ANNUAL REPORT
ANNUAL REPORT
20162016
A Diversified Regional Bank
KEY STATISTICS:
Assets
Loans
Deposits
Fiduciary Assets
Assets Under Management
& Custody
December 31, 2016
$33 billion
$17 billion
$23 billion
$42 billion
$75 billion
Full-Service Banking Markets
Additional Mortgage Banking Markets
Additional Wealth Management Markets
DIVERSE REVENUE SOURCES:
Percent of total revenue 12 Months Ended 12/31/16
DEPOSITS BY PRINCIPAL MARKET:
At 12/31/16
50% Net Interest
10% Brokerage & Trading
10% Transaction Card
10% Trust Fees
7 % Service Charges
9% Mortgage
4% Other
51% Oklahoma
27% Texas
7% New Mexico
6% Colorado
5% Kansas City
3% Arizona
1% Arkansas
LOAN PORTFOLIO SEGMENTATION:
At 12/31/16
LOANS BY COLLATERAL LOCATION:
At 12/31/16
18% Services
22% CRE
12% Residential Mortgage
15% Energy
13% Healthcare
9% Wholesale/Retail
5% Personal
3% Other
3% Manufacturing
19% Other
21% Oklahoma
9% Kansas/Missouri
32% Texas
7% Colorado
5% Arizona
5% New Mexico
2% Arkansas
Dear Shareholders,
2016 was a dramatic and volatile year. The oil and gas downturn that began in
mid-2014 continued, with commodity prices fluctuating erratically throughout the
year before stabilizing in the third and fourth quarter. A contentious national
election culminated in what will seemingly be a major change of direction in
Washington, D.C. as well as state capitals across the country. And a persistent
low interest rate environment continued for yet another year, with long-term rates
dipping to a new multi-year low during the first quarter, only to rebound sharply
once the election results rolled in during November. Most of our core businesses
were impacted in some way by the market uncertainty.
Despite these challenges, we earned $233 million for the
full year, or $3.53 per diluted share. I believe this was an
excellent performance from our employees in what was a
trying year. We grew our loan portfolio, our fee-generating
businesses delivered record revenue, and our results were
consistently and solidly profitable.
BOK Financial is built to deliver strong performance regardless of the economic
backdrop. I believe we will look back on 2016 as a valid and relevant example of
the benefits of our business model, and that we are positioned to grow profitability
and increase our competitive capabilities in 2017.
Steven G. Bradshaw
President and Chief Executive Officer
LOAN GROWTH
Loan balances were up seven percent in 2016 despite
a significant decrease in our energy portfolio, where we
saw borrowers pay down debt to shore up their balance
sheets and manage through the extended downturn.
But our commercial real estate, healthcare, regional, and
private banking businesses generated strong growth and
offset this decrease.
exit the correspondent mortgage business where intense
competition had significantly reduced profitability. Looking
forward into 2017, we expect lower refinancing volume as
interest rates increased considerably after the election, and
of course the correspondent revenue from 2016 will not
recur; however, we will continue to grow our Home Direct
Mortgage channel, which now represents 25 percent of our
mortgage processing volume and continues to expand its
footprint nationally.
We expect continued mid-single-digit loan growth in 2017.
Our healthcare business continues to expand geographically,
and demographic trends indicate this business has plenty of
potential for strong ongoing growth. In regional banking and
private banking, we continue to take share from large
national banks by competing with our local presence and
stability along with our broad product offerings. Additionally,
we expect growth to resume in the energy portfolio in the
second half of the year. These favorable trends are expected
to be offset in part by a reduction in commercial real estate
growth, as we are approaching internal concentration limits
and will manage further growth in this business by focusing
on developers that have a strong track record with us over
multiple cycles.
FEE INCOME GROWTH
Our revenue diversity remains a critical component of our
business strategy. We use this diversity to serve the broader
needs of our consumer and commercial clients, and it helps
to mitigate fluctuations in credit costs and other business
slowdowns in our traditional banking activities.
We delivered record fee income growth in 2016, with three
of our five main fee income businesses delivering record
results for the year. In brokerage and trading, the volatile
interest rate environment during the year drove increased
revenue for our institutional brokerage team. Wealth
management continued to be a strong component of
our growth, posting an impressive six percent increase in
assets under management while posting 26 percent growth
in net interest revenue and six percent growth in other
operating revenue. Transaction processing continued its
track record of steady growth with revenues up 5.5 percent
during the year.
Our mortgage business had a solid 2016 based on the very
active refinancing market when rates were at historic lows in
the early part of the year. Mid-year we made the decision to
ENERGY
The energy industry is important to our company, both in
terms of direct credit exposure as well as the impact it has
on our footprint. We take a long view of energy lending,
informed by a management team and board of directors
who have experienced many downturns. Because of this,
our performance in energy lending has been remarkable:
We incurred minimal losses considering the size of our
portfolio, because we were as disciplined in the heady days
when oil prices were in the triple digits as we are today.
Our investment in an in-house petroleum engineering team
enabled us to have an early view of changes in collateral
value and protect against losses.
Not only is our energy portfolio in great shape as we exit
the downturn, but our lending team is also better for it.
Although we have a number of key executives who were
with the bank and experienced the downturn of the 1980s
(our chairman and our chief credit officer are relevant
examples), few of our energy bankers had been through an
extended commodities downturn. Now, every single one of
them has experienced the extreme downturn of 2014–
2016 and learned firsthand how our disciplined approach to
this specialty lending business serves us well in good times
and bad.
Also because of this discipline, we never left the industry.
While many peer banks either stopped lending to oil and gas
companies, we never lost our resolve or our belief that
energy lending is a great business. All through the downturn,
we continued to support customers, make new loans, build
our portfolio and build relationships. We even invested
further in the business with our 2016 acquisition of
E-Spectrum Advisors, an energy acquisition and divestiture
advisory firm that is poised to drive significant new revenue
streams as properties begin to change hands again. We are
in the energy banking business to stay and look forward to
building this business even further in the coming years.
RISK MANAGEMENT,
COMPLIANCE AND
TECHNOLOGY
Our three-year focus on building an effective and centralized
compliance unit with a stronger third line of defense within
our internal audit group is complete. We continue to seek
efficiencies and will work to scale these resources as
workload expands with overall growth, but at a pace that
does not adversely impede earnings growth.
servicing rights and accrue for costs associated with
foreclosure and loss mitigation. We believe we now have
those items at a stable run rate, and we also believe that
those changes will increase the effectiveness of our MSR
hedging efforts in 2017.
Additionally, we settled two litigation issues, one in wealth
management and one in consumer banking. Although
litigation is an ongoing risk for financial institutions, we do
not expect these expenses to repeat in 2017.
We also substantially upgraded our technology infrastructure
platform, including additional investment in cyber security
resources and capabilities, and will now focus more heavily
on competitive product and service capabilities, in particular
within web and mobile delivery platforms.
During 2016, we achieved equilibrium on balance sheet
interest rate risk. We have done this in a slow and intentional
manner the past three years to effectively balance current
income and long-term return for shareholders.
EXPENSES
We did see elevated expenses in 2016 from a variety of
sources. Some have been the result of a very deep dive in
our mortgage business profitability and outlook, especially in
the context of higher capital requirements related to that
business. This led us to change how we hedge our mortgage
Finally, as would be expected, we saw elevated - although
manageable - credit costs associated with our energy
portfolio. This is expected to moderate materially in 2017 as
the energy industry continues to emerge from the two-year
commodities cycle. A related expense has been increased
FDIC insurance costs which is driven by higher non-
performing energy loans. We likewise expect this to begin to
decrease in the latter part of 2017.
We have tactically reduced expense and headcount the
past few years by materially reducing our in-store banking
channel, closing certain traditional branches, rationalizing
our broker-dealer trading staff and the aforementioned exit
from correspondent mortgage. Additionally, in October
2016 we announced that we would reduce contract labor,
not backfill open positions and reduce our workforce
for total annual savings in excess of $20 million beginning
in 2017.
mobank
In the fourth quarter, we completed our first whole-bank acquisition since 2007 with the acquisition of MBT Bancshares, or
Mobank, in Kansas City. Mobank operates four banking centers in the Kansas City area and is regularly named one of the
strongest midsized banks in Kansas City.
Mobank is a great fit for us and significantly strengthens our market presence in Kansas City. We will now have six
banking centers in the market, more than $1.6 billion in assets and will vault into the top 10 in terms of market share.
This is not a typical “big bank acquires small bank” scenario. We have adopted the Mobank brand and will tap into the
best of both banks to build BOK Financial’s combined operations in the Kansas City market. Mobank also has deep roots in
the Kansas City market and brings extensive relationships with customers, prospects and business partners that we believe
will accelerate our growth. Mobank and its clients will likewise benefit from our expertise in commercial banking and
private banking as well as fee-generating businesses, such as mortgage and wealth management.
The transaction is expected to contribute four to six cents to BOK Financial’s 2017 earnings per share after integration
costs — a considerable increase from the three cents per share we forecasted when we announced the acquisition in late
2015 as Mobank is already well ahead of its plan for the year.
2017 PLAN AND ONGOING
STRATEGY
Our plan for 2017 is built to achieve a 2:1 ratio of revenue
growth to expense growth, which should result in materially
improved EPS growth over the coming years. This will create
operating leverage in today’s environment, without reliance
on rate increases or a reduction in regulatory costs.
It is our intention to continue to focus on competing effectively
for new business with large national banks and investment
firms. We do this via a mix of competitive products,
technologies and services delivered by a workforce that has
been trained and developed for many years to work extremely
collaboratively on behalf of customers—delivering an
experience that cannot be easily duplicated by larger
competitors.
At BOK Financial, we believe how you achieve results is as
important as the results you achieve. Accordingly, we have
added expectations on the
integrity of our business
relationships with customers and how we conduct business
within the company, as well as updated and strengthened our
core values as a company. These values are fully integrated
with our strategic plan and the core competencies we expect
from every one of our employees.
In 2016, we launched a company-wide purpose statement:
achieving more together. This is our overarching business
model. Our fee-generating businesses work hand in hand
with our lending and deposit-taking businesses to provide
more benefit for customers and to improve financial returns
for the company across the economic cycle. Our differentiated
energy, healthcare and commercial real estate specialty
lending businesses work together with our business banking,
middle market and private banking businesses to serve a
wide range of customers. And we are a diverse collection of
people with unique skills, talents and areas of expertise.
When we work
lines of business,
together, across
geographies and areas of responsibility, we achieve more
and fully realize our potential. It’s what makes us great.
And it creates and sustains a culture that is inherently
difficult for our competitors to match.
We work together to achieve more for shareholders. Although
we have faced some challenges, I want to assure you that we
are well positioned heading into 2017. Credit costs are
expected to moderate meaningfully and expense reductions
taken in 2016 should enable us to grow revenue faster than
expenses. Other unique 2016 expense items, such as
litigation settlement expenses, are not expected to reoccur.
Despite the ups and downs of 2016, our loyal shareholders
were rewarded handsomely, and as of this writing our stock
is trading near its all-time high. During the year we also
returned over $181 million of capital to shareholders:
We increased our dividend for the 11th consecutive year
in November, with total dividends paid of $114 million in
the year, and we repurchased over $67 million of our common
stock.
Market sentiment changed for the better in the fourth quarter
with expectations for a change in tone toward the financial
services industry in Washington, D.C.; a more favorable
interest rate environment; and stronger economic growth in
the United States. BOK Financial is poised to benefit as we
believe we occupy the sweet spot in the financial services
industry, with the breadth of services to compete effectively
with large national banks and the local presence and personal
touch that customers demand. Our investment in risk,
compliance and technology platforms is largely behind us;
we’ve taken decisive action to right-size our expense base;
and the credit environment is largely benign as we enter 2017.
All of that supports my belief that we are well-positioned for
strong earnings growth in the coming years.
I look forward to keeping you apprised of our progress.
Best regards,
Steven G. Bradshaw
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, 2016
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 $1.6 billion (based
on the June 30, 2016 closing price of Common Stock of $62.70 per share). As of January 31, 2017, there were 65,489,810 shares of Common
Stock outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2017 Annual Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
BOK Financial Corporation
Form 10-K
Year Ended December 31, 2016
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
Part IV
Exhibits, Financial Statement Schedules
Signatures
1
9
14
14
14
14
15
18
18
76
79
178
178
178
178
178
179
179
179
179
183
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
Item 15
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Chief Executive Officer Section 302 Certification
Chief Financial Officer Section 302 Certification
Section 906 Certifications
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, 2016, the Company reported total consolidated assets of $33 billion and ranked as the 55th largest
bank holding company based on asset size.
BOKF, NA is a wholly owned subsidiary bank of BOK Financial. BOKF, NA operates TransFund, Cavanal Hill Investment
Management, BOK Financial Asset Management, Inc. 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. On December
1, 2016, BOK Financial acquired Missouri Bank and Trust Company Kansas City dba Mobank as a wholly owned subsidiary
bank of BOK Financial, more than doubling our market share in the Kansas City area. Mobank was merged into BOKF, NA on
February 17, 2017. The Bank of Kansas City banking centers were converted to the Mobank brand. BOKF, NA and Mobank
are collectively referred to as ("the subsidiary banks") in the discussion following. Other wholly owned subsidiaries of BOK
Financial include BOK Financial Securities, Inc., a broker/dealer that primarily 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
43% to 49% of our total revenue. Approximately 48% of our revenue came from fees and commissions in 2016.
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”.
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, 2016.
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 9% market share 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 less than 1% market share. Bank of
Kansas City and Mobank collectively have a 1% market share in the Kansas City, Kansas/Missouri market. The Company’s
ability to expand into additional states remains subject to various federal and state laws.
Employees
As of December 31, 2016, BOK Financial and its subsidiaries employed 4,884 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.
BOKF, NA 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 have 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 subsidiary banks and other non-bank subsidiaries are also subject to other federal and state laws and regulations. For
example, BOK Financial Securities, 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, has not been fully realized.
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 July 2016, the Federal Reserve extended the conformance period to July 2017 for key elements of the Rule
relating to certain relationships and investments in legacy funds. On December 12, 2016, the Federal Reserve issued guidance
regarding how banking entities may apply for an additional extension of up to five years from July 2017 to conform investment
in "illiquid fund." The Company’s private equity investment activities may be curtailed. The Company’s trading activity
remains largely unaffected, as most of our trading activity is exempted or excluded from the Volcker Rule trading prohibitions.
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 phase-in period will be exempt from the definition of
"swap dealer." The phase-in period is set to expire on December 31, 2017, after which the $8 billion threshold will be reduced
to $3 billion unless the CFTC takes further action affecting the threshold. 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 December 2018. Although the ultimate
impact of Title VII remains uncertain, we currently believe its full implementation is not likely 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.
Federal Reserve Board risk-based guidelines define a four-tier capital framework. Common equity Tier 1 capital (CET1)
includes common shareholders' equity, less goodwill, most intangible assets and other adjustments. Tier 1 capital consists of
CET1 capital plus certain additional capital instruments and related surplus. 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. Assets and off-balance
sheet exposures are assigned to categories of risk-weights, based primarily upon relative credit risk. Risk-based capital ratios
are calculated by dividing CET1, Tier 1 and total capital by risk-weighted assets.
New capital rules were effective for banks and bank holding companies, including BOK Financial on January 1, 2015 as part of
a package of regulatory reforms developed by the Basel Committee on Banking Supervision ("BCBS") to strengthen the
regulation, supervision and risk management of the banking sector, commonly referred to as the Basel III framework.
Components of these rules will phase in through January 1, 2019. The new capital rules established a 7% threshold for common
equity Tier 1 ratio consisting of a minimum level plus a capital conservation buffer. The rules also changed 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 Company elected to exclude unrealized gains and
losses from available for sale securities from its calculation of Tier 1 capital, consistent with the treatment under previous
capital rules.
As of December 31, 2016, BOK Financial's common equity Tier 1 ratio was 11.21%. BOK Financial's Tier 1 and total capital
ratios were 11.21% and 12.81%, 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 4%. A bank which falls below these levels, including the capital conservation buffer, would be
subject to regulatory restrictions on capital distributions (including but not limited to dividends and share repurchases) and
executive bonus payments. BOK Financial's leverage ratio at December 31, 2016 was 8.72%.
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 under-capitalized 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 under-capitalized. Under these
guidelines, the subsidiary banks were considered well capitalized as of December 31, 2016.
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.
5
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, if growth in the balance
sheet of the Company were to approach the $50 billion threshold, the costs of such liquidity regulations would begin to be
realized.
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. The requirements for annual capital stress testing became
effective for the Company in the fourth quarter of 2013. The Dodd-Frank Act Stress Test ("DFAST") is a forward-looking
exercise under which the Company and its banking subsidiary estimate the impact of a hypothetical severely adverse
macroeconomic scenario provided by the Federal Reserve and the Office of the Comptroller of the Currency on its financial
condition and regulatory capital ratios over a nine-quarter time horizon. Under the scenario provided by the regulatory agencies
for the Company's most recently completed stress test, all capital ratio measures remain above the minimum regulatory
thresholds. Additional information concerning the annual stress test may be found on the Company's Investor Relations page at
www.bokf.com under the "Presentations" tab. The results of future capital stress tests may place constraints on capital
distributions or increases in required regulatory capital under certain circumstances.
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 subsidiary banks 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 provided the FDIC flexibility in implementation of the increase in the
designated reserve ratio, but it will ultimately result in increased deposit insurance costs to the Company. The Dodd-Frank Act
also required that the FDIC redefine the assessment base to average consolidated assets minus average tangible equity.
On June 30, 2016, the DIF rose above the 1.15%, resulting in a reduction of the initial assessment rate for all banks and
implementing a 4.5% surcharge on insured depository institutions with total consolidated assets of $10 billion or more. The
assessment base for the surcharge will be the regular assessment base reduced by $10 billion. If the DIF reserve ratio does not
reach 1.35% by December 31, 2018, the FDIC will impose a shortfall assessment on banks with total consolidated assets of $10
billion or more in the first quarter of 2019.
6
Dividends
A key source of liquidity for BOK Financial is dividends from BOKF, NA, 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. BOKF, NA'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 collateral 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 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
transactions 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 and rolling over maturing Treasury securities, it could either curtail reinvestment in or
begin selling those securities at any time.
As a result of signs of an improving economy, the Federal Reserve increased its target rate by 25 basis points in December of
2016, the second such increase since the end of 2008. In addition, it has signaled its expectations for a gradual tightening cycle
as the economy improves. The short–term effectiveness and long–term impact of these programs on the economy in general
and on BOK Financial 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 ensure that it will be successful in fulfilling this strategy or that this operating strategy will
be successful. Achieving success is dependent upon a number of factors, many of which are beyond BOK Financial's direct
control. Factors that may adversely affect BOK Financial's ability to implement its operating strategy include:
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deterioration of BOK Financial's asset quality;
deterioration in general economic conditions, especially in BOK Financial's core markets;
inability to control BOK Financial's non-interest expenses;
inability to increase non-interest income;
inability to access capital;
decreases in net interest margins;
increases in competition;
adverse regulatory developments.
Substantial competition could adversely affect BOK Financial.
Banking is a competitive business. BOK Financial competes actively for loan, deposit and other financial services business in
the southwest region of the United States. BOK Financial's competitors include a large number of small and large local and
national banks, savings and loan associations, credit unions, trust companies, broker-dealers and underwriters, as well as many
financial and non-financial firms that offer services similar to 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.
BOK Financial 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 last several years have seen an increase in regulatory costs borne by the banking industry. 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.
9
Regulatory authorities may change their interpretation of these statutes and regulations, including the OCC, our primary
regulator, and the CFPB, our regulator for certain designated consumer laws and regulations. Violations of laws and
regulations could limit the growth potential of BOK Financial's businesses. We have made extensive investments in human
and technological resources to address enhanced regulatory expectations, including investments in the areas of risk
management, compliance, and capital planning. Recent political developments, including the change in administration in the
United States, have added additional uncertainty to the implementation, scope and timing of changes in the regulatory
environment for the banking industry and for the broader economy.
Tax reform is a known priority of the new President along with the Ways and Means Committee, which introduced the
Republican Blueprint for Tax Reform and is currently drafting proposed legislation. Both the Blueprint and the President's tax
reform proposal have similar provisions. This alignment along with the Republican majority in Congress has significantly
increased the likelihood of tax reform. Key proposals that may impact banks include lowering the corporate tax rate, full
expensing of intangible assets, interest expense deductibility limited to interest income, and elimination of net operating loss
carrybacks, most tax credits and special deductions. The impact to BOKF will depend on the final legislation, including the
phase in provisions, which at this point is uncertain.
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. High profile mistakes by the very largest banks in the country have continued to fuel negative sentiment
towards the banking industry. This sentiment may increase litigation risk to the Company or 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, 2016, loans to businesses and individuals with collateral primarily located in Texas represented approximately
32% of the total loan portfolio and loans to businesses and individuals with collateral primarily located in Oklahoma
represented approximately 21% 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.
Extended oil and gas commodity price downturns could negatively affect BOK Financial customers.
At December 31, 2016, 15% of BOK Financial's total loan portfolio is comprised of loans to borrowers in the energy industry.
The energy industry is historically cyclical and prolonged periods of low oil and gas commodity prices could negatively impact
borrowers' ability to pay. In addition, the Company does business in several major oil and natural gas producing states
including Oklahoma, Texas and Colorado. The economies of these states could be negatively impacted by prolonged periods of
low oil and gas commodity prices resulting in increased credit migration to classified and nonaccruing categories, higher loan
loss provisions and risk of credit losses from both energy borrowers and businesses and individuals in those regional
economies.
Other 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, 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. Regulatory changes in
healthcare may negatively affect our customers, which to date primarily has been focused in senior housing. A U.S. House
proposal that provides states more flexibility in using Medicare/Medicaid funds may reduce healthcare reimbursement rates.
10
Adverse global economic factors could have a negative effect on BOK Financial customers and counterparties.
Economic conditions globally, including those of the European Union and China, could impact BOK Financial’s customers and
counterparties with which we do business. We have no direct exposure to European sovereign debt and our aggregate gross
exposure to European financial institutions totaled $6.9 million at December 31, 2016. Our exposure to Chinese financial
institutions is limited. In addition, we have an aggregate gross exposure to internationally active domestic financial institutions
of approximately $206 million at December 31, 2016 composed of $195 million of cash and securities positions and $11
million of gross derivative positions. 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, European financial institutions or Chinese
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:
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the monetary policies implemented by the Federal Reserve Board, including the discount rate on bank borrowings and
changes in reserve requirements, which affect BOK Financial's ability to make loans and the interest rates we may
charge;
changes in prevailing interest rates, due to the dependency of the subsidiary banks on interest income;
open market operations in U.S. Government securities.
A significant increase in market interest rates, or the perception that an increase may occur, could adversely affect both BOK
Financial's ability to originate new loans and BOK Financial's ability to grow. Conversely, a decrease in interest rates could
result in acceleration in the payment of loans, including loans underlying BOK Financial's holdings of residential mortgage-
backed securities and termination of BOK Financial's mortgage servicing rights. In addition, changes in market interest rates,
changes in the relationships between short-term and long-term market interest rates or changes in the relationships between
different interest rate indices, could affect the interest rates charged on interest-earning assets differently than the interest rates
paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income,
which would reduce the Company’s net interest revenue. In a rising interest rate environment, the composition of the deposit
portfolio could shift resulting in a mix that is more sensitive to changes in interest rates than is the current mix. 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, and brokerage and trading
revenue.
Our available for sale residential mortgage-backed security portfolio represents investment interests in pools of residential
mortgages, composing $5.6 billion or 17% of total assets of the Company at December 31, 2016. The fair value of residential
mortgage-backed securities is 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 may lead 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 may also accelerate premium amortization. Conversely, a significant
increase in interest rates may 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.
11
BOK Financial derives a substantial amount of revenue from mortgage loan activities, including $70 million from the
production and sale of mortgage loans, $64 million from the servicing of mortgage loans, $46 million from the trading of U.S.
agency residential mortgage backed securities and related financial instruments and $39 million from sales of financial
instruments to other mortgage lenders in 2016. 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 $247 million or 0.75% of total assets at December 31, 2016. The fair 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 a decrease in
the value of 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, which 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.
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.
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BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.
Mr. George B. Kaiser owns approximately 61% of the outstanding shares of BOK Financial's common stock at December 31,
2016. 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.
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 BOKF, NA. Statutory provisions
and regulations restrict the amount of dividends BOKF, NA 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 subsidiary banks 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.
13
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
BOK Financial and its subsidiaries own and lease improved real estate that is carried at $191 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.
14
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, 2017, common shareholders of record numbered 755 with 65,489,810 shares outstanding.
The highest and lowest quarterly closing bid price for shares and cash dividends declared per share of BOK Financial common
stock follows:
2016:
Low
High
Cash dividends declared
2015:
Low
High
Cash dividends declared
First
Second
Third
Fourth
$
44.72
$
51.36
$
58.49
$
58.60
0.43
64.61
0.43
69.31
0.43
$
53.37
$
60.18
$
57.09
$
61.67
0.42
70.72
0.42
70.15
0.42
67.72
84.13
0.44
58.92
72.44
0.43
15
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, the KBW 50 Bank Index and the SNL U.S. Bank NASDAQ for the period commencing December 31, 2011 and
ending December 31, 2016.*
Index
BOK Financial Corporation
NASDAQ Composite
SNL U.S. Bank NASDAQ
KBW 50
Period Ending December 31,
2011
2012
2013
2014
2015
2016
100.00
100.00
100.00
100.00
103.63
117.45
119.19
132.91
129.32
164.57
171.31
183.08
120.00
188.84
177.42
200.24
122.66
201.98
191.53
201.22
175.30
219.89
265.56
258.59
* Graph assumes value of an investment in the Company's Common Stock for each index was $100 on December 31, 2011. 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.
16
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, 2016.
Period
October 1, 2016 to October 31, 2016
November 1, 2016 to November 30, 2016
December 1, 2016 to December 31, 2016
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs 1
—
700,000
—
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans
2,820,757
2,120,757
2,120,757
Total
Number of
Shares
Purchased 2
Average
Price Paid
per Share
— $
700,000
$
— $
—
70.03
—
Total
1 On October 1, 2015, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's
common stock. As of December 31, 2016, the Company had repurchased 2,879,243 shares under this plan. Future repurchases of the
Company's common stock will vary based on market conditions, regulatory limitations and other factors.
700,000
700,000
2 The Company may repurchase shares from employees to cover the exercise price and taxes in connection with employee shared-based
compensation.
17
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 attributable to BOK Financial
Corporation shareholders
Period-end:
Loans
Assets
Deposits
Subordinated debentures
Shareholders’ equity
Nonperforming assets1
2016
2015
2014
2013
2012
December 31,
$
829,117
$
766,828
$
732,239
$
745,371
$
794,871
81,889
747,228
65,000
686,748
63,474
703,354
34,000
650,646
67,045
665,194
—
621,319
70,894
674,477
(27,900)
603,844
87,322
707,549
(22,000)
628,880
232,668
288,565
292,435
316,609
351,191
16,989,660
15,941,154
14,208,037
12,792,264
32,772,281
31,476,128
29,089,698
27,015,432
22,748,095
21,088,158
21,140,859
20,269,327
144,640
226,350
347,983
347,802
3,274,854
3,230,556
3,302,179
3,020,049
356,641
251,908
256,617
247,743
12,311,456
28,148,631
21,179,060
347,633
2,957,860
276,716
Profitability Statistics
Earnings per share (based on average equivalent
shares):
Basic
Diluted
Percentages (based on daily averages):
Return on average assets
Return on average shareholders' equity
Average 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
$
$
$
3.53
3.53
$
4.22
4.21
$
4.23
4.22
$
4.61
4.59
5.15
5.13
0.72%
7.02%
10.38%
0.94%
8.65%
11.03%
1.04%
9.21%
11.47%
1.16%
10.64%
11.00%
1.34%
12.24%
11.05%
$
50.12
83.04
84.13
44.72
1.73
$
49.03
59.79
72.44
53.37
1.69
$
47.78
60.04
70.18
57.87
1.62
$
43.88
66.32
69.36
55.05
1.54
48.81%
40.03%
38.35%
33.43%
43.29
54.46
59.77
52.56
4
2.47
48.01% 4
18
Table 1 -- Consolidated Selected Financial Data
(Dollars in thousands, except per share data)
2016
2015
2014
2013
2012
December 31,
Selected Balance Sheet Statistics
Period-end:
Common equity Tier 1 ratio2
Tier 1 capital ratio2
Total capital ratio2
Leverage ratio2
Allowance for loan losses to nonaccruing loans5
Allowance for loan losses to loans
Combined allowances for credit losses to loans 3
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of TransFund locations
Fiduciary assets
11.21%
11.21%
12.81%
8.72%
12.13%
12.13%
13.30%
9.25%
N/A
13.33%
14.66%
9.96%
N/A
13.77%
15.56%
10.05%
N/A
12.78%
15.13%
9.01%
112.33%
180.09%
245.34%
184.71%
160.92%
1.45%
1.52%
4,884
2,021
1.41%
1.43%
4,789
1,972
1.33%
1.34%
4,743
2,080
1.45%
1.47%
4,632
1,998
1.75%
1.77%
4,704
1,970
$41,781,564
$38,333,638
$35,997,877
$30,137,092
$ 25,829,038
Mortgage loans serviced for others
21,997,568
19,678,226
16,162,887
13,718,942
11,981,624
1 Includes nonaccruing loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing.
2 Risk-based capital ratios for 2016 and 2015 calculated under revised regulatory capital rules issued July 2013 and effective for the Company on January 1,
2015. Previous risk-based ratios presented are calculated in accordance with then current regulatory capital rules.
3 Includes allowance for loan losses and accrual for off-balance sheet credit risk.
4 Includes $1.00 per share special dividend.
5 Excludes residential mortgage loans guaranteed by agencies of the U.S. government.
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.
The first quarter of 2016 began with a continued decline in energy prices that started in June of 2014. West Texas Intermediate
crude oil fell to a low of $26 per barrel in February of 2016, rebounded and then stabilized in a range between $40 and $50 a
barrel by June. In November, the Organization of Petroleum Exporting Countries ("OPEC") announced production cuts of 1.2
million barrels per day in 2017 further supporting improvement in the supply and demand imbalance. The prolonged low price
environment significantly impacted oil and gas producers and service companies supporting those industries. During the year,
these companies reduced capital expenditure spending, cut headcount and focused on paying down debt and strengthening their
balance sheets. These actions slowed growth within our geographical footprint, but to date have not had a significant direct
impact. Moving into 2017, the industry remains cautious, but is poised for continued improvement as the supply and demand
imbalance tightens.
For 2016, overall U.S. economic activity continued at a moderate pace and unemployment improved. National unemployment
rates declined to 4.7% in December of 2016 from 5.0% in December of 2015. The minutes of the Federal Open Market
Committee ("FOMC") of the Federal Reserve for December indicated continued strengthening of labor market and a moderate
rise in household spending. However, business investment has remained soft. While inflation has increased, it is still below the
Federal Reserve's 2% long-run objective. The Federal Reserve policies remain accommodative in order to foster maximum
employment and price stability.
Investment returns were strong for 2016. The S&P 500 index was up 12% for the year, with 5% of that gain coming after the
November election. This represents the 8th year in a row of positive returns for the S&P 500 index. Small cap stock also
performed very well, up over 21% for 2016.
19
Short term interest rates, the rates most influenced by the Federal Reserve, moved up slightly during the year. As expected, the
FOMC voted to raise the target range for the federal funds rate by ¼ percentage point in December of 2016, bringing it from ½
to ¾ percent. With the federal funds rate increase in December of 2015, the Federal Reserve ended an extraordinary seven-year
period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial
crisis and recession since the Great Depression. Long-term rates saw more volatility during 2016. The 10-year U.S. Treasury
note started 2016 with a yield of 2.27%, dropped to a low of 1.36% in early July and then rose to 2.45% at year-end. We expect
rates to continue to increase during 2017. The yield curve is also expected to steepen, with long-term interest rates up more
than short-term interest rates through the end of 2017.
The markets have reacted positively to the outcome of the presidential election on the expectation of tax reform, decreased
regulation, support of the fossil fuel industry and focus on the return of capital stranded offshore. But uncertainty exists as to
the ability to deliver on these promised economic reforms. Potential missteps in trade negotiations, the impact of a strong dollar
and budget deficits also remain as concerns.
20
Performance Summary
Net income for the year ended December 31, 2016 totaled $232.7 million or $3.53 per diluted share compared with net income
of $288.6 million or $4.21 per diluted share for the year ended December 31, 2015.
Highlights of 2016 included:
• Net interest revenue totaled $747.2 million for 2016, up from $703.4 million for 2015 primarily due to growth in average
loans. The benefit of an increase in short-term interest rates on the loan portfolio and interest-bearing cash and cash
equivalent yields was offset by higher borrowing costs. Net interest margin was 2.66% for 2016 compared to 2.60% for
2015.
•
Fees and commissions revenue increased $36.1 million or 6% over 2015 to $686.7 million for 2016 with growth in most
revenue categories. Fiduciary and asset management revenue grew by $9.3 million due to decreased fee waivers and
asset growth from acquisitions. Brokerage and trading revenue was up primarily due to increased customer hedging
revenue. Mortgage banking revenue increased $7.9 million primarily related to increased servicing revenue. Transaction
card revenue grew $7.1 million over the prior year due to transaction growth.
• The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other operating revenue by
$28.4 million in 2016 and by $7.9 million in 2015. An unexpected 85 basis point increase in the 10-year U.S. Treasury
interest rate and related interest rates due to the market's reaction to the outcome of the U.S. presidential election increased
the fair value of our servicing rights $39.8 million. The fair value of our economic hedges decreased $56.8 million.
• Operating expenses totaled $1.0 billion, an increase of $121.4 million or 14% over the prior year, including $9.1 million
of litigation and settlement expenses, $7.5 million of integration costs related to the Mobank acquisition and $5.0 million
of severance costs related to the previously announced reduction of workforce to better align expenses with expected
revenue growth. Excluding these items, personnel costs increased $31.3 million or 6%, primarily due to increased incentive
compensation expense. Non-personnel expenses increased $68.5 million or 18%, primarily due to increased mortgage
banking expense related to the effect of increased prepayments on our mortgage servicing rights, higher deposit insurance
expense related to elevated criticized and classified asset levels and a new surcharge on banks over $10 billion in total
assets and continued upgrades of our information technology infrastructure and cybersecurity.
• After evaluating all credit factors, the Company determined that a $65.0 million provision for credit losses was necessary
in 2016, primarily due to credit migration in the energy portfolio. A $34.0 million provision for credit losses was necessary
in 2015. The Company had net charge-offs of $34.8 million or 0.21% of average loans for 2016 compared to a net recovery
of $2.9 million or (0.02)% of average loans for 2015. Gross charge-offs increased to $42.6 million in 2016 from $15.2
million in 2015, primarily due to energy loans.
• The combined allowance for credit losses totaled $257 million or 1.52% of outstanding loans at December 31, 2016
compared to $227 million or 1.43% of outstanding loans at December 31, 2015.
• Nonperforming assets not guaranteed by U.S. government agencies totaled $263 million or 1.56% of outstanding loans
and repossessed assets (excluding those guaranteed by U.S. government agencies) at December 31, 2016 and $156 million
or 0.99% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at
December 31, 2015. Excluding assets guaranteed by U.S. government agencies, nonaccruing loans increased $94 million
and repossessed assets increased $14 million during 2016.
•
•
Period-end outstanding loan balances were $17.0 billion at December 31, 2016, an increase of $1.0 billion over the prior
year. The acquisition of Mobank added $485 million of loans, including $289 million of commercial loans and $87 million
of commercial real estate balances. Commercial loan balances grew by $138 million or 1% and commercial real estate
loans increased $550 million or 17%. Residential mortgage loans increased $73 million. Personal loans increased $287
million.
Period-end deposits totaled $22.7 billion at December 31, 2016, up $1.7 billion over December 31, 2015. The Mobank
acquisition added $624 million in deposits. Demand deposit accounts increased by $939 million and interest-bearing
transaction deposits increased $866 million, partially offset by a $184 million decrease in time deposit balances.
• The Company's common equity Tier 1 capital ratio was 11.21% at December 31, 2016. In addition, the Company's Tier
1 capital ratio was 11.21%, total capital ratio was 12.81% and leverage ratio was 8.72% at December 31, 2016. At
December 31, 2015, the Company's Tier 1 capital ratio was 12.13% at December 31, 2015, the total capital ratio was
13.30% and the leverage ratio was 9.25%.
21
• The Company repurchased 1,005,169 shares at an average price of $66.45 per share during 2016. The Company
repurchased 3,634,578 shares at an average price of $63.15 during 2015.
• The Company paid cash dividends of $1.73 per common share during 2016 and $1.69 per common share in 2015.
Net income for the fourth quarter of 2016 totaled $50.0 million or $0.76 per diluted share compared to $59.6 million or $0.89
per diluted share for the fourth quarter of 2015.
Highlights of the fourth quarter of 2016 included:
• Net interest revenue totaled $194.2 million for the fourth quarter of 2016, up $12.9 million over the fourth quarter of
2015. Net interest margin was 2.69% for the fourth quarter of 2016, up from 2.64% for the fourth quarter of 2015. Net
interest revenue increased primarily due to the growth in average loan balances and improving loan yields. Trading
securities balances also increased and yields improved, partially offset by lower yields on the fair value option securities
portfolio and increased funding costs.
• Other operating revenue was $143.8 million for the fourth quarter of 2016, a decrease of $15.2 million compared to the
fourth quarter of 2015. Fees and commissions revenue was up $8.3 million over the fourth quarter of 2015. The fourth
quarter of 2016 included a $17.0 million decrease in the fair value of mortgage servicing rights, net of economic hedges
and a $5.0 million decrease in the net fair value of trading portfolio positions related to an unexpected 85 basis point
increase in the 10-year U.S. Treasury interest rate and related interest rates primarily due to the market's reaction to the
outcome of the U.S. presidential election. Mortgage banking revenue increased $5.5 million over the fourth quarter of
2015. Fiduciary and asset management revenue and transaction card revenue were both up over the fourth quarter of
2015.
• Operating expenses totaled $265.5 million, an increase of $35.1 million over the prior year. Excluding the impact of $5.0
million of severance and other expenses related to the workforce reductions and $4.7 million of integration costs related
to the Mobank acquisition in the fourth quarter of 2016, other operating expense increased $25.4 million over the fourth
quarter of 2015. Personnel expense increased $3.5 million primarily due to cash-based incentive compensation. Non-
personnel expense was up $21.9 million primarily due to mortgage banking, deposit insurance, professional fees and
services and occupancy and equipment expenses. We also made a $2.0 million cash contribution to the BOK Charitable
Foundation in 2016.
• No provision for credit losses was recorded in the fourth quarter of 2016 due to improving credit metrics, largely driven
by energy price stability. A $22.5 million provision for credit losses was recorded in the fourth quarter of 2015. The
Company had a net recovery of $1.2 million in the fourth quarter of 2016 compared to net charge-offs of $3.0 million in
the fourth quarter of 2015. Gross charge-offs were down to $1.7 million compared to $4.9 million in the prior year.
22
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 appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk is assessed quarterly by
management based on an ongoing 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 ensure 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 2016.
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
personal loans are risk graded through a quarterly evaluation of the borrower's ability to repay.
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.
23
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 market 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.
There is no active market for mortgage servicing rights after origination. The fair value of mortgage servicing rights is
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 periodically 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 primary mortgage interest rates to increase
the fair value of our servicing rights by $25 million. We expect a $29 million decrease in the fair value of our
mortgage servicing rights from a 50 basis point decrease in primary 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.
24
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.
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, 2016 or December 31, 2015.
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. The fair value of real estate is generally based on unadjusted third-party appraisals derived
principally from or corroborated by observable market data. Fair value measurements 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.
The fair 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. Proven oil and gas reserves
are estimated quantities that geological and engineering data demonstrate, with reasonable certainty, to be recoverable
in future years from known reservoirs using existing prices and costs. Projected cash flows incorporate assumptions
related to a number of factors including production, sales prices, operating expenses, severance, ad valorem taxes,
capital costs and appropriate discount rate. Fair values determined through this process are considered to be based on
Level 3 inputs.
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.
25
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.
26
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 $764.8 million for 2016, up from $715.8 million for 2015. Net interest margin was
2.66% for 2016 and 2.60% for 2015. Tax-equivalent net interest revenue increased $49.0 million over the prior year. Net
interest revenue increased $47.2 million from growth in earning assets and increased $1.8 million due to rates. The benefit of
an increase in short-term interest rates on the loan portfolio and interest-bearing cash and cash equivalent yields was offset by
higher borrowing costs. 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 2016 compared to 2.84% in 2015. Loan yields increased 5 basis
points compared to the prior year primarily due to growth in variable rate loans and an increase in short-term interest rates. The
yield on trading securities increased 94 basis points to 3.43% due to a change in mix toward more higher-yielding U.S. agency
residential mortgage-backed securities. The yield on interest-bearing cash and cash equivalents increased 26 basis points to
0.53%. The available for sale securities portfolio yield increased 4 basis points to 2.03%. The benefit from improved yields on
investment securities was offset by lower yields on restricted equity securities and fair value option securities. Funding costs
increased 7 basis points over 2015. The cost of interest-bearing deposits decreased 1 basis point, while the cost of other
borrowed funds increased 25 basis points, primarily due to increases in federal funds rates by the Federal Reserve in the fourth
quarters of 2016 and 2015. The cost of subordinated debentures increased 98 basis points as lower variable rate debt
outstanding during 2015 was replaced by higher fixed rate debt. The Company issued $150 million of 40 year, 5.375% fixed
rate subordinated debt during the second quarter that replaced $227 million of floating rate subordinated debt based on three-
month LIBOR plus 0.69%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was
13 basis points for 2016, compared to 11 basis points for 2015.
Average earning assets for 2016 increased $1.2 billion or 4% over 2015. Average loans, net of allowance for loan losses,
increased $1.3 billion due primarily to growth in average commercial and commercial real estate loans. Average trading
securities balances increased $168 million primarily related to the addition of a new group trading in U.S. mortgage-backed
securities during 2016. 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 $152 million. We purchase
securities to supplement earnings and to manage interest rate risk. We have reduced the size of our bond portfolio during 2014,
2015 and 2016 through normal monthly runoff 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 mid single digit annualized loan growth for 2017. We expect stable to rising net interest margin
and increasing net interest revenue.
Growth in average assets was funded by increased borrowings from the Federal Home Loan Banks and demand deposit growth,
partially offset by lower interest-bearing deposits and subordinated debt balances. Total average deposits were largely
unchanged compared to the prior year. Average demand deposit balances grew by $426 million over the prior year. This growth
was offset by a $328 million decrease in average time deposits and a $175 million decrease in average interest-bearing
transaction account balances. Average borrowed funds increased $1.6 billion over the prior year. Borrowings from the Federal
Home Loan Banks increased $1.1 billion, partially offset by decreased funds purchased, repurchase agreements and
subordinated debenture balances compared to the prior year.
27
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 81% 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.
Fourth Quarter 2016 Net Interest Revenue
Tax-equivalent net interest revenue totaled $198.6 million for the fourth quarter of 2016, an increase of $14.1 million over the
fourth quarter of 2015. Net interest margin was 2.69% for the fourth quarter of 2016 compared to 2.64% for the fourth quarter
of 2015. Net interest revenue increased $14.2 million primarily due to the growth in average loan balances and increased
trading securities balances.
The tax-equivalent yield on earning assets was 2.98% for the fourth quarter of 2016, up 12 basis points over the fourth quarter
of 2015. Loan yields increased 12 basis points to 3.67% due primarily to growth in variable rate loans and an increase in short-
term interest rates. The yield on interest-bearing cash and cash equivalents increased 26 basis points to 0.55%. The available for
sale securities portfolio yield decreased 4 basis points to 2.00%. Funding costs were up 10 basis points from the fourth quarter
of 2015. The cost of interest-bearing deposits was unchanged compared to the fourth quarter of 2015. The cost of other
borrowed funds increased 22 basis points, primarily due to the increase in the federal funds rate by the Federal Reserve. The
cost of subordinated debt was up 438 basis points as lower variable rate debt outstanding in the fourth quarter of 2015 was
replaced with higher fixed rate debt. The benefit to net interest margin from earning assets funded by non-interest bearing
liabilities was 15 basis points in the fourth quarter of 2016, compared to 12 basis points in the fourth quarter of 2015.
Average earning assets for the fourth quarter of 2016 increased $1.1 billion over the fourth quarter of 2015, including $244
million related to the acquisition of Mobank. Average loans, net of allowance for loan losses, increased $1.1 billion due
primarily to growth in commercial and commercial real estate loan balances and included $162 million related to the Mobank
acquisition. Growth in the average balance of the trading securities portfolio was offset by decreased available for sale
securities and fair value option securities held as an economic hedge of mortgage servicing rights.
Average deposits increased $998 million over the fourth quarter of 2015, including $206 million related to the Mobank
acquisition. Average demand deposit balances increased $812 million and average interest-bearing transaction accounts
increased $453 million. Average time deposits decreased $306 million. Average borrowed funds increased $1.0 billion over the
fourth quarter of 2015, primarily due to increased Federal Home Loan Bank borrowings. The average subordinated debt
balance decreased $82 million as the size of the borrowing was reduced when it was refinanced during 2016.
2015 Net Interest Revenue
Tax-equivalent net interest revenue for 2015 was $715.8 million, up from $676.1 million for 2014. Net interest margin was
2.60% for 2015 compared to 2.68% for 2014. The $39.7 million increase in net interest margin was due primarily to growth in
earning assets, partially offset by a narrowing loan yields during the year. The yield on the available for sale securities portfolio
increased and funding costs were lower compared to 2014.
The tax-equivalent yield on average earning assets decreased 11 basis points from 2014. Loan yields decreased 23 basis points
primarily due to market pricing pressure and lower interest rates for the majority of 2015. The available for sale securities
portfolio yield increased 4 basis points. Yields on restricted equity securities, fair value option securities and interest-bearing
cash and cash equivalents all improved over 2014. The cost of interest-bearing liabilities decreased 6 basis points. The cost of
interest-bearing deposits was down 6 basis points and the cost of other borrowed funds increased 5 basis points largely due to
the mix of funding sources. The cost of subordinated debentures decreased 66 basis points as $122 million of fixed-rate
subordinated debt matured on June 1, 2015. The cost of this subordinated debt was 5.56%. The benefit to net interest margin
from earning assets funded by non-interest bearing liabilities was 11 basis points for 2015, compared to 14 basis points for
2014.
28
Average earning assets increased $2.4 billion or 9% during 2015. Average loans, net of allowance for loan losses, increased
$1.6 billion. The average balance of interest-bearing cash and cash equivalents grew by $904 million over 2014 as borrowings
from the Federal Home Loan Bank were deposited in the Federal Reserve to earn a spread. The average balance of the available
for sale securities portfolio decreased $620 million. We reduced the size of our securities portfolio during 2014 and 2015
through normal monthly runoff to better position the balance sheet for an environment of rising longer-term rates. Growth in
average assets was funded by a $518 million increase in average deposit balances. Average demand deposit account balances
grew by $361 million and average interest-bearing transaction account balances were up $182 million, partially offset by a $57
million decrease in average time deposit balances. Average borrowed funds balances increased $1.7 billion over 2014.
Borrowings from the Federal Home Loan Banks increased $3.0 billion, partially offset by decreased funds purchased,
repurchase agreements and subordinated debt balances.
Table 2 – Volume/Rate Analysis
(In thousands)
Year Ended
Year Ended
December 31, 2016 / 2015
December 31, 2015 / 2014
Change Due To1
Change Due To1
Change
Volume
Yield /
Rate
Change
Volume
Yield
/Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
$
5,146
$
(58) $
5,204
$
2,831
$
2,331
$
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
6,158
4,318
1,840
535
625
(664)
1,596
932
690
12
702
(2,541)
3,706
(944)
54,274
67,433
5,085
3
(528)
(961)
(1,489)
(2,617)
(655)
(3,272)
(1,290)
5,490
(416)
46,549
49,832
(16)
39
(8,764)
(4,139)
121
(34)
21,045
959
18,415
49,018
5,144
13
(52)
8,239
(1,445)
2,639
47,193
(136)
2,557
2,421
3,307
667
3,974
(1,251)
(1,784)
(528)
7,725
17,601
5,101
(36)
(4,625)
108
18
12,806
2,404
15,776
1,825
(251)
(814)
(1,065)
172
(579)
(407)
(10,341)
(13,401)
20
(417)
(10,321)
(13,818)
5,653
6,492
3,459
28,510
36,094
(936)
(18)
(5,559)
(276)
(301)
7,109
(3,590)
(3,571)
39,665
1,505
5,025
5,659
4,540
61,236
65,191
110
45
(839)
(336)
(106)
7,744
(1,537)
5,081
60,110
500
(90)
(423)
(235)
(658)
3,060
437
3,497
628
833
(1,081)
(32,726)
(29,097)
(1,046)
(63)
(4,720)
60
(195)
(635)
(2,053)
(8,652)
(20,445)
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
43,874
38,160
$
$
29
Table 2 – Volume/Rate Analysis (continued)
(In thousands)
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
Trading securities
Investment securities:
Taxable securities
Tax-exempt securities
Total investment securities
Available for sale securities:
Taxable securities
Tax-exempt securities
Total available for sale securities
Fair value option securities
Restricted equity securities
Residential mortgage loans held for sale
Loans
Total tax-equivalent interest revenue
Interest expense:
Transaction deposits
Savings deposits
Time deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Total interest expense
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
Three Months Ended
December 31, 2016 / 2015
Change Due To1
Change
Volume
Yield /
Rate
$
1,334
$
28
$
3,714
2,957
(120)
441
321
(1,167)
(38)
(1,205)
(1,920)
649
(133)
17,362
20,122
1,814
2
(1,741)
23
(34)
4,595
1,359
6,018
14,104
1,167
(110)
(247)
(357)
(224)
(211)
(435)
(848)
1,054
310
11,401
14,110
120
5
(918)
(6)
(4)
1,397
(682)
(88)
14,198
1,306
757
(10)
688
678
(943)
173
(770)
(1,072)
(405)
(443)
5,961
6,012
1,694
(3)
(823)
29
(30)
3,198
2,041
6,106
(94)
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
12,937
$
30
Other Operating Revenue
Other operating revenue was $674.0 million for 2016, up $15.5 million or 2% over 2015. Fees and commissions revenue grew
by $36.1 million or 6% over 2015. The change in the fair value of mortgage servicing rights, net of economic hedges,
decreased other operating revenue by $28.4 million in 2016 and $7.9 million in 2015.
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
Other revenue
Total fees and commissions revenue
Other gains, 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
Year Ended December 31,
2016
2015
2014
2013
2012
$
138,377
$
129,556
$
134,437
$
125,478
$
126,930
116,823
107,985
135,758
135,477
92,193
133,914
51,029
686,748
4,030
(15,685)
(10,555)
(2,193)
11,675
—
—
—
128,621
126,153
90,431
126,002
49,883
650,646
5,702
430
(3,684)
(4,853)
12,058
(2,443)
624
(1,819)
123,689
115,652
90,911
109,093
47,537
621,319
2,953
2,776
96,082
95,110
121,934
48,417
603,844
4,875
(4,367)
10,189
(15,212)
(16,445)
1,539
(373)
—
(373)
22,720
10,720
(2,574)
266
(2,308)
80,053
98,917
169,302
45,693
628,880
2,397
(301)
9,230
(9,210)
33,845
(1,144)
(6,207)
(7,351)
Total other operating revenue
$
674,020
$
658,480
$
621,958
$
620,272
$
657,490
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 2016, 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 cause net interest revenue compression such as
falling interest rates may also drive growth in our mortgage banking revenue. We expect growth in other operating revenue to
come through offering new products and services and by further development of our presence in other markets. However,
current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets
could affect the rate of future increases.
Brokerage and trading revenue, which includes revenues from trading, customer hedging, retail brokerage and investment
banking, increased $8.8 million or 7% over the prior year.
Trading revenue includes net realized and unrealized gains primarily related to sales of U.S. government securities, residential
mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers and
related derivative instruments. Trading revenue totaled $43.0 million for 2016, compared to $44.7 million for 2015. Trading
revenue was negatively impacted by an unexpected 85 basis point increase in the 10-year U.S. Treasury rate primarily due to
the market's reaction to the outcome of the presidential election. This increase in interest rates decreased the fair value of our
trading securities portfolio by approximately $5.0 million. Excluding this estimated impact, trading revenue was up $3.3
million or 7% over the prior year.
31
The Company added a new group trading in U.S. government agency residential mortgage-backed securities and related to-be-
announced derivatives in the third quarter of 2016. This new trading group added $6.6 million of net interest revenue and $2.3
million of trading revenue in the latter half of 2016, excluding the impact of the unexpected increase in long-term interest rates.
This new group also increased our trading securities portfolio by $300 million and receivables for unsettled trades by $405
million at December 31, 2016.
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. Derivative contracts executed with customers are offset with contracts between selected counterparties and
exchanges to minimize market risk from changes in commodity prices, interest rates or foreign exchange rates. Customer
hedging revenue totaled $47.2 million for 2016, an increase of $6.3 million or 15% over 2015. The volume of derivative
contracts sold to our mortgage banking customers used to hedge their pipelines of mortgage loan originations increased as
average mortgage rates trended down during 2016. Volumes of derivative contracts sold to energy customers increased as
energy prices stabilized during 2016 and volumes of interest rate contracts increased in anticipation of rising interest rates.
Revenue earned from retail brokerage transactions totaled $26.0 million for 2016, an increase of $1.5 million or 6% over the
the prior year. Retail brokerage revenue is primarily based on fees and commissions earned on sales of fixed income securities,
annuities, mutual funds and other financial instruments to retail customers. Revenue is primarily based on the volume of
customer transactions and applicable commission rate for each type of product. The increase in revenue due to transaction
volume growth was partially offset by a change in product mix to products that pay a lower commission rate. In addition,
volume shifted from sales of products that pay us a one-time transaction fee to accounts that pay us an on-going management
fee.
Investment banking, which includes fees earned upon completion of underwriting, financial advisory services and loan
syndication fees totaled $22.2 million for 2016, an increase of $2.7 million or 14% over 2015, 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 $135.8
million for 2016, a $7.1 million or 6% increase over 2015. Revenues from the processing of transactions on behalf of the
members of our TransFund electronic funds transfer ("EFT") network totaled $70.6 million, up $5.4 million or 8% over 2015,
due primarily to increased transaction volumes. The number of TransFund ATM locations totaled 2,021 at December 31, 2016
compared to 1,972 at December 31, 2015. Merchant services fees paid by customers for account management and electronic
processing of card transactions totaled $45.9 million, an increase of $1.5 million or 3% 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 $19.3 million, an increase of
$265 thousand or 1% over 2015 due to increased transaction volume.
Fiduciary and asset management revenue grew $9.3 million or 7% over 2015, primarily due to decreased fee waivers and
growth in assets under management. We 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"). BOKF, NA is custodian and BOK Financial Securities, Inc. is distributor for the Cavanal Hill Funds. Products of
the Cavanal Hill Funds are offered to customers, employee benefit plans, trusts and the general public in the ordinary course of
business. We have voluntarily waived administration fees on the Cavanal Hill money market funds in order to maintain positive
yields on these funds in the current low short-term interest rate environment. Waived fees totaled $6.8 million for 2016
compared to $12.5 million for 2015. The decrease in fee waivers was primarily related to increased interest rates as a result of
the Federal Reserve's federal funds rate increase in the fourth quarter of 2015. The remaining increase in fiduciary and asset
management revenue was largely due to growth in assets under management from the acquisition of Weaver and Tidwell
Financial Advisors LTD dba Weaver Wealth Management, a registered investment advisor, in the first quarter of 2016.
The fair value of fiduciary assets administered by the Company totaled $41.8 billion at December 31, 2016 and $38.3 billion at
December 31, 2015. Fiduciary assets are assets for which the Company possesses investment discretion on behalf of another, or
any other similar capacity.
Deposit service charges and fees increased $1.8 million or 2% over 2015. Commercial account service charge revenue totaled
$44.9 million, an increase of $2.9 million or 7% over the prior year. Overdraft fees totaled $40.5 million for 2016, a decrease of
$774 thousand or 2% compared to last year. Service charges on deposit accounts with a standard monthly fee were $6.7
million, a decrease of $334 thousand or 5% compared to the prior year.
32
Mortgage banking revenue totaled $133.9 million for 2016, a $7.9 million or 6% increase over 2015.
Mortgage production revenue totaled $69.6 million, largely unchanged compared to the prior year. A $512 million or 8%
decrease in mortgage loan production volume from the record level achieved in 2015 was largely offset by improved gain on
sale margins. The decrease in mortgage loan production volume was due primarily to a strategic decision to exit the
corresponding lending channel during the third quarter of 2016 based on careful consideration of continued pressure on margin
due to the competitive landscape and regulatory costs.
Gain on sale margins increased 9 basis points compared to the previous year. The margin increase was primarily due to exiting
the correspondent lending channel, the lowest margin of our three sales channels.
Mortgage servicing revenue was $64.3 million, a $7.9 million or 14% increase over the prior year. The outstanding principal
balance of mortgage loans serviced for others totaled $22.0 billion at December 31, 2016, a $2.3 billion increase over
December 31, 2015.
Table 4 – Mortgage Banking Revenue
(In thousands)
Mortgage production revenue
$
69,628
$
69,587
$
61,061
$
79,545
$
129,117
2016
2015
2014
2013
2012
Year Ended December 31,
Mortgage loans funded for sale
$ 6,117,417
$ 6,372,956
$ 4,484,394
$ 4,081,390
$ 3,708,350
Add: Current year end outstanding commitments
Less: Prior year end outstanding commitments
318,359
601,147
601,147
627,505
627,505
258,873
258,873
356,634
356,634
189,770
Total mortgage production volume
5,834,629
6,346,598
4,853,026
3,983,629
3,875,214
Gain on sale margin
Primary mortgage interest rates:
Average
Period end
1.19%
1.10%
1.26%
2.00%
3.33%
3.83%
4.32%
3.89%
3.96%
4.17%
3.83%
3.99%
4.48%
3.66%
3.35%
Mortgage servicing revenue
$
64,286
$
56,415
$
48,032
$
42,389
$
40,185
Average outstanding principal balance of mortgage
loans serviced for others
20,837,897
17,920,557
14,940,915
12,850,283
11,641,305
Average mortgage servicing fee rates
0.31%
0.31%
0.32%
0.33%
0.35%
Primary rates disclosed in Table 4 above represent rates generally available to borrowers on 30 year conforming mortgage
loans.
Net gains on securities, derivatives and other assets
We recognized $11.7 million of net gains from sales of $0.9 billion of available for sale securities in 2016. We recognized $12.1
million of net gains from sales of $1.6 billion of available for sale securities in 2015. Securities were sold either because they
had reached their expected maximum potential or to move into securities that are expected to perform better in the current rate
environment.
As discussed in the Market Risk section of this report, the fair value of our portfolio of mortgage servicing rights ("MSRs")
changes in response to changes in primary mortgage loan rates and other assumptions. We attempt to mitigate the earnings
volatility caused by changes in the fair value of MSRs within Board-approved limits by designating certain financial
instruments as an economic hedge. Changes in the fair value of these instruments generally are expected to partially offset
changes in the fair value of the MSRs.
33
Since mid-year 2016, the economic hedge was largely positioned to offset the impact of a 50 basis point decrease in primary
mortgage interest rates and related interest rates, including 10-year U.S. Treasury rates. During the fourth quarter, the 10-year
U.S. Treasury interest rate increased 85 basis points primarily due to the market's reaction to the outcome of the U.S.
presidential election. This unexpected increase in rates resulted in a $39.8 million increase in the fair value of our MSRs, offset
by a $56.8 million loss on our economic hedges.
Table 5 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge
(In thousands)
Year Ended December 31,
2016
2015
2014
2013
2012
Gain (loss) on mortgage hedge derivative contracts, net
$ (15,696) $
634
$
2,776
$
(5,080) $
Gain (loss) on fair value option securities, net
Gain (loss) on economic hedge of mortgage servicing rights
Gain (loss) on change in fair value of mortgage servicing rights
Gain (loss) on changes in fair value of mortgage servicing rights, net of
economic hedges included in other operating revenue
Net interest revenue on fair value option securities1
Total economic benefit (cost) of changes in the fair value of mortgage
servicing rights, net of economic hedges
(10,555)
(26,251)
(2,193)
(28,444)
4,356
(3,684)
(3,050)
(4,853)
(7,903)
8,001
116
7,793
7,909
10,003
12,779
(15,436)
(20,516)
(16,445)
22,720
(9,210)
(3,666)
3,253
2,204
3,290
(1,301)
7,811
$ (24,088) $
98
$
(413) $
5,494
$
6,510
1 Actual interest earned on fair value option securities less internal transfer-priced cost of funds.
Net gains on other assets totaled $4.0 million for 2016. The Company recognized $2.0 million related to the mutual termination
of a rent guarantee between the Company and the City of Tulsa for office space in a building immediately adjacent to the
Company's main office rented by third party tenants. The Company also recognized a $2.1 million gain on the sale of a
merchant banking investment during the year. Net gains on other assets totaled $5.7 million for 2015. The Company recognized
a $1.7 million gain on the sale of bank premises and a $2.8 million gain on underlying investments held by two consolidated
private equity funds. Private equity gains are largely attributed to non-controlling interests.
Fourth Quarter 2016 Other Operating Revenue
Other operating revenue was $143.8 million for the fourth quarter of 2016, a decrease of $15.2 million compared to the fourth
quarter of 2015. The fourth quarter of 2016 included a $5.0 million decrease in the net fair value of trading portfolio positions
and a $17.0 million decrease in the fair value of mortgage servicing rights, net of economic hedges. The change in the fair
value of mortgage servicing rights, net of economic hedges, increased other operating revenue $2.6 million for the fourth
quarter of 2015.
Fees and commissions revenue was up $8.3 million over the fourth quarter of 2015. Excluding the estimated impact of the
unexpected increase in long-term interest rates, brokerage and trading revenue increased $3.2 million. Trading revenue totaled
$5.7 million for the fourth quarter of 2016, a $996 thousand decrease. Customer hedging revenue totaled $11.1 million, an
increase of $1.4 million. Revenue earned from retail brokerage transactions was $5.9 million, largely unchanged compared to
the fourth quarter of 2015. Investment banking revenue totaled $5.8 million, a $2.7 million increase over the fourth quarter of
2015 related to the timing and volume of completed transactions.
Transaction card revenue was $34.5 million for the fourth quarter of 2016, a $2.2 million or 7% increase over the fourth quarter
of 2015, primarily due to a $1.6 million increase in revenues from the processing of transactions on behalf of members of our
TransFund EFT network. Revenues from the processing of transactions on behalf of the members of our TransFund EFT
network totaled $18.1 millionand merchant services fees totaled $11.6 million. 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 $3.4 million over the fourth quarter of 2015 to $34.5 million primarily due
to a decrease in waived administrative fees and growth in assets under management, including the addition of assets from the
Weaver Wealth Management acquisition in the first quarter of 2016. Waived administration fees on the Cavanal Hill money
market funds totaled $1.4 million for the fourth quarter of 2016, compared to $3.5 million for the fourth quarter of 2015.
34
Deposit service charges and fees were $23.4 million for the fourth quarter of 2016, up $552 thousand over the fourth quarter of
2015. Overdraft fees totaled $10.4 million, largely unchanged compared to the fourth quarter of 2015. Commercial account
service charge revenue totaled $11.2 million, an increase of $794 thousand. Service charges on deposit accounts with a standard
monthly fee were $1.7 million, also largely unchanged compared to the fourth quarter of 2015.
Mortgage banking revenue was $28.4 million for the fourth quarter of 2016, up $5.5 million over the fourth quarter of 2015.
The Company's exit of the correspondent lending channel in the third quarter of 2016 improved gain on sale margins, partially
offset by a decrease in mortgage loan loan production volume. Mortgage loan production volumes were $878 million for the
fourth quarter of 2016 compared to $1.2 billion in the fourth quarter of 2015. Mortgage loan refinances, which have higher
gains on sale margins, represented 63% of total loans funded during the fourth quarter of 2016, compared to 41% in the fourth
quarter of 2015.
2015 Other Operating Revenue
Other operating revenue totaled $658.5 million for 2015, up $36.5 million or 6% over 2014. Fees and commissions revenue
increased $29.3 million. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased operating
revenue in 2015 by $7.9 million and decreased operating revenue $3.7 million in 2014. Net gains on sales of available for sale
securities were $12.1 million for 2015 compared to $1.5 million for 2014. Other-than-temporary impairment charges
recognized in earnings were $1.4 million more than charges recognized in 2014.
Brokerage and trading revenue for 2015 decreased $4.9 million compared to 2014. Decreased retail brokerage fees and lower
investment banking revenue were partially offset by increased trading revenue and customer hedging revenue. Transaction card
revenue grew by $4.9 million over 2014 primarily due to growth in merchant services and TransFund EFT transaction volumes.
Fiduciary and asset management fees increased $10.5 million related to a full year of revenue from the GTRUST Financial
Corporation and MBM Advisors acquisitions in 2014 which added $4.0 million of revenue. The remaining increase was
primarily due to growth in the fair value of fiduciary assets. Deposit service charges and fees decreased $480 thousand.
Increased commercial account service charges were offset by lower overdraft fees and service charges on deposit accounts with
a standard monthly fee. Mortgage banking revenue grew by $16.9 million over 2014. A record $6.3 billion of mortgage loans
were produced in 2015 due to the expansion of our correspondent and HomeDirect online mortgage channel and a decrease in
average primary mortgage interest rates. The correspondent and HomeDirect online lending channels have lower margins than
the retail lending channel.
Net gains on other assets totaled $5.7 million for 2015. We recognized a $1.7 gain on the sale of bank premises and a $2.8
million gain on underlying investments held by two consolidated private equity funds. Private equity gains are largely
attributed to non-controlling interests.
35
Other Operating Expense
Other operating expense for 2016 totaled $1.0 billion, a $121.4 million or 14% increase over the prior year. Personnel expense
increased $37.8 million or 7%. Non-personnel expenses increased $83.6 million or 22% over the prior year. Other operating
expense for 2016 included $9.1 million of litigation and settlement expenses as discussed further in Note 14 to the consolidated
financial statements, $7.5 million of integration costs related to the Mobank acquisition and $5.0 million of severance costs
related to the previously announced reduction of workforce to better align expenses with expected revenue growth. These items
have been excluded from the discussion following.
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,
2016
2015
2014
2013
2012
$
332,740
$
313,403
$
298,420
$
279,493
$
262,736
128,077
10,464
1,687
140,228
80,151
553,119
26,582
2,000
56,783
80,024
32,489
131,841
15,584
3,359
6,862
61,387
47,560
114,305
12,358
111,748
10,875
361
(13,692)
127,024
74,871
515,298
27,851
796
40,123
76,016
20,375
122,383
13,498
1,446
4,359
38,813
35,233
108,931
69,580
476,931
26,649
4,267
44,440
77,232
18,578
115,225
13,518
6,019
3,965
31,705
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
105,967
13,885
5,160
3,428
31,196
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
$ 1,017,590
$
896,191
$
847,522
$
840,620
$
840,363
Average number of employees (full-time equivalent)
4,872
4,797
4,679
4,683
4,614
Personnel expense
Regular compensation expense, which consists of salaries and wages, overtime pay and temporary personnel costs, increased
$12.8 million or 4% over 2015. The average number of employees grew by 2% over the prior year. Recent additions have been
in mortgage, wealth management and technology. In addition, standard annual merit increases in regular compensation were
effective for the majority of our staff March 1.
Incentive compensation increased $13.2 million or 10% over 2015. Cash-based incentive compensation plans are either
intended to provide current rewards to employees who generate long-term business opportunities for the Company based on
growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with
commissions on completed transactions. Total cash-based incentive compensation increased $13.8 million or 12% over 2015.
As discussed further in Management's Discussion and Analysis – Lines of Business following, growth in incentive
compensation expense was primarily related to revenue growth in the Wealth Management segment during the year.
Share-based compensation expense represents expense for equity awards based on the grant-date fair value. Share-based
compensation expense for equity awards decreased $1.9 million or 15% over 2015 primarily due to the decrease in the vesting
probability of certain performance-based share awards.
36
The Company currently offers a deferred compensation plan for certain executive and senior officers. Deferred compensation
expense totaled $1.7 million for 2016, a $1.3 million increase over the prior year. Deferred compensation expense is largely
offset by changes in the fair value of assets held in rabbi trusts for the benefit of participants included other income in the
consolidated statements of earnings.
Employee benefit expense increased $5.3 million or 7% compared to 2015 primarily due to increased employee medical costs.
The Company self-insures a portion of its employee health care coverage, up to a stop-loss of $750 thousand per employee, and
these costs may be volatile.
Non-personnel operating expense
Non-personnel expense increased $68.5 million or 18% over the prior year.
Mortgage banking expense increased $22.6 million or 58%. Mortgage banking expense increased $12.7 million due to the
effect of actual residential mortgage loan prepayments on the fair value of mortgage servicing rights. As mortgage interest rates
fall, actual prepayments increase due to borrowers refinancing loans. As mortgage interest rates increase, actual prepayment
speeds slow. Mortgage banking expenses also increased $8.1 million over the prior year primarily due to default servicing and
loss mitigation costs related to loans serviced for others.
Insurance expense was up $12.1 million or 59%, primarily due to higher deposit insurance expense related to increased
criticized and classified asset levels, an input to the deposit insurance assessment, overall growth in bank assets and a new
surcharge for banks with more than $10 billion in assets, that was effective in the third quarter of 2016. Criticized and classified
asset levels were elevated during the year primarily due to credit migration of energy loans as a result of low energy prices.
Professional fees and services expense increased $10.9 million or 27%, data processing and communications expense increased
$9.5 million or 8% and premises and equipment expense increased $4.0 million or 5%. These increases were primarily related
to continued upgrades of our information technology infrastructure and cybersecurity.
All other non-personnel operating expenses were up $9.6 million, net.
Fourth Quarter 2016 Operating Expenses
Other operating expense for the fourth quarter of 2016 totaled $265.5 million. Excluding the impact of $5.0 million of
severance and other expenses related to the workforce reductions and $4.7 million of integration costs related to the Mobank
acquisition in the fourth quarter of 2016, other operating expense increased $25.4 million over the fourth quarter of 2015.
Excluding the impact of the workforce reduction and Mobank integration costs, personnel expense increased $3.5 million over
the fourth quarter of 2015. Regular compensation expense increased $1.1 million over the fourth quarter of 2015. Incentive
compensation increased $2.8 million over the fourth quarter of 2015. Cash-based compensation was up $4.5 million, partially
offset by a $1.4 million decrease in share-based compensation expense.
Excluding the impact of Mobank integration costs, non-personnel expense was up $21.9 million over the fourth quarter of
2015. Mortgage banking costs were up $5.9 million primarily due to the effect of actual residential mortgage loan prepayments
on the fair value of mortgage servicing rights. Insurance expense increased $3.3 million primarily due to a new surcharge for
banks over $10 billion effective in the third quarter of 2016. Professional fees and services expense increased $3.1 million and
data processing and communications costs were up $2.4 million, primarily related to information technology infrastructure and
cybersecurity project costs. Occupancy and equipment expense increased $2.1 million primarily due to property lease
termination costs and software costs. We also made a $2.0 million cash contribution to the BOKF Foundation during the fourth
quarter of 2016. All other expense categories were up $3.1 on a net basis.
37
2015 Operating Expenses
Other operating expense totaled $896.2 million for 2015, a $48.7 million or 6% increase over 2014.
Personnel expense for 2014 included a $12.6 million net reduction in the accrual for amounts payable to certain executive
officers 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 for 2006 through 2013. The
2011 True-Up Plan ended on December 31, 2013 and amounts accrued were paid in May 2014. Excluding the impact of the
2011 True-Up Plan adjustment, personnel expense increased $25.7 million or 5%. Regular compensation expense totaled
$313.4 million, up $15.0 million primarily due to the investment in higher-costing wealth management, compliance and risk
management positions. Regular compensation expense for 2014 also included $800 thousand related to retail branch closure
costs. Excluding the impact of the 2011 True-Up plan adjustment in 2014, incentive compensation expense increased $5.5
million, primarily due to cash-based incentive compensation. Employee benefit expense increased $5.3 million primarily due to
employee medical costs.
Non-personnel expense for 2015 was $10.3 million or 3% higher than 2014. Mortgage banking expense increased $7.1 million
primarily due to changes in the fair value of mortgage servicing rights related to actual mortgage loan prepayments. Data
processing and communications expense increased $7.2 million primarily related to increased transaction activity costs and
completion of risk management and compliance projects. Professional fees and services expense decreased $4.3 million after
risk management and regulatory compliance costs stabilized after growing in 2014. Net losses and operating expenses of
repossessed assets decreased $4.6 million. All other non-personnel operating expenses were up $4.9 million, net.
Income Taxes
Income tax expense was $106.4 million or 31.4% of net income before taxes for 2016, $139.4 million or 32.3% of net income
before taxes for 2015 and $144.2 million or 32.8% of net income before taxes for 2014. Tax expense currently payable totaled
$118 million in 2016, $130 million in 2015 and $105 million in 2014.
The statute of limitations expired on uncertain tax positions during 2014, 2015, and 2016. Excluding the statute expiration,
income tax expense would have been $108.3 million or 32.0% of net income before taxes for 2016, $140.9 million or 32.6% of
net income before taxes for 2015 and $145.8 million or 33.2% of net income before taxes for 2014.
Net deferred tax assets totaled $29.3 million at December 31, 2016 compared to a net deferred tax liability of $1.4 million at
December 31, 2015. 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 2016 and 2015.
Unrecognized tax benefits totaled $15.8 million at December 31, 2016 compared to $13.2 million at December 31, 2015. 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 $22.5 million or 31.1% of net income before taxes for the fourth quarter of 2016 compared to $26.2
million or 30.1% of net income before taxes for the fourth quarter of 2015. Income tax expense as a percentage of net income
before taxes was higher in the fourth quarter of 2016 primarily due to an increase in unrecognized tax benefits related to an
income allocation change between taxing jurisdictions.
38
Table 7 – Selected Quarterly Financial Data (Unaudited)
(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
2016
First
Second
Third
Fourth
$
201,796
$
202,267
$
209,317
$
215,737
19,224
182,572
35,000
147,572
163,297
22,105
19,655
182,612
20,000
162,612
180,147
21,678
(27,988)
(16,283)
—
—
21,471
187,846
10,000
177,846
181,276
3,707
2,327
—
21,539
194,198
—
194,198
162,028
(58,025)
39,751
—
Other operating revenue
157,414
185,542
187,310
143,754
Personnel expense
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
133,562
109,008
242,570
62,416
21,428
40,988
(1,576)
139,213
112,172
251,385
96,769
30,497
66,272
471
139,212
118,876
258,088
107,068
31,956
75,112
835
141,132
124,415
265,547
72,405
22,496
49,909
(117)
Net income attributable to shareholders of BOK Financial Corp. shareholders $
42,564
$
65,801
$
74,277
$
50,026
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
0.64
0.64
$
$
1.00
1.00
$
$
1.13
1.13
$
$
0.76
0.76
65,297
65,331
65,246
65,303
65,085
65,158
64,719
64,788
39
Table 7 – Selected Quarterly Financial Data (Unaudited) (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
2015
First
Second
Third
Fourth
$
184,569
$
191,813
$
193,664
$
196,782
16,843
167,726
—
167,726
16,082
175,731
4,000
171,731
163,696
170,295
8,640
(8,522)
(92)
(4,272)
8,010
—
15,028
178,636
7,500
171,136
162,963
10,536
(11,757)
—
15,521
181,261
22,500
158,761
153,692
(398)
7,416
(1,727)
Other operating revenue
163,722
174,033
161,742
158,983
Personnel expense
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
126,303
91,667
217,970
113,478
38,384
75,094
251
$
Net income attributable to shareholders of BOK Financial Corp. shareholders $
74,843
130,493
94,368
224,861
120,903
40,630
127,399
95,535
222,934
109,944
34,128
80,273
$
75,816
$
1,043
79,230
925
74,891
131,104
99,322
230,426
87,318
26,242
61,076
1,475
59,601
1.15
1.15
$
$
1.09
1.09
$
$
0.89
0.89
$
$
$
$
$
$
1.08
1.08
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
68,255
68,345
68,096
68,210
67,668
67,762
66,378
66,468
40
Lines of Business
We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial
Banking includes lending, treasury and cash management services and customer risk management products for small
businesses, middle market and larger commercial customers. Commercial banking also includes the TransFund EFT
network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small businesses
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. The Funds Management unit also initially recognizes accruals for loss
contingencies when losses become probable. Actual losses are recognized by the lines of business if the accruals are settled.
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.
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 similar interest rate and liquidity risk characteristics. 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 $9.0 million or 4% compared to the
prior year. The decrease in net income attributed to our lines of business was due primarily to increased credit losses, litigation
settlements, and net changes in the fair value of mortgage servicing rights. Net interest revenue increased $70.4 million mostly
from commercial loan growth and improving yields. Fees and commission revenue increased $40.2 million from growth in
most every revenue category. These increases were offset by increased net loans charged-off, operating expenses and the
change in the fair value of mortgage servicing rights, net of economic hedges. Net charge-offs attributed to the lines of business
were $37.1 million in 2016, primarily due to energy loans, compared to a net recovery of $897 thousand in 2015. Operating
expense increased $82.7 million or 13%, including a $22.2 million increase in personnel expense and a $60.4 million increase
in non-personnel expense. The decrease in net income provided by Funds Management was largely due lower net interest
revenue from our securities portfolio, increased operating expense and provision for credit losses in excess of net charge-offs..
The acquisition of Mobank on December 1, 2016 was not yet allocated to the operating segments at December 31, 2016.
Accordingly, the operation, assets and liabilities of Mobank were included in Funds Management and Other for 2016.
41
Table 8 – Net Income by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Commercial Banking
Year Ended December 31,
2016
2015
2014
$
210,927
$
199,516
$
169,058
18
32,174
243,119
(10,451)
23,131
29,431
252,078
36,487
26,616
18,248
213,922
78,513
$
232,668
$
288,565
$
292,435
Commercial Banking contributed $210.9 million to consolidated net income in 2016, up $11.4 million or 5.7% over the prior
year. Net interest revenue grew by $46.7 million as the balance of average commercial loans increased $1.2 billion or 10%. Net
loans charged off were $33.0 million compared to a net recovery of $6.7 million in 2015. Fees and commission revenue
increased $16.3 million or 9% over the prior year primarily due to growth in all revenue sources. Other operating expense
increased $13.6 million or 7% compared to 2015.
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 (recovered)
Fees and commissions revenue
Other gains, net
Other operating revenue
Personnel expense
Non-personnel expense
Other operating expense
Net direct contribution
Gain on financial instruments, net
Gain (loss) on repossessed assets, net
Corporate expense allocations
Income before taxes
Federal and state income taxes
Net income
Average assets
Average loans
Average deposits
Average invested capital
42
Year Ended December 31,
2016
2015
2014
$
492,967
$
439,751
$
382,331
(58,781)
434,186
32,959
401,227
193,508
2,013
195,521
112,021
104,430
216,451
(52,313)
387,438
(6,748)
394,186
177,251
478
177,729
108,661
94,143
202,804
(40,083)
342,248
(7,447)
349,695
170,362
1,028
171,390
104,845
90,861
195,706
380,297
369,111
325,379
10
669
35,760
345,216
134,289
210,927
16,998,626
13,600,221
8,430,507
1,163,965
$
$
—
708
43,279
326,540
127,024
199,516
16,284,527
12,404,064
8,773,512
1,050,758
$
$
—
(3,187)
45,502
276,690
107,632
169,058
15,394,957
10,712,559
8,886,549
946,384
$
$
Net interest revenue increased $46.7 million or 12% over 2015. Growth in net interest revenue was due to a $1.2 billion
increase in average loan balances as discussed further in the Loans section of Management's Discussion and Analysis of
Financial Condition. Commercial and commercial real estate loans are primarily attributed to the Commercial Banking
segment. Yields on commercial loans also improved primarily due to rising interest rates.
Average deposits attributed to Commercial Banking were $8.4 billion for 2016, a decrease of $343 million or 4% compared to
2015. See additional discussion concerning changes in Commercial Banking deposits in the Liquidity and Capital section of
Management's Discussion and Analysis following. The net interest impact of this decrease in average deposit balances sold to
the Funds Management unit were partially offset by the increase in the federal funds rate in December 2015 and 2016.
Fees and commissions revenue increased $16 million or 9% over 2015. Transaction card revenue generated by the TransFund
EFT network increased $6.4 million or 6% due to increased customer transaction volume. Brokerage and trading revenue
increased $5.4 million or 63%. Loan syndication fees were up $2.9 million due to the timing and volume of completed deals.
Customer hedging revenue increased $2.5 million primarily due to energy prices stabilizing during 2016. Commercial deposit
service charges and fees increased $2.6 million or 7% over the prior year. Other revenue increased $2.5 million or 10%
primarily related to merchant banking activity.
Other gains, net of $2.0 million for 2016 was primarily due to a gain on sale of a merchant banking investment.
Operating expense increased $13.6 million or 7% over 2015. Personnel costs increased $3.4 million or 3% primarily due to
standard annual merit increases. Non-personnel expense increased $10.3 million or 11% over the prior year. Intangible asset
amortization was $2.3 million higher due to a consolidated merchant banking investment acquired in 2015. Other expense was
up $6.4 million over the prior year primarily due to $3.9 million of litigation settlements and $2.7 million of post-acquisition
valuation adjustments to a consolidated merchant banking investment. Corporate expense allocations decreased $7.5 million
compared to the prior year.
43
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 and through HomeDirect Mortgage, an online origination
channel.
Net income attributed to Consumer Banking totaled $18 thousand for 2016, compared to $23.1 million in the prior year. As
previously discussed in Management's Discussion and Analysis – Other Operating Revenue, pre-tax net income attributable to
the Consumer Banking segment was negatively impacted by an unexpected 85 basis point increase in the 10-year U.S. Treasury
interest rate and related interest rates due to the markets reaction to the outcome of the U.S. presidential election. The change in
the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income by $28.4 million in 2016 and
decreased pre-tax net income $7.9 million in 2015. In addition, other operating expense attributable to the Consumer Banking
division included $11.1 million of litigation and settlement costs in 2016. These items have been excluded from the discussion
following.
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
Other gains (losses), net
Other operating revenue
Personnel expense
Other non-personnel expense
Total other operating expense
Net direct contribution
Gain (loss) on financial instruments, net
Change in fair value of mortgage servicing rights
Gain on repossessed assets, net
Corporate allocations
Net income before taxes
Federal and state income taxes
Net income
Average assets
Average loans
Average deposits
Average invested capital
Year Ended December 31,
2016
2015
2014
$
85,998
$
84,848
$
28,503
113,351
6,934
106,417
218,859
(764)
218,095
96,604
106,466
203,070
121,442
(4,712)
(4,853)
916
74,936
37,857
14,726
81,852
26,813
108,665
5,477
103,188
212,387
2,270
214,657
96,801
110,330
207,131
110,714
12,406
(16,445)
1,418
64,531
43,562
16,946
$
$
23,131
$
26,616
8,836,327
$
8,373,317
1,900,768
6,668,520
265,775
1,987,668
6,520,835
277,404
37,777
123,775
4,927
118,848
224,980
(178)
224,802
103,034
146,710
249,744
93,906
(26,252)
(2,193)
979
66,411
29
11
18
8,722,372
1,893,375
6,632,687
270,209
$
$
44
Net interest revenue from Consumer Banking activities grew by $10.4 million or 9% over 2015, primarily related to increased
yields on deposit balances sold to the Funds Management unit. Both average deposits and average loan balances were largely
unchanged compared to the prior year. Net loans charged off by the Consumer Banking unit decreased $2.0 million compared
to 2015 to $4.9 million or 0.32% of average loans. Net consumer banking charge-offs include overdrawn deposit accounts and
other consumer loans.
Fees and commissions revenue increased $6.1 million or 2.8% compared to the prior year. Mortgage banking revenue was up
$7.9 million or 6% over the prior year. A decrease in mortgage loan production volumes from the record level achieved in 2015
primarily related to the exit of the correspondent lending channel, was offset by improved gain on sale margins and increased
servicing revenue. Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the
Company increased $580 thousand or 3%. Deposit service charges and fees decreased $983 thousand or 2% compared to the
prior year primarily due to lower overdraft fees. Other revenue decreased $1.3 million compared to the prior year primarily due
to changes in earnings related to low income housing tax credit investments.
Operating expense increased $35.7 million or 18% over 2015. Personnel expenses were up $6.4 million or 7%, primarily due to
regular merit increases and growth in mortgage banking headcount. Non-personnel expense increased $29.3 million or 28%.
Mortgage banking costs were up $22.7 million over the prior year. Mortgage banking expense increased $12.7 million due to
the effect of actual residential mortgage loan prepayments on the fair value of mortgage servicing rights. Default servicing and
loss mitigation costs were up $8.1 million. Data processing and communications costs increased $2.3 million, printing, postage
and supplies expense increased $1.6 million and occupancy and equipment expense was up $1.2 million.
45
Wealth Management
Wealth Management contributed $32.2 million to consolidated net income in 2016, up $2.7 million or 9% over the prior year.
Net interest revenue increased $13.0 million or 26% from growth in both average loan and deposit balances and improved
yields. Fees and commissions revenue grew by $15.9 million or 6% over the prior year. Fiduciary revenue was up over the
prior year, primarily due to decreased fee waivers and growth in assets under management from acquisitions. Growth in
brokerage and trading revenue related to the addition of a new group trading in U.S. government agency residential mortgage-
backed securities and related derivatives was offset by $5.0 million from the impact of the unexpected increase in long-term
interest rates related to the market's reaction to the outcome of the U.S. presidential election. Other operating expense increased
$22.3 million or 10%. Corporate expense allocations increased $2.0 million or 5%.
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 (recovered)
Net interest revenue after net loans charged off (recovered)
Fees and commissions revenue
Other gains, net
Other operating revenue
Personnel expense
Other non-personnel expense
Other operating expense
Net direct contribution
Gain (loss) on financial instruments, net
Corporate allocations
Net income before taxes
Federal and state income tax
Net income
Average assets
Average loans
Average deposits
Average invested capital
Year Ended December 31,
2016
2015
2014
$
33,006
$
24,744
$
29,043
62,049
(801)
62,850
24,043
48,787
(1,083)
49,870
282,710
266,790
512
733
283,222
267,523
190,756
60,238
250,994
95,078
(42)
42,378
52,658
20,484
178,333
50,331
228,664
88,729
(204)
40,357
48,168
18,737
23,817
20,959
44,776
213
44,563
240,926
1,342
242,268
170,869
47,131
218,000
68,831
(235)
38,731
29,865
11,617
$
$
32,174
$
29,431
$
18,248
6,281,127
$
5,444,483
$
5,002,515
1,132,966
4,867,293
240,451
1,068,638
4,573,710
225,968
985,659
4,391,935
215,089
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 who 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.
46
Table 12 – Assets Under Management or In Custody
(Dollars in thousands)
Fiduciary assets in custody for which BOKF has sole or joint discretionary authority
$
December 31,
2016
14,226,844
2015
14,012,350
2014
$ 14,644,494
$
Fiduciary assets not in custody for which BOKF has sole or joint discretionary
authority
Non-managed fiduciary assets in custody
Total fiduciary assets
Assets held in safekeeping
Brokerage accounts under BOKF administration
Assets under management or in custody
3,862,939
23,691,780
41,781,563
27,633,471
5,992,828
75,407,862
$
3,384,444
20,936,844
38,333,638
26,897,107
5,817,028
71,047,773
3,324,667
18,028,716
35,997,877
22,952,394
5,653,095
$ 64,603,366
$
Net interest revenue increased $13 million or 26% over the prior year primarily related to growth in the trading securities
portfolio related to the addition of a new trading group, improved yields on deposit balances sold to the Funds Management
unit and growth in average deposit balances. Average deposit balances increased $294 million or 6% over the prior year and
average loan balances were up $64 million or 6%.
Fees and commissions revenue grew by $15.9 million or 6% over the prior year. Fiduciary and asset management revenue
increased $9.3 million or 7% primarily related to decreased fee waivers, the acquisition of Weaver Wealth Management and
changes in market values. Excluding the impact of the unexpected increase in long-term interest rates, brokerage and trading
revenue increased $9.0 million or 7%. The addition of this new trading group added $139 million to the average balance of the
trading securities portfolio in 2016. Retail brokerage fees increased $949 thousand or 4% over the prior year.
Other operating revenue includes fees earned from state and municipal bond underwriting and financial advisory services,
primarily in the Oklahoma and Texas markets. In 2016, the Wealth Management division participated in 417 underwritings that
totaled $17.8 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of
approximately $2.7 billion of these underwritings. The Wealth Management division also participated in 24 corporate debt
underwritings during 2016 that totaled $9.5 billion. Our interest in these underwritings was $223 million. In 2015, the Wealth
Management division participated in 434 underwritings that totaled approximately $9.3 billion. Our interest in these
underwritings totaled approximately $2.9 billion. The Wealth Management division also participated in 15 corporate debt
underwritings during 2015 that totaled $11.8 billion. Our interest in these underwritings was $230 million.
Operating expenses increased $22 million or 10% over the prior year. Personnel expenses increased $12.4 million or 7%,
primarily due to a $10.2 million increase in incentive compensation expense. Regular compensation expense also increased
$2.1 million primarily due to increased headcount and annual merit increases. Non-personnel expense was up $9.9 million or
20% over 2015. Non-personnel expense included $1.6 million of litigation costs and a $1.6 million increase in legal fees for
matters discussed in Note 14 to the consolidated financial statements. Other professional fees related to continued technology
upgrades increased $4.0 million. Data processing and communication expense increased $1.2 million.
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, 2016, December 31, 2015
and December 31, 2014.
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 securities
Other debt securities
Total investment securities
Available for sale:
U.S. Treasury securities
Municipal and other tax-exempt securities
Residential mortgage-backed securities:
2016
December 31,
2015
2014
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
6,238
$
6,234
$
61,366
$
61,295
$
85,154
$
85,092
309,432
14,377
6,843
336,890
$
310,067
14,427
6,900
337,628
$
10,972
31,691
18,235
122,264
$
10,989
31,901
18,219
122,404
$
30,930
38,933
33,496
188,513
$
31,199
38,951
33,458
188,700
320,364
$
321,225
$
365,258
368,910
$
405,090
$
408,344
20,777
205,004
546,145
1,000
41,050
$
$
21,473
222,795
565,493
999
40,993
$
$
26,833
205,745
597,836
1,000
56,681
$
$
27,874
232,375
629,159
995
56,817
$
$
35,750
211,520
652,360
1,005
63,018
$
$
37,463
227,819
673,626
1,005
63,557
$
$
$
$
U.S. government agencies
Private issue
5,475,351
101,192
5,460,386
115,535
5,861,096
128,111
5,898,351
139,118
6,549,304
154,360
6,646,884
165,957
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
5,576,543
5,575,921
5,989,207
6,037,469
6,703,664
6,812,841
3,035,750
4,400
15,561
17,424
$ 8,691,728
3,017,933
4,152
18,474
18,357
$ 8,676,829
2,919,044
4,400
17,171
17,121
$ 9,004,624
2,905,796
4,151
19,672
17,833
$ 9,042,733
2,064,091
9,438
22,171
18,603
$ 8,881,990
2,048,609
9,212
24,277
19,444
$ 8,978,945
$
78,823
$
77,046
$
446,277
$
444,217
$
309,973
$
311,597
48
We enter into trading activities both as an intermediary for customers and for our own account. We take positions in securities
for resale to customers, which include individuals, corporations, foundations and financial institutions. During 2016, we
expanded our trading activities for two principal strategies. We increased the volume of mortgage-backed securities trading.
Through this activity, we purchase pools with specific retail mortgage collateral or to-be-announced ("TBA") derivatives with
stipulations. These financial instruments are customized to meet requirements of our institutional customers. We also increased
the volume of transactions where we serve as market makers by providing liquidity as a buyer and seller of TBA derivative
contracts. These transactions accommodate our customers' hedging requirements or meet their needs for investment products or
cash. Customers for this trading activity generally include mortgage loan originators, money managers, banks, insurance
companies and hedge funds. Expansion of our trading activities resulted in an increase in the reported balances of trading
securities and receivables for unsettled trading positions in the Consolidated Balance Sheets. Price risk for our trading activities
is incorporated into the limits described in the Market Risk section of this report.
At December 31, 2016, the carrying value of investment (held-to-maturity) securities was $546 million and the fair value was
$565 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 $104 million of the Texas school
construction bonds are also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board
of Education for the State of Texas.
Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of
deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of
available for sale securities totaled $8.7 billion at December 31, 2016, a decrease of $313 million compared to December 31,
2015. Available for sale securities consist primarily of U.S. government agency residential mortgage-backed securities and U.S.
government agency commercial mortgage-backed securities. Commercial mortgage-backed securities have prepayment
penalties similar to commercial loans. At December 31, 2016, residential mortgage-backed securities represented 64% of total
available for sale securities. The decrease in amortized cost during the year was primarily due to a decrease in 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, 2016 is 3.1 years. Management estimates the combined portfolios'
duration extends to 3.4 years assuming an immediate 200 basis point upward shock. The estimated combined portfolios'
duration contracts to 2.9 years assuming a 50 basis point decline in the current low rate environment.
Residential mortgage-backed securities also have credit risk from delinquency or default of the underlying loans. We mitigate
this risk by primarily investing in securities issued by U.S. government agencies. Principal and interest payments on the
underlying loans are fully guaranteed. At December 31, 2016, approximately $5.5 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 $5.5 billion at December 31, 2016.
We also hold amortized cost of $101 million in residential mortgage-backed securities privately issued by publicly-owned
financial institutions. The amortized cost of these securities decreased $27 million from December 31, 2015, due to cash
payments received during the year. The fair value of our portfolio of privately issued residential mortgage-backed securities
totaled $116 million at December 31, 2016.
The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $57 million of Jumbo-A
residential mortgage loans and $44 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 90% 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.
49
The aggregate gross amount of unrealized losses on available for sale securities totaled $75 million at December 31, 2016, a
$33 million increase compared to December 31, 2015. On a quarterly basis, we perform separate evaluations on debt and equity
securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial
Statements. No other-than-temporary impairment charges were recognized in earnings in 2016.
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.
We are required to hold stock as members of the Federal Reserve system and the Federal Home Loan Banks ("FHLB"). These
restricted equity securities are carried at cost as these securities do not have a readily determined fair value because ownership
of these shares are restricted and they lack a market. Federal Reserve Bank stock totaled $36 million at December 31, 2016,
$36 million at December 31, 2015 and $35 million at December 31, 2014. Holdings of FHLB stock totaled $271 million at
December 31, 2016, $237 million at December 31, 2015 and $106 million at December 31, 2014. We are required to hold
FHLB stock in proportion to our borrowings with the FHLB.
Bank-Owned Life Insurance
We have approximately $308 million of bank-owned life insurance at December 31, 2016. This investment is expected to
provide a long-term source of earnings to support existing employee benefit programs. Approximately $281 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, 2016, the fair value of investments held in separate accounts was approximately $285
million. As the underlying fair value of the investments held in a separate account at December 31, 2016 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 $27 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 $17.0 billion at December 31, 2016, growing $1.0 billion
or 7% over December 31, 2015, including $485 million from the Mobank acquisition. Commercial loans have grown by $138
million or 1% due largely to growth in services, healthcare and wholesale/retail sector loans, partially offset by a decrease in
energy loan balances compared to the prior year. The Mobank acquisition added $289 million of commercial loans, primarily in
the services sector. Commercial real estate loans increased $550 million or 17% primarily due to growth in loans secured by
industrial facilities, office buildings and multifamily residential properties. The Mobank acquisition added $87 million in
commercial real estate balances. Residential mortgage loans increased $73 million and personal loans increased $287 million.
Table 14 – Loans
(In thousands)
Commercial:
Services
Energy
Healthcare
Wholesale/retail
Manufacturing
Other commercial and industrial
Total commercial
Commercial real estate:
Multifamily
Industrial
Office
Retail
Residential construction and land development
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
2016
2015
2014
2013
2012
December 31,
$
3,108,990
$
2,784,276
$
2,391,530
$
2,282,210
$
2,164,186
2,497,868
2,201,916
1,576,818
514,975
490,257
3,097,328
1,883,380
1,422,064
556,729
508,754
2,860,428
1,454,969
1,440,015
532,594
416,134
2,351,760
1,274,246
1,201,364
391,751
441,890
2,460,659
1,081,406
1,106,439
348,484
480,738
10,390,824
10,252,531
9,095,670
7,943,221
7,641,912
903,272
871,749
798,888
761,888
135,533
337,716
751,085
563,169
637,707
796,499
160,426
350,147
704,298
428,817
415,544
666,889
143,591
369,011
576,502
243,877
411,499
586,047
206,258
391,170
402,896
245,994
427,872
522,786
253,093
376,358
3,809,046
3,259,033
2,728,150
2,415,353
2,228,999
1,006,820
945,336
969,951
1,062,744
1,123,965
199,387
743,625
196,937
734,620
205,950
773,611
181,598
807,684
160,444
760,631
Total residential mortgage
1,949,832
1,876,893
1,949,512
2,052,026
2,045,040
Personal
Total
839,958
552,697
434,705
381,664
395,505
$
16,989,660
$ 15,941,154
$
14,208,037
$
12,792,264
$
12,311,456
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.
Service sector loans grew by $325 million or 12%, healthcare sector loans increased $319 million or 17% and wholesale/retail
sector loans increased $155 million or 11% over December 31, 2015. This growth was partially offset by a decrease of $599
million or 19% in energy sector loan balances.
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
$ 741,806
$ 893,893
$207,966
$
12,609
$ 322,053
$206,986
$ 337,772
$ 385,905
$ 3,108,990
510,621
1,243,253
17,557
5,099
229,585
9,526
90,440
291,834
382,739
109,288
379,504
136,004
100,187
129,250
123,987
252,334
554,069
149,525
49,198
472
71,268
4,790
66,878
42,628
70,695
62,131
99,309
76,305
391,787
788,816
282,662
69,836
2,497,868
2,201,916
1,576,818
514,975
100,963
125,577
3,666
51,056
21,940
36,983
73,280
76,792
490,257
Services
Energy
Healthcare
Wholesale/retail
Manufacturing
Other commercial
and industrial
Total commercial
loans
$2,137,251
$3,345,821
$414,863
$ 245,009
$ 812,334
$510,308
$ 929,440
$1,995,798
$10,390,824
The majority of our commercial portfolio is located within our geographic footprint. At December 31, 2016, the Other category
is composed primarily of California totaling $301 million or 2.9% of the commercial portfolio, Louisiana totaling $158 million
or 1.5% of the commercial portfolio, Florida totaling $116 million or 1.1% of the commercial portfolio and Tennessee totaling
$109 million or 1.1% of the commercial portfolio. All other states individually represent one percent or less of the total
commercial loan portfolio.
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
Outstanding energy loans totaled $2.5 billion or 15% of total loans at December 31, 2016. Unfunded energy loan commitments
increased by $320 million during the year to $2.7 billion at December 31, 2016 primarily due to energy borrowers paying down
outstanding balances. Total outstanding loan balances as a percentage of total energy loan commitments decreased to 50% at
December 31, 2016, compared to 58% at December 31, 2015. Approximately $2.0 billion or 80% of energy loans were to oil
and gas producers, a $550 million decrease compared to December 31, 2015. The majority of this portfolio is first lien, senior
secured, reserve-based lending, which we believe is the lowest risk form of energy lending. The Company has largely avoided
higher-risk energy lending areas including second-lien financing, mezzanine debt and subordinated debt. In addition, the
Company has no direct exposure to energy company equity or to borrowers with deepwater offshore exposure. Approximately
57% of the committed production loans are secured by properties primarily producing oil and 43% of the committed production
loans are secured by properties primarily producing natural gas. Loans to borrowers in the midstream sector of the industry
totaled $264 million or 10% of energy loans, an increase of $71 million over the prior year. Loans to borrowers that provide
services to the energy industry totaled $185 million or 7% of energy loans, a decrease of $94 million during 2016. Loans to
other energy borrowers, including those engaged in wholesale or retail energy sales totaled $60 million or 3% of energy loans,
a decrease of $26 million compared to the prior year.
The services sector of the loan portfolio totaled $3.1 billion or 18% of total loans and consists of a large number of loans to a
variety of businesses, including governmental, financial and insurance, educational, religious and not-for-profit and
professional/technical services. Loans to governmental entities totaled $680 million at December 31, 2016. Approximately $1.4
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.
The healthcare sector of the loan portfolio totaled $2.2 billion or 13% of total loans and consists primarily of loans for the
development and operation of senior housing and care facilities, including independent living, assisted living and skilled
nursing. Healthcare also includes loans to hospitals and other medical service providers.
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, 2016, the outstanding principal balance of these loans totaled $3.7
billion. Approximately 81% 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, 30% and 11% at December 31, 2016. We require
collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements,
equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The
expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect
the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally
monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending
policies.
Commercial real estate loans totaled $3.8 billion or 22% of the loan portfolio at December 31, 2016. The outstanding balance
of commercial real estate loans increased $550 million over 2015, primarily due to growth in loans secured by industrial
facilities, office buildings and multifamily residential properties. This growth was partially offset by a decrease in loans secured
by retail facilities and residential construction and land development loans. The commercial real estate loan segment is
approaching our internal concentration limit. The commercial real estate loan balance as a percentage of our total loan portfolio
has ranged from 18% to 23% 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)
Multifamily
Industrial
Office
Retail
Residential
construction and
land
development
Other commercial
real estate
Total commercial
real estate loans
Oklahoma
Texas
95,095
83,607
86,388
79,363
320,982
254,542
208,124
New
Mexico
11,877
26,869
52,654
Arkansas Colorado Arizona
25,093
54
1,833
6,712
67,770
33,319
66,043
20,308
71,188
18,075
66,397
32,855
Kansas/
Missouri
120,629
81,087
76,508
20,255
Other
Total
190,638
374,196
240,941
194,653
903,272
871,749
798,888
761,888
298,886
108,856
13,206
28,691
18,025
6,038
25,145
8,001
13,560
22,867
135,533
70,841
37,652
15,069
5,440
24,755
42,167
27,499
114,293
337,716
$ 428,500
$1,148,877
$ 233,350
$ 45,170
$ 237,340
$238,683
$ 339,538
$1,137,588
$ 3,809,046
The Other category includes California with $189 million or 5% of total commercial real estate loans and Utah with $139
million or 4%, of total commercial real estate loans. All other states individually represent less than 3% of the total commercial
real estate loan population.
Residential Mortgage and Personal
Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow
against the equity in their home. Residential mortgage loans are secured by a first or second-mortgage on the customer’s
primary residence. Personal loans consist primarily of loans to wealth management clients secured by the cash surrender value
of insurance policies and marketable securities. It also includes direct loans secured by and for the purchase of automobiles,
recreational and marine equipment as well as unsecured loans. Residential mortgage and personal loans are made in accordance
with underwriting policies we believe to be conservative and are fully documented. Credit scoring is assessed based on
significant credit characteristics including credit history, residential and employment stability.
Residential mortgage loans totaled $1.9 billion, a $73 million or 4% increase compared to December 31, 2015. 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 97% 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, 2016, $199 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 $2.5 million or 1% over December 31, 2015.
54
Home equity loans totaled $744 million at December 31, 2016, a $9.0 million or 1% increase over December 31, 2015. Our
home equity portfolio is primarily composed of first-lien, fully amortizing home equity loans. Home equity loans generally
require a minimum FICO score of 700 and a maximum DTI of 50%. The maximum loan amount available for our home equity
loan products is generally $400 thousand. Revolving loans have a 10 year revolving period followed by 15 year term of
amortizing repayments. Interest-only home equity loans have a 5 year revolving period followed by a 15 year term of
amortizing repayments and 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, 2016 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
$
$
70,854
$
414,236
$
123,779
134,756
194,633
$
548,992
$
485,090
258,535
743,625
The distribution of residential mortgage and personal loans at December 31, 2016 is presented in Table 18. Residential
mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.
Table 18 – Residential Mortgage and Personal 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
$ 187,855
$407,108
$ 38,037
$ 14,032
$ 159,205
$ 91,208
$ 77,928
$ 31,447
$ 1,006,820
57,192
406,393
25,509
137,288
60,069
102,821
6,870
5,599
5,348
35,324
1,919
8,688
14,071
47,147
28,409
365
199,387
743,625
$ 651,440
$569,905
$ 200,927
$ 26,501
$ 199,877
$101,815
$ 139,146
$ 60,221
$ 1,949,832
Personal
$ 295,047
$334,710
$ 11,306
$
6,525
$ 52,679
$ 48,910
$ 78,386
$ 12,395
$ 839,958
55
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 BOKF, NA are centrally managed by the
Bank of Oklahoma.
Table 19 – Loans Managed by Primary Geographical Market
(In thousands)
Bank of Oklahoma:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Bank of Oklahoma
Bank of Texas:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Bank of Texas
Bank of Albuquerque:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Bank of Albuquerque
Bank of Arkansas:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Bank of Arkansas
Colorado State Bank & Trust:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Colorado State Bank & Trust
Bank of Arizona:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Bank of Arizona
Bank of Kansas City / Mobank:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Bank of Kansas City / Mobank
$
2016
2015
December 31,
2014
2013
2012
$
3,370,259
684,381
1,407,197
303,823
5,765,660
4,022,455
1,415,011
233,981
306,748
5,978,195
399,256
284,603
108,058
11,483
803,400
86,577
73,616
7,015
6,524
173,732
1,018,208
265,264
59,631
50,372
1,393,475
686,253
747,409
36,265
52,553
1,522,480
807,816
338,762
97,685
108,455
1,352,718
$
3,782,687
739,829
1,409,114
255,387
6,187,017
3,908,425
1,204,202
219,126
203,496
5,535,249
375,839
313,422
120,507
11,557
821,325
92,359
69,320
8,169
819
170,667
987,076
223,946
53,782
23,384
1,288,188
606,733
507,523
44,047
31,060
1,189,363
499,412
200,791
22,148
26,994
749,345
$
3,142,689
603,610
1,467,096
206,115
5,419,510
3,549,128
1,027,817
235,948
154,363
4,967,256
383,439
296,358
127,999
10,899
818,695
95,510
88,301
7,261
5,169
196,241
977,961
194,553
57,119
27,918
1,257,551
547,524
355,140
35,872
12,883
951,419
399,419
162,371
18,217
17,358
597,365
$
2,902,140
602,010
1,524,212
192,283
5,220,645
3,052,274
816,574
260,544
131,297
4,260,689
342,336
308,829
133,900
13,842
798,907
81,556
78,264
7,922
8,023
175,765
735,626
190,355
62,821
22,686
1,011,488
417,702
257,477
47,111
7,887
730,177
411,587
161,844
15,516
5,646
594,593
3,089,686
580,694
1,488,486
220,096
5,378,962
2,726,925
771,796
275,408
116,252
3,890,381
265,830
326,135
130,337
15,456
737,758
62,049
90,821
13,046
15,421
181,337
776,610
173,327
59,363
19,333
1,028,633
313,296
201,760
57,803
4,686
577,545
407,516
84,466
20,597
4,261
516,840
Total BOK Financial loans
$
16,989,660
$ 15,941,154
$
14,208,037
$
12,792,264
$
12,311,456
56
Table 20 – Loan Maturity and Interest Rate Sensitivity at December 31, 2016
(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
$ 10,390,824
3,809,046
$ 14,199,870
$
2,820,073
$
$
$
783,534
$
5,771,115
$
3,836,175
351,546
2,438,228
1,019,272
1,135,080
120,765
$
$
8,209,343
$
4,855,447
685,710
$
2,013,598
11,379,797
1,014,315
7,523,633
2,841,849
$ 14,199,870
$
1,135,080
$
8,209,343
$
4,855,447
We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements include unfunded
loan commitments which totaled $9.4 billion and standby letters of credit which totaled $585 million at December 31, 2016.
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 $390
thousand of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at
December 31, 2016.
Table 21 – Off-Balance Sheet Credit Commitments
(In thousands)
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
December 31,
2016
2015
2014
2013
2012
$
9,404,665
$
8,455,037
$
8,328,416
7,096,373
6,636,587
585,472
139,486
507,988
155,489
447,599
179,822
444,248
191,299
466,477
226,922
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. We no longer sell 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, 2016, the principal balance of residential
mortgage loans sold subject to recourse obligations totaled $139 million, down from $155 million at December 31,
2015. Substantially all of these loans are to borrowers in our primary markets including $88 million to borrowers in Oklahoma,
$15 million to borrowers in Arkansas and $12 million to borrowers in New Mexico. At December 31, 2016, approximately 3%
of these loans were nonperforming and 6% were past due 30 to 89 days. A separate accrual for credit risk of $4.0 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 2016, approximately
21% of repurchase requests have currently resulted in actual repurchases or indemnification by the Company. The accrual for
credit losses related to potential loan repurchases under representations and warranties totaled $2.8 million at December 31,
2016.
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 supports 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 Statements of
Earnings.
Derivative contracts are carried at fair value. At December 31, 2016, the net fair values of derivative contracts, before
consideration of cash margin, reported as assets under these programs totaled $690 million compared to $611 million at
December 31, 2015. Derivative contracts carried as assets include foreign exchange contracts with fair values of $494 million,
to-be-announced residential mortgage-backed securities with fair values of $120 million, energy contracts with fair values of
$36 million, interest rate swaps primarily sold to loan customers with fair values of $34 million and equity option contracts
with fair values of $4.4 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 $687 million.
At December 31, 2016, total derivative assets were reduced by $11 million of cash collateral received from counterparties and
total derivative liabilities were reduced by $48 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, 2016 follows in Table 22.
Table 22 – Fair Value of Derivative Contracts
(In thousands)
Banks and other financial institutions
Customers
Exchanges and clearing organizations
Fair value of customer hedge asset derivative contracts, net
$
289,356
285,636
104,454
$
679,446
The largest exposure to a single counterparty was to a clearing organization for to-be-announced mortgage-backed securities
which totaled $97 million at December 31, 2016.
58
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
$29.52 per barrel of oil would decrease the fair value of derivative assets by $28 million. An increase in prices equivalent to
$82.29 per barrel of oil would increase the fair value of derivative assets by $258 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 $15 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, 2016, 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. At December 31, 2016, the combined
allowance for loan losses and accrual for off-balance sheet credit risk totaled $257 million or 1.52% of outstanding loans and
117% of nonaccruing loans, excluding loans guaranteed by U.S. Government agencies. The allowance for loan losses was $246
million and the accrual for off-balance sheet credit risk was $11 million. At December 31, 2015, the combined allowance for
credit losses was $227 million or 1.43% of outstanding loans and 181% of nonaccruing loans, excluding loans guaranteed by
U.S. Government agencies. The allowance for loan losses was $226 million and the accrual for off-balance sheet credit risk was
$1.7 million.
On December 1, 2016, we acquired $492 million of loans in conjunction with the acquisition of Mobank at a fair value of $485
million. The aggregate discount of $7.1 million included $3.7 million for credit risk. None of the acquired loans were
considered to be purchase credit impaired loans. No allowance has been attributed to the Mobank loans as of December 31,
2016.
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. After evaluating all credit factors, the Company determined that a $65.0
million provision for credit losses was necessary due to credit migration in our energy loan portfolio at the beginning of the
year due to low energy prices. Trends in credit metrics in the latter half of 2016 have continued to show improvement, largely
driven by energy price stability and decreased rates of newly identified nonaccruing and potential problem loans.
Based on currently available information, our expectations for loan growth, historical credit factors by loan type and other
qualitative and environmental factors, and including the results of our energy stress testing, discussed in more detail following,
we estimate a loan loss provision range of $20 million to $30 million may be necessary to maintain an appropriate allowance
for loan losses and accrual for off-balance sheet credit risk in 2017.
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
Personal
Total
Recoveries of loans previously charged off:
Commercial
Commercial real estate
Residential mortgage
Personal
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 (recoveries) to average loans
Total provision for credit losses to average loans
Year Ended December 31,
2016
2015
2014
2013
2012
$ 225,524
$ 189,056
$
185,396
$ 215,507
$ 253,481
(35,828)
—
(1,312)
(5,448)
(6,734)
(944)
(2,205)
(5,288)
(3,569)
(2,047)
(4,448)
(6,168)
(6,335)
(5,845)
(5,753)
(7,349)
(42,588)
(15,171)
(16,232)
(25,282)
1,727
1,283
1,999
2,747
7,756
(34,832)
55,467
2,729
11,079
1,260
3,052
18,120
2,949
33,519
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)
(9,341)
(11,642)
(10,047)
(11,108)
(42,138)
6,128
5,706
1,928
5,056
18,818
(23,320)
(14,654)
1
$ 246,159
$ 225,524
$
$
$
1,711
9,533
11,244
65,000
$
$
1,230
481
1,711
$ 34,000
$
$
$
$
189,056
$ 185,396
$ 215,507
2,088
(858)
1,230
$
$
1,915
173
2,088
$
$
9,261
(7,346)
1,915
— $
(27,900)
$ (22,000)
1.45%
0.21%
0.40%
1.41 %
(0.02)%
0.23 %
1.33 %
(0.02)%
— %
1.45 %
0.02 %
(0.23)%
91.94 %
1.75 %
0.20 %
(0.19)%
44.66 %
Recoveries to gross charge-offs
18.21%
119.44 %
117.26 %
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
7.07x
(76.47)x
(67.47)x
90.97x
9.24x
0.11%
0.02 %
0.01 %
0.03 %
0.03 %
outstanding at period-end
1.52%
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 %
1.47 %
1.77 %
1.43 %
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, 2016, impaired loans totaled $419 million,
including $11 million with specific allowances of $843 thousand and $407 million with no specific allowances because the loan
balances represent the amounts we expect to recover. At December 31, 2015, impaired loans totaled $322 million, including
$44 million of impaired loans with specific allowances of $16 million and $278 million with no specific allowances. All
Mobank loans were initially recognized at fair value as of the December 1, 2016 acquisition date. Therefore, no allowance for
credit losses has been provided. None of the Mobank loans are impaired at December 31, 2016.
Risk grading guidelines in the OCC Oil and Gas Lending Handbook updated at the beginning of 2016, heavily weight the
borrowers' ability to repay total debt, regardless of collateral position. This change in grading methodology has increased loans
especially mentioned, potential problem loans and nonaccruing loans. Because substantially all of our loans to energy
producers are supported by senior lien positions that, in general, have substantially lower loss exposure, the historical
relationship between loan credit risk classification and loss exposure has been more difficult to correlate. Our most recently
completed energy portfolio redetermination supported that $121 million of impaired energy loans required no allowance for
credit losses based on the adequacy of collateral. In addition, $89 million of impaired energy loans are current on all payments
due.
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 $217 million at December 31, 2016, compared to
$179 million at December 31, 2015. The general allowance for the commercial loan portfolio segment increased by $25 million
primarily related to the prolonged low energy price environment. The general allowance for the commercial real estate loan
portfolio segment increased $9.4 million over December 31, 2015 primarily due to loan growth and the mix of commercial real
estate loans in the portfolio. The general allowance for residential mortgage loans decreased $1.3 million. The general
allowance for personal loans increased $4.6 million over the prior year.
Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These
factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other
relevant factors. Nonspecific allowances totaled $28 million at December 31, 2016, compared to $30 million at December 31,
2015. The nonspecific allowance includes consideration of the indirect impact of the prolonged low energy price environment
on the broader economies within our geographical footprint that are highly dependent on the energy industry.
An allocation of the allowance for loan losses by loan category follows in Table 24.
61
Table 24 – Allowance for Loan Losses Allocation
(Dollars in thousands)
2016
2015
December 31,
2014
2013
2012
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Loan category:
Commercial
$ 140,213
61.16% $ 130,334
64.32% $
90,875
64.02% $
79,180
62.10% $
65,280
62.07%
Commercial
real estate
Residential
mortgage
Personal
Nonspecific
allowance
50,749
22.42%
41,391
20.44%
42,445
19.20%
41,573
18.88%
54,884
18.11%
11.48%
4.94%
18,224
8,773
28,200
19,509
4,164
30,126
11.77%
3.47%
23,458
4,233
28,045
13.72%
3.06%
16.04%
2.98%
29,465
6,965
28,213
41,703
9,453
44,187
16.61%
3.21%
Total
$ 246,159
100.00% $ 225,524
100.00% $ 189,056
100.00% $ 185,396
100.00% $ 215,507
100.00%
1 Represents ratio of loan category balance to total loans.
Our loan monitoring process also identified certain accruing substandard loans, based on regulatory guidelines, 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. These
potential problem loans totaled $399 million at December 31, 2016 composed primarily of $308 million or 12% of energy
loans, $38 million or 1% of services loans, $16 million or less than 1% of healthcare loans, $15 million or 3% of manufacturing
loans and $13 million or less than 1% of wholesale/retail sector loans. Potential problem loans totaled $155 million at
December 31, 2015.
Our loan monitoring process also identified loans considered to be "other loans especially mentioned" based on regulatory
guidelines. Other loans especially mentioned are in compliance with the original terms of the agreement, but may have a
weakness that deserves management's close attention. Other loans especially mentioned totaled $230 million at December 31,
2016 and were composed primarily of $120 million or 5% of energy loans, $44 million or 2% of healthcare loans, $27 million
or 5% of manufacturing loans, $17 million or 1% of wholesale/retail sector loans and $11 million or less than 1% of service
sector loans. Other loans especially mentioned totaled $386 million at December 31, 2015.
We updated our energy portfolio stress test at December 31, 2016 to determine how the energy portfolio may respond in a
prolonged low-price environment. Stress test assumptions included a starting price of $2.00 per million BTUs for natural gas
and $37.50 per barrel of oil, gradually escalating over seven years to a maximum of $3.00 and $55, respectively. In this
scenario, the energy portfolio exhibits a greater stress than the Company's fifteen year historical loss rate on energy production
loans of 18 basis points. The results of the stress test are factored into our expectation that the loan loss provision could range
from $20 million to $30 million for 2017, based on current observed conditions. The portion of the combined allowance for
credit losses attributable to the energy portfolio totaled 3.68% of outstanding energy loans at December 31, 2016, compared to
2.89% of outstanding energy loans at December 31, 2015.
Net Loans Charged Off
Loans are charged off against the allowance for loan losses when the loan balance or a portion of the loan balance is no longer
covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral
value. Internally risk graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is
identified. Non-risk graded loans are generally charged off when payments are between 60 days and 180 days past due,
depending on loan class. In addition, non-risk graded loans are generally charged-down to collateral value within 60 days of
being notified of a borrower's bankruptcy filing, regardless of payment status.
BOK Financial had net loans charged off of $34.8 million or 0.21% of average loans for 2016 compared to a net recovery of
$2.9 million or (0.02)% of average loans in 2015.
62
Net commercial loans charged off totaled $34.1 million, primarily from energy loans. Energy loan charge-offs included $21.6
million from a single borrower due to steeper than expected production declines and higher lease operating expenses. Net
commercial real estate loan recoveries totaled $1.3 million. Net recoveries of residential mortgage loans totaled $687 thousand
for the year and net charge-offs of personal loans were $2.7 million.
Table 25 – Nonperforming Assets
(In thousands)
Nonaccruing loans:
Commercial
Commercial real estate
Residential mortgage
Personal
Total nonaccruing loans
Accruing renegotiated loans guaranteed by U.S.
government agencies
Real estate and other repossessed assets:
Guaranteed by U.S. government agencies1
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
Healthcare
Wholesale/retail
Manufacturing
Other
Total commercial
Commercial real estate:
Retail
Multifamily
Office
Industrial
Residential construction and land development
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
Personal
Total nonaccruing loans
2016
2015
2014
2013
2012
December 31,
$
16,760
40,850
42,320
1,219
24,467
60,626
46,608
2,709
101,149
134,410
54,322
38,515
$
178,953
$
76,424
$
5,521
46,220
290
9,001
61,240
463
230,984
147,128
81,370
74,049
—
44,287
44,287
356,641
263,425
—
30,731
30,731
251,908
155,959
$
$
$
$
$
132,499
$
8,173
825
11,407
4,931
21,118
61,189
10,290
1,072
2,919
331
623
$
$
$
$
$
$
$
13,527
18,557
48,121
566
80,771
73,985
49,898
51,963
101,861
256,617
129,022
1,416
5,201
1,380
4,149
450
931
$
$
$
37,431
54,841
92,272
247,743
155,213
1,860
4,922
1,586
6,969
592
831
178,953
76,424
13,527
16,760
326
38
426
76
3,433
1,222
5,521
1,319
274
651
76
4,409
2,272
9,001
22,855
28,984
11,846
11,519
46,220
290
21,900
10,356
61,240
463
3,926
—
3,420
—
5,299
5,912
18,557
34,845
3,712
9,564
48,121
566
4,857
7
6,391
252
17,377
11,966
40,850
34,279
777
7,264
42,320
1,219
$
230,984
$
147,128
$
80,771
$
101,149
$
134,410
63
22,365
81,426
103,791
276,716
215,347
2,460
12,090
3,166
3,077
2,007
1,667
24,467
8,117
2,706
6,829
3,968
26,131
12,875
60,626
39,863
489
6,256
46,608
2,709
Table 25 – Nonperforming Assets
(In thousands)
2016
2015
2014
2013
2012
December 31,
Nonaccruing loans as % of outstanding loan balance for class:
Nonaccruing loans by loan class:
Commercial:
Energy
Services
Healthcare
Wholesale/retail
Manufacturing
Other
Total commercial
Commercial real estate:
Retail
Multifamily
Office
Industrial
Residential construction and land development
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
Personal
Total nonaccruing loans
5.30%
0.26%
0.04%
0.72%
0.96%
4.31%
1.72%
0.04%
—%
0.05%
0.01%
2.53%
0.36%
0.14%
1.98%
0.37%
0.06%
0.21%
0.06%
0.12%
0.75%
0.17%
0.04%
0.10%
0.01%
2.75%
0.65%
0.28%
2.27%
3.07%
5.94%
1.55%
2.37%
0.03%
1.36%
11.12%
1.41%
3.26%
0.08%
0.92%
0.05%
0.22%
0.09%
0.29%
0.08%
0.22%
0.15%
0.59%
—%
0.82%
—%
3.69%
1.60%
0.68%
3.59%
1.80%
1.24%
2.47%
0.13%
0.57%
0.08%
0.22%
0.12%
0.58%
0.15%
0.19%
0.21%
0.83%
—%
1.55%
0.10%
8.42%
3.06%
1.69%
3.23%
0.43%
0.90%
2.06%
0.32%
0.79%
0.10%
0.56%
0.29%
0.28%
0.58%
0.35%
0.32%
1.55%
0.67%
1.60%
1.61%
10.32%
3.42%
2.72%
3.55%
0.30%
0.82%
2.28%
0.68%
1.09%
Allowance for loan losses to nonaccruing loans2
Accruing loans 90 days or more past due2
Foregone interest on nonaccruing loans3
8,587
1 Approximately $50 million was reclassified from Real estate and other repossessed assets to Receivables on the balance sheet on January
112.33%
180.09%
245.34%
184.71%
15,990
3,925
1,207
1,415
7,432
8,170
5,361
125
$
$
$
5
$
$
160.92%
1, 2015 with the adoption of Financial Accounting Standards Board Update No. 2014-14, Classification of Certain Government-
Guaranteed Mortgage Loans Upon Foreclosure ("ASU 2014-14"). With the implementation of ASU 2014-14, upon foreclosure of loans
for which the loan balance is expected to be recovered from the guarantee by a U.S. government agency, the loan balance is directly
reclassified to other receivables without including such foreclosed assets in real estate and other repossessed assets.
2 Excludes residential mortgages guaranteed by agencies of the U.S. government.
3 Interest collected and recognized on nonaccruing loans was not significant in 2016 and previous years.
Nonperforming assets increased $105 million during 2016 to $357 million or 2.09% of outstanding loans and repossessed
assets at December 31, 2016. Nonaccruing loans totaled $231 million, accruing renegotiated residential mortgage loans totaled
$81 million and real estate and other repossessed assets totaled $44 million. All accruing renegotiated residential mortgage
loans and $12 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S.
government agencies, nonperforming assets increased $107 million during the year to $263 million or 1.56% of outstanding
non-guaranteed loans and repossessed assets. The increase was primarily due to nonaccruing energy and other commercial &
industrial loans, as well as real estate and other repossessed assets from repossession of collateral of certain energy loans. 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 personal loans to troubled borrowers. Personal loans modified at the direction of bankruptcy court orders are identified
as troubled debt restructurings and classified as nonaccruing.
As of December 31, 2016, 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. government agency guidelines.
A rollforward of nonperforming assets for the year ended December 31, 2016 follows in Table 26.
Table 26 – Rollforward of Nonperforming Assets
(In thousands)
Balance, December 31, 2015
Additions
Net transfer to 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
Acquisition of Mobank
Net transfers to nonaccruing loans
Return to accrual status
Other, net
Balance, December 31, 2016
Year Ended December 31, 2016
Nonaccruing
Loans
Renegotiated
Loans
Real Estate
and Other
Repossessed
Assets
Total
Nonperforming
Assets
$
147,128
$
74,049
$
30,731
$
273,969
—
(97,214)
(42,588)
—
(34,282)
(18,045)
—
—
2,061
(45)
—
46,593
—
(1,808)
—
—
—
(9,471)
(26,384)
—
(2,061)
—
452
—
2,109
—
—
1,108
34,282
—
(25,596)
1,740
—
—
(87)
251,908
320,562
2,109
(99,022)
(42,588)
1,108
—
(27,516)
(51,980)
1,740
—
(45)
365
$
230,984
$
81,370
$
44,287
$
356,641
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. At foreclosure, these amounts are transferred
to claims receivable accounts. These properties will be conveyed to the agencies and receivables collected once applicable
criteria have been met.
Nonaccruing loans totaled $231 million or 1.36% of outstanding loans at December 31, 2016 compared to $147 million or
0.92% of outstanding loans at December 31, 2015. Nonaccruing loans increased $84 million from December 31, 2015. Newly
identified nonaccruing loans totaled $274 million for 2016, partially offset by $97 million of payments, $43 million of charge-
offs and $34 million of foreclosures.
65
Commercial
Nonaccruing commercial loans totaled $179 million or 1.72% of total commercial loans at December 31, 2016, compared to
$76 million or 0.75% of total commercial loans at December 31, 2015. Nonaccruing commercial loans increased $103 million
during 2016. Newly identified nonaccruing commercial loans totaled $225 million, offset by $61 million in payments, $36
million of charge-offs and $25 million of repossessions.
Nonaccruing commercial loans at December 31, 2016 were primarily composed of $132 million or 5.30% of total energy loans,
$21 million or 4.31% of other commercial and industrial loans, $11 million or 0.72% of wholesale/retail loans and $8.2 million
or 0.26% of total services loans.
Commercial Real Estate
Nonaccruing commercial real estate loans were $5.5 million or 0.14% of outstanding commercial real estate loans at
December 31, 2016, down from $9.0 million or 0.28% of outstanding commercial real estate loans at December 31, 2015. The
$3.5 million decrease was primarily due to $6.8 million of cash payments received, partially offset by $3.4 million of newly
identified commercial real estate loans during the year. There were no charge-offs or foreclosures of commercial real estate
loans in 2016.
Nonaccruing commercial real estate loans were composed of $3.4 million or 2.53% of total residential land development and
construction loans and $1.2 million or 0.36% of total other commercial real estate loans.
Residential Mortgage and Personal
Nonaccruing residential mortgage loans totaled $46 million or 2.37% of outstanding residential mortgage loans at
December 31, 2016, compared to $61 million or 3.26% of outstanding residential mortgage loans at December 31, 2015. Newly
identified nonaccruing residential mortgage loans of $39 million were offset by $28 million of cash payments, $26 million of
foreclosures and $1.3 million of loans charged off during the year. Nonaccruing residential mortgage loans primarily consisted
of $23 million or 2.27% of non-guaranteed permanent residential mortgage loans and $12 million or 5.94% of permanent
residential mortgage loans guaranteed by U.S. government agencies. Nonaccruing home equity loans totaled $12 million or
1.55% of total home equity loans.
Payments on accruing residential mortgage loans and personal loans may be delinquent. The composition of residential
mortgage loans and personal loans past due but still accruing is included in the following Table 27. Substantially all non-
guaranteed residential loans past due 90 days or more are nonaccruing. At December 31, 2016, residential mortgage loans 30 to
59 days past due of $5.6 million were largely unchanged compared to the prior year. Residential mortgage loans 60 to 89 days
past due increased $901 thousand over December 31, 2015. Personal loans 30 to 59 days past due decreased $76 thousand and
personal loans 60 to 89 days past due increased $235 thousand compared to December 31, 2015.
Table 27 – Residential Mortgage and Personal Loans Past Due
(In thousands)
December 31, 2016
60 to 89
Days
90 Days
or More
30 to 59
Days
December 31, 2015
90 Days
or More
60 to 89
Days
30 to 59
Days
Residential mortgage:
Permanent mortgage1
Home equity
Total residential mortgage
$
$
— $
—
— $
1,280
337
1,617
$
$
3,299
2,276
5,575
Personal
1 Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.
263
$
5
$
$
589
$
$
$
66
— $
20
20
$
— $
716
716
8
$
28
$
$
3,290
2,379
5,669
665
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 $44 million at December 31, 2016, a $14 million increase over December 31,
2015. 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, 2016
(In thousands)
Oklahoma
Texas
Colorado Arkansas
New
Mexico
Arizona
Kansas/
Missouri
Other
Total
Oil and gas properties
$
— $ 25,421
$
— $
— $
— $
— $
— $ — $ 25,421
1-4 family residential
properties
Developed commercial
real estate properties
Undeveloped land
Residential land
development
properties
Vehicles
Total real estate and
other repossessed
assets
4,198
305
—
472
1,927
64
1,350
—
1,305
2,637
—
26
4
—
18
210
—
—
—
—
—
590
—
—
—
780
198
306
499
511
428
8,621
1,296
1,740
2
—
—
—
—
—
4,785
4,701
737
22
$
5,642
$ 27,049
$
2,847
$
472
$
2,517
$
1,783
$
3,549
$
428
$ 44,287
Undeveloped land is primarily zoned for commercial development. Developed commercial real estate properties are primarily
completed with no additional construction necessary for sale.
67
Liquidity and Capital
Based on the average balances for 2016, approximately 65% of our funding was provided by deposit accounts, 21% from
borrowed funds, 1% from long-term subordinated debt and 10% from equity. Our funding sources, which primarily include
deposits and borrowings from the Federal Home Loan Banks, provide adequate liquidity to meet our operating needs.
Subsidiary Banks
Deposits and borrowed funds are the primary sources of liquidity for the subsidiary banks. 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 personal and small business checking, online
bill paying services, mobile banking services, an extensive network of branch locations and ATMs and our Express Bank call
center. Commercial deposit growth is supported by offering treasury management and lockbox services. We also acquire
brokered deposits when the cost of funds is advantageous to other funding sources.
Table 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,
2016
2015
$
8,430,507
$
8,773,512
6,632,687
4,867,293
6,668,520
4,573,710
19,930,487
20,015,742
962,086
917,504
$ 20,892,573
$ 20,933,246
Average deposits for 2016 totaled $20.9 billion and represented approximately 65% of total liabilities and capital compared
with $20.9 billion and 68% of total liabilities and capital for 2015. Average deposits decreased $41 million compared to the
prior year. Demand deposits grew by $426 million, offset by a $175 million decrease in interest-bearing transaction deposit
account balances and a $328 million decrease in time deposits.
Average deposits attributed to Commercial Banking were $8.4 billion for 2016, a decrease of $343 million or 4% compared to
2015. Decreased interest-bearing transaction account and time deposit balances, were partially offset by growth in demand
deposit balances. Average balances attributed to our commercial & industrial loan customers decreased $277 million or 6%.
Average balances attributed to our energy customers decreased $116 million or 8%. Average balances attributed to commercial
real estate customers were $53 million or 10% lower than in the prior year. Small business banking customer average balances
increased $66 million or 5% and average balances attributed to our healthcare customers increased $59 million or 9%.
Commercial customers continue to maintain large cash reserves primarily due to low yields available on other high quality
investment alternatives and to minimize deposit service charges through the earnings credit. The earnings credit is a non-cash
method that enables commercial customers to offset deposit service charges based on account balances. Commercial account
balances may decrease as short-term interest rates rise and commercial customers redeploy cash to better yielding investment
alternatives.
Average Consumer Banking deposit balances were largely unchanged compared to the prior year. Average demand deposit
balances grew by $118 million or 8% and average interest-bearing transaction accounts increased $52 million or 2%. Average
savings account balances were up $30 million or 8%. Higher costing time deposit balances decreased $235 million or 17%.
Average Wealth Management deposit balances increased $294 million or 6% over the prior year. Non-interest-bearing demand
deposits increased $184 million and interest-bearing transaction balances increased $171 million, partially offset by a $64
million decrease in time deposits.
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, deposits may decline as customers deploy funds
into projects. In addition, if short-term interest rates were to increase further, customers could shift deposits from non-interest
bearing demand deposits into interest-bearing alternatives.
68
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,
2016
2015
$
$
295,755
$
243,210
315,506
590,981
292,292
206,935
268,894
746,719
1,445,452
$
1,514,840
Brokered deposits included in time deposits averaged $384 million for 2016 compared to $416 million for 2015. Brokered
deposits included in time deposits totaled $417 million at December 31, 2016 and $358 million at December 31, 2015.
Average interest-bearing transaction accounts for 2016 included $732 million of brokered deposits compared to $573 million
for 2015. Brokered deposits included in interest-bearing transaction accounts totaled $1.3 billion at December 31, 2016 and
$561 million at December 31, 2015. The increase in brokered interest-bearing transaction account balances was primarily due
to use of a reciprocal program that spreads large customer deposits among participating banks in amounts that qualify FDIC
insurance. In exchange, we also receive deposits from participating banks in amounts that qualify for FDIC insurance. Our
increased use of this reciprocal program has enabled us to reduce the amount of deposits we are required to collateralize,
thereby improving liquidity.
69
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
2016
2015
2014
2013
2012
December 31,
$
3,993,170
$
4,133,520
$
3,828,819
$ 3,432,940
$
4,207,263
6,345,536
241,696
1,118,355
7,705,587
5,971,819
226,733
1,202,274
7,400,826
6,117,886
6,318,045
206,357
1,301,194
7,625,437
191,880
1,214,507
7,724,432
6,023,384
163,512
1,267,854
7,454,750
11,698,757
11,534,346
11,454,256
11,157,372
11,662,013
3,137,009
2,627,764
2,639,732
2,481,603
2,606,176
2,388,812
2,132,099
2,065,723
1,966,580
2,129,084
83,101
535,642
3,007,555
6,144,564
77,902
549,740
2,759,741
5,387,505
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
627,979
487,286
487,819
502,395
427,510
590,571
49,963
238,408
878,942
563,723
43,672
267,821
875,216
519,544
37,471
295,798
852,813
529,140
33,944
327,281
890,365
511,758
31,926
364,928
908,612
Total Bank of Albuquerque
1,506,921
1,362,502
1,340,632
1,392,760
1,336,122
Bank of Arkansas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Arkansas
26,389
27,252
35,996
38,566
39,897
105,232
2,192
16,696
124,120
150,509
202,857
1,747
24,983
229,587
256,839
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
70
Table 31 -- Period End Deposits by Principal Market Area
(In thousands)
Colorado State Bank & Trust:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
2016
2015
2014
2013
2012
December 31,
576,000
497,318
445,755
409,942
336,252
616,679
32,866
242,782
892,327
616,697
31,927
296,224
944,848
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
Total Colorado State Bank & Trust
1,468,327
1,442,166
Bank of Arizona:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Arizona
Bank of Kansas City / Mobank:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Bank of Kansas City / Mobank
366,755
326,324
369,115
204,092
161,093
305,099
2,973
27,765
335,837
702,592
358,556
2,893
29,498
390,947
717,271
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
508,418
197,424
259,121
246,739
260,095
513,176
12,679
42,152
568,007
1,076,425
153,203
1,378
35,524
190,105
387,529
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
Total BOK Financial deposits
$
22,748,095
$
21,088,158
$ 21,140,859
$ 20,269,327
$
21,179,060
See Note 9 to the Consolidated Financial Statements for a summary of other borrowings.
In addition to deposits, liquidity for the subsidiary banks is provided primarily by federal funds purchased, securities
repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured,
overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers’ banks and Federal
Home Loan banks from across the country. The largest single source of wholesale federal funds purchased totaled $12 million
at December 31, 2016. 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 $6.0 billion during 2016 and $4.9 billion during 2015.
At December 31, 2016, the estimated unused credit available to the subsidiary banks from collateralized sources was
approximately $5.1 billion.
71
In 2007, BOKF, NA 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%. The $227 million that remained
outstanding at December 31, 2015 was called during 2016.
BOKF, NA 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 banks. Cash on hand at
December 31, 2016 totaled $163 million. Dividends from the subsidiary banks 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, 2016, based on the most restrictive limitations as well as management’s internal capital
policy, BOKF, NA could declare up to $171 million of dividends without regulatory approval. Dividend constraints may be
alleviated through increases in retained earnings, capital issuances or changes in risk weighted assets. Future losses or increases
in required regulatory capital could also affect its ability to pay dividends to the parent company.
On June 27, 2016, the parent company issued $150 million of subordinated debt that will mature on June 30, 2056. This debt
bears interest at the rate of 5.375%, payable quarterly. On June 30, 2021, we will have the option to redeem the debt at the
principal amount plus accrued interest, subject to regulatory approval.
Shareholders' equity at December 31, 2016 was $3.3 billion, an increase of $44 million over December 31, 2015. Net income
less cash dividends paid increased equity $119 million during 2016. Changes in interest rates resulted in an accumulated other
comprehensive loss of $11 million at December 31, 2016, compared to an accumulated other comprehensive gain of $22
million at December 31, 2015. The Company also repurchased $67 million of our common stock during 2016. We also
deployed $103 million of capital to acquire all of the outstanding stock of MBT Bancshares, Inc. in an all cash deal. 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 October 27, 2015, the board of directors authorized the Company to purchase up to five million common shares, subject to
market conditions, securities laws and other regulatory compliance limitations. As of December 31, 2016, a cumulative total of
2,879,243 shares have been repurchased under this authorization. The Company repurchased 1,005,169 shares during 2016 at
an average price of $66.45 per share.
BOK Financial and the subsidiary banks 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.
Effective January 1, 2015, capital rules establish a 7% threshold for the common equity Tier 1 ratio consisting of a minimum
level plus capital conservation buffer. The Company has elected to exclude unrealized gains and losses from available for sale
securities from its calculation of Tier 1 capital, consistent with the treatment under previous capital rules. Components of the
capital rules effective January 1, 2015 will phase in through January 1, 2019.
A summary of minimum capital requirements, including capital conservation buffer follows in Table 32. Failure to meet these
minimum capital requirements, including capital conservation buffer, could subject BOK Financial to regulatory restrictions on
capital distributions (including but not limited to dividends and share repurchases) and executive bonus payments.
The capital ratios for BOK Financial on a consolidated basis are presented in Table 32 following.
72
Table 32 – Capital Ratios
Risk-based capital:
Common equity Tier 1
Tier 1 capital
Total capital
Tier 1 Leverage
Average total equity to average assets
Tangible common equity ratio
1 Effective January 1, 2016
Minimum
Capital
Requirement
Capital
Conservation
Buffer1
Minimum
Capital
Requirement
Including
Capital
Conservation
Buffer
4.50%
6.00%
8.00%
4.00%
2.50%
2.50%
2.50%
N/A
7.00%
8.50%
10.50%
4.00%
December 31,
2016
2015
11.21%
11.21%
12.81%
8.72%
10.38%
8.61%
12.13%
12.13%
13.30%
9.25%
11.03%
9.02%
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.
Table 33 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
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
December 31,
2016
2015
$ 3,274,854
495,830
2,779,024
32,772,281
495,830
$ 32,276,451
$ 3,230,556
429,370
2,801,186
31,476,128
429,370
$ 31,046,758
8.61%
9.02%
On October 20, 2016, BOK Financial published the results of its annual capital stress test. In accordance with the Dodd-Frank
Act, the Federal Reserve must publish regulations that require bank holding companies with $10 billion to $50 billion in assets
to perform annual capital stress tests. The requirements for annual capital stress tests became effective for the Company in the
fourth quarter of 2013. The Dodd-Frank Act Stress Test ("DFAST") is a forward-looking exercise under which the Company
and its banking subsidiary estimate the impact of a hypothetical severely adverse macroeconomic scenario provided by the
Federal Reserve and Office of the Comptroller of the Currency on its financial condition and regulatory capital ratios over a
nine-quarter time horizon. Under the scenario provided by the regulatory agencies, all capital ratio measures remain above
minimum regulatory thresholds. Additional information concerning the annual stress test may be found on the Company's
Investor Relations page at www.bokf.com under the "Presentations" tab. The results of future capital stress tests may place
constraints on capital distributions or increases in required regulatory capital under certain circumstances.
73
Off-Balance Sheet Arrangements
See Note 14 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet
commitments.
Aggregate Contractual Obligations
BOK Financial has numerous contractual obligations in the normal course of business. These obligations include time deposits
and other borrowed funds, premises used under various operating leases, commitments to extend credit to borrowers and to
purchase securities, derivative contracts and contracts for services such as data processing that are integral to our operations.
Table 34 following summarizes payments due on contractual obligations with initial terms in excess of one year.
Table 34 – Contractual Obligations as of December 31, 2016
(In thousands)
Time deposits
Other borrowings
Subordinated debentures
Operating lease obligations
Derivative contracts
Data processing services
Tax credit purchase commitment
Less Than
1 Year
1 to 3
Years
4 to 5
Years
More Than
5 Years
Total
$
624,375
$
417,589
$
216,275
$
407,939
$
1,666,178
724
8,063
22,502
9,864
15,687
3,700
1,924
16,125
39,734
12,939
19,733
—
2,168
16,125
29,577
11,165
1,320
—
22,857
422,796
56,818
8,721
605
—
27,673
463,109
148,631
42,689
37,345
3,700
Total
$
684,915
$
508,044
$
276,630
$
919,736
$
2,389,325
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
Alternative investment commitments
Unfunded third-party private equity commitments
$
9,404,665
585,472
139,486
78,357
2,594
Payments on time deposits, other borrowed funds and subordinated debentures include interest which has been calculated from
rates at December 31, 2016. 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.
We also have obligations with respect to employee benefit plans. See Note 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 $1.4 billion of the loan commitments expire within one year.
74
The Company has funded $174 million and has commitments to fund an additional $78 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 $2.6 million as of December 31, 2016. 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.
Forward-Looking Statements
This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations,
estimates, and projections about BOK Financial, the financial services industry and the economy in general. Words such as
“anticipates,” “believes,” ”estimates,” “expects,” “forecasts,” “plans,” “projects,” “will,” “intends,” 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, accruals for loss contingencies and valuation of mortgage servicing rights 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 changes in commodity prices, interest rates and interest rate relationships, demand for products
and services, the degree of competition by traditional and nontraditional competitors, changes in banking regulations, tax laws,
prices, levies, and assessments, the impact of technological advances and 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 limits 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. These limits 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.
Further, the Board approved market risk limits for fixed income trading, mortgage pipeline and mortgage servicing assets
inclusive of economic hedge benefits. Compliance is reviewed monthly. Deviations from the Board approved limits require
Board escalation and approval.
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, models cannot precisely estimate or precisely predict the impact of higher or lower interest
rates. 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.
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. A simulation model is used to estimate the effect of changes in interest rates
on our performance across multiple interest rate scenarios. While the current internal policy limit for net interest revenue
variation is a maximum decline of 5% due to a 200 basis point change in market interest rates 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.
76
Table 35 – Interest Rate Sensitivity
(Dollar in thousands)
200 bp Increase
50 bp Decrease
2016
2015
2016
2015
Anticipated impact over the next twelve months on net interest revenue
$
(4,932)
$
(7,576)
$ (18,021)
$
(22,501)
(0.60)%
(0.97)%
(2.19)%
(2.87)%
BOK Financial is also subjected to market risk through changes in the fair value of mortgage servicing rights. Changes in the fair
value of mortgage servicing rights are highly dependent on changes in primary mortgage rates offered to borrowers, intermediate-
term interest rates that affect the value of custodial funds, and assumptions about servicing revenues, servicing costs and discount
rates. As primary mortgage rates increase, prepayment speeds slow and the value of our mortgage servicing rights increases. As
primary mortgage rates fall, prepayment speeds increase and the value of our mortgage servicing rights decreases.
We maintain a portfolio of financial instruments, which may include residential mortgage-backed securities issued by U.S.
government agencies, U.S. Treasury securities and interest rate derivative contracts held as an economic hedge of the changes
in the fair value of our mortgage servicing rights. Composition of this portfolio will change based on our assessment of market
risk. Changes in the fair value of residential mortgage-backed securities are highly dependent on changes in secondary
mortgage rates required by investors, and interest rate derivative contracts are highly dependent on changes in other market
interest rates. 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 forward-looking spread between the
primary and secondary rates can cause significant earnings volatility.
Management performs a stress test to measure market risk due to changes in interest rates inherent in its MSR portfolio and
hedges. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair
value, net of economic hedging activity that may result. The Board has approved a $20 million market risk limit for mortgage
servicing rights, net of economic hedges.
Table 36 - MSR Asset and Hedge Sensitivity Analysis
(In thousands)
Average
Low
High
Period End
Trading Activities
Year Ended December 31
2016
2015
Up 50 bp
Down 50 bp
Up 50 bp
Down 50 bp
$
(1,756) $
(11,150) $
431
$
(14,461)
12,963
(1,750)
(24,758)
9,267
(2,724)
(2,700)
5,775
809
(907)
(4,080)
1,327
292
The Company bears market risk by originating residential mortgages held for sale (RMHFS). RMHFS are generally
outstanding for 60 to 90 days which represents the typical period from commitment to originate a loan to sale of the closed loan
to an investor. Primary mortgage interest rate changes during this period affect the value of RMHFS commitments and loans.
We use forward sale contracts to mitigate market risk on all closed mortgage loans held for sale and on an estimate of mortgage
loan commitments that are expected to result in closed loans.
A variety of methods are used to monitor market risk of mortgage origination activities. These methods include daily marking
of all positions to market value, independent verification of inventory pricing, and revenue sensitivity limits.
Management performs a stress test to measure market risk due to changes in interest rates inherent in the mortgage production
pipeline. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair
value, net of economic hedging activity that may result. The Board has approved a $7 million market risk limit for the
mortgage production pipeline, net of forward sale contracts.
77
Table 37 - Mortgage Pipeline Sensitivity Analysis
(In thousands)
Average
Low
High
Period End
Year Ended December 31
2016
2015
Up 50 bp
Down 50 bp
Up 50 bp
Down 50 bp
$
(1,840) $
(583) $
(2,967) $
(6,858)
2,037
602
(2,953)
1,815
(1,158)
(6,590)
(998)
(2,036)
(1,932)
(4,351)
1,483
(1,951)
BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an intermediary,
we 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, we 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. BOK Financial has an insignificant exposure to foreign exchange risk and does not take positions
in commodity derivatives.
A variety of methods are used to monitor 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. Economic
hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs.
Management performs a stress test to measure market risk from changes in interest rates on its trading portfolio. The stress test
shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic
hedging activity that may result. The Board has approved a $8 million market risk limit for the trading portfolio, net of
economic hedges.
Table 38 –BOKFS Trading Sensitivity Analysis
(In thousands)
Average
Low
High
Period End
Year Ended December 31
2016
2015
Up 50 bp
Down 50 bp
Up 50 bp
Down 50 bp
$
(3,150) $
3,196
$
(1,767) $
(6,130)
146
1,212
(107)
7,013
(734)
(4,727)
437
865
1,703
(446)
4,728
(1,157)
78
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management on Internal Control over Financial Reporting
Management of BOK Financial Corporation 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, 2016.
As permitted, management excluded from its assessment the operations of Missouri Bank and Trust Company which was
acquired on December 1, 2016. As described in Note 6 to the Consolidated Financial Statements, assets acquired and excluded
from management's assessment of internal control over financial reporting comprised approximately 2% of consolidated assets
at December 31, 2016.
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, 2016. Their report, which expresses unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2016, is included in this annual report.
79
Report of Ernst & Young LLP, 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,
2016, 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.
As indicated in the accompanying Report of Management on Internal Control over Financial Reporting, management’s assessment
of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Missouri
Bank and Trust of Kansas City (“Mobank”), which is included in the 2016 consolidated financial statements of the BOK Financial
Corporation and constituted $749 million and $125 million of total and net assets, respectively, as of December 31, 2016 and $2
million and $124 thousand of revenues and net income, respectively, for the year then ended. Our audit of internal control over
financial reporting of BOK Financial Corporation also did not include an evaluation of the internal control over financial reporting
of Mobank.
In our opinion, BOK Financial Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, 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, 2016 and 2015, 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, 2016 and our report dated February 28, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 28, 2017
80
Report of Ernst & Young LLP, 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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2016, 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, 2016, 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 28, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 28, 2017
81
Consolidated Statements of Earnings
(In thousands, except share and per share data)
Interest and dividend revenue
Loans
Residential mortgage loans held for sale
Trading securities
Investment securities
Available for sale securities
Fair value option securities
Restricted equity securities
Interest-bearing cash and cash equivalents
Total interest and dividend revenue
Interest expense
Deposits
Borrowed funds
Subordinated debentures
Total interest expense
Net interest and dividend revenue
Provision for credit losses
Net interest and dividend 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
Other revenue
Total fees and commissions
Other gains, 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 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 (loss) 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.
82
Year Ended December 31,
2015
2014
2016
$
$
$
$
$
581,030
12,658
8,527
16,894
175,321
6,723
17,238
10,726
829,117
40,494
35,336
6,059
81,889
747,228
65,000
682,228
138,377
135,758
135,477
92,193
133,914
51,029
686,748
4,030
(15,685)
(10,555)
(2,193)
11,675
—
—
—
674,020
553,119
26,582
2,000
56,783
80,024
32,489
131,841
15,584
3,359
6,862
61,387
47,560
1,017,590
338,658
106,377
232,281
(387)
232,668
3.53
3.53
65,085,627
65,143,898
1.73
$
$
$
$
$
529,683
13,602
2,240
18,098
174,829
9,264
13,532
5,580
766,828
44,170
14,204
5,100
63,474
703,354
34,000
669,354
129,556
128,621
126,153
90,431
126,002
49,883
650,646
5,702
430
(3,684)
(4,853)
12,058
(2,443)
624
(1,819)
658,480
515,298
27,851
796
40,123
76,016
20,375
122,383
13,498
1,446
4,359
38,813
35,233
896,191
431,643
139,384
292,259
3,694
288,565
4.22
4.21
67,594,689
67,691,658
1.69
$
$
$
$
$
502,753
10,143
1,945
18,891
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
47,537
621,319
2,953
2,776
10,189
(16,445)
1,539
(373)
—
(373)
621,958
476,931
26,649
4,267
44,440
77,232
18,578
115,225
13,518
6,019
3,965
31,705
28,993
847,522
439,630
144,151
295,479
3,044
292,435
4.23
4.22
68,394,194
68,544,770
1.62
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:
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 taxes
Other comprehensive income (loss), net of income taxes
Comprehensive income
Comprehensive income (loss) attributable to non-controlling interests
Year Ended December 31,
2016
2015
2014
$
232,281
$
292,259
$
295,479
(41,521)
(46,803)
136,775
(112)
—
—
(11,675)
(53,308)
(20,754)
(32,554)
(503)
121
1,819
(12,058)
(57,424)
(22,338)
(35,086)
(1,216)
296
373
(1,539)
134,689
52,393
82,296
199,727
257,173
377,775
(387)
3,694
3,044
Comprehensive income attributable to BOK Financial Corp. shareholders
$
200,114
$
253,479
$
374,731
See accompanying notes to consolidated financial statements.
83
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: 2016 – $565,493; 2015 – $629,159)
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 (2016 – $9,562; 2015 – $12,622)
Derivative contracts
Cash surrender value of bank-owned life insurance
Receivable on unsettled available for sale securities sales
Other assets
Total assets
Liabilities and Equity
Liabilities:
Noninterest-bearing demand deposits
Interest-bearing deposits:
Transaction
Savings
Time
Total deposits
Funds purchased
Repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Derivative contracts
Due on unsettled available for sale securities purchases
Other liabilities
Total liabilities
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: 2016 –
74,993,407; 2015 – 74,530,364)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2016 – 9,655,975; 2015 – 8,636,332)
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
84
December 31,
2016
2015
620,846
1,916,651
337,628
546,145
8,676,829
77,046
307,240
301,897
16,989,660
(246,159)
16,743,501
325,849
772,952
448,899
46,931
247,073
44,287
689,872
308,430
7,188
353,017
32,772,281
$
$
573,699
2,069,900
122,404
597,836
9,042,733
444,217
273,684
308,439
15,941,154
(225,524)
15,715,630
306,490
163,480
385,461
43,909
218,605
30,731
586,270
303,335
40,193
249,112
31,476,128
9,235,720
$
8,296,888
10,865,105
425,470
2,221,800
22,748,095
57,929
668,661
4,846,072
144,640
146,704
664,531
6,508
182,784
29,465,924
9,998,954
386,252
2,406,064
21,088,158
491,192
722,444
4,837,879
226,350
119,584
581,701
16,897
124,284
28,208,489
4
1,006,535
2,823,334
(544,052)
(10,967)
3,274,854
31,503
3,306,357
32,772,281
$
4
982,009
2,704,121
(477,165)
21,587
3,230,556
37,083
3,267,639
31,476,128
$
$
$
$
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
Balance, December 31,
2013
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
Balance, December 31,
2014
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
Sale of non-controlling
interest
Capital calls and
distributions, net
73,163
$
—
—
—
510
—
—
331
—
—
74,004
—
—
—
526
—
—
—
—
—
Balance, December 31,
2015
74,530
—
—
—
463
—
—
Net income (loss)
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
Balance, December 31,
2016
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
$ 898,586
$2,349,428
4,305
$ (202,346) $
(25,623) $
3,020,049
$
34,924
$3,054,973
292,435
—
—
—
—
—
—
—
—
16,632
8,258
9,680
21,488
—
—
—
—
200
(12,337)
183
(12,160)
—
—
—
—
202
(13,136)
—
—
(111,026)
—
—
—
—
—
—
292,435
3,044
295,479
82,296
82,296
(12,337)
4,472
8,258
9,680
8,352
—
—
—
—
—
82,296
(12,337)
4,472
8,258
9,680
8,352
(111,026)
—
(111,026)
—
(3,941)
(3,941)
—
—
—
—
—
—
954,644
2,530,837
4,890
(239,979)
56,673
3,302,179
34,027
3,336,206
—
—
—
14,357
925
12,083
—
—
—
288,565
—
—
—
—
—
—
(35,086)
— 3,634
(229,540)
—
—
—
(115,281)
—
—
112
(7,646)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
288,565
(35,086)
(229,540)
6,711
925
12,083
(115,281)
3,694
292,259
—
—
—
—
—
—
(35,086)
(229,540)
6,711
925
12,083
(115,281)
—
—
5,500
5,500
(6,138)
(6,138)
982,009
2,704,121
8,636
(477,165)
21,587
3,230,556
37,083
3,267,639
—
—
—
12,465
1,590
10,471
—
—
232,668
—
—
—
—
—
—
(32,554)
— 1,005
(66,792)
—
—
—
15
—
—
(113,455)
—
—
(95)
—
—
—
—
—
—
—
—
232,668
(32,554)
(66,792)
12,370
1,590
10,471
(113,455)
(387)
232,281
—
—
—
—
—
—
(32,554)
(66,792)
12,370
1,590
10,471
(113,455)
—
(5,193)
(5,193)
—
—
74,993
$
4
$1,006,535
$2,823,334
9,656
$ (544,052) $
(10,967) $
3,274,854
$
31,503
$3,306,357
See accompanying notes to consolidated financial statements.
85
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 due to market changes
Change in fair value of mortgage servicing rights due to loan runoff
Unrealized losses (gains) from derivative contracts
Depreciation and amortization
Tax effect from equity compensation, net
Share-based compensation
Net amortization of securities discounts and premiums
Net realized gains on financial instruments and other assets
Net gain on mortgage loans held for sale
Mortgage loans originated for sale
Proceeds from sale of mortgage loans held for sale
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 sales of available for sale securities
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
Change in amount receivable on unsettled securities sales
Loans originated, net of principal collected
Net payments on derivative asset contracts
Proceeds from disposition of assets
Acquisitions, net of cash acquired
Purchases of assets
Net cash 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 borrowed funds
Repayment of subordinated debentures
Issuance of subordinated debentures, net of issuance costs
Change in amount due on unsettled security purchases
Issuance of common and treasury stock, net
Net change in derivative margin accounts
Net payments or proceeds on derivative liability contracts
Tax effect from equity compensation, net
Sale of non-controlling interests
Repurchase of common stock
Dividends paid
Net cash provided by 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
86
2016
Year Ended
2015
2014
$
232,281
$
292,259
$
295,479
65,000
2,193
40,744
11,234
47,016
(1,505)
10,471
41,643
(13,011)
(63,636)
(6,117,417)
6,193,587
(71,405)
149,921
(603,861)
(49,565)
44,269
(11,413)
(93,454)
899,381
86,847
1,740,226
(41,590)
(2,333,740)
33,005
(621,605)
(103,668)
198,922
56,017
(199,802)
(286,007)
1,277,285
(216,084)
(606,476)
(226,550)
144,615
(10,389)
12,455
(28,806)
106,051
1,505
—
(66,792)
(113,455)
273,359
(106,102)
2,643,599
2,537,497
34,000
4,853
28,064
964
37,918
(925)
12,083
55,145
(15,212)
(75,780)
(6,372,956)
6,446,659
(79,546)
(69,298)
(6,943)
(29,548)
17,517
15,756
295,010
1,600,380
72,664
1,542,517
(25,132)
(3,300,601)
34,066
(1,681,035)
(156,419)
195,760
(18,098)
(265,406)
(2,001,304)
149,951
(202,652)
2,547,688
(121,810)
—
(273,643)
6,711
(43,226)
149,428
925
5,500
(229,540)
(115,281)
1,874,051
167,757
2,475,842
2,643,599
—
16,445
19,325
(6,495)
36,707
(8,258)
9,680
57,202
(1,362)
(62,053)
(4,484,394)
4,441,819
(54,413)
(243,265)
(7,103)
68,821
(115,772)
1,007
(36,630)
2,664,740
63,258
1,635,533
(44,723)
(3,045,077)
(57,085)
(1,346,995)
(247,726)
273,271
(21,898)
(307,318)
(434,020)
958,809
(87,277)
511,776
—
—
244,800
4,472
84,365
257,439
8,258
—
(12,337)
(111,026)
1,859,279
1,388,629
1,087,213
2,475,842
$
$
$
Consolidated Statements of Cash Flows
(In thousands)
Supplemental Cash Flow Information:
Cash paid for interest
Cash paid for taxes
Net loans and bank premises transferred to repossessed real estate and other assets
Residential mortgage loans guaranteed by U.S. government agencies that became eligible
for repurchase during the period
Conveyance of other real estate owned guaranteed by U.S. government agencies
Issuance of shares in settlement of accrued executive compensation
$
$
$
$
$
$
82,876
79,883
36,391
$
$
$
120,406
68,873
$
$
— $
66,091
101,991
12,592
$
$
$
123,383
110,505
$
$
— $
65,721
67,199
79,464
144,630
44,963
8,352
2016
Year Ended
2015
2014
See accompanying notes to consolidated financial statements.
87
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, BOK
Financial Securities, Inc., The Milestone Group, Inc. and Cavanal Hill Investment Management, Inc. All significant
intercompany transactions are eliminated in consolidation.
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.
Certain prior year amounts have been reclassified to conform to the current year presentation. For 2015, $8.4 million of
residential mortgage loan origination costs were reclassified from operating expense to mortgage banking revenue. Correction
of this error did not affect net income or earnings per share.
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.
BOKF, NA operates as Bank of Oklahoma primarily in the 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, BOKF, NA 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 and Mobank in Kansas City, Missouri/Kansas
and Bank of Arkansas in Northwest Arkansas. BOKF, NA 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. Premiums and discounts assigned to interest-earning assets and
interest-bearing liabilities are amortized over the lives of the acquired assets and liabilities on either an individual instrument or
pool basis. Provision for credit losses is recognized for changes in credit quality after the acquisition date. 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.
88
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, including goodwill. Reporting unit carrying value includes
sufficient capital to exceed regulatory requirements. 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.
If the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying value
through the qualitative assessment, a quantitative Step 1 analysis is performed. The quantitative analysis compares the fair
value of the reporting unit with its carrying value, including goodwill. The fair value of each reporting unit is estimated by the
discounted future earnings method. Goodwill is considered impaired if the fair value of the reporting unit is less than the
carrying value of the reporting unit, including goodwill. Impairment is measured through a detailed Step 2 assessment of the
fair values for each asset and liability assigned to the reporting unit performed in a manner similar to a business combination.
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. 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. Impairment of debt securities
rated investment grade by all nationally-recognized rating agencies is considered temporary unless specific contrary
information is identified. Impairment of debt securities rated below investment grade by at least one of the nationally
recognized rating agencies is evaluated based on projections of estimated cash flows. 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.
89
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 over periods not to exceed three years. 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 may elect to carry certain 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 these 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 internal risk management programs or may be offered to
customers. All derivative instruments are carried at fair value and changes in fair value are generally reported in income as they
occur. 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 could decrease the fair value
of our derivative liabilities.
When bilateral netting agreements or similar 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 derivative contract 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. In addition,
derivative contracts executed with customers under Customer Risk Management Programs may be secured by non-cash
collateral in conjunction with a credit agreement with that customer. Access to collateral, in the event of default is reasonably
assured.
Derivative instruments may be designated as cash flow hedges of variable rate assets or liabilities, or of anticipated
transactions. Changes in the fair value of derivative instruments 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.
BOK Financial may use derivative instruments in managing its interest rate sensitivity, as part of its economic hedge of the
changes in the fair value of mortgage servicing rights and as an economic hedge of trading securities. Changes in the fair value
of derivative instruments used in managing interest rate sensitivity and as part of its economic hedge of changes in the fair
value of mortgage servicing rights are included in Other Operating Revenue - Gain (loss) on derivatives, net in the
Consolidated Statement of Earnings. Changes in the fair value of derivative instruments used as an economic hedge of trading
securities are included in Operating Revenue- Brokerage and trading revenue.
BOK Financial also enters into mortgage loan commitments that are considered derivative contracts. Forward sales contracts
that have not been designated as hedging instruments are used to economically hedge these mortgage loan commitments as
well as mortgage loans held for sale. Mortgage loan commitments are carried at fair value based upon quoted prices. Changes
in fair value of mortgage loan commitments, mortgage loans held for sale and forward sales contracts are reported in Other
Operating Revenue - Mortgage Banking Revenue.
90
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. Customers may also manage
interest rate risk through interest rate swaps used by the borrower to modify interest rate terms of their loans or to-be-
announced securities used by our mortgage banking customers to hedge their loan production. Derivative contracts are
executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other
selected counterparties to minimize 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.
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.
Occasionally, loans, other than residential mortgage loans, may be held for sale in order to manage credit concentration. These
loans are carried at the lower of cost or fair value with gains or losses recognized in gain (loss) on assets.
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.
91
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.
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.
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 quarterly 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. 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 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 2016 or 2015.
Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due
according to the contractual terms of the loan agreements. Internally risk graded loans are evaluated individually for
impairment. Substantially all commercial and commercial real estate loans and certain residential mortgage and personal loans
are risk graded based on a quarterly evaluation of the borrowers' ability to repay. Certain commercial loans and most residential
mortgage and personal 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.
92
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.
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 Company 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. 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 initially recognized at fair value based on expected cash flow discounted using
the average agency guaranteed debenture rates, average actual principal loss rates and liquidity premium.
93
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 de-recognized 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 initially
recognized at cost, which is determined by fair value at date of foreclosure less estimated disposal costs. They are subsequently
carried at the lower of cost 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. Subsequent
increases in fair value may be used to reduce the allowance but not below zero. 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. The estimated disposal costs of real estate
and other repossessed assets are evaluated by the Company on an annual basis based on actual results.
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.
Software licensing costs are generally charged to expense as incurred. Software licensing costs are capitalized if the contractual
right to take possession of the software exists and it is feasible to take possession without significant penalty. Capitalized costs
are amortized over the shorter of the estimated useful life of the software or remaining contractual life of the license.
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.
Ongoing technology projects of significant size or length are reviewed at least annually for impairment. The construction in
progress account is reviewed for projects or components of projects that do not support the value of the asset being constructed.
Findings of obsolescence, duplicate effort or other conditions that do not support the recorded value are impaired, with the cost
of the impaired components being charged to current-year earnings.
Mortgage Servicing Rights
Mortgage servicing rights may be purchased or may be recognized when mortgage loans are originated and sold with servicing
right retained. All mortgage servicing rights are carried at fair value. Changes in the fair value are recognized in earnings as
they occur.
94
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.
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.
95
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 then-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 varies
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 charged to dividends paid.
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 and derivatives held for trading purposes and
derivatives held for customer risk management programs, including credit losses, 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 discount 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 BOKF,
NA. 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. Interchange fees are generally recognized on a gross basis. Related
expenses are generally recognized as Data processing and communications expense.
Fiduciary and asset management revenue includes fees from asset management, custody, recordkeeping, investment advisory
and administration services. Revenue is recognized on an accrual basis at the time the services are performed and may be based
on either the fair value of the account or the service provided.
Deposit service charges and fees are recognized at least quarterly in accordance with 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.
96
Newly Adopted and Pending Accounting Pronouncements
The following is a summary of newly adopted and pending accounting pronouncements that may have a more than
insignificant effect on the Company's financial statements.
Financial Accounting Standards Board ("FASB")
FASB Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09")
On May 28, 2014, the FASB issued ASU 2014-09 to clarify the principles for recognizing revenue by providing a more robust
framework that will give greater consistency and comparability in revenue recognition practices. In the new framework, an
entity recognizes revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
goods or services. The new model requires the identification of performance obligations included in contracts with customers, a
determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes
revenue when performance obligations are satisfied. ASU 2014-09 is effective for the Company for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period. Net interest revenue from financial
assets and liabilities is explicitly excluded from the scope of ASU 2014-09. Management expects that most fees and
commission revenue will not be affected. The Company continues to evaluate the impact of ASU 2014-09 on Fiduciary and
Asset Management Revenue and Transaction Card Revenue which represent 18% of total gross revenue and 39% of fees and
commissions revenue for 2016. Timing of revenue recognition and gross vs. net revenue presentation may be affected.
Management expects to adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained
earnings if such adjustment is significant.
FASB Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08")
On March 17, 2016, the FASB Issued ASU 2016-08 to amend the principal versus agent implementation guidance in ASU
2014-09. The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or
service promised in a contract with a customer. ASU 2016-08 is effective for the Company for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period. The Company generally follows the
guidance of ASU 2016-08 and is evaluating the impact the adoption of ASU 2016-08 may have on the Company's financial
statements along with ASU 2014-09.
FASB Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing ("ASU 2016-10")
On April 14, 2016, the FASB issued ASU 2016-10 which amends certain sections of ASU 2014-09 related to identifying
performance obligations and licensing implementation. ASU 2016-10 is effective for the Company for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the
impact the adoption of ASU 2016-10 may have on the Company's financial statements along with ASU 2014-09.
FASB Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients ("ASU 2016-12")
On May 9, 2016, the FASB issued ASU 2016-12, which amends certain aspects of the Board's new revenue standard, ASU
2014-09. The amendments clarify information regarding collectibility, presentation of sales tax and other similar taxes collected
from customers, noncash consideration, contract modifications and completed contracts at transition, and transition disclosures.
ASU 2016-12 is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim
periods within that reporting period. The Company is evaluating the impact the adoption of ASU 2016-12 may have on the
Company's financial statements along with ASU 2014-09.
97
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 a 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 was
effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. Adoption of
ASU 2014-16 did not impact 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 affected 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 was
effective for periods beginning after December 15, 2015 for public companies. Adoption of ASU 2015-02 did not have a
material impact on the Company's consolidated financial statements.
FASB Accounting Standards Update No. 2015-07, Fair Value Measurements (Topic 820): Disclosures for Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-07")
On May 1, 2015, the FASB issued ASU 2015-07 to gain consistency within the categorization of the fair value hierarchy. The
update removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured
using the net asset value per share practical expedient. It also removed the requirement to make certain disclosures for all investments
that are eligible to be measured at fair value using the net asset value per share practical expedient. The ASU was effective for the
Company for interim and annual periods beginning after December 15, 2015 and was applied retrospectively to all periods presented.
Adoption of ASU 2015-07 did not have a material impact on the Company's consolidated financial statements.
FASB Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01")
On January 5, 2016, the FASB issued ASU 2016-01 which requires equity investments, in general, to be measured at fair value
with changes in fair value recognized in earnings. It also eliminates the requirement to disclose the methods and significant
assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires entities to use the exit
price notion when measuring fair value, requires an entity to present separately in other comprehensive income the portion of
the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the fair value
option has been elected, requires separate presentation of financial assets and liabilities by measurement category and form on
the balance sheet or accompanying notes, clarifies that an entity should evaluate the need for a valuation allowance on a
deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets, and simplifies
the impairment assessment of equity investments without readily determinable fair values. The ASU is effective for the
Company for interim and annual periods beginning after December 15, 2017. Upon adoption, unrealized gains and losses from
equity securities will be reclassified from other comprehensive income to retained earnings. As of December 31, 2016, the
Company had $2.4 million of net unrealized gains and losses from equity securities in other comprehensive income.
FASB Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02")
On February 25, 2016, the FASB issued ASU 2016-02 to increase transparency and comparability by recognizing substantially
all lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Lessees will be required to
recognize an obligation for future lease payments measured on a discounted basis and a related right-of-use asset. The ASU is
effective for the Company for interim and annual periods beginning after December 15, 2018 and requires transition through a
modified retrospective approach for leases existing at or entered into after January 1, 2017. The Company is evaluating the
impact the adoption of ASU 2016-02 will have on the Company's financial statements.
98
FASB Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract
Novations on Existing Hedge Accounting Relationships ("ASU 2016-05")
On March 10, 2016, the FASB issued ASU 2016-05 which clarifies that "a change in the counterparty to a derivative instrument
that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered
a termination of the derivative instrument" or "a change in a critical term of the hedging relationship." If all other hedge
accounting criteria in ASC 815 are met, a hedging relationship where the hedging derivative instrument is novated would not
be discontinued or need to be re-designated. The ASU is effective for interim and annual periods beginning after December 15,
2016. An entity would apply the guidance prospectively unless modified retrospective transition is elected. Early adoption is
permitted. Adoption of ASU 2016-05 did not have a material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2016-07, Investments - Equity Method and Joint Ventures ("ASU 2016-07")
On March 15, 2016, the FASB issued ASU 2016-07 to simplify the equity method of accounting by eliminating the requirement
to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting. The ASU also
requires that unrealized holding gains or losses in accumulated other comprehensive income related to an available for sale
security that becomes eligible for the equity method be recognized in earnings as of the date the investment qualifies for the
equity method. The ASU was effective for all entities for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. Adoption of ASU 2016-07 did not have a material impact on the Company's financial
statements.
FASB Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting ("ASU 2016-09")
On March 30, 2016, the FASB issued ASU 2016-09 to simplify multiple aspects of accounting for employee share-based
payment transactions including accounting income taxes, forfeitures, and statutory tax withholding requirements. The ASU is
effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual
reporting periods. Implementation of ASU 2016-09 will add volatility to tax expense as stock prices change; however, we
expect the impact on future periods to be insignificant.
FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Assets Measured at
Amortized Cost ("ASU 2016-13")
On June 16, 2016, the FASB issued ASU 2016-13 to provide more timely recording of credit losses on loans and other financial
instruments. The ASU requires an impairment model (known as the current expected credit loss ("CECL") model) that is based
on expected credit losses rather than incurred credit losses. It requires measurement of all expected credit losses for financial
assets carried at amortized cost, including loans and investment securities, based on historical experience, current conditions,
and reasonable and supportable forecasts. ASU 2016-13 also changes the recognition of other-than-temporary impairment of
available for sale securities to an allowance methodology from an direct write-down methodology. ASU 2016-13 will be
effective for the Company for annual reporting periods beginning after December 15, 2019, including interim periods within
those fiscal years. Early adoption is permitted for annual reporting periods beginning after December 15, 2018. ASU 2016-13
will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in
which the guidance is effective. The Company is evaluating the impact the adoption of ASU 2016-13 will have on the
Company's financial statements.
FASB Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments ("ASU 2016-15")
On August 26, 2016, the FASB issued ASU 2016-15, which amends ASC 230 on the classification of certain cash receipts and
payments in the statement of cash flows. The amendments address eight specific cash flow issues. ASU 2016-15 is effective for
the Company for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal
years. Entities generally must apply the guidance retrospectively to all periods presented. Adoption of ASU 2016-15 is not
expected to have a material impact on the Company's financial statements.
99
FASB Accounting Standards Update No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties that are
under Common Control ("ASU 2016-17")
On October 26, 2016, the FASB issued ASU 2016-17, which amends consolidation guidance on related parties under common
control. The ASU requires that a single decision maker consider indirect interests held by related parties under common control
on a proportionate basis in a manner consistent with its evaluation of indirect interests held through other related parties. ASU
2016-17 was effective for the Company for annual reporting periods beginning after December 15, 2016, including interim and
annual periods. Adoption of ASU 2016-17 did not have a material impact 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, 2016
December 31, 2015
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
U.S. government agency debentures
$
6,234
$
(4) $
61,295
$
U.S. government agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Other trading securities
Total trading securities
Investment Securities
310,067
14,427
6,900
635
50
57
10,989
31,901
18,219
$
337,628
$
738
$
122,404
$
(71)
17
210
(16)
140
The amortized cost and fair values of investment securities are as follows (in thousands):
December 31, 2016
Amortized
Carrying
Cost
Value
Fair
Value
Gross Unrealized1
Loss
Gain
Municipal and other tax-exempt securities
$
320,364
$
320,364
$
321,225
$
2,272
$
(1,411)
U.S. government agency residential mortgage-backed securities
– Other
Other debt securities
20,777
205,004
20,777
205,004
21,473
222,795
767
18,115
(71)
(324)
Total investment securities
1 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
546,145
546,145
$
$
$
565,493
$
21,154
$
(1,806)
Municipal and other tax-exempt securities
$
365,258
$
365,258
$
368,910
$
3,935
$
(283)
December 31, 2015
Amortized
Carrying
Cost
Value
Fair
Value
Gross Unrealized1
Loss
Gain
U.S. government agency residential mortgage-backed securities
– Other
Other debt securities
26,721
205,745
26,833
205,745
27,874
232,375
1,063
26,689
Total investment securities
1 Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
597,724
597,836
$
$
$
629,159
$
31,687
$
(22)
(59)
(364)
100
The amortized cost and fair values of investment securities at December 31, 2016, by contractual maturity, are as shown in the
following table (dollars in thousands):
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
Weighted
Average
Maturity²
Municipal and other tax-exempt 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
$
$
$
83,583
83,544
$
181,596
$
180,993
$
5,909
5,836
49,276
50,852
$
320,364
321,225
1.48%
2.08%
3.31%
5.20%
2.43%
$
16,045
16,107
41,804
44,372
$
127,320
$
142,010
19,835
20,306
$
205,004
222,795
3.28%
5.14%
5.86%
4.79%
5.41%
99,628
99,651
$
223,400
$
133,229
$
225,365
147,846
69,111
71,158
$
525,368
544,020
1.77%
2.65%
5.75%
5.08%
3.59%
$
20,777
21,473
2.76%
$
546,145
565,493
3.56%
3.41
6.66
4.68
³
1 Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
penalty.
3 The average expected lives of residential mortgage-backed securities were 4.7 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.
101
—
—
—
—
—
—
(218)
—
(218)
(218)
—
—
—
—
(218)
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
December 31, 2016
Amortized
Cost
Fair
Value
Gross Unrealized1
Loss
Gain
OTTI²
$
1,000
$
999
$
41,050
40,993
— $
343
(1) $
(400)
U.S. Treasury securities
Municipal and other tax-exempt securities
Residential mortgage-backed securities:
U.S. government agencies:
FNMA
FHLMC
GNMA
Total U.S. government agencies
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
3,062,525
1,534,451
878,375
3,055,676
1,531,116
873,594
5,475,351
5,460,386
44,245
56,947
101,192
51,512
64,023
115,535
25,066
8,475
2,259
35,800
7,485
7,092
14,577
50,377
5,472
—
2,913
1,060
(31,915)
(11,810)
(7,040)
(50,765)
—
(16)
(16)
(50,781)
(23,289)
(248)
—
(127)
Total residential mortgage-backed securities
5,576,543
5,575,921
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
3,035,750
3,017,933
4,400
15,561
17,424
4,152
18,474
18,357
Total available for sale securities
$ 8,691,728
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.
8,676,829
60,165
$
$
$
(74,846) $
102
—
—
—
—
—
—
(387)
(440)
(827)
(827)
—
—
—
—
(827)
Amortized
Cost
Fair
Value
December 31, 2015
Gross Unrealized¹
Gain
Loss
OTTI²
$
1,000
$
995
$
56,681
56,817
— $
873
(5) $
(737)
U.S. Treasury securities
Municipal and other tax-exempt securities
Residential mortgage-backed securities:
U.S. government agencies:
FNMA
FHLMC
GNMA
Total U.S. government agencies
Private issue:
Alt-A loans
Jumbo-A loans
Total private issue
3,156,214
1,940,915
763,967
3,187,215
1,949,335
761,801
5,861,096
5,898,351
56,387
71,724
128,111
62,574
76,544
139,118
41,502
14,727
2,385
58,614
6,574
5,260
11,834
70,448
5,396
—
2,501
752
(10,501)
(6,307)
(4,551)
(21,359)
—
—
—
(21,359)
(18,644)
(249)
—
(40)
Total residential mortgage-backed securities
5,989,207
6,037,469
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Perpetual preferred stock
Equity securities and mutual funds
2,919,044
2,905,796
4,400
17,171
17,121
4,151
19,672
17,833
Total available for sale securities
9,004,624
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.
9,042,733
79,970
$
$
$
$
(41,034) $
103
The amortized cost and fair values of available for sale securities at December 31, 2016, 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 Years
Total
Weighted
Average
Maturity5
$
— $
1,000
$
— $
—
—%
999
0.87%
—
—%
$
—
—
—%
9,848
9,903
12,254
12,399
2,103
2,151
4.81%
4.01%
3.47%
16,845
16,540
2.28% 6
1,000
999
0.87%
41,050
40,993
3.46%
31,910
31,856
921,981
920,108
1,832,535
1,820,627
249,324
245,342
3,035,750
3,017,933
1.00%
1.79%
1.85%
1.82%
1.81%
—
—
—%
—
—
—%
—
—
—%
4,400
4,152
1.71%
4,400
4,152
1.71%
1.04
7.95
6.90
30.66
$
41,758
41,759
$
935,235
$ 1,834,638
$
270,569
$
3,082,200
6.95
933,506
1,822,778
266,034
3,064,077
1.89%
1.82%
1.85%
1.84%
1.83%
2
³
$
5,576,543
5,575,921
1.86%
$
32,985
36,831
—%
$
8,691,728
8,676,829
1.84%
1 Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 The average expected lives of mortgage-backed securities were 3.9 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.
104
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,
2016
2015
2014
$
899,381
$
1,600,380
2,664,740
11,696
(21)
4,542
15,849
(3,791)
4,691
24,923
(23,384)
599
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
The secured parties do not have the right to sell or re-pledge these securities.
December 31,
2016
2015
$
322,208
$
323,808
231,033
234,382
7,353,116
7,327,470
6,831,743
6,849,524
105
Temporarily Impaired Securities as of December 31, 2016
(In thousands)
Investment:
Municipal and other tax-exempt
securities
U.S. government agency residential
mortgage-backed securities – Other
Other debt securities
Total investment securities
Available for sale:
U.S. Treasury securities
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
151
$
219,892
$
1,316
$
4,333
$
95
$
224,225
$
1,411
1
41
4,358
11,820
71
322
—
855
193
$
236,070
$
1,709
$
5,188
$
—
2
97
4,358
12,675
71
324
$
241,258
$
1,806
Number
of
Securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
1
24
$
$
999
15,666
$
$
1
22
$
$
— $
— $
999
$
4,689
$
378
20,355
91
58
31
1,787,644
964,017
548,637
180
3,300,298
5
1
6
7,931
—
7,931
30,238
11,210
6,145
47,593
174
—
174
72,105
18,307
25,796
116,208
7,410
6,098
13,508
1,677
1,859,749
600
895
982,324
574,433
3,172
3,416,506
44
16
60
15,341
6,098
21,439
1
400
31,915
11,810
7,040
50,765
218
16
234
186
3,308,229
47,767
129,716
3,232
3,437,945
50,999
171
2
—
104
1,904,584
22,987
—
—
2,127
—
—
41
38,875
4,152
—
817
302
248
—
86
1,943,459
23,289
4,152
—
2,944
248
—
127
75,064
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.
$ 5,409,854
$ 5,231,605
178,249
70,818
4,246
488
$
$
$
$
106
Temporarily Impaired Securities as of December 31, 2015
(In thousands)
Number
of
Securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Investment:
Municipal and other tax- exempt
securities
U.S. government agency residential
mortgage-backed securities – Other
Other debt securities
Total investment securities
73
$
127,319
$
206
$
13,380
$
77
$
140,699
$
1
11
85
5,533
1,082
22
41
—
1,715
$
133,934
$
269
$
15,095
$
—
18
95
5,533
2,797
$
149,029
$
283
22
59
364
Available for sale:
U.S. Treasury securities
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
1
20
$
$
995
9,909
$
$
5
27
$
$
— $
— $
995
$
11,664
$
710
21,573
55
40
15
1,188,022
726,713
364,919
110
2,279,654
4
8
12
—
—
—
10,262
4,827
1,951
17,040
—
—
—
18,236
77,545
102,109
197,890
9,264
8,482
17,746
239
1,480
2,600
4,319
387
440
827
1,206,258
804,258
467,028
2,477,544
9,264
8,482
17,746
5
737
10,501
6,307
4,551
21,359
387
440
827
122
2,279,654
17,040
215,636
5,146
2,495,290
22,186
213
1,582,469
11,419
2
—
61
—
—
782
—
—
5
484,258
4,151
—
991
7,225
249
—
35
2,066,727
18,644
4,151
—
1,773
249
—
40
41,861
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.
$ 4,590,509
$ 3,873,809
716,700
28,496
13,365
419
$
$
$
$
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. Based on this evaluation as of December 31, 2016, 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.
107
At December 31, 2016, 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):
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
Investment:
Municipal and other tax-exempt
$ 193,931
$193,834
$
6,028
$ 6,037
$
— $
— $ 120,405
$
121,354
$
320,364
$
321,225
U.S. government agency residential
mortgage-backed securities1
Other debt securities
—
—
140,184
156,641
—
—
—
—
—
—
—
—
20,777
64,820
21,473
66,154
20,777
205,004
21,473
222,795
Total investment securities
$ 334,115
$350,475
$
6,028
$ 6,037
$
— $
— $ 206,002
$
208,981
$
546,145
$
565,493
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
Available for Sale:
U.S. Treasury securities
$
— $
— $
— $
— $
— $
— $
1,000
$
999
$
1,000
$
999
Municipal and other tax-exempt
23,343
23,657
5,595
5,237
U.S. government agency residential
mortgage-backed securities1
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
—
—
—
—
—
—
4,400
4,152
—
4
—
759
—
—
—
—
—
—
—
—
—
—
—
12,112
12,099
41,050
40,993
— 5,475,351
5,460,386
5,475,351
5,460,386
101,192
115,535
—
—
101,192
115,535
—
—
—
— 3,035,750
3,017,933
3,035,750
3,017,933
4,796
5,177
10,765
13,297
—
—
—
—
17,420
17,598
—
—
—
—
4,400
15,561
17,424
4,152
18,474
18,357
Total available for sale securities
$ 8,676,829
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
$ 8,691,728
$ 8,509,015
$ 8,541,633
$ 111,957
$128,832
$ 28,568
$ 10,414
10,391
27,747
$
$
government-sponsored enterprises.
At December 31, 2016, 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 $234 thousand.
Impairment of these securities was evaluated based on projections of estimated cash flows.
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,
2016
2015
Decreasing to 4.6% over the next 12
months and remain at 4.6% thereafter.
Decreasing to 4.8% over the next 12
months and remain at 4.8% thereafter.
Starting with current depreciated
housing prices based on information
derived from the FHFA1, appreciating
3.1% over the next 12 months, then
flat for the following 12 months and
then appreciating at 2% per year
thereafter.
Starting with current depreciated
housing prices based on information
derived from the FHFA1, appreciating
3.5% 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.
108
The Company recognized no credit loss impairment on private-label residential mortgage-backed securities in earnings during 2016.
Credit loss impairment of $157 thousand was recognized in earnings on private-label residential mortgage-backed securities in 2015
and none was recognized in 2014.
Impaired equity securities, including perpetual preferred stocks, are evaluated based on management's ability and intent to hold the
securities until fair value recovers. Based on this evaluation, no other-than-temporary impairment losses were recorded in earnings on
equity securities during 2016. A $1.7 million other-than-temporary impairment loss related to equity securities was recorded in
earnings in 2015 and $373 thousand in impairment losses were recognized on equity securities in 2014.
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
$
54,504
$
54,347
$
67,346
Additions for credit-related OTTI not previously recognized
Additions for increases in credit-related OTTI previously recognized when there is no intent to sell and
no requirement to sell before recovery of amortized cost
Reductions for change in intent to hold before recovery
Sales
—
—
—
—
—
157
—
—
—
—
—
(12,999)
Balance of credit-related OTTI recognized on available for sale debt securities, end of period
$
54,504
$
54,504
$
54,347
Year Ended December 31,
2016
2015
2014
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.
The fair value and net unrealized gain (loss) included in Fair value option securities is as follows (in thousands):
U.S. government agency residential mortgage-backed securities
$
77,046
$
(1,777) $
444,217
$
(2,060)
December 31, 2016
December 31, 2015
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
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
Other
Total
109
December 31,
2016
2015
$
$
36,498
$
270,541
201
36,148
237,365
171
307,240
$
273,684
(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, 2016 (in thousands):
Assets
Notional1
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
$ 16,949,152
$ 180,695
$
(60,555) $ 120,140
$
— $
120,140
1,403,408
835,566
53,209
580,886
100,924
34,442
64,140
1,382
494,349
4,357
—
(28,298)
(515)
—
—
34,442
35,842
867
494,349
4,357
(4,567)
(71)
—
(5,183)
(730)
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
19,923,145
779,365
(89,368)
689,997
(10,551)
Internal risk management programs
2,514,169
10,426
—
10,426
—
Total derivative contracts
$ 22,437,314
$ 789,791
$
(89,368) $ 700,423
$ (10,551) $
689,872
Liabilities
Notional¹
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
$ 16,637,532
$ 176,928
$
(60,555) $ 116,373
$
— $
116,373
1,403,408
820,365
53,216
580,712
100,924
34,442
64,306
1,365
494,695
4,357
—
(28,298)
(515)
—
—
34,442
36,008
850
494,695
4,357
(11,977)
(31,534)
(769)
(3,630)
—
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
19,596,157
776,093
(89,368)
686,725
(47,910)
Internal risk management programs
2,582,202
25,716
—
25,716
—
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(89,368) $ 712,441
$ (47,910) $
$ 22,178,359
$ 801,809
$
664,531
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. 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.
110
29,875
35,771
867
489,166
3,627
679,446
10,426
22,465
4,474
81
491,065
4,357
638,815
25,716
The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in
the balance sheet at December 31, 2015 (in thousands):
Assets
Notional1
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
Customer risk management programs:
Interest rate contracts
To-be-announced residential mortgage-
backed securities
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 14,583,052
$ 43,270
$
(28,305) $
14,965
$
— $
1,332,044
470,613
61,662
546,572
137,278
31,744
83,045
2,591
498,830
3,780
—
(22,970)
(1,158)
—
—
31,744
60,075
1,433
498,830
3,780
(1,424)
(18,606)
—
(4,140)
(470)
Total customer risk management programs
17,131,221
663,260
(52,433)
610,827
(24,640)
Internal risk management programs
22,000
83
—
83
—
14,965
30,320
41,469
1,433
494,690
3,310
586,187
83
Total derivative contracts
$ 17,153,221
$ 663,343
$
(52,433) $ 610,910
$ (24,640) $
586,270
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
$ 14,168,927
$ 40,141
$
(28,305) $
11,836
$
(1,308) $
1,332,044
463,703
61,657
546,405
137,278
31,928
81,869
2,579
498,574
3,780
—
(22,970)
(1,158)
—
—
31,928
58,899
1,421
498,574
3,780
(20,530)
—
(1,248)
(1,951)
—
Total customer risk management programs
16,710,014
658,871
(52,433)
606,438
(25,037)
Internal risk management programs
75,000
300
—
300
—
10,528
11,398
58,899
173
496,623
3,780
581,401
300
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(52,433) $ 606,738
$ (25,037) $
$ 16,785,014
$ 659,171
$
581,701
contract.
111
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,
2016
2015
2014
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
Internal risk management programs
$
38,523
$
— $
33,877
$
— $
27,007
$
2,589
5,027
111
945
—
47,195
(4,592)
—
—
—
—
—
—
(15,685)
2,066
4,060
123
797
—
40,923
(209)
—
—
—
—
—
—
430
430
2,494
6,572
146
1,581
—
37,800
—
$
37,800
$
—
—
—
—
—
—
—
2,776
2,776
Total derivative contracts
$
42,603
$
(15,685) $
40,714
$
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.
No derivative contracts have been designated as hedging instruments for financial reporting purposes.
(4) Loans and Allowances for Credit Losses
The portfolio segments of the loan portfolio are as follows (in thousands):
December 31, 2016
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
December 31, 2015
Variable
Rate
Non-
accrual
Total
Commercial
$ 2,327,085
$ 7,884,786
$ 178,953
$ 10,390,824
$ 1,850,548
$ 8,325,559
$ 76,424
$ 10,252,531
Commercial real
estate
624,187
3,179,338
Residential mortgage
1,647,357
154,971
256,255
684,697
5,521
46,220
290
3,809,046
627,678
2,622,354
1,949,832
1,598,992
839,958
91,816
216,661
460,418
9,001
61,240
463
3,259,033
1,876,893
552,697
Personal
Total
Accruing loans past
due (90 days)1
Foregone interest on
nonaccrual loans
$ 4,753,600
$ 12,005,076
$ 230,984
$ 16,989,660
$ 4,169,034
$ 11,624,992
$ 147,128
$ 15,941,154
$
5
$
15,990
$
1,207
$
7,432
1 Excludes residential mortgage loans guaranteed by agencies of the U.S. government.
112
At December 31, 2016, loans to businesses and individuals with collateral primarily located in Texas totaled $5.4 billion or
32% of the total loan portfolio. Loans to businesses and individuals with collateral primarily located in Oklahoma totaled $3.5
billion or 21% 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, 2015, loans to businesses and
individuals with collateral primarily located in Texas totaled $5.3 billion or 33% of the loan portfolio and loans to businesses
and individuals with collateral primarily located in Oklahoma totaled $3.9 billion or 24% 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, 2016, commercial loans with collateral primarily located in Texas totaled $3.3 billion or 32% of the
commercial loan portfolio segment and commercial loans with collateral primarily located in Oklahoma totaled $2.1 billion or
21% of the commercial loan portfolio segment. The commercial loan portfolio segment is further divided into loan classes. The
services loan class totaled $3.1 billion or 18% of total loans. Approximately $1.4 billion of loans in the services class consisted
of loans with individual balances of less than $10 million. Businesses included in the services class include governmental,
financial & insurance, educational, religious and not-for-profit and professional/technical services. The energy loan class
totaled $2.5 billion or 15% of total loans, including $2.0 billion of outstanding loans to energy producers. Approximately 57%
of committed production loans were secured by properties primarily producing oil and 43% are secured by properties
producing natural gas. The healthcare loan class totaled $2.2 billion or 13% of total loans. The healthcare loan class consists
primarily of loans for the development and operation of senior housing and care facilities, including independent living,
assisted living and skilled nursing. Healthcare also includes loans to hospitals and other medical service providers.
At December 31, 2015, commercial loans with collateral primarily located in Texas totaled $3.5 billion or 34% of the
commercial loan portfolio segment and commercial loans with collateral primarily located in Oklahoma totaled $2.5 billion or
24% of the commercial loan portfolio segment. The energy loan class totaled $3.1 billion or 19% of total loans, including $2.5
billion of outstanding loans to energy producers. At December 31, 2015, approximately 62% of committed production loans
were secured by properties primarily producing oil and 38% were secured by properties producing natural gas. The services
loan class totaled $2.8 billion or 17% of total loans. Approximately $1.2 billion of loans in the services category consisted of
loans with individual balances of less than $10 million. The healthcare loan class totaled $1.9 billion or 12% of total loans.
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, 2016, 30% of commercial real estate loans are secured by properties primarily located in the Dallas and
Houston areas of Texas. An additional 11% of commercial real estate loans are secured by properties located primarily in the
Tulsa and Oklahoma City metropolitan areas of Oklahoma. At December 31, 2015, 30% of commercial real estate loans were
secured by properties in Texas, 13% of commercial real estate loans were secured by properties in Oklahoma.
113
Residential Mortgage and Personal
Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow
against the equity in their home. Residential mortgage loans are secured by a first or second mortgage on the customer’s
primary residence. Personal loans consist primarily of loans secured by the cash surrender value of insurance policies and
marketable securities. It also includes direct loans secured by and for the purchase of automobiles, recreational and marine
equipment as well as other unsecured loans. Residential mortgage and personal loans are made in accordance with underwriting
policies. 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, 2016 and 2015, residential mortgage loans included $199 million and $197 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 $744 million at December 31, 2016 and $735 million at December 31, 2015. At December 31, 2016,
65% of the home equity loan portfolio was comprised of first lien loans and 35% of the home equity portfolio was comprised
of junior lien loans. Junior lien loans were distributed 52% to amortizing term loans and 48% to revolving lines of credit. At
December 31, 2015, 68% of the home equity portfolio was comprised of first lien loans and 32% of the home equity loan
portfolio was comprised of junior lien loans. Junior lien loans were distributed 65% to amortizing term loans and 35% 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, 2016, 33% of residential mortgage loans are secured by properties located in Oklahoma, 29% of residential
mortgage loans are secured by properties located in Texas, 10% 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, 2015, 37% of
residential mortgage loans were secured by properties in Oklahoma, 29% of residential mortgage were secured by properties in
Texas, 12% of residential mortgage loans are secured by properties in New Mexico and 9% of residential mortgage loans are
secured by properties in Colorado.
Credit Commitments
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a
fee. At December 31, 2016, outstanding commitments totaled $9.4 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.
114
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, 2016, outstanding standby letters of credit totaled $585 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, 2016, outstanding commercial letters of credit totaled $4.2 million.
Allowances for Credit Losses
BOK Financial maintains an allowance for loan losses and an accrual for off-balance sheet credit risk. The accrual for off-
balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments
that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees. As discussed in
greater detail in Note 7, the Company also has separate accruals related to off-balance sheet credit risk related to residential
mortgage loans previously sold with full or partial recourse and for residential mortgage loans sold to government sponsored
agencies under standard representations and warranties.
The allowance for loan losses consists of specific allowances attributed to impaired loans that have not yet been charged down
to amounts we expect to recover, general allowances for unimpaired loans based on estimated loss rates by loan class and
nonspecific allowances based on general economic conditions, concentration in loans with large balances and other relevant
factors.
The activity in the allowance for loan losses and the accrual for off-balance sheet credit risk related to loan commitments and
standby letters of credit for the year ended December 31, 2016 is summarized as follows (in thousands):
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Commercial
Commercial
Real Estate
Residential
Mortgage
Personal
Nonspecific
Allowance
Total
$
130,334
$
41,391
$
19,509
$
4,164
$
30,126
$
225,524
43,980
(35,828)
1,727
8,075
—
1,283
(1,972)
(1,312)
1,999
7,310
(5,448)
2,747
(1,926)
—
—
55,467
(42,588)
7,756
$
140,213
$
50,749
$
18,224
$
8,773
$
28,200
$
246,159
Accrual for off-balance sheet
credit risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision for credit losses
$
$
$
1,506
9,557
11,063
53,537
$
$
$
153
$
30
$
22
$
— $
1,711
(30)
123
8,045
$
$
20
50
$
(14)
8
(1,952) $
7,296
—
— $
9,533
11,244
(1,926) $
65,000
$
$
115
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, 2015 is summarized as follows (in thousands):
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries
Ending balance
Commercial
Commercial
Real Estate
Residential
Mortgage
Personal
Nonspecific
Allowance
Total
$
90,875
$
42,445
$
23,458
$
4,233
$
28,045
$
189,056
43,464
(6,734)
2,729
(11,189)
(944)
11,079
(3,004)
(2,205)
1,260
2,167
(5,288)
3,052
2,081
—
—
33,519
(15,171)
18,120
$
130,334
$
41,391
$
19,509
$
4,164
$
30,126
$
225,524
Accrual for off-balance sheet credit
risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision for credit losses
$
$
$
475
$
707
$
28
$
20
$
— $
1,230
1,031
1,506
44,495
$
$
(554)
153
$
2
30
$
2
22
(11,743) $
(3,002) $
2,169
—
— $
481
1,711
2,081
$
34,000
$
$
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
Personal
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
$
1,876
$
90
$
3
$
— $
2,088
356
475
9,917
$
$
(1,169)
707
$
(62)
28
$
17
20
$
—
— $
(858)
1,230
(5,253) $
(3,621) $
(875) $
(168) $
—
116
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2016 is as follows (in thousands):
Commercial
Commercial real estate
Residential mortgage
Personal
Total
Collectively Measured
for Impairment
Individually Measured
for Impairment
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$ 10,211,871
$
139,416
$
178,953
$
797
$ 10,390,824
$
140,213
3,803,525
1,903,612
839,668
50,749
18,178
8,773
5,521
46,220
290
—
46
—
3,809,046
1,949,832
839,958
50,749
18,224
8,773
16,758,676
217,116
230,984
843
16,989,660
217,959
Nonspecific allowance
—
—
—
—
—
28,200
Total
$ 16,758,676
$
217,116
$
230,984
$
843
$ 16,989,660
$
246,159
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2015 is as follows (in thousands):
Commercial
Commercial real estate
Residential mortgage
Personal
Total
Collectively Measured
for Impairment
Individually Measured
for Impairment
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$ 10,176,107
$
114,027
$
76,424
$
16,307
$ 10,252,531
$
130,334
3,250,032
1,815,653
552,234
41,373
19,441
4,164
9,001
61,240
463
18
68
—
3,259,033
1,876,893
552,697
41,391
19,509
4,164
15,794,026
179,005
147,128
16,393
15,941,154
195,398
Nonspecific allowance
—
—
—
—
—
30,126
Total
$ 15,794,026
$
179,005
$
147,128
$
16,393
$ 15,941,154
$
225,524
117
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 personal 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 personal 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, 2016 is as follows (in thousands):
Commercial
Commercial real estate
Residential mortgage
Personal
Total
Internally Risk Graded
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$ 10,360,725
$
139,293
$
30,099
$
920
$ 10,390,824
$
140,213
3,809,046
243,703
744,602
50,749
2,893
5,035
—
1,706,129
95,356
15,158,076
197,970
1,831,584
—
15,331
3,738
19,989
3,809,046
1,949,832
839,958
50,749
18,224
8,773
16,989,660
217,959
Nonspecific allowance
—
—
—
—
—
28,200
Total
$ 15,158,076
$
197,970
$
1,831,584
$
19,989
$ 16,989,660
$
246,159
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, 2015 is as follows (in thousands):
Commercial
Commercial real estate
Residential mortgage
Personal
Total
Internally Risk Graded
Non-Graded
Total
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
Recorded
Investment
Related
Allowance
$ 10,227,303
$
129,426
$
25,228
$
908
$ 10,252,531
$
130,334
3,259,033
196,701
467,955
41,391
2,883
1,390
—
1,680,192
84,742
14,150,992
175,090
1,790,162
—
16,626
2,774
20,308
3,259,033
1,876,893
552,697
41,391
19,509
4,164
15,941,154
195,398
Nonspecific allowance
—
—
—
—
—
30,126
Total
$ 14,150,992
$
175,090
$
1,790,162
$
20,308
$ 15,941,154
$
225,524
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 and all residential mortgage loans guaranteed by agencies of the U.S. government that continue to accrue
interest based on criteria of the guarantor's programs. Other loans especially mentioned are currently performing in compliance
with the original terms of the agreement but may have a potential weakness that deserves management's close attention,
consistent with regulatory guidelines.
The risk grading process identified certain loans that 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.
118
Nonaccruing loans represent loans for which full collection of principal and interest in accordance with the original terms of the
loan agreements is uncertain. This is substantially the same criteria used to determine whether a loan is impaired and includes
certain loans considered “substandard” and all loans considered “doubtful” by regulatory guidelines.
The following table summarizes the Company’s loan portfolio at December 31, 2016 by the risk grade categories (in
thousands):
Internally Risk Graded
Non-Graded
Performing
Other
Loans
Especially
Mentioned
Pass
Accruing
Substandard Nonaccrual
Performing 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:
$ 1,937,790
$
119,583
$
307,996
$
132,499
3,052,002
1,535,463
468,314
2,140,458
433,789
9,567,816
131,630
756,418
798,462
898,800
871,673
336,488
10,960
16,886
26,532
44,472
5,309
223,742
—
4,745
—
—
—
—
37,855
13,062
15,198
16,161
8,173
11,407
4,931
825
—
—
—
—
—
—
390,272
21,060
178,895
30,041
30,041
470
399
—
4,434
—
6
3,433
326
426
38
76
1,222
5,521
—
—
—
—
—
—
—
3,793,471
4,745
5,309
— $ 2,497,868
—
—
—
—
58
58
—
—
—
—
—
—
—
3,108,990
1,576,818
514,975
2,201,916
490,257
10,390,824
135,533
761,888
798,888
903,272
871,749
337,716
3,809,046
Permanent mortgage
238,769
1,186
2,331
1,417
741,679
21,438
1,006,820
Permanent mortgages
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
Personal
Total
—
—
—
—
—
—
—
—
187,541
732,106
11,846
11,519
199,387
743,625
238,769
1,186
2,331
1,417
1,661,326
44,803
1,949,832
743,451
—
1,054
97
95,163
193
839,958
$ 14,343,507
$
229,673
$
398,966
$
185,930
$ 1,786,530
$
45,054
$ 16,989,660
119
The following table summarizes the Company’s loan portfolio at December 31, 2015 by the risk grade categories (in thousands):
Internally Risk Graded
Non-Graded
Performing
Other
Loans
Especially
Mentioned
Pass
Accruing
Substandard Nonaccrual
Performing Nonaccrual
Total
$ 2,580,694
$
325,663
$
129,782
61,189
$
— $
— $
3,097,328
2,763,929
1,394,596
534,966
1,876,745
477,551
9,628,481
154,369
788,708
636,210
744,299
563,093
347,864
3,296
18,184
19,560
5,563
5,479
377,745
1,355
6,046
291
—
—
—
6,761
6,365
1,872
—
—
144,780
293
426
555
6,512
—
11
3,234,543
7,692
7,797
10,290
2,919
331
1,072
496
76,297
4,409
1,319
651
274
76
2,272
9,001
—
—
—
—
25,101
25,101
—
—
—
—
—
—
—
—
—
—
—
127
127
—
—
—
—
—
—
—
2,784,276
1,422,064
556,729
1,883,380
508,754
10,252,531
160,426
796,499
637,707
751,085
563,169
350,147
3,259,033
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
192,367
Permanent mortgages
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
Personal
Total
—
—
192,367
467,808
89
—
—
89
3
1,932
2,313
721,964
26,671
945,336
—
—
—
—
175,037
724,264
21,900
10,356
196,937
734,620
1,932
2,313
1,621,265
58,927
1,876,893
14
130
84,409
333
552,697
$ 13,523,199
$
385,529
$
154,523
87,741
$ 1,730,775
$
59,387
$ 15,941,154
120
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 pools.
A summary of impaired loans 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
Permanent mortgage guaranteed by
U.S. government agencies1
Home equity
Total residential mortgage
As of December 31, 2016
Recorded Investment
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2016
Average
Recorded
Investment
Interest
Income
Recognized
$
$ 132,499
8,173
11,407
4,931
825
21,118
178,953
$
121,418
8,173
11,407
4,931
825
21,083
167,837
$
11,081
—
—
—
—
35
11,116
$
$
762
—
—
—
—
35
797
80,100
9,232
7,163
2,631
949
10,870
110,945
Unpaid
Principal
Balance
$ 146,897
11,723
17,669
5,320
1,147
29,006
211,762
4,951
530
521
1,000
76
7,349
14,427
3,433
326
426
38
76
1,222
5,521
3,433
326
426
38
76
1,222
5,521
28,830
22,855
22,809
205,564
12,611
247,005
199,387
11,519
233,761
199,387
11,519
233,715
—
—
—
—
—
—
—
46
—
—
46
—
—
—
—
—
—
—
—
46
—
—
46
—
3,921
823
539
156
76
1,747
7,262
25,920
193,889
10,937
230,746
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,255
7,759
—
9,014
Personal
332
290
290
377
—
Total
$
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
$ 473,526
$ 418,525
407,363
349,330
11,162
843
$
$
$
$
9,014
contractual principal and interest. At December 31, 2016, $12 million of these loans are nonaccruing and $188 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.
121
As of December 31, 2015
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2015
Average
Recorded
Investment
Interest
Income
Recognized
$
63,910
$
61,189
$
18,330
$
42,859
$
16,115
$
31,303
$
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
13,449
10,290
8,582
665
1,352
8,304
96,262
8,963
1,923
937
1,192
76
8,363
21,454
2,919
331
1,072
623
76,424
4,409
1,319
651
274
76
2,272
9,001
4,409
1,319
651
274
76
2,113
8,842
37,273
28,984
28,868
202,984
10,988
251,245
196,937
10,356
236,277
196,937
10,356
236,161
9,657
2,907
331
931
623
633
12
—
141
—
148
9
—
35
—
32,779
43,645
16,307
7,746
3,534
391
1,226
777
44,977
4,854
2,622
2,035
137
38
4,092
13,778
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31,914
1,242
196,827
9,960
238,701
7,814
—
9,056
515
—
—
—
—
—
—
159
159
116
—
—
116
—
—
—
—
—
—
18
18
68
—
—
68
—
Personal
489
463
463
Total
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
278,245
322,165
369,450
297,971
43,920
16,393
$
$
$
$
$
$
$
9,056
contractual principal and interest. At December 31, 2015, $22 million of these loans are nonaccruing and $175 million are accruing based
on the guarantee by U.S. government agencies.
122
Troubled Debt Restructurings
A summary of troubled debt restructurings ("TDRs") by accruing status as of December 31, 2016 is as follows (in thousands):
As of December 31, 2016
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-Off
During the
Year Ended
December 31,
2016
Specific
Allowance
$
16,893
$
10,867
$
6,026
$
— $
4,401
7,527
11,291
224
607
337
6,830
11,251
224
—
53
697
40
—
607
284
36,879
29,225
7,654
690
326
143
—
—
548
1,707
14,876
6,702
5,346
26,924
237
65,747
81,370
81,370
81,370
97
326
143
—
—
548
1,114
10,175
2,241
4,458
16,874
236
593
—
—
—
—
—
593
4,701
4,461
888
10,050
1
47,449
18,298
27,289
27,289
27,289
54,081
54,081
54,081
—
—
—
—
—
—
—
—
—
—
—
—
—
46
—
—
46
—
46
—
—
—
—
—
—
—
—
4,401
—
—
—
—
—
—
—
28
—
230
258
73
4,732
—
—
—
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
Personal
Total nonaccruing TDRs
Accruing TDRs:
Residential mortgage:
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
Total TDRs
$
147,117
$
74,738
$
72,379
$
46
$
4,732
123
A summary of troubled debt restructurings by accruing status as of December 31, 2015 is as follows (in thousands):
As of December 31, 2015
Recorded
Investment
Performing
in Accordance
With Modified
Terms
Not
Performing
in
Accordance
With
Modified
Terms
Amounts
Charged-off
During the
Year Ended
December 31,
2015
Specific
Allowance
$
2,304
$
2,304
$
— $
— $
928
9,027
2,758
282
673
621
15,665
2,328
1,319
165
—
—
920
4,732
16,618
11,136
5,159
32,913
324
53,634
74,050
74,050
74,050
8,210
2,706
282
673
89
14,264
1,556
942
165
—
—
478
3,141
9,043
139
4,218
13,400
297
817
52
—
—
532
1,401
772
377
—
—
—
442
1,591
7,575
10,997
941
19,513
27
148
9
—
—
—
157
—
—
—
—
—
—
—
68
—
—
68
—
—
—
—
—
—
928
—
—
—
—
—
—
—
192
—
80
272
11
31,102
22,532
225
1,211
23,029
23,029
23,029
51,021
51,021
51,021
—
—
—
—
—
—
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
Personal
Total nonaccuring TDRs
Accruing TDRs:
Residential mortgage:
Permanent mortgages guaranteed by U.S.
government agencies
Total residential mortgage
Total accruing TDRs
Total TDRs
$
127,684
$
54,131
$
73,553
$
225
$
1,211
124
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, 2016 by class
that were restructured during the year ended December 31, 2016 by primary type of concession (in thousands):
Year Ended December 31, 2016
Accruing
Nonaccrual
Payment
Stream
Combination
& Other
Total
Interest
Rate
Payment
Stream
Combination
& Other
Total
Total
$
— $
— $
— $
— $
— $
16,892
$ 16,892
$ 16,892
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,879
—
10,042
21,921
—
—
11,879
10,042
21,921
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,103
9,103
—
9,103
—
—
—
—
—
—
—
—
—
25,995
25,995
25,995
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,036
328
1,364
1,364
—
46
979
2,077
979
2,123
22,900
2,123
1,082
3,384
4,466
26,387
—
77
77
77
$
11,879
$
10,042
$
21,921
$
— $
1,082
$
29,456
$ 30,538
$ 52,459
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
Personal
Total
125
The following table details the recorded balance of loans by class that were restructured during the year ended December 31,
2015 by primary type of concession (in thousands):
Year Ended December 31, 2015
Accruing
Nonaccrual
Payment
Stream
Combination
& Other
Total
Interest
Rate
Payment
Stream
Combination
& Other
Total
Total
$
— $
— $
— $
— $
— $
2,304
$ 2,304
$
2,304
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17,717
—
10,384
28,101
—
—
17,717
10,384
28,101
—
—
—
—
—
—
673
—
673
—
—
—
—
—
—
—
—
—
57
57
—
—
—
—
—
—
—
329
—
—
—
—
—
329
7,577
7,577
7,577
—
—
—
57
—
—
673
57
—
—
673
57
9,938
10,611
10,611
—
—
—
—
—
—
—
329
329
—
—
—
—
—
—
—
—
—
—
329
329
3,004
1,051
4,055
4,055
1,264
181
4,449
1,837
1,870
3,101
2,108
31,202
2,108
4,758
9,264
37,365
—
115
115
115
$
17,717
$
10,384
$
28,101
$
730
$
4,778
$
14,811
$ 20,319
$ 48,420
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
Personal
Total
126
The following table summarizes, by loan class, the recorded investment at December 31, 2016 and 2015, 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, 2016 and 2015, respectively (in thousands):
Year Ended
December 31, 2016
December 31, 2015
Accruing
Nonaccrual
Total
Accruing
Nonaccrual
Total
$
— $
8,593
$
8,593
$
— $
— $
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,593
8,593
—
—
—
—
—
—
—
544
—
—
—
—
—
—
—
544
647
585
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38
38
—
—
—
—
—
38
38
329
329
—
—
—
—
—
—
—
—
—
—
329
329
3,034
3,034
3,101
524
6,659
30,324
524
33,882
Permanent mortgage guaranteed by U.S. government
agencies
Home equity
Total residential mortgage
17,154
—
17,154
17,801
27,223
585
—
1,776
18,930
27,223
Personal
Total
—
5
5
—
13
13
$
17,154
$
10,374
$ 27,528
$
27,223
$
7,039
$ 34,262
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.
127
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, 2016 is as follows
(in thousands):
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days
or More
Nonaccrual
Total
— $
— $
132,499
$ 2,497,868
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Other commercial and industrial
$ 2,364,890
$
3,099,605
1,561,650
509,662
2,201,050
468,981
479
191
3,761
382
—
155
1,021
—
—
41
3
Total commercial
10,205,838
4,968
1,065
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
132,100
761,562
798,462
903,234
871,673
336,488
Total commercial real estate
3,803,519
—
—
—
—
—
6
6
—
—
—
—
—
—
—
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Personal
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,173
11,407
4,931
825
21,118
3,108,990
1,576,818
514,975
2,201,916
490,257
178,953
10,390,824
3,433
326
426
38
76
1,222
5,521
135,533
761,888
798,888
903,272
871,749
337,716
3,809,046
22,855
1,006,820
11,846
11,519
46,220
199,387
743,625
1,949,832
979,386
3,299
1,280
40,594
729,493
1,749,473
17,465
2,276
23,040
13,803
337
15,420
115,679
—
115,679
838,811
589
263
5
290
839,958
$ 16,597,641
$
28,603
16,748
$
115,684
$
230,984
$ 16,989,660
128
A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2015 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
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Personal
Total
Total commercial real estate
3,241,541
8,114
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days
or More
Nonaccrual
Total
$ 3,033,504
$
2,635
— $
— $
61,189
$ 3,097,328
2,769,895
1,418,396
556,398
1,879,873
507,929
10,165,995
156,017
795,180
637,056
742,697
563,093
347,498
66
49
—
2,435
84
5,269
—
—
—
8,114
—
—
913,062
3,290
4,025
—
—
—
16
4,041
—
—
—
—
—
—
—
—
—
700
—
—
102
802
—
—
—
—
—
377
377
10,290
2,919
331
1,072
623
2,784,276
1,422,064
556,729
1,883,380
508,754
76,424
10,252,531
4,409
1,319
651
274
76
2,272
9,001
160,426
796,499
637,707
751,085
563,169
350,147
3,259,033
—
28,984
945,336
33,653
721,149
1,667,864
16,986
2,379
22,655
13,397
716
14,113
111,001
20
111,021
21,900
10,356
61,240
196,937
734,620
1,876,893
551,533
665
28
8
463
552,697
$ 15,626,933
$
36,703
18,182
$
112,208
$
147,128
$ 15,941,154
129
(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
Premises and equipment
Less accumulated depreciation
Premises and equipment, net of accumulated depreciation
December 31,
2016
2015
$
70,552
$
250,311
158,155
217,399
36,743
733,160
407,311
325,849
$
$
72,612
225,181
142,476
194,715
39,886
674,870
368,380
306,490
Depreciation expense of premises and equipment was $40 million, $34 million and $33 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
(6) Goodwill and Intangible Assets
On May 4, 2015, the Company acquired a majority voting interest in Heartland Food Products, LLC, a Kansas-based food
product and restaurant equipment company pursuant to merchant banking regulations and restrictions. The cash purchase price
for this acquisition was $18 million. The purchase price allocation included $11 million of identifiable intangible assets and
$2.7 million of goodwill.
On January 12, 2016, the Company acquired E-Spectrum Advisors, a boutique energy investment banking firm based in Dallas
that offers a broad range of oil and natural gas property sales and strategic advisory services. On February 29, 2016, the
Company acquired Weaver and Tidwell Financial Advisors LTD d/b/a Weaver Wealth Management, a registered investment
advisor. The acquisition included hiring Weaver Wealth Management’s team and transitioning its wealth management clients to
The Milestone Group, a wholly owned subsidiary of BOK Financial. The acquisition increased BOK Financial’s assets under
management and administration by approximately $340 million. The combined cash purchase price for these two acquisitions
in 2016 totaled $7.7 million, including $5.3 million of identifiable intangible assets and $3.3 million of goodwill.
On December 1, 2016, the Company acquired MBT Bancshares, Inc. ("MBT"), parent company of Missouri Bank and Trust of
Kansas City (“Mobank”). Mobank operates four banking branches in the Kansas City, Missouri area. BOK Financial paid
$102.5 million in an all-cash deal for all outstanding shares of MBT stock. MBT was merged into BOK Financial and Mobank
became a wholly owned subsidiary of BOK Financial on December 1, 2016. On February 17, 2017, Mobank was merged with
the Bank of Kansas City banking division of BOKF, NA. All branches in the Kansas City market will operate under the
Mobank name.
130
A summary of the preliminary purchase price allocation and resulting goodwill follows (in thousands):
Cash and cash equivalents
Securities
Loans1
Premises and equipments, net
Intangible assets – Core deposit premium
Other assets
Total assets acquired
Deposits
Other borrowings
Other liabilities
Total liabilities assumed
Net assets acquired
Less: purchase price
Goodwill
1 Loans are presented net of participations sold to BOKF NA.
$
166,215
14,431
444,482
8,035
6,510
3,599
643,272
598,735
7,217
980
606,932
36,340
102,500
$
66,160
The pro-forma impact of all acquisition transactions for periods prior to the acquisition dates 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
Dec. 31,
2016
2015
$
35,879
$
29,369
6,510
60,951
20,530
40,421
29,369
29,101
268
55,509
11,868
43,641
Total intangible assets, net
$
46,931
$
43,909
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
2017
2018
2019
2020
2021
Thereafter
Core
Deposit
Premiums
Other
Identifiable
Intangible
Assets
$
808
732
716
697
675
$
4,565
$
3,908
3,556
3,420
3,063
2,882
21,909
$
6,510
$
40,421
$
Total
5,373
4,640
4,272
4,117
3,738
24,791
46,931
131
The changes in the carrying value of goodwill by operating segment are as follows (in thousands):
Balance, December 31, 2014
Goodwill
Accumulated impairment losses
Commercial
Banking
Consumer
Banking
Wealth
Management
Funds
Management
and Other
Total
$
269,363
$
39,251
$
69,394
$
— $
378,008
—
269,363
(228)
39,023
—
69,394
Goodwill acquired during 2015
7,681
—
—
Balance, December 31, 2015
Goodwill
Accumulated impairment losses
Goodwill acquired during 2016
Adjustment1
Balance, December 31, 2016
Goodwill
Accumulated impairment losses
277,044
—
277,044
1,210
(6,058)
39,251
(228)
39,023
—
—
272,196
—
39,251
(228)
69,394
—
69,394
2,126
—
71,520
—
—
—
—
—
—
—
66,160
—
(228)
377,780
7,681
385,689
(228)
385,461
69,496
(6,058)
66,160
449,127
—
(228)
272,196
1 Completion of an external audit of Heartland Food Products resulted in a reallocation of the purchase price between net assets acquired,
71,520
66,160
39,023
448,899
$
$
$
$
$
intangible assets and goodwill during 2016.
Goodwill related to the Mobank acquisition was not yet allocated to the operating segments as of December 31, 2016 and
accordingly is included in Funds Management and Other above. All of the goodwill related to the Mobank acquisition is tax
deductible.
The annual goodwill evaluations for 2016 and 2015 did not indicate impairment for any reporting unit. Economic conditions
did not indicate that impairment existed for any identifiable intangible assets and therefore no impairment evaluation was
performed.
(7) Mortgage Banking Activities
Residential Mortgage Loan Production
The Company originates, markets and services conventional and government-sponsored residential mortgage loans. Generally,
conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-
rate residential mortgage loans are held for investment. 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.
132
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, 2016
December 31, 2015
Unpaid
Principal
Balance/
Notional
Fair Value
Unpaid
Principal
Balance/
Notional
Fair Value
$
286,414
$
286,971
$
293,637
$
299,505
318,359
569,543
9,733
5,193
601,147
884,710
8,134
800
$
301,897
$
308,439
No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2016 or
December 31, 2015. No credit losses were recognized on residential mortgage loans held for sale for the years ended
December 31, 2016, 2015 and 2014.
Mortgage banking revenue was as follows (in thousands):
Year Ended
2016
2015
2014
Production revenue:
Net realized gains on sales of mortgage loans
$
68,947
$
67,407
$
56,696
Net change in unrealized gain on mortgage loans held for sale
Net change in the fair value of mortgage loan commitments
Net change in the fair value of forward sales contracts
Total production revenue
Servicing revenue
Total mortgage banking revenue
(5,311)
1,599
4,393
69,628
64,286
(784)
(1,837)
4,801
69,587
56,415
5,357
7,315
(8,307)
61,061
48,032
$
133,914
$
126,002
$
109,093
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.
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
2016
139,340
December 31,
2015
131,859
2014
117,483
Outstanding principal balance of residential mortgage loans serviced for others
$
21,997,568
$
19,678,226
$
16,162,887
Weighted average interest rate
Remaining contractual term (in months)
3.97%
301
4.12%
300
4.29%
296
133
Activity in capitalized mortgage servicing rights during the three years ended December 31, 2016 is as follows (in thousands):
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
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2015
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2016
Purchased
Originated
Total
$
15,935
$
137,398
$
153,333
—
(2,357)
(2,464)
11,114
—
(2,645)
1,442
9,911
—
(2,844)
1,842
54,413
(16,968)
(13,981)
160,862
79,546
(25,419)
(6,295)
208,694
71,405
(37,900)
(4,035)
54,413
(19,325)
(16,445)
171,976
79,546
(28,064)
(4,853)
218,605
71,405
(40,744)
(2,193)
$
8,909
$
238,164
$
247,073
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,
2016
10.08%
2015
10.11%
Prepayment rate - based upon loan interest rate, original term and loan type
8.98%-16.91%
7.41% - 23.88%
Loan servicing costs – annually per loan based upon loan type:
Performing loans
Delinquent loans
Loans in foreclosure
Primary/secondary mortgage rate spread
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average
life
$63 - $120
$150 - $500
$63 - $105
$150 - $500
$650 - $4,250
$650 - $4,250
105 bps
1.98%
130 bps
1.73%
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 periodically 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 is modeled over a range of +/- 50 basis points. At December 31, 2016,
a 50 basis point increase in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights by $25
million. A 50 basis point decrease in mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights
by $29 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.
134
The aging status of our mortgage loans serviced for others by investor at December 31, 2016 follows (in thousands):
FHLMC
FNMA
GNMA
Other
Total
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days or
More
Total
$ 7,950,818
$
52,434
$
9,812
$
25,670
$
8,038,734
6,922,833
6,304,914
390,109
44,532
181,669
763
11,233
56,534
351
21,486
22,471
1,939
7,000,084
6,565,588
393,162
$ 21,568,674
$
279,398
$
77,930
$
71,566
$ 21,997,568
The Company has off-balance sheet credit risk related to first lien, fixed-rate residential mortgage loans sold to U.S.
government agencies with recourse prior to 2008 under various community development programs. 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. The principal balance of residential mortgage loans sold
subject to recourse obligations totaled $139 million at December 31, 2016 and $155 million at December 31, 2015. A separate
accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. The
provision for credit losses on loans sold with recourse is included in Mortgage banking costs in the Consolidated Statements of
Earnings.
The activity in the accrual for losses on loans sold with recourse included in Other liabilities in the Consolidated Balance
Sheets is summarized as follows (in thousands):
Beginning balance
Provision for recourse losses
Loans charged off, net
Ending balance
Year Ended
2016
2015
2014
$
$
4,649
$
7,299
$
725
(1,358)
(982)
(1,668)
4,016
$
4,649
$
9,562
354
(2,617)
7,299
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
and related servicing expenses that is included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking
costs in the Consolidated Statements of Earnings. In 2016, the Company repurchased 18 loans from the agencies for $3.9
million and paid indemnification for 7 loans. Losses on both repurchases and indemnifications were insignificant.
A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved
deficiency requests):
Number of unresolved deficiency requests
233
Aggregate outstanding principal balance subject to unresolved deficiency requests
$
17,382
$
Unpaid principal balance subject to indemnification by the Company
5,803
198
15,624
4,365
The activity in the accruals for mortgage losses related to repurchases is summarized as follows (in thousands).
December 31,
2016
2015
Beginning balance
Provision for losses
Charge-offs, net
Ending balance
135
December 31,
2016
2015
$
$
3,359
$
27
(598)
2,788
$
3,220
353
(214)
3,359
(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,
2016
2015
2014
$
13,906
$
8,821
$
9,757
386
383
401
8,776
10,123
7,303
26,202
11,894
10,643
12,429
34,966
14,278
11,878
14,369
40,525
$
40,494
$
44,170
$
50,683
The aggregate amounts of time deposits in denominations of $250,000 or more at December 31, 2016 and 2015 were $866
million and $905 million, respectively.
Time deposit maturities are as follows: 2017 – $1.3 billion, 2018 – $340 million, 2019 – $71 million, 2020 – $94 million, 2021
– $114 million and $342 million thereafter.
At December 31, 2016 and 2015, the Company had $417 million and $358 million, respectively, in fixed rate, brokered
certificates of deposits. The weighted-average interest rate paid on these certificates was 1.33% in 2016 and 1.48% in 2015.
The aggregate amount of overdrawn customer transaction deposits that have been reclassified as loan balances was $9.7 million
at December 31, 2016 and $5.3 million at December 31, 2015.
136
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
As of
December 31, 2016
Year Ended
December 31, 2016
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent company and other non-bank subsidiaries:
Trust preferred debt
Other
Total other borrowings
Subordinated debentures
$
3.28% $
8.27%
7,217
1,092
8,309
144,640
5.60%
Total parent company and other non-bank subsidiaries
152,949
611
2,073
2,684
74,428
77,112
3.27% $
16.11%
13.19%
5.59% $
5.86%
BOKF, NA:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total BOKF, NA
57,929
668,661
0.38%
0.02%
78,222
589,145
0.24%
0.04%
4,800,000
0.72% 5,985,656
22,471
15,292
4.26%
2.66%
4,837,763
15,637
15,670
6,016,963
—
—%
140,414
5,564,353
6,824,744
0.55%
4.74%
2.41%
0.57%
1.35%
0.54%
Total other borrowed funds
$
5,717,302
$ 6,901,856
0.60%
7,217
3,157
145,393
567,103
668,661
6,500,000
22,471
15,797
226,434
137
As of
Year Ended
December 31, 2015
December 31, 2015
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent company and other non-bank subsidiaries:
Trust preferred debt
Other
Total other borrowings
Subordinated debentures
Total parent company and other non-bank subsidiaries
$
—% $
—%
—%
—
—
—
—
—
—
—
—
—
—
—% $
—%
—%
—%
—%
BOKF, NA:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total BOKF, NA
491,192
722,444
0.15%
0.02%
73,219
623,921
0.09%
0.04%
4,800,000
0.48% 4,921,739
19,478
18,402
4.75%
2.70%
4,837,880
16,668
18,768
4,957,175
226,350
1.05%
226,332
6,277,866
5,880,647
0.28%
4.95%
2.35%
0.33%
1.84%
0.36%
Total other borrowed funds
$
6,277,866
$ 5,880,647
0.36%
—
—
—
491,192
1,008,144
5,000,000
19,478
26,058
348,076
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:
Trust preferred debt
Other
Total other borrowings
Subordinated debentures
Total parent company and other non-bank subsidiaries
$
—% $
—%
—%
—
—
—
—
—
—
—
—
—
—
—% $
—%
—%
—%
—%
BOKF, NA:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total BOKF, NA
57,031
1,187,489
0.05%
0.04%
494,220
928,767
0.07%
0.06%
2,103,400
0.25% 1,894,966
14,298
16,076
5.05%
2.73%
2,133,774
17,343
16,433
1,928,742
347,983
2.35%
347,892
3,726,277
3,699,621
0.24%
5.20%
2.32%
0.35%
2.50%
0.43%
Total other borrowed funds
$
3,726,277
$ 3,699,621
0.43%
138
—
—
—
1,548,676
1,187,489
3,453,400
24,980
16,582
347,983
Aggregate annual principal repayments at December 31, 2016 are as follows (in thousands):
2017
2018
2019
2020
2021
Thereafter
Total
Parent
Company
and Other
Non-bank
Subsidiaries
BOKF, NA
$
— $
5,549,587
—
—
—
—
711
956
961
965
152,949
11,173
$
152,949
$
5,564,353
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, 2016
or December 31, 2015.
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31, 2016
and 2015 is as follows (dollars in thousands):
Security Sold/Maturity
U.S. government agency mortgage-backed securities:
Overnight1
Long-term
Total Agency Securities
Security Sold/Maturity
U.S. government agency mortgage-backed securities:
Overnight1
Long-term
Total Agency Securities
December 31, 2016
Amortized
Cost
Fair
Value
Repurchase
Liability1
Average
Rate
$
$
$
$
655,529
—
655,529
$
$
655,851
—
655,851
$
$
668,661
—
668,661
0.02%
—%
0.02%
December 31, 2015
Amortized
Cost
Fair
Value
Repurchase
Liability1
Average
Rate
685,458
—
685,458
$
$
688,485
—
688,485
$
$
722,444
—
722,444
0.02 %
— %
0.02 %
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 $242 million to secure BOK Financial’s obligations to depositors of
public funds. The unused credit available to BOK Financial at December 31, 2016 pursuant to the Federal Home Loan Bank’s
collateral policies is $1.3 billion.
In 2016, BOK Financial issued $150 million of subordinated debt that will mature on June 30, 2056. Interest on this debt bears
an interest rate of 5.375%, payable quarterly. On June 30, 2021, BOK Financial will have the option to redeem the debt at the
principal amount plus accrued interest, subject to regulatory approval.
139
In conjunction with the acquisition of MBT, BOK Financial assumed $7.2 million of variable rate subordinated trust preferred.
This trust preferred debt is callable prior to maturity on September 17, 2033 and December 15, 2036, respectively, subject to
regulatory approval. Interest is payable quarterly at three-month LIBOR plus 2.95% on $3.1 million and three-month LIBOR
plus 1.82% on $4.1 million.
BOK Financial Securities, Inc. 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. BOK Financial Securities, Inc. had no
borrowings from Pershing outstanding at December 31, 2016 or December 31, 2015.
In 2007, BOKF, NA 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.
The outstanding balance of this subordinated debt was $226 million at December 31, 2015. The remaining outstanding balance
was called during 2016.
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.
140
(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,
2016
2015
$
5,779
$
9,360
99,191
12,222
30,262
11,877
42,541
—
10,522
88,906
6,957
25,950
11,124
34,169
211,232
177,628
—
25,877
92,748
17,923
45,363
14,828
22,080
77,900
22,301
41,904
181,911
179,013
$
29,321
$
(1,385)
The Company determined that no valuation allowance was necessary on deferred tax assets as of December 31, 2016 and 2015.
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,
2016
2015
2014
$
107,379
$
117,566
$
11,028
118,407
12,397
129,963
(11,340)
(690)
(12,030)
8,397
1,024
9,421
95,289
9,392
104,681
36,521
2,949
39,470
$
106,377
$
139,384
$
144,151
141
The reconciliations of income 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:
Low-income housing tax credits, net of amortization
Other tax credits
Bank-owned life insurance
Other, net
Total 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:
Low-income housing tax credits, net of amortization
Other tax credits
Bank-owned life insurance
Other, net
Total
Year Ended December 31,
2016
2015
2014
$
118,530
$
151,075
$
153,870
(10,544)
6,478
(4,171)
(2,085)
(2,911)
1,080
(9,553)
9,082
(3,874)
(2,085)
(3,264)
(1,997)
(8,446)
9,054
(2,953)
(2,109)
(3,183)
(2,082)
$
106,377
$
139,384
$
144,151
Year Ended December 31,
2016
2015
2014
35.0%
(3.1)
1.9
(1.2)
(0.6)
(0.9)
0.3
35.0%
(2.2)
2.1
(0.9)
(0.5)
(0.7)
(0.5)
35.0%
(1.9)
2.1
(0.7)
(0.5)
(0.7)
(0.5)
31.4%
32.3%
32.8%
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
2016
2015
2014
$
13,232
$
13,374
$
5,640
—
(3,031)
2,226
—
(2,368)
$
15,841
$
13,232
$
12,058
3,813
—
(2,497)
13,374
Of the above unrecognized tax benefits, $10.3 million, if recognized, would have affected the effective tax rate.
BOK Financial recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The
Company recognized $1.0 million for 2016, $1.0 million for 2015 and $1.5 million for 2014 in interest and penalties. The
Company had approximately $3.5 million and $3.3 million accrued for the payment of interest and penalties at December 31,
2016 and 2015, 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.
142
(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 2016 and 2015, interest accrued on employees' account balances at a
variable rate tied to the five-year trailing average of five-year U.S. Treasury securities plus 1.5%. The rate has a floor of 3.0%
and a ceiling of 5.0%. The 2016 quarterly variable rates remained at 3.00%.
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
Other
Net benefit 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,
2016
2015
$
38,797
$
1,309
(55)
(5,087)
34,964
44,190
2,666
(5,087)
41,769
6,805
1,309
(2,167)
(741)
$
$
$
$
$
(1,599) $
$
$
$
$
$
$
45,224
1,487
(2,702)
(5,212)
38,797
49,443
(41)
(5,212)
44,190
5,393
1,487
(2,706)
1,849
630
2016
2015
3.43%
5.00%
3.54%
5.00%
As of December 31, 2016, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2017
2018
2019
2020
2021
Thereafter
Total estimated future benefit payments
$
$
2,706
3,072
3,402
3,090
2,934
28,044
43,248
143
Assets of the Pension Plan consist primarily of shares in the Cavanal Hill Active Core Fund. The stated objective of this fund is
to provide an attractive total return with a well-balanced 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. Management considers the Fund's recent and long-term performance as indicators when
setting the expected return on plan assets. As of December 31, 2016, the expected return on plan assets for 2017 is 5.00%. The
maximum tax deductible Pension Plan contribution for 2016 was $12 million. No minimum contribution was required for 2016,
2015 or 2014.
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 4 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 is provided for employees whose annual base compensation is less than
$40,000. Total non-elective contributions were $530 thousand for 2016, $605 thousand for 2015 and $662 thousand for 2014.
Participants may direct investments in their accounts to a variety of options, including a BOK Financial common stock fund
and Cavanal Hill funds. Employer contributions, which are invested in accordance with the participant’s investment options,
vest over five years. Thrift Plan expenses were $22.4 million for 2016, $20.6 million for 2015 and $18.6 million for 2014.
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 $128.1 million in 2016, $114.3 million in 2015, and $111.7 million in 2014 for cash incentive
compensation.
144
(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 2016, 2015 and 2014 under these plans (in thousands, except for
per share data):
Options outstanding at December 31, 2013
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2014
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2015
Options awarded
Options exercised
Options forfeited
Options expired
Options outstanding at December 31, 2016
Options vested at:
December 31, 2014
December 31, 2015
December 31, 2016
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number
1,135,105
$
49.09
$
19,564
—
(323,004)
(15,509)
(2,701)
793,891
—
(286,678)
(22,304)
(4,874)
480,035
—
(249,404)
(4,098)
(8,009)
218,524
347,633
243,395
93,117
$
$
—
49.17
45.71
47.98
49.05
—
47.86
48.90
51.32
49.75
—
47.60
55.44
53.43
51.95
48.85
48.17
46.22
$
$
8,725
4,821
6,793
3,889
2,829
3,429
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)
36,722
14,208
21,138
3,628
51,570
48,800
42,458
1.45
2.32
0.81
0.03
4.28
3.08
3.62
$36.65
48.30
48.46
54.33
55.74
55.94
58.76
36,722
6,906
21,138
3,628
5,008
12,260
7,455
$36.65
48.30
48.46
54.33
55.74
55.94
58.76
1.45
1.57
0.81
0.03
2.03
1.72
1.70
Exercise
Prices
$36.65
48.30
48.46
54.33
55.74
55.94
58.76
The aggregate intrinsic value of options exercised was $6.2 million for 2016, $5.1 million for 2015 and $5.5 million for 2014.
145
No options were granted in 2016, 2015 or 2014. Compensation expense recognized on stock options totaled $254 thousand for
2016, $362 thousand for 2015 and $826 thousand for 2014. Compensation cost of stock options granted that may be recognized
as compensation expense in future years totaled $229 thousand at December 31, 2016.
The following represents a summary of the non-vested stock awards as of December 31, 2016 (in thousands):
Non-vested at January 1, 2014
Granted
Vested
Forfeited
Non-vested at December 31, 2014
Granted
Vested
Forfeited
Non-vested at December 31, 2015
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Weighted
Average
Grant Date
Fair Value
$64.96
$44.56
$56.26
$57.66
$50.15
$58.33
$55.35
$55.87
$57.86
Shares
647,989
206,621
(140,820)
(25,179)
688,611
312,755
(114,045)
(96,212)
791,109
256,670
(213,941)
(47,132)
786,706
Compensation expense recognized on non-vested shares totaled $10.2 million for 2016, $12.0 million for 2015 and $10.0
million for 2014. Unrecognized compensation cost of non-vested shares totaled $14.1 million at December 31, 2016. Subject to
adjustment for forfeitures and changes in the fair value of 293,110 shares awarded under the Executive Incentive Plan, we
expect to recognize compensation expense of $9.3 million in 2017, $4.7 million in 2018, and $89 thousand in 2019.
During January 2017, BOK Financial awarded 170,785 shares of non-vested stock with a fair value per award of $83.50. The
aggregate compensation cost of these awards totaled approximately $14.3 million.
146
(13) Related Parties
In compliance with applicable banking 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. 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, 2016 or 2015.
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,
2016
2015
$
594,225
$
103,395
884,511
3,582,384
(1,123,747)
(3,104,004)
(218,044)
12,450
$
136,945
$
594,225
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, 2016, loan
commitments and equity investments were limited to $287 million to a single affiliate and $573 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 $337 million. The largest outstanding amount to a single affiliate at December 31, 2016
was $24 million and the total outstanding amounts to all affiliates were $39 million. At December 31, 2015, total loan
commitments and equity investments to all affiliates were $330 million and the total outstanding amounts to all affiliates were
$244 million.
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 $1.1 million for 2016, $975 thousand for 2015 and $1.1 million for 2014.
During 2016, the Company agreed to purchase approximately $7.5 million of Oklahoma Historic State Income Tax Credits
from the George Kaiser Family Foundation, a principal shareholder of BOKF. In the fourth quarter, $3.8 million of these tax
credits were purchased and reduced the Company's state liability for 2016. The remaining credits when purchased will be used
to reduce the Company's state income tax liability in 2017.
Cavanal Hill Investment Management, Inc., a wholly-owned subsidiary of BOKF, NA, 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"). BOKF, NA is custodian and BOK Financial Securities, 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 94% of the Funds’ assets of $3.8 billion are held for the Company's clients. A
Company executive officer serves on the Funds' board of trustees and officers of BOKF, NA 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.
147
(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 252,233 Visa Class B shares which are convertible into 415,755 shares of Visa Class A shares
after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate
to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may
be assigned until the Class B shares are converted into a known number of Class A shares.
On March 3, 2015, BOKF, NA and the Company were named as defendants in a class action alleging (1) that the manner in
which the Bank posted charges to its consumer deposit accounts was improper from September 1, 2011 through July 8, 2014,
the period after which the Bank and BOK Financial had settled a class action respecting a similar claim, and before it made
changes to its posting order and (2) that the manner in which the Bank posted charges to its small business deposit accounts
was improper from July 9, 2009 through July 8, 2014. Following mediation of the case in August 2016, the Class
Representatives and the Bank reached a settlement of the action for $7.8 million. The settlement is subject to the approval of
the Court which the Parties to the Action expect. The Company has funded the settlement.
On June 24, 2015, the Bank received a complaint alleging that an employee had colluded with a bond issuer and an individual
in misusing revenues pledged to municipal bonds for which the Bank served as trustee under the bond indenture. The Company
conducted an investigation and concluded that employees in one of its Corporate Trust offices had, with respect to a single
group of affiliated bond issuances, violated Company policies and procedures by waiving financial covenants, granting
forbearances and accepting without disclosure to the bondholders, debt service payments from sources other than pledged
revenues. The relationship manager was terminated. The Company reported the circumstances to, and cooperated with an
investigation by, the Securities and Exchange Commission ("SEC"). On December 28, 2015, in an action brought by the SEC,
the United States District Court for the District of New Jersey entered a judgment against the principals involved in the issuing
the bonds, precluding the principals from denying the alleged violations of the federal securities laws and requiring the
principals to pay all outstanding principal, accrued interest, and other amounts required under the bond documents (estimated to
be approximately$73 million, less the value of the facilities securing repayment of the bonds), subject to oversight by a court
appointed monitor. On September 7, 2016, the Bank agreed, and the SEC entered, a consent order finding that the Bank had
violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring the Bank to
disgorge $1,067,721 of fees and pay a civil penalty of $600,000. The Bank has disgorged the fees and paid the penalty. On
January 7, 2016, the terminated employee filed an action against the Bank alleging the Bank defamed the employee and made a
demand for indemnification respecting the SEC investigation which demand the respective boards of directors of the Company
and the Bank denied. On September 26, 2016, the employee dismissed the action without prejudice. On September 9, 2016, the
SEC filed a complaint against the terminated employee alleging the employee violated Section 17(a) of the Securities Act of
1933 and Section 10(b) of the Securities Exchange Act and requiring the employee to disgorge ill-gotten gains. The SEC and
the terminated employee have advised the Court that a settlement has been reached subject to approval by the Commission.
On August 26, 2016, the Bank was sued in the United States District Court for New Jersey by two bondholders in a putative
class action on behalf of all holders of the bonds alleging the Bank participated in the fraudulent sale of securities by the
principals. On September 14, 2016, the Bank was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders
alleging the Bank participated in the fraudulent sale of securities by the principals. Management has been advised by counsel
that the Bank has valid defenses to the claims. The Bank expects the Court ordered payment plan will result in the payment of
the bonds by the principals. Accordingly, no loss is probable at this time and no provision for loss has been made. If the
payment plan does not result in payment of the bonds, a loss could become probable. A reasonable estimate cannot be made at
this time though the amount could be material to the Company.
The Director of the New Mexico Securities Division of the State of New Mexico Regulation and Licensing Department ("the
Director") issued a Notice of Contemplated Action in connection with the purchase of various municipal bonds by the elected
County Treasurer of Bernalillo County, New Mexico, from BOK Financial Securities, Inc., the Company’s broker-dealer
affiliate. The Notice was settled by a $125,000 payment to the Division’s Educational fund, without any fine, penalty or
sanction. The County of Bernalillo, New Mexico, has commenced arbitration pursuant to the Arbitration Rules of FINRA
seeking recovery of $5.6 million arising out of the purchase. The Company has been advised that any recovery by the County is
remote.
148
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 $2.6 million at
December 31, 2016. 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.
A summary of consolidated and unconsolidated alternative investments as of December 31, 2016 and December 31, 2015 is as
follows (in thousands):
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
December 31, 2016
Loans
Other
Assets
Other
Liabilities
Other
Borrowings
Non-
controlling
Interests
$
— $
17,357
$
— $
— $
10,000
—
11,585
29,783
—
3,189
10,964
1,092
$
10,000
$
58,725
$
3,189
$
12,056
$
13,237
10,000
8,266
31,503
$
$
44,488
$ 143,715
—
31,675
44,488
$ 175,390
$
$
63,329
15,028
78,357
$
$
— $
—
— $
—
—
—
149
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
December 31, 2015
Loans
Other
Assets
Other
Liabilities
Other
Borrowings
Non-
controlling
Interests
$
— $
22,472
$
— $
— $
10,000
—
12,206
40,453
—
2,198
10,964
2,831
$
10,000
$
75,131
$
2,198
$
13,795
$
17,823
10,000
9,260
37,083
$
$
16,916
$
85,274
—
15,506
16,916
$ 100,780
$
$
14,572
6,319
20,891
$
$
— $
—
— $
—
—
—
Other Commitments and Contingencies
Cavanal Hill Funds’ assets include U.S. Treasury and government securities market funds. Assets of these funds consist of
highly-rated, short-term obligations of the U.S. Treasury and Agencies. The net asset value of units in these funds was $1.00 at
December 31, 2016. 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 2016 or 2015.
Total rent expense for BOK Financial was $25.8 million in 2016, $25.2 million in 2015 and $25.0 million in 2014. At
December 31, 2016, future minimum lease payments for premises under operating leases were as follows: $22.5 million in
2017, $20.1 million in 2018, $19.6 million in 2019, $16.2 million in 2020, $13.4 million in 2021 and $56.8 million thereafter.
BOKF, NA 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 holdings of vault cash and balances maintained directly with a Federal Reserve
Bank. The combined average balance of vault cash and balances held at the Federal Reserve Bank was $1.9 billion for the year
ended December 31, 2016 and $1.8 billion for the year ended December 31, 2015.
150
(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 2016, 2015 or 2014.
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.
Regulatory Capital
BOK Financial and the subsidiary banks 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 the regulators.
New capital rules were effective for BOK Financial on January 1, 2015. Components of these rules will phase in through
January 1, 2019. A bank falling below the minimum capital requirements, 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. For a banking institution to qualify as well capitalized, Common equity Tier 1, Tier I, Total and
Leverage capital ratios must be at least 6.5%, 8%, 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 subsidiary banks exceeded the regulatory definition of well
capitalized as of December 31, 2016 and December 31, 2015.
151
A summary of regulatory capital minimum requirements and levels follows (dollars in thousands):
Minimum
Capital
Requirement
Capital
Conservation
Buffer1
Minimum
Capital
Requirement
Including
Capital
Conservation
Buffer
December 31, 2016
December 31, 2015
Common equity Tier 1 Capital
(to Risk Weighted Assets):
Consolidated
BOKF, NA
Mobank2
Tier I Capital (to Risk Weighted
Assets):
Consolidated
BOKF, NA
Mobank2
Total Capital (to Risk Weighted
Assets):
Consolidated
BOKF, NA
Mobank2
Leverage (Tier I Capital to
Average Assets):
Consolidated
BOKF, NA
Mobank2
4.50%
4.50%
4.50%
6.00%
6.00%
6.00%
8.00%
8.00%
8.00%
4.00%
4.00%
4.00%
2.50%
N/A
N/A
2.50%
N/A
N/A
7.00%
4.50%
4.50%
2,834,532
11.21% $ 2,842,193
2,609,450
10.65% 2,385,323
54,616
10.03%
N/A
8.50%
6.00%
6.00%
$ 2,834,532
11.21% $ 2,842,193
2,609,450
10.65% 2,385,323
54,616
10.03%
N/A
2.50%
10.50%
$ 3,238,323
12.81% $ 3,116,144
N/A
N/A
N/A
N/A
N/A
8.00%
8.00%
2,866,949
11.70% 2,657,935
54,617
10.03%
N/A
4.00%
4.00%
4.00%
$ 2,834,532
8.72% $ 2,842,193
2,609,450
8.11% 2,385,323
54,616
8.37%
N/A
12.13 %
10.26 %
N/A
12.13 %
10.26 %
N/A
13.30 %
11.43 %
N/A
9.25 %
7.81 %
N/A
1 Capital conservation buffer is effective January 1, 2016 and is phased in through 2019. The phased in capital conservation buffer at
December 31, 2016 is 0.625%. The fully phased in requirement of 2.50% is included in the table above.
2 Missouri Bank and Trust Company of Kansas City dba Mobank was acquired by BOK Financial effective December 1, 2016.
152
Accumulated Other Comprehensive Income (Loss)
AOCI includes unrealized gains and losses on available for sale ("AFS") securities and non-credit related unrealized losses on
AFS securities for which an other-than-temporary impairment has been recorded in earnings. AOCI also includes unrealized
gains on AFS securities that were transferred from AFS to investment securities in 2011. Such amounts were amortized over the
estimated remaining life of the security as an adjustment to yield, offsetting the related amortization of premium on the
transferred securities. Unrealized losses on employee benefit plans will be reclassified into income as pension plan costs are
recognized over the remaining service period of plan participants. Accumulated losses on the interest rate lock hedge of the
subordinated debt issuance in 2005 were 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, 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
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, 2015
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, 2016
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
$
(23,175) $
1,118
$
(3,311) $
(255) $
(25,623)
136,050
—
—
—
373
(1,539)
134,884
52,470
82,414
59,239
(48,607)
—
—
1,819
(12,058)
(58,846)
(22,891)
(35,955)
23,284
(41,333)
—
—
—
(11,675)
(53,008)
(20,637)
(32,371)
(1,216)
—
—
—
(1,216)
(474)
(742)
376
—
(503)
—
—
—
(503)
(195)
(308)
68
—
(112)
—
—
—
(112)
(44)
(68)
725
—
—
—
—
725
282
443
(2,868)
1,804
—
—
—
—
1,804
701
1,103
(1,765)
(188)
—
—
—
—
(188)
(73)
(115)
—
136,775
—
296
—
—
296
115
181
(74)
—
—
121
—
—
121
47
74
—
—
—
—
—
—
—
—
—
(1,216)
296
373
(1,539)
134,689
52,393
82,296
56,673
(46,803)
(503)
121
1,819
(12,058)
(57,424)
(22,338)
(35,086)
21,587
(41,521)
(112)
—
—
(11,675)
(53,308)
(20,754)
(32,554)
$
(9,087) $
— $
(1,880) $
— $
(10,967)
153
(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
2016
2015
2014
Numerator:
Net income attributable to BOK Financial Corp. shareholders
$
232,668
$
288,565
$
292,435
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
2,883
3,383
229,785
285,182
1
3
3,239
289,196
4
Numerator for diluted earnings per share – income available to common shareholders
$
229,786
$
285,185
$
289,200
Denominator:
Weighted average shares outstanding
65,901,110
68,397,215
69,159,902
Less: Participating securities included in weighted average shares outstanding
815,483
802,526
765,708
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.
65,085,627
67,594,689
68,394,194
58,271
96,969
150,576
65,143,898
67,691,658
68,544,770
$
$
$
$
3.53
3.53
—
$
$
4.22
4.21
—
4.23
4.22
—
(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
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. 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.
154
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.
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.
The acquisition of Mobank on December 1, 2016 was not yet allocated to the operating segments at December 31, 2016.
Accordingly, the operation, assets and liabilities of Mobank were included in Funds Management and Other for 2016.
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2016 is as
follows (in thousands):
Net interest and dividend revenue from external
sources
Net interest revenue (expense) from internal
sources
Net interest and dividend revenue
Provision for credit losses
Net interest and dividend revenue after
provision for credit losses
Other operating revenue
Other operating expense
Net direct contribution
Gain (loss) on financial instruments, net
Change in fair value of mortgage servicing
rights
Gain (loss) on repossessed assets, net
Corporate expense allocations
Net income before taxes
Federal and state income taxes
Net income
Net income (loss) attributable to non-controlling
interests
Net income attributable to BOK Financial Corp.
shareholders
Average assets
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
492,967
$
85,998
$
33,006
$
135,257
$
747,228
(58,781)
434,186
32,959
401,227
195,521
216,451
380,297
10
—
669
35,760
345,216
134,289
210,927
—
$
210,927
$ 16,998,626
$
$
37,777
123,775
4,927
118,848
224,802
249,744
93,906
(26,252)
(2,193)
979
66,411
29
11
18
—
18
8,722,372
29,043
62,049
(801)
62,850
283,222
250,994
95,078
(42)
—
—
42,378
52,658
20,484
32,174
(8,039)
127,218
27,915
99,303
(29,525)
300,401
(230,623)
26,284
2,193
(1,648)
(144,549)
(59,245)
(48,407)
(10,838)
—
747,228
65,000
682,228
674,020
1,017,590
338,658
—
—
—
—
338,658
106,377
232,281
—
(387)
(387)
$
$
32,174
6,281,127
$
$
(10,451) $
232,668
276,277
$
32,278,402
155
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2015 is as
follows (in thousands):
Net interest and dividend revenue from external
sources
Net interest revenue (expense) from internal
sources
Net interest and dividend revenue
Provision for credit losses
Net interest and dividend revenue after
provision for credit losses
Other operating revenue
Other operating expense
Net direct contribution
Gain (loss) on financial instruments, net
Change in fair value of mortgage servicing
rights
Gain (loss) on repossessed assets, net
Corporate expense allocations
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
Average assets
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
439,751
$
84,848
$
24,744
$
154,011
$
703,354
(52,313)
387,438
(6,748)
394,186
177,729
202,804
369,111
—
—
708
43,279
326,540
127,024
199,516
28,503
113,351
6,934
106,417
218,095
203,070
121,442
(4,712)
(4,853)
916
74,936
37,857
14,726
23,131
—
—
$
199,516
$ 16,284,527
$
$
23,131
8,836,327
$
$
24,043
48,787
(1,083)
49,870
267,523
228,664
88,729
(204)
—
—
40,357
48,168
18,737
29,431
—
29,431
5,444,483
(233)
153,778
34,897
118,881
(4,867)
261,653
(147,639)
4,916
4,853
(1,624)
(158,572)
19,078
(21,103)
40,181
3,694
36,487
9,418
$
$
$
$
—
703,354
34,000
669,354
658,480
896,191
431,643
—
—
—
—
431,643
139,384
292,259
3,694
288,565
30,574,755
156
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2014 is as
follows (in thousands):
Net interest and dividend revenue from external
sources
Net interest revenue (expense) from internal
sources
Net interest and dividend revenue
Provision for credit losses
Net interest and dividend revenue after
provision for credit losses
Other operating revenue
Other operating expense
Net direct contribution
Gain (loss) on financial instruments, net
Change in fair value of mortgage servicing
rights
Gain (loss) on repossessed assets, net
Corporate expense allocations
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
Average assets
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
382,331
$
81,852
$
23,817
$
177,194
$
665,194
(40,083)
342,248
(7,447)
349,695
171,390
195,706
325,379
—
—
(3,187)
45,502
276,690
107,632
169,058
26,813
108,665
5,477
103,188
214,657
207,131
110,714
12,406
(16,445)
1,418
64,531
43,562
16,946
26,616
—
—
$
169,058
$ 15,394,957
$
$
26,616
8,373,317
$
$
20,959
44,776
213
44,563
242,268
218,000
68,831
(235)
—
—
38,731
29,865
11,617
18,248
—
18,248
5,002,515
(7,689)
169,505
1,757
167,748
(6,357)
226,685
(65,294)
(12,171)
16,445
1,769
(148,764)
89,513
7,956
81,557
3,044
—
665,194
—
665,194
621,958
847,522
439,630
—
—
—
—
439,630
144,151
295,479
3,044
$
$
78,513
$
292,435
(771,931) $
27,998,858
157
(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. 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. Certain assets and liabilities are recorded
in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.
For some assets and liabilities, observable market transactions and market information might be available. For other assets and
liabilities, observable market transactions and market information might not be available. A hierarchy for fair value has been
established which categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels
are as follows:
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) - fair value is based on unadjusted quoted
prices in active markets for identical assets or liabilities.
Significant Other Observable Inputs (Level 2) - fair value is based on significant other observable inputs which are
generally determined based on a single price for each financial instrument provided to us by an applicable third-party
pricing service and is based on one or more of the following:
• Quoted prices for similar, but not identical, assets or liabilities in active markets;
• Quoted prices for identical or similar assets or liabilities in inactive markets;
•
Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment
speeds, loss severities, credit risks and default rates;
• Other inputs derived from or corroborated by observable market inputs.
Significant Unobservable Inputs (Level 3) - fair value is based upon model-based valuation techniques for which at least
one significant assumption is not observable in the market.
Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out of quoted prices
in active markets for identical instruments to significant other observable inputs or significant unobservable inputs during the
year ended December 31, 2016 and 2015, respectively. Transfers between significant other observable inputs and significant
unobservable inputs during the year ended December 31, 2016 and 2015 are included in the summary of changes in recurring
fair values measured using unobservable inputs.
The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to
determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by
comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar
instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences
between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for
their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more
appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the
current market. No significant adjustments were made to prices provided by third-party pricing services at December 31, 2016
and 2015.
158
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, 2016 (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
$
6,234
$
— $
6,234
$
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
Residential mortgage loans held for sale
Mortgage servicing rights, net1
Derivative contracts, net of cash margin2
Liabilities:
Derivative contracts, net of cash margin2
310,067
14,427
6,900
337,628
999
40,993
5,460,386
115,535
3,017,933
4,152
18,474
18,357
8,676,829
77,046
301,897
247,073
689,872
—
—
—
—
999
—
—
—
—
—
—
3,495
4,494
—
—
—
310,067
14,427
6,900
337,628
—
35,204
5,460,386
115,535
3,017,933
—
18,474
14,862
8,662,394
77,046
290,280
—
7,541
682,331
664,531
6,972
657,559
—
—
—
—
—
—
5,789
—
—
—
4,152
—
—
9,941
—
11,617
247,073
—
—
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 a net asset position that were valued
based on quoted prices in active markets or identical instruments (Level 1) are exchange-traded interest rate and energy derivative
contracts, net of cash margin. Derivative contracts in a net liability position that were valued using quoted prices in active markets for
identical instruments (Level 1) are exchange-traded interest rate, energy and agricultural derivative contracts, net of cash margin.
159
The fair value of financial assets and liabilities that are measured on a recurring basis is as follows as of December 31, 2015 (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
$
61,295
$
— $
61,295
$
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
Residential mortgage loans held for sale
Mortgage servicing rights, net1
Derivative contracts, net of cash margin2
Liabilities:
Derivative contracts, net of cash margin 2
10,989
31,901
18,219
122,404
995
56,817
5,898,351
139,118
2,905,796
4,151
19,672
17,833
9,042,733
444,217
308,439
218,605
586,270
10,989
31,901
18,219
122,404
—
47,207
5,898,351
139,118
2,905,796
—
19,672
14,568
9,024,712
444,217
300,565
—
—
—
—
995
—
—
—
—
—
—
3,265
4,260
—
—
—
—
218,605
38,530
547,740
—
—
—
—
—
—
9,610
—
—
—
4,151
—
—
13,761
—
7,874
—
—
581,701
—
581,701
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 a net asset position that were valued
based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy derivative contracts, net of cash
margin. Derivative contracts in a net liability position that were valued using quoted prices in active markets for identical instruments
based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and agricultural derivative
contracts, fully offset by cash margin.
160
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 quarterly.
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.
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, as a practical expedient to measure the fair value of
the investments in the underlying funds. 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.
See Note 14 for disclosure of the fair value of the private equity funds using the net asset value per share of the underlying
investments, as a practical expedient, included in Other assets in the Consolidated Balance Sheets of the Company.
161
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, 2014
Transfer to Level 3 from Level 21
Purchases and capital calls
Redemptions and distributions
Proceeds from sales
Gain (loss) recognized in earnings:
Mortgage banking revenue
Other comprehensive income (loss):
Net change in unrealized gain (loss)
Balance, December 31, 2015
Transfer to Level 3 from Level 21
Purchases and capital calls
Redemptions and distributions
Proceeds from sales
Gain (loss) recognized in earnings:
Mortgage banking revenue
Other comprehensive income (loss):
Net change in unrealized gain (loss)
Available for Sale
Securities
Municipal
and other
tax-exempt
securities
Other debt
securities
Residential
mortgage
loans held
for sale
$
10,093
$
4,150
$
11,856
—
—
—
—
—
(483)
9,610
—
—
(3,975)
—
—
154
—
—
—
—
—
1
4,151
—
—
—
—
—
1
2,193
—
—
(6,283)
108
—
7,874
6,631
—
—
(2,540)
(348)
—
Balance, December 31, 2016
11,617
1 Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to
5,789
4,152
$
$
$
meet conforming standards.
162
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, 2016 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Amortized
Cost/
Unpaid
Principal
Balance
Par
Value
Fair
Value
Valuation Technique(s)
Significant
Unobservable
Input
Range
(Weighted Average)
Available for sale securities:
Municipal and other tax-
exempt securities
$
6,195
$
6,163
$
5,712
Discounted cash flows
Other debt securities
4,400
4,400
4,152
Discounted cash flows
Residential mortgage loans
held for sale
N/A
12,431
11,617
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
5.91%-6.21% (6.16%)
90.00%-93.40% (92.20%)
6.01% - 6.26% (6.23%)
94.34% - 94.36% (94.36%)
2
3
4
3
93.45%
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 525 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
approximately 1%.
A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs
(Level 3) as of December 31, 2015 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Par
Value
Amortized
Cost6
Fair
Value
Valuation Technique(s)
Significant
Unobservable
Input
Range
(Weighted Average)
Available for sale securities:
Municipal and other tax-
exempt securities
$
10,370
$
10,311
$
9,610
Discounted cash flows
Other debt securities
4,400
4,400
4,151
Discounted cash flows
1
1
Interest rate
spread
Interest rate
spread
5.47%-5.77% (5.73%)
92.34%-92.93% (92.67%)
5.80% - 5.92% (5.90%)
94.33% - 94.34% (94.34%)
2
3
4
3
Residential mortgage loans
held for sale
N/A
8,395
7,874
Liquidity
discount applied
to the market
value of
mortgage loans
qualifying for
sale to U.S.
government
agencies
Quoted prices of loans
sold in securitization
transactions, with a
liquidity discount
applied
93.79%
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 499 to 541 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%.
163
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. See Note 6 for information related to the
non-recurring fair value measurement of Mobank.
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, 2016
Fair Value Adjustments for the
Year Ended December 31, 2016
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
$
— $
—
$
539
7,965
$
11,295
2,192
$
7,594
—
—
2,527
Carrying Value at December 31, 2015
Fair Value Adjustments for the
Year Ended December 31, 2015
Recognized In:
Quoted Prices
in Active
Markets for
Identical
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Gross charge-
offs against
allowance for
loan losses
Net losses and
expenses of
repossessed
assets, net
Impaired loans
Real estate and other repossessed assets
$
— $
—
$
252
13,611
$
20,805
245
$
4,042
—
—
1,820
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. Non-recurring fair
value measurements of collateral dependent loans secured by mineral rights are generally determined by our internal staff of
engineers on projected cash flows under current market conditions and are based on significant unobservable inputs. Projected
cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Assets 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 prices with existing conventional equipment,
operating methods and costs. Significant unobservable inputs are developed by asset management and workout professionals
and approved by senior Credit Administration executives.
164
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2016 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Fair
Value
Valuation
Technique(s)
Significant Unobservable Input
Impaired loans
$ 11,295
Appraised value,
as adjusted
Recoverable oil and gas reserves,
forward-looking commodity prices and
estimated operating costs
Range
(Weighted Average)
22% - 59% (57%)1
Appraised value,
Real estate and other repossessed assets
as adjusted
1 Represents fair value as a percentage of the unpaid principal balance.
2 Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.
Marketability adjustments off
appraised value2
2,192
70% - 87% (74%)
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2015 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Fair
Value
Valuation
Technique(s)
Significant Unobservable Input
Range
(Weighted Average)
Impaired loans
$ 20,805
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 include consideration of estimated costs to sell which is approximately 10% of the fair value.
245
Appraised value,
as adjusted
Marketability adjustments off
appraised value1
66%-81% (74%)
The fair value of pension plan assets was approximately $42 million at December 31, 2016 and $44 million at December 31,
2015, 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.
165
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):
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
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
Residential mortgage loans held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Personal
Total loans
Allowance for loan losses
Loans, net of allowance
Mortgage servicing rights
Derivative instruments with positive fair value, net of cash margin
Deposits with no stated maturity
Time deposits
Other borrowed funds
Subordinated debentures
Derivative instruments with negative fair value, net of cash margin
December 31, 2016
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
Estimated
Fair Value
$
620,846
620,846
620,846
1,916,651
1,916,651
1,916,651
6,234
310,067
14,427
6,900
337,628
320,364
20,777
205,004
546,145
6,234
310,067
14,427
6,900
337,628
321,225
21,473
222,795
565,493
999
40,993
5,460,386
115,535
999
40,993
5,460,386
115,535
3,017,933
3,017,933
4,152
18,474
18,357
4,152
18,474
18,357
8,676,829
8,676,829
77,046
301,897
77,046
301,897
10,390,824
10,437,016
3,809,046
1,949,832
839,958
3,850,981
2,025,159
864,904
16,989,660
17,178,060
(246,159)
—
16,743,501
17,178,060
247,073
689,872
247,073
689,872
20,526,295
20,526,295
2,221,800
5,572,662
144,640
664,531
2,218,303
5,556,327
128,903
664,531
166
—
—
—
—
—
—
—
—
—
999
—
—
—
—
—
—
3,495
4,494
—
—
—
—
—
—
—
—
—
—
7,541
—
—
—
—
6,972
—
—
6,234
310,067
14,427
6,900
337,628
321,225
21,473
222,795
565,493
—
35,204
5,460,386
115,535
3,017,933
—
18,474
14,862
8,662,394
77,046
290,280
—
—
—
—
—
—
—
—
—
—
—
—
5,789
—
—
—
4,152
—
—
9,941
—
11,617
—
—
—
—
—
—
—
—
10,437,016
3,850,981
2,025,159
864,904
17,178,060
—
17,178,060
247,073
682,331
—
—
—
—
128,903
657,559
20,526,295
2,218,303
5,556,327
—
—
December 31, 2015
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
Estimated
Fair Value
$
573,699
$
573,699
573,699
2,069,900
2,069,900
2,069,900
— $
—
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
61,295
10,989
31,901
18,219
61,295
10,989
31,901
18,219
122,404
122,404
365,258
26,833
205,745
597,836
995
56,817
368,910
27,874
232,375
629,159
995
56,817
U.S. government agency residential mortgage-backed securities
5,898,351
5,898,351
Privately issued residential mortgage-backed securities
139,118
139,118
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
Residential mortgage loans held for sale
Loans:
Commercial
Commercial real estate
Residential mortgage
Personal
Total loans
Allowance for loan losses
Loans, net of allowance
Mortgage servicing rights
Derivative instruments with positive fair value, net of cash margin
Deposits with no stated maturity
Time deposits
Other borrowed funds
Subordinated debentures
Derivative instruments with negative fair value, net of cash margin
2,905,796
2,905,796
4,151
19,672
17,833
4,151
19,672
17,833
9,042,733
9,042,733
444,217
308,439
444,217
308,439
10,252,531
10,053,952
3,259,033
1,876,893
552,697
3,233,476
1,902,976
549,068
15,941,154
15,739,472
(225,524)
—
15,715,630
15,739,472
218,605
586,270
218,605
586,270
18,682,094
18,682,094
2,406,064
6,051,515
226,350
581,701
2,394,562
5,600,932
223,758
581,701
—
—
—
—
—
—
—
—
—
—
—
—
9,610
—
—
—
4,151
—
—
13,761
—
7,874
10,053,952
3,233,476
1,902,976
549,068
15,739,472
—
15,739,472
218,605
—
18,682,094
2,394,562
5,600,932
223,758
—
—
—
—
—
—
—
—
—
—
995
—
—
—
—
—
—
3,265
4,260
—
—
—
—
—
—
—
—
—
—
61,295
10,989
31,901
18,219
122,404
368,910
27,874
232,375
629,159
—
47,207
5,898,351
139,118
2,905,796
—
19,672
14,568
9,024,712
444,217
300,565
—
—
—
—
—
—
—
—
38,530
547,740
—
—
—
—
—
—
—
—
—
581,701
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.
167
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 $218 million at
December 31, 2016 and $195 million at December 31, 2015. A summary of assumptions used in determining the fair value of
loans follows:
December 31, 2016
Commercial
Commercial real estate
Residential mortgage
Personal
December 31, 2015
Commercial
Commercial real estate
Residential mortgage
Personal
Deposits
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
0.38% - 30.00%
0.38% - 18.00%
1.74% - 18.00%
0.25% - 21.00%
0.25% - 30.00%
0.38% - 18.00%
1.67% - 18.00%
0.38% - 21.00%
0.70
0.71
2.27
0.40
0.62
0.73
2.42
0.37
0.64% - 4.60%
0.94% - 4.27%
1.71% - 4.26%
1.03% - 4.59%
0.52% - 4.34%
0.95% - 3.93%
0.86% - 4.25%
1.19% - 4.11%
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.A summary of assumptions used in determining the fair value of time deposits follows:
December 31, 2016
December 31, 2015
Range of
Contractual
Yields
0.02% - 9.65%
0.02% - 5.50%
Average
Re-pricing
(in years)
1.96
1.78
Discount
Rate
1.57% - 2.00%
1.11% - 1.57%
168
Other Borrowed Funds 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. A summary of assumptions used in determining
the fair value of other borrowings and subordinated debentures follows:
December 31, 2016
Other borrowed funds
Subordinated debentures
December 31, 2015
Other borrowed funds
Subordinated debentures
Off-Balance Sheet Instruments
Range of
Contractual
Yields
Average
Re-pricing
(in years)
Discount
Rate
0.25% - 3.50%
5.38%
0.00
16.86
0.55% - 3.22%
6.11%
0.25% - 3.40%
1.05%
0.00
1.37
0.20% - 2.89%
2.12%
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, 2016 or December 31, 2015.
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
U.S. government agency residential mortgage-backed securities held as economic hedges against changes in the fair value of
mortgage servicing rights and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these
financial instruments are recognized in earnings.
169
(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 bank subsidiaries
Investment in non-bank subsidiaries
Other assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Other liabilities
Other borrowings – Trust preferred debt
Subordinated debentures
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
December 31,
2016
2015
$
163,418
$
282,169
19,234
20,150
3,067,595
2,746,810
177,068
4,865
186,271
1,534
$
3,432,180
$
3,236,934
$
5,469
$
6,378
7,217
144,640
157,326
—
—
6,378
4
4
1,006,535
2,823,334
(544,052)
(10,967)
982,009
2,704,121
(477,165)
21,587
3,274,854
3,230,556
$
3,432,180
$
3,236,934
170
Statements of Earnings
(In thousands)
Dividends, interest and fees received from bank subsidiaries
$
15,237
$
150,308
$
75,412
Year Ended December 31,
2016
2015
2014
Dividends, interest and fees received from non-bank subsidiaries
Other revenue
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 bank subsidiaries
Equity in undistributed income of non-bank subsidiaries
25,923
1,612
42,772
4,182
—
395
1,583
6,160
36,612
(1,920)
38,532
216,120
(21,984)
—
1,279
151,587
131
—
378
1,864
2,373
149,214
(375)
149,589
134,045
4,931
—
1,572
76,984
293
2,420
600
1,556
4,869
72,115
(1,702)
73,817
214,435
4,183
Net income attributable to BOK Financial Corp. shareholders
$
232,668
$
288,565
$
292,435
171
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 bank subsidiaries
Equity in undistributed income of non-bank 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:
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 subordinated debentures, net of issuance costs
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 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,
2016
2015
2014
$
232,668
$
288,565
$
292,435
(216,120)
(134,045)
(214,435)
21,984
(1,505)
(2,933)
(1,285)
32,809
1,632
(26,000)
(105,520)
(129,888)
144,615
12,455
1,505
(113,455)
(66,792)
(21,672)
(118,751)
282,169
(4,931)
(925)
49
(2,818)
145,895
4,760
(41,969)
—
(4,183)
(8,258)
8,726
1,055
75,340
—
(15,336)
—
(37,209)
(15,336)
—
6,711
925
(115,281)
(229,540)
(337,185)
(228,499)
510,668
—
4,472
8,258
(111,026)
(12,337)
(110,633)
(50,629)
561,297
$
$
$
163,418
$
282,169
$
510,668
4,127
$
— $
131
$
— $
293
8,352
The Company evaluated events from the date of the consolidated financial statements on December 31, 2016 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.
172
(This page has been left blank intentionally.)
173
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, 2016
Average
Balance
Revenue/
Expense
Yield/
Rate
10,726
9,213
12,268
7,567
19,835
173,272
3,353
176,625
6,723
17,238
12,658
593,700
593,700
846,718
13,906
386
26,202
40,494
186
248
34,902
6,059
81,889
0.53%
3.43%
5.42%
2.26%
3.54%
2.01%
5.18%
2.03%
1.93%
5.37%
3.45%
3.63%
3.68%
2.95%
0.14%
0.09%
1.16%
0.33%
0.24%
0.04%
0.58%
2.82%
0.42%
$
2,038,919
317,808
$
226,442
334,812
561,254
8,799,716
67,667
8,867,383
323,695
320,975
370,600
16,357,867
(243,631)
16,114,236
28,914,870
114,773
3,248,759
32,278,402
9,744,998
414,103
2,259,242
12,418,343
78,222
589,145
6,019,647
214,842
19,320,199
8,474,230
132,539
1,002,018
3,349,416
32,278,402
$
$
$
$
$
764,829
2.53%
2.66%
17,601
747,228
65,000
674,020
1,017,590
338,658
106,377
232,281
(387)
232,668
3.53
3.53
$
$
$
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.
174
Annual Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Year Ended
December 31, 2015
Average
Balance
Revenue/
Expense
Yield/
Rate
Average
Balance
December 31, 2014
Revenue/
Expense
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
$
2,031,403
149,572
$
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
5,580
3,055
12,932
5,971
18,903
172,582
3,341
175,923
9,264
13,532
13,602
539,426
539,426
779,285
8,821
383
34,966
44,170
65
282
13,857
5,100
63,474
236,193
386,122
622,315
8,937,418
81,469
9,018,887
426,461
230,140
380,979
15,063,002
(200,872)
14,862,130
27,721,887
80,079
2,772,789
30,574,755
9,919,913
377,497
2,587,367
12,884,777
69,149
766,410
4,212,417
276,662
18,209,415
8,048,469
173,743
769,823
3,373,305
30,574,755
$
$
715,811
12,457
703,354
34,000
658,480
896,191
431,643
139,384
292,259
3,694
288,565
4.22
4.21
$
$
$
175
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%
2.54%
2.68%
0.27% $ 1,127,664
120,415
2.49%
$
5.48%
1.55%
3.04%
233,105
422,507
655,612
9,546,366
1.97%
92,438
4.25%
9,638,804
1.99%
183,206
2.26%
127,161
5.88%
3.59%
259,809
3.58% 13,406,118
(189,574)
3.63% 13,216,544
2.84% 25,329,215
88,784
2,580,859
$ 27,998,858
0.09% $ 9,737,795
345,183
0.10%
1.35%
2,644,847
0.34% 12,727,825
494,220
0.09%
928,767
0.04%
1,928,742
0.33%
1.84%
347,892
0.35% 16,427,446
7,687,333
136,360
536,958
3,210,761
$ 27,998,858
2.49%
2.60%
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
$
676,146
10,952
665,194
—
621,958
847,522
439,630
144,151
295,479
3,044
$
292,435
$
$
4.23
4.22
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, 2016
Revenue/
Expense
Yield/
Rate
Average
Balance
September 30, 2016
Revenue/
Expense
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
$
2,032,785
476,498
$
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
2,800
4,554
3,024
1,854
4,878
42,482
748
43,230
541
4,554
2,835
156,734
156,734
220,126
3,912
91
6,140
10,143
44
34
9,315
2,003
21,539
224,376
318,493
542,869
8,706,449
60,106
8,766,555
210,733
334,114
345,066
16,723,588
(246,977)
16,476,611
29,185,231
33,813
3,742,032
$ 32,961,076
$
9,980,132
421,654
2,177,035
12,578,821
62,004
560,891
6,072,150
144,635
19,418,501
9,124,595
77,575
1,004,212
3,336,193
$ 32,961,076
$
$
198,587
4,389
194,198
—
143,754
265,547
72,405
22,496
49,909
(117)
50,026
0.76
0.76
$
$
$
0.51%
2.71%
5.34%
2.26%
3.51%
1.99%
5.47%
2.01%
1.70%
5.37%
3.28%
3.63%
3.69%
2.93%
0.14%
0.09%
1.14%
0.32%
0.19%
0.04%
0.57%
3.84%
0.44%
2.49%
2.64%
2,651
3,157
3,000
1,851
4,851
42,513
867
43,380
1,531
4,510
3,615
150,077
150,077
213,772
3,417
100
6,295
9,812
33
53
9,105
2,468
21,471
0.55% $
3.91%
2,047,991
366,545
$
5.39%
2.33%
3.60%
224,518
328,074
552,592
1.98%
8,795,869
5.27%
66,721
2.00%
8,862,590
0.99%
266,998
5.45%
335,812
3.31%
445,930
3.67% 16,447,750
(247,901)
3.72% 16,199,849
2.98% 29,078,307
259,906
3,308,260
$ 32,646,473
0.16% $
9,650,618
0.09%
420,009
1.12%
2,197,350
0.32% 12,267,977
0.28%
68,280
0.02%
522,822
0.61%
6,342,369
5.51%
255,890
0.44% 19,457,338
8,497,037
200,574
1,099,858
3,391,666
$ 32,646,473
2.54%
2.69%
$
$
192,301
4,455
187,846
10,000
187,310
258,088
107,068
31,956
75,112
835
74,277
1.13
1.13
$
$
$
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
176
Quarterly Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
Average Balance
June 30, 2016
Revenue /
Expense
Yield /
Rate
Three Months Ended
Mar. 31, 2016
Revenue /
Expense
Average Balance
December 31, 2015
Yield /
Rate
Average Balance
Revenue /
Expense
Yield /
Rate
0.51% $
1.89%
2,052,840
188,100
$
0.53% $
2.47%
1,995,945
150,402
$
2,569
775
3,069
1,878
4,947
43,345
862
44,207
2,062
3,863
3,508
144,708
144,708
206,639
3,260
102
6,635
9,997
33
72
8,675
878
19,655
$
2,022,028
237,808
$
227,103
335,288
562,391
8,819,135
70,977
8,890,112
368,434
319,136
401,114
16,263,132
(245,448)
16,017,684
28,818,707
49,568
3,117,767
31,986,042
9,590,855
417,122
2,297,621
12,305,598
70,682
611,264
6,076,028
232,795
19,296,367
8,162,134
93,812
1,089,483
3,344,246
31,986,042
$
$
$
$
$
186,984
4,372
182,612
20,000
185,542
251,385
96,769
30,497
66,272
471
65,801
1.00
1.00
$
$
$
229,817
357,648
587,465
8,878,478
72,958
8,951,435
450,478
294,529
289,743
15,991,993
(234,116)
15,757,877
28,572,467
115,101
2,820,903
31,508,471
9,756,843
397,479
2,366,543
12,520,865
112,211
662,640
5,583,917
226,368
19,106,001
8,105,756
158,050
813,427
3,325,237
31,508,471
$
5.41%
2.25%
3.52%
2.01%
5.06%
2.04%
2.19%
4.84%
3.53%
3.58%
3.63%
2.91%
$
0.14% $
0.10%
1.16%
0.33%
0.19%
0.05%
0.57%
1.52%
0.41%
$
2.50%
2.63%
2,706
727
3,175
1,984
5,159
44,932
876
45,808
2,589
4,311
2,700
142,181
142,181
206,181
3,317
93
7,132
10,542
76
89
7,807
710
19,224
$
186,957
4,385
182,572
35,000
157,414
242,570
62,416
21,428
40,988
(1,576)
42,564
0.64
0.64
$
$
$
177
0.29%
2.86%
5.41%
1.53%
3.03%
2.02%
4.22%
2.04%
2.32%
5.95%
3.85%
3.55%
3.60%
2.86%
0.09%
0.09%
1.26%
0.32%
0.11%
0.04%
0.38%
1.13%
0.34%
2.52%
2.64%
232,566
369,803
602,369
8,894,019
77,071
8,971,090
435,449
262,461
310,425
15,586,998
(207,156)
15,379,842
28,107,983
62,228
2,909,965
31,080,176
9,527,491
382,284
2,482,714
12,392,489
73,220
623,921
4,957,175
226,332
18,273,137
8,312,961
248,811
884,652
3,360,615
31,080,176
$
5.53%
2.22%
3.51%
2.06%
4.95%
2.08%
2.38%
5.85%
3.75%
3.57%
3.63%
2.92%
$
0.14% $
0.09%
1.21%
0.34%
0.27%
0.05%
0.56%
1.26%
0.40%
$
2.52%
2.65%
1,466
840
3,144
1,413
4,557
43,649
786
44,435
2,461
3,905
2,968
139,372
139,372
200,004
2,098
89
7,881
10,068
21
68
4,720
644
15,521
$
184,483
3,222
181,261
22,500
158,983
230,426
87,318
26,242
61,076
1,475
59,601
0.89
0.89
$
$
$
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.
Management's Report on Internal Control over Financial Reporting appears 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 “Report of the Audit Committee” in BOK Financial's 2017 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
Risk Officer 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 2016 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 2017 Annual Proxy Statement is incorporated herein by reference.
178
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 2017 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 2017 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 2017 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, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014
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.
179
(a) (3) Exhibits
Exhibit
Number
Description of Exhibit
3.0
3.1
3.1(a)
4.0
4.2
4.3
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)
10.4.7
10.4.7 (a)
10.4.7 (b)
10.4.8
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.
Subordinated Notes Indenture, dated as of June 27, 2016, between the Company and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's filing on Form 8-K filed
June 27, 2016).
Form of 5.375% Subordinated Notes due 2056 Global Security (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form 8-A filed on June 24, 2016).
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 Steven E. Nell and BOK Financial Corporation dated
December 31, 2004, incorporated by reference to Exhibit 10.4.7 of Form 8-K filed on January 5, 2005.
Amended and Restated Deferred Compensation Agreement (Amended as of December 1, 2003) between
Steven E. Nell and BOK Financial Corporation, incorporated by reference to Exhibit 10.4.7 (a) of Form 10-K
for the fiscal year ended December 31, 2004.
Amended and Restated Employment Agreement (amended June 15, 2013) between BOK Financial and Steven
Nell incorporated by reference to Exhibit 99.B of Form 8-K filed September 4, 2013.
Employment Agreement dated August 1, 2005 between BOK Financial Corporation and Donald T. Parker,
incorporated by reference to Exhibit 99 (a) of Form 8-K filed on February 1, 2006.
180
Exhibit
Number
10.4.8 (a)
10.4.9
10.4.9 (a)
10.4.9 (b)
10.4.10
Description of Exhibit
Amended and Restated Employment Agreement Dated June 15, 2013 between BOK Financial and Donald T.
Parker, incorporated by reference to Exhibit 10.4.8(a) of Form 10-K filed on February 27, 2015.
Employment Agreement dated April 4, 2008 between Bank of Texas, NA, and Norman P. Bagwell,
incorporated by reference to Exhibit 10.4.9 of Form 10-K filed on February 27, 2013.
First Amendment of Employment Agreement dated June 30, 2011 between Bank of Texas, a division of BOKF,
NA, and Norman P. Bagwell, incorporated by reference to Exhibit 10.4.9 (a) of Form 10-K filed on February
27, 2013.
Amended and Restated Employment Agreement (amended as of June 15, 2013) between BOK Financial and
Norman Bagwell, incorporated by reference to Exhibit 99.A of Form 8-K filed September 4, 2013.
Amended and Restated Employment Agreement (amended as of June 15, 2013) between BOK Financial and
Stacy C. Kymes, filed herewith.
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
10.7.16
10.8
10.9
21
23
31.1
31.2
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 2009 Omnibus Incentive Plan, Amended and Restated effective April 30, 2013,
incorporated by reference to the Schedule 14A Definitive Proxy Statement filed on March 20, 2013.
Lease Agreement between One Williams Center Co. and National Bank of Tulsa (predecessor to BOk) dated
June 18, 1974, incorporated by reference to Exhibit 10.9 of S-1 Registration Statement No. 33-90450.
Lease Agreement between Security Capital Real Estate Fund and BOk dated January 1, 1988, incorporated by
reference to Exhibit 10.10 of S-1 Registration Statement No. 33-90450.
Subsidiaries of BOK Financial, filed herewith.
Consent of independent registered public accounting firm - Ernst & Young LLP, filed herewith.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
181
Exhibit
Number
32
99
101
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.
Description of Exhibit
Additional Exhibits.
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.
182
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 28, 2017 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 28, 2017,
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
183
Alan S. Armstrong
C. Frederick Ball, Jr.
/s/ Jack E. Finley
Jack E. Finley
/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
DIRECTORS
/s/ Kimberley D. Henry
Kimberley D. Henry
/s/ E. Carey Joullian, IV
E. Carey Joullian, IV
Stanley A. Lybarger
Steven J. Malcolm
/s/ Emmet C. Richards
Emmet C. Richards
/s/ Robert J. LaFortune
Robert J. LaFortune
Michael C. Turpen
V. Burns Hargis
R.A. Walker
Douglas D. Hawthorne
Peter C. Boylan III
184
Exhibit 21
BOK FINANCIAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Banking Subsidiaries
BOKF, National Association (1)
Missouri Bank and Trust Company of Kansas City (2)
Other subsidiaries of BOK Financial Corporation
BOK Capital Service Corporation
BOKC Real Estate Corporation (8)
BOKF Capital Corporation
BOKF-CC (Aimbridge), LLC
BOKF-CC (FSE), LLC
BOKF-CC (Collision Works), LLC
BOKF-CS (Global Holdings), LLC
BOKF-CC (Heartland), LLC
BOKF-CS (Newco Valves), LLC
BOKF-CC (O2 Concepts), LLC
BOKF-CC (QAA), LLC (4)
BOKF Equity, LLC
BOKF Private Equity Limited Partnership
BOKF Private Equity Limited Partnership II
BOK Financial Securities, Inc.
Cavanal Hill Distributors, Inc.
Heartland Food Products, LLC (8)
HFP II, LLC
Lakeland Operating Company, LLC (7)
The Milestone Group, Inc. (6)
Quality Aircraft Accessories Holding Corporation (4)
Quality Aircraft Accessories, Inc. (4)
Subsidiaries of BOKF, National Association (1)
4525-4527 Fairway, LLC
Affiliated BancServices, Inc.
Affiliated Financial Holding Co.
Affiliated Financial Insurance Agency, Inc.
BancOklahoma Agri-Service Corporation
BancOklahoma Mortgage Corporation
BOK Delaware, Inc. (4)
BOK Financial Asset Management, Inc. (3)
BOK Financial Equipment Finance, Inc.
BOK Funding Trust (4)
BOKFCDF Fund I, LLC
BOKF Community Development Fund, LLC
BOKF Community Development Corporation
BOKF Petro Holding, LLC
BOKF Special Assets I, LLC
BOSC Agency, Inc. (Oklahoma)
BOSC Agency, Inc. (New Mexico) (5)
BOSC Agency, Inc.. (Texas) (3)
Calicotte Ranch HOA, LLC
Cavanal Hill Investment Management, Inc.
Cottonwood Valley Ventures, Inc.
CVV Management, Inc.
CVV Partnership, an Oklahoma General Partnership
Oklahoma New Markets Fund I, LLC
Oklahoma New Markets Fund II, LLC
Oklahoma New Markets Fund III, LLC
Oklahoma New Markets Fund IV, LLC
Pacesetter Leasing Company
Subsidiaries of Missouri Bank and Trust Company of Kansas City (2)
Ottawa Land Partners, LLC
All Subsidiaries listed above were incorporated in Oklahoma, except as noted.
(1) Chartered by the United States Government
(2) Chartered by the State of Missouri
(3) Incorporated in Texas
(4) Incorporated in Delaware
(5) Incorporated in New Mexico
(6) Incorporated in Colorado
(7) Incorporated in California
(8) Incorporated in Kansas
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
• Registration Statement (Form S-8, No. 33-44121) pertaining to the Reoffer Prospectus of the Bank of Oklahoma Master
Thrift Plan and Trust Agreement as amended October 6, 2008.
• Registration Statement (Form S-8, No. 333-40280) pertaining to the Reoffer Prospectus of the BOK Financial Corporation
Master Thrift Plan for Hourly Employees as amended October 6, 2008.
• Registration Statement (Form S-8, No. 33-79836) pertaining to the Reoffer Prospectus of the BOK Financial Corporation
Directors' Stock Compensation Plan.
• Registration Statement (Form S-8, No. 333-32649) pertaining to the Reoffer Prospectus of the BOK Financial Corporation
1997 Stock Option Plan.
• Registration Statement (Form S-8, No. 333-93957) pertaining to the Reoffer Prospectus of the BOK Financial Corporation
2000 Stock Option Plan.
• Registration Statement (Form S-8, No. 333-62578) pertaining to the Reoffer Prospectus of the BOK Financial Corporation
2001 Stock Option Plan.
• Registration Statement (Form S-8, No. 333-106530) pertaining to the Reoffer Prospectus of the BOK Financial
Corporation 2003 Executive Incentive Plan.
• Registration Statement (Form S-8, No. 333-106531) pertaining to the Reoffer Prospectus of the BOK Financial
Corporation 2003 Stock Option Plan.
• Registration Statement (Form S-8, No. 333-135224) pertaining to the Reoffer Prospectus of the BOK Financial
Corporation 2003 Stock Option Plan.
• Registration Statement (Form S-8, No. 333-158846) pertaining to the Reoffer Prospectus of the BOK Financial
Corporation 2009 Omnibus Incentive Plan.
• Registration Statement (Form S-3, (No. 333-212120) pertaining to the Reoffer Prospectus of the BOK Financial
Corporation 2016 Subordinated Note Issuance.
of our reports dated February 28, 2017, with respect to the consolidated financial statements of BOK Financial Corporation and
the effectiveness of internal control over financial reporting of BOK Financial Corporation included in this Annual Report (10-
K) of BOK Financial Corporation for the year ended December 31, 2016.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 28, 2017
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 28, 2017
/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 28, 2017
/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, 2016 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 28, 2017
/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
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RETAIL AND COMMERCIAL BANKING:
WEALTH MANAGEMENT:
TRANSACTION AND
PAYMENT PROCESSING:
MORTGAGE BANKING:
CORPORATE HEADQUARTERS:
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma 74192
918.588.6000
GE-BA-7008