BOK back in acquisition mode
BY LAURIE WINSLOW & JOHN STANCAVAGE World Staff Writers
Sunday, August 19, 2012
8/19/12 at 3:38 AM
Related story: BOK acquires Milestone firm.
BOK Financial Corp.'s acquisition activity has been on hold in recent years, but could that be changing?
The Tulsa-based regional financial services company went from recording a string of multimillion-dollar acquisitions outside of Oklahoma from 1997 through 2007 to taking a five-year hiatus as the recession began.
On Friday, Oklahoma's largest bank broke its nonacquisition streak with the purchase of The Milestone Group, a Denver-based independent wealth management firm that manages nearly $1.3 billion in assets.
The purchase adds to BOK's already expansive network, which encompasses bank operations in eight states.
Bank executives have said that BOK has capital to spend and is seeking opportunities, including healthy financial institutions that can add value and enhance the bank company's operations.
The Tulsa World used BOK's latest acquisition as an opportunity to question three of the bank company's executives about the bank's status and growth prospects.
On E3, Stan Lybarger, the company's president and CEO, Steve Bradshaw and Dan Ellinor, senior executive vice presidents, share their perspectives.
BOK leaders discuss expansion, regulation and the recession
On the eve of BOK Financial Corp.'s acquisition of The Milestone Group, executives of the Tulsa-based holding company agreed to answer questions about the deal, the institution's performance during the recession and its growth plans.
The Tulsa World submitted questions to Stan Lybarger, president and CEO; Steve Bradshaw, senior executive vice president; and Dan Ellinor, senior executive vice president.
The following are some of the questions and the leaders' answers. The entire exchange is available online.
The last time BOK announced any sort of acquisition was in 2007 with an acquisition in the greater Denver area. Why has BOK waited so long to make another acquisition?
Bradshaw: Our last two acquisitions, in Fort Worth and Denver, were in 2007. A delay wasn't planned as we are always looking for banks and other financial firms we think would add to our organizational talent, capabilities and competitive position at a price that makes economic sense.
I would say our approach is to focus first on growing organically in our existing markets. In fact, when you examine the $26 billion in total assets, only $4 billion is attributed to acquisitions while $22 billion was grown from within the company.
How many people does BOK currently employ in Tulsa and companywide? What are the prospects for adding jobs here in the future? Are you running out of space in your buildings in Tulsa?
Lybarger: Total headcount corporate-wide is nearly 4,800, compared to approximately 4,200 at the end of 2007, just prior to the recession. Approximately 2,200 employees are located in the Tulsa area. We expect the Tulsa work force to continue to grow as the company increases in size. As we have had additional space needs in Tulsa, we have been able to acquire leased space in the market, most notably at Copper Oaks at 71st Street and Yale Avenue for the mortgage company and in the One Technology Center for other business units.
What plans, if any, does BOK have to expand into additional states? What states might be considered?
Ellinor: We're located in some of the strongest states (from an economic perspective) in the country. Our strategy is to grow market share in our current locations where we already invested heavily in building a local reputation.
That said, we do look for growth opportunities outside our current locations - either by acquisition or by remote marketing in new territories through our current BOK Financial team. A great example is TransFund, which is now in more than 18 states but managed from Tulsa. Our energy practice is another example. We're now considered one of the top energy lenders in Ohio and have growing a presence in the California basin. We will continue to look for opportunities, like the one announced (Milestone), to supplement our already strong presence, but our focus remains on growing market share in our current footprint where we see the most potential.
After the nationwide housing bust and economic downturn, some of your markets were hit harder than others, including Arizona. How did that affect the bank company?
Ellinor: Our Phoenix and, to a lesser degree, Denver markets were hurt by the decline in commercial real estate values during the downturn, which is a core business in both markets rather than mortgage. Both have recovered nicely at this point, and we are growing the commercial real estate portfolios and general commercial and industrial portfolios in each of these markets.
The economic recovery in Phoenix is slower than our other markets, but we are seeing positive signs and generating good growth in all of our businesses. Our diverse geography and business lines really helped us absorb the poor results in Phoenix during the downturn. We like the fundamentals of the Phoenix market and have expanded our team and capabilities pretty aggressively during the downturn so we can grow quickly alongside an economic recovery.
BOK did not take federal Trouble Asset Relief Program money in 2008. Was that a difficult decision? Over time, has it proved to be the right one?
Lybarger: The decision to decline TARP money was easy. We felt BOK was much better positioned for the recession than the industry as a whole. We could not envision a plausible scenario that would require BOK to pursue external capital. It was clear there would be strings attached to a government bailout and negative publicity and added cost for participants. There is no question that declining TARP was a good decision.
Does the bank company have any plans to sell off any of its assets?
Bradshaw: We do not. We've built the bank with a long-term strategic view and have avoided both markets and lines of business that wouldn't bring lasting value to the company.
What's the most difficult situation your company has faced in the last decade?
Lybarger: Dealing with the effect of the recession has been a challenge, but dealing with the flood of new regulations and proliferation of regulatory oversight has become a greater challenge. We are working very hard to ensure the burden of new regulations does not impact our ability to effectively serve our customers.
What is BOK Financial's overall growth strategy?
Lybarger: At its core, BOK Financial is an organic growth company. Most of the company has been built one customer at a time. We have traditionally made acquisitions to gain access to new markets or achieve sufficient scale in various markets to compete effectively. We are always looking for opportunities to recruit top talent to help us continue to build the business and acquisitions that are consistent with our objectives. We have been particularly proactive in pursuing talent the past few years when many banks were struggling and downsizing.
At what point, if any, does growth become problematic?
Lybarger: Imprudent and uncontrolled growth is always problematic but becomes most apparent in tough economic times. We have tried to maintain a healthy balance between being aggressive and prudent while growing the company from $1.8 billion to $25.6 billion in assets over the past 21 years. The recession was a good litmus test for the quality of growth at BOK and other financial institutions. With industry leading performance the past five years, BOK succeeded during a period when success was anything but automatic.
Regulations and reform have made a significant impact on the financial industry. What are the positive and negative impacts to the industry and to BOK Financial? What are your observations and predictions on impending regulations and oversight?
Lybarger: The government bailout of a large number of financial institutions sparked a regulatory feeding frenzy, which is continuing. Certainly some of the increased regulation was needed to end imprudent risk taking and abuses, but Congress and the regulatory agencies have gone far beyond what was prudent and necessary to address the obvious problems and issues. The regulatory burden is adding more risk and cost to delivering financial services. Ultimately these costs will be borne by financial institution customers, both individuals and businesses.
Does BOK have any more acquisitions on the near horizon, particularly of banks? What criteria does BOK look at in a potential buyout target? How much capital does BOK have available to spend on acquisitions? Has BOK ever made an acquisition that it regretted?
Bradshaw: We have no pending transactions beyond the Milestone Group merger in Denver, but we're always prospecting bank and non-bank financial entities for possible partnership. Our acquisition philosophy is to use them to help us enter a market, enter a new line of business or enhance our competitive position in an existing market. We have substantial capital we could use to finance future acquisitions if the right opportunity at the right time presents itself. There are no regrets or hindsight, but there are lessons learned. While returns have varied during the past 21 years, all of our acquisitions have contributed to the earnings and talent responsible for BOK Financial's success.
Is it harder to run a bank when interest rates are so low? How long do you think rates will stay where they are?
Bradshaw: The current rate environment is challenging for us and many of our customers. Unfortunately, it's still the primary indicator of how cautious our national economy remains. Signs of modest improvement are out there, but it will take many months of sustained economic growth before interest rates are likely to push higher.
People are doing more electronic banking these days. Do you see a point where having a large system of brick-and-mortar branches would be unnecessary?
Bradshaw: Our view is that branches remain essential for many personal and business customers. A conveniently located branch is still a critical factor when one chooses a bank. We do see an increasing number of customers taking advantage of mobile banking and other 24/7 access points to their financial information. From here, the numbers will only continue to grow. We've geared our product delivery strategy toward greater use of technology as we continue to meet customer needs.
Implementing new technology to better serve our clients means our approach to client service is shifting, too. We've introduced Business Experts into our branch system to provide greater access to products and services for small business owners. Our Business Experts are focused on providing cash management, credit, retirement and other solutions for small business owners and their employees. Our branches continue to represent the most-convenient way for a customer or potential customer to seek our advice on personal banking, mortgage, investments and business banking.
What do you do to create a strong corporate culture? How do you maintain that culture with so many physically separate work locations?
Bradshaw: Our culture is centered on putting the most talented and well-prepared people in front of our customers in every business segment, supported by equally knowledgeable people behind the scenes. This commitment requires a constant focus on the talent of our staff and how they deliver our products and services. That emphasis sets the tone for our entire company in every market we serve. The goal becomes challenging when separated by distance and lines of business.
We work together to establish a clear line of sight between corporate strategy and the role each individual plays. As we've grown our footprint, we have increased our efforts to help each employee understand the journey the company is on, the core areas of focus and how they contribute to the overall success.
Ideally, how much would BOK like to grow its assets and earnings on an annual basis?
Ellinor: Our goal for growing all our businesses, including earnings, is to outpace the market and specifically a group of peer banks we measure ourselves against — some larger and some smaller.
In recent years, our two main objectives are to grow the loan portfolio and our non-interest revenue. This focus is directed more towards earnings mix, rather than size of the bank. If we do a good job in these two categories, size follows, but it is not the main driver behind our long-term strategy. We like our niche in the regional markets — big enough to matter and small enough to be nimble, which allows us to exclusively focus on our customer base.
BOK is an unusual size for a bank today — much larger than a community bank but smaller than a megabank. How have you been so successful in this niche? How big would you like to grow?
Ellinor: It's really the perfect combination for us. We're large enough to provide world class products and services to our clients on a national basis but fortunate to belong to the communities we serve. We have built the bank one client at a time through local leaders with strong ties to his or her community. We are and want to be a real difference maker. So in the long run, our focus isn't on size but on quality of service for clients. Our employees thrive in this space, and our clients enjoy the national capabilities offered in a local setting.
What type of loans are you focusing on right now? What loan categories do you try to avoid?
Ellinor: The vast majority of our loan portfolio is tied to commercial enterprises ranging from small business to large corporate and everything in between. In addition to the general industries represented in each of our markets, we have several specialty groups that focus exclusively on energy, commercial real estate and health care. Our portfolio is highly diversified and balanced.
Our strategy is to support local businesses in each of our markets without burdening the portfolio with concentrations that could be harmful to us in a down cycle. So our approach is to stay diversified and not necessarily limit the types of businesses we pursue.
Our general business approach yields loan growth in almost every key industry sector. Given our expertise in the specialty groups, they have provided good growth for us and they remain a focus — especially energy and health care.
In addition, we are very focused on small business and have invested heavily in our business banking channel in each of our states. We think this channel will drive real loan growth for us once we have some help from the economy. We started to see solid loan growth return in 2011 and we generated more than $600 million in net loan growth over 2010. Year to date through the second quarter, we had additional loan growth of $300 million.
Did the housing bust change your mortgage requirements or guidelines?
Ellinor: There have been plenty of changes in the mortgage industry as a result of regulatory changes — and we have certainly had to align our business to these changes.
However, we were in a unique position of strength having not participated in the sub-prime lending practice. So we were able to take an already strong operation and make it even better during the down cycle. As a result, we chose to aggressively expand our mortgage banking by adding talent and entering new markets. The results are record-setting in every aspect.
Original Print Headline: High finance
Timeline: BOK Financial's expansion outside of Oklahoma
1991: Former BancOklahoma Corp. Director George B. Kaiser purchases the FDIC's interest in BOK, and the parent company of Bank of Oklahoma is now called BOK Financial Corp.
1992: BOK Financial enters the Dallas market by opening a trust office. Two years later it purchases another trust office in Sherman, Texas.
1994: Bank of Oklahoma acquires a bank holding company with operations in Northwest Arkansas, which later becomes Bank of Arkansas.
1997: BOK Financial establishes its first commercial banking presence in the Dallas market with its acquisition of Park Cities Bancshares for $50.9 million. It later acquires the holding company of First Texas Bank for $39.3 million.
1998: BOK Financial completes $38 million acquisition of 17 Bank of America branches in New Mexico, which are renamed Bank of Albuquerque, N.A.
1999: The Tulsa company acquires a mortgage office in Lenexa, Kan., and later purchases an office in Lee's Summit, Mo. BOK also completes three separate acquisitions in Texas worth millions.
2001: BOK enters the Denver market with the opening of a loan production office, which focuses on energy loans. Also acquires another Texas bank-holding company.
2002: BOK completes acquisition of Bank of Tanglewood in Texas for $65 million.
2003: The company acquires its first full-service banking and trust presence in Colorado with the acquisition of Colorado Funding Co., and its subsidiary Colorado State Bank and Trust, for $81.7 million.
2004: BOK opens a loan production office in Phoenix to serve the commercial real estate market there.
2005: BOK Financial completes acquisition of Phoenix-based Valley Commerce Bancorp Ltd. and its Valley Commerce Bank subsidiary for $32 million. The bank is later named Bank of Arizona.
2006: BOK Financial enters the Kansas City market with Bank of Kansas City. It also launches a loan production office in Tucson, Ariz.
2007: BOK Financial Corp. expands in the greater Denver area with the $43 million acquisition of United Banks of Colorado Inc., the parent company of Colorado-based First United Bank. BOK also opens a loan production office in Salt Lake City, Utah, and acquires Worth Bancorporation in Texas for $127.1 million.
2010: BOK's broker-dealer BOSC adds an office in Milwaukee.
2012: BOK Financial Mortgage opened offices in Austin and San Antonio, Texas. It acquires The Milestone Group, a Denver-based independent wealth-management firm.
BOK Financial Corp. executives Steve Bradshaw (left), Stan Lybarger and Dan Ellinor stand inside the BOK Tower in downtown Tulsa. MICHAEL WYKE/Tulsa World
A branch of BOK Financial’s Bank of Albuquerque. Courtesy
A branch of BOK Financial’s Bank of Kansas City. Courtesy
A branch of BOK Financial’s Bank of Oklahoma. Courtesy
A branch of BOK Financial’s Bank of Arizona. Courtesy