2014 ANNUAL REPORT
2014 | Annual Report
2014 KEY ACCOMPLISHMENTS
COMMERCIAL
• Increased loan growth to 11 percent, more than double the pace of a year ago.
• Successfully expanded the Healthcare banking business across the footprint, delivering 14 percent
loan growth in its first year.
• Doubled syndication fees compared to the previous best year for the bank and closed new syndicated
transactions with all commercial business lines.
• Launched Treasury Source, an upgraded treasury management platform for commercial clients.
• Recorded net recoveries in the loan portfolio, reflecting continued excellent underlying credit quality.
FEE GENERATING BUSINESSES
• Delivered 19 percent growth in assets under management, far exceeding overall market growth.
• Launched HomeDirect Mortgage, a new sales channel to serve the online mortgage shopper,
which drove $428 million of volume in its first full year of operation.
• Completed two successful acquisitions that increased corporate capabilities in wealth and enhanced
our presence in Kansas City and Houston, two important growth markets.
• Delivered 9 percent growth in EFT transactions and 11 percent growth in merchant processing volume
in our TransFund transaction processing business.
RISK MANAGEMENT
• Repositioned the balance sheet in preparation for an expected rising rate environment, reducing liability
sensitivity by 50 percent during the year.
• Completed upgrade of Bank Secrecy Act/Anti-Money Laundering infrastructure on time and on budget.
• Created centralized compliance and audit teams, filling most open positions from within the organization.
• Successfully completed two disaster recovery tests.
OTHER
• Enhanced Texas leadership team to continue to capitalize on growth opportunities.
• Re-energized mergers and acquisitions efforts to identify additional acquisition targets and build a winning
bid and integration strategy.
• Expanded internal training and development curriculum to continue to enhance the employee experience.
• Upgraded investor relations program to expand financial disclosure and investor access to senior leadership.
To Our Fellow Shareholders:
I’d like to take this time to share our accomplishments from 2014, as well as provide a preview of
our growth strategies for 2015 and beyond. Net income for the year was $292 million, or $4.22 per
diluted share, compared to $316.6 million or $4.59 per share in 2013. I can assure you that no one at
BOK Financial is happy about a decrease in earnings, but we do believe we took the right actions
throughout the year to position the bank for earnings growth in 2015 and beyond.
We knew 2014 would be a challenging year as we faced a number of headwinds entering the year including a
significant investment in risk and compliance infrastructure, a planned reduction in the size of our bond portfolio
to position the balance sheet for a rising rate environment, and a tough competitive market. In addition,
we realized $28 million of benefit from reversal of loan loss reserves in 2013, something that was not likely
to reoccur in 2014.
In the face of these challenges, I’m extremely proud of how our team executed in 2014. We accomplished all
of the strategic objectives outlined at the start of the year. Loan growth accelerated to the low double digits,
and we believe we gained market share with commercial borrowers. We completed two small but important
acquisitions in the wealth management business. We completed the build-out of our compliance infrastructure
on time and on budget. We delivered strong revenue growth in key fee-generating
businesses and regained revenue momentum in our mortgage business. We reduced the
size of our bond portfolio by $1.3 billion and reduced liability sensitivity to less than one
percent at year end. And we made additional investments in our people, strengthening
our team across the company.
We also returned capital to shareholders. In 2014 we paid $112.1 million of dividends
to shareholders, or 38.3 percent of earnings, and resumed our stock buyback
program, purchasing 200,000 shares in the open market. In November
we continued our 10-year track record of dividend increases when
we declared a quarterly cash dividend of 42 cents per share,
a five percent increase.
Steven G. Bradshaw
President and CEO, BOK Financial
ENERGIZING REVENUE GROWTH
In 2014 we saw significant positive movement in total loans
and assets under management, two important precursors to
revenue growth. Loans were up 11.1 percent and assets
under management were up 19.4 percent. Several fee-gen-
erating lines of business turned in strong year-over-year
growth, including brokerage and trading, transaction card,
and fiduciary and asset management. Mortgage banking rev-
enues were down due to tough year-over-year comparisons,
as were deposit service charges and fees, a line item that
has been under pressure industry-wide for several years
now. But all told, we are pleased with the progress we made
in 2014 to grow the business.
Another key initiative in 2014 was the introduction of our
Healthcare banking business as a stand-alone specialty
lending area. By pooling all of the bank’s healthcare expertise
into one unified team, we were able to accelerate the growth
of this business. As a result, healthcare banking was one of
our fastest growing businesses, and its loan portfolio was up
14.2 percent year-over-year.
In the trust business, we completed two acquisitions in
2014: GTRUST, a specialty trust company based in Kansas,
and MBM Advisors, a 401(k) administrator based in Houston,
Texas. GTRUST brought with it a differentiated model for fee-
only financial planning for the mass-affluent market, while
MBM Advisors brought ERISA 3(38) Fiduciary capabilities
enabling it to serve as a turnkey 401(k) provider for small and
mid-sized businesses. In each case, the firms’ areas of ex-
pertise can be introduced across our footprint. This acquisi-
tion model replicates the success we have had with our
acquisition of Denver-based The Milestone Group in 2012,
which has doubled assets under management since joining
the BOK Financial family.
BUILDING LEADING RISK AND COMPLIANCE
MANAGEMENT CAPABILITIES
Equally important, in 2014 we invested in people, techno-
logical infrastructure, and processes to enhance our risk and
compliance operations and ensure that our business
platform is secure, resilient, and scalable.
It is essential for banks today to have fortress-like infrastruc-
ture to protect data and systems from external threats.
Accordingly, during the year we upgraded our Bank Secrecy
Act/Anti-Money Laundering (BSA/AML) infrastructure. This
was a significant investment, which we believe added
$10-15 million to our annual expense base and another $5
million of one-time expenses during 2014. As we exit the
year, our new systems are up and running and this invest-
ment is largely complete.
We also conducted multiple business resiliency tests during
the year, simulating a natural disaster that disabled our
primary operations facility in Tulsa, Oklahoma. Our employ-
ees conducted these tests over bank holiday weekends with
positive results, giving us even greater confidence that we
would be able to respond quickly and meet our clients’ needs
in such an event.
CONTROLLING INTERNAL
EXPENSE GROWTH
During the year, total expenses grew less than one percent
while we absorbed the aforementioned
investments.
We were able to accomplish this by controlling expense
growth in other areas of our operations. For example, more
than 60 percent of the new hires in risk and compliance were
filled from within the company. This provided an exciting
new career path for many of our talented employees while
enabling the company to carefully manage expenses and
preserve shareholder value.
In addition, with the conclusion of the multi-year 2011 True-
Up Plan at the end of 2013, we introduced a new executive
incentive plan focused on driving long-term EPS growth in
the top 20 percent of our peer group. The lower level of
ongoing executive compensation, along with a $17.2 million
reversal of previously-accrued compensation related to the
True-Up Plan in early 2014, represented a significant cost
savings to the company this year.
EXCEEDING CUSTOMER EXPECTATIONS
Our regional business model demands and rewards busi-
ness line collaboration to provide advice and solutions that
are specifically tailored for each client. This approach is
unique for most banks and was the foundation for consistent
revenue and customer growth across each of our regional
markets. We also introduced new technology in our treasury
services and 401(k) customer platforms, improving ease of
use and customer functionality. We added a new channel of
mortgage origination, Home Direct, that allows customers
to utilize our mortgage products and services with online
convenience.
CONTINUING TO ENHANCE
THE EMPLOYEE EXPERIENCE
It may sound cliché, but I truly believe we have the best
employees at BOK Financial. Our people are hard-working,
ambitious, accomplished, and committed to our mission.
As such, it is critical that we keep them challenged, growing,
and evolving in their careers, that we compensate them
appropriately, and that we give them exciting career paths
and opportunities to broaden their horizons.
To meet this need, in 2014 we invested heavily in further
enhancing our talent development programs by adding more
opportunities for leaders and employees at all levels to grow
in their careers. A full curriculum of internally-developed we-
binars and on-site training and leadership programs provide
employees the tools and opportunities they need to build
their skills so they can move up and around the company.
REPOSITIONING THE BALANCE SHEET
Economic experts have long called for rising interest rates,
and many of our peers went asset sensitive years ago so
they could capitalize as rates rose. However, we did not see
any catalysts on the near-term horizon that would cause
interest rates to rise, so we chose to stay fully invested and
remain relatively interest-rate-neutral. We believe we earned
approximately $200 million of additional after tax income
over the past six years as a result of this decision.
As we entered 2014, the economic picture became clearer,
and we made the decision to begin preparing for a rising rate
environment. At year end, our securities portfolio was down
$1.2 billion from the end of 2013. Our timing was good, as
loan growth accelerated in 2014 and we were able to replace
these securities with loans to high-quality borrowers, thus
enhancing net interest income and net interest margin.
LOOKING FORWARD
In 2014, we took the action needed to re-energize revenue
growth. Now in 2015, the focus shifts to translating that
revenue growth into earnings growth.
From a financial standpoint, we continue to forecast double-
digit loan growth in 2015. We believe the economic environ-
ment in our footprint, as well as the strong presence we
have with customers and prospects, will support this objec-
tive. At the same time, I’ve challenged our Commercial
Banking group to fight to hold loan spreads steady in 2015.
With the reduction in energy prices, a more rational competi-
tive environment in our energy lending business should
contribute to making this goal achievable.
the grocery store
During the fourth quarter of 2014 we announced we were
(Instore) banking channel.
exiting
We launched the Instore grocery branch model in the mid-
1990s as a way to add another convenience option for clients
who were visiting the grocery store and the bank weekly,
or even daily. But today, the majority of our clients are using
mobile and online banking, as well as deposit-friendly ATMs,
for the routine transactions they used to do in Instore branch
visits. As a result, consumer foot traffic in our Instore branch-
es slowed considerably and it became apparent to me and
my team that it was time to make a change. When fully
implemented in second quarter of 2015, annual cost savings
of closing this banking channel are estimated to be approxi-
mately $7 to $8 million.
There are a number of other like initiatives being evaluated
throughout the business, with the goal of bringing expense
growth back in line with revenue growth, reducing operating
expenses, and achieving steady staffing levels in functions
such as risk management.
We will continue to carefully manage risk across the organi-
zation. With our BSA/AML project complete, in 2015 we will
continue to strengthen our technology infrastructure and
ensure that it is current, resilient, and secure, while not
losing sight of important business projects that drive better
customer delivery and increased efficiency. And we are
enhancing our Enterprise Risk Management infrastructure to
continue to stay ahead of any potential financial, operational,
or structural risks to the company.
We are also focused on growing the organization. At our
biennial investor day in October, we outlined a key objective
to announce a whole-bank acquisition in 2015. As we sit to-
day, we have an estimated $500 million of excess capital and
holding company liquidity that can be deployed for acquisi-
tions. Our primary targets are banks in the $500 million to
$2.5 billion asset range, in existing markets such as Houston,
Dallas, Kansas City, and Denver. We believe that the land-
scape for acquisitions has changed considerably over the
past year, as smaller banks are now beginning to get a full
sense of the risk and compliance investment that will be re-
quired to compete in this industry for years to come.
My entire team is energized to find the right fit for us from a
business and cultural standpoint so we can execute on this
strategic objective.
20 years is six basis points of net charge offs, despite oil
ranging from $11 per barrel to more than $140 per barrel
during this time.
However, we still have room to grow organically. We can
leverage our business channels, our talent, and our brand
strength to grow market share faster than our primary com-
petitors. In particular, we plan to accelerate our growth in
Houston and central Texas by making stronger investments
in talent and capabilities in order to enhance revenue and
profitability. We already have the foundation in place to
accomplish this objective. In 2014, we recruited new leader-
ship for the Houston market and promoted a new leader for
the Dallas market to oversee what I believe are two of the
biggest growth opportunities for our company.
IN CLOSING, THANK YOU
As always, I thank you, our shareholders, for your longstand-
ing support of our company. BOK Financial is unique in that
we attract shareholders who understand our long-term value
proposition and do not get swayed by trendy investment
fads. We appreciate that our shareholder base enables us to
execute disciplined strategies and make patient investments
in the future. By executing on the initiatives described in
this letter, we believe we can drive above-market earnings
growth and continue to reward you with increased share-
holder value over the long haul.
Sincerely,
Steven G. Bradshaw
President and Chief Executive Officer
On the employee front, we continue to seek to be an em-
ployer of choice for talented professionals by providing
training and development opportunities, upward mobility,
and a competitive compensation structure. I’ve had the
opportunity the past year to meet face to face with a number
of employees at all levels of the company in all our markets
for small group discussions. Through these and other
employee interactions, I’ve learned a tremendous amount
about our company. But what struck me most is the passion
of our employees to serve clients with the highest level of
quality, the camaraderie they have with their co-workers, and
their appreciation of our culture of integrity, community
service and teamwork.
A WORD ON ENERGY
I’d be remiss if I didn’t include our perspective on recent
changes in the energy market. As you know, we have been
one of the nation’s foremost energy lenders for more than
100 years. We know energy and it’s times like this when we
truly separate ourselves from the pack. And while low ener-
gy prices may reduce the amount of new drilling activity that
occurs in our footprint, it should have a positive impact on
the rest of our business. Low energy prices have long been
one of the primary drivers of economic activity across the
country, so we expect to see additional momentum in tradi-
tional commercial and consumer businesses as a result.
From a credit perspective, we are very comfortable with our
energy business. We know how to structure energy transac-
tions to protect credit in a downturn. This is reflected in the
fact that our average loss rate in the portfolio over the past
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, 2014
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.)
74172
(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, 2014 closing price of Common Stock of $64.05 per share). As of January 31, 2015, there were 69,113,013 shares of Common
Stock outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2015 Annual Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
BOK Financial Corporation
Form 10-K
Year Ended December 31, 2014
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
Quantitative and Qualitative Disclosures about Market Risk
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
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
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
9
13
13
13
13
14
17
17
76
80
174
174
174
174
174
175
175
175
175
179
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, 2014, the Company reported total consolidated assets of $29 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. BOKF, NA operates TransFund, Cavanal Hill
Investment Management, MBM Advisors and seven banking divisions: 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 and The Milestone Group, Inc., an investment adviser to high net worth clients. 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 48% of our revenue came from fees and commissions in 2014.
BOK Financial’s corporate headquarters is located at Bank of Oklahoma Tower, Boston Avenue at Second Street, Tulsa,
Oklahoma 74172.
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, lending and deposit
services to small business customers served through the retail branch network and all mortgage banking activities. Wealth
Management provides fiduciary services, private bank services and investment advisory services in all markets. Wealth
Management also underwrites state and municipal securities and engages in brokerage and trading activities. 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, 2014.
We are the largest financial institution in the state of Oklahoma with 14% of the state’s total deposits. Bank of Oklahoma has
30% and 12% 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 10% 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 with a market share of approximately 1%. Bank of Kansas City serves the Kansas City, Kansas/Missouri market
with a market share of less than 1%. The Company’s ability to expand into additional states remains subject to various federal
and state laws.
Employees
As of December 31, 2014, BOK Financial and its subsidiaries employed 4,743 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 meet 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.
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. 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 Durbin Amendment also required 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 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 became 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 and exclusions. In December 2013, Federal banking agencies approved regulations that implement
the Volcker Rule. In December 2014, the Federal Reserve extended the conformance period for key elements of the Rule
relating to relationships with funds until July 2017. The Company’s private equity investment activities will be curtailed. The
Company’s trading activity will be largely unaffected, as most trading activities are exempted or excluded from the Volcker
Rule trading prohibitions. However, the Company will be required to develop new policies and procedures to ensure ongoing
compliance with the Volcker Rule which will result in additional operating and compliance costs.
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, 2014, BOK Financial's Tier 1 and total
capital ratios under these guidelines were 13.33% and 14.66%, 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, 2014 was
9.96%.
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, 2014.
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 was
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
changed the minimum leverage ratio to 4% of average assets. In addition, the final rule changes instruments that qualify to be
included in Tier 1 and total regulatory capital. The Company will elect to exclude unrealized gains and losses from available for
sale securities from its calculation of Tier 1 capital effective January 1, 2015.
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 rules, our estimated Tier 1 common equity ratio on a
fully phased-in basis would be approximately 12.25%, nearly 525 basis points above the 7% regulatory threshold.
5
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 coverage ratio, is designed to ensure that the banking entity maintains a prescribed
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 September 3, 2014, U.S. federal banking agencies published the final rule covering Liquidity Risk Management Standards
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 final rule
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 by the Federal Reserve Bank supplemented by
institution-specific factors. The results of the annual capital stress tests were 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.
6
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. Dividends are further restricted by minimum
capital requirements and the Company's internal capital policy. The Bank's dividend limitations are discussed under the heading
“Liquidity and Capital” within “Management's Discussion and Analysis of Financial Condition and Results of Operations”.
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 its
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 at 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.
7
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, government
legislation and policies continue to be accommodative, including increases in government spending, reduction of certain taxes
and promotion of home affordability programs.
The Federal Reserve completed its bond purchase program designed to reduce longer-term rates in October of 2014, although it
continues to maintain an accommodative policy of reinvesting principal payments from its holdings of agency debt and agency
mortgage-backed securities in agency mortgage-backed securities and to rollover maturing Treasury securities. The Federal
Reserve has indicated that it will likely foster a low-interest rate environment for a considerable time, dependent on inflation
and employment levels the progress. 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
8
ITEM 1A. RISK FACTORS
BOK Financial Corporation and its subsidiaries could be adversely affected by risks and uncertainties that could have a
material impact on its financial condition and results of operations, as well as on its common stock and other financial
instruments. Risk factors which are significant to the Company include, but are not limited to:
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:
•
•
•
•
•
•
•
•
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 those of BOK Financial. 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.
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
9
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, 2014, 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 24% 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, 20% of BOK Financial's total loan
portfolio at December 31, 2014 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 $3.8 million at December 31, 2014. In addition, we have an aggregate gross
exposure to internationally active domestic financial institutions of approximately $227 million at December 31, 2014. 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.
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:
•
•
•
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.
10
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 $6.8 billion or 23% of total assets of the Company at December 31, 2014. 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 $61 million from the production
and sale of mortgage loans, $48 million from the servicing of mortgage loans and $27 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 $172 million or 0.59% of total assets at December 31, 2014. 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 focuses on partially hedging the risk of changes in fair value,
primarily related to changes mortgage interest rates. Other factors, such as short-term interest rates, also impact the value of
mortgage servicing rights, may not be hedged. The value of mortgage servicing rights may also decrease due to rising
delinquency or default of the loans serviced which are not hedged. This risk is mitigated somewhat by adherence to
underwriting standards on loans originated for sale.
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.
11
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, reputation 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,
2014. 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
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.
12
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 $177 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.
13
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, 2015, common shareholders of record numbered 806 with 69,113,013 shares outstanding.
The highest and lowest quarterly closing bid price for shares and cash dividends per share of BOK Financial common stock
follows:
2014:
Low
High
Cash dividends
2013:
Low
High
Cash dividends
First
Second
Third
Fourth
$
62.34
$
62.18
$
63.47
$
69.69
0.40
70.18
0.40
68.71
0.40
$
55.05
$
60.52
$
62.93
$
62.77
0.38
65.95
0.38
69.36
0.38
57.87
62.28
0.40
60.81
66.32
0.40
14
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, 2009 and ending December 31, 2014.*
Index
BOK Financial Corporation
NASDAQ Composite
NASDAQ Bank Index
KBW 50
Period Ending December 31,
2009
2010
2011
2012
2013
2014
100.00
100.00
100.00
100.00
114.65
118.15
114.16
123.36
120.61
117.22
102.17
94.77
124.98
138.02
121.26
126.07
155.97
193.47
171.86
173.67
144.73
222.16
180.31
189.92
* Graph assumes value of an investment in the Company's Common Stock for each index was $100 on December 31, 2009. 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.
15
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, 2014.
Period
October 1, 2014 to October 31, 2014
November 1, 2014 to November 30, 2014
December 1, 2014 to December 31, 2014
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs 1
—
54,000
146,000
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans
1,960,504
1,906,504
1,760,504
Total
Number of
Shares
Purchased 2
176
54,027
208,872
Average
Price Paid
per Share
$
$
$
64.08
66.65
59.93
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
200,000
263,075
common stock. As of December 31, 2014, the Company had repurchased 239,496 shares under this plan.
2 The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee
shared-based compensation.
16
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
Profitability Statistics
Earnings per share (based on average equivalent
shares):
Basic
Diluted
Percentages (based on daily averages):
Return on average assets
Return on average total equity
Average total 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
2014
2013
2012
2011
2010
December 31,
$
732,239
$
745,371
$
794,871
$
813,146
$
851,082
67,045
665,194
—
621,319
292,435
14,208,037
29,089,698
21,140,859
347,983
3,302,179
256,617
70,894
674,477
(27,900)
603,844
316,609
87,322
707,549
(22,000)
628,880
351,191
120,101
693,045
(6,050)
527,093
285,875
142,030
709,052
105,139
516,394
246,752
12,792,264
12,311,456
11,269,743
10,643,036
27,015,432
28,148,631
25,493,946
23,941,603
20,269,327
21,179,060
18,762,580
17,179,061
347,802
347,633
398,881
398,701
3,020,049
2,957,860
2,750,468
2,521,726
247,743
276,716
356,932
394,469
$
$
$
4.23
4.22
$
4.61
4.59
$
5.15
5.13
$
4.18
4.17
3.63
3.61
1.04%
1.16%
1.34%
1.17%
1.04%
9.20
11.47
47.78
60.04
70.18
57.87
1.62
$
10.59
11.00
43.88
66.32
69.36
55.05
1.54
38.35%
33.43%
12.19
11.05
$
$
43.29
54.46
59.77
52.56
5
2.47
48.01% 5
10.81
10.95
40.36
54.93
56.30
44.00
1.13
$
10.24
10.19
36.97
53.40
55.68
42.89
0.99
27.01%
27.16%
17
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
2014
2013
2012
2011
2010
December 31,
13.33%
13.77%
12.78%
13.27%
12.69%
14.66
9.96
13.17
234.06
1.33
1.34
4,743
182
2,080
15.56
10.05
13.59
183.29
1.45
1.47
4,632
206
1,998
15.13
9.01
12.59
160.34
1.75
1.77
4,704
217
1,970
16.49
9.15
13.06
125.93
2.25
2.33
4,511
212
1,912
16.20
8.74
12.55
126.93
2.75
2.89
4,432
207
1,943
$ 35,997,877
$ 30,137,092
$ 25,829,038
$ 22,821,813
$ 22,914,737
17,308,212
14,818,016
13,091,482
12,356,917
12,059,241
1 Tier 1 capital, adjusted for other comprehensive income and equity which does not benefit common shareholders, divided by risk-weighted assets, both as
defined by Basel I based regulations.
2 Includes nonaccruing 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.
Economic activity expanded at a solid pace and unemployment improved during 2014. National unemployment rates were
5.6% in December of 2014 compared to 6.7% in December of 2013. Inflationary pressure have remain subdued and the U.S.
government has continued to provide accommodative economic policy to support growth in the economy and further reduction
in the unemployment rate. The U.S. equity market set records throughout the year, with the S&P 500 up 4.93% in the fourth
quarter and bonds continue to perform well with the Barclays Aggregate up 1.79%. The yield curve flattened in 2014, as the
interest rate market began to price in the probability that the Federal Reserve will increase interest rates in 2015, after
completing their bond buying program during the year. The low interest rate environment has continued to present challenges
for all financial institutions as cash flows from loan and securities portfolios are reinvested at current rates. Gross domestic
product showed strong growth for 2014, however durable goods orders have declined and the housing recovery remains
modest. Energy prices declined in the latter half of 2014, with price of oil falling 55% in the 20 day period from June 20, 2014
to January 6, 2015 and the price of gas falling 38% over the same time period.
18
Performance Summary
Net income for the year ended December 31, 2014 totaled $292.4 million or $4.22 per diluted share compared with net income
of $316.6 million or $4.59 per diluted share for the year ended December 31, 2013.
Highlights of 2014 included:
• Net interest revenue totaled $665.2 million for 2014 compared to $674.5 million for 2013. A continued narrowing of net
interest spreads during the year impacted loans, largely offset by growth in average loan balances during the year. Net
interest revenue was further impacted as the average balance of the securities portfolio was allowed to decrease in order
to reposition the balance sheet in anticipation of rising interest rates. Net interest margin was 2.68% for 2014 compared
to 2.80% for 2013.
•
Fees and commissions revenue increased $17.5 million or 3% over 2013 to $621.3 million for 2014. Fiduciary and asset
management revenue grew by $19.6 million due to acquisitions and organic growth. Brokerage and trading revenue was
up $9.0 million and transaction card revenue increased $6.9 million over the prior year. Mortgage banking revenue
decreased $12.8 million primarily due to changes in mix toward lower margin products partially offset by an increase in
the volume of loans sold.
• Operating expenses totaled $847.5 million, an increase of $6.9 million or 1% over the prior year. Personnel costs decreased
$28.3 million primarily due to the adjustment of amounts payable under the 2011 True-Up Plan. This adjustment was
partially offset by the addition of wealth management, risk and compliance personnel during the year. Non-personnel
expenses increased $35.2 million or 10% over the prior year due to increased professional fees and services and data
processing and communications expense. Net occupancy and equipment costs also increased over the prior year and
included $4.1 million of branch closure costs.
• No provision for credit losses was recorded in 2014. A $27.9 million negative provision for credit losses was recorded
in 2013. The Company had a net recovery of $2.8 million or (0.02)% of average loans for 2014 compared to net loans
charged off of $2.0 million or 0.02% of average loans for 2013. Gross charge-offs decreased to $16.2 million in 2014
from $25.3 million in 2013.
• The combined allowance for credit losses totaled $190 million or 1.34% of outstanding loans at December 31, 2014
compared to $187 million or 1.47% of outstanding loans at December 31, 2013. Nonperforming assets totaled $257
million or 1.79% of outstanding loans and repossessed assets at December 31, 2014 and $248 million or 1.92% of
outstanding loans and repossessed assets at December 31, 2013. During 2014, nonaccruing loans decreased $20 million
and repossessed assets increased $9.6 million. Renegotiated residential mortgage loans guaranteed by U.S. government
agencies increased $20 million.
•
Period-end outstanding loan balances were $14.2 billion at December 31, 2014, an increase of $1.4 billion over the prior
year. Commercial loan balances grew by $1.2 billion or 15% and commercial real estate loans increased $313 million or
13%. Residential mortgage loans decreased $103 million and consumer loans increased $53 million.
• The available for sale securities portfolio decreased $1.2 billion during 2014 to $9.0 billion at December 31, 2014. We
pro-actively reduced the size of the bond portfolio to better position the balance sheet for an environment with rising
longer-term rates.
•
Period-end deposits totaled $21.1 billion at December 31, 2014 compared to $20.3 billion at December 31, 2013. Demand
deposit accounts increased by $750 million and interest-bearing transaction accounts increased $180 million. Time
deposits decreased $87 million.
• The Company's Tier 1 common equity ratio, as defined by banking regulators, was 13.17% at December 31, 2014 and
13.59% at December 31, 2013. The Company and its subsidiary bank exceeded the regulatory definition of well
capitalized. The Company's Tier 1 capital ratio was 13.33% at December 31, 2014 and 13.77% at December 31, 2013.
Total capital ratio was 14.66% at December 31, 2014 and 15.56% at December 31, 2013. The Company's leverage ratio
was 9.96% at December 31, 2014 and 10.05% at December 31, 2013.
• The Company paid regular cash dividends of $1.62 per common share during 2014. Regular cash dividends paid on
common shares were $1.54 per common share in 2013.
19
Net income for the fourth quarter of 2014 totaled $64.3 million or $0.93 per diluted share compared to $73.0 million or $1.06
per diluted share for the fourth quarter of 2013.
Highlights of the fourth quarter of 2014 included:
• Net interest revenue totaled $169.7 million for the fourth quarter of 2014 compared to $166.2 million for the fourth quarter
of 2013. Net interest margin was 2.61% for the fourth quarter of 2014 compared to 2.74% for the fourth quarter of 2013.
Net interest revenue increased primarily due to the growth in average loan balances, partially offset by a decrease in
available for sale securities balances. Loan yields decreased compared to the prior year due to continued competitive
pressure, partially offset by an increase in the available for sale securities yield.
•
Fees and commissions revenue increased $15.5 million over the prior year to $157.9 million for the fourth quarter of
2014. Mortgage banking revenue increased $8.2 million due primarily to an increase in loan production volume. Fiduciary
and asset management revenue grew $5.6 million over the prior year. Transaction card revenue and brokerage and trading
revenue both increased over the prior year.
• Operating expenses totaled $225.9 million, an increase of $10.5 million over the prior year, primarily due to $4.9 million
of branch closure costs accrued in the fourth quarter of 2014. The Company also made a $1.8 million contribution of
developed commercial real estate to the BOKF Foundation during the fourth quarter of 2014. Mortgage banking costs
and data processing and communication expense increased, partially offset by decreased net losses and operating expenses
of repossessed assets.
• No provision for credit losses was recorded in the fourth quarter of 2014 compared to an $11.4 million negative provision
for credit losses in the fourth quarter of 2013. Net charge-offs totaled $2.2 million in the fourth quarter of 2014 compared
a net recovery of $3.0 million in the fourth quarter of 2013. Gross charge-offs were $7.2 million compared to $3.1 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 2014.
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.
20
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. We carry all mortgage servicing rights at fair value.
Changes in fair value are recognized in earnings as they occur.
21
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 expect a 50 basis point increase in mortgage interest rates to increase the fair
value of our servicing rights by $15 million. We expect an $14 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
generated internally using third-party valuation models. Inputs used in third-party valuation models 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. The impact of credit valuation adjustments on the total valuation of derivative contracts was not
significant.
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.
22
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, 2014 or December 31, 2013.
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.
As previously announced, the Company appointed a new Chief Executive Officer effective January 1, 2014 and made several
executive leadership changes. There was no change in the operating segments as a result of the transition. However, reporting
units were redefined as the significant lines of business within each operating segment. The redefinition is consistent with how
the Chief Executive Officer has organized his Executive Leadership Team, assesses performance and allocates the resources of
the Company. See additional discussion of the operating segments in the Assessment of Operations - Lines of Business section
following. Prior to January 1, 2014, reporting units were defined as the geographical markets within each operating segment.
While geographical market information may be monitored, it is not considered the primary decision-making tool.
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. Critical assumptions in our evaluation were a 6% average expected long-term
growth rate, a 0.71% volatility factor for BOK Financial common stock, a 9.17% discount rate and a 9.36% market risk
premium. The expected long-term growth rate among the reporting units may differ from the average.
23
As of December 31, 2014, the market value of BOK Financial common stock, a primary consideration in our goodwill
impairment analysis, was $60.04 per share, approximately 10% lower 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.
The market value of our stock may also have been affected by concerns over the potential impact of lower energy prices on the
regional economy. We evaluated the effect of a sustained market value of $50 per share for our common stock. No impairment
was noted. 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.
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.
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 8% and an additional 13.5% home price depreciation over the
next twelve months. The results of this analysis indicated an additional $260 thousand of credit losses are possible. An increase
in the unemployment rate to 10% with an additional 25.4% home price depreciation indicates an additional $560 thousand 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.
24
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.
25
Results of Operations
Net Interest Revenue and Net Interest Margin
Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for
interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing tax-equivalent net interest
revenue by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-
earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest
spread due to interest income earned on assets funded by non-interest bearing liabilities such as demand deposits and equity.
Tax-equivalent net interest revenue totaled $676.1 million for 2014 compared to $684.8 million for 2013. Net interest margin
was 2.68% for 2014 and 2.80% for 2013. Tax-equivalent net interest revenue decreased $8.6 million compared to the prior year.
Net interest revenue decreased $32.4 million primarily due to a continued narrowing of loan yields during the year, partially
offset by a $23.8 million increase in net interest revenue from growth in average earning assets. Growth in average loans was
partially offset by a decrease in average securities balances. Table 2 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 the
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 2.95% for 2014 compared to 3.09% in 2013. Loan yields decreased 29 basis
points compared to the prior year. Spreads have narrowed primarily due to market pricing pressure on our loan portfolio. The
available for sale securities portfolio yield decreased 2 basis points to 1.95%. Cash flows received from payments on residential
mortgage-backed securities are currently being reinvested in short-duration securities that are yielding 1.50% to 1.75%.
Funding costs were down 2 basis points compared to 2013. The cost of interest-bearing deposits decreased 4 basis points and
the cost of other borrowed funds increased 3 basis points largely due to the mix of funding sources. In the present low interest
rate environment, our ability to further decrease funding costs is limited.
Average earning assets for 2014 increased $537 million or 2% over 2013. Average loans, net of allowance for loan losses,
increased $1.1 billion 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, decreased $1.2 billion. We purchase securities to supplement earnings and to manage interest rate risk. We began to
pro-actively shrink the size of our securities portfolio in the fourth quarter of 2013 to better position the balance sheet for an
environment of rising longer-term rates. Our outlook for earning assets is for continued growth in loan balances, partially offset
by a reduction in the securities portfolio balance. We expect the annualized growth rate for loans to be in the low double digits.
The resulting shift in earning asset mix should be supportive of the net interest margin. The average balance of interest-bearing
cash and cash equivalents increased $624 million over the prior year. At the end of August 2014, we increased our borrowings
from the Federal Home Loan Bank by approximately $1.5 billion, earning a small spread by depositing the proceeds in the
Federal Reserve. This added $1.0 million to pre-tax net income, while decreasing net interest margin by 5 basis points.
Growth in average assets was funded by a $692 million increase in average deposits. Average demand deposit balances
increased $597 million over the prior year. Average interest-bearing transaction accounts were up $214 million, partially offset
by a $151 million decrease in average time deposits. Average borrowed funds decreased $20 million compared to the prior year.
Increased borrowings from the Federal Home Loan Banks and increased repurchase agreement balances, were offset by a
decrease in funds purchased compared to the prior year.
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 20, approximately 79% of our commercial and
commercial real estate loan portfolios are either variable rate loans or fixed rate loans 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 2 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.
26
Fourth Quarter 2014 Net Interest Revenue
Tax-equivalent net interest revenue totaled $172.5 million for the fourth quarter of 2014 compared to $168.7 million for the
fourth quarter of 2013. Net interest margin was 2.61% for the fourth quarter of 2014 and 2.74% for the fourth quarter of 2013.
Tax-equivalent net interest revenue increased $3.8 million over the fourth quarter of 2013. Net interest revenue increased $9.3
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 $5.5 million due primarily to lower loan yields.
The tax-equivalent yield on earning assets was 2.86% for the fourth quarter of 2014, down 16 basis points from the fourth
quarter of 2013. Loan yields decreased 28 basis points due primarily to continued market pricing pressure. The available for
sale securities portfolio yield increased 10 basis points to 1.99%. The yield on interest-bearing cash and cash equivalents
increased 10 basis points to 0.28%. Funding costs were down 3 basis points from the fourth quarter of 2013. The cost of
interest-bearing deposits decreased 4 basis points and the cost of other borrowed funds increased 6 basis points. The benefit to
net interest margin from earning assets funded by non-interest bearing liabilities was 14 basis points in the fourth quarter of
2014 and 14 basis points in the fourth quarter of 2013.
Average earning assets for the fourth quarter of 2014 increased $1.9 billion over the fourth quarter of 2013. Average loans, net
of allowance for loan losses, increased $1.4 billion over the fourth quarter of 2013 due primarily to growth in average
commercial loans. Average interest-bearing cash and cash equivalents increased $1.5 billion due to increased borrowings from
the Federal Home Loan Bank deposited with the Federal Reserve to earn a spread. The average balance of available for sale
securities decreased $1.3 billion as we reduced the size of the bond portfolio to better position the balance sheet for a longer-
term rising rate environment.
Average deposits increased $823 million over the fourth quarter of 2013. Average demand deposit balances increased $618
million and average interest-bearing transaction accounts increased $244 million, partially offset by a $63 million decrease in
average time deposit balances. Average borrowed funds increased $1.0 billion over the fourth quarter of 2013 primarily due to
increased Federal Home Loan Bank borrowings.
2013 Net Interest Revenue
Tax-equivalent net interest revenue for 2013 was $684.8 million compared to $716.9 million for 2012. Net interest margin was
2.80% for 2013 compared to 3.15% for 2012. The decrease in net interest margin was due primarily to cash flows from our
securities portfolio being reinvested at lower current market rates, decrease in loan yields due to the renewal of fixed-rate loans
at lower current rates and narrowing credit spreads, partially offset by lower funding costs. The tax-equivalent yield on average
earning assets decreased 44 basis points from 2012. The available for sale securities portfolio yield was down 47 basis points
due to cash flow reinvestment at lower rates. Loan yields decreased 34 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 13 basis points.
The cost of interest-bearing deposits was down 10 basis points and the cost of other borrowed funds was down 4 basis points.
The effect of declining net interest margin was offset by increasing average earning assets $1.2 billion during 2013. Growth in
average assets was primarily in loans and the available for sale securities portfolio. Growth in average assets was funded by a
$717 million increase in average deposit balances and a $631 million increase in average borrowed funds balances. Average
demand deposit account balances grew by $500 million and average interest-bearing transaction account balances grew by
$483 million, partially offset by a $318 million decrease in average time deposit balances.
27
Table 2 – Volume/Rate Analysis
(In thousands)
Year Ended
Year Ended
December 31, 2014 / 2013
December 31, 2013 / 2012
Change Due To1
Change Due To1
Change
Volume
Yield /
Rate
Change
Volume
Yield
/Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
$
1,674
$
1,417
$
(176)
(813)
$
257
637
$
130
558
$
628
409
(498)
149
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
(1,077)
461
(616)
(670)
1,281
611
(407)
(820)
(1,227)
(2,588)
723
(1,865)
(21,907)
(19,705)
(2,202)
(32,396)
(177)
(778)
(22,084)
(20,483)
(296)
1,969
1,638
5,413
(12,478)
(1,398)
(41)
(3,442)
(507)
80
1,510
(51)
(3,849)
(8,629)
(654)
(446)
(505)
206
42,410
22,397
382
33
(2,346)
(310)
75
780
(6)
(1,392)
23,789
601
(1,601)
150
2,474
1,432
(36,997)
(34,875)
(1,780)
(74)
(1,096)
(197)
5
730
(45)
(2,457)
(32,418)
(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)
(46,672)
(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)
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
(33,072)
(9,283)
$
$
28
Table 2 – Volume/Rate Analysis (continued)
(In thousands)
Three Months Ended
December 31, 2014 / 2013
Change Due To1
Change
Volume
Yield /
Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
$
1,242
$
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
429
44
(186)
(142)
(4,342)
153
(4,189)
161
1,080
850
4,461
3,892
(238)
1
(810)
(131)
4
1,238
16
80
3,812
(392)
$
898
191
87
(83)
4
(6,303)
(212)
(6,515)
105
727
1,050
13,806
10,266
154
8
(255)
(134)
39
1,174
—
986
9,280
344
238
(43)
(103)
(146)
1,961
365
2,326
56
353
(200)
(9,345)
(6,374)
(392)
(7)
(555)
3
(35)
64
16
(906)
(5,468)
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
3,420
$
29
Other Operating Revenue
Other operating revenue was $612.7 million for 2014 compared to $614.5 million for 2013. Fees and commissions revenue
increased $17.5 million or 3% over 2013. The change in the fair value of mortgage servicing rights, net of economic hedges,
decreased other operating revenue by $3.7 million in 2014 and increased other operating revenue by $2.2 million in 2013. Net
gains on available for sale securities were $9.2 million less than net gains recognized in 2013. Other-than-temporary
impairment charges recognized in earnings in 2014 were $1.9 million less than charges recognized in 2013.
Table 3 – Other Operating Revenue
(In thousands)
Brokerage and trading revenue
Transaction card revenue
Fiduciary and asset management revenue
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Other revenue
Year Ended December 31,
2014
2013
2012
2011
2010
$
134,437
$
125,478
$
126,930
$
104,181
$
101,471
123,689
115,652
90,911
109,093
9,086
38,451
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
112,302
68,976
103,611
87,600
12,066
30,368
Total fees and commissions revenue
621,319
603,844
628,880
527,093
516,394
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
(6,346)
2,776
10,189
(16,445)
1,539
(373)
—
(373)
(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
(10,578)
(12,929)
(23,507)
(4,011)
4,271
7,331
3,661
21,882
(29,960)
2,151
(27,809)
Total other operating revenue
$
612,659
$
614,472
$
653,678
$
528,538
$
521,719
Fees and commissions revenue
Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 48% of total
revenue for 2014, 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 have caused net interest revenue compression such
as falling interest rates may also drive growth in our mortgage banking revenue. 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 the state
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 increased $9.0 million over 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 $40.7 million for 2014, a decrease of $2.3 million or 5% 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.
30
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 $37.8 million for 2014, a decrease of $4.2 million or 10% compared to 2013. The
decrease was primarily due to a decrease in revenue from derivative contracts sold to our mortgage banking and energy
customers, partially offset by revenue growth related to increased volumes of foreign exchange contracts. The Company
received recoveries from the Lehman Brothers and MF Global bankruptcies of $2.2 million during 2014 and $2.4 million
during 2013.
Revenue earned from retail brokerage transactions totaled $34.0 million for 2014, largely unchanged compared to the prior
year. 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, financial advisory services and loan
syndication fees, grew to $21.9 million for 2014, an increase of $6.8 million or 45% over 2013 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 $123.7
million for 2014, a $6.9 million or 6% increase over 2013. Revenues from the processing of transactions on behalf of the
members of our TransFund electronic funds transfer ("EFT") network totaled $63.7 million, up $3.2 million or 5% over 2013,
due primarily to increased transaction volumes. The number of TransFund ATM locations totaled 2,080 at December 31, 2014
compared to 1,998 at December 31, 2013. Merchant services fees paid by customers for account management and electronic
processing of card transactions totaled $41.2 million, an increase of $3.3 million or 9% 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 $18.7 million, an increase of
$460 thousand or 3% over 2013 on increased transaction volume.
Fiduciary and asset management revenue grew $19.6 million or 20% over 2013. The acquisitions of Topeka, Kansas-based
GTRUST Financial Corporation in the first quarter of 2014 and Houston, Texas-based MBM Advisors in the second quarter of
2014 added $7.8 million in revenue in 2014 and $2.0 billion of fiduciary assets as of December 31, 2014. 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 $36.0 billion at December 31, 2014 and $30.1 billion at
December 31, 2013.
In addition to trust fees and commissions where we served as a fiduciary, we also earn fees as administrator to and investment
adviser for the Cavanal Hill Funds, a diversified, open-ended investment company established as a business trust under the
Investment Company Act of 1940 (the "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 $10.1 million for 2014
compared to $8.2 million for 2013.
Deposit service charges and fees decreased $4.2 million or 4% compared to 2013. Overdraft fees totaled $44.7 million for
2014, a decrease of $4.9 million or 10% compared to last year. Commercial account service charge revenue totaled $38.7
million, an increase $1.5 million or 4% over the prior year. Service charges on deposit accounts with a standard monthly fee
were $7.4 million, a decrease of $742 thousand or 9% compared to the prior year.
31
Mortgage banking revenue totaled $109.1 million for 2014, compared to $121.9 million for 2013. Mortgage production
revenue totaled $61.1 million, a decrease of $18.5 million compared to 2013. While the volume of loans funded for sale and
outstanding loan commitments increased, our product mix shifted toward lower margin products. In general, loans originated
through retail channels have higher margins than loans originated through correspondent channels and refinanced loans have
higher margins than loans to finance home purchases. Approximately 30% of loans originated in 2014 were refinances, down
from 43% in 2013. In addition, approximately 44% of loans originated in 2014 were through correspondent channels, up from
31% in 2013. Mortgage loans funded for sale totaled $4.5 billion in 2014, an increase of $395 million or 10% over 2013. The
unpaid principal balance of mortgage loans closed but not yet sold of $292 million at December 31, 2014 was $99 million or
52% higher than the prior year. Outstanding commitments to originate mortgage loans increased $262 million or 101%
compared to December 31, 2013 to $521 million at December 31, 2014. The cumulative change in the valuation of mortgage
loans held for sale and mortgage commitments, net of forward sales contacts was a $4.4 million gain for 2014, compared to a
$15.8 million loss for 2013.
Mortgage servicing revenue was $48.0 million, an increase of $5.6 million or 13% over the prior year. The outstanding
principal balance of mortgage loans serviced for others totaled $16.2 billion, a $2.4 billion increase over December 31, 2013.
Table 4 – Mortgage Banking Revenue
(In thousands)
2014
2013
2012
2011
2010
Year Ended December 31,
Net realized gains on mortgage loans sold
$
56,696
$
95,309
$
115,879
$
50,812
$
54,178
Change in net unrealized gains (losses) on mortgage
loans held for sale
Change in fair value of mortgage loan commitments
Change in fair value of forward sales contracts
Total mortgage production revenue
Servicing revenue
Total mortgage revenue
5,357
7,315
(8,307)
61,061
48,032
(10,899)
(10,077)
5,212
79,545
42,389
4,720
6,136
2,382
129,117
40,185
$
109,093
$
121,934
$
169,302
$
6,606
4,345
(9,781)
51,982
39,661
91,643
$
(8,934)
1,755
2,440
49,439
38,161
87,600
Mortgage loans funded for sale
$ 4,476,625
$ 4,081,390
$ 3,708,350
$ 2,293,834
$ 2,501,860
Mortgage loan refinances to total funded
30%
43%
60%
53%
57%
Outstanding principal balance of mortgage loans
serviced for others
$ 16,162,887
$ 13,718,942
$ 11,981,624
$ 11,300,986
$ 11,194,582
Outstanding mortgage loan commitments
520,829
258,873
356,634
189,770
138,870
2014
2013
December 31,
2012
2011
2010
Net gains on securities, derivatives and other assets
We recognized $1.5 million of net gains from sales of $2.7 billion of available for sale securities in 2014. We recognized $10.7
million of net gains from sales of $2.4 billion of available for sale securities in 2013. Securities were sold either because they
had reached their expected maximum potential or to move into securities that will perform better in a rising rate environment.
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.
32
Changes in the fair value of mortgage servicing rights are highly dependent on changes in primary mortgage rates, rates offered
to borrowers, and assumptions about servicing revenues, servicing costs and discount rates. Changes in the fair value of
residential mortgage-backed securities and interest rate derivative contracts are highly dependent on changes in secondary
mortgage rates, or rates required by investors. While primary and secondary mortgage rates generally move in the same
direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in
the spread between the primary and secondary rates can cause significant earnings volatility. Additionally, the fair value of
mortgage servicing rights are dependent on short-term interest rates that affect the value of custodial funds. Changes in the
spread between short-term and long-term interest rates can also cause significant earnings volatility.
Table 5 following shows the relationship between changes in the fair value of mortgage servicing rights and the fair value of
fair value option residential mortgage-backed securities and interest rate derivative contracts designated as an economic hedge.
Table 5 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge
(In thousands)
2014
Year Ended December 31,
2011
2012
2013
2010
Gain (loss) on mortgage hedge derivative contracts, net
$ 2,776
$ (5,080)
$
116
$ 2,974
$ 4,425
Gain (loss) on fair value option securities, net
Gain (loss) on economic hedge of mortgage servicing rights
10,003
12,779
(15,436)
(20,516)
7,793
7,909
24,413
27,387
Gain (loss) on change in fair value of mortgage servicing rights
(16,445)
22,720
(9,210)
(40,447)
7,331
11,756
(8,171)
1
Gain (loss) on changes in fair value of mortgage servicing rights, net of
economic hedges
$ (3,666)
$ 2,204
$ (1,301)
$ (13,060)
$ 3,585
Net interest revenue on fair value option securities2
$ 3,253
$ 3,290
$ 7,811
$ 17,650
$ 19,043
Average primary residential mortgage interest rate
4.17%
3.99%
3.66%
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 internal transfer-priced cost of funds.
3.22%
3.05%
2.52%
4.45%
3.71%
4.69%
3.96%
Primary rates disclosed in Table 5 above represent rates generally available to borrowers on 30 year conforming mortgage
loans. Secondary rates represent rates generally paid on 30 year residential mortgage-backed securities guaranteed by U.S.
government agencies.
Net losses on other assets totaled $6.3 million for 2014. Losses on certain alternative investments in limited partnerships that
invest in low-income housing projects, for which the investment return is primarily in the form of tax credits, were $9.9 million
for 2014. In addition, the fair value of certain alternative investments held as a hedge of a deferred compensation liability were
adjusted downward by $1.7 million and a $1.5 million charge was taken against a merchant-banking investment accounted for
under the equity method. These losses were partially offset by a $6.6 million gain on underlying investments held by two
consolidated private equity funds. These gains are largely attributed to non-controlling interests.
Fourth Quarter 2014 Other Operating Revenue
Other operating revenue was $150.0 million for the fourth quarter of 2014 compared to $147.0 million for the fourth quarter of
2013. Fees and commissions revenue increased $15.5 million. The change in the fair value of mortgage servicing rights, net of
economic hedges, decreased operating revenue $6.1 million for the fourth quarter of 2014 compared to adding $2.1 million to
operating revenue for the fourth quarter of 2013. Net gains on sales of available for sale securities were $1.5 million less than
the prior year. A $373 thousand other-than-temporary impairment charge was recognized in earnings in the fourth quarter of
2014. No other-than-temporary impairment charges were recognized in the fourth quarter of 2013.
Brokerage and trading revenue increased $2.1 million compared to the fourth quarter of 2013. Securities trading revenue
totaled $9.3 million for the fourth quarter of 2014, an increase $1.3 million. Customer hedging revenue totaled $10.0 million, a
decrease of $1.1 million compared to the prior year. The fourth quarter of 2014 included $562 thousand of recoveries from the
Lehman bankruptcy and the fourth quarter of 2013 included $1.5 million from the Lehman and MF Global bankruptcies.
Revenue earned from retail brokerage transactions was $5.8 million, a $1.3 million decrease compared to the fourth quarter of
33
2013. Investment banking revenue totaled $5.5 million, a $3.2 million increase over the fourth quarter of 2013 related to the
timing and volume of completed transactions.
Transaction card revenue for the fourth quarter of 2014 increased $2.3 million or 8% over the fourth quarter of 2013, primarily
due to a $1.2 million increase in revenue from processing transactions on behalf of members of the TransFund EFT network
and a $1.0 million increase in merchant services fees. Revenues from the processing of transactions on behalf of the members
of our TransFund EFT network totaled $16.3 million, merchant services fees totaled $10.4 million and revenue from
interchange fees paid by merchants for transactions processed from debit cards issued by the Company totaled $4.8 million.
Fiduciary and asset management revenue increased $5.6 million over the fourth quarter of 2013 to $30.6 million primarily due
to a $2.8 million increase related to the acquisitions of GTRUST Financial Corporation and MBM Advisors during 2014. The
remaining growth was due to an increase in the fair value of assets managed. Waived administration fees on the Cavanal Hill
money market funds totaled $2.8 million for the fourth quarter of 2014 compared to $2.2 million for the fourth quarter of 2013.
Deposit service charges and fees were $22.6 million for the fourth quarter of 2014 compared to $23.4 million for the fourth
quarter of 2013. Overdraft fees decreased $1.4 million to $10.8 million. Commercial account service charge revenue totaled
$9.9 million, an increase of $629 thousand over the prior year. Service charges on deposit accounts with a standard monthly fee
were $1.9 million, a decrease of $141 thousand compared to the fourth quarter of 2013.
Mortgage banking revenue was $30.1 million for the fourth quarter of 2014 compared to $21.9 million for the fourth quarter of
2013. Average primary mortgage interest rates were approximately 40 basis points lower in the fourth quarter of 2014
compared with the fourth quarter of 2013 which increased both loan production volume and refinancing activity. Mortgage
loans funded for sale totaled $1.3 billion in the fourth quarter of 2014 compared to $849 million in the fourth quarter of
2013. Mortgage loan refinances represented 37% of total loans funded during the fourth quarter of 2014, compared to 29% in
the fourth quarter of 2013. Loans originated by our correspondent channel increased to 44% of total loans funded during the
fourth quarter of 2014 from 39% of total loans funded in the fourth quarter of 2013. Outstanding mortgage loan commitments
increased $262 million and the unpaid principal balance of mortgage loans held for sale increased $104 million.
For the fourth quarter of 2014, changes in the fair value of mortgage servicing rights decreased operating revenue by $10.8
million, partially offset by a net gain of $4.8 million on fair value option securities and derivative contracts held as an economic
hedge. For the fourth quarter of 2013, changes in the fair value of mortgage servicing rights increased operating revenue by
$6.1 million, partially offset by a $3.9 million net loss on fair value option securities and derivative contracts held as an
economic hedge.
2013 Other Operating Revenue
Other operating revenue totaled $614.5 million for 2013, compared to $653.7 million for 2012. Fees and commissions revenue
deceased $25.0 million. The change in the fair value of mortgage servicing rights, net of economic hedges, increased operating
revenue in 2013 by $2.2 million and decreased operating revenue $1.3 million in 2012. Net gains on sales of available for sale
securities were $10.7 million for 2013 compared to $33.8 million for 2012. Other-than-temporary impairment charges
recognized in earnings were $5.0 million less than charges recognized in 2012.
Brokerage and trading revenue for 2013 was largely unchanged compared to 2012. Excluding the $8.7 million impact of the
fair value adjustment to our trading securities inventory due to a sharp increase in interest rates during 2013, securities trading
revenue decreased $1.2 million. Customer hedging revenue increased $3.8 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 $4.3 million and investment banking revenue increased $299 thousand. Transaction card revenue
grew by $8.8 million over 2012 primarily due to TransFund network transaction volume growth and higher merchant services
transaction volumes. Fiduciary and asset management fees increased $16.0 million due to a full year of results from 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 decreased $3.8 million primarily due to lower overdraft fees partially offset by increased commercial account
service charges. Mortgage banking revenue decreased $47.4 million compared to 2012 primarily due to an overall narrowing of
gain on sale margins and a shift in product mix towards loans with lower margins.
Gain (loss) on other assets, net included a $1.4 million impairment charge in 2013 based on the expectation that the Company
will be required to divest some or all of its interests in private equity funds due to the Volcker Rule. An indirect wholly-owned
subsidiary of the Company is general partner of two private equity funds and other subsidiaries of the Company hold
investments in unrelated private equity funds.
34
Other Operating Expense
Other operating expense for 2014 totaled $847.5 million, a $6.9 million or 1% increase over the prior year. The Company's
investment in risk management and regulatory compliance resulted in a $16.7 million increase, primarily in personnel,
professional fees and services and data processing and communications expense for the year. Capital expenditures totaled $5.7
million, which will result in increased depreciation expense generally over the next five years. The Company expects an
additional $8 to $10 million of costs during 2015 related to enhancement of our risk management and regulatory compliance
systems. During the fourth quarter of 2014, the Company announced the discontinuation of the grocery store branch model,
resulting in 28 in-store branch closures during the first quarter of 2015. The decision comes as consumer trends lean more
towards use of digital banking for everyday transactions and banking center visits for in-person advice or consultation.
Approximately $4.9 million was expensed in the fourth quarter related to the announced closures, primarily related to facilities
and employee costs.
Personnel expenses decreased $28.3 million or 6% compared to the prior year primarily due to the adjustment of amounts
payable under the 2011 True-Up Plan. This adjustment was partially offset by the addition of wealth management, risk and
compliance personnel during the year. Non-personnel expenses increased $35.2 million or 10% over the prior year due to
increased professional fees and services and data processing and communications expense. Net occupancy and equipment costs
also increased over the prior year and included $4.1 million of branch closure costs.
Table 6 – Other Operating Expense
(In thousands)
Regular compensation
Incentive compensation:
Cash-based compensation
Share-based compensation
Deferred compensation
Total incentive compensation
Employee benefits
Total personnel expense
Business promotion
Charitable contributions to BOKF Foundation
Professional fees and services
Net occupancy and equipment
Insurance
Data processing & communications
Printing, postage and supplies
Net losses & operating expenses of repossessed assets
Amortization of intangible assets
Mortgage banking costs
Other expense
Total other operating expense
Year Ended December 31,
2014
2013
2012
2011
2010
$
298,420
$
279,493
$
262,736
$
247,945
$
238,690
111,748
10,875
(13,692)
108,931
69,580
476,931
26,649
4,267
44,440
77,232
18,578
117,049
13,518
6,019
3,965
29,881
28,993
110,871
116,718
8,189
32,083
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
9,668
27,502
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
9,995
10,563
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
8,338
4,426
103,983
59,191
401,864
17,726
—
30,217
63,969
24,320
87,752
13,665
34,483
5,336
43,172
31,477
$
847,522
$
840,620
$
840,363
$
779,298
$
753,981
Average number of employees (full-time equivalent)
4,679
4,683
4,614
4,474
4,394
35
Personnel expense
Regular compensation expense, which consists of salaries and wages, overtime pay and temporary personnel costs, increased
$18.9 million or 7% over 2013. Although the average number of employees was largely unchanged compared to the prior year,
recent additions have been higher-costing wealth management, compliance and risk management positions. Growth in these
positions was partially offset by a decrease in the average number of employees in consumer banking. Standard annual merit
increases in regular compensation, which averaged 2.5%, were effective for the majority of our staff March 1. In addition, $800
thousand was expensed in 2014 related to branch closure costs.
Incentive compensation decreased $42.2 million compared to 2013. 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 was largely unchanged compared to 2013.
Shared-based compensation expense represents expense for equity awards based on the grant-date fair value and is largely
unaffected by subsequent changes in fair value. Share-based compensation expense for equity awards increased $2.7 million or
33% over 2013. Non-vested shares awarded prior to 2013 generally cliff vest in 5 years. Non-vested shares awarded since
January 1, 2013 generally cliff vest in 3 years and are subject to a two year holding period after vesting.
Deferred compensation expense for 2014 included a $12.6 million net reduction in the accrual for amounts payable to certain
executive officers of the Company under the 2011 True-Up Plan. Approved by shareholders on April 26, 2011, 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. The peer group of banks was based on asset size and included an equal number of publicly-
traded SEC registered bank holding companies with the Company being the median bank. Based on the annual Form 10-K and
proxy statements filed by our peer banks in the first quarter of 2014, the composition of the peer group and the compensation
levels of comparable senior executives used in determining the amounts payable both changed. These changes reduced the
required accrual for the 2011 True-Up Plan to $56 million, which was paid in 2014. Expense accrual for the 2011 True-Up Plan
in 2013 was $28.4 million.
Deferred compensation expense also included amounts indexed to investment performance. Certain executive officers were
permitted to defer recognition of taxable income from their share-based compensation. Deferred compensation expense
included a $996 thousand reduction in the accrual in 2014. Deferred compensation expense accrued in 2013 was $3.6 million.
Substantially all of this deferred compensation was distributed in 2014.
Employee benefit expense decreased $5.0 million or 7% compared to 2013. Employee medical costs totaled $21.5 million, a
$4.8 million or 18% 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 $915 thousand over 2013 to $27.5 million. Employee
retirement plan costs totaled $18.6 million, up $427 thousand and pension expense was $664 thousand, down $1.4 million
compared to the prior year.
Non-personnel operating expenses
Non-personnel expenses increased $35.2 million or 10% over the prior year. Professional fees and services expense increased
$11.9 million or 37% over the prior year primarily due to increased risk management and regulatory compliance costs. Data
processing and communications expense increased $11.0 million or 10% primarily related to increased transaction activity
costs. Net occupancy and equipment expense increased $7.5 million or 11%, including $4.1 million of branch closure costs. All
other non-personnel operating expenses were up $4.9 million, net.
Fourth Quarter 2014 Operating Expenses
Other operating expense for the fourth quarter of 2014 totaled $225.9 million, a $10.5 million increase over the fourth quarter
of 2013.
36
Personnel expense was largely unchanged compared to the fourth quarter of 2013. Regular compensation expense increased
$6.3 million over the fourth quarter of 2013 as we continue to invest in higher-costing positions and the fourth quarter of 2014
included $800 thousand of branch closure costs. Incentive compensation decreased $3.6 million compared to the fourth quarter
of 2013. The fourth quarter of 2013 included a $4.5 million accrual related to the 2011 True-Up Plan. Employee benefit
expense decreased $2.7 million compared to the fourth quarter of 2013 primarily due to a decrease in employee medical
insurance claim expense.
Non-personnel expenses increased $10.4 million compared to the fourth quarter of 2013 including $4.1 million of branch
closure costs accrued in the fourth quarter of 2014. The Company made a $1.8 million contribution of developed commercial
real estate to the BOKF Foundation during the fourth quarter of 2014. This contribution also resulted in an $822 thousand
reduction in income tax expense. Mortgage banking costs were up due to increased prepayments of loans serviced for others
and accruals for loan servicing costs and increased data processing and communication expense due to transaction growth.
These increases were partially offset by decreased net losses and operating expenses of repossessed assets.
2013 Operating Expenses
Other operating expense totaled $840.6 million for 2013, largely unchanged compared to 2012.
Personnel expense increased $14.2 million. Regular compensation expense totaled $279.5 million, up $16.8 million primarily
due to the investment in higher-costing wealth management, compliance and risk management positions. Incentive
compensation expense decreased $2.7 million. Cash-based incentive compensation decreased $5.8 million. Share-based
compensation expense decreased $1.5 million and deferred compensation expense increased $4.6 million, primarily due to
accruals for the 2011 True-Up Plan. Employee benefit expense was largely unchanged compared to 2012.
Non-personnel expense for 2013 was $13.9 million lower than 2012. Net losses and operating expenses of repossessed assets
decreased $15.4 million compared to the prior year. Mortgage banking costs decreased $13.2 million primarily due to lower
provisions 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.
Income Taxes
Income tax expense was $134.9 million or 31% of book taxable income for 2014, $157.3 million or 33% of book taxable
income for 2013 and $188.7 million or 35% of book taxable income for 2012. Income tax expense decreased in 2014 and 2013
due to lower pre-tax book income and higher tax-exempt revenue and tax credits. Tax expense currently payable totaled $95
million in 2014, $140 million in 2013 and $179 million in 2012.
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 2013 in 2014, 2012 in 2013 and 2011 in 2012. Excluding these adjustments income tax
expense would have been $137 million or 32% for 2014, $159 million or 33% of book taxable income for 2013 and $190
million or 35% of book taxable income for 2012.
Net deferred tax liabilities totaled $7.2 million at December 31, 2014 and net deferred tax assets totaled $96 million at
December 31, 2013. The change from a net deferred tax asset to a net deferred tax liability was primarily due to the tax effect
of unrealized gains 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
in 2014 and 2013.
The allowance for uncertain tax positions totaled $13 million at December 31, 2014 and $12 million at December 31, 2013.
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 $28.2 million or 30% of book taxable income for the fourth quarter of 2014 compared to $35.3 million
or 32% of book taxable income for the fourth quarter of 2013.
37
Table 7 – 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
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
Other operating revenue
Personnel expense
Net losses (gains) and operating expenses of repossessed assets
Other non-personnel expense
Total other operating expense
Net income before taxes
Federal and state income taxes
Net income
Net income attributable to non-controlling interests
2014
First
Second
Third
Fourth
$
179,120
$
182,631
$
183,868
$
186,620
16,478
162,642
—
16,534
166,097
—
17,077
166,791
—
16,956
169,664
—
162,642
166,097
166,791
169,664
140,863
164,054
158,547
604
(4,461)
—
4,959
(6,444)
—
(780)
5,281
—
157,855
3,375
(10,821)
(373)
137,006
162,569
163,048
150,036
104,433
123,714
123,043
1,432
79,239
1,118
89,875
4,966
93,825
185,104
214,707
221,834
114,544
113,959
108,005
37,501
77,043
453
37,230
76,729
834
31,879
76,126
494
125,741
(1,497)
101,633
225,877
93,823
28,242
65,581
1,263
Net income attributable to shareholders of BOK Financial Corp. shareholders $
76,590
$
75,895
$
75,632
$
64,318
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
1.11
1.11
$
$
1.10
1.10
$
$
1.09
1.09
$
$
0.93
0.93
68,274
68,436
68,360
68,511
68,456
68,610
68,482
68,616
38
Table 7 – 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
Other operating revenue
Personnel expense
Net losses and operating expenses of repossessed assets
Other non-personnel expense
Total other operating expense
Net income before taxes
Federal and state income taxes
Net income
Net income (loss) attributable to non-controlling interests
Net income attributable to shareholders of BOK Financial Corp. shareholders $
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
157,064
159,173
145,235
142,372
1,210
2,658
(247)
(9,596)
14,315
(552)
160,685
163,340
52
(346)
(1,509)
143,432
(1,450)
6,093
—
147,015
125,654
128,110
125,799
125,662
1,246
77,082
203,982
136,155
47,096
89,059
1,095
87,964
$
282
82,529
210,921
121,311
41,423
2,014
82,485
1,618
88,139
210,298
215,419
109,523
33,461
79,888
$
76,062
$
(43)
79,931
324
75,738
109,240
35,318
73,922
946
72,976
$
$
1.28
1.28
1.16
1.16
$
$
1.10
1.10
$
$
1.06
1.06
$
$
$
$
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
67,815
68,040
67,994
68,212
68,049
68,273
68,095
68,294
39
Lines of Business
We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial
Banking includes lending, treasury and cash management services and customer risk management products for small
businesses, middle market and larger commercial customers. Commercial banking also includes the TransFund EFT
network. Consumer Banking includes retail lending and deposit services, lending and deposits services to small business served
through our consumer branch network and all mortgage banking activities. Wealth Management provides fiduciary services,
private bank services and investment advisory services in all markets. Wealth Management also underwrites state and
municipal securities and engages in brokerage and trading activities.
In addition to our lines of business, we have a Funds Management unit. The primary purpose of this unit is to manage our
overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the Funds
Management unit as needed to support their operations. Operating results for Funds Management and other include the effect of
interest rate risk positions and risk management activities, securities gains and losses including impairment charges, the
provision for credit losses in excess of net loans charged off, tax planning strategies and certain executive compensation costs
that are not attributed to the lines of business.
We allocate resources and evaluate the performance of our lines of business using the net direct contribution which includes the
allocation of funds, actual net credit losses and capital costs. In addition, we measure the performance of our business lines
after allocations of certain direct expenses and taxes based on statutory rates. Corporate expense allocations were updated in
2014 and the prior periods have been revised on a comparable basis.
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 8 following, net income attributable to our lines of business decreased $6.9 million or 3% compared to the
prior year. The decrease in net income attributed to our lines of business was due primarily to an $18.2 million increase in
personnel expense and a $17.2 million increase in non-personnel expense due to transaction growth and increased risk
management and regulatory compliance costs. These increased costs were partially offset by a $17.3 million increase in net
interest revenue primarily related to commercial loan growth, a $4.3 million decrease in net loans charged off, and an $18.7
million increase in fees and commission revenue. The decrease in net income provided by Funds Management was largely due
to a negative provision being recorded in the prior year, lower net interest revenue on our securities portfolio partially offset by
a net decrease in our allowance for loan losses and lower net interest revenue as the average balance of the securities portfolio
was allowed to decrease to reposition the balance sheet in anticipation of rising interest rates. Funds Management and other
also included $4.9 million that was accrued during 2014 related to the closure of 29 in-store branches during the first quarter of
2015. This accrual will be reversed and actual costs related to these closures will be attributed to the Consumer Banking
segment in 2015.
40
Table 8 – Net Income by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Year Ended December 31,
2014
2013
2012
$
166,081
$
149,561
$
136,439
36,885
21,441
224,407
68,028
64,585
17,130
231,276
85,333
79,014
22,104
237,557
113,634
$
292,435
$
316,609
$
351,191
41
Commercial Banking
Commercial Banking contributed $166.1 million to consolidated net income in 2014, up $16.5 million or 11% over the prior
year. Net interest revenue grew by $25.4 million as the balance of average commercial loans increased $1.1 billion or 11%. Net
loans charged off were down $3.1 million compared to 2013. Fees and commission revenue increased $11.6 million or 7% over
the prior year primarily due to growth in transaction card revenues. Other operating expense increased $11.4 million or 6%
compared to 2013. Personnel expenses increased $4.4 million, non-personnel expenses increased $6.1 million or 8% and
corporate expense allocations decreased $3.5 million.
Table 9 – 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 operating expenses of repossessed assets
Other non-personnel expense
Other operating expense
Net direct contribution
Corporate allocations
Net income before taxes
Federal and state income taxes
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 December 31,
2014
2013
2012
$
381,687
$
363,961
$
366,243
(43,934)
337,753
(7,447)
345,200
171,332
(1,628)
169,704
108,821
6,544
86,383
201,748
313,156
41,338
271,818
105,737
(51,587)
312,374
(4,372)
316,746
159,715
3,491
163,206
104,441
5,618
80,247
190,306
289,646
44,865
244,781
95,220
$
166,081
$
149,561
$ 11,384,508
$ 10,386,235
10,712,559
8,887,809
946,383
9,657,793
8,365,466
906,717
$
$
1.46 %
17.58 %
39.57 %
(0.07)%
1.44 %
16.49 %
40.24 %
(0.05)%
(58,835)
307,408
9,463
297,945
147,009
15,076
162,085
100,257
15,898
76,241
192,396
267,634
44,330
223,304
86,865
136,439
9,844,145
9,069,198
7,783,660
882,036
1.39%
15.47%
42.26%
0.10%
Net interest revenue increased $25.4 million or 8% over 2013. Growth in net interest revenue was due to a $1.1 billion increase
in average loan balances and a $522 million increase in average deposit balances, partially offset by decreased loan yields.
Fees and commissions revenue increased $11.6 million or 7% over 2013. Transaction card revenue generated by the TransFund
EFT network increased $7.0 million or 7% due to increased customer transaction volume. Brokerage and trading revenue was
up $2.0 million or 21%. The growth in loan syndication revenue was partially offset by lower customer hedging revenue.
Commercial deposit service charges and fees increased $1.3 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.
42
Operating expenses increased $11.4 million or 6% over 2013. Personnel costs increased $4.4 million or 4% primarily due to
standard annual merit increases and increased incentive compensation. Net losses and operating expenses on repossessed assets
increased $926 thousand compared to the prior year. Other non-personnel expenses increased $6.1 million primarily due to
higher data processing expenses related to increased transaction card activity. Corporate expense allocations decreased $3.5
million compared to the prior year.
The average outstanding balance of loans attributed to Commercial Banking increased $1.1 billion to $10.7 billion for
2014. 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 $7.4 million for 2014 and a net recovery of $4.4 million
or 0.05% of average loans attributed to this line of business for 2013.
Average deposits attributed to Commercial Banking were $8.9 billion for 2014, an increase of $522 million or 6% over 2013,
led by growth in average demand deposits. Interest-bearing transaction account and time deposit balances also grew over the
prior year. Average balances attributed to our commercial & industrial loan customers increased $557 million or 18%. Average
balance attributed to our healthcare customer grew by $58 million or 12% over the prior year. Small business banking customer
average balances increased $56 million or 5%. Average balances attributed to our healthcare customers grew by $58 million or
12% over the prior year. Average balances attributed to our energy customers decreased $94 million or 6%. Average balances
held by treasury services customers decreased $43 million or 3% compared to 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 four primary distribution channels: traditional branches, the 24-hour
ExpressBank call center, Internet banking and mobile banking. Consumer banking also conducts mortgage banking activities
through offices located outside of our consumer banking markets, through correspondent loan originators and through
HomeDirect Mortgage, an online origination channel.
Consumer banking contributed $36.9 million to consolidated net income for 2014, compared to $64.6 million in the prior year,
primarily due to a decrease in mortgage banking revenue. Fees and commission revenue decreased primarily due to mortgage
banking revenue and deposit service fee charges. Net interest revenue was lower and operating expenses and corporate expense
allocations increased. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other
operating revenue attributed to Consumer Banking by $3.7 million in 2014 and increased other operating revenue by $2.2
million in 2013.
43
Table 10 – 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 operating expenses of repossessed assets
Other non-personnel expense
Total other operating expense
Net direct contribution
Corporate allocations
Net income before taxes
Federal and state income taxes
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
Banking locations
Residential mortgage loans servicing portfolio1
1 Includes outstanding principal for loans serviced for affiliates
Year Ended December 31,
2013
2012
$
100,153
$
102,321
$
2014
95,910
32,170
128,080
5,405
122,675
196,641
20,619
(16,445)
200,815
96,957
(164)
99,289
196,082
127,408
67,040
60,368
23,483
$
$
$
36,885
$
6,555,642
2,368,686
6,520,835
277,404
0.56%
13.30%
56.58%
0.23%
34,850
135,003
5,532
129,471
217,269
(14,653)
22,720
225,336
94,451
(815)
95,463
189,099
165,708
60,005
105,703
41,118
64,585
6,487,255
2,372,253
6,432,498
293,736
1.00%
21.99%
51.30%
0.23%
$
$
36,700
139,021
10,588
128,433
267,218
13,715
(9,210)
271,723
95,477
1,404
109,717
206,598
193,558
64,239
129,319
50,305
79,014
6,498,193
2,407,676
6,367,416
289,665
1.22%
27.28%
49.60%
0.44%
$
4,476,625
$
4,081,390
$
3,708,350
December 31,
2014
2013
2012
182
206
217
$
17,308,212
$
14,818,016
$
13,091,482
Net interest revenue from consumer banking activities decreased $6.9 million compared to 2013 primarily due to a $6.1 million
decrease in revenue related to a deposit advance product that was phased out during the second quarter of 2014. Average loan
balances were largely unchanged compared to the prior year, with growth in permanent residential mortgage loans, partially
offset by a decrease in other consumer loans. Net loans charged off by the Consumer Banking unit decreased $127 thousand
compared to 2013 to $5.4 million or 0.0023 of average loans. Net consumer banking charge-offs include overdrawn deposit
accounts and other consumer loans.
44
Fees and commissions revenue decreased $20.6 million or 9% compared to the prior year. Mortgage banking revenue was
down $13.1 million or 11% compared to the prior year. Growth in residential mortgage loan origination volume was offset by
changes in the product mix toward more correspondent originations and fewer refinanced loans. Deposit service charges and
fees decreased $5.3 million or 9% compared to the prior year primarily due to lower overdraft fees.
Operating expenses increased $7.0 million or 4% over 2013. Personnel expenses were up $2.5 million or 3% primarily due to
increased incentive compensation expense and standard annual merit increases, partially offset by staffing reductions. Net
losses and operating expenses of repossessed assets were up $651 thousand compared to the prior year. Other non-personnel
expense increased $3.8 million or 4%. Professional fees and services expense was up $3.8 million primarily related to higher
mortgage compliance costs. Data processing and communications expense increased $2.0 million primarily related to increased
transaction activity. Business promotion expense was down $1.4 million and mortgage banking costs decreased $1.2 million
compared to the prior year. Corporate expense allocations increased $7.0 million compared to the prior year.
Average consumer deposit balances increased $88 million or 1% over the prior year. Average demand deposit balances
increased $127 million or 10% and average interest-bearing transaction accounts increased $110 million or 4%. Average
savings account balances were up $31 million or 11%. Higher costing time deposit balances decreased $180 million or 10%.
Our Consumer Banking division originates, markets and services conventional and government-sponsored residential mortgage
loans for all of our geographical markets. We funded $4.6 billion of residential mortgage loans in 2014 compared to $4.3 billion
in 2013. Mortgage loan fundings included $4.5 billion of mortgage loans funded for sale in the secondary market and $121
million funded for retention within the consolidated group. Approximately 15% of our mortgage loans funded were in the
Oklahoma market and 13% in the Texas market. In addition, 43% of our mortgage loan fundings came from correspondent
lenders and 9% of our mortgage loan fundings were from our DirectMortgage online sales channel.
At December 31, 2014, the Consumer Banking division serviced $16.2 billion of mortgage loans for others and $1.1 billion of
loans retained within the consolidated group. Approximately 86% 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 $75 million or
0.46% of loans serviced for others at December 31, 2014 compared to $80 million or 0.58% of loans serviced for others at
December 31, 2013. Mortgage servicing revenue, including revenue on loans serviced for the consolidated group, increased
$4.9 million or 11% over the prior year to $49.8 million.
45
Wealth Management
Wealth Management contributed $21.4 million to consolidated net income in 2014, an increase of $4.3 million or 25% over 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 $1.1 million or 2% primarily due to decreased loan yields. Fees and commissions revenue
increased $27.7 million or 13% over the prior year. Other operating expense increased $18.9 million or 10%. Increased fees and
commission revenue and operating expense was primarily due to the acquisition of GTRUST Financial Corporation and MBM
Advisors during 2014.
Table 11 – 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
Loss on financial instruments and other assets, net
Other operating revenue
Personnel expense
Net losses and operating expenses of repossessed assets
Other non-personnel expense
Other operating expense
Net direct contribution
Corporate allocations
Net 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
46
Year Ended December 31,
2014
2013
2012
$
23,826
20,578
44,404
213
44,191
240,621
(1,576)
239,045
171,563
329
44,878
216,770
66,466
31,375
35,091
13,650
$
$
25,478
20,061
45,539
1,275
44,264
27,647
21,456
49,103
2,284
46,819
212,878
(1,223)
211,655
199,406
(2,100)
197,306
160,211
146,066
—
37,679
197,890
58,029
29,993
28,036
10,906
54
31,303
177,423
66,702
30,525
36,177
14,073
$
21,441
$
17,130
$
22,104
$ 4,518,511
$ 4,556,132
$ 4,357,641
985,726
932,229
927,277
4,391,434
4,385,553
4,281,423
193,784
203,914
184,707
0.52%
12.07%
75.90%
0.02%
0.40%
9.00%
76.37%
0.14%
0.52%
12.26%
71.19%
0.25%
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.
A summary of assets under management or in custody follows in Table 12.
Table 12 – 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
December 31,
2014
14,644,494
2013
12,752,460
$
2012
$
10,981,353
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
3,324,667
18,028,716
35,997,877
22,952,394
5,653,095
64,603,366
$
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
$
Net interest revenue decreased $1.1 million or 2% compared to the prior year. Growth in average assets was largely due to
funds sold to the Funds Management unit. Average deposit balances were largely unchanged compared to the prior year. Non-
interest-bearing demand deposits increased $48 million, offset by a $46 million decrease in interest-bearing transaction
balances. Average loan balances were up $53 million or 6%. The benefit of this growth was partially offset by lower yields.
Fees and commissions revenue increased $19.0 million or 9% over the prior year. Fiduciary and asset management revenue
increased $19.5 million or 20%. The acquisitions of Topeka, Kansas-based GTRUST Financial Corporation in the first quarter
of 2014 and Houston, Texas-based MBM Advisors in the second quarter of 2014 added $7.8 million in revenue in 2014 and
$2.0 billion of fiduciary assets as of December 31, 2014. The remaining increase was primarily due to the growth in the fair
value of fiduciary assets administered by the Company. Brokerage and trading revenue decreased $1.1 million or 1% compared
to the prior year. Investment banking fees grew $3.5 million or 25% over the prior year, offset by a decrease in securities
trading revenue.
Other operating revenue includes fees earned from state and municipal bond underwriting and financial advisory services,
primarily in the Oklahoma and Texas markets. In 2014, the Wealth Management division participated in 422 underwritings that
totaled $8.6 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately
$2.5 billion of these underwritings. In 2013, the Wealth Management division participated in 456 underwritings that totaled
approximately $6.8 billion. Our interest in these underwritings totaled approximately $2.8 billion. The Wealth Management
division also participated in 18 corporate debt underwritings during 2014 that totaled $13.0 billion. Our interest in these
underwritings was $352 million.
Operating expenses increased $18.9 million or 10% over the prior year. Personnel expenses increased $11.4 million or 7% due
to expansion of the Wealth Management division during the year, including $4.4 million related to the GTRUST Financial and
MBM Advisors acquisitions. Regular compensation costs increased $6.5 million primarily due to increased headcount and
annual merit increases. Incentive compensation increased $3.4 million over the prior year. Non-personnel expenses increased
$7.2 million or 19%, including $3.3 million to the GTRUST Financial and MBM Advisors acquisitions. Approximately $806
thousand of this increase related to amortization of acquired intangible assets. Corporate expense allocations were up $1.4
million or 5% due primarily to expansion of the Wealth Management business line and increased customer transaction activity.
47
Financial Condition
Securities
We maintain a securities portfolio to enhance profitability, manage interest rate risk, provide liquidity and comply with
regulatory requirements. Securities are classified as trading, held for investment, or available for sale. See Note 2 to the
consolidated financial statements for the composition of the securities portfolio as of December 31, 2014, December 31, 2013
and December 31, 2012.
Table 13 – Securities
(In thousands)
Trading:
U.S. Government agency debentures
U.S. government agency residential
mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Investment:
Municipal and other tax-exempt securities
U.S. government agency residential
mortgage-backed securities1
Other debt securities
Total investment securities
Available for sale:
U.S. Treasury securities
Municipal and other tax-exempt securities
Residential mortgage-backed securities:
2014
December 31,
2013
2012
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
85,154
$
85,092
$
34,043
$
34,120
$
16,602
$
16,545
30,930
38,933
33,496
188,513
$
31,199
38,951
33,458
188,700
$
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
405,090
$
408,344
$
440,187
439,870
$
232,700
$
235,940
35,750
211,520
652,360
1,005
63,018
$
$
37,463
227,819
673,626
1,005
63,557
$
$
50,182
187,509
677,878
1,042
73,232
$
$
51,864
195,393
687,127
1,042
73,775
$
$
82,767
184,067
499,534
1,000
84,892
$
$
85,943
206,575
528,458
1,002
87,142
$
$
$
$
U.S. government agencies
Private issue
6,549,304
154,360
6,646,884
165,957
7,720,189
214,181
7,716,010
221,099
9,650,650
322,902
9,889,821
325,163
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
Total available for sale securities
Fair value option securities:
U.S. government agency residential
mortgage-backed securities
Corporate debt securities
Other securities
Total fair value option securities
6,703,664
6,812,841
7,934,370
7,937,109
9,973,552
10,214,984
2,064,091
9,438
22,171
18,603
$ 8,881,990
2,048,609
9,212
24,277
19,444
$ 8,978,945
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
$
$
309,973
—
—
309,973
$
$
311,597
—
—
311,597
$
$
165,809
—
9,485
175,294
$
$
157,431
—
9,694
167,125
$
$
253,726
25,077
723
279,526
$
$
257,040
26,486
770
284,296
1 Includes net realized gain of $615 thousand at December 31, 2014, $1.8 million at December 31, 2013 and $5.0 million at December 31,
2012 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.
48
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 they lack a market. Federal Reserve
Bank stock totaled $35 million at December 31, 2014, $34 million at December 31, 2013 and $34 million at December 31,
2012. Holdings of FHLB stock totaled $106 million at December 31, 2014, $51 million at December 31, 2013 and $31 million
at December 31, 2012. Requirements to hold FHLB stock are directly related to borrowings from the FHLB.
At December 31, 2014, the carrying value of investment (held-to-maturity) securities was $652 million and the fair value was
$674 million. Investment securities consist primarily of intermediate and long-term, fixed rate Oklahoma and Texas municipal
bonds, taxable Texas school construction bonds and residential mortgage-backed securities issued by U.S. government
agencies. The investment security portfolio is diversified among issuers. The largest obligation of any single issuer is $30
million. Substantially all of these bonds are general obligations of the issuers. Approximately $112 million of the Texas school
construction bonds are also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board
of Education for the State of Texas.
Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of
deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of
available for sale securities totaled $8.9 billion at December 31, 2014, a decrease of $1.3 billion compared to December 31,
2013. Available for sale securities consist primarily of U.S. government agency residential mortgage-backed securities and U.S.
government agency commercial mortgage-backed securities. Commercial mortgage-backed securities have prepayment
penalties similar to commercial loans. At December 31, 2014, residential mortgage-backed securities represented 76% of total
available for sale securities. The decrease in amortized cost during the year was primarily due to U.S. government agency
residential mortgage-backed 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, 2014 is 3.0 years. Management estimates the combined portfolios'
duration extends to 3.5 years assuming an immediate 200 basis point upward shock. The estimated combined portfolios'
duration contracts to 2.8 years assuming a 50 basis point decline in the current low rate environment.
Residential mortgage-backed securities also have credit risk from delinquency or default of the underlying loans. We mitigate
this risk by primarily investing in securities issued by U.S. government agencies. Principal and interest payments on the
underlying loans are fully guaranteed. At December 31, 2014, approximately $6.5 billion of the amortized cost of the
Company’s residential mortgage-backed securities were issued by U.S. government agencies. The fair value of these residential
mortgage-backed securities totaled $6.6 billion at December 31, 2014.
We also hold amortized cost of $154 million in residential mortgage-backed securities privately issued by publicly-owned
financial institutions. The amortized cost of these securities decreased $60 million from December 31, 2013, primarily due to
cash received and the sale of $31 million during the year. The fair value of our portfolio of privately issued residential
mortgage-backed securities totaled $166 million at December 31, 2014.
The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $89 million of Jumbo-A
residential mortgage loans and $66 million of Alt-A residential mortgage loans. Jumbo-A residential mortgage loans generally
meet government underwriting standards, but have loan balances that exceed agency maximums. Alt-A mortgage loans
generally do not have sufficient documentation to meet government agency underwriting standards. Approximately 91% of our
Alt-A mortgage-backed securities represent pools of fixed rate residential mortgage loans. None of the adjustable rate
mortgages are payment option adjustable rate mortgages (“ARMs”). Approximately 30% of our Jumbo-A residential mortgage-
backed securities represent pools of fixed rate residential mortgage loans and none of the adjustable rate mortgages are
payment option ARMs.
The aggregate gross amount of unrealized losses on available for sale securities totaled $33 million at December 31, 2014, a
decrease of $125 million from December 31, 2013. 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 $373 thousand were recognized in earnings in 2014.
49
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 $294 million of bank-owned life insurance at December 31, 2014. This investment is expected to
provide a long-term source of earnings to support existing employee benefit programs. Approximately $262 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, 2014, the fair value of investments held in separate accounts was approximately $279
million. As the underlying fair value of the investments held in a separate account at December 31, 2014 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.
50
Loans
The aggregate loan portfolio before allowance for loan losses totaled $14.2 billion at December 31, 2014, growing $1.4 billion
or 11% over December 31, 2013. Commercial loans have grown by $1.2 billion or 15% due largely to growth in energy,
services and healthcare sector loans. Commercial real estate loans increased $313 million or 13%. Growth in loans secured by
industrial facilities and multifamily residential property sector loans were partially offset by a decrease in construction and land
development loans. Residential mortgage loans decreased $103 million compared to the prior year. The decreased balances in
non-guaranteed permanent residential mortgage and home equity loans were partially offset by an increase in permanent
residential mortgage loans guaranteed by U.S. government agencies. Consumer loans increased $53 million.
Table 14 – Loans
(In thousands)
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
2014
2013
2012
2011
2010
December 31,
$
2,860,428
$
2,351,760
$
2,460,659
$
2,005,041
$
1,706,366
2,518,229
1,313,316
532,594
2,282,210
1,201,364
391,751
1,454,969
1,274,246
416,134
441,890
9,095,670
7,943,221
143,591
666,889
415,544
704,298
428,817
369,011
206,258
586,047
411,499
576,502
243,877
391,170
2,164,186
1,106,439
348,484
1,081,406
480,738
7,641,912
253,093
522,786
427,872
402,896
245,994
376,358
1,761,538
1,574,680
967,426
336,733
978,160
506,172
981,047
319,353
843,826
516,124
6,555,070
5,941,396
342,054
509,402
405,923
369,028
278,186
386,710
451,720
420,038
462,758
364,172
178,032
394,141
2,728,150
2,415,353
2,228,999
2,291,303
2,270,861
969,951
1,062,744
1,123,965
1,157,133
1,206,297
205,950
773,611
181,598
807,684
160,444
760,631
184,973
632,421
72,385
556,593
Total residential mortgage
1,949,512
2,052,026
2,045,040
1,974,527
1,835,275
Consumer
Total
434,705
381,664
395,505
448,843
595,504
$
14,208,037
$ 12,792,264
$
12,311,456
$
11,269,743
$
10,643,036
51
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.
Energy sector loans increased $509 million or 22% over December 31, 2013. Service sector loans increased $236 million or
10%. Healthcare sector loans increased $181 million or 14%, manufacturing sector loans increased $141 million or 36% and
wholesale/retail sector loans increased $112 million or 9%.
Table 15 presents our commercial 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 15 – Commercial Loans by Collateral Location
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas
Colorado
Arizona
Kansas/
Missouri
Other
Total
$ 601,021
$1,366,260
$ 52,307
$
7,677
$ 376,019
$ 13,099
$ 69,501
$ 374,544
$ 2,860,428
553,393
379,497
166,390
236,730
859,032
210,592
495,929
166,992
38,049
2,499
269,210
114,821
13,731
63,666
12,850
71,301
237,265
190,719
118,632
66,808
28,481
107,324
45,309
53,649
64,242
69,242
38,667
334,865
154,816
63,066
2,518,229
1,313,316
532,594
209,178
382,163
1,454,969
76,609
78,786
12,198
33,046
27,982
7,973
57,869
121,671
416,134
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial
and industrial
Total commercial
loans
$2,013,640
$3,236,209
$430,466
$ 202,271
$ 843,879
$374,991
$ 563,089
$1,431,125
$ 9,095,670
The majority of our commercial portfolio is located within our geographic footprint. The Other category includes two primary
locations, Louisiana and California, which represent $175 million or 1.9% of the commercial portfolio and $170 million or
1.9% of the commercial portfolio, respectively at December 31, 2014. 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.
52
Energy loans totaled $2.9 billion or 20% of total loans at December 31, 2014. Unfunded energy loan commitments increased by
$341 million to $2.9 billion at December 31, 2014. Approximately $2.5 billion or 86% of energy loans were to oil and gas
producers, an increase of $435 million over December 31, 2013. 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 that provide services to the energy industry increased $111 million during 2014 to
$222 million. Loans to borrowers in the midstream sector of the industry totaled $101 million at December 31, 2014. Loans to
other energy borrowers, including those engaged in wholesale or retail energy sales totaled $81 million at December 31, 2014,
a decrease of $138 million from the prior year.
The services sector of the loan portfolio totaled $2.5 billion or 18% of total loans and consists of a large number of loans to a
variety of businesses, including governmental, educational, utilities, not-for-profit and professional/technical services.
Approximately $1.2 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, 2014, the outstanding principal balance of these loans totaled $3.2
billion. Approximately 80% of these loans are to borrowers with local market relationships. We serve as the agent lender in
approximately 17% of our shared national credits, based on dollars committed. We hold shared credits to the same standard of
analysis and perform the same level of review as internally originated credits. Our lending policies generally avoid loans in
which we do not have the opportunity to maintain or achieve other business relationships with the customer. In addition to
management’s quarterly assessment of credit risk, banking regulators annually review a sample of shared national credits for
proper risk grading.
Commercial Real Estate
Commercial real estate represents loans for the construction of buildings or other improvements to real estate and property held
by borrowers for investment purposes. The majority of commercial real estate loans are secured by properties within our
geographic footprint, with the larger concentrations in Texas and Oklahoma, 34% and 16% at December 31, 2014. 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 $2.7 billion or 19% of the loan portfolio at December 31, 2014. The outstanding balance
of commercial real estate loans increased $313 million over 2013. Growth in loans secured by industrial facilities, loans
secured by 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 21% over the past five years. The commercial real estate segment of our loan portfolio distributed by
collateral location follows in Table 16.
53
Table 16 – 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 commercial
real estate
Total commercial
real estate loans
$
27,770
$ 34,354
$
19,191
$ 13,252
$ 42,842
$
1,240
$
4,196
$
746
$
143,591
84,737
80,077
125,862
44,827
208,607
177,749
258,246
165,322
75,435
28,405
34,507
36,157
5,362
583
24,324
553
68,591
21,625
64,897
6,427
57,466
40,009
52,638
17,693
6,927
159,764
12,239
49,040
43,732
54,857
94,784
114,106
666,889
415,544
704,298
428,817
64,821
85,027
47,365
12,173
35,073
46,078
21,619
56,855
369,011
$ 428,094
$ 929,305
$ 241,060
$ 56,247
$ 239,455
$215,124
$ 137,753
$ 481,112
$ 2,728,150
Residential construction and land development loans, which consist primarily of residential construction properties and
developed building lots, decreased $63 million or 30% during 2014 to $144 million at December 31, 2014 primarily due to net
pay-downs. The Other category includes Georgia with $63 million or 2.3% of total commercial real estate loans, Mississippi
with $45 million or 1.6% of total commercial real estate loans, Iowa with $43 million or 1.6% of total commercial real estate
loans and Virginia with $42 million or 1.5% of total commercial real estate loans. All other 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 may be secured by automobiles, recreational and marine equipment or other collateral, or
may be unsecured. 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 $1.9 billion, a $103 million or 5% decrease compared to December 31, 2013. In general, we
sell the majority of our fixed rate loan originations that conform to U.S. government agency standards in the secondary market
and retain the majority of our non-conforming and adjustable-rate mortgage loans. We have no concentration in sub-prime
residential mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or
adjustable rate mortgage loans with initial rates that are below market. Collateral for 98% of our residential mortgage portfolio
is located 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. Jumbo loans may be fixed or variable rate and are fully amortizing. The
size of jumbo loans exceed maximums set under government sponsored entity standards, but otherwise generally conform to
those standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of
38%. Loan-to-value ratios (“LTV”) are tiered from 60% to 100%, depending on the market. Special mortgage programs include
fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are
fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.
At December 31, 2014, $206 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We
have minimal credit exposure on loans guaranteed by the agencies. This amount includes residential mortgage loans previously
sold into GNMA mortgage pools that are eligible to be repurchased. We may repurchase these loans when certain defined
delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over
these loans and must include them in the Consolidated Balance Sheets. Permanent residential mortgage loans guaranteed by
U.S. government agencies increased $24 million or 13% over December 31, 2013.
54
Home equity loans totaled $774 million at December 31, 2014, a $34 million or 4% decrease compared to December 31, 2013.
Most of the decrease was in first-lien, fully amortizing home equity. 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, 2014 by lien position and amortizing status follows in Table 17.
Table 17 – Home Equity Loans
(In thousands)
First lien
Junior lien
Total home equity
Revolving
Amortizing
Total
$
$
36,117
$
497,225
$
69,073
171,196
105,190
$
668,421
$
533,342
240,269
773,611
The distribution of residential mortgage and consumer loans at December 31, 2014 is presented in Table 18. Residential
mortgage loans are distributed by collateral location. Consumer loans are generally distributed by borrower location.
Table 18 – 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
Oklahoma
Texas
New
Mexico
Arkansas Colorado Arizona
Kansas/
Missouri
Other
Total
$ 207,708
$379,078
$ 38,778
$ 17,779
$ 160,386
$ 88,299
$ 54,468
$ 23,455
$ 969,951
68,949
461,469
24,336
135,228
67,063
123,470
6,228
4,628
11,656
30,701
3,373
9,642
14,969
7,864
9,376
609
205,950
773,611
$ 738,126
$538,642
$ 229,311
$ 28,635
$ 202,743
$101,314
$ 77,301
$ 33,440
$ 1,949,512
Consumer
$ 210,542
$153,675
$ 10,993
$
908
$ 27,949
$ 12,880
$ 16,229
$ 1,529
$ 434,705
The Company secondarily evaluates loan portfolio performance based on the primary geographical market managing the loan.
Loans attributed to a geographical market may not represent the location of the borrower or the collateral. All permanent
mortgage loans serviced by our mortgage banking unit and held for investment by the Bank are centrally managed by the Bank
of Oklahoma.
55
Table 19 – Loans Managed by Primary Geographical Market
(In thousands)
2014
2013
2012
2011
2010
December 31,
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
$
$
3,142,689
603,610
1,467,096
206,115
5,419,510
$
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
3,549,128
1,027,817
235,948
154,363
4,967,256
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
383,439
296,358
127,999
10,899
818,695
95,510
88,301
7,261
5,169
196,241
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
977,961
194,553
57,119
27,918
1,257,551
735,626
190,355
62,821
22,686
1,011,488
776,610
173,327
59,363
19,333
1,028,633
547,524
355,140
35,872
12,883
951,419
399,419
162,371
18,217
17,358
597,365
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
2,693,232
703,041
1,227,184
327,599
4,951,056
1,943,666
701,993
300,916
145,699
3,092,274
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
Total BOK Financial loans
$
14,208,037
$ 12,792,264
$
12,311,456
$
11,269,743
$
10,643,036
56
Table 20 – Loan Maturity and Interest Rate Sensitivity at December 31, 2014
(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
Loan Commitments
Remaining Maturities of Selected Loans
Total
Within 1
Year
1-5 Years
After 5
Years
$
9,095,670
2,728,150
$ 11,823,820
$
2,472,063
9,351,757
$ 11,823,820
$
$
$
$
701,989
170,797
872,786
18,188
854,598
872,786
$
$
$
$
5,557,425
1,757,370
7,314,795
793,689
6,521,106
7,314,795
$
$
$
$
2,836,256
799,983
3,636,239
1,660,186
1,976,053
3,636,239
We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded
loan commitments which totaled $8.3 billion and standby letters of credit which totaled $448 million at December 31, 2014.
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, 2014.
Table 21 – Off-Balance Sheet Credit Commitments
(In thousands)
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
December 31,
2014
2013
2012
2011
2010
$
8,328,416
$
7,096,373
$
6,636,587
$
5,193,545
$
5,001,338
447,599
179,822
444,248
191,299
466,477
226,922
534,565
289,021
588,091
330,963
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, 2014, the principal balance of residential mortgage loans sold subject to recourse
obligations totaled $180 million, down from $191 million at December 31, 2013. Substantially all of these loans are to
borrowers in our primary markets including $119 million to borrowers in Oklahoma, $18 million to borrowers in Arkansas and
$13 million to borrowers in New Mexico. At December 31, 2014, approximately 4% of these loans are nonperforming and 5%
were past due 30 to 89 days. A separate accrual for credit risk of $7.3 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 2014, approximately
18% of repurchase requests have currently resulted in actual repurchases or indemnification by the Company. The accrual for
credit losses related to potential loan repurchases under representations and warranties totaled $3.2 million at December 31,
2014.
57
Customer Derivative Programs
We offer programs that permit our customers to hedge various risks, including fluctuations in energy, cattle and other
agricultural product prices, interest rates and foreign exchange rates. Each of these programs work essentially the same
way. Derivative contracts are executed between the customers and the Company. Offsetting contracts are executed between the
Company and selected counterparties or exchanges 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 counterparties. Customer credit risk is monitored through existing credit policies and procedures. The effects of changes in
commodity prices, interest rates or foreign exchange rates are evaluated across a range of possible options to determine the
maximum exposure we are willing to have individually to any customer. Customers may also be required to provide cash
margin or other collateral in conjunction with our credit agreements to further limit our credit risk.
Counterparty credit risk is evaluated through existing policies and procedures. This evaluation considers the total relationship
between BOK Financial and each of the counterparties. Individual limits are established by management, approved by Credit
Administration and reviewed by the Asset / Liability Committee. Margin collateral is required if the exposure between the
Company and any counterparty exceeds established limits. Based on declines in the counterparties’ credit ratings, these limits
may be reduced and additional margin collateral may be required.
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 counterparty’s ability to provide margin collateral was
impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statement of
Earnings.
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 full payment of the original amount
through distributions from the bankruptcy trustee including $806 thousand received in 2014, $5.6 million received in 2013 and
$2.0 million received in 2012.
Derivative contracts are carried at fair value. At December 31, 2014, the net fair values of derivative contracts, before
consideration of cash margin, reported as assets under these programs totaled totaled $433 million compared to $274 million at
December 31, 2013. Derivative contracts carried as assets include foreign exchange contracts with fair values of $238 million,
energy contracts with fair values of $93 million, to-be-announced residential mortgage-backed securities sold to our mortgage
banking customers with fair values of $55 million, interest rate swaps primarily sold to loan customers with fair values of $35
million and equity option contracts with fair values of $11 million. Before consideration of cash margin paid to counterparties,
the aggregate net fair values of derivative contracts held under these programs reported as liabilities totaled $432 million.
At December 31, 2014, total derivative assets were reduced by $71 million of cash collateral received from counterparties and
total derivative liabilities were reduced by $78 million of cash collateral paid to counterparties related to instruments executed
with the same counterparty under a master netting agreement.
A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note
3 to the Consolidated Financial Statements.
The fair value of derivative contracts reported as assets under these programs, net of cash margin held by the Company, by
category of debtor at December 31, 2014 follows in Table 22.
58
Table 22 – Fair Value of Derivative Contracts
(In thousands)
Customers
Banks and other financial institutions
Exchanges
Energy companies
Fair value of customer hedge asset derivative contracts, net
$
264,213
79,334
17,607
720
$
361,874
The largest exposure to a single counterparty was to an exchange for energy derivative contracts which totaled $15 million at
December 31, 2014.
Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain
counterparties when the net negative fair value of the contracts exceeds established limits. Also, changes in commodity prices
affect the amount of regulatory capital we are required to hold as support for the fair value of our derivative assets. These risks
are modeled as part of the management of these programs. Based on current prices, a decrease in market prices equivalent to
$29.84 per barrel of oil would decrease the fair value of derivative assets by $6.4 million. An increase in prices equivalent to
$83.18 per barrel of oil would increase the fair value of derivative assets by $12 million. 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 $19 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, 2014, 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 $190 million or 1.34% of outstanding loans and 236% of nonaccruing loans
at December 31, 2014. The allowance for loan losses was $189 million and the accrual for off-balance sheet credit risk was
$1.2 million. At December 31, 2013, the combined allowance for credit losses was $187 million or 1.47% of outstanding loans
and 185% of nonaccruing loans. The allowance for loan losses was $185 million and the accrual for off-balance sheet credit
risk was $2.1 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. After evaluating all credit factors,
the Company determined that no provision for credit losses was necessary for 2014. A $27.9 million negative provision for
credit losses was recorded in 2013. 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. Although we did not record a
provision for credit losses during 2014 and recorded negative provisions for credit losses in 2013, management expects that a
provision for credit losses will be necessary during 2015 based on the expectation of continued loan growth.
59
Table 23 – 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 recovered (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
2014
2013
2012
2011
2010
Year Ended December 31,
$
185,396
$ 215,507
$
253,481
$
292,971
$
292,095
(3,569)
(2,047)
(4,448)
(6,168)
(6,335)
(5,845)
(5,753)
(7,349)
(16,232)
(25,282)
5,703
7,003
2,000
4,328
19,034
2,802
858
7,488
9,420
1,558
4,778
23,244
(2,038)
(28,073)
$
$
$
$
$
$
$
$
189,056
$ 185,396
2,088
(858)
1,230
—
$
$
$
1,915
173
2,088
(27,900)
1.33 %
(0.02)%
— %
117.26 %
1.45 %
0.02 %
(0.23)%
91.94 %
(67.47)x
90.97x
(9,341)
(11,642)
(10,047)
(11,108)
(42,138)
6,128
5,706
1,928
5,056
18,818
(23,320)
(14,654)
215,507
9,261
(7,346)
1,915
(22,000)
1
$
$
$
$
1.75 %
0.20 %
(0.19)%
44.66 % 1
9.24x
1
0.01 %
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)
(123,988)
9,263
3,179
901
6,265
19,608
(104,380)
105,256
292,971
14,388
(117)
14,271
105,139
2.75%
0.96%
0.96%
15.81%
2.81x
0.25%
outstanding at period-end
2.89%
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.
1.34 %
2.33 %
1.47 %
1.77 %
60
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, 2014, impaired loans totaled $283 million,
including $1.2 million with specific allowances of $312 thousand and $282 million with no specific allowances because the
loan balances represent the amounts we expect to recover. At December 31, 2013, impaired loans totaled $282 million,
including $2.1 million of impaired loans with specific allowances of $1.0 million and $280 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 $161 million at December 31, 2014, compared to
$156 million at December 31, 2013. The general allowance for the commercial loan portfolio segment increased by $12 million
primarily due to loan growth and exposure to lower energy prices. The general allowance for the commercial real estate loan
portfolio segment increased $1.0 million over December 31, 2013. The general allowance for residential mortgage loans
decreased $5.9 million and the general allowance for consumer loans decreased $2.7 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 both December 31, 2014 and December 31, 2013. The
nonspecific allowance includes consideration of the indirect impact of falling energy prices on the broader economies within
our geographical footprint that are highly dependent on the energy industry. The nonspecific allowance also considers the
possible impact of the European debt crisis and similar economic factors on our loan portfolio. As demonstrated by continued
domestic and European accommodative monetary policies, these factors remain a continued significant risk, although they have
remained fairly stable throughout the year.
An allocation of the allowance for loan losses by loan category follows in Table 24.
Table 24 – Allowance for Loan Losses Allocation
(Dollars in thousands)
2014
2013
December 31,
2012
2011
2010
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Loan category:
Commercial
$
90,875
64.02% $
79,180
62.10% $
65,280
62.07% $
83,443
58.17% $ 104,631
55.82%
Commercial
real estate
Residential
mortgage
Consumer
Nonspecific
allowance
42,445
19.20%
41,573
18.88%
54,884
18.11%
67,034
20.33%
98,709
21.34%
13.72%
3.06%
23,458
4,233
28,045
29,465
6,965
28,213
16.04%
2.98%
41,703
9,453
44,187
16.61%
3.21%
17.52%
3.98%
46,476
10,178
46,350
17.24%
5.60%
50,281
12,614
26,736
Total
$ 189,056
100.00% $ 185,396
100.00% $ 215,507
100.00% $ 253,481
100.00% $ 292,971
100.00%
1 Represents ratio of loan category balance to total loans.
61
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 $79 million at December 31, 2014. The current
composition of potential problem loans by primary industry included energy - $16 million, services - $15 million, multifamily
residential properties - $13 million, construction and land development - $11 million and wholesale/retail - $8.1 million.
Potential problem loans totaled $74 million at December 31, 2013.
With the decrease in energy prices at the end of 2014, management conducted a comprehensive credit review of those areas of
the energy portfolio that it deems having the highest level of risk in an energy industry downturn: energy services companies,
energy borrowers with high total leverage, and those energy customers determined to be most susceptible to lower commodity
prices in our most recent energy portfolio stress test. We conducted an updated stress test of its energy portfolio, assuming
starting commodity prices of $45 per barrel for oil and $2.50 per MMBTUs for natural gas. We also reviewed borrowers who
comprised a majority of energy loan growth in the fourth quarter. The results of the comprehensive review and updated stress
test did not alter the general view that the loan portfolio is well positioned to withstand a short-term correction in oil and
natural gas prices. No material near-term losses were identified.
Commodity price volatility is inherent in energy lending. Oil or natural gas prices have fallen by 50% or more in a six-month
period six times since 2000, and by historic standards, the price drop which began in June 2014 is less severe than those
previous declines. Our average gross charge-offs in the energy production portfolio are 9.9 basis points over the past 10 years
and 6.4 basis points over the past 20 years, making it our best performing portfolio from a credit quality standpoint. We believe
the duration of the downturn is the key question to assess credit risk or risk of an economic slowdown in our footprint. To that
end, we see two distinct risk periods: if commodity prices return to a normalized, stable level over the next 6-12 months, we
expect to see a handful of credits migrate to potential problem loan or non-accrual status, but no material actual losses in the
portfolio. In addition, we expect a more modest impact on economic growth in our footprint. If the downturn extends beyond
12 months, outcomes are obviously more difficult to predict. At that point, we would be more likely to see loss content in the
portfolio and a greater impact on the overall economy, and in turn lower loan demand. However, at present our portfolio is
strong, we are doing business with high-quality borrowers, and we do not view the current commodity price decline as
inherently different than previous declines we have experienced since 2000.
Net Loans Charged Off
Loans are charged off against the allowance for loan losses when the loan balance or a portion of the loan balance is no longer
covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral
value. Internally risk graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is
identified. Non-risk graded loans are generally charged off when payments are between 60 days and 180 days past due,
depending on loan class. In addition, non-risk graded loans are generally charged-down to collateral value within 60 days of
being notified of a borrower's bankruptcy filing, regardless of payment status.
BOK Financial had net recovery of $2.8 million or (0.02)% of average outstanding loans for 2014, compared to a net charge-off
of $2.0 million or 0.02% of average loans in 2013.
Net commercial loan recoveries totaled $2.1 million. Net commercial real estate loan recoveries totaled $5.0 million. Net
charge-offs on residential mortgage loans totaled $2.4 million for the year and net charge-offs of consumer loans were $1.8
million.
62
Table 25 – 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
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
2014
2013
2012
2011
2010
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
$
$
$
$
$
$
$
$
13,527
18,557
48,121
566
80,771
73,985
—
73,985
154,756
49,898
51,963
101,861
256,617
129,022
1,416
5,201
4,149
450
1,380
931
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
$
$
$
13,527
16,760
5,299
3,926
3,420
—
—
5,912
18,557
17,377
4,857
6,391
7
252
11,966
40,850
34,845
34,279
3,712
9,564
48,121
566
777
7,264
42,320
1,219
$
$
$
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
$
12,090
3,077
2,007
3,166
1,667
24,467
26,131
8,117
6,829
2,706
3,968
12,875
60,626
39,863
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
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
465
19,262
8,486
2,116
3,534
4,592
38,455
99,579
4,978
19,654
6,725
4,087
15,343
150,366
32,111
—
5,315
37,426
4,567
$
80,771
$
101,149
$
134,410
$
201,286
$
230,814
63
Table 25 – Nonperforming Assets
(In thousands)
Nonaccruing loans as % of outstanding loan balance for class:
Nonaccruing loans by loan class:
2014
2013
2012
2011
2010
December 31,
Commercial:
Energy
Services
Wholesale / retail
Manufacturing
Healthcare
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
0.05%
0.21%
0.32%
0.08%
0.09%
0.22%
0.15%
3.69%
0.59%
0.82%
—%
—%
1.60%
0.68%
3.59%
1.80%
1.24%
2.47%
0.13%
0.57%
0.08%
0.22%
0.58%
0.15%
0.12%
0.19%
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%
0.35%
0.32%
0.02%
0.96%
2.19%
6.85%
0.56%
0.35%
1.05%
0.03%
1.22%
0.86%
0.66%
0.42%
0.89%
0.65%
10.32%
18.09%
22.04%
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%
Allowance for loan losses to nonaccruing loans
Accruing loans 90 days or more past due1
Foregone interest on nonaccruing loans2
234.06%
183.29%
160.34%
125.93%
126.93%
$
125
$
8,170
$
1,415
9,815
3,925
5,361
$
2,496
$
11,726
7,966
16,818
1 Excludes residential mortgages guaranteed by
agencies of the U.S. Government.
2 Interest collected and recognized on nonaccruing
loans was not significant in 2014 and previous
years.
Nonperforming assets increased $8.9 million during 2014 to $257 million or 1.79% of outstanding loans and repossessed assets
at December 31, 2014. Nonaccruing loans totaled $81 million, accruing renegotiated residential mortgage loans totaled $74
million (all guaranteed by U.S. government agencies) and real estate and other repossessed assets totaled $102 million. All
accruing renegotiated residential mortgage loans, $3.7 million of nonaccruing loans and $50 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 $26 million during the year to $129 million or 0.92% of outstanding non-guaranteed loans and
repossessed assets. The Company generally retains nonperforming assets to maximize potential recovery which may cause
future nonperforming assets to decrease more slowly.
64
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 a troubled
debt restructuring. Modifications may include extension of payment terms and rate concessions. We generally do not forgive
principal or accrued but unpaid interest. All loans modified in troubled debt restructurings, except residential mortgage loans
guaranteed by U.S. government agencies, are classified as nonaccruing. We may 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, 2014, 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, 2014 follows in Table 26.
Table 26 – Rollforward of Nonperforming Assets
(In thousands)
Balance, December 31, 2013
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, 2014
Year Ended December 31, 2014
Nonaccruing
Loans
Renegotiated
Loans
Real Estate
and Other
Repossessed
Assets
Total
Nonperforming
Assets
$
101,149
$
54,322
$
92,272
$
63,500
—
(45,949)
(16,232)
—
(21,225)
—
—
—
—
(474)
2
68,014
—
(2,016)
—
—
—
(7,441)
(38,467)
—
—
—
(427)
—
810
—
—
(530)
21,225
57,429
(23,453)
(44,963)
—
—
(929)
$
80,771
$
73,985
$
101,861
$
247,743
131,514
810
(47,965)
(16,232)
(530)
—
49,988
(61,920)
(44,963)
—
(474)
(1,354)
256,617
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 2014, $57 million of properties guaranteed by U.S. government
agencies were foreclosed and $45 million of properties were conveyed to the applicable U.S. government agencies.
Nonaccruing loans totaled $81 million or 0.57% of outstanding loans at December 31, 2014 compared to $101 million or
0.79% of outstanding loans at December 31, 2013. Nonaccruing loans decreased $20 million from December 31, 2013 due
primarily to $46 million of payments, $21 million of foreclosures and $16 million of charge-offs. Newly identified nonaccruing
loans totaled $63.5 million for 2014.
65
Commercial
Nonaccruing commercial loans totaled $14 million or 0.15% of total commercial loans at December 31, 2014, down from $17
million or 0.21% of total commercial loans at December 31, 2013. Nonaccruing commercial loans decreased $3.2 million
during 2014. Newly identified nonaccruing commercial totaled $11 million, offset by $8.4 million in payments, $3.6 million of
charge-offs and $2.0 million of repossessions.
Nonaccruing commercial loans at December 31, 2014 were primarily composed $5.2 million or 0.21% of total services sector
loans and $4.1 million or 0.32% of total wholesale/retail sector loans. Over half of the balance of nonaccruing wholesale/retail
sector loans was comprised of a single customer in the New Mexico market.
Commercial Real Estate
Nonaccruing commercial real estate loans decreased $22 million compared to the prior year to $19 million or 0.68% of
outstanding commercial real estate loans at December 31, 2014 compared to $41 million or 1.69% of outstanding commercial
real estate loans at December 31, 2013. Newly identified nonaccruing commercial real estate loans totaled $7.5 million, offset
by $22 million of cash payments received, $6.1 million of foreclosures and $2.0 million of charge-offs.
Nonaccruing commercial real estate loans were composed of $5.9 million or 1.60% of total other commercial real estate loans,
$5.3 million or 3.69% of total residential land development and construction loans, $3.9 million or 0.59% of loans secured by
retail facilities and $3.4 million or 0.82% of loans secured by office buildings.
Residential Mortgage and Consumer
Nonaccruing residential mortgage loans totaled $48 million or 2.47% of outstanding residential mortgage loans at
December 31, 2014, compared to $42 million or 2.06% of outstanding residential mortgage loans at December 31, 2013. Newly
identified nonaccruing residential mortgage loans which totaled $37 million were offset by $15 million of cash payments, $12
million of foreclosures and $4.4 million of loans charged off during the year. Nonaccruing residential mortgage loans primarily
consist of non-guaranteed permanent residential mortgage loans which totaled $35 million or 3.59% of outstanding non-
guaranteed permanent residential mortgage loans at December 31, 2014. Nonaccruing home equity loans totaled $9.6 million or
1.24% 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 27. Substantially all non-
guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 89 days past due
decreased $4.2 million to $8.7 million at December 31, 2014. Consumer loans past due 30 to 89 days decreased $480 thousand
compared to December 31, 2013.
Table 27 – Residential Mortgage and Consumer Loans Past Due
(In thousands)
Residential mortgage:
Permanent mortgage1
Home equity
Total residential mortgage
December 31, 2014
December 31, 2013
90 Days or
More
30 to 89
Days
90 Days or
More
30 to 89
Days
$
$
46
77
123
$
$
$
5,970
2,723
8,693
— $
34
34
$
9,795
3,087
12,882
$
Consumer
1 Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.
2
$
547
$
1
$
1,027
66
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 $102 million at December 31, 2014, a $10 million increase from December 31,
2013. The distribution of real estate and other repossessed assets distributed primarily by collateral location is included in Table
28 following.
Table 28 – Real Estate and Other Repossessed Assets by Collateral Location as of December 31, 2014
(In thousands)
Developed commercial
real estate properties
1-4 family residential
properties guaranteed
by U.S. government
agencies1
1-4 family residential
properties
Undeveloped land
Residential land
development
properties
Other
Oklahoma
Texas
Colorado Arkansas
New
Mexico
Arizona
Kansas/
Missouri
Other
Total
$
2,311
$
3,797
$
3,438
$
796
$
4,109
$
1,178
$
— $ 5,073
$ 20,702
17,575
2,730
1,370
1,263
21,297
682
4,268
713
49,898
4,820
328
2,861
2,987
370
—
30
—
175
2,021
1,196
216
1,782
—
1,125
—
4,033
—
—
—
3,433
1,356
2,201
324
500
1,211
4
—
288
—
—
—
17,892
7,903
4,926
540
Total real estate and
other repossessed
assets
$
$ 101,861
1 As discussed in Note 1 to the Consolidated Financial Statements, 1-4 family residential properties guaranteed by U.S. government agencies
were reclassified to Receivables on the Consolidated Balance Sheet as of January 1, 2015 in conjunction with the implementation of FASB
Accounting Standards Update No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure.
$ 12,405
$ 6,074
25,404
29,439
4,966
5,983
9,174
8,416
$
$
$
$
$
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
2014, approximately 73% 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.
67
Table 29 - Average Deposits by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Year Ended December 31,
2014
2013
$
8,887,809
$
8,365,466
6,520,835
4,391,434
6,432,498
4,385,553
19,800,078
19,183,517
615,080
539,766
$ 20,415,158
$ 19,723,283
Average deposits for 2014 totaled $20.4 billion and represented approximately 73% of total liabilities and capital compared
with $19.7 billion and 72% of total liabilities and capital for 2013. Average deposits increased $692 million over the prior year.
Demand deposits increased $597 million and interest-bearing transaction deposit accounts were up $214 million. Time deposits
decreased $151 million.
Average Commercial Banking deposit balances increased $522 million over the prior year, due primarily to a $416 million
increase in demand deposit balances and a $95 million increase in interest-bearing transaction deposits. Average balances
attributed to our commercial & industrial loan customers increased $557 million or 18%. Average balances attributed to our
healthcare customers grew by $58 million or 12% over the prior year. Small business banking customer average balances
increased $56 million or 5%. Average balances attributed to our energy customers increased $94 million or 6%. Average
balances held by treasury services customers decreased $43 million or 3% compared to 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.
Average Consumer Banking deposit balances increased $88 million from 2013. Demand deposit balances grew by $127 million
and interest-bearing transaction account balances increased $110 million. Higher costing time deposit balances decreased $180
million. Average Wealth Management deposits were largely unchanged compared to the prior year. Demand deposit balances
grew by $48 million during 2014, offset by a $46 million decrease in interest-bearing transaction accounts. Time 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 projects or shift demand deposits into money market instruments.
Table 30 - 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,
2014
2013
$
$
225,410
$
166,578
375,032
915,029
1,682,049
$
196,631
200,117
319,096
1,079,876
1,795,720
Brokered deposits included in time deposits averaged $237 million for 2014 compared to $159 million for 2013. Brokered
deposits included in time deposits totaled $334 million at December 31, 2014 and $186 million at December 31, 2013.
Average interest-bearing transactions accounts for 2014 included $298 million of brokered deposits compared to $265 million
for 2013. Brokered deposits included in interest-bearing transaction accounts totaled $585 million at December 31, 2014 and
$227 million at December 31, 2013.
68
The distribution of our period end deposit account balances among principal markets follows in Table 31.
Table 31 -- 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
2014
2013
2012
2011
2010
December 31,
$
3,828,819
$
3,432,940
$
4,207,263
$ 3,196,436
$
2,240,850
6,117,886
206,357
1,301,194
7,625,437
6,318,045
191,880
1,214,507
7,724,432
6,023,384
5,966,528
163,512
1,267,854
7,454,750
126,682
1,444,332
7,537,542
11,454,256
11,157,372
11,662,013
10,733,978
6,033,598
106,411
1,363,942
7,503,951
9,744,801
2,639,732
2,481,603
2,606,176
1,808,490
1,389,876
2,065,723
1,966,580
2,129,084
1,940,819
1,791,810
72,037
547,316
2,685,076
5,324,808
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
487,819
502,395
427,510
319,269
271,137
519,544
37,471
295,798
852,813
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
Total Bank of Albuquerque
1,340,632
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
35,996
38,566
39,897
19,405
16,494
158,115
1,936
28,520
188,571
224,567
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
69
Table 31 -- 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
2014
2013
2012
2011
2010
December 31,
445,755
409,942
336,252
292,556
184,251
631,874
29,811
353,998
1,015,683
1,461,438
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
369,115
204,092
161,093
106,741
74,888
347,214
2,545
36,680
386,439
755,554
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
259,121
246,739
260,095
56,888
43,268
273,999
1,274
45,210
320,483
579,604
69,857
1,252
41,312
112,421
359,160
85,524
771
26,728
113,023
373,118
206,473
626
36,325
243,424
300,312
140,525
200
70,818
211,543
254,811
Total BOK Financial deposits
$
21,140,859
$
20,269,327
$ 21,179,060
$ 18,762,580
$
17,179,061
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. There were no wholesale federal funds purchased outstanding at December 31, 2014. 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 $1.9
billion during 2014 and $1.7 billion during 2013.
At December 31, 2014, the estimated unused credit available to the subsidiary bank from collateralized sources was
approximately $6.9 billion.
70
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, 2014, $226 million
of this subordinated debt remains outstanding.
In 2005, the Bank issued $150 million of 10-year, fixed rate subordinated debt. The cost of this subordinated debt, including
issuance discounts and hedge loss is 5.56%. The proceeds of this debt were used to repay $95 million of BOK Financial's
unsecured revolving line of credit and to provide additional capital to support asset growth. At December 31, 2014, $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. Cash on hand at
December 31, 2014 totaled $511 million. 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, 2014, based on the most restrictive limitations as well as management’s internal capital
policy, the subsidiary bank could declare up to $365 million of dividends without regulatory approval. Upon adoption of the
Basel III regulatory capital framework in the first quarter of 2015, the dividend capacity of the subsidiary bank will be reduced
to zero. Dividend constraints may be alleviated through increases in retained earnings, capital issuances or changes in risk
weighted assets. Future losses or growth in risk weighted assets at the subsidiary bank could also 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, 2015. 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, 2014 and December 31, 2013, and the Company met all of the covenants.
Our equity capital at December 31, 2014 was $3.3 billion, an increase of $281 million over December 31, 2013. Net income
less cash dividends paid increased equity $181 million during 2014. In addition, accumulated other comprehensive income
increased $82 million during 2014 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, 2014, the Company has repurchased
239,496 shares for $14 million under this program. During 2014, 200,000 shares were repurchased at the average price of
$61.68 per share.
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.
71
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 32.
Table 32 – 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,
2014
2013
11.47%
10.08%
13.17%
13.33%
14.66%
9.96%
11.00%
9.90%
13.59%
13.77%
15.56%
10.05%
In July 2013, banking regulators issued the final rule revising regulatory capital rules for substantially all U.S. banking
organizations. The new capital rule was 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 will elect 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 13.17% as of December 31, 2014. Based on
our interpretation of the new capital rule, our estimated Tier 1 common equity ratio on a fully phased-in basis is approximately
12.25%, nearly 525 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
requirement 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”), including unrealized gains and losses on available for sale securities, less intangible
assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes
preferred equity. This non-GAAP measure is a valuable indicator of a financial institution’s capital strength since it eliminates
intangible assets from shareholders’ equity and retains the effect of unrealized losses on securities and other components of
accumulated other comprehensive income in shareholders’ equity.
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 33 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
72
Table 33 – 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
Estimated Tier 1 common equity ratio under fully phased-in Basel III:
Tier 1 common equity under existing Basel I
Estimated equity adjustments
Estimated Tier 1 common equity under fully phased-in Basel III
Risk weighted assets under existing Basel I
Estimated risk weighted asset adjustments
Estimated risk weighted assets under fully phased-in Basel III
Estimated Tier 1 common equity under fully phased-in Basel III
Off-Balance Sheet Arrangements
December 31,
2014
2013
$
3,302,179
$
3,020,049
412,156
2,890,023
384,323
2,635,726
29,089,698
27,015,432
412,156
384,323
$
28,677,542
$ 26,631,109
10.08%
9.90%
$
$
$
$
2,804,102
(31,250)
2,772,852
21,290,908
1,338,631
22,629,539
12.25%
See Note 14 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet
commitments.
73
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 34 following summarizes payments due per these contractual obligations at December 31, 2014.
Table 34 – Contractual Obligations as of December 31, 2014
(In thousands)
Time deposits
Other borrowings
Subordinated debentures
Operating lease obligations
Derivative contracts
Data processing services
Total
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
Alternative investment commitments
Unfunded third-party private equity commitments
Less Than
1 Year
1 to 3
Years
4 to 5
Years
More Than
5 Years
Total
$
797,625
$
711,981
$
301,478
$
377,521
$
2,188,605
525
126,401
26,012
398,495
13,678
1,050
227,077
42,230
30,073
24,984
1,150
—
28,085
3,495
18,957
15,664
—
104,822
797
1,925
18,389
353,478
201,149
432,860
59,544
$
1,362,736
$
1,037,395
$
353,165
$
500,729
$
3,254,025
$
8,328,416
447,599
179,822
32,970
5,623
Payments on time deposits, other borrowed funds and subordinated debentures include interest which has been calculated from
rates at December 31, 2014. These obligations may have variable interest rates and actual payments will differ from the
amounts shown on this table.
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 $78 million of cash margin which secures our obligations under these contracts.
We also have obligations with respect to employee benefit plans. See Notes 11 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.
74
The Company has funded $121 million and has commitments to fund an additional $33 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 $5.6 million as of December 31, 2014. 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.
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.
75
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.
Interest Rate Risk – Other than Trading
As previously noted in the Net Interest Revenue section of this report, management has implemented strategies to manage the
Company’s balance sheet to have relatively limited exposure to changes in interest rates over a twelve-month period. The
effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability
model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including
embedded option positions, on net interest revenue, net income and economic value of equity. A simulation model is used to
estimate the effect of changes in interest rates on the Company's performance across multiple interest rate scenarios. While the
current internal policy limit for net interest revenue variation is a maximum decline of 5% or 200 basis points change over
twelve months, the results of a 200 basis point decrease in interest rates in the current low-rate environment are not meaningful.
We report the effect of a 50 basis point decrease in the interim.
The Company’s primary interest rate exposures include the Federal Funds rate, which affects short-term borrowings, and the
prime lending rate and LIBOR, which are the basis for much of the variable rate loan pricing. Additionally, residential
mortgage rates directly affect the prepayment speeds for residential mortgage-backed securities and mortgage servicing
rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this
simulation. In addition, the impact on the level and composition of demand deposit accounts and other core deposit balances
resulting from a significant increase in short-term market interest rates and the overall interest rate environment is likely to be
material. The simulation incorporates assumptions regarding the effects of such changes based on a combination of historical
analysis and expected behavior. The impact of planned growth and new business activities is factored into the simulation
model. The effects of changes in interest rates on the value of mortgage servicing rights are excluded from Table 35 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.
76
Table 35 – Interest Rate Sensitivity
(Dollar in thousands)
200 bp Increase
50 bp Decrease
2014
2013
2014
2013
Anticipated impact over the next twelve months on net interest revenue
$
(5,046)
$
(16,625)
$ (18,617)
$
(11,361)
(0.70)%
(2.38)%
(2.58)%
(1.63)%
In order to better position the bank's balance sheet for an environment of increasing longer-term interest rates, we pro-actively
reduced the available for sale securities portfolio by $1.2 billion during 2014 to $9.0 billion at December 31, 2014, reducing the
Company's liability sensitivity from (2.38)% at December 31, 2013 to (0.70)% at December 31, 2014.
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, liquidity and price risk. BOKF Financial has an insignificant exposure to foreign exchange
risk and does not take positions in commodity derivatives.
A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of all
positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in
either the futures 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, 2014 and 2013. At December 31, 2014, 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, 2014 and 2013 are as follows in Table 36.
Table 36 –Value at Risk (VaR)
(In thousands)
Average
High
Low
Year Ended December 31,
2014
2013
2012
$
1,987
$
2,785
$
3,868
479
5,826
261
3,212
6,695
1,075
77
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, 2014. 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, 2014.
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 2013. Based on that assessment and criteria, management has
determined that the Company maintained effective internal control over financial reporting as of December 31, 2014.
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, 2014. Their report, which expresses unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2014, is included in this annual report.
78
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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2014, 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, 2014, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 27, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 27, 2015
79
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,
2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 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, 2014, 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, 2014 and 2013, 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, 2014 and our report dated February 27, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 27, 2015
80
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
Fiduciary and asset management revenue
Deposit service charges and fees
Mortgage banking revenue
Bank-owned life insurance
Other revenue
Total fees and commissions
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
Charitable contributions to BOKF Foundation
Professional fees and services
Net occupancy and equipment
Insurance
Data processing and communications
Printing, postage and supplies
Net losses and operating expenses of repossessed assets
Amortization of intangible assets
Mortgage banking costs
Other expense
Total other operating expense
Net income before taxes
Federal and state income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to BOK Financial Corporation shareholders
Earnings per share:
Basic
Diluted
Average shares used in computation:
Basic
Diluted
Dividends declared per share
See accompanying notes to consolidated financial statements.
81
Year Ended December 31,
2013
2012
2014
$
$
$
$
$
502,753
10,143
1,945
13,183
5,708
18,891
182,923
2,184
185,107
3,611
7,040
2,749
732,239
50,683
7,672
8,690
67,045
665,194
—
665,194
134,437
123,689
115,652
90,911
109,093
9,086
38,451
621,319
(6,346)
2,776
10,189
(16,445)
1,539
(373)
—
(373)
612,659
476,931
26,649
4,267
44,440
77,232
18,578
117,049
13,518
6,019
3,965
29,881
28,993
847,522
430,331
134,852
295,479
3,044
292,435
4.23
4.22
68,394,194
68,544,770
1.62
$
$
$
$
$
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
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Year Ended December 31,
2014
2013
2012
$
295,479
$
318,931
$
354,124
136,775
(275,945)
66,197
Interest revenue, Investments securities, Taxable securities
(1,216)
(3,210)
(6,601)
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 taxes
Other comprehensive income (loss), net of income taxes
Comprehensive income
Comprehensive income attributable to non-controlling interests
296
373
262
2,308
(1,539)
(10,720)
134,689
(287,305)
(52,393)
111,762
82,296
377,775
3,044
(175,543)
143,388
2,322
453
7,351
(33,845)
33,555
(12,614)
20,941
375,065
2,933
Comprehensive income attributable to BOK Financial Corp. shareholders
$
374,731
$
141,066
$
372,132
See accompanying notes to consolidated financial statements.
82
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: 2014 – $673,626; 2013 – $687,127)
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
Real estate and other repossessed assets, net of allowance (2014 – $22,937; 2013 – $24,195)
Derivative contracts
Cash surrender value of bank-owned life insurance
Receivable on unsettled securities sales
Other assets
Total assets
Liabilities and Equity
Liabilities:
Noninterest-bearing demand deposits
Interest-bearing deposits:
Transaction
Savings
Time
Total deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Derivative contracts
Due on unsettled securities purchases
Other liabilities
Total liabilities
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: 2014 –
74,003,754; 2013 – 73,163,275)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2014 – 4,890,018; 2013 – 4,304,782)
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
83
December 31,
2014
2013
550,576
1,925,266
188,700
652,360
8,978,945
311,597
141,494
304,182
14,208,037
(189,056)
14,018,981
273,833
132,408
377,780
34,376
171,976
101,861
361,874
293,978
74,259
195,252
29,089,698
$
$
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
27,015,432
8,066,357
$
7,316,277
10,114,355
351,431
2,608,716
21,140,859
57,031
1,187,489
2,133,774
347,983
120,211
354,554
290,540
121,051
25,753,492
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
954,644
2,530,837
(239,979)
56,673
3,302,179
34,027
3,336,206
29,089,698
$
4
898,586
2,349,428
(202,346)
(25,623)
3,020,049
34,924
3,054,973
27,015,432
$
$
$
$
Consolidated Statements of Changes in Equity
(In thousands)
Common Stock
Shares
Amount
Capital
Surplus
Retained
Earnings
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Non-
Controlling
Interests
Total
Equity
$818,817
$1,953,332
3,380
$(150,664) $
128,979
$
2,750,468
$
36,184
$2,786,652
—
351,191
2,933
354,124
20,941
20,941
—
—
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)
Balance, December 31, 2011
71,533
$
Net income
Other comprehensive
income
Repurchase of common
stock
Issuance of shares for equity
compensation, net
Tax effect from equity
compensation, net
Share-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
Repurchase of common
stock
Issuance of shares for equity
compensation, net
Tax effect from equity
compensation, net
Share-based compensation
Cash dividends on common
stock
Capital calls and
distributions, net
—
—
—
748
—
—
—
—
Balance, December 31, 2013
73,163
Net income
Other comprehensive
income
Repurchase of common
stock
Issuance of shares for equity
compensation, net
Tax effect from equity
compensation, net
Share-based compensation
Issuance of shares in
settlement of deferred
compensation, net
Cash dividends on common
stock
Capital calls and
distributions, net
—
—
—
510
—
—
331
—
—
4
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
—
—
32,311
120
8,030
—
—
—
351,191
—
—
—
—
—
(166,982)
—
—
—
—
—
—
384
(20,558)
324
(17,661)
—
—
—
—
—
—
—
—
—
—
—
—
—
30,029
2,210
7,069
316,609
—
—
—
—
—
—
—
(104,722)
—
—
—
—
—
—
—
217
(13,463)
—
—
—
—
—
—
—
—
—
—
—
16,632
8,258
9,680
292,435
—
—
—
—
—
—
—
—
—
200
(12,337)
183
(12,160)
—
—
—
—
21,488
—
202
(13,136)
—
—
(111,026)
—
—
—
—
—
—
—
—
—
—
—
20,941
(20,558)
14,650
120
8,030
(166,982)
—
—
—
—
—
—
(175,543)
—
16,566
2,210
7,069
(104,722)
—
—
—
—
—
—
—
82,296
(12,337)
4,472
8,258
9,680
8,352
(111,026)
(20,558)
14,650
120
8,030
(166,982)
—
16,566
2,210
7,069
(104,722)
(12,337)
4,472
8,258
9,680
8,352
(111,026)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
898,586
2,349,428
4,305
(202,346)
(25,623)
3,020,049
34,924
3,054,973
—
(3,219)
(3,219)
—
292,435
3,044
295,479
82,296
82,296
Balance, December 31, 2014
74,004
$
4
$954,644
$2,530,837
4,890
$(239,979) $
56,673
$
3,302,179
$
34,027
$3,336,206
See accompanying notes to consolidated financial statements.
84
—
(3,941)
(3,941)
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses
Change in fair value of mortgage servicing rights
Net unrealized losses (gains) from derivatives
Tax effect from equity compensation, net
Change in bank-owned life insurance
Share-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 (used in) 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 receivables on unsettled securities sales
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 purchases
Issuance of common and treasury stock, net
Sale of non-controlling interest
Tax effect from equity compensation, net
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
Issuance of shares in settlement of deferred compensation, net
See accompanying notes to consolidated financial statements.
85
2014
Year Ended
2013
2012
$
295,479
$
318,931
$
354,124
—
16,445
(6,495)
(8,258)
(9,086)
9,680
56,032
57,202
(1,362)
(62,053)
(4,484,394)
4,441,819
(54,413)
(243,265)
(7,103)
77,907
(115,772)
1,007
(36,630)
63,258
1,635,533
(44,723)
(3,045,077)
2,664,740
(57,085)
(1,346,995)
(247,726)
(21,898)
273,271
(307,318)
(434,020)
958,809
(87,277)
511,776
—
257,439
84,365
244,800
4,472
—
8,258
(12,337)
(111,026)
1,859,279
1,388,629
1,087,213
2,475,842
65,721
67,199
79,464
144,630
44,963
8,352
$
$
$
$
$
$
$
(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
—
$
$
$
$
$
$
$
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.
86
Reporting units are defined by the Company as significant lines of business within 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. Quantitative analysis may be undertaken to support the qualitative
assessment. 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.
Intangible assets are generally composed of customer relationships, naming rights, non-compete agreements and core deposit
premiums. They are amortized using accelerated or straight-line methods, as appropriate, over the estimated benefit periods.
These periods range from 3 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
earnings. Any remaining unrealized loss related to other factors would be recognized in other comprehensive income, net of
taxes.
87
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 represent 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 is restricted and they lack 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, are 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.
88
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's 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 the 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. Amortization does not anticipate loan
prepayments. Net unamortized fees are recognized in full at time of payoff.
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.
89
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. There were no changes to the methodology for estimating general
allowances during 2014 or 2013.
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 loan's
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 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.
Transfers of Financial Assets
BOK Financial regularly 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.
90
The Company has elected to carry certain residential mortgage loans held for sale at fair value under the fair value option.
Changes in fair value are recognized in net income as they occur. These loans are reported separately in the Consolidated
Balance Sheets and changes in fair value are recorded in other operating revenue - mortgage banking revenue in the
Consolidated Statements of Earnings.
Fair value of conforming residential mortgage loans that will be sold to U.S. government agencies is based on sales
commitments or market quotes considered Level 2 inputs. Fair value of mortgage loans that are unable to be sold to U.S.
government agencies is based on Level 3 inputs using quoted prices of loans that are sold in securitization transactions with a
liquidity discount applied. The fair value is corroborated with an independent third party on at least an annual basis.
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. These reserves reflect the estimated amount of probable loss the bank will incur as a result of
repurchasing a loan, indemnifications, and other settlement resolutions.
Repurchases of loans with an origination defect that are also credit impaired are considered collateral dependent and are
initially recognized at net realizable value (appraised value less the cost to sell). The difference between unpaid principal
balance and net realizable value is not accreted. Repurchases of loans with an origination defect that are not credit impaired are
carried at fair value as of the repurchase date. Interest income continues to accrue on these loans and the discount is accreted
over the estimated life of the loan.
The accrual for credit losses related to recourse loans for principal and interest is performed by Credit Administration and
subject to oversight by the Finance/Credit Administration Allowance Committee while all other mortgage related accruals are
reviewed monthly by the Mortgage Contingency Loss Accrual Committee which is subject to oversight by Finance.
The Company may also choose to purchase GNMA loans once certain mandated delinquency criteria are met. The loans that
are eligible and are chosen to be repurchased are carried at fair value based on expected cash flow discounted using the average
agency guaranteed debenture rates, average actual principal loss rates and liquidity premium.
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 interest 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.
91
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 facilities construction and data processing 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, including software maintenance and enhancement 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.
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 the 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.
92
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 a period
not to exceed the average remaining service periods of the participants. 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.
Share-Based Compensation Plans
BOK Financial awards stock options and non-vested common shares as compensation to certain officers. Compensation cost is
generally fixed based on the grant date fair value of the award. The 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 since January 1, 2013 generally cliff vest in 3 years and are subject to a two year holding period after
vesting. Shares awarded under the Executive Incentive Plan are subject to downward adjustment at the discretion of the
Incentive Compensation Committee. Compensation cost of non-vested shares granted under the Executive Incentive Plan may
vary based on changes in the fair value of BOKF common shares.
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.
Dividends on non-vested shares that are not subject to forfeiture are recognized as expense.
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.
93
Deposit service charges and fees are recognized at least quarterly in accordance with a published deposit account agreements
and disclosure statements for retail accounts or contractual agreements 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. 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 was effective prospectively
during interim and annual periods beginning after December 15, 2013, with early adoption prohibited. The adoption of ASU
2013-08 did not 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 was effective for the Company for interim and annual periods
beginning after December 15, 2014. Adoption of ASU 2014-01 may affect income statement presentation, but otherwise did not
have a material impact on the Company's consolidated financial statements.
FASB Accounting Standards Update No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer
Mortgage Loans Upon Foreclosure ("ASU 2014-04")
On January 17, 2014, the FASB issued ASU 2014-04 to clarify when an entity is considered to have obtained physical
possession (from an in-substance possession or foreclosure) of a residential real estate property collateralizing a mortgage loan.
Upon physical possession of such real property, an entity is required to reclassify the nonperforming mortgage loan to other real
estate owned. ASU 2014-04 was effective for the Company for interim and annual periods beginning after December 15, 2014.
Adoption of ASU 2014-04 did not have a material impact on the Company's consolidated financial statements.
FASB Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09")
On May 28, 2014, the FASB issued ASU 2014-09 to clarify the principles for recognizing revenue by providing a more robust
framework that will give greater consistency and comparability in revenue recognition practices. In the new framework, an
entity recognizes revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
goods or services. The new model requires the identification of performance obligations included in contracts with customers, a
determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes
revenue when performance obligations are satisfied. ASU 2014-09 is effective for the Company for annual reporting periods
beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the
impact the adoption of ASU 2014-09 will have on the Company's financial statements.
94
FASB Accounting Standards Update No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon
Foreclosure ("ASU 2014-14")
On August 8, 2014, the FASB issued ASU 2014-14 to give greater consistency in the classification of government-guaranteed
loans upon foreclosure. ASU 2014-14 applies to all loans that contain a government guarantee that is not separable from the
loan or for which the creditor has both the intent and ability to recover a fixed amount under the guarantee by conveying the
property to the guarantor. Upon foreclosure, the creditor should reclassify the mortgage loan to an other receivable that is
separate from loans and should measure the receivable at the amount of the loan balance expected to be recovered from the
guarantor. ASU 2014-14 was effective for the Company for interim and annual periods beginning after December 15, 2014. At
January 1, 2015, approximately $50 million of real estate owned was reclassified from Real estate and other repossessed assets
to Receivables on the balance sheet with adoption of ASC 2014-14.
FASB Accounting Standards Update No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host
Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity ("ASU 2014-16")
On November 3, 2014, the FASB issued ASU 2014-16 to eliminate the use of different methods and reduce diversity under
GAAP in the accounting for hybrid financial instruments issued in the form of a share. For hybrid financial instruments issued
in the form of share, an entity should determine the nature of the host contract by considering all stated and implied substantive
terms and features of the hybrid financial instrument. The entity should determine the nature of the host contract by considering
the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that
is being evaluated for separate accounting from the host contract. For public business entities, the ASU is effective for annual
periods beginning after December 15, 2015, and interim periods within those annual periods. Early adoption is permitted.
Adoption of ASU 2014-16 is not expected to have a material impact on the Company's consolidated financial statements.
FASB Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis
("ASU 2015-02")
On February 18, 2015, the FASB issued ASU 2015-02 to address concerns that current U.S. GAAP may require a reporting
entity to consolidate another legal entity where the reporting entity's contractual rights do not give it the ability to act primarily
on its own behalf, the reporting entity does not hold a majority of the legal entity's voting rights, or the reporting entity is not
exposed to a majority of the legal entity's economic benefits or obligations. The amendments affect limited partnerships and
similar legal entities, the evaluation of fees paid to a decision maker or a service provider as a variable interest, the effect of fee
arrangements and related parties on the primary beneficiary determination, and certain investment funds. The ASU will be
effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption
in an interim period. The Company is evaluating the impact the adoption of ASU 2015-02 will have on the Company's financial
statements.
(2) Securities
Trading Securities
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
December 31, 2014
December 31, 2013
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
U.S. government agency debentures
$
85,092
$
(62) $
34,120
$
U.S. government agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total
31,199
38,951
33,458
269
18
(38)
21,011
27,350
9,135
$
188,700
$
187
$
91,616
$
77
123
(182)
(7)
11
95
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
December 31, 2014
Amortized
Cost
Carrying
Value1
Fair
Value
Gross Unrealized2
Loss
Gain
Municipal and other tax-exempt securities
$
405,090
$
405,090
$
408,344
$
4,205
$
(951)
U.S. government agency residential mortgage-backed securities
– Other
Other debt securities
Total
35,135
211,520
35,750
211,520
37,463
227,819
1,713
16,956
—
(657)
$
651,745
$
652,360
$
673,626
$
22,874
$
(1,608)
1 Carrying value includes $615 thousand of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the
Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities
portfolio as discussed in greater detail following.
2 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
December 31, 2013
Amortized
Cost
Carrying
Value1
Fair
Value
Gross Unrealized2
Loss
Gain
Municipal and other tax-exempt securities
$
440,187
$
440,187
$
439,870
$
2,452
$
(2,769)
U.S. government 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
(56)
(613)
Total
(3,438)
1 Carrying value includes $1.8 million of net unrealized gain which remains in AOCI in the Consolidated Balance Sheets related to certain securities
687,127
676,047
677,878
12,687
$
$
$
$
$
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.
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.
96
The amortized cost and fair values of investment securities at December 31, 2014, by contractual maturity, are as shown in the
following table (dollars in thousands):
Municipal and other tax-exempt securities:
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
44,255
44,381
$
299,934
$
300,434
$
22,429
22,666
38,472
40,863
$
405,090
408,344
1.71%
1.74%
3.91%
5.37%
2.20%
Weighted
Average
Maturity²
3.80
$
15,918
15,925
37,726
38,509
$
58,338
61,430
$
99,538
$
211,520
9.18
111,955
227,819
3.32%
4.96%
5.19%
6.12%
5.45%
60,173
60,306
$
337,660
$
338,943
80,767
84,096
$
138,010
$
616,610
5.65
152,818
636,163
2.14%
2.10%
4.83%
5.91%
3.31%
$
$
$
³
$
35,750
37,463
2.74%
$
652,360
673,626
3.28%
1 Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
penalty.
3 The average expected lives of residential mortgage-backed securities were 2.8 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.
97
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
December 31, 2014
Amortized
Cost
Fair
Value
Gross Unrealized1
Loss
Gain
OTTI²
U.S. Treasury securities
Municipal and other tax-exempt securities
Residential mortgage-backed securities:
U. S. government agencies:
FNMA
FHLMC
GNMA
Other
$
1,005
$
1,005
$
— $
63,018
63,557
1,280
— $
(741)
3,932,200
1,810,476
801,820
4,808
3,997,428
1,836,870
807,443
5,143
71,200
29,043
8,240
335
(5,972)
(2,649)
(2,617)
—
Total U.S. government agencies
6,549,304
6,646,884
108,818
(11,238)
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
65,582
88,778
154,360
71,952
94,005
165,957
Total residential mortgage-backed securities
6,703,664
6,812,841
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
2,064,091
2,048,609
9,438
22,171
18,603
9,212
24,277
19,444
6,677
5,584
12,261
121,079
4,437
26
2,183
871
—
—
—
(11,238)
(19,919)
(252)
(77)
(30)
Total
$ 8,881,990
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.
8,978,945
129,876
$
$
$
(32,257) $
—
—
—
—
—
—
—
(307)
(357)
(664)
(664)
—
—
—
—
(664)
98
Amortized
Cost
Fair
Value
December 31, 2013
Gross Unrealized¹
Gain
Loss
OTTI²
U.S. Treasury securities
Municipal and other tax-exempt securities
Residential mortgage-backed securities:
U. S. government agencies:
FNMA
FHLMC
GNMA
Other
$
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) $
—
—
—
—
—
—
—
(1,733)
(709)
(2,442)
(2,442)
—
—
—
—
(2,442)
99
The amortized cost and fair values of available for sale securities at December 31, 2014, by contractual maturity, are as shown in the
following table (dollars in thousands):
U.S. Treasury securities:
Amortized cost
Fair value
Nominal yield
Municipal and other tax-exempt securities:
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
Perpetual preferred stock. 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
$
1,005
1,005
0.24%
7,134
7,197
$
— $
— $
— $
—
—%
—
—%
—
—%
29,750
30,603
2,288
2,496
23,846
23,261
3.68%
4.05%
6.48%
1.92%
1,005
1,005
0.24%
63,018
63,557
3.29%
—
—
—%
5,038
5,065
2.12%
912,178
906,081
808,792
803,324
343,121
339,204
2,064,091
2,048,609
1.43%
1.68%
1.33%
1.51%
—
—
—%
—
—
—%
4,400
4,147
1.71%
9,438
9,212
1.93%
0.13
8.27
8.56
15.38
$
13,177
13,267
$
941,928
$
811,080
$
371,367
$
2,137,552
8.58
936,684
805,820
366,612
2,122,383
2.82%
1.52%
1.69%
1.38%
1.57%
2
³
$
6,703,664
6,812,841
1.95%
$
40,774
43,721
1.28%
$
8,881,990
8,978,945
1.85%
1 Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 The average expected lives of mortgage-backed securities were 3.4 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.
100
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,
2014
2013
2012
$
2,664,740
$
2,436,093
1,744,662
24,923
(23,384)
599
25,711
(14,991)
4,170
41,191
(7,346)
13,166
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):
Investment:
Carrying value
Fair value
Available for sale:
Amortized cost
Fair value
December 31,
2014
2013
$
63,495
$
65,855
89,087
91,804
5,855,220
5,893,972
5,171,782
5,133,530
No trading securities were pledged as collateral as of December 31, 2014 or December 31, 2013.
101
Temporarily Impaired Securities as of December 31, 2014
(In thousands)
Investment:
Municipal and other tax-exempt
securities
Other debt securities
Total investment securities
Available for sale:
Municipal and other tax-exempt
securities
Residential mortgage-backed
securities:
U. S. government 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 stock
Equity securities and mutual funds
Number
of
Securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
78
84
162
$
$
112,677
31,274
143,951
$
$
426
637
1,063
$
$
60,076
761
60,837
$
$
525
20
545
$
$
172,753
32,035
204,788
$
$
951
657
1,608
Number
of
Securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
22
$
10,838
$
12
$
12,176
$
729
$
23,014
$
741
24
16
5
45
4
8
12
57
104
2
2
68
257,854
62,950
8,550
329,354
11,277
—
11,277
340,631
547
37
12
596
307
—
307
903
454,394
310,834
128,896
894,124
—
10,020
10,020
5,425
2,612
2,605
712,248
373,784
137,446
5,972
2,649
2,617
10,642
1,223,478
11,238
—
357
357
11,277
10,020
21,297
307
357
664
904,144
10,999
1,244,775
11,902
223,106
454
1,238,376
19,465
1,461,482
19,919
—
2,898
—
—
77
—
4,150
—
1,205
252
—
30
4,150
2,898
1,205
252
77
30
32,921
Total available for sale securities
1 Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.
$ 2,737,524
$ 2,160,051
577,473
31,475
1,446
255
$
$
$
$
102
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
107
$
166,382
$
1,921
$
53,073
$
848
$
219,455
$
2,769
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
27
$
13,286
$
245
$
17,805
$
818
$
31,091
$
1,063
81
50
27
2,281,491
1,450,588
647,058
60,149
40,211
8,532
158
4,379,137
108,892
—
—
—
—
7
9
16
11,043
14,642
25,685
756
709
1,465
30,774
—
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
Investment:
Municipal and other tax- exempt
securities
U.S. Agency residential mortgage-
backed securities – Other
Other debt securities
Total investment securities
Available for sale:
Municipal and other tax-exempt
securities
Residential mortgage-backed
securities:
U. S. government 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 stock
Equity securities and mutual funds
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
158,049
Total available for sale securities
1 Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.
$ 6,281,460
$ 6,230,595
156,172
50,865
1,877
446
$
$
$
$
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, 2014, 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, 2014.
103
At December 31, 2014, 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
U.S. government
agency
mortgage-
backed
securities --
Other
Other debt
securities
Total investment
securities
Available for
Sale:
$
— $
— $ 264,326
$264,651
$
13,676
$ 13,806
$
— $
— $ 127,088
$129,887
$
405,090
$
408,344
35,750
37,463
—
—
—
—
160,353
176,915
—
—
—
—
—
—
—
—
—
—
35,750
37,463
51,167
50,904
211,520
227,819
$
35,750
$
37,463
$ 424,679
$441,566
$
13,676
$ 13,806
$
— $
— $ 178,255
$180,791
$
652,360
$
673,626
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
$
1,005
$
1,005
$
— $
— $
— $
— $
— $
— $
— $
— $
1,005
$
1,005
—
—
40,511
41,579
11,053
10,516
—
—
11,454
11,462
63,018
63,557
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
3,932,200
3,997,428
1,810,476
1,836,870
801,820
807,443
4,808
5,143
6,549,304
6,646,884
—
—
—
—
—
—
6,549,304
6,646,884
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
65,582
71,952
88,778
94,005
154,360
165,957
—
154,360
165,957
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,932,200
3,997,428
1,810,476
1,836,870
801,820
807,443
4,808
5,143
—
6,549,304
6,646,884
—
—
—
65,582
71,952
88,778
94,005
154,360
165,957
—
6,703,664
6,812,841
—
—
—
2,064,091
2,048,609
9,438
9,212
22,171
24,277
2,064,091
2,048,609
—
—
—
—
4,400
4,149
5,038
5,063
—
—
—
—
—
11,406
12,508
10,765
11,769
—
—
—
—
—
—
—
4
517
—
—
—
—
18,599
18,927
18,603
19,444
Total available
for sale
securities
$ 8,978,945
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
$ 8,881,990
$ 8,696,498
$ 8,614,400
$ 165,125
$177,726
$ 30,389
$ 46,245
$ 28,087
27,497
30,053
44,915
$
$
$
government-sponsored enterprises.
104
At December 31, 2014, 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 $664 thousand.
Ratings by the nationally-recognized rating agencies are subjective in nature and accordingly ratings can vary significantly amongst
the agencies. Limitations generally expressed by the rating agencies include statements that ratings do not predict the specific
percentage default likelihood over any given period of time and that ratings do not opine on expected loss severity of an obligation
should the issuer default. As such, the impairment of securities rated below investment grade 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:
Unemployment rate
Housing price appreciation/depreciation
Estimated liquidation costs
Discount rates
1 Federal Housing Finance Agency
December 31,
2014
2013
Held constant at 5.6% over the next 12
months and remain at 5.6% thereafter.
Increasing to 7.3% over the next 12
months and remain at 7.3% thereafter
Starting with current depreciated
housing prices based on information
derived from the FHFA1, appreciating
3.2% over the next 12 months, then
flat for the following 12 months and
then appreciating at 2% per year
thereafter.
Starting with current depreciated
housing prices based on information
derived from the FHFA1, appreciating
4% over the next 12 months, then flat
for the following 12 months and then
appreciating at 2% per year thereafter.
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.
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.
The Company recognized no credit loss impairments on private-label residential mortgage-backed securities in earnings during 2014,
$938 thousand in 2013 and $5.9 million in 2012.
The Company recognized no credit loss impairment in earnings during 2014 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 $1.4
million in impairment charges on these securities in 2013 and $1.0 million of impairment losses on these securities in 2012.
105
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, 2014
Life-to-date
Alt-A
Jumbo-A
Total
Number of
Securities
Amortized
Cost
Fair
Value
Number of
Securities
Amount
Number of
Securities
14
30
44
$
$
65,582
$
71,952
88,778
94,005
154,360
$ 165,957
— $
—
— $
—
—
—
14
29
43
Amount
$ 36,127
18,220
$ 54,347
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, $373 thousand other-than-temporary impairment losses were
recorded in earnings on equity securities during 2014. All remaining impairment of equity securities was considered temporary at
December 31, 2014 and December 31, 2013. No other-than-temporary impairment loss related to equity securities was recorded in
earnings in 2013 and $457 thousand in impairment losses were recorded in 2012.
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
$
67,346
$
75,228
$
76,131
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
—
—
—
(12,999)
618
320
(3,589)
(5,231)
113
6,780
—
(7,796)
Balance of credit-related OTTI recognized on available for sale debt securities, end of period
$
54,347
$
67,346
$
75,228
Year Ended December 31,
2014
2013
2012
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.
The fair value and net unrealized gain (loss) included in Fair value option securities is as follows (in thousands):
U.S. agency residential mortgage-backed securities
Other securities
Total
106
December 31, 2014
December 31, 2013
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
$
$
311,597
—
311,597
$
$
1,624
—
1,624
$
$
157,431
9,694
167,125
$
$
(8,378)
209
(8,169)
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 these securities do not have a readily determined fair value
because ownership of these shares is restricted and they lack a market. A summary of restricted equity securities follows (in
thousands):
Federal Reserve Bank stock
Federal Home Loan Bank stock
Total
December 31,
2014
2013
$
$
35,018
$
106,476
141,494
$
33,742
51,498
85,240
107
(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, 2014 (in thousands):
Assets
Notional1
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
Customer risk management programs:
Interest rate contracts
To-be-announced residential mortgage-
backed securities
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 13,313,615
$ 94,719
$
(39,359) $
55,360
$
— $
1,165,568
35,405
579,801
141,166
47,657
290,965
194,960
1,904
238,395
10,834
—
(48,624)
(1,256)
—
—
35,405
92,542
648
238,395
10,834
—
(71,310)
—
—
—
Total customer risk management programs
15,592,566
522,423
(89,239)
433,184
(71,310)
Interest rate risk management programs
—
—
—
—
—
55,360
35,405
21,232
648
238,395
10,834
361,874
—
Total derivative contracts
$ 15,592,566
$ 522,423
$
(89,239) $ 433,184
$ (71,310) $
361,874
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
$ 13,471,880
$ 91,949
$
(39,359) $
52,590
$ (52,290) $
1,165,568
35,599
579,801
142,839
47,418
290,856
194,960
1,908
238,118
10,834
—
(48,624)
(1,256)
—
—
35,599
94,215
652
238,118
10,834
(18,717)
—
(596)
(6,703)
—
Total customer risk management programs
15,750,483
521,247
(89,239)
432,008
(78,306)
Interest rate risk management programs
47,000
852
—
852
—
300
16,882
94,215
56
231,415
10,834
353,702
852
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(89,239) $ 432,860
$ (78,306) $
$ 15,797,483
$ 522,099
$
354,554
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,
2014, a decrease in credit rating to below investment grade would increase our obligation to post cash margin on existing
contracts by approximately $19 million.
108
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.
109
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,
2014
2013
2012
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
$
27,007
$
— $
29,614
$
— $
25,509
$
2,494
6,572
146
1,581
—
37,800
—
—
—
—
—
—
—
2,776
2,991
8,303
357
687
—
41,952
—
—
—
—
—
—
—
(4,367)
3,458
8,171
382
612
—
38,132
—
Total derivative contracts
$
37,800
$
2,776
$
41,952
$
(4,367) $
38,132
$
—
—
—
—
—
—
—
(301)
(301)
At December 31, 2014, 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 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, 2014
December 31, 2013
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Commercial
$ 1,736,976
$ 7,345,167
$
13,527
$ 9,095,670
$ 1,637,620
$ 6,288,841
$ 16,760
$ 7,943,221
Commercial real estate
721,513
1,988,080
Residential mortgage
1,698,620
102,865
202,771
331,274
18,557
48,121
566
2,728,150
770,908
1,603,595
1,949,512
1,783,614
434,705
135,494
226,092
244,951
40,850
42,320
1,219
2,415,353
2,052,026
381,664
Consumer
Total
Accruing loans past
due (90 days)1
Foregone interest on
nonaccrual loans
$ 4,259,974
$ 9,867,292
$
80,771
$ 14,208,037
$ 4,327,636
$ 8,363,479
$ 101,149
$ 12,792,264
$
125
$
8,170
$
1,415
$
9,815
1 Excludes residential mortgage loans guaranteed by agencies of the U.S. government.
110
At December 31, 2014, loans to businesses and individuals with collateral primarily located in Texas totaled $4.9 billion or
34% of the total loan portfolio. Loans to businesses and individuals with collateral primarily located in Oklahoma totaled $3.4
billion or 24% 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, 2013, loans to businesses and
individuals with collateral primarily located in Texas totaled $4.3 billion or 34% of the loan portfolio and loans to businesses
and individuals with collateral primarily located in Oklahoma totaled $3.3 billion or 26% 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, 2014, commercial loans with collateral primarily located in Texas totaled $3.2 billion or 36% of the
commercial loan portfolio segment and commercial loans with collateral primarily located in Oklahoma totaled $2.0 billion or
22% of the commercial loan portfolio segment. The commercial loan portfolio segment is further divided into loan classes. The
energy loan class totaled $2.9 billion or 20% of total loans at December 31, 2014, including $2.5 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 $2.5 billion at December 31, 2014.
Approximately $1.2 billion of loans in the services category consist of loans with individual balances of less than $10 million.
Businesses included in the services class include governmental, educational, utilities, not-for-profit and professional/technical
services.
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 located in Oklahoma totaled $1.9 billion or
23% of the commercial loan portfolio segment. The energy loan class totaled $2.4 billion and the services loan class totaled
$2.3 billion. Approximately $1.1 billion 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, 2014, 34% of commercial real estate loans are secured by properties primarily located in the Dallas and
Houston areas of Texas. An additional 16% of commercial real estate loans are secured by properties located primarily in the
Tulsa and Oklahoma City metropolitan areas of Oklahoma. At December 31, 2013, 32% of commercial real estate loans were
secured by properties in Texas, 19% of commercial real estate loans were secured by properties in Oklahoma and 11% of
commercial real estate loans were secured by properties located primarily in Albuquerque, New Mexico.
111
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, 2014 and 2013, residential mortgage loans included $206 million and $182 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 $774 million at December 31, 2014 and $808 million at December 31, 2013. At December 31, 2014,
69% of the home equity loan portfolio was comprised of first lien loans and 31% of the home equity portfolio was comprised
of junior lien loans. Junior lien loans were distributed 71% to amortizing term loans and 29% to revolving lines of credit. At
December 31, 2013, 70% of the home equity portfolio was comprised of first lien loans and 30% of the home equity loan
portfolio was comprised of junior lien loans. Junior lien loans were distributed 74% to amortizing term loans and 26% 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, 2014, 38% of residential mortgage loans are secured by properties located in Oklahoma, 28% 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, 2013, 38% of
residential mortgage loans were secured by properties in Oklahoma, 27% of residential mortgage were secured by properties in
Texas and 10% of residential mortgage loans are secured by properties in New Mexico.
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, 2014, outstanding commitments totaled $8.3 billion. Because some commitments are expected to expire
before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial
uses the same credit policies in making commitments as it does loans.
The amount of collateral obtained, if deemed necessary, is based upon management’s credit evaluation of the borrower.
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, 2014, outstanding standby letters of credit totaled $448 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, 2014, outstanding commercial letters of credit totaled $6.7 million.
112
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, 2014 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
$
$
$
$
$
79,180
$
41,573
$
29,465
$
6,965
$
28,213
$
185,396
9,561
(3,569)
5,703
(4,084)
(2,047)
7,003
(3,559)
(4,448)
2,000
(892)
(6,168)
4,328
(168)
—
—
858
(16,232)
19,034
90,875
$
42,445
$
23,458
$
4,233
$
28,045
$
189,056
119
356
475
9,917
$
$
$
1,876
$
90
$
3
$
— $
2,088
(1,169)
707
$
(62)
28
$
17
20
$
—
— $
(858)
1,230
(5,253) $
(3,621) $
(875) $
(168) $
—
113
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
$
54,884
$
41,703
$
9,453
$
44,187
$
215,507
12,747
(6,335)
7,488
(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
$
1,353
$
78
$
9
$
— $
1,915
(356)
119
12,391
$
$
523
1,876
$
12
90
$
(16,363) $
(8,031) $
(6)
3
77
$
$
—
— $
173
2,088
(15,974) $
(27,900)
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)
5,322
3,333
$
$
$
$
the Oklahoma Supreme Court.
114
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2014 is as follows (in thousands):
Collectively Measured
for Impairment
Individually Measured
for Impairment
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$
9,082,143
$
90,709
$
13,527
$
166
$
9,095,670
$
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
2,709,593
1,901,391
434,139
42,404
23,353
4,233
14,127,266
160,699
18,557
48,121
566
80,771
Nonspecific allowance
—
—
—
2,728,150
1,949,512
434,705
90,875
42,445
23,458
4,233
14,208,037
161,011
—
28,045
41
105
—
312
—
Total
$ 14,127,266
$
160,699
$
80,771
$
312
$ 14,208,037
$
189,056
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at 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
115
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, 2014 is as follows (in thousands):
Internally Risk Graded
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Commercial
Commercial real estate
Residential mortgage
Consumer
Total
$
9,073,030
$
90,085
$
22,640
$
790
$
9,095,670
$
2,728,150
192,303
343,227
42,445
2,996
1,506
—
1,757,209
91,478
12,336,710
137,032
1,871,327
—
20,462
2,727
23,979
2,728,150
1,949,512
434,705
14,208,037
161,011
90,875
42,445
23,458
4,233
Nonspecific allowance
—
—
—
—
—
28,045
Total
$ 12,336,710
$
137,032
$
1,871,327
$
23,979
$ 14,208,037
$
189,056
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
Loans are considered to be performing if they are in compliance with the original terms of the agreement which is consistent
with the regulatory guideline of “pass.” Performing also includes loans considered to be “other loans especially mentioned” by
regulatory guidelines. Other loans especially mentioned are in compliance with the original terms of the agreement but may
have a weakness that deserves management’s close attention. Performing loans also include past due residential mortgages that
are guaranteed by agencies of the U.S. government.
The risk grading process identified certain criticized loans as potential problem loans. These loans have a well-defined
weakness (e.g. inadequate debt service coverage or liquidity or marginal capitalization; repayment may depend on collateral or
other risk mitigation) that may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial
condition of the borrower. This is consistent with the regulatory guideline for “substandard.” Because the borrowers are still
performing in accordance with the original terms of the loan agreements, these loans were not placed in nonaccruing
status. Known information does, however, cause concern as to the borrowers’ continued compliance with current repayment
terms. Nonaccruing loans represent loans for which full collection of principal and interest 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.
116
The following table summarizes the Company’s loan portfolio at December 31, 2014 by the risk grade categories (in
thousands):
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Internally Risk Graded
Non-Graded
Performing
Potential
Problem
Nonaccruing
Performing
Nonaccruing
Total
$
2,843,093
$
15,919
$
1,416
$
— $
— $
2,860,428
2,497,888
1,301,026
527,951
1,449,024
389,378
9,008,360
127,437
662,335
411,548
691,053
428,817
362,375
15,140
8,141
4,193
4,565
3,293
5,201
4,149
450
1,380
823
51,251
13,419
10,855
628
576
13,245
—
724
5,299
3,926
3,420
—
—
5,912
18,557
—
—
—
—
22,532
22,532
—
—
—
—
—
—
—
—
—
—
—
108
108
—
—
—
—
—
—
—
2,518,229
1,313,316
532,594
1,454,969
416,134
9,095,670
143,591
666,889
415,544
704,298
428,817
369,011
2,728,150
Total commercial real estate
2,683,565
26,028
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
187,520
1,773
3,010
745,813
31,835
969,951
—
—
—
—
—
—
202,238
764,047
3,712
9,564
205,950
773,611
Total residential mortgage
187,520
1,773
3,010
1,712,098
45,111
1,949,512
Consumer
Total
343,041
19
167
91,079
399
434,705
$ 12,222,486
$
79,071
$
35,153
$
1,825,709
$
45,618
$ 14,208,037
117
The following table summarizes the Company’s loan portfolio at December 31, 2013 by the risk grade categories (in thousands):
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Internally Risk Graded
Non-Graded
Performing
Potential
Problem
Nonaccruing
Performing
Nonaccruing
Total
$
2,347,519
$
2,381
$
1,860
$
— $
— $
2,351,760
2,265,984
1,191,791
381,794
1,272,626
381,394
7,841,108
173,488
579,506
403,951
562,800
243,625
371,628
11,304
2,604
9,365
34
4,736
30,424
15,393
1,684
1,157
13,695
—
7,576
39,505
4,922
6,969
592
1,586
758
16,687
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
441,890
7,943,221
206,258
586,047
411,499
576,502
243,877
391,170
2,415,353
Total commercial real estate
2,334,998
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
Total
264,536
795
202
115,114
1,017
381,664
$ 10,650,784
$
74,007
$
64,949
$
1,966,324
$
36,200
$ 12,792,264
118
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, 2014
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2014
Average
Recorded
Investment
Interest
Income
Recognized
$
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and
industrial
Total commercial
Commercial real estate:
Residential construction and
land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
$
1,444
8,068
9,457
737
2,432
8,604
30,742
10,071
5,406
5,959
—
—
11,954
33,390
$
1,416
5,201
4,149
450
1,380
931
13,527
5,299
3,926
3,420
—
—
5,912
1,416
4,487
4,117
450
1,380
931
12,781
5,192
3,926
3,420
—
—
5,739
18,557
18,277
43,463
34,845
34,675
212,684
9,767
265,914
205,950
9,564
250,359
205,950
9,564
250,189
Consumer
584
566
566
$
— $
714
32
—
—
—
746
107
—
—
—
—
173
280
170
—
—
170
—
— $
157
9
—
—
—
166
23
—
—
—
—
18
41
$
1,638
5,061
5,559
521
1,483
881
15,143
11,338
4,392
4,905
3
126
8,939
29,703
—
—
—
—
—
—
—
—
—
—
—
—
—
—
105
34,561
1,418
—
—
105
—
194,017
8,414
236,992
8,342
—
9,760
893
—
Total
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
330,630
283,009
282,731
281,813
1,196
312
$
$
$
$
$
$
$
9,760
contractual principal and interest. At December 31, 2014, $3.7 million of these loans are nonaccruing and $202 million are accruing based
on the guarantee by U.S. government agencies.
Generally, no interest income is recognized on impaired loans until all principal balances, including amounts charged-off, have
been recovered.
119
As of December 31, 2013
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2013
Average
Recorded
Investment
Interest
Income
Recognized
$
1,860
$
1,860
$
1,860
$
— $
— $
2,160
$
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and
industrial
Total commercial
Commercial real estate:
Residential construction and
land development
Retail
Office
Multifamily
Industrial
6,486
11,009
746
2,193
8,532
30,826
20,804
6,133
7,848
7
252
4,922
6,969
592
1,586
831
16,760
17,377
4,857
6,391
7
252
3,791
6,937
592
1,538
831
15,549
17,050
4,857
6,383
7
252
Other commercial real estate
14,593
11,966
11,779
Total commercial real
estate
49,637
40,850
40,328
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
41,870
34,279
33,869
188,436
7,537
237,843
181,598
7,264
223,141
181,598
7,264
222,731
Consumer
1,228
1,219
1,219
1,131
32
—
48
—
1,211
327
—
8
—
—
187
522
410
—
—
410
—
516
9
—
48
—
573
8,506
5,023
1,300
2,376
1,249
20,614
107
21,754
—
8
—
—
18
6,487
6,610
1,357
2,110
12,421
133
50,739
—
—
—
—
—
—
—
—
—
—
—
—
—
—
248
37,071
1,582
—
—
248
—
165,509
6,760
209,340
6,961
—
8,543
1,965
—
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.
282,658
279,827
281,970
319,534
2,143
954
$
$
$
$
$
$
$
8,543
120
Troubled Debt Restructurings
A summary of troubled debt restructurings ("TDRs") by accruing status as of December 31, 2014 is as follows (in thousands):
As of December 31, 2014
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-Off
During the
Year Ended
December 31,
2014
Specific
Allowance
Nonaccruing TDRs:
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgage guaranteed by U.S.
government agencies
Home equity
Total residential mortgage
Consumer
Total nonaccruing TDRs
Accruing TDRs:
Residential mortgage:
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
$
— $
— $
— $
— $
1,666
3,381
340
—
674
6,061
3,140
3,600
2,324
—
—
1,647
10,711
16,393
1,597
5,184
23,174
419
40,365
73,985
73,985
73,985
706
3,284
340
—
93
4,423
641
2,432
—
—
—
1,647
4,720
11,134
179
3,736
15,049
253
960
97
—
—
581
1,638
2,499
1,168
2,324
—
—
—
5,991
5,259
1,418
1,448
8,125
166
24,445
15,920
17,274
17,274
17,274
56,711
56,711
56,711
148
9
—
—
—
157
23
—
—
—
—
—
23
105
—
—
105
—
285
—
—
—
—
—
—
3,000
—
—
3,000
1,597
—
—
—
—
—
1,597
262
—
247
509
1
5,107
—
—
—
Total TDRs
$
114,350
$
41,719
$
72,631
$
285
$
5,107
121
A summary of troubled debt restructurings by accruing status as of December 31, 2013 is 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
Other commercial and industrial
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
Home equity
Total residential mortgage
Consumer
Total nonaccuring TDRs
Accruing TDRs:
Residential mortgage:
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
2,235
235
391
—
771
3,632
10,148
4,359
5,059
—
—
5,011
24,577
18,697
4,045
22,742
1,008
51,959
54,322
54,322
54,322
852
89
—
—
173
1,114
1,444
3,141
3,872
—
—
2,885
11,342
12,214
3,531
15,745
758
1,383
146
391
—
598
2,518
8,704
1,218
1,187
—
—
2,126
13,235
6,483
514
6,997
250
237
9
—
—
—
246
107
—
—
—
—
—
107
88
—
88
—
—
—
—
154
—
—
154
46
582
117
—
—
—
745
469
112
581
1
28,959
23,000
441
1,481
13,384
13,384
13,384
40,938
40,938
40,938
—
—
—
—
—
—
Total TDRs
$
106,281
$
42,343
$
63,938
$
441
$
1,481
122
Troubled debt restructurings generally consist of interest rate concessions, payment stream concessions or a combination of
concessions to distressed borrowers. The following table details the recorded balance of loans at December 31, 2014 by class
that were restructured during the year ended December 31, 2014 by primary type of concession (in thousands):
Year Ended December 31, 2014
Accruing
Nonaccrual
Payment
Stream
Combination
& Other
Total
Interest
Rate
Payment
Stream
Combination
& Other
Total
Total
$
— $
— $
— $
— $
— $
— $ — $
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and
industrial
Total commercial
Commercial real estate:
Residential construction
and land development
Retail
Office
Multifamily
Industrial
Other commercial real
estate
Total commercial real
estate
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,386
—
17,293
32,679
—
—
15,386
17,293
32,679
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,261
—
—
396
3,657
—
—
—
—
—
—
—
586
—
—
586
—
—
—
—
—
81
81
—
—
—
—
—
—
—
—
3,261
—
—
477
3,738
—
—
—
—
—
—
—
—
—
3,261
—
—
477
3,738
—
—
—
—
—
—
—
3,538
4,124
4,124
1,059
2,534
1,059
2,534
33,738
2,534
7,131
7,717
40,396
76
76
76
Consumer
—
—
—
Total
$
15,386
$
17,293
$
32,679
$
— $
4,243
$
7,288
$ 11,531
$ 44,210
123
The following table details the recorded balance of loans 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
$
— $
— $
— $
— $
— $
— $ — $
—
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and
industrial
Total commercial
Commercial real estate:
Residential construction
and land development
Retail
Office
Multifamily
Industrial
Other commercial real
estate
Total commercial real
estate
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,545
—
12,518
24,063
—
—
11,545
12,518
24,063
—
—
—
—
139
139
—
—
—
—
—
—
—
—
—
—
—
75
1,080
—
391
—
—
1,471
—
486
2,819
—
—
517
3,822
—
—
—
—
57
57
—
—
—
—
—
—
—
1,080
1,080
—
391
—
196
1,667
—
391
—
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
—
638
713
713
Consumer
—
—
—
Total
$
11,545
$
12,518
$
24,063
$
214
$
6,355
$
5,389
$ 11,958
$ 36,021
124
1,080
—
391
—
164
—
1,080
—
391
—
164
1,635
1,635
—
486
—
486
2,819
2,819
—
—
517
3,822
586
—
590
—
—
517
3,822
586
23,918
590
1,176
25,094
The following table summarizes, by loan class, the recorded investment at December 31, 2014 and 2013, 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, 2014 and 2013, respectively (in thousands):
Year Ended
December 31, 2014
December 31, 2013
Accruing
Nonaccrual
Total
Accruing
Nonaccrual
Total
$
— $
— $
— $
— $
— $
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13
13
—
—
—
—
—
—
—
—
—
—
—
13
13
—
—
—
—
—
—
—
2,836
2,836
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Permanent mortgage guaranteed by U.S. government
agencies
Home equity
Total residential mortgage
29,585
—
29,585
1,047
1,101
4,984
30,632
1,101
34,569
23,918
—
23,918
Consumer
Total
—
25
25
—
155
155
$
29,585
$
5,022
$ 34,607
$
23,918
$
6,788
$ 30,706
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.
125
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, 2014 is as follows
(in thousands):
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and industrial
Total commercial
Commercial real estate:
Residential construction and land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Past Due
Current
30 to 89
Days
90 Days
or More
Nonaccrual
Total
$
2,857,082
$
1,930
$
— $
1,416
$
2,860,428
2,511,892
1,309,167
532,144
1,453,409
415,030
9,078,724
133,642
662,963
412,124
704,298
428,817
362,529
2,704,373
1,136
—
—
180
173
3,419
4,650
—
—
—
—
570
5,220
929,090
5,970
—
—
—
—
—
—
—
—
—
—
—
—
—
46
5,201
4,149
450
1,380
931
2,518,229
1,313,316
532,594
1,454,969
416,134
13,527
9,095,670
5,299
3,926
3,420
—
—
5,912
18,557
143,591
666,889
415,544
704,298
428,817
369,011
2,728,150
34,845
969,951
Permanent mortgages guaranteed by U.S. government
agencies
Home equity
Total residential mortgage
26,691
761,247
1,717,028
23,558
2,723
32,251
151,989
77
3,712
9,564
205,950
773,611
152,112
48,121
1,949,512
Consumer
Total
433,590
547
2
566
434,705
$ 13,933,715
$
41,437
$
152,114
$
80,771
$ 14,208,037
126
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
Other commercial and industrial
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
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
440,973
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
441,890
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
Permanent mortgages guaranteed by U.S. government
agencies
Home equity
Total residential mortgage
21,916
797,299
1,837,885
17,290
3,087
30,172
141,615
34
777
7,264
181,598
807,684
141,649
42,320
2,052,026
Consumer
Total
379,417
1,027
1
1,219
381,664
$ 12,509,986
$
38,099
$
143,030
$
101,149
$ 12,792,264
127
(5) Premises and Equipment
Premises and equipment at December 31 are summarized as follows (in thousands):
Land
Buildings and improvements
Software
Furniture and equipment
Construction in progress
Subtotal
Less accumulated depreciation
Total
December 31,
2014
2013
$
71,371
$
225,008
120,010
179,513
21,805
617,707
343,874
273,833
$
$
75,859
221,326
103,473
163,013
31,027
594,698
316,849
277,849
Depreciation expense of premises and equipment was $33 million, $30 million and $33 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
(6) Goodwill and Intangible Assets
On February 28, 2014, the Company acquired GTRUST Financial Corporation ("GTRUST"), a Topeka-based independent trust
and asset management company with approximately $631 million of assets under management or custody at the date of
acquisition.
On April 30, 2014, the Company acquired MBM Advisors, a Houston-based independent, full service retirement and pension
plan investment firm and an SEC registered investment adviser with approximately $1.3 billion of assets under management at
the date of acquisition.
The purchase price for acquisitions in 2014 totaled approximately $27 million including $23 million paid in cash and $4
million of contingent consideration. The purchase price allocation included $14 million of identifiable intangible assets and $18
million of goodwill. The pro-forma impact of these transactions was not material to the Company's consolidated financial
statements.
The following table presents the original cost and accumulated amortization of intangible assets (in thousands):
Core deposit premiums
Less accumulated amortization
Net core deposit premiums
Other identifiable intangible assets
Less accumulated amortization
Net other identifiable intangible assets
December 31,
2014
2013
$
33,749
$
33,088
661
50,288
16,573
33,715
33,749
32,656
1,093
36,511
13,040
23,471
Total intangible assets, net
$
34,376
$
24,564
128
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
2015
2016
2017
2018
2019
Thereafter
Core
Deposit
Premiums
Other
Identifiable
Intangible
Assets
$
393
247
21
—
—
—
$
3,967
$
3,967
3,735
3,078
2,816
16,152
$
661
$
33,715
$
Total
4,360
4,214
3,756
3,078
2,816
16,152
34,376
The changes in the carrying value of goodwill by operating segment for the year ended December 31, 2014 are as follows (in
thousands):
Balance, December 31, 2012
Goodwill
Accumulated impairment losses
Commercial
Consumer
Wealth
Management
Total
$
271,162
$
39,251
$
51,794
$
362,207
—
271,162
(228)
39,023
—
51,794
(228)
361,979
Goodwill adjustments during 2013
(2,220)
—
—
(2,220)
Balance, December 31, 2013
Goodwill
Accumulated impairment losses
268,942
—
268,942
39,251
(228)
39,023
51,794
—
51,794
359,987
(228)
359,759
Goodwill acquired during 2014
421
—
17,600
18,021
Balance, December 31, 2014
Goodwill
Accumulated Impairment
269,363
—
39,251
(228)
69,394
—
378,008
(228)
$
269,363
$
39,023
$
69,394
$
377,780
The annual goodwill evaluations for 2014 and 2013 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.
129
(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.
The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to
residential mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held
for sale on the Consolidated Balance Sheets were (in thousands):
Residential mortgage loans held for sale
Residential mortgage loan commitments
Forward sales contracts
December 31, 2014
December 31, 2013
Unpaid
Principal
Balance/
Notional
Fair Value
Unpaid
Principal
Balance/
Notional
Fair Value
$
291,537
$
298,212
$
192,266
$
193,584
520,829
701,066
9,971
(4,001)
258,873
435,867
2,656
4,306
$
304,182
$
200,546
No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2014 or
December 31, 2013. No credit losses were recognized on residential mortgage loans held for sale for the years ended
December 31, 2014, 2013 and 2012.
Mortgage banking revenue was as follows (in thousands):
Year Ended
2014
2013
2012
Production revenue:
Net realized gains on sales of mortgage loans
$
56,696
$
95,309
$
115,879
Net change in unrealized gain on mortgage loans held for sale
Change in the fair value of mortgage loan commitments
Change in the fair value of forward sales contracts
Total production revenue
Servicing revenue
Total mortgage banking revenue
5,357
7,315
(8,307)
61,061
48,032
(10,899)
(10,077)
5,212
79,545
42,389
4,720
6,136
2,382
129,117
40,185
$
109,093
$
121,934
$
169,302
Mortgage production revenue includes gain (loss) on residential mortgage loans held for sale and changes in the fair value of
derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales
contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.
130
Residential Mortgage Servicing
The Company generally retains the right to service residential mortgage loans sold and may purchase mortgage servicing
rights. 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
2014
117,483
December 31,
2013
106,137
2012
98,246
Outstanding principal balance of residential mortgage loans serviced for others
$
16,162,887
$
13,718,942
$
11,981,624
Weighted average interest rate
Remaining term (in months)
4.29%
296
4.40%
292
4.71%
289
Activity in capitalized mortgage servicing rights during the three years ended December 31, 2014 is as follows (in thousands):
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
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2014
Purchased
Originated
Total
$
18,903
$
67,880
$
—
(4,164)
(1,763)
12,976
—
(3,029)
5,988
15,935
—
(2,357)
(2,464)
42,191
(14,788)
(7,447)
87,836
49,431
(16,601)
16,732
137,398
54,413
(16,968)
(13,981)
86,783
42,191
(18,952)
(9,210)
100,812
49,431
(19,630)
22,720
153,333
54,413
(19,325)
(16,445)
$
11,114
$
160,862
$
171,976
Changes in the fair value of mortgage servicing rights due to market changes 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.
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
December 31,
2014
10.17%
2013
10.21%
Prepayment rate – based upon loan interest rate, original term and loan type
7.70% - 30.44%
6.66% - 26.19%
Loan servicing costs – annually per loan based upon loan type:
Performing loans
Delinquent loans
Loans in foreclosure
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average
life
$60 - $105
$150 - $500
$60 - $105
$150 - $500
$1,000 - $4,250
$1,000 - $4,250
1.77%
1.80%
131
Stratification of the residential mortgage loan servicing portfolio and outstanding principal of loans serviced for others by
interest rate at December 31, 2014 follows (in thousands):
Fair value
$
67,412
$
80,405
$
19,383
$
4,776
$
171,976
< 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
16,162,887
6,332,112
1,989,977
6,882,025
958,773
14.50%
30.44%
7.70%
8.58%
10.26%
by weighting the prepayment speed for each loan by its unpaid principal balance.
Changes in primary residential mortgage interest rates directly affect the prepayment speeds used in valuing our mortgage servicing
rights. 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.
The interest rate sensitivity of our mortgage servicing rights net of securities and derivative contracts held as an economic hedge
is modeled over a range of +/- 50 basis points. At December 31, 2014, 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 $4.7 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 $4.6 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, 2014 follows (in thousands):
FHLMC
FNMA
GNMA
Other
Total
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days or
More
Total
$ 5,289,078
$
37,881
$
9,418
$
33,837
$
5,370,214
5,200,509
4,920,064
422,598
27,089
132,680
6,674
5,736
34,602
1,491
$ 15,832,249
$
204,324
$
51,247
$
22,087
13,594
5,549
75,067
5,255,421
5,100,940
436,312
$ 16,162,887
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 $180 million at
December 31, 2014 and $191 million at December 31, 2013. At December 31, 2014, approximately 4% of the loans sold with
recourse with an outstanding principal balance of $7.1 million were either delinquent more than 90 days, in bankruptcy or in
foreclosure and 5% with an outstanding balance of $8.4 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.
132
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
2014
2013
2012
$
$
9,562
$
13,158
$
18,683
354
(2,617)
517
(4,113)
7,299
$
9,562
$
(100)
(5,425)
13,158
The Company also has off-balance sheet obligations to repurchase or provide indemnification for residential mortgage loans
sold to government sponsored entities due to standard representations and warranties made under contractual agreements.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 2014, the Company has repurchased 41 loans from the agencies for $6.5 million and recognized
$62 thousand of related losses. In addition, the Company has paid indemnification for 17 loans and recognized $613 thousand
of related losses during 2014.
A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved
deficiency requests):
Number of unresolved deficiency requests
186
Aggregate outstanding principal balance subject to unresolved deficiency requests
$
15,328
$
Unpaid principal balance subject to indemnification by the Company
4,047
578
69,288
3,200
The activity in the accruals for mortgage losses is summarized as follows (in thousands).
December 31,
2014
2013
Beginning balance
Provision for losses
Charge-offs, net
Ending balance
December 31,
2014
2013
$
$
12,716
$
7,200
(8,048)
11,868
$
8,983
6,221
(2,488)
12,716
133
(8) Deposits
Interest expense on deposits is summarized as follows (in thousands):
Transaction deposits
Savings
Time:
Certificates of deposits under $100,000
Certificates of deposits $100,000 and over
Other time deposits
Total time
Total
Year Ended December 31,
2014
2013
2012
$
9,757
$
11,155
$
14,300
401
442
540
14,278
11,878
14,369
40,525
16,234
12,273
15,460
43,967
19,150
16,331
16,692
52,173
$
50,683
$
55,564
$
67,013
The aggregate amounts of time deposits in denominations of $250,000 or more at December 31, 2014 and 2013 were $994
million and $988 million, respectively.
Time deposit maturities are as follows: 2015 – $1.3 billion, 2016 – $519 million, 2017 – $170 million, 2018 – $201 million,
2019 – $81 million and $290 million thereafter. At December 31, 2014 and 2013, the Company had $334 million and $186
million, respectively, in fixed rate, brokered certificates of deposits. The weighted-average interest rate paid on these
certificates was 2.59% in 2014 and 2.96% in 2013.
The aggregate amount of overdrawn transaction deposits that have been reclassified as loan balances was $6.2 million at
December 31, 2014 and $37 million at December 31, 2013.
134
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
As of
Year Ended
December 31, 2014
December 31, 2014
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
$
—
—
—% $
—
—
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
57,031
1,187,489
2,103,400
14,298
16,076
2,133,774
0.05
0.04
0.25
5.05
2.73
347,983
2.35
3,726,277
494,220
928,767
1,894,966
17,343
16,433
1,928,742
347,892
3,699,621
—% $
—
—
0.07
0.06
0.24
5.20
2.32
0.35
2.50
0.43
1,548,676
1,187,489
3,453,400
24,980
16,582
347,983
Total other borrowed funds
$ 3,726,277
$ 3,699,621
0.43%
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
2.73
347,802
2.35
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
2.51
0.41
997,536
881,033
2,451,197
21,055
17,092
347,802
Total other borrowings
$ 3,069,690
$ 3,719,768
0.40%
135
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
1.11
1.11
$
10,500
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
1,167,416
887,030
604,897
20,046
16,332
641,275
347,633
0.05
0.07
0.23
5.44
2.79
2.40
1,512,711
1,072,650
104,925
33,769
16,577
155,271
363,699
3,043,354
3,104,330
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%
Aggregate annual principal repayments at December 31, 2014 are as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
Parent
Company
and Other
Non-bank
Subsidiaries
Subsidiary
Bank
$
— $
3,484,519
—
—
—
—
—
525
226,732
575
575
13,351
$
— $
3,726,277
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, 2014
or December 31, 2013.
136
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31, 2014
and 2013 is as follows (dollars in thousands):
Security Sold/Maturity
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
December 31, 2014
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
Security Sold/Maturity
U.S. Agency Securities:
Overnight1
Long-term
Total Agency Securities
$
$
$
$
1,185,345
$ 1,192,361
—
—
1,185,345
$ 1,192,361
$
$
1,187,445
—
1,187,445
0.04%
—%
0.04%
December 31, 2013
Amortized
Cost
Market
Value
Repurchase
Liability1
Average
Rate
1,085,893
$ 1,075,821
—
—
1,085,893
$ 1,075,821
$
$
813,624
—
813,624
0.05 %
— %
0.05 %
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 $315 million to secure BOK Financial’s obligations to depositors of
public funds. The unused credit available to BOK Financial at December 31, 2014 pursuant to the Federal Home Loan Bank’s
collateral policies is $1.9 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, 2015. 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, 2014, no amounts were
outstanding under the Credit Facility and the Company met all of the covenants.
In addition, BOSC may borrow funds from Pershing, LLC ("Pershing"), a clearing broker/dealer and a wholly owned
subsidiary of Bank of New York Mellon, for the purposes of financing securities purchases or to facilitate funding of
investment banking activities, on terms to be negotiated at the time of the borrowing. BOSC had no borrowings from Pershing
outstanding at December 31, 2014 or December 31, 2013.
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, 2014, and December 31, 2013 $227 million of this subordinated debt remained outstanding.
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
137
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, 2014 and December 31, 2013, $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.
138
(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):
Deferred tax assets:
Available for sale securities mark to market
Share-based compensation
Credit loss allowances
Valuation adjustments
Deferred compensation
Unearned fees
Other
Total deferred tax assets
Deferred tax liabilities:
Available for sale securities mark to market
Depreciation
Mortgage servicing rights
Lease financing
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
December 31,
2014
2013
$
— $
9,414
74,362
36,870
23,333
11,820
26,633
14,751
8,064
75,657
35,292
60,068
10,683
22,348
182,432
226,863
37,719
18,601
86,752
24,429
22,160
189,661
$
(7,229) $
—
17,333
72,235
23,202
18,494
131,264
95,599
The company determined that no valuation allowance was necessary on deferred tax assets as of December 31, 2014 and 2013.
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
Total income tax expense
Year Ended December 31,
2014
2013
2012
$
85,990
$
125,412
$
159,706
9,392
95,382
14,381
139,793
19,103
178,809
36,521
2,949
39,470
15,915
1,590
17,505
8,664
1,267
9,931
$
134,852
$
157,298
$
188,740
139
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 income tax expense
Year Ended December 31,
2014
2013
2012
$
150,616
$
166,680
$
190,003
(8,446)
9,054
(11,107)
(3,183)
(2,281)
199
(7,361)
10,937
(8,145)
(3,596)
(1,400)
183
(5,558)
13,684
(5,126)
(3,850)
(950)
537
$
134,852
$
157,298
$
188,740
Due to the favorable resolution of certain tax issues for the periods ended December 31, 2010 and 2009, BOK Financial
reduced its tax accrual by $2.3 million and $1.4 million in 2014 and 2013, 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,
2014
2013
2012
35.0%
35.0%
35.0%
(2.0)
2.1
(2.6)
(0.7)
(0.5)
—
(1.5)
2.3
(1.7)
(0.8)
(0.3)
—
(1.0)
2.5
(0.9)
(0.7)
(0.1)
—
31.3%
33.0%
34.8%
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of January 1
Additions for tax for current year positions
Settlements during the period
Lapses of applicable statute of limitations
Balance as of December 31
2014
2013
2012
$
12,058
$
12,275
$
3,813
—
(2,497)
2,730
—
(2,947)
12,230
3,976
(1,000)
(2,931)
$
13,374
$
12,058
$
12,275
Of the above unrecognized tax benefits, $8.7 million, 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 $1.5 million for 2014, $1.2 million for 2013 and $1.2 million for 2012 in interest and penalties. The
Company had approximately $3.6 million and $2.9 million accrued for the payment of interest and penalties at December 31,
2014 and 2013, respectively. 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.
140
(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 2014 and 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 3.0% and a
ceiling of 5.0%. The 2014 quarterly variable rates ranged from 3.00% to 3.01%.
The following table presents information regarding this plan (in thousands):
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Interest cost
Actuarial loss (gain)
Benefits paid
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
Net periodic pension cost
1 Projected benefit obligation equals accumulated benefit obligation.
2 Projected benefit obligation is based on January 1 measurement date.
Weighted-average assumptions as of December 31:
Discount rate
Expected return on plan assets
December 31,
2014
2013
$
44,765
$
1,685
2,878
(4,104)
45,224
48,812
4,735
(4,104)
49,443
4,219
1,685
(2,539)
(1,175)
2,584
$
$
$
$
$
555
$
$
$
$
$
$
$
48,028
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
2,002
2014
2013
3.42%
6.00%
4.05%
6.00%
As of December 31, 2014, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
$
3,535
3,673
3,270
3,396
3,628
44,057
$ 61,559
141
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. The inception-to-date return on the fund, which is used as an indicator when setting
the expected return on plan assets, was 7.44%. As of December 31, 2014, the expected return on plan assets for 2015 is
6.00%. The maximum tax deductible Pension Plan contribution for 2014 was $21 million. No minimum contribution was
required for 2014, 2013 or 2012. We expect approximately $267 thousand of net pension costs currently in accumulated other
comprehensive income to be recognized as net periodic pension cost in 2015.
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 per participant for employees whose annual base compensation is less than $40,000. Total
non-elective contributions were $662 thousand for 2014, $738 thousand for 2013 and $802 thousand for 2012.
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 $18.6 million for 2014, $18.1 million for 2013 and $16.8 million for 2012.
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 $111.7 million in 2014, $110.9 million in 2013, and $116.7 million in 2012 for cash incentive
compensation.
142
(12) Share-Based Compensation Plans
The shareholders and Board of Directors of BOK Financial have approved various share-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. Share-based compensation is granted to other officers and employees as
determined by the Chief Executive Officer.
The following table presents stock options outstanding during 2014, 2013 and 2012 under these plans (in thousands, except for
per share data):
Options outstanding at December 31, 2011
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2012
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2013
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2014
Options vested at:
December 31, 2012
December 31, 2013
December 31, 2014
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number
2,621,347
$
47.01
$
20,769
67,155
(708,295)
(22,559)
(66,862)
1,890,786
81,492
(608,663)
(219,342)
(9,168)
1,135,105
—
(323,004)
(15,509)
(2,701)
793,891
601,367
424,459
347,633
$
$
58.76
45.32
50.36
45.97
48.29
55.74
48.00
47.65
50.61
49.09
—
49.17
45.71
47.98
49.05
47.99
49.49
48.85
11,748
19,564
$
$
8,725
3,890
7,146
3,889
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)
190,832
33,574
39,557
169,422
78,904
78,108
125,285
78,209
2.83
0.76
3.16
2.16
1.48
5.16
3.62
4.35
$36.65
47.09
48.30
48.46
54.33
55.74
55.94
58.76
65,626
33,574
13,326
95,415
78,904
8,260
37,008
15,520
$36.65
47.09
48.30
48.46
54.33
55.74
55.94
58.76
1.51
0.76
1.42
1.49
1.48
2.03
1.44
1.59
Range of
Exercise
Prices
$36.65
45.15 - 47.34
48.30
48.46
54.33
55.74
55.94
58.76
The aggregate intrinsic value of options exercised was $5.5 million for 2014, $8.5 million for 2013 and $8.3 million for 2012.
143
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:
Average risk-free interest rate1
Dividend yield
Volatility factors
Weighted average expected life
Weighted average fair value
2013
2012
0.89%
2.80%
0.272
0.93%
2.20%
0.280
4.9 years
9.67
4.9 years
11.48
$
$
1 Average risk-free interest rate represents U.S. Treasury rates matched to the expected life of the options.
No options were granted in 2014. Compensation expense recognized on stock options totaled $826 thousand for 2014, $1.3
million for 2013 and $4.1 million for 2012. Compensation cost of stock options granted that may be recognized as
compensation expense in future years totaled $980 thousand at December 31, 2014. Subject to adjustments for forfeitures, we
expect to recognize compensation expense for current outstanding options of $475 thousand in 2015, $275 thousand in 2016,
$152 thousand in 2017, $60 thousand in 2018, and $18 thousand in 2019.
The following represents a summary of the non-vested stock awards as of December 31, 2014 (in thousands):
Non-vested at January 1, 2012
Granted
Vested
Forfeited
Non-vested at December 31, 2012
Granted
Vested
Forfeited
Non-vested at December 31, 2013
Granted
Vested
Forfeited
Non-vested at December 31, 2014
Weighted
Average
Grant Date
Fair Value
$55.63
$47.32
$50.45
$55.84
$35.93
$49.95
$64.96
$44.56
$56.26
Shares
503,738
197,058
(76,192)
(31,773)
592,831
211,791
(66,648)
(89,985)
647,989
206,621
(140,820)
(25,179)
688,611
Compensation expense recognized on non-vested shares totaled $10.0 million for 2014, $6.9 million for 2013 and $5.6 million
for 2012. Unrecognized compensation cost of non-vested shares totaled $15.5 million at December 31, 2014. Subject to
adjustment for forfeitures, we expect to recognize compensation expense of $9.3 million in 2015, $5.7 million in 2016, $474
thousand in 2017 and $1 thousand in 2018.
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 Executive Incentive Plan which had been approved by shareholders in 2003. The True-Up Plan was
designed to adjust 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. As of December 31,
2013, the Company had accrued $69 million for the True-Up Plan liability. The final amount distributed in May 2014 totaled
$56 million, including $35 million in cash and $21 million consisting of 331 thousand shares at a price of $64.91 per share.
During January 2015, BOK Financial awarded 297,106 shares of non-vested stock with a fair value per award of $55.53. The
aggregate compensation cost of these awards totaled approximately $16.5 million. This cost will be recognized over the vesting
periods, subject to adjustments for forfeitures. Non-vested shares awarded in January 2015 generally cliff vest in 3 years and
are subject to a 2 year holding period after vesting.
144
(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, 2014 or 2013.
Activity in loans to related parties is summarized as follows (in thousands):
Beginning balance
Advances
Payments
Adjustments1
Ending balance
1 Adjustments generally consist of changes in status as a related party.
Year Ended December 31,
2014
2013
$
88,691
$
712,413
49,943
292,393
(698,149)
(253,645)
440
—
$
103,395
$
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 $900 thousand for 2014, $952 thousand for 2013 and $1.1 million for 2012.
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 $3.2 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.
145
(14) Commitments and Contingent Liabilities
Litigation Contingencies
As a member of Visa, BOK Financial is obligated for a proportionate share of certain covered litigation losses incurred by Visa
under a retrospective responsibility plan. A contingent liability was recognized for the Company’s share of Visa’s covered
litigation liabilities. Visa funded an escrow account to cover litigation claims, including covered litigation losses under the
retrospective responsibility plan, with proceeds from its initial public offering in 2008 and from available cash.
BOK Financial currently owns 251,837 Visa Class B shares which are convertible into 103,782 shares of Visa Class A shares
after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate
to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may
be assigned until the Class B shares are converted into a known number of Class A shares.
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 $5.6 million at
December 31, 2014. 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.
The Company also has interests in various unrelated alternative investments generally consisting of unconsolidated limited
partnership interests in or loans to entities for which investment return is 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.
146
A summary of consolidated and unconsolidated alternative investments as of December 31, 2014 and December 31, 2013 is as
follows (in thousands):
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
December 31, 2014
Loans
Other
Assets
Other
Liabilities
Other
Borrowings
Non-
controlling
Interests
$
— $
25,627
$
— $
— $
10,000
—
12,827
5,996
—
—
10,964
—
$
10,000
$
44,450
$
— $
10,964
$
21,921
10,000
2,106
34,027
$
$
18,192
$
96,721
—
9,471
18,192
$ 106,192
$
$
28,920
4,050
32,970
$
$
— $
—
— $
—
—
—
December 31, 2013
Loans
Other
Assets
Other
Liabilities
Other
Borrowings
Non-
controlling
Interests
$
— $
27,341
$
— $
— $
23,036
10,000
—
13,448
9,178
—
—
10,964
—
9,869
2,019
$
10,000
$
49,967
$
— $
10,964
$
34,924
$
$
27,319
—
27,319
$
$
90,260
9,257
99,517
$
$
35,776
1,681
37,457
$
$
— $
—
— $
—
—
—
Other Commitments and Contingencies
At December 31, 2014, Cavanal Hill Funds’ assets included $1.1 billion of U.S. Treasury, $1.3 billion of cash management and
$258 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, 2014. 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 2014 or 2013.
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.
147
Total rent expense for BOK Financial was $25.0 million in 2014, $23.5 million in 2013 and $21.7 million in 2012. At
December 31, 2014, future minimum lease payments for premises under operating leases were as follows: $26.0 million in
2015, $22.9 million in 2016, $19.3 million in 2017, $15.1 million in 2018, $13.0 million in 2019 and $104.8 million thereafter.
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. 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 was $1.5 billion for the year
ended December 31, 2014 and $830 million for the year ended December 31, 2013.
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 $72 thousand at December 31, 2014.
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 $8.4 million at December 31, 2014. 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.
(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 2014, 2013 or 2012.
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, 2014, BOK Financial's subsidiary bank could declare up to $365
million of dividends without regulatory approval. Upon adoption of the Basel III regulatory capital framework in the first
quarter of 2015, the dividend capacity of the subsidiary bank will be reduced to zero. The subsidiary bank declared and paid
dividends of $75 million in 2014, $225 million in 2013 and $275 million in 2012.
148
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, 2014, loan
commitments and equity investments were limited to $245 million to a single affiliate and $490 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 $330 million. The largest outstanding amount to a single affiliate at December 31, 2014
was $14 million and the total outstanding amounts to all affiliates were $18 million. At December 31, 2013, total loan
commitments and equity investments to all affiliates were $334 million and the total outstanding amounts to all affiliates were
$27 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, 2014 and December 31, 2013.
A summary of regulatory capital levels follows (dollars in thousands):
Total Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
Tier I Capital (to Risk Weighted Assets):
Consolidated
BOKF, NA
Tier I Capital (to Average Assets):
Consolidated
BOKF, NA
December 31,
2014
2013
$
3,120,223
14.66% $
3,017,022
2,449,078
11.56
2,293,673
$
2,838,129
13.33% $
2,668,981
2,168,161
10.24
1,946,247
$
2,838,129
9.96% $
2,668,981
2,168,161
7.65
1,946,247
15.56%
11.88
13.77%
10.08
10.05%
7.38
149
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. 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, 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
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, 2014
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
$
135,740
$
6,673
$
(12,742) $
(692) $
128,979
58,921
—
7,276
—
66,197
—
—
7,351
(33,845)
32,427
(12,614)
19,813
155,553
(284,104)
—
—
2,308
(10,720)
(292,516)
113,788
(178,728)
(23,175)
136,050
—
—
373
(1,539)
134,884
(52,470)
82,414
(6,601)
—
—
—
(6,601)
3,006
(3,595)
3,078
—
(3,210)
—
—
—
(3,210)
1,250
(1,960)
1,118
—
(1,216)
—
—
—
(1,216)
474
(742)
—
—
—
—
7,276
(2,830)
4,446
(8,296)
8,159
—
—
—
—
8,159
(3,174)
4,985
(3,311)
725
—
—
—
—
725
(282)
443
—
453
—
—
453
(176)
277
(415)
—
—
262
—
—
262
(102)
160
(255)
—
—
296
—
—
296
(115)
181
$
59,239
$
376
$
(2,868) $
(74) $
(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)
(25,623)
136,775
(1,216)
296
373
(1,539)
134,689
(52,393)
82,296
56,673
150
(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
2014
2013
2012
Numerator:
Net income attributable to BOK Financial Corp. shareholders
$
292,435
$
316,609
$
351,191
Less: Earnings allocated to participating securities
Numerator for basic earnings per share – income available to common shareholders
Effect of reallocating undistributed earnings of participating securities
3,239
3,388
289,196
313,221
4
7
2,541
348,650
6
Numerator for diluted earnings per share – income available to common shareholders
$
289,200
$
313,228
$
348,656
Denominator:
Weighted average shares outstanding
69,159,902
68,719,069
68,221,013
Less: Participating securities included in weighted average shares outstanding
765,708
730,172
536,970
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.
68,394,194
67,988,897
67,684,043
150,576
216,622
280,897
68,544,770
68,205,519
67,964,940
$
$
$
$
4.23
4.22
—
$
$
4.61
4.59
—
5.15
5.13
224,653
(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, lending and deposit services to small
business customers served through the consumer branch network and all mortgage banking activities. Wealth Management
provides fiduciary services, private bank services and investment advisory services in all markets. Wealth Management also
underwrites state and municipal securities and engages in brokerage and trading activities.
In addition to 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, actual net credit
losses and capital costs. In addition, we measure the performance of our business lines after allocation of certain indirect
expenses and taxes on statutory rates. Corporate expense allocations were updated in 2014. The allocation for the prior
comparable periods have been revised on a comparable basis.
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.
151
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.
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, 2014 is as
follows (in thousands):
Net interest revenue from external sources
$
381,687
$
95,910
$
23,826
$
163,771
$
665,194
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
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
Net direct contribution
Corporate expense allocations
Income before taxes
Federal and state income taxes
Net income
(43,934)
337,753
(7,447)
345,200
169,704
201,748
313,156
41,338
271,818
105,737
166,081
32,170
128,080
5,405
122,675
200,815
196,082
127,408
67,040
60,368
23,483
36,885
20,578
44,404
213
44,191
239,045
216,770
66,466
31,375
35,091
13,650
21,441
(8,814)
154,957
1,829
153,128
3,095
232,922
(76,699)
(139,753)
63,054
(8,018)
71,072
—
665,194
—
665,194
612,659
847,522
430,331
—
430,331
134,852
295,479
Net income attributable to non-controlling
interests
—
—
—
3,044
3,044
Net income attributable to BOK Financial Corp.
shareholders
$
166,081
$
36,885
Average assets
Average invested capital
$ 11,384,508
$ 6,555,642
946,383
277,404
$
$
21,441
4,518,511
193,784
$
$
68,028
$
292,435
5,540,197
$ 27,998,858
1,793,190
3,210,761
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.46%
17.58%
39.57%
0.56%
13.30%
56.58%
0.52%
12.07%
75.90%
1.04%
9.11%
64.50%
152
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2013 is as
follows (in thousands):
Net interest revenue from external sources
$
363,961
$
100,153
$
25,478
$
184,885
$
674,477
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
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
Net direct contribution
Corporate expense allocations
Net income before taxes
Federal and state income taxes
Net income
(51,587)
312,374
(4,372)
316,746
163,206
190,306
289,646
44,865
244,781
95,220
149,561
34,850
135,003
5,532
129,471
225,336
189,099
165,708
60,005
105,703
41,118
64,585
Net income attributable to non-controlling
interests
—
—
Net income attributable to BOK Financial Corp.
shareholders
$
149,561
$
64,585
Average assets
Average invested capital
$ 10,386,235
$ 6,487,255
906,717
293,736
20,061
45,539
1,275
44,264
211,655
197,890
58,029
29,993
28,036
10,906
17,130
—
17,130
4,556,132
203,914
$
$
(3,324)
181,561
(30,335)
211,896
14,275
263,325
(37,154)
(134,863)
97,709
10,054
87,655
2,322
—
674,477
(27,900)
702,377
614,472
840,620
476,229
—
476,229
157,298
318,931
2,322
$
$
85,333
$
316,609
5,951,472
$ 27,381,094
1,606,715
3,011,082
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.44%
16.49%
40.24%
1.00%
21.99%
51.30%
0.40%
9.00%
76.37%
1.16%
10.51%
64.60%
153
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2012 is as
follows (in thousands):
Net interest revenue from external sources
$
366,243
$
102,321
$
27,647
$
211,338
$
707,549
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
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
Net direct contribution
Corporate expense allocations
Net income before taxes
Federal and state income taxes
Net income
(58,835)
307,408
9,463
297,945
162,085
192,396
267,634
44,330
223,304
86,865
136,439
36,700
139,021
10,588
128,433
271,723
206,598
193,558
64,239
129,319
50,305
79,014
21,456
49,103
2,284
46,819
197,306
177,423
66,702
30,525
36,177
14,073
22,104
679
212,017
(44,335)
256,352
22,564
263,946
14,970
(139,094)
154,064
37,497
116,567
—
707,549
(22,000)
729,549
653,678
840,363
542,864
—
542,864
188,740
354,124
Net income attributable to non-controlling
interests
—
—
—
2,933
2,933
Net income attributable to BOK Financial Corp.
shareholders
$
136,439
$
79,014
Average assets
Average invested capital
$ 9,844,145
$ 6,498,193
882,036
289,665
$
$
22,104
4,357,641
184,707
$
$
113,634
$
351,191
5,589,171
$ 26,289,150
1,549,547
2,905,955
Performance measurements:
Return on average assets
Return on average invested capital
Efficiency ratio
1.39%
15.47%
42.26%
1.22%
27.28%
49.60%
0.52%
12.26%
71.19%
1.34%
12.09%
62.03%
154
(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. During 2014, $14 million of residential mortgage
loans held for sale were transferred from significant other observable inputs to significant unobservable inputs. These loans
cannot be sold to U.S. government agencies due to origination defects. An unobservable liquidity discount is applied to
determine fair value. 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, 2014 and 2013,
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 prices provided by third-party pricing services at December 31, 2014
and 2013.
155
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 is as follows as of December 31, 2014 (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
$
85,092
$
— $
85,092
$
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 securities
Municipal and other tax-exempt securities
U.S. government 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. government 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
31,199
38,951
33,458
188,700
1,005
63,557
6,646,884
165,957
2,048,609
9,212
24,277
19,444
8,978,945
311,597
—
311,597
304,182
171,976
361,874
25,627
—
—
—
—
1,005
—
—
—
—
—
—
4,927
5,932
—
—
—
—
—
31,199
38,951
33,458
188,700
—
53,464
6,646,884
165,957
2,048,609
5,062
24,277
14,517
311,597
—
311,597
292,326
—
17,607
344,267
—
—
—
—
—
—
—
—
10,093
—
—
—
4,150
—
—
—
—
—
11,856
171,976
—
25,627
8,958,770
14,243
354,554
541
354,013
—
1 A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to
determine fair value are presented in Note 7, Mortgage Banking Activities.
2 See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions were valued based on
quoted prices in active markets or identical instruments (Level 1) are exchange-traded energy derivative contracts, net of cash margin.
Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are
exchange-traded interest rate and agricultural derivative contracts, net of cash margin.
156
The fair value of financial assets and liabilities that are measured on a recurring basis is 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. government agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Available for sale securities:
U.S. Treasury securities
Municipal and other tax-exempt securities
U.S. government 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. government 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 margin 2
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 for
identical instruments (Level 1) are exchange-traded energy derivative contracts, net of cash margin.
157
Following is a description of the Company's valuation methodologies used for assets and liabilities measured on a recurring
basis:
Securities
The fair values of trading, available for sale and fair value option securities are based on quoted prices for identical instruments
in active markets, when available. If quoted prices for identical instruments are not available, fair values are based on
significant other observable inputs such as quoted prices of comparable instruments or interest rates and credit spreads, yield
curves, volatilities, prepayment speeds and loss severities.
The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs.
These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers
and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on
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 uses significant other observable market inputs.
Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments
based on various risk factors including but not limited to counterparty credit rating or equivalent loan grading, derivative
contract notional size, price volatility of the underlying commodity, duration of the derivative contracts and expected loss
severity. Expected loss severity is based on historical losses for similarly risk graded commercial loan customers. Decreases in
counterparty credit rating or grading and increases in price volatility and expected loss severity all tend to increase the credit
quality adjustment which reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during
the current period.
We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would
affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities
would increase. The change in the fair value would be recognized in earnings in the current period.
Residential Mortgage Loans Held for Sale
Residential mortgage loans held for sale are carried on the balance sheet at fair value. The fair values of conforming residential
mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including
related unfunded loan commitments. The fair value of mortgage loans that are unable to be sold to U.S. government agencies is
determined using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied.
Other Assets - Private Equity Funds
The fair value of the portfolio investments of the Company's two private equity funds are based upon net asset value reported
by the underlying funds, as adjusted by the general partner when necessary to represent the price that would be received to sell
the assets. The Company's private equity funds provide customers alternative investment opportunities as limited partners of
the funds. As fund of funds, the private equity funds invest in other limited partnerships or limited liability companies that
invest substantially all of their assets in U.S. companies pursuing diversified investment strategies including early-stage venture
capital, distressed securities and corporate or asset buy-outs. Private equity fund assets are long-term, illiquid investments. No
secondary market exists for these assets. The private equity funds typically invest in funds that provide no redemption rights to
investors. The fair value of the private equity investments may only be realized through cash distributions from the underlying
funds.
158
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, 2012
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 income (loss):
Net change in unrealized gain (loss)
Balance, December 31, 2013
Transfer to Level 3 from Level 2
Purchases and capital calls
Redemptions and distributions
Proceeds from sales
Gain (loss) recognized in earnings:
Mortgage banking revenue
Gain on other assets, net
Gain on available for sale securities, net
Other-than-temporary impairment losses
Charitable contributions to BOKF Foundation
Other comprehensive income (loss):
Net change in unrealized gain (loss)
Balance, December 31, 2014
Available for Sale Securities
Municipal
and other
tax-exempt
Other debt
securities
Equity
securities
and mutual
funds
Residential
mortgage
loans held
for sale
Other
assets –
private
equity
funds
$
40,702
$
5,399
$
2,161
$
— $
28,169
—
—
—
—
(19,238)
(500)
—
1,216
(1,369)
(3,506)
17,805
—
—
—
—
—
(187)
4,712
—
—
(7,487)
(500)
—
—
—
—
—
—
—
—
—
(235)
—
—
10
—
—
—
—
—
—
2,046
4,207
—
—
—
—
—
—
—
—
(2,420)
—
—
—
—
—
—
—
—
13,644
—
—
(1,176)
(612)
—
—
—
—
—
—
1,415
(5,294)
3,051
—
—
—
27,341
—
1,012
(7,473)
—
—
4,747
—
—
—
—
(62)
(1,787)
$
10,093
$
4,150
$
— $
11,856
$
25,627
159
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, 2014 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Amortized
Cost/
Unpaid
Principal
Balance
Par
Value
Fair
Value
Valuation Technique(s)
Unobservable
Input
Range
(Weighted Average)
Available for sale securities
Municipal and other tax-
exempt securities
$
10,870
$
10,805
$
10,093
Discounted cash flows
Other debt securities
4,400
4,400
4,150
Discounted cash flows
Residential mortgage loans
held for sale
N/A
12,468
11,856
Quoted prices of loans
sold in securitization
transactions, with a
liquidity discount
applied
1
1
Interest rate
spread
Interest rate
spread
Liquidity
discount applied
to the market
value of
mortgage loans
qualifying for
sale to U.S.
government
agencies
Other assets - private equity
funds
N/A
N/A
25,627
Net asset value reported
by underlying fund
Net asset value
reported by
underlying fund
4.96%-5.26% (5.21%)
92.65%-94.32% (93.09%)
5.62% - 5.67% (5.66%)
92.65% - 92.95% (92.77%)
2
3
4
3
95.09%
N/A
1 Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and
credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 Interest rate yields used to value investment grade tax-exempt securities represent a spread of 488 to 516 basis points over average yields for comparable
tax-exempt securities.
3 Represents fair value as a percentage of par value.
4 Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than
1%.
160
A summary of quantitative information about Recurring Fair Value Measurements based on 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
Cost6
Fair
Value
Valuation Technique(s)
Unobservable
Input
Range
(Weighted Average)
Available for sale securities
Municipal and other tax-
exempt securities
$
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.
161
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, 2014
Fair Value Adjustments for the
Year Ended December 31, 2014
Recognized In:
Quoted Prices
in Active
Markets for
Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Gross charge-
offs against
allowance for
loan losses
Net losses and
expenses of
repossessed
assets, net
Impaired loans
Real estate and other repossessed assets
$
— $
—
$
8,198
22,594
$
635
3,691
$
4,044
—
—
3,563
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
The fair value of collateral-dependent impaired loans and real estate and other repossessed assets and the related fair value
adjustments are generally based on unadjusted third-party appraisals. Our appraisal review policies require appraised values to
be supported by observed inputs derived principally from or corroborated by observable market data. Appraisals that are not
based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party
appraisals are considered to be based on significant unobservable inputs. Non-recurring fair value measurements of collateral-
dependent impaired loans and real estate and other repossessed assets based on significant unobservable inputs are generally
due to estimates of current fair values between appraisal dates. Significant unobservable inputs include listing prices for
comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. These inputs are
developed by asset management and workout professionals and approved by senior Credit Administration executives.
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2014 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
$
635
Appraised value,
as adjusted
Broker quotes and management's
knowledge of industry and collateral.
Real estate and other repossessed assets
3,691
Appraised value,
as adjusted
Marketability adjustments off
appraised value
N/A
65%
162
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
The fair value of pension plan assets was approximately $49 million at both December 31, 2014 and December 31, 2013,
determined by significant other observable inputs. Fair value adjustments of pension plan assets along with changes in the
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.
163
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, 2014
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 debentures
U.S. government agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Investment securities:
Municipal and other tax-exempt securities
U.S. government agency residential mortgage-backed securities
Other debt securities
Total investment securities
Available for sale securities:
U.S. Treasury securities
Municipal and other tax-exempt securities
Carrying
Value
$
550,576
1,925,266
85,092
31,199
38,951
33,458
188,700
405,090
35,750
211,520
652,360
1,005
63,557
U.S. government agency residential mortgage-backed securities
6,646,884
Privately issued residential mortgage-backed securities
165,957
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:
2,048,609
9,212
24,277
19,444
8,978,945
U.S. government agency residential mortgage-backed securities
311,597
Other securities
Total fair value option securities
Residential mortgage loans held for sale
—
311,597
304,182
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Allowance for loan losses
Loans, net of allowance
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
9,095,670
0.17% - 30.00%
2,728,150
0.38% - 18.00%
1,949,512
1.20% - 18.00%
434,705
0.38% - 21.00%
0.65
0.84
2.50
0.45
0.51% - 4.34%
1.09% - 3.78%
0.64% - 3.99%
1.04% - 3.98%
14,208,037
(189,056)
14,018,981
171,976
361,874
25,627
18,532,143
2,608,716
0.02% - 9.64%
3,378,294
0.21% - 1.52%
347,983
0.92% - 5.00%
1.92
0.12
1.67
0.76% - 1.33%
0.06% - 2.64%
2.14%
Derivative instruments with negative fair value, net of cash margin
354,554
164
Estimated
Fair
Value
$
550,576
1,925,266
85,092
31,199
38,951
33,458
188,700
408,344
37,463
227,819
673,626
1,005
63,557
6,646,884
165,957
2,048,609
9,212
24,277
19,444
8,978,945
311,597
—
311,597
304,182
8,948,870
2,704,454
1,985,870
431,274
14,070,468
—
14,070,468
171,976
361,874
25,627
18,532,143
2,612,576
3,331,771
344,687
354,554
December 31, 2013
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 debentures
U.S. government 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. government agency residential mortgage-backed securities
Other debt securities
Total investment securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt
Carrying
Value
$
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
U.S. government agency residential mortgage-backed securities
7,716,010
Privately issued residential mortgage-backed securities
221,099
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. government agency residential mortgage-backed securities
Other securities
Total fair value option securities
Residential mortgage loans held for sale
2,055,804
35,241
22,863
21,328
10,147,162
157,431
9,694
167,125
200,546
Loans:
Commercial
Commercial real estate
Residential mortgage
Consumer
Total loans
Allowance for loan losses
Loans, net of allowance
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
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
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.
165
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 $161 million at
December 31, 2014 and $157 million at December 31, 2013.
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, 2014 or December 31, 2013.
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.
166
(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,
2014
2013
$
510,668
$
561,297
24,794
27,526
2,774,276
2,426,495
1,637
12,872
$
3,311,375
$
3,028,190
$
9,196
$
9,196
8,141
8,141
4
4
954,644
898,586
2,530,837
2,349,428
(239,979)
56,673
(202,346)
(25,623)
3,302,179
3,020,049
$
3,311,375
$
3,028,190
Year Ended December 31,
2014
2013
2012
Dividends, interest and fees received from subsidiaries
$
75,412
$
225,340
$
275,330
Other revenue
Other-than-temporary impairment losses recognized in earnings
Total revenue
Interest expense
Charitable contributions to BOKF Foundation
Professional fees and services
Other operating expense
Total expense
Income before taxes and equity in undistributed income of subsidiaries
Federal and state income taxes
Income before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
1,572
—
76,984
293
2,420
600
1,556
4,869
72,115
(1,702)
73,817
218,618
3,341
—
2,295
(1,099)
228,681
276,526
292
2,062
811
1,210
4,375
224,306
(1,578)
225,884
90,725
269
2,062
765
1,037
4,133
272,393
(1,706)
274,099
77,092
Net income attributable to BOK Financial Corp. shareholders
$
292,435
$
316,609
$
351,191
167
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 effect from equity compensation, net
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
Proceeds from sales of available for sale securities
Investment in subsidiaries
Acquisitions, net of cash acquired
Net cash used in investing activities
Cash Flows From Financing Activities:
Issuance of common and treasury stock, net
Tax effect from equity compensation, net
Dividends paid
Repurchase of common stock
Net cash 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
Issuance of shares in settlement of deferred compensation, net
(20) Subsequent Events
Year Ended December 31,
2013
2012
2014
$
292,435
$
316,609
$
351,191
(218,618)
(8,258)
8,726
1,055
75,340
—
—
(15,336)
—
(15,336)
4,472
8,258
(111,026)
(12,337)
(110,633)
(50,629)
561,297
510,668
293
8,352
$
$
$
(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
(5,343)
4,781
(9,100)
(20,000)
(29,662)
14,650
120
(166,982)
(20,558)
(172,770)
70,819
386,695
$
$
$
561,297
$
457,514
292
$
— $
269
—
The Company evaluated events from the date of the consolidated financial statements on December 31, 2014 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.
168
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
Allowance for loan losses
Loans, net of allowance
Total earning assets
Receivable on unsettled securities sales
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
Net income before taxes
Federal and state income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to BOK Financial Corporation shareholders
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
Year Ended
December 31, 2014
Average
Balance
Revenue/
Expense
Yield/
Rate
2,749
2,520
13,183
6,785
19,968
182,923
3,321
186,244
3,611
7,040
10,143
510,916
510,916
743,191
9,757
401
40,525
50,683
341
583
6,748
8,690
67,045
0.24%
2.57%
5.66%
1.61%
3.05%
1.94%
3.73%
1.95%
2.05%
5.54%
3.93%
3.81%
3.87%
2.95%
0.10%
0.12%
1.53%
0.40%
0.07%
0.06%
0.35%
2.50%
0.41%
$
1,127,664
120,415
$
233,105
422,507
655,612
9,546,366
92,438
9,638,804
183,206
127,161
259,809
13,406,118
(189,574)
13,216,544
25,329,215
88,784
2,580,859
27,998,858
9,737,795
345,183
2,644,847
12,727,825
494,220
928,767
1,928,742
347,892
16,427,446
7,687,333
136,360
536,958
3,210,761
27,998,858
$
$
$
$
$
676,146
2.54%
2.68%
10,952
665,194
—
612,659
847,522
430,331
134,852
295,479
3,044
292,435
4.23
4.22
$
$
$
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. Yield/rate calculations are generally based on the
conventions that determine how interest income and expense is accrued.
169
Annual Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Year Ended
December 31, 2013
Average
Balance
Revenue/
Expense
Yield/
Rate
Average
Balance
December 31, 2012
Revenue/
Expense
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
$
503,603
148,816
$
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
Allowance for loan losses
Loans, net of allowance
Total earning assets
Receivable on unsettled securities sales
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
Net income before taxes
Federal and state income taxes
Net income
Net income attributable to non-controlling
interests
Net income attributable to BOK Financial
Corporation shareholders
Earnings Per Average Common Share
Equivalent:
Net income:
Basic
Diluted
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
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
10,298
674,477
(27,900)
614,472
840,620
476,229
157,298
318,931
2,322
316,609
4.61
4.59
$
$
$
170
0.34%
1.59%
5.88%
4.06%
5.29%
2.42%
3.68%
2.44%
2.51%
4.78%
3.64%
4.44%
4.53%
3.53%
0.16%
0.21%
1.68%
0.54%
0.14%
0.09%
2.20%
3.79%
0.56%
2.97%
3.15%
0.21% $
1.81%
279,063
134,176
$
945
2,138
5.83%
1.82%
3.48%
286,626
145,899
432,525
1.96% 10,542,074
3.13%
106,037
1.97% 10,648,111
379,603
1.97%
47,961
4.02%
3.73%
227,795
4.10% 11,696,054
(238,806)
4.16% 11,457,248
3.09% 23,606,482
160,576
2,522,092
$ 26,289,150
0.12% $ 9,040,626
261,822
0.14%
1.57%
3,114,046
0.44% 12,416,494
1,512,711
0.10%
1,072,650
0.06%
155,664
0.31%
2.51%
363,699
0.43% 15,521,218
6,590,283
691,644
580,051
2,905,955
$ 26,289,151
2.66%
2.80%
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
$
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
171
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, 2014
Revenue/
Expense
Yield/
Rate
Average
Balance
September 30, 2014
Revenue/
Expense
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
$
2,090,176
164,502
$
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
Allowance for loan losses
Loans, net of allowance
Total earning assets
Receivable on unsettled securities sales
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
Net income before taxes
Federal and state income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to BOK Financial Corp.
shareholders
Earnings Per Average Common Share Equivalent:
Net income:
Basic
Diluted
244,395
406,516
650,911
9,073,467
88,434
9,161,901
221,773
182,737
321,746
13,882,005
(190,787)
13,691,218
26,484,964
69,109
2,578,124
$ 29,132,197
$
9,730,564
346,132
2,647,147
12,723,843
71,728
996,308
3,021,094
347,960
17,160,933
7,974,165
137,566
549,388
3,310,145
$ 29,132,197
$
1,500
901
3,468
1,586
5,054
43,953
904
44,857
1,053
2,635
3,101
130,378
130,378
189,479
2,328
96
9,777
12,201
14
109
2,443
2,189
16,956
$
172,523
2,859
169,664
—
150,036
225,877
93,823
28,242
65,581
1,263
64,318
0.93
0.93
$
$
$
601
561
3,238
1,605
4,843
45,257
675
45,932
913
2,133
2,929
128,695
128,695
186,607
2,381
101
10,237
12,719
59
141
2,004
2,154
17,077
0.28% $
2.48%
1,217,942
107,909
$
5.68%
1.56%
3.11%
228,771
412,604
641,375
1.97%
9,436,137
4.23%
90,590
1.99%
9,526,727
2.18%
180,268
5.77%
142,418
3.87%
310,924
3.73% 13,518,578
(191,141)
3.78% 13,327,437
2.86% 25,455,000
63,277
2,597,280
$ 28,115,557
0.09% $
9,473,575
0.11%
342,488
1.47%
2,610,561
0.38% 12,426,624
0.08%
320,817
0.04%
1,027,206
0.32%
2,333,961
2.50%
347,914
0.39% 16,456,522
7,800,350
124,952
485,304
3,248,429
$ 28,115,557
2.47%
2.61%
$
$
169,530
2,739
166,791
—
163,048
221,834
108,005
31,879
76,126
494
75,632
1.09
1.09
$
$
$
0.20%
2.67%
5.66%
1.56%
3.03%
1.94%
3.14%
1.95%
2.05%
5.99%
3.79%
3.78%
3.83%
2.93%
0.10%
0.12%
1.56%
0.41%
0.07%
0.05%
0.34%
2.46%
0.41%
2.52%
2.67%
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. Yield/rate calculations are generally based on the
conventions that determine how interest income and expense is accrued
172
Quarterly Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
Average Balance
June 30, 2014
Revenue /
Expense
Yield /
Rate
Three Months Ended
March 31, 2014
Revenue /
Expense
Average Balance
December 31, 2013
Yield /
Rate
Average Balance
Revenue /
Expense
Yield /
Rate
0.24% $
2.40%
549,473
92,409
$
0.20% $
2.85%
559,918
127,011
$
383
527
3,195
1,764
4,959
46,458
1,007
47,465
794
1,275
2,523
127,508
127,508
185,434
2,489
106
10,182
12,777
107
182
1,279
2,189
16,534
$
635,140
116,186
$
226,528
432,265
658,793
9,706,965
93,969
9,800,934
164,684
97,016
219,308
13,264,461
(189,329)
13,075,132
24,767,193
108,825
2,610,803
27,486,821
9,850,991
355,459
2,636,444
12,842,894
574,926
914,892
1,294,932
347,868
15,975,512
7,654,225
166,521
513,839
3,176,724
27,486,821
$
$
$
$
$
168,900
2,803
166,097
—
162,569
214,707
113,959
37,230
76,729
834
75,895
1.10
1.10
$
$
$
232,646
439,110
671,756
9,980,069
96,873
10,076,942
165,515
85,234
185,196
12,947,926
(186,979)
12,760,947
24,587,472
114,708
2,536,588
27,238,768
9,900,823
336,576
2,686,041
12,923,440
1,021,755
773,127
1,038,747
347,824
16,104,893
7,312,076
116,295
600,430
3,105,074
27,238,768
$
5.64%
1.63%
3.01%
1.94%
4.44%
1.96%
1.94%
5.26%
4.63%
3.85%
3.91%
3.02%
$
0.10% $
0.12%
1.55%
0.40%
0.07%
0.08%
0.40%
2.52%
0.42%
$
2.60%
2.75%
265
531
3,282
1,830
5,112
47,255
735
47,990
851
997
1,590
124,335
124,335
181,671
2,559
98
10,329
12,986
161
151
1,022
2,158
16,478
$
165,193
2,551
162,642
—
137,006
185,104
114,544
37,501
77,043
453
76,590
1.11
1.11
$
$
$
173
0.18%
1.73%
5.75%
1.66%
3.12%
1.89%
2.74%
1.89%
2.06%
5.06%
4.16%
4.01%
4.07%
3.02%
0.11%
0.12%
1.55%
0.42%
0.08%
0.06%
0.31%
2.48%
0.42%
2.60%
2.74%
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
$
5.64%
1.67%
3.04%
1.90%
3.11%
1.91%
1.99%
4.68%
3.46%
3.89%
3.95%
2.99%
$
0.10% $
0.12%
1.56%
0.41%
0.06%
0.08%
0.40%
2.52%
0.41%
$
2.58%
2.71%
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
$
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
$
$
$
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 2015 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 2014 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 2015 Annual Proxy Statement is incorporated herein by reference.
174
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 2015 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 2015 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 2015 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, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Annual Financial Summary - Unaudited
Quarterly Financial Summary - 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.
175
(a) (3) Exhibits
Exhibit
Number
Description of Exhibit
3.0
3.1
3.1(a)
4.0
10.0
10.1
10.2
10.3
10.4
10.4.2
10.4.2 (a)
10.4.2 (b)
10.4.2 (c)
10.4.5
10.4.5 (a)
10.4.5 (b)
10.4.5 (c)
10.4.7
10.4.7 (a)
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.
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.
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.
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.
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.
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.
176
Exhibit
Number
10.4.7 (b)
10.4.8
10.4.8 (a)
10.4.9
10.4.9 (a)
Description of Exhibit
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.
Amended and Restated Employment Agreement Dated June 15, 2013 between BOK Financial and Donald T.
Parker, filed herewith.
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.
10.4.9 (b)
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.
10.6
10.7.7
10.7.8
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
23
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.
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.
177
Exhibit
Number
31.1
31.2
32
99
99 (a)
101
Description of Exhibit
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.
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.
(b)
Exhibits
See Item 15 (a) (3) above.
(c)
Financial Statement Schedules
See Item 15 (a) (2) above.
178
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 27, 2015 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 27, 2015,
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
179
/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
/s/ Douglas D. Hawthorne
Douglas D. Hawthorne
DIRECTORS
/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
180
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 27, 2015
/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 27, 2015
/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, 2014 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 27, 2015
/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