2019 | ANNUAL REPORT
KEY STATISTICS
At December 31, 2019
Assets
$42
Billion
Loans
$22
Billion
Deposits
$28
Billion
Assets Under
Management
$83
Billion
Fiduciary
Assets
$52
Billion
DIVERSIFIED REVENUE
61%
Net Interest
Revenue
3% Other Revenue
5% Transaction Card Revenue
6% Service Charges
6% Mortgage Banking
9% Brokerage & Trading Revenue
10% Trust Fees
CREDIT RATINGS
S&P
Moody’s
Fitch Ratings
BOK Financial Corporation
Long-term Issuer
BBB+ (OS)
A3 (OS)
A (OS)
BOKF, NA
Long-term Issuer
A- (OS)
A3 (OS)
A (OS)
2019 HIGHLIGHTS
FOR A RECORD REVENUE YEAR
29th consecutive year of profitability
12% year-over-year increase in net income
to $501 million
9% year-over-year fee and commission
revenue increase
Robust deposit growth with year-end deposits
up over 9% year over year
Total loan portfolio finished the year at $22 billion
for the first time in company history
Completion of the largest acquisition in company
history—CoBiz Financial
Dear Shareholders,
If I were to summarize 2019 in a single phrase, it would be “strength through diversity.” While the record
earnings BOK Financial delivered in 2018 were a feat worth celebrating, admittedly, the industry was
experiencing strong tailwinds. Tax reform, along with rising interest rates, provided a lift for most if not all of
us in the financial sector.
This backdrop makes our second-consecutive year of record earnings all the more satisfying. 2019 proved
more challenging for the industry as a whole as we faced some pretty significant revenue headwinds
when interest rates moved lower starting in mid-year. While this pressure typically contracts the earnings
potential of regional financial institutions, we saw a strong surge in revenue from business units that perform
exceedingly well when rates decline. For the year, pre-tax earnings were a record $630.9 million; net income
attributable to BOK Financial shareholders was $500.8 million, up over 12 percent compared to 2018; and we
reported diluted earnings per share of $7.03.
This success was clearly the result of the diversity of our revenue model. This business model allows our
company to remain outwardly focused on customer needs rather than looking inward to reduce investments
in future company growth as many similar size banks must do when rates decline. It’s a testament to how the
bank has been carefully constructed over many years in order to maintain our long-term approach to creating
and sustaining earnings and shareholder value.
LOANS AND DEPOSITS GROWING IN TANDEM
Economic and employment strength in 2019 kept
loan growth solid. Our expertise in energy and
healthcare was responsible for the bulk of growth in
2019. As you know, both of the businesses are core
competencies for the organization, and we expect
them to continue to be key sources of growth in
2020.
potential in this space throughout our footprint. With
more than $2 billion in loans and nearly $4 billion in
deposits, commercial banking is already one of BOK
Financial’s largest lines of business. This line of
business is also unique in that it drives the right mix
of loans and deposits that we believe will help us
achieve our tandem loan and deposit growth
objectives in 2020.
Deposit gathering activities also showed real
strength in 2019, particularly in the back half of the
year as interest rates began to decline. While deposit
growth got off to a slow start, we ended the year up
over 9%, and were ultimately able to fund loan
growth with deposit growth in 2019, achieving a key
objective for the organization. Looking ahead, we
want to continue this goal into 2020 and will do so
by strategically focusing on what we call
“commercial banking.”
We define commercial banking as business clients
with sales between $5 million and $75 million. This
segment was a core competency of our two most
recent acquisitions, and we believe that the
combined organization has tremendous growth
All told, we remain optimistic about core loan and
deposit growth as we head into 2020 as long as the
broader economy continues to show strength.
REVENUE RESILIENCY THROUGH THREE RATE CUTS
A sharp change in rate direction in the second half of
the year compressed margin and net interest income
with little time to shift business strategy. While this
made incremental quarterly earnings growth difficult
for most, we saw a strong surge in revenue from
business units that perform exceedingly well when
rates decline, most notably mortgage banking and
brokerage and trading. As we often discuss, this
balanced and flexible business model that we have
worked hard over many years to build serves us well
during times of uncertainty and economic change.
Ultimately, it allows us to keep our focus on
customers while many banks have no alternative
other than to look inward to reduce operating
expenses.
Following a 20 percent reduction in the expense
base and a shift away from the lower-margin online
lead-buying business, the mortgage company was
operating at peak efficiency. Going forward, we will
continue this strategy and manage volume through
pricing, rather than staffing.
Equally as beneficial, the expansion of trading
activities in our mortgage-backed security business
in late 2018 proved to be exceptionally timed, as the
interest rate environment shifted to fuel this business
in 2019. Related trading revenues were up 48
percent year over year, and were a key offset to
spread business pressures.
Looking ahead, we’ve built our 2020 forecasts on a
less volatile year from an interest rate perspective.
Whether or not that proves to be the case, I have full
confidence in our ability to take advantage of the
right opportunities in 2020.
EXPENSE MANAGEMENT
One of the primary drivers of our robust 2019
financial performance was expense management.
This discipline ultimately led to the achievement of
our 60 percent efficiency ratio goal a full year ahead
of schedule. While we were able to hold this level in
the second and third quarters, sharp interest rate
declines weighed on net interest revenue in the
fourth quarter driving the ratio higher.
While we could check the box as a goal achieved,
we still aim to drive the efficiency ratio lower.
Operating a growth company that is lean and
efficient is often an elusive goal. But we remain
committed to making the right investments to fuel
growth while identifying areas of expense reduction
and redundancy across the company. With the
projected flat rate environment in 2020, the net
interest revenue pressure felt in late 2019 should
subside and allow us to capture future expense
discipline.
COBIZ: AN ACQUISITION COMPLETE
We closed the CoBiz merger in late 2018, but the
heavy lifting of onboarding new employees and
converting customer data occurred during 2019. We
now have doubled our market share in Colorado and
Arizona, two critical growth engines for the
company, and we are poised to see accelerated
momentum from each in 2020. Mergers are always
difficult and contain elements of risk, but we
achieved the expense synergies we sought and have
the leadership team in place to meet our
expectations for higher growth in the coming years.
In 2020, we’ll remain intensely focused on realizing
the synergies of bringing our two companies
together. It’s obvious that the expense efficiencies
have been achieved, but ultimately we’ll realize our
return by growing and serving our customer base in
Colorado and Arizona.
WHAT’S IN A NAME?
While BOK Financial is how our shareholders have
always known us, that’s not true for our clients. Bank
of Arkansas, Mobank, Bank of Arizona, and
Colorado State Bank and Trust have been our
identities in Arkansas, Kansas, Missouri, Arizona and
Colorado for quite some time. While a differentiated
brand strategy in these five markets has been a
long-standing tradition for us, the CoBiz acquisition
gave us a unique opportunity to streamline our
branding strategy to match our larger corporate and
wealth management businesses in these states. By
embracing our larger identity in these diverse
markets, we expect to better deliver the full suite of
products and services the broader organization has
to offer.
OPERATIONS AND TECHNOLOGY—A KEY
DIFFERENTIATOR AT BOK FINANCIAL
Our operations and technology group continues to
be a bright spot for the organization. This year saw
one of the largest IT projects ever undertaken by our
organization with the systems integration following
the CoBiz acquisition. Thousands of hours of hard
work from our technology team finalized the largest
acquisition in company history. This monumental
accomplishment not only brought the two
organizations together, but also provided valuable
insights that we’ll use to improve our existing
technology framework.
Looking ahead, we continue to invest heavily in
technology that will improve our competitive position
across a number of business units. To that end, we
introduced new capabilities within our digital
platform during the year, such as upgrading our
Mortgage Banking platform, improving the ApplePay
experience along with the introduction of Samsung,
and launching a new digital advice platform in the
Wealth Management space. We also began work on
transformative projects to benefit customers in our
Treasury Services, Wealth Management, and
Commercial Banking business units. As client
expectations continue to increase, we feel that we
are well-positioned to match the changing
competitive landscape.
And while customer-facing technology will be a clear
focus in 2020, we continue to prioritize investment in
data protection and system integrity as we will stand
up a third redundant data site in early 2020.
All told, I’m convinced that our technology
investment plans will keep us relevant and growing
in the years ahead.
COMMUNITY, DIVERSITY, AND INCLUSION
In 2019, the bank and the BOKF Foundation
invested more than $5.8 million across our footprint.
With strategic investments in each of our key
operating markets, these contributions made a
significant impact in support of 691 nonprofit
organizations. Our commitment to actively
advancing the communities we serve doesn’t stop
there. Employees across the company collectively
invested 33,792 volunteer hours, including 341
employees serving in leadership roles with 486
nonprofit organizations. We all feel a strong sense of
responsibility for improving our communities by
taking care of those most in need, guiding programs
to reduce those needs over time, and improving job
and economic growth prospects in each of our
markets. We expect to be leaders in all of these
endeavors.
2019 was also a year featuring a deeper and more
formal commitment to building an even stronger and
more diverse workforce. Building on the foundational
work produced in 2018 by a group of leaders across
the company, we established our Diversity and
Inclusion Council. The role of the Council, led by
Chief Human Resource Officer Kelley Weil and me, is
to build a set of strategies and impact tactics to
increase diversity of thought and experience across
the company. The initial strategies identified by the
Council are focused on recruiting more diverse
candidates and driving a more diverse slate of
candidates for internal promotion. We intend to roll
out a training program in 2020 for leaders across the
company to reduce the unconscious bias that can
negatively impact hiring and recruiting. At the same
time, we will sponsor groups across the company,
called Communities of Practice, that will provide
feedback on tactics and actions our company can
take to improve the inclusiveness of our culture. We
absolutely intend for our company to be inclusive
and supportive of all employees and their unique
experiences and perspectives as we work to
constantly improve how well we work together
across the company and on behalf of our customers.
FOCUSED ON THE LONG-TERM
As noted throughout my letter, our results in 2019
stemmed from our diversity—diversity of our
businesses, diversity of our markets, and diversity of
our teams. A second-consecutive record earnings
year doesn’t happen by accident; it is a result of a
multi-decade approach to understanding that
diversity drives shareholder value.
Looking ahead to 2020, we expect this to be a year
that our company separates further from peers in
terms of performance and customer experience. The
past decade of slow but steady growth has
benefitted most banks but the headwinds of lower
rates, coupled with unsustainably low credit costs
and the economic uncertainty that is always
exaggerated in a national election year will be a
challenge that will force many banks to pull back on
growth and investment plans. At BOK Financial, we
are built to rise to the top in times of economic
uncertainty as our diversified business model shows
its merit while our time-proven approach to
managing credit risk will prevail should we
experience an economic slowdown. We are highly
confident that we will grow earnings and continue
our strong investment in people and technology
while others may be forced to pullback on both.
And finally, I want to thank you, our shareholders,
for your support. BOK Financial has always been an
organization built for shareholders who are as
long-term focused as we are. While 2020 will bring
with it plenty of uncertainty from a political and
economic perspective, I remain confident in our
ability to deliver long-term shareholder value
going forward.
Sincerely,
Steven G. Bradshaw
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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 CORP ET AL
(Exact name of registrant as specified in its charter)
OK
(State or other jurisdiction
of Incorporation or Organization)
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa,
OK
(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 ý No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 ý 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 ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐
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 ☐ No ý
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 28, 2019 closing price of Common Stock of $75.48 per share). As of January 31, 2020, there were 70,692,686 shares of Common
Stock outstanding.
Part III incorporates certain information by reference from the Registrant’s Proxy Statement for the 2020 Annual Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
BOK Financial Corporation
Form 10-K
Year Ended December 31, 2019
Index
Part I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
Exhibits, Financial Statement Schedules
Signatures
1
8
14
14
14
14
15
18
18
69
76
156
156
156
156
156
157
157
157
157
160
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Exhibit 10.8
Lease Agreement between Williams Headquarters Building LLC and BOKF, NA dated
July 1, 2019
Exhibit 10.8.1
First Amendment to Lease Agreement between Williams Headquarters Building LLC and
BOKF, NA dated November 8, 2019
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
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
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, 2019, the Company reported total consolidated assets of $42 billion.
BOKF, NA is a wholly owned subsidiary bank of BOK Financial. BOKF, NA operates TransFund, Cavanal Hill Investment
Management and BOK Financial Asset Management, Inc. BOKF, NA operates banking divisions across eight states: Bank of
Albuquerque, Bank of Oklahoma, Bank of Texas and BOK Financial in Arizona, Arkansas, Colorado, Kansas and Missouri; as
well as having limited purpose offices in Nebraska, Milwaukee and Connecticut. 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; BOK Financial Private Wealth, Inc., an investment adviser to high net worth clients;
and BOK Financial Insurance, Inc., a broker providing insurance services. 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
and insurance 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 39% to 48% of our total revenue. Approximately 39% of our revenue came from fees and commissions in
2019.
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 commodity 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 engages in brokerage and trading activities and provides fiduciary services, private bank
services, investment advisory services and insurance services in all markets. Wealth Management also underwrites state and
municipal securities. 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, 2019.
We are the largest financial institution in the state of Oklahoma with 13% of the state’s total deposits. We have 32% and 9% 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 1% in the Dallas, Fort Worth area and less than 1% in the Houston area. We have a 10%
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 1% 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, 2019, BOK Financial and its subsidiaries employed 5,107 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. The Company expects that its
business will remain subject to extensive regulation and supervision.
The following information summarizes certain existing laws and regulations that affect the Company’s operations. It does not
summarize all provisions of these laws and regulations and does not include all laws and regulations that affect the Company
presently or in the future.
2
General
As a financial holding company, BOK Financial is regulated under the BHCA and is subject to regular inspection, examination
and supervision by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Under the BHCA,
BOK Financial files quarterly reports and other information with the Federal Reserve Board.
BOKF, NA is organized as a national banking association under the National Banking Act, and is subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency (the "OCC"), the 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. 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.
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.
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.
4
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 four capital metrics 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. In
addition to the risk-based capital ratios, the Company is also subject to the leverage ratio. The leverage ratio is determined by
dividing Tier 1 capital by adjusted average total 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. Several
components, which had previously been deferred, were finalized in 2019. These have either already been implemented or will
be effective April 1, 2020. We do not expect capital to be materially impacted as a result.
Failure to meet minimum capital requirements 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.
5
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 (DRR) 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 ultimately resulted 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 September 30, 2018 the DRR rose above 1.35%. Accordingly, the surcharge for depository institutions with assets of greater
than $10 billion ceased. Base assessment rates will remain unchanged, but are scheduled to decrease when the DRR exceeds
2%. As of the third quarter of 2019, the DRR was 1.41%.
Dividends
A key source of liquidity for BOK Financial is dividends from BOKF, NA, which is limited by various banking regulations to
net profits, as defined, for the year plus retained profits for the preceding two years. Dividends are further restricted by
minimum capital requirements and the Company's internal capital policy. BOKF, NA's dividend limitations are discussed under
the heading "Liquidity and Capital" within "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Source of Strength Doctrine
According to Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank
holding company may not be able to provide such support.
Transactions with Affiliates
The Federal Reserve Board regulates transactions between the Company and its subsidiaries. Generally, the Federal Reserve
Act and Regulation W, as amended by the Dodd-Frank Act, limit the Company’s banking subsidiary and its subsidiaries, to
lending and other "covered transactions" with affiliates. The aggregate amount of covered transactions a banking subsidiary or
its subsidiaries may enter into with an affiliate may not exceed 10% of the capital stock and surplus of the banking subsidiary.
The aggregate amount of covered transactions with all affiliates may not exceed 20% of the capital stock and surplus of the
banking subsidiary.
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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,
the continued use by the Federal Reserve of a materially expanded balance sheet and promotion of affordable home programs.
In an effort to boost the economy as a result of risks caused by the trade war between the U.S. and China and a global
slowdown, the Federal Reserve decreased its target rate by 25 basis points three times during 2019. Real gross domestic
product is forecasted to remain around 2 percent in 2020. The unemployment rate dropped to historic lows of 3.5 percent in
2019 and is anticipated to stay below 4 percent in 2020. The inflation rate is expected to remain close to 2 percent. We expect
energy prices to continue to be volatile due to economic, political and environmental factors. The current political environment,
trade tensions, and the upcoming election could result in a volatile environment in 2020.
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;
a breach in the security of BOK Financial's systems 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.
8
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 upcoming election, add additional
uncertainty to the implementation, scope and timing of changes in the regulatory environment for the banking industry and for
the broader economy.
BOK Financial has a long-standing relationship with the energy industry and the local economies within BOKF's geographical
footprint have a concentration in energy-related industries. The energy industry is facing increased pressure from investors and
the government to mitigate greenhouse emissions, which could significantly increase costs, hinder financial results and shrink
the industry.
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, 2019, loans to businesses and individuals with collateral primarily located in Texas represented approximately
31% 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 13% 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, 2019, 18% 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 continues to work through issues regarding BREXIT, trade related issues remain between the United States
and China, an increasing tension exists between the United States and Iran, 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.
BOK Financial, its customers and counterparties may also be negatively affected by global events, such as natural disasters,
and other external events beyond our control, including public health issues, terrorist attacks and acts of war. These global
events may significantly affect long-term and short-term interest rates, energy prices, the value of financial assets and
ultimately economic activity in our primary markets. The adverse effect of these events on the Company may include
narrowing of the spread between interest income and interest expense, a reduction in fee income, an increase in credit losses
and a decrease in demand for loans and other products and services.
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;
changes in depositor behavior;
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.
Although much progress is being made in the industry, there remains a great deal of uncertainty regarding the ultimate
disposition of LIBOR, including the actual timing of LIBOR’s discontinuance and the alternative reference rates and spreads
that will be used in its stead. In 2017, the U.K. Financial Conduct Authority announced its lack of confidence in LIBOR as a
market benchmark rate, and that it would no longer persuade or compel banks to submit to LIBOR after 2021. However, that
does not mean that LIBOR’s panel banks will necessarily cease their submissions at that time, potentially resulting in continued
availability of LIBOR past 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, SOFR is not currently the economic equivalent of LIBOR for two key reasons. The first is that SOFR is a
secured rate while LIBOR is an unsecured rate. The second is that SOFR is an overnight rate while LIBOR is published for
different maturities.
We have a significant number of loans, securities, derivative contracts, borrowings and other financial instruments with
attributes that are either directly or indirectly dependent on LIBOR. Given these uncertainties, it is not possible at this time to
determine the impact of the transition away from LIBOR on the valuations, pricing and operation of our financial instruments.
10
In order to be well prepared for the transition, the Company has established formal governance for the LIBOR transition,
including a LIBOR Transition Working Group ("the Group") whose purpose is to guide the overall transition process for the
Company. The Group is an internal, cross-functional team with representatives from all business lines, support and control
functions, and legal counsel. Its responsibilities include, but are not limited to, monitoring industry developments; tracking
direct and indirect exposures; developing and implementing remediation plans; and communication with internal and external
stakeholders.
Key loan provisions have been modified so that new and renewed loans include LIBOR fallback language designed to ensure
the smoothest possible transition from LIBOR to the new benchmark when such transition occurs. All existing financial
contracts with direct exposure to LIBOR have been inventoried and are being tracked. Indirect exposures in the form of
LIBOR-related systems, models, and processes are being inventoried, evaluated, and prioritized and remediation plans either
underway or are being developed.
Changes in mortgage interest rates could adversely affect mortgage banking operations along with mortgage servicing
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.
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.
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Operating Risk Factors
Dependence on technology increases cybersecurity, data privacy and technology failure risk.
The Company is dependent on its technological ability to process, record and monitor a large number of customer transactions
and store and protect a significant amount of sensitive customer information. Our customers’ use of our internet-based services,
and our customer and regulatory expectations regarding operational and information security and reliability, have increased
over time. Congress and the legislatures of states in which we operate regularly consider legislation that would impose more
stringent data privacy requirements, resulting in increased compliance costs.
Cybersecurity risks for financial institutions have increased significantly in recent years in part because of the proliferation of
new technologies, the increased use of the internet and mobile technologies to conduct financial transactions, and the increased
sophistication and ever changing cyberattack techniques used by organized crime, hackers, terrorists, hostile foreign
governments and other external parties to obtain confidential customer information and misappropriate customer funds. Such
parties may seek to gain access to our systems directly or use equipment or security passwords belonging to employees,
customers, third party services providers or other users of our systems. Accordingly, our operational systems and infrastructure
must continue to be safeguarded and monitored for potential failures, disruptions, breakdowns and cyber attacks.
Our business, financial, accounting, data processing systems and other operating systems and facilities may stop operating
properly or become disabled as a result of a number of factors that may be wholly or partially beyond our control. In addition to
cyber attacks, there could be sudden increases in customer transaction volume, electrical or telecommunications outages,
natural disasters, pandemics, events arising from political or social matters, including terrorist attacks. Third parties with whom
we do business or that facilitate our business activities including exchanges, clearing houses, financial intermediaries or
vendors that provide services or security solutions for our operations, could also be sources of operational or information
security risk to the Company, including breakdowns or failures of their own systems, capacity constraints or cyber attacks.
Cybersecurity risk management programs are expensive to maintain and will not protect the Company from all risks associated
with maintaining the security of customer data from external and internal intrusions, disaster recovery and failures in controls
used by our vendors. A material breach of customer data security or operational or system failure may negatively impact our
business reputation and cause a loss of customers, result in increased expense to contain the event and/or require that we
provide credit monitoring services for or reimburse affected customers, result in regulatory fines, penalties or intervention, or
result in litigation, all of which could have a materially adverse effect on our results of operations and financial condition.
Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches or
operational failures, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these
matters remains heightened and as a result the continued development and enhancement of our controls, processes and
practices designed to protect and facilitate the recovery of our systems, computers, software, data and networks from attack,
damage or unauthorized access remains a high priority for us. As an additional layer of protection, we have purchased network
and privacy liability risk insurance coverage. Our cybersecurity insurance may not provide sufficient coverage in the event of a
breach, or may not be available in the future on acceptable terms.
We depend on third parties for critical components of our infrastructure.
We outsource a significant portion of our information systems, communications, data management and transaction processing
to third parties. These third parties are sources of risk associated with operational errors, system interruptions or breaches,
unauthorized disclosure of confidential information and misuse of intellectual property. If the service providers encounter any
of these issues, we could be exposed to disruption of service, reputation damages, and litigation risk that could be material to
our business.
Risks Related to an Investment in Our Stock
Although publicly traded, BOK Financial's common stock has substantially less liquidity than the average trading market
for a stock quoted on the NASDAQ National Market System.
A relatively small fraction of BOK Financial's outstanding common stock is actively traded. The risks of low liquidity include
increased volatility of the price of BOK Financial's common stock. Low liquidity may also limit holders of BOK Financial's
common stock in their ability to sell or transfer BOK Financial's shares at the price, time and quantity desired.
12
BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.
Mr. George B. Kaiser owns approximately 54% of the outstanding shares of BOK Financial's common stock at December 31,
2019. 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 $369 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, 2020, common shareholders of record numbered 732 with 70,692,686 shares outstanding.
The highest and lowest quarterly closing bid price for shares and cash dividends declared per share of BOK Financial common
stock follows:
2019:
Low
High
Cash dividends declared
2018:
Low
High
Cash dividends declared
First
Second
Third
Fourth
$
73.43
$
73.81
$
73.45
$
92.31
0.50
87.68
0.50
83.41
0.50
$
90.62
$
93.00
$
93.33
$
100.98
0.45
105.24
0.45
104.74
0.50
72.23
88.01
0.51
70.61
96.91
0.50
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, 2014 and
ending December 31, 2019.*
Total Return Performance
BOK Financial Corporation
NASDAQ Composite Index
KBW NASDAQ Bank Index
SNL U.S.Bank NASDAQ Index
e
u
l
a
V
x
e
d
n
I
275
250
225
200
175
150
125
100
75
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
Period Ending
Index
BOK Financial Corporation
NASDAQ Composite
SNL U.S. Bank NASDAQ
KBW NASDAQ Bank Index
Period Ending December 31,
2014
2015
2016
2017
2018
2019
100.00
100.00
100.00
100.00
102.22
106.96
107.95
100.49
146.08
116.45
149.68
129.14
165.97
150.96
157.58
153.15
134.44
146.67
132.82
126.02
164.15
200.49
166.75
171.55
* Graph assumes value of an investment in the Company's Common Stock for each index was $100 on December 31, 2014. 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, 2019.
Period
October 1, 2019 to October 31, 2019
November 1, 2019 to November 30, 2019
December 1, 2019 to December 31, 2019
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs 1
25,000
205,000
50,000
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans
4,388,287
4,183,287
4,133,287
Total
Number of
Shares
Purchased 2
25,000
205,000
50,000
Average
Price Paid
per Share
$
$
$
76.94
81.96
82.38
Total
1 On April 30, 2019, 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, 2019, the Company had repurchased 866,713 shares under this plan. Future repurchases of the
Company's common stock will vary based on market conditions, regulatory limitations and other factors.
280,000
280,000
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 revenue1
Net income attributable to BOK Financial
Corporation shareholders
Period-end:
Loans
Assets
Deposits
Shareholders’ equity
Nonperforming assets2
2019
2018
2017
2016
2015
December 31,
$ 1,531,958
$ 1,228,426
$
972,751
$
829,117
$
766,828
419,079
1,112,879
44,000
702,201
243,559
984,867
8,000
643,176
131,050
841,701
(7,000)
642,169
81,889
747,228
65,000
647,986
63,474
703,354
34,000
615,029
500,758
445,646
334,644
232,668
288,565
21,750,987
42,172,021
27,621,168
4,855,795
293,762
21,656,730
17,153,424
16,989,660
38,020,504
32,272,160
32,772,281
25,263,763
22,061,305
22,748,095
4,432,109
267,162
3,495,367
3,274,854
290,305
356,641
15,941,154
31,476,128
21,088,158
3,230,556
251,908
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
$
$
$
7.03
7.03
$
6.63
6.63
$
5.11
5.11
$
3.53
3.53
4.22
4.21
1.19%
10.73%
11.11 %
1.28%
11.98%
10.70%
1.02%
9.82%
10.43%
0.72%
7.02%
10.38%
0.94%
8.65%
11.03%
$
68.80
87.40
92.31
72.23
2.01
$
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
28.56%
28.55%
34.45%
48.81%
40.03%
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 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Allowance for loan losses to nonaccruing loans3
Allowance for loan losses to loans
Combined allowances for credit losses to loans 4
Miscellaneous (at December 31)
Number of employees (full-time equivalent)
Number of TransFund locations
Fiduciary assets
2019
2018
2017
2016
2015
December 31,
11.39%
11.39%
12.94%
8.40%
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%
120.54%
132.89%
129.09%
112.33%
180.09%
0.97%
0.98%
5,107
2,463
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
$ 52,352,135
$ 44,841,339
$ 48,761,477
$ 42,378,053
$ 38,333,638
Mortgage loans serviced for others
20,727,106
21,658,335
22,046,632
21,997,568
19,678,226
1 Non-GAAP measure to net interchange charges for 2015-2017 between transaction card revenue and data processing and communications expense as a
result of the revenue recognition standard implemented January 1, 2018. This measure has no effect on net income or earnings per share.
2
Includes nonaccruing loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing.
3 Excludes residential mortgage loans guaranteed by agencies of the U.S. government.
4
Includes allowance for loan losses and accrual for off-balance sheet credit risk.
Management’s Assessment of Operations and Financial Condition
Overview
The following discussion is management’s analysis to assist in the understanding and evaluation of the financial condition and
results of operations of BOK Financial Corporation ("BOK Financial" or "the Company"). This discussion should be read in
conjunction with the Consolidated Financial Statements and footnotes and selected financial data presented elsewhere in this
report.
The U.S. economy completed its 11th year of expansion in 2019. The unemployment rate dropped to historic lows of 3.5%
during the year. GDP grew 2.2% and is expected to remain close to 2% in 2020. Inflation also remained low, below 2% for
2019 and is expected to remain close to 2% in 2020. The Federal Reserve decreased the target range for the federal funds rate
by 25 basis points three times during the second half of 2019. The 10-year U.S. Treasury note finished the year yielding 1.92%
versus 2.69% at December 31, 2018.
19
Performance Summary
Net income for the year ended December 31, 2019 totaled $500.8 million or $7.03 per diluted share compared with net income
of $445.6 million or $6.63 per diluted share for the year ended December 31, 2018.
We incurred $17.2 million of closing and integration costs in 2019 related to the acquisition of CoBiz Financial, Inc. ("CoBiz")
on October 1, 2018, which resulted in an $0.18 per share reduction in 2019. We incurred $16.6 million of closing and
integrations costs in 2018, resulting in an $0.18 per share reduction. A fee earned through the sale of client assets of $15.4
million was recognized in Fiduciary and asset management fees in 2018 for a $0.17 per share addition. The fluctuation
discussion in the highlights below exclude the impact of these items.
Highlights of 2019 included:
•
•
•
•
•
•
•
•
•
Net interest revenue totaled $1.1 billion for 2019, up from $984.9 million for 2018. CoBiz added $158.5 million to net
interest revenue in 2019 and $43.1 million to net interest revenue in 2018. Net interest margin was 3.11% for 2019
compared to 3.20% for 2018. Average earning assets were $36.4 billion for 2019, up $5.4 billion over 2018. The increase
was largely due to acquired loans and the expansion of the available for sale securities portfolio as we repositioned the
balance sheet for a lower rate environment.
Fees and commissions revenue was $702.2 million for 2019, an increase of $74.4 million compared to 2018. Brokerage
and trading revenue increased $51.5 million due to increased trading in residential mortgage-backed securities. Mortgage
banking revenue increased $9.8 million. Lower mortgage interest rates have increased both mortgage loan production
and trading activities. Fiduciary and asset management revenue increased $7.7 million.
Other operating expense totaled $1.1 billion, a $103.6 million increase compared to 2018, including $84.0 million of
costs related to CoBiz operations in 2019 and $29.7 million in 2018. Excluding CoBiz operating costs, personnel expense
increased $49.3 million, primarily due to an increase in incentive compensation expense combined with annual merit
increases. Non-personnel expense remained consistent with 2018.
Based on an evaluation of all credit factors, including specific impairment of two shared national credit energy loans
where the Company is not the lead agent, changes in nonaccruing and potential problem loans and net charge-offs, the
Company recorded a $44.0 million provision for credit losses in 2019. An $8.0 million provision for credit losses was
recorded in 2018. Nonaccruing loans not guaranteed by U.S. government agencies increased $19 million compared to
December 31, 2018. Potential problem loans decreased $55 million while other loans especially mentioned increased
$28 million. Net charge-offs were $41 million or 0.19% of average loans for 2019, compared to net charge-offs of $33
million or 0.18% of average loans for 2018. At December 31, 2019, the combined allowance for credit losses totaled
$212 million or 0.98% of outstanding loans and 1.06%, excluding loans from CoBiz measured at acquisition date fair
value.
Period-end outstanding loan balances were $21.8 billion at December 31, 2019, a $94 million increase over the prior
year. An increase in commercial loan balances of $396 million was largely offset by a decrease in commercial real estate
loans of $331 million.
Period-end deposits totaled $27.6 billion at December 31, 2019, a $2.4 billion increase compared to December 31, 2018.
Interest-bearing transaction deposits increased $3.2 billion, while demand deposit balances decreased $953 million.
Common equity Tier 1 capital ratio was 11.39% at December 31, 2019. In addition, the Tier 1 capital ratio was 11.39%,
total capital ratio was 12.94% and leverage ratio was 8.40% at December 31, 2019. At December 31, 2018, the Tier 1
capital ratio was 10.92%, the total capital ratio was 12.50% and the leverage ratio was 8.96%.
The Company repurchased 1,572,322 shares at an average price of $82.35 per share during 2019 and 615,840 shares at
an average price of $86.82 during 2018.
The Company paid cash dividends of $2.01 per common share during 2019 and $1.90 per common share in 2018.
20
Net income for the fourth quarter of 2019 totaled $110.4 million or $1.56 per diluted share, compared to $108.5 million or
$1.50 per diluted share for the fourth quarter of 2018. The fourth quarter of 2018 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.
Highlights of the fourth quarter of 2019 included:
•
•
•
•
Net interest revenue totaled $270.2 million for the fourth quarter of 2019, a decrease of $15.4 million compared to the
fourth quarter of 2018. Net interest margin was 2.88% for the fourth quarter of 2019 and 3.40% for the fourth quarter of
2018. Net interest revenue decreased largely due to three 25 basis point decreases in the federal funds rate by the Federal
Reserve during the second half of 2019.
Fees and commissions revenue totaled $179.4 million, up $19.3 million over the fourth quarter of 2018. Brokerage and
trading revenue increased $15.7 million and mortgage banking revenue increased $3.5 million, both largely affected by
lower mortgage interest rates.
Operating expenses in the fourth quarter totaled $288.8 million, an $18.7 million increase compared to the prior year.
Personnel expense increased $13.4 million primarily due to higher incentive compensation expense. Non-personnel
expenses increased $5.3 million, largely due to increased data processing and communications expense and mortgage
banking costs.
Based on an evaluation of all credit factors, the Company recorded a $19 million provision for credit losses in the fourth
quarter of 2019 and a $9 million provision for credit losses in the fourth quarter of 2018.
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 were 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 2019.
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 average
gross loss rate over the long-term credit cycle. 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 measurements 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 $30 million. We expect a $42 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 $1.1 billion for 2019, up from $993.8 million for 2018. Tax-equivalent net interest
revenue increased $130.7 million over the prior year. The acquisition of CoBiz in the fourth quarter of 2018 added $158.5
million to net interest revenue in 2019 and $43.1 million to net interest revenue in 2018. This includes $37.8 million of net
purchase discount accretion for 2019 and $6.4 million for 2018. Net interest revenue decreased $13.7 million due to rates and
increased $144.4 million from growth in earning assets. 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 3.11% for 2019 and 3.20% for 2018. The tax-equivalent yield on earning assets was 4.27% for 2019,
up from 3.98% in 2018. Short-term interest rate increases during the first half of the year resulting from four 25 basis point
increases in the federal funds rate by the Federal Reserve during 2018 were partially offset by three 25 basis point decreases in
the federal funds rate in the second half of 2019. Loan yields increased 33 basis points to 5.13%. The available for sale
securities portfolio yield increased 23 basis points to 2.58%. The yield on interest-bearing cash and cash equivalents increased
48 basis points to 2.28%. The yield on trading securities fell 29 basis points to 3.55%.
Funding costs increased 42 basis points over 2018. The cost of interest-bearing deposits increased 39 basis points. The cost of
other short-term borrowings increased 35 basis points. The benefit to net interest margin from earning assets funded by non-
interest bearing liabilities was 45 basis points for 2019, up from 41 basis points for 2018.
Average earning assets for 2019 increased $5.4 billion or 18% over 2018, largely due to acquired loans combined with the
expansion of the available for sale securities portfolio. Average loans, net of allowance for loan losses, increased $3.4 billion.
The average balance of available for sale securities, which consists largely of residential and commercial mortgage-backed
securities guaranteed by U.S. government agencies, increased $1.8 billion. We purchase securities to supplement earnings and
to manage interest rate risk. We have increased the size of our bond portfolio during the second half of 2019 in order to reduce
our exposure to falling short-term interest rates. Fair value option securities, which we hold as an economic hedge against
changes in the fair value or mortgage servicing rights, increased $682 million. Trading securities balances increased $242
million. Average interest-bearing cash and cash equivalents decreased $704 million.
Total average deposits grew by $2.8 billion over the prior year, largely related to acquired deposits. Average interest-bearing
transaction account balances increased $2.5 billion. Average demand deposit balances increased $219 million. Average short-
term borrowings increased $2.9 billion over the prior year, primarily from increased borrowings from federal funds purchased
and the Federal Home Loan Banks.
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 77% 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 2019 Net Interest Revenue
Tax-equivalent net interest revenue totaled $273.0 million for the fourth quarter of 2019, a decrease of $15.8 million compared
to the fourth quarter of 2018. CoBiz added $30.4 million to net interest revenue in the fourth quarter of 2019 and $43.1 million
to net interest revenue in the fourth quarter of 2018. The fourth quarter of 2019 included $5.8 million of net purchase
accounting discount accretion and the fourth quarter of 2018 included $6.4 million. Net interest revenue decreased $28.9
million primarily due to three 25 basis point decreases in the federal funds rate by the Federal Reserve during 2019. This was
partially offset by an increase of $13.1 million primarily due to the growth in average available for sale securities, fair value
option securities, and loan balances.
Net interest margin was 2.88% for the fourth quarter of 2019 compared to 3.40% for the fourth quarter of 2018. The tax-
equivalent yield on earning assets was 3.93% for the fourth quarter of 2019, a decrease of 40 basis points compared to the
fourth quarter of 2018. Loan yields decreased 34 basis points to 4.75%, primarily due to federal funds rate cuts in 2019. Yield
on trading securities decreased 91 basis points to 3.19% and the yield on fair value option securities decreased 94 basis points
to 2.62%.
Funding costs decreased 2 basis points compared to the fourth quarter of 2018. The cost of interest-bearing deposits increased
22 basis points over the fourth quarter of 2018. The cost of other short-term borrowings decreased 50 basis points. The benefit
to net interest margin from earning assets funded by non-interest bearing liabilities was 35 basis points in the fourth quarter of
2019, down from 49 basis points in the fourth quarter of 2018, primarily due to a decrease in demand deposits and an increase
in receivables from our trading activity.
Average earning assets for the fourth quarter of 2019 increased $4.4 billion over the fourth quarter of 2018. Available for sale
securities increased $2.6 billion as the balance sheet is repositioned for the current rate environment. Fair value option
securities held as an economic hedge of our mortgage servicing rights increased $1.2 billion. Average loans, net of allowance
for loan losses, increased $661 million.
Average deposits increased $2.0 billion over the fourth quarter of 2018. Average interest-bearing transaction accounts increased
$2.9 billion, partially offset by a decrease in average demand deposit balances of $1.0 billion. Average short-term borrowings
increased $2.8 billion.
2018 Net Interest Revenue
Tax-equivalent net interest revenue for 2018 was $993.8 million, up from $858.9 million for 2017. 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 during 2018 on the loan portfolio and interest-bearing cash and cash
equivalents yields was partially offset by higher borrowing costs.
Net interest margin was 3.20% for 2018 compared to 2.92% for 2017. The tax-equivalent yield on average earning assets
increased 62 basis points over 2017, primarily due to increases in short-term interest rates resulting from four 25 basis point
increases in federal funds rate during the year. Loan yields increased 67 basis points. The yield on interest-bearing cash and
cash equivalents increased 70 basis points. The available for sale securities portfolio yield increased 22 basis points. The cost of
interest-bearing liabilities increased 52 basis points. The cost of interest-bearing deposits increased 30 basis points and the cost
of other short-term borrowings 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, compared to 23 basis points for 2017, primarily due to interest rate
increases during 2018.
Average earning assets 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 commercial and commercial real estate loans. Trading securities
balances increased $1.0 billion, primarily related to expanded U.S. mortgage-backed securities trading activity. The average
balance of available for sale securities decreased $144 million. Total average deposits grew by $624 million over 2017,
including $859 million from the CoBiz acquisition. Excluding acquired deposits, average demand deposit account balances
decreased $131 million, average interest-bearing transaction deposits decreased $62 million and average time deposit balances
decreased $81 million. Borrowings from the Federal Home Loan Banks increased $325 million and funds purchased and
repurchase agreements increased $392 million compared to 2017.
26
Table 2 – Volume/Rate Analysis
(In thousands)
Year Ended
Year Ended
December 31, 2019 / 2018
December 31, 2018 / 2017
Change Due To1
Change Due To1
Change
Volume
Yield /
Rate
Change
Volume
Yield /
Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents
$
(10,119) $
(14,371) $
4,252
$
205
$
(11,155) $
11,360
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
4,012
(1,431)
56,629
17,731
5,305
(1,018)
235,141
306,250
66,995
238
12,788
43,796
46,417
5,286
175,520
130,730
2,718
8,666
(2,597)
35,720
19,592
5,696
(535)
168,241
220,412
20,057
66
1,302
28,392
20,787
5,398
76,002
144,410
(4,654)
1,166
20,909
(1,861)
(391)
(483)
66,900
85,838
46,938
172
11,486
15,404
25,630
(112)
99,518
(13,680)
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
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
128,012
143,166
$
$
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, 2019 / 2018
Change Due To1
Change
Volume
Yield /
Rate
$
(835) $
44
$
(6,621)
(387)
14,607
6,910
643
2
(10,396)
3,923
13,554
6
2,661
12,077
(8,599)
2
19,701
(15,778)
(341)
(2,589)
(626)
14,433
8,988
1,494
219
8,261
30,224
6,560
7
444
10,731
(652)
(9)
17,081
13,143
(879)
(4,032)
239
174
(2,078)
(851)
(217)
(18,657)
(26,301)
6,994
(1)
2,217
1,346
(7,947)
11
2,620
(28,921)
Net interest revenue
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
(15,437)
$
28
Other Operating Revenue
Other operating revenue was $694.4 million for 2019, an increase of $77.6 million or 13% over 2018 driven by growth in
brokerage and trading revenue and mortgage banking revenue.
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,
2019
2018
2017
2016
2015
$
159,826
$
108,323
$
131,601
$
138,377
$
129,556
87,216
177,025
112,485
107,541
58,108
702,201
9,351
14,951
15,787
(53,517)
5,597
—
—
—
84,025
184,703
112,153
97,787
56,185
643,176
(2,265)
(422)
81,143
162,889
112,079
104,719
49,738
642,169
11,434
779
(25,572)
(2,733)
4,668
(2,801)
—
—
—
172
4,428
—
—
—
78,347
135,387
111,589
133,914
50,372
647,986
4,687
(15,685)
(10,555)
(2,193)
11,675
—
—
—
73,650
126,034
109,592
126,002
50,195
615,029
5,390
430
(3,684)
(4,853)
12,058
(2,443)
624
(1,819)
Total other operating revenue
$
694,370
$
616,784
$
656,249
$
635,915
$
622,551
Non-GAAP Reconciliation:1
Transaction card revenue on income statement
Netting adjustment
87,216
—
84,025
119,988
116,452
—
(38,845)
(38,105)
109,579
(35,929)
Transaction card revenue after netting adjustment
1 Non-GAAP measure to net interchange charges for 2015-2017 between transaction card revenue and data processing and communications expense as a
78,347
81,143
87,216
84,025
73,650
result of the revenue recognition standard implemented January 1, 2018. 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 39% of total
revenue for 2019, 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,
increased $51.5 million or 48% over the prior year.
29
Trading revenue includes net realized and unrealized gains and losses primarily related to sales of residential mortgage-backed
securities guaranteed by U.S. government agencies and related derivative instruments that enable our mortgage-banking
customers to manage their production risk. Trading revenue also includes net realized and unrealized gains and losses on
municipal securities, asset-backed securities and other financial instruments that we sell to institutional customers, along with
changes in the fair value of financial instruments we hold as economic hedges against market risk of our trading securities.
Trading revenue was $88.6 million for 2019, an increase of $60.5 million over 2018. Lower mortgage interest rates during 2019
increased customer mortgage-backed trading activities. In addition, trading revenue growth reflected a shift in the mix of our
to-be-announced residential mortgage backed securities contracts from our customer hedging program to our trading program.
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 $18.9 million for 2019, a decrease of $19.9 million or 51% compared to 2018.
Revenue earned from retail brokerage transactions totaled $16.1 million for 2019, a decrease of $1.8 million or 10% 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.
Insurance brokerage fees were $13.9 million for 2019, an increase of $9.7 million compared to the prior year due to a full year
of operations with the addition of CoBiz in October, 2018.
Investment banking, which includes fees earned upon completion of underwriting, financial advisory services and loan
syndication fees, totaled $22.3 million for 2019, an increase of $3.1 million or 16% compared to 2018, 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 $87.2
million for 2019, a $3.2 million or 4% increase over 2018. Revenues from the processing of transactions on behalf of the
members of our TransFund electronic funds transfer ("EFT") network totaled $77.3 million, up $1.1 million or 1% over
2018. The number of TransFund ATM locations totaled 2,463 at December 31, 2019 compared to 2,426 at December 31, 2018.
Merchant services fees paid by customers for account management and electronic processing of card transactions totaled $8.8
million, an increase of $982 thousand over 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 90% 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 $7.7 million or 5% over 2018 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
Year Ended December 31,
2019
Balance
Revenue1 Margin2
Balance
2018
Revenue1 Margin2
Managed fiduciary assets:
Personal
Institutional
$ 10,441,048
$ 97,527
0.93% $ 8,115,503
$ 92,633
13,512,904
25,603
0.19% 13,119,497
22,488
Total managed fiduciary assets
23,953,952
123,130
0.51% 21,235,000
115,121
Non-managed assets:
Fiduciary
Non-fiduciary
28,398,183
14,250,586
52,480
1,415
0.18% 23,606,339
0.01% 15,964,854
67,460
2,122
Safekeeping and brokerage assets under
administration
16,138,240
—
—% 15,473,584
—
Total non-managed assets
58,787,009
53,895
0.09% 55,044,777
69,582
1.14%
0.17%
0.54%
0.22% 3
0.01%
—%
0.10%
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 Margin excludes $15.4 million fee earned through client asset management.
$ 82,740,961
$ 177,025
0.21% $76,279,777
$ 184,703
0.22% 3
A summary of changes in assets under management or administration for the year ended December 31, 2019 and 2018 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,
2019
2018
$
76,279,777
$
81,827,797
(257,531)
(6,812,199)
—
6,718,715
998,705
265,474
$
82,740,961
$
76,279,777
Mortgage banking revenue totaled $107.5 million for 2019, a $9.8 million or 10% increase compared to 2018. Mortgage
production revenue increased $11.0 million. Production volume is up $446 million as average primary interest rates decreased
60 basis points compared to 2018. Gain on sale margin also increased 19 basis points to 1.44%. In 2019, we exited our lower
margin online lead purchasing business to focus on our core competency of developing complete, long-term relationships with
our clients. In addition, the lower mortgage interest rates in 2019 led to an increase in supply of mortgage applications, which
further expanded margins. Mortgage servicing revenue was $64.8 million, relatively consistent with the prior year. The
outstanding principal balance of mortgage loans serviced for others totaled $20.7 billion at December 31, 2019, a $931 million
decrease compared to December 31, 2018.
31
Table 6 – Mortgage Banking Revenue
(In thousands)
Mortgage production revenue
$
42,720
$
31,690
$
38,498
$
69,628
$
69,587
2019
2018
2017
2016
2015
Year Ended December 31,
Mortgage loans funded for sale
$ 2,973,291
$ 2,587,297
$ 3,286,873
$ 6,117,417
$ 6,372,956
Add: Current year end outstanding commitments
Less: Prior year end outstanding commitments
158,460
160,848
160,848
222,919
222,919
318,359
318,359
601,147
601,147
627,505
Total mortgage production volume
2,970,903
2,525,226
3,191,433
5,834,629
6,346,598
Gain on sale margin
1.44%
1.25%
1.21%
1.19%
1.10%
Mortgage loan refinances to mortgage loans funded
for sale
Primary mortgage interest rates:
Average
Period end
44%
28%
40%
51%
42%
3.94%
3.74%
4.54%
4.55%
3.99%
3.99%
3.65%
4.32%
3.85%
3.96%
Mortgage servicing revenue
$
64,821
$
66,097
$
66,221
$
64,286
$
56,415
Average outstanding principal balance of mortgage
loans serviced for others
21,257,462
21,891,749
22,055,002
20,837,897
17,920,557
Average mortgage servicing fee rates
0.30%
0.30%
0.30%
0.31%
0.31%
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 $17.9 million
in 2019, including a $53.5 million decrease in the fair value of mortgage servicing rights, offset by a $30.4 million increase in
the fair value of securities and derivative contracts held as an economic hedge and $5.2 million of related net interest revenue.
The net economic cost of changes in the fair value of mortgage servicing rights and related economic hedges was $15.6 million
in 2018. The fair value of mortgage servicing rights increased $4.7 million. The fair value of securities and interest rate
derivative contracts held as an economic hedge decreased $25.0 million. Net interest earned on securities held as an economic
hedge was $4.8 million.
32
(3,684)
(3,050)
(4,853)
(7,903)
8,001
Table 7 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge
(In thousands)
Gain (loss) on mortgage hedge derivative contracts, net
$ 14,589
$
551
$
681
$ (15,696) $
634
Year Ended December 31,
2019
2018
2017
2016
2015
Gain (loss) on fair value option securities, net
Gain (loss) on economic hedge of mortgage servicing rights
Gain (loss) on change in fair value of mortgage servicing rights
15,787
30,376
(25,572)
(25,021)
(53,517)
4,668
(2,733)
(2,052)
172
(10,555)
(26,251)
(2,193)
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
(23,141)
(20,353)
(1,880)
(28,444)
5,214
4,798
8,435
4,356
$ (17,927) $ (15,555) $
6,555
$ (24,088) $
98
1 Actual interest earned on fair value option securities less internal transfer-priced cost of funds.
Fourth Quarter 2019 Other Operating Revenue
Other operating revenue was $178.6 million for the fourth quarter of 2019, an increase of $42.1 million compared to the fourth
quarter of 2018.
A decrease in mortgage interest rates in 2019 increased mortgage banking revenue and related trading activity. Brokerage and
trading revenue was $43.8 million for the fourth quarter of 2019, an increase of $15.7 million. Mortgage banking revenue was
$25.4 million for the fourth quarter of 2019, an increase of $3.5 million. Mortgage loan production volumes were $635 million
for the fourth quarter of 2019, compared to $460 million in the fourth quarter of 2018.
The fourth quarter of 2019 included a $3.7 million decrease in the fair value of mortgage servicing rights, net of economic
hedges, while the fourth quarter of 2018 included a $12.4 million decrease.
Other gains and losses, net, increased $6.7 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.
2018 Other Operating Revenue
Other operating revenue totaled $616.8 million for 2018, a decrease of $39.5 million or 6% compared to 2017. The change in
the fair value of mortgage servicing rights, net of economic hedges, decreased operating revenue in 2018 by $20.4 million
compared to a decrease in operating revenue of $1.9 million in 2017 as a result of mortgage rate volatility in 2018.
Brokerage and trading revenue for 2018 decreased $23.3 million compared to 2017. During 2018, we significantly expanded
our U.S. government residential mortgage-backed securities trading activities. Net interest revenue on our trading portfolio
grew $37.0 million. However, trading revenue decreased $15.5 million in 2018, primarily due to an $18.3 million increase in
hedging costs. Customer hedging revenue decreased $5.3 million 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.
Transaction card revenue grew by $2.9 million over 2017 primarily due to growth in transaction volumes. Fiduciary and asset
management fees increased $6.4 million primarily due to growth in managed fiduciary assets.
Mortgage banking revenue decreased by $6.9 million compared 2017 mainly due to a decrease in production volume as average
primary interest rates climbed 56 basis points.
33
Other Operating Expense
Other operating expense for 2019 totaled $1.1 billion, a $104.2 million or 10% increase over the prior year. CoBiz added $17.2
million in closing and integration costs during 2019 and $16.6 million in 2018. Operations related to CoBiz added $84.0
million to other operating expense in 2019 and $29.7 million in 2018. Excluding those costs, operating expense increased $49.3
million, mostly related to incentive compensation. 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,
2019
2018
2017
2016
2015
$
395,902
$
358,280
$
333,226
$
332,740
$
313,403
144,526
15,544
8,711
168,781
95,882
660,565
35,662
3,000
54,861
110,275
20,906
124,983
16,517
6,707
20,618
50,685
27,602
132,593
127,964
128,077
4,229
(1,076)
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
361
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
$ 1,132,381
$ 1,028,166
$
986,672
$
979,485
$
860,262
Average number of employees (full-time equivalent)
5,155
4,993
4,900
4,872
4,797
Non-GAAP Reconciliation:1
Data processing and communications expense on income
statement
Netting adjustment
Data processing and communications expense after netting
124,983
114,796
—
—
146,970
(38,845)
131,841
(38,105)
122,383
(35,929)
adjustment
86,454
1 Non-GAAP measure to net interchange charges for 2015-2017 between transaction card revenue and data processing and communications
expense as a result of the revenue recognition standard implemented January 1, 2018. This measure has no effect on net income or earnings
per share.
114,796
124,983
108,125
93,736
Personnel expense
Personnel expense increased $80.3 million in 2019. Regular compensation expense, which consists of salaries and wages,
overtime pay and temporary personnel costs, increased $36.0 million or 10% over 2018. CoBiz employees added $33.9 million
in 2019 and $13.5 million in 2018. 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.
34
Incentive compensation increased $37.6 million or 29% compared to 2018. The addition of CoBiz employees added $8.4
million to incentive compensation in 2019 and $2.9 million in 2018. 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, grew $16.5 million over 2018.
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. Share-based
compensation expense for equity awards increased $11.3 million compared to 2018, primarily due to an increase 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 increased $9.8 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 in other gains (losses), net in the
Consolidated Statements of Earnings.
Non-personnel operating expense
Non-personnel expense increased $23.3 million or 5% over the prior year.
Intangible asset amortization increased $11.0 million due to the addition of CoBiz. Occupancy and equipment expense
increased $8.4 million or 9%, primarily related to CoBiz operations. Data processing and communications expense increased
$8.5 million or 7% primarily due to technology project costs. Mortgage banking expense increased $4.4 million or 9%,
primarily due to an increase in prepayments.
Net losses and operating expenses of repossessed assets decreased $10.3 million over the prior year mainly due to write-downs
on a set of oil and gas properties and a healthcare property in 2018. Insurance expense decreased $2.6 million or 11%, largely
due to the elimination of a large bank deposit insurance surcharge assessed by the FDIC in the fourth quarter of 2018.
Fourth Quarter 2019 Operating Expenses
Other operating expense for the fourth quarter of 2019 totaled $288.8 million, an increase of $4.2 million compared to the
fourth quarter of 2018. The fourth quarter of 2018 included $14.5 million of CoBiz closing and acquisition costs. The
discussion following excludes these costs.
Personnel expense increased $13.4 million over the fourth quarter of 2018, primarily due to an increase in incentive
compensation of $17.6 million. Share-based compensation expense increased $5.6 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 increased $6.1 million, which is largely offset by changes in the fair value of assets held in rabbi trusts for the benefit
of participants. Cash based incentive compensation increased $5.9 million due to increased sales activity. These increases were
partially offset by a decrease in employee benefit costs of $3.6 million, primarily related to a reduction in employee insurance
costs.
Non-personnel expense increased $5.3 million compared to the fourth quarter of 2018, largely due to increases in data
processing and communications expense and mortgage banking costs.
2018 Operating Expenses
Other operating expense totaled $1.0 billion for 2018, a $41.5 million or 4% increase over 2017. Closing and integration costs
were $16.6 million and operating expenses related to CoBiz were $29.7 million in 2018.
Personnel expense increased $4.0 million in 2018. A $24.9 million increase in regular compensation expense largely as a result
of the addition of Cobiz employees in the fourth quarter was partially offset by a $24.6 million decrease in incentive
compensation due to changes in vesting assumptions.
35
Non-personnel expense increased $20.9 million or 5% over 2017. Occupancy and equipment expense increased $11.4 million,
primarily related to the addition of CoBiz operating expenses and the new Oklahoma City office. Data processing and
communications expense increased $6.3 million due to technology project costs. Insurance expense increased $3.7 million. 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. Net losses and operating expenses of repossessed assets increased $7.4 million mainly due to
write-downs on a set of oil and gas properties and a healthcare property.
Mortgage banking expense decreased $6.6 million, largely due to a reduction in accruals related to default servicing and loss
mitigation costs on loans serviced for others. Other expense decreased $5.7 million primarily due to reductions in litigation
expenses and expenses related to merchant banking investments that were sold in 2017.
Income Taxes
Income tax expense was $130.2 million or 20.6% of net income before taxes for 2019, $119.1 million or 21.1% of net income
before taxes for 2018 and $182.6 million or 35.2% of net income before taxes for 2017.
In 2018, we completed our accounting for uncertainties that resulted from the Tax Reform Act. Resolution of these
uncertainties decreased 2018 tax expense by $1.7 million. Excluding these adjustments, the 2018 effective tax rate would have
been 21.4%.
Net deferred tax liabilities totaled $26 million at December 31, 2019 compared to net deferred tax assets of $35 million at
December 31, 2018. 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 2019 and 2018.
Income tax expense was $30.3 million or 21.5% of net income before taxes for the fourth quarter of 2019 compared to $20.1
million or 15.7% of net income before taxes for the fourth quarter of 2018.
36
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 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
2019
First
Second
Third
Fourth
$
376,074
$
390,820
$
395,207
$
369,857
97,972
278,102
8,000
270,102
160,552
17,384
(20,666)
157,270
169,228
117,929
287,157
140,215
29,950
110,265
(347)
105,388
285,432
5,000
280,432
176,108
25,512
(29,555)
172,065
160,342
116,795
277,137
175,360
37,580
137,780
217
116,111
279,096
12,000
267,096
186,119
12,924
(12,593)
186,450
162,573
116,719
279,292
174,254
32,396
141,858
(373)
99,608
270,249
19,000
251,249
179,422
(10,134)
9,297
178,585
168,422
120,373
288,795
141,039
30,257
110,782
430
Net income attributable to shareholders of BOK Financial Corp. shareholders $
110,612
$
137,563
$
142,231
$
110,352
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
$
$
1.54
1.54
$
$
1.93
1.93
$
$
2.00
2.00
$
$
1.56
1.56
71,387,070
70,887,063
70,596,307
70,295,899
71,404,388
70,902,033
70,609,924
70,309,644
37
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 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
Earnings per share:
Basic
Diluted
Average shares:
Basic
Diluted
Net income attributable to shareholders of BOK Financial Corp. shareholders $
105,562
2018
First
Second
Third
Fourth
$
265,407
$
294,180
$
303,247
$
365,592
45,671
219,736
(5,000)
224,736
159,614
(24,831)
21,206
155,989
139,947
104,483
244,430
136,295
30,948
$
105,347
(215)
$
$
1.61
1.61
55,618
238,562
—
238,562
62,364
240,883
4,000
236,883
79,906
285,686
9,000
276,686
157,258
166,197
160,107
(2,582)
1,723
(4,228)
5,972
156,399
167,941
138,947
107,529
246,476
148,485
33,330
143,531
109,086
252,617
152,207
34,662
581
(24,233)
136,455
160,706
123,937
284,643
128,498
20,121
115,155
$
117,545
$
108,377
783
289
(79)
114,372
117,256
108,456
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
38
Lines of Business
We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial
Banking includes lending, treasury and cash management services and customer risk management products for small
businesses, middle market and larger commercial customers. Commercial Banking also includes the TransFund EFT
network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small business
customers served through our consumer branch network and all mortgage banking activities. Wealth Management provides
fiduciary services, private bank services, insurance and investment advisory services in all markets. Wealth Management also
underwrites state and municipal securities and engages in brokerage and trading activities.
In addition to our lines of business, we have a Funds Management unit. The primary purpose of this unit is to manage our
overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the Funds
Management unit as needed to support their operations. Operating results for Funds Management and other include the effect of
interest rate risk positions and risk management activities, securities gains and losses including impairment charges, the
provision for credit losses in excess of net loans charged off, tax planning strategies and certain executive compensation costs
that are not attributed to the lines of business. The Funds Management unit also initially recognizes accruals for loss
contingencies when losses become probable. Actual losses are recognized by the lines of business if the accruals are settled.
The operations of CoBiz, acquired on October 1, 2018, were allocated to the operating segments in the second quarter of
2019. Prior to April 1, 2019, CoBiz operations were included in Funds Management and other.
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 indirect expenses and taxes based on statutory rates.
The cost of funds borrowed from the Funds Management unit by the operating lines of business is transfer priced at rates that
approximate market rates for funds with similar repricing and cash flow characteristics. Market rates are generally based on the
applicable LIBOR or interest rate swap rates, adjusted for prepayment risk and liquidity 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 that
approximate wholesale market rates for funds with similar repricing and cash flow 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 repricing 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. During 2018, the funds transfer pricing
rates for non-maturity deposits became inverted due to the flattening of the yield curve. Short term rates continued to increase
while long term rates remained relatively flat. In order to appropriately reflect the organizational value of these deposits to the
lines of business, effective January 1, 2019, we made adjustments that attribute more deposit credit value to the business lines,
with the offset to Funds Management and other.
Economic capital is assigned to the business units by a capital allocation model that reflects management’s assessment of
risk. This model assigns capital based upon credit, operating, interest rate and other market risk inherent in our business lines
and recognizes the diversification benefits among the units. The level of assigned economic capital is a combination of the risk
taken by each business line, based on its actual exposures and calibrated to its own loss history where possible. Average
invested capital includes economic capital and amounts we have invested in the lines of business.
As shown in Table 10 following, net income attributable to our lines of business increased $81.8 million or 18% over the prior
year. Net interest revenue grew by $135.2 million over the prior year, primarily due to the CoBiz acquisition combined with
growth in average loan balances. Net charge-offs were up $9.8 million over the prior year. Other operating revenue increased
$62.1 million and other operating expense increased $69.8 million.
39
Table 10 – Net Income by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Commercial Banking
Year Ended December 31,
2019
2018
2017
$
374,806
$
333,515
$
267,797
56,606
95,331
526,743
(25,985)
25,399
86,027
444,941
705
15,573
59,849
343,219
(8,575)
$
500,758
$
445,646
$
334,644
Commercial Banking contributed $374.8 million to consolidated net income in 2019, up $41.3 million or 12% over the prior
year. Growth in net interest revenue and fees and commissions revenue was partially offset by increased operating expense.
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,
2019
2018
2017
$
919,148
$
726,855
$
618,325
(242,907)
(159,954)
676,241
39,011
637,230
168,667
1,745
170,412
163,106
89,353
252,459
566,901
30,358
536,543
161,949
752
162,701
122,863
79,232
202,095
(92,055)
526,270
13,877
512,393
163,107
7,192
170,299
117,824
79,864
197,688
555,183
497,149
485,004
106
331
43,055
512,565
137,759
374,806
22,807,589
18,090,224
10,319,677
$
$
26
(6,532)
36,670
453,973
120,458
333,515
18,432,035
15,073,484
8,517,137
$
$
52
(2,681)
28,060
454,315
186,518
267,797
17,766,027
14,373,830
8,725,920
$
$
Average invested capital
1 Fees and commission revenue for 2017 has been adjusted on a comparable basis with 2019 and 2018 (Non-GAAP measure) to net
2,218,013
1,561,623
1,338,468
interchange fees paid to issuing banks on card transactions processed by our TransFund merchant processing services for the twelve
months ended December 31, 2017 as a result of the revenue recognition standard.
40
Net interest revenue increased $109.3 million or 19% over the prior year, primarily due to the allocation of CoBiz to the
business lines and an increase in average originated loan balances, along with increased yields. Yields on deposits sold to the
Funds Management unit also went up due to the increase in short-term interest rates. Net loans charged-off increased $8.7
million.
Fees and commissions revenue increased $6.7 million or 4% due to an increase in loan syndication fees based on the timing of
completed transactions and an increase in revenues from the processing of transactions on behalf of the members of our
TransFund EFT network, split almost equally.
Operating expense increased $50.4 million or 25% compared to 2018. Personnel expense increased $40.2 million or 33%
primarily due to the incorporation of CoBiz employees combined with standard annual merit increases. Non-personnel expense
increased $10.1 million or 13%, primarily due to increased intangible asset amortization related to CoBiz. Corporate expense
allocations increased $6.4 million or 17% over the prior year.
The average outstanding balance of loans attributed to Commercial Banking was up $3.0 billion or 20% over 2018 to $18.1
billion. See the Loans section of Management's Discussion and Analysis of Financial condition following for additional
discussion of changes in commercial and commercial real estate loans, which are primarily attributed to the Commercial
Banking segment.
Average deposits attributed to Commercial Banking were $10.3 billion for 2018, a 21% increase compared to the prior year.
See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital for further
discussion of change.
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. In the first quarter of 2019, the strategic decision was made
to exit our online lead buying business, HomeDirect, to focus more on our core competency of developing complete, long-term
relationships with our clients through our traditional mortgage origination channel.
Net income attributed to Consumer Banking totaled $56.6 million for 2019, compared to $25.4 million in the prior
year. Improved performance by Consumer Banking was largely due to the effect of changes in pricing of funds sold to the
Funds Management unit combined with lower mortgage interest rates, which has increased mortgage banking activity and
related revenue.
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
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
Average assets
Average loans
Average deposits
Average invested capital
Year Ended December 31,
2019
2018
2017
$
99,679
$
83,231
$
95,775
195,454
6,271
189,183
187,996
(496)
187,500
96,518
134,398
230,916
145,767
30,375
(53,517)
496
47,169
75,952
19,346
56,606
9,301,341
1,762,915
6,876,676
294,923
$
$
73,448
156,679
5,143
151,536
178,174
(51)
178,123
96,234
134,841
231,075
98,584
(25,021)
4,668
247
44,398
34,080
8,681
25,399
8,303,263
1,731,894
6,560,145
292,791
$
$
$
$
84,286
53,916
138,202
4,786
133,416
185,030
(152)
184,878
100,695
141,110
241,805
76,489
(2,052)
172
223
49,344
25,488
9,915
15,573
8,544,117
1,734,836
6,610,134
295,026
Net interest revenue from Consumer Banking activities grew by $38.8 million or 25% over 2018, primarily related to increased
yields on deposit balances sold to the Funds Management unit. Average consumer deposits grew $317 million with demand
deposit balances up by $287 million or 15%, largely due to the allocation of acquired deposits.
Fees and commissions revenue increased $9.8 million or 6% compared to the prior year. Lower mortgage interest rates
increased mortgage loan origination volumes. Mortgage production volume increased $446 million or 18% and gain on sale
margin increased 18 basis points. Operating expense remained relatively flat compared to 2018 and corporate expense
allocations were $2.8 million or 6% higher than in the prior year.
Changes in the fair value of our mortgage servicing rights, net of economic hedges, as more fully presented in Table 7, resulted
in a $23.1 million decrease to pre-tax net income for 2019 compared to a $20.4 million decrease to pre-tax net income in 2018.
42
Wealth Management
Wealth Management contributed $95.3 million to consolidated net income in 2019, up $9.3 million or 11% over the prior
year. Prior year included an after tax benefit of $11.5 million as a result of a fee earned on the sale of client assets. Excluding
this fee, net income for Wealth Management increased $20.8 million or 24% over 2018. This fee is excluded from the
discussion below.
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 recovered
Net interest revenue after net loans recovered
Fees and commissions revenue
Other gains (losses), net
Other operating revenue
Personnel expense
Other non-personnel expense
Other operating expense
Net direct contribution
Gain 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,
2019
2018
2017
$
61,277
$
81,528
$
38,815
100,092
(308)
31,480
113,008
(288)
100,400
113,296
45,024
38,344
83,368
(696)
84,064
341,333
296,465
301,485
56
(96)
(51)
341,389
296,369
301,434
201,368
75,899
277,267
184,144
73,506
257,650
183,727
70,768
254,495
164,522
152,015
131,003
2
—
36,239
128,285
32,954
7
—
35,920
116,102
30,075
—
387
32,693
98,697
38,848
$
95,331
$
86,027
$
59,849
$
10,204,426
$
8,447,784
$
7,072,622
1,609,464
6,447,987
274,599
1,423,126
5,617,325
251,401
1,314,441
5,516,214
232,729
Net interest revenue decreased $12.9 million or 11% over the prior year, largely due to decreased spreads on trading
securities. Further, Wealth Management incurred additional funding costs related to an increase in non-interest bearing
receivables on unsettled securities sales. Average loan balances were up $186 million or 13% over the prior year and average
deposit balances increased $831 million or 15% largely due to the allocation of acquired loans and deposits.
Fees and commissions revenue increased $60.3 million or 21% compared to the prior year. Brokerage and trading revenue
increased $50.5 million compared to the prior year due to increased trading activity as a result of lower mortgage interest
rates. Fiduciary and asset management revenue increased $7.6 million compared to 2018.
Operating expense increased $19.6 million or 8% compared to the prior year. Personnel expense increased $17.2 million
primarily due to the combination of standard annual merit increases and the increase of incentive compensation as a result of
higher trading activity. Non-personnel expense increased $2.4 million or 3% over 2018 largely related to occupancy and
equipment expense related to the new Oklahoma City office.
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)
2019
December 31,
2018
2017
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Trading:
U.S. government agency debentures
Residential agency mortgage-backed
securities
Municipal and other tax-exempt securities
Asset-backed securities
Other debt securities
Total trading securities
$
44,258
$
44,264
$
63,511
$
63,765
$
21,188
$
21,196
1,502,358
26,136
14,105
34,705
$ 1,621,562
1,504,651
26,196
14,084
34,726
$ 1,623,921
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
Investment:
Municipal and other tax-exempt
Residential agency mortgage-backed
securities
Other debt securities
Total investment securities
Available for sale:
U.S. Treasury
Municipal and other tax-exempt
Mortgage-backed securities:
Residential agency
Residential non-agency
Commercial agency
Other debt securities
Perpetual preferred stock1
Equity securities and mutual funds1
Total available for sale securities
Fair value option securities:
U.S. Treasury
Residential agency mortgage-backed
$
$
$
93,653
$
96,897
$
137,296
138,562
$
228,186
$
230,349
10,676
189,089
293,418
1,598
1,789
$
$
11,164
206,341
314,402
1,600
1,861
$
$
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
7,956,297
25,968
3,145,342
500
—
—
$ 11,131,494
8,046,096
41,609
3,178,005
472
—
—
$ 11,269,643
5,886,323
40,948
2,986,297
35,545
—
—
$ 8,952,391
5,804,708
59,736
2,953,889
35,430
—
—
$ 8,857,120
5,355,148
74,311
2,858,885
25,500
12,562
14,487
$ 8,369,075
5,309,152
93,221
2,834,961
25,481
15,767
14,916
$ 8,321,578
$
9,965
$
9,917
$
— $
— $
— $
—
securities
Total fair value option securities
755,054
1,088,660
$ 1,098,577
755,054
1 As a result of the recent measurement accounting standard effective January 1, 2018, equity securities are no longer considered part of the
1,074,551
$ 1,084,516
280,469
280,469
283,235
283,235
756,931
756,931
$
$
$
$
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.
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.
44
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 $11.1 billion at December 31, 2019, an increase of $2.2 billion compared to December 31,
2018. 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, 2019, residential
mortgage-backed securities represented 72% of total available for sale securities.
A primary risk of holding residential mortgage-backed securities comes from extension during periods of rising interest rates or
prepayment during periods of falling interest rates. We evaluate this risk through extensive modeling of risk both before making
an investment and throughout the life of the security. Our best estimate of the effective duration of the combined residential
mortgage-backed securities portfolio held in investment and available for sale securities portfolios at December 31, 2019 is 3.2
years. Management estimates the combined portfolios' duration extends to 4.0 years assuming an immediate 200 basis point
upward shock. The estimated duration contracts to 2.5 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 $20 million at December 31, 2019, a
$118 million decrease compared to December 31, 2018. 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 2019.
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. Fair value option securities totaled $1.1 billion, an increase of $815
million due to an increase in the sensitivity of the fair value of mortgage servicing rights as mortgage interest rates declined
significantly throughout 2019. See Market Risk section for further details.
Bank-Owned Life Insurance
We have approximately $390 million of bank-owned life insurance at December 31, 2019. This investment is expected to
provide a long-term source of earnings to support existing employee benefit programs. Approximately $301 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. As of December 31, 2019, the fair value of investments held in separate accounts was approximately $313
million. As the underlying fair value of the investments held in a separate account at December 31, 2019 exceeded the net book
value of the investments, no cash surrender value was supported by the stable value wrap. The stable value wrap is provided by
a domestic financial institution. The remaining cash surrender value of $89 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 $21.8 billion at December 31, 2019, an increase of $94
million over December 31, 2018. Growth in commercial and personal loan balances was partially offset by a decrease in
commercial real estate and residential mortgage loans.
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
Industrial
Retail
Residential construction and land development
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
2019
2018
2017
2016
2015
December 31,
$
3,973,377
$
3,590,333
$
2,930,156
$
2,497,868
$
3,097,328
3,122,163
3,033,916
1,760,866
709,868
665,449
766,011
3,258,192
2,799,277
1,621,158
804,550
730,521
832,047
2,528,389
2,314,753
1,471,256
464,145
496,774
528,502
2,632,036
2,201,916
1,576,818
487,020
514,975
480,191
2,480,361
1,883,380
1,418,024
308,714
556,729
507,995
14,031,650
13,636,078
10,733,975
10,390,824
10,252,531
1,265,562
928,379
856,117
775,521
150,879
457,325
1,288,065
1,072,920
778,106
919,082
148,584
558,056
980,017
831,770
573,014
691,532
117,245
286,409
903,272
798,888
871,749
761,888
135,533
337,716
751,085
637,707
563,169
796,499
160,426
350,147
4,433,783
4,764,813
3,479,987
3,809,046
3,259,033
1,057,321
1,122,610
1,043,435
1,006,820
945,336
197,794
829,057
190,866
916,557
197,506
732,745
199,387
743,625
196,937
734,620
Total residential mortgage
2,084,172
2,230,033
1,973,686
1,949,832
1,876,893
Personal
Total
Commercial
1,201,382
1,025,806
965,776
839,958
552,697
$
21,750,987
$ 21,656,730
$
17,153,424
$
16,989,660
$
15,941,154
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 $14.0 billion or 65% of the loan portfolio at December 31, 2019, growing $396 million or 3% over
December 31, 2018. This growth was led by a $383 million or 11% increase in energy sector loans. Healthcare sector loans
were up $235 million or 8%. Wholesale/retail sector loans increased $140 million or 9%. Service sector loans decreased $136
million or 4%. Public finance loans decreased $95 million or 12%.
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
$ 633,942
$2,314,404
$ 59,471
$
579
$ 497,751
$
12
$ 106,933
$ 360,285
$ 3,973,377
606,021
246,485
230,710
62,743
97,048
700,916
172,878
424,041
121,940
749,336
161,792
188,834
32,996
37,247
1,004
13,173
78,488
35,943
—
5,491
578,835
310,580
156,865
167,790
139,246
448,573
253,823
347,944
3,122,163
274,064
271,802
1,306,516
3,033,916
122,329
31,845
82,667
—
125,625
44,655
400,842
197,629
63,546
1,760,866
709,868
665,449
134,429
116,002
5,283
57,573
116,012
34,657
50,969
251,086
766,011
Energy
Services
Healthcare
Wholesale/retail
Public finance
Manufacturing
Other commercial
and industrial
Total commercial
loans
$2,011,378
$4,655,325
$430,819
$ 191,247
$1,967,079
$1,087,927
$ 760,027
$2,927,848
$14,031,650
The majority of our commercial portfolio is located within our geographic footprint. At December 31, 2019, the Other category
is composed primarily of California totaling $583 million or 4% of the commercial portfolio, Florida totaling $248 million or
2% of the commercial portfolio, Louisiana totaling $169 million or 1% of the commercial portfolio, North Carolina totaling
$163 million or 1% of the commercial portfolio, Pennsylvania totaling $157 million or 1% and Ohio totaling $140 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 $4.0 billion or 18% of total loans at December 31, 2019. Unfunded energy loan commitments
decreased by $246 million during the year to $3.0 billion at December 31, 2019. Approximately $3.1 billion or 79% of energy
loans were to oil and gas producers, a $188 million increase over December 31, 2018. 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 58% of the
committed production loans are secured by properties primarily producing oil and 42% of the committed production loans are
secured by properties primarily producing natural gas. Loans to borrowers in the midstream sector of the industry totaled $609
million or 15% of energy loans, an increase of $189 million over the prior year. Loans to borrowers that provide services to the
energy industry totaled $177 million or 4% of energy loans, an increase of $1.4 million during 2019. Loans to other energy
borrowers, including those engaged in wholesale or retail energy sales totaled $67 million or 2% of energy loans, an increase of
$4.6 million over the prior year.
The services sector of the loan portfolio totaled $3.1 billion or 14% 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, technology and
media and education. Approximately $1.5 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 $3.0 billion or 14% 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, 2019, the outstanding principal balance of these loans totaled $4.5 billion,
including $2.2 billion in the energy sector. Approximately 85% of shared national credits 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 national 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 with 24% of total commercial real estate loans, Oklahoma with
12% of total commercial real estate loans and Colorado with 11% of the total commercial real estate portfolio at December 31,
2019. 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 $4.4 billion or 20% of the loan portfolio at December 31, 2019. The outstanding balance
of commercial real estate loans decreased $331 million compared to 2018. Loans secured by office buildings decreased $145
million or 13%. Loans secured by retail facilities decreased $144 million or 16%. Other real estate loans decreased $101
million or 18%. These decreases were partially offset by an increase of $78 million or 10% in loans secured by industrial
facilities. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 20% 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
$ 162,329
$ 391,904
$ 32,618
$ 55,808
$ 48,022
$169,681
$ 145,852
$ 259,348
$ 1,265,562
Office
Industrial
Retail
Residential
construction and
land
development
Other commercial
real estate
Total commercial
real estate loans
125,552
118,153
60,538
151,130
114,706
19,872
192,751
19,613
248,985
147,921
76
5,252
84,917
80,749
88,703
74,947
45,752
45,403
58,143
36,122
13,507
299,112
362,901
165,212
928,379
856,117
775,521
6,433
37,035
14,332
91
54,643
5,854
5,267
27,224
150,879
44,104
36,462
9,219
2,198
111,792
68,031
34,075
151,444
457,325
$ 517,109
$1,058,267
$ 338,409
$ 83,297
$ 468,826
$409,668
$ 292,966
$1,265,241
$ 4,433,783
The Other category includes Utah with $275 million or 6% of total commercial real estate loans, California with $261 million
or 6% of total commercial real estate loans, Georgia with $92 million or 2% of total commercial real estate loans and Nevada
with $78 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.
48
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.
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 $2.1 billion, a $146 million or 7% decrease compared to December 31, 2018. 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 93% 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, 2019, $198 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We
have minimal credit exposure on loans guaranteed by the agencies. This amount includes residential mortgage loans previously
sold into GNMA mortgage pools that are eligible to be repurchased. We may repurchase these loans when certain defined
delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over
these loans and must include them in the Consolidated Balance Sheets. Permanent residential mortgage loans guaranteed by
U.S. government agencies increased $6.9 million or 4% over December 31, 2018.
Home equity loans totaled $829 million at December 31, 2019, an $88 million or 10% decrease compared to December 31,
2018. 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, 2019 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
$
$
94,801
$
428,622
$
523,423
197,572
108,062
305,634
292,373
$
536,684
$
829,057
49
Personal loans totaled $1.2 billion, growing by $176 million or 17% over the prior year. 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, 2019 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
$ 165,598
$416,470
$ 61,622
$ 12,687
$ 194,921
$107,737
$ 52,472
$ 45,814
$ 1,057,321
53,119
355,092
31,445
135,192
30,318
74,896
9,939
7,935
6,211
116,326
801
36,277
18,238
53,166
47,723
50,173
197,794
829,057
$ 573,809
$583,107
$ 166,836
$ 30,561
$ 317,458
$144,815
$ 123,876
$143,710
$ 2,084,172
Personal
$ 420,809
$461,382
$ 11,061
$ 10,862
$ 84,388
$ 86,055
$ 54,975
$ 71,850
$ 1,201,382
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)
Texas:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Texas
Oklahoma:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Oklahoma
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
New Mexico:
Commercial
Commercial real estate
Residential mortgage
Personal
Total New Mexico
Arkansas:
Commercial
Commercial real estate
Residential mortgage
Personal
Total Arkansas
$
2019
2018
December 31,
2017
2016
2015
$
6,174,894
1,259,117
268,282
458,893
8,161,186
3,454,825
631,026
1,375,080
479,784
5,940,715
2,169,598
927,826
196,326
80,613
3,374,363
1,307,073
728,832
89,396
97,143
2,222,444
527,872
322,541
66,771
64,298
981,482
305,320
402,148
80,325
9,932
797,725
92,068
162,293
7,992
10,719
273,072
$
5,438,133
1,341,783
266,805
394,743
7,441,464
3,491,117
700,756
1,440,566
375,543
6,007,982
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
340,489
383,670
87,346
10,662
822,167
111,338
141,898
7,537
11,955
272,728
$
4,520,401
1,261,864
233,675
375,084
6,391,024
3,238,720
682,037
1,435,432
342,212
5,698,401
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
343,296
341,282
98,018
11,721
794,317
95,644
87,393
6,596
9,992
199,625
$
4,022,455
1,415,011
233,981
306,748
5,978,195
3,370,259
684,381
1,407,197
303,823
5,765,660
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
399,256
284,603
108,058
11,483
803,400
86,577
73,616
7,015
6,524
173,732
3,908,425
1,204,202
219,126
203,496
5,535,249
3,782,687
739,829
1,409,114
255,387
6,187,017
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
375,839
313,422
120,507
11,557
821,325
92,359
69,320
8,169
819
170,667
Total BOK Financial loans
$
21,750,987
$ 21,656,730
$
17,153,424
$
16,989,660
$
15,941,154
51
Table 21 – Loan Maturity and Interest Rate Sensitivity at December 31, 2019
(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
$ 14,031,650
4,433,783
$ 18,465,433
$
4,291,763
14,173,670
$ 18,465,433
$
$
$
$
824,474
$
7,789,765
536,146
2,556,793
1,360,620
$ 10,346,558
87,543
$
880,031
1,273,077
9,466,527
1,360,620
$ 10,346,558
$
$
$
$
5,417,411
1,340,844
6,758,255
3,324,189
3,434,066
6,758,255
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, 2019.
Table 22 – Off-Balance Sheet Credit Commitments
(In thousands)
Loan commitments
Standby letters of credit
Mortgage loans sold with recourse
Customer Derivative Programs
December 31,
2019
2018
2017
2016
2015
$ 11,065,649
$ 11,944,525
$
9,958,080
$
9,404,665
$
8,455,037
645,505
88,808
582,196
98,623
647,653
125,127
585,472
139,486
507,988
155,489
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.
52
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, 2019, the net fair values of derivative contracts, before
consideration of cash margin, reported as assets under these programs totaled $302 million compared to $427 million at
December 31, 2018. Derivative contracts carried as assets include foreign exchange contracts with fair values of $213 million,
interest rate swaps primarily sold to loan customers with fair values of $47 million and energy contracts with fair values of $37
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 $291 million.
At December 31, 2019, total derivative assets were reduced by $698 thousand of cash collateral received from counterparties
and total derivative liabilities were reduced by $51 million of cash collateral paid to counterparties related to instruments
executed with the same counterparty under a master netting agreement.
A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note
3 to the Consolidated Financial Statements.
The fair value of derivative contracts reported as assets under these programs, net of cash margin held by the Company, by
category of debtor at December 31, 2019 follows in Table 23.
Table 23 – 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
$
159,974
138,717
2,927
$
301,618
The largest exposure to a single counterparty was to a customer for an interest rate swap which totaled $4.7 million at
December 31, 2019.
Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain
counterparties when the net negative fair value of the contracts exceeds established limits. Also, changes in commodity prices
affect the amount of regulatory capital we are required to hold as support for the fair value of our derivative assets. These risks
are modeled as part of the management of these programs. Based on current prices, a decrease in market prices equal to the
equivalent of $35.12 per barrel of oil would decrease the fair value of derivative assets by $22 million, with dealer
counterparties comprising the bulk of the assets. An increase in prices equal to the equivalent of $73.05 per barrel of oil would
increase the fair value of derivative assets by $225 million. Further increases in prices to the equivalent of $87.35 per barrel of
oil would increase the fair value of our derivative assets by $478 million with lending customers comprising the bulk of the
assets. 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, 2019, changes in interest rates would not materially
impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
53
Summary of Loan Loss Experience
We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. At December 31, 2019, the combined
allowance for loan losses and accrual for off-balance sheet credit risk totaled $212 million or 0.98% of outstanding loans and
121% 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 1.06% of outstanding loans and 127% of nonaccruing
loans. The allowance for loan losses was $211 million and the accrual for off-balance sheet credit risk was $1.6 million. At
December 31, 2018, the combined allowance for credit losses was $209 million or 0.97% of outstanding loans and 134% of
nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $207 million
and the accrual for off-balance sheet credit risk was $1.8 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 changes in
nonaccruing and potential problem loans during the year, net charge-offs, specific impairment of two shared national credit
energy loans where the company is not the lead agent and growth in the loan portfolio during the year, the Company
determined that a $44 million provision for credit losses was appropriate for 2019. The Company recorded an $8.0 million
provision for loan losses for 2018.
54
Table 24 – 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,
2019
2018
2017
2016
2015
$ 207,457
$ 230,682
$
246,159
$
225,524
$ 189,056
(43,185)
(37,880)
(19,810)
(35,828)
(1,161)
(288)
(6,343)
—
(378)
(5,325)
(50,977)
(43,583)
2,021
4,986
562
2,505
10,074
(40,903)
44,205
3,316
3,552
1,047
2,499
10,414
(33,169)
9,944
$
$
$
$
$ 210,759
$ 207,457
$
$
$
1,790
(205)
1,585
44,000
$
$
$
0.97%
0.19%
0.20%
19.76%
5.15x
3,734
(1,944)
1,790
8,000
0.96%
0.18%
0.04%
23.89%
6.25x
(76)
(649)
(5,064)
(25,599)
4,461
1,940
760
2,451
9,612
(15,987)
510
230,682
11,244
(7,510)
3,734
(7,000)
1.34 %
0.09 %
(0.04)%
37.55 %
14.43x
—
(1,312)
(5,448)
(6,734)
(944)
(2,205)
(5,288)
(42,588)
(15,171)
1,727
1,283
1,999
2,747
7,756
(34,832)
55,467
2,729
11,079
1,260
3,052
18,120
2,949
33,519
$
$
$
$
246,159
$ 225,524
1,711
9,533
11,244
65,000
$
$
$
1,230
481
1,711
34,000
1.45%
0.21%
0.40%
1.41 %
(0.02)%
0.23 %
18.21%
119.44 %
7.07x
(76.47)x
0.01%
0.01%
0.04 %
0.11%
0.02 %
0.98%
0.97%
1.37 %
1.52%
1.43 %
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, 2019, impaired loans totaled $373 million, including
$49 million with specific allowances of $17 million and $324 million with no specific allowances because the loan balances
represent the amounts we expect to recover. At December 31, 2018, impaired loans totaled $347 million, including $35 million
of impaired loans with specific allowances of $8.7 million and $312 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 $176 million at December 31, 2019, compared to
$181 million at December 31, 2018. Decreases in the general allowance for the commercial real estate loan portfolio of $8.2
million and residential mortgage portfolio of $3.6 million were partially offset by an increase in the commercial loan portfolio
of $7.3 million.
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 $17 million at December 31, 2019, down from $18 million at December 31,
2018.
An allocation of the allowance for loan losses by loan category follows in Table 25.
Table 25 – Allowance for Loan Losses Allocation
(Dollars in thousands)
2019
2018
December 31,
2017
2016
2015
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Allowance
% of
Loans1
Loan category:
Commercial
$ 118,187
64.51% $ 102,226
62.96% $ 124,269
62.58% $ 140,213
61.16% $ 130,334
64.32%
Commercial
real estate
Residential
mortgage
Personal
Nonspecific
allowance
51,805
20.38%
60,026
22.00%
56,621
20.29%
50,749
22.42%
41,391
20.44%
14,400
9,172
17,195
9.58%
5.53%
17,964
9,473
17,768
10.30%
4.74%
18,451
9,124
22,217
11.50%
5.63%
11.48%
4.94%
18,224
8,773
28,200
19,509
4,164
30,126
11.77%
3.47%
Total
$ 210,759
100.00% $ 207,457
100.00% $ 230,682
100.00% $ 246,159
100.00% $ 225,524
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 $160 million at December 31, 2019, composed primarily of $64 million or 2% of energy loans,
$34 million or 1% of services loans, $21 million or 1% of healthcare loans and $14 million or 2% of manufacturing loans.
Potential problem loans totaled $215 million at December 31, 2018.
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 $210 million at
December 31, 2019 and were composed primarily of $117 million or 3% of energy loans, $30 million or 1% of service sector
loans, $18 million or 3% of manufacturing sector loans, $13 million or less than 1% of healthcare sector loans and $12 million
or 2% of commercial real estate loans secured by retail facilities. Other loans especially mentioned totaled $182 million at
December 31, 2018.
56
Net Loans Charged Off
Loans are charged off against the allowance for loan losses when the loan balance or a portion of the loan balance is no longer
covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral
value. Internally risk graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is
identified. Non-risk graded loans are generally charged off when payments are between 60 days and 180 days past due,
depending on loan class. In addition, non-risk graded loans are generally charged-down to collateral value within 60 days of
being notified of a borrower's bankruptcy filing, regardless of payment status.
BOK Financial had net loans charged off of $41 million or 0.19% of average loans for 2019, compared to net loans charged off
of $33 million or 0.18% of average loans in 2018.
Net commercial loans charged off totaled $41 million, primarily from $28 million of net charge-offs from energy loans and
$9.8 million of net charge-offs from healthcare loans. Net commercial real estate loan recoveries totaled $3.8 million. Net
recoveries of residential mortgage loans totaled $274 thousand for the year and net charge-offs of personal loans were $3.8
million. Net charge-offs of personal loans include deposit account overdraft losses.
57
Table 26 - 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
Total nonperforming assets
Total nonperforming assets excluding those
guaranteed by U.S. government agencies
Nonaccruing loans by loan class:
Commercial:
Energy
Manufacturing
Services
Healthcare
Wholesale/retail
Public finance
Other commercial and industrial
Total commercial
Commercial real estate:
Retail
Multifamily
Office
Industrial
Residential construction and land development
Other commercial real estate
Total commercial real estate
Residential mortgage:
Permanent mortgage
Permanent mortgages guaranteed by U.S.
government agencies
Home equity
Total residential mortgage
Personal
Total nonaccruing loans
2019
2018
2017
2016
2015
December 31,
$
115,416
$
27,626
37,622
287
99,841
21,621
41,555
230
180,951
163,247
92,452
20,359
293,762
195,210
86,428
17,487
267,162
173,602
$
$
$
$
$
137,303
$
178,953
$
2,855
47,447
269
187,874
73,994
28,437
290,305
207,132
$
$
5,521
46,220
290
230,984
81,370
44,287
356,641
263,425
$
$
76,424
9,001
61,240
463
147,128
74,049
30,731
251,908
155,959
$
47,494
$
92,284
$
132,499
$
61,189
$
$
$
91,722
10,133
7,483
4,480
1,163
—
435
115,416
18,868
6,858
—
909
350
641
8,919
8,567
16,538
1,316
—
17,007
99,841
20,279
301
—
—
350
691
27,626
21,621
20,441
23,951
6,100
11,081
37,622
287
7,132
10,472
41,555
230
5,962
2,620
14,765
2,574
—
19,098
137,303
276
—
275
—
1,832
472
2,855
25,193
9,179
13,075
47,447
269
4,931
8,173
825
11,407
—
21,118
178,953
326
38
426
76
3,433
1,222
5,521
22,855
11,846
11,519
46,220
290
331
10,290
1,072
2,919
—
623
76,424
1,319
274
651
76
4,409
2,272
9,001
28,984
21,900
10,356
61,240
463
$
180,951
$
163,247
$
187,874
$
230,984
$
147,128
Allowance for loan losses to nonaccruing loans1
Accruing loans 90 days or more past due1
Foregone interest on nonaccruing loans2
1 Excludes residential mortgages guaranteed by agencies of the U.S. government.
2
120.54%
17,409
7,680
$
$
1,338
15,502
132.89%
Interest collected and recognized on nonaccruing loans was not significant in 2019 and previous years.
129.09%
112.33%
180.09%
$
633
$
5
$
16,496
15,990
1,207
7,432
58
Nonperforming assets totaled $294 million or 1.35% of outstanding loans and repossessed assets at December 31, 2019, a $27
million increase over the prior year. Nonaccruing loans totaled $181 million, accruing renegotiated residential mortgage loans
totaled $92 million and real estate and other repossessed assets totaled $20 million. All accruing renegotiated residential
mortgage loans and $6.1 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets
guaranteed by U.S. government agencies, nonperforming assets increased $22 million to $195 million or 0.90% of outstanding
non-guaranteed loans and repossessed assets. The increase was primarily due to nonaccruing energy and multifamily
commercial real estate, partially offset by a decrease in nonaccruing other commercial & industrial loans and healthcare loans.
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.
Accruing renegotiated loans guaranteed by U.S. government agencies represent residential mortgage loans that have been
modified in troubled debt restructurings. See Note 4 to the Consolidated Financial Statements for additional discussion of
troubled debt restructurings. Generally, we modify residential mortgage loans primarily by reducing interest rates and
extending the number of payments in accordance with U.S. government agency guidelines. Generally, no unpaid principal or
interest is forgiven. Interest continues to accrue based on the modified terms of the loan. Modified loans guaranteed by U.S.
government agencies under residential mortgage loan programs may be sold once they become eligible according to U.S.
government agency guidelines.
A rollforward of nonperforming assets for the year ended December 31, 2019 follows in Table 27.
Table 27 – Rollforward of Nonperforming Assets
(In thousands)
Year Ended December 31, 2019
Nonaccruing
Loans
Renegotiated
Loans
Real Estate
and Other
Repossessed
Assets
Total
Nonperforming
Assets
Balance, December 31, 2018
$
163,247
$
86,428
$
17,487
$
Additions
Payments
Charge-offs
Net gains (losses) and write-downs
Foreclosure of nonaccruing loans
Foreclosure of loans guaranteed by U.S. government agencies
Proceeds from sales
Net transfers to nonaccruing loans
Return to accrual status
Other, net
Balance, December 31, 2019
165,020
(81,279)
(50,977)
—
(10,665)
(2,755)
—
235
(1,875)
—
44,171
(2,590)
—
—
—
(10,289)
(26,175)
(235)
—
1,142
—
—
—
863
10,665
—
(8,656)
—
—
—
267,162
209,191
(83,869)
(50,977)
863
—
(13,044)
(34,831)
—
(1,875)
1,142
$
180,951
$
92,452
$
20,359
$
293,762
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 limited. These properties will be conveyed to the
agencies and receivables collected once applicable criteria have been met.
59
Nonaccruing loans totaled $181 million or 0.83% of outstanding loans at December 31, 2019, compared to $163 million or
0.75% of outstanding loans at December 31, 2018. Nonaccruing loans increased $18 million compared to December 31, 2018.
Newly identified nonaccruing loans totaled $165 million. This was offset by $81 million of payments, $51 million of charge-
offs and $11 million of foreclosures during the year.
Commercial
Nonaccruing commercial loans totaled $115 million or 0.82% of total commercial loans at December 31, 2019, compared to
$100 million or 0.73% of total commercial loans at December 31, 2018. Newly identified nonaccruing commercial loans
totaled $133 million, offset by $68 million in payments, $43 million of charge-offs and $6.6 million of repossessions.
Nonaccruing commercial loans at December 31, 2019 were primarily composed of $92 million or 2.31% of total energy loans,
$10 million or 1.52% of total manufacturing loans and $7.5 million or 0.24% of service sector loans.
Commercial Real Estate
Nonaccruing commercial real estate loans were $28 million or 0.62% of outstanding commercial real estate loans at
December 31, 2019, compared to $22 million or 0.45% of outstanding commercial real estate loans at December 31, 2018. The
$6.0 million increase was primarily due to $10 million of newly identified commercial real estate loans during the year,
partially offset by $1.6 million of cash payments received and $1.2 million of charge-offs.
Nonaccruing commercial real estate loans were primarily composed of $19 million or 2.43% of commercial real estate loans
secured by retail facilities and $6.9 million or 0.54% of outstanding commercial real estate loans secured by multifamily
residential properties.
Residential Mortgage and Personal
Nonaccruing residential mortgage loans totaled $38 million or 1.81% of outstanding residential mortgage loans at
December 31, 2019, compared to $42 million or 1.86% of outstanding residential mortgage loans at December 31, 2018. Newly
identified nonaccruing residential mortgage loans of $16 million were offset by $12 million of cash payments and $4.0 million
of foreclosures. Nonaccruing residential mortgage loans primarily consisted of $20 million or 1.93% of non-guaranteed
permanent residential mortgage loans and $11 million or 1.34% 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 28. Substantially all non-
guaranteed residential loans past due 90 days or more are nonaccruing. At December 31, 2019, residential mortgage loans 30 to
59 days past due were $5.4 million, up $1.1 million over the prior year. Residential mortgage loans 60 to 89 days past due
decreased $257 thousand from December 31, 2018. Personal loans 30 to 59 days past due increased $4.2 million and personal
loans 60 to 89 days past due decreased $742 thousand compared to December 31, 2018.
Table 28 – Residential Mortgage and Personal Loans Past Due
(In thousands)
December 31, 2019
60 to 89
Days
90 Days
or More
30 to 59
Days
Residential mortgage:
Permanent mortgage1
Home equity
Total residential mortgage
$
$
— $
—
— $
153
308
461
$
$
2,011
3,343
5,354
Personal
1 Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.
54
15
$
$
$
4,664
60
December 31, 2018
90 Days
or More
60 to 89
Days
30 to 59
Days
$
$
$
— $
59
59
$
366
352
718
3
$
796
$
$
$
3,196
1,102
4,298
479
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 $20 million at December 31, 2019, composed primarily of $8.9 million of
developed commercial real estate, $5.3 million of oil and gas properties, $3.9 million of 1-4 family residential properties, and
$2.1 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 increased $2.9 million
compared to December 31, 2018.
Liquidity and Capital
Based on the average balances for 2019, approximately 61% of our funding was provided by deposit accounts, 24% 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 29 - Average Deposits by Line of Business
(In thousands)
Commercial Banking
Consumer Banking
Wealth Management
Subtotal
Funds Management and other
Total
Year Ended December 31,
2019
2018
$ 10,319,677
$
8,517,137
6,876,676
6,447,987
6,560,145
5,617,325
23,644,340
20,694,607
2,006,941
2,114,604
$ 25,651,281
$ 22,809,211
Average deposits for 2019 totaled $25.7 billion and represented approximately 61% of total liabilities and capital compared
with $22.8 billion and 65% of total liabilities and capital for 2018. Average deposits increased $2.8 billion over the prior year,
largely related to the full year impact of the CoBiz acquisition in the fourth quarter of 2018. Acquired deposits were allocated to
the lines of business from Funds Management and other in the second quarter of 2019. Demand deposits grew by $219 million.
Interest-bearing transaction deposit account balances increased by $2.5 billion and time deposits grew by $82 million.
Average deposits attributed to Commercial Banking were $10.3 billion for 2019, a $1.8 billion or 21% increase over 2018.
Interest-bearing transaction account balances increased $1.7 billion or 65% and demand deposit balances increased $78 million
or 1%. Commercial customers continue 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 decrease as the
economic outlook improves and if short-term rates move higher, enhancing their investment alternatives.
Average Consumer Banking deposit balances increased $317 million or 5% over the prior year. Average demand deposit
balances grew by $287 million or 15% while average interest-bearing transaction accounts increased $30 million or 1%. Time
deposit balances increased $51 million or 6%.
61
Average Wealth Management deposit balances grew by $831 million or 15% over the prior year. Interest-bearing transaction
balances increased $908 million or 26%. Non-interest-bearing demand deposits decreased $74 million or 6%, and time deposit
balances decreased $11 million or 1%.
Table 30 - Maturity of Domestic CDs and Public Funds in Amounts of $100,000 or More
(In thousands)
Months to maturity:
3 or less
Over 3 through 6
Over 6 through 12
Over 12
Total
December 31,
2019
2018
$
$
364,642
$
275,227
466,751
572,539
380,315
298,692
299,346
618,413
1,679,159
$
1,596,766
Brokered deposits included in time deposits averaged $247 million for 2019, compared to $251 million for 2018. Brokered
deposits included in time deposits totaled $237 million at December 31, 2019 and $247 million at December 31, 2018.
Average interest-bearing transaction accounts for 2019 included $1.1 billion of brokered deposits compared to $821 million for
2018. Brokered deposits included in interest-bearing transaction accounts totaled $1.2 billion at December 31, 2019 and $832
million at December 31, 2018.
62
The distribution of our period end deposit account balances among principal markets follows in Table 31.
Table 31 - Period End Deposits by Principal Market Area
(In thousands)
Oklahoma:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Oklahoma
Texas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Texas
Colorado:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Colorado
New Mexico:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total New Mexico
2019
2018
2017
2016
2015
December 31,
$
3,257,337
$
3,610,593
$
3,885,008
$ 3,993,170
$
4,133,520
8,574,912
306,194
1,125,446
10,006,552
13,263,889
6,445,831
288,210
1,118,643
7,852,684
5,901,293
6,345,536
265,870
1,092,133
7,259,296
241,696
1,118,355
7,705,587
5,971,819
226,733
1,202,274
7,400,826
11,463,277
11,144,304
11,698,757
11,534,346
2,757,376
3,289,659
3,239,098
3,137,009
2,627,764
2,911,731
2,294,740
2,397,071
2,388,812
2,132,099
102,456
495,343
3,509,530
6,266,906
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
1,729,674
1,658,473
633,714
576,000
497,318
1,769,037
1,899,203
53,307
283,517
2,105,861
3,835,535
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
623,722
691,692
663,353
627,979
487,286
558,493
63,999
238,140
860,632
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
1,484,354
1,545,748
1,488,136
1,506,921
1,362,502
63
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
Arkansas:
Demand
Interest-bearing:
Transaction
Savings
Time
Total interest-bearing
Total Arkansas
2019
2018
2017
2016
2015
December 31,
681,268
709,176
334,701
366,755
326,324
684,929
10,314
49,676
744,919
1,426,187
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
384,533
418,199
457,080
508,418
197,424
784,574
12,169
17,877
814,620
1,199,153
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
27,381
36,800
30,384
26,389
27,252
108,076
1,837
7,850
117,763
145,144
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
Total BOK Financial deposits
$
27,621,168
$
25,263,763
$ 22,061,305
$ 22,748,095
$
21,088,158
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 $600 million at
December 31, 2019 and $300 million at December 31, 2018. 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 $7.1 billion during 2019 and $6.2 billion during 2018.
At December 31, 2019, the estimated unused credit available to BOKF, NA from collateralized sources was approximately
$10.6 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.
64
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 $215 million at December 31, 2019. 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, 2019, based on the most restrictive limitations as well as
management’s internal capital policy, BOKF, NA could declare up to $246 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, 2019 was $4.9 billion, an increase of $424 million over December 31, 2018. Net income
less cash dividends paid increased equity $357 million during 2019. Changes in interest rates resulted in accumulated other
comprehensive income of $105 million at December 31, 2019, compared to an accumulated other comprehensive loss of $73
million at December 31, 2018. Capital is managed to maximize long-term value to the shareholders. Factors considered in
managing capital include projections of future earnings, asset growth and acquisition strategies, and regulatory and debt
covenant requirements. Capital management may include subordinated debt issuance, share repurchase and stock and cash
dividends.
On April 30, 2019, 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, 2019, a cumulative total of
866,713 shares have been repurchased under this authorization. The Company repurchased 1,572,322 shares during 2019 at an
average price of $82.35 per share, including shares purchased under a previous authorization.
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 follows for BOK Financial on a consolidated basis in Table 32.
65
Table 32 – Capital Ratios
Risk-based capital:
Common equity Tier 1
Tier 1 capital
Total capital
Tier 1 Leverage
Average total equity to average assets
Tangible common equity ratio
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,
2019
2018
11.39%
11.39%
12.94%
8.40%
11.11 %
8.98%
10.92%
10.92%
12.50%
8.96%
10.70%
8.82%
As discussed further in Recently Issued Accounting Standard section following, the Company adopted FASB Accounting
Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Assets Measured at Amortized Cost (“ASU
2016-13” or “CECL”) on January 1, 2020. The adoption of CECL is not expected to have a significant impact on capital. We
plan to adopt the three year transition approach for regulatory capital purposes.
Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity
ratio. Tangible common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principles in
the United States of America (“GAAP”), including unrealized gains and losses on available for sale securities, less intangible
assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes
preferred equity. This non-GAAP measure is a valuable indicator of a financial institution’s capital strength since it eliminates
intangible assets from shareholders’ equity and retains the effect of unrealized losses on securities and other components of
accumulated other comprehensive income in shareholders’ equity.
Table 33 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
Table 33 – Non-GAAP Measures
(Dollars in thousands)
Tangible common equity ratio:
Total shareholders' equity
Less: Goodwill and intangible assets, net
Tangible common equity
Total assets
Less: Goodwill and intangible assets, net
Tangible assets
Tangible common equity ratio
Off-Balance Sheet Arrangements
December 31,
2019
2018
$ 4,855,795
1,173,362
3,682,433
42,172,021
1,173,362
$ 40,998,659
$
4,432,109
1,184,112
3,247,997
38,020,504
1,184,112
$ 36,836,392
8.98%
8.82%
See Note 14 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet
commitments.
Aggregate Contractual Obligations
BOK Financial has numerous contractual obligations in the normal course of business. These obligations include time deposits
and other borrowed funds, premises used under various operating leases, commitments to extend credit to borrowers and to
purchase securities, derivative contracts and contracts for services such as data processing that are integral to our operations.
Table 34 following summarizes payments due on contractual obligations with initial terms in excess of one year.
66
Table 34 – Contractual Obligations as of December 31, 2019
(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
$
864,803
$
345,389
$
171,359
$
271,354
$
1,652,905
2,458
14,543
27,496
38,436
13,161
2,671
29,086
45,735
25,507
22,346
5,937
29,086
37,107
11,606
18,718
5,638
558,920
127,027
8,244
13,265
16,704
631,635
237,365
83,793
67,490
$
960,897
$
470,734
$
273,813
$
984,448
$
2,689,892
$
11,065,649
645,505
88,808
82,207
Payments on time deposits, other borrowed funds and subordinated debentures include interest which has been calculated from
rates at December 31, 2019. 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 $1.7 billion of the loan commitments expire within one year.
The Company has commitments to fund an additional $82 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.
On June 16, 2016 the FASB issued FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses
(Topic 326): Assets Measured at Amortized Cost (“ASU 2016-13” or “CECL”) to provide more-timely recording of expected
credit losses on loans and certain other financial assets. The Company adopted CECL on January 1, 2020, through a pre-tax,
cumulative-effect adjustment to retained earnings of approximately $61.4 million.
The distribution of the cumulative-effect adjustment is summarized in Table 35 following.
67
Table 35 - CECL Transition Adjustment
(In millions)
Adjustments to the allowance for loan losses:
Measurement changes to the allowance attributed to outstanding loan balances
Recognition of expected credit losses on acquired loans
Total adjustments to the allowance for loan losses
Measurement changes to accruals for unfunded loan commitments
Total adjustments for lending activities
Measurement changes to accruals for credit risk associated with residential mortgage loans transferred to mortgage-
backed securities that exceed amounts guaranteed by U.S. government agencies
Total adjustments to accruals for mortgage-banking activities
Allowance for held-to-maturity (investment) securities
Total pre-tax transition adjustment
Pre-tax
Cumulative-Effect
Adjustment
$
$
1.3
24.5
25.8
23.6
49.4
10.9
10.9
1.1
61.4
CECL requires recognition of expected credit losses on assets carried at amortized cost over their expected lives, after
appropriately considering prepayments and, in limited-circumstances, extensions and renewals. Expected losses are generally
estimated through the use of models that measure probability of default and loss given default over a 12-month reasonable and
estimable economic forecast period. Estimated losses after that period are generally measured by a reversion method that
considers the direction and level of current risk in the portfolio applied over the remaining expected lives.
Models are based on relevant macro-economic factors, such as gross national product, unemployment rate, and oil and gas
prices, that consider three scenarios, Base, Upside and Downside. The probability of each scenario is weighted to determine the
appropriate economic forecast factors.
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. 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.
68
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.
69
Table 36 – Interest Rate Sensitivity
(Dollars in thousands)
Anticipated impact over the next twelve months on net interest revenue
$ (16,328)
$
(4,248)
$ (31,629)
$
(42,483)
200 bp Increase
100 bp Decrease1
2019
2018
2019
2018
(3.57)%
1 The results of a 200 basis point decrease in interest rates in the low-rate environment are not meaningful, therefore we will instead report the
(2.91)%
(1.50)%
(0.36)%
effect of a 100 basis point decrease in interest rates.
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,
2019
2018
Up 50 bp
Down 50 bp
Up 50 bp
Down 50 bp
$
30,369
$
(41,779) $
18,619
$
(27,154)
(40,727)
(10,358)
33,454
(8,325)
(21,838)
(3,219)
21,922
(5,232)
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.
70
Table 38 - Mortgage Pipeline Sensitivity Analysis
(In thousands)
Year Ended
December 31,
2019
2018
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
(143) $
(191) $
(2,447)
(1,015)
2,077
(112)
(538)
(498)
(420)
(697)
(98)
(16)
699
528
293
223
$
$
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)
Year Ended
December 31,
2019
2018
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
$ (1,803) $
$ (1,133) $
(1,376)
(5,345)
(1,702)
(1,081)
(3,463)
(4,534)
1,470
2,710
2,602
4,423
2,041
2,049
7,106
649
period.
71
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, 2019.
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, 2019. Their report, which expresses an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2019, is included in this annual report.
72
Report of Independent Registered Public Accounting Firm
To the Shareholders and the 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, 2019, 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, 2019, based on the COSO criteria.
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, 2019 and 2018, 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, 2019, and the related notes and our report dated February 27, 2020 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.
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
February 27, 2020
73
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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 February 27, 2020 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
74
Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Allowance for loan losses
The Company’s loan portfolio totaled $21.8 billion as of December 31, 2019 and the
associated allowance for loan losses (ALL) was $211 million. As discussed in Notes 1 and 4
to the consolidated financial statements, the ALL is established to absorb probable estimated
losses inherent in the portfolio. Management’s estimate for the inherent losses within the loan
portfolio consists of specific allowances attributed to impaired loans that have not yet been
charged down to amounts expected to be recovered, general allowances, including inherent
risks, for unimpaired loans based on estimated loss rates by loan class and nonspecific
allowances. General allowances for unimpaired loans are based on an estimated loss rate by
loan class not considering recoveries. 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.
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 primary
lending areas, concentration in large-balance loans and other relevant factors.
Auditing management’s estimate of the ALL involves a high degree of subjectivity in
evaluating the determination of inherent risk adjustments to loss rates by loan class and the
non-specific allowances. Management’s determination of the inherent risk adjustments and
identification and measurement of the nonspecific allowances is highly judgmental and could
have a significant effect on the ALL.
We evaluated the design and tested the operating effectiveness of related controls over the
calculation and recording of the ALL. Specifically, we tested the design and operating
effectiveness of controls around inherent risk adjustments to loss rates by loan class identified
by the Company, the identification of such inherent risk factors, the applicability of that risk
factor to the Company’s portfolio, and the measurement of the impact of that risk factor. We
tested controls over management’s process for identifying appropriate nonspecific allowances,
the determination of whether any adjustment was warranted, and the measurement of the
recorded adjustments.
To test the inherent risk adjustments to loss rates by loan class and non-specific allowances,
we performed audit procedures that included, among others, assessing the methodology used
by the Company to estimate the ALL and the underlying data used by the Company in its
calculation of the ALL. To evaluate inherent risk adjustments to loss rates by loan class
identified by the Company, as well as any nonspecific allowance recorded, we compared the
significant assumptions used by management to the Company’s historical loss data, industry
data, or economic data and evaluated whether such data was indicative of losses inherent in
the loan portfolio. We tested inputs and assumptions used in the buildup of inherent risk
adjustments to loss rates by loan class and the nonspecific allowance, and we evaluated the
basis for adjustments considered, the basis for concluding an adjustment was warranted,
which considered the assessment associated with whether the historical data adequately
captured the risk in the current portfolio, and the completeness of the inputs used by
management in determining such adjustments.
We compared the overall ALL amount to those established by similar banking institutions as a
consideration around potentially contradictory information. We also reviewed subsequent
events and transactions and considered whether they corroborate or contradict the Company’s
conclusion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1990.
Tulsa, Oklahoma
February 27, 2020
75
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
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 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.
76
$
$
$
$
$
Year Ended December 31,
2018
2019
1,123,791
7,105
61,595
13,426
254,031
32,936
26,860
12,214
1,531,958
175,538
228,428
15,113
419,079
1,112,879
44,000
1,068,879
159,826
87,216
177,025
112,485
107,541
58,108
702,201
9,351
14,951
15,787
(53,517)
5,597
694,370
660,565
35,662
3,000
54,861
110,275
20,906
124,983
16,517
6,707
20,618
50,685
27,602
1,132,381
630,868
130,183
500,685
(73)
500,758
7.03
7.03
70,787,700
70,802,612
2.01
$
$
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
56,185
643,176
(2,265)
(422)
(25,572)
4,668
(2,801)
616,784
583,131
30,523
2,846
59,099
97,981
23,318
114,796
17,169
17,052
9,620
46,298
2017
696,479
8,706
17,002
16,121
177,070
16,755
18,490
22,128
972,751
53,803
69,008
8,239
131,050
841,701
(7,000)
848,701
131,601
119,988
162,889
112,079
104,719
49,738
681,014
11,434
779
(2,733)
172
4,428
695,094
573,408
28,877
2,000
51,067
86,477
19,653
146,970
15,689
9,687
6,779
52,856
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
$
$
$
$
$
$
$
$
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
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Loss (gain) on available for sale securities, net
Other comprehensive gain (loss), before income taxes
Federal and state income taxes
Other comprehensive gain (loss), net of income taxes
Comprehensive income
Year Ended December 31,
2019
2018
2017
$
500,685
$
446,424
$
335,685
241,047
(48,010)
(26,152)
(5,597)
235,450
57,942
177,508
678,193
2,801
(45,209)
(11,507)
(33,702)
(4,428)
(30,580)
(11,923)
(18,657)
412,722
317,028
Comprehensive income (loss) attributable to non-controlling interests
(73)
778
1,041
Comprehensive income attributable to BOK Financial Corp. shareholders
$
678,266
$
411,944
$
315,987
See accompanying notes to Consolidated Financial Statements.
77
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: 2019 – $314,402; 2018 – $367,298)
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 (2019 – $11,013; 2018 – $13,665)
Derivative contracts
Cash surrender value of bank-owned life insurance
Receivable on unsettled securities sales
Other assets
Total assets
Liabilities and Equity
Liabilities:
Noninterest-bearing demand deposits
Interest-bearing deposits:
Transaction
Savings
Time
Total deposits
Funds purchased and repurchase agreements
Other borrowings
Subordinated debentures
Accrued interest, taxes and expense
Derivative contracts
Due on unsettled securities purchases
Other liabilities
Total liabilities
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: 2019 –
75,758,597; 2018 – 75,711,492)
Capital surplus
Retained earnings
Treasury stock (shares at cost: 2019 – 5,178,999; 2018 – 3,588,560)
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to Consolidated Financial Statements.
78
December 31,
2019
2018
735,836
522,985
1,623,921
293,418
11,269,643
1,098,577
460,552
182,271
21,750,987
(210,759)
21,540,228
535,519
231,811
1,048,091
125,271
201,886
20,359
323,375
389,879
1,020,404
547,995
42,172,021
$
$
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
9,461,291
$
10,414,592
15,391,752
550,276
2,217,849
27,621,168
3,818,350
4,527,055
275,923
259,701
251,128
182,547
372,230
37,308,102
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
5
1,350,995
3,729,778
(329,906)
104,923
4,855,795
8,124
4,863,919
42,172,021
$
5
1,334,030
3,369,654
(198,995)
(72,585)
4,432,109
10,936
4,443,045
38,020,504
$
$
$
$
Consolidated Statements of Changes in Equity
(In thousands)
Common Stock
Treasury Stock
Shares
Amount
Capital
Surplus
Retained
Earnings
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Non-
Controlling
Interests
Total
Equity
$1,006,535
$ 2,823,334
9,656
$(544,052) $
(10,967) $
3,274,854
$
31,503
$ 3,306,357
—
334,644
1,041
335,685
(18,657)
(18,657)
Balance, December 31,
2016
Net income
Other comprehensive
loss
Repurchase of common
stock
Share-based
compensation plans:
74,993
$
—
—
—
Stock options exercised
100
4
—
—
—
—
—
—
—
—
—
—
—
—
5,758
—
—
23,602
334,644
—
—
—
—
—
—
—
—
(116,041)
—
—
—
80
—
—
17
—
—
—
—
—
(7,403)
—
—
(1,390)
—
—
—
55
—
—
—
—
—
—
—
6,550
—
—
(6,550)
—
—
—
75,148
4
1,035,895
3,048,487
9,753
(552,845)
(36,174)
3,495,367
22,967
3,518,334
—
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)
(33,702)
—
445,646
778
446,424
616
(53,465)
—
(53,465)
(7,403)
5,758
—
(1,390)
23,602
(116,041)
—
—
—
—
—
—
—
(18,657)
(7,403)
5,758
—
(1,390)
23,602
(116,041)
—
(9,577)
(9,577)
—
—
—
—
—
—
—
(33,702)
(53,465)
2,781
—
(2,870)
4,229
(127,188)
2,781
—
(2,870)
4,229
(127,188)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
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
Capital calls and
distributions, net
Issuance of shares for
CoBiz acquisition
Balance, December 31,
2018
—
75,148
—
—
—
54
109
—
—
—
—
400
75,711
$
—
4
—
—
—
—
—
—
—
—
—
1
5
—
—
—
2,781
—
—
4,229
—
—
445,646
—
—
—
—
—
—
(127,188)
—
—
—
31
—
—
—
—
—
(2,870)
—
—
—
291,125
— (6,811)
410,185
—
(12,809)
(12,809)
701,311
—
701,311
$1,334,030
$ 3,369,654
3,589
$(198,995) $
(72,585) $
4,432,109
$
10,936
$ 4,443,045
79
Consolidated Statements of Changes in Equity
(In thousands)
Common Stock
Treasury Stock
Shares
Amount
Capital
Surplus
Retained
Earnings
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Non-
Controlling
Interests
Total
Equity
75,711
$
5
$1,334,030
$ 3,369,654
3,589
$(198,995) $
(72,585) $
4,432,109
$
10,936
$ 4,443,045
Balance, December 31,
2018
Transition adjustment -
Lease obligations and
right of use assets
Balance, January 1,
2019, Adjusted
Net income (loss)
Other comprehensive
income
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
Balance, December 31,
2019
—
75,711
—
—
—
27
21
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
2,862
—
—
—
2,862
—
2,862
1,334,030
3,372,516
3,589
(198,995)
(72,585)
4,434,971
10,936
4,445,907
—
500,758
(73)
500,685
177,508
177,508
—
—
—
1,421
—
—
15,544
500,758
—
—
—
—
—
— 1,572
(129,483)
—
—
—
—
—
—
18
—
—
—
—
—
(1,428)
—
—
—
—
—
(143,496)
—
—
—
—
—
—
—
—
177,508
(129,483)
1,421
—
(1,428)
15,544
(143,496)
—
(2,739)
(2,739)
(129,483)
1,421
—
(1,428)
15,544
(143,496)
—
—
—
—
—
—
—
75,759
$
5
$1,350,995
$ 3,729,778
5,179
$(329,906) $
104,923
$
4,855,795
$
8,124
$ 4,863,919
See accompanying notes to Consolidated Financial Statements.
80
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 (gains) from derivative contracts
Share-based compensation
Depreciation and amortization
Net amortization of 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
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
Right-of-use assets obtained in exchange for operating lease liabilities
See accompanying notes to Consolidated Financial Statements.
81
2019
Year Ended
2018
2017
$
500,685
$
446,424
$
335,685
44,000
53,517
38,979
(25,936)
15,544
95,416
(16,984)
(583)
(40,402)
(3,025,930)
3,035,600
(35,128)
(483,007)
(740,868)
18,955
34,894
57,569
(473,679)
60,128
1,841,069
—
(5,245,256)
1,211,718
25,410
(44,414)
33,566
—
178,681
(384,639)
(2,323,737)
2,252,936
104,288
1,110,970
(41,651)
(7)
(207,122)
(33,622)
(129,483)
(143,496)
2,912,813
115,397
1,143,424
1,258,821
417,070
87,361
10,665
91,634
28,669
62,755
$
$
$
$
$
$
$
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
(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
$
243,121
92,291
9,880
100,238
38,216
$
$
$
$
$
— $
127,513
121,697
7,367
148,107
40,528
—
$
$
$
$
$
$
$
Notes to Consolidated Financial Statements
(1) Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements of BOK Financial Corporation (“BOK Financial” or “the Company”) have been
prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"), including
interpretations of U.S. GAAP issued by federal banking regulators and general practices of the banking industry. The
Consolidated Financial Statements include the accounts of BOK Financial and its subsidiaries, principally BOKF, NA, BOK
Financial Securities, Inc., BOK Financial Private Wealth, Inc., BOK Financial Insurance, 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 BOK Financial in the metropolitan areas of Phoenix, Arizona; Northwest Arkansas;
Denver, Colorado; Kansas City, Missouri/Kansas; and as Bank of Albuquerque in Albuquerque, New Mexico. BOKF, NA also
operates the TransFund electronic funds network, Cavanal Hill Investment Management, and BOK Financial Asset
Management, Inc.
Use of Estimates
Preparation of BOK Financial's Consolidated Financial Statements requires management to make estimates of future economic
activities, including loan collectability, loss contingencies, 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.
82
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.
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.
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.
83
BOK Financial may elect to carry certain securities that are not held for trading purposes 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 other financial 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.
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, forward sales contracts, and residential mortgage loans held
for sale are carried at fair value. Changes in the fair value are reported in Other Operating Revenue - Mortgage banking
revenue.
84
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 mortgage 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.
Performing loans may be renewed under the then 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.
85
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. A portion of 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 2019 or 2018.
Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due
according to the contractual terms of the loan agreements. Internally risk graded loans are evaluated individually for
impairment. Substantially all commercial and commercial real estate loans and certain residential mortgage and personal loans
are risk graded based on a quarterly evaluation of the borrowers' ability to repay. Certain commercial loans and most residential
mortgage and personal loans are small balance, homogeneous pools of loans that are not risk graded. Non-risk graded loans are
identified as impaired based on performance status. Generally, non-risk graded loans 90 days or more past due, modified in a
troubled debt restructuring or in bankruptcy are considered to be impaired.
Specific allowances for impaired loans are measured by an evaluation of estimated future cash flows discounted at the loan's
initial effective interest rate or the fair value of collateral for certain collateral dependent loans. The fair value of real property
held as collateral is generally based on third party appraisals that conform to Uniform Standards of Professional Appraisal
Practice, less estimated selling costs. Appraised values are on an “as-is” basis and generally are not adjusted by the
Company. Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values
may have declined. Collateral value of mineral rights is generally determined by our internal staff of engineers based on
projected cash flows from proven oil and gas reserves under existing economic and operating conditions. The value of other
collateral is generally determined by our special assets staff based on projected liquidation cash flows under current market
conditions. Collateral values and available cash resources that support impaired loans are evaluated quarterly. Historical
statistics may be used as a practical way to estimate impairment in limited situations, such as when a collateral dependent loan
is identified as impaired at the end of a reporting period until an appraisal of collateral value is received or a full assessment of
future cash flows is completed. Estimates of future cash flows and collateral values require significant judgments and may be
volatile.
86
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 average
loss rate over the long-term credit cycle. 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.
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.
87
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. These are not credit obligations. 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.
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.
88
Premises and equipment includes rights to use leased facilities and equipment. Right of use assets are initially measured by the
present value of future rent payments over lease terms, adjusted for rent concessions. Rent payments exclude both payments
made for non-lease components such as services and variable lease payments other than payments dependent on an index at
lease commencement. Lease term includes options reasonably certain to be exercised. The right of use assets and lease
liabilities are amortized to achieve straight-line expense over the lease term. Upon lease modification, the right of use asset and
liability are reassessed and remeasured. Right of use assets are evaluated for impairment when facts and circumstances change
that indicate an impairment may be necessary. Leases less than twelve months are excluded from capitalization.
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 an 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.
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. 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.
89
Compensation cost is initially based on the grant date fair value of the award and 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. Share-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.
Restricted stock units ("RSUs") may also be awarded for certain executives who have elected to defer income recognition upon
vesting of their awards. RSUs are subject to the same vesting criteria as non-vested shares. The value of the awards will vary in
amounts equal to changes in the fair value of an equal number of BOKF Financial common shares.
Tax effects of share-based payments are recognized through tax expense. Dividends on non-vested shares are charged to
retained earnings. Dividend equivalents on RSU's are charged to expense.
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.
Brokerage and trading revenue includes revenues from trading, customer hedging, retail brokerage, investment banking and
insurance brokerage. 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. Insurance brokerage revenues represent fees and
commissions earned on placement of insurance products with carriers for property and casualty and health coverage.
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 BOKF, NA. Electronic funds transfer fees are recognized
as electronic transactions are 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.
90
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. 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 are required to
recognize an obligation for future lease payments measured on a discounted basis and a right-of-use asset. The Company
adopted the new standard January 1, 2019 through a cumulative effect adjustment to retained earnings. Prior periods were not
restated. BOKF elected to apply all practical expedients other than the lessee's practical expedient to combine lease and non-
lease components which would further gross up lease liability and the related right-of-use asset. The implementation of ASU
2016-02 increased the reported right-of-use asset and lease liability by $137 million. The effect on retained earnings was
immaterial.
FASB Accounting Standards Update No. 2019-01, Leases (Topic 842): Codification Improvements ("ASU 2019-01")
On March 5, 2019, the FASB issued ASU 2019-01 which amends certain aspects of leasing standard ASU 2016-02. ASU
2019-01 provides guidance for determining fair value of the underlying asset by lessors that are not manufacturers or dealers.
The ASU also requires depository and lending lessors within the scope of ASC 942 to classify principal payments received
from sales-type and direct financing leases within "investing activities" on the statement of cash flows. For the two issues
above, the ASU is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods therein;
however, early adoption is permitted. Additionally, ASU 2019-01 also clarifies interim disclosure requirements during
transition and is effective with the original transition requirements in Topic 842. Adoption of ASU 2019-01 is not expected to
have a material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Assets Measured at
Amortized Cost ("ASU 2016-13")
On June 16, 2016, the FASB issued ASU 2016-13 to provide more timely recording of credit losses on loans and other financial
assets measured at amortized cost, effective for the Company's annual reporting periods beginning after December 15, 2019,
including interim periods within those fiscal years.
91
The Company has established a CECL implementation team to evaluate the impact to 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. The Audit and Credit Committees of the Board of Directors are
periodically updated on project progress. The implementation team has completed the design of internal controls over the
expected credit losses estimate and is formalizing control procedures, governance, and approval processes. This includes
finalizing model validation, refinement of model assumptions and qualitative framework, and drafting policies, reporting, and
disclosures. The Company adopted the standard on January 1, 2020 through a cumulative-effect adjustment to retained
earnings.
FASB Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ("ASU 2019-04")
On April 25, 2019, the FASB issued ASU 2019-04 which clarifies certain aspects of the accounting for credit losses, hedging
activities, and financial instruments addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively. Significant amendments
made to the provisions of ASU 2016-13 by ASU 2019-04 include providing certain alternatives for the measurement of the
allowance for credit losses on accrued interest receivable and clarifying steps entities should take when recording the transfer
of loans or debt securities between measurement classification or categories. ASU 2019-04 further clarifies the expectation that
entities include recoveries of financial assets in the calculation of the current expected credit losses allowance for both pools of
financial assets and individual financial assets. Significant amendments made to the provisions of ASU 2017-12 by ASU
2019-04 include clarification on partial-term fair value hedges of interest rate risk, amortization of fair value hedge basis
adjustments and disclosure of fair value hedge basis adjustments. Significant amendments made to provisions of ASU 2016-01
include clarification of the measurement alternative practice for equity securities and remeasurement of equity securities at
historical exchange rates. ASU 2019-04 includes other amendments which clarify various provisions within the codification.
ASU 2019-04 is effective for the Company for fiscal years beginning after December 15, 2019 and interim periods therein.
Adoption of ASU 2019-04 is not expected to have a material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief
("ASU 2019-05")
On May 15, 2019, the FASB issued ASU 2019-05 which provides transition relief for entities adopting the Board's credit losses
standard, ASU 2016-13. ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU
2016-13, the fair value option for financial instruments that meet specific requirements and is effective for the Company for
annual reporting periods beginning after December 15, 2019. Adoption of ASU 2019-05 is not expected to have a material
impact on the Company's financial statements.
FASB Accounting Standards Update No. 2019-11, Codification Improvements to Topic 326: Financial Instruments-Credit
Losses ("ASU 2019-11")
On November 27, 2019, the FASB issued ASU 2019-11 which revises certain aspects of new guidance on credit losses. Topics
addressed include purchased credit-deteriorated assets, transition relief for troubled debt restructurings, disclosure relief for
accrued interest receivable, and financial assets secured by collateral maintenance provisions. ASU 2019-11 is effective for the
Company for annual reporting periods beginning after December 15, 2019. Adoption of ASU 2019-11 is not expected to have a
material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
("ASU 2019-12")
On December 18, 2019, the FASB issued ASU 2019-12 which removes certain exceptions for recognizing deferred taxes for
investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to
reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a
consolidated group. ASU 2019-12 is effective for the Company for annual reporting periods beginning after December 15,
2020, and interim periods within. Adoption of ASU 2019-12 is not expected to have a material impact on the Company's
financial statements.
92
(2) Securities
Trading Securities
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
U.S. government agency debentures
Residential agency mortgage-backed securities
Municipal and other tax-exempt securities
Asset-backed securities
Other debt securities
Total trading securities
Investment Securities
December 31, 2019
December 31, 2018
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
$
44,264
$
6
$
63,765
$
1,504,651
2,293
1,791,584
26,196
14,084
34,726
60
(21)
21
34,507
42,656
24,411
254
9,966
(1)
685
65
$
1,623,921
$
2,359
$
1,956,923
$
10,969
The amortized cost and fair values of investment securities are as follows (in thousands):
Municipal and other tax-exempt securities
Residential agency mortgage-backed securities
Other debt securities
Total investment securities
Municipal and other tax-exempt securities
Residential agency mortgage-backed securities
Other debt securities
Total investment securities
December 31, 2019
Amortized
Cost
Fair
Value
Gross Unrealized
Gain
Loss
$
93,653
$
96,897
$
3,250
$
10,676
189,089
11,164
206,341
488
17,547
$
293,418
$
314,402
$
21,285
$
(6)
—
(295)
(301)
December 31, 2018
Amortized
Cost
Fair
Value
Gross Unrealized
Gain
Loss
$
137,296
$
138,562
$
1,858
$
12,612
205,279
12,770
215,966
293
12,257
$
355,187
$
367,298
$
14,408
$
(592)
(135)
(1,570)
(2,297)
93
The amortized cost and fair values of investment securities at December 31, 2019, by contractual maturity, are as shown in the
following table (dollars in thousands):
Fixed maturity debt securities:
Amortized cost
Fair value
Residential mortgage-backed securities:
Amortized cost
Fair value
Total investment securities:
Amortized cost
Fair value
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
$
$
41,670
41,840
84,027
87,883
$
144,705
$
161,178
12,340
12,337
$
282,742
303,238
Weighted
Average
Maturity1
5.10
$
2
10,676
11,164
$
293,418
314,402
1 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
penalty.
2 The average expected lives of residential mortgage-backed securities were 5.0 years based upon current prepayment assumptions.
Temporarily Impaired Investment Securities
(in thousands):
December 31, 2019
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
4
$
1,001
$
1
$
1,706
$
5
$
2,707
$
Residential agency mortgage-backed
securities
Other debt securities
Total investment securities
—
13
17
—
275
$
1,276
$
—
1
2
—
8,041
$
9,747
$
—
294
299
—
8,316
$
11,023
$
6
—
295
301
December 31, 2018
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
72
$
18,255
$
69
$
66,141
$
523
$
84,396
$
592
Residential agency mortgage-backed
securities
Other debt securities
Total investment securities
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
94
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
U.S. Treasury
Municipal and other tax-exempt
Mortgage-backed securities:
Residential agency
Residential non-agency
Commercial agency
Other debt securities
Total available for sale securities
U.S. Treasury
Municipal and other tax-exempt
Mortgage-backed securities:
Residential agency
Residential non-agency
Commercial agency
Other debt securities
Total available for sale securities
December 31, 2019
Amortized
Cost
Fair
Value
Gross Unrealized
Gain
Loss
$
1,598
$
1,600
$
1,789
1,861
$
2
72
—
—
7,956,297
8,046,096
25,968
41,609
3,145,342
3,178,005
500
472
104,912
15,641
37,808
—
(15,113)
—
(5,145)
(28)
$ 11,131,494
$ 11,269,643
$
158,435
$
(20,286)
December 31, 2018
Amortized
Cost
Fair
Value
Gross Unrealized
Gain
Loss
$
496
$
493
$
2,782
2,864
— $
82
(3)
—
5,886,323
5,804,708
40,948
59,736
2,986,297
2,953,889
35,545
35,430
16,149
18,788
7,955
12
(97,764)
—
(40,363)
(127)
$
8,952,391
$
8,857,120
$
42,986
$
(138,257)
The amortized cost and fair values of available for sale securities at December 31, 2019, by contractual maturity, are as shown in the
following table (dollars in thousands):
Fixed maturity debt securities:
Amortized cost
Fair value
Residential mortgage-backed securities:
Amortized cost
Fair value
Total available-for-sale securities:
Amortized cost
Fair value
Less than
One Year
One to
Five Years
Six to
Ten Years
Over
Ten Years
Total
Weighted
Average
Maturity1
$
5,105
5,114
$ 1,113,463
$ 1,455,340
$
575,321
$
3,149,229
8.15
1,122,392
1,474,002
580,430
3,181,938
$
7,982,265
2
8,087,705
$
11,131,494
11,269,643
1 Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without
penalty.
2 The average expected lives of mortgage-backed securities were 4.0 years based upon current prepayment assumptions.
95
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 (benefit)
Year Ended December 31,
2019
2018
2017
$
1,211,718
$
745,643
$
1,309,215
14,996
(9,399)
1,425
7,117
(9,918)
(713)
10,223
(5,795)
1,722
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 $10.1 billion at December 31, 2019 and $9.1 billion at December 31, 2018.
The secured parties do not have the right to sell or re-pledge these securities.
Temporarily Impaired Available for Sale Securities
(In thousands)
Available for sale:
Mortgage-backed securities:
Residential agency
Commercial agency
Other debt securities
December 31, 2019
Number
of
Securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
133
$ 1,352,597
$
6,690
$
686,002
$
8,423
$ 2,038,599
$
15,113
69
1
830,047
—
4,238
—
210,877
472
907
28
1,040,924
472
5,145
28
Total available for sale securities
203
$ 2,182,644
$
10,928
$
897,351
$
9,358
$ 3,079,995
$
20,286
Available for sale:
U.S. Treasury
Mortgage-backed securities:
Residential agency
Commercial agency
Other debt securities
December 31, 2018
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
$
3
289
197
3
510,824
179,258
9,982
1,158
3,641,370
394
63
1,969,504
20,436
96,606
39,969
64
4,152,194
2,148,762
30,418
97,764
40,363
127
Total available for sale securities
490
$
700,064
$
1,615
$ 5,631,803
$
136,642
$ 6,331,867
$
138,257
Based on evaluations of impaired securities as of December 31, 2019, 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 2019 and none were recorded in 2018. Cumulative
other-than-temporary impairment on available for sale securities was $36 million at December 31, 2019 and $45 million at
December 31, 2018. The decrease compared to the prior year was due to sales during 2019.
96
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. Treasury
Residential agency mortgage-backed securities
Total
December 31, 2019
December 31, 2018
Fair Value
$
$
9,917
1,088,660
1,098,577
Net
Unrealized
Gain (Loss)
Fair Value
Net
Unrealized
Gain (Loss)
$
$
(48) $
— $
14,109
283,235
14,061
$
283,235
$
—
2,766
2,766
97
(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, 2019 (in thousands):
Assets
Notional1
Gross
Fair
Value
Netting
Adjustments
Net Fair
Value
Before
Cash
Collateral
Cash
Collateral
Fair Value
Net of Cash
Collateral
$
— $
— $
— $
— $
— $
2,464,478
49,100
(1,839)
2,151,096
144,906
(107,591)
16,118
1,522
214,119
213,007
81,455
4,927,266
69,721,932
1,268,180
3,233
411,768
131,561
6,226
(22)
—
—
(109,452)
(115,949)
(81)
47,261
37,315
1,500
213,007
3,233
302,316
15,612
6,145
—
(38)
—
—
(660)
(698)
—
—
—
47,261
37,277
1,500
213,007
2,573
301,618
15,612
6,145
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
Trading
Interest rate risk management programs
Total derivative contracts
$ 75,917,378
$ 549,555
$
(225,482) $ 324,073
$
(698) $
323,375
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
Total customer risk management programs
Trading
Interest rate risk management programs
$
— $
— $
— $
— $
— $
2,464,478
49,194
(1,839)
2,105,391
139,311
(107,591)
47,355
31,720
1,485
207,020
3,233
(43,932)
(6,031)
(1,485)
—
—
(22)
—
—
(109,452)
(115,949)
(81)
290,813
(51,448)
9,586
3,040
—
(863)
—
3,423
25,689
—
207,020
3,233
239,365
9,586
2,177
16,139
1,507
207,919
207,020
81,455
4,875,382
65,144,388
380,401
3,233
400,265
125,535
3,121
Total derivative contracts
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the
(225,482) $ 303,439
$ (52,311) $
$ 70,400,171
$ 528,921
$
251,128
contract.
98
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
Total customer risk management programs
14,362,776
521,383
Trading
Internal risk management programs
15,356,909
553,079
45,346
5,064
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
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)
—
—
(94,659)
(39,521)
(1,350)
641
183,759
2,021
426,724
5,825
3,714
—
—
(648)
(115,334)
—
—
65,444
21,490
38,683
641
183,759
1,373
311,390
5,825
3,714
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
(4,110)
(1,490)
—
—
—
611
175,922
2,021
413,266
(69,196)
17,462
8,089
—
(7,315)
25,490
140,021
611
175,922
2,021
344,070
17,462
774
(201)
—
—
(94,659)
(39,521)
(1,350)
21,214
812
177,423
175,922
89,085
2,021
Total customer risk management programs
14,204,251
507,925
Trading
Internal risk management programs
19,374,294
260,348
56,983
9,439
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.
99
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,
2019
2018
2017
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
Trading
Internal risk management programs
$
9,579
$
— $
27,190
$
— $
34,532
$
3,647
5,064
28
623
—
18,941
13,999
—
—
—
—
—
—
—
—
14,951
2,614
8,443
53
535
—
38,835
(13,643)
—
—
—
—
—
—
—
—
(422)
2,647
5,536
79
1,352
—
44,146
4,615
—
Total derivative contracts
$
32,940
$
14,951
$
25,192
$
(422) $
48,761
$
—
—
—
—
—
—
—
—
779
779
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, 2019
Fixed
Rate
Variable
Rate
Non-
accrual
Total
Fixed
Rate
December 31, 2018
Variable
Rate
Non-
accrual
Total
Commercial
$ 3,231,485
$ 10,684,749
$ 115,416
$ 14,031,650
$ 2,251,188
$ 11,285,049
$ 99,841
$ 13,636,078
Commercial real
estate
Residential mortgage
Personal
Total
Accruing loans past
due (90 days)1
Foregone interest on
nonaccrual loans
1,056,321
1,652,653
3,349,836
393,897
27,626
37,622
4,433,783
1,477,274
3,265,918
2,084,172
1,830,224
193,903
1,007,192
287
1,201,382
190,687
358,254
834,889
21,621
41,555
4,764,813
2,230,033
230
1,025,806
$ 6,134,362
$ 15,435,674
$ 180,951
$ 21,750,987
$ 5,749,373
$ 15,744,110
$ 163,247
$ 21,656,730
$
$
7,680
17,409
$
$
1,338
15,502
1 Excludes residential mortgage loans guaranteed by agencies of the U.S. government.
100
At December 31, 2019, loans to businesses and individuals with collateral primarily located in Texas totaled $6.8 billion or
31% 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 $2.8 billion or 13% 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, 2018, loans to
businesses and individuals with collateral primarily located in Texas totaled $6.4 billion or 30% of the loan portfolio and loans
to businesses and individuals with collateral primarily located in Oklahoma totaled $3.5 billion or 16% 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, 2019, commercial loans with collateral primarily located in Texas totaled $4.7 billion or 33% of the
commercial loan portfolio segment. Commercial loans with collateral primarily located in Oklahoma totaled $2.0 billion or
14% of the commercial loan portfolio segment. Commercial loans with collateral primarily located in Colorado totaled $2.0
billion or 14% of the commercial loan portfolio segment. The commercial loan portfolio segment is further divided into loan
classes. The services loan class totaled $3.1 billion or 14% of total loans. Approximately $1.5 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 $4.0 billion or 18% of total loans, including $3.1 billion of outstanding loans to energy producers.
Approximately 58% of committed production loans were secured by properties primarily producing oil and 42% are secured by
properties producing natural gas. The healthcare loan class totaled $3.0 billion or 14% 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, 2018, commercial loans with collateral primarily located in Texas totaled $4.1 billion or 30% of the
commercial loan portfolio segment and commercial loans with collateral primarily located in Oklahoma totaled $2.2 billion or
16% of the commercial loan portfolio segment. The energy loan class totaled $3.6 billion or 17% of total loans, including $2.9
billion of outstanding loans to energy producers. At December 31, 2018, 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 $3.3 billion or 15% of total loans. Approximately $2.3 billion of loans in the services category consisted of
loans with individual balances of less than $10 million. The healthcare loan class totaled $2.8 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, 2019, 24% of commercial real estate loans are secured by properties primarily located in the Dallas and
Houston areas of Texas. An additional 11% of commercial real estate loans are secured by properties located primarily in the
Denver, Colorado metropolitan area. At December 31, 2018, 26% of commercial real estate loans were secured by properties in
Texas, 9% of commercial real estate loans were secured by properties in Oklahoma.
101
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, 2019 and 2018, residential mortgage loans included $198 million and $191 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 $829 million at December 31, 2019 and $917 million at December 31, 2018. At December 31, 2019,
63% of the home equity loan portfolio was comprised of first lien loans and 37% of the home equity portfolio was comprised
of junior lien loans. Junior lien loans were distributed 35% to amortizing term loans and 65% to revolving lines of credit. At
December 31, 2018, 65% of the home equity portfolio was comprised of first lien loans and 35% of the home equity loan
portfolio was comprised of junior lien loans. Junior lien loans were distributed 36% to amortizing term loans and 64% 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, 2019, 28% of residential mortgage loans are secured by properties located in Oklahoma, 28% of residential
mortgage loans are secured by properties located in Texas and 15% of residential mortgage are secured by properties located in
Colorado. At December 31, 2018, 28% of residential mortgage were secured by properties in Texas, 26% of residential
mortgage loans were secured by properties in Oklahoma and 19% of residential mortgage loans are secured by properties in
Colorado.
Credit Commitments
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a
fee. At December 31, 2019, outstanding commitments totaled $11.1 billion. Because some commitments are expected to expire
before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial
uses the same credit policies in making commitments as it does loans.
The amount of collateral obtained, if deemed necessary, is based upon management’s credit evaluation of the borrower.
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, 2019, outstanding standby letters of credit totaled $646 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, 2019, outstanding commercial letters of credit totaled $1.2 million.
102
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, 2019 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
$
102,226
$
60,026
$
17,964
$
9,473
$
17,768
$
207,457
57,125
(43,185)
2,021
(12,046)
(1,161)
4,986
(3,838)
(288)
562
3,537
(6,343)
2,505
(573)
—
—
44,205
(50,977)
10,074
$
118,187
$
51,805
$
14,400
$
9,172
$
17,195
$
210,759
Accrual for off-balance sheet
credit risk:
Beginning balance
Provision for off-balance sheet credit
risk
Ending balance
Total provision for credit losses
$
$
$
1,655
(221)
1,434
56,904
$
$
$
52
$
55
107
$
52
$
(8)
44
$
31
$
— $
1,790
(31)
— $
—
— $
(205)
1,585
(11,991) $
(3,846) $
3,506
$
(573) $
44,000
103
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
$
7
52
$
43
$
9
52
$
(140) $
(1,147) $
3,204
2
$
— $
3,734
29
31
—
— $
(1,944)
1,790
(4,449) $
8,000
$
$
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, 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)
104
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment
measurement method at December 31, 2019 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
$ 13,916,234
$
100,773
$
115,416
$
17,414
$ 14,031,650
$
118,187
4,406,157
2,046,550
1,201,095
51,805
14,400
9,172
27,626
37,622
287
—
—
—
4,433,783
2,084,172
1,201,382
51,805
14,400
9,172
21,570,036
176,150
180,951
17,414
21,750,987
193,564
Nonspecific allowance
—
—
—
—
—
17,195
Total
$ 21,570,036
$
176,150
$
180,951
$
17,414
$ 21,750,987
$
210,759
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
105
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, 2019 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
$ 13,997,538
$
117,236
$
34,112
$
951
$ 14,031,650
$
118,187
4,433,783
279,113
1,116,297
51,805
3,085
7,003
—
1,805,059
85,085
19,826,731
179,129
1,924,256
—
11,315
2,169
14,435
4,433,783
2,084,172
1,201,382
51,805
14,400
9,172
21,750,987
193,564
Nonspecific allowance
—
—
—
—
—
17,195
Total
$ 19,826,731
$
179,129
$
1,924,256
$
14,435
$ 21,750,987
$
210,759
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
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.
106
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, 2019 by the risk grade categories (in
thousands):
Internally Risk Graded
Non-Graded
Other commercial and
industrial
Total commercial
709,729
13,538,705
4,028
187,881
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
Permanent mortgages
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
Personal
Total
Residential mortgage:
Permanent mortgage
276,138
Performing
Other
Loans
Especially
Mentioned
Pass
Accruing
Substandard Nonaccrual
Performing Nonaccrual
Total
$ 3,700,406
$
117,298
$
63,951
$
91,722
$
— $
— $ 3,973,377
3,050,946
1,749,023
623,219
2,995,514
709,868
29,943
5,281
18,214
13,117
—
150,529
743,343
923,202
1,257,005
852,539
455,045
—
12,067
5,177
1,604
1,658
1,639
33,791
5,399
13,883
20,805
—
17,744
155,573
—
1,243
—
95
1,011
7,483
1,163
10,133
4,480
—
398
115,379
350
18,868
—
6,858
909
—
641
4,381,663
22,145
2,349
27,626
—
—
—
—
—
34,075
34,075
—
—
—
—
—
—
—
—
—
—
—
—
37
37
—
—
—
—
—
—
—
3,122,163
1,760,866
665,449
3,033,916
709,868
766,011
14,031,650
150,879
775,521
928,379
1,265,562
856,117
457,325
4,433,783
78
—
—
78
45
2,404
493
758,260
19,948
1,057,321
—
—
—
—
191,694
817,976
6,100
11,081
197,794
829,057
2,404
493
1,767,930
37,129
2,084,172
—
56
84,853
232
1,201,382
—
—
276,138
1,116,196
$ 19,312,702
$
210,149
$
160,326
$
143,554
$ 1,886,858
$
37,398
$ 21,750,987
107
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
47,494
$
— $
— $
3,590,333
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
$ 3,414,039
$
42,176
$
3,167,203
1,593,902
668,438
2,730,121
804,550
49,761
18,809
30,934
14,920
—
86,624
32,661
7,131
22,230
37,698
—
756,815
13,135,068
1,266
157,866
7,588
193,932
148,234
885,588
1,059,334
1,287,471
776,898
—
11,926
10,532
281
—
555,301
1,188
—
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
—
—
—
—
—
—
—
3,258,192
1,621,158
730,521
2,799,277
804,550
832,047
13,636,078
148,584
919,082
1,072,920
1,288,065
778,106
558,056
4,764,813
Residential mortgage:
Permanent mortgage
269,678
Permanent mortgages
guaranteed by U.S.
government agencies
Home equity
Total residential
mortgage
—
223,298
492,976
52
—
—
52
9,730
1,991
819,199
21,960
1,122,610
—
296
—
—
183,734
682,491
7,132
10,472
190,866
916,557
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
108
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, 2019
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2019
Average
Recorded
Investment
Interest
Income
Recognized
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
$
$
$
149,441
10,923
1,980
10,848
13,774
—
8,227
195,193
91,722
7,483
1,163
10,133
4,480
—
435
115,416
1,306
20,265
—
6,858
909
801
350
18,868
—
6,858
909
641
44,244
6,301
902
9,914
4,480
—
435
66,276
350
18,868
—
6,858
909
641
Total commercial real estate
30,139
27,626
27,626
Residential mortgage:
Permanent mortgage
Permanent mortgage
guaranteed by U.S.
government agencies1
Home equity
Total residential mortgage
24,868
20,441
20,441
204,187
12,967
242,022
197,794
11,081
229,316
197,794
11,081
229,316
Personal
360
287
287
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
47,478
1,182
261
219
—
—
—
49,140
$
16,854
240
101
219
—
—
—
17,414
$
69,119
5,854
916
9,144
7,798
—
8,568
101,399
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
350
19,573
—
3,580
454
666
24,623
22,196
1,198
195,009
10,776
227,981
7,733
—
8,931
259
—
Total
1 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of
354,262
467,714
323,505
372,645
17,414
49,140
$
$
$
$
$
$
$
8,931
contractual principal and interest. At December 31, 2019, $6.1 million of these loans are nonaccruing and $192 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.
109
As of December 31, 2018
Recorded Investment
Unpaid
Principal
Balance
Total
With No
Allowance
With
Allowance
Related
Allowance
Year Ended
December 31, 2018
Average
Recorded
Investment
Interest
Income
Recognized
$
79,675
$
47,494
$
18,639
$
28,855
$
5,362
$
69,645
$
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
13,437
1,722
10,055
24,319
—
26,955
156,163
1,306
27,680
—
301
—
851
8,567
1,316
8,919
16,538
—
17,007
99,841
350
20,279
—
301
—
691
8,489
1,015
8,673
10,563
—
17,007
64,386
350
20,279
—
301
—
691
30,138
21,621
21,621
28,716
23,951
23,951
196,296
12,196
237,208
190,866
10,472
225,289
190,866
10,472
225,289
78
301
246
74
101
246
5,975
2,949
—
—
—
—
35,455
8,732
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
—
Personal
278
230
230
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
311,526
345,107
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.
110
Troubled Debt Restructurings
At December 31, 2019 the Company has $132 million in troubled debt restructurings (TDRs), of which $92 million are
accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $57 million of TDRs are
performing in accordance with the modified terms. The loans designated as TDRs had $18.6 million in charge offs during the
year ended December 31, 2019.
At December 31, 2018, TDRs totaled $166 million, of which $86 million were accruing residential mortgage loans guaranteed
by U.S. government agencies. Approximately $71 million of TDRs were performing. The loans designated as TDRs had $16.1
million in charge offs during the year ended December 31, 2018.
TDRs generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed
borrowers. During the year ended December 31, 2019, $37 million of loans were restructured. During the year ended
December 31, 2018, $75 million of loans were restructured.
111
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, 2019 is as follows
(in thousands):
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 mortgages guaranteed by
U.S. government agencies
Home equity
Total residential mortgage
Personal
Total
Current
30 to 59
Days
Past Due
60 to 89
Days
90 Days
or More
Nonaccrual
Total
$ 3,881,244
$
3,105,621
1,758,878
654,329
3,027,329
707,638
764,390
13,899,429
147,379
756,653
928,379
1,258,704
855,208
454,253
4,400,576
401
1,737
712
410
2,039
2,230
414
7,943
3,093
—
—
—
—
1,827
4,920
10
$
— $
91,722
$ 3,973,377
523
113
190
—
—
772
1,608
—
—
—
—
—
250
250
6,799
—
387
68
—
—
7,483
1,163
10,133
4,480
—
435
3,122,163
1,760,866
665,449
3,033,916
709,868
766,011
7,254
115,416
14,031,650
57
—
—
—
—
354
411
350
18,868
—
150,879
775,521
928,379
6,858
1,265,562
909
641
856,117
457,325
27,626
4,433,783
1,034,716
2,011
153
—
20,441
1,057,321
46,898
814,325
1,895,939
24,203
3,343
29,557
18,187
308
18,648
102,406
—
102,406
6,100
11,081
37,622
197,794
829,057
2,084,172
1,196,362
4,664
54
15
287
1,201,382
$ 21,392,306
$
47,084
20,560
$
110,086
$
180,951
$ 21,750,987
112
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, 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
$
3,237,578
1,619,290
721,204
2,781,944
804,550
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
3,258,192
1,621,158
730,521
16,538
2,799,277
—
17,007
99,841
804,550
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
1,095,097
3,196
366
—
23,951
1,122,610
37,459
904,572
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
916,557
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
113
(5) Premises and Equipment and Leases
Premises and equipment at December 31 are summarized as follows (in thousands):
Land
Buildings and improvements
Software and related integration
Furniture and equipment
Construction in progress
Premises and equipment
Less accumulated depreciation
Premises and equipment, net of accumulated depreciation
December 31,
2019
2018
$
69,960
$
421,952
98,487
135,153
53,498
779,050
243,531
535,519
$
$
70,575
266,733
150,207
129,988
27,514
645,017
314,984
330,033
Depreciation expense of premises and equipment was $51.6 million, $51.2 million and $47.7 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
Effective January 1, 2019, premises and equipment included right-of-use assets for leased office space and facilities. Leases are
at market rates at inception and may contain escalations based on consumer price index or similar benchmarks and options to
renew at then market rates.
At December 31, 2019, right-of-use assets of $180 million are included in buildings and improvements and related right-of-use
liabilities are included in other liabilities. The weighted-average remaining lease term was 11.1 years and the weighted average
discount rate on operating leases was 3.2 percent. Operating lease costs recognized as occupancy and equipment expense were
$24.2 million for the year ended December 31, 2019. Operating cash flows from operating leases were $23.3 million for the
year ended December 31, 2019.
Total rent expense for BOK Financial was $43.0 million in 2019, $28.5 million in 2018 and $27.5 million in 2017. At
December 31, 2019, un-discounted operating lease liabilities are scheduled to mature as follows: $27.5 million in 2020, $25.7
million in 2021, $20.1 million in 2022, $18.9 million in 2023, $18.2 million in 2024 and $127 million thereafter. Operating
expense and short term lease costs total $12.6 million for the year ended December 31, 2019. BOKF, NA is obligated under a
long-term lease for its bank premises in downtown Tulsa. The original lease dated November 1, 1976 was renegotiated on July
1, 2019. The new lease will terminate on December 31, 2034. The Company has the option to renew for an additional 10 years.
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 Company may lease owned properties or sublease unoccupied leased facilities. Income on these leases is immaterial.
114
(6) Goodwill and Intangible Assets
On October 1, 2018, the Company acquired CoBiz Financial, Inc. ("CoBiz"), parent company of CoBiz Bank. 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
was attributed to synergies expected to be gained through consolidation of administrative functions resulting in cost savings.
The purchase price allocation was completed in 2019 with no significant change from the preliminary purchase price
allocation.
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.
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,
2019
2018
$
103,200
$
103,200
19,364
83,836
74,372
32,937
41,435
5,032
98,168
63,497
26,816
36,681
Total intangible assets, net
$
125,271
$
134,849
Expected amortization expense for intangible assets that will continue to be amortized (in thousands):
2020
2021
2022
2023
2024
Thereafter
Core
Deposit
Premiums
Other
Identifiable
Intangible
Assets
$
12,892
$
7,405
$
11,893
10,981
10,145
9,379
28,546
6,706
5,339
4,298
3,284
14,403
Total
20,297
18,599
16,320
14,443
12,663
42,949
$
83,836
$
41,435
$
125,271
The changes in the carrying value of goodwill by operating segment are as follows (in thousands):
Balance, December 31, 2017
Goodwill recognized during 20181
Balance, December 31, 2018
Adjustment1
Commercial
Banking
Consumer
Banking
Wealth
Management
313,270
43,458
—
313,270
600,661
—
43,458
—
90,702
—
90,702
—
Funds
Management
and Other
—
601,833
601,833
Total
447,430
601,833
1,049,263
(601,833)
(1,172)
Balance, December 31, 2019
913,931
1 Goodwill related to the CoBiz acquisition was not yet allocated to the operating segments as of December 31, 2018 and was included in
— $ 1,048,091
43,458
90,702
$
$
$
$
Funds Management and Other in 2018 then allocated during 2019.
115
The annual goodwill evaluations for 2019 and 2018 did not indicate impairment for any reporting unit. Economic conditions
did not indicate that impairment existed for any identifiable intangible assets and therefore no impairment evaluation was
performed.
(7) Mortgage Banking Activities
Residential Mortgage Loan Production
The Company originates, markets and services conventional and government-sponsored residential mortgage loans. Generally,
conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-
rate residential mortgage loans are held for investment. The volume of mortgage loans originated for sale and secondary market
prices are the primary drivers of originating and marketing revenue.
Residential mortgage loan commitments are generally outstanding for 60 to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan
commitments are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and
procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest
rate fluctuations is partially managed through forward sales of residential mortgage-backed securities and forward sales
contracts. These latter contracts set the price for loans that will be delivered in the next 60 to 90 days.
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, 2019
December 31, 2018
Unpaid
Principal
Balance/
Notional
Unpaid
Principal
Balance/
Notional
Fair Value
Fair Value
$
175,117
$
177,703
$
145,057
$
146,971
158,460
315,203
5,233
(665)
160,848
274,000
5,378
(3,128)
$
182,271
$
149,221
No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2019 or
December 31, 2018. No credit losses were recognized on residential mortgage loans held for sale for the years ended
December 31, 2019, 2018 and 2017.
Mortgage banking revenue was as follows (in thousands):
Year Ended
2019
2018
2017
Production revenue:
Net realized gains on sales of mortgage loans
$
39,730
$
36,379
$
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
672
(145)
2,463
42,720
64,821
(674)
(1,145)
(2,870)
31,690
66,097
45,128
2,031
(3,210)
(5,451)
38,498
66,221
$
107,541
$
97,787
$
104,719
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.
116
Residential Mortgage Servicing
The Company generally retains the right to service residential mortgage loans sold and may purchase mortgage servicing
rights. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights (Dollars in thousands):
Number of residential mortgage loans serviced for others
2019
126,828
December 31,
2018
132,463
2017
136,528
Outstanding principal balance of residential mortgage loans serviced for others
$
20,727,106
$
21,658,335
$
22,046,632
Weighted average interest rate
Remaining contractual term (in months)
3.98%
289
3.99%
293
3.94%
297
Activity in capitalized mortgage servicing rights during the three years ended December 31, 2019 is as follows (in thousands):
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
Additions, net
Change in fair value due to loan runoff
Change in fair value due to market changes
Balance, December 31, 2019
$
247,073
39,149
(33,527)
172
252,867
35,247
(33,528)
4,668
259,254
35,128
(38,979)
(53,517)
$
201,886
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,
2019
9.81%
2018
9.90%
Prepayment rate - based upon loan interest rate, original term and loan type
8.28% - 16.05%
8.05% - 15.74%
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
Delinquency rate
$68 - $94
$150 - $500
$67 - $93
$150 - $500
$1,000 - $4,000
$1,000 - $4,000
104 bps
1.73%
2.73%
105 bps
2.57%
2.74%
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.
117
(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,
2019
2018
2017
$ 132,854
$
65,859
$
28,627
677
439
359
8,299
29,288
4,420
42,007
5,751
19,739
3,729
29,219
7,702
12,393
4,722
24,817
$ 175,538
$
95,517
$
53,803
The aggregate amounts of time deposits in denominations of $250,000 or more at December 31, 2019 and 2018 were $845
million and $756 million, respectively.
Time deposit maturities are as follows: 2020 – $1.5 billion, 2021 – $230 million, 2022 – $104 million, 2023 – $103 million,
2024 – $55 million and $228 million thereafter.
The aggregate amount of overdrawn customer transaction deposits that have been reclassified as loan balances was $8.7 million
at December 31, 2019 and $27 million at December 31, 2018.
118
(9) Other Borrowed Funds
Information relating to other borrowings is summarized as follows (dollars in thousands):
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures1
Total other borrowed funds
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures1
Total other borrowed funds
Funds purchased
Repurchase agreements
Other borrowings:
Federal Home Loan Bank advances
GNMA repurchase liability
Other
Total other borrowings
Subordinated debentures1
Total other borrowed funds
1 Parent Company only.
As of
December 31, 2019
Year Ended
December 31, 2019
Balance
3,390,528
427,822
4,500,000
15,417
11,638
4,527,055
Rate
1.53%
0.50%
1.79%
4.32%
5.09%
275,923
5.15%
Average
Balance
2,438,376
399,785
7,122,466
13,746
11,144
7,147,356
276,075
$
8,621,328
$ 10,261,592
Rate
2.08%
0.57%
2.44%
4.47%
5.30%
2.45%
5.47%
2.37%
Maximum
Outstanding
At Any
Month End
3,390,528
427,822
8,000,000
19,581
34,676
275,923
As of
December 31, 2018
Year Ended
December 31, 2018
Balance
Rate
402,450
615,961
2.34%
0.36%
6,100,000
15,552
8,838
6,124,390
2.65%
4.43%
2.90%
275,913
5.34%
Average
Balance
419,322
464,582
6,207,142
14,783
14,516
6,236,441
177,884
$
7,418,714
$
7,298,229
Rate
1.89%
0.28%
2.06%
4.47%
2.67%
2.07%
5.52%
2.03%
Maximum
Outstanding
At Any
Month End
949,531
615,961
6,500,000
16,529
20,422
275,913
As of
December 31, 2017
Year Ended
December 31, 2017
Balance
Rate
58,628
516,335
1.00%
0.17%
5,100,000
19,947
14,950
5,134,897
1.47%
4.22%
2.61%
144,677
5.60%
Average
Balance
58,064
433,791
5,882,466
20,509
16,317
5,919,292
147,954
$
5,854,537
$
6,559,101
Rate
0.73%
0.10%
1.13%
4.59%
3.35%
1.15%
5.57%
1.18%
Maximum
Outstanding
At Any
Month End
80,967
536,094
6,200,000
24,139
18,610
151,875
119
Aggregate annual principal repayments at December 31, 2019 are as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
$
8,335,742
1,244
575
1,454
3,599
278,714
$
8,621,328
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.
Additional information relating to securities sold under agreements to repurchase and related liabilities at December 31, 2019
and 2018 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, 2019
Amortized
Cost
Fair
Value
Repurchase
Liability1
Rate
$
$
$
$
431,939
—
431,939
$
$
435,898
—
435,898
$
$
427,822
—
427,822
0.50%
—%
0.50%
December 31, 2018
Amortized
Cost
Fair
Value
Repurchase
Liability1
Rate
636,864
—
636,864
$
$
628,229
—
628,229
$
$
615,961
—
615,961
0.36 %
— %
0.36 %
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 $661 million to secure BOK Financial’s obligations to depositors of
public funds. The unused credit available to BOK Financial at December 31, 2019 pursuant to the Federal Home Loan Bank’s
collateral policies is $4.9 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.
120
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.
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 outstanding at December 31, 2019 and none at December 31, 2018.
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.
121
(10) Federal and State Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets
and liabilities are as follows (in thousands):
Deferred tax assets:
Credit loss reserves
Lease liability
Deferred compensation
Purchased loan discount
Unearned fees
Share-based compensation
Valuation adjustments
Available for sale securities mark to market
Other
Total deferred tax assets
Deferred tax liabilities:
Mortgage servicing rights
Right-of-use asset
Available for sale securities mark to market
Acquired identifiable intangible
Depreciation
Lease financing
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
December 31,
2019
2018
$
50,611
$
49,804
46,084
25,976
18,042
9,080
7,392
1,545
—
26,384
185,114
48,435
42,180
33,140
23,181
18,909
10,720
34,826
211,391
$
(26,277) $
—
25,608
27,283
9,814
4,434
9,619
24,441
31,489
182,492
61,844
—
—
28,620
15,966
10,040
30,566
147,036
35,456
No valuation allowance was necessary on deferred tax assets as of December 31, 2019 and 2018.
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,
2019
2018
2017
$
110,887
$
103,748
$
141,607
15,088
125,975
15,253
119,001
14,592
156,199
3,416
792
4,208
(190)
250
60
25,525
869
26,394
$
130,183
$
119,061
$
182,593
122
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
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
Other, net
Total
Year Ended December 31,
2019
2018
2017
$
132,482
$
118,752
$
181,397
(12,227)
12,715
(5,127)
2,340
(8,311)
12,430
(4,559)
749
(12,402)
10,701
(6,811)
9,708
$
130,183
$
119,061
$
182,593
Year Ended December 31,
2019
2018
2017
21.0%
21.0%
35.0%
(1.9)
2.0
(0.8)
0.3
(1.5)
2.2
(0.8)
0.2
(2.4)
2.0
(1.3)
1.9
20.6%
21.1%
35.2%
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
2019
2018
2017
$
18,869
$
18,110
$
5,649
—
(4,053)
2,649
—
(1,890)
$
20,465
$
18,869
$
15,841
4,645
—
(2,376)
18,110
Of the above unrecognized tax benefits, $14.7 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 $2.2 million for 2019, $1.7 million for 2018 and $1.2 million for 2017 in interest and penalties. The
Company had approximately $5.6 million and $5.0 million accrued for the payment of interest and penalties at December 31,
2019 and 2018, 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.
123
(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. Interest continues to accrue 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 2019 quarterly variable rates ranged from 3.32% to 3.40%.
The projected benefit obligation and fair value of plan assets, respectively, were $24.5 million and $36.4 million at December
31, 2019 and $24.5 million and $33.6 million at December 31, 2018. The net periodic benefit credit was $815 thousand for
December 31, 2019, $583 thousand for December 31, 2018 and $704 thousand for December 31, 2017. Total expected future
benefit payments related to the Pension Plan were $27.8 million at December 31, 2019.
The following table presents the weighted-average assumptions used in the measurement of the Company's net periodic benefit
cost as of December 31:
Discount rate
Expected return on plan assets
2019
2018
4.10%
5.50%
3.30%
5.50%
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. No minimum contribution was required for 2019, 2018 or 2017.
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 $27.6 million for 2019, $25.1 million for 2018 and $22.8 million for 2017.
124
(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, 2017
December 31, 2018
December 31, 2019
Options vested at:
December 31, 2017
December 31, 2018
December 31, 2019
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number
117,551
$
53.26
$
63,058
36,100
54.89
56.75
4,592
1,163
1,106
51,286
$
48.62
$
2,241
33,573
27,193
53.09
57.08
679
824
No options have been awarded since 2013. At December 31, 2019, the weighted average remaining contractual life of options
outstanding was 1.76 years and the weighted average remaining contractual life of vested options was 1.35 years. The
aggregate intrinsic value of options exercised was $761 thousand for 2019, $2.3 million for 2018 and $3.5 million for 2017.
The Company also awards restricted stock to certain officers and employees and restricted stock units ("RSUs) to certain
executives, (collectively "non-vested shares"). 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 shares for the three years ended December 31,
2019 (in thousands):
Non-vested at January 1, 2017
Granted
Vested
Forfeited
Non-vested at December 31, 2017
Granted
Vested
Forfeited
Non-vested at December 31, 2018
Granted
Vested
Forfeited
Non-vested at December 31, 2019
Restricted Stock
Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Grant Date
Fair Value
Units
Shares
786,706
177,807
$
(194,419)
(102,991)
667,103
150,419
$
(242,215)
(47,700)
527,607
145,724
$
(114,201)
(131,952)
427,178
86.95
63.07
78.70
85.58
74.85
75.68
76.74
61.28
83.69
—
— —
—
—
—
—
—
—
—
—
—
—
—
—
—
46,689
$
87.40
—
—
46,689
—
—
Compensation expense recognized on non-vested shares totaled $15.1 million for 2019, $3.6 million for 2018 and $23.2 million
for 2017. Unrecognized compensation cost of non-vested shares totaled $14.9 million at December 31, 2019. We expect to
recognize compensation expense of $9.4 million in 2020, $5.3 million in 2021, and $144 thousand in 2022.
125
Compensation cost for restricted stock units is variable based on the current fair value of BOK Financial common shares.
Vesting of 222,164 non-vested shares may be increased or decreased based on performance criteria defined in the plan
documents.
(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,
2019
2018
$
75,265
$
110,246
886,610
1,479,735
(896,643)
(1,514,841)
9,957
125
$
75,189
$
75,265
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, 2019, loan commitments and equity investments were limited to $370 million to a single affiliate and $739
million to all affiliates. The largest loan commitment and equity investment to a single affiliate was $257 million and the
aggregate loan commitments and equity investments to all affiliates were $392 million. The largest outstanding amount to a
single affiliate at December 31, 2019 was $4.3 million and the total outstanding amounts to all affiliates were $5.0 million. At
December 31, 2018, total loan commitments and equity investments to all affiliates were $313 million and the total outstanding
amounts to all affiliates were $883 thousand.
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.
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
2019, BOKF paid QuikTrip approximately $10.0 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 84% of the Funds’ assets of $3.7 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.
126
(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 409,324 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. No value has been currently assigned to the Class B 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, less the value of the facilities securing repayment of the bonds, subject to oversight by a
court appointed monitor (“Payment Plan”).
On September 7, 2016, BOKF, NA agreed, and the SEC entered, a consent order finding that BOKF, NA had violated Section
17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring BOKF, NA to disgorge
$1,067,721 of fees and pay a civil penalty of $600,000. BOKF, NA disgorged the fees and paid the penalty.
On August 26, 2016, 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 BOKF, NA participated in the fraudulent sale of securities by the
principals. The New Jersey Federal District Action has been stayed until March 20, 2020. On September 14, 2016, BOKF, NA
was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders alleging BOKF, NA participated in the fraudulent
sale of securities by the principals. The Tulsa County District Court Action is pending on BOKF, NA’s motion to dismiss. Four
separate small groups of bondholders filed arbitration complaints with the Financial Institutions Regulatory Association
respecting the bonds and other bonds for which BOKF, NA served as indenture trustee. BOKF, NA challenged the FINRA
proceedings in the United States District Court of Nevada. On appeal, the United States Court of Appeals for the Ninth Circuit
held BOKF, NA was not subject to FINRA jurisdiction. The four FINRA complaints were then dismissed.
On July 9, 2019, the New Jersey Federal District Court terminated the Payment Plan except with respect to facilities then under
contract to be sold as to which the Payment Plan continued until January 17, 2020. On January 8, 2020, the New Jersey
District Court entered judgment against the principal individual and his wife for $36,805,051 in principal amount and
$10,937,831 in pre-judgment interest. Management is no longer able to conclude that the individual principal and his wife will
be successful in paying the obligations they have to pay the bonds in full. Under all circumstances, the obligation of the
principals to repay the bonds continues as an obligation not dischargeable in bankruptcy. If the individual principal and his wife
do not have the financial ability to pay the bonds in full, a bondholder loss could become probable. Management has been
advised by counsel that BOKF, NA has valid defenses to claims of bondholders and that no loss to the company is probable. No
provision for losses has been made at this time. BOKF, NA estimates that, upon sale of all facilities securing payment of the
bonds, including those currently under contract and those not currently under contract, approximately $20 million will remain
outstanding. A reasonable estimate cannot be made of the amount of any bondholder loss, though the amount of bondholder
loss could be material to the company in the event a loss to the company becomes probable.
127
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 BOKF, NA has valid defenses to the plaintiffs’ claims and no loss is probable.
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. On September 18, 2018, the
District Court dismissed the Texas action and the plaintiff appealed the dismissal to the United States Court of Appeals for the
Fifth Circuit which heard argument on October 8, 2019. 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. The District Court dismissed
the plaintiff’s action. The plaintiffs filed a motion for reconsideration and the action is pending on that motion. Management is
advised by counsel that a loss is not probable in either the now dismissed Texas action or the New Mexico 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 a private equity fund 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.
At December 31, 2019, the Company has $259 million in 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 investment balance also included of $82 million in unfunded
commitments included in Other liabilities on the Consolidated Balance Sheets. At December 31, 2018 , the Company had $237
million in interests in various alternative investments and included $74 million in unfunded commitments included in Other
liabilities.
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, 2019. 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 2019 or 2018.
128
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 $618 million for the
year ended December 31, 2019 and $1.2 billion for the year ended December 31, 2018.
(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 2019, 2018 or 2017.
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 bank can declare and the amounts of loans the subsidiary bank can
extend to affiliates are limited by various federal banking regulations and state corporate law. Generally, dividends declared
during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years.
Dividends are further restricted by minimum capital requirements.
Regulatory Capital
BOK Financial and the subsidiary bank is 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 phased 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, 2019 and December 31, 2018.
129
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, 2019
December 31, 2018
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%
4.00%
2.50%
N/A
N/A
2.50%
N/A
N/A
7.00%
4.50%
4.50%
8.50%
6.00%
6.00%
N/A
6.50%
6.50%
$ 3,608,821
11.39% $3,356,524
3,414,446
10.90% 2,894,119
—
—% 317,944
10.92 %
10.50 %
10.65 %
N/A
8.00%
8.00%
$ 3,608,821
11.39% $3,356,524
3,414,446
10.90% 2,894,119
—
—% 317,944
10.92 %
10.50 %
10.65 %
2.50%
N/A
N/A
10.50%
8.00%
8.00%
N/A
$ 4,097,087
12.94% $3,841,684
10.00%
10.00%
3,692,010
11.79% 3,103,366
—
—% 382,944
12.50 %
11.26 %
12.83 %
N/A
N/A
N/A
4.00%
4.00%
4.00%
N/A
5.00%
5.00%
$ 3,608,820
8.40% $3,356,524
3,414,446
7.98% 2,894,119
—
—% 317,944
8.96 %
8.56 %
8.25 %
1 Capital conservation buffer was effective January 1, 2016 and phased in through 2019. The phased in capital conservation buffer was
2.50% at December 31, 2019 and 1.875% at December 31, 2018. 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 and merged into BOKF, NA during the first quarter of 2019.
130
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. 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, 2016
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Gain on available for sale securities, net
Other comprehensive income (loss), before income taxes
Federal and state income tax1
Other comprehensive income (loss), net of income taxes
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:
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
Balance, December 31, 2018
Net change in unrealized gain (loss)
Reclassification adjustments included in earnings:
Gain 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
Employee
Benefit
Plans
Total
$
(9,087) $
(1,880) $
(10,967)
(28,170)
2,018
(26,152)
(4,428)
(32,598)
(12,708)
(19,890)
(6,408)
(35,385)
(2,709)
(46,941)
2,801
(44,140)
(11,235)
(32,905)
(70,999)
239,017
(5,597)
233,420
57,425
175,995
—
2,018
785
1,233
(142)
(789)
—
(1,069)
—
(1,069)
(272)
(797)
(1,586)
2,030
—
2,030
517
1,513
(4,428)
(30,580)
(11,923)
(18,657)
(6,550)
(36,174)
(2,709)
(48,010)
2,801
(45,209)
(11,507)
(33,702)
(72,585)
241,047
(5,597)
235,450
57,942
177,508
Balance, December 31, 2019
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.
$
104,996
$
(73) $
104,923
131
(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
2019
2018
2017
Numerator:
Net income attributable to BOK Financial Corp. shareholders
$
500,758
$
445,646
$
334,644
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
3,227
497,531
—
3,737
441,909
1
3,561
331,083
2
Numerator for diluted earnings per share – income available to common shareholders
$
497,531
$
441,910
$
331,085
Denominator:
Weighted average shares outstanding
71,250,081
67,190,257
65,440,832
Less: Participating securities included in weighted average shares outstanding
462,381
561,617
695,468
Denominator for basic earnings per common share
Dilutive effect of employee stock compensation plans
Denominator for diluted earnings per common share
Basic earnings per share
Diluted earnings per share
(17) Reportable Segments
70,787,700
66,628,640
64,745,364
14,912
33,633
60,920
70,802,612
66,662,273
64,806,284
$
$
7.03
7.03
$
$
6.63
6.63
$
$
5.11
5.11
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, insurance 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.
132
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 allocated to the operating segments in the second quarter of 2019.
Prior to April 1, 2019, CoBiz operations were included in Funds Management and other.
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 2019 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
$
919,148
$
99,679
$
61,277
$
32,775
$
1,112,879
(242,907)
676,241
39,011
637,230
170,412
252,459
555,183
106
—
331
43,055
512,565
137,759
374,806
95,775
195,454
6,271
189,183
187,500
230,916
145,767
30,375
(53,517)
496
47,169
75,952
19,346
56,606
—
—
$
374,806
$ 22,807,589
$
$
56,606
9,301,341
$
$
38,815
100,092
(308)
100,400
341,389
277,267
164,522
2
—
—
36,239
128,285
32,954
95,331
—
95,331
10,204,426
108,317
141,092
(974)
142,066
(4,931)
371,739
(234,604)
(30,483)
53,517
(827)
(126,463)
(85,934)
(59,876)
(26,058)
—
1,112,879
44,000
1,068,879
694,370
1,132,381
630,868
—
—
—
—
630,868
130,183
500,685
(73)
(73)
(25,985) $
500,758
(219,009) $
42,094,347
$
$
133
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
$
726,855
$
83,231
$
81,528
$
93,253
$
984,867
(159,954)
566,901
30,358
536,543
162,701
202,095
497,149
26
—
(6,532)
36,670
453,973
120,458
333,515
73,448
156,679
5,143
151,536
178,123
231,075
98,584
(25,021)
4,668
247
44,398
34,080
8,681
25,399
31,480
113,008
(288)
113,296
296,369
257,650
152,015
7
—
—
35,920
116,102
30,075
86,027
55,026
148,279
(27,213)
175,492
(20,409)
337,346
(182,263)
24,988
(4,668)
6,285
(116,988)
(38,670)
(40,153)
1,483
—
984,867
8,000
976,867
616,784
1,028,166
565,485
—
—
—
—
565,485
119,061
446,424
—
—
—
778
778
$
333,515
$ 18,432,035
$
$
25,399
8,303,263
$
$
86,027
8,447,784
$
$
705
$
445,646
(245,552) $
34,937,530
134
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 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
Average assets
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
BOK
Financial
Consolidated
$
618,325
$
84,286
$
45,024
$
94,066
$
841,701
(92,055)
526,270
13,877
512,393
208,404
235,793
485,004
52
—
(2,681)
28,060
454,315
186,518
267,797
—
$
267,797
$ 17,766,027
$
$
53,916
138,202
4,786
133,416
184,878
241,805
76,489
(2,052)
172
223
49,344
25,488
9,915
15,573
—
15,573
8,544,117
$
$
38,344
83,368
(696)
84,064
301,434
254,495
131,003
—
—
387
32,693
98,697
38,848
59,849
—
59,849
7,072,622
(205)
93,861
(24,967)
118,828
378
293,424
(174,218)
2,000
(172)
2,071
(110,097)
(60,222)
(52,688)
(7,534)
1,041
—
841,701
(7,000)
848,701
695,094
1,025,517
518,278
—
—
—
—
518,278
182,593
335,685
1,041
$
$
(8,575) $
334,644
(435,272) $
32,947,494
135
(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,
2019.
Commercial
Consumer
Wealth
Management
Funds
Management
and Other
Consolidated
Out of
Scope1
In Scope2
Trading revenue
$
— $
— $
88,558
$
— $
88,558
$
88,558
$
Customer hedging revenue
Retail brokerage revenue
Insurance brokerage revenue
Investment banking revenue
Brokerage and trading
revenue
TransFund EFT network revenue
Merchant services revenue
Corporate card 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
8,422
—
—
10,136
18,558
73,479
8,607
1,072
83,158
—
—
—
—
—
42,251
313
—
823
43,387
—
—
—
23,564
—
—
—
—
—
3,924
56
—
3,980
—
—
—
—
—
1,713
35,134
21,865
6,155
64,867
42,724
66,692
109,416
9,733
9,667
16,251
10,131
12,194
136,801
(82)
—
32
(50)
81,763
24,635
44,352
24,725
175,475
2,137
138
—
168
2,443
—
—
—
26,664
852
(115)
3,730
—
4,467
3
123
2
128
—
—
—
1,550
1,550
1,804
(229)
165
48
1,788
(4)
(1,871)
(1,875)
(1,853)
18,941
16,136
13,861
22,330
159,826
77,324
8,786
1,106
87,216
81,763
24,635
44,352
26,275
177,025
47,905
35,356
22,030
7,194
112,485
42,720
64,821
107,541
58,108
18,941
—
—
8,678
116,177
—
—
—
—
—
—
—
—
—
—
—
—
—
—
42,720
64,821
107,541
39,428
revenue
$
1 Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting
263,146
702,201
341,333
187,996
168,667
4,205
$
$
$
$
$
$
—
—
16,136
13,861
13,652
43,649
77,324
8,786
1,106
87,216
81,763
24,635
44,352
26,275
177,025
47,905
35,356
22,030
7,194
112,485
—
—
—
18,680
439,055
guidance.
In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.
2
136
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
Insurance brokerage revenue
Investment banking revenue
Brokerage and trading
revenue
TransFund EFT network revenue
Merchant services revenue
Corporate card 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
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
(1,078)
4,198
—
6,694
6
79
—
85
—
—
76
1,367
1,443
1,565
(145)
339
74
1,833
—
(1,883)
(1,883)
(1,584)
38,834
17,952
4,198
19,262
108,323
76,221
7,804
—
84,025
96,839
22,292
44,476
21,096
184,703
47,272
36,536
21,306
7,039
112,153
31,690
66,097
97,787
56,185
38,834
—
—
6,380
73,291
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31,690
66,097
97,787
38,306
revenue
$
1 Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting
178,174
296,465
161,949
209,384
643,176
6,588
$
$
$
$
$
$
—
—
17,952
4,198
12,882
35,032
76,221
7,804
—
84,025
96,839
22,292
44,476
21,096
184,703
47,272
36,536
21,306
7,039
112,153
—
—
—
17,879
433,792
guidance.
In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.
2
137
(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, 2019 and 2018, respectively. Transfers between significant other observable inputs and significant
unobservable inputs during the year ended December 31, 2019 and 2018 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, 2019
and 2018.
138
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, 2019 (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
$
44,264
$
— $
44,264
$
Residential agency 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
Municipal and other tax-exempt securities
Residential agency mortgage-backed securities
Residential non-agency mortgage-backed securities
Commercial agency mortgage-backed securities guaranteed
Other debt securities
Total available for sale securities
Fair value option securities:
U.S. Treasury
Residential agency mortgage-backed securities
Total fair value option securities
Residential mortgage loans held for sale
Mortgage servicing rights, net1
Derivative contracts, net of cash margin2
Liabilities:
Derivative contracts, net of cash margin2
1,504,651
26,196
14,084
34,726
1,623,921
1,600
1,861
8,046,096
41,609
3,178,005
472
—
—
—
—
—
1,600
—
—
—
—
—
1,504,651
26,196
14,084
34,726
1,623,921
—
1,861
8,046,096
41,609
3,178,005
—
11,269,643
1,600
11,267,571
9,917
1,088,660
1,098,577
182,271
201,886
323,375
9,917
—
9,917
—
—
—
1,088,660
1,088,660
173,958
—
8,944
314,431
251,128
—
251,128
—
—
—
—
—
—
—
—
—
—
—
472
472
—
—
—
8,313
201,886
—
—
1 A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to
determine fair value are presented in Note 7, Mortgage Banking Activities.
2 See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in a net asset position that were valued
based on quoted prices in active markets or identical instruments (Level 1) are exchange-traded interest rate and energy derivative
contracts, net of cash margin. Derivative contracts in a net liability position that were valued using quoted prices in active markets for
identical instruments (Level 1) are exchange-traded interest rate and agricultural derivative contracts, fully offset by cash margin.
139
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):
Assets:
Trading securities:
U.S. government agency debentures
Residential agency 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
Municipal and other tax-exempt securities
Residential agency mortgage-backed securities
Residential non-agency mortgage-backed securities
Commercial agency mortgage-backed securities guaranteed
Other debt securities
Total available for sale securities
Fair value option securities – Residential agency 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
Quoted
Prices in
Active
Markets for
Identical
Instruments
Total
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
$
63,765
$
— $
63,765
$
1,791,584
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
362,306
—
362,306
—
—
—
—
—
—
—
—
—
—
—
472
472
—
15,207
259,254
—
—
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 derivative contracts, fully offset by cash margin.
140
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.
141
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, 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)
Balance, December 31, 2018
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
$
4,802
$
472
$
12,299
—
—
(5,095)
—
—
293
—
—
—
—
—
—
—
—
—
—
—
—
—
472
—
—
—
—
—
—
6,183
—
—
(2,706)
(569)
—
15,207
2,449
—
—
(9,972)
629
—
Balance, December 31, 2019
8,313
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, 2019 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
7.08%-7.08% (7.08%)
94.4%-94.4% (94.4%)
3
2
Residential mortgage loans held for
sale
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
8,313
95.23%
1 Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and
credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 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%.
142
A summary of quantitative information about Recurring Fair Value Measurements based on 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
7.88%-7.88% (7.88%)
94.44%-94.44% (94.44%)
3
2
Residential mortgage loans held for
sale
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
92.38%
1 Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and
credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 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 less than
3%.
143
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.
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, 2019
Fair Value Adjustments for the
Year Ended December 31, 2019
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
(gains) and
expenses of
repossessed
assets, net
Impaired loans
Real estate and other repossessed assets
$
— $
—
$
41
5,986
$
55,665
1,551
$
31,305
—
—
(461)
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
(gains) 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
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.
144
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable
Inputs (Level 3) as of December 31, 2019 follows (in thousands):
Impaired loans
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
Fair
Value
Valuation
Technique(s)
$ 55,665 Discounted cash
flows
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
Range
(Weighted Average)
4% - 94% (55%)1
Real estate and other repossessed assets
1,551 Discounted cash
flows
Marketability adjustments off
appraised value2
74% - 86% (84%)
1 Represents fair value as a percentage of the unpaid principal balance.
2 Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.
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 and
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).
The fair value of pension plan assets was approximately $36 million at December 31, 2019 and $34 million at December 31,
2018, 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.
145
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, 2019
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
$
735,836
$
735,836
$
735,836
$
Interest-bearing cash and cash equivalents
522,985
522,985
522,985
— $
—
Trading securities:
U.S. government agency debentures
Residential agency 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
Residential agency mortgage-backed securities
Other debt securities
Total investment securities
Available for sale securities:
U.S. Treasury
Municipal and other tax-exempt securities
Residential agency mortgage-backed securities
Residential non-agency mortgage-backed securities
Commercial agency mortgage-backed securities
Other debt securities
Total available for sale securities
Fair value option securities:
U.S. Treasury
Residential agency mortgage-backed securities
Total fair value option 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
—
—
—
—
—
—
—
—
—
—
198,135
198,135
—
—
—
—
—
472
472
—
—
—
44,264
44,264
1,504,651
1,504,651
26,196
14,084
34,726
26,196
14,084
34,726
1,623,921
1,623,921
93,653
10,676
189,089
293,418
1,600
1,861
96,897
11,164
206,341
314,402
1,600
1,861
8,046,096
8,046,096
41,609
41,609
3,178,005
3,178,005
472
472
—
—
—
—
—
—
—
—
—
—
1,600
—
—
—
—
—
44,264
1,504,651
26,196
14,084
34,726
1,623,921
96,897
11,164
8,206
116,267
—
1,861
8,046,096
41,609
3,178,005
—
11,269,643
11,269,643
1,600
11,267,571
9,917
1,088,660
1,098,577
182,271
9,917
1,088,660
1,098,577
182,271
14,031,650
13,966,221
4,433,783
2,084,172
1,201,382
4,422,717
2,098,093
1,202,298
21,750,987
21,689,329
(210,759)
—
21,540,228
21,689,329
201,886
323,375
201,886
323,375
25,403,319
25,403,319
2,217,849
8,345,405
275,923
251,128
2,212,467
8,315,860
284,627
251,128
146
9,917
—
—
1,088,660
9,917
1,088,660
—
—
—
—
—
—
—
—
—
173,958
8,313
—
—
—
—
—
—
—
—
13,966,221
4,422,717
2,098,093
1,202,298
21,689,329
—
21,689,329
201,886
8,944
314,431
—
—
—
—
—
—
—
—
—
284,627
251,128
25,403,319
2,212,467
8,315,860
—
—
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
Residential agency 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
Residential agency mortgage-backed securities
Other debt securities
Total investment securities
Available for sale securities:
U.S. Treasury securities
Municipal and other tax-exempt securities
Residential agency mortgage-backed securities
Residential non-agency mortgage-backed securities
Commercial agency mortgage-backed securities
Other debt securities
Total available for sale securities
Fair value option securities – Residential agency 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
63,765
63,765
1,791,584
1,791,584
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
5,804,708
5,804,708
59,736
59,736
2,953,889
2,953,889
35,430
35,430
—
—
—
—
—
—
—
—
—
—
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
8,857,120
8,857,120
493
8,856,155
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
7,071,953
261,977
362,306
—
—
—
—
—
—
—
—
—
—
283,235
134,014
—
—
—
—
—
—
—
—
44,074
276,855
—
—
—
—
—
—
—
—
261,977
362,306
—
—
—
—
—
—
—
—
—
—
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
—
23,150,383
2,073,538
7,071,953
—
—
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.
147
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.
148
(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
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 income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
Statements of Earnings
(In thousands)
December 31,
2019
2018
$
214,779
$
167,093
65,220
65,228
4,602,977
4,236,654
216,542
38,082
218,007
32,999
$
5,137,600
$
4,719,981
$
5,882
$
275,923
281,805
11,959
275,913
287,872
5
5
1,350,995
3,729,778
(329,906)
104,923
1,334,030
3,369,654
(198,995)
(72,585)
4,855,795
4,432,109
$
5,137,600
$
4,719,981
Dividends, interest and fees received from bank subsidiaries
$
344,007
$
426,071
$
150,149
Year Ended December 31,
2019
2018
2017
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 gains (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
9,325
1,036
354,368
15,113
2,352
17,465
336,903
3,310
340,213
(4,516)
344,729
166,797
(10,768)
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)
Net income attributable to BOK Financial Corp. shareholders
$
500,758
$
445,646
$
334,644
149
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 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,
2019
2018
2017
$
500,758
$
445,646
$
334,644
(166,797)
10,768
(5,075)
855
340,509
—
(19,837)
—
(19,837)
—
(7)
(143,496)
(129,483)
(272,986)
47,686
167,093
214,779
15,099
$
$
(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)
9,545
12
7,457
170,106
3,000
(4,355)
—
(1,355)
(7,217)
4,368
(116,041)
(7,403)
(126,293)
42,458
163,418
205,876
6,211
$
$
The Company evaluated events from the date of the Consolidated Financial Statements on December 31, 2019 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.
150
(This page has been left blank intentionally.)
151
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, 2019
Average
Balance
Revenue/
Expense
Yield/
Rate
2.28%
3.55%
4.51%
2.58%
2.95%
6.08%
3.82%
5.13%
5.18%
4.27%
1.02%
0.12%
1.90%
1.11%
1.87%
2.45%
5.47%
1.61%
12,214
61,960
14,417
254,101
32,936
26,860
7,105
1,134,037
1,134,037
1,543,630
132,854
677
42,007
175,538
53,003
175,425
15,113
419,079
$
$
$
$
$
$
536,853
1,772,660
319,451
10,108,409
1,145,800
441,756
186,207
22,106,979
(204,679)
21,902,300
36,413,436
1,597,098
4,083,813
42,094,347
13,072,914
553,057
2,215,405
15,841,376
2,838,161
7,147,356
276,075
26,102,968
9,809,905
702,450
801,475
4,677,549
42,094,347
$
1,124,551
2.66%
3.11%
11,672
1,112,879
44,000
694,370
1,132,381
630,868
130,183
500,685
(73)
500,758
7.03
7.03
$
$
$
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.
152
Annual Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Year Ended
December 31, 2018
December 31, 2017
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
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%
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
584,843
3,434,867
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
$
$
$
$
$
$
$
$
$
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
559,801
3,739,218
34,937,530
22,333
57,948
15,848
197,472
15,205
21,555
8,123
898,896
1.80% $
3.84%
4.00%
2.35%
3.18%
6.20%
4.07%
4.80%
898,896
1,237,380
4.86%
3.98%
$
0.62% $
0.09%
1.37%
0.72%
1.04%
2.07%
5.52%
1.19%
$
2.79%
3.20%
65,859
439
29,219
95,517
9,207
129,008
9,827
243,559
$
993,821
8,954
984,867
8,000
616,784
1,028,166
565,485
119,061
446,424
778
445,646
6.63
6.63
153
$
$
$
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, 2019
Revenue/
Expense
Yield/
Rate
Average
Balance
September 30, 2019
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
2,335
13,015
3,500
69,692
9,488
6,441
1,797
266,315
266,315
372,583
36,897
154
10,970
48,021
16,212
31,621
3,754
99,608
$
$
$
573,203
1,672,426
298,567
11,333,524
1,521,528
479,687
203,535
22,236,000
(205,417)
22,030,583
38,113,053
1,973,604
4,126,697
$ 44,213,354
$ 14,685,385
554,605
2,247,717
17,487,707
4,120,610
6,247,194
275,916
28,131,427
9,612,533
784,174
837,732
4,847,488
$ 44,213,354
$
272,975
2,726
270,249
19,000
178,585
288,795
141,039
30,257
110,782
430
110,352
1.56
1.56
$
$
$
2.42%
3.49%
4.46%
2.60%
2.79%
6.34%
3.73%
5.12%
5.17%
4.25%
1.08%
0.14%
1.94%
1.17%
2.01%
2.42%
5.48%
1.68%
2.57%
3.01%
1.62% $
500,823
3.19%
1,696,568
4.69%
308,090
2.52% 10,747,439
2.62%
1,553,879
5.37%
476,781
3.55%
203,319
4.75% 22,412,918
(201,714)
4.80% 22,211,204
3.93% 37,698,103
1,742,794
4,139,451
$ 43,580,348
1.00% $ 13,131,542
0.11%
557,122
1.94%
2,251,800
1.09% 15,940,464
1.56%
3,106,163
2.01%
8,125,023
5.40%
275,900
1.40% 27,447,550
9,759,710
745,893
847,195
4,780,000
$ 43,580,348
2.53%
2.88%
$
$
3,050
14,546
3,434
67,640
10,708
7,558
1,891
289,316
289,316
398,143
35,713
190
11,014
46,917
15,731
49,650
3,813
116,111
$
282,032
2,936
279,096
12,000
186,450
279,292
174,254
32,396
141,858
(373)
142,231
2.00
2.00
$
$
$
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
154
Quarterly Financial Summary – Unaudited (continued)
Consolidated Daily Average Balances, Average Yields and Rates
June 30, 2019
Revenue /
Expense
Yield /
Rate
Average Balance
Three Months Ended
March 31, 2019
Revenue /
Expense
Average Balance
December 31, 2018
Yield /
Rate
Average Balance
Revenue /
Expense
Yield /
Rate
2.23%
4.10%
4.26%
2.51%
3.56%
6.39%
4.00%
5.09%
5.14%
4.33%
0.79%
0.11%
1.54%
0.87%
1.36%
2.51%
5.38%
1.42%
2.91%
3.40%
2.56% $
3.88%
4.50%
2.57%
3.62%
6.42%
4.58%
5.26%
5.31%
4.46%
$
0.94% $
0.12%
1.80%
1.04%
2.07%
2.68%
5.51%
1.66%
$
2.80%
3.30%
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
$
$
$
2.57% $
3.59%
4.41%
2.63%
3.34%
6.30%
3.65%
5.39%
5.45%
4.51%
$
1.04% $
0.12%
1.90%
1.13%
2.08%
2.67%
5.53%
1.70%
$
2.81%
3.30%
3,432
15,609
3,621
59,888
7,503
6,516
1,754
295,978
295,978
394,301
32,540
173
10,470
43,183
10,704
47,700
3,801
105,388
$
$
$
$
$
$
535,491
1,757,335
328,482
9,435,668
898,772
413,812
192,102
22,004,405
(205,532)
21,798,873
35,360,535
1,437,462
4,046,780
40,844,777
12,512,282
558,738
2,207,391
15,278,411
2,066,950
7,175,617
275,887
24,796,865
9,883,965
821,688
744,216
4,598,043
40,844,777
$
288,913
3,481
285,432
5,000
172,065
277,137
175,360
37,580
137,780
217
137,563
1.93
1.93
$
$
$
3,397
18,790
3,862
56,881
5,237
6,345
1,663
282,428
282,428
378,603
27,704
160
9,553
37,417
10,356
46,454
3,745
97,972
$
$
537,903
1,968,399
343,282
8,883,054
594,349
395,432
145,040
21,766,065
(206,092)
21,559,973
34,427,432
1,224,700
4,020,549
39,672,681
11,931,539
541,575
2,153,277
14,626,391
2,033,036
7,040,279
275,882
23,975,588
9,988,088
453,937
775,574
4,479,494
39,672,681
$
280,631
2,529
278,102
8,000
157,270
287,157
140,215
29,950
110,265
(347)
110,612
1.54
1.54
$
$
$
155
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 2020 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 2019 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 2020 Annual Proxy Statement is incorporated herein by reference.
156
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 2020 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 2020 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 2020 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, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
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.
157
(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.
158
Exhibit
Number
10.7.8
BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 4.0 of
S-8 Registration Statement No. 33-79836.
Description of Exhibit
10.7.9
10.7.10
10.7.11
10.7.12
10.7.13
10.7.14
10.7.16
10.8
10.8.1
21
23
31.1
31.2
32
99
101
Bank of Oklahoma Thrift Plan (Amended and Restated Effective as of January 1, 1995), incorporated by
reference to Exhibit 10.7.6 of Form 10-K for the year ended December 31, 1994.
Trust Agreement for the Bank of Oklahoma Thrift Plan (December 30, 1994), incorporated by reference to
Exhibit 10.7.7 of Form 10-K for the year ended December 31, 1994.
BOK Financial Corporation 2003 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8
Registration Statement No. 333-106531.
BOK Financial Corporation 2003 Executive Incentive Plan, incorporated by reference to Exhibit 4.0 of S-8
Registration Statement No. 333-106530.
10b5-1 Repurchase Plan between BOK Financial Corporation and BOSC, Inc. dated May 27, 2008,
incorporated by reference to Exhibit 10.1 of Form 8-K filed May 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 Williams Headquarters Building LLC and BOKF, NA dated July 1, 2019.
First Amendment to Lease Agreement between Williams Headquarters Building LLC and BOKF, NA dated
November 8th, 2019.
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. The XBRL instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.
(b)
Exhibits
See Item 15 (a) (3) above.
(c)
Financial Statement Schedules
See Item 15 (a) (2) above.
159
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
BOK FINANCIAL CORPORATION
DATE: February 27, 2020 BY: /s/ George B. Kaiser
George B. Kaiser
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 27, 2020,
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
160
Alan S. Armstrong
/s/ C. Frederick Ball, Jr.
C. Frederick Ball, Jr.
/s/ Steve Bangert
Steve Bangert
/s/ Peter C. Boylan III
Peter C. Boylan III
/s/ Chester E. Cadieux, III
Chester E. Cadieux, III
/s/ Gerard P. Clancy
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
/s/ V. Burns Hargis
V. Burns Hargis
DIRECTORS
/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
Claudia San Pedro
/s/ Michael C. Turpen
Michael C. Turpen
R.A. Walker
/s/ Rose M. Washington
Rose M. Washington
161
Exhibit 10.8
BANK OF OKLAHOMA TOWER
TULSA, OKLAHOMA
LEASE AGREEMENT
BOKF, NA,
D/B/A BANK OF OKLAHOMA
Exhibit 10.8
TABLE OF CONTENTS
1
Certain Definitions ..................................................................................................................
8
Exhibits....................................................................................................................................
Term.........................................................................................................................................
9
Condition ................................................................................................................................. 10
Rent.......................................................................................................................................... 11
Security Deposit ...................................................................................................................... 13
Possession and Use of Premises .............................................................................................. 14
Utilities and Services ............................................................................................................... 15
Quiet Enjoyment...................................................................................................................... 17
Assignment and Subletting...................................................................................................... 18
Recapture ................................................................................................................................. 20
Maintenance and Repairs......................................................................................................... 20
Alterations ............................................................................................................................... 22
Allocation of Risks and Indemnification................................................................................. 25
Insurance.................................................................................................................................. 27
Default and Remedies.............................................................................................................. 28
Attorney's Fees ........................................................................................................................ 32
Surrender of Premises.............................................................................................................. 32
Damage by Fire or Other Casualty .......................................................................................... 33
Eminent Domain...................................................................................................................... 35
Rules and Regulations ............................................................................................................. 36
Landlord's Rights..................................................................................................................... 36
Tenant's Signage ...................................................................................................................... 38
Estoppel Certificate ................................................................................................................. 38
Real Estate Brokers ................................................................................................................. 39
Subordination and Attornment................................................................................................. 39
Notices ..................................................................................................................................... 41
Miscellaneous .......................................................................................................................... 41
Special Provisions.................................................................................................................... 45
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
Exhibit "A": Delineation of the Premises
Exhibit "B": Returned Premises
Exhibit "C-1": [INTENTIONALLY DELETED]
Exhibit "C-2": [INTENTIONALLY DELETED]
Exhibit "D-1": Landlord's Statement of Expansion Premises
Exhibit "D-2": Landlord's Statement of Existing Premises
Exhibit "E": Rules and Regulations
Exhibit "F": Janitorial Specifications
Exhibit "G": As-Is Work Letter
Exhibit "H": Kiosk License Premises
Exhibit 10.8
BANK OF OKLAHOMA TOWER
TULSA, OKLAHOMA
LEASE AGREEMENT
BOKF, NA
THIS LEASE AGREEMENT ("Lease"), dated and effective as of July 1, 2019 (the "Effective
Date"), is made by and between WILLIAMS HEADQUARTERS BUILDING LLC, a Delaware
limited liability company ("Landlord"), and BOKF, NA, a national banking association, d/b/a Bank
of Oklahoma ("Tenant") (collectively the "parties" or individually a "party").
WITNESSETH: Upon and subject to the terms of this Lease, Landlord hereby leases to
Tenant and Tenant hereby leases from Landlord, certain Premises situated within the Building
located at the Complex, for the Term, except that Landlord reserves and Tenant shall have no right
in and to (a) the use of the exterior faces of all perimeter walls of the Building (except as otherwise
expressly provided herein), (b) the use of the roof of the Building (except as otherwise expressly
provided herein (if at all)), or (c) the use of the air space above the Building.
1
Certain Definitions.
1.1
Additional Charges: All amounts payable by Tenant to Landlord under this Lease
other than Total Base Rent, including but not limited to: (i) Tenant's Expansion Premises
Proportionate Share of Operating Expenses; (ii) Tenant's Expansion Premises Proportionate Share
of Real Estate Taxes; (iii) Tenant's Existing Premises Proportionate Share of Operating Expenses;
and (iv) Tenant's Existing Premises Proportionate Share of Real Estate Taxes. All Additional
Charges shall be deemed to be additional rent and all remedies applicable to the non-payment of
Net Base Rent shall be applicable thereto.
1.2
Affiliate: As to any Person, any other Person that, directly or indirectly through one
or more intermediaries or otherwise, Controls (as hereinafter defined), is Controlled by, or is under
common Control with, such Person, including, as to Landlord and Tenant, any Person Controlling
or Controlled by or under common Control with any general partner of Landlord or Tenant, as the
case may be.
1.3
Alterations: Any improvement, decoration, removal, addition, installation or
physical change made in, on or to the Premises or any adjacent space to specifically accommodate
Alterations in, on or to the Premises.
1.4
Building: The Bank of Oklahoma Tower located at One Williams Center, Tulsa,
Oklahoma; provided that, should Landlord, in its sole discretion, elect to calculate and charge Tenant
for Operating Expenses based on both the Building and the Resource Center, then references to the
Building with respect to Operating Expense calculations shall be deemed to include the Resource
Center.
1.5
Commencement Date for Existing Premises: The Effective Date.
Exhibit 10.8
1.6
Commencement Date for Expansion Premises: January 1, 2020.
1.7
Common Areas: All areas, improvements, space, equipment and special services in
or at the Building or at the Complex provided by Landlord, at Landlord's discretion, for the common
or joint use and benefit of tenants, customers, and other invitees of the Building, which may include
lobbies, service areas, connecting driveways, entrances and exits, retaining walls, landscaped areas,
malls, truck serviceways or tunnels, loading docks, pedestrian walkways, atriums, walls, courtyards,
concourses, stairs, ramps, sidewalks, washrooms, signs identifying or advertising the Building or
Complex, maintenance buildings, utility buildings, maintenance and utility rooms and closets or
hallways, elevators and their housing and rooms, common window areas, walls and ceiling in
Common Areas, and trash or rubbish areas.
1.8
Complex: The group of buildings and connecting concourses, courtyards, bridges,
and green spaces located in Tulsa, Oklahoma known as the "Williams Center Complex."
1.9
Control: The possession, direct or indirect, of the power to direct or cause the
direction of the management of such controlled Person; or the ownership, directly or indirectly, of
at least 51% of the voting interest of such controlled Person; or the possession of the right to vote
in the ordinary direction of its affairs of at least 51% of the voting interest in such controlled Person.
1.10 Default Rate: The rate described in Section 14.3 of this Lease.
1.11
Existing Premises: That certain portion of the Building occupied by Tenant on the
Effective Date, located on the garage level, service level, ground level, plaza level, plaza intermediate
level, 8th, 9th, 10th, 11th, 12th, 14th, 15th, and 16th floors, collectively, consisting of approximately
226,221 square feet and depicted on Exhibit "A" attached hereto. Pursuant to Section 3.2 hereof,
on and after the Commencement Date for Expansion Premises, the total square feet of the Existing
Premises shall be 222,055 square feet.
1.12
Expansion Premises: That certain portion of the Building located on the 18th, 19th,
22nd, 23rd, and 24th floors of the Building, collectively, consisting of approximately 113,144 square
feet and depicted on Exhibit "A" attached hereto.
1.13
successors thereto.
Landlord: The landlord and the Building property manager named herein and any
1.14
Landlord's Group: Landlord's officers, directors, shareholders, agents, partners,
employees, contractors, servants, and any third party operator or manager of the Building and/or
the Complex.
Exhibit 10.8
1.15
Landlord's Notice and Rent Payment Address:
Williams Headquarters Building LLC
One Williams Center
MD: GR-265
Tulsa, Oklahoma 74172
Attn: Property Manager
DeAnn.Johnson@williams.com - Email
(918) 573-1527 - Facsimile
1.16 Net Base Rent for Existing Premises: The annual amount equal to the product
obtained by multiplying the Net Rentable Area of the Existing Premises times the Net Base Rent
per Square Foot for Existing Premises.
1.17 Net Base Rent for Expansion Premises: The annual amount equal to the product
obtained by multiplying the Net Rentable Area of the Expansion Premises times the Net Base Rent
per Square Foot for Expansion Premises.
1.18 Net Base Rent per Square Foot for Expansion Premises: The Net Base Rent per
Square Foot for Expansion Premises is $17.00, escalated at 2% per year throughout the Term. For
the avoidance of doubt: (i) the 2% escalation in Net Base Rent per Square Foot for Expansion
Premises shall become effective upon the one-year anniversary of the Rent Commencement Date
and shall be effective on each one-year anniversary during the Term thereafter; and (ii) such
escalation shall continue during the Renewal Term.
1.19 Net Base Rent Per Square Foot for Existing Premises: The Net Base Rent per Square
Foot for the Existing Premises shall be determined as follows: Promptly after execution of this
Lease, Landlord shall undertake an engineering study (such study, the "Podium Engineering Study")
to determine the annual cost for extraordinary, unusual or excessive demand for electrical or other
utility services for the Podium Floors not required to be provided by Landlord pursuant to Section
8.1 hereof (collectively, the "Above-Standard Utilities for the Podium Floors") that are in addition
to: (i) utilities for the Podium Floors that are currently metered by Landlord; and (ii) any HVAC
services for the Podium Floors that are to be billed by Landlord pursuant to Section 8.2(i) hereof.
The Podium Engineering Study shall be conducted by either ESDC Engineering or Phillips + Gomez,
or another qualified professional engineer mutually agreed upon by Landlord and Tenant, and shall
bear the seal of a professional engineer licensed in the state of Oklahoma. The per unit cost of
electrical and other utilities services for the Podium Floors used to determine the annual cost for
Above-Standard Utilities for the Podium Floors will be the average per unit cost of such services
in the Building for the calendar year 2018. Landlord shall use reasonable efforts to complete the
Podium Engineering Study no later than the Rent Commencement Date. The Net Base Rent per
Square Foot for Existing Premises shall be $10.17 per square foot, reduced by the per square foot
number (the "Podium Utilities Adjustment Amount") determined by dividing the Above Standard
Utilities for Podium Floors by the square footage of the Existing Premises as of the Commencement
Date for Expansion Premises, which the parties acknowledge is 222,055 square feet.
Notwithstanding the foregoing, the Net Base Rent per Square Foot for Existing Premises shall in
no event be lower than $9.78 per square foot. Upon determination of the Podium Utilities Adjustment
Exhibit 10.8
Amount, the Parties shall execute an amendment to this Lease evidencing the amount of the Net
Base Rent per Square Foot for Existing Premises as determined pursuant to this paragraph. Tenant
shall pay Net Base Rent for the Existing Premises at the rate of $10.17 per square foot, until such
determination is made, after which time a retroactive adjustment shall be made as necessary to
reflect the actual Net Base Rent per Square Foot for Existing Premises for such time period.
1.20 Net Rentable Area of the Building: For purposes of this Lease, the Net Rentable
Area of the Building shall be 1,140,684 square feet; provided that, should Landlord elect to begin
calculating Operating Expenses based on the Building and the Resource Center combined, then the
combined Net Rentable Area of the Building shall be 1,373,733 square feet (1,140,684 square feet
for the Building and 233,049 square feet for the Resource Center).
1.21 Net Rentable Area of the Existing Premises: The sum of: (1) the net useable area
which is computed by measuring from the inside face of the exterior glass, to the exterior side of
partitions which separate the Existing Premises from the Building's interior nonrentable areas which
are not within the Existing Premises, and to the center of partitions that separate the Existing Premises
from adjoining rentable areas; plus (2) a pro-rata portion of the Building's floor area used for
corridors, elevator lobbies, ground floor lobbies, vestibules, service and freight areas, restrooms,
elevator machine rooms, telephone closets, mechanical equipment rooms and other similar facilities
provided for the benefit of all tenants of the Building, visitors to the Building, or Landlord. No
deduction shall be made for columns or projections necessary to the Building. As of the Effective
Date of this Lease, the parties acknowledge and agree that the Net Rentable Area of the Existing
Premises is deemed to be 226,221 square feet; however, pursuant to Section 3.2 hereof, on and after
the Commencement Date for Expansion Premises, the Net Rentable Area of the Existing Premises
shall be 222,055 square feet. Notwithstanding the foregoing, the Net Rentable Area of the Existing
Premises is subject to recalculation from time to time pursuant to the provisions of Section 3.2
hereof.
1.22 Net Rentable Area of the Expansion Premises: The sum of: (1) the net useable area
which is computed by measuring from the inside face of the exterior glass, to the exterior side of
partitions which separate the Expansion Premises from the Building's interior nonrentable areas
which are not within the Expansion Premises, and to the center of partitions that separate the
Expansion Premises from adjoining rentable areas; plus (2) a pro-rata portion of the Building's floor
area used for corridors, elevator lobbies, ground floor lobbies, vestibules, service and freight areas,
restrooms, elevator machine rooms, telephone closets, mechanical equipment rooms and other
similar facilities provided for the benefit of all tenants of the Building, visitors to the Building, or
Landlord. No deduction shall be made for columns or projections necessary to the Building. As of
the Effective Date of this Lease, the parties acknowledge and agree that the Net Rentable Area of
the Expansion Premises is deemed to be 113,144 square feet.
1.23 Net Rentable Area of the Premises: Collectively, the Net Rentable Area of the
Existing Premises and the Net Rentable Area of the Expansion Premises.
1.24 Operating Expenses: The aggregate of all costs and expenses paid or incurred on an
accrual basis (in accordance with generally accepted accounting principles consistently applied) by
Landlord in connection with the ownership, management, operation, insurance (including the cost
Exhibit 10.8
of self-insurance), and maintenance of the Building and Complex including all utility and central
plant charges of the Building, the Complex, the grounds and land on which they are situated, and
the Common Areas. If Landlord makes an expenditure for capital improvements to the Building
or Complex which are: (i) reasonably intended to reduce Operating Expenses; and (ii) with respect
to the Existing Premises only, are approved by Tenant pursuant to Section 5.2 hereof (which
improvements are commenced or completed during the Term) or to comply with the request or
directives of a governmental agency or body, and if such expenditure is not a current expense under
generally accepted accounting principles, the cost thereof shall be amortized over a period equal to
the useful life of such improvements, determined in accordance with generally accepted accounting
principles, and the amortized cost allocated to each calendar year during the Term shall be treated
as an Operating Expense.
The following shall be excluded from Operating Expenses: (a) charges which are reimbursed
to Landlord for any reason, including without limitation reimbursements of payments made from
reserves previously accrued, except to the extent such reserves were deposited by Landlord and not
previously charged; (b) depreciation (unless otherwise expressly authorized in Section 1.23 above);
(c) debt service, including interest and late charges; (d) costs of repair and restoration of the Complex
following casualty loss or condemnation to the extent reimbursed by insurance or by a condemnation
award; (e) leasing commissions, rental concessions, and buy-outs; (f) income, franchise, and similar
taxes which are personal to Landlord; (g) any capital expenses, except those expressly authorized
in Section 1.23 above or which normally would be regarded as operating, maintenance, or repair
costs; (h) principal payments on mortgage and other non-operating debts of Landlord; and (i) legal
and other related expenses associated with the negotiation or enforcement of leases, the defense of
Landlord's title to the Complex, or any action based solely on an alleged breach by Landlord of a
lease pertaining to space within the Building.
1.25
Person: A natural person, a partnership, a limited liability company, a corporation
or any other form of business or legal association or entity.
1.26
Podium Floors: The garage, service, ground, and plaza levels of the Premises.
1.27
Premises: Collectively, that certain portion of the Building located on the garage
level, service level, ground level, plaza level, plaza intermediate level, 8th, 9th, 10th, 11th, 12th,
14th, 15th, 16th, 18th, 19th, 22nd, 23rd, and 24th floors, collectively, including all improvements
therein or to be provided by Tenant, and including all Common Areas which are for the non-exclusive
use of tenants in the Building. The delineation of the Premises, including the Existing Premises
and the Expansion Premises, is shown on Exhibit "A" attached hereto. As of the Effective Date of
this Lease, the parties acknowledge and agree that the Premises consists of 339,365 square feet;
however, pursuant to Section 3.2 hereof, on and after the Commencement Date for Expansion
Premises, the total square feet of the Premises consists of 335,199 square feet.
1.28 Real Estate Taxes: Any form of assessment, license fee, commercial rental tax, levy,
penalty, charge or tax (other than taxes on general net income and inheritance and estate taxes)
imposed by any authority having the direct or indirect power to tax, including any city, county, state
or federal government, or any school, agricultural, lighting, drainage, flood control, transit, special
benefit or other district, as against any legal or equitable interest of Landlord in the Premises or in
Exhibit 10.8
the real property of which the Premises and the Building are a part, or the Complex or as against
Landlord's right to rent or other income therefrom, or as against Landlord's business of leasing the
Premises or collecting rent, or any tax imposed in substitution, partially or totally, or any tax
previously included in the definition of "Real Estate Taxes", or any additional tax the nature of
which was previously included within the definition of "Real Estate Taxes", and shall include any
increases in such taxes, levies, charges or assessments occasioned by increases in tax rates or
increases in assessed valuations, whether occurring by sale or otherwise. In no event shall "Real
Estate Taxes" include federal, state or local income, franchise (except any franchise tax required to
be paid in connection with the purchase of utility services), inheritance or estate taxes, nor any
interest or penalties incurred by Landlord for late payment of any Real Estate Taxes.
1.29 Renewal Term: The additional period for which Tenant may extend the Term of this
Lease pursuant to the option to renew set forth in Section 3.4.
1.30 Rent Commencement Date: The Commencement Date for Expansion Premises.
1.31 Resource Center: The building known as the Williams Resource Center located at
2 East 1st Street, Tulsa, Oklahoma, 74172, containing 233,049 net rentable square feet.
1.32
Security Deposit: N/A
1.33
Sole Permitted Use: Tenant, its Affiliates, permitted successors and permitted
assignees and subtenants, shall have the right to use the Premises for general, administrative and
executive office purposes, including Tenant's operation of its national banking business as of the
Effective Date, and for all other incidental purposes as shall be reasonably required by Tenant in
the operation of its national banking business and businesses related to the operation of a national
bank (but only to the extent that such related businesses do not conflict with any written obligations
of Landlord to other tenants in the Building or the Resource Center at the time that such proposed
related business is commenced), except that in no event may any of the following be permitted in
the Premises:
(i)
(ii)
offices or agencies of a foreign government or political subdivisions
thereof;
offices of any governmental bureau or agency of the United States
or any state or political subdivision thereof, other than an office or
offices used by employees of the Office of the Comptroller of the
Currency (the "OCC"), or similar federal banking regulatory agency
who have been assigned by the OCC or similar federal banking
regulatory agency to temporarily or permanently audit or exercise
regulatory oversight authority over Tenant;
(iii)
personnel agencies; or
(iv)
customer service offices of any public utility company.
Exhibit 10.8
1.34
Tenant: The tenant named herein, its successors and any permitted assignee or
subtenant under Section 10.
1.35
Tenant's Existing Premises Proportionate Share: Tenant's Existing Premises
Proportionate Share shall be a fraction, expressed as a percentage, the numerator of which is Net
Rentable Area of the Existing Premises and the denominator of which is Net Rentable Area of the
Building. As of the Effective Date, and until the Commencement Date for Expansion Premises,
Tenant's Existing Premises Proportionate Share is 19.83%; provided that, if Landlord elects to
calculate costs set forth in Section 5.5.1 below based on the Building and the Resource Center
combined, then Tenant's Existing Premises Proportionate Share is 16.47%. As of the
Commencement Date for Expansion Premises, Tenant's Existing Premises Proportionate Share is
19.47%; provided that, if Landlord elects to calculate costs set forth in Section 5.5.1 below based
on the Building and the Resource Center combined, then Tenant's Existing Premises Proportionate
Share shall be 16.16% of the combined square footage of the Building and the Resource Center.
1.36
Tenant's Expansion Premises Proportionate Share: Tenant's Expansion Premises
Proportionate Share shall be a fraction, expressed as a percentage, the numerator of which is Net
Rentable Area of the Expansion Premises and the denominator of which is Net Rentable Area of
the Building. As of the Commencement Date for Expansion Premises, Tenant's Expansion Premises
Proportionate Share is 9.92%; provided that, if Landlord elects to calculate Operating Expenses
based on the Building and the Resource Center combined, then Tenant's Expansion Premises
Proportionate Share shall be 8.24% of the combined square footage of the Building and the Resource
Center.
1.37
Tenant's Group: Tenant's partners, directors, officers, shareholders, employees,
agents, contractors, servants, licensees, invitees, visitors, and permitted subtenants and/or assignees.
1.38
Tenant's Notice Address:
BOKF, NA
PO Box 2300
Tulsa, Oklahoma 74102
Attn: Michael D. Nalley, CCIM, CPM, RPA
Senior Vice President
Director Corporate Real Estate
(918) 619-1744 - Facsimile
Michael.Nalley@bokf.com - Email
With Copy to:
Frederic Dorwart
Frederic Dorwart, Lawyers, PLLC
Old City Hall
124 East Fourth Street
Tulsa, Oklahoma 74103
(918) 583-9922 - Telephone
(918) 583-8251 - Facsimile
Exhibit 10.8
1.39
Tenant's Total Proportionate Share: Tenant's Total Proportionate Share shall be the
fraction, expressed as a percentage, the numerator of which is Net Rentable Area of the Premises
and the denominator of which is Net Rentable Area of the Building. As of the Effective Date, and
until the Commencement Date for Expansion Premises, Tenant's Total Proportionate Share is
29.75%; provided that, if Landlord elects to calculate costs under this Lease based on the Building
and Resource Center combined, then Tenant's Total Proportionate Share from the Effective Date
until the Commencement Date for Expansion Premises is 24.70%. As of the Commencement Date
for Expansion Premises, Tenant's Total Proportionate Share is 29.39%; provided that, if Landlord
elects to calculate Operating Expenses based on the Building and the Resource Center combined,
then Tenant's Total Proportionate Share shall be 24.40% of the combined square footage of the
Building and the Resource Center.
1.40
Term: the period of time commencing on the Effective Date and ending on the
Termination Date, as extended pursuant to Tenant's exercise of any renewal option(s).
1.41
Termination Date: The Termination Date is 11:59 P.M. on December 31, 2034, or
such later date to which the Term may be extended upon exercise of the option to renew pursuant
to Section 3.4.
1.42
Total Base Rent: Collectively, the Net Base Rent for Existing Premises plus the Net
Base Rent for Expansion Premises.
1.43
Trade Fixtures: Tenant's machinery and equipment that can be removed from the
Premises without doing material damage to the Premises.
1.44 Unavoidable Delays: Delays caused by strikes, terrorism, acts of God, lockouts,
labor difficulties, riots, explosions, sabotage, accidents, inability to obtain labor or materials,
governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or any other
cause beyond the reasonable control of Landlord or Tenant, as the case may be.
1.45 Untenantable: A condition whereby Tenant is not reasonably able to use or access
the Premises or a portion thereof for the conduct of its business in accordance with its customary
practices, provided that it shall be an express condition to untenantability that Tenant does in fact
NOT use the portion of the Premises purported to be untenantable for the conduct of its business
(provided, that entering such portion of the Premises for the purpose of retrieving documents or
other personal property or otherwise in connection with the relocation of Tenant's operations therein
to other space shall not be deemed to constitute use of such space for the purposes of this definition).
2.
Exhibits.
The following exhibits and riders are attached hereto and incorporated herein by this
reference:
Exhibit 10.8
Exhibit "A": Delineation of the Premises
Exhibit "B": Returned Premises
Exhibit "C-1": [INTENTIONALLY DELETED]
Exhibit "C-2": [INTENTIONALLY DELETED]
Exhibit "D-1": Landlord's Statement of Expansion Premises
Exhibit "D-2": Landlord's Statement of Existing Premises
Exhibit "E": Rules and Regulations
Exhibit "F": Janitorial Specifications
Exhibit "G": As-Is Work Letter
Exhibit "H": Kiosk License Premises
3.
Term.
3.1
Term. The initial Term of this Lease shall commence on the Effective Date, subject
to the terms and conditions of this Lease, and shall expire at 11:59 p.m. on December 31, 2034,
unless otherwise extended by the parties pursuant to this Section.
3.2
Existing Premises. On and after the Effective Date, Tenant shall continue to occupy
the Existing Premises pursuant to the terms and conditions of this Lease. On the Commencement
Date for Expansion Premises, Tenant shall return to Landlord that portion of the Existing Premises
located on the service level of the Building consisting of 4,166 square feet, and more particularly
described in Exhibit "B" attached hereto and incorporated herein (the "Returned Premises"), and
the Returned Premises shall thereafter not be included in this Lease.
3.3
Expansion Premises. Landlord agrees to deliver possession of the Expansion
Premises to Tenant no later than the Effective Date, at which time Tenant may make Alterations
pursuant to the terms and provisions of Section 13 of this Lease. Notwithstanding Tenant's
possession of the Expansion Premises, Tenant shall not pay Net Base Rent for Expansion Premises,
Tenant's Expansion Premises Proportionate Share of Operating Expenses or Tenant's Expansion
Premises Proportionate Share of Real Estate Taxes until the Rent Commencement Date.
3.4
Renewal Term; Renewal Net Base Rent; Appraisals. Provided Tenant is not then in
default under the terms and provisions of this Lease and subject to the terms and conditions
hereinafter contained, Tenant shall have the option ("Renewal Option"), exercisable at its sole
discretion, to renew this Lease for one (1) additional period of ten (10) years (the "Renewal Term"),
upon the same terms and conditions set forth in this Lease, except that upon Tenant's exercise of
the Renewal Option: (a) the Net Base Rent for Existing Premises shall thereafter be calculated at
the same rate as the Net Base Rent for Expansion Premises (hereinafter known as the "Renewal
Net Base Rent per Square Foot"); and (b) the Renewal Net Base Rent per Square Foot for the
Premises for the Renewal Term shall be an amount equal to the greater of (i) the last year's Net Base
Rent per Square Foot for the Expansion Premises paid by Tenant in the expiring term, or (ii) fair
market rental value for a net lease in Class A office space in buildings of comparable size and quality
in downtown Tulsa, Oklahoma (the "FMRR"). The Renewal Option shall be personal to Tenant and
may not be exercised by any assignee or subtenant of this Lease or any portion of the Premises;
provided, however, that if this Lease is assigned or the entire Premises are subleased to a Related
Entity pursuant to Section 10.10 hereof, then such assignee or sublessee shall have the right to
Exhibit 10.8
exercise the Renewal Option. The Renewal Option must be exercised by written notice to Landlord
("Renewal Notice") at least one (1) year prior to the Termination Date. Upon receipt of a Renewal
Notice, Landlord will submit its proposal regarding its determination of FMRR no later than three
hundred and thirty-five (335) days before the end of the current Term. Tenant, at its option, may
accept the terms as quoted or elect to enter into good faith negotiations with Landlord for a period
not to exceed sixty (60) days. If at the end of said 60-day period Tenant and Landlord have not
reached an agreement regarding the FMRR, then Tenant may elect to terminate this Lease at the
end of the current Term or elect to have the FMRR be determined by three (3) independent appraisers,
each of whom must have at least five (5) years of experience in the appraisal of the office rental
market in the central business district of Tulsa, Oklahoma. Landlord and Tenant shall each select
an appraiser, and the two so selected shall select a third appraiser. If the two appraisers selected by
Landlord and Tenant shall be unable to agree on a third appraiser within five (5) business days of
their selection, the third appraiser shall be selected by the then-President of the Tulsa County Bar
Association (or, if he or she shall refuse or be unable to do so, by a comparable independent public
or semi-public official in Tulsa). In determining the FMRR each such appraiser shall take into
consideration the current availability of similar space in comparable buildings in Tulsa, giving due
consideration to location, the term and other conditions of this Lease, the amount of space, the credit
rating of Tenant, concessions, tenant improvement allowances, and all other relevant factors. Said
appraisers shall assume the area to be leased is in its then current condition. Such appraisers shall
be instructed to determine the FMRR independently without consulting with each other, and
thereafter, to submit the appraisals to both the Landlord and Tenant contemporaneously in writing
no later than forty-five (45) days after the selection of the third appraiser is complete. The Renewal
Net Base Rent per Square Foot shall be determined by eliminating the highest and lowest appraisals,
and the remaining appraisal shall apply. Each party shall pay the cost of its own appraiser. The
cost of the third appraiser and the other costs incurred in connection with the appraisal shall be
borne equally by Landlord and Tenant. Upon determination of the FMRR, the parties shall execute
an appropriate document evidencing said fair market rental value which shall be the Renewal Net
Base Rent per Square Foot for the Renewal Term.
4.
Condition.
4.1
"As Is" Condition. It is hereby understood and acknowledged by Tenant that
Landlord is leasing the Premises to Tenant in "as is" condition with all faults and Landlord has made
no representation or warranty, express or implied, with respect to the condition of the Premises, the
Building or the Complex or with respect to their suitability for the conduct of Tenant's business,
except as expressly set forth herein. Tenant acknowledges that Tenant has inspected the Premises,
and that the Premises are in a good and habitable condition. Except as expressly set forth herein,
Landlord shall have no liability to Tenant arising from the condition of the Building or the Premises,
and Tenant shall defend, indemnify and hold Landlord harmless from and against any claims, causes
of action, damages and liability arising from the condition of the Premises.
4.2
Condition Upon Surrender. At the time Tenant surrenders the Premises at the end
of the Term, or within five (5) business days thereafter, Landlord and Tenant, or their respective
agents, shall make an inspection of the Premises and shall prepare and sign an inspection form to
describe the condition of the Premises at the time of surrender.
Exhibit 10.8
4.3
Tenant Improvements. Landlord shall not provide a tenant improvement allowance.
5.
Rent.
Except as set forth in Sections 8.3, 12.3, 19.3 and 20.2 below, Tenant shall pay to Landlord,
without any setoff or deduction whatsoever at Landlord's Notice and Rent Payment Address or at
such place or to such agent as Landlord may from time to time designate in writing, rental comprised
of Net Base Rent for Expansion Premises, Net Base Rent for Existing Premises, and Additional
Charges as defined in Section 1 hereof (collectively, "Rent").
5.1
Total Base Rent. Commencing on the Effective Date, Tenant shall pay the Net Base
Rent for Existing Premises in equal monthly installments in advance on the first day of each month
until the Rent Commencement Date. Commencing on the Rent Commencement Date, Tenant shall
pay Total Base Rent in equal monthly installments in advance on the first day of each month during
the Term. Total Base Rent for any period during the Term which is less than one full month shall
be prorated upon the actual number of days of the month involved. If Tenant makes any payment
to Landlord by check, such payment shall be by check of Tenant and Landlord shall not be required
to accept the check of any other person or entity, and any check received by Landlord shall be
deemed received subject to collection. If any check is mailed by Tenant, Tenant shall post such
check in sufficient time prior to the date when payment is due so that such check will be received
by Landlord on or before the date when payment is due. Tenant shall assume the risk of lateness or
failure of delivery of the mails, and no lateness or failure of the mails will excuse Tenant from its
obligation to have made the payment in question when required under this Lease. If during the
Term, Landlord receives a check from Tenant which is returned by Tenant's bank for insufficient
funds or is otherwise returned unpaid, Tenant agrees that upon written demand by Landlord all
checks thereafter shall either be bank certified, cashiers' or treasurers' checks. All bank service
charges resulting from any bad checks shall be borne by Tenant.
5.2
Operating Expenses and Real Estate Taxes. In addition to Total Base Rent, Tenant
shall pay to Landlord Tenant's Expansion Premises Proportionate Share of Operating Expenses,
Tenant's Expansion Premises Proportionate Share of Real Estate Taxes, Tenant's Existing Premises
Proportionate Share of Operating Expenses, and Tenant's Existing Premises Proportionate Share of
Real Estate Taxes (all of the foregoing, collectively "Tenant's Share of Costs") on a monthly basis
in advance, promptly on the first day of every month during the Term. Tenant's monthly payment
of Tenant's Share of Costs for each year shall be determined by an estimated forecast reasonably
prepared by Landlord and submitted to Tenant in writing after Landlord's calculation of actual
expenses for each calendar year, but in no event later than April 30 of each calendar year.
5.2.1
In the event that at the end of any calendar year occurring during the Term
(including the calendar year in which the Termination Date occurs), Tenant's Share of Costs
exceed the amount paid by Tenant during the period, Landlord shall, simultaneously with
delivery of Landlord's Statements for the Premises (as defined in Sections 5.3.2 and 5.3.3),
bill Tenant for such excess and Tenant shall promptly pay such excess amount to Landlord
in a lump sum payment. Should Tenant's Share of Costs be less than the amount paid by
Tenant during the period, Landlord shall credit (effective as of the date Tenant received
Landlord's Statements for the Premises) Tenant with such amount and apply such credit to
Exhibit 10.8
the payment of Rent next coming due. Landlord shall refund to Tenant any overpayment
of Real Estate Taxes and/or Operating Expenses for the Premises for the calendar year in
which this Lease terminates. If the Termination Date shall occur prior to the last day of the
calendar year in which it occurs, Tenant's Share of Costs shall be prorated based on the
number of days in such partial calendar year divided by 365.
5.3
Recordkeeping; Landlord's Statement; Audit Rights.
5.3.1 Landlord's Records. Landlord shall maintain books and records in
accordance with generally accepted accounting practices and sound management principles
consistently applied showing in reasonable detail all Operating Expenses and Real Estate
Taxes.
5.3.2 Landlord's Statement for Expansion Premises. Within one hundred twenty
(120) days after the end of each calendar year occurring during the Term, Landlord shall
provide Tenant with a reasonably detailed statement ("Landlord's Statement for Expansion
Premises") of Tenant's Expansion Premises Proportionate Share of Operating Expenses and
Tenant's Expansion Premises Proportionate Share of Real Estate Taxes actually incurred
during such calendar year, and any amounts due to either party pursuant to Section 5.2.1.
For the avoidance of doubt, Landlord and Tenant acknowledge that Exhibit "D-1" attached
hereto and incorporated herein depicts a sample of the Landlord's Statement for Expansion
Premises.
5.3.3 Landlord's Statement for Existing Premises. Within one hundred twenty
(120) days after the end of each calendar year occurring during the Term, Landlord shall
provide Tenant with a reasonably detailed statement ("Landlord's Statement for Existing
Premises") of Tenant's Existing Premises Proportionate Share of Operating Expenses and
Tenant's Existing Premises Proportionate Share of Real Estate Taxes actually incurred during
such calendar year, and any amounts due to either party pursuant to Section 5.2.1. For the
avoidance of doubt, Landlord and Tenant acknowledge that Exhibit "D-2" attached hereto
and incorporated herein depicts a sample of the Landlord's Statement for Existing Premises.
5.3.4 Disputes; Audit Rights. Within ninety (90) days of Tenant's receipt of
Landlord's Statement for Expansion Premises or Landlord's Statement for Existing Premises
for the previous calendar year, certified by Landlord, Tenant shall have the right to audit
(but no more frequently than once per calendar year), at Tenant's expense, the books and
records of Landlord relating to the calculation of Operating Expenses and Real Estate Taxes
for the previous calendar year ("Landlord's Books and Records"); provided that, such right
to audit is conditioned upon Tenant having paid all amounts then due and owing to Landlord.
Such audit shall take place on the Landlord's premises (or at Landlord's discretion by
Landlord providing Tenant or Tenant's Auditor (as defined hereinbelow), with requested
digital or electronic copies of Landlord's Books and Records), and shall be conducted by a
nationally recognized public accounting firm, Tenant's internal audit group, or other persons
experienced in reviewing and auditing landlord operating expenses and taxes of commercial
office projects, such as, by way of example and not limitation, CBRE (the "Auditor").
Notwithstanding the foregoing: (i) with the sole exception of Tenant's internal audit group,
Exhibit 10.8
the Auditor must be a nationally-recognized and qualified organization; and (ii) if the Auditor
is also engaged in the real estate brokerage business, the Auditor must take all reasonable
measures (including without limitation signing a nondisclosure agreement with Landlord)
to ensure that information obtained or prepared in the course of the audit shall not be disclosed
to or obtained by the brokerage group of the Auditor and shall not be disclosed to any outside
party other than Tenant. Once Tenant has conducted an audit for any calendar year, such
audit shall be considered final and Tenant shall have no right to reaudit during such calendar
year. If the results of the audit reveal an overcharge to Tenant of more than five percent
(5.0%) of the actual, annual aggregate amounts charged to Tenant and paid thereby under
either Landlord's Statement for Expansion Premises or Landlord's Statement for Existing
Premises, then Landlord shall credit Tenant with the amount of such overcharge(s) and apply
such credit to the payment of Total Base Rent next coming due.
5.4
Taxes Imposed Upon Tenant. Tenant shall pay all license and permit fees required
for the operation of its business or equipment within the Premises, and all taxes and increase in
taxes, including but not limited to ad valorem taxes, levied and assessed by any governmental body
on the personal property located in the Premises and on any special leasehold improvements installed
in the Premises or by virtue of Tenant conducting its described use, business or operation on the
Premises, the employment of agents, servants, or other third parties, the bringing, keeping or selling
of personal property or chattel, or whatsoever nature from the Premises. The foregoing is intended
to bind Tenant to pay, and promptly discharge, all taxes and/or levies, together with related interest
and penalties, whether assessed by federal or state authority or any political subdivision thereof,
directly or indirectly related to its business, improvements, functioning, employment, assets,
existence, sales, entertainment or the like. Tenant specifically agrees to reimburse Landlord for any
increase in ad valorem taxes resulting from fixtures or improvements installed by Tenant which
Landlord becomes obligated to pay (except building standard leasehold improvements).
5.5
Certain Capital Expenditures. With respect to the Existing Premises only, Tenant's
Existing Premises Proportionate Share of depreciation on capital additions shall be payable only
for such additions which reduce Operating Expenses and are approved by Tenant, which approval
shall not be unreasonably withheld, and such additions as are required by a governmental agency.
Should Landlord finance all or any portion of such additions through borrowings, then Tenant shall
pay Tenant's Existing Premises Proportionate Share of the interest thereon.
6.
Security Deposit.
Tenant shall not be required to make a security deposit in connection with this Lease.
Exhibit 10.8
7.
Possession and Use of Premises.
7.1
Sole Permitted Use. Tenant shall use and occupy the Premises only for the Sole
Permitted Use and for no other purpose. Tenant shall not use or permit the use of the Premises in a
manner that (i) violates any law or requirement of public authorities, (ii) causes structural injury to
the Building or any part thereof, (iii) interferes with the normal operations of the HVAC, plumbing
or other mechanical or electrical systems of the Building or the elevators installed therein, (iv)
increases the ratio of employees to net rentable area greater than one hundred forty (140) square
feet per person, (v) constitutes a public or private nuisance, (vi) alters the appearance of the exterior
of the Building or of any portion of the interior of the Building other than the Premises, (vii) violates
or fails to comply with the Building Rules and Regulations attached hereto as Exhibit "E", as they
may be changed from time to time by Landlord, Landlord to act reasonably in making such changes,
or (viii) causes or result in any occurrence which, in the reasonable good faith judgment of Landlord,
is disreputable. The Premises shall not be used for any purpose which would, in Landlord's
reasonable opinion, diminish the first class character of the Complex or any part thereof, create
unreasonable or excessive elevator or floor loads, unreasonably interfere with any of the operations
of the Complex or any part thereof or the proper and economic heating, air conditioning, cleaning
or other servicing of the Complex or any part thereof or unreasonably interfere with the use of the
other areas of the Complex by any other tenants.
7.2
Compliance with Legal Requirements.
7.2.1 Tenant's Compliance. Tenant shall, at Tenant's sole cost and expense, fully,
diligently and in a timely manner, comply with all "Legal Requirements" (which term is
used in this Lease to mean all laws, rules, regulations, ordinances, codes, directives,
covenants, easements and restrictions of record, permits, and the requirements of any
applicable fire, insurance, life or safety policy, underwriter or rating bureau), which shall,
with respect to the Premises or the use and occupation thereof or the abatement of any
nuisance, impose any violation, order or duty on Landlord or Tenant arising from (a) Tenant's
particular use of the Premises, (b) the manner or conduct of Tenant's business or operations
of its installations, equipment or other property therein, (c) any cause or condition created
by or at the instance of Tenant, other than by Landlord's performance of any work for or for
the benefit of Tenant, or (d) the breach of any of Tenant's obligations hereunder. However,
Tenant shall not be so required to make any structural or other substantial change in the
Premises unless the requirement arises from a cause or condition referred to in clauses (b),
(c) or (d) above. Tenant shall have the right to equip the Premises with such security alarms,
devices, safeguards, systems, and services as Tenant deems reasonable and necessary to
ensure the security of Tenant's operations and compliance with present and future bank
security Legal Requirements (Tenant's "Bank Security"). Unless detrimental to the health,
safety or welfare of the Building and its occupants, Tenant need not comply with any such
Legal Requirement so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Premises in which case Tenant shall be liable for all costs, fines,
penalties or damages arising from such failure to comply. Tenant shall promptly notify
Landlord of any written notice it receives of the violation of any Legal Requirement.
Exhibit 10.8
Notwithstanding the foregoing, Tenant may contest any Legal Requirement only so long as
the contest or delay does not subject Landlord to criminal liability. Landlord will not be
required to join any proceedings pursuant to this Section unless the provision of any
applicable law, rule or regulation at the time in effect requires that the proceedings be brought
by or in the name of Landlord, or both. In that event, Landlord will join the proceedings or
permit them to be brought in its name if Tenant pays all related expenses.
7.2.2 Landlord Compliance. Except as required of Tenant pursuant to Section
7.2.1, Landlord at its expense shall comply with all Legal Requirements as shall affect the
Building, Common Areas and Complex, but may similarly contest the same, provided such
contest shall not unreasonably interfere with the performance of any Alterations.
8.
Utilities and Services.
8.1
Landlord's General Services. Throughout the Term, Landlord agrees that, subject
to Legal Requirements and the terms hereof, Landlord shall furnish the following services:
(i)
heat, air-conditioning and ventilation ("HVAC") in the Premises,
Monday through Friday from 7:00 a.m. to 6:00 p.m. and, upon oral or written request,
Saturday from 7:00 a.m. to 1:00 p.m., excluding Sundays and Holidays. All HVAC
services will be provided to the extent necessary for the comfortable occupancy of
the Premises under normal business operations with customary office equipment
and in the absence of the use of any non-customary machines, lights, equipment or
devices which adversely affect the temperature otherwise maintained in the Premises;
(ii)
hot and cold city water from the regular Building fixtures for drinking,
lavatory and toilet purposes;
(iii)
customary cleaning and janitorial services in the Premises Monday
through Friday, excluding Holidays. Janitorial services shall be consistent with the
janitorial specifications set forth in Exhibit "F" attached hereto and made a part
hereof, subject to work limitations as may be set forth in any applicable union or
other collective bargaining agreement with Landlord. Such services shall not include
washing dishes, cups and/or similar items;
(iv)
subject to break-down, maintenance and repairs, normal passenger
elevator service, normal freight elevator service in common with Landlord, other
tenants and visitors to the Building, Monday through Friday from 7:00 a.m. to 6:00
p.m. and on Saturdays from 7:00 a.m. to 1:00 p.m., Sundays and Holidays excepted.
Such normal elevator service, if furnished at other times, shall be optional with
Landlord, and shall never be deemed a continuing obligation. Subject to break-
down, maintenance and repairs, Landlord, however, shall provide continuous limited
passenger elevator service daily at all times such normal passenger service is not
furnished, subject to such reasonable security regulations as may be prescribed by
Landlord from time to time. Operatorless automatic elevator service shall be deemed
"elevator service" within the meaning of this paragraph;
Exhibit 10.8
(v)
electricity for normal business usage. Tenant's use of electrical energy
in the Premises shall not at any time exceed the capacity of any of the electrical
conductors and equipment in or otherwise serving the Premises. Landlord shall
furnish only 120/208 volt, single phase service to the Premises. Tenant shall not
utilize any electric equipment within the Premises with a rated capacity in excess of
0.5 kilowatts. Lighting in the Premises shall not exceed 2 watts per square foot and
overall utilization of electricity in the Premises shall not exceed 3 watts per square
foot. To insure that such capacity is not exceeded and to avert possible adverse
effects upon the Building's electric service, Tenant shall not connect additional
reproducing equipment, electronic data processing equipment, heating equipment,
or special lighting in excess of building standard.
(vi)
For all purposes under this Lease, the term "Holidays" shall mean
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day only and the term "business day" shall mean any weekday that
is not a Holiday.
(vii) Landlord will provide security on a 24/7 basis to the Building subject
to Landlord's building and security rules as may be modified from time to time for
all other tenants in the Building. Access to the Building outside of normal Building
hours will only be available using a card key or some other reasonable means.
Tenant's visitors will check in at the security desk in the main lobby, receive a badge
and proceed to Tenant's space. Tenant will have the right to install its own security
system(s) protecting the Premises, provided that the system allows for Landlord
access.
8.2
Additional and After-Hours Services. Except as hereinafter provided, Landlord shall
not be obligated to furnish any services or utilities, other than those stated in Section 8.1 above. If
Landlord elects to furnish services requested by Tenant in addition to those listed in Section 8.1, or
at times other than those stated in Section 8.1, Tenant shall pay to Landlord the prevailing charges
in the Building for such services on the due date of the next monthly installment of Total Base Rent.
Notwithstanding the foregoing, (i) base Building HVAC provided after normal business hours shall
be billed to Tenant at $12.50 per fan hour; and (ii) additional electricity shall be billed to Tenant at
cost, without mark-up, profit or overhead. All costs for extraordinary, unusual or excessive demand
for electrical or other utility service and all costs of submetering or monitoring of such use shall be
borne by Tenant and Landlord reserves the right to impose an additional charge on Tenant for
extraordinary, unusual or excessive demand for electrical or other utility service in an amount
reasonably determined by Landlord to be due for such extraordinary, unusual or excessive demand.
These unusual costs include, but are not limited to, 24-hour service, high consumption equipment,
high concentration lighting, additional HVAC supplement for equipment or lighting-induced heat
build-up and installation of metering equipment. Subject to the Alterations provisions of Section
13, Landlord shall have the right to install, at Tenant's sole cost and expense, submeters and related
equipment, relating to Tenant's extraordinary, unusual or excessive use of electrical or other utilities
services. If Landlord consents thereto (which consent may not be unreasonably withheld or delayed),
additional Building riser capacity for electricity or other utility services may be provided, and the
cost of installation thereof, plus fifteen percent (15%) thereof for overhead, shall be paid by Tenant
upon Landlord's demand. If Tenant fails to make any payment hereunder, Landlord may, upon
Exhibit 10.8
forty-five (45) days prior written notice to Tenant, and in addition to Landlord's other remedies
under this Lease, discontinue any or all of such additional or after-hours services.
For HVAC and humidity control systems requiring special operating hours or other
conditions which necessitate the use of self-contained units not served by the Building HVAC system
(a "Special System"), Landlord shall furnish chilled water and/or electrical power to Tenant, at
Tenant's sole cost and expense but without markup, profit, overhead costs, or other usage fees, for
Tenant's use in installing and operating one or more Special Systems.
8.3
Interruption in Services. Landlord may, upon advance notice to Tenant when
possible, curtail or temporarily terminate any service to make alterations, repairs or improvements,
and Landlord may, upon advance notice to Tenant when possible, curtail or temporarily terminate
any service due to breakdown, accident, weather, strikes, labor disputes, fuel or material scarcity,
governmental or other lawful regulations or requirements, or failure of any corporation, firm or
person with whom Landlord may contract for any such services, to furnish the same. Landlord
shall use commercially reasonable efforts to promptly restore such service and otherwise avoid or
minimize disruption to Tenant's operations. Failure to any extent to furnish or any stoppage or
interruption of these defined services resulting from any cause beyond the reasonable control of
Landlord shall not render Landlord liable in any respect for damages to property or business, nor
be construed as an actual or constructive eviction, in whole or in part, nor relieve Tenant from any
of its obligations under this Lease, nor entitle Tenant to any abatement or diminution of Rent, except
as expressly provided for herein. Notwithstanding anything to the contrary herein contained, if any
such failure to furnish any service or delay in furnishing said service continues, even though Landlord
is not at fault, and provided such is not due to the fault of Tenant, for a period of at least three (3)
consecutive business days or for a total of ten (10) business days in any twelve-month period, then
Rent with respect to that portion of the Premises rendered Untenantable shall abate for the period
commencing at the end of the third consecutive business day (or for each business day in excess of
ten (10) in such twelve-month period) during which said service is not furnished to the extent the
Premises are Untenantable by reason thereof of and ending on the date on which said service is
substantially restored. Further, if such interruption continues for a total of sixty (60) days during
any twelve-month period, Tenant shall have the right to terminate this Lease effective as of the date
ten (10) days following written notice of election to terminate by Tenant to Landlord, unless such
service is restored within such ten-day period. Notwithstanding the foregoing, Rent shall not abate,
and Tenant shall have no right to terminate, in the event that Tenant is then in default under the
terms of this Lease beyond the expiration of any applicable notice and cure period.
9.
Quiet Enjoyment.
Upon payment of the Rent and other charges as may be provided in this Lease, and performing
all covenants and agreements herein contained on the part of Tenant as provided in this Lease, and
subject in all cases to the terms, covenants and conditions in this Lease, Tenant shall peaceably and
quietly have, hold and enjoy the Premises for the Term and subject to the terms and provisions
hereof, against all parties lawfully claiming adversely thereto by, through or under Landlord.
Exhibit 10.8
10.
Assignment and Subletting
10.1
Prohibited and Permitted Assignments. Except as hereinafter provided, Tenant shall
not, either voluntarily or by operation of law, assign, mortgage, pledge, sell, hypothecate or transfer
this Lease, or sublet the Premises or any part thereof, or permit or suffer the Premises or any part
thereof to be used or occupied as work space, storage space, concession or otherwise by anyone
other than Tenant or Tenant's employees, without the prior written consent of Landlord in each
instance, which consent shall not unreasonably be withheld. Notwithstanding the foregoing: (i) any
proposed or actual assignee or subtenant shall be required to have, as of the effective date of such
assignment or sublease, a financial condition substantially equivalent to that which would reasonably
be required of a new tenant who would be approved to occupy the space proposed to be assigned
or subleased; (ii) there shall be no change in the Sole Permitted Use of the Premises by such assignee
or subtenant; (iii) Landlord shall have no obligation to consent to any assignment of less than the
entire Lease or to any sublease which would result in Tenant having subleased, in the aggregate,
more than 167,600 square feet of Net Rentable Area; and (iv) any proposed assignment or sublease
(other than pursuant to Section 10.10 hereof) shall be subject to the Recapture provisions of Section
11.1 hereof.
10.2 Requests for Landlord's Consent and Fee. Each request for consent to an assignment
or subletting shall be made in writing at least thirty (30) days before the proposed effective date,
and shall be accompanied by a copy of the proposed assignment or sublease and information relevant
to Landlord's determination as to the financial and operational responsibility and appropriateness
of the proposed assignee or sublessee, including but not limited to the intended use and/or required
modification of the Premises, if any, together with a non-refundable fee of $1,000.00, representing
the sole and entire reasonable fee for Landlord's processing the request for consent. Tenant agrees
to provide Landlord with such other and additional information and/or documentation as may be
reasonably requested by Landlord. Landlord shall give its written consent to any such request (or
provide a written refusal of consent together with the reasons therefor) within twenty (20) days after
receipt of such request.
10.3 Assignees Bound by Lease. Any assignee or sublessee under this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of
Landlord, to have assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Tenant during the term of said
assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Landlord has specifically consented in writing.
10.4
Excess Rent. The "net effective" rent or other consideration payable to Tenant in
any permitted assignment or sublease shall not exceed the rent specified to be paid by Tenant under
this Lease. In determining the "net effective" rent or other consideration payable to Tenant,
reasonable expenses of the subject transaction, including brokerage commissions, attorneys' fees
and disbursements, allowances, rent concessions, and construction costs shall be deducted from the
amounts payable to Tenant under the applicable assignment or sublease. In no event shall the sale
or other disposition of Tenant's furniture, fixtures and equipment in connection with any permitted
sublease or assignment be deemed part of sublease rent or assignment consideration for purposes
Exhibit 10.8
of calculating the "net effective" rent or other consideration payable to Tenant. This Section 10.4
shall not apply to any assignment for which the consent of Landlord is not required hereunder.
10.5
Tenant Not Released. In the event of any approved or permitted sublease or
assignment, Tenant shall not be released or discharged from any liability, whether past, present or
future, under this Lease, including any Renewal Term of this Lease.
10.6 Changes of Ownership of Tenant. If Tenant is a corporation, any transfer of any of
Tenant's issued and outstanding capital stock or any issuance of additional capital stock, as a result
of which the majority of the issued and outstanding capital stock of Tenant is held by a Person who
does not hold a majority of the issued and outstanding capital stock of Tenant on the date hereof
shall constitute an assignment. If Tenant is a partnership or limited liability company, any transfer
of any interest in the partnership or limited liability company, or any other change in the composition
of the partnership or limited liability company which results in a change in the control of Tenant
from the Person controlling the partnership or limited liability company on the date hereof shall
constitute an assignment. If Tenant is a corporation whose shares of stock are not traded publicly,
any transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of
Tenant shall constitute an assignment.
10.7
Landlord's Right to Collect. Tenant hereby irrevocably assigns to Landlord all of
Tenant's right, title and interest in and to, and hereby grants to Landlord the right to collect, all rents
from any assignee of Tenant's interest in this Lease and from any subtenant of all or any part of the
Premises, whether or not such assignment or sublease is in violation of this Section; provided that,
so long as no Event of Default is in existence hereunder, Tenant may continue to collect rent from
the assignee or sublessee, as the case may be. Landlord shall apply any amounts collected pursuant
to the preceding sentence to the Rent reserved in this Lease, but neither any such assignment,
subletting, occupancy or use, whether with or without Landlord's prior consent, nor any such
collection or application, shall be deemed a waiver of any term, covenant or condition of this Lease
or the acceptance by Landlord of such assignee, subtenant, occupant or user as tenant.
10.8
Effect of Prohibited Assignment. Any sale, assignment, hypothecation or transfer
of this Lease or subletting of Premises that is not in compliance with this Section 10 shall be void
and shall, at the option of Landlord, terminate this Lease.
10.9
Further Consents. The consent by Landlord to an assignment or subletting shall not
relieve Tenant or any assignee of this Lease or sublessee of the Premises from obtaining the consent
of Landlord to any further assignment or subletting or as releasing Tenant or any assignee or sublessee
of Tenant from full and primary liability.
10.10 Assignment or Sublease to a Related Entity. Notwithstanding anything in this Section
10 or Lease to the contrary, Tenant shall have the absolute right, without the prior written consent
of Landlord, but upon thirty (30) days prior notice to Landlord, to sublease the Premises in whole
or in part, or to assign this Lease, to any Affiliate, or a successor entity to Tenant created by merger,
consolidation, liquidation or reorganization, and/or an entity which acquires ownership of all or
substantially all of the assets and/or stock of Tenant, whether or not there is a change in Tenant's
Exhibit 10.8
name (collectively hereinafter a "Related Entity"), and such Related Entity shall have the same
rights and duties as Tenant hereunder. Notwithstanding the foregoing, there shall be no change in
the Sole Permitted Use of the Premises by such Related Entity.
11.
Recapture.
11.1
In the event that: (i) Tenant desires to enter into any sublease or assignment of all
or any portion of the Premise; (ii) such sublease or assignment would commence during any portion
of the last five (5) years of the initial Term or Renewal Term of this Lease, as the case may be; and
(iii) such sublease or assignment would expire or terminate within the last six (6) months of the
initial Term or Renewal Term of this Lease, as the case may be, then in such event Landlord shall
have the option to recapture from the Premises covered by this Lease the space proposed to be sublet
or assigned by Tenant, effective as of the proposed commencement date of such sublease or
assignment of said space by Tenant. Landlord may exercise said option by giving Tenant written
notice (Landlord's "Recapture Notice") within twenty (20) days after receipt by Landlord of Tenant's
notice of the proposed sublease or assignment or proposal to sublease or assign. If Landlord exercises
said option, Tenant shall have the right to rescind the proposed sublease or assignment by notice to
Landlord (Tenant's "Rescission Notice"), within twenty (20) days after receipt by Tenant of
Landlord's Recapture Notice, in which said space shall continue to be included in the Premises
without interruption. If Tenant does not elect to rescind, Tenant shall surrender possession of the
proposed sublease or assigned space to Landlord on the effective date of recapture of said space
from the Premises covered by this Lease, and neither party hereto shall have any further rights or
liabilities with respect to said space under this Lease accruing after the effective date thereof.
Provided, however, such recapture shall not release or discharge either party from any obligation
that has accrued hereunder prior to such recapture. Effective as of the date of recapture of any
subleased space of any portion of the Premises covered by this Lease pursuant to this paragraph,
(i) the Rent shall be reduced in the same proportion as the number of square feet of Net Rentable
Area of the Premises contained in the portion of the Premises so recaptured bears to the number of
square feet of Net Rentable Area of the Premises contained in the Premises immediately prior to
such recapture, and (ii) the Net Rentable Area of the Premises specified in Section 1.22 shall be
decreased by the number of square feet of Net Rentable Area of the Premises contained in the portion
of the Premises so recaptured. The provisions of this Section 11 shall not apply to an assignment
or sublease to a Related Entity pursuant to Section 10.10 hereof.
12. Maintenance and Repairs.
12.1
Landlord's Obligations. Landlord shall maintain, and keep in good order, condition,
and repair and make repairs to and perform maintenance upon the exterior and structural elements,
and exterior windows of, the Building and the Common Areas, and all Building systems, Building
equipment, and Building facilities, including the electrical, plumbing, heating, ventilation and air
conditioning, elevator, and life safety (including fire prevention/sprinkler) systems of the Building
and the Common Areas, except that:
(i)
Landlord shall not be responsible for the maintenance, repair or
replacement of: (a) any such systems located within the Premises which are
supplemental or in addition to the Building's standard systems, whether installed
Exhibit 10.8
pursuant to the Work Letter or otherwise; and (b) any such systems as to which
Tenant made changes or additions without the approval of Landlord; and
(ii)
the cost of performing any of said maintenance or repairs caused by
the negligence of Tenant, its employees, agents, servants, licensees, subtenants,
contractors or invitees, or the failure of Tenant to perform its obligations under this
Lease shall be paid by Tenant.
All such repairs and maintenance shall be performed so as to keep the Building in first class condition
and repair and in compliance with all applicable Legal Requirements.
12.2
Tenant's Obligations. Except as otherwise set forth in Section 12.1, Tenant shall,
throughout the term of this Lease, at Tenant's sole cost and expense keep the Premises and every
part thereof in good condition and repair, except for ordinary wear and tear and damage due to
casualty. Tenant shall also maintain and repair wiring, cabling or specialty lighting installed in the
Premises by Tenant. Landlord shall maintain and replace all base Building lighting and Building
standard ballasts located in the Premises. Tenant shall make all repairs and replacements to the
Premises necessitated or caused by: (i) the acts or omissions of Tenant or Tenant's Group; or (ii)
the use or occupancy or manner of use or occupancy of the Premises by Tenant, in either case except
for ordinary wear and tear, and in either case except to the extent that insurance proceeds are available
for damage due to casualty if covered by insurance.
12.3 No Abatement. There shall be no abatement or diminution of Rent and no liability
of Landlord by reason of any injury or interference with Tenant's business arising from the making
of any repairs or maintenance in or to any portion of the Premises, unless the Premises is made
Untenantable for the conduct of Tenant's normal business operations for a period in excess of three
(3) business days after notice from Tenant of such condition or if such Untenantability occurs more
than a total of ten (10) business days in any twelve-month period. In all such events, Rent shall
abate as to that portion of the Premises rendered Untenantable for the period commencing at the
end of the third consecutive business day (or for each business day in excess of ten (10) in such
twelve month period, as the case may be) during such period of Untenantability until the condition
has been cured by Landlord. Landlord shall, at all times during the making of any repairs or
maintenance in or to any portion of the Premises, use reasonable, good faith efforts to minimize
interference with Tenant's use, access, occupancy or quiet enjoyment of the Premises and to protect
Tenant's property located in the Premises from damage.
12.4
Landlord Self-Help Maintenance. If repairs or replacements become necessary
which by the terms of this Lease are the responsibility of Tenant and Tenant fails to make the repairs
or replacements or fails to be making diligent efforts to do so within thirty (30) days after notice
from Landlord of such failure, (or, if such repair or replacement cannot be completed within such
thirty (30) day period, and Tenant fails to be making diligent efforts to make such repairs or
replacements; provided, however, that such repairs or replacements must be completed within one
hundred twenty (120) days after such notice), Landlord may make the repairs or replacements and
Tenant shall within ten (10) business after receipt of an invoice therefor pay to Landlord one hundred
fifteen percent (115%) of the reasonable cost thereof.
Exhibit 10.8
12.5 Common Areas. The Common Areas and Complex shall be subject to the control,
management, operation and maintenance of Landlord. Landlord shall have the right to construct,
maintain and operate lighting and other facilities in the Building and in and on the Complex and
Common Areas; to grant third-parties temporary rights of use thereof; from time to time to change
the area, level, location or arrangement of parking areas and other facilities; to grant exclusive use
of or lease the Common Areas to other persons; to temporarily close all or any portion of the Complex
and Common Areas; to temporarily close all or any part of the parking areas or parking facilities
within the Building; and to do and perform such other acts in and to the Building, the Complex and
Common Areas as Landlord shall reasonably determine to be advisable, provided in all cases Tenant's
access to and use of the Premises are not materially and adversely impaired. Landlord will operate
and maintain the Common Areas in such manner, as Landlord, in its sole discretion, shall determine
from time to time.
13.
Alterations.
13.1 Alterations Require Landlord's Consent. In the event Tenant desires to make any
alterations to the Premises after the Effective Date, Tenant's Alterations shall be subject to this
Section 13 and to the As-Is Work Letter attached hereto as Exhibit "G" as long as the terms of said
Work Letter are consistent with this Section 13, provided that, if there is a conflict between said
Work Letter and the provisions of this Section 13, this Section 13 shall prevail. Tenant shall not
make or cause to be made any Alteration in or to the Premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything
to the contrary contained in this Lease, Tenant may, without first obtaining Landlord's consent but
upon prior notice to Landlord and presentation of appropriate documents, perform those Alterations
which (i) do not require that a building permit be obtained under applicable law, (ii) are located
exclusively within the Premises and not visible from adjacent space; and (iii) do not affect the
Building systems ("Cosmetic Alterations"). Tenant shall not be permitted to make any Alteration
which would adversely affect any life, safety, fire sprinkler, heating, ventilation, air conditioning,
electrical or plumbing system or equipment without Landlord's prior written consent, which consent
may be withheld for any reason whatsoever. If any Alterations are made by Landlord at Tenant's
request, or are required due to any other Tenant Alteration on or to the Premises, such Alterations
shall be at the sole cost and expense of Tenant plus fifteen percent (15%) representing Landlord's
overhead costs.
13.2 Requirements. Notwithstanding Landlord's consent to any Alterations, all
Alterations, whether made prior to or during the Term, shall be made and performed in conformity
with and subject to the following provisions:
(i)
All Alterations shall be made and performed at Tenant's sole cost and
expense and at such time and in such manner as Landlord may reasonably approve.
(ii)
Alterations shall be made only by contractors or mechanics approved
by Landlord, which approval shall not be unreasonably withheld or delayed.
Exhibit 10.8
(iii)
No Alteration shall adversely affect any part of the Building other
than the Premises or adversely affect any service required to be furnished by Landlord
to Tenant or to any other tenant or occupant of the Building.
(iv)
All business machines and mechanical equipment shall be placed and
maintained by Tenant in settings sufficient in Landlord's reasonable judgment to
absorb and prevent vibration, noise and annoyance to other tenants or occupants of
the Building.
(v)
Tenant shall submit to Landlord reasonably detailed architectural and
engineering plans and specifications for any proposed Alteration involving structural
work, or otherwise requiring a consent hereunder (but only to the extent plans are
customary for such Alteration). Tenant shall not commence any such Alteration
without first obtaining Landlord's written approval of such plans and specifications,
which approval shall not be unreasonably withheld, conditioned or delayed.
Landlord reserves the right to retain an engineer to review plans and specifications
for any Alterations that might affect or impair the structural integrity of the Building
or any mechanical, electrical, HVAC or other Building system. The actual out of
pocket cost of any such engineering review shall be paid by Tenant.
(vi)
All Alterations shall be made in full compliance with all Legal
Requirements and in accordance with the Rules and Regulations.
(vii) All materials and equipment to be incorporated in the Premises as a
result of all Alterations shall be of good quality.
(viii) Tenant shall include in its contract documents for the Alterations a
requirement that any contractor performing Alterations carry and maintain at all
times during the performance of the work, at no expense to Landlord, a policy of (a)
commercial general liability insurance with a combined single limit of not less than
$2,000,000 per occurrence for bodily injury and property damage, including
contractual liability coverage, personal injury coverage, independent contractors
coverage, completed operations coverage, contractor's protective liability coverage,
and broad form property damage, with an endorsement naming Landlord, its parent,
subsidiary and affiliated companies and its and their directors, officers, employees,
representatives and agents, as additional insured(s); (b) workers' compensation
complying with the laws of the State of Oklahoma and employer's liability with
limits of $500,000 each accident, $500,000 disease each employee and $500,000
disease policy limit; and (c) automobile liability insurance with a combined single
limit of $1,000,000 each occurrence for bodily injury and property damage to include
coverage for all owned, non-owned, and hired vehicles, and shall use all
commercially reasonable efforts to enforce such requirement. In each of the policies
providing the required insurance herein, contractor agrees to waive and will require
its insurers to waive any rights of subrogation or recovery they may have against
Landlord, its parent, subsidiary and affiliated companies and its and their directors,
officers, employees, representatives and agents. The policies providing the required
Exhibit 10.8
insurance shall be endorsed to provide to Landlord thirty (30) days (ten (10) days
for non-payment) in advance of any non-renewal or cancellation of such policies.
Prior to commencing Alterations hereunder, Tenant will deliver to Landlord
contractor's certificate(s) of insurance evidencing the existence of the insurance and
conditions required herein. Tenant shall be fully responsible to Landlord for any
deficiencies in its contractor's insurance and shall defend, indemnify and hold
harmless Landlord from or against any claim asserted or arising as a result of such
deficiencies. Irrespective of the insurance requirements, the insolvency, bankruptcy,
or failure of any such insurance company providing insurance for contractor, or the
failure of any such insurance company to pay claims that occur will not be held to
waive any of the provisions hereof. Landlord will not insure nor be responsible for
any loss of or damage to, regardless of cause, property of any kind, including loss
of use thereof, owned, leased or borrowed by contractor, its employees, agents or
subcontractors.
(ix)
Tenant shall indemnify, defend, and hold Landlord harmless from
and against any and all claims, costs, expenses, damages and liabilities which may
arise in connection with such work.
13.3
Landlord's Right to Monitor. Tenant shall permit Landlord, at Landlord's sole cost
and expense, to monitor construction operations in connection with such work; provided, however,
that such monitoring or right to monitor by Landlord and the approval or disapproval of plans and
specifications for such work in any situation (when required hereunder) shall be for the Landlord's
sole benefit and shall not constitute any warranty by Landlord to Tenant or any other person of the
adequacy of the design, workmanship or quality of such work or materials for Tenant's intended
use or impose any liability upon Landlord in connection with the performance of such work;
provided, further, that any such monitoring shall not unreasonably interfere or delay the performance
of such construction by Tenant.
13.4
Final Drawings. Tenant shall, within thirty (30) days of completion of any of its
work, deliver to Landlord "as-built" architectural and engineering drawings and/or a CADD file of
such work prepared and certified by a licensed architect and engineer.
13.5 Alterations Part of Building. Except for Tenant's Trade Fixtures, all Alterations to
or on the Premises (including but not limited to carpets, drapes and anything bolted, nailed, plumbed
or otherwise secured in a manner customarily deemed to be permanent) shall be deemed upon
termination of this Lease to be a fixture inuring to the Building and becoming a part of the Premises
and shall be and remain the property of Landlord without compensation or credit to Tenant and
covered by Landlord's insurance therefor; provided however, Landlord may waive its ownership
right as to any Alteration (a "Specialty Alteration"), such as an internal staircase or a raised floor,
which is not standard for typical office uses, by written notification of same to Tenant at the time
Landlord shall give its consent thereto. Any replacements of any Alterations deemed upon
termination of this Lease to be property of Landlord, whether made at Tenant's expense or otherwise,
shall be and remain the property of Landlord. Unless otherwise directed by Landlord, Tenant shall
remove all Trade Fixtures and those Specialty Alterations of which Landlord has waived ownership
from the Premises, upon the expiration or sooner termination of this Lease, at Tenant's expense,
Exhibit 10.8
and subject to the condition that (i) Tenant must repair any and all damage occasioned by the
installation, use and/or removal of such Specialty Alteration, and (ii) the Premises must be promptly
restored to its condition prior to installation thereof, normal wear and tear and damage from insured
casualty excepted. In the event Tenant shall fail to remove the same, Landlord may do so on Tenant's
behalf and at Tenant's expense.
13.6
Tenant's Right to Cure. If Tenant defaults under this Section by reason of making
any Alteration not hereby authorized or by reason of failure to give any notice or to obtain any
approval required herein, Tenant may, after receipt of notice of such default from Landlord, cure
such default by promptly removing such Alteration and restoring the Premises to their former
condition.
13.7 Directory. Landlord agrees to provide a directory of the names and locations of its
tenants and to maintain the same at a convenient location in the lobby of the Building.
13.8 No Liens. Tenant shall not permit any lien or claim for lien of any mechanic, laborer
or supplier or any other lien to be filed against the Complex, the Building, the Common Areas, the
land which comprises the Complex, the Premises, or any part of such property arising out of work
performed, or alleged to have been performed by, or at the direction of, or for the benefit of Tenant
or otherwise arising from the acts or omissions of Tenant. If any such lien or claim for lien is filed,
Tenant shall give notice to Landlord immediately upon becoming aware of such filing or claimed
lien and Tenant shall within thirty (30) days after Tenant's actual knowledge of such filing, either
have such lien or claim for lien released of record or shall deliver to Landlord a bond or other
security in form, content, amount, and issued by a company reasonably satisfactory to Landlord
indemnifying Landlord, the Building manager and others designated by Landlord against the total
amount claimed and all costs and liabilities, including attorneys' fees, which may result from such
lien or claim for lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have
such lien or claim for lien so released or to deliver such bond to Landlord, Landlord, without
investigating the validity of such lien, may pay or discharge the same and Tenant shall reimburse
Landlord, within ten (10) business days after receipt of any invoice therefor, for the amount so paid
by Landlord, including Landlord's interest expense and reasonable attorneys' fees.
14.
Allocation of Risks and Indemnification.
14.1 Waiver of Subrogation. Tenant hereby waives any and all rights of recovery or
subrogation Tenant or its insurance carrier may have against Landlord for loss or damage incurred
by Tenant caused by fire or any of the risks covered by a standard "all risk" property insurance
policy maintained by Tenant or any other insurance maintained by Tenant pursuant to this Lease,
except to the extent that the insurance provided is invalidated by acts or omissions of Landlord, its
employees or agents. Further, Landlord hereby waives any and all rights of recovery or subrogation
Landlord or its insurance carriers may have against Tenant for loss or damage incurred by Landlord
caused by fire or any of the risks covered by a standard "all risk" property insurance policy or any
other insurance maintained by Landlord pursuant to this Lease (or based on a claim normally covered
by an "all risk" property insurance policy to the extent Landlord is self-insured), except to the extent
that the insurance provided is invalidated by acts or omissions of Tenant its employees or agents.
Exhibit 10.8
The effect of such waivers is not limited to the amount of insurance actually carried or required to
be carried or to the actual proceeds received. The above waivers and covenants not to sue are further
intended to bind each party's insurers providing insurance required hereunder, and each party agrees
to obtain from their respective insurance companies permission to allow such party to waive the
insurance companies' rights of subrogation.
14.2
Indemnities of Landlord and Tenant. Tenant shall indemnify and hold harmless
Landlord and its successors and assigns from and against any and all claims arising from or in
connection with (a) the conduct or management of the Premises or of any business therein, or any
work or thing whatsoever done or any condition created by Tenant in or about the Premises during
the Term of this Lease or, with respect to the Expansion Premises, during the period of time after
the Effective Date and prior to the Commencement Date for Expansion Premises that Tenant may
have been given access to the Expansion Premises, (b) any act, omission or negligence of Tenant
in the Complex, (c) any accident, injury or damage whatever caused by Tenant occurring in, at or
upon the Premises or the Complex; and (d) any breach or default by Tenant in the full and prompt
payment and performance of Tenant's obligations under this Lease beyond any applicable notice
and cure periods, including but not limited to the compliance with all Building Rules and Regulations
by Tenant and Tenant's Group; together with all costs, expenses, and liability incurred in or in
connection with each such claim or action or proceeding brought thereon, including without
limitation all reasonable attorneys fees and expenses. Landlord shall indemnify and hold harmless
Tenant and its successors and assigns from and against any and all claims arising from or in
connection with (a) the operation or management of the Complex (exclusive of the Premises) or of
any work or thing whatsoever done, or any condition created by Landlord in or about the Complex
during or prior to the Term of this Lease, (b) any act, omission or negligence of Landlord in the
Complex, (c) any accident, injury or damage whatever caused by Landlord or Landlord's Group
occurring in, at or upon the Complex; and (d) any breach or default by Landlord in the full and
prompt payment and performance of Landlord's obligations under this Lease beyond any applicable
notice and cure periods; together with all costs, expenses, and liability incurred in or in connection
with each such claim or action or proceeding brought thereon, including without limitation all
reasonable attorneys fees and expenses.
14.3 Right to Perform. In the event of a party's failure to perform in accordance with this
Section 14, the indemnified party, at its option, may so perform without relieving the other party
of its obligations hereunder, and such other party shall reimburse the indemnified party for all
reasonably necessary and documented costs and expenses, including attorneys' fees, incurred in so
performing together with interest on the amount of such costs and expenses at the greater of (i) the
highest rate permitted by law, or (ii) the prime rate of interest announced as charged from time to
time by BOKF, NA, to its preferred commercial customers for ninety-day unsecured loans plus two
(2) points (and if such rate ceases to be announced by BOKF, NA, then ten percent (10%) per annum)
(the "Default Rate"), payable from the date incurred by the indemnified party until reimbursed by
such other party.
14.4
Security. Security devices and services, if any, while intended to deter crime may
not in given instances prevent theft or other criminal acts and it is agreed that Landlord shall not
be liable, for injuries or losses caused by criminal acts of third parties and the risk that any security
device or service may malfunction or otherwise be circumvented by a criminal is assumed by Tenant,
Exhibit 10.8
except to the extent that such criminal acts are the result of the gross negligence or willful misconduct
or omissions of Landlord. Tenant may at Tenant's cost obtain insurance coverage to the extent
Tenant desires protection against such criminal acts.
14.5 Other Tenants. Landlord and Tenant shall not be liable to the other party for any
damages arising from any act or neglect of any other tenant in the Building or Complex.
15.
Insurance.
15.1
The Tenant, at its expense, will carry or cause to be carried and maintained in force
throughout the entire term of this Lease insurance as described below with insurance companies
licensed to do business in the State of Oklahoma and which are rated A- or better by A.M. Best
Company or similar rating from another recognized rating agency, or through underwriters at Lloyd's
London. The limits and insurance set forth below are minimum limits and types and will not be
construed to limit Tenant's liability or represent the types and limits of insurance a reasonable and
prudent business would maintain. All costs and deductible amounts associated with the required
insurance will be for the sole account of the Tenant.
(A) Workers' Compensation insurance complying with the laws of the State or States
having jurisdiction over each employee, and Employer's Liability with limits of
$500,000 each accident, $500,000 disease each employee, and $500,000 disease
policy limit.
(B)
(C)
(D)
(E)
Commercial General Liability insurance on an occurrence form with a combined
single limit of $2,000,000 each occurrence, and annual aggregates of $2,000,000,
for bodily injury and property damage, including coverage for premises-operations,
blanket contractual liability, broad form property damage, personal injury liability,
independent contractors, and products/completed operations.
Automobile Liability insurance with a combined single limit of $1,000,000 each
occurrence for bodily injury and property damage to include coverage for all owned,
non-owned, and hired vehicles.
Property insurance on an "all risk" basis for the full replacement value of Tenant's
property (including fixtures, Alterations, Tenant's trade fixtures, furnishings,
equipment and all other items of personal property of Tenant or which Tenant is
required to replace under this Lease in the event of loss, damage or destruction)
located in the Premises.
Such other insurance as Landlord may reasonably require from time to time with
ninety (90) days prior written notice to Tenant, so long as such other insurance is at
such time customarily required by landlords of Class A office space in buildings of
comparable size and quality in downtown Tulsa, Oklahoma.
15.2
Insurance Policies. Under the policies described in 15.1(B) and 15.1(C) above,
Landlord, its parent, subsidiary and affiliated companies and its directors, officers, employees,
representatives and agents will be named as additional insureds to the extent of the indemnifications
provided by Tenant under this lease. Under the policy described in 15.1(D) above, Landlord, its
Exhibit 10.8
parent, subsidiary and affiliated companies shall be named as a loss payee to the extent of their
respective interests. Any added cost associated with naming these additional insureds/loss payee
shall be borne by Tenant. The policies described in 15.1(B) and 15.1(C) above will be primary
insurance with respect to the additional insureds, and any other insurance maintained by the
additional insureds is excess and not contributory with this insurance. The liability limits required
of Tenant hereunder may be met under a primary or umbrella or excess liability policy or any
combination thereof.
15.3 Non-Renewal or Cancellation. The policies providing Tenant's required insurance
shall be endorsed to provide thirty (30) days (10 days for non-payment of premium) to Landlord
from the insurance company in advance of any non-renewal or cancellation. Prior to Lease
commencement and at or prior to the expiration of any policies providing such insurance, Tenant
will deliver to Landlord certificates of insurance to Landlord, evidencing the existence of the
insurance required above.
15.4 Other Property. Landlord will not insure nor be responsible for any loss or damage,
regardless of cause, to property of any kind, including loss of use thereof, owned, leased or borrowed
by the Tenant or its employees, servants, agents or contractors.
15.5
Landlord's Insurance. Landlord shall, during the Term (as the same may be extended)
carry and maintain in full force and effect (a) property insurance in an amount sufficient to pay for
the full replacement cost of the restoration or replacement of the Building and Landlord's property
therein, (b) commercial general or excess liability insurance with a combined single limit of not
less than $2,000,000 each occurrence, and annual aggregates of not less than $2,000,000, for bodily
injury and property damage, including coverage for premises-operations, blanket contractual
liability, broad form property damage, personal injury liability, independent contractors, and
products/completed operations, and (c) Workers' Compensation insurance complying with the laws
of the State or States having jurisdiction over each employee, and Employer's Liability. Landlord
retains sole right to decide to restore or replace the Building should loss or damage occur. Landlord
shall have the right to self-insure any or all of the insurance required herein.
15.6 Waiver of Subrogation. All insurance policies of property insurance carried by
Landlord or Tenant in covering the Premises, its contents, and the property of either of them in the
Premises will waive any right of the insurer to subrogation against the other to the extent permitted
by law.
16.
Default and Remedies.
16.1
Tenant's Default. The following shall be "Events of Default" by Tenant under this
Lease:
(i)
Tenant does not pay any installment of Rent when due and thereafter
fails to cure such failure within ten (10) days after notice of such failure is given
(provided, however, that Landlord shall not be required to give notice of non-payment
more than twice in any twelve month period); or
Exhibit 10.8
(ii)
Tenant fails to perform any other obligation under this Lease and
thereafter fails to cure such breach within thirty (30) days after notice thereof is given
(or if such cure reasonably takes more than thirty (30) days, if Tenant fails to
commence such cure within such thirty (30) day period and thereafter diligently
prosecute same to completion, but in any event no more than one hundred twenty
(120) days after notice thereof). Landlord shall include in such notice a reasonably
detailed description of the obligation which Tenant has failed to perform; provided,
however, that any failure of Landlord to include such description, or the failure of
any such description to be sufficiently specific, shall not render the notice ineffective;
or
(iii)
An execution or attachment lien shall be issued against substantially
all of Tenant's property, and such execution or attachment shall not be vacated or
removed by Court order, bonding or otherwise, within a period of ninety (90) days
after the issuance thereof; or
(iv)
Any petition is filed by or against Tenant under any section or chapter
of the Bankruptcy Code, as amended, or under any similar law or statute of the United
States or any state thereof and not vacated within ninety (90) days; or
(v)
Tenant becomes insolvent or makes a transfer in fraud of creditors;
(vi)
Tenant makes a general assignment for the benefit of creditors; or
(vii) A receiver is appointed for Tenant or substantially all of Tenant's
or
assets.
16.2
Landlord's Remedies. In the event of the occurrence of any such Events of Default,
Landlord shall have the option to pursue any one or more of the following remedies or any other
remedies provided by law:
(i)
Lease Termination. Landlord may terminate this Lease by giving
written notice to Tenant of its election to do so in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without
prejudice to any other remedy which he may have for possession or arrearages in rent,
enter upon and take possession and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof, either by summary dispossession
proceedings or any suitable action or proceeding at law or in equity, without being
liable for prosecution on any claim or damage which Tenant might incur or have. At
Landlord's demand (whether or not Landlord elects to terminate this Lease), Tenant
agrees to pay to Landlord Accelerated Rent. "Accelerated Rent" means the total
amount of Rent due hereunder through the Termination Date, less the fair market
rental value of the Premises through the Termination Date, discounted to present value
using a discount rate equal to the prime rate, as published in the Wall Street Journal
on the date closest to the date that the Event of Default occurred, which amount shall
Exhibit 10.8
be accelerated and due in one lump sum payment upon demand and shall bear interest
from the Event of Default at the Default Rate until paid.
(ii)
Re-Entry. Landlord may enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
said Premises or any part thereof, either by summary dispossession proceedings or
any suitable action or proceeding at law or in equity, without being liable for
prosecution on any claim or damage which Tenant might incur, and Landlord shall
use reasonable efforts to relet the Premises and mitigate Tenant's damages. In the
event rent for reletting of the Premises is higher than Rent under the terms of this
Lease, then such excess shall belong to Landlord and Tenant shall have no claim
therefor. In the event that the rent received for reletting of the Premises is less than
the Rent due under the terms of this Lease, then Tenant shall be liable to the Landlord
for payment of the deficiency. Tenant further agrees to pay Landlord on the several
rent days specified hereunder, as liquidated damages, sums equivalent to the monthly
Rent reserved hereunder, less the avails of reletting, if any, and any additional amounts
as provided in Section 16.2(v) hereof. In any event, however, unless the Lease is
terminated, Tenant shall be liable for all Rent, whether in or out of possession of the
Premises, to the end of the Term.
(iii)
Self Help. Without terminating the Lease or removing Tenant from
the Premises, Landlord may enter upon the Premises (but without causing a
disturbance of the peace), without being liable for prosecution on any claim or damage
which Tenant might incur or have, and do whatever Tenant is obligated to do under
the terms of this Lease; and Tenant agrees to reimburse Landlord, on demand, for any
reasonably necessary and documented expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease, and Tenant further
agrees that Landlord shall not be liable for any damages resulting to Tenant from such
action, unless caused by the gross negligence or intentional act of Landlord or
otherwise.
(iv)
Property of Tenant. Any property belonging to Tenant or to any person
holding by, through or under Tenant, or otherwise found upon the Premises at the
time of re-entry or termination by the Landlord and not removed by Tenant pursuant
to Section 18, shall be dealt with by Landlord in compliance with 41 O.S. §§ 51-52,
as amended. Notwithstanding the foregoing: (x) any notice given in compliance with
Section 27 of this Lease shall be deemed sufficient notice for all purposes of the
foregoing statutes; and (y) Landlord shall have no obligation to Tenant to notify any
parties claiming any interest in such property other than parties whose name and
correct mailing address have been provided by Tenant to Landlord.
(v)
Reletting, Costs of Alterations and Damages. Upon any reletting,
Tenant shall be immediately liable to pay to Landlord, without further demand or
process of law, the reasonably necessary and documented cost and expense of
reletting, the documented cost of any alterations and repairs reasonably deemed
Exhibit 10.8
necessary by Landlord to effect reletting, Landlord's reasonable attorney fees and
reasonably necessary and documented administrative costs occasioned by such
reletting, leasing commissions, whether payable in installments or not, and the full
amount, if any, by which the Rent reserved in this Lease for the period of reletting
(but not beyond the term of this Lease) exceeds the amount agreed to be paid as rent
for the Premises for the period of reletting. If Tenant has been credited with any rent
to be received by reletting and the rent shall not be promptly paid to Landlord by the
new tenant, Tenant shall immediately be liable to pay any deficiency to Landlord.
For purposes of calculating damages under this Section 16.2 after an Event of Default,
occupancy of all or any part of the Premises by Landlord or any Affiliate of Landlord
without a lease, or with a lease to an Affiliate providing below market rent, shall be
treated as if such occupant paid fair market value for such occupancy.
(vi)
Additional Remedies. In the event of any breach by Tenant of any
covenants, agreements, terms or conditions of this Lease, Landlord shall be entitled
to enjoin the breach, and in addition to the rights and remedies provided hereunder,
shall have any other right or remedy allowed by law or equity. The provisions of this
Section shall be construed so that remedies of Landlord shall be available to Landlord
to the full extent that they are valid or enforceable under the laws of the State of
Oklahoma.
(vii) Remedies Cumulative. The rights and remedies given to the parties
shall be cumulative and the exercise of any of them shall not be deemed to be an
election excluding the exercise by any party at any time of a different or inconsistent
remedy, and shall be deemed to be given to such party in addition to any other and
further rights granted to the Landlord by the terms hereof, or by law. The failure of
any party at any time to exercise any right or remedy herein granted shall not be
deemed to operate as a waiver of such right or remedy.
(viii) No Waiver. No act or thing done by Landlord or its agents during the
Term shall be deemed an acceptance of an attempted surrender of the Premises, and
no agreement to accept a surrender of the Premises shall be valid unless made in
writing and signed by Landlord. No re-entry or taking possession of the Premises by
Landlord shall be construed as an election on its part to terminate this Lease, unless
a written notice of such intention to be given to Tenant. Notwithstanding any such
reletting or re-entry or taking possession, Landlord may at any time thereafter elect
to terminate this Lease for a previous default. Landlord's acceptance of Rent or other
sums due hereunder following an event of default shall not be construed as Landlord's
waiver of such event of default. No waiver by Landlord or Tenant of any violation
or breach of any of the terms, provisions and covenants herein contained shall be
deemed or construed to constitute a waiver of any other violation or breach of any of
the terms, provisions and covenants herein contained. Forbearance to enforce one or
more of the remedies herein provided upon the occurrence of default shall not be
deemed or construed to constitute a waiver of any other violation or default. The
failure of Landlord to enforce the Rules and Regulations of the Buildings against
Tenant or any other tenant in the Buildings shall not be deemed a waiver thereof;
provided that Landlord shall not enforce the Rules and Regulations in an unreasonable
Exhibit 10.8
or discriminatory manner. No provision of this Lease shall be deemed to have been
waived unless such waiver be in writing signed by the party against whom such waiver
is asserted.
16.3
Landlord's Default. Landlord shall not be in default under this Lease unless: (i)
Landlord fails to pay any sum of money required to be paid by Landlord to Tenant or satisfy any
non-monetary obligation which Landlord has failed to perform, and such failure shall continue for
thirty (30) days after notice thereof is delivered by Tenant to Landlord; provided, however, that if
such cure reasonably takes more than thirty (30) days, Landlord shall not be in default so long as
Landlord commences such cure within such thirty (30) day period and thereafter diligently
prosecutes same to completion, but in any event no more than one hundred twenty (120) days after
notice thereof. Tenant shall include in such notice a reasonably detailed description of the obligation
which Landlord has failed to perform; provided, however, that any failure of Tenant to include such
description, or the failure of any such description to be sufficiently specific, shall not render the
notice ineffective. If Landlord shall default, then Tenant, without being obligated to and without
thereby waiving such default, shall have the following remedies, which remedies shall be cumulative
and shall be in addition to those remedies Tenant may have at law or in equity: (a) terminate this
Lease upon notice to Landlord, (b) bring an action against Landlord seeking compensatory and/or
injunctive relief, or (c) incur any reasonable expense (or, in the case of any payment Landlord is
obligated to make, make such payment), necessary to perform the covenant, warranty, duty, or
obligation of Landlord specified in such notice. The full amount of the reasonable costs and expenses
incurred by Tenant (including reasonable attorneys' fees in connection with Tenant performing such
obligation) or the payment so made, together with the amount of any reasonable attorneys' fees in
instituting, prosecuting or defending any action or proceeding by reason of any default of Landlord
hereunder, shall, at Tenant's option, either be: (i) paid by Landlord to Tenant within thirty (30) days
after receipt of an invoice therefor with interest at the Default Rate thereon from the date paid by
Tenant to the time paid by Landlord, or (ii) deducted by Tenant from the next due Rent under this
Lease, together with interest at the Default Rate, from the date due until paid, until Tenant has been
fully reimbursed for Tenant's necessary and reasonable expenditures. The provisions of this Section
16.3 shall not limit or modify the Limitation of Landlord's Liability provided for in Section 28.19
hereof.
17.
Attorney's Fees.
In any action brought by a party hereto to enforce the obligations of the other party hereto
or to recover possession of any portion of the Premises, the prevailing party shall be entitled to
collect from the opposing party to such action such prevailing party's reasonable litigation costs
and attorney's fees and expenses (including court costs, reasonable fees of accountants and experts,
and other expenses incidental to the litigation).
18.
Surrender of Premises.
Upon the expiration or termination of this Lease or termination of Tenant's right of possession
of the Premises, Tenant shall surrender and vacate the Premises immediately and deliver possession
thereof to Landlord in a clean and good condition, ordinary wear and tear and loss or damage by
fire or other casualty which Tenant is not obligated to insure or repair excepted, and shall surrender
Exhibit 10.8
all keys for the Premises to Landlord at the place then fixed for the payment of rent. Upon any
termination, Tenant shall remove from the Premises all unattached and movable Trade Fixtures,
Specialty Alterations which Landlord has required to be removed pursuant to Section 13.5, and
personal property of Tenant ("Tenant Property") without credit or compensation from Landlord for
the costs of removal, provided Tenant immediately shall repair all material damage resulting from
such removal and shall restore the Premises to its pre-existing condition and repair prior to removal.
In the event possession of the Premises is not delivered to Landlord when due, Section 28.9
hereinbelow shall control. If Tenant, prior to such time, shall fail to remove any Tenant Property,
Landlord shall remove and deal with same in compliance with 41 O.S. §§ 51-52, as amended.
Notwithstanding the foregoing: (x) any notice given in compliance with Section 27 of this Lease
shall be deemed sufficient notice for all purposes of the foregoing statutes; and (y) Landlord shall
have no obligation to Tenant to notify any parties claiming any interest in such property other than
parties whose name and correct mailing address have been provided by Tenant to Landlord.
19.
Damage by Fire or Other Casualty.
19.1
Substantial Untenantability. If either the Premises or the Building is rendered
substantially Untenantable by fire or other casualty, Landlord shall elect by giving Tenant written
notice within sixty (60) days after the date of said fire or casualty (unless Landlord does not have
access to the Premises or the Building due to said fire or casualty, in which case the notice period
under this Section 19.1 shall not begin to run until Landlord gains access to the Premises or the
Building), either to:
(i)
(ii)
terminate this Lease as of the date of the fire or other casualty if
Landlord's good faith estimate of the time required to substantially
complete such repair or restoration will exceed one hundred eighty
(180) days from the date of such notice and if Landlord is also
terminating the lease of other tenants similarly situated subject to such
casualty with a remaining lease term approximating the same period
of time as that remaining in the Term; or
proceed to repair or restore the Premises or the Building (other than
Alterations installed by or for the benefit of Tenant, Tenant's trade
fixtures, furnishings, equipment and all other items of personal
property installed by or for the benefit of Tenant) to substantially the
same condition as existed immediately prior to such fire or casualty.
For avoidance of doubt, Landlord shall have no obligation to repair
or restore any tenant improvements, including without limitation
flooring, interior walls and partitions within the Premises, cabinetry,
fixtures and interior ceilings.
19.1.1 If Landlord elects to proceed pursuant to subsection (ii) above, Landlord's
notice shall contain Landlord's good faith estimate of the time required to substantially
complete such repair or restoration. If such estimate indicates that the time so required will
exceed one hundred eighty (180) days from the date of the notice, then Tenant shall have
the right to terminate this Lease as of the date of such casualty by giving written notice to
Exhibit 10.8
Landlord not later than twenty (20) days after the date of Landlord's notice which termination
shall be effective as of the later to occur of (i) the date of such casualty or (ii) the date Tenant
vacates the Premises. Tenant shall vacate the Premises within thirty (30) days of the date
such notice of termination is given. If Landlord's estimate indicates that the repair or
restoration can be substantially completed within one hundred eighty (180) days, or if Tenant
fails to exercise its said right to terminate this Lease within the twenty (20) days as provided
immediately above, this Lease shall remain in force and effect. Provided, however, in the
event such repair or restoration is not substantially completed within two hundred ten (210)
days after the date of Landlord's notice, Tenant may terminate this Lease by thirty (30) days'
prior written notice to Landlord; except that if Landlord completes such restoration within
said thirty-day period, this Lease will not terminate notwithstanding Tenant's notice of
termination.
19.2
Insubstantial Untenantability. If either the Premises or the Building is damaged by
fire or other casualty but is not rendered substantially Untenantable, then Landlord shall diligently
proceed to repair and restore the damaged portions thereof, other than Alterations installed by or
for the benefit of Tenant, Tenant's trade fixtures, furnishings, equipment and other items of personal
property installed by or for the benefit of Tenant, to substantially the same condition as such existed
immediately prior to such fire or casualty, unless such damage occurs during the last twelve (12)
months of the Term and such damage cannot be substantially repaired within forty-five (45) days
from the date of casualty (as determined in good faith by Landlord or Landlord's architect or
engineer), in which event Landlord or Tenant shall have the right to terminate this Lease as of the
date of such fire or other casualty by giving written notice to the other within thirty (30) days after
the date of such fire or other casualty.
19.3 Rent Abatement. If all or any part of the Premises are damaged by fire or other
casualty as hereinabove provided, all Rent shall abate for that part of the Premises which are
Untenantable on a per diem and proportionate area basis from the date of the fire or other casualty
causing such damage (provided such Untenantability shall continue for at least three (3) business
days after the date of such fire or other casualty) until such time as Landlord or Tenant, as applicable,
has substantially completed the repair and restoration work in the Premises which it is required to
perform, provided, that as a result of such fire or other casualty, Tenant does not occupy the portion
of the Premises for the conduct of its normal business operations which are Untenantable during
such period. Notwithstanding the foregoing, in the event any casualty to the Premises or Building
is caused in whole or in part by the negligence or intentional act of Tenant, its agents, employees,
contractors, servants, guests or invitees, then Rent shall abate only so long as Tenant has commenced
to repair the Premises as required by this Lease and Tenant continues such efforts with due diligence.
19.4
Tenant's Restoration. If all or any part of the Premises are damaged by fire or other
casualty and this Lease is not terminated, Tenant shall promptly and with due diligence repair and
restore the leasehold improvements (other than improvements which Tenant is permitted to remove
in accordance with the terms of this Lease upon expiration of the Lease) and personal property
previously installed by Tenant pursuant to this Lease.
Exhibit 10.8
19.5
Insurance Proceeds Regarding Leasehold Improvements. In case of any insurance
proceeds payable to Landlord and Tenant, for damage to the leasehold improvements, Tenant agrees
to endorse checks for such sums promptly to the order of Landlord to be held in trust by Landlord
as hereinafter provided. Landlord shall retain such proceeds to the extent of its interest therein if
the Lease is terminated pursuant to the provisions hereinabove contained. If however, the Lease is
not terminated as provided hereinabove, Tenant or its contractors shall be entitled to payment from
such retained funds for repairing, restoring or reconstructing the leasehold improvements promptly
upon Tenant's presenting to Landlord customary waivers of materialmen's and mechanic's liens or
claims and an itemized statement of work performed showing the amount charged therefor. Further,
such work shall be performed by Tenant in accordance with the terms, provisions and conditions
of a work letter agreement to be entered into by the parties hereto at such time in a form then in
general use by Landlord and reasonably acceptable to Tenant for work performed in or upon the
Building. If, upon completion of the repair or restoration, any such insurance proceeds are left
unexpended, Landlord shall pay the same to Tenant, upon demand. If the insurance proceeds are
insufficient for the cost of the repair or restoration, Tenant shall pay the same to the extent of such
insufficiency.
19.6
Landlord's Right to Repair or Restore. If Tenant does not commence promptly to
repair or restore the damage or destruction to the leasehold improvements or if, having commenced
the repair or restoration, Tenant does not proceed diligently to complete the same within thirty (30)
days after written notice from Landlord, Landlord shall be entitled at any time thereafter to enter
the Premises and repair or restore the damage or destruction and to apply any insurance proceeds
held by it as hereinabove provided to the payment of the cost thereof. If the insurance proceeds are
insufficient for the cost of the repair or restoration, Tenant shall pay to Landlord, upon demand and
as additional rent as the work progresses, such reasonably necessary and documented amounts as
shall from time to time be shown to be due and payable by Tenant.
20.
Eminent Domain.
20.1
Permanent Taking. If all or any part of the Premises, Complex or the Building is
permanently taken or condemned by any competent authority for any public use or purpose
(including a deed given in lieu of condemnation) which renders the Premises substantially
Untenantable, this Lease shall terminate as of the date title vests in such authority, and Net Base
Rent shall be apportioned as of such date.
20.2
Insubstantial Taking. If any part of the Premises is taken or condemned for any public
use or purpose (including a deed given in lieu of condemnation) and this Lease is not terminated
pursuant to Section 20.1, Total Base Rent (and Tenant's Total Proportionate Share) shall be reduced
for the period of such taking by an amount which bears the same ratio to the Total Base Rent then
in effect as the number of square feet of Net Rentable Area of the Premises so taken or condemned
bears to the number of square feet of Net Rentable Area of the Building. Landlord, upon receipt
and to the extent of the award in condemnation or proceeds of sale, shall make necessary repairs
and restorations (exclusive of leasehold improvements and personal property installed by Tenant)
to restore the Premises remaining to as near its former condition as circumstances will permit. Rent
shall abate for that portion of the Premises rendered Untenantable until such restoration is completed.
Upon the taking or condemnation described in this Section 20.2, the Net Rentable Area of the
Exhibit 10.8
Premises shall be reduced for all purposes under this Lease by the number of square feet of Net
Rentable Area of the Premises so taken or condemned as determined and certified by an independent,
professional architect reasonably selected by Landlord, at Landlord's expense, and Tenant's Total
Proportionate Share shall be appropriately reduced.
20.3 Compensation. Landlord shall be entitled to receive the entire price or award from
any such sale, taking or condemnation without any payment to Tenant, and Tenant hereby assigns
to Landlord Tenant's interest, if any, in such award; provided, however, Tenant shall have the right
to separately pursue against the condemning authority an award in respect of the loss, if any, to the
then unamortized value of leasehold improvements paid for by Tenant without any credit or
allowance from Landlord. Tenant shall also have the right to seek a separate award for the taking
or condemnation of its leasehold interest, loss of personal property and moving expenses by such
judicial proceeding.
21.
Rules and Regulations.
Tenant shall (and shall cause Tenant's Group to) abide by, and keep and observe all reasonable
rules and regulations ("Rules and Regulations") which Landlord may make from time to time for
the management, reputation, safety, care, or cleanliness of the Building, the Common Areas and/
or the Premises, and/or the operations and maintenance thereof and the equipment therein, or for
the comfort of Tenant and the other tenants of the Building. The current Rules and Regulations are
attached hereto as Exhibit "E". Landlord shall have the right to make reasonable changes to the
Rules and Regulations (which changes shall become effective as to Tenant upon delivery of a copy
of such amended Rules and Regulations to Tenant) and waive in writing any or all of the Rules and
Regulations in the case of any one or more tenants, provided in all events Landlord shall not enforce
the Rules and Regulations in an unreasonable or discriminatory manner. All such Rules and
Regulations are of the essence hereof without which this Lease would not have been entered into
by the Landlord, and any breach of any provision of the Rules and Regulations by the Tenant which
is material in the judgment of the Landlord shall constitute a default hereunder. If there is a conflict
between the provisions contained in this Lease and the Rules and Regulations, the provisions of
this Lease shall prevail.
22.
Landlord's Rights.
22.1
Landlord shall have the following rights exercisable without notice (except as
expressly provided to the contrary), and without being deemed an eviction or disturbance of Tenant's
use or possession of the Premises or giving rise to any claim for set-off or abatement of Rent: (1)
to change the street address of the Building or the Complex upon thirty (30) days' prior written
notice to Tenant; (2) except as provided in Section 23 hereof, to reasonably designate and/or approve,
install, affix and maintain all signs, including Tenant plaques, logos and graphics, on the exterior
and/or interior of the Building and in and about the Complex; (3) except as provided in Section 23
hereof, to reasonably designate and/or approve prior to installation, all types of signs, window
shades, blinds, drapes, awnings or other similar items, and all internal lighting that may be visible
from the exterior of the Premises; (4) to display the Premises to prospective tenants during the last
twelve (12) months of the Term (as the same may be extended) at reasonable hours upon reasonable
prior notice to Tenant, which may be verbal; provided that Landlord shall use reasonable, good faith
efforts to minimize interference with Tenant's use, access, occupancy or quiet enjoyment of the
Exhibit 10.8
Premises and to protect Tenant's property located in the Premises from damage during any such
authorized entry; (5) to change the arrangement of entrances, doors, corridors, elevators and stairs
in the Building, provided Tenant's access to the Premises is not materially adversely affected thereby;
(6) except as provided in Section 29.3 hereof, to grant to any party the exclusive right to conduct
any business or render any service in or to the Building, provided that any such grant shall not
restrict Tenant's use and occupancy of the Premises for the Sole Permitted Use; (7) to have access
for Landlord and other tenants of the Building to any mail chutes and boxes located in or on the
Premises to the extent that it may be permitted by the United States Postal Service; (8) to close the
Building after normal business hours, except that Tenant and its employees and invitees shall be
entitled to admission at all times (on a twenty-four hour, seven day a week basis) under such
reasonable regulations as Landlord prescribes for security purposes; (9) to take any and all reasonable
measures, including inspections and repairs to the Premises or to the Building, as may be necessary
or desirable for the operation, safety, preservation, or protection thereof; provided that Landlord
shall, at all times during the making of any such inspections or repairs in or to any portion of the
Premises, use reasonable, good faith efforts to minimize interference with Tenant's use, access,
occupancy or quiet enjoyment of the Premises and to protect Tenant's property located in the
Premises from damage; (10) subject to Tenant's Bank Security, to retain at all times master keys or
pass keys to such areas of the Premises as Tenant shall from time to time reasonably designate,
subject to such reasonable regulations and controls by Tenant as are necessary to ensure the security
of Tenant's operations and compliance with present and future bank security Legal Requirements;
provided that Tenant covenants that: (i) master keys or pass keys for all areas of the Premises for
which Landlord shall not be given keys (other than safes and vaults) shall be available on the
Premises at all times for use by Landlord in event of emergency, and (ii) Tenant shall keep Landlord
informed at all times of the person or persons in control of such keys; (11) to install, operate and
maintain security systems which monitor and identify, by closed circuit television or otherwise, all
persons entering and leaving the Building or the Complex; (12) to install and maintain pipes, ducts,
conduits, wires and structural elements located in the Premises which serve other parts or other
tenants of the Building or any other property, provided such pipes, ducts, conduits, and wires are
hidden behind walls, floors or ceilings, and further provided that such structural elements shall not
unreasonably interfere with Tenant's use of the Premises (it being agreed that in the case of any
reduction in the Net Rentable Area of the Premises, Total Base Rent and Tenant's Total Proportionate
Share shall be proportionately reduced); (12) to reasonably alter, amend and change the Rules and
Regulations for protection of the health, safety and welfare of persons or property; and (13) to enter
the Premises at all reasonable times following notice of such desired entry to Tenant, which may
be oral, provided that Tenant shall make available to Landlord a designated individual within the
Premises to accompany Landlord in such instance to examine the Premises and to show such to
prospective purchasers, mortgagees, or to public officials lawfully having an interest therein,
provided that Landlord shall use reasonable, good faith efforts to minimize interference with Tenant's
use, access, occupancy or quiet enjoyment of the Premises and to protect Tenant's property located
in the Premises from damage during any such authorized entry. In the event Tenant fails to make
available to Landlord an individual to accompany Landlord in any particular instance, Landlord
shall not be required to be accompanied by a Tenant designee.
22.2
For the avoidance of doubt, Landlord shall not be required to give notice to Tenant
of any entry on to the Premises in the following circumstances: (1) in the case of emergency as
reasonably determined by Landlord; (2) at any time during the Term of this Lease that Landlord's
Exhibit 10.8
maintenance staff enter the Premises to perform maintenance obligations of the Landlord under the
provisions of this Lease; or (3) at any time during the Term of this Lease that Landlord's security
staff enter the Premises to perform security services; provided that Landlord and Landlord's staff
shall use reasonable, good faith efforts to minimize interference with Tenant's use, access, occupancy
or quiet enjoyment of the Premises and to protect Tenant's property located in the Premises from
damage during any such authorized entrance. Said enumerated rights in this Section 22 are in addition
to all other rights of Landlord afforded under law and the terms of this Lease.
23.
Tenant's Signage.
23.1
Tenant shall have the right to install appropriate signs, including Tenant's name and/
or logo, and such other information as Tenant shall deem appropriate on the entrance doors to the
Premises and at suitable and convenient locations in the Premises, subject to the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed. Except as provided in
this Section 23.1 and the Existing License Agreement as defined in Section 23.2 hereinbelow, Tenant
shall not erect or install any sign or other type display whatsoever either upon the exterior of the
Building or the Complex, upon or in any window, or in any lobby, hallway or door therein located,
without the prior express written consent of Landlord, which consent Landlord may withhold in its
discretion. All signs shall be installed at Tenant's sole cost and expense, including repair, maintenance
and removal. Notwithstanding the foregoing, Landlord and Tenant agree and acknowledge that all
signs, including the existing monument signs located on 1st Street and 2nd Street outside the
Building, the Tenant's existing logo sculpture in the south lobby of the Building, and all other signs
existing or installed in and around the Building as of the Effective Date of this Lease have been
previously approved by Landlord. Tenant shall indemnify and hold harmless Landlord and its
successors and assigns from and against any and all claims arising from or in connection with any
of Tenant's signs and/or logos existing or installed in and around the Building as of the Effective
Date of this Lease, including, without limitation any accident, injury or damage whatsoever caused
by Tenant's signs or logos occurring in, at or upon the Premises or the Complex; together with all
costs, expenses, and liability incurred in or in connection with each such claim or action or proceeding
brought thereon, including without limitation all reasonable attorneys fees and expenses. The
provisions of this Section 23.1 are in addition to, and shall not limit, the provisions of Section 14.2
hereof.
23.2 Reference is hereby made to that certain License Agreement by and between
Landlord and Tenant dated as of December 22, 1995, as amended by that certain Amendment to
License Agreement dated as of April 30, 2004, as further amended by the Second Amendment to
License Agreement dated as of May 1, 2009 (collectively, the "Existing License Agreement").
Contemporaneously with the execution of this Lease, Landlord and Tenant shall enter into a Third
Amendment to the Existing License Agreement as more particularly described therein.
24.
Estoppel Certificate.
Each party hereto shall from time to time, upon no less than ten (10) business days' prior
written request from the other or any mortgagee or ground lessor of the Complex, deliver to the
other or such mortgagee or ground lessor a statement in writing certifying:
Exhibit 10.8
(i)
that this Lease and the Work Letter are unmodified and in full force
and effect or, if there have been modifications, that this Lease and the Work Letter,
as modified, are in full force and effect;
(ii)
the amount of Net Base Rent then payable under this Lease and the
date to which Rent has been paid;
(iii)
that to the other party's knowledge, the requesting party is not in
default under this Lease or any work letter agreement, or, if in default, a detailed
description of such default(s);
(iv)
that Tenant is or is not in possession of the Premises, as the case may
be; and,
(v)
such other factual information as may be reasonably requested.
25.
Real Estate Brokers.
25.1
Tenant represents that Tenant has not dealt with any real estate broker, salesperson,
or finder in connection with this Lease, and no such person initiated or participated in the negotiation
of this Lease, or showed the Premises to Tenant. Tenant agrees to indemnify, defend and hold
harmless Landlord and Landlord's Group from and against any and all liabilities and claims for
commissions and fees arising out of a breach of the foregoing representation.
25.2
Landlord represents that Landlord has not dealt with any real estate broker,
salesperson, or finder in connection with this Lease, and no such person initiated or participated in
the negotiation of this Lease, or showed the Premises on behalf of Landlord. Landlord agrees to
indemnify, defend and hold harmless Tenant and Tenant's Group from and against any and all
liabilities and claims for commissions and fees arising out of a breach of the foregoing representation.
26.
Subordination and Attornment.
26.1
Subordination. It is understood and agreed that this Lease (including all rights of
the Tenant hereunder) is subject and subordinate to any ground lease or underlying lease of the land
comprising the Building or Complex (hereinafter called "Ground Lease") which may now or
hereafter affect the land or Building or Complex of which the Premises form a part and is further
subject and subordinate to any mortgage or deed of trust or trust indenture (hereinafter called
"Mortgage") which may now or hereafter affect any such lease or the real property of which the
Premises form apart, and to any and all advances made under any such mortgage and to the interest
thereon, and all renewals, replacements and extensions thereof. This section shall be self-operative
and no further instrument or subordination shall be required, but Tenant shall nevertheless at any
time hereafter, on the demand of Landlord, execute any instruments, releases or other documents
that may be required by any such mortgage holder or ground lessor or any of their respective
successors in interest to evidence such subordination. If in connection with the financing (existing
or future financing) of the Building or Complex, the prospective lender, the holder of any such
mortgage, or with respect to any bond financing, the trustee for any such bond holders, shall request
reasonable modifications in this Lease as a condition of approval of such financing, Tenant will not
Exhibit 10.8
unreasonably withhold, delay or defer making such modifications, provided that they do not
materially increase the obligations of Tenant hereunder or adversely affect the leasehold interest
created by this Lease or diminish Tenant's rights hereunder, except to a de minimis degree. In the
event of termination of this Lease through foreclosure of any mortgage to which this Lease is
subordinated, or if the Ground Lease is terminated, Tenant will upon the demand of the purchaser
of the Premises at the foreclosure sale thereof, or of the lessor under the ground lease, attorn to and
accept such purchaser or ground lessor as landlord under this Lease or, upon demand, enter into a
new lease agreement with such purchaser or ground lessor for the unexpired term of this Lease as
extended pursuant to the terms hereunder at the same rent and under the same provisions of this
Lease; provided that Tenant's obligation to attorn to any such purchaser or ground lessor, and such
attornment, shall be expressly subject to and wholly contingent upon such purchaser's or ground
lessor's: (i) non-disturbance of Tenant in Tenant's use, peaceful possession, and quiet enjoyment of
the Premises in accordance with and during the Term, and Renewal Term, if applicable so long as
Tenant is not in default under this Lease, and (ii) written recognition of this Lease as binding upon
the interest of such transferee and remaining in full force and effect during the Term and Renewal
Term, if applicable. It is further agreed by Tenant that this Lease shall be subject and subordinate
at all times to any other financing arrangement or right to possession, such as by way of example,
a synthetic lease or sublease, under which Landlord is in control of the Premises, and to the rights
of the owner or owners of the Premises, the Building, the Complex or the land of which the Building
or Complex is a part. Landlord represents and warrants that, as of the date of this Lease, (a) there
are no Ground Leases of the Building or Complex and (b) there are no Mortgages affecting the land,
Building or Complex.
26.2 Attornment. In the event of the cancellation or termination of any such ground lease
in accordance with its terms or by the surrender of such ground leasehold estate, whether voluntary,
involuntary or by operation of law, or by summary proceedings, or the foreclosure of any such
mortgage or deed of trust by voluntary agreement or deed in lieu of foreclosure or otherwise, or the
commencement of any judicial action seeking such foreclosure, Tenant, at the request of the then
Landlord, shall attorn to and recognize such ground lessor, mortgagee, beneficiary, or purchaser in
foreclosure as Tenant's Landlord under this Lease; provided that Tenant's obligation to attorn to any
such ground lessor, mortgagee, beneficiary, or purchaser in foreclosure, and such attornment, shall
be expressly subject to and wholly contingent upon such ground lessor's, mortgagee's, beneficiary's,
or purchaser in foreclosure's: (i) non-disturbance of Tenant in Tenant's use, peaceful possession,
and quiet enjoyment of the Premises in accordance with and during the Term, and Renewal Term,
if applicable so long as Tenant is not in default under this Lease, and (ii) written recognition of this
Lease as binding upon the interest of such transferee and remaining in full force and effect during
the Term and Renewal Term, if applicable. Subject to the immediately preceding sentence, Tenant
agrees to execute and deliver at any time upon request of such ground lessor, mortgagee, beneficiary,
purchaser, or their successors, any reasonable instrument to further evidence such attornment.
26.3 Nondisturbance. Tenant's agreement to subordinate the Lease to any future ground
lessor or underlying lessor or mortgagee for the Building is conditioned upon Landlord's obtaining
a commercially reasonable non-disturbance and attornment agreement which shall not increase the
obligations of Tenant hereunder or adversely affect the leasehold interest created by this Lease or
diminish Tenant's rights hereunder, except to a de minimis degree (an "SNDA"), whereby such
Exhibit 10.8
lessor or mortgagee agrees not to evict or disturb Tenant's occupancy of the Premises or terminate
this Lease in the event of a default by Landlord under such lease or mortgage and further agrees to
recognize all of Tenant's rights under this Lease.
27.
Notices.
All notices or advices required or permitted to be given by or pursuant to this Lease, shall
be given in writing and in the English language. All such notices and advices shall be: (i) delivered
personally, (ii) by email to the appropriate email address set forth below provided receipt is
acknowledged by the addressee by email originated by the addressee or other written means, (iii)
by email to the appropriate email address set forth below with a follow-up copy by overnight
courier service the next business day at the location of the addressee, (iv) delivered by facsimile,
(v) delivered by U.S. Registered or Certified Mail, Return Receipt Requested, or (vi) 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, by facsimile, or by email, (ii) on the third business day following the date of
mailing if mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii) 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 Landlord:
At the address provided in Section 1.16 hereof;
and
If to Tenant:
At the address provided in Section 1.34 hereof
or to such other address as the party may have furnished to the other party in accordance herewith,
except that notice of change of addresses shall be effective only upon receipt.
28. Miscellaneous.
28.1
Parties. Except as otherwise expressly provided herein, if more than one person or
entity is named herein as either Landlord or Tenant, the obligations of such multiple parties shall
be the joint and several responsibility of all persons or entities named herein as such Landlord or
Tenant.
28.2 Non-Waiver. The failure of either party to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of the Lease or (in the case of Landlord
only) of any of the Rules and Regulations incorporated herein or hereafter adopted by Landlord,
shall not prevent a subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of
the breach of any covenant of this Lease, or breach of the Rules and Regulations, shall not be deemed
a waiver of such breach. The failure of, Landlord to enforce any of the Rules and Regulations as
incorporated herein or hereafter adopted against Tenant and/or any other tenant in the Building shall
not be deemed a waiver of any such Rules and Regulations; provided that Landlord shall not enforce
the Rules and Regulations in an unreasonable or discriminatory manner.
Exhibit 10.8
No act or thing done or omitted to be done by Landlord or Landlord's agents during the term
of the Lease, which is necessary to enforce the terms of the Lease, or the Rules and Regulations,
shall constitute an eviction by Landlord nor shall it be deemed an acceptance or surrender of said
Premises, and no agreement to accept such surrender shall be valid unless in writing signed by
Landlord. No employee of Landlord or Landlord's agent shall have any power to accept the keys
of said Premises prior to the termination of the Lease. The delivery of keys to any employee of
Landlord or Landlord's agents shall not operate as a termination of the Lease or a surrender of the
Premises.
28.3
Late Charges. All delinquent Rent shall bear interest at the Default Rate from the
occurrence of default until paid.
28.4
Entire Agreement. This Lease, the Exhibits and any riders identified herein and
attached hereto contain the entire agreement between Landlord and Tenant concerning the Premises
and there are no other representations, promises or agreements, either oral or, written. All
negotiations, considerations, representations and understandings between the parties are
incorporated herein and are superseded hereby. There are no terms, obligations, covenants,
statements, representations, warranties or conditions relating to the subject matters hereof other
than those specifically contained herein.
28.5
Landlord and Tenant Defined. The words "Landlord" and "Tenant", wherever used
in this Lease, shall be construed to mean Landlords and Tenants in all cases where there is more
than one Person constituting Landlord or Tenant, and the necessary grammatical changes required
to make the provisions hereof apply either to corporations or individuals, men or women, shall in
all cases be assumed as though in each case fully expressed. With respect to the provisions hereof
regarding indemnification or waiver of liability of the Landlord, the term "Landlord" shall be deemed
to include any third party operator or owner of the Building.
28.6 No Reservation/Option. The execution of this Lease by Tenant and delivery of same
to Landlord does not constitute a reservation of or option for the Premises or an agreement to enter
into a Lease and this Lease shall become effective only if and when Landlord executes and delivers
same to Tenant; provided, however, the execution and delivery by Tenant of this Lease to Landlord
shall constitute an irrevocable offer by Tenant to lease the Premises on the terms and conditions
herein contained, which offer may not be withdrawn or revoked for thirty (30) days after such
execution and delivery, but such offer shall become null and void, without the need for any additional
action on the part of Tenant if Landlord shall not execute and deliver the Lease to Tenant within
such thirty (30) day period. If Tenant is a corporation, it shall, if requested by Landlord, deliver to
Landlord certified resolutions of Tenant's directors authorizing execution and delivery of this Lease
and the performance by Tenant of its obligations hereunder.
28.7 Amendment. This Lease may not be amended or modified by any act or conduct of
the parties or by oral agreements unless reduced and agreed to in a writing which specifically
references this Lease and which has been signed by both Landlord and Tenant. No waiver of any
of the terms of this Lease by either party shall be binding upon the waiving party unless reduced
to writing and signed by such party.
28.8
[Intentionally Omitted].
Exhibit 10.8
28.9 Holdover. In the event Tenant remains in possession of the Premises after the
expiration or termination of the Term, and without the execution of a new lease or an amendment
to this Lease or without good faith negotiations between Landlord and Tenant occurring, Tenant
shall be deemed to be occupying the Premises as a Tenant from month-to-month and the Total Base
Rent due for the first three (3) months of occupancy shall be one hundred twenty-five percent (125%)
of the Total Base Rent last in effect. In the event that the holdover continues beyond ninety (90)
days after the expiration of the Term, the Total Base Rent for each month of continued occupancy
shall be one hundred fifty percent (150%) of the Total Base Rent last in effect during the Term. If
Landlord is unable to deliver possession of the Premises to a new tenant, or to perform improvements
for a new tenant, as a result of Tenant's holdover, Tenant shall be liable to Landlord for all damages,
including, without limitation, special or consequential damages, that Landlord suffers from the
holdover.
28.10 Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a lesser
amount than any installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter accompanying any
check or payment of Rent shall be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the balance of such
installment or payment of Rent or pursue any other remedies available to Landlord. No receipt of
money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession
of the Premises shall reinstate, continue or extend the Term.
28.11 Binding Effect. This Lease shall be binding upon and inure to the benefit of Landlord
and Tenant and their respective heirs, legal representatives, successors and permitted assigns.
28.12 Force Majeure. Neither Landlord nor Tenant shall be deemed in default with respect
to any of the terms, covenants and conditions of this Lease on such party's part to be performed
(except, in all events monetary obligations), if such party fails to timely perform same and such
failure is due in whole or in part to an Unavoidable Delay as defined in Section 1.42 or by any act
or omission caused directly or indirectly by the other party or the Tenant's Group (as to a Landlord
failure) or the Landlord's Group (as to a Tenant failure). In the event of an occurrence under this
Section 28.12 preventing either party from performing any obligation as herein provided, such party
shall give the other party notice thereof as soon as reasonably practicable and such party shall
exercise commercially reasonable efforts to resume performance hereunder.
28.13 Captions. The headings of the several articles, paragraphs and sections contained
herein are for convenience only and do not define, limit or construe the content or scope of such
articles, paragraphs and sections.
28.14 Applicable Law; WAIVER OF TRIAL BY JURY. This Lease shall be subject to,
and interpreted by and in accordance with, the laws (excluding conflict of law provisions), of the
State of Oklahoma. IN ANY ACTION OR PROCEEDING ARISING HEREFROM,
LANDLORD AND TENANT HEREBY CONSENT TO: (1) THE VENUE AND
JURISDICTION OF ANY FEDERAL OR STATE COURT OF COMPETENT
JURISDICTION WITHIN THE STATE OF OKLAHOMA, (2) SERVICE OF PROCESS BY
Exhibit 10.8
ANY MEANS AUTHORIZED BY THE FEDERAL RULES OF CIVIL PROCEDURE (FOR
ACTIONS FILED IN FEDERAL COURT), OR THE LAW OF THE STATE OF
OKLAHOMA (FOR ACTIONS FILED IN OKLAHOMA STATE COURT), AND (3) IN THE
INTEREST OF SAVING TIME AND EXPENSE, TRIAL TO AND BY THE COURT
WITHOUT A JURY (TRIAL BY JURY IS HEREBY KNOWINGLY AND EXPRESSLY
WAIVED BY THE PARTIES), IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER PARTY
HERETO OR THEIR SUCCESSORS OR ASSIGNS IN ANY WAY REGARDING OR
RELATED TO THE PREMISES, BUILDING, OR COMPLEX, OR ANY MATTER
ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, ANY CLAIM FOR INJURY OR DAMAGE, OR ANY CLAIM
FOR LEGAL, EQUITABLE, EMERGENCY, OR STATUTORY REMEDY OR RELIEF.
LANDLORD'S AND TENANT'S WAIVER OF JURY TRIAL SET FORTH IN THIS
SECTION 28.14 SHALL SURVIVE THE TERMINATION DATE OR EARLIER
TERMINATION OF THIS LEASE.
28.15 Time. Time is of the essence of this Lease and the performance of all obligations
hereunder.
28.16 [Intentionally Deleted].
28.17 Licenses and Permits. Tenant shall be solely responsible for obtaining, all licenses
and/or permits as may be required for Tenant to lawfully conduct its business in the Premises.
28.18 Limitation of Tenant's Liability. Notwithstanding anything to the contrary contained
in this Lease, Landlord shall look only to the assets of Tenant for the satisfaction of any liability of
Tenant under this Lease, it being expressly understood and agreed that any partner, officer, director,
member, manager, shareholder, employee or agent of Tenant as an individual shall not be held
personally liable for such obligations and Landlord shall not pursue satisfaction of any judgment
against Tenant arising under the Lease against the assets of any individual partner, officer, director,
member, manager, shareholder, employee or agent of Tenant. Subject only to Section 28.9
hereinabove, in no event shall Tenant be liable for consequential, special or punitive damages.
28.19 Limitation of Landlord's Liability. Notwithstanding any other provision contained
in the Lease to the contrary, Tenant shall look only to the interest of Landlord in the Building,
including any available applicable condemnation and insurance proceeds, for satisfaction of any
liability of Landlord under the Lease, it being expressly understood and agreed that any partner,
officer, director, member, manager, shareholder, employee or agent of Landlord as an individual
shall not be held personally responsible for such obligations and Tenant shall not pursue satisfaction
of any judgment which Tenant obtains against Landlord arising under the Lease against the assets
of any individual partner, officer, director, member, manager, shareholder, employee or agent of
Tenant. In no event shall Landlord be liable for consequential, special or punitive damages.
Exhibit 10.8
28.20 Counterparts. This Lease may be executed in any number of counterparts, any or
all of which may contain the signature of only one of the parties, and all of which shall be construed
together as a single instrument. Counterparts of this Lease must be signed by both Landlord and
Tenant to be effective. It shall not be necessary in making proof of this Lease to produce or account
for more than a single counterpart containing the respective signatures of, or on behalf of, both of
the parties hereto. Any signature page to any counterpart may be detached from such counterpart
without impairing the legal effect of the signatures thereon and thereafter attached to another
counterpart identical thereto except having attached to it additional signature pages. This Lease
may be executed and delivered by a facsimile, digital, and/or electronic transmission of a counterpart
signature page hereof.
28.21 Partial Invalidity. In the event any provision of this Lease, or the application of such
provision to any person, entity, or set of circumstances, shall be determined to be invalid, unlawful,
or unenforceable to any extent for any reason, the remainder of this Lease, and the application of
such provision to persons, entities, or sets of 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.
29.
Special Provisions.
29.1
Incorporation of Exhibits and Riders. All Exhibits and riders attached hereto, if any,
shall form part of this Lease as if same were embodied herein.
29.2 Building Naming Rights. The Building shall be named the "Bank of Oklahoma
Tower" but, at the request of Tenant and provided Tenant is not then in default under this Lease,
said name may be changed from time to time subject to Landlord's consent, which shall not be
unreasonably withheld, provided further that, if the changed name be other than the then name of
the Tenant, the consent of The Williams Companies, Inc. shall also be required.
29.3 Restrictions on Other Banks in the Building. To the extent permitted by law, Landlord
covenants and agrees that during the Term of this Lease no portion of the Building shall be leased
to, used or occupied by any Person, firm, association or corporation for the operation of a national
or state bank (or any branch office thereof), or a savings and loan association (or any branch office
thereof) or any other financial institution which operates a business directly competing with Tenant.
This prohibition shall not preclude the leasing of space for use and occupancy by small loan finance
companies.
29.4 Combined Premises Square Footage. In the event Landlord re-measures, re-assesses,
or re-surveys the Building, Landlord hereby agrees not to increase or decrease the square footage
amount of the Net Rentable Area of the Premises; provided, however, in the event Tenant leases
additional space in the Building from Landlord, or returns any of the Premises back to Landlord,
Tenant agrees that Landlord will increase or decrease, as applicable, the square footage amount of
the Net Rentable Area of the Premises.
Exhibit 10.8
29.5
License Premises for Kiosk.
29.5.1 Reference is hereby made to that certain plaza level premises within the
Building more particularly described and depicted on Exhibit "H" attached hereto and
incorporated herein by reference (the "Kiosk License Premises"). Landlord agrees to permit
the Tenant to use Kiosk License Premises, subject to the terms and conditions contained
herein (the "Kiosk License"); provided that the Kiosk License shall be terminable by either
Landlord or Tenant upon thirty (30) days prior written notice. Tenant shall not pay rent to
Landlord on the Kiosk License Premises. Tenant agrees that the use and maintenance of
the Kiosk License Premises shall be governed by the terms of this Lease, including, without
limitation, Lease terms related to insurance and indemnity. It is hereby understood and
agreed that the Kiosk License is merely a license to use the Kiosk License Premises during
normal business hours and that no right, title or interest in or to the Kiosk License Premises
is granted to or vested in or intended to be granted to or vested in the Tenant by virtue of
the Kiosk License. Tenant acknowledges that all use of the Kiosk License Premises by the
Tenant shall be pursuant to the Kiosk License and that Tenant shall not by such use acquire
any rights in or to the Kiosk License Premises by prescription, adverse possession or
otherwise. The Kiosk License shall be limited to the signage currently existing on the wall
and the kiosk as shown on Exhibit "H" attached hereto and incorporated herein. No
temporary signage will be allowed.
29.5.2 Landlord and Tenant hereby ratify the respective rights and obligations with
respect to the exterior garden terrace located on the plaza level of the Building (the "Garden
Terrace") as set forth in that certain Letter Amendment to Lease between Landlord and
Tenant dated June 4, 2008.
29.6
Parking Spaces. Landlord shall make or cause to be made available to Tenant eighteen
(18) reserved parking spaces in the executive parking garage (the "Parking Garage") located on the
garage level of the Building. The current market rate for each such parking space is $160.00 per
month, which rate is subject to increase when the rates in the Parking Garage increase from time
to time for other tenants in the Complex. Parking in the Parking Garage will be on a reserved basis;
provided that, Landlord reserves the right to reassign spaces in the Parking Garage from time to
time at its sole discretion.
29.7 Right of First Offer.
29.7.1 Tenant shall have a right of first offer, subject to the restrictions set forth
below ("Right of First Offer"), to lease space that comes available on any of the 17th, 20th,
and 21st floors in the Building (collectively, the "ROFO Space") commencing on October
1, 2019, and so long as this Lease remains in effect. Tenant's rights hereunder in respect of
any of the ROFO Space shall be subject and subordinate to the pre-existing written rights,
if any, of all tenants in the Building as of the Effective Date. The Right of First Offer described
in this Section 29.7 is personal to Tenant and is non-transferable, except in connection with
a permitted assignment of the entire Lease to a Related Entity, or a permitted sublease of
the entire Premises to a Related Entity. The Right of First Offer shall not be applicable to
any space recaptured by Landlord pursuant to Section 11.1 of this Lease.
Exhibit 10.8
29.7.2 In the event that Landlord desires to lease any of the ROFO Space and Tenant
is not then in default of the Lease, Landlord shall deliver a written notice (the "ROFO
Notice") to Tenant which shall set forth the floors or space of the ROFO Space being offered
(the "Offered Premises"). If Tenant desires to lease the Offered Premises, Tenant shall have
ten (10) business days (the "ROFO Period") immediately following Landlord's delivery of
the ROFO Notice to submit a written offer to Landlord for the Offered Premises (the "ROFO
Offer"), which such offer shall include and shall be limited to the net base rent per square
foot which Tenant is offering for the lease of the ROFO Space (the "Offered Premises Net
Base Rent"). Time shall be of the essence with respect to such ROFO Period and the failure
or refusal of Tenant for any reason whatsoever to deliver to Landlord the ROFO Offer in
the time and in the manner herein prescribed shall be deemed an irrevocable waiver of
Tenant's Right of First Offer as to the Offered Premises. Tenant shall not have the option
to make a ROFO Offer on less or more ROFO Space than is offered in the ROFO Notice.
29.7.3 Landlord shall have ten (10) business days immediately following Tenant's
delivery of the ROFO Offer to notify Tenant in writing if Landlord accepts or rejects Tenant's
ROFO Offer (the "Landlord's Response"). Landlord may elect to accept or refuse Tenant's
ROFO Offer, in Landlord's sole discretion. If Landlord timely accepts Tenant's ROFO Offer,
then Landlord and Tenant shall enter into a lease or an appropriate amendment to this Lease
for the Offered Premises within twenty (20) business days after Tenant's receipt of Landlord's
Response. Such lease on or amendment with respect to the Offered Premises shall be a
triple net lease on the same terms and conditions as the Expansion Premises provisions of
this Lease (including, without limitation, the Termination Date, annual escalations and
Operating Expenses) except for the Offered Premises Net Base Rent.
29.7.4 If (i) Tenant declines to make a ROFO Offer on the Offered Premises, (ii)
Landlord refuses the ROFO Offer, or (iii) Landlord and Tenant do not enter into a fully
executed lease or an appropriate amendment to this Lease for the Offered Premises within
such twenty (20) business day period described in Section 29.7.3 above, then such refusal
or failure shall be deemed an irrevocable waiver of Tenant's Right of First Offer as to the
Offered Premises covered by the ROFO Notice and Tenant's Right of First Offer as to the
Offered Premises will terminate and be of no further force and effect, in which case Landlord
will have the right to lease such Offered Premises to a third party on the same or any other
terms and conditions, whether or not such terms and conditions are more or less favorable
than those offered to Tenant. Such termination of the Tenant's Right of First Offer with
respect to the Offered Premises shall be permanent and effective whether or not Landlord
ultimately leases the Offered Premises to a third party. Notwithstanding such termination
as to the Offered Premises, the Right of First Offer with respect to the other ROFO Space,
if any, shall continue until similarly terminated in accordance with this paragraph.
Notwithstanding anything in this Section 29.7 or Lease to the contrary, if: (i) Landlord shall
enter into a lease for such Offered Premises and such Offered Premises shall thereafter
become available during the Term, then the provisions of this Section 29.7 shall become
applicable again with respect to such particular Offered Premises.
Exhibit 10.8
29.8
Plaza Level Teller Area Renovation. Landlord hereby acknowledges that Tenant
desires to update and modify the existing bank teller area located in the northerly portion of the
plaza level (the "Plaza Level Teller Area"). Prior to the Effective Date of this Lease, Tenant submitted
conceptual drawings to Landlord regarding such Plaza Level Teller Area modification ("Teller Area
Modification"). Prior to commencement of construction on the Teller Area Modification, Tenant
shall have submitted finalized and refined drawings and specifications to Landlord, which such
final drawings and specifications shall be substantially similar to the conceptual drawings submitted
to Landlord prior to the Effective Date of this Lease, and shall be subject to Landlord's prior written
approval, which approval shall not be unreasonably withheld or delayed. All costs of the plaza
level Teller Area Modification shall be borne by Tenant.
29.9
Tenant Cabling. Subject to the availability of space as determined by Landlord in
its sole discretion and subject to the other conditions set forth herein, Tenant shall have the right to
install conduit up to 2" in size for cabling horizontally and vertically in the Building and the Building
riser. The conduit and cabling installation shall be at Tenant's sole cost and expense provided any
such installation shall be completed only by a contractor approved by Landlord, which approval
shall not be unreasonably withheld or delayed. Tenant's plans and specifications and the manner
of installation of any conduit and cabling installation shall be subject to Landlord's review and
written approval, which shall not be unreasonably withheld or delayed, prior to commencement of
said work. All conduits and cabling shall be labeled by Tenant in such manner as may be reasonably
required by Landlord. Further, any installation of conduit and cabling shall be coordinated and
supervised by Landlord's construction manager. A management fee equal to twenty percent (20%)
of the conduit and cabling installation cost plus the construction manager's reasonably necessary
and documented labor cost associated with the project shall be paid by Tenant, which Tenant agrees
to pay within ten (10) business days of receipt of an invoice therefor. Upon request by Tenant,
Landlord shall provide to Tenant an estimate of such fees. Any cabling previously installed by
Tenant or hereafter installed by Tenant as provided herein shall be removed from the Building at
the expiration of the Lease term at Tenant's sole cost and expense, unless Landlord otherwise directs
in writing. Within one hundred twenty (120) days from the date of Rent Commencement Date,
Tenant shall submit to Landlord detailed drawings, in form acceptable to Landlord, showing the
as-built condition of Tenant's conduit from the point of origination in the Building to the point of
termination in the Premises. Tenant's as-built drawings shall be revised upon the installation of any
additional conduit and submitted to Landlord within thirty (30) days after completion of the conduit
installation.
29.10 [Intentionally Omitted].
29.11 Termination of Prior Lease Agreement. Landlord and Tenant are parties to that
certain Lease dated as of June 18, 1974, as amended by that certain Amendment One thereto dated
as of May 31, 1977, as amended by that certain Second Amendment thereto dated as of January 1,
1996, as amended by that certain Third Amendment thereto dated as of February 1, 1997, as amended
by that certain Fourth Amendment thereto dated as of May 7, 2001, as amended by that certain Fifth
Amendment thereto dated as of May 1, 2005, as amended by that certain Sixth Amendment thereto
dated as of September 1, 2010, and as amended by that certain Seventh Amendment thereto dated
as of April 15, 2013 (collectively, as so amended, the "Prior Lease Agreement"). Landlord and
Exhibit 10.8
Tenant hereby agree and acknowledge that from and after the Effective Date of this Lease, the Prior
Lease Agreement shall be terminated in its entirety, and the Prior Lease Agreement shall be of no
further force and effect, and each of the Landlord and Tenant shall have no further obligations to
each other under the terms of the Prior Lease Agreement except for obligations which have accrued
as of the Effective Date. Notwithstanding the foregoing, after the Effective Date of this Lease
Landlord may calculate and issue Landlord's Statement for Existing Premises to Tenant for any
reconciliation of Additional Rental (as defined in the Prior Lease Agreement) for the Existing
Premises pursuant to the Second Amendment to the Prior Lease Agreement for calendar year 2018
and for that portion of calendar year 2019 between January 1, 2019, and the Effective Date of this
Lease. The obligations of the parties under this Lease shall be separate and apart from the obligations
of the parties under the Prior Lease Agreement, and this Lease shall not be deemed to limit, affect,
or re-impose any obligations arising under the Prior Lease Agreement.
29.12 Confidentiality. Tenant acknowledges that any information provided by Landlord
pursuant to this Lease will be confidential information except to the extent such information (a) is
generally available to the public other than as a result of disclosure by Tenant or (b) becomes
available to Tenant on a non-confidential basis from a party other than Landlord. Tenant shall not
disseminate such information to any third party unless (i) required to do so by applicable law or
regulation, or (ii) demanded by subpoena or other validly issued administrative or judicial process.
If Tenant is so required or requested to disclose any such information, Tenant shall provide Landlord
with prompt written notice of such requirement or request so that Landlord may consider seeking
a protective order. Landlord shall have a period of five (5) business days from receipt of Tenant's
notice to apply for the appropriate protective order. During the pendency of such protective order
proceedings, Tenant shall take lawfully permitted steps and use commercially reasonable efforts to
cooperate with Landlord in preserving the confidentiality of the confidential information; provided,
however, that nothing contained herein shall prevent Tenant from disclosing such information if
legally required to do so. If such order is not obtained, or Landlord waives its right to seek a protective
order, Tenant will furnish only that portion of such information that is required to be disclosed.
[Signature Page Follows]
Exhibit 10.8
This Lease was executed by the parties on the date first above written.
LANDLORD:
WILLIAMS HEADQUARTERS BUILDING LLC,
a Delaware limited liability company
By: /s/ Peter S. Burgess
Printed: Peter S. Burgess
Title: V.P. Treasurer
TENANT:
BOKF, NA,
a national banking association, d/b/a Bank of Oklahoma
By: /s/ Michael D. Nalley
Michael D. Nalley, CCIM, CPM, RPA
Senior Vice President
Director Corporate Real Estate
Exhibit 10.8
EXHIBIT "A"
Delineation of the Premises
Bank of Oklahoma Tower
Exhibit 10.8
EXHIBIT "B"
Returned Premises
Exhibit 10.8
EXHIBIT "C-1"
[INTENTIONALLY DELETED]
Exhibit 10.8
EXHIBIT "C-2"
[INTENTIONALLY DELETED]
Exhibit 10.8
EXHIBIT "D-1"
Landlord's Statement for Expansion Premises
Exhibit 10.8
EXHIBIT "D-2"
Landlord's Statement for Existing Premises
Exhibit 10.8
EXHIBIT "E"
Rules and Regulations
Bank of Oklahoma Tower
1.
2.
3.
4.
Landlord may refuse admission to the Building outside of ordinary business hours to any
person not known to the watchman in charge or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours to register.
Any person whose presence in the Building at any time shall, in the reasonable judgment of
Landlord, be prejudicial to the safety, character, reputation and interests of the Building or
its Tenant may be denied access to the Building or may be ejected therefrom. In case of
invasion, riot, public excitement or other commotion, Landlord may prevent all access to the
Building during the continuance of the same, by closing the doors or otherwise, for the safety
of the Tenant, the Building and protection of property in the Building. Landlord may require
any person leaving the Building with any package or other object to exhibit a pass from the
Tenant from whose Premises the package or object is being removed, but the establishment
and enforcement of such requirement shall not impose any responsibility on Landlord for
the protection of any Tenant for damages or loss arising from the admission, exclusion or
ejection against the removal of property from the Premises of the Tenant. Landlord shall in
no way be liable to any Tenant for damages or loss arising from the admission, exclusion or
ejection of any person to or from the Tenant's Premises or the Building under the provisions
of this rule.
Landlord reserves the right to exclude or expel from the Building any person who in the
judgment of Landlord is intoxicated or under the influence of liquor or drugs, or who shall
in any manner do any act in violation of these Rules and Regulations.
Tenant shall not sell or permit the sale, at retail or wholesale, of newspapers, magazines,
periodicals or theater tickets, in or from their Premises; nor shall Tenant carry on or permit
or allow any employee or other person to carry on the business of stenography, typewriting,
telephone answering service, or any similar business in or from their Premises for the service
or accommodation of the occupants of any other portion of the Building, or the business of
a barber shop, beauty shop, tobacco or pipe shop, liquor store, employment bureau, or a
manicuring or chiropodist business, except with the prior written approval of Landlord. Tenant
shall not occupy or permit any portion of their Premises to be occupied as an office or facility
for the possession, storage, manufacture or sale of narcotics of any form or kind, without the
prior written approval of Landlord.
Tenant shall not manufacture any commodity or prepare or dispense any foods or beverages
in their Premises or use the same as sleeping apartments, unless the Premises are expressly
leased for such purposes. The foregoing shall not prohibit in any way Tenant's use of a portion
of the Premises as a lunch room/kitchen for us by Tenant with a microwave oven and such
other typical office amenities.
Exhibit 10.8
5.
6.
7.
8.
9.
10.
11.
Tenant shall not conduct directly or indirectly any auction upon their Premises, or permit any
other person to conduct an auction upon the Premises. Tenant is not to conduct malodorous
activities in or about their Premises or the Building. Tenant will not permit gambling to be
conducted in or upon its Premises.
No noise, including the playing of any musical instruments, radio or television, which, in the
judgment of Landlord, might disturb other tenants in the Building, shall be made or permitted
by any Tenant, and no cooking shall be done in their Premises or the Building, except as
expressly approved by Landlord. If cooking is permitted by Landlord, Tenant shall not permit
any cooking or food odors emanating within the Building to seep into other portions of the
Building. All electrical equipment used by Tenant shall be U.L. approved. Nothing shall be
done or permitted in Tenant's Premises, and nothing shall be brought into or kept in the
Premises which would impair or interfere with any of the Building services or the proper and
economic heating, cooling, cleaning or other servicing of the Building or the Premises, or
the use or enjoyment by any other tenant within the Building, nor shall there be installed by
Tenant any ventilating, air- conditioning, electrical or other equipment of any kind, which,
in the judgment of Landlord, might cause any such impairment or interference.
Tenant shall not install or operate any steam or gas engine or boiler, or carry on any mechanical
business, in the Building. The use of oil, gas or inflammable liquids for heating, lighting or
any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous
shall not be brought into the Building. Tenant shall not use any other method of heating than
that supplied by Landlord.
Tenant shall give Landlord prompt notice of all accidents to or defects in air-conditioning
equipment, plumbing, electric facilities or any part or appurtenance of their Premises.
Tenant shall not cause unnecessary labor by reason of carelessness and indifference to the
preservation of good order and cleanliness in their Premises and in the Building. Waste and
unnecessary use of electricity and other utilities is prohibited.
Tenant shall use electric, gas and any other form of energy only from such sources of supply
as are furnished in the Building.
All deliveries to the Building for or by any Tenant are to be made through the service entrance
to Building as designated by Landlord, unless special permission is granted by Landlord for
the use of other Building entrances. Landlord reserves the right to inspect all freight to be
brought into the Building and to exclude from the Building all freight which violates any of
these Rules and Regulations or the Lease of which these Rules and Regulations are a part.
Landlord further reserves the right to change the Building entrance to be utilized for deliveries.
12.
Furniture, equipment or supplies shall be moved in or out of the Building only upon the
elevator designated by Landlord and then only during such hours and in such manner as may
be prescribed by Landlord. Landlord shall have the absolute right to approve or disapprove
Exhibit 10.8
13.
14.
the movers or moving company employed by Tenant and Tenant shall cause said movers to
use only the loading facilities and elevator designated by Landlord.
Should any Tenant desire to place in the Building any unusually heavy equipment, including,
but not limited to, large files, safes and electronic data processing equipment, it shall first
obtain written approval of Landlord to place such items within the Building, for the use of
the Building elevators, and for the proposed location in which such equipment is to be
installed. Landlord shall have the power to prescribe the weight and position of any equipment
that may exceed the weight load limits for the building structure, and may further require, at
the Tenant's expense, the reinforcement of any flooring on which such equipment may be
placed, and/or to have an engineering study performed to determine such weight and position
of equipment, to determine added reinforcement required, and/or determine whether or not
such equipment can be safely placed within the Building. Landlord shall not be responsible
for the loss of or damage to such furniture or equipment from any cause. There shall not be
used in any space, or in the public halls of the Building, either by Tenant or by jobbers or
others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and side guards.
Tenant shall not place additional locks or bolts of any kind upon any of the doors or windows
of their Premises and no lock on any door therein shall be changed or altered in any respect.
Duplicate keys for Tenant's Premises and toilet rooms (if applicable) shall be procured only
from Landlord, which may make a reasonable charge therefor. Upon the termination of a
Tenant's lease, all keys of the Premises and toilet rooms shall be delivered to Landlord.
Notwithstanding the foregoing, and subject to Landlord's prior approval of design and
appearance, which approval shall not be unreasonably withheld, Tenant shall be permitted
to place electric locks on entry doors to the Premises or within the Premises provided such
comply with all Building and fire code requirements or other laws, ordinances or regulations
which may be applicable thereto, and, in the event of an emergency, such doors-locks are
automatically released to allow free ingress and egress to, from and within the Premises. In
no event shall any secured areas include any of the mechanical/engineering rooms in or
serving the Premises or Building. Tenant shall be required at all times to have designated an
employee of Tenant and to provide the name of such individual to Landlord to allow Landlord's
entry into and upon the Premises in accordance with Landlord's rights under this Lease.
Landlord shall not be obligated to provide any services, notwithstanding any other provision
of this Lease to the contrary, to any area to which Landlord does not have access during the
ordinary and customary hours for providing such services unless Tenant makes arrangements
for such access on terms and conditions acceptable to Landlord. Tenant shall be solely
responsible throughout the Term and any renewals thereof for providing services requiring
access not otherwise provided for herein to such areas and shall maintain such areas in a
manner necessary for the health, safety and protection of the Premises, the Building and
persons. In no event shall areas be equipped with electric locks which shall in any way interfere
with Landlord's operation of the Building and security system of the Building. In no event
shall the terms herein contained be deemed to increase the service or other obligations of
Landlord contained in this Lease. Upon termination of this Lease, Tenant shall surrender to
Landlord all keys or codes or other means of access to the Premises, and shall deliver to
Exhibit 10.8
Landlord the explanation of the combination or access requirements of any and all locks for
the Premises, safes, safe cabinets and vault doors, if any, in the Premises.
15.
Intentionally deleted.
16.
17.
18.
19.
20.
21.
Tenant shall permit the janitor of Landlord to clean their Premises. Landlord will not be
responsible for lost or stolen personal property, equipment, money or any article taken from
the Premises or Building, regardless of how or when loss occurs, unless caused by the gross
negligence or intentional act of Landlord or its employees or agents.
In no event shall Tenant leave any refuse in the public hallways or other areas. In the event
Tenant must dispose of crates, boxes, etc., which will not fit into office wastepaper baskets,
it will be the responsibility of the Tenant to label items as trash and notify Landlord of the
need for disposal. Landlord reserves the right to require Tenant (at Tenant's expense) to
dispose of any large items that are unable to fit in the Complex trash receptacles.
Tenant shall not place in front of or affix to any part of the exterior of the Building, nor place
in the halls, corridors or vestibules without the prior written consent of the Landlord any
showcases or other articles.
Landlord shall have the right to prohibit any advertising by Tenant which mentions the
Building or Complex, which, in reasonable Landlord's opinion, tends to impair the reputation
of the Building or its desirability as a building or offices; upon written notice from Landlord,
Tenant shall refrain from and discontinue such advertising.
Bicycles or other vehicles shall not be permitted in the offices, halls, corridors, lobbies and
elevators of the Building, nor shall any obstruction of sidewalks or entrances of the Building
by such be permitted.
The sidewalks, entries, passages, elevators and staircases shall not be obstructed or used by
Tenant, its servants, agents or visitors for any other purpose than ingress and egress to and
from the respective offices.
22.
Canvassing, soliciting and peddling in the Building are prohibited and Tenant shall cooperate
to prevent the same.
23. No animals, birds, or pets of any kind, excluding seeing eye dogs, shall be allowed in Tenant's
Premises or Building.
24.
The water closets, urinals, waste lines, vents or flues of the Building shall not be used for
any purpose other than those for which they were constructed, and no rubbish, acids, vapors,
newspapers or other such substances of any kind shall be thrown into them. The expense
caused by any breakage, stoppage or damage resulting from a violation of this rule by any
Tenant, its employees, visitors, guests or licensees, shall be paid by Tenant.
Exhibit 10.8
25.
26.
If any Tenant desires radio signal, communication, alarm or other utility or service connection
installed or changed, such work shall be done at the expense of Tenant, with the prior written
approval of Landlord and under the direction of Landlord. Landlord's approval of such
contractors shall not be unreasonably withheld or delayed and shall take into consideration
all matters affecting the Building and Complex. No wiring shall be installed in any part of
the Building without Landlord's approval and direction. Landlord reserves the right to
disconnect any radio, signal or alarm system when, in Landlord's reasonable opinion, such
installation or apparatus interferes with the proper operation of the Building or systems within
the Building.
Except with the approval of Landlord, Tenant shall not mark upon, paint signs upon, cut, drill
into, drive nails or screws into, or in any way deface the walls, ceilings, partitions or floors
of the Building (or the Premises, to the extent visible from the adjacent space) and the repair
cost of any defacement, damage or injury caused by any Tenant, its agents or employees,
shall be paid for by the Tenant. Landlord's approval shall not be unreasonably withheld or
delayed, considering all matters affecting the Building and Premises, including, without
limitation, visibility and re-leaseability, with respect to alterations, improvements, removals,
additions or installations in or to the Premises which are of an aesthetic character and do not
affect life safety, fire sprinkler, heating, ventilation, air conditioning, electrical or plumbing
systems or equipment.
27. All glass, lighting fixtures, locks and trimmings in or upon the doors and windows of the
Premises shall be kept whole and whenever any part thereof shall be broken through cause
attributable to any Tenant, its agents, guests or employees, the same shall promptly be replaced
or repaired at Tenant's expense, and put in order under the direction and to the satisfaction
of Landlord and shall be left whole or in good repair, together with the same number and
kind of keys as may be received by Tenant on entering upon possession of any part of said
Building, or during the tenancy.
28.
29.
The cost of repairing any damage to the public portions of the Building or the public facilities
or to any facilities used in common with other tenants, caused by any Tenant or the employees,
licensees, agents or invitees of the Tenant, shall be paid by such Tenant.
Tenant shall not install any resilient tile or floor covering in the Premises except in a manner
approved by Landlord, which approval shall not be unreasonably withheld. Tenant shall not
remove any carpet, or wall coverings, window blinds, or window draperies in their Premises
without the prior written approval of Landlord.
30. No awnings or other projections shall be attached to the outside walls of the Building or on
or around the windows of the Premises by Tenant without the prior written consent of
Landlord. No curtains, blinds, draperies, shades or screens shall be attached to or hung in,
or used in connection with, any window or door of the Tenant's Premises by Tenant, without
the prior written consent of Landlord. Such awnings, projections, curtains, blinds, draperies,
shades, screens or other fixtures, if consented to by Landlord, must be of a quality, type,
material and color, and attached in the manner approved by Landlord.
Exhibit 10.8
31.
32.
33.
34.
The sashes, sash doors, windows, side glass, glass floors and any lights or skylights that
reflect or admit light into the halls or other places of Building shall not be covered or obstructed
by Tenant without the prior written approval from Landlord.
Tenant shall not have access to the roof of the Building, nor make any installations upon or
through the roof or walls of the Building, without the prior written consent of Landlord.
Tenant shall cooperate fully with the life safety plans of the Building as established and
administered by Landlord, including participation by Tenant and employees of the Tenant in
exit drills, fire inspections, life safety orientations and other programs relating to fire safety
that may be promulgated by Landlord.
The parties recognize Landlord's interest in being free from labor difficulties, strikes,
picketing, or handbilling on or near Premises in which Landlord has a possessory or
reversionary interest. Should such difficulties, strikes, picketing, or handbilling be engaged
in by Tenant's employees or the employees of Tenant's contractors, subcontractors, or agents,
or be caused by the actions or presence of Tenant's employees, contractors, subcontractors,
agents, or their employees, Tenant will take all reasonable steps to restore harmony.
Furthermore, Tenant will be liable for all damages to Landlord occurring as a result of such
difficulties, strikes, picketing or handbilling.
TENANT FLOORS
GARAGE - 52ND FLOOR
Exhibit 10.8
EXHIBIT "F"
Janitorial Specifications
BOK Tower Janitorial Cleaning Specifications
Specifications of cleaning tasks and frequencies to be performed.
TASKS
FREQUENCY
Empty all trash receptacles and remove collected
waste to designated areas. Replace plastic liners as
soiled, or a minimum of once per week - liners to be
furnished by Contractor. Return trash receptacles to
original location.
Dust and spot clean all horizontal surfaces of counter
tops, cleared area of desk tops, chairs, tables, office
equipment, ledges, and heating units, partitions,
filing cabinets and glass tops within reach.
Vacuum all exposed carpeted floor surfaces in
offices, conference rooms, copier rooms, hallways,
aisles, kitchens, restrooms and other high traffic
areas, including edges and under easily moved
furniture.
Spot clean doors, frames, kick and push plates,
handles, light switches and any other obviously
soiled areas for smudges and fingerprints.
Dust mop resilient tile and wood floors; remove
scuffs and debris.
Mop or machine clean marble lobby floors, taking
care to keep grout clean and free of debris.
Dust furniture and work surfaces in conference
rooms, lobbies, and common areas.
Properly position furniture and return to original
location.
Spot clean spills and stains from carpets, tile and
wood floors.
Spot clean all office glass doors and partitions in
elevator lobbies.
Spot clean doors, door frames, wall switches and
counter tops.
Clean sinks, table tops, counter tops, outside of
appliances & trash receptacles in kitchen areas.
Clean spills on walls, trash receptacles, cabinets, etc.
Clean and maintain all janitor closets.
Close all doors, lock where possible.
Call Life Safety to turn off lights when cleaning is
completed.
Damp mop resilient tile floors in kitchen areas with
appropriate cleaning solution.
Dust all desks, work surfaces, chairs, file cabinets,
credenzas, doors, ledges and baseboards.
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
TENANT FLOORS GARAGE -
52ND FLOOR
(CONT.)
-----------
DRINKING FOUNTAINS
ALL FLOORS
REST-ROOMS
ALL FLOORS
Exhibit 10.8
Vacuum all carpeted floor surfaces completely,
including corners and edges
Dust all doors, door louvers and other ventilation
louvers within reach.
Wash out waste receptacles in kitchens, restrooms,
conference rooms, and other common use areas.
Perform floor care on marble and wood floor surfaces
per specific manufacturer recommendations.
Strip, apply finish and buff resilient tile floors.
Vacuum upholstered furniture.
Dust or vacuum all air vents and ceiling tiles adjacent
to air vents.
Dust all picture frames and other wall hangings.
High dust locations exceeding 72" such as door tops,
partitions, high ledges, etc.
Dust blinds in all locations where installed.
Dust walls, doors and other surfaces not dusted on a
monthly basis.
Pile lift carpeting.
Lift chair pads and vacuum or clean as needed.
Clean all light fixtures.
Apply finish and machine polish all non-carpeted
areas.
Fixtures will be cleaned, sanitized and polished to
remove stains, rust and scale with an approved
product.
Clean, sanitize, wipe dry all porcelain fixtures.
Remove rings from around drains.
Clean and polish all chrome fitting and bright work,
including shelves, flushometers and metal dispensers
and receptacles.
Clean and sanitize both sides of all toilet seats.
Clean and polish all mirrors and glass.
Clean and polish all toilet bowls, urinals and sinks
with a disinfecting cleaning solution. Remove all
calcium build up rings from around bowls and
chrome fittings.
Clean and sanitize door handles, push plates, etc. on
entry doors into the restrooms (both sides).
Empty waste receptacles and replace liners.
Empty and sanitize sanitary napkin disposal
receptacles; refill paper liners.
Refill all dispensers including seat covers, hand soap,
hand sanitizers, toilet tissue and paper towels.
Sweep and damp mop tile floors with disinfecting
cleaning solution.
Remove scale from soap pumps, drains, faucets and
fixtures as needed.
Vacuum carpet floors in foyer/lobby area inside
restrooms.
Weekly
Weekly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Quarterly
Quarterly
Quarterly
Semi-Annually
Semi-Annually
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Dust and spot clean toilet partitions and tile walls.
Dust ledges and partitions.
Clean and maintain all janitor closets. No blocking
access into closet area.
Spot clean walls, ledges, sills, counters and doors.
Fill drain traps with water and disinfectant
Perform high dusting, including walls.
Wash/sanitize all walls, doors, partitions, etc.
Wash waste containers.
Machine scrub and buff floors; strip & wax as
necessary.
Vacuum ceiling vents and ceiling tiles adjacent to
vents.
Clean all light fixtures.
Sweep entrances & sidewalks adjacent to building.
Detail all door glass, pulls, push plates, and frames.
Remove trash and debris; where needed
remove gum
or other adhesive material.
Maintain debris free entries
Extract dirt and grime from entrance walk off mats.
Wipe down horizontal entrance ledges.
Wet mop or flush clean exterior entrances.
Clean all metal finishes at entrances.
Wipe tables, chairs and counters. Position chairs
neatly under tables.
Vacuum carpets completely.
Empty trash & replace liners.
Clean/disinfect counters and sinks, remove rings
around drain.
Dust horizontal services.
Sweep & Mop floors, keeping grout free of grime
and debris.
Dust vent covers and blinds.
Dust walls, doors, frames, switches, baseboards.
Marble and Terrazzo Floor Maintenance Programs
will be performed as outlined in Exhibit A, 1.3 of the
Agreement.
Vacuum carpets completely.
Lobbies and entrance floors will be clean and free of
dirt.
Dust all ledges within reach.
Dust all wood paneling.
Dust Visitor Desk.
Clean glass on plasma screen directory.
Spot clean walls as needed.
Clean entrance door glass inside and out.
Vacuum entrance mats.
Spot clean carpet.
Exhibit 10.8
Daily
Daily
Daily
Daily
Weekly
Weekly
Monthly
Monthly
Monthly
Monthly
Semi-Annually
Daily
Daily
Daily
Daily
Daily
Daily
Weekly
Weekly
Daily
Daily
Daily
Daily
Daily
Daily
Monthly
Monthly
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
EXTERIORS AND
ENTRANCES
PLAZA LEVEL
BREAKROOM/VENDING
ENTRANCE LOBBYS &
CORRIDORS
Exhibit 10.8
Empty trash receptacles.
Clean coffee table and chairs at Visitor Desk.
Clean and disinfect public telephone area.
Clean elevator doors, lobby sides.
Dust all wood panels.
Empty and wash trash receptacles.
Extract entrance mats.
Clean all metal at entrances and other areas of
lobbies.
Spot clean walls and doors.
Vacuum ceiling tiles adjacent to ceiling vents.
Clean all light fixtures.
Empty trash & replace liners.
Clean/disinfect counters and sinks, remove rings
around drains.
Sweep & Mop floors, keeping grout free of grime
and debris.
Clean tables, counters, chairs. Position chairs neatly
under tables.
Wipe exterior of cabinets, waste receptacles, and
appliances.
Clean and refill paper towel dispensers.
Dust horizontal services.
Dust vent covers and blinds.
Dust walls, doors, frames, switches, baseboards.
Vacuum and edge carpeting daily.
Clean and polish all metal surfaces of elevators,
interior metal panels, and tracks.
Spot shampoo carpet as necessary.
Clean light fixtures, ceilings and grilles.
Maintain tracks debris free.
Dust all wood panels.
Damp mop service elevator floors.
Clean and disinfect handrails.
Spot Clean glass panels.
Machine clean escalator treads a minimum of once
per week, or more often if needed - (after business
hours).
Inspect and remove debris daily. Sweep as necessary.
Sweep west, north and south stairwells completely.
Dust all handrails from Ground Level to 52nd floor.
Wet mop west, north and south stairwells completely.
Spot clean by damp wiping walls, doors and any
other surfaces.
Clean inside of fire extinguisher cabinets.
Clean light fixtures.
Daily
Daily
Daily
Daily
Weekly
Weekly
Weekly
Weekly
Monthly
Quarterly
Quarterly
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Monthly
Monthly
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Weekly
Daily
Weekly
Weekly
Monthly
Monthly
Quarterly
Semi-Annually
KITCHENS/
BREAKROOMS
(All Floors)
ELEVATORS
TWENTY-SIX (26) PASSENGER
AND TWO (2) SERVICE
ESCALATORS - SIX (6)
EMERGENCY EXIT
STAIRWELLS
Exhibit 10.8
RECYCLING
SERVICE AREAS
Pick up cardboard boxes from all office areas and
take them to designated recycling area.
Keep waste paper, cardboard, rubbish, etc., stored in
approved receptacles/assigned rooms.
Clean floors, walls and doors, etc., as necessary.
Clean all janitor closets at the end of each shift.
Clean around compactor area and service dock.
Perform special assignments as requested.
Sweep and mop resilient tile floors.
Strip, apply finish and buff resilient tile floors on
Service Level.
Dust all pipes, ducts, ventilating grilles, air
conditioning & other accessible equip. outside
machinery spaces.
Daily
Daily
Daily
Daily
Weekly
Weekly
Daily
Monthly
Quarterly
Exhibit 10.8
EXHIBIT "G"
Work Letter
Bank of Oklahoma Tower
THIS WORK LETTER Agreement, entered and agreed to this ______ day of
___________________, 20__, by and between Williams Headquarters Building LLC, a Delaware
limited liability company, hereinafter referred to as "Landlord", and BOKF, NA, a national banking
association, d/b/a Bank of Oklahoma, hereinafter referred to as "Tenant";
WHEREAS, Landlord and Tenant, in conjunction with this Work Letter, have entered into
a certain Lease Agreement (hereinafter referred to as the "Lease"), dated the _____ day of________,
2019, for the "Premises" located on the garage level, service level, ground level, plaza level, plaza
intermediate level, 8th, 9th, 10th, 11th, 12th, 14th, 15th, 16th, 18th, 19th, 22nd, 23rd, and 24th floors
in the Bank of Oklahoma Tower (hereinafter referred to as the "Building") at One Williams Center
in Tulsa, Oklahoma, as such Premises are more particularly described in the Lease; and
WHEREAS, Landlord and Tenant desire to enter into certain agreements regarding the
performance of Alterations;
NOW, THEREFORE, in conjunction with said Lease, Landlord and Tenant hereby agree to
the following:
1.
Tenant acknowledges that it has inspected the Premises and said Premises are being
leased to and are accepted by Tenant in "AS-IS" condition subject to the terms and conditions
contained in paragraph 2 herein.
2.
Tenant, in accordance with Section 13 of the Lease, shall construct certain
improvements to be installed or constructed in or on the Premises (the "Alterations") in accordance
with the Scope of Work attached hereto as Exhibit "F-1" (the "Scope of Work") and in accordance
with any changes in or additions to the Scope of Work requested by Tenant. Tenant shall be
responsible for all costs of the Alterations. Landlord has not agreed to perform any work in the
Premises. All work on the Alterations is subject to the provisions of the Lease.
3.
The "Rent Commencement Date" of the Lease shall be as set forth in Section 1.28 of the
Lease and shall not be extended by reason of delays in completing the Alterations whether by Tenant
or Landlord.
4.
Tenant and Tenant's employees and agents may enter the Premises prior to completion of
the Alterations so that Tenant may do such work ("Tenant's Work") as may be required to make the
Premises ready for Tenant's use and occupancy. Such entry will be upon the condition that Tenant
and its employees, agents, contractors and suppliers shall not interfere with the Alterations in the
Premises or with the work of any other tenant or occupant, if applicable, in the remainder of the
Building. If at any time such entry shall cause or threaten to cause such disharmony or interference,
Landlord shall have the right to prevent Tenant and Tenant's employees entering the Premises upon
12 hours written notice to Tenant. Tenant agrees that any such entry or occupation of the Premises
Exhibit 10.8
shall be governed by all of the terms, covenants, conditions and provisions of the Lease, and further
agrees that Landlord shall not be liable in any way for injury, loss or damage which may occur to
any of Tenant's Work, the Alterations or installations made in such Premises, or to any personal
property placed therein, the same being at Tenant's sole risk.
5.
Tenant shall carry and maintain and cause its contractors to carry and maintain at all times
during the term of this Work Letter and the performance of the work, at no expense to Landlord,
insurance as required by the Lease. A certificate of insurance evidencing the foregoing insurance
shall be delivered to Landlord before Tenant's Work is started and before any contractor's equipment
is moved onto any part of the Building or area adjacent to the Building.
Tenant shall not employ any contractor unless previously approved in writing by Landlord,
6.
which approval shall not be unreasonably withheld or delayed. Contracts between Tenant and
contractors shall require each contractor, to the extent of the work to be performed by the contractor,
to be bound to Tenant by the terms of the Lease and this Work Letter, and to assume toward Tenant
all of the obligations and responsibilities which Tenant, by the Lease, assumes toward Landlord,
but in all cases only to the extent reasonably applicable thereto.
Each contractor and subcontractor participating in the Alterations or Tenant's Work shall
7.
obtain prior written approval from Landlord, which approval shall not be unreasonably withheld
or delayed, for any space within the Building which such contractor or subcontractor desires to use
for storage, handling and moving of his materials and equipment; in no event shall this paragraph
be considered as a commitment of Landlord to provide Tenant, its contractors or subcontractors,
any storage facilities outside of the Premises.
Tenant shall cause each of Tenant's contractors and subcontractors participating in the
8.
Alterations or Tenant's Work to remove and dispose of, at least once a day or more frequently as
Landlord may direct, all debris and rubbish caused by or resulting from the construction of the
Alterations or Tenant's Work and, upon completion of the Alterations and Tenant's Work, to remove
all temporary structures, surplus materials, debris and rubbish of whatever kind remaining in the
Building, which has been brought in or created by the contractors and subcontractors in the
construction of the Alterations and Tenant's Work.
Tenant's contractors and subcontractors shall cause their employees and agents to enter and
9.
exit the Building via the entrance and elevators designated by Landlord. All materials, supplies
and equipment shall be brought into the Building at times reasonably approved by Landlord.
10.
Tenant shall cause each of Tenant's contractors and subcontractors to maintain continuous
protection of adjacent premises in the Building in such manner as to prevent any damage to such
adjacent property by reason of the performance of the Alterations and Tenant Work.
11.
The performance of the Alterations and Tenant Work shall be coordinated with all work
being performed or to be performed by Landlord and other tenants of the Building, to such extent
that such performance will not interfere with or delay the completion of any such work in the
Building. Tenant's contractor or subcontractor shall not at any time damage, injure, interfere with
or delay any other construction within the project, and they and each of them shall comply with all
procedures and regulations reasonably prescribed by Landlord.
Exhibit 10.8
In connection with the Tenant Work, Tenant shall file all drawings, plans and specifications,
12.
pay all fees and obtain all permits and applications from the City of Tulsa and County of Tulsa, the
Department of Labor and any other authorities which may have jurisdiction. Tenant shall promptly
provide to Landlord (and in no event later than ten (10) business days after written request therefore
by Landlord) copies of all building permits and certificates of occupancy issued to Tenant from any
of the foregoing jurisdictions. Landlord shall use commercially reasonable efforts to cooperate
with Tenant to the extent required to obtain such permits and certificates.
Capitalized terms used in this Work Letter and not otherwise defined shall have the meaning
13.
given in the Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Work Letter to be executed
by their respective representatives thereunto duly authorized, as of the date first above written.
LANDLORD:
WILLIAMS HEADQUARTERS BUILDING LLC
By:
Print:
Title:
TENANT:
BOKF, NA, d/b/a Bank of Oklahoma
By:
Print: Michael D. Nalley, CCIM, CPM, RPA
Title: Senior Vice President
Director Corporate Real Estate
Date:_______________________
Date:_______________________
Exhibit 10.8
LANDLORD ACKNOWLEDGMENT:
STATE OF OKLAHOMA
COUNTY OF TULSA
)
) ss:
)
This instrument was acknowledged before me on this ______ day of ______________,
of Williams Headquarters Building LLC, a Delaware
2019, by_______________ as
limited liability company.
Notary Public
My Commission No. ___________
Expires:
_____________________________
[Seal]
TENANT ACKNOWLEDGMENT:
STATE OF OKLAHOMA
COUNTY OF TULSA
)
) ss:
)
This instrument was acknowledged before me on this ______ day of _______________,
2019, by Michael D. Nalley as Senior Vice President and Director of Corporate Real Estate of
BOKF, NA, a national banking association, d/b/a Bank of Oklahoma.
Notary Public
My Commission No. ___________
Expires:
_____________________________
[Seal]
Exhibit 10.8
EXHIBIT "H"
Kiosk License Premises
[See attached.]
Exhibit 10.8.1
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "First Amendment"), is made
and entered into effective as of the 8th day of November, 2019, by and between WILLIAMS
HEADQUARTERS BUILDING LLC, a Delaware corporation ("Landlord"), and BOKF, NA, a national
banking association, d/b/a Bank of Oklahoma ("Tenant").
RECITALS
A.
Landlord is the owner of the Bank of Oklahoma Tower located at One Williams Center,
101 East 2nd, Tulsa, Oklahoma 74103 (the "Building").
B.
Landlord and Tenant are parties to a certain Lease Agreement dated as of July 1, 2019
(the "Lease"), pursuant to which Landlord leases to Tenant the Premises, as more particularly defined
in the Lease.
C.
Pursuant to that certain Podium Engineering Study, as more particularly described in
the Lease, Landlord and Tenant have agreed to adjust the Net Base Rent Per Square Foot for Existing
Premises, subject to the terms and conditions contained in the Lease and this First Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby amend the Lease as follows:
1.
Definitions. Capitalized terms used but not defined herein (including in the Recitals
hereto) shall have the meaning assigned them in the Lease. In addition, the following term contained
in Article I of the Lease is hereby replaced in its entirety as follows:
1.19 Net Base Rent Per Square Foot for Existing Premises: The Net Base Rent Per Square
Foot for Existing Premises is $10.16. Pursuant to the Lease and the Podium Engineering Study
described therein, the Net Base Rent Per Square Foot for Existing Premises shall be $10.16
commencing on the Effective Date defined in the Lease. Any required retroactive adjustments
or true-ups shall be made by Landlord as necessary, including, but not limited to, adjustments
to invoices for the Net Base Rent for Existing Premises, and adjustments to invoices for the
Additional and After-Hours Services pursuant to Section 8.2 to include the Above Standard
Utilities for the Podium Floors.
2.
Full Force and Effect. Except as set forth in this First Amendment, the terms, provisions
and conditions set forth in the Lease shall remain unmodified and in full force and effect. In case of a
conflict between the Lease and this First Amendment, the terms of this First Amendment shall control.
3.
Multiple Counterparts. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original copy of this First Amendment and all of which
together shall be deemed to constitute one and the same agreement.
Exhibit 10.8.1
4.
Entire Agreement. This First Amendment sets forth all covenants, agreements and
understandings between Landlord and Tenant with respect to the subject matter hereof. There are no
other covenants, conditions or understandings, either written or oral, between the parties hereto with
respect to the subject matter hereof, except as set forth herein and in the Lease.
[Signatures on Following Page]
2
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this First Amendment effective
as of the date first above written.
Exhibit 10.8.1
"Landlord"
WILLIAMS HEADQUARTERS BUILDING LLC,
a Delaware limited liability company
By: /s/ Peter S. Burgess
Name: Peter S. Burgess
Title: V.P. Treasury & Insurance
"Tenant"
BOKF, NA,
a national banking association, d/b/a Bank of Oklahoma
By: /s/ Michael D. Nalley
Name: Michael D. Nalley, CCIM, CPM, RPA
Title: SVP, Director, Corporate Real Estate
3505774.5
First Amendment Signature Page
Exhibit 21
BOK FINANCIAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Banking Subsidiaries
BOKF, National Association (1)
Other subsidiaries of BOK Financial Corporation
BOK Capital Service Corporation
BOKF Capital Corporation
BOKF-CC (Collision Works), LLC
BOKF-CC (FSE), LLC
BOKF-CC (O2 Concepts), LLC
BOKF-CC (MCA), LLC
BOKF-CC (QRC), LLC
BOKF-CC (Switchgrass), LLC
BOKFCC Merchant Banking Fund I, LLC
BOKF Energy Fund Investment I, LLC
BOKF Equity, LLC
BOKF Private Equity Limited Partnership II
BOK Financial Insurance, Inc. (7)
BOK Financial Private Wealth, Inc. (5)
BOK Financial Securities, Inc.
Cavanal Hill Distributors, Inc.
CoBiz Risk Management, Inc. (8)
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.
AWREI, Inc. (7)
BancOklahoma Agri-Service Corporation
BOK Delaware, Inc. (3)
BOK Financial Asset Management, Inc. (2)
BOK Financial Equipment Finance, Inc.
BOK Financial Public Finance, Inc. (7)
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)
Cavanal Hill Investment Management, Inc.
Cottonwood Valley Ventures, Inc.
CVV Management, Inc.
CVV Partnership, an Oklahoma General Partnership
Oklahoma New Markets Fund I, LLC
Western Real Estate Investors, Inc. (7)
All Subsidiaries listed above were incorporated in Oklahoma, except as noted.
(1) Chartered by the United States Government
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Incorporated in Texas
Incorporated in Delaware
Incorporated in New Mexico
Incorporated in Colorado
Incorporated in Kansas
Incorporated in Colorado
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 February 27, 2020, 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, 2019.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 27, 2020
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: February 27, 2020
/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
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;
Exhibit 31.2
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: February 27, 2020
/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, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we,
Steven G. Bradshaw and Steven E. Nell, Chief Executive Officer and Chief Financial Officer, respectively, of BOK Financial,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of BOK Financial as of, and for, the periods presented.
February 27, 2020
/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
A FAMILY OF BRANDS
BOK Financial has a long-time commitment to serving customers and communities throughout the United
States. It provides a wide array of banking, fiduciary and investment services through our regional bank
brands, a broker dealer, four registered investment advisor firms and an electronic funds network.
FULL SERVICE BANKING MARKETS
Kansas
Albuquerque
Missouri
Arizona
Oklahoma
Arkansas
Texas
Colorado
ADDITIONAL WEALTH MANAGEMENT OFFICES
Lincoln, NE
Milwaukee, WI
Stamford, CT
BANKING:
WEALTH MANAGEMENT:
TRANSACTION AND PAYMENT PROCESSING:
MORTGAGE:
Steven G. Bradshaw
President and Chief Executive Officer
Bank of Oklahoma Tower • P.O. Box 2300 Tulsa, Oklahoma 74192
918.588.6000 • www.bokf.com
GE-BA-7010