Business Context and Reporting Period
Company: BOK Financial Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: BOK Financial is a financial holding company providing full-service banking, wealth management, and brokerage services. It operates primarily in Oklahoma (its largest market), Texas, New Mexico, Colorado, Arizona, Arkansas, and Kansas/Missouri. The company operates three principal lines of business: Commercial Banking, Consumer Banking, and Wealth Management.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Income (Attributable to BOK) | $200.6 million | $153.2 million |
| Earnings Per Share (Diluted) | $2.96 | $2.27 |
| Total Assets | $23.52 billion | $22.73 billion |
| Total Loans | $11.28 billion | $12.88 billion |
| Total Deposits | $15.52 billion | $14.98 billion |
| Net Interest Revenue | $710.4 million | $646.9 million |
| Net Interest Margin | 3.57% | 3.45% |
| Fees and Commissions Revenue | $480.5 million | $415.2 million |
| Provision for Credit Losses | $195.9 million | $202.6 million |
| Net Charge-offs | $137.8 million | $101.7 million |
| Nonperforming Assets | $484.3 million | $342.3 million |
| Shareholders' Equity | $2.21 billion | $1.85 billion |
| Tier 1 Capital Ratio | 10.86% | 9.40% |
| Total Capital Ratio | 14.43% | 12.81% |
Material Changes vs. Prior Period
- Profitability: Net income increased 31% to $200.6 million, driven by a 10% increase in net interest revenue and a 16% increase in fee income, despite higher credit costs.
- Asset Quality: Nonperforming assets rose 41% to $484.3 million, primarily due to a $100 million increase in repossessed assets and a $39 million increase in nonaccruing loans. Net charge-offs increased 35% to $137.8 million.
- Loan Portfolio: Total loans decreased 12% to $11.28 billion due to reduced customer demand and management decisions to mitigate credit risk, particularly in commercial real estate and energy sectors.
- Securities Portfolio: Available-for-sale securities increased by $2.5 billion to $8.9 billion, largely due to purchases of U.S. government agency mortgage-backed securities to supplement earnings during low loan demand.
- Impairment Charges: The company recognized $34.4 million in other-than-temporary impairment (OTTI) charges on privately-issued mortgage-backed securities and preferred stocks.
Guidance, Outlook, and Risks
Management Commentary: Management noted that while the economy showed signs of stabilization, the recession continued to dampen business activity. The company elected not to participate in the TARP Capital Purchase Program, citing sufficient capital sources for organic growth and acquisitions. The company is actively looking for FDIC-assisted acquisition opportunities in existing markets.
Key Risks and Contingencies:
- Regional Economic Exposure: Significant concentration in Oklahoma and the Southwest region exposes the company to local economic downturns, particularly in the energy and commercial real estate sectors.
- Asset Quality: Continued deterioration in commercial real estate and energy loans could lead to higher charge-offs. Nonperforming loans in Arizona and Colorado markets remain elevated.
- Interest Rate Risk: The company maintains a strategy to be relatively neutral to interest rate changes but faces risks from prepayment speeds on mortgage-backed securities and mortgage servicing rights.
- Regulatory Changes: New regulations regarding overdraft fees are expected to significantly reduce fee revenue in the second half of 2010.
- Concentration of Ownership: Mr. George B. Kaiser owns a majority of the common stock, giving him effective control over the company's direction.
Investor Verification Checklist
- Asset Quality Trends: Verify the trajectory of nonperforming assets and net charge-offs, specifically in the Arizona and Colorado commercial real estate portfolios.
- Fee Revenue Sustainability: Assess the impact of upcoming regulatory changes on overdraft fee revenue, a significant component of non-interest income.
- Securities Portfolio Valuation: Review the assumptions used for valuing privately-issued mortgage-backed securities and the potential for further OTTI charges.
- Capital Adequacy: Confirm that Tier 1 and Total capital ratios remain well above regulatory "well-capitalized" thresholds despite potential future losses.
- Acquisition Strategy: Monitor progress on FDIC-assisted acquisitions and their impact on future earnings and asset quality.