10-Q


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One) 
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
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
of Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
 
Bank of Oklahoma Tower
 
 
Boston Avenue at Second Street
 
 
Tulsa, Oklahoma
 
74192
(Address of Principal Executive Offices)
 
(Zip Code)
 
(918) 588-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ý  No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  ý  No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  ý                               Accelerated filer  ¨                                   Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  ¨  No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 67,713,031 shares of common stock ($.00006 par value) as of September 30, 2015.
 




BOK Financial Corporation
Form 10-Q
Quarter Ended September 30, 2015

Index

Part I.  Financial Information
 
Management’s Discussion and Analysis (Item 2)        
Market Risk (Item 3)                                                                                              
Controls and Procedures (Item 4)
Consolidated Financial Statements – Unaudited (Item 1)
Six Month Financial Summary – Unaudited (Item 2)
Quarterly Financial Summary – Unaudited (Item 2)
Quarterly Earnings Trend – Unaudited
 
 
Part II.  Other Information
 
Item 1.  Legal Proceedings
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.  Exhibits
Signatures



Management’s Discussion and Analysis of Financial Condition and Results of Operations
Performance Summary

BOK Financial Corporation (“the Company”) reported net income of $74.9 million or $1.09 per diluted share for the third quarter of 2015, compared to $75.6 million or $1.09 per diluted share for the third quarter of 2014 and $79.2 million or $1.15 per diluted share for the second quarter of 2015. 

Highlights of the third quarter of 2015 included:
•
Net interest revenue totaled $178.6 million for the third quarter of 2015, compared to $166.8 million for the third quarter of 2014 and $175.7 million for the second quarter of 2015. Net interest revenue increased over the prior year primarily due to growth in average earning assets. Net interest margin was 2.61% for the third quarter of 2015. Net interest margin was 2.67% for the third quarter of 2014 and 2.61% for the second quarter of 2015. The decrease compared to the prior year was primarily due lower loan portfolio yield.
•
Fees and commissions revenue totaled $164.7 million for the third quarter of 2015, a $6.1 million or 4% increase over the third quarter of 2014. Mortgage banking revenue increased $6.4 million based on higher loan production volume. Fees and commissions revenue decreased $7.9 million compared to the second quarter of 2015. Brokerage and trading revenue decreased $4.4 million and mortgage banking revenue decreased $3.7 million.
•
Changes in the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income in the third quarter of 2015 by $4.4 million, increased pre-tax net income in the third quarter of 2014 by $4.8 million and decreased pre-tax net income by $1.1 million in the second quarter of 2015. Net changes in the fair value of mortgage servicing rights for the third quarter of 2015 were largely driven by decreases in both the period end mortgage interest rates and escrow earnings rate.
•
Operating expenses totaled $224.6 million for the third quarter of 2015, an increase of $2.8 million over the third quarter of 2014. Personnel expense increased $6.0 million and non-personnel expense decreased $3.2 million. Operating expenses decreased $2.5 million compared to the previous quarter.
•
The Company recorded a $7.5 million provision for credit losses in the third quarter of 2015. The additional provision was primarily due to credit migration and loan portfolio growth during the third quarter. The Company recorded a $4.0 million provision in the second quarter of 2015. No provision for credit losses was recorded in the third quarter of 2014. Gross charge-offs were $5.3 million in the third quarter of 2015, $2.6 million in the third quarter of 2014 and $2.9 million in the second quarter of 2015. Recoveries were $3.5 million in the third quarter of 2015, compared to $3.1 million in the third quarter of 2014 and $2.2 million in the second quarter of 2015.
•
The combined allowance for credit losses totaled $208 million or 1.35% of outstanding loans at September 30, 2015, compared to $202 million or 1.34% of outstanding loans at June 30, 2015. The portion of the combined allowance attributed to the energy portfolio totaled 2.05 percent of outstanding energy loans at September 30, an increase from 1.74 percent of outstanding energy loans at June 30.
•
Nonperforming assets that are not guaranteed by U.S. government agencies totaled $119 million or 0.78% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at September 30, 2015 and $123 million or 0.82% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at June 30, 2015.
•
Average loans increased by $287 million over the previous quarter due primarily to a $209 million increase in commercial real estate loans. Average commercial loans and personal loans also increased over the previous quarter. Period-end outstanding loan balances were $15.4 billion at September 30, 2015, a $243 million increase over June 30, 2015. Commercial real estate loans increased $202 million, personal loans increased $36 million and commercial loan balances increased $22 million.
•
Average deposits decreased $401 million compared to the previous quarter, primarily due to a decrease in interest-bearing transaction accounts and time deposits. Period-end deposits were $20.6 billion at September 30, 2015, a decrease of $440 million compared to June 30, 2015.
•
New regulatory capital rules were effective for BOK Financial on January 1, 2015 and established a 7% threshold for the common equity Tier 1 ratio. The Company's common equity Tier 1 ratio was 12.78% at September 30, 2015. In

- 1 -


addition, the Company's Tier 1 capital ratio was 12.78%, total capital ratio was 13.89% and leverage ratio was 9.55% at September 30, 2015. The Company's common equity Tier 1 ratio was 13.01% at June 30, 2015. In addition, the Company's Tier 1 capital ratio was 13.01%, total capital ratio was 14.11% and leverage ratio was 9.75% at June 30, 2015.
•
The Company paid a regular quarterly cash dividend of $29 million or $0.42 per common share during the third quarter of 2015. On October 27, 2015, the board of directors approved an increase in the regular quarterly cash dividend to $0.43 per common share payable on or about November 27, 2015 to shareholders of record as of November 13, 2015.
•
The Company repurchased 1,258,348 common shares at an average price of $63.79 per share during the third quarter of 2015, completing the existing board approval for share repurchases. No shares were repurchased during the second quarter of 2015 and third quarter of 2014. On October 27, 2015, the board of directors authorized the Company to purchase up to five million additional common shares, subject to market conditions, securities law and other regulatory compliance limitations.
Results of Operations
Net Interest Revenue and Net Interest Margin

Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing tax-equivalent net interest revenue by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest spread due to interest income earned on assets funded by non-interest bearing liabilities such as demand deposits and equity.

Net interest revenue totaled $178.6 million for the third quarter of 2015 compared to $166.8 million for the third quarter of 2014 and $175.7 million for the second quarter of 2015. Net interest margin was 2.61% for the third quarter of 2015, 2.67% for the third quarter of 2014 and 2.61% for the second quarter of 2015.

Net interest revenue increased $11.8 million over the third quarter of 2014. Net interest revenue increased $16.0 million primarily due to the growth in average loan balances. Net interest revenue decreased $3.6 million primarily due to lower loan yields, partially offset by lower funding costs and increased yields on the available for sale securities portfolio.

The tax-equivalent yield on earning assets was 2.83% for the third quarter of 2015, down 10 basis points from the third quarter of 2014. Loan yields decreased 24 basis points primarily due to continued market pricing pressure and lower interest rates. The available for sale securities portfolio yield increased 6 basis points to 2.01%. Funding costs were down 9 basis points compared to the third quarter of 2014. The cost of interest-bearing deposits decreased 7 basis points and the cost of other borrowed funds increased 3 basis points largely due to the mix of funding sources. The cost of subordinated debentures decreased 142 basis points as $122 million of fixed-rate subordinated debt matured on June 1, 2015. The cost of this subordinated debt, including issuance discounts and hedge loss was 5.56%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 10 basis points for the third quarter of 2015 and 15 basis points for the third quarter of 2014.

Average earning assets for the third quarter of 2015 increased $2.4 billion or 9% over the third quarter of 2014. Average loans, net of allowance for loan losses, increased $1.7 billion due primarily to growth in average commercial and commercial real estate loans. The average balance of interest-bearing cash and cash equivalents was up $821 million over the third quarter of 2014 as borrowings from the Federal Home Loan Banks were deposited in the Federal Reserve to earn a spread. The average balance of available for sale securities decreased $584 million as we reduced the size of our bond portfolio during 2014 through normal monthly runoff to better position the balance sheet for a longer-term rising rate environment. The average balances of fair value option securities held as an economic hedge of our mortgage servicing rights, restricted equity securities, residential mortgage loans held for sale and trading securities were all up over the prior year.

Average deposits increased $466 million over the third quarter of 2014, including a $287 million increase in average interest-bearing transaction accounts and a $194 million increase in average demand deposit balances. Growth in average savings account balances was offset by a decrease in average time deposits compared to the prior year. Average borrowed funds increased $1.8 billion over the third quarter of 2014, primarily due to increased borrowings from the Federal Home Loan Banks. The average balance of subordinated debentures decreased $122 million.


- 2 -


Net interest margin was unchanged compared to the second quarter of 2015. The yield on average earning assets decreased 1 basis point. The loan portfolio yield decreased 11 basis points to 3.54%. The second quarter included a 6 basis point benefit from $2.3 million of nonaccrual interest recoveries. Competitive loan pricing and low interest rates continue to impact loan yields. The yield on the available for sale securities portfolio increased 7 basis points to 2.01%. Funding costs were down 3 basis points to 0.32%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities decreased 2 basis points.
Average earning assets increased $203 million during the third quarter of 2015, primarily due to growth in average outstanding loans of $287 million over the previous quarter. Average commercial real estate loan balances increased $209 million and average commercial loan balances were up $51 million. The average balance of trading securities increased $52 million, the average balance of cash and cash equivalents increased $36 million and the average balance of restricted equity securities increased $34 million. This growth was partially offset by a $121 million decrease in the average balance of the available for sale securities portfolio and a $63 million decrease in the average balance of residential mortgage loans held for sale.
Average deposits decreased $401 million compared to the previous quarter. Interest-bearing transaction account balances decreased $303 million and average time deposit balances decreased $94 million. The average balance of borrowed funds increased $684 million over the second quarter of 2015, primarily due to increased borrowings from the Federal Home Loan Banks, partially offset by a decrease in average repurchase agreement balances. The average balance of subordinated debentures decreased $82 million.

Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates as is further described in the Market Risk section of this report. More than three-fourths of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will re-price within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that re-price more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that assets generally re-price more quickly than liabilities. Among the strategies that we use to manage toward a relatively rate-neutral position, we purchase fixed rate residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market rate sensitive liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also may use derivative instruments to manage our interest rate risk. 

The effectiveness of these strategies is reflected in the overall change in net interest revenue due to changes in interest rates as shown in Table 1 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.

- 3 -


Table 1 -- Volume/Rate Analysis
(In thousands)
 
 
Three Months Ended
September 30, 2015 / 2014
 
Nine Months Ended
September 30, 2015 / 2014
 
 
 
 
Change Due To1
 
 
 
Change Due To1
 
 
Change
 
Volume
 
Yield /
Rate
 
Change
 
Volume
 
Yield
/Rate
Tax-equivalent interest revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
841

 
$
505

 
$
336

 
$
2,865

 
$
2,226

 
$
639

Trading securities
 
384

 
377

 
7

 
597

 
797

 
(200
)
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
(27
)
 
72

 
(99
)
 
73

 
337

 
(264
)
Tax-exempt securities
 
(137
)
 
(118
)
 
(19
)
 
(642
)
 
(431
)
 
(211
)
Total investment securities
 
(164
)
 
(46
)
 
(118
)
 
(569
)
 
(94
)
 
(475
)
Available for sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
(1,784
)
 
(2,902
)
 
1,118

 
(10,037
)
 
(12,100
)
 
2,063

Tax-exempt securities
 
121

 
(85
)
 
206

 
138

 
(302
)
 
440

Total available for sale securities
 
(1,663
)
 
(2,987
)
 
1,324

 
(9,899
)
 
(12,402
)
 
2,503

Fair value option securities
 
1,567

 
1,382

 
185

 
4,245

 
3,690

 
555

Restricted equity securities
 
1,669

 
1,705

 
(36
)
 
5,222

 
4,476

 
746

Residential mortgage loans held for sale
 
864

 
865

 
(1
)
 
3,592

 
4,639

 
(1,047
)
Loans
 
6,803

 
15,464

 
(8,661
)
 
19,515

 
45,702

 
(26,187
)
Total tax-equivalent interest revenue
 
10,301

 
17,265

 
(6,964
)
 
25,568

 
49,034

 
(23,466
)
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
 
(320
)
 
115

 
(435
)
 
(706
)
 
128

 
(834
)
Savings deposits
 
(4
)
 
12

 
(16
)
 
(11
)
 
34

 
(45
)
Time deposits
 
(1,664
)
 
(179
)
 
(1,485
)
 
(3,663
)
 
(275
)
 
(3,388
)
Funds purchased
 
(44
)
 
(48
)
 
4

 
(283
)
 
(338
)
 
55

Repurchase agreements
 
(92
)
 
(42
)
 
(50
)
 
(260
)
 
(52
)
 
(208
)
Other borrowings
 
1,633

 
1,982

 
(349
)
 
4,832

 
6,088

 
(1,256
)
Subordinated debentures
 
(1,558
)
 
(533
)
 
(1,025
)
 
(2,045
)
 
(918
)
 
(1,127
)
Total interest expense
 
(2,049
)
 
1,307

 
(3,356
)
 
(2,136
)
 
4,667

 
(6,803
)
Tax-equivalent net interest revenue
 
12,350

 
15,958

 
(3,608
)
 
27,704

 
44,367

 
(16,663
)
Change in tax-equivalent adjustment
 
505

 
 
 
 
 
1,141

 
 
 
 
Net interest revenue
 
$
11,845

 
 
 
 
 
$
26,563

 
 
 
 
1 
Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.

- 4 -


Other Operating Revenue

Other operating revenue was $163.4 million for the third quarter of 2015, a $1.5 million decrease compared to the third quarter of 2014 and a $12.8 million decrease compared to the second quarter of 2015. Fees and commissions revenue increased $6.1 million over the third quarter of 2014 and decreased $7.9 million compared to the prior quarter. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other operating revenue by $4.4 million in the third quarter of 2015 and $1.1 million in the second quarter of 2015 and increased other operating revenue by $4.8 million in the third quarter of 2014.

Table 2 – Other Operating Revenue 
(In thousands)
 
 
Three Months Ended
Sept. 30,
 
 
 
 
 
Three Months Ended
June 30, 2015
 
 
 
 
 
 
2015
 
2014
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
Increase (Decrease)
 
% Increase (Decrease)
Brokerage and trading revenue
 
$
31,582

 
$
35,263

 
$
(3,681
)
 
(10
)%
 
$
36,012

 
$
(4,430
)
 
(12
)%
Transaction card revenue
 
32,514

 
31,578

 
936

 
3
 %
 
32,778

 
(264
)
 
(1
)%
Fiduciary and asset management revenue
 
30,807

 
29,738

 
1,069

 
4
 %
 
32,712

 
(1,905
)
 
(6
)%
Deposit service charges and fees
 
23,606

 
22,508

 
1,098

 
5
 %
 
22,328

 
1,278

 
6
 %
Mortgage banking revenue
 
33,170

 
26,814

 
6,356

 
24
 %
 
36,846

 
(3,676
)
 
(10
)%
Bank-owned life insurance
 
2,360

 
2,326

 
34

 
1
 %
 
2,398

 
(38
)
 
(2
)%
Other revenue
 
10,618

 
10,320

 
298

 
3
 %
 
9,473

 
1,145

 
12
 %
Total fees and commissions revenue
 
164,657

 
158,547

 
6,110

 
4
 %
 
172,547

 
(7,890
)
 
(5
)%
Gain on other assets, net
 
1,161

 
1,422

 
(261
)
 
N/A

 
1,457

 
(296
)
 
N/A

Gain (loss) on derivatives, net
 
1,283

 
(93
)
 
1,376

 
N/A

 
(1,032
)
 
2,315

 
N/A

Gain (loss) on fair value option securities, net
 
5,926

 
(332
)
 
6,258

 
N/A

 
(8,130
)
 
14,056

 
N/A

Change in fair value of mortgage servicing rights
 
(11,757
)
 
5,281

 
(17,038
)
 
N/A

 
8,010

 
(19,767
)
 
N/A

Gain on available for sale securities, net
 
2,166

 
146

 
2,020

 
N/A

 
3,433

 
(1,267
)
 
N/A

Total other operating revenue
 
$
163,436

 
$
164,971

 
$
(1,535
)
 
(1
)%
 
$
176,285

 
$
(12,849
)
 
(7
)%
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.

Fees and commissions revenue

Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 48% of total revenue for the third quarter of 2015, excluding provision for credit losses and gains and losses on other assets, securities and derivatives and the change in the fair value of mortgage servicing rights. We believe that a variety of fee revenue sources provides an offset to changes in interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be volatile. As an example of this strength, many of the economic factors that cause net interest revenue compression such as falling interest rates may also drive growth in our mortgage banking revenue. We expect growth in other operating revenue to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

Brokerage and trading revenue includes revenues from securities trading, customer hedging, retail brokerage and investment banking. Brokerage and trading revenue decreased $3.7 million compared to the third quarter of 2014. 

Securities trading revenue was $11.7 million for the third quarter of 2015, an increase of $2.2 million over the third quarter of 2014. Securities trading revenue includes net realized and unrealized gains primarily related to sales of U.S. government securities, residential mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers. 


- 5 -


Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Derivative Programs in Note 3 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Customer hedging revenue totaled $9.3 million for the third quarter of 2015, a $1.6 million decrease compared to the third quarter of 2014. Higher volumes of derivative contracts executed by our mortgage banking customers were offset by lower volumes of energy, foreign exchange and interest rate contracts.

Revenue earned from retail brokerage transactions decreased $2.4 million or 29% compared to the third quarter of 2014 to $6.0 million. Retail brokerage revenue is primarily based on fees and commissions earned on sales of fixed income securities, annuities and mutual funds to retail customers. Revenue is primarily based on the volume of customer transactions during the quarter. While sales volume increased over 2014, customers moved toward lower margin products.

Investment banking revenue, which includes fees earned upon completion of underwriting and financial advisory services and loan syndication fees, totaled $4.6 million for the third quarter of 2015, a $1.9 million or 29% decrease compared to the third quarter of 2014, primarily related to lower loan syndication fees.

Brokerage and trading revenue decreased $4.4 million compared to the second quarter of 2015. Investment banking fees decreased $2.5 million compared to the prior quarter primarily due to lower loan syndication, financial advisory and underwriting fees. Excluding the impact of $382 thousand of recoveries received from the Lehman Brothers bankruptcy in the second quarter of 2015, customer hedging revenue decreased $1.6 million. Securities trading revenue increased $303 thousand and retail brokerage fees were up $113 thousand over the prior quarter.

Transaction card revenue depends largely on the volume and amount of transactions processed, the number of TransFund automated teller machine (“ATM”) locations and the number of merchants served. Transaction card revenue for the third quarter of 2015 increased $936 thousand or 3% over the third quarter of 2014. Revenues from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ("EFT") network totaled $16.1 million, largely unchanged compared to the prior year. Merchant services fees totaled $11.6 million, an increase of $946 thousand or 9% based on increased transaction activity. Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the Company totaled $4.8 million, an increase of $69 thousand or 1% over the third quarter of 2014.

Transaction card revenue decreased $264 thousand compared to the second quarter of 2015. Decreased EFT network revenues were partially offset by growth in merchant services fees. Interchange fee revenue from debit cards issued by the Company was largely unchanged compared to the prior quarter.

Fiduciary and asset management revenue grew by $1.1 million or 4% over the third quarter of 2014. The increase was primarily due to the growth in the fair value of fiduciary assets administered by the Company. Fiduciary assets are assets for which the Company possesses investment discretion on behalf of another or any other similar capacity. The fair value of fiduciary assets administered by the Company totaled $37.8 billion at September 30, 2015, $34.0 billion at September 30, 2014 and $38.8 billion at June 30, 2015.

Fiduciary and asset management revenue decreased $1.9 million compared to the second quarter of 2015 primarily due to the seasonal timing of tax service fees which were recognized in the previous quarter and a decrease in the fair value of assets under management.

We also earn fees as administrator to and investment adviser for the Cavanal Hill Funds, a diversified, open-ended investment company established as a business trust under the Investment Company Act of 1940. The Bank is custodian and BOSC, Inc. is distributor for the Cavanal Hill Funds. Products of the Cavanal Hill Funds are offered to customers, employee benefit plans, trusts and the general public in the ordinary course of business. We have voluntarily waived administration fees on the Cavanal Hill money market funds in order to maintain positive yields on these funds in the current low short-term interest rate environment. Waived fees totaled $3.4 million for the third quarter of 2015 compared to $2.6 million for the third quarter of 2014 and $2.9 million for the second quarter of 2015.

Deposit service charges and fees were $23.6 million for the third quarter of 2015, up $1.1 million or 5% over the third quarter of 2014. Overdraft fees were $11.0 million for the third quarter of 2015, an increase of $117 thousand or 1% compared to the third quarter of 2014. Commercial account service charge revenue totaled $10.8 million, an increase of $1.1 million or 11% over the prior year. Service charges on deposit accounts with a standard monthly fee were $1.8 million, a decrease of $111 thousand or 6% compared to the third quarter of 2014. Deposit service charges and fees grew by $1.3 million over the prior quarter primarily due to an increase in overdraft fee volumes.


- 6 -


Mortgage banking revenue increased $6.4 million over the third quarter of 2014. Mortgage production revenue increased $4.0 million largely due to increased production activity. Lower average primary mortgage interest rates and expansion of our correspondent and Home Direct lending channels increased loans closed during the quarter and outstanding loan commitments. Lower average interest rates also increased the percentage of refinanced mortgage loans to 30% in the third quarter of 2015 compared to 26% in the third quarter of 2014. Growth in our correspondent and Home Direct lending channels caused margins to compress compared to the third quarter of 2014. Additionally, production volumes in the third quarter of 2015 were impacted by the implementation of a new mortgage loan origination system during the quarter. Mortgage servicing revenue grew by $2.3 million or 19% over the third quarter of 2014. The outstanding principal balance of mortgage loans serviced for others totaled $18.9 billion, an increase of $3.4 billion or 22%.
Mortgage banking revenue decreased $3.7 million compared to the second quarter of 2015. Mortgage production revenue decreased $4.4 million. Increased average mortgage interest rates and implementation of a new mortgage origination system reduced mortgage production volume compared to the previous quarter. Total mortgage loans originated during the third quarter of 2015 decreased $214 million compared to the previous quarter and outstanding mortgage loan commitments at September 30 were $107 million lower compared to June 30. The increase in average mortgage interest rates during the quarter also reduced higher-margin refinance activity. Revenue from mortgage loan servicing grew by $720 thousand due to an increase in the volume of loans serviced. The outstanding balance of mortgage loans serviced for others increased $949 million over June 30, 2015.

Table 3 – Mortgage Banking Revenue 
(In thousands)
 
 
Three Months Ended
Sept. 30,
 
Increase (Decrease)
 
% Increase (Decrease)
 
Three Months Ended
June 30, 2015
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
2015
 
2014
 
 
 
 
Net realized gains on mortgage loans sold
 
$
18,968

 
$
17,100

 
$
1,868

 
11
 %
 
$
23,856

 
$
(4,888
)
 
(20
)%
Change in net unrealized gains on mortgage loans held for sale
 
(251
)
 
(2,407
)
 
2,156

 
(90
)%
 
(743
)
 
492

 
(66
)%
Total mortgage production revenue
 
18,717

 
14,693

 
4,024

 
27
 %
 
23,113

 
(4,396
)
 
(19
)%
Servicing revenue
 
14,453

 
12,121

 
2,332

 
19
 %
 
13,733

 
720

 
5
 %
Total mortgage revenue
 
$
33,170

 
$
26,814

 
$
6,356

 
24
 %
 
$
36,846

 
$
(3,676
)
 
(10
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans funded for sale
 
$
1,614,225

 
$
1,394,211

 
$
220,014

 
16
 %
 
$
1,828,230

 
$
(214,005
)
 
(12
)%
Mortgage loans sold
 
1,778,099

 
1,369,295

 
408,804

 
30
 %
 
1,861,968

 
(83,869
)
 
(5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period end outstanding mortgage commitments, net
 
742,742

 
638,925

 
103,817

 
16
 %
 
849,619

 
(106,877
)
 
(13
)%
Outstanding principal balance of mortgage loans serviced for others
 
18,928,726

 
15,499,653

 
3,429,073

 
22
 %
 
17,979,623

 
949,103

 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary residential mortgage interest rate – period end
 
3.86
%
 
4.20
%
 
(34
) bps
 
 
 
4.02
%
 
(16
) bps
 
 
Primary residential mortgage interest rate – average
 
3.95
%
 
4.14
%
 
(19
) bps
 
 
 
3.82
%
 
13
 bps
 
 
Secondary residential mortgage interest rate – period end
 
2.87
%
 
3.20
%
 
(33
) bps
 
 
 
3.13
%
 
(26
) bps
 
 
Secondary residential mortgage interest rate – average
 
2.97
%
 
3.21
%
 
(24
) bps
 
 
 
2.85
%
 
12
 bps
 
 
Net gains on securities, derivatives and other assets

In the third quarter of 2015, we recognized a $2.2 million net gain from sales of $451 million of available for sale securities. Securities were sold either because they had reached their expected maximum potential return or to move into securities that will perform better in the current rate environment. In the third quarter of 2014, we recognized a $146 thousand net gain from sales of $553 million of available for sale securities and in the second quarter of 2015, we recognized a $3.4 million net gain on sales of $379 million of available for sale securities.


- 7 -


We also maintain a portfolio of residential mortgage-backed securities issued by U.S. government agencies and interest rate derivative contracts designated as an economic hedge of the changes in the fair value of our mortgage servicing rights. The fair value of our mortgage servicing rights fluctuates due to changes in prepayment speeds and other assumptions as more fully described in Note 6 to the Consolidated Financial Statements. As benchmark mortgage rates increase, prepayment speeds slow and the value of our mortgage servicing rights increases. As benchmark mortgage rates fall, prepayment speeds increase and the value of our mortgage servicing rights decreases.

Changes in the fair value of mortgage servicing rights are highly dependent on changes in primary mortgage rates, rates offered to borrowers, and assumptions about servicing revenues, servicing costs and discount rates. Changes in the fair value of residential mortgage-backed securities and interest rate derivative contracts are highly dependent on changes in secondary mortgage rates, or rates required by investors. While primary and secondary mortgage rates generally move in the same direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in the spread between the primary and secondary rates can cause significant earnings volatility. Additionally, the fair value of mortgage servicing rights is dependent on short-term interest rates that affect the value of custodial funds, changes in the spread between short-term and long-term interest rates, and other assumptions such as estimated loan servicing costs.
Table 4 following shows the relationship between changes in the fair value of mortgage servicing rights and the fair value of fair value option residential mortgage-backed securities and interest rate derivative contracts designated as an economic hedge.

Table 4 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 
 
Three Months Ended
 
 
Sept. 30, 2015
 
June 30, 2015
 
Sept. 30, 2014
Gain (loss) on mortgage hedge derivative contracts, net
 
$
1,460

 
$
(1,005
)
 
$
(93
)
Gain (loss) on fair value option securities, net
 
5,926

 
(8,130
)
 
(341
)
Gain (loss) on economic hedge of mortgage servicing rights, net
 
7,386

 
(9,135
)
 
(434
)
Gain (loss) on change in fair value of mortgage servicing rights
 
(11,757
)
 
8,010

 
5,281

Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges
 
$
(4,371
)
 
$
(1,125
)
 
$
4,847

 
 
 
 
 
 
 
Net interest revenue on fair value option securities
 
$
2,140

 
$
1,985

 
$
830


Primary rates disclosed in Table 3 above represent rates generally available to borrowers on 30 year conforming mortgage loans and affect the value of our mortgage servicing rights. Secondary rates represent rates generally paid on 30 year residential mortgage-backed securities guaranteed by U.S. government agencies and affect the value of securities and derivative contracts used as an economic hedge of our mortgage servicing rights.




- 8 -


Other Operating Expense

Other operating expense for the third quarter of 2015 totaled $224.6 million, a $2.8 million or 1% increase over the third quarter of 2014. Personnel expenses increased $6.0 million or 5%. Non-personnel expenses decreased $3.2 million or 3% compared to the prior year.

Operating expenses decreased $2.5 million compared to the previous quarter. Personnel expense decreased $3.6 million. Non-personnel expense increased $1.1 million.

Table 5 -- Other Operating Expense
(In thousands)
 
 
Three Months Ended
Sept. 30,
 
Increase (Decrease)
 
%
Increase (Decrease)
 
Three Months Ended
June 30, 2015
 
Increase (Decrease)
 
%
Increase (Decrease)
 
 
2015
 
2014
 
 
 
 
 
Regular compensation
 
$
79,208

 
$
74,662

 
$
4,546

 
6
 %
 
$
78,105

 
$
1,103

 
1
 %
Incentive compensation:
 
 
 
 
 


 


 
 
 
 
 
 
Cash-based
 
30,462

 
28,721

 
1,741

 
6
 %
 
32,347

 
(1,885
)
 
(6
)%
Share-based
 
2,885

 
3,824

 
(939
)
 
(25
)%
 
3,057

 
(172
)
 
(6
)%
Deferred compensation
 
(539
)
 
(52
)
 
(487
)
 
N/A

 
118

 
(657
)
 
N/A

Total incentive compensation
 
32,808

 
32,493

 
315

 
1
 %
 
35,522

 
(2,714
)
 
(8
)%
Employee benefits
 
17,046

 
15,888

 
1,158

 
7
 %
 
19,068

 
(2,022
)
 
(11
)%
Total personnel expense
 
129,062

 
123,043

 
6,019

 
5
 %
 
132,695

 
(3,633
)
 
(3
)%
Business promotion
 
5,922

 
6,160

 
(238
)
 
(4
)%
 
7,765

 
(1,843
)
 
(24
)%
Charitable contributions to BOKF Foundation
 
796

 
—

 
796

 
N/A

 
—

 
796

 
N/A

Professional fees and services
 
10,147

 
14,763

 
(4,616
)
 
(31
)%
 
9,560

 
587

 
6
 %
Net occupancy and equipment
 
18,689

 
18,892

 
(203
)
 
(1
)%
 
18,927

 
(238
)
 
(1
)%
Insurance
 
4,864

 
4,793

 
71

 
1
 %
 
5,116

 
(252
)
 
(5
)%
Data processing and communications
 
31,228

 
29,971

 
1,257

 
4
 %
 
31,463

 
(235
)
 
(1
)%
Printing, postage and supplies
 
3,376

 
3,380

 
(4
)
 
—
 %
 
3,553

 
(177
)
 
(5
)%
Net losses and operating expenses of repossessed assets
 
267

 
4,966

 
(4,699
)
 
(95
)%
 
223

 
44

 
20
 %
Amortization of intangible assets
 
1,089

 
1,100

 
(11
)
 
(1
)%
 
1,090

 
(1
)
 
—
 %
Mortgage banking costs
 
8,587

 
7,734

 
853

 
11
 %
 
7,419

 
1,168

 
16
 %
Other expense
 
10,601

 
7,032

 
3,569

 
51
 %
 
9,302

 
1,299

 
14
 %
Total other operating expense
 
$
224,628

 
$
221,834

 
$
2,794

 
1
 %
 
$
227,113

 
$
(2,485
)
 
(1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average number of employees (full-time equivalent)
 
4,846

 
4,669

 
177

 
4
 %
 
4,776

 
70

 
1
 %
Certain percentage increases (decreases) are not meaningful for comparison purposes.

Personnel expense

Regular compensation, which consists of salaries and wages, overtime pay and temporary personnel costs, increased $4.5 million or 6% over the third quarter of 2014. Positions added since the prior year have primarily been higher-costing positions in compliance and risk management, technology and wealth management. In addition, standard annual merit increases in regular compensation were effective for the majority of our staff on March 1.

Incentive compensation increased $315 thousand over the third quarter of 2014. Cash-based incentive compensation plans are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions. Total cash-based incentive compensation increased $1.7 million or 6% over the third quarter of 2014. 

- 9 -


Share-based compensation expense represents expense for equity awards based on grant-date fair value and is largely unaffected by subsequent changes in fair value. Non-vested shares awarded prior to 2013 generally cliff vest in 5 years. Non-vested shares awarded since January 1, 2013 generally cliff vest in 3 years and are subject to a two year holding period after vesting.

Employee benefit expense increased $1.2 million or 7% over the third quarter of 2014 primarily due to increased employee retirement plan and payroll tax expense.
Personnel costs decreased by $3.6 million compared to the second quarter of 2015, primarily due to a $2.7 million decrease in incentive compensation expense and a $1.6 million seasonal decrease in payroll taxes. These decreases were partially offset by a $1.1 million increase in regular compensation expense.

Non-personnel operating expenses

Non-personnel operating expenses decreased $3.2 million or 3% compared to the third quarter of 2014. Net losses and operating expenses of repossessed assets were $4.7 million lower than in the prior year. Professional fees and services expense decreased $4.6 million. The third quarter of 2014 included $2.2 million of risk management and regulatory compliance costs related to testing our systems and processes. Other expense increased $2.8 million due to accruals for settled litigation. Data processing and communications expense increased $1.3 million due to increased transaction activity.
Non-personnel expense increased $1.1 million compared to the second quarter of 2015. Mortgage banking expense increased $1.2 million and other expense increased $1.3 million, partially offset by a $1.8 million decrease in business promotion expense.
Income Taxes

Income tax expense was $34.1 million or 31.0% of book taxable income for the third quarter of 2015 compared to $33.8 million or 30.7% of book taxable income for the third quarter of 2014 and $40.6 million or 33.6% of book taxable income for the second quarter of 2015.

The statute of limitations expired on uncertain income tax positions and the Company adjusted its current income tax liability to amounts on filed tax returns for 2014 during the third quarter of 2015. These adjustments reduced income tax expense by $2.0 million in the third quarter of 2015 and $2.3 million in the third quarter of 2014. The Company also made a charitable contribution to the BOKF Foundation in the third quarter of 2015, which reduced income tax expense by $99 thousand. Excluding these adjustments, income tax expense would have been 32.9% of book taxable income for the third quarter of 2015 and 32.8% of book taxable income for the third quarter of 2014.

The Company adopted FASB Accounting Standards Update No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, on January 1, 2015. This standard was retrospectively applied to all periods presented. Approximately $1.9 million was reclassified from pre-tax earnings to income tax expense in the third quarter of 2014 and approximately $7.4 million was reclassified from pre-tax earnings to income tax expense for the nine months ended September 30, 2014. This reclassification increased the effective tax rate by 120 basis points in the third quarter of 2014 and 150 basis points for the nine months ended September 30, 2014. Adoption of this standard did not affect net income.

BOK Financial operates in numerous jurisdictions, which requires judgment regarding the allocation of income, expense and earnings under various laws and regulations of each of these taxing jurisdictions. Each jurisdiction may audit our tax returns and may take different positions with respect to these allocations. The reserve for uncertain tax positions was $14 million at both September 30, 2015 and at June 30, 2015 and $12 million at September 30, 2014.

- 10 -


Lines of Business

We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial Banking includes lending, treasury and cash management services and customer risk management products for small businesses, middle market and larger commercial customers. Commercial Banking also includes the TransFund EFT network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small business customers served through our consumer branch network and all mortgage banking activities. Wealth Management provides fiduciary services, private banking services and investment advisory services in all markets. Wealth Management also underwrites state and municipal securities and engages in brokerage and trading activities.

In addition to our lines of business, we have a Funds Management unit. The primary purpose of this unit is to manage our overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the Funds Management unit as needed to support their operations. Operating results for Funds Management and other include the effect of interest rate risk positions and risk management activities, securities gains and losses including impairment charges, the provision for credit losses in excess of net loans charged off, tax planning strategies and certain executive compensation costs that are not attributed to the lines of business.

We allocate resources and evaluate the performance of our lines of business using the net direct contribution which includes the allocation of funds, actual net credit losses and capital costs. In addition, we measure the performance of our business lines after allocation of certain indirect expenses and taxes based on statutory rates.

The cost of funds borrowed from the Funds Management unit by the operating lines of business is transfer priced at rates that approximate market rates 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 also based on rates which approximate wholesale market rates for funds with similar duration and re-pricing characteristics. Market rates are generally based on LIBOR or interest rate swap rates. The funds credit formula applied to deposit products with indeterminate maturities is established based on their re-pricing characteristics reflected in a combination of the short-term LIBOR rate and a moving average of an intermediate term swap rate, with an appropriate spread applied to both. Shorter duration products are weighted towards the short term LIBOR rate and longer duration products are weighted towards the intermediate swap rates. The expected duration ranges from 30 days for certain rate-sensitive deposits to five years.

Economic capital is assigned to the business units by a capital allocation model that reflects management’s assessment of risk. This model assigns capital based upon credit, operating, interest rate and other 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. Average invested capital includes economic capital and amounts we have invested in the lines of business.

As shown in Table 6, net income attributable to our lines of business increased $3.2 million or 6% over the third quarter of 2014. Growth in both net interest revenue and fees and commissions revenue was partially offset by increased operating expenses. The third quarter of 2015 had $2.3 million of net charge-offs compared to net recoveries of $228 thousand in the third quarter of 2014.

Table 6 -- Net Income by Line of Business
(In thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
 
Sept. 30,
 
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Commercial Banking
 
$
45,012

 
$
39,004

 
$
136,260

 
$
113,348

Consumer Banking
 
5,073

 
9,513

 
18,549

 
26,412

Wealth Management
 
3,870

 
2,258

 
12,921

 
9,568

Subtotal
 
53,955

 
50,775

 
167,730

 
149,328

Funds Management and other
 
20,936

 
24,857

 
61,234

 
78,789

Total
 
$
74,891

 
$
75,632

 
$
228,964

 
$
228,117


- 11 -


Commercial Banking

Commercial Banking contributed $45.0 million to consolidated net income in the third quarter of 2015, up $6.0 million or 15% over the third quarter of 2014. Increased net interest revenue and lower operating expenses, was partially offset by an increase net loans charged off. Commercial Banking had $828 thousand of net loans charged off in the third quarter of 2015 compared $1.7 million of net recoveries in the third quarter of 2014.

Table 7 -- Commercial Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Nine Months Ended
 
Increase (Decrease)
 
 
 
Sept. 30,
 
 
Sept. 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
109,495

 
$
95,423

 
$
14,072

 
$
319,279

 
$
281,064

 
$
38,215

 
Net interest expense from internal sources
 
(12,730
)
 
(9,796
)
 
(2,934
)
 
(37,928
)
 
(33,419
)
 
(4,509
)
 
Total net interest revenue
 
96,765

 
85,627

 
11,138

 
281,351

 
247,645

 
33,706

 
Net loans charged off (recovered)
 
828

 
(1,702
)
 
2,530

 
(8,122
)
 
(8,894
)
 
772

 
Net interest revenue after net loans charged off (recovered)
 
95,937

 
87,329

 
8,608

 
289,473

 
256,539

 
32,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
45,317

 
44,994

 
323

 
133,527

 
127,505

 
6,022

 
Gain (loss) on financial instruments and other assets, net
 
(418
)
 
127

 
(545
)
 
(164
)
 
(978
)
 
814

 
Other operating revenue
 
44,899

 
45,121

 
(222
)
 
133,363

 
126,527

 
6,836

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
28,544

 
28,133

 
411

 
84,362

 
82,455

 
1,907

 
Non-personnel expense
 
23,955

 
27,399

 
(3,444
)
 
71,493

 
73,074

 
(1,581
)
 
Other operating expense
 
52,499

 
55,532

 
(3,033
)
 
155,855

 
155,529

 
326

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
88,337

 
76,918

 
11,419

 
266,981

 
227,537

 
39,444

 
Corporate expense allocations
 
14,668

 
13,081

 
1,587

 
43,970

 
42,024

 
1,946

 
Income before taxes
 
73,669

 
63,837

 
9,832

 
223,011

 
185,513

 
37,498

 
Federal and state income tax
 
28,657

 
24,833

 
3,824

 
86,751

 
72,165

 
14,586

 
Net income
 
$
45,012

 
$
39,004

 
$
6,008

 
$
136,260

 
$
113,348

 
$
22,912

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
13,544,828

 
$
11,508,661

 
$
2,036,167

 
$
13,114,958

 
$
11,222,847

 
$
1,892,111

 
Average loans
 
12,531,113

 
10,827,829

 
1,703,284

 
12,230,278

 
10,548,702

 
1,681,576

 
Average deposits
 
8,628,520

 
8,924,040

 
(295,520
)
 
8,850,537

 
8,889,451

 
(38,914
)
 
Average invested capital
 
1,062,053

 
940,091

 
121,962

 
1,028,013

 
937,281

 
90,732

 
Return on average assets
 
1.32
%
 
1.35
 %
 
(3
)
bp
1.39
 %
 
1.35
 %
 
4

bp
Return on invested capital
 
16.83
%
 
16.47
 %
 
36

bp
17.74
 %
 
16.21
 %
 
153

bp
Efficiency ratio
 
36.90
%
 
42.45
 %
 
(555
)
bp
37.51
 %
 
41.39
 %
 
(388
)
bp
Net recoveries (annualized) to average loans
 
0.03
%
 
(0.06
)%
 
9

bp
(0.09
)%
 
(0.11
)%
 
2

bp

Net interest revenue increased $11.1 million or 13% over the prior year. Growth in net interest revenue was primarily due to a $1.7 billion or 16% increase in average loan balances, partially offset by reduced yields on loans and a $296 million decrease in average deposit balances.


- 12 -


Fees and commissions revenue increased $323 thousand or 1% over the third quarter of 2014. Other revenue increased $1.6 million primarily related to merchant banking activity. Commercial deposit service charge revenue increased $994 thousand. Transaction card revenues from our TransFund electronic funds transfer network were up $931 thousand. These increases were partially offset by a $3.2 million decrease related to the timing and volume of commercial loan syndication fees.

Operating expenses decreased $3.0 million or 5% compared to the third quarter of 2014. Personnel costs increased $411 thousand or 1% primarily due to standard annual merit increases, partially offset by lower incentive compensation expense. Non-personnel expenses decreased $3.4 million or 13%. Net losses and operating expenses of repossessed assets decreased $5.2 million compared to the prior year. Data processing and communication expense increased $898 thousand related to growth in transaction activity and other expense increased $894 thousand primarily due to merchant banking investment activity. Corporate expense allocations increased $1.6 million over the prior year.

The average outstanding balance of loans attributed to Commercial Banking grew by $1.7 billion over the third quarter of 2014 to $12.5 billion. See the Loans section of Management’s Discussion and Analysis of Financial Condition following for additional discussion of changes in commercial and commercial real estate loans which are primarily attributed to the Commercial Banking segment. 
 
Average deposits attributed to Commercial Banking were $8.6 billion for the third quarter of 2015, a decrease of $296 million compared to the third quarter of 2014. Commercial customers continue to maintain high account balances due to continued economic uncertainty and persistently low yields available on high quality investments.


Consumer Banking

Consumer Banking provides retail banking services through four primary distribution channels:  traditional branches, the 24-hour ExpressBank call center, Internet banking and mobile banking. Consumer Banking also conducts mortgage banking activities through offices located outside of our consumer banking markets, through correspondent loan originators and through Home Direct Mortgage, an on-line origination channel.

Consumer Banking contributed $5.1 million to consolidated net income for the third quarter of 2015, a decrease of $4.4 million compared to the third quarter of 2014.

Changes in the fair value of our mortgage servicing rights, net of economic hedge, resulted in a $2.7 million decrease in Consumer Banking net income in the third quarter of 2015 compared to a $3.0 million increase in Consumer Banking net income in the third quarter of 2014. Mortgage banking revenue grew by $6.3 million over the prior year, mostly offset by a $3.6 million increase in corporate expense allocations.


- 13 -


Table 8 -- Consumer Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Nine Months Ended
 
Increase (Decrease)
 
 
 
Sept. 30,
 
 
Sept. 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
21,578

 
$
19,742

 
$
1,836

 
$
64,030

 
$
61,672

 
$
2,358

 
Net interest revenue from internal sources
 
7,688

 
9,517

 
(1,829
)
 
23,226

 
28,354

 
(5,128
)
 
Total net interest revenue
 
29,266

 
29,259

 
7

 
87,256

 
90,026

 
(2,770
)
 
Net loans charged off
 
1,488

 
1,599

 
(111
)
 
1,488

 
1,599

 
(111
)
 
Net interest revenue after net loans charged off
 
27,778

 
27,660

 
118

 
85,768

 
88,427

 
(2,659
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
55,117

 
48,508

 
6,609

 
171,760

 
145,018

 
26,742

 
Gain on financial instruments and other assets, net
 
9,618

 
1,454

 
8,164

 
8,282

 
14,636

 
(6,354
)
 
Change in fair value of mortgage servicing rights
 
(11,757
)
 
5,281

 
(17,038
)
 
(12,269
)
 
(5,624
)
 
(6,645
)
 
Other operating revenue
 
52,978

 
55,243

 
(2,265
)
 
167,773

 
154,030

 
13,743

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
26,063

 
23,667

 
2,396

 
78,751

 
71,401

 
7,350

 
Non-personnel expense
 
24,545

 
25,438

 
(893
)
 
79,653

 
70,061

 
9,592

 
Total other operating expense
 
50,608

 
49,105

 
1,503

 
158,404

 
141,462

 
16,942

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
30,148

 
33,798

 
(3,650
)
 
95,137

 
100,995

 
(5,858
)
 
Corporate expense allocations
 
21,845

 
18,229

 
3,616

 
64,779

 
57,768

 
7,011

 
Income before taxes
 
8,303

 
15,569

 
(7,266
)
 
30,358

 
43,227

 
(12,869
)
 
Federal and state income tax
 
3,230

 
6,056

 
(2,826
)
 
11,809

 
16,815

 
(5,006
)
 
Net income
 
$
5,073

 
$
9,513

 
$
(4,440
)
 
$
18,549

 
$
26,412

 
$
(7,863
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
7,286,709

 
$
7,123,786

 
$
162,923

 
$
7,307,097

 
$
7,091,118

 
$
215,979

 
Average loans
 
1,882,584

 
1,979,783

 
(97,199
)
 
1,908,007

 
1,994,173

 
(86,166
)
 
Average deposits
 
6,675,990

 
6,543,492

 
132,498

 
6,674,052

 
6,499,468

 
174,584

 
Average invested capital
 
264,540

 
271,705

 
(7,165
)
 
268,427

 
278,396

 
(9,969
)
 
Return on average assets
 
0.28
%
 
0.53
%
 
(25
)
bp
0.34
%
 
0.50
%
 
(16
)
bp
Return on invested capital
 
7.61
%
 
13.89
%
 
(628
)
bp
9.24
%
 
12.68
%
 
(344
)
bp
Efficiency ratio
 
56.97
%
 
58.99
%
 
(202
)
bp
58.28
%
 
56.26
%
 
202

bp
Net charge-offs (annualized) to average loans
 
0.31
%
 
0.32
%
 
(1
)
bp
0.10
%
 
0.11
%
 
(1
)
bp

 
 
Sept. 30, 2015
 
Sept. 30, 2014
 
Increase
(Decrease)
Banking locations
 
154

 
186

 
(32
)

Net interest revenue from Consumer Banking activities was largely unchanged compared to the third quarter of 2014. Average loan balances were $97 million or 5% lower than the prior year. This impact was partially offset by a $132 million or 2% increase in deposit balances, which are sold to the Funds Management unit.

Fees and commissions revenue increased $6.6 million or 14% over the third quarter of 2014, primarily due to a $6.3 million increase in mortgage banking revenue over the prior year. Deposit service charges and fees were largely unchanged compared to the prior year.

- 14 -


Operating expenses increased $1.5 million or 3% over the third quarter of 2014. Personnel expenses were up $2.4 million or 10%, including a $1.9 million increase in regular compensation expense primarily due to the expansion of our Home Direct Mortgage origination channel. Employee benefit expense and incentive compensation expense both increased over the prior year as well. Non-personnel expense decreased $893 thousand compared to the prior year. Net occupancy and equipment, professional fees and services, deposit insurance expense and business promotion decreased compared to the prior year, offset by an increase in mortgage banking, data processing and communications and other expense. Corporate expense allocations increased $3.6 million over the third quarter of 2014.

Average consumer deposits increased $132 million or 2% over the third quarter of 2014. Average demand deposit balances increased $138 million or 10%, average interest-bearing transaction accounts increased $124 million or 4% and average savings account balances increased $37 million or 11%. Average time deposit balances were down $167 million or 11% compared to the prior year.




- 15 -


Wealth Management

Wealth Management contributed $3.9 million to consolidated net income in the third quarter of 2015, up $1.6 million over the third quarter of 2014. Brokerage and trading revenue and fiduciary and asset management revenue both grew over the prior year. Increased operating expenses were offset by lower corporate expense allocations.

Table 9 -- Wealth Management
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Nine Months Ended
 
Increase (Decrease)
 
 
 
Sept. 30,
 
 
Sept. 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
6,680

 
$
5,956

 
$
724

 
$
18,289

 
$
17,574

 
$
715

 
Net interest revenue from internal sources
 
5,161

 
5,191

 
(30
)
 
15,712

 
14,594

 
1,118

 
Total net interest revenue
 
11,841

 
11,147

 
694

 
34,001

 
32,168

 
1,833

 
Net loans charged off (recovered)
 
2

 
(125
)
 
127

 
(745
)
 
323

 
(1,068
)
 
Net interest revenue after net loans charged off (recovered)
 
11,839

 
11,272

 
567

 
34,746

 
31,845

 
2,901

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
63,304

 
61,173

 
2,131

 
192,314

 
181,542

 
10,772

 
Loss on financial instruments and other assets, net
 
(209
)
 
(172
)
 
(37
)
 
(998
)
 
(752
)
 
(246
)
 
Other operating revenue
 
63,095

 
61,001

 
2,094

 
191,316

 
180,790

 
10,526

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
46,182

 
44,293

 
1,889

 
136,499

 
127,893

 
8,606

 
Non-personnel expense
 
11,560

 
12,008

 
(448
)
 
35,261

 
32,953

 
2,308

 
Other operating expense
 
57,742

 
56,301

 
1,441

 
171,760

 
160,846

 
10,914

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
17,192

 
15,972

 
1,220

 
54,302

 
51,789

 
2,513

 
Corporate expense allocations
 
10,858

 
12,276

 
(1,418
)
 
33,154

 
36,130

 
(2,976
)
 
Income before taxes
 
6,334

 
3,696

 
2,638

 
21,148

 
15,659

 
5,489

 
Federal and state income tax
 
2,464

 
1,438

 
1,026

 
8,227

 
6,091

 
2,136

 
Net income
 
$
3,870

 
$
2,258

 
$
1,612

 
$
12,921

 
$
9,568

 
$
3,353

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
4,629,506

 
$
4,324,204

 
$
305,302

 
$
4,696,750

 
$
4,499,858

 
$
196,892

 
Average loans
 
1,085,563

 
1,000,165

 
85,398

 
1,062,430

 
971,169

 
91,261

 
Average deposits
 
4,490,144

 
4,207,216

 
282,928

 
4,570,593

 
4,376,874

 
193,719

 
Average invested capital
 
226,477

 
220,489

 
5,988

 
225,222

 
212,729

 
12,493

 
Return on average assets
 
0.38
%
 
0.26
 %
 
12

bp
0.42
 %
 
0.33
%
 
9

bp
Return on invested capital
 
7.75
%
 
5.06
 %
 
269

bp
8.66
 %
 
6.89
%
 
177

bp
Efficiency ratio
 
76.56
%
 
77.69
 %
 
(113
)
bp
75.69
 %
 
75.13
%
 
56

bp
Net charge-offs (annualized) to average loans
 
—
%
 
(0.05
)%
 
5

bp
(0.09
)%
 
0.04
%
 
(13
)
bp


- 16 -


 
 
Sept. 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
Fiduciary assets in custody for which BOKF has sole or joint discretionary authority
 
$
14,027,771

 
$
14,586,937

 
$
(559,166
)
Fiduciary assets not in custody for which BOKF has sole or joint discretionary authority
 
3,325,785

 
3,322,947

 
2,838

Non-managed trust assets in custody
 
20,427,113

 
16,110,558

 
4,316,555

Total fiduciary assets
 
37,780,669

 
34,020,442

 
3,760,227

Assets held in safekeeping
 
23,574,320

 
22,814,401

 
759,919

Brokerage accounts under BOKF administration
 
5,646,493

 
5,564,443

 
82,050

Assets under management or in custody
 
$
67,001,482

 
$
62,399,286

 
$
4,602,196


Net interest revenue for the third quarter of 2015 increased $694 thousand or 6% over the third quarter of 2014. Average deposit balances were up $283 million or 7% over the third quarter of 2014. Time deposit balances increased $168 million and non-interest bearing demand deposits increased $98 million. Interest-bearing transaction account balances increased $17 million. Average loan balances were up $85 million or 9% over the prior year. The benefit of this growth was partially offset by lower yields.

Fees and commissions revenue was up $2.1 million or 3% over the third quarter of 2014. Brokerage and trading revenue increased $1.4 million or 5%. Fiduciary and asset management revenue increased $1.1 million or 4% over the prior year.

Other operating revenue includes fees earned from state and municipal bond and corporate debt underwriting and financial advisory services, primarily in the Oklahoma and Texas markets. In the third quarter of 2015, the Wealth Management division participated in 132 state and municipal bond underwritings that totaled $3.2 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately $997 million of these underwritings. The Wealth Management division also participated in three corporate debt underwritings that totaled $1.7 billion. Our interest in these underwritings was $27 million. In the third quarter of 2014, the Wealth Management division participated in 127 state and municipal bond underwritings that totaled approximately $2.2 billion. Our interest in these underwritings totaled approximately $668 million. The Wealth Management division also participated in 5 corporate debt underwritings that totaled $2.1 billion. Our interest in these underwritings was $61 million.

Operating expenses increased $1.4 million or 3% over the third quarter of 2014. Personnel expenses increased $1.9 million, primarily due to an increase in regular compensation and incentive compensation expense. Non-personnel expense decreased $448 thousand. Lower professional fees and service expense and deposit insurance expense, were partially offset by increased business promotion and data processing and communications expense. Corporate expense allocations decreased $1.4 million compared to the prior year.

- 17 -


Financial Condition
Securities

We maintain a securities portfolio to enhance profitability, manage interest rate risk, provide liquidity and comply with regulatory requirements. Securities are classified as trading, held for investment, or available for sale. See Note 2 to the consolidated financial statements for the composition of the securities portfolio as of September 30, 2015, December 31, 2014 and September 30, 2014.

At September 30, 2015, the carrying value of investment (held-to-maturity) securities was $612 million and the fair value was $643 million. Investment securities consist primarily of long-term, fixed rate Oklahoma and Texas municipal bonds, taxable Texas school construction bonds and residential mortgage-backed securities issued by U.S. government agencies. The investment security portfolio is diversified among issuers. The largest obligation of any single issuer is $30million. Substantially all of these bonds are general obligations of the issuers. Approximately $104 million of the Texas school construction bonds are also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board of Education for the State of Texas.

Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of available for sale securities totaled $8.7 billion at September 30, 2015, a decrease of $255 million compared to June 30, 2015. Available for sale securities consist primarily of U.S. government agency residential mortgage-backed securities and U.S. government agency commercial mortgage-backed securities. Commercial mortgage-backed securities have prepayment penalties similar to commercial loans. At September 30, 2015, residential mortgage-backed securities represented 68% of total available for sale securities.

A primary risk of holding residential 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 of risk both before making an investment and throughout the life of the security. Our best estimate of the duration of the combined residential mortgage-backed securities portfolio held in investment and available for sale securities at September 30, 2015 is 3.1 years. Management estimates the duration extends to 3.6 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 2.8 years assuming a 50 basis point decline in the current low rate environment.

Residential mortgage-backed securities also have credit risk from delinquency or default of the underlying loans. We mitigate this risk by primarily investing in securities issued by U.S. government agencies. Principal and interest payments on the underlying loans are fully guaranteed. At September 30, 2015, approximately $5.7 billion of the amortized cost of the Company’s residential mortgage-backed securities were issued by U.S. government agencies. The fair value of these residential mortgage-backed securities totaled $5.8 billion at September 30, 2015.

We also hold amortized cost of $134 million in residential mortgage-backed securities privately issued by publicly-owned financial institutions, a decrease of $8.4 million from June 30, 2015. The decrease was due to cash payments received during the quarter. The fair value of our portfolio of privately issued residential mortgage-backed securities totaled $146 million at September 30, 2015.

The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $75 million of Jumbo-A residential mortgage loans and $59 million of Alt-A residential mortgage loans. Jumbo-A residential mortgage loans generally meet government underwriting standards, but have loan balances that exceed agency maximums. Alt-A mortgage loans generally do not have sufficient documentation to meet government agency underwriting standards. Approximately 91% of our Alt-A mortgage-backed securities represent pools of fixed rate residential mortgage loans. None of the adjustable rate mortgages are payment option adjustable rate mortgages (“ARMs”). Approximately 30% of our Jumbo-A residential mortgage-backed securities represent pools of fixed rate residential mortgage loans and none of the adjustable rate mortgages are payment option ARMs.

The aggregate gross amount of unrealized losses on available for sale securities totaled $7.9 million at September 30, 2015, compared to $26 million at June 30, 2015. On a quarterly basis, we perform separate evaluations on debt and equity securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial Statements. No other-than-temporary impairment charges were recognized in earnings during the third quarter of 2015.

- 18 -


Certain residential mortgage-backed securities issued by U.S. government agencies and included in fair value option securities on the Consolidated Balance Sheets have been segregated and designated as economic hedges of changes in the fair value of our mortgage servicing rights. We have elected to carry these securities at fair value with changes in fair value recognized in current period income. These securities are held with the intent that gains or losses will offset changes in the fair value of mortgage servicing rights and related derivative contracts.

BOK Financial is required to hold stock as members of the Federal Reserve system and the Federal Home Loan Banks ("FHLB"). These restricted equity securities are carried at cost as these securities do not have a readily determined fair value because the ownership of these shares are restricted and they lack a market. Federal Reserve Bank stock totaled $35 million and holdings of FHLB stock totaled $228 million at September 30, 2015. Holdings of FHLB stock increased $32 million over June 30, 2015. We are required to hold stock in the FHLB in proportion to our borrowings with the FHLB.
Bank-Owned Life Insurance

We have approximately $301 million of bank-owned life insurance at September 30, 2015. This investment is expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $270 million is held in separate accounts. Our separate account holdings are invested in diversified portfolios of investment-grade fixed income securities and cash equivalents, including U.S. Treasury and Agency securities, residential mortgage-backed securities, corporate debt, asset-backed and commercial mortgage-backed securities. The portfolios are managed by unaffiliated professional managers within parameters established in the portfolio’s investment guidelines. The cash surrender value of certain life insurance policies is further supported by a stable value wrap, which protects against changes in the fair value of the investments. At September 30, 2015, the fair value of investments held in separate accounts was approximately $284 million. As the underlying fair value of the investments held in a separate account at September 30, 2015 exceeded the net book value of the investments, no cash surrender value was supported by the stable value wrap. The stable value wrap is provided by a domestic financial institution. The remaining cash surrender value of $31 million primarily represents the cash surrender value of policies held in general accounts and other amounts due from various insurance companies.

- 19 -


Loans

The aggregate loan portfolio before allowance for loan losses totaled $15.4 billion at September 30, 2015, an increase of $243 million over June 30, 2015. Outstanding commercial loans grew by $22 million over June 30, 2015, largely due to growth in healthcare, other commercial and industrial and services loans, partially offset by a decrease in wholesale/retail and energy loan balances. Commercial real estate loan balances were up $202 million primarily related to growth in loans secured by retail facilities, industrial facilities, office buildings and multifamily residential properties, partially offset by a decrease in other commercial real estate loans. Residential mortgage loans decreased $16 million compared to June 30, 2015 and personal loans increased $36 million over June 30, 2015. 

Table 10 -- Loans
(In thousands)
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,838,167

 
$
2,902,143

 
$
2,902,994

 
$
2,860,428

 
$
2,551,699

Services
 
2,706,624

 
2,681,126

 
2,592,876

 
2,391,530

 
2,339,951

Wholesale/retail
 
1,461,936

 
1,533,730

 
1,405,800

 
1,440,015

 
1,421,107

Manufacturing
 
555,677

 
579,549

 
560,925

 
532,594

 
479,543

Healthcare
 
1,741,680

 
1,646,025

 
1,511,177

 
1,454,969

 
1,382,399

Other commercial and industrial
 
493,338

 
433,148

 
417,391

 
416,134

 
397,339

Total commercial
 
9,797,422

 
9,775,721

 
9,391,163

 
9,095,670

 
8,572,038

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
153,510

 
148,574

 
139,152

 
143,591

 
175,228

Retail
 
769,449

 
688,447

 
658,860

 
666,889

 
611,265

Office
 
626,151

 
563,085

 
513,862

 
415,544

 
438,909

Multifamily
 
758,658

 
711,333

 
749,986

 
704,298

 
739,757

Industrial
 
563,871

 
488,054

 
478,584

 
428,817

 
371,426

Other commercial real estate
 
363,428

 
434,004

 
395,020

 
369,011

 
387,614

Total commercial real estate
 
3,235,067

 
3,033,497

 
2,935,464

 
2,728,150

 
2,724,199

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
937,664

 
946,324

 
964,264

 
969,951

 
991,107

Permanent mortgages guaranteed by U.S. government agencies
 
192,712

 
190,839

 
200,179

 
205,950

 
198,488

Home equity
 
738,619

 
747,565

 
762,556

 
773,611

 
790,068

Total residential mortgage
 
1,868,995

 
1,884,728

 
1,926,999

 
1,949,512

 
1,979,663

 
 
 
 
 
 
 
 
 
 
 
Personal
 
465,957

 
430,190

 
430,510

 
434,705

 
407,839

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,367,441

 
$
15,124,136

 
$
14,684,136

 
$
14,208,037

 
$
13,683,739


Certain loans previously classified Services in the prior periods have been reclassified to Wholesale/retail to conform with current classification guidelines.

Commercial

Commercial loans represent loans for working capital, facilities acquisition or expansion, purchases of equipment and other needs of commercial customers primarily located within our geographical footprint. Commercial loans are underwritten individually and represent on-going relationships based on a thorough knowledge of the customer, the customer’s industry and market. While commercial loans are generally secured by the customer’s assets including real property, inventory, accounts receivable, operating equipment, interests in mineral rights and other property and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the on-going cash flow from operations of the customer’s business. Inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with commercial lending policies.

- 20 -



Commercial loans totaled $9.8 billion or 64% of the loan portfolio at September 30, 2015, an increase of $22 million over June 30, 2015. Healthcare sector loans grew by $96 million, other commercial and industrial loans increased $60 million and service sector loans increase by $25 million during the quarter. Wholesale/retail sector loans decreased $72 million and energy loan balances decreased $64 million compared to June 30, 2015.

Table 11 presents the commercial sector of our loan portfolio distributed primarily by collateral location. Loans for which collateral location is less relevant, such as unsecured loans and reserve-based energy loans, are distributed by the borrower's primary operating location. The majority of the collateral securing our commercial loan portfolio is located within our geographical footprint with 35% concentrated in the Texas market and 21% concentrated in the Oklahoma market. The Other category is primarily composed of two states, Louisiana and California, which represent $361 million or 4% of the commercial loan portfolio and $214 million or 2% of the commercial loan portfolio, respectively, at September 30, 2015. All other states individually represent one percent or less of total commercial loans.

Table 11 -- Commercial Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Energy
 
$
554,340

 
$
1,379,387

 
$
66,958

 
$
7,191

 
$
355,005

 
$
10,886

 
$
74,277

 
$
390,123

 
$
2,838,167

Services
 
598,784

 
818,467

 
198,433

 
3,188

 
274,578

 
155,396

 
163,862

 
493,916

 
2,706,624

Wholesale/retail
 
399,540

 
573,974

 
38,250

 
39,159

 
61,332

 
46,799

 
49,946

 
252,936

 
1,461,936

Manufacturing
 
159,692

 
184,973

 
4,024

 
5,114

 
35,717

 
51,684

 
59,990

 
54,483

 
555,677

Healthcare
 
265,113

 
326,082

 
118,616

 
77,408

 
118,909

 
112,553

 
199,244

 
523,755

 
1,741,680

Other commercial and industrial
 
84,698

 
149,780

 
5,670

 
72,876

 
25,612

 
18,919

 
90,248

 
45,535

 
493,338

Total commercial loans
 
$
2,062,167

 
$
3,432,663

 
$
431,951

 
$
204,936

 
$
871,153

 
$
396,237

 
$
637,567

 
$
1,760,748

 
$
9,797,422

 
Supporting the energy industry with loans to producers and other energy-related entities has been a hallmark of the Company since its founding and represents a large portion of our commercial loan portfolio. In addition, energy production and related industries have a significant impact on the economy in our primary markets. Loans collateralized by oil and gas properties are subject to a semi-annual engineering review by our internal staff of petroleum engineers. This review is utilized as the basis for developing the expected cash flows supporting the loan amount. The projected cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Loans are evaluated to demonstrate with reasonable certainty that crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and operating conditions at current pricing levels and with existing conventional equipment and operating methods and costs. As part of our evaluation of credit quality, we analyze rigorous stress tests over a range of commodity prices and take proactive steps to mitigate risk when appropriate.

Outstanding energy loans totaled $2.8 billion or 18% of total loans at September 30, 2015. Unfunded energy loan commitments increased by $147 million to $2.7 billion at September 30, 2015. Approximately $2.3 billion of energy loans were to oil and gas producers, down $135 million compared to June 30, 2015. Approximately 61% of the committed production loans are secured by properties primarily producing oil and 39% of the committed production loans are secured by properties primarily producing natural gas. Loans to borrowers that provide services to the energy industry increased $79 million to $323 million at September 30, 2015. Loans to midstream oil and gas companies totaled $149 million at September 30, 2015, an increase of $42 million over June 30, 2015. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $35 million, a $50 million decrease compared to the prior quarter.

The services sector of the loan portfolio totaled $2.7 billion or 18% of total loans and consists of a large number of loans to a variety of businesses, including governmental, finance and insurance, not-for-profit, educational services and loans to entities providing services for real estate and construction. Service sector loans increased by $25 million compared to June 30, 2015. Service sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s business. 

The healthcare sector of the loan portfolio consists primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Healthcare also includes loans to hospitals and other medical service providers.

- 21 -



We participate 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 September 30, 2015, the outstanding principal balance of these loans totaled $3.4 billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 18% of our shared national credits, based on dollars committed. We hold shared credits to the same standard of analysis and perform the same level of review as internally originated credits. Our lending policies generally avoid loans in which we do not have the opportunity to maintain or achieve other business relationships with the customer. In addition to management’s quarterly assessment of credit risk, banking regulators annually review a sample of shared national credits for proper risk grading.

Commercial Real Estate

Commercial real estate represents loans for the construction of buildings or other improvements to real estate and property held by borrowers for investment purposes generally within our geographical footprint, with larger concentrations in Texas and Oklahoma which represent 31% and 13% of the total commercial real estate portfolio at September 30, 2015, respectively. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

Commercial real estate loans totaled $3.2 billion or 21% of the loan portfolio at September 30, 2015. The outstanding balance of commercial real estate loans increased $202 million during the third quarter of 2015. Retail sector loans increased $81 million. Loans secured by industrial facilities grew $76 million. Loans secured by office buildings increased $63 million and loans secured by multifamily residential properties increased $47 million. These increases were partially offset by a $71 million decrease in other commercial real estate loan balances. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 18% to 21% over the past five years. The commercial real estate sector of our loan portfolio distributed by collateral location follows in Table 12.

Table 12 -- Commercial Real Estate Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Residential construction and land development
 
$
21,230

 
$
31,260

 
$
17,699

 
$
14,303

 
$
48,592

 
$
8,227

 
$
6,571

 
$
5,628

 
$
153,510

Retail
 
97,207

 
274,728

 
84,729

 
4,076

 
60,447

 
41,924

 
9,273

 
197,065

 
769,449

Office
 
98,237

 
198,959

 
58,472

 
4,264

 
24,769

 
37,709

 
48,947

 
154,794

 
626,151

Multifamily
 
85,511

 
274,411

 
30,533

 
22,197

 
69,903

 
93,322

 
41,715

 
141,066

 
758,658

Industrial
 
53,781

 
154,908

 
36,379

 
395

 
6,541

 
13,796

 
43,398

 
254,673

 
563,871

Other real estate
 
76,206

 
80,473

 
23,266

 
8,780

 
19,335

 
27,340

 
13,012

 
115,016

 
363,428

Total commercial real estate loans
 
$
432,172

 
$
1,014,739

 
$
251,078

 
$
54,015

 
$
229,587

 
$
222,318

 
$
162,916

 
$
868,242

 
$
3,235,067

Residential Mortgage and Personal

Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. Residential mortgage loans are secured by a first or second-mortgage on the customer’s primary residence. Personal loans consist primarily of loans to wealth management clients secured by the cash surrender value of insurance policies and marketable securities. It also includes direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans. Residential mortgage and personal loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.


- 22 -


Residential mortgage loans totaled $1.9 billion, a $16 million decrease compared to June 30, 2015. In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Collateral for 98% of our residential mortgage loan portfolio is located within our geographical footprint.

The majority of our permanent mortgage loan portfolio is composed of various non-conforming mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth individuals or certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans exceed maximums set under government sponsored entity standards, but otherwise generally conform to those standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38%. Loan-to-value ratios (“LTV”) are tiered from 60% to 100%, depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.

At September 30, 2015, $193 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We have minimal credit exposure on loans guaranteed by the agencies. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet. Permanent residential mortgage loans guaranteed by U.S. government agencies increased $1.9 million over June 30, 2015.

Home equity loans totaled $739 million at September 30, 2015, a decrease of $8.9 million compared to June 30, 2015. Our home equity loan portfolio is primarily composed of first-lien, fully amortizing home equity loans. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 40%. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 5 year revolving period followed by a 15 year term of amortizing repayment. Interest-only home equity loans may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term subject to an update of certain credit information. A summary of our home equity loan portfolio at September 30, 2015 by lien position and amortizing status follows in Table 13.

Table 13 -- Home Equity Loans
(In thousands)
 
 
Revolving
 
Amortizing
 
Total
First lien
 
$
37,478

 
$
469,130

 
$
506,608

Junior lien
 
76,012

 
155,999

 
232,011

Total home equity
 
$
113,490

 
$
625,129

 
$
738,619


The distribution of residential mortgage and personal loans at September 30, 2015 is as follows in Table 14. Residential mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.

- 23 -



Table 14 -- Residential Mortgage and Consumer Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
$
193,087

 
$
390,123

 
$
38,696

 
$
15,200

 
$
135,065

 
$
90,747

 
$
50,940

 
$
23,806

 
$
937,664

Permanent mortgages  guaranteed by U.S. government agencies
 
63,015

 
22,642

 
65,635

 
5,881

 
7,666

 
1,850

 
12,966

 
13,057

 
192,712

Home equity
 
436,449

 
131,460

 
116,800

 
5,362

 
30,723

 
9,749

 
7,509

 
567

 
738,619

Total residential mortgage
 
$
692,551

 
$
544,225

 
$
221,131

 
$
26,443

 
$
173,454

 
$
102,346

 
$
71,415

 
$
37,430

 
$
1,868,995

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
$
187,360

 
$
189,746

 
$
10,524

 
$
915

 
$
30,833

 
$
17,007

 
$
22,686

 
$
6,886

 
$
465,957


The Company secondarily evaluates loan portfolio performance based on the primary geographical market managing the loan. Loans attributed to a geographical market may not represent the location of the borrower or the collateral. All permanent mortgage loans serviced by our mortgage banking unit and held for investment by the Bank are centrally managed by the Bank of Oklahoma.



- 24 -


Table 15 -- Loans Managed by Primary Geographical Market
(In thousands)
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
3,514,391

 
$
3,529,406

 
$
3,276,553

 
$
3,142,689

 
$
3,106,264

Commercial real estate
 
677,372

 
614,995

 
612,639

 
603,610

 
592,865

Residential mortgage
 
1,405,235

 
1,413,690

 
1,442,340

 
1,467,096

 
1,481,264

Personal
 
185,463

 
190,909

 
205,496

 
206,115

 
193,207

Total Bank of Oklahoma
 
5,782,461

 
5,749,000

 
5,537,028

 
5,419,510

 
5,373,600

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
3,752,193

 
3,738,742

 
3,709,467

 
3,549,128

 
3,169,458

Commercial real estate
 
1,257,741

 
1,158,056

 
1,130,973

 
1,027,817

 
1,046,322

Residential mortgage
 
222,395

 
228,683

 
237,985

 
235,948

 
247,117

Personal
 
194,051

 
156,260

 
149,827

 
154,363

 
148,965

Total Bank of Texas
 
5,426,380

 
5,281,741

 
5,228,252

 
4,967,256

 
4,611,862

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 

 
 

 
 

 
 

 
 

Commercial
 
368,027

 
392,362

 
388,005

 
383,439

 
378,663

Commercial real estate
 
312,953

 
291,953

 
296,696

 
296,358

 
313,905

Residential mortgage
 
121,232

 
123,376

 
127,326

 
127,999

 
130,045

Personal
 
10,477

 
11,939

 
12,095

 
10,899

 
11,714

Total Bank of Albuquerque
 
812,689

 
819,630

 
824,122

 
818,695

 
834,327

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
76,044

 
99,086

 
91,485

 
95,510

 
74,866

Commercial real estate
 
82,225

 
85,997

 
87,034

 
88,301

 
96,874

Residential mortgage
 
8,063

 
6,999

 
6,807

 
7,261

 
7,492

Personal
 
4,921

 
5,189

 
5,114

 
5,169

 
5,508

Total Bank of Arkansas
 
171,253

 
197,271

 
190,440

 
196,241

 
184,740

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 

 
 

 
 

 
 

 
 

Commercial
 
1,029,694

 
1,019,454

 
1,008,316

 
977,961

 
957,917

Commercial real estate
 
229,835

 
229,721

 
209,272

 
194,553

 
190,812

Residential mortgage
 
50,138

 
54,135

 
55,925

 
57,119

 
56,705

Personal
 
30,683

 
30,373

 
27,792

 
27,918

 
24,812

Total Colorado State Bank & Trust
 
1,340,350

 
1,333,683

 
1,301,305

 
1,257,551

 
1,230,246

 
 
 
 
 
 
 
 
 
 
 
Bank of Arizona:
 
 

 
 

 
 

 
 

 
 

Commercial
 
608,235

 
572,477

 
519,767

 
547,524

 
500,208

Commercial real estate
 
482,918

 
472,061

 
432,269

 
355,140

 
316,698

Residential mortgage
 
41,722

 
37,493

 
36,161

 
35,872

 
39,256

Personal
 
17,609

 
12,875

 
12,394

 
12,883

 
11,201

Total Bank of Arizona
 
1,150,484

 
1,094,906

 
1,000,591

 
951,419

 
867,363

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 

 
 

 
 

 
 

 
 

Commercial
 
448,838

 
424,194

 
397,570

 
399,419

 
384,662

Commercial real estate
 
192,023

 
180,714

 
166,581

 
162,371

 
166,723

Residential mortgage
 
20,210

 
20,352

 
20,455

 
18,217

 
17,784

Personal
 
22,753

 
22,645

 
17,792

 
17,358

 
12,432

Total Bank of Kansas City
 
683,824

 
647,905

 
602,398

 
597,365

 
581,601

 
 
 
 
 
 
 
 
 
 
 
Total BOK Financial loans
 
$
15,367,441

 
$
15,124,136

 
$
14,684,136

 
$
14,208,037

 
$
13,683,739


- 25 -


Loan Commitments

We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded loan commitments which totaled $8.3 billion and standby letters of credit which totaled $480 million at September 30, 2015. 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. Approximately $4.1 million of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at September 30, 2015.

Table 16 – Off-Balance Sheet Credit Commitments
(In thousands)
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Loan commitments
 
$
8,325,540

 
$
8,064,841

 
$
8,116,482

 
$
8,328,416

 
$
7,715,279

Standby letters of credit
 
479,638

 
444,947

 
394,282

 
447,599

 
450,828

Mortgage loans sold with recourse
 
161,897

 
168,581

 
174,386

 
179,822

 
174,526


As more fully described in Note 6 to the Consolidated Financial Statements, we have off-balance sheet commitments related to certain residential mortgage loans originated under community development loan programs that were sold to a U.S. government agency with full recourse. These mortgage loans were underwritten to standards approved by the agencies, including full documentation and originated under programs available only for owner-occupied properties. The Company no longer sells residential mortgage loans with recourse. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. Substantially all of these loans are to borrowers in our primary markets including $106 million to borrowers in Oklahoma, $17 million to borrowers in Arkansas and $12 million to borrowers in New Mexico.

We also have an off-balance sheet obligation to repurchase residential mortgage loans sold to government sponsored entities through our mortgage banking activities due to standard representations and warranties made under contractual agreements as described further in Note 6 to the Consolidated Financial Statements. For the period from 2010 through the third quarter of 2015 combined, approximately 21% of repurchase requests have currently resulted in actual repurchases or indemnification by the Company. The accrual for credit losses related to potential loan repurchases under representations and warranties totaled $3.0 million at September 30, 2015 and $2.8 million at June 30, 2015.
Customer Derivative Programs
 
We offer programs that permit our customers to hedge various risks, including fluctuations in energy, cattle and other agricultural product prices, interest rates and foreign exchange rates. Each of these programs work essentially the same way. Derivative contracts are executed between the customers and the Company. Offsetting contracts are executed between the Company and selected counterparties to minimize market risk due to 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 us as compensation for administrative costs, credit risk and profit.

The customer derivative programs create credit risk for potential amounts due to the Company from our 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 cash margin or other collateral in conjunction with our credit agreements 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 of the counterparties. Individual limits are established by management, approved by Credit Administration and reviewed by the Asset / Liability Committee. Margin collateral is required if the exposure between the Company and any counterparty exceeds established limits. Based on declines in the counterparties’ credit ratings, these limits may be reduced and additional margin collateral may be required.


- 26 -


A deterioration of the credit standing of one or more of the customers or counterparties to these contracts may result in BOK Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting contracts. This occurs if the credit standing of the customer or counterparty deteriorated such that either the fair value of underlying collateral no longer supported the contract or the customer or the counterparty’s ability to provide margin collateral was impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statement of Earnings.

Derivative contracts are carried at fair value. At September 30, 2015, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $755 million compared to $652 million at June 30, 2015. At September 30, 2015, the fair value of our derivative contracts included $557 million for foreign exchange contracts, $86 million related to to-be-announced residential mortgage-backed securities, $61 million for energy contracts and $43 million for interest rate swaps. The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $748 million at September 30, 2015 and $643 million at June 30, 2015.

At September 30, 2015, total derivative assets were reduced by $29 million of cash collateral received from counterparties and total derivative liabilities were reduced by $112 million of cash collateral paid to counterparties related to instruments executed with the same counterparty under a master netting agreement.

A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note 3 to the Consolidated Financial Statements.

The fair value of derivative contracts reported as assets under these programs, net of cash margin held by the Company, by category of debtor at September 30, 2015 follows in Table 17.

Table 17 -- Fair Value of Derivative Contracts
(In thousands)
Customers
 
$
595,234

Banks and other financial institutions
 
96,487

Exchanges and clearing organizations
 
33,924

Fair value of customer risk management program asset derivative contracts, net
 
$
725,645

 
At September 30, 2015, our largest derivative exposure was to an exchange for energy derivative contracts which totaled $29 million. At September 30, 2015, our aggregate gross exposure to internationally active domestic financial institutions was approximately $195 million comprised of $175 million of cash and securities positions and $20 million of gross derivative positions. We have no direct exposure to European sovereign debt and our aggregate gross exposure to European financial institutions totaled $35 million at September 30, 2015.

Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain counterparties when the net negative fair value of the contracts exceeds established limits. Also, changes in commodity prices affect the amount of regulatory capital we are required to hold as support for the fair value of our derivative assets. These risks are modeled as part of the management of these programs. Based on current prices, a decrease in market prices equivalent to $24.84 per barrel of oil would decrease the fair value of derivative assets by $381 thousand. An increase in prices equivalent to $83.34 per barrel of oil would increase the fair value of derivative assets by $37 million as current prices move towards the fixed prices embedded in our existing contracts. Liquidity requirements of this program are also affected by our credit rating. A decrease in our credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $21 million. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of September 30, 2015, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.

- 27 -


Summary of Loan Loss Experience

We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. The combined allowance for loan losses and off-balance sheet credit losses totaled $208 million or 1.35% of outstanding loans and 232% of nonaccruing loans at September 30, 2015. The allowance for loan losses was $204 million and the accrual for off-balance sheet credit losses was $3.6 million. At June 30, 2015, the combined allowance for credit losses was $202 million or 1.34% of outstanding loans and 222% of nonaccruing loans. The allowance for loan losses was $201 million and the accrual for off-balance sheet credit losses was $882 thousand. 

The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the combined charge to expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. All losses incurred from lending activities will ultimately be reflected in charge-offs against the allowance for loan losses following funds advanced against outstanding commitments. After evaluating all credit factors, the Company determined that a $7.5 million provision for credit losses was necessary during the third quarter of 2015, due to credit migration in the energy portfolio and loan portfolio growth. A $4.0 million provision for credit losses was recorded in the second quarter of 2015 and no provision for credit losses was necessary in the third quarter of 2014.


- 28 -


Table 18 -- Summary of Loan Loss Experience
(In thousands)
 
 
Three Months Ended
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
201,087

 
$
197,686

 
$
189,056

 
$
191,244

 
$
190,690

Loans charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
(3,497
)
 
(881
)
 
(174
)
 
(3,279
)
 
(117
)
Commercial real estate
 
—

 
(16
)
 
(28
)
 
(1,682
)
 
(145
)
Residential mortgage
 
(446
)
 
(714
)
 
(624
)
 
(837
)
 
(773
)
Personal
 
(1,331
)
 
(1,266
)
 
(1,343
)
 
(1,426
)
 
(1,603
)
Total
 
(5,274
)
 
(2,877
)
 
(2,169
)
 
(7,224
)
 
(2,638
)
Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
759

 
685

 
357

 
2,262

 
260

Commercial real estate
 
1,865

 
275

 
8,819

 
1,145

 
1,410

Residential mortgage
 
205

 
481

 
437

 
774

 
150

Personal
 
692

 
765

 
910

 
855

 
1,294

Total
 
3,521

 
2,206

 
10,523

 
5,036

 
3,114

Net loans recovered (charged off)
 
(1,753
)
 
(671
)
 
8,354

 
(2,188
)
 
476

Provision for loan losses
 
4,782

 
4,072

 
276

 
—

 
78

Ending balance
 
$
204,116

 
$
201,087

 
$
197,686

 
$
189,056

 
$
191,244

Accrual for off-balance sheet credit losses:
 
 
 
 
 
 
 
 
 
 

Beginning balance
 
$
882

 
$
954

 
$
1,230

 
$
1,230

 
$
1,308

Provision for off-balance sheet credit losses
 
2,718

 
(72
)
 
(276
)
 
—

 
(78
)
Ending balance
 
$
3,600

 
$
882

 
$
954

 
$
1,230

 
$
1,230

Total combined provision for credit losses
 
$
7,500

 
$
4,000

 
$
—

 
$
—

 
$
—

Allowance for loan losses to loans outstanding at period-end
 
1.33
%
 
1.33
%
 
1.35
 %
 
1.33
%
 
1.40
 %
Net charge-offs (annualized) to average loans
 
0.05
%
 
0.02
%
 
(0.23
)%
 
0.06
%
 
(0.01
)%
Total provision for credit losses (annualized) to average loans
 
0.20
%
 
0.11
%
 
—
 %
 
—
%
 
—
 %
Recoveries to gross charge-offs
 
66.76
%
 
76.68
%
 
485.15
 %
 
69.71
%
 
118.04
 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments
 
0.04
%
 
0.01
%
 
0.01
 %
 
0.01
%
 
0.02
 %
Combined allowance for credit losses to loans outstanding at period-end
 
1.35
%
 
1.34
%
 
1.35
 %
 
1.34
%
 
1.41
 %
Allowance for Loan Losses

The appropriateness of the allowance for loan losses is assessed by management based on an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio. The allowance consists of specific allowances attributed to certain impaired loans, general allowances based on estimated loss rates by loan class and non-specific allowances based on general economic conditions, concentration in loans with large balances and other relevant factors.

Loans are considered to be impaired when it is probable that we will not collect all amounts due according to the contractual terms of the loan agreement. This includes all nonaccruing loans, all loans modified in troubled debt restructurings and all government guaranteed loans repurchased from GNMA pools. At September 30, 2015, impaired loans totaled $278 million, including $14 million with specific allowances of $5.0 million and $264 million with no specific allowances because the loan balances represent the amounts we expect to recover. At June 30, 2015, impaired loans totaled $278 million, including $1.7 million of impaired loans with specific allowances of $465 thousand and $276 million with no specific allowances.


- 29 -


General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rates for risk-graded loans are either increased or decreased based on changes in risk grading for each loan class. Estimated loss rates for both risk-graded and non-risk graded loans may be further adjusted for inherent risk identified for the given loan class which have not yet been captured in the loss rate.

The aggregate amount of general allowances for all unimpaired loans totaled $171 million at September 30, 2015, largely unchanged from June 30, 2015.

Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other relevant factors. Nonspecific allowances totaled $28 million at September 30, 2015, compared to $29 million at June 30, 2015. The nonspecific allowance includes consideration of the indirect impact of falling energy prices on the broader economies within our geographical footprint that are highly dependent on the energy industry. The nonspecific allowance also considers the possible impact of the European debt crisis and similar economic factors on our loan portfolio. As demonstrated by continued domestic and European accommodative monetary policies, these factors remain a continued significant risk, although they have remained stable compared to the previous quarter.

An allocation of the allowance for loan losses by portfolio segment is included in Note 4 to the Consolidated Financial Statements.

Our loan monitoring 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 concern as to the borrowers’ ability to comply with current repayment terms. These potential problem loans totaled $120 million at September 30, 2015, primarily composed of $96 million of energy loans, $8.1 million of service sector loans $7.7 million of loans secured by multifamily residential properties. Potential problem loans totaled $181 million at June 30, 2015 including $124 million of potential problem energy loans.

Our performing loan totals include loans that management considers to be "other loans especially mentioned" based on regulatory guidelines. Other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management's close attention. Energy loans classified as other loans especially mentioned totaled $196 million or 7% of outstanding energy loans at September 30, 2015 and $113 million or 4% outstanding energy loans at June 30, 2015.

We continue to believe that the credit quality of our energy loan portfolio is sound as supported by an update of our stress test at quarter end. We modified our assumptions slightly with oil prices starting at $34 per barrel for year one and escalating gradually to $45 per barrel in year five. Our natural gas stress test started at $2.25 in year one and gradually escalates to $2.70 in year five. The results of the updated stress test did not alter the general view that the loan portfolio is currently well positioned. The portion of the combined allowance for credit losses attributed to the energy portfolio totaled 2.05% of outstanding energy loans at September 30, 2015, an increase from 1.74% of outstanding energy loans at June 30, 2015.
Net Loans Charged Off

Loans are charged off against the allowance for loan losses 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. Internally risk graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans are generally charged off when payments are between 60 days and 180 days past due, depending on loan class. In addition, non-risk graded loans are generally charged-down to collateral value within 60 days of being notified of a borrower's bankruptcy filing, regardless of payment status.

BOK Financial had net loans charged off of $1.8 million in the third quarter of 2015, compared to net loans charged off of $671 thousand in the second quarter of 2015 and net recoveries of $476 thousand in the third quarter of 2014. The ratio of net loans charged off (recovered) to average loans on an annualized basis was 0.05% for the third quarter of 2015, compared with 0.02% for the second quarter of 2015 and (0.01)% for the third quarter of 2014. 


- 30 -


Net commercial loans charged off totaled $2.7 million in the third quarter of 2015, compared to net loans charged off of $196 thousand in the second quarter of 2015. Net commercial real estate loan recoveries were $1.9 million in the third quarter, compared to net recoveries of $259 thousand in the second quarter. Residential mortgage net charge-offs were $241 thousand and personal loan net charge-offs were $639 thousand for the third quarter. Personal loan net charge-offs include deposit account overdraft losses. 


- 31 -


Nonperforming Assets

Table 19 -- Nonperforming Assets
(In thousands)
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Nonaccruing loans:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
33,798

 
$
24,233

 
$
13,880

 
$
13,527

 
$
16,404

Commercial real estate
 
10,956

 
20,139

 
19,902

 
18,557

 
30,660

Residential mortgage
 
44,099

 
45,969

 
46,487

 
48,121

 
48,907

Personal
 
494

 
550

 
464

 
566

 
580

Total nonaccruing loans
 
89,347

 
90,891

 
80,733

 
80,771

 
96,551

Accruing renegotiated loans guaranteed by U.S. government agencies
 
81,598

 
82,368

 
80,287

 
73,985

 
70,459

Total nonperforming loans
 
170,945

 
173,259

 
161,020

 
154,756

 
167,010

Real estate and other repossessed assets:
 
 
 
 
 
 
 
 
 
 
Guaranteed by U.S. government agencies1
 
—

 
—

 
—

 
49,898

 
46,809

Other
 
33,116

 
35,499

 
45,551

 
51,963

 
51,062

Real estate and other repossessed assets
 
33,116

 
35,499

 
45,551

 
101,861

 
97,871

Total nonperforming assets
 
$
204,061

 
$
208,758

 
$
206,571

 
$
256,617

 
$
264,881

Total nonperforming assets excluding those guaranteed by U.S. government agencies
 
$
118,578

 
$
122,673

 
$
123,028

 
$
129,022

 
$
143,778

 
 
 
 
 
 
 
 
 
 
 
Nonaccruing loans by loan portfolio segment and class:
 
 
 
 
 
 

 
 

Commercial:
 
 
 
 
 
 
 
 

 
 

Energy
 
$
17,880

 
$
6,841

 
$
1,875

 
$
1,416

 
$
1,508

Services
 
10,692

 
10,944

 
4,744

 
5,201

 
3,584

Wholesale / retail
 
3,058

 
4,166

 
4,401

 
4,149

 
5,502

Manufacturing
 
352

 
379

 
417

 
450

 
3,482

Healthcare
 
1,218

 
1,278

 
1,558

 
1,380

 
1,417

Other commercial and industrial
 
598

 
625

 
885

 
931

 
911

Total commercial
 
33,798

 
24,233

 
13,880

 
13,527

 
16,404

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 

 
 

Residential construction and land development
 
4,748

 
9,367

 
9,598

 
5,299

 
14,634

Retail
 
1,648

 
3,826

 
3,857

 
3,926

 
4,009

Office
 
684

 
2,360

 
2,410

 
3,420

 
3,499

Multifamily
 
185

 
195

 
—

 
—

 
—

Industrial
 
76

 
76

 
76

 
—

 
—

Other commercial real estate
 
3,615

 
4,315

 
3,961

 
5,912

 
8,518

Total commercial real estate
 
10,956

 
20,139

 
19,902

 
18,557

 
30,660

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 

 
 

Permanent mortgage
 
30,660

 
32,187

 
33,365

 
34,845

 
35,137

Permanent mortgage guaranteed by U.S. government agencies
 
3,885

 
3,717

 
3,256

 
3,712

 
3,835

Home equity
 
9,554

 
10,065

 
9,866

 
9,564

 
9,935

Total residential mortgage
 
44,099

 
45,969

 
46,487

 
48,121

 
48,907

Personal
 
494

 
550

 
464

 
566

 
580

Total nonaccruing loans
 
$
89,347

 
$
90,891

 
$
80,733

 
$
80,771

 
$
96,551

 
 
 
 
 
 
 
 
 
 
 

- 32 -


 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Nonaccruing loans as % of outstanding balance for class:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
0.63
%
 
0.24
%
 
0.06
%
 
0.05
%
 
0.06
%
Services
 
0.40
%
 
0.41
%
 
0.18
%
 
0.22
%
 
0.15
%
Wholesale / retail
 
0.21
%
 
0.27
%
 
0.31
%
 
0.29
%
 
0.39
%
Manufacturing
 
0.06
%
 
0.07
%
 
0.07
%
 
0.08
%
 
0.73
%
Healthcare
 
0.07
%
 
0.08
%
 
0.10
%
 
0.09
%
 
0.10
%
Other commercial and industrial
 
0.12
%
 
0.14
%
 
0.21
%
 
0.22
%
 
0.23
%
Total commercial
 
0.34
%
 
0.25
%
 
0.15
%
 
0.15
%
 
0.19
%
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
3.09
%
 
6.30
%
 
6.90
%
 
3.69
%
 
8.35
%
Retail
 
0.21
%
 
0.56
%
 
0.59
%
 
0.59
%
 
0.66
%
Office
 
0.11
%
 
0.42
%
 
0.47
%
 
0.82
%
 
0.80
%
Multifamily
 
0.02
%
 
0.03
%
 
—
%
 
—
%
 
—
%
Industrial
 
0.01
%
 
0.02
%
 
0.02
%
 
—
%
 
—
%
Other commercial real estate
 
0.99
%
 
0.99
%
 
1.00
%
 
1.60
%
 
2.20
%
Total commercial real estate
 
0.34
%
 
0.66
%
 
0.68
%
 
0.68
%
 
1.13
%
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
3.27
%
 
3.40
%
 
3.46
%
 
3.59
%
 
3.55
%
Permanent mortgage guaranteed by U.S. government agencies
 
2.02
%
 
1.95
%
 
1.63
%
 
1.80
%
 
1.93
%
Home equity
 
1.29
%
 
1.35
%
 
1.29
%
 
1.24
%
 
1.26
%
Total residential mortgage
 
2.36
%
 
2.44
%
 
2.41
%
 
2.47
%
 
2.47
%
Personal
 
0.11
%
 
0.13
%
 
0.11
%
 
0.13
%
 
0.14
%
Total nonaccruing loans
 
0.58
%
 
0.60
%
 
0.55
%
 
0.57
%
 
0.71
%
 
 
 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 

 
 

Allowance for loan losses to nonaccruing loans
 
228.45
%
 
221.24
%
 
244.86
%
 
234.06
%
 
198.08
%
Accruing loans 90 days or more past due2
 
$
101

 
$
99

 
$
523

 
$
125

 
$
25

1 
Approximately $50 million was reclassified from Real estate and other repossessed assets to Receivables on the balance sheet on January 1, 2015 with the adoption of Financial Accounting Standards Board Update No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure ("ASU 2014-14"). Upon foreclosure of loans for which the loan balance is expected to be recovered from the guarantee by a U.S. government agency, the loan balance will be directly reclassified to other receivables without including such foreclosed assets in real estate and other repossessed assets.
2 
Excludes residential mortgages guaranteed by agencies of the U.S. Government.

Nonperforming assets totaled $204 million or 1.33% of outstanding loans and repossessed assets at September 30, 2015. Nonaccruing loans totaled $89 million, accruing renegotiated residential mortgage loans totaled $82 million and real estate and other repossessed assets totaled $33 million. All accruing renegotiated residential mortgage loans and $3.9 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $4.1 million during the third quarter. The Company generally retains nonperforming assets to maximize potential recovery which may cause future nonperforming assets to decrease more slowly.


- 33 -


Loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. As more fully discussed in Note 4 to the Consolidated Financial Statements, we may modify loans in troubled debt restructurings. Modifications may include extension of payment terms and rate concessions. We generally do not forgive principal or accrued but unpaid interest. All loans modified in troubled debt restructurings, except for residential mortgage loans guaranteed by U.S. government agencies, are classified as nonaccruing. We may also renew matured nonaccruing loans. All nonaccruing loans, including those renewed or modified in troubled debt restructurings, are charged off when the loan balance is no longer covered by the paying capacity of the borrower based on a quarterly evaluation of available cash resources and collateral value. All nonaccruing loans generally remain on nonaccrual status until full collection of principal and interest in accordance with the original terms, including principal previously charged off, is probable. We generally do not voluntarily modify personal loans to troubled borrowers. Personal loans modified at the direction of bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.

At September 30, 2015, renegotiated loans consist solely of accruing residential mortgage loans guaranteed by U.S. government agencies that have been modified in troubled debt restructurings. See Note 4 to the Consolidated Financial Statements for additional discussion of troubled debt restructurings. Generally, we modify residential mortgage loans primarily by reducing interest rates and extending the number of payments in accordance with U.S. government agency guidelines. Generally, no unpaid principal or interest is forgiven. Interest continues to accrue based on the modified terms of the loan. Modified loans guaranteed by U.S. government agencies under residential mortgage loan programs may be sold once they become eligible according to U.S. government agency guidelines.

A rollforward of nonperforming assets for the three and nine months ended September 30, 2015 follows in Table 20.

Table 20 -- Rollforward of Nonperforming Assets
(In thousands)
 
 
Three Months Ended
 
 
September 30, 2015
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, June 30, 2015
 
$
90,891

 
$
82,368

 
$
35,499

 
$
208,758

Additions
 
23,147

 
16,073

 
—

 
39,220

Transfers to premises and equipment
 
—

 
—

 
(1,130
)
 
(1,130
)
Payments
 
(11,677
)
 
(471
)
 
—

 
(12,148
)
Charge-offs
 
(5,274
)
 
—

 
—

 
(5,274
)
Net gains and write-downs
 
—

 
—

 
517

 
517

Foreclosure of nonperforming loans
 
(6,426
)
 
—

 
6,426

 
—

Foreclosure of loans guaranteed by U.S. government agencies1
 
(582
)
 
(1,003
)
 
—

 
(1,585
)
Proceeds from sales
 
—

 
(15,195
)
 
(7,328
)
 
(22,523
)
Contribution to BOKF Foundation
 
—

 
—

 
(796
)
 
(796
)
Transfer of foreclosed loans guaranteed by U.S. government agencies to Receivables1
 
—

 
—

 
—

 
—

Net transfers to nonaccruing loans
 
243

 
(243
)
 
—

 
—

Return to accrual status
 
(975
)
 
—

 
—

 
(975
)
Other, net
 
—

 
69

 
(72
)
 
(3
)
Balance, Sept. 30, 2015
 
$
89,347

 
$
81,598

 
$
33,116

 
$
204,061



- 34 -


 
 
Nine Months Ended
 
 
September 30, 2015
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, Dec. 31, 2014
 
$
80,771

 
$
73,985

 
$
101,861

 
$
256,617

Additions
 
57,418

 
53,206

 
—

 
110,624

Transfers from premises and equipment
 
—

 
—

 
(1,051
)
 
(1,051
)
Payments
 
(24,485
)
 
(2,216
)
 
—

 
(26,701
)
Charge-offs
 
(10,320
)
 
—

 
—

 
(10,320
)
Net gains and write-downs
 
—

 
—

 
1,702

 
1,702

Foreclosure of nonperforming loans
 
(10,609
)
 
—

 
10,609

 
—

Foreclosure of loans guaranteed by U.S. government agencies1
 
(3,721
)
 
(4,381
)
 
—

 
(8,102
)
Proceeds from sales
 
—

 
(37,850
)
 
(29,043
)
 
(66,893
)
Contribution to BOKF Foundation
 
—

 
—

 
(796
)
 
(796
)
Transfer of foreclosed loans guaranteed by U.S. government agencies to Receivables1
 
—

 
—

 
(49,898
)
 
(49,898
)
Net transfers to nonaccruing loans
 
1,555

 
(1,555
)
 
—

 
—

Return to accrual status
 
(1,262
)
 
—

 
—

 
(1,262
)
Other, net
 
—

 
409

 
(268
)
 
141

Balance, Sept. 30, 2015
 
$
89,347

 
$
81,598

 
$
33,116

 
$
204,061

1 
Approximately $50 million was reclassified from Real estate and other repossessed assets to Receivables on the balance sheet on January 1, 2015 with the adoption of Financial Accounting Standards Board Update No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure ("ASU 2014-14"). Upon foreclosure of loans for which the loan balance is expected to be recovered from the guarantee by a U.S. government agency, the loan balance will be directly reclassified to other receivables without including such foreclosed assets in real estate and other repossessed assets.

We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans are not eligible for modification programs or have failed to comply with modified loan terms. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is minimal. These properties will be conveyed to the agencies once applicable criteria have been met. 

Nonaccruing loans totaled $89 million or 0.58% of outstanding loans at September 30, 2015, compared to $91 million or 0.60% of outstanding loans at June 30, 2015. Newly identified nonaccruing loans totaled $23 million for the third quarter of 2015. These loans were offset by $12 million of payments, $7.0 million of foreclosures and $5.3 million of charge-offs.
Commercial

Nonaccruing commercial loans totaled $34 million or 0.34% of total commercial loans at September 30, 2015, compared to $24 million or 0.25% of commercial loans at June 30, 2015. There were $15 million in newly identified nonaccruing commercial loans during the quarter, offset by $3.5 million of charge-offs, $1.2 million in payments and $288 thousand of foreclosures.

Nonaccruing commercial loans at September 30, 2015 were primarily composed of $18 million or 0.63% of total energy loans, $11 million or 0.40% of total services sector loans and $3.1 million or 0.21% of total wholesale/retail sector loans. Most of the balance of nonaccruing wholesale/retail sector loans was comprised of a single customer in the New Mexico market.
Commercial Real Estate

Nonaccruing commercial real estate loans totaled $11 million or 0.34% of outstanding commercial real estate loans at September 30, 2015, compared to $20 million or 0.66% of outstanding commercial real estate loans at June 30, 2015. Newly identified nonaccruing commercial real estate loans of $827 thousand were offset by $7.0 million of cash payments received and $3.0 million of foreclosures. There were no charge-offs of nonaccruing commercial real estate loans during the third quarter.


- 35 -


Nonaccruing commercial real estate loans were primarily composed of $4.7 million or 3.09% of residential construction and land development loans, $3.6 million or 0.99% of other commercial real estate loans and $1.6 million or 0.21% of loans secured by retail facilities.

Residential Mortgage and Personal

Nonaccruing residential mortgage loans totaled $44 million or 2.36% of outstanding residential mortgage loans at September 30, 2015, compared to $46 million or 2.44% of outstanding residential mortgage loans at June 30, 2015. Newly identified nonaccruing residential mortgage loans totaled $5.4 million, offset by $3.4 million of payments, $3.1 million of foreclosures and $446 thousand of loans charged off during the quarter. 

Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans which totaled $31 million or 3.27% of outstanding non-guaranteed permanent residential mortgage loans at September 30, 2015. Nonaccruing home equity loans totaled $10 million or 1.29% of total home equity loans.

Payments of accruing residential mortgage loans and personal loans may be delinquent. The composition of residential mortgage loans and personal loans past due but still accruing is included in the following Table 21. Substantially all non-guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 89 days past due decreased $2.0 million in the third quarter to $6.8 million at September 30, 2015. Personal loans past due 30 to 89 days also decreased $181 thousand compared to June 30, 2015.

Table 21 -- Residential Mortgage and Consumer Loans Past Due
(In thousands)
 
 
September 30, 2015
 
June 30, 2015
 
 
90 Days or More
 
30 to 89 Days
 
90 Days or More
 
30 to 89 Days
Residential mortgage:
 
 
 
 
 
 
 
 
   Permanent mortgage1
 
$
—

 
$
3,318

 
$
—

 
$
6,277

Home equity
 
1

 
3,492

 
99

 
2,564

Total residential mortgage
 
$
1

 
$
6,810

 
99

 
$
8,841

 
 
 

 
 

 
 

 
 

Personal
 
$
—

 
$
245

 
$
—

 
$
426

1 
Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.


- 36 -


Real Estate and Other Repossessed Assets

Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. The assets are carried at the lower of cost as determined by fair value at the date of foreclosure or current fair value, less estimated selling costs.

Real estate and other repossessed assets totaled $33 million at September 30, 2015, a decrease of $2.4 million compared to June 30, 2015. The distribution of real estate and other repossessed assets attributed by geographical market is included in Table 22 following.

Table 22 -- Real Estate and Other Repossessed Assets by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
Colorado
 
Arkansas
 
New
Mexico
 
Arizona
 
Kansas/
Missouri
 
Other
 
Total
1-4 family residential properties
 
$
4,939

 
$
1,945

 
$
1,800

 
$
1,165

 
$
2,442

 
$
3,309

 
$
626

 
$
117

 
$
16,343

Developed commercial real estate properties
 
262

 
988

 
3,456

 
—

 
756

 
554

 
3,024

 
1,950

 
10,990

Undeveloped land
 
328

 
1,530

 
203

 
—

 
—

 
792

 
—

 
—

 
2,853

Residential land development properties
 
162

 
—

 
835

 
—

 
—

 
1,593

 
3

 
—

 
2,593

Other
 
13

 
—

 
—

 
—

 
—

 
324

 
—

 
—

 
337

Total real estate and other repossessed assets
 
$
5,704

 
$
4,463

 
$
6,294

 
$
1,165

 
$
3,198

 
$
6,572

 
$
3,653

 
$
2,067

 
$
33,116


Undeveloped land is primarily zoned for commercial development. Developed commercial real estate properties are primarily completed with no additional construction necessary for sale.

- 37 -


Liquidity and Capital

Subsidiary Bank

Deposits and borrowed funds are the primary sources of liquidity for the subsidiary bank. Based on the average balances for the third quarter of 2015, approximately 67% of our funding was provided by deposit accounts, 18% from borrowed funds, 1% from long-term subordinated debt and 11% from equity. Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks and other banks, provide adequate liquidity to meet our operating needs.

Deposit accounts represent our largest 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 sales and customer service program, free checking, on-line bill paying services, mobile banking 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. We also acquire brokered deposits when the cost of funds is advantageous to other funding sources.

Table 23 - Average Deposits by Line of Business
(In thousands)
 
Three Months Ended
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Commercial Banking
$
8,628,520

 
$
8,930,168

 
$
8,996,972

 
$
8,882,937

 
$
8,924,040

Consumer Banking
6,675,990

 
6,724,188

 
6,621,377

 
6,584,240

 
6,543,492

Wealth Management
4,490,144

 
4,522,257

 
4,701,703

 
4,434,637

 
4,207,216

Subtotal
19,794,654

 
20,176,613

 
20,320,052

 
19,901,814

 
19,674,748

Funds Management and other
898,494

 
917,346

 
928,987

 
796,194

 
552,226

Total
$
20,693,148

 
$
21,093,959

 
$
21,249,039

 
$
20,698,008

 
$
20,226,974


Average deposits for the third quarter of 2015 totaled $20.7 billion and represented approximately 67% of total liabilities and capital, compared with $21.1 billion and 69% of total liabilities and capital for the second quarter of 2015. Average deposits decreased $401 million from the second quarter of 2015. Average interest-bearing transaction deposit accounts decreased $303 million and and average time deposits decreased $94 million. 

Average Commercial Banking deposit balances decreased $302 million compared to the second quarter of 2015, primarily due to a seasonal decline in Public Funds customer balances. Commercial customers continue to retain large cash reserves primarily due to low yields available on other high quality investment alternatives and to minimize deposit service charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. If economic activity were to improve significantly or if short-term interest rates were to increase, deposits may decline as customers deploy funds into projects or shift demand deposits into money market instruments.

Average Consumer Banking deposit balances decreased $48 million. Demand deposit balances decreased $27 million and time deposits decreased $32 million. Interest-bearing transaction deposits grew by $13 million. Average Wealth Management deposits decreased $32 million compared to the second quarter of 2015 primarily due to a $68 million decrease in time deposit balances, partially offset by a $40 million increase in demand deposits.

Brokered deposits, included in time deposits, averaged $400 million for the third quarter of 2015, a decrease of $48 million compared to the second quarter of 2015. Average interest-bearing transaction accounts for the third quarter included $579 million of brokered deposits, a decrease of $1.9 million compared to the second quarter of 2015. Changes in average brokered deposits largely affect Funds Management and Other.


- 38 -


The distribution of our period end deposit account balances among principal markets follows in Table 24.

Table 24 -- Period End Deposits by Principal Market Area
(In thousands)
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Demand
 
$
3,834,145

 
$
4,068,088

 
$
3,982,534

 
$
3,828,819

 
$
3,915,560

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
5,783,258

 
6,018,381

 
6,199,468

 
6,117,886

 
5,450,692

Savings
 
225,580

 
225,694

 
227,855

 
206,357

 
201,690

Time
 
1,253,137

 
1,380,566

 
1,372,250

 
1,301,194

 
1,292,738

Total interest-bearing
 
7,261,975

 
7,624,641

 
7,799,573

 
7,625,437

 
6,945,120

Total Bank of Oklahoma
 
11,096,120

 
11,692,729

 
11,782,107

 
11,454,256

 
10,860,680

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 
 
 
 
 
 
 
 
 
Demand
 
2,689,493

 
2,565,234

 
2,511,032

 
2,639,732

 
2,636,713

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
1,996,223

 
2,020,817

 
2,062,063

 
2,065,723

 
2,020,737

Savings
 
74,674

 
74,373

 
76,128

 
72,037

 
66,798

Time
 
554,106

 
536,844

 
547,371

 
547,316

 
569,929

Total interest-bearing
 
2,625,003

 
2,632,034

 
2,685,562

 
2,685,076

 
2,657,464

Total Bank of Texas
 
5,314,496

 
5,197,268

 
5,196,594

 
5,324,808

 
5,294,177

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 
 
 
 
 
 
 
 
 
Demand
 
520,785

 
508,224

 
537,466

 
487,819

 
480,023

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
529,862

 
537,156

 
535,791

 
519,544

 
502,787

Savings
 
41,380

 
41,802

 
42,088

 
37,471

 
36,127

Time
 
281,426

 
285,890

 
290,706

 
295,798

 
303,074

Total interest-bearing
 
852,668

 
864,848

 
868,585

 
852,813

 
841,988

Total Bank of Albuquerque
 
1,373,453

 
1,373,072

 
1,406,051

 
1,340,632

 
1,322,011

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 
 
 
 
 
 
 
 
 
Demand
 
25,397

 
19,731

 
31,002

 
35,996

 
35,075

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
290,728

 
284,349

 
253,691

 
158,115

 
234,063

Savings
 
1,573

 
1,712

 
1,677

 
1,936

 
2,222

Time
 
26,203

 
28,220

 
28,277

 
28,520

 
38,811

Total interest-bearing
 
318,504

 
314,281

 
283,645

 
188,571

 
275,096

Total Bank of Arkansas
 
343,901

 
334,012

 
314,647

 
224,567

 
310,171

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 
 
 
 
 
 
 
 
 
Demand
 
430,675

 
403,491

 
412,532

 
445,755

 
422,044

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
655,206

 
601,741

 
604,665

 
631,874

 
571,807

Savings
 
31,398

 
31,285

 
31,524

 
29,811

 
29,768

Time
 
320,279

 
322,432

 
340,006

 
353,998

 
372,401

Total interest-bearing
 
1,006,883

 
955,458

 
976,195

 
1,015,683

 
973,976

Total Colorado State Bank & Trust
 
1,437,558

 
1,358,949

 
1,388,727

 
1,461,438

 
1,396,020

 
 
 
 
 
 
 
 
 
 
 

- 39 -


 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Bank of Arizona:
 
 
 
 
 
 
 
 
 
 
Demand
 
306,425

 
352,024

 
271,091

 
369,115

 
279,811

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
293,319

 
298,073

 
295,480

 
347,214

 
336,584

Savings
 
4,121

 
2,726

 
2,900

 
2,545

 
3,718

Time
 
26,750

 
28,165

 
28,086

 
36,680

 
38,842

Total interest-bearing
 
324,190

 
328,964

 
326,466

 
386,439

 
379,144

Total Bank of Arizona
 
630,615

 
680,988

 
597,557

 
755,554

 
658,955

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 
 
 
 
 
 
 
 
 
Demand
 
234,847

 
239,609

 
263,920

 
259,121

 
268,903

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
150,253

 
139,260

 
157,044

 
273,999

 
128,039

Savings
 
1,570

 
1,580

 
1,618

 
1,274

 
1,315

Time
 
36,630

 
42,262

 
45,082

 
45,210

 
48,785

Total interest-bearing
 
188,453

 
183,102

 
203,744

 
320,483

 
178,139

Total Bank of Kansas City
 
423,300

 
422,711

 
467,664

 
579,604

 
447,042

Total BOK Financial deposits
 
$
20,619,443

 
$
21,059,729

 
$
21,153,347

 
$
21,140,859

 
$
20,289,056


In addition to deposits, subsidiary bank liquidity is provided primarily by federal funds purchased, securities repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured, overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers’ banks and Federal Home Loan banks from across the country. There were no wholesale federal funds purchased outstanding at September 30, 2015. Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities. Federal Home Loan Bank borrowings are generally short term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and agency mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $4.7 billion during the quarter, compared to $4.0 billion in the second quarter of 2015.

At September 30, 2015, the estimated unused credit available to the subsidiary bank from collateralized sources was approximately $5.2 billion.

A summary of other borrowings by the subsidiary bank follows in Table 25.


- 40 -


Table 25 -- Borrowed Funds
(In thousands)
 
 
 
 
Three Months Ended
September 30, 2015
 
 
 
Three Months Ended
June 30, 2015
 
 
September 30, 2015
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
June 30, 2015
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds purchased
 
$
62,297

 
$
70,281

 
0.08
%
 
$
65,218

 
$
64,677

 
$
63,312

 
0.08
%
 
$
65,029

Repurchase agreements
 
555,677

 
672,085

 
0.03
%
 
687,048

 
712,033

 
773,977

 
0.03
%
 
780,405

Other borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank advances
 
4,600,000

 
4,746,197

 
0.27
%
 
4,800,000

 
4,300,000

 
3,972,528

 
0.26
%
 
4,300,000

GNMA repurchase liability
 
16,330

 
14,615

 
4.91
%
 
17,734

 
13,411

 
11,242

 
5.06
%
 
13,411

Other
 
18,820

 
19,169

 
5.44
%
 
26,057

 
18,751

 
17,709

 
5.58
%
 
18,751

Total other borrowings
 
4,635,150

 
4,779,981

 
0.30
%
 


 
4,332,162

 
4,001,479

 
0.31
%
 


Subordinated debentures
 
226,314

 
226,296

 
1.04
%
 
226,314

 
226,278

 
307,903

 
2.21
%
 
348,076

Total Borrowed Funds
 
$
5,479,438

 
$
5,748,643

 
0.30
%
 
 
 
$
5,335,150

 
$
5,146,671

 
0.38
%
 
 
In 2007, the Company issued $250 million of subordinated debt due May 15, 2017 to fund the Worth National Bank and First United Bank acquisitions and fund continued asset growth. Interest on this debt was based on a fixed rate of 5.75% through May 14, 2012 which then converted to a floating rate of three-month LIBOR plus 0.69%. At September 30, 2015, $227 million of this subordinated debt remains outstanding.
In 2005, the Bank issued $150 million of 10-year, fixed rate subordinated debt. The cost of this subordinated debt, including issuance discounts and hedge loss is 5.56%. The proceeds of this debt were used to repay $95 million of BOK Financial's unsecured revolving line of credit and to provide additional capital to support asset growth. The remaining outstanding balance of $122 million matured on June 1, 2015.
The Bank also has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold in GNMA mortgage pools. Interest is payable monthly at rates contractually due to investors.
Parent Company

At September 30, 2015, cash and interest-bearing cash and cash equivalents held by the Parent Company totaled $298 million. The primary sources of liquidity for BOK Financial are cash on hand and dividends from the subsidiary bank. Dividends from the subsidiary bank are limited by various banking regulations to net profits, as defined, for the year plus retained profits for the two preceding years. Dividends are further restricted by minimum capital requirements. At September 30, 2015, based upon the most restrictive limitations as well as management's internal capital policy, the subsidiary bank could declare up to $245 million of dividends without regulatory approval. Dividend constraints may be alleviated through increases in retained earnings, capital issuances or changes in risk weighted assets. Future losses or increases in required regulatory capital at the subsidiary bank could affect its ability to pay dividends to the parent company.

The Company had a $100 million senior unsecured 364 day revolving credit facility with Wells Fargo Bank, National Association, administrative agent and other commercial banks (“the Credit Facility”) which matured on June 5, 2015 and was not renewed by us.

Our equity capital at September 30, 2015 was $3.4 billion, an increase of $3.3 million over June 30, 2015. Net income less cash dividends paid increased equity $46 million during the third quarter of 2015. Accumulated other comprehensive income increased $34 million primarily related to the change in unrealized gains on available for sale securities due to changes in interest rates. The Company also repurchased $80 million of our common stock during the third quarter of 2015. 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.

- 41 -



On April 24, 2012, the Board of Directors authorized the Company to purchase up to two million shares of our common stock. The specific timing and amount of shares repurchased will vary based on market conditions, regulatory limitations and other factors. Repurchases may be made over time in open market or privately negotiated transactions. The repurchase program may be suspended or discontinued at any time without prior notice. As of September 30, 2015, the Company has repurchased all 2,000,000 shares authorized under this program for $124 million. The Company repurchased 1,258,348 shares during the third quarter of 2015.

On October 27, 2015, the board of directors authorized the Company to purchase up to five million additional common shares, subject to market conditions, securities law and other regulatory compliance limitations.

BOK Financial and the subsidiary bank are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that could have a material impact on operations. These capital requirements include quantitative measures of assets, liabilities and off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators.
New capital rules were effective for BOK Financial on January 1, 2015. Components of these rules will phase in through January 1, 2019. The new capital rules reduced instruments that qualify as regulatory capital and generally increased risk weighted assets. The impact of these changes was partially offset by improved data granularity. The new capital rules establish a 7% threshold for the common equity Tier 1 ratio consisting of a minimum level plus capital conservation buffer. The Company has elected to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital, consistent with the treatment under previous capital rules.

The rules also change both the Tier 1 risk based capital requirements and the total risk based requirements to a minimum of 6% and 8%, respectively, plus a capital conservation buffer of 2.5% totaling 8.5% and 10.5%, respectively. The leverage ratio requirement under the rule is 4%. A bank which falls below these levels, including the capital conservation buffer, would be subject to regulatory restrictions on capital distributions (including but not limited to dividends and share repurchases) and executive bonus payments.

The capital ratios for BOK Financial on a consolidated basis are presented in Table 26.

Table 26 -- Capital Ratios
 
 
Minimum Capital Requirement1
 
Capital Conservation Buffer2
 
Minimum Capital Requirement Including Capital Conservation Buffer
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Risk-based capital:
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1
 
4.50
%
 
2.50
%
 
7.00
%
 
12.78
%
 
13.01
%
 
13.07
%
Tier 1 capital
 
6.00
%
 
2.50
%
 
8.50
%
 
12.78
%
 
13.01
%
 
13.07
%
Total capital
 
8.00
%
 
2.50
%
 
10.50
%
 
13.89
%
 
14.11
%
 
14.39
%
Tier 1 Leverage
 
4.00
%
 
N/A

 
4.00
%
 
9.55
%
 
9.75
%
 
9.74
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Average total equity to average assets
 
 
 
 
 
 
 
11.05
%
 
11.10
%
 
11.18
%
Tangible common equity ratio
 
 
 
 
 
 
 
9.78
%
 
9.72
%
 
9.86
%
1 
Effective January 1, 2015
2 
Effective January 1, 2016


- 42 -


 
Calculated Under Then Current Capital Rules
 
Dec. 31, 2014
 
Sept. 30, 2014
Risk-based capital:
 
 
 
Tier 1 capital
13.33
%
 
13.72
%
Total capital
14.66
%
 
15.11
%
Tier 1 Leverage
9.96
%
 
10.22
%
 
 
 
 
Average total equity to average assets
11.36
%
 
11.55
%
Tangible common equity ratio
10.08
%
 
9.86
%

Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity ratio. Tangible common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principles in the United States of America (“GAAP”) less intangible assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes preferred equity. This non-GAAP measure is a valuable indicator of a financial institution’s capital strength since it eliminates intangible assets from shareholders’ equity and retains the effect of unrealized losses on securities and other components of accumulated other comprehensive income in shareholders’ equity.

Table 27 provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.

Table 27 -- Non-GAAP Measure
(Dollars in thousands)
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Tangible common equity ratio:
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
$
3,377,226

 
$
3,375,632

 
$
3,357,161

 
$
3,302,179

 
$
3,243,093

Less: Goodwill and intangible assets, net
 
430,460

 
431,515

 
411,066

 
412,156

 
413,256

Tangible common equity
 
2,946,766

 
2,944,117

 
2,946,095

 
2,890,023

 
2,829,837

Total assets
 
30,566,905

 
30,725,563

 
30,299,978

 
29,089,698

 
29,105,020

Less: Goodwill and intangible assets, net
 
430,460

 
431,515

 
411,066

 
412,156

 
413,256

Tangible assets
 
$
30,136,445

 
$
30,294,048

 
$
29,888,912

 
$
28,677,542

 
$
28,691,764

Tangible common equity ratio
 
9.78
%
 
9.72
%
 
9.86
%
 
10.08
%
 
9.86
%

On June 17, 2015, BOK Financial published the results of its annual capital stress test. In accordance with the Dodd-Frank Act, the Federal Reserve must publish regulations that require bank holding companies with $10 billion to $50 billion in assets to perform annual capital stress tests. The requirements for annual capital stress tests became effective for the Company in the fourth quarter of 2013. The Dodd-Frank Act Stress Test ("DFAST") is a forward-looking exercise under which the Company and its banking subsidiary estimate the impact of a hypothetical severely adverse macroeconomic scenario provided by the Federal Reserve and Office of the Comptroller of the Currency on its financial condition and regulatory capital ratios over a nine-quarter time horizon. Under the scenario provided by the regulatory agencies, all capital ratio measures remain comfortably above minimum regulatory thresholds. Additional information concerning the annual stress test may be found on the Company's Investor Relations page at www.bokf.com under the "Presentations" tab. The results of future capital stress tests may place constraints on capital distributions or increases in required regulatory capital under certain circumstances.


Off-Balance Sheet Arrangements

See Note 7 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet commitments.

- 43 -


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. Market risk excludes changes in fair value due to the credit of the individual issuers of financial instruments.

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 and agricultural product derivative contracts, which are affected by changes in commodity prices, are matched against offsetting contracts as previously discussed.

The Asset/Liability Committee is responsible for managing market risk in accordance with policy guidelines established by the Board of Directors. The Committee monitors projected variation in net interest revenue, net income and economic value of equity due to specified changes in interest rates. The internal policy limit for net interest revenue variation is a maximum decline of 5% to an up or down 200 basis point change over twelve months. 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 internal guidelines is reviewed monthly.

Interest Rate Risk – Other than Trading
 
As previously noted in the Net Interest Revenue section of this report, management has implemented strategies to manage the Company’s balance sheet to have relatively limited exposure to changes in interest rates over a twelve-month period. The effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions on net interest revenue, net income and economic value of equity. A simulation model is used to estimate the effect of changes in interest rates on the Company's performance across multiple interest rate scenarios. While the current internal policy limit for net interest revenue variation is a maximum decline of 5% or 200 basis point change over twelve months, the results of a 200 basis point decrease in interest rates in the current low-rate environment are not meaningful. We report the effect of a 50 basis point decrease in the interim.

The Company’s primary interest rate exposures include 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, residential mortgage rates directly affect the prepayment speeds for residential 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. In addition, the impact on the level and composition of DDA and other core deposit balances resulting from a significant increase in short-term market interest rates and the overall interest rate environment is likely to be material. The simulation incorporates assumptions regarding the effects of such changes 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 28 due to the extreme volatility over such a large rate range and our active risk management approach for that asset. The effects of interest rate changes on the value of mortgage servicing rights and financial instruments identified as economic hedges are presented in Note 6 to the Consolidated Financial Statements.

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 re-pricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, market conditions and management strategies, among other factors.
 

- 44 -


Table 28 -- Interest Rate Sensitivity
(Dollars in thousands)
 
 
200 bp Increase
 
50 bp Decrease
 
 
Sept. 30,
 
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Anticipated impact over the next twelve months on net interest revenue
 
$
(5,325
)
 
$
(7,658
)
 
$
(20,047
)
 
$
(16,325
)
 
 
(0.70
)%
 
(1.07
)%
 
(2.62
)%
 
(2.28
)%

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 residential 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. On a limited basis, BOK Financial may also take trading positions in U.S. Treasury securities, residential mortgage-backed securities and municipal bonds to enhance returns on its securities portfolios. Both of these activities involve interest rate risk. BOK Financial has an insignificant exposure to foreign exchange risk and does not take positions in commodity derivatives.

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, over the counter derivatives or cash markets may be used to reduce the risk associated with some trading programs.

Management uses a Value at Risk ("VaR") methodology to measure market risk due to changes in interest rates 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, a 10 business day holding period and a 99% confidence interval. It represents an amount of market loss that is likely to be exceeded in 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 $7.3 million. There were no instances of VaR being exceeded during the three and nine months ended September 30, 2015 and 2014. At September 30, 2015, there were no trading positions for the purposes of enhancing returns on the Company's securities portfolio.

The average, high and low VaR amounts for the three months and nine months ended September 30, 2015 and September 30, 2014 are as follows in Table 29.

Table 29 -- Value at Risk (VaR)
(In thousands)
 
Three Months Ended
Sept. 30,
 
Nine Months Ended
Sept. 30,
 
2015
 
2014
 
2015
 
2014
Average
$
1,799

 
$
1,601

 
$
1,635

 
$
1,739

High
2,680

 
3,064

 
2,680

 
3,731

Low
1,048

 
479

 
782

 
479

Controls and Procedures
 
As required by Rule 13a-15(b), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by their report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

- 45 -


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 allowance 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.

- 46 -


     
Consolidated Statements of Earnings (Unaudited)
 
 
 
 
 
 
 
 
(In thousands, except share and per share data)
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Interest revenue
 
2015
 
2014
 
2015
 
2014
Loans
 
$
132,985

 
$
126,559

 
$
392,878

 
$
374,523

Residential mortgage loans held for sale
 
3,793

 
2,929

 
10,634

 
7,042

Trading securities
 
669

 
414

 
1,618

 
1,233

Taxable securities
 
3,211

 
3,238

 
9,788

 
9,715

Tax-exempt securities
 
1,274

 
1,373

 
3,933

 
4,348

Total investment securities
 
4,485

 
4,611

 
13,721

 
14,063

Taxable securities
 
43,473

 
45,257

 
128,933

 
138,970

Tax-exempt securities
 
535

 
451

 
1,718

 
1,576

Total available for sale securities
 
44,008

 
45,708

 
130,651

 
140,546

Fair value option securities
 
2,480

 
913

 
6,803

 
2,558

Restricted equity securities
 
3,802

 
2,133

 
9,627

 
4,405

Interest-bearing cash and cash equivalents
 
1,442

 
601

 
4,114

 
1,249

Total interest revenue
 
193,664

 
183,868

 
570,046

 
545,619

Interest expense
 
 

 
 

 
 

 
 

Deposits
 
10,731

 
12,719

 
34,102

 
38,482

Borrowed funds
 
3,701

 
2,204

 
9,395

 
5,106

Subordinated debentures
 
596

 
2,154

 
4,456

 
6,501

Total interest expense
 
15,028

 
17,077

 
47,953

 
50,089

Net interest revenue
 
178,636

 
166,791

 
522,093

 
495,530

Provision for credit losses
 
7,500

 
—

 
11,500

 
—

Net interest revenue after provision for credit losses
 
171,136

 
166,791

 
510,593

 
495,530

Other operating revenue
 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
31,582

 
35,263

 
99,301

 
103,835

Transaction card revenue
 
32,514

 
31,578

 
96,302

 
92,222

Fiduciary and asset management revenue
 
30,807

 
29,738

 
94,988

 
85,003

Deposit service charges and fees
 
23,606

 
22,508

 
67,618

 
68,330

Mortgage banking revenue
 
33,170

 
26,814

 
109,336

 
78,988

Bank-owned life insurance
 
2,360

 
2,326

 
6,956

 
6,706

Other revenue
 
10,618

 
10,320

 
28,694

 
28,380

Total fees and commissions
 
164,657

 
158,547

 
503,195

 
463,464

Gain on other assets, net
 
1,161

 
1,422

 
3,373

 
2,615

Gain (loss) on derivatives, net
 
1,283

 
(93
)
 
1,162

 
1,706

Gain (loss) on fair value option securities, net
 
5,926

 
(332
)
 
443

 
6,504

Change in fair value of mortgage servicing rights
 
(11,757
)
 
5,281

 
(12,269
)
 
(5,624
)
Gain on available for sale securities, net
 
2,166

 
146

 
9,926

 
1,390

Total other-than-temporary impairment losses
 
—

 
—

 
(781
)
 
—

Portion of loss recognized in other comprehensive income
 
—

 
—

 
689

 
—

Net impairment losses recognized in earnings
 
—

 
—

 
(92
)
 
—

Total other operating revenue
 
163,436

 
164,971

 
505,738

 
470,055

Other operating expense
 
 

 
 

 
 

 
 

Personnel
 
129,062

 
123,043

 
390,305

 
351,190

Business promotion
 
5,922

 
6,160

 
19,435

 
19,151

Charitable contributions to BOKF Foundation
 
796

 
—

 
796

 
2,420

Professional fees and services
 
10,147

 
14,763

 
29,766

 
33,382

Net occupancy and equipment
 
18,689

 
18,892

 
56,660

 
54,577

Insurance
 
4,864

 
4,793

 
14,960

 
13,801

Data processing and communications
 
31,228

 
29,971

 
93,311

 
86,177

Printing, postage and supplies
 
3,376

 
3,380

 
10,390

 
10,350

Net losses and operating expenses of repossessed assets
 
267

 
4,966

 
1,103

 
7,516

Amortization of intangible assets
 
1,089

 
1,100

 
3,269

 
2,865

Mortgage banking costs
 
8,587

 
7,734

 
25,325

 
19,328

Other expense
 
10,601

 
7,032

 
26,686

 
20,888

Total other operating expense
 
224,628

 
221,834

 
672,006

 
621,645

Net income before taxes
 
109,944

 
109,928

 
344,325

 
343,940

Federal and state income taxes
 
34,128

 
33,802

 
113,142

 
114,042

Net income
 
75,816

 
76,126

 
231,183

 
229,898

Net income attributable to non-controlling interests
 
925

 
494

 
2,219

 
1,781

Net income attributable to BOK Financial Corporation shareholders
 
$
74,891

 
$
75,632

 
$
228,964

 
$
228,117

Earnings per share:
 
 

 
 

 
 

 
 

Basic
 
$
1.09

 
$
1.09

 
$
3.33

 
$
3.30

Diluted
 
$
1.09

 
$
1.09

 
$
3.32

 
$
3.29

Average shares used in computation:
 
 
 
 
 
 
 
 
Basic
 
67,668,076

 
68,455,866

 
68,004,508

 
68,364,549

Diluted
 
67,762,483

 
68,609,765

 
68,104,017

 
68,520,591

Dividends declared per share
 
$
0.42

 
$
0.40

 
$
1.26

 
$
1.20

See accompanying notes to consolidated financial statements.

- 47 -


Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
 
(In thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
75,816

 
$
76,126

 
$
231,183

 
$
229,898

Other comprehensive income (loss) before income taxes:
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
57,892

 
(42,399
)
 
57,763

 
82,252

Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
Interest revenue, Investments securities, Taxable securities
 
(105
)
 
(273
)
 
(418
)
 
(1,009
)
Interest expense, Subordinated debentures
 
—

 
52

 
121

 
206

Net impairment losses recognized in earnings
 
—

 
—

 
92

 
—

Gain on available for sale securities, net
 
(2,166
)
 
(146
)
 
(9,926
)
 
(1,390
)
Other comprehensive income (loss) before income taxes
 
55,621

 
(42,766
)
 
47,632

 
80,059

Federal and state income taxes
 
21,637

 
(16,645
)
 
18,529

 
31,141

Other comprehensive income (loss), net of income taxes
 
33,984


(26,121
)

29,103


48,918

Comprehensive income
 
109,800

 
50,005

 
260,286

 
278,816

Comprehensive income attributable to non-controlling interests
 
925

 
494

 
2,219

 
1,781

Comprehensive income attributable to BOK Financial Corp. shareholders
 
$
108,875

 
$
49,511

 
$
258,067

 
$
277,035


See accompanying notes to consolidated financial statements.

- 48 -


Consolidated Balance Sheets
(In thousands, except share data)
 
 
Sept. 30, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
 
 
(Unaudited)
 
(Footnote 1)
 
(Unaudited)
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
489,268

 
$
550,576

 
$
557,658

Interest-bearing cash and cash equivalents
 
1,830,105

 
1,925,266

 
2,007,901

Trading securities
 
181,131

 
188,700

 
169,712

Investment securities (fair value:  September 30, 2015 – $643,091; December 31, 2014 – $673,626 ; September 30, 2014 – $676,445)
 
612,384

 
652,360

 
655,091

Available for sale securities
 
8,801,089

 
8,978,945

 
9,306,886

Fair value option securities
 
427,760

 
311,597

 
175,761

Restricted equity securities
 
263,587

 
141,494

 
189,587

Residential mortgage loans held for sale
 
357,414

 
304,182

 
373,253

Loans
 
15,367,441

 
14,208,037

 
13,683,739

Allowance for loan losses
 
(204,116
)
 
(189,056
)
 
(191,244
)
Loans, net of allowance
 
15,163,325

 
14,018,981

 
13,492,495

Premises and equipment, net
 
294,669

 
273,833

 
275,718

Receivables
 
151,451

 
132,408

 
114,374

Goodwill
 
385,461

 
377,780

 
377,780

Intangible assets, net
 
44,999

 
34,376

 
35,476

Mortgage servicing rights
 
200,049

 
171,976

 
173,286

Real estate and other repossessed assets, net of allowance (September 30, 2015 – $12,874; December 31, 2014 – $22,937; September 30, 2014 – $25,916)
 
33,116

 
101,861

 
97,871

Derivative contracts, net
 
726,159

 
361,874

 
360,809

Cash surrender value of bank-owned life insurance
 
300,981

 
293,978

 
291,583

Receivable on unsettled securities sales
 
30,009

 
74,259

 
94,881

Other assets
 
273,948

 
195,252

 
354,898

Total assets
 
$
30,566,905

 
$
29,089,698

 
$
29,105,020

 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
8,041,767

 
$
8,066,357

 
$
8,038,129

Interest-bearing deposits:
 
 

 
 

 
 

Transaction
 
9,698,849

 
10,114,355

 
9,244,709

Savings
 
380,296

 
351,431

 
341,638

Time
 
2,498,531

 
2,608,716

 
2,664,580

Total deposits
 
20,619,443

 
21,140,859

 
20,289,056

Funds purchased
 
62,297

 
57,031

 
85,135

Repurchase agreements
 
555,677

 
1,187,489

 
1,026,009

Other borrowings
 
4,635,150

 
2,133,774

 
3,484,487

Subordinated debentures
 
226,314

 
347,983

 
347,936

Accrued interest, taxes and expense
 
158,048

 
120,211

 
100,664

Derivative contracts, net
 
636,115

 
354,554

 
348,687

Due on unsettled securities purchases
 
98,351

 
290,540

 
8,126

Other liabilities
 
159,348

 
121,051

 
137,608

Total liabilities
 
27,150,743

 
25,753,492

 
25,827,708

Shareholders' equity:
 
 

 
 

 
 

Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: September 30, 2015 – 74,461,234; December 31, 2014 – 74,003,754; September 30, 2014 – 73,964,496)
 
4

 
4

 
4

Capital surplus
 
973,824

 
954,644

 
948,305

Retained earnings
 
2,673,292

 
2,530,837

 
2,495,338

Treasury stock (shares at cost:  September 30, 2015 – 6,748,203 ; December 31, 2014 – 4,890,018;  September 30, 2014 – 4,626,998)
 
(355,670
)
 
(239,979
)
 
(223,849
)
Accumulated other comprehensive income
 
85,776

 
56,673

 
23,295

Total shareholders’ equity
 
3,377,226

 
3,302,179

 
3,243,093

Non-controlling interests
 
38,936

 
34,027

 
34,219

Total equity
 
3,416,162

 
3,336,206

 
3,277,312

Total liabilities and equity
 
$
30,566,905

 
$
29,089,698

 
$
29,105,020


See accompanying notes to consolidated financial statements.

- 49 -


Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
 
 
Common Stock
 
Capital
Surplus
 
Retained
Earnings
 
Treasury Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
 
Non-
Controlling
Interests
 
Total Equity
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, Dec. 31, 2013
 
73,163

 
$
4

 
$
898,586

 
$
2,349,428

 
4,305

 
$
(202,346
)
 
$
(25,623
)
 
$
3,020,049

 
$
34,924

 
$
3,054,973

Net income
 
—

 
—

 
—

 
228,117

 
—

 
—

 
—

 
228,117

 
1,781

 
229,898

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
48,918

 
48,918

 
—

 
48,918

Repurchase of common stock
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Issuance of shares for equity compensation
 
470

 
—

 
14,656

 
—

 
120

 
(8,367
)
 
—

 
6,289

 
—

 
6,289

Tax effect from equity compensation, net
 
—

 
—

 
8,176

 
—

 
—

 
—

 
—

 
8,176

 
—

 
8,176

Share-based compensation
 
—

 
—

 
11,815

 
—

 
—

 
—

 
—

 
11,815

 
—

 
11,815

Issuance of shares in settlement of deferred compensation, net
 
331

 
—

 
15,072

 
—

 
202

 
(13,136
)
 
—

 
1,936

 
—

 
1,936

Cash dividends on common stock
 
—

 
—

 
—

 
(82,207
)
 
—

 
—

 
—

 
(82,207
)
 
—

 
(82,207
)
Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,486
)
 
(2,486
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, Sept. 30, 2014
 
73,964

 
$
4

 
$
948,305

 
$
2,495,338

 
4,627

 
$
(223,849
)
 
$
23,295

 
$
3,243,093

 
$
34,219

 
$
3,277,312

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2014
 
74,004

 
$
4

 
$
954,644

 
$
2,530,837

 
4,890

 
$
(239,979
)
 
$
56,673

 
$
3,302,179

 
$
34,027

 
$
3,336,206

Net income
 
—

 
—

 
—

 
228,964

 
—

 
—

 
—

 
228,964

 
2,219

 
231,183

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
29,103

 
29,103

 
—

 
29,103

Repurchase of common stock
 
—

 
—

 
—

 
—

 
1,760

 
(109,760
)
 
—

 
(109,760
)
 
—

 
(109,760
)
Issuance of shares for equity compensation
 
457

 
—

 
10,728

 
—

 
98

 
(5,931
)
 
—

 
4,797

 
—

 
4,797

Tax effect from equity compensation, net
 
—

 
—

 
645

 
—

 
—

 
—

 
—

 
645

 
—

 
645

Share-based compensation
 
—

 
—

 
7,807

 
—

 
—

 
—

 
—

 
7,807

 
—

 
7,807

Cash dividends on common stock
 
—

 
—

 
—

 
(86,509
)
 
—

 
—

 
—

 
(86,509
)
 
—

 
(86,509
)
Sale of non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5,500

 
5,500

Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,810
)
 
(2,810
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, Sept. 30, 2015
 
74,461

 
$
4

 
$
973,824

 
$
2,673,292

 
6,748

 
$
(355,670
)
 
$
85,776

 
$
3,377,226

 
$
38,936

 
$
3,416,162


See accompanying notes to consolidated financial statements.

- 50 -


Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

 
Nine Months Ended
 
 
September 30,
 
 
2015
 
2014
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
231,183

 
$
229,898

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 

 
 

Provision for credit losses
 
11,500

 
—

Change in fair value of mortgage servicing rights
 
12,269

 
5,624

Unrealized gains from derivative contracts
 
(974
)
 
(7,853
)
Tax effect from equity compensation, net
 
(645
)
 
(8,176
)
Change in bank-owned life insurance
 
(6,956
)
 
(6,706
)
Share-based compensation
 
7,807

 
11,815

Depreciation and amortization
 
50,088

 
40,833

Net amortization of securities discounts and premiums
 
42,757

 
43,078

Net realized losses (gains) on financial instruments and other assets
 
(12,601
)
 
1,459

Net gain on mortgage loans held for sale
 
(60,075
)
 
(43,764
)
Mortgage loans originated for sale
 
(5,007,471
)
 
(3,220,120
)
Proceeds from sale of mortgage loans held for sale
 
5,022,109

 
3,091,285

Capitalized mortgage servicing rights
 
(62,375
)
 
(39,183
)
Charitable contributions to BOKF Foundation
 
796

 
2,420

Change in trading and fair value option securities
 
(110,857
)
 
(88,005
)
Change in receivables
 
8,455

 
14,134

Change in other assets
 
(8,412
)
 
36,931

Change in accrued interest, taxes and expense
 
14,447

 
(107,585
)
Change in other liabilities
 
40,670

 
23,164

Net cash provided by (used in) operating activities
 
171,715

 
(20,751
)
Cash Flows From Investing Activities:
 
 

 
 

Proceeds from maturities or redemptions of investment securities
 
53,795

 
54,666

Proceeds from maturities or redemptions of available for sale securities
 
1,307,177

 
1,323,708

Purchases of investment securities
 
(19,037
)
 
(37,094
)
Purchases of available for sale securities
 
(2,271,374
)
 
(2,324,730
)
Proceeds from sales of available for sale securities
 
1,164,425

 
1,884,061

Change in amount receivable on unsettled securities transactions
 
44,250

 
(77,707
)
Loans originated, net of principal collected
 
(1,121,100
)
 
(845,432
)
Net payments on derivative asset contracts
 
(291,949
)
 
(102,302
)
Acquisitions, net of cash acquired
 
(18,098
)
 
(21,898
)
Proceeds from disposition of assets
 
131,824

 
95,611

Purchases of assets
 
(203,546
)
 
(193,597
)
Net cash used in investing activities
 
(1,223,633
)
 
(244,714
)
Cash Flows From Financing Activities:
 
 

 
 

Net change in demand deposits, transaction deposits and savings accounts
 
(411,231
)
 
51,142

Net change in time deposits
 
(110,185
)
 
(31,413
)
Net change in other borrowed funds
 
1,786,438

 
1,773,313

Repayment of subordinated debentures
 
(121,810
)
 
—

Net proceeds on derivative liability contracts
 
277,872

 
114,985

Net change in derivative margin accounts
 
(148,119
)
 
(45,724
)
Change in amount due on unsettled security transactions
 
(192,189
)
 
(37,614
)
Issuance of common and treasury stock, net
 
4,797

 
(6,847
)
Tax effect from equity compensation, net
 
645

 
8,176

Sale of non-controlling interests
 
5,500

 
—

Repurchase of common stock
 
(109,760
)
 
—

Dividends paid
 
(86,509
)
 
(82,207
)
Net cash provided by financing activities
 
895,449

 
1,743,811

Net increase (decrease) in cash and cash equivalents
 
(156,469
)
 
1,478,346

Cash and cash equivalents at beginning of period
 
2,475,842

 
1,087,213

Cash and cash equivalents at end of period
 
$
2,319,373

 
$
2,565,559


- 51 -


Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
 
 
 
Supplemental Cash Flow Information:
 
 
 
 
Cash paid for interest
 
$
50,066

 
$
47,264

Cash paid for taxes
 
$
78,115

 
$
61,627

Net loans and bank premises transferred to repossessed real estate and other assets
 
$
9,558

 
$
38,797

Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period
 
$
86,242

 
$
100,430

Conveyance of other real estate owned guaranteed by U.S. government agencies
 
$
93,157

 
$
34,425

Issuance of shares in settlement of accrued executive compensation
 
$
—

 
$
15,072

See accompanying notes to consolidated financial statements.

- 52 -


Notes to Consolidated Financial Statements (Unaudited)

(1) Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of BOK Financial Corporation (“BOK Financial” or “the Company”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The unaudited consolidated financial statements include accounts of BOK Financial and its subsidiaries, principally BOKF, NA (“the Bank”), BOSC, Inc., The Milestone Group, Inc. and Cavanal Hill Investment Management Inc. Operating divisions of the Bank include Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust, Bank of Kansas City, BOK Financial Mortgage and the TransFund electronic funds network.

Certain reclassifications have been made to conform to the current period presentation.

The financial information should be read in conjunction with BOK Financial’s 2014 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 2014 have been derived from the audited financial statements included in BOK Financial’s 2014 Form 10-K but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the nine-month period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

Newly Adopted and Pending Accounting Policies

Financial Accounting Standards Board (“FASB”)

FASB Accounting Standards Update No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects ("ASU 2014-01")

On January 15, 2014, the FASB issued ASU 2014-01 to simplify the amortization method an entity uses and modify the criteria to elect a measurement and presentation alternative, including the simplified amortization method, for certain investments in qualified affordable housing projects. This alternative permits the entity to present the investment's performance net of the related tax benefits as part of income tax expense. ASU 2014-01 was effective for the Company for interim and annual periods beginning after December 15, 2014. Adoption of ASU 2014-01 affected income statement presentation, but otherwise did not have a material impact on the Company's consolidated financial statements.

FASB Accounting Standards Update No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure ("ASU 2014-04")

On January 17, 2014, the FASB issued ASU 2014-04 to clarify when an entity is considered to have obtained physical possession (from an in-substance possession or foreclosure) of a residential real estate property collateralizing a mortgage loan. Upon physical possession of such real property, an entity is required to reclassify the nonperforming mortgage loan to other real estate owned. ASU 2014-04 was effective for the Company for interim and annual periods beginning after December 15, 2014. Adoption of ASU 2014-04 did not have a material impact on the Company's consolidated financial statements.


- 53 -


FASB Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09")

On May 28, 2014, the FASB issued ASU 2014-09 to clarify the principles for recognizing revenue by providing a more robust framework that will give greater consistency and comparability in revenue recognition practices. In the new framework, an entity recognizes revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. The new model requires the identification of performance obligations included in contracts with customers, a determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes revenue when performance obligations are satisfied. ASU 2014-09 is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the impact the adoption of ASU 2014-09 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure ("ASU 2014-14")

On August 8, 2014, the FASB issued ASU 2014-14 to give greater consistency in the classification of government-guaranteed loans upon foreclosure. ASU 2014-14 applies to all loans that contain a government guarantee that is not separable from the loan or for which the creditor has both the intent and ability to recover a fixed amount under the guarantee by conveying the property to the guarantor. Upon foreclosure, the creditor should reclassify the mortgage loan to an other receivable that is separate from loans and should measure the receivable at the amount of the loan balance expected to be recovered from the guarantor. ASU 2014-14 was effective for the Company for interim and annual periods beginning after December 15, 2014. At January 1, 2015, approximately $50 million of real estate owned was reclassified from Real estate and other repossessed assets to Receivables on the balance sheet with adoption of ASC 2014-14.

FASB Accounting Standards Update No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity ("ASU 2014-16")

On November 3, 2014, the FASB issued ASU 2014-16 to eliminate the use of different methods and reduce diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. For hybrid financial instruments issued in the form of share, an entity should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument. The entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. For public business entities, the ASU is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. Early adoption is permitted. Adoption of ASU 2014-16 is not expected to have a material impact on the Company's consolidated financial statements.

FASB Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02")

On February 18, 2015, the FASB issued ASU 2015-02 to address concerns that current U.S. GAAP may require a reporting entity to consolidate another legal entity where the reporting entity's contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entity's voting rights, or the reporting entity is not exposed to a majority of the legal entity's economic benefits or obligations. The amendments affect limited partnerships and similar legal entities, the evaluation of fees paid to a decision maker or a service provider as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination, and certain investment funds. The ASU will be effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact the adoption of ASU 2015-02 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2015-07, Fair Value Measurements (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-07")

On May 1, 2015, the FASB issued ASU 2015-07 to gain consistency within the categorization of the fair value hierarchy. The update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The ASU is effective for the Company for interim and annual periods beginning January 1, 2016 and should be applied retrospectively to all periods presented. Early adoption is permitted. The Company is evaluating the impact the adoption of ASU 2015-07 will have on the Company's financial statements.


- 54 -


(2) Securities
Trading Securities
 
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
 
 
 
September 30, 2015
 
December 31, 2014
 
September 30, 2014
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair
Value
 
Net Unrealized Gain (Loss)
U.S. Government agency debentures
 
$
42,431

 
$
(38
)
 
$
85,092

 
$
(62
)
 
$
41,004

 
$
(5
)
U.S. agency residential mortgage-backed securities
 
30,973

 
195

 
31,199

 
269

 
33,226

 
(2,002
)
Municipal and other tax-exempt securities
 
84,261

 
421

 
38,951

 
18

 
76,884

 
90

Other trading securities
 
23,466

 
28

 
33,458

 
(38
)
 
18,598

 
62

Total trading securities
 
$
181,131

 
$
606

 
$
188,700

 
$
187

 
$
169,712

 
$
(1,855
)
Investment Securities
 
The amortized cost and fair values of investment securities are as follows (in thousands):

 
 
September 30, 2015
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
379,980

 
$
379,980

 
$
384,310

 
$
4,461

 
$
(131
)
U.S. agency residential mortgage-backed securities – Other
 
28,456

 
28,653

 
30,080

 
1,427

 
—

Other debt securities
 
203,751

 
203,751

 
228,701

 
25,063

 
(113
)
Total investment securities
 
$
612,187

 
$
612,384

 
$
643,091

 
$
30,951

 
$
(244
)
1 
Carrying value includes $197 thousand of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio in 2011.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
 
 
December 31, 2014
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
405,090

 
$
405,090

 
$
408,344

 
$
4,205

 
$
(951
)
U.S. agency residential mortgage-backed securities – Other
 
35,135

 
35,750

 
37,463

 
1,713

 
—

Other debt securities
 
211,520

 
211,520

 
227,819

 
16,956

 
(657
)
Total investment securities
 
$
651,745

 
$
652,360

 
$
673,626

 
$
22,874

 
$
(1,608
)
1 
Carrying value includes $615 thousand of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio in 2011.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

- 55 -


 
 
September 30, 2014
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
410,595

 
$
410,595

 
$
415,233

 
$
4,847

 
$
(209
)
U.S. agency residential mortgage-backed securities – Other
 
37,763

 
38,585

 
40,259

 
1,674

 
—

Other debt securities
 
205,911

 
205,911

 
220,953

 
16,001

 
(959
)
Total investment securities
 
$
654,269

 
$
655,091

 
$
676,445

 
$
22,522

 
$
(1,168
)
1 
Carrying value includes $822 thousand of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio in 2011.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

The amortized cost and fair values of investment securities at September 30, 2015, by contractual maturity, are as shown in the following table (dollars in thousands):
 
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 
Total
 
Weighted
Average
Maturity²
Municipal and other tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value
 
$
51,529

 
$
276,168

 
$
18,225

 
$
34,058

 
$
379,980

 
3.37

Fair value
 
51,641

 
278,013

 
18,406

 
36,250

 
384,310

 
 
Nominal yield¹
 
1.41
%
 
1.78
%
 
3.18
%
 
5.77
%
 
2.16
%
 
 
Other debt securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
11,797

 
42,346

 
85,786

 
63,822

 
203,751

 
8.89

Fair value
 
11,963

 
45,699

 
97,088

 
73,951

 
228,701

 
 
Nominal yield
 
4.09
%
 
4.63
%
 
5.68
%
 
5.97
%
 
5.46
%
 
 
Total fixed maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
$
63,326

 
$
318,514

 
$
104,011

 
$
97,880

 
$
583,731

 
5.29

Fair value
 
63,604

 
323,712

 
115,494

 
110,201

 
613,011

 
 

Nominal yield
 
1.91
%
 
2.16
%
 
5.24
%
 
5.90
%
 
3.31
%
 
 

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
28,653

 
³

Fair value
 
 

 
 

 
 

 
 

 
30,080

 
 

Nominal yield4
 
 

 
 

 
 

 
 

 
2.75
%
 
 

Total investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
612,384

 
 

Fair value
 
 

 
 

 
 

 
 

 
643,091

 
 

Nominal yield
 
 

 
 

 
 

 
 

 
3.28
%
 
 

1 
Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 
Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
3 
The average expected lives of residential mortgage-backed securities were 4.0 years based upon current prepayment assumptions.
4 
The nominal yield on residential mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary - Unaudited for current yields on the investment securities portfolio.


- 56 -


Available for Sale Securities 

The amortized cost and fair value of available for sale securities are as follows (in thousands):
 
 
September 30, 2015
 
 
Amortized
 
Fair
 
Gross Unrealized1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,000

 
$
1,003

 
$
3

 
$
—

 
$
—

Municipal and other tax-exempt
 
57,610

 
57,960

 
1,065

 
(715
)
 
—

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
3,115,810

 
3,185,097

 
69,757

 
(470
)
 
—

FHLMC
 
1,853,379

 
1,885,201

 
32,646

 
(824
)
 
—

GNMA
 
741,212

 
744,647

 
4,557

 
(1,122
)
 
—

Other
 
3,922

 
4,182

 
260

 
—

 
—

Total U.S. government agencies
 
5,714,323

 
5,819,127

 
107,220

 
(2,416
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
58,801

 
64,700

 
6,519

 
—

 
(620
)
Jumbo-A loans
 
75,258

 
80,982

 
6,121

 
—

 
(397
)
Total private issue
 
134,059

 
145,682

 
12,640

 
—

 
(1,017
)
Total residential mortgage-backed securities
 
5,848,382

 
5,964,809

 
119,860

 
(2,416
)
 
(1,017
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,708,931

 
2,735,787

 
28,889

 
(2,033
)
 
—

Other debt securities
 
4,400

 
4,150

 
—

 
(250
)
 
—

Perpetual preferred stock
 
17,171

 
19,163

 
2,030

 
(38
)
 
—

Equity securities and mutual funds
 
18,711

 
18,217

 
950

 
(1,444
)
 
—

Total available for sale securities
 
$
8,656,205

 
$
8,801,089

 
$
152,797

 
$
(6,896
)
 
$
(1,017
)
1 Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet.
2 Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.

- 57 -


 
 
December 31, 2014
 
 
Amortized
 
Fair
 
Gross Unrealized¹
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,005

 
$
1,005

 
$
—

 
$
—

 
$
—

Municipal and other tax-exempt
 
63,018

 
63,557

 
1,280

 
(741
)
 
—

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
3,932,200

 
3,997,428

 
71,200

 
(5,972
)
 
—

FHLMC
 
1,810,476

 
1,836,870

 
29,043

 
(2,649
)
 
—

GNMA
 
801,820

 
807,443

 
8,240

 
(2,617
)
 
—

Other
 
4,808

 
5,143

 
335

 
—

 
—

Total U.S. government agencies
 
6,549,304

 
6,646,884

 
108,818

 
(11,238
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
65,582

 
71,952

 
6,677

 
—

 
(307
)
Jumbo-A loans
 
88,778

 
94,005

 
5,584

 
—

 
(357
)
Total private issue
 
154,360

 
165,957

 
12,261

 
—

 
(664
)
Total residential mortgage-backed securities
 
6,703,664

 
6,812,841

 
121,079

 
(11,238
)
 
(664
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,064,091

 
2,048,609

 
4,437

 
(19,919
)
 
—

Other debt securities
 
9,438

 
9,212

 
26

 
(252
)
 
—

Perpetual preferred stock
 
22,171

 
24,277

 
2,183

 
(77
)
 
—

Equity securities and mutual funds
 
18,603

 
19,444

 
871

 
(30
)
 
—

Total available for sale securities
 
$
8,881,990

 
$
8,978,945

 
$
129,876

 
$
(32,257
)
 
$
(664
)
1 Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet.
2 Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.

 
 
September 30, 2014
 
 
Amortized
 
Fair
 
Gross Unrealized1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,014

 
$
1,015

 
$
1

 
$
—

 
$
—

Municipal and other tax-exempt
 
63,508

 
64,363

 
1,580

 
(725
)
 
—

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
4,117,747

 
4,158,631

 
61,663

 
(20,779
)
 
—

FHLMC
 
1,812,708

 
1,823,393

 
21,886

 
(11,201
)
 
—

GNMA
 
858,003

 
863,055

 
9,240

 
(4,188
)
 
—

Other
 
5,132

 
5,524

 
392

 
—

 
—

Total U.S. government agencies
 
6,793,590

 
6,850,603

 
93,181

 
(36,168
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
68,493

 
73,405

 
4,985

 
—

 
(73
)
Jumbo-A loans
 
92,831

 
98,088

 
5,611

 
—

 
(354
)
Total private issue
 
161,324

 
171,493

 
10,596

 
—

 
(427
)
Total residential mortgage-backed securities
 
6,954,914

 
7,022,096

 
103,777

 
(36,168
)
 
(427
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,168,978

 
2,141,645

 
1,841

 
(29,174
)
 
—

Other debt securities
 
34,470

 
34,291

 
71

 
(250
)
 
—

Perpetual preferred stock
 
22,171

 
24,358

 
2,194

 
(7
)
 
—

Equity securities and mutual funds
 
18,896

 
19,118

 
773

 
(551
)
 
—

Total available for sale securities
 
$
9,263,951

 
$
9,306,886

 
$
110,237

 
$
(66,875
)
 
$
(427
)
1 
Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet.
2 
Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.

- 58 -


The amortized cost and fair values of available for sale securities at September 30, 2015, by contractual maturity, are as shown in the following table (dollars in thousands):
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 
Total
 
Weighted
Average
Maturity5
U.S. Treasuries:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$
—

 
$
1,000

 
$
—

 
$
—

 
$
1,000

 
2.30

Fair value
—

 
1,003

 
—

 
—

 
1,003

 
 
Nominal yield
—
%
 
0.87
%
 
—
%
 
—
%
 
0.87
%
 
 
Municipal and other tax-exempt:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
10,078

 
$
23,030

 
$
2,761

 
$
21,741

 
$
57,610

 
8.15

Fair value
10,166

 
23,719

 
2,813

 
21,262

 
57,960

 
 
Nominal yield¹
3.55
%
 
4.31
%
 
3.66
%
 
2.01
%
6 
3.28
%
 
 
Commercial mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$
—

 
$
945,915

 
$
1,537,674

 
$
225,342

 
$
2,708,931

 
7.14

Fair value
—

 
952,149

 
1,557,840

 
225,798

 
2,735,787

 
 
Nominal yield
—
%
 
1.46
%
 
2.07
%
 
1.29
%
 
1.79
%
 
 
Other debt securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
—

 
$
—

 
$
—

 
$
4,400

 
$
4,400

 
31.91

Fair value
—

 
—

 
—

 
4,150

 
4,150

 
 
Nominal yield
—
%
 
—
%
 
—
%
 
1.71
%
6 
1.55
%
 
 
Total fixed maturity securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
10,078

 
$
969,945

 
$
1,540,435

 
$
251,483

 
$
2,771,941

 
7.19

Fair value
10,166

 
976,871

 
1,560,653

 
251,210

 
2,798,900

 
 
Nominal yield
3.55
%
 
1.52
%
 
2.07
%
 
1.36
%
 
1.82
%
 
 
Residential mortgage-backed securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
 

 
 

 
 

 
 

 
$
5,848,382

 
2 

Fair value
 

 
 

 
 

 
 

 
5,964,809

 
 
Nominal yield4
 

 
 

 
 

 
 

 
1.95
%
 
 
Equity securities and mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Amortized cost
 

 
 

 
 

 
 

 
$
35,882

 
³

Fair value
 

 
 

 
 

 
 

 
37,380

 
 

Nominal yield
 

 
 

 
 

 
 

 
—
%
 
 

Total available-for-sale securities:
 

 
 

 
 

 
 

 
 
 
 

Amortized cost
 

 
 

 
 

 
 

 
$
8,656,205

 
 

Fair value
 

 
 

 
 

 
 

 
8,801,089

 
 

Nominal yield
 

 
 

 
 

 
 

 
1.90
%
 
 

1 
Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 
The average expected lives of mortgage-backed securities were 3.6 years years based upon current prepayment assumptions.
3 
Primarily common stock and preferred stock of corporate issuers 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. See Quarterly Financial Summary –– Unaudited following for current yields on available for sale securities portfolio.
5 
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
6 
Nominal yield on municipal and other tax-exempt securities and other debt securities with contractual maturity dates over ten years are based on variable rates which generally are reset within 35 days.


- 59 -


Sales of available for sale securities resulted in gains and losses as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
Sept. 30,
 
2015
 
2014
 
2015
 
2014
Proceeds
$
450,765

 
$
552,871

 
$
1,164,425

 
$
1,884,061

Gross realized gains
3,803

 
3,441

 
13,543

 
19,768

Gross realized losses
(1,637
)
 
(3,295
)
 
(3,617
)
 
(18,378
)
Related federal and state income tax expense
843

 
57

 
3,861

 
541


A summary of investment and available for sale securities that have been pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes, as required by law was as follows (in thousands):
 
Sept. 30, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Investment:
 
 
 
 
 
Carrying value
$
50,380

 
$
63,495

 
$
66,470

Fair value
52,249

 
65,855

 
69,031

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
Amortized cost
6,225,689

 
5,855,220

 
5,388,372

Fair value
6,318,330

 
5,893,972

 
5,390,599


The secured parties do not have the right to sell or re-pledge these securities.


- 60 -


Impaired Securities as of September 30, 2015
(in thousands):
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
15

 
$
6,250

 
$
81

 
$
13,438

 
$
50

 
$
19,688

 
$
131

U.S. Agency residential mortgage-backed securities – Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other debt securities
 
17

 
1,283

 
64

 
4,577

 
49

 
5,860

 
113

Total investment securities
 
32

 
$
7,533

 
$
145

 
$
18,015

 
$
99

 
$
25,548

 
$
244


 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Municipal and other tax-exempt
 
18

 
$
7,868

 
$
485

 
$
3,800

 
$
230

 
$
11,668

 
$
715

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 
 
 

 
 

 
 

 
 

 


 


FNMA
 
6

 
155,747

 
470

 
—

 
—

 
155,747

 
470

FHLMC
 
4

 
71,930

 
503

 
26,848

 
321

 
98,778

 
824

GNMA
 
4

 
54,701

 
562

 
54,701

 
560

 
109,402

 
1,122

Total U.S. government agencies
 
14

 
282,378

 
1,535

 
81,549

 
881

 
363,927

 
2,416

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
4

 
2,857

 
186

 
6,667

 
434

 
9,524

 
620

Jumbo-A loans
 
8

 
5,380

 
236

 
3,681

 
161

 
9,061

 
397

Total private issue
 
12

 
8,237

 
422

 
10,348

 
595

 
18,585

 
1,017

Total residential mortgage-backed securities
 
26

 
290,615

 
1,957

 
91,897

 
1,476

 
382,512

 
3,433

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
31

 
327,790

 
1,488

 
223,007

 
545

 
550,797

 
2,033

Other debt securities
 
2

 
—

 
—

 
4,149

 
250

 
4,149

 
250

Perpetual preferred stocks
 
1

 
1,912

 
38

 
—

 
—

 
1,912

 
38

Equity securities and mutual funds
 
37

 
4,031

 
1,432

 
526

 
12

 
4,557

 
1,444

Total available for sale securities
 
115

 
$
632,216


$
5,400


$
323,379


$
2,513


$
955,595


$
7,913

1 
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.


- 61 -


Impaired Securities as of December 31, 2014
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
78

 
$
112,677

 
$
426

 
$
60,076

 
$
525

 
$
172,753

 
$
951

U.S. Agency residential mortgage-backed securities – Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other debt securities
 
84

 
31,274

 
637

 
761

 
20

 
32,035

 
657

Total investment securities
 
162

 
$
143,951

 
$
1,063

 
$
60,837

 
$
545

 
$
204,788

 
$
1,608


 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:
 
 

 
 

 
 

 
 

 
 

 


 


Municipal and other tax-exempt
 
22

 
$
10,838

 
$
12

 
$
12,176

 
$
729

 
$
23,014

 
$
741

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
24

 
257,854

 
547

 
454,394

 
5,425

 
712,248

 
5,972

FHLMC
 
16

 
62,950

 
37

 
310,834

 
2,612

 
373,784

 
2,649

GNMA
 
5

 
8,550

 
12

 
128,896

 
2,605

 
137,446

 
2,617

Total U.S. government agencies
 
45

 
329,354

 
596

 
894,124

 
10,642

 
1,223,478

 
11,238

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
4

 
11,277

 
307

 
—

 
—

 
11,277

 
307

Jumbo-A loans
 
8

 
—

 
—

 
10,020

 
357

 
10,020

 
357

Total private issue
 
12

 
11,277

 
307

 
10,020

 
357

 
21,297

 
664

Total residential mortgage-backed securities
 
57

 
340,631

 
903

 
904,144

 
10,999

 
1,244,775

 
11,902

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
104

 
223,106

 
454

 
1,238,376

 
19,465

 
1,461,482

 
19,919

Other debt securities
 
2

 
—

 
—

 
4,150

 
252

 
4,150

 
252

Perpetual preferred stocks
 
2

 
2,898

 
77

 
—

 
—

 
2,898

 
77

Equity securities and mutual funds
 
68

 
—

 
—

 
1,205

 
30

 
1,205

 
30

Total available for sale securities
 
255

 
$
577,473

 
$
1,446

 
$
2,160,051

 
$
31,475

 
$
2,737,524

 
$
32,921

1 
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.



- 62 -


Impaired Securities as of September 30, 2014
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
24

 
$
481

 
$
—

 
$
60,742

 
$
209

 
$
61,223

 
$
209

U.S. Agency residential mortgage-backed securities – Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other debt securities
 
83

 
25,373

 
929

 
1,811

 
30

 
27,184

 
959

Total investment securities
 
107

 
$
25,854

 
$
929

 
$
62,553

 
$
239

 
$
88,407

 
$
1,168


 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:
 
 

 
 

 
 

 
 

 
 

 


 


Municipal and other tax-exempt1
 
19

 
$
—

 
$
—

 
$
12,288

 
$
725

 
$
12,288

 
$
725

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
55

 
652,845

 
1,923

 
806,175

 
18,856

 
1,459,020

 
20,779

FHLMC
 
33

 
385,832

 
1,426

 
499,320

 
9,775

 
885,152

 
11,201

GNMA
 
8

 
58,730

 
13

 
144,397

 
4,175

 
203,127

 
4,188

Total U.S. government agencies
 
96

 
1,097,407

 
3,362

 
1,449,892

 
32,806

 
2,547,299

 
36,168

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
4

 
12,169

 
73

 
—

 
—

 
12,169

 
73

Jumbo-A loans
 
8

 
3,252

 
106

 
7,587

 
248

 
10,839

 
354

Total private issue
 
12

 
15,421

 
179

 
7,587

 
248

 
23,008

 
427

Total residential mortgage-backed securities
 
108

 
1,112,828

 
3,541

 
1,457,479

 
33,054

 
2,570,307

 
36,595

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
125

 
428,610

 
2,312

 
1,235,200

 
26,862

 
1,663,810

 
29,174

Other debt securities
 
2

 
—

 
—

 
4,150

 
250

 
4,150

 
250

Perpetual preferred stocks
 
1

 
1,018

 
7

 
—

 
—

 
1,018

 
7

Equity securities and mutual funds
 
81

 
4,869

 
511

 
1,497

 
40

 
6,366

 
551

Total available for sale securities
 
336

 
$
1,547,325

 
$
6,371

 
$
2,710,614

 
$
60,931

 
$
4,257,939

 
$
67,302

1 
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.

On a quarterly basis, the Company performs separate evaluations of impaired debt and equity investments and available for sale securities to determine if the unrealized losses are temporary.
 
For debt securities, management determines whether it intends to sell or if it is more-likely-than-not that it will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. Based on this evaluation as of September 30, 2015, the Company does not intend to sell any impaired available for sale securities before fair value recovers to the current amortized cost and it is more-likely-than-not that the Company will not be required to sell impaired securities before fair value recovers, which may be maturity.


- 63 -


Impairment of debt securities rated investment grade by all nationally-recognized rating agencies is considered temporary unless specific contrary information is identified. None of the debt securities rated investment grade were considered to be other-than-temporarily impaired at September 30, 2015.

- 64 -


At September 30, 2015, the composition of the Company’s investment and available for sale securities portfolios by the lowest current credit rating assigned by any of the three nationally-recognized rating agencies is as follows (in thousands):
 
 
 
U.S. Govt / GSE 1
 

AAA - AA
 
 
A - BBB
 
 
Below Investment Grade
 
 
Not Rated
 
 
Total
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
$
—

 
$
—

 
$
252,263

 
$
253,734

 
$
5,279

 
$
5,313

 
$
—

 
$
—

 
$
122,438

 
$
125,263

 
$
379,980

 
$
384,310

Mortgage-backed securities -- other
 
28,653

 
30,080

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
28,653

 
30,080

Other debt securities
 
—

 
—

 
151,442

 
174,290

 
—

 
—

 
—

 
—

 
52,309

 
54,411

 
203,751

 
228,701

Total investment securities
 
$
28,653

 
$
30,080

 
$
403,705

 
$
428,024

 
$
5,279

 
$
5,313

 
$
—

 
$
—

 
$
174,747

 
$
179,674

 
$
612,384

 
$
643,091

 
 
U.S. Govt / GSE 1
 
AAA - AA
 
 
A - BBB
 
Below Investment Grade
 
Not Rated
 
Total
 
 
Amortized Cost
 
Fair
Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair
Value
Available for Sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
1,000

 
$
1,003

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,000

 
$
1,003

Municipal and other tax-exempt
 
—

 
—

 
34,053

 
34,912

 
10,588

 
10,026

 
—

 
—

 
12,969

 
13,022

 
57,610

 
57,960

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
3,115,810

 
3,185,097

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,115,810

 
3,185,097

FHLMC
 
1,853,379

 
1,885,201

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,853,379

 
1,885,201

GNMA
 
741,212

 
744,647

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
741,212

 
744,647

Other
 
3,922

 
4,182

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,922

 
4,182

Total U.S. government agencies
 
5,714,323

 
5,819,127

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5,714,323

 
5,819,127

Private issue:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
58,801

 
64,700

 
—

 
—

 
58,801

 
64,700

Jumbo-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
75,258

 
80,982

 
—

 
—

 
75,258

 
80,982

Total private issue
 
—

 
—

 
—

 
—

 
—

 
—

 
134,059

 
145,682

 
—

 
—

 
134,059

 
145,682

Total residential mortgage-backed securities
 
5,714,323

 
5,819,127

 
—

 
—

 
—

 
—

 
134,059

 
145,682

 
—

 
—

 
5,848,382

 
5,964,809

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,708,931

 
2,735,787

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,708,931

 
2,735,787

Other debt securities
 
—

 
—

 
4,400

 
4,150

 
—

 
—

 
—

 
—

 
—

 
—

 
4,400

 
4,150

Perpetual preferred stock
 
—

 
—

 
—

 
—

 
6,406

 
7,312

 
10,765

 
11,851

 
—

 
—

 
17,171

 
19,163

Equity securities and mutual funds
 
—

 
—

 
4

 
515

 
—

 
—

 
—

 
—

 
18,707

 
17,702

 
18,711

 
18,217

Total available for sale securities
 
$
8,424,254

 
$
8,555,917

 
$
38,457

 
$
39,577

 
$
16,994

 
$
17,338

 
$
144,824

 
$
157,533

 
$
31,676

 
$
30,724

 
$
8,656,205

 
$
8,801,089

1 
U.S. government and government sponsored enterprises are not rated by the nationally-recognized rating agencies as these securities are guaranteed by agencies of the U.S. government or government-sponsored enterprises.

- 65 -


At September 30, 2015, the entire portfolio of privately issued residential mortgage-backed securities was rated below investment grade. The gross unrealized loss on these securities totaled $1.0 million. Ratings by the nationally-recognized rating agencies are subjective in nature and accordingly ratings can vary significantly amongst the agencies. Limitations generally expressed by the rating agencies include statements that ratings do not predict the specific percentage default likelihood over any given period of time and that ratings do not opine on expected loss severity of an obligation should the issuer default. As such, the impairment of securities rated below investment grade was evaluated to determine if we expect not to recover the entire amortized cost basis of the security. This evaluation was based on projections of estimated cash flows based on individual loans underlying each security using current and anticipated increases in unemployment and default rates, decreases in housing prices and estimated liquidation costs at foreclosure.

The primary assumptions used in this evaluation were:

 
Sept. 30, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
 
 
 
 
 
 
Unemployment rate
Moving down to 5.1% over the next 12 months and remain at 5.1% thereafter.
 
Held constant at 5.6% over the next 12 months and remain at 5.6% thereafter.
 
Moving down to 6.2% over the next 12 months and remains at 6.2% thereafter.
Housing price appreciation/depreciation
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 3.2% over the next 12 months, then flat for the following 12 months and then appreciating at 2% per year thereafter.
 
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 3.2% over the next 12 months, then flat for the following 12 months and then appreciating at 2% per year thereafter.
 
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 4% over the next 12 months, then flat for the following 12 months and then appreciating at 2% per year thereafter.
Estimated liquidation costs
Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.
 
Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.
 
Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.
Discount rates
Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.
 
Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.
 
Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.
1 
Federal Housing Finance Agency

We also consider the current loan-to-value ratio and remaining credit enhancement as part of the assessment of the cash flows available to recover the amortized cost of the debt securities. Each factor is considered in the evaluation.

The Company calculates the current loan-to-value ratio for each mortgage-backed security using loan-level data. The current loan-to-value ratio is the current outstanding loan amount divided by an estimate of the current home value. The current home value is derived from FHFA data. FHFA provides historical information on home price depreciation at both the Metropolitan Statistical Area and state level.  This information is matched to each loan to estimate the home price depreciation. Data is accumulated from the loan level to determine the current loan-to-value ratio for the security as a whole.

Remaining credit enhancement is the amount of credit enhancement available to absorb current projected losses within the pool of loans that support the security. The Company acquires the benefit of credit enhancement by investing in senior or super-senior tranches for many of our residential mortgage-backed securities. Subordinated tranches held by other investors are specifically designed to absorb losses before the senior or super-senior tranches, which effectively increases the typical credit support for these types of bonds. Current projected losses consider depreciation of home prices based on FHFA data, estimated costs and additional losses to liquidate collateral and delinquency status of the individual loans underlying the security.

Credit loss impairment is recorded as a charge to earnings. Additional impairment based on the difference between the total unrealized loss and the estimated credit loss on these securities is charged against other comprehensive income, net of deferred taxes. No credit loss impairments of were recognized in earnings on privately issued residential mortgage-backed securities during the three months ended September 30, 2015.


- 66 -


A distribution of the amortized cost (after recognition of the other-than-temporary impairment), fair value and credit loss impairments recognized on our privately issued residential mortgage-backed securities is as follows (in thousands, except for number of securities):
 
 
 
 
 
 
 
 
Credit Losses Recognized
 
 
 
 
 
 
 
 
Three months ended
 
 
 
 
 
 
 
 
 
 
Sept. 30, 2015
 
Life-to-date
 
 
Number of Securities
 
Amortized Cost
 
Fair Value
 
Number of
Securities
 
Amount
 
Number of Securities
 
Amount
Alt-A
 
14

 
$
58,801

 
$
64,700

 
—

 
$
—

 
14

 
$
36,219

Jumbo-A
 
30

 
75,258

 
80,982

 
—

 
—

 
29

 
18,220

Total
 
44

 
$
134,059

 
$
145,682

 
—

 
$
—

 
43

 
$
54,439


Impaired equity securities, including perpetual preferred stocks, are evaluated based on management's ability and intent to hold the securities until fair value recovers over periods not to exceed three years. The assessment of the ability and intent to hold these securities focuses on the liquidity needs, asset/liability management objectives and securities portfolio objectives. Factors considered when assessing recovery include forecasts of general economic conditions and specific performance of the issuer, analyst ratings and credit spreads for preferred stocks which have debt-like characteristics. The Company has evaluated the near-term prospects of the investments in relation to the severity and duration of the impairment and based on that evaluation has the ability and intent to hold these investments until a recovery in fair value. Accordingly, all impairment of equity securities was considered temporary at September 30, 2015.

The following is a tabular roll forward of the amount of credit-related OTTI recognized on available for sale debt securities in earnings (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
Sept. 30,
 
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Balance of credit-related OTTI recognized on available for sale debt securities, beginning of period
 
$
54,439

 
$
54,347

 
$
54,347

 
$
67,346

Additions for credit-related OTTI not previously recognized
 
—

 
—

 
—

 
—

Additions for increases in credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost
 
—

 
—

 
92

 
—

Reductions for change in intent to hold before recovery
 
—

 
—

 
—

 


Sales
 
—

 
—

 
—

 
(12,999
)
Balance of credit-related OTTI recognized on available for sale debt securities, end of period
 
$
54,439

 
$
54,347

 
$
54,439

 
$
54,347


Additions above exclude other-than-temporary impairment recorded due to change in intent to hold before recovery.
Fair Value Option Securities
 
Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on the Consolidated Balance Sheets. Changes in the fair value are recognized in earnings as they occur. Certain residential mortgage-backed securities issued by U.S. government agencies and derivative contracts are held as an economic hedge of the mortgage servicing rights. 

The fair value and net unrealized gain (loss) included in fair value option securities is as follows (in thousands):
 
 
Sept. 30, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair
Value
 
Net Unrealized Gain (Loss)
U.S. agency residential mortgage-backed securities
 
$
427,760

 
$
2,067

 
$
311,597

 
$
1,624

 
$
175,761

 
$
(2,061
)



- 67 -


Restricted Equity Securities

Restricted equity securities primarily include stock we are required to hold as members of the Federal Reserve system and the Federal Home Loan Banks. Restricted equity securities are carried at cost as these securities do not have a readily determined fair value because ownership of these shares are restricted and lacks a market. A summary of restricted equity securities follows (in thousands):

 
Sept. 30, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
Federal Reserve stock
$
35,148

 
$
35,018

 
$
33,971

Federal Home Loan Bank stock
228,268

 
106,476

 
155,616

Other
171

 
—

 
—

Total
$
263,587


$
141,494


$
189,587

(3) Derivatives
 
Derivative instruments may be used by the Company as part of its interest rate risk management programs or may be offered to customers. All derivative instruments are carried at fair value and changes in fair value are reported in earnings as they occur. Credit risk is also considered in determining fair value.

When bilateral netting agreements or similar arrangements exist between the Company and its counterparties that create a single legal claim or obligation to pay or receive the net amount in settlement of the individual derivative contracts, the Company reports derivative assets and liabilities on a net by derivative contract type by counterparty basis.

Derivative contracts may require the Company to provide or receive cash margin as collateral for derivative assets and liabilities. Derivative assets and liabilities are reported net of cash margin when certain conditions are met. In addition, derivative contracts executed with customers under Customer Risk Management Programs may be secured by non-cash collateral in conjunction with a credit agreement with that customer. Access to collateral, in the event of default is reasonably assured. As of September 30, 2015, a decrease in BOK Financial's credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $21 million.
 
None of these derivative contracts have been designated as hedging instruments.

Customer Risk Management Programs
 
BOK Financial offers programs to permit its customers to manage various risks, including fluctuations in energy, cattle and other agricultural products, and foreign exchange rates, or to take positions in derivative contracts. Customers may also manage interest rate risk through interest rate swaps used by borrowers to modify interest rate terms of their loans or to-be-announced securities used by mortgage banking customers to hedge their loan production. Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other selected counterparties to minimize the risk of changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to BOK Financial as profit and compensation for administrative costs and credit risk which is recognized over the life of the contracts and included in other operating revenue – brokerage and trading revenue in the Consolidated Statements of Earnings.
 
Interest Rate Risk Management Programs
 
BOK Financial may use derivative contracts in managing its interest rate sensitivity and as part of its economic hedge of the change in the fair value of mortgage servicing rights. Interest rate swaps are generally used to reduce overall asset sensitivity by converting specific fixed-rate liabilities to floating-rate based on LIBOR. As of September 30, 2015, derivative contracts under the interest rate risk management program were primarily used as part of the economic hedge of the change in the fair value of the mortgage servicing rights.

As discussed in Note 6, certain derivative contracts not designated as hedging instruments related to mortgage loan commitments and forward sales contracts are included in Residential mortgage loans held for sale on the Consolidated Balance Sheets. See Note 6 for additional discussion of notional, fair value and impact on earnings of these contracts. Forward sales contracts are not considered swaps under the Commodity and Futures Trading Commission final rules.

- 68 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at September 30, 2015 (in thousands):
 
 
Assets
 
 
Notional1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
16,093,704

 
$
136,435

 
$
(50,845
)
 
$
85,590

 
$
—

 
$
85,590

Interest rate swaps
 
1,345,779

 
42,636

 
—

 
42,636

 
—

 
42,636

Energy contracts
 
560,997

 
89,948

 
(28,535
)
 
61,413

 
(23,089
)
 
38,324

Agricultural contracts
 
101,321

 
8,064

 
(4,053
)
 
4,011

 
(1,558
)
 
2,453

Foreign exchange contracts
 
618,991

 
557,313

 
—

 
557,313

 
(3,985
)
 
553,328

Equity option contracts
 
143,452

 
3,784

 
—

 
3,784

 
(470
)
 
3,314

Total customer risk management programs
 
18,864,244

 
838,180

 
(83,433
)
 
754,747

 
(29,102
)
 
725,645

Interest rate risk management programs
 
47,000

 
514

 
—

 
514

 
—

 
514

Total derivative contracts
 
$
18,911,244

 
$
838,694

 
$
(83,433
)
 
$
755,261

 
$
(29,102
)
 
$
726,159

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
Notional¹
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
16,050,271

 
$
133,543

 
$
(50,845
)
 
$
82,698

 
$
(82,225
)
 
$
473

Interest rate swaps
 
1,345,779

 
42,901

 
—

 
42,901

 
(26,723
)
 
16,178

Energy contracts
 
551,989

 
85,856

 
(28,535
)
 
57,321

 
—

 
57,321

Agricultural contracts
 
101,325

 
8,045

 
(4,053
)
 
3,992

 
—

 
3,992

Foreign exchange contracts
 
618,770

 
556,890

 
—

 
556,890

 
(2,619
)
 
554,271

Equity option contracts
 
143,452

 
3,784

 
—

 
3,784

 
—

 
3,784

Total customer risk management programs
 
18,811,586

 
831,019

 
(83,433
)
 
747,586

 
(111,567
)
 
636,019

Interest rate risk management programs
 
7,500

 
96

 
—

 
96

 
—

 
96

Total derivative contracts
 
$
18,819,086

 
$
831,115

 
$
(83,433
)
 
$
747,682

 
$
(111,567
)
 
$
636,115

1 
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.



- 69 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2014 (in thousands):

 
 
Assets
 
 
Notional
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
13,313,615

 
$
94,719

 
$
(39,359
)
 
$
55,360

 
$
—

 
$
55,360

Interest rate swaps
 
1,165,568

 
35,405

 
—

 
35,405

 
—

 
35,405

Energy contracts
 
579,801

 
141,166

 
(48,624
)
 
92,542

 
(71,310
)
 
21,232

Agricultural contracts
 
47,657

 
1,904

 
(1,256
)
 
648

 
—

 
648

Foreign exchange contracts
 
290,965

 
238,395

 
—

 
238,395

 
—

 
238,395

Equity option contracts
 
194,960

 
10,834

 
—

 
10,834

 
—

 
10,834

Total customer risk management programs
 
15,592,566

 
522,423

 
(89,239
)
 
433,184

 
(71,310
)
 
361,874

Interest rate risk management programs
 
—

 
—

 
—

 
—

 
—

 
—

Total derivative contracts
 
$
15,592,566

 
$
522,423

 
$
(89,239
)
 
$
433,184

 
$
(71,310
)
 
$
361,874

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
Notional
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
13,471,880

 
$
91,949

 
$
(39,359
)
 
$
52,590

 
$
(52,290
)
 
$
300

Interest rate swaps
 
1,165,568

 
35,599

 
—

 
35,599

 
(18,717
)
 
16,882

Energy contracts
 
579,801

 
142,839

 
(48,624
)
 
94,215

 
—

 
94,215

Agricultural contracts
 
47,418

 
1,908

 
(1,256
)
 
652

 
(596
)
 
56

Foreign exchange contracts
 
290,856

 
238,118

 
—

 
238,118

 
(6,703
)
 
231,415

Equity option contracts
 
194,960

 
10,834

 
—

 
10,834

 
—

 
10,834

Total customer risk management programs
 
15,750,483

 
521,247

 
(89,239
)
 
432,008

 
(78,306
)
 
353,702

Interest rate risk management programs
 
47,000

 
852

 
—

 
852

 
—

 
852

Total derivative contracts
 
$
15,797,483

 
$
522,099

 
$
(89,239
)
 
$
432,860

 
$
(78,306
)
 
$
354,554

1 
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.





- 70 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at September 30, 2014 (in thousands):
 
 
Assets
 
 
Notional1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
13,125,309

 
$
48,913

 
$
(25,263
)
 
$
23,650

 
$
—

 
$
23,650

Interest rate swaps
 
1,171,163

 
34,148

 
—

 
34,148

 
(199
)
 
33,949

Energy contracts
 
847,446

 
32,005

 
(15,660
)
 
16,345

 
(3,499
)
 
12,846

Agricultural contracts
 
49,943

 
2,372

 
(470
)
 
1,902

 
—

 
1,902

Foreign exchange contracts
 
336,755

 
275,116

 
—

 
275,116

 
—

 
275,116

Equity option contracts
 
202,883

 
13,900

 
—

 
13,900

 
(554
)
 
13,346

Total customer risk management programs
 
15,733,499

 
406,454

 
(41,393
)
 
365,061

 
(4,252
)
 
360,809

Interest rate risk management programs
 
—

 
—

 
—

 
—

 
—

 
—

Total derivative contracts
 
$
15,733,499

 
$
406,454

 
$
(41,393
)
 
$
365,061

 
$
(4,252
)
 
$
360,809

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
Notional1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
13,702,440

 
$
45,889

 
$
(25,263
)
 
$
20,626

 
$
—

 
$
20,626

Interest rate swaps
 
1,171,163

 
34,316

 
—

 
34,316

 
(15,145
)
 
19,171

Energy contracts
 
844,976

 
35,583

 
(15,660
)
 
19,923

 
—

 
19,923

Agricultural contracts
 
49,911

 
2,404

 
(470
)
 
1,934

 
(1,888
)
 
46

Foreign exchange contracts
 
336,661

 
274,829

 
—

 
274,829

 
(1,729
)
 
273,100

Equity option contracts
 
202,883

 
13,900

 
—

 
13,900

 
—

 
13,900

Total customer risk management programs
 
16,308,034

 
406,921

 
(41,393
)
 
365,528

 
(18,762
)
 
346,766

Interest rate risk management programs
 
47,000

 
1,921

 
—

 
1,921

 
—

 
1,921

Total derivative contracts
 
$
16,355,034

 
$
408,842

 
$
(41,393
)
 
$
367,449

 
$
(18,762
)
 
$
348,687

1 
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.







- 71 -


The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the income statement (in thousands):
 
 
Three Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Brokerage
and Trading Revenue
 
Gain (Loss) on Derivatives, Net
 
Brokerage
and Trading
Revenue
 
Gain (Loss)on Derivatives, Net
Customer risk management programs:
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
7,914

 
$
—

 
$
7,547

 
$
—

Interest rate swaps
 
411

 
—

 
967

 
—

Energy contracts
 
771

 
—

 
1,523

 
—

Agricultural contracts
 
44

 
—

 
26

 
—

Foreign exchange contracts
 
152

 
—

 
806

 
—

Equity option contracts
 
—

 
—

 
—

 
—

Total customer risk management programs
 
9,292

 
—

 
10,869

 
—

Interest rate risk management programs
 
(199
)
 
1,283

 
—

 
(93
)
Total derivative contracts
 
$
9,093

 
$
1,283

 
$
10,869

 
$
(93
)

 
 
Nine Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Brokerage
and Trading Revenue
 
Gain (Loss) on Derivatives, Net
 
Brokerage
and Trading
Revenue
 
Gain (Loss) on Derivatives, Net
Customer risk management programs:
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
25,942

 
$
—

 
$
19,322

 
$
—

Interest rate swaps
 
1,495

 
—

 
1,998

 
—

Energy contracts
 
3,138

 
—

 
5,007

 
—

Agricultural contracts
 
86

 
—

 
127

 
—

Foreign exchange contracts
 
618

 
—

 
1,358

 
—

Equity option contracts
 
—

 
—

 
—

 
—

Total customer risk management programs
 
31,279

 
—

 
27,812

 
—

Interest rate risk management programs
 
(199
)
 
1,162

 
—

 
1,706

Total derivative contracts
 
$
31,080

 
$
1,162

 
$
27,812

 
$
1,706


Net interest revenue was not significantly impacted by the settlement of amounts receivable or payable on interest rate swaps for the three and nine months ended September 30, 2015 and 2014, respectively. 

- 72 -


(4) Loans and Allowances for Credit Losses

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. Accounting policies for all loans, excluding residential mortgage loans guaranteed by U.S. government agencies, are as follows.

Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccruing status when, in the opinion of management, full collection of principal or interest is uncertain. Internally risk graded loans are individually evaluated for nonaccruing status quarterly. Non-risk graded loans are generally placed on nonaccruing status when more than 90 days past due or within 60 days of being notified of the borrower's bankruptcy filing. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccruing status. Payments on nonaccruing loans are applied to principal or recognized as interest income, according to management’s judgment as to the collectability of principal. Loans may be returned to accruing status when, in the opinion of management, full collection of principal and interest, including principal previously charged off, is probable based on improvements in the borrower’s financial condition or a sustained period of performance.

Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ("TDRs"). All TDRs are classified as nonaccruing. Modifications generally consist of extension of payment terms or interest rate concessions and may result either voluntarily through negotiations with the borrower or involuntarily through court order. Generally, principal and accrued but unpaid interest is not voluntarily forgiven.

Performing loans may be renewed under the current collateral value, debt service ratio and other underwriting standards. Nonaccruing loans may be renewed and will remain classified as nonaccruing. 

All loans are charged off when the loan balance or a portion of the loan balance is no longer supported by the paying capacity of the borrower or when the required cash flow is reduced in a TDR. The charge-off amount is determined through a quarterly evaluation of available cash resources and collateral value and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans that are past due between 60 and 180 days, based on the loan product type, are charged off. Loans to borrowers whose personal obligation has been discharged through Chapter 7 bankruptcy proceedings are charged off within 60 days of notice of the bankruptcy filing, regardless of payment status.

Loan origination and commitment fees and direct loan acquisition and origination costs are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable.

Qualifying residential mortgage loans guaranteed by U.S. government agencies have been sold into GNMA pools. Under certain performance conditions specified in government programs, the Company may have the right, but not the obligation to repurchase loans from GNMA pools. These loans no longer qualify for sale accounting and are recognized in the Consolidated Balance Sheets. Guaranteed loans are considered impaired because we do not expect to receive all principal and interest based on the loan's contractual terms. The principal balance continues to be guaranteed; however, interest accrues at a curtailed rate as specified in the programs. The carrying value of these loans is reduced based on an estimate of the expected cash flows discounted at the original note rate plus a liquidity spread. Guaranteed loans may be modified in TDRs in accordance with U.S. government agency guidelines. Interest continues to accrue based on the modified rate. Guaranteed loans may either be resold into GNMA pools after a performance period specified by the programs or foreclosed and conveyed to the guarantors.

Loans are disaggregated into portfolio segments and further disaggregated into classes. The portfolio segment is the level at which the Company develops and documents a systematic method for determining its allowance for credit losses. Classes are a further disaggregation of portfolio segments based on the risk characteristics of the loans and the Company’s method for monitoring and assessing credit risk. 


- 73 -


Portfolio segments of the loan portfolio are as follows (in thousands):

 
 
September 30, 2015
 
December 31, 2014
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,854,163

 
$
7,909,461

 
$
33,798

 
$
9,797,422

 
$
1,736,976

 
$
7,345,167

 
$
13,527

 
$
9,095,670

Commercial real estate
 
588,604

 
2,635,507

 
10,956

 
3,235,067

 
721,513

 
1,988,080

 
18,557

 
2,728,150

Residential mortgage
 
1,624,759

 
200,136

 
44,100

 
1,868,995

 
1,698,620

 
202,771

 
48,121

 
1,949,512

Personal
 
100,615

 
364,848

 
494

 
465,957

 
102,865

 
331,274

 
566

 
434,705

Total
 
$
4,168,141

 
$
11,109,952

 
$
89,348

 
$
15,367,441

 
$
4,259,974

 
$
9,867,292

 
$
80,771

 
$
14,208,037

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
101

 
 

 
 

 
 

 
$
125

 
 
September 30, 2014
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,714,251

 
$
6,841,383

 
$
16,404

 
$
8,572,038

Commercial real estate
 
757,846

 
1,935,693

 
30,660

 
2,724,199

Residential mortgage
 
1,722,864

 
207,892

 
48,907

 
1,979,663

Personal
 
106,736

 
300,523

 
580

 
407,839

Total
 
$
4,301,697

 
$
9,285,491

 
$
96,551

 
$
13,683,739

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
25

1 
Excludes residential mortgage loans guaranteed by agencies of the U.S. government

At September 30, 2015, $5.2 billion or 34% of our total loan portfolio is to businesses and individuals attributed to the Texas market and $3.4 billion or 22% of the total loan portfolio is to businesses and individuals attributed to the Oklahoma market. These geographic concentrations subject the loan portfolio to the general economic conditions within these areas.

Commercial

Commercial loans represent loans for working capital, facilities acquisition or expansion, purchases of equipment and other needs of commercial customers primarily located within our geographical footprint. Commercial loans are underwritten individually and represent on-going relationships based on a thorough knowledge of the customer, the customer’s industry and market. While commercial loans are generally secured by the customer’s assets including real property, inventory, accounts receivable, operating equipment, interest in mineral rights and other property and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the on-going cash flow from operations of the customer’s business. Inherent lending risk is centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with commercial lending policies.

At September 30, 2015, commercial loans attributed to the Texas market totaled $3.4 billion or 35% of the commercial loan portfolio segment and commercial loans attributed to the Oklahoma market totaled $2.1 billion or 21% of the commercial loan portfolio segment.

The commercial loan portfolio segment is further divided into loan classes. The energy loan class totaled $2.8 billion or 18% of total loans at September 30, 2015, including $2.3 billion of outstanding loans to energy producers. Approximately 61% of committed production loans are secured by properties primarily producing oil and 39% are secured by properties producing natural gas. The services loan class totaled $2.7 billion at September 30, 2015. Approximately $1.2 billion of loans in the services category consist of loans with individual balances of less than $10 million.  Businesses included in the services class include governmental, finance and insurance, not-for-profit, educational services and loans to entities providing services for real estate and construction.


- 74 -


Commercial Real Estate

Commercial real estate loans are for the construction of buildings or other improvements to real estate and property held by borrowers for investment purposes primarily within our geographical footprint. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

At September 30, 2015, 31% of commercial real estate loans are secured by properties primarily located in the Dallas and Houston areas of Texas. An additional 13% of commercial real estate loans are secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma. 

Residential Mortgage and Personal

Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. Residential mortgage loans are secured by a first or second mortgage on the customer’s primary residence. Personal loans consist primarily of loans secured by the cash surrender value of insurance policies and marketable securities. It also includes direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans. Residential mortgage and personal loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability. Residential mortgage loans retained in the Company’s portfolio are primarily composed of various mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth individuals and certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. Jumbo loans generally conform to government sponsored entity standards, except that the loan size exceeds maximums required under these standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38%.  Loan-to-value (“LTV”) ratios are tiered from 60% to 100%, depending on the market. Special mortgage programs include fixed and variable fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter. 

At September 30, 2015, residential mortgage loans included $193 million of loans guaranteed by U.S. government agencies previously sold into GNMA mortgage pools. These loans either have been repurchased or are eligible to be repurchased by the Company when certain defined delinquency criteria are met. Although payments on these loans generally are past due more than 90 days, interest continues to accrue based on the government guarantee.

Home equity loans totaled $739 million at September 30, 2015. Approximately, 69% of the home equity loan portfolio is comprised of first lien loans and 31% of the home equity portfolio is comprised of junior lien loans. Junior lien loans are distributed 67% to amortizing term loans and 33% to revolving lines of credit. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 40%. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 5 year revolving period followed by a 15 year term of amortizing repayments. Interest-only home equity loans may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term, subject to an update of certain credit information.

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 September 30, 2015, outstanding commitments totaled $8.3 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.


- 75 -


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 September 30, 2015, outstanding standby letters of credit totaled $480 million. Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At September 30, 2015, outstanding commercial letters of credit totaled $7.4 million.

Allowances for Credit Losses

BOK Financial maintains an allowance for loan losses and an accrual for off-balance sheet credit risk. The accrual for off-balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees. As discussed in greater detail in Note 6, the Company also has separate accruals for off-balance sheet credit risk related to residential mortgage loans previously sold with full or partial recourse and for residential mortgage loans sold to government sponsored agencies under standard representations and warranties.

The appropriateness of the allowance for loan losses and accrual for off-balance sheet credit losses (collectively "allowance for credit losses") is assessed by management based on an on-going quarterly evaluation of the probable estimated losses inherent in the portfolio, including probable losses on both outstanding loans and unused commitments.

The allowance for loan losses consists of specific allowances attributed to impaired loans that have not yet been charged down to amounts we expect to recover, general allowances for unimpaired loans based on estimated loss rates by loan class and nonspecific allowances based on general economic conditions, risk concentration and related factors. There have been no material changes in the approach or techniques utilized in developing the allowance for loan losses and the accrual for off-balance sheet credit losses for the three and nine months ended September 30, 2015.

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 agreements. Internally risk graded loans are evaluated individually for impairment. Substantially all commercial and commercial real estate loans and certain residential mortgage and consumer loans are risk graded based on evaluation of the borrowers' ability to repay. Certain commercial loans and most residential mortgage and consumer loans are small balance, homogeneous pools of loans that are not risk graded. Non-risk graded loans are identified as impaired based on performance status. Generally, non-risk graded loans 90 days or more past due or modified in a TDR or in bankruptcy are considered to be impaired.

Specific allowances for impaired loans are measured by an evaluation of estimated future cash flows discounted at the loans’ initial effective interest rate or the fair value of collateral for certain collateral dependent loans. Collateral value of real property is generally based on third party appraisals that conform to Uniform Standards of Professional Appraisal Practice, less estimated selling costs. Appraised values are on an "as-is" basis and are generally not adjusted by the Company. Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values have declined. Collateral value of mineral rights is generally determined by our internal staff of engineers based on projected cash flows under current market conditions. Collateral values and available cash resources that support impaired loans are evaluated quarterly. Historical statistics may be used as a practical way to estimate impairment in limited situations, such as when a collateral dependent loan is identified as impaired at the end of a reporting period, until an updated appraisal of collateral value is received or a full assessment of future cash flows is completed. Estimates of future cash flows and collateral values require significant judgments and may be volatile.


- 76 -


General allowances for unimpaired loans are based on estimated loss rates by loan class. The gross loss rate for each loan class is determined by the greater of the current gross loss rate based on the most recent twelve months or a ten-year gross loss rate. Recoveries are not directly considered in the estimation of loss rates. Recoveries generally do not follow predictable patterns and are not received until well after the charge-off date as a result of protracted legal actions. For risk graded loans, gross loss rates are adjusted for changes in risk grading. For each loan class, the current weighted average risk grade is compared to the long-term average risk grade. This comparison determines whether credit risk in each loan class is increasing or decreasing. Loss rates are adjusted upward or downward in proportion to changes in average risk grading. General allowances for unimpaired loans also consider inherent risks identified for each loan class. Inherent risks consider loss rates that most appropriately represent the current credit cycle and other factors attributable to specific loan classes which have not yet been represented in the gross loss rates or risk grading. These factors include changes in commodity prices or engineering imprecision, which may affect the value of reserves that secure our energy loan portfolio, construction risk that may affect commercial real estate loans, changes in regulations and public policy that may disproportionately impact health care loans and changes in loan products.

Nonspecific allowances are maintained for risks beyond factors specific to a particular loan or loan class. These factors include trends in the economy of our primary lending areas, concentrations in large balance loans and other relevant factors.

An accrual for off-balance sheet credit losses is included in Other liabilities in the Consolidated Balance Sheets. The appropriateness of this accrual is determined in the same manner as the allowance for loan losses.

A provision for credit losses is charged against or credited to earnings in amounts necessary to maintain an appropriate allowance for credit losses. Recoveries of loans previously charged off are added to the allowance when received.

The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the three months ended September 30, 2015 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
107,037

 
$
39,744

 
$
21,449

 
$
3,955

 
$
28,902

 
$
201,087

Provision for loan losses
 
4,694

 
180

 
(349
)
 
1,413

 
(1,156
)
 
4,782

Loans charged off
 
(3,497
)
 
—

 
(446
)
 
(1,331
)
 
—

 
(5,274
)
Recoveries
 
759

 
1,865

 
205

 
692

 
—

 
3,521

Ending balance
 
$
108,993

 
$
41,789

 
$
20,859

 
$
4,729

 
$
27,746

 
$
204,116

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
595

 
$
242

 
$
26

 
$
19

 
$
—

 
$
882

Provision for off-balance sheet credit losses
 
1,873

 
847

 
(2
)
 
—

 
—

 
2,718

Ending balance
 
$
2,468

 
$
1,089

 
$
24

 
$
19

 
$
—

 
$
3,600

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
6,567

 
$
1,027

 
$
(351
)
 
$
1,413

 
$
(1,156
)
 
$
7,500



- 77 -


The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the nine months ended September 30, 2015 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
90,875

 
$
42,445

 
$
23,458

 
$
4,233

 
$
28,045

 
$
189,056

Provision for loan losses
 
20,869

 
(11,571
)
 
(1,938
)
 
2,069

 
(299
)
 
9,130

Loans charged off
 
(4,552
)
 
(44
)
 
(1,784
)
 
(3,940
)
 
—

 
(10,320
)
Recoveries
 
1,801

 
10,959

 
1,123

 
2,367

 
—

 
16,250

Ending balance
 
$
108,993

 
$
41,789

 
$
20,859

 
$
4,729

 
$
27,746

 
$
204,116

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
475

 
$
707

 
$
28

 
$
20

 
$
—

 
$
1,230

Provision for off-balance sheet credit losses
 
1,993

 
382

 
(4
)
 
(1
)
 
—

 
2,370

Ending balance
 
$
2,468

 
$
1,089

 
$
24

 
$
19

 
$
—

 
$
3,600

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
22,862

 
$
(11,189
)
 
$
(1,942
)
 
$
2,068

 
$
(299
)
 
$
11,500


The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the three months ended September 30, 2014 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
87,806

 
$
41,252

 
$
27,654

 
$
7,029

 
$
26,949

 
$
190,690

Provision for loan losses
 
(1,174
)
 
(84
)
 
185

 
156

 
995

 
78

Loans charged off
 
(117
)
 
(145
)
 
(773
)
 
(1,603
)
 
—

 
(2,638
)
Recoveries
 
260

 
1,410

 
150

 
1,294

 
—

 
3,114

Ending balance
 
$
86,775

 
$
42,433

 
$
27,216

 
$
6,876

 
$
27,944

 
$
191,244

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
345

 
$
902

 
$
43

 
$
18

 
$
—

 
$
1,308

Provision for off-balance sheet credit losses
 
(65
)
 
10

 
(19
)
 
(4
)
 
—

 
(78
)
Ending balance
 
$
280

 
$
912

 
$
24

 
$
14

 
$
—

 
$
1,230

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
(1,239
)
 
$
(74
)
 
$
166

 
$
152

 
$
995

 
$
—



- 78 -


The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the nine months ended September 30, 2014 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
79,180

 
$
41,573

 
$
29,465

 
$
6,965

 
$
28,213

 
$
185,396

Provision for loan losses
 
4,444

 
(4,633
)
 
136

 
1,180

 
(269
)
 
858

Loans charged off
 
(290
)
 
(365
)
 
(3,611
)
 
(4,742
)
 
—

 
(9,008
)
Recoveries
 
3,441

 
5,858

 
1,226

 
3,473

 
—

 
13,998

Ending balance
 
$
86,775

 
$
42,433

 
$
27,216

 
$
6,876

 
$
27,944

 
$
191,244

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
119

 
$
1,876

 
$
90

 
$
3

 
$
—

 
$
2,088

Provision for off-balance sheet credit losses
 
161

 
(964
)
 
(66
)
 
11

 
—

 
(858
)
Ending balance
 
$
280

 
$
912

 
$
24

 
$
14

 
$
—

 
$
1,230

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
4,605

 
$
(5,597
)
 
$
70

 
$
1,191

 
$
(269
)
 
$
—


The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at September 30, 2015 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
9,763,624

 
$
104,157

 
$
33,798

 
$
4,836

 
$
9,797,422

 
$
108,993

Commercial real estate
 
3,224,111

 
41,771

 
10,956

 
18

 
3,235,067

 
41,789

Residential mortgage
 
1,824,896

 
20,762

 
44,099

 
97

 
1,868,995

 
20,859

Personal
 
465,463

 
4,729

 
494

 
—

 
465,957

 
4,729

Total
 
15,278,094

 
171,419

 
89,347

 
4,951

 
15,367,441

 
176,370

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
27,746

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,278,094

 
$
171,419

 
$
89,347

 
$
4,951

 
$
15,367,441

 
$
204,116




- 79 -


The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2014 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
9,082,143

 
$
90,709

 
$
13,527

 
$
166

 
$
9,095,670

 
$
90,875

Commercial real estate
 
2,709,593

 
42,404

 
18,557

 
41

 
2,728,150

 
42,445

Residential mortgage
 
1,901,391

 
23,353

 
48,121

 
105

 
1,949,512

 
23,458

Personal
 
434,139

 
4,233

 
566

 
—

 
434,705

 
4,233

Total
 
14,127,266

 
160,699

 
80,771

 
312

 
14,208,037

 
161,011

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,045

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,127,266

 
$
160,699

 
$
80,771

 
$
312

 
$
14,208,037

 
$
189,056



The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at September 30, 2014 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
8,555,634

 
$
83,609

 
$
16,404

 
$
3,166

 
$
8,572,038

 
$
86,775

Commercial real estate
 
2,693,539

 
42,358

 
30,660

 
75

 
2,724,199

 
42,433

Residential mortgage
 
1,930,756

 
27,109

 
48,907

 
107

 
1,979,663

 
27,216

Personal
 
407,259

 
6,876

 
580

 
—

 
407,839

 
6,876

Total
 
13,587,188

 
159,952

 
96,551

 
3,348

 
13,683,739

 
163,300

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
27,944

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,587,188

 
$
159,952

 
$
96,551

 
$
3,348

 
$
13,683,739

 
$
191,244


- 80 -


Credit Quality Indicators

The Company utilizes loan class and risk grading as primary credit quality indicators. Substantially all commercial and commercial real estate loans and certain residential mortgage and consumer loans are risk graded based on a quarterly evaluation of the borrowers’ ability to repay the loans. Certain commercial loans and most residential mortgage and consumer loans are small, homogeneous pools that are not risk graded. 

The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at September 30, 2015 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
9,771,003

 
$
108,101

 
$
26,419

 
$
892

 
$
9,797,422

 
$
108,993

Commercial real estate
 
3,235,067

 
41,789

 
—

 
—

 
3,235,067

 
41,789

Residential mortgage
 
190,361

 
2,938

 
1,678,634

 
17,921

 
1,868,995

 
20,859

Personal
 
380,376

 
1,790

 
85,581

 
2,939

 
465,957

 
4,729

Total
 
13,576,807

 
154,618

 
1,790,634

 
21,752

 
15,367,441

 
176,370

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
27,746

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,576,807

 
$
154,618

 
$
1,790,634

 
$
21,752

 
$
15,367,441

 
$
204,116

 
The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at December 31, 2014 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
9,073,030

 
$
90,085

 
$
22,640

 
$
790

 
$
9,095,670

 
$
90,875

Commercial real estate
 
2,728,150

 
42,445

 
—

 
—

 
2,728,150

 
42,445

Residential mortgage
 
192,303

 
2,996

 
1,757,209

 
20,462

 
1,949,512

 
23,458

Personal
 
343,227

 
1,506

 
91,478

 
2,727

 
434,705

 
4,233

Total
 
12,336,710

 
137,032

 
1,871,327

 
23,979

 
14,208,037

 
161,011

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,045

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,336,710

 
$
137,032

 
$
1,871,327

 
$
23,979

 
$
14,208,037

 
$
189,056



- 81 -


The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at September 30, 2014 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
8,545,949

 
$
85,892

 
$
26,089

 
$
883

 
$
8,572,038

 
$
86,775

Commercial real estate
 
2,724,199

 
42,433

 
—

 
—

 
2,724,199

 
42,433

Residential mortgage
 
200,701

 
4,083

 
1,778,962

 
23,133

 
1,979,663

 
27,216

Personal
 
314,604

 
3,257

 
93,235

 
3,619

 
407,839

 
6,876

Total
 
11,785,453

 
135,665

 
1,898,286

 
27,635

 
13,683,739

 
163,300

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
27,944

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,785,453

 
$
135,665

 
$
1,898,286

 
$
27,635

 
$
13,683,739

 
$
191,244


Loans are considered to be performing if they are in compliance with the original terms of the agreement, which is consistent with the regulatory guideline of “pass.” Performing also includes loans considered to be “other loans especially mentioned” by regulatory guidelines. Other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management’s close attention. Performing loans also include past due residential mortgages that are guaranteed by agencies of the U.S. government.

The risk grading process identified certain criticized loans as potential problem loans. These loans have a well-defined weakness (e.g. inadequate debt service coverage or liquidity or marginal capitalization; repayment may depend on collateral or other risk mitigation) that may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial condition of the borrower. This is consistent with the regulatory guideline for “substandard.” Because the borrowers are still performing in accordance with the original terms of the loan agreements, these loans were not placed in nonaccruing status. Known information does, however, cause concern as to the borrowers’ continued compliance with current repayment terms. Nonaccruing loans represent loans for which full collection of principal and interest is uncertain. This is substantially the same criteria used to determine whether a loan is impaired and includes certain loans considered “substandard” and all loans considered “doubtful” by regulatory guidelines.


- 82 -


The following table summarizes the Company’s loan portfolio at September 30, 2015 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,723,841

 
$
96,446

 
$
17,880

 
$
—

 
$
—

 
$
2,838,167

Services
 
2,687,862

 
8,070

 
10,692

 
—

 
—

 
2,706,624

Wholesale/retail
 
1,455,636

 
3,242

 
3,058

 
—

 
—

 
1,461,936

Manufacturing
 
553,418

 
1,907

 
352

 
—

 
—

 
555,677

Healthcare
 
1,740,462

 
—

 
1,218

 
—

 
—

 
1,741,680

Other commercial and industrial
 
466,397

 
—

 
522

 
26,343

 
76

 
493,338

Total commercial
 
9,627,616

 
109,665

 
33,722

 
26,343

 
76

 
9,797,422

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
148,392

 
370

 
4,748

 
—

 
—

 
153,510

Retail
 
767,368

 
433

 
1,648

 
—

 
—

 
769,449

Office
 
624,907

 
560

 
684

 
—

 
—

 
626,151

Multifamily
 
750,791

 
7,682

 
185

 
—

 
—

 
758,658

Industrial
 
563,795

 
—

 
76

 
—

 
—

 
563,871

Other commercial real estate
 
359,672

 
141

 
3,615

 
—

 
—

 
363,428

Total commercial real estate
 
3,214,925

 
9,186

 
10,956

 
—

 
—

 
3,235,067

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
186,923

 
918

 
2,520

 
719,163

 
28,140

 
937,664

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
188,827

 
3,885

 
192,712

Home equity
 
—

 
—

 
—

 
729,065

 
9,554

 
738,619

Total residential mortgage
 
186,923

 
918

 
2,520

 
1,637,055

 
41,579

 
1,868,995

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
380,221

 
15

 
140

 
85,227

 
354

 
465,957

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,409,685

 
$
119,784

 
$
47,338

 
$
1,748,625

 
$
42,009

 
$
15,367,441



- 83 -


The following table summarizes the Company’s loan portfolio at December 31, 2014 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,843,093

 
$
15,919

 
$
1,416

 
$
—

 
$
—

 
$
2,860,428

Services
 
2,371,189

 
15,140

 
5,201

 
—

 
—

 
2,391,530

Wholesale/retail
 
1,427,725

 
8,141

 
4,149

 
—

 
—

 
1,440,015

Manufacturing
 
527,951

 
4,193

 
450

 
—

 
—

 
532,594

Healthcare
 
1,449,024

 
4,565

 
1,380

 
—

 
—

 
1,454,969

Other commercial and industrial
 
389,378

 
3,293

 
823

 
22,532

 
108

 
416,134

Total commercial
 
9,008,360

 
51,251

 
13,419

 
22,532

 
108

 
9,095,670

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
127,437

 
10,855

 
5,299

 
—

 
—

 
143,591

Retail
 
662,335

 
628

 
3,926

 
—

 
—

 
666,889

Office
 
411,548

 
576

 
3,420

 
—

 
—

 
415,544

Multifamily
 
691,053

 
13,245

 
—

 
—

 
—

 
704,298

Industrial
 
428,817

 
—

 
—

 
—

 
—

 
428,817

Other commercial real estate
 
362,375

 
724

 
5,912

 
—

 
—

 
369,011

Total commercial real estate
 
2,683,565

 
26,028

 
18,557

 
—

 
—

 
2,728,150

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
187,520

 
1,773

 
3,010

 
745,813

 
31,835

 
969,951

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
202,238

 
3,712

 
205,950

Home equity
 
—

 
—

 
—

 
764,047

 
9,564

 
773,611

Total residential mortgage
 
187,520

 
1,773

 
3,010

 
1,712,098

 
45,111

 
1,949,512

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
343,041

 
19

 
167

 
91,079

 
399

 
434,705

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,222,486

 
$
79,071

 
$
35,153

 
$
1,825,709

 
$
45,618

 
$
14,208,037



- 84 -


The following table summarizes the Company’s loan portfolio at September 30, 2014 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,519,924

 
$
30,267

 
$
1,508

 
$
—

 
$
—

 
$
2,551,699

Services
 
2,318,991

 
17,376

 
3,584

 
—

 
—

 
2,339,951

Wholesale/retail
 
1,412,199

 
3,406

 
5,502

 
—

 
—

 
1,421,107

Manufacturing
 
469,881

 
6,180

 
3,482

 
—

 
—

 
479,543

Healthcare
 
1,376,399

 
4,583

 
1,417

 
—

 
—

 
1,382,399

Other commercial and industrial
 
359,159

 
11,234

 
857

 
26,035

 
54

 
397,339

Total commercial
 
8,456,553

 
73,046

 
16,350

 
26,035

 
54

 
8,572,038

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
145,223

 
15,371

 
14,634

 
—

 
—

 
175,228

Retail
 
605,718

 
1,538

 
4,009

 
—

 
—

 
611,265

Office
 
434,829

 
581

 
3,499

 
—

 
—

 
438,909

Multifamily
 
725,720

 
14,037

 
—

 
—

 
—

 
739,757

Industrial
 
371,426

 
—

 
—

 
—

 
—

 
371,426

Other commercial real estate
 
377,419

 
1,677

 
8,518

 
—

 
—

 
387,614

Total commercial real estate
 
2,660,335

 
33,204

 
30,660

 
—

 
—

 
2,724,199

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
195,688

 
1,312

 
3,701

 
758,970

 
31,436

 
991,107

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
194,653

 
3,835

 
198,488

Home equity
 
—

 
—

 
—

 
780,133

 
9,935

 
790,068

Total residential mortgage
 
195,688

 
1,312

 
3,701

 
1,733,756

 
45,206

 
1,979,663

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
314,409

 
20

 
175

 
92,830

 
405

 
407,839

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,626,985

 
$
107,582

 
$
50,886

 
$
1,852,621

 
$
45,665

 
$
13,683,739




- 85 -


Impaired Loans

Loans are considered to be impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. This includes all nonaccruing loans, all loans modified in a TDR and all loans repurchased from GNMA pools.

A summary of impaired loans follows (in thousands):
 
As of
 
For the
 
For the
 
September 30, 2015
 
Three Months Ended
 
Nine Months Ended
 
 
 
Recorded Investment
 
 
 
September 30, 2015
 
September 30, 2015
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
18,904

 
$
17,880

 
$
5,017

 
$
12,863

 
$
4,644

 
$
12,361

 
$
—

 
$
9,648

 
$
—

Services
13,677

 
10,692

 
10,041

 
651

 
148

 
10,818

 
—

 
7,946

 
—

Wholesale/retail
8,588

 
3,058

 
3,046

 
12

 
9

 
3,612

 
—

 
3,603

 
—

Manufacturing
675

 
352

 
352

 
—

 
—

 
365

 
—

 
401

 
—

Healthcare
1,612

 
1,218

 
1,064

 
154

 
35

 
1,248

 
—

 
1,299

 
—

Other commercial and industrial
8,277

 
598

 
598

 
—

 
—

 
611

 
—

 
765

 
—

Total commercial
51,733

 
33,798

 
20,118

 
13,680

 
4,836

 
29,015

 
—

 
23,662

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
9,349

 
4,748

 
4,748

 
—

 
—

 
7,058

 
—

 
5,023

 
—

Retail
2,252

 
1,648

 
1,648

 
—

 
—

 
2,737

 
—

 
2,787

 
—

Office
2,046

 
684

 
684

 
—

 
—

 
1,522

 
—

 
2,052

 
—

Multifamily
192

 
185

 
185

 
—

 
—

 
190

 
—

 
93

 
—

Industrial
76

 
76

 
76

 
—

 
—

 
76

 
—

 
38

 
—

Other real estate loans
9,650

 
3,615

 
3,452

 
163

 
18

 
3,965

 
—

 
4,763

 
—

Total commercial real estate
23,565

 
10,956

 
10,793

 
163

 
18

 
15,548

 
—

 
14,756

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
38,829

 
30,660

 
30,506

 
154

 
97

 
31,424

 
297

 
32,753

 
942

Permanent mortgage guaranteed by U.S. government agencies1
198,905

 
192,712

 
192,712

 
—

 
—

 
193,165

 
1,902

 
198,312

 
6,205

Home equity
10,085

 
9,554

 
9,554

 
—

 
—

 
9,810

 
—

 
9,559

 
—

Total residential mortgage
247,819

 
232,926

 
232,772

 
154

 
97

 
234,399

 
2,199

 
240,624

 
7,147

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
516

 
494

 
494

 
—

 
—

 
522

 
—

 
530

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
323,633

 
$
278,174

 
$
264,177

 
$
13,997

 
$
4,951

 
$
279,484

 
$
2,199

 
$
279,572

 
$
7,147

1 
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At September 30, 2015, $3.9 million of these loans were nonaccruing and $189 million were accruing based on the guarantee by U.S. government agencies.

Generally, no interest income is recognized on impaired loans until all principal balances, including amounts charged-off, are recovered.


- 86 -


A summary of impaired loans at December 31, 2014 follows (in thousands): 
 
 
 
 
Recorded Investment
 
 
 
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
1,444

 
$
1,416

 
$
1,416

 
$
—

 
$
—

Services
 
8,068

 
5,201

 
4,487

 
714

 
157

Wholesale/retail
 
9,457

 
4,149

 
4,117

 
32

 
9

Manufacturing
 
737

 
450

 
450

 
—

 
—

Healthcare
 
2,432

 
1,380

 
1,380

 
—

 
—

Other commercial and industrial
 
8,604

 
931

 
931

 
—

 
—

Total commercial
 
30,742

 
13,527

 
12,781

 
746

 
166

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
10,071

 
5,299

 
5,192

 
107

 
23

Retail
 
5,406

 
3,926

 
3,926

 
—

 
—

Office
 
5,959

 
3,420

 
3,420

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
11,954

 
5,912

 
5,739

 
173

 
18

Total commercial real estate
 
33,390

 
18,557

 
18,277

 
280

 
41

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
43,463

 
34,845

 
34,675

 
170

 
105

Permanent mortgage guaranteed by U.S. government agencies1
 
212,684

 
205,950

 
205,950

 
—

 
—

Home equity
 
9,767

 
9,564

 
9,564

 
—

 
—

Total residential mortgage
 
265,914

 
250,359

 
250,189

 
170

 
105

 
 
 
 
 
 
 
 
 
 
 
Personal
 
584

 
566

 
566

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
330,630

 
$
283,009

 
$
281,813

 
$
1,196

 
$
312

1 
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At December 31, 2014, $3.7 million of these loans were nonaccruing and $202 million were accruing based on the guarantee by U.S. government agencies.


- 87 -


A summary of impaired loans at September 30, 2014 follows (in thousands): 
 
 
 
For the
 
For the
 
As of September 30, 2014
 
Three Months Ended
 
Nine Months Ended
 
 
 
Recorded Investment
 
 
 
September 30, 2014
 
September 30, 2014
 
Unpaid Principal Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
1,536

 
$
1,508

 
$
1,508

 
$
—

 
$
—

 
$
1,563

 
$
—

 
$
1,684

 
$
—

Services
6,400

 
3,584

 
2,851

 
733

 
157

 
3,626

 
—

 
4,253

 
—

Wholesale/retail
10,792

 
5,502

 
5,470

 
32

 
9

 
5,693

 
—

 
6,235

 
—

Manufacturing
3,754

 
3,482

 
482

 
3,000

 
3,000

 
3,495

 
—

 
2,037

 
—

Healthcare
2,451

 
1,417

 
1,417

 
—

 
—

 
1,420

 
—

 
1,502

 
—

Other commercial and industrial
8,580

 
911

 
911

 
—

 
—

 
956

 
—

 
871

 
—

Total commercial
33,513

 
16,404

 
12,639

 
3,765

 
3,166

 
16,753

 
—

 
16,582

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Residential construction and land development
18,953

 
14,634

 
14,490

 
144

 
57

 
14,890

 
—

 
16,006

 
—

Retail
5,425

 
4,009

 
4,009

 
—

 
—

 
4,104

 
—

 
4,433

 
—

Office
6,004

 
3,499

 
3,499

 
—

 
—

 
3,545

 
—

 
4,945

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
315

 
—

 
126

 
—

Other real estate loans
15,261

 
8,518

 
8,341

 
177

 
18

 
9,711

 
—

 
10,242

 
—

Total commercial real estate
45,643

 
30,660

 
30,339

 
321

 
75

 
32,565

 
—

 
35,755

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Permanent mortgage
44,396

 
35,137

 
34,962

 
175

 
107

 
34,045

 
429

 
34,708

 
1,067

Permanent mortgage guaranteed by U.S. government agencies1
204,807

 
198,488

 
198,488

 
—

 
—

 
194,882

 
2,089

 
189,820

 
6,279

Home equity
10,031

 
9,935

 
9,935

 
—

 
—

 
9,688

 
—

 
8,599

 
—

Total residential mortgage
259,234

 
243,560

 
243,385

 
175

 
107

 
238,615

 
2,518

 
233,127

 
7,346

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
597

 
580

 
580

 
—

 
—

 
673

 
—

 
900

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
338,987

 
$
291,204

 
$
286,943

 
$
4,261

 
$
3,348

 
$
288,606

 
$
2,518

 
$
286,364

 
$
7,346

1 
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At September 30, 2014, $3.8 million of these loans were nonaccruing and $195 million were accruing based on the guarantee by U.S. government agencies.


- 88 -


Troubled Debt Restructurings

A summary of troubled debt restructurings ("TDRs") by accruing status as of September 30, 2015 is as follows (in thousands):
 
 
As of September 30, 2015
 
Amounts Charged Off During
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Three Months Ended
September 30, 2015
 
Nine Months Ended
Sept. 30, 2015
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
 
9,362

 
8,502

 
860

 
148

 
—

 
—

Wholesale/retail
 
2,897

 
2,844

 
53

 
9

 
—

 
—

Manufacturing
 
296

 
296

 
—

 
—

 
—

 
—

Healthcare
 
689

 
689

 
—

 
—

 
—

 
—

Other commercial and industrial
 
590

 
76

 
514

 
—

 
100

 
100

Total commercial
 
13,834

 
12,407

 
1,427

 
157

 
100

 
100

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
2,539

 
1,624

 
915

 
—

 
—

 
—

Retail
 
1,356

 
960

 
396

 
—

 
—

 
—

Office
 
169

 
169

 
—

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
1,037

 
584

 
453

 
—

 
—

 
—

Total commercial real estate
 
5,101

 
3,337

 
1,764

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
16,359

 
9,361

 
6,998

 
97

 
140

 
142

Permanent mortgage guaranteed by U.S. government agencies
 
1,944

 
140

 
1,804

 
—

 
—

 
—

Home equity
 
4,975

 
4,336

 
639

 
—

 
10

 
68

Total residential mortgage
 
23,278

 
13,837

 
9,441

 
97

 
150

 
210

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
365

 
209

 
156

 
—

 
—

 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
42,578

 
$
29,790

 
$
12,788

 
$
254

 
$
250

 
$
312

 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
81,598

 
22,352

 
59,246

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
124,176

 
$
52,142

 
$
72,034

 
$
254

 
$
250

 
$
312


- 89 -


A summary of troubled debt restructurings by accruing status as of December 31, 2014 is as follows (in thousands):

 
 
As of
 
 
December 31, 2014
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

Services
 
1,666

 
706

 
960

 
148

Wholesale/retail
 
3,381

 
3,284

 
97

 
9

Manufacturing
 
340

 
340

 
—

 
—

Healthcare
 
—

 
—

 
—

 
—

Other commercial and industrial
 
674

 
93

 
581

 
—

Total commercial
 
6,061

 
4,423

 
1,638

 
157

 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

Residential construction and land development
 
3,140

 
641

 
2,499

 
23

Retail
 
3,600

 
2,432

 
1,168

 
—

Office
 
2,324

 
—

 
2,324

 
—

Multifamily
 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

Other real estate loans
 
1,647

 
1,647

 
—

 
—

Total commercial real estate
 
10,711

 
4,720

 
5,991

 
23

 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

Permanent mortgage
 
16,393

 
11,134

 
5,259

 
105

Permanent mortgage guaranteed by U.S. government agencies
 
1,597

 
179

 
1,418

 
—

Home equity
 
5,184

 
3,736

 
1,448

 
—

Total residential mortgage
 
23,174

 
15,049

 
8,125

 
105

 
 
 
 
 
 
 
 
 
Personal
 
419

 
253

 
166

 
—

 
 
 
 
 
 
 
 
 
Total nonaccuring TDRs
 
$
40,365

 
$
24,445

 
$
15,920

 
$
285

 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
73,985

 
17,274

 
56,711

 
—

Total TDRs
 
$
114,350

 
$
41,719

 
$
72,631

 
$
285



- 90 -


A summary of troubled debt restructurings by accruing status as of September 30, 2014 is as follows (in thousands):
 
 
As of September 30, 2014
 
Amounts Charged Off During
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Three Months Ended
September 30, 2014
 
Nine Months Ended
Sept. 30, 2014
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
 
1,714

 
724

 
990

 
148

 
—

 
—

Wholesale/retail
 
3,545

 
3,440

 
105

 
9

 
—

 
—

Manufacturing
 
3,355

 
355

 
3,000

 
3,000

 
—

 
—

Healthcare
 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
644

 
48

 
596

 
—

 
—

 
—

Total commercial
 
9,258

 
4,567

 
4,691

 
3,157

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
8,562

 
264

 
8,298

 
56

 
—

 
—

Retail
 
3,664

 
2,486

 
1,178

 
—

 
—

 
—

Office
 
2,345

 
1,194

 
1,151

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
1,743

 
1,743

 
—

 
—

 
—

 
—

Total commercial real estate
 
16,314

 
5,687

 
10,627

 
56

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
16,764

 
11,227

 
5,537

 
80

 
147

 
246

Permanent mortgage guaranteed by U.S. government agencies
 
1,665

 
329

 
1,336

 
—

 
—

 
—

Home equity
 
4,937

 
3,864

 
1,073

 
—

 
12

 
58

Total residential mortgage
 
23,366

 
15,420

 
7,946

 
80

 
159

 
304

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
474

 
322

 
152

 
—

 
—

 
1

 
 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
49,412

 
$
25,996

 
$
23,416

 
$
3,293

 
$
159

 
$
305

 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
70,459

 
22,998

 
47,461

 
—

 
—

 
—

Total TDRs
 
$
119,871

 
$
48,994

 
$
70,877

 
$
3,293

 
$
159

 
$
305


- 91 -


Troubled debt restructurings generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed borrowers. The following tables detail the recorded balance of loans at September 30, 2015 by class that were restructured during the three and nine months ended September 30, 2015 by primary type of concession (in thousands):

 
Three Months Ended
Sept. 30, 2015
 
Accruing
 
Nonaccrual
 
Total
 
 
Payment Stream
 
Combination & Other
 
Total
 
Interest Rate
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
—

 
—

 
—

 
—

 
1,448

 
150

 
1,598

 
1,598

Permanent mortgage guaranteed by U.S. government agencies
 
5,809

 
3,846

 
9,655

 
—

 
—

 
—

 
—

 
9,655

Home equity
 
—

 
—

 
—

 
—

 
—

 
447

 
447

 
447

Total residential mortgage
 
5,809

 
3,846

 
9,655

 
—

 
1,448

 
597

 
2,045

 
11,700

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
—

 
—

 
—

 
—

 
—

 
18

 
18

 
18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
5,809

 
$
3,846

 
$
9,655

 
$
—

 
$
1,448

 
$
615

 
$
2,063

 
$
11,718



- 92 -


 
Nine Months Ended
Sept. 30, 2015
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Interest Rate
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
7,851

 
7,851

 
7,851

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
689

 
—

 
—

 
689

 
689

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
—

 
—

 
689

 
—

 
7,851

 
8,540

 
8,540

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
329

 
—

 
329

 
329

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
329

 
—

 
329

 
329

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
—

 
2,150

 
1,125

 
3,275

 
3,275

Permanent mortgage guaranteed by U.S. government agencies
15,858

 
10,397

 
26,255

 
—

 
—

 
843

 
843

 
27,098

Home equity
—

 
—

 
—

 
59

 
145

 
1,523

 
1,727

 
1,727

Total residential mortgage
15,858

 
10,397

 
26,255

 
59

 
2,295

 
3,491

 
5,845

 
32,100

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
—

 
—

 
—

 
—

 
104

 
104

 
104

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
15,858

 
$
10,397

 
$
26,255

 
$
748

 
$
2,624

 
$
11,446

 
$
14,818

 
$
41,073




- 93 -


Troubled debt restructurings generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed borrowers. The following tables detail the recorded balance of loans by class that were restructured during three and nine months ended September 30, 2014 by primary type of concession (in thousands):

 
Three Months Ended
Sept. 30, 2014
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
196

 
1,018

 
1,214

 
1,214

Permanent mortgage guaranteed by U.S. government agencies
3,439

 
12,626

 
16,065

 
—

 
163

 
163

 
16,228

Home equity
—

 
—

 
—

 
—

 
570

 
570

 
570

Total residential mortgage
3,439

 
12,626

 
16,065

 
196

 
1,751

 
1,947

 
18,012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
—

 
—

 
—

 
20

 
20

 
20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
3,439

 
$
12,626

 
$
16,065

 
$
196

 
$
1,771

 
$
1,967

 
$
18,032




- 94 -


 
Nine Months Ended
Sept. 30, 2014
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
3,400

 
—

 
3,400

 
3,400

Manufacturing
—

 
—

 
—

 
3,000

 
—

 
3,000

 
3,000

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
22

 
22

 
22

Total commercial
—

 
—

 
—

 
6,400

 
22

 
6,422

 
6,422

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
540

 
3,066

 
3,606

 
3,606

Permanent mortgage guaranteed by U.S. government agencies
8,288

 
19,222

 
27,510

 
—

 
1,128

 
1,128

 
28,638

Home equity
—

 
—

 
—

 
—

 
1,771

 
1,771

 
1,771

Total residential mortgage
8,288

 
19,222

 
27,510

 
540

 
5,965

 
6,505

 
34,015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
—

 
—

 
—

 
41

 
41

 
41

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
8,288

 
$
19,222

 
$
27,510

 
$
6,940

 
$
6,028

 
$
12,968

 
$
40,478



- 95 -


The following table summarizes, by loan class, the recorded investment at September 30, 2015 and 2014, respectively, of loans modified as TDRs within the previous 12 months and for which there was a payment default during the three months ended September 30, 2015 and 2014, respestively (in thousands):

 
Three Months Ended
Sept. 30, 2015
 
Nine Months Ended
Sept. 30, 2015
 
Accruing
 
Nonaccrual
 
Total
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
329

 
329

 
—

 
329

 
329

Retail
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
329

 
329

 
—

 
329

 
329

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
2,364

 
2,364

 
—

 
2,543

 
2,543

Permanent mortgage guaranteed by U.S. government agencies
29,942

 
779

 
30,721

 
31,673

 
919

 
32,592

Home equity
—

 
398

 
398

 
—

 
435

 
435

Total residential mortgage
29,942

 
3,541

 
33,483

 
31,673

 
3,897

 
35,570

 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
38

 
38

 
—

 
38

 
38

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
29,942

 
$
3,908

 
$
33,850

 
$
31,673

 
$
4,264

 
$
35,937


A payment default is defined as being 30 days or more past due. The table above includes loans that experienced a payment default during the period, but may be performing in accordance with the modified terms as of the balance sheet date.


- 96 -


 
Three Months Ended
Sept. 30, 2014
 
Nine Months Ended
Sept. 30, 2014
 
Accruing
 
Nonaccrual
 
Total
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
3,000

 
3,000

 
—

 
3,000

 
3,000

Healthcare
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
3,000

 
3,000

 
—

 
3,000

 
3,000

 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
445

 
445

 
—

 
445

 
445

Office
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
445

 
445

 
—

 
445

 
445

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
2,758

 
2,758

 
—

 
3,254

 
3,254

Permanent mortgage guaranteed by U.S. government agencies
23,376

 
1,115

 
24,491

 
24,126

 
1,115

 
25,241

Home equity
—

 
759

 
759

 
—

 
777

 
777

Total residential mortgage
23,376

 
4,632

 
28,008

 
24,126

 
5,146

 
29,272

 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
—

 
—

 
—

 
3

 
3

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
23,376

 
$
8,077

 
$
31,453

 
$
24,126

 
$
8,594

 
$
32,720


- 97 -


Nonaccrual & Past Due Loans

Past due status for all loan classes is based on the actual number of days since the last payment was due according to the contractual terms of the loans.

A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of September 30, 2015 is as follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,813,145

 
$
7,142

 
$
—

 
$
17,880

 
$
2,838,167

Services
 
2,690,554

 
5,378

 
—

 
10,692

 
2,706,624

Wholesale/retail
 
1,458,681

 
197

 
—

 
3,058

 
1,461,936

Manufacturing
 
555,325

 
—

 
—

 
352

 
555,677

Healthcare
 
1,740,462

 
—

 
—

 
1,218

 
1,741,680

Other commercial and industrial
 
492,554

 
86

 
100

 
598

 
493,338

Total commercial
 
9,750,721

 
12,803

 
100

 
33,798

 
9,797,422

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
148,762

 
—

 
—

 
4,748

 
153,510

Retail
 
767,801

 
—

 
—

 
1,648

 
769,449

Office
 
625,250

 
217

 
—

 
684

 
626,151

Multifamily
 
752,055

 
6,418

 
—

 
185

 
758,658

Industrial
 
563,795

 
—

 
—

 
76

 
563,871

Other real estate loans
 
359,813

 
—

 
—

 
3,615

 
363,428

Total commercial real estate
 
3,217,476

 
6,635

 
—

 
10,956

 
3,235,067

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
903,685

 
3,318

 
—

 
30,661

 
937,664

Permanent mortgages guaranteed by U.S. government agencies
 
33,046

 
25,776

 
130,005

 
3,885

 
192,712

Home equity
 
725,572

 
3,492

 
1

 
9,554

 
738,619

Total residential mortgage
 
1,662,303

 
32,586

 
130,006

 
44,100

 
1,868,995

 
 
 
 
 
 
 
 
 
 
 
Personal
 
465,218

 
245

 
—

 
494

 
465,957

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,095,718

 
$
52,269

 
$
130,106

 
$
89,348

 
$
15,367,441



- 98 -


A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2014 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,857,082

 
$
1,930

 
$
—

 
$
1,416

 
$
2,860,428

Services
 
2,385,193

 
1,136

 
—

 
5,201

 
2,391,530

Wholesale/retail
 
1,435,866

 
—

 
—

 
4,149

 
1,440,015

Manufacturing
 
532,144

 
—

 
—

 
450

 
532,594

Healthcare
 
1,453,409

 
180

 
—

 
1,380

 
1,454,969

Other commercial and industrial
 
415,030

 
173

 
—

 
931

 
416,134

Total commercial
 
9,078,724

 
3,419

 
—

 
13,527

 
9,095,670

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
133,642

 
4,650

 
—

 
5,299

 
143,591

Retail
 
662,963

 
—

 
—

 
3,926

 
666,889

Office
 
412,124

 
—

 
—

 
3,420

 
415,544

Multifamily
 
704,298

 
—

 
—

 
—

 
704,298

Industrial
 
428,817

 
—

 
—

 
—

 
428,817

Other real estate loans
 
362,529

 
570

 
—

 
5,912

 
369,011

Total commercial real estate
 
2,704,373

 
5,220

 
—

 
18,557

 
2,728,150

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
929,090

 
5,970

 
46

 
34,845

 
969,951

Permanent mortgages guaranteed by U.S. government agencies
 
26,691

 
23,558

 
151,989

 
3,712

 
205,950

Home equity
 
761,247

 
2,723

 
77

 
9,564

 
773,611

Total residential mortgage
 
1,717,028

 
32,251

 
152,112

 
48,121

 
1,949,512

 
 
 
 
 
 
 
 
 
 
 
Personal
 
433,590

 
547

 
2

 
566

 
434,705

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,933,715

 
$
41,437

 
$
152,114

 
$
80,771

 
$
14,208,037



- 99 -


A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of September 30, 2014 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,549,441

 
$
750

 
$
—

 
$
1,508

 
$
2,551,699

Services
 
2,335,550

 
812

 
5

 
3,584

 
2,339,951

Wholesale/retail
 
1,415,072

 
533

 
—

 
5,502

 
1,421,107

Manufacturing
 
475,595

 
466

 
—

 
3,482

 
479,543

Healthcare
 
1,380,982

 
—

 
—

 
1,417

 
1,382,399

Other commercial and industrial
 
396,358

 
70

 
—

 
911

 
397,339

Total commercial
 
8,552,998

 
2,631

 
5

 
16,404

 
8,572,038

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
152,399

 
8,195

 
—

 
14,634

 
175,228

Retail
 
606,383

 
873

 
—

 
4,009

 
611,265

Office
 
434,160

 
1,250

 
—

 
3,499

 
438,909

Multifamily
 
739,757

 
—

 
—

 
—

 
739,757

Industrial
 
371,426

 
—

 
—

 
—

 
371,426

Other real estate loans
 
378,796

 
300

 
—

 
8,518

 
387,614

Total commercial real estate
 
2,682,921

 
10,618

 
—

 
30,660

 
2,724,199

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
947,791

 
8,179

 
—

 
35,137

 
991,107

Permanent mortgages guaranteed by U.S. government agencies
 
35,318

 
23,475

 
135,860

 
3,835

 
198,488

Home equity
 
778,175

 
1,938

 
20

 
9,935

 
790,068

Total residential mortgage
 
1,761,284

 
33,592

 
135,880

 
48,907

 
1,979,663

 
 
 
 
 
 
 
 
 
 
 
Personal
 
406,463

 
796

 
—

 
580

 
407,839

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,403,666

 
$
47,637

 
$
135,885

 
$
96,551

 
$
13,683,739


- 100 -


(5) Acquisitions

On May 4, 2015, the Company acquired a majority voting interest in Heartland Food Products, LLC, a Kansas-based food product and restaurant equipment company.

The purchase price for this acquisition was $18 million. The preliminary purchase price allocation included $14 million of identifiable intangible assets and $7.7 million of goodwill. The pro-forma impact of these transactions was not material to the Company's consolidated financial statements.
(6) Mortgage Banking Activities

Residential Mortgage Loan Production

The Company originates, markets and services conventional and government-sponsored residential mortgage loans. Generally, conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-rate residential mortgage loans are held for investment. All residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sale commitments which are considered derivative contracts that have not been designated as hedging instruments. The volume of mortgage loans originated for sale and secondary market prices are the primary drivers of originating and marketing revenue.

Residential mortgage loan commitments are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan commitments 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 managed through forward sales of residential mortgage-backed securities and forward sales contracts. These latter contracts set the price for loans that will be delivered in the next 60 to 90 days.

The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to residential mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held for sale on the Consolidated Balance Sheets were (in thousands):
 
 
September 30, 2015
 
Dec. 31, 2014
 
September 30, 2014
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid
Principal
 Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
336,974

 
$
348,400

 
$
291,537

 
$
298,212

 
$
360,126

 
$
366,183

Residential mortgage loan commitments
 
742,742

 
18,161

 
627,505

 
9,971

 
638,925

 
8,480

Forward sales contracts
 
1,073,343

 
(9,147
)
 
701,066

 
(4,001
)
 
790,131

 
(1,410
)
 
 
 

 
$
357,414

 
 

 
$
304,182

 
 

 
$
373,253


No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of September 30, 2015, December 31, 2014 or September 30, 2014. No credit losses were recognized on residential mortgage loans held for sale for the nine month periods ended September 30, 2015 and 2014.


- 101 -


Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
Sept. 30,
 
Nine Months Ended
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Production revenue:
 
 
 
 
 
 
 
 
Net realized gains on sale of mortgage loans
 
$
18,968

 
$
17,100

 
$
60,075

 
$
39,025

Net change in unrealized gain on mortgage loans held for sale
 
6,666

 
(3,110
)
 
4,751

 
4,739

Net change in the fair value of mortgage loan commitments
 
9,838

 
(5,136
)
 
8,190

 
5,824

Net change in the fair value of forward sales contracts
 
(16,755
)
 
5,839

 
(5,146
)
 
(5,716
)
Total production revenue
 
18,717

 
14,693

 
67,870

 
43,872

Servicing revenue
 
14,453

 
12,121

 
41,466

 
35,116

Total mortgage banking revenue
 
$
33,170

 
$
26,814

 
$
109,336

 
$
78,988


Production revenue includes gain (loss) on residential mortgage loans held for sale and changes in the fair value of derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.

Residential Mortgage Servicing

Mortgage servicing rights may be originated or purchased. Both originated and purchased mortgage servicing rights are initially recognized at fair value. The Company has elected to carry all mortgage servicing rights at fair value. Changes in the fair value are recognized in earnings as they occur. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights (Dollars in thousands):
 
 
September 30,
2015
 
Dec. 31,
2014
 
September 30,
2014
Number of residential mortgage loans serviced for others
 
128,828

 
117,483

 
114,493

Outstanding principal balance of residential mortgage loans serviced for others
 
$
18,928,726

 
$
16,162,887

 
$
15,499,653

Weighted average interest rate
 
4.15
%
 
4.29
%
 
4.33
%
Remaining term (in months)
 
300

 
296

 
295


Activity in capitalized mortgage servicing rights during the three months ended September 30, 2015 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2015
 
$
10,730

 
$
187,964

 
$
198,694

Additions, net
 
—

 
19,993

 
19,993

Change in fair value due to loan runoff
 
(661
)
 
(6,220
)
 
(6,881
)
Change in fair value due to market changes
 
(656
)
 
(11,101
)
 
(11,757
)
Balance, Sept. 30, 2015
 
$
9,413

 
$
190,636

 
$
200,049


Activity in capitalized mortgage servicing rights during the nine months ended September 30, 2015 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Dec. 31, 2014
 
$
11,114

 
$
160,862

 
$
171,976

Additions, net
 
—

 
62,375

 
62,375

Change in fair value due to loan runoff
 
(2,171
)
 
(19,862
)
 
(22,033
)
Change in fair value due to market changes
 
470

 
(12,739
)
 
(12,269
)
Balance, Sept. 30, 2015
 
$
9,413

 
$
190,636

 
$
200,049


- 102 -



Activity in capitalized mortgage servicing rights during the three months ended September 30, 2014 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2014
 
$
13,082

 
$
142,658

 
$
155,740

Additions, net
 
—

 
17,367

 
17,367

Change in fair value due to loan runoff
 
(624
)
 
(4,478
)
 
(5,102
)
Change in fair value due to market changes
 
821

 
4,460

 
5,281

Balance, Sept. 30, 2014
 
$
13,279

 
$
160,007

 
$
173,286


Activity in capitalized mortgage servicing rights during the nine months ended September 30, 2014 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Dec. 31, 2013
 
$
15,935

 
$
137,398

 
$
153,333

Additions, net
 
—

 
39,183

 
39,183

Change in fair value due to loan runoff
 
(1,737
)
 
(11,869
)
 
(13,606
)
Change in fair value due to market changes
 
(919
)
 
(4,705
)
 
(5,624
)
Balance, Sept. 30, 2014
 
$
13,279

 
$
160,007

 
$
173,286


Changes in the fair value of mortgage servicing rights are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to loan runoff are included in Mortgage banking costs. Changes in fair value due to market changes are reported separately. Changes in fair value due to market changes during the period relate to assets held at the reporting date.

There is no active market for trading in mortgage servicing rights after origination. Fair value is determined by discounting the projected net cash flows. Significant assumptions used to determine fair value based on significant unobservable inputs were as follows:

 
 
September 30,
2015
 
Dec. 31,
2014
 
September 30,
2014
Discount rate – risk-free rate plus a market premium
 
10.12%
 
10.17%
 
10.17%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
    Performing loans
 
$63-$105
 
$60 - $105
 
$60 - $105
    Delinquent loans
 
$150 - $500
 
$150 - $500
 
$150 - $500
    Loans in foreclosure
 
$650 - $4,250
 
$1,000 - $4,250
 
$1000 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
1.40%
 
1.77%
 
1.95%

The Company is exposed to interest rate risk as benchmark residential mortgage interest rates directly affect the prepayment speeds used in valuing our mortgage servicing rights, which is partially managed through forward sales of residential mortgage-backed securities and forward sales contracts. 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 and adjusted to better correlate with actual performance of BOK Financial’s servicing portfolio.


- 103 -


Stratification of the residential mortgage loan servicing portfolio and outstanding principal of loans serviced for others by interest rate at September 30, 2015 follows (in thousands):
 
 
< 4.00%
 
4.00% - 4.99%

 
5.00% - 5.99%

 
> 5.99%
 
Total
Fair value
 
$
93,382

 
$
86,546

 
$
15,883

 
$
4,238

 
$
200,049

Outstanding principal of loans serviced for others
 
$
8,785,402

 
$
7,652,269

 
$
1,673,815

 
$
817,240

 
$
18,928,726

Weighted average prepayment rate1
 
7.51
%
 
8.74
%
 
13.57
%
 
26.99
%
 
9.39
%
1 
Annual prepayment estimates based upon loan interest rate, original term and loan type. Weighted average prepayment rate is determined by weighting the prepayment speed for each loan by its unpaid principal balance.

The interest rate sensitivity of our mortgage servicing rights and securities and derivative contracts held as an economic hedge is modeled over a range of +/- 50 basis points. At September 30, 2015, a 50 basis point increase in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights, net of economic hedge by $488 thousand. A 50 basis point decrease in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights, net of economic hedge by $716 thousand. In the model, changes in the value of servicing rights due to changes in interest rates assume stable relationships between residential mortgage rates and prepayment speeds. Changes in market conditions can cause variations from these assumptions. These factors and others may cause changes in the value of our mortgage servicing rights to differ from our expectations.

The aging status of our mortgage loans serviced for others by investor at September 30, 2015 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
6,177,382

 
$
36,398

 
$
7,426

 
$
26,517

 
$
6,247,723

FNMA
 
6,428,098

 
32,897

 
7,009

 
19,297

 
6,487,301

GNMA
 
5,483,012

 
145,747

 
38,984

 
15,816

 
5,683,559

Other
 
500,024

 
5,102

 
953

 
4,064

 
510,143

Total
 
$
18,588,516

 
$
220,144

 
$
54,372

 
$
65,694

 
$
18,928,726


The Company has off-balance sheet credit risk related to residential mortgage loans sold to U.S. government agencies with recourse prior to 2008 under various community development programs. These loans consist of first lien, fixed-rate residential mortgage loans underwritten to standards approved by the agencies including full documentation and originated under programs available only for owner-occupied properties. However, these loans have a higher risk of delinquency and loss given default than traditional residential mortgage loans. The Company no longer sells residential mortgage loans with recourse other than obligations under standard representations and warranties. The recourse obligation relates to loan performance for the life of the loan and the Company is obligated to repurchase the loan at the time of foreclosure for the unpaid principal balance plus unpaid interest. The principal balance of residential mortgage loans sold subject to recourse obligations totaled $162 million at September 30, 2015, $180 million at December 31, 2014 and $175 million at September 30, 2014. A separate accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. At September 30, 2015, approximately 3% of the loans sold with recourse with an outstanding principal balance of $5.5 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 4% with an outstanding balance of $7.0 million were past due 30 to 89 days. The provision for credit losses on loans sold with recourse is included in Mortgage banking costs in the Consolidated Statements of Earnings.

The activity in the accrual for losses on loans sold with recourse included in Other liabilities in the Consolidated Balance Sheets is summarized as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
Sept. 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
6,691

 
$
8,690

 
$
7,299

 
$
9,562

Provision for recourse losses
81

 
93

 
211

 
260

Loans charged off, net
(506
)
 
(461
)
 
(1,244
)
 
(1,500
)
Ending balance
$
6,266

 
$
8,322

 
$
6,266

 
$
8,322


The Company also has obligations to repurchase or provide indemnification for residential mortgage loans sold to government sponsored entities due to standard representations and warranties made under contractual agreements and to service loans in

- 104 -


accordance with investor guidelines. The Company has established accruals for losses related to these obligations that are included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated Statements of Earnings. 

The Company repurchased 10 loans from the agencies for $2.1 million during the third quarter of 2015. There were no indemnifications on loans paid during the third quarter of 2015. Losses recognized on indemnifications and repurchases were insignificant.

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 
September 30,
2015
 
September 30,
2014
Number of unresolved deficiency requests
194

 
184

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
14,237

 
$
15,548

Unpaid principal balance subject to indemnification by the Company
4,604

 
4,792


The activity in the accruals for mortgage losses is summarized as follows (in thousands).
 
Three Months Ended
Sept. 30,
 
Nine Months Ended
Sept. 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
8,908

 
$
12,119

 
$
11,868

 
$
12,716

Provision for losses
(52
)
 
1,122

 
(3,056
)
 
2,475

Charge-offs, net
(1,262
)
 
(3,486
)
 
(1,218
)
 
(5,436
)
Ending balance
$
7,594


$
9,755


$
7,594


$
9,755

(7)  Commitments and Contingent Liabilities

Litigation Contingencies

As a member of Visa, BOK Financial is obligated for a proportionate share of certain covered litigation losses incurred by Visa under a retrospective responsibility plan. A contingent liability was recognized for the Company’s share of Visa’s covered litigation liabilities. Visa funded an escrow account to cover litigation claims, including covered litigation losses under the retrospective responsibility plan, with proceeds from its initial public offering in 2008 and from available cash. 

BOK Financial currently owns 251,837 Visa Class B shares which are convertible into 415,103 shares of Visa Class A shares after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may be assigned until the Class B shares are converted into a known number of Class A shares.

On March 3, 2015, the Bank and the Company were named as defendants in a putative class action alleging that the manner in which the Bank posted charges to its consumer deposit accounts was improper from September 1, 2011 through July 8, 2014, the period after which the Bank and BOK Financial settled a class action respecting a similar claim. Management has been advised by counsel that the Bank and the Company have meritorious defenses to the action. A reasonable estimate of losses, if any, cannot be made at this time. On April 8, 2015, the Bank was named as a defendant in a putative class action alleging that the Extended Overdraft Fee charged customers who failed to pay overdrafts after five days constituted interest and exceeded permissible interest rates set by state and federal law. This action was dismissed on the merits by the Court.

On June 24, 2015, the Company received a complaint alleging that an employee had colluded with a borrower and an individual in misusing revenues pledged to the municipal bonds for which the Company served as trustee under the bond indenture. The Company conducted an investigation and has concluded that the employee had, with respect to a single group of affiliated bond issuances, violated Company policies and procedures by waiving financial covenants, granting forbearances and accepting without disclosure to the bondholders, debt service payments from sources other than pledged revenues. The employee was terminated. At this time, management and counsel have not determined whether the Company has any liability to the bondholders and, if so, the amount of any loss that might reasonably be estimated from such liability.


- 105 -


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 have a material effect on the Company’s financial condition, results of operations or cash flows.

Alternative Investment Commitments

The Company sponsors two private equity funds and invests in several tax credit entities and other funds as permitted by banking regulations. Consolidation of these investments is based on the variable interest model determined by the nature of the entity. Variable interest entities are generally defined 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. Variable interest entities are consolidated based on the determination that the Company is the primary beneficiary including the power to direct the activities that most significantly impact the variable interest's economic performance and the obligation to absorb losses of the variable interest or the right to receive benefits of the variable interest that could be significant to the variable interest.

BOKF Equity, LLC, an indirect wholly-owned subsidiary, is the general partner of two consolidated private equity funds (“the Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related parties, through unaffiliated limited partnerships. These unaffiliated limited partnerships generally invest in distressed assets, asset buy-outs or venture capital companies. As general partner, BOKF Equity, LLC has the power to direct activities that most significantly affect the Funds' performance and contingent obligations to make additional investments totaling $5.1 million at September 30, 2015. Substantially all of the obligations are offset by limited partner commitments. The Company does not accrue its contingent liability to fund investments. The Volcker Rule in Title VI of the Dodd-Frank Act will limit both the amount and structure of these types of investments.

Consolidated tax credit investment entities represent the Company's interest in entities earning federal new market tax credits related to qualifying loans. The Company has the power to direct the activities that most significantly impact the variable interest's economic performance of the entity including being the primary beneficiary of or the obligation to absorb losses of the variable interest that could be significant to the variable interest.

Other consolidated alternative investments include entities held under merchant banking authority. While the Company owns a majority of the voting interest in these entities, its ability to manage daily operations is limited by applicable banking regulations. Consolidated other assets includes total tangible assets, identifiable intangible assets and goodwill held by these entities.

The Company also has interests in various unrelated alternative investments generally consisting of unconsolidated limited partnership interests in or loans to entities for which investment return is primarily in the form of tax credits or that invest in distressed real estate loans and properties, energy development, venture capital and other activities. The Company is prohibited by banking regulations from controlling or actively managing the activities of these investments and the Company's maximum exposure to loss is restricted to its investment balance. The Company's obligation to fund alternative investments is included in Other liabilities in the Consolidated Balance Sheets.


- 106 -


A summary of consolidated and unconsolidated alternative investments as of September 30, 2015, December 31, 2014 and September 30, 2014 is as follows (in thousands):

 
 
September 30, 2015
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
24,133

 
$
—

 
$
—

 
$
19,947

Tax credit entities
 
10,000

 
12,361

 
—

 
10,964

 
10,000

Other
 
—

 
41,197

 
2,774

 
2,788

 
8,989

Total consolidated
 
$
10,000

 
$
77,691

 
$
2,774

 
$
13,752

 
$
38,936

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
18,114

 
$
94,600

 
$
21,973

 
$
—

 
$
—

Other
 
—

 
15,822

 
6,899

 
—

 
—

Total unconsolidated
 
$
18,114

 
$
110,422

 
$
28,872

 
$
—

 
$
—


 
 
Dec. 31, 2014
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
25,627

 
$
—

 
$
—

 
$
21,921

Tax credit entities
 
10,000

 
12,827

 
—

 
10,964

 
10,000

Other
 
—

 
5,996

 
—

 
—

 
2,106

Total consolidated
 
$
10,000

 
$
44,450

 
$
—

 
$
10,964

 
$
34,027

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
18,192

 
$
96,721

 
$
28,920

 
$
—

 
$
—

Other
 
—

 
9,471

 
4,050

 
—

 
—

Total unconsolidated
 
$
18,192

 
$
106,192

 
$
32,970

 
$
—

 
$
—


 
 
September 30, 2014
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
27,118

 
$
—

 
$
—

 
$
22,141

Tax credit entities
 
10,000

 
12,982

 
—

 
10,964

 
10,000

Other
 
—

 
7,012

 
—

 
—

 
2,078

Total consolidated
 
$
10,000

 
$
47,112

 
$
—

 
$
10,964

 
$
34,219

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
18,243

 
$
93,291

 
$
25,611

 
$
—

 
$
—

Other
 
—

 
6,811

 
1,622

 
—

 
—

Total unconsolidated
 
$
18,243

 
$
100,102

 
$
27,233

 
$
—

 
$
—



- 107 -


Other Commitments and Contingencies

At September 30, 2015, Cavanal Hill Funds’ assets included $1.5 billion of U.S. Treasury, $1.6 billion of cash management and $267 million of tax-free money market funds. Assets of these funds consist of highly-rated, short-term obligations of the U.S. Treasury, corporate issuers and U.S. states and municipalities. The net asset value of units in these funds was $1.00 at September 30, 2015. An investment in these funds is not insured by the Federal Deposit Insurance Corporation or guaranteed by BOK Financial or any of its subsidiaries. BOK Financial may, but is not obligated to purchase assets from these funds to maintain the net asset value at $1.00. No assets were purchased from the funds in 2015 or 2014.

Cottonwood Valley Ventures, Inc. (“CVV, Inc.”), an indirectly wholly-owned subsidiary of BOK Financial, favorable resolved its audit by the Oklahoma Tax Commission (“OTC”) for tax years 2007 through 2009. CVV, Inc. is a qualified venture capital company under the applicable Oklahoma statute. As authorized by the statute, CVV, Inc. guarantees transferable Oklahoma state income tax credits by providing direct debt financing to private companies which qualify as statutory business ventures. Due to certain statutory limitations on utilization of such credits, CVV, Inc. must sell the majority of the credits to provide the economic incentives provided for by the statute. CVV will now be allowed to resume selling qualified credits.

The Company agreed to guarantee rents totaling $29 million through September of 2017 to the City of Tulsa as owner of a building immediately adjacent to the Bank’s main office for space currently rented by third-party tenants in the building. All rent payments are current. Remaining guaranteed rents totaled $6.3 million at September 30, 2015. In return for this guarantee, the Company will receive 80% of net cash flow as defined in an agreement with the City of Tulsa through September 2017 from rental of space that was vacant at the inception of the agreement. The maximum amount that the Company may receive under this agreement is $4.5 million.
(8) Shareholders' Equity

On October 27, 2015, the Company declared a a quarterly cash dividend of $0.43 per common share on or about November 27, 2015 to shareholders of record as of November 13, 2015.

Dividends declared were $0.42 and $1.26 per share during the three and nine months ended September 30, 2015 and $0.40 and $1.20 per share during the three and nine months ended September 30, 2014.

Accumulated Other Comprehensive Income (Loss)

AOCI includes unrealized gains and losses on available for sale ("AFS") securities and non-credit related unrealized losses on AFS securities for which an other-than-temporary impairment has been recorded in earnings. AOCI also includes unrealized gains on AFS securities that were transferred from AFS to investment securities in the third quarter of 2011. Such amounts are being amortized over the estimated remaining life of the security as an adjustment to yield, offsetting the related amortization of premium on the transferred securities. Unrealized losses on employee benefit plans will be reclassified into income as pension plan costs are recognized over the remaining service period of plan participants. Accumulated losses on the interest rate lock hedge of the 2005 subordinated debt issuance were reclassified into income over the ten-year life of the debt. Gains and losses in AOCI are net of deferred income taxes.


- 108 -


A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):
 
 
Unrealized Gain (Loss) on
 
 
 
 
 
 
Available for Sale Securities
 
Investment Securities Transferred from AFS
 
Employee Benefit Plans
 
Loss on Effective Cash Flow Hedges
 
Total
Balance, Dec. 31, 2013
 
$
(23,175
)
 
$
1,118

 
$
(3,311
)
 
$
(255
)
 
$
(25,623
)
Net change in unrealized gain (loss)
 
82,254

 
—

 
(2
)
 
—

 
82,252

Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
 
 
Interest revenue, Investment securities, Taxable securities
 
—

 
(1,009
)
 
—

 
—

 
(1,009
)
Interest expense, Subordinated debentures
 
—

 
—

 
—

 
206

 
206

Net impairment losses recognized in earnings
 
—

 
—

 
—

 
—

 
—

Gain on available for sale securities, net
 
(1,390
)
 
—

 
—

 
—

 
(1,390
)
Other comprehensive income (loss), before income taxes
 
80,864

 
(1,009
)
 
(2
)
 
206

 
80,059

Federal and state income taxes1
 
31,456

 
(394
)
 
(1
)
 
80

 
31,141

Other comprehensive income (loss), net of income taxes
 
49,408

 
(615
)
 
(1
)
 
126

 
48,918

Balance, Sept. 30, 2014
 
$
26,233

 
$
503

 
$
(3,312
)
 
$
(129
)
 
$
23,295

 
 
 
 
 
 
 
 
 
 
 
Balance, Dec. 31, 2014
 
$
59,239

 
$
376

 
$
(2,868
)
 
$
(74
)
 
$
56,673

Net change in unrealized gain (loss)
 
57,763

 
—

 
—

 
—

 
57,763

Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
 
 
Interest revenue, Investment securities, Taxable securities
 
—

 
(418
)
 
—

 
—

 
(418
)
Interest expense, Subordinated debentures
 
—

 
—

 
—

 
121

 
121

Net impairment losses recognized in earnings
 
92

 
—

 
—

 
—

 
92

Gain on available for sale securities, net
 
(9,926
)
 
—

 
—

 
—

 
(9,926
)
Other comprehensive income (loss), before income taxes
 
47,929

 
(418
)
 
—

 
121

 
47,632

Federal and state income taxes1
 
18,644

 
(162
)
 
—

 
47

 
18,529

Other comprehensive income (loss), net of income taxes
 
29,285

 
(256
)
 
—

 
74

 
29,103

Balance, Sept. 30, 2015
 
$
88,524

 
$
120

 
$
(2,868
)
 
$
—

 
$
85,776

1 
Calculated using a 39% effective tax rate.

- 109 -


(9)  Earnings Per Share
 
(In thousands, except share and per share amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to BOK Financial Corp. shareholders
 
$
74,891

 
$
75,632

 
$
228,964

 
$
228,117

Less: Earnings allocated to participating securities
 
894

 
898

 
2,652

 
2,479

Numerator for basic earnings per share – income available to common shareholders
 
73,997

 
74,734

 
226,312

 
225,638

Effect of reallocating undistributed earnings of participating securities
 
1

 
1

 
2

 
3

Numerator for diluted earnings per share – income available to common shareholders
 
$
73,998

 
$
74,735

 
$
226,314

 
$
225,641

 
 
 
 
 
 
 
 
 
Denominator:
 
 

 
 

 
 

 
 

Weighted average shares outstanding
 
68,486,376

 
69,275,121

 
68,800,419

 
69,113,914

Less:  Participating securities included in weighted average shares outstanding
 
818,300

 
819,255

 
795,911

 
749,365

Denominator for basic earnings per common share
 
67,668,076

 
68,455,866

 
68,004,508

 
68,364,549

Dilutive effect of employee stock compensation plans1
 
94,407

 
153,899

 
99,509

 
156,042

Denominator for diluted earnings per common share
 
67,762,483

 
68,609,765

 
68,104,017

 
68,520,591

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.09

 
$
1.09

 
$
3.33

 
$
3.30

Diluted earnings per share
 
$
1.09

 
$
1.09

 
$
3.32

 
$
3.29

1  Excludes employee stock options with exercise prices greater than current market price.
 
—

 
—

 
—

 
—


- 110 -


(10)  Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended September 30, 2015 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
109,495

 
$
21,578

 
$
6,680

 
$
40,883

 
$
178,636

Net interest revenue (expense) from internal sources
 
(12,730
)
 
7,688

 
$
5,161

 
(119
)
 
—

Net interest revenue
 
96,765

 
29,266

 
11,841

 
40,764

 
178,636

Provision for credit losses
 
828

 
1,488

 
2

 
5,182

 
7,500

Net interest revenue after provision for credit losses
 
95,937

 
27,778

 
11,839

 
35,582

 
171,136

Other operating revenue
 
44,899

 
52,978

 
63,095

 
2,464

 
163,436

Other operating expense
 
52,499

 
50,608

 
57,742

 
63,779

 
224,628

Net direct contribution
 
88,337

 
30,148

 
17,192

 
(25,733
)
 
109,944

Corporate expense allocations
 
14,668

 
21,845

 
10,858

 
(47,371
)
 
—

Net income before taxes
 
73,669

 
8,303

 
6,334

 
21,638

 
109,944

Federal and state income taxes
 
28,657

 
3,230

 
2,464

 
(223
)
 
34,128

Net income
 
45,012

 
5,073

 
3,870

 
21,861

 
75,816

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
925

 
925

Net income attributable to BOK Financial Corp. shareholders
 
$
45,012

 
$
5,073

 
$
3,870

 
$
20,936

 
$
74,891

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
13,544,828

 
$
7,286,709

 
$
4,629,506

 
$
5,308,690

 
$
30,769,733

Average invested capital
 
1,062,053

 
264,540

 
226,477

 
1,808,477

 
3,361,547

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.32
%
 
0.28
%
 
0.38
%
 
 
 
0.97
%
Return on average invested capital
 
16.83
%
 
7.61
%
 
7.75
%
 
 
 
8.84
%
Efficiency ratio
 
36.90
%
 
56.97
%
 
76.56
%
 
 
 
64.34
%


- 111 -


Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2015 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
319,279

 
$
64,030

 
$
18,289

 
$
120,495

 
$
522,093

Net interest revenue (expense) from internal sources
 
(37,928
)
 
23,226

 
$
15,712

 
(1,010
)
 
—

Net interest revenue
 
281,351

 
87,256

 
34,001

 
119,485

 
522,093

Provision for credit losses
 
(8,122
)
 
1,488

 
(745
)
 
18,879

 
11,500

Net interest revenue after provision for credit losses
 
289,473

 
85,768

 
34,746

 
100,606

 
510,593

Other operating revenue
 
133,363

 
167,773

 
191,316

 
13,286

 
505,738

Other operating expense
 
155,855

 
158,404

 
171,760

 
185,987

 
672,006

Net direct contribution
 
266,981

 
95,137

 
54,302

 
(72,095
)
 
344,325

Corporate expense allocations
 
43,970

 
64,779

 
33,154

 
(141,903
)
 
—

Net income before taxes
 
223,011

 
30,358

 
21,148

 
69,808

 
344,325

Federal and state income taxes
 
86,751

 
11,809

 
8,227

 
6,355

 
113,142

Net income
 
136,260

 
18,549

 
12,921

 
63,453

 
231,183

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
2,219

 
2,219

Net income attributable to BOK Financial Corp. shareholders
 
$
136,260

 
$
18,549

 
$
12,921

 
$
61,234

 
$
228,964

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
13,114,958

 
$
7,307,097

 
$
4,696,750

 
$
5,285,625

 
$
30,404,430

Average invested capital
 
1,028,013

 
268,427

 
225,222

 
1,819,969

 
3,341,631

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.39
%
 
0.34
%
 
0.42
%
 
 
 
1.01
%
Return on average invested capital
 
17.74
%
 
9.24
%
 
8.66
%
 
 
 
9.16
%
Efficiency ratio
 
37.51
%
 
58.28
%
 
75.69
%
 
 
 
64.48
%




- 112 -


Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended September 30, 2014 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
95,423

 
$
19,742

 
$
5,956

 
$
45,670

 
$
166,791

Net interest revenue (expense) from internal sources
 
(9,796
)
 
9,517

 
5,191

 
(4,912
)
 
—

Net interest revenue
 
85,627

 
29,259

 
11,147

 
40,758

 
166,791

Provision for credit losses
 
(1,702
)
 
1,599

 
(125
)
 
228

 
—

Net interest revenue after provision for credit losses
 
87,329

 
27,660

 
11,272

 
40,530

 
166,791

Other operating revenue
 
45,121

 
55,243

 
61,001

 
3,606

 
164,971

Other operating expense
 
55,532

 
49,105

 
56,301

 
60,896

 
221,834

Net direct contribution
 
76,918

 
33,798

 
15,972

 
(16,760
)
 
109,928

Corporate expense allocations
 
13,081

 
18,229

 
12,276

 
(43,586
)
 
—

Net income before taxes
 
63,837

 
15,569

 
3,696

 
26,826

 
109,928

Federal and state income taxes
 
24,833

 
6,056

 
1,438

 
1,475

 
33,802

Net income
 
39,004

 
9,513

 
2,258

 
25,351

 
76,126

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
494

 
494

Net income attributable to BOK Financial Corp. shareholders
 
$
39,004

 
$
9,513

 
$
2,258

 
$
24,857

 
$
75,632

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
11,508,661

 
$
7,123,786

 
$
4,324,204

 
$
5,158,906

 
$
28,115,557

Average invested capital
 
940,091

 
271,705

 
220,489

 
1,780,818

 
3,213,103

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.35
%
 
0.53
%
 
0.26
%
 
 
 
1.07
%
Return on average invested capital
 
16.47
%
 
13.89
%
 
5.06
%
 
 
 
9.34
%
Efficiency ratio
 
42.45
%
 
58.99
%
 
77.69
%
 
 
 
67.18
%

- 113 -


Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2014 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
281,064

 
$
61,672

 
$
17,574

 
$
135,220

 
$
495,530

Net interest revenue (expense) from internal sources
 
(33,419
)
 
28,354

 
14,594

 
(9,529
)
 
—

Net interest revenue
 
247,645

 
90,026

 
32,168

 
125,691

 
495,530

Provision for credit losses
 
(8,894
)
 
1,599

 
323

 
6,972

 
—

Net interest revenue after provision for credit losses
 
256,539

 
88,427

 
31,845

 
118,719

 
495,530

Other operating revenue
 
126,527

 
154,030

 
180,790

 
8,708

 
470,055

Other operating expense
 
155,529

 
141,462

 
160,846

 
163,808

 
621,645

Net direct contribution
 
227,537

 
100,995

 
51,789

 
(36,381
)
 
343,940

Corporate expense allocations
 
42,024

 
57,768

 
36,130

 
(135,922
)
 
—

Net income before taxes
 
185,513

 
43,227

 
15,659

 
99,541

 
343,940

Federal and state income taxes
 
72,165

 
16,815

 
6,091

 
18,971

 
114,042

Net income
 
113,348

 
26,412

 
9,568

 
80,570

 
229,898

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
1,781

 
1,781

Net income attributable to BOK Financial Corp. shareholders
 
$
113,348

 
$
26,412

 
$
9,568

 
$
78,789

 
$
228,117

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
11,222,847

 
$
7,091,118

 
$
4,499,858

 
$
4,803,104

 
$
27,616,927

Average invested capital
 
937,281

 
278,396

 
212,729

 
1,713,968

 
3,142,374

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.35
%
 
0.50
%
 
0.33
%
 
 
 
1.10
%
Return on average invested capital
 
16.21
%
 
12.68
%
 
6.89
%
 
 
 
9.71
%
Efficiency ratio
 
41.39
%
 
56.26
%
 
75.13
%
 
 
 
63.58
%


- 114 -


(11) Fair Value Measurements

Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market for the given asset or liability at the measurement date based on market conditions at that date. Certain assets and liabilities are recorded in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.

For some assets and liabilities, observable market transactions and market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. A hierarchy for fair value has been established which categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels are as follows:

Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) - Fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities.

Significant Other Observable Inputs (Level 2) - Fair value is based on significant other observable inputs which are generally determined based on a single price for each financial instrument provided to us by an applicable third-party pricing service and is based on one or more of the following:

•
Quoted prices for similar, but not identical, assets or liabilities in active markets;
•
Quoted prices for identical or similar assets or liabilities in inactive markets;
•
Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates;
•
Other inputs derived from or corroborated by observable market inputs.

Significant Unobservable Inputs (Level 3) - Fair value is based upon model-based valuation techniques for which at least one significant assumption is not observable in the market.

Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out of quoted prices in active markets for identical instruments to significant other observable inputs or significant unobservable inputs during the nine months ended September 30, 2015 and 2014, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the nine months ended September 30, 2015 and 2014 are included in the summary of changes in recurring fair values measured using unobservable inputs.

The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market. No significant adjustments were made to prices provided by third-party pricing services at September 30, 2015, December 31, 2014 or September 30, 2014.


- 115 -


Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of financial assets and liabilities measured on a recurring basis was as follows as of September 30, 2015 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
42,431

 
$
—

 
$
42,431

 
$
—

U.S. agency residential mortgage-backed securities
 
30,973

 
—

 
30,973

 
—

Municipal and other tax-exempt securities
 
84,261

 
—

 
84,261

 
—

Other trading securities
 
23,466

 
—

 
23,466

 
—

Total trading securities
 
181,131

 
—

 
181,131

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,003

 
1,003

 
—

 
—

Municipal and other tax-exempt
 
57,960

 
—

 
48,360

 
9,600

U.S. agency residential mortgage-backed securities
 
5,819,127

 
—

 
5,819,127

 
—

Privately issued residential mortgage-backed securities
 
145,682

 
—

 
145,682

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,735,787

 
—

 
2,735,787

 
—

Other debt securities
 
4,150

 
—

 
—

 
4,150

Perpetual preferred stock
 
19,163

 
—

 
19,163

 
—

Equity securities and mutual funds
 
18,217

 
3,505

 
14,712

 
—

Total available for sale securities
 
8,801,089

 
4,508

 
8,782,831

 
13,750

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
427,760

 
—

 
427,760

 
—

     Other securities
 
—

 
—

 
—

 
—

Total fair value option securities
 
427,760

 
—

 
427,760

 
—

Residential mortgage loans held for sale
 
357,414

 
—

 
349,381

 
8,033

Mortgage servicing rights1
 
200,049

 
—

 
—

 
200,049

Derivative contracts, net of cash collateral2
 
726,159

 
4,922

 
721,237

 
—

Other assets – private equity funds
 
24,133

 
—

 
—

 
24,133

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
636,115

 
—

 
636,115

 
—

1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.
2 
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions that were valued based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded energy and agricultural derivative contacts, net of cash margin. Derivative contacts in liability positions that were valued using quoted prices in active markets for identical instruments are exchange-traded interest rate derivative contracts, fully offset by cash margin.


- 116 -


The fair value of financial assets and liabilities measured on a recurring basis was as follows as of December 31, 2014 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
85,092

 
$
—

 
$
85,092

 
$
—

U.S. agency residential mortgage-backed securities
 
31,199

 
—

 
31,199

 
—

Municipal and other tax-exempt securities
 
38,951

 
—

 
38,951

 
—

Other trading securities
 
33,458

 
—

 
33,458

 
—

Total trading securities
 
188,700

 
—

 
188,700

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,005

 
1,005

 
—

 
—

Municipal and other tax-exempt
 
63,557

 
—

 
53,464

 
10,093

U.S. agency residential mortgage-backed securities
 
6,646,884

 
—

 
6,646,884

 
—

Privately issued residential mortgage-backed securities
 
165,957

 
—

 
165,957

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,048,609

 
—

 
2,048,609

 
—

Other debt securities
 
9,212

 
—

 
5,062

 
4,150

Perpetual preferred stock
 
24,277

 
—

 
24,277

 
—

Equity securities and mutual funds
 
19,444

 
4,927

 
14,517

 
—

Total available for sale securities
 
8,978,945

 
5,932

 
8,958,770

 
14,243

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
311,597

 
—

 
311,597

 
—

     Other securities
 
—

 
—

 
—

 
—

Total fair value option securities
 
311,597

 
—

 
311,597

 
—

Residential mortgage loans held for sale
 
304,182

 
—

 
292,326

 
11,856

Mortgage servicing rights1
 
171,976

 
—

 
—

 
171,976

Derivative contracts, net of cash collateral2
 
361,874

 
17,607

 
344,267

 
—

Other assets – private equity funds
 
25,627

 
—

 
—

 
25,627

Liabilities:
 


 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
354,554

 
541

 
354,013

 
—

1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.
2 
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy derivative contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and agricultural derivative contracts, net of cash margin.



- 117 -


The fair value of financial assets and liabilities measured on a recurring basis was as follows as of September 30, 2014 (in thousands):
 
 
Total
 
Quoted Prices in
Active Markets for Identical Instruments
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
41,004

 
$
—

 
$
41,004

 
$
—

U.S. agency residential mortgage-backed securities
 
33,226

 
—

 
33,226

 
—

Municipal and other tax-exempt securities
 
76,884

 
—

 
76,884

 
—

Other trading securities
 
18,598

 
—

 
18,598

 
—

Total trading securities
 
169,712

 
—

 
169,712

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,015

 
1,015

 
—

 
—

Municipal and other tax-exempt
 
64,363

 
—

 
54,170

 
10,193

U.S. agency residential mortgage-backed securities
 
6,850,603

 
—

 
6,850,603

 
—

Privately issued residential mortgage-backed securities
 
171,493

 
—

 
171,493

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,141,645

 
—

 
2,141,645

 
—

Other debt securities
 
34,291

 
—

 
30,141

 
4,150

Perpetual preferred stock
 
24,358

 
—

 
24,358

 
—

Equity securities and mutual funds
 
19,118

 
4,789

 
14,329

 
—

Total available for sale securities
 
9,306,886

 
5,804

 
9,286,739

 
14,343

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
175,761

 
—

 
175,761

 
—

Other securities
 
—

 
—

 
—

 
—

Total fair value option securities
 
175,761

 
—

 
175,761

 
—

Residential mortgage loans held for sale
 
373,253

 
—

 
365,877

 
7,376

Mortgage servicing rights1
 
173,286

 
—

 
—

 
173,286

Derivative contracts, net of cash collateral2
 
360,809

 
10,799

 
350,010

 
—

Other assets – private equity funds
 
27,118

 
—

 
—

 
27,118

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
348,687

 
4,286

 
344,401

 
—

1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.
2 
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy derivative contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) were exchange-traded interest rate and agricultural derivative contracts.



- 118 -


Following is a description of the Company's valuation methodologies used for assets and liabilities measured on a recurring basis:
Securities
The fair values of trading, available for sale and fair value option securities are based on quoted prices for identical instruments in active markets, when available. If quoted prices for identical instruments are not available, fair values are based on significant other observable inputs such as quoted prices of comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities.

The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on references to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar securities. A summary of significant inputs used to value these securities follows. A management committee composed of senior members from the Company's Capital Markets, Risk Management and Finance departments assesses the appropriateness of these inputs monthly.

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 that uses significant other observable market inputs.

Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments based on various risk factors including but not limited to counterparty credit rating or equivalent loan grading, derivative contract notional size, price volatility of the underlying commodity, duration of the derivative contracts and expected loss severity. Expected loss severity is based on historical losses for similarly risk graded commercial loan customers. Decreases in counterparty credit rating or grading and increases in price volatility and expected loss severity all tend to increase the credit quality adjustment which reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during the current period.

We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities would increase. The change in the fair value would be recognized in earnings in the current period.
Residential Mortgage Loans Held for Sale
Residential mortgage loans held for sale are carried on the balance sheet at fair value. 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 forward sales contracts. The fair value of mortgage loans that were unable to be sold to U.S. government agencies were determined using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied.

Other Assets - Private Equity Funds
The fair value of the portfolio investments of the Company's two private equity funds are based upon net asset value reported by the underlying funds, as adjusted by the general partner when necessary to represent the price that would be received to sell the assets. The Company's private equity funds provide customers alternative investment opportunities as limited partners of the funds. As fund of funds, the private equity funds invest in other limited partnerships or limited liability companies that invest substantially all of their assets in U.S. companies pursuing diversified investment strategies including early-stage venture capital, distressed securities and corporate or asset buy-outs. Private equity fund assets are long-term, illiquid investments. No secondary market exists for these assets. The private equity funds typically invest in funds that provide no redemption rights to investors. The fair value of the private equity investments may only be realized through cash distributions from the underlying funds.


- 119 -


The following represents the changes for the three months ended September 30, 2015 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 
 
Available for Sale Securities
 
 
 
 
 
 
Municipal and other tax-exempt
 
Other debt securities
 
Residential mortgage loans held for sale
 
Other assets – private equity funds
Balance, June 30, 2015
 
$
9,617

 
$
4,150

 
$
7,973

 
$
24,399

Transfer to Level 3 from Level 2
 
—

 
—

 
966

 
—

Purchases and capital calls
 
—

 
—

 
—

 
122

Proceeds from sales
 
—

 
—

 
(811
)
 
—

Redemptions and distributions
 
—

 
—

 
—

 
(1,339
)
Gain (loss) recognized in earnings:
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
(95
)
 
—

Gain on other assets, net
 
—

 
—

 
—

 
951

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
(17
)
 
—

 
—

 
—

Balance, Sept. 30, 2015
 
$
9,600

 
$
4,150

 
$
8,033

 
$
24,133


The following represents the changes for the nine months ended September 30, 2015 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 
 
Available for Sale Securities
 
 
 
 
 
 
Municipal and other tax-exempt
 
Other debt securities
 
Residential mortgage loans held for sale
 
Other assets – private equity funds
Balance, Dec. 31, 2014
 
$
10,093

 
$
4,150

 
$
11,856

 
$
25,627

Transfer to Level 3 from Level 2
 
—

 
—

 
2,153

 
—

Purchases and capital calls
 
—

 
—

 
—

 
720

Proceeds from sales
 
—

 
—

 
(6,099
)
 
—

Redemptions and distributions
 
(500
)
 
—

 
—

 
(4,689
)
Gain (loss) recognized in earnings:
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
123

 
—

Gain on other assets, net
 
—

 
—

 
—

 
2,475

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
7

 
—

 
—

 
—

Balance, Sept. 30, 2015
 
$
9,600

 
$
4,150

 
$
8,033

 
$
24,133


- 120 -


The following represents the changes for the three months ended September 30, 2014 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 
 
Available for Sale Securities
 
 
 
 
 
 
Municipal and other tax-exempt
 
Other debt securities
 
Equity securities and mutual funds
 
Residential mortgage loans held for sale
 
Other assets – private equity funds
Balance, June 30, 2014
 
$
10,445

 
$
4,231

 
$
—

 
$
—

 
$
27,833

Transfer to Level 3 from Level 2
 
—

 
—

 
—

 
7,764

 
—

Purchases and capital calls
 
—

 
—

 
—

 
—

 
505

Redemptions and distributions
 
—

 
—

 
—

 
—

 
(1,994
)
Gain (loss) recognized in earnings
 
 
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
—

 
(388
)
 
—

Gain on other assets, net
 
—

 
—

 
—

 
—

 
774

Loss on available for sale securities, net
 
—

 
—

 
—

 
—

 
—

Charitable contributions to BOKF Foundation
 
—

 
—

 
—

 
—

 
—

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
(252
)
 
(81
)
 
—

 
—

 
—

Balance, Sept. 30, 2014
 
$
10,193

 
$
4,150

 
$
—

 
$
7,376

 
$
27,118


The following represents the changes for the nine months ended September 30, 2014 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 
 
Available for Sale Securities
 
 
 
 
 
 
Municipal and other tax-exempt
 
Other debt securities
 
Equity securities and mutual funds
 
Residential mortgage loans held for sale
 
Other assets – private equity funds
Balance, Dec. 31, 2013
 
$
17,805

 
$
4,712

 
$
4,207

 
$
—

 
$
27,341

Transfer to Level 3 from Level 2
 
—

 
—

 
—

 
7,764

 
—

Purchases, and capital calls
 
—

 
—

 
—

 
—

 
930

Redemptions and distributions
 
(7,487
)
 
(500
)
 
—

 
—

 
(5,175
)
Gain (loss) recognized in earnings
 
 
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
—

 
(388
)
 
—

Gain on other assets, net
 
—

 
—

 
—

 
—

 
4,022

Loss on available for sale securities, net
 
(235
)
 
—

 
—

 
—

 
—

Charitable contributions to BOKF Foundation
 
—

 
—

 
(2,420
)
 
—

 
—

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
110

 
(62
)
 
(1,787
)
 
—

 
—

Balance, Sept. 30, 2014
 
$
10,193

 
$
4,150

 
$
—

 
$
7,376

 
$
27,118




- 121 -


A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2015 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost/Unpaid Principal Balance
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
10,370

 
$
10,310

 
$
9,600

 
Discounted cash flows
1 
Interest rate spread
 
5.23%-5.53% (5.49%)
2 
92.35%-92.73% (92.57%)
3 
Other debt securities
 
4,400

 
4,400

 
4,150

 
Discounted cash flows
1 
Interest rate spread
 
5.65%-5.70% (5.69%)
4 
94.32% - 94.33 (94.33%)
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans held for sale
 
N/A

 
8,538

 
8,033

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
94.09%
 
Other assets - private equity funds
 
N/A

 
N/A

 
24,133

 
Net asset value reported by underlying funds
 
Net asset value reported by underlying fund
 
N/A
 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 510 to 538 basis points over average yields for comparable tax-exempt securities.
3 
Represents fair value as a percentage of par value.
4 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.



- 122 -



A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2014 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost/Unpaid Principal Balance
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
10,870

 
$
10,805

 
$
10,093

 
Discounted cash flows
1 
Interest rate spread
 
4.96%-5.26% (5.21%)
2 
92.65%-94.32% (93.09%)
3 
Other debt securities
 
4,400

 
4,400

 
4,150

 
Discounted cash flows
1 
Interest rate spread
 
5.62%-5.67% (5.66%)
4 
92.65% - 92.95 (92.77%)
3 
Residential mortgage loans held for sale
 
N/A

 
12,468

 
11,856

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
95.09%
 
Other assets - private equity funds
 
N/A

 
N/A

 
25,627

 
Net asset value reported by underlying funds
 
Net asset value reported by underlying fund
 
N/A
 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 488 to 516 basis points over average yields for comparable tax-exempt securities.
3 
Represents fair value as a percentage of par value.
4 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2014 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
10,970

 
$
10,904

 
$
10,193

 
Discounted cash flows
1 
Interest rate spread
 
4.93%-5.23% (5.19%)
2 
92.68%-94.32% (93.13%)
3 
Other debt securities
 
4,400

 
4,400

 
4,150

 
Discounted cash flows
1 
Interest rate spread
 
5.61%-5.65% (5.65%)
4 
92.68% - 92.99 (92.80%)
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans held for sale
 
N/A

 
7,764

 
7,376

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
95.00%
 
Other assets - private equity funds
 
N/A

 
N/A

 
27,118

 
Net asset value reported by underlying funds
 
Net asset value reported by underlying fund
 
N/A
 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 482 to 514 basis points over average yields for comparable tax-exempt securities.
3 
Represents fair value as a percentage of par value.
4 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.



- 123 -


Fair Value of Assets and Liabilities Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis include collateral for certain impaired loans and real property and other assets acquired to satisfy loans, which are based primarily on comparisons to completed sales of similar assets.

The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at September 30, 2015 for which the fair value was adjusted during the three and nine months ended September 30, 2015:
 
 
 
 
 
 
 
Fair Value Adjustments for the
 
Carrying Value at Sept. 30, 2015
 
Three Months Ended
Sept. 30, 2015
Recognized in:
 
Nine Months Ended
Sept. 30, 2015
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$
—

 
$
3,239

 
$
12,386

 
$
890

 
$
—

 
$
1,439

 
$
—

Real estate and other repossessed assets
—

 
12,689

 
702

 
—

 
670

 
—

 
1,771

 
The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at September 30, 2014 for which the fair value was adjusted during the nine months ended September 30, 2014:
 
 
 
 
 
 
 
Fair Value Adjustments for the
 
Carrying Value at Sept. 30, 2014
 
Three Months Ended
Sept. 30, 2014
Recognized in:
 
Nine Months Ended
Sept. 30, 2014
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$
—

 
$
6,585

 
$
681

 
$
809

 
$
—

 
$
2,263

 
$
—

Real estate and other repossessed assets
—

 
16,870

 
495

 
—

 
4,139

 
—

 
5,515


The fair value of collateral-dependent impaired loans and real estate and other repossessed assets and the related fair value adjustments are generally based on unadjusted third-party appraisals. Our appraisal review policies require appraised values to be supported by observed inputs derived principally from or corroborated by observable market data. Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on significant unobservable inputs. Non-recurring fair value measurements of collateral-dependent impaired loans and real estate and other repossessed assets based on significant unobservable inputs are generally due to estimates of current fair values between appraisal dates. Significant unobservable inputs include listing prices for the same or comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. These inputs are developed by asset management and workout professionals and approved by senior Credit Administration executives.


- 124 -


A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2015 follows (in thousands):
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
12,386

 
Appraised value, as adjusted
 
Broker quotes and management's knowledge of industry and collateral.
 
N/A
Real estate and other repossessed assets
 
702

 
Appraised value, as adjusted
 
Marketability adjustment off appraised value1
 
66% - 86% (78%)
1 
Marketability adjustment includes consideration for estimated costs to sell, which is approximately 10% of fair value.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2014 follows (in thousands):
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
681

 
Appraised value, as adjusted
 
Broker quotes and management's knowledge of industry and collateral.
 
N/A
Real estate and other repossessed assets
 
495

 
Appraised value, as adjusted
 
Marketability adjustments off appraised value1 or limited observable sales with similar development restrictions.
 
N/A
1 
Marketability adjustment includes consideration for estimated costs to sell, which is approximately 10% of fair value.


- 125 -


Fair Value of Financial Instruments

The following table presents the carrying values and estimated fair values of all financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis as of September 30, 2015 (dollars in thousands):
 
 
Carrying
Value
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
 
Estimated
Fair
Value
Cash and due from banks
 
$
489,268

 
 
 
 
 
 
 
$
489,268

Interest-bearing cash and cash equivalents
 
1,830,105

 
 
 
 
 
 
 
1,830,105

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
42,431

 
 
 
 
 
 
 
42,431

U.S. agency residential mortgage-backed securities
 
30,973

 
 
 
 
 
 
 
30,973

Municipal and other tax-exempt securities
 
84,261

 
 
 
 
 
 
 
84,261

Other trading securities
 
23,466

 
 
 
 
 
 
 
23,466

Total trading securities
 
181,131

 
 
 
 
 
 
 
181,131

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
379,980

 
 
 
 
 
 
 
384,310

U.S. agency residential mortgage-backed securities
 
28,653

 
 
 
 
 
 
 
30,080

Other debt securities
 
203,751

 
 
 
 
 
 
 
228,701

Total investment securities
 
612,384

 
 
 
 
 
 
 
643,091

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,003

 
 
 
 
 
 
 
1,003

Municipal and other tax-exempt
 
57,960

 
 
 
 
 
 
 
57,960

U.S. agency residential mortgage-backed securities
 
5,819,127

 
 
 
 
 
 
 
5,819,127

Privately issued residential mortgage-backed securities
 
145,682

 
 
 
 
 
 
 
145,682

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,735,787

 
 
 
 
 
 
 
2,735,787

Other debt securities
 
4,150

 
 
 
 
 
 
 
4,150

Perpetual preferred stock
 
19,163

 
 
 
 
 
 
 
19,163

Equity securities and mutual funds
 
18,217

 
 
 
 
 
 
 
18,217

Total available for sale securities
 
8,801,089

 
 
 
 
 
 
 
8,801,089

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
427,760

 
 
 
 
 
 
 
427,760

      Other securities
 
—

 
 
 
 
 
 
 
—

Total fair value option securities
 
427,760

 
 
 
 
 
 
 
427,760

Residential mortgage loans held for sale
 
357,414

 
 
 
 
 
 
 
357,414

Loans:
 
 

 
 
 
 
 
 
 
 

Commercial
 
9,797,422

 
0.19% - 30.00%

 
0.63
 
0.47% - 4.06%

 
9,530,437

Commercial real estate
 
3,235,067

 
0.38% - 18.00%

 
0.77
 
0.92% - 3.60%

 
3,330,298

Residential mortgage
 
1,868,995

 
1.25% - 18.00%

 
2.34
 
0.86% - 3.94%

 
1,906,585

Personal
 
465,957

 
0.38% - 21.00%

 
0.40
 
0.89% - 3.86%

 
462,266

Total loans
 
15,367,441

 
 

 
 
 
 

 
15,229,586

Allowance for loan losses
 
(204,116
)
 
 

 
 
 
 

 
—

Loans, net of allowance
 
15,163,325

 
 

 
 
 
 

 
15,229,586

Mortgage servicing rights
 
200,049

 
 

 
 
 
 

 
200,049

Derivative instruments with positive fair value, net of cash margin
 
726,159

 
 

 
 
 
 

 
726,159

Other assets – private equity funds
 
24,133

 
 

 
 
 
 

 
24,133

Deposits with no stated maturity
 
18,120,912

 
 

 
 
 
 

 
18,120,912

Time deposits
 
2,498,531

 
0.02% - 9.64%

 
1.75
 
0.85% - 1.25%

 
2,500,469

Other borrowed funds
 
5,253,124

 
0.25% - 3.34%

 
0.02
 
0.07% - 2.66%

 
5,239,400

Subordinated debentures
 
226,314

 
1.01
%
 
1.63
 
1.83
%
 
223,334

Derivative instruments with negative fair value, net of cash margin
 
636,115

 
 

 
 
 
 

 
636,115



- 126 -


The following table presents the carrying values and estimated fair values of all financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis as of December 31, 2014 (dollars in thousands):
 
 
Carrying
Value
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
 
Estimated
Fair
Value
Cash and due from banks
 
$
550,576

 
 
 
 
 
 
 
$
550,576

Interest-bearing cash and cash equivalents
 
1,925,266

 
 
 
 
 
 
 
1,925,266

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
85,092

 
 
 
 
 
 
 
85,092

U.S. agency residential mortgage-backed securities
 
31,199

 
 
 
 
 
 
 
31,199

Municipal and other tax-exempt securities
 
38,951

 
 
 
 
 
 
 
38,951

Other trading securities
 
33,458

 
 
 
 
 
 
 
33,458

Total trading securities
 
188,700

 
 
 
 
 
 
 
188,700

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
405,090

 
 
 
 
 
 
 
408,344

U.S. agency residential mortgage-backed securities
 
35,750

 
 
 
 
 
 
 
37,463

Other debt securities
 
211,520

 
 
 
 
 
 
 
227,819

Total investment securities
 
652,360

 
 
 
 
 
 
 
673,626

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,005

 
 
 
 
 
 
 
1,005

Municipal and other tax-exempt
 
63,557

 
 
 
 
 
 
 
63,557

U.S. agency residential mortgage-backed securities
 
6,646,884

 
 
 
 
 
 
 
6,646,884

Privately issued residential mortgage-backed securities
 
165,957

 
 
 
 
 
 
 
165,957

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,048,609

 
 
 
 
 
 
 
2,048,609

Other debt securities
 
9,212

 
 
 
 
 
 
 
9,212

Perpetual preferred stock
 
24,277

 
 
 
 
 
 
 
24,277

Equity securities and mutual funds
 
19,444

 
 
 
 
 
 
 
19,444

Total available for sale securities
 
8,978,945

 
 
 
 
 
 
 
8,978,945

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
311,597

 
 
 
 
 
 
 
311,597

      Other securities
 
—

 
 
 
 
 
 
 
—

Total fair value option securities
 
311,597

 
 
 
 
 
 
 
311,597

Residential mortgage loans held for sale
 
304,182

 
 
 
 
 
 
 
304,182

Loans:
 
 

 
 
 
 
 
 

 
 

Commercial
 
9,095,670

 
0.17% - 30.00%
 
0.65
 
0.51% - 4.34%

 
8,948,870

Commercial real estate
 
2,728,150

 
0.38% - 18.00%
 
0.84
 
1.09% - 3.78%

 
2,704,454

Residential mortgage
 
1,949,512

 
1.20% - 18.00%
 
2.50
 
0.64% - 3.99%

 
1,985,870

Personal
 
434,705

 
0.38% - 21.00%
 
0.45
 
1.04% - 3.98%

 
431,274

Total loans
 
14,208,037

 
 
 
 
 
 

 
14,070,468

Allowance for loan losses
 
(189,056
)
 
 
 
 
 
 

 
—

Loans, net of allowance
 
14,018,981

 
 
 
 
 
 

 
14,070,468

Mortgage servicing rights
 
171,976

 
 
 
 
 
 

 
171,976

Derivative instruments with positive fair value, net of cash margin
 
361,874

 
 
 
 
 
 

 
361,874

Other assets – private equity funds
 
25,627

 
 
 
 
 
 

 
25,627

Deposits with no stated maturity
 
18,532,143

 
 
 
 
 
 

 
18,532,143

Time deposits
 
2,608,716

 
0.02% - 9.64%
 
1.92
 
0.76% - 1.33%

 
2,612,576

Other borrowed funds
 
3,378,294

 
0.21% - 1.52%
 
0.12
 
0.06% - 2.64%

 
3,331,771

Subordinated debentures
 
347,983

 
0.92% - 5.00%
 
1.67
 
2.14
%
 
344,687

Derivative instruments with negative fair value, net of cash margin
 
354,554

 
 
 
 
 
 

 
354,554



- 127 -


The following table presents the carrying values and estimated fair values of all financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis as of September 30, 2014 (dollars in thousands):
 
 
Carrying
Value
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
 
Estimated
Fair
Value
Cash and due from banks
 
$
557,658

 
 
 
 
 
 
 
$
557,658

Interest-bearing cash and cash equivalents
 
2,007,901

 
 
 
 
 
 
 
2,007,901

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
41,004

 
 
 
 
 
 
 
41,004

U.S. agency residential mortgage-backed securities
 
33,226

 
 
 
 
 
 
 
33,226

Municipal and other tax-exempt securities
 
76,884

 
 
 
 
 
 
 
76,884

Other trading securities
 
18,598

 
 
 
 
 
 
 
18,598

Total trading securities
 
169,712

 
 
 
 
 
 
 
169,712

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
410,595

 
 
 
 
 
 
 
415,233

U.S. agency residential mortgage-backed securities
 
38,585

 
 
 
 
 
 
 
40,259

Other debt securities
 
205,911

 
 
 
 
 
 
 
220,953

Total investment securities
 
655,091

 
 
 
 
 
 
 
676,445

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,015

 
 
 
 
 
 
 
1,015

Municipal and other tax-exempt
 
64,363

 
 
 
 
 
 
 
64,363

U.S. agency residential mortgage-backed securities
 
6,850,603

 
 
 
 
 
 
 
6,850,603

Privately issued residential mortgage-backed securities
 
171,493

 
 
 
 
 
 
 
171,493

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,141,645

 
 
 
 
 
 
 
2,141,645

Other debt securities
 
34,291

 
 
 
 
 
 
 
34,291

Perpetual preferred stock
 
24,358

 
 
 
 
 
 
 
24,358

Equity securities and mutual funds
 
19,118

 
 
 
 
 
 
 
19,118

Total available for sale securities
 
9,306,886

 
 
 
 
 
 
 
9,306,886

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
175,761

 
 
 
 
 
 
 
175,761

Other securities
 
—

 
 
 
 
 
 
 
—

Total fair value option securities
 
175,761

 
 
 
 
 
 
 
175,761

Residential mortgage loans held for sale
 
373,253

 
 
 
 
 
 
 
373,253

Loans:
 
 

 
 
 
 
 
 
 
 

Commercial
 
8,572,038

 
0.25% - 30.00%
 
0.60
 
0.53% - 4.30%

 
8,441,120

Commercial real estate
 
2,724,199

 
0.38% - 18.00%
 
0.80
 
1.13% - 3.66%

 
2,702,389

Residential mortgage
 
1,979,663

 
1.20% - 18.00%
 
2.42
 
0.57% - 4.21%

 
2,009,619

Personal
 
407,839

 
0.38% - 21.00%
 
0.46
 
1.07% - 3.88%

 
401,986

Total loans
 
13,683,739

 
 
 
 
 
 

 
13,555,114

Allowance for loan losses
 
(191,244
)
 
 
 
 
 
 

 
—

Loans, net of allowance
 
13,492,495

 
 
 
 
 
 

 
13,555,114

Mortgage servicing rights
 
173,286

 
 
 
 
 
 

 
173,286

Derivative instruments with positive fair value, net of cash margin
 
360,809

 
 
 
 
 
 

 
360,809

Other assets – private equity funds
 
27,118

 
 
 
 
 
 

 
27,118

Deposits with no stated maturity
 
17,624,476

 
 
 
 
 
 

 
17,624,476

Time deposits
 
2,664,580

 
0.02% - 9.64%
 
2.02
 
0.74% - 1.31%

 
2,670,657

Other borrowed funds
 
4,595,631

 
0.21% - 6.68%
 
0.46
 
0.07% - 2.62%

 
4,555,307

Subordinated debentures
 
347,936

 
0.92% - 5.00%
 
2.00
 
2.17
%
 
344,764

Derivative instruments with negative fair value, net of cash margin
 
348,687

 
 
 
 
 
 

 
348,687



- 128 -


Because no market exists for certain of these financial instruments and management does not intend to sell these financial instruments, the fair values shown in the tables above may not represent values at which the respective financial instruments could be sold individually or in the aggregate at the given reporting date.

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 sheets for cash and short-term instruments approximates those assets’ fair values.
 
Securities
 
The fair values of securities are generally based on Significant Other Observable Inputs such as quoted prices for comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities. 

Loans
 
The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates and credit and liquidity spreads currently being offered for loans with similar remaining terms to maturity and risk, adjusted for the impact of interest rate floors and ceilings which are classified as Significant Unobservable Inputs. The fair values of loans were estimated to approximate their discounted cash flows less loan loss allowances allocated to these loans of $176 million at September 30, 2015, $161 million at December 31, 2014 and $163 million at September 30, 2014.
 
Deposits
 
The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions which are considered Significant Unobservable Inputs. Estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, is equal to the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, adjusting fair value for the expected benefit of these deposits is prohibited. Accordingly, the positive effect of such deposits is not included in the tables above.
 
Other Borrowings and Subordinated Debentures
 
The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments which are considered Significant Unobservable Inputs.

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 September 30, 2015, December 31, 2014 or September 30, 2014.
Fair Value Election

As more fully disclosed in Note 2 and Note 6 to the Consolidated Financial Statements, the Company has elected to carry all residential mortgage-backed securities which have been designated as economic hedges against changes in the fair value of mortgage servicing rights and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.



- 129 -


(12) Federal and State Income Taxes

The reconciliations of income (loss) attributable to continuing operations at the U.S. federal statutory tax rate to income tax expense are as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Amount:
 
 
 
 
 
 
 
 
Federal statutory tax
 
$
38,481

 
$
38,475

 
$
120,514

 
$
120,379

Tax exempt revenue
 
(2,473
)
 
(2,164
)
 
(7,041
)
 
(6,254
)
Effect of state income taxes, net of federal benefit
 
2,586

 
2,328

 
7,711

 
7,655

Utilization of tax credits:
 
 
 
 
 


 


Low-income housing tax credit, net of amortization
 
(1,163
)
 
(969
)
 
(2,975
)
 
(1,801
)
Other tax credits
 
(521
)
 
(527
)
 
(1,564
)
 
(1,582
)
Bank-owned life insurance
 
(818
)
 
(806
)
 
(2,450
)
 
(2,358
)
Reduction of tax accrual
 
(1,967
)
 
(2,281
)
 
(1,967
)
 
(2,281
)
Charitable contributions to BOKF Foundation
 
(99
)
 
—

 
(99
)
 
(427
)
Other, net
 
102

 
(254
)
 
1,013

 
711

Total
 
$
34,128

 
$
33,802

 
$
113,142

 
$
114,042



 
 
Three Months Ended
September 30,
 
Nine Months Ended
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Percent of pretax income:
 
 
 
 
 
 
 
 
Federal statutory tax
 
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
Tax exempt revenue
 
(2.2
)
 
(2.0
)
 
(2.0
)
 
(1.8
)
Effect of state income taxes, net of federal benefit
 
2.4

 
2.1

 
2.2

 
2.2

Utilization of tax credits:
 
 
 
 
 


 


Low-income housing tax credit, net of amortization
 
(1.1
)
 
(0.9
)
 
(0.9
)
 
(0.5
)
Other tax credits
 
(0.5
)
 
(0.5
)
 
(0.5
)
 
(0.5
)
Bank-owned life insurance
 
(0.7
)
 
(0.7
)
 
(0.7
)
 
(0.7
)
Reduction of tax accrual
 
(1.8
)
 
(2.1
)
 
(0.6
)
 
(0.7
)
Charitable contributions to BOKF Foundation
 
(0.1
)
 
—

 
—

 
(0.1
)
Other, net
 
—

 
(0.2
)
 
0.4

 
0.3

Total
 
31.0
 %
 
30.7
 %
 
32.9
 %
 
33.2
 %
(13) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on September 30, 2015 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q. No events were identified requiring recognition in and/or disclosure in the consolidated financial statements.


- 130 -


Nine-Month Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Nine Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
2,043,351

 
$
4,114

 
0.27
%
 
$
803,300

 
$
1,249

 
0.21
%
Trading securities
 
149,292

 
2,216

 
2.37
%
 
105,558

 
1,619

 
2.63
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
237,416

 
9,788

 
5.50
%
 
229,300

 
9,715

 
5.65
%
Tax-exempt
 
391,621

 
4,557

 
1.55
%
 
427,896

 
5,199

 
1.62
%
Total investment securities
 
629,037

 
14,345

 
3.04
%
 
657,196

 
14,914

 
3.03
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,952,043

 
128,933

 
1.96
%
 
9,705,731

 
138,970

 
1.93
%
Tax-exempt
 
82,951

 
2,555

 
4.26
%
 
93,788

 
2,417

 
3.57
%
Total available for sale securities
 
9,034,994

 
131,488

 
1.98
%
 
9,799,519

 
141,387

 
1.94
%
Fair value option securities
 
423,432

 
6,803

 
2.25
%
 
170,210

 
2,558

 
1.99
%
Restricted equity securities
 
219,248

 
9,627

 
5.85
%
 
108,432

 
4,405

 
5.42
%
Residential mortgage loans held for sale
 
404,756

 
10,634

 
3.52
%
 
238,936

 
7,042

 
3.96
%
Loans2
 
14,886,418

 
400,053

 
3.59
%
 
13,245,746

 
380,538

 
3.84
%
Allowance for loan losses
 
(198,755
)
 
 
 
 
 
(189,165
)
 
 
 
 
Loans, net of allowance
 
14,687,663

 
400,053

 
3.64
%
 
13,056,581

 
380,538

 
3.90
%
Total earning assets
 
27,591,773

 
579,280

 
2.82
%
 
24,939,732

 
553,712

 
2.98
%
Receivable on unsettled securities sales
 
86,095

 
 
 
 
 
95,415

 
 
 
 
Cash and other assets
 
2,726,562

 
 
 
 
 
2,581,780

 
 
 
 
Total assets
 
$
30,404,430

 
 
 
 
 
$
27,616,927

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
10,052,159

 
$
6,723

 
0.09
%
 
$
9,740,231

 
$
7,429

 
0.10
%
Savings
 
375,883

 
294

 
0.10
%
 
344,863

 
305

 
0.12
%
Time
 
2,622,634

 
27,085

 
1.38
%
 
2,644,073

 
30,748

 
1.55
%
Total interest-bearing deposits
 
13,050,676

 
34,102

 
0.35
%
 
12,729,167

 
38,482

 
0.40
%
Funds purchased
 
67,777

 
44

 
0.09
%
 
636,599

 
327

 
0.07
%
Repurchase agreements
 
814,429

 
214

 
0.04
%
 
906,006

 
474

 
0.07
%
Other borrowings
 
3,961,436

 
9,137

 
0.31
%
 
1,560,624

 
4,305

 
0.37
%
Subordinated debentures
 
293,623

 
4,456

 
2.03
%
 
347,869

 
6,501

 
2.50
%
Total interest-bearing liabilities
 
18,187,941

 
47,953

 
0.35
%
 
16,180,265

 
50,089

 
0.41
%
Non-interest bearing demand deposits
 
7,959,336

 
 
 
 
 
7,590,672

 
 
 
 
Due on unsettled securities purchases
 
148,445

 
 
 
 
 
135,954

 
 
 
 
Other liabilities
 
731,126

 
 
 
 
 
532,768

 
 
 
 
Total equity
 
3,377,582

 
 
 
 
 
3,177,268

 
 
 
 
Total liabilities and equity
 
$
30,404,430

 
 
 
 
 
$
27,616,927

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
531,327

 
2.47
%
 
 
 
$
503,623

 
2.57
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
 
 
2.59
%
 
 
 
 
 
2.71
%
Less tax-equivalent adjustment
 
 
 
9,234

 
 
 
 
 
8,093

 
 
Net Interest Revenue
 
 
 
522,093

 
 
 
 
 
495,530

 
 
Provision for credit losses
 
 
 
11,500

 
 
 
 
 
—

 
 
Other operating revenue
 
 
 
505,738

 
 
 
 
 
470,055

 
 
Other operating expense
 
 
 
672,006

 
 
 
 
 
621,645

 
 
Income before taxes
 
 
 
344,325

 
 
 
 
 
343,940

 
 
Federal and state income taxes
 
 
 
113,142

 
 
 
 
 
114,042

 
 
Net income
 
 
 
231,183

 
 
 
 
 
229,898

 
 
Net income attributable to non-controlling interests
 
 
 
2,219

 
 
 
 
 
1,781

 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
228,964

 
 
 
 
 
$
228,117

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Net income:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
3.33

 
 

 
 

 
$
3.30

 
 

Diluted
 
 

 
$
3.32

 
 

 
 

 
$
3.29

 
 

Yield calculations are shown on a tax equivalent at the statutory federal and state rates for the periods presented. The yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income and the unrealized gains and losses. The yield calculation also includes average loan balances for which the accrual of interest has been discontinued and are net of unearned income. Yield / rate calculations are generally based on the conventions that determine how interest income and expense is accrued.

- 131 -


Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Three Months Ended
 
 
September 30, 2015
 
June 30, 2015
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
2,038,611

 
$
1,442

 
0.28
%
 
$
2,002,456

 
$
1,250

 
0.25
%
Trading securities
 
179,098

 
945

 
2.70
%
 
127,391

 
585

 
1.85
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
233,914

 
3,211

 
5.49
%
 
236,956

 
3,251

 
5.49
%
Tax-exempt
 
382,177

 
1,468

 
1.54
%
 
391,533

 
1,526

 
1.56
%
Total investment securities
 
616,091

 
4,679

 
3.04
%
 
628,489

 
4,777

 
3.05
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,862,917

 
43,473

 
1.99
%
 
8,980,312

 
42,355

 
1.92
%
Tax-exempt
 
79,344

 
796

 
4.15
%
 
82,694

 
838

 
4.21
%
Total available for sale securities
 
8,942,261

 
44,269

 
2.01
%
 
9,063,006

 
43,193

 
1.94
%
Fair value option securities
 
429,951

 
2,480

 
2.30
%
 
435,294

 
2,320

 
2.17
%
Restricted equity securities
 
255,610

 
3,802

 
5.95
%
 
221,911

 
3,228

 
5.82
%
Residential mortgage loans held for sale
 
401,359

 
3,793

 
3.79
%
 
464,269

 
3,892

 
3.37
%
Loans2
 
15,192,311

 
135,498

 
3.54
%
 
14,905,352

 
135,603

 
3.65
%
Allowance for loan losses
 
(202,829
)
 
 
 
 
 
(198,400
)
 
 
 
 
Loans, net of allowance
 
14,989,482

 
135,498

 
3.59
%
 
14,706,952

 
135,603

 
3.70
%
Total earning assets
 
27,852,463

 
196,908

 
2.83
%
 
27,649,768

 
194,848

 
2.84
%
Receivable on unsettled securities sales
 
64,591

 
 
 
 
 
94,374

 
 
 
 
Cash and other assets
 
2,852,679

 
 
 
 
 
2,719,930

 
 
 
 
Total assets
 
$
30,769,733

 
 
 
 
 
$
30,464,072

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
9,760,839

 
$
2,061

 
0.08
%
 
$
10,063,589

 
$
2,197

 
0.09
%
Savings
 
379,828

 
97

 
0.10
%
 
381,833

 
103

 
0.11
%
Time
 
2,557,874

 
8,573

 
1.33
%
 
2,651,820

 
8,966

 
1.36
%
Total interest-bearing deposits
 
12,698,541

 
10,731

 
0.34
%
 
13,097,242

 
11,266

 
0.35
%
Funds purchased
 
70,281

 
15

 
0.08
%
 
63,312

 
13

 
0.08
%
Repurchase agreements
 
672,085

 
49

 
0.03
%
 
773,977

 
61

 
0.03
%
Other borrowings
 
4,779,981

 
3,637

 
0.30
%
 
4,001,479

 
3,047

 
0.31
%
Subordinated debentures
 
226,296

 
596

 
1.04
%
 
307,903

 
1,695

 
2.21
%
Total interest-bearing liabilities
 
18,447,184

 
15,028

 
0.32
%
 
18,243,913

 
16,082

 
0.35
%
Non-interest bearing demand deposits
 
7,994,607

 
 
 
 
 
7,996,717

 
 
 
 
Due on unsettled securities purchases
 
90,135

 
 
 
 
 
151,369

 
 
 
 
Other liabilities
 
838,612

 
 
 
 
 
690,604

 
 
 
 
Total equity
 
3,399,195

 
 
 
 
 
3,381,469

 
 
 
 
Total liabilities and equity
 
$
30,769,733

 
 
 
 
 
$
30,464,072

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
181,880

 
2.51
%
 
 
 
$
178,766

 
2.49
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
 
 
2.61
%
 
 
 
 
 
2.61
%
Less tax-equivalent adjustment
 
 
 
3,244

 
 
 
 
 
3,035

 
 
Net Interest Revenue
 
 
 
178,636

 
 
 
 
 
175,731

 
 
Provision for credit losses
 
 
 
7,500

 
 
 
 
 
4,000

 
 
Other operating revenue
 
 
 
163,436

 
 
 
 
 
176,285

 
 
Other operating expense
 
 
 
224,628

 
 
 
 
 
227,113

 
 
Income before taxes
 
 
 
109,944

 
 
 
 
 
120,903

 
 
Federal and state income taxes
 
 
 
34,128

 
 
 
 
 
40,630

 
 
Net income
 
 
 
75,816

 
 
 
 
 
80,273

 
 
Net income attributable to non-controlling interests
 
 
 
925

 
 
 
 
 
1,043

 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
74,891

 
 
 
 
 
$
79,230

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Net income:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
1.09

 
 

 
 

 
$
1.15

 
 

Diluted
 
 

 
$
1.09

 
 

 
 

 
$
1.15

 
 

Yield calculations are shown on a tax equivalent at the statutory federal and state rates for the periods presented. The yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income and the unrealized gains and losses. The yield calculation also includes average loan balances for which the accrual of interest has been discontinued and are net of unearned income. Yield / rate calculations are generally based on the conventions that determine how interest income and expense is accrued.

- 132 -


Three Months Ended
March 31, 2015
 
December 31, 2014
 
September 30, 2014
Average Balance
 
Revenue /Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
2,089,546

 
$
1,422

 
0.27
%
 
$
2,090,176

 
$
1,500

 
0.28
%
 
$
1,217,942

 
$
601

 
0.20
%
140,968

 
685

 
2.55
%
 
164,502

 
901

 
2.48
%
 
107,909

 
561

 
2.67
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
241,458

 
3,326

 
5.51
%
 
244,395

 
3,468

 
5.68
%
 
228,771

 
3,238

 
5.66
%
401,367

 
1,564

 
1.56
%
 
406,516

 
1,586

 
1.56
%
 
412,604

 
1,605

 
1.56
%
642,825

 
4,890

 
3.04
%
 
650,911

 
5,054

 
3.11
%
 
641,375

 
4,843

 
3.03
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,014,566

 
43,105

 
1.95
%
 
9,073,467

 
43,953

 
1.97
%
 
9,436,137

 
45,257

 
1.94
%
86,899

 
921

 
4.40
%
 
88,434

 
904

 
4.23
%
 
90,590

 
675

 
3.14
%
9,101,464

 
44,026

 
1.98
%
 
9,161,901

 
44,857

 
1.99
%
 
9,526,727

 
45,932

 
1.95
%
404,775

 
2,003

 
2.28
%
 
221,773

 
1,053

 
2.18
%
 
180,268

 
913

 
2.05
%
179,385

 
2,597

 
5.79
%
 
182,737

 
2,635

 
5.77
%
 
142,418

 
2,133

 
5.99
%
348,054

 
2,949

 
3.41
%
 
321,746

 
3,101

 
3.87
%
 
310,924

 
2,929

 
3.79
%
14,554,582

 
128,953

 
3.59
%
 
13,882,005

 
130,378

 
3.73
%
 
13,518,578

 
128,695

 
3.78
%
(194,948
)
 
 
 
 
 
(190,787
)
 
 
 
 
 
(191,141
)
 
 
 
 
14,359,634

 
128,953

 
3.64
%
 
13,691,218

 
130,378

 
3.78
%
 
13,327,437

 
128,695

 
3.83
%
27,266,651

 
187,525

 
2.80
%
 
26,484,964

 
189,479

 
2.86
%
 
25,455,000

 
186,607

 
2.93
%
99,706

 
 
 
 
 
69,109

 
 
 
 
 
63,277

 
 
 
 
2,604,347

 
 
 
 
 
2,578,124

 
 
 
 
 
2,597,280

 
 
 
 
$
29,970,704

 
 
 
 
 
$
29,132,197

 
 
 
 
 
$
28,115,557

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
10,338,396

 
$
2,465

 
0.10
%
 
$
9,730,564

 
$
2,328

 
0.09
%
 
$
9,473,575

 
$
2,381

 
0.10
%
365,835

 
94

 
0.10
%
 
346,132

 
96

 
0.11
%
 
342,488

 
101

 
0.12
%
2,659,323

 
9,546

 
1.46
%
 
2,647,147

 
9,777

 
1.47
%
 
2,610,561

 
10,237

 
1.56
%
13,363,554

 
12,105

 
0.37
%
 
12,723,843

 
12,201

 
0.38
%
 
12,426,624

 
12,719

 
0.41
%
69,730

 
16

 
0.09
%
 
71,728

 
14

 
0.08
%
 
320,817

 
59

 
0.07
%
1,000,839

 
104

 
0.04
%
 
996,308

 
109

 
0.04
%
 
1,027,206

 
141

 
0.05
%
3,084,214

 
2,453

 
0.32
%
 
3,021,094

 
2,443

 
0.32
%
 
2,333,961

 
2,004

 
0.34
%
348,007

 
2,165

 
2.52
%
 
347,960

 
2,189

 
2.50
%
 
347,914

 
2,154

 
2.46
%
17,866,344

 
16,843

 
0.38
%
 
17,160,933

 
16,956

 
0.39
%
 
16,456,522

 
17,077

 
0.41
%
7,885,485

 
 
 
 
 
7,974,165

 
 
 
 
 
7,800,350

 
 
 
 
205,096

 
 
 
 
 
137,566

 
 
 
 
 
124,952

 
 
 
 
662,218

 
 
 
 
 
549,388

 
 
 
 
 
485,304

 
 
 
 
3,351,561

 
 
 
 
 
3,310,145

 
 
 
 
 
3,248,429

 
 
 
 
$
29,970,704

 
 
 
 
 
$
29,132,197

 
 
 
 
 
$
28,115,557

 
 
 
 
 
 
$
170,682

 
2.42
%
 
 
 
$
172,523

 
2.47
%
 
 
 
$
169,530

 
2.52
%
 
 
 
 
2.55
%
 
 
 
 
 
2.61
%
 
 
 
 
 
2.67
%
 
 
2,956

 
 
 
 
 
2,859

 
 
 
 
 
2,739

 
 
 
 
167,726

 
 
 
 
 
169,664

 
 
 
 
 
166,791

 
 
 
 
—

 
 
 
 
 
—

 
 
 
 
 
—

 
 
 
 
166,017

 
 
 
 
 
151,903

 
 
 
 
 
164,971

 
 
 
 
220,265

 
 
 
 
 
225,877

 
 
 
 
 
221,834

 
 
 
 
113,478

 
 
 
 
 
95,690

 
 
 
 
 
109,928

 
 
 
 
38,384

 
 
 
 
 
30,109

 
 
 
 
 
33,802

 
 
 
 
75,094

 
 
 
 
 
65,581

 
 
 
 
 
76,126

 
 
 
 
251

 
 
 
 
 
1,263

 
 
 
 
 
494

 
 
 
 
$
74,843

 
 
 
 
 
$
64,318

 
 
 
 
 
$
75,632

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
$
1.08

 
 

 
 

 
$
0.93

 
 

 
 

 
$
1.09

 
 

 

 
$
1.08

 
 

 
 

 
$
0.93

 
 

 
 

 
$
1.09

 
 




- 133 -



Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
 
 
Three Months Ended
 
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
Dec. 31, 2014
 
Sept. 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
193,664

 
$
191,813

 
$
184,569

 
$
186,620

 
$
183,868

Interest expense
 
15,028

 
16,082

 
16,843

 
16,956

 
17,077

Net interest revenue
 
178,636

 
175,731

 
167,726

 
169,664

 
166,791

Provision for credit losses
 
7,500

 
4,000

 
—

 
—

 
—

Net interest revenue after provision for credit losses
 
171,136

 
171,731

 
167,726

 
169,664

 
166,791

Other operating revenue
 
 

 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
31,582

 
36,012

 
31,707

 
30,602

 
35,263

Transaction card revenue
 
32,514

 
32,778

 
31,010

 
31,467

 
31,578

Fiduciary and asset management revenue
 
30,807

 
32,712

 
31,469

 
30,649

 
29,738

Deposit service charges and fees
 
23,606

 
22,328

 
21,684

 
22,581

 
22,508

Mortgage banking revenue
 
33,170

 
36,846

 
39,320

 
30,105

 
26,814

Bank-owned life insurance
 
2,360

 
2,398

 
2,198

 
2,380

 
2,326

Other revenue
 
10,618

 
9,473

 
8,603

 
10,071

 
10,320

Total fees and commissions
 
164,657

 
172,547

 
165,991

 
157,855

 
158,547

Gain on other assets, net
 
1,161

 
1,457

 
755

 
338

 
1,422

Gain (loss) on derivatives, net
 
1,283

 
(1,032
)
 
911

 
1,070

 
(93
)
Gain (loss) on fair value option securities, net
 
5,926

 
(8,130
)
 
2,647

 
3,685

 
(332
)
Change in fair value of mortgage servicing rights
 
(11,757
)
 
8,010

 
(8,522
)
 
(10,821
)
 
5,281

Gain on available for sale securities, net
 
2,166

 
3,433

 
4,327

 
149

 
146

Total other-than-temporary impairment losses
 
—

 
—

 
(781
)
 
(373
)
 
—

Portion of loss recognized in other comprehensive income
 
—

 
—

 
689

 
—

 
—

Net impairment losses recognized in earnings
 
—

 
—

 
(92
)
 
(373
)
 
—

Total other operating revenue
 
163,436

 
176,285

 
166,017

 
151,903

 
164,971

Other operating expense
 
 

 
 

 
 

 
 

 
 

Personnel
 
129,062

 
132,695

 
128,548

 
125,741

 
123,043

Business promotion
 
5,922

 
7,765

 
5,748

 
7,498

 
6,160

Charitable contributions to BOKF Foundation
 
796

 
—

 
—

 
1,847

 
—

Professional fees and services
 
10,147

 
9,560

 
10,059

 
11,058

 
14,763

Net occupancy and equipment
 
18,689

 
18,927

 
19,044

 
22,655

 
18,892

Insurance
 
4,864

 
5,116

 
4,980

 
4,777

 
4,793

Data processing and communications
 
31,228

 
31,463

 
30,620

 
30,872

 
29,971

Printing, postage and supplies
 
3,376

 
3,553

 
3,461

 
3,168

 
3,380

Net losses (gains) and operating expenses of repossessed assets
 
267

 
223

 
613

 
(1,497
)
 
4,966

Amortization of intangible assets
 
1,089

 
1,090

 
1,090

 
1,100

 
1,100

Mortgage banking costs
 
8,587

 
7,419

 
9,319

 
10,553

 
7,734

Other expense
 
10,601

 
9,302

 
6,783

 
8,105

 
7,032

Total other operating expense
 
224,628

 
227,113

 
220,265

 
225,877

 
221,834

Net income before taxes
 
109,944

 
120,903

 
113,478

 
95,690

 
109,928

Federal and state income taxes
 
34,128

 
40,630

 
38,384

 
30,109

 
33,802

Net income
 
75,816

 
80,273

 
75,094

 
65,581

 
76,126

Net income attributable to non-controlling interests
 
925

 
1,043

 
251

 
1,263

 
494

Net income attributable to BOK Financial Corporation shareholders
 
$
74,891

 
$
79,230

 
$
74,843

 
$
64,318

 
$
75,632

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 

 
 

 
 

Basic
 
$1.09
 
$1.15
 
$1.08
 
$0.93
 
$1.09
Diluted
 
$1.09
 
$1.15
 
$1.08
 
$0.93
 
$1.09
Average shares used in computation:
 
 
 
 
 
 
 
 
 
 
Basic
 
67,668,076

 
68,096,341

 
68,254,780

 
68,481,630

 
68,455,866

Diluted
 
67,762,483

 
68,210,353

 
68,344,886

 
68,615,808

 
68,609,765


- 134 -


PART II. Other Information

Item 1. Legal Proceedings
 
See discussion of legal proceedings at Note 7 to the Consolidated Financial Statements.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended September 30, 2015.

 
Period
 
Total Number of Shares Purchased2
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans
July 1 to July 31, 2015
 
6,264

 
$
70.33

 
—

 
1,258,348

August 1 to August 31, 2015
 
723,000

 
$
64.44

 
723,000

 
535,348

September 1 to September 30, 2015
 
535,348

 
$
62.92

 
535,348

 
—

Total
 
1,264,612

 
 

 
1,258,348

 
 

1 
On April 24, 2012, the Company’s board of directors authorized the Company to repurchase up to two million shares of the Company’s common stock. As of September 30, 2015, the Company had repurchased 2,000,000 shares under this plan.
2 
The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee stock option exercises.
Item 6. Exhibits

31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act   of 2002

31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements


Items 1A, 3, 4 and 5 are not applicable and have been omitted.



- 135 -


Signatures


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


BOK FINANCIAL CORPORATION
(Registrant)



Date:        October 30, 2015                                                                  



/s/ Steven E. Nell
Steven E. Nell
Executive Vice President and
Chief Financial Officer

    
/s/ John C. Morrow
John C. Morrow
Senior Vice President and
Chief Accounting Officer


- 136 -