenue 85,256 76,212 69,166 Operating expense 97,759 85,442 77,931 Net loans charged off 8,956 10,318 6,475 Net income 62,270 58,335 57,137 Average assets $4,670,041 $4,166,874 $3,823,116 Average economic capital 312,530 311,140 298,020 Return on assets 1.33% 1.40% 1.49% Return on economic capital 19.92 18.75 19.17 Efficiency ratio 46.86 44.68 43.80 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 Oklahoma Consumer Banking Division contributed $12.1 million or 7% to consolidated net income for 2004. This compares to $9.2 million or 6% of consolidated net income for 2003. Other operating revenue growth from 2004 resulted largely from overdraft fees. During 2004, the Oklahoma Consumer Banking Division added four new supermarket locations and completed a five-year strategic branch expansion plan. Growth initiatives focused on building customer relationships through sales promotions, Perfect Banking sales and service standards and free on-line Billpay services. Perfect Banking is the name we have given to our ongoing commitment to constantly improve the way we provide products and services so that we create lasting client value. These initiatives resulted in a 17% increase in checking accounts and a 162% increase in the number of on-line Billpay users. Table 8 Oklahoma Consumer Banking (Dollars in Thousands) Years ended December 31, ---------------------------------------- 2004 2003 2002 ---------------------------------------- NIR (expense) from external sources $ (19,067) $ (17,146) $ (18,036) NIR (expense) from internal sources 64,897 58,290 61,616 ---------------------------------------- Total net interest revenue 45,830 41,144 43,580 Other operating revenue 56,920 47,544 39,032 Operating expense 76,042 66,803 64,315 Net loans charged off 6,963 6,888 7,831 Net income 12,064 9,162 6,395 Average assets $2,746,047 $ 2,524,743 $2,349,611 Average economic capital 64,390 58,000 60,910 Return on assets 0.44% 0.36% 0.27% Return on economic capital 18.74 15.80 10.50 Efficiency ratio 74.01 75.32 77.85 MORTGAGE BANKING BOK Financial engages in mortgage banking activities through the BOk Mortgage Division of Bank of Oklahoma. These activities include the origination, marketing and servicing of conventional and government-sponsored mortgage loans. Consolidated mortgage banking revenue, which is included in other operating revenue, decreased $24.1 million or 46% compared with 2003. Mortgage banking activities contributed $2.7 million or 1% to consolidated net income in 2004 compared to $28.4 million or 18% in 2003. Rising mortgage interest rates during late 2003 and the first half of 2004 significantly decreased refinancing activity and loan production income. 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. 26 Table 9 Mortgage Banking (Dollars in Thousands) Years ended December 31, ------------------------------------------- 2004 2003 2002 ------------------------------------------- NIR (expense) from external sources $ 21,647 $ 27,770 $ 32,199 NIR (expense) from internal sources (11,423) (9,415) (13,713) ------------------------------------------- Total net interest revenue 10,224 18,355 18,486 Capitalized mortgage servicing rights 11,365 23,922 20,832 Other operating revenue 22,055 36,379 38,364 Operating expense 35,415 58,204 54,783 Provision (recovery) for impairment of mortgage servicing rights (1,567) (22,923) 45,923 Gain (loss) on financial instruments, net (5,068) 4,025 25,826 Net income 2,681 28,401 1,558 Average assets $559,034 $623,823 $ 671,798 Average economic capital 27,270 34,120 34,160 Return on assets 0.48% 4.55% 0.23% Return on economic capital 9.83 83.24 4.56 Efficiency ratio 81.53 74.00 70.52 LOAN PRODUCTION SECTOR Loan production revenue totaled $20.9 million in 2004, including $11.4 million of capitalized mortgage servicing rights, compared to loan production revenue of $33.8 million in 2003, including $23.9 million of capitalized mortgage servicing rights. The decrease in loan production revenue was due to decreased production volume. Mortgage loans funded totaled $633 million in 2004, including $416 million for home purchases and $217 million of refinanced loans. Mortgage loans funded in 2003 totaled $1.3 billion, including $457 million for home purchases and $859 million of refinanced loans. Approximately 71% of the loans funded during 2004 were in Oklahoma. The decreased volume of loans funded during 2004 resulted in pre-tax income from loan production of $6.7 million for 2004 compared with $32.0 million for the previous year end. The pipeline of mortgage loan applications totaled $189 million at December 31, 2004, compared to $208 million at December 31, 2003. LOAN SERVICING SECTOR The loan servicing sector had a pre-tax loss of $4.3 million for 2004 compared to a pre-tax income of $12.9 million for the same period of 2003. The comparison of operating results between the years was greatly affected by the effect of interest rates on prepayment speeds and the value of mortgage servicing rights. Mortgage interest rates were consistently low during 2004. In this rate environment, the fair value of our mortgage servicing rights was little-changed. The resulting recovery of provision for mortgage servicing rights was $1.6 million. In comparison, mortgage interest rates during 2003 were rising from historic lows. In that rate environment, the fair value of our mortgage servicing rights increased significantly. The increase in fair value resulted in a $22.9 million recovery of provision for mortgage servicing rights. Servicing revenue totaled $17.8 million in 2004 compared to $21.8 million in 2003. 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 $4.2 billion during 2004 compared to $4.9 billion during 2003. The decrease in loans serviced reflected both the continued refinancing of mortgage loans and our decision to curtail purchases of mortgage loan servicing. This decision also affected the geographic distribution of the loan servicing portfolio. Approximately 80% of loans serviced were in our primary market areas at December 31, 2004, compared to 72% at December 31, 2003. Amortization of mortgage servicing rights, which is included in operating expense, was $15.8 million in 2004 compared to $35.6 million in 2003. 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 in 2004 reflected an expectation of lower loan prepayment speeds. The valuation allowance for impairment of mortgage servicing rights totaled $14 million at December 31, 2004 compared to $32 million at December 31, 2003. The valuation allowance was reduced by $17 million from the charge-off of servicing rights determined to be permanently impaired. As discussed in the Critical Accounting Policies section of this report, servicing rights are considered to be permanently impaired if the fair value does not exceed amortized costs after assuming a 300 basis point increase in mortgage interest rates. Note 8 to the Consolidated Financial Statements presents additional information about the fair value and amortized cost of servicing rights and valuation allowance. 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 27 prepayment risks exceed certain levels. Additionally, interest rate derivative contracts may also be designated as an economic hedge of the risk of loss on mortgage servicing rights. Because the fair values of these instruments are expected to vary inversely to the fair value of the servicing rights, they are expected to partially offset risk. However, no special hedge accounting treatment is applicable to either the mortgage servicing rights or the financial instruments designated as an economic hedge. We may sell these securities when necessary to offset the impairment provision of the mortgage servicing rights. Derivative contracts used as an economic hedge of mortgage servicing rights are carried at fair value with changes in fair value recognized in earnings. During 2004, we recognized losses of $5.1 million from hedging activities compared to gains of $4.0 million in 2003. 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 December 31, 2004, financial instruments with a fair value of $78 million and an unrealized gain of $523 thousand were held for the economic hedge program. This unrealized gain, net of income taxes, is included in shareholders' equity as part of other comprehensive income. The interest rate sensitivity of the mortgage servicing rights and securities held as an economic hedge is modeled over a range of +/- 50 basis points. At December 31, 2004, the pre-tax results of this modeling on reported earnings were: Table 10 Interest Rate Sensitivity - Mortgage Servicing (Dollars in Thousands) 50 bp 50 bp Increase Decrease ------------------------ Anticipated change in: Fair value of mortgage servicing rights $6,270 $(10,362) Fair value of hedging securities (3,489) 4,799 ------------------------------------------------------------ Net $2,781 $ (5,563) ------------------------------------------------------------ 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, Arkansas 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 $12.4 million or 7% to consolidated net income for 2004. This compared to $13.3 million or 8% of consolidated net income for 2003. Trust and private financial services provided $10.7 million of net income in 2004, a 40% increase over 2003. At December 31, 2004 and 2003, the wealth management line of business was responsible for trust assets with aggregate market values of $22.6 billion and $19.5 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. We have sole or joint discretionary authority over $8.2 billion of trust assets at December 31, 2004 compared to $8.1 billion of trust assets at December 31, 2003. Growth in the fair value of trust assets came primarily in non-managed assets, which increased by $1.5 billion, or 20%, and custodial assets which increased by $1.5 billion, or 41%. 28 Brokerage and trading activities provided $1.7 million of net income in 2004 compared to $5.7 million in the previous year. Operating revenue decreased $6.5 million or 14% due to reduction in trading revenue and financial advisory fees. The reduction in trading revenue resulted from a shift in the mix of products sold to lower-margin securities during 2004. This decrease in trading revenue was partially offset by fees generated by customer hedging activities. Table 11 Wealth Management (Dollars in Thousands) Years ended December 31, -------------------------------------- 2004 2003 2002 -------------------------------------- NIR (expense) from external sources $ 4,001 $ 1,966 $ 1,959 NIR (expense) from internal sources 8,888 8,968 8,182 -------------------------------------- Total net interest revenue 12,889 10,934 10,141 Other operating revenue 91,533 91,587 70,001 Operating expense 84,062 80,428 67,911 Net income 12,394 13,261 7,195 Average assets $ 754,774 $ 731,070 $556,109 Average economic capital 84,820 69,690 60,880 Return on assets 1.64% 1.81% 1.29% Return on economic capital 14.61 19.03 11.82 Efficiency ratio 80.50 78.45 84.74 REGIONAL BANKING Regional banking consists primarily of the corporate and commercial banking services provided by Bank of Texas, Bank of Albuquerque, Bank of Arkansas, and Colorado State Bank and Trust in their respective markets. It also includes fiduciary services provided by Colorado State Bank and Trust. Small businesses and middle-market corporations are the regional banks' primary customer focus. Regional banks contributed $58.6 million or 33% to consolidated net income during 2004. This compares with $42.5 million or 27% of consolidated net income in 2003. Growth in net income contributed by the regional banks came primarily from operations in Texas and New Mexico. Net income for 2004 in Texas and New Mexico increased $12.8 million and $3.2 million, respectively, from the previous year. Growth in net income from Texas operations resulted from an increase in net interest revenue, combined with a reduction in operating expenses. Average earning assets increased $278 million, including $98 million of loans and $180 million of funds sold to the funds management unit. The growth in average earning assets was funded by a $165 million increase in interest-bearing deposits and a $101 million increase in demand deposits. Personnel expenses decreased $1.2 million due to lower regular and incentive compensation costs. Bank of Texas shared some of the Consumer Banking Division's initiatives during 2004. Seven new supermarket branches were added in Texas. The Perfect Banking sales and service program which had been adopted in Oklahoma in 2003 was launched in Texas in 2004. This program resulted in a 65% increase in sales points, one of the measures we use to track branch performance. The increase in net income from New Mexico operations was also based largely on an increase in net interest revenue, combined with an increase in operating revenue. Average earning assets increased $102 million, including $44 million of loans and $61 million of funds sold to the funds management unit. This growth in average earning assets was partially offset by a reduction in securities. Average deposits in the New Mexico market increased $102 million, including $74 million of interest-bearing deposits and $28 million of demand deposits. The increase in operating revenue was due primarily to growth in deposit fees. 29 Table 12 Bank of Texas (Dollars in Thousands) Years ended December 31, ---------------------------------------- 2004 2003 2002 ---------------------------------------- NIR (expense) from external sources $ 122,552 $ 108,408 $ 94,731 NIR (expense) from internal sources (7,322) (6,949) (9,133) ---------------------------------------- Total net interest revenue 115,230 101,459 85,598 Other operating revenue 25,408 21,591 17,732 Operating expense 74,837 76,330 62,206 Gains on sales of financial instruments, net - 56 1,461 Net loans charged off 3,928 4,301 2,614 Net income 40,256 27,493 25,822 Average assets $3,224,721 $2,946,553 $2,452,877 Average economic capital 168,430 166,870 126,160 Average invested capital 335,520 333,960 293,250 Return on assets 1.25% 0.93% 1.05% Return on economic capital 23.90 16.48 20.47 Return on average invested capital 12.00 8.23 8.81 Efficiency ratio 53.21 63.00 61.14 Table 13 Bank of Albuquerque (Dollars in Thousands) Years ended December 31, ---------------------------------------- 2004 2003 2002 ---------------------------------------- NIR (expense) from external sources $ 46,845 $ 42,046 $ 37,505 NIR (expense) from internal sources (5,033) (4,315) (4,663) ---------------------------------------- Total net interest revenue 41,812 37,731 32,842 Other operating revenue 14,561 10,789 8,330 Operating expense 31,869 29,730 25,835 Gains on sales of financial instruments, net - 283 2,726 Net loans charged off 1,471 1,326 1,101 Net income 14,074 10,844 10,364 Average assets $ 1,652,006 $1,550,241 $1,335,814 Average economic capital 73,270 66,070 56,740 Average invested capital 92,360 85,160 75,830 Return on assets 0.85% 0.70% 0.78% Return on economic capital 19.21 16.41 18.27 Return on average invested capital 15.24 12.73 13.67 Efficiency ratio 56.53 61.84 63.32 Table 14 Bank of Arkansas (Dollars in Thousands) Years ended December 31, --------------------------------------- 2004 2003 2002 --------------------------------------- NIR (expense) from external sources $ 9,046 $ 8,700 $ 9,422 NIR (expense) from internal sources (2,170) (2,148) (2,713) ------------- ------------- ----------- Total net interest revenue 6,876 6,552 6,709 Other operating revenue 1,394 1,205 1,207 Operating expense 4,115 3,894 3,451 Gains on sales of financial instruments, net - - 18 Net loans charged off (26) 661 2,300 Net income 2,555 1,957 1,334 Average assets $273,700 $288,030 $278,094 Average economic capital 11,450 10,720 10,740 Average invested capital 11,450 10,720 10,740 Return on assets 0.93% 0.68% 0.48% Return on economic capital 22.31 18.26 12.42 Return on average invested capital 22.31 18.26 12.42 Efficiency ratio 49.76 50.20 43.60 Table 15 Colorado State Bank and Trust (Dollars in Thousands) Years ended December 31, ------------------------------------- 2004 2003 2002 ------------------------------------- NIR (expense) from external sources $ 23,875 *** *** NIR (expense) from internal sources (7,245) *** *** ------------------------------------- Total net interest revenue 16,630 *** *** Other operating revenue 8,160 *** *** Operating expense 21,890 *** *** Net loans charged off 136 *** *** Net income 1,688 *** *** Average assets $680,840 *** *** Average economic capital 27,560 *** *** Average invested capital 69,550 *** *** Return on assets 0.25% *** *** Return on economic capital 6.12 *** *** Return on average invested capital 2.43 *** *** Efficiency ratio 88.30 *** *** *** Data not meaningful due to acquisition of Colorado State Bank and Trust in September 2003. 30 ASSESSMENT OF 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 December 31, 2004 increased $104 million compared with the previous year-end. Mortgage-backed securities increased $132 million and represented 97% of total available for sale securities. The increase in securities reflected an increase in available funds due to strong deposit growth during 2004. As previously discussed in the Net Interest Revenue section of this report, we hold mortgage-backed securities as part of our overall interest rate risk management strategy. The primary risk of holding mortgage-backed securities comes from extension during periods of rising interest rates or prepayment during periods of falling interest rates. We evaluate this risk through extensive modeling both before making an investment and throughout the life of the security. The expected duration of the mortgage-backed securities portfolio was 3.3 years at December 31, 2004 compared to 3.0 years at December 31, 2003. This increase in duration reflected the slower anticipated prepayments of the loans represented by these securities as interest rates rose. Table 16 Securities (Dollars in Thousands) December 31, ----------------------------------------------------------------------------- 2004 2003 2002 ----------------------------------------------------------------------------- Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value ----------------------------------------------------------------------------- Investment: Municipal and other tax-exempt $ 216,986 $218,465 $ 184,192 $ 187,354 $ 191,305 $195,266 Mortgage-backed U.S. agency securities 1,287 1,336 2,296 2,418 4,380 4,618 Other debt securities 2,821 2,835 1,463 1,484 2,265 2,269 - ------------------------------------------------------------------------------------------------------------------------------- Total $ 221,094 $222,636 $ 187,951 $ 191,256 $ 197,950 $202,153 - ------------------------------------------------------------------------------------------------------------------------------- Available for sale: U.S. Treasury $ 27,119 $27,062 $ 44,679 $ 45,424 $ 31,013 $ 32,233 Municipal and other tax-exempt 414 404 3,271 3,257 11,465 11,511 Mortgage-backed securities: U.S. agencies 3,067,611 3,052,375 3,514,158 3,518,926 3,005,698 3,067,148 Other 1,423,613 1,418,770 845,430 848,911 727,088 732,542 - ------------------------------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 4,491,224 4,471,145 4,359,588 4,367,837 3,732,786 3,799,690 - ------------------------------------------------------------------------------------------------------------------------------- Other debt securities 515 528 1,140 1,177 138 139 Equity securities and mutual funds 90,343 94,051 96,460 101,173 87,434 89,770 - ------------------------------------------------------------------------------------------------------------------------------- Total $4,609,615 $4,593,190 $4,505,138 $4,518,868 $3,862,836 $3,933,343 - -------------------------------------------------------------------------------------------------------------------------------
31 Net unrealized losses on available for sale securities totaled $16 million at December 31, 2004 compared with net unrealized gains of $14 million at December 31, 2003 due primarily to rising interest rates. The aggregate gross amount of unrealized losses at December 31, 2004 totaled $32 million. Management evaluated the securities with unrealized losses to determine if we believed that the losses were temporary. This evaluation considered factors such as causes of the unrealized losses and prospects for recovery over various interest rate scenarios and time periods. We also considered our intent and ability to hold the securities until the fair values exceed amortized cost. It is our belief, based on currently available information and our evaluation, that the unrealized losses in these securities were temporary. LOANS The aggregate loan portfolio at December 31, 2004 totaled $7.9 billion, a $445 million or 6% increase since last year. The commercial loan portfolio increased $239 million during 2004. Much of this increase was focused in the services portion of the portfolio, which increased $231 million. Services comprised 20% of the total loan portfolio and included $281 million of loans to nursing homes, $143 million of loans to medical facilities, and $30 million to the hotel industry. Energy loans totaled $1.2 billion or 15% of total loans. Outstanding energy loans decreased $8 million during 2004. High energy prices provided cash flow to the industry which reduced outstanding loan balances during the first half of the year. Outstanding energy loan balances increased $143 million during the second half of the year. Approximately $985 million 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 current 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. Agriculture included $217 million of loans to the cattle industry. Other notable loan concentrations by primary industry of the borrowers are presented in Table 17. Table 17 Loans (In Thousands) December 31, ---------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------------------------------------------------------------- Commercial: Energy $1,223,195 $1,231,599 $1,132,178 $ 987,556 $ 837,223 Manufacturing 484,423 482,657 501,506 467,260 421,046 Wholesale/retail 699,318 668,202 627,422 600,470 499,017 Agriculture 262,436 228,222 186,976 170,861 185,407 Services 1,615,071 1,383,835 1,249,622 1,084,480 963,171 Other commercial and industrial 291,393 342,187 292,094 364,123 342,169 ---------------------------------------------------------------- Total commercial 4,575,836 4,336,702 3,989,798 3,674,750 3,248,033 Commercial real estate: Construction and land development 457,399 436,087 356,227 327,455 311,700 Multifamily 231,985 271,119 307,119 291,687 271,459 Other real estate loans 931,726 922,886 772,492 722,633 687,335 ---------------------------------------------------------------- Total commercial real estate 1,621,110 1,630,092 1,435,838 1,341,775 1,270,494 Residential mortgage: Secured by 1-4 family residential properties 1,198,918 1,015,643 929,759 703,080 638,044 Residential mortgages held for sale 40,262 56,543 133,421 166,093 48,901 ---------------------------------------------------------------- Total residential mortgage 1,239,180 1,072,186 1,063,180 869,173 686,945 Consumer 492,841 444,909 412,167 409,680 312,390 - ---------------------------------------------------------------------------------------------------------------------------- Total $7,928,967 $7,483,889 $6,900,983 $6,295,378 $5,517,862 - ----------------------------------------------------------------------------------------------------------------------------
32 Table 18 Loan Maturity and Interest Rate Sensitivity at December 31, 2004 (In Thousands) Remaining Maturities of Selected Loans --------------------------------------- Total Within 1 Year 1-5 Years After 5 Years ------------------------------------------------------ Loan maturity: Commercial $4,575,836 $1,594,786 $2,441,860 $ 539,190 Commercial real estate 1,621,110 590,991 833,203 196,916 - ------------------------------------------------------------------------------------------------------ Total $6,196,946 $2,185,777 $3,275,063 $ 736,106 - ------------------------------------------------------------------------------------------------------ Interest rate sensitivity for selected loans with: Predetermined interest rates $1,962,583 $ 288,659 $1,376,026 $ 297,898 Floating or adjustable interest rates 4,234,363 1,897,118 1,899,037 438,208 - ------------------------------------------------------------------------------------------------------ Total $6,196,946 $2,185,777 $3,275,063 $ 736,106 - ------------------------------------------------------------------------------------------------------
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 December 31, 2004, the outstanding principal balance of these loans totaled $729 million, including $726 million to borrowers with local market relationships. BOK Financial is the agent lender in approximately 37% of these loans. The Company's lending policies generally avoid loans in which we do not have the opportunity to maintain or achieve other business relationships with the customer. Commercial real estate loans totaled $1.6 billion or 20% of the loan portfolio at December 31, 2004. The outstanding balance of commercial real estate loans decreased $9 million from the previous year end. Construction and land development included $349 million for single family residential lots and premises, up $69 million, or 25% since December 31, 2003. This growth resulted from expanded builder loans, primarily in New Mexico and Arizona. The major components of other commercial real estate loans were retail facilities - $312 million and office buildings $343 million. Commercial real estate loans secured by office buildings increased $53 million during the past year. Residential mortgage loans, excluding loans held for sale, included $352 million of home equity loans, $304 million of loans held for business relationship purposes, $237 million of adjustable rate mortgages and $279 million of loans held for community development. Community development loans increased $177 million during 2004 as part of the Company's ongoing efforts to more directly serve its local communities. Consumer loans included $234 million of indirect automobile loans. Substantially all of these loans were purchased from dealers in Oklahoma. While the Company continued to increase geographic diversification through expansion into Texas, New Mexico and Colorado, geographic concentration subjects the loan portfolio to the general economic conditions in Oklahoma. Table 19 presents the distribution of the major loan categories among our primary market areas. 33 Table 19 Loans by Principal Market Area (In Thousands) December 31, ---------------------------------------------------------------- 2004 2003 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Oklahoma: Commercial $2,847,470 $2,802,852 $2,677,616 $2,576,808 $2,476,389 Commercial real estate 744,724 789,868 763,469 739,419 768,232 Residential mortgage 901,648 699,274 656,391 476,023 409,494 Residential mortgage held for sale 40,262 56,543 133,421 166,093 48,901 Consumer 367,947 324,305 294,404 314,060 250,298 ------------ ------------ ------------ ------------ ----------- Total Oklahoma $4,902,051 $4,672,842 $4,525,301 $4,272,403 $3,953,314 ------------ ------------ ------------ ------------ ------------ Texas: Commercial $1,120,069 $ 963,340 $ 866,905 $ 775,788 $ 549,505 Commercial real estate 459,067 477,561 455,364 380,602 299,357 Residential mortgage 191,296 204,481 192,575 136,181 122,082 Consumer 86,732 101,269 104,353 85,347 53,397 ------------ ------------ ------------ ------------ ----------- Total Texas $1,857,164 $1,746,651 $1,619,197 $1,377,918 $1,024,341 ------------ ------------ ------------ ------------ ------------ Albuquerque: Commercial $ 354,904 $ 297,896 $ 286,622 $ 219,257 $ 167,023 Commercial real estate 224,707 175,745 150,293 136,425 118,492 Residential mortgage 63,043 66,179 76,020 85,309 101,920 Consumer 13,260 11,070 11,399 8,200 6,107 ------------ ------------ ------------ ------------ ------------ Total Albuquerque $ 655,914 $ 550,890 $ 524,334 $ 449,191 $ 393,542 ------------ ------------ ------------ ------------ ------------ Northwest Arkansas: Commercial $ 61,934 $ 63,480 $ 63,113 $ 72,728 $ 50,680 Commercial real estate 74,478 75,452 66,712 85,329 84,413 Residential mortgage 11,238 6,245 4,773 5,567 4,548 Consumer 3,858 2,671 2,011 2,073 2,588 ------------ ------------ ------------ ------------ ----------- Total Northwest Arkansas $ 151,508 $ 147,848 $ 136,609 $ 165,697 $ 142,229 ------------ ------------ ------------ ------------ ------------ Colorado (1): Commercial $ 191,459 $ 209,134 $ 95,542 $ 30,169 $ 4,436 Commercial real estate 118,134 111,466 - - - Residential mortgage 31,693 39,464 - - - Consumer 21,044 5,594 - - - ------------ ------------ ------------ ------------ ----------- Total Colorado $ 362,330 $ 365,658 $ 95,542 $ 30,169 $ 4,436 ------------ ------------ ------------ ------------ ------------ Total BOK Financial loans $7,928,967 $7,483,889 $6,900,983 $6,295,378 $5,517,862 ------------ ------------ ------------ ------------ ------------ (1) Includes Denver loan production office
LOAN COMMITMENTS BOK Financial enters into certain off-balance sheet arrangements in the normal course of business. These arrangements included loan commitments which totaled $3.5 billion and standby letters of credit which totaled $414 million at December 31, 2004. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower's financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Table 20 Off-Balance Sheet Credit Commitments as of December 31, 2004 (In Thousands) 2004 2003 2002 2001 2000 -------------- ------------- ------------ ------------ ------------- Loan commitments $3,459,425 $2,964,694 $2,884,011 $2,461,141 $2,239,533 Standby letters of credit 414,228 374,550 290,069 248,960 173,455 - ------------------------------------ -------------- ------------- ------------ ------------ ------------- Total $3,873,653 $3,339,244 $3,174,080 $2,710,101 $2,412,988 - ------------------------------------ -------------- ------------- ------------ ------------ -------------
34 DERIVATIVES WITH CREDIT RISK BOK Financial offers programs that permit its customers to hedge various risks. Much of the focus of these programs had been on assisting energy producing customers to hedge against price fluctuations and to take positions through energy derivative contracts. Programs to assist customers in managing their interest rate, foreign exchange and other commodity risks were added during 2003. 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 to BOk 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 determine the maximum exposure we are willing to have individually to any customer. Customers may also be required to provide margin collateral to further limit our credit risk. Counterparty credit risk is evaluated through existing policies and procedures. This evaluation considers the total relationship between BOK Financial and each counterparty. Individual limits are established by management and approved by the Asset / Liability Committee. Margin collateral is required if the exposure to 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 parties 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 party deteriorated such that either the fair value of underlying collateral no longer supported the contract or the party's ability to provide margin collateral was impaired. No credit losses have been incurred since inception of this program. Derivative contracts are carried at fair value. At December 31, 2004, the fair values of derivative contracts reported as assets under these programs totaled $379 million. This included energy contracts with fair values of $363 million, interest rate contracts with fair values of $4 million and foreign exchange contracts with fair values of $11 million. The aggregate fair values of derivative contracts reported as liabilities totaled $380 million. Approximately 58% of the fair value of asset contracts was with customers. The credit risk of these contracts is generally backed by energy production. The remaining 42% was with counterparties. The maximum net exposure to any single customer or counterparty totaled $41 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 December 31, 2004 compared to $115 million at December 31, 2003. These amounts represented 1.38% and 1.55% of outstanding loans, excluding loans held for sale, at December 31, 2004 and 2003, 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 206% of outstanding balance of nonperforming loans at year-end 2004 compared to 218% at year-end 2003. Net loans charged off during 2004 decreased to $22 million in 2004 compared to $25 million in the previous year. Net commercial loans charged-off during 2004 totaled $12 million, a $3.8 million decrease from 2003. Table 21 provides statistical information regarding the reserve for loan losses for the past five years. 35 Table 21 Summary of Loan Loss Experience (Dollars in Thousands) Years ended December 31, ------------------------------------------------------------------- Reserve for loan losses: 2004 2003 2002 2001 2000 ------------------------------------------------------------------- Beginning balance $114,784 $103,851 $ 89,188 $72,183 $65,473 Loans charged off: Commercial 13,921 16,331 13,326 18,042 7,747 Commercial real estate 971 88 286 71 1,176 Residential mortgage 1,465 1,721 412 308 285 Consumer 13,328 13,335 11,881 6,827 5,593 ----------------------------------------------------------------------------------------------------------------------- Total 29,685 31,475 25,905 25,248 14,801 ----------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial 2,283 887 1,276 1,151 1,126 Commercial real estate 30 53 118 653 428 Residential mortgage 243 83 146 57 157 Consumer 5,171 5,102 3,436 2,727 2,307 ----------------------------------------------------------------------------------------------------------------------- Total 7,727 6,125 4,976 4,588 4,018 ----------------------------------------------------------------------------------------------------------------------- Net loans charged off 21,958 25,350 20,929 20,660 10,783 Provision for loan losses 15,792 34,000 34,228 35,365 17,493 Additions due to acquisitions - 2,283 1,364 2,300 - ----------------------------------------------------------------------------------------------------------------------- Ending balance $108,618 $114,784 $103,851 $89,188 $72,183 ----------------------------------------------------------------------------------------------------------------------- Reserve for off-balance sheet credit losses: Beginning balance $ 13,855 $12,219 $ 12,717 $10,472 $10,761 Provision for off-balance sheet credit losses 4,647 1,636 (498) 2,245 (289) ----------------------------------------------------------------------------------------------------------------------- Ending balance $ 18,502 $13,855 $ 12,219 $12,717 $10,472 ----------------------------------------------------------------------------------------------------------------------- Total provision for credit losses $ 20,439 $35,636 $ 33,730 $37,610 $17,204 ----------------------------------------------------------------------------------------------------------------------- Reserve for loan losses to loans outstanding at year-end (1) 1.38% 1.55% 1.53% 1.46% 1.32% Net charge-offs to average loans (1) 0.29 0.36 0.33 0.35 0.22 Total provision for credit losses to average 0.27 0.50 0.54 0.63 0.35 loans (1) Recoveries to gross charge-offs 26.03 19.46 19.21 18.17 27.15 Reserve for loan losses as a multiple of net 4.95x 4.53x 4.96x 4.32x 6.69x charge-offs Reserve for off-balance sheet credit losses to off-balance sheet credit commitments 0.48% 0.41% 0.38% 0.47% 0.43% Combined reserves for credit losses to loans outstanding at year-end (1) 1.61% 1.73% 1.72% 1.66% 1.51% ----------------------------------------------------------------------------------------------------------------------- Problem Loans: Loans past due (90 days) $ 7,649 $14,944 $ 8,117 $ 8,108 $15,467 Nonaccrual (2) 52,660 52,681 49,855 43,540 39,661 Renegotiated - - - 27 87 ----------------------------------------------------------------------------------------------------------------------- Total $ 60,309 $67,625 $ 57,972 $51,675 $55,215 ----------------------------------------------------------------------------------------------------------------------- Foregone interest on nonaccrual loans (2) $ 4,617 $ 4,821 $ 4,770 $ 5,163 $ 3,803 ----------------------------------------------------------------------------------------------------------------------- (1) Excludes residential mortgage loans held for sale. (2) Interest collected and recognized on nonaccrual loans was not significant in 2004 and previous years disclosed.
36 The Company has historically considered the credit risk from loan commitments and letters of credit in its evaluation of the adequacy of the reserve for loan losses. During 2004, we adopted the preferred presentation method and separated the reserve for off-balance sheet credit risk from the reserve for loan losses. Table 21 presents the trend of reserves for off-balance sheet credit losses and the relationship between the reserve and credit commitments. It also presents the relationship between the combined reserve for credit losses and outstanding loans for comparison with peer banks and others who have not adopted the 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 following funds advanced against outstanding commitments and after the exhaustion of collection efforts. Specific impairment reserves are determined through evaluation of estimated future cash flows and collateral value. At December 31, 2004, specific impairment reserves totaled $7 million on total impaired loans of $45 million. 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 December 31, 2004, the ranges of potential losses for the more significant factors were: General economic conditions - $7 million to $11 million Concentration in large loans - $2 million to $3 million Allocation of the loan loss reserve to the major loan categories is presented in Table 22. The provision for credit losses totaled $20.4 million, a $15.2 million decrease from 2003. Factors which contributed to the lower provision included an improvement in credit quality as indicated by our commercial loan migration analysis model and a reduction in the outstanding balances of criticized loans. Additionally, the number of past due consumer loans and net losses incurred were reduced during the year. 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. Table 22 Loan Loss Reserve Allocation (Dollars in Thousands) December 31, ------------------------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ------------------ ------------------- ------------------- ------------------- ------------------ % of % of % of % of % of Reserve(2) Loans(1)Reserve(2) Loans(1) Reserve(2) Loans(1) Reserve(2) Loans(1) Reserve(2) Loans(1) --------- -------- --------- --------- --------- --------- --------- --------- --------- -------- Loan category: Commercial $ 52,325 58.00% $ 58,993 58.39% $ 56,474 58.95% $ 51,803 59.95% $47,504 59.39% Commercial real estate 21,317 20.55 16,395 21.95 16,037 21.22 14,000 21.89 10,865 23.23 Residential mortgage 5,904 15.20 6,797 13.67 3,956 13.74 3,612 11.47 1,736 11.67 Consumer 12,034 6.25 16,132 5.99 13,922 6.09 6,318 6.69 6,146 5.71 Nonspecific allowance 17,038 - 16,467 - 13,462 - 13,455 - 5,932 - - -------------------------- --------- -------- --------- --------- --------- --------- --------- --------- --------- -------- Total $108,618 100.00% $114,784 100.00% $103,851 100.00% $ 89,188 100.00% $72,183 100.00% - -------------------------- --------- -------- --------- --------- --------- --------- --------- --------- --------- -------- (1) Excludes residential mortgage loans held for sale. (2) Specific allocation for the loan concentration risks are included in the appropriate category.
NONPERFORMING ASSETS Information regarding nonperforming assets, which totaled $56 million at December 31, 2004 and $60 million at December 31, 2003 is presented in Table 23. Nonperforming assets included nonaccrual and renegotiated loans and excluded loans 90 days or more past due but still accruing interest. Nonaccrual loans totaled $53 million at December 31, 2004 and 2003. Newly identified nonaccruing loans totaled $47 million during the year. Nonaccruing loans decreased $13 million for loans charged off and foreclosed, and $28 million for cash payments received. Additionally, nonaccruing loans decreased $6 million due to loans returned to accruing status after a period of satisfactory performance. 37 Table 23 Nonperforming Assets (Dollars in Thousands) December 31, ----------------------------------------------------------------- 2004 2003 2002 2001 2000 ------------ ------------ ------------ ------------ ------------- Nonperforming loans Nonaccrual loans: Commercial $33,195 $41,360 $39,114 $35,075 $37,146 Commercial real estate 10,144 2,311 3,395 3,856 161 Residential mortgage 8,612 7,821 5,950 4,140 1,855 Consumer 709 1,189 1,396 469 499 - ------------------------------------------------------------ ------------ ------------ ------------ ------------ ------------- Total nonaccrual loans 52,660 52,681 49,855 43,540 39,661 Renegotiated loans - - - 27 87 - ------------------------------------------------------------ ------------ ------------ ------------ ------------ ------------- Total nonperforming loans 52,660 52,681 49,855 43,567 39,748 Other nonperforming assets 3,763 7,186 6,719 7,141 3,851 - ------------------------------------------------------------ ------------ ------------ ------------ ------------ ------------- Total nonperforming assets $56,423 $59,867 $56,574 $50,708 $43,599 - ------------------------------------------------------------ ------------ ------------ ------------ ------------ ------------- Ratios: Reserve for loan losses to nonperforming loans 206.26% 217.89% 208.31% 204.71% 181.60% Nonperforming loans to period-end loans (2) 0.67 0.71 0.74 0.71 0.73 - ------------------------------------------------------------ ------------ ------------ ------------ ------------ ------------- Loans past due (90 days) (1) $ 7,649 $14,944 $ 8,117 $ 8,108 $15,467 - ------------------------------------------------------------ ------------ ------------ ------------ ------------ ------------- (1) Includes residential mortgages guaranteed by agencies of the U.S. Government. $ 2,308 $ 4,132 $ 4,956 $ 6,222 $ 7,616 (2) Excludes residential mortgage loans held for sale.
The loan review process also identified loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements, and no loss of principal or interest is anticipated, these loans were not included in Nonperforming Assets. Known information does, however, cause management concerns as to the borrowers' ability to comply with current repayment terms. These potential problem loans totaled $49 million at December 31, 2004 and $56 million at December 31, 2003. The current composition of potential problem loans by primary industry included healthcare - $10 million, energy - $10 million and manufacturing - $10 million. DEPOSITS Deposit accounts represent our primary funding source. We compete for retail and commercial deposits by offering a broad range of products and services and focusing on customer convenience. Retail deposit growth is supported through our Perfect Banking program, free checking and on-line Billpay services, an extensive network of branch locations and ATMs and a 24-hour Express Bank call center. Commercial deposit growth is supported by offering treasury management and lockbox services. Average deposits increased $895 million or 10% during 2004. Core deposits, which we define as deposits of less than $100,000, excluding public funds and brokered deposits, increased 7% to $4.6 billion. Growth in average core deposits resulted from initiatives such as free on-line Billpay, free checking and Perfect Banking. Public funds and brokered deposits averaged $998 million for 2004, an increase of 74% compared with 2003 averages. The remaining average deposits, which were comprised of accounts with balances in excess of $100,000, increased 5% to $3.5 billion. Table 24 Maturity of Domestic CDs and Public Funds in Amounts of $100,000 or More (In Thousands) December 31, --------------------------- 2004 2003 --------------------------- Months to maturity: 3 or less $ 412,455 $ 545,555 Over 3 through 6 183,723 300,094 Over 6 through 12 264,101 171,258 Over 12 1,388,014 1,093,750 -------------------------------------------------------- Total $2,248,293 $2,110,657 -------------------------------------------------------- 38 During the first half of 2004, the Company raised $342 million in fixed rate, brokered certificates of deposits. These deposits generally replaced other time deposits as they matured. The weighted-average interest rate paid on these certificates is 2.89%. Interest rate swaps with a total notional amount of $342 million have been designated as fair value hedges of these certificates. The purpose of these swaps is to hedge against changes in fair value due to changes in interest rates by modifying the certificates from fixed rate to floating rates based on changes in LIBOR. We receive a weighted average fixed rate of 3.01% on these swaps and currently pay a floating rate of 2.40%. The distribution of deposit accounts among our principal markets is shown in Table 25. Table 25 Deposits by Principal Market Area (In Thousands) December 31, -------------------------------------------------------------------- 2004 2003 2002 2001 2000 -------------------------------------------------------------------- Oklahoma: Demand $ 1,095,228 $ 1,025,483 $ 1,044,628 $ 992,663 $ 937,163 Interest-bearing: Transaction 2,291,089 2,246,675 1,897,353 1,650,269 1,407,083 Savings 87,597 98,611 103,749 101,433 93,598 Time 2,505,849 2,403,293 2,334,949 2,041,025 2,036,274 -------------------------------------------------------------------- Total interest-bearing 4,884,535 4,748,579 4,336,051 3,792,727 3,536,955 -------------------------------------------------------------------- Total Oklahoma $ 5,979,763 $5,774,062 $ 5,380,679 $ 4,785,390 $ 4,474,118 -------------------------------------------------------------------- Texas: Demand $ 617,808 $ 421,292 $ 394,164 $ 305,745 $ 250,347 Interest-bearing: Transaction 1,119,893 1,213,777 953,550 670,728 406,446 Savings 30,331 35,702 33,071 28,918 22,910 Time 571,993 505,463 510,512 451,031 303,203 -------------------------------------------------------------------- Total interest-bearing 1,722,217 1,754,942 1,497,133 1,150,677 732,559 -------------------------------------------------------------------- Total Texas $ 2,340,025 $2,176,234 $1,891,297 $ 1,456,422 $ 982,906 -------------------------------------------------------------------- Albuquerque: Demand $ 136,599 $ 106,050 $ 79,953 $ 57,648 $ 45,803 Interest-bearing: Transaction 320,118 370,294 295,174 224,265 161,027 Savings 17,885 20,728 26,704 26,848 25,843 Time 411,939 317,924 287,607 241,549 250,876 -------------------------------------------------------------------- Total interest-bearing 749,942 708,946 609,485 492,662 437,746 -------------------------------------------------------------------- Total Albuquerque $ 886,541 $ 814,996 $ 689,438 $ 550,310 $ 483,549 -------------------------------------------------------------------- Northwest Arkansas: Demand $ 14,489 $ 16,351 $ 12,949 $ 10,634 $ 10,453 Interest-bearing: Transaction 26,882 28,411 18,025 14,452 11,114 Savings 1,434 1,341 1,214 1,035 1,030 Time 99,677 105,598 134,923 87,501 82,835 -------------------------------------------------------------------- Total interest-bearing 127,993 135,350 154,162 102,988 94,979 -------------------------------------------------------------------- Total Northwest Arkansas $ 142,482 $ 151,701 $ 167,111 $ 113,622 $ 105,432 -------------------------------------------------------------------- Colorado: Demand $ 62,995 $ 79,424 $ - $ - $ - Interest-bearing: Transaction 189,106 162,651 - - - Savings 19,092 18,347 - - - Time 54,394 42,448 - - - -------------------------------------------------------------------- Total interest-bearing 262,592 223,446 - - - -------------------------------------------------------------------- Total Colorado $ 325,587 $ 302,870 $ - $ - $ - --------------------------------------------------------------------
39 BORROWINGS AND CAPITAL PARENT COMPANY BOK Financial (parent company) has a $125 million unsecured revolving line of credit with certain banks that matures in December 2006. The outstanding principal balance of this credit agreement was $95 million at December 31, 2004. Interest is based on either LIBOR plus a defined margin that is determined by the principal balance outstanding and our credit rating or a base rate. The base rate is defined as the greater of the daily federal funds rate plus 0.5% or the prime rate. This credit agreement includes certain restrictive covenants that limit our ability to borrow additional funds and to pay cash dividends on 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 December 31, 2004. 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 $161 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 $98 million under this policy. Equity capital for BOK Financial increased $170 million to $1.4 billion during 2004. Retained earnings provided $179 million to this increase, partially offset by a $20 million increase in net unrealized losses on available for sale securities. The remaining increase in capital during 2004 resulted primarily from employee stock options. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt issuance, share repurchase and stock and cash dividends. The Board of Directors has authorized a share repurchase program. The maximum of 191,058 common shares may be repurchased. During 2004 and 2003, 3% dividends payable in shares of BOK Financial's common stock were declared and paid. The shares issued were valued at $66 million and $58 million, respectively, based on current stock prices when declared. No cash dividends were paid on common stock. BOK Financial and subsidiary banks are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that could have material impact on operations. These capital requirements include quantitative measures of assets, liabilities, and off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators. The capital ratios for BOK Financial and each subsidiary bank are presented in Note 16 to the Consolidated Financial Statements. SUBSIDIARY BANKS BOK Financial's subsidiary banks use borrowings to supplement deposits as a source of funds for loans and securities growth. Sources of these borrowings included federal funds purchased, securities repurchase agreements, and advances from the Federal Home Loan Banks. Interest rates and maturity dates for the various borrowings are matched with specific asset types in the asset/liability management process. In 1997, BOk issued a $150 million, 10-year, 7.125% fixed rate subordinated debenture. Interest rate swaps were used as a fair value hedge to convert the fixed interest on the debenture to a LIBOR-based floating rate, which required an adjustment of the carrying value of this debt to fair value. In 2001, the interest rate swaps were terminated. The related fair value adjustment of the debt of $8 million was fixed at that time and is being amortized over the remaining life of the debt. Amortization of this gain reduces the cost of the debt by 102 basis points. During 2004, a $150 million notional amount interest rate swap was designated as a hedge of changes in fair value of the subordinated debt due to changes in interest rates. The Company receives a fixed rate of 3.165% and pays a variable rate based on 1-month LIBOR, 2.40% at December 31, 2004. Semi-annual swap settlements coincide with interest payments on the subordinated debenture. The interest rate swap terminates on August 15, 2007, the maturity date of the subordinated debenture. 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. The fair value of this guarantee, estimated to be $3 million based upon the Black-Scholes Option Pricing Model, was included in the purchase price. Pursuant to this guarantee, any holder of BOK Financial common shares issued in this acquisition may annually make a claim for the excess 40 of the guaranteed price over 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. The price guarantee is non-transferable and non-cumulative. BOK Financial may elect, in its sole discretion, to issue additional shares of common stock to satisfy any obligation under the price guarantee or to pay cash. The maximum remaining number of shares that may be issued to satisfy any price guarantee obligations is 10 million. If, as of any benchmark date, we have already issued 10 million shares, we are not obligated to make any further benchmark payments. Additionally, the Company's ability to pay cash to satisfy any price guarantee obligations is limited by applicable banking capital and dividend regulations. We will have no obligation to issue additional common shares or pay cash to satisfy any benchmark price protection obligation if the market value per share of BOK Financial common stock remains above the highest benchmark price of $42.53. The closing price of the Company's common stock on December 31, 2004 was $48.76. At a market price of $40.00 per common share, the maximum obligation under this agreement would be to issue 13,802 additional shares or to pay $552 thousand. AGGREGATE CONTRACTUAL OBLIGATIONS BOK Financial has numerous contractual obligations in the normal course of business. These obligations included time deposits and other borrowed funds, premises used under various operating leases, commitments to extend credit to borrowers, to purchase securities and to make other investments, derivative contracts and contracts for services such as data processing that are integral to our operations. The following table summarizes payments due per these contractual obligations at December 31, 2004. Table 26 Contractual Obligations as of December 31, 2004 (In Thousands) Less Than 1 to 3 4 to 5 More Than 1 Year Years Years 5 Years Total -------------- ------------- ------------ ------------ ------------- Time deposits $ 753,551 $1,926,008 $ 286,952 $146,390 $3,112,901 Other borrowings 715,788 306,607 10,708 1,469 1,034,572 Subordinated debenture 10,688 167,367 - - 178,055 Operating lease obligations 13,565 24,652 20,267 36,573 95,057 Derivative contracts 258,100 111,280 9,510 1,106 379,996 Data processing contracts 13,554 24,237 18,388 4,973 61,152 - --------------------------------------------- ------------- ------------ ------------ ------------- Total $1,765,246 $2,560,151 $ 345,825 $190,511 $4,861,733 - --------------------------------------------- ------------- ------------ ------------ -------------
Loan commitments $ 3,459,425 Standby letters of credit 575,872 Obligations to purchase when-issued securities 14,785 Unfunded third-party private equity investments 13,869 Purchase obligation for Valley Commerce Bancorp, Ltd. 32,000 Payments on time deposits and other borrowed funds include interest which has been calculated from rates at December 31, 2004. Many of these obligations have variable interest rates and actual payments will differ from the amounts shown on this table. Obligations under derivative contracts used for interest rate risk management purposes are included with projected payments from time deposits and other borrowed funds as appropriate. Only time deposits with original terms exceeding one year are presented in Table 26. Payments on time deposits are based on contractual maturity dates. These funds may be withdrawn prior to maturity. We may charge the customer a penalty for early withdrawal. Operating lease commitments generally represent real property we rent for branch offices, corporate offices and operations facilities. Payments presented represent the minimum lease payments and exclude related costs such as utilities and property taxes. Data processing and communications contracts represent the minimum obligations under these contracts. Additional payments that are based on the volume of transactions processed are excluded. Derivative contracts represent obligations under our customer hedging programs. As previously discussed, we have entered into derivative contracts which are expected to substantially offset the cash payments due on these obligations. The Company has commitments to make investments through its BOK Financial Private Equity Fund. These commitments generally reflect customer investment obligations. The Company also has obligations with respect to its employee and executive benefit plans. See Notes 12 and 13 to the Consolidated Financial Statements. 41 MARKET RISK Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading. 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 due to a specified basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 10%. These guidelines also set maximum levels for short-term borrowings, short-term assets, public funds, and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. INTEREST RATE RISK - OTHER THAN TRADING BOK Financial has a large portion of its earning assets in variable rate loans and a large portion of its liabilities in demand deposit accounts and interest bearing transaction accounts. Changes in interest rates affect earning assets more rapidly than interest bearing liabilities in the short term. Management has adopted several strategies to reduce this interest rate sensitivity. As previously noted in the Net Interest Revenue section of this report, management acquires securities that are funded by borrowings in the capital markets. These securities have an expected average duration of approximately 3.3 years while the related funds borrowed have an average life of approximately 90 days. BOK Financial also uses interest rate swaps in managing its interest rate sensitivity. During 2004 and 2003, net interest revenue increased $9.9 million and $14.0 million, respectively, from periodic settlements of these contracts. These contracts are carried on the balance sheet at fair value and changes in fair value are reported in income as derivatives gains or losses. A net loss of $1.3 million was recognized in 2004 compared to a net loss of $9.4 million in 2003 from adjustments of these swaps and hedged liabilities to fair value. Credit risk from these swaps is closely monitored as part of our overall process of managing credit exposure to other financial institutions. Additional information regarding interest rate swap contracts is presented in Note 4 to the Consolidated Financial Statements. 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. A simulation model is used to estimate the effect of changes in interest rates over the next twelve months based on eight interest rate scenarios. Three specified interest rate scenarios are used to evaluate interest rate risk against policy guidelines. These are a "most likely" rate scenario and two "shock test" scenarios, first assuming a sustained parallel 200 basis point increase and second assuming a sustained parallel 100 basis point decrease in interest rates. Management historically evaluated interest rate sensitivity for a sustained 200 basis point decrease in rates. However, these results are not meaningful in the current low-rate environment. An independent source is used to determine the most likely interest rate scenario. Our primary interest rate exposures included the Federal Funds rate, which affects short-term borrowings, and the prime lending rate and LIBOR, which are the basis for much of the variable-rate loan pricing. Additionally, mortgage rates directly affect the prepayment speeds for mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. The model incorporates assumptions regarding the effects of changes in interest rates and account balances on indeterminable maturity deposits based on a combination of historical analysis and expected behavior. The impact of planned growth and new business activities is factored into the simulation model. The effects of changes in interest rates on the value of mortgage servicing rights are excluded from Table 27 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. 42 Table 27 Interest Rate Sensitivity (Dollars in Thousands) 200 bp Increase 100 bp Decrease Most Likely ---------------------------------------------------------------------------------- 2004 2003 2004 2003 2004 2003 ---------------------------------------------------------------------------------- Anticipated impact over the next twelve months on net interest revenue $ 7,969 $ 7,213 $ (4,683) $ (3,921) $ 5,893 $ 1,688 1.8% 1.6% (1.0)% (0.9)% 1.3% 0.4% - ------------------------------------------------------------------------------------------------------------------------------
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 or precisely predict the impact of higher or lower interest rates on net interest revenue. 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. TRADING ACTIVITIES BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an intermediary, BOK Financial will take positions in securities, generally mortgage-backed securities, government agency securities, and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. BOK Financial will also take trading positions in U.S. Treasury securities, mortgage-backed securities, municipal bonds and financial futures for its own account. These positions are taken with the objective of generating trading profits. Both of these activities involve interest rate risk. A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs. The Risk Management Department monitors trading activity daily and reports to senior management and the Risk Oversight and Audit Committee of the BOK Financial Board of Directors any exceptions to trading position limits and risk management policy exceptions. Management uses a Value at Risk ("VAR") methodology to measure the market risk inherent in its trading activities. VAR is calculated based upon historical simulations over the past five years using a variance / covariance matrix of interest rate changes. It represents an amount of market loss that is likely to be exceeded only one out of every 100 two-week periods. Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the VAR to $1.6 million. At December 31, 2004, the VAR was $227 thousand. The greatest value at risk during 2004 was $1.5 million. RECENTLY ISSUED ACCOUNTING STANDARDS FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT OF FINANCIAL ACCOUNTING STANDARDS 123R, "SHARE-BASED PAYMENTS" In December 2004, the FASB revised Statement No. 123, "Accounting for Stock-Based Compensation," by issuing FAS 123R. FAS 123R requires companies to recognize in their income statements the grant-date fair value of stock options and other equity-based compensation issued to their employees. Previously, FAS 123 recommended, but did not require income statement recognition of the fair value of equity-based compensation. FAS 123R requires that share-based payments that may be settled in cash be carried at current fair value. Fair value is determined at each balance sheet date until the award is settled. Changes in fair value are recognized in the current period. Share-based payments that will be settled in equity instruments are measured at grant-date fair value and not remeasured for subsequent changes in fair value. Compensation expense is generally recognized over the vesting period for awards that will be settled in equity instruments. FAS 123R is effective for interim periods beginning on or after June 15, 2005. The Company previously adopted the preferred income statement recognition methods of the original FAS 123. Management does not expect FAS 123R to have a significant effect on its financial statements. 43 AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS STATEMENT OF POSITION 03-3, "ACCOUNTING FOR CERTAIN LOANS OR DEBT SECURITIES ACQUIRED IN A TRANSFER" SOP 03-3 addresses accounting for differences between contractual and expected cash flows of certain acquired loans and debt securities when the differences are due, at least in part, to credit quality. SOP 03-3 is applicable to loans and debt securities acquired individually, in pools or as part of a business combination. It is not applicable to loans originated by the lender. The yield that may be accreted to income is limited to the excess of estimated undiscounted cash flows over the investor's investment in the asset. Subsequent increases in expected cash flows should be recognized prospectively through a yield adjustment. Subsequent decreases in expected cash flows should be recognized as impairment. SOP 03-3 prohibits the carry-over or creation of valuation allowances related to acquired assets, including assets acquired in a business combination that have evidence of deterioration since origination. SOP 03-3 is effective for loans and debt securities acquired in fiscal years beginning after December 15, 2004. The guidance provided by SOP 03-3 is not expected to have a significant effect on future financial statements. EMERGING ISSUES TASK FORCE ISSUE 03-1, "THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS" EITF 03-1 provides guidance for determining when an investment is impaired, for evaluating whether the impairment is other-than-temporary and for measuring impairment. An asset is considered impaired when its fair value is less than cost. The criteria for evaluating whether the impairment is other-than-temporary includes the nature of the asset, whether the asset can be prepaid by the issuer in a manner that the investor will not recover its investment, the severity and duration of the impairment and the investor's ability and intent to hold the asset until the fair value recovers. Impairment is measured as the difference between fair value and cost. If the impairment is considered other-than-temporary, a new cost basis is established through a direct write-down of the asset. In September 2004, the FASB agreed to reconsider EITF 03-1 and all other guidance on disclosing, measuring and recognizing other-than-temporary impairment of debt and equity securities. Until the reconsideration of EITF 03-1 is complete, we are unable to evaluate the effect on future financial statements. The disclosure requirements of EITF 03-1 remain in effect. Guidance for determining other-than-temporary impairment continues to be provided by the Securities and Exchange Commission's Staff Accounting Bulletin No. 59. 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 involve judgments as to expected events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events, based in part on information provided by others that BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to: (1) the ability to fully realize expected cost savings from mergers within the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies, and assessments, (7) the impact of technological advances and (8) trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise. LEGAL NOTICE As used in this report, the term "BOK Financial" and such terms as "the Company," "the Corporation," "our," "we" and "us" may refer to one or more of its consolidated subsidiaries or to all of them taken as a whole. All of these terms are used for convenience only and are not intended as a precise description of any of the separate companies, each of which manages its own affairs. 44 REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS Management of BOK Financial is responsible for the preparation, integrity and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and necessarily include some amounts that are based on our best estimates and judgments. Management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, conducted an assessment of internal control over financial reporting as of December 31, 2004. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. In establishing internal control over financial reporting, management assesses risk and designs controls to prevent or detect financial reporting misstatements that may be consequential to a reader. Management also assesses the impact of any internal control deficiencies and oversees the effort to continuously improve internal control over financial reporting. Because of inherent limitations, it is possible that internal controls may not prevent or detect misstatements and it is possible that internal controls may vary over time based on changing conditions. There have been no material changes in internal controls subsequent to December 31, 2004. The Risk Oversight and Audit Committee, consisting entirely of independent directors, meets regularly with management, internal auditors, and the independent registered public accounting firm, Ernst & Young, LLP, regarding management's assessment of internal control over financial reporting. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management has assessed the effectiveness of the Company's internal control over financial reporting based on the criteria established in "Internal Control - Integrated Framework," issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission. Based on that assessment and criteria, management has determined that the Company has maintained effective internal control over financial reporting as of December 31, 2004. Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this annual report, has issued an audit report on management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. Their report, which expresses unqualified opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, is included in this annual report. 45 REPORTS OF ERNST & Young LLP, Independent Registered Public Accounting Firm REPORT ON CONSOLIDATED FINANCIAL STATEMENTS The Board of Directors and Shareholders of BOK Financial Corporation We have audited the accompanying consolidated balance sheets of BOK Financial Corporation as of December 31, 2004 and 2003, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BOK Financial Corporation at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of BOK Financial Corporation's internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2005 expressed an unqualified opinion thereon. Ernst & Young LLP Tulsa, Oklahoma March 11, 2005 46 REPORTS OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT ON EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING The Board of Directors and Shareholders of BOK Financial Corporation We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that BOK Financial Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). BOK Financial Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that BOK Financial Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, BOK Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2004 consolidated financial statements of BOK Financial Corporation and our report dated March 11, 2005 expressed an unqualified opinion thereon. Ernst & Young LLP Tulsa, Oklahoma March 11, 2005 47 CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands Except Share And Per Share Data) 2004 2003 2002 ----------------- ----------------- ----------------- Interest Revenue Loans $ 408,115 $ 375,788 $ 377,708 Taxable securities 197,884 180,581 186,902 Tax-exempt securities 7,359 7,898 9,359 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total securities 205,243 188,479 196,261 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Trading securities 573 625 653 Funds sold and resell agreements 353 281 291 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total interest revenue 614,284 565,173 574,913 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Interest Expense Deposits 144,433 131,929 145,466 Borrowed funds 38,847 32,272 49,364 Subordinated debenture 7,761 9,477 10,751 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total interest expense 191,041 173,678 205,581 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Net Interest Revenue 423,243 391,495 369,332 Provision for Credit Losses 20,439 35,636 33,730 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Net Interest Revenue After Provision for Credit Losses 402,804 355,859 335,602 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Other Operating Revenue Brokerage and trading revenue 41,107 41,152 26,290 Transaction card revenue 64,816 57,352 52,213 Trust fees and commissions 57,532 45,763 40,092 Service charges and fees on deposit accounts 93,712 82,042 67,632 Mortgage banking revenue 28,189 52,336 48,910 Leasing revenue 3,118 3,508 3,330 Other revenue 24,091 24,065 19,094 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total fees and commissions 312,565 306,218 257,561 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Gain on sale of assets 887 822 1,157 Gain (loss) on securities, net (3,088) 7,188 58,704 Gain (loss) on derivatives, net (1,474) (9,375) 5,236 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total other operating revenue 308,890 304,853 322,658 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Other Operating Expense Personnel 240,661 222,922 187,439 Business promotion 15,618 12,937 11,367 Contribution of stock to BOK Charitable Foundation 5,561 - - Professional fees and services 15,487 17,935 12,987 Net occupancy and equipment 47,289 45,967 42,347 Data processing and communications 60,025 53,398 45,912 Printing, postage and supplies 14,034 13,930 12,665 Net (gains) losses and operating expenses on repossessed assets (4,016) 271 1,014 Amortization of intangible assets 8,138 8,101 7,638 Mortgage banking costs 18,167 40,296 42,271 Provision (recovery) for impairment of mortgage servicing rights (1,567) (22,923) 45,923 Other expense 21,827 20,604 19,991 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total other operating expense 441,224 413,438 429,554 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Income Before Taxes 270,470 247,274 228,706 Federal and state income tax 91,447 88,914 80,835 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Net Income $ 179,023 $ 158,360 $ 147,871 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Earnings Per Share: Basic $ 3.00 $ 2.67 $ 2.59 Diluted $ 2.68 $ 2.38 $ 2.30 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Average Shares Used in Computation: Basic 59,128,395 58,699,951 56,613,689 Diluted 66,732,496 66,509,121 64,353,558 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- See accompanying notes to consolidated financial statements.
48 CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data) December 31, ----------------------------------- 2004 2003 ----------------- ----------------- Assets Cash and due from banks $ 503,715 $ 629,480 Funds sold and resell agreements 27,376 14,432 Trading securities 9,692 7,823 Securities: Available for sale 4,080,696 3,833,449 Available for sale securities pledged to creditors 512,494 685,419 Investment (fair value: 2004 - $222,636; 2003 - $191,256) 221,094 187,951 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Total securities 4,814,284 4,706,819 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Loans 7,928,967 7,483,889 Less reserve for loan losses (108,618) (114,784) - ------------------------------------------------------------------------------------------- ----------------- ----------------- Loans, net of reserve 7,820,349 7,369,105 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Premises and equipment, net 172,643 175,901 Accrued revenue receivable 79,644 74,980 Intangible assets, net 242,594 250,686 Mortgage servicing rights, net 45,678 48,550 Real estate and other repossessed assets 3,763 7,186 Bankers' acceptances 31,799 30,884 Receivable on unsettled security transactions 56,873 - Derivative contracts 380,051 149,100 Other assets 206,953 130,652 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Total assets $ 14,395,414 $ 13,595,598 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Liabilities and Shareholders' Equity Noninterest-bearing demand deposits $ 1,927,119 $ 1,648,600 Interest-bearing deposits: Transaction 3,947,088 4,021,808 Savings 156,339 174,729 Time 3,643,852 3,374,726 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Total deposits 9,674,398 9,219,863 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Funds purchased and repurchase agreements 1,555,507 1,609,668 Other borrowings 1,015,000 1,016,650 Subordinated debenture 151,594 154,332 Accrued interest, taxes and expense 71,062 85,409 Bankers' acceptances 31,799 30,884 Due on unsettled security transactions - 8,259 Derivative contracts 387,292 149,326 Other liabilities 110,268 92,577 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Total liabilities 12,996,920 12,366,968 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Shareholders' equity: Preferred stock 12 12 Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: 2004 - 60,420,811; 2003 - 58,055,697) 4 4 Capital surplus 631,747 546,594 Retained earnings 809,261 698,052 Treasury stock (shares at cost: 2004 - 998,393; 2003 - 848,892) (30,905) (24,491) Accumulated other comprehensive income (loss) (11,625) 8,459 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Total shareholders' equity 1,398,494 1,228,630 - ------------------------------------------------------------------------------------------- ----------------- ----------------- Total liabilities and shareholders' equity $ 14,395,414 $ 13,595,598 - ------------------------------------------------------------------------------------------- ----------------- -----------------
See accompanying notes to consolidated financial statements. 49 CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) 2004 2003 2002 -------------- -------------- ------------- Cash Flows From Operating Activities: Net income $ 179,023 $ 158,360 $ 147,871 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 20,439 35,636 33,730 Provision (recovery) for mortgage servicing rights impairment (1,567) (22,923) 45,923 Unrealized (gains) losses from derivatives 6,124 5,888 (5,112) Depreciation and amortization 47,298 64,425 65,790 Tax benefit on exercise of stock options 4,609 1,325 5,482 Stock-based compensation 11,306 5,746 4,124 Net (accretion) amortization of securities discounts and premiums (3,116) 8,965 5,818 Net gain on sale of assets (11,678) (44,426) (83,501) Contribution of stock to BOK Charitable Foundation 5,561 - - Mortgage loans originated for resale (635,624) (1,314,453) (1,014,009) Proceeds from sale of mortgage loans held for resale 666,549 1,420,475 1,073,044 Change in trading securities (1,869) (2,713) 5,217 Change in accrued revenue receivable (4,664) (2,962) (2,776) Change in other assets (48,766) (28,442) (12,452) Change in accrued interest, taxes and expense (14,722) 11,366 7,029 Change in other liabilities 39,218 (13,906) 8,010 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Net cash provided by operating activities 258,121 282,361 284,188 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Cash Flows From Investing Activities: Proceeds from sales of available for sale securities 2,652,554 5,089,734 6,873,320 Proceeds from maturities of investment securities 61,583 65,504 139,591 Proceeds from maturities of available for sale securities 1,036,014 2,410,213 1,802,845 Purchases of investment securities (94,947) (55,678) (96,627) Purchases of available for sale securities (3,800,015) (8,145,655) (8,985,019) Loans originated or acquired net of principal collected (554,128) (741,405) (586,281) Payments on derivative asset contracts (9,368) (41,226) (12,912) Net change in other investment assets 3,208 (3,849) 43 Proceeds from disposition of assets 69,320 65,989 58,390 Purchases of assets (34,404) (62,926) (46,729) Cash and cash equivalents of subsidiaries and branches acquired and sold, net - 2,123 46,295 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Net cash used by investing activities (670,183) (1,417,176) (807,084) - ------------------------------------------------------------------------------- -------------- -------------- ------------- Cash Flows From Financing Activities: Net change in demand deposits, transaction deposits and savings accounts 185,409 984,603 604,771 Net change in certificates of deposit 269,126 107,522 395,740 Net change in other borrowings (55,811) 65,610 (165,744) Change in amount receivable (due) on unsettled security transactions (65,132) 74,160 (297,055) Pay down of other borrowings - (95,000) (10,095) Issuance of preferred, common and treasury stock, net 7,132 4,627 4,172 Pay down of subordinated debenture - - (30,000) Net change in derivative margin accounts (50,202) (31,763) (5,148) Proceeds from derivative liability contracts 10,259 45,538 3,162 Dividends paid (1,540) (785) (30) - ------------------------------------------------------------------------------- -------------- -------------- ------------- Net cash provided by financing activities 299,241 1,154,512 499,773 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Net increase (decrease) in cash and cash equivalents (112,821) 19,697 (23,123) Cash and cash equivalents at beginning of period 643,912 624,215 647,338 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Cash and cash equivalents at end of period $ 531,091 $ 643,912 $ 624,215 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Cash paid for interest $ 192,187 $ 176,225 $ 208,612 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Cash paid for taxes 95,282 81,596 81,154 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Net loans transferred to repossessed real estate 6,013 6,378 4,550 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Payment of dividends in common stock 65,899 58,300 53,165 - ------------------------------------------------------------------------------- -------------- -------------- ------------- Common stock and price guarantee issued for acquisition - - 67,745 - ------------------------------------------------------------------------------- -------------- -------------- -------------
See accompanying notes to consolidated financial statements. 50 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In Thousands) Preferred Stock Common Stock ------------------------------ ------------------------------ Shares Amount Shares Amount ------------------------------ ------------------------------ December 31, 2001 250,000 $25 51,737 $3 Comprehensive income: Net income - - - - Other comprehensive loss, net of tax: Unrealized gain on securities - - - - Total comprehensive income Exercise of stock options - - 695 - Tax benefit on exercise of stock options - - - - Stock-based compensation - - - - Preferred stock dividend - - - - Issue shares for acquisition - - 1,711 - Fair value of stock price guarantee - - - - Dividends paid in shares of common stock: Preferred stock - - 48 - Common stock - - 1,559 - - ------------------------------------------------------------------------------------------------------------------------------ December 31, 2002 250,000 25 55,750 3 Comprehensive income: Net income - - - - Other comprehensive loss, net of tax: Unrealized loss on securities - - - - Total comprehensive income Exercise of stock options - - 603 - Tax benefit on exercise of stock options - - - - Stock-based compensation - - - - Cash dividends on preferred stock - - - - Redeem nonvoting preferred units - (13) - - Dividends paid in shares of common stock: Preferred stock - - 23 - Common stock - - 1,680 1 - ------------------------------------------------------------------------------------------------------------------------------ December 31, 2003 250,000 12 58,056 4 Comprehensive income: Net income - - - - Other comprehensive loss, net of tax: Unrealized loss on securities - - - - Total comprehensive income Exercise of stock options - - 616 - Conversion of preferred stock to common (25) - - - Tax benefit on exercise of stock options - - - - Stock-based compensation - - - - Cash dividends on preferred stock - - - - Dividends paid in shares of common stock - - 1,749 - - ------------------------------------------------------------------------------------------------------------------------------ December 31, 2004 249,975 $12 60,421 $4 - ------------------------------------------------------------------------------------------------------------------------------
December 31, ------------------------------------------- 2004 2003 2002 ------------------------------------------- (1) Changes in other comprehensive income: Unrealized gains (losses) on securities $ (31,806) $ (46,884) $119,609 Unrealized losses on cash flow hedges (1,625) - - Tax benefit (expense) on unrealized gains (losses) 11,303 16,858 (44,390) Reclassification adjustment for (gains) losses realized and included in net income 3,088 (7,188) (58,704) Reclassification adjustment for tax expense (benefit) on realized (gains) losses (1,044) 2,585 20,781 ------------------------------------------- Net change in unrealized gains (losses) $ (20,084) $ (34,629) $ 37,296 -------------------------------------------
See accompanying notes to consolidated financial statements. 51 Accumulated Other Treasury Stock Comprehensive Capital Retained ------------------------------------ Income (Loss) (1) Surplus Earnings Shares Amount Total - -------------------- ----------------- ----------------- ----------------- ------------------ --------------- $ 5,792 $335,443 $504,101 541 $(12,498) $ 832,866 - - 147,871 - - 147,871 37,296 - - - - 37,296 --------------- 185,167 --------------- - 8,515 - 125 (4,343) 4,172 - 5,482 - - - 5,482 - 4,124 - - - 4,124 - - (2) - - (2) - 64,550 - - - 64,550 - 3,195 - - - 3,195 - 1,500 (1,500) - - - - 52,245 (51,693) 17 (580) (28) - -------------------- ----------------- ----------------- ----------------- ------------------ --------------- 43,088 475,054 598,777 683 (17,421) 1,099,526 - - 158,360 - - 158,360 (34,629) - - - - (34,629) --------------- 123,731 --------------- - 10,953 - 145 (6,326) 4,627 - 1,325 - - - 1,325 - 219 - - - 219 - - (750) - - (750) - - - - - (13) - 750 (750) - - - - 58,293 (57,585) 21 (744) (35) - -------------------- ----------------- ----------------- ----------------- ------------------ --------------- 8,459 546,594 698,052 849 (24,491) 1,228,630 - - 179,023 - - 179,023 (20,084) - - - - (20,084) --------------- 158,939 --------------- - 12,507 - 122 (5,375) 7,132 - - - - - - - 4,609 - - - 4,609 - 1,099 - - - 1,099 - - (1,875) - - (1,875) - 66,938 (65,939) 27 (1,039) (40) - -------------------- ----------------- ----------------- ----------------- ------------------ --------------- $(11,625) $631,747 $809,261 998 $(30,905) $1,398,494 - -------------------- ----------------- ----------------- ----------------- ------------------ ---------------
52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Consolidated Financial Statements of BOK Financial Corporation ("BOK Financial" or "the Company") have been prepared in conformity with accounting principles generally accepted in the United States, including general practices of the banking industry. The consolidated financial statements include the accounts of BOK Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its subsidiaries ("BOk"), Bank of Texas, N.A., Bank of Arkansas, N.A., Bank of Albuquerque, N.A., Colorado State Bank and Trust, N.A. and BOSC, Inc. Certain prior year amounts have been reclassified to conform to current year classifications. The consolidated financial statements would also include the assets, liabilities, non-controlling interests and results of operations of variable interest entities ("VIEs") when BOK Financial is determined to be the primary beneficiary. Variable interest entities are generally defined in FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities," as entities that either do not have sufficient equity to finance their activities without support from other parties or whose equity investors lack a controlling financial interest. BOK Financial has limited interests in VIEs in its operations. NATURE OF OPERATIONS BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers, other financial institutions and consumers throughout Oklahoma, Northwest Arkansas, Dallas and Houston, Texas, Albuquerque, New Mexico, and Denver, Colorado. These services include depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust. USE OF ESTIMATES Preparation of BOK Financial's consolidated financial statements requires management to make estimates of future economic activities, including loan collectibility, prepayments and cash flows from customer accounts. These estimates are based upon current conditions and information available to management. Actual results may differ significantly from these estimates. ACQUISITIONS Assets and liabilities acquired by purchase, including identifiable intangible assets, are recorded at fair values on the acquisition dates. The Consolidated Statements of Earnings include the results of purchases from the dates of acquisition. INTANGIBLE ASSETS Intangible assets, which result from business combinations, are accounted for under the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," and No. 147, "Acquisitions of Certain Financial Institutions." Intangible assets with indefinite lives, such as goodwill, are evaluated for each of BOK Financial's business units for impairment annually or more frequently if conditions indicate impairment. The evaluation of possible impairment of intangible assets involves significant judgment based upon short-term and long-term projections of future performance. The fair value of BOK Financial's business units is estimated by the discounted future earnings method. Income growth is projected over a five-year period for each unit and a terminal value is computed. This projected income stream is converted to current fair value by using a discount rate that reflects a rate of return required by a willing buyer. Other identifiable intangible assets and core deposit intangibles are amortized using accelerated methods over the estimated benefit periods. These periods generally range from 5 to 10 years for other intangible assets and core deposit intangibles. The net book value of these other intangibles and core deposit intangibles are evaluated for impairment when economic conditions indicate an impairment may exist. CASH EQUIVALENTS Due from banks, funds sold (generally federal funds sold for one-day periods) and resell agreements (which generally mature within one to 30 days) are considered cash equivalents. SECURITIES Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities, which are acquired for profit through resale, are carried at market value with unrealized gains and losses included in current period earnings. Investment securities are carried at amortized cost. 53 Amortization is computed by methods that approximate level yield and is adjusted for changes in prepayment estimates. Investment securities may be sold or transferred to trading or available for sale classification in certain limited circumstances specified in generally accepted accounting principles. Securities identified as available for sale are carried at fair value. Unrealized gains and losses are recorded, net of deferred income taxes, as accumulated other comprehensive income (loss) in shareholders' equity. Unrealized losses on securities are evaluated to determine if the losses are temporary based on various factors, including the cause of the loss, prospects for recovery and management's intent and ability to hold the security until the fair value exceeds amortized cost. An impairment charge is recorded against earnings if the loss is determined to be other than temporary. Realized gains and losses on sales of securities are based upon the amortized cost of the specific security sold. Available for sale securities are separately identified as pledged to creditors if the creditor has the right to sell or repledge the collateral. The purchase or sale of securities is recognized on a trade date basis. A net receivable or payable is recognized for subsequent transaction settlement. BOK Financial will periodically commit to purchase to-be-announced ("TBA") mortgage-backed securities. These commitments are carried at fair value if they are considered derivative contracts. These commitments are not reflected in BOK Financial's balance sheet until settlement date if they meet specific criteria exempting them from the definition of derivative contracts. DERIVATIVE INSTRUMENTS Derivative instruments may be used by the Company as part of its interest rate risk management programs or may be offered to customers to assist with their hedging strategies. All derivative instruments are carried at fair value. Changes in fair value are generally reported in income as they occur. Derivative instruments used to manage interest rate risk consist primarily of interest rate swaps. These contracts modify the interest income or expense of certain assets or liabilities. Amounts receivable from or payable to counterparties are reported in interest income or expense using the accrual method. Changes in fair value of interest rate swaps are reported in other operating revenue - gains or losses on derivatives. In certain circumstances, interest rate swaps may be designated as fair value hedges and may qualify for hedge accounting. In these circumstances, changes in the fair value of the hedged asset or liability that are attributable to the hedged risk are also reported in other operating revenue - gains or losses on derivatives, and may partially or completely offset the change in fair value of the interest rate swap. Fair value hedges are considered to be effective if the cumulative fair value adjustment of the interest rate swap is within a range of 80% to 120% of the change in fair value of the hedged asset or liability. Interest rate swaps may be designated as cash flow hedges of variable rate assets or liabilities, or of anticipated transactions. Changes in the fair value of interest rate swaps designated as cash flow hedges are recorded in accumulated other comprehensive income to the extent they are effective. The amount recorded in other comprehensive income is reclassified to earnings in the same periods as the hedged cash flows impact earnings. The ineffective portion of changes in fair value is reported in current earnings. If a derivative instrument that had been designated as a fair value hedge is terminated or if the hedge designation is removed or deemed to no longer be effective, the difference between the hedged item's carrying value and its face amount is recognized into income over the remaining original hedge period. Similarly, if a derivative instrument that had been designated as a cash flow hedge is terminated or if the hedge designation is removed or deemed to no longer be effective, the amount remaining in accumulated other comprehensive income is reclassified to earnings in the same period as the hedged item. BOK Financial also enters into mortgage loan commitments that are considered derivative instruments. Forward sales contracts are used to hedge these mortgage loan commitments as well as mortgage loans held for sale. Mortgage loan commitments are carried at fair value based upon quoted prices, excluding the value of loan servicing rights or other ancillary values. Changes in fair value of the mortgage loan commitments and forward sales contracts are reported in other operating revenue - mortgage banking revenue. Derivative contracts are also offered to customers to assist in hedging their risks of adverse changes in commodity prices, interest rates and foreign exchange rates. BOK Financial serves as an intermediary between its customers and the markets. Each contract between BOK Financial and its customers is offset by a contract between BOK Financial and various counterparties. These contracts are carried at fair value. Compensation for credit risk and reimbursement of administrative costs are recognized over the life of the contracts and included in other operating revenue - brokerage and trading revenue. 54 LOANS Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower. BOK Financial is exposed to risk of loss on loans due to the borrower's difficulties, which may arise from any number of factors, including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccrual status when, in the opinion of management, full collection of principal or interest is uncertain, generally when the collection of principal or interest is 90 days or more past due. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccrual status. Payments on nonaccrual loans are applied to principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loan origination and commitment fees and direct loan acquisition and origination costs, when significant, are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. Mortgage loans held for sale are carried at the lower of aggregate cost or market value. Mortgage loans held for sale that are designated as hedged assets are carried at fair value based on sales commitments or market quotes. Changes in fair value after the date of designation of an effective hedge are recorded in other operating revenue. RESERVE FOR LOAN LOSSES AND OFF-BALANCE SHEET CREDIT LOSSES Reserves for loan losses and off-balance sheet credit losses are assessed by management, based upon an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, and includes probable losses on both outstanding loans and unused commitments to provide financing. A consistent methodology has been developed that includes reserves assigned to specific criticized loans, general reserves that are based upon statistical migration analyses for each category of loans, and a nonspecific allowance that is based upon an analysis of current economic conditions, loan concentrations, portfolio growth and other relevant factors. The reserve for loan losses related to loans that are identified for evaluation in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114"), is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due according to the contractual terms of the loan agreement. This is substantially the same criteria used to determine when a loan should be placed on nonaccrual status. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In accordance with the provisions of FAS 114, management has excluded small balance, homogeneous loans from the impairment evaluation specified in FAS 114. Such loans include 1-4 family mortgage loans, consumer loans, and commercial loans with committed amounts less than $1 million. The adequacy of the reserve for loan losses applicable to these loans is evaluated in accordance with generally accepted accounting principles and standards established by the banking regulatory authorities and adopted as policy by BOK Financial. A provision for credit losses is charged against earnings in amounts necessary to maintain adequate reserves for loan and off-balance sheet credit losses. Loans are charged off when the loan balance or a portion of the loan balance is no longer covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Additionally, all unsecured or under-secured loans that are past due by 180 days or more are charged off within 30 days. Recoveries of loans previously charged off are added to the reserve. ASSET SECURITIZATION BOK Financial periodically securitizes and sells pools of assets. These transactions are recorded as sales for financial reporting purposes when the criteria for surrender of control specified in Statement of Financial Accounting Standards, No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" are met. BOK Financial may retain the right to service the assets and a residual interest in excess cash flows generated by the assets. The carrying value of 55 the assets sold is allocated between the portion sold and the portion retained based on relative fair values. The fair value of these retained assets is determined by a discounting of expected future net cash to be received using assumed market interest rates for these instruments. Residual interests are carried at fair value. Changes in fair values are recorded in income. Servicing rights are carried at the lower of amortized cost or fair value. A valuation allowance is provided when amortized cost of servicing rights exceeds fair value. REAL ESTATE AND OTHER REPOSSESSED ASSETS Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. These assets are carried at the lower of cost, which is determined by fair value at date of foreclosure, or current fair value. Income generated by these assets is recognized as received, and operating expenses are recognized as incurred. PREMISES AND EQUIPMENT Premises and equipment are carried at cost including capitalized interest, when appropriate, less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. Repair and maintenance costs are charged to expense as incurred. MORTGAGE SERVICING RIGHTS Capitalized mortgage servicing rights are carried at the lower of amortized cost or fair value. Amortization is determined in proportion to the projected cash flows over the estimated lives of the servicing portfolios. The actual cash flows are dependent upon the prepayment of the mortgage loans and may differ significantly from the estimates. There is no active market for trading in mortgage servicing rights. We use a cash flow model to determine fair value. Key assumptions and estimates including projected prepayment speeds and assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates used by this model are based on current market sources. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated daily for changes in market conditions. At least annually, we request estimates of fair value from outside sources to corroborate the results of the valuation model. Permanent impairment of mortgage servicing rights is evaluated quarterly. A strata is considered to be permanently impaired if the fair value does not exceed amortized cost after assuming a 300 basis point increase in mortgage interest rates. The amortized cost of the asset is reduced to the calculated fair value through a charge against the valuation allowance. Originated mortgage servicing rights are recognized when either mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are sold. The fair value of the originated servicing rights is determined at closing based upon relative fair value. Purchased mortgage servicing rights are recorded at cost. FEDERAL AND STATE INCOME TAXES BOK Financial utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statement and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Current income tax expense is based on an effective tax rate that considers statutory federal and state income tax rates and permanent differences between income and expense recognition for financial reporting and income tax purposes. The amount of current income tax expense recognized in any period may differ from amounts reported to taxing authorities. These differences are recorded as current income tax liabilities. Income tax expense may be reduced when amounts accrued are determined to no longer represent liabilities of the Company. Income tax expense was reduced $3.0 million in 2004 from the resolution of state income tax issues. BOK Financial and its subsidiaries file consolidated tax returns. The subsidiaries provide for income taxes on a separate return basis and remit to BOK Financial amounts determined to be currently payable. 56 EMPLOYEE BENEFIT PLANS BOK Financial sponsors various plans, including a defined benefit pension plan ("Pension Plan"), qualified profit sharing plans ("Thrift Plans"), and employee healthcare plans. Employer contributions to the Thrift Plans, which match employee contributions subject to percentage and years of service limits, are expensed when incurred. Pension Plan costs, which are based upon actuarial computations of current costs, are expensed annually. Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the estimated remaining lives of the participants. BOK Financial recognizes the expense of health care benefits on the accrual method. Employer contributions to the Pension Plan and various health care plans are in accordance with Federal income tax regulations. STOCK COMPENSATION PLANS BOK Financial has various stock compensation plans for its employees. During 2003, BOK Financial adopted the expense recognition provisions of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("FAS 148"). Under FAS 123, compensation expense is recognized based on the fair value of stock options granted. BOK Financial chose to retroactively restate its results of operations for the accounting change, as provided by FAS 148. BOK Financial also permits certain executive officers to defer the recognition of income from the exercise of stock options for income tax purposes and to diversify the deferred income into alternative investments. Because the Company is expected to settle these amounts in cash, they are recognized as a liability. Changes in the liability are recognized as additional compensation expense. OTHER OPERATING REVENUE Fees and commissions revenue is recognized at the time the related services are provided or products are sold and may be accrued when necessary. Accrued fees and commissions are reversed against revenue if amounts are subsequently deemed to be uncollectible. EFFECT OF PENDING STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT OF FINANCIAL ACCOUNTING STANDARDS 123R, "SHARE-BASED PAYMENTS" In December 2004, the FASB revised Statement No. 123, "Accounting for Stock-Based Compensation," by issuing FAS 123R. FAS 123R requires companies to recognize in income statements the grant-date fair value of stock options and other equity-based compensation issued to employees. Previously, FAS 123 recommended, but did not require income statement recognition of the fair value of equity-based compensation. FAS 123R requires that share-based payments that may be settled in cash be carried at current fair value. Fair value is determined at each balance sheet date until the award is settled. Changes in fair value are recognized in the current period. Share-based payments that will be settled in equity instruments are measured at grant-date fair value and not remeasured for subsequent changes in fair value. Compensation expense is generally recognized over the vesting period for awards that will be settled in equity instruments. FAS 123R is effective for interim periods beginning on or after June 15, 2005. The Company previously adopted the preferred income statement recognition methods of the original FAS 123. Management does not expect FAS 123R to have a significant effect on its financial statements. AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS STATEMENT OF POSITION 03-3, "ACCOUNTING FOR CERTAIN LOANS OR DEBT SECURITIES ACQUIRED IN A TRANSFER" SOP 03-3 addresses accounting for differences between contractual and expected cash flows of certain acquired loans and debt securities when the differences are due, at least in part, to credit quality. SOP 03-3 is applicable to loans and debt securities acquired individually, in pools or as part of a business combination. It is not applicable to loans originated by the lender. The yield that may be accreted to income is limited to the excess of estimated undiscounted cash flows over the investor's investment in the asset. Subsequent increases in expected cash flows should be recognized prospectively through a yield adjustment. Subsequent decreases in expected cash flows should be recognized as impairment. SOP 03-3 prohibits the carry-over or creation of valuation allowances related to acquired assets, including assets acquired in a business combination that have evidence of deterioration since origination. SOP 03-3 is effective for loans and debt securities acquired in fiscal years beginning after December 15, 57 2004. The guidance provided by SOP 03-3 is not expected to have a significant effect on future financial statements. EMERGING ISSUES TASK FORCE ISSUE 03-1, "THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS" EITF 03-1 provides guidance for determining when an investment is impaired, for evaluating whether the impairment is other-than-temporary and for measuring impairment. An asset is considered impaired when its fair value is less than cost. The criteria for evaluating whether the impairment is other-than-temporary includes the nature of the asset, whether the asset can be prepaid by the issuer in a manner that the investor will not recover its investment, the severity and duration of the impairment and the investor's ability and intent to hold the asset until the fair value recovers. Impairment is measured as the difference between fair value and cost. If the impairment is considered other-than-temporary, a new cost basis is established through direct write-down of the asset. In September 2004, the FASB agreed to reconsider EITF 03-1 and all other guidance on disclosing, measuring and recognizing other-than-temporary impairment of debt and equity securities. Until the reconsideration of EITF 03-1 is complete, we are unable to evaluate the effects on future financial statements. The disclosure requirements of EITF 03-1 remain in effect. Guidance for determining other-than-temporary impairment continues to be provided by the Securities and Exchange Commission's Staff Accounting Bulletin No. 59. (2) ACQUISITIONS On September 10, 2003, BOK Financial paid $77.9 million in cash for all the outstanding stock of Colorado Funding Company and its Colorado State Bank and Trust subsidiary. On October 25, 2002, BOK Financial acquired Bank of Tanglewood, N.A. for 1,711,127 shares of common stock and 292,225 options to purchase shares, valued at approximately $65 million. The options to purchase shares expired February 25, 2003. BOK Financial agreed to a price guarantee on 50 percent of the stock issued, which resulted in a contingent obligation to issue additional shares or cash over the next five years based on certain predetermined market valuations. The value of the contingent price guarantee was $3 million, which was included in the total purchase price. More discussion of this contingency is at Note 16. These transactions were accounted for by the purchase method of accounting. Aggregate allocation of the purchase price to the net assets acquired was as follows (in thousands): 2003 2002 ------------ ------------- Cash and cash equivalents $ 80,051 $ 46,295 Securities 14,507 62,484 Loans 222,530 132,278 Less reserve for loan losses 2,282 1,364 ------------ ------------- Loans, net 220,248 130,914 Identifiable intangible assets 18,770 3,718 Other assets 20,809 8,568 ------------ ------------- Total assets acquired 354,385 251,979 Deposits: Noninterest-bearing 75,078 49,213 Interest-bearing 226,361 173,887 ------------ ------------- Total deposits 301,439 223,100 Other borrowings 5,098 8,610 Other liabilities 11,951 2,736 ------------ ------------- Net assets acquired 35,897 17,533 Less purchase price 77,928 67,745 ------------ ------------- Goodwill $ 42,031 $ 50,212 ------------ ------------- The following unaudited condensed consolidated pro forma statements of earnings for BOK Financial present the effects on income had the purchase acquisitions described above occurred at the beginning of 2002: Condensed Consolidated Pro Forma Statements of Earnings (In Thousands Except Per Share Data) (Unaudited) Year ended December 31, ------------------------------ 2003 2002 -------------- --------------- Net interest revenue $ 400,159 $389,648 Provision for credit losses 35,941 35,162 - ----------------------------- -------------- --------------- Net interest revenue after provision for credit losses 364,218 354,486 Other operating revenue 311,373 332,052 Other operating expense 428,490 452,654 - ----------------------------- -------------- --------------- Income before taxes 247,101 233,884 Federal and state income tax 88,914 80,825 - ----------------------------- -------------- --------------- Net income $ 158,187 $153,059 - ----------------------------- -------------- --------------- Earnings per share: Basic net income $ 2.67 $ 2.61 Diluted net income 2.38 2.31 - ----------------------------- -------------- --------------- Average shares: Basic 58,700 58,102 Diluted 66,509 66,301 - ----------------------------- -------------- --------------- On December 21, 2004, BOK Financial announced it entered into an agreement to acquire Phoenix-based Valley Commerce Bancorp Ltd. and its Valley Commerce Bank subsidiary for $32 million cash. Total consolidated assets and net assets of Valley Commerce Bancorp Ltd. were $141 million and $13 million, respectively, at December 31, 2004. This transaction is expected to be completed in April 2005, subject to regulatory approval. 58 (3) SECURITIES INVESTMENT SECURITIES The amortized cost and fair values of investment securities are as follows (in thousands): December 31, ---------------------------------------------------------------------------------------------- 2004 2003 ----------------------------------------------- ---------------------------------------------- Gross Unrealized Gross Unrealized Amortized Fair ------------------------ Amortized Fair ----------------------- Cost Value Gain Loss Cost Value Gain Loss ---------------------------------------------------------------------------------------------- Municipal and other tax-exempt $216,986 $218,465 $2,501 $(1,022) $184,192 $187,354 $4,049 $ (887) Mortgage-backed U.S. agency securities 1,287 1,336 49 - 2,296 2,418 122 - Other debt securities 2,821 2,835 14 - 1,463 1,484 21 - ---------------------------------------------------------------------------------------------------------------------------- Total $221,094 $222,636 $2,564 $(1,022) $187,951 $191,256 $4,192 $ (887) ----------------------------------------------------------------------------------------------------------------------------
The amortized cost and fair values of investment securities at December 31, 2004, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity (4) ------------ -------------- ------------- ------------- ------------- ------------- Municipal and other tax-exempt: Amortized cost $ 46,214 $ 138,870 $24,996 $ 6,906 $ 216,986 2.99 Fair value 46,254 140,027 25,365 6,819 218,465 Nominal yield (1) 5.54 5.02 6.03 6.07 5.28 Other debt securities: Amortized cost $ 2,021 $ 100 $ 700 $ - $ 2,821 2.45 Fair value 2,021 106 708 - 2,835 Nominal yield 2.28 7.00 5.37 - 3.21 ------------ -------------- ------------- ------------- ------------- ------------- Total fixed maturity securities: Amortized cost $ 48,235 $ 138,970 $ 25,696 $ 6,906 $ 219,807 2.98 Fair value 48,275 140,133 26,073 6,819 221,300 Nominal yield 5.41 5.02 6.02 6.07 5.26 ------------ -------------- ------------- ------------- Mortgage-backed securities: Amortized cost $ 1,287 (2) Fair value 1,336 Nominal yield (3) 6.45 ------------- Total investment securities: Amortized cost $ 221,094 Fair value 222,636 Nominal yield 5.26 ------------- (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 6.28 years based upon current prepayment assumptions. (3) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. (4) Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
59 AVAILABLE FOR SALE SECURITIES The amortized cost and fair value of available for sale securities are as follows (in thousands): December 31, ---------------------------------------------------------------------------------------------- 2004 2003 ---------------------------------------------- ----------------------------------------------- Gross Unrealized Gross Unrealized Amortized Fair ---------------------- Amortized Fair ---------------------- Cost Value Gain Loss Cost Value Gain Loss ---------------------------------------------------------------------------------------------- U.S. Treasury $ 27,119 $ 27,062 $ 31 $ (88) $ 44,679 $ 45,424 $ 746 $ (1) Municipal and other tax-exempt 414 404 1 (11) 3,271 3,257 6 (20) Mortgage-backed securities: U. S. agencies 3,067,611 3,052,375 8,079 (23,315) 3,514,158 3,518,926 28,962 (24,194) Other 1,423,613 1,418,770 2,378 (7,221) 845,430 848,911 5,996 (2,515) - ------------------------------------------------------------------------------------------------------------------------------ Total mortgage-backed securities 4,491,224 4,471,145 10,457 (30,536) 4,359,588 4,367,837 34,958 (26,709) - ------------------------------------------------------------------------------ ----------------------------------------------- Other debt securities 515 528 13 - 1,140 1,177 37 - Equity securities and mutual funds 90,343 94,051 3,708 - 96,460 101,173 5,450 (737) - ------------------------------------------------------------------------------------------------------------------------------ Total $ 4,609,615 $4,593,190 $ 14,210 $(30,635) $ 4,505,138 $4,518,868 $ 41,197 $(27,467) - ------------------------------------------------------------------------------------------------------------------------------
The amortized cost and fair values of available for sale securities at December 31, 2004, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity (5) ------------- ------------- ------------- ------------- --------------- ----------- U.S. Treasuries: Amortized cost $ 16,054 $ 11,065 $ - $ - $ 27,119 0.99 Fair value 16,057 11,005 - - 27,062 Nominal yield 2.21 2.75 - - 2.43 Municipal and other tax-exempt: Amortized cost $ - $ 99 $ 315 $ - $ 414 5.43 Fair value - 100 304 - 404 Nominal yield (1) - 4.67 2.65 - 3.13 Other debt securities: Amortized cost $ 374 $ 75 $ 66 $ - $ 515 1.57 Fair value 383 79 66 - 528 Nominal yield (1) 6.05 6.23 5.85 - 6.05 ------------- ------------- ------------- ------------- --------------- ----------- Total fixed maturity securities: Amortized cost $ 16,428 $ 11,239 $ 381 $ - $ 28,048 1.07 Fair value 16,440 11,184 370 - 27,994 Nominal yield 2.35 2.80 3.20 - 2.51 ------------- ------------- ------------- ------------- Mortgage-backed securities: Amortized cost $ 4,491,224 (2) Fair value 4,471,145 Nominal yield (4) 4.35 --------------- Equity securities and mutual funds: Amortized cost $ 90,343 (3) Fair value 94,051 Nominal yield 2.64 --------------- Total available-for-sale securities: Amortized cost $ 4,609,615 Fair value 4,593,190 Nominal yield 4.30 --------------- (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 3.26 years based upon current prepayment assumptions. (3) Primarily common stock and preferred stock of U.S. Government agencies with no stated maturity. (4) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. (5) Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
60 At December 31, 2004, there were outstanding commitments to buy $15 million of securities that have not yet been issued. As of December 31, 2004, these commitments are not reflected in BOK Financial's balance sheet because they have not settled and meet specific criteria exempting them from the definition of derivative contracts. Sales of available for sale securities resulted in gains and losses as follows (in thousands): 2004 2003 2002 ----------- ----------- ----------- Proceeds $2,652,554 $5,089,734 $6,873,320 Gross realized gains 10,452 30,373 85,346 Gross realized losses 13,540 23,185 26,642 Related federal and state income tax expense (benefit) (1,044) 2,585 20,781 In addition to securities that have been reclassified as pledged to creditors, securities with an amortized cost of $2.6 billion and $2.1 billion at December 31, 2004 and 2003, respectively, have been pledged as collateral for repurchase agreements, public and trust funds on deposit and for other purposes as required by law. The secured parties do not have the right to sell or repledge these securities. Net unrealized losses on securities totaled $15 million at December 31, 2004 compared with net unrealized gains of $17 million at December 31, 2003 due primarily to rising interest rates. The aggregate gross amount of unrealized losses at December 31, 2004 totaled $32 million. Management evaluated the securities with unrealized losses to determine if we believe that the losses were temporary. This evaluation considered factors such as causes of the unrealized losses and prospects for recovery over various interest rate scenarios and time periods. We also considered our ability and intent to hold the securities until the fair values exceed amortized cost. It is our belief, based on currently available information and our evaluation, that the unrealized losses in these securities were temporary. Temporarily Impaired Securities (In Thousands) Less Than 12 Months 12 Months or Longer Total ------------------------- ------------------------- ------------------------- Fair Unrealized Fair Unrealized Fair Unrealized Value Loss Value Loss Value Loss ------------ ------------ ------------ ------------ ------------ ------------ Investment: Municipal and other tax exempt $ 49,805 $ 331 $ 42,470 $ 691 $ 92,275 $ 1,022 Available for sale: U. S. Treasury 21,978 88 - - 21,978 88 Municipal and other tax-exempt - - 304 11 304 11 Mortgage-backed securities: U. S. agencies 1,139,652 8,236 742,421 15,079 1,882,073 23,315 Other 610,811 6,534 137,188 687 747,999 7,221 - ------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Total $1,822,246 $ 15,189 $ 922,383 $ 16,468 $2,744,629 $ 31,657 - ------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
61 (4) DERIVATIVES The fair values of derivative contracts at December 31, 2004 were (in thousands): Assets Liabilities ----------- ------------- Customer Risk Management Programs: Interest rate contracts $ 4,116 $ 5,526 Energy contracts 363,388 362,761 Cattle contracts 708 1,138 Foreign exchange contracts 10,569 10,571 - ----------------------------------------- ----------- ------------- Total Customer Derivatives 378,781 379,996 Interest Rate Risk Management Programs: Interest rate risk management 953 7,296 Mortgage servicing rights 317 - - ----------------------------------------- ----------- ------------- Total Derivative Contracts $ 380,051 $387,292 - ----------------------------------------- ----------- ------------- CUSTOMER RISK MANAGEMENT PROGRAMS BOK Financial offers programs that permit its customers to manage various risks. We have programs to assist energy producing customers to hedge against price fluctuations and to take positions through energy derivative contracts. We also have programs to assist customers in managing their interest rate and foreign exchange risks and a specialized program for customers with loans secured by cattle. These programs work essentially the same way. Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial 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 Financial as compensation for administrative costs, credit risks and profit. INTEREST RATE RISK MANAGEMENT PROGRAMS BOK Financial uses interest rate swaps to assist in managing its interest rate sensitivity. Interest rate swaps are generally used to reduce overall asset sensitivity by converting specific fixed rate liabilities to floating rate based on LIBOR, or specific prime-based loans to fixed rate. Interest rate swaps are designated as fair value or cash flow hedges when the specific criteria required by generally accepted accounting principles are met. These criteria include requirements that derivatives are highly effective in offsetting changes in fair value or cash flow of the hedged assets or liabilities. The following table details interest rate swaps and, when applicable, the associated hedged assets or liabilities at December 31, 2004 (dollars in thousands): Hedged Asset / Liability Interest Rate Swap ------------------------------------------------------------------------------------------------------------------------ Weighted Average Weighted Average --------------------------- --------------------------- Fixed Rate Floating Rate Notional Fixed Rate Floating Rate Positive Negative Maturity Description Amount (Paid) Received (2) Amount Received(Paid) Received (Paid)(1) Fair Value Fair Value -------------------------------------------------------------------------------------------------------------------------------- Fair value hedges: 2005 Certificates of $84,606 (1.933)% - % $85,000 2.113% (2.400)% $ - $ 157 deposit 2006 Certificates of 74,980 (2.313) - 75,000 2.400 (2.400) - 781 deposit 2007 Certificates of 50,000 (2.960) - 50,000 3.085 (2.400) - 480 deposit 2007 Subordinated 150,000 (7.125) - 150,000 3.165 (2.400) - 1,540 debt 2008 Certificates of 21,980 (3.000) - 22,000 3.093 (2.400) - 404 deposit 2009 Certificates of 69,932 (4.009) - 70,000 4.133 (2.400) 953 251 deposit 2010 Certificates of 9,878 (3.624) - 10,000 3.657 (2.400) - 184 deposit 2011 Certificates of 29,779 (3.983) - 30,000 4.013 (2.400) - 231 deposit ------------------------------------------------------------------------------------------------------------------------ Total fair value hedges 491,155 492,000 953 4,028 ------------------------------------------------------------------------------------------------------------------------ Cash flow hedges: 2008 Prime rate loans 100,000 - 5.250 100,000 5.926 (5.250)(2) - 1,625 ------------------------------------------------------------------------------------------------------------------------ Total cash flow hedges 100,000 100,000 - 1,625 ------------------------------------------------------------------------------------------------------------------------ Not designated as hedges: 2006 - - - 13,246 (5.425) 2.400 - 418 2011 - - - 33,332 (5.359) 2.400 - 1,225 ----------- ------------ ------------------------- Total $591,155 $638,578 $ 953 $ 7,296 ----------- ------------ -------------------------
(1) Floating rates are based on 30-day LIBOR, unless otherwise noted. (2) Floating rate based on prime. During 2004 and 2003, net interest revenue was increased by $9.9 million and $14.7 million, respectively, from the settlement of amounts receivable or payable on interest rate swaps. In addition, BOK Financial has an option to enter into an interest rate swap that is part of the mortgage servicing rights hedging program. The notional amount of this derivative contract is $50 million. On October 15, 2005, we have the right to enter into an interest rate swap where we receive a fixed rate of 4.05% and pay a variable rate based on LIBOR. If we choose to exercise the option, the resulting swap will expire in 2015. This contract is carried at fair value and is not designated as a hedge for accounting purposes. 62 (5) LOANS Significant components of the loan portfolio are as follows (in thousands): December 31, ----------------------------------------------------------------------------------------------- 2004 2003 ------------------------------------------------ ---------------------------------------------- Fixed Variable Non- Fixed Variable Non- Rate Rate accrual Total Rate Rate accrual Total ------------------------------------------------ ---------------------------------------------- Commercial $1,580,239 $2,962,402 $33,195 $4,575,836 $1,603,095 $2,692,247 $41,360 $4,336,702 Commercial real estate 376,290 1,234,676 10,144 1,621,110 446,751 1,181,030 2,311 1,630,092 Residential mortgage 687,574 502,732 8,612 1,198,918 522,240 485,582 7,821 1,015,643 Residential mortgage held for sale 40,262 - - 40,262 56,543 - - 56,543 Consumer 309,461 182,671 709 492,841 298,465 145,255 1,189 444,909 ----------------------------------------------------------------------------------------------------------------------------- Total $2,993,826 $4,882,481 $52,660 $7,928,967 $2,927,094 $4,504,114 $52,681 $7,483,889 ----------------------------------------------------------------------------------------------------------------------------- Loans past due (90 days) $ 7,649 $ 14,944 ----------------------------------------------------------------------------------------------------------------------------- Foregone interest on nonaccrual loans $ 4,617 $ 4,821 -----------------------------------------------------------------------------------------------------------------------------
Approximately 59% of the commercial and consumer loan portfolios and approximately 75% of the residential mortgage loan portfolio (excluding loans held for sale) are loans to businesses and individuals in Oklahoma. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Within the commercial loan classification, loans to energy-related businesses total $1.2 billion or 15% of total loans as of December 31, 2004. Other notable segments include wholesale/retail, $699 million; manufacturing, $484 million; agriculture, $262 million, which includes $217 million of loans to the cattle industry; and services, $1.6 billion, which includes nursing homes of $281 million, healthcare of $143 million and hotels of $30 million. Approximately 39% of commercial real estate loans are secured by properties located in Oklahoma, primarily in the Tulsa and Oklahoma City metropolitan areas. An additional 31% of commercial real estate loans are secured by property located in Texas. The major components of these properties are multifamily residences, $232 million; construction and land development, $457 million; retail facilities, $312 million; and office buildings, $343 million. During 2004, interest rate swaps with $100 million notional amounts were designated cash flow hedges of prime-based loans. The objective of the hedge is to protect against the variability of interest cash flows on the first $100 million of then existing prime-based loans. The Company receives settlements based on a fixed rate of 5.93% and pays settlements based on the U.S. prime rate. Amounts due are settled monthly. The amounts related to these swaps included in accumulated other comprehensive income that are expected to be reclassified into earnings during 2005 based on the current interest rate environment is not material to the Company's operating results. CREDIT COMMITMENTS Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 2004, outstanding commitments totaled $3.5 billion. Because some commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans. The amount of collateral obtained, if deemed necessary, is based upon management's credit evaluation of the borrower. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Because the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. The term of these standby letters of credit is defined in each commitment and typically corresponds with the underlying loan commitment. At December 31, 2004, outstanding standby letters of credit totaled $414 million. Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At December 31, 2004, outstanding commercial letters of credit totaled $7 million. 63 RESERVES FOR CREDIT LOSSES The activity in the reserve for loan losses is summarized as follows (in thousands): 2004 2003 2002 -------------------------------- Beginning balance $ 114,784 $ 103,851 $ 89,188 Provision for loan losses 15,792 34,000 34,228 Loans charged off (29,685) (31,475) (25,905) Recoveries 7,727 6,125 4,976 Addition due to acquisitions - 2,283 1,364 ----------------------------------------------------------- Ending balance $ 108,618 $ 114,784 $103,851 ----------------------------------------------------------- The activity in the reserve for off-balance sheet credit losses is summarized as follows (in thousands): 2004 2003 2002 -------------------------------- Beginning balance $ 13,855 $ 12,219 $ 12,717 Provision for off-balance sheet credit losses 4,647 1,636 (498) ----------------------------------------------------------- Ending balance $ 18,502 $ 13,855 $ 12,219 ----------------------------------------------------------- Provision for credit losses $ 20,439 $ 35,636 $ 33,730 ----------------------------------------------------------- IMPAIRED LOANS Investments in loans considered to be impaired under FAS 114 were as follows (in thousands): December 31, -------------------------------- 2004 2003 2002 -------------------------------- Investment in loans impaired under FAS 114 (all of which were on a nonaccrual basis) $45,424 $46,990 $44,912 Loans with specific reserves for loss 14,881 18,947 4,685 Specific reserve balance 6,994 6,377 2,269 No specific related reserve for loss 30,543 28,043 40,227 Average recorded investment in impaired loans 46,386 47,415 41,828 Interest income recognized on impaired loans during 2004, 2003 and 2002 was not significant. (6) PREMISES AND EQUIPMENT Premises and equipment at December 31 are summarized as follows (in thousands): December 31, ------------------------ 2004 2003 ----------- ------------ Land $ 40,479 $ 40,098 Buildings and improvements 135,932 126,665 Software 27,515 26,338 Furniture and equipment 100,447 95,833 - ------------------------------------ ----------- ------------ Subtotal 304,373 288,934 Less accumulated depreciation 131,730 113,033 - ------------------------------------ ----------- ------------ Total $172,643 $175,901 - ------------------------------------ ----------- ------------ Depreciation expense of premises and equipment was $23.4 million, $22.4 million and $20.5 million for the years ended December 31, 2004, 2003 and 2002, respectively. (7) INTANGIBLE ASSETS The following table presents the original cost and accumulated amortization of intangible assets (in thousands): December 31, ----------------------- 2004 2003 ----------- ----------- Core deposit premiums $ 86,257 $ 86,257 Less accumulated amortization 71,158 64,012 - ------------------------------------- ----------- ----------- Net core deposit premiums 15,099 22,245 Other identifiable intangible assets 11,526 11,526 Less accumulated amortization 4,249 3,257 - ------------------------------------- ----------- ----------- Net other identifiable intangible assets 7,277 8,269 Goodwill 273,353 273,307 Less accumulated amortization 53,135 53,135 - ------------------------------------- ----------- ----------- Net goodwill 220,218 220,172 - ------------------------------------- ----------- ----------- Total intangible assets, net $242,594 $250,686 - ------------------------------------- ----------- ----------- Expected amortization expense for intangible assets that will continue to be amortized under FAS 142, as amended by FAS 147, (in thousands): Core Other Deposit Identifiable Premiums Intangible Assets Total -------------- ----------------- ------------- 2005 $ 5,175 $ 962 $ 6,137 2006 3,628 796 4,424 2007 2,935 763 3,698 2008 1,552 780 2,332 2009 1,216 804 2,020 Thereafter 593 3,172 3,765 - ---------------- -------------- ----------------- ------------- $15,099 $7,277 $22,376 - ---------------- -------------- ----------------- ------------- 64 The net amortized cost of intangible assets at December 31, 2004 is assigned to reporting units as follows (in thousands): Core deposit premiums: Bank of Albuquerque $ 503 Bank of Texas 7,007 Colorado State Bank and Trust 7,589 ----------------------------------- ----------- $ 15,099 ----------------------------------- ----------- Other identifiable intangible assets: Bank of Oklahoma $ 197 Colorado State Bank and Trust 7,080 ----------------------------------- ----------- $ 7,277 ----------------------------------- ----------- Goodwill: Bank of Oklahoma $ 8,173 Bank of Texas 154,741 Bank of Albuquerque 15,273 Colorado State Bank and Trust 42,031 ----------------------------------- ----------- $220,218 ----------------------------------- ----------- (8) MORTGAGE BANKING ACTIVITIES BOK Financial engages in mortgage banking activities through the BOk Mortgage Division of BOk. Residential mortgage loans held for sale totaled $40 million and $57 million, and outstanding mortgage loan commitments totaled $189 million and $208 million at December 31, 2004 and 2003, respectively. Mortgage loan commitments are generally outstanding for 60 to 90 days and are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially hedged through the use of mortgage-backed securities forward sales contracts. These contracts set the price for loans that will be delivered in the next 60 to 90 days. As of December 31, 2004, the unrealized loss on forward sales contracts used to hedge the mortgage pipeline was approximately $119 thousand. At December 31, 2004, BOK Financial owned the rights to service 56,062 mortgage loans with outstanding principal balances of $4.5 billion, including $655 million serviced for affiliates, and held related funds of $67 million for investors and borrowers. The weighted average interest rate and remaining term was 6.27% and 270 months, respectively. Mortgage loans sold with recourse totaled $32 million at December 31, 2004. At December 31, 2003, BOK Financial owned the rights to service 61,254 mortgage loans with outstanding principal balances of $4.7 billion, including $357 million serviced for affiliates, and held related funds of $83 million for investors and borrowers. The weighted average interest rate and remaining term was 6.50% and 266 months, respectively. Mortgage loans sold with recourse totaled $103 million at December 31, 2003. The portfolio of mortgage servicing rights exposes BOK Financial to interest rate risk. During periods of falling interest rates, mortgage loan prepayments increase, reducing the value of the mortgage servicing rights. See Note 1 for specific accounting policies for mortgage servicing rights and the related hedges. 65 Activity in capitalized mortgage servicing rights and related valuation allowance during 2002, 2003 and 2004 are as follows (in thousands): Capitalized Mortgage Servicing Rights ------------------------------------- Valuation Hedging Purchased Originated Total Allowance Loss (2) Net ----------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $ 55,056 $ 53,611 $ 108,667 $(18,451) $ 8,580 $ 98,796 Additions, net (412) 20,832 20,420 - - 20,420 Amortization expense (17,421) (17,159) (34,580) - (1,425) (36,005) Write-off - (7,435) (7,435) 9,456 (2,021) - Provision for impairment - - - (45,923) - (45,923) ----------------------------------------------------------------------------------------------------------- Balance at December 31, 2002 37,223 49,849 87,072 (54,918) 5,134 37,288 Additions, net (3) 23,922 23,919 - - 23,919 Amortization expense (14,840) (19,315) (34,155) - (1,425) (35,580) Recovery of impairment - - - 22,923 - 22,923 ----------------------------------------------------------------------------------------------------------- Balance at December 31, 2003 22,380 54,456 76,836 (31,995) 3,709 48,550 Additions, net - 11,365 11,365 - - 11,365 Amortization expense (4,695) (10,753) (15,448) - (356) (15,804) Write-off (6,291) (7,012) (13,303) 16,656 (3,353) - Recovery of impairment - - - 1,567 - 1,567 ----------------------------------------------------------------------------------------------------------- Balance at December 31, 2004 $ 11,394 $ 48,056 $ 59,450 $ (13,772) $ - $ 45,678 ----------------------------------------------------------------------------------------------------------- Estimated fair value of mortgage servicing rights at: December 31, 2002 (1) $17,311 $ 20,477 $ 37,788 $ 37,788 December 31, 2003 (1) $12,625 $ 36,564 $ 49,189 $ 49,189 December 31, 2004 (1),(3) $ 9,338 $ 36,985 $ 46,323 $ 46,323 ----------------------------------------------------------------------------------------------------------- (1) Excludes approximately $1.1 million, $1.4 million and $2 million at December 31, 2004, 2003 and 2002, respectively, of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122. (2) Hedging loss represents the deferred loss on a derivatives-based hedging program prior to the adoption of FAS 133. (3) Fair value of mortgage servicing rights is based on numerous assumptions primarily related to mortgage interest rates. At December 31, 2004, management estimates that a 50 basis point increase in mortgage interest rates will increase the fair value of mortgage servicing rights by $6.3 million and a 50 basis point decrease in mortgage interest rates will reduce the fair value of mortgage servicing rights by $10.4 million.
Fair value is determined by discounting the projected net cash flows. Significant assumptions are: Discount rate - Indexed to a risk-free rate commensurate with the average life of the servicing portfolio plus a market premium. The discount rate at December 31, 2004 was 9.71%. Prepayment rate - Annual prepayment estimates ranging from 10.55% to 34.54% based upon loan interest rate, original term and loan type. Loan servicing costs - $35 to $46 annually per loan based upon loan type. Escrow earnings rate - Indexed to rates paid on deposit accounts with a comparable average life. The escrow earnings rate at December 31, 2004 was 4.52%. Stratification of the mortgage loan-servicing portfolio, outstanding principal of loans serviced, and related hedging information by interest rate at December 31, 2004 follows (in thousands): < 5.51% 5.51% - 6.50% 6.51% - 7.50% => 7.51% Total ------------------------------------------------------------------------------- Cost less accumulated amortization $ 13,807 $ 23,266 $ 17,096 $ 5,281 $ 59,450 ----------------------------------------------------------------------------------------------------------------------------- Fair value $ 12,378 $ 17,679 $ 11,856 $ 4,410 $ 46,323 ----------------------------------------------------------------------------------------------------------------------------- Impairment (2) $ 1,628 $ 5,588 $ 5,242 $ 1,314 $ 13,772 ----------------------------------------------------------------------------------------------------------------------------- Outstanding principal of loans serviced (1) $ 938,400 $1,421,900 $ 1,027,300 $ 358,000 $3,745,600 ----------------------------------------------------------------------------------------------------------------------------- 1 Excludes outstanding principal of $655 million for loans serviced for affiliates and $86 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.
66 (9) DEPOSITS Interest expense on deposits is summarized as follows (in thousands): 2004 2003 2002 ----------------------------------- Transaction deposits $ 35,517 $ 31,346 $ 39,273 Savings 975 944 1,976 Time: Certificates of deposits under $100,000 41,978 39,098 50,036 Certificates of deposits $100,000 and over 53,918 48,181 42,291 Other time deposits 12,045 12,360 11,890 ------------------------------------------------------------ Total time 107,941 99,639 104,217 ------------------------------------------------------------ Total $144,433 $131,929 $145,466 ------------------------------------------------------------ The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2004 and 2003 were $2.2 billion and $2.1 billion, respectively. Time deposit maturities are as follows: 2005 - $1.3 billion, 2006 - $422 million, 2007 - $808 million, 2008 - $232 million, 2009 - $330 million, and $577 million thereafter. During the first half of 2004, the Company raised $342 million in fixed rate, brokered certificates of deposits. These deposits generally replaced other time deposits as they matured. The weighted average interest rate paid on these certificates is 2.89%. Interest rate swaps have been designated as hedges of each of these certificates. The purpose of these swaps is to hedge against changes in fair value due to changes in interest rates by modifying the certificates from fixed rate to floating rates based on changes in LIBOR. We receive a weighted average fixed rate of 3.01% on these swaps and currently pay a floating rate of 2.40%. Interest expense on time deposits during 2004 and 2003 was reduced by the net accrued settlement from interest rate swaps of $7.9 million and $14.0 million, respectively. (10) OTHER BORROWINGS Information relating to other borrowings is summarized as follows (dollars in thousands): December 31 -------------------------------------------------------------------------------------------------------- 2004 2003 2002 -------------------------------------------------------------------------------------------------------- Maximum Maximum Maximum Outstanding Outstanding Outstanding At Any At Any At Any Balance Rate Month End Balance Rate Month End Balance Rate Month End -------------------------------------------------------------------------------------------------------- Parent Company: Revolving, unsecured line $ 95,000 2.91% $ 95,000 $ 95,000 1.75% $ 95,000 $ 85,000 2.17% $ 95,000 Subordinated debenture - - - - - - - - 30,000 Other - - - - - - - - 95 ------------- ------------- ------------- Total parent company 95,000 2.91 95,000 1.75 85,000 2.17 ------------- ------------- ------------- Subsidiary Banks: Funds purchased and repurchase agreements 1,555,507 2.18 1,900,810 1,609,668 1.37 1,904,269 1,567,686 1.67 1,895,315 Federal Home Loan Bank advances 894,354 2.31 899,350 899,426 1.21 974,729 973,454 1.48 1,036,387 Subordinated debenture 151,594 5.18 154,230 154,332 6.02 155,345 155,419 6.19 156,229 Other 25,646 0.98 28,748 22,224 1.58 29,116 29,568 1.49 29,853 ------------- ------------- ------------- Total subsidiary banks 2,627,101 2.39 2,685,650 1.58 2,726,127 1.86 ------------- ------------- ------------- Total other borrowings $2,722,101 2.41 $2,780,650 1.74 $2,811,127 1.93 ------------- ------------- -------------
Aggregate annual principal repayments of long-term debt at December 31, 2004 are as follows (in thousands): Parent Subsidiary Company Banks --------------------------- 2005 $ - $2,257,446 2006 95,000 205,124 2007 - 153,537 2008 - 1,934 2009 - 8,049 Thereafter - 1,011 --------------------------- Total $95,000 $2,627,101 --------------------------- 67 Funds purchased generally mature within one to ninety days from the transaction date. At December 31, 2004, securities sold under agreements to repurchase totaled $822 million with related accrued interest payable of $556 thousand. Additional information relating to repurchase agreements at December 31, 2004 is as follows (dollars in thousands): Amortized Market Repurchase Average Security Sold/Maturity Cost Value Liability (1) Rate ------------------------------------------------------------------------------------------------------------- U.S. Agency Securities: Overnight $ 424,984 $ 422,652 $ 437,457 2.19% Term of 30 to 90 days 517,925 512,494 384,628 2.33 ------------------------------------------------------------------------------------------------------------- Total Agency Securities $ 942,909 $ 935,146 $ 822,085 2.25% ------------------------------------------------------------------------------------------------------------- (1) BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over securities underlying longer-term dealer repurchase agreements to the respective counterparty.
Borrowings from the Federal Home Loan Bank are used for funding purposes. In accordance with policies of the Federal Home Loan Bank, BOK Financial has granted a blanket pledge of eligible assets (generally unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family loans and multifamily loans) as collateral for these advances. The unused credit available to BOK Financial at December 31, 2004 pursuant to the Federal Home Loan Bank's collateral policies is $434 million. BOK Financial has a revolving, unsecured credit agreement from certain banks at December 31, 2004 of $125 million. Interest is based upon either a base rate or LIBOR plus a defined margin that is determined by BOK Financial's credit rating. This margin ranges from 0.625% to 1.25%. The base rate is defined as the greater of the daily federal funds rate plus 0.5% or the prime rate. Interest is generally paid monthly. Facility fees are paid quarterly on the unused portion of the commitment at a rate of 0.20% to 0.25% as determined by BOK Financial's current debt rating. This credit agreement includes certain restrictive covenants that limit BOK Financial's ability to borrow additional funds and to pay cash dividends on common stock. These covenants also require BOK Financial and its subsidiaries to maintain minimum capital levels and to exceed minimum net worth ratios. BOK Financial met all of the restrictive covenants at December 31, 2004. In 1997, BOk issued a $150 million 7.125% fixed rate subordinated debenture that matures in 2007. Interest rate swaps were used as a fair value hedge to convert the fixed interest on the debenture to a LIBOR-based floating rate. This required BOk to adjust the carrying value of the subordinated debenture to fair value. In 2001, those interest rate swaps were terminated. The related market value adjustment of the subordinated debenture of $8 million is being recognized over the remaining life of the debt. Amortization of this adjustment reduces the cost of the debt by 102 basis points. During 2004, a $150 million notional amount interest rate swap was designated as a hedge of changes in fair value of the subordinated debt due to changes in interest rates. The Company receives a fixed rate of 3.165% and pays a variable rate based on 1-month LIBOR, or 2.40% at December 31, 2004. Semi-annual swap settlements coincide with interest payments on the subordinated debenture. The interest rate swap terminates on August 15, 2007, the maturity date of the subordinated debenture. 68 (11) FEDERAL AND STATE INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows (in thousands): December 31, ---------------------- 2004 2003 ---------------------- Deferred tax liabilities: Available for sale securities mark-to-market $ - $ 5,300 Pension contributions in excess of book expense 9,400 10,800 Valuation adjustments 29,300 26,300 Mortgage servicing rights 20,200 24,200 Lease financing 15,800 16,900 Other 4,500 3,600 ------------------------------------------------------------ Total deferred tax liabilities 79,200 87,100 ------------------------------------------------------------ Deferred tax assets: Available for sale securities mark-to-market 6,400 - Stock-based compensation 3,900 3,500 Credit loss reserves 48,500 48,900 Valuation adjustments 13,200 20,400 Deferred book income 22,400 19,700 Deferred compensation 8,300 4,300 Other 12,100 14,400 ------------------------------------------------------------ Total deferred tax assets 114,800 111,200 ------------------------------------------------------------ Deferred tax assets in excess of deferred tax liabilities $ 35,600 $ 24,100 ------------------------------------------------------------ The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands): Years ended December 31, ----------------------------------- 2004 2003 2002 ----------------------------------- Current: Federal $84,514 $77,015 $89,879 State 6,743 5,551 6,011 ----------------------------------------------------------- Total current 91,257 82,566 95,890 ----------------------------------------------------------- Deferred: Federal 161 5,369 (12,978) State 29 979 (2,077) ----------------------------------------------------------- Total deferred 190 6,348 (15,055) ----------------------------------------------------------- Total income tax $91,447 $88,914 $80,835 ----------------------------------------------------------- The reconciliations of income attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense are as follows (in thousands): Years ended December 31, ------------------------------- 2004 2003 2002 ------------------------------- Amount: Federal statutory tax $94,671 $86,538 $79,903 Tax exempt revenue (2,705) (2,815) (3,233) Effect of state income taxes, net of federal benefit 4,220 4,110 2,482 Intangible amortization 397 763 914 Charitable contribution (2,446) - - Utilization of tax credits (784) (794) (937) Reduction of tax accrual (3,000) - - Other, net 1,094 1,112 1,706 ------------------------------------------------------------ Total $91,447 $88,914 $80,835 ------------------------------------------------------------ Due to the favorable resolution of certain state tax issues for the tax period ended December 31, 2000, BOK Financial reduced its tax accrual by $3 million, which was credited against current federal income tax expense in 2004. Years ended December 31, ------------------------------- 2004 2003 2002 ------------------------------- Percent of pretax income: Federal statutory rate 35% 35% 35% Tax-exempt revenue (1) (1) (1) Effect of state income taxes, net of federal benefit 2 2 1 Intangible amortization - - - Charitable contribution (1) - - Utilization of tax credits - - - Reduction of tax accrual (1) - - Other, net - - - ------------------------------------------------------------- Total 34% 36% 35% ------------------------------------------------------------- 69 (12) EMPLOYEE BENEFITS BOK Financial sponsors a defined benefit Pension Plan for all employees who satisfy certain age and service requirements. The following table presents information regarding this plan (dollars in thousands): December 31, ----------------------- 2004 2003 ----------------------- Change in projected benefit obligation: Projected benefit obligation at beginning of year $ 37,773 $ 30,606 Service cost 6,096 5,178 Interest cost 2,314 2,015 Actuarial loss 2,262 2,161 Benefits paid (3,757) (2,187) ----------------------------------------------------------------------------- Projected benefit obligation at end of year (1),(2) $ 44,688 $ 37,773 ----------------------------------------------------------------------------- Change in plan assets: Plan assets at fair value at beginning of year $ 43,275 $ 30,945 Actual return on plan assets 4,002 7,286 Company contributions 8,726 7,231 Benefits paid (3,757) (2,187) ----------------------------------------------------------------------------- Plan assets at fair value at end of year $ 52,246 $ 43,275 ----------------------------------------------------------------------------- Reconciliation of prepaid (accrued) and total amount recognized: Benefit obligation $(44,688) $(37,773) Fair value of assets 52,246 43,275 ----------------------------------------------------------------------------- Funded status of the plan 7,558 5,502 Unrecognized net loss 14,226 13,387 Unrecognized prior service cost 443 503 ----------------------------------------------------------------------------- Prepaid pension costs $ 22,227 $ 19,392 ----------------------------------------------------------------------------- Components of net periodic benefit costs: Service cost $ 6,096 $ 5,178 Interest cost 2,314 2,015 Expected return on plan assets (3,639) (2,957) Amortization of unrecognized amounts: Net loss 1,060 818 Prior service cost 60 60 ----------------------------------------------------------------------------- Net periodic pension cost $ 5,891 $ 5,114 ----------------------------------------------------------------------------- (1) Projected benefit obligation equals accumulated benefit obligation. (2) Projected benefit obligation is based on a January 1 measurement date. Weighted-average assumptions as of December 31: Discount rate 5.75% 6.25% Expected return on plan assets 8.00% 7.50% Rate of compensation increase 5.25% 5.25% As of December 31, 2004, expected future benefit payments related to the Pension Plan were as follows (in thousands): 2005 $ 1,311 2006 1,208 2007 1,989 2008 2,250 2009 3,090 2010 through 2014 16,501 ------------- $ 26,349 ------------- 70 Assets of the Pension Plan consist primarily of shares in the American Performance Balanced Fund. The stated objective of this fund is to provide an attractive total return through a broadly diversified mix of equities and bonds. The typical portfolio mix is approximately 60% equities and 40% bonds. The life-to-date return on the fund, which is used as an indicator when setting the expected return on plan assets, was 8.62%. The maximum and minimum required Pension Plan contributions for 2004 were $2.2 million and $0, respectively. Amounts contributed to the Pension Plan during 2004 included $1.0 million attributable to the current year and $7.7 million attributable to 2003. Employee contributions to the Thrift Plans are matched by BOK Financial up to 5% of base compensation, based upon years of service. Participants may direct the investments of their accounts in a variety of options, including BOK Financial Common Stock. Employer contributions vest over five years. Expenses incurred by BOK Financial for the Thrift Plans totaled $3.9 million, $3.6 million and $3.1 million for 2004, 2003 and 2002, respectively. BOK Financial also sponsors a defined benefit post-retirement employee medical plan, which pays 50 percent of annual medical insurance premiums for retirees who meet certain age and service requirements. Assets of the retiree medical plan consist primarily of shares in a cash management fund. Eligibility for the post-retirement plan is limited to current retirees and certain employees who were age 60 or older at the time the plan was frozen in 1993. The net obligation recognized under the plan was $2.2 million at December 31, 2004. A 1% change in medical expense trends would not significantly affect the net obligation or cost of this plan. Under various performance incentive plans, participating employees may be granted awards based on defined formulas or other criteria. Earnings were charged $58.1 million in 2004, $52.0 million in 2003 and $32.1 million in 2002 for such awards. (13) STOCK COMPENSATION PLANS The shareholders and Board of Directors of BOK Financial have approved various stock-based compensation plans. The number of awards and the employees to receive awards are determined for the Chief Executive Officer and other senior executives by an independent compensation committee of the Board of Directors. Other stock-based compensation awards are approved by the independent compensation committee upon recommendation of the Chairman of the Board and the Chief Executive Officer. These awards consist primarily of stock options that are subject to vesting requirements. Generally, one-seventh of the options awarded vest annually and expire three years after vesting. Additionally, stock options that vest in two years and expire 45 days after vesting have been awarded. The following table presents options outstanding during 2002, 2003 and 2004 under these plans: Weighted- Average Exercise Number Price -------------------------- Options outstanding at December 31, 2001 3,591,373 $18.17 Options awarded 174,258 31.28 Options exercised (491,952) 13.31 Options forfeited (40,104) 19.89 Options expired (5) 5.96 ------------------------------------------------------------ Options outstanding at December 31, 2002 3,233,570 19.66 Options awarded 889,343 32.60 Options exercised (672,457) 16.74 Options forfeited (61,941) 23.07 Options expired (53) 18.73 ------------------------------------------------------------ Options outstanding at December 31, 2003 3,388,462 23.58 Options awarded 857,951 40.37 Options exercised (693,199) 19.65 Options forfeited (212,844) 27.15 Options expired (2,322) 14.94 ------------------------------------------------------------ Options outstanding at December 31, 2004 3,338,048 $28.53 ------------------------------------------------------------ Options vested at December 31, 2004 980,493 $20.40 ------------------------------------------------------------ The following table summarizes information concerning currently outstanding and vested stock options: Options Outstanding Options Vested ----------------------------------------------- ------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life (years) Price Vested Price $8.18 - $9.69 77,458 1.25 $ 9.30 77,458 $ 9.30 16.17 145,632 1.92 16.17 142,560 16.17 17.37 - 19.02 950,979 3.07 18.05 476,849 18.19 28.27 - 31.00 1,101,827 4.42 29.70 283,626 29.28 37.21 - 37.65 226,656 1.00 37.43 - - 37.74 611,338 6.00 37.74 - - 45.43 - 49.09 224,158 2.00 47.81 - - ------------------------------------------------ ------------------- Stock-based compensation expense included in reported pretax net income for the years ended December 31, 2004, 2003 and 2002 was $11.3 million, $5.7 million and $4.1 million, respectively. 71 Compensation expense for stock options is generally recognized based on the fair value of options granted over the options' vesting period. No compensation expense is recognized for options that are forfeited before vesting. The fair value of options was determined as of the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: 2004 2003 2002 ---------- --------- --------- Average risk-free interest rate 3.27% 2.57% 1.59% Dividend yield None None None Volatility factors .168 .178 .190 Weighted-average expected life 4.9 years 7 years 2 years Weighted-average fair value $8.53 $6.66 $4.18 BOK Financial also may issue nonvested common shares under the various stock-based compensation plans. These shares, which generally are issued only to the Chief Executive Officer and selected senior executives, vest five years after the grant date. The holders of these shares may be required to retain the shares for a three-year period after vesting. At December 31, 2004, a total of 44,738 nonvested common shares have been awarded, including 24,800 awarded in 2004. BOK Financial permits certain executive officers to defer recognition of taxable income from their stock-based compensation. These officers are also able to diversify their deferred compensation into investments other than BOK Financial common stock. This stock-based compensation is recognized as liability awards rather than equity awards. Compensation expense is based on the intrinsic value of the award over the vesting period. Additional compensation expense is recognized based on changes in the fair value of the deferred compensation liability after the vesting period. The total deferred compensation liability attributed to these arrangements was $16.5 million for 2004 and $6.8 million for 2003. During January 2005, BOK Financial awarded the following stock-based compensation: --------------------------------- Exercise Fair Value / Number Price Award --------------------------------- Equity awards: Stock options 493,235 $47.34 $10.94 Nonvested stock 5,036 - 47.34 ---------- Total Equity awards 498,271 Liability awards: Stock options 187,207 47.34 10.94 Nonvested stock 7,892 - 47.34 ---------- Total Liability awards 195,099 ---------- Total stock-based awards 693,370 ------------------------------------------------------------ 72 (14) RELATED PARTIES In compliance with applicable regulations, the Company may extend credit to certain executive officers, directors, principal shareholders and their affiliates (collectively referred to as "related parties") in the ordinary course of business under substantially the same terms as comparable third-party lending arrangements. The Company's loans to related parties do not involve more than the normal credit risk and there are no non-accrual or impaired related party loans outstanding at December 31, 2004 or 2003. Activity in loans to related parties is summarized as follows (in thousands): 2004 2003 ------------ ------------ Beginning balance $119,873 $83,189 Advances 434,242 122,685 Payments (442,834) (86,001) Adjustments (1) (6,436) - ------------------------------- ------------ ------------ Ending balance $104,845 $119,873 ------------------------------- ------------ ------------ (1) Adjustments generally consist of changes in status as a related party. BOK Investment Advisors, Inc. ("BOKIA"), a wholly-owned subsidiary of BOk, serves as investment advisor to American Performance Funds ("AP Funds"). AP Funds is a diversified, open-ended, investment company established in 1987 as a business trust under the Investment Act of 1940. BOk serves as custodian for AP Funds. Effective July 1, 2004, BOKIA began serving as the AP Funds administrator. BOK Financial offers the AP Funds products to customers and employees, in the ordinary course of business, through its brokerage and trading, employee benefit plan and trust services as well as to the general public. Certain related parties are customers of the Company for services other than loans, including consumer banking, corporate banking, risk management, wealth management, brokerage and trading, or fiduciary/trust services. The Company engages in transactions with related parties in the ordinary course of business in compliance with applicable regulation. There are no other material related party transactions that require disclosure. (15) COMMITMENTS AND 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. BOk is obligated under a long-term lease for its bank premises located in downtown Tulsa. The lease term, which began November 1, 1976, is for fifty-seven years with options to terminate in 2014 and 2024. Annual base rent is $3.3 million. BOk subleases portions of its space for annual rents of $370 thousand in 2005 and $213 thousand in years 2006 through 2009. Net rent expense on this lease was $2.9 million in years 2004, 2003 and 2002. Total rent expense for BOK Financial was $14.3 million in 2004, $13.0 million in 2003 and $12.4 million in 2002. At December 31, 2004, future minimum lease payments for equipment and premises under operating leases were as follows: $13.6 million in 2005, $13.0 million in 2006, $11.6 million in 2007, $10.7 million in 2008, $9.6 million in 2009, and a total of $36.3 million thereafter. BOk and Williams Companies, Inc. severally guaranteed 30 percent and 70 percent, respectively, of the $13 million debt and operating deficit of two parking facilities operated by the Tulsa Parking Authority. The debt had a maturity date of May 15, 2007. In 2003, BOk funded the remaining amount of this commitment and paid $2.9 million to retire the Company's obligation with respect to this debt. There were no expenditures related to this guarantee in 2004. Expenditures totaled $3.2 million in 2003 and $373 thousand in 2002. The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were approximately $334 million and $303 million at December 31, 2004 and 2003, respectively. BOSC, Inc., a wholly-owned subsidiary of BOK Financial, is an introducing broker to Pershing, LLC for retail equity investment transactions. As such, it has indemnified Pershing, LLC against losses due to a customer's failure to settle a transaction or to repay a margin loan. All unsettled transactions and margin loans are secured as required by applicable regulation. The amount of customer balances subject to indemnification totaled $2.9 million at December 31, 2004. BOK Private Equity, LLC, indirectly a wholly-owned subsidiary of BOK Financial, is the general partner in BOK Private Equity Fund, LP ("the Fund"). The Fund provides alternative investment opportunities to certain customers, some of which are related parties, through limited partnerships. The Fund generally invests in distressed assets, asset buy-out or venture capital limited partnerships or limited liability companies. The general partner has contingent obligations through the Fund to make additional investments totaling $13.9 million as of December 31, 2004. 73 (16) SHAREHOLDERS' EQUITY PREFERRED STOCK One billion shares of preferred stock with a par value of $0.00005 per share are authorized. A single series of 249,974,544 shares designated as Series A Preferred Stock ("Series A Preferred Stock") is currently issued and outstanding. The Series A Preferred Stock has no voting rights except as otherwise provided by Oklahoma corporate law and may be converted into one share of Common Stock for each 36 shares of Series A Preferred Stock at the option of the holder. Dividends are cumulative at an annual rate of ten percent of the $0.06 per share liquidation preference value when declared and are payable in cash. Aggregate liquidation preference is $15 million. In 2004 and 2003, cash dividends declared on preferred stock totaled $1.9 million and $750 thousand, respectively. During 2003 and 2002, 23,214 shares and 47,961 shares, respectively, of BOK Financial common stock were issued in payment of dividends on the Series A Preferred Stock in lieu of cash by mutual agreement of BOK Financial and the holders of the Series A Preferred Stock. These shares were valued at $750,000 in 2003 and $1.5 million in 2002, based on average market price, as defined, for a 65 business day period preceding declaration. George B. Kaiser owns substantially all Series A Preferred Stock. COMMON STOCK Common stock consists of 2.5 billion authorized shares with a $0.00006 par value. Holders of common shares are entitled to one vote per share at the election of the Board of Directors and on any question arising at any shareholders' meeting and to receive dividends when and as declared. No common stock dividends can be paid unless all accrued dividends on the Series A Preferred Stock have been paid. Additionally, regulations restrict the ability of national banks and bank holding companies to pay dividends, and BOK Financial's credit agreement restricts the payment of dividends by the holding company. During 2004, 2003 and 2002, 3% dividends payable in shares of BOK Financial common stock were declared and paid. The shares issued were valued at $66 million, $58 million and $52 million, respectively, based on the average closing bid/ask prices on the day preceding declaration. Per share data has been restated to reflect these stock dividends. On October 25, 2002, BOK Financial issued 1,711,127 shares of common stock and 292,225 options to purchase shares, with a fair value at the issuance date 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. The fair value of this price guarantee, estimated to be $3 million based upon the Black-Scholes Option pricing model, was included in the purchase price of Bank of Tanglewood (see Note 2). 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. The guaranteed price for each anniversary period is $37.67 for 2005, $40.10 for 2006 and $42.53 for 2007. The price guarantee is nontransferable and noncumulative. BOK Financial may elect, in its sole discretion, to issue additional shares of common stock to satisfy any obligation under the price guarantee or to pay cash. The maximum aggregate number of common shares that may be issued to satisfy any price guarantee obligations is 10 million. If, as of any benchmark date, BOK Financial has already issued 10 million shares, BOK Financial is not obligated to make any further benchmark payments. BOK Financial's ability to pay cash to satisfy any price guarantee obligations is limited by applicable bank holding company and bank capital and dividend regulations. SUBSIDIARY BANKS The amounts of dividends that BOK Financial's subsidiary banks can declare and the amounts of loans the subsidiary banks can extend to affiliates are limited by various federal banking regulations and state corporate law. Generally, dividends declared during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years. The amounts of dividends are further restricted by minimum capital requirements. Pursuant to the most restrictive of the regulations at December 31, 2004, BOK Financial's subsidiary banks could declare dividends up to $161 million without prior 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. As of December 31, 2004, the subsidiary banks could declare dividends of up to $98 million under this policy. During 2004, the subsidiary banks did not declare any dividends. The subsidiary banks declared and paid dividends of $66 million in 2003 and $40 million in 2002. 74 Loans to a single affiliate may not exceed 10% and loans to all affiliates may not exceed 20% of unimpaired capital and surplus, as defined. Additionally, loans to affiliates must be fully secured. As of December 31, 2004, these loans had no outstanding balance. As of December 31, 2003, these loans totaled $10 million. Total loan commitments to affiliates at December 31, 2004 were $108 million. REGULATORY CAPITAL BOK Financial and its banking subsidiaries are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by regulators that could have a material effect on BOK Financial's operations. These capital requirements include quantitative measures of assets, liabilities and certain off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. For a banking institution to qualify as well capitalized, its Tier I, Total and Leverage capital ratios must be at least 6%, 10% and 5%, respectively. Tier I capital consists primarily of common stockholders' equity, excluding unrealized gains or losses on available for sale securities, less goodwill, core deposit premiums and certain other intangible assets. As directed by the Federal Reserve Bank, Tier I capital excludes $23 million, the combined value of common shares issued subject to the market value protection program and the value of the market value guarantee. These values will be restored to Tier I capital as the market price guarantee expires. Total capital consists primarily of Tier I capital plus preferred stock, subordinated debt and reserves for credit losses, subject to certain limitations. All of BOK Financial's banking subsidiaries exceeded the regulatory definition of well capitalized. December 31, ------------------------------------------------------------ 2004 2003 ------------------------------ ----------------------------- Amount Ratio Amount Ratio ------------------------------ ----------------------------- (Dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $ 1,329,431 11.67% $ 1,157,782 11.31% BOk 1,016,351 11.13 900,888 11.06 Bank of Texas 235,921 11.41 201,984 11.13 Bank of Albuquerque 103,573 15.34 91,412 17.35 Bank of Arkansas 16,162 20.37 15,218 21.56 Colorado State Bank and Trust 36,015 14.50 26,222 10.19 Tier I Capital (to Risk Weighted Assets): Consolidated $ 1,140,654 10.02% $ 935,932 9.15% BOk 867,335 9.50 718,538 8.82 Bank of Texas 211,641 10.24 179,256 9.88 Bank of Albuquerque 95,443 14.14 84,811 16.10 Bank of Arkansas 15,164 19.11 14,328 20.30 Colorado State Bank and Trust 32,891 13.24 22,997 8.94 Tier I Capital (to Average Assets): Consolidated $ 1,140,654 7.94% $ 935,932 7.17% BOk 867,335 7.29 718,538 6.69 Bank of Texas 211,641 7.62 179,256 7.22 Bank of Albuquerque 95,443 6.69 84,811 6.37 Bank of Arkansas 15,164 8.97 14,328 7.82 Colorado State Bank and Trust 32,891 8.73 22,997 6.86
75 (17) EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (dollars in thousands except per share data): Years ended December 31, -------------------------------------------- 2004 2003 2002 -------------------------------------------- Numerator: Net income $ 179,023 $ 158,360 $ 147,871 Preferred stock dividends (1,875) (1,500) (1,500) --------------------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share - income available to common stockholders 177,148 156,860 146,371 --------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities: Preferred stock dividends 1,875 1,500 1,500 --------------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $ 179,023 $ 158,360 $ 147,871 --------------------------------------------------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share - weighted average shares 59,128,395 58,699,951 56,613,689 Effect of dilutive securities: Employee stock compensation plans (1) 669,857 776,891 773,628 Convertible preferred stock 6,921,083 6,921,164 6,921,164 Tanglewood market value guarantee (see Note 16) 13,161 111,115 45,077 --------------------------------------------------------------------------------------------------------------------- Dilutive potential common shares 7,604,101 7,809,170 7,739,869 --------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 66,732,496 66,509,121 64,353,558 --------------------------------------------------------------------------------------------------------------------- Basic earnings per share $3.00 $2.67 $2.59 --------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $2.68 $2.38 $2.30 --------------------------------------------------------------------------------------------------------------------- (1) Excludes employee stock options with exercise prices 31,970 26,943 86,215 greater than the current market price.
(18) REPORTABLE SEGMENTS 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 in Colorado are included in regional banks. Regional banking consists primarily of corporate and consumer banking activities in the respective local markets. These five principal lines of business combined account for approximately 94% of total revenue. 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. The Oklahoma Corporate Banking segment provides loan and lease financing and treasury and cash management services to businesses throughout Oklahoma and certain relationships in surrounding states. Oklahoma Corporate Banking also includes our TransFund unit, which provides ATM and merchant deposit services. The Oklahoma Consumer Banking segment 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 Online Banking. The Mortgage Banking segment consists of two operating sectors that originate a 76 full range of mortgage products from federally sponsored programs to "jumbo loans" on higher priced homes in BOK Financial's primary market areas. The Mortgage Banking segment also services mortgage loans acquired from throughout the United States. The Wealth Management segment provides a wide range of financial services, including trust and private financial services and brokerage and trading services. This segment includes the activities of BOSC, Inc., a registered broker/dealer. Trust and private financial services include 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 primarily provided to clients in Oklahoma, Texas, Arkansas and New Mexico. Regional banking includes Bank of Texas, Bank of Albuquerque, Bank of Arkansas, and Colorado State Bank and Trust. Each of these banks provides a full range of corporate and consumer banking services in their respective markets. Trust Services provided through Colorado State Bank and Trust are included in the Regional Banking segment. BOK Financial identifies reportable segments by type of service provided for the Mortgage Banking and the Wealth Management segments and by type of customer for the Oklahoma Corporate Banking and Oklahoma Consumer Banking segments. Regional Banking is identified by legal entity. Operating results are adjusted for intercompany loan participations and allocated service costs and management fees. 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 rates are generally based on the applicable LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of transfer pricing funds that support assets of the operating lines of business tends to insulate them from interest rate risk. The value of funds provided by the operating lines of business to the funds management unit is based on 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. The accounting policies of the reportable segments generally follow those described in the summary of significant accounting policies, except that interest income is reported on a fully tax-equivalent basis, loan losses are based on actual net amounts charged off and the amortization of intangible assets is generally excluded. Economic capital is assigned to the business units based on an allocation method that reflects management's assessment of risk. Management uses a third-party developed capital allocation model. 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 its own loss history where possible. Additional capital is assigned to the regional banking line of business based on BOK Financial's investment in those entities. Substantially all revenue is from domestic customers. No single external customer accounts for more than 10% of total revenue. 77 Oklahoma Oklahoma All Corporate Consumer Mortgage Wealth Regional Other/ (In Thousands) Banking Banking Banking Management Banking Eliminations Total ------------------------------------------------------------------------------------------------ Year ended December 31, 2004 Net interest revenue/(expense) from external sources $ 147,389 $ (19,067) $ 21,647 $ 4,001 $ 202,318 $ 66,955 $ 423,243 Net interest revenue/(expense) from internal sources (24,016) 64,897 (11,423) 8,888 (21,770) (16,576) - ---------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 123,373 45,830 10,224 12,889 180,548 50,379 423,243 Provision for credit losses 8,956 6,963 340 23 5,509 (1,352) 20,439 Other operating revenue 85,256 56,920 22,055 91,533 49,523 (3,200) 302,087 Capitalized mortgage servicing rights - - 11,365 - - - 11,365 Financial instruments gains/(losses) - - (5,068) - - 506 (4,562) Operating expense 97,759 76,042 35,415 84,062 132,711 16,802 442,791 Recovery for impairment of mortgage servicing rights - - (1,567) - - - (1,567) Income taxes 39,644 7,681 1,707 7,943 33,278 1,194 91,447 ---------------------------------------------------------------------------------------------------------------------------- Net income $ 62,270 $ 12,064 $ 2,681 $ 12,394 $ 58,573 $ 31,041 $ 179,023 ---------------------------------------------------------------------------------------------------------------------------- Average assets $4,670,041 $2,746,047 $ 559,034 $754,774 $ 5,831,267 $(534,276) $14,026,887 Average economic capital 312,530 64,390 27,270 84,820 280,710 527,837 1,297,557 Average invested capital - - - - 508,880 - - Performance measurements: Return on assets 1.33% 0.44% 0.48% 1.64% 1.00% - 1.28% Return on economic capital 19.92 18.74 9.83 14.61 20.87 - 13.80 Return on invested capital - - - - 11.51 - - Efficiency ratio 46.86 74.01 81.53 80.50 57.68 - 60.11
Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Net Average Revenue Revenue (1) Expense Income Assets --------------------------------------------------------------------- Total reportable segments $372,864 $ 316,652 $424,422 $147,982 $14,561,163 Unallocated items: Tax-equivalent adjustment 5,039 - - 5,039 - Funds management 56,563 (3,465) 12,161 19,092 1,588,393 All others (including eliminations), net (11,223) 265 4,641 6,910 (2,122,669) -------------------------------------------------------------------------------------------------- BOK Financial consolidated $423,243 $ 313,452 $441,224 $179,023 $14,026,887 --------------------------------------------------------------------------------------------------
(1) Excluding financial instrument gains/(losses) 78 Oklahoma Oklahoma All Corporate Consumer Mortgage Wealth Regional Other/ (In Thousands) Banking Banking Banking Management Banking Eliminations Total ------------------------------------------------------------------------------------------------ Year ended December 31, 2003 Net interest revenue/(expense) from external sources $ 139,159 $ (17,146) $ 27,770 $ 1,966 $ 170,611 $ 69,135 $ 391,495 Net interest revenue/(expense) from internal sources (24,133) 58,290 (9,415) 8,968 (16,593) (17,117) - ---------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 115,026 41,144 18,355 10,934 154,018 52,018 391,495 Provision for credit losses 10,318 6,888 917 390 6,429 10,694 35,636 Other operating revenue 76,212 47,544 36,379 91,587 35,996 (4,600) 283,118 Capitalized mortgage servicing rights - - 23,922 - - - 23,922 Financial instruments gains/(losses) - - 4,025 - 339 (6,551) (2,187) Operating expense 85,442 66,803 58,204 80,428 117,001 28,483 436,361 Recovery for impairment of mortgage servicing rights - - (22,923) - - - (22,923) Income taxes 37,143 5,835 18,082 8,442 24,413 (5,001) 88,914 ---------------------------------------------------------------------------------------------------------------------------- Net income $ 58,335 $ 9,162 $ 28,401 $ 13,261 $ 42,510 $ 6,691 $ 158,360 ---------------------------------------------------------------------------------------------------------------------------- Average assets $4,166,874 $2,524,743 $ 623,823 $731,070 $ 5,084,224 $(351,318) $12,779,416 Average economic capital 311,140 58,000 34,120 69,690 273,600 413,006 1,159,556 Average invested capital - - - - 459,780 - - Performance measurements: Return on assets 1.40% 0.36% 4.55% 1.81% 0.84% - 1.24% Return on economic capital 18.75 15.80 83.24 19.03 15.54 - 13.66 Return on invested capital - - - - 9.25 - - Efficiency ratio 44.68 75.32 74.00 78.45 62.35 - 62.47
Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Net Average Revenue Revenue (1) Expense Income Assets --------------------------------------------------------------------- Total reportable segments $339,477 $ 311,640 $384,955 $151,669 $13,130,734 Unallocated items: Tax-equivalent adjustment 5,170 - - 5,170 - Funds management 59,571 (6,520) 13,848 5,048 1,378,433 All others (including eliminations), net (12,723) 1,920 14,635 (3,527) (1,729,751) -------------------------------------------------------------------------------------------------- BOK Financial consolidated $391,495 $ 307,040 $413,438 $158,360 $12,779,416 --------------------------------------------------------------------------------------------------
(1) Excluding financial instrument gains/(losses) 79 Oklahoma Oklahoma All Corporate Consumer Mortgage Wealth Regional Other/ (In Thousands) Banking Banking Banking Management Banking Eliminations Total ------------------------------------------------------------------------------------------------ Year ended December 31, 2002 Net interest revenue/(expense) from external sources $ 149,385 $ (18,036) $ 32,199 $ 1,959 $ 144,008 $ 59,817 $ 369,332 Net interest revenue/(expense) from internal sources (40,632) 61,616 (13,713) 8,182 (17,493) 2,040 - ---------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 108,753 43,580 18,486 10,141 126,515 61,857 369,332 Provision for credit losses 6,475 7,831 252 363 6,015 12,794 33,730 Other operating revenue 69,166 39,032 38,364 70,001 27,274 (6,609) 237,228 Capitalized mortgage servicing rights - - 20,832 - - - 20,832 Financial instruments gains - - 25,826 - 4,205 34,567 64,598 Operating expense 77,931 64,315 54,783 67,911 92,503 26,188 383,631 Provision for impairment of mortgage servicing rights - - 45,923 - - - 45,923 Income taxes 36,376 4,071 992 4,673 21,722 13,001 80,835 ---------------------------------------------------------------------------------------------------------------------------- Net income $ 57,137 $ 6,395 $ 1,558 $ 7,195 $ 37,754 $ 37,832 $ 147,871 ---------------------------------------------------------------------------------------------------------------------------- Average assets $3,823,116 $2,349,611 $ 671,798 $556,109 $ 4,121,026 $(216,871) $11,304,789 Average economic capital 298,020 60,910 34,160 60,880 193,640 291,228 938,838 Average invested capital - - - - 379,820 - - Performance measurements: Return on assets 1.49% 0.27% 0.23% 1.29% 0.92% - 1.31% Return on economic capital 19.17 10.50 4.56 11.82 19.50 - 15.75 Return on invested capital - - - - 9.94 - - Efficiency ratio 43.80 77.85 70.52 84.74 60.95 - 61.15
Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Net Average Revenue Revenue(1) Expense Income Assets --------------------------------------------------------------------- Total reportable segments $307,475 $ 264,669 $403,366 $110,039 $11,521,660 Unallocated items: Tax-equivalent adjustment 6,119 - - 6,119 - Funds management 72,804 (7,245) 12,317 39,546 662,837 All others (including eliminations), net (17,066) 636 13,871 (7,833) (879,708) -------------------------------------------------------------------------------------------------- BOK Financial consolidated $369,332 $ 258,060 $429,554 $147,871 $11,304,789 --------------------------------------------------------------------------------------------------
(1) Excluding financial instrument gains/(losses) 80 (19) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying values and estimated fair values of financial instruments as of December 31, 2004 and 2003 (dollars in thousands): Range of Average Estimated Carrying Contractual Repricing Discount Fair Value Yields (in years) Rate Value --------------------------------------------------------------------- 2004: Cash and cash equivalents $ 531,091 $ 531,091 Securities 4,823,976 4,825,518 Loans: Commercial 4,575,836 2.71 - 15.00% 0.41 2.45 - 6.68% 4,778,495 Commercial real estate 1,621,110 3.50 - 15.00 1.08 5.65 - 7.60 1,606,153 Residential mortgage 1,198,918 2.82 - 7.96 4.17 5.36 - 6.44 1,154,226 Residential mortgage - held for sale 40,262 - - - 40,262 Consumer 492,841 2.65 - 21.00 2.29 4.83 - 8.75 471,863 --------------------------------------------------------------------------------------------------------------------- Total loans 7,928,967 8,050,999 Reserve for loan losses (108,618) - --------------------------------------------------------------------------------------------------------------------- Net loans 7,820,349 8,050,999 Derivative instruments with positive fair value 380,051 380,051 Deposits with no stated maturity 6,030,546 6,030,546 Time deposits 3,643,852 0.55 - 7.33 2.34 2.40 - 3.75 3,639,345 Other borrowings 2,570,507 2.26 - 5.51 0.05 1.43 - 4.38 2,571,259 Subordinated debt 151,594 5.25 2.60 5.14 153,565 Derivative instruments with negative fair value 387,292 387,292 --------------------------------------------------------------------------------------------------------------------- 2003: Cash and cash equivalents $ 643,912 $ 643,912 Securities 4,714,642 4,717,947 Loans: Commercial 4,336,702 2.75 - 18.94% 0.38 1.20 - 5.43% 4,528,247 Commercial real estate 1,630,092 2.45 - 11.50 1.26 4.45 - 6.35 1,637,499 Residential mortgage 1,015,643 2.75 - 7.96 2.55 3.83 - 6.28 1,020,330 Residential mortgage - held for sale 56,543 - - - 56,543 Consumer 444,909 1.11 - 18.69 2.63 3.43 - 7.50 442,485 --------------------------------------------------------------------------------------------------------------------- Total loans 7,483,889 7,685,104 Reserve for loan losses (114,784) - --------------------------------------------------------------------------------------------------------------------- Net loans 7,369,105 7,685,104 Derivative instruments with positive fair value 149,100 149,100 Deposits with no stated maturity 5,845,137 5,845,137 Time deposits 3,374,726 0.60 - 7.65 2.03 1.05 - 2.27 3,413,556 Other borrowings 2,626,318 1.05 - 7.74 0.05 1.00 - 3.29 2,626,136 Subordinated debt 154,332 6.22 3.60 5.01 170,612 Derivative instruments with negative fair value 149,326 149,326 ---------------------------------------------------------------------------------------------------------------------
81 The preceding table presents the estimated fair values of financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involved significant judgments by management. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and management does not intend to sell these financial instruments, BOK Financial does not know whether the fair values shown above represent values at which the respective financial instruments could be sold individually or in the aggregate. The following methods and assumptions were used in estimating the fair value of these financial instruments: CASH AND CASH EQUIVALENTS The book value reported in the consolidated balance sheet for cash and short-term instruments approximates those assets' fair values. SECURITIES The fair values of securities are based on quoted market prices or dealer quotes, when available. If quotes are not available, fair values are based on quoted prices of comparable instruments. DERIVATIVES All derivative instruments are carried on the balance sheet at fair value. Fair values for exchange-traded contracts are based on quoted prices. Fair values for over-the-counter interest rate, commodity and foreign exchange contracts are based on valuations provided either by third-party dealers in the contracts, quotes provided by independent pricing services, or a third-party provided pricing model. LOANS The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates currently being offered for loans with similar remaining terms to maturity and credit risk, adjusted for the impact of interest rate floors and ceilings. The fair values of classified loans were estimated to approximate their carrying values less loan loss reserves allocated to these loans of $28 million and $30 million at December 31, 2004 and 2003, respectively. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and hedging transactions. DEPOSITS The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions. Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," ("FAS 107") defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, to equal the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, FAS 107 prohibits adjusting fair value for the expected benefit of these deposits. Accordingly, the positive effect of such deposits is not included in this table. OTHER BORROWINGS AND SUBORDINATED DEBENTURE The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments. OFF-BALANCE SHEET INSTRUMENTS The fair values of commercial loan commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance sheet instruments were not significant at December 31, 2004 and 2003. 82 (20) PARENT COMPANY ONLY FINANCIAL STATEMENTS Summarized financial information for BOK Financial - Parent Company Only follows: BALANCE SHEETS (In Thousands) December 31, ---------------------------- 2004 2003 ---------------------------- Assets Cash and cash equivalents $ 13,230 $ 10,881 Securities - available for sale 11,170 16,657 Investment in subsidiaries 1,470,405 1,296,749 Other assets 2,184 1,750 ---------------------------------------------------------------------------- Total assets $1,496,989 $1,326,037 ---------------------------------------------------------------------------- Liabilities and Shareholders' Equity Other borrowings $ 95,000 $ 95,000 Other liabilities 3,495 2,407 ---------------------------------------------------------------------------- Total liabilities 98,495 97,407 ---------------------------------------------------------------------------- Preferred stock 12 12 Common stock 4 4 Capital surplus 631,747 546,594 Retained earnings 809,261 698,052 Treasury stock (30,905) (24,491) Accumulated other comprehensive income (loss) (11,625) 8,459 ---------------------------------------------------------------------------- Total shareholders' equity 1,398,494 1,228,630 ---------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,496,989 $1,326,037 ---------------------------------------------------------------------------- STATEMENTS OF EARNINGS (In Thousands) 2004 2003 2002 ------------------------------------------- Dividends, interest and fees received from subsidiaries $ 127 $ 66,165 $ 42,821 Other operating revenue 35 431 441 ------------------------------------------------------------------------------------------------ Total revenue 162 66,596 43,262 ------------------------------------------------------------------------------------------------ Interest expense 2,185 1,771 3,453 Professional fees and services 486 545 433 Contribution of stock to BOK Charitable Foundation 4,125 - - Other operating expense 2 (4) 205 ------------------------------------------------------------------------------------------------ Total expense 6,798 2,312 4,091 ------------------------------------------------------------------------------------------------ Income (loss) before taxes and equity in undistributed income of subsidiaries (6,636) 64,284 39,171 Federal and state income tax credit (3,953) (678) (1,879) ------------------------------------------------------------------------------------------------ Income (loss) before equity in undistributed income of subsidiaries (2,683) 64,962 41,050 Equity in undistributed income of subsidiaries 181,706 93,398 106,821 ------------------------------------------------------------------------------------------------ Net income $179,023 $158,360 $147,871 ------------------------------------------------------------------------------------------------
83 STATEMENTS OF CASH FLOWS (In Thousands) 2004 2003 2002 ---------------------------------------- Cash flows from operating activities: Net income $179,023 $158,360 $147,871 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (181,706) (93,398) (106,821) Tax benefit on exercise of stock options 4,609 1,325 5,482 Contribution of stock to BOK Charitable Foundation 4,125 - - Write down of equity securities 410 - - Change in other assets (5,138) (944) (104) Change in other liabilities 713 272 (930) ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 2,036 65,615 45,498 ------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchases of available for sale securities (53) (27) (568) Investment in subsidiaries (5,250) (85,015) (5,482) ------------------------------------------------------------------------------------------------ Net cash used by investing activities (5,303) (85,042) (6,050) ------------------------------------------------------------------------------------------------ Cash flows from financing activities: Increase in other borrowings - 105,000 - Pay down of other borrowings - (95,000) (40,095) Issuance of preferred, common and treasury stock, net 7,132 4,627 4,172 Cash dividends (1,540) (785) (30) Other 24 - - ------------------------------------------------------------------------------------------------ Net cash provided (used) by financing activities 5,616 13,842 (35,953) ------------------------------------------------------------------------------------------------ Net change in cash and cash equivalents 2,349 (5,585) 3,495 Cash and cash equivalents at beginning of period 10,881 16,466 12,971 ------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 13,230 $ 10,881 $ 16,466 ------------------------------------------------------------------------------------------------ Payment of dividends in common stock $ 65,899 $ 58,300 $ 53,165 ------------------------------------------------------------------------------------------------ Cash paid for interest 1,882 1,947 3,482 ------------------------------------------------------------------------------------------------ Common stock and price guarantee issued for acquisition - - 67,745 ------------------------------------------------------------------------------------------------
84 ANNUAL FINANCIAL SUMMARY - UNAUDITED CONSOLIDATED DAILY AVERAGE BALANCES, AVERAGE YIELDS AND RATES (Dollars in Thousands) 2004 ----------------------------------------------- Average Revenue/ Yield/ Balance Expense(1) Rate ----------------------------------------------- Assets Taxable securities (3) $ 4,656,108 $197,884 4.26% Tax-exempt securities (3) 207,376 11,672 5.64 ------------------------------------------------------------------------------------------------------------------------------ Total securities (3) 4,863,484 209,556 4.32 ------------------------------------------------------------------------------------------------------------------------------ Trading securities 16,025 629 3.93 Funds sold and resell agreements 19,944 353 1.77 Loans (2) 7,644,049 408,785 5.35 Less reserve for loan losses 116,076 - - ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 7,527,973 408,785 5.43 ------------------------------------------------------------------------------------------------------------------------------ Total earning assets (3) 12,427,426 619,323 4.99 ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 1,599,461 ------------------------------------------------------------------------------------------------------------------------------ Total assets $14,026,887 ------------------------------------------------------------------------------------------------------------------------------ Liabilities and Shareholders' Equity Transaction deposits $ 3,863,276 $ 35,517 0.92% Savings deposits 169,556 975 0.58 Time deposits 3,584,496 107,941 3.01 ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 7,617,328 144,433 1.90 ------------------------------------------------------------------------------------------------------------------------------ Funds purchased and repurchase agreements 1,611,771 21,140 1.31 Other borrowings 1,007,237 17,707 1.76 Subordinated debenture 152,983 7,761 5.07 ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 10,389,319 191,041 1.84 ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,805,558 Other liabilities 534,453 Shareholders' equity 1,297,557 ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $14,026,887 ------------------------------------------------------------------------------------------------------------------------------ Tax-equivalent Net Interest Revenue (3) $428,282 3.15% Tax-equivalent Net Interest Revenue to Earning Assets (3) 3.45 Less tax-equivalent adjustment (1) 5,039 ------------------------------------------------------------------------------------------------------------------------------ Net Interest Revenue 423,243 Provision for credit losses 20,439 Other operating revenue 308,890 Other operating expense 441,224 ------------------------------------------------------------------------------------------------------------------------------ Income before taxes 270,470 Federal and state income tax 91,447 ------------------------------------------------------------------------------------------------------------------------------ Net Income $179,023 ------------------------------------------------------------------------------------------------------------------------------ (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. See Note 1 of Notes to the Consolidated Financial Statements for a description of income recognition policy. (3) Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
85 2003 2002 ------------------------------------------------------------------------------------------------------ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate ----------------------------------------------- ------------------------------------------------ $ 4,316,303 $180,581 4.22% $ 3,756,666 $186,902 5.22% 191,982 12,527 6.59 208,503 14,789 7.09 ------------------------------------------------------------------------------------------------------ 4,508,285 193,108 4.32 3,965,169 201,691 5.32 ------------------------------------------------------------------------------------------------------ 16,975 694 4.09 14,215 750 5.28 26,330 281 1.07 16,024 291 1.82 7,101,543 376,260 5.30 6,401,510 378,300 5.91 110,791 - - 97,766 - - ------------------------------------------------------------------------------------------------------ 6,990,752 376,260 5.38 6,303,744 378,300 6.00 ------------------------------------------------------------------------------------------------------ 11,542,342 570,343 4.96 10,299,152 581,032 5.74 ------------------------------------------------------------------------------------------------------ 1,237,074 1,005,637 ------------------------------------------------------------------------------------------------------ $12,779,416 $11,304,789 ------------------------------------------------------------------------------------------------------ $ 3,605,539 $ 31,346 0.87% $ 2,798,639 $ 39,273 1.40% 172,938 944 0.55 165,988 1,976 1.19 3,439,361 99,639 2.90 3,057,645 104,217 3.41 ------------------------------------------------------------------------------------------------------ 7,217,838 131,929 1.83 6,022,272 145,466 2.42 ------------------------------------------------------------------------------------------------------ 1,537,100 15,590 1.01 1,549,021 25,218 1.63 1,051,685 16,682 1.59 1,058,717 24,146 2.28 154,940 9,477 6.12 181,911 10,751 5.91 ------------------------------------------------------------------------------------------------------ 9,961,563 173,678 1.74 8,811,921 205,581 2.33 ------------------------------------------------------------------------------------------------------ 1,309,744 1,185,891 348,553 368,139 1,159,556 938,838 ------------------------------------------------------------------------------------------------------ $12,779,416 $11,304,789 ------------------------------------------------------------------------------------------------------ $ 396,665 3.22% $375,451 3.41% 3.44 3.71 5,170 6,119 ------------------------------------------------------------------------------------------------------ 391,495 369,332 35,636 33,730 304,853 322,658 413,438 429,554 ------------------------------------------------------------------------------------------------------ 247,274 228,706 88,914 80,835 ------------------------------------------------------------------------------------------------------ $158,360 $147,871 ------------------------------------------------------------------------------------------------------
86 QUARTERLY FINANCIAL SUMMARY - UNAUDITED CONSOLIDATED DAILY AVERAGE BALANCES, AVERAGE YIELDS AND RATES (Dollars in Thousands Except Per Share Data) Three Months Ended ------------------------------------------------------------------------- December 31, 2004 September 30, 2004 ---------------------------------- ---------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate ---------------------------------- ---------------------------------- Assets Taxable securities (3) $ 4,709,193 $50,200 4.25% $ 4,652,435 $50,847 4.34% Tax-exempt securities (3) 219,873 2,951 5.37 215,190 2,951 5.46 -------------------------------------------------------------------------------------- ---------------------------------- Total securities (3) 4,929,066 53,151 4.30 4,867,625 53,798 4.39 -------------------------------------------------------------------------------------- ---------------------------------- Trading securities 10,208 107 4.17 14,956 77 2.05 Funds sold and resell agreements 31,994 170 2.11 23,334 91 1.55 Loans (2) 7,873,974 111,292 5.62 7,656,588 104,181 5.41 Less reserve for loan losses 114,106 - - 115,504 - - -------------------------------------------------------------------------------------- ---------------------------------- Loans, net of reserve 7,759,868 111,292 5.71 7,541,084 104,181 5.50 -------------------------------------------------------------------------------------- ---------------------------------- Total earning assets (3) 12,731,136 164,720 5.15 12,446,999 158,147 5.05 -------------------------------------------------------------------------------------- ---------------------------------- Cash and other assets 1,858,345 1,630,890 -------------------------------------------------------------------------------------- ---------------------------------- Total assets $14,589,481 $14,077,889 -------------------------------------------------------------------------------------- ---------------------------------- Liabilities and Shareholders' Equity Transaction deposits $ 3,841,742 $10,779 1.12% $ 3,931,166 $ 9,280 0.94% Savings deposits 160,404 231 0.57 169,398 266 0.62 Time deposits 3,662,455 29,586 3.21 3,712,161 27,667 2.97 -------------------------------------------------------------------------------------- ---------------------------------- Total interest-bearing deposits 7,664,601 40,596 2.11 7,812,725 37,213 1.89 -------------------------------------------------------------------------------------- ---------------------------------- Funds purchased and repurchase agreements 1,747,391 8,397 1.91 1,458,245 5,048 1.38 Other borrowings 1,005,679 5,703 2.26 1,003,050 4,615 1.83 Subordinated debenture 152,634 1,929 5.03 152,333 1,766 4.61 -------------------------------------------------------------------------------------- ---------------------------------- Total interest-bearing liabilities 10,570,305 56,625 2.13 10,426,353 48,642 1.86 -------------------------------------------------------------------------------------- ---------------------------------- Demand deposits 1,938,205 1,839,311 Other liabilities 712,981 516,715 Shareholders' equity 1,367,990 1,295,510 -------------------------------------------------------------------------------------- ---------------------------------- Total liabilities and shareholders' equity $14,589,481 $14,077,889 -------------------------------------------------------------------------------------- ---------------------------------- Tax-equivalent Net Interest Revenue (3) $108,095 3.02% $109,505 3.19% Tax-equivalent Net Interest Revenue to Earning Assets (3) 3.38 3.50 Less tax-equivalent adjustment (1) 1,633 1,120 -------------------------------------------------------------------------------------- ---------------------------------- Net Interest Revenue 106,462 108,385 Provision for credit losses 4,439 4,986 Other operating revenue 78,714 81,086 Other operating expense 111,582 114,202 -------------------------------------------------------------------------------------- ---------------------------------- Income before taxes 69,155 70,283 Federal and state income tax 22,599 22,501 -------------------------------------------------------------------------------------- ---------------------------------- Net Income $46,556 $47,782 -------------------------------------------------------------------------------------- ---------------------------------- Earnings Per Average Common Share Equivalent: Net income: Basic $0.78 $0.79 -------------------------------------------------------------------------------------- ---------------------------------- Diluted $0.70 $0.72 -------------------------------------------------------------------------------------- ---------------------------------- (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. See Note 1 of Notes to the Consolidated Financial Statements for a description of income recognition policy. (3) Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
87 Three Months Ended -------------------------------------------------------------------------------------------------------------- June 30, 2004 March 31, 2004 December 31, 2003 ---------------------------------- ----------------------------------- ----------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate ---------------------------------- ----------------------------------- ----------------------------------- $ 4,667,360 $49,321 4.24% $4,594,690 $47,516 4.22% $ 4,421,278 $45,838 4.08% 200,380 2,884 5.79 193,808 2,886 5.99 189,829 2,958 6.19 ---------------------------------- ----------------------------------- ----------------------------------- 4,867,740 52,205 4.30 4,788,498 50,402 4.29 4,611,107 48,796 4.17 ---------------------------------- ----------------------------------- ----------------------------------- 23,513 219 3.75 15,499 226 5.86 17,325 147 3.37 16,284 53 1.31 7,995 39 1.96 26,730 65 0.96 7,548,257 96,445 5.14 7,494,713 96,867 5.20 7,359,126 96,059 5.18 117,109 - - 117,644 - - 115,590 - - ---------------------------------- ----------------------------------- ----------------------------------- 7,431,148 96,445 5.22 7,377,069 96,867 5.28 7,243,536 96,059 5.26 ---------------------------------- ----------------------------------- ----------------------------------- 12,338,685 148,922 4.85 12,189,061 147,534 4.89 11,898,698 145,067 4.82 ---------------------------------- ----------------------------------- ----------------------------------- 1,529,841 1,357,791 1,342,042 ---------------------------------- ----------------------------------- ----------------------------------- $13,868,526 $13,546,852 $13,240,740 ---------------------------------- ----------------------------------- ----------------------------------- $ 3,859,706 $ 7,875 0.82% $3,819,981 $ 7,583 0.80% $ 3,886,546 $ 7,377 0.75% 173,566 235 0.54 174,958 243 0.56 179,867 255 0.56 3,565,324 25,697 2.90 3,395,785 24,991 2.96 3,442,358 25,094 2.89 ---------------------------------- ----------------------------------- ----------------------------------- 7,598,596 33,807 1.79 7,390,724 32,817 1.79 7,508,771 32,726 1.73 ---------------------------------- ----------------------------------- ----------------------------------- 1,565,922 3,731 0.96 1,675,722 3,964 0.95 1,679,540 3,921 0.93 1,009,871 3,376 1.34 1,010,414 4,013 1.60 1,031,414 3,815 1.47 152,799 1,730 4.55 154,175 2,336 6.09 154,524 2,216 5.69 ---------------------------------- ----------------------------------- ----------------------------------- 10,327,188 42,644 1.66 10,231,035 43,130 1.70 10,374,249 42,678 1.63 ---------------------------------- ----------------------------------- ----------------------------------- 1,799,249 1,643,638 1,370,088 466,981 421,311 298,287 1,275,108 1,250,868 1,198,116 ---------------------------------- ----------------------------------- ----------------------------------- $13,868,526 $13,546,852 $13,240,740 ---------------------------------- ----------------------------------- ----------------------------------- $106,278 3.19% $104,404 3.19% $102,389 3.19% 3.46 3.46 3.40 1,089 1,197 1,184 ---------------------------------- ----------------------------------- ----------------------------------- 105,189 103,207 101,205 3,987 7,027 8,001 69,270 79,820 71,520 98,992 116,448 109,215 ---------------------------------- ----------------------------------- ----------------------------------- 71,480 59,552 55,509 25,947 20,400 20,207 ---------------------------------- ----------------------------------- ----------------------------------- $45,533 $39,152 $35,302 ---------------------------------- ----------------------------------- ----------------------------------- $0.76 $0.66 $0.59 ---------------------------------- ----------------------------------- ----------------------------------- $0.68 ` $0.59 $0.53 ---------------------------------- ----------------------------------- -----------------------------------
EX-13 13 annualreportbackpages.txt EXHIBIT 13 2004 ANNUAL REPORT- BACK PAGES BOK FINANCIAL CORPORATION BOARD OF DIRECTORS Gregory S. Allen (2) President & CEO Advance Food Co., Inc. Picture of Gregory S. Allen shown here. C. Fred Ball, Jr. (3) Chairman & CEO Bank of Texas, N.A. Picture of C. Fred Ball, Jr. shown here. Sharon J. Bell (1) Managing Partner Rogers & Bell Picture of Sharon J. Bell shown here. Chester Cadieux, III (2) President & CEO QuikTrip Corporation Picture of Chester Cadieux, III shown here. Joseph E. Cappy (1) Retired Chairman & CEO Dollar Thrifty Automotive Group Picture of Joseph E. Cappy shown here. Luke R. Corbett Chairman & CEO Kerr-McGee Corporation Picture of Luke R. Corbett shown here. William E. Durrett Senior Chairman American Fidelity Corp. Picture of William E. Durrett shown here. Robert G. Greer (3) Vice Chairman Bank of Texas, N.A. Picture of Robert G. Greer shown here. David F. Griffin (1) President & General Manager Griffin Communications, L.L.C. Picture of David F. Griffin shown here. V. Burns Hargis (1) Vice Chairman BOK Financial Corporation and Bank of Oklahoma, N.A. Picture of V. Burns Hargis shown here. E. Carey Joullian, IV (1) President & CEO Mustang Fuel Corporation Picture of E. Carey Joullian, IV shown here. George B. Kaiser (1) Chairman BOK Financial Corporation and Bank of Oklahoma, N.A. Picture of George B. Kaiser shown here. Judith Z. Kishner (1) Manager Zarrow Family Office, L.L.C. Picture of Judith Z. Kishner shown here. David L. Kyle (1) Chairman, President & CEO ONEOK, Inc. Picture of David L. Kyle shown here. Robert J. LaFortune Personal Investments Picture of Robert J. LaFortune shown here. Stanley A. Lybarger (1),(3) President & CEO BOK Financial Corporation and Bank of Oklahoma, N.A. Picture of Stanley A. Lybarger shown here. Steven J. Malcolm (1) Chairman, President & CEO The Williams Companies, Inc. Picture of Steven J. Malcolm shown here. Paula Marshall-Chapman (1) CEO Bama Companies Picture of Paula Marshall-Chapman shown here. Steven E. Moore Chairman, President & CEO OGE Energy Corp. Picture of Steven E. Moore shown here. James A. Robinson Personal Investments Picture of James A. Robinson shown here. L. Francis Rooney, III (1) Chairman and CEO Rooney Holdings, Inc. Picture of L. Francis Rooney, III shown here. (1) Director of BOK Financial Corporation and Bank of Oklahoma, N.A. (2) Director of Bank of Oklahoma, N.A. (3) Director of BOK Financial Corporation and Bank of Texas, N.A. BANK OF ALBUQUERQUE, N.A. BOARD OF DIRECTORS Adelmo Archuleta Owner, Professional Engineer Molzen-Corbin & Associates Suzanne Barker-Kalangis, Esq. Partner, Modrall, Sperling, Roehl, Harris and Sisk P.A. Steven G. Bradshaw Sr. Executive Vice President BOK Financial Corporation Charles E. Cotter Executive Vice President Bank of Oklahoma, N.A. Rudy A. Davalos Athletic Director University of New Mexico William E. Garcia Retired Sr. Manager, Public Affairs Intel Corporation Robert M. Goodman Vice Chairman Bank of Albuquerque, N.A. Thomas D. Growney President Tom Growney Equipment, Inc. W. Jeffrey Pickryl Sr. Executive Vice President BOK Financial Corporation Mark E. Sauters Senior Vice President Bank of Albuquerque, N.A. Michael D. Sivage Chief Executive Officer STH Investments, Inc. Paul A. Sowards President Bank of Albuquerque, N.A. David L. Sutter Senior Vice President Bank of Oklahoma, N.A. Jennifer S. Thomas Executive Vice President Bank of Albuquerque, N.A. James F. Ulrich Chairman & CEO Bank of Albuquerque, N.A. BANK OF ARKANSAS, N.A. BOARD OF DIRECTORS John W. Anderson Senior Vice President Bank of Oklahoma, N.A. Jett C. Cato Executive Vice President Bank of Arkansas, N.A. Jeff D. Cude Senior Vice President Bank of Arkansas, N.A. Jeffrey R. Dunn Chairman, President & CEO Bank of Arkansas, N.A. Mark W. Funke President Bank of Oklahoma, N.A. Oklahoma City Ronald E. Leffler Senior Vice President Bank of Oklahoma, N.A. BANK OF TEXAS, N.A. BOARD OF DIRECTORS C. Thomas Abbott Vice Chairman Bank of Texas, N.A. - Dallas C. Fred Ball, Jr. (2) Chairman & CEO Bank of Texas, N.A. - Dallas C. Huston Bell Retired President The Vantage Companies Edward O. Boshell, Jr. Columbia General Investments, LP Steven G. Bradshaw Sr. Executive Vice President BOK Financial Corporation R. Neal Bright Managing Partner Bright & Bright, LLP H. Lynn Craft President & CEO Baptist Foundation of Texas Charles W. Eisemann Investments James J. Ellis Managing Partner Ellis/Roiser Associates Robert G. Greer Vice Chairman Bank of Texas, N.A. - Houston R. William Gribble, Jr. President Gribble Oil Company J. T. Hairston, Jr. Investments Douglas D. Hawthorne President & CEO Texas Health Resources Bill D. Henry Chairman & CEO McQuery Henry Bowles Troy, LLP Richard W. Jochetz President Bank of Texas, N.A. - Houston Stanley A. Lybarger (2) President & CEO BOK Financial Corporation Steven E. Nell (1) Chief Financial Officer BOK Financial Corporation Albert W. Niemi, Jr. Dean, Cox School of Business Southern Methodist University W. Jeffrey Pickryl Sr. Executive Vice President BOK Financial Corporation Jeff Springmeyer President Geophysical Pursuit, Inc. Thomas S. Swiley President & CEO Bank of Texas, N.A. - Dallas Mrs. Jere W. Thompson Community Leader Tom E. Turner Retired Chairman Bank of Texas, N.A. - Dallas John C. Vogt Investments Randall Walker Chairman Bank of Texas, N.A. - Houston (1) Park Cities Bancshares, Inc. only (2) Park Cities Bancshares, Inc. / Bank of Texas, N.A. COLORADO STATE BANK AND TRUST, N.A. BOARD OF DIRECTORS (CSBT) Aaron K. Azari Executive Vice President CSBT Steven G. Bradshaw Sr. Executive Vice President BOK Financial Corporation Thomas M. Foncannon Senior Vice President CSBT H. James Holloman Executive Vice President Bank of Oklahoma, N.A. W. Jeffrey Pickryl Sr. Executive Vice President BOK Financial Corporation Gregory K. Symons Chairman & CEO CSBT John G. Wilkinson Chairman Emeritus CSBT SHAREHOLDER INFORMATION Corporate Headquarters: Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 (918) 588-6000 Independent Auditors: Ernst & Young LLP 1700 One Williams Center Tulsa, Oklahoma 74172 (918) 560-3600 Legal Counsel: Frederic Dorwart Lawyers Old City Hall 124 E. Fourth St. Tulsa, Oklahoma 74103-5010 (918) 583-9922 Common Shares: Traded NASDAQ National Market NASDAQ Symbol: BOKF Number of common shareholders of record at December 31, 2004: 1,253 Market Makers: Advest, Inc. Archipelago Exchange Boston Stock Exchange Brokerage America, Inc. Citigroup Global Markets, Inc. Credit Suisse First Boston Friedman, Billings Pamsey & Co., Inc. Goldman Sachs & Company GVR Company L.L.C. Hibernia Southcoast Capital Howe Barnes Investments, Inc. Jefferies & Company, Inc. Keefe, Bruyette & Woods, Inc. Knight Securities, L.P. Lehman Bros. Inc. Merrill Lynch, Pierce, Fenner & Smith, Inc. Morgan Stanley & Company, Inc. National Stock Exchange Piper Jaffray Companies, Inc. Sandler O'Neill & Partners Stephens, Inc. SunTrust Robinson Humphrey Capital Markets Susquehanna Capital Group UBS Capital Markets L.P. Transfer Agent and Registrar SunTrust Bank o (800) 568-3476 Address Shareholder Inquiries Send certificates for transfer and address changes to: BY MAIL: SunTrust Bank P.O. Box 4625 Atlanta, GA 30303 BY HAND OR OVERNIGHT COURIER: SunTrust Bank Stock Transfer Department 58 Edgewood Avenue, Room 225 Atlanta, GA 30303 Copies of BOK Financial Corporation's Annual Report to Shareholders, Quarterly Reports and Form 10-K to the Securities and Exchange Commission are available without charge upon written request. Analysts, shareholders and other investors seeking financial information about BOK Financial Corporation are invited to contact Steven E. Nell, Executive Vice President, Chief Financial Officer, (918) 588-6752. Information about BOK Financial is also readily available at our website: www.bokf.com EX-21 14 exhibit21subsidiaries.txt EXHIBIT 21 SUBSIDIARIES OF BOK FINANCIAL BOK FINANCIAL CORPORATION EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT BANKING SUBSIDIARIES Bank of Albuquerque, National Association (1) Bank of Arkansas, National Association (1) Bank of Oklahoma, National Association (1) Bank of Texas, National Association (1) Colorado State Bank and Trust, National Association (1) OTHER SUBSIDIARIES OF BOK FINANCIAL CORPORATION BOK Capital Services Corporation BOK Plaza Holding Corporation BOSC, Inc. Park Cities Bancshares, Inc. (2) Park Cities Corporation (5) BOKF Equity, LLC BOKF Private Equity, LP Colorado Funding Company SUBSIDIARIES OF BANK OF OKLAHOMA, N.A. Affiliated BancServices, Inc. Affiliated Financial Holding Company Affiliated Financial Insurance Agency, Inc. BancOklahoma Agri-Service Corporation BancOklahoma Mortgage Corporation BOK Delaware, Inc. (3) BOK Equipment Finance, Inc. BOK Funding Trust (3) BOSC Agency, Inc. (Oklahoma) BOSC Agency, Inc. (New Mexico) (4) BOSC Agency, Inc. (Texas) (2) CVV Management, Inc. CVV Partnership, an Oklahoma General Partnership Cottonwood Valley Ventures, Inc. BOk Investment Advisers, Inc. Pacesetter Leasing Company Southwest Trust Company All Subsidiaries listed above were incorporated in Oklahoma, except as noted. (1) Chartered by the United States Government (2) Incorporated in Texas (3) Incorporated in Delaware (4) Incorporated in New Mexico (5) Incorporated in Nevada EX-23 15 exhibit23auditorsconsent.txt EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP Exhibit 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Annual Report (Form 10-K) of BOK Financial Corporation of our reports dated March 11, 2005, with respect to the consolidated financial statements of BOK Financial Corporation , BOK Financial Corporation management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of BOK Financial Corporation, included in the 2004 annual report to shareholders. We also consent to the incorporation by reference in the following registration statements of our reports dated March 11, 2005, with respect to the consolidated financial statements of BOK Financial Corporation, BOK Financial Corporation management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of BOK Financial Corporation, incorporated by reference into this Annual Report(Form 10-K) for the year December 31, 2004: o Registration Statement (Form S-8, No. 33-44121) pertaining to the Reoffer Prospectus of the Bank of Oklahoma Master Thrift Plan and Trust Agreement. o Registration Statement (Form S-8, No. 33-79834) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1994 Stock Option Plan. o Registration Statement (Form S-8, No. 33-79836) pertaining to the Reoffer Prospectus of the BOK Financial Corporation Directors' Stock Compensation Plan. o Registration Statement (Form S-8, No. 333-32649) pertaining to the Reoffer Prospectus of BOK Financial Corporation 1997 Stock Option Plan. o Registration Statement (Form S-8, No. 333-93957) pertaining to the Reoffer Prospectus of BOK Financial Corporation 2000 Stock Option Plan. o Registration Statement (Form S-8, No. 333-40280) pertaining to the Reoffer Prospectus of BOK Financial Corporation Thrift Plan for Hourly Employees. o Registration Statement (Form S-8, No. 333-62578) pertaining to the Reoffer Prospectus of BOK Financial Corporation 2001 Stock Option Plan. o Registration Statement (Form S-8, No. 333-106530) pertaining to the Reoffer Prospectus of BOK Financial Corporation's 2003 Executive Incentive Plan o Registration Statement (Form S-8, No, 333-106531) pertaining to the Reoffer Prospectus of BOK Financial Corporation 2003 Stock Option Plan. /s/ Ernst & Young LLP Tulsa, Oklahoma March 11, 2005 EX-31 16 exhibit31ceocertification.txt EXHIBIT 31.1 CEO SECTION 302 CERTIFICATION Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 FOR THE CHIEF EXECUTIVE OFFICER I, Stanley A. Lybarger, President and Chief Executive Officer of BOK Financial Corporation ("BOK Financial"), certify that: 1. I have reviewed this Annual Report on Form 10-K of BOK Financial; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 16, 2005 /s/ Stanley A. Lybarger _______________________________ Stanley A. Lybarger President Chief Executive Officer BOK Financial Corporation EX-31 17 exhibit31cfocertification.txt EXHIBIT 31.2 CFO SECTION 302 CERTIFICATION Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 FOR THE CHIEF FINANCIAL OFFICER I, Steven E. Nell, Executive Vice President and Chief Financial Officer of BOK Financial Corporation ("BOK Financial"), certify that: 1. I have reviewed this Annual Report on Form 10-K of BOK Financial; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 16, 2005 /s/ Steven E. Nell _______________________________ Steven E. Nell Executive Vice President Chief Financial Officer BOK Financial Corporation EX-32 18 exhibit32section906certif.txt EXHIBIT 32 SECTION CERTIFICATIONS Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of BOK Financial Corporation ("BOK Financial") on Form 10-K for the fiscal year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Stanley A. Lybarger and Steven E. Nell, Chief Executive Officer and Chief Financial Officer, respectively, of BOK Financial, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of BOK Financial. March 16, 2005 /s/ Stanley A. Lybarger _______________________________ Stanley A. Lybarger President Chief Executive Officer BOK Financial Corporation /s/ Steven E. Nell _______________________________ Steven E. Nell Executive Vice President Chief Financial Officer BOK Financial Corporation -----END PRIVACY-ENHANCED MESSAGE-----