2013 | Annual Report
DRIVING LONG TERM
SHAREHOLDER VALUE
STRONG PRESENCE IN SOME OF THE
COUNTRY’S MOST ATTRACTIVE MARKETS
As of 12/31/13
BOKF
Peer Average
Peer Median
Total Shareholder Return
10 yr.
5 yr.
15 yr.
88%
112%
292%
63%
52%
34%
150%
21%
107%
NASDAQ Bank Index
44%
14%
103%
KBW Bank Index
70%
-7%
28%
TSR = (
Stock Price + Dividends) / Initial Price
Source: Bloomberg
Full Service Banking Markets
Additional Mortgage Banking Markets
Additional Wealth Management Markets
Services are also provided at additional offices not reflected on this map.
CONSISTENT PROFITABILITY
ACROSS ALL ECONOMIC CYCLES
2013
PERFORMANCE
HIGHLIGHTS
• Achieved net income of $316.6 million or $4.59 per share
• Grew loan portfolio by 4.2%
• Delivered non-interest revenue of $603.8 million
• Maintained pristine credit quality of loan portfolio, allowing a $27.9 million reduction
in loan loss reserves
• Increased quarterly dividend to 40 cents per share
• Successfully completed executive leadership transition
• Acquired GTrust Financial Corporation, adding $600 million in wealth management assets
under management and expanding the company’s presence in the Kansas City market.
TO OUR
SHAREHOLDERS:
placing us in the top quintile of our peer group. During that
timeframe, we outperformed the peer group median by 120
percent and the S&P 500 by almost 150 percent.
But at the same time, the current reality is that 2013 was a
It’s my honor and pleasure to address you in my first letter
challenging year. While we remained solidly profitable with
to shareholders as president and chief executive officer of
net income of $316.6 million or $4.59 per diluted share in
BOK Financial Corp. Throughout my 22-year career with the
2013, it was the first year since 2008 we were unable to
corporation across a variety of jobs, I’ve had the opportunity
grow earnings. Our focus remains on driving long-term,
to meet many of you, and I appreciate the support you have
double-digit earnings growth. Given the current operating
provided us. Our corporation enjoys an unprecedented share-
environment for mid-cap banks, this will require us to be
holder base consisting largely of long-term investors who
nimble and creative. With that in mind, here are the objectives
remain unswayed by the quarterly ebbs and flows of the stock
I have set forth for the corporation for the coming year:
market. This is a luxury that has enabled us, as an organization,
to make decisions that drive long-term shareholder value rather
than short-term quarterly results. We thank you for that.
1 |
BUILD LEADING RISK AND COMPLIANCE
MANAGEMENT CAPABILITIES.
Delivering the level of results you expect from us may require
As a result of this long-term view, using virtually any measure
new products, new markets, new business lines or acquisi-
by which a bank’s performance can be tracked, BOK Financial
tions. At BOK Financial, having the flexibility to consider these
has performed in the upper echelons of our peer group in
growth strategies requires top-notch risk management.
good times and bad. We have a rock-solid capital base
and pristine credit quality. We have an enviable collection of
In the current regulatory environment, we face heightened
fee-generating businesses to complement our traditional
expectations and new rules. The vast majority of these
consumer and commercial banking franchises in the lower
expectations and rules provide protections to customers,
Midwest and Southwest. Our leadership team has worked
shareholders or society. We believe that our customers and
exceptionally hard to forge this stable business platform,
shareholders deserve every one of these protections and more.
and accordingly, my primary objective is to make sure we
don’t deviate from this long-term view. It’s a great base from
And so, we are making significant investments in people,
which to build, and it has enabled BOK Financial to deliver
technology, and business processes in support of risk and
total shareholder return (TSR) that has far exceeded our peer
compliance management. These investments make our
group and relevant stock market indices. For the fifteen-year
company stronger and create opportunity for our colleagues:
period, ending December 31, 2013, our TSR was 306 percent,
Seventy percent of the new risk and compliance positions
“We believe we have the right framework to continue to drive long
term shareholder value. We are a top performing bank, and have
been for more than two decades. We’ve accomplished this by
sticking to certain fundamental principles while making prudent
and sometimes counter-intuitive investments in our business,
and by not getting swayed by the latest fads in banking.”
we added have been filled by existing employees. The com-
the national reputation needed to expand this business
pany will be investing heavily in their skill sets, enabling them
beyond our footprint. In mid 2013, we set a new organiza-
to meet the new challenges they have accepted. We see
tional strategy for commercial banking under the leadership of
these investments as critical to our ability to produce
Dan Ellinor, our newly appointed Chief Operating Officer.
long-term growth.
2 |
GROW REVENUE FASTER
THAN OUR PEERS.
Loan growth remains perhaps the most important driver of
One of Dan’s first actions was to organize our health care
lending activities as a line of business, similar to the model
we have used in the energy sector. This will enable us to
continue to grow and expand this important business. The
strategy is already paying off. Throughout 2013, health care
bank earnings. And while the economy is performing better
was the single fastest-growing portfolio in our commercial
now than it has in the past five years, borrowers in 2013 were
lending book, with average loan balances growing by nearly
a bit cautious, taking a wait-and-see approach before making
18 percent during the year and outpacing the corporate
major investment commitments needed to drive significant
average by more than 350 percent.
loan growth. Accordingly, our average loan growth in the year
was 3.91 percent, compared to 4.05 percent in 2012. The
BOK Financial is differentiated by the fact that nearly half our
good news is that we saw very healthy loan growth at the
revenue comes from fee generating businesses. Accordingly,
end of the fourth quarter, which bodes well for 2014.
another key objective is to continue to build these profitable
businesses going forward.
But to grow our loan portfolio faster than peers without
disrupting our conservative risk profile, we have to be more
In the wealth management space, we announced the
innovative than ever. To that end, we are currently conducting
acquisition of GTRUST Financial Corporation, which helped
a thorough review of our loan book to determine if there are
build our presence in the Kansas market. In addition with this
areas of expertise that we can expand and build into new
acquisition, we gained a new wealth management product –
practice areas. For example, there are lessons to be applied
fee-only financial planning – which can be leveraged across
from our core expertise in energy lending. A more than
our footprint. We also are working to accelerate our growth
100-year base of experience in the energy sector has taught
of investment assets under management and have several
us that unique expertise in specialized lending areas can
initiatives underway to do so. These include developing a
differentiate the bank and open new markets. In the energy
new managed account product and platform strategy. This
sector, we are known throughout the industry as a lender of
will leverage the tremendous results of our Cavanal Hill
first choice because we are a trusted and reliable source of
Investment Management mutual funds, and it will introduce
capital. In addition, because we have developed best
new retirement asset services.
practices that can serve as a risk mitigant, the energy
business has been one of the best-performing portfolios in
In February 2014, our Registered Investment Adviser,
our entire loan book, with minimal credit losses.
Cavanal Hill, launched a new World Energy Fund. With
macroeconomic trends driving continued ongoing demand
We are replicating this model in the health care industry.
for energy for the foreseeable future, our investment thesis
We have been a leader in the health care sector for many
is that a wide range of companies are poised to profit
years, with clients such as skilled nursing and senior care
from the coming end of cheap energy. The World Energy
facilities, acute care and specialty hospitals, and medical
Fund is structured so it can invest wherever its investment
service facilities. Lending activities in this business require
management
team believes
the best energy-sector
knowledge and expertise in construction financing, as well as
opportunities reside—equity or fixed income, domestic
knowledge of reimbursement rates from health care payers
or international, conventional energy sources or cutting-edge,
such as Medicaid in the regions where we do business.
environmentally friendly, renewable energy sources—with
By specializing in this arena, we have developed the internal
the ability to shift allocations dependent on market conditions.
know-how to underwrite loans appropriately, and we have
Our mortgage business has been under pressure recently as
customer service absolute must-haves. We will continue to
the refinancing boom slowed in the second half of 2013.
invest in our technology platforms to make sure they are reli-
We knew there would come a day when long-term rates
able, secure, and targeted to meet clients’ banking needs
would rise and refinancing volume would slow. Our long-term
wherever they are — at home or on the go.
focus remains steadfast, however. We invested in our mort-
gage business when most other banks were downsizing in
One of the most critical ways we are doing this is by providing
the late 2000s. This has paid off as mortgage banking was
products and services delivered in a way that makes a differ-
one of our most profitable businesses during the last several
ence for our clients. We are launching a new mortgage loan
years. We continue to invest, and in 2013, we expanded our
origination system to expedite the application process and
network of correspondent banks. This expansion represents
simplify the loan origination process. We are building a new
a growing portion of our mortgage business and accounted
treasury management front end for commercial clients, and
for 29 percent of originations in 2013. We also launched
we are enhancing StartRight, our 401(K) platform, to improve
HomeDirect Mortgage, which will give us a presence in the
the ability for plan participants to make investment choices
online mortgage shopping segment, currently 10 percent of
that suit their investment styles, risk appetite and retirement
the market and expected to grow in the near term.
time horizon.
Our TransFund transaction processing business is one of the
top 10 electronic funds transfer (EFT) networks in the United
States, with nearly 2,000 ATMs in 17 states. It also processes
4 |
CONTROL INTERNAL
EXPENSE GROWTH.
While all of the initiatives outlined in this letter will require
more than $2 billion of merchant sales per year and 428
significant investment in 2014, our assurance to shareholders
million EFT transactions. This is a valued business that has
is that we will remain good stewards of the company’s
established a strong niche processing transactions and
finances. It is essential that we balance these investments
providing ATMs for banks, credit unions, and convenience
with careful cost containment in controllable expense line
store chains, and it represents a strong component of our fee
items to ensure that expense growth does not outpace
business — one that we will continue to build and grow.
revenue growth.
3 |
EXCEED CUSTOMER
EXPECTATIONS.
As an example, I am encouraging all of our employees to
reduce the amount of internal-focused travel. While it’s
Today, convenience means providing the means for clients to
important for employees who work in different regions of the
access their banking services 24/7/365. To that end, we are
company to periodically meet face-to-face, I’m confident
making several investments in 2014 to make our banking
that most of our internal corporate travel can be reduced,
products relevant and current while meeting this new
especially given technological advances. Throughout the
definition of convenience.
corporation, we will be working hard to replace airports,
rental cars, and hotel rooms with webcasts, online collabora-
In the retail business, we are reinventing the way we serve
tion and online meeting technologies.
clients. We’ve taken a number of steps during the past few
years to implement new technology for mobile and online
We are also seeking to reduce our annual spending related to
banking. We’ve reimagined the client experience in our
new employee recruiting. The past several years of banking
branches, and we have changed the way our staff works to
industry disruption have enabled us to recruit a significant
better meet client needs.
number of talented people to the company. Now our empha-
sis is changing to stronger internal development of existing
Falling fees from consumer banking activities remain for the
talent as we look to expand business in our current markets
foreseeable future. This makes the emphasis on efficiency,
and potentially in new markets as well.
best-in-class technology, brand awareness and impeccable
5 |
CONTINUE TO ENHANCE
THE EMPLOYEE EXPERIENCE.
BOK Financial is seen as a great place to work. The tone is set
We also continue to be committed to returning cash to
shareholders
through dividends and share buybacks,
as appropriate. With the five percent increase in our quarterly
from the top, with employee contributions respected and
dividend announced in late 2013, we now have increased
valued and innovative thinking rewarded. Many new employ-
dividends for nine consecutive years, and our quarterly
ees come to us from other organizations and marvel at the
dividend has increased four-fold since we first started paying
congenial, collaborative and mutually respectful culture
a dividend in 2005.
we have developed. This is a significant competitive advantage
for us and helps us to attract and retain the best talent in
the industry.
CONCLUSION
We believe we have the right combination of strategy and
experienced leadership to continue to drive long-term
Representing my belief that our talented employees are
shareholder value. We are a top-performing bank, and we
indeed an important competitive advantage for us, I have
have been for more than two decades. We’ve accomplished
added our Chief Human Resource Officer to my Executive
this by sticking to certain fundamental principles while
Leadership Team. This sends a strong message that invest-
making prudent and sometimes counterintuitive investments
ing in people and continually improving the employee
in our business. We achieved this by not getting swayed by
experience is a key component of strategies set forth by the
the latest fads in banking.
executive leaders of the company.
One of our key objectives is to roll out additional leadership
both worlds: core elements of the strategy that has been
development training for supervisors and business leaders.
executed since our Chairman George Kaiser first acquired
I believe strongly that the vast majority of promotional and
the bank in 1991, combined with some new approaches we
new job opportunities should be filled by those who work for
believe will ignite growth and drive long-term results.
The five-point strategy outlined above represents the best of
the company today, and I believe we have a duty to make
sure our employees are well prepared when the time comes
I look forward to serving you as president and chief executive
to move up within the company.
officer of BOK Financial. I appreciate the confidence of our
COMMITTED TO GROWING
SHAREHOLDER VALUE
A word on capital deployment: As noted above, our long-term
shareholders, and I look forward to meeting many of you
in the years ahead.
approach to business decisions has served us well over the
Sincerely,
years. We are prudent with capital, conservative in our
approach to the market, and we consistently return capital to
shareholders, as appropriate.
We are often asked how we intend to deploy our excess
President and Chief Executive Officer
Steven G. Bradshaw
capital. Accretive acquisitions are an important focus for us,
and it can be a good use of shareholder capital. However,
we tend to be very selective in identifying acquisition targets
because the end game for us isn’t building buzz through an
aggressive acquisition strategy, or growth for growth’s sake,
but rather growing long-term shareholder value. So while we
have the capital and the know-how to make transformational
acquisitions, we are willing to wait patiently for the right
opportunity at the right price.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2013
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
(State or other jurisdiction
of Incorporation or Organization)
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma
(Address of Principal Executive Offices)
73-1373454
(IRS Employer
Identification No.)
74192
(Zip Code)
(918) 588-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, $0.00006 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes
No
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
No
subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
Smaller reporting company
Non-accelerated filer
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the registrant's common stock ("Common Stock") held by non-affiliates is approximately $1.7 billion (based
on the June 30, 2013 closing price of Common Stock of $64.05 per share). As of January 31, 2014, there were 68,900,457 shares of Common
Stock outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2014 Annual Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
BOK Financial Corporation
Form 10-K
Year Ended December 31, 2013
Index
Part I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
Item 15
Exhibits, Financial Statement Schedules
Signatures
Exhibit 31.1 Chief Executive Officer Section 302 Certification
Exhibit 31.2 Chief Financial Officer Section 302 Certification
Exhibit 32
Section 906 Certifications
1
8
12
12
12
12
13
16
16
86
92
185
185
185
185
185
186
186
186
186
191
ITEM 1. BUSINESS
PART I
General
Developments relating to individual aspects of the business of BOK Financial Corporation (“BOK Financial” or “the
Company”) are described below. Additional discussion of the Company’s activities during the current year appears within Item
7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Description of Business
BOK Financial is a financial holding company incorporated in the state of Oklahoma in 1990 whose activities are governed by
the Bank Holding Company Act of 1956 (“BHCA”), as amended by the Financial Services Modernization Act or Gramm-
Leach-Bliley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). BOK
Financial offers full service banking in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/
Missouri. At December 31, 2013, the Company reported total consolidated assets of $27 billion and ranked as the 38th largest
bank holding company based on asset size.
BOKF, NA (“the Bank”) is a wholly owned subsidiary bank of BOK Financial. Operating divisions of the Bank include Bank
of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado
State Bank and Trust. Other wholly owned subsidiaries of BOK Financial include BOSC, Inc., a broker/dealer that engages in
retail and institutional securities sales and municipal bond underwriting. Other non-bank subsidiary operations do not have a
significant effect on the Company’s financial statements.
Our overall strategic objective is to emphasize growth in long-term value by building on our leadership position in Oklahoma
through expansion into other high-growth markets in contiguous states. We operate primarily in the metropolitan areas of Tulsa
and Oklahoma City, Oklahoma; Dallas, Fort Worth and Houston, Texas; Albuquerque, New Mexico; Denver, Colorado;
Phoenix, Arizona, and Kansas City, Kansas/Missouri. Our acquisition strategy targets fairly priced quality organizations with
demonstrated solid growth that would supplement our principal lines of business. We provide additional growth opportunities
by hiring talent to enhance competitiveness, adding locations and broadening product offerings. Our operating philosophy
embraces local decision-making in each of our geographic markets while adhering to common Company standards.
Our primary focus is to provide a comprehensive range of nationally competitive financial products and services in a
personalized and responsive manner. Products and services include loans and deposits, cash management services, fiduciary
services, mortgage banking and brokerage and trading services to middle-market businesses, financial institutions and
consumers. Commercial banking represents a significant part of our business. Our credit culture emphasizes building
relationships by making high quality loans and providing a full range of financial products and services to our customers. Our
energy financing expertise enables us to offer commodity derivatives for customers to use in their risk management. We also
offer derivative products for customers to use in managing their interest rate and foreign exchange risk. Our diversified base of
revenue sources is designed to generate returns in a range of economic situations. Historically, fees and commissions provide
40 to 45% of our total revenue. Approximately 47% of our revenue came from fees and commission in 2013.
BOK Financial’s corporate headquarters is located at Bank of Oklahoma Tower, Boston Avenue at Second Street, Tulsa,
Oklahoma 74192.
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports are available on the Company’s website at www.bokf.com as soon as reasonably practicable after
the Company electronically files such material with or furnishes it to the Securities and Exchange Commission.
1
Operating Segments
BOK Financial operates 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 electronic funds network. Consumer Banking includes retail lending and deposit services and all mortgage banking
activities. Wealth Management provides fiduciary services, brokerage and trading, private bank services and investment
advisory services in all markets. Discussion of these principal lines of business appears within the Lines of Business section of
“Management's Discussion and Analysis of Financial Condition and Results of Operations” and within Note 17 of the
Company’s Notes to Consolidated Financial Statements, both of which appear elsewhere herein.
Competition
BOK Financial and its operating segments face competition from other banks, thrifts, credit unions and other non-bank
financial institutions, such as investment banking firms, investment advisory firms, brokerage firms, investment companies,
government agencies, mortgage brokers and insurance companies. The Company competes largely on the basis of customer
services, interest rates on loans and deposits, lending limits and customer convenience. Some operating segments face
competition from institutions that are not as closely regulated as banks, and therefore are not limited by the same capital
requirements and other restrictions. All market share information presented below is based upon share of deposits in specified
areas according to SNL DataSource as of June 30, 2013.
We are the largest financial institution in the state of Oklahoma with 14% of the state’s total deposits. Bank of Oklahoma has
31% and 11% of the market share in the Tulsa and Oklahoma City areas, respectively. We compete with two banks that have
operations nationwide and have greater access to funds at lower costs, higher lending limits, and greater access to technology
resources. We also compete with regional and locally-owned banks in both the Tulsa and Oklahoma City areas, as well as in
every other community in which we do business throughout the state.
Bank of Texas competes against numerous financial institutions, including some of the largest in the United States, and has a
market share of approximately 2% in the Dallas, Fort Worth area and less than 1% in the Houston area. Bank of Albuquerque
has a number three market share position with 11% of deposits in the Albuquerque area and competes with four large national
banks, some regional banks and several locally-owned smaller community banks. Colorado State Bank and Trust has a market
share of approximately 2% in the Denver area. Bank of Arkansas serves Benton and Washington counties in Arkansas with a
market share of approximately 3%. Bank of Arizona operates as a community bank with locations in Phoenix, Mesa and
Scottsdale and Bank of Kansas City serves the Kansas City, Kansas/Missouri market. The Company’s ability to expand into
additional states remains subject to various federal and state laws.
Employees
As of December 31, 2013, BOK Financial and its subsidiaries employed 4,632 full-time equivalent employees. None of the
Company’s employees are represented by collective bargaining agreements. Management considers its employee relations to be
good.
Supervision and Regulation
BOK Financial and its subsidiaries are subject to extensive regulations under federal and state laws. These regulations are
designed to promote safety and soundness, protect consumers and ensure the stability of the banking system as a whole. The
purpose of these regulations is not necessarily to protect shareholders and creditors. As detailed below, these regulations require
the Company and its subsidiaries to maintain certain capital balances and require the Company to provide financial support to
its subsidiaries. These regulations may restrict the Company’s ability to diversify, to acquire other institutions and to pay
dividends on its capital stock. These regulations also include requirements on certain programs and services offered to our
customers, including restrictions on fees charged for certain services.
The following information summarizes certain existing laws and regulations that affect the Company’s operations. It does not
summarize all provisions of these laws and regulations and does not include all laws and regulations that affect the Company
presently or in the future.
2
General
As a financial holding company, BOK Financial is regulated under the BHCA and is subject to regular inspection, examination
and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). Under the BHCA,
BOK Financial files quarterly reports and other information with the Federal Reserve Board.
The Bank is organized as a national banking association under the National Banking Act, and is subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency (the “OCC”), the Federal Deposit Insurance
Corporation (the “FDIC”), the Federal Reserve Board, the Consumer Financial Protection Bureau and other federal and state
regulatory agencies. The OCC has primary supervisory responsibility for national banks and must approve certain corporate or
structural changes, including changes in capitalization, payment of dividends, change of place of business, and establishment of
a branch or operating subsidiary. The OCC performs examinations concerning safety and soundness, the quality of management
and directors, information technology and compliance with applicable regulations. The National Banking Act authorizes the
OCC to examine every national bank as often as necessary.
A financial holding company, and the companies under its control, are permitted to engage in activities considered “financial in
nature” as defined by the BHCA, Gramm-Leach-Bliley Act and Federal Reserve Board interpretations. Activities that are
“financial in nature” include securities underwriting and dealing, insurance underwriting, merchant banking, operating a
mortgage company, performing certain data processing operations, servicing loans and other extensions of credit, providing
investment and financial advice, owning and operating savings and loan associations, and leasing personal property on a full
pay-out, non-operating basis. A financial holding company is required to notify the Federal Reserve Board within thirty days of
engaging in new activities determined to be “financial in nature.” BOK Financial is engaged in some of these activities and has
notified the Federal Reserve Board.
In order for a financial holding company to commence any new activity permitted by the BHCA, each insured depository
institution subsidiary of the financial holding company must be "well capitalized" and "well managed" and received a rating of
at least "satisfactory" in its most recent examination under the Community Reinvestment Act. A financial holding company and
its depository institution subsidiaries are considered to be "well capitalized" if they meets the requirements discussed in the
section captioned "Capital Adequacy and Prompt Corrective Action" which follows. A financial holding company and its
depository institution subsidiaries are considered to be "well managed" if they receive a composite rating and management
rating of at least "satisfactory" in their most recent examinations. If a financial holding company fails to meet these
requirements, the Federal Reserve Board may impose limitations or conditions on the conduct of its activities and the company
may not commence any new financial activities without prior approval.
The BHCA requires the Federal Reserve Board’s prior approval for the direct or indirect acquisition of more than five percent
of any class of voting stock of any non-affiliated bank. Under the Federal Bank Merger Act, the prior approval of the OCC is
required for a national bank to merge with another bank or purchase the assets or assume the deposits of another bank. In
reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities consider,
among other things, the competitive effect and public benefits of the transactions, the capital position of the combined
organization, the applicant’s performance record under the Community Reinvestment Act and fair housing laws and the
effectiveness of the subject organizations in combating money laundering activities.
A financial holding company and its subsidiaries are prohibited under the BHCA from engaging in certain tie-in arrangements
in connection with the provision of any credit, property or services. Thus, a subsidiary of a financial holding company may not
extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition
that (1) the customer obtain or provide additional credit, property or services from or to the financial holding company or any
subsidiary thereof, or (2) the customer may not obtain some other credit, property or services from a competitor, except to the
extent reasonable conditions are imposed to insure the soundness of credit extended.
The Bank and other non-bank subsidiaries are also subject to other federal and state laws and regulations. For example, BOSC,
Inc. is regulated by the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority
(“FINRA”), the Federal Reserve Board, and state securities regulators. Such regulations generally include licensing of certain
personnel, customer interactions, and trading operations. As another example, Bank of Arkansas is subject to certain consumer-
protection laws incorporated in the Arkansas Constitution, which, among other restrictions, limit the maximum interest rate on
general loans to five percent above the Federal Reserve Discount Rate and limit the rate on consumer loans to the lower of five
percent above the discount rate or seventeen percent.
3
Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Act was signed into law, giving federal banking agencies authority to increase regulatory
capital requirements, impose additional rules and regulations over consumer financial products and services and limit the
amount of interchange fees that may be charged in an electronic debit transaction. In addition, the Dodd-Frank Act made
permanent the $250,000 limit for federal deposit insurance and provided unlimited federal deposit insurance until January 1,
2013 for non-interest bearing demand deposit accounts. It also repealed prohibitions on payment of interest on demand
deposits, which could impact how interest is paid on business transaction and other accounts. Further, the Dodd-Frank Act
prohibits banking entities from engaging in proprietary trading and restricts banking entities sponsorship of or investment in
private equity funds and hedge funds. Final rules required to implement the Dodd-Frank Act have largely been issued. Many of
these rules have extended phase-in periods and the full impact of this legislation on the banking industry, including the
Company, remains unknown.
The Durbin Amendment to the Dodd-Frank Act required that interchange fees on electronic debit transactions paid by
merchants must be “reasonable and proportional to the cost incurred by the issuer” and prohibited card network rules that have
limited price competition among networks. Effective October 1, 2011, the Federal Reserve issued its final ruling to implement
the Durbin Amendment. This ruling established a cap on interchange fees banks with more than $10 billion in total assets can
charge merchants for certain debit card transactions. The final rule has been successfully challenged by retail merchants and
merchant trade groups and is currently on appeal. The ultimate resolution of this legal challenge is uncertain. The Durbin
Amendment also requires all banks to comply with the prohibition on network exclusivity and routing requirements. Debit card
issuers are required to make at least two unaffiliated networks available to merchants. The final network exclusivity and routing
requirements, which became effective April 1, 2012, did not have a significant impact on the Company.
The Dodd-Frank Act established the Consumer Financial Protection Bureau ("CFPB") with powers to supervise and enforce
consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply
to all banks and savings institutions, including the authority to prohibit "unfair, deceptive or abusive" acts and practices.
Established July 21, 2011, the CFPB has examination and enforcement authority over all banks and savings institutions with
more than $10 billion in assets for certain designated consumer laws and regulations. The CFPB issued mortgage servicing
standards and mortgage lending rules, including “qualified mortgage” rules that are designed to protect consumers and ensure
the reliability of mortgages. Mortgage lenders are required to make a reasonable and good faith determination based on verified
and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according
to its terms. Qualified mortgages that meet this requirement and other specified criteria are given a safe harbor of compliance.
Rules affecting mortgage lenders and servicers become effective on January 10, 2014.
Title VI of the Dodd-Frank Act, commonly known as the Volcker Rule, prohibits banking entities from engaging in proprietary
trading as defined by the Dodd-Frank Act and restricts sponsorship of, or investment in, private equity funds and hedge funds,
subject to limited exceptions. Federal banking agencies approved regulations that implement the Volcker Rule on December 10,
2013. Banking entities must comply with these regulations by July 21, 2015. The Company’s trading activity will be largely
unaffected, as our trading activities, as defined by the Volcker Rule, are done for the benefit of the customers and securities
traded are mostly exempted under the proposed rules. The Company’s private equity investment activity will be curtailed and a
$1.4 million impairment charge was recognized at December 31, 2013. See additional discussion in Management's Discussion
and Analysis of Other Operating Revenue. A compliance program will be required for activities permitted under the rules
resulting in additional operating and compliance costs to the Company.
Title VII of the Dodd-Frank Act subjects nearly all derivative transactions to the regulations of the Commodity Futures Trading
Commission (“CFTC”) or SEC. This includes registration, recordkeeping, reporting, capital, margin and business conduct
requirements on swap dealers and major swap participants. The CFTC and SEC both approved interim final rules on the
definition "swap" and “swap dealer" which were effective October 2012. Under these rules, entities transacting in less than $8
billion in notional value of swaps over any 12 month period during the first three years after these rules are effective will be
exempt from the definition of "swap dealer." After that three year period, this threshold may be reduced to $3 billion subject to
the results of studies the commissions intend to undertake once the derivative rules are effective. The Company currently
estimates that the nature and volume of swap activity will not require it to register as a swap dealer any time prior to October
2015. Although the ultimate impact of Title VII remains uncertain, we currently believe its full implementation is likely not to
impose significantly higher compliance costs on the Company.
4
Capital Adequacy and Prompt Corrective Action
The Federal Reserve Board, the OCC and the FDIC have issued substantially similar risk-based and leverage capital guidelines
applicable to United States banking organizations to ensure capital adequacy based upon the risk levels of assets and off-
balance sheet financial instruments. In addition, these regulatory agencies may from time to time require that a banking
organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated
growth. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators regarding components, risk weighting and other factors.
The Federal Reserve Board risk-based guidelines currently define a three-tier capital framework. Core capital (Tier 1) includes
common shareholders' equity and qualifying preferred stock, less goodwill, most intangible assets and other adjustments.
Supplementary capital (Tier 2) consists of preferred stock not qualifying as Tier 1 capital, qualifying mandatory convertible
debt securities, limited amounts of subordinated debt, other qualifying term debt and allowances for credit losses, subject to
limitations. Market risk capital (Tier 3) includes qualifying unsecured subordinated debt. Assets and off-balance sheet
exposures are assigned to one of four categories of risk-weights, based primarily upon relative credit risk. Risk-based capital
ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. For a depository institution to be considered
well capitalized under the regulatory framework for prompt corrective action, the institution's Tier 1 and total capital ratios
must be at least 6% and 10% on a risk-adjusted basis, respectively. As of December 31, 2013, BOK Financial's Tier 1 and total
capital ratios under these guidelines were 13.77% and 15.56%, respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets. Banking organizations are required
to maintain a ratio of at least 5% to be classified as well capitalized. BOK Financial's leverage ratio at December 31, 2013 was
10.05%.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), among other things, identifies five
capital categories for insured depository institutions from well capitalized to critically undercapitalized and requires the
respective federal regulatory agencies to implement systems for prompt corrective action for institutions failing to meet
minimum capital requirements within such categories. FDICIA imposes progressively more restrictive covenants on operations,
management and capital distributions, depending upon the category in which an institution is classified. The various regulatory
agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the
total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations
establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Under these
guidelines, the Bank was considered well capitalized as of December 31, 2013.
The federal regulatory authorities' current risk-based capital guidelines are based upon the 1988 capital accord of the Basel
Committee on Banking Supervision (the “BCBS”). The BCBS is a committee of central banks and bank supervisors/regulators
from the major industrialized countries that develops broad policy guidelines for use by each country's supervisors in
determining the supervisory policies they apply.
The Group of Governors and Heads of Supervision ("GHOS"), the oversight body of the BCBS, announced changes to
strengthen the existing capital and liquidity requirements of internationally-active banking organizations. These changes are
commonly referred to as the Basel III framework. In July 2013, banking regulators issued the final rule revising regulatory
capital rules which implements the Basel III framework for substantially all U.S. banking organizations. The final rule will be
effective for BOK Financial on January 1, 2015. Components of the rule will be phased-in through January 1, 2019. Among
other things, the final rule effectively changes the Tier 1 risk based-capital requirements and the total risk-based capital
requirements, including a capital conservation buffer, to a minimum of 8.5% and 10.5%, respectively. The final rule also
changes instruments that qualify to be included in Tier 1 and total regulatory capital. As permitted by the rule, the Company
expects to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital, which is
consistent with the treatment under current capital rules.
The new capital rules also establish a 7% threshold for the Tier 1 common equity ratio consisting of a minimum level plus a
capital conservation buffer. Based on our interpretation of the new capital rule, our estimated Tier 1 common equity ratio would
be approximately 12.60%, nearly 560 basis points above the 7% regulatory threshold.
Liquidity Requirements
The Basel III framework also requires bank holding companies and banks to measure their liquidity against specific liquidity
tests. One test, referred to as the liquidity cover ratio, is designed to ensure that the banking entity maintains a prescribed
5
minimum level of unencumbered high-quality liquid assets equal to expected net cash outflows as defined. The other test,
referred to as the net stable funding ratio, is designed to promote greater reliance on medium and long term funding sources.
On October 30, 2013, U.S. federal banking agencies published a notice of proposed rule-making that would standardize
minimum liquidity requirements for internationally active banking organizations as defined (generally those with total
consolidated assets in excess of $250 billion) as well as modified liquidity requirements for other banking organizations with
total consolidated assets in excess of $50 billion that are not internationally active. Although the notice of proposed rule-
making does not apply to banking organizations with total assets less than $50 billion, including the Company, the effect of
future rule-making to implement standardized minimum liquidity requirements is unknown.
Stress Testing
As required by the Dodd-Frank Act, the Federal Reserve published regulations that require bank holding companies with $10
billion to $50 billion in assets to perform annual capital stress tests. These companies were required to conduct their first annual
company-run stress test as of September 30, 2013 based on factors provided the the Federal Reserve Bank supplemented by
institution-specific factors. The results of the annual capital stress tests must be submitted to banking regulators by the
following March 31st. Results of the annual capital stress tests performed as of September 30, 2014 will first be publicly
disclosed by June 30, 2015. Institutions that do not satisfactorily complete their annual stress test due to either results of the test
or processes used to complete the test may be subject to restrictions on their capital distributions . They also may be required to
increase their regulatory capital under certain circumstances.
Further discussion of regulatory capital, including regulatory capital amounts and ratios, is set forth under the heading
“Liquidity and Capital” within “Management's Discussion and Analysis of Financial Condition and Results of Operations” and
in Note 15 of the Company's Notes to Consolidated Financial Statements, both of which appear elsewhere herein.
Executive and Incentive Compensation
Guidelines adopted by federal banking agencies prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal shareholder. The Federal Reserve Board has issued comprehensive
guidance on incentive compensation intended to ensure that the incentive compensation policies do not undermine safety and
soundness by encouraging excessive risk taking. This guidance covers all employees that have the ability to materially affect
the risk profile of an organization, either individually or as part of a group, based on key principles that (i) incentives do not
encourage risk-taking beyond the organization's ability to identify and manage risk, (ii) compensation arrangements are
compatible with effective internal controls and risk management, and (iii) compensation arrangements are supported by strong
corporate governance, including active and effective board oversight. Deficiencies in compensation practices may affect
supervisory ratings and enforcement actions may be taken if incentive compensation arrangements pose a risk to safety and
soundness.
Deposit Insurance
Substantially all of the deposits held by the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of
the FDIC and are subject to deposit insurance assessments to maintain the DIF. In 2011, the FDIC released a final rule to
implement provisions of the Dodd-Frank Act that affect deposit insurance assessments. Among other things, the Dodd-Frank
Act raised the minimum designated reserve ratio from 1.15% to 1.35% of estimated insured deposits, removed the upper limit
of the designated reserve ratio, required that the designated reserve ratio reach 1.35% by September 30, 2020, and required that
the FDIC offset the effect of increasing the minimum designated reserve ratio on depository institutions with total assets of less
than $10 billion. The Dodd-Frank Act also required that the FDIC redefine the assessment base to average consolidated assets
minus average tangible equity. This final rule reduced our deposit insurance assessment beginning in the second half of 2011.
Dividends
A key source of liquidity for BOK Financial is dividends from the Bank, which is limited by various banking regulations to net
profits, as defined, for the year plus retained profits for the preceding two years and further restricted by minimum capital
requirements. Based on the most restrictive limitations as well as management’s internal capital policy, the Bank had excess
regulatory capital and could declare up to $158 million of dividends without regulatory approval as of December 31, 2013. This
amount is not necessarily indicative of amounts that may be available to be paid in future periods.
6
Source of Strength Doctrine
According to Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank
holding company may not be able to provide such support.
Transactions with Affiliates
The Federal Reserve Board regulates transactions between the Company and its subsidiaries. Generally, the Federal Reserve
Act and Regulation W, as amended by the Dodd-Frank Act, limit the Company’s banking subsidiary and its subsidiaries, to
lending and other “covered transactions” with affiliates. The aggregate amount of covered transactions a banking subsidiary or
its subsidiaries may enter into with an affiliate may not exceed 10% of the capital stock and surplus of the banking subsidiary.
The aggregate amount of covered transactions with all affiliates may not exceed 20% of the capital stock and surplus of the
banking subsidiary.
Covered transactions with affiliates are also subject to collateralization requirements and must be conducted on arm’s length
terms. Covered transactions include (a) a loan or extension of credit by the banking subsidiary, including derivative contracts,
(b) a purchase of securities issued to a banking subsidiary, (c) a purchase of assets by the banking subsidiary unless otherwise
exempted by the Federal Reserve, (d) acceptance of securities issued by an affiliate to the banking subsidiary as collateral for a
loan, and (e) the issuance of a guarantee, acceptance or letter of credit by the banking subsidiary on behalf of an affiliate.
Bank Secrecy Act and USA PATRIOT Act
The Bank Secrecy Act (“BSA”) and the The USA PATRIOT Act of 2001 (“PATRIOT Act”) imposes many requirements on
financial institutions in the interest of national security and law enforcement. BSA requires banks to maintain records and file
suspicious activity reports that are of use to law enforcement and regulators in combating money laundering and other financial
crimes. The PATRIOT Act is intended to deny terrorists and criminals the ability to access the U.S. financial services system
and places significantly greater requirements on financial institutions. Financial institutions, such as the Company and it's
subsidiaries, must have a designated BSA Officer, internal controls, independent testing and training programs commensurate
with their size and risk profile. As part of its internal control program, a financial institution is expected to have effective
customer due diligence and enhanced due diligence requirements for high-risk customers, as well as processes to prohibit
transaction with entities subject to Office of Foreign Asset Control sanctions. Documentation and recordkeeping requirements,
as well as system requirements, aimed identifying and reporting suspicious activity reporting, must increase with the
institution's size and complexity. Failure to implement or maintain adequate programs and controls to combat terrorist financing
and money laundering may have serious legal, financial, and reputational consequences.
Governmental Policies and Economic Factors
The operations of BOK Financial and its subsidiaries are affected by legislative changes and by the policies of various
regulatory authorities and, in particular, the policies of the Federal Reserve Board. The Federal Reserve Board has statutory
objectives to maximize employment and maintain price stability. Among the instruments of monetary policy used by the
Federal Reserve Board to implement these objectives are: open-market operations in U.S. Government securities, changes in
the discount rate and federal funds rate on bank borrowings, and changes in reserve requirements on bank deposits. The effect
of future changes in such policies on the business and earnings of BOK Financial and its subsidiaries is uncertain.
In response to the significant recession in business activity which began in 2007, the Federal Reserve took aggressive actions to
reduce interest rates and provide liquidity. While many of the crisis-related programs have expired or been closed, the Federal
Reserve generally has continue to put downward pressure on longer-term interest rates through purchases of longer-term
securities. Additionally, the government continues to enact economic stimulus legislation and policies, including increases in
government spending, reduction of certain taxes and home affordability programs. Although the Federal Reserve has indicated
its intention to maintain historically low short-term interest rates for the foreseeable future, it began to taper bond purchase
programs which had been designed to reduce longer-term rates. The short-term effectiveness and long-term impact of these
programs on the economy in general and on BOK Financial Corporation in particular are uncertain.
BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments.
Foreign Operations
7
ITEM 1A. RISK FACTORS
The United States economy continues to rebound from a significant recession from 2007 to 2009. While credit losses have
fallen to pre-recession levels, the rate of economic growth remains modest and unemployment has remained persistently
high. The Federal Reserve Board continues to promote more robust economic growth by maintaining historically low short-
term interest rates for an extended period of time. The Federal Reserve Board also continues to promote low intermediate and
long-term interest rates, though announcement of their intention to taper bond purchase programs caused longer-term interest
rates to increase in mid-year. The current effect of these actions reduces our earnings by narrowing net interest margins as
maturing fixed-rate loans are refinanced and cash flow from the securities portfolio are reinvested at lower current rates. The
mid-year increase in longer-term interest rates significantly decreased mortgage loans refinancing activity, narrowed mortgage
loan gain on sale margins and reduced unrealized gain on securities. The ongoing effect of changes in these programs subjects
banks to future interest rate risk as rates increase to more normal levels.
General and Regulatory Risk Factors
Adverse factors could impact BOK Financial's ability to implement its operating strategy.
Although BOK Financial has developed an operating strategy which it expects to result in continuing improved financial
performance, BOK Financial cannot assure that it will be successful in fulfilling this strategy or that this operating strategy will
be successful. Achieving success is dependent upon a number of factors, many of which are beyond BOK Financial's direct
control. Factors that may adversely affect BOK Financial's ability to implement its operating strategy include:
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deterioration of BOK Financial's asset quality;
deterioration in general economic conditions, especially in BOK Financial's core markets;
inability to control BOK Financial's non-interest expenses;
inability to increase non-interest income;
inability to access capital;
decreases in net interest margins;
increases in competition;
adverse regulatory developments.
Substantial competition could adversely affect BOK Financial.
Banking is a competitive business. BOK Financial competes actively for loan, deposit and other financial services business in
the southwest region of the United States. BOK Financial's competitors include a large number of small and large local and
national banks, savings and loan associations, credit unions, trust companies, broker-dealers and underwriters, as well as many
financial and non-financial firms that offer services similar to BOK Financial's. Large national financial institutions have
substantial capital, technology and marketing resources. Such large financial institutions may have greater access to capital at a
lower cost than BOK Financial does, which may adversely affect BOK Financial's ability to compete effectively.
BOK Financial has expanded into markets outside of Oklahoma, where it competes with a large number of financial institutions
that have an established customer base and greater market share than BOK Financial. BOK Financial may not be able to
continue to compete successfully in these markets outside of Oklahoma. With respect to some of its services, BOK Financial
competes with non-bank companies that are not subject to regulation. The absence of regulatory requirements may give non-
banks a competitive advantage.
Government regulations could adversely affect BOK Financial.
BOKF and BOKF, NA are subject to banking laws and regulations that limit the type of acquisitions and investments that we
may make. In addition, certain permitted acquisitions and investments are subject to prior review and approval by banking
regulators, including the Federal Reserve, OCC and FDIC. Banking regulators have broad discretion on whether to approve
proposed acquisitions and investments. In deciding whether to approve a proposed acquisition, federal banking regulators will
consider, among other things, the effect of the acquisition on competition; the convenience and needs of the communities to be
served, including our record of compliance under the Community Reinvestment Act; and our effectiveness in combating money
laundering. They will also consider our financial condition and our future prospects, including projected capital ratios and
levels; the competence, experience, and integrity of our management; and our record of compliance with laws and regulations.
8
The trend of increasingly extensive regulation is likely to continue and become more costly in the future. Laws, regulations or
policies currently affecting BOK Financial and its subsidiaries may change. The implementation of the Dodd-Frank Act has and
will continue to affect BOK Financial’s businesses, including interchange revenue, mortgage banking, derivative and trading
activities on behalf of customers, consumer products and funds management.
Regulatory authorities may change their interpretation of these statutes and regulations and are likely to increase their
supervisory activities, including the OCC, our primary regulator, and the CFPB, our new regulator for certain designated
consumer laws and regulations. Violations of laws and regulations could limit the growth potential of BOK Financial's
businesses. We have made extensive investments in human and technological resources to address enhanced regulatory
expectations, including investments in the areas of risk management, compliance, and capital planning.
Adverse political environment could negatively impact BOK Financial’s business.
As a result of the financial crisis and related government intervention to stabilize the banking system, there have been a series
of laws and related regulations proposed or enacted in an attempt to ensure the crisis is not repeated. Many of the proposed new
regulations are far-reaching. The intervention by the government also impacted populist sentiment with a negative view of
financial institutions. This sentiment may increase litigation risk to the Company. While the Company did not participate in the
Troubled Asset Relief Program and performed well throughout the downturn, the adverse political environment could have an
adverse impact on BOK Financial’s future operations.
Credit Risk Factors
Adverse regional economic developments could negatively affect BOK Financial's business.
At December 31, 2013, loans to businesses and individuals with collateral primarily located in Texas represented approximately
34% of the total loan portfolio and loans to businesses and individuals with collateral primarily located in Oklahoma
represented approximately 26% of our total loan portfolio. These geographic concentrations subject the loan portfolio to the
general economic conditions within these areas. Poor economic conditions in Oklahoma, Texas or other markets in the
southwest region may cause BOK Financial to incur losses associated with higher default rates and decreased collateral values
in BOK Financial's loan portfolio. A regional economic downturn could also adversely affect revenue from brokerage and
trading activities, mortgage loan originations and other sources of fee-based revenue.
Adverse economic factors affecting particular industries could have a negative effect on BOK Financial customers and their
ability to make payments to BOK Financial.
Certain industry-specific economic factors also affect BOK Financial. For example, 18% of BOK Financial's total loan
portfolio at December 31, 2013 is comprised of loans to borrowers in the energy industry, which is historically a cyclical
industry. Low commodity prices may adversely affect that industry and, consequently, may affect BOK Financial's business
negatively. The effect of volatility in commodity prices on our customer derivatives portfolio could adversely affect our
liquidity and regulatory capital. In addition, BOK Financial's loan portfolio includes commercial real estate loans. A downturn
in the real estate industry in general or in certain segments of the commercial real estate industry in the southwest region could
also have an adverse effect on BOK Financial's operations.
Adverse global economic factors could have a negative effect on BOK Financial customers and counter-parties.
Poor economic conditions globally, including those of the European Union, could impact BOK Financial’s customers and
counter-parties with which we do business. We have no direct exposure to European sovereign debt and our aggregate gross
exposure to European financial institutions totaled $6.5 million at December 31, 2013. In addition, we have an aggregate gross
exposure to internationally active domestic financial institutions of approximately $216 million at December 31, 2013. The
financial condition of these institutions is monitored on an on-going basis. We have not identified any significant customer
exposures to European sovereign debt or European financial institutions.
9
Liquidity and Interest Rate Risk Factors
Fluctuations in interest rates could adversely affect BOK Financial's business.
BOK Financial's business is highly sensitive to:
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the monetary policies implemented by the Federal Reserve Board, including the discount rate on bank borrowings and
changes in reserve requirements, which affect BOK Financial's ability to make loans and the interest rates we may
charge;
changes in prevailing interest rates, due to the dependency of the Bank on interest income;
open market operations in U.S. Government securities.
A significant increase in market interest rates, or the perception that an increase may occur, could adversely affect both BOK
Financial's ability to originate new loans and BOK Financial's ability to grow. Conversely, a decrease in interest rates could
result in acceleration in the payment of loans, including loans underlying BOK Financial's holdings of residential mortgage-
backed securities and termination of BOK Financial's mortgage servicing rights. In addition, changes in market interest rates,
changes in the relationships between short-term and long-term market interest rates or changes in the relationships between
different interest rate indices, could affect the interest rates charged on interest-earning assets differently than the interest rates
paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income
which would reduce the Company’s net interest revenue. In a low interest rate environment, the Company's ability to support
net interest revenue through continued securities portfolio growth or further reduce deposit costs could be limited. An increase
in market interest rates also could adversely affect the ability of BOK Financial's floating-rate borrowers to meet their higher
payment obligations. If this occurred, it could cause an increase in nonperforming assets and net charge-offs, which could
adversely affect BOK Financial's business.
Changes in mortgage interest rates could adversely affect mortgage banking operations as well as BOK Financial's
substantial holdings of residential mortgage-backed securities and mortgage servicing rights.
Our available for sale residential mortgage-backed security portfolio represents investment interests in pools of residential
mortgages, composing $7.9 billion or 29% of total assets of the Company at December 31, 2013. Residential mortgage-backed
securities are highly sensitive to changes in interest rates. BOK Financial mitigates this risk somewhat by investing principally
in shorter duration mortgage products, which are less sensitive to changes in interest rates. A significant decrease in interest
rates has led mortgage holders to refinance the mortgages constituting the pool backing the securities, subjecting BOK
Financial to a risk of prepayment and decreased return on investment due to subsequent reinvestment at lower interest rates. A
significant decrease in interest rates has also accelerated premium amortization. Conversely, a significant increase in interest
rates could cause mortgage holders to extend the term over which they repay their loans, which delays the Company’s
opportunity to reinvest funds at higher rates.
Residential mortgage-backed securities are also subject to credit risk from delinquency or default of the underlying loans. BOK
Financial mitigates this risk somewhat by investing in securities issued by U.S. government agencies. Principal and interest
payments on the loans underlying these securities are guaranteed by these agencies.
The Federal Reserve Board and other government agencies have implemented policies and programs to stimulate the U.S.
economy and housing market. These policies and programs have significantly reduced both primary mortgage interest rates, the
rates paid by borrowers, and secondary mortgage interest rates, the rates required by investors in mortgage backed securities.
They have also reduced barriers to mortgage refinancing such as insufficient home values.
BOK Financial derives a substantial amount of revenue from mortgage activities, including $80 million from the production
and sale of mortgage loans, $42 million from the servicing of mortgage loans and $30 million from sales of financial
instruments to other mortgage lenders. These activities, as well our substantial holdings of residential mortgage backed
securities and mortgage servicing rights may be adversely affected by changes in government policies and programs.
In addition, as part of BOK Financial's mortgage banking business, BOK Financial has substantial holdings of mortgage
servicing rights, totaling $153 million or 0.57% of total assets at December 31, 2013. The value of these rights is also very
sensitive to changes in interest rates. Falling interest rates tend to increase loan prepayments, which may lead to cancellation of
the related servicing rights. BOK Financial attempts to manage this risk by maintaining an active hedging program for its
mortgage servicing rights. The Company's hedging program has only been partially successful in recent years. The value of
mortgage servicing rights may also decrease due to rising delinquency or default of the loans serviced. This risk is mitigated
somewhat by adherence to underwriting standards on loans originated for sale.
10
Market disruptions could impact BOK Financial’s funding sources.
BOK Financial’s subsidiary bank may rely on other financial institutions and the Federal Home Loan Bank of Topeka as a
significant source of funds. Our ability to fund loans, manage our interest rate risk and meet other obligations depends on funds
borrowed from these sources. The inability to borrow funds at market interest rates could have a material adverse effect on our
operations.
Operating Risk Factors
Dependence on technology increases cybersecurity risk.
As a financial institution, we process a significant number of customer transactions and possess a significant amount of
sensitive customer information. As technology advances, the ability to initiate transactions and access data has become more
widely distributed among mobile phones, personal computers, automated teller machines, remote deposit capture sites and
similar access points. These technological advances increase cybersecurity risk. While the Company maintains programs
intended to prevent or limit the effects of cybersecurity risk, there is no assurance that unauthorized transactions or
unauthorized access to customer information will not occur. The financial, reputational and regulatory impact of unauthorized
transactions or unauthorized access to customer information could be significant.
We depend on third parties for critical components of our infrastructure.
We outsource a significant portion of our information systems, communications, data management and transaction processing
to third parties. These third parties are sources of risk associated with operational errors, system interruptions or breaches,
unauthorized disclosure of confidential information and misuse of intellectual property. If the service providers encounter any
of these issues, we could be exposed to disruption of service, reputational damages, and litigation risk that could be material to
our business.
Risks Related to an Investment in Our Stock
Although publicly traded, BOK Financial's common stock has substantially less liquidity than the average trading market
for a stock quoted on the NASDAQ National Market System.
A relatively small fraction of BOK Financial's outstanding common stock is actively traded. The risks of low liquidity include
increased volatility of the price of BOK Financial's common stock. Low liquidity may also limit holders of BOK Financial's
common stock in their ability to sell or transfer BOK Financial's shares at the price, time and quantity desired.
BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.
Mr. George B. Kaiser owns approximately 62% of the outstanding shares of BOK Financial's common stock at December 31,
2013. Mr. Kaiser is able to elect all of BOK Financial's directors and effectively control the vote on all matters submitted to a
vote of BOK Financial's common shareholders. Mr. Kaiser's ability to prevent an unsolicited bid for BOK Financial or any
other change in control could have an adverse effect on the market price for BOK Financial's common stock. A substantial
majority of BOK Financial's directors are not officers or employees of BOK Financial or any of its affiliates. However, because
of Mr. Kaiser's control over the election of BOK Financial's directors, he could change the composition of BOK Financial's
Board of Directors so that it would not have a majority of outside directors.
Possible future sales of shares by BOK Financial's principal shareholder could adversely affect the market price of BOK
Financial's common stock.
Mr. Kaiser has the right to sell shares of BOK Financial's common stock in compliance with the federal securities laws at any
time, or from time to time. The federal securities laws will be the only restrictions on Mr. Kaiser's ability to sell. Because of his
current control of BOK Financial, Mr. Kaiser could sell large amounts of his shares of BOK Financial's common stock by
causing BOK Financial to file a registration statement that would allow him to sell shares more easily. In addition, Mr. Kaiser
could sell his shares of BOK Financial's common stock without registration under Rule 144 of the Securities Act. Although
BOK Financial can make no predictions as to the effect, if any, that such sales would have on the market price of BOK
Financial's common stock, sales of substantial amounts of BOK Financial's common stock, or the perception that such sales
11
could occur, could adversely affect market prices. If Mr. Kaiser sells or transfers his shares of BOK Financial's common stock
as a block, another person or entity could become BOK Financial's controlling shareholder.
Statutory restrictions on subsidiary dividends and other distributions and debts of BOK Financial's subsidiaries could limit
amounts BOK Financial's subsidiaries may pay to BOK Financial.
A substantial portion of BOK Financial's cash flow typically comes from dividends paid by the Bank. Statutory provisions and
regulations restrict the amount of dividends the Bank may pay to BOK Financial without regulatory approval. Management
also developed, and the BOK Financial board of directors approved, an internal capital policy that is more restrictive than the
regulatory capital standards. In the event of liquidation, creditors of the Bank and other non-bank subsidiaries of BOK
Financial are entitled to receive distributions from the assets of that subsidiary before BOK Financial, as holder of an equity
interest in the subsidiaries, is entitled to receive any distributions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
BOK Financial and its subsidiaries own and lease improved real estate that is carried at $184 million, net of depreciation and
amortization. The Company’s principal offices are located in leased premises in the Bank of Oklahoma Tower in Tulsa,
Oklahoma. Banking offices are primarily located in Tulsa and Oklahoma City, Oklahoma; Dallas, Fort Worth and Houston,
Texas; Albuquerque, New Mexico; Denver, Colorado; Phoenix, Arizona; and Kansas City, Kansas/Missouri. Primary
operations facilities are located in Tulsa and Oklahoma City, Oklahoma; Dallas, Texas and Albuquerque, New Mexico. The
Company’s facilities are suitable for their respective uses and present needs.
The information set forth in Notes 5 and 14 of the Company’s Notes to Consolidated Financial Statements, which appear
elsewhere herein, provides further discussion related to properties.
ITEM 3. LEGAL PROCEEDINGS
The information set forth in Note 14 of the Company’s Notes to Consolidated Financial Statements, which appear elsewhere
herein, provides discussion related to legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
12
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
BOK Financial’s $0.00006 par value common stock is traded on the NASDAQ Stock Market under the symbol BOKF. As of
January 31, 2014, common shareholders of record numbered 825 with 68,900,457 shares outstanding.
The highest and lowest quarterly closing bid price for shares and cash dividends per share of BOK Financial common stock
follows:
2013:
Low
High
Cash dividends
2012:
Low
High
Cash dividends
1 Includes $1.00 per share special cash dividend.
First
Second
Third
Fourth
$
55.05
$
60.52
$
62.93
$
62.77
0.38
65.95
0.38
69.36
0.38
60.81
66.32
0.40
$
52.56
$
53.34
$
55.63
$
54.19
59.02
0.33
58.12
0.38
59.47
0.38
59.77
1.38 1
13
Shareholder Return Performance Graph
Set forth below is a line graph comparing the change in cumulative shareholder return of the NASDAQ Index, the NASDAQ
Bank Index, and the KBW 50 Bank Index for the period commencing December 31, 2008 and ending December 31, 2013.*
Index
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank Index
KBW 50
Period Ending December 31,
2008
2009
2010
2011
2012
2013
100.00
100.00
100.00
100.00
120.38
145.36
83.70
98.24
138.02
171.74
95.55
121.19
145.19
170.38
85.52
93.10
150.46
200.63
101.50
123.85
187.77
281.22
143.84
170.62
* Graph assumes value of an investment in the Company's Common Stock for each index was $100 on December 31, 2008. The KBW 50
Bank index is the Keefe, Bruyette & Woods, Inc. index, which is available only for calendar quarter end periods. Cash dividends on
Common Stock are assumed to have been reinvested in BOK Financial Common Stock.
14
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 December 31, 2013.
Period
October 1, 2013 to October 31, 2013
November 1, 2013 to November 30, 2013
December 1, 2013 to December 31, 2013
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs 1
—
—
—
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans
1,960,504
1,960,504
1,960,504
Total
Number of
Shares
Purchased 2
Average
Price Paid
per Share
— $
— $
—
—
31,645
$
63.59
Total
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
31,645
—
common stock. As of December 31, 2013, the Company had repurchased 39,496 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.
15
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data is set forth within Table 1 of Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 1 -- Consolidated Selected Financial Data
(Dollars in thousands, except per share data)
Selected Financial Data
For the year:
Interest revenue
Interest expense
Net interest revenue
Provision for for credit losses
Fees and commissions revenue
Net income
Period-end:
Loans
Assets
Deposits
Subordinated debentures
Shareholders’ equity
Nonperforming assets2
2013
2012
2011
2010
2009
December 31,
$
745,371
$
794,871
$
813,146
$
851,082
$
914,899
70,894
674,477
(27,900)
603,844
316,609
12,792,264
27,015,432
20,269,327
347,802
3,020,049
247,743
87,322
707,549
(22,000)
628,880
351,191
12,311,456
28,148,631
21,179,060
347,633
2,957,860
276,716
120,101
693,045
(6,050)
527,093
285,875
142,030
709,052
105,139
516,394
246,754
204,205
710,694
195,900
480,512
200,907
11,269,743
10,643,036
11,279,698
25,493,946
23,941,603
23,331,026
18,762,580
17,179,061
15,518,228
398,881
398,701
398,539
2,750,468
2,521,726
2,205,813
356,932
394,469
484,295
Profitability Statistics
Earnings per share (based on average equivalent
shares):
Basic
Diluted
Percentages (based on daily averages):
Return on average assets
Return on average shareholders’ equity
Average shareholders’ equity to average assets
Common Stock Performance
Per Share:
Book value per common share
Market price: December 31 close
Market range – High close bid price
Market range – Low close bid price
Cash dividends declared
Dividend payout ratio
$
$
$
4.61
4.59
$
5.15
5.13
$
4.18
4.17
$
3.63
3.61
1.16%
1.34%
1.17%
1.04%
2.96
2.96
0.87%
9.66
8.98
10.66
10.95
40.36
54.93
56.30
44.00
1.13
$
10.18
10.19
36.97
53.40
55.68
42.89
0.99
$
32.53
47.52
48.13
22.98
0.945
27.01%
27.16%
31.93%
10.51
11.00
12.09
11.05
$
43.88
66.32
69.36
55.05
1.54
33.43%
$
43.29
54.46
59.77
52.56
5
2.47
48.01% 5
16
Table 1 -- Consolidated Selected Financial Data
(Dollars in thousands, except per share data)
Selected Balance Sheet Statistics
Period-end:
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Tier 1 common equity ratio1
Allowance for loan losses to nonaccruing loans
Allowance for loan losses to loans
Combined allowances for credit losses to loans 4
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of banking locations
Number of TransFund locations
Fiduciary assets
Mortgage loan servicing portfolio3
2013
2012
2011
2010
2009
December 31,
13.77%
15.56
10.05
13.59
183.29
1.45
1.47
4,632
206
1,998
12.78%
15.13%
9.01%
12.59
160.34
1.75
1.77
4,704
217
1,970
13.27%
16.49%
9.15%
13.06
125.93
2.25
2.33
4,511
212
1,912
12.69%
10.86%
16.20
8.74
12.55
126.93
2.75
2.89
4,432
207
1,943
14.43
8.05
10.75
86.07
2.59
2.72
4,355
202
1,896
30,137,092
14,818,016
25,829,038
13,091,482
22,821,813
22,914,737
20,642,512
12,356,917
12,059,241
7,366,780
1 Tier 1 capital divided by risk-weighted assets, both as defined by Basel I based regulations.
2 Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing.
3 Includes outstanding principal for loans serviced for affiliates.
4 Includes allowance for loan losses and accrual for off-balance sheet credit risk.
5 Includes $1.00 per share special dividend.
Management’s Assessment of Operations and Financial Condition
Overview
The following discussion is management’s analysis to assist in the understanding and evaluation of the financial condition and
results of operations of BOK Financial Corporation (“BOK Financial” or “the Company”). This discussion should be read in
conjunction with the consolidated financial statements and footnotes and selected financial data presented elsewhere in this
report.
Following the severe recession from 2007 to 2009, economic growth in the United States has been modest and gradual.
National unemployment rates have improved from 7.8% in December of 2012 to 6.7% in December of 2013. With subdued
indications of inflation, the U.S. government has continued to provide accommodative economic policy to support growth in
the economy and further reduction in the unemployment rate. Although long-term and short-term interest rates remained at
historic lows throughout the year, market speculation concerning the tapering of the Federal Reserve's bond buying program
resulted in a rapid increase in mortgage interest rates in mid-2013. The low interest rate environment has presented challenges
for all financial institutions as cash flows from loan and securities portfolios are reinvested at current rates. Both personal and
corporate balance sheets have improved during the year. Corporations have amassed a significant amount of cash, placing the
U.S. in a strong position to fund growth opportunities and reinvest. However, this has been hindered by the uncertainty in tax
and regulatory policy as we address the high level of national debt and deficit issues.
17
Performance Summary
Net income for the year ended December 31, 2013 totaled $316.6 million or $4.59 per diluted share compared with net income
of $351.2 million or $5.13 per diluted share for the year ended December 31, 2012.
Highlights of 2013 included:
• Net interest revenue totaled $674.5 million for 2013 compared to $707.5 million for 2012. Cash flows from the securities
portfolio were reinvested at lower current market rates. Growth in average loan balances were partially offset by a decrease
in loan yield. Net interest margin was 2.80% for 2013 compared to 3.15% for 2012.
•
Fees and commissions revenue totaled $603.8 million for 2013 compared to $628.9 million for 2012. Mortgage banking
revenue decreased $47.4 million compared to the prior year. BOK Financial originated a record number of residential
mortgage loans during the year. However, gain on sale margins decreased. Trust fees and commissions revenue grew by
$16.0 million or 20% and transaction card revenue was up $8.8 million over the prior year.
• Operating expenses totaled $840.6 million, unchanged compared to the prior year. Personnel costs increased $14.2 million
due largely to regular compensation. Non-personnel expenses decreased $13.9 million compared to the prior year
primarily, due to a decrease in write-downs related to real estate and other repossessed assets and lower mortgage banking
costs.
• The Company recorded a $27.9 million negative provision for credit losses in 2013 and a $22.0 million negative provision
for credit losses in 2012. Credit quality indicators continued to improve. Net loans charged off totaled $2.0 million or
0.02% of average loans for 2013 compared to $23.3 million or 0.20% of average loans for 2012. Gross charge-offs
decreased to $25.3 million in 2013 from $42.1 million in 2012.
• The combined allowance for credit losses totaled $187 million or 1.47% of outstanding loans at December 31, 2013
compared to $217 million or 1.77% of outstanding loans at December 31, 2012. Nonperforming assets totaled $248
million or 1.92% of outstanding loans and repossessed assets at December 31, 2013, down from $277 million or 2.23%
of outstanding loans and repossessed assets at December 31, 2012. During 2013, nonaccruing loans decreased $33 million
and repossessed assets decreased $12 million. Renegotiated residential mortgage loans guaranteed by U.S. government
agencies increased $16 million.
• Outstanding loan balances were $12.8 billion at December 31, 2013, an increase of $481 million over the prior
year. Commercial loan balances grew by $301 million or 4% and commercial real estate loans increased $186 million or
8%. Residential mortgage loans increased $7.0 million and consumer loans decreased $14 million.
• The available for sale securities portfolio decreased $1.1 billion during 2013 to $10.1 billion at December 31, 2013. The
Company pro-actively reduced the size of its bond portfolio to better position the balance sheet for a longer-term rising
rate environment.
•
Period-end deposits totaled $20.3 billion at December 31, 2013 compared to $21.2 billion at December 31, 2012. Demand
deposit accounts decreased by $722 million. Demand deposits at December 31, 2012 were unusually high as customers
responded to tax law changes that became effective in 2013. Interest-bearing transaction accounts were largely unchanged
compared to the prior year. Time deposits decreased $272 million.
• The Company and its subsidiary bank exceeded the regulatory definition of well capitalized. The Company's Tier 1 capital
ratios, as defined by banking regulations, were 13.77% at December 31, 2013 and 12.78% at December 31, 2012. The
Company's Tier 1 common equity ratio, as recently defined by banking regulators, is estimated to be 12.60% at
December 31, 2013.
• Regular cash dividends paid on common shares in 2013 totaled $1.54 per common share. Regular cash dividends paid
on common shares were $1.47 per common share in 2012. In addition, the Company paid a special dividend of $1.00 per
common share in the fourth quarter of 2012.
18
Net income for the fourth quarter of 2013 totaled $73.0 million or $1.06 per diluted share compared to $82.6 million or $1.21
per diluted share for the fourth quarter of 2012.
Highlights of the fourth quarter of 2013 included:
• Net interest revenue totaled $166.2 million for the fourth quarter of 2013 compared to $174.3 million for the fourth quarter
of 2012. Net interest margin was 2.74% for the fourth quarter of 2013 compared to 2.95% for the fourth quarter of 2012.
Cash flows from the securities portfolio were reinvested at lower current market rates and loan yields decreased. The
average balance of the available for sale securities portfolio decreased, partially offset by growth in the average balance
of the loan portfolio.
•
Fees and commissions revenue decreased $22.5 million compared to the prior year to $142.4 million for the fourth quarter
of 2013. Mortgage banking revenue decreased $24.5 million due primarily to a decrease in loan production volume.
Growth in trust fees and commission and transaction card revenues were partially offset by lower brokerage and trading
revenues.
• Operating expenses totaled $215.4 million, down $11.4 million compared to the prior year. Personnel costs decreased
$5.5 million and non-personnel expenses decreased $5.8 million compared to the prior year.
• An $11.4 million negative provision for credit losses was recorded in the fourth quarter of 2013 compared to a $14.0
million negative provision for credit losses in the fourth quarter of 2012. We experienced a net recovery of $3.0 million
in the fourth quarter of 2013 compared to net loans charged off of $4.3 million in the fourth quarter of 2012. Gross charge-
offs were $3.1 million compared to $8.0 million in the prior year.
Critical Accounting Policies & Estimates
The Consolidated Financial Statements and accompanying notes are prepared in accordance with generally accepted
accounting principles in the United States of America (“GAAP”). The Company's accounting policies are more fully described
in Note 1 of the Consolidated Financial Statements. Management makes significant assumptions and estimates in the
preparation of the Consolidated Financial Statements and accompanying notes in conformity with GAAP that may be highly
subjective, complex and subject to variability. Actual results could differ significantly from these assumptions and estimates.
The following discussion addresses the most critical areas where these assumptions and estimates could affect the financial
condition, results of operations and cash flows of the Company. These critical accounting policies and estimates have been
discussed with the appropriate committees of the Board of Directors.
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk
The allowance for loan losses and accrual for off-balance sheet credit risk are assessed by management based on an ongoing
quarterly evaluation of the probable estimated losses inherent in the loan portfolio and probable estimated losses on unused
commitments to provide financing. A consistent, well-documented methodology has been developed and is applied by an
independent Credit Administration department to assure consistency across the Company. The allowance for loan losses
consists of specific allowances attributed to certain impaired loans that have not yet been charged down to amounts we expect
to recover, general allowances for unimpaired loans that are based on estimated loss rates by loan class and nonspecific
allowances for risks beyond factors specific to a particular portfolio segment or loan class. There have been no material
changes in the approach or techniques utilized in developing the allowance for loan losses and accrual for off-balance sheet
credit risk during 2013.
Loans are considered impaired when it is probable that we will not collect all amounts due according to the contractual terms of
the loan agreements, including loans modified in a troubled debt restructuring. 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 through a quarterly evaluation of the borrower's ability to repay. Certain commercial loans and
most residential mortgage and consumer loans which represent small balance, homogeneous pools are not risk graded. Non-risk
graded loans are identified as impaired based on performance status. Generally, non-risk graded loans are considered impaired
when 90 or more days past due, in bankruptcy or modified in a troubled debt restructuring.
19
Specific allowances for impaired loans that have not yet been charged down to amounts we expect to recover are measured by
an evaluation of estimated future cash flows discounted at the loan's 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 generally are not adjusted by the Company. Updated appraisals are obtained at least annually or more frequently if market
conditions indicate collateral values may have declined. Collateral value of mineral rights is determined by our internal staff of
engineers based on projected cash flows under current market conditions. The value of other collateral is generally determined
by our special assets staff based on liquidation 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 near 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.
General allowances for unimpaired loans are based on estimated loss rates by loan class. The appropriate historical gross loss
rate for each loan class is determined by the greater of the current loss rate based on the most recent twelve months or a ten-
year average gross loss rate. Recoveries are not directly considered in the estimation of historical 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 proceedings. For risk graded loans, historical loss rates are adjusted for changes in risk rating. For each loan class, the
weighted average current risk grade is compared to the weighted average long-term risk grade. This comparison determines
whether the risk in each loan class is increasing or decreasing. Historical loss rates are adjusted upward or downward in
proportion to changes in weighted average risk grading. General allowances for unimpaired loans also consider inherent risks
identified for a given loan class. Inherent risks include consideration of the loss rates that most appropriately represent the
current credit cycle and other factors attributable to a specific loan class which have not yet been represented in the historical
gross loss rates or risk grading. Examples of 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
product types.
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.
Fair Value Measurement
Certain assets and liabilities are recorded at fair value in the Consolidated Financial Statements. 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 markets for the given asset or liability at the measurement date based on markets conditions at that
date. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the
measurement date and not a forced liquidation or distressed sale.
A hierarchy for fair value has been established that prioritizes the inputs of valuation techniques used to measure fair value into
three broad categories: unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), other observable
inputs that can be observed either directly or indirectly (Level 2) and unobservable inputs for assets or liabilities (Level 3). Fair
value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain
circumstances on a non-recurring basis.
The following represents significant fair value measurements included in the Consolidated Financial Statements based on
estimates. See Note 18 of the Consolidated Financial Statements for additional discussion of fair value measurement and
disclosure included in the Consolidated Financial Statements.
Mortgage Servicing Rights
We have a significant investment in mortgage servicing rights. Our mortgage servicing rights are primarily retained
from sales in the secondary market of residential mortgage loans we have originated or purchased from correspondent
lenders. Occasionally mortgage servicing rights may be purchased from other lenders. 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 fair value are recognized in earnings as they occur.
20
There is no active market for mortgage servicing rights after origination. The fair value of the mortgage servicing
rights are determined by discounting the projected cash flows. Certain significant assumptions and estimates used in
valuing mortgage servicing rights are based on current market sources including projected prepayment speeds,
assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates. Assumptions used to value
our mortgage servicing rights are considered significant unobservable inputs and represent our best estimate of
assumptions that market participants would use to value this asset. 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 our servicing portfolio. The discount rate is based on benchmark rates for
mortgage loans plus a market spread expected by investors in servicing rights. Significant assumptions used to
determine the fair value of our mortgage servicing rights are presented in Note 7 to the Consolidated Financial
Statements. At least annually, we request estimates of fair value from outside sources to corroborate the results of the
valuation model.
The assumptions used in this model are primarily based on mortgage interest rates. Evaluation of the effect of a
change in one assumption without considering the effect of that change on other assumptions is not meaningful.
Considering all related assumptions, we would expect a 50 basis point increase in mortgage interest rates to increase
the fair value of our servicing rights by $8.6 million. We would expect an $8.6 million decrease in the fair value of our
mortgage servicing rights from a 50 basis point decrease in mortgage interest rates.
Valuation of Derivative Instruments
We use interest rate derivative instruments to manage our interest rate risk. We also offer interest rate, commodity,
foreign exchange and equity derivative contracts to our customers. All derivative instruments are carried on the
balance sheet at fair value. Fair values for exchange-traded contracts are based on quoted prices in an active market for
identical instruments. Fair values for over-the-counter interest rate contracts used to manage our interest rate risk are
provided either by third-party dealers in the contracts or by quotes provided by independent pricing services.
Information used by these third-party dealers or independent pricing services to determine fair values are considered
significant other observable inputs. Fair values for interest rate, commodity, foreign exchange and equity contracts
used in our customer hedging programs are based on valuations generated internally by third-party provided pricing
models. These models use significant other observable market inputs to estimate fair values. Changes in assumptions
used in these pricing models could significantly affect the reported fair values of derivative assets and liabilities,
though the net effect of these changes should not significantly affect earnings.
Credit risk is considered in determining the fair value of derivative instruments. Deterioration in the credit rating of
customers or dealers reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings
during the current period. Fair value adjustments are 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. Deterioration in our credit rating below
investment grade would affect the fair value of our derivative liabilities. In the event of a credit down-grade, the fair
value of our derivative liabilities would decrease. The reduction in fair value would be recognized in earnings in the
current period.
Valuation of Securities
The fair value of our securities portfolio is generally based on a single price for each financial instrument provided to
us by a third-party pricing service determined by 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.
21
The underlying methods used by the third-party pricing services are considered in determining the primary inputs used
to determine fair values. We evaluate 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 December 31, 2013 or December 31, 2012.
A portion of our securities portfolio is comprised of debt securities for which third-party services have discontinued
providing price information due primarily to a lack of observable inputs and other relevant data. We estimate the fair
value of these securities based on significant unobservable inputs, including projected cash flows discounted at rates
indicated by comparison to securities with similar credit and liquidity risk. We would expect the fair value to decrease
$208 thousand if credit spreads utilized in valuing these securities widened by 100 basis points.
Valuation of Impaired Loans and Real Estate and Other Repossessed Assets
The fair value of collateral for certain impaired loans and real estate and other repossessed assets is measured on a
non-recurring basis. Fair values are generally based on unadjusted third-party appraisals derived principally from or
corroborated by observable market data. Fair values based on these appraisals are considered to be based on Level 2
inputs. Fair value measurements based on appraisals that are not based on observable inputs or that require significant
adjustments by us or fair value measurements that are not based on third-party appraisals are considered to be based
on Level 3 inputs. Significant unobservable inputs include listing prices for comparable assets, uncorroborated expert
opinions or management's knowledge of the collateral or industry.
Goodwill Impairment
Goodwill for each reporting unit is evaluated for impairment annually as of October 1st or more frequently if conditions
indicate that impairment may have occurred. The evaluation of possible goodwill impairment involves significant judgment
based upon short-term and long-term projections of future performance.
We identify the geographical market underlying each operating segment as reporting units for the purpose of performing the
annual goodwill impairment test. This is consistent with the manner in which management assesses the performance of the
Company and allocates resources. See additional discussion of the operating segments in the Assessment of Operations - Lines
of Business section following. As previously announced, the Company appointed a new Chief Executive Officer effective
January 1, 2014 and made several executive leadership changes. We are currently evaluating the effect of these leadership
changes on the reporting unit structure which underlies the operating segments and may consider changes in 2014.
We perform a qualitative assessment that evaluates, based on the weight of the evidence, the significance of all identified
events and circumstances in the context of determining whether it is more likely than not that the fair value of our reporting
units are less than their carrying amount. This qualitative assessment considers general economic conditions including trends in
unemployment rates in our primary geographical areas, our earnings and stock price changes during the year, current and
anticipated credit quality performance and the prolonged low interest rate environment and the impact of increased regulation.
This qualitative assessment is supplemented by quantitative analysis through which the fair value of each of our reporting units
is estimated by the discounted future earnings method. Income growth is projected for each of our reporting units over five
years and a terminal value is computed. The projected income stream is converted to current fair value by using a discount rate
that reflects a rate of return required by a willing buyer. Assumptions used to value our reporting units are based on growth
rates, volatility, discount rate and market risk premium inherent in our current stock price. These assumptions are considered
significant unobservable inputs and represent our best estimate of assumptions that market participants would use to determine
fair value of the respective reporting units. At December 31, 2013, critical assumptions in our evaluation were a 3% average
expected long-term growth rate, a 0.81% volatility factor for BOK Financial common stock, a 9.06% discount rate and an
7.92% market risk premium. The expected long-term growth rate for smaller or less mature reporting units may be higher.
The fair value, carrying value and related goodwill of reporting units for which goodwill was attributed as of our annual
impairment test performed on October 1, 2013 is as follows in Table 2.
22
Table 2 – Goodwill Allocation by Reporting Unit
(In thousands)
Fair Value
Carrying
Value1
Goodwill
$
1,322,352 $
818,792
104,237
136,041
91,870
249,517 $
411,161
54,687
95,830
57,689
7,354
196,183
11,094
39,458
14,853
821,809
103,794
99,314
37,536
201,085
49,314
21,209
12,994
1,683
27,567
2,874
6,899
Commercial:
Oklahoma
Texas
New Mexico
Colorado
Arizona
Consumer:
Oklahoma
Texas
New Mexico
Colorado
Wealth Management:
Oklahoma
Texas
New Mexico
Colorado
Arizona
163,468
248,641
29,283
123,157
31,708
1 Carrying value includes intangible assets attributed to the reporting unit.
99,453
45,964
3,919
38,373
6,178
1,350
16,372
1,305
31,198
1,569
The fair value of our reporting units determined by the discounted future earnings method was further corroborated by
comparison to the market capitalization of publicly traded banks of similar size and characteristics in our geographical
footprint. Based on the qualitative assessment, supplemented by the results of the quantitative considerations, management
believes that it is more-likely-than-not that no goodwill impairment existed as of our annual evaluation date.
As of December 31, 2013, the market value of BOK Financial common stock, a primary input in our goodwill impairment
analysis, was approximately 5% higher than the market value used in our most recent annual evaluation. The market value is
influenced by factors affecting the overall economy and the regional banks sector of the market. Goodwill impairment may be
indicated at our next annual evaluation date if the market value of our stock declines or sooner if we incur significant
unanticipated operating losses or if other factors indicate a significant decline in the value of our reporting units. The effect of a
sustained 10% negative change in the market value of our common stock on September 30, 2013 was simulated. No
impairment was noted by this simulation.
Numerous other factors could affect future impairment analyses including credit losses that exceed projected amounts or failure
to meet growth projections. Additionally, fee income may be adversely affected by increasing residential mortgage interest rates
and changes in federal regulations.
Other-Than-Temporary Impairment
On a quarterly basis, the Company performs separate evaluations of impaired debt and equity investment and available for sale
securities to determine if the unrealized losses are temporary or other-than-temporary.
For impaired debt securities, management determines whether it intends to sell or if it is more-likely-than-not that it will be
required to sell the impaired securities. This determination considers current and forecasted liquidity requirements, regulatory
and capital requirements and securities portfolio management. All impaired debt securities we intend to sell or we expect to be
required to sell are considered other-than-temporarily impaired and the full impairment loss is recognized as a charge against
earnings. All impaired debt securities we do not intend or expect to be required to sell are evaluated further.
23
Impairment of debt securities rated investment grade by all nationally-recognized rating agencies is considered temporary
unless specific contrary information is identified. Impairment of securities rated below investment grade by at least one of the
nationally-recognized rating agencies is evaluated to determine if we expect to recover the entire amortized cost basis of the
security based on the present value of projected cash flows from individual loans underlying each security. Below investment
grade securities we own consist primarily of privately issued residential mortgage-backed securities. The primary assumptions
used to project cash flows are disclosed in Note 2 to the Consolidated Financial Statements.
We consider the principal and interest cash flows from the underlying loan pool as well as the remaining credit enhancement
coverage as part of our assessment of cash flows available to recover the amortized cost of our securities. The credit
enhancement coverage is an estimate of currently remaining subordinated tranches available to absorb losses on pools of loans
that support the security. Credit losses, which are defined as the excess of current amortized cost over the present value of
projected cash flows, on other-than-temporarily impaired debt securities are recognized as a charge against earnings. Any
remaining impairment attributed to factors other than credit losses are recognized in accumulated other comprehensive losses.
Credit losses are based on long-term projections of cash flows which are sensitive to changes in assumptions. Changes in
assumptions and differences between assumed and actual results regarding unemployment rates, delinquency rates, default
rates, foreclosures costs and home price depreciation can affect estimated and actual credit losses. Deterioration of these factors
beyond those described in Note 2 to the Consolidated Financial Statements could result in the recognition of additional credit
losses.
We performed a sensitivity analysis of all privately issued residential mortgage-backed securities. Significant assumptions of
this analysis included an increase in the unemployment rate to 9.3% and an additional 13.5% home price depreciation over the
next twelve months. The results of this analysis indicated an additional $1 million of credit losses are possible. An increase in
the unemployment rate to 11.3% with an additional 25.4% home price depreciation indicates an additional $4 million of credit
losses are possible.
Impaired equity securities, including perpetual preferred stocks, are evaluated based on our ability and intent to hold the
securities until fair value recovers over a period not to exceed three years. The assessment of the ability and intent to hold these
securities considers 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.
Income Taxes
Determination of income tax expense and related assets and liabilities is complex and requires estimates and judgments when
applying tax laws, rules, regulations and interpretations. It also requires judgments as to future earnings and the timing of future
events. Accrued income taxes represent an estimate of net amounts due to or from taxing jurisdictions based upon these
estimates, interpretations and judgments.
Management evaluates the Company's current tax expense or benefit based upon estimates of taxable income, tax credits and
statutory tax rates. Annually, we file tax returns with each jurisdiction where we conduct business and adjust recognized income
tax expense or benefit to filed tax returns.
We recognize deferred tax assets and liabilities based upon the differences between the values of assets and liabilities as
recognized in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the
differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some
portion of the entire deferred tax asset may not be realized based on taxes previously paid in net loss carry-back periods and
other factors.
We also recognize the benefit of uncertain income tax positions when based upon all relevant evidence it is more-likely-than-
not that our position would prevail upon examination, including resolution of related appeals or litigation, based upon the
technical merits of the position. Unrecognized tax benefits, including estimated interest and penalties, are part of our current
accrued income tax liability. Estimated penalties and interest are recognized in income tax expense. Income tax expense in
future periods may decrease if an uncertain tax position is favorably resolved, generally upon completion of an examination by
the taxing authorities, expiration of a statute of limitations, or changes in facts and circumstances.
24
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 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.
Tax-equivalent net interest revenue totaled $684.8 million for 2013 compared to $716.9 million for 2012. Net interest margin
was 2.80% for 2013 and 3.15% for 2012. Tax-equivalent net interest revenue decreased $32.1 million compared to the prior
year. Changes in interest rates reduced net interest revenue by $66.7 million. Growth in average loans and securities balances
increased net interest revenue by $34.6 million. Cash flows from the securities portfolio were reinvested at lower current
market rates and loan yields decreased due to renewal of maturing fixed-rate loans at current lower rates and narrowing credit
spreads, partially offset by lower funding costs. Table 3 shows the effects on net interest revenue of changes in average
balances and interest rates for the various types of earning assets and interest-bearing liabilities. In addition, see Annual and
Quarterly Financial Summary of consolidated daily average balances, yields and rates following the Consolidated Financial
Statements.
The tax-equivalent yield on earning assets was 3.09% for 2013 compared to 3.53% in 2012. The available for sale securities
portfolio yield decreased 47 basis points to 1.97% and loan yields decreased 34 basis points. The decreased yield on earning
assets was partially offset by lower funding costs. Funding costs were down 13 basis points compared to 2012. The cost of
interest-bearing deposits decreased 10 basis points and the cost of other borrowed funds decreased 4 basis points. The average
rate of interest paid on subordinated debentures decreased 128 basis points. The interest rate on $233 million of these
subordinated debentures converted from a fixed rate of interest of 5.75% to a floating interest rate based on LIBOR plus 0.69%
as of May 15, 2012. In the present low interest rate environment, our ability to further decrease funding costs is limited.
Average earning assets for 2013 increased $1.2 billion or 5% over 2012. Average loans, net of allowance for loan losses,
increased $681 million due primarily to growth in average commercial loans. The average balance of available for sale
securities, which consists largely of residential and commercial mortgage-backed securities guaranteed by U.S. government
agencies, increased $185 million. We purchase securities to supplement earnings and to manage interest rate risk. During the
fourth quarter of 2013, we began to pro-actively shrink the size of our bond portfolio to better position the balance sheet for a
longer-term rising rate environment. Our outlook for earning assets is for continued decline in the securities portfolio to be
partially offset by loan growth. We expect annualized growth rate for loans to be in the mid to high single digits. The resulting
shift in earning asset mix should be supportive of the net interest margin.
Growth in average assets was funded by a $717 million increase in average deposits and a $631 million increase in average
borrowed funds balances. Average demand deposit balances increased $500 million over the prior year. Average interest-
bearing transaction accounts were up $483 million, partially offset by a $318 million decrease in average time
deposits. Average borrowed funds increased primarily due to an increase in borrowings from the Federal Home Loan Banks,
partially offset by a decrease in funds purchased and repurchase agreements compared to the prior year. Average subordinated
debenture balances were down $16 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. As shown in Table 29, approximately 77% 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 3 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.
25
Fourth Quarter 2013 Net Interest Revenue
Tax-equivalent net interest revenue totaled $168.7 million for the fourth quarter of 2013 compared to $176.7 million for the
fourth quarter of 2012. Net interest margin was 2.74% for the fourth quarter of 2013 and 2.95% for the fourth quarter of 2012.
Tax-equivalent net interest revenue decreased $8.0 million over the fourth quarter of 2012. Net interest revenue increased $4.1
million primarily due to the growth in average loan balances, partially offset by a decrease in available for sale securities
balances. Net interest revenue decreased $12.2 million due to interest rates.
The tax-equivalent yield on earning assets was 3.02% for the fourth quarter of 2013, down 28 basis points from the fourth
quarter of 2012. The available for sale securities portfolio yield decreased 27 basis points to 1.89%. Cash flows from these
securities were reinvested at current lower rates. Loan yields decreased 32 basis points due primarily to continued market
pricing pressure. Funding costs were down 12 basis points from the fourth quarter of 2012. The cost of interest-bearing deposits
decreased 12 basis points and the cost of other borrowed funds decreased 4 basis points. The average rate of interest paid on
subordinated debentures decreased 8 basis points compared to the fourth quarter of 2012 due to the conversion of $233 million
of these subordinated debentures from a fixed rate of interest to a floating interest rate in 2012. The benefit to net interest
margin from earning assets funded by non-interest bearing liabilities decreased to 14 basis points in the fourth quarter of 2013
from 19 basis points in the fourth quarter of 2012.
Average earning assets for the fourth quarter of 2013 decreased $355 million compared to the fourth quarter of 2012. The
average balance of available for sale securities decreased $1.0 billion as we reduced the size of the bond portfolio to better
position the balance sheet for a longer-term rising rate environment. Average loans, net of allowance for loan losses, increased
$508 million over the fourth quarter of 2012 due primarily to growth in average commercial loans.
Average deposits decreased $262 million compared to the fourth quarter of 2012. Average demand deposit balances decreased
$149 million and average time deposit balances decreased $300 million, partially offset by a $143 million increase in average
interest-bearing transaction accounts. Average borrowed funds increased $492 million over the fourth quarter of 2012.
2012 Net Interest Revenue
Tax-equivalent net interest revenue for 2012 was $716.9 million compared to $702.1 million for 2011. Net interest margin was
3.15% for 2012 compared to 3.30% for 2011. The decrease in net interest margin was due primarily to lower yield on our
securities portfolio, partially offset by lower funding costs. The tax-equivalent yield on average earning assets decreased 33
basis points from 2011. The available for sale securities portfolio yield was down 48 basis points due to cash flow reinvestment
at lower rates. Loan yields decreased 26 basis points due to a combination of renewals of fixed rate loans at lower current rates
and narrowing credit spreads. The cost of interest-bearing liabilities decreased 20 basis points. The cost of interest-bearing
deposits was down 14 basis points and the cost of other borrowed funds was down 132 basis points. The effect of declining net
interest margin was offset by increasing average earning assets by $1.8 billion during 2012. Growth in average assets was
primarily in the available for sale securities portfolio and loans. Growth in average assets was funded by a $979 million
increase in average deposit balances. Average demand deposit account balances grew by $1.7 billion, partially offset by a $309
million decrease in average interest-bearing transaction account and a $474 million decrease in average time deposit balances.
Average borrowed funds increased $461 million during 2012 due to an increase in funds purchased. Average subordinated
debenture balances were down $35.1 million.
26
Table 3 – Volume/Rate Analysis
(In thousands)
Year Ended
December 31, 2013 / 2012
Change Due To1
Year Ended
December 31, 2012 / 2011
Change Due To1
Change
Volume
Yield /
Rate
Change
Volume
Yield
/Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
$
Trading securities
Investment securities:
Taxable securities
Tax-exempt securities
Total investment securities
Available for sale securities:
Taxable securities
Tax-exempt securities
Total available for sale securities
Fair value option securities
Restricted equity securities
Residential mortgage loans held for sale
Loans
Total tax-equivalent interest revenue
Interest expense:
Transaction deposits
Savings deposits
Time deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest expense
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
$
130
558
628
409
$
(498) $
454
$
(659) $
149
(348)
1,016
(2,588)
723
(1,865)
(32,396)
(218)
(32,614)
(4,557)
2,780
320
(13,281)
(48,529)
(3,145)
(98)
(8,206)
(1,247)
(505)
1,810
(5,037)
(16,428)
(32,101)
(971)
(2,453)
6,142
3,689
14,276
368
14,644
(3,109)
4,114
116
27,590
48,081
622
97
(5,065)
(774)
(209)
19,298
(494)
13,475
34,606
(135)
(5,419)
(5,554)
4,267
(1,961)
2,306
(46,672)
(21,602)
(586)
(47,258)
(1,448)
(1,334)
204
(40,871)
(96,610)
(3,767)
(195)
(3,141)
(473)
(296)
(17,488)
(4,543)
(29,903)
(66,707)
150
(21,452)
(10,185)
173
1,693
9,322
(18,037)
(9,115)
(179)
(12,583)
1,178
(1,445)
(2,028)
(8,607)
(32,779)
14,742
(238)
4,415
(783)
3,632
23,849
572
24,421
(5,168)
295
2,811
38,840
65,188
(737)
133
(8,402)
537
(36)
575
(1,659)
(9,589)
74,777
1,113
(1,364)
(148)
(1,178)
(1,326)
(45,451)
(422)
(45,873)
(5,017)
(122)
(1,118)
(29,518)
(83,225)
(8,378)
(312)
(4,181)
641
(1,409)
(2,603)
(6,948)
(23,190)
(60,035)
Net interest revenue
(33,072)
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
14,504
$
$
27
Table 3 – Volume/Rate Analysis (continued)
(In thousands)
Three Months Ended
December 31, 2013 / 2012
Change Due To1
Change
Volume
Yield /
Rate
$
40
31
74
$
(22)
(584)
393
(191)
(8,210)
(85)
(8,295)
112
877
(72)
(4,593)
(12,091)
(930)
(29)
(3,001)
(332)
(92)
381
(66)
(4,069)
(8,022)
5
(491)
1,394
903
(1,345)
12
(1,333)
(80)
431
(513)
5,116
4,576
33
17
(1,233)
(155)
(29)
1,808
3
444
4,132
(34)
53
(93)
(1,001)
(1,094)
(6,865)
(97)
(6,962)
192
446
441
(9,709)
(16,667)
(963)
(46)
(1,768)
(177)
(63)
(1,427)
(69)
(4,513)
(12,154)
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
$
Trading securities
Investment securities:
Taxable securities
Tax-exempt securities
Total investment securities
Available for sale securities:
Taxable securities
Tax-exempt securities
Total available for sale securities
Fair value option securities
Restricted equity securities
Residential mortgage loans held for sale
Loans
Total tax-equivalent interest revenue
Interest expense:
Transaction deposits
Savings deposits
Time deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest expense
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
Net interest revenue
(8,017)
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
$
28
Other Operating Revenue
Other operating revenue was $614.5 million for 2013 compared to $653.7 million for 2012. Fees and commissions revenue
decreased $25.0 million or 4% compared to 2012. The change in the fair value of mortgage servicing rights, net of fair value
options securities and derivative contract held as an economic hedge, increased $3.5 million over the prior year. Net gains on
available for sale securities decreased $23.1 million compared to 2012. Other-than-temporary impairment charges recognized
in earnings in 2013 were $5.0 million less than charges recognized in 2012.
Table 4 – Other Operating Revenue
(In thousands)
2013
2012
2011
2010
2009
Year Ended
Brokerage and trading revenue
$
125,478
$
126,930
$
104,181
Transaction card revenue
Trust fees and commissions
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Other revenue
116,823
107,985
116,757
96,082
95,110
80,053
98,917
121,934
169,302
10,155
38,262
11,089
34,604
73,290
95,872
91,643
11,280
34,070
101,471
112,302
68,976
103,611
87,600
12,066
30,368
91,677
105,517
66,177
115,791
64,980
10,239
26,131
Total fees and commissions revenue
603,844
628,880
527,093
516,394
480,512
Gain (loss) on other assets, net
Gain (loss) on derivatives, net
Gain (loss) on fair value option securities, net
Change in fair value of mortgage servicing rights
Gain on available for sale securities, net
Total other-than-temporary impairment
Portion of loss recognized in (reclassified from)
other comprehensive income
Net impairment losses recognized in earnings
(925)
(4,367)
(15,212)
22,720
10,720
(2,574)
266
(2,308)
(1,415)
(301)
9,230
(9,210)
33,845
(1,144)
(6,207)
(7,351)
4,156
2,686
24,413
(40,447)
34,144
(4,011)
4,271
7,331
3,661
21,882
1,992
(3,365)
(13,198)
12,124
59,320
(10,578)
(29,960)
(129,154)
(12,929)
(23,507)
2,151
(27,809)
521,719
94,741
(34,413)
502,972
Total other operating revenue
$
614,472
$
653,678
$
528,538
Fees and commissions revenue
Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 47% of total
revenue for 2013, excluding provision for credit losses and gains and losses on asset sales, securities and derivatives and the
change in the fair value of mortgage servicing rights. We believe that a variety of fee revenue sources provide 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 caused net interest revenue compression also drove
strong growth in our mortgage banking revenue in 2012. We expect continued growth in other operating revenue through
offering new products and services and by further development of our presence in markets outside of Oklahoma. 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, which includes revenues from securities trading, retail brokerage, customer hedging and
investment banking was largely unchanged compared to the prior year. Revenue in 2013 was reduced $8.7 million from
changes in the fair value of our trading securities inventory due to sharp increases in interest rates. The following discussion
excludes inventory adjustment charges.
Securities trading revenue totaled $72.6 million for 2013, an increase of $3.9 million or 6% compared to the prior
year. Securities trading revenue represents 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. These activities largely will be permitted under the Volcker Rule of the Dodd-Frank Act. The increase
compared to the prior year was due primarily sales of residential mortgage backed securities to our mortgage banking
customers.
29
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 $12.4 million for 2013, a decrease of $1.3 million or 10% compared to 2012. The
Company received recoveries from the Lehman Brothers and MF Global bankruptcies of $2.4 million during 2013 and $3.4
million during 2012.
Revenue earned from retail brokerage transactions increased $4.3 million or 15% over 2012 to $34.1 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. The number of transactions typically
increases with market volatility and decreases with market stability.
Investment banking, which includes fees earned upon completion of underwriting and financial advisory services, totaled $15.1
million for 2013, up $299 thousand or 2% over 2012 related to the timing and volume of completed transactions.
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 totaled $116.8
million for 2013 compared to $108.0 million for 2012. Revenues from the processing of transactions on behalf of the members
of our TransFund electronic funds transfer ("EFT") network totaled $60.5 million, up $4.2 million or 7% over 2012, due
primarily to increased transaction volumes. The number of TransFund ATM locations totaled 1,998 at December 31, 2013
compared to 1,970 at December 31, 2012. Merchant services fees paid by customers for account management and electronic
processing of card transactions totaled $38.0 million, up $4.0 million or 12% over the prior year. The increase was primarily
due to higher transaction processing volume throughout our geographical footprint. Revenue from interchange fees paid by
merchants for transactions processed from debit cards issued by the Company totaled $18.3 million, up $730 thousand over
2012 on increased transaction volume.
Effective October 1, 2011, the Federal Reserve issued its final rule that established a cap on interchange fees that larger banks
can charge merchants for certain debit card transactions. This rule is commonly known as the Durbin Amendment. Initial
adoption of the Durbin Amendment reduced our annual interchange fees by approximately $19 million. The final rule has been
successfully challenged by retail merchants and merchant trade groups and is currently on appeal. The ultimate resolution of
this legal challenge is uncertain.
Trust fees and commissions increased $16.0 million or 20% over 2012. Acquired in the third quarter of 2012, the full year
results of The Milestone Group increased trust fees and commissions $7.0 million over 2012. 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 $30.1 billion at December 31, 2013 and $25.8 billion at December 31,
2012.
In addition to trust fees and commissions where we served as a fiduciary, we also earn fees as administrator to and investment
advisor for the Cavanal Hill Funds, a diversified, open-ended investment company established as a business trust under the
Investment Company Act of 1940 (the "1940 Act"). The Bank is custodian and BOSC, Inc. is distributor for the Funds. The
Funds’ products 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 $8.2 million for 2013
compared to $8.4 million for 2012.
Deposit service charges and fees decreased $3.8 million or 4% compared to 2012. Overdraft fees totaled $49.6 million for
2013, a decrease of $6.1 million or 11% compared to last year. Commercial account service charge revenue totaled $37.3
million, up $2.3 million or 7% over the prior year. Service charges on deposit accounts with a standard monthly fee were $8.2
million, unchanged compared to the prior year.
Mortgage banking revenue totaled $121.9 million for 2013, compared to $169.3 million for 2012. Revenue from originating
and marketing mortgage loans totaled $79.5 million, a decrease of $49.6 million compared to 2012. Mortgage loans funded for
sale totaled $4.1 billion in 2013, up $373.0 million or 10% over 2012. Outstanding commitments to originate mortgage loans
decreased $98 million or 27% compared to December 31, 2012 to $259 million at December 31, 2013. The decrease in
mortgage banking revenue was primarily due to an overall narrowing of gain on sale margins and a shift in product mix
towards loans with narrower margins.
30
Mortgage servicing revenue was $42.4 million, up $2.2 million or 5% over the prior year. The outstanding principal balance of
mortgage loans serviced for others totaled $13.7 billion, an increase of $1.7 billion over December 31, 2012.
Table 5 – Mortgage Banking Revenue
(In thousands)
Originating and marketing revenue
Servicing revenue
Total mortgage revenue
2013
79,545
42,389
121,934
$
$
2012
129,117
40,185
169,302
$
$
Year Ended
2011
2010
2009
$
$
51,982
39,661
91,643
$
$
49,439
38,161
87,600
$
$
$
44,229
20,751
64,980
281,106
Mortgage loans funded for sale
$ 4,081,390
$ 3,708,350
$ 2,293,834
$ 2,501,860
Mortgage loan refinances to total funded
43%
60%
53%
57%
63%
Outstanding principal balance of mortgage loans
serviced for others
$ 13,718,942
$ 11,981,624
$ 11,300,986
$ 11,194,582
$
6,603,132
2013
2012
2011
2010
2009
December 31,
Net gains on securities, derivatives and other assets
We recognized $10.7 million of net gains from sales of $2.4 billion of available for sale securities in 2013. We recognized
$33.8 million of net gains from sales of $1.7 billion of available for sale securities in 2012, including a $14.2 million gain on
the sale of $26 million of common stock received in 2009 in partial satisfaction of a defaulted commercial loan. Securities were
sold either because they had reached their expected maximum potential or to mitigate risk.
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 fluctuate due to changes in prepayment speeds and other assumptions as more fully
described in Note 7 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
assumptions and the spread between the primary and secondary rates can cause significant earnings volatility.
Table 6 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.
31
Table 6 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge
(In thousands)
Gain (loss) on mortgage hedge derivative contracts, net
$ (5,080)
$
116
$ 2,974
$
Year Ended
2013
2012
2011
Gain (loss) on fair value option securities, net
Gain (loss) on economic hedge of mortgage servicing rights
Gain (loss) on change in fair value of mortgage servicing rights
(15,436)
(20,516)
22,720
Gain (loss) on changes in fair value of mortgage servicing rights, net of
7,793
7,909
24,413
27,387
(9,210)
(40,447)
(8,171)
1
2010
4,425
7,331
11,756
2009
$
—
(13,198)
(13,198)
12,124
economic hedges
$
2,204
$ (1,301)
$ (13,060)
$
3,585
$ (1,074)
Net interest revenue on fair value option securities2
$
3,290
$ 7,811
$ 17,650
$ 19,043
$ 13,366
Average primary residential mortgage interest rate
3.99%
3.66%
4.45%
Average secondary residential mortgage interest rate
1 Excludes $11.8 million day-one pretax gain on the purchase of mortgage servicing rights in the first quarter of 2010.
2 Actual interest earned on fair value option securities less transfer-priced cost of funds.
3.05%
2.52%
3.71%
4.69%
3.96%
5.03%
4.28%
Primary rates disclosed in Table 6 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. The difference between average primary and secondary rates was
94 basis points for 2013 compared to 114 basis points for 2012. The difference between average primary and secondary rates
widened significantly during 2012, growing as large as 163 basis points during the third quarter. This difference narrowed to a
more normal relationship during 2013.
As more fully discussed in Note 2 to the Consolidated Financial Statements, we recognized other-than-temporary impairment
losses of $2.3 million during 2013. Other-than-temporary impairments recognized in earnings on certain residential mortgage-
backed securities privately issued by publicly traded financial institutions that we do not intend to sell totaled $938 thousand.
Other-than-temporary losses on certain below investment grade municipal securities recognized in earnings were $1.4 million.
Other-than-temporary impairment losses related to privately issued residential mortgage backed securities, municipal securities
and other equity securities in 2012 were $7.4 million.
An indirect wholly-owned subsidiary of the Company is the general partner of two private equity funds and other subsidiaries
of the Company have investments in unrelated private equity funds. These investments generally are illiquid and do not readily
provide for redemption or transfer. The impact of the recently-issued regulations that implement the Volcker Rule on these
investments resulted in a $1.4 million impairment charge in 2013 which is included in Gain (Loss) on assets, net. This charge
was based primarily on the expectation that we will be required to divest some or all of these investments by June 30, 2015.
Fourth Quarter 2013 Other Operating Revenue
Other operating revenue was $147.0 million for the fourth quarter of 2013 compared to $166.4 million for the fourth quarter of
2012. Fees and commissions revenue decreased $22.5 million. The change in the fair value of mortgage servicing rights, net of
economic hedges, added $2.1 million to net income for the fourth quarter of 2013 compared to adding $1.8 million to net
income for the fourth quarter of 2012. Net gains on sales of available for sale securities were $568 thousand higher than the
prior year. No other-than-temporary impairment charges were recognized in earnings in the fourth quarter of 2013 compared to
$1.7 million of impairment charges recognized in the fourth quarter of 2012.
Brokerage and trading revenue decreased $3.4 million compared to the fourth quarter of 2012. Securities trading revenue
totaled $15.2 million for the fourth quarter of 2013, a decrease $2.4 million, primarily due to decreased gain from sales of U.S.
government treasury and municipal securities to our institutional customers. Customer hedging revenue totaled $3.8 million, up
$1.0 million over the prior year. Revenue earned from retail brokerage transactions decreased $371 thousand compared to the
fourth quarter of 2012 to $7.0 million. Investment banking revenue totaled $2.4 million, a $1.6 million decrease compared to
the fourth quarter of 2012 related to the timing and volume of completed transactions.
32
Transaction card revenue for the fourth quarter of 2013 increased $1.1 million or 4% over the fourth quarter of 2012, primarily
due to a $918 thousand increase in merchant services fees and a $170 thousand increase in interchange fees paid by merchants
for transactions processed from debit cards issued by the Company. Revenues from the processing of transactions on behalf of
the members of our TransFund EFT network totaled $15.2 million, merchant services fees totaled $9.3 million and revenue
from interchange fees paid by merchants for transactions processed from debit cards issued by the Company totaled $4.6
million.
Trust fees and commissions increased $3.0 million over the fourth quarter of 2012 to $25.1 million primarily due to the
increase in the fair value of assets managed. Waived administration fees on the Cavanal Hill money market funds totaled $2.2
million for the fourth quarter of 2013 compared to $1.7 million for the fourth quarter of 2012.
Deposit service charges and fees were $23.4 million for the fourth quarter of 2013 compared to $24.2 million for the fourth
quarter of 2012. Overdraft fees decreased $1.5 million to $12.1 million. Commercial account service charge revenue totaled
$9.3 million, up $942 thousand over the prior year. Service charges on deposit accounts with a standard monthly fee were $2.0
million, a decrease of $198 thousand compared to the fourth quarter of 2012.
Mortgage banking revenue was $21.9 million for the fourth quarter of 2012 compared to $46.4 million for the fourth quarter of
2012. Mortgage loans funded for sale totaled $849 million in the fourth quarter of 2013 and $1.1 billion in the fourth quarter of
2012. Outstanding mortgage loan commitments decreased $98 million and the unpaid principal balance of mortgage loans held
for sale decreased $93 million. The difference between average primary and secondary rates for the fourth quarter of 2013 was
90 basis points compared to 117 basis points for the fourth quarter of 2012.
During the fourth quarter of 2013, we recognized a $1.6 million gain from sales of $270 million of available for sale securities.
We recognized $1.1 million of gains on sales of $84 million of available for sale securities in the fourth quarter of 2012.
For the fourth quarter of 2013, changes in the fair value of mortgage servicing rights increased pre-tax net income by $6.1
million, partially offset by a net loss of $3.9 million on fair value option securities and derivative contracts held as an economic
hedge. For the fourth quarter of 2012, changes in the fair value of mortgage servicing rights increased pre-tax net income by
$4.7 million, partially offset by a $2.9 million net loss on fair value option securities and derivative contracts held as an
economic hedge.
2012 Other Operating Revenue
Other operating revenue totaled $653.7 million for 2012, up $125.1 million over 2011. Fees and commissions revenue
increased $101.8 million. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax
net income in 2012 by $1.3 million compared to a $13.1 million decrease in pre-tax net income in 2011. Net gains on sales of
available for sale securities were $33.8 million for 2012 compared to $34.1 million for 2011. Other-than-temporary impairment
charges recognized in earnings were $16.2 million less than charges recognized in 2011.
Brokerage and trading revenue increased $22.7 million over 2011. Securities trading revenue was up $8.9 million primarily due
to increased revenue from sales of mortgage-backed securities to our mortgage banking customers. Customer hedging revenue
increased $8.4 million. Customer hedging revenue for 2012 included a $3.4 million recovery from the Lehman Brothers
bankruptcy and 2011 included $4.4 million of credit losses. Retail brokerage revenue increased $1.6 million and investment
banking revenue grew by $3.8 million. Transaction card revenue decreased $8.8 million compared to 2011. Increased revenue
from the processing of transactions for TransFund network members and growth in merchant services transaction volumes were
offset by a decrease in interchange fees paid by merchant banks on cards issued by the Bank and on transactions processed for
merchant services customers due to the Durbin Amendment which became effective on October 1, 2011. Trust fees and
commissions increased $6.8 million due to the acquisition of The Milestone Group in the third quarter of 2012 and growth in
the fair value of fiduciary assets. Deposit service charges and fees increased $3.0 million primarily increased commercial
account service charges. Mortgage banking revenue grew $77.7 million over 2011 on growth in mortgage loans originated for
sale and an increase in gains on sales of mortgages in the secondary market.
33
Other Operating Expense
Other operating expense for 2013 totaled $840.6 million, unchanged from the prior year. Personnel expenses increased $14.2
million or 3%. Non-personnel expenses decreased $13.9 million or 4% compared to the prior year.
Table 7 – Other Operating Expense
(In thousands)
Regular compensation
Incentive compensation:
Cash-based
Stock-based
Total incentive compensation
Employee benefits
Total personnel expense
Business promotion
Charitable contributions to BOKF Foundation
Professional fees and services
Net occupancy and equipment
Insurance
FDIC special assessment
Data processing & communications
Printing, postage and supplies
Net losses & operating expenses of repossessed assets
Amortization of intangible assets
Mortgage banking costs
Other expense
Year Ended
2013
2012
2011
2010
2009
$
279,493
$
262,736
$
247,945
$
238,690
$
231,897
110,871
40,272
151,143
74,589
505,225
22,598
2,062
32,552
69,773
16,122
—
106,075
13,885
5,160
3,428
31,088
32,652
116,718
37,170
153,888
74,409
491,033
23,338
2,062
34,015
66,726
15,356
—
98,904
14,228
20,528
2,927
44,334
26,912
97,222
20,558
117,780
64,261
429,986
20,549
4,000
28,798
64,611
16,799
—
97,976
14,085
23,715
3,583
37,621
37,575
91,219
12,764
103,983
59,191
401,864
17,726
—
30,217
63,969
24,320
—
87,752
13,665
34,483
5,336
43,172
29,937
80,569
10,585
91,154
57,466
380,517
19,582
—
30,243
65,715
24,040
11,773
81,292
15,960
11,400
6,970
37,248
21,976
Total other operating expense
$
840,620
$
840,363
$
779,298
$
752,441
$
706,716
Average number of employees (full-time equivalent)
4,683
4,614
4,474
4,394
4,403
Personnel expense
Regular compensation expense, which consists of salaries and wages, overtime pay and temporary personnel costs, increased
$16.8 million or 6% over 2012. Although the average number of employees has remained relatively constant, we continue to
invest in higher-costing wealth management, compliance and risk management positions. In addition, standard annual merit
increases were fully effective in the second quarter of 2013. The Company generally awards annual merit increases during the
first quarter for a majority of its staff.
Incentive compensation decreased $2.7 million compared to 2012. 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 decreased $5.8 million compared to 2012.
The Company also provides stock-based incentive compensation plans. Stock-based compensation plans include both equity
and liability awards. Compensation expense for equity awards decreased $1.5 million or 15% compared to 2012. Expense for
equity awards is based on the grant-date fair value of the awards and is unaffected by subsequent changes in fair value. Stock-
based compensation expense also included liability awards indexed to investment performance or changes in the market value
of BOK Financial common stock. The year-end closing market price per share of BOK Financial common stock increased
$11.86 during 2013 and decreased $0.47 during 2012. Expense based on changes in the fair value of BOK Financial common
stock and other investments increased $1.2 million over the prior year.
34
In addition, stock-based incentive compensation expense increased $3.4 million during 2013 as $28.4 million was accrued in
2013 and $25 million was accrued in 2012 related to the BOK Financial Corp. 2011 True-Up Plan. Approved by shareholders
on April 26, 2011, the True-Up Plan was intended to address inequality in the Executive Incentive Plan ("EIP"), which had been
approved by shareholders in 2003 as a result of certain peer banks that performed poorly during the most recent economic
cycle. Performance goals for the EIP are based on the Company's earnings per share growth compared to peers and business
unit performance. As the economy improves and credit losses normalize, peer banks were expected to experience significant
comparative earnings per share percentile increases. This "bounce-back" effect would have resulted in the unanticipated result
of no annual bonuses in the years 2011, 2012 and 2013 and the forfeiture of long-term incentive awards for 2010 and 2011 in
their entirety, despite BOK Financial's strong annual earnings growth through the economic cycle while many peers
experienced negative or declining earnings. The True-Up Plan was designed to adjust annual and long-term performance-based
incentive compensation for certain senior executives either upward or downward based on the earnings per share performance
and compensation of comparable senior executives at peer banks for 2006 through 2013. Compensation expense is determined
by ranking BOK Financial's earnings per share to peer banks and then aligning compensation with the peer bank that most
closely relates to BOK Financial earnings per share performance. Based on currently available information, amounts estimated
to be paid under the 2011 True-Up Plan are approximately $69 million. The final amount due under the 2011 True-Up Plan will
be determined as of December 31, 2013 based on information that will be published by peer banks during the first quarter of
2014. The final amount due under the 2011 True-Up Plan will be distributed in May, 2014.
Employee benefit expense was largely unchanged compared to 2012. Employee medical costs totaled $26.3 million, a $694
thousand or 3% decrease compared to the prior year. The Company self-insures a portion of its employee health care coverage
and these costs may be volatile. Payroll tax expense increased $1.5 million over 2012 to $26.6 million. Employee retirement
plan costs totaled $18.1 million, up $1.4 million and pension expense was $2.1 million, down $1.3 million compared to the
prior year.
Non-personnel operating expenses
Non-personnel expenses decreased $13.9 million or 4% compared to the prior year. Net losses and operating expense related to
repossessed assets decreased $15.4 million compared to the prior year. Mortgage banking costs decreased $13.2 million due
primarily to lower provision for potential losses related to repurchases of loans sold to U.S. government agencies that no longer
qualify for sale accounting. Data processing and communications expense increased $7.2 million primarily related to increased
transaction activity costs. All other non-personnel operating expenses were up $7.5 million.
Fourth Quarter 2013 Operating Expenses
Other operating expense for the fourth quarter of 2013 totaled $215.4 million, down $11.4 million compared to the fourth
quarter of 2012.
Personnel expenses decreased $5.5 million compared to the fourth quarter of 2012. Regular compensation expense increased
$7.2 million over the fourth quarter of 2012 as we continue to invest in higher-costing positions. Incentive compensation
decreased $10.7 million compared to the fourth quarter of 2012. Employee benefit expense decreased $2.0 million compared to
the fourth quarter of 2012 primarily due to a decrease in employee medical insurance claim expense.
Non-personnel expenses decreased $5.8 million compared to the fourth quarter of 2012 due primarily to decreased net losses
and operating expenses of repossessed assets and lower mortgage banking costs, partially offset by increased data processing
and communications expense and increased net occupancy costs.
2012 Operating Expenses
Other operating expense totaled $840.4 million for 2012, an increase of $61.1 million over 2011.
Personnel expense increased $61.0 million. Regular compensation expense totaled $262.7 million, up $14.8 million primarily
due to an increase in staffing levels in 2012 and standard annual merit increases. Incentive compensation expense increased
$36.1 million. Cash-based incentive compensation increased $19.5 million. Compensation expense for equity awards decreased
$327 thousand and compensation expense for liability awards increased $16.9 million, primarily due to accruals for the 2011
True-Up Plan. Employee benefit expense increased $10.1 million primarily due to increased employee medical costs.
35
Non-personnel expense for 2012 were largely unchanged compared to 2011. Net losses and operating expenses of repossessed
assets decreased $3.2 million due primarily to a decrease in net losses from sales and write-downs of repossessed property
based on our quarterly review of carrying values. Discretionary contributions to the BOKF Foundation were $2.1 million for
2012, compared to $4.0 million for 2011. Mortgage banking costs increased $6.7 million primarily due to increased actual
prepayment of mortgage loans serviced for others. Other expense decreased $10.7 million as 2011 included accruals for
overdraft fee litigation which was settled in 2012. Professional fees and services costs were up $5.2 million primarily due to
increased expense related to product consulting fees and business growth. All other non-personnel operating expenses were up
$3.9 million.
Income Taxes
Income tax expense was $157.3 million or 33% of book taxable income for 2013, $188.7 million or 35% of book taxable
income for 2012 and $158.5 million or 35% of book taxable income for 2011. Tax expense currently payable totaled $140
million in 2013, $179 million in 2012 and $154 million in 2011.
The statute of limitations expired on an uncertain tax position and the Company adjusted its current income tax liability to
amounts on filed tax returns for 2012 in 2013, 2011 in 2012 and 2010 in 2011. Excluding these adjustments income tax expense
would have been $159 million or 33% for 2013, $190 million or 35% of book taxable income for 2012 and $160 million or
35% of book taxable income for 2011.
Net deferred tax assets totaled $96 million at December 31, 2013 and $3.0 million at December 31, 2012. The increase was due
primarily to the tax effect of unrealized losses on available for sale securities. We have evaluated the recoverability of our
deferred tax assets based on taxes previously paid in net loss carry-back periods and other factors and determined that no
valuation allowance was required.
The allowance for uncertain tax positions totaled $12 million at December 31, 2013 and December 31, 2012. 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.
Income tax expense was $35.3 million or 32% of book taxable income for the fourth quarter of 2013 compared to $44.3 million
or 35% of book taxable income for the fourth quarter of 2012.
36
Table 8 – Selected Quarterly Financial Data
(In thousands, except per share data)
Interest revenue
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit losses
2013
First
Second
Third
Fourth
$
190,046
$
186,777
$
185,428
$
183,120
18,594
171,452
(8,000)
179,452
17,885
168,892
—
168,892
17,539
167,889
(8,500)
176,389
16,876
166,244
(11,400)
177,644
Fees and commissions revenue
157,064
159,173
145,235
142,372
Gain (loss) on financial instruments and other assets, net
Change in fair value of mortgage servicing rights
Other-than-temporary impairment losses
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Net income (loss) attributable to non-controlling interest
Net income attributable to shareholders of BOK Financial Corp.
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
1,210
2,658
(247)
(9,596)
14,315
(552)
160,685
163,340
125,654
1,246
77,082
203,982
128,110
282
82,529
210,921
52
(346)
(1,509)
143,432
125,799
2,014
82,485
210,298
(1,450)
6,093
—
147,015
125,662
1,618
88,139
215,419
136,155
121,311
109,523
109,240
47,096
89,059
1,095
41,423
79,888
(43)
33,461
76,062
324
35,318
73,922
946
87,964
$
79,931
$
75,738
$
72,976
1.28
1.28
$
$
1.16
1.16
$
$
1.10
1.10
$
$
1.06
1.06
67,815
68,040
67,994
68,212
68,049
68,273
68,095
68,294
$
$
$
37
Table 8 – Selected Quarterly Financial Data (continued)
(In thousands, except per share data)
Interest revenue
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit losses
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Change in fair value of mortgage servicing rights
Other-than-temporary impairment losses
2012
First
Second
Third
Fourth
$
199,058
$
203,808
$
196,799
$
195,206
24,639
174,419
—
174,419
143,720
(3,568)
7,127
(3,722)
21,694
182,114
(8,000)
190,114
154,997
31,367
(11,450)
(858)
20,044
176,755
—
176,755
165,246
15,075
(9,576)
(1,104)
20,945
174,261
(14,000)
188,261
164,915
(1,515)
4,689
(1,667)
Other operating revenue
143,557
174,056
169,641
166,422
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Net income (loss) attributable to non-controlling interest
Net income attributable to shareholders of BOK Financial Corp.
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
114,769
2,245
72,250
189,264
128,712
45,520
83,192
(422)
83,614
1.22
1.22
$
$
$
$
$
$
$
$
122,297
5,912
83,352
211,561
152,609
53,149
122,775
5,706
84,283
212,764
133,632
45,778
99,460
$
87,854
$
1,833
97,627
471
87,383
131,192
6,665
88,917
226,774
127,909
44,293
83,616
1,051
82,565
1.43
1.43
$
$
1.28
1.27
$
$
1.21
1.21
67,665
67,942
67,473
67,745
67,967
68,335
67,623
67,915
38
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 and all mortgage banking activities. Wealth
Management provides fiduciary services, brokerage and trading, private bank services and investment advisory services in all
markets. Wealth Management also originates loans for high net worth clients.
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 after allocation of funds, certain indirect expenses,
taxes based on statutory rates, actual net credit losses and capital costs. 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 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 9, net income attributable to our lines of business decreased $7.8 million or 3% compared to the prior
year. The decrease in net income attributed to our lines of business was due primarily to a $46.9 million decrease in mortgage
banking revenue and a $17.3 million increase in personnel expense, partially offset by a $19.9 million decrease in net loans
charged off, a $13.2 million decrease in mortgage banking costs and a $12.6 million decrease in net losses and operating
expenses of repossessed assets. The decrease in net income provided by Funds Management and other was largely due to lower
net interest revenue on our securities portfolio partially offset by a net decrease in our allowance for loan losses.
Table 9 – Net Income by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Year Ended
2013
2012
$
158,088
$
145,064
$
64,245
12,534
234,867
81,742
77,766
19,878
242,708
108,483
2011
127,388
36,810
15,620
179,818
106,057
$
316,609
$
351,191
$
285,875
39
Commercial Banking
Commercial Banking contributed $158.1 million to consolidated net income in 2013, up $13.0 million or 9% over the prior
year. Net interest revenue grew by $3.5 million as the balance of average commercial loans increased $590 million or 6%. Net
loans charged off were down $14.3 million compared to 2012. Other operating revenue was largely unchanged compared to the
prior year. Other operating revenue for 2012 included a $14.2 million gain on the sale of $26 million of common stock received
in 2009 in partial satisfaction of a defaulted commercial loan. Fees and commission revenue increased $12.3 million over the
prior year primarily due to growth in transaction card revenues. Other operating expense decreased $2.7 million or 1%
compared to 2012. Personnel expenses increased $4.6 million, non-personnel expenses increased $4.1 million or 5% and
corporate expense allocations decreased $1.1 million.
Table 10 – Commercial Banking
(Dollars in thousands)
Net interest revenue from external sources
Net interest expense from internal sources
Total net interest revenue
Net loans charged off (recovered)
Net interest revenue after net loans charged off
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs (recoveries) to average loans
Year Ended
2013
2012
2011
$
364,604
$
367,533
(37,025)
327,579
(3,468)
331,047
168,992
2,908
171,900
107,342
5,619
80,916
50,334
244,211
258,736
100,648
(43,438)
324,095
10,852
313,243
156,724
14,407
171,131
102,757
15,898
76,865
51,434
246,954
237,420
92,356
$
158,088
$
145,064
$ 10,483,706
$ 10,147,805
9,680,274
9,185,473
906,716
9,090,009
8,553,014
882,037
$
$
1.51 %
17.44 %
49.18 %
(0.04)%
1.43%
16.45%
51.36%
0.12%
342,853
(30,689)
312,164
20,760
291,404
146,771
774
147,545
95,801
16,692
74,610
43,355
230,458
208,491
81,103
127,388
9,383,530
8,289,299
7,757,808
884,171
1.36%
14.41%
50.22%
0.25%
Net interest revenue increased $3.5 million or 1% over 2012. Growth in net interest revenue was due to a $590 million increase
in average loan balances, partially offset by decreased loan yields. Lower yields on deposits sold to our Funds Management
unit was partially offset by a $632 million increase in average deposit balances.
40
Fees and commissions revenue increased $12.3 million or 8% over 2012. Transaction card revenue increased $8.0 million or
9% due to increased customer transaction volume. Commercial deposit service charges and fees increased $1.8 million or 4%
over the prior year primarily related to a decrease in the average earnings credit to better align with market interest rates. The
average earnings credit is a non-cash method for commercial customers to avoid incurring charges for deposit services based on
account balances.
Operating expenses decreased $2.7 million or 1% over 2012. Net losses and operating expenses on repossessed assets
decreased $10.3 million compared to the prior year. Personnel costs increased $4.6 million or 4% primarily due to increased
regular compensation expense related to standard annual merit increases and increased headcount. Other non-personnel
expenses increased $4.1 million primarily due to higher data processing expenses related to increased transaction card activity.
Corporate expense allocations decreased $1.1 million compared to the prior year.
The average outstanding balance of loans attributed to Commercial Banking increased $590 million to $9.7 billion for
2013. 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. Commercial Banking experienced a net recovery of $3.5 million for 2013 compared to net charge-offs of
$10.9 million or 0.12% of average loans attributed to this line of business for 2012. Net charge-offs for 2012 included the
return of a $7.1 million loan settlement received in 2008 as discussed in greater detail in in Management's Discussion &
Analysis of Financial Condition – Summary of Loan Loss Experience following.
Average deposits attributed to Commercial Banking were $9.2 billion for 2013, an increase of $632 million or 7% over 2012.
Average demand deposits and interest-bearing transaction account balances grew, partially offset by a decrease in time
deposits. Average balances attributed to our commercial & industrial loan customers increased $191 million or 7% and average
balances attributed to our energy customers increased $164 million or 13%. Average balance attributed to our healthcare
customers grew $104 million or 28% over the prior year. Small business banking customer average balances increased $84.3
million or 5%. Average balances held by treasury services customers were up $80 million or 5% over the prior year.
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 services are provided through five primary distribution channels: traditional branches, supermarket
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 and through correspondent loan
originators.
Consumer banking contributed $64.2 million to consolidated net income for 2013, down $13.5 million compared to the prior
year, primarily due to a decrease in mortgage banking revenue. Revenue from mortgage loan production decreased $49.2
million compared to the prior year, primarily due to lower gain on sale margins and a slow down in mortgage refinancing
activity. Changes in the fair value of our mortgage servicing rights, net of economic hedge, increased net income attributed to
Consumer Banking by $1.3 million in 2013 and decreased net income attributed to Consumer Banking by $795 thousand in
2012.
41
Table 11 – Consumer Banking
(Dollars in thousands)
Net interest revenue from external sources
Net interest revenue from internal sources
Total net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Change in fair value of mortgage servicing rights
Other operating revenue
Personnel expense
Net losses (gains) and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Residential mortgage loans funded for sale
$
2013
99,509
20,290
119,799
4,628
115,171
220,731
(26,623)
22,720
216,828
91,962
(815)
94,382
41,323
226,852
105,147
40,902
$
$
$
64,245
$
5,669,580
2,349,772
5,612,492
293,736
1.13%
21.87%
66.62%
0.20%
Year Ended
2012
2011
$
101,029
$
102,854
21,305
122,334
9,198
113,136
266,566
5,552
(9,210)
262,908
93,409
1,405
108,661
45,292
248,767
127,277
49,511
77,766
5,726,564
2,386,865
5,598,063
289,665
1.36%
26.85%
63.97%
0.39%
$
$
27,416
130,270
13,598
116,672
197,271
26,051
(40,447)
182,875
88,993
3,044
94,394
52,871
239,302
60,245
23,435
36,810
5,937,584
2,373,432
5,741,718
273,905
0.62%
13.44%
73.06%
0.57%
$
4,081,390
$
3,708,350
$
2,293,834
Banking locations
Residential mortgage loans servicing portfolio1
$
1 Includes outstanding principal for loans serviced for affiliates
206
217
212
14,818,016
$
13,091,482
$
12,356,917
December 31,
2013
December 31,
2012
December 31,
2011
Net interest revenue from consumer banking activities decreased $2.5 million compared to 2012. Net interest earned on
residential mortgage-backed securities held as an economic hedge of mortgage servicing rights decreased by $3.9 million due
to a $160 million decrease in the average balance of this portfolio and lower average yields. Net interest revenue related to the
consumer loan portfolio decreased compared to the prior year as the average loan balance decreased $37 million or 2%. The
average balance of residential mortgage loans increased over the prior year. Other consumer loans also increased, offset by
decreased balances of indirect automobile loans due to pay-downs. The Company previously disclosed its decision to exit the
indirect automobile loan business in the first quarter of 2009. Net interest earned on deposits sold to our Funds Management
unit decreased $1.0 million primarily due to lower yields on funds invested.
42
Net loans charged off by the Consumer Banking unit decreased $4.6 million compared to 2012 to $4.6 million or 0.20% of
average loans. Net consumer banking charge-offs also includes indirect automobile loans, overdrawn deposit accounts and
other direct consumer loans.
Fees and commissions revenue decreased $45.8 million or 17% compared to the prior year. Mortgage banking revenue was
down $46.9 million or 27% compared to the prior year. Growth in residential mortgage loan origination volume was offset by
overall lower gains on loans sold and a change in the mix toward lower margin loans.
Operating expenses decreased $21.9 million or 9% compared to 2012. Personnel expenses decreased $1.4 million or 2%
primarily due to decreased headcount. Non-personnel expense decreased $14.3 million or 13% primarily due to a $13.2 million
decrease in mortgage banking expenses related to decreased provision for losses from repurchases of residential mortgage loans
sold to U.S. government agencies that no longer qualify for sale accounting. Corporate expense allocations decreased $4.0
million compared to the prior year. Net losses and operating expenses of repossessed assets were down $2.2 million compared
to the prior year.
Average consumer deposit balances were largely unchanged compared to the prior year. Higher costing time deposit balances
decreased $184 million or 10%. Average interest-bearing transaction accounts increased $131 million or 5%, average savings
account balances were up $43 million or 18% and average demand deposit balances increased $25 million or 4%.
Our Consumer Banking division originates, markets and services conventional and government-sponsored residential mortgage
loans for all of our geographical markets. We funded $4.3 billion of residential mortgage loans in 2013 compared to $4.0 billion
in 2012. Mortgage loan fundings included $4.1 billion of mortgage loans funded for sale in the secondary market and $194
million funded for retention within the consolidated group. Approximately 24% of our mortgage loans funded were in the
Oklahoma market, 14% in the Texas market, 11% in the New Mexico market and 11% in the Colorado market. In addition,
29% of our mortgage loan fundings came from correspondent lenders.
At December 31, 2013, the Consumer Banking division serviced $13.7 billion of mortgage loans for others and $1.1 billion of
loans retained within the consolidated group. Approximately 93% of the mortgage loans serviced by the Consumer Banking
division were to borrowers in our primary geographical market areas. Loans past due 90 days or more totaled $80 million or
0.58% of loans serviced for others at December 31, 2013 compared to $84 million or 0.70% of loans serviced for others at
December 31, 2012. Mortgage servicing revenue, including revenue on loans serviced for the consolidated group, increased
$2.3 million or 5% over the prior year to $44.9 million.
43
Wealth Management
Wealth Management contributed $12.5 million to consolidated net income in 2013, down $7.3 million or 37% compared to the
prior year. Revenue in 2013 was reduced $8.7 million ($5.3 million after tax) from changes in the fair value of our trading
securities inventory due to sharp increases in interest rates. The following discussion excludes these inventory adjustment
charges.
Net interest revenue decreased $3.6 million or 7% primarily due to decreased loan yields. Fees and commissions revenue
increased $22.2 million or 11% primarily due to growth in trust fees. Other operating expense increased $23.2 million or 11%
primarily due to increased regular and incentive compensation expenses.
Table 12 – Wealth Management
(Dollars in thousands)
Net interest revenue from external sources
Net interest revenue from internal sources
Total net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Fees and commissions revenue
Gain on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Year Ended
2013
2012
2011
$
25,478
20,061
45,539
1,275
44,264
212,878
912
213,790
$
$
27,647
21,456
49,103
2,284
46,819
30,859
16,540
47,399
2,960
44,439
199,406
171,276
601
551
200,007
171,827
160,520
146,337
126,909
—
37,370
39,650
237,540
20,514
7,980
54
31,032
36,870
214,293
32,533
12,655
33
28,762
34,998
190,702
25,564
9,944
$
12,534
$
19,878
$
15,620
$ 4,556,132
$ 4,357,641
$ 4,073,623
932,229
927,277
4,385,553
4,281,423
203,914
184,707
1,011,319
3,976,183
174,877
0.28%
6.15%
91.92%
0.14%
0.46%
10.76%
86.23%
0.25%
0.38%
8.93%
87.21%
0.29%
Our Wealth Management division serves as custodian to or manages assets of customers. Fees are earned commensurate with
the level of service provided. We may have sole or joint investment discretion over the assets of the customer or may be
fiduciary for the assets, but investment selection authority remains with the customer or a manager outside of the Company.
The Wealth Management division also provides safekeeping services for personal and institutional customers including holding
of the customer's assets, processing of income and redemptions and other customer recordkeeping and reporting services. We
also provide brokerage services for customers whom maintain or delegate investment authority and for which BOK Financial
does not have custody of the assets.
44
A summary of assets under management or in custody follows in Table 13.
Table 13 – Assets Under Management or In Custody
(Dollars in thousands)
Fiduciary assets in custody for which BOKF has sole or joint discretionary authority
Fiduciary assets not in custody for which BOKF has sole or joint discretionary
authority
Non-managed fiduciary assets in custody
Total fiduciary assets
Assets held in safekeeping
Brokerage accounts under BOKF administration
Assets under management or in custody
December 31,
2013
12,752,460
$
December 31,
2012
10,981,353
$
December 31,
2011
9,916,322
$
1,728,426
15,656,206
30,137,092
22,087,207
4,882,930
57,107,229
$
1,659,822
13,187,863
25,829,038
20,994,011
4,402,992
51,226,041
221,465
12,684,026
22,821,813
18,948,739
3,635,300
45,405,852
$
$
Net interest revenue decreased $3.6 million or 7% compared to the prior year. Growth in average assets was largely due to
funds sold to the Funds Management unit. Average deposit balances increased $104 million or 2%. Average interest-bearing
transaction balances were up $151 million or 5%. Non-interest-bearing demand deposits were largely unchanged compared to
the prior year. Higher costing time deposit average balances decreased $49 million. Average loan balances increased $5.0
million.
Trust fees and commissions increased $16.1 million or 20%. The Company acquired The Milestone Group, a Denver based
investment adviser to high net worth clients, in the third quarter of 2012, resulting in a $7.0 million increase in revenue over
2012. The remaining increase was due to the increase in fair value of fiduciary assets during 2013. Brokerage and trading
revenue increased $6.9 million or 6% primarily due to securities and derivative contracts sold to our mortgage banking
customers. Retail brokerage fees and investment banking fees both grew over the prior year.
Other operating revenue includes fees earned from state and municipal bond underwriting and financial advisory services,
primarily in the Oklahoma and Texas markets. In 2013, the Wealth Management division participated in 456 underwritings that
totaled $6.8 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately
$2.8 billion of these underwritings. In 2012, the Wealth Management division participated in 445 underwritings that totaled
approximately $6.8 billion. Our interest in these underwritings totaled approximately $2.3 billion.
Operating expenses increased $23.2 million or 11% over the prior year. Personnel expenses increased $14.2 million or 10% due
to expansion of the Wealth Management division during the year. Regular compensation costs increased $8.3 million primarily
due to increased headcount and annual merit increases. Incentive compensation increased $3.5 million over the prior year. Non-
personnel expenses increased $6.3 million or 20%, including $2.2 million related to a full year of expenses for The Milestone
Group. Approximately $1.2 million of increased expenses related to Milestone are from the amortization of acquired intangible
assets. Corporate expense allocations were up $2.8 million or 8% due primarily to expansion of the Wealth Management
business line and increased customer transaction activity.
45
Geographical Market Distribution
The Company secondarily evaluates performance by primary geographical market. Loans are generally attributed to
geographical markets based on the location where the loans are managed. Brokered deposits and other wholesale funds are not
attributed to a geographical market. Funds Management and other also includes insignificant results of operations in locations
outside our primary geographic regions. Mortgage origination and marketing revenue is attributed to the geography where the
mortgage was originated. Mortgage origination and marketing revenue related to correspondent banking is attributed to
Oklahoma. All interest revenue on mortgage loans retained by BOKF and servicing revenue for mortgage loans sold in the
secondary market and serviced for others is also attributed to Oklahoma.
Table 14 – Net Income (Loss) by Geographic Region
(In thousands)
Bank of Oklahoma
Bank of Texas
Bank of Albuquerque
Bank of Arkansas
Colorado State Bank & Trust
Bank of Arizona
Bank of Kansas City
Subtotal
Funds Management and other
Total
Year Ended
2013
2012
2011
$
113,165
$
125,941
$
108,007
51,853
19,937
7,615
21,742
4,592
7,052
225,956
90,653
49,021
22,748
12,719
18,306
(1,116)
10,005
237,624
113,567
41,683
14,167
5,971
10,223
(8,342)
5,544
177,253
108,622
$
316,609
$
351,191
$
285,875
46
Bank of Oklahoma
Our Oklahoma offices are located primarily in the Tulsa and Oklahoma City metropolitan areas. Oklahoma is a significant
market to the Company, including 45% of our average loans are managed in Oklahoma, 53% of our average deposits and 36%
of our consolidated net income for 2013. In addition, all of our mortgage servicing activity, TransFund EFT network and 62%
of our fiduciary assets are attributed to the Oklahoma market.
Net income generated by the Bank of Oklahoma in 2013 decreased $12.8 million or 10% compared to 2012. Net interest
revenue decreased $17.0 million or 7%. Bank of Oklahoma had a net recovery of $1.8 million for 2013, compared to net loans
charged off of $15.5 million or 0.27% of average loans for 2012. Fees and commissions revenue decreased $20.0 million or 6%
primarily due to a decrease in mortgage banking revenue. Other operating expenses were down $13.5 million or 4%. Changes
in fair value of our mortgage servicing rights, net of economic hedge, increased net income by $1.3 million in 2013 and
decreased net income by $795 thousand in 2012.
Table 15 – Bank of Oklahoma
(Dollars in thousands)
Net interest revenue
Net loans charged off (recovered)
Net interest revenue after net loans charged off (recovered)
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Change in fair value of mortgage servicing rights
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Residential mortgage loans funded for sale
47
Year Ended
2013
2012
2011
$
223,908
$
240,892
$
248,079
(1,792)
225,700
305,612
(23,189)
22,720
305,143
160,299
19
159,285
26,028
345,631
185,212
72,047
15,451
225,441
325,610
23,425
(9,210)
339,825
153,021
5,696
164,917
35,510
359,144
206,122
80,181
19,796
228,283
320,519
27,446
(40,447)
307,518
164,919
4,656
147,231
42,224
359,030
176,771
68,764
$
113,165
$
125,941
$
108,007
$ 11,317,424
$ 11,544,877
$ 10,929,242
5,537,533
10,501,209
550,677
5,717,222
10,394,385
549,934
5,553,801
9,820,286
541,153
1.00 %
20.55 %
65.27 %
(0.03)%
1.09%
22.90%
63.40%
0.27%
0.99%
19.96%
63.14%
0.36%
$ 2,220,741
$
1,671,776
$
1,105,800
Net interest revenue decreased $17.0 million or 7% compared to the prior year. Decreased yield on loans and residential
mortgage-backed securities held as an economic hedge of mortgage servicing rights was partially offset by lower funding costs.
Average loan balances were down $180 million or 3% compared to last year and average securities balances decreased $160
million compared to 2012. The favorable net interest impact of the $107 million decrease in average deposit balances was
offset by lower yields on funds sold to the Funds Management unit.
Fees and commissions revenue decreased $20.0 million or 6% compared to 2012. Mortgage banking revenue was down $24.8
million over last year primarily due to lower gains on sales of residential mortgage loans in the secondary market, partially
offset by increased mortgage loan originations. Transaction card revenue was up $5.8 million on increased transaction activity
and trust fees and commissions grew by $3.5 million. Deposit service charges and fees were down $3.8 million and brokerage
and trading revenue decreased $3.4 million.
Other operating expenses were down $13.5 million or 4% compared to the prior year. Personnel expenses were up $7.3 million
or 5% over 2012 primarily due to increased regular compensation expense due to a modest increase in headcount and annual
merit increases, partially offset by lower incentive compensation expense compared to the prior year. Non-personnel expenses
were down $5.6 million or 3%. Mortgage banking expenses were down $12.0 million compared to the prior year due to lower
provision for credit losses on residential mortgage loans repurchased from GNMA pools because they no longer qualify for
sales accounting. This decrease was partially offset by increased data processing and communications and other expenses.
Corporate expense allocations were down $9.5 million compared to the prior year. Increased loan and deposit activity outside
of Oklahoma increased the corporate expense allocation to these other geographies. Net losses and operating expenses of
repossessed assets were down $5.7 million over 2012 primarily due to decreased write-downs related to regularly scheduled
appraisal updates.
Bank of Oklahoma had a net recovery of $1.8 million for 2013, compared to net loans charged off of $15.5 million or 0.27% of
average loans for 2012. Net charge-offs for 2012 included the return of $7.1 million received from the City of Tulsa in 2008 to
settle claims related to a defaulted loan. The settlement agreement between BOK Financial and the City of Tulsa was
invalidated by the Oklahoma Supreme Court in 2011 as discussed further in Note 14 to the Consolidated Financial Statements.
Excluding this item, net charge-offs were $8.4 million or 0.15% of average loans for 2012.
As noted in Table 16 following, the period end balance of loans managed by the Bank of Oklahoma decreased $158 million or
3% compared to the prior year. Commercial loan balances were down $188 million primarily due to a decrease energy and
wholesale/retail loans, partially offset by growth in services, manufacturing and healthcare loans. Commercial real estate loans
grew by $21 million or 4%. Growth in multifamily residential, loans secured by retail facilities and loans secured by office
buildings were partially offset by a decrease in other commercial real estate loans and construction and land development loans.
Residential mortgage loans were up $36 million or 2% over the prior year. Growth in first-lien fully amortizing home equity
loans and permanent mortgage loans guaranteed by U.S. government agencies was offset by a decrease in non-guaranteed
permanent mortgage loans. Consumer loans were down $28 million or 13% compared to the prior year. Both indirect
automobile loans and other consumer loans decreased compared to December 31, 2012
Average deposits attributed to the Bank of Oklahoma decreased $107 million or 1% compared to 2012. Commercial Banking
deposit balances increased $147 million or 3% over the prior year. Deposits related to treasury services customers and energy
customers increased over the prior year, partially offset by decreased average balances related to commercial and industrial
customers. Consumer deposits also increased $49 million or 2%. Wealth Management deposits decreased $90 million or 4%,
primarily due to a decrease in average trust deposit balances.
48
Table 16 – Loans Managed by Primary Geographical Market
(In thousands)
Bank of Oklahoma:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Oklahoma
Bank of Texas:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Texas
Bank of Albuquerque:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Albuquerque
Bank of Arkansas:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Arkansas
Colorado State Bank & Trust:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Colorado State Bank & Trust
Bank of Arizona:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Arizona
Bank of Kansas City:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total Bank of Kansas City
2013
2012
2011
2010
2009
December 31,
$
$
2,902,140
602,010
1,524,212
192,283
5,220,645
$
3,089,686
580,694
1,488,486
220,096
5,378,962
$
2,826,649
607,030
1,411,560
235,909
5,081,148
$
2,693,232
703,041
1,227,184
327,599
4,951,056
3,052,274
816,574
260,544
131,297
4,260,689
2,726,925
771,796
275,408
116,252
3,890,381
2,249,888
830,642
268,053
126,570
3,475,153
1,943,666
701,993
300,916
145,699
3,092,274
342,336
308,829
133,900
13,842
798,907
81,556
78,264
7,922
8,023
175,765
265,830
326,135
130,337
15,456
737,758
62,049
90,821
13,046
15,421
181,337
735,626
190,355
62,821
22,686
1,011,488
776,610
173,327
59,363
19,333
1,028,633
417,702
257,477
47,111
7,887
730,177
411,587
161,844
15,516
5,646
594,593
313,296
201,760
57,803
4,686
577,545
407,516
84,466
20,597
4,261
516,840
258,668
303,500
104,695
19,369
686,232
76,199
136,170
15,772
35,911
264,052
544,020
156,013
64,627
21,598
786,258
271,914
198,160
89,315
5,633
565,022
327,732
59,788
20,505
3,853
411,878
284,394
308,605
94,010
19,620
706,629
83,297
118,662
15,614
72,869
290,442
436,094
196,728
75,266
21,276
729,364
215,973
206,948
97,576
5,604
526,101
284,740
34,884
24,709
2,837
347,170
2,728,763
822,586
1,383,642
449,371
5,384,362
2,022,324
734,072
271,910
169,396
3,197,702
342,689
304,903
74,703
17,799
740,094
103,061
132,828
9,503
124,118
369,510
510,019
241,699
27,980
17,566
797,264
202,599
234,039
48,708
4,657
490,003
252,043
29,664
17,064
1,992
300,763
Total BOK Financial loans
$
12,792,264
$ 12,311,456
$
11,269,743
$
10,643,036
$
11,279,698
Loans attributed to a geographical region may not always represent the location of the borrower or the collateral. All permanent residential
mortgage loans serviced by our mortgage banking unit and held for investment by the Bank are managed by the Bank of Oklahoma.
49
Bank of Texas
Our Texas offices are located primarily in the Dallas, Fort Worth and Houston metropolitan areas. Texas is our second largest
market with 34% of our average loans, 25% of our average deposits and 16% of our consolidated net income for 2013.
Net income for the Bank of Texas increased $2.8 million or 6%. Net interest revenue increased $7.9 million or 6% due
primarily to a $423 million or 11% growth in loans and lower funding costs. Fees and commission revenue grew by $6.4
million or 7%. Other operating expense increased $12.5 million or 8% due primarily to higher personnel costs and increased
corporate expense allocations related to growth in the Texas market.
Table 17 – Bank of Texas
(Dollars in thousands)
Net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Fees and commissions revenue
Gain on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Residential mortgage loans funded for sale
Year Ended
2013
2012
2011
$
150,780
$
142,893
$ 137,696
2,813
147,967
5,496
137,397
4,170
133,526
93,689
83
93,772
86,311
3,134
25,484
45,789
87,252
188
87,440
81,278
3,240
25,228
38,495
63,608
342
63,950
69,051
1,570
23,609
38,116
160,718
148,241
132,346
81,021
29,168
76,596
27,575
65,130
23,447
$
51,853
$
49,021
$
41,683
$ 5,340,545
$ 5,109,687
$ 4,933,477
4,255,583
4,876,067
501,339
3,832,395
4,602,272
3,417,235
4,368,967
482,558
473,925
0.97%
10.34%
65.74%
0.07%
0.96%
10.16%
64.41%
0.14%
0.84%
8.80%
65.74%
0.12%
$
535,644
$
500,769
$ 220,022
Net interest revenue increased $7.9 million or 6% over 2012 primarily due to growth of the loan portfolio and decreased
deposit costs. Average outstanding loans increased by $423 million or 11% over the prior year. The benefit of a $274 million or
6% increase in deposits was offset by lower yield on funds invested by the Funds Management unit.
Fees and commissions revenue grew $6.4 million or 7% over 2012. Brokerage and trading revenue grew $5.5 million or 33%
over the prior year. Trust fees and commissions was up $2.5 million or 18% and transaction card revenue was up $1.8 million
or 23%. Deposit service charges and fees were largely unchanged compared to the prior year. Mortgage banking revenue
decreased $3.3 million or 14% compared to the prior year.
50
Operating expenses increased $12.5 million or 8% over 2012. Personnel costs were up $5.0 million or 6% primarily due to
increased headcount and incentive compensation expense. Non-personnel expenses increased $256 thousand or 1%. Corporate
expense allocations increased $7.3 million or 19% on increased customer transaction activity and growth at Bank of Texas.
Net loans charged off totaled $2.8 million or 0.07% of average loans for 2013, compared to $5.5 million or 0.14% of average
loans for 2012.
As noted in Table 16, period end loan balances managed by the Bank of Texas grew by $370 million or 10%, primarily due to
growth in commercial loan balances. Commercial loans increased $325 million or 12% primarily related to growth in energy
and wholesale/retail loans, partially offset by a decrease in service sector loans. Commercial real estate loans are up $45 million
or 6%. Growth in loans secured by multifamily residential and retail facilities was partially offset by a decrease in loans
secured by office buildings. Residential mortgage loans decreased $15 million offset by a $15 million increase in consumer
loans.
Bank of Albuquerque
Net income attributable to the Bank of Albuquerque totaled $19.9 million or 6% of consolidated net income, a $2.8 million or
12% decrease compared to 2012 due primarily to decreased mortgage banking revenue.
Table 18 – Bank of Albuquerque
(Dollars in thousands)
Net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Year Ended
2013
2012
2011
$
35,977
$
34,807
$
33,959
5,514
30,463
1,136
33,671
2,103
31,856
Other operating revenue – fees and commission
44,805
48,815
31,165
Personnel expense
Net losses (gains) and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Residential mortgage loans funded for sale
51
20,003
(321)
8,473
14,483
42,638
32,630
12,693
20,388
165
8,239
16,463
45,255
37,231
14,483
13,704
2,018
8,779
15,333
39,834
23,187
9,020
$
19,937
$
22,748
$
14,167
$ 1,439,884
$ 1,391,606
$ 1,390,700
772,524
715,095
707,723
1,313,568
1,267,487
1,242,964
79,922
79,708
82,313
1.38%
24.95%
52.78%
0.71%
1.63%
28.54%
54.12%
0.16%
1.02%
17.21%
61.17%
0.30%
$
452,505
$
549,249
$ 354,964
Net interest revenue increased $1.2 million or 3% over the prior year. Average loan balances were up $57 million or 8%. The
benefit of this growth, was offset by decreased loan yields. Average deposit balances were up $46 million or 4% over the prior
year. Decreased deposit costs were partially offset by a decrease in the yield on funds invested with the Funds Management
unit. Net loans charged off totaled $5.5 million or 0.71% of average loans for 2013 compared to net loans charged off of $1.1
million or 0.16% of average loans for 2012.
Fees and commissions revenue decreased $4.0 million or 8% over the prior year primarily due to a $6.3 million decrease in
mortgage banking revenue. Growth in trust fees and commissions was offset by a decrease in deposit service charges and fees.
In addition, brokerage and trading revenue and transaction card revenue both increased over the prior year. Other operating
expense decreased $2.6 million or 6%. Personnel expenses were down $385 thousand or 2%. Net losses and expenses of
repossessed assets decreased $486 thousand to $321 thousand for 2013. Non-personnel expense increased $234 thousand and
corporate expense allocations decreased $2.0 million.
As indicated in Table 16, period-end loans managed by the Bank of Albuquerque increased $61 million or 8%, primarily due to
growth in commercial loan balances partially offset by a decrease in commercial real estate loan balances. Commercial loans
increased $77 million or 29% primarily related to growth in services and healthcare sector loans, partially offset by a decrease
in wholesale/retail sector loans. Commercial real estate loans decreased $17 million or 5% compared to the prior year. A
decrease in loans secured by office buildings and retail facilities was partially offset by an increase in multifamily residential
loans and other commercial real estate loans. Residential mortgage loans increased $3.6 million and other consumer loans
decreased by $1.6 million.
52
Bank of Arkansas
Net income attributable to the Bank of Arkansas totaled $7.6 million for 2013 compared to $12.7 million for 2012. Net interest
revenue decreased $4.2 million or 42% compared to 2012. Net interest revenue for 2012 included $2.9 million of foregone
interest and fees collected on nonaccruing wholesale/retail sector loans during that year. Loans attributed to the Bank of
Arkansas decreased $49 million compared to 2012 primarily due to the continued run-off of indirect automobile loans. Average
deposits were up $12 million or 6% over the prior year primarily due to a $12 million or 8% increase in interest-bearing
transaction deposits. Increased demand deposit balances were offset by a decrease in time deposit balances. The Bank of
Arkansas experienced a net recovery of $290 thousand for 2013 compared to a net recovery of $1.4 million for 2012. In
addition to foregone interest and fees, $2.0 million charged off in the second quarter of 2011 was recovered in 2012 related to
the nonaccruing wholesale/retail loan.
Fees and commissions revenue was down $766 thousand or 2% over the prior year primarily due to decreased mortgage
banking revenue. Other operating expenses were up $2.2 million or 6% primarily due to $1.0 million in net losses and
operating expenses of repossessed assets. Personnel costs increased primarily due to incentive compensation costs related to
trading activity and corporate expense allocations increased. Non-personnel expenses decreased compared to the prior year.
Table 19 – Bank of Arkansas
(Dollars in thousands)
Net interest revenue
Net loans charged off (recovered)
Net interest revenue after net loans charged off (recovered)
Year Ended
2013
2012
2011
$
5,692
$
9,892
$
(290)
5,982
(1,443)
11,335
8,213
2,797
5,416
Other operating revenue – fees and commissions
48,914
49,680
37,611
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs (recoveries) to average loans
Residential mortgage loans funded for sale
24,628
1,289
4,508
12,008
42,433
12,463
4,848
23,963
254
4,805
11,176
40,198
20,817
8,098
$
$
$
7,615
$
12,719
$ 276,309
$ 233,244
172,611
220,111
18,284
2.76 %
41.65 %
77.71 %
(0.17)%
221,906
208,096
19,716
5.45 %
64.51 %
67.48 %
(0.65)%
17,641
548
4,565
10,501
33,255
9,772
3,801
5,971
291,564
273,382
210,083
23,563
2.05%
25.34%
72.57%
1.02%
$ 108,205
$ 111,049
$
72,293
As noted in Table 16, the period end balance of loans managed by the Bank of Arkansas decreased $5.6 million or 3%.
Commercial loan growth was offset by a decrease in commercial real estate, residential mortgage and consumer loan balances.
Commercial loans increased $20 million or 31% primarily related to growth in other commercial and and industrial loans and
wholesale/retail sector loans. Commercial real estate loans decreased $13 million or 14%. Residential mortgage loans
decreased $5.1 million and other consumer loans decreased by $7.4 million.
53
Colorado State Bank & Trust
Net income attributed to Colorado State Bank & Trust increased $3.4 million or 19% over 2012 to $21.7 million. Net interest
revenue increased $3.0 million or 8% primarily due to increased average loan and deposit balances, partially offset by a
decrease in deposit costs and yield on funds sold to the Funds Management unit. Average loans increased $115 million or 12%.
Average deposits attributable to Colorado State Bank & Trust increased $17 million or 1%. Demand deposits grew by $33
million during 2013 primarily due to increased commercial account balances. Interest-bearing transaction deposit account
balances increased $26 million or 5%. Higher costing time deposits decreased $46 million. Colorado State Bank & Trust had a
net recovery of $4.6 million for 2013 compared to net loans charged off of $166 thousand or 0.02% of average loans for 2012.
Fees and commissions revenue was up $2.8 million over 2012. Trust fees and commission were up $8.1 million over 2012
primarily due to the acquisition of the Milestone Group in the third quarter of 2012. The Milestone Group is a Denver-based
registered investment adviser which provides wealth management services to high net worth clients in Colorado and Nebraska.
Mortgage banking revenues decreased $6.5 million compared to the prior year. Brokerage and trading and transaction card
revenue both also grew over the prior year. Operating expenses were up $4.9 million or 10% over the prior year primarily due
to the Milestone Group acquisition. Personnel expenses were up $4.2 million and non-personnel expenses increased $1.7
million, including $1.2 million of increased amortization of acquired intangible assets. Corporate expense allocations were
largely unchanged compared to the prior year.
Table 20 – Colorado State Bank & Trust
(Dollars in thousands)
Net interest revenue
Net loans charged off (recovered)
Net interest revenue after net loans charged off (recovered)
Fees and commissions revenue
Gain (loss) on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs (recoveries) to average loans
Residential mortgage loans funded for sale
54
Year Ended
2013
2012
2011
$
39,713
$
36,708
$
34,018
(4,629)
44,342
46,551
(6)
46,545
31,113
(256)
8,833
15,613
55,303
35,584
13,842
166
36,542
43,776
8
43,784
26,895
510
7,163
15,798
50,366
29,960
11,654
2,235
31,783
22,587
—
22,587
18,388
401
5,815
13,035
37,639
16,731
6,508
$
21,742
$
18,306
$
10,223
$ 1,387,308
$ 1,345,619
$ 1,343,816
1,039,682
1,346,953
148,189
924,700
782,583
1,330,179
1,273,794
129,139
118,712
1.57 %
14.67 %
64.11 %
(0.45)%
1.36%
14.18%
62.58%
0.02%
0.76%
8.61%
66.49%
0.29%
$
430,969
$
497,543
$
298,630
As noted in Table 16, the period end balance of loans managed by Colorado State Bank & Trust decreased $17 million or 2%.
Commercial loans decreased $41 million or 5% primarily due to decreased energy and service loans, partially offset by growth
in healthcare and integrated food services loans. Commercial real estate loans grew by $17 million or 10%. Growth in
multifamily residential and loans secured by retail facilities and office buildings was partially offset by a decrease in
construction and land development loans. Residential mortgage loans increased $3.5 million and other consumer loans
increased by $3.4 million.
55
Bank of Arizona
Bank of Arizona had net income of $4.6 million for 2013 compared to a net loss of $1.1 million for 2012. The improvement
was due primarily to growth in fee revenue, along with decreased net loans charged off and lower net losses and operating
expenses of repossessed assets.
Net interest revenue increased $3.9 million or 23% over 2012. Average loan balances were up $104 million or 19% over the
prior year. Net loans charged off decreased to $329 thousand or 0.05% of average loans for 2013, compared to $2.4 million or
0.43% for 2012. Average deposits were up $220 million or 64% over last year. Interest-bearing transaction account balances
grew by $185 million or 105% and demand deposit balances were up $33 million or 25% both primarily due to growth in
commercial deposits. Time deposits balances increased $2.0 million over the prior year.
Fees and commissions revenue was up $266 thousand or 3% over the prior year. Growth in trust fees and commissions and
transaction card revenue was partially offset by a decrease in mortgage banking revenue. Other operating expense decreased
$2.7 million or 10% compared to 2012. Personnel expense increased $1.7 million or 16% compared to the prior year. Net losses
and operating expenses of repossessed assets decreased $6.5 million to $879 thousand for 2013. Non-personnel expenses
increased $202 thousand or 6% over the prior year. Corporate overhead expense allocations were up $1.9 million or 38%.
Table 21 – Bank of Arizona
(Dollars in thousands)
Net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Fees and commissions revenue
Gain on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income (loss) before taxes
Federal and state income tax
Net income (loss)
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Residential mortgage loans funded for sale
56
Year Ended
2013
2012
2011
$
21,106
$
17,170
$
16,237
329
20,777
10,416
310
10,726
12,421
879
3,831
6,856
23,987
7,516
2,924
2,420
14,750
10,150
—
10,150
10,711
7,402
3,629
4,984
26,726
7,168
9,069
5,495
349
5,844
9,584
10,403
3,805
4,774
28,566
(1,826)
(710)
(13,653)
(5,311)
$
$
4,592
$
(1,116)
$
(8,342)
705,005
$ 612,682
$ 641,340
660,322
563,773
64,829
0.65%
7.08%
76.10%
0.05%
556,689
343,289
60,907
(0.18)%
(1.83)%
97.83 %
0.43 %
574,770
255,487
65,025
(1.30)%
(12.83)%
131.45 %
1.25 %
$
122,320
$
96,026
$
97,699
As noted in Table 16, the period end balance of loans managed by the Bank of Arizona grew by $153 million or 26% over the
prior year. Commercial loans increased $104 million or 33% primarily due to growth in healthcare and wholesale/retail sector
loans. Commercial real estate loans grew by $56 million or 28% primarily due to growth in loans secured by office buildings,
multifamily residential and loans secured by retail facilities. Residential mortgage loans decreased $11 million and other
consumer loans increased by $3.2 million.
57
Bank of Kansas City
Net income attributed to the Bank of Kansas City decreased by $3.0 million or 30% compared to 2012 primarily due to
decreased mortgage banking revenue.
Net interest revenue increased $2.5 million or 19%. Average loan balances grew by $88 million or 20%. Net charge-offs
remained low, totaling $93 thousand or 0.02% of average loans for 2013 compared to $94 thousand or 0.02% of average loans
for 2012. Average deposit balances were up $75 million or 26%. Demand deposit balances grew $114 million or 79% due
primarily to commercial account balances, offset by a $34 million decrease in interest-bearing transaction account balances and
a $5.3 million decrease in higher costing time deposit balances.
Fees and commissions revenue decreased $7.4 million or 19% compared to the prior year primarily due to a $5.1 million
decrease in mortgage banking revenue and a $3.0 million decrease in brokerage and trading revenue. Other operating expenses
were unchanged compared to the prior year. Personnel costs were down $424 thousand or 2% primarily due to decreased
incentive compensation partially offset by increased regular compensation expense. Non-personnel expenses increased $1.3
million and corporate expense allocations decreased by $864 thousand.
Table 22 – Bank of Kansas City
(Dollars in thousands)
Net interest revenue
Net loans charged off
Net interest revenue after net loans charged off
Year Ended
2013
2012
2011
$
15,754
$
13,212
$
11,680
93
15,661
94
13,118
181
11,499
Other operating revenue – fees and commission
31,621
38,995
23,137
Personnel expense
Net losses and expenses of repossessed assets
Other non-personnel expense
Corporate allocations
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Return on average assets
Return on invested capital
Efficiency ratio
Net charge-offs to average loans
Residential mortgage loans funded for sale
58
19,667
59
5,935
10,080
35,741
11,541
4,489
20,091
91
4,612
10,944
35,738
16,375
6,370
14,374
177
4,010
7,002
25,563
9,073
3,529
$
7,052
$
10,005
$
5,544
$ 541,187
$ 458,566
$ 376,689
524,019
361,836
39,951
1.30%
17.65%
75.44%
0.02%
436,144
286,791
33,675
2.18%
29.71%
68.45%
0.02%
364,553
304,128
27,752
1.47%
19.98%
73.42%
0.05%
$ 211,006
$ 281,938
$ 144,426
As noted in Table 16, the period end balance of loans managed by the Bank of Kansas City grew by $78 million or 15%
primarily due to growth in commercial real estate loan balances. Commercial loans were largely unchanged. Growth in service
sector loans was offset by a decrease in integrated food services, other commercial and industrial and wholesale/retail sector
loans. Commercial real estate loans grew by $77 million or 92% primarily due to growth in multifamily residential, other
commercial real estate loans, loans secured by office buildings and industrial facilities. Residential mortgage loans decreased
$5.1 million and other consumer loans increased by $1.4 million.
59
Financial Condition
Securities
We maintain a securities portfolio to enhance profitability, support customer transactions, 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 December 31,
2013, December 31, 2012 and December 31, 2011.
Table 23 – Securities
(In thousands)
Trading:
U.S. Government agency obligations
U.S. agency residential mortgage-backed
securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Investment:
Municipal and other tax-exempt
U.S. agency residential mortgage-backed
securities – Other1
Other debt securities
Total investment securities
Available for sale:
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
2013
December 31,
2012
2011
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
34,043
$
34,120
$
16,602
$
16,545
$
22,140
$
22,203
20,888
27,532
9,142
91,605
21,011
27,350
9,135
91,616
85,914
90,552
20,883
213,951
86,361
90,326
20,870
214,102
12,320
38,693
2,864
76,017
12,379
39,345
2,873
76,800
440,187
439,870
232,700
235,940
128,697
133,670
50,182
187,509
677,878
51,864
195,393
687,127
82,767
184,067
499,534
85,943
206,575
528,458
121,704
188,835
439,236
120,536
208,451
462,657
1,042
73,232
1,042
73,775
1,000
84,892
1,002
87,142
1,001
66,435
1,006
68,837
U.S. agencies
Privately issue
7,720,189
214,181
7,716,010
221,099
9,650,650
322,902
9,889,821
325,163
9,297,389
503,068
9,588,177
419,166
Total residential mortgage-backed
securities
Commercial mortgage-backed securities
guaranteed by U.S. government
agencies
Other debt securities
Perpetual preferred stocks
Equity securities and mutual funds
Total available for sale securities
Fair value option securities:
7,934,370
7,937,109
9,973,552
10,214,984
9,800,457
10,007,343
2,100,146
35,061
22,171
19,069
10,185,091
2,055,804
35,241
22,863
21,328
10,147,162
890,746
35,680
22,171
24,593
11,032,634
895,075
36,389
25,072
27,557
11,287,221
—
36,298
19,171
33,843
9,957,205
—
36,495
18,446
47,238
10,179,365
U.S. agency residential mortgage-backed
securities
Total fair value option securities
Corporate debt securities
Other securities
626,109
25,117
—
651,226
1 Includes net realized gain of $1.8 million at December 31, 2013, $5.0 million at December 31, 2012 and $12 million at December 31, 2011
remaining in Accumulated Other Comprehensive Income in the Consolidated Balance Sheets related to securities transferred from the
available for sale securities portfolio to the investment portfolio in 2011. See Note 2 to the Consolidated Financial Statements for
additional discussion.
253,726
25,077
723
279,526
157,431
—
9,694
167,125
606,876
25,099
—
631,975
165,809
—
9,485
175,294
257,040
26,486
770
284,296
$
$
$
$
$
$
60
In addition to the above, restricted equity securities include stock we are required to hold as members of the Federal Reserve
system and the Federal Home Loan Banks ("FHLB"). Restricted equity securities are carried at cost as theses securities do not
have a readily determined fair value because ownership of these shares are restricted and lacks a market. Federal Reserve Bank
stock totaled $34 million at December 31, 2013, $34 million at December 31, 2012 and $35 million at December 31, 2011.
Holdings of FHLB stock totaled $51 million at December 31, 2013, $31 million at December 31, 2012 and $3.1 million at
December 31, 2011.
At December 31, 2013, the carrying value of investment (held-to-maturity) securities was $678 million and the fair value was
$687 million. Investment securities consist primarily of intermediate and long-term, fixed rate Oklahoma 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 $83 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 $10.2 billion at December 31, 2013, a decrease of $848 million compared to December 31,
2012. The decrease was primarily in short-duration U.S. government agency residential mortgage-backed securities, partially
offset by an increase in U.S. government agency backed commercial mortgage-backed securities. Commercial mortgage-
backed securities have prepayment penalties similar to commercial loans. At December 31, 2013, residential mortgage-backed
securities represented 78% 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 investment and
available for sale securities portfolios at December 31, 2013 was 3.3 years. Management estimates the combined portfolios'
duration extends to 3.6 years assuming an immediate 200 basis point upward shock. The estimated combined portfolios'
duration contracts to 3.2 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 December 31, 2013, approximately $7.7 billion of the amortized cost of the
Company’s residential mortgage-backed securities were issued by U.S. government agencies. The fair value of these residential
mortgage-backed securities totaled $7.7 billion at December 31, 2013.
We also hold amortized cost of $214 million in residential mortgage-backed securities privately issued by publicly-owned
financial institutions. The amortized cost of these securities decreased $109 million from December 31, 2012, primarily due to
cash received and the sale of $46 million during the year. In addition, $938 thousand of other-than-temporary impairment losses
were charged against earnings during 2013. The fair value of our portfolio of privately issued residential mortgage-backed
securities totaled $221 million at December 31, 2013.
The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $110 million of Jumbo-
A residential mortgage loans and $105 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. Credit risk on
residential mortgage-backed securities originated by private issuers is mitigated by investment in senior tranches with
additional collateral support. All of our Alt-A residential mortgage-backed securities were issued with credit support from
additional layers of loss-absorbing subordinated tranches, including all Alt-A residential mortgage-backed securities held that
were originated in 2007 and 2006. The weighted average original credit enhancement of the Alt-A residential mortgage-backed
securities was 10.2% and has been fully absorbed as of December 31, 2013. The Jumbo-A residential mortgage-backed
securities had original credit enhancement of 9.7% and the current level is 3.8%. Approximately 80% 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 33% 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.
61
The aggregate gross amount of unrealized losses on available for sale securities totaled $158 million at December 31, 2013, an
increase of $151 million from December 31, 2012. 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. Other-than-temporary impairment charges of $2.3 million were recognized in earnings in 2013, including $938
thousand related to certain privately issued residential mortgage-backed securities that we do not intend to sell and $1.4 million
related to the change in intent to sell certain municipal securities prior to recovery of their amortized cost. These securities were
sold and the impairment was realized during the year.
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.
Bank-Owned Life Insurance
We have approximately $285 million of bank-owned life insurance at December 31, 2013. This investment is expected to
provide a long-term source of earnings to support existing employee benefit programs. Approximately $253 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 December 31, 2013, the fair value of investments held in separate accounts was approximately $263
million. As the underlying fair value of the investments held in a separate account at December 31, 2013 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.
62
Loans
The aggregate loan portfolio before allowance for loan losses totaled $12.8 billion at December 31, 2013, an increase of $481
million or 4% over December 31, 2012. Commercial loans grew by $301 million or 4% due largely to growth in healthcare,
services and wholesale/retail sector loans. Commercial real estate loans increased $186 million or 8%. Growth in multifamily
residential property and retail sector loans were partially offset by a decrease in construction and land development loans.
Residential mortgage loans were largely unchanged compared to the prior year. Growth in first-lien, fully amortizing home
equity loans and permanent residential mortgage loans guaranteed by U.S. government agencies was partially offset by a
decrease in non-guaranteed permanent residential mortgage loans. Consumer loans decreased $14 million due primarily to the
continued runoff of the indirect automobile loan portfolio resulting from the Company's previously disclosed decision to exit
this business in the first quarter of 2009, partially offset by growth in other consumer loans.
Table 24 – Loans
(In thousands)
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other real estate
2013
2012
2011
2010
2009
December 31,
$
2,351,760
$
2,460,659
$
2,005,041
$
1,706,366
$
1,911,392
2,282,210
1,201,364
391,751
2,164,186
1,106,439
348,484
1,274,246
1,081,406
150,494
291,396
191,106
289,632
1,761,538
1,574,680
1,768,966
967,426
336,733
978,160
204,311
301,861
981,047
319,353
843,826
203,741
312,383
919,998
384,327
776,457
160,148
240,210
7,943,221
7,641,912
6,555,070
5,941,396
6,161,498
206,258
586,047
411,499
576,502
243,877
391,170
253,093
522,786
427,872
402,896
245,994
376,358
342,054
509,402
405,923
369,028
278,186
386,710
451,720
420,038
462,758
364,172
178,032
394,141
655,116
423,155
444,091
357,496
126,006
493,927
Total commercial real estate
2,415,353
2,228,999
2,291,303
2,270,861
2,499,791
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
1,062,744
1,123,965
1,157,133
1,206,297
1,314,592
181,598
807,684
160,444
760,631
184,973
632,421
72,385
556,593
28,633
490,285
Total residential mortgage
2,052,026
2,045,040
1,974,527
1,835,275
1,833,510
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
6,513
375,151
381,664
34,735
360,770
395,505
105,149
343,694
448,843
239,188
356,316
595,504
454,508
330,391
784,899
$
12,792,264
$ 12,311,456
$
11,269,743
$
10,643,036
$
11,279,698
63
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.
Healthcare sector loans grew $193 million or 18% over December 31, 2012, service sector loans increased $118 million or 5%
and wholesale/retail sector loans increased $95 million or 9%. Energy sector loans decreased $109 million or 4% compared to
December 31, 2012.
Table 25 presents the commercial sector of our loan portfolio distributed primarily by collateral location. Loans for which the
collateral location is less relevant, such as unsecured loans and reserve-based energy loans, are distributed by the borrower’s
primary operating location.
Table 25 – Commercial Loans by Collateral Location
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas
Colorado
Arizona
Kansas/
Missouri
Other
Total
$ 473,280
$1,143,433
$ 57,741
$
8,403
$ 286,959
$ 16,767
$ 88,443
$ 276,734
$ 2,351,760
559,368
317,809
132,954
243,904
751,224
198,403
516,712
92,967
227,058
21,824
4,028
87,214
25,314
64,585
5,846
81,850
178,374
170,879
156,171
47,115
8,329
96,777
52,827
37,075
72,154
56,703
37,037
242,477
123,789
73,515
2,282,210
1,201,364
391,751
163,330
301,959
1,274,246
36,851
6,288
—
—
29,144
—
17,039
61,172
150,494
88,945
92,967
14,490
11,739
2,683
4,379
23,891
52,302
291,396
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food
services
Other commercial
and industrial
Total commercial
loans
$1,853,111
$2,830,649
$383,700
$ 197,737
$ 649,381
$354,081
$ 542,614
$1,131,948
$ 7,943,221
The majority of our commercial portfolio is located within our geographic footprint. The Other category includes two primary
locations, Louisiana and California, which represent $196 million or 2.5% of the commercial portfolio and $150 million or
1.9% of the commercial portfolio, respectively at December 31, 2013. All other states individually represent less than one
percent of total commercial loans.
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.
64
Energy loans totaled $2.4 billion or 18% of total loans at December 31, 2013. Unfunded energy loan commitments increased by
$161 million to $2.5 billion at December 31, 2013. Approximately $2.0 billion of energy loans were to oil and gas producers,
down $181 million compared to December 31, 2012. Approximately 59% of the committed production loans are secured by
properties primarily producing oil and 41% of the committed production loans are secured by properties primarily producing
natural gas. Loans to borrowers engaged in wholesale or retail energy sales increased $74 million to $203 million. Loans to
borrowers that provide services to the energy industry increased $16 million during 2013 to $85 million. Loans to borrowers
that manufacture equipment primarily for the energy industry decreased $24 million during 2013 to $25 million.
The services sector of the loan portfolio totaled $2.3 billion or 18% of total loans and consists of a large number of loans to a
variety of businesses, including gaming, educational, public finance, insurance and community foundations. Approximately
$1.1 billion of the services category is made up of loans with individual balances of less than $10 million. 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.
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 December 31, 2013, the outstanding principal balance of these loans totaled $2.4
billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in
approximately 16% 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. The majority of commercial real estate loans are secured by properties within our
geographic footprint, with the larger concentrations in Texas and Oklahoma, 33% and 19% respectively for the year ended
December 31, 2013. 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 $2.4 billion or 19% of the loan portfolio at December 31, 2013. The outstanding balance
of commercial real estate loans increased $186 million over 2012. Growth in multifamily residential properties and loans
secured by retail facilities was partially offset by a decrease in construction and land development loans. The commercial real
estate loan balance as a percentage of our total loan portfolio has ranged from 18% to 22% over the past five years. The
commercial real estate segment of our loan portfolio distributed by collateral location follows in Table 26.
Table 26 – 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
Retail
Office
Multifamily
Industrial
Other real estate
Total commercial
real estate loans
$
54,504
$ 45,642
$
36,188
$
3,808
$ 45,999
$
6,185
$
4,235
$
9,697
$
206,258
108,885
84,447
87,818
46,270
75,713
195,678
170,903
210,648
45,952
106,686
61,771
40,727
42,343
36,399
47,428
11,077
6,418
24,585
380
18,157
26,448
23,169
56,422
6,452
37,896
59,957
37,433
38,089
9,305
47,415
24,396
12,560
46,320
36,362
33,352
97,835
35,842
70,277
62,757
24,523
586,047
411,499
576,502
243,877
391,170
$ 457,637
$ 775,509
$ 264,856
$ 64,425
$ 196,386
$198,384
$ 157,225
$ 300,931
$ 2,415,353
65
The outstanding balance of multifamily residential loans increased $174 million, primarily due to new loans and funding of
existing commitments in Texas and Arizona. Construction and land development loans, which consist primarily of residential
construction properties and developed building lots, decreased $47 million or 19% from December 31, 2012 to $206 million at
December 31, 2013 primarily due to net pay-downs concentrated in Texas and Colorado. Charge-offs of residential construction
and land development loans totaled $663 thousand for 2013 and $604 thousand were transferred to other real estate owned. All
locations included in Other individually represent less than 1.50% of the total commercial real estate loan population.
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 totaled $2.1 billion, largely unchanged compared to December 31, 2012. 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. Eighty-three percent of our residential mortgage portfolio includes properties within our geographic
footprint.
The majority of our permanent mortgage loan portfolio is primarily 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. The aggregate outstanding balance of loans in these programs is $928
million. 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.
Approximately $58 million or 5% of the non-guaranteed portion of the permanent mortgage loans consist of first lien, fixed-
rate residential mortgage loans originated under various community development programs. The outstanding balance of these
loans is down from $70 million at December 31, 2012. These loans were underwritten to standards approved by various U.S.
government agencies under these programs and include full documentation. However, these loans do have a higher risk of
delinquency and losses in the event of default than traditional residential mortgage loans. The initial maximum LTV of loans in
these programs was 103%.
At December 31, 2013, $182 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 $18 million of residential mortgage
loans previously sold into GNMA mortgage pools that are eligible to be repurchased. We may repurchase these loans when
certain defined delinquency criteria are met. Because of this repurchase right, we effectively have regained control over these
loans and must include them in the Consolidated Balance Sheets. The remaining amount represents loans that the Company has
repurchased from GNMA mortgage pools. Permanent residential mortgage loans guaranteed by U.S. government agencies
increased $21 million or 13% over December 31, 2012.
Home equity loans totaled $808 million at December 31, 2013, a $47 million or 6% increase over December 31, 2012. Growth
was primarily in 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 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. A summary
of our home equity loan portfolio at December 31, 2013 by lien position and amortizing status follows in Table 27.
66
Table 27 – Home Equity Loans
(In thousands)
First lien
Junior lien
Total home equity
Revolving
Amortizing
Total
$
$
37,546
$
527,062
$
62,036
181,040
99,582
$
708,102
$
564,608
243,076
807,684
Indirect automobile loans decreased $28 million compared to December 31, 2012, primarily due to the previously disclosed
decision by the Company to exit the business in the first quarter of 2009. Approximately $6.5 million of indirect automobile
loans remain outstanding at December 31, 2013. Other consumer loans increased $14 million or 4% during 2013.
The distribution of residential mortgage and consumer loans at December 31, 2013 is presented in Table 28. Residential
mortgage loans are distributed by collateral location. Consumer loans are generally distributed by borrower location.
Table 28 – Residential Mortgage and Consumer Loans by Collateral Location
(In thousands)
Residential mortgage:
Permanent mortgage
Permanent
mortgages guaranteed
by U.S. government
agencies
Home equity
Total residential
mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Oklahoma
Texas
New
Mexico
Arkansas Colorado Arizona
Kansas/
Missouri
Other
Total
$ 234,562
$393,264
$ 43,433
$ 21,512
$ 173,875
$105,087
$ 61,683
$ 29,328
$ 1,062,744
60,825
483,798
18,460
140,120
66,324
128,151
5,724
4,742
8,960
31,960
2,030
10,352
12,815
7,983
6,460
578
181,598
807,684
$ 779,185
$551,844
$ 237,908
$ 31,978
$ 214,795
$117,469
$ 82,481
$ 36,366
$ 2,052,026
$
2,881
191,574
$ 194,455
$
1,318
127,368
$128,686
$
7
13,937
$ 13,944
$
$
2,150
1,619
3,769
$
9
22,532
$ 22,541
$
$
— $
9,229
9,229
$
47
5,468
5,515
$
101
3,424
$ 3,525
$
6,513
375,151
$ 381,664
Table 29 – Loan Maturity and Interest Rate Sensitivity at December 31, 2013
(In thousands)
Loan maturity:
Commercial
Commercial real estate
Total
Interest rate sensitivity for selected loans with:
Predetermined interest rates
Floating or adjustable interest rates
Total
Remaining Maturities of Selected Loans
Total
Within 1
Year
1-5 Years
After 5
Years
$
7,943,221
2,415,351
$ 10,358,572
$
2,421,105
7,937,467
$ 10,358,572
$
$
$
$
703,555
$
4,730,795
142,899
1,499,022
846,454
$
6,229,817
$
$
2,508,871
773,430
3,282,301
64,185
$
835,818
$
1,521,102
782,269
5,393,999
1,761,199
846,454
$
6,229,817
$
3,282,301
67
Loan Commitments
We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded
loan commitments which totaled $7.1 billion and standby letters of credit which totaled $444 million at December 31, 2013.
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 $624
thousand of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at
December 31, 2013.
Table 30 – Off-Balance Sheet Credit Commitments
(In thousands)
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
As of December 31,
2013
2012
2011
2010
2009
$
7,096,373
$
6,636,587
$
5,193,545
$
5,001,338
$
5,015,660
444,248
191,299
466,477
226,922
534,565
289,021
588,091
330,963
598,618
391,188
As more fully described in Note 7 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 other than obligations under standard representations and warranties. 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. At December 31, 2013, the principal balance of residential mortgage loans sold subject to recourse
obligations totaled $191 million, down from $227 million at December 31, 2012. Substantially all of these loans are to
borrowers in our primary markets including $133 million to borrowers in Oklahoma, $21 million to borrowers in Arkansas, $13
million to borrowers in New Mexico, $10 million to borrowers in the Kansas/Missouri area and $9 million to borrowers in
Texas. At December 31, 2013, approximately 4% of these loans are nonperforming and 6% were past due 30 to 89 days. A
separate accrual for credit risk of $9 million is available to absorb losses on these loans.
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 7 to the Consolidated Financial Statements. For the period from 2010 through 2013, approximately
13% 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 $8.8 million at December 31,
2013 compared to $5.3 million at December 31, 2012.
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, or to take positions in derivative contracts. 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 to us from 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 counter-parties. 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.
68
Counterparty credit risk is evaluated through existing policies and procedures. This evaluation considers the total relationship
between BOK Financial and each of the counter-parties. 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 counter-parties’ credit ratings, these limits
may be reduced and additional margin collateral may be required.
A deterioration of the credit standing of one or more of the customers or counter-parties 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 counter-party’s ability to provide margin collateral
was impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statement of
Earnings.
On October 31, 2011, MF Global filed for bankruptcy protection. After partial distributions from the bankruptcy trustee during
2011, the remaining amount due totaled $8.5 million at December 31, 2011. This amount was written down to $6.8 million in
2011 based on our evaluation of amounts we expected to recover at that time. We received distributions from the bankruptcy
trustee of $5.6 million in 2013 and $2.0 million in 2012. As of December 31, 2013, $798 thousand remains yet to be recovered.
Derivative contracts are carried at fair value. At December 31, 2013, the net fair values of derivative contracts, before
consideration of cash margin, reported as assets under these programs totaled totaled $274 million. compared to $334 million at
December 31, 2012. Derivative contracts carried as assets include to-be-announced residential mortgage-backed securities sold
to our mortgage banking customers with fair values of $56 million, interest rate swaps sold to loan customers with fair values
of $44 million, energy contracts with fair values of $18 million and foreign exchange contracts with fair values of $137
million. Before consideration of cash margin paid to counter-parties, the aggregate net fair values of derivative contracts held
under these programs reported as liabilities totaled $268 million.
At December 31, 2013, total derivative assets were reduced by $8.9 million of cash collateral received from counter-parties and
total derivative liabilities were reduced by $24 million of cash collateral paid to counter-parties 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 December 31, 2013 follows in Table 31.
Table 31 – Fair Value of Derivative Contracts
(In thousands)
Customers
Banks and other financial institutions
Exchanges
Energy companies
$
118,897
86,855
58,960
300
Fair value of customer hedge asset derivative contracts, net
$
265,012
The largest exposure to a single counterparty was to an internationally active domestic financial institution for equity option
contracts which totaled $11 million at December 31, 2013.
69
Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain
counter-parties 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
$30.77 per barrel of oil would increase the fair value of derivative assets by $5.2 million. An increase in prices equivalent to
$157.94 per barrel of oil would increase the fair value of derivative assets by $366 million as current prices move away from
the fixed prices embedded in our existing contracts. Liquidity requirements of this program are also affected by our credit
rating. A decrease in credit rating to below investment grade would increase our obligation to post cash margin on existing
contracts by approximately $26 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 December 31,
2013, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our
customer derivative program.
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 accrual for off-balance sheet risk totaled $187 million or 1.47% of outstanding loans and 185% of nonaccruing loans
at December 31, 2013. The allowance for loans losses was $185 million and the accrual for off-balance sheet credit risk was
$2.1 million. At December 31, 2012, the combined allowance for credit losses was $217 million or 1.77% of outstanding loans
and 162% of nonaccruing loans. The allowance for loan losses was $216 million and the accrual for off-balance sheet credit
risk was $1.9 million.
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 or credit 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 and after exhaustion of collection efforts. A $27.9 million negative provision
for credit losses was recorded during 2013 compared to a negative provision for credit losses of $22.0 million in 2012. Credit
quality indicators, including historic loss rates, have improved to pre-recession levels. Improving charge-off trends resulted in
lower estimated loss rates for many loan classes. Additionally, a major employer in the Tulsa, Ft. Worth and Kansas City
markets exited bankruptcy during the fourth quarter. The Company had previously established a non-specific allowance related
to the secondary exposure to the employer's bankruptcy by employees, retirees, vendors, suppliers and other business partners.
Although we have recorded negative provisions for credit losses in 2013 and 2012, we do not expect significant negative
provisions in future years.
70
Table 32 – Summary of Loan Loss Experience
(In thousands)
Allowance for loan losses:
Beginning balance
Loans charged off:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Recoveries of loans previously charged off:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Net loans charged off
Provision for loan losses
Ending balance
Accrual for off-balance sheet credit risk:
Beginning balance
Provision for off-balance sheet credit risk
Ending balance
Total combined provision for credit losses
Allowance for loan losses to loans outstanding
at period-end
Net charge-offs to average loans
Total provision for credit losses to average loans
Recoveries to gross charge-offs
Allowance for loan losses as a multiple of net
charge-offs
Accrual for off-balance sheet credit risk to off-
balance sheet credit commitments
Combined allowance for credit losses to loans
2013
2012
2011
2010
2009
Year Ended December 31,
$
215,507
$ 253,481
$
292,971
$
292,095
$
233,236
(6,335)
(5,845)
(5,753)
(7,349)
(25,282)
7,488
9,420
1,558
4,778
23,244
(2,038)
(28,073)
(9,341)
(11,642)
(10,047)
(11,108)
(42,138)
6,128
5,706
1,928
5,056
18,818
(23,320)
(14,654)
1
$
$
$
$
185,396
$ 215,507
1,915
173
2,088
(27,900)
$
$
$
9,261
(7,346)
1,915
(22,000)
$
$
$
$
1.45 %
0.02 %
(0.23)%
91.94 %
90.97x
1.75 %
0.20 % 1
(0.19)%
44.66 % 1
9.24x 1
0.03 %
0.03 %
(14,836)
(15,973)
(14,107)
(11,884)
(56,800)
7,478
2,780
2,334
5,758
18,350
(38,450)
(1,040)
253,481
14,271
(5,010)
9,261
(6,050)
2.25 %
0.35 %
(0.06)%
32.31 %
6.59x
0.14 %
(27,640)
(59,962)
(20,056)
(16,330)
(49,725)
(57,313)
(16,672)
(24,789)
(123,988)
(148,499)
9,263
3,179
901
6,265
19,608
2,546
461
929
6,744
10,680
(104,380)
(137,819)
105,256
292,971
14,388
(117)
14,271
105,139
$
$
$
$
196,678
292,095
15,166
(778)
14,388
195,900
$
$
$
$
2.75%
0.96%
0.96%
15.81%
2.81x
0.25%
2.59%
1.14%
1.61%
7.19%
2.12x
0.26%
outstanding at period-end
2.72%
1 Includes $7.1 million of negative recovery related to a refund of a settlement between BOK Financial and the City of Tulsa invalidated by
the Oklahoma Supreme Court. Excluding this refund, BOK Financial net charge-offs to average loans was 0.14%, recoveries to gross
charge-offs were 61.51% and the allowance for loan losses as a multiple of net charge-offs was 13.29x for 2012.
1.47 %
2.33 %
1.77 %
2.89%
71
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 agreements. This includes all nonaccruing loans, all loans modified in trouble debt restructurings and all
government guaranteed loans repurchased from GNMA pools. At December 31, 2013, impaired loans totaled $282 million,
including $2.1 million with specific allowances of $1.0 million and $280 million with no specific allowances because the loan
balances represent the amounts we expect to recover. At December 31, 2012, impaired loans totaled $294 million, including
$11 million of impaired loans with specific allowances of $4.2 million and $283 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 risks 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 $156 million at December 31, 2013, compared to
$167 million at December 31, 2012. Estimated loss rates continued to decline due to lower charge-offs. The general allowance
for the commercial loan portfolio segment increased by $14 million primarily due to a shift in the mix from loan classes with
lower historic loss rates such as energy to loan classes with higher historic loss rates such as healthcare and services. The
general allowance for the commercial real estate loan portfolio segment decreased $10 million compared to December 31, 2012
primarily due to a general decrease in loss rates. The general allowance for residential mortgage loans decreased $12 million
and the general allowance for consumer loans decreased $2.4 million, primarily due to lower estimated loss rates.
Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These
factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other
relevant factors. Nonspecific allowances totaled $28 million at December 31, 2013 and $44 million at December 31, 2012. The
decrease in the nonspecific allowance from December 31, 2012 was primarily due to a major employer in the Tulsa, Dallas/Ft.
Worth and Kansas City markets exiting bankruptcy during 2013. A non-specific allowance was established in prior years
related to secondary exposure to the bankruptcy's impact on employees, retirees, vendors, suppliers and other business partners.
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 further stabilized during the year.
An allocation of the allowance for loan losses by loan category follows in Table 33.
Table 33 – Allowance for Loan Losses Allocation
(Dollars in thousands)
2013
2012
December 31,
2011
2010
2009
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Loan category:
Commercial
$
79,180
62.10% $
65,280
62.07% $
83,443
58.17% $ 104,631
55.82% $ 121,320
54.63%
Commercial
real estate
Residential
mortgage
Consumer
Nonspecific
allowance
41,573
18.88%
54,884
18.11%
67,034
20.33%
98,709
21.34%
104,208
22.16%
16.04%
2.98%
29,465
6,965
28,213
41,703
9,453
44,187
16.61%
3.21%
46,476
10,178
46,350
17.52%
3.98%
17.24%
5.60%
50,281
12,614
26,736
16.25%
6.96%
27,863
20,452
18,252
Total
$ 185,396
100.00% $ 215,507
100.00% $ 253,481
100.00% $ 292,971
100.00% $ 292,095
100.00%
1 Represents ratio of loan category balance to total loans.
72
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’ continued ability to
comply with current repayment terms. The potential problem loans totaled $74 million at December 31, 2013. The current
composition of potential problem loans by primary industry included construction and land development - $15 million,
multifamily residential properties - $14 million, services - $11 million, commercial real estate secured by office buildings - $1
million, manufacturing - $9.4 million and other commercial real estate - $7.6 million. Potential problem loans totaled $141
million at December 31, 2012.
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.
Net loans charged off totaled $2.0 million or 0.02% of average outstanding loans in 2013, down from net loans charged off of
$23 million or 0.20% of average loans in 2012. Net loans charged off in 2012 included the return of $7.1 million received from
the City of Tulsa to settle claims related to a defaulted commercial loan that was recorded as a recovery in 2008. The settlement
agreement between BOK Financial and the City of Tulsa was invalidated by the Oklahoma Supreme Court in 2011. The return
of this settlement was recorded as a negative recovery in 2012 when the funds were returned to the City of Tulsa. Excluding the
impact of the return of the invalidated settlement, net commercial loans charged off during 2012 resulted in a $1.3 million net
recovery.
Net commercial loan recoveries totaled $1.2 million. Net commercial real estate loan recoveries totaled $3.6 million.
Residential mortgage loans experienced a net charge-off of $4.2 million for the year and consumer loans experienced a net
charge-off of $2.6 million.
73
2013
2012
2011
2010
2009
December 31,
$
16,760
40,850
42,320
1,219
$
24,467
60,626
46,608
2,709
68,811
99,193
29,767
3,515
101,149
134,410
201,286
$
38,455
$
150,366
37,426
4,567
230,814
18,551
3,710
22,261
253,075
—
141,394
141,394
394,469
375,918
$
$
38,515
—
38,515
172,925
22,365
81,426
103,791
276,716
215,347
$
$
28,974
3,919
32,893
234,179
16,952
105,801
122,753
356,932
311,006
$
$
2,460
$
336
$
465
$
$
$
$
$
Table 34 – Nonperforming Assets
(In thousands)
Nonaccruing loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total nonaccruing loans
Accruing renegotiated loans:
Guaranteed by U.S. government agencies
Other
Total accruing renegotiated loans
Total nonperforming loans
Real estate and other repossessed assets:
Guaranteed by U.S. government agencies
Other
Real estate and other repossessed assets
Total nonperforming assets
Total nonperforming assets excluding those
guaranteed by U.S. government agencies
Nonaccruing loans by loan class:
Commercial:
Energy
Services
Wholesale / retail
Manufacturing
Healthcare
Integrated food services
Other
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
Total residential mortgage
Consumer
Total nonaccruing loans3
54,322
—
54,322
155,471
37,431
54,841
92,272
247,743
155,213
1,860
4,922
6,969
592
1,586
—
831
$
$
$
12,090
3,077
2,007
3,166
684
983
16,760
24,467
17,377
4,857
6,391
7
252
11,966
40,850
26,131
8,117
6,829
2,706
3,968
12,875
60,626
34,279
39,863
777
7,264
42,320
1,219
489
6,256
46,608
2,709
16,968
21,180
23,051
5,486
—
1,790
68,811
61,874
6,863
11,457
3,513
—
15,486
99,193
25,366
—
4,401
29,767
3,515
19,262
8,486
2,116
3,534
13
4,579
38,455
99,579
4,978
19,654
6,725
4,087
15,343
150,366
32,111
—
5,315
37,426
4,567
101,384
204,924
29,989
3,058
339,355
12,799
3,107
15,906
355,261
—
129,034
129,034
484,295
471,496
22,692
30,926
12,057
15,765
13,103
65
6,776
101,384
109,779
26,236
25,861
26,540
279
16,229
204,924
28,314
—
1,675
29,989
3,058
$
101,149
$
134,410
$
201,286
$
230,814
$
339,355
74
Table 34 – Nonperforming Assets
(In thousands)
Nonaccruing loans as % of outstanding loan balance for class:
Nonaccruing loans by loan class:
2013
2012
2011
2010
2009
December 31,
Commercial:
Energy
Services
Wholesale / retail
Manufacturing
Healthcare
Integrated food services
Other
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
Total residential mortgage
Consumer
Total nonaccruing loans
0.08%
0.22%
0.58%
0.15%
0.12%
—%
0.29%
0.21%
8.42%
0.83%
1.55%
—%
0.10%
3.06%
1.69%
3.23%
0.43%
0.90%
2.06%
0.32%
0.79%
0.10%
0.56%
0.28%
0.58%
0.29%
0.36%
0.34%
0.32%
0.02%
0.96%
2.19%
6.85%
0.56%
—%
0.59%
1.05%
0.03%
1.22%
0.86%
0.66%
0.42%
0.01%
1.47%
0.65%
1.19%
1.75%
1.31%
4.10%
1.69%
0.04%
2.82%
1.65%
10.32%
18.09%
22.04%
16.76%
1.55%
1.60%
0.67%
1.61%
3.42%
2.72%
3.55%
0.30%
0.82%
2.28%
0.68%
1.09%
1.35%
2.82%
0.95%
—%
4.00%
4.33%
2.19%
—%
0.70%
1.51%
0.78%
1.79%
1.19%
4.25%
1.85%
2.30%
3.89%
6.62%
2.66%
—%
0.95%
2.04%
0.77%
2.17%
6.20%
5.82%
7.42%
0.22%
3.29%
8.20%
2.15%
—%
0.34%
1.64%
0.39%
3.01%
Allowance for loan losses to nonaccruing loans
Accruing loans 90 days or more past due1
Foregone interest on nonaccruing loans2
183.29%
160.34%
125.93%
126.93%
86.07%
$
$
1,415
5,361
3,925
8,587
$
2,496
$
7,966
$
11,726
16,818
8,908
17,015
1 Excludes residential mortgages guaranteed by
agencies of the U.S. Government.
2 Interest collected and recognized on nonaccruing
loans was not significant in 2013 and previous
years.
Nonperforming assets decreased $29 million during 2013 to $248 million or 1.92% of outstanding loans and repossessed assets
at December 31, 2013. Nonaccruing loans totaled $101 million, accruing renegotiated residential mortgage loans totaled $54
million (all guaranteed by U.S. government agencies) and real estate and other repossessed assets totaled $92 million. All
accruing renegotiated residential mortgage loans, $777 thousand of nonaccruing loans and $37 million of real estate and other
repossessed assets are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies,
nonperforming assets decreased $60 million during the year. The Company generally retains nonperforming assets to maximize
potential recovery which may cause future nonperforming assets to decrease more slowly.
75
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
restructuring. Modifications may include extension of payment terms and rate concessions. We do not forgive principal or
accrued but unpaid interest. All loans modified in troubled debt restructurings, except 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 nonaccruing 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.
As of December 31, 2013, 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. 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. agency guidelines.
A rollforward of nonperforming assets for the year ended December 31, 2013 follows in Table 35.
Table 35 – Rollforward of Nonperforming Assets
(In thousands)
Balance, December 31, 2012
Additions
Transfer from premises and equipment
Payments
Charge-offs
Net gains (losses) and write-downs
Foreclosure of nonaccruing loans
Foreclosure of loans guaranteed by U.S. government agencies
Proceeds from sales
Conveyance to U.S. government agencies
Net transfers to nonaccruing loans
Return to accrual status
Other, net
Balance, December 31, 2013
Year Ended December 31, 2013
Nonaccruing
Loans
Renegotiated
Loans
Real Estate
and Other
Repossessed
Assets
Total
Nonperforming
Assets
$
134,410
$
38,515
$
103,791
$
67,783
—
(50,521)
(25,282)
—
(27,231)
—
—
—
344
(1,043)
2,689
44,942
—
(1,416)
—
—
—
(7,441)
(20,446)
—
(344)
—
512
—
668
—
—
737
27,231
58,969
(55,005)
(43,901)
—
—
(218)
276,716
112,725
668
(51,937)
(25,282)
737
—
51,528
(75,451)
(43,901)
—
(1,043)
2,983
$
101,149
$
54,322
$
92,272
$
247,743
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. During 2013, $59 million of properties guaranteed by U.S. government
agencies were foreclosed and $44 million of properties were conveyed to the applicable U.S. government agencies.
Nonaccruing loans totaled $101 million or 0.79% of outstanding loans at December 31, 2013 compared to $134 million or
1.09% of outstanding loans at December 31, 2012. Nonaccruing loans decreased $33 million from December 31, 2012 due
primarily to $51 million of payments, $27 million of foreclosures and $25 million of charge-offs. Newly identified nonaccruing
loans totaled $68 million for 2013.
76
Commercial
Nonaccruing commercial loans totaled $17 million or 0.21% of total commercial loans at December 31, 2013, down from $24
million or 0.32% of total commercial loans at December 31, 2012. Nonaccruing commercial loans decreased $7.7 million
during 2013. Newly identified nonaccruing commercial totaled $12 million, offset by $12 million in payments, $6.3 million of
charge-offs and $3.0 million of repossessions.
Nonaccruing commercial loans at December 31, 2013 were primarily composed of $7.0 million or 0.58% of total wholesale/
retail sector loans and $4.9 million or 0.22% of total services 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 $41 million or 1.69% of outstanding commercial real estate loans at
December 31, 2013 compared to $61 million or 2.72% of outstanding commercial real estate loans at December 31,
2012. Nonaccruing commercial real estate loans continue to be largely concentrated in land development and residential
construction loans, totaling $17 million or 8.42% of loans. Other commercial real estate loans totaled $12 million or 3.06% of
other commercial real estate loans and $6.4 million or 1.55% of loans secured by office buildings. Nonaccruing commercial
real estate loans were down $20 million compared to the prior year. Newly identified nonaccruing commercial real estate loans
totaled $30 million, offset by $33 million of cash payments received, $13 million of foreclosures and $5.8 million of charge-
offs.
Residential Mortgage and Consumer
Nonaccruing residential mortgage loans totaled $42 million or 2.06% of outstanding residential mortgage loans at
December 31, 2013 compared to $47 million or 2.28% of outstanding residential mortgage loans at December 31, 2012. Newly
identified nonaccruing residential mortgage loans which totaled $16 million were offset by $9.4 million of foreclosures, $5.8
million of loans charged off during the year and $5.0 million of cash payments. Nonaccruing residential mortgage loans
primarily consist of non-guaranteed permanent residential mortgage loans which totaled $34 million or 3.23% of outstanding
non-guaranteed permanent residential mortgage loans at December 31, 2013. Nonaccruing home equity loans totaled $7.3
million or 0.90% of total home equity loans.
Payments on 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 36. Substantially all non-
guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 89 days past due
increased $2.2 million to $13 million at December 31, 2013. Consumer loans past due 30 to 89 days decreased $1.6 million
compared to December 31, 2012.
Table 36 – Residential Mortgage and Consumer Loans Past Due
(In thousands)
December 31, 2013
December 31, 2012
90 Days or
More
30 to 89
Days
90 Days or
More
30 to 89
Days
Residential mortgage:
Permanent mortgage1
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
$
$
$
$
Total consumer
1 Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.
$
— $
34
34
$
— $
1
1
9,795
3,087
12,882
330
697
1,027
$
$
$
49
—
49
15
4
19
$
$
$
$
8,366
2,275
10,641
1,273
1,327
2,600
77
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 date of foreclosure or current fair value, less estimated selling costs.
Real estate and other repossessed assets totaled $92 million at December 31, 2013, a $12 million decrease from December 31,
2012. The distribution of real estate and other repossessed assets distributed primarily by collateral location is included in Table
37 following.
Table 37 – Real Estate and Other Repossessed Assets by Collateral Location as of December 31, 2013
(In thousands)
Developed commercial
real estate properties
1-4 family residential
properties guaranteed
by U.S. government
agencies
1-4 family residential
properties
Undeveloped land
Residential land
development
properties
Oil and gas properties
Vehicles
Other
Total real estate and
other repossessed
assets
Oklahoma
Texas
Colorado Arkansas
New
Mexico
Arizona
Kansas/
Missouri
Other
Total
$
2,287
$
408
$
1,109
$
1,050
$
5,613
$
1,471
$
731
$ 5,073
$ 17,742
10,221
1,483
1,159
1,449
20,172
360
2,178
409
37,431
5,573
272
1,122
3,698
264
2,635
508
74
2,004
—
354
—
17
—
30
123
—
—
1,555
1,292
—
—
—
10
—
—
—
—
—
5,431
5,929
3,634
—
324
478
1,114
521
—
15,901
13,722
136
—
—
—
—
—
—
1
7,001
123
27
325
$
18,724
$
6,864
$
6,722
$
4,383
$
27,789
$ 17,149
$
4,637
$ 6,004
$ 92,272
Undeveloped land is primarily zoned for commercial development. Developed commercial real estate properties are primarily
completed with no additional construction necessary for sale.
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
2013, approximately 72% of our funding was provided by deposit accounts, 12% 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, online 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.
Average deposits for 2013 totaled $19.7 billion and represented approximately 72% of total liabilities and capital compared
with $19.0 billion and 72% of total liabilities and capital for 2012. Average deposits increased $717 million over the prior year.
Demand deposits increased $500 million and interest-bearing transaction deposit accounts were up $483 million. Time deposits
decreased $318 million.
78
Average Commercial Banking deposit balances increased $632 million over the prior year, due primarily to a $467 million
increase in demand deposit balances and a $196 million increase in interest-bearing transaction deposits. Average balances
attributed to our commercial & industrial loan customers increased $191 million or 7% and average balances attributed to our
energy customers increased $164 million or 13%. Average balance attributed to our healthcare customer grew by $104 million
or 28% over the prior year. Small business banking customer average balances increased $84.3 million or 5%. Average
balances held by treasury services customers were up $80 million or 5% over the prior year. Commercial customers continue to
maintain high account balances due to continued economic uncertainty and persistently low yields available on high quality
investments. Deposit growth in the fourth quarter included normal seasonality and temporary customer activity. During the first
half of January 2014, deposits decreased approximately $300 million.
Average Consumer Banking deposit balances increased $14 million from 2012. Higher costing time deposit balances decreased
$184 million, partially offset by a $131 million increase in average interest-bearing transaction account balances. Savings
account and demand deposit balances also grew over the prior year. Average Wealth Management deposits grew by $104
million during 2013 primarily due to a $151 million increase in interest-bearing transaction accounts, partially offset by a $49
million decrease in time deposits. Demand deposit balances were largely unchanged compared to the prior year.
The general trend of increased deposits over the past several years reflects modest growth in the overall economy and low
short-term interest rates. If economic activity were to improve significantly or if short-term interest rates were to increase,
deposits may decline as customers deploy funds into projected or shift demand deposits into money market instruments.
Table 38 - Maturity of Domestic CDs and Public
Funds in Amounts of $100,000 or More
(In thousands)
Months to maturity:
3 or less
Over 3 through 6
Over 6 through 12
Over 12
Total
December 31,
2013
2012
$
$
196,631
$
200,117
319,096
1,079,876
1,795,720
$
279,027
210,918
346,874
1,068,305
1,905,124
Brokered deposits included in time deposits averaged $159 million for 2013 compared to $182 million for 2012. Brokered
deposits included in time deposits totaled $186 million at December 31, 2013 and $187 million at December 31, 2012.
Average interest-bearing transactions accounts for 2013 included $265 million of brokered deposits compared to $214 million
for 2012. Brokered deposits included in interest-bearing transaction account totaled $227 million at December 31, 2013 and
$303 million at December 31, 2012.
The distribution of our period end deposit account balances among principal markets follows in Table 39.
79
Table 39 -- Period End Deposits by Principal Market Area
(In thousands)
Bank of Oklahoma:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Oklahoma
Bank of Texas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Texas
Bank of Albuquerque:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
2013
2012
2011
2010
2009
December 31,
$
3,432,940
$
4,207,263
$
3,196,436
$ 2,240,850
$
2,048,834
6,318,045
191,880
1,214,507
7,724,432
6,023,384
163,512
1,267,854
7,454,750
5,966,528
6,033,598
5,111,091
126,682
1,444,332
7,537,542
106,411
1,363,942
7,503,951
9,744,801
93,006
1,385,505
6,589,602
8,638,436
11,157,372
11,662,013
10,733,978
2,481,603
2,606,176
1,808,490
1,389,876
1,108,401
1,966,580
2,129,084
1,940,819
1,791,810
1,748,319
64,632
638,465
2,669,677
5,151,280
58,429
762,233
2,949,746
5,555,922
45,872
867,664
2,854,355
4,662,845
36,429
966,116
2,794,355
4,184,231
35,129
1,100,602
2,884,050
3,992,451
502,395
427,510
319,269
271,137
209,090
529,140
33,944
327,281
890,365
511,758
31,926
364,928
908,612
491,068
27,487
410,722
929,277
530,244
28,342
450,177
1,008,763
1,279,900
444,246
17,563
511,685
973,494
1,182,584
Total Bank of Albuquerque
1,392,760
1,336,122
1,248,546
Bank of Arkansas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Arkansas
38,566
39,897
19,405
16,494
22,092
144,018
1,986
32,949
178,953
217,519
101,868
2,239
42,573
146,680
186,577
131,703
1,727
61,329
194,759
214,164
130,066
1,266
102,999
234,331
250,825
51,353
1,346
104,367
157,066
179,158
80
Table 39 -- Period End Deposits by Principal Market Area
(In thousands)
Colorado State Bank & Trust:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Colorado State Bank & Trust
Bank of Arizona:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Arizona
Bank of Kansas City:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Kansas City
2013
2012
2011
2010
2009
December 31,
409,942
336,252
292,556
184,251
164,478
541,675
26,880
407,088
975,643
1,385,585
676,144
25,889
472,305
1,174,338
1,510,590
512,904
22,771
523,969
1,059,644
1,352,200
533,230
20,310
502,889
1,056,429
1,240,680
449,921
17,802
525,844
993,567
1,158,045
204,092
161,093
106,741
74,888
68,650
364,736
2,432
34,391
401,559
605,651
360,276
1,978
31,371
393,625
554,718
104,961
1,192
37,641
143,794
250,535
95,889
809
52,227
148,925
223,813
81,910
958
60,768
143,636
212,286
246,739
260,095
56,888
43,268
32,299
69,857
1,252
41,312
112,421
359,160
85,524
771
26,728
113,023
373,118
206,473
140,525
626
36,325
243,424
300,312
200
70,818
211,543
254,811
43,599
148
79,222
122,969
155,268
Total BOK Financial deposits
$
20,269,327
$
21,179,060
$ 18,762,580
$ 17,179,061
$
15,518,228
See Note 9 to the Consolidated Financial Statements for a summary of other borrowings.
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. The largest single source of federal funds purchased totaled $310 million at December 31, 2013.
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
$1.7 billion during 2013 and $105 million during 2012.
At December 31, 2013, the estimated unused credit available to the subsidiary bank from collateralized sources was
approximately $8.6 billion.
In 2007, the Bank 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 December 31, 2013, $227 million
of this subordinated debt remains outstanding.
81
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. At December 31, 2013, $122
million of this subordinated debt remains outstanding.
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 and Other Non-Bank Subsidiaries
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 December 31, 2013, based on the
most restrictive limitations as well as management’s internal capital policy, the subsidiary bank could declare up to $158
million of dividends without regulatory approval. 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 has 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”). Interest on amounts outstanding under
the Credit Facility is to be paid at a defined base rate minus 1.25% or LIBOR plus 1.00% based upon the Company's
option. Interest on amounts borrowed for certain acquisitions converted to a term loan at the Company's option is to be paid at a
defined base rate minus 1.25% or LIBOR plus 1.25%. A commitment fee equal to 0.20% shall be paid quarterly on the unused
portion of the credit commitment under the Credit Facility and there are no prepayment penalties. Any amounts outstanding at
the end of the Credit Facility term shall be converted into a term loan which, except for amounts borrowed for certain
acquisitions, shall be payable June 5, 2014. The Credit Agreement contains customary representations and warranties, as well
as affirmative and negative covenants including limits on the Company’s ability to borrow additional funds, make investments
and sell assets. These covenants also require BOKF to maintain minimum capital levels. No amounts were outstanding under
the Credit Facility at December 31, 2013 and December 31, 2012, and the Company met all of the covenants.
Our equity capital at December 31, 2013 was $3.1 billion, up $61 million over December 31, 2012. Net income less cash
dividends paid increased equity $212 million during 2013. This was offset by a $176 million decrease in accumulated other
comprehensive income primarily related to the change in net unrealized gains and losses on available for sale securities. 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.
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 December 31, 2013, the Company has repurchased 39,496
shares for $2.1 million under this program. No shares were repurchased during 2013.
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 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.
For a banking institution to qualify as well capitalized, its Tier 1, Total and Leverage capital ratios must be at least 6%, 10%
and 5%, respectively. The Company’s banking subsidiary exceeded the regulatory definitions of well capitalized. The capital
ratios for BOK Financial on a consolidated basis are presented in Table 40.
82
Table 40 – Capital Ratios
Average total equity to average assets
Tangible common equity ratio
Tier 1 common equity ratio
Risk-based capital:
Tier 1 capital
Total capital
Leverage
Well
Capitalized
Minimums
—
—
—
6.00%
10.00%
5.00%
December 31,
2013
2012
11.00%
9.90%
13.59%
13.77%
15.56%
10.05%
11.05%
9.25%
12.59%
12.78%
15.13%
9.01%
In July 2013, banking regulators issued the final rule revising regulatory capital rules for substantially all U.S. banking
organizations. The new capital rule will be effective for BOK Financial on January 1, 2015. Components of the rule will phase
in through January 1, 2019. The new capital rule establishes a 7% threshold for the Tier 1 common equity ratio consisting of a
minimum level plus capital conservation buffer. The Company expects to exclude unrealized gains and losses from available
for sale securities from its calculation of Tier 1 capital, consistent with the treatment under current capital rules. BOK
Financial's Tier 1 common equity ratio based on the existing Basel I standards was 13.59% as of December 31, 2013. Based on
our interpretation of the new capital rule, our estimated Tier 1 common equity ratio is approximately 12.60%, nearly 560 basis
points above the 7% regulatory threshold.
The rule also changes 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
requirements under the rule is 4%. A banking organization 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.
Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity
ratio. Tangible common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principles in
the United States of America (“GAAP”) less intangible assets and equity which does not benefit common shareholders. Equity
that does not benefit common shareholders includes preferred equity. Tier 1 common equity is Tier 1 equity as defined by
banking regulations, adjusted for other comprehensive income and equity which does not benefit common shareholders. These
non-GAAP measures are valuable indicators 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.
In accordance with the Dodd-Frank Act, the Federal Reserve published 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. Specified results will be made public in June of 2015. The resulting
capital stress test process may place constraints on capital distributions or increases in required regulatory capital under certain
circumstances.
Table 41 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
83
Table 41 – Non-GAAP Measures
(Dollars in thousands)
Tangible common equity ratio:
Total shareholders' equity
Less: Goodwill and intangible assets, net
Tangible common equity
Total assets
Less: Goodwill and intangible assets, net
Tangible assets
Tangible common equity ratio
Tier 1 common equity ratio:
Tier 1 capital
Less: Non-controlling interest
Tier 1 common equity
Risk weighted assets
Tier 1 common equity ratio
Off-Balance Sheet Arrangements
December 31,
2013
2012
$
3,020,049
$
2,957,860
384,323
2,635,726
390,171
2,567,689
27,015,432
28,148,631
384,323
390,171
$ 26,631,109
$ 27,758,460
9.90%
9.25%
$
2,668,981
$
2,430,671
34,924
35,821
2,634,057
2,394,850
$ 19,389,381
$ 19,016,673
13.59%
12.59%
See Note 14 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet
commitments.
Aggregate Contractual Obligations
BOK Financial has numerous contractual obligations in the normal course of business. These obligations include time deposits
and other borrowed funds, premises used under various operating leases, commitments to extend credit to borrowers and to
purchase securities, derivative contracts and contracts for services such as data processing that are integral to our operations.
Table 42 following summarizes payments due per these contractual obligations at December 31, 2013.
Table 42 – Contractual Obligations as of December 31, 2013
(In thousands)
Less Than
1 Year
1 to 3
Years
4 to 5
Years
More Than
5 Years
Total
$
784,452
$
819,540
$
404,230
$
401,378
$
2,409,600
525
8,181
23,751
225,995
100,368
11,275
1,050
128,255
45,412
37,140
—
20,493
1,100
227,173
31,719
3,218
—
17,960
16,239
—
112,973
5,034
—
7,800
18,914
363,609
213,855
271,387
100,368
57,528
$
1,154,547
$
1,051,890
$
685,400
$
543,424
$
3,435,261
Time deposits
Other borrowings
Subordinated debentures
Operating lease obligations
Derivative contracts
Deferred compensation and stock-based
compensation obligations
Data processing services
Total
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
Commitments to purchase transferable tax credits from zero emission power providers
Alternative investment commitments
Unfunded third-party private equity commitments
84
$
7,096,373
444,248
191,299
13,000
37,457
5,880
Payments on time deposits, other borrowed funds and subordinated debentures include interest which has been calculated from
rates at December 31, 2013. Many of these obligations have variable interest rates and actual payments will differ from the
amounts shown on this table. Obligations under derivative contracts used for interest rate risk management purposes are
included with projected payments from time deposits and other borrowed funds as appropriate.
Payments on time deposits are based on contractual maturity dates. These funds may be withdrawn prior to maturity. We may
charge the customer a penalty for early withdrawal.
Operating lease commitments generally represent real property we rent for branch offices, corporate offices and operations
facilities. Payments presented represent the minimum lease payments and exclude related costs such as utilities and property
taxes.
Obligations under derivative contracts are used in customer hedging programs. As previously discussed, we have entered into
derivative contracts which are expected to substantially offset the cash payments due on these obligations. Amounts shown in
the table exclude $24 million of cash margin which secures our obligations under these contracts.
The former President and Chief Executive officer had deferred compensation and employment agreements with the
Company. Collectively, these agreements provided, among other things, that all unvested stock-based compensation shall fully
vest upon his termination, subject to certain conditions. These agreements provide for settlement in cash or other assets. We
currently have recognized a $32 million liability for these plans which are fully vested as of December 31, 2013 and will be
distributed during 2014. In addition, the 2011 True-Up Plan will be distributed in 2014. Based on currently available
information, amounts payable to certain senior executives under the 2011 True-Up Plan will be approximately $69 million. We
also have obligations with respect to employee and executive benefit plans. See Notes 11 and 12 to the Consolidated Financial
Statements for additional information about our employee benefit plans.
Data processing and communications contracts represent the minimum obligations under the contracts. Additional payments
that are based on the volume of transactions processed are excluded.
Loan commitments represent legally binding obligations to provide financing to our customers. Some of these commitments
are expected to expire before being drawn upon and the total commitment amounts do not necessarily represent future cash
requirements. Approximately $1.6 billion of the loan commitments expire within one year.
The Company has funded $94 million and has commitments to fund an additional $37 million for various alternative
investments. Alternative investments generally consist of limited partnership interests in or loans to entities that invest in low
income housing or economic development projects, distressed assets, energy development, venture capital and other
activities. The Company is prohibited by banking regulations from controlling or actively managing the activities of these
investments. Legally binding commitments to fund alternative investments are recognized as liabilities in the consolidated
financial statements.
An indirect wholly-owned subsidiary of the Company is general partner of two private equity funds and has contingent
obligations to make additional investments totaling $5.9 million as of December 31, 2013. These commitments, which are
included in unfunded third-party private equity commitments, generally reflect customer investment obligations. We do not
recognize contingent commitments to fund investments that are primarily customer obligations as liabilities in the consolidated
financial statements.
85
Recently Issued Accounting Standards
See Note 1 of the consolidated financial statements for disclosure of newly adopted and pending accounting standards.
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 and accrual for off-balance sheet credit risk, allowance for uncertain tax positions and
accruals for loss contingencies 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.
Legal Notice
As used in this report, the term “BOK Financial” and such terms as “the Company,” “the Corporation,” “our,” “we” and “us”
may refer to one or more of the consolidated subsidiaries or all of them taken as a whole. All these terms are used for
convenience only and are not intended as a precise description of any of the separate companies, each of which manages its
own affairs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 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 interest income and economic
value of equity due to specified changes in interest rates. The internal policy limit for net interest revenue variation is a
maximum decline of 5% to an up or down 200 basis point change over twelve months. These guidelines also set maximum
levels for short-term borrowings, short-term assets, public funds and brokered deposits and establish minimum levels for
unpledged assets, among other things. Compliance with these internal guidelines is reviewed monthly.
86
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 over the next 12 months and longer time periods based on multiple interest rate
scenarios. Two specified interest rate scenarios are used to evaluate interest rate risk against policy guidelines. The first
assumes a sustained parallel 200 basis point increase and the second assumes a sustained parallel 50 basis point decrease in
interest rates. Management historically evaluated interest rate sensitivity for a sustained 200 basis point decrease in interest
rates. However, the results of a 200 basis point decrease in interest rates in the current low-rate environment are not
meaningful.
The Company’s primary interest rate exposures included 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. The model incorporates assumptions regarding the effects of changes in interest rates and account balances on
indeterminable maturity deposits 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 43 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 7 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 43 – Interest Rate Sensitivity
(Dollar in thousands)
Anticipated impact over the next twelve months on net interest revenue
$ (16,625)
$
18,171
$ (11,361)
$
(25,572)
(2.38)%
2.80%
(1.63)%
(3.94)%
200 bp Increase
50 bp Decrease
2013
2012
2013
2012
As intermediate and long-term interest rates increased during the middle of 2013, mortgage interest rates increased which slowed
prepayment speeds in the residential mortgage backed securities portfolio. This rate change moved the Company's net interest
revenue exposure to a 200 bp rate increase from 2.80% at December 31, 2012 to (2.38)% at December 31, 2013. We have begun
to pro-actively reduce the securities portfolio balances to counteract this effect.
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. BOKF Financial has an insignificant exposure to foreign exchange risk and does not
take positions in commodity derivatives.
87
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 or cash markets may be used to reduce the risk associated with some trading programs.
Management uses a Value at Risk (“VaR”) methodology to measure the 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 years ended December 31, 2013 and 2012. At December 31, 2013, 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 years ended December 31, 2013 and 2012 are as follows in Table 44.
Table 44 –Value at Risk (VaR)
(In thousands)
Average
High
Low
Year Ended December 31,
2013
2012
2011
$
2,785
$
3,212
$
5,826
261
6,695
1,075
2,307
5,133
1,236
88
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management on Financial Statements
Management of BOK Financial is responsible for the preparation, integrity and fair presentation of the consolidated financial
statements included in this annual report. The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and necessarily include some amounts that are based on our best
estimates and judgments.
Management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, conducted an assessment of
internal control over financial reporting as of December 31, 2013. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s
consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the
United States. In establishing internal control over financial reporting, management assesses risk and designs controls to
prevent or detect financial reporting misstatements that may be consequential to a reader. Management also assesses the impact
of any internal control deficiencies and oversees efforts to improve internal control over financial reporting. Because of
inherent limitations, it is possible that internal controls may not prevent or detect misstatements, and it is possible that internal
controls may vary over time based on changing conditions. There have been no material changes in internal controls
subsequent to December 31, 2013.
The Audit Committee, consisting entirely of independent directors, meets regularly with management, internal auditors and the
independent registered public accounting firm, Ernst & Young LLP, regarding management’s assessment of internal control
over financial reporting.
Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing
the effectiveness of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f), as amended. Management has assessed the effectiveness of the Company’s internal control over financial reporting
based on the criteria established in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring
Organizations (“COSO”) of the Treadway Commission in 1992. Based on that assessment and criteria, management has
determined that the Company maintained effective internal control over financial reporting as of December 31, 2013.
Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the
Company included in this annual report has issued an audit report on the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2013. Their report, which expresses unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2013, is included in this annual report.
89
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of BOK Financial Corporation
We have audited the accompanying consolidated balance sheets of BOK Financial Corporation ("the Company") as of
December 31, 2013 and 2012, and the related consolidated statements of earnings, comprehensive income, changes in equity,
and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of BOK Financial Corporation at December 31, 2013 and 2012, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), BOK Financial Corporation's internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) and our report dated February 26, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 26, 2014
90
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of BOK Financial Corporation
We have audited BOK Financial Corporation’s ("the Company") internal control over financial reporting as of December 31,
2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (the COSO criteria). BOK Financial Corporation’s management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Report of Management on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, BOK Financial Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of BOK Financial Corporation as of December 31, 2013 and 2012, and the related consolidated
statements of earnings, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended
December 31, 2013 and our report dated February 26, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 26, 2014
91
Consolidated Statements of Earnings
(In thousands, except share and per share data)
Interest revenue
Loans
Residential mortgage loans held for sale
Trading securities
Taxable securities
Tax-exempt securities
Total investment securities
Taxable securities
Tax-exempt securities
Total available for sale securities
Fair value option securities
Restricted equity securities
Interest-bearing cash and cash equivalents
Total interest revenue
Interest expense
Deposits
Borrowed funds
Subordinated debentures
Total interest expense
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit losses
Other operating revenue
Brokerage and trading revenue
Transaction card revenue
Trust fees and commissions
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Other revenue
Total fees and commissions
Gain (loss) on assets, net
Gain (loss) on derivatives, net
Gain (loss) on fair value option securities, net
Change in fair value of mortgage servicing rights
Gain on available for sale securities, net
Total other-than-temporary impairment losses
Portion of loss recognized in (reclassified from) other comprehensive income
Net impairment losses recognized in earnings
Total other operating revenue
Other operating expense
Personnel
Business promotion
Contribution to BOKF Foundation
Professional fees and services
Net occupancy and equipment
Insurance
Data processing and communications
Printing, postage and supplies
Net losses and expenses of repossessed assets
Amortization of intangible assets
Mortgage banking costs
Other expense
Total other operating expense
Income before taxes
Federal and state income tax
Net income
Net income attributable to non-controlling interests
Net income attributable to BOK Financial Corp. shareholders
Earnings per share:
Basic
Diluted
Average shares used in computation:
Basic
Diluted
Dividends declared per share
See accompanying notes to consolidated financial statements.
93
Year Ended December 31,
2012
2011
2013
$
$
$
$
$
498,600
8,505
1,962
14,260
4,781
19,041
204,830
2,380
207,210
3,907
5,071
1,075
745,371
55,564
6,589
8,741
70,894
674,477
(27,900)
702,377
125,478
116,823
96,082
95,110
121,934
10,155
38,262
603,844
(925)
(4,367)
(15,212)
22,720
10,720
(2,574)
266
(2,308)
614,472
505,225
22,598
2,062
32,552
69,773
16,122
106,075
13,885
5,160
3,428
31,088
32,652
840,620
476,229
157,298
318,931
2,322
316,609
4.61
4.59
67,988,897
68,205,519
1.54
$
$
$
$
$
513,429
8,185
1,419
16,848
3,577
20,425
237,226
2,487
239,713
8,464
2,291
945
794,871
67,013
6,531
13,778
87,322
707,549
(22,000)
729,549
126,930
107,985
80,053
98,917
169,302
11,089
34,604
628,880
(1,415)
(301)
9,230
(9,210)
33,845
(1,144)
(6,207)
(7,351)
653,678
491,033
23,338
2,062
34,015
66,726
15,356
98,904
14,228
20,528
2,927
44,334
26,912
840,363
542,864
188,740
354,124
2,933
351,191
5.15
5.13
67,684,043
67,964,940
2.47
$
$
$
$
$
504,989
6,492
1,836
12,581
4,768
17,349
258,828
2,394
261,222
18,649
2,118
491
813,146
88,890
8,826
22,385
120,101
693,045
(6,050)
699,095
104,181
116,757
73,290
95,872
91,643
11,280
34,070
527,093
4,156
2,686
24,413
(40,447)
34,144
(10,578)
(12,929)
(23,507)
528,538
429,986
20,549
4,000
28,798
64,611
16,799
97,976
14,085
23,715
3,583
37,621
37,575
779,298
448,335
158,511
289,824
3,949
285,875
4.18
4.17
67,787,676
68,038,763
1.13
Consolidated Statements of Comprehensive Income
(In thousands, except share and per share data)
Net income
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Interest revenue, Investments securities, Taxable securities
Interest expense, Subordinated debentures
Net impairment losses recognized in earnings
Gain on available for sale securities, net
Other comprehensive income (loss) before income taxes
Federal and state income tax
Other comprehensive income (loss), net of income taxes
Comprehensive income
Comprehensive income attributable to non-controlling interests
Year Ended
December 31,
2013
2012
2011
$ 318,931
$ 354,124
$ 289,824
(275,945)
66,197
47,287
(3,210)
(6,601)
(1,357)
262
2,308
453
7,351
304
23,507
(10,720)
(33,845)
(34,144)
(287,305)
33,555
35,597
111,762
(12,614)
(14,457)
(175,543)
20,941
21,140
143,388
375,065
310,964
2,322
2,933
3,949
Comprehensive income attributable to BOK Financial Corp. shareholders
$ 141,066
$ 372,132
$ 307,015
See accompanying notes to consolidated financial statements.
94
Consolidated Balance Sheets
(In thousands, except share data)
Assets
Cash and due from banks
Interest-bearing cash and cash equivalents
Trading securities
Investment securities (fair value: 2013 – $687,127; 2012 – $528,458)
Available for sale securities
Fair value option securities
Restricted equity securities
Residential mortgage loans held for sale
Loans
Allowance for loan losses
Loans, net of allowance
Premises and equipment, net
Receivables
Goodwill
Intangible assets, net
Mortgage servicing rights, net
Real estate and other repossessed assets, net of allowance (2013 – $24,195; 2012 – $36,873)
Derivative contracts, net
Cash surrender value of bank-owned life insurance
Receivable on unsettled securities trades
Other assets
Total assets
Liabilities and shareholders' equity
Noninterest-bearing demand deposits
Interest-bearing deposits:
Transaction
Savings
Time
Total deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Derivative contracts, net
Due on unsettled securities trades
Other liabilities
Total liabilities
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and
outstanding: 2013 – 73,163,275; 2012 – 72,415,346)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2013 – 4,304,782; 2012 – 4,087,995)
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
95
December 31,
2013
2012
$
512,931
574,282
91,616
677,878
10,147,162
167,125
85,240
200,546
12,792,264
(185,396)
12,606,868
277,849
117,126
359,759
24,564
153,333
92,272
265,012
284,801
17,174
359,894
710,739
575,500
214,102
499,534
11,287,221
284,296
64,807
293,762
12,311,456
(215,507)
12,095,949
265,920
114,185
361,979
28,192
100,812
103,791
338,106
274,531
211,052
324,153
27,015,432
$
28,148,631
7,316,277
$
8,038,286
$
$
$
9,934,051
323,006
2,695,993
20,269,327
868,081
813,454
1,040,353
347,802
194,870
247,185
45,740
133,647
23,960,459
4
898,586
2,349,428
(202,346)
(25,623)
3,020,049
34,924
3,054,973
9,888,038
284,744
2,967,992
21,179,060
1,167,416
887,030
651,775
347,633
176,678
283,589
297,453
164,316
25,154,950
4
859,278
2,137,541
(188,883)
149,920
2,957,860
35,821
2,993,681
$
27,015,432
$
28,148,631
Consolidated Statements of Changes in Equity
(In thousands)
Common Stock
Shares
Amount
Capital
Surplus
Retained
Earnings
Treasury Stock
Shares
Amount
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
Balance, December 31, 2010
70,816
$
4
$782,805
$1,743,880
2,608
$(112,802) $
107,839
$
2,521,726
$
22,152
$2,543,878
Net income
Other comprehensive
income
Treasury stock purchases
Exercise of stock options
Tax benefit on exercise of
stock options
Stock-based compensation
Cash dividends on common
stock
Capital calls and
distributions, net
—
—
—
717
—
—
—
—
Balance, December 31, 2011
71,533
Net income
Other comprehensive
income
Treasury stock purchases
Exercise of stock options
Tax benefit on exercise of
stock options
Stock-based compensation
Cash dividends on common
stock
Acquisition of non-
controlling interest
Capital calls and
distributions, net
—
—
—
882
—
—
—
—
—
Balance, December 31, 2012
72,415
Net income
Other comprehensive loss
Treasury stock purchases
Exercise of stock options
Tax benefit on exercise of
stock options
Stock-based compensation
Cash dividends on common
stock
Capital calls and
distributions, net
—
—
—
748
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
—
25,957
659
9,396
285,875
—
—
—
—
—
—
—
(76,423)
—
—
—
562
210
—
—
—
—
—
—
(26,446)
(11,416)
—
—
—
—
—
285,875
3,949
289,824
21,140
—
—
—
—
—
—
21,140
(26,446)
14,541
659
9,396
(76,423)
—
—
—
—
—
—
21,140
(26,446)
14,541
659
9,396
(76,423)
—
10,083
10,083
818,817
1,953,332
3,380
(150,664)
128,979
2,750,468
36,184
2,786,652
—
—
—
32,311
120
8,030
—
—
—
351,191
—
—
—
—
—
(166,982)
—
—
—
—
384
324
—
—
—
—
—
—
—
(20,558)
(17,661)
—
—
—
—
—
—
351,191
2,933
354,124
20,941
—
—
—
—
—
—
—
20,941
(20,558)
14,650
120
8,030
(166,982)
—
—
—
—
—
—
20,941
(20,558)
14,650
120
8,030
(166,982)
—
—
1,645
1,645
(4,941)
(4,941)
859,278
2,137,541
4,088
(188,883)
149,920
2,957,860
35,821
2,993,681
—
316,609
2,322
318,931
(175,543)
(175,543)
—
—
—
30,029
2,210
7,069
316,609
—
—
—
—
—
—
—
(104,722)
—
—
—
—
—
—
—
217
(13,463)
—
—
—
—
—
—
—
—
—
16,566
2,210
7,069
(104,722)
—
—
—
—
—
—
—
—
—
—
—
—
(175,543)
—
16,566
2,210
7,069
(104,722)
—
(3,219)
(3,219)
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
See accompanying notes to consolidated financial statements.
96
Consolidated Statements of Cash Flows
(in thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Change in fair value of mortgage servicing rights
Net unrealized losses (gains) from derivatives
Tax benefit on exercise of stock options
Change in bank-owned life insurance
Stock-based compensation
Depreciation and amortization
Net amortization of securities discounts and premiums
Net realized losses (gains) on financial instruments and other assets
Net gain on mortgage loans held for sale
Mortgage loans originated for resale
Proceeds from sale of mortgage loans held for resale
Capitalized mortgage servicing rights
Change in trading and fair value option securities
Change in receivables
Change in other assets
Change in accrued interest, taxes and expense
Change in other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities:
Proceeds from maturities or redemptions of investment securities
Proceeds from maturities or redemptions of available for sale securities
Purchases of investment securities
Purchases of available for sale securities
Proceeds from sales of available for sale securities
Change in amount receivable on unsettled securities transactions
Loans originated net of principal collected
Net proceeds from (payments on) derivative asset contracts
Acquisitions, net of cash acquired
Proceeds from disposition of assets
Purchases of assets
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities:
Net change in demand deposits, transaction deposits and savings accounts
Net change in time deposits
Net change in other borrowings
Repayment of subordinated debentures
Net payments or proceeds on derivative liability contracts
Net change in derivative margin accounts
Change in amount due on unsettled security transactions
Issuance of common and treasury stock, net
Sale of non-controlling interest
Tax benefit on exercise of stock options
Repurchase of common stock
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid for interest
Cash paid for taxes
Net loans transferred to real estate and other repossessed assets
Residential mortgage loans guaranteed by U.S. government agencies that became
eligible for repurchase during the year
Conveyance of other real estate owned guaranteed by U.S. government agencies
See accompanying notes to consolidated financial statements.
97
2013
Year Ended
2012
2011
$
318,931
$
354,124
$
289,824
(27,900)
(22,720)
16,256
(2,210)
(10,155)
7,069
53,261
62,274
(12,586)
(84,403)
(4,081,390)
4,254,151
(49,431)
237,581
(3,122)
76,257
18,192
(13,735)
736,320
143,445
2,650,045
(326,815)
(4,287,146)
2,436,093
193,878
(441,474)
59,390
(7,500)
229,405
(212,292)
437,029
(637,734)
(271,999)
(111,905)
—
(64,724)
51,646
(251,713)
16,566
—
2,210
—
(104,722)
(1,372,375)
(199,026)
1,286,239
1,087,213
69,830
132,176
86,868
127,572
43,901
$
$
$
$
$
$
(22,000)
9,210
(984)
(120)
(11,089)
8,030
54,935
87,769
(15,097)
(120,599)
(3,708,350)
3,731,830
(42,191)
226,144
9,244
10,999
23,424
(3,729)
591,550
111,511
4,456,363
(172,327)
(7,334,843)
1,744,662
(135,901)
(1,077,075)
(13,273)
(23,615)
170,907
(94,756)
(2,368,347)
2,830,470
(413,990)
210,607
(53,705)
(7,560)
39,237
(355,918)
14,650
300
120
(20,558)
(166,982)
2,076,671
299,874
986,365
1,286,239
90,137
158,703
133,502
121,432
89,223
(6,050)
40,447
(9,651)
(659)
(11,280)
9,396
49,967
112,227
53,829
(57,418)
(2,293,436)
2,369,895
(26,251)
(247,386)
24,236
16,469
63,827
(50,198)
327,788
68,020
3,650,900
(37,085)
(7,504,261)
2,725,760
59,908
(598,499)
4,994
—
122,314
(56,195)
(1,564,144)
1,710,705
(127,026)
(949,051)
—
15,674
(102,262)
492,946
14,541
—
659
(26,446)
(76,423)
953,317
(283,039)
1,269,404
986,365
122,166
156,465
87,476
154,134
14,501
$
$
$
$
$
$
$
$
$
$
$
$
Notes to Consolidated Financial Statements
(1) Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements of BOK Financial Corporation (“BOK Financial” or “the Company”) have been
prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"), including
interpretations of U.S. GAAP issued by federal banking regulators and general practices of the banking industry. The
consolidated financial statements include the accounts of BOK Financial and its subsidiaries, principally BOKF, NA (“the
Bank”), BOSC, Inc., The Milestone Group, Inc. and Cavanal Hill Investment Management, Inc. All significant intercompany
transactions are eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year
presentation.
The consolidated financial statements include the assets, liabilities, non-controlling interests and results of operations of
variable interest entities (“VIEs”) when BOK Financial is determined to be the primary beneficiary. 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. See additional discussion of variable interest entities at
Note 14 following.
Nature of Operations
BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers,
other financial institutions, municipalities, and consumers. These services include depository and cash management; lending
and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust.
The Bank operates as Bank of Oklahoma primarily in Tulsa and Oklahoma City metropolitan areas of the state of Oklahoma
and Bank of Texas primarily in the Dallas, Fort Worth and Houston metropolitan areas of the state of Texas. In addition, the
Bank does business as Bank of Albuquerque in Albuquerque, New Mexico; Colorado State Bank and Trust in Denver,
Colorado; Bank of Arizona in Phoenix, Arizona; Bank of Kansas City in Kansas City, Missouri/Kansas and Bank of Arkansas
in Northwest Arkansas. The Bank also operates the TransFund electronic funds network.
Use of Estimates
Preparation of BOK Financial's consolidated financial statements requires management to make estimates of future economic
activities, including loan collectability, prepayments and cash flows from customer accounts. These estimates are based upon
current conditions and information available to management. Actual results may differ significantly from these estimates.
Acquisitions
Assets and liabilities acquired, including identifiable intangible assets, are recorded at fair value on the acquisition date. The
purchase price includes consideration paid at closing and the estimated fair value of contingent consideration that will be paid
in the future, subject to achieving defined performance criteria. Goodwill is recognized as the excess of the purchase price over
the net fair value of assets acquired and liabilities assumed. The Consolidated Statements of Earnings include the results of
operations from the acquisition date.
Goodwill and Intangible Assets
Goodwill and intangible assets generally result from business combinations and are evaluated for each of BOK Financial's
reporting units for impairment annually or more frequently if conditions indicate impairment. The evaluation of possible
impairment of goodwill and intangible assets involves significant judgment based upon short-term and long-term projections of
future performance.
98
Reporting units are defined by the Company as the geographical market underlying each operating segment. This definition is
consistent with the manner in which the chief operating decision maker assesses the performance of the Company and makes
decisions concerning the allocation of resources. The Company qualitatively assesses whether it is more likely than not that the
fair value of the reporting units are less than their carrying value. This assessment includes consideration of relevant events and
circumstances including but not limited to macroeconomic conditions, industry and market conditions, the financial and stock
performance of the Company and other relevant factors. Additional quantitative analysis may be undertaken through which the
fair value of BOK Financial's reporting units is estimated by the discounted future earnings method. Income growth is projected
for each reporting unit and a terminal value is computed. This projected income stream is converted to current fair value by
using a discount rate that reflects a rate of return required by a willing buyer. Assumptions used to determine the fair value of
the reporting units are compared to observable inputs, such as the market value of BOK Financial common stock. However,
determination of the fair value of individual reporting units requires the use of significant unobservable inputs. There have been
no changes in the techniques used to evaluate the carrying value of goodwill.
Core deposit intangible assets are amortized using accelerated methods over the estimated lives of the acquired deposits. These
assets generally have a weighted average life of 5 years. Other intangible assets are amortized using accelerated or straight-line
methods, as appropriate, over the estimated benefit periods. These periods range from 5 years to 20 years. The net book values
of identifiable intangible assets are evaluated for impairment when economic conditions indicate impairment may exist.
Cash Equivalents
Due from banks, funds sold (generally federal funds sold for one day), resell agreements (which generally mature within one to
30 days) and investments in money market funds are considered cash equivalents.
Securities
Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the
intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities,
which are acquired for profit through resale, are carried at fair value with unrealized gains and losses included in current period
earnings. Investment securities are carried at amortized cost. Amortization is computed by methods that approximate level yield
and is adjusted for changes in prepayment estimates. Securities identified as available for sale are carried at fair value.
Unrealized gains and losses are recorded, net of deferred income taxes, as accumulated other comprehensive income in
shareholders' equity. Available for sale securities are separately identified as pledged to creditors if the creditor has the right to
sell or re-pledge the collateral.
The purchase or sale of securities is recognized on a trade date basis. Realized gains and losses on sales of securities are based
upon specific identification of the security sold. A receivable or payable is recognized for subsequent transaction settlement.
BOK Financial will periodically commit to purchase to-be-announced residential mortgage-backed securities. These
commitments are carried at fair value if they are considered derivative contracts. Investment securities may be sold or
transferred to trading or available for sale classification in certain limited circumstances specified in generally accepted
accounting principles. Securities meeting certain criteria may also be transferred from the available for sale classification to the
investment securities portfolio at fair value on the date of transfer. The unrealized gain or loss at the date of transfer is retained
in accumulated other comprehensive income and in the carrying value of the investment securities portfolio. Such amounts are
amortized over the estimated remaining life of the security as an adjustment to yield, offsetting the related amortization of the
premium or accretion of the discount on the transferred securities.
On a quarterly basis, the Company performs separate evaluations of impaired debt investment and available for sale securities
and equity available for sale securities to determine if the decline in fair value below the amortized cost is other-than-
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 and securities portfolio
management. If the Company intends to sell or it is more likely than not that it will be required to sell the impaired debt
security, a charge is recognized against earnings for the entire unrealized loss. For all impaired debt securities for which there is
no intent or expected requirement to sell, the evaluation considers all available evidence to assess whether it is more likely than
not that all amounts due would not be collected according to the security's contractual terms. Any expected credit loss due to
the inability to collect all amounts due according to the security's contractual terms is recognized as a charge against
earning. Any remaining unrealized loss related to other factors would be recognized in other comprehensive income, net of
taxes.
99
For equity securities, management evaluates various factors including cause, severity and duration of the decline in value of the
security and prospects for recovery, as well as the Company's intent and ability not to sell the security until the fair value
exceeds amortized cost. If an unrealized loss is determined to be other-than-temporary, a charge is recognized against earnings
for the difference between the security's amortized cost and fair value.
BOK Financial has elected to carry certain non-trading 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 or certain derivative instruments.
Restricted equity securities represents equity interests the Company is required to hold in the Federal Reserve Banks and
Federal Home Loan Banks. Restricted equity securities are carried at cost as theses securities do not have a readily determined
fair value because ownership of these shares are restricted and lacks a market.
Derivative Instruments
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. The determination of fair value of derivative instruments
considers changes in interest rates, commodity prices and foreign exchange rates. Credit risk is also considered in determining
fair value. Deterioration in the credit rating of customers or other counterparties reduces the fair value of asset
contracts. Deterioration of our credit rating to below investment grade or the credit ratings of other counterparties could
decrease the fair value of our derivative liabilities. Changes in fair value are generally reported in income as they occur.
Derivative instruments used to manage interest rate risk consist primarily of interest rate swaps. These contracts modify the
interest income or expense of certain assets or liabilities. Amounts receivable from or payable to counterparties are reported in
interest income or expense using the accrual method. Changes in fair value of interest rate swaps are reported in other operating
revenue - gain (loss) on derivatives, net.
In certain circumstances, an interest rate swap may be designated as a fair value hedge and may qualify for hedge
accounting. In these circumstances, changes in the full fair value of the hedged asset or liability, not only changes in fair value
due to changes in the benchmark interest rate, is also recognized in earnings and may partially or completely offset changes in
fair value of the interest rate swap. A fair value hedge is considered effective if the cumulative fair value adjustment of the
interest rate swap is within a range of 80% to 120% of the cumulative change in the fair value of the hedged asset or
liability. Any ineffectiveness, including ineffectiveness due to credit risk or ineffectiveness created when the fixed rate of the
hedged asset or liability does not match the fixed rate of the interest rate swap, is recognized in earnings and reported in Gain
(loss) on derivatives, net.
Interest rate swaps may be designated as cash flow hedges of variable rate assets or liabilities, or of anticipated
transactions. Changes in the fair value of interest rate swaps designated as cash flow hedges are recorded in accumulated other
comprehensive income to the extent they are effective. The amount recorded in other comprehensive income is reclassified to
earnings in the same periods as the hedged cash flows impact earnings. The ineffective portion of changes in fair value is
reported in current earnings.
If a derivative instrument that had been designated as a fair value hedge is terminated or if the hedge designation is removed or
deemed to no longer be effective, the difference between the hedged items carrying value and its face amount is recognized into
income over the remaining original hedge period. Similarly, if a derivative instrument that had been designated as a cash flow
hedge is terminated or if the hedge designation is removed or deemed to no longer be effective, the amount remaining in
accumulated other comprehensive income is reclassified to earnings in the same period as the hedged item.
BOK Financial offers programs that permit its customers to manage various risks, including fluctuations in energy, cattle and
other agricultural products, interest rates and foreign exchanges rates with derivative contracts. Derivative contracts are
executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other
selected counterparties to minimize market risk from 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.
When bilateral netting agreements 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 counterparty basis.
100
Derivative contracts may also 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.
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 financial 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 loans guaranteed by U.S. government agencies, are as
follows.
Interest is accrued at the applicable interest rate on the outstanding principal amount. 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
90 days or more past due or within 60 days of being notified of the borrower bankruptcy filing. Interest previously accrued but
not collected is charged against interest income when the loan is placed on nonaccruing status. Payments received 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 then current collateral, debt service ratio and other underwriting standards.
Nonaccruing loans may also 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 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 that are past due between 60 days 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 has 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 Sheet. Guaranteed loans are considered to be 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 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 at the modified rate. U.S. government guaranteed loans may either
be resold into GNMA pools after a performance period specified by the programs or foreclosed and conveyed to the guarantors.
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk
The appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk (collectively "Allowance for
Credit Losses") is assessed by management based on an ongoing quarterly evaluation of the probable estimated losses inherent
in the portfolio, including probable losses on outstanding loans and unused commitments to provide financing.
101
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 Credits Losses. Classes
are based on the risk characteristics of the loans and the Company's method for monitoring and assessing credit risk.
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 based on estimated loss rates by loan class and nonspecific allowances
based on factors that affect more than one portfolio segment. In the fourth quarter of 2011, the Company enhanced its
methodology for estimating general allowances by establishing specific loss rates for each loan class. There were no changes
to the methodology for estimating general allowances during 2013 or 2012.
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 a quarterly 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,
modified in a troubled debt restructuring 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. The fair value of real property
held as collateral 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 generally are not adjusted by the
Company. Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values
may have declined. Collateral value of mineral rights is generally determined by our internal staff of engineers based on
projected cash flows from proven oil and gas reserves under existing economic and operating conditions. The value of other
collateral is generally determined by our special assets staff based on projected liquidation 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 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.
General allowances for unimpaired loans are based on an estimated loss rate by loan class. The appropriate historical gross loss
rate for each loan class is determined by the greater of the current loss rate based on the most recent twelve months or a ten-
year average gross loss rate. Recoveries are not directly considered in the estimation of historical 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, historical gross loss rates are adjusted for changes in risk grading. For each loan class, the
current weighted average risk grade is compared to the the long-term weighted average risk grade. This comparison determines
whether credit risk in each loan class is increasing or decreasing. Historical 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 a specific loan class which have not yet been represented in the historical 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 portfolio segment or loan class. These
factors include trends in the economy in our primary lending areas, concentration in large-balance loans and other relevant
factors.
An accrual for off-balance sheet credit risk is included in Other liabilities. The appropriateness of the 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.
102
Transfers of Financial Assets
BOK Financial transfers financial assets as part of its mortgage banking activities and periodically may transfer other financial
assets. Transfers are recorded as sales when the criteria for surrender of control are met. Certain residential mortgage loans
originated by the Company are held for sale and are carried at fair value based on sales commitments or market quotes and are
reported separately in the Consolidated Balance Sheets. Changes in fair value are recorded in other operating revenue –
mortgage banking revenue in the Consolidated Statements of Earnings.
BOK Financial retains a repurchase obligation under underwriting representations and warranties related to residential
mortgage loans transferred and generally retains the right to service the loans. The Company may incur a recourse obligation in
limited circumstances. Separate accruals are recognized in Other liabilities in the Consolidated Balance Sheets for repurchase
and recourse obligations.
The Company may also retain a residual interest in excess cash flows generated by the assets. All assets obtained, including
cash, servicing rights and residual interests, and all liabilities incurred, including recourse obligations, are initially recognized
at fair value, all assets transferred are derecognized and any gain or loss on the sale is recognized in earnings. Subsequently,
servicing rights and residual interests are carried at fair value with changes in fair value recognized in earnings as they occur.
Real Estate and Other Repossessed Assets
Real estate and other repossessed assets are acquired in partial or total forgiveness of loans. These assets are carried at the
lower of cost, which is determined by fair value at date of foreclosure less estimated disposal costs, or current fair value less
estimated disposal costs. Decreases in fair value below cost are recognized as asset-specific valuation allowances which may be
reversed when supported by future increases in fair value. Fair values of real estate are based on “as is” appraisals which are
updated at least annually or more frequently for certain asset types or assets located in certain distressed markets. Fair values
based on appraisals are generally considered to be based on significant other observable inputs. The Company also considers
decreases in listing price and other relevant information in quarterly evaluations and reduces the carrying value of real estate
and other repossessed assets when necessary. Fair values based on list prices and other relevant information are generally
considered to be based on significant unobservable inputs. Additional costs incurred to complete real estate and other
repossessed assets may increase the carrying value, up to current fair value based on “as completed” appraisals. The fair value
of mineral rights included in repossessed assets are generally determined by our internal staff of engineers based on projected
cash flows from proven oil and gas reserves under existing economic and operating conditions. The value of other repossessed
assets is generally determined by our special assets staff based on projected liquidation cash flows under current market
conditions. Income generated by these assets is recognized as received. Operating expenses are recognized as incurred. Gains
or losses on sales of real estate and other repossessed assets are based on the cash proceeds received less the cost basis of the
asset, net of any valuation allowances.
Premises and Equipment
Premises and equipment are carried at cost, including capitalized interest when appropriate, less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets
or, for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. Useful lives range from
5 years to 40 years for buildings and improvements, 3 years to 10 years for software and 3 years to 10 years for furniture and
equipment. Construction in progress represents construction and systems projects underway that have not yet been placed into
service. Depreciation and amortization begin once the assets are placed into service. Repair and maintenance costs are charged
to expense as incurred.
Premises no longer used by the Company are transferred to real estate and other repossessed assets. The transferred amount is
the lower of cost less accumulated depreciation or fair value less estimated disposal costs as of the transfer date.
Rent expense for leased premises is recognized as incurred over the lease term. The effects of rent holidays, significant rent
escalations and other adjustments to rent payments are recognized on a straight-line basis over the lease term.
Mortgage Servicing Rights
Mortgage servicing rights may be purchased or may be recognized when mortgage loans are originated pursuant to an existing
plan for sale or, if no such plan exists, when the mortgage loans are sold. All mortgage servicing rights are carried at fair
value. Changes in the fair value are recognized in earnings as they occur.
103
There is no active market for trading in mortgage servicing rights after origination. A cash flow model is used to determine fair
value. Key assumptions and estimates, including projected prepayment speeds and assumed servicing costs, earnings on escrow
deposits, ancillary income and discount rates, used by this model are based on current market sources. Assumptions used to
value mortgage servicing rights are considered significant unobservable inputs. 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. Fair value estimates from outside sources are received at least
annually to corroborate the results of the valuation model.
Federal and State Income Taxes
BOK Financial and its subsidiaries file consolidated tax returns. The subsidiaries provide for income taxes on a separate return
basis and remit to BOK Financial amounts determined to be currently payable. BOK Financial is agent for its subsidiaries
under the Company's tax sharing agreements and has no ownership rights to any refunds received for the benefit of its
subsidiaries.
Current income tax expense or benefit is based on an evaluation that considers estimated taxable income, tax credits, and
statutory federal and state income tax rates. The amount of current income tax expense or benefit recognized in any period may
differ from amounts reported to taxing authorities. Annually, tax returns are filed with each jurisdiction where they Company
conducts business and recognized current income tax expense or benefit is adjusted to the filed tax returns.
Deferred tax assets and liabilities are based upon the differences between the values of assets and liabilities as recognized in the
financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are
expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion of the
entire deferred tax asset may not be realized based on taxes previously paid in net loss carry-back periods and other factors.
BOK Financial has unrecognized tax benefits, which are included in accrued current income taxes payable, for the uncertain
portion of recorded tax benefits and related interest. These uncertainties result from the application of complex tax laws, rules,
regulations and interpretations, primarily in state taxing jurisdictions. Unrecognized tax benefits are assessed quarterly and
may be adjusted through current income tax expense in future periods based on changing facts and circumstances, completion
of examinations by taxing authorities or expiration of a statute of limitations. Estimated penalties and interest on uncertain tax
positions are recognized in income tax expense.
Employee Benefit Plans
BOK Financial sponsors a defined benefit cash balance pension plan (“Pension Plan”), qualified profit sharing plan (“Thrift
Plan”) and employee health care plans. Pension Plan costs, which are based upon actuarial computations of current costs, are
expensed annually. Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the lesser
of the average remaining service periods of the participants or 4 years. Employer contributions to the Pension Plan are in
accordance with Federal income tax regulations. Pension Plan benefits were curtailed as of April 1, 2006. No participants may
be added to the Pension Plan and no additional service benefits will be accrued.
BOK Financial recognizes the funded status of its employee benefit plans. For a pension plan, the funded status is the
difference between the fair value of plan assets and the projected benefit obligation measured as of the fiscal year-end
date. Adjustments required to recognize the Pension Plan's net funded status are made through accumulated other
comprehensive income, net of deferred income taxes.
Employer contributions to the Thrift Plan, which matches employee contributions subject to percentage and years of service
limits, are expensed when incurred. BOK Financial recognizes the expense of health care benefits on the accrual method.
Stock Compensation Plans
BOK Financial awards stock options and non-vested common shares as compensation to certain officers. Grant date fair value
of stock options is based on the Black-Scholes option pricing model. Stock options generally have graded vesting over 7
years. Each tranche is considered a separate award for valuation and compensation cost recognition. Grant date fair value of
non-vested shares is based on the current market value of BOK Financial common stock. Non-vested shares awarded prior to
2013 generally cliff vest in 5 years. Non-vested shares awarded in January 2013 generally cliff vest in 3 years and are subject to
a two year holding period after vesting.
104
Compensation cost is recognized as expense over the service period, which is generally the vesting period. Expense is reduced
for estimated forfeitures over the vesting period and adjusted for actual forfeitures as they occur. Stock-based compensation
awarded to certain officers has performance conditions that affect the number of awards granted. Compensation cost is adjusted
based on the probable outcome of the performance conditions. Excess tax benefits from share-based payments recognized in
capital surplus are determined by the excess of tax benefits recognized over the tax effect of compensation cost recognized.
Certain executive officers may defer the recognition of income from stock-based compensation for income tax purposes and to
diversify the deferred income into alternative investments. Stock-based compensation granted to these officers is considered
liability awards. Changes in the fair value of liability awards are recognized as compensation expense in the period of the
change.
Other Operating Revenue
Fees and commission revenue is recognized at the time the related services are provided or products are sold and may be
accrued when necessary. Accrued fees and commissions are reversed against revenue if amounts are subsequently deemed to be
uncollectible. Revenue is recognized on a gross basis whenever we have primary responsibility and risk in providing the
services or products to our customers and on a net basis whenever we act as a broker for products or services of others.
Brokerage and trading revenue includes changes in the fair value of securities held for trading purposes and derivatives held for
customer risk management programs, including credit losses on trading securities and derivatives, commissions earned from
the retail sale of securities, mutual funds and other financial instruments, and underwriting and financial advisory fees.
Transaction card revenue includes merchant discounts fees, electronic funds transfer network fees and check card
fees. Merchant discount fees represent fees paid by customers for account management and electronic processing of
transactions. Merchant discount fees are recognized at the time the customer's transactions are processed or other services are
performed. The Company also maintains the TransFund electronic funds transfer network for the benefit of its members, which
includes the Bank. Electronic funds transfer fees are recognized as electronic transactions processed on behalf of its
members. Check card fees represent interchange fees paid by a merchant bank for transactions processed from cards issued by
the Company. Check card fees are recognized when transactions are processed.
Trust fees and commissions include revenue from asset management, custody, recordkeeping, investment advisory and
administration services. Revenue is recognized on an accrual basis at the time the services are performed and may be based on
either the fair value of the account or the service provided.
Deposit service charges and fees are recognized at least quarterly in accordance with published deposit account agreement and
disclosure statement for retail accounts or contractual agreement for commercial accounts. Item charges for overdraft or non-
sufficient funds items are recognized as items are presented for payment. Account balance charges and activity fees are accrued
monthly and collected in arrears. Commercial account activity fees may be offset by an earnings credit based on account
balances.
Newly Adopted and Pending Accounting Pronouncements
Financial Accounting Standards Board ("FASB")
FASB Accounting Standards Update No. 2011-11, Disclosures About Offsetting Assets and Liabilities (“ASU 2011-11”)
On December 16, 2011, the FASB issued ASU 2011-11 which contains new disclosure requirements regarding the nature of an
entity's right of setoff and related arrangements associated with its financial instruments and derivative instruments. The new
disclosures are anticipated to facilitate comparison between financial statements prepared under generally accepted accounting
principles in the United States of America and International Financial Reporting Standards by providing information about both
gross and net exposures. The new disclosure requirements were effective for interim and annual reporting periods beginning on
or after January 1, 2013.
105
FASB Accounting Standards Update No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
(ASU 2013-01)
On January 31, 2013, FASB issued ASU 2013-01 which clarified that the scope of ASU 2011-11 applied for derivative
contracts accounted for in accordance with Topic 815, Derivative and Hedging, including bifurcated embedded derivatives,
repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transaction that are
either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting
arrangement or similar agreement. ASU 2013-01 was effective for the Company on January 1, 2013.
FASB Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income ("ASU 2013-02")
On February 7, 2013 the FASB issued ASU 2013-02 which sets the requirements for presentation of significant reclassifications
out of accumulated other comprehensive income for both items reclassified in their entirety and the respective line items in
Statement of Earnings they are being reclassified into and for other amounts that are not reclassified in their entirety to net
income during the reporting period, such as items being reclassified to balance sheet accounts. ASU 2013-02 was effective for
the Company on January 1, 2013 and is to be applied prospectively.
FASB Accounting Standards Update No. 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the
Scope, Measurement, and Disclosure Requirements (ASU 2013-08)
On June 7, 2013, the FASB issued ASU 2013-08 which amends the criteria an entity would need to meet to qualify as an
investment company under ASC 946, Financial Services - Investment Companies. ASU 2013-08 also provides additional
implementation guidance for the assessment and requires additional disclosures. ASU 2013-08 is effective prospectively during
interim and annual periods beginning after December 15, 2013, with early adoption prohibited. The adoption of ASU 2013-08
is not expected to have a material impact on the Company's consolidated financial statements.
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 is effective for the Company for interim and annual periods
beginning after December 15, 2014. Early adoption is permitted. Adoption of ASU 2014-01 may affect income statement
presentation, but otherwise is not expected to 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
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 is effective for the Company for interim and annual periods beginning after December 15, 2014. Early
adoption is permitted. Adoption of ASU 2014-04 is not expected to have a material impact on the Company's consolidated
financial statements.
106
(2) Securities
Trading Securities
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
December 31, 2013
December 31, 2012
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
U.S. Government agency debentures
$
34,120
$
77
$
16,545
$
(57)
U.S. agency residential mortgage-backed
securities
Municipal and other tax-exempt securities
Other trading securities
Total
21,011
27,350
9,135
123
(182)
(7)
86,361
90,326
20,870
$
91,616
$
11
$
214,102
$
447
(226)
(13)
151
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
Municipal and other tax-exempt
$
440,187
$
440,187
$
439,870
$
2,452
$
(2,769)
December 31, 2013
Amortized
Cost
Carrying
Value1
Fair
Value
Gross Unrealized2
Loss
Gain
U.S. agency residential mortgage-backed securities – Other
Other debt securities
48,351
187,509
50,182
187,509
51,864
195,393
1,738
8,497
Total
$
1 Carrying value includes $1.8 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the
676,047
687,127
677,878
12,687
$
$
$
$
(56)
(613)
(3,438)
Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities
portfolio as discussed in greater detail following.
2 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
December 31, 2012
Amortized
Cost
Carrying
Value1
Fair
Value
Gross Unrealized2
Loss
Gain
Municipal and other tax-exempt
$
232,700
$
232,700
$
235,940
$
3,723
$
U.S. agency residential mortgage-backed securities – Other
Other debt securities
77,726
184,067
82,767
184,067
85,943
206,575
3,176
22,528
(483)
—
(20)
Total
(503)
1 Carrying value includes $5.0 million of net unrealized gain which remains in AOCI in the Consolidated Balance Sheets related to certain securities
499,534
494,493
528,458
29,427
$
$
$
$
$
transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.
2 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
107
In 2011, the Company transferred certain U.S. government agency residential mortgage-backed securities from the available for sale
portfolio to the investment securities (held-to-maturity) portfolio as the Company has the positive intent and ability to hold these
securities to maturity. No gains or losses were recognized in the Consolidated Statement of Earnings at the time of the
transfer. Transfers of debt securities into the investment securities portfolio (held-to-maturity) are made at fair value at the date of
transfer. The unrealized holding gain or loss at the date of transfer is retained in Accumulated Other Comprehensive Income and in the
carrying value of the investment securities portfolio. Such amounts are amortized over the estimated remaining life of the security as
an adjustment to yield, offsetting the related amortization of the premium or accretion of the discount on the transferred securities. At
the time of transfer, the fair value totaled $131 million, amortized cost totaled $118 million and the pretax unrealized gain totaled $13
million.
The amortized cost and fair values of investment securities at December 31, 2013, by contractual maturity, are as shown in the
following table (dollars in thousands):
Municipal and other tax-exempt:
Carrying value
Fair value
Nominal yield¹
Other debt securities:
Carrying value
Fair value
Nominal yield
Total fixed maturity securities:
Carrying value
Fair value
Nominal yield
Residential mortgage-backed securities:
Carrying value
Fair value
Nominal yield4
Total investment securities:
Carrying value
Fair value
Nominal yield
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
33,821
33,996
$
308,451
$
308,701
$
57,873
57,168
40,042
40,005
$
440,187
439,870
2.91%
1.66%
2.65%
4.75%
2.23%
Weighted
Average
Maturity²
4.43
$
9,138
9,140
33,043
33,269
$
44,539
44,686
$
100,789
$
187,509
8.63
108,298
195,393
4.08%
5.02%
5.27%
6.27%
5.71%
42,959
43,136
$
341,494
$
102,412
$
140,831
$
627,696
5.69
341,970
101,854
148,303
635,263
3.16%
1.98%
3.79%
5.84%
3.27%
$
$
$
³
$
50,182
51,864
2.73%
$
677,878
687,127
3.23%
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 3.1 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.
108
—
—
—
—
—
—
—
(1,733)
(709)
(2,442)
(2,442)
—
—
—
—
(2,442)
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
U. S. government agencies:
FNMA
FHLMC
GNMA
Other
December 31, 2013
Amortized
Cost
Fair
Value
Gross Unrealized1
Loss
Gain
OTTI²
$
1,042
$
1,042
$
— $
— $
73,232
73,775
1,606
(1,063)
4,224,327
2,308,341
1,151,225
36,296
4,232,332
2,293,943
1,152,128
37,607
68,154
25,813
9,435
1,311
(60,149)
(40,211)
(8,532)
—
Total U.S. government agencies
7,720,189
7,716,010
104,713
(108,892)
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
104,559
109,622
214,181
107,212
113,887
221,099
4,386
4,974
9,360
—
—
—
Total residential mortgage-backed securities
7,934,370
7,937,109
114,073
(108,892)
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
2,100,146
2,055,804
35,061
22,171
19,069
35,241
22,863
21,328
1,042
368
705
2,326
(45,384)
(188)
(13)
(67)
Total
$ 10,185,091
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.
$ 10,147,162
120,120
$
$
(155,607) $
109
Amortized
Cost
Fair
Value
December 31, 2012
Gross Unrealized¹
Gain
Loss
OTTI²
U.S. Treasury
Municipal and other tax-exempt
Residential mortgage-backed securities:
U. S. government agencies:
FNMA
FHLMC
GNMA
Other
$
1,000
$
1,002
$
2
$
84,892
87,142
2,414
— $
(164)
5,308,463
2,978,608
1,215,554
148,025
5,453,549
3,045,564
1,237,041
153,667
146,247
66,956
21,487
5,642
(1,161)
—
—
—
Total U.S. government agencies
9,650,650
9,889,821
240,332
(1,161)
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
124,314
198,588
322,902
123,174
201,989
325,163
1,440
5,138
6,578
—
(134)
(134)
Total residential mortgage-backed securities
9,973,552
10,214,984
246,910
(1,295)
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
890,746
895,075
35,680
22,171
24,593
36,389
25,072
27,557
5,006
709
2,901
3,242
(677)
—
—
(278)
Total
$ 11,032,634
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.
$ 11,287,221
261,184
$
$
(2,414) $
—
—
—
—
—
—
—
(2,580)
(1,603)
(4,183)
(4,183)
—
—
—
—
(4,183)
110
The amortized cost and fair values of available for sale securities at December 31, 2013, by contractual maturity, are as shown in the
following table (dollars in thousands):
U.S. Treasuries:
Amortized cost
Fair value
Nominal yield
Municipal and other tax-exempt:
Amortized cost
Fair value
Nominal yield¹
Commercial mortgage-backed securities:
Amortized cost
Fair value
Nominal yield
Other debt securities:
Amortized cost
Fair value
Nominal yield
Total fixed maturity securities:
Amortized cost
Fair value
Nominal yield
Residential mortgage-backed securities:
Amortized cost
Fair value
Nominal yield4
Equity securities and mutual funds:
Amortized cost
Fair value
Nominal yield
Total available-for-sale securities:
Amortized cost
Fair value
Nominal yield
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years6
Total
Weighted
Average
Maturity5
$
1,042
1,042
0.24%
1,856
1,882
$
— $
— $
— $
—
—%
—
—%
—
—%
36,183
37,470
3,239
3,451
31,954
30,972
6.35%
3.84%
6.34%
5.41%
1,042
1,042
0.24%
73,232
73,775
4.70%
—
—
—%
626,327
619,219
1,104,095
1,073,471
369,724
363,114
2,100,146
2,055,804
1.22%
1.43%
1.25%
1.34%
24,992
25,270
5,169
5,259
1.74%
2.12%
—
—
—%
4,900
4,712
1.54%
35,061
35,241
1.77%
1.16
10.48
9.41
5.31
$
27,890
28,194
$
667,679
$ 1,107,334
$
406,578
$
2,209,481
9.38
661,948
1,076,922
398,798
2,165,862
2.05%
1.37%
1.44%
1.58%
1.45%
2
³
$
7,934,370
7,937,109
1.90%
$
41,240
44,191
1.33%
$
10,185,091
10,147,162
1.80%
1 Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 The average expected lives of mortgage-backed securities were 3.3 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.
111
Sales of available for sale securities resulted in gains and losses as follows (in thousands):
Proceeds
Gross realized gains
Gross realized losses
Related federal and state income tax expense
Year Ended December 31,
2013
2012
2011
$
2,436,093
$
1,744,662
2,725,760
25,711
(14,991)
4,170
41,191
(7,346)
13,166
41,284
(7,140)
13,282
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):
December 31,
2013
2012
Investment:
Carrying value
$
Fair value
89,087
$
91,804
117,346
121,647
Available for sale:
Amortized cost
Fair value
5,171,782
5,133,530
4,070,250
4,186,390
The secured parties do not have the right to sell or re-pledge these securities. At December 31, 2012, municipal trading securities with
a fair value of $13 million were pledged as collateral on a line of credit for the trading activities of BOSC, Inc. Under the terms of the
credit agreement, the creditor has the right to sell or repledge the collateral. No trading securities were pledged as collateral as of
December 31, 2013.
112
Temporarily Impaired Securities as of December 31, 2013
(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
107
$
166,382
$
1,921
$
53,073
$
848
$
219,455
$
2,769
U.S. Agency residential mortgage-
backed securities – Other
Other debt securities
Total investment
2
30
15,224
10,932
56
549
—
777
—
64
15,224
11,709
56
613
139
$
192,538
$
2,526
$
53,850
$
912
$
246,388
$
3,438
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
27
$
13,286
$
245
$
17,805
$
818
$
31,091
$
1,063
Residential mortgage-backed
securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Total U.S. agencies
Private issue1:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential mortgage-backed
securities
Commercial mortgage-backed
securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stocks
Equity securities and mutual funds
81
50
27
158
7
9
16
2,281,491
1,450,588
647,058
4,379,137
11,043
14,642
25,685
60,149
40,211
8,532
108,892
—
—
—
—
756
709
30,774
—
1,465
30,774
—
—
—
—
977
—
977
2,281,491
1,450,588
647,058
60,149
40,211
8,532
4,379,137
108,892
41,817
14,642
56,459
1,733
709
2,442
174
4,404,822
110,357
30,774
977
4,435,596
111,334
123
1,800,717
45,302
2,286
3
1
118
4,712
4,988
2,070
188
13
67
—
—
—
82
—
—
—
1,803,003
45,384
4,712
4,988
2,070
188
13
67
Total available for sale
$
1 Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in
$ 6,281,460
6,230,595
156,172
50,865
1,877
446
158,049
$
$
$
$
income:
Alt-A loans
Jumbo-A loans
7
9
11,043
14,642
756
709
30,774
—
977
—
41,817
14,642
1,733
709
113
Temporarily Impaired Securities as of December 31, 2012
(In thousands)
Investment:
Municipal and other tax-
exempt
U.S. Agency residential
mortgage-backed securities
– Other
Other debt securities
Total investment
Available for sale:
Municipal and other tax-
exempt
Residential mortgage-backed
securities:
U. S. agencies:
FNMA
FHLMC
GNMA
Total U.S. agencies
Private issue1:
Alt-A loans
Jumbo-A loans
Total private issue
Total residential mortgage-
backed securities
Commercial mortgage-
backed securities
guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stocks
Equity securities and mutual
funds
Less Than 12 Months
12 Months or Longer
Total
Number of
Securities
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
53
$
92,768
$
483
$
— $
— $
92,768
$
483
—
14
67
—
881
—
20
—
—
—
—
—
881
$
93,649
$
503
$
— $
— $
93,649
$
—
20
503
Less Than 12 Months
12 Months or Longer
Total
Number of
Securities
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
38
$
6,150
$
11
$
26,108
$
153
$
32,258
$
164
12
—
—
12
12
11
23
35
8
3
—
22
161,828
1,161
—
—
—
—
161,828
1,161
—
—
—
—
—
—
—
—
—
—
87,907
43,252
131,159
—
—
—
—
2,580
1,737
4,317
161,828
1,161
—
—
—
—
161,828
1,161
87,907
43,252
131,159
161,828
1,161
131,159
4,317
292,987
275,065
4,899
—
202
677
—
—
1
—
—
—
2,161
—
—
—
277
275,065
4,899
—
2,363
2,580
1,737
4,317
5,478
677
—
—
278
Total available for sale
1 Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in
448,144
607,572
159,428
4,747
1,850
106
$
$
$
$
$
$
6,597
income:
Alt-A loans
Jumbo-A loans
$
12
10
— $
—
— $
87,907
$
2,580
$
87,907
$
—
29,128
1,602
29,128
2,580
1,602
114
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 December 31, 2013, we do not intend to sell any impaired
available for sale securities before fair value recovers to our current amortized cost and it is more-likely-than-not that we will not be
required to sell impaired securities before fair value recovers, which may be maturity.
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 December 31, 2013.
115
At December 31, 2013, 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
Mortgage-backed
securities --
other
Other debt
securities
Total investment
securities
Available for
Sale:
$
— $
— $ 280,583
$278,789
$
20,784
$ 21,012
$
— $
— $ 138,820
$140,069
$
440,187
$
439,870
50,182
51,864
—
—
—
—
167,463
175,921
—
—
—
—
—
—
—
—
—
—
50,182
51,864
20,046
19,472
187,509
195,393
$
50,182
$
51,864
$ 448,046
$454,710
$
20,784
$ 21,012
$
— $
— $ 158,866
$159,541
$
677,878
$
687,127
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
U.S. Treasury
$
1,042
$
1,042
$
— $
— $
— $
— $
— $
— $
— $
— $
1,042
$
1,042
—
—
44,969
45,984
15,854
15,545
—
—
12,409
12,246
73,232
73,775
Municipal and
other tax-
exempt
Residential
mortgage-
backed
securities:
U. S.
government
agencies:
FNMA
FHLMC
GNMA
Other
Total U.S.
government
agencies
Private issue:
Alt-A
loans
Jumbo-A
loans
Total private
issue
Total residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
guaranteed by
U.S.
government
agencies
Other debt
securities
Perpetual
preferred
stock
Equity securities
and mutual
funds
4,224,327
4,232,332
2,308,341
2,293,943
1,151,225
1,152,128
36,296
37,607
7,720,189
7,716,010
—
—
—
—
—
—
7,720,189
7,716,010
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
104,559
107,212
109,622
113,887
214,181
221,099
—
214,181
221,099
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,224,327
4,232,332
2,308,341
2,293,943
1,151,225
1,152,128
36,296
37,607
—
7,720,189
7,716,010
—
—
—
104,559
107,212
109,622
113,887
214,181
221,099
—
7,934,370
7,937,109
—
—
—
2,100,146
2,055,804
35,061
35,241
22,171
22,863
2,100,146
2,055,804
—
—
—
—
4,900
4,712
30,161
30,529
—
—
—
—
—
11,406
11,859
10,765
11,004
—
—
—
—
—
—
—
4
457
—
—
—
—
19,065
20,871
19,069
21,328
Total available
for sale
securities
$10,147,162
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
$10,185,091
$ 9,772,856
$ 9,821,377
$ 224,946
$ 33,117
$232,103
$ 51,153
$ 57,933
31,474
57,421
49,873
$
$
$
government-sponsored enterprises.
116
At December 31, 2013, the entire portfolio of privately issued residential mortgage-backed securities was rated below investment
grade by at least one of the nationally-recognized rating agencies. The gross unrealized loss on these securities totaled $2.4 million.
Ratings by the nationally-recognized rating agencies are subjective in nature and accordingly ratings can vary significantly amongst
the agencies. Limitations generally expressed by the rating agencies include statements that ratings do not predict the specific
percentage default likelihood over any given period of time and that ratings do not opine on expected loss severity of an obligation
should the issuer default. As such, the impairment of securities rated below investment grade by at least one of the nationally-
recognized rating agencies 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, changes in housing prices and estimated liquidation costs at foreclosure.
The primary assumptions used in this evaluation were:
December 31,
2013
2012
Unemployment rate
Increasing to 7.3% over the next 12
months and remain at 7.3% thereafter
Increasing to 8.5% over the next 12
months, dropping to 8% over the
following 21 months and holding at
8% thereafter.
Housing price
appreciation/
depreciation
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.
Starting with current depreciated
housing prices based on information
derived from the FHFA1, depreciating
2% over the next 12 months, then flat
for the following 12 months and then
appreciating at 2% per year thereafter.
Estimated liquidation
costs
Discount rates
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.
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. 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 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 super-senior tranches which added an additional layer to 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 was charged against other comprehensive income, net of deferred taxes.
Based upon projected declines in expected cash flows from certain private-label residential mortgage-backed securities, the Company
recognized $938 thousand of additional credit loss impairments in earnings during 2013. The Company recognized credit loss
impairments on private-label residential mortgage-backed securities in earnings of $5.9 million in 2012 and $21.9 million in 2011.
117
In addition to other-than-temporary impairment charges on private-label residential mortgage-backed securities, the Company
recognized $1.4 million of credit loss impairment in earnings during 2013 for certain below investment grade municipal securities
based on an assessment of the issuer's on-going financial difficulties and bankruptcy filing in 2011. The Company recognized $1.0
million in impairment charges on these securities in 2012 and $1.6 million of impairment losses on these securities in 2011.
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
Year ended
December 31, 2013
Life-to-date
Alt-A
Jumbo-A
Total
Number of
Securities
Amortized
Cost
Fair
Value
Number of
Securities
Amount
Number of
Securities
16
31
47
$
$
104,559
$ 107,212
109,622
113,887
214,181
$ 221,099
4
—
4
$
$
938
—
938
16
29
45
Amount
$ 49,126
18,220
$ 67,346
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. Based on this evaluation, no other-than-temporary impairment losses was recorded in
earnings on any equity securities during 2013. All remaining impairment of equity securities was considered temporary at
December 31, 2013 and December 31, 2012. A $457 thousand other-than-temporary impairment loss related to equity securities was
recorded in earnings in 2012 and no impairment losses were recorded in 2011.
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):
Balance of credit-related OTTI recognized on available for sale debt,
beginning of period
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
Reductions for change in intent to hold before recovery
Sales
Year Ended December 31,
2013
2012
$
75,228
$
76,131
618
113
320
(3,589)
(5,231)
6,780
—
(7,796)
Balance of credit-related OTTI recognized on available for sale debt
securities, end of period
$
67,346
$
75,228
Fair Value Option Securities
Fair value option securities represent securities which the Company has elected to carry at fair value and separately identified on the
Consolidated Balance Sheets with changes in the fair value 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.
118
The fair value and net unrealized gain (loss) included in Fair value option securities is as follows (in thousands):
December 31, 2013
December 31, 2012
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
$
$
$
157,431
$
(8,378) $
257,040
—
9,694
167,125
$
$
—
209
$
26,486
770
(8,169) $
284,296
$
$
$
3,314
1,409
47
4,770
U.S. agency residential mortgage-backed
securities
Corporate debt securities
Other securities
Total
Restricted Equity Securities
Restricted equity securities include stock we are required to hold as members of the Federal Reserve system and the Federal Home
Loan Banks ("FHLB"). Restricted equity securities are carried at cost as theses securities do not have a readily determined fair value
because ownership of these shares are restricted and lacks a market. Federal Reserve Bank stock totaled $34 million at December 31,
2013 and $34 million at December 31, 2012. Holdings of FHLB stock totaled $51 million at December 31, 2013 and $31 million at
December 31, 2012.
119
(3) Derivatives
The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in
the balance sheet at December 31, 2013 (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
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 10,817,159
$ 102,921
$
(46,623) $
56,298
$
— $
1,283,379
1,263,266
100,886
136,543
210,816
44,124
48,078
2,060
136,543
17,957
—
(29,957)
(1,166)
—
—
44,124
18,121
894
136,543
17,957
(731)
(2,575)
—
(2,147)
(3,472)
(8,925)
—
56,298
43,393
15,546
894
134,396
14,485
265,012
—
Total customer risk management programs
13,812,049
351,683
(77,746)
273,937
Interest rate risk management programs
—
—
—
—
Total derivative contracts
$ 13,812,049
$ 351,683
$
(77,746) $ 273,937
$
(8,925) $
265,012
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
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 10,982,049
$ 99,830
$
(46,623) $
53,207
$
— $
1,283,379
1,216,426
99,191
135,237
210,816
44,377
46,095
2,009
135,237
17,957
—
(29,957)
(1,166)
—
—
44,377
16,138
843
135,237
17,957
(17,853)
(6,055)
—
(294)
—
Total customer risk management programs
13,927,098
345,505
(77,746)
267,759
(24,202)
Interest rate risk management programs
47,000
3,628
—
3,628
—
53,207
26,524
10,083
843
134,943
17,957
243,557
3,628
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(77,746) $ 271,387
$ (24,202) $
$ 13,974,098
$ 349,133
$
247,185
contract.
When bilateral netting agreements 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 counterparty basis.
Derivative contracts may also 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. As of December 31,
2013, a decrease in credit rating to below investment grade would increase our obligation to post cash margin on existing
contracts by approximately $26 million.
120
The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in
the balance sheet at December 31, 2012 (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
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 12,850,805
$ 46,113
$
(15,656) $
30,457
$
— $
1,319,827
1,346,780
212,434
180,318
211,941
72,201
82,349
3,638
180,318
12,593
—
(44,485)
(3,164)
—
—
72,201
37,864
474
180,318
12,593
—
(3,464)
—
—
—
Total customer risk management programs
16,122,105
397,212
(63,305)
333,907
(3,464)
Interest rate risk management programs
66,000
7,663
—
7,663
—
30,457
72,201
34,400
474
180,318
12,593
330,443
7,663
Total derivative contracts
$ 16,188,105
$ 404,875
$
(63,305) $ 341,570
$
(3,464) $
338,106
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
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 13,239,078
$ 43,064
$
(15,656) $
27,408
$ (15,467) $
1,319,827
1,334,349
212,135
179,852
211,941
72,724
83,654
3,571
179,852
12,593
—
(44,485)
(3,164)
—
—
72,724
39,169
407
179,852
12,593
(31,945)
(1,769)
(188)
—
—
Total customer risk management programs
16,497,182
395,458
(63,305)
332,153
(49,369)
Interest rate risk management programs
50,000
805
—
805
—
11,941
40,779
37,400
219
179,852
12,593
282,784
805
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(63,305) $ 332,958
$ (49,369) $
$ 16,547,182
$ 396,263
$
283,589
contract.
121
The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the Consolidated
Statement of Earnings (in thousands):
Year Ended
December 31, 2013
December 31, 2012
December 31, 2011
Brokerage
and
Trading
Revenue
Gain (Loss)
on
Derivatives,
Net
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
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
Total Customer Risk Management Programs
Interest Rate Risk Management Programs
$
42
$
— $
1,070
$
— $
(4,047) $
2,991
8,303
357
687
—
12,380
—
—
—
—
—
—
—
(4,367)
3,458
8,171
382
612
—
13,693
—
—
—
—
—
—
—
(301)
3,193
5,262
341
565
—
5,314
—
Total Derivative Contracts
$
12,380
$
(4,367) $
13,693
$
(301) $
5,314
$
—
—
—
—
—
—
—
2,526
2,526
At December 31, 2013, BOK Financial had interest rate swaps with a notional value of $47 million used as part of the
economic hedge of the change in the fair value of the mortgage servicing rights.
As discussed in Note 7, 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 7 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.
None of these derivative contracts have been designated as hedging instruments.
(4) Loans and Allowances for Credit Losses
The portfolio segments of the loan portfolio are as follows (in thousands):
December 31, 2013
December 31, 2012
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Commercial
$ 1,637,620
$ 6,288,841
$
16,760
$ 7,943,221
$ 2,955,779
$ 4,661,666
$ 24,467
$ 7,641,912
Commercial real estate
770,908
1,603,595
Residential mortgage
1,783,615
135,494
226,092
244,950
40,850
42,319
1,220
2,415,353
779,114
1,389,259
2,052,026
1,747,038
381,664
175,412
251,394
217,384
60,626
46,608
2,709
2,228,999
2,045,040
395,505
Consumer
Total
Accruing loans past
due (90 days)1
Foregone interest on
nonaccrual loans
$ 4,327,637
$ 8,363,478
$ 101,149
$ 12,792,264
$ 5,657,343
$ 6,519,703
$ 134,410
$ 12,311,456
$
1,415
$
5,361
$
3,925
$
8,587
1 Excludes residential mortgage loans guaranteed by agencies of the U.S. government
122
At December 31, 2013, loans to businesses and individuals with collateral primarily located in Texas totaled $4.3 billion or
34% of the total loan portfolio. Loans to businesses and individuals with collateral primarily located in Oklahoma totaled $3.3
billion or 26% of our total loan portfolio. Loans for which the collateral location is not relevant, such as unsecured loans and
reserve-based energy loans, are distributed by the borrower’s primary operating location. These geographic concentrations
subject the loan portfolio to the general economic conditions within these areas. At December 31, 2012, loans to businesses and
individuals with collateral primarily located in Texas totaled $4.0 billion or 32% of the loan portfolio and loans to businesses
and individuals with collateral primarily located in Oklahoma totaled $3.3 billion or 27% of the loan portfolio.
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 December 31, 2013, commercial loans with collateral primarily located in Texas totaled $2.8 billion or 36% of the
commercial loan portfolio segment and commercial loans with collateral primarily locate in Oklahoma totaled $1.9 billion or
23% of the commercial loan portfolio segment. The commercial loan portfolio segment is further divided into loan classes. The
energy loan class totaled $2.4 billion or 18% of total loans at December 31, 2013, including $2.0 billion of outstanding loans to
energy producers. Approximately 59% of committed production loans are secured by properties primarily producing oil and
41% are secured by properties producing natural gas. The services loan class totaled $2.3 billion at December 31, 2013.
Approximately $1.1 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 community foundations, gaming, public finance, insurance and heavy
equipment dealers.
At December 31, 2012, commercial loans with collateral primarily located in Texas totaled $2.6 billion or 34% of the
commercial loan portfolio segment and commercial loans with collateral primarily locate in Oklahoma totaled $1.9 billion or
25% of the commercial loan portfolio segment. The energy loan class totaled $2.5 billion and the services loan class totaled
$2.2 billion. Approximately $993 million of loans in the services category consisted of loans with individual balances of less
than $10 million.
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 December 31, 2013, 32% of commercial real estate loans are secured by properties primarily located in the Dallas and
Houston areas of Texas. An additional 19% of commercial real estate loans are secured by properties located primarily in the
Tulsa and Oklahoma City metropolitan areas of Oklahoma and 11% of commercial real estate loans are secured by properties
located primarily in Albuquerque, New Mexico. At December 31, 2012, 31% of commercial real estate loans were secured by
properties in Texas, 19% of commercial real estate loans were secured by properties in Oklahoma and 13% of commercial real
estate loans are secured by properties located primarily in Albuquerque, New Mexico.
123
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 December 31, 2013 and 2012, residential mortgage loans included $182 million and $160 million, respectively, 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 $808 million at December 31, 2013 and $761 million at December 31, 2012. At December 31, 2013,
70% of the home equity loan portfolio was comprised of first lien loans and 30% of the home equity portfolio was comprised
of junior lien loans. Junior lien loans were distributed 74% to amortizing term loans and 26% to revolving lines of credit. At
December 31, 2012, 68% of the home equity portfolio was comprised of first lien loans and 32% of the home equity loan
portfolio was comprised on junior lien loans. Junior lien loans were distributed 78% to amortizing term loans and 22% 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 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.
At December 31, 2013, 38% of residential mortgage loans are secured by properties located in Oklahoma, 27% of residential
mortgage loans are secured by properties located in Texas, 12% of residential mortgage are secured by properties located in
New Mexico and 10% of residential mortgage are secured by properties located in Colorado. At December 31, 2012, 34% of
residential mortgage were secured by properties in Texas, 23% of residential mortgage loans were secured by properties in
Oklahoma, and 17% of residential mortgage loans are secured by properties in New Mexico and 11% of residential mortgage
are secured by properties located in Colorado.
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 December 31, 2013, outstanding commitments totaled $7.1 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.
124
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 December 31, 2013, outstanding standby letters of credit totaled $444 million. Commercial
letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is
consummated. At December 31, 2013, outstanding commercial letters of credit totaled $13 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 7, the Company also has separate accruals related to 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 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, concentration in loans with large balances and other relevant
factors.
The activity in the allowance for loan losses and the accrual for off-balance sheet credit risk related to loan commitments and
standby letters of credit for the year ended December 31, 2013 is summarized as follows (in thousands):
Commercial
Commercial
Real Estate
Residential
Mortgage
Consumer
Nonspecific
allowance
Total
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Accrual for off-balance sheet
credit risk:
Beginning balance
Provision for off-balance sheet
credit risk
Ending balance
Total provision for credit losses
$
$
$
$
$
65,280
12,747
(6,335)
7,488
$
54,884
$
41,703
$
9,453
$
44,187
$
215,507
(16,886)
(5,845)
9,420
(8,043)
(5,753)
1,558
83
(7,349)
4,778
(15,974)
—
—
(28,073)
(25,282)
23,244
79,180
$
41,573
$
29,465
$
6,965
$
28,213
$
185,396
475
(356)
119
12,391
$
$
$
1,353
$
78
$
9
$
— $
1,915
523
1,876
$
12
90
$
(16,363) $
(8,031) $
(6)
3
77
$
$
—
— $
173
2,088
(15,974) $
(27,900)
125
The activity in the allowance for loan losses and the accrual for off-balance sheet credit risk related to loan commitments and
standby letters of credit for the year ended December 31, 2012 is summarized as follows (in thousands):
Commercial
Commercial
Real Estate
Residential
Mortgage
Consumer
Nonspecific
allowance
Total
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Accrual for off-balance sheet
credit risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
$
$
$
$
83,443
$
67,034
$
46,476
$
10,178
$
46,350
$
253,481
(14,950)
(9,341)
6,128 1
65,280
7,906
(7,431)
475
$
$
$
(6,214)
(11,642)
5,706
3,346
(10,047)
1,928
5,327
(11,108)
5,056
(2,163)
—
—
(14,654)
(42,138)
18,818
54,884
$
41,703
$
9,453
$
44,187
$
215,507
1,250
$
91
$
14
$
— $
9,261
103
1,353
$
(13)
78
$
(5)
9
$
—
— $
(7,346)
1,915
Total provision for credit losses
(22,000)
1 Includes $7.1 million of negative recovery related to a refund of a settlement between BOK Financial and the City of Tulsa invalidated by
(2,163) $
(6,111) $
(22,381)
3,333
5,322
$
$
$
$
the Oklahoma Supreme Court.
The activity in the allowance for loan losses and the accrual for off-balance sheet credit risk related to loan commitments and
standby letters of credit for the year ended December 31, 2011 is summarized as follows (in thousands):
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Accrual for off-balance sheet credit
risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision for credit losses
Commercial
Commercial
Real Estate
Residential
Mortgage
Consumer
Nonspecific
allowance
Total
$
104,631
$
98,709
$
50,281
$
12,614
$
26,736
$
292,971
(13,830)
(14,836)
7,478
(18,482)
(15,973)
2,780
7,968
(14,107)
2,334
3,690
(11,884)
5,758
19,614
—
—
(1,040)
(56,800)
18,350
83,443
$
67,034
$
46,476
$
10,178
$
46,350
$
253,481
13,456
$
443
$
131
$
241
$
— $
14,271
(5,550)
807
7,906
$
1,250
$
(40)
91
(19,380) $
(17,675) $
7,928
(227)
14
3,463
$
$
$
$
—
— $
(5,010)
9,261
19,614
$
(6,050)
$
$
$
$
126
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2013 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
Commercial real estate
Residential mortgage
Consumer
Total
$
7,926,461
$
78,607
$
16,760
$
2,374,503
2,010,483
380,445
41,440
29,217
6,965
40,850
41,543
1,219
12,691,892
156,229
100,372
Nonspecific allowance
—
—
—
573
133
248
—
954
—
$
7,943,221
$
2,415,353
2,052,026
381,664
79,180
41,573
29,465
6,965
12,792,264
157,183
—
28,213
Total
$ 12,691,892
$
156,229
$
100,372
$
954
$ 12,792,264
$
185,396
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2012 is as follows (in thousands):
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
Collectively Measured
for Impairment
Individually Measured
for Impairment
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$
7,617,445
$
65,050
$
24,467
$
230
$
7,641,912
$
2,168,373
1,998,432
392,796
51,775
40,934
9,328
60,626
46,608
2,709
3,109
769
125
2,228,999
2,045,040
395,505
65,280
54,884
41,703
9,453
12,177,046
167,087
134,410
4,233
12,311,456
171,320
Nonspecific allowance
—
—
—
—
—
44,187
Total
$ 12,177,046
$
167,087
$
134,410
$
4,233
$ 12,311,456
$
215,507
127
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 December 31, 2013 is as follows (in thousands):
Internally Risk Graded
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
$
7,888,219
$
78,250
$
55,002
$
930
$
7,943,221
$
2,415,353
220,635
265,533
41,573
5,481
2,657
—
1,831,391
116,131
10,789,740
127,961
2,002,524
—
23,984
4,308
29,222
2,415,353
2,052,026
381,664
12,792,264
157,183
79,180
41,573
29,465
6,965
Nonspecific allowance
—
—
—
—
—
28,213
Total
$ 10,789,740
$
127,961
$
2,002,524
$
29,222
$ 12,792,264
$
185,396
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, 2012 is as follows (in thousands):
Internally Risk Graded
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
$
7,624,442
$
64,181
$
17,470
$
1,099
$
7,641,912
$
2,228,999
265,503
231,376
54,884
5,270
2,987
—
1,779,537
164,129
10,350,320
127,322
1,961,136
—
36,433
6,466
43,998
2,228,999
2,045,040
395,505
12,311,456
171,320
65,280
54,884
41,703
9,453
Nonspecific allowance
—
—
—
—
—
44,187
Total
$ 10,350,320
$
127,322
$
1,961,136
$
43,998
$ 12,311,456
$
215,507
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.
128
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 in accordance with the original
terms of the loan agreements 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.
The following table summarizes the Company’s loan portfolio at December 31, 2013 by the risk grade categories (in
thousands):
Internally Risk Graded
Non-Graded
Performing
Potential
Problem
Nonaccruing
Performing
Nonaccruing
Total
$
2,347,519
$
2,381
$
1,860
$
— $
— $
2,351,760
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
2,265,984
1,191,791
381,794
1,272,626
145,758
235,636
11,304
2,604
9,365
34
4,736
—
4,922
6,969
592
1,586
—
758
Total commercial
7,841,108
30,424
16,687
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
173,488
579,506
403,951
562,800
243,625
371,628
Total commercial real estate
2,334,998
15,393
1,684
1,157
13,695
—
7,576
39,505
17,377
4,857
6,391
7
252
11,966
40,850
—
—
—
—
—
54,929
54,929
—
—
—
—
—
—
—
—
—
—
—
—
73
73
—
—
—
—
—
—
—
2,282,210
1,201,364
391,751
1,274,246
150,494
291,396
7,943,221
206,258
586,047
411,499
576,502
243,877
391,170
2,415,353
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
210,142
3,283
7,210
815,040
27,069
1,062,744
—
—
—
—
—
—
180,821
800,420
777
7,264
181,598
807,684
Total residential mortgage
210,142
3,283
7,210
1,796,281
35,110
2,052,026
Consumer:
Indirect automobile
Other consumer
Total consumer
—
264,536
264,536
—
795
795
—
202
202
5,796
109,318
115,114
717
300
1,017
6,513
375,151
381,664
Total
$ 10,650,784
$
74,007
$
64,949
$
1,966,324
$
36,200
$ 12,792,264
129
The following table summarizes the Company’s loan portfolio at December 31, 2012 by the risk grade categories (in thousands):
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Internally Risk Graded
Non-Graded
Performing
Potential
Problem
Nonaccruing
Performing
Nonaccruing
Total
$
2,448,954
$
9,245
$
2,460
$
— $
— $
2,460,659
2,119,734
1,093,413
337,132
1,077,773
190,422
266,329
7,533,757
204,010
508,342
405,763
393,566
241,761
351,663
32,362
9,949
9,345
467
—
4,914
66,282
22,952
6,327
15,280
6,624
265
11,820
63,268
12,090
3,077
2,007
3,166
684
919
24,403
26,131
8,117
6,829
2,706
3,968
12,875
60,626
—
—
—
—
—
17,406
17,406
—
—
—
—
—
—
—
—
—
—
—
—
64
64
—
—
—
—
—
—
—
2,164,186
1,106,439
348,484
1,081,406
191,106
289,632
7,641,912
253,093
522,786
427,872
402,896
245,994
376,358
2,228,999
Total commercial real estate
2,105,105
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
242,823
10,271
12,409
831,008
27,454
1,123,965
—
—
—
—
—
—
159,955
754,375
489
6,256
160,444
760,631
Total residential mortgage
242,823
10,271
12,409
1,745,338
34,199
2,045,040
Consumer:
Indirect automobile
Other consumer
Total consumer
—
229,570
229,570
—
1,091
1,091
—
715
715
33,157
128,978
162,135
1,578
416
1,994
34,735
360,770
395,505
Total
$ 10,111,255
$
140,912
$
98,153
$
1,924,879
$
36,257
$ 12,311,456
130
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 troubled debt
restructuring and all loans repurchased from GNMA pool.
A summary of impaired loans follows (in thousands):
As of December 31, 2013
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
For the Year Ended
December 31, 2013
Average
Recorded
Investment
Interest
Income
Recognized
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and
industrial
Total commercial
Commercial real estate:
Residential construction and
land development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
$
$
1,860
6,486
11,009
746
2,193
—
8,532
30,826
20,804
6,133
7,848
7
252
14,593
49,637
$
1,860
4,922
6,969
592
1,586
—
831
16,760
17,377
4,857
6,391
7
252
11,966
40,850
1,860
3,791
6,937
592
1,538
—
831
15,549
17,050
4,857
6,383
7
252
11,779
40,328
41,870
34,279
33,869
188,436
7,537
237,843
181,598
7,264
223,141
181,598
7,264
222,731
719
509
1,228
717
502
1,219
717
502
1,219
$
— $
1,131
32
—
48
—
—
1,211
327
—
8
—
—
187
522
410
—
—
410
—
—
—
— $
516
9
—
48
—
—
573
107
—
8
—
—
18
133
$
2,160
8,506
5,023
1,300
2,376
342
907
20,614
21,754
6,487
6,610
1,357
2,110
12,421
50,739
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
248
37,071
1,582
—
—
248
—
—
—
165,509
6,760
209,340
1,148
817
1,965
6,961
—
8,543
—
—
—
Total
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, 2013, $777 thousand of these loans are nonaccruing and $181 million are accruing
based on the guarantee by U.S. government agencies.
279,827
319,534
282,658
281,970
2,143
954
$
$
$
$
$
$
$
8,543
Generally, no interest income is recognized on impaired loans until all principal balances, including amounts charged-off, have
been recovered.
131
As of December 31, 2012
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
For the Year Ended
December 31, 2012
Average
Recorded
Investment
Interest
Income
Recognized
$
2,460
$
2,460
$
2,460
$
— $
— $
1,398
$
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and
industrial
Total commercial
Commercial real estate:
Residential construction and
land development
Retail
Office
Multifamily
Industrial
15,715
12,090
11,940
9,186
2,447
4,256
684
8,482
43,230
3,077
2,007
3,166
684
983
24,467
3,016
2,007
2,050
684
983
23,140
44,721
26,131
25,575
9,797
8,949
3,189
3,968
8,117
6,829
2,706
3,968
8,117
6,604
2,706
—
Other real estate loans
15,377
12,875
10,049
Total commercial real
estate
86,001
60,626
53,051
150
61
—
1,116
—
—
1,327
556
—
225
—
3,968
2,826
7,575
149
15
—
66
—
—
230
155
—
21
—
2,290
643
14,529
12,129
12,529
4,326
342
1,387
46,640
44,003
7,490
9,143
3,110
1,984
14,181
3,109
79,911
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
51,153
39,863
37,564
2,299
769
32,614
1,590
170,740
6,256
228,149
160,444
6,256
206,563
160,444
6,256
204,264
1,578
1,300
2,878
1,578
1,131
2,709
1,578
1,006
2,584
—
—
2,299
—
125
125
—
—
769
—
125
125
173,729
5,329
211,672
1,886
1,226
3,112
6,718
—
8,308
—
—
—
Total
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, 2012, $489 thousand of these loans are nonaccruing and $160 million are accruing
based on the guarantee by U.S. government agencies.
294,365
283,039
360,258
341,335
11,326
4,233
$
$
$
$
$
$
$
8,308
132
Troubled Debt Restructurings
A summary of troubled debt restructurings ("TDRs") by accruing status as of December 31, 2013 were as follows (in
thousands):
As of December 31, 2013
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-Off
During the
Year Ended
December 31,
2013
Specific
Allowance
Nonaccruing TDRs:
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
$
— $
— $
— $
2,235
235
391
—
—
771
3,632
10,148
4,359
5,059
—
—
5,011
24,577
18,697
4,045
22,742
629
379
1,008
852
89
—
—
—
173
1,114
1,444
3,141
3,872
—
—
2,885
11,342
12,214
3,531
15,745
555
203
758
1,383
146
391
—
—
598
2,518
8,704
1,218
1,187
—
—
2,126
13,235
6,483
514
6,997
74
176
250
— $
237
9
—
—
—
—
246
107
—
—
—
—
—
107
88
—
88
—
—
—
—
—
—
154
—
—
—
154
46
582
117
—
—
—
745
469
112
581
1
—
1
Total nonaccruing TDRs
$
51,959
$
28,959
$
23,000
$
441
$
1,481
Accruing TDRs:
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
—
54,322
54,322
54,322
—
13,384
13,384
13,384
—
40,938
40,938
40,938
—
—
—
—
—
—
—
—
Total TDRs
$
106,281
$
42,343
$
63,938
$
441
$
1,481
133
A summary of troubled debt restructurings by accruing status as of December 31, 2012 were as follows (in thousands):
As of December 31, 2012
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-off
During the
Year Ended
December 31,
2012
Specific
Allowance
$
— $
— $
— $
— $
2,492
2,290
—
64
—
675
5,521
14,898
6,785
3,899
—
—
5,017
30,599
20,490
—
20,490
—
2,860
2,860
2,099
1,362
—
64
—
—
3,525
9,989
5,735
1,920
—
—
3,399
21,043
12,214
—
12,214
—
2,589
2,589
393
928
—
—
—
675
1,996
4,909
1,050
1,979
—
—
1,618
9,556
8,276
—
8,276
—
271
271
45
15
—
—
—
—
60
76
—
—
—
—
—
76
54
—
54
—
83
83
—
—
107
—
—
—
—
107
1,143
150
269
—
—
2,182
3,744
1,476
—
1,476
—
198
198
Nonaccruing TDRs:
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total nonaccuring TDRs
$
59,470
$
39,371
$
20,099
$
273
$
5,525
Accruing TDRs:
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
—
38,515
38,515
38,515
—
8,755
8,755
8,755
—
29,760
29,760
29,760
—
—
—
—
—
—
—
—
Total TDRs
$
97,985
$
48,126
$
49,859
$
273
$
5,525
134
Troubled debt restructurings generally consist of interest rates concessions, payment stream concessions or a combination of
concessions to distressed borrowers. The following table details the recorded balance of loans at December 31, 2013 by class
that were restructured during the year ended December 31, 2013 by primary type of concession (in thousands):
Year Ended December 31, 2013
Accruing
Nonaccrual
Payment
Stream
Combination
& Other
Total
Interest
Rate
Payment
Stream
Combination
& Other
Total
Total
$
— $
— $
— $
— $
— $
— $ — $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,545
—
12,518
24,063
—
—
11,545
12,518
24,063
—
—
—
—
—
—
—
—
—
—
—
—
—
—
139
139
—
—
—
—
—
—
—
—
—
—
—
—
75
75
1,080
—
391
—
—
—
1,471
—
486
2,819
—
—
517
3,822
—
—
—
—
—
57
57
—
—
—
—
—
—
—
1,080
1,080
—
391
—
—
—
391
—
—
196
1,667
196
1,667
—
486
—
486
2,819
2,819
—
—
517
—
—
517
3,822
3,822
1,062
1,894
2,956
2,956
—
—
—
—
2,800
2,800
24,063
2,800
1,062
4,694
5,756
29,819
—
—
—
510
128
638
510
203
713
510
203
713
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and
industrial
Total commercial
Commercial real estate:
Residential construction
and land development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real
estate
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
$
11,545
$
12,518
$
24,063
$
214
$
6,355
$
5,389
$ 11,958
$ 36,021
135
The following table details the recorded balance of loans by class that were restructured during the year ended December 31,
2012 by primary type of concession (in thousands):
Accruing
Combination
& Other
Year Ended December 31, 2012
Nonaccrual
Interest Rate
Payment
Stream
Combination
& Other
Total
Total
$
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17,398
—
17,398
—
—
—
875
885
—
—
—
—
1,760
1,219
2,379
1,350
—
—
—
4,948
1,214
—
—
1,214
—
223
223
—
—
—
—
—
—
—
8,359
—
570
—
—
1,573
10,502
—
—
—
—
—
—
—
875
885
—
64
—
—
—
875
885
—
64
—
—
1,824
1,824
9,578
2,379
1,920
—
—
1,573
15,450
9,578
2,379
1,920
—
—
1,573
15,450
—
—
—
64
—
—
64
—
—
—
—
—
—
—
2,518
3,732
3,732
—
—
—
—
2,518
3,732
—
2,508
2,508
—
2,731
2,731
17,398
—
21,130
—
2,731
2,731
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgage guaranteed
by U.S. government agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Total
$
17,398
$
8,145
$
10,502
$
5,090
$
23,737
$
41,135
136
The following table summarizes, by loan class, the recorded investment at December 31, 2013 and 2012, respectively of loans
modified as TDRs within the previous 12 months and for which there was a payment default during the years ended
December 31, 2013 and 2012, respectively (in thousands):
Year Ended
December 31, 2013
December 31, 2012
Accruing
Nonaccrual
Total
Accruing
Nonaccrual
Total
$
— $
— $
— $
— $
— $
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgage guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
23,918
—
23,918
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
875
885
—
—
—
—
—
875
885
—
—
—
—
1,760
1,760
2,000
2,379
1,350
—
—
—
2,000
2,379
1,350
—
—
—
5,729
5,729
2,692
2,692
1,080
1,080
—
391
—
—
164
1,635
—
391
—
—
164
1,635
—
486
—
486
2,819
2,819
—
—
517
3,822
586
—
—
517
3,822
586
—
590
23,918
17,251
590
—
—
—
17,251
—
1,176
25,094
17,251
2,692
19,943
115
40
155
115
40
155
—
—
—
—
462
462
—
462
462
Total
$
23,918
$
6,788
$ 30,706
$
17,251
$
10,643
$ 27,894
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.
137
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 December 31, 2013 is as follows
(in thousands):
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S. government
agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Past Due
Current
30 to 89
Days
90 Days
or More
Nonaccrual
Total
$
2,347,267
$
2,483
$
150
$
1,860
$
2,351,760
2,276,036
1,193,905
391,159
1,272,660
150,494
290,479
7,922,000
188,434
580,926
404,505
576,495
243,625
376,699
2,370,684
1,210
338
—
—
—
81
4,112
428
264
603
—
—
1,493
2,788
42
152
—
—
—
5
349
19
—
—
—
—
1,012
1,031
4,922
6,969
592
1,586
—
831
2,282,210
1,201,364
391,751
1,274,246
150,494
291,396
16,760
7,943,221
17,377
4,857
6,391
7
252
11,966
40,850
206,258
586,047
411,499
576,502
243,877
391,170
2,415,353
1,018,670
9,795
—
34,279
1,062,744
21,916
797,299
1,837,885
5,466
373,951
379,417
17,290
3,087
30,172
330
697
1,027
141,615
34
777
7,264
181,598
807,684
141,649
42,320
2,052,026
—
1
1
717
502
1,219
6,513
375,151
381,664
Total
$ 12,509,986
$
38,099
$
143,030
$
101,149
$ 12,792,264
138
A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2012 is as
follows (in thousands):
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Integrated food services
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other real estate loans
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S. government
agencies
Home equity
Total residential mortgage
Consumer:
Indirect automobile
Other consumer
Total consumer
Past Due
Current
30 to 89
Days
90 Days
or More
Nonaccrual
Total
$ 2,454,928
$
3,071
$
200
$
2,460
$
2,460,659
2,150,386
1,103,307
346,442
1,077,022
190,416
288,522
7,611,023
226,962
514,252
417,866
400,151
242,026
358,030
2,159,287
1,710
5
35
1,040
6
127
5,994
—
349
3,177
39
—
2,092
5,657
—
50
—
178
—
—
428
—
68
—
—
—
3,361
3,429
12,090
3,077
2,007
3,166
684
983
2,164,186
1,106,439
348,484
1,081,406
191,106
289,632
24,467
7,641,912
26,131
8,117
6,829
2,706
3,968
12,875
60,626
253,093
522,786
427,872
402,896
245,994
376,358
2,228,999
1,075,687
8,366
49
39,863
1,123,965
26,560
752,100
1,854,347
31,869
358,308
390,177
13,046
2,275
23,687
1,273
1,327
2,600
120,349
—
489
6,256
160,444
760,631
120,398
46,608
2,045,040
15
4
19
1,578
1,131
2,709
34,735
360,770
395,505
Total
$ 12,014,834
$
37,938
$
124,274
$
134,410
$ 12,311,456
139
(5) Premises and Equipment
Premises and equipment at December 31 are summarized as follows (in thousands):
December 31,
2013
2012
Land
$
75,859
$
Buildings and improvements
Software
Furniture and equipment
Construction in progress
Subtotal
Less accumulated depreciation
Total
221,326
103,473
163,013
31,027
594,698
316,849
277,849
$
$
73,616
214,116
89,183
158,020
30,408
565,343
299,423
265,920
Depreciation expense of premises and equipment was $30 million, $33 million and $32 million for the years ended
December 31, 2013, 2012 and 2011, respectively.
(6) Goodwill and Intangible Assets
On August 15, 2012, the Company acquired a majority voting interest in a Delaware limited liability corporation and its
wholly-owned subsidiary, a Tulsa-based aircraft parts supplier and repair facility. This company divested a portion of its
business in 2013, included associated goodwill.
On August 19, 2012, the Company acquired The Milestone Group, Inc. ("Milestone"), a Denver-based Registered Investment
Adviser that provides wealth management services to high net worth customers in Colorado and Nebraska.
The purchase price for these acquisitions totaled $37 million, including $24 million paid in cash and $13 million of contingent
consideration. The purchase price allocation included $21 million of identifiable intangible assets and $29 million of goodwill.
The following table presents the original cost and accumulated amortization of intangible assets (in thousands):
December 31,
2013
2012
Core deposit premiums
$
33,749
$
Less accumulated amortization
Net core deposit premiums
Other identifiable intangible assets
Less accumulated amortization
Net other identifiable intangible assets
32,656
1,093
37,992
14,521
23,471
33,749
32,180
1,569
38,191
11,568
26,623
Total intangible assets, net
$
24,564
$
28,192
140
The net amortized cost of identifiable intangible assets assigned to the Company’s geographic markets as follows (in
thousands):
Core deposit premiums:
Texas
Colorado
Arizona
Total core deposit premiums
December 31,
2013
2012
$
$
816
277
—
$
1,192
377
—
1,093
$
1,569
Other identifiable intangible assets:
Oklahoma
Colorado
Kansas/Missouri
Total other identifiable intangible assets
9,199
13,482
790
23,471
9,857
15,976
790
26,623
Total intangible assets, net
$
24,564
$
28,192
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
2014
2015
2016
2017
2018
Thereafter
Core
Deposit
Premiums
Other
Identifiable
Intangible
Assets
$
432
393
247
21
—
—
$
2,290
$
2,290
2,290
2,059
1,595
12,947
$
1,093
$
23,471
$
Total
2,722
2,683
2,537
2,080
1,595
12,947
24,564
Goodwill assigned to the Company’s geographic markets as follows (in thousands):
Goodwill:
Oklahoma
Texas
New Mexico
Colorado
Arizona
Total goodwill
December 31,
2013
2012
$
10,387
$
240,122
15,273
77,555
16,422
12,607
240,122
15,273
77,555
16,422
$
359,759
$
361,979
141
The changes in the carrying value of goodwill by operating segment for year ended December 31, 2013 is as follows (in
thousands):
Balance, December 31, 2011
Goodwill
Accumulated impairment losses
Commercial
Consumer
Wealth
Management
Total
$
266,728
$
39,251
$
29,850
$
335,829
—
266,728
(228)
39,023
—
29,850
(228)
335,601
Goodwill acquired during 2012
4,434
—
21,944
26,378
Balance, December 31, 2012
Goodwill
Accumulated impairment losses
271,162
—
271,162
39,251
(228)
39,023
51,794
—
51,794
362,207
(228)
361,979
Goodwill adjustments during 2013
(2,220)
—
—
(2,220)
Balance, December 31, 2013
Goodwill
Accumulated Impairment
268,942
—
39,251
(228)
51,794
—
359,987
(228)
$
268,942
$
39,023
$
51,794
$
359,759
The annual goodwill evaluations for 2013 and 2012 did not indicate impairment for any reporting unit. Economic conditions
did not indicate that impairment existed for any identifiable intangible assets and therefore no impairment evaluation was
performed.
(7) 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.
142
The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to
residential mortgage loans 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):
December 31, 2013
December 31, 2012
Unpaid
Principal
Balance/
Notional
Fair Value
Unpaid
Principal
Balance/
Notional
Fair Value
Residential mortgage loans held for sale
$
192,266
$
193,584
$
269,718
$
281,935
Residential mortgage loan commitments
Forward sales contracts
258,873
435,867
2,656
4,306
356,634
598,442
12,733
(906)
$
200,546
$
293,762
No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2013 or
December 31, 2012. No credit losses were recognized on residential mortgage loans held for sale for years ended
December 31, 2013, 2012 and 2011.
Mortgage banking revenue was as follows (in thousands):
Originating and marketing revenue:
Residential mortgage loans held for sale
Residential mortgage loan commitments
Forward sales contracts
Total originating and marketing revenue
Servicing revenue
Total mortgage banking revenue
Year Ended
2013
2012
2011
$
84,403
$
120,599
$
(10,070)
5,212
79,545
42,389
6,136
2,382
129,117
40,185
$
121,934
$
169,302
$
57,418
4,345
(9,781)
51,982
39,661
91,643
Originating and marketing 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 recognized when mortgage loans are originated pursuant to an existing plan for sale or, if no
such plan exists, when the mortgage loans are sold. Mortgage servicing rights may also be purchased. Both originated or
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):
Number of residential mortgage loans serviced for others
2013
106,137
December 31,
2012
98,246
2011
95,841
Outstanding principal balance of residential mortgage loans serviced for others
$
13,718,942
$
11,981,624
$
11,300,986
Weighted average interest rate
Remaining term (in months)
4.40%
292
4.71%
289
5.19%
290
143
Activity in capitalized mortgage servicing rights during the three years ended December 31, 2013 is as follows (in thousands):
Balance, December 31, 2010
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2011
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2012
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2013
Purchased
Originated
Total
$
37,900
$
77,823
$
115,723
—
(4,699)
(14,298)
26,251
(10,045)
(26,149)
$
18,903
$
67,880
$
—
(4,164)
(1,763)
42,191
(14,788)
(7,447)
26,251
(14,744)
(40,447)
86,783
42,191
(18,952)
(9,210)
$
12,976
$
87,836
$
100,812
—
(3,029)
5,988
49,431
(16,601)
16,732
49,431
(19,630)
22,720
$
15,935
$
137,398
$
153,333
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 considered to be significant unobservable inputs
were as follows:
Discount rate – risk-free rate plus a market premium
Prepayment rate – based upon loan interest rate, original term and
loan type
Loan servicing costs – annually per loan based upon loan type:
Performing loans
Delinquent loans
Loans in foreclosure
December 31,
2013
10.21%
2012
10.29%
6.66% - 26.19%
8.38% - 43.94%
$60 - $105
$150 - $500
$55 - $105
$135 - $500
$1,000 - $4,250
$875 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts
with comparable average life
1.80%
0.87%
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 December 31, 2013 follows (in thousands):
Fair value
$
62,962
$
55,721
$
27,446
$
7,204
$
153,333
< 4.00%
4.00% - 4.99% 5.00% - 5.99%
> 5.99%
Total
Outstanding principal of loans serviced for others
Weighted average prepayment rate1
1 Annual prepayment estimates based upon loan interest rate, original term and loan type. Weighted average prepayment rate is determined
$ 13,718,942
$ 1,202,231
$ 5,454,084
2,350,924
4,711,703
26.19%
7.85%
9.93%
6.66%
9.34%
$
$
by weighting the prepayment speed for each loan by its unpaid principal balance.
144
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 December 31, 2013, a 50 basis point increase in mortgage interest rates is expected
to increase the fair value of our mortgage servicing rights, net of economic hedge by $2.1 million. A 50 basis point decrease in
mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights, net of economic hedge by $2.3
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 December 31, 2013 follows (in thousands):
FHLMC
FNMA
GNMA
Other
Total
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days or
More
Total
$ 4,557,381
$
42,359
$
10,926
$
36,890
$
4,647,556
4,111,774
4,475,016
211,308
26,284
149,707
1,871
7,828
43,702
547
$ 13,355,479
$
220,221
$
63,003
$
20,658
18,113
4,578
80,239
4,166,544
4,686,538
218,304
$ 13,718,942
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 $191 million at
December 31, 2013 and $227 million at December 31, 2012. At December 31, 2013, approximately 4% of the loans sold with
recourse with an outstanding principal balance of $6.7 million were either delinquent more than 90 days, in bankruptcy or in
foreclosure and 6% with an outstanding balance of $12 million were past due 30 to 89 days. A separate accrual for these off-
balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. 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):
Beginning balance
Provision for recourse losses
Loans charged off, net
Ending balance
Year Ended
2013
2012
2011
$
$
11,359
$
18,683
$
565
(2,883)
(1,891)
(5,433)
9,041
$
11,359
$
16,667
8,611
(6,595)
18,683
The Company also has off-balance sheet obligation to repurchase or provide indemnification for residential mortgage loans
sold to government sponsored entities due to standard representations and warranties made under contractual agreements.The
Company has established an accrual for credit losses related to potential loan repurchases under representations and warranties
that is included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated
Statements of Earnings. For 2013, the Company has repurchased 19 loans from the agencies for $2.1 million and recognized
$333 thousand of related losses. In addition, the Company has paid indemnification for 14 loans and recognized $453 thousand
of related losses during 2013.
145
A summary of unresolved deficiency requests from the agencies and related accrual for credit losses follows (Dollars in
thousands):
Number of unresolved deficiency requests
578
Aggregate outstanding principal balance subject to unresolved deficiency requests
$
69,288
$
Unpaid principal balance subject to indemnification by the Company
Accrual for credit losses related to potential loan repurchases under representations and warranties
3,200
8,845
389
44,831
1,233
5,291
December 31,
2013
2012
(8) Deposits
Interest expense on deposits is summarized as follows (in thousands):
December 31,
2013
2012
2011
Transaction deposits
$
11,155
$
14,300
$
23,415
Savings
Time:
Certificates of deposits under $100,000
Certificates of deposits $100,000 and over
Other time deposits
Total time
Total
442
540
719
16,234
12,273
15,460
43,967
19,150
16,331
16,692
52,173
26,476
21,175
17,105
64,756
$
55,564
$
67,013
$
88,890
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2013 and 2012 were $1.8
billion and $1.9 billion, respectively.
Time deposit maturities are as follows: 2014 – $1.2 billion, 2015 – $456 million, 2016 – $329 million, 2017 – $167 million,
2018 – $204 million and $309 million thereafter. At December 31, 2013 and 2012, the Company had $186 million and $187
million, respectively, in fixed rate, brokered certificates of deposits. The weighted-average interest rate paid on these
certificates was 2.96% in 2013 and 3.17% in 2012.
The aggregate amount of overdrawn transaction deposits that have been reclassified as loan balances was $37 million at
December 31, 2013 and $9.2 million at December 31, 2012.
146
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
As of
Year Ended
December 31, 2013
December 31, 2013
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent Company and Other Non-Bank Subsidiaries:
Other
Total Parent Company and Other Non-Bank Subsidiaries
$
—
—
—% $
326
326
Subsidiary Bank:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total subsidiary bank
868,081
813,454
1,005,650
18,113
16,590
1,040,353
0.04
0.05
0.19
5.50
2.35
347,802
5.11
3,069,690
866,062
811,996
1,661,424
15,741
16,502
1,693,667
347,717
3,719,442
—% $
—
—
0.10
0.06
0.20
5.43
2.54
0.27
2.51
0.41
997,536
881,033
2,451,197
21,055
17,092
347,802
Total other borrowed funds
$ 3,069,690
$ 3,719,768
0.40%
As of
Year Ended
December 31, 2012
December 31, 2012
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent Company and Other Non-Bank Subsidiaries:
Other
Total Parent Company and Other Non-Bank Subsidiaries
$
10,500
10,500
1.50% $
394
394
Subsidiary Bank:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total subsidiary bank
1,167,416
887,030
604,897
20,046
16,332
641,275
347,633
0.05
0.07
0.23
5.44
5.10
2.40
1,512,711
1,072,650
104,925
33,768
16,577
155,270
363,699
3,043,354
3,104,330
1.11% $
10,500
1.11
0.14
0.09
0.31
5.41
2.91
3.79
0.65
1,810,793
1,272,151
604,897
47,840
16,761
398,897
Total other borrowings
$ 3,053,854
$ 3,104,724
0.65%
147
Parent Company and Other Non-Bank Subsidiaries:
Trust preferred debt
Other
Total Parent Company and Other Non-Bank Subsidiaries
Subsidiary Banks:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total subsidiary banks
As of
Year Ended
December 31, 2011
December 31, 2011
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
—% $
7,093
6.42% $
—
7,093
—
6.42
$
—
—
—
1,063,318
1,233,064
4,837
53,082
16,566
74,485
—
0.03
0.09
0.27
6.18
5.10
1,046,114
1,096,615
45,110
56,142
28,777
130,029
398,790
0.07
0.12
0.38
5.79
3.23
5.74
1.06
398,881
5.47
2,769,748
2,671,548
8,763
—
1,706,893
1,393,237
201,674
118,595
45,366
398,881
Total other borrowings
$ 2,769,748
$ 2,678,641
1.17%
Aggregate annual principal repayments at December 31, 2013 are as follows (in thousands):
Parent
Company
and Other
Non-bank
Subsidiaries
Subsidiary
Bank
$
— $
2,705,823
—
—
—
—
—
122,032
525
226,820
575
13,915
$
— $
3,069,690
2014
2015
2016
2017
2018
Thereafter
Total
Funds purchased are unsecured and generally mature within one to ninety days from the transaction date. Securities repurchase
agreements are recorded as secured borrowings that generally mature within ninety days and are secured by certain available
for sale securities. There was no outstanding accrued interest payable related to repurchase agreements at December 31, 2013
or December 31, 2012.
148
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31, 2013
and 2012 is as follows (dollars in thousands):
Security Sold/Maturity
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
December 31, 2013
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
Security Sold/Maturity
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
$
1,085,893
$ 1,075,821
—
—
$
1,085,893
$ 1,075,821
$
$
813,624
—
813,624
0.05%
—%
0.05%
December 31, 2012
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
$
1,213,593
$ 1,242,314
—
—
$
1,213,593
$ 1,242,314
$
$
877,382
—
877,382
0.07 %
— %
0.07 %
1 BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over securities underlying
longer-term dealer repurchase agreements to the respective counterparty.
Borrowings from the Federal Home Loan Banks are used for funding purposes. In accordance with policies of the Federal
Home Loan Banks, BOK Financial has granted a blanket pledge of eligible assets (generally unencumbered U.S. Treasury and
residential mortgage-backed securities, 1-4 family loans and multifamily loans) as collateral for these advances. The Federal
Home Loan Banks have issued letters of credit totaling $297 million to secure BOK Financial’s obligations to depositors of
public funds. The unused credit available to BOK Financial at December 31, 2013 pursuant to the Federal Home Loan Bank’s
collateral policies is $2.3 billion.
The Company has 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”). Interest on amounts outstanding under
the Credit Facility is to be paid at a defined base rate minus 1.25% or LIBOR plus 1.00% based upon the Company’s
option. Interest on amounts borrowed for certain acquisitions converted to a term loan at the Company's option is to be paid at a
defined base rate minus 1.25% or LIBOR plus 1.25%. A commitment fee equal to 0.20% shall be paid quarterly on the unused
portion of the credit commitment under the Credit Facility and there are no prepayment penalties. Any amounts outstanding at
the end of the Credit Facility term shall be converted into a term loan which, except for amounts borrowed for certain
acquisitions, shall be payable June 5, 2014. The Credit Facility contains customary representations and warranties, as well as
affirmative and negative covenants, including limits on the Company’s ability to borrow additional funds, make investments or
sell assets. These covenants also require BOKF to maintain minimum capital levels. At December 31, 2013, no amounts were
outstanding under the Credit Facility and the Company met all of the covenants.
BOSC, Inc. has a borrowing agreement with Bank of New York Mellon ("BNY") to provide additional funding for its trading
activities. Fundings are at the discretion of BNY with the amount of the advance and interest rate are negotiated at the time of
the funding request. Fundings are fully secured by the qualifying securities and payable on demand. At December 31, 2012, no
amounts was outstanding under this borrowing agreement at December 31, 2013 and $10.5 million was outstanding at
December 31, 2012.
In 2007, the Bank issued $250 million of subordinated debt due May 15, 2017. Interest on this debt was based upon a fixed rate
of 5.75% through May 14, 2012 and is based on a floating rate of three-month LIBOR plus 0.69% thereafter. The proceeds of
this debt were used to fund the Worth National Bank and First United Bank acquisitions and to fund continued asset growth. At
December 31, 2013, and December 31, 2012 $227 million of this subordinated debt remained outstanding.
149
In 2005, the Bank issued $150 million of fixed rate subordinated debt due June 1, 2015. The cost of this subordinated debt,
including issuance discounts and hedge loss is 5.56%. The proceeds of this debt were used to repay the unsecured revolving
line of credit and to provide additional capital to support asset growth. During 2006, an interest rate swap was designated as a
hedge of changes in fair value of the subordinated debt due to changes in interest rates. The Company received a fixed rate of
interest and paid a variable rate based on 1-month LIBOR. This fair value hedging relationship was discontinued and the
interest rate swap was terminated in April 2007. At December 31, 2013 and December 31, 2012, $122 million of this
subordinated debt remains outstanding.
The Company has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold into
GNMA mortgage pools. Interest is payable at rates contractually due to investors.
(10) Federal and State Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets
and liabilities are as follows (in thousands):
December 31,
2013
2012
Deferred tax assets:
Available for sale securities mark to market
$
14,700
$
Stock-based compensation
Credit loss allowances
Valuation adjustments
Deferred book income
Deferred compensation
Other
Total deferred tax assets
8,100
75,600
35,300
3,500
60,100
29,500
—
9,100
86,100
45,100
7,200
45,100
31,300
226,800
223,900
Deferred tax liabilities:
Available for sale securities mark to market
Depreciation
Mortgage servicing rights
Lease financing
Other
Total deferred tax liabilities
—
17,300
72,200
23,200
18,500
131,200
Deferred tax assets in excess of deferred tax liabilities $
95,600
$
99,000
19,600
59,500
21,100
21,700
220,900
3,000
150
The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are
shown below (in thousands):
Current income tax expense:
Federal
State
Total current income tax expense
Deferred income tax expense:
Federal
State
Total deferred income tax expense
Year Ended December 31,
2013
2012
2011
$
125,412
$
159,706
$
137,802
14,381
139,793
19,103
178,809
16,085
153,887
15,915
1,590
17,505
8,664
1,267
9,931
3,882
742
4,624
Total income tax expense
$
157,298
$
188,740
$
158,511
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):
Amount:
Federal statutory tax
Tax exempt revenue
Effect of state income taxes, net of federal benefit
Utilization of tax credits
Bank-owned life insurance
Reduction of tax accrual
Other, net
Total
Year Ended December 31,
2013
2012
2011
$
166,680
$
190,003
$
156,917
(7,361)
10,937
(8,145)
(3,596)
(1,400)
183
(5,558)
13,684
(5,126)
(3,850)
(950)
537
(5,357)
11,198
(2,972)
(3,879)
(1,764)
4,368
$
157,298
$
188,740
$
158,511
Due to the favorable resolution of certain tax issues for the periods ended December 31, 2009 and 2008, BOK Financial
reduced its tax accrual by $1.4 million and $1.0 million in 2013 and 2012, respectively, which was credited against current
income tax expense.
Percent of pretax income:
Federal statutory tax
Tax exempt revenue
Effect of state income taxes, net of federal benefit
Utilization of tax credits
Bank-owned life insurance
Reduction of tax accrual
Other, net
Total
Year Ended December 31,
2013
2012
2011
35%
35%
35%
(1)
2
(2)
(1)
—
—
(1)
3
(1)
(1)
—
—
(1)
2
(1)
(1)
—
1
33%
35%
35%
151
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2013
2012
2011
Balance as of January 1
$
12,275
$
12,230
$
Additions for tax for current year positions
Settlements during the period
Lapses of applicable statute of limitations
2,730
—
(2,947)
3,976
(1,000)
(2,931)
11,900
6,390
(2,510)
(3,550)
Balance as of December 31
$
12,058
$
12,275
$
12,230
Any of the above unrecognized tax benefits, if recognized, would affect the effective tax rate.
BOK Financial recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The
Company recognized $1.2 million for 2013, $1.2 million for 2012 and $1.9 million for 2011 in interest and penalties. The
Company had approximately $2.9 million accrued for the payment of interest and penalties at December 31, 2013 and 2012.
Federal statutes remain open for federal tax returns filed in the previous three reporting periods. Various state income tax
statutes remain open for the previous three to six reporting periods.
The Internal Revenue Service completed an audit of the Company's federal income tax return for the year ended December 31,
2008 during the first quarter 2012 with no adjustments. The Internal Revenue Service also completed its audit of the
Company’s 2008 refund claim during the first quarter of 2013 with no adjustments.
(11) Employee Benefits
BOK Financial sponsors a defined benefit cash balance Pension Plan for all employees who satisfy certain age and service
requirements. Pension Plan benefits were curtailed as of April 1, 2006. No participants may be added to the plan and no
additional service benefits will be accrued. During 2012, interest accrued on employees’ account balances at 5.25%. During
2013, interest accrued on employees' account balances at a variable rate tied to the five-year trailing average of five-year
Treasury Securities plus 1.5%. The rate has a floor of 2.5% and a ceiling of 5.0%. The 2013 quarterly variable rates ranged
from 3.07% to 3.27%.
152
The following table presents information regarding this plan (in thousands):
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
$
48,028
$
50,213
December 31,
2013
2012
Interest cost
Actuarial (gain) loss
Benefits paid
Plan amendments
Projected benefit obligation at end of year1,2
Change in plan assets:
Plan assets at fair value at beginning of year
Actual return on plan assets
Benefits paid
Plan assets at fair value at end of year
Funded status of the plan
Components of net periodic benefit costs:
Interest cost
Expected return on plan assets
Recognized prior service cost
Amortization of unrecognized net loss
$
$
$
$
$
$
1,532
(1,543)
(3,252)
—
44,765
45,920
6,144
(3,252)
48,812
4,047
1,532
(2,185)
(1,175)
3,830
Net periodic pension cost
1 Projected benefit obligation equals accumulated benefit obligation.
2 Projected benefit obligation is based on January 1 measurement date.
2,002
$
1,925
2,786
(2,194)
(4,702)
48,028
43,859
4,255
(2,194)
45,920
(2,108)
1,925
(2,062)
—
3,461
3,324
$
$
$
$
$
$
Weighted-average assumptions as of December 31:
2013
2012
Discount rate
Expected return on plan assets
4.05%
6.00%
3.36%
5.25%
As of December 31, 2013, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2014
2015
2016
2017
2018
Thereafter
$
3,886
3,713
3,386
3,351
3,488
40,394
$ 58,218
Assets of the Pension Plan consist primarily of shares in the Cavanal Hill Balanced Fund. The stated objective of this fund is to
provide an attractive total return through a broadly diversified mix of equities and bonds. The typical portfolio mix is
approximately 60% equities and 40% bonds. The net asset value of shares in the Cavanal Hill Funds is reported daily based on
market quotations for the Fund’s securities. If market quotations are not readily available, the securities’ fair values are
determined by the Fund’s pricing committee. The inception-to-date return on the fund, which is used as an indicator when
setting the expected return on plan assets, was 7.34%. As of December 31, 2013, the expected return on plan assets for 2013 is
6.00%. The maximum allowed Pension Plan contribution for 2013 was $23 million. No minimum contribution was required for
2013, 2012 or 2011. We expect approximately $0.6 million of net pension costs currently in accumulated other comprehensive
income to be recognized as net periodic pension cost in 2014.
153
Employee contributions to the Thrift Plan are eligible for Company matching equal to 6% of base compensation, as defined in
the plan. The Company-provided matching contribution rates range from 50% for employees with less than four years of
service to 200% for employees with 15 or more years of service. Additionally, a maximum Company-provided, non-elective
annual contribution of up to $750 is made for employees whose annual base compensation is less than $40,000. Total non-
elective contributions were $738 thousand for 2013, $802 thousand for 2012 and $933 thousand for 2011.
Participants may direct investments in their accounts to a variety of options, including a BOK Financial common stock
fund. Employer contributions, which are invested in accordance with the participant’s investment options, vest over five
years. Thrift Plan expenses were $18.1 million for 2013, $16.8 million for 2012 and $15.4 million for 2011.
BOK Financial offers numerous incentive compensation plans that are aligned with the Company’s growth
strategy. Compensation awarded under these plans may be based on defined formulas, other performance criteria or
discretionary. Incentive compensation is designed to motivate and reinforce sales and customer service behavior in all
markets. Earnings were charged $151.1 million in 2013, $153.9 million in 2012, and $117.8 million in 2011 for incentive
compensation plans.
(12) Stock Compensation Plans
The shareholders and Board of Directors of BOK Financial have approved various stock-based compensation plans. An
independent compensation committee of the Board of Directors determines the number of awards granted to the Chief
Executive Officer and other senior executives. Stock-based compensation is granted to other officers and employees as
determined by the Chief Executive Officer.
These awards include stock options subject to vesting requirements and non-vested shares. Generally, one-seventh of the
options awarded vest annually and expire 3 years after vesting. Additionally, stock options that vest in two years and expire 45
days after vesting have been awarded. Non-vested shares vest 3 to 5 years after the grant date. The holders of these non-vested
shares may be required to retain the shares for 2 years after vesting.
The Chief Executive Officer and other senior executives participate in an Executive Incentive Plan ("EIP"). The number of
options and non-vested shares may increase or decrease based upon the Company’s growth in earnings per share over a three-
year period compared to the median growth in earnings per share for a designated peer group of financial institutions and other
individual performance factors.
154
The following table presents stock options outstanding during 2013, 2012 and 2011 under these plans (in thousands, except for
per share data):
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number
Options outstanding at December 31, 2010
3,135,334
$45.62
$
24,405
Options awarded
Options exercised
Options forfeited
Options expired
185,007
(576,518)
(60,005)
(62,471)
55.94
44.35
47.93
54.13
Options outstanding at December 31, 2011
2,621,347
$47.01
$
20,769
Options awarded
Options exercised
Options forfeited
Options expired
67,155
(708,295)
(22,559)
(66,862)
58.76
45.32
50.36
45.97
Options outstanding at December 31, 2012
1,890,786
$48.29
$
11,748
Options awarded
Options exercised
Options forfeited
Options expired
81,492
(608,663)
(219,342)
(9,168)
55.74
48.00
47.65
50.61
Options outstanding at December 31, 2013
1,135,105
$49.09
Options vested at:
December 31, 2011
December 31, 2012
December 31, 2013
825,682
601,367
424,459
$46.72
47.99
49.49
$
$
19,564
6,779
3,890
7,146
The following table summarizes information concerning currently outstanding and vested stock options:
Options Outstanding
Weighted
Average
Weighted
Remaining
Number
Contractual
Average
Exercise
Outstanding
Life (years)
Price
Number
Vested
Options Vested
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (years)
1,267
84,725
134,485
233,739
214,483
253,607
47,581
83,726
81,492
0.02
1.42
2.11
2.88
2.99
3.44
3.84
5.18
6.03
$37.74
47.12
54.33
48.46
55.94
36.65
48.30
58.76
55.74
1,267
84,725
74,447
80,747
102,311
61,449
11,007
8,506
—
$37.74
47.12
54.33
48.46
55.94
36.65
48.30
58.76
—
0.02
1.42
1.37
1.66
0.74
1.64
1.51
2.03
0
Range of
Exercise
Prices
$37.74
45.15 - 47.34
54.33
48.46
55.94
36.65
48.30
58.76
55.74
The aggregate intrinsic value of options exercised was $8.5 million for 2013, $8.3 million for 2012 and $5.5 million for 2011.
Compensation expense for stock options is generally recognized based on the fair value of options granted over the options’
vesting period.
155
The fair value of options was determined as of the date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions:
2013
2012
2011
Average risk-free interest rate1
Dividend yield
Volatility factors
Weighted average expected life
0.89%
2.80%
0.272
4.9 years
Weighted average fair value
$
9.67
$
0.93%
2.20%
0.280
1.87%
1.80%
0.268
4.9 years
11.48
4.9 years
11.92
$
1 Average risk-free interest rate represents U.S. Treasury rates matched to the expected life of the options.
Compensation expense recognized on stock options totaled $1.3 million for 2013, $4.1 million for 2012 and $4.3 million for
2011. Compensation cost of stock options granted that may be recognized as compensation expense in future years totaled $1.9
million at December 31, 2013. Subject to adjustments for forfeitures, we expect to recognize compensation expense for current
outstanding options of $865 thousand in 2014, $504 thousand in 2015, $299 thousand in 2016, $166 thousand in 2017, $66
thousand in 2018 and $20 thousand thereafter.
The following represents a summary of the non-vested stock awards as of December 31, 2013 (in thousands):
Non-vested at January 1, 2013
Granted
Lapsed
Forfeited
Non-vested at December 31, 2013
Weighted
Average
Grant Date
Fair Value
$55.84
35.93
49.95
Shares
592,831
211,791
(66,648)
(89,985)
647,989
Compensation expense recognized on non-vested shares totaled $6.9 million for 2013, $5.6 million for 2012 and $5.7 million
for 2011. Unrecognized compensation cost of non-vested shares totaled $15.3 million at December 31, 2013. Subject to
adjustment for forfeitures, we expect to recognize compensation expense of $7.0 million in 2014, $6.3 million in 2015, $1.8
million in 2016, $175 thousand in 2017 and none thereafter.
BOK Financial permits certain executive officers to defer recognition of taxable income from their stock-based compensation.
Deferred compensation may also be diversified into investments other than BOK Financial common stock.
Stock-based compensation subject to these deferral plans is recognized as a liability award rather than as an equity
award. Compensation expense is based on the fair value of the award recognized over the vesting period. The recorded
obligation for liability awards totaled $120 thousand at December 31, 2013 and $87 thousand at December 31,
2012. Compensation cost of liability awards was an expense of $343 thousand in 2013, $530 thousand in 2012 and $760
thousand in 2011.
On April 26, 2011 shareholders approved the BOK Financial Corporation 2011 True-Up Plan. The True-Up Plan was intended
to address inequality in the EIP which had been approved by shareholders in 2003 as a result of certain peer banks that
performed poorly during the most recent economic cycle. Performance goals for the EIP are based on the Company's earnings
per share growth compared to peers and business unit performance. As the economy improves and credit losses normalize, peer
banks were expected to experience significant comparative earnings per share percentile increases. This "bounce-back" effect
would have resulted in the unanticipated result of no annual bonuses in the years 2011, 2012 and 2013 and the forfeiture of
long-term incentive awards for 2010 and 2011 in their entirety, despite BOK Financial's strong annual earnings growth through
the economic cycle while many peers experienced negative or declining earnings. The True-Up Plan was designed to adjust
annual and long-term performance-based incentive compensation for certain senior executives either upward or downward
based on the earnings per share performance and compensation of comparable senior executives at peer banks for 2006 through
2013. Compensation expense is determined by ranking BOK Financial's earnings per share to peer banks and then aligning
compensation with the peer bank that most closely relates to BOK Financial's earnings per share performance. Based on
currently available information, the Company has accrued $69 million for the True-Up Plan liability. The final amount due
under the 2011 True-Up Plan will be determined as of December 31, 2013 based on information that will be published by peer
banks during the first quarter of 2014. The final amounts due under the 2011 True-Up Plan will be distributed in May, 2014.
156
During January 2014, BOK Financial awarded 206,546 share of non-vested stock with a fair value per award of $64.37. The
aggregate compensation cost of these awards totaled approximately $13.3 million. This cost will be recognized over the vesting
periods, subject to adjustments for forfeitures. Non-vested shares awarded in January, 2014 generally cliff vest in 3 years and
are subject to a 2 year holding period after vesting.
(13) Related Parties
In compliance with applicable regulations, the Company may extend credit to certain executive officers, directors, principal
shareholders and their affiliates (collectively referred to as “related parties”) in the ordinary course of business under
substantially the same terms as comparable third-party lending arrangements. The Company’s loans to related parties do not
involve more than the normal credit risk and there are no nonaccruing or impaired related party loans outstanding at
December 31, 2013 or 2012.
Activity in loans to related parties is summarized as follows (in thousands):
Year Ended December 31,
2013
2012
Beginning balance
$
49,943
$
Advances
292,393
99,340
644,715
Payments
Adjustments1
Ending balance
1 Adjustments generally consist of changes in status as a related party.
(253,645)
(684,942)
(9,170)
49,943
88,691
—
$
$
Certain related parties are customers of the Company for services other than loans, including consumer banking, corporate
banking, risk management, wealth management, brokerage and trading, or fiduciary/trust services. The Company engages in
transactions with related parties in the ordinary course of business in compliance with applicable regulations.
The Company rents office space in facilities owned by affiliates of Mr. Kaiser, its Chairman and principal shareholder. Lease
payments totaled $952 thousand for 2013, $1.1 million for 2012 and $1.1 million for 2011.
In 2008, the Company entered into a $25 million loan commitment with the Tulsa Community Foundation (“TCF”) to be
secured by tax-exempt bonds purchased from the Tulsa Stadium Trust (the “Stadium Trust”) by TCF. The Stadium Trust is an
Oklahoma public trust, of which the City of Tulsa is the sole beneficiary. Stacy C. Kymes, Executive Vice President and Chief
Credit Officer of the Company, is Chairman of the Stadium Trust.
Cavanal Hill Investment Management, Inc., a wholly-owned subsidiary of the Bank, is the administrator to and investment
advisor for the Cavanal Hill Funds (the "Funds"), a diversified, open-ended investment company established as a business trust
under the Investment Company Act of 1940 (the "1940 Act"). The Bank is custodian and BOSC, Inc. is distributor for the
Funds. The Funds’ products are offered to customers, employee benefit plans, trusts and the general public in the ordinary
course of business. Approximately 99% of the Funds’ assets of $2.8 billion are held for the Company's clients. A Company
executive officer serves on the Funds' board of trustees and officers of the Bank serve as president and secretary of the Funds. A
majority of the members of the Funds’ board of trustees are, however, independent of the Company and the Funds are managed
by its board of trustees.
157
(14) Commitments and Contingent Liabilities
Litigation Contingencies
In an opinion dated October 11, 2011, the Oklahoma Supreme Court invalidated, pursuant to a petition brought by certain
taxpayers, a $7.1 million settlement agreement between the Bank and the City of Tulsa (“the City”). The agreement settled
claims asserted by the Bank against the City and against the Tulsa Airports Improvement Trust ("the Trust") related to a
defaulted loan made by the Bank to a start-up airline. The Trust agreed to purchase the loan and its collateral from the Bank in
the event of a default by the airline. The settlement amount was fully accrued for in 2011 in the accrual for off-balance sheet
credit risk. On July 18, 2012, the Company paid the $7.1 million to the City.
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 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.
In July 2012, Visa announced it had reached an agreement in principle to resolve pending litigation and provide for settlement
payments from the previously funded litigation escrow account. In conjunction with this agreement, Visa deposited an
additional $150 million to the litigation escrow account which reduced the exchange rate to approximately 0.4206 Class A
shares for each Class B share.
In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management
believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the
proceedings, will not have a material effect on the Company’s financial condition, results of operations or cash flows.
Alternative Investment Commitments
The Company sponsors two private equity funds and invests in several tax credit entities and other funds as permitted by
banking regulations. Consolidation of these investments is based on the variable interest model determined by the nature of the
entity. Variable interest entities are generally defined as entities that either do not have sufficient equity to finance their
activities without support from other parties or whose equity investors lack a controlling financial interest. Variable interest
entities are consolidated based on the determination that the Company is the primary beneficiary including the power to direct
the activities that most significantly impact the variable interest's economic performance and the obligation to absorb losses of
the variable interest or the right to receive benefits of the variable interest that could be significant to the variable interest.
BOKF Equity, LLC, an indirect wholly-owned subsidiary, is the general partner of two consolidated private equity funds (“the
Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related parties,
through unaffiliated limited partnerships. These unaffiliated limited partnerships generally invest in distressed assets, asset buy-
outs or venture capital companies. As general partner, BOKF Equity, LLC has the power to direct activities that most
significantly affect the Funds' performance and contingent obligations to make additional investments totaling $5.9 million at
December 31, 2013. 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 type of investments.
Consolidated tax credit entities represent the Company's interest in entities earning federal new market tax credits related to
qualifying loans for which 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. The creditors underlying the other borrowings of
consolidated tax credit entities do not have recourse to the general credit of BOKF.
158
The Company also has interests in various unrelated alternative investments generally consisting of unconsolidated limited
partnership interest in or loans to entities for which investment return is 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. The Company's ability to hold these investments will be curtailed by the
Volcker Rule.
A summary of consolidated and unconsolidated alternative investments as of December 31, 2013 and December 31, 2012 is as
follows (in thousands):
December 31, 2013
Loans
Other
assets
Other
liabilities
Other
borrowings
Non-
controlling
interest
Consolidated:
Private equity funds
$
— $
27,341
$
— $
— $
23,036
Tax credit entities
Other
10,000
—
13,448
9,178
—
—
10,964
—
9,869
2,019
Total consolidated
$
10,000
$
49,967
$
— $
10,964
$
34,924
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
$
$
27,319
—
27,319
$
$
90,260
9,257
99,517
$
$
35,776
1,681
37,457
$
$
— $
—
— $
—
—
—
December 31, 2012
Loans
Other
assets
Other
liabilities
Other
borrowings
Non-
controlling
interest
Consolidated:
Private equity funds
$
— $
28,169
$
— $
— $
Tax credit entities
Other
10,000
—
13,965
8,952
—
—
10,964
—
Total consolidated
$
10,000
$
51,086
$
— $
10,964
$
23,691
10,000
2,130
35,821
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
$
$
22,354
—
22,354
$
$
78,109
9,113
87,222
$
$
43,052
1,802
44,854
$
$
— $
—
— $
—
—
—
Other Commitments and Contingencies
At December 31, 2013, Cavanal Hill Funds’ assets included $884 million of U.S. Treasury, $1.2 billion of cash management
and $314 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
December 31, 2013. 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 2013 or 2012.
159
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 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.
Total rent expense for BOK Financial was $23.5 million in 2013, $21.7 million in 2012 and $20.6 million in 2011. The Bank is
obligated under a long-term lease for its bank premises in downtown Tulsa. The lease term, which began November 1, 1976, is
for fifty-seven years with an option to terminate in 2024 with a two-year prior written notice. At December 31, 2013, future
minimum lease payments for premises under operating leases were as follows: $23.8 million in 2014, $23.9 million in 2015,
$21.5 million in 2016, $17.9 million in 2017, $13.8 million in 2018 and $113.0 million thereafter. Premises leases may include
options to renew at then current market rates and may include escalation provisions based upon changes in consumer price
index or similar benchmarks.
The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. Member banks may
satisfy reserve balance requirements through it holdings of vault cash and balance maintained directly with a Federal Reserve
Bank. The combined average balance of vault cash and balances held at the Federal Reserve Bank were $830 million for the
year ended December 31, 2013 and $733 million for the year ended December 31, 2012.
BOSC, Inc., a wholly-owned subsidiary of BOK Financial, is an introducing broker to Pershing, LLC for retail equity
investment transactions. As such, it has indemnified Pershing, LLC against losses due to a customer's failure to settle a
transaction or to repay a margin loan. All unsettled transaction and margin loans are secured as required by applicable
regulation. The amount of customer balances subject to indemnification totaled $1.4 million at December 31, 2013.
The Company agreed to guarantee rents totaling $28.7 million through September of 2017 to the City 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 $11.2 million at December 31, 2013. Current leases expire or are
subject to lessee termination options at various dates in 2014. Our obligation under the agreement would be affected by lessee
decisions to exercise these options. In return for this guarantee, the Company will receive 80% of net cash flow as defined in an
agreement with the City 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.
The Company has agreed to purchase approximately $13 million of Oklahoma income tax credits from certain operators of
zero emission power facilities in 2014 related to power produced during 2013. Tax credits are generated based on power sold to
unrelated third parties and are transferable for a period of ten years following the year of creation. Tax credits will be sold to
qualifying taxpayers as BOK Financial is limited by statute on the amount of credits that may be utilized. Oklahoma statutes
were amended in May 2013, so that beginning in the year 2014, transferable credits will no longer be generated by zero
emission power facilities. Prior to the amended statute, the Company anticipated credits would be purchased through 2022
under long-term contracts with the producers. The agreements contained provisions that they may be terminated in the event of
changes in federal law or Oklahoma statutes invalidating the tax credits or their transferability.
(15) Shareholders Equity
Preferred Stock
One billion shares of preferred stock with a par value of $0.00005 per share are authorized. The Series A Preferred Stock has no
voting rights except as otherwise provided by Oklahoma corporate law and may be converted into one share of Common Stock
for each 36 shares of Series A Preferred Stock at the option of the holder. Dividends are cumulative at an annual rate of ten
percent of the $0.06 per share liquidation preference value when declared and are payable in cash. Aggregate liquidation
preference is $15 million. No Series A Preferred Stock was outstanding in 2013, 2012 or 2011.
160
Common Stock
Common stock consists of 2.5 billion authorized shares with a $0.00006 par value. Holders of common shares are entitled to
one vote per share at the election of the Board of Directors and on any question arising at any shareholders’ meeting and to
receive dividends when and as declared. Additionally, regulations restrict the ability of national banks and bank holding
companies to pay dividends.
Subsidiary Bank
The amounts of dividends that BOK Financial’s subsidiary bank can declare and the amounts of loans the subsidiary bank can
extend to affiliates are limited by various federal banking regulations and state corporate law. Generally, dividends declared
during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years. The
amounts of dividends are further restricted by minimum capital requirements. Based on the most restrictive limitations as well
as management’s internal capital policy, at December 31, 2013, BOKF subsidiaries could declare up to $158 million of
dividends without regulatory approval. The subsidiary bank declared and paid dividends of $225 million in 2013, $275 million
in 2012 and $270 million in 2011.
As defined by banking regulations, loan commitments and equity investments to a single affiliate may not exceed 10% of
unimpaired capital and surplus and loan commitments and equity investments to all affiliates may not exceed 20% of
unimpaired capital and surplus. All loans to affiliates must be fully secured by eligible collateral. At December 31, 2013, loan
commitments and equity investments were limited to $229 million to a single affiliate and $459 million to all affiliates. The
largest loan commitment and equity investment to a single affiliate was $220 million and the aggregate loan commitments and
equity investments to all affiliates were $334 million. The largest outstanding amount to a single affiliate at December 31, 2013
was $22 million and the total outstanding amounts to all affiliates were $27 million. At December 31, 2012, total loan
commitments and equity investments to all affiliates were $330 million and the total outstanding amounts to all affiliates were
$68 million.
Regulatory Capital
BOK Financial and the Bank are subject to various capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by regulators that
could have a material effect on BOK Financial's operations. These capital requirements include quantitative measures of assets,
liabilities and certain off-balance sheet items. The capital standards are also subject to qualitative judgments by regulators about
components, risk weightings and other factors.
For a banking institution to qualify as well capitalized, Tier I, Total and Leverage capital ratios must be at least 6%, 10% and
5%, respectively. Tier I capital consists primarily of common stockholders' equity, excluding unrealized gains or losses on
available for sale securities, less goodwill, core deposit premiums and certain other intangible assets. Total capital consists
primarily of Tier I capital plus preferred stock, subordinated debt and allowances for credit losses, subject to certain limitations.
The Bank exceeded the regulatory definition of well capitalized as of December 31, 2013 and December 31, 2012.
A summary of regulatory capital levels follows (dollars in thousands):
As of December 31,
2013
2012
Total Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
$
3,017,022
15.56% $
2,877,949
2,293,673
11.88
2,296,451
Tier I Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
Tier I Capital (to Average Assets):
Consolidated
BOKF, NA
$
2,668,981
13.77% $
2,430,671
1,946,247
10.08
1,849,769
$
2,668,981
10.05% $
2,430,671
1,946,247
7.38
1,849,769
15.13%
12.13
12.78%
9.77
9.01%
6.89
161
Accumulated Other Comprehensive Income (Loss)
AOCI includes unrealized gains and losses on available for sale ("AFS") securities. Unrealized gain (loss) on AFS securities
also includes 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 will be amortized over the estimated remaining life of the security as an
adjustment to yield, offsetting the related accretion of discount 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 will be reclassified into
income over the ten-year life of the debt. Gains and losses in AOCI are net of deferred income taxes.
A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):
Balance, December 31, 2010
Net change in unrealized gain (loss)
Transfer of net unrealized gain from AFS to investment
securities
Reclassification adjustments included in earnings:
Interest revenue, Investment securities, Taxable securities
Interest expense, Subordinated debentures
Net impairment losses recognized in earnings
Gain on available for sale securities, net
Other comprehensive income (loss), before income taxes
Federal and state income tax1
Other comprehensive income (loss), net of income taxes
Balance, December 31, 2011
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Interest revenue, Investment securities, Taxable securities
Interest expense, Subordinated debentures
Net impairment losses recognized in earnings
Gain on available for sale securities, net
Other comprehensive income (loss), before income taxes
Federal and state income tax1
Other comprehensive income (loss), net of income taxes
Balance, December 31, 2012
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Interest revenue, Investment securities, Taxable securities
Interest expense, Subordinated debentures
Net impairment losses recognized in earnings
Gain on available for sale securities, net
Other comprehensive income (loss), before income taxes
Federal and state income tax1
Other comprehensive income (loss), net of income taxes
Balance, December 31, 2013
1 Calculated using 39% effective tax rate.
Unrealized Gain (Loss) on
Available
for Sale
Securities
Investment
Securities
Transferred
from AFS
Employee
Benefit
Plans
Loss on
Effective
Cash Flow
Hedges
Total
$
122,494
$
— $
(13,777) $
(878) $
107,839
45,593
—
1,694
(12,999)
12,999
—
—
23,507
(34,144)
21,957
(8,711)
13,246
135,740
58,921
—
—
7,351
(33,845)
32,427
(12,614)
19,813
155,553
(284,104)
—
—
2,308
(10,720)
(292,516)
113,788
(178,728)
(1,357)
—
—
—
11,642
(4,969)
6,673
6,673
—
(6,601)
—
—
—
(6,601)
3,006
(3,595)
3,078
—
(3,210)
—
—
—
(3,210)
1,250
(1,960)
—
—
—
—
—
1,694
(659)
1,035
(12,742)
7,276
—
—
—
—
7,276
(2,830)
4,446
(8,296)
8,159
—
—
—
—
8,159
(3,174)
4,985
—
—
—
304
—
—
304
(118)
186
(692)
—
—
453
—
—
453
(176)
277
(415)
—
—
262
—
—
262
(102)
160
47,287
—
(1,357)
304
23,507
(34,144)
35,597
(14,457)
21,140
128,979
66,197
(6,601)
453
7,351
(33,845)
33,555
(12,614)
20,941
149,920
(275,945)
(3,210)
262
2,308
(10,720)
(287,305)
111,762
(175,543)
$
(23,175) $
1,118
$
(3,311) $
(255) $
(25,623)
162
(16) Earnings Per Share
The following table presents the computation of basic and diluted earnings per share (dollars in thousands, except per share
data):
Year Ended
2013
2012
2011
Numerator:
Net income attributable to BOK Financial Corp. shareholders
$
316,609
$
351,191
$
285,875
Less: Earnings allocated to participating securities
3,388
2,541
Numerator for basic earnings per share – income available to common shareholders
313,221
348,650
Effect of reallocating undistributed earnings of participating securities
7
6
2,214
283,661
6
Numerator for diluted earnings per share – income available to common shareholders
$
313,228
$
348,656
$
283,667
Denominator:
Weighted average shares outstanding
68,719,069
68,221,013
68,313,898
Less: Participating securities included in weighted average shares outstanding
730,172
536,970
526,222
Denominator for basic earnings per common share
Dilutive effect of employee stock compensation plans1
Denominator for diluted earnings per common share
Basic earnings per share
Diluted earnings per share
1 Excludes employee stock options with exercise prices greater than current market price.
67,988,897
67,684,043
67,787,676
216,622
280,897
251,087
68,205,519
67,964,940
68,038,763
$
$
$
$
4.61
4.59
—
5.15
5.13
$
$
4.18
4.17
224,653
769,041
(17) Reportable Segments
BOK Financial operates 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 to small businesses, middle market and larger commercial customers. Commercial Banking also includes the
TransFund EFT network. Consumer Banking includes retail lending and deposit services and all mortgage banking
activities. Wealth Management provides fiduciary services, brokerage and trading, private bank services and investment
advisory services in all markets. Wealth Management also originates loans for high net worth clients.
In addition to its lines of business, BOK Financial has a Funds Management unit. The primary purpose of this unit is to manage
the 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.
BOK Financial allocates resources and evaluates performance of its lines of business after allocation of funds, certain indirect
expenses, taxes based on statutory rates, actual net credit losses and capital costs. 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 based on rates which
approximate the 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 rates 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 intermediate swap rates. The
expected duration ranges from 30 days for certain rate-sensitive deposits to five years.
163
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 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.
Substantially all revenue is from domestic customers. No single external customer accounts for more than 10% of total
revenue.
Net loans charged off and provision for credit losses represents net loans charged off as attributed to the lines of business and
the provision for credit losses in excess of net charge-offs attributed to Funds Management and Other.
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2013 is as
follows (in thousands):
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
Net interest revenue from external sources
$
364,604
$
99,509
$
25,478
$
184,886
$
674,477
Net interest revenue (expense) from internal
sources
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit
losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
(37,025)
327,579
(3,468)
331,047
171,900
244,211
258,736
100,648
158,088
20,290
119,799
4,628
115,171
216,828
226,852
105,147
40,902
64,245
Net income attributable to non-controlling
interest
—
—
Net income attributable to BOK Financial Corp.
$
158,088
$
64,245
Average assets
Average invested capital
$ 10,483,706
$ 5,669,580
906,716
293,736
20,061
45,539
1,275
44,264
213,790
237,540
20,514
7,980
12,534
—
12,534
4,556,132
203,914
$
$
(3,326)
181,560
(30,335)
211,895
11,954
132,017
91,832
7,768
84,064
—
674,477
(27,900)
702,377
614,472
840,620
476,229
157,298
318,931
$
$
2,322
2,322
81,742
$
316,609
6,671,676
$ 27,381,094
1,606,716
3,011,082
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.51%
17.44%
49.18%
1.13%
21.87%
66.62%
0.28%
6.15%
91.92%
1.16%
10.51%
65.03%
164
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2012 is as
follows (in thousands):
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
Net interest revenue from external sources
$
367,533
$
101,029
$
27,647
$
211,340
$
707,549
Net interest revenue (expense) from internal
sources
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit
losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
(43,438)
324,095
10,852
313,243
171,131
246,954
237,420
92,356
145,064
21,305
122,334
9,198
113,136
262,908
248,767
127,277
49,511
77,766
Net income attributable to non-controlling
interest
—
—
Net income attributable to BOK Financial Corp.
$
145,064
$
77,766
Average assets
Average invested capital
$ 10,147,805
$ 5,726,564
882,037
289,665
21,456
49,103
2,284
46,819
200,007
214,293
32,533
12,655
19,878
—
19,878
4,357,641
184,707
$
$
677
212,017
(44,334)
256,351
19,632
130,349
145,634
34,218
111,416
—
707,549
(22,000)
729,549
653,678
840,363
542,864
188,740
354,124
$
$
2,933
2,933
108,483
$
351,191
6,057,140
$ 26,289,150
1,549,546
2,905,955
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.43%
16.45%
51.36%
1.36%
26.85%
63.97%
0.46%
10.76%
86.23%
1.34%
12.09%
62.87%
165
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2011 is as
follows (in thousands):
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
Net interest revenue from external sources
$
342,853
$
102,854
$
30,859
$
216,479
$
693,045
Net interest revenue (expense) from internal
sources
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit
losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
(30,689)
312,164
20,760
291,404
147,545
230,458
208,491
81,103
127,388
27,416
130,270
13,598
116,672
182,875
239,302
60,245
23,435
36,810
Net income attributable to non-controlling
interest
—
—
Net income attributable to BOK Financial Corp.
$
127,388
$
36,810
Average assets
Average invested capital
$ 9,383,530
$ 5,937,584
884,171
273,905
16,540
47,399
2,960
44,439
171,827
190,702
25,564
9,944
15,620
—
15,620
4,073,623
174,877
$
$
(13,267)
203,212
(43,368)
246,580
26,291
118,836
154,035
44,029
110,006
—
693,045
(6,050)
699,095
528,538
779,298
448,335
158,511
289,824
$
$
3,949
3,949
106,057
$
285,875
5,100,124
$ 24,494,861
1,348,912
2,681,865
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.36%
14.41%
50.22%
0.62%
13.44%
73.06%
0.38%
8.93%
87.21%
1.17%
10.66%
63.83%
166
(18) 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. As of December 31, 2012, $2.2 million of
common stock of a privately held financial institution was transferred from Significant Other Observable Inputs (Level 2) to
Significant Unobservable Inputs (Level 3). There were no other transfers in or out of quoted prices in active markets for
identical instruments, significant other observable inputs or significant unobservable inputs during the year ended
December 31, 2013 and 2012, respectively.
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 price provided by third-party pricing services at December 31, 2013
and 2012.
167
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of December 31, 2013
(in thousands):
Quoted
Prices in
Active
Markets for
Identical
Instruments
Total
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Assets:
Trading securities:
U.S. Government agency debentures
$
34,120
$
— $
34,120
$
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Privately issued residential mortgage-backed securities
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities:
U.S. agency residential mortgage-backed securities
Other securities
Total fair value option securities
Residential mortgage loans held for sale
Mortgage servicing rights, net1
Derivative contracts, net of cash margin2
Other assets – private equity funds
Liabilities:
Derivative contracts, net of cash margin2
21,011
27,350
9,135
91,616
1,042
73,775
7,716,010
221,099
2,055,804
35,241
22,863
21,328
—
—
—
—
1,042
—
—
—
—
—
—
—
21,011
27,350
9,135
91,616
—
55,970
7,716,010
221,099
2,055,804
30,529
22,863
17,121
10,147,162
1,042
10,119,396
157,431
9,694
167,125
200,546
153,333
265,012
27,341
247,185
—
—
—
—
—
157,431
9,694
167,125
200,546
—
2,712
262,300
—
—
—
—
—
—
—
—
—
17,805
—
—
—
4,712
—
4,207
26,724
—
—
—
—
153,333
—
27,341
247,185
—
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 7, 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 or
identical instruments (Level 1) are exchange-traded energy derivative contracts, net of cash margin.
168
The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of December 31, 2012
(in thousands):
Quoted
Prices in
Active
Markets for
Identical
Instruments
Total
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Assets:
Trading securities:
U.S. Government agency debentures
$
16,545
$
— $
16,545
$
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Privately issued residential mortgage-backed securities
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities:
U.S. agency residential mortgage-backed securities
Corporate debt securities
Other securities
Total fair value option securities
Residential mortgage loans held for sale
Mortgage servicing rights, net1
Derivative contracts, net of cash margin2
Other assets – private equity funds
Liabilities:
Derivative contracts, net of cash margin 2
86,361
90,326
20,870
214,102
1,002
87,142
9,889,821
325,163
895,075
36,389
25,072
27,557
11,287,221
257,040
26,486
770
284,296
293,762
100,812
338,106
28,169
283,589
—
—
—
—
1,002
—
—
—
—
—
—
4,165
5,167
—
—
—
—
—
—
86,361
90,326
20,870
214,102
—
46,440
9,889,821
325,163
895,075
30,990
25,072
21,231
11,233,792
257,040
26,486
770
284,296
293,762
—
11,597
326,509
—
—
—
—
—
—
—
—
—
40,702
—
—
—
5,399
—
2,161
48,262
—
—
—
—
—
100,812
—
28,169
283,589
—
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 7, 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 agricultural derivative contracts, net of cash margin.
169
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 options 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
reference 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 use 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.
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.
170
The following represents the changes related to assets measured at fair value on a recurring basis using significant
unobservable inputs (in thousands):
Balance, December 31, 2011
Transfer to Level 3 from Level 2
Purchases and capital calls
Redemptions and distributions
Gain (loss) recognized in earnings:
Gain (loss) on other assets, net
Gain on available for sale securities, net
Other-than-temporary impairment losses
Other comprehensive loss
Balance, December 31, 2012
Transfer to Level 3 from Level 2
Purchases and capital calls
Redemptions and distributions
Gain (loss) recognized in earnings:
Gain on other assets, net
Gain on available for sale securities, net
Other-than-temporary impairment losses
Other comprehensive income (loss)
Balance, December 31, 2013
Available for Sale Securities
Municipal
and other
tax-exempt
Other debt
securities
Equity
securities
and mutual
funds
Other assets
– private
equity funds
$
42,353
$
5,900
$
— $
30,902
—
—
—
—
(988)
(500)
—
1
(642)
(22)
—
—
—
(1)
2,161
—
—
—
—
—
—
40,702
5,399
2,161
—
—
—
—
(19,238)
(500)
—
1,216
(1,369)
(3,506)
—
—
—
—
—
—
—
—
—
—
3,446
(9,819)
3,640
—
—
—
28,169
—
1,415
(5,294)
3,051
—
—
—
(187)
2,046
$
17,805
$
4,712
$
4,207
$
27,341
171
A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable
inputs (Level 3) as of December 31, 2013 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Par
Value
Amortized
Cost
Fair
Value
Valuation Technique(s)
Unobservable
Input
Range
(Weighted Average)
Available for sale securities
Municipal and other tax-
exempt securities –
Investment grade
$
18,695
$
18,624
$
17,805
Discounted cash flows
Other debt securities
4,900
4,900
4,712
Discounted cash flows
1
1
Interest rate
spread
Interest rate
spread
4.97%-5.27% (5.16%)
95.02%-95.50% (95.24%)
5.67% (5.67%)
96.16% (96.16%)
Equity securities and other
mutual funds
N/A
2,420
4,207
Publicly announced
preliminary purchase
price information from
acquirer.
Discount for
settlement
uncertainty.
Other assets - private equity
funds
N/A
N/A
27,341
Net asset value reported
by underlying fund
Net asset value
reported by
underlying fund
N/A
N/A
2
3
4
3
5
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 467 to 518 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%.
5 Fair value of shares of a smaller privately-held financial institution were valued using preliminary announced purchase information by a publicly-traded
acquirer.
The fair value of these securities measured at fair value using significant unobservable inputs are sensitive primarily to changes
in interest rate spreads. At December 31, 2013, for tax-exempt securities rated investment grade by all nationally-recognized
rating agencies, a 100 basis point increase in the spreads over average yields for comparable securities would result in an
additional decrease in the fair value of $172 thousand. For taxable securities rated investment grade by all nationally-
recognized rating agencies, a 100 basis point increase in the spreads over average yield for comparable securities would result
in an additional decrease in the fair value of $36 thousand.
172
A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs
(Level 3) as of December 31, 2012 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Par
Value
Amortized
Cost6
Fair
Value
Valuation Technique(s)
Unobservable
Input
Range
(Weighted Average)
Available for sale securities
Municipal and other tax-
exempt securities
Investment grade
$
28,570
$
28,473
$
28,318
Discounted cash flows
Below investment
grade
Total municipal and other
tax-exempt securities
17,000
12,384
12,384
Discounted cash flows
45,570
40,857
40,702
Other debt securities
5,400
5,400
5,399
Discounted cash flows
1
1
1
Equity securities and other
mutual funds
N/A
2,420
2,161
Tangible book value per
share of publicly traded
financial institutions of
similar size, less
liquidity discount.
2
3
4
3
5
3
7
Interest rate
spread
Interest rate
spread
1.00%-1.50% (1.25%)
98.83%-99.43% (99.12%)
7.21%-9.83% (7.82%)
72.79%-73.00% (72.85%)
Interest rate
spread
Peer group
tangible book
per share and
liquidity
discount
1.65%-1.71% (1.70%)
100% (100%)
N/A
N/A
Other assets - private equity
funds
N/A
N/A
28,169
Net asset value reported
by underlying fund
Net asset value
reported by
underlying fund
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 75 to 80 basis points over average yields for comparable tax-
exempt securities.
3 Represents fair value as a percentage of par value
4 Interest rate yields determined using a spread of 700 basis points over comparable municipal securities of varying durations.
5 Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than
1%.
6 Amortized cost reduced by other-than-temporary impairments recorded in earnings. See Note 2 for additional discussion.
7 Fair value of shares of a smaller privately-held financial institution were valued using the tangible book value per share of similarly sized financial
institutions within the immediate geographical market with a discount of 20% due to the liquidity of the shares.
173
Fair Value of Assets and Liabilities Measured on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis include pension plan assets, which are based on quoted prices in active
markets for identical instruments, 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. In addition, goodwill impairment is
evaluated based on the fair value of the Company's reporting units.
The following represents the carrying value of assets measured at fair value on a non-recurring basis and related losses
recorded during the year. The carrying value represents only those assets with the balance sheet date for which the fair value
was adjusted during the year:
Carrying Value at December 31, 2013
Fair Value Adjustments for the
Year Ended December 31, 2013
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
Impaired loans
Real estate and other repossessed assets
$
— $
—
$
8,380
20,733
$
4,622
191
$
6,598
—
—
5,489
Carrying Value at December 31, 2012
Fair Value Adjustments for the
Three Months Ended
December 31, 2012
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
$
21,589
39,077
$
3,891
4,421
$
11,615
—
—
15,954
Impaired loans
Real estate and other repossessed assets
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 estimate of current fair values between appraisal dates. Significant unobservable inputs include listing prices for
comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. These inputs are
developed by asset management and workout professional 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 December 31, 2013 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Fair
Value
Valuation
Technique(s)
Unobservable Input
Range
(Weighted Average)
Impaired loans
$
4,622
Appraised value,
as adjusted
Broker quotes and management's
knowledge of industry and collateral.
N/A
Real estate and other repossessed assets
1 Marketability adjustments includes consideration of estimated costs to sell which is approximately 15% of the fair value.
191
Listing value,
less cost to sell
Marketability adjustments off
appraised value
80%-85% (82%)1
174
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2012 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Fair
Value
Valuation
Technique(s)
Unobservable Input
Range
(Weighted Average)
Impaired loans
$
3,891
Appraised value,
as adjusted
Broker quotes and management's
knowledge of industry and collateral.
N/A
Real estate and other repossessed assets
1 Marketability adjustments includes consideration of estimated costs to sell which is approximately 15% of the fair value. In addition, $345
thousand of real estate and other repossessed assets at December 31, 2012 are based on uncorroborated expert opinions or management's
knowledge of the collateral or industry and do not have an independently appraised value.
4,421
58%-85%(76%)1
Listing value,
less cost to sell
Marketability adjustments off
appraised value
The fair value of pension plan assets was approximately $49 million at December 31, 2013 and $46 million at December 31,
2012, determined by significant other observable inputs. Fair value adjustments of pension plan assets along with changes in
projected benefit obligation are recognized in other comprehensive income.
Goodwill and intangible assets, which consist primarily of core deposit intangible assets and other acquired intangibles, for
each business unit are evaluated for impairment annually as of October 1st or more frequently if conditions indicate that
impairment may have occurred. The evaluation of possible impairment of intangible assets involves significant judgment based
upon short-term and long-term projections of future performance.
The fair value of each of our reporting units is estimated by the discounted future earnings method. Income growth is projected
for each of our reporting units over five years and a terminal value is computed. The projected income stream is converted to
fair value by using a discount rate that reflects a rate of return required by a willing buyer. Assumptions used to value our
business units are based on growth rates, volatility, discount rate and market risk premium inherent in our current stock price.
175
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 (dollars in
thousands):
December 31, 2013
Carrying
Value
Range of
Contractual Yields
Average
Re-pricing
(in years)
Discount Rate
Cash and due from banks
Interest-bearing cash and cash equivalents
Trading securities:
U.S. Government agency obligations
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Investment securities:
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Other debt securities
Total investment securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Privately issued residential mortgage-backed securities
Commercial mortgage-backed securities guaranteed by
U.S. government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities:
U.S. agency residential mortgage-backed securities
Corporate debt securities
Other securities
Total fair value option securities
Residential mortgage loans held for sale
$
512,931
574,282
34,120
21,011
27,350
9,135
91,616
440,187
50,182
187,509
677,878
1,042
73,775
7,716,010
221,099
2,055,804
35,241
22,863
21,328
10,147,162
157,431
—
9,694
167,125
334,250
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Allowance for loan losses
Net loans
Mortgage servicing rights
Derivative instruments with positive fair value, net of cash
margin
Other assets – private equity funds
Deposits with no stated maturity
Time deposits
Other borrowings
Subordinated debentures
7,943,221
0.04% - 30.00%
2,415,353
0.38% - 18.00%
2,052,026
0.38% - 18.00%
381,664
0.38% - 21.00%
0.49
0.78
2.63
0.55
0.48% - 4.33%
1.21% - 3.49%
0.59% - 4.73%
1.22% - 3.75%
12,792,264
(185,396)
12,606,868
153,333
265,012
27,341
17,573,334
2,695,993
0.01% - 9.64%
2,721,888
0.25% - 4.78%
347,802
0.95% - 5.00%
2.12
0.03
2.63
0.75% - 1.33%
0.08% - 2.64%
2.22%
Derivative instruments with negative fair value, net of cash
margin
247,185
176
Estimated
Fair
Value
$
512,931
574,282
34,120
21,011
27,350
9,135
91,616
439,870
51,864
195,393
687,127
1,042
73,775
7,716,010
221,099
2,055,804
35,241
22,863
21,328
10,147,162
157,431
—
9,694
167,125
200,546
7,835,325
2,394,443
2,068,690
375,962
12,674,420
—
12,674,420
153,333
265,012
27,341
17,573,334
2,697,290
2,693,788
344,783
247,185
December 31, 2012
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount Rate
Cash and due from banks
Interest-bearing cash and cash equivalents
Trading securities:
Obligations of the U.S. government
U.S. agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Investment securities:
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Other debt securities
Total investment securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt
U.S. agency residential mortgage-backed securities
Privately issued residential mortgage-backed securities
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
Total available for sale securities
Fair value option securities:
U.S. agency residential mortgage-backed securities
Corporate debt securities
Other securities
Total fair value option securities
Residential mortgage loans held for sale
Carrying
Value
$
710,739
575,500
16,545
86,361
90,326
20,870
214,102
232,700
82,767
184,067
499,534
1,002
87,142
9,889,821
325,163
895,075
36,389
25,072
27,557
11,287,221
257,040
26,486
770
284,296
293,762
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Allowance for loan losses
Net loans
Mortgage servicing rights
Derivative instruments with positive fair value, net of cash margin
Other assets – private equity funds
Deposits with no stated maturity
Time deposits
Other borrowings
Subordinated debentures
7,641,912
0.21% - 30.00%
2,228,999
0.21% - 18.00%
2,045,040
0.38% - 18.00%
395,505
0.38% - 21.00%
0.69
0.92
3.34
0.32
0.51% - 3.59%
1.26% - 3.18%
0.86% - 3.09%
1.37% - 3.60%
12,311,456
(215,507)
12,095,949
100,812
338,106
28,169
18,211,068
2,967,992
0.01% - 9.64%
2.15
0.80% - 1.15%
2,706,221
0.09% - 5.25%
— 0.09% - 2.67%
347,633
1.00% - 5.00%
3.56
2.40%
Derivative instruments with negative fair value, net of cash margin
283,589
Estimated
Fair
Value
$
710,739
575,500
16,545
86,361
90,326
20,870
214,102
235,940
85,943
206,575
528,458
1,002
87,142
9,889,821
325,163
895,075
36,389
25,072
27,557
11,287,221
257,040
26,486
770
284,296
293,762
7,606,505
2,208,217
2,110,773
388,748
12,314,243
—
12,314,243
100,812
338,106
28,169
18,211,068
3,441,610
2,369,224
411,243
283,589
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.
177
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 sheet 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 $157 million at
December 31, 2013 and $171 million at December 31, 2012.
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 December 31, 2013 or December 31, 2012.
Fair Value Election
As more fully disclosed in Note 2 and Note 7 to the Consolidated Financial Statements, the Company has elected to carry all
residential mortgage-backed securities which have been designated as economic hedges against changes in the fair value of
mortgage servicing rights, certain corporate debt securities economically hedged by derivative contracts to manage interest rate
risk and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments
are recognized in earnings.
178
(19) Parent Company Only Financial Statements
Summarized financial information for BOK Financial – Parent Company Only follows:
Balance Sheets
(In thousands)
Assets
Cash and cash equivalents
Available for sale securities
Investment in subsidiaries
Other assets
Total assets
Liabilities and Shareholders’ Equity
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
Statements of Earnings
(In thousands)
December 31,
2013
2012
$
561,297
$
457,514
27,526
44,881
2,426,495
2,464,729
12,872
4,324
$
3,028,190
$
2,971,448
$
8,141
$
8,141
13,588
13,588
4
4
898,586
859,278
2,349,428
2,137,541
(202,346)
(25,623)
(188,883)
149,920
3,020,049
2,957,860
$
3,028,190
$
2,971,448
Year Ended December 31,
2013
2012
2011
Dividends, interest and fees received from subsidiaries
$
225,340
$
275,330
$
270,474
Other revenue
Other-than-temporary impairment losses recognized in earnings
Total revenue
Interest expense
Professional fees and services
Other operating expense
Total expense
Income before taxes and equity in undistributed income of subsidiaries
Federal and state income tax (benefit)
Income before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
3,341
—
2,295
(1,099)
2,128
(2,098)
228,681
276,526
270,504
292
811
3,272
4,375
224,306
(1,578)
225,884
90,725
269
765
3,099
4,133
272,393
(1,706)
274,099
77,092
354
538
7,688
8,580
261,924
(3,169)
265,093
20,782
Net income attributable to BOK Financial Corp. shareholders
$
316,609
$
351,191
$
285,875
179
Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiaries
Tax benefit on exercise of stock options
Change in other assets
Change in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of available for sale securities
Sales of available for sale securities
Investment in subsidiaries
Acquisitions, net of cash acquired
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Issuance of common and treasury stock, net
Tax benefit on exercise of stock options
Dividends paid
Repurchase of common stock
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid for interest
(20) Subsequent Events
Year Ended December 31,
2013
2012
2011
$
316,609
$
351,191
$
285,875
(90,725)
(77,092)
(2,210)
(8,308)
4,263
(120)
4,237
(4,965)
219,629
273,251
—
13,600
(36,000)
(7,500)
(29,900)
16,566
2,210
(104,722)
—
(85,946)
103,783
457,514
561,297
292
$
$
(5,343)
4,781
(9,100)
(20,000)
(29,662)
14,650
120
(166,982)
(20,558)
(172,770)
70,819
386,695
457,514
269
$
$
(20,782)
(659)
15,249
(18,225)
261,458
(3,797)
16,500
(7,250)
—
5,453
14,541
659
(76,423)
(26,446)
(87,669)
179,242
207,453
386,695
354
$
$
The Company evaluated events from the date of the consolidated financial statements on December 31, 2013 through the
issuance of those consolidated financial statements included in this Annual Report on Form 10-K. No events were identified
requiring recognition in and/or disclosure in the consolidated financial statements.
180
Annual Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
Taxable
Tax-exempt
Total investment securities
Available for sale securities
Taxable
Tax-exempt
Total available for sale securities
Fair value option securities
Restricted equity securities
Residential mortgage loans held for sale
Loans
Less: allowance for loan losses
Loans, net of allowance
Total earning assets
Receivable on unsettled securities trades
Cash and other assets
Total assets
Liabilities and equity
Interest-bearing deposits:
Transaction
Savings
Time
Total interest-bearing deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest-bearing liabilities
Non-interest bearing demand deposits
Due on unsettled securities trades
Other liabilities
Total equity
Total liabilities and equity
Tax-equivalent Net Interest Revenue
Tax-equivalent Net Interest Revenue to Earning Assets
Less tax-equivalent adjustment
Net Interest Revenue
Provision for credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
Net income attributable to non-controlling interest
Net income attributable to BOK Financial Corporation shareholders
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
Year Ended
December 31, 2013
Average
Balance
Revenue/
Expense
Yield/
Rate
1,075
2,696
14,260
6,324
20,584
204,830
3,498
208,328
3,907
5,071
8,505
505,503
505,503
755,669
11,155
442
43,967
55,564
848
503
5,238
8,741
70,894
0.21%
1.81%
5.83%
1.82%
3.48%
1.96%
3.13%
1.97%
1.97%
4.02%
3.73%
4.10%
4.16%
3.09%
0.12%
0.14%
1.57%
0.44%
0.10%
0.06%
0.31%
2.51%
0.43%
$
503,603
148,816
$
244,750
365,543
610,293
10,717,416
116,066
10,833,482
200,888
126,127
230,588
12,342,333
203,874
12,138,459
24,792,256
121,540
2,467,298
27,381,094
9,524,008
313,280
2,795,676
12,632,964
866,062
811,996
1,693,993
347,717
16,352,732
7,090,319
313,082
613,879
3,011,082
27,381,094
$
$
$
$
$
684,775
2.66%
2.80%
10,298
674,477
(27,900)
614,472
840,620
476,229
157,298
318,931
2,322
316,609
4.61
4.59
$
$
$
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 include average
loan balances for which the accrual of interest has been discontinued and are net of unearned income.
181
Annual Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Year Ended
December 31, 2012
Average
Balance
Revenue/
Expense
Yield/
Rate
Average
Balance
December 31, 2011
Revenue/
Expense
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
$
279,063
134,176
$
Taxable
Tax-exempt
Total investment securities
Available for sale securities
Taxable
Tax-exempt
Total available for sale securities
Fair value option securities
Restricted equity securities
Residential mortgage loans held for sale
Loans
Less: allowance for loan losses
Loans, net of allowance
Total earning assets
Receivable on unsettled securities trades
Cash and other assets
Total assets
Liabilities and equity
Interest-bearing deposits:
Transaction
Savings
Time
Total interest-bearing deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest-bearing liabilities
Non-interest bearing demand deposits
Due on unsettled securities purchases
Other liabilities
Total equity
$
$
Total liabilities and equity
$
Tax-equivalent Net Interest Revenue
Tax-equivalent Net Interest Revenue to
Earning Assets
Less tax-equivalent adjustment
Net Interest Revenue
Provision for credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income
Net income attributable to non-controlling
interest
Net income attributable to BOK Financial
Corporation shareholders
Earnings Per Average Common Share
Equivalent:
Net income:
Basic
Diluted
945
2,138
16,848
5,601
22,449
237,226
3,716
240,942
8,464
2,291
8,185
518,784
518,784
804,198
14,300
540
52,173
67,013
2,095
1,008
3,428
13,778
87,322
286,626
145,899
432,525
10,542,074
106,037
10,648,111
379,603
47,961
227,795
11,696,054
238,806
11,457,248
23,606,482
160,576
2,522,092
26,289,150
9,040,626
261,822
3,114,046
12,416,494
1,512,711
1,072,650
155,664
363,699
15,521,218
6,590,283
691,644
580,051
2,905,955
26,289,151
$
$
716,876
9,327
707,549
(22,000)
653,678
840,363
542,864
188,740
354,124
2,933
351,191
5.15
5.13
$
$
$
182
0.08%
3.62%
5.94%
4.86%
5.48%
2.91%
4.13%
2.92%
3.70%
5.40%
4.23%
4.70%
4.83%
3.86%
0.25%
0.34%
1.80%
0.68%
0.09%
0.22%
3.98%
5.61%
0.76%
3.10%
3.30%
0.34% $
1.59%
586,783
81,978
$
491
2,486
5.88%
4.06%
5.29%
211,949
155,707
367,656
9,557,442
2.42%
89,976
3.68%
9,647,418
2.44%
543,318
2.51%
19,898
4.78%
3.64%
154,794
4.44% 10,841,341
284,516
4.53% 10,556,825
3.53% 21,958,670
648,864
1,887,327
$ 24,494,861
0.16% $ 9,349,760
212,443
0.21%
1.68%
3,587,698
0.54% 13,149,901
1,046,114
0.14%
1,096,615
0.09%
137,122
2.20%
3.79%
398,790
0.56% 15,828,542
4,877,906
648,864
457,684
2,681,865
$ 24,494,861
2.97%
3.15%
12,581
7,562
20,143
259,871
3,566
263,437
18,649
1,075
6,492
509,462
509,462
822,235
$
23,415
719
64,756
88,890
917
2,453
5,456
22,385
120,101
$
702,134
9,089
693,045
(6,050)
528,538
779,298
448,335
158,511
289,824
3,949
$
285,875
$
$
4.18
4.17
Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
Three Months Ended
Average
Balance
December 31, 2013
Revenue/
Expense1
Yield/
Rate
Average
Balance
September 30, 2013
Revenue/
Expense1
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
$
559,918
127,011
$
Taxable3
Tax-exempt3
Total investment securities
Available for sale securities
Taxable3
Tax-exempt3
Total available for sale securities3
Fair value option securities
Restricted equity securities
Residential mortgage loans held for sale
Loans2
Less allowance for loan losses
Loans, net of allowance
Total earning assets3
Receivable on unsettled securities trades
Cash and other assets
Total assets
Liabilities and equity
Interest-bearing deposits:
Transaction
Savings
Time
Total interest-bearing deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest-bearing liabilities
Non-interest bearing demand deposits
Due on unsettled securities trades
Other liabilities
Total equity
Total liabilities and equity
Tax-equivalent Net Interest Revenue3
Tax-equivalent Net Interest Revenue to Earning
Assets3
Less tax-equivalent adjustment1
Net Interest Revenue
Provision for credit losses
Other operating revenue
Other operating expense
Income before taxes
Federal and state income tax
Net income before non-controlling interest
Net income (loss) attributable to non-controlling
interest
Net income attributable to BOK Financial Corp.
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
258
472
3,424
1,772
5,196
48,295
751
49,046
892
1,555
2,251
125,917
125,917
185,587
2,566
95
10,587
13,248
145
105
1,205
2,173
16,876
238,306
434,416
672,722
10,322,624
112,186
10,434,810
167,490
123,009
217,811
12,461,576
(193,309)
12,268,267
24,571,038
83,016
2,448,734
$ 27,102,788
$
9,486,136
323,123
2,710,019
12,519,278
748,074
752,286
1,551,591
347,781
15,919,010
7,356,063
152,078
621,834
3,053,803
$ 27,102,788
$
$
168,711
2,467
166,244
(11,400)
147,015
215,419
109,240
35,318
73,922
946
72,976
1.06
1.06
$
$
$
0.22%
2.25%
5.78%
1.60%
3.22%
1.92%
2.81%
1.93%
1.80%
3.05%
3.87%
4.06%
4.13%
3.03%
0.11%
0.13%
1.55%
0.43%
0.07%
0.06%
0.28%
2.52%
0.42%
2.61%
2.75%
355
688
3,434
1,501
4,935
50,167
828
50,995
814
1,189
2,168
126,849
126,849
187,993
2,681
107
10,738
13,526
134
123
1,547
2,209
17,539
0.18% $
1.73%
654,591
124,689
$
5.75%
1.66%
3.12%
237,487
383,617
621,104
1.89% 10,439,353
2.74%
119,324
1.89% 10,558,677
2.06%
169,299
5.06%
155,938
4.16%
225,789
4.01% 12,402,096
(201,616)
4.07% 12,200,480
3.02% 24,710,567
90,014
2,454,151
$ 27,254,732
0.11% $
9,276,136
0.12%
317,912
1.55%
2,742,970
0.42% 12,337,018
0.08%
776,356
0.06%
799,175
0.31%
2,175,747
2.48%
347,737
0.42% 16,436,033
7,110,079
111,998
631,699
2,964,923
$ 27,254,732
2.60%
2.74%
$
$
170,454
2,565
167,889
(8,500)
143,432
210,298
109,523
33,461
76,062
324
75,738
1.10
1.10
$
$
$
1 Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes.
2 The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income.
3 Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
4 Yield / rate calculations are generally based on the conventions that determine how interest revenue and expense is accrued.
183
Quarterly Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
Average Balance
June 30, 2013
Revenue /
Expense1
Yield /
Rate
Three Months Ended
March 31, 2013
Revenue /
Expense1
Average Balance
December 31, 2012
Yield /
Rate
Average Balance
Revenue /
Expense1
Yield /
Rate
0.27% $
2.40%
388,132
162,353
$
0.19% $
2.13%
413,920
165,109
$
278
829
3,604
1,568
5,172
51,360
1,013
52,373
1,024
1,462
2,294
125,992
125,992
189,424
2,762
120
11,027
13,909
205
129
1,442
2,200
17,885
$
408,224
181,866
$
245,311
365,629
610,940
10,940,486
120,214
11,060,700
216,312
144,332
261,977
12,277,444
(206,807)
12,070,637
24,954,988
135,964
2,568,372
27,659,324
9,504,128
315,421
2,818,533
12,638,082
789,302
819,373
2,172,417
347,695
16,766,869
6,888,983
330,926
644,892
3,027,654
27,659,324
$
$
$
$
$
171,539
2,647
168,892
—
163,340
210,921
121,311
41,423
79,888
(43)
79,931
1.16
1.16
$
$
$
258,196
276,576
534,772
11,179,674
112,507
11,292,181
251,725
80,433
216,816
12,224,960
(214,017)
12,010,943
24,937,355
178,561
2,397,515
27,513,431
9,836,204
296,319
2,913,999
13,046,522
1,155,983
878,679
863,360
347,654
16,292,198
7,002,046
665,175
556,173
2,997,839
27,513,431
$
5.88%
1.88%
3.58%
1.94%
3.59%
1.96%
1.92%
4.05%
3.54%
4.12%
4.19%
3.10%
$
0.12% $
0.15%
1.57%
0.44%
0.10%
0.06%
0.27%
2.54%
0.43%
$
2.67%
2.80%
184
707
3,798
1,483
5,281
55,007
907
55,914
1,177
865
1,792
126,745
126,745
192,665
3,146
120
11,615
14,881
364
146
1,044
2,159
18,594
$
174,071
2,619
171,452
(8,000)
160,685
203,982
136,155
47,096
89,059
1,095
87,964
1.28
1.28
$
$
$
184
0.21%
1.54%
5.90%
2.95%
4.69%
2.15%
3.10%
2.16%
1.64%
4.15%
3.44%
4.33%
4.42%
3.30%
0.15%
0.18%
1.80%
0.54%
0.15%
0.09%
0.90%
2.56%
0.54%
2.76%
2.95%
271,957
202,128
474,085
11,369,596
112,616
11,482,212
292,490
65,275
272,581
11,989,319
(229,095)
11,760,224
24,925,896
144,077
2,426,803
27,496,776
9,343,421
278,714
3,010,367
12,632,502
1,295,442
900,131
364,425
347,613
15,540,113
7,505,074
854,474
625,628
2,971,487
27,496,776
$
5.88%
2.38%
4.17%
2.09%
3.39%
2.11%
2.06%
4.30%
3.36%
4.20%
4.27%
3.21%
$
0.13% $
0.16%
1.62%
0.46%
0.13%
0.07%
0.49%
2.52%
0.46%
$
2.75%
2.90%
218
441
4,008
1,379
5,387
56,505
836
57,341
780
678
2,323
130,510
130,510
197,678
3,496
124
13,588
17,208
477
197
824
2,239
20,945
$
176,733
2,472
174,261
(14,000)
166,422
226,774
127,909
44,293
83,616
1,051
82,565
1.21
1.21
$
$
$
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the
“Exchange Act”), the Company's management, including the Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness and design of the Company's disclosure controls and procedures (as that term is defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded, as of the end of the period covered by this report, that the Company's disclosure controls and
procedures were effective in recording, processing, summarizing and reporting information required to be disclosed by the
Company, within the time periods specified in the Securities and Exchange Commission's rules and forms.
In addition and as of the end of the period covered by this report, there have been no changes in internal control over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f), as amended, of the Exchange Act) during the Company's fourth fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
The Report of Management on Financial Statements and Management's Report on Internal Control over Financial Reporting
appear within Item 8, “Financial Statements and Supplementary Data.” The independent registered public accounting firm,
Ernst & Young LLP, has audited the financial statements included in Item 8 and has issued an audit report on the Company's
internal control over financial reporting, which appears therein.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth under the headings “Election of Directors,” “Executive Officers, “Insider Reporting,” “Director
Nominations,” and “Risk Oversight and Audit Committee” in BOK Financial's 2014 Annual Proxy Statement is incorporated
herein by reference.
The Company has a Code of Ethics which is applicable to all Directors, officers and employees of the Company, including the
Chief Executive Officer and the Chief Financial Officer, the principal executive officer and principal financial and accounting
officer, respectively. A copy of the Code of Ethics will be provided without charge to any person who requests it by writing to
the Company's headquarters at Bank of Oklahoma Tower, P.O. Box 2300, Tulsa, Oklahoma 74192 or telephoning the Chief
Auditor at (918) 588-6000. The Company will also make available amendments to or waivers from its Code of Ethics
applicable to Directors or executive officers, including the Chief Executive Officer and the Chief Financial Officer, in
accordance with all applicable laws and regulations.
There are no material changes to the procedures by which security holders may recommend nominees to the Company's board
of directors since the Company's 2013 Annual Proxy Statement to Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading “Compensation Discussion and Analysis,” “Compensation Committee Interlocks
and Insider Participation, “Compensation Committee Report,” “Executive Compensation Tables,” and “Director
Compensation” in BOK Financial's 2014 Annual Proxy Statement is incorporated herein by reference.
185
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and
“Election of Directors” in BOK Financial's 2014 Annual Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding related parties is set forth in Note 13 of the Company's Notes to Consolidated Financial Statements,
which appears elsewhere herein. Additionally, the information set forth under the headings “Certain Transactions,” “Director
Independence” and “Related Party Transaction Review and Approval Process” in BOK Financial's 2014 Annual Proxy
Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the heading “Principal Accountant Fees and Services” in BOK Financial's 2014 Annual Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
The following financial statements of BOK Financial Corporation are filed as part of this Form 10-K in Item 8:
Consolidated Statements of Earnings for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Annual Financial Summary - Unaudited
Quarterly Financial Summary - Unaudited
Quarterly Earnings Trends - Unaudited
Reports of Independent Registered Public Accounting Firm
(a) (2) Financial Statement Schedules
The schedules to the consolidated financial statements required by Regulation S-X are not required under the related
instructions or are inapplicable and are therefore omitted.
186
(a) (3) Exhibits
Exhibit
Number
Description of Exhibit
The Articles of Incorporation of BOK Financial, incorporated by reference to (i) Amended and
Restated Certificate of Incorporation of BOK Financial filed with the Oklahoma Secretary of
State on May 28, 1991, filed as Exhibit 3.0 to S-1 Registration Statement No. 33-90450, and (ii)
Amendment attached as Exhibit A to Information Statement and Prospectus Supplement filed
November 20, 1991.
Bylaws of BOK Financial, incorporated by reference to Exhibit 3.1 of S-1 Registration Statement
No. 33-90450.
3.0
3.1
3.1(a)
Bylaws of BOK Financial, as amended and restated as of October 30, 2007, incorporated by
reference to Exhibit 3.1 of Form 8-K filed on November 5, 2007.
4.0
10.0
10.1
10.2
10.3
10.4
10.4(a)
10.4(b)
10.4(c)
10.4 (d)
10.4 (e)
10.4 (f)
10.4 (g)
10.4.2
The rights of the holders of the Common Stock and Preferred Stock of BOK Financial are set
forth in its Certificate of Incorporation.
Purchase and Sale Agreement dated October 25, 1990, among BOK Financial, Kaiser, and the
FDIC, incorporated by reference to Exhibit 2.0 of S-1 Registration Statement No. 33-90450.
Amendment to Purchase and Sale Agreement effective March 29, 1991, among BOK Financial,
Kaiser, and the FDIC, incorporated by reference to Exhibit 2.2 of S-1 Registration Statement No.
33-90450.
Letter agreement dated April 12, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated
by reference to Exhibit 2.3 of S-1 Registration Statement No. 33-90450.
Second Amendment to Purchase and Sale Agreement effective April 15, 1991, among BOK
Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.4 of S-1 Registration
Statement No. 33-90450.
Employment and Compensation Agreements.
Employment Agreement between BOK Financial and Stanley A. Lybarger, incorporated by
reference to Exhibit 10.4(a) of Form 10-K for the fiscal year ended December 31, 1991.
Amendment to 1991 Employment Agreement between BOK Financial and Stanley A. Lybarger,
incorporated by reference to Exhibit 10.4(b) of Form 10-K for the fiscal year ended December 31,
2001.
Amended and Restated Deferred Compensation Agreement (Amended as of September 1, 2003)
between Stanley A. Lybarger and BOK Financial Corporation, incorporated by reference to
Exhibit 10.4 (c) of Form 10-Q for the quarter ended September 30, 2003.
409A Deferred Compensation Agreement between Stanley A. Lybarger and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4 (d) of Form 8-K
filed on January 5, 2005.
Guaranty by George B. Kaiser in favor of Stanley A. Lybarger dated March 7, 2005, incorporated
by reference to Exhibit 10.4 (e) of Form 10-K for the fiscal year ended December 31, 2004.
Third Amendment to 1991 Employment Agreement between Stanley A. Lybarger and Bank of
Oklahoma, National Association, incorporated by reference to Exhibit 10.4 (f) of Form 10-K for
the fiscal year ended December 31, 2007.
Amended and Restated Employment Agreement dated December 26, 2008 between BOK
Financial Corporation and Stanley A. Lybarger, incorporated by reference to Exhibit 99 (a) of
Form 8-K filed on December 26, 2008.
Amended and Restated Deferred Compensation Agreement (Amended as of December 1, 2003)
between Steven G. Bradshaw and BOK Financial Corporation, incorporated by reference to
Exhibit 10.4.2 of Form 10-K for the fiscal year ended December 31, 2003.
187
10.4.2 (a)
10.4.2 (b)
10.4.2 (c)
10.4.4
10.4.5
10.4.5 (a)
10.4.5 (b)
10.4.5 (c)
10.4.7
10.4.7 (a)
10.4.7 (b)
10.4.8
10.4.9
10.4.9 (a)
10.4.9 (b)
10.6
10.7.7
10.7.8
409A Deferred Compensation Agreement between Steven G. Bradshaw and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.2 (a) of Form 8-
K filed on January 5, 2005.
Employment Agreement between BOK Financial and Steven G. Bradshaw dated September 29,
2003, incorporated by reference to Exhibit 10.4.2 (b) of Form 10-K for the fiscal year ended
December 31, 2004.
Amended and Restated Employment Agreement (amended as of June 30, 2013) between BOK
Financial and Steven G. Bradshaw, incorporated by reference to Exhibit 99.A of Form 8-K filed
August 20, 2013.
Amended and Restated Employment Agreement (Amended as of June 14, 2002) among First
National Bank of Park Cities, BOK Financial Corporation and C. Fred Ball, Jr., incorporated by
reference to Exhibit 10.4.4 of Form 10-K for the fiscal year ended December 31, 2003.
409A Deferred Compensation Agreement between Daniel H. Ellinor and BOK Financial
Corporation dated December 31, 2004, incorporated by reference to Exhibit 10.4.5 of Form 8-K
filed on January 5, 2005.
Employment Agreement between BOK Financial and Dan H. Ellinor dated August 29, 2003,
incorporated by reference to Exhibit 10.4.5 (a) of Form 10-K for the fiscal year ended December
31, 2004.
Deferred Compensation Agreement dated November 28, 2003 between Daniel H. Ellinor and
BOK Financial Corporation, incorporated by reference to Exhibit 10.4.5 (b) of Form 10-K for the
fiscal year ended December 31, 2004.
Amended and Restated Employment Agreement (amended as of June 15, 2013) between BOK
Financial and Daniel Ellinor, incorporated by reference to Exhibit 99.B of Form 8-K filed August
20, 2013.
409A Deferred Compensation Agreement between Steven E. Nell and BOK Financial Corporation
dated December 31, 2004, incorporated by reference to Exhibit 10.4.7 of Form 8-K filed on
January 5, 2005.
Amended and Restated Deferred Compensation Agreement (Amended as of December 1, 2003)
between Steven E. Nell and BOK Financial Corporation, incorporated by reference to Exhibit
10.4.7 (a) of Form 10-K for the fiscal year ended December 31, 2004.
Amended and Restated Employment Agreement (amended June 15, 2013) between BOK
Financial and Steven Nell incorporated by reference to Exhibit 99.B of Form 8-K filed September
4, 2013.
Employment Agreement dated August 1, 2005 between BOK Financial Corporation and Donald
T. Parker, incorporated by reference to Exhibit 99 (a) of Form 8-K filed on February 1, 2006.
Employment Agreement dated April 4, 2008 between Bank of Texas, NA, and Norman P.
Bagwell, incorporated by reference to Exhibit 10.4.9 of Form 10-K filed on February 27, 2013.
First Amendment of Employment Agreement dated June 30, 2011 between Bank of Texas, a
division of BOKF, NA, and Norman P. Bagwell, incorporated by reference to Exhibit 10.4.9 (a) of
Form 10-K filed on February 27, 2013.
Amended and Restated Employment Agreement (amended as of June 15, 2013) between BOK
Financial and Norman Bagwell, incorporated by reference to Exhibit 99.A of Form 8-K filed
September 4, 2013.
Capitalization and Stock Purchase Agreement dated May 20, 1991, between BOK Financial and
Kaiser, incorporated by reference to Exhibit 10.6 of S-1 Registration Statement No. 33-90450.
BOK Financial Corporation 2001 Stock Option Plan, incorporated by reference to Exhibit 4.0 of
S-8 Registration Statement No. 333-62578.
BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to
Exhibit 4.0 of S-8 Registration Statement No. 33-79836.
188
10.7.9
10.7.10
10.7.11
10.7.12
10.7.13
10.7.14
10.7.15
10.7.16
10.8
10.9
21.0
23.0
31.1
31.2
32
99.0
99 (a)
99 (c)
101
Bank of Oklahoma Thrift Plan (Amended and Restated Effective as of January 1, 1995),
incorporated by reference to Exhibit 10.7.6 of Form 10-K for the year ended December 31, 1994.
Trust Agreement for the Bank of Oklahoma Thrift Plan (December 30, 1994), incorporated by
reference to Exhibit 10.7.7 of Form 10-K for the year ended December 31, 1994.
BOK Financial Corporation 2003 Stock Option Plan, incorporated by reference to Exhibit 4.0 of
S-8 Registration Statement No. 333-106531.
BOK Financial Corporation 2003 Executive Incentive Plan, incorporated by reference to Exhibit
4.0 of S-8 Registration Statement No. 333-106530.
10b5-1 Repurchase Plan between BOK Financial Corporation and BOSC, Inc. dated May 27,
2008, incorporated by reference to Exhibit 10.1 of Form 8-K filed May 27, 2008.
BOK Financial Corporation 2003 Executive Incentive Plan, as amended and restated, for the
Chief Executive Officer and for Direct Reports to the Chief Executive Officer, incorporated by
reference to the Schedule 14 A Definitive Proxy Statement filed on March 15, 2011.
BOK Financial Corporation 2011 True-Up Plan, for the Chief Executive Officer and his Direct
Reports, incorporated by reference to the Schedule 14A Definitive Proxy Statement filed on
March 15, 2011.
BOK Financial Corporation 2009 Omnibus Incentive Plan, Amended and Restated effective April
30, 2013, incorporated by reference to the Schedule 14A Definitive Proxy Statement filed on
March 20, 2013.
Lease Agreement between One Williams Center Co. and National Bank of Tulsa (predecessor to
BOk) dated June 18, 1974, incorporated by reference to Exhibit 10.9 of S-1 Registration
Statement No. 33-90450.
Lease Agreement between Security Capital Real Estate Fund and BOk dated January 1, 1988,
incorporated by reference to Exhibit 10.10 of S-1 Registration Statement No. 33-90450.
Subsidiaries of BOK Financial, filed herewith.
Consent of independent registered public accounting firm - Ernst & Young LLP, filed herewith.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, filed herewith.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, filed herewith.
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, filed
herewith.
Additional Exhibits.
Credit Agreement dated June 9, 2011 between BOK Financial Corporation and participating
lenders, incorporated by reference to Form 10-Q filed November 6, 2012.
First Amended Debenture dated December 2, 2009 between BOK Financial Corporation and
George B. Kaiser, incorporated by reference to Exhibit 99 (a) of Form 8-K filed December 4,
2009.
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 the Consolidated
Financial Statements, filed herewith.
189
(b)
Exhibits
See Item 15 (a) (3) above.
(c)
Financial Statement Schedules
See Item 15 (a) (2) above.
190
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
DATE: February 26, 2014 BY: /s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 26, 2014,
by the following persons on behalf of the registrant and in the capacities indicated.
OFFICERS
/s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
/s/ Steven G. Bradshaw
Steven G. Bradshaw
Director, President and Chief Executive Officer
/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
191
/s/ Gregory S. Allen
Gregory S. Allen
/s/ Alan S. Armstrong
Alan S. Armstrong
/s/ C. Frederick Ball, Jr.
C. Frederick Ball, Jr.
/s/ Sharon J. Bell
Sharon J. Bell
/s/ Peter C. Boylan, III
Peter C. Boylan, III
/s/ Chester E. Cadieux, III
Chester E. Cadieux, III
/s/ Joseph W. Craft, III
Joseph W. Craft, III
/s/ John W. Gibson
John W. Gibson
/s/ David F. Griffin
David F. Griffin
/s/ V. Burns Hargis
V. Burns Hargis
DIRECTORS
Douglas D. Hawthorne
/s/ E. Carey Joullian, IV
E. Carey Joullian, IV
/s/ Robert J. LaFortune
Robert J. LaFortune
/s/ Stanley A. Lybarger
Stanley A. Lybarger
/s/ Steven J. Malcolm
Steven J. Malcolm
/s/ Emmet C. Richards
Emmet C. Richards
/s/ John Richels
John Richels
/s/ Michael C. Turpen
Michael C. Turpen
R.A. Walker
192
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF EXECUTIVE OFFICER
I, Steven G. Bradshaw, President and Chief Executive Officer of BOK Financial Corporation (“BOK Financial”), certify that:
1.
I have reviewed this Annual Report on Form 10-K of BOK Financial;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 26, 2014
/s/ Steven G. Bradshaw
Steven G. Bradshaw
President
Chief Executive Officer
BOK Financial Corporation
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF FINANCIAL OFFICER
I, Steven E. Nell, Chief Financial Officer of BOK Financial Corporation (“BOK Financial”), certify that:
1.
I have reviewed this Annual Report on Form 10-K of BOK Financial;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
5. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
d.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
6. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 26, 2014
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President and Chief Financial Officer
BOK Financial Corporation
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of BOK Financial Corporation (“BOK Financial”) on Form 10-K for the fiscal year
ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we,
Steven G. Bradshaw and Steven E. Nell, Chief Executive Officer and Chief Financial Officer, respectively, of BOK Financial,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of BOK Financial as of, and for, the periods presented.
February 26, 2014
/s/ Steven G. Bradshaw
Steven G. Bradshaw
President
Chief Executive Officer
BOK Financial Corporation
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
RETAIL AND COMMERCIAL BANKING:
WEALTH MANAGEMENT:
TRANSACTION PROCESSING:
MORTGAGE BANKING:
CORPORATE HEADQUARTERS:
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma 74192
918.588.6000