ANNUAL REPORT
Dear Shareholders,
2018 was a record
year for BOK Financial
in many ways.
KEY STATISTICS
DIVERSIFIED REVENUE
Assets: $38 billion
Loans: $22 billion
Deposits: $25 billion
Fiduciary Assets: $45 billion
Assets Under Management and/or
Administration: $76 billion
At December 31, 2018
CREDIT RATINGS
BOK Financial Corporation
Long-term Issuer
BOKF, NA
Long-term Issuer
11% FIDUCIARY AND ASSET
MANAGEMENT
7%
BROKERAGE
AND TRADING
61%
NET INTEREST
REVENUE
7%
DEPOSIT SERVICE
CHARGES
6%
MORTGAGE
BANKING
5% TRANSACTION CARD
3% OTHER REVENUE
S&P
Moody’s
Fitch Ratings
BBB+ (ON)
A3 (OS)
A (OS)
A- (ON)
A3 (OS)
A (OS)
2018 HIGHLIGHTS
FOR A RECORD REVENUE YEAR
28th consecutive year
of profitability
33% year-over-year increase
in net income to $446 million
Largest acquisition in
company history with the addition
of CoBiz Financial
Robust loan production bringing
total loan portfolio to over $21 billion
for the first time in company history
14th consecutive year of dividend
increases for stockholders
Named ‘Best Places To Work’
by both Glassdoor and Forbes
Record earnings, near record loan production, and the
largest acquisition in company history were the defining
characteristics of the year, and these landmarks could not
have been reached without the hard work and dedication of
every single one of our employees. They work tirelessly to
ensure that BOK Financial stands apart in an increasingly
competitive environment with our customers, prospects,
and communities.
For the year, pre-tax earnings was a record $565.5 million;
net income attributable to BOK Financial shareholders was
$445.6 million, up 33.2 percent compared to 2017; and we
reported diluted earnings per share of $6.63, the highest
level in our company’s history. I think this is a testament to
the philosophy upon which we’ve built our bank: managing
for long-term value rather than short-term results.
COBIZ: EXPANDING OUR
WESTERN PRESENCE
We decided to invest our excess capital and the benefit
from corporate tax reduction to make a long-term invest-
ment in our company with an almost $1 billion purchase of
CoBiz Financial. This acquisition vaulted BOK Financial to a
top-ten deposit share bank in Colorado, and more than
doubled our market share in Denver and Phoenix—both
important growth markets for BOK Financial.
We have taken a very detailed and thoughtful approach to
integrating the two companies and expect 2019 results to
positively reflect the acquisition and the efforts of so many
across the company. By adding CoBiz, an organization that
like us has proven the ability to grow organically over time,
we feel that BOK Financial is now the premier commercial
banking franchise in Colorado and Arizona. We are very ex-
cited about the future of the combined organization, and we
are pleased to welcome our new teammates from CoBiz.
LOAN GROWTH:
A RECORD YEAR
Our revenue diversity remains a large component of our
strategy, and this showed its value again in 2018 as we
saw substantial loan growth across most businesses and
markets as rising interest rates impacted our fee-based
businesses. More on the fee businesses later in my letter.
Economic and employment growth helped drive us to
near record loan growth in 2018, ultimately resulting in an
increase in loan balances of more than nine percent for
the year.
With such broad growth across our loan portfolio, there is
plenty to be optimistic about. Our energy lending business
has grown substantially this year, and we would expect this
to continue into 2019. One of our core philosophies is that
we are not casual in our business segments, and we stay
fully committed to our customers even when cycles impact
certain business segments. That has never been more clear
than in our approach to the energy sector, and our contin-
ued growth is a byproduct of that long-term commitment.
Commercial real estate has also been an area of growth,
although we remain cautious given the length of the
economic recovery. Our commercial and industrial busi-
ness continues to drive regionally-diverse growth, which
portends well for continued stability. Our healthcare
portfolio continues to expand, and demographic trends
indicate that this business has plenty of potential for strong
ongoing growth.
We remain optimistic about core loan growth as we head
into 2019 as long as the broader economy continues to
show strength. We believe our geographic footprint and
quality of our banking teams will allow us to outperform
the national economy, especially as we integrate CoBiz
portfolios into our lines of business.
RISING INTEREST RATES:
A DOUBLE-EDGED SWORD
Rising interest rates helped create margin expansion,
greatly benefiting our traditional banking units in 2018.
While increasing deposit betas will impact BOK Financial,
we continue to track favorable to the industry, primarily due
to our enviable mix of high commercial demand deposits.
Even so, holding deposit costs at competitive levels while
still growing balances will be a challenging objective for all
of us in the banking industry.
Rising rates, while excellent for margin, also provided a
headwind for our mortgage and mortgage-backed security
trading business. As a result, run rate expense save mea-
sures have been undertaken in these businesses to right-
size for the current environment. Many of you will recall
2012 when these businesses carried our earnings growth
as loan balances and spreads declined. Bottom line,
our business diversification makes us a more stable and
predictable company—for shareholders, employees, and
customers.
WEALTH MANAGEMENT
Our wealth management capabilities are still the envy of
the industry, and we continue to innovate to address the
changing market landscape.
The team undertook initiatives to expand and enhance their
delivery channels to include virtual advisors and call center
support for our consumer branch delivery channel. This
initiative, financed through a reallocation of current resourc-
es, will undoubtedly pay dividends in the future as clients
expect to have instant access to advice and results no
matter which area of wealth management is providing
their services. We expect to remain competitive and con-
tinue to grow by taking share from larger, less client
focused national competitors.
The team also successfully added two new mutual funds
in response to regulatory changes. By being able to
quickly address the changes in the regulatory environ-
ment to serve our clients better, we demonstrate our
agility in meeting constantly changing client needs.
While the expansion of trading activities in the MBS
market proved difficult in 2018 due to the aforementioned
interest rate environment, our MBS trading activities were
down only 6 percent year over year. When compared to
the overall mortgage origination activity in the U.S. being
off by nearly 11 percent, we consider this a win and fully
intend to stay committed to this business going forward.
EXPENSE MANAGEMENT
Another primary driver of our strong 2018 financial perfor-
mance was expense discipline. One of our core goals is to
drive earnings leverage by holding expense growth to no
more than half of revenue growth, with the goal of a
60 percent efficiency ratio. We made great strides in this
regard, as expenses were down from the prior year
despite the significant increase in revenue, and moved
our efficiency ratio from 66 percent at the beginning of
2018 to 63 percent at the end of the year, even before full
run rate efficiencies were realized from the CoBiz acquisi-
tion. We are clearly moving the needle and quicker than
was previously anticipated with our three-year timeframe.
RISK MANAGEMENT,
COMPLIANCE, AND
TECHNOLOGY
We had a banner year within our operations and technol-
ogy group. The collaboration with our business lines is
producing faster and more competitive customer product
and delivery enhancements. In fact, we saw a significant
upgrade to our deposit system go off without a hitch—
a monumental accomplishment.
We are excited to see what 2019 and beyond hold for our
organization, as we seek ways to generate accuracy
and efficiency by introducing robotics and machine learn-
ing within our operational environment. We are on the
cusp of technology being a competitive advantage for our
company—a significant component in today’s ever-
changing economy.
Our risk management group, in collaboration with
operations and technology, made significant strides in
addressing risks identified with the natural disasters that
occurred in August of 2017. We feel that we stand even
more ready to address risk than ever before, but we
continue to push ourselves to improve. Initiatives like
cyber awareness and security have been a strong empha-
sis and will continue as top priorities into next year.
COMMUNITY, DIVERSITY,
AND INCLUSION
While a record fiscal year is something to be proud of,
I think I am most proud of the organization’s success this
year in our communities. BOK Financial has always
put our commitment to our communities, our customers,
and each other above all. The philanthropic priorities
of our chairman, George Kaiser, have imprinted them-
selves onto the organization. Our employees learn early
in their careers that community involvement is who we
are and that the leaders in our company have embraced
this commitment.
And each year is better than the last. In 2018, BOK
Financial employees volunteered nearly 19,000 hours to
local non-profit entities, and more than 350 of them serve
in 650 leadership roles with nearly 500 non-profits and set
the tone, direction, and strategy for these organizations.
Employees donated $2.23 million to our various United
Way campaigns in 2018. Their charitable spirit is matched
by the company, which granted more than $5.3 million to
philanthropic causes through the BOKF Foundation.
In 2018, we celebrated the opening of Gathering Place in
Tulsa, a spectacular new public park built as a communal
site for the entire city. Gathering Place was a vision of the
George Kaiser Family Foundation, which raised nearly
$500 million to make it a reality. It’s a tremendous exam-
ple of the philanthropic nature of our Chairman and our
company—and we should all be proud to play a continu-
ing role in its funding.
This philanthropic approach in our communities is echoed
by our employees in our workplace culture. In fact, BOK
Financial was recently named one of the best places to
work by both Glassdoor and Forbes. This is a testament
to the efforts we’ve put forth in talent attraction and reten-
tion, and these designations will only serve to make the
organization even more competitive in recruiting new and
mid-career professionals.
We also challenged several top talent workgroups to help
us develop a more intentional approach to creating great-
er diversity and inclusion across the company. We are
working to form a council within the bank that I will chair—
to advise my team and me on strategies we can employ
to make sure our company reflects the values and
perspective of our markets and customers. To that end,
we were pleased to add two new and diverse members to
our Executive Leadership Team this year in Kelley Weil
(EVP-Chief Human Resource Officer) and Derek Martin
(EVP-Consumer Banking Services), both of whom will
broaden our perspective as we set ongoing strategy for
the company.
LOOKING FORWARD
We are incredibly proud of our results in 2018 and are equally
enthusiastic about what 2019 has in store. As we noted in our
investor communications throughout 2018, we expect to see
great things from the CoBiz acquisition and look forward to
completing the integration process soon.
Although there are some market headwinds that many will point
to as potential roadblocks for the financial industry, I have full
faith in our diversified approach to driving shareholder value.
And it’s that approach that will leave us well-positioned for
strong earnings growth in the coming years.
Best regards,
Steven G. Bradshaw
President and Chief Executive Officer
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, 2018
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
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
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
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
Accelerated filer Non-accelerated filer
Smaller reporting company
Emerging growth company
No
The aggregate market value of the registrant's common stock ("Common Stock") held by non-affiliates is approximately $2.4 billion (based
on the June 30, 2018 closing price of Common Stock of $94.01 per share). As of January 31, 2019, there were 72,251,266 shares of Common
Stock outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2019 Annual Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
BOK Financial Corporation
Form 10-K
Year Ended December 31, 2018
Index
Part I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Part IV
Item 15
Exhibits, Financial Statement Schedules
Signatures
Exhibit 10.4.11 Employment Agreement between BOK Financial and Scott B. Grauer dated December 18,
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
2013
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Chief Executive Officer Section 302 Certification
Chief Financial Officer Section 302 Certification
Exhibit 32
Section 906 Certifications
1
9
14
14
14
14
15
18
18
70
77
164
164
164
164
164
165
165
165
165
168
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, 2018, the Company reported total consolidated assets of $38 billion.
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, Mobank, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. On October 1, 2018, BOK
Financial acquired CoBiz Bank as a wholly owned subsidiary, greatly enhancing our market presence in the Colorado and
Arizona markets. CoBiz Bank will be merged into BOKF, NA in first quarter of 2019. BOKF, NA and CoBiz Bank 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. We
offer derivative products that enable mortgage banking customers to manage their production risks and our energy financing
expertise enables us to offer commodity derivatives for customers to use in their risk management. Our diversified base of
revenue sources is designed to generate returns in a range of economic situations. Historically, fees and commissions provide
40% to 48% of our total revenue. Approximately 40% of our revenue came from fees and commissions in 2018.
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,
financial technology firms, 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 the Federal Deposit Insurance Corporation ("FDIC") as of June 30, 2018.
We are the largest financial institution in the state of Oklahoma with 13% of the state’s total deposits. We have 32% and 10% 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.
We compete against numerous financial institutions in the state of Texas, including some of the largest in the United States, and
have a market share of approximately 2% in the Dallas, Fort Worth area and less than 1% in the Houston area. We have an 11%
market share in the Albuquerque area and compete with four large national banks, some regional banks and several locally-
owned smaller community banks. Our market share is approximately 4% in the Denver area. We serve Benton and Washington
counties in Arkansas with a market share of approximately 2%. Our market share is approximately 2% in the Kansas City,
Missouri/Kansas area. We operate as a community bank with locations in Phoenix, Mesa and Scottsdale with approximately 1%
market share. The Company’s ability to expand into additional states remains subject to various federal and state laws.
Employees
As of December 31, 2018, BOK Financial and its subsidiaries employed 5,313 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. Both the scope of the laws
and regulations and the intensity of the supervision to which our business is subject have increased in recent years. Regulatory
enforcement and fines have also increased across the banking and financial services sector. Many of these changes have
occurred as a result of the Dodd-Frank Act and its implementing regulations, most of which are now in place. These regulations
and others 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. President Trump has issued an
executive order that sets forth principles for reform of the federal financial regulatory framework; however, the recent change
to a Democrat controlled House may limit the opportunity for further regulatory reform. The Company expects that its business
will remain subject to extensive regulation and supervision.
2
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.
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 FDIC, the Federal Reserve
Board, the Consumer Financial Protection Bureau ("CFPB") 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 Company 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
Volcker and Swap Rules
Title VI of the Dodd-Frank Act, commonly known as the Volcker Rule, prohibits the Company from (1) engaging in short-term
proprietary trading for our own account, and (2) having certain ownership interests in or relationships with private equity or
hedge funds. The fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including the Company
and its bank subsidiary. The Company has implemented a compliance program required by the Volcker Rule. Trading activity
remains largely unaffected by the Volcker Rule as most of our trading activity is exempted or excluded from the proprietary
trading prohibitions.
Title VII of the Dodd-Frank Act, commonly known as the Swap Rule, 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. Under CFTC and
SEC rules, entities transacting in less than $8 billion in notional value of swaps over any 12 month period are exempt from the
definition of and registration as a "swap dealer." The Company currently estimates that the nature and volume of its swaps
activity will not require it to register as a swap dealer.
Enhanced Prudential Standards
The Dodd-Frank Act directed the Federal Reserve Board to monitor emerging risks to financial institutions and enacted
enhanced supervision and prudential standards applicable to bank holding companies with consolidated assets of $50 billion
or more and non-bank covered companies designated as systematically important to the Financial Stability Oversight
Council (often referred to as systemically important financial institutions). The Dodd-Frank Act mandated that certain
regulatory requirements applicable to systemically important financial institutions be more stringent than those applicable to
other financial institutions.
In February 2014, the Federal Reserve Board adopted rules to implement certain of these enhanced prudential standards.
Beginning in 2015, the rules required publicly traded bank holding companies with $10 billion or more in total consolidated
assets to establish risk committees and required bank holding companies with $50 billion or more in total consolidated assets
to comply with enhanced capital, liquidity and overall risk management standards. In May 2018, the Economic Growth,
Regulatory Relief and Consumer Protection Act ("Regulatory Relief Act") raised the threshold for systemically important
financial institutions from $50 billion to $250 billion while providing the Federal Reserve with authority to establish
incremental prudential standards for banks between $100 billion and $250 billion. The regulations to implement this change
have not been finalized.
Consumer Financial Protection
We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our
customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the
Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act,
the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members
Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and
deceptive acts and practices. These and other federal laws, among other things, require disclosures of the cost of credit and terms
of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit
report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict our ability to
raise interest rates and subject us to substantial regulatory oversight. Violations of applicable consumer protection laws can result
in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees.
Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer
protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by
the state and local attorneys general in each jurisdiction in which we operate and civil money penalties. Failure to comply with
consumer protection requirements may also damage our reputation and result in our failure to obtain any required bank regulatory
approval for merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even
if approval is not required.
The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among
other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as
those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or
service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection
or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests.
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The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may
also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or
injunction.
Community Reinvestment Act
The Community Reinvestment Act of 1977 ("CRA") requires depository institutions to assist in meeting the credit needs of their
market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet
the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and
communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. In order
for a financial holding company to commence any new activity permitted by the BHCA, or to acquire any company engaged in
any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must
have received a rating of at least “satisfactory” in its most recent examination under the CRA. Furthermore, banking regulators
take into account CRA ratings when considering a request for an approval of a proposed transaction. BOKF, NA received a rating
of "outstanding" in its most recent CRA examination, which is above "satisfactory."
Financial Privacy
The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-
public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to
consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-
affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies
and is conveyed to outside parties.
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 based on three categories of regulatory
capital. 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.
Additional 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.
Implementation of certain components of these rules continues to be deferred.
The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets. A bank which falls below acceptable
levels, including the capital conservation buffer, would be subject to regulatory restrictions on capital distributions (including
but not limited to dividends and share repurchases) and executive bonus payments.
The 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.
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Stress Testing
The Regulatory Relief Act eliminated the requirement for periodic company run capital stress tests known as the Dodd-Frank
Act Stress Test for banks with assets less than $250 billion. Although the mandate has been lifted, the Company still continues
to perform capital stress testing on a regular basis.
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 was the regular assessment base reduced by $10 billion. On September 30, 2018 the DIF rose
above 1.35%. Accordingly, the surcharge for depository institutions with assets of greater than $10 million will cease. Base
assessment rates will remain unchanged, but are scheduled to decrease when the reserve ratio exceeds 2%.
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.
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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") impose 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.
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 affordable home programs.
The Federal Reserve completed its bond purchase program designed to reduce longer–term rates in October of 2014. Beginning
in October of 2017, the Federal Reserve initiated a balance sheet normalization program that will gradually reduce the
reinvestment of principal payments from its securities holdings though the pace and extent of the reduction remains uncertain.
As a result of signs of an improving economy, the Federal Reserve increased its target rate by 25 basis points four times during
2018. We expect the Federal Reserve will slow the frequency of rate increases in 2019 when compared to 2018. Real gross
domestic product is forecasted to slow to about 2 percent in 2019 after being around 3 percent in 2018. The inflation rate
increased 2 percent in 2018 and is expected to remain close to that pace in 2019. The short–term effectiveness and long–term
impact of these programs on the economy in general and on BOK Financial in particular are uncertain.
The Tax Cuts and Jobs Act ("the Tax Reform Act"), signed into law on December 22, 2017, has had a broad impact on the
Company and our customers. We believe that the overall impact of lower income tax rates and other provisions of the Tax
Reform Act will be beneficial to future economic growth.
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BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments.
Foreign Operations
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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; and
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. 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.
The increasingly competitive environment is in part a result of changes in regulation, changes in technology and product
delivery systems and the accelerating pace of consolidation among financial service providers. Our success depends on our
ability to respond to the threats and opportunities of financial technology innovations. Developments in "fintech" and crypto-
currencies have the potential to disrupt the financial industry and change the way banks do business. Investment in new
technology to stay competitive could result in significant costs and increased cybersecurity risk. Our success depends on our
ability to adapt to the pace of the rapidly changing technological environment which is important to retention and acquisitions
of customers.
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.
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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.
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. Political developments, including the change in administration in the United
States and more recent change in leadership in the House of Representatives, 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.
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 new
regulations have been 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. The passage of recent legislative proposals have eased some of the regulatory burden for
BOK Financial; however, legislative outcomes and their durability are inherently uncertain.
Credit Risk Factors
Adverse regional economic developments could negatively affect BOK Financial's business.
At December 31, 2018, loans to businesses and individuals with collateral primarily located in Texas represented approximately
30% of the total loan portfolio, loans to businesses and individuals with collateral primarily located in Oklahoma represented
approximately 16% of our total loan portfolio and loans to businesses and individuals with collateral primarily located in
Colorado represented approximately 15% of our total loan portfolio. These geographic concentrations subject the loan portfolio
to the general economic conditions within these areas. Poor economic conditions in Texas, Oklahoma, Colorado 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, 2018, 17% 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. Legislation affecting reimbursement rates along with the continued transition
to managed care in place of fee for service payments could affect their ability to pay.
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Adverse global economic factors could have a negative effect on BOK Financial customers and counterparties.
Economic conditions globally could impact BOK Financial’s customers and counterparties with which we do business. The
United Kingdom has not yet found an agreement regarding BREXIT, trade related issues remain between the United States and
China, and the turmoil in Venezuela, who holds the world's largest oil reserve, continues without an obvious agreement. We
have no direct exposure to European sovereign debt and limited exposure to European and Chinese financial institutions. 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.
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are
either directly or indirectly dependent on LIBOR. In 2017, the U.K. Financial Conduct Authority announced that it would no
longer persuade or compel banks to submit to LIBOR after 2021. U.S. regulatory authorities have voiced similar support for
phasing out LIBOR. The Federal Reserve Bank of New York's Alternative Reference Rate Committee has recommended the
Secured Overnight Financing Rate ("SOFR") as an alternative to LIBOR. However, for two key reasons, SOFR is a secured
rate while LIBOR is an unsecured rate and SOFR is an overnight rate while LIBOR is published for different maturities, SOFR
is not the economic equivalent of LIBOR. The impact of SOFR or other alternatives to LIBOR on the valuations, pricing and
operation of our financial instruments is not yet known.
Changes in mortgage interest rates could adversely affect mortgage banking operations along with mortgage serving rights
as well as BOK Financial's substantial holdings of residential mortgage-backed securities, and brokerage and trading
revenue.
BOK Financial derives a substantial amount of revenue from mortgage banking activities, the production and sale of mortgage
loans and the servicing of mortgage loans. In addition, as part of BOK Financial's mortgage banking business, BOK Financial
has substantial holdings of mortgage servicing rights. Revenue generated from the production and sale of mortgage loans is
affected by mortgage interest rates and government policies related to economic stimulus and home ownership. Falling interest
rates tend to increase mortgage lending activities and related revenue while rising interest rates have an opposite effect.
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Mortgage servicing revenue is a fee earned over the life of the related loan. However, mortgage servicing rights are assets that
are carried at fair value which are very sensitive to numerous factors with the primary factor being changes in market interest
rates. Falling interest rates tend to increase loan prepayments, which may lead to a decrease in the value of related servicing
rights. We attempt to manage this risk by maintaining an active hedging program. The primary objective of the Company's
hedging program is to provide an offset to changes in the fair value of these rights due to hedgeable risks, primarily changes in
market interest rates. Due to numerous unhedgeable factors, hedging strategies may not offset all changes in the fair value of
the asset. Such unhedgeable factors include, but are not limited to, changes in customer prepayment or delinquency behavior
that is inconsistent with historical actual performance in a similar market environment; changes in the long-term or short-term
primary/secondary mortgage spreads; and changes in survey-driven assumptions such as the cost of servicing and discount
rates.
We also hold a substantial portfolio of residential mortgage-backed securities issued by U.S. government agencies. The fair
value of residential mortgage-backed securities is highly 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. We mitigate this risk somewhat by investing principally in shorter duration
mortgage products, which are less sensitive to changes in interest rates.
In addition, the Company actively engages in trading activities that provide U.S. government agency residential mortgage-
backed securities and related derivative instruments to our customers. Trading activities generate net interest revenue, trading
revenue and customer hedging revenue. Trading revenue and customer hedging revenue varies in response to customer
demand. The value of trading securities will increase in response to decreases in interest rates or decrease in response to
increases in interest rates. We mitigate the market risk of holding trading securities through appropriate economic hedging
techniques.
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.
Integration of BOK Financial and CoBiz may be more difficult, costly or time consuming than expected and the anticipated
benefits and cost savings of the merger may not be realized.
The success of the merger will depend on a number of factors including:
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Successful integration of the acquired business into current operations;
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Retention of acquired deposits and earning assets;
Control over incremental non-interest expense;
Retention of certain key employees; and
Continued performance of the CoBiz credit portfolio.
The acquisition of CoBiz which represents BOK Financials’s largest transaction to date, includes anticipated benefits and cost
savings, that depend, in part, on our ability to successfully combine and integrate the businesses in a manner that permits
growth opportunities and does not materially disrupt existing customer relations nor result in decreased revenues due to loss of
customers. Business disruptions may cause customers to remove their accounts to competing financial institutions. Disruption
of ongoing businesses or inconsistencies in standards, controls, procedures and policies may adversely affect our ability to
maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings
of the merger. In addition, the loss of key employees could adversely affect our ability to successfully conduct its business. We
may also encounter unexpected difficulties or costs during the integration. Integration efforts may also divert management
attention and resources.
Risks Related to an Investment in Our Stock
Although publicly traded, BOK Financial's common stock has substantially less liquidity than the average trading market
for a stock quoted on the NASDAQ National Market System.
A relatively small fraction of BOK Financial's outstanding common stock is actively traded. The risks of low liquidity include
increased volatility of the price of BOK Financial's common stock. Low liquidity may also limit holders of BOK Financial's
common stock in their ability to sell or transfer BOK Financial's shares at the price, time and quantity desired.
BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.
Mr. George B. Kaiser owns approximately 53% of the outstanding shares of BOK Financial's common stock at December 31,
2018. 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 $196 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, 2019, common shareholders of record numbered 755 with 72,251,266 shares outstanding.
The highest and lowest quarterly closing bid price for shares and cash dividends declared per share of BOK Financial common
stock follows:
2018:
Low
High
Cash dividends declared
2017:
Low
High
Cash dividends declared
First
Second
Third
Fourth
$
90.62
$
93.00
$
93.33
$
100.98
0.45
105.24
0.45
104.74
0.50
$
75.15
$
74.34
$
77.30
$
84.81
0.44
85.83
0.44
89.08
0.44
70.61
96.91
0.50
82.30
93.50
0.45
15
Shareholder Return Performance Graph
Set forth below is a line graph comparing the change in cumulative shareholder return of the NASDAQ Composite Index, the
KBW NASDAQ Bank Index and the SNL U.S. Bank NASDAQ Index for the period commencing December 31, 2013 and
ending December 31, 2018.*
Index
BOK Financial Corporation
NASDAQ Composite
SNL U.S. Bank NASDAQ
KBW NASDAQ Bank Index
Period Ending December 31,
2013
2014
2015
2016
2017
2018
100.00
100.00
100.00
100.00
92.79
114.75
103.57
109.37
94.85
122.74
111.80
109.91
135.55
133.62
155.02
141.24
154.01
173.22
163.20
167.50
124.75
168.30
137.56
137.83
* Graph assumes value of an investment in the Company's Common Stock for each index was $100 on December 31, 2013. 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, 2018.
Period
October 1, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018
December 1, 2018 to December 31, 2018
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs 1
200,000
235,000
90,000
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans
1,749,917
1,514,917
1,424,917
Total
Number of
Shares
Purchased 2
200,000
235,000
90,000
Average
Price Paid
per Share
$
$
$
85.08
88.68
80.02
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, 2018, the Company had repurchased 3,575,083 shares under this plan. Future repurchases of the
Company's common stock will vary based on market conditions, regulatory limitations and other factors.
525,000
525,000
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 credit losses
Fees and commissions revenue5
Net income attributable to BOK Financial
Corporation shareholders
Period-end:
Loans
Assets
Deposits
Shareholders’ equity
Nonperforming assets1
2018
2017
2016
2015
2014
December 31,
$
1,228,426
$
972,751
$
829,117
$
766,828
$
732,239
243,559
984,867
8,000
643,642
131,050
841,701
(7,000)
642,390
81,889
747,228
65,000
647,726
63,474
703,354
34,000
614,960
67,045
665,194
—
588,012
445,646
334,644
232,668
288,565
292,435
21,656,730
17,153,424
16,989,660
15,941,154
38,020,504
32,272,160
32,772,281
31,476,128
25,263,763
22,061,305
22,748,095
21,088,158
4,432,109
3,495,367
3,274,854
3,230,556
267,162
290,305
356,641
251,908
14,208,037
29,089,698
21,140,859
3,302,179
256,617
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
$
$
$
6.63
6.63
$
5.11
5.11
$
3.53
3.53
$
4.22
4.21
4.23
4.22
1.28%
11.98%
10.70%
1.02%
9.82%
10.43%
0.72%
7.02%
10.38%
0.94%
8.65%
11.03%
1.04%
9.21%
11.47%
$
61.45
73.33
105.24
70.61
1.90
$
53.45
92.32
93.50
74.34
1.77
$
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
28.55%
34.45%
48.81%
40.03%
38.35%
18
Table 1 – Consolidated Selected Financial Data
(Dollars in thousands, except per share data)
Selected Financial Data
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 loans4
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
2018
2017
2016
2015
2014
December 31,
10.92%
10.92%
12.50%
8.96%
12.05%
12.05%
13.54%
9.31%
11.21%
11.21%
12.81%
8.72%
12.13%
12.13%
13.30%
9.25%
N/A
13.33%
14.66%
9.96%
132.89%
129.09%
112.33%
180.09%
245.34%
0.96%
0.97%
5,313
2,426
1.34%
1.37%
4,930
2,223
1.45%
1.52%
4,884
2,021
1.41%
1.43%
4,789
1,972
1.33%
1.34%
4,743
2,080
$ 44,841,339
$48,761,477
$42,378,053
$38,333,638
$ 35,997,877
Mortgage loans serviced for others
21,658,335
22,046,632
21,997,568
19,678,226
16,162,887
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 2018, 2017, 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 Excludes residential mortgage loans guaranteed by agencies of the U.S. government.
5 Non-GAAP measure to net interchange charges from prior years between transaction card revenue and data processing and communications expense as a
result of the recent revenue recognition standard. This measure has no effect on net income or earnings per share.
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.
For 2018, the U.S. economy continued to grow, supported by declining unemployment, continued payroll growth and modest
inflation. GDP increased 3.5% through the third quarter of 2018 and is expected to remain in the range of 2 to 3 percent in
2019. The national unemployment rate fell to 3.1% at December of 2018 from 4.1% in December of 2017. Inflation also
remained low around 2% for 2018. The minutes of the Federal Open Market Committee ("FOMC") of the Federal Reserve for
December indicated continued strengthening of labor market conditions and unchanged longer-run inflation expectations.
The Federal Reserve increased the target range for the federal funds rate by 25 basis points four times during 2018. The 10-year
U.S. Treasury note finished the year yielding 2.69% versus 2.40% at December 31, 2017. We expect rates to continue to rise in
2019. Global quantitative easing and lack of inflation, combined with continued gradual federal funds rate increases by the
Federal Reserve are contributing to a flattening of the yield curve; however, a yield curve inversion is not expected. Higher
long-term interest rates are likely in 2019.
19
Performance Summary
Net income for the year ended December 31, 2018 totaled $445.6 million or $6.63 per diluted share compared with net income
of $334.6 million or $5.11 per diluted share for the year ended December 31, 2017.
On October 1, 2018, the Company acquired CoBiz Financial, Inc. ("CoBiz"). CoBiz is headquartered in Denver with a presence
in Colorado and Arizona. The Company paid total consideration of $944 million, which included $243 million in cash along
with the issuance of 7.2 million shares of BOK Financial stock valued at $701 million, in exchange for all outstanding shares of
CoBiz stock. We anticipate a full bank consolidation in the first quarter of 2019.
We incurred $16.6 million of closing and integration costs, which resulted in an $0.18 per share reduction in 2018. A fee earned
through the sale of client assets of $15.4 million was recognized in 2018 accounting for a $0.17 per share addition. The
fluctuation discussion in the highlights below exclude the impact of these items.
Highlights of 2018 included:
•
•
•
•
•
•
•
•
•
•
Net interest revenue totaled $984.9 million for 2018, up from $841.7 million for 2017. CoBiz added $43.1 million to net
interest revenue. The remaining increase was driven by both widening spreads and growth in average assets. Net interest
margin was 3.20% for 2018 compared to 2.92% for 2017. Average earning assets were $31.0 billion for 2018, up $1.4
billion over 2017 with $950 million due to CoBiz.
Fees and commissions revenue was $643.6 million for 2018, a decrease of $14.1 million compared to 2017. Brokerage
and trading revenue decreased $23.3 million primarily due to the cost of financial instruments used to hedge our trading
portfolio. Mortgage banking revenue decreased $6.9 million affected by the impact of rising interest rates on mortgage
loan origination volumes. Fiduciary and asset management revenue increased $6.4 million.
The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other operating revenue by
$20.4 million in 2018, compared to $1.9 million in 2017. This increase is due to the combination of unhedgeable factors
and significant mortgage rate volatility. This amount does not include hedge-related net interest revenue of $4.8 million.
Other operating expense totaled $1.0 billion, a $24.9 million increase compared to 2017, including $29.7 million of costs
related to CoBiz operations in the fourth quarter of 2018. Excluding CoBiz operating costs, personnel expense decreased
$15.2 million. Annual merit increases were offset by a decrease in incentive compensation expense. Non-personnel
expense increased $10.4 million. Increases in occupancy and equipment, data processing and communications, and net
losses and expenses on repossessed assets were partially offset by a decrease in mortgage banking costs.
The Company recorded an $8.0 million provision for credit losses in 2018, compared to a $7.0 million negative provision
for credit losses in 2017. The 2018 provision reflected loan growth partially offset by continued improvement in credit
metrics. Nonaccruing loans not guaranteed by U.S. government agencies decreased $23 million compared to December 31,
2017. Potential problem loans decreased $26 million while other loans especially mentioned increased $64 million. Net
charge-offs were $33 million or 0.18% of average loans for 2018, compared to net charge-offs of $16 million or 0.09%
of average loans for 2017. The combined allowance for credit losses totaled $209 million or 0.97% of outstanding loans
and 1.12%, excluding loans from CoBiz, at December 31, 2018.
Period-end outstanding loan balances were $21.7 billion at December 31, 2018, a $4.5 billion increase over the prior
year. CoBiz added $2.9 billion of loans during 2018. Excluding acquired loans, commercial loan balances grew by $1.1
billion or 10% and commercial real estate loans grew by $447 million or 13%.
Period-end deposits totaled $25.3 billion at December 31, 2018, a $3.2 billion increase compared to December 31, 2017.
Excluding $3.3 billion of acquired deposits, interest-bearing transaction deposits increased $244 million, while demand
deposit balances decreased $330 million.
Common equity Tier 1 capital ratio was 10.92% at December 31, 2018. In addition, the Tier 1 capital ratio was 10.92%,
total capital ratio was 12.50% and leverage ratio was 8.96% at December 31, 2018. At December 31, 2017, the Tier 1
capital ratio was 12.05%, the total capital ratio was 13.54% and the leverage ratio was 9.31%.
The Company repurchased 615,840 shares at an average price of $86.82 per share during 2018 and 80,000 shares at an
average price of $92.54 during 2017.
The Company paid cash dividends of $1.90 per common share during 2018 and $1.77 per common share in 2017.
20
Net income for the fourth quarter of 2018 totaled $108 million or $1.50 per diluted share, up from $72.5 million or $1.11 per
diluted share for the fourth quarter of 2017. The fourth quarter earnings per share included a $0.15 per share reduction as a
result of CoBiz closing and integration costs of $14.5 million. The highlights below exclude this amount.
Income tax expense was $20.1 million or 15.7% of net income before taxes for the fourth quarter of 2018 and $54.3 million or
42.9% of net income before taxes for the fourth quarter of 2017. The Tax Reform Act enacted in 2017 added $11.7 million of
expense to the fourth quarter of 2017 largely due to the revaluation of net deferred taxes. The 2017 tax returns were finalized in
the fourth quarter of 2018. This resolved several uncertainties caused by last year's Tax Cuts and Jobs Act. Resolution of these
uncertainties and other routine adjustments reduced tax expense for the quarter by $8.6 million.
Highlights of the fourth quarter of 2018 included:
•
•
•
•
Net interest revenue totaled $285.7 million for the fourth quarter of 2018, up $68.8 million over the fourth quarter of
2017. CoBiz added $43.1 million to net interest revenue in the fourth quarter of 2018. Net interest margin was 3.40% for
the fourth quarter of 2018, up from 2.97% for the fourth quarter of 2017. Net interest revenue increased primarily due to
four 25 basis point increases in the federal funds rate by the Federal Reserve during 2018 and growth in average loan
balances.
Fees and commissions revenue totaled $160.1 million, up $2.2 million over the fourth quarter of 2017. Increases in trust
fees and commissions, service charges, and other revenue were partially offset by decreases in brokerage and trading and
mortgage banking revenue. This amount does not include hedge-related net interest revenue of $695 thousand.
The loss in the fair value of mortgage servicing rights, net of economic hedges, was $12.4 million in the fourth quarter
of 2018 compared to $1.4 million in the fourth quarter of 2017. This increase is due primarily to the combination of
unhedgeable factors and significant mortgage volatility in the fourth quarter of 2018.
Operating expenses in the fourth quarter totaled $270.1 million, a $15.6 million increase compared to the prior year,
including $29.7 million related to CoBiz operations. Excluding these costs, personnel expense decreased $9.6 million
primarily due to changes in vesting assumptions related to share-based compensation. Non-personnel expenses decreased
$4.5 million. An increase in occupancy and equipment and net losses and expenses of repossessed assets was offset by
a decrease in mortgage banking costs and professional fees and services.
21
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 2018.
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.
22
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. Fair value adjustments of significant assets or liabilities that are based on unobservable
inputs (Level 3) are considered Critical Accounting Policies and Estimates. Additional discussion of fair value measurement
and disclosure is included in Notes 7 and 19 of 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.
Mortgage servicing rights are not traded in active markets. 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 $19 million. We expect a $27 million decrease in the fair value of our
mortgage servicing rights from a 50 basis point decrease in primary mortgage interest rates.
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.
23
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.
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.
We also recognize the benefit of uncertain tax positions when based upon all relevant evidence, it is more-likely-than-not that
our position would prevail upon examination, including resolution of related appeals or litigation, based upon the technical
merits of the position. Unrecognized tax benefits, including estimated interest and penalties, are part of our current accrued
income tax liability. Estimated penalties and interest are recognized in income tax expense. Income tax expense in future
periods may decrease if an uncertain tax position is favorably resolved, generally upon completion of an examination by the
taxing authorities, expiration of a statute of limitations, or changes in facts and circumstances.
24
Results of Operations
Net Interest Revenue and Net Interest Margin
Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for
interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing 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 $993.8 million for 2018, up from $858.9 million for 2017. Tax-equivalent net
interest revenue increased $134.9 million over the prior year. The acquisition of CoBiz in the fourth quarter of 2018 added
$43.1 million to net interest revenue, including $6.4 million of net purchase accounting discount accretion. Net interest revenue
increased $55.5 million due to rates and $79.4 million from growth in earning assets. The benefit of an increase in short-term
interest rates on floating-rate earning assets was partially offset by higher borrowing costs. Table 2 shows the effects on net
interest revenue due to 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.
Net interest margin was 3.20% for 2018 and 2.92% for 2017. The tax-equivalent yield on earning assets was 3.98% for 2018,
up from 3.36% in 2017, primarily due to increases in short-term interest rates resulting from four 25 basis point increases in the
federal funds rate by the Federal Reserve during the year. Loan yields increased 67 basis points to 4.80%. The available for sale
securities portfolio yield increased 22 basis points to 2.35%. The yield on interest-bearing cash and cash equivalents increased
70 basis points to 1.80%. Funding costs increased 52 basis points over 2017. The cost of interest-bearing deposits increased 30
basis points. The cost of other borrowed funds increased 86 basis points. The benefit to net interest margin from earning assets
funded by non-interest bearing liabilities was 41 basis points for 2018, up from 23 basis points for 2017.
Average earning assets for 2018 increased $1.4 billion or 5% over 2017 with $950 million due to CoBiz. Average loans, net of
allowance for loan losses, increased $1.6 billion led by growth in average commercial and commercial real estate loans.
Average trading securities balances increased $1.0 billion primarily related to expanded U.S. mortgage-backed securities
trading activity. Average interest-bearing cash and cash equivalents decreased $768 million as we reduced our balances held at
the Federal Reserve, including cash used in our purchase of CoBiz. 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
$144 million. We purchase securities to supplement earnings and to manage interest rate risk. We have reduced the size of our
bond portfolio during the past four years through normal monthly runoff to better position the balance sheet for an environment
of rising longer-term rates.
Total average deposits grew by $624 million over the prior year, including $859 million from the CoBiz acquisition. Excluding
acquired deposits, average demand deposit balances decreased $131 million, average interest-bearing transaction account
balances decreased $62 million and average time deposit balances decreased $81 million. Average borrowed funds increased
$709 million over the prior year. Borrowings from the Federal Home Loan Banks increased $325 million and average funds
purchased and repurchase agreement balances increased $392 million over the prior year.
Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates as is further
described in the Market Risk section of this report. As shown in Table 21, approximately 79% of our commercial and
commercial real estate loan portfolios are either variable rate loans or fixed rate loans that will re-price within one year. These
loans are funded primarily by deposit accounts that are either non-interest bearing, or that re-price more slowly than the
loans. The result is a balance sheet that would be asset sensitive, which means that assets generally re-price more quickly than
liabilities. Among the strategies that we use to manage toward a relatively rate-neutral position, we purchase fixed rate
residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market rate sensitive
liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan
portfolio. We also may use derivative instruments to manage our interest rate risk.
The effectiveness of these strategies is reflected in the overall change in net interest revenue due to changes in interest rates as
shown in Table 2 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.
25
Fourth Quarter 2018 Net Interest Revenue
Tax-equivalent net interest revenue totaled $288.8 million for the fourth quarter of 2018, an increase of $67.8 million over the
fourth quarter of 2017. CoBiz added $43.1 million to net interest revenue, including $6.4 million of net purchase accounting
discount accretion. Net interest revenue increased $18.3 million primarily due to four 25 basis point increases in the federal
funds rate by the Federal Reserve during 2018 and $49.4 million primarily due to the growth in average loan balances.
Net interest margin was 3.40% for the fourth quarter of 2018 compared to 2.97% for the fourth quarter of 2017. The tax-
equivalent yield on earning assets was 4.33% for the fourth quarter of 2018, up 84 basis points over the fourth quarter of
2017. Loan yields increased 80 basis points to 5.09%, including 12 basis points from net purchase accounting discount
accretion. The remaining increase is due mainly to short-term market interest rates related to the Federal Reserve's four 25 basis
point increases in 2018. The available for sale securities portfolio yield increased 30 basis points to 2.51%. The yield on
interest-bearing cash and cash equivalents increased 96 basis points to 2.23%. Yield on trading securities increased 72 basis
points to 4.10%. Funding costs were up 63 basis points over the fourth quarter of 2017. The cost of interest-bearing deposits
increased 39 basis points over the fourth quarter of 2017. The cost of other borrowed funds increased 105 basis points. The
benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 49 basis points in the fourth
quarter of 2018, up from 27 basis points in the fourth quarter of 2017.
Average earning assets for the fourth quarter of 2018 increased $4.0 billion over the fourth quarter of 2017. Average loans, net
of allowance for loan losses, increased $4.4 billion, including acquired loans. The legacy BOKF loan portfolio grew $1.3
billion. Commercial and commercial real estate loan balances were the primary drivers.
Average deposits increased $2.9 billion over the fourth quarter of 2017, including $3.4 billion related to Cobiz. Excluding
acquired deposits, average demand deposit balances decreased $387 million, average interest-bearing transaction accounts
decreased $48 million and average time deposits decreased $72 million. Average borrowed funds increased $868 million.
2017 Net Interest Revenue
Tax-equivalent net interest revenue for 2017 was $858.9 million, up from $764.8 million for 2016. Tax-equivalent net interest
revenue increased $94.1 million over the prior year. Net interest revenue increased $61.2 million due to rates and $32.9 million
from growth in earning assets. The benefit of an increase in short-term interest rates during 2017 on the loan portfolio and
interest-bearing cash and cash equivalents yields was offset by higher borrowing costs.
Net interest margin was 2.92% for 2017 compared to 2.66% for 2016. The tax-equivalent yield on average earning assets
increased 41 basis points over 2016. Loan yields increased 50 basis points primarily due an increase in short-term interest rates.
The yield on interest-bearing cash and cash equivalents increased 57 basis points. The available for sale securities portfolio
yield increased 10 basis points. The cost of interest-bearing liabilities increased 25 basis points. The cost of interest-bearing
deposits increased 9 basis points due to a lack of market pricing pressure. The cost of other borrowed funds increased 55 basis
points, primarily due to increases in federal funds rates by the Federal Reserve. The cost of subordinated debentures increased
275 basis points due to the full year impact of higher fixed rate debt issued in the second quarter of 2016. The benefit to net
interest margin from earning assets funded by non-interest bearing liabilities was 23 basis points for 2017, compared to 13 basis
points for 2016.
Average earning assets increased $646 million or 2% during 2017. Average loans, net of allowance for loan losses, increased
$812 million. Growth in average commercial, residential and personal loans was partially offset by a decrease in average
commercial real estate loan balances. 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 $414 million. We reduced the
size of our bond portfolio 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 growth in demand and interest-bearing deposits, partially offset by
decreased repurchase agreements and borrowings from the Federal Home Loan Banks. Average demand deposit account
balances grew by $839 million and average interest-bearing transaction deposits increased $475 million. Average borrowed
funds balances decreased $275 million compared to 2016. Funds purchased and repurchase agreements decreased $176 million
compared to 2016.
26
Table 2 – Volume/Rate Analysis
(In thousands)
Year Ended
Year Ended
December 31, 2018 / 2017
December 31, 2017 / 2016
Change Due To1
Change Due To1
Change
Volume
Yield /
Rate
Change
Volume
Yield /
Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
$
205
$
(11,155) $
11,360
$
11,402
$
(252) $
11,654
Trading securities
Investment securities
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 and repurchase agreements
Other borrowings
Subordinated debentures
Total interest expense
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
40,311
(2,944)
19,404
(1,550)
3,065
(583)
189,518
247,426
37,232
80
4,402
8,351
60,856
1,588
112,509
134,917
(8,249)
37,008
(2,504)
581
(3,541)
1,880
(1,645)
68,882
89,506
1,748
35
(769)
2,369
5,023
1,665
10,071
79,435
3,303
(440)
18,823
1,991
1,185
1,062
120,636
157,920
35,484
45
5,171
5,982
55,833
(77)
102,438
55,482
8,424
(1,043)
1,443
10,032
1,252
(3,952)
115,678
143,236
14,721
(27)
(1,385)
422
33,270
2,160
49,161
94,075
(398)
8,122
(1,763)
(7,895)
5,886
(257)
(4,389)
29,407
28,859
851
27
(728)
(213)
(1,001)
(2,892)
(3,956)
32,815
302
720
9,338
4,146
1,509
437
86,271
114,377
13,870
(54)
(657)
635
34,271
5,052
53,117
61,260
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
143,166
94,473
$
$
27
Table 2 – Volume/Rate Analysis (continued)
(In thousands)
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
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 and repurchase agreements
Other borrowings
Subordinated debentures
Total interest expense
Tax-equivalent net interest revenue
Change in tax-equivalent adjustment
Three Months Ended
December 31, 2018 / 2017
Change Due To1
Change
Volume
Yield /
Rate
$
(3,141) $
(6,234) $
15,007
(719)
9,462
(3,192)
842
(594)
91,097
108,762
14,429
61
2,013
3,795
18,978
1,727
41,003
67,759
(1,064)
12,843
(760)
2,391
(4,103)
438
(751)
52,006
55,830
2,310
12
29
1,486
748
1,816
6,401
49,429
3,093
2,164
41
7,071
911
404
157
39,091
52,932
12,119
49
1,984
2,309
18,230
(89)
34,602
18,330
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
68,823
$
28
Other Operating Revenue
Other operating revenue was $616.8 million for 2018, a decrease of $39.5 million or 6% compared 2017. The change in the fair
value of mortgage servicing rights, net of economic hedges, decreased other operating revenue by $20.4 million in 2018 and
$1.9 million in 2017. This increase is primarily as a result of mortgage rate volatility.
A $15.4 million fee earned through the sale of client assets was recognized as fiduciary and asset management revenue in 2018.
This fee is excluded from the fluctuation discussion below.
Table 3 – Other Operating Revenue
(In thousands)
Brokerage and trading revenue
Transaction card revenue1
Fiduciary and asset management revenue
Deposit service charges and fees
Mortgage banking revenue
Other revenue
Total fees and commissions revenue
Other gains (losses), net
Gain (loss) on derivatives, net
Gain (loss) on fair value option securities, net
Change in fair value of mortgage servicing rights
Gain (loss) 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,
2018
2017
2016
2015
2014
$
108,323
$
131,601
$
138,377
$
129,556
$
134,437
84,025
184,703
112,153
97,787
56,651
643,642
(2,731)
(422)
(25,572)
4,668
(2,801)
—
—
—
81,143
162,889
112,079
104,719
49,959
642,390
11,213
779
(2,733)
172
4,428
—
—
—
78,347
135,387
111,589
133,914
50,112
647,726
4,947
(15,685)
(10,555)
(2,193)
11,675
—
—
—
73,650
126,034
109,592
126,002
50,126
614,960
5,459
430
(3,684)
(4,853)
12,058
(2,443)
624
(1,819)
71,671
115,529
109,783
109,093
47,499
588,012
2,991
2,776
10,189
(16,445)
1,539
(373)
—
(373)
Total other operating revenue
$
616,784
$
656,249
$
635,915
$
622,551
$
588,689
Non-GAAP Reconciliation:1
Transaction card revenue on income statement
Netting adjustment
84,025
119,988
116,452
109,579
—
(38,845)
(38,105)
(35,929)
104,940
(33,269)
Transaction card revenue after netting adjustment
1 Non-GAAP measure to net interchange charges from prior years between transaction card revenue and data processing and communications expense as a
84,025
78,347
81,143
73,650
71,671
result of the recent revenue recognition standard. This measure has no effect on net income or earnings per share.
Fees and commissions revenue
Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 40% of total
revenue for 2018, 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 provides an offset to
changes in interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be
volatile. As an example of this strength, many of the economic factors such as rising interest rates resulting in growth in net
interest revenue or fiduciary and asset management revenue, may also decrease mortgage banking production volumes. 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 broker and investment banking,
decreased $23.3 million or 18% compared to the prior year.
29
Trading revenue includes net realized and unrealized gains and losses 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 also includes gains and losses on instruments we hold as
economic hedges of changes in the fair value of trading securities. During 2018, we significantly expanded our U.S.
government residential mortgage-backed securities trading activities. Average trading securities increased $1.0 billion over the
previous year. Net interest revenue earned on our trading portfolio grew $37.0 million. However, trading revenue decreased
$15.5 million to $28.1 million in 2018 primarily due to an $18.3 million increase in hedging costs.
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 $38.8 million for 2018, a decrease of $5.3 million or 12% compared to 2017. The volume of derivative
contracts sold to our mortgage banking customers used to hedge their pipelines of mortgage loan originations decreased as
average mortgage rates rose during 2018.
Revenue earned from retail brokerage transactions totaled $22.2 million for 2018, a decrease of $766 thousand or 3% compared
to 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. We expect retail brokerage revenue
to continue to decline as more relationships are transitioned to managed accounts, which are included in fiduciary and asset
management revenue.
Investment banking, which includes fees earned upon completion of underwriting, financial advisory services and loan
syndication fees, totaled $19.3 million for 2018, a decrease of $1.7 million or 8% compared to 2017, 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 $84.0
million for 2018, a $2.9 million or 4% increase over 2017. Revenues from the processing of transactions on behalf of the
members of our TransFund electronic funds transfer ("EFT") network totaled $76.2 million, up $2.7 million or 4% over
2017. The number of TransFund ATM locations totaled 2,426 at December 31, 2018 compared to 2,223 at December 31, 2017.
Merchant services fees paid by customers for account management and electronic processing of card transactions totaled $7.8
million, relatively consistent with the prior year.
Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing
transactions or providing related services. Approximately 80% of fiduciary and asset management revenue is primarily based
on the fair value of assets. Rates applied to those asset values vary based on the nature of the relationship. Fiduciary and
managed asset relationships generally have a higher fee rate than non-fiduciary and/or managed relationships.
Fiduciary and asset management revenue grew $6.4 million or 4% over 2017 primarily due to growth in managed fiduciary
assets.
30
A distribution of assets under management or administration and related fiduciary and asset management revenue follows:
Table 4 -- Assets Under Management or Administration
Managed fiduciary assets:
Personal
Institutional
Total managed fiduciary assets
Non-managed assets:
Fiduciary
Non-fiduciary
Safekeeping and brokerage assets under
administration
Total non-managed assets
Year Ended December 31,
Balance
2018
Revenue1
Margin2
Balance
Revenue1 Margin2
2017
$ 8,115,503
$
92,633
1.14% $ 7,801,968
$
85,328
13,119,497
22,488
21,235,000
115,121
0.17%
0.54%
13,192,969
21,630
20,994,937
106,958
23,606,339
15,964,854
15,473,584
55,044,777
67,460
2,122
—
69,582
0.22% 3
0.01%
27,766,540
16,969,222
53,511
2,420
—%
16,097,098
—
0.10%
60,832,860
55,931
1.09%
0.16%
0.51%
0.19%
0.01%
—%
0.09%
Total assets under management or administration
1 Fiduciary and asset management revenue includes asset-based and other fees associated with the assets.
2 Revenue divided by period-end balance.
3 Excludes $15.4 million fee earned through client asset management.
$ 76,279,777
$ 184,703
0.22% 3 $ 81,827,797
$ 162,889
0.20%
A summary of changes in assets under management or administration for the year ended December 31, 2018 and 2017 follows:
Table 5 -- Changes in Assets Under Management or Administration
Beginning balance
Net inflows (outflows)
Change in assets from acquisitions
Net change in fair value
Ending balance
Year Ended
December 31,
2018
2017
$
81,827,797
$
75,407,863
(6,812,199)
(406,469)
998,705
265,474
—
6,826,403
$
76,279,777
$
81,827,797
The Tax Cuts and Jobs Act eliminated the ability for bond issuers to use tax-exempt bonds to advance refund their outstanding
debt; thus putting downward pressure on our Corporate Trust asset balance through most of the year. This, combined with
larger than expected departures in our retirement plan space, led to higher asset outflows in 2018.
Mortgage banking revenue totaled $97.8 million for 2018, a $6.9 million or 7% decrease compared to 2017. Production volume
is down $666 million as primary interest rates increased 56 basis points compared to 2017. While increased market competition
has negatively impacted our gain on sale margins, this was more than offset by improved hedging performance and better
pricing discipline. Mortgage servicing revenue was $66.1 million, consistent with the prior year. The outstanding principal
balance of mortgage loans serviced for others totaled $21.7 billion at December 31, 2018, a $388 million decrease compared to
December 31, 2017.
31
Table 6 – Mortgage Banking Revenue
(In thousands)
Mortgage production revenue
$
31,690
$
38,498
$
69,628
$
69,587
$
61,061
2018
2017
2016
2015
2014
Year Ended December 31,
Mortgage loans funded for sale
$ 2,587,297
$ 3,286,873
$ 6,117,417
$ 6,372,956
$ 4,484,394
Add: Current year end outstanding commitments
Less: Prior year end outstanding commitments
160,848
222,919
222,919
318,359
318,359
601,147
601,147
627,505
627,505
258,873
Total mortgage production volume
2,525,226
3,191,433
5,834,629
6,346,598
4,853,026
Gain on sale margin
1.25%
1.21%
1.19%
1.10%
1.26%
Mortgage loan refinances to mortgage loans funded
for sale
Primary mortgage interest rates:
28%
40%
51%
42%
30%
Average
Period end
4.54%
4.55%
3.99%
3.99%
3.65%
4.32%
3.85%
3.96%
4.17%
3.83%
Mortgage servicing revenue
$
66,097
$
66,221
$
64,286
$
56,415
$
48,032
Average outstanding principal balance of mortgage
loans serviced for others
21,891,749
22,055,002
20,837,897
17,920,557
14,940,915
Average mortgage servicing fee rates
0.30%
0.30%
0.31%
0.31%
0.32%
Primary rates disclosed in Table 6 above represent rates generally available to borrowers on 30 year conforming mortgage
loans.
Net gains on securities, derivatives and other assets
As discussed in the Market Risk section following, the fair value of our 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 by designating certain financial instruments as an economic hedge. Changes in the
fair value of these instruments are generally expected to partially offset changes in the fair value of MSRs.
The net economic cost of the changes in fair value of mortgage servicing rights and related economic hedges was $15.6 million
in 2018, including a $4.7 million increase in the fair value of mortgage servicing rights, offset by a $25.0 million decrease in
the fair value of securities and derivative contracts held as an economic hedge and $4.8 million of related net interest revenue.
This increase is due to the combination of unhedgeable factors and significant mortgage rate volatility during the year,
particularly in the fourth quarter.
The net economic cost of changes in the fair value of mortgage servicing rights and related economic hedges was $6.6 million
for 2017. The fair value of mortgage servicing rights increased $172 thousand. The fair value of securities and interest rate
derivative contracts held as an economic hedge decreased $2.1 million. Net interest earned on securities held as an economic
hedge was $8.4 million.
32
Table 7 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge
(In thousands)
Year Ended December 31,
2018
2017
2016
2015
2014
Gain (loss) on mortgage hedge derivative contracts, net
$
551
$
681
$ (15,696) $
634
$
2,776
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
(25,572)
(25,021)
4,668
(2,733)
(2,052)
172
(10,555)
(26,251)
(2,193)
(20,353)
(1,880)
(28,444)
4,798
8,435
4,356
(3,684)
(3,050)
(4,853)
(7,903)
8,001
10,003
12,779
(16,445)
(3,666)
3,253
$ (15,555) $
6,555
$ (24,088) $
98
$
(413)
1 Actual interest earned on fair value option securities less internal transfer-priced cost of funds.
Fourth Quarter 2018 Other Operating Revenue
Other operating revenue was $136.5 million for the fourth quarter of 2018, a decrease of $20.9 million compared to the fourth
quarter of 2017. CoBiz added $5.8 million to other operating revenue in the fourth quarter of 2018. Excluding Cobiz, other
operating revenue decreased $29.4 million. The fourth quarter of 2018 included a $12.4 million decrease in the fair value of
mortgage servicing rights, net of economic hedges, while the fourth quarter of 2017 included a $1.4 million decrease. Other
gains and losses, net, decreased $9.6 million primarily due to changes in the fair value of assets related to the deferred
compensation plan and equity securities not held for trading purposes.
Brokerage and trading revenue was $28.1 million for the fourth quarter of 2018, a decrease of $8.4 million, excluding CoBiz.
Trading revenue decreased $4.1 million largely due to increased cost of hedging a larger trading portfolio. Net interest revenue
on the trading portfolio increased $12.0 million over the same period of 2017. Investment banking revenue decreased $3.4
million primarily related to the timing and volume of completed transactions.
Mortgage banking revenue was $21.9 million for the fourth quarter of 2018, a decrease of $2.5 million compared to the fourth
quarter of 2017 due primarily to a decrease in mortgage loan production volume as a result of higher interest rates and
increased market competition. Mortgage loan production volumes were $460 million for the fourth quarter of 2018, compared
to $729 million in the fourth quarter of 2017.
2017 Other Operating Revenue
Other operating revenue totaled $656.2 million for 2017, up $20.3 million or 3% over 2016. The change in the fair value of
mortgage servicing rights, net of economic hedges, decreased operating revenue in 2017 by $1.9 million and decreased
operating revenue by $28.4 million in 2016.
Transaction card revenue grew by $2.8 million over 2016 primarily due to growth in transaction volumes. Fiduciary and asset
management fees increased $27.5 million primarily due to growth in assets under management, improved pricing discipline and
decreased fee waivers.
Mortgage banking revenue decreased by $29.2 million compared 2016 mainly due to a decrease in production volume. This
was largely related to the Company's strategic decision to exit the correspondent lending channel during 2016.
Brokerage and trading revenue for 2017 decreased $6.8 million compared to 2016. Excluding a $5.0 million decrease in the
value of trading securities due to the unexpected increase in interest rates in 2016, brokerage and trading revenue decreased
$11.8 million or 9%. The revenue decrease generally resulted from customer reaction to rising interest rates along with changes
in regulations.
Other gains, net totaled $11.2 million for 2017 mainly due to the sale of certain merchant banking investments during the year.
33
Other Operating Expense
Other operating expense for 2018 totaled $1.0 billion, a $41.5 million or 4% increase over the prior year. CoBiz added $16.6
million in closing and integration costs during 2018, primarily affecting professional fees and services and personnel expenses.
Operations related to CoBiz added $29.7 million to other operating expense. Excluding those costs, operating expense
decreased $4.8 million, largely consistent with 2017. The fluctuation discussion below excludes closing and integration costs.
Table 8 – 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 & communications1
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,
2018
2017
2016
2015
2014
$
358,280
$
333,226
$
332,740
$
313,403
$
298,420
132,593
127,964
128,077
3,572
(419)
135,746
89,105
583,131
30,523
2,846
59,099
97,981
23,318
114,796
17,169
17,052
9,620
46,298
26,333
23,602
4,091
155,657
84,525
573,408
28,877
2,000
51,067
86,477
19,653
108,125
15,689
9,687
6,779
52,856
32,054
10,464
1,687
140,228
80,151
553,119
26,582
2,000
56,783
80,024
32,489
93,736
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
86,454
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
81,956
13,518
6,019
3,965
31,705
28,993
$ 1,028,166
$
986,672
$
979,485
$
860,262
$
814,253
Average number of employees (full-time equivalent)
4,993
4,900
4,872
4,797
4,679
Non-GAAP Reconciliation:1
Data processing and communications expense on income
statement
Netting adjustment
114,796
—
146,970
(38,845)
131,841
(38,105)
122,383
(35,929)
115,225
(33,269)
Data processing and communications expense after netting
adjustment
114,796
108,125
93,736
86,454
81,956
1 Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and
communications expense as a result of the recent revenue recognition standard. This measure has no effect on net income or earnings per
share.
34
Personnel expense
Personnel expense increased $4.0 million in 2018. An increase in regular compensation expense largely as a result of the
addition of CoBiz employees in the fourth quarter was partially offset by a decrease in incentive compensation due to changes
in vesting assumptions.
Regular compensation expense, which consists of salaries and wages, overtime pay and temporary personnel costs, increased
$24.9 million or 7% over 2017, which included $13.5 million related to the addition of CoBiz employees. The remaining
increase is primarily due to standard annual merit increases, which were effective for the majority of our staff on March 1. The
average number of employees increased with the addition of CoBiz employees in the fourth quarter of 2018.
Incentive compensation decreased $24.6 million or 16% compared to 2017. Cash-based incentive compensation plans, which
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, remained consistent compared to 2017.
Share-based compensation expense represents expense for equity awards based on the grant-date fair value. Non-vested shares
generally cliff vest in 3 years and are subject to a two year holding period after vesting. The number of shares that will
ultimately vest is determined by BOKF's change in earnings per share relative to a defined group of peer banks. In addition,
compensation costs related to certain shares is variable based on changes in the fair value of BOK Financial common shares.
Share-based compensation expense for equity awards decreased $20.0 million or 85% compared to 2017, primarily due to a
decrease in the vesting probability of certain performance-based share awards.
The Company currently offers a deferred compensation plan for certain executive and senior officers. Deferred compensation
expense decreased $4.5 million compared to 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, which is included other gains (losses), net in the
Consolidated Statements of Earnings.
Non-personnel operating expense
Non-personnel expense increased $20.9 million or 5% over the prior year.
Occupancy and equipment expense increased $11.4 million or 13%, including $3.2 million related to CoBiz operations. The
remaining increase is largely due to our new Oklahoma City headquarters. Data processing and communications expense
increased $6.3 million or 6% primarily due to technology project costs.
Insurance expense increased $3.7 million or 19%. The Company received $5.1 million in credits during 2017 related to the
revision of certain inputs to the assessment calculation filed for years 2013 through 2016. This was partially offset by the
elimination of a large bank deposit insurance surcharge assessed by the FDIC in the fourth quarter of 2018.
Mortgage banking expense decreased $6.6 million or 12%, primarily due to a decrease in accruals related to default servicing
and loss mitigation costs on loans serviced for others.
Net losses and operating expenses of repossessed assets increased $7.4 million over the prior year mainly due to write-downs
on a set of oil and gas properties and a healthcare property in 2018.
Other expense decreased $5.7 million compared to the prior year primarily due to reductions in litigation expenses and
expenses related to merchant banking investments that were sold in 2017.
Fourth Quarter 2018 Operating Expenses
Other operating expense for the fourth quarter of 2018 totaled $284.6 million, an increase of $30.2 million compared to the
fourth quarter of 2017. The fourth quarter of 2018 included $14.5 million of CoBiz closing and acquisition costs. The
discussion following excludes these costs.
35
Personnel expense increased $9.7 million over the fourth quarter of 2017. Regular compensation expense increased $17.8
million compared to the fourth quarter of 2017. The addition of CoBiz employees added $13.5 million. The remaining increase
is due primarily to annual merit increases. Incentive compensation decreased $13.4 million. Share-based compensation expense
decreased $8.1 million mainly due to changes in vesting assumptions related to the Company's earnings per share growth
relative to a defined peer group. Deferred compensation expense decreased $4.8 million, which is largely offset by changes in
the fair value of assets held in rabbi trusts for the benefit of participants.
Non-personnel expense increased $5.9 million compared to the fourth quarter of 2017. Occupancy and equipment costs
increased $5.3 million due primarily to our new Oklahoma City headquarters. Net losses and operating expenses of repossessed
assets increased $2.2 million mainly due to gains in the fourth quarter of 2017. Intangible amortization increased $3.9 million
primarily related to fourth quarter 2018 amortization of the CoBiz identifiable intangible assets. Professional fees and services
decreased $3.0 million largely as a result of one-time technology assessments and a large project that was implemented in the
fourth quarter of 2017. Mortgage banking costs decreased $2.8 million primarily due to a decrease in accruals related to default
servicing and loss mitigation costs on loans serviced for others. Insurance expense decreased $2.3 million primarily due to the
elimination of a large bank deposit insurance surcharge assessed by the FDIC.
2017 Operating Expenses
Other operating expense totaled $986.7 million for 2017, a $7.2 million or 1% increase over 2016.
Personnel expense increased $20.3 million or 4%. Incentive compensation expense increased $15.4 million or 11%, mainly due
to the the increase in the vesting probability of certain performance-based share awards and increase in the fair value of BOK
Financial common shares. Employee benefit expense increased $4.4 million primarily due to employee medical costs.
Non-personnel expense decreased $13.1 million or 3% compared to 2016. Insurance expense decreased $12.8 million due to a
credit received in 2017 related to the revision of certain inputs to the assessment calculation along with the benefit from
decreased criticized and classified asset levels. Mortgage banking expense decreased $8.5 million primarily related to actual
mortgage loan prepayments. Professional fees and services expense decreased $5.7 million due to Mobank integration costs
incurred in 2016. Other expense decreased $15.5 million due primarily to higher litigation and settlement expenses in 2016.
Data processing and communications expense increased $14.4 million and net occupancy and equipment expense increased
$6.5 million primarily related to continued upgrades of our information technology infrastructure and cybersecurity. Net losses
and operation expenses of repossessed assets increased $6.3 million mainly due to a write-down of a set of oil and gas
properties.
Income Taxes
Income tax expense was $119.1 million or 21.1% of net income before taxes for 2018, $182.6 million or 35.2% of net income
before taxes for 2017 and $106.4 million or 31.4% of net income before taxes for 2016. Tax Reform enacted in 2017 added
$11.7 million of expense in 2017 largely due to the revaluation of net deferred tax assets. Excluding the effect of adjustments
for tax reform, the 2017 income tax expense would have been 33.0% of net income before taxes.
In 2018, we completed our accounting for uncertainties that resulted from the Tax Reform Act. Resolution of these
uncertainties and revaluation of deferred taxes decreased 2018 tax expense by $1.7 million. Excluding these adjustments, the
2018 effective tax rate would have been 21.4%.
Net deferred tax assets totaled $35 million at December 31, 2018 compared to net deferred tax assets of $15 million at
December 31, 2017. We have evaluated the recoverability of our deferred tax assets based on the generation of future taxable
income during the periods in which those temporary differences become deductible and determined that no valuation allowance
was required in 2018 and 2017.
Unrecognized tax benefits totaled $19 million at December 31, 2018 compared to $18 million at December 31, 2017. 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.
36
Income tax expense was $20.1 million or 15.7% of net income before taxes for the fourth quarter of 2018 compared to $54.3
million or 42.9% of net income before taxes for the fourth quarter of 2017. The 2017 tax returns were finalized in the fourth
quarter resolving uncertainties caused by last year's Tax Cuts and Jobs Act. Resolution of these uncertainties and other routine
adjustments reduced tax expense for the quarter by $8.6 million.
Table 9 – 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 operating revenue
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
2018
First
Second
Third
Fourth
$
265,407
$
294,180
$
303,247
$
365,592
45,671
219,736
(5,000)
224,736
159,913
(25,130)
21,206
155,989
139,947
104,483
244,430
136,295
30,948
105,347
(215)
55,618
238,562
—
238,562
62,364
240,883
4,000
236,883
79,906
285,686
9,000
276,686
157,331
166,265
160,133
(2,655)
1,723
(4,296)
5,972
156,399
167,941
138,947
107,529
246,476
148,485
33,330
115,155
783
143,531
109,086
252,617
152,207
34,662
117,545
289
555
(24,233)
136,455
160,706
123,937
284,643
128,498
20,121
108,377
(79)
Net income attributable to shareholders of BOK Financial Corp. shareholders $
105,562
$
114,372
$
117,256
$
108,456
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
1.61
1.61
$
$
1.75
1.75
$
$
1.79
1.79
$
$
1.50
1.50
64,847,334
64,901,975
64,901,095
71,808,029
64,888,033
64,937,226
64,934,351
71,833,334
37
Net income attributable to shareholders of BOK Financial Corp. shareholders $
88,356
Table 9 – 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 revenue1
Gain (loss) on financial instruments and other assets, net
Change in fair value of mortgage servicing rights
Other operating revenue
Personnel expense
Other non-personnel expense1
Total other operating expense
Net income before taxes
Federal and state income taxes
Net income
Net income (loss) attributable to non-controlling interests
Earnings per share:
Basic
Diluted
Average shares:
Basic
2017
First
Second
Third
Fourth
$
226,390
$
235,181
$
255,413
$
255,767
25,208
201,182
—
29,977
205,204
—
36,961
218,452
—
201,182
205,204
218,452
38,904
216,863
(7,000)
223,863
154,712
166,617
163,163
157,900
4,525
1,856
12,359
(6,943)
3,271
(639)
(6,470)
5,898
161,093
172,033
165,795
157,328
136,425
99,083
235,508
126,767
38,103
88,664
308
$
$
$
1.35
1.35
143,744
96,922
240,666
136,571
47,705
147,910
108,109
256,019
128,228
42,438
88,866
$
85,790
$
719
88,147
141
85,649
145,329
109,150
254,479
126,712
54,347
72,365
(127)
72,492
1.35
1.35
$
$
1.31
1.31
$
$
1.11
1.11
$
$
$
$
64,715,964
64,729,752
64,742,822
64,793,005
Diluted
64,805,172
1 Non-GAAP measure to net interchange charges from prior years between transaction card revenue and data processing and
64,793,134
64,783,737
64,843,179
communications expense as a result of the recent revenue recognition standard. This measure has no effect on net income or earnings per
share.
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.
38
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 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 10 following, net income attributable to our lines of business increased $102.3 million or 29% over the prior
year. Net interest revenue grew by $89.5 million over the prior year. Other operating revenue decreased $57.5 million and other
operating expenses decreased $44.5 million. Net charge-offs were up $17.2 million over the prior year.
The operations of CoBiz, acquired on October 1, 2018, were not yet allocated to the operating segments at December 31, 2018.
Accordingly, the operations, assets and liabilities of CoBiz were included in Funds Management and other for 2018.
Table 10 – Net Income by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Year Ended December 31,
2018
2017
2016
$
336,376
$
270,504
$
204,140
26,581
86,544
449,501
(3,855)
16,886
59,849
347,239
(12,595)
(5,323)
31,681
230,498
2,170
$
445,646
$
334,644
$
232,668
39
Commercial Banking
Commercial Banking contributed $336.4 million to consolidated net income in 2018, up $65.9 million or 24% over the prior
year, primarily due to the positive impact of the Tax Cuts and Jobs Act. Income before taxes was unchanged from the previous
year. Growth in net interest revenue from improved loan yields and growth in average balances of loans attributed to
Commercial Banking was offset by increased credit costs and higher corporate expense allocations.
Table 11 – 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
Net interest revenue after net loans charged off
Fees and commissions revenue1
Other gains, net
Other operating revenue
Personnel expense
Non-personnel expense1
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
Year Ended December 31,
2018
2017
2016
$
726,856
$
618,325
$
501,042
(156,254)
570,602
30,358
540,244
161,949
752
162,701
121,686
71,125
192,811
(89,106)
529,219
13,877
515,342
163,107
7,192
170,299
116,684
73,330
190,014
(62,655)
438,387
32,961
405,426
158,664
1,393
160,057
113,192
65,956
179,148
510,134
495,627
386,335
26
(6,532)
45,818
457,810
121,434
336,376
18,431,411
15,073,484
8,517,137
$
$
52
(2,681)
34,253
458,745
188,241
270,504
17,730,654
14,373,830
8,725,920
$
$
10
669
36,134
350,880
146,740
204,140
17,175,325
13,757,245
8,477,829
$
$
Average invested capital
1 Fees and commission revenue for 2017 and 2016 has been adjusted on a comparable basis with 2018 (Non-GAAP measure) to net
interchange fees paid to issuing banks on card transactions processed by our TransFund merchant processing services for the twelve
months ended December 31, 2017 and December 31, 2016 as a result of the recent revenue recognition standard. The discussion following
is based on this comparable basis.
1,256,211
1,312,438
1,525,077
Net interest revenue increased $41 million or 8% over 2017. Growth in net interest revenue was due to improved yields and a
$700 million 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.
Average deposits attributed to Commercial Banking were $8.5 billion for 2018, a decrease of $209 million or 2% compared to
2017. See additional discussion concerning changes in Commercial Banking deposits in the Liquidity and Capital section of
Management's Discussion and Analysis following.
40
Fees and commissions revenue were relatively unchanged compared to 2017. Transaction card revenue generated by the
TransFund EFT network increased $2.3 million or 3% largely due to a $2.7 million increase in revenues from the processing of
transactions on behalf of the members of our TransFund EFT network as well as a 9% increase in TransFund ATM locations.
Other revenue decreased $3.8 million or 14% as a result of a sale of a merchant banking investment in 2017.
Operating expense increased $2.8 million or 1% compared to 2017. Personnel costs increased $5.0 million or 4% primarily due
to an increase in incentive compensation expense. Non-personnel expense decreased $2.2 million or 3% compared to the prior
year. Decreases in miscellaneous expenses and intangible asset amortization were partially offset by an increase in net
repossession expense.
Corporate expense allocations increased $11.6 million compared to the prior year primarily due to enhancements of activity
based costing drivers to better reflect services being utilized by the Commercial Banking line of business.
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 $26.6 million for 2018, compared to $16.9 million in the prior year.
Increased net income was largely due to net interest revenue partially offset by changes in the fair value of our mortgage
servicing rights, net of economic hedges.
41
Table 12 – 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 losses, net
Other operating revenue
Personnel expense
Other non-personnel expense
Total other operating expense
Net direct contribution
Loss on financial instruments, net
Change in fair value of mortgage servicing rights
Gain on repossessed assets, net
Corporate expense 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,
2018
2017
2016
$
83,231
$
84,286
$
73,448
156,679
5,143
151,536
178,174
(51)
178,123
95,427
114,760
210,187
119,472
(25,021)
4,668
247
63,700
35,666
9,085
26,581
8,303,262
1,731,894
6,560,145
285,521
$
$
53,916
138,202
4,786
133,416
185,030
(152)
184,878
99,889
121,790
221,679
96,615
(2,054)
172
223
67,320
27,636
10,750
16,886
8,544,117
1,734,836
6,610,134
298,243
$
$
$
$
77,283
43,156
120,439
4,925
115,514
216,324
(39)
216,285
101,295
146,183
247,478
84,321
(26,252)
(2,193)
979
65,567
(8,712)
(3,389)
(5,323)
8,254,666
1,736,260
6,607,816
351,750
Net interest revenue from Consumer Banking activities grew by $18.5 million or 13% over 2017, primarily related to increased
yields on deposit balances sold to the Funds Management unit. Average loans were largely unchanged while average deposits
decreased $50 million.
Fees and commissions revenue decreased $6.9 million or 4% compared to the prior year. Mortgage banking revenue decreased
$6.8 million or 6% compared the prior year due to rising mortgage rates that have slowed production. Mortgage loan
production volumes decreased $666 million compared to 2017.
Operating expense decreased $11.5 million or 5% compared to 2017. Personnel expense was down $4.5 million or 4%,
primarily due to incentive compensation expense and efforts to right size the business as mortgage production volume is down.
Non-personnel expense decreased $7.0 million or 6%. Mortgage banking costs were down $6.6 million compared to the prior
year.
Corporate expense allocations decreased $3.6 million compared to 2017.
Changes in the fair value of our mortgage servicing rights, net of economic hedges as more fully presented in Table 7, resulted
in a $20.4 million decrease to pre-tax net income for 2018 compared to a $1.9 million decrease to pre-tax net income in 2017.
42
Wealth Management
Wealth Management contributed $86.5 million to consolidated net income in 2018, up $26.7 million or 45% over the prior year,
including a $15.4 million fee on the sale of client assets in 2018. The fluctuation discussion below excludes this fee. The
remaining increase was primarily due to growth in net interest revenue and favorable impact of the Tax Cut and Jobs Act.
Table 13 – 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 (losses), net
Other operating revenue
Personnel expense
Other non-personnel expense
Other operating expense
Net direct contribution
Loss on financial instruments, net
Gain (loss) on repossessed assets, net
Corporate expense 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,
2018
2017
2016
$
81,527
$
45,024
$
31,505
113,032
(288)
113,320
38,344
83,368
(696)
84,064
33,006
29,043
62,049
(801)
62,850
296,465
301,485
282,710
(96)
(51)
512
296,369
301,434
283,222
184,144
64,815
248,959
183,727
62,899
246,626
190,756
60,239
250,995
160,730
138,872
95,077
7
—
44,190
116,547
30,003
—
387
40,562
98,697
38,848
(42)
—
42,378
52,657
20,976
86,544
$
59,849
$
31,681
8,446,006
$
7,072,622
$
7,373,080
1,423,126
5,617,325
252,961
1,314,441
5,516,214
236,815
1,352,694
5,457,566
351,750
$
$
Net interest revenue increased $30 million or 36% over the prior year driven by growth in trading securities and loans along
with net interest margin expansion. Average trading securities increased $1.0 billion over 2017. Average loan balances were up
$109 million or 8% over the prior year and average deposit balances increased $101 million or 2%.
Fees and commissions revenue decreased $20.4 million or 7% compared to the prior year. Fiduciary and asset management
revenue increased $4.8 million compared to 2017. Brokerage and trading revenue decreased $29.7 million compared to the
prior year due to an increase in the cost of hedging the larger trading portfolio.
Operating expenses increased $2.3 million or 1% compared to the prior year. Personnel expense was relatively consistent with
2017 and non-personnel expense was well controlled, up $1.9 million or 3% over 2017.
Corporate expense allocations increased $3.6 million or 9% over the prior year due to enhancements of activity based costing
drivers to better reflect services being utilized by the Wealth Management line of business.
43
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.
Table 14 – Securities
(In thousands)
Trading:
U.S. government agency debentures
U.S. government agency residential
mortgage-backed securities
Municipal and other tax-exempt securities
Asset-backed 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:
2018
December 31,
2017
2016
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
63,511
$
63,765
$
21,188
$
21,196
$
6,238
$
6,234
1,781,618
34,508
41,971
24,346
$ 1,945,954
1,791,584
34,507
42,656
24,411
$ 1,956,923
$
393,190
13,476
23,911
11,359
463,124
$
392,673
13,559
23,885
11,363
462,676
$
309,432
14,377
—
6,843
336,890
$
310,067
14,427
—
6,900
337,628
$
137,296
$
138,562
$
228,186
230,349
$
320,364
$
321,225
12,612
205,279
355,187
496
2,782
$
$
12,770
215,966
367,298
493
2,864
$
$
15,891
217,716
461,793
1,000
27,182
$
$
16,242
233,444
480,035
1,000
27,080
$
$
20,777
205,004
546,145
1,000
41,050
$
$
21,473
222,795
565,493
999
40,993
$
$
U.S. government agencies
Private issue
5,886,323
40,948
5,804,708
59,736
5,355,148
74,311
5,309,152
93,221
5,475,351
101,192
5,460,386
115,535
Total residential mortgage-backed
securities
Commercial mortgage-backed securities
guaranteed by U.S. government
agencies
Other debt securities
Perpetual preferred stock1
Equity securities and mutual funds1
Total available for sale securities
Fair value option securities:
5,927,271
5,864,444
5,429,459
5,402,373
5,576,543
5,575,921
2,986,297
35,545
—
—
$ 8,952,391
2,953,889
35,430
—
—
$ 8,857,120
2,858,885
25,500
12,562
14,487
$ 8,369,075
2,834,961
25,481
15,767
14,916
$ 8,321,578
3,035,750
4,400
15,561
17,424
$ 8,691,728
3,017,933
4,152
18,474
18,357
$ 8,676,829
U.S. government agency residential
mortgage-backed securities
77,046
1 As a result of the recent measurement accounting standard effective January 1, 2018, equity securities are no longer considered part of the
280,469
755,054
756,931
283,235
78,823
$
$
$
$
$
$
available for sale portfolio and have been moved to other assets.
We maintain an inventory of trading securities in support of sales to a variety of customers, including banks, corporations,
insurance companies, money managers and others. As discussed in the Market Risk section of this report, trading activities
involve risk of loss from adverse price movement. We mitigate this risk within board-approved limits through the use of
derivative contracts, short-sales and other techniques. These limits remain unchanged from levels set before our expanded
trading activities.
44
Investment securities consist primarily of intermediate and long-term, fixed rate Oklahoma and Texas municipal bonds and
taxable Texas school construction bonds. The investment security portfolio is diversified among issuers.
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 $9.0 billion at December 31, 2018, an increase of $583 million compared to December 31,
2017. Available for sale securities consist primarily of U.S. government agency residential mortgage-backed securities and U.S.
government agency commercial mortgage-backed securities. Both residential and commercial mortgage-backed securities 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. Commercial
mortgage-backed securities have prepayment penalties similar to commercial loans. At December 31, 2018, residential
mortgage-backed securities represented 66% of total available for sale securities.
A primary risk of holding residential mortgage-backed securities comes from extension during periods of rising interest rates or
prepayment during periods of falling interest rates. We evaluate this risk through extensive modeling of risk both before making
an investment and throughout the life of the security. Our best estimate of the effective duration of the combined residential
mortgage-backed securities portfolio held in investment and available for sale securities portfolios at December 31, 2018 is 3.2
years. Management estimates the combined portfolios' duration extends to 3.8 years assuming an immediate 200 basis point
upward shock. The estimated duration contracts to 2.6 years assuming a 100 basis point decline in the current low rate
environment.
The aggregate gross amount of unrealized losses on available for sale securities totaled $138 million at December 31, 2018, a
$49 million increase compared to December 31, 2017. On a quarterly basis, we perform an evaluation on debt 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 2018.
Certain residential mortgage-backed securities issued by U.S. government agencies and included in Fair value option securities
on the Consolidated Balance Sheets, have been segregated and designated as economic hedges of changes in the fair value of
our mortgage servicing rights. We have elected to carry these securities at fair value with changes in fair value recognized in
current period income. These securities are held with the intent that gains or losses will offset changes in the fair value of
mortgage servicing rights and related derivative contracts.
Bank-Owned Life Insurance
We have approximately $382 million of bank-owned life insurance at December 31, 2018. This investment is expected to
provide a long-term source of earnings to support existing employee benefit programs. Approximately $295 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, 2018, the fair value of investments held in separate accounts was approximately $294
million. As the underlying fair value of the investments held in a separate account at December 31, 2018 was less than the
aggregate book value of the investments, approximately $813 thousand 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 $87 million
primarily represents the cash surrender value of policies held in general accounts and other amounts due from various insurance
companies.
45
Loans
The aggregate loan portfolio before allowance for loan losses totaled $21.7 billion at December 31, 2018, an increase of $4.5
billion over December 31, 2017. Excluding $2.9 billion of loans, net of fair value adjustments, added by the CoBiz acquisition,
loans grew by $1.6 billion or 9%, primarily due to commercial and commercial real estate loans. CoBiz added $1.8 billion to
our commercial loan portfolio, primarily in the services and public finance loan classes, and $838 million to our commercial
real estate portfolio. Substantially all CoBiz loans are attributed to Colorado and Arizona.
Table 15 – Loans
(In thousands)
Commercial:
Energy
Services
Healthcare
Wholesale/retail
Public finance
Manufacturing
Other commercial and industrial
Total commercial
Commercial real estate:
Multifamily
Office
Retail
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
2018
2017
2016
2015
2014
December 31,
$
3,590,333
$
2,930,156
$
2,497,868
$
3,097,328
$
2,860,428
3,252,146
2,733,537
1,621,158
876,336
730,521
832,047
2,522,025
2,243,487
1,471,256
541,775
496,774
528,502
2,632,036
2,120,722
1,576,818
568,214
514,975
480,191
2,480,361
1,867,172
1,418,024
324,922
556,729
507,995
2,033,082
1,397,912
1,435,650
428,302
532,594
407,702
13,636,078
10,733,975
10,390,824
10,252,531
9,095,670
1,288,065
1,072,920
919,082
778,106
148,584
558,056
980,017
831,770
691,532
573,014
117,245
286,409
903,272
798,888
761,888
871,749
135,533
337,716
751,085
637,707
796,499
563,169
160,426
350,147
704,298
415,544
666,889
428,817
143,591
369,011
4,764,813
3,479,987
3,809,046
3,259,033
2,728,150
1,320,165
1,043,435
1,006,820
945,336
969,951
190,866
719,002
197,506
732,745
199,387
743,625
196,937
734,620
205,950
773,611
Total residential mortgage
2,230,033
1,973,686
1,949,832
1,876,893
1,949,512
Personal
Total
Commercial
1,025,806
965,776
839,958
552,697
434,705
$
21,656,730
$ 17,153,424
$
16,989,660
$
15,941,154
$
14,208,037
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 ongoing 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.
46
Commercial loans totaled $13.6 billion or 63% of the loan portfolio at December 31, 2018, growing $1.1 billion or 10% over
December 31, 2017, excluding the impact of acquired loans. This growth was led by a $640 million or 22% increase in energy
sector loans. Healthcare sector loans were up $174 million or 8%. Service sector loans increased $126 million or 5% and other
commercial and industrial loans increased $107 million or 20%.
Table 16 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 16 – Commercial Loans by Collateral Location
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas Colorado
Arizona
Kansas/
Missouri
Other
Total
$ 803,550
$1,935,449
$ 35,021
$
2,615
$ 368,819
$
6,517
$ 82,914
$ 355,448
$ 3,590,333
637,835
221,520
204,660
98,705
95,539
695,096
167,297
362,984
123,372
615,880
185,817
166,072
36,299
42,908
189
14,281
80,046
30,711
—
5,115
656,504
331,458
179,976
165,320
187,979
405,450
282,613
393,070
3,252,146
217,383
202,688
1,194,086
2,733,537
113,878
113,427
126,634
70,220
55,207
71,362
369,534
214,952
77,631
1,621,158
876,336
730,521
94,259
184,290
3,585
67,413
142,692
54,483
62,265
223,060
832,047
Energy
Services
Healthcare
Wholesale/retail
Public finance
Manufacturing
Other commercial
and industrial
Total commercial
loans
$2,156,068
$4,145,588
$408,671
$ 200,181
$2,032,748
$1,037,772
$ 827,269
$2,827,781
$13,636,078
The majority of our commercial portfolio is located within our geographic footprint. At December 31, 2018, the Other category
is composed primarily of California totaling $524 million or 4% of the commercial portfolio, Florida totaling $302 million or
2% of the commercial portfolio, Pennsylvania totaling $153 million or 1% of the commercial portfolio, Ohio totaling $150
million or 1% of the commercial portfolio and Louisiana totaling $142 million or 1%. All other states individually represent
less than one percent 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.
Outstanding energy loans totaled $3.6 billion or 17% of total loans at December 31, 2018. Unfunded energy loan commitments
increased by $335 million during the year to $3.2 billion at December 31, 2018. Approximately $2.9 billion or 82% of energy
loans were to oil and gas producers, a $454 million increase over December 31, 2017. The majority of this portfolio is first lien,
senior secured, reserve-based lending, which we believe is the lowest risk form of energy lending. 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 $420
million or 12% of energy loans, an increase of $159 million over the prior year. Loans to borrowers that provide services to the
energy industry totaled $176 million or 5% of energy loans, an increase of $46 million during 2018. Loans to other energy
borrowers, including those engaged in wholesale or retail energy sales totaled $62 million or 2% of energy loans, an increase of
$987 thousand compared to the prior year.
The services sector of the loan portfolio totaled $3.3 billion or 15% of total loans and consists of a large number of loans to a
variety of businesses, including commercial services, Native American tribal governments, financial services, entertainment
and recreation and education. Approximately $2.3 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.
47
The healthcare sector of the loan portfolio totaled $2.7 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 $100 million and with three or more non-
affiliated banks as participants. At December 31, 2018, the outstanding principal balance of these loans totaled $4.1 billion.
Approximately 86% 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 Colorado, which represent 26% and 16% of the total
commercial real estate portfolio at December 31, 2018, respectively. We require collateral values in excess of the loan amounts,
demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the
project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or
renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates
and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from
underwriting throughout the life of the loan for compliance with applicable lending policies.
Commercial real estate loans totaled $4.8 billion or 22% of the loan portfolio at December 31, 2018. The outstanding balance
of commercial real estate loans increased $447 million over 2017, excluding the impact of acquired loans. Loans secured by
multifamily residential properties were up $180 million or 18%. Loans secured by industrial facilities increased $126 million or
22%. Loans secured by retail facilities and office buildings also grew over the prior year. The commercial real estate loan
balance as a percentage of our total loan portfolio has ranged from 19% to 22% over the past five years. The commercial real
estate segment of our loan portfolio distributed by collateral location follows in Table 17.
Table 17 – Commercial Real Estate Loans by Collateral Location
(In thousands)
Oklahoma
Texas
New
Mexico
Arkansas Colorado Arizona
Kansas/
Missouri
Other
Total
Multifamily
$ 138,803
$ 491,322
$ 30,288
$ 57,008
$ 134,394
$121,218
$ 166,680
$ 148,352
$ 1,288,065
Office
Retail
Industrial
Residential
construction and
land
development
Other commercial
real estate
Total commercial
real estate loans
107,725
278,001
86,370
56,863
81,096
258,957
133,155
168,792
21,048
15,000
5,524
97
153,545
146,038
79,733
91,913
80,349
33,830
55,395
14,560
40,027
284,971
223,636
353,483
1,072,920
919,082
778,106
8,592
17,449
14,974
555
63,818
11,564
12,152
19,480
148,584
47,992
36,574
11,722
1,484
180,151
106,195
26,282
147,656
558,056
$ 441,071
$1,251,095
$ 297,557
$ 79,668
$ 757,679
$445,069
$ 315,096
$1,177,578
$ 4,764,813
The Other category includes California with $291 million or 6% of total commercial real estate loans, Utah with $109 million
or 2% of total commercial real estate loans, Florida with $98 million or 2% of total commercial real estate loans and Nevada
with $92 million or 2% of total commercial real estate loans. All other states individually represent less than 2% of the total
commercial real estate loan population.
While recent changes nationally in consumer purchasing trends from brick-and-mortar stores to online has created concern with
regards to retail lending, our credit quality remains very good. The portfolio is highly diversified with no material exposure to a
single borrower or tenant.
48
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 $2.2 billion, a $33 million or 2% increase over December 31, 2017, excluding the impact of
purchased loans. 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 95% 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, 2018, $191 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We
have minimal credit exposure on loans guaranteed by the agencies. This amount includes residential mortgage loans previously
sold into GNMA mortgage pools that 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 decreased $6.6 million or 3% compared to December 31, 2017.
Home equity loans totaled $719 million at December 31, 2018, a $40 million or 5% decrease compared to December 31, 2017,
excluding $26 million of loans added by CoBiz. 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, 2018 by lien position and amortizing status follows in Table 18.
Table 18 – Home Equity Loans
(In thousands)
First lien
Junior lien
Total home equity
Revolving
Amortizing
Total
$
$
87,866
$
337,234
$
425,100
175,728
118,174
293,902
263,594
$
455,408
$
719,002
49
Personal loans totaled $1.0 billion, growing by $38 million or 4% over the prior year, excluding the impact of acquired loans.
This growth is primarily due to loans to Wealth Management customers for investment in businesses that will be repaid from
personal income.
The distribution of residential mortgage and personal loans at December 31, 2018 is presented in Table 19. Residential
mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.
Table 19 – 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
$ 173,991
$448,594
$ 60,396
$ 13,565
$ 353,510
$146,173
$ 67,010
$ 56,926
$ 1,320,165
47,810
364,838
30,524
135,486
33,534
81,985
9,350
6,430
4,924
63,692
1,233
14,478
15,355
49,308
48,136
2,785
190,866
719,002
$ 586,639
$614,604
$ 175,915
$ 29,345
$ 422,126
$161,884
$ 131,673
$107,847
$ 2,230,033
Personal
$ 313,077
$418,214
$ 11,844
$ 12,360
$ 79,475
$ 61,840
$ 62,064
$ 66,932
$ 1,025,806
50
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 division.
Table 20 – Loans Managed by Primary Geographical Market
(In thousands)
Oklahoma:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Oklahoma
Texas:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Texas
New Mexico:
Commercial
Commercial real estate
Residential mortgage
Personal
Total New Mexico
Arkansas:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Arkansas
Colorado:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Colorado
Arizona:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Arizona
Kansas/Missouri:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Kansas/Missouri
$
2018
2017
December 31,
2016
2015
2014
$
3,491,117
700,756
1,440,566
375,543
6,007,982
5,438,133
1,341,783
266,805
394,743
7,441,464
340,489
383,670
87,346
10,662
822,167
111,338
141,898
7,537
11,955
272,728
2,275,069
963,575
251,849
72,916
3,563,409
1,320,139
889,903
97,959
68,546
2,376,547
659,793
343,228
77,971
91,441
1,172,433
$
3,238,720
682,037
1,435,432
342,212
5,698,401
4,520,401
1,261,864
233,675
375,084
6,391,024
343,296
341,282
98,018
11,721
794,317
95,644
87,393
6,596
9,992
199,625
1,130,714
174,201
63,350
63,115
1,431,380
687,792
660,094
41,771
57,140
1,446,797
717,408
273,116
94,844
106,512
1,191,880
$
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
Total BOK Financial loans
$
21,656,730
$ 17,153,424
$
16,989,660
$
15,941,154
$
14,208,037
51
Table 21 – Loan Maturity and Interest Rate Sensitivity at December 31, 2018
(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
$ 13,636,078
$
1,094,732
$
7,760,989
$
4,780,357
4,764,813
639,755
2,956,080
$ 18,400,891
$
1,734,487
$ 10,717,069
$
3,929,368
14,471,523
$ 18,400,891
$
$
156,147
$
1,186,339
1,578,340
9,530,730
1,734,487
$ 10,717,069
$
5,949,335
$
$
1,168,978
5,949,335
2,586,882
3,362,453
We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 22. 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. None of the outstanding standby
letters of credit were issued on behalf of customers whose loans are nonperforming at December 31, 2018.
Table 22 – Off-Balance Sheet Credit Commitments
(In thousands)
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
December 31,
2018
2017
2016
2015
2014
$ 11,944,525
$
9,958,080
$
9,404,665
$
8,455,037
$
8,328,416
582,196
98,623
647,653
125,127
585,472
139,486
507,988
155,489
447,599
179,822
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. Substantially all of these loans are to borrowers in our primary
markets including $61 million to borrowers in Oklahoma and $11 million to borrowers in Arkansas. At December 31, 2018,
approximately 2% of these loans were nonperforming and 7% were past due 30 to 89 days. A separate accrual for credit risk of
$2.9 million is available to absorb losses on these loans.
We also have an off-balance sheet obligation to repurchase residential mortgage loans sold to government sponsored entities
through our mortgage banking activities due to standard representations and warranties made under contractual agreements and
to service loans in accordance with investor guidelines. The Company has established accruals for losses related to these
obligations that are included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the
Consolidated Statements of Earnings.
In 2018, the Company repurchased 7 loans from the agencies for $1.9 million and paid indemnification for 5 loans. Losses on
both repurchases and indemnifications were insignificant. For the period from 2010 through 2018, approximately 21% of
repurchase requests have currently resulted in actual repurchases or indemnification by the Company.
52
A summary of unresolved deficiency requests from U.S. government agencies follows (in thousands, except for number of
unresolved deficiency requests):
Table 23 - Summary of Unresolved Deficiency Requests
(In thousands, except number of unresolved deficiency requests)
Number of unresolved deficiency requests
169
Aggregate outstanding principal balance subject to unresolved deficiency requests
$
5,896
$
Unpaid principal balance subject to indemnification by the Company
6,916
191
9,737
4,519
The accrual for credit losses related to potential loan repurchases under representations and warranties totaled $1.6 million at
December 31, 2018 and $1.4 million at December 31, 2017.
December 31,
2018
2017
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, 2018, the net fair values of derivative contracts, before
consideration of cash margin, reported as assets under these programs totaled $427 million compared to $225 million at
December 31, 2017. Derivative contracts carried as assets include foreign exchange contracts with fair values of $184 million,
energy contracts with fair values of $145 million, to-be-announced residential mortgage-backed securities with fair values of
$65 million and interest rate swaps primarily sold to loan customers with fair values of $29 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 $413 million.
At December 31, 2018, total derivative assets were reduced by $115 million of cash collateral received from counterparties and
total derivative liabilities were reduced by $69 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.
53
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, 2018 follows in Table 24.
Table 24 – Fair Value of Derivative Contracts
(In thousands)
Customers
Banks and other financial institutions
Exchanges and clearing organizations
Fair value of customer hedge asset derivative contracts, net
$
140,973
128,526
41,891
$
311,390
The largest exposure to a single counterparty was to an exchange organization for energy swaps which totaled $36 million at
December 31, 2018.
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, the fair value of derivative assets would not
be materially impacted by either a decrease in market prices equivalent to $20.88 per barrel of oil nor an increase in prices
equivalent to $55.34 per barrel of oil as the Company generally is in a derivative asset position with counterparties fully offset
by cash margin received from those counterparties. 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 $10 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,
2018, 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, 2018, the combined
allowance for loan losses and accrual for off-balance sheet credit risk totaled $209 million or 0.97% of outstanding loans and
134.03% of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measured
at acquisition date fair value, the combined allowance for loan losses was 1.12% of outstanding loans and 145.66% of
nonaccruing loans. The allowance for loan losses was $207 million and the accrual for off-balance sheet credit risk was $1.8
million. At December 31, 2017, the combined allowance for credit losses was $234 million or 1.37% of outstanding loans and
131% of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $231
million and the accrual for off-balance sheet credit risk was $3.7 million.
The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance
sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the
combined charge or credit to expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. All
losses incurred from lending activities will ultimately be reflected in charge-offs against the allowance for loan losses following
funds advanced against outstanding commitments. Based on an evaluation of all credit factors, including sustained
improvement in nonaccruing and potential problem loans during the year, net charge-offs and growth in the loan portfolio
during the year, the Company determined that an $8.0 million provision for credit losses was appropriate for 2018. The
Company recorded a $7.0 million negative provision for loan losses for 2017.
54
Table 25 – 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
Recoveries to gross charge-offs
Allowance for loan losses as a multiple of net charge-offs
Accrual for off-balance sheet credit risk to off-balance sheet
credit commitments
Combined allowance for credit losses to loans outstanding at
period-end
Allowance for Loan Losses
Year Ended December 31,
2018
2017
2016
2015
2014
$ 230,682
$ 246,159
$
225,524
$ 189,056
$ 185,396
(42,588)
(15,171)
(16,232)
(37,880)
(19,810)
(35,828)
—
(378)
(5,325)
(43,583)
3,316
3,552
1,047
2,499
10,414
(76)
(649)
(5,064)
(25,599)
4,461
1,940
760
2,451
9,612
—
(1,312)
(5,448)
1,727
1,283
1,999
2,747
7,756
(6,734)
(944)
(2,205)
(5,288)
(3,569)
(2,047)
(4,448)
(6,168)
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
(33,169)
(15,987)
9,944
510
(34,832)
55,467
$
$
$
$
$ 207,457
$ 230,682
$
$
$
3,734
$ 11,244
(1,944)
(7,510)
1,790
8,000
0.96%
0.18%
0.04%
23.89%
6.25x
$
3,734
$ (7,000)
1.34 %
0.09 %
(0.04)%
37.55 %
14.43x
246,159
$ 225,524
$ 189,056
1,711
9,533
11,244
65,000
$
$
$
1,230
481
1,711
34,000
$
$
$
1.41 %
(0.02)%
0.23 %
1.45%
0.21%
0.40%
18.21%
7.07x
2,088
(858)
1,230
—
1.33 %
(0.02)%
— %
119.44 %
117.26 %
(76.47)x
(67.47)x
0.01%
0.04 %
0.11%
0.02 %
0.01 %
0.97%
1.37 %
1.52%
1.43 %
1.34 %
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 original
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. A specific allowance is required when the outstanding
principal balance of the loan is not supported by either the discounted cash flows expected to be received from the borrower or
the fair value of collateral for collateral dependent loans. At December 31, 2018, impaired loans totaled $347 million, including
$35 million with specific allowances of $8.7 million and $312 million with no specific allowances because the loan balances
represent the amounts we expect to recover. At December 31, 2017, impaired loans totaled $376 million, including $51 million
of impaired loans with specific allowances of $8.8 million and $325 million with no specific allowances.
55
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 $181 million at December 31, 2018, compared to
$200 million at December 31, 2017. The decrease was primarily due to improved risk grading and inherent risk factors related
to energy loans.
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 $18 million at December 31, 2018, down from $22 million at December 31,
2017.
An allocation of the allowance for loan losses by loan category follows in Table 26.
Table 26 – Allowance for Loan Losses Allocation
(Dollars in thousands)
2018
2017
December 31,
2016
2015
2014
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Loan category:
Commercial
$ 102,226
62.96% $ 124,269
62.58% $ 140,213
61.16% $ 130,334
64.32% $
90,875
64.02%
Commercial
real estate
Residential
mortgage
Personal
Nonspecific
allowance
60,026
22.00%
56,621
20.29%
50,749
22.42%
41,391
20.44%
42,445
19.20%
10.30%
4.74%
17,964
9,473
17,768
18,451
9,124
22,217
11.50%
5.63%
18,224
8,773
28,200
11.48%
4.94%
11.77%
3.47%
19,509
4,164
30,126
13.72%
3.06%
23,458
4,233
28,045
Total
$ 207,457
100.00% $ 230,682
100.00% $ 246,159
100.00% $ 225,524
100.00% $ 189,056
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 $215 million at December 31, 2018 composed primarily of $87 million or 2% of energy loans,
$38 million or 1% of healthcare loans, $33 million or 1% of services loans and $22 million or 3% of manufacturing loans.
Potential problem loans totaled $241 million at December 31, 2017.
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 $182 million at
December 31, 2018 and were composed primarily of $50 million or 2% of service sector loans, $42 million or 1% of energy
loans, $31 million or 4% of manufacturing sector loans, $19 million or 1% of wholesale/retail sector loans and $15 million or
1% of healthcare sector loans. Other loans especially mentioned totaled $118 million at December 31, 2017.
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.
56
BOK Financial had net loans charged off of $33 million or 0.18% of average loans for 2018, compared to net loans charged off
of $16 million or 0.09% of average loans in 2017.
Net commercial loans charged off totaled $35 million, primarily from $16 million of net charge-offs from energy loans, $12
million from wholesale sector loans and $6.6 million of net charge-offs from healthcare loans. Net commercial real estate loan
recoveries totaled $3.6 million. Net recoveries of residential mortgage loans totaled $669 thousand for the year and net charge-
offs of personal loans were $2.8 million.
57
$
$
$
$
Table 27 - Nonperforming Assets
(Dollars 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
Healthcare
Manufacturing
Services
Wholesale/retail
Public finance
Other commercial and industrial
Total commercial
Commercial real estate:
Retail
Residential construction and land development
Multifamily
Office
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
Total residential mortgage
Personal
Total nonaccruing loans
2018
2017
2016
2015
2014
December 31,
$
137,303
$
178,953
$
76,424
$
99,841
21,621
41,555
230
2,855
47,447
269
5,521
46,220
290
230,984
9,001
61,240
463
147,128
163,247
187,874
86,428
73,994
81,370
74,049
13,527
18,557
48,121
566
80,771
73,985
49,898
51,963
101,861
256,617
129,022
1,416
1,380
450
5,201
4,149
—
931
1,072
331
10,290
2,919
—
623
76,424
13,527
1,319
4,409
274
651
76
2,272
9,001
28,984
21,900
10,356
61,240
463
3,926
5,299
—
3,420
—
5,912
18,557
34,845
3,712
9,564
48,121
566
—
44,287
44,287
356,641
263,425
$
$
—
30,731
30,731
251,908
155,959
$
$
$
$
$
132,499
$
61,189
$
—
17,487
17,487
267,162
173,602
47,494
16,538
8,919
8,567
1,316
—
17,007
99,841
20,279
350
301
—
—
691
$
$
$
—
28,437
28,437
290,305
207,132
92,284
14,765
5,962
2,620
2,574
—
19,098
137,303
276
1,832
—
275
—
472
21,621
2,855
23,951
25,193
7,132
10,472
41,555
230
9,179
13,075
47,447
269
825
4,931
8,173
11,407
—
21,118
178,953
326
3,433
38
426
76
1,222
5,521
22,855
11,846
11,519
46,220
290
$
163,247
$
187,874
$
230,984
$
147,128
$
80,771
58
2018
2017
2016
2015
2014
December 31,
Allowance for loan losses to nonaccruing loans2
Accruing loans 90 days or more past due2
Foregone interest on nonaccruing loans3
8,170
1 Approximately $50 million was reclassified from Real estate and other repossessed assets to Receivables on the balance sheet on January
132.89%
180.09%
129.09%
112.33%
15,990
16,496
15,502
7,432
1,338
1,207
633
125
$
$
$
$
$
5
245.34%
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 2018 and previous years.
Nonperforming assets totaled $267 million or 1.23% of outstanding loans and repossessed assets at December 31, 2018, a $23
million decrease compared to the prior year. Nonaccruing loans totaled $163 million, accruing renegotiated residential
mortgage loans totaled $86 million and real estate and other repossessed assets totaled $17 million. All accruing renegotiated
residential mortgage loans and $7.1 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding
assets guaranteed by U.S. government agencies, nonperforming assets decreased $34 million to $174 million or 0.81% of
outstanding non-guaranteed loans and repossessed assets. The acquisition of CoBiz Financial in 2018 added $18 million to
nonperforming assets, net of fair value adjustments. The remaining decrease was primarily due to nonaccruing energy loans
and real estate and other repossessed assets, partially offset by an increase in nonaccruing commercial real estate loans secured
by retail facilities. The Company generally retains nonperforming assets to maximize potential recovery, which may cause
future nonperforming assets to decrease more slowly.
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. 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, 2018, renegotiated loans consist solely of accruing residential mortgage loans guaranteed by U.S.
government agencies that have been modified in 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.
59
A rollforward of nonperforming assets for the year ended December 31, 2018 follows in Table 28.
Table 28 – Rollforward of Nonperforming Assets
(In thousands)
Year Ended December 31, 2018
Nonaccruing
Loans
Renegotiated
Loans
Real Estate
and Other
Repossessed
Assets
Total
Nonperforming
Assets
Balance, December 31, 2017
$
187,874
$
73,994
$
28,437
$
Additions
Payments
Charge-offs
Net losses and write-downs
Foreclosure of nonaccruing loans
Foreclosure of loans guaranteed by U.S. government agencies
Proceeds from sales
Acquisitions
Net transfers to nonaccruing loans
Return to accrual status
Other, net
Balance, December 31, 2018
116,372
(94,755)
(43,583)
—
(9,880)
(5,403)
—
12,687
1,793
(1,858)
—
55,521
(3,055)
—
—
—
(8,684)
(31,075)
—
(1,793)
—
1,520
—
—
—
(6,009)
9,880
—
(20,676)
5,155
—
—
700
290,305
171,893
(97,810)
(43,583)
(6,009)
—
(14,087)
(51,751)
17,842
—
(1,858)
2,220
$
163,247
$
86,428
$
17,487
$
267,162
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 $163 million or 0.75% of outstanding loans at December 31, 2018, compared to $188 million or
1.10% of outstanding loans at December 31, 2017. Nonaccruing loans decreased $25 million compared to December 31, 2017.
Newly identified nonaccruing loans totaled $116 million and the acquisition of CoBiz Financial added $13 million of
nonaccruing loans in 2018. This was offset by $95 million of payments, $44 million of charge-offs and $10 million of
foreclosures during the year.
Commercial
Nonaccruing commercial loans totaled $100 million or 0.73% of total commercial loans at December 31, 2018, down from
$137 million or 1.28% of total commercial loans at December 31, 2017. Newly identified nonaccruing commercial loans
totaled $76 million and acquired nonaccruing commercial loans totaled $13 million, offset by $81 million in payments, $38
million of charge-offs and $5.3 million of repossessions.
Nonaccruing commercial loans at December 31, 2018 were primarily composed of $47 million or 1.32% of total energy loans,
$17 million or 2.04% of other commercial and industrial loans and $17 million or 0.61% of healthcare sector loans.
Commercial Real Estate
Nonaccruing commercial real estate loans were $22 million or 0.45% of outstanding commercial real estate loans at
December 31, 2018, compared to $2.9 million or 0.08% of outstanding commercial real estate loans at December 31, 2017. The
$19 million increase was primarily due to $22 million of newly identified commercial real estate loans during the year, partially
offset by $3.6 million of cash payments received.
Nonaccruing commercial real estate loans were primarily composed of $20 million or 2.21% of commercial real estate loans
secured by retail facilities.
60
Residential Mortgage and Personal
Nonaccruing residential mortgage loans totaled $42 million or 1.86% of outstanding residential mortgage loans at
December 31, 2018, compared to $47 million or 2.40% of outstanding residential mortgage loans at December 31, 2017. Newly
identified nonaccruing residential mortgage loans of $13 million were offset by $10 million of cash payments, $4.5 million of
foreclosures and $378 thousand of loans charged off during the year. Nonaccruing residential mortgage loans primarily
consisted of $24 million or 1.81% of non-guaranteed permanent residential mortgage loans and $10 million or 1.46% 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 29. Substantially all non-
guaranteed residential loans past due 90 days or more are nonaccruing. At December 31, 2018, residential mortgage loans 30 to
59 days past due was $4.3 million, down $1.3 million compared to the prior year. Residential mortgage loans 60 to 89 days past
due increased $59 thousand from December 31, 2017. Personal loans 30 to 59 days past due decreased $202 thousand and
personal loans 60 to 89 days past due increased $605 thousand compared to December 31, 2017. Personal loans 90 days or
more past due decreased $258 thousand.
Table 29 – Residential Mortgage and Personal Loans Past Due
(In thousands)
December 31, 2018
60 to 89
Days
90 Days
or More
30 to 59
Days
December 31, 2017
90 Days
or More
60 to 89
Days
30 to 59
Days
Residential mortgage:
Permanent mortgage1
Home equity
Total residential mortgage
Personal
$
$
$
— $
59
59
$
366
352
718
3
$
796
$
$
$
3,196
1,102
4,298
479
$
$
$
— $
17
17
$
219
440
659
261
$
191
$
$
$
3,435
2,206
5,641
681
1 Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.
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 $17 million at December 31, 2018, composed primarily $6.1 million of oil and
gas properties, $4.4 million of 1-4 family residential properties, $3.5 million of developed commercial real estate and $3.4
million of undeveloped land primarily zoned for commercial development. The residential properties and undeveloped land are
widely disbursed across our geographical footprint. Real estate and other repossessed assets decreased $11 million compared to
December 31, 2017.
61
Liquidity and Capital
Based on the average balances for 2018, approximately 65% of our funding was provided by deposit accounts, 20% from
borrowed funds, less than 1% from long-term subordinated debt and 11% from equity. Our funding sources, which primarily
include deposits and borrowings from the Federal Home Loan Banks, 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 ExpressBank 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 30 - Average Deposits by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Year Ended December 31,
2018
2017
$
8,517,137
$
8,725,920
6,560,145
5,617,325
6,610,134
5,516,214
20,694,607
20,852,268
2,114,604
1,332,513
$ 22,809,211
$ 22,184,781
Average deposits for 2018 totaled $22.8 billion and represented approximately 65% of total liabilities and capital compared
with $22.2 billion and 67% of total liabilities and capital for 2017. Average deposits increased $624 million over the prior year,
including $859 million related to the fourth quarter impact of the CoBiz acquisition. CoBiz deposits are currently located in
Funds Management and other. These will be allocated to the reporting segments in 2019. Demand deposits grew by $277
million, including $408 million of acquired deposits. Interest-bearing transaction deposit account balances increased by $362
million, including $423 million of acquired deposits. This growth was partially offset by a $60 million decrease in time
deposits.
Average deposits attributed to Commercial Banking were $8.5 billion for 2018, a $209 million or 2% decrease compared to
2017. Demand deposit balances decreased $110 million or 2% and interest-bearing transaction account balances decreased $98
million or 4%. Despite the series of federal funds rate increases from the Federal Reserve, as well as a modest increase in our
earnings credit, Commercial Banking continues to retain large cash reserves primarily due to a combination of factors including
uncertainty about the economic environment and potential for growth, lack of preferable liquid alternatives and a desire to
minimize deposit 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 deposit balances may continue to decrease
as the economic outlook continues to improve and if short-term rates continue to move higher, enhancing their investment
alternatives. As short-term rates move higher, related increases to the earnings credit rate may be appropriate, which will reduce
the amount of deposits required to offset service charges.
Average Consumer Banking deposit balances were largely unchanged compared to the prior year. Average demand deposit
balances grew by $113 million or 6% while average interest-bearing transaction accounts decreased $163 million or 3%.
Higher costing time deposit balances decreased $106 million or 10%.
Average Wealth Management deposit balances grew by $101 million or 2% over the prior year. Interest-bearing transaction
balances increased $170 million or 5%. Non-interest-bearing demand deposits decreased $107 million or 8%, and time deposit
balances were up $37 million or 5%.
62
Table 31 - 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,
2018
2017
$
$
380,315
$
298,692
299,346
618,413
368,584
278,607
253,277
661,074
1,596,766
$
1,561,542
Brokered deposits included in time deposits averaged $251 million for 2018, compared to $588 million for 2017. Brokered
deposits included in time deposits totaled $247 million at December 31, 2018 and $573 million at December 31, 2017.
Average interest-bearing transaction accounts for 2018 included $821 million of brokered deposits compared to $1.4 billion for
2017. Brokered deposits included in interest-bearing transaction accounts totaled $832 million at December 31, 2018 and $1.5
billion at December 31, 2017.
The decrease in average brokered deposits balances was largely driven by a change in the regulatory definition of brokered
deposits in the second quarter of 2018.
63
The distribution of our period end deposit account balances among principal markets follows in Table 32.
Table 32 - Period End Deposits by Principal Market Area
(In thousands)
Oklahoma:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Oklahoma
Texas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Texas
New Mexico:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total New Mexico
Arkansas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Arkansas
2018
2017
2016
2015
2014
December 31,
$
3,610,593
$
3,885,008
$
3,993,170
$ 4,133,520
$
3,828,819
6,445,831
288,210
1,118,643
7,852,684
5,901,293
265,870
1,092,133
7,259,296
6,345,536
5,971,819
241,696
1,118,355
7,705,587
226,733
1,202,274
7,400,826
6,117,886
206,357
1,301,194
7,625,437
11,463,277
11,144,304
11,698,757
11,534,346
11,454,256
3,289,659
3,239,098
3,137,009
2,627,764
2,639,732
2,294,740
2,397,071
2,388,812
2,132,099
2,065,723
99,624
423,880
2,818,244
6,107,903
93,620
502,879
2,993,570
6,232,668
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
691,692
663,353
627,979
487,286
487,819
571,347
58,194
224,515
854,056
552,393
55,647
216,743
824,783
590,571
49,963
238,408
878,942
563,723
43,672
267,821
875,216
519,544
37,471
295,798
852,813
1,545,748
1,488,136
1,506,921
1,362,502
1,340,632
36,800
30,384
26,389
27,252
35,996
91,593
1,632
8,726
101,951
138,751
85,095
1,881
14,045
101,021
131,405
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
64
Colorado:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Colorado
Arizona:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Arizona
Kansas/Missouri:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Kansas/Missouri
2018
2017
2016
2015
2014
December 31,
1,658,473
633,714
576,000
497,318
445,755
1,899,203
57,289
274,877
2,231,369
3,889,842
657,629
35,223
224,962
917,814
616,679
32,866
242,782
892,327
616,697
31,927
296,224
944,848
1,551,528
1,468,327
1,442,166
631,874
29,811
353,998
1,015,683
1,461,438
709,176
334,701
366,755
326,324
369,115
575,996
10,545
43,051
629,592
1,338,768
274,846
3,343
20,394
298,583
633,284
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
418,199
457,080
508,418
197,424
259,121
327,866
13,721
19,688
361,275
779,474
382,066
13,574
27,260
422,900
879,980
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
Total BOK Financial deposits
$
25,263,763
$
22,061,305
$ 22,748,095
$ 21,088,158
$
21,140,859
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 source of wholesale federal funds purchased totaled $300 million at
December 31, 2018. There were no wholesale federal funds purchased outstanding at December 31, 2017. 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 $6.2 billion during 2018 and $5.9
billion during 2017.
At December 31, 2018, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $7.1
billion.
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.
65
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 and cash
equivalents totaled $167 million at December 31, 2018. 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, 2018, based on the most restrictive limitations as well as
management’s internal capital policy, BOKF, NA could declare up to $71 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.
As a result of the acquisition of CoBiz Financial, we obtained $60 million of subordinated debt issued in June 2015 that will
mature on June 25, 2030. This debt bears interest at the rate of 5.625% through June 25, 2025 and thereafter, the notes will bear
an annual floating rate equal to 3-month LIBOR plus 317 basis points. We also acquired $72 million of junior subordinated
debentures. Interest is based on spreads over 3 month LIBOR ranging from 145 basis points to 295 basis points and mature
September 17, 2033 through September 30, 2035. The junior subordinated debentures are subject to early redemption prior to
maturity.
Shareholders' equity at December 31, 2018 was $4.4 billion, an increase of $937 million over December 31, 2017. The
Company issued 7.2 million shares in conjunction with the acquisition of CoBiz Financial. Net income less cash dividends paid
increased equity $318 million during 2018. Changes in interest rates resulted in an increase in the accumulated other
comprehensive loss to $73 million at December 31, 2018, compared to $36 million at December 31, 2017. Capital is managed
to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings
including expected benefits from lower federal income tax rates, 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, 2018, a cumulative total of
3,575,083 shares have been repurchased under this authorization. The Company repurchased 615,840 shares during 2018 at an
average price of $86.82 per share.
BOK Financial and the subsidiary banks are subject to various capital requirements administered by federal agencies. Failure to
meet minimum capital requirements, including capital conservation buffer, can result in certain mandatory and additional
discretionary actions by regulators that could have a material impact on operations including restrictions on capital distributions
from dividends and share repurchases and executive bonus payments. 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.
A summary of minimum capital requirements, including capital conservation buffer, follows for BOK Financial on a
consolidated basis in Table 33.
66
Table 33 – 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
Minimum
Capital
Requirement
Capital
Conservation
Buffer
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,
2018
2017
10.92%
10.92%
12.50%
8.96%
10.70%
8.82%
12.05%
12.05%
13.54%
9.31%
10.43%
9.50%
At March 31, 2018, the Company exceeded the $1 billion regulatory capital rules threshold for trading assets plus liabilities.
This subjected the Company to the market risk rule, which imposed additional modeling, systems, oversight and reporting
requirements effective beginning the second quarter of 2018 and resulted in an increase in risk weighted assets associated with
trading.
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 34 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
Table 34 – 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
Off-Balance Sheet Arrangements
December 31,
2018
2017
$ 4,432,109
1,184,112
3,247,997
38,020,504
1,184,112
$ 36,836,392
$
3,495,367
476,088
3,019,279
32,272,160
476,088
$ 31,796,072
8.82%
9.50%
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 35 following summarizes payments due on contractual obligations with initial terms in excess of one year.
67
Table 35 – Contractual Obligations as of December 31, 2018
(In thousands)
Time deposits
Other borrowings
Subordinated debentures
Lease obligations
Derivative contracts
Data processing services
Total
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
Alternative investment commitments
Less Than
1 Year
1 to 3
Years
4 to 5
Years
More Than
5 Years
Total
$
980,971
$
367,887
$
257,811
$
258,112
$
1,864,781
575
15,068
25,794
132,147
15,561
1,150
30,136
46,121
35,837
21,128
1,200
30,136
28,147
6,563
16,941
7,557
581,255
78,598
6,511
21,224
10,482
656,595
178,660
181,058
74,854
$
1,170,116
$
502,259
$
340,798
$
953,257
$
2,966,430
$
11,944,525
582,196
98,623
73,885
Payments on time deposits, other borrowed funds and subordinated debentures include interest which has been calculated from
rates at December 31, 2018. 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.
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.
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 $2.3 billion of the loan commitments expire within one year.
The Company has funded $253 million and has commitments to fund an additional $74 million for various alternative
investments. Alternative investments primarily consist of limited partnership interests in entities that invest in low income
housing projects. Legally binding commitments to fund alternative investments are recognized 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.
68
Forward-Looking Statements
This 10-K 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 generally. 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 credit losses, 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, including its latest acquisition of CoBiz Financial, Inc., 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 which BOK Financial has not independently verified. These statements are not guarantees of
future performance and involve certain risks, uncertainties, and assumptions which 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
expected, 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, inflation,
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. There may also be difficulties and delays in integrating CoBiz Financial Inc.'s business or
fully realizing cost savings and other benefits including, but not limited to, business disruption and customer acceptance of
BOK Financial Corporation's products and services. 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.
69
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 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 un-pledged 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. Exposure is measured daily and compliance is reviewed monthly. Deviations from the Board
approved limits, which periodically occur throughout the reporting period, may require management to develop and execute
plans to reduce exposure. These plans are subject to escalation to and approval by the Board.
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 repricing 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. Our current internal policy limit for net interest revenue variation
due to a 200 basis point parallel change in market interest rates over twelve months is a maximum decline of 5%. The results of
a 200 basis point decrease in interest rates in the current low-rate environment are not meaningful. Until such time as it
becomes meaningful, we will instead report the effect of a 100 basis point decrease in interest rates.
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.
70
Table 36 – Interest Rate Sensitivity
(Dollar in thousands)
200 bp Increase
100 bp Decrease
2018
2017
2018
2017
Anticipated impact over the next twelve months on net interest revenue
$
(4,248)
$
(2,692)
$ (42,483)
$
(37,072)
(0.36)%
(0.30)%
(3.57)%
(4.16)%
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 debt securities issued by the U.S. government or its
agencies 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 37 - MSR Asset and Hedge Sensitivity Analysis
(In thousands)
MSR Asset
MSR Hedge
Net Exposure
Trading Activities
December 31,
2018
2017
Up 50 bp
Down 50 bp
Up 50 bp
Down 50 bp
$
18,619
$
(27,154) $
25,818
$
(32,856)
(21,838)
(3,219)
21,922
(5,232)
(29,501)
(3,683)
25,021
(7,835)
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.
71
Table 38 - Mortgage Pipeline Sensitivity Analysis
(In thousands)
Year Ended
December 31,
2018
2017
Up 50 bp Down 50 bp Up 50 bp Down 50 bp
Average1
Low2
High3
Period End
1 Average represents the simple average of each daily value observed during the reporting period.
2 Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.
3 High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting
(697) $
(1,015)
(2,447)
(1,979)
(1,040)
(2,377)
2,077
1,314
(420)
(263)
(114)
(16)
789
223
699
23
$
$
$
period.
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 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 an $8 million market risk limit for the trading portfolio, net of
economic hedges.
Table 39 –Trading Securities Sensitivity Analysis
(In thousands)
Average1
Low2
High3
Period End
Year Ended
December 31,
2018
2017
Up 50 bp Down 50 bp Up 50 bp Down 50 bp
$ (1,133) $
649
$ (1,702) $
2,041
(4,534)
1,470
4,423
(3,463)
(1,081)
668
(4,386)
(488)
1,799
5,210
(1,046)
539
1 Average represents the simple average of each daily value observed during the reporting period.
2 Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.
3 High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting
period.
72
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, 2018.
As permitted, management excluded from its assessment the operations of CoBiz Financial, which was acquired on October 1,
2018. 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 12% and 20% of consolidated total and net
assets, respectively, at December 31, 2018. Operations of CoBiz Financial comprised approximately 3% and 3% of revenues
and net income, respectively, for the year ended December 31, 2018.
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, 2018. Their report, which expresses unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2018, is included in this annual report.
73
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of BOK Financial Corporation
Opinion on Internal Control over Financial Reporting
We have audited BOK Financial Corporation’s internal control over financial reporting as of December 31, 2018, 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). In our opinion, BOK Financial Corporation (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the
COSO criteria.
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 CoBiz Financial, which is included in the 2018 consolidated financial statements of the Company and constituted
12% and 20% of total and net assets, respectively, as of December 31, 2018 and 3% and 3% of revenues and net income,
respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include
an evaluation of the internal control over financial reporting of CoBiz Financial.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of BOK Financial Corporation as of December 31, 2018 and 2017, 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, 2018, and the related notes and our report dated March 1, 2019 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
74
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.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
March 1, 2019
75
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of BOK Financial Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BOK Financial Corporation (the Company) as of
December 31, 2018 and 2017, 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, 2018, and the related notes (collectively referred to
as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2018, 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)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated March 1, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1990.
Tulsa, Oklahoma
March 1, 2019
76
77
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 (losses), net
Gain (loss) on derivatives, net
Loss on fair value option securities, net
Change in fair value of mortgage servicing rights
Gain (loss) on available for sale securities, net
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.
78
Year Ended December 31,
2017
2016
2018
$
$
891,587
8,123
57,531
14,775
197,317
15,205
21,555
22,333
1,228,426
95,517
138,215
9,827
243,559
984,867
8,000
976,867
108,323
84,025
184,703
112,153
97,787
56,651
643,642
(2,731)
(422)
(25,572)
4,668
(2,801)
616,784
696,479
8,706
17,002
16,121
177,070
16,755
18,490
22,128
972,751
53,803
69,124
8,123
131,050
841,701
(7,000)
848,701
131,601
119,988
162,889
112,079
104,719
49,959
681,235
11,213
779
(2,733)
172
4,428
695,094
583,131
30,523
2,846
59,099
97,981
23,318
114,796
17,169
17,052
9,620
46,298
26,333
1,028,166
565,485
119,061
446,424
778
445,646
6.63
6.63
66,628,640
66,662,273
1.90
573,408
28,877
2,000
51,067
86,477
19,653
146,970
15,689
9,687
6,779
52,856
32,054
1,025,517
518,278
182,593
335,685
1,041
334,644
5.11
5.11
64,745,364
64,806,284
1.77
$
$
$
$
$
$
$
$
$
$
$
$
$
581,030
12,658
8,527
16,894
175,321
6,723
17,238
10,726
829,117
40,494
35,099
6,296
81,889
747,228
65,000
682,228
138,377
116,452
135,387
111,589
133,914
50,112
685,831
4,947
(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
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive loss before income taxes:
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Interest revenue, Investment securities, Taxable securities
Loss (gain) on available for sale securities, net
Other comprehensive loss, before income taxes
Federal and state income taxes
Other comprehensive loss, net of income taxes
Comprehensive income
Comprehensive income (loss) attributable to non-controlling interests
Year Ended December 31,
2018
2017
2016
$
446,424
$
335,685
$
232,281
(48,010)
(26,152)
(41,521)
—
2,801
(45,209)
(11,507)
(33,702)
—
(4,428)
(30,580)
(11,923)
(18,657)
(112)
(11,675)
(53,308)
(20,754)
(32,554)
412,722
317,028
199,727
778
1,041
(387)
Comprehensive income attributable to BOK Financial Corp. shareholders
$
411,944
$
315,987
$
200,114
See accompanying notes to Consolidated Financial Statements.
79
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: 2018 – $367,298; 2017 – $480,035)
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 (2018 – $13,665; 2017 – $12,648)
Derivative contracts
Cash surrender value of bank-owned life insurance
Receivable on unsettled securities sales
Other assets
Total assets
Liabilities and Equity
Liabilities:
Noninterest-bearing demand deposits
Interest-bearing deposits:
Transaction
Savings
Time
Total deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Derivative contracts
Due on unsettled securities purchases
Other liabilities
Total liabilities
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: 2018 –
75,711,492; 2017 – 75,147,686)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2018 – 3,588,560; 2017 – 9,752,749)
Accumulated other comprehensive loss
Total shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to Consolidated Financial Statements.
80
December 31,
2018
2017
741,749
401,675
1,956,923
355,187
8,857,120
283,235
344,447
149,221
21,656,730
(207,457)
21,449,273
330,033
204,960
1,049,263
134,849
259,254
17,487
320,929
381,608
336,400
446,891
38,020,504
$
$
602,510
1,714,544
462,676
461,793
8,321,578
755,054
320,189
221,378
17,153,424
(230,682)
16,922,742
317,335
178,800
447,430
28,658
252,867
28,437
220,502
316,498
340,077
359,092
32,272,160
$
$
$
10,414,592
$
9,243,338
12,206,576
529,215
2,113,380
25,263,763
1,018,411
6,124,390
275,913
192,826
362,306
156,370
183,480
33,577,459
10,250,393
469,158
2,098,416
22,061,305
574,963
5,134,897
144,677
164,895
171,963
338,745
162,381
28,753,826
5
1,334,030
3,369,654
(198,995)
(72,585)
4,432,109
10,936
4,443,045
38,020,504
$
4
1,035,895
3,048,487
(552,845)
(36,174)
3,495,367
22,967
3,518,334
32,272,160
$
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
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
$ 982,009
$2,704,121
8,636
$ (477,165) $
21,587
$
3,230,556
$
37,083
$3,267,639
—
—
232,668
—
—
—
—
—
—
(32,554)
1,005
(66,792)
12,465
1,590
—
10,471
—
—
—
—
—
—
(113,455)
—
—
—
15
—
—
—
—
—
(95)
—
—
—
—
—
—
—
—
—
—
232,668
(32,554)
(66,792)
12,465
1,590
(95)
10,471
(113,455)
(387)
232,281
—
—
—
—
—
—
—
(32,554)
(66,792)
12,465
1,590
(95)
10,471
(113,455)
—
(5,193)
(5,193)
1,006,535
2,823,334
9,656
(544,052)
(10,967)
3,274,854
31,503
3,306,357
—
—
—
5,758
—
—
23,602
334,644
—
—
—
—
—
—
—
—
(116,041)
—
—
—
80
—
—
17
—
—
—
—
—
(7,403)
—
—
(1,390)
—
—
—
—
(18,657)
—
—
—
—
—
—
—
334,644
(18,657)
(7,403)
5,758
—
(1,390)
23,602
(116,041)
1,041
335,685
—
—
—
—
—
—
—
(18,657)
(7,403)
5,758
—
(1,390)
23,602
(116,041)
—
(9,577)
(9,577)
Balance, December 31,
2015
Net income
Other comprehensive loss
Repurchase of common
stock
Share-based
compensation plans:
Stock options exercised
Non-vested shares
awarded, net
Vesting of non-vested
shares
Share-based
compensation
Cash dividends on
common stock
Capital calls and
distributions, net
74,530
$
—
—
214
249
—
—
—
—
Balance, December 31,
2016
Net income
Other comprehensive loss
Repurchase of common
stock
Share-based
compensation plans:
74,993
—
—
—
Stock options exercised
100
55
—
—
—
—
Non-vested shares
awarded, net
Vesting of non-vested
shares
Share-based
compensation
Cash dividends on
common stock
Capital calls and
distributions, net
Reclassification of
stranded accumulated
other comprehensive
loss related to tax
reform
Balance, December 31,
2017
75,148
$
4
$1,035,895
$3,048,487
9,753
$ (552,845) $
(36,174) $
3,495,367
$
22,967
$3,518,334
6,550
(6,550)
—
—
—
81
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
75,148
$
4
$1,035,895
$3,048,487
9,753
$ (552,845) $
(36,174) $
3,495,367
$
22,967
$3,518,334
Balance, December 31,
2017
Transition adjustment of
net unrealized gains on
equity securities
Balance, December 31,
2017, Adjusted
Net income
Other comprehensive loss
Repurchase of common
stock
Share-based
compensation plans:
Stock options exercised
Non-vested shares
awarded, net
Vesting of non-vested
shares
Share-based
compensation
Cash dividends on
common stock
Issuance of shares for
CoBiz acquisition
Capital calls and
distributions, net
Balance, December 31,
2018
—
75,148
—
—
—
54
109
—
—
—
400
—
—
4
—
—
—
—
—
—
—
—
1
—
—
2,709
—
—
(2,709)
—
—
—
1,035,895
3,051,196
9,753
(552,845)
(38,883)
3,495,367
22,967
3,518,334
—
—
—
—
—
(33,702)
445,646
(33,702)
778
—
446,424
(33,702)
—
—
—
2,781
—
—
4,229
445,646
—
—
—
—
—
—
—
(127,188)
616
(53,465)
—
—
31
—
—
—
—
(2,870)
—
—
291,125
— (6,811)
410,185
—
—
—
—
—
—
—
—
—
—
—
—
(53,465)
—
(53,465)
2,781
—
(2,870)
4,229
(127,188)
701,311
—
—
—
—
—
2,781
—
(2,870)
4,229
(127,188)
701,311
—
(12,809)
(12,809)
75,711
$
5
$1,334,030
$3,369,654
3,589
$ (198,995) $
(72,585) $
4,432,109
$
10,936
$4,443,045
See accompanying notes to Consolidated Financial Statements.
82
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 principal payments
Net unrealized losses from derivative contracts
Share-based compensation
Depreciation and amortization
Net amortization of securities discounts and premiums
Net losses (gains) on financial instruments and other losses(gains), net
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 maturities or redemptions of investment securities
Proceeds from maturities or redemptions of available for sale securities
Purchases of investment securities
Purchases of available for sale securities
Proceeds from sales of available for sale securities
Change in amount receivable on unsettled available for sale securities transactions
Loans originated, net of principal collected
Net payments on derivative asset contracts
Acquisitions, net of cash acquired
Proceeds from disposition of assets
Purchases of assets
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities:
Net change in demand deposits, transaction deposits and savings accounts
Net change in time deposits
Net change in other 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
Repurchase of common stock
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
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
Increase in U.S. government guaranteed loans eligible for repurchase
Increase in receivables from conveyance of GNMA OREO
See accompanying notes to Consolidated Financial Statements.
83
2018
Year Ended
2017
2016
$
446,424
$
335,685
$
232,281
8,000
(4,668)
33,528
4,686
4,229
60,843
30,945
9,585
(35,705)
(2,587,297)
2,691,144
(35,247)
(1,023,097)
(38,346)
27,507
(5,191)
(139,346)
(552,006)
124,864
1,122,680
(4,468)
(1,955,172)
745,643
38,347
(1,553,033)
(114,417)
(175,755)
308,762
(345,082)
(1,807,631)
(13,870)
(73,089)
1,295,484
—
—
(41,319)
(88)
85,466
114,076
(53,465)
(127,188)
1,186,007
(1,173,630)
2,317,054
1,143,424
243,121
92,291
9,880
100,238
38,216
$
$
$
$
$
$
(7,000)
(172)
33,527
3,704
23,602
54,466
28,693
(2,828)
(47,159)
(3,286,873)
3,405,890
(39,149)
(804,204)
321,880
(5,506)
18,191
182,184
214,931
112,022
1,841,217
(32,972)
(2,845,557)
1,309,215
(68,792)
(78,232)
479,409
—
274,029
(250,783)
739,556
(563,406)
(123,384)
(10,909)
—
—
144,690
4,368
(17,726)
(485,119)
(7,403)
(116,041)
(1,174,930)
(220,443)
2,537,497
2,317,054
127,513
121,697
7,367
148,107
40,528
$
$
$
$
$
$
65,000
2,193
40,744
11,234
10,471
47,016
41,643
(13,011)
(63,636)
(6,117,417)
6,193,587
(71,405)
149,921
(603,861)
(49,565)
44,269
(11,413)
(91,949)
86,847
1,740,226
(41,590)
(2,333,740)
899,381
33,005
(621,605)
(103,668)
56,017
198,922
(199,802)
(286,007)
1,277,285
(216,084)
(606,476)
(226,550)
144,615
(10,389)
12,455
(28,806)
106,051
(66,792)
(113,455)
271,854
(106,102)
2,643,599
2,537,497
82,876
79,883
36,391
120,406
68,873
$
$
$
$
$
$
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, CoBiz
Bank, BOK Financial Securities, Inc., The Milestone Group, Inc. and Cavanal Hill Distributors, 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. Determination that the Company is the primary
beneficiary considers 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.
Certain prior year amounts have been reclassified to conform to current year presentation.
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; Mobank in Kansas City, Missouri/Kansas and Bank of Arkansas in
Northwest Arkansas. BOKF, NA also operates the TransFund electronic funds network, Cavanal Hill Investment Management,
and BOK Financial Asset Management, Inc.
On October 1, 2018, BOK Financial acquired CoBiz Financial, Inc. and CoBiz Bank, its wholly owned subsidiary. CoBiz
Financial has been merged into BOK Financial. CoBiz Bank will be merged into BOKF, NA in the first quarter of 2019.
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.
84
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.
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 based on the qualitative assessment that goodwill may be impaired, a quantitative one-step
impairment test will be applied to goodwill at all reporting units. 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.
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
day 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
to determine if the decline in fair value below the amortized cost is other-than-temporary.
85
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 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.
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.
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; and
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.
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. Fair values for exchange-traded contracts are based on quoted prices in an active market for identical
instruments. Fair values for over-the-counter contracts 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. 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.
86
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 to mitigate the market risk of holding 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 Statements of Earnings. Changes in the fair value of derivative instruments used to mitigate the market risk of
holding 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 the fair value of mortgage loan commitments, mortgage loans held for sale and forward sales contracts are reported in Other
Operating Revenue - Mortgage banking revenue.
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 exchange 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.
For loans acquired with no evidence of credit deterioration, discounts are accreted on either an individual basis for loans with
unique characteristics or on a pool basis for groups of homogeneous loans. Accretion is discontinued when a loan with an
individually attributed discount is placed on nonaccruing status.
Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ("TDRs"). All TDRs are
generally classified as nonaccruing, excluding loans guaranteed by U.S. government agencies. 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.
87
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.
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 Sheets. 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. Guaranteed loans may either be resold into
GNMA pools after a performance period specified by the programs or foreclosed and conveyed to the guarantors.
Loans are disaggregated into portfolio segments and further disaggregated into classes. The portfolio segment is the level at
which the Company develops and documents a systematic method for determining its Allowance for Credit Losses. Classes are
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 based on an ongoing quarterly evaluation of the probable estimated losses inherent
in the portfolio, including probable losses on both 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 2018 or 2017.
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.
88
Specific allowances for impaired loans are measured by an evaluation of estimated future cash flows discounted at the loan's
initial effective interest rate or the fair value of collateral for certain collateral dependent loans. The fair value of real property
held as collateral is generally based on third party appraisals that conform to Uniform Standards of Professional Appraisal
Practice, less estimated selling costs. Appraised values are on an “as-is” basis and generally are not adjusted by the
Company. Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values
may have declined. Collateral value of mineral rights is generally determined by our internal staff of engineers based on
projected cash flows from proven oil and gas reserves under existing economic and operating conditions. The value of other
collateral is generally determined by our special assets staff based on projected liquidation cash flows under current market
conditions. Collateral values and available cash resources that support impaired loans are evaluated quarterly. Historical
statistics may be used as a practical way to estimate impairment in limited situations, such as when a collateral dependent loan
is identified as impaired at the end of a reporting period until an appraisal of collateral value is received or a full assessment of
future cash flows is completed. Estimates of future cash flows and collateral values require significant judgments and may be
volatile.
General allowances for unimpaired loans are based on an estimated loss rate by loan class. The appropriate historical gross loss
rate for each loan class is determined by the greater of the current loss rate based on the most recent twelve months or a ten-
year average gross loss rate. Recoveries are not directly considered in the estimation of historical loss rates. Recoveries
generally do not follow predictable patterns and are not received until well-after the charge-off date as a result of protracted
legal actions. For risk graded loans, historical gross loss rates are adjusted for changes in risk grading. For each loan class, the
current weighted average risk grade is compared to the long-term weighted average risk grade. This comparison determines
whether credit risk in each loan class is increasing or decreasing. Historical loss rates are adjusted upward or downward in
proportion to changes in average risk grading. General allowances for unimpaired loans also consider inherent risks identified
for each loan class. Inherent risks consider loss rates that most appropriately represent the current credit cycle and other factors
attributable to a specific loan class which have not yet been represented in the historical gross loss rates or risk grading. These
factors include changes in commodity prices or engineering imprecision which may affect the value of reserves that secure our
energy loan portfolio, construction risk that may affect commercial real estate loans, changes in regulations and public policy
that may disproportionately impact health care loans and changes in loan products.
Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These
factors include trends in the economy in our primary lending areas, concentration in large-balance loans and other relevant
factors.
An accrual for off-balance sheet credit risk is included in Other liabilities in the Consolidated Balance Sheets. 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.
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.
89
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.
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 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.
Mortgage Servicing Rights
Mortgage servicing rights may be purchased or may be recognized when mortgage loans are originated and sold with servicing
rights retained. All mortgage servicing rights are carried at fair value. Changes in the fair value are recognized in earnings as
they occur.
Mortgage servicing rights are not traded in active markets. 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.
90
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 related implementation costs, 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. Accumulated costs are
reviewed for projects or components of projects that do not support the value of the asset being developed. 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.
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 temporary 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. The effect of changes in statutory tax rates on the measurement of deferred
tax assets and liabilities is recognized through income tax expense in the period the change is enacted. 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.
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.
91
Employee Benefit Plans
BOK Financial sponsors a defined contribution plan (“Thrift Plan”) and a defined benefit cash balance pension plan (“Pension
Plan”). Employer contributions to the Thrift Plan, which matches employee contributions subject to percentage and years of
service limits, are expensed when incurred. Pension Plan costs, which are based upon actuarial computations of current costs,
are expensed annually. 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. Adjustments required to recognize the Pension Plan's net funded status are made through accumulated other
comprehensive income, net of deferred income taxes.
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 generally cliff vest in 3 years and are subject to a holding
period after vesting of 2 years. 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.
Tax effects of share-based payments are recognized through tax expense. Dividends on non-vested shares that are not subject to
forfeiture are charged to retained earnings.
Other Operating Revenue
Fees and commissions revenue is generated through the sales of products, consisting primarily of financial instruments, and the
performance of services for customers under contractual obligations. Revenue from providing services for customers is
recognized at the time services are provided in an amount that reflects the consideration we expect to be entitled to for those
services. Revenue is recognized based on the application of five steps:
•
•
•
•
•
Identify the contract with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the Company satisfies a performance obligation
For contracts with multiple performance obligations, individual performance obligations are accounted for separately if the
customer can benefit from the good or service on its own or with other resources readily available to the customer and the
promise to transfer goods and services to the customer is separately identifiable in the contract. The transaction price is
allocated to the performance obligations based on relative standalone selling prices.
Revenue is recognized on a gross basis whenever we have primary responsibility and risk in providing the services or products
to our customers and have discretion in establishing the price for the services or products. Revenue is recognized on a net basis
whenever we act as an agent for products or services of others.
92
Brokerage and trading revenue includes revenues from trading, customer hedging, retail brokerage and investment banking.
Trading revenue includes net realized and unrealized gains primarily related to sales of securities to institutional customers and
related derivative contracts. Customer hedging revenue includes realized and unrealized changes in the fair value of derivative
contracts held for customer risk management programs including credit valuation adjustments, as necessary. We offer
commodity, interest rate, foreign exchange and equity derivatives to our customers. These customer contracts are offset with
contracts with selected counterparties and exchanges to minimize changes in market risk from changes in commodity prices,
interest rates or foreign exchange rates. Retail brokerage revenue represents fees and commissions earned on sales of fixed
income securities, annuities, mutual funds and other financial instruments to retail customers. Investment banking revenue
includes fees earned upon completion of underwriting and financial advisory services. Investment banking revenue also
includes fees earned in conjunction with loan syndications.
Transaction card revenue includes merchant discount fees and electronic funds transfer network fees, net of interchange fees
paid to card issuers and assessments paid to card networks. Merchant discount fees represent fees paid by customers for
account management and electronic processing of card transactions. Merchant discount fees are recognized at the time the
customer’s transactions are processed or other services are performed. The Company also maintains the TransFund electronic
funds transfer network for the benefit of its members, which includes the BOKF, NA. Electronic funds transfer fees are
recognized as electronic transactions processed on behalf of its members.
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 include commercial account service charges, overdraft fees, check card fee revenue and
automated service charge and other deposit service fees. Fees are recognized at least quarterly in accordance with 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. 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.
Mortgage banking revenue includes revenues recognized in conjunction with the origination, marketing and servicing of
conventional and government-sponsored residential mortgage loans. Mortgage production revenue includes net realized gains
(losses) on sales of residential mortgage loans in the secondary market and the net change in unrealized gains (losses) on
residential mortgage loans held for sale. Mortgage production revenue also includes changes in the fair value of derivative
contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts.
Mortgage servicing revenue includes servicing fee income and late charges on loans serviced for others.
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. Revenue from financial assets and liabilities is explicitly excluded from
the scope of ASU 2014-09. Management adopted the standard in the first quarter of 2018 using the modified retrospective
transition method. There were no significant cumulative effect adjustments as a result of implementation as of January 1, 2018
as our current revenue recognition policies generally conformed with the principals in ASU 2014-09.
93
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. Management adopted the standard in the first quarter of 2018. Interchange fees
paid to issuing banks for card transactions processed related to its merchant processing services previously included in data
processing and communication expense are now netted against the amounts charged to the merchant in transaction card
processing revenue.
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 over the recognition and measurement of financial assets and liabilities.
The update 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. Management adopted the standard in the first quarter of 2018. Upon
adoption, net unrealized gains of $2.7 million from equity securities were reclassified from other comprehensive income to
retained earnings.
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 lease assets
and 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 right-of-use asset. The ASU is effective
for the Company for interim and annual periods beginning after December 15, 2018. As originally issued, ASU 2016-02
required implementation through the modified transition method applied as of the earliest period presented in the financial
statements. In 2018 an additional and optional transition method that allows entities to apply the standard as of the adoption
date was approved. BOKF elected this optional transition method. BOKF elected all practical expedients other than the
lessee's practical expedient to combine lease and non-lease components which would further gross up the lease liability and
related right of use asset. The implementation of ASU 2016-02 increased the reported right of use assets and liabilities by
approximately $137 million. The effect on retained earnings was immaterial.
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 in order to provide more timely recording of credit losses on loans and other
financial instruments. The ASU adds 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 related off-balance sheet credit exposure 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
a 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.
94
The Company has established a CECL implementation team in order to evaluate the impact the adoption of ASU 2016-13 will
have on the Company's financial statements. The CECL implementation team, overseen by the Chief Credit Officer, Chief
Financial Officer, and Chief Risk Officer, has developed a project plan that incorporates input from various departments within
the bank including Credit, Financial Reporting, Risk, and Information Technology among others. Key implementation
activities for 2018 included portfolio segmentation, credit risk driver identification, model development, as well as process and
information systems enhancements. Key implementation initiatives for 2019 include model validation and development of
governance and control and disclosure frameworks. The Company will adopt the standard on January 1, 2020.
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 guidance in ASC 230 on the classification of certain cash
receipts and payments in the statement of cash flows. The amendments address eight cash flow issues. Management adopted
the standard in first quarter of 2018. Adoption of ASU 2016-15 did not have a material impact on the Company's financial
statements.
FASB Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities ("ASU 2017-12")
On August 28, 2017, the FASB issued ASU 2017-12, which amends the hedge accounting recognition and presentation
requirements in ASC 815 in order to improve transparency and understandability of information and reduce the complexity.
The update expands the types of transactions eligible for hedge accounting, eliminates the requirement to separately measure
and present hedge ineffectiveness, simplifies hedge effectiveness assessments and updates documentation and presentation
requirements. The update allows the reclassification of certain debt securities from held to maturity to available for sale if the
debt security is eligible to be hedged under the last-of-layer method. ASU 2017-12 is effective for the Company for fiscal years
beginning after December 15, 2018, and interim periods therein; however, early adoption was permitted. Adoption of ASU
2017-12 had no material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 118 (SAB 118).
On March 13, 2018, the FASB issued ASU 2018-05, which adds SEC guidance related to SAB 118 - Income Tax Accounting
Implications of the Tax Cuts and Jobs Act. ASU 2018-05 was effective upon issuance. The adoption of ASU 2018-05 has not
had a significant impact in 2018.
FASB Accounting Standards Update No. 2018-15, Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40):
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
("ASU 2018-15")
On August 29, 2018, the FASB issued ASU 2018-15, which requires a customer in a cloud hosting arrangement that is a service
contract to follow the internal use software requirements in ASC 350-40 to determine which implementation costs to capitalize
or expense as incurred. Internal use software guidance requires the capitalization of costs incurred during the development
phase. Capitalized costs will be amortized over the term of the hosting arrangement beginning when the arrangement is ready
for its intended use. ASU 2018-15 is effective for the Company for fiscal years beginning after December 15, 2019; however,
early adoption is permitted. The Company elected to early adopt the update prospectively in third quarter of 2018. The adoption
of ASU 2018-15 has not had a significant impact in 2018.
95
(2) Securities
Trading Securities
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
December 31, 2018
December 31, 2017
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
U.S. government agency debentures
$
63,765
$
254
$
21,196
$
U.S. government agency residential mortgage-backed securities
1,791,584
9,966
392,673
34,507
42,656
24,411
(1)
685
65
13,559
23,885
11,363
$
1,956,923
$
10,969
$
462,676
$
(448)
8
(517)
83
(26)
4
Municipal and other tax-exempt securities
Asset-backed securities
Other trading securities
Total trading securities
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
December 31, 2018
Amortized
Cost
Fair
Value
Gross Unrealized
Gain
Loss
Municipal and other tax-exempt securities
$
137,296
$
138,562
$
1,858
$
U.S. government agency residential mortgage-backed securities
Other debt securities
Total investment securities
12,612
205,279
12,770
215,966
293
12,257
$
355,187
$
367,298
$
14,408
$
(592)
(135)
(1,570)
(2,297)
Municipal and other tax-exempt securities
$
228,186
$
230,349
$
2,967
$
U.S. government agency residential mortgage-backed securities
Other debt securities
Total investment securities
15,891
217,716
16,242
233,444
446
17,095
$
461,793
$
480,035
$
20,508
$
(804)
(95)
(1,367)
(2,266)
December 31, 2017
Amortized
Cost
Fair
Value
Gross Unrealized
Gain
Loss
96
The amortized cost and fair values of investment securities at December 31, 2018, by contractual maturity, are as shown in the
following table (dollars in thousands):
Municipal and other tax-exempt securities:
Carrying value
Fair value
Nominal yield¹
Other debt securities:
Carrying value
Fair value
Nominal yield
Total fixed maturity securities:
Carrying value
Fair value
Nominal yield
Residential mortgage-backed securities:
Carrying value
Fair value
Nominal yield4
Total investment securities:
Carrying value
Fair value
Nominal yield
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
Weighted
Average
Maturity²
$
$
$
$
$
41,475
41,371
2.25%
16,282
16,327
$
46,363
46,123
$
35,077
36,471
14,381
14,597
$
137,296
138,562
3.94%
6.00%
4.32%
4.00%
61,830
63,923
$
115,606
$
125,050
11,561
10,666
$
205,279
215,966
3.88%
4.69%
5.76%
4.33%
5.21%
57,757
57,698
$
108,193
$
150,683
$
110,046
161,521
25,942
25,263
$
342,575
354,528
2.71%
4.37%
5.82%
4.32%
4.73%
4.73
5.50
5.19
$
³
12,612
12,770
2.77%
$
355,187
367,298
4.65%
1 Calculated on a taxable equivalent basis using a 25 percent 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.
97
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
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
Total residential mortgage-backed securities
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
Amortized
Cost
Fair
Value
December 31, 2018
Gross Unrealized
Gain
Loss
OTTI
$
496
$
493
$
2,782
2,864
— $
82
(3) $
—
3,414,573
1,723,399
748,351
3,367,124
1,699,779
737,805
5,886,323
5,804,708
40,948
59,736
5,927,271
5,864,444
2,986,297
2,953,889
35,545
35,430
10,559
5,189
401
16,149
18,788
34,937
7,955
12
(58,008)
(28,809)
(10,947)
(97,764)
—
(97,764)
(40,363)
(127)
Total available for sale securities
$ 8,952,391
$
8,857,120
$
42,986
$
(138,257) $
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
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
Amortized
Cost
Fair
Value
December 31, 2017
Gross Unrealized
Gain
Loss
OTTI
$
1,000
$
1,000
$
27,182
27,080
— $
181
— $
(283)
3,021,551
1,545,971
787,626
2,997,563
1,531,009
780,580
5,355,148
5,309,152
74,311
93,221
5,429,459
5,402,373
2,858,885
2,834,961
25,500
12,562
14,487
25,481
15,767
14,916
11,549
3,148
1,607
16,304
19,301
35,605
1,963
50
3,205
515
(35,537)
(18,110)
(8,653)
(62,300)
—
(62,300)
(25,887)
(69)
—
(86)
$
8,369,075
$
8,321,578
$
41,519
$
(88,625) $
(391)
98
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(391)
(391)
—
—
—
—
The amortized cost and fair values of available for sale securities at December 31, 2018, 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
Maturity4
$
$
$
$
$
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 yield3
Total available-for-sale securities:
Amortized cost
Fair value
Nominal yield
— $
—
—%
496
493
1.99%
$
1,057
1,063
1,725
1,801
6.69%
6.45%
$
$
— $
—
—%
— $
—
—%
$
—
—
—%
—
—
—%
496
493
1.99%
2,782
2,864
6.54%
77,558
76,902
$ 1,107,567
$ 1,497,468
$
303,704
1,088,991
1,486,939
301,057
2,986,297
2,953,889
1.66%
2.06%
2.44%
2.54%
2.29%
— $
— $
— $
—
—%
—
—%
—
—%
35,545
35,430
1.94% 5
35,545
35,430
1.94%
1.08
1.67
6.90
13.61
78,615
77,965
$ 1,109,788
$ 1,497,468
$
339,249
$
3,025,120
6.98
1,091,285
1,486,939
336,487
2,992,676
1.73%
2.07%
2.44%
2.48%
2.29%
$
5,927,271
2
5,864,444
2.41%
$
8,952,391
8,857,120
2.37%
1 Calculated on a taxable equivalent basis using a 25 percent effective tax rate.
2 The average expected lives of mortgage-backed securities were 4.1 years based upon current prepayment assumptions.
3 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.
4 Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without
penalty.
5 Nominal yield on other debt securities with contractual maturity dates over ten years are based on variable rates which generally are reset within
35 days.
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
99
Year Ended December 31,
2018
2017
2016
$
745,643
$
1,309,215
$
899,381
7,117
(9,918)
(713)
10,223
(5,795)
1,722
11,696
(21)
4,542
The fair value of debt securities pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes,
as required by law was $9.1 billion at December 31, 2018 and $7.3 billion at December 31, 2017.
The secured parties do not have the right to sell or re-pledge these securities.
Temporarily Impaired Securities as of December 31, 2018
(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
72
$
18,255
$
69
$
66,141
$
523
$
84,396
$
592
2
72
—
13,372
—
64
5,633
23,028
135
1,506
5,633
36,400
146
$
31,627
$
133
$
94,802
$
2,164
$
126,429
$
135
1,570
2,297
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
$
— $
— $
493
$
3
$
493
$
—
—
—
—
—
—
161,089
71,205
278,530
510,824
—
542
328
288
2,135,377
1,129,730
376,263
1,158
3,641,370
—
—
57,466
28,481
10,659
96,606
—
2,296,466
1,200,935
654,793
4,152,194
—
510,824
1,158
3,641,370
96,606
4,152,194
97,764
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
Total residential mortgage-backed
securities
Commercial mortgage-backed securities
guaranteed by U.S. government
agencies
Other debt securities
162
85
42
289
—
289
197
3
179,258
9,982
394
63
1,969,504
39,969
2,148,762
20,436
64
30,418
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.
$ 5,631,803
$ 6,331,867
700,064
136,642
1,615
490
$
$
$
$
100
3
—
58,008
28,809
10,947
97,764
—
40,363
127
138,257
Temporarily Impaired Securities as of December 31, 2017
(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
100
$
145,960
$
643
$
5,833
$
161
$
151,793
$
804
1
49
—
20,091
—
1,238
3,356
3,076
150
$
166,051
$
1,881
$
12,265
$
95
129
385
3,356
23,167
$
178,316
$
95
1,367
2,266
Number
of
Securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
— $
— $
— $
— $
— $
— $
19
12,765
18
4,802
265
17,567
113
69
27
209
8
1,203,041
863,778
201,887
9,618
7,297
1,452
824,029
385,816
248,742
2,268,706
18,367
1,458,587
5,898
391
—
25,919
10,813
7,201
43,933
—
2,027,070
1,249,594
450,629
3,727,293
5,898
—
283
35,537
18,110
8,653
62,300
391
217
2,274,604
18,758
1,458,587
43,933
3,733,191
62,691
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
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
185
2
—
111
1,465,703
19,959
—
911
11,824
652,296
14,063
2,117,999
25,887
41
—
7
472
—
2,203
28
—
79
20,431
—
3,114
69
—
86
89,016
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.
$ 5,892,302
$ 2,118,360
$ 3,773,942
30,648
58,368
534
$
$
$
Based on evaluations of impaired securities as of December 31, 2018, the Company does not intend to sell any impaired available for
sale securities before fair value recovers to the current amortized cost and it is more-likely-than-not that the Company will not be
required to sell impaired securities before fair value recovers, which may be maturity.
No other-than-temporary impairment losses were recorded in earnings during 2018 and none were recorded in 2017. Cumulative
other-than-temporary impairment on available for sale securities was $45 million at December 31, 2018 and $55 million at
December 31, 2017. The decrease compared to the prior year was due to sales during 2018.
101
Fair Value Option Securities
Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on
the Consolidated Balance Sheets 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
$
283,235
$
2,766
$
755,054
$
(1,877)
December 31, 2018
December 31, 2017
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
102
(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, 2018 (in thousands):
Assets
Notional1
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
Customer risk management programs:
Interest rate contracts
To-be-announced residential mortgage-
backed securities
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 10,671,151
$ 92,231
$
(26,787) $
65,444
$
— $
1,924,131
36,112
(6,688)
29,424
(7,934)
1,472,209
206,418
(60,983)
145,435
(106,752)
21,210
842
184,990
183,759
89,085
2,021
(201)
—
—
641
183,759
2,021
—
—
(648)
(94,659)
(40,871)
426,724
(115,334)
9,539
—
65,444
21,490
38,683
641
183,759
1,373
311,390
9,539
Total customer risk management programs
14,362,776
521,383
Internal risk management programs
15,909,988
50,410
Total derivative contracts
$ 30,272,764
$ 571,793
$
(135,530) $ 436,263
$ (115,334) $
320,929
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
Liabilities
Notional¹
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
$ 10,558,151
$ 90,388
$
(26,787) $
63,601
$ (63,596) $
5
1,924,131
36,288
(6,688)
29,600
1,434,247
202,494
(60,983)
141,511
21,214
812
177,423
175,922
89,085
2,021
(201)
—
—
(94,659)
(40,871)
611
175,922
2,021
413,266
25,551
(4,110)
(1,490)
—
—
—
(69,196)
(7,315)
25,490
140,021
611
175,922
2,021
344,070
18,236
Total customer risk management programs
14,204,251
507,925
Internal risk management programs
19,634,642
66,422
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(135,530) $ 438,817
$ (76,511) $
$ 33,838,893
$ 574,347
$
362,306
contract.
103
The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in
the balance sheet at December 31, 2017 (in thousands):
Assets
Notional1
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
Customer risk management programs:
Interest rate contracts
To-be-announced residential mortgage-
backed securities
Interest rate swaps
Energy contracts
Agricultural contracts
Foreign exchange contracts
Equity option contracts
$ 12,347,542
$ 23,606
$
(18,096) $
5,510
$
— $
1,478,944
28,278
1,190,067
103,044
53,238
1,576
132,397
129,551
99,633
5,503
—
(47,873)
(960)
—
—
28,278
55,171
616
129,551
5,503
(4,964)
(196)
—
(448)
(920)
Total customer risk management programs
15,301,821
291,558
(66,929)
224,629
(6,528)
Internal risk management programs
4,736,701
9,494
(7,093)
2,401
—
5,510
23,314
54,975
616
129,103
4,583
218,101
2,401
Total derivative contracts
$ 20,038,522
$ 301,052
$
(74,022) $ 227,030
$
(6,528) $
220,502
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
$ 11,537,742
$ 20,367
$
(18,096) $
2,271
$
(704) $
1,478,944
28,298
1,166,924
101,603
48,552
1,551
126,251
123,321
99,633
5,503
—
(47,873)
(960)
—
—
28,298
53,730
591
123,321
5,503
(12,896)
(42,767)
—
(53)
—
Total customer risk management programs
14,458,046
280,643
(66,929)
213,714
(56,420)
Internal risk management programs
5,728,421
21,762
(7,093)
14,669
—
1,567
15,402
10,963
591
123,268
5,503
157,294
14,669
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(74,022) $ 228,383
$ (56,420) $
$ 20,186,467
$ 302,405
$
171,963
contract.
104
The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the Consolidated
Statements of Earnings (in thousands):
Year Ended December 31,
2018
2017
2016
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
$
27,190
$
— $
34,532
$
— $
38,523
$
2,614
8,443
53
535
—
38,835
(13,643)
—
—
—
—
—
—
(422)
2,647
5,536
79
1,352
—
44,146
4,615
—
—
—
—
—
—
779
779
2,589
5,027
111
945
—
47,195
(4,592)
$
42,603
$
—
—
—
—
—
—
—
(15,685)
(15,685)
Total derivative contracts
$
25,192
$
(422) $
48,761
$
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.
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, 2018
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
December 31, 2017
Variable
Rate
Non-
accrual
Total
Commercial
$ 2,251,188
$ 11,285,049
$
99,841
$ 13,636,078
$ 2,217,432
$ 8,379,240
$ 137,303
$ 10,733,975
Commercial real
estate
Residential mortgage
Personal
Total
Accruing loans past
due (90 days)1
Foregone interest on
nonaccrual loans
1,477,274
1,830,224
190,687
3,265,918
358,254
834,889
21,621
41,555
4,764,813
548,692
2,928,440
2,230,033
1,608,655
230
1,025,806
154,517
317,584
810,990
2,855
47,447
269
3,479,987
1,973,686
965,776
$ 5,749,373
$ 15,744,110
$ 163,247
$ 21,656,730
$ 4,529,296
$ 12,436,254
$ 187,874
$ 17,153,424
$
$
1,338
15,502
$
$
633
16,496
1 Excludes residential mortgage loans guaranteed by agencies of the U.S. government.
105
At December 31, 2018, loans to businesses and individuals with collateral primarily located in Texas totaled $6.4 billion or
30% of the total loan portfolio. Loans to businesses and individuals with collateral primarily located in Oklahoma totaled $3.5
billion or 16% of our total loan portfolio. Loans to businesses and individuals with collateral primarily located in Colorado
totaled $3.3 billion or 15% 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, 2017, loans to
businesses and individuals with collateral primarily located in Texas totaled $5.8 billion or 34% of the loan portfolio and loans
to businesses and individuals with collateral primarily located in Oklahoma totaled $3.3 billion or 19% 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, 2018, commercial loans with collateral primarily located in Texas totaled $4.1 billion or 30% of the
commercial loan portfolio segment. Commercial loans with collateral primarily located in Oklahoma totaled $2.2 billion or
16% of the commercial loan portfolio segment. Commercial loans with collateral primarily located in Colorado totaled $2.0
billion or 15% of the commercial loan portfolio segment. The commercial loan portfolio segment is further divided into loan
classes. The services loan class totaled $3.3 billion or 15% of total loans. Approximately $2.3 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
commercial services, Native American tribal governments, financial services, entertainment and recreation and education. The
energy loan class totaled $3.6 billion or 17% of total loans, including $2.9 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 $2.7 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, 2017, commercial loans with collateral primarily located in Texas totaled $3.6 billion or 34% of the
commercial loan portfolio segment and commercial loans with collateral primarily located in Oklahoma totaled $2.0 billion or
18% of the commercial loan portfolio segment. The energy loan class totaled $2.9 billion or 17% of total loans, including $2.5
billion of outstanding loans to energy producers. At December 31, 2017, approximately 57% of committed production loans
were secured by properties primarily producing oil and 43% were secured by properties producing natural gas. The services
loan class totaled $2.5 billion or 15% of total loans. Approximately $1.5 billion of loans in the services category consisted of
loans with individual balances of less than $10 million. The healthcare loan class totaled $2.2 billion or 13% 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, 2018, 26% of commercial real estate loans are secured by properties primarily located in the Dallas and
Houston areas of Texas. An additional 16% of commercial real estate loans are secured by properties located primarily in the
Denver, Colorado metropolitan area. At December 31, 2017, 35% of commercial real estate loans were secured by properties in
Texas, 12% of commercial real estate loans were secured by properties in Oklahoma.
106
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 3 years to 10 years, then adjust
annually thereafter.
At December 31, 2018 and 2017, residential mortgage loans included $191 million and $198 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 $719 million at December 31, 2018 and $733 million at December 31, 2017. At December 31, 2018,
59% of the home equity loan portfolio was comprised of first lien loans and 41% of the home equity portfolio was comprised
of junior lien loans. Junior lien loans were distributed 40% to amortizing term loans and 60% to revolving lines of credit. At
December 31, 2017, 64% of the home equity portfolio was comprised of first lien loans and 36% of the home equity loan
portfolio was comprised of junior lien loans. Junior lien loans were distributed 46% to amortizing term loans and 54% 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, 2018, 26% of residential mortgage loans are secured by properties located in Oklahoma, 28% of residential
mortgage loans are secured by properties located in Texas and 19% of residential mortgage are secured by properties located in
Colorado. At December 31, 2017, 31% of residential mortgage loans were secured by properties in Oklahoma, 30% of
residential mortgage were secured by properties in Texas, 11% of residential mortgage loans are secured by properties in
Colorado and 9% of residential mortgage loans are secured by properties in New Mexico.
Purchase Credit Impaired Loans
In conjunction with the acquisition of CoBiz Financial on October, 1, 2018, the Company acquired certain loans for which
there was evidence of deterioration of credit quality since origination and for which it was probable that all contractually
required payments would not be collected ("PCI loans"). At December 31, 2018, the carrying amount of PCI loans was $31
million and the unpaid balance was $47 million. The accretable yield related to these PCI loans was $843 thousand.
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, 2018, outstanding commitments totaled $12 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.
107
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, 2018, outstanding standby letters of credit totaled $582 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, 2018, outstanding commercial letters of credit totaled $1.9 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, 2018 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
$
124,269
$
56,621
$
18,451
$
9,124
$
22,217
$
230,682
12,521
(37,880)
3,316
(147)
—
3,552
(1,156)
(378)
1,047
3,175
(5,325)
2,499
(4,449)
—
—
9,944
(43,583)
10,414
$
102,226
$
60,026
$
17,964
$
9,473
$
17,768
$
207,457
Accrual for off-balance sheet
credit risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision for credit losses
$
$
$
3,644
(1,989)
1,655
10,532
$
$
$
45
$
43
$
2
$
— $
3,734
7
52
$
9
52
$
29
31
(140) $
(1,147) $
3,204
—
— $
(1,944)
1,790
(4,449) $
8,000
$
$
108
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, 2017 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
$
140,213
$
50,749
$
18,224
$
8,773
$
28,200
$
246,159
(595)
(19,810)
4,461
4,008
(76)
1,940
116
(649)
760
2,964
(5,064)
2,451
(5,983)
—
—
510
(25,599)
9,612
$
124,269
$
56,621
$
18,451
$
9,124
$
22,217
$
230,682
Accrual for off-balance sheet credit
risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision for credit losses
$
$
$
11,063
$
123
$
50
$
8
$
— $
11,244
(7,419)
3,644
$
(78)
45
(8,014) $
3,930
(7)
43
109
$
$
(6)
2
2,958
$
$
$
$
—
— $
(7,510)
3,734
(5,983) $
(7,000)
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, 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
$
153
$
30
$
22
$
— $
1,711
9,557
11,063
53,537
$
$
(30)
123
8,045
$
$
20
50
$
(14)
8
(1,952) $
7,296
—
— $
9,533
11,244
(1,926) $
65,000
$
$
109
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2018 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
$ 13,536,237
$
93,494
$
99,841
$
8,732
$ 13,636,078
$
102,226
4,743,192
2,188,478
1,025,576
60,026
17,964
9,473
21,621
41,555
230
—
—
—
4,764,813
2,230,033
1,025,806
60,026
17,964
9,473
21,493,483
180,957
163,247
8,732
21,656,730
189,689
Nonspecific allowance
—
—
—
—
—
17,768
Total
$ 21,493,483
$
180,957
$
163,247
$
8,732
$ 21,656,730
$
207,457
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2017 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
$ 10,596,672
$
115,438
$
137,303
$
8,831
$ 10,733,975
$
124,269
3,477,132
1,926,239
965,507
56,621
18,451
9,124
2,855
47,447
269
—
—
—
3,479,987
1,973,686
965,776
56,621
18,451
9,124
16,965,550
199,634
187,874
8,831
17,153,424
208,465
Nonspecific allowance
—
—
—
—
—
22,217
Total
$ 16,965,550
$
199,634
$
187,874
$
8,831
$ 17,153,424
$
230,682
110
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, 2018 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
$ 13,586,654
$
101,303
$
49,424
$
923
$ 13,636,078
$
102,226
4,764,813
505,046
948,890
60,026
3,310
6,633
—
1,724,987
76,916
19,805,403
171,272
1,851,327
—
14,654
2,840
18,417
4,764,813
2,230,033
1,025,806
60,026
17,964
9,473
21,656,730
189,689
Nonspecific allowance
—
—
—
—
—
17,768
Total
$ 19,805,403
$
171,272
$
1,851,327
$
18,417
$ 21,656,730
$
207,457
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, 2017 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
$ 10,706,035
$
123,383
$
27,940
$
886
$ 10,733,975
$
124,269
3,479,987
234,477
877,390
56,621
2,947
6,461
—
1,739,209
88,386
15,297,889
189,412
1,855,535
—
15,504
2,663
19,053
3,479,987
1,973,686
965,776
56,621
18,451
9,124
17,153,424
208,465
Nonspecific allowance
—
—
—
—
—
22,217
Total
$ 15,297,889
$
189,412
$
1,855,535
$
19,053
$ 17,153,424
$
230,682
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.
111
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, 2018 by the risk grade categories (in
thousands):
Internally Risk Graded
Non-Graded
Performing
Other
Loans
Especially
Mentioned
Pass
Accruing
Substandard Nonaccrual
Performing Nonaccrual
Total
$ 3,414,039
$
42,176
$
86,624
$
47,494
$
— $
— $ 3,590,333
3,161,157
1,593,902
668,438
2,664,381
876,336
49,761
18,809
30,934
14,920
—
148,234
885,588
1,059,334
1,287,471
776,898
—
11,926
10,532
281
—
555,301
1,188
32,661
7,131
22,230
37,698
—
7,588
193,932
—
1,289
3,054
12
1,208
876
8,567
1,316
8,919
16,538
—
16,954
99,788
350
20,279
—
301
—
691
4,712,826
23,927
6,439
21,621
—
—
—
—
—
49,371
49,371
—
—
—
—
—
—
—
—
—
—
—
—
53
53
—
—
—
—
—
—
—
3,252,146
1,621,158
730,521
2,733,537
876,336
832,047
13,636,078
148,584
919,082
1,072,920
1,288,065
778,106
558,056
4,764,813
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Public finance
Commercial real estate:
Residential construction
and land development
Retail
Office
Multifamily
Industrial
Other commercial real
estate
Total commercial real
estate
Other commercial and
industrial
Total commercial
756,815
13,135,068
1,266
157,866
Residential mortgage:
Permanent mortgage
467,233
Permanent mortgages
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
—
25,743
492,976
52
—
—
52
9,730
1,991
819,199
21,960
1,320,165
—
296
—
—
183,734
682,491
7,132
10,472
190,866
719,002
10,026
1,991
1,685,424
39,564
2,230,033
Personal
Total
944,256
115
4,443
76
76,762
154
1,025,806
$ 19,285,126
$
181,960
$
214,840
$
123,476
$ 1,811,557
$
39,771
$ 21,656,730
112
The following table summarizes the Company’s loan portfolio at December 31, 2017 by the risk grade categories (in thousands):
Internally Risk Graded
Non-Graded
Performing
Other
Loans
Especially
Mentioned
Pass
Accruing
Substandard Nonaccrual
Performing Nonaccrual
Total
$ 2,632,986
$
60,288
$
144,598
92,284
$
— $
— $
2,930,156
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Public finance
Other commercial and
industrial
2,478,945
1,443,917
472,869
2,182,231
541,775
473,366
13,927
19,263
6,653
3,186
—
7
26,533
5,502
11,290
43,305
—
2,620
2,574
5,962
14,765
—
—
—
—
—
—
8,161
239,389
19,028
137,233
27,870
27,870
—
—
—
—
—
70
70
—
—
—
—
—
—
—
2,522,025
1,471,256
496,774
2,243,487
541,775
528,502
10,733,975
117,245
691,532
831,770
980,017
573,014
286,409
3,479,987
1,832
276
275
—
—
472
2,855
—
—
—
—
—
—
—
1,163
784,928
24,030
1,043,435
—
—
188,327
719,670
9,179
13,075
197,506
732,745
1,163
1,692,925
46,284
1,973,686
83
88,200
186
965,776
Total commercial
10,226,089
103,324
Commercial real estate:
Residential construction
and land development
Retail
Office
Multifamily
Industrial
Other commercial real
estate
Total commercial real
estate
113,190
686,915
824,408
979,969
573,014
285,506
1,828
4,243
7,087
—
—
145
3,463,002
13,303
Residential mortgage:
Permanent mortgage
232,492
Permanent mortgages
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
—
—
232,492
—
—
—
—
875,696
1,548
Personal
Total
395
98
—
48
—
286
827
822
—
—
822
63
$ 14,797,279
$
118,175
$
241,101
141,334
$ 1,808,995
$
46,540
$ 17,153,424
113
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):
As of December 31, 2018
Recorded Investment
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2018
Average
Recorded
Investment
Interest
Income
Recognized
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Public finance
Other commercial and
industrial
Total commercial
Unpaid
Principal
Balance
$
$
79,675
13,437
1,722
10,055
24,319
—
26,955
156,163
Commercial real estate:
Residential construction and
land development
Retail
Office
Multifamily
Industrial
Other commercial real estate
1,306
27,680
—
301
—
851
$
47,494
8,567
1,316
8,919
16,538
—
17,007
99,841
350
20,279
—
301
—
691
18,639
8,489
1,015
8,673
10,563
—
17,007
64,386
350
20,279
—
301
—
691
Total commercial real estate
30,138
21,621
21,621
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
28,716
23,951
23,951
196,296
12,196
237,208
190,866
10,472
225,289
190,866
10,472
225,289
Personal
278
230
230
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
28,855
78
301
246
5,975
—
—
35,455
$
5,362
74
101
246
2,949
—
—
8,732
$
69,645
4,509
1,784
7,249
14,297
—
17,976
115,460
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,091
10,278
137
151
—
581
12,238
24,572
1,233
180,813
11,774
217,159
7,172
—
8,405
250
—
Total
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
346,981
423,787
345,107
311,526
35,455
8,732
$
$
$
$
$
$
$
8,405
contractual principal and interest. At December 31, 2018, $7.1 million of these loans are nonaccruing and $184 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.
114
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Public finance
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, 2017
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2017
Average
Recorded
Investment
Interest
Income
Recognized
$
111,011
$
92,284
$
40,968
$
51,316
$
8,814
$
112,392
$
5,324
9,099
6,073
25,140
—
2,620
2,574
5,962
14,765
—
27,957
184,604
19,098
137,303
2,620
2,574
5,962
14,765
—
19,080
85,969
—
—
—
—
—
18
—
—
—
—
—
17
51,334
8,831
3,285
1,832
1,832
509
287
—
—
670
276
275
—
—
472
276
275
—
—
472
4,751
2,855
2,855
30,435
25,193
25,193
203,814
14,548
248,797
197,506
13,075
235,774
197,506
13,075
235,774
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,396
6,990
5,446
7,795
—
20,108
158,127
2,633
301
351
19
38
847
4,189
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24,024
1,229
199,244
12,297
235,565
7,632
—
8,861
280
—
Personal
307
269
269
Total
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
398,161
376,201
438,459
324,867
51,334
8,831
$
$
$
$
$
$
$
8,861
contractual principal and interest. At December 31, 2017, $9.2 million of these loans are nonaccruing and $188 million are accruing based
on the guarantee by U.S. government agencies.
115
Troubled Debt Restructurings
At December 31, 2018 the Company has $166 million in troubled debt restructurings (TDRs), of which $86 million are
accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $71 million of TDRs are
performing in accordance with the modified terms. The loans designated as TDRs had $16.1 million in charge offs during the
year ended December 31, 2018.
At December 31, 2017, TDRs totaled $126 million, of which $74 million were accruing residential mortgage loans guaranteed
by U.S. government agencies. Approximately $48 million of TDRs were performing. The loans designated as TDRs had $117
thousand in charge offs during the year ended December 31, 2017.
TDRs generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed
borrowers. During the year ended December 31, 2018, $75 million of loans were restructured. During the year ended
December 31, 2017, $57 million of loans were restructured.
116
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, 2018 is as follows
(in thousands):
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days
or More
Nonaccrual
Total
— $
— $
47,494
$ 3,590,333
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Public finance
Other commercial and industrial
$ 3,542,839
$
3,231,532
1,619,290
721,204
2,716,204
876,336
814,489
—
6,009
515
392
241
—
518
6,038
37
6
—
—
25
Total commercial
13,521,894
7,675
6,106
—
—
—
554
—
8
562
—
—
—
—
—
714
714
8,567
1,316
8,919
3,252,146
1,621,158
730,521
16,538
2,733,537
—
17,007
99,841
876,336
832,047
13,636,078
350
20,279
—
301
—
691
148,584
919,082
1,072,920
1,288,065
778,106
558,056
21,621
4,764,813
147,705
884,424
1,072,920
1,287,483
776,898
556,239
4,725,669
249
14,379
—
281
1,208
412
16,529
280
—
—
—
—
—
280
1,292,652
3,196
366
—
23,951
1,320,165
37,459
707,017
2,037,128
24,369
1,102
28,667
16,345
352
17,063
105,561
59
105,620
7,132
10,472
41,555
190,866
719,002
2,230,033
1,024,298
479
796
3
230
1,025,806
$ 21,308,989
$
53,350
24,245
$
106,899
$
163,247
$ 21,656,730
117
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Personal
Total
A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2017 is as
follows (in thousands):
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days
or More
Nonaccrual
Total
4,204
$
— $
92,284
$ 2,930,156
Commercial:
Energy
Services
Wholesale/retail
Manufacturing
Healthcare
Public finance
Other commercial and industrial
$ 2,833,668
$
2,518,298
1,468,284
490,739
2,213,504
541,775
509,116
—
514
398
—
15,218
—
85
486
—
73
—
—
78
Total commercial
10,575,384
16,215
4,841
Commercial real estate:
Residential construction and land
development
Retail
Office
Multifamily
Industrial
Other commercial real estate
115,213
691,256
831,118
979,625
573,014
285,937
Total commercial real estate
3,476,163
200
—
254
22
—
—
476
—
—
—
370
—
—
370
107
—
—
—
—
125
232
—
—
123
—
—
—
123
2,620
2,574
5,962
2,522,025
1,471,256
496,774
14,765
2,243,487
—
19,098
541,775
528,502
137,303
10,733,975
1,832
276
275
—
—
472
2,855
117,245
691,532
831,770
980,017
573,014
286,409
3,479,987
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Personal
Total
1,014,588
3,435
219
—
25,193
1,043,435
22,692
717,007
1,754,287
18,978
2,206
24,619
13,468
440
14,127
133,189
17
133,206
9,179
13,075
47,447
197,506
732,745
1,973,686
964,374
681
191
261
269
965,776
$ 16,770,208
$
41,991
19,529
$
133,822
$
187,874
$ 17,153,424
118
(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,
2018
2017
$
70,575
$
266,733
150,207
129,988
27,514
645,017
314,984
330,033
$
$
71,348
249,139
188,826
223,163
23,348
755,824
438,489
317,335
Depreciation expense of premises and equipment was $51 million, $48 million and $40 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
119
(6) Goodwill and Intangible Assets
On October 1, 2018, the Company acquired CoBiz Financial, Inc. ("CoBiz"), parent company of CoBiz Bank. CoBiz is
headquartered in Denver, Colorado serving the Colorado and Arizona markets. The Company paid total consideration of $944
million, which included $243 million in cash along with the issuance of 7.2 million shares of BOK Financial common stock
valued at $701 million in exchange for all the outstanding shares of CoBiz. Goodwill acquired is attributed to synergies
expected to be gained through consolidation of administrative functions resulting in cost savings.
A summary of the preliminary purchase price allocation and resulting goodwill at October 1, 2018 follows (in thousands):
Cash and due from banks
Investment securities
Available for sale securities
Restricted equity securities
Loans (Unpaid principal balance - $3,066,521)
Premises and equipment
Receivables
Intangible assets
Real estate and other repossessed assets
Derivative contracts asset, net
Cash surrender value of bank-owned life insurance
Other assets
Total assets acquired
Deposits
Funds purchased and repurchase agreements
Subordinated debentures
Accrued interest, taxes and expense
Derivative contracts liability, net
Other liabilities
Total liabilities assumed
Net assets acquired
Less: Purchase price
Goodwill
$
80,827
17,287
546,776
5,261
2,937,499
5,515
24,893
106,733
5,155
8,197
55,740
56,642
3,850,525
3,289,071
37,218
131,197
33,122
12,303
5,254
3,508,165
342,360
944,193
$
601,833
The preliminary purchase price allocation represents acquired assets and liabilities at estimated fair value. Fair value for loans
and intangibles assets was determined by applying discounted cash flow measurement techniques using significant
unobservable (Level 3) inputs. These inputs include estimates of loss rates and prepayment speeds, customer attrition rates,
operating costs, alternative funding costs and discount rates. The fair value of other acquired assets and liabilities was
determined primarily through the use of significant other observable (Level 2) inputs.
On May 1, 2018, the Company acquired a majority voting interest in Switchgrass Holdings, LLC, a restaurant franchise owner
and operator, pursuant to merchant banking regulations and restrictions. The purchase price for the acquisition was $14 million
and included $6.7 million of intangible assets.
On December 1, 2016, the Company acquired MBT Bancshares (“MBT”), parent company of Missouri Bank and Trust of
Kansas City (“Mobank”) following regulatory approval of the transaction. Mobank operated four banking branches in the
Kansas City, Mo. area. BOK Financial paid $103 million in an all-cash deal for all outstanding shares of MBT stock. The
purchase price allocation resulted in $15 million of identifiable intangibles and $66 million of goodwill.
120
The pro-forma impact of all acquisition transactions on earnings for periods prior to the acquisition dates were not material to
the Company's 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,
2018
2017
$
103,200
$
5,032
98,168
63,497
26,816
36,681
6,510
808
5,702
44,468
21,512
22,956
Total intangible assets, net
$
134,849
$
28,658
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
2019
2020
2021
2022
2023
Thereafter
Core
Deposit
Premiums
Other
Identifiable
Intangible
Assets
$
14,332
$
6,149
$
12,892
11,893
10,981
10,145
37,925
6,304
5,606
4,238
3,199
11,185
Total
20,481
19,196
17,499
15,219
13,344
49,110
$
98,168
$
36,681
$
134,849
The changes in the carrying value of goodwill by operating segment are as follows (in thousands):
Balance, December 31, 2016
Goodwill recognized during 2017
Sales of consolidated merchant banking investments
during 2017
Adjustment1
Balance, December 31, 2017
Goodwill recognized during 20182
Balance, December 31, 2018
Commercial
Banking
Consumer
Banking
Wealth
Management
Funds
Management
and Other
272,196
4,301
(5,219)
41,992
313,270
—
39,023
71,520
66,160
—
—
4,435
43,458
—
—
(25)
19,207
90,702
—
—
—
(66,160)
—
601,833
Total
448,899
4,301
(5,244)
(526)
447,430
601,833
$ 1,049,263
313,270
1 Goodwill from Mobank acquisition was not yet allocated to the segments as of December 31, 2016. Adjustment was made in 2017 for final
601,833
90,702
43,458
$
$
$
$
purchase price adjustments and to allocate to the segments.
2 Goodwill related to the CoBiz acquisition was not yet allocated to the operating segments as of December 31, 2018 and is included in
Funds Management and Other above.
The annual goodwill evaluations for 2018 and 2017 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.
121
(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.
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, 2018
December 31, 2017
Unpaid
Principal
Balance/
Notional
Fair Value
Unpaid
Principal
Balance/
Notional
Fair Value
$
145,057
$
146,971
$
212,525
$
215,113
160,848
274,000
5,378
(3,128)
222,919
380,159
6,523
(258)
$
149,221
$
221,378
No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2018 or
December 31, 2017. No credit losses were recognized on residential mortgage loans held for sale for the years ended
December 31, 2018, 2017 and 2016.
Mortgage banking revenue was as follows (in thousands):
Year Ended
2018
2017
2016
Production revenue:
Net realized gains on sales of mortgage loans
$
36,379
$
45,128
$
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 mortgage production revenue
Servicing revenue
Total mortgage banking revenue
(674)
(1,145)
(2,870)
31,690
66,097
2,031
(3,210)
(5,451)
38,498
66,221
68,947
(5,311)
1,599
4,393
69,628
64,286
$
97,787
$
104,719
$
133,914
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.
122
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):
December 31,
2018
2017
2016
Number of residential mortgage loans serviced for others
132,463,000
136,528,000
139,340,000
Outstanding principal balance of residential mortgage loans serviced for others
$
21,658,335
$
22,046,632
$
21,997,568
Weighted average interest rate
Remaining contractual term (in months)
3.99%
293
3.94%
297
3.97%
301
Activity in capitalized mortgage servicing rights during the three years ended December 31, 2018 is as follows (in thousands):
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
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2017
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2018
$
218,605
71,405
(40,744)
(2,193)
247,073
39,149
(33,527)
172
252,867
35,247
(33,528)
4,668
$
259,254
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.
Mortgage servicing rights are not traded in active markets. 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,
2018
9.90%
2017
9.84%
Prepayment rate - based upon loan interest rate, original term and loan type
8.05% - 15.74%
8.72%-15.16%
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
$67 - $93
$150 - $500
$65 - $88
$150 - $500
$1,000 - $4,000
$1,000 - $4,000
105 bps
2.57%
105 bps
2.24%
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.
123
The aging status of our mortgage loans serviced for others by investor at December 31, 2018 follows (in thousands):
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days or
More
Total
$ 7,798,790
$
58,271
$
11,139
$
25,239
$
7,893,439
6,458,561
6,568,459
362,268
63,321
200,747
4,297
12,413
56,024
81
20,858
15,996
1,871
6,555,153
6,841,226
368,517
$ 21,188,078
$
326,636
$
79,657
$
63,964
$ 21,658,335
FHLMC
FNMA
GNMA
Other
Total
(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,
2018
2017
2016
$
65,859
$
28,627
$
13,906
439
359
386
5,751
19,739
3,729
29,219
7,702
12,393
4,722
24,817
8,776
10,123
7,303
26,202
$
95,517
$
53,803
$
40,494
The aggregate amounts of time deposits in denominations of $250,000 or more at December 31, 2018 and 2017 were $756
million and $797 million, respectively.
Time deposit maturities are as follows: 2019 – $1.3 billion, 2020 – $262 million, 2021 – $98 million, 2022 – $115 million,
2023 – $130 million and $211 million thereafter.
The aggregate amount of overdrawn customer transaction deposits that have been reclassified as loan balances was $27 million
at December 31, 2018 and $5.9 million at December 31, 2017.
124
(9) Other Borrowings
Information relating to other borrowings is summarized as follows (dollars in thousands):
As of
Year Ended
December 31, 2018
December 31, 2018
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent company and other non-bank subsidiaries:
Other borrowings
Subordinated debentures
Total parent company and other non-bank subsidiaries
$
5,207
1.57% $
2,660
1.35% $
275,913
281,120
5.34%
177,884
180,544
5.52%
5.46%
Subsidiary banks:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total Subsidiary banks
402,450
615,961
2.34%
0.36%
419,322
464,582
1.89%
0.28%
6,100,000
2.65% 6,207,142
15,552
3,631
4.43%
4.80%
6,119,183
14,783
11,856
6,233,781
—
—%
—
2.06%
4.47%
4.45%
2.07%
—%
7,137,594
7,117,685
1.94%
Total other borrowed funds
$
7,418,714
$ 7,298,229
2.03%
5,335
275,913
949,531
615,961
6,500,000
16,529
15,096
—
As of
Year Ended
December 31, 2017
December 31, 2017
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent company and other non-bank subsidiaries:
Other borrowings
Subordinated debentures
Total parent company and other non-bank subsidiaries
$
—
—% $
935
11.11% $
144,677
144,677
5.60%
147,954
148,889
5.57%
5.65%
Subsidiary banks:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total Subsidiary banks
58,628
516,335
1.00%
0.17%
58,064
433,791
0.73%
0.10%
5,100,000
1.47% 5,882,466
19,947
14,950
4.22%
2.61%
5,134,897
20,509
15,382
5,918,357
—
—%
—
1.13%
4.59%
2.38%
1.14%
—%
5,709,860
6,410,212
1.07%
Total other borrowed funds
$
5,854,537
$ 6,559,101
1.18%
125
3,104
151,875
80,967
536,094
6,200,000
24,139
15,506
—
As of
Year Ended
December 31, 2016
December 31, 2016
Balance
Rate
Average
Balance
Rate
Maximum
Outstanding
At Any
Month End
Parent company and other non-bank subsidiaries:
Other borrowings
Subordinated debentures
Total parent company and other non-bank subsidiaries
$
1,092
8.27% $
2,073
16.11% $
151,857
152,949
5.49%
75,039
77,112
5.57%
5.86%
Subsidiary banks:
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures
Total Subsidiary banks
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%
Aggregate annual principal repayments at December 31, 2018 are as follows (in thousands):
3,157
151,857
567,103
668,661
6,500,000
22,471
15,797
226,434
2019
2020
2021
2022
2023
Thereafter
Total
Parent
Company
and Other
Non-bank
Subsidiaries
Subsidiary
Banks
$
— $
7,134,538
—
—
—
—
281,120
575
575
575
625
706
$
281,120
$
7,137,594
Funds purchased are unsecured and generally mature within one day 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.
126
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31, 2018
and 2017 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, 2018
Amortized
Cost
Fair
Value
Repurchase
Liability1
Average
Rate
636,864
—
636,864
$
$
628,229
—
628,229
$
$
615,961
—
615,961
0.36%
—%
0.36%
December 31, 2017
Amortized
Cost
Fair
Value
Repurchase
Liability1
Average
Rate
525,452
—
525,452
$
$
523,914
—
523,914
$
$
516,335
—
516,335
0.17 %
— %
0.17 %
$
$
$
$
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 $266 million to secure BOK Financial’s obligations to depositors of
public funds. The unused credit available to BOK Financial at December 31, 2018 pursuant to the Federal Home Loan Bank’s
collateral policies is $1.9 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.
As a result of the acquisition of CoBiz Financial, we obtained $60 million of subordinated debt issued in June 2015 that will
mature on June 25, 2030. This debt bears interest at the rate of 5.625% through June 2025 and thereafter, the notes will bear
interest at an annual floating rate equal to three-month LIBOR plus 3.17%. The debt contains a call option that allows for
repayment prior to contractual maturity. The call option is available on June 25, 2025 and quarterly thereafter at 100% of the
principal amount.
Also through CoBiz Financial, we acquired junior subordinated debentures split across three issuance tranches. Junior
subordinated debentures of $21 million will mature September 17, 2033 and bear an interest rate of three-month LIBOR plus
2.95% that resets quarterly. Junior subordinated debentures of $31 million will mature on July 23, 2034 and bear an interest rate
of three-month LIBOR plus 2.60% that resets quarterly. Junior subordinated debentures of $20 million will mature on
September 30, 2035 and bear an interest rate of three-month LIBOR plus 1.45% that resets quarterly. The junior subordinated
debentures are subject to early redemption prior to maturity.
In conjunction with the acquisition of MBT, BOK Financial assumed $7.2 million of variable rate subordinated trust preferred
debt. Interest was payable quarterly at three-month LIBOR plus 2.95% on $3.1 million and three-month LIBOR plus 1.82% on
$4.1 million. This trust preferred debt was redeemed during 2017.
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, 2018 or December 31, 2017.
127
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
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.
128
(10) Federal and State Income Taxes
The Tax Cuts and Jobs Act (the "Tax Reform Act"), which was enacted on December 22, 2017, reduced the federal corporate
tax rate from 35% to 21% for periods beginning January 1, 2018. We completed our accounting during 2018 for uncertainties
that resulted from the Tax Reform Act.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets
and liabilities are as follows (in thousands):
December 31,
2018
2017
Deferred tax assets:
Available for sale securities mark to market
$
24,441
$
Share-based compensation
Credit loss allowances
Valuation adjustments
Deferred compensation
Unearned fees
Purchased loan discount
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Mortgage servicing rights
Lease financing
Acquired identifiable intangible
Other
Total deferred tax liabilities
Net deferred tax assets
4,434
49,804
9,619
25,608
9,814
27,283
31,812
182,815
13,901
61,844
10,040
28,620
32,954
147,359
$
35,456
$
12,083
7,598
58,666
8,102
12,215
9,265
—
30,859
138,788
15,817
63,112
9,973
—
34,880
123,782
15,006
No valuation allowance was necessary on deferred tax assets as of December 31, 2018 and 2017.
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,
2018
2017
2016
$
103,748
$
141,607
$
107,379
15,253
119,001
14,592
156,199
11,028
118,407
(190)
250
60
25,525
869
26,394
(11,340)
(690)
(12,030)
$
119,061
$
182,593
$
106,377
129
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, net of proportional amortization of low-income housing limited
partnership investments
Share-based compensation
Implementation of Tax Reform Act
Deposit 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, net of proportional amortization of low-income housing limited
partnership investments
Share-based compensation
Implementation of Tax Reform Act
Deposit insurance
Other, net
Total
Year Ended December 31,
2018
2017
2016
$
118,752
$
181,397
$
118,530
(8,311)
12,430
(4,559)
(2,105)
(1,728)
3,099
1,483
(12,402)
10,701
(6,811)
(2,817)
11,672
—
853
(10,544)
6,478
(6,256)
—
—
—
(1,831)
$
119,061
$
182,593
$
106,377
Year Ended December 31,
2018
2017
2016
21.0%
35.0%
35.0%
(1.5)
2.2
(0.8)
(0.4)
(0.3)
0.5
0.4
(2.4)
2.0
(1.3)
(0.5)
2.3
—
0.1
21.1%
35.2%
(3.1)
1.9
(1.8)
—
—
—
(0.6)
31.4%
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
2018
2017
2016
$
18,110
$
15,841
$
2,649
—
(1,890)
4,645
—
(2,376)
$
18,869
$
18,110
$
13,232
5,640
—
(3,031)
15,841
Of the above unrecognized tax benefits, $12.9 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 $1.7 million for 2018, $1.2 million for 2017 and $1.0 million for 2016 in interest and penalties. The
Company had approximately $5.0 million and $4.0 million accrued for the payment of interest and penalties at December 31,
2018 and 2017, 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.
130
(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 2018 and 2017, 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 2018 quarterly variable rates ranged from 3.00% to 3.24%.
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:
Interest cost
Expected return on plan assets
Other
Net periodic benefit cost (credit)
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,
2018
2017
$
30,897
$
34,964
973
(1,417)
(6,033)
24,547
40,419
(804)
(6,033)
33,582
9,035
973
(2,065)
509
$
$
$
$
$
(583) $
1,153
223
(5,443)
30,897
41,769
4,093
(5,443)
40,419
9,522
1,153
(2,041)
184
(704)
$
$
$
$
$
$
2018
2017
4.10%
5.50%
3.30%
5.50%
As of December 31, 2018, expected future benefit payments related to the Pension Plan were as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total estimated future benefit payments
$
$
3,562
2,257
2,194
2,299
2,495
19,175
31,982
131
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. The maximum tax deductible Pension Plan contribution for 2018 was $6.6 million.
No minimum contribution was required for 2018, 2017 or 2016.
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.
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 $25.1 million for 2018, $22.8 million for 2017 and $22.4 million for 2016.
132
(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 under these plans (in thousands, except for per share data):
Options outstanding at:
December 31, 2016
December 31, 2017
December 31, 2018
Options vested at:
December 31, 2016
December 31, 2017
December 31, 2018
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number
218,524
117,551
63,058
93,117
51,286
33,573
$
$
51.95
53.26
54.89
46.22
48.62
53.09
$
$
6,793
4,592
1,163
3,429
2,241
679
No options have been awarded since 2013. At December 31, 2018, the weighted average remaining contractual life of options
outstanding was 2.12 years and the weighted average remaining contractual life of vested options was 1.04 years. The
aggregate intrinsic value of options exercised was $2.3 million for 2018, $3.5 million for 2017 and $6.2 million for 2016.
The Company also awards non-vested shares to certain officers and employees. Vesting of all non-vested shares is subject to
service requirements. Additionally, vesting of certain non-vested shares is subject to performance criteria based on changes in
the Company's earnings per share relative to defined peers. The following represents a summary of the non-vested stock awards
for the three years ended December 31, 2018 (in thousands):
Non-vested at January 1, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2017
Granted
Vested
Forfeited
Non-vested at December 31, 2018
Weighted
Average
Grant Date
Fair Value
$55.35
$55.87
$57.86
$86.95
$63.07
$78.70
$85.58
$74.85
$75.68
Shares
791,109
256,670
(213,941)
(47,132)
786,706
177,807
(194,419)
(102,991)
667,103
150,419
(242,215)
(47,700)
527,607
Compensation expense recognized on non-vested shares totaled $3.6 million for 2018, $23.2 million for 2017 and $10.2 million
for 2016. Unrecognized compensation cost of non-vested shares totaled $14.2 million at December 31, 2018. We expect to
recognize compensation expense of $9.7 million in 2019, $4.3 million in 2020, and $138 thousand in 2021.
Compensation cost for 189,179 non-vested shares is variable based on the current fair value of BOK Financial common shares.
Vesting of 188,827 non-vested shares may be increased or decreased based on performance criteria defined in the plan
documents.
133
(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.
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,
2018
2017
$
110,246
$
136,945
1,479,735
1,559,291
(1,514,841)
(1,585,865)
125
(125)
$
75,265
$
110,246
As defined by banking regulations, loan commitments and equity investments from the subsidiary banks to a single affiliate
may not exceed 10% of unimpaired capital and surplus while 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, 2018, loan commitments and equity investments were limited to $310 million to a single affiliate and $621
million to all affiliates. The largest loan commitment and equity investment to a single affiliate was $253 million and the
aggregate loan commitments and equity investments to all affiliates were $313 million. The largest outstanding amount to a
single affiliate at December 31, 2018 was $883 thousand and the total outstanding amounts to all affiliates were $883
thousand. At December 31, 2017, total loan commitments and equity investments to all affiliates were $323 million and the
total outstanding amounts to all affiliates were $16 million.
We have $4.7 million of impaired loans from a related party with no allowance as the fair value of the collateral exceeds the
outstanding principal balance at December 31, 2018. There were no nonaccruing or impaired related party loans outstanding at
December 31, 2017.
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 $683 thousand for 2018, $1.0 million for 2017 and $1.1 million for 2016. The Company also invested $3.1
million and $580 thousand during the years ended 2018 and 2017, respectively, in QRC Valve Distributors, which is indirectly
owned by Mr. Kaiser.
QuikTrip Corporation has entered into a fee sharing agreement with TransFund, BOKF’s electronic funds transfer network
(“TransFund”), respecting transactions completed at TransFund automated teller machines placed in QuikTrip locations. In
2018, BOKF paid QuikTrip approximately $9.2 million pursuant to this agreement. A BOK Financial director, is Chief
Executive Officer, Chairman, and a significant shareholder of QuikTrip Corporation.
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 Cavanal Hill Distributors, 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 89% of the Funds’ assets of $3.4 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.
134
(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 411,089 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 June 24, 2015, BOKF, NA 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 BOKF, NA 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 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 (now estimated to be approximately $40 million, less the value of the facilities
securing repayment of the bonds), subject to oversight by a court appointed monitor. The obligation of the principal to pay all
principal and interest on the bonds is non-dischargeable in bankruptcy.
On September 7, 2016, BOKF, NA agreed, and the SEC entered, a consent order finding that the BOKF, NA had violated
Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring the BOKF, NA to
disgorge $1,067,721 of fees and pay a civil penalty of $600,000. The BOKF, NA has disgorged the fees and paid the penalty.
On August 26, 2016, the BOKF, NA 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 BOKF, NA participated in the fraudulent sale of
securities by the principals. On September 14, 2016, the BOKF, NA was sued in the District Court of Tulsa County, Oklahoma
by 19 bondholders alleging the BOKF, NA participated in the fraudulent sale of securities by the principals. Two separate small
groups of bondholders have filed arbitration complaints with the Financial Institutions Regulatory Association respecting the
bonds and other bonds for which the BOKF, NA served as indenture trustee. Management has been advised by counsel that the
BOKF, NA has valid defenses to the claims.
The time by which the principal must perform the Court ordered payment plan currently expires on March 31, 2019. BOKF,
NA expects the Court ordered payment plan to be continued from time to time until the principals complete the payment of the
bonds, though there is no assurance that it will be. 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.
On March 5, 2018, BOKF, NA was sued in the Fulton, Georgia County District Court by the administratrix of a deceased
resident who had sued for and obtained a judgment for wrongful death against one of the operators of a nursing home financed
by one of the bonds which are the subject of the litigation discussed above. The judgment is alleged to total approximately $8
million in principal and interest at this time. Plaintiff alleges that BOKF, in its capacity as indenture trustee for the bonds,
colluded with the borrower and others to defraud creditors of the nursing home by misleading the public about the solvency of
the nursing home. Plaintiff alleges that this conduct has prevented her from collecting on her judgment. BOKF, NA is advised
by counsel that the BOKF, NA has valid defenses to the plaintiffs’ claims and no loss is probable.
135
On March 14, 2017, BOKF, NA was sued in the United States District Court for the Northern District of Oklahoma by
bondholders in a second putative class action representing a different set of municipal securities. The bondholders in this
second action allege two individuals purchased facilities from the principals who are the subject of the SEC New Jersey
proceedings by means of the fraudulent sale of $60 million of municipal securities for which BOKF, NA also served as
indenture trustee. The bondholders allege BOKF, NA failed to disclose that the seller of the purchased facilities had engaged in
the conduct complained of in the New Jersey action. BOKF, NA properly performed all duties as indenture trustee of this
second set of municipal securities, timely commenced proceedings against the issuer of the securities when default occurred, is
cooperating with the SEC in actions against the two principals, is not a target of the SEC proceedings, and has been advised by
counsel that BOKF, NA has valid defenses to the claims of these bondholders. Management is advised by counsel that a loss is
not probable and that the loss, if any, cannot be reasonably estimated.
On March 7, 2017, a plaintiff filed a putative class action in the United States District Court for the Northern District of Texas
alleging an extended overdraft fee charged by BOKF, NA is interest and exceeds permitted rates. This action makes the same
allegations as a putative class action that was dismissed by the United States District Court for the Northern District of
Oklahoma on October 19, 2015. On August 22, 2018, a plaintiff filed a second putative class action in the United States District
Court for New Mexico making the same allegations as the Texas action. On September 18, 2018, the District Court dismissed
the Texas action. Management is advised by counsel that a loss is not probable in the New Mexico action or the Texas action
and that the loss, if any, cannot be reasonably estimated.
On July 6, 2018, a plaintiff served a petition in a putative class action in the Oklahoma District Court for Tulsa County
Oklahoma alleging BOKF NA breached its Demand Deposit Agreements by charging overdraft and not sufficient funds fees to
deposit accounts on the day of the transaction triggering the fee and by the bank's debit hold process causing overdraft fees.
Management is advised by counsel that a loss is not probable and that the loss, if any, cannot be reasonably estimated.
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.
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. Substantially all committed capital invested by these Funds has been returned to the
partners.
Consolidated tax credit entities represented the Company's interest in entities earning federal new market tax credits related to
qualifying loans. These entities were liquidated in 2018.
The Company also has interests in various alternative investments generally consisting of unconsolidated limited partnership
interests in entities for which investment return is in the form of low income housing tax credits or other investments in
merchant banking 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.
136
A summary of consolidated and unconsolidated alternative investments as of December 31, 2018 and December 31, 2017 is as
follows (in thousands):
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
Consolidated:
Private equity funds
Tax credit entities
Other
Total consolidated
Unconsolidated:
Tax credit entities
Other
Total unconsolidated
December 31, 2018
Loans
Other
Assets
Other
Liabilities
Other
Borrowings
Non-
controlling
Interests
— $
9,516
$
— $
— $
—
—
—
17,602
—
1,448
—
5,207
— $
27,118
$
1,448
$
5,207
$
8,644
—
2,292
10,936
58,981
$ 165,567
—
62,406
58,981
$ 227,973
$
$
53,198
20,687
73,885
$
$
— $
—
— $
—
—
—
$
$
$
$
December 31, 2017
Loans
Other
Assets
Other
Liabilities
Other
Borrowings
Non-
controlling
Interests
$
— $
14,783
$
— $
— $
10,000
—
10,964
1,040
—
—
10,964
—
$
10,000
$
26,787
$
— $
10,964
$
11,927
10,000
1,040
22,967
$
$
52,852
$ 153,506
—
38,397
52,852
$ 191,903
$
$
47,859
22,968
70,827
$
$
— $
—
— $
—
—
—
Other Commitments and Contingencies
Cavanal Hill Funds’ assets include U.S. Treasury and government securities money 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, 2018. 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 2018 or 2017.
Total rent expense for BOK Financial was $28.5 million in 2018, $27.5 million in 2017 and $25.8 million in 2016. At
December 31, 2018, future minimum lease payments for premises under operating leases were as follows: $25.8 million in
2019, $24.8 million in 2020, $21.3 million in 2021, $15.2 million in 2022, $13.0 million in 2023 and $78.6 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 $1.2 billion for the year
ended December 31, 2018 and $1.9 billion for the year ended December 31, 2017.
137
(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 2018, 2017 or 2016.
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 Banks
The amounts of dividends that BOK Financial’s subsidiary banks can declare and the amounts of loans the subsidiary banks 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, 2018 and December 31, 2017.
138
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
Well
Capitalized
Bank
Requirement
December 31, 2018
December 31, 2017
Common Equity Tier 1
Capital (to Risk
Weighted Assets):
Consolidated
BOKF, NA
CoBiz Bank2
Tier I Capital (to Risk
Weighted Assets):
Consolidated
BOKF, NA
CoBiz Bank2
Total Capital (to Risk
Weighted Assets):
Consolidated
BOKF, NA
CoBiz Bank2
Leverage (Tier I Capital
to Average Assets):
Consolidated
BOKF, NA
CoBiz Bank2
4.50%
4.50%
4.50%
6.00%
6.00%
6.00%
8.00%
8.00%
8.00%
4.00%
4.00%
2.50%
N/A
N/A
2.50%
N/A
N/A
2.50%
N/A
N/A
N/A
N/A
7.00%
4.50%
4.50%
8.50%
6.00%
6.00%
10.50%
8.00%
8.00%
N/A
6.50%
6.50%
$ 3,356,524
10.92% $ 3,074,981
2,894,119
10.50% 2,870,694
317,944
10.65%
399,768
N/A
8.00%
8.00%
$ 3,356,524
10.92% $ 3,074,981
2,894,119
10.50% 2,870,694
317,944
10.65%
399,768
N/A
$ 3,841,684
12.50% $ 3,455,709
10.00%
10.00%
3,103,366
11.26% 3,105,117
382,944
12.83%
434,012
4.00%
4.00%
N/A
5.00%
$ 3,356,524
8.96% $ 3,074,981
2,894,119
8.56% 2,870,694
12.05 %
11.34 %
12.19 %
12.05 %
11.34 %
12.19 %
13.54 %
12.27 %
13.23 %
9.31 %
8.73 %
10.47 %
399,768
1 Capital conservation buffer is effective January 1, 2016 and is phased in through 2019. The phased in capital conservation buffer was
317,944
5.00%
4.00%
4.00%
8.25%
N/A
1.875% at December 31, 2018 and 1.25% at December 31, 2017. The fully phased in requirement of 2.50% is included in the table above.
2 CoBiz Bank was acquired by BOK Financial effective October 1, 2018.
139
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. 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, 2015
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Interest revenue, Investment securities, Taxable securities
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
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Interest revenue, Investment securities, Taxable securities
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
Reclassification of stranded accumulated other comprehensive loss related to tax
reform
Balance, December 31, 2017
Transition adjustment for net unrealized gains on equity securities
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Interest revenue, Investment securities, Taxable securities
Loss on available for sale securities, net
Other comprehensive income (loss), before income taxes
Federal and state income tax2
Other comprehensive income (loss), net of income taxes
Unrealized Gain (Loss) on
Available
for Sale
Securities
Investment
Securities
Transferred
from AFS
Employee
Benefit
Plans
Total
$
23,284
$
(41,333)
—
(11,675)
(53,008)
(20,637)
(32,371)
(9,087)
(28,170)
—
(4,428)
(32,598)
(12,708)
(19,890)
(6,408)
(35,385)
(2,709)
(46,941)
—
2,801
(44,140)
(11,235)
(32,905)
68
—
(112)
—
(112)
(44)
(68)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
(1,765) $
21,587
(188)
(41,521)
—
—
(188)
(73)
(115)
(1,880)
2,018
—
—
2,018
785
1,233
(142)
(789)
—
(112)
(11,675)
(53,308)
(20,754)
(32,554)
(10,967)
(26,152)
—
(4,428)
(30,580)
(11,923)
(18,657)
(6,550)
(36,174)
(2,709)
(1,069)
(48,010)
—
—
(1,069)
(272)
(797)
—
2,801
(45,209)
(11,507)
(33,702)
Balance, December 31, 2018
1 Calculated using a 39 percent blended federal and state statutory tax rate.
2 Calculated using a 25 percent blended federal and state statutory tax rate.
$
(70,999) $
— $
(1,586) $
(72,585)
140
(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
2018
2017
2016
Numerator:
Net income attributable to BOK Financial Corp. shareholders
$
445,646
$
334,644
$
232,668
Less: Earnings allocated to participating securities
Numerator for basic earnings per share – income available to common shareholders
Effect of reallocating undistributed earnings of participating securities
3,737
3,561
441,909
331,083
1
2
2,883
229,785
1
Numerator for diluted earnings per share – income available to common shareholders
$
441,910
$
331,085
$
229,786
Denominator:
Weighted average shares outstanding
67,190,257
65,440,832
65,901,110
Less: Participating securities included in weighted average shares outstanding
561,617
695,468
815,483
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.
(17) Reportable Segments
66,628,640
64,745,364
65,085,627
33,633
60,920
58,271
66,662,273
64,806,284
65,143,898
$
$
$
$
6.63
6.63
—
$
$
5.11
5.11
—
3.53
3.53
—
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.
141
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 operations of CoBiz, acquired on October 1, 2018 were not yet allocated to the operating segments at December 31, 2018.
Accordingly, the operations, assets and liabilities of CoBiz were included in Funds Management and Other for 2018. The
acquisition of Mobank on December 1, 2016 was allocated to the operating segments in 2017.
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2018 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
$
726,856
$
83,231
$
81,527
$
93,253
$
984,867
(156,254)
570,602
30,358
540,244
162,701
192,811
510,134
26
—
(6,532)
45,818
457,810
121,434
336,376
73,448
156,679
5,143
151,536
178,123
210,187
119,472
(25,021)
4,668
247
63,700
35,666
9,085
26,581
31,505
113,032
(288)
113,320
296,369
248,959
160,730
7
—
—
44,190
116,547
30,003
86,544
51,301
144,554
(27,213)
171,767
(20,409)
376,209
(224,851)
24,988
(4,668)
6,285
(153,708)
(44,538)
(41,461)
(3,077)
—
984,867
8,000
976,867
616,784
1,028,166
565,485
—
—
—
—
565,485
119,061
446,424
—
—
—
778
778
$
336,376
$ 18,431,411
$
$
26,581
$
86,544
8,303,262
$
8,446,006
$
$
(3,855) $
445,646
(243,149) $
34,937,530
142
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2017 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
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
618,325
$
84,286
$
45,024
$
94,066
$
841,701
(89,106)
529,219
13,877
515,342
208,404
228,119
495,627
52
—
(2,681)
34,253
458,745
188,241
270,504
53,916
138,202
4,786
133,416
184,878
221,679
96,615
(2,054)
172
223
67,320
27,636
10,750
16,886
38,344
83,368
(696)
84,064
301,434
246,626
138,872
—
—
387
40,562
98,697
38,848
59,849
(3,154)
90,912
(24,967)
115,879
378
329,093
(212,836)
2,002
(172)
2,071
(142,135)
(66,800)
(55,246)
(11,554)
—
841,701
(7,000)
848,701
695,094
1,025,517
518,278
—
—
—
—
518,278
182,593
335,685
—
—
—
1,041
1,041
$
270,504
$
16,886
$
59,849
$
$
(12,595) $
334,644
(399,899) $
32,947,494
Average assets
$ 17,730,654
$
8,544,117
$
7,072,622
143
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 on repossessed assets, net
Corporate expense allocations
Net income before taxes
Federal and state income taxes
Net income
Net loss attributable to non-controlling interests
Net income attributable to BOK Financial Corp.
shareholders
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
501,042
$
77,283
$
33,006
$
135,897
$
747,228
(62,655)
438,387
32,961
405,426
198,902
217,993
386,335
10
—
669
36,134
350,880
146,740
204,140
—
43,156
120,439
4,925
115,514
216,285
247,478
84,321
(26,252)
(2,193)
979
65,567
(8,712)
(3,389)
(5,323)
—
29,043
62,049
(801)
62,850
283,222
250,995
95,077
(42)
—
—
42,378
52,657
20,976
31,681
—
(9,544)
126,353
27,915
98,438
(24,389)
301,124
(227,075)
26,284
2,193
(1,648)
(144,079)
(56,167)
(57,950)
1,783
(387)
—
747,228
65,000
682,228
674,020
1,017,590
338,658
—
—
—
—
338,658
106,377
232,281
(387)
$
204,140
$
(5,323) $
31,681
$
2,170
$
232,668
Average assets
$ 17,175,325
$
8,254,666
$
7,373,080
$
(524,669) $
32,278,402
144
(18) Fees and Commissions Revenue
Fees and commissions revenue by reportable segment and primary service line is as follows for the year ended December 31,
2018.
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
Consolidated
Out of
Scope1
In Scope2
Trading revenue
$
— $
— $
28,077
$
— $
28,077
$
28,077
$
Customer hedging revenue
Retail brokerage revenue
Investment banking revenue
Brokerage and trading
revenue
TransFund EFT network revenue
Merchant services revenue
Transaction card revenue
Personal trust revenue
Corporate trust revenue
Institutional trust & retirement
plan services revenue
Investment management services
and other
Fiduciary and asset
management revenue
Commercial account service
charge revenue
Overdraft fee revenue
Check card revenue
Automated service charge and
other deposit fee revenue
Deposit service charges and
fees
Mortgage production revenue
Mortgage servicing revenue
Mortgage banking revenue
Other revenue
Total fees and commissions
revenue
7,748
—
7,628
15,376
72,280
7,666
79,946
—
—
—
—
—
41,931
370
—
282
42,583
—
—
—
24,044
—
—
—
—
4,017
59
4,076
—
—
—
—
—
1,445
36,177
20,967
6,621
65,210
31,690
67,980
99,670
9,218
27,512
19,030
11,634
86,253
(82)
—
(82)
96,839
22,292
44,400
19,729
183,260
2,331
134
—
62
2,527
—
—
—
24,507
3,574
3,120
—
6,694
6
79
85
—
—
—
1,443
1,443
1,565
(145)
339
74
1,833
—
(1,883)
(1,883)
(1,118)
38,834
22,150
19,262
38,834
—
6,380
108,323
73,291
76,221
7,804
84,025
96,839
22,292
44,400
21,172
184,703
47,272
36,536
21,306
7,039
112,153
31,690
66,097
97,787
56,651
—
—
—
—
—
—
—
—
—
—
—
—
—
31,690
66,097
97,787
38,306
—
—
22,150
12,882
35,032
76,221
7,804
84,025
96,839
22,292
44,400
21,172
184,703
47,272
36,536
21,306
7,039
112,153
—
—
—
18,345
$
161,949
$
178,174
$
296,465
$
7,054
$
643,642
$
209,384
$
434,258
1 Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting
guidance.
2 In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.
145
(19) 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, 2018 and 2017, respectively. Transfers between significant other observable inputs and significant
unobservable inputs during the year ended December 31, 2018 and 2017 are included in the summary of changes in recurring
fair values measured using unobservable inputs. Additionally, $208 million of held-to-maturity other debt securities were
transferred from significant other observable inputs to significant unobservable inputs at December 31, 2018 due to a lack of
currently available observable 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, 2018
and 2017.
146
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, 2018 (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
$
63,765
$
— $
63,765
$
U.S. government agency residential mortgage-backed securities
1,791,584
Municipal and other tax-exempt securities
Asset-backed 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
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
34,507
42,656
24,411
1,956,923
493
2,864
5,804,708
59,736
2,953,889
35,430
8,857,120
283,235
149,221
259,254
320,929
—
—
—
—
—
493
—
—
—
—
—
1,791,584
34,507
42,656
24,411
1,956,923
—
2,864
5,804,708
59,736
2,953,889
34,958
493
8,856,155
—
—
—
283,235
134,014
—
44,074
276,855
—
—
—
—
—
—
—
—
—
—
—
472
472
—
15,207
259,254
—
—
362,306
—
362,306
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, energy and agricultural
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 derivative contracts, fully offset by cash margin.
147
The fair value of financial assets and liabilities that are measured on a recurring basis is as follows as of December 31, 2017 (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
$
21,196
$
— $
21,196
$
U.S. government agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Asset-backed 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
392,673
13,559
23,885
11,363
462,676
1,000
27,080
5,309,152
93,221
2,834,961
25,481
15,767
14,916
—
—
—
—
—
1,000
—
—
—
—
—
—
—
392,673
13,559
23,885
11,363
462,676
—
22,278
5,309,152
93,221
2,834,961
25,009
15,767
14,916
—
—
—
—
—
—
—
4,802
—
—
—
472
—
—
8,321,578
1,000
8,315,304
5,274
755,054
221,378
252,867
220,502
—
—
—
755,054
209,079
—
8,179
212,323
171,963
—
171,963
—
12,299
252,867
—
—
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 interest rate, energy and agricultural
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 energy derivative contracts, fully offset by cash margin.
148
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 and held-to-maturity 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.
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.
149
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, 2016
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, 2017
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
$
5,789
$
4,152
$
11,617
—
—
(1,100)
—
—
113
4,802
—
—
(5,095)
—
—
293
—
—
—
3,507
—
—
(3,900)
(2,944)
—
220
472
—
—
—
—
—
—
119
—
12,299
6,183
—
—
(2,706)
(569)
—
Balance, December 31, 2018
15,207
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
— $
472
$
$
meet conforming standards.
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, 2018 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Fair
Value
Valuation Technique(s)
Significant Unobservable
Input
Range
(Weighted Average)
Available for sale securities:
Other debt securities
472
Discounted cash flows
1
Interest rate spread
94.44%-94.44% (94.44%)
7.88%-7.88% (7.88%)
3
2
Residential mortgage loans held for sale
1 Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and
92.38%
15,207
Quoted prices of loans
sold in securitization
transactions, with a
liquidity discount
applied
Liquidity discount applied to
the market value of mortgage
loans qualifying for sale to
U.S. government agencies
credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 Represents fair value as a percentage of par value.
3 Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding
approximately 3%.
150
A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs
(Level 3) as of December 31, 2017 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
Fair
Value
Valuation Technique(s)
Significant Unobservable
Input
Range
(Weighted Average)
Available for sale securities:
Municipal and other tax-exempt securities
$
4,802
Discounted cash flows
Other debt securities
472
Discounted cash flows
1
1
Interest rate spread
92.25%-94.76% (93.75%)
6.60%-6.60% (6.60%)
Interest rate spread
94.39%-94.39% (94.39%)
6.85%-6.85% (6.85%)
2
3
4
3
Quoted prices of loans
sold in securitization
transactions, with a
liquidity discount
applied
Liquidity discount applied to
the market value of mortgage
loans qualifying for sale to U.S.
government agencies
Residential mortgage loans held for sale
1 Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and
94.75%
12,299
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 372 to 466 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
3%.
151
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 CoBiz Financial.
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, 2018
Fair Value Adjustments for the
Year Ended December 31, 2018
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
$
— $
—
$
1,074
4,795
$
17,401
6,366
$
17,434
—
—
7,269
Carrying Value at December 31, 2017
Fair Value Adjustments for the
Year Ended December 31, 2017
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
$
— $
—
$
7,436
3,483
$
7,626
5,481
$
12,145
—
—
6,372
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.
152
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2018 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Impaired loans
Fair
Value
Valuation
Technique(s)
$ 17,401 Discounted cash
flows
Real estate and other repossessed assets
6,366 Discounted cash
flows
1 Represents fair value as a percentage of the unpaid principal balance.
Significant Unobservable Input
Management knowledge of industry
and non-real estate collateral including
but not limited to recoverable oil & gas
reserves, forward looking commodity
prices, and estimated operating costs
Recoverable oil and gas reserves,
forward-looking commodity prices,
estimated operating costs
Range
(Weighted Average)
35% - 80% (50%)1
N/A
The table above excludes the initial measurement of assets and liabilities that were acquired as part of the CoBiz acquisition in
October 1, 2018. These assets and liabilities were recorded at their fair value upon acquisition in accordance with U.S. GAAP
and were not re-measured during the periods presented unless specifically required by U.S. GAAP. Acquisition date fair values
represent either Level 2 fair value measurements (investment securities, deposits, property, equipment, and debt) or Level 3 fair
value measurements (loans and core deposit intangible assets). Refer to Note 6, Goodwill and Intangible Assets, for further
detail regarding the CoBiz acquisition.
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2017 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Impaired loans
Fair
Value
Valuation
Technique(s)
$
7,626 Discounted cash
flows
Real estate and other repossessed assets
5,481 Discounted cash
flows
1 Represents fair value as a percentage of the unpaid principal balance.
Significant Unobservable Input
Recoverable oil and gas reserves,
forward-looking commodity prices and
estimated operating costs
Recoverable oil and gas reserves,
forward-looking commodity prices and
estimated operating costs
Range
(Weighted Average)
40% - 86% (59%)1
N/A
The fair value of pension plan assets was approximately $34 million at December 31, 2018 and $40 million at December 31,
2017, 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.
153
Fair Value of Financial Instruments
The following table presents the carrying values and estimated fair values of all financial instruments, including those financial
assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring (dollars in
thousands):
December 31, 2018
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
Cash and due from banks
$
741,749
$
741,749
$
741,749
$
Interest-bearing cash and cash equivalents
401,675
401,675
401,675
— $
—
Trading securities:
U.S. government agency debentures
63,765
63,765
U.S. government agency residential mortgage-backed securities
1,791,584
1,791,584
Municipal and other tax-exempt securities
Asset-backed 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
34,507
42,656
24,411
34,507
42,656
24,411
1,956,923
1,956,923
137,296
12,612
205,279
355,187
493
2,864
138,562
12,770
215,966
367,298
493
2,864
U.S. government agency residential mortgage-backed securities
5,804,708
5,804,708
Privately issued residential mortgage-backed securities
59,736
59,736
Commercial mortgage-backed securities guaranteed by U.S.
government agencies
Other debt securities
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
2,953,889
2,953,889
35,430
35,430
283,235
149,221
283,235
149,221
13,636,078
13,526,162
4,764,813
2,230,033
1,025,806
4,713,747
2,213,951
1,024,368
21,656,730
21,478,228
(207,457)
—
21,449,273
21,478,228
259,254
320,929
259,254
320,929
23,150,383
23,150,383
2,113,380
7,142,801
275,913
362,306
2,073,538
6,771,953
261,977
362,306
154
—
—
—
—
—
—
—
—
—
—
208,061
208,061
—
—
—
—
—
472
472
—
15,207
13,526,162
4,713,747
2,213,951
1,024,368
21,478,228
—
21,478,228
259,254
—
—
—
—
—
—
—
—
—
—
493
—
—
—
—
—
63,765
1,791,584
34,507
42,656
24,411
1,956,923
138,562
12,770
7,905
159,237
—
2,864
5,804,708
59,736
2,953,889
34,958
—
—
—
—
—
—
—
—
—
—
283,235
134,014
—
—
—
—
—
—
—
—
44,074
276,855
—
—
—
—
—
—
—
—
—
261,977
362,306
23,150,383
2,073,538
6,771,953
—
—
8,857,120
8,857,120
493
8,856,155
December 31, 2017
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
Cash and due from banks
$
602,510
$
602,510
$
602,510
$
Interest-bearing cash and cash equivalents
1,714,544
1,714,544
1,714,544
— $
—
—
—
—
—
—
—
—
—
—
—
1,000
—
—
—
—
—
—
—
21,196
392,673
13,559
23,885
11,363
438,791
230,349
16,242
233,444
480,035
—
22,278
5,309,152
93,221
2,834,961
25,009
15,767
14,916
Trading securities:
U.S. government agency debentures
U.S. government agency residential mortgage-backed securities
Municipal and other tax-exempt securities
Asset-backed 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
21,196
392,673
13,559
23,885
11,363
21,196
392,673
13,559
23,885
11,363
462,676
438,791
228,186
15,891
217,716
461,793
1,000
27,080
230,349
16,242
233,444
480,035
1,000
27,080
U.S. government agency residential mortgage-backed securities
5,309,152
5,309,152
Privately issued residential mortgage-backed securities
93,221
93,221
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
2,834,961
2,834,961
25,481
15,767
14,916
25,481
15,767
14,916
8,321,578
8,321,578
1,000
8,315,304
755,054
221,378
755,054
221,378
10,733,975
10,524,627
3,479,987
1,973,686
965,776
3,428,733
1,977,721
956,706
17,153,424
16,887,787
(230,682)
—
16,922,742
16,887,787
252,867
220,502
252,867
220,502
19,962,889
19,962,889
2,098,416
5,709,860
144,677
171,963
2,064,558
5,703,121
148,207
171,963
—
—
—
—
—
—
—
—
—
—
755,054
208,946
—
—
—
—
—
—
—
—
8,179
212,323
—
—
—
—
—
—
—
—
148,207
171,963
—
—
—
—
—
—
—
—
—
—
—
—
—
4,802
—
—
—
472
—
—
5,274
—
12,432
10,524,627
3,428,733
1,977,721
956,706
16,887,787
—
16,887,787
252,867
—
19,962,889
2,064,558
5,703,121
—
—
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.
155
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.
156
(20) 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
Loan to bank subsidiary
Investment in bank subsidiaries
Investment in non-bank subsidiaries
Other assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Other liabilities
Subordinated debentures
Total liabilities
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2018
2017
$
167,093
$
205,876
—
65,228
16,185
—
4,236,654
3,255,912
218,007
32,999
170,966
4,065
$
4,719,981
$
3,653,004
$
11,959
$
275,913
287,872
12,960
144,677
157,637
5
4
1,334,030
3,369,654
(72,585)
(198,995)
1,035,895
3,048,487
(36,174)
(552,845)
4,432,109
3,495,367
$
4,719,981
$
3,653,004
157
Statements of Earnings
(In thousands)
Year Ended December 31,
2018
2017
2016
Dividends, interest and fees received from bank subsidiaries
$
426,071
$
150,149
$
Dividends, interest and fees received from non-bank subsidiaries
Other revenue
Total revenue
Interest expense
Other operating expense
Total expense
Net income before taxes, other losses, net, and equity in undistributed income of
subsidiaries
Other losses, net
Net income before taxes and equity in undistributed income of subsidiaries
Federal and state income taxes
Net income before equity in undistributed income of subsidiaries
Equity in undistributed income of bank subsidiaries
Equity in undistributed income of non-bank subsidiaries
12,800
954
439,825
9,827
12,110
21,937
417,888
(3,921)
413,967
(7,078)
421,045
37,515
(12,914)
17,500
936
168,585
8,239
2,014
10,253
158,332
—
158,332
(4,305)
162,637
181,552
(9,545)
15,237
25,923
1,612
42,772
4,182
1,978
6,160
36,612
—
36,612
(1,920)
38,532
216,120
(21,984)
Net income attributable to BOK Financial Corp. shareholders
$
445,646
$
334,644
$
232,668
158
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
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:
Net change in other borrowed funds
Issuance of subordinated debentures, net of issuance costs
Issuance of common and treasury stock, net
Dividends paid
Repurchase of common stock
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid for interest
(21) Subsequent Events
Year Ended December 31,
2018
2017
2016
$
445,646
$
334,644
$
232,668
(37,515)
12,914
(1,072)
(13,434)
406,539
—
(31,901)
(232,680)
(264,581)
—
—
(88)
(127,188)
(53,465)
(180,741)
(38,783)
205,876
167,093
11,457
(181,552)
(216,120)
9,545
12
7,457
170,106
3,000
(4,355)
—
(1,355)
(7,217)
—
4,368
21,984
(2,933)
(1,285)
34,314
1,632
(26,000)
(105,520)
(129,888)
—
144,615
12,455
(116,041)
(113,455)
(7,403)
(126,293)
42,458
163,418
205,876
6,211
$
$
(66,792)
(23,177)
(118,751)
282,169
163,418
4,127
$
$
$
$
The Company evaluated events from the date of the Consolidated Financial Statements on December 31, 2018 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.
159
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
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 and 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, 2018
Average
Balance
Revenue/
Expense
Yield/
Rate
1.80%
3.84%
4.00%
2.35%
3.18%
6.20%
4.07%
4.80%
4.86%
3.98%
0.62%
0.09%
1.37%
0.72%
1.04%
2.07%
5.52%
1.19%
22,333
57,948
15,848
197,472
15,205
21,555
8,123
898,896
898,896
1,237,380
65,859
439
29,219
95,517
9,207
129,008
9,827
243,559
$
$
$
$
$
$
1,240,600
1,530,400
395,895
8,309,355
464,160
347,447
201,218
18,709,433
(218,840)
18,490,593
30,979,668
795,723
3,162,139
34,937,530
10,581,732
503,597
2,133,427
13,218,756
883,904
6,236,441
177,884
20,516,985
9,590,455
531,071
559,802
3,739,217
34,937,530
$
993,821
2.79%
3.20%
8,954
984,867
8,000
616,784
1,028,166
565,485
119,061
446,424
778
445,646
6.63
6.63
$
$
$
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.
160
Annual Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Year Ended
December 31, 2017
December 31, 2016
Average
Balance
Revenue/
Expense
Yield/
Rate
Average
Balance
Revenue/
Expense
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
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 and 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
22,128
17,637
18,792
178,068
16,755
18,490
8,706
709,378
709,378
989,954
28,627
359
24,817
53,803
856
68,152
8,239
131,050
$
$
$
$
$
$
2,009,011
521,742
491,989
8,453,415
593,744
318,744
245,133
17,176,102
(249,430)
16,926,672
29,560,450
545,338
2,841,706
32,947,494
10,220,068
458,451
2,193,273
12,871,792
491,855
5,919,292
147,954
19,430,893
9,312,989
183,902
584,842
3,434,868
32,947,494
$
858,904
17,203
841,701
(7,000)
695,094
1,025,517
518,278
182,593
335,685
1,041
334,644
5.11
5.11
$
$
$
161
0.53%
3.43%
3.54%
2.03%
1.93%
5.37%
3.45%
3.63%
3.68%
2.95%
0.14%
0.09%
1.16%
0.33%
0.07%
0.58%
2.82%
0.42%
2.53%
2.66%
1.10% $
3.51%
3.82%
2.13%
2.81%
5.80%
3.59%
4.13%
4.19%
3.36%
$
0.28% $
0.08%
1.13%
0.42%
0.17%
1.15%
5.57%
0.67%
$
2.69%
2.92%
10,726
9,213
19,835
176,625
6,723
17,238
12,658
593,700
593,700
846,718
13,906
386
26,202
40,494
434
34,882
6,079
81,889
$
$
2,038,919
317,808
561,254
8,867,383
323,695
320,975
370,600
16,357,867
(243,631)
16,114,236
28,914,870
253,915
3,109,617
32,278,402
9,744,998
414,103
2,259,242
12,418,343
667,367
6,019,036
215,453
19,320,199
8,474,230
137,488
997,069
3,349,416
32,278,402
$
764,829
17,601
747,228
65,000
674,020
1,017,590
338,658
106,377
232,281
(387)
232,668
3.53
3.53
$
$
$
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, 2018
Revenue/
Expense
Yield/
Rate
Average
Balance
September 30, 2018
Revenue/
Expense
Yield/
Rate
Assets
Interest-bearing cash and cash equivalents
Trading securities
Investment securities
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 and 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:
Basic
Diluted
3,170
19,636
3,887
55,085
2,578
5,798
1,795
276,711
276,711
368,660
23,343
148
8,309
31,800
4,135
40,220
3,752
79,907
$
$
$
563,132
1,929,601
364,737
8,704,963
277,575
362,729
179,553
21,579,331
(209,613)
21,369,718
33,752,008
799,548
3,834,187
$ 38,385,743
$ 11,773,651
526,275
2,146,786
14,446,712
1,205,568
6,361,141
276,378
22,289,799
10,648,683
493,887
610,286
4,343,088
$ 38,385,743
$
288,753
3,067
285,686
9,000
136,455
284,643
128,498
20,121
108,377
(79)
108,456
1.50
1.50
$
$
$
2.23% $
688,872
4.10%
1,762,794
4.26%
379,566
2.51%
8,129,214
3.56%
469,398
6.39%
328,842
4.00%
207,488
5.09% 18,203,785
(214,160)
5.14% 17,989,625
4.33% 29,955,799
768,785
2,971,233
$ 33,695,817
0.79% $ 10,010,031
0.11%
503,821
1.54%
2,097,441
0.87% 12,611,293
1.36%
1,193,583
2.51%
5,765,440
5.38%
144,702
1.42% 19,715,018
9,325,002
544,263
496,634
3,614,900
$ 33,695,817
2.91%
3.40%
$
$
3,441
17,419
3,856
48,916
3,881
5,232
2,151
220,245
220,245
305,141
17,029
108
7,398
24,535
3,768
32,036
2,025
62,364
$
242,777
1,894
240,883
4,000
167,941
252,617
152,207
34,662
117,545
289
117,256
1.79
1.79
$
$
$
1.98%
3.98%
4.06%
2.37%
3.25%
6.36%
4.27%
4.80%
4.86%
4.04%
0.67%
0.09%
1.40%
0.77%
1.25%
2.20%
5.55%
1.25%
2.79%
3.21%
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
162
Quarterly Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
June 30, 2018
Revenue /
Expense
Yield /
Rate
Average Balance
Three Months Ended
March 31, 2018
Revenue /
Expense
Average Balance
December 31, 2017
Yield /
Rate
Average Balance
Revenue /
Expense
Yield /
Rate
1.27%
3.38%
3.98%
2.21%
2.90%
5.87%
3.72%
4.29%
4.35%
3.49%
0.35%
0.07%
1.17%
0.48%
0.28%
1.36%
5.55%
0.79%
2.70%
2.97%
1.57% $
3.40%
3.78%
2.23%
2.95%
5.86%
3.71%
4.45%
4.51%
3.61%
$
0.45% $
0.07%
1.25%
0.57%
0.40%
1.60%
5.61%
0.93%
$
2.68%
2.99%
6,311
4,629
4,606
45,623
5,770
4,956
2,389
185,614
185,614
259,898
8,914
87
6,296
15,297
340
21,242
2,025
38,904
$
$
1,976,395
560,321
462,869
8,435,916
792,647
337,673
257,927
17,181,007
(246,143)
16,934,864
29,758,612
821,275
2,872,228
33,452,115
10,142,744
466,496
2,134,469
12,743,709
488,330
6,209,903
144,673
19,586,615
9,417,351
332,155
600,604
3,515,390
33,452,115
$
220,994
4,131
216,863
(7,000)
166,836
263,987
126,712
54,347
72,365
(127)
72,492
1.11
1.11
$
$
$
1.86% $
3.63%
3.95%
2.30%
3.16%
6.21%
4.28%
4.80%
4.86%
3.91%
$
0.55% $
0.08%
1.29%
0.66%
0.53%
1.96%
5.67%
1.11%
$
2.80%
3.17%
7,740
13,084
3,941
47,463
3,927
5,408
2,333
212,266
212,266
296,162
13,993
95
6,875
20,963
782
31,825
2,047
55,617
$
$
$
$
$
$
1,673,387
1,482,302
399,088
8,163,142
487,192
348,546
218,600
17,751,242
(222,856)
17,528,386
30,301,191
618,240
2,986,604
33,906,035
10,189,354
503,671
2,138,880
12,831,905
593,250
6,497,020
144,692
20,066,867
9,223,327
527,804
575,865
3,512,172
33,906,035
$
240,545
1,983
238,562
—
156,399
246,476
148,485
33,330
115,155
783
114,372
1.75
1.75
$
$
$
7,982
7,809
4,164
46,008
4,819
5,117
1,844
189,674
189,674
267,417
11,494
88
6,637
18,219
522
24,927
2,003
45,671
$
$
2,059,517
933,404
441,207
8,236,938
626,251
349,176
199,380
17,261,481
(228,996)
17,032,485
29,878,358
998,803
2,847,791
33,724,952
10,344,469
480,110
2,151,044
12,975,623
532,412
6,326,967
144,682
19,979,684
9,151,272
558,898
556,524
3,478,574
33,724,952
$
221,746
2,010
219,736
(5,000)
155,989
244,430
136,295
30,948
105,347
(215)
105,562
1.61
1.61
$
$
$
163
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 2019 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 2018 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 2019 Annual Proxy Statement is incorporated herein by reference.
164
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 2019 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 2019 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 2019 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, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
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.
165
(a) (3) Exhibits
Exhibit
Number
Description of Exhibit
2.0
3.0
3.1
4.0
4.1
4.2
4.3
4.5
10.4
10.4.2
10.4.2 (a)
10.4.2 (b)
10.4.7
10.4.9
10.4.10
10.4.11
10.7.7
Agreement and Plan of Merger by and among BOK Financial Corporation, CoBiz Financial Inc., and BOKF
Merger Corporation Number Sixteen dated June 17, 2018, incorporated by reference to EX 99.1 of Form 8-
K filed on June 18, 2018.
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, 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 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).
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, BOK Financial is not filing certain documents. BOK
Financial agrees to furnish a copy of each such documents to the Commission upon the request of the
Commission.
Form of Subordinated Notes Indenture, to be dated as of June 25, 2015 between CoBiz Financial Inc. and U.S.
Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to CoBiz Financial Inc. Form
8-K filed June 25, 2015.
Form of 5.625% Subordinated Notes due June 25, 2030, incorporated by reference to Exhibit 4.2 to CoBiz
Financial Inc. Form 8-K filed June 25, 2015.
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.
Amended and Restated Employment Agreement (amended as of June 30, 2013) between BOK Financial and
Steven G. Bradshaw, incorporated by reference to Exhibit 99.A of Form 8-K filed August 20, 2013.
Amended and Restated Employment Agreement (amended June 15, 2013) between BOK Financial and Steven
Nell incorporated by reference to Exhibit 99.B of Form 8-K filed September 4, 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 incorporated by reference to Exhibit 10.4.10 of Form 10-K for the fiscal year ended December
31, 2015.
Employment Agreement between BOK Financial and Scott B. Grauer dated December 18, 2013.
BOK Financial Corporation 2001 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8
Registration Statement No. 333-62578.
166
Exhibit
Number
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
21
23
31.1
31.2
32
99
101
Description of Exhibit
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 30, 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.
Subsidiaries of BOK Financial, filed herewith.
Consent of independent registered public accounting firm - Ernst & Young LLP, filed herewith.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
Additional Exhibits.
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.
167
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.
SIGNATURES
DATE: March 1, 2019 BY: /s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
BOK FINANCIAL CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 1, 2019, 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
Director, Executive Vice President and
Chief Financial Officer
/s/ John C. Morrow
John C. Morrow
Senior Vice President and
Chief Accounting Officer
168
/s/ Alan S. Armstrong
Alan S. Armstrong
/s/ C. Frederick Ball, Jr.
C. Frederick Ball, Jr.
/s/ Steve Bangert
Steve Bangert
Peter C. Boylan III
/s/ Chester E. Cadieux, III
Chester E. Cadieux, III
Gerard P. Clancy
/s/ John W. Coffey
John W. Coffey
/s/ Joseph W. Craft, III
Joseph W. Craft, III
/s/ Jack E. Finley
Jack E. Finley
/s/ David F. Griffin
David F. Griffin
DIRECTORS
/s/ V. Burns Hargis
V. Burns Hargis
/s/ Douglas D. Hawthorne
Douglas D. Hawthorne
/s/ Kimberley D. Henry
Kimberley D. Henry
/s/ E. Carey Joullian, IV
E. Carey Joullian, IV
/s/ Stanley A. Lybarger
Stanley A. Lybarger
/s/ Steven J. Malcolm
Steven J. Malcolm
/s/ Emmet C. Richards
Emmet C. Richards
/s/ Claudia San Pedro
Claudia San Pedro
/s/ Michael C. Turpen
Michael C. Turpen
/s/ R.A. Walker
R.A. Walker
169
Exhibit 10.4.11
EMPLOYMENT AGREEMENT
December 18, 2013
This Employment Agreement (“Agreement”) is made this 18th day of December, 2013 (the
“Agreement Date”) between the following parties (“Parties”):
(i)
(ii)
BOK Financial Corporation, an Oklahoma corporation (“BOK Financial”); and,
Scott B. Grauer, an individual currently residing in Tulsa, Oklahoma (the
“Executive”).
BOK Financial and Executive, in consideration of the promises and covenants set forth herein (the
receipt and adequacy of which are hereby acknowledged) and intending to be legally bound hereby, agree
as follows:
(1)
Purpose of This Agreement. The purpose of this Agreement is as follows:
(a)
(b)
(c)
BOK Financial is a financial holding company, subject to regulation by the Board of
Governors of the Federal Reserve System. The subsidiaries of BOK Financial include
BOKF, NA, a national association engaged in banking and BOSC, Inc., a registered broker-
dealer.
The Executive has extensive prior experience in financial services and banking and is
currently employed as Executive Vice President, Wealth Management and Chief Executive
Officer, BOSC, Inc. of BOK Financial and BOKF, NA, reporting to the Chief Executive
Officer.
The purpose of this Agreement is to set forth the terms and conditions on which BOK
Financial shall employ the Executive and the Executive shall serve as an officer of BOK
Financial, BOKF, NA, and other of their affiliates.
Prior Agreement Superseded. This agreement supersedes, from and after the Effective Date, any
employment agreement between Executive and BOK Financial and/or BOKF, NA (excluding, for
avoidance of doubt, any rights of Executive arising under the BOK Financial 2003 Stock Option
Plan or, the BOK Financial 2009 Omnibus Incentive Plan.
Employment. Effective as of the Agreement Date, BOK Financial hereby employs the Executive,
and the Executive hereby accepts employment with BOK Financial, on the following terms and
conditions:
(a)
Executive shall serve as Executive Vice President, Wealth Management and Chief Executive
Officer, BOSC, Inc. of BOK Financial and BOKF, NA. Executive shall be responsible for
those divisions and business lines of BOK Financial and BOKF, NA as the Chief Executive
has heretofore established and as may hereafter be established by the Chief Executive Officer
from time to time.
(2)
(3)
Exhibit 10.4.11
(b)
(c)
(d)
Executive shall devote all time and attention reasonably necessary to the affairs of BOK
Financial and BOKF, NA and shall serve BOK Financial and BOKF, NA diligently, loyally,
and to the best of his ability.
Executive shall serve in such other or additional positions as an officer and/or director of
BOK Financial and BOKF, NA or any of their affiliates as the Chief Executive Officer of
BOK Financial may reasonably request; provided, however, Executive’s residence and place
of work shall be in the Tulsa, Oklahoma area.
Notwithstanding anything herein to the contrary, Executive shall not be precluded from
engaging in any charitable, civic, political or community activity or membership in any
professional organization.
(4)
Compensation. As the sole, full and complete compensation to the Executive for the performance
of all duties of Executive under this Agreement and for all services rendered by Executive to BOK
Financial and/or to any affiliate of BOK Financial:
(a)
(b)
(c)
(d)
BOK Financial shall pay the Executive an annual salary (the “Annual Salary”) equal to
Executive’s Annual Salary in effect as of the Agreement Date during the Term (as hereafter
defined). The Annual Salary shall be payable in installments in arrears, less usual and
customary payroll deductions for FICA, federal and state withholding, and the like, at the
times and in the manner in effect in accordance with the usual and customary payroll policies
generally in effect from time to time at BOK Financial.
The Annual Salary shall not be decreased at any time during the Term of this Agreement.
The Annual Salary may be increased annually in accordance with BOK Financial’s
compensation review practices in effect from time to time for senior executives.
BOK Financial shall pay and provide to Executive pension, thrift, medical insurance,
disability insurance plan benefits, and other fringe benefits, on the same terms and conditions
generally in effect for senior executive employees of the BOK Financial and its affiliates
(the “Additional Benefits”).
BOK Financial may, from time to time in BOK Financial’s sole discretion consistent with
the practices generally in effect for senior executive employees of the BOK Financial and
its affiliates, pay or provide, or agree to pay or provide Executive a bonus, stock option,
restricted stock, other incentive or performance based compensation.
(i)
(ii)
BOKF Financial shall provide annual incentive and long term incentive awards to
Executive in accordance with BOK Financial’s Executive Incentive Compensation
Plan as adopted by the BOK Financial’s Board of Directors from time to time.
All such bonus, stock option, restricted stock, or other incentive or performance
based compensation, regardless of its nature (hereinafter called “Performance
Compensation”) shall not constitute Annual Salary.
(e)
BOK Financial shall reimburse Executive for reasonable and necessary entertainment, travel
and other expenses in accordance with BOK Financial’s standard policies in general effect
for senior executives of BOK Financial.
2
Exhibit 10.4.11
(f)
(g)
(h)
Executive shall be allowed vacation, holidays, and other employee benefits not described
above in accordance with BOK Financial’s standard policy in general effect for BOK
Financial’s senior executives. Executive shall be entitled to four weeks paid vacation each
year.
BOK Financial shall permit Executive to participate in a deferred compensation plan on the
terms and conditions established by BOK Financial for senior executives.
Executive hereby agrees to accept the foregoing compensation as the sole, full and complete
compensation to Executive for the performance of all duties of Executive under this
Agreement and for all services rendered by Executive to BOK Financial or any affiliate of
BOK Financial.
(5)
Term of Employment. The term (the “Term”) of Executive’s employment (“Employment”)
pursuant to this Agreement shall commence on the Agreement Date (the “Commencement”) and
shall continue thereafter provided that upon ninety days prior written notice, either Party may
terminate this Agreement.
(6)
Termination of Employment. Notwithstanding the provisions of paragraph 5 of this Agreement,
the Employment may be terminated on the following terms and conditions:
(a)
Termination by BOK Financial Without Cause. In the event BOK Financial terminates
Employment of Executive without cause during the Term or upon termination of this
Agreement as provided in Paragraph 5:
(i)
BOK Financial shall forthwith upon such termination (A) pay to Executive BOK
Financial’s standard severance pay for senior executives in effect at the time of
termination and, in addition, an amount equal to Executive’s then Annual Salary
payable in one lump sum payment, (B) the Executive shall be entitled to receive any
Additional Benefits accrued through, but not beyond the effective date of such
termination which are payable under the terms and provisions of benefit plans then
in effect in accordance with paragraph 4(c) above, (C) Executive shall be entitled
to receive pay for vacation in accordance with BOK Financial’s then existing policy
for terminating senior executives, (D) options held by Executive under the BOKF
2003 Stock Option Plan and the BOKF 2009 Omnibus Incentive Plan shall vest shall
be exercisable for a period of ninety days following such termination as provided
in such plans, (E) Restricted stock held by Executive shall continue to be owned by
the Executive, but shall remain subject to all restrictions applicable to the restricted
stock as provided under the Executive Incentive Plan and the 2009 Omnibus
Incentive Plan, and (F) Executive shall be entitled to receive those amounts due
Executive pursuant to paragraph 8(b) and shall be bound by the Non-Solicitation
Agreement (as hereafter defined).
(ii)
If Executive is terminated for any reason other than for cause following a Change
of Control (as hereafter defined), BOK Financial shall pay Executive upon such
termination in one lump sum payment an amount equal to two times Executive’s
then Annual Salary at the time of termination in addition to an amount equal to
Executive’s then Annual Salary through, but not beyond the effective date of the
3
Exhibit 10.4.11
termination. This payment shall be in lieu of any payment that would otherwise be
paid pursuant to paragraph 6(a)(i)(A), but Executive shall be entitled to the benefit
of the other provisions of paragraph 6(a)(i). As used herein, a Change of Control
shall be deemed to have occurred if, and only if:
(A)
George B. Kaiser, affiliates of George B. Kaiser, George B. Kaiser
Foundation, George Kaiser Family Foundation, and/or members of the
family of George B. Kaiser collectively cease to own more shares of the
voting capital stock of BOK Financial than any other shareholder (or group
of shareholders acting in concert to control BOK Financial to the exclusion
of George B. Kaiser, affiliates of George B. Kaiser, George B. Kaiser
Foundation, George Kaiser Family Foundation, and/or members of the
family of George B. Kaiser); or,
(B)
BOK Financial shall cease to own directly and indirectly more than fifty
percent (50%) of the voting capital stock of BOKF, NA.
(b)
Termination by BOK Financial for Cause. BOK Financial may terminate the Employment
for cause on the following terms and conditions:
(i)
BOK Financial shall be deemed to have cause to terminate Executive’s Employment
only in one or more of the following events:
(A)
(B)
(C)
(D)
(E)
The Executive shall fail to substantially perform his obligations under this
Agreement (except as a result of Executive’s incapacity due to physical or
mental illness) after having first received notice of such failure and thirty
days within which to correct the failure;
The Executive commits any act which is reasonably deemed to have been
intended by Executive to injure BOK Financial or any of its affiliates;
The Executive is charged, indicted or convicted of any criminal act or act
involving moral turpitude which BOK Financial reasonably deems adversely
affects the suitability of Executive to serve BOK Financial or any of its
affiliates;
The Executive commits any dishonest or fraudulent act which BOK Financial
reasonably deems material to BOK Financial or any of its affiliates, including
the reputation of BOK Financial or any of its affiliates; or,
Any refusal by Executive to obey orders or instructions of the Chief Executive
Officer of BOK Financial or BOKF, NA, unless such instructions would
require Executive to commit an illegal act, could subject Executive to
personal liability, would require Executive to violate the terms of this
Agreement, are inconsistent with recognized ethical standards, or would
otherwise be inconsistent with the duties of an officer of a bank.
(ii)
BOK Financial shall be deemed to have cause to terminate Executive’s Employment
only when a majority of the members of the Board of Directors of BOK Financial
4
Exhibit 10.4.11
finds that, in the good faith opinion of such majority, the Executive committed one
or more of the acts set forth in clauses (A) through (E) of the preceding subparagraph,
such finding to have been made after at least twenty (20) business days’ notice to
the Executive and an opportunity for the Executive, together with his counsel, to be
heard before such majority. The determination of such majority, made as set forth
above, shall be binding upon BOK Financial and the Executive.
(iii)
The effective date of a termination for cause shall be the date of the action of such
majority finding the termination was with cause. In the event BOK Financial
terminates Executive’s Employment for cause, (A) BOK Financial shall pay
Executive the Executive’s then Annual Salary through, but not beyond, the effective
date of the termination and (B) the Executive shall receive those Additional Benefits
accrued through but not beyond the effective date of such termination which are
payable under the terms and provisions of benefit plans then in effect in accordance
with paragraph 4(c) above, (C) BOK Financial shall pay the Executive for vacation
in accordance with BOK Financial’s then existing policy for senior executives, and
(D)Executive shall be entitled to receive those amounts due Executive pursuant to
paragraph 8(b) and Executive shall be bound by the provisions of the Non-
Solicitation Agreement.
(7)
Provisions Respecting Illness and Death. In the event Executive becomes disabled as defined in
Section 409A(a)(2)(C) of the Internal Revenue Code, BOK Financial may terminate Executive’s
Employment without further or additional compensation being due the Executive from BOK
Financial except Annual Salary accrued through the date of termination, Additional Benefits accrued
through the date of such termination under benefit plans then in effect in accordance with paragraph
4(c) above, and vacation in accordance with BOK Financial’s then existing policy for senior
executives, and the provisions of paragraph 8 shall apply. Without limiting the generality of
paragraph 4(c), Executive shall upon such termination receive those benefits provided in BOK
Financial’s long term disability policy then in effect. In the event of the death of the Executive, the
Employment of the Executive shall automatically terminate as of the date of death without further
or additional compensation being due the Executive, except BOK Financial shall pay to the estate
of the Executive the Annual Salary in effect on the date of death and accrued through the date of
termination and the Additional Benefits accrued through the date of such termination under benefit
plans then in effect in accordance with paragraph 4(c) above. BOK Financial shall make the
payments due Executive in one lump sum within forty-five days following the date of termination.
(8)
Agreement Not to Solicit. The provisions of this paragraph are hereafter called the “Non-
Solicitation Agreement”.
(a)
Executive agrees that, for a period of two (2) years following any termination of the
Employment for cause, and for a period of one (1) year following any termination of the
Employment for any reason other than cause (including expiration of the Term), Executive
shall not directly or indirectly (whether as an officer, director, employee, partner, stockholder,
creditor or agent, or representative of other persons or entities) contact or solicit, in any
manner indirectly or directly, individuals or entities who were at any time during the original
or any extended Term clients of BOK Financial or any of its affiliates for the purpose of
providing banking, trust, investment, or other services provided by BOK Financial or any
of its affiliates during the Term or contact or solicit employees of BOK Financial or any
affiliates of BOK Financial to seek employment with any person or entity except BOK
5
(b)
(c)
(d)
Exhibit 10.4.11
Financial and its affiliates. This Non-Solicitation Agreement shall not apply to ownership
by Executive of up to ten percent (10%) of the common stock of a corporation traded on
the facilities of a national securities exchange engaged in the banking business of which
Executive is not a director, officer, employee, agent or representative.
BOK Financial shall pay Executive, in addition to any other amounts which may be due
Executive, during each year in which the Non-Solicitation Agreement is in effect, $3,000
payable in installments in arrears, less usual and customary payroll deductions for FICA,
federal and state withholding, and the like, at the times and in the manner in effect in
accordance with the usual and customary payroll policies generally in effect from time to
time at BOK Financial. Notwithstanding the foregoing, the amounts due for the first six
months of the Non-Competition Agreement shall be paid in a lump sum as soon
administratively possible following such six month period if Executive is determined to be
a "specified employee as defined in Section 409A(a)(2)(B)(i).
Executive agrees that the Non-Solicitation Agreement and all the restrictions set forth in
this Non-Solicitation Agreement are fair and reasonable.
Executive agrees that (i) any remedy at law for any breach of this Non- Agreement would
be inadequate, (ii) in the event of any breach of this Non-Solicitation Agreement, the terms
of this Non-Solicitation Agreement shall constitute incontrovertible evidence of irreparable
injury to BOK Financial, and (iii) BOK Financial shall be entitled to both immediate and
permanent injunctive relief without the necessity of establishing or posting any bond therefor
to preclude any such breach (in addition to any remedies of law to which BOK Financial
may be entitled).
(9)
Confidential Information. All references in this Section 9 to BOK Financial shall include BOK
Financial’s affiliates.
(a)
(b)
Executive acknowledges that, during the Term and prior to the Term, Executive has had and
will have access to Confidential Information (as hereinafter defined), all of which shall be
made accessible to Executive only in strict confidence; that unauthorized disclosure of
Confidential Information will damage BOK Financial’s business; that Confidential
Information would be susceptible to immediate competitive application by a competitor of
BOK Financial; that BOK Financial’s business is substantially dependent on access to and
the continuing secrecy of Confidential Information; that Confidential Information is unique
to BOK Financial and known only to Executive and certain key employees and contractors
of BOK Financial; that BOK Financial shall at all times retain ownership and control of all
Confidential Information; and that the restrictions contained in this Section 9 are reasonable
and necessary for the protection of BOK Financial’s business.
All documents or other records containing or reflecting Confidential Information
(“Confidential Documents”) prepared by or to which Executive has access are and shall
remain the property of BOK Financial. Executive shall not copy or use any Confidential
Document for any purpose not relating directly to Executive’s Employment on BOK
Financial’s behalf, or use or disclose any Confidential Document to any party other than
BOK Financial or its employees and shall not sell Confidential Documents to any party.
Upon the termination of this Agreement or upon BOK Financial’s request before or after
such termination, Executive shall immediately deliver to BOK Financial or its designee
6
(c)
(d)
Exhibit 10.4.11
(and shall not keep in Executive’s possession or deliver to anyone else) all Confidential
Documents and all other property belonging to BOK Financial. This paragraph shall not
bar Employee from complying with any subpoena or court order, provided that Executive
shall at the earliest practicable date provide a copy of the subpoena or court order to BOK
Financial’s Chief Executive Officer.
During the Term and for a period of four (4) years thereafter, regardless of the reason for
termination of Executive’s employment, (i) Executive shall not disclose any Confidential
Information to any third party and (ii) Executive shall use Confidential Information only in
connection with and in furtherance of Executive’s Employment by BOK Financial and on
behalf of its affiliates.
As used herein, Confidential Information means all nonpublic information concerning or
arising from BOK Financial’s business, including particularly but not by way of limitation
trade secrets used, developed or acquired by BOK Financial in connection with its business;
information concerning the manner and details of BOK Financial’s operations, organization
and management; financial information and/or documents and nonpublic policies,
procedures and other printed or written material generated or used in connection with BOK
Financial’s business; BOK Financial’s business plans and strategies; electronic files or
documents prepared by BOK Financial or Executive containing the identities of BOK
Financial’s customers (including their addresses and telephone numbers), the nature and
amounts of their assets and liabilities, and the specific individual customer needs being
addressed by BOK Financial; the nature of fees and charges assessed by BOK Financial;
nonpublic forms, contracts and other documents used in BOK Financial’s business; the
nature and content of any proprietary computer software used in BOK Financial’s business,
whether owned by BOK Financial or used by BOK Financial under license from a third
party; and all other nonpublic information concerning BOK Financial’s concepts, prospects,
customers, employees, contractors, earnings, products, services, equipment, systems, and/
or prospective and executed contracts and other business arrangements. Confidential
Information shall not include (i) general skills and general knowledge of the industry
obtained by reason of Executive’s association with BOK Financial; (ii) information that is
or becomes public knowledge through no fault or action of Executive; (iii) any information
received from an independent third party who is under no duty of confidentiality with respect
to the information; or (iv) any information that, on advice of counsel, Executive is required
to disclose by law or regulation.
(10)
Surrender of Records and Property. Upon termination of Executive’s employment with BOK
Financial for whatever reason, in addition to Executive’s obligations pursuant to Paragraph 9(b),
Executive shall deliver promptly to BOK Financial all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof
that relate in any way to the business, products, practices or techniques of BOK Financial or any
of its affiliates, and all other information of BOK Financial or any of its affiliates, including, but
not limited to, all documents that in whole or in part contain any information which is defined in
this Agreement as Confidential Information and which is in the possession or under the control of
Executive.
(11) Compliance with Section 409A. This Agreement is subject to the following provisions in order
to ensure compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Section
409A”).
7
Exhibit 10.4.11
(a)
(b)
If any payment, compensation or other benefit provided to the Executive in
connection with his employment termination is determined, in whole or in part, to
constitute “nonqualified deferred compensation” within the meaning of Section
409A and the Executive is a specified employee as defined in Section 409A(2)(B)
(i), no part of such payments shall be paid before the day that is six (6) months plus
one (1) day after the date of termination.
The Parties acknowledge and agree that Section 409A and its application, if any, to
the terms of this Agreement may be subject to change as additional guidance and
regulations become available. Anything to the contrary herein notwithstanding, all
benefits or payments provided by the Company to the Executive that would be
deemed to constitute “nonqualified deferred compensation” within the meaning of
Section 409A are intended to comply with Section 409A. If, however, any such
benefit or payment is deemed to not comply with Section 409A, the Company and
the Executive agree to renegotiate in good faith any such benefit or payment
(including, without limitation, as to the timing of any severance payments payable
hereof) so that either (i) Section 409A will not apply or (ii) compliance with Section
409A will be achieved.
(c)
All payments required to be made by Bank hereunder to the Executive may be
adjusted to the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Bank may reasonably determine should be withheld pursuant to
any applicable law or regulation.
(12) Miscellaneous Provisions. The following miscellaneous provisions shall apply to this Agreement:
(a)
All notices or advices required or permitted to be given by or pursuant to this Agreement,
shall be given in writing. All such notices and advices shall be (i) delivered personally or
(ii) delivered for overnight delivery by a nationally recognized overnight courier service.
Such notices and advices shall be deemed to have been given (i) the first business day
following the date of delivery if delivered personally or (ii) on the date of receipt if delivered
for overnight delivery by a nationally recognized overnight courier service. All such notices
and advices and all other communications related to this Agreement shall be given as follows:
If to BOK Financial:
BOK Financial Corporation
Attn: Stanley A. Lybarger
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma 74192
Telephone No.: (918) 588-6000
Facsimile No.: (918) 295-6379
slybarger@mail.bok.com
and
Chief Human Resources Officer
Attn: Stephen D. Grossi
Bank of Oklahoma Tower
8
Exhibit 10.4.11
With a Copy to:
P.O. Box 2300
Tulsa, Oklahoma 74192
Telephone No. 918- 595-3153
Frederic Dorwart
Old City Hall
124 East Fourth Street
Tulsa, OK 74103-5010
Telephone No.: (918) 583-9945
Facsimile No.: (918) 583-8251
FDorwart@FDLaw.com
If to Executive:
Scott B. Grauer
9629 Colonial Drive
Claremore, OK 74019
(b)
(c)
(d)
(e)
(f)
(g)
(h)
or to such other address as the Party may have furnished to the other Parties in accordance
herewith, except that notice of change of addresses shall be effective only upon receipt.
This Agreement is made and executed in Tulsa, Oklahoma and all actions or proceedings
with respect to, arising directly or indirectly in connection with, out of, related to or from
this Agreement, shall be litigated in courts having situs in Tulsa, Oklahoma.
This Agreement shall be subject to, and interpreted by and in accordance with, the laws of
the State of Oklahoma without regard to its conflict of law provisions.
This Agreement is the entire Agreement of the Parties respecting the subject matter hereof.
There are no other agreements, representations or warranties, whether oral or written,
respecting the subject matter hereof, except as stated in this Agreement.
This Agreement, and all the provisions of this Agreement, shall be deemed drafted by all of
the Parties hereto.
This Agreement shall not be interpreted strictly for or against any Party, but solely in
accordance with the fair meaning of the provisions hereof to effectuate the purposes and
interest of this Agreement.
Each Party hereto has entered into this Agreement based solely upon the agreements,
representations and warranties expressly set forth herein and upon her or his own knowledge
and investigation. Neither Party has relied upon any representation or warranty of any other
Party hereto except any such representations or warranties as are expressly set forth herein.
Each of the persons signing below on behalf of a Party hereto represents and warrants that
he or she has full requisite power and authority to execute and deliver this Agreement on
behalf of the Parties for whom he or she is signing and to bind such Party to the terms and
conditions of this Agreement.
9
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
This Agreement may be executed in counterparts, each of which shall be deemed an original.
This Agreement shall become effective only when all of the Parties hereto shall have
executed the original or counterpart hereof. This Agreement may be executed and delivered
by a facsimile transmission of a counterpart signature page hereof.
Exhibit 10.4.11
In any action brought by a Party hereto to enforce the obligations of any other Party hereto,
the prevailing Party shall be entitled to collect from the opposing Party to such action such
Party’s reasonable litigation costs and attorneys fees and expenses (including court costs,
reasonable fees of accountants and experts, and other expenses incidental to the litigation).
This Agreement shall be binding upon and shall inure to the benefit of the Parties and their
respective heirs, personal representatives, successors and assigns.
This is not a third party beneficiary contract, except BOK Financial (including each affiliate
thereof) shall be a third party beneficiary of this Agreement.
This Agreement may be amended or modified only in a writing, as agreed to by the Parties
hereto, which specifically references this Agreement.
A Party to this Agreement may decide or fail to require full or timely performance of any
obligation arising under this Agreement. The decision or failure of a Party hereto to require
full or timely performance of any obligation arising under this Agreement (whether on a
single occasion or on multiple occasions) shall not be deemed a waiver of any such obligation.
No such decisions or failures shall give rise to any claim of estoppel, laches, course of
dealing, amendment of this Agreement by course of dealing, or other defense of any nature
to any obligation arising hereunder.
In the event any provision of this Agreement, or the application of such provision to any
person or set of circumstances, shall be determined to be invalid, unlawful, or unenforceable
to any extent for any reason, the remainder of this Agreement, and the application of such
provision to persons or circumstances other than those as to which it is determined to be
invalid, unlawful, or unenforceable, shall not be affected and shall continue to be enforceable
to the fullest extent permitted by law.
None of the compensation or other payments to Executive provided for in, or that may be
made pursuant to, this Agreement are intended by the Parties to be deferred compensation
within the meaning of Section 409A. If, however, the Executive is a " specified employee"
as defined in Section 409A(a)(2)(B)(i), then the other provisions of this Agreement
notwithstanding, no compensation that is "deferred compensation" within the meaning of
Section 409A shall be paid to Executive sooner than six months and one day following the
date of Executive s separation from service from the Company, as such date is determined
in accordance with Section 409A.
10
Dated as of the Agreement Date.
Exhibit 10.4.11
BOK Financial Corporation
/s/ Stanley A. Lybarger
Name: Stanley A. Lybarger
Title: President and Chief Executive
Officer
Executive
/s/ Scott B. Grauer
Individually
11
Exhibit 21
BOK FINANCIAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Banking Subsidiaries
BOKF, National Association (1)
CoBiz Bank (7)
Other subsidiaries of BOK Financial Corporation
BOK Capital Service Corporation
BOKC Real Estate Corporation (6)
BOKF Capital Corporation
BOKF-CC (Collision Works), LLC
BOKF-CC (FSE), LLC
BOKF-CC (Heartland), LLC
BOKF-CC (O2 Concepts), LLC
BOKF-CC (QRC), LLC
BOKF-CC (Switchgrass), LLC
BOKF Energy Fund Investment I, LLC
BOKF Equity, LLC
BOKF Private Equity Limited Partnership
BOKF Private Equity Limited Partnership II
BOK Financial Securities, Inc.
Cavanal Hill Distributors, Inc.
CoBiz IM, Inc. (7)
CoBiz Insurance, Inc. (7)
CoBiz Risk Management, Inc. (8)
CoBiz Wealth, LLC (7)
HFP II, LLC
The Milestone Group, Inc. (5)
RMA Holdings, Inc. (7)
Switchgrass I, LLC
Switchgrass II, LLC
Switchgrass III, LLC
Switchgrass IV, LLC
Switchgrass V, LLC
Switchgrass VI, LLC
Switchgrass Holdings, LLC
Switchgrass Management, LLC
Switchgrass Properties, LLC
Subsidiaries of BOKF, National Association (1)
Affiliated BancServices, Inc.
Affiliated Financial Holding Co.
Affiliated Financial Insurance Agency, Inc.
BancOklahoma Agri-Service Corporation
BOK Delaware, Inc. (3)
BOK Financial Asset Management, Inc. (2)
BOK Financial Equipment Finance, Inc.
BOK Funding Trust (3)
BOKFCDF Fund I, LLC
BOKF Community Development Fund, LLC
BOKF Community Development Fund II
BOKF Community Development Corporation
BOKF Petro Holding, LLC
BOKF Special Assets I, LLC
BOSC Agency, Inc. (Oklahoma)
BOSC Agency, Inc. (New Mexico) (4)
BOSC Agency, Inc. (Texas) (2)
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
Ottawa Land Partners, LLC (6)
Subsidiaries of CoBiz Bank (7)
AWREI, Inc.
CoBiz Public Finance Inc.
Western Real Estate Investors, Inc.
All Subsidiaries listed above were incorporated in Oklahoma, except as noted.
(1) Chartered by the United States Government
(2) Incorporated in Texas
(3) Incorporated in Delaware
(4) Incorporated in New Mexico
(5) Incorporated in Colorado
(6) Incorporated in Kansas
(7) Incorporated in Colorado
(8) Incorporated in Nevada
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.
• Registration Statement (Form S-4, (No. 333-226211) pertaining to the Registration Statement for the registration of BOK
Financial Corporation's common stock.
of our reports dated March 1, 2019, 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 (Form 10-
K) of BOK Financial Corporation for the year ended December 31, 2018.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
March 1, 2019
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF EXECUTIVE OFFICER
Exhibit 31.1
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: March 1, 2019
/s/ Steven G. Bradshaw
Steven G. Bradshaw
President
Chief Executive Officer
BOK Financial Corporation
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
FOR THE CHIEF FINANCIAL OFFICER
Exhibit 31.2
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. 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
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: March 1, 2019
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of BOK Financial Corporation (“BOK Financial”) on Form 10-K for the fiscal year
ending December 31, 2018 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.
March 1, 2019
/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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OUR FAMILY OF BRANDS
Consumer 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-7010