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Andrew Lewis

BOKF AT A GLANCE

P/E ► 18.6 AVG EV/EBITDA ► 16.2 AVG ROA ► 1.4% AVG ROE ► 7.7% AVG Debt to Equity ► 9.93 AVG Interest Coverage Ratio ► 2.58 HIGH

 

 

 

 

 

 

Based in Tulsa, Oklahoma,^[1] BOK Financial (NASDAQ: BOKF) is a regionally-focused bank holding company.^[2] Its cash deposit market share of 11.51% in Oklahoma is greater than any other bank's deposit market share in the state.^[3] BOK Financial has over $33 billion in assets under management and generates revenue from both loan interest and (unlike many regional banks) fees and commissions. In fact, 42% of its $1.6 B total revenue in 2007 came from fees and commissions.^[1] BOK's strategy for growth includes building on its already strong presence in Oklahoma and expanding into surrounding high-growth metropolitan areas -- over half of BOK's loans already come from markets outside of Oklahoma.^[1] BOK Financial's largest clients are members of the energy industry and represent 29% of their commercial loan portfolio.^[1]

The company has distinguished itself throughout the 2008 economic crisis by its lack of direct exposure to Fannie Mae, Freddie Mac, and the sort of mortgage-related securities that caused the crisis.^[4] The company was exposed to the now bankrupt SemGroup LP and Lehman Brothers and suffered a net loss of $1.2 million in 2Q2008 as a result of their loan and derivative credit exposure with these companies.^[5]. In fact, BOKF later revalued their SemGroup assets more favorably.^[6] BOKF was also able to decline TARP funds from the United States government in November 2008 because of its relatively well-capitalized position.^[7]

Business Overview

BOK Financial is a holding company that operates many banks throughout Oklahoma and nearby nearby states. Its primary strategic objective is to build on its leadership position in Oklahoma while expanding into nearby high-growth areas. The company currently offers services in Oklahoma (as "Bank of Oklahoma"), Dallas, Texas (as "Bank of Texas"), Forth Worth, Texas (as "Bank of Texas"), Houston, Texas (as "Bank of Texas"), Albuquerque, New Mexico (as "Bank of Albuquerque"), Northwest Arkansas (as "Bank of Arkansas"), Denver, Colorado (as "Colorado State Bank and Trust"), Phoenix, Arizona (as "Bank of Arizona"), and Kansas City, Missouri / Kansas (as "Bank of Kansas City").^[8]

Business and Financial Metrics

BOK's $6.7 billion commercial loan portfolio - comprising over half of its total loan portfolio value - is anchored in the energy sector.^[2]

Interest-based income makes up the majority of BOK's income, with $509.8 million in net interest income on $1.16 billion total interest revenue in 2007.^[11] Fees and commissions accounted for $405.6 million in 2007, or 42% of BOKF's net income, with most of that revenue coming from deposit service charges and fees ($109.3 million), transaction card revenue ($90.4 million), and trust fees and commissions ($78.2 million).^[11] The purchase and sale of various securities and derivatives does not consistently make money for BOKF, and lost BOK $7.0 million in 2007.^[11]

In 2007, BOK Financial saw a $206.7 million (or 15.2% increase) in total revenue.^[11] A 17.6% increase in total interest revenue was the driving force behind this increase; loans continue to be BOK's main source of income.^[11] BOK's total loan portfolio value is $12 billion before deducting a loss allowance and over half of this value comes from the commercial loan portfolio.^[12] Since the energy sector makes up 29% of the commercial loan portfolio, much of BOK's revenue is attributable to the region's energy industry .^[2]

Fees and commissions revenue growth lagged behind interest revenue, growing only 9% in 2007.^[11] Bank-owned life insurance was 2007's fastest-growing commission, shooting from $2.5 million in 2006 revenue to $10.1 million in 2007.^[11]

All revenues were partially offset by a $16.3 million addition to BOK's provision for credit losses, hiking 2007 operating expenses by 12% from 2006.^[8] As a result, net income only grew $4.7 million, or 2.2%, in 2007.^[11]

Business Segments

BOK Financial consists of 5 primary divisions and a Funds Management Unit that works with all of them.

• Regional Banking (42% of net income): BOK's Regional Banking arm is mainly involved in corporate and commercial banking services through Bank of Texas, Bank of Albuquerque, Bank of Arkansas, Colorado State Bank and Trust (which also generates revenue through fiduciary services), Bank of Arizona, and Bank of Kansas City. The Regional Banking arm primarily targets small business and middle-market corporate customers and its expansion into Texas and Colorado drove growth in 2007.^[2] Consistently BOK's largest source of income, the Regional Banking division contributed $92.5 million (or 42%) to BOK Financial's net income for the year.^[2]

• Oklahoma Corporate Banking (36% of net income): This division targets small businesses, middle market, and larger corporate customers, providing loans and leases in addition to treasury and cash management services to clients in Oklahoma and some nearby areas. The Oklahoma Corporate Banking Division has special teams to serve customers in energy, agriculture, healthcare, and financial service industries and is in charge of BOK's "TransFund" service.^[12] In 2007, it contributed $78.3 million (or 36%) to BOK Financial's net income for the year.^[2]

• Oklahoma Consumer Banking (17% of net income): Provides deposit, loan, and fee-based services to average consumers in Oklahoma using traditional branches, supermarket branches, a 24-hour "ExpressBank" call center, and a website. It offers its services through 36 locations in Tulsa, 32 in Oklahoma City, and 15 in the rest of the state.^[12] In 2007, it contributed $37.2 million (or 17%) to BOK Financial's net income for the year.^[2]

• Wealth Management (13% of net income): Provides a range of financial services (including loans and services targeted at high net worth individuals, businesses, not-for-profit organizations, and government agencies) and trust services. Subsidiaries BOSC, Inc. (a broker and dealer) and Cavanal Hill Investment Management, Inc. (an investment advisor) are both a part of BOK's Wealth Management Division. Additionally, administrative and advisory services provided to the American Performance family of mutual funds are a part of Wealth Management's trust services. Brokerage and trading activities in this division include retail and institutional sales of various securities, bond underwriting, financial advisory services, and customer risk management programs.^[12] In 2007, the Wealth Management Division contributed $29.0 million (or 13%) to BOK Financial's net income for the year.^[2]

• Mortgage Banking (-0.14% of net income): Originates, markets, and services both conventional and government-sponsored mortgage loans. Activities in this division are generally divided into two sectors: loan production and loan servicing. The loan production sector does best when mortgage rates are relatively low and prepayments are high. The loan servicing sector thrives when mortgage rates are high and prepayments are low.^[12] The Mortgage Banking Division also has a $468 million portfolio of residential mortgage loans.^[12] In 2007, this division incurred a net loss of $325,000 after generating $2 million in net income throughout 2006.^[2]

• Funds Management: BOK has a Funds Management unit to oversee all operations and manage total liquidity and risk. All other BOK divisions can borrow or provide funds from the Funds Management unit based on their needs.^[13]

BOK Financial earns most of its income from its Regional Banking Division.^[2]

Trends & Forces

BOKF is heavily connected to the region's energy industry

In 2008 Q3, BOK's total energy loans total $2.1 billion, or 17% of its total loan portfolio,^[15] with $1.8 billion of those loans attributable to oil and gas producers.^[16] BOK's dependence on energy loans to drive earnings makes its performance closely connected with that of the energy industry. Wildly volatile oil prices ^[17] make the entire sector unpredictable and the future of alternative energies - what will eventually replace oil and fossil fuels - is still a big question mark.

BOKF not exposed to risky subprime assets but hurt by economic downturn

BOKF's investment portfolio has never contained any sub-prime mortgages, collateralized loan obligations, collateralized debt obligations, or corporate debt.^[4] Additionally, it has never had any direct exposure to Freddie Mac or Fannie Mae.^[4] Nevertheless, as all sorts of business across the country struggle to survive the credit crunch, a higher percentage of loans in general are losing value; BOK saw its net charge-offs to average loans hit 1.26% in the second quarter of 2008^[18] after maintaining a low rate of 0.19% throughout 2007.^[2] Additionally, exposure to the now-bankrupt SemGroup LP and Lehman Brothers has cost BOKF a total of $80.3 million in write-downs.

BOKF is not participating in the Treasury's Capital Purchase Program

BOKF reported that it would not request TARP funds from the United States Treasury, citing capital levels that are "well above government requirements;"^[7] in the third quarter of 2008, average shareholder equity equaled 12.55% of total capital.^[19] It believes that it has sufficient resources without participating in the program to continue lending and pursue acquisition opportunities.^[20] If capital becomes less accessible, declining the Treasury's offer means a missed opportunity for BOK . The decision to keep operating as usual, however, promotes client confidence in BOK Financial and stimulates business activity as consumers scrutinize banks for reliability.

Competition

BOK Financial competes for client deposits and loan sales with other nearby regional banks as well as larger banks that operate in its markets.

Other Regional Banks

Major regional bank competitors are:

• Marshall & Ilsley (MI): Regional bank focused in Wisconsin; competes with BOKF's Bank of Kansas City and Bank of Arizona in the Kansas City and Arizona markets.^[21]

• Cullen/Frost Bankers (CFR): Financial holding company and regional bank based in Texas. CFR banks directly compete with BOKF's Bank of Texas to lend money and win deposits.^[22]

• Commerce Bancshares (CBSH) : Banking and financial services company that competes with BOKF in Tulsa, Oklahoma, the Kansas City area, and Denver, Colorado.^[23]

Larger Banks

BOK Financial also has to compete with nationally-scaled banks like Bank of America and Citigroup.

References

1. ↑ ^{1.0 1.1 1.2 1.3} BOK Financial Corporate Profile
2. ↑ ^{2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11} BOKF 2007 10-K  
3. ↑ bokf.com: Deposit Market Share for Selected Markets
4. ↑ ^{4.0 4.1 4.2} 11-14-2008 BOK Financial Release: Financial Position Summary
5. ↑ BOKF 2008 Q3 10-Q pg. 2  
6. ↑ Forbes.com: Inside the SemGroup Bust
7. ↑ ^{7.0 7.1} Yahoo: BOK Financial Corp. Chooses Not to Participate in Treasury's Capital Purchase Program
8. ↑ ^{8.0 8.1 8.2} BOKF 2007 10-K pg. 12  
9. ↑ BOKF 2007 10-K pg. 41  
10. ↑ BOKF 2007 10-K pg. 16  
11. ↑ ^{11.0 11.1 11.2 11.3 11.4 11.5 11.6 11.7} BOKF 2007 10-K pg. 55  
12. ↑ ^{12.0 12.1 12.2 12.3 12.4 12.5} BOKF 2008 Q3 10-Q  
13. ↑ BOKF 2008 Q3 10-Q pg. 9  
14. ↑ BOKF 2007 10-K pg. 24  
15. ↑ BOKF 2008 Q3 10-Q pg. 20  
16. ↑ BOKF 2008 Q3 10-Q pg. 21  
17. ↑ price&st=cse "Oil Closes Below $50, Lowest Price Since May 2005," New York Times
18. ↑ BOKF 2008 Q3 10-Q pg. 25  
19. ↑ BOKF 2008 Q3 10-Q pg. 31  
20. ↑ BOKF 12/8/2008 8-K  
21. ↑ Yahoo! Finance Profile: Marshall & Ilsley
22. ↑ Yahoo! Finance Profile: Cullen Frost Bankers
23. ↑ Yahoo! Finance Profile: Commerce Bancshares, Inc.
24. ↑ BOKF 2007 10-K pg. 13  
25. ↑ ^{25.0 25.1} BOKF 2007 10-K pg. 99  
26. ↑ MI 2007 10-K pg. 35  
27. ↑ MI 2007 10-K pg. 31  
28. ↑ MI 2007 10-K pg. 109  
29. ↑ MI 2007 10-K pg. 119  
30. ↑ CFR 2007 10-K pg. 56  
31. ↑ CFR 2007 10-K pg. 33  
32. ↑ CFR 2007 10-K pg. 109  
33. ↑ CFR 2007 10-K pg. 111  
34. ↑ ^{34.0 34.1 34.2 34.3} CFR 2007 10-K