BOKF-2015.06.30-10Q


 

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 June 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: 68,945,139 shares of common stock ($.00006 par value) as of June 30, 2015.
 




BOK Financial Corporation
Form 10-Q
Quarter Ended June 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 $79.2 million or $1.15 per diluted share for the second quarter of 2015, compared to $75.9 million or $1.10 per diluted share for the second quarter of 2014 and $74.8 million or $1.08 per diluted share for the first quarter of 2015. 

Highlights of the second quarter of 2015 included:
•
Net interest revenue totaled $175.7 million for the second quarter of 2015, compared to $166.1 million for the second quarter of 2014 and $167.7 million for the first quarter of 2015. Net interest margin decreased to 2.61% for the second quarter of 2015, primarily due to increased deposits at the Federal Reserve Bank funded by Federal Home Loan Bank borrowings and continued competitive loan pricing and low interest rates. Net interest margin was 2.75% for the second quarter of 2014 and 2.55% for the first quarter of 2015. 
•
Fees and commissions revenue totaled $172.5 million for the second quarter of 2015, an $8.5 million or 5% increase over the second quarter of 2014. Mortgage banking revenue increased $7.5 million based on higher loan production volume. Increased fiduciary and asset management fees were offset by lower brokerage and trading revenue. Fees and commissions revenue increased $6.6 million over the first quarter of 2015, with solid performance in all fee generating lines of business.
•
Changes in the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income in the second quarter of 2015 by $1.1 million, decreased pre-tax net income in the second quarter of 2014 by $1.5 million and decreased pre-tax net income by $5.0 million in the first quarter of 2015. Net changes in the fair value of mortgage servicing rights for the second quarter of 2015 were largely driven by an increase in servicing costs.
•
Operating expenses totaled $227.1 million for the second quarter of 2015, an increase of $12.4 million over the second quarter of 2014. Personnel expense increased $9.0 million and non-personnel expense increased $3.4 million. Operating expenses increased $6.8 million over the previous quarter.
•
The Company recorded a $4.0 million provision for credit losses in the second quarter of 2015 primarily due to growth in the loan portfolio. No provision for credit losses was recorded in the first quarter of 2015 or the second quarter of 2014. Gross charge-offs were $2.9 million in the second quarter of 2015, $3.5 million in the second quarter of 2014 and $2.2 million in the first quarter of 2015. Recoveries were $2.2 million in the second quarter of 2015, compared to $5.5 million in the second quarter of 2014 and $10.5 million in the first quarter of 2015.
•
The combined allowance for credit losses totaled $202 million or 1.34% of outstanding loans at June 30, 2015, compared to $199 million or 1.35% of outstanding loans at March 31, 2015. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $123 million or 0.82% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at June 30, 2015 and $123 million or 0.85% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2015.
•
Average loans increased by $351 million over the previous quarter due primarily to growth in commercial and commercial real estate loans. Average commercial loans were up $326 million and average commercial real estate loans increased $80 million. Period-end outstanding loan balances were $15.1 billion at June 30, 2015, a $440 million increase over March 31, 2015. Commercial loan balances increased $385 million and commercial real estate loans increased $98 million.
•
Average deposits decreased $155 million over the previous quarter, primarily due to a decrease in interest-bearing transaction accounts, partially offset by growth in average demand deposit balances. Period-end deposits were $21.1 billion at June 30, 2015, largely unchanged compared to March 31, 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 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's common equity Tier 1 ratio was 13.07% at March 31, 2015. In addition, the Company's Tier 1 capital ratio was 13.07%, total capital ratio was 14.39% and leverage ratio was 9.74% at March 31, 2015.

- 1 -


•
The Company paid a regular quarterly cash dividend of $29 million or $0.42 per common share during the second quarter of 2015. On July 28, 2015, the board of directors approved a regular quarterly cash dividend of $0.42 per common share payable on or about August 28, 2015 to shareholders of record as of August 14, 2015.
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 $175.7 million for the second quarter of 2015 compared to $166.1 million for the second quarter of 2014 and $167.7 million for the first quarter of 2015. Net interest margin was 2.61% for the second quarter of 2015, 2.75% for the second quarter of 2014 and 2.55% for the first quarter of 2015.

Net interest revenue increased $9.6 million over the second quarter of 2014. Net interest revenue increased $15.8 million primarily due to the growth in average loan balances. Net interest revenue decreased $5.9 million primarily due to lower loan yields, partially offset by lower funding costs.

The tax-equivalent yield on earning assets was 2.84% for the second quarter of 2015, down 18 basis points from the second quarter of 2014. Loan yields decreased 20 basis points primarily due to continued market pricing pressure and lower interest rates. The available for sale securities portfolio yield decreased 2 basis points to 1.94%. Excess cash flows are currently being reinvested in short-duration securities that are yielding nearly 2.00%. Funding costs were down 7 basis points compared to the second quarter of 2014. The cost of interest-bearing deposits decreased 5 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 31 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 12 basis points for the second quarter of 2015 and 15 basis points for the second quarter of 2014.

Average earning assets for the second quarter of 2015 increased $2.9 billion or 12% over the second quarter of 2014. Average loans, net of allowance for loan losses, increased $1.6 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 $1.4 billion over the second quarter of 2014 as borrowings from the Federal Home Loan Banks were deposited in the Federal Reserve to earn a spread of approximately $842 thousand. The average balance of available for sale securities decreased $738 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, residential mortgage loans held for sale, restricted equity securities, and trading securities were all up over the prior year.

Average deposits increased $597 million over the second quarter of 2014, including a $342 million increase in average demand deposit balances and a $213 million increase in average interest-bearing transaction accounts. Average savings account balances and average time deposits both increased over the prior year. Average borrowed funds increased $2.1 billion over the second quarter of 2014, primarily due to increased borrowings from the Federal Home Loan Banks. The average balance of subordinated debentures decreased $40 million.

Net interest margin increased 6 basis points over the first quarter of 2015. The yield on average earning assets increased 4 basis points. The loan portfolio yield increased 6 basis points to 3.65%, primarily due to $2.3 million of nonaccrual interest recoveries during the quarter and increased loan fees compared to the first quarter. Competitive loan pricing and low interest rates continue to impact loan yields. The yield on the available for sale securities portfolio decreased 4 basis points to 1.94%. Funding costs were down 3 basis points to 0.35%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities decreased by a basis point.

- 2 -


Average earning assets increased $383 million during the second quarter of 2015, primarily due to growth in average outstanding loans of $351 million over the previous quarter. Average commercial loan balances were up $326 million and average commercial real estate loan balances increased $80 million. Residential mortgage loans held for sale increased $116 million. The average balance of restricted equity securities increased $43 million and the average balance of fair value option securities held as an economic hedge of our mortgage servicing rights increased $31 million. This growth was partially offset by a $38 million decrease in the average balance of the available for sale securities portfolio, a $14 million decrease in average investment securities balances and a $14 million decrease in average trading securities balances.
Average deposits decreased $155 million over the previous quarter. Interest-bearing transaction account balances decreased $275 million, partially offset by a $111 million increase in average demand deposit balances. The average balance of borrowed funds increased $684 million over the first quarter of 2015, primarily due to increased borrowings from the Federal Home Loan Banks. The average balance of subordinated debentures decreased $40 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
June 30, 2015 / 2014
 
Six Months Ended
June 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
 
$
867

 
$
835

 
$
32

 
$
2,024

 
$
1,746

 
$
278

Trading securities
 
58

 
204

 
(146
)
 
213

 
423

 
(210
)
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
56

 
144

 
(88
)
 
100

 
264

 
(164
)
Tax-exempt securities
 
(238
)
 
(166
)
 
(72
)
 
(505
)
 
(318
)
 
(187
)
Total investment securities
 
(182
)
 
(22
)
 
(160
)
 
(405
)
 
(54
)
 
(351
)
Available for sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
(4,103
)
 
(3,715
)
 
(388
)
 
(8,253
)
 
(9,174
)
 
921

Tax-exempt securities
 
(169
)
 
(120
)
 
(49
)
 
17

 
(220
)
 
237

Total available for sale securities
 
(4,272
)
 
(3,835
)
 
(437
)
 
(8,236
)
 
(9,394
)
 
1,158

Fair value option securities
 
1,526

 
1,355

 
171

 
2,678

 
2,313

 
365

Restricted equity securities
 
1,953

 
1,643

 
310

 
3,553

 
2,722

 
831

Residential mortgage loans held for sale
 
1,369

 
2,438

 
(1,069
)
 
2,728

 
3,793

 
(1,065
)
Loans
 
8,095

 
15,230

 
(7,135
)
 
12,712

 
30,062

 
(17,350
)
Total tax-equivalent interest revenue
 
9,414

 
17,848

 
(8,434
)
 
15,267

 
31,611

 
(16,344
)
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
 
(292
)
 
3

 
(295
)
 
(386
)
 
132

 
(518
)
Savings deposits
 
(3
)
 
7

 
(10
)
 
(7
)
 
13

 
(20
)
Time deposits
 
(1,216
)
 
46

 
(1,262
)
 
(1,999
)
 
(97
)
 
(1,902
)
Funds purchased
 
(94
)
 
(99
)
 
5

 
(239
)
 
(286
)
 
47

Repurchase agreements
 
(121
)
 
(18
)
 
(103
)
 
(168
)
 
8

 
(176
)
Other borrowings
 
1,768

 
2,379

 
(611
)
 
3,199

 
4,218

 
(1,019
)
Subordinated debentures
 
(494
)
 
(238
)
 
(256
)
 
(487
)
 
(239
)
 
(248
)
Total interest expense
 
(452
)
 
2,080

 
(2,532
)
 
(87
)
 
3,749

 
(3,836
)
Tax-equivalent net interest revenue
 
9,866

 
15,768

 
(5,902
)
 
15,354

 
27,862

 
(12,508
)
Change in tax-equivalent adjustment
 
232

 
 
 
 
 
636

 
 
 
 
Net interest revenue
 
$
9,634

 
 
 
 
 
$
14,718

 
 
 
 
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 $176.3 million for the second quarter of 2015, a $10.1 million increase over the second quarter of 2014 and a $10.3 million increase over the first quarter of 2015. Fees and commissions revenue increased $8.5 million over the second quarter of 2014 and increased $6.6 million over the prior quarter. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other operating revenue by $1.1 million in the second quarter of 2015, $5.0 million in the first quarter of 2015 and $1.5 million in the second quarter of 2014.

Table 2 – Other Operating Revenue 
(In thousands)
 
 
Three Months Ended
June 30,
 
 
 
 
 
Three Months Ended
Mar. 31, 2015
 
 
 
 
 
 
2015
 
2014
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
Increase (Decrease)
 
% Increase (Decrease)
Brokerage and trading revenue
 
$
36,012

 
$
39,056

 
$
(3,044
)
 
(8
)%
 
$
31,707

 
$
4,305

 
14
 %
Transaction card revenue
 
32,778

 
31,510

 
1,268

 
4
 %
 
31,010

 
1,768

 
6
 %
Fiduciary and asset management revenue
 
32,712

 
29,543

 
3,169

 
11
 %
 
31,469

 
1,243

 
4
 %
Deposit service charges and fees
 
22,328

 
23,133

 
(805
)
 
(3
)%
 
21,684

 
644

 
3
 %
Mortgage banking revenue
 
36,846

 
29,330

 
7,516

 
26
 %
 
39,320

 
(2,474
)
 
(6
)%
Bank-owned life insurance
 
2,398

 
2,274

 
124

 
5
 %
 
2,198

 
200

 
9
 %
Other revenue
 
9,473

 
9,208

 
265

 
3
 %
 
8,603

 
870

 
10
 %
Total fees and commissions revenue
 
172,547

 
164,054

 
8,493

 
5
 %
 
165,991

 
6,556

 
4
 %
Gain on other assets, net
 
1,457

 
3,521

 
(2,064
)
 
N/A

 
755

 
702

 
N/A

Gain (loss) on derivatives, net
 
(1,032
)
 
831

 
(1,863
)
 
N/A

 
911

 
(1,943
)
 
N/A

Gain (loss) on fair value option securities, net
 
(8,130
)
 
4,176

 
(12,306
)
 
N/A

 
2,647

 
(10,777
)
 
N/A

Change in fair value of mortgage servicing rights
 
8,010

 
(6,444
)
 
14,454

 
N/A

 
(8,522
)
 
16,532

 
N/A

Gain on available for sale securities, net
 
3,433

 
4

 
3,429

 
N/A

 
4,327

 
(894
)
 
N/A

Total other-than-temporary impairment
 
—

 
—

 
—

 
N/A

 
(781
)
 
781

 
N/A

Portion of loss recognized in (reclassified from) other comprehensive income
 
—

 
—

 
—

 
N/A

 
689

 
(689
)
 
N/A

Net impairment losses recognized in earnings
 
—

 
—

 
—

 
N/A

 
(92
)
 
92

 
N/A

Total other operating revenue
 
$
176,285

 
$
166,142

 
$
10,143

 
6
 %
 
$
166,017

 
$
10,268

 
6
 %
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 50% of total revenue for the second 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 $3.0 million compared to the second quarter of 2014. 


- 5 -


Securities trading revenue was $11.4 million for the second quarter of 2015, a decrease of $1.0 million compared to the second 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. 

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 $11.7 million for the second quarter of 2015. Combined recoveries from the Lehman Brothers and MF Global bankruptcies totaled $382 thousand in the second quarter of 2015 and $1.6 million in the second quarter of 2014. Excluding the impact of these recoveries, customer hedging revenue increased $3.0 million over the prior year primarily due to higher volumes of derivative contracts executed by our mortgage banking customers.

Revenue earned from retail brokerage transactions decreased $4.4 million or 43% compared to the second quarter of 2014 to $5.9 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 $7.1 million for the second quarter of 2015, a $617 thousand or 10% increase over the second quarter of 2014 primarily related to financial advisory, underwriting and loan syndication fees.

Brokerage and trading revenue increased $4.3 million over the first quarter of 2015. Investment banking fees were up $2.4 million over the prior quarter primarily due to growth in loan syndication and underwriting fees. Securities trading revenue increased $1.4 million. Customer hedging revenue increased $963 thousand, excluding the impact of a recovery from the Lehman Brothers bankruptcy in the second quarter of 2015. Retail brokerage fees decreased $880 thousand compared to 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 second quarter of 2015 increased $1.3 million or 4% over the second quarter of 2014. Revenues from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ("EFT") network totaled $16.6 million, a $605 thousand or 4% increase over the prior year, due to increased transaction volumes and increased dollar amounts per transaction. Merchant services fees totaled $11.3 million, an increase of $623 thousand or 6% 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 $40 thousand or 1% over the second quarter of 2014.

Transaction card revenue increased $1.8 million over the first quarter of 2015. Merchant services fees, EFT network revenues and interchange fee revenue from debit cards issued by the Company all grew over the prior quarter due to increased transaction activity.

Fiduciary and asset management revenue grew by $3.2 million or 11% over the second quarter of 2014. MBM Advisors was acquired during the the second quarter of 2014. The partial quarter of earnings in the second quarter of 2014 related to MBM Advisors totaled $947 thousand, compared to a full quarter of earnings in the second quarter of 2015 of $1.8 million. The remaining 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 $38.8 billion at June 30, 2015, $32.7 billion at June 30, 2014 and $37.5 billion at March 31, 2015.

Fiduciary and asset management revenue increased $1.2 million over the first quarter of 2015 primarily due to the growth in the fair value of fiduciary assets administered by the Company.

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 $2.9 million for the second quarter of 2015 compared to $2.4 million for the second quarter of 2014 and $2.7 million for the first quarter of 2015.

- 6 -



Deposit service charges and fees were $22.3 million for the second quarter of 2015, compared to $23.1 million for the second quarter of 2014. Overdraft fees were $10.1 million for the second quarter of 2015, a decrease of $1.8 million or 15% compared to the second quarter of 2014. Commercial account service charge revenue totaled $10.4 million, an increase of $1.1 million or 12% over the prior year. Service charges on deposit accounts with a standard monthly fee were $1.8 million, a decrease of $54 thousand or 3% compared to the second quarter of 2014. Deposit service charges and fees increased $644 thousand compared to the prior quarter primarily due to an increase in overdraft fee volumes.

Mortgage banking revenue increased $7.5 million over the second quarter of 2014. Mortgage production revenue increased $5.4 million largely due to increased production activity. Lower average primary mortgage interest rates as well as improved consumer confidence in the mortgage market and expansion of our correspondent and Home Direct lending channels increased loans closed during the quarter and outstanding loan commitments. The decrease in average interest rates also increased the percentage of refinanced mortgage loans to 40% in the second quarter of 2015 compared to 25% in the second quarter of 2014. Growth in our correspondent and Home Direct lending channels caused margins to compress compared to the second quarter of 2014. Mortgage servicing revenue grew by $2.1 million or 18% over the second quarter of 2014. The outstanding principal balance of mortgage loans serviced for others totaled $18.0 billion, an increase of $3.4 billion or 23%.
Mortgage banking revenue decreased $2.5 million compared to the first quarter of 2015. Mortgage production revenue decreased $2.9 million. While production volume increased over the previous quarter, margin compression reduced production revenue. Total mortgage loans originated during the second quarter increased $263 million over the previous quarter and outstanding mortgage loan commitments at June 30 increased $26 million. However, mortgage interest rates increased during the second quarter which reduced higher-margin refinance activity. Revenue from mortgage loan servicing grew by $453 thousand due to an increase in the volume of loans serviced. The outstanding balance of mortgage loans serviced for others increased $1.0 billion over March 31, 2015.

Table 3 – Mortgage Banking Revenue 
(In thousands)
 
 
Three Months Ended
June 30,
 
Increase (Decrease)
 
% Increase (Decrease)
 
Three Months Ended
Mar. 31, 2015
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
2015
 
2014
 
 
 
 
Net realized gains on mortgage loans sold
 
$
23,856

 
$
12,745

 
$
11,111

 
87
 %
 
$
17,251

 
$
6,605

 
38
 %
Change in net unrealized gains (losses) on mortgage loans held for sale
 
(743
)
 
4,982

 
(5,725
)
 
(115
)%
 
8,789

 
(9,532
)
 
(108
)%
Total mortgage production revenue
 
23,113

 
17,727

 
5,386

 
30
 %
 
26,040

 
(2,927
)
 
(11
)%
Servicing revenue
 
13,733

 
11,603

 
2,130

 
18
 %
 
13,280

 
453

 
3
 %
Total mortgage revenue
 
$
36,846

 
$
29,330

 
$
7,516

 
26
 %
 
$
39,320

 
$
(2,474
)
 
(6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans funded for sale
 
$
1,828,230

 
$
1,090,629

 
$
737,601

 
68
 %
 
$
1,565,016

 
$
263,214

 
17
 %
Mortgage loans sold
 
1,861,968

 
1,008,993

 
852,975

 
85
 %
 
1,382,042

 
479,926

 
35
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period end outstanding mortgage commitments, net
 
849,619

 
546,864

 
302,755

 
55
 %
 
824,036

 
25,583

 
3
 %
Outstanding principal balance of mortgage loans serviced for others
 
17,979,623

 
14,626,291

 
3,353,332

 
23
 %
 
16,937,128

 
1,042,495

 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary residential mortgage interest rate – period end
 
4.02
%
 
4.14
%
 
(12
) bps
 
 
 
3.69
%
 
33
 bps
 
 
Primary residential mortgage interest rate – average
 
3.82
%
 
4.23
%
 
(41
) bps
 
 
 
3.73
%
 
9
 bps
 
 
Secondary residential mortgage interest rate – period end
 
3.13
%
 
3.17
%
 
(4
) bps
 
 
 
2.75
%
 
38
 bps
 
 
Secondary residential mortgage interest rate – average
 
2.85
%
 
3.28
%
 
(43
) bps
 
 
 
2.69
%
 
16
 bps
 
 

- 7 -


Net gains on securities, derivatives and other assets

In the second quarter of 2015, we recognized a $3.4 million net gain from sales of $379 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 a rising rate environment. In the second quarter of 2014, we recognized a $4 thousand net gain from sales of $800 million of available for sale securities and in the first quarter of 2015, we recognized a $4.3 million net gain on sales of $335 million of available for sale securities.

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. An increase in estimated servicing costs reduced the fair value of mortgage servicing rights by $2.4 million in the second quarter of 2015.

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
 
 
June 30,
2015
 
Mar. 31,
2015
 
June 30,
2014
Gain (loss) on mortgage hedge derivative contracts, net
 
$
(1,005
)
 
$
911

 
$
831

Gain (loss) on fair value option securities, net
 
(8,130
)
 
2,647

 
4,074

Gain (loss) on economic hedge of mortgage servicing rights, net
 
(9,135
)
 
3,558

 
4,905

Gain (loss) on change in fair value of mortgage servicing rights
 
8,010

 
(8,522
)
 
(6,444
)
Loss on changes in fair value of mortgage servicing rights, net of economic hedges
 
$
(1,125
)
 
$
(4,964
)
 
$
(1,539
)
 
 
 
 
 
 
 
Net interest revenue on fair value option securities
 
$
1,985

 
$
1,739

 
$
721


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 second quarter of 2015 totaled $227.1 million, a $12.4 million or 6% increase over the second quarter of 2014. Personnel expenses increased $9.0 million or 7%. Non-personnel expenses increased $3.4 million or 4% over the prior year.

Operating expenses increased $6.8 million over the previous quarter. Personnel expense increased $4.1 million. Non-personnel expense increased $2.7 million.

Table 5 -- Other Operating Expense
(In thousands)
 
 
Three Months Ended
June 30,
 
Increase (Decrease)
 
%
Increase (Decrease)
 
Three Months Ended
Mar. 31, 2015
 
Increase (Decrease)
 
%
Increase (Decrease)
 
 
2015
 
2014
 
 
 
 
 
Regular compensation
 
$
78,105

 
$
73,064

 
$
5,041

 
7
 %
 
$
77,762

 
$
343

 
—
 %
Incentive compensation:
 
 
 
 
 


 


 
 
 
 
 
 
Cash-based
 
32,347

 
29,030

 
3,317

 
11
 %
 
26,941

 
5,406

 
20
 %
Share-based
 
3,057

 
3,675

 
(618
)
 
(17
)%
 
2,140

 
917

 
43
 %
Deferred compensation
 
118

 
(136
)
 
254

 
(187
)%
 
130

 
(12
)
 
(9
)%
Total incentive compensation
 
35,522

 
32,569

 
2,953

 
9
 %
 
29,211

 
6,311

 
22
 %
Employee benefits
 
19,068

 
18,081

 
987

 
5
 %
 
21,575

 
(2,507
)
 
(12
)%
Total personnel expense
 
132,695

 
123,714

 
8,981

 
7
 %
 
128,548

 
4,147

 
3
 %
Business promotion
 
7,765

 
7,150

 
615

 
9
 %
 
5,748

 
2,017

 
35
 %
Professional fees and services
 
9,560

 
11,054

 
(1,494
)
 
(14
)%
 
10,059

 
(499
)
 
(5
)%
Net occupancy and equipment
 
18,927

 
18,789

 
138

 
1
 %
 
19,044

 
(117
)
 
(1
)%
Insurance
 
5,116

 
4,467

 
649

 
15
 %
 
4,980

 
136

 
3
 %
Data processing and communications
 
31,463

 
29,071

 
2,392

 
8
 %
 
30,620

 
843

 
3
 %
Printing, postage and supplies
 
3,553

 
3,429

 
124

 
4
 %
 
3,461

 
92

 
3
 %
Net losses and operating expenses of repossessed assets
 
223

 
1,118

 
(895
)
 
(80
)%
 
613

 
(390
)
 
(64
)%
Amortization of intangible assets
 
1,090

 
949

 
141

 
15
 %
 
1,090

 
—

 
—
 %
Mortgage banking costs
 
7,419

 
7,960

 
(541
)
 
(7
)%
 
9,319

 
(1,900
)
 
(20
)%
Other expense
 
9,302

 
7,006

 
2,296

 
33
 %
 
6,783

 
2,519

 
37
 %
Total other operating expense
 
$
227,113

 
$
214,707

 
$
12,406

 
6
 %
 
$
220,265

 
$
6,848

 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average number of employees (full-time equivalent)
 
4,776

 
4,657

 
119

 
3
 %
 
4,741

 
35

 
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 $5.0 million or 7% over the second quarter of 2014. Although the average number of employees was largely unchanged compared to the prior year, recent additions have 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 $3.0 million over the second 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 $3.3 million or 11% over the second 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 $987 thousand or 5% over the second quarter of 2014 primarily due to an increase in employee medical costs. The Company self-insures a portion of its employee healthcare coverage and these costs may be volatile.
Personnel costs increased by $4.1 million over the first quarter of 2015. Incentive compensation expense increased $6.3 million, partially offset by a $1.4 million decrease in employee medical costs and a $1.4 million decrease in payroll taxes.

Non-personnel operating expenses

Non-personnel operating expenses increased $3.4 million or 4% over the second quarter of 2014. Data processing and communications expense increased $2.4 million primarily due to increased transaction activity. All other non-personnel expense increased $1.0 million.
Non-personnel expense increased $2.7 million compared to the first quarter of 2015. Other expense increased $2.5 million primarily due to increased recruiting expense. Business promotion expense increased $2.0 million, offset by a $1.9 million decrease in mortgage banking expense.
Income Taxes

Income tax expense was $40.6 million or 33.6% of book taxable income for the second quarter of 2015 compared to $40.8 million or 34.7% of book taxable income for the second quarter of 2014 and $38.4 million or 33.8% of book taxable income for the first quarter of 2015.

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 $3.6 million was reclassified from pre-tax earnings to income tax expense in the second quarter of 2014 and approximately $5.5 million was reclassified from pre-tax earnings to income tax expense for the six months ended June 30, 2014. This reclassification increased the effective tax rate by 200 basis points in the second quarter of 2014 and 150 basis points for the six months ended June 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 June 30, 2015 and at March 31, 2015 and $12 million at June 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 $5.8 million or 11% over the second quarter of 2014. Growth in both net interest revenue and fees and commissions revenue was partially offset by increased operating expenses. The second quarter of 2015 had $1.3 million of net charge-offs compared to net recoveries of $1.7 million in the second quarter of 2014.

Table 6 -- Net Income by Line of Business
(In thousands)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Commercial Banking
 
$
45,643

 
$
39,251

 
$
91,464

 
$
74,343

Consumer Banking
 
7,480

 
7,395

 
12,338

 
15,823

Wealth Management
 
4,190

 
4,882

 
8,924

 
7,422

Subtotal
 
57,313

 
51,528

 
112,726

 
97,588

Funds Management and other
 
21,917

 
24,367

 
41,347

 
54,897

Total
 
$
79,230

 
$
75,895

 
$
154,073

 
$
152,485


- 11 -


Commercial Banking

Commercial Banking contributed $45.6 million to consolidated net income in the second quarter of 2015, up $6.4 million or 16% over the second quarter of 2014. Increased net interest revenue, net recoveries of loans previously charged off and fees and commissions revenue was partially offset by increased operating expenses. Commercial Banking had $401 thousand of net recoveries in the second quarter of 2015 compared $3.7 million of net recoveries in the second quarter of 2014.

Table 7 -- Commercial Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Six Months Ended
 
Increase (Decrease)
 
 
 
June 30,
 
 
June 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
108,616

 
$
94,810

 
$
13,806

 
$
209,784

 
$
185,641

 
$
24,143

 
Net interest expense from internal sources
 
(12,642
)
 
(11,349
)
 
(1,293
)
 
(25,198
)
 
(23,624
)
 
(1,574
)
 
Total net interest revenue
 
95,974

 
83,461

 
12,513

 
184,586

 
162,017

 
22,569

 
Net loans charged off (recovered)
 
(401
)
 
(3,728
)
 
3,327

 
(9,303
)
 
(7,192
)
 
(2,111
)
 
Net interest revenue after net loans charged off (recovered)
 
96,375

 
87,189

 
9,186

 
193,889

 
169,209

 
24,680

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
45,389

 
42,541

 
2,848

 
88,211

 
82,511

 
5,700

 
Gain (loss) on financial instruments and other assets, net
 
191

 
179

 
12

 
253

 
(1,105
)
 
1,358

 
Other operating revenue
 
45,580

 
42,720

 
2,860

 
88,464

 
81,406

 
7,058

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
28,506

 
27,451

 
1,055

 
55,819

 
54,321

 
1,498

 
Non-personnel expense
 
24,270

 
23,256

 
1,014

 
47,537

 
45,676

 
1,861

 
Other operating expense
 
52,776

 
50,707

 
2,069

 
103,356

 
99,997

 
3,359

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
89,179

 
79,202

 
9,977

 
178,997

 
150,618

 
28,379

 
Corporate expense allocations
 
14,477

 
14,961

 
(484
)
 
29,302

 
28,943

 
359

 
Income before taxes
 
74,702

 
64,241

 
10,461

 
149,695

 
121,675

 
28,020

 
Federal and state income tax
 
29,059

 
24,990

 
4,069

 
58,231

 
47,332

 
10,899

 
Net income
 
$
45,643

 
$
39,251

 
$
6,392

 
$
91,464

 
$
74,343

 
$
17,121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
13,136,059

 
$
11,220,361

 
$
1,915,698

 
$
12,896,460

 
$
11,077,572

 
$
1,818,888

 
Average loans
 
12,260,003

 
10,554,470

 
1,705,533

 
12,077,367

 
10,406,825

 
1,670,542

 
Average deposits
 
8,930,168

 
8,998,408

 
(68,240
)
 
8,963,385

 
8,871,870

 
91,515

 
Average invested capital
 
1,028,989

 
937,085

 
91,904

 
1,013,116

 
934,768

 
78,348

 
Return on average assets
 
1.40
 %
 
1.40
 %
 
—

bp
1.43
 %
 
1.36
 %
 
7

bp
Return on invested capital
 
17.82
 %
 
16.81
 %
 
101

bp
18.23
 %
 
16.09
 %
 
214

bp
Efficiency ratio
 
37.28
 %
 
40.18
 %
 
(290
)
bp
37.83
 %
 
40.83
 %
 
(300
)
bp
Net recoveries (annualized) to average loans
 
(0.01
)%
 
(0.14
)%
 
13

bp
(0.16
)%
 
(0.14
)%
 
(2
)
bp

Net interest revenue increased $12.5 million or 15% 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.

Fees and commissions revenue increased $2.8 million or 7% over the second quarter of 2014. Transaction card revenues from our TransFund electronic funds transfer network were up $1.3 million. Commercial deposit service charge revenue increased $945 thousand and brokerage and trading revenue related to our commercial banking customers increased $746 thousand.


- 12 -


Operating expenses increased $2.1 million or 4% over the second quarter of 2014. Personnel costs increased $1.1 million or 4% primarily due to increased incentive compensation expense and standard annual merit increases. Non-personnel expenses increased $1.0 million or 4%. Data processing and communication expense increased $1.1 million related to growth in transaction activity. Other expense increased $1.2 million primarily due to merchant banking investment activity. These increases were partially offset by a $796 thousand decrease in net losses and operating expenses of repossessed assets and a $354 thousand decrease in professional fees and services expense. Corporate expense allocations decreased $484 thousand compared to the prior year.

The average outstanding balance of loans attributed to Commercial Banking grew by $1.7 billion over the second quarter of 2014 to $12.3 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 $8.9 billion for the second quarter of 2015, largely unchanged compared to the second 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 $7.5 million to consolidated net income for the second quarter of 2015, largely unchanged compared to the second quarter of 2014.

Growth in mortgage banking banking revenue was partially offset by decreased net interest revenue and lower deposit service charges and fees. Changes in the fair value of our mortgage servicing rights, net of economic hedge, resulted in a $687 thousand decrease in Consumer Banking net income in the second quarter of 2015 and a $940 thousand decrease in Consumer Banking net income in the second quarter of 2014.


- 13 -


Table 8 -- Consumer Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Six Months Ended
 
Increase (Decrease)
 
 
 
June 30,
 
 
June 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
21,728

 
$
20,947

 
$
781

 
$
42,453

 
$
41,930

 
$
523

 
Net interest revenue from internal sources
 
7,624

 
9,609

 
(1,985
)
 
15,538

 
18,838

 
(3,300
)
 
Total net interest revenue
 
29,352

 
30,556

 
(1,204
)
 
57,991

 
60,768

 
(2,777
)
 
Net loans charged off
 
1,674

 
1,576

 
98

 
1,674

 
1,576

 
98

 
Net interest revenue after net loans charged off
 
27,678

 
28,980

 
(1,302
)
 
56,317

 
59,192

 
(2,875
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
57,616

 
52,243

 
5,373

 
116,643

 
96,510

 
20,133

 
Gain (loss) on financial instruments and other assets, net
 
(7,062
)
 
7,574

 
(14,636
)
 
(1,336
)
 
13,182

 
(14,518
)
 
Change in fair value of mortgage servicing rights
 
8,010

 
(6,444
)
 
14,454

 
(512
)
 
(10,905
)
 
10,393

 
Other operating revenue
 
58,564

 
53,373

 
5,191

 
114,795

 
98,787

 
16,008

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
26,391

 
23,871

 
2,520

 
52,837

 
47,875

 
4,962

 
Non-personnel expense
 
25,699

 
26,000

 
(301
)
 
55,110

 
44,623

 
10,487

 
Total other operating expense
 
52,090

 
49,871

 
2,219

 
107,947

 
92,498

 
15,449

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
34,152

 
32,482

 
1,670

 
63,165

 
65,481

 
(2,316
)
 
Corporate expense allocations
 
21,909

 
20,379

 
1,530

 
42,972

 
39,584

 
3,388

 
Income before taxes
 
12,243

 
12,103

 
140

 
20,193

 
25,897

 
(5,704
)
 
Federal and state income tax
 
4,763

 
4,708

 
55

 
7,855

 
10,074

 
(2,219
)
 
Net income
 
$
7,480

 
$
7,395

 
$
85

 
$
12,338

 
$
15,823

 
$
(3,485
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
7,341,766

 
$
7,090,195

 
$
251,571

 
$
7,317,460

 
$
7,074,514

 
$
242,946

 
Average loans
 
1,902,145

 
1,991,245

 
(89,100
)
 
1,920,929

 
2,001,488

 
(80,559
)
 
Average deposits
 
6,724,188

 
6,512,764

 
211,424

 
6,673,067

 
6,477,090

 
195,977

 
Average invested capital
 
269,388

 
276,294

 
(6,906
)
 
270,738

 
279,897

 
(9,159
)
 
Return on average assets
 
0.41
%
 
0.42
%
 
(1
)
bp
0.34
%
 
0.45
%
 
(11
)
bp
Return on invested capital
 
11.14
%
 
10.74
%
 
40

bp
9.19
%
 
11.40
%
 
(221
)
bp
Efficiency ratio
 
57.18
%
 
56.30
%
 
88

bp
58.99
%
 
54.99
%
 
400

bp
Net charge-offs (annualized) to average loans
 
0.35
%
 
0.32
%
 
3

bp
0.18
%
 
0.16
%
 
2

bp

 
 
June 30,
2015
 
June 30,
2014
 
Increase
(Decrease)
Banking locations
 
154

 
188

 
(34
)

Net interest revenue from Consumer Banking activities decreased $1.2 million or 4% compared to the second quarter of 2014, primarily due to a deposit advance product that was phased out during the second quarter of 2014. Average loan balances were $89 million or 4% lower than the prior year.

Fees and commissions revenue increased $5.4 million or 10% over the second quarter of 2014. Mortgage banking revenue grew by $7.5 million over the prior year. Deposit service charges and fees decreased $1.8 million.


- 14 -


Operating expenses increased $2.2 million or 4% over the second quarter of 2014. Personnel expenses were up $2.5 million or 11%, including a $1.3 million increase in regular compensation expense primarily due to the expansion of our Home Direct Mortgage origination channel and a $932 thousand increase in incentive compensation expense. Non-personnel expense was relatively unchanged compared to the prior year. Mortgage banking costs, net occupancy and equipment and deposit insurance expense decreased compared to the prior year, offset by an increase in data processing and communications, business promotion and other expense. Corporate expense allocations were up $1.5 million over the second quarter of 2014.

Average consumer deposits were up $211 million or 3% over the second quarter of 2014. Average demand deposit balances increased $210 million or 15%, average interest-bearing transaction accounts increased $154 million or 5% and average savings account balances increased $34 million or 10%. Average time deposit balances were down $186 million or 12% compared to the prior year.




- 15 -


Wealth Management

Wealth Management contributed $4.2 million to consolidated net income in the second quarter of 2015, compared to $4.9 million in the second quarter of 2014. Growth in fiduciary and asset management revenue was offset by decreased brokerage and trading revenue and increased operating expenses.

Table 9 -- Wealth Management
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Six Months Ended
 
Increase (Decrease)
 
 
 
June 30,
 
 
June 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
6,226

 
$
5,778

 
$
448

 
$
11,610

 
$
11,617

 
$
(7
)
 
Net interest revenue from internal sources
 
4,897

 
4,719

 
178

 
10,551

 
9,403

 
1,148

 
Total net interest revenue
 
11,123

 
10,497

 
626

 
22,161

 
21,020

 
1,141

 
Net loans charged off (recovered)
 
1

 
492

 
(491
)
 
(347
)
 
447

 
(794
)
 
Net interest revenue after net loans charged off (recovered)
 
11,122

 
10,005

 
1,117

 
22,508

 
20,573

 
1,935

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
66,569

 
65,698

 
871

 
129,011

 
120,368

 
8,643

 
Loss on financial instruments and other assets, net
 
(694
)
 
(170
)
 
(524
)
 
(789
)
 
(580
)
 
(209
)
 
Other operating revenue
 
65,875

 
65,528

 
347

 
128,222

 
119,788

 
8,434

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
46,769

 
43,871

 
2,898

 
90,167

 
83,459

 
6,708

 
Non-personnel expense
 
12,059

 
11,284

 
775

 
23,701

 
20,945

 
2,756

 
Other operating expense
 
58,828

 
55,155

 
3,673

 
113,868

 
104,404

 
9,464

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
18,169

 
20,378

 
(2,209
)
 
36,862

 
35,957

 
905

 
Corporate expense allocations
 
11,312

 
12,388

 
(1,076
)
 
22,257

 
23,810

 
(1,553
)
 
Income before taxes
 
6,857

 
7,990

 
(1,133
)
 
14,605

 
12,147

 
2,458

 
Federal and state income tax
 
2,667

 
3,108

 
(441
)
 
5,681

 
4,725

 
956

 
Net income
 
$
4,190

 
$
4,882

 
$
(692
)
 
$
8,924

 
$
7,422

 
$
1,502

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
4,634,589

 
$
4,556,825

 
$
77,764

 
$
4,730,929

 
$
4,589,141

 
$
141,788

 
Average loans
 
1,065,877

 
975,982

 
89,895

 
1,050,671

 
956,431

 
94,240

 
Average deposits
 
4,522,257

 
4,427,350

 
94,907

 
4,611,484

 
4,463,109

 
148,375

 
Average invested capital
 
224,972

 
214,936

 
10,036

 
224,247

 
208,909

 
15,338

 
Return on average assets
 
0.41
%
 
0.47
%
 
(6
)
bp
0.43
 %
 
0.36
%
 
7

bp
Return on invested capital
 
8.46
%
 
9.97
%
 
(151
)
bp
9.02
 %
 
7.98
%
 
104

bp
Efficiency ratio
 
75.58
%
 
72.28
%
 
330

bp
75.16
 %
 
73.72
%
 
144

bp
Net charge-offs (annualized) to average loans
 
—
%
 
0.20
%
 
(20
)
bp
(0.07
)%
 
0.09
%
 
(16
)
bp


- 16 -


 
 
June 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
Fiduciary assets in custody for which BOKF has sole or joint discretionary authority
 
$
15,170,488

 
$
14,124,496

 
$
1,045,992

Fiduciary assets not in custody for which BOKF has sole or joint discretionary authority
 
3,471,856

 
3,103,877

 
367,979

Non-managed trust assets in custody
 
20,129,674

 
15,488,275

 
4,641,399

Total fiduciary assets
 
38,772,018

 
32,716,648

 
6,055,370

Assets held in safekeeping
 
24,099,473

 
23,233,467

 
866,006

Brokerage accounts under BOKF administration
 
5,739,210

 
5,273,814

 
465,396

Assets under management or in custody
 
$
68,610,701

 
$
61,223,929

 
$
7,386,772


Net interest revenue for the second quarter of 2015 increased $626 thousand or 6% over the second quarter of 2014. Average deposit balances were up $95 million or 2% over the second quarter of 2014. Time deposit balances increased $269 million and non-interest bearing demand deposits increased $52 million. Interest-bearing transaction account balances decreased $223 million. Average loan balances were up $90 million or 9% over the prior year. The benefit of this growth was partially offset by lower yields.

Fees and commissions revenue was up $871 thousand or 1% over the second quarter of 2014. Fiduciary and asset management revenue increased $3.2 million or 11% over the prior year. Brokerage and trading revenue decreased $2.8 million or 8%.

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 second quarter of 2015, the Wealth Management division participated in 148 state and municipal bond underwritings that totaled $3.0 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately $844 million of these underwritings. The Wealth Management division also participated in five corporate debt underwritings that totaled $2.5 billion. Our interest in these underwritings was $43 million. In the second quarter of 2014, the Wealth Management division participated in 108 state and municipal bond underwritings that totaled approximately $1.9 billion. Our interest in these underwritings totaled approximately $604 million. The Wealth Management division also participated in 7 corporate debt underwritings that totaled $6.4 billion. Our interest in these underwritings was $205 million.

Operating expenses increased $3.7 million or 7% over the second quarter of 2014. Personnel expenses increased $2.9 million, including a $1.5 million increase in regular compensation, a $1.2 million increase in incentive compensation and a $258 thousand increase in employee benefits primarily related to investments in Wealth Management talent. Non-personnel expense increased $775 thousand primarily due to increased data processing and communications, net occupancy and equipment and other expense, partially offset by lower deposit insurance expense compared to the prior year. Corporate expense allocations decreased $1.1 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 June 30, 2015, December 31, 2014 and June 30, 2014.

At June 30, 2015, the carrying value of investment (held-to-maturity) securities was $626 million and the fair value was $642 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 $30 million. Substantially all of these bonds are general obligations of the issuers. Approximately $105 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 $8.9 billion at June 30, 2015, a decrease of $95 million compared to March 31, 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 June 30, 2015, residential mortgage-backed securities represented 72% 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 June 30, 2015 is 3.2 years. Management estimates the duration extends to 3.6 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 2.9 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 June 30, 2015, approximately $6.3 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 $6.3 billion at June 30, 2015.

We also hold amortized cost of $142 million in residential mortgage-backed securities privately issued by publicly-owned financial institutions, a decrease of $6.6 million from March 31, 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 $154 million at June 30, 2015.

The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $81 million of Jumbo-A residential mortgage loans and $61 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 $26 million at June 30, 2015, compared to $14 million at March 31, 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. During the second quarter of 2015, no other-than-temporary impairment charges were recognized in earnings.

- 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 $196 million at June 30, 2015. Holdings of FHLB stock increased $19 million over March 31, 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 $299 million of bank-owned life insurance at June 30, 2015. This investment is expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $267 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 June 30, 2015, the fair value of investments held in separate accounts was approximately $280 million. As the underlying fair value of the investments held in a separate account at June 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 $32 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 $15.1 billion at June 30, 2015, an increase of $440 million over March 31, 2015. Outstanding commercial loans grew by $385 million over March 31, 2015, largely due to growth in healthcare, services and wholesale/retail sector loans. Commercial real estate loan balances were up $98 million primarily related to growth in loans secured by office buildings, retail facilities and other commercial real estate loans, partially offset by a decrease in multifamily residential properties. Residential mortgage loans decreased $42 million and consumer loans decreased $320 thousand compared to March 31, 2015. 

Table 10 -- Loans
(In thousands)
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,902,143

 
$
2,902,994

 
$
2,860,428

 
$
2,551,699

 
$
2,419,788

Services
 
2,837,553

 
2,728,354

 
2,518,229

 
2,487,817

 
2,377,065

Wholesale/retail
 
1,377,303

 
1,270,322

 
1,313,316

 
1,273,241

 
1,318,151

Manufacturing
 
579,549

 
560,925

 
532,594

 
479,543

 
452,866

Healthcare
 
1,646,025

 
1,511,177

 
1,454,969

 
1,382,399

 
1,394,156

Other commercial and industrial
 
433,148

 
417,391

 
416,134

 
397,339

 
405,635

Total commercial
 
9,775,721

 
9,391,163

 
9,095,670

 
8,572,038

 
8,367,661

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
148,574

 
139,152

 
143,591

 
175,228

 
184,779

Retail
 
688,447

 
658,860

 
666,889

 
611,265

 
642,110

Office
 
563,085

 
513,862

 
415,544

 
438,909

 
394,217

Multifamily
 
711,333

 
749,986

 
704,298

 
739,757

 
677,403

Industrial
 
488,054

 
478,584

 
428,817

 
371,426

 
342,080

Other commercial real estate
 
434,004

 
395,020

 
369,011

 
387,614

 
414,389

Total commercial real estate
 
3,033,497

 
2,935,464

 
2,728,150

 
2,724,199

 
2,654,978

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
946,324

 
964,264

 
969,951

 
991,107

 
1,020,928

Permanent mortgages guaranteed by U.S. government agencies
 
190,839

 
200,179

 
205,950

 
198,488

 
188,087

Home equity
 
747,565

 
762,556

 
773,611

 
790,068

 
799,200

Total residential mortgage
 
1,884,728

 
1,926,999

 
1,949,512

 
1,979,663

 
2,008,215

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
430,190

 
430,510

 
434,705

 
407,839

 
396,004

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,124,136

 
$
14,684,136

 
$
14,208,037

 
$
13,683,739

 
$
13,426,858


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 65% of the loan portfolio at June 30, 2015, an increase of $385 million over March 31, 2015. Healthcare sector loans grew by $135 million. Service sector loans grew by $109 million over the prior quarter. Wholesale/retail sector loans increased $107 million. Energy loan balances were largely unchanged compared to March 31, 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 36% concentrated in the Texas market and 22% concentrated in the Oklahoma market. The Other category is primarily composed of two states, Louisiana and California, which represent $302 million or 3% of the commercial loan portfolio and $210 million or 2% of the commercial loan portfolio, respectively, at June 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
 
$
631,258

 
$
1,374,520

 
$
58,370

 
$
6,722

 
$
369,462

 
$
12,251

 
$
72,328

 
$
377,232

 
$
2,902,143

Services
 
588,015

 
997,451

 
203,634

 
9,249

 
259,723

 
182,505

 
148,225

 
448,751

 
2,837,553

Wholesale/retail
 
401,268

 
514,814

 
38,896

 
56,444

 
60,380

 
40,448

 
54,668

 
210,385

 
1,377,303

Manufacturing
 
169,585

 
195,759

 
6,413

 
15,673

 
35,641

 
32,843

 
63,567

 
60,068

 
579,549

Healthcare
 
268,630

 
320,245

 
114,988

 
75,878

 
115,350

 
94,175

 
204,393

 
452,366

 
1,646,025

Other commercial and industrial
 
77,111

 
87,769

 
10,302

 
39,524

 
25,149

 
16,894

 
74,611

 
101,788

 
433,148

Total commercial loans
 
$
2,135,867

 
$
3,490,558

 
$
432,603

 
$
203,490

 
$
865,705

 
$
379,116

 
$
617,792

 
$
1,650,590

 
$
9,775,721

 
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 $2.9 billion or 19% of total loans at June 30, 2015. Unfunded energy loan commitments decreased by $177 million to $2.6 billion at June 30, 2015. Approximately $2.5 billion of energy loans were to oil and gas producers, down $19 million compared to March 31, 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 $17.3 million to $244 million at June 30, 2015. Loans to midstream oil and gas companies totaled $106 million at June 30, 2015, a decrease of $308 thousand from March 31, 2015. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $85 million, a $774 thousand increase over the prior quarter.

The services sector of the loan portfolio totaled $2.8 billion or 19% of total loans and consists of a large number of loans to a variety of businesses, including governmental, finance and insurance, consumer services, educational services and loans to entities providing services for real estate and construction. Service sector loans grew by $109 million over March 31, 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. 


- 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 June 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 17% 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 33% and 14% of the total commercial real estate portfolio at June 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 $3.0 billion or 20% of the loan portfolio at June 30, 2015. The outstanding balance of commercial real estate loans increased $98 million during the second quarter of 2015. Loans secured by office buildings increased $49 million. Other commercial real estate loan balances increased $39 million. Retail sector loans increased $30 million. These increases were partially offset by a $39 million decrease in loans secured by multifamily residential properties. Industrial and residential construction and land development loan balances also grew over March 31, 2015. 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
 
$
31,847

 
$
32,545

 
$
17,635

 
$
12,970

 
$
44,256

 
$
1,194

 
$
6,811

 
$
1,316

 
$
148,574

Retail
 
80,759

 
254,851

 
81,704

 
4,146

 
67,563

 
43,768

 
11,335

 
144,321

 
688,447

Office
 
79,985

 
246,330

 
33,211

 
823

 
24,646

 
37,809

 
15,059

 
125,222

 
563,085

Multifamily
 
105,102

 
228,664

 
25,929

 
22,964

 
65,113

 
80,668

 
55,732

 
127,161

 
711,333

Industrial
 
45,319

 
165,737

 
35,307

 
417

 
6,574

 
18,408

 
43,638

 
172,654

 
488,054

Other real estate
 
70,058

 
86,537

 
43,830

 
13,478

 
23,205

 
48,782

 
19,075

 
129,039

 
434,004

Total commercial real estate loans
 
$
413,070

 
$
1,014,664

 
$
237,616

 
$
54,798

 
$
231,357

 
$
230,629

 
$
151,650

 
$
699,713

 
$
3,033,497

Residential Mortgage and Consumer

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. Consumer loans include direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as other unsecured loans. Residential mortgage and consumer loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. 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 $42 million decrease compared to March 31, 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 June 30, 2015, $191 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 decreased $9.3 million compared to March 31, 2015.

Home equity loans totaled $748 million at June 30, 2015, a decrease of $15 million compared to March 31, 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 June 30, 2015 by lien position and amortizing status follows in Table 13.

Table 13 -- Home Equity Loans
(In thousands)
 
 
Revolving
 
Amortizing
 
Total
First lien
 
$
36,156

 
$
481,017

 
$
517,173

Junior lien
 
71,291

 
159,101

 
230,392

Total home equity
 
$
107,447

 
$
640,118

 
$
747,565


The distribution of residential mortgage and consumer loans at June 30, 2015 is as follows in Table 14. Residential mortgage loans are distributed by collateral location. Consumer 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
 
$
200,941

 
$
383,618

 
$
37,045

 
$
15,877

 
$
142,664

 
$
87,909

 
$
51,646

 
$
26,624

 
$
946,324

Permanent mortgages  guaranteed by U.S. government agencies
 
61,673

 
21,391

 
67,113

 
6,162

 
7,695

 
2,479

 
12,941

 
11,385

 
190,839

Home equity
 
443,723

 
131,409

 
119,112

 
4,570

 
31,027

 
9,643

 
7,503

 
578

 
747,565

Total residential mortgage
 
$
706,337

 
$
536,418

 
$
223,270

 
$
26,609

 
$
181,386

 
$
100,031

 
$
72,090

 
$
38,587

 
$
1,884,728

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
$
193,158

 
$
157,213

 
$
12,008

 
$
921

 
$
30,258

 
$
12,375

 
$
22,579

 
$
1,678

 
$
430,190


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)
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
3,529,406

 
$
3,276,553

 
$
3,142,689

 
$
3,106,264

 
$
3,101,513

Commercial real estate
 
614,995

 
612,639

 
603,610

 
592,865

 
598,790

Residential mortgage
 
1,413,690

 
1,442,340

 
1,467,096

 
1,481,264

 
1,490,171

Consumer
 
190,909

 
205,496

 
206,115

 
193,207

 
187,914

Total Bank of Oklahoma
 
5,749,000

 
5,537,028

 
5,419,510

 
5,373,600

 
5,378,388

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
3,738,742

 
3,709,467

 
3,549,128

 
3,169,458

 
3,107,808

Commercial real estate
 
1,158,056

 
1,130,973

 
1,027,817

 
1,046,322

 
995,182

Residential mortgage
 
228,683

 
237,985

 
235,948

 
247,117

 
251,290

Consumer
 
156,260

 
149,827

 
154,363

 
148,965

 
147,322

Total Bank of Texas
 
5,281,741

 
5,228,252

 
4,967,256

 
4,611,862

 
4,501,602

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 

 
 

 
 

 
 

 
 

Commercial
 
392,362

 
388,005

 
383,439

 
378,663

 
381,843

Commercial real estate
 
291,953

 
296,696

 
296,358

 
313,905

 
309,421

Residential mortgage
 
123,376

 
127,326

 
127,999

 
130,045

 
137,110

Consumer
 
11,939

 
12,095

 
10,899

 
11,714

 
12,346

Total Bank of Albuquerque
 
819,630

 
824,122

 
818,695

 
834,327

 
840,720

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
99,086

 
91,485

 
95,510

 
74,866

 
71,859

Commercial real estate
 
85,997

 
87,034

 
88,301

 
96,874

 
85,633

Residential mortgage
 
6,999

 
6,807

 
7,261

 
7,492

 
8,334

Consumer
 
5,189

 
5,114

 
5,169

 
5,508

 
6,323

Total Bank of Arkansas
 
197,271

 
190,440

 
196,241

 
184,740

 
172,149

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 

 
 

 
 

 
 

 
 

Commercial
 
1,019,454

 
1,008,316

 
977,961

 
957,917

 
856,323

Commercial real estate
 
229,721

 
209,272

 
194,553

 
190,812

 
200,995

Residential mortgage
 
54,135

 
55,925

 
57,119

 
56,705

 
60,360

Consumer
 
30,373

 
27,792

 
27,918

 
24,812

 
23,330

Total Colorado State Bank & Trust
 
1,333,683

 
1,301,305

 
1,257,551

 
1,230,246

 
1,141,008

 
 
 
 
 
 
 
 
 
 
 
Bank of Arizona:
 
 

 
 

 
 

 
 

 
 

Commercial
 
572,477

 
519,767

 
547,524

 
500,208

 
446,814

Commercial real estate
 
472,061

 
432,269

 
355,140

 
316,698

 
292,799

Residential mortgage
 
37,493

 
36,161

 
35,872

 
39,256

 
41,059

Consumer
 
12,875

 
12,394

 
12,883

 
11,201

 
7,821

Total Bank of Arizona
 
1,094,906

 
1,000,591

 
951,419

 
867,363

 
788,493

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 

 
 

 
 

 
 

 
 

Commercial
 
424,194

 
397,570

 
399,419

 
384,662

 
401,501

Commercial real estate
 
180,714

 
166,581

 
162,371

 
166,723

 
172,158

Residential mortgage
 
20,352

 
20,455

 
18,217

 
17,784

 
19,891

Consumer
 
22,645

 
17,792

 
17,358

 
12,432

 
10,948

Total Bank of Kansas City
 
647,905

 
602,398

 
597,365

 
581,601

 
604,498

 
 
 
 
 
 
 
 
 
 
 
Total BOK Financial loans
 
$
15,124,136

 
$
14,684,136

 
$
14,208,037

 
$
13,683,739

 
$
13,426,858


- 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 $8.1 billion and standby letters of credit which totaled $445 million at June 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 $111 thousand of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at June 30, 2015.

Table 16 – Off-Balance Sheet Credit Commitments
(In thousands)
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Loan commitments
 
$
8,064,841

 
$
8,116,482

 
$
8,328,416

 
$
7,715,279

 
$
7,535,313

Standby letters of credit
 
444,947

 
394,282

 
447,599

 
450,828

 
468,995

Mortgage loans sold with recourse
 
168,581

 
174,386

 
179,822

 
174,526

 
180,682


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 $111 million to borrowers in Oklahoma, $18 million to borrowers in Arkansas and $13 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 second 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 $2.8 million at June 30, 2015 and $3.0 million at March 31, 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 June 30, 2015, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $652 million compared to $524 million at March 31, 2015. At June 30, 2015, the fair value of our derivative contracts included $74 million related to to-be-announced residential mortgage-backed securities, $33 million for interest rate swaps, $41 million for energy contracts and $496 million for foreign exchange contracts. The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $643 million at June 30, 2015 and $517 million at March 31, 2015.

At June 30, 2015, total derivative assets were reduced by $21 million of cash collateral received from counterparties and total derivative liabilities were reduced by $23 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 June 30, 2015 follows in Table 17.

Table 17 -- Fair Value of Derivative Contracts
(In thousands)
Customers
 
$
316,759

Banks and other financial institutions
 
239,792

Exchanges and clearing organizations
 
73,884

Fair value of customer risk management program asset derivative contracts, net
 
$
630,435

 
At June 30, 2015, our largest derivative exposure was to an exchange for to-be-announced residential mortgage backed security contracts considered to be interest rate derivative contracts which totaled $67 million. At June 30, 2015, our aggregate gross exposure to internationally active domestic financial institutions was approximately $192 million comprised of $175 million of cash and securities positions and $18 million of gross derivative positions. We have no direct exposure to European sovereign debt and our aggregate gross exposure to European financial institutions totaled $32 million at June 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 $31.40 per barrel of oil would increase the fair value of derivative assets by $2.2 million. An increase in prices equivalent to $87.55 per barrel of oil would increase the fair value of derivative assets by $97 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 June 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 $202 million or 1.34% of outstanding loans and 222% of nonaccruing loans at June 30, 2015. The allowance for loan losses was $201 million and the accrual for off-balance sheet credit losses was $882 thousand. At March 31, 2015, the combined allowance for credit losses was $199 million or 1.35% of outstanding loans and 246% of nonaccruing loans. The allowance for loan losses was $198 million and the accrual for off-balance sheet credit losses was $954 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 $4.0 million provision for credit losses was necessary during the second quarter of 2015, primarily due to growth in the loan portfolio. No provision for credit losses was necessary for the first quarter of 2015 or the second quarter of 2014.

Table 18 -- Summary of Loan Loss Experience
(In thousands)
 
 
Three Months Ended
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
197,686

 
$
189,056

 
$
191,244

 
$
190,690

 
$
188,318

Loans charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
(881
)
 
(174
)
 
(3,279
)
 
(117
)
 
(29
)
Commercial real estate
 
(16
)
 
(28
)
 
(1,682
)
 
(145
)
 
—

Residential mortgage
 
(714
)
 
(624
)
 
(837
)
 
(773
)
 
(1,842
)
Consumer
 
(1,266
)
 
(1,343
)
 
(1,426
)
 
(1,603
)
 
(1,651
)
Total
 
(2,877
)
 
(2,169
)
 
(7,224
)
 
(2,638
)
 
(3,522
)
Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
685

 
357

 
2,262

 
260

 
1,196

Commercial real estate
 
275

 
8,819

 
1,145

 
1,410

 
2,621

Residential mortgage
 
481

 
437

 
774

 
150

 
722

Consumer
 
765

 
910

 
855

 
1,294

 
985

Total
 
2,206

 
10,523

 
5,036

 
3,114

 
5,524

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

 
(2,188
)
 
476

 
2,002

Provision for loan losses
 
4,072

 
276

 
—

 
78

 
370

Ending balance
 
$
201,087

 
$
197,686

 
$
189,056

 
$
191,244

 
$
190,690

Accrual for off-balance sheet credit losses:
 
 
 
 
 
 
 
 
 
 

Beginning balance
 
$
954

 
$
1,230

 
$
1,230

 
$
1,308

 
$
1,678

Provision for off-balance sheet credit losses
 
(72
)
 
(276
)
 
—

 
(78
)
 
(370
)
Ending balance
 
$
882

 
$
954

 
$
1,230

 
$
1,230

 
$
1,308

Total combined provision for credit losses
 
$
4,000

 
$
—

 
$
—

 
$
—

 
$
—

Allowance for loan losses to loans outstanding at period-end
 
1.33
%
 
1.35
 %
 
1.33
%
 
1.40
 %
 
1.42
 %
Net charge-offs (annualized) to average loans
 
0.02
%
 
(0.23
)%
 
0.06
%
 
(0.01
)%
 
(0.06
)%
Total provision for credit losses (annualized) to average loans
 
0.11
%
 
—
 %
 
—
%
 
—
 %
 
—
 %
Recoveries to gross charge-offs
 
76.68
%
 
485.15
 %
 
69.71
%
 
118.04
 %
 
156.84
 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments
 
0.01
%
 
0.01
 %
 
0.01
%
 
0.02
 %
 
0.02
 %
Combined allowance for credit losses to loans outstanding at period-end
 
1.34
%
 
1.35
 %
 
1.34
%
 
1.41
 %
 
1.43
 %

- 28 -


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 June 30, 2015, impaired loans totaled $278 million, including $1.7 million with specific allowances of $465 thousand and $276 million with no specific allowances because the loan balances represent the amounts we expect to recover. At March 31, 2015, impaired loans totaled $278 million, including $1.3 million of impaired loans with specific allowances of $317 thousand and $276 million with no specific allowances.

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 $172 million at June 30, 2015, a $2.4 million increase over March 31, 2015. This increase was primarily due to an increase in potential problem loans and overall growth in the commercial loan portfolio.

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 $29 million at June 30, 2015, up from $28 million at March 31, 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. The potential problem loans totaled $181 million at June 30, 2015, primarily composed of $124 million of energy loans, $24 million of wholesale/retail sector loans and $11 million of manufacturing sector loans. Potential problem loans totaled $118 million at March 31, 2015. Our single-largest potential problem energy loan with $34 million outstanding was paid in full after June 30.

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 $40 per barrel for year one and escalating gradually to $60 per barrel in year five. Our natural gas stress test started at $2.50 in year one and gradually escalates to $3.50 in year five. The results of the updated stress test did not alter the general view that the loan portfolio is currently well positioned.
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.

- 29 -


BOK Financial had net loans charged off of $671 thousand in the second quarter of 2015, compared to net recoveries of $8.4 million in the first quarter of 2015 and net recoveries of $2.0 million in the second quarter of 2014. The ratio of net loans charged off (recovered) to average loans on an annualized basis was 0.02% for the second quarter of 2015, compared with (0.23)% for the first quarter of 2015 and (0.06)% for the second quarter of 2014. 

Net commercial loans charged off totaled $196 thousand in the second quarter of 2015 compared to net recoveries of $183 thousand in the first quarter of 2015. Net commercial real estate loan recoveries were $259 thousand in the second quarter, compared to net recoveries of $8.8 million in the first quarter. Residential mortgage net charge-offs were $233 thousand and consumer net charge-offs were $501 thousand for the second quarter. Consumer loan net charge-offs include deposit account overdraft losses. 


- 30 -


Nonperforming Assets

Table 19 -- Nonperforming Assets
(In thousands)
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Nonaccruing loans:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
24,233

 
$
13,880

 
$
13,527

 
$
16,404

 
$
17,103

Commercial real estate
 
20,139

 
19,902

 
18,557

 
30,660

 
34,472

Residential mortgage
 
45,969

 
46,487

 
48,121

 
48,907

 
44,340

Consumer
 
550

 
464

 
566

 
580

 
765

Total nonaccruing loans
 
90,891

 
80,733

 
80,771

 
96,551

 
96,680

Accruing renegotiated loans guaranteed by U.S. government agencies
 
82,368

 
80,287

 
73,985

 
70,459

 
57,818

Total nonperforming loans
 
173,259

 
161,020

 
154,756

 
167,010

 
154,498

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

 
—

 
49,898

 
46,809

 
49,720

Other
 
35,499

 
45,551

 
51,963

 
51,062

 
50,391

Real estate and other repossessed assets
 
35,499

 
45,551

 
101,861

 
97,871

 
100,111

Total nonperforming assets
 
$
208,758

 
$
206,571

 
$
256,617

 
$
264,881

 
$
254,609

Total nonperforming assets excluding those guaranteed by U.S. government agencies
 
$
122,673

 
$
123,028

 
$
129,022

 
$
143,778

 
$
145,124

 
 
 
 
 
 
 
 
 
 
 
Nonaccruing loans by loan portfolio segment and class:
 
 
 
 
 
 

 
 

Commercial:
 
 
 
 
 
 
 
 

 
 

Energy
 
$
6,841

 
$
1,875

 
$
1,416

 
$
1,508

 
$
1,619

Services
 
10,944

 
4,744

 
5,201

 
3,584

 
3,669

Wholesale / retail
 
4,166

 
4,401

 
4,149

 
5,502

 
5,885

Manufacturing
 
379

 
417

 
450

 
3,482

 
3,507

Healthcare
 
1,278

 
1,558

 
1,380

 
1,417

 
1,422

Other commercial and industrial
 
625

 
885

 
931

 
911

 
1,001

Total commercial
 
24,233

 
13,880

 
13,527

 
16,404

 
17,103

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 

 
 

Residential construction and land development
 
9,367

 
9,598

 
5,299

 
14,634

 
15,146

Retail
 
3,826

 
3,857

 
3,926

 
4,009

 
4,199

Office
 
2,360

 
2,410

 
3,420

 
3,499

 
3,591

Multifamily
 
195

 
—

 
—

 
—

 
—

Industrial
 
76

 
76

 
—

 
—

 
631

Other commercial real estate
 
4,315

 
3,961

 
5,912

 
8,518

 
10,905

Total commercial real estate
 
20,139

 
19,902

 
18,557

 
30,660

 
34,472

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 

 
 

Permanent mortgage
 
32,187

 
33,365

 
34,845

 
35,137

 
32,952

Permanent mortgage guaranteed by U.S. government agencies
 
3,717

 
3,256

 
3,712

 
3,835

 
1,947

Home equity
 
10,065

 
9,866

 
9,564

 
9,935

 
9,441

Total residential mortgage
 
45,969

 
46,487

 
48,121

 
48,907

 
44,340

Consumer
 
550

 
464

 
566

 
580

 
765

Total nonaccruing loans
 
$
90,891

 
$
80,733

 
$
80,771

 
$
96,551

 
$
96,680

 
 
 
 
 
 
 
 
 
 
 

- 31 -


 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Nonaccruing loans as % of outstanding balance for class:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
0.24
%
 
0.06
%
 
0.05
%
 
0.06
%
 
0.07
%
Services
 
0.39
%
 
0.17
%
 
0.21
%
 
0.14
%
 
0.15
%
Wholesale / retail
 
0.30
%
 
0.35
%
 
0.32
%
 
0.43
%
 
0.45
%
Manufacturing
 
0.07
%
 
0.07
%
 
0.08
%
 
0.73
%
 
0.77
%
Healthcare
 
0.08
%
 
0.10
%
 
0.09
%
 
0.10
%
 
0.10
%
Other commercial and industrial
 
0.14
%
 
0.21
%
 
0.22
%
 
0.23
%
 
0.25
%
Total commercial
 
0.25
%
 
0.15
%
 
0.15
%
 
0.19
%
 
0.20
%
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
6.30
%
 
6.90
%
 
3.69
%
 
8.35
%
 
8.20
%
Retail
 
0.56
%
 
0.59
%
 
0.59
%
 
0.66
%
 
0.65
%
Office
 
0.42
%
 
0.47
%
 
0.82
%
 
0.80
%
 
0.91
%
Multifamily
 
0.03
%
 
—
%
 
—
%
 
—
%
 
—
%
Industrial
 
0.02
%
 
0.02
%
 
—
%
 
—
%
 
0.18
%
Other commercial real estate
 
0.99
%
 
1.00
%
 
1.60
%
 
2.20
%
 
2.63
%
Total commercial real estate
 
0.66
%
 
0.68
%
 
0.68
%
 
1.13
%
 
1.30
%
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
3.40
%
 
3.46
%
 
3.59
%
 
3.55
%
 
3.23
%
Permanent mortgage guaranteed by U.S. government agencies
 
1.95
%
 
1.63
%
 
1.80
%
 
1.93
%
 
1.04
%
Home equity
 
1.35
%
 
1.29
%
 
1.24
%
 
1.26
%
 
1.18
%
Total residential mortgage
 
2.44
%
 
2.41
%
 
2.47
%
 
2.47
%
 
2.21
%
Consumer
 
0.13
%
 
0.11
%
 
0.13
%
 
0.14
%
 
0.19
%
Total nonaccruing loans
 
0.60
%
 
0.55
%
 
0.57
%
 
0.71
%
 
0.72
%
 
 
 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 

 
 

Allowance for loan losses to nonaccruing loans
 
221.24
%
 
244.86
%
 
234.06
%
 
198.08
%
 
197.24
%
Accruing loans 90 days or more past due2
 
$
99

 
$
523

 
$
125

 
$
25

 
$
67

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 $209 million or 1.38% of outstanding loans and repossessed assets at June 30, 2015. Nonaccruing loans totaled $91 million, accruing renegotiated residential mortgage loans totaled $82 million and real estate and other repossessed assets totaled $35 million. All accruing renegotiated residential mortgage loans and $3.7 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $355 thousand during the second quarter. The Company generally retains nonperforming assets to maximize potential recovery which may cause future nonperforming assets to decrease more slowly.


- 32 -


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 consumer loans to troubled borrowers. Consumer loans modified at the direction of bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.

At June 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 six months ended June 30, 2015 follows in Table 20.

Table 20 -- Rollforward of Nonperforming Assets
(In thousands)
 
 
Three Months Ended
 
 
June 30, 2015
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, Mar. 31, 2015
 
$
80,733

 
$
80,287

 
$
45,551

 
$
206,571

Additions
 
20,079

 
16,492

 
—

 
36,571

Transfers from premises and equipment
 
—

 
—

 
79

 
79

Payments
 
(4,994
)
 
(1,279
)
 
—

 
(6,273
)
Charge-offs
 
(2,877
)
 
—

 
—

 
(2,877
)
Net gains and write-downs
 
—

 
—

 
453

 
453

Foreclosure of nonperforming loans
 
(1,415
)
 
—

 
1,415

 
—

Foreclosure of loans guaranteed by U.S. government agencies1
 
(1,338
)
 
(1,242
)
 
—

 
(2,580
)
Proceeds from sales
 
—

 
(11,045
)
 
(11,827
)
 
(22,872
)
Transfer of foreclosed loans guaranteed by U.S. government agencies to Receivables1
 
—

 
—

 
—

 
—

Net transfers to nonaccruing loans
 
912

 
(912
)
 
—

 
—

Return to accrual status
 
(209
)
 
—

 
—

 
(209
)
Other, net
 
—

 
67

 
(172
)
 
(105
)
Balance, June 30, 2015
 
$
90,891

 
$
82,368

 
$
35,499

 
$
208,758



- 33 -


 
 
Six Months Ended
 
 
June 30, 2015
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, December 31, 2014
 
$
80,771

 
$
73,985

 
$
101,861

 
$
256,617

Additions
 
34,271

 
37,133

 
—

 
71,404

Transfers from premises and equipment
 
—

 
—

 
79

 
79

Payments
 
(12,808
)
 
(1,745
)
 
—

 
(14,553
)
Charge-offs
 
(5,046
)
 
—

 
—

 
(5,046
)
Net gains and write-downs
 
—

 
—

 
1,185

 
1,185

Foreclosure of nonperforming loans
 
(4,183
)
 
—

 
4,183

 
—

Foreclosure of loans guaranteed by U.S. government agencies1
 
(3,139
)
 
(3,378
)
 
—

 
(6,517
)
Proceeds from sales
 
—

 
(22,655
)
 
(21,715
)
 
(44,370
)
Transfer of foreclosed loans guaranteed by U.S. government agencies to Receivables1
 
—

 
—

 
(49,898
)
 
(49,898
)
Net transfers to nonaccruing loans
 
1,312

 
(1,312
)
 
—

 
—

Return to accrual status
 
(287
)
 
—

 
—

 
(287
)
Other, net
 
—

 
340

 
(196
)
 
144

Balance, June 30, 2015
 
$
90,891

 
$
82,368

 
$
35,499

 
$
208,758

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 $91 million or 0.60% of outstanding loans at June 30, 2015, compared to $81 million or 0.55% of outstanding loans at March 31, 2015. Newly identified nonaccruing loans totaled $20 million for the second quarter of 2015. These loans were offset by $5.0 million of payments, $2.9 million of charge-offs and $2.8 million of foreclosures.
Commercial

Nonaccruing commercial loans totaled $24 million or 0.25% of total commercial loans at June 30, 2015, compared to $14 million or 0.15% of commercial loans at March 31, 2015. There were $14 million in newly identified nonaccruing commercial loans during the quarter, offset by $2.4 million in payments and $881 thousand of charge-offs. There were no nonaccruing commercial loan foreclosures during the second quarter.

Nonaccruing commercial loans at June 30, 2015 were primarily composed of $10.9 million or 0.39% of total services sector loans, $6.8 million or 0.24% of total energy loans and $4.2 million or 0.30% of total wholesale/retail sector loans. Over half 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 $20 million or 0.66% of outstanding commercial real estate loans at June 30, 2015, compared to $20 million or 0.68% of outstanding commercial real estate loans at March 31, 2015. Newly identified nonaccruing commercial real estate loans of $1.6 million were offset by $1.3 million of cash payments received and $16 thousand of charge-offs. There were no foreclosures of commercial real estate loans in the second quarter.

Nonaccruing commercial real estate loans were primarily composed of $9.4 million or 6.30% of residential construction and land development loans, $4.3 million or 0.99% of other commercial real estate loans and $3.8 million or 0.56% of loans secured by retail facilities.

- 34 -


Residential Mortgage and Consumer

Nonaccruing residential mortgage loans totaled $46 million or 2.44% of outstanding residential mortgage loans at June 30, 2015, compared to $46 million or 2.41% of outstanding residential mortgage loans at March 31, 2015. Newly identified nonaccruing residential mortgage loans totaled $3.3 million, offset by $2.6 million of foreclosures, $1.2 million of payments and $714 thousand of loans charged off during the quarter. 

Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans which totaled $32 million or 3.40% of outstanding non-guaranteed permanent residential mortgage loans at June 30, 2015. Nonaccruing home equity loans totaled $10 million or 1.35% of total home equity loans.

Payments of accruing residential mortgage loans and consumer loans may be delinquent. The composition of residential mortgage loans and consumer 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 increased $1.7 million in the second quarter to $8.8 million at June 30, 2015. Consumer loans past due 30 to 89 days were largely unchanged compared to March 31, 2015.

Table 21 -- Residential Mortgage and Consumer Loans Past Due
(In thousands)
 
 
June 30, 2015
 
March 31, 2015
 
 
90 Days or More
 
30 to 89 Days
 
90 Days or More
 
30 to 89 Days
Residential mortgage:
 
 
 
 
 
 
 
 
   Permanent mortgage1
 
$
—

 
$
6,277

 
$
—

 
$
4,051

Home equity
 
99

 
2,564

 
—

 
3,072

Total residential mortgage
 
$
99

 
$
8,841

 
—

 
$
7,123

 
 
 

 
 

 
 

 
 

Consumer
 
$
—

 
$
426

 
$
—

 
$
428

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


- 35 -


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 $35 million at June 30, 2015, a decrease of $10 million compared to March 31, 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
 
$
5,277

 
$
2,413

 
$
—

 
$
1,121

 
$
2,888

 
$
3,745

 
$
831

 
$
103

 
$
16,378

Developed commercial real estate properties
 
1,336

 
988

 
3,420

 
796

 
450

 
881

 
—

 
1,950

 
9,821

Undeveloped land
 
328

 
1,609

 
2,021

 
—

 
—

 
963

 
1,211

 
—

 
6,132

Residential land development properties
 
267

 
—

 
835

 
—

 
—

 
1,736

 
3

 
—

 
2,841

Other
 
—

 
3

 
—

 
—

 
—

 
324

 
—

 
—

 
327

Total real estate and other repossessed assets
 
$
7,208

 
$
5,013

 
$
6,276

 
$
1,917

 
$
3,338

 
$
7,649

 
$
2,045

 
$
2,053

 
$
35,499


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

- 36 -


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 second quarter of 2015, approximately 69% of our funding was provided by deposit accounts, 16% 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
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Commercial Banking
$
8,930,168

 
$
8,996,972

 
$
8,882,937

 
$
8,924,040

 
$
8,998,408

Consumer Banking
6,724,188

 
6,621,377

 
6,584,240

 
6,543,492

 
6,512,764

Wealth Management
4,522,257

 
4,701,703

 
4,434,637

 
4,207,216

 
4,427,350

Subtotal
20,176,613

 
20,320,052

 
19,901,814

 
19,674,748

 
19,938,522

Funds Management and other
917,346

 
928,987

 
796,194

 
552,226

 
558,597

Total
$
21,093,959

 
$
21,249,039

 
$
20,698,008

 
$
20,226,974

 
$
20,497,119


Average deposits for the second quarter of 2015 totaled $21.1 billion and represented approximately 69% of total liabilities and capital, compared with $21.2 billion and 71% of total liabilities and capital for the first quarter of 2015. Average deposits decreased $155 million from the first quarter of 2015. Average interest-bearing transaction deposit accounts decreased $275 million and and average time deposits decreased $7.5 million. Average demand deposit balances increased $111 million over the first quarter.

Average Commercial Banking deposit balances were largely unchanged compared to the first quarter of 2015. Treasury services customer balances decreased $172 million and commercial real estate balances decreased $27 million. Balances related to commercial & industrial customers increased $109 million and balance related to energy customers increased $23 million. 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 increased $103 million. Demand deposit balances increased $97 million, interest-bearing transaction deposits grew by $28 million and savings account balances increased by $15 million. This growth was partially offset by a $37 million decrease in time deposits. Average Wealth Management deposits decreased $179 million compared to the first quarter of 2015 primarily due to a $292 million decrease in interest-bearing transaction deposit account balances, partially offset by a $59 million increase in time deposit balances and a $53 million increase in demand deposits.

Brokered deposits included in time deposits averaged $449 million for the second quarter of 2015, an increase of $37 million over the first quarter of 2015. Average interest-bearing transaction accounts for the second quarter included $581 million of brokered deposits, an increase of $10 million over the first quarter of 2015. Changes in average brokered deposits largely affect Funds Management and Other.


- 37 -


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)
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Demand
 
$
4,068,088

 
$
3,982,534

 
$
3,828,819

 
$
3,915,560

 
$
3,785,922

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
6,018,381

 
6,199,468

 
6,117,886

 
5,450,692

 
5,997,474

Savings
 
225,694

 
227,855

 
206,357

 
201,690

 
210,330

Time
 
1,380,566

 
1,372,250

 
1,301,194

 
1,292,738

 
1,195,586

Total interest-bearing
 
7,624,641

 
7,799,573

 
7,625,437

 
6,945,120

 
7,403,390

Total Bank of Oklahoma
 
11,692,729

 
11,782,107

 
11,454,256

 
10,860,680

 
11,189,312

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 
 
 
 
 
 
 
 
 
Demand
 
2,565,234

 
2,511,032

 
2,639,732

 
2,636,713

 
2,617,194

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
2,020,817

 
2,062,063

 
2,065,723

 
2,020,737

 
1,957,236

Savings
 
74,373

 
76,128

 
72,037

 
66,798

 
67,012

Time
 
536,844

 
547,371

 
547,316

 
569,929

 
606,248

Total interest-bearing
 
2,632,034

 
2,685,562

 
2,685,076

 
2,657,464

 
2,630,496

Total Bank of Texas
 
5,197,268

 
5,196,594

 
5,324,808

 
5,294,177

 
5,247,690

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 
 
 
 
 
 
 
 
 
Demand
 
508,224

 
537,466

 
487,819

 
480,023

 
515,554

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
537,156

 
535,791

 
519,544

 
502,787

 
489,378

Savings
 
41,802

 
42,088

 
37,471

 
36,127

 
36,442

Time
 
285,890

 
290,706

 
295,798

 
303,074

 
309,540

Total interest-bearing
 
864,848

 
868,585

 
852,813

 
841,988

 
835,360

Total Bank of Albuquerque
 
1,373,072

 
1,406,051

 
1,340,632

 
1,322,011

 
1,350,914

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 
 
 
 
 
 
 
 
 
Demand
 
19,731

 
31,002

 
35,996

 
35,075

 
44,471

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
284,349

 
253,691

 
158,115

 
234,063

 
205,216

Savings
 
1,712

 
1,677

 
1,936

 
2,222

 
2,287

Time
 
28,220

 
28,277

 
28,520

 
38,811

 
41,155

Total interest-bearing
 
314,281

 
283,645

 
188,571

 
275,096

 
248,658

Total Bank of Arkansas
 
334,012

 
314,647

 
224,567

 
310,171

 
293,129

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 
 
 
 
 
 
 
 
 
Demand
 
403,491

 
412,532

 
445,755

 
422,044

 
396,185

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
601,741

 
604,665

 
631,874

 
571,807

 
566,320

Savings
 
31,285

 
31,524

 
29,811

 
29,768

 
29,234

Time
 
322,432

 
340,006

 
353,998

 
372,401

 
385,252

Total interest-bearing
 
955,458

 
976,195

 
1,015,683

 
973,976

 
980,806

Total Colorado State Bank & Trust
 
1,358,949

 
1,388,727

 
1,461,438

 
1,396,020

 
1,376,991

 
 
 
 
 
 
 
 
 
 
 

- 38 -


 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Bank of Arizona:
 
 
 
 
 
 
 
 
 
 
Demand
 
352,024

 
271,091

 
369,115

 
279,811

 
293,836

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
298,073

 
295,480

 
347,214

 
336,584

 
379,170

Savings
 
2,726

 
2,900

 
2,545

 
3,718

 
2,813

Time
 
28,165

 
28,086

 
36,680

 
38,842

 
37,666

Total interest-bearing
 
328,964

 
326,466

 
386,439

 
379,144

 
419,649

Total Bank of Arizona
 
680,988

 
597,557

 
755,554

 
658,955

 
713,485

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 
 
 
 
 
 
 
 
 
Demand
 
239,609

 
263,920

 
259,121

 
268,903

 
254,843

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
139,260

 
157,044

 
273,999

 
128,039

 
103,610

Savings
 
1,580

 
1,618

 
1,274

 
1,315

 
1,511

Time
 
42,262

 
45,082

 
45,210

 
48,785

 
40,379

Total interest-bearing
 
183,102

 
203,744

 
320,483

 
178,139

 
145,500

Total Bank of Kansas City
 
422,711

 
467,664

 
579,604

 
447,042

 
400,343

Total BOK Financial deposits
 
$
21,059,729

 
$
21,153,347

 
$
21,140,859

 
$
20,289,056

 
$
20,571,864


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 June 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 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 $4.0 billion during the quarter, compared to $3.1 billion in the first quarter of 2015.

At June 30, 2015, the estimated unused credit available to the subsidiary bank from collateralized sources was approximately $5.6 billion.

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


- 39 -


Table 25 -- Borrowed Funds
(In thousands)
 
 
 
 
Three Months Ended
June 30, 2015
 
 
 
Three Months Ended
March 31, 2015
 
 
June 30, 2015
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
March 31, 2015
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
Funds purchased
 
$
64,677

 
$
63,312

 
0.08
%
 
$
65,029

 
$
66,320

 
$
69,730

 
0.09
%
 
$
72,389

Repurchase agreements
 
712,033

 
773,977

 
0.03
%
 
780,405

 
897,663

 
1,000,839

 
0.04
%
 
1,008,144

Other borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank advances
 
4,300,000

 
3,972,528

 
0.26
%
 
4,300,000

 
3,700,000

 
3,052,434

 
0.26
%
 
3,700,000

GNMA repurchase liability
 
13,411

 
11,242

 
5.06
%
 
13,411

 
11,011

 
15,674

 
5.07
%
 
16,561

Other
 
18,751

 
17,709

 
5.58
%
 
18,751

 
16,039

 
16,106

 
2.41
%
 
16,140

Total other borrowings
 
4,332,162

 
4,001,479

 
0.31
%
 


 
3,727,050

 
3,084,214

 
0.32
%
 


Subordinated debentures
 
226,278

 
307,903

 
2.21
%
 
348,076

 
348,030

 
348,007

 
2.52
%
 
348,030

Total Borrowed Funds
 
$
5,335,150

 
$
5,146,671

 
0.38
%
 
 
 
$
5,039,063

 
$
4,502,790

 
0.43
%
 
 
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 June 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 June 30, 2015, cash and interest-bearing cash and cash equivalents held by the Parent Company totaled $393 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 June 30, 2015, based upon the most restrictive limitations as well as management's internal capital policy, the subsidiary bank could declare up to $220 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 June 30, 2015 was $3.4 billion, an increase of $23 million over March 31, 2015. Net income less cash dividends paid increased equity $50 million during the second quarter of 2015. Accumulated other comprehensive income decreased $39 million primarily related to the change in unrealized gains on available for sale securities due to changes in interest rates. 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.


- 40 -


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 June 30, 2015, the Company has repurchased 741,652 shares for $42 million under this program. No shares were repurchased during the second quarter of 2015.

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
 
June 30,
2015
 
Mar. 31,
2015
Risk-based capital:
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1
 
4.50
%
 
2.50
%
 
7.00
%
 
13.01
%
 
13.07
%
Tier 1 capital
 
6.00
%
 
2.50
%
 
8.50
%
 
13.01
%
 
13.07
%
Total capital
 
8.00
%
 
2.50
%
 
10.50
%
 
14.11
%
 
14.39
%
Tier 1 Leverage
 
4.00
%
 
N/A

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

 
 
Calculated Under Then Current Capital Rules
 
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Risk-based capital:
 
 
 
 
 
 
Tier 1 capital
 
13.33
%
 
13.72
%
 
13.63
%
Total capital
 
14.66
%
 
15.11
%
 
15.38
%
Tier 1 Leverage
 
9.96
%
 
10.22
%
 
10.26
%
 
 
 
 
 
 
 
Average total equity to average assets
 
11.36
%
 
11.55
%
 
11.56
%
Tangible common equity ratio
 
10.08
%
 
9.86
%
 
10.20
%

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

- 41 -


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.

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.

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

Table 27 -- Non-GAAP Measure
(Dollars in thousands)
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
Tangible common equity ratio:
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
$
3,375,632

 
$
3,357,161

 
$
3,302,179

 
$
3,243,093

 
$
3,212,517

Less: Goodwill and intangible assets, net
 
431,515

 
411,066

 
412,156

 
413,256

 
414,356

Tangible common equity
 
2,944,117

 
2,946,095

 
2,890,023

 
2,829,837

 
2,798,161

Total assets
 
30,725,563

 
30,299,978

 
29,089,698

 
29,105,020

 
27,843,770

Less: Goodwill and intangible assets, net
 
431,515

 
411,066

 
412,156

 
413,256

 
414,356

Tangible assets
 
$
30,294,048

 
$
29,888,912

 
$
28,677,542

 
$
28,691,764

 
$
27,429,414

Tangible common equity ratio
 
9.72
%
 
9.86
%
 
10.08
%
 
9.86
%
 
10.20
%


Off-Balance Sheet Arrangements

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

- 42 -


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.
 
Table 28 -- Interest Rate Sensitivity
(Dollars in thousands)
 
 
200 bp Increase
 
50 bp Decrease
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Anticipated impact over the next twelve months on net interest revenue
 
$
(6,605
)
 
$
(8,161
)
 
$
(18,764
)
 
$
(15,479
)
 
 
(0.88
)%
 
(1.18
)%
 
(2.49
)%
 
(2.23
)%

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.

- 43 -



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 months ended June 30, 2015 and 2014. At June 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 ended June 30, 2015 and June 30, 2014 are as follows in Table 29.

Table 29 -- Value at Risk (VaR)
(In thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Average
$
1,623

 
$
2,099

 
$
1,551

 
$
1,817

High
2,629

 
3,433

 
2,629

 
3,731

Low
1,041

 
1,231

 
782

 
984

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.
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.

- 44 -


     
Consolidated Statements of Earnings (Unaudited)
 
 
 
 
 
 
 
 
(In thousands, except share and per share data)
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Interest revenue
 
2015
 
2014
 
2015
 
2014
Loans
 
$
133,197

 
$
125,493

 
$
259,893

 
$
247,964

Residential mortgage loans held for sale
 
3,892

 
2,523

 
6,841

 
4,113

Trading securities
 
442

 
408

 
949

 
819

Taxable securities
 
3,251

 
3,195

 
6,577

 
6,477

Tax-exempt securities
 
1,315

 
1,471

 
2,659

 
2,975

Total investment securities
 
4,566

 
4,666

 
9,236

 
9,452

Taxable securities
 
42,355

 
46,458

 
85,460

 
93,713

Tax-exempt securities
 
563

 
631

 
1,183

 
1,125

Total available for sale securities
 
42,918

 
47,089

 
86,643

 
94,838

Fair value option securities
 
2,320

 
794

 
4,323

 
1,645

Restricted equity securities
 
3,228

 
1,275

 
5,825

 
2,272

Interest-bearing cash and cash equivalents
 
1,250

 
383

 
2,672

 
648

Total interest revenue
 
191,813

 
182,631

 
376,382

 
361,751

Interest expense
 
 

 
 

 
 

 
 

Deposits
 
11,266

 
12,777

 
23,371

 
25,763

Borrowed funds
 
3,121

 
1,568

 
5,694

 
2,902

Subordinated debentures
 
1,695

 
2,189

 
3,860

 
4,347

Total interest expense
 
16,082

 
16,534

 
32,925

 
33,012

Net interest revenue
 
175,731

 
166,097

 
343,457

 
328,739

Provision for credit losses
 
4,000

 
—

 
4,000

 
—

Net interest revenue after provision for credit losses
 
171,731

 
166,097

 
339,457

 
328,739

Other operating revenue
 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
36,012

 
39,056

 
67,719

 
68,572

Transaction card revenue
 
32,778

 
31,510

 
63,788

 
60,644

Fiduciary and asset management revenue
 
32,712

 
29,543

 
64,181

 
55,265

Deposit service charges and fees
 
22,328

 
23,133

 
44,012

 
45,822

Mortgage banking revenue
 
36,846

 
29,330

 
76,166

 
52,174

Bank-owned life insurance
 
2,398

 
2,274

 
4,596

 
4,380

Other revenue
 
9,473

 
9,208

 
18,076

 
18,060

Total fees and commissions
 
172,547

 
164,054

 
338,538

 
304,917

Gain (loss) on other assets, net
 
1,457

 
3,521

 
2,212

 
1,193

Gain on derivatives, net
 
(1,032
)
 
831

 
(121
)
 
1,799

Gain on fair value option securities, net
 
(8,130
)
 
4,176

 
(5,483
)
 
6,836

Change in fair value of mortgage servicing rights
 
8,010

 
(6,444
)
 
(512
)
 
(10,905
)
Gain on available for sale securities, net
 
3,433

 
4

 
7,760

 
1,244

Total other-than-temporary impairment losses
 
—

 
—

 
(781
)
 
—

Portion of loss recognized in (reclassified from) other comprehensive income
 
—

 
—

 
689

 
—

Net impairment losses recognized in earnings
 
—

 
—

 
(92
)
 
—

Total other operating revenue
 
176,285

 
166,142

 
342,302

 
305,084

Other operating expense
 
 

 
 

 
 

 
 

Personnel
 
132,695

 
123,714

 
261,243

 
228,147

Business promotion
 
7,765

 
7,150

 
13,513

 
12,991

Charitable contributions to BOKF Foundation
 
—

 
—

 
—

 
2,420

Professional fees and services
 
9,560

 
11,054

 
19,619

 
18,619

Net occupancy and equipment
 
18,927

 
18,789

 
37,971

 
35,685

Insurance
 
5,116

 
4,467

 
10,096

 
9,008

Data processing and communications
 
31,463

 
29,071

 
62,083

 
56,206

Printing, postage and supplies
 
3,553

 
3,429

 
7,014

 
6,970

Net losses and operating expenses of repossessed assets
 
223

 
1,118

 
836

 
2,550

Amortization of intangible assets
 
1,090

 
949

 
2,180

 
1,765

Mortgage banking costs
 
7,419

 
7,960

 
16,738

 
11,594

Other expense
 
9,302

 
7,006

 
16,085

 
13,856

Total other operating expense
 
227,113

 
214,707

 
447,378

 
399,811

Net income before taxes
 
120,903

 
117,532

 
234,381

 
234,012

Federal and state income taxes
 
40,630

 
40,803

 
79,014

 
80,240

Net income
 
80,273

 
76,729

 
155,367

 
153,772

Net income attributable to non-controlling interests
 
1,043

 
834

 
1,294

 
1,287

Net income attributable to BOK Financial Corporation shareholders
 
$
79,230

 
$
75,895

 
$
154,073

 
$
152,485

Earnings per share:
 
 

 
 

 
 

 
 

Basic
 
$
1.15

 
$
1.10

 
$
2.23

 
$
2.21

Diluted
 
$
1.15

 
$
1.10

 
$
2.23

 
$
2.20

Average shares used in computation:
 
 
 
 
 
 
 
 
Basic
 
68,096,341

 
68,359,945

 
68,175,327

 
68,318,689

Diluted
 
68,210,353

 
68,511,378

 
68,277,386

 
68,475,802

Dividends declared per share
 
$
0.42

 
$
0.40

 
$
0.84

 
$
0.80

See accompanying notes to consolidated financial statements.

- 45 -


Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
 
(In thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
80,273

 
$
76,729

 
$
155,367

 
$
153,772

Other comprehensive income (loss) before income taxes:
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
(59,516
)
 
70,038

 
(129
)
 
124,651

Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
Interest revenue, Investments securities, Taxable securities
 
(134
)
 
(333
)
 
(313
)
 
(736
)
Interest expense, Subordinated debentures
 
56

 
71

 
121

 
154

Net impairment losses recognized in earnings
 
—

 
—

 
92

 
—

Gain on available for sale securities, net
 
(3,433
)
 
(4
)
 
(7,760
)
 
(1,244
)
Other comprehensive income (loss) before income taxes
 
(63,027
)
 
69,772

 
(7,989
)
 
122,825

Federal and state income taxes
 
(24,516
)
 
27,151

 
(3,108
)
 
47,786

Other comprehensive income (loss), net of income taxes
 
(38,511
)

42,621


(4,881
)

75,039

Comprehensive income
 
41,762

 
119,350

 
150,486

 
228,811

Comprehensive income attributable to non-controlling interests
 
1,043

 
834

 
1,294

 
1,287

Comprehensive income attributable to BOK Financial Corp. shareholders
 
$
40,719

 
$
118,516

 
$
149,192

 
$
227,524


See accompanying notes to consolidated financial statements.

- 46 -


Consolidated Balance Sheets
(In thousands, except share data)
 
 
June 30,
2015
 
Dec 31,
2014
 
June 30,
2014
 
 
(Unaudited)
 
(Footnote 1)
 
(Unaudited)
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
443,577

 
$
550,576

 
$
615,479

Interest-bearing cash and cash equivalents
 
2,119,072

 
1,925,266

 
732,395

Trading securities
 
158,209

 
188,700

 
101,097

Investment securities (fair value:  June 30, 2015 – $642,042; December 31, 2014 – $673,626 ; June 30, 2014 – $670,811)
 
625,664

 
652,360

 
649,937

Available for sale securities
 
9,000,117

 
8,978,945

 
9,699,146

Fair value option securities
 
436,324

 
311,597

 
185,674

Restricted equity securities
 
231,520

 
141,494

 
91,213

Residential mortgage loans held for sale
 
502,571

 
304,182

 
325,875

Loans
 
15,124,136

 
14,208,037

 
13,426,858

Allowance for loan losses
 
(201,087
)
 
(189,056
)
 
(190,690
)
Loans, net of allowance
 
14,923,049

 
14,018,981

 
13,236,168

Premises and equipment, net
 
284,238

 
273,833

 
280,286

Receivables
 
149,629

 
132,408

 
115,991

Goodwill
 
385,454

 
377,780

 
377,780

Intangible assets, net
 
46,061

 
34,376

 
36,576

Mortgage servicing rights
 
198,694

 
171,976

 
155,740

Real estate and other repossessed assets, net of allowance (June 30, 2015 – $17,296; December 31, 2014 – $22,937; June 30, 2014 – $22,530)
 
35,499

 
101,861

 
100,111

Derivative contracts, net
 
630,435

 
361,874

 
357,680

Cash surrender value of bank-owned life insurance
 
298,606

 
293,978

 
289,231

Receivable on unsettled securities sales
 
8,693

 
74,259

 
14,025

Other assets
 
248,151

 
195,252

 
479,366

Total assets
 
$
30,725,563

 
$
29,089,698

 
$
27,843,770

 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
8,156,401

 
$
8,066,357

 
$
7,908,005

Interest-bearing deposits:
 
 

 
 

 
 

Transaction
 
9,899,777

 
10,114,355

 
9,698,404

Savings
 
379,172

 
351,431

 
349,629

Time
 
2,624,379

 
2,608,716

 
2,615,826

Total deposits
 
21,059,729

 
21,140,859

 
20,571,864

Funds purchased
 
64,677

 
57,031

 
705,573

Repurchase agreements
 
712,033

 
1,187,489

 
1,072,375

Other borrowings
 
4,332,162

 
2,133,774

 
1,231,662

Subordinated debentures
 
226,278

 
347,983

 
347,890

Accrued interest, taxes and expense
 
124,568

 
120,211

 
100,227

Derivative contracts, net
 
620,277

 
354,554

 
297,851

Due on unsettled securities purchases
 
37,571

 
290,540

 
124,537

Other liabilities
 
135,435

 
121,051

 
144,145

Total liabilities
 
27,312,730

 
25,753,492

 
24,596,124

Shareholders' equity:
 
 

 
 

 
 

Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: June 30, 2015 – 74,428,730; December 31, 2014 – 74,003,754; June 30, 2014 – 73,896,899)
 
4

 
4

 
4

Capital surplus
 
970,054

 
954,644

 
938,665

Retained earnings
 
2,627,250

 
2,530,837

 
2,447,118

Treasury stock (shares at cost:  June 30, 2015 – 5,483,591; December 31, 2014 – 4,890,018;  June 30, 2014 – 4,610,898)
 
(273,468
)
 
(239,979
)
 
(222,686
)
Accumulated other comprehensive income
 
51,792

 
56,673

 
49,416

Total shareholders’ equity
 
3,375,632

 
3,302,179

 
3,212,517

Non-controlling interests
 
37,201

 
34,027

 
35,129

Total equity
 
3,412,833

 
3,336,206

 
3,247,646

Total liabilities and equity
 
$
30,725,563

 
$
29,089,698

 
$
27,843,770


See accompanying notes to consolidated financial statements.

- 47 -


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, December 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
 
—

 
—

 
—

 
152,485

 
—

 
—

 
—

 
152,485

 
1,287

 
153,772

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
75,039

 
75,039

 
—

 
75,039

Repurchase of common stock
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Issuance of shares for equity compensation
 
403

 
—

 
10,964

 
—

 
104

 
(7,204
)
 
—

 
3,760

 
—

 
3,760

Tax effect from equity compensation, net
 
—

 
—

 
7,333

 
—

 
—

 
—

 
—

 
7,333

 
—

 
7,333

Share-based compensation
 
—

 
—

 
6,710

 
—

 
—

 
—

 
—

 
6,710

 
—

 
6,710

Issuance of shares in settlement of deferred compensation, net
 
331

 
—

 
15,072

 
—

 
202

 
(13,136
)
 
—

 
1,936

 
—

 
1,936

Cash dividends on common stock
 
—

 
—

 
—

 
(54,795
)
 
—

 
—

 
—

 
(54,795
)
 
—

 
(54,795
)
Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,082
)
 
(1,082
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2014
 
73,897

 
$
4

 
$
938,665

 
$
2,447,118

 
4,611

 
$
(222,686
)
 
$
49,416

 
$
3,212,517

 
$
35,129

 
$
3,247,646

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
—

 
—

 
—

 
154,073

 
—

 
—

 
—

 
154,073

 
1,294

 
155,367

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
—

 
(4,881
)
 
(4,881
)
 
—

 
(4,881
)
Repurchase of common stock
 
—

 
—

 
—

 
—

 
502

 
(29,484
)
 
—

 
(29,484
)
 
—

 
(29,484
)
Issuance of shares for equity compensation
 
425

 
—

 
9,744

 
—

 
91

 
(4,005
)
 
—

 
5,739

 
—

 
5,739

Tax effect from equity compensation, net
 
—

 
—

 
744

 
—

 
—

 
—

 
—

 
744

 
—

 
744

Share-based compensation
 
—

 
—

 
4,922

 
—

 
—

 
—

 
—

 
4,922

 
—

 
4,922

Cash dividends on common stock
 
—

 
—

 
—

 
(57,660
)
 
—

 
—

 
—

 
(57,660
)
 
—

 
(57,660
)
Acquisition of non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5,500

 
5,500

Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,620
)
 
(3,620
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2015
 
74,429

 
$
4

 
$
970,054

 
$
2,627,250

 
5,483

 
$
(273,468
)
 
$
51,792

 
$
3,375,632

 
$
37,201

 
$
3,412,833


See accompanying notes to consolidated financial statements.

- 48 -


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

 
Six Months Ended
 
 
June 30,
 
 
2015
 
2014
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
155,367

 
$
153,772

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

 
 

Provision for credit losses
 
4,000

 
—

Change in fair value of mortgage servicing rights
 
512

 
10,905

Unrealized losses (gains) from derivative contracts
 
(982
)
 
(1,371
)
Tax effect from equity compensation, net
 
(744
)
 
(7,333
)
Change in bank-owned life insurance
 
(4,596
)
 
(4,380
)
Share-based compensation
 
4,922

 
6,710

Depreciation and amortization
 
33,753

 
26,090

Net amortization of securities discounts and premiums
 
29,341

 
28,279

Net realized gains on financial instruments and other assets
 
(12,483
)
 
(2,021
)
Net gain on mortgage loans held for sale
 
(39,192
)
 
(29,733
)
Mortgage loans originated for sale
 
(3,393,246
)
 
(1,818,145
)
Proceeds from sale of mortgage loans held for sale
 
3,244,010

 
1,721,995

Capitalized mortgage servicing rights
 
(42,382
)
 
(21,816
)
Change in trading and fair value option securities
 
(95,757
)
 
(28,867
)
Change in receivables
 
11,610

 
4,608

Change in other assets
 
(7,749
)
 
45,929

Change in accrued interest, taxes and expense
 
2,644

 
(124,579
)
Change in other liabilities
 
21,943

 
23,629

Net cash used in operating activities
 
(89,029
)
 
(16,328
)
Cash Flows From Investing Activities:
 
 

 
 

Proceeds from maturities or redemptions of investment securities
 
32,786

 
34,074

Proceeds from maturities or redemptions of available for sale securities
 
954,893

 
805,216

Purchases of investment securities
 
(9,584
)
 
(9,593
)
Purchases of available for sale securities
 
(1,711,619
)
 
(1,597,081
)
Proceeds from sales of available for sale securities
 
713,660

 
1,340,190

Change in amount receivable on unsettled securities transactions
 
65,566

 
3,149

Loans originated, net of principal collected
 
(890,180
)
 
(604,979
)
Net payments on derivative asset contracts
 
(174,475
)
 
(117,280
)
Acquisitions, net of cash acquired
 
(18,064
)
 
(21,898
)
Proceeds from disposition of assets
 
102,736

 
52,871

Purchases of assets
 
(144,454
)
 
(56,778
)
Net cash used in investing activities
 
(1,078,735
)
 
(172,109
)
Cash Flows From Financing Activities:
 
 

 
 

Net change in demand deposits, transaction deposits and savings accounts
 
(96,793
)
 
382,704

Net change in time deposits
 
15,663

 
(80,167
)
Net change in other borrowed funds
 
1,675,859

 
223,824

Repayment of subordinated debentures
 
(121,810
)
 
—

Net proceeds on derivative liability contracts
 
157,498

 
119,269

Net change in derivative margin accounts
 
(47,716
)
 
(218,491
)
Change in amount due on unsettled security transactions
 
(252,969
)
 
78,797

Issuance of common and treasury stock, net
 
5,739

 
(9,376
)
Tax effect from equity compensation, net
 
744

 
7,333

Sale of non-controlling interests
 
5,500

 
—

Repurchase of common stock
 
(29,484
)
 
—

Dividends paid
 
(57,660
)
 
(54,795
)
Net cash provided by financing activities
 
1,254,571

 
449,098

Net increase in cash and cash equivalents
 
86,807

 
260,661

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

 
1,087,213

Cash and cash equivalents at end of period
 
$
2,562,649

 
$
1,347,874


- 49 -


Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
 
 
 
Supplemental Cash Flow Information:
 
 
 
 
Cash paid for interest
 
$
34,116

 
$
32,535

Cash paid for taxes
 
$
51,699

 
$
50,187

Net loans and bank premises transferred to repossessed real estate and other assets
 
$
4,262

 
$
38,797

Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period
 
$
52,569

 
$
63,898

Conveyance of other real estate owned guaranteed by U.S. government agencies
 
$
80,048

 
$
18,312

Issuance of shares in settlement of accrued executive compensation
 
$
—

 
$
15,072

See accompanying notes to consolidated financial statements.

- 50 -


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 six-month period ended June 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.


- 51 -


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.


- 52 -


(2) Securities
Trading Securities
 
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
 
 
 
June 30, 2015
 
December 31, 2014
 
June 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
 
$
40,212

 
$
(28
)
 
$
85,092

 
$
(62
)
 
$
19,027

 
$
6

U.S. agency residential mortgage-backed securities
 
23,090

 
181

 
31,199

 
269

 
13,540

 
3

Municipal and other tax-exempt securities
 
62,801

 
(41
)
 
38,951

 
18

 
32,950

 
28

Other trading securities
 
32,106

 
47

 
33,458

 
(38
)
 
35,580

 
20

Total
 
$
158,209

 
$
159

 
$
188,700

 
$
187

 
$
101,097

 
$
57

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

 
 
June 30, 2015
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
389,824

 
$
389,824

 
$
392,367

 
$
3,158

 
$
(615
)
U.S. agency residential mortgage-backed securities – Other
 
30,565

 
30,867

 
32,133

 
1,276

 
(10
)
Other debt securities
 
204,973

 
204,973

 
217,542

 
14,017

 
(1,448
)
Total
 
$
625,362

 
$
625,664

 
$
642,042

 
$
18,451

 
$
(2,073
)
1 
Carrying value includes $302 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
 
$
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.

- 53 -


 
 
June 30, 2014
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
425,221

 
$
425,221

 
$
429,051

 
$
4,442

 
$
(612
)
U.S. agency residential mortgage-backed securities – Other
 
40,879

 
41,973

 
44,176

 
2,203

 
—

Other debt securities
 
182,743

 
182,743

 
197,584

 
14,914

 
(73
)
Total
 
$
648,843

 
$
649,937

 
$
670,811

 
$
21,559

 
$
(685
)
1 
Carrying value includes $1.1 million 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 June 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
 
$
52,415

 
$
276,523

 
$
26,724

 
$
34,162

 
$
389,824

 
3.54

Fair value
 
52,522

 
277,243

 
26,825

 
35,777

 
392,367

 
 
Nominal yield¹
 
1.51
%
 
1.79
%
 
3.34
%
 
5.76
%
 
2.20
%
 
 
Other debt securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
14,295

 
39,284

 
85,781

 
65,613

 
204,973

 
9.07

Fair value
 
14,330

 
39,972

 
91,009

 
72,231

 
217,542

 
 
Nominal yield
 
3.37
%
 
4.92
%
 
5.68
%
 
5.93
%
 
5.45
%
 
 
Total fixed maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
$
66,710

 
$
315,807

 
$
112,505

 
$
99,775

 
$
594,797

 
5.44

Fair value
 
66,852

 
317,215

 
117,834

 
108,008

 
609,909

 
 

Nominal yield
 
1.91
%
 
2.18
%
 
5.12
%
 
5.87
%
 
3.32
%
 
 

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
30,867

 
³

Fair value
 
 

 
 

 
 

 
 

 
32,133

 
 

Nominal yield4
 
 

 
 

 
 

 
 

 
2.75
%
 
 

Total investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
625,664

 
 

Fair value
 
 

 
 

 
 

 
 

 
642,042

 
 

Nominal yield
 
 

 
 

 
 

 
 

 
3.30
%
 
 

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 4.1 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.


- 54 -


Available for Sale Securities 

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

 
$
1,000

 
$
—

 
$
—

 
$
—

Municipal and other tax-exempt
 
61,341

 
61,624

 
1,028

 
(745
)
 
—

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
3,558,224

 
3,609,273

 
57,269

 
(6,220
)
 
—

FHLMC
 
1,929,685

 
1,954,917

 
27,594

 
(2,362
)
 
—

GNMA
 
768,342

 
770,739

 
4,928

 
(2,531
)
 
—

Other
 
4,224

 
4,520

 
296

 
—

 
—

Total U.S. government agencies
 
6,260,475

 
6,339,449

 
90,087

 
(11,113
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
61,486

 
67,711

 
6,692

 
—

 
(467
)
Jumbo-A loans
 
80,968

 
86,439

 
5,843

 
—

 
(372
)
Total private issue
 
142,454

 
154,150

 
12,535

 
—

 
(839
)
Total residential mortgage-backed securities
 
6,402,929

 
6,493,599

 
102,622

 
(11,113
)
 
(839
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,405,480

 
2,401,364

 
7,988

 
(12,104
)
 
—

Other debt securities
 
4,400

 
4,150

 
—

 
(250
)
 
—

Perpetual preferred stock
 
17,171

 
19,648

 
2,477

 
—

 
—

Equity securities and mutual funds
 
18,638

 
18,732

 
840

 
(746
)
 
—

Total
 
$
8,910,959

 
$
9,000,117

 
$
114,955

 
$
(24,958
)
 
$
(839
)
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.

- 55 -


 
 
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
 
$
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.

 
 
June 30, 2014
 
 
Amortized
 
Fair
 
Gross Unrealized1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,023

 
$
1,024

 
$
1

 
$
—

 
$
—

Municipal and other tax-exempt
 
63,931

 
64,970

 
1,624

 
(585
)
 
—

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

 
 

 
 

 
 

 
 

FNMA
 
4,297,579

 
4,364,168

 
82,436

 
(15,847
)
 
—

FHLMC
 
2,055,924

 
2,068,940

 
27,019

 
(14,003
)
 
—

GNMA
 
815,201

 
820,454

 
8,850

 
(3,597
)
 
—

Other
 
5,489

 
5,942

 
453

 
—

 
—

Total U.S. government agencies
 
7,174,193

 
7,259,504

 
118,758

 
(33,447
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
70,880

 
75,700

 
4,820

 
—

 
—

Jumbo-A loans
 
97,939

 
103,342

 
5,889

 
—

 
(486
)
Total private issue
 
168,819

 
179,042

 
10,709

 
—

 
(486
)
Total residential mortgage-backed securities
 
7,343,012

 
7,438,546

 
129,467

 
(33,447
)
 
(486
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,129,521

 
2,115,295

 
5,539

 
(19,765
)
 
—

Other debt securities
 
34,501

 
34,528

 
195

 
(168
)
 
—

Perpetual preferred stock
 
22,171

 
24,730

 
2,559

 
—

 
—

Equity securities and mutual funds
 
19,507

 
20,053

 
780

 
(234
)
 
—

Total
 
$
9,613,666

 
$
9,699,146

 
$
140,165

 
$
(54,199
)
 
$
(486
)
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.

- 56 -



The amortized cost and fair values of available for sale securities at June 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

 
2.55

Fair value
—

 
1,000

 
—

 
—

 
1,000

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

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
10,426

 
$
25,771

 
$
2,105

 
$
23,039

 
$
61,341

 
7.90

Fair value
10,485

 
26,427

 
2,285

 
22,427

 
61,624

 
 
Nominal yield¹
3.50
%
 
4.22
%
 
6.35
%
 
1.93
%
6 
3.31
%
 
 
Commercial mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$
—

 
$
920,573

 
$
1,197,185

 
$
287,722

 
$
2,405,480

 
7.79

Fair value
—

 
919,567

 
1,195,700

 
286,097

 
2,401,364

 
 
Nominal yield
—
%
 
1.44
%
 
1.90
%
 
1.45
%
 
1.67
%
 
 
Other debt securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
—

 
$
—

 
$
—

 
$
4,400

 
$
4,400

 
32.16

Fair value
—

 
—

 
—

 
4,150

 
4,150

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

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
10,426

 
$
947,344

 
$
1,199,290

 
$
315,161

 
$
2,472,221

 
7.83

Fair value
10,485

 
946,994

 
1,197,985

 
312,674

 
2,468,138

 
 
Nominal yield
3.50
%
 
1.52
%
 
1.91
%
 
1.49
%
 
1.71
%
 
 
Residential mortgage-backed securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
 

 
 

 
 

 
 

 
$
6,402,929

 
2 

Fair value
 

 
 

 
 

 
 

 
6,493,599

 
 
Nominal yield4
 

 
 

 
 

 
 

 
1.92
%
 
 
Equity securities and mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Amortized cost
 

 
 

 
 

 
 

 
$
35,809

 
³

Fair value
 

 
 

 
 

 
 

 
38,380

 
 

Nominal yield
 

 
 

 
 

 
 

 
—
%
 
 

Total available-for-sale securities:
 

 
 

 
 

 
 

 
 
 
 

Amortized cost
 

 
 

 
 

 
 

 
$
8,910,959

 
 

Fair value
 

 
 

 
 

 
 

 
9,000,117

 
 

Nominal yield
 

 
 

 
 

 
 

 
1.86
%
 
 

1 
Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 
The average expected lives of mortgage-backed securities were 3.5 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.


- 57 -


Sales of available for sale securities resulted in gains and losses as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Proceeds
$
378,835

 
$
800,405

 
$
713,660

 
$
1,331,190

Gross realized gains
4,840

 
9,894

 
9,740

 
16,327

Gross realized losses
(1,407
)
 
(9,890
)
 
(1,980
)
 
(15,083
)
Related federal and state income tax expense
1,335

 
2

 
3,018

 
484


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):
 
June 30,
2015
 
Dec. 31,
2014
 
June 30,
2014
Investment:
 
 
 
 
 
Carrying value
$
58,875

 
$
63,495

 
$
77,835

Fair value
60,645

 
65,855

 
81,248

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
Amortized cost
6,035,423

 
5,855,220

 
5,556,130

Fair value
6,089,438

 
5,893,972

 
5,583,008


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


- 58 -


Impaired Securities as of June 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
 
79

 
$
102,223

 
$
351

 
$
50,991

 
$
264

 
$
153,214

 
$
615

U.S. Agency residential mortgage-backed securities – Other
 
1

 
6,491

 
10

 
—

 
—

 
6,491

 
10

Other debt securities
 
110

 
31,875

 
1,407

 
2,458

 
41

 
34,333

 
1,448

Total investment
 
190

 
$
140,589

 
$
1,768

 
$
53,449

 
$
305

 
$
194,038

 
$
2,073


 
 
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
 
20

 
$
9,855

 
$
41

 
$
11,688

 
$
704

 
$
21,543

 
$
745

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

 


 


U. S. agencies:
 
 
 
 

 
 

 
 

 
 

 


 


FNMA
 
29

 
601,863

 
4,327

 
118,269

 
1,893

 
720,132

 
6,220

FHLMC
 
13

 
121,217

 
795

 
117,408

 
1,567

 
238,625

 
2,362

GNMA
 
6

 
66,131

 
50

 
115,103

 
2,481

 
181,234

 
2,531

Total U.S. agencies
 
48

 
789,211

 
5,172

 
350,780

 
5,941

 
1,139,991

 
11,113

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
4

 
10,244

 
467

 
—

 
—

 
10,244

 
467

Jumbo-A loans
 
11

 
7,542

 
18

 
9,310

 
354

 
16,852

 
372

Total private issue
 
15

 
17,786

 
485

 
9,310

 
354

 
27,096

 
839

Total residential mortgage-backed securities
 
63

 
806,997

 
5,657

 
360,090

 
6,295

 
1,167,087

 
11,952

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
128

 
712,973

 
3,848

 
791,108

 
8,256

 
1,504,081

 
12,104

Other debt securities
 
2

 
—

 
—

 
4,149

 
250

 
4,149

 
250

Perpetual preferred stocks
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity securities and mutual funds
 
51

 
4,706

 
714

 
994

 
32

 
5,700

 
746

Total available for sale
 
264

 
$
1,534,531


$
10,260


$
1,168,029


$
15,537


$
2,702,560


$
25,797

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


- 59 -


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
 
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. 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. 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
 
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.



- 60 -


Impaired Securities as of June 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
 
42

 
$
—

 
$
—

 
$
104,959

 
$
612

 
$
104,959

 
$
612

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

 
—

 
—

 
—

 
—

 
—

 
—

Other debt securities
 
30

 
3,593

 
40

 
808

 
33

 
4,401

 
73

Total investment
 
72

 
$
3,593

 
$
40

 
$
105,767

 
$
645

 
$
109,360

 
$
685


 
 
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
 
23

 
$
571

 
$
—

 
$
22,270

 
$
585

 
$
22,841

 
$
585

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
33

 
—

 
—

 
890,711

 
15,847

 
890,711

 
15,847

FHLMC
 
37

 
255,401

 
951

 
712,951

 
13,052

 
968,352

 
14,003

GNMA
 
7

 
77,869

 
6

 
153,596

 
3,591

 
231,465

 
3,597

Total U.S. agencies
 
77

 
333,270

 
957

 
1,757,258

 
32,490

 
2,090,528

 
33,447

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Jumbo-A loans
 
11

 
19,976

 
486

 
—

 
—

 
19,976

 
486

Total private issue
 
11

 
19,976

 
486

 
—

 
—

 
19,976

 
486

Total residential mortgage-backed securities
 
88

 
353,246

 
1,443

 
1,757,258

 
32,490

 
2,110,504

 
33,933

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
96

 
114,048

 
488

 
1,242,462

 
19,277

 
1,356,510

 
19,765

Other debt securities
 
2

 
—

 
—

 
4,231

 
168

 
4,231

 
168

Perpetual preferred stocks
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity securities and mutual funds
 
80

 
5,298

 
195

 
1,306

 
39

 
6,604

 
234

Total available for sale
 
289

 
$
473,163

 
$
2,126

 
$
3,027,527

 
$
52,559

 
$
3,500,690

 
$
54,685

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 June 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.


- 61 -


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 June 30, 2015.

- 62 -


At June 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
 
$
—

 
$
—

 
$
255,239

 
$
255,647

 
$
13,075

 
$
13,178

 
$
—

 
$
—

 
$
121,510

 
$
123,542

 
$
389,824

 
$
392,367

Mortgage-backed securities -- other
 
30,867

 
32,133

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
30,867

 
32,133

Other debt securities
 
—

 
—

 
151,442

 
165,142

 
—

 
—

 
—

 
—

 
53,531

 
52,400

 
204,973

 
217,542

Total investment securities
 
$
30,867

 
$
32,133

 
$
406,681

 
$
420,789

 
$
13,075

 
$
13,178

 
$
—

 
$
—

 
$
175,041

 
$
175,942

 
$
625,664

 
$
642,042

 
 
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

 
$
1,000

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,000

 
$
1,000

Municipal and other tax-exempt
 
—

 
—

 
37,795

 
38,622

 
10,578

 
10,040

 
—

 
—

 
12,968

 
12,962

 
61,341

 
61,624

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
3,558,224

 
3,609,273

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,558,224

 
3,609,273

FHLMC
 
1,929,685

 
1,954,917

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,929,685

 
1,954,917

GNMA
 
768,342

 
770,739

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
768,342

 
770,739

Other
 
4,224

 
4,520

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4,224

 
4,520

Total U.S. government agencies
 
6,260,475

 
6,339,449

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6,260,475

 
6,339,449

Private issue:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
61,486

 
67,711

 
—

 
—

 
61,486

 
67,711

Jumbo-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
80,968

 
86,439

 
—

 
—

 
80,968

 
86,439

Total private issue
 
—

 
—

 
—

 
—

 
—

 
—

 
142,454

 
154,150

 
—

 
—

 
142,454

 
154,150

Total residential mortgage-backed securities
 
6,260,475

 
6,339,449

 
—

 
—

 
—

 
—

 
142,454

 
154,150

 
—

 
—

 
6,402,929

 
6,493,599

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,405,480

 
2,401,364

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,405,480

 
2,401,364

Other debt securities
 
—

 
—

 
4,400

 
4,150

 
—

 
—

 
—

 
—

 
—

 
—

 
4,400

 
4,150

Perpetual preferred stock
 
—

 
—

 
—

 
—

 
6,406

 
7,464

 
10,765

 
12,184

 
—

 
—

 
17,171

 
19,648

Equity securities and mutual funds
 
—

 
—

 
4

 
534

 
—

 
—

 
—

 
—

 
18,634

 
18,198

 
18,638

 
18,732

Total available for sale securities
 
$
8,666,955

 
$
8,741,813

 
$
42,199

 
$
43,306

 
$
16,984

 
$
17,504

 
$
153,219

 
$
166,334

 
$
31,602

 
$
31,160

 
$
8,910,959

 
$
9,000,117

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.

- 63 -


At June 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 $839 thousand. 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:

 
June 30,
2015
 
Dec. 31,
2014
 
June 30,
2014
 
 
 
 
 
 
Unemployment rate
Held constant at 5.6% over the next 12 months and remain at 5.6% thereafter.
 
Held constant at 5.6% over the next 12 months and remain at 5.6% thereafter.
 
Held constant at 6.7% over the next 12 months and remains at 6.7% 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 June 30, 2015.


- 64 -


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
 
 
 
 
 
 
 
 
 
 
June 30, 2015
 
Life-to-date
 
 
Number of Securities
 
Amortized Cost
 
Fair Value
 
Number of
Securities
 
Amount
 
Number of Securities
 
Amount
Alt-A
 
14

 
$
61,486

 
$
67,711

 
—

 
$
—

 
14

 
$
36,219

Jumbo-A
 
30

 
80,968

 
86,439

 
—

 
—

 
29

 
18,220

Total
 
44

 
$
142,454

 
$
154,150

 
—

 
$
—

 
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 June 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
 
Six Months Ended
 
 
June 30,
 
June 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.

- 65 -


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. In addition, certain corporate debt securities are economically hedged by derivative contracts to manage interest rate risk. Derivative contracts that have not been designated as hedging instruments effectively modify these fixed rate securities into variable rate securities.

The fair value and net unrealized gain (loss) included in fair value option securities is as follows (in thousands):
 
 
June 30, 2015
 
December 31, 2014
 
June 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
 
$
436,324

 
$
(3,859
)
 
$
311,597

 
$
1,624

 
$
181,205

 
$
(1,720
)
Other securities
 
—

 
—

 
—

 
—

 
4,469

 
387

Total
 
$
436,324

 
$
(3,859
)
 
$
311,597

 
$
1,624

 
$
185,674

 
$
(1,333
)


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):

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

 
$
35,018

 
$
33,971

Federal Home Loan Bank stock
196,201

 
106,476

 
57,242

Other
171

 
—

 
—

Total
$
231,520


$
141,494


$
91,213



- 66 -


(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 June 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 June 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.



- 67 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at June 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
 
$
17,412,925

 
$
116,138

 
$
(42,003
)
 
$
74,135

 
$
—

 
$
74,135

Interest rate swaps
 
1,282,503

 
33,311

 
—

 
33,311

 
(70
)
 
33,241

Energy contracts
 
711,123

 
82,871

 
(42,115
)
 
40,756

 
(20,122
)
 
20,634

Agricultural contracts
 
66,430

 
1,367

 
(724
)
 
643

 
—

 
643

Foreign exchange contracts
 
574,049

 
495,952

 
—

 
495,952

 
(1,100
)
 
494,852

Equity option contracts
 
168,122

 
6,993

 
—

 
6,993

 
(63
)
 
6,930

Total customer risk management programs
 
20,215,152

 
736,632

 
(84,842
)
 
651,790

 
(21,355
)
 
630,435

Interest rate risk management programs
 
—

 
—

 
—

 
—

 
—

 
—

Total derivative contracts
 
$
20,215,152

 
$
736,632

 
$
(84,842
)
 
$
651,790

 
$
(21,355
)
 
$
630,435

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
17,863,884

 
$
112,166

 
$
(42,003
)
 
$
70,163

 
$
—

 
$
70,163

Interest rate swaps
 
1,282,503

 
33,471

 
—

 
33,471

 
(17,889
)
 
15,582

Energy contracts
 
676,214

 
78,044

 
(42,115
)
 
35,929

 
—

 
35,929

Agricultural contracts
 
66,433

 
1,355

 
(724
)
 
631

 
(475
)
 
156

Foreign exchange contracts
 
573,403

 
495,320

 
—

 
495,320

 
(4,826
)
 
490,494

Equity option contracts
 
168,122

 
6,993

 
—

 
6,993

 
—

 
6,993

Total customer risk management programs
 
20,630,559

 
727,349

 
(84,842
)
 
642,507

 
(23,190
)
 
619,317

Interest rate risk management programs
 
52,000

 
960

 
—

 
960

 
—

 
960

Total derivative contracts
 
$
20,682,559

 
$
728,309

 
$
(84,842
)
 
$
643,467

 
$
(23,190
)
 
$
620,277

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



- 68 -


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.





- 69 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at June 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
 
$
14,576,481

 
$
134,411

 
$
(53,746
)
 
$
80,665

 
$
—

 
$
80,665

Interest rate swaps
 
1,266,228

 
39,974

 
—

 
39,974

 
—

 
39,974

Energy contracts
 
1,063,840

 
67,831

 
(23,169
)
 
44,662

 
—

 
44,662

Agricultural contracts
 
36,050

 
2,528

 
(223
)
 
2,305

 
—

 
2,305

Foreign exchange contracts
 
242,866

 
174,802

 
—

 
174,802

 
—

 
174,802

Equity option contracts
 
205,904

 
16,962

 
—

 
16,962

 
(1,690
)
 
15,272

Total customer risk management programs
 
17,391,369

 
436,508

 
(77,138
)
 
359,370

 
(1,690
)
 
357,680

Interest rate risk management programs
 
—

 
—

 
—

 
—

 
—

 
—

Total derivative contracts
 
$
17,391,369

 
$
436,508

 
$
(77,138
)
 
$
359,370

 
$
(1,690
)
 
$
357,680

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
14,734,106

 
$
131,256

 
$
(53,746
)
 
$
77,510

 
$
—

 
$
77,510

Interest rate swaps
 
1,266,228

 
40,218

 
—

 
40,218

 
(19,700
)
 
20,518

Energy contracts
 
1,049,835

 
66,742

 
(23,169
)
 
43,573

 
(36,355
)
 
7,218

Agricultural contracts
 
36,036

 
2,538

 
(223
)
 
2,315

 
(2,298
)
 
17

Foreign exchange contracts
 
242,791

 
174,477

 
—

 
174,477

 
(680
)
 
173,797

Equity option contracts
 
205,904

 
16,962

 
—

 
16,962

 
—

 
16,962

Total customer risk management programs
 
17,534,900

 
432,193

 
(77,138
)
 
355,055

 
(59,033
)
 
296,022

Interest rate risk management programs
 
47,000

 
1,829

 
—

 
1,829

 
—

 
1,829

Total derivative contracts
 
$
17,581,900

 
$
434,022

 
$
(77,138
)
 
$
356,884

 
$
(59,033
)
 
$
297,851

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 summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the income statement (in thousands):
 
 
Three Months Ended
 
 
June 30, 2015
 
June 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
 
$
9,778

 
$
—

 
$
6,394

 
$
—

Interest rate swaps
 
611

 
—

 
524

 
—

Energy contracts
 
1,026

 
—

 
2,613

 
—

Agricultural contracts
 
30

 
—

 
38

 
—

Foreign exchange contracts
 
221

 
—

 
333

 
—

Equity option contracts
 
—

 
—

 
—

 
—

Total customer risk management programs
 
11,666

 
—

 
9,902

 
—

Interest rate risk management programs
 
—

 
(1,032
)
 
—

 
831

Total derivative contracts
 
$
11,666

 
$
(1,032
)
 
$
9,902

 
$
831


 
 
Six Months Ended
 
 
June 30, 2015
 
June 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
 
$
18,028

 
$
—

 
$
11,775

 
$
—

Interest rate swaps
 
1,084

 
—

 
1,031

 
—

Energy contracts
 
2,367

 
—

 
3,484

 
—

Agricultural contracts
 
42

 
—

 
101

 
—

Foreign exchange contracts
 
466

 
—

 
552

 
—

Equity option contracts
 
—

 
—

 
—

 
—

Total customer risk management programs
 
21,987

 
—

 
16,943

 
—

Interest rate risk management programs
 
—

 
(121
)
 
—

 
1,799

Total derivative contracts
 
$
21,987

 
$
(121
)
 
$
16,943

 
$
1,799


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

- 71 -


(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. 


- 72 -


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

 
 
June 30, 2015
 
December 31, 2014
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,730,675

 
$
8,020,813

 
$
24,233

 
$
9,775,721

 
$
1,736,976

 
$
7,345,167

 
$
13,527

 
$
9,095,670

Commercial real estate
 
715,062

 
2,298,296

 
20,139

 
3,033,497

 
721,513

 
1,988,080

 
18,557

 
2,728,150

Residential mortgage
 
1,639,773

 
198,986

 
45,969

 
1,884,728

 
1,698,620

 
202,771

 
48,121

 
1,949,512

Consumer
 
100,028

 
329,612

 
550

 
430,190

 
102,865

 
331,274

 
566

 
434,705

Total
 
$
4,185,538

 
$
10,847,707

 
$
90,891

 
$
15,124,136

 
$
4,259,974

 
$
9,867,292

 
$
80,771

 
$
14,208,037

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
99

 
 

 
 

 
 

 
$
125

 
 
June 30, 2014
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,681,348

 
$
6,669,210

 
$
17,103

 
$
8,367,661

Commercial real estate
 
744,101

 
1,876,405

 
34,472

 
2,654,978

Residential mortgage
 
1,753,186

 
210,689

 
44,340

 
2,008,215

Consumer
 
115,185

 
280,054

 
765

 
396,004

Total
 
$
4,293,820

 
$
9,036,358

 
$
96,680

 
$
13,426,858

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
67

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

At June 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 23% 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 June 30, 2015, commercial loans attributed to the Texas market totaled $3.5 billion or 36% of the commercial loan portfolio segment and commercial loans attributed to the Oklahoma market totaled $2.1 billion or 22% of the commercial loan portfolio segment.

The commercial loan portfolio segment is further divided into loan classes. The energy loan class totaled $2.9 billion or 19% of total loans at June 30, 2015, including $2.5 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 $2.8 billion at June 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, educational services, religious and similar entities.


- 73 -


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 June 30, 2015, 33% of commercial real estate loans are secured by properties primarily located in the Dallas and Houston areas of Texas. An additional 14% of commercial real estate loans are secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma. 

Residential Mortgage and Consumer

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. Consumer loans include direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as other unsecured loans. Consumer loans also include indirect automobile loans made through primary dealers. Residential mortgage and consumer loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. 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 June 30, 2015, residential mortgage loans included $191 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 $748 million at June 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 69% to amortizing term loans and 31% 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 June 30, 2015, outstanding commitments totaled $8.1 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.


- 74 -


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 June 30, 2015, outstanding standby letters of credit totaled $445 million. Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At June 30, 2015, outstanding commercial letters of credit totaled $6.3 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 six months ended June 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.


- 75 -


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 June 30, 2015 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Consumer
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
101,411

 
$
40,819

 
$
23,244

 
$
4,139

 
$
28,073

 
$
197,686

Provision for loan losses
 
5,822

 
(1,334
)
 
(1,562
)
 
317

 
829

 
4,072

Loans charged off
 
(881
)
 
(16
)
 
(714
)
 
(1,266
)
 
—

 
(2,877
)
Recoveries
 
685

 
275

 
481

 
765

 
—

 
2,206

Ending balance
 
$
107,037

 
$
39,744

 
$
21,449

 
$
3,955

 
$
28,902

 
$
201,087

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
577

 
$
333

 
$
24

 
$
20

 
$
—

 
$
954

Provision for off-balance sheet credit losses
 
18

 
(91
)
 
2

 
(1
)
 
—

 
(72
)
Ending balance
 
$
595

 
$
242

 
$
26

 
$
19

 
$
—

 
$
882

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
5,840

 
$
(1,425
)
 
$
(1,560
)
 
$
316

 
$
829

 
$
4,000



- 76 -


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 six months ended June 30, 2015 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Consumer
 
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
 
16,175

 
(11,751
)
 
(1,589
)
 
656

 
857

 
4,348

Loans charged off
 
(1,055
)
 
(44
)
 
(1,338
)
 
(2,609
)
 
—

 
(5,046
)
Recoveries
 
1,042

 
9,094

 
918

 
1,675

 
—

 
12,729

Ending balance
 
$
107,037

 
$
39,744

 
$
21,449

 
$
3,955

 
$
28,902

 
$
201,087

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
475

 
$
707

 
$
28

 
$
20

 
$
—

 
$
1,230

Provision for off-balance sheet credit losses
 
120

 
(465
)
 
(2
)
 
(1
)
 
—

 
(348
)
Ending balance
 
$
595

 
$
242

 
$
26

 
$
19

 
$
—

 
$
882

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
16,295

 
$
(12,216
)
 
$
(1,591
)
 
$
655

 
$
857

 
$
4,000


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 June 30, 2014 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Consumer
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
85,246

 
$
41,589

 
$
28,307

 
$
6,211

 
$
26,965

 
$
188,318

Provision for loan losses
 
1,393

 
(2,958
)
 
467

 
1,484

 
(16
)
 
370

Loans charged off
 
(29
)
 
—

 
(1,842
)
 
(1,651
)
 
—

 
(3,522
)
Recoveries
 
1,196

 
2,621

 
722

 
985

 
—

 
5,524

Ending balance
 
$
87,806

 
$
41,252

 
$
27,654

 
$
7,029

 
$
26,949

 
$
190,690

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
576

 
$
1,040

 
$
62

 
$
—

 
$
—

 
$
1,678

Provision for off-balance sheet credit losses
 
(231
)
 
(138
)
 
(19
)
 
18

 
—

 
(370
)
Ending balance
 
$
345

 
$
902

 
$
43

 
$
18

 
$
—

 
$
1,308

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
1,162

 
$
(3,096
)
 
$
448

 
$
1,502

 
$
(16
)
 
$
—



- 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 six months ended June 30, 2014 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Consumer
 
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
 
5,618

 
(4,549
)
 
(49
)
 
1,024

 
(1,264
)
 
780

Loans charged off
 
(173
)
 
(220
)
 
(2,838
)
 
(3,139
)
 
—

 
(6,370
)
Recoveries
 
3,181

 
4,448

 
1,076

 
2,179

 
—

 
10,884

Ending balance
 
$
87,806

 
$
41,252

 
$
27,654

 
$
7,029

 
$
26,949

 
$
190,690

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
119

 
$
1,876

 
$
90

 
$
3

 
$
—

 
$
2,088

Provision for off-balance sheet credit losses
 
226

 
(974
)
 
(47
)
 
15

 
—

 
(780
)
Ending balance
 
$
345

 
$
902

 
$
43

 
$
18

 
$
—

 
$
1,308

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
5,844

 
$
(5,523
)
 
$
(96
)
 
$
1,039

 
$
(1,264
)
 
$
—


The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at June 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
 
$
9,751,488

 
$
106,690

 
$
24,233

 
$
347

 
$
9,775,721

 
$
107,037

Commercial real estate
 
3,013,358

 
39,726

 
20,139

 
18

 
3,033,497

 
39,744

Residential mortgage
 
1,838,759

 
21,349

 
45,969

 
100

 
1,884,728

 
21,449

Consumer
 
429,640

 
3,955

 
550

 
—

 
430,190

 
3,955

Total
 
15,033,245

 
171,720

 
90,891

 
465

 
15,124,136

 
172,185

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,902

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,033,245

 
$
171,720

 
$
90,891

 
$
465

 
$
15,124,136

 
$
201,087




- 78 -


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

Consumer
 
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 June 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
 
$
8,350,558

 
$
84,639

 
$
17,103

 
$
3,167

 
$
8,367,661

 
$
87,806

Commercial real estate
 
2,620,506

 
41,069

 
34,472

 
183

 
2,654,978

 
41,252

Residential mortgage
 
1,963,875

 
27,571

 
44,340

 
83

 
2,008,215

 
27,654

Consumer
 
395,239

 
7,029

 
765

 
—

 
396,004

 
7,029

Total
 
13,330,178

 
160,308

 
96,680

 
3,433

 
13,426,858

 
163,741

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
26,949

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,330,178

 
$
160,308

 
$
96,680

 
$
3,433

 
$
13,426,858

 
$
190,690


- 79 -


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 June 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
 
$
9,752,301

 
$
106,162

 
$
23,420

 
$
875

 
$
9,775,721

 
$
107,037

Commercial real estate
 
3,033,497

 
39,744

 
—

 
—

 
3,033,497

 
39,744

Residential mortgage
 
190,744

 
2,922

 
1,693,984

 
18,527

 
1,884,728

 
21,449

Consumer
 
343,114

 
1,549

 
87,076

 
2,406

 
430,190

 
3,955

Total
 
13,319,656

 
150,377

 
1,804,480

 
21,808

 
15,124,136

 
172,185

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,902

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,319,656

 
$
150,377

 
$
1,804,480

 
$
21,808

 
$
15,124,136

 
$
201,087

 
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

Consumer
 
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



- 80 -


The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at June 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
 
$
8,341,114

 
$
86,893

 
$
26,547

 
$
913

 
$
8,367,661

 
$
87,806

Commercial real estate
 
2,654,978

 
41,252

 
—

 
—

 
2,654,978

 
41,252

Residential mortgage
 
203,097

 
4,169

 
1,805,118

 
23,485

 
2,008,215

 
27,654

Consumer
 
295,762

 
2,980

 
100,242

 
4,049

 
396,004

 
7,029

Total
 
11,494,951

 
135,294

 
1,931,907

 
28,447

 
13,426,858

 
163,741

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
26,949

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,494,951

 
$
135,294

 
$
1,931,907

 
$
28,447

 
$
13,426,858

 
$
190,690


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.


- 81 -


The following table summarizes the Company’s loan portfolio at June 30, 2015 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,771,248

 
$
124,054

1 
$
6,841

 
$
—

 
$
—

 
$
2,902,143

Services
 
2,818,455

 
8,154

 
10,944

 
—

 
—

 
2,837,553

Wholesale/retail
 
1,349,632

 
23,505

 
4,166

 
—

 
—

 
1,377,303

Manufacturing
 
567,752

 
11,418

 
379

 
—

 
—

 
579,549

Healthcare
 
1,644,747

 
—

 
1,278

 
—

 
—

 
1,646,025

Other commercial and industrial
 
406,799

 
2,385

 
544

 
23,339

 
81

 
433,148

Total commercial
 
9,558,633

 
169,516

 
24,152

 
23,339

 
81

 
9,775,721

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
138,721

 
486

 
9,367

 
—

 
—

 
148,574

Retail
 
684,182

 
439

 
3,826

 
—

 
—

 
688,447

Office
 
560,159

 
566

 
2,360

 
—

 
—

 
563,085

Multifamily
 
703,449

 
7,689

 
195

 
—

 
—

 
711,333

Industrial
 
487,978

 
—

 
76

 
—

 
—

 
488,054

Other commercial real estate
 
429,544

 
145

 
4,315

 
—

 
—

 
434,004

Total commercial real estate
 
3,004,033

 
9,325

 
20,139

 
—

 
—

 
3,033,497

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
186,568

 
1,690

 
2,486

 
725,879

 
29,701

 
946,324

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
187,122

 
3,717

 
190,839

Home equity
 
—

 
—

 
—

 
737,500

 
10,065

 
747,565

Total residential mortgage
 
186,568

 
1,690

 
2,486

 
1,650,501

 
43,483

 
1,884,728

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
342,949

 
16

 
149

 
86,675

 
401

 
430,190

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,092,183

 
$
180,547

 
$
46,926

 
$
1,760,515

 
$
43,965

 
$
15,124,136

1 
The single-largest potential problem energy loan with $34 million outstanding was paid in full after June 30.

- 82 -


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
 
2,497,888

 
15,140

 
5,201

 
—

 
—

 
2,518,229

Wholesale/retail
 
1,301,026

 
8,141

 
4,149

 
—

 
—

 
1,313,316

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

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
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



- 83 -


The following table summarizes the Company’s loan portfolio at June 30, 2014 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,395,942

 
$
22,227

 
$
1,619

 
$
—

 
$
—

 
$
2,419,788

Services
 
2,352,450

 
20,946

 
3,669

 
—

 
—

 
2,377,065

Wholesale/retail
 
1,307,426

 
4,840

 
5,885

 
—

 
—

 
1,318,151

Manufacturing
 
442,493

 
6,866

 
3,507

 
—

 
—

 
452,866

Healthcare
 
1,385,395

 
7,339

 
1,422

 
—

 
—

 
1,394,156

Other commercial and industrial
 
374,556

 
3,593

 
939

 
26,485

 
62

 
405,635

Total commercial
 
8,258,262

 
65,811

 
17,041

 
26,485

 
62

 
8,367,661

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
152,228

 
17,405

 
15,146

 
—

 
—

 
184,779

Retail
 
636,332

 
1,579

 
4,199

 
—

 
—

 
642,110

Office
 
389,487

 
1,139

 
3,591

 
—

 
—

 
394,217

Multifamily
 
663,349

 
14,054

 
—

 
—

 
—

 
677,403

Industrial
 
341,449

 
—

 
631

 
—

 
—

 
342,080

Other commercial real estate
 
400,709

 
2,775

 
10,905

 
—

 
—

 
414,389

Total commercial real estate
 
2,583,554

 
36,952

 
34,472

 
—

 
—

 
2,654,978

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
197,005

 
2,187

 
3,905

 
788,784

 
29,047

 
1,020,928

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
186,140

 
1,947

 
188,087

Home equity
 
—

 
—

 
—

 
789,759

 
9,441

 
799,200

Total residential mortgage
 
197,005

 
2,187

 
3,905

 
1,764,683

 
40,435

 
2,008,215

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
295,552

 
25

 
185

 
99,662

 
580

 
396,004

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,334,373

 
$
104,975

 
$
55,603

 
$
1,890,830

 
$
41,077

 
$
13,426,858




- 84 -


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
 
June 30, 2015
 
Three Months Ended
 
Six Months Ended
 
 
 
Recorded Investment
 
 
 
June 30, 2015
 
June 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
$
7,476

 
$
6,841

 
$
6,324

 
$
517

 
$
151

 
$
4,358

 
$
—

 
$
4,129

 
$
—

Services
13,815

 
10,944

 
10,270

 
674

 
152

 
7,844

 
—

 
8,072

 
—

Wholesale/retail
9,781

 
4,166

 
4,134

 
32

 
9

 
4,283

 
—

 
4,157

 
—

Manufacturing
690

 
379

 
379

 
—

 
—

 
398

 
—

 
414

 
—

Healthcare
1,646

 
1,278

 
1,088

 
190

 
35

 
1,418

 
—

 
1,329

 
—

Other commercial and industrial
8,302

 
625

 
625

 
—

 
—

 
755

 
—

 
778

 
—

Total commercial
41,710

 
24,233

 
22,820

 
1,413

 
347

 
19,056

 
—

 
18,879

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
14,143

 
9,367

 
9,367

 
—

 
—

 
9,483

 
—

 
7,333

 
—

Retail
5,369

 
3,826

 
3,826

 
—

 
—

 
3,842

 
—

 
3,876

 
—

Office
4,439

 
2,360

 
2,360

 
—

 
—

 
2,385

 
—

 
2,890

 
—

Multifamily
195

 
195

 
195

 
—

 
—

 
98

 
—

 
98

 
—

Industrial
76

 
76

 
76

 
—

 
—

 
76

 
—

 
38

 
—

Other real estate loans
10,411

 
4,315

 
4,149

 
166

 
18

 
4,138

 
—

 
5,113

 
—

Total commercial real estate
34,633

 
20,139

 
19,973

 
166

 
18

 
20,022

 
—

 
19,348

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
41,092

 
32,187

 
32,029

 
158

 
100

 
32,776

 
330

 
33,516

 
645

Permanent mortgage guaranteed by U.S. government agencies1
197,090

 
190,839

 
190,839

 
—

 
—

 
194,138

 
2,047

 
200,929

 
4,303

Home equity
10,510

 
10,065

 
10,065

 
—

 
—

 
9,966

 
—

 
9,815

 
—

Total residential mortgage
248,692

 
233,091

 
232,933

 
158

 
100

 
236,880

 
2,377

 
244,260

 
4,948

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
570

 
550

 
550

 
—

 
—

 
506

 
—

 
558

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
325,605

 
$
278,013

 
$
276,276

 
$
1,737

 
$
465

 
$
276,464

 
$
2,377

 
$
283,045

 
$
4,948

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 June 30, 2015, $3.7 million of these loans were nonaccruing and $187 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.


- 85 -


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

 
 
 
 
 
 
 
 
 
 
 
Total consumer
 
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.


- 86 -


A summary of impaired loans at June 30, 2014 follows (in thousands): 
 
 
 
For the
 
For the
 
As of June 30, 2014
 
Three Months Ended
 
Six Months Ended
 
 
 
Recorded Investment
 
 
 
June 30, 2014
 
June 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
$
1,646

 
$
1,619

 
$
1,619

 
$
—

 
$
—

 
$
1,689

 
$
—

 
$
1,739

 
$
—

Services
6,530

 
3,669

 
2,917

 
752

 
158

 
4,125

 
—

 
4,295

 
—

Wholesale/retail
10,966

 
5,885

 
5,853

 
32

 
9

 
6,369

 
—

 
6,427

 
—

Manufacturing
3,764

 
3,507

 
507

 
3,000

 
3,000

 
3,536

 
—

 
2,050

 
—

Healthcare
2,438

 
1,422

 
1,422

 
—

 
—

 
1,433

 
—

 
1,504

 
—

Other commercial and industrial
8,668

 
1,001

 
1,001

 
—

 
—

 
923

 
—

 
916

 
—

Total commercial
34,012

 
17,103

 
13,319

 
3,784

 
3,167

 
18,075

 
—

 
16,931

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Residential construction and land development
19,441

 
15,146

 
14,504

 
642

 
162

 
15,846

 
—

 
16,261

 
—

Retail
5,679

 
4,199

 
4,199

 
—

 
—

 
4,413

 
—

 
4,529

 
—

Office
6,039

 
3,591

 
3,588

 
3

 
3

 
4,946

 
—

 
4,991

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3

 
—

Industrial
790

 
631

 
631

 
—

 
—

 
758

 
—

 
441

 
—

Other real estate loans
17,617

 
10,905

 
10,725

 
180

 
18

 
10,925

 
—

 
11,436

 
—

Total commercial real estate
49,566

 
34,472

 
33,647

 
825

 
183

 
36,888

 
—

 
37,661

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Permanent mortgage
41,646

 
32,952

 
32,817

 
135

 
83

 
34,647

 
293

 
33,615

 
638

Permanent mortgage guaranteed by U.S. government agencies1
194,178

 
188,087

 
188,087

 
—

 
—

 
187,505

 
2,054

 
187,247

 
4,190

Home equity
9,482

 
9,441

 
9,441

 
—

 
—

 
8,453

 
—

 
8,353

 
—

Total residential mortgage
245,306

 
230,480

 
230,345

 
135

 
83

 
230,605

 
2,347

 
229,215

 
4,828

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consumer
781

 
765

 
765

 
—

 
—

 
870

 
—

 
992

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
329,665

 
$
282,820

 
$
278,076

 
$
4,744

 
$
3,433

 
$
286,438

 
$
2,347

 
$
284,799

 
$
4,828

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 June 30, 2014, $1.9 million of these loans were nonaccruing and $186 million were accruing based on the guarantee by U.S. government agencies.


- 87 -


Troubled Debt Restructurings

A summary of troubled debt restructurings ("TDRs") by accruing status as of June 30, 2015 is as follows (in thousands):
 
 
As of June 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
June 30, 2015
 
Six Months Ended
June 30, 2015
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
1,176

 
$
1,176

 
$
—

 
$
—

 
$
—

 
$
—

Services
 
9,541

 
8,641

 
900

 
148

 
—

 
—

Wholesale/retail
 
3,064

 
2,984

 
80

 
9

 
—

 
—

Manufacturing
 
311

 
311

 
—

 
—

 
—

 
—

Healthcare
 
706

 
706

 
—

 
—

 
—

 
—

Other commercial and industrial
 
613

 
81

 
532

 
—

 
—

 
—

Total commercial
 
15,411

 
13,899

 
1,512

 
157

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
7,027

 
4,790

 
2,237

 
—

 
—

 
—

Retail
 
3,524

 
977

 
2,547

 
—

 
—

 
—

Office
 
1,360

 
—

 
1,360

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
1,376

 
1,376

 
—

 
—

 
—

 
—

Total commercial real estate
 
13,287

 
7,143

 
6,144

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
15,671

 
10,326

 
5,345

 
100

 
2

 
3

Permanent mortgage guaranteed by U.S. government agencies
 
2,058

 
141

 
1,917

 
—

 
—

 
—

Home equity
 
5,318

 
4,549

 
769

 
—

 
48

 
58

Total residential mortgage
 
23,047

 
15,016

 
8,031

 
100

 
50

 
61

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
420

 
266

 
154

 
—

 
2

 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
52,165

 
$
36,324

 
$
15,841

 
$
257

 
$
52

 
$
63

 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
82,368

 
27,032

 
55,336

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
134,533

 
$
63,356

 
$
71,177

 
$
257

 
$
52

 
$
63


- 88 -


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

 
 
 
 
 
 
 
 
 
Consumer
 
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



- 89 -


A summary of troubled debt restructurings by accruing status as of June 30, 2014 is as follows (in thousands):
 
 
As of June 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
June 30, 2014
 
Six Months Ended
June 30, 2014
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
 
1,762

 
742

 
1,020

 
148

 
—

 
—

Wholesale/retail
 
3,719

 
3,598

 
121

 
9

 
—

 
—

Manufacturing
 
3,369

 
369

 
3,000

 
3,000

 
—

 
—

Healthcare
 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
726

 
54

 
672

 
—

 
—

 
—

Total commercial
 
9,576

 
4,763

 
4,813

 
3,157

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
9,482

 
1,622

 
7,860

 
162

 
—

 
—

Retail
 
3,727

 
2,535

 
1,192

 
—

 
—

 
—

Office
 
2,378

 
1,416

 
962

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
3,151

 
3,151

 
—

 
—

 
—

 
—

Total commercial real estate
 
18,738

 
8,724

 
10,014

 
162

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
17,182

 
11,605

 
5,577

 
83

 
107

 
108

Permanent mortgage guaranteed by U.S. government agencies
 
855

 
180

 
675

 
—

 
—

 
—

Home equity
 
5,076

 
3,923

 
1,153

 
—

 
52

 
65

Total residential mortgage
 
23,113

 
15,708

 
7,405

 
83

 
159

 
173

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
610

 
440

 
170

 
—

 
1

 
1

 
 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
52,037

 
$
29,635

 
$
22,402

 
$
3,402

 
$
160

 
$
174

 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
57,818

 
17,269

 
40,549

 
—

 
—

 
—

Total TDRs
 
$
109,855

 
$
46,904

 
$
62,951

 
$
3,402

 
$
160

 
$
174


- 90 -


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 June 30, 2015 by class that were restructured during the three and six months ended June 30, 2015 by primary type of concession (in thousands):

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

 
$
—

 
$
—

 
$
—

 
$
1,176

 
$
—

 
$
1,176

 
$
1,176

Services
 
—

 
—

 
—

 
—

 
—

 
7,972

 
7,972

 
7,972

Wholesale/retail
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
 
—

 
—

 
—

 
706

 
—

 
—

 
706

 
706

Other commercial and industrial
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
 
—

 
—

 
—

 
706

 
1,176

 
7,972

 
9,854

 
9,854

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
—

 
—

 
—

 
—

 
57

 
475

 
532

 
532

Permanent mortgage guaranteed by U.S. government agencies
 
5,532

 
7,404

 
12,936

 
—

 
—

 
—

 
—

 
12,936

Home equity
 
—

 
—

 
—

 
—

 
—

 
578

 
578

 
578

Total residential mortgage
 
5,532

 
7,404

 
12,936

 
—

 
57

 
1,053

 
1,110

 
14,046

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
—

 
—

 
—

 
—

 
—

 
89

 
89

 
89

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
5,532

 
$
7,404

 
$
12,936

 
$
706

 
$
1,233

 
$
9,114

 
$
11,053

 
$
23,989



- 91 -


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

 
$
—

 
$
—

 
$
—

 
$
1,176

 
$
—

 
$
1,176

 
$
1,176

Services
—

 
—

 
—

 
—

 
—

 
7,972

 
7,972

 
7,972

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
706

 
—

 
—

 
706

 
706

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
—

 
—

 
706

 
1,176

 
7,972

 
9,854

 
9,854

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
4,581

 
—

 
4,581

 
4,581

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
4,581

 
—

 
4,581

 
4,581

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
—

 
707

 
1,091

 
1,798

 
1,798

Permanent mortgage guaranteed by U.S. government agencies
11,904

 
11,215

 
23,119

 
—

 
—

 
843

 
843

 
23,962

Home equity
—

 
—

 
—

 
61

 
149

 
1,182

 
1,392

 
1,392

Total residential mortgage
11,904

 
11,215

 
23,119

 
61

 
856

 
3,116

 
4,033

 
27,152

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
—

 
—

 
—

 
—

 
—

 
121

 
121

 
121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
11,904

 
$
11,215

 
$
23,119

 
$
767

 
$
6,613

 
$
11,209

 
$
18,589

 
$
41,708




- 92 -


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 six months ended June 30, 2014 by primary type of concession (in thousands):

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

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
3,542

 
—

 
3,542

 
3,542

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
—

 
—

 
3,542

 
—

 
3,542

 
3,542

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
307

 
307

 
307

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
307

 
307

 
307

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
218

 
1,821

 
2,039

 
2,039

Permanent mortgage guaranteed by U.S. government agencies
4,260

 
6,694

 
10,954

 
—

 
230

 
230

 
11,184

Home equity
—

 
—

 
—

 
—

 
1,276

 
1,276

 
1,276

Total residential mortgage
4,260

 
6,694

 
10,954

 
218

 
3,327

 
3,545

 
14,499

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
—

 
—

 
—

 
—

 
33

 
33

 
33

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
4,260

 
$
6,694

 
$
10,954

 
$
3,760

 
$
3,667

 
$
7,427

 
$
18,381




- 93 -


 
Six Months Ended
June 30, 2014
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
3,542

 
—

 
3,542

 
3,542

Manufacturing
—

 
—

 
—

 
3,000

 
—

 
3,000

 
3,000

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
26

 
26

 
26

Total commercial
—

 
—

 
—

 
6,542

 
26

 
6,568

 
6,568

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
422

 
307

 
729

 
729

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
422

 
307

 
729

 
729

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
348

 
2,062

 
2,410

 
2,410

Permanent mortgage guaranteed by U.S. government agencies
5,773

 
10,300

 
16,073

 
—

 
411

 
411

 
16,484

Home equity
—

 
—

 
—

 
—

 
1,564

 
1,564

 
1,564

Total residential mortgage
5,773

 
10,300

 
16,073

 
348

 
4,037

 
4,385

 
20,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
—

 
—

 
—

 
—

 
46

 
46

 
46

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
5,773

 
$
10,300

 
$
16,073

 
$
7,312

 
$
4,416

 
$
11,728

 
$
27,801



- 94 -


The following table summarizes, by loan class, the recorded investment at June 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 June 30, 2015 and 2014, respestively (in thousands):

 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 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
—

 
—

 
—

 
—

 
337

 
337

Retail
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
337

 
337

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
1,341

 
1,341

 
—

 
1,796

 
1,796

Permanent mortgage guaranteed by U.S. government agencies
29,741

 
1,112

 
30,853

 
31,715

 
1,252

 
32,967

Home equity
—

 
479

 
479

 
—

 
503

 
503

Total residential mortgage
29,741

 
2,932

 
32,673

 
31,715

 
3,551

 
35,266

 
 
 
 
 
 
 
 
 
 
 
 
Consumer
—

 
30

 
30

 
—

 
30

 
30

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
29,741

 
$
2,962

 
$
32,703

 
$
31,715

 
$
3,918

 
$
35,633


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.


- 95 -


 
Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
 
Accruing
 
Nonaccrual
 
Total
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
1,020

 
1,020

 
—

 
1,020

 
1,020

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
3,000

 
3,000

 
—

 
3,369

 
3,369

Healthcare
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
4,020

 
4,020

 
—

 
4,389

 
4,389

 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
422

 
422

 
—

 
422

 
422

Retail
—

 
459

 
459

 
—

 
459

 
459

Office
—

 
—

 
—

 
—

 
199

 
199

Multifamily
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
881

 
881

 
—

 
1,080

 
1,080

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
2,324

 
2,324

 
—

 
2,769

 
2,769

Permanent mortgage guaranteed by U.S. government agencies
20,492

 
383

 
20,875

 
20,912

 
383

 
21,295

Home equity
—

 
1,002

 
1,002

 
—

 
1,021

 
1,021

Total residential mortgage
20,492

 
3,709

 
24,201

 
20,912

 
4,173

 
25,085

 
 
 
 
 
 
 
 
 
 
 
 
Consumer
—

 
14

 
14

 
—

 
14

 
14

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
20,492

 
$
8,624

 
$
29,116

 
$
20,912

 
$
9,656

 
$
30,568


- 96 -


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 June 30, 2015 is as follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,895,302

 
$
—

 
$
—

 
$
6,841

 
$
2,902,143

Services
 
2,821,560

 
5,049

 
—

 
10,944

 
2,837,553

Wholesale/retail
 
1,373,050

 
87

 
—

 
4,166

 
1,377,303

Manufacturing
 
579,170

 
—

 
—

 
379

 
579,549

Healthcare
 
1,644,747

 
—

 
—

 
1,278

 
1,646,025

Other commercial and industrial
 
432,159

 
364

 
—

 
625

 
433,148

Total commercial
 
9,745,988

 
5,500

 
—

 
24,233

 
9,775,721

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
139,207

 
—

 
—

 
9,367

 
148,574

Retail
 
684,621

 
—

 
—

 
3,826

 
688,447

Office
 
560,725

 
—

 
—

 
2,360

 
563,085

Multifamily
 
710,486

 
652

 
—

 
195

 
711,333

Industrial
 
487,978

 
—

 
—

 
76

 
488,054

Other real estate loans
 
429,689

 
—

 
—

 
4,315

 
434,004

Total commercial real estate
 
3,012,706

 
652

 
—

 
20,139

 
3,033,497

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
907,860

 
6,277

 
—

 
32,187

 
946,324

Permanent mortgages guaranteed by U.S. government agencies
 
38,524

 
24,660

 
123,938

 
3,717

 
190,839

Home equity
 
734,837

 
2,564

 
99

 
10,065

 
747,565

Total residential mortgage
 
1,681,221

 
33,501

 
124,037

 
45,969

 
1,884,728

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
429,214

 
426

 
—

 
550

 
430,190

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,869,129

 
$
40,079

 
$
124,037

 
$
90,891

 
$
15,124,136



- 97 -


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
 
2,511,892

 
1,136

 
—

 
5,201

 
2,518,229

Wholesale/retail
 
1,309,167

 
—

 
—

 
4,149

 
1,313,316

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

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
433,590

 
547

 
2

 
566

 
434,705

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,933,715

 
$
41,437

 
$
152,114

 
$
80,771

 
$
14,208,037



- 98 -


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

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,416,139

 
$
2,005

 
$
25

 
$
1,619

 
$
2,419,788

Services
 
2,373,081

 
315

 
—

 
3,669

 
2,377,065

Wholesale/retail
 
1,312,255

 
11

 
—

 
5,885

 
1,318,151

Manufacturing
 
448,656

 
703

 
—

 
3,507

 
452,866

Healthcare
 
1,392,718

 
16

 
—

 
1,422

 
1,394,156

Other commercial and industrial
 
404,248

 
386

 
—

 
1,001

 
405,635

Total commercial
 
8,347,097

 
3,436

 
25

 
17,103

 
8,367,661

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
169,627

 
6

 
—

 
15,146

 
184,779

Retail
 
637,609

 
302

 
—

 
4,199

 
642,110

Office
 
390,626

 
—

 
—

 
3,591

 
394,217

Multifamily
 
677,403

 
—

 
—

 
—

 
677,403

Industrial
 
341,449

 
—

 
—

 
631

 
342,080

Other real estate loans
 
403,484

 
—

 
—

 
10,905

 
414,389

Total commercial real estate
 
2,620,198

 
308

 
—

 
34,472

 
2,654,978

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
977,897

 
10,079

 
—

 
32,952

 
1,020,928

Permanent mortgages guaranteed by U.S. government agencies
 
27,855

 
19,231

 
139,054

 
1,947

 
188,087

Home equity
 
787,863

 
1,855

 
41

 
9,441

 
799,200

Total residential mortgage
 
1,793,615

 
31,165

 
139,095

 
44,340

 
2,008,215

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
394,246

 
992

 
1

 
765

 
396,004

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,155,156

 
$
35,901

 
$
139,121

 
$
96,680

 
$
13,426,858


- 99 -


(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):
 
 
June 30, 2015
 
Dec. 31, 2014
 
June 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
 
$
481,880

 
$
486,640

 
$
291,537

 
$
298,212

 
$
310,341

 
$
319,508

Residential mortgage loan commitments
 
849,619

 
8,323

 
627,505

 
9,971

 
546,864

 
13,616

Forward sales contracts
 
1,201,018

 
7,608

 
701,066

 
(4,001
)
 
828,739

 
(7,249
)
 
 
 

 
$
502,571

 
 

 
$
304,182

 
 

 
$
325,875


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


- 100 -


Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2015
 
2014
 
2015
 
2014
Production revenue:
 
 
 
 
 
 
 
 
Net realized gains on sale of mortgage loans
 
$
23,856

 
$
12,745

 
$
41,107

 
$
21,924

Net change in unrealized gain on mortgage loans held for sale
 
(5,366
)
 
5,052

 
(1,915
)
 
7,849

Net change in the fair value of mortgage loan commitments
 
(9,177
)
 
7,581

 
(1,648
)
 
10,960

Net change in the fair value of forward sales contracts
 
13,800

 
(7,651
)
 
11,609

 
(11,554
)
Total production revenue
 
23,113

 
17,727

 
49,153

 
29,179

Servicing revenue
 
13,733

 
11,603

 
27,013

 
22,995

Total mortgage banking revenue
 
$
36,846

 
$
29,330

 
$
76,166

 
$
52,174


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):
 
 
June 30,
2015
 
Dec. 31,
2014
 
June 30,
2014
Number of residential mortgage loans serviced for others
 
124,825

 
117,483

 
110,404

Outstanding principal balance of residential mortgage loans serviced for others
 
$
17,979,623

 
$
16,162,887

 
$
14,626,291

Weighted average interest rate
 
4.18
%
 
4.29
%
 
4.36
%
Remaining term (in months)
 
298

 
296

 
293


Activity in capitalized mortgage servicing rights during the three months ended June 30, 2015 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Mar. 31, 2015
 
$
9,593

 
$
165,458

 
$
175,051

Additions, net
 
—

 
23,232

 
23,232

Change in fair value due to loan runoff
 
(729
)
 
(6,870
)
 
(7,599
)
Change in fair value due to market changes
 
1,866

 
6,144

 
8,010

Balance, June 30, 2015
 
$
10,730

 
$
187,964

 
$
198,694


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

 
$
160,862

 
$
171,976

Additions, net
 
—

 
42,382

 
42,382

Change in fair value due to loan runoff
 
(1,510
)
 
(13,642
)
 
(15,152
)
Change in fair value due to market changes
 
1,126

 
(1,638
)
 
(512
)
Balance, June 30, 2015
 
$
10,730

 
$
187,964

 
$
198,694


- 101 -



Activity in capitalized mortgage servicing rights during the three months ended June 30, 2014 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Mar. 31, 2014
 
$
14,790

 
$
138,984

 
$
153,774

Additions, net
 
—

 
13,172

 
13,172

Change in fair value due to loan runoff
 
(599
)
 
(4,163
)
 
(4,762
)
Change in fair value due to market changes
 
(1,109
)
 
(5,335
)
 
(6,444
)
Balance, June 30, 2014
 
$
13,082

 
$
142,658

 
$
155,740


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

 
$
137,398

 
$
153,333

Additions, net
 
—

 
21,816

 
21,816

Change in fair value due to loan runoff
 
(1,114
)
 
(7,390
)
 
(8,504
)
Change in fair value due to market changes
 
(1,739
)
 
(9,166
)
 
(10,905
)
Balance, June 30, 2014
 
$
13,082

 
$
142,658

 
$
155,740

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:

 
 
June 30,
2015
 
Dec. 31,
2014
 
June 30,
2014
Discount rate – risk-free rate plus a market premium
 
10.13%
 
10.17%
 
10.20%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
    Performing loans
 
$63-$105
 
$60 - $105
 
$60 - $105
    Delinquent loans
 
$175 - $550
 
$150 - $500
 
$150 - $500
    Loans in foreclosure
 
$1,000 - $4,000
 
$1,000 - $4,250
 
$1000 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
1.77%
 
1.77%
 
1.69%
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.

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

 
5.00% - 5.99%

 
> 5.99%
 
Total
Fair value
 
$
93,150

 
$
82,523

 
$
18,038

 
$
4,983

 
$
198,694

Outstanding principal of loans serviced for others
 
$
8,324,763

 
$
7,019,158

 
$
1,769,386

 
$
866,316

 
$
17,979,623

Weighted average prepayment rate1
 
7.12
%
 
8.33
%
 
12.38
%
 
24.95
%
 
8.97
%
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.


- 102 -


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 June 30, 2015, a 50 basis point increase in mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights, net of economic hedge by $1.2 million. 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 $1.2 million. 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 June 30, 2015 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
5,837,907

 
$
37,238

 
$
10,098

 
$
27,212

 
$
5,912,455

FNMA
 
5,967,948

 
25,851

 
4,515

 
22,867

 
6,021,181

GNMA
 
5,249,421

 
123,237

 
32,923

 
12,726

 
5,418,307

Other
 
616,287

 
5,498

 
1,094

 
4,801

 
627,680

Total
 
$
17,671,563

 
$
191,824

 
$
48,630

 
$
67,606

 
$
17,979,623


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 $169 million at June 30, 2015, $180 million at December 31, 2014 and $181 million at June 30, 2014. A separate accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. At June 30, 2015, approximately 3% of the loans sold with recourse with an outstanding principal balance of $5.1 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 5% with an outstanding balance of $7.8 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
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
7,020

 
$
9,066

 
$
7,299

 
$
9,562

Provision for recourse losses
(40
)
 
183

 
130

 
167

Loans charged off, net
(289
)
 
(559
)
 
(738
)
 
(1,039
)
Ending balance
$
6,691

 
$
8,690

 
$
6,691

 
$
8,690


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 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 54 loans from the agencies for $7.0 million during the second quarter of 2015. There were no indemnifications on loans paid during the second quarter of 2015. Losses recognized on indemnifications and repurchases were insignificant.


- 103 -


A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 
June 30,
2015
 
June 30,
2014
Number of unresolved deficiency requests
214

 
188

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
17,446

 
$
16,497

Unpaid principal balance subject to indemnification by the Company
4,269

 
2,248


The activity in the accruals for mortgage losses is summarized as follows (in thousands).
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
11,140

 
$
11,620

 
$
11,868

 
$
12,716

Provision for losses
(2,216
)
 
1,150

 
(3,004
)
 
1,353

Charge-offs, net
(16
)
 
(651
)
 
44

 
(1,950
)
Ending balance
$
8,908


$
12,119


$
8,908


$
12,119

(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. 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. Management has been advised by counsel that the Bank and the Company have meritorious defenses to the actions.  A reasonable estimate of losses, if any, cannot be made at this time.

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.


- 104 -


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 $5.2 million at June 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 includes 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.

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

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

 
$
24,399

 
$
—

 
$
—

 
$
19,278

Tax credit entities
 
10,000

 
12,516

 
—

 
10,964

 
10,000

Other
 
—

 
41,221

 
2,738

 
2,784

 
7,923

Total consolidated
 
$
10,000

 
$
78,136

 
$
2,738

 
$
13,748

 
$
37,201

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
18,147

 
$
91,949

 
$
22,585

 
$
—

 
$
—

Other
 
—

 
12,184

 
3,918

 
—

 
—

Total unconsolidated
 
$
18,147

 
$
104,133

 
$
26,503

 
$
—

 
$
—



- 105 -


 
 
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

 
$
—

 
$
—


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

 
$
27,834

 
$
—

 
$
—

 
$
23,112

Tax credit entities
 
10,000

 
13,137

 
—

 
10,964

 
10,000

Other
 
—

 
7,112

 
—

 
—

 
2,017

Total consolidated
 
$
10,000

 
$
48,083

 
$
—

 
$
10,964

 
$
35,129

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
19,855

 
$
95,251

 
$
30,782

 
$
—

 
$
—

Other
 
—

 
6,321

 
1,657

 
—

 
—

Total unconsolidated
 
$
19,855

 
$
101,572

 
$
32,439

 
$
—

 
$
—


Other Commitments and Contingencies

At June 30, 2015, Cavanal Hill Funds’ assets included $1.2 billion of U.S. Treasury, $1.6 billion of cash management and $214 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 June 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, is being audited 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. During the third quarter of 2012, CVV, Inc. and credit purchasers settled the assessment related to the 2008 tax credits disallowed with no material adverse impact to the consolidated financial statements. Management does not anticipate that the remaining issue under audit will have a material adverse impact to the consolidated financial statements.


- 106 -


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 $7.0 million at June 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 July 28, 2015, the Company declared a a quarterly cash dividend of $0.42 per common share on or about August 28, 2015 to shareholders of record as of August 14, 2015.

Dividends declared were $0.42 and $0.84 per share during the three and six months ended June 30, 2015 and $0.40 and $0.80 per share during the three and six months ended June 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.


- 107 -


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, December 31, 2013
 
$
(23,175
)
 
$
1,118

 
$
(3,311
)
 
$
(255
)
 
$
(25,623
)
Net change in unrealized gain (loss)
 
124,653

 
—

 
(2
)
 
—

 
124,651

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

 
(736
)
 
—

 
—

 
(736
)
Interest expense, Subordinated debentures
 
—

 
—

 
—

 
154

 
154

Net impairment losses recognized in earnings
 
—

 
—

 
—

 
—

 
—

Gain on available for sale securities, net
 
(1,244
)
 
—

 
—

 
—

 
(1,244
)
Other comprehensive income (loss), before income taxes
 
123,409

 
(736
)
 
(2
)
 
154

 
122,825

Federal and state income taxes1
 
48,013

 
(286
)
 
(1
)
 
60

 
47,786

Other comprehensive income (loss), net of income taxes
 
75,396

 
(450
)
 
(1
)
 
94

 
75,039

Balance, June 30, 2014
 
$
52,221

 
$
668

 
$
(3,312
)
 
$
(161
)
 
$
49,416

 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2014
 
$
59,239

 
$
376

 
$
(2,868
)
 
$
(74
)
 
$
56,673

Net change in unrealized gain (loss)
 
(129
)
 
—

 
—

 
—

 
(129
)
Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
 
 
Interest revenue, Investment securities, Taxable securities
 
—

 
(313
)
 
—

 
—

 
(313
)
Interest expense, Subordinated debentures
 
—

 
—

 
—

 
121

 
121

Net impairment losses recognized in earnings
 
92

 
—

 
—

 
—

 
92

Gain on available for sale securities, net
 
(7,760
)
 
—

 
—

 
—

 
(7,760
)
Other comprehensive income (loss), before income taxes
 
(7,797
)
 
(313
)
 
—

 
121

 
(7,989
)
Federal and state income taxes1
 
(3,033
)
 
(122
)
 
—

 
47

 
(3,108
)
Other comprehensive income (loss), net of income taxes
 
(4,764
)
 
(191
)
 
—

 
74

 
(4,881
)
Balance, June 30, 2015
 
$
54,475

 
$
185

 
$
(2,868
)
 
$
—

 
$
51,792

1 
Calculated using a 39% effective tax rate.

- 108 -


(9)  Earnings Per Share
 
(In thousands, except share and per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to BOK Financial Corp. shareholders
 
$
79,230

 
$
75,895

 
$
154,073

 
$
152,485

Less: Earnings allocated to participating securities
 
944

 
884

 
1,758

 
1,579

Numerator for basic earnings per share – income available to common shareholders
 
78,286

 
75,011

 
152,315

 
150,906

Effect of reallocating undistributed earnings of participating securities
 
1

 
1

 
2

 
2

Numerator for diluted earnings per share – income available to common shareholders
 
$
78,287

 
$
75,012

 
$
152,317

 
$
150,908

 
 
 
 
 
 
 
 
 
Denominator:
 
 

 
 

 
 

 
 

Weighted average shares outstanding
 
68,917,977

 
69,162,724

 
68,960,043

 
69,031,961

Less:  Participating securities included in weighted average shares outstanding
 
821,636

 
802,779

 
784,716

 
713,272

Denominator for basic earnings per common share
 
68,096,341

 
68,359,945

 
68,175,327

 
68,318,689

Dilutive effect of employee stock compensation plans1
 
114,012

 
151,433

 
102,059

 
157,113

Denominator for diluted earnings per common share
 
68,210,353

 
68,511,378

 
68,277,386

 
68,475,802

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.15

 
$
1.10

 
$
2.23

 
$
2.21

Diluted earnings per share
 
$
1.15

 
$
1.10

 
$
2.23

 
$
2.20

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

 
—

 
—

 
—


- 109 -


(10)  Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2015 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
108,616

 
$
21,728

 
$
6,226

 
$
39,161

 
$
175,731

Net interest revenue (expense) from internal sources
 
(12,642
)
 
7,624

 
$
4,897

 
121

 
—

Net interest revenue
 
95,974

 
29,352

 
11,123

 
39,282

 
175,731

Provision for credit losses
 
(401
)
 
1,674

 
1

 
2,726

 
4,000

Net interest revenue after provision for credit losses
 
96,375

 
27,678

 
11,122

 
36,556

 
171,731

Other operating revenue
 
45,580

 
58,564

 
65,875

 
6,266

 
176,285

Other operating expense
 
52,776

 
52,090

 
58,828

 
63,419

 
227,113

Net direct contribution
 
89,179

 
34,152

 
18,169

 
(20,597
)
 
120,903

Corporate expense allocations
 
14,477

 
21,909

 
11,312

 
(47,698
)
 
—

Net income before taxes
 
74,702

 
12,243

 
6,857

 
27,101

 
120,903

Federal and state income taxes
 
29,059

 
4,763

 
2,667

 
4,141

 
40,630

Net income
 
45,643

 
7,480

 
4,190

 
22,960

 
80,273

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
1,043

 
1,043

Net income attributable to BOK Financial Corp. shareholders
 
$
45,643

 
$
7,480

 
$
4,190

 
$
21,917

 
$
79,230

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
13,136,059

 
$
7,341,766

 
$
4,634,589

 
$
5,351,658

 
$
30,464,072

Average invested capital
 
1,028,989

 
269,388

 
224,972

 
1,821,261

 
3,344,610

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.40
%
 
0.41
%
 
0.41
%
 
 
 
1.04
%
Return on average invested capital
 
17.82
%
 
11.14
%
 
8.46
%
 
 
 
9.50
%
Efficiency ratio
 
37.28
%
 
57.18
%
 
75.58
%
 
 
 
64.21
%


- 110 -


Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2015 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
209,784

 
$
42,453

 
$
11,610

 
$
79,610

 
$
343,457

Net interest revenue (expense) from internal sources
 
(25,198
)
 
15,538

 
$
10,551

 
(891
)
 
—

Net interest revenue
 
184,586

 
57,991

 
22,161

 
78,719

 
343,457

Provision for credit losses
 
(9,303
)
 
1,674

 
(347
)
 
11,976

 
4,000

Net interest revenue after provision for credit losses
 
193,889

 
56,317

 
22,508

 
66,743

 
339,457

Other operating revenue
 
88,464

 
114,795

 
128,222

 
10,821

 
342,302

Other operating expense
 
103,356

 
107,947

 
113,868

 
122,207

 
447,378

Net direct contribution
 
178,997

 
63,165

 
36,862

 
(44,643
)
 
234,381

Corporate expense allocations
 
29,302

 
42,972

 
22,257

 
(94,531
)
 
—

Net income before taxes
 
149,695

 
20,193

 
14,605

 
49,888

 
234,381

Federal and state income taxes
 
58,231

 
7,855

 
5,681

 
7,247

 
79,014

Net income
 
91,464

 
12,338

 
8,924

 
42,641

 
155,367

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
1,294

 
1,294

Net income attributable to BOK Financial Corp. shareholders
 
$
91,464

 
$
12,338

 
$
8,924

 
$
41,347

 
$
154,073

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
12,896,460

 
$
7,317,460

 
$
4,730,929

 
$
5,273,902

 
$
30,218,751

Average invested capital
 
1,013,116

 
270,738

 
224,247

 
1,823,407

 
3,331,508

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.43
%
 
0.34
%
 
0.43
%
 
 
 
1.03
%
Return on average invested capital
 
18.23
%
 
9.19
%
 
9.02
%
 
 
 
9.33
%
Efficiency ratio
 
37.83
%
 
58.99
%
 
75.16
%
 
 
 
64.55
%




- 111 -


Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2014 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
94,810

 
$
20,947

 
$
5,778

 
$
44,562

 
$
166,097

Net interest revenue (expense) from internal sources
 
(11,349
)
 
9,609

 
4,719

 
(2,979
)
 
—

Net interest revenue
 
83,461

 
30,556

 
10,497

 
41,583

 
166,097

Provision for credit losses
 
(3,728
)
 
1,576

 
492

 
1,660

 
—

Net interest revenue after provision for credit losses
 
87,189

 
28,980

 
10,005

 
39,923

 
166,097

Other operating revenue
 
42,720

 
53,373

 
65,528

 
4,521

 
166,142

Other operating expense
 
50,707

 
49,871

 
55,155

 
58,974

 
214,707

Net direct contribution
 
79,202

 
32,482

 
20,378

 
(14,530
)
 
117,532

Corporate expense allocations
 
14,961

 
20,379

 
12,388

 
(47,728
)
 
—

Net income before taxes
 
64,241

 
12,103

 
7,990

 
33,198

 
117,532

Federal and state income taxes
 
24,990

 
4,708

 
3,108

 
7,997

 
40,803

Net income
 
39,251

 
7,395

 
4,882

 
25,201

 
76,729

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
834

 
834

Net income attributable to BOK Financial Corp. shareholders
 
$
39,251

 
$
7,395

 
$
4,882

 
$
24,367

 
$
75,895

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
11,220,361

 
$
7,090,195

 
$
4,556,825

 
$
4,619,440

 
$
27,486,821

Average invested capital
 
937,085

 
276,294

 
214,936

 
1,713,706

 
3,142,021

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.40
%
 
0.42
%
 
0.47
%
 
 
 
1.11
%
Return on average invested capital
 
16.81
%
 
10.74
%
 
9.97
%
 
 
 
9.69
%
Efficiency ratio
 
40.18
%
 
56.30
%
 
72.28
%
 
 
 
64.30
%

- 112 -


Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2014 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
185,641

 
$
41,930

 
$
11,617

 
$
89,551

 
$
328,739

Net interest revenue (expense) from internal sources
 
(23,624
)
 
18,838

 
9,403

 
(4,617
)
 
—

Net interest revenue
 
162,017

 
60,768

 
21,020

 
84,934

 
328,739

Provision for credit losses
 
(7,192
)
 
1,576

 
447

 
5,169

 
—

Net interest revenue after provision for credit losses
 
169,209

 
59,192

 
20,573

 
79,765

 
328,739

Other operating revenue
 
81,406

 
98,787

 
119,788

 
5,103

 
305,084

Other operating expense
 
99,997

 
92,498

 
104,404

 
102,912

 
399,811

Net direct contribution
 
150,618

 
65,481

 
35,957

 
(18,044
)
 
234,012

Corporate expense allocations
 
28,943

 
39,584

 
23,810

 
(92,337
)
 
—

Net income before taxes
 
121,675

 
25,897

 
12,147

 
74,293

 
234,012

Federal and state income taxes
 
47,332

 
10,074

 
4,725

 
18,109

 
80,240

Net income
 
74,343

 
15,823

 
7,422

 
56,184

 
153,772

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
1,287

 
1,287

Net income attributable to BOK Financial Corp. shareholders
 
$
74,343

 
$
15,823

 
$
7,422

 
$
54,897

 
$
152,485

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
11,077,572

 
$
7,074,514

 
$
4,589,141

 
$
4,622,253

 
$
27,363,480

Average invested capital
 
934,768

 
279,897

 
208,909

 
1,682,848

 
3,106,422

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.36
%
 
0.45
%
 
0.36
%
 
 
 
1.12
%
Return on average invested capital
 
16.09
%
 
11.40
%
 
7.98
%
 
 
 
9.90
%
Efficiency ratio
 
40.83
%
 
54.99
%
 
73.72
%
 
 
 
61.92
%


- 113 -


(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 six months ended June 30, 2015 and 2014, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the six months ended June 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 June 30, 2015, December 31, 2014 or June 30, 2014.


- 114 -


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 June 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
 
$
40,212

 
$
—

 
$
40,212

 
$
—

U.S. agency residential mortgage-backed securities
 
23,090

 
—

 
23,090

 
—

Municipal and other tax-exempt securities
 
62,801

 
—

 
62,801

 
—

Other trading securities
 
32,106

 
—

 
32,106

 
—

Total trading securities
 
158,209

 
—

 
158,209

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,000

 
1,000

 
—

 
—

Municipal and other tax-exempt
 
61,624

 
—

 
52,007

 
9,617

U.S. agency residential mortgage-backed securities
 
6,339,449

 
—

 
6,339,449

 
—

Privately issued residential mortgage-backed securities
 
154,150

 
—

 
154,150

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,401,364

 
—

 
2,401,364

 
—

Other debt securities
 
4,150

 
—

 
—

 
4,150

Perpetual preferred stock
 
19,648

 
—

 
19,648

 
—

Equity securities and mutual funds
 
18,732

 
4,216

 
14,516

 
—

Total available for sale securities
 
9,000,117

 
5,216

 
8,981,134

 
13,767

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
436,324

 
—

 
436,324

 
—

     Other securities
 
—

 
—

 
—

 
—

Total fair value option securities
 
436,324

 
—

 
436,324

 
—

Residential mortgage loans held for sale
 
502,571

 
—

 
494,598

 
7,973

Mortgage servicing rights1
 
198,694

 
—

 
—

 
198,694

Derivative contracts, net of cash collateral2
 
630,435

 
11,484

 
618,951

 
—

Other assets – private equity funds
 
24,399

 
—

 
—

 
24,399

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
620,277

 
1,080

 
619,197

 
—

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 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 agricultural derivative contracts, fully offset by cash margin.


- 115 -


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 fro identical instruments (Level 1) are exchange-traded interest rate and agricultural derivative contracts, net of cash margin.



- 116 -


The fair value of financial assets and liabilities measured on a recurring basis was as follows as of June 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
 
$
19,027

 
$
—

 
$
19,027

 
$
—

U.S. agency residential mortgage-backed securities
 
13,540

 
—

 
13,540

 
—

Municipal and other tax-exempt securities
 
32,950

 
—

 
32,950

 
—

Other trading securities
 
35,580

 
—

 
35,580

 
—

Total trading securities
 
101,097

 
—

 
101,097

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,024

 
1,024

 
—

 
—

Municipal and other tax-exempt
 
64,970

 
—

 
54,525

 
10,445

U.S. agency residential mortgage-backed securities
 
7,259,504

 
—

 
7,259,504

 
—

Privately issued residential mortgage-backed securities
 
179,042

 
—

 
179,042

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,115,295

 
—

 
2,115,295

 
—

Other debt securities
 
34,528

 
—

 
30,297

 
4,231

Perpetual preferred stock
 
24,730

 
—

 
24,730

 
—

Equity securities and mutual funds
 
20,053

 
5,106

 
14,947

 
—

Total available for sale securities
 
9,699,146

 
6,130

 
9,678,340

 
14,676

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
181,205

 
—

 
181,205

 
—

Other securities
 
4,469

 
—

 
4,469

 
—

Total fair value option securities
 
185,674

 
—

 
185,674

 
—

Residential mortgage loans held for sale
 
325,875

 
—

 
325,875

 
—

Mortgage servicing rights1
 
155,740

 
—

 
—

 
155,740

Derivative contracts, net of cash collateral2
 
357,680

 
800

 
356,880

 
—

Other assets – private equity funds
 
27,834

 
—

 
—

 
27,834

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
297,851

 
—

 
297,851

 
—

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 and interest rate derivative contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets fro identical instruments (Level 1) were exchange-traded energy, interest rate and agricultural derivative contracts, fully offset by cash cash margin.



- 117 -


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 assess 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.


- 118 -


The following represents the changes for the three months ended June 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, Mar. 31, 2015
 
$
9,623

 
$
4,150

 
$
6,870

 
$
25,565

Transfer to Level 3 from Level 2
 
—

 
—

 
944

 
—

Purchases and capital calls
 
—

 
—

 
—

 
218

Proceeds from sales
 
—

 
—

 
—

 
—

Redemptions and distributions
 
—

 
—

 
—

 
(2,656
)
Gain (loss) recognized in earnings:
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
159

 
—

Gain on other assets, net
 
—

 
—

 
—

 
1,272

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
(6
)
 
—

 
—

 
—

Balance, June 30, 2015
 
$
9,617

 
$
4,150

 
$
7,973

 
$
24,399


The following represents the changes for the six months ended June 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, December 31, 2014
 
$
10,093

 
$
4,150

 
$
11,856

 
$
25,627

Transfer to Level 3 from Level 2
 
—

 
—

 
1,187

 
—

Purchases and capital calls
 
—

 
—

 
—

 
598

Proceeds from sales
 
—

 
—

 
(5,288
)
 
—

Redemptions and distributions
 
(500
)
 
—

 
—

 
(3,350
)
Gain (loss) recognized in earnings:
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
218

 
—

Gain on other assets, net
 
—

 
—

 
—

 
1,524

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
24

 
—

 
—

 
—

Balance, June 30, 2015
 
$
9,617

 
$
4,150

 
$
7,973

 
$
24,399


- 119 -


The following represents the changes for the three months ended June 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
 
Other assets – private equity funds
Balance, Mar. 31, 2014
 
$
15,523

 
$
4,712

 
$
—

 
$
27,466

Transfer to Level 3 from Level 2
 
—

 
—

 
—

 
—

Purchases, and capital calls
 
—

 
—

 
—

 
220

Redemptions and distributions
 
(5,165
)
 
(500
)
 
—

 
(2,075
)
Gain (loss) recognized in earnings
 
 
 
 
 
 
 
 
Gain on other assets, net
 
—

 
—

 
—

 
2,223

Gain on available for sale securities, net
 
(157
)
 
—

 
—

 
—

Charitable contributions to BOKF Foundation
 
—

 
—

 
—

 
—

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
244

 
19

 
—

 
—

Balance, June 30, 2014
 
$
10,445

 
$
4,231

 
$
—

 
$
27,834


The following represents the changes for the six months ended June 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
 
Other assets – private equity funds
Balance, December 31, 2013
 
$
17,805

 
$
4,712

 
$
4,207

 
$
27,341

Transfer to Level 3 from Level 2
 
—

 
—

 
—

 
—

Purchases, and capital calls
 
—

 
—

 
—

 
425

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

 
(3,180
)
Gain (loss) recognized in earnings
 
 
 
 
 
 
 
 
Gain on other assets, net
 
—

 
—

 
—

 
3,248

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

 
—

 
—

Charitable contributions to BOKF Foundation
 
—

 
—

 
(2,420
)
 
—

Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
362

 
19

 
(1,787
)
 
—

Balance, June 30, 2014
 
$
10,445

 
$
4,231

 
$
—

 
$
27,834




- 120 -


A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of June 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

 
$
9,617

 
Discounted cash flows
1 
Interest rate spread
 
5.11%-5.41% (5.37%)
2 
92.50%-92.85% (92.74%)
3 
Other debt securities
 
4,400

 
4,400

 
4,150

 
Discounted cash flows
1 
Interest rate spread
 
4.36%-5.69% (5.54%)
4 
94.25% - 94.33 (94.32%)
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans held for sale
 
N/A

 
8,384

 
7,973

 
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

 
24,399

 
Net asset value reported by underlying fund
 
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 502 to 527 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%.



- 121 -



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 fund
 
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 June 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

 
$
10,903

 
$
10,445

 
Discounted cash flows
1 
Interest rate spread
 
4.91%-5.21% (5.17%)
2 
95.11%-96.13% (95.38%)
3 
Other debt securities
 
4,400

 
4,400

 
4,231

 
Discounted cash flows
1 
Interest rate spread
 
4.38%-5.65% (5.51%)
4 
95.11% - 95.28 (95.17%)
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other assets - private equity funds
 
N/A

 
N/A

 
27,834

 
Net asset value reported by underlying fund
 
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 480 to 508 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 -


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 June 30, 2015 for which the fair value was adjusted during the three and six months ended June 30, 2015:
 
 
 
 
 
 
 
Fair Value Adjustments for the
 
Carrying Value at June 30, 2015
 
Three Months Ended
June 30, 2015
Recognized in:
 
Six Months Ended
June 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
$
—

 
$
5,041

 
$
17

 
$
574

 
$
—

 
$
1,117

 
$
—

Real estate and other repossessed assets
—

 
8,046

 
445

 
—

 
533

 
—

 
1,126

 
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 June 30, 2014 for which the fair value was adjusted during the six months ended June 30, 2014:
 
 
 
 
 
 
 
Fair Value Adjustments for the
 
Carrying Value at June 30, 2014
 
Three Months Ended
June 30, 2014
Recognized in:
 
Six Months Ended
June 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
$
—

 
$
5,182

 
$
65

 
$
949

 
$
—

 
$
1,627

 
$
—

Real estate and other repossessed assets
—

 
8,303

 
27

 
—

 
(21
)
 
—

 
1,308


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.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2015 follows (in thousands):
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
17

 
Appraised value, as adjusted
 
Broker quotes and management's knowledge of industry and collateral.
 
N/A
Real estate and other repossessed assets
 
445

 
Appraised value, as adjusted
 
Marketability adjustment off appraised value
 
41% - 86% (72%)

- 123 -


A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2014 follows (in thousands):
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
65

 
Appraised value, as adjusted
 
Broker quotes and management's knowledge of industry and collateral.
 
N/A


- 124 -


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 June 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
 
$
443,577

 
 
 
 
 
 
 
$
443,577

Interest-bearing cash and cash equivalents
 
2,119,072

 
 
 
 
 
 
 
2,119,072

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
40,212

 
 
 
 
 
 
 
40,212

U.S. agency residential mortgage-backed securities
 
23,090

 
 
 
 
 
 
 
23,090

Municipal and other tax-exempt securities
 
62,801

 
 
 
 
 
 
 
62,801

Other trading securities
 
32,106

 
 
 
 
 
 
 
32,106

Total trading securities
 
158,209

 
 
 
 
 
 
 
158,209

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
389,824

 
 
 
 
 
 
 
392,367

U.S. agency residential mortgage-backed securities
 
30,867

 
 
 
 
 
 
 
32,133

Other debt securities
 
204,973

 
 
 
 
 
 
 
217,542

Total investment securities
 
625,664

 
 
 
 
 
 
 
642,042

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,000

 
 
 
 
 
 
 
1,000

Municipal and other tax-exempt
 
61,624

 
 
 
 
 
 
 
61,624

U.S. agency residential mortgage-backed securities
 
6,339,449

 
 
 
 
 
 
 
6,339,449

Privately issued residential mortgage-backed securities
 
154,150

 
 
 
 
 
 
 
154,150

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,401,364

 
 
 
 
 
 
 
2,401,364

Other debt securities
 
4,150

 
 
 
 
 
 
 
4,150

Perpetual preferred stock
 
19,648

 
 
 
 
 
 
 
19,648

Equity securities and mutual funds
 
18,732

 
 
 
 
 
 
 
18,732

Total available for sale securities
 
9,000,117

 
 
 
 
 
 
 
9,000,117

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
436,324

 
 
 
 
 
 
 
436,324

      Other securities
 
—

 
 
 
 
 
 
 
—

Total fair value option securities
 
436,324

 
 
 
 
 
 
 
436,324

Residential mortgage loans held for sale
 
502,571

 
 
 
 
 
 
 
502,571

Loans:
 
 

 
 
 
 
 
 
 
 

Commercial
 
9,775,721

 
0.19% - 30.00%

 
0.63
 
0.49% - 4.42%

 
9,605,218

Commercial real estate
 
3,033,497

 
0.38% - 18.00%

 
0.76
 
1.01% - 3.77%

 
3,011,614

Residential mortgage
 
1,884,728

 
1.25% - 18.00%

 
2.20
 
0.97% - 3.99%

 
1,913,482

Consumer
 
430,190

 
0.38% - 21.00%

 
0.42
 
0.78% - 4.16%

 
426,983

Total loans
 
15,124,136

 
 

 
 
 
 

 
14,957,297

Allowance for loan losses
 
(201,087
)
 
 

 
 
 
 

 
—

Loans, net of allowance
 
14,923,049

 
 

 
 
 
 

 
14,957,297

Mortgage servicing rights
 
198,694

 
 

 
 
 
 

 
198,694

Derivative instruments with positive fair value, net of cash margin
 
630,435

 
 

 
 
 
 

 
630,435

Other assets – private equity funds
 
24,399

 
 

 
 
 
 

 
24,399

Deposits with no stated maturity
 
18,435,350

 
 

 
 
 
 

 
18,435,350

Time deposits
 
2,624,379

 
0.02% - 9.64%

 
1.68
 
0.80% - 1.30%

 
2,618,625

Other borrowed funds
 
5,108,872

 
0.25% - 5.07%

 
0.00
 
0.08% - 2.65%

 
5,088,104

Subordinated debentures
 
226,278

 
0.96
%
 
1.88
 
1.79
%
 
222,842

Derivative instruments with negative fair value, net of cash margin
 
620,277

 
 

 
 
 
 

 
620,277



- 125 -


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

Consumer
 
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



- 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 June 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
 
$
615,479

 
 
 
 
 
 
 
$
615,479

Interest-bearing cash and cash equivalents
 
732,395

 
 
 
 
 
 
 
732,395

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
19,027

 
 
 
 
 
 
 
19,027

U.S. agency residential mortgage-backed securities
 
13,540

 
 
 
 
 
 
 
13,540

Municipal and other tax-exempt securities
 
32,950

 
 
 
 
 
 
 
32,950

Other trading securities
 
35,580

 
 
 
 
 
 
 
35,580

Total trading securities
 
101,097

 
 
 
 
 
 
 
101,097

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
425,221

 
 
 
 
 
 
 
429,051

U.S. agency residential mortgage-backed securities
 
41,973

 
 
 
 
 
 
 
44,176

Other debt securities
 
182,743

 
 
 
 
 
 
 
197,584

Total investment securities
 
649,937

 
 
 
 
 
 
 
670,811

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,024

 
 
 
 
 
 
 
1,024

Municipal and other tax-exempt
 
64,970

 
 
 
 
 
 
 
64,970

U.S. agency residential mortgage-backed securities
 
7,259,504

 
 
 
 
 
 
 
7,259,504

Privately issued residential mortgage-backed securities
 
179,042

 
 
 
 
 
 
 
179,042

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,115,295

 
 
 
 
 
 
 
2,115,295

Other debt securities
 
34,528

 
 
 
 
 
 
 
34,528

Perpetual preferred stock
 
24,730

 
 
 
 
 
 
 
24,730

Equity securities and mutual funds
 
20,053

 
 
 
 
 
 
 
20,053

Total available for sale securities
 
9,699,146

 
 
 
 
 
 
 
9,699,146

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
181,205

 
 
 
 
 
 
 
181,205

Other securities
 
4,469

 
 
 
 
 
 
 
4,469

Total fair value option securities
 
185,674

 
 
 
 
 
 
 
185,674

Residential mortgage loans held for sale
 
325,875

 
 
 
 
 
 
 
325,875

Loans:
 
 

 
 
 
 
 
 
 
 

Commercial
 
8,367,661

 
0.16% - 30.00%
 
0.67
 
0.55% - 4.28%

 
8,244,031

Commercial real estate
 
2,654,978

 
0.38% - 18.00%
 
0.83
 
1.14% - 3.59%

 
2,635,903

Residential mortgage
 
2,008,215

 
1.20% - 18.00%
 
2.49
 
0.55% - 4.18%

 
2,043,551

Consumer
 
396,004

 
0.38% - 21.00%
 
0.49
 
1.07% - 3.79%

 
39,038

Total loans
 
13,426,858

 
 
 
 
 
 

 
12,962,523

Allowance for loan losses
 
(190,690
)
 
 
 
 
 
 

 
—

Loans, net of allowance
 
13,236,168

 
 
 
 
 
 

 
12,962,523

Mortgage servicing rights
 
155,740

 
 
 
 
 
 

 
155,740

Derivative instruments with positive fair value, net of cash margin
 
357,680

 
 
 
 
 
 

 
357,680

Other assets – private equity funds
 
27,834

 
 
 
 
 
 

 
27,834

Deposits with no stated maturity
 
17,956,038

 
 
 
 
 
 

 
17,956,038

Time deposits
 
2,615,826

 
0.03% - 9.64%
 
2.07
 
0.74% - 1.29%

 
2,623,086

Other borrowed funds
 
3,009,610

 
0.25% - 6.80%
 
0.00
 
0.09% - 2.62%

 
2,984,331

Subordinated debentures
 
347,890

 
0.91% - 5.00%
 
2.16
 
2.20
%
 
344,717

Derivative instruments with negative fair value, net of cash margin
 
297,851

 
 
 
 
 
 

 
297,851



- 127 -


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 $172 million at June 30, 2015, $161 million at December 31, 2014 and $164 million at June 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 June 30, 2015, December 31, 2014 or June 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 rightsand all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.



- 128 -


(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
June 30,
 
Six Months Ended
June 30,
 
 
2015
 
2014
 
2015
 
2014
Amount:
 
 
 
 
 
 
 
 
Federal statutory tax
 
$
42,316

 
$
41,136

 
$
82,033

 
$
81,904

Tax exempt revenue
 
(2,322
)
 
(2,098
)
 
(4,568
)
 
(4,090
)
Effect of state income taxes, net of federal benefit
 
2,510

 
2,457

 
5,125

 
5,327

Utilization of tax credits:
 
 
 
 
 


 


Low-income housing tax credit, net of amortization
 
(1,055
)
 
160

 
(1,812
)
 
(832
)
Other tax credits
 
(522
)
 
(674
)
 
(1,043
)
 
(1,055
)
Bank-owned life insurance
 
(828
)
 
(784
)
 
(1,632
)
 
(1,552
)
Charitable contributions to BOKF Foundation
 
—

 
—

 
—

 
(427
)
Other, net
 
531

 
606

 
911

 
965

Total
 
$
40,630

 
$
40,803

 
$
79,014

 
$
80,240



 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2015
 
2014
 
2015
 
2014
Percent of pretax income:
 
 
 
 
 
 
 
 
Federal statutory tax
 
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
Tax exempt revenue
 
(1.9
)
 
(1.8
)
 
(1.9
)
 
(1.7
)
Effect of state income taxes, net of federal benefit
 
2.1

 
2.2

 
2.2

 
2.3

Utilization of tax credits:
 
 
 
 
 


 


Low-income housing tax credit, net of amortization
 
(0.9
)
 
0.1

 
(0.8
)
 
(0.4
)
Other tax credits
 
(0.4
)
 
(0.6
)
 
(0.4
)
 
(0.5
)
Bank-owned life insurance
 
(0.7
)
 
(0.7
)
 
(0.7
)
 
(0.7
)
Charitable contributions to BOKF Foundation
 
—

 
—

 
—

 
(0.2
)
Other, net
 
0.4

 
0.5

 
0.3

 
0.5

Total
 
33.6
 %
 
34.7
 %
 
33.7
 %
 
34.3
 %
(13) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on June 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.


- 129 -


Six-Month Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
2,045,761

 
$
2,672

 
0.26
%
 
$
592,543

 
$
648

 
0.22
%
Trading securities
 
134,142

 
1,271

 
2.17
%
 
104,363

 
1,058

 
2.60
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
239,195

 
6,577

 
5.50
%
 
229,569

 
6,477

 
5.64
%
Tax-exempt
 
396,422

 
3,089

 
1.56
%
 
435,669

 
3,594

 
1.65
%
Total investment securities
 
635,617

 
9,666

 
3.04
%
 
665,238

 
10,071

 
3.03
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,997,344

 
85,460

 
1.94
%
 
9,842,763

 
93,713

 
1.92
%
Tax-exempt
 
84,785

 
1,759

 
4.31
%
 
95,413

 
1,742

 
3.76
%
Total available for sale securities
 
9,082,129

 
87,219

 
1.96
%
 
9,938,176

 
95,455

 
1.94
%
Fair value option securities
 
420,119

 
4,323

 
2.22
%
 
165,097

 
1,645

 
1.96
%
Restricted equity securities
 
200,766

 
5,825

 
5.80
%
 
91,158

 
2,272

 
4.98
%
Residential mortgage loans held for sale
 
406,482

 
6,841

 
3.38
%
 
202,346

 
4,113

 
4.10
%
Loans2
 
14,730,936

 
264,555

 
3.62
%
 
13,107,068

 
251,843

 
3.87
%
Allowance for loan losses
 
(196,684
)
 
 
 
 
 
(188,160
)
 
 
 
 
Loans, net of allowance
 
14,534,252

 
264,555

 
3.67
%
 
12,918,908

 
251,843

 
3.93
%
Total earning assets
 
27,459,268

 
382,372

 
2.82
%
 
24,677,829

 
367,105

 
3.00
%
Receivable on unsettled securities sales
 
97,025

 
 
 
 
 
111,750

 
 
 
 
Cash and other assets
 
2,662,458

 
 
 
 
 
2,573,901

 
 
 
 
Total assets
 
$
30,218,751

 
 
 
 
 
$
27,363,480

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
10,200,234

 
$
4,662

 
0.09
%
 
$
9,875,769

 
$
5,048

 
0.10
%
Savings
 
373,878

 
197

 
0.11
%
 
346,070

 
204

 
0.12
%
Time
 
2,655,550

 
18,512

 
1.41
%
 
2,661,106

 
20,511

 
1.55
%
Total interest-bearing deposits
 
13,229,662

 
23,371

 
0.36
%
 
12,882,945

 
25,763

 
0.40
%
Funds purchased
 
66,504

 
29

 
0.09
%
 
797,107

 
268

 
0.07
%
Repurchase agreements
 
886,781

 
165

 
0.04
%
 
844,401

 
333

 
0.08
%
Other borrowings
 
3,545,381

 
5,500

 
0.31
%
 
1,167,547

 
2,301

 
0.40
%
Subordinated debentures
 
327,844

 
3,860

 
2.37
%
 
347,846

 
4,347

 
2.52
%
Total interest-bearing liabilities
 
18,056,172

 
32,925

 
0.37
%
 
16,039,846

 
33,012

 
0.42
%
Non-interest bearing demand deposits
 
7,941,409

 
 
 
 
 
7,484,096

 
 
 
 
Due on unsettled securities purchases
 
178,084

 
 
 
 
 
141,547

 
 
 
 
Other liabilities
 
676,489

 
 
 
 
 
556,894

 
 
 
 
Total equity
 
3,366,597

 
 
 
 
 
3,141,097

 
 
 
 
Total liabilities and equity
 
$
30,218,751

 
 
 
 
 
$
27,363,480

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
349,447

 
2.45
%
 
 
 
$
334,093

 
2.58
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
 
 
2.58
%
 
 
 
 
 
2.73
%
Less tax-equivalent adjustment
 
 
 
5,990

 
 
 
 
 
5,354

 
 
Net Interest Revenue
 
 
 
343,457

 
 
 
 
 
328,739

 
 
Provision for credit losses
 
 
 
4,000

 
 
 
 
 
—

 
 
Other operating revenue
 
 
 
342,302

 
 
 
 
 
305,084

 
 
Other operating expense
 
 
 
447,378

 
 
 
 
 
399,811

 
 
Income before taxes
 
 
 
234,381

 
 
 
 
 
234,012

 
 
Federal and state income taxes
 
 
 
79,014

 
 
 
 
 
80,240

 
 
Net income
 
 
 
155,367

 
 
 
 
 
153,772

 
 
Net income attributable to non-controlling interests
 
 
 
1,294

 
 
 
 
 
1,287

 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
154,073

 
 
 
 
 
$
152,485

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Net income:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
2.23

 
 

 
 

 
$
2.21

 
 

Diluted
 
 

 
$
2.23

 
 

 
 

 
$
2.20

 
 

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.

- 130 -


Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Three Months Ended
 
 
June 30, 2015
 
March 31, 2015
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
2,002,456

 
$
1,250

 
0.25
%
 
$
2,089,546

 
$
1,422

 
0.27
%
Trading securities
 
127,391

 
585

 
1.85
%
 
140,968

 
685

 
2.55
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
236,956

 
3,251

 
5.49
%
 
241,458

 
3,326

 
5.51
%
Tax-exempt
 
391,533

 
1,526

 
1.56
%
 
401,367

 
1,564

 
1.56
%
Total investment securities
 
628,489

 
4,777

 
3.05
%
 
642,825

 
4,890

 
3.04
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,980,312

 
42,355

 
1.92
%
 
9,014,566

 
43,105

 
1.95
%
Tax-exempt
 
82,694

 
838

 
4.21
%
 
86,899

 
921

 
4.40
%
Total available for sale securities
 
9,063,006

 
43,193

 
1.94
%
 
9,101,464

 
44,026

 
1.98
%
Fair value option securities
 
435,294

 
2,320

 
2.17
%
 
404,775

 
2,003

 
2.28
%
Restricted equity securities
 
221,911

 
3,228

 
5.82
%
 
179,385

 
2,597

 
5.79
%
Residential mortgage loans held for sale
 
464,269

 
3,892

 
3.37
%
 
348,054

 
2,949

 
3.41
%
Loans2
 
14,905,352

 
135,603

 
3.65
%
 
14,554,582

 
128,952

 
3.59
%
Allowance for loan losses
 
(198,400
)
 
 
 
 
 
(194,948
)
 
 
 
 
Loans, net of allowance
 
14,706,952

 
135,603

 
3.70
%
 
14,359,634

 
128,952

 
3.64
%
Total earning assets
 
27,649,768

 
194,848

 
2.84
%
 
27,266,651

 
187,525

 
2.80
%
Receivable on unsettled securities sales
 
94,374

 
 
 
 
 
99,706

 
 
 
 
Cash and other assets
 
2,719,930

 
 
 
 
 
2,604,347

 
 
 
 
Total assets
 
$
30,464,072

 
 
 
 
 
$
29,970,704

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
10,063,589

 
$
2,197

 
0.09
%
 
$
10,338,396

 
$
2,465

 
0.10
%
Savings
 
381,833

 
103

 
0.11
%
 
365,835

 
94

 
0.10
%
Time
 
2,651,820

 
8,966

 
1.36
%
 
2,659,323

 
9,546

 
1.46
%
Total interest-bearing deposits
 
13,097,242

 
11,266

 
0.35
%
 
13,363,554

 
12,105

 
0.37
%
Funds purchased
 
63,312

 
13

 
0.08
%
 
69,730

 
16

 
0.09
%
Repurchase agreements
 
773,977

 
61

 
0.03
%
 
1,000,839

 
104

 
0.04
%
Other borrowings
 
4,001,479

 
3,047

 
0.31
%
 
3,084,214

 
2,453

 
0.32
%
Subordinated debentures
 
307,903

 
1,695

 
2.21
%
 
348,007

 
2,165

 
2.52
%
Total interest-bearing liabilities
 
18,243,913

 
16,082

 
0.35
%
 
17,866,344

 
16,843

 
0.38
%
Non-interest bearing demand deposits
 
7,996,717

 
 
 
 
 
7,885,485

 
 
 
 
Due on unsettled securities purchases
 
151,369

 
 
 
 
 
205,096

 
 
 
 
Other liabilities
 
690,604

 
 
 
 
 
662,218

 
 
 
 
Total equity
 
3,381,469

 
 
 
 
 
3,351,561

 
 
 
 
Total liabilities and equity
 
$
30,464,072

 
 
 
 
 
$
29,970,704

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
178,766

 
2.49
%
 
 
 
$
170,682

 
2.42
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
 
 
2.61
%
 
 
 
 
 
2.55
%
Less tax-equivalent adjustment
 
 
 
3,035

 
 
 
 
 
2,956

 
 
Net Interest Revenue
 
 
 
175,731

 
 
 
 
 
167,726

 
 
Provision for credit losses
 
 
 
4,000

 
 
 
 
 
—

 
 
Other operating revenue
 
 
 
176,285

 
 
 
 
 
166,017

 
 
Other operating expense
 
 
 
227,113

 
 
 
 
 
220,265

 
 
Income before taxes
 
 
 
120,903

 
 
 
 
 
113,478

 
 
Federal and state income taxes
 
 
 
40,630

 
 
 
 
 
38,384

 
 
Net income
 
 
 
80,273

 
 
 
 
 
75,094

 
 
Net income attributable to non-controlling interests
 
 
 
1,043

 
 
 
 
 
251

 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
79,230

 
 
 
 
 
$
74,843

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Net income:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
1.15

 
 

 
 

 
$
1.08

 
 

Diluted
 
 

 
$
1.15

 
 

 
 

 
$
1.08

 
 

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 -


Three Months Ended
December 31, 2014
 
September 30, 2014
 
June 30, 2014
Average Balance
 
Revenue /Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
2,090,176

 
$
1,500

 
0.28
%
 
$
1,217,942

 
$
601

 
0.20
%
 
$
635,140

 
$
383

 
0.24
%
164,502

 
901

 
2.48
%
 
107,909

 
561

 
2.67
%
 
116,186

 
527

 
2.40
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
244,395

 
3,468

 
5.68
%
 
228,771

 
3,238

 
5.66
%
 
226,528

 
3,195

 
5.64
%
406,516

 
1,586

 
1.56
%
 
412,604

 
1,605

 
1.56
%
 
432,265

 
1,764

 
1.63
%
650,911

 
5,054

 
3.11
%
 
641,375

 
4,843

 
3.03
%
 
658,793

 
4,959

 
3.01
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,073,467

 
43,953

 
1.97
%
 
9,436,137

 
45,257

 
1.94
%
 
9,706,965

 
46,458

 
1.94
%
88,434

 
904

 
4.23
%
 
90,590

 
675

 
3.14
%
 
93,969

 
1,007

 
4.44
%
9,161,901

 
44,857

 
1.99
%
 
9,526,727

 
45,932

 
1.95
%
 
9,800,934

 
47,465

 
1.96
%
221,773

 
1,053

 
2.18
%
 
180,268

 
913

 
2.05
%
 
164,684

 
794

 
1.94
%
182,737

 
2,635

 
5.77
%
 
142,418

 
2,133

 
5.99
%
 
97,016

 
1,275

 
5.26
%
321,746

 
3,101

 
3.87
%
 
310,924

 
2,929

 
3.79
%
 
219,308

 
2,523

 
4.63
%
13,882,005

 
130,378

 
3.73
%
 
13,518,578

 
128,695

 
3.78
%
 
13,264,461

 
127,508

 
3.85
%
(190,787
)
 
 
 
 
 
(191,141
)
 
 
 
 
 
(189,329
)
 
 
 
 
13,691,218

 
130,378

 
3.78
%
 
13,327,437

 
128,695

 
3.83
%
 
13,075,132

 
127,508

 
3.91
%
26,484,964

 
189,479

 
2.86
%
 
25,455,000

 
186,607

 
2.93
%
 
24,767,193

 
185,434

 
3.02
%
69,109

 
 
 
 
 
63,277

 
 
 
 
 
108,825

 
 
 
 
2,578,124

 
 
 
 
 
2,597,280

 
 
 
 
 
2,610,803

 
 
 
 
$
29,132,197

 
 
 
 
 
$
28,115,557

 
 
 
 
 
$
27,486,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
9,730,564

 
$
2,328

 
0.09
%
 
$
9,473,575

 
$
2,381

 
0.10
%
 
$
9,850,991

 
$
2,489

 
0.10
%
346,132

 
96

 
0.11
%
 
342,488

 
101

 
0.12
%
 
355,459

 
106

 
0.12
%
2,647,147

 
9,777

 
1.47
%
 
2,610,561

 
10,237

 
1.56
%
 
2,636,444

 
10,182

 
1.55
%
12,723,843

 
12,201

 
0.38
%
 
12,426,624

 
12,719

 
0.41
%
 
12,842,894

 
12,777

 
0.40
%
71,728

 
14

 
0.08
%
 
320,817

 
59

 
0.07
%
 
574,926

 
107

 
0.07
%
996,308

 
109

 
0.04
%
 
1,027,206

 
141

 
0.05
%
 
914,892

 
182

 
0.08
%
3,021,094

 
2,443

 
0.32
%
 
2,333,961

 
2,004

 
0.34
%
 
1,294,932

 
1,279

 
0.40
%
347,960

 
2,189

 
2.50
%
 
347,914

 
2,154

 
2.46
%
 
347,868

 
2,189

 
2.52
%
17,160,933

 
16,956

 
0.39
%
 
16,456,522

 
17,077

 
0.41
%
 
15,975,512

 
16,534

 
0.42
%
7,974,165

 
 
 
 
 
7,800,350

 
 
 
 
 
7,654,225

 
 
 
 
137,566

 
 
 
 
 
124,952

 
 
 
 
 
166,521

 
 
 
 
549,388

 
 
 
 
 
485,304

 
 
 
 
 
513,839

 
 
 
 
3,310,145

 
 
 
 
 
3,248,429

 
 
 
 
 
3,176,724

 
 
 
 
$
29,132,197

 
 
 
 
 
$
28,115,557

 
 
 
 
 
$
27,486,821

 
 
 
 
 
 
$
172,523

 
2.47
%
 
 
 
$
169,530

 
2.52
%
 
 
 
$
168,900

 
2.60
%
 
 
 
 
2.61
%
 
 
 
 
 
2.67
%
 
 
 
 
 
2.75
%
 
 
2,859

 
 
 
 
 
2,739

 
 
 
 
 
2,803

 
 
 
 
169,664

 
 
 
 
 
166,791

 
 
 
 
 
166,097

 
 
 
 
—

 
 
 
 
 
—

 
 
 
 
 
—

 
 
 
 
151,903

 
 
 
 
 
164,971

 
 
 
 
 
166,142

 
 
 
 
225,877

 
 
 
 
 
221,834

 
 
 
 
 
214,707

 
 
 
 
95,690

 
 
 
 
 
109,928

 
 
 
 
 
117,532

 
 
 
 
30,109

 
 
 
 
 
33,802

 
 
 
 
 
40,803

 
 
 
 
65,581

 
 
 
 
 
76,126

 
 
 
 
 
76,729

 
 
 
 
1,263

 
 
 
 
 
494

 
 
 
 
 
834

 
 
 
 
$
64,318

 
 
 
 
 
$
75,632

 
 
 
 
 
$
75,895

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
$
0.93

 
 

 
 

 
$
1.09

 
 

 
 

 
$
1.10

 
 

 

 
$
0.93

 
 

 
 

 
$
1.09

 
 

 
 

 
$
1.10

 
 




- 132 -



Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
 
 
Three Months Ended
 
 
June 30,
2015
 
Mar. 31,
2015
 
Dec. 31,
2014
 
Sept. 30,
2014
 
June 30,
2014
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
191,813

 
$
184,569

 
$
186,620

 
$
183,868

 
$
182,631

Interest expense
 
16,082

 
16,843

 
16,956

 
17,077

 
16,534

Net interest revenue
 
175,731

 
167,726

 
169,664

 
166,791

 
166,097

Provision for credit losses
 
4,000

 
—

 
—

 
—

 
—

Net interest revenue after provision for credit losses
 
171,731

 
167,726

 
169,664

 
166,791

 
166,097

Other operating revenue
 
 

 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
36,012

 
31,707

 
30,602

 
35,263

 
39,056

Transaction card revenue
 
32,778

 
31,010

 
31,467

 
31,578

 
31,510

Fiduciary and asset management revenue
 
32,712

 
31,469

 
30,649

 
29,738

 
29,543

Deposit service charges and fees
 
22,328

 
21,684

 
22,581

 
22,508

 
23,133

Mortgage banking revenue
 
36,846

 
39,320

 
30,105

 
26,814

 
29,330

Bank-owned life insurance
 
2,398

 
2,198

 
2,380

 
2,326

 
2,274

Other revenue
 
9,473

 
8,603

 
10,071

 
10,320

 
9,208

Total fees and commissions
 
172,547

 
165,991

 
157,855

 
158,547

 
164,054

Gain (loss) on other assets, net
 
1,457

 
755

 
338

 
1,422

 
3,521

Gain (loss) on derivatives, net
 
(1,032
)
 
911

 
1,070

 
(93
)
 
831

Gain (loss) on fair value option securities, net
 
(8,130
)
 
2,647

 
3,685

 
(332
)
 
4,176

Change in fair value of mortgage servicing rights
 
8,010

 
(8,522
)
 
(10,821
)
 
5,281

 
(6,444
)
Gain on available for sale securities, net
 
3,433

 
4,327

 
149

 
146

 
4

Total other-than-temporary impairment losses
 
—

 
(781
)
 
(373
)
 
—

 
—

Portion of loss recognized in (reclassified from) other comprehensive income
 
—

 
689

 
—

 
—

 
—

Net impairment losses recognized in earnings
 
—

 
(92
)
 
(373
)
 
—

 
—

Total other operating revenue
 
176,285

 
166,017

 
151,903

 
164,971

 
166,142

Other operating expense
 
 

 
 

 
 

 
 

 
 

Personnel
 
132,695

 
128,548

 
125,741

 
123,043

 
123,714

Business promotion
 
7,765

 
5,748

 
7,498

 
6,160

 
7,150

Charitable contributions to BOKF Foundation
 
—

 
—

 
1,847

 
—

 
—

Professional fees and services
 
9,560

 
10,059

 
11,058

 
14,763

 
11,054

Net occupancy and equipment
 
18,927

 
19,044

 
22,655

 
18,892

 
18,789

Insurance
 
5,116

 
4,980

 
4,777

 
4,793

 
4,467

Data processing and communications
 
31,463

 
30,620

 
30,872

 
29,971

 
29,071

Printing, postage and supplies
 
3,553

 
3,461

 
3,168

 
3,380

 
3,429

Net losses (gains) and operating expenses of repossessed assets
 
223

 
613

 
(1,497
)
 
4,966

 
1,118

Amortization of intangible assets
 
1,090

 
1,090

 
1,100

 
1,100

 
949

Mortgage banking costs
 
7,419

 
9,319

 
10,553

 
7,734

 
7,960

Other expense
 
9,302

 
6,783

 
8,105

 
7,032

 
7,006

Total other operating expense
 
227,113

 
220,265

 
225,877

 
221,834

 
214,707

Net income before taxes
 
120,903

 
113,478

 
95,690

 
109,928

 
117,532

Federal and state income taxes
 
40,630

 
38,384

 
30,109

 
33,802

 
40,803

Net income
 
80,273

 
75,094

 
65,581

 
76,126

 
76,729

Net income attributable to non-controlling interests
 
1,043

 
251

 
1,263

 
494

 
834

Net income attributable to BOK Financial Corporation shareholders
 
$
79,230

 
$
74,843

 
$
64,318

 
$
75,632

 
$
75,895

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 

 
 

 
 

Basic
 
$1.15
 
$1.08
 
$0.93
 
$1.09
 
$1.10
Diluted
 
$1.15
 
$1.08
 
$0.93
 
$1.09
 
$1.10
Average shares used in computation:
 
 
 
 
 
 
 
 
 
 
Basic
 
68,096,341

 
68,254,780

 
68,481,630

 
68,455,866

 
68,359,945

Diluted
 
68,210,353

 
68,344,886

 
68,615,808

 
68,609,765

 
68,511,378


- 133 -


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 June 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
April 1 to April 30, 2015
 
960

 
$
62.68

 
—

 
1,258,348

May 1 to May 31, 2015
 
5,970

 
$
65.03

 
—

 
1,258,348

June 1 to June 30, 2015
 
47,583

 
$
68.74

 
—

 
1,258,348

Total
 
54,513

 
 

 
—

 
 

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 June 30, 2015, the Company had repurchased 741,652 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.



- 134 -


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:        July 31, 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


- 135 -