UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One) 
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ______________                 

Commission File No. 0-19341

BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)  
Oklahoma
 
73-1373454
(State or other jurisdiction
of Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
 
Bank of Oklahoma Tower
 
 
Boston Avenue at Second Street
 
 
Tulsa, Oklahoma
 
74192
(Address of Principal Executive Offices)
 
(Zip Code)
 
(918) 588-6000
(Registrant’s telephone number, including area code)

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 Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer   ý                                                Accelerated filer           ¨                                    
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)    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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 65,456,786 shares of common stock ($.00006 par value) as of September 30, 2017 .




BOK Financial Corporation
Form 10-Q
Quarter Ended September 30, 2017

Index

Part I.  Financial Information
Management’s Discussion and Analysis (Item 2)        
Market Risk (Item 3)                                                                                              
Controls and Procedures (Item 4)
Consolidated Financial Statements – Unaudited (Item 1)
Quarterly Financial Summary – Unaudited (Item 2)
Quarterly Earnings Trend – Unaudited
 
 
Part II.  Other Information
Item 1.  Legal Proceedings
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.  Exhibits
Signatures



Management’s Discussion and Analysis of Financial Condition and Results of Operations
Performance Summary

BOK Financial Corporation (“the Company”) reported net income of $85.6 million or $1.31 per diluted share for the third quarter of 2017 , compared to $74.3 million or $1.13 per diluted share for the third quarter of 2016 and $88.1 million or $1.35 per diluted share for the second quarter of 2017 . 

Highlights of the third quarter of 2017 included:
•
Net interest revenue totaled $218.5 million , up from $187.8 million in the third quarter of 2016 and $205.2 million in the second quarter of 2017 . The increase in net interest revenue over the prior year was driven by both improving yields and growth in average earning assets. Net interest margin was 3.01 percent for the third quarter of 2017 . Recoveries of foregone interest primarily related to nonaccruing energy loans added 6 basis points to the net interest margin for the third quarter. Net interest margin was 2.64 percent for the third quarter of 2016 and 2.89 percent for the second quarter of 2017 . Average earning assets were $29.6 billion for the third quarter of 2017 compared to $29.1 billion for the third quarter of 2016 .
•
Fees and commissions revenue totaled $173.5 million , a $7.8 million decrease compared to the third quarter of 2016 , primarily due to a $13.6 million decrease in mortgage banking revenue. This decrease was partially offset by growth in fiduciary and asset management revenue. Fees and commissions revenue decrease d $4.0 million compared to the second quarter of 2017 , primarily due to mortgage banking revenue. Increased transaction card revenue and brokerage and trading revenue was partially offset by lower fiduciary and asset management revenue and other revenue.
•
Other operating expense totaled $265.9 million , up $ 7.8 million over the third quarter of 2016 . Personnel expense increase d $8.7 million , primarily due to $5.9 million of equity compensation charges caused by changes in the probability that certain performance-based equity awards will vest and growth in BOKF's stock price. Other operating expense increase d $15.0 million over the previous quarter. Personnel expense was up $4.2 million . Non-personnel expense increase d $10.9 million . Deposit insurance expense for the second quarter of 2017 included $5.1 million in credits related to the revision of certain inputs to the assessment calculation filed in previous periods. Net losses and operating expenses of repossessed assets was up $3.8 million over the prior quarter primarily due to a $4.7 million write-down of one set of repossessed oil and gas properties.
•
No provision for credit losses was recorded in the third quarter of 2017 or the second quarter of 2017 . A $10.0 million provision for credit losses was recorded in the third quarter of 2016 . Gross charge-offs were $5.8 million in the third quarter of 2017 , $8.1 million in the third quarter of 2016 and $2.9 million in the second quarter of 2017 . Recoveries were $2.4 million in the third quarter of 2017 , compared to $2.0 million in the third quarter of 2016 and $1.2 million in the second quarter of 2017 .
•
The combined allowance for credit losses totaled $253 million or 1.47 percent of outstanding loans at September 30, 2017 , compared to $256 million or 1.49 percent of outstanding loans at June 30, 2017 . 
•
Nonperforming assets that are not guaranteed by U.S. government agencies totaled $249 million or 1.46 percent of outstanding loans and repossessed assets at September 30, 2017 and $276 million or 1.62 percent of outstanding loans and repossessed assets at June 30, 2017 . The decrease in nonperforming assets was primarily due to nonaccruing energy loans.
•
Average loans were largely unchanged compared to the previous quarter. Period-end outstanding loan balances were $17.2 billion at September 30, 2017 , an increase of $23 million over June 30, 2017 .
•
Average deposits were largely unchanged compared to the previous quarter. Growth in demand deposit balances was offset by decreased time deposit balances. Period-end deposits were $21.8 billion at September 30, 2017 , a $468 million decrease compared to June 30, 2017 .
•
The Company's common equity Tier 1 ratio was 11.90% at September 30, 2017 . In addition, the Company's Tier 1 capital ratio was 11.90% , total capital ratio was 13.47% and leverage ratio was 9.30% at September 30, 2017 . The Company's common equity Tier 1 ratio was 11.76% at June 30, 2017 . In addition, the Company's Tier 1 capital ratio was 11.76% , total capital ratio was 13.36% and leverage ratio was 9.27% at June 30, 2017 .

- 1 -


•
The Company paid a regular quarterly cash dividend of $29 million or $0.44 per common share during the third quarter of 2017 . On October 31, 2017 , the board of directors approved an increase in the regular quarterly cash dividend to $0.45 per common share payable on or about November 27, 2017 to shareholders of record as of November 13, 2017 .
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.

Net interest revenue totaled $218.5 million for the third quarter of 2017 , up from $187.8 million in the third quarter of 2016 and $205.2 million in the second quarter of 2017 . Net interest margin was 3.01 percent for the third quarter of 2017 , 2.64 percent for the third quarter of 2016 and 2.89 percent for the second quarter of 2017 . Approximately $4.7 million of foregone interest recoveries primarily related to nonaccruing energy loans added 6 basis points to the net interest margin for the third quarter of 2017 . Interest recoveries from nonaccruing loans were not significant for the third quarter of 2016 and second quarter of 2017 . This impact is excluded from the discussion following.

Tax-equivalent net interest revenue increase d $30.5 million over the third quarter of 2016 . Table 1 shows the effect on net interest revenue from changes in average balances and interest rates for various types of earning assets and interest-bearing liabilities. Changes in interest rates and yields increased net interest revenue by $19.1 million . The benefit of an increase in short-term interest rates on the floating-rate earning assets was partially offset by higher borrowing costs. Tax-equivalent net interest revenue increased $11.3 million . Growth in the average balances of loans, fair value option securities and trading securities was partially offset by decreases in available for sale securities and residential mortgage loans held for sale.

Excluding the impact of net interest recoveries in the third quarter of 2017, the tax-equivalent yield on earning assets was 3.44 percent, up 51 basis points over the third quarter of 2016 , primarily due to increases in short-term interest rates resulting from three 25 basis point increases in the federal funds rate by the Federal Reserve. Loan yields increased 57 basis points to 4.20 percent. The yield on interest-bearing cash and cash equivalents increase d 78 basis points. The available for sale securities portfolio yield was up 16 basis points to 2.17 percent . The yield on the fair value option securities portfolio increased 127 basis points primarily related to a change in the mix of securities and an increase in average rates. Funding costs were up 31 basis points over the third quarter of 2016 . Growth in the cost of interest-bearing deposits was limited to 13 basis points by a lack of market pricing pressure. The cost of other borrowed funds increased 70 basis points . The cost of the subordinated debt was up 184 basis points as higher fixed rate debt issued in the second quarter of 2016 replaced lower variable rate debt paid off in third quarter of 2016. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 26 basis points for the third quarter of 2017 , up 11 basis points over the third quarter of 2016 . Average non-interest bearing deposits comprised 28% of total liabilities and equity for the third quarter of 2017 , up from 26% for the third quarter of 2016 .

Average earning assets for the third quarter of 2017 increased $559 million or 2 percent over the third quarter of 2016 , including $482 million related to the Mobank acquisition in the fourth quarter of 2016. Average loans, net of allowance for loan losses, increased $806 million due primarily to growth in commercial and personal loans, partially offset by lower commercial real estate loan balances. Loan growth included $482 million related to the Mobank acquisition. Fair value option securities held as an economic hedge of our mortgage servicing rights increased $418 million . The average balance of trading securities increase d $125 million primarily due to expansion of U.S. agency residential mortgage-backed securities trading activities. Available for sale securities decreased $434 million . The average balance of residential mortgage loans held for sale decrease d $190 million . Interest-bearing cash and cash equivalents decrease d $82 million and investment securities decrease d $77 million .


- 2 -


Average deposits increased $1.4 billion over the third quarter of 2016 , including $514 million from the Mobank acquisition. Demand deposit balances grew by $893 million , including $248 million from Mobank. Interest-bearing transaction account balances increase d $438 million , including $233 million from Mobank. Savings account balances also grew over the prior year and time deposit balances were largely unchanged. Average borrowed funds decreased $360 million compared to the third quarter of 2016 , primarily due to decreased borrowings from the Federal Home Loan Banks and lower average repurchase agreement balances. The average balance of subordinated debentures decreased $111 million .

Excluding the impact of net interest recoveries in the third quarter of 2017, net interest margin increase d 6 basis points over the second quarter of 2017 . The yield on average earning assets increase d 14 basis points. The loan portfolio yield increase d by 17 basis points primarily due to increases in the 30 day and 90 day LIBOR. The yield on the available for sale securities portfolio increase d 6 basis point s. The yield on interest-bearing cash and cash equivalents increase d 25 basis points. Funding costs were 0.75 percent , up 12 basis point s over the prior quarter. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities increase d 4 basis points over the prior quarter.
Average earning assets increase d $395 million compared to the second quarter of 2017 . Fair value option securities held as an economic hedge of our mortgage servicing rights increase d $208 million . Average loan balances grew by $127 million . Available for sale securities increase d $44 million , trading securities increase d $36 million and restricted equity securities were up $33 million over the prior quarter. These increases were partially offset by a $42 million decrease in average interest-bearing cash and cash equivalents balances.
Average deposits increase d $27 million over the previous quarter. Demand deposit balances increase d $51 million , partially offset by a $28 million decrease in time deposit balances. Interest-bearing transaction account balances were largely unchanged compared to the prior quarter. The average balance of borrowed funds increase d $511 million over the second quarter of 2017 primarily due to increased borrowings from the Federal Home Loan Banks, partially offset by lower average repurchase agreement balances.

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. Approximately 81% of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will reprice within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that reprice more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that assets generally reprice more quickly than liabilities. One of the strategies that we use to manage toward a relative rate-neutral position is to 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 1 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.

- 3 -


Table 1 -- Volume/Rate Analysis
(In thousands)
 
 
Three Months Ended
September 30, 2017 / 2016
 
Nine Months Ended
September 30, 2017 / 2016
 
 
 
 
Change Due To 1
 
 
 
Change Due To 1
 
 
Change
 
Volume
 
Yield/Rate
 
Change
 
Volume
 
Yield/Rate
Tax-equivalent interest revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
3,724

 
$
(204
)
 
$
3,928

 
$
7,891

 
$
(172
)
 
$
8,063

Trading securities
 
965

 
3,813

 
(2,848
)
 
8,349

 
12,645

 
(4,296
)
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
(58
)
 
(40
)
 
(18
)
 
(358
)
 
(246
)
 
(112
)
Tax-exempt securities
 
(201
)
 
(452
)
 
251

 
(413
)
 
(1,058
)
 
645

Total investment securities
 
(259
)
 
(492
)
 
233

 
(771
)
 
(1,304
)
 
533

Available for sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
2,066

 
(1,536
)
 
3,602

 
(364
)
 
(4,819
)
 
4,455

Tax-exempt securities
 
(301
)
 
(275
)
 
(26
)
 
(586
)
 
(771
)
 
185

Total available for sale securities
 
1,765

 
(1,811
)
 
3,576

 
(950
)
 
(5,590
)
 
4,640

Fair value option securities
 
3,535

 
1,881

 
1,654

 
4,803

 
2,532

 
2,271

Restricted equity securities
 
316

 
(168
)
 
484

 
850

 
(294
)
 
1,144

Residential mortgage loans held for sale
 
(1,520
)
 
(1,597
)
 
77

 
(3,506
)
 
(3,641
)
 
135

Loans
 
37,429

 
8,320

 
29,109

 
86,798

 
24,936

 
61,862

Total tax-equivalent interest revenue
 
45,955

 
9,742

 
36,213

 
103,464

 
29,112

 
74,352

Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
 
4,645

 
211

 
4,434

 
9,719

 
816

 
8,903

Savings deposits
 
(10
)
 
5

 
(15
)
 
(23
)
 
36

 
(59
)
Time deposits
 
83

 
(43
)
 
126

 
(1,541
)
 
(659
)
 
(882
)
Funds purchased
 
83

 
(26
)
 
109

 
134

 
(92
)
 
226

Repurchase agreements
 
87

 
(37
)
 
124

 
26

 
(62
)
 
88

Other borrowings
 
11,000

 
(384
)
 
11,384

 
21,439

 
(1,190
)
 
22,629

Subordinated debentures
 
(398
)
 
(1,331
)
 
933

 
2,042

 
(2,823
)
 
4,865

Total interest expense
 
15,490

 
(1,605
)
 
17,095

 
31,796

 
(3,974
)
 
35,770

Tax-equivalent net interest revenue
 
30,465

 
11,347

 
19,118

 
71,668

 
33,086

 
38,582

Change in tax-equivalent adjustment
 
(141
)
 
 
 
 
 
(140
)
 
 
 
 
Net interest revenue
 
$
30,606

 
 
 
 
 
$
71,808

 
 
 
 
1  
Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.

- 4 -


Other Operating Revenue

Other operating revenue was $175.7 million for the third quarter of 2017 , an $11.6 million decrease compared to the third quarter of 2016 and a $6.5 million decrease compared to the second quarter of 2017 . Fees and commissions revenue decrease d $7.8 million compared to the third quarter of 2016 and decrease d $4.0 million compared to the prior quarter. The change in the fair value of mortgage servicing rights, net of economic hedges, increase d other operating revenue by $1.0 million in the third quarter of 2017 , increase d other operating revenue by $1.2 million in the third quarter of 2016 and decrease d other operating revenue $1.7 million in the second quarter of 2017 .

Table 2 – Other Operating Revenue  
(In thousands)
 
 
Three Months Ended
September 30,
 
Increase (Decrease)
 
% Increase (Decrease)
 
Three Months Ended
June 30, 2017
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
2017
 
2016
 
 
 
 
 
Brokerage and trading revenue
 
$
33,169

 
$
38,006

 
$
(4,837
)
 
(13
)%
 
$
31,764

 
$
1,405

 
4
 %
Transaction card revenue
 
37,826

 
33,933

 
3,893

 
11
 %
 
35,296

 
2,530

 
7
 %
Fiduciary and asset management revenue
 
40,687

 
34,073

 
6,614

 
19
 %
 
41,808

 
(1,121
)
 
(3
)%
Deposit service charges and fees
 
23,209

 
23,668

 
(459
)
 
(2
)%
 
23,354

 
(145
)
 
(1
)%
Mortgage banking revenue
 
24,890

 
38,516

 
(13,626
)
 
(35
)%
 
30,276

 
(5,386
)
 
(18
)%
Other revenue
 
13,670

 
13,080

 
590

 
5
 %
 
14,984

 
(1,314
)
 
(9
)%
Total fees and commissions revenue
 
173,451

 
181,276

 
(7,825
)
 
(4
)%
 
177,482

 
(4,031
)
 
(2
)%
Other gains (losses), net
 
(1,283
)
 
2,442

 
(3,725
)
 
N/A

 
6,108

 
(7,391
)
 
N/A

Gain on derivatives, net
 
1,033

 
2,226

 
(1,193
)
 
N/A

 
3,241

 
(2,208
)
 
N/A

Gain (loss) on fair value option securities, net
 
661

 
(3,355
)
 
4,016

 
N/A

 
1,984

 
(1,323
)
 
N/A

Change in fair value of mortgage servicing rights
 
(639
)
 
2,327

 
(2,966
)
 
N/A

 
(6,943
)
 
6,304

 
N/A

Gain on available for sale securities, net
 
2,487

 
2,394

 
93

 
N/A

 
380

 
2,107

 
N/A

Total other operating revenue
 
$
175,710

 
$
187,310

 
$
(11,600
)
 
(6
)%
 
$
182,252

 
$
(6,542
)
 
(4
)%
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.

Fees and commissions revenue

Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 44 percent of total revenue for the third quarter of 2017 , excluding provision for credit losses and gains and losses on other assets, 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 that cause net interest revenue compression such as falling interest rates may also drive growth in our mortgage banking revenue. We expect growth in other operating revenue to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

Brokerage and trading revenue, which includes revenues from trading, customer hedging, retail brokerage and investment banking, decrease d $4.8 million or 13 percent compared to the third quarter of 2016 . 

Trading revenue includes net realized and unrealized gains primarily related to sales of U.S. government securities, residential mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers and related derivative instruments. Trading revenue was $11.9 million for the third quarter of 2017 , a $98 thousand or 1 percent decrease compared to the third quarter of 2016 . 


- 5 -


Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Derivative Programs in Note 3 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Customer hedging revenue totaled $10.5 million for the third quarter of 2017 , a $3.2 million or 23 percent decrease compared to the third quarter of 2016 primarily attributed to decreased activity related to our mortgage banking customers.

Revenue earned from retail brokerage transactions decrease d $1.7 million or 25 percent compared to the third quarter of 2016 to $5.2 million . Retail brokerage revenue includes 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 product type. The implementation of the new Department of Labor ("DOL") fiduciary rule in the second quarter of 2017 has negatively impacted retail brokerage revenue. New regulation issued by the DOL amended the definition of investment advice under the Employee Retirement Income Security Act ("ERISA"). The new rule is designed to provide better protection to plans, participants, beneficiaries and individual retirement account ("IRA") owners against conflicts of interest, imprudence and disloyalty.

Investment banking revenue, which includes fees earned upon completion of underwriting and financial advisory services and loan syndication fees, totaled $5.5 million for the third quarter of 2017 , a $214 thousand or 4 percent increase over the third quarter of 2016 . Investment banking revenue is primarily related to the timing and volume of completed transactions.

Brokerage and trading revenue increase d $1.4 million over the second quarter of 2017 , primarily due to increases of $1.8 million in trading revenue and $1.5 million in investment banking revenue, partially offset by a decrease of $1.1 million in customer hedging revenue.

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 for the third quarter of 2017 increase d $3.9 million or 11.5 percent , including a $2.1 million early termination penalty, over the third quarter of 2016 . Excluding the penalty, TransFund revenue was up $1.0 million or 5.3 percent. TransFund electronic funds transfer ("EFT") network revenue totaled $20.8 million , up $3.1 million or 17.3 percent over the prior year. Merchant services fees totaled $12.0 million , a $712 thousand or 6 percent increase . Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the Company totaled $5.0 million , an increase of $114 thousand or 2 percent .
Transaction card revenue increase d $2.5 million over the prior quarter, primarily due to a customer early termination fee in the third quarter of 2017 .

Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing transactions or providing related services. Approximately 80 percent of fiduciary and asset management revenue is primarily based on the fair value of assets. Rates applied to asset values vary based on the nature of the relationship. Fiduciary relationships and managed asset relationships generally have higher fee rates than non-fiduciary and/or managed relationships.
 
Fiduciary and asset management revenue grew by $6.6 million or 19 percent over the third quarter of 2016 , primarily due to growth in assets under management, improved pricing discipline and decreased fee waivers.

Fiduciary and asset management revenue decrease d $1.1 million compared to the second quarter of 2017 . The annual assessment of tax preparation fees added $1.0 million in the second quarter of 2017 .


- 6 -


A distribution of assets under management or administration and related fiduciary and asset management revenue follows:

Table 3 -- Assets Under Management or Administration
 
Three Months Ended
September 30,
 
2017
 
2016
 
Balance
 
Revenue 1
 
Margin 2
 
Balance
 
Revenue 1
 
Margin 2
Managed fiduciary assets:
 
 
 
 
 
 
 
 
 
 
 
Personal
$
7,611,265

 
$
21,299

 
1.12
%
 
$
7,502,577

 
$
19,521

 
1.04
%
Institutional
12,747,679

 
5,585

 
0.18
%
 
11,732,295

 
4,366

 
0.15
%
Total managed fiduciary assets
20,358,944

 
26,884

 
0.53
%
 
19,234,872

 
23,887

 
0.50
%
 
 
 
 
 
 
 
 
 
 
 
 
Non-managed assets:
 
 
 
 
 
 
 
 
 
 
 
Fiduciary
24,818,241

 
13,214

 
0.21
%
 
23,164,851

 
9,692

 
0.17
%
Non-fiduciary
16,458,382

 
589

 
0.01
%
 
17,289,854

 
494

 
0.01
%
Safekeeping and brokerage assets under administration
16,015,342

 
—

 
—
%
 
15,584,153

 
—

 
—
%
Total non-managed assets
57,291,965

 
13,803

 
0.10
%
 
56,038,858

 
10,186

 
0.07
%
 
 
 
 
 
 
 
 
 
 
 
 
Total assets under management or administration
$
77,650,909

 
$
40,687

 
0.21
%
 
$
75,273,730

 
$
34,073

 
0.18
%
1  
Fiduciary and asset management revenue includes asset-based and other fees associated with the assets.
2  
Annualized revenue divided by period-end balance.

A summary of changes in assets under management or administration for the three months ended September 30, 2017 and 2016 follows:

Table 4 -- Changes in Assets Under Management or Administration
 
 
Three Months Ended
September 30,
 
 
2017
 
2016
Beginning balance
 
$
77,811,762

 
$
73,001,516

Net inflows (outflows)
 
(1,781,037
)
 
870,819

Net change in fair value
 
1,620,184

 
1,401,395

Ending balance
 
$
77,650,909

 
$
75,273,730


Deposit service charges and fees were $23.2 million for the third quarter of 2017 , a decrease of $459 thousand or 2 percent compared to the third quarter of 2016 . Commercial account service charge revenue totaled $11.8 million , up $400 thousand or 4 percent . Overdraft fees were $9.7 million , an $895 thousand or 8.5 percent decrease compared to the third quarter of 2016 . Service charges on deposit accounts with a standard monthly fee were $1.7 million , an increase of $33 thousand or 2 percent . Deposit service charges and fees decrease d $145 thousand compared to the prior quarter.

Mortgage banking revenue decrease d $13.6 million or 35 percent compared to the third quarter of 2016 . Mortgage production revenue decrease d $13.6 million . Mortgage loan production volumes decrease d $725 million , including a $539 million decrease related to the Company's strategic decision to exit the correspondent lending channel during the third quarter of 2016. Production volumes in the retail channel decreased compared to the prior year as average primary mortgage interest rates were up 43 basis points over the third quarter of 2016 . Gain on sale margin decrease d 41 basis points compared to the prior year. The margin decrease was primarily due to market pricing pressure. Mortgage servicing revenue was relatively consistent compared to the third quarter of 2016 . The outstanding principal balance of mortgage loans serviced for others totaled $22.1 billion , an increase of $212 million or 1 percent .

- 7 -


Mortgage banking revenue decrease d $5.4 million compared to the second quarter of 2017 . Mortgage production revenue decrease d $5.5 million . Production volume decrease d $78 million primarily due to increased competition. Gain on sale margin decreased due to increased market pricing pressure. Revenue from mortgage loan servicing increase d $125 thousand over the prior quarter.

Table 5 – Mortgage Banking Revenue  
(In thousands)
 
 
Three Months Ended
September 30,
 
Increase (Decrease)
 
% Increase (Decrease)
 
Three Months Ended
June 30, 2017
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
2017
 
2016
 
 
 
 
Mortgage production revenue
 
$
8,329

 
$
21,958

 
$
(13,629
)
 
(62
)%
 
$
13,840

 
$
(5,511
)
 
(40
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans funded for sale
 
$
832,796

 
$
1,864,583

 


 


 
$
902,978

 
 
 
 
Add: Current period end outstanding commitments
 
334,337

 
630,804

 
 
 
 
 
362,088

 
 
 
 
Less: Prior period end outstanding commitments
 
362,088

 
965,631

 
 
 
 
 
381,732

 
 
 
 
Total mortgage production volume
 
$
805,045

 
$
1,529,756

 
$
(724,711
)
 
(47
)%
 
$
883,334

 
$
(78,289
)
 
(9
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loan refinances to mortgage loans funded for sale
 
38
%
 
51
%
 
(1,300
) bps
 
 
 
33
%
 
500
 bps
 
 
Gains on sale margin
 
1.03
%
 
1.44
%
 
(41
) bps
 
 
 
1.57
%
 
(54
) bps
 
 
Primary mortgage interest rates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
 
3.88
%
 
3.45
%
 
43
 bps
 
 
 
3.98
%
 
(10
) bps
 
 
Period end
 
3.83
%
 
3.42
%
 
41
 bps
 
 
 
3.88
%
 
(5
) bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing revenue
 
$
16,561

 
$
16,558

 
$
3

 
—
 %
 
$
16,436

 
$
125

 
1
 %
Average outstanding principal balance of mortgage loans serviced for others
 
22,079,177

 
21,514,962

 
564,215

 
3
 %
 
22,055,127

 
24,050

 
—
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average mortgage servicing revenue rates
 
0.30
%
 
0.31
%
 
(1
) bp
 
 
 
0.30
%
 
—

 
 
1  
Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

Primary rates disclosed in Table 5 above represent rates generally available to borrowers on 30 year conforming mortgage loans.

Net gains on other assets, securities and derivatives

Other net losses totaled $1.3 million in the third quarter of 2017 , which includes a $1.1 million write-down related to recent tornado damage. Other net gains totaled $6.1 million in the second quarter of 2017 due to the sale of a merchant banking investment.

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 benefit of the changes in fair value of mortgage servicing rights and related economic hedges was $3.6 million in the third quarter of 2017 , including a $639 thousand decrease in the fair value of mortgage servicing rights, offset by a $1.7 million increase in the fair value of securities and derivative contracts held as an economic hedge and $2.5 million of related net interest revenue.

The net economic benefit of changes in the fair value of mortgage servicing rights and related economic hedges was $2.1 million for the third quarter of 2016 . The fair value of mortgage servicing rights increased $2.3 million .The fair value of securities and interest rate derivative contracts held as an economic hedge decreased $1.1 million . Net interest earned on securities held as an economic hedge was $861 thousand .

- 8 -


The net economic benefit of changes in the fair value of mortgage servicing rights and related economic hedges was $247 thousand for the second quarter of 2017 . The fair value of mortgage servicing rights decreased by $6.9 million . The fair value of securities and interest rate derivative contracts held as an economic hedge increased by $5.2 million .

Table 6 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 
 
Three Months Ended
 
 
Sept. 30, 2017
 
June 30, 2017
 
Sept. 30, 2016
Gain on mortgage hedge derivative contracts, net
 
$
1,025

 
$
3,241

 
$
2,268

Gain (loss) on fair value option securities, net
 
661

 
1,984

 
(3,355
)
Gain (loss) on economic hedge of mortgage servicing rights, net
 
1,686

 
5,225

 
(1,087
)
Gain (loss) on change in fair value of mortgage servicing rights
 
(639
)
 
(6,943
)
 
2,327

Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue
 
1,047

 
(1,718
)
 
1,240

Net interest revenue on fair value option securities 1
 
2,543

 
1,965

 
861

Total economic benefit of changes in the fair value of mortgage servicing rights, net of economic hedges
 
$
3,590

 
$
247

 
$
2,101

1 Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

- 9 -


Other Operating Expense

Other operating expense for the third quarter of 2017 totaled $265.9 million , an increase of $7.8 million or 3 percent over the third quarter of 2016 . Personnel expense increase d $8.7 million or 6 percent . Non-personnel expense decrease d $852 thousand or 1 percent compared to the prior year.

Other operating expense increase d $15.0 million over the previous quarter. Personnel expense was up $4.2 million and non-personnel expense increase d $10.9 million .

In addition to $1.1 million of losses included in other gain (losses), net, operating expense for the third quarter of 2017 included $1.3 million of additional expense related to tornado damage sustained on our Tulsa operations center and the impact of the hurricane in the Houston market.

Table 7 – Other Operating Expense
(In thousands)
 
 
Three Months Ended
September 30,
 
Increase (Decrease)
 
%
Increase (Decrease)
 
Three Months Ended
June 30, 2017
 
Increase (Decrease)
 
%
Increase (Decrease)
 
 
2017
 
2016
 
 
 
 
 
Regular compensation
 
$
83,583

 
$
83,123

 
$
460

 
1
 %
 
$
83,630

 
$
(47
)
 
—
 %
Incentive compensation:
 
 
 
 
 


 


 
 
 
 
 
 
Cash-based
 
33,643

 
33,240

 
403

 
1
 %
 
29,954

 
3,689

 
12
 %
Share-based
 
8,407

 
1,839

 
6,568

 
357
 %
 
7,380

 
1,027

 
14
 %
Deferred compensation
 
975

 
1,059

 
(84
)
 
N/A

 
1,000

 
(25
)
 
N/A

Total incentive compensation
 
43,025

 
36,138

 
6,887

 
19
 %
 
38,334

 
4,691

 
12
 %
Employee benefits
 
21,302

 
19,951

 
1,351

 
7
 %
 
21,780

 
(478
)
 
(2
)%
Total personnel expense
 
147,910

 
139,212

 
8,698

 
6
 %
 
143,744

 
4,166

 
3
 %
Business promotion
 
7,105

 
6,839

 
266

 
4
 %
 
7,738

 
(633
)
 
(8
)%
Professional fees and services
 
11,887

 
14,038

 
(2,151
)
 
(15
)%
 
12,419

 
(532
)
 
(4
)%
Net occupancy and equipment
 
21,325

 
20,111

 
1,214

 
6
 %
 
21,125

 
200

 
1
 %
Insurance
 
6,005

 
9,390

 
(3,385
)
 
(36
)%
 
689

 
5,316

 
772
 %
Data processing and communications
 
37,327

 
33,331

 
3,996

 
12
 %
 
36,330

 
997

 
3
 %
Printing, postage and supplies
 
3,917

 
3,790

 
127

 
3
 %
 
4,140

 
(223
)
 
(5
)%
Net losses (gains) and operating expenses of repossessed assets
 
6,071

 
(926
)
 
6,997

 
(756
)%
 
2,267

 
3,804

 
168
 %
Amortization of intangible assets
 
1,744

 
1,521

 
223

 
15
 %
 
1,803

 
(59
)
 
(3
)%
Mortgage banking costs
 
13,450

 
15,963

 
(2,513
)
 
(16
)%
 
12,072

 
1,378

 
11
 %
Other expense
 
9,193

 
14,819

 
(5,626
)
 
(38
)%
 
8,558

 
635

 
7
 %
Total other operating expense
 
$
265,934

 
$
258,088

 
$
7,846

 
3
 %
 
$
250,885

 
$
15,049

 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average number of employees (full-time equivalent)
 
4,887

 
4,928

 
(41
)
 
(1
)%
 
4,910

 
(23
)
 
—
 %
Certain percentage increases (decreases) are not meaningful for comparison purposes.

Personnel expense

Regular compensation, which consists of salaries and wages, overtime pay and temporary personnel costs, increase d $460 thousand or 1 percent over the third quarter of 2016 . The average number of employees was relatively unchanged compared to the prior year. Standard annual merit increases in regular compensation were effective for the majority of our staff on March 1.


- 10 -


Incentive compensation increase d $6.9 million or 19 percent over the third quarter of 2016 , primarily due to increased share-based compensation expense. Share-based compensation expense represents expense for equity awards based on grant-date fair value. Non-vested shares generally cliff vest in 3 years and are subject to a two year holding period after vesting. The number of shares that will ultimately vest is determined by BOKF's change in earnings per share relative to a defined group of peer banks. In addition, compensation costs related to certain shares is variable based on changes in the the fair value of BOK Financial common shares. Third quarter 2017 equity compensation expense included charges of $4.0 million from changes in the vesting assumptions for performance-based awards and $1.9 million from an increase in the fair value of BOK Financial common shares.

Cash-based incentive compensation plans are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions. Cash-based incentive compensation expense increase d $403 thousand or 1 percent over the third quarter of 2016 .

Employee benefits expense increase d $1.4 million or 7 percent over the the third quarter of 2016 , primarily due to an increase in employee medical costs.
Personnel expense increased $4.2 million over the second quarter of 2017 . Cash-based incentive compensation increased $3.7 million due to continued improvement of performance metrics against internal targets. Regular compensation expense was largely unchanged compared to the prior quarter. A $1.5 million seasonal decrease in payroll tax expense was partially offset by a $740 thousand increase in employee healthcare costs.

Non-personnel operating expense

Non-personnel operating expense decrease d $852 thousand or 1% compared to the third quarter of 2016 .

Deposit insurance expense decrease d $3.4 million due to improvement in risk factors including the benefit of decreased criticized and classified asset levels. Mortgage banking expense decrease d $2.5 million primarily due to lower prepayments as average mortgage interest rates trended upward. Professional fees and servicing expense decreased $2.2 million .

Data processing and communications expense increase d $4.0 million . Occupancy and equipment expense increase d $1.2 million . Increases in these expense categories were primarily due to information technology infrastructure and cybersecurity project costs and increased data processing transaction activity.

Other expense decreased $5.6 million compared to the third quarter of 2016 , primarily due to a $5.0 million legal settlement accrual concerning the manner in which the Company posted charges to certain consumer and small business deposit accounts in the third quarter of 2016 .
Non-personnel expense increase d $10.9 million over the second quarter of 2017 . Deposit insurance expense increase d $5.3 million , primarily due to $5.1 million in credits received during the second quarter of 2017 related to the revision of certain inputs to the assessment calculation filed in previous periods. Net losses and operating expenses of repossessed assets increase d $3.8 million mainly due to a $4.7 million write-down of a set of oil and gas properties. Mortgage banking expense increased $1.4 million and data processing and communication expense increase d $1.0 million .

- 11 -


Income Taxes

The Company's income tax expense was $42.4 million or 33.1 percent of net income before taxes for the third quarter of 2017 compared to $32.0 million or 29.8 percent of net income before taxes for the third quarter of 2016 and $47.7 million or 34.9 percent of net income before taxes for the second quarter of 2017 .

The statute of limitations expired on uncertain income tax positions and the Company adjusted its current income tax liability amounts on filed tax returns for 2016 during the third quarter of 2017. These adjustments reduced income tax expense by $3.1 million in the third quarter of 2017. Adjustments reduced income tax expense by $4.1 million in the third quarter of 2016 related to filed tax returns for 2015. Excluding these adjustments, income tax expense would have been 35.5 percent of net income before taxes for the third quarter of 2017 and 33.7 percent of net income before taxes for the third quarter of 2016.

The Company's effective tax rate is affected by recurring items such as amortization related to its investments in affordable housing investments net of affordable housing tax credits and other tax benefits, bank-owned life insurance and tax-exempt income. The effective tax rate is also affected by items that may occur in any given period but are not consistent from period to period. Accordingly, the comparability of the effective tax rate from period to period may be impacted.

BOK Financial operates in numerous jurisdictions, which requires judgment regarding the allocation of income, expense and earnings under various laws and regulations of each of these taxing jurisdictions. Each jurisdiction may audit our tax returns and may take different positions with respect to these allocations. The reserve for uncertain tax positions was $18 million at September 30, 2017 , $17 million at June 30, 2017 and $14 million at September 30, 2016 .
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 banking services and investment advisory services in all markets. Wealth Management also underwrites state and municipal securities and engages in brokerage and trading activities.

In addition to our lines of business, we have a Funds Management unit. The primary purpose of this unit is to manage our overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the Funds Management unit as needed to support their operations. Operating results for Funds Management and other include the effect of interest rate risk positions and risk management activities, securities gains and losses including impairment charges, the provision for credit losses in excess of net loans charged off, tax planning strategies and certain executive compensation costs that are not attributed to the lines of business.

We allocate resources and evaluate the performance of our lines of business using the net direct contribution, which includes the allocation of funds, actual net credit losses and capital costs. In addition, we measure the performance of our business lines after allocation 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 and liquidity risk. This method of transfer-pricing funds that supports 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-term swap rates. The expected duration ranges from 30 days for certain rate-sensitive deposits to five years.


- 12 -


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 8 , net income attributable to our lines of business increase d $18.1 million or 25 percent over the third quarter of 2016 . Net interest revenue grew by $34.9 million over the prior year. Other operating revenue decreased $6.9 million while operating expenses decreased $3.2 million . Net charge-offs were down $2.8 million compared to the prior year.

Table 8 -- Net Income by Line of Business
(In thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Commercial Banking
 
$
69,689

 
$
55,995

 
$
201,603

 
$
145,885

Consumer Banking
 
6,734

 
8,761

 
18,900

 
13,103

Wealth Management
 
15,576

 
9,108

 
45,684

 
26,865

Subtotal
 
91,999

 
73,864

 
266,187

 
185,853

Funds Management and other
 
(6,350
)
 
413

 
(4,035
)
 
(3,211
)
Total
 
$
85,649

 
$
74,277

 
$
262,152

 
$
182,642


- 13 -


Commercial Banking

Commercial Banking contributed $69.7 million to consolidated net income in the third quarter of 2017 , an increase of $13.7 million or 25 percent over the third quarter of 2016 . The increase in Commercial Banking's contribution was largely due to an increase in net interest revenue.

Table 9 -- Commercial Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Nine Months Ended
 
Increase (Decrease)
 
 
September 30,
 
 
September 30,
 
 
 
2017
 
2016
 
 
2017
 
2016
 
Net interest revenue from external sources
 
$
157,080

 
$
123,599

 
$
33,481

 
$
435,946

 
$
358,713

 
$
77,233

Net interest expense from internal sources
 
(24,173
)
 
(15,052
)
 
(9,121
)
 
(61,803
)
 
(44,259
)
 
(17,544
)
Total net interest revenue
 
132,907

 
108,547

 
24,360

 
374,143

 
314,454

 
59,689

Net loans charged off
 
3,217

 
5,601

 
(2,384
)
 
2,983

 
34,024

 
(31,041
)
Net interest revenue after net loans charged off
 
129,690

 
102,946

 
26,744

 
371,160

 
280,430

 
90,730

 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
53,928

 
47,710

 
6,218

 
148,193

 
144,215

 
3,978

Other gains, net
 
163

 
1,932

 
(1,769
)
 
7,946

 
2,033

 
5,913

Other operating revenue
 
54,091

 
49,642

 
4,449

 
156,139

 
146,248

 
9,891

 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
28,902

 
28,365

 
537

 
83,935

 
82,513

 
1,422

Non-personnel expense
 
28,050

 
25,010

 
3,040

 
84,582

 
79,526

 
5,056

Other operating expense
 
56,952

 
53,375

 
3,577

 
168,517

 
162,039

 
6,478

 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
126,829

 
99,213

 
27,616

 
358,782

 
264,639

 
94,143

Gain on financial instruments, net
 
4

 
—

 
4

 
46

 
—

 
46

Gain (loss) on repossessed assets, net
 
(4,126
)
 
1,486

 
(5,612
)
 
(2,728
)
 
806

 
(3,534
)
Corporate expense allocations
 
8,650

 
9,054

 
(404
)
 
26,144

 
26,681

 
(537
)
Income before taxes
 
114,057

 
91,645

 
22,412

 
329,956

 
238,764

 
91,192

Federal and state income tax
 
44,368

 
35,650

 
8,718

 
128,353

 
92,879

 
35,474

Net income
 
$
69,689

 
$
55,995

 
$
13,694

 
$
201,603

 
$
145,885

 
$
55,718

 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
17,558,390

 
$
16,934,587

 
$
623,803

 
$
17,525,658

 
$
16,958,999

 
$
566,659

Average loans
 
14,274,896

 
13,737,081

 
537,815

 
14,157,340

 
13,542,719

 
614,621

Average deposits
 
8,683,331

 
8,317,341

 
365,990

 
8,656,144

 
8,392,558

 
263,586

Average invested capital
 
1,353,525

 
1,285,627

 
67,898

 
1,334,056

 
1,234,962

 
99,094


Net interest revenue increase d $24.4 million or 22 percent over the prior year. Growth in net interest revenue was primarily due to increased yields on commercial loans due to rising short-term interest rates and a $538 million or 4 percent increase in average loan balances. Average deposit balances increase d $366 million or 4 percent . The Mobank acquisition increased loans by $390 million and deposits by $396 million. Yields on deposits sold to the funds management unit also went up due to the increase in short-term interest rates from the Federal Reserve increase in the federal funds rate.

Fees and commissions revenue increase d $6.2 million or 13 percent compared to the third quarter of 2016 primarily due to a $3.9 million increase in transaction card revenue and a $1.5 million increase in brokerage and trading revenue. The increase in transaction card revenue included a $2.1 million early customer termination fee received in the third quarter of 2017 . The increase in brokerage and trading revenue was largely due a $1.2 million increase in loan syndication fees.


- 14 -


Operating expenses increase d $3.6 million or 7 percent compared to the third quarter of 2016 . Personnel expense increase d $537 thousand or 2 percent . Non-personnel expense increase d $3.0 million or 12 percent . Net repossession expense increased $1.3 million related mainly to the repossession of certain oil and gas properties. Deposit insurance expense increased $1.4 million due to increased granularity in the allocation to the segments.

The average outstanding balance of loans attributed to Commercial Banking grew by $538 million or 4 percent over the third quarter of 2016 to $14.3 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 $8.7 billion for the third quarter of 2017 , an increase of $366 million or 4 percent compared to the third quarter of 2016 . 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 provides retail banking services through four primary distribution channels:  traditional branches, the 24-hour ExpressBank call center, Internet banking and mobile banking. Consumer Banking also conducts mortgage banking activities through offices located outside of our consumer banking markets and through Home Direct Mortgage, an online origination channel.

Consumer Banking contributed $6.7 million to consolidated net income for the third quarter of 2017 , down $2.0 million compared to the third quarter of 2016 . Growth in net interest revenue of $6.4 million was offset by a decrease in other operating revenue of $13.6 million while operating expense decreased by $4.2 million .

- 15 -


Table 10 -- Consumer Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Nine Months Ended
 
Increase (Decrease)
 
 
September 30,
 
 
September 30,
 
 
 
2017
 
2016
 
 
2017
 
2016
 
Net interest revenue from external sources
 
$
25,576

 
$
22,098

 
$
3,478

 
$
70,208

 
$
65,897

 
$
4,311

Net interest revenue from internal sources
 
12,213

 
9,263

 
2,950

 
35,002

 
27,492

 
7,510

Total net interest revenue
 
37,789

 
31,361

 
6,428

 
105,210

 
93,389

 
11,821

Net loans charged off
 
1,315

 
1,157

 
158

 
3,512

 
4,177

 
(665
)
Net interest revenue after net loans charged off
 
36,474

 
30,204

 
6,270

 
101,698

 
89,212

 
12,486

 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
47,134

 
60,773

 
(13,639
)
 
146,605

 
172,114

 
(25,509
)
Other gains (losses), net
 
(101
)
 
(170
)
 
69

 
(165
)
 
(42
)
 
(123
)
Other operating revenue
 
47,033

 
60,603

 
(13,570
)
 
146,440

 
172,072

 
(25,632
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
25,547

 
26,604

 
(1,057
)
 
76,490

 
77,675

 
(1,185
)
Non-personnel expense
 
31,238

 
34,360

 
(3,122
)
 
89,537

 
101,812

 
(12,275
)
Total other operating expense
 
56,785

 
60,964

 
(4,179
)
 
166,027

 
179,487

 
(13,460
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
26,722

 
29,843

 
(3,121
)
 
82,111

 
81,797

 
314

Gain (loss) on financial instruments, net
 
1,686

 
(1,087
)
 
2,773

 
5,242

 
30,539

 
(25,297
)
Change in fair value of mortgage servicing rights
 
(639
)
 
2,327

 
(2,966
)
 
(5,726
)
 
(41,944
)
 
36,218

Gain on repossessed assets, net
 
292

 
161

 
131

 
253

 
566

 
(313
)
Corporate expense allocations
 
17,039

 
16,905

 
134

 
50,947

 
49,513

 
1,434

Income before taxes
 
11,022

 
14,339

 
(3,317
)
 
30,933

 
21,445

 
9,488

Federal and state income tax
 
4,288

 
5,578

 
(1,290
)
 
12,033

 
8,342

 
3,691

Net income
 
$
6,734

 
$
8,761

 
$
(2,027
)
 
$
18,900

 
$
13,103

 
$
5,797

 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
9,115,319

 
$
8,827,816

 
$
287,503

 
$
8,871,470

 
$
8,763,564

 
$
107,906

Average loans
 
1,961,265

 
1,893,431

 
67,834

 
1,945,122

 
1,888,693

 
56,429

Average deposits
 
6,707,859

 
6,660,514

 
47,345

 
6,651,177

 
6,623,724

 
27,453

Average invested capital
 
327,667

 
356,788

 
(29,121
)
 
321,420

 
328,752

 
(7,332
)

Net interest revenue from Consumer Banking activities grew by $6.4 million or 21 percent over the the third quarter of 2016 primarily due to increased rates received on deposit balances sold to the Funds Management unit. Average loan balances grew by $68 million or 4 percent and average deposits increased $47 million or 1% over the prior year.

Fees and commissions revenue decrease d $13.6 million or 22 percent compared to the third quarter of 2016 due to a $13.6 million decrease in mortgage banking revenue. Mortgage loan production volumes decrease d $725 million , largely due to the exit from the correspondent lending channel. Gain on sale margin decreased 41 basis points due to market pricing pressure. Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the Company and deposit service charges and fees were relatively unchanged compared to the prior year.

Operating expenses decrease d $4.2 million or 7 percent compared to the third quarter of 2016 . Personnel expenses decrease d $1.1 million or 4 percent . Non-personnel expense decrease d $3.1 million or 9 percent compared to the prior year. Mortgage banking costs were down $2.5 million primarily due to lower prepayments of loans serviced for others. A $1.8 million decrease in professional fees and services expense was partially offset by an increase of $575 thousand in data processing and communications expense and $569 thousand in business promotion expense.


- 16 -


Changes in the fair value of our mortgage servicing rights, net of economic hedge, resulted in a $640 thousand increase in Consumer Banking net income in the third quarter of 2017 compared to a $758 thousand increase in Consumer Banking net income in the third quarter of 2016 .

Average consumer deposits grew by $47 million over the third quarter of 2016 . Higher-costing time deposit balances decrease d $114 million or 10 percent , offset by an $80 million or 5 percent increase in demand deposit balances, a $42 million or 11 percent increase in savings account balances and a $39 million or 1 percent increase in interest-bearing transaction accounts.


Wealth Management

Wealth Management contributed $15.6 million to consolidated net income in the third quarter of 2017 , up $6.5 million or 71 percent over the third quarter of 2016 , largely due to growth in net interest revenue.

Table 11 -- Wealth Management
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Nine Months Ended
 
Increase (Decrease)
 
 
September 30,
 
 
September 30,
 
 
 
2017
 
2016
 
 
2017
 
2016
 
Net interest revenue from external sources
 
$
11,169

 
$
9,274

 
$
1,895

 
$
33,130

 
$
21,620

 
$
11,510

Net interest revenue from internal sources
 
9,604

 
7,401

 
2,203

 
28,784

 
22,258

 
6,526

Total net interest revenue
 
20,773

 
16,675

 
4,098

 
61,914

 
43,878

 
18,036

Net loans charged off (recovered)
 
(623
)
 
(89
)
 
(534
)
 
(676
)
 
(479
)
 
(197
)
Net interest revenue after net loans charged off (recovered)
 
21,396

 
16,764

 
4,632

 
62,590

 
44,357

 
18,233

 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
75,915

 
73,331

 
2,584

 
225,390

 
217,519

 
7,871

Other gains (losses), net
 
(208
)
 
192

 
(400
)
 
44

 
523

 
(479
)
Other operating revenue
 
75,707

 
73,523

 
2,184

 
225,434

 
218,042

 
7,392

 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
46,494

 
48,969

 
(2,475
)
 
136,758

 
142,235

 
(5,477
)
Non-personnel expense
 
15,297

 
15,457

 
(160
)
 
46,058

 
44,289

 
1,769

Other operating expense
 
61,791

 
64,426

 
(2,635
)
 
182,816

 
186,524

 
(3,708
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
35,312

 
25,861

 
9,451

 
105,208

 
75,875

 
29,333

Loss on financial instruments, net
 
—

 
(42
)
 
42

 
—

 
(42
)
 
42

Corporate expense allocations
 
9,819

 
10,912

 
(1,093
)
 
30,438

 
31,864

 
(1,426
)
Income before taxes
 
25,493

 
14,907

 
10,586

 
74,770

 
43,969

 
30,801

Federal and state income tax
 
9,917

 
5,799

 
4,118

 
29,086

 
17,104

 
11,982

Net income
 
$
15,576

 
$
9,108

 
$
6,468

 
$
45,684

 
$
26,865

 
$
18,819

 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
6,992,021

 
$
6,413,735

 
$
578,286

 
$
6,971,369

 
$
5,916,545

 
$
1,054,824

Average loans
 
1,324,574

 
1,139,396

 
185,178

 
1,301,549

 
1,109,410

 
192,139

Average deposits
 
5,495,250

 
4,913,409

 
581,841

 
5,535,979

 
4,710,893

 
825,086

Average invested capital
 
244,976

 
202,168

 
42,808

 
231,608

 
198,167

 
33,441


Net interest revenue for the third quarter of 2017 increase d $4.1 million or 25 percent over the third quarter of 2016 , primarily due to the increase in the average loan volume of $185 million coupled with the increase in rates. Additionally, earnings on net funds invested grew by $2.2 million. Average deposit balances grew by $582 million or 12 percent over the third quarter of 2016 . Non-interest bearing demand deposits grew by $240 million or 21 percent , interest-bearing transaction account balances increase d $264 million or 9 percent and time deposit balances grew by $76 million or 11 percent . Average loan balances increase d $185 million or 16 percent over the prior year.

- 17 -


Fees and commissions revenue increased $2.2 million or 3 percent over the third quarter of 2016 . Fiduciary and asset management revenue increase d $6.5 million or 19 percent over the prior year primarily due to growth in assets under management, improved pricing discipline and decreased fee waivers. Brokerage and trading revenue decreased by $4.8 million or 14 percent primarily due to decreased activity related to our mortgage banking customers along with a decrease in brokerage fees due to the implementation of the DOL fiduciary rule in the second quarter of 2017.

Fees and commissions revenue above includes fees earned from state and municipal bond and corporate debt underwritings and financial advisory services, primarily in the Oklahoma and Texas markets. In the third quarter of 2017 , the Wealth Management division participated in 79 state and municipal bond underwritings that totaled $1.7 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately $454 million of these underwritings. The Wealth Management division also participated in 7 corporate debt underwritings that totaled $2.6 billion. Our interest in these underwritings was $69 million. In the third quarter of 2016 , the Wealth Management division participated in 107 state and municipal bond underwritings that totaled approximately $5.2 billion. Our interest in these underwritings totaled approximately $708 million. The Wealth Management division also participated in 11 corporate debt underwritings that totaled $4 billion. Our interest in these underwritings was $93 million.

Operating expense decrease d $2.6 million or 4 percent compared to the third quarter of 2016 . Personnel expense decrease d $2.5 million primarily due to decreased incentive compensation expense. Non-personnel expense decrease d $160 thousand .

Corporate expense allocations decrease d $1.1 million or 10 percent compared to the prior year.
Financial Condition
Securities

We maintain a securities portfolio to enhance profitability, manage interest rate risk, provide liquidity and comply with regulatory requirements. Securities are classified as trading, held for investment, or available for sale. See Note 2 to the consolidated financial statements for the composition of the securities portfolio as of September 30, 2017 , December 31, 2016 and September 30, 2016 .

At September 30, 2017 , the carrying value of investment (held-to-maturity) securities was $467 million and the fair value was $490 million . Investment securities consist primarily of long-term, fixed rate Oklahoma and Texas municipal bonds, taxable Texas school construction bonds and residential mortgage-backed securities issued by U.S. government agencies. The investment security portfolio is diversified among issuers. The largest obligation of any single issuer is $30 million. Substantially all of these bonds are general obligations of the issuers. Approximately $99 million of the $198 million portfolio of Texas school construction bonds is also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board of Education for the State of Texas.

Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of available for sale securities totaled $8.4 billion at September 30, 2017 , a $44 million increase compared to June 30, 2017 . At September 30, 2017 , the available for sale securities portfolio consisted primarily of U.S. government agency residential mortgage-backed securities with an amortized cost of $5.3 billion and U.S. government agency commercial mortgage-backed securities with an amortized cost of $2.9 billion . Both residential and commercial mortgage-backed securities also have credit risk from delinquency or default of the underlying loans. We mitigate this risk by primarily investing in securities issued by U.S. government agencies. Principal and interest payments on the underlying loans are fully guaranteed. Commercial mortgage-backed securities have prepayment penalties similar to commercial loans.

A primary risk of holding residential mortgage-backed securities comes from extension during periods of rising interest rates or prepayment during periods of falling interest rates. We evaluate this risk through extensive modeling of risk both before making an investment and throughout the life of the security. Our best estimate of the duration of the combined residential mortgage-backed securities portfolio held in investment and available for sale securities at September 30, 2017 is 3.2 years. Management estimates the duration extends to 3.9 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 2.8 years assuming a 50 basis point decline in the current low rate environment.


- 18 -


We also hold amortized cost of $81 million in residential mortgage-backed securities privately issued by publicly-owned financial institutions, a decrease of $5.9 million from June 30, 2017 due to cash payments received during the quarter. The fair value of our portfolio of privately issued residential mortgage-backed securities totaled $100 million at September 30, 2017 .

The aggregate gross amount of unrealized losses on available for sale securities totaled $51 million at September 30, 2017 , compared to $50 million at June 30, 2017 . On a quarterly basis, we perform separate evaluations on debt and equity securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial Statements. No other-than-temporary impairment charges were recognized in earnings during the third quarter of 2017 .

BOK Financial is required to hold stock as members of the Federal Reserve system and the Federal Home Loan Banks ("FHLB"). These restricted equity securities are carried at cost as these securities do not have a readily determined fair value because the ownership of these shares is restricted and they lack a market. Federal Reserve Bank stock totaled $37 million and holdings of FHLB stock totaled $311 million at September 30, 2017 . Holdings of FHLB stock increased $37 million compared to June 30, 2017 . We are required to hold stock in the FHLB in proportion to our borrowings with the FHLB.
Bank-Owned Life Insurance

We have approximately $314 million of bank-owned life insurance at September 30, 2017 . This investment is expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $286 million is held in separate accounts. Our separate account holdings are invested in diversified portfolios of investment-grade fixed income securities and cash equivalents, including U.S. Treasury and Agency securities, residential mortgage-backed securities, corporate debt, asset-backed and commercial mortgage-backed securities. The portfolios are managed by unaffiliated professional managers within parameters established in the portfolio’s investment guidelines. The cash surrender value of certain life insurance policies is further supported by a stable value wrap, which protects against changes in the fair value of the investments. At September 30, 2017 , the fair value of investments held in separate accounts was approximately $292 million. As the underlying fair value of the investments held in a separate accounts at September 30, 2017 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 $28 million primarily represents the cash surrender value of policies held in general accounts and other amounts due from various insurance companies.

- 19 -


Loans

The aggregate loan portfolio before allowance for loan losses totaled $17 billion at September 30, 2017 , an increase of $23 million over June 30, 2017 . The outstanding balance of commercial loans increase d by $158 million , offset by a $170 million decrease in commercial real estate loan balances. Residential mortgage loans increase d $6.6 million and personal loans grew by $29 million . 

Table 12 -- Loans
(In thousands)
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,867,981

 
$
2,847,240

 
$
2,537,112

 
$
2,497,868

 
$
2,520,804

Services
 
2,967,513

 
2,958,827

 
3,013,375

 
3,108,990

 
2,936,599

Healthcare
 
2,239,451

 
2,221,518

 
2,265,604

 
2,201,916

 
2,085,046

Wholesale/retail
 
1,658,098

 
1,543,695

 
1,506,243

 
1,576,818

 
1,602,030

Manufacturing
 
519,446

 
546,137

 
543,430

 
514,975

 
499,486

Other commercial and industrial
 
543,445

 
520,538

 
461,346

 
490,257

 
476,198

Total commercial
 
10,795,934

 
10,637,955

 
10,327,110

 
10,390,824

 
10,120,163

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Retail
 
725,865

 
722,805

 
745,046

 
761,888

 
801,377

Multifamily
 
999,009

 
952,380

 
922,991

 
903,272

 
873,773

Office
 
797,089

 
862,973

 
860,889

 
798,888

 
752,705

Industrial
 
591,080

 
693,635

 
871,463

 
871,749

 
838,021

Residential construction and land development
 
112,102

 
141,592

 
135,994

 
135,533

 
159,946

Other commercial real estate
 
292,997

 
315,207

 
334,680

 
337,716

 
367,776

Total commercial real estate
 
3,518,142

 
3,688,592

 
3,871,063

 
3,809,046

 
3,793,598

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
1,013,965

 
989,040

 
977,743

 
1,006,820

 
969,558

Permanent mortgages guaranteed by U.S. government agencies
 
187,370

 
191,729

 
204,181

 
199,387

 
190,309

Home equity
 
744,415

 
758,429

 
764,350

 
743,625

 
712,926

Total residential mortgage
 
1,945,750

 
1,939,198

 
1,946,274

 
1,949,832

 
1,872,793

 
 
 
 
 
 
 
 
 
 
 
Personal
 
947,008

 
917,900

 
847,459

 
839,958

 
678,232

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
17,206,834

 
$
17,183,645

 
$
16,991,906

 
$
16,989,660

 
$
16,464,786


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 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 ongoing 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.

Commercial loans totaled $10.8 billion or 63 percent of the loan portfolio at September 30, 2017 , an increase of $158 million over June 30, 2017 . Wholesale/retail loan balances grew by $114 million . Other commercial and industrial loans increase d by $23 million , energy loan balances increase d by $21 million and healthcare sector loan balances increase d $18 million . This growth was offset by a $27 million decrease in manufacturing sector loan balances.

- 20 -


Table 13 presents the commercial sector of our loan portfolio distributed primarily by collateral location. Loans for which collateral location is less relevant, such as unsecured loans and reserve-based energy loans, are distributed by the borrower's primary operating location.

Table 13 -- Commercial Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Energy
 
$
515,667

 
$
1,538,977

 
$
16,971

 
$
4,020

 
$
334,392

 
$
8,606

 
$
72,259

 
$
377,089

 
$
2,867,981

Services
 
661,654

 
856,253

 
187,561

 
5,965

 
316,468

 
231,846

 
314,463

 
393,303

 
2,967,513

Healthcare
 
265,166

 
394,476

 
131,983

 
96,446

 
122,688

 
127,707

 
263,705

 
837,280

 
2,239,451

Wholesale/retail
 
422,993

 
587,592

 
44,080

 
31,501

 
71,908

 
62,706

 
88,834

 
348,484

 
1,658,098

Manufacturing
 
109,034

 
150,554

 
410

 
3,121

 
61,398

 
32,885

 
95,558

 
66,486

 
519,446

Other commercial and industrial
 
107,925

 
160,797

 
2,371

 
71,194

 
26,610

 
19,204

 
58,728

 
96,616

 
543,445

Total commercial loans
 
$
2,082,439

 
$
3,688,649

 
$
383,376

 
$
212,247

 
$
933,464

 
$
482,954

 
$
893,547

 
$
2,119,258

 
$
10,795,934

 
The majority of the collateral securing our commercial loan portfolio is located within our geographical footprint with 34 percent concentrated in the Texas market and 19 percent concentrated in the Oklahoma market. At September 30, 2017 , the Other category is primarily composed of California - $310 million or 2.87 percent of the commercial loan portfolio, Florida - $195 million or 1.81 percent of the commercial loan portfolio, Louisiana - $171 million or 1.58 percent of the commercial loan portfolio, Pennsylvania - $119 million or 1.10 percent of the commercial loan portfolio and Tennessee - $114 million or 1.05 percent of the commercial loan portfolio. All other states individually represent one percent or less of total commercial loans.

Supporting the energy industry with loans to producers and other energy-related entities has been a hallmark of the Company since its founding and represents a large portion of our commercial loan portfolio. In addition, energy production and related industries have a significant impact on the economy in our primary markets. Loans collateralized by oil and gas properties are subject to a semi-annual engineering review by our internal staff of petroleum engineers. This review is utilized as the basis for developing the expected cash flows supporting the loan amount. The projected cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Loans are evaluated to demonstrate with reasonable certainty that crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and operating conditions at current pricing levels and with existing conventional equipment and operating methods and costs. As part of our evaluation of credit quality, we analyze rigorous stress tests over a range of commodity prices and take proactive steps to mitigate risk when appropriate.

Outstanding energy loans totaled $2.9 billion or 17 percent of total loans at September 30, 2017 . Unfunded energy loan commitments of $2.7 billion at September 30, 2017 were largely unchanged compared to June 30, 2017 . Approximately $2.3 billion of energy loans were to oil and gas producers, largely unchanged compared to June 30, 2017 . The majority of this portfolio is first lien, senior secured, reserve-based lending, which we believe is the lowest risk form of energy lending. The Company has largely avoided higher-risk energy lending areas including second-lien financing, mezzanine debt and subordinated debt. In addition, the Company has no direct exposure to energy company equity or to borrowers with deep-water offshore exposure. Approximately 57 percent of the committed production loans are secured by properties primarily producing oil and 43 percent of the committed production loans are secured by properties primarily producing natural gas. Loans to midstream oil and gas companies totaled $314 million at September 30, 2017 , an increase of $36 million over June 30, 2017 . Loans to borrowers that provide services to the energy industry totaled $163 million at September 30, 2017 , down $15 million compared to the prior quarter. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $52 million , a $14 million increase over the prior quarter.

The services sector of the loan portfolio totaled $3.0 billion or 17 percent of total loans and consists of a large number of loans to a variety of businesses, including governmental, educational services, consumer services, loans to entities providing services for real estate and construction and commercial services. Service sector loans increase d by $8.7 million over June 30, 2017 . Loans to governmental entities totaled $571 million at September 30, 2017 . 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. 


- 21 -


The healthcare sector of the loan portfolio totaled $2.2 billion or 13% of total loans and consists primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Healthcare also includes loans to hospitals and other medical service providers.

We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $20 million and with three or more non-affiliated banks as participants. At September 30, 2017 , the outstanding principal balance of these loans totaled $4.1 billion . Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 17 percent of our shared national credits, based on dollars committed. We hold shared credits to the same standard of analysis and perform the same level of review as internally originated credits. Our lending policies generally avoid loans in which we do not have the opportunity to maintain or achieve other business relationships with the customer. In addition to management’s quarterly assessment of credit risk, banking regulators annually review a sample of shared national credits for proper risk grading.

Commercial Real Estate

Commercial real estate represents loans for the construction of buildings or other improvements to real estate and property held by borrowers for investment purposes generally within our geographical footprint, with larger concentrations in Texas and Oklahoma which represent 35 percent and 13 percent of the total commercial real estate portfolio at September 30, 2017 , respectively. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

Commercial real estate loans totaled $3.5 billion or 20 percent of the loan portfolio at September 30, 2017 . The outstanding balance of commercial real estate loans decrease d $170 million during the third quarter of 2017 as borrowers continue to refinance loans in the permanent market. Loans secured by industrial properties decrease d $103 million . Loans secured by office buildings decrease d $66 million . Residential construction and land development loans and other commercial real estate loans also decreased compared to the prior quarter. These decreases were partially offset by a $47 million increase in multifamily residential loans. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 18 percent to 23 percent over the past five years. 

The commercial real estate sector of our loan portfolio distributed by collateral location follows in Table 14 .

Table 14 -- Commercial Real Estate Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Retail
 
$
68,768

 
$
291,284

 
$
103,151

 
$
6,419

 
$
31,647

 
$
27,583

 
$
19,923

 
$
177,090

 
$
725,865

Multifamily
 
115,182

 
485,063

 
19,464

 
25,930

 
48,855

 
56,321

 
111,260

 
136,934

 
999,009

Office
 
93,693

 
222,094

 
76,416

 
5,928

 
30,903

 
68,080

 
51,787

 
248,188

 
797,089

Industrial
 
97,399

 
154,007

 
23,161

 
—

 
10,151

 
10,245

 
47,044

 
249,073

 
591,080

Residential construction and land development
 
11,483

 
26,153

 
18,138

 
1,995

 
15,633

 
6,892

 
16,018

 
15,790

 
112,102

Other commercial real estate
 
61,464

 
38,617

 
14,645

 
3,301

 
14,397

 
24,480

 
28,311

 
107,782

 
292,997

Total commercial real estate loans
 
$
447,989

 
$
1,217,218

 
$
254,975

 
$
43,573

 
$
151,586

 
$
193,601

 
$
274,343

 
$
934,857

 
$
3,518,142


The Other category is primarily composed of Utah and California , which represent $120 million or 3.4 percent and $118 million or 3.3 percent of the commercial real estate portfolio, respectively. All other states represent less than 3% individually.

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.

- 22 -


Based on Moody's U.S. Retail Industry Classifications, approximately 60 percent of $726 million of outstanding retail commercial real estate loans have services-based tenants, which are considered less susceptible to online competition. Additionally, 61 percent of the $718 million of outstanding retail loans included in our commercial wholesale/retail sector are service-based.
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. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.

Residential mortgage loans totaled $1.9 billion , largely unchanged compared to June 30, 2017 . In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Collateral for 96 percent of our residential mortgage loan portfolio is located within our geographical footprint.

The majority of our permanent mortgage loan portfolio is 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 exceeds 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 percent. Loan-to-value ratios (“LTV”) are tiered from 60 percent to 100 percent, 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 September 30, 2017 , $187 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 the Company may repurchase 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 on the Consolidated Balance Sheet. Permanent residential mortgage loans guaranteed by U.S. government agencies decrease d $4.4 million compared to June 30, 2017 .

Home equity loans totaled $744 million at September 30, 2017 , a $14 million decrease compared to June 30, 2017 . Our home equity loan 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 percent. 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 a 15 year term of amortizing repayment. 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 September 30, 2017 by lien position and amortizing status follows in Table 15 .

Table 15 -- Home Equity Loans
(In thousands)
 
 
Revolving
 
Amortizing
 
Total
First lien
 
$
71,921

 
$
406,132

 
$
478,053

Junior lien
 
140,791

 
125,571

 
266,362

Total home equity
 
$
212,712

 
$
531,703

 
$
744,415


Personal loans totaled $947 million , a $29 million increase over the prior quarter primarily due to growth in loans to wealth management customers for investment in businesses that will be repaid from personal income.

- 23 -


The distribution of residential mortgage and personal loans at September 30, 2017 is as follows in Table 16 . Residential mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.

Table 16 -- Residential Mortgage and Personal Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
$
178,762

 
$
420,529

 
$
46,567

 
$
12,765

 
$
168,312

 
$
93,812

 
$
52,951

 
$
40,267

 
$
1,013,965

Permanent mortgages  guaranteed by U.S. government agencies
 
54,803

 
26,028

 
41,887

 
7,029

 
5,744

 
1,987

 
13,128

 
36,764

 
187,370

Home equity
 
387,021

 
134,753

 
95,537

 
5,098

 
38,346

 
9,100

 
71,904

 
2,656

 
744,415

Total residential mortgage
 
$
620,586

 
$
581,310

 
$
183,991

 
$
24,892

 
$
212,402

 
$
104,899

 
$
137,983

 
$
79,687

 
$
1,945,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
$
287,080

 
$
403,033

 
$
12,803

 
$
10,438

 
$
62,598

 
$
47,182

 
$
77,992

 
$
45,882

 
$
947,008



- 24 -


The Company secondarily evaluates loan portfolio performance based on the primary geographical market managing the loan. Loans attributed to a geographical market may not represent the location of the borrower or the collateral. All permanent mortgage loans serviced by our mortgage banking unit and held for investment by the Bank are centrally managed by the Bank of Oklahoma.

Table 17 -- Loans Managed by Primary Geographical Market
(In thousands)
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
3,408,973

 
$
3,369,967

 
$
3,189,183

 
$
3,370,259

 
$
3,545,924

Commercial real estate
 
712,915

 
667,932

 
691,332

 
684,381

 
795,806

Residential mortgage
 
1,405,900

 
1,398,021

 
1,404,054

 
1,407,197

 
1,401,166

Personal
 
322,320

 
318,016

 
310,708

 
303,823

 
271,420

Total Bank of Oklahoma
 
5,850,108

 
5,753,936

 
5,595,277

 
5,765,660

 
6,014,316

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
4,434,595

 
4,339,634

 
4,148,316

 
4,022,455

 
3,903,218

Commercial real estate
 
1,236,702

 
1,360,164

 
1,452,988

 
1,415,011

 
1,400,709

Residential mortgage
 
229,993

 
232,074

 
231,647

 
233,981

 
229,345

Personal
 
375,173

 
354,222

 
312,092

 
306,748

 
278,167

Total Bank of Texas
 
6,276,463

 
6,286,094

 
6,145,043

 
5,978,195

 
5,811,439

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 

 
 

 
 

 
 

 
 

Commercial
 
367,747

 
369,370

 
407,403

 
399,256

 
398,147

Commercial real estate
 
319,208

 
324,405

 
307,927

 
284,603

 
299,785

Residential mortgage
 
101,983

 
103,849

 
106,432

 
108,058

 
110,478

Personal
 
12,953

 
12,439

 
11,305

 
11,483

 
11,333

Total Bank of Albuquerque
 
801,891

 
810,063

 
833,067

 
803,400

 
819,743

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
91,051

 
85,020

 
88,010

 
86,577

 
83,544

Commercial real estate
 
80,917

 
73,943

 
74,469

 
73,616

 
72,649

Residential mortgage
 
6,318

 
6,395

 
6,829

 
7,015

 
6,936

Personal
 
10,388

 
11,993

 
6,279

 
6,524

 
6,757

Total Bank of Arkansas
 
188,674

 
177,351

 
175,587

 
173,732

 
169,886

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 

 
 

 
 

 
 

 
 

Commercial
 
1,124,200

 
1,065,780

 
998,216

 
1,018,208

 
1,013,314

Commercial real estate
 
186,427

 
255,379

 
266,218

 
265,264

 
254,078

Residential mortgage
 
63,734

 
63,346

 
62,313

 
59,631

 
59,838

Personal
 
60,513

 
56,187

 
49,523

 
50,372

 
42,901

Total Colorado State Bank & Trust
 
1,434,874

 
1,440,692

 
1,376,270

 
1,393,475

 
1,370,131

 
 
 
 
 
 
 
 
 
 
 
Bank of Arizona:
 
 

 
 

 
 

 
 

 
 

Commercial
 
634,809

 
617,759

 
643,222

 
686,253

 
680,447

Commercial real estate
 
706,188

 
705,858

 
737,088

 
747,409

 
726,542

Residential mortgage
 
40,730

 
37,034

 
36,737

 
36,265

 
39,206

Personal
 
55,050

 
55,528

 
51,386

 
52,553

 
31,205

Total Bank of Arizona
 
1,436,777

 
1,416,179

 
1,468,433

 
1,522,480

 
1,477,400

 
 
 
 
 
 
 
 
 
 
 
Mobank (Kansas City):
 
 

 
 

 
 

 
 

 
 

Commercial
 
734,559

 
790,425

 
852,760

 
807,816

 
495,569

Commercial real estate
 
275,785

 
300,911

 
341,041

 
338,762

 
244,029

Residential mortgage
 
97,092

 
98,479

 
98,262

 
97,685

 
25,824

Personal
 
110,611

 
109,515

 
106,166

 
108,455

 
36,449

Total Mobank (Kansas City)
 
1,218,047

 
1,299,330

 
1,398,229

 
1,352,718

 
801,871

 
 
 
 
 
 
 
 
 
 
 
Total BOK Financial loans
 
$
17,206,834

 
$
17,183,645

 
$
16,991,906

 
$
16,989,660

 
$
16,464,786


- 25 -


Loan Commitments

We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded loan commitments, which totaled $9.7 billion and standby letters of credit, which totaled $666 million at September 30, 2017 . Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Approximately $55 thousand of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at September 30, 2017 .

Table 18 – Off-Balance Sheet Credit Commitments
(In thousands)
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Loan commitments
 
$
9,693,489

 
$
9,632,911

 
$
9,403,641

 
$
9,404,665

 
$
8,697,322

Standby letters of credit
 
665,513

 
614,852

 
595,746

 
585,472

 
499,990

Mortgage loans sold with recourse
 
128,681

 
133,896

 
134,631

 
139,486

 
139,306


We have off-balance sheet commitments related to certain residential mortgage loans originated under community development loan programs that were sold to a U.S. government agency with full recourse. These mortgage loans were underwritten to standards approved by the agencies, including full documentation and originated under programs available only for owner-occupied properties. The Company no longer sells residential mortgage loans with recourse. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. Substantially all of these loans are to borrowers in our primary markets including $79 million to borrowers in Oklahoma, $14 million to borrowers in Arkansas and $12 million to borrowers in New Mexico. An accrual related to this off-balance sheet risk is included in Other liabilities in the consolidated balance sheets and totaled $3.8 million at September 30, 2017 and $3.9 million at June 30, 2017 .

We also have an off-balance sheet obligation to repurchase residential mortgage loans sold to government sponsored entities through our mortgage banking activities due to standard representations and warranties made under contractual agreements and to service loans in accordance with investor guidelines. The Company has established accruals for losses related to these obligations that are included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated Statements of Earnings. 

For the period from 2010 through the third quarter of 2017 combined, approximately 18 percent of repurchase requests have currently resulted in actual repurchases or indemnification by the Company. The Company repurchased five loans from the agencies for $ 1.2 million during the third quarter of 2017 . There were four indemnifications on loans paid during the third quarter of 2017 . Losses recognized on repurchases were insignificant.

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 
September 30,
 
2017
 
2016
Number of unresolved deficiency requests
180

 
221

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
8,899

 
$
15,750

Unpaid principal balance subject to indemnification by the Company
5,206

 
5,399


The accrual for potential loan repurchases under representations and warranties totaled $1.4 million at September 30, 2017 and $1.6 million at June 30, 2017 .

- 26 -


Customer Derivative Programs
 
We offer programs that permit our customers to hedge various risks, including fluctuations in energy, cattle and other agricultural product prices, interest rates and foreign exchange rates. Each of these programs work essentially the same way. Derivative contracts are executed between the customers and the Company. Offsetting contracts are executed between the Company and selected counterparties to minimize market risk due to 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 scenarios to determine the maximum exposure we are willing to have individually to any customer. Customers may also be required to provide cash margin or other collateral in conjunction with our credit agreements to further limit our credit risk.

Counterparty credit risk is evaluated through existing policies and procedures. This evaluation considers the total relationship between BOK Financial and each of the counterparties. Individual limits are established by management, approved by Credit Administration and reviewed by the Asset/Liability Committee. Margin collateral is required if the exposure between the Company and any counterparty exceeds established limits. Based on declines in the counterparties’ credit ratings, these limits may be reduced and additional margin collateral may be required.

A deterioration of the credit standing of one or more of the customers or counterparties to these contracts may result in BOK Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting contracts. This occurs if the credit standing of the customer or counterparty deteriorated such that either the fair value of underlying collateral no longer supported the contract or the customer or the 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 September 30, 2017 , the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $322 million compared to $265 million at June 30, 2017 . At September 30, 2017 , the fair value of our derivative contracts included $250 million for foreign exchange contracts, $29 million of to-be-announced residential mortgage-backed securities, $27 million for interest rate swaps and $10 million for energy contracts.. The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $312 million at September 30, 2017 and $257 million at June 30, 2017 .

At September 30, 2017 , total derivative assets were reduced by $4.0 million of cash collateral received from counterparties and total derivative liabilities were reduced by $18 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 September 30, 2017 follows in Table 19 .

Table 19 -- Fair Value of Derivative Contracts
(In thousands)
Banks and other financial institutions
 
$
163,232

Customers
 
132,215

Exchanges and clearing organizations
 
22,478

Fair value of customer risk management program asset derivative contracts, net
 
$
317,925

 
At September 30, 2017 , our largest derivative exposure was to a financial institution for equity option derivative contracts which totaled $3.8 million.

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

- 27 -


affect the amount of regulatory capital we are required to hold as support for the fair value of our derivative assets. These risks are modeled as part of the management of these programs. Based on current prices, a decrease in market prices equivalent to $27.71 per barrel of oil would increase the fair value of derivative assets by $5.5 million. An increase in prices equivalent to $77.25 per barrel of oil would increase the fair value of derivative assets by $298 million as current prices move further away from the fixed prices embedded in our existing contracts. Liquidity requirements of this program may also be affected by our credit rating. At September 30, 2017 , a decrease in our credit rating to below investment grade did not have a significant impact on our obligation to post cash margin on existing contracts. 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 September 30, 2017 , changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.

- 28 -


Summary of Loan Loss Experience

We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. At September 30, 2017 , the combined allowance for loan losses and off-balance sheet credit losses totaled $253 million or 1.47 percent of outstanding loans and 117 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $248 million and the accrual for off-balance sheet credit losses was $5.4 million . At June 30, 2017 , the combined allowance for credit losses was $256 million or 1.49 percent of outstanding loans and 109 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $250 million and the accrual for off-balance sheet credit losses was $6.4 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 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, overall loan growth and net charge-offs, the Company determined that no provision for credit losses was necessary in the third quarter of 2017 or the second quarter of 2017 .



- 29 -


Table 20 -- Summary of Loan Loss Experience
(In thousands)
 
 
Three Months Ended
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
250,061

 
$
248,710

 
$
246,159

 
$
245,103

 
$
243,259

Loans charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
(4,429
)
 
(1,703
)
 
(424
)
 
(81
)
 
(6,266
)
Commercial real estate
 
—

 
(76
)
 
—

 
—

 
—

Residential mortgage
 
(168
)
 
(40
)
 
(236
)
 
(208
)
 
(285
)
Personal
 
(1,228
)
 
(1,053
)
 
(1,493
)
 
(1,362
)
 
(1,550
)
Total
 
(5,825
)
 
(2,872
)
 
(2,153
)
 
(1,651
)
 
(8,101
)
Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
1,014

 
283

 
1,182

 
839

 
177

Commercial real estate
 
739

 
208

 
735

 
395

 
521

Residential mortgage
 
134

 
169

 
228

 
986

 
650

Personal
 
550

 
554

 
755

 
593

 
690

Total
 
2,437

 
1,214

 
2,900

 
2,813

 
2,038

Net loans recovered (charged off)
 
(3,388
)
 
(1,658
)
 
747

 
1,162

 
(6,063
)
Provision for loan losses
 
1,030

 
3,009

 
1,804

 
(106
)
 
7,907

Ending balance
 
$
247,703

 
$
250,061

 
$
248,710

 
$
246,159

 
$
245,103

Accrual for off-balance sheet credit losses:
 
 
 
 
 
 
 
 
 
 

Beginning balance
 
$
6,431

 
$
9,440

 
$
11,244

 
$
11,138

 
$
9,045

Provision for off-balance sheet credit losses
 
(1,030
)
 
(3,009
)
 
(1,804
)
 
106

 
2,093

Ending balance
 
$
5,401

 
$
6,431

 
$
9,440

 
$
11,244

 
$
11,138

Total combined provision for credit losses
 
$
—

 
$
—

 
$
—

 
$
—

 
$
10,000

Allowance for loan losses to loans outstanding at period-end
 
1.44
%
 
1.46
%
 
1.46
 %
 
1.45
 %
 
1.49
%
Net charge-offs (recoveries) (annualized) to average loans
 
0.08
%
 
0.04
%
 
(0.02
)%
 
(0.03
)%
 
0.15
%
Total provision for credit losses (annualized) to average loans
 
—
%
 
—
%
 
—
 %
 
—
 %
 
0.24
%
Recoveries to gross charge-offs
 
41.84
%
 
42.27
%
 
134.70
 %
 
170.38
 %
 
25.16
%
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments
 
0.05
%
 
0.06
%
 
0.09
 %
 
0.11
 %
 
0.12
%
Combined allowance for credit losses to loans outstanding at period-end
 
1.47
%
 
1.49
%
 
1.52
 %
 
1.52
 %
 
1.56
%
Allowance for Loan Losses

The appropriateness of the allowance for loan losses is assessed by management based on an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio. The allowance consists of specific allowances attributed to certain impaired loans, general allowances based on estimated loss rates by loan class and non-specific allowances based on general economic conditions, concentration in loans with large balances and other relevant factors.


- 30 -


Loans are considered to be impaired when it is probable that we will not collect all amounts due according to the contractual terms of the loan agreement. This includes all nonaccruing loans, all loans modified in troubled 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 September 30, 2017 , impaired loans totaled $404 million , including $90 million with specific allowances of $13 million and $315 million with no specific allowances. At June 30, 2017 , impaired loans totaled $428 million , including $73 million of impaired loans with specific allowances of $9.7 million and $355 million with no specific allowances.

Risk grading guidelines in the Office of the Comptroller of the Currency ("OCC") Oil and Gas Lending Handbook updated at the beginning of 2016, heavily weight the ability to repay total borrower debt, regardless of collateral position. This change in grading methodology has increased loans especially mentioned, potential problem loans and nonaccrual loans. Because substantially all of our energy portfolio is supported by senior lien positions that, in general, have substantially lower loss exposure, the historical relationship between loan classification and loss exposure may be more difficult to correlate. The most recently completed energy portfolio redetermination supported that $45 million of impaired energy loans required no allowance for credit losses based on the adequacy of collateral and $66 million of impaired loans with a $4.9 million allowance for credit losses. In addition, $53 million of impaired energy loans are current on all payments due.

General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rates for risk-graded loans are either increased or decreased based on changes in risk grading for each loan class. Estimated loss rates for both risk-graded and non-risk graded loans may be further adjusted for inherent risk 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 $206 million at September 30, 2017 , a decrease of $6.7 million compared to June 30, 2017 . The general allowance attributed to the commercial loan segment decrease d $4.5 million and the general allowance attributed to the commercial real estate loan segment decrease d $2.2 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 $28 million at September 30, 2017 , an increase of $704 thousand over June 30, 2017 . The nonspecific allowance includes consideration of the indirect impact of the prolonged low energy price environment on the broader economies within our geographical footprint that are highly dependent on the energy industry and the impact of the recent hurricane on borrowers in the Houston market.

An allocation of the allowance for loan losses by portfolio segment is included in Note 4 to the Consolidated Financial Statements.

Our loan monitoring process also identified certain accruing substandard loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements, and no loss of principal or interest is anticipated, these loans were not included in nonperforming assets. Known information does, however, cause management concern as to the borrowers’ ability to comply with current repayment terms. These potential problem loans totaled $285 million at September 30, 2017 and were primarily composed of $207 million or 7 percent of energy loans, $33 million or 1 percent of healthcare sector loans and $17 million or 3 percent of manufacturing sector loans. Potential problem loans totaled $327 million at June 30, 2017 .

Based on regulatory guidelines, other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management's close attention. Other loans especially mentioned totaled $198 million at September 30, 2017 and were composed primarily of $114 million or 4 percent of outstanding energy loans, $32 million or 1 percent of outstanding healthcare loans and $26 million or less than 1 percent of outstanding services loans. Other loans especially mentioned totaled $199 million at June 30, 2017 .

We updated our semi-annual energy loan portfolio stress test at June 30, 2017 to estimate how the energy portfolio may respond in a prolonged low-price environment. Stress test assumptions include a starting price of $2.00 per million BTUs for natural gas and $35.87 per barrel of oil, gradually escalating over twelve to fifteen years to a maximum of $3.00 and $55.00, respectively. The portion of the combined allowance for credit losses attributable to the energy portfolio totaled 2.41 percent of outstanding energy loans at September 30, 2017 , compared to 2.84 percent of outstanding energy loans at June 30, 2017 .

- 31 -


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 charge-offs of $3.4 million in the third quarter of 2017 , compared to net charge-offs of $1.7 million in the second quarter of 2017 and net loans charged off of $6.1 million in the third quarter of 2016 . The ratio of net loans charged off to average loans on an annualized basis was 0.08 percent for the third quarter of 2017 , compared with 0.04 percent for the second quarter of 2017 and 0.15 percent for the third quarter of 2016 . 

Net charge-offs of commercial loans were $3.4 million in the third quarter of 2017 , primarily due to $4.3 million of charge-offs related to two energy borrowers. Commercial loans had net charge-offs of $1.4 million in the second quarter of 2017 primarily due to a single healthcare borrower. Net commercial real estate loan recoveries were $739 thousand in the third quarter of 2017 , compared to net recoveries of $132 thousand in the second quarter of 2017 . Net charge-offs of residential mortgage loans were $34 thousand and net charge-offs of personal loans were $678 thousand for the third quarter. Personal loan net charge-offs include deposit account overdraft losses. 


- 32 -


Nonperforming Assets

Table 21 -- Nonperforming Assets
(In thousands)
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Nonaccruing loans:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
176,900

 
$
197,157

 
$
156,825

 
$
178,953

 
$
176,464

Commercial real estate
 
2,975

 
3,775

 
4,475

 
5,521

 
7,350

Residential mortgage
 
45,506

 
44,235

 
46,081

 
46,220

 
52,452

Personal
 
255

 
272

 
235

 
290

 
686

Total nonaccruing loans
 
225,636

 
245,439

 
207,616

 
230,984

 
236,952

Accruing renegotiated loans guaranteed by U.S. government agencies
 
69,440

 
80,624

 
83,577

 
81,370

 
80,306

Real estate and other repossessed assets
 
32,535

 
39,436

 
42,726

 
44,287

 
31,941

Total nonperforming assets
 
$
327,611

 
$
365,499

 
$
333,919

 
$
356,641

 
$
349,199

Total nonperforming assets excluding those guaranteed by U.S. government agencies
 
$
249,280

 
$
275,823

 
$
240,234

 
$
263,425

 
$
253,461

 
 
 
 
 
 
 
 
 
 
 
Nonaccruing loans by loan portfolio segment and class:
 
 
 
 
 
 

 
 

Commercial:
 
 
 
 
 
 
 
 

 
 

Energy
 
$
110,683

 
$
123,992

 
$
110,425

 
$
132,499

 
$
142,966

Services
 
1,174

 
7,754

 
7,713

 
8,173

 
8,477

Wholesale / retail
 
1,893

 
10,620

 
11,090

 
11,407

 
2,453

Manufacturing
 
9,059

 
9,656

 
5,907

 
4,931

 
274

Healthcare
 
24,446

 
24,505

 
909

 
825

 
855

Other commercial and industrial
 
29,645

 
20,630

 
20,781

 
21,118

 
21,439

Total commercial
 
176,900

 
197,157

 
156,825

 
178,953

 
176,464

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 

 
 

Residential construction and land development
 
1,924

 
2,051

 
2,616

 
3,433

 
3,739

Retail
 
289

 
301

 
314

 
326

 
1,249

Office
 
275

 
396

 
413

 
426

 
882

Multifamily
 
—

 
10

 
24

 
38

 
51

Industrial
 
—

 
—

 
76

 
76

 
76

Other commercial real estate
 
487

 
1,017

 
1,032

 
1,222

 
1,353

Total commercial real estate
 
2,975

 
3,775

 
4,475

 
5,521

 
7,350

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 

 
 

Permanent mortgage
 
24,623

 
23,415

 
24,188

 
22,855

 
25,956

Permanent mortgage guaranteed by U.S. government agencies
 
8,891

 
9,052

 
10,108

 
11,846

 
15,432

Home equity
 
11,992

 
11,768

 
11,785

 
11,519

 
11,064

Total residential mortgage
 
45,506

 
44,235

 
46,081

 
46,220

 
52,452

Personal
 
255

 
272

 
235

 
290

 
686

Total nonaccruing loans
 
$
225,636

 
$
245,439

 
$
207,616

 
$
230,984

 
$
236,952

 
 
 
 
 
 
 
 
 
 
 

- 33 -


 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Nonaccruing loans as % of outstanding balance for class:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
3.86
%
 
4.35
%
 
4.35
%
 
5.30
%
 
5.67
%
Services
 
0.04
%
 
0.26
%
 
0.26
%
 
0.26
%
 
0.29
%
Wholesale / retail
 
0.11
%
 
0.69
%
 
0.74
%
 
0.72
%
 
0.15
%
Manufacturing
 
1.74
%
 
1.77
%
 
1.09
%
 
0.96
%
 
0.05
%
Healthcare
 
1.09
%
 
1.10
%
 
0.04
%
 
0.04
%
 
0.04
%
Other commercial and industrial
 
5.46
%
 
3.96
%
 
4.50
%
 
4.31
%
 
4.50
%
Total commercial
 
1.64
%
 
1.85
%
 
1.52
%
 
1.72
%
 
1.74
%
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
1.72
%
 
1.45
%
 
1.92
%
 
2.53
%
 
2.34
%
Retail
 
0.04
%
 
0.04
%
 
0.04
%
 
0.04
%
 
0.16
%
Office
 
0.03
%
 
0.05
%
 
0.05
%
 
0.05
%
 
0.12
%
Multifamily
 
—
%
 
—
%
 
—
%
 
—
%
 
0.01
%
Industrial
 
—
%
 
—
%
 
0.01
%
 
0.01
%
 
0.01
%
Other commercial real estate
 
0.17
%
 
0.32
%
 
0.31
%
 
0.36
%
 
0.37
%
Total commercial real estate
 
0.08
%
 
0.10
%
 
0.12
%
 
0.14
%
 
0.19
%
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
2.43
%
 
2.37
%
 
2.47
%
 
2.27
%
 
2.68
%
Permanent mortgage guaranteed by U.S. government agencies
 
4.75
%
 
4.72
%
 
4.95
%
 
5.94
%
 
8.11
%
Home equity
 
1.61
%
 
1.55
%
 
1.54
%
 
1.55
%
 
1.55
%
Total residential mortgage
 
2.34
%
 
2.28
%
 
2.37
%
 
2.37
%
 
2.80
%
Personal
 
0.03
%
 
0.03
%
 
0.03
%
 
0.03
%
 
0.10
%
Total nonaccruing loans
 
1.31
%
 
1.43
%
 
1.22
%
 
1.36
%
 
1.44
%
 
 
 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 

 
 

Allowance for loan losses to nonaccruing loans 1
 
114.28
%
 
105.78
%
 
125.92
%
 
112.33
%
 
110.65
%
Accruing loans 90 days or more past due 1
 
$
253

 
$
1,414

 
$
95

 
$
5

 
$
3,839

1  
Excludes residential mortgages guaranteed by agencies of the U.S. Government.

Nonperforming assets totaled $328 million or 1.90 percent of outstanding loans and repossessed assets at September 30, 2017 . Nonaccruing loans totaled $226 million , accruing renegotiated residential mortgage loans totaled $69 million and real estate and other repossessed assets totaled $33 million . All accruing renegotiated residential mortgage loans and $8.9 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets decrease d $27 million compared to the third quarter primarily due to a decrease in nonaccruing energy loans. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.


- 34 -


Loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. As more fully discussed in Note 4 to the Consolidated Financial Statements, we may modify loans in troubled debt restructurings. 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 for residential mortgage loans guaranteed by U.S. government agencies, are classified as nonaccruing. We may also renew matured nonaccruing loans. All nonaccruing loans, including those renewed or modified in troubled debt restructurings, are charged off when the loan balance is no longer covered by the paying capacity of the borrower based on a quarterly evaluation of available cash resources and collateral value. All nonaccruing loans generally remain on nonaccrual 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.

Renegotiated loans consist solely of accruing residential mortgage loans guaranteed by U.S. government agencies that have been modified in troubled debt restructurings. See Note 4 to the Consolidated Financial Statements for additional discussion of troubled debt restructurings. Generally, we modify residential mortgage loans primarily by reducing interest rates and extending the number of payments in accordance with U.S. government agency guidelines. 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 three and nine months ended September 30, 2017 follows in Table 22 .

Table 22 -- Rollforward of Nonperforming Assets
(In thousands)
 
 
Three Months Ended
 
 
September 30, 2017
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, June 30, 2017
 
$
245,439

 
$
80,624

 
$
39,436

 
$
365,499

Additions
 
24,366

 
11,329

 
—

 
35,695

Transfers from premises and equipment
 
—

 
—

 
—

 
—

Payments
 
(34,686
)
 
(760
)
 
—

 
(35,446
)
Charge-offs
 
(5,825
)
 
—

 
—

 
(5,825
)
Net gains, losses and write-downs
 
—

 
—

 
(3,810
)
 
(3,810
)
Foreclosure of nonperforming loans
 
(2,600
)
 
—

 
2,600

 
—

Foreclosure of loans guaranteed by U.S. government agencies
 
(1,221
)
 
(930
)
 
—

 
(2,151
)
Proceeds from sales
 
—

 
(21,053
)
 
(5,210
)
 
(26,263
)
Net transfers to nonaccruing loans
 
136

 
(136
)
 
—

 
—

Return to accrual status
 
—

 
—

 
—

 
—

Other, net
 
27

 
366

 
(481
)
 
(88
)
Balance, September 30, 2017
 
$
225,636

 
$
69,440

 
$
32,535

 
$
327,611


- 35 -


 
 
Nine Months Ended
 
 
September 30, 2017
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, December 31, 2016
 
$
230,984

 
$
81,370

 
$
44,287

 
$
356,641

Additions
 
106,098

 
37,683

 
—

 
143,781

Transfers from premises and equipment
 
—

 
—

 
452

 
452

Payments
 
(84,848
)
 
(2,546
)
 
—

 
(87,394
)
Charge-offs
 
(10,850
)
 
—

 
—

 
(10,850
)
Net gains, losses and write-downs
 
—

 
—

 
(2,206
)
 
(2,206
)
Foreclosure of nonperforming loans
 
(4,197
)
 
—

 
4,197

 
—

Foreclosure of loans guaranteed by U.S. government agencies
 
(5,201
)
 
(5,220
)
 
—

 
(10,421
)
Proceeds from sales
 
—

 
(42,459
)
 
(12,912
)
 
(55,371
)
Net transfers to nonaccruing loans
 
136

 
(136
)
 
—

 
—

Return to accrual status
 
(6,556
)
 
—

 
—

 
(6,556
)
Other, net
 
70

 
748

 
(1,283
)
 
(465
)
Balance, September 30, 2017
 
$
225,636

 
$
69,440

 
$
32,535

 
$
327,611


We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans are not eligible for modification programs or have failed to comply with modified loan terms. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is minimal. These properties will be conveyed to the agencies once applicable criteria have been met. 
Commercial

Nonaccruing commercial loans totaled $177 million or 1.64 percent of total commercial loans at September 30, 2017 and $197 million or 1.85 percent of commercial loans at June 30, 2017 . There were $15 million in newly identified nonaccruing commercial loans during the quarter, offset by $31 million in payments and $4.4 million of charge-offs. Newly identified nonaccruing commercial loans were primarily other commercial & industrial loans and energy loans.

Nonaccruing commercial loans at September 30, 2017 were primarily composed of $111 million or 3.86 percent of total energy loans, $30 million or 5.46 percent of total other commercial and industrial sector loans and $24 million or 1.09 percent of total healthcare sector loans.
Commercial Real Estate

Nonaccruing commercial real estate loans totaled $3.0 million or 0.08 percent of outstanding commercial real estate loans at September 30, 2017 , down from $3.8 million or 0.10 percent of outstanding commercial real estate loans at June 30, 2017 . Newly identified nonaccruing commercial real estate loans of $2.0 million were offset by $1.7 million of cash payments received and $1.1 million foreclosures. There were no charge-offs of nonaccruing commercial real estate loans during the third quarter.

Nonaccruing commercial real estate loans were primarily composed of $1.9 million or 1.72 percent of residential construction and land development loans.

Residential Mortgage and Personal

Nonaccruing residential mortgage loans totaled $46 million or 2.34 percent of outstanding residential mortgage loans at September 30, 2017 , a $1.3 million increase over June 30, 2017 . Newly identified nonaccruing residential mortgage loans totaling $5.7 million were partially offset by $2.8 million of foreclosures, $1.7 million of payments and $168 thousand of loans charged off during the quarter. 

Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans, which totaled $25 million or 2.43 percent of outstanding non-guaranteed permanent residential mortgage loans at September 30, 2017 . Nonaccruing home equity loans totaled $12 million or 1.61 percent of total home equity loans.

- 36 -


Payments of 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 23 . Substantially all non-guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 59 days past due increase d $3.2 million in the third quarter to $6.8 million at September 30, 2017 . Residential mortgage loans 60 to 89 days past due decrease d by $489 thousand . Personal loans past due 30 to 59 days increase d by $2.8 million and personal loans 60 to 89 days decrease d $208 thousand .

Table 23 -- Residential Mortgage and Personal Loans Past Due
(In thousands)
 
 
September 30, 2017
 
June 30, 2017
 
 
90 Days or More
 
60 to 89 Days
 
30 to 59 Days
 
90 Days or More
 
60 to 89 Days
 
30 to 59 Days
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
   Permanent mortgage 1
 
$
—

 
$
454

 
$
3,705

 
$
132

 
$
1,026

 
$
2,024

Home equity
 
28

 
445

 
3,066

 
—

 
362

 
1,564

Total residential mortgage
 
$
28

 
$
899

 
$
6,771

 
132

 
$
1,388

 
$
3,588

 
 
 

 
 
 
 

 
 

 
 
 
 

Personal
 
$
8

 
$
81

 
$
3,296

 
$
—

 
$
289

 
$
487

1  
Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.

Real Estate and Other Repossessed Assets

Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. The assets are carried at the lower of cost as determined by fair value at the date of foreclosure or current fair value, less estimated selling costs.

Real estate and other repossessed assets totaled $33 million at September 30, 2017 , a decrease of $6.9 million compared to June 30, 2017 . The distribution of real estate and other repossessed assets attributed by geographical market is included in Table 24 following.

Table 24 -- Real Estate and Other Repossessed Assets by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
Colorado
 
Arkansas
 
New
Mexico
 
Arizona
 
Kansas/
Missouri
 
Other
 
Total
1-4 family residential properties
 
$
2,735

 
$
882

 
$
—

 
$
418

 
$
1,185

 
$
692

 
$
160

 
$
358

 
$
6,430

Developed commercial real estate properties
 
71

 
—

 
1,116

 
—

 
—

 
207

 
—

 
—

 
1,394

Undeveloped land
 
1,116

 
1,215

 
—

 
—

 
1,057

 
135

 
1,197

 
—

 
4,720

Residential land development properties
 
101

 
—

 
—

 
—

 
—

 
102

 
1

 
—

 
204

Oil and gas properties
 
5,645

 
13,060

 


 


 


 


 
1,075

 
—

 
19,780

Other
 
7

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7

Total real estate and other repossessed assets
 
$
9,675

 
$
15,157

 
$
1,116

 
$
418

 
$
2,242

 
$
1,136

 
$
2,433

 
$
358

 
$
32,535


Undeveloped land is primarily zoned for commercial development. Developed commercial real estate properties are primarily completed with no additional construction necessary for sale.

- 37 -


Liquidity and Capital

Subsidiary Bank

Deposits and borrowed funds are the primary sources of liquidity for BOKF, NA, the wholly owned subsidiary bank of BOK Financial. Based on the average balances for the third quarter of 2017 , approximately 67 percent of our funding was provided by deposit accounts, 20 percent from borrowed funds, less than 1 percent is from long-term subordinated debt and 11 percent from equity. Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks and other banks, provide adequate liquidity to meet our operating needs.

Deposit accounts represent our largest funding source. We compete for retail and commercial deposits by offering a broad range of products and services and focusing on customer convenience. Retail deposit growth is supported through personal and small business checking, online bill paying services, mobile banking services, an extensive network of branch locations and ATMs and our Express Bank call center. Commercial deposit growth is supported by offering treasury management and lockbox services. We also acquire brokered deposits when the cost of funds is advantageous to other funding sources.

Average deposits for the third quarter of 2017 totaled $22.1 billion , largely unchanged compared to the second quarter of 2017 . Demand deposit balances grew by $51 million during the third quarter of 2017 partially offset by a decrease in time deposits of $28 million .
Table 25 - Average Deposits by Line of Business
(In thousands)
 
Three Months Ended
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Commercial Banking
$
8,683,331

 
$
8,652,811

 
$
8,631,724

 
$
8,543,532

 
$
8,317,341

Consumer Banking
6,707,859

 
6,662,838

 
6,581,446

 
6,659,380

 
6,660,514

Wealth Management
5,495,250

 
5,531,091

 
5,582,554

 
5,333,095

 
4,913,409

Subtotal
20,886,440

 
20,846,740

 
20,795,724

 
20,536,007

 
19,891,264

Funds Management and other
1,232,881

 
1,245,591

 
1,573,698

 
1,167,409

 
873,750

Total
$
22,119,321

 
$
22,092,331

 
$
22,369,422

 
$
21,703,416

 
$
20,765,014


Average Commercial Banking deposit balances were largely unchanged compared to the second quarter of 2017 . The average balance of interest-bearing transaction accounts increase d $60 million , partially offset by a $26 million decrease in demand deposits. Average deposit balances attributed to commercial and industrial customers decrease d by $145 million , offset by a $114 million increase in balances attributed to energy customers and a $45 million increase in average balances attributed to commercial real estate customers. 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 service charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. Commercial deposit balances may decrease once the economic outlook improves and customers deploy cash or short-term market interest rates rise and related earnings credit rates rise, reducing the amount of deposits required to offset service charges.

Average Consumer Banking deposit balances increase d by $45 million . Demand deposit balances grew by $51 million , partially offset by a $17 million decrease in time deposit balances. Interest-bearing transaction and savings account balances were also up slightly over the prior quarter.

Average Wealth Management deposits decrease d $36 million compared to the second quarter of 2017 . A $68 million decrease in interest-bearing transaction account balances was partially offset by a $39 million increase in demand deposit balances.

Average deposits attributed to Funds Management and Other decrease d $13 million .

Average time deposits for the third quarter of 2017 included $602 million of brokered deposits, an increase of $12 million over the second quarter of 2017 . Average interest-bearing transaction accounts for the third quarter included $1.4 billion of brokered deposits, an increase of $26 million over the second quarter of 2017 .

The distribution of our period end deposit account balances among principal markets follows in Table 26 .

- 38 -


Table 26 -- Period End Deposits by Principal Market Area
(In thousands)
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Demand
 
$
4,061,612

 
$
4,353,421

 
$
4,320,666

 
$
3,993,170

 
$
4,158,273

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
5,909,259

 
5,998,787

 
6,114,288

 
6,345,536

 
5,701,983

Savings
 
265,023

 
263,664

 
265,014

 
241,696

 
242,959

Time
 
1,131,547

 
1,170,014

 
1,189,144

 
1,118,355

 
1,091,464

Total interest-bearing
 
7,305,829

 
7,432,465

 
7,568,446

 
7,705,587

 
7,036,406

Total Bank of Oklahoma
 
11,367,441

 
11,785,886

 
11,889,112

 
11,698,757

 
11,194,679

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 
 
 
 
 
 
 
 
 
Demand
 
3,094,184

 
3,121,890

 
3,091,258

 
3,137,009

 
2,734,981

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
2,272,987

 
2,272,185

 
2,317,576

 
2,388,812

 
2,240,040

Savings
 
93,400

 
91,491

 
89,640

 
83,101

 
84,642

Time
 
521,072

 
502,128

 
511,037

 
535,642

 
528,380

Total interest-bearing
 
2,887,459

 
2,865,804

 
2,918,253

 
3,007,555

 
2,853,062

Total Bank of Texas
 
5,981,643

 
5,987,694

 
6,009,511

 
6,144,564

 
5,588,043

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 
 
 
 
 
 
 
 
 
Demand
 
659,793

 
612,117

 
593,117

 
627,979

 
584,681

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
551,884

 
558,523

 
623,677

 
590,571

 
555,326

Savings
 
53,532

 
54,136

 
53,683

 
49,963

 
54,480

Time
 
224,773

 
229,616

 
233,506

 
238,408

 
244,706

Total interest-bearing
 
830,189

 
842,275

 
910,866

 
878,942

 
854,512

Total Bank of Albuquerque
 
1,489,982

 
1,454,392

 
1,503,983

 
1,506,921

 
1,439,193

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 
 
 
 
 
 
 
 
 
Demand
 
31,442

 
40,511

 
42,622

 
26,389

 
32,203

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
126,746

 
129,848

 
106,804

 
105,232

 
313,480

Savings
 
1,876

 
2,135

 
2,304

 
2,192

 
2,051

Time
 
14,434

 
14,876

 
15,067

 
16,696

 
17,534

Total interest-bearing
 
143,056

 
146,859

 
124,175

 
124,120

 
333,065

Total Bank of Arkansas
 
174,498

 
187,370

 
166,797

 
150,509

 
365,268

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 
 
 
 
 
 
 
 
 
Demand
 
540,300

 
577,617

 
601,778

 
576,000

 
517,063

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
628,807

 
626,343

 
610,510

 
616,679

 
623,055

Savings
 
34,776

 
35,651

 
37,801

 
32,866

 
31,613

Time
 
231,927

 
228,458

 
234,740

 
242,782

 
247,667

Total interest-bearing
 
895,510

 
890,452

 
883,051

 
892,327

 
902,335

Total Colorado State Bank & Trust
 
1,435,810

 
1,468,069

 
1,484,829

 
1,468,327

 
1,419,398

 
 
 
 
 
 
 
 
 
 
 

- 39 -


 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Bank of Arizona:
 
 
 
 
 
 
 
 
 
 
Demand
 
335,740

 
366,866

 
342,854

 
366,755

 
418,718

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
174,010

 
154,457

 
180,254

 
305,099

 
303,750

Savings
 
4,105

 
3,638

 
3,858

 
2,973

 
2,959

Time
 
20,831

 
19,911

 
26,112

 
27,765

 
27,935

Total interest-bearing
 
198,946

 
178,006

 
210,224

 
335,837

 
334,644

Total Bank of Arizona
 
534,686

 
544,872

 
553,078

 
702,592

 
753,362

 
 
 
 
 
 
 
 
 
 
 
Mobank (Kansas City):
 
 
 
 
 
 
 
 
 
 
Demand
 
462,410

 
496,473

 
514,278

 
508,418

 
235,445

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
361,391

 
346,996

 
406,105

 
513,176

 
86,526

Savings
 
12,513

 
13,603

 
13,424

 
12,679

 
1,645

Time
 
27,705

 
31,119

 
34,242

 
42,152

 
11,945

Total interest-bearing
 
401,609

 
391,718

 
453,771

 
568,007

 
100,116

Total Mobank (Kansas City)
 
864,019

 
888,191

 
968,049

 
1,076,425

 
335,561

Total BOK Financial deposits
 
$
21,848,079

 
$
22,316,474

 
$
22,575,359

 
$
22,748,095

 
$
21,095,504


In addition to deposits, liquidity is provided primarily by federal funds purchased, securities repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured, overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers’ banks and Federal Home Loan banks from across the country. The largest single source of wholesale federal funds purchased totaled $13 million at September 30, 2017 . Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities. Federal Home Loan Bank borrowings are generally short term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and agency mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $6.1 billion during the quarter, up from $5.5 billion in the second quarter of 2017 .

At September 30, 2017 , the estimated unused credit available to BOKF, NA from collateralized sources was approximately $6.1 billion.

A summary of other borrowings for BOK Financial on a consolidated basis follows in Table 27 .


- 40 -


Table 27 -- Borrowed Funds
(In thousands)
 
 
 
 
Three Months Ended
September 30, 2017
 
 
 
Three Months Ended
June 30, 2017
 
 
Sept. 30, 2017
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
June 30, 2017
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent Company and Other Non-Bank Subsidiaries:
Trust preferred debt
 
$
—

 
$
—

 
—
%
 
$
—

 
$
—

 
$
6,084

 
3.49
%
 
$
7,217

Other
 
3,103

 
947

 
11.23
%
 
$
3,104

 
878

 
867

 
11.06
%
 
881

Total other borrowings
 
3,103

 
947

 
11.23
%
 
 
 
878

 
6,951

 
5.14
%
 


Subordinated debentures
 
144,668

 
144,663

 
5.68
%
 
$
144,668

 
144,658

 
144,654

 
5.55
%
 
144,658

Total parent company and other non-bank subsidiaries
 
147,771

 
145,610

 
5.83
%
 
 
 
145,536

 
151,605

 
5.53
%
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BOKF, NA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds purchased
 
62,356

 
49,774

 
0.92
%
 
62,356

 
67,990

 
63,263

 
0.61
%
 
67,990

Repurchase agreements
 
328,189

 
361,512

 
0.15
%
 
381,340

 
396,333

 
427,353

 
0.06
%
 
489,814

Other borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank advances
 
6,200,000

 
6,127,174

 
1.27
%
 
6,200,000

 
5,200,000

 
5,532,967

 
1.07
%
 
5,600,000

GNMA repurchase liability
 
22,705

 
19,083

 
4.55
%
 
22,908

 
16,056

 
16,734

 
4.65
%
 
17,693

Other
 
15,467

 
15,437

 
2.38
%
 
15,467

 
15,409

 
15,379

 
2.40
%
 
15,409

Total other borrowings
 
6,238,172

 
6,161,694

 
1.29
%
 


 
5,231,465

 
5,565,080

 
1.09
%
 


Total BOKF, NA
 
6,628,717

 
6,572,980

 
1.22
%
 
 
 
5,695,788

 
6,055,696

 
1.01
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other borrowed funds and subordinated debentures
 
$
6,776,488

 
$
6,718,590

 
1.32
%
 
 
 
$
5,841,324

 
$
6,207,301

 
1.12
%
 
 
BOKF, NA also has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold in GNMA mortgage pools. Interest is payable monthly at rates contractually due to investors.
Parent Company

At September 30, 2017 , cash and interest-bearing cash and cash equivalents held by the parent company totaled $162 million. The primary sources of liquidity for BOK Financial are cash on hand and dividends from BOKF, NA. Dividends from the bank are limited by various banking regulations to net profits, as defined, for the year plus retained profits for the two preceding years. Dividends are further restricted by minimum capital requirements. At September 30, 2017 , based upon the most restrictive limitations as well as management's internal capital policy, the bank could declare up to $343 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 at the bank could affect its ability to pay dividends to the parent company.

Our equity capital at September 30, 2017 was $3.5 billion , an increase of $66 million over June 30, 2017 . Net income less cash dividends paid increase d equity $57 million during the third quarter of 2017 . 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 or perpetual preferred stock issuance, share repurchase and stock and cash dividends.


- 41 -


On October 27, 2015, the board of directors authorized the Company to purchase up to five million common shares, subject to market conditions, securities law and other regulatory compliance limitations. As of September 30, 2017 , a cumulative total of 2,879,243 shares have been repurchased under this authorization. No shares were repurchased in the third quarter of 2017 .
BOK Financial and BOKF, NA are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that could have a material impact on operations. These capital requirements include quantitative measures of assets, liabilities and off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators.
Effective January 1, 2015 for BOK Financial, regulatory capital rules establish a 7 percent threshold for the common equity Tier 1 ratio consisting of a minimum level plus capital conservation buffer. The Company has elected to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital, consistent with the treatment under previous capital rules.

A summary of minimum capital requirements, including capital conservation buffer follows in Table 28 . A bank which falls below these levels, including the capital conservation buffer, would be subject to regulatory restrictions on capital distributions (including but not limited to dividends and share repurchases) and executive bonus payments.

The capital ratios for BOK Financial on a consolidated basis are presented in Table 28 .

Table 28 -- Capital Ratios
 
 
Minimum Capital Requirement
 
Capital Conservation Buffer
 
Minimum Capital Requirement Including Capital Conservation Buffer
 
Sept. 30, 2017
 
June 30, 2017
 
Sept. 30, 2016
Risk-based capital:
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1
 
4.50
%
 
2.50
%
 
7.00
%
 
11.90
%
 
11.76
%
 
11.99
%
Tier 1 capital
 
6.00
%
 
2.50
%
 
8.50
%
 
11.90
%
 
11.76
%
 
11.99
%
Total capital
 
8.00
%
 
2.50
%
 
10.50
%
 
13.47
%
 
13.36
%
 
13.65
%
Tier 1 Leverage
 
4.00
%
 
N/A

 
4.00
%
 
9.30
%
 
9.27
%
 
9.06
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Average total equity to average assets
 
 
 
 
 
 
 
10.56
%
 
10.53
%
 
10.39
%
Tangible common equity ratio
 
 
 
 
 
 
 
9.23
%
 
9.24
%
 
9.19
%


Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity ratio. Tangible common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principles in the United States of America (“GAAP”) less intangible assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes preferred equity. 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 29 provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.


- 42 -


Table 29 -- Non-GAAP Measure
(Dollars in thousands)
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Tangible common equity ratio:
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
$
3,488,814

 
$
3,422,469

 
$
3,341,744

 
$
3,274,854

 
$
3,398,311

Less: Goodwill and intangible assets, net
 
485,710

 
487,452

 
488,294

 
495,830

 
424,716

Tangible common equity
 
3,003,104

 
2,935,017

 
2,853,450

 
2,779,024

 
2,973,595

Total assets
 
33,005,515

 
32,263,532

 
32,628,932

 
32,772,281

 
32,779,231

Less: Goodwill and intangible assets, net
 
485,710

 
487,452

 
488,294

 
495,830

 
424,716

Tangible assets
 
$
32,519,805

 
$
31,776,080

 
$
32,140,638

 
$
32,276,451

 
$
32,354,515

Tangible common equity ratio
 
9.23
%
 
9.24
%
 
8.88
%
 
8.61
%
 
9.19
%

Off-Balance Sheet Arrangements

See Note 7 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet commitments.
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.


- 43 -


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 50 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. 

Table 30 -- Interest Rate Sensitivity
(Dollars in thousands)
 
 
200 bp Increase
 
50 bp Decrease
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Anticipated impact over the next twelve months on net interest revenue
 
$
652

 
$
551

 
$
(18,117
)
 
$
(25,147
)
 
 
0.08
%
 
0.07
%
 
(2.10
)%
 
(3.22
)%

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.



- 44 -


Table 31 -- MSR Asset and Hedge Sensitivity Analysis
(Dollars in thousands)
 
 
September 30,
 
 
2017
 
2016
 
 
Up 50 bp
 
Down 50 bp
 
Up 50 bp
 
Down 50 bp
MSR Asset
 
$
26,449

 
$
(33,561
)
 
$
30,597

 
$
(52,609
)
MSR Hedge
 
(32,790
)
 
29,132

 
(37,529
)
 
34,948

Net Exposure
 
(6,341
)
 
(4,429
)
 
(6,932
)
 
(17,661
)

Trading Activities

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.

Table 32 -- Mortgage Pipeline Sensitivity Analysis
(Dollars in thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
Up 50 bp
 
Down 50 bp
 
Up 50 bp
 
Down 50 bp
 
Up 50 bp
 
Down 50 bp
 
Up 50 bp
 
Down 50 bp
Average 1
 
$
(167
)
 
$
(881
)
 
$
(590
)
 
$
(449
)
 
$
21

 
$
(1,172
)
 
$
(2,778
)
 
$
(542
)
Low 2
 
1,314

 
187

 
930

 
1,055

 
1,314

 
187

 
930

 
1,815

High 3
 
(1,533
)
 
(1,993
)
 
(2,563
)
 
(2,030
)
 
(1,553
)
 
(2,377
)
 
(6,858
)
 
(2,953
)
Period End
 
(744
)
 
(374
)
 
(76
)
 
360

 
(744
)
 
(374
)
 
(76
)
 
360

1  
Average represents the simple average of each daily value observed during the reporting period.
2  
Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.
3  
High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.

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.


- 45 -


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 33 -- Trading Sensitivity Analysis
(Dollars in thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
Up 50 bp
 
Down 50 bp
 
Up 50 bp
 
Down 50 bp
 
Up 50 bp
 
Down 50 bp
 
Up 50 bp
 
Down 50 bp
Average 1
 
$
(1,152
)
 
$
1,171

 
$
(3,541
)
 
$
3,756

 
$
(1,711
)
 
$
1,884

 
$
(3,172
)
 
$
3,070

Low 2
 
328

 
3,509

 
(954
)
 
7,013

 
328

 
5,210

 
146

 
7,013

High 3
 
(3,404
)
 
(486
)
 
(6,130
)
 
430

 
(4,386
)
 
(486
)
 
(6,130
)
 
(107
)
Period End
 
(1,395
)
 
945

 
(1,718
)
 
2,469

 
(1,395
)
 
945

 
(1,718
)
 
2,469

1  
Average represents the simple average of each daily value observed during the reporting period.
2  
Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.
3  
High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.
Controls and Procedures
 
As required by Rule 13a-15(b), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by their report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.
Forward-Looking Statements

This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about BOK Financial, the financial services industry and the economy in general. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” “will,” “intends,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for 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 and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events, based in part on information provided by others that BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to changes in commodity prices, interest rates and interest rate relationships, demand for products and services, the degree of competition by traditional and nontraditional competitors, changes in banking regulations, tax laws, prices, levies and assessments, the impact of technological advances, and trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

- 46 -


     
Consolidated Statements of Earnings (Unaudited)
 
 
 
 
 
 
 
 
(In thousands, except share and per share data)
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Interest revenue
 
2017
 
2016
 
2017
 
2016
Loans
 
$
184,200

 
$
146,840

 
$
514,047

 
$
427,512

Residential mortgage loans held for sale
 
2,095

 
3,615

 
6,317

 
9,823

Trading securities
 
3,975

 
2,996

 
12,497

 
4,136

Investment securities
 
3,951

 
4,132

 
12,127

 
12,736

Available for sale securities
 
44,925

 
43,042

 
131,660

 
132,381

Fair value option securities
 
5,066

 
1,531

 
10,985

 
6,182

Restricted equity securities
 
4,826

 
4,510

 
13,534

 
12,684

Interest-bearing cash and cash equivalents
 
6,375

 
2,651

 
15,817

 
7,926

Total interest revenue
 
255,413

 
209,317

 
716,984

 
613,380

Interest expense
 
 

 
 

 
 

 
 

Deposits
 
14,530

 
9,812

 
38,506

 
30,351

Borrowed funds
 
20,361

 
9,191

 
47,542

 
25,943

Subordinated debentures
 
2,070

 
2,468

 
6,098

 
4,056

Total interest expense
 
36,961

 
21,471

 
92,146

 
60,350

Net interest revenue
 
218,452

 
187,846

 
624,838

 
553,030

Provision for credit losses
 
—

 
10,000

 
—

 
65,000

Net interest revenue after provision for credit losses
 
218,452

 
177,846

 
624,838

 
488,030

Other operating revenue
 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
33,169

 
38,006

 
98,556

 
109,877

Transaction card revenue
 
37,826

 
33,933

 
105,249

 
101,237

Fiduciary and asset management revenue
 
40,687

 
34,073

 
121,126

 
100,942

Deposit service charges and fees
 
23,209

 
23,668

 
69,593

 
68,828

Mortgage banking revenue
 
24,890

 
38,516

 
80,357

 
105,500

Other revenue
 
13,670

 
13,080

 
40,406

 
38,336

Total fees and commissions
 
173,451

 
181,276

 
515,287

 
524,720

Other gains, net
 
(1,283
)
 
2,442

 
8,452

 
5,309

Gain on derivatives, net
 
1,033

 
2,226

 
3,824

 
20,130

Gain (loss) on fair value option securities, net
 
661

 
(3,355
)
 
1,505

 
10,367

Change in fair value of mortgage servicing rights
 
(639
)
 
2,327

 
(5,726
)
 
(41,944
)
Gain on available for sale securities, net
 
2,487

 
2,394

 
4,916

 
11,684

Total other operating revenue
 
175,710

 
187,310

 
528,258

 
530,266

Other operating expense
 
 

 
 

 
 

 
 

Personnel
 
147,910

 
139,212

 
428,079

 
411,987

Business promotion
 
7,105

 
6,839

 
21,560

 
19,238

Professional fees and services
 
11,887

 
14,038

 
35,723

 
39,955

Net occupancy and equipment
 
21,325

 
20,111

 
64,074

 
58,554

Insurance
 
6,005

 
9,390

 
13,098

 
23,784

Data processing and communications
 
37,327

 
33,331

 
108,559

 
98,150

Printing, postage and supplies
 
3,917

 
3,790

 
11,908

 
11,586

Net losses (gains) and operating expenses of repossessed assets
 
6,071

 
(926
)
 
9,347

 
1,732

Amortization of intangible assets
 
1,744

 
1,521

 
5,349

 
5,304

Mortgage banking costs
 
13,450

 
15,963

 
38,525

 
44,039

Other expense
 
9,193

 
14,819

 
25,308

 
37,714

Total other operating expense
 
265,934

 
258,088

 
761,530

 
752,043

Net income before taxes
 
128,228

 
107,068

 
391,566

 
266,253

Federal and state income taxes
 
42,438

 
31,956

 
128,246

 
83,881

Net income
 
85,790

 
75,112

 
263,320

 
182,372

Net income (loss) attributable to non-controlling interests
 
141

 
835

 
1,168

 
(270
)
Net income attributable to BOK Financial Corporation shareholders
 
$
85,649

 
$
74,277

 
$
262,152

 
$
182,642

Earnings per share:
 
 

 
 

 
 

 
 

Basic
 
$
1.31

 
$
1.13

 
$
4.01

 
$
2.77

Diluted
 
$
1.31

 
$
1.13

 
$
4.00

 
$
2.76

Average shares used in computation:
 
 
 
 
 
 
 
 
Basic
 
64,742,822

 
65,085,392

 
64,729,391

 
65,208,774

Diluted
 
64,805,172

 
65,157,841

 
64,793,893

 
65,263,566

Dividends declared per share
 
$
0.44

 
$
0.43

 
$
1.32

 
$
1.29


See accompanying notes to consolidated financial statements.

- 47 -


Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
 
(In thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
85,790

 
$
75,112

 
$
263,320

 
$
182,372

Other comprehensive income (loss) before income taxes:
 
 
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
512

 
(33,458
)
 
33,881

 
133,108

Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
Interest revenue, Investment securities, Taxable securities
 
—

 
—

 
—

 
(112
)
Gain on available for sale securities, net
 
(2,487
)
 
(2,394
)
 
(4,916
)
 
(11,684
)
Other comprehensive income (loss) before income taxes
 
(1,975
)
 
(35,852
)
 
28,965

 
121,312

Federal and state income taxes
 
(768
)
 
(13,947
)
 
11,241

 
47,172

Other comprehensive income (loss), net of income taxes
 
(1,207
)

(21,905
)

17,724


74,140

Comprehensive income
 
84,583

 
53,207

 
281,044

 
256,512

Comprehensive income (loss) attributable to non-controlling interests
 
141

 
835

 
1,168

 
(270
)
Comprehensive income attributable to BOK Financial Corp. shareholders
 
$
84,442

 
$
52,372

 
$
279,876

 
$
256,782


See accompanying notes to consolidated financial statements.

- 48 -


Consolidated Balance Sheets
(In thousands, except share data)
 
 
Sept. 30, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
 
 
(Unaudited)
 
(Footnote 1)
 
(Unaudited)
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
547,203

 
$
620,846

 
$
535,916

Interest-bearing cash and cash equivalents
 
1,926,779

 
1,916,651

 
2,080,978

Trading securities
 
614,117

 
337,628

 
546,615

Investment securities (fair value :  September 30, 2017 – $489,895;  December 31, 2016 – $565,493 ; September 30, 2016 – $580,310)
 
466,562

 
546,145

 
546,457

Available for sale securities
 
8,383,199

 
8,676,829

 
8,862,283

Fair value option securities
 
819,531

 
77,046

 
222,409

Restricted equity securities
 
347,542

 
307,240

 
333,391

Residential mortgage loans held for sale
 
275,643

 
301,897

 
447,592

Loans
 
17,206,834

 
16,989,660

 
16,464,786

Allowance for loan losses
 
(247,703
)
 
(246,159
)
 
(245,103
)
Loans, net of allowance
 
16,959,131

 
16,743,501

 
16,219,683

Premises and equipment, net
 
320,060

 
325,849

 
318,196

Receivables
 
314,251

 
772,952

 
650,368

Goodwill
 
446,697

 
448,899

 
382,739

Intangible assets, net
 
39,013

 
46,931

 
41,977

Mortgage servicing rights
 
245,858

 
247,073

 
203,621

Real estate and other repossessed assets, net of allowance ( September 30, 2017 – $11,738 ; December 31, 2016 – $9,562; September 30, 2016 – $9,524)
 
32,535

 
44,287

 
31,941

Derivative contracts, net
 
352,559

 
689,872

 
655,078

Cash surrender value of bank-owned life insurance
 
314,201

 
308,430

 
310,211

Receivable on unsettled securities sales
 
230,225

 
7,188

 
19,642

Other assets
 
370,409

 
353,017

 
370,134

Total assets
 
$
33,005,515

 
$
32,772,281

 
$
32,779,231

 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
9,185,481

 
$
9,235,720

 
$
8,681,364

Interest-bearing deposits:
 
 

 
 

 
 

Transaction
 
10,025,084

 
10,865,105

 
9,824,160

Savings
 
465,225

 
425,470

 
420,349

Time
 
2,172,289

 
2,221,800

 
2,169,631

Total deposits
 
21,848,079

 
22,748,095

 
21,095,504

Funds purchased
 
62,356

 
57,929

 
109,031

Repurchase agreements
 
328,189

 
668,661

 
504,573

Other borrowings
 
6,241,275

 
4,846,072

 
6,533,443

Subordinated debentures
 
144,668

 
144,640

 
144,631

Accrued interest, taxes and expense
 
152,029

 
146,704

 
191,276

Derivative contracts, net
 
336,327

 
664,531

 
573,987

Due on unsettled securities purchases
 
160,781

 
6,508

 
677

Other liabilities
 
217,372

 
182,784

 
193,698

Total liabilities
 
29,491,076

 
29,465,924

 
29,346,820

Shareholders' equity:
 
 

 
 

 
 

Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: September 30, 2017 – 75,129,535;  December 31, 2016 – 74,993,407; September 30, 2016 – 74,866,429)
 
4

 
4

 
4

Capital surplus
 
1,028,489

 
1,006,535

 
995,680

Retained earnings
 
2,999,005

 
2,823,334

 
2,801,931

Treasury stock (shares at cost:  September 30, 2017 – 9,672,749;  December 31, 2016 – 9,655,975;  September 30, 2016 – 8,955,975)
 
(545,441
)
 
(544,052
)
 
(495,031
)
Accumulated other comprehensive income (loss)
 
6,757

 
(10,967
)
 
95,727

Total shareholders’ equity
 
3,488,814

 
3,274,854

 
3,398,311

Non-controlling interests
 
25,625

 
31,503

 
34,100

Total equity
 
3,514,439

 
3,306,357

 
3,432,411

Total liabilities and equity
 
$
33,005,515

 
$
32,772,281

 
$
32,779,231


See accompanying notes to consolidated financial statements.

- 49 -


Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
 
 
Common Stock
 
Capital
Surplus
 
Retained
Earnings
 
Treasury Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
 
Non-
Controlling
Interests
 
Total Equity
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2015
 
74,530

 
$
4

 
$
982,009

 
$
2,704,121

 
8,636

 
$
(477,165
)
 
$
21,587

 
$
3,230,556

 
$
37,083

 
$
3,267,639

Net income (loss)
 
—

 
—

 
—

 
182,642

 
—

 
—

 
—

 
182,642

 
(270
)
 
182,372

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
74,140

 
74,140

 
—

 
74,140

Repurchase of common stock
 
—

 
—

 
—

 
—

 
305

 
(17,771
)
 
—

 
(17,771
)
 
—

 
(17,771
)
Share-based compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options exercised
 
108

 
—

 
5,513

 
—

 
—

 
—

 
—

 
5,513

 
—

 
5,513

Non-vested shares awarded, net
 
228

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Vesting of non-vested shares
 
—

 
—

 
—

 
—

 
15

 
(95
)
 
—

 
(95
)
 
—

 
(95
)
Tax effect from equity compensation, net
 
—

 
—

 
589

 
—

 
—

 
—

 
—

 
589

 
—

 
589

Share-based compensation
 
—

 
—

 
7,569

 
—

 
—

 
—

 
—

 
7,569

 
—

 
7,569

Cash dividends on common stock
 
—

 
—

 
—

 
(84,832
)
 
—

 
—

 
—

 
(84,832
)
 
—

 
(84,832
)
Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,713
)
 
(2,713
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2016
 
74,866

 
$
4

 
$
995,680

 
$
2,801,931

 
8,956

 
$
(495,031
)
 
$
95,727

 
$
3,398,311

 
$
34,100

 
$
3,432,411

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
74,993

 
$
4

 
$
1,006,535

 
$
2,823,334

 
9,656

 
$
(544,052
)
 
$
(10,967
)
 
$
3,274,854

 
$
31,503

 
$
3,306,357

Net income (loss)
 
—

 
—

 
—

 
262,152

 
—

 
—

 
—

 
262,152

 
1,168

 
263,320

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
17,724

 
17,724

 
—

 
17,724

Share-based compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options exercised
 
80

 
—

 
4,564

 
—

 
—

 
—

 
—

 
4,564

 
—

 
4,564

Non-vested shares awarded, net
 
57

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Vesting of non-vested shares
 
—

 
—

 
—

 
—

 
17

 
(1,389
)
 
—

 
(1,389
)
 
—

 
(1,389
)
Share-based compensation
 
—

 
—

 
17,390

 
—

 
—

 
—

 
—

 
17,390

 
—

 
17,390

Cash dividends on common stock
 
—

 
—

 
—

 
(86,481
)
 
—

 
—

 
—

 
(86,481
)
 
—

 
(86,481
)
Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7,046
)
 
(7,046
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
 
75,130

 
$
4

 
$
1,028,489

 
$
2,999,005

 
9,673

 
$
(545,441
)
 
$
6,757

 
$
3,488,814

 
$
25,625

 
$
3,514,439


See accompanying notes to consolidated financial statements.

- 50 -


Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

 
Nine Months Ended
 
 
September 30,
 
 
2017
 
2016
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
263,320

 
$
182,372

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 

 
 

Provision for credit losses
 
—

 
65,000

Change in fair value of mortgage servicing rights due to market changes
 
5,726

 
41,944

Change in the fair value of mortgage servicing rights due to loan runoff
 
24,928

 
29,385

Net unrealized gains from derivative contracts
 
(3,937
)
 
(9,755
)
Share-based compensation
 
17,390

 
7,569

Depreciation and amortization
 
39,154

 
35,158

Net amortization of securities discounts and premiums
 
22,149

 
31,373

Net realized gains on financial instruments and other net gains
 
(1,930
)
 
(13,663
)
Net gain on mortgage loans held for sale
 
(35,778
)
 
(61,775
)
Mortgage loans originated for sale
 
(2,446,793
)
 
(4,927,442
)
Proceeds from sale of mortgage loans held for sale
 
2,503,759

 
4,855,682

Capitalized mortgage servicing rights
 
(29,439
)
 
(56,345
)
Change in trading and fair value option securities
 
(1,019,906
)
 
(204,030
)
Change in receivables
 
459,480

 
(483,836
)
Change in other assets
 
(18,991
)
 
(17,931
)
Change in accrued interest, taxes and expense
 
(99
)
 
27,780

Change in other liabilities
 
43,767

 
7,262

Net cash provided by (used in) operating activities
 
(177,200
)
 
(491,252
)
Cash Flows From Investing Activities:
 
 

 
 

Proceeds from maturities or redemptions of investment securities
 
94,243

 
65,104

Proceeds from maturities or redemptions of available for sale securities
 
1,345,575

 
1,120,917

Purchases of investment securities
 
(18,802
)
 
(18,599
)
Purchases of available for sale securities
 
(2,001,160
)
 
(1,860,287
)
Proceeds from sales of available for sale securities
 
966,044

 
1,027,379

Change in amount receivable on unsettled securities transactions
 
(223,037
)
 
20,551

Loans originated, net of principal collected
 
(156,404
)
 
(551,351
)
Net payments on derivative asset contracts
 
334,709

 
(79,512
)
Acquisitions, net of cash acquired
 
—

 
(7,700
)
Proceeds from disposition of assets
 
162,793

 
131,761

Purchases of assets
 
(170,937
)
 
(159,263
)
Net cash provided by (used in) investing activities
 
333,024

 
(311,000
)
Cash Flows From Financing Activities:
 
 

 
 

Net change in demand deposits, transaction deposits and savings accounts
 
(850,505
)
 
243,779

Net change in time deposits
 
(49,511
)
 
(236,433
)
Net change in other borrowed funds
 
957,859

 
1,015,822

Repayment of subordinated debentures
 
—

 
(226,550
)
Issuance of subordinated debentures
 
—

 
145,331

Net proceeds on derivative liability contracts
 
(339,566
)
 
76,144

Net change in derivative margin accounts
 
(8,583
)
 
(129,141
)
Change in amount due on unsettled security transactions
 
154,273

 
(16,220
)
Issuance of common and treasury stock, net
 
3,175

 
5,418

Repurchase of common stock
 
—

 
(17,771
)
Dividends paid
 
(86,481
)
 
(84,832
)
Net cash provided by (used in) financing activities
 
(219,339
)
 
775,547

Net increase (decrease) in cash and cash equivalents
 
(63,515
)
 
(26,705
)
Cash and cash equivalents at beginning of period
 
2,537,497

 
2,643,599

Cash and cash equivalents at end of period
 
$
2,473,982

 
$
2,616,894

 
 
 
 
 
Supplemental Cash Flow Information:
 
 
 
 
Cash paid for interest
 
$
89,901

 
$
61,522

Cash paid for taxes
 
$
95,967

 
$
43,096

Net loans and bank premises transferred to repossessed real estate and other assets
 
$
4,649

 
$
20,580

Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period
 
$
101,299

 
$
79,710

Conveyance of other real estate owned guaranteed by U.S. government agencies
 
$
32,033

 
$
50,855

See accompanying notes to consolidated financial statements.

- 51 -


Notes to Consolidated Financial Statements (Unaudited)

( 1 ) Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of BOK Financial Corporation (“BOK Financial” or “the Company”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The unaudited consolidated financial statements include accounts of BOK Financial and its subsidiaries, principally BOKF, NA (“the Bank”), BOK Financial Securities, Inc., The Milestone Group, Inc. and Cavanal Hill Investment Management Inc. Operating divisions of the Bank include Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust, Mobank, BOK Financial Mortgage and the TransFund electronic funds network.

Certain reclassifications have been made to conform to the current period presentation.

The financial information should be read in conjunction with BOK Financial’s 2016 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 2016 have been derived from the audited financial statements included in BOK Financial’s 2016 Form 10-K but do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the nine -month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 .

Newly Adopted and Pending Accounting Policies

Financial Accounting Standards Board (“FASB”)

FASB Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09")

On May 28, 2014, the FASB issued ASU 2014-09 to clarify the principles for recognizing revenue by providing a more robust framework that will give greater consistency and comparability in revenue recognition practices. In the new framework, an entity recognizes revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. The new model requires the identification of performance obligations included in contracts with customers, a determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes revenue when performance obligations are satisfied. ASU 2014-09 is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Net interest revenue from financial assets and liabilities is explicitly excluded from the scope of ASU 2014-09. Management expects that there will be no material impact on the timing of revenue recognized as our current revenue recognition policies generally conform with the principals in the standard. Management will adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings if such adjustment is significant. Currently, we do not anticipate any significant adjustments.

FASB Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08")

On March 17, 2016, the FASB Issued ASU 2016-08 to amend the principal versus agent implementation guidance in ASU 2014-09. The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. ASU 2016-08 is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Management expects that interchange fees paid to issuing banks for card transactions processed related to its merchant processing services currently included in data processing and communication expense, will be netted against the amounts charged to the merchant in transaction card processing revenue. For 2016, interchange fees related to merchant processing services were approximately $27 million .


- 52 -


FASB Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01")

On January 5, 2016, the FASB issued ASU 2016-01 over the recognition and measurement of financial assets and liabilities. The update requires equity investments, in general, to be measured at fair value with changes in fair value recognized in earnings. It also eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires entities to use the exit price notion when measuring fair value, requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the fair value option has been elected, requires separate presentation of financial assets and liabilities by measurement category and form on the balance sheet or accompanying notes, clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets, and simplifies the impairment assessment of equity investments without readily determinable fair values. The ASU is effective for the Company for interim and annual periods beginning after December 15, 2017. Upon adoption, unrealized gains and losses from equity securities will be reclassified from other comprehensive income to retained earnings. At September 30, 2017 , the Company had $2.2 million of net unrealized gains included in accumulated other comprehensive income.

FASB Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02")

On February 25, 2016, the FASB issued ASU 2016-02 to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Lessees will be required to recognize an obligation for future lease payments measured on a discounted basis and a right-of-use asset. The ASU is effective for the Company for interim and annual periods beginning after December 15, 2018 and requires transition through a modified retrospective approach for leases existing at or entered into after January 1, 2017. The Company is evaluating the impact the adoption of ASU 2016-02 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09")

On March 30, 2016, the FASB issued ASU 2016-09 to simplify multiple aspects of accounting for employee share-based payment transactions including accounting for income taxes, forfeitures, and statutory tax withholding requirements. The ASU became effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Implementation of ASU 2016-09 decreased tax expense $2.5 million in the first nine months of 2017.
 
FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Assets Measured at Amortized Cost ("ASU 2016-13")

On June 16, 2016, the FASB issued ASU 2016-13 in order to provide more timely recording of credit losses on loans and other financial instruments. The ASU adds an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected credit losses rather than incurred credit losses. It requires measurement of all expected credit losses for financial assets carried at amortized cost, including loans and investment securities, based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also changes the recognition of other-than-temporary impairment of available for sale securities to an allowance methodology from a direct write-down methodology. ASU 2016-13 will be effective for the Company for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual reporting periods beginning after December 15, 2018. ASU 2016-13 will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is evaluating the impact the adoption of ASU 2016-13 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15")

On August 26, 2016, the FASB issued ASU 2016-15, which amends guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The amendments address eight cash flow issues. ASU 2016-15 is effective for the Company for interim and annual reporting periods beginning after December 15, 2017. Entities generally must apply the guidance retrospectively to all periods presented. Adoption of ASU 2016-15 is not expected to have a material impact on the Company's financial statements.


- 53 -


FASB Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12")

On August 28, 2017, the FASB issued ASU 2017-12, which amends the hedge accounting recognition and presentation requirements in ASC815 in order to improve transparency and understandability of information and reduce the complexity. The update expands the types of transactions eligible for hedge accounting, eliminates the requirement to separately measure and present hedge ineffectiveness, simplifies hedge effectiveness assessments and updates documentation and presentation requirements. ASU 2017-12 is effective for the Company for fiscal years beginning after December 15, 2018, and interim periods therein; however, early adoption is permitted. The Company is evaluating the impact the adoption of ASU 2017-12 will have on the Company's financial statements.
 

- 54 -


( 2 ) Securities
Trading Securities
 
The fair value and net unrealized gain (loss) included in trading securities are as follows (in thousands):
 
 
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair
Value
 
Net Unrealized Gain (Loss)
U.S. government agency debentures
 
$
30,162

 
$
(101
)
 
$
6,234

 
$
(4
)
 
$
15,705

 
$
(7
)
U.S. government agency residential mortgage-backed securities
 
516,760

 
723

 
310,067

 
635

 
464,749

 
876

Municipal and other tax-exempt securities
 
56,148

 
153

 
14,427

 
50

 
54,856

 
(100
)
Other trading securities
 
11,047

 
23

 
6,900

 
57

 
11,305

 
14

Total trading securities
 
$
614,117

 
$
798

 
$
337,628

 
$
738

 
$
546,615

 
$
783

Investment Securities
 
The amortized cost and fair values of investment securities are as follows (in thousands):

 
 
September 30, 2017
 
 
Amortized
 
Fair
 
Gross Unrealized 1
 
 
Cost
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
246,000

 
$
249,250

 
$
3,415

 
$
(165
)
U.S. government agency residential mortgage-backed securities – Other
 
16,926

 
17,458

 
594

 
(62
)
Other debt securities
 
203,636

 
223,187

 
20,141

 
(590
)
Total investment securities
 
$
466,562

 
$
489,895

 
$
24,150

 
$
(817
)
1  
Gross unrealized gains and losses are not recognized in Accumulated Other Comprehensive Income "AOCI" in the Consolidated Balance Sheets.
 
 
December 31, 2016
 
 
Amortized
 
Fair
 
Gross Unrealized 1
 
 
Cost
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
320,364

 
$
321,225

 
$
2,272

 
$
(1,411
)
U.S. government agency residential mortgage-backed securities – Other
 
20,777

 
21,473

 
767

 
(71
)
Other debt securities
 
205,004

 
222,795

 
18,115

 
(324
)
Total investment securities
 
$
546,145

 
$
565,493

 
$
21,154

 
$
(1,806
)
1  
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
 
 
September 30, 2016
 
 
Amortized
 
Fair
 
Gross Unrealized 1
 
 
Cost
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
323,225

 
$
327,788

 
$
4,745

 
$
(182
)
U.S. government agency residential mortgage-backed securities – Other
 
22,166

 
23,452

 
1,286

 
—

Other debt securities
 
201,066

 
229,070

 
28,014

 
(10
)
Total investment securities
 
$
546,457

 
$
580,310

 
$
34,045

 
$
(192
)
1  
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

- 55 -


The amortized cost and fair values of investment securities at September 30, 2017 , by contractual maturity, are as shown in the following table (dollars in thousands):
 
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 
Total
 
Weighted
Average
Maturity²
Municipal and other tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
 
$
84,786

 
$
107,938

 
$
16,132

 
$
37,144

 
$
246,000

 
3.51

Fair value
 
84,835

 
108,352

 
16,776

 
39,287

 
249,250

 
 
Nominal yield¹
 
1.75
%
 
2.15
%
 
4.68
%
 
5.21
%
 
2.64
%
 
 
Other debt securities:
 
 

 
 

 
 

 
 

 
 

 
 
Amortized cost
 
13,546

 
47,077

 
130,494

 
12,519

 
203,636

 
6.40

Fair value
 
13,688

 
50,230

 
147,066

 
12,203

 
223,187

 
 
Nominal yield
 
4.10
%
 
4.86
%
 
5.75
%
 
4.47
%
 
5.35
%
 
 
Total fixed maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 
Amortized cost
 
$
98,332

 
$
155,015

 
$
146,626

 
$
49,663

 
$
449,636

 
4.82

Fair value
 
98,523

 
158,582

 
163,842

 
51,490

 
472,437

 
 

Nominal yield
 
2.08
%
 
2.97
%
 
5.63
%
 
5.02
%
 
3.87
%
 
 

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Amortized cost
 
 

 
 

 
 

 
 

 
$
16,926

 
³

Fair value
 
 

 
 

 
 

 
 

 
17,458

 
 

Nominal yield 4
 
 

 
 

 
 

 
 

 
2.76
%
 
 

Total investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

Amortized cost
 
 

 
 

 
 

 
 

 
$
466,562

 
 

Fair value
 
 

 
 

 
 

 
 

 
489,895

 
 

Nominal yield
 
 

 
 

 
 

 
 

 
3.83
%
 
 

1  
Calculated on a taxable equivalent basis using a 39 percent effective tax rate.
2  
Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
3  
The average expected lives of residential mortgage-backed securities were 4.7 years based upon current prepayment assumptions.
4  
The nominal yield on residential mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary - Unaudited for current yields on the investment securities portfolio.


- 56 -


Available for Sale Securities  

The amortized cost and fair value of available for sale securities are as follows (in thousands):
 
 
September 30, 2017
 
 
Amortized
 
Fair
 
Gross Unrealized 1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI ²
U.S. Treasury
 
$
1,000

 
$
999

 
$
—

 
$
(1
)
 
$
—

Municipal and other tax-exempt
 
28,411

 
28,368

 
240

 
(283
)
 
—

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
3,103,869

 
3,108,822

 
25,510

 
(20,557
)
 
—

FHLMC
 
1,331,212

 
1,330,159

 
6,630

 
(7,683
)
 
—

GNMA
 
864,256

 
862,394

 
3,254

 
(5,116
)
 
—

Other
 
25,000

 
25,009

 
51

 
(42
)
 
—

Total U.S. government agencies
 
5,324,337

 
5,326,384

 
35,445

 
(33,398
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
35,853

 
46,695

 
10,842

 
—

 
—

Jumbo-A loans
 
44,944

 
53,299

 
8,355

 
—

 
—

Total private issue
 
80,797

 
99,994

 
19,197

 
—

 
—

Total residential mortgage-backed securities
 
5,405,134

 
5,426,378

 
54,642

 
(33,398
)
 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,899,828

 
2,889,346

 
5,577

 
(16,059
)
 
—

Other debt securities
 
4,400

 
4,153

 
—

 
(247
)
 
—

Perpetual preferred stock
 
12,562

 
16,245

 
3,683

 
—

 
—

Equity securities and mutual funds
 
17,803

 
17,710

 
655

 
(748
)
 
—

Total available for sale securities
 
$
8,369,138

 
$
8,383,199

 
$
64,797

 
$
(50,736
)
 
$
—

1 Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet.
2 Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.

- 57 -


 
 
December 31, 2016
 
 
Amortized
 
Fair
 
Gross Unrealized¹
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI ²
U.S. Treasury
 
$
1,000

 
$
999

 
$
—

 
$
(1
)
 
$
—

Municipal and other tax-exempt
 
41,050

 
40,993

 
343

 
(400
)
 
—

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
3,062,525

 
3,055,676

 
25,066

 
(31,915
)
 
—

FHLMC
 
1,534,451

 
1,531,116

 
8,475

 
(11,810
)
 
—

GNMA
 
878,375

 
873,594

 
2,259

 
(7,040
)
 
—

Total U.S. government agencies
 
5,475,351

 
5,460,386

 
35,800

 
(50,765
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
44,245

 
51,512

 
7,485

 
—

 
(218
)
Jumbo-A loans
 
56,947

 
64,023

 
7,092

 
(16
)
 
—

Total private issue
 
101,192

 
115,535

 
14,577

 
(16
)
 
(218
)
Total residential mortgage-backed securities
 
5,576,543

 
5,575,921

 
50,377

 
(50,781
)
 
(218
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
3,035,750

 
3,017,933

 
5,472

 
(23,289
)
 
—

Other debt securities
 
4,400

 
4,152

 
—

 
(248
)
 
—

Perpetual preferred stock
 
15,561

 
18,474

 
2,913

 
—

 
—

Equity securities and mutual funds
 
17,424

 
18,357

 
1,060

 
(127
)
 
—

Total available for sale securities
 
$
8,691,728

 
$
8,676,829

 
$
60,165

 
$
(74,846
)
 
$
(218
)
1 Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet.
2 Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.

 
 
September 30, 2016
 
 
Amortized
 
Fair
 
Gross Unrealized 1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI ²
U.S. Treasury
 
$
1,000

 
$
1,002

 
$
2

 
$
—

 
$
—

Municipal and other tax-exempt
 
41,943

 
42,092

 
602

 
(453
)
 
—

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
3,035,041

 
3,101,136

 
67,859

 
(1,764
)
 
—

FHLMC
 
1,611,887

 
1,641,178

 
29,640

 
(349
)
 
—

GNMA
 
924,176

 
926,358

 
3,530

 
(1,348
)
 
—

Total U.S. government agencies
 
5,571,104

 
5,668,672

 
101,029

 
(3,461
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
47,039

 
54,065

 
7,230

 
—

 
(204
)
Jumbo-A loans
 
61,377

 
67,538

 
6,187

 
(26
)
 
—

Total private issue
 
108,416

 
121,603

 
13,417

 
(26
)
 
(204
)
Total residential mortgage-backed securities
 
5,679,520

 
5,790,275

 
114,446

 
(3,487
)
 
(204
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,942,988

 
2,986,495

 
45,329

 
(1,822
)
 
—

Other debt securities
 
4,400

 
4,151

 
—

 
(249
)
 
—

Perpetual preferred stock
 
15,562

 
19,578

 
4,016

 
—

 
—

Equity securities and mutual funds
 
17,337

 
18,690

 
1,370

 
(17
)
 
—

Total available for sale securities
 
$
8,702,750

 
$
8,862,283

 
$
165,765

 
$
(6,028
)
 
$
(204
)
1  
Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet.
2  
Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.


- 58 -


The amortized cost and fair values of available for sale securities at September 30, 2017 , by contractual maturity, are as shown in the following table (dollars in thousands):
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 
Total
 
Weighted
Average
Maturity 5
U.S. Treasuries:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$
1,000

 
$
—

 
$
—

 
$
—

 
$
1,000

 
0.29

Fair value
999

 
—

 
—

 
—

 
999

 
 
Nominal yield
0.87
%
 
—
%
 
—
%
 
—
%
 
0.87
%
 
 
Municipal and other tax-exempt:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
8,754

 
$
4,163

 
$
—

 
$
15,494

 
$
28,411

 
9.00

Fair value
8,780

 
4,313

 
—

 
15,275

 
28,368

 
 
Nominal yield¹
3.25
%
 
5.13
%
 
—
%
 
2.26
%
6  
2.99
%
 
 
Commercial mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$
59,483

 
$
978,565

 
$
1,616,383

 
$
245,397

 
$
2,899,828

 
6.90

Fair value
59,402

 
976,466

 
1,610,642

 
242,836

 
2,889,346

 
 
Nominal yield
1.25
%
 
1.85
%
 
1.92
%
 
1.92
%
 
1.88
%
 
 
Other debt securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
—

 
$
—

 
$
—

 
$
4,400

 
$
4,400

 
29.91

Fair value
—

 
—

 
—

 
4,153

 
4,153

 
 
Nominal yield
—
%
 
—
%
 
—
%
 
1.71
%
6  
1.71
%
 
 
Total fixed maturity securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
69,237

 
$
982,728

 
$
1,616,383

 
$
265,291

 
$
2,933,639

 
6.96

Fair value
69,181

 
980,779

 
1,610,642

 
262,264

 
2,922,866

 
 
Nominal yield
1.50
%
 
1.86
%
 
1.92
%
 
1.93
%
 
1.88
%
 
 
Residential mortgage-backed securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
 

 
 

 
 

 
 

 
$
5,405,134

 
2  

Fair value
 

 
 

 
 

 
 

 
5,426,378

 
 
Nominal yield 4
 

 
 

 
 

 
 

 
1.99
%
 
 
Equity securities and mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Amortized cost
 

 
 

 
 

 
 

 
$
30,365

 
³

Fair value
 

 
 

 
 

 
 

 
33,955

 
 

Nominal yield
 

 
 

 
 

 
 

 
—
%
 
 

Total available-for-sale securities:
 

 
 

 
 

 
 

 
 
 
 

Amortized cost
 

 
 

 
 

 
 

 
$
8,369,138

 
 

Fair value
 

 
 

 
 

 
 

 
8,383,199

 
 

Nominal yield
 

 
 

 
 

 
 

 
1.95
%
 
 

1  
Calculated on a taxable equivalent basis using a 39 percent effective tax rate.
2  
The average expected lives of mortgage-backed securities were 4.0 years years based upon current prepayment assumptions.
3  
Primarily common stock and preferred stock of corporate issuers with no stated maturity.
4  
The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary –– Unaudited following for current yields on available for sale securities portfolio.
5  
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
6  
Nominal yield on municipal and other tax-exempt securities and other debt securities with contractual maturity dates over ten years are based on variable rates which generally are reset within 35 days .


- 59 -


Sales of available for sale securities resulted in gains and losses as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Proceeds
$
265,632

 
$
232,239

 
$
966,044

 
$
1,027,379

Gross realized gains
2,768

 
2,415

 
7,623

 
11,705

Gross realized losses
(281
)
 
(21
)
 
(2,707
)
 
(21
)
Related federal and state income tax expense
967

 
931

 
1,912

 
4,545


A summary of investment and available for sale securities that have been pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes, as required by law was as follows (in thousands):
 
Sept. 30, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Investment:
 
 
 
 
 
Amortized cost
$
237,525

 
$
322,208

 
$
301,754

Fair value
241,208

 
323,808

 
307,264

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
Amortized cost
6,559,615

 
7,353,116

 
7,098,721

Fair value
6,551,240

 
7,327,470

 
7,213,520


The secured parties do not have the right to sell or repledge these securities.

At September 30, 2017 , trading securities and receivables collateralized by securities with a fair value of $224 million were pledged as collateral at the Federal Home Loan Bank (FHLB) for the trading activities of BOK Financial Securities, Inc. No trading securities were pledged as collateral as of December 31, 2016 and no trading securities were pledged as collateral at September 30, 2016 .

- 60 -


Temporarily Impaired Securities as of September 30, 2017
(in thousands):
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
63

 
$
80,235

 
$
70

 
$
9,795

 
$
95

 
$
90,030

 
$
165

U.S. government agency residential mortgage-backed securities – Other
 
1

 
3,578

 
62

 
—

 
—

 
3,578

 
62

Other debt securities
 
28

 
10,022

 
566

 
427

 
24

 
10,449

 
590

Total investment securities
 
92

 
$
93,835

 
$
698

 
$
10,222

 
$
119

 
$
104,057

 
$
817


 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
1

 
$
999

 
$
1

 
$
—

 
$
—

 
$
999

 
$
1

Municipal and other tax-exempt
 
11

 
576

 
1

 
4,785

 
282

 
5,361

 
283

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 
 
 

 
 

 
 

 
 

 


 


FNMA
 
81

 
1,054,171

 
10,288

 
480,994

 
10,269

 
1,535,165

 
20,557

FHLMC
 
42

 
477,823

 
3,546

 
198,478

 
4,137

 
676,301

 
7,683

GNMA
 
17

 
166,565

 
1,718

 
124,037

 
3,398

 
290,602

 
5,116

Other
 
1

 
19,958

 
42

 
—

 
—

 
19,958

 
42

Total U.S. government agencies
 
141


1,718,517


15,594


803,509


17,804


2,522,026


33,398

Private issue:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Jumbo-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total private issue
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total residential mortgage-backed securities
 
141

 
1,718,517

 
15,594

 
803,509

 
17,804

 
2,522,026

 
33,398

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
137

 
1,154,911

 
7,194

 
559,984

 
8,865

 
1,714,895

 
16,059

Other debt securities
 
2

 
—

 
—

 
4,153

 
247

 
4,153

 
247

Perpetual preferred stocks
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity securities and mutual funds
 
91

 
3,672

 
696

 
1,428

 
52

 
5,100

 
748

Total available for sale securities
 
383

 
$
2,878,675


$
23,486


$
1,373,859


$
27,250


$
4,252,534


$
50,736




- 61 -


Temporarily Impaired Securities as of December 31, 2016
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
151

 
$
219,892

 
$
1,316

 
$
4,333

 
$
95

 
$
224,225

 
$
1,411

U.S. government agency residential mortgage-backed securities – Other
 
1

 
4,358

 
71

 
—

 
—

 
4,358

 
71

Other debt securities
 
41

 
11,820

 
322

 
855

 
2

 
12,675

 
324

Total investment securities
 
193

 
$
236,070

 
$
1,709

 
$
5,188

 
$
97

 
$
241,258

 
$
1,806


 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:
 
 

 
 

 
 

 
 

 
 

 


 


U.S. Treasury
 
1

 
$
999

 
$
1

 
$
—

 
$
—

 
$
999

 
$
1

Municipal and other tax-exempt
 
24

 
15,666

 
22

 
4,689

 
378

 
20,355

 
400

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
91

 
1,787,644

 
30,238

 
72,105

 
1,677

 
1,859,749

 
31,915

FHLMC
 
58

 
964,017

 
11,210

 
18,307

 
600

 
982,324

 
11,810

GNMA
 
31

 
548,637

 
6,145

 
25,796

 
895

 
574,433

 
7,040

Total U.S. government agencies
 
180

 
3,300,298

 
47,593

 
116,208

 
3,172

 
3,416,506

 
50,765

Private issue 1 :
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
5

 
7,931

 
174

 
7,410

 
44

 
15,341

 
218

Jumbo-A loans
 
1

 
—

 
—

 
6,098

 
16

 
6,098

 
16

Total private issue
 
6

 
7,931

 
174

 
13,508

 
60

 
21,439

 
234

Total residential mortgage-backed securities
 
186

 
3,308,229

 
47,767

 
129,716

 
3,232

 
3,437,945

 
50,999

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
171

 
1,904,584

 
22,987

 
38,875

 
302

 
1,943,459

 
23,289

Other debt securities
 
2

 
—

 
—

 
4,152

 
248

 
4,152

 
248

Perpetual preferred stocks
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity securities and mutual funds
 
104

 
2,127

 
41

 
817

 
86

 
2,944

 
127

Total available for sale securities
 
488

 
$
5,231,605


$
70,818


$
178,249


$
4,246


$
5,409,854


$
75,064

1  
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.



- 62 -


Temporarily Impaired Securities as of September 30, 2016
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
75

 
$
100,624

 
$
106

 
$
4,359

 
$
76

 
$
104,983

 
$
182

U.S. government agency residential mortgage-backed securities – Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other debt securities
 
3

 
444

 
6

 
856

 
4

 
1,300

 
10

Total investment securities
 
78

 
$
101,068

 
$
112

 
$
5,215

 
$
80

 
$
106,283

 
$
192


 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:
 
 

 
 

 
 

 
 

 
 

 


 


U.S. Treasury
 
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Municipal and other tax-exempt 1
 
20

 
2,210

 
3

 
6,396

 
450

 
8,606

 
453

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
14

 
365,201

 
1,712

 
14,229

 
52

 
379,430

 
1,764

FHLMC
 
6

 
122,713

 
91

 
20,306

 
258

 
143,019

 
349

GNMA
 
16

 
230,043

 
1,157

 
212,705

 
191

 
442,748

 
1,348

Total U.S. government agencies
 
36

 
717,957

 
2,960

 
247,240

 
501

 
965,197

 
3,461

Private issue 1 :
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
5

 
8,231

 
141

 
7,773

 
63

 
16,004

 
204

Jumbo-A loans
 
1

 
6,583

 
26

 
—

 
—

 
6,583

 
26

Total private issue
 
6

 
14,814

 
167

 
7,773

 
63

 
22,587

 
230

Total residential mortgage-backed securities
 
42

 
732,771

 
3,127

 
255,013

 
564

 
987,784

 
3,691

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
33

 
372,805

 
1,656

 
60,851

 
166

 
433,656

 
1,822

Other debt securities
 
2

 
—

 
—

 
4,151

 
249

 
4,151

 
249

Perpetual preferred stocks
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity securities and mutual funds
 
33

 
86

 
—

 
886

 
17

 
972

 
17

Total available for sale securities
 
130

 
$
1,107,872

 
$
4,786

 
$
327,297

 
$
1,446

 
$
1,435,169

 
$
6,232

1  
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.

For debt securities, management determines whether it intends to sell or if it is more-likely-than-not that it will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. Impaired equity securities, including perpetual preferred stocks, are evaluated based on the near-term prospects of the investment in relation to the severity and duration of the impairment and management's ability and intent to hold the securities until fair value recovers. Based on this evaluation as of September 30, 2017 , 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.
 
 
 

- 63 -


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. Changes in the fair value are recognized in earnings as they occur. Certain U.S. Treasury securities, 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):
 
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair
Value
 
Net Unrealized Gain (Loss)
U.S. Treasury
 
$
—

 
$
—

 
$
—

 
$
—

 
$
222,409

 
$
(2,397
)
U.S. government agency residential mortgage-backed securities
 
819,531

 
1,671

 
77,046

 
(1,777
)
 
—

 
—

Total
 
$
819,531

 
$
1,671

 
$
77,046

 
$
(1,777
)
 
$
222,409

 
$
(2,397
)


Restricted Equity Securities

Restricted equity securities primarily include stock we are required to hold as members of the Federal Reserve system and the 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 are restricted and they lack a market. A summary of restricted equity securities follows (in thousands):

 
Sept. 30, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
Federal Reserve stock
$
36,676

 
$
36,498

 
$
36,283

Federal Home Loan Bank stock
310,622

 
270,541

 
296,907

Other
244

 
201

 
201

Total
$
347,542


$
307,240


$
333,391


- 64 -


( 3 ) Derivatives
 
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 reported in earnings as they occur. Credit risk is also considered in determining fair value.

When bilateral netting agreements or similar arrangements 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 type by counterparty basis.

Derivative contracts may 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.
 
None of these derivative contracts have been designated as hedging instruments for accounting purposes.

Customer Risk Management Programs
 
BOK Financial offers programs to 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 borrowers to modify interest rate terms of their loans or to-be-announced securities used by 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 the risk of 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.
 
Internal Risk Management Programs
 
BOK Financial may use derivative contracts in managing its interest rate sensitivity, as part of its economic hedge of the change in the fair value of mortgage servicing rights and as an economic hedge of trading securities. As of September 30, 2017 , derivative contracts under the internal risk management programs were primarily used as part of the economic hedges of the change in the fair value of the mortgage servicing rights and trading securities.

As discussed in Note 6 , 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 6 for additional discussion of notional, fair value and impact on earnings of these contracts.

- 65 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at September 30, 2017 (in thousands):
 
 
Assets
 
 
Notional 1
 
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
 
$
14,244,442

 
$
38,875

 
$
(9,547
)
 
$
29,328

 
$
—

 
$
29,328

Interest rate swaps
 
1,368,210

 
27,016

 
—

 
27,016

 
(2,820
)
 
24,196

Energy contracts
 
983,794

 
45,368

 
(35,166
)
 
10,202

 
(238
)
 
9,964

Agricultural contracts
 
60,745

 
1,870

 
(1,172
)
 
698

 
—

 
698

Foreign exchange contracts
 
252,525

 
249,788

 
—

 
249,788

 
—

 
249,788

Equity option contracts
 
101,841

 
4,871

 
—

 
4,871

 
(920
)
 
3,951

Total customer risk management programs
 
17,011,557

 
367,788

 
(45,885
)
 
321,903

 
(3,978
)
 
317,925

Internal risk management programs
 
11,941,260

 
34,634

 
—

 
34,634

 
—

 
34,634

Total derivative contracts
 
$
28,952,817

 
$
402,422

 
$
(45,885
)
 
$
356,537

 
$
(3,978
)
 
$
352,559

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
14,244,442

 
$
34,948

 
$
(9,547
)
 
$
25,401

 
$
(374
)
 
$
25,027

Interest rate swaps
 
1,368,230

 
27,056

 
—

 
27,056

 
(16,599
)
 
10,457

Energy contracts
 
939,350

 
42,744

 
(35,166
)
 
7,578

 
—

 
7,578

Agricultural contracts
 
60,746

 
1,846

 
(1,172
)
 
674

 
—

 
674

Foreign exchange contracts
 
249,269

 
245,925

 
—

 
245,925

 
(1,395
)
 
244,530

Equity option contracts
 
101,841

 
4,871

 
—

 
4,871

 
—

 
4,871

Total customer risk management programs
 
16,963,878

 
357,390

 
(45,885
)
 
311,505

 
(18,368
)
 
293,137

Internal risk management programs
 
9,180,531

 
43,190

 
—

 
43,190

 
—

 
43,190

Total derivative contracts
 
$
26,144,409

 
$
400,580

 
$
(45,885
)
 
$
354,695

 
$
(18,368
)
 
$
336,327

1  
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.



- 66 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2016 (in thousands):

 
 
Assets
 
 
Notional 1
 
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
 
$
16,949,152

 
$
180,695

 
$
(60,555
)
 
$
120,140

 
$
—

 
$
120,140

Interest rate swaps
 
1,403,408

 
34,442

 
—

 
34,442

 
(4,567
)
 
29,875

Energy contracts
 
835,566

 
64,140

 
(28,298
)
 
35,842

 
(71
)
 
35,771

Agricultural contracts
 
53,209

 
1,382

 
(515
)
 
867

 
—

 
867

Foreign exchange contracts
 
580,886

 
494,349

 
—

 
494,349

 
(5,183
)
 
489,166

Equity option contracts
 
100,924

 
4,357

 
—

 
4,357

 
(730
)
 
3,627

Total customer risk management programs
 
19,923,145

 
779,365

 
(89,368
)
 
689,997

 
(10,551
)
 
679,446

Internal risk management programs
 
2,514,169

 
10,426

 
—

 
10,426

 
—

 
10,426

Total derivative contracts
 
$
22,437,314

 
$
789,791

 
$
(89,368
)
 
$
700,423

 
$
(10,551
)
 
$
689,872

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
Notional 1
 
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
 
$
16,637,532

 
$
176,928

 
$
(60,555
)
 
$
116,373

 
$
—

 
$
116,373

Interest rate swaps
 
1,403,408

 
34,442

 
—

 
34,442

 
(11,977
)
 
22,465

Energy contracts
 
820,365

 
64,306

 
(28,298
)
 
36,008

 
(31,534
)
 
4,474

Agricultural contracts
 
53,216

 
1,365

 
(515
)
 
850

 
(769
)
 
81

Foreign exchange contracts
 
580,712

 
494,695

 
—

 
494,695

 
(3,630
)
 
491,065

Equity option contracts
 
100,924

 
4,357

 
—

 
4,357

 
—

 
4,357

Total customer risk management programs
 
19,596,157

 
776,093

 
(89,368
)
 
686,725

 
(47,910
)
 
638,815

Internal risk management programs
 
2,582,202

 
25,716

 
—

 
25,716

 
—

 
25,716

Total derivative contracts
 
$
22,178,359

 
$
801,809

 
$
(89,368
)
 
$
712,441

 
$
(47,910
)
 
$
664,531

1  
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.





- 67 -


The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at September 30, 2016 (in thousands):
 
 
Assets
 
 
Notional 1
 
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
 
$
20,078,974

 
$
90,999

 
$
(38,678
)
 
$
52,321

 
$
—

 
$
52,321

Interest rate swaps
 
1,323,045

 
49,279

 
—

 
49,279

 
(794
)
 
48,485

Energy contracts
 
729,202

 
41,775

 
(28,464
)
 
13,311

 
(288
)
 
13,023

Agricultural contracts
 
53,002

 
3,950

 
(1,571
)
 
2,379

 
(1,076
)
 
1,303

Foreign exchange contracts
 
550,828

 
536,264

 
—

 
536,264

 
(7,577
)
 
528,687

Equity option contracts
 
103,464

 
4,654

 
—

 
4,654

 
(730
)
 
3,924

Total customer risk management programs
 
22,838,515

 
726,921

 
(68,713
)
 
658,208

 
(10,465
)
 
647,743

Internal risk management programs
 
2,298,038

 
7,335

 
—

 
7,335

 
—

 
7,335

Total derivative contracts
 
$
25,136,553

 
$
734,256

 
$
(68,713
)
 
$
665,543

 
$
(10,465
)
 
$
655,078

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
Notional 1
 
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
 
$
19,776,883

 
$
86,812

 
$
(38,678
)
 
$
48,134

 
$
(39,042
)
 
$
9,092

Interest rate swaps
 
1,323,045

 
49,518

 
—

 
49,518

 
(34,457
)
 
15,061

Energy contracts
 
695,835

 
40,888

 
(28,464
)
 
12,424

 
(3,857
)
 
8,567

Agricultural contracts
 
52,997

 
3,943

 
(1,571
)
 
2,372

 
—

 
2,372

Foreign exchange contracts
 
550,943

 
536,660

 
—

 
536,660

 
(5,396
)
 
531,264

Equity option contracts
 
103,464

 
4,654

 
—

 
4,654

 
—

 
4,654

Total customer risk management programs
 
22,503,167

 
722,475

 
(68,713
)
 
653,762

 
(82,752
)
 
571,010

Internal risk management programs
 
1,485,691

 
2,977

 
—

 
2,977

 
—

 
2,977

Total derivative contracts
 
$
23,988,858

 
$
725,452

 
$
(68,713
)
 
$
656,739

 
$
(82,752
)
 
$
573,987

1  
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.







- 68 -


The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the income statement (in thousands):
 
 
Three Months Ended
 
 
September 30, 2017
 
September 30, 2016
 
 
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
 
$
9,181

 
$
—

 
$
11,584

 
$
—

Interest rate swaps
 
767

 
—

 
710

 
—

Energy contracts
 
378

 
—

 
1,222

 
—

Agricultural contracts
 
38

 
—

 
25

 
—

Foreign exchange contracts
 
164

 
—

 
218

 
—

Equity option contracts
 
—

 
—

 
—

 
—

Total customer risk management programs
 
10,528

 
—

 
13,759

 
—

Internal risk management programs
 
(711
)
 
1,033

 
(1,608
)
 
2,226

Total derivative contracts
 
$
9,817

 
$
1,033

 
$
12,151

 
$
2,226

 
 
Nine Months Ended
 
 
September 30, 2017
 
September 30, 2016
 
 
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
 
$
26,413

 
$
—

 
$
28,886

 
$
—

Interest rate swaps
 
1,891

 
—

 
1,758

 
—

Energy contracts
 
4,917

 
—

 
4,667

 
—

Agricultural contracts
 
58

 
—

 
86

 
—

Foreign exchange contracts
 
524

 
—

 
730

 
—

Equity option contracts
 
—

 
—

 
—

 
—

Total customer risk management programs
 
33,803

 
—

 
36,127

 
—

Internal risk management programs
 
5,307

 
3,824

 
(1,617
)
 
20,130

Total derivative contracts
 
$
39,110

 
$
3,824

 
$
34,510

 
$
20,130



- 69 -


( 4 ) Loans and Allowances for Credit Losses

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 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 principal amount outstanding. 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 more than 90 days 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 on nonaccruing loans are applied to principal or recognized as interest income, according to management’s judgment as to the collectability of principal. Loans may be returned to accruing status when, in the opinion of management, full collection of principal and interest, including principal previously charged off, is probable based on improvements in the borrower’s financial condition or a sustained period of performance.

Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ("TDRs"). All TDRs are classified as nonaccruing, 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 current collateral value, debt service ratio and other underwriting standards. Nonaccruing loans may be renewed and will remain classified as nonaccruing. 

All loans are charged off when the loan balance or a portion of the loan balance is no longer supported by the paying capacity of the borrower or when the required cash flow is reduced in a TDR. The charge-off amount is determined through a quarterly evaluation of available cash resources and collateral value and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans that are past due between 60 days and 180 days , based on the loan product type, are charged off. Loans to borrowers whose personal obligation has been discharged through Chapter 7 bankruptcy proceedings are charged off within 60 days of notice of the bankruptcy filing, regardless of payment status.

Loan origination and commitment fees and direct loan acquisition and origination costs are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable.

Qualifying residential mortgage loans guaranteed by U.S. government agencies have been sold into GNMA pools. Under certain performance conditions specified in government programs, the Company may have 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 impaired because we do not expect to receive all principal and interest based on the loan's contractual terms. The principal balance continues to be guaranteed; however, interest accrues at a curtailed rate as specified in the programs. The carrying value of these loans is reduced based on an estimate of the 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 based on 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 a further disaggregation of portfolio segments based on the risk characteristics of the loans and the Company’s method for monitoring and assessing credit risk. 


- 70 -


Portfolio segments of the loan portfolio are as follows (in thousands):

 
 
September 30, 2017
 
December 31, 2016
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
2,225,470

 
$
8,393,564

 
$
176,900

 
$
10,795,934

 
$
2,327,085

 
$
7,884,786

 
$
178,953

 
$
10,390,824

Commercial real estate
 
564,681

 
2,950,486

 
2,975

 
3,518,142

 
624,187

 
3,179,338

 
5,521

 
3,809,046

Residential mortgage
 
1,589,013

 
311,231

 
45,506

 
1,945,750

 
1,647,357

 
256,255

 
46,220

 
1,949,832

Personal
 
153,750

 
793,003

 
255

 
947,008

 
154,971

 
684,697

 
290

 
839,958

Total
 
$
4,532,914

 
$
12,448,284

 
$
225,636

 
$
17,206,834

 
$
4,753,600

 
$
12,005,076

 
$
230,984

 
$
16,989,660

Accruing loans past due (90 days) 1
 
 

 
 

 
 

 
$
253

 
 

 
 

 
 

 
$
5

 
 
September 30, 2016
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,991,423

 
$
7,952,276

 
$
176,464

 
$
10,120,163

Commercial real estate
 
565,429

 
3,220,819

 
7,350

 
3,793,598

Residential mortgage
 
1,572,288

 
248,053

 
52,452

 
1,872,793

Personal
 
104,408

 
573,138

 
686

 
678,232

Total
 
$
4,233,548

 
$
11,994,286

 
$
236,952

 
$
16,464,786

Accruing loans past due (90 days) 1
 
 

 
 

 
 

 
$
3,839

1  
Excludes residential mortgage loans guaranteed by agencies of the U.S. government

At September 30, 2017 , $5.9 billion or 34 percent of our total loan portfolio is to businesses and individuals attributed to the Texas market and $3.4 billion or 20 percent of the total loan portfolio is to businesses and individuals attributed to the Oklahoma market. These geographic concentrations subject the loan portfolio to the general economic conditions within these areas.

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 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, 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 ongoing 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 September 30, 2017 , commercial loans attributed to the Texas market totaled $3.7 billion or 34 percent of the commercial loan portfolio segment and commercial loans attributed to the Oklahoma market totaled $2.1 billion or 19 percent of the commercial loan portfolio segment.

The commercial loan portfolio segment is further divided into loan classes. The energy loan class totaled $2.9 billion or 17 percent of total loans at September 30, 2017 , including $2.3 billion of outstanding loans to energy producers. Approximately 57 percent of committed production loans are secured by properties primarily producing oil and 43 percent are secured by properties producing natural gas. The services loan class totaled $3.0 billion or 17 percent of total loans at September 30, 2017 . Approximately $1.5 billion of loans in the services category consist of loans with individual balances of less than $10 million . Businesses included in the services class include governmental, educational services, consumer services, loans to entities providing services for real estate and construction and commercial services. The healthcare loan class totaled $2.2 billion or 13 percent of total loans at September 30, 2017 . 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.


- 71 -


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 September 30, 2017 , 35 percent of commercial real estate loans are secured by properties primarily located in the Dallas and Houston areas of Texas. An additional 13 percent of commercial real estate loans are secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma. 

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 unsecured loans. Residential mortgage and personal loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. 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 percent .  Loan-to-value (“LTV”) ratios are tiered from 60 percent to 100 percent , depending on the market. Special mortgage programs include fixed and variable fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years , then adjust annually thereafter. 

At September 30, 2017 , residential mortgage loans included $187 million of loans guaranteed by U.S. government agencies previously sold into GNMA mortgage pools. These loans either have been repurchased or are eligible to be repurchased by the Company when certain defined delinquency criteria are met. Although payments on these loans generally are past due more than 90 days, interest continues to accrue based on the government guarantee.

Home equity loans totaled $744 million at September 30, 2017 . Approximately 64 percent of the home equity loan portfolio is comprised of first lien loans and 36 percent of the home equity portfolio is comprised of junior lien loans. Junior lien loans are distributed 47 percent to amortizing term loans and 53 percent to revolving lines of credit. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 40 percent. 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 a 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.

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 September 30, 2017 , outstanding commitments totaled $9.7 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.


- 72 -


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 September 30, 2017 , outstanding standby letters of credit totaled $666 million . Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At September 30, 2017 , outstanding commercial letters of credit totaled $2.3 million .

Allowances for Credit Losses

BOK Financial maintains an allowance for loan losses and an accrual for off-balance sheet credit risk. The accrual for off-balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees. As discussed in greater detail in Note 6 , the Company also has separate accruals for 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 appropriateness of the allowance for loan losses and accrual for off-balance sheet credit losses (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.

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, risk concentration and related factors. There have been no material changes in the approach or techniques utilized in developing the allowance for loan losses and the accrual for off-balance sheet credit losses for the three and nine months ended September 30, 2017 .

Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due according to the contractual terms of the loan agreements. Internally risk graded loans are evaluated individually for impairment. Substantially all commercial and commercial real estate loans and certain residential mortgage and consumer loans are risk graded based on evaluation of the borrowers' ability to repay. Certain commercial loans and most residential mortgage and consumer loans are small balance, homogeneous pools of loans that are not risk graded. Non-risk graded loans are identified as impaired based on performance status. Generally, non-risk graded loans 90 days or more past due or modified in a TDR or in bankruptcy are considered to be impaired.

Specific allowances for impaired loans are measured by an evaluation of estimated future cash flows discounted at the loans’ initial effective interest rate or the fair value of collateral for certain collateral dependent loans. 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 are generally not adjusted by the Company. Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values have declined. Collateral value of mineral rights is generally determined by our internal staff of engineers based on projected 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 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.


- 73 -


General allowances for unimpaired loans are based on estimated loss rates by loan class. The gross loss rate for each loan class is determined by the greater of the current gross loss rate based on the most recent twelve months or a ten-year gross loss rate. Recoveries are not directly considered in the estimation of 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, 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 average risk grade. This comparison determines whether credit risk in each loan class is increasing or decreasing. 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 specific loan classes which have not yet been represented in the 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 loan or loan class. These factors include trends in the economy of our primary lending areas, concentrations in large balance loans and other relevant factors.

An accrual for off-balance sheet credit losses is included in Other liabilities in the Consolidated Balance Sheets. The appropriateness of this 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.

The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the three months ended September 30, 2017 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
137,742

 
$
58,580

 
$
18,259

 
$
8,106

 
$
27,374

 
$
250,061

Provision for loan losses
 
2,474

 
(2,914
)
 
168

 
598

 
704

 
1,030

Loans charged off
 
(4,429
)
 
—

 
(168
)
 
(1,228
)
 
—

 
(5,825
)
Recoveries
 
1,014

 
739

 
134

 
550

 
—

 
2,437

Ending balance
 
$
136,801

 
$
56,405

 
$
18,393

 
$
8,026

 
$
28,078

 
$
247,703

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
6,301

 
$
84

 
$
38

 
$
8

 
$
—

 
$
6,431

Provision for off-balance sheet credit losses
 
(976
)
 
(49
)
 
1

 
(6
)
 
—

 
(1,030
)
Ending balance
 
$
5,325

 
$
35

 
$
39

 
$
2

 
$
—

 
$
5,401

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
1,498

 
$
(2,963
)
 
$
169

 
$
592

 
$
704

 
$
—



- 74 -


The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the nine months ended September 30, 2017 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
140,213

 
$
50,749

 
$
18,224

 
$
8,773

 
$
28,200

 
$
246,159

Provision for loan losses
 
665

 
4,050

 
82

 
1,168

 
(122
)
 
5,843

Loans charged off
 
(6,556
)
 
(76
)
 
(444
)
 
(3,774
)
 
—

 
(10,850
)
Recoveries
 
2,479

 
1,682

 
531

 
1,859

 
—

 
6,551

Ending balance
 
$
136,801

 
$
56,405

 
$
18,393

 
$
8,026

 
$
28,078

 
$
247,703

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
11,063

 
$
123

 
$
50

 
$
8

 
$
—

 
$
11,244

Provision for off-balance sheet credit losses
 
(5,738
)
 
(88
)
 
(11
)
 
(6
)
 
—

 
(5,843
)
Ending balance
 
$
5,325

 
$
35

 
$
39

 
$
2

 
$
—

 
$
5,401

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
(5,073
)
 
$
3,962

 
$
71

 
$
1,162

 
$
(122
)
 
$
—


The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the three months ended September 30, 2016 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
145,139

 
$
46,745

 
$
18,690

 
$
6,001

 
$
26,684

 
$
243,259

Provision for loan losses
 
2,420

 
2,551

 
(466
)
 
1,900

 
1,502

 
7,907

Loans charged off
 
(6,266
)
 
—

 
(285
)
 
(1,550
)
 
—

 
(8,101
)
Recoveries
 
177

 
521

 
650

 
690

 
—

 
2,038

Ending balance
 
$
141,470

 
$
49,817

 
$
18,589

 
$
7,041

 
$
28,186

 
$
245,103

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
8,752

 
$
203

 
$
62

 
$
28

 
$
—

 
$
9,045

Provision for off-balance sheet credit losses
 
2,170

 
(53
)
 
(7
)
 
(17
)
 
—

 
2,093

Ending balance
 
$
10,922

 
$
150

 
$
55

 
$
11

 
$
—

 
$
11,138

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
4,590

 
$
2,498

 
$
(473
)
 
$
1,883

 
$
1,502

 
$
10,000



- 75 -


The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the nine months ended September 30, 2016 is summarized as follows (in thousands):

 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
130,334

 
$
41,391

 
$
19,509

 
$
4,164

 
$
30,126

 
$
225,524

Provision for loan losses
 
45,995

 
7,538

 
(829
)
 
4,809

 
(1,940
)
 
55,573

Loans charged off
 
(35,747
)
 
—

 
(1,104
)
 
(4,086
)
 
—

 
(40,937
)
Recoveries
 
888

 
888

 
1,013

 
2,154

 
—

 
4,943

Ending balance
 
$
141,470

 
$
49,817

 
$
18,589

 
$
7,041

 
$
28,186

 
$
245,103

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,506

 
$
153

 
$
30

 
$
22

 
$
—

 
$
1,711

Provision for off-balance sheet credit losses
 
9,416

 
(3
)
 
25

 
(11
)
 
—

 
9,427

Ending balance
 
$
10,922

 
$
150

 
$
55

 
$
11

 
$
—

 
$
11,138

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
55,411

 
$
7,535

 
$
(804
)
 
$
4,798

 
$
(1,940
)
 
$
65,000


The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at September 30, 2017 is as follows (in thousands):
 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,619,034

 
$
123,517

 
$
176,900

 
$
13,284

 
$
10,795,934

 
$
136,801

Commercial real estate
 
3,515,167

 
56,405

 
2,975

 
—

 
3,518,142

 
56,405

Residential mortgage
 
1,900,244

 
18,393

 
45,506

 
—

 
1,945,750

 
18,393

Personal
 
946,753

 
8,026

 
255

 
—

 
947,008

 
8,026

Total
 
16,981,198

 
206,341

 
225,636

 
13,284

 
17,206,834

 
219,625

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,078

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
16,981,198

 
$
206,341

 
$
225,636

 
$
13,284

 
$
17,206,834

 
$
247,703


The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2016 is as follows (in thousands):
 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,211,871

 
$
139,416

 
$
178,953

 
$
797

 
$
10,390,824

 
$
140,213

Commercial real estate
 
3,803,525

 
50,749

 
5,521

 
—

 
3,809,046

 
50,749

Residential mortgage
 
1,903,612

 
18,178

 
46,220

 
46

 
1,949,832

 
18,224

Personal
 
839,668

 
8,773

 
290

 
—

 
839,958

 
8,773

Total
 
16,758,676

 
217,116

 
230,984

 
843

 
16,989,660

 
217,959

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,200

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
16,758,676

 
$
217,116

 
$
230,984

 
$
843

 
$
16,989,660

 
$
246,159


- 76 -



The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at September 30, 2016 is as follows (in thousands):
 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
9,943,699

 
$
134,968

 
$
176,464

 
$
6,502

 
$
10,120,163

 
$
141,470

Commercial real estate
 
3,786,248

 
49,817

 
7,350

 
—

 
3,793,598

 
49,817

Residential mortgage
 
1,820,341

 
18,527

 
52,452

 
62

 
1,872,793

 
18,589

Personal
 
677,546

 
7,041

 
686

 
—

 
678,232

 
7,041

Total
 
16,227,834

 
210,353

 
236,952

 
6,564

 
16,464,786

 
216,917

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,186

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
16,227,834

 
$
210,353

 
$
236,952

 
$
6,564

 
$
16,464,786

 
$
245,103

Credit Quality Indicators

The Company utilizes loan class and risk grading as primary credit quality indicators. Substantially all commercial and commercial real estate loans and certain residential mortgage and consumer loans are risk graded based on a quarterly evaluation of the borrowers’ ability to repay the loans. Certain commercial loans and most residential mortgage and consumer loans are small, homogeneous pools that are not risk graded. 

The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at September 30, 2017 is as follows (in thousands):
 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,750,657

 
$
135,846

 
$
45,277

 
$
955

 
$
10,795,934

 
$
136,801

Commercial real estate
 
3,518,142

 
56,405

 
—

 
—

 
3,518,142

 
56,405

Residential mortgage
 
226,306

 
3,068

 
1,719,444

 
15,325

 
1,945,750

 
18,393

Personal
 
856,030

 
6,043

 
90,978

 
1,983

 
947,008

 
8,026

Total
 
15,351,135

 
201,362

 
1,855,699

 
18,263

 
17,206,834

 
219,625

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,078

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,351,135

 
$
201,362

 
$
1,855,699

 
$
18,263

 
$
17,206,834

 
$
247,703

 

- 77 -


The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at December 31, 2016 is as follows (in thousands):
 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,360,725

 
$
139,293

 
$
30,099

 
$
920

 
$
10,390,824

 
$
140,213

Commercial real estate
 
3,809,046

 
50,749

 
—

 
—

 
3,809,046

 
50,749

Residential mortgage
 
243,703

 
2,893

 
1,706,129

 
15,331

 
1,949,832

 
18,224

Personal
 
744,602

 
5,035

 
95,356

 
3,738

 
839,958

 
8,773

Total
 
15,158,076

 
197,970

 
1,831,584

 
19,989

 
16,989,660

 
217,959

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,200

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,158,076

 
$
197,970

 
$
1,831,584

 
$
19,989

 
$
16,989,660

 
$
246,159


The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at September 30, 2016 is as follows (in thousands):
 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,093,884

 
$
140,552

 
$
26,279

 
$
918

 
$
10,120,163

 
$
141,470

Commercial real estate
 
3,793,598

 
49,817

 
—

 
—

 
3,793,598

 
49,817

Residential mortgage
 
206,430

 
3,028

 
1,666,363

 
15,561

 
1,872,793

 
18,589

Personal
 
586,869

 
4,182

 
91,363

 
2,859

 
678,232

 
7,041

Total
 
14,680,781

 
197,579

 
1,784,005

 
19,338

 
16,464,786

 
216,917

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,186

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,680,781

 
$
197,579

 
$
1,784,005

 
$
19,338

 
$
16,464,786

 
$
245,103


Loans are considered to be performing if they are in compliance with the original terms of the agreement and currently exhibit no factors that cause management to have doubts about the borrowers' ability to remain in compliance with the original terms of the agreement, which is consistent with the regulatory guideline of “pass.” Performing loans also include past due residential mortgages that are guaranteed by agencies of the U.S. government that continue to accrue interest based on criteria of the guarantors' 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. 

Nonaccruing loans represent loans for which full collection of principal and interest 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.


- 78 -


The following table summarizes the Company’s loan portfolio at September 30, 2017 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
 
 
 
 
 
 
 
 
 
Pass
 
Other Loans Especially Mentioned
 
Accruing Substandard
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,436,465

 
$
114,065

 
$
206,768

 
$
110,683

 
$
—

 
$
—

 
$
2,867,981

Services
 
2,932,577

 
26,372

 
7,390

 
1,174

 
—

 
—

 
2,967,513

Wholesale/retail
 
1,637,698

 
9,021

 
9,486

 
1,893

 
—

 
—

 
1,658,098

Manufacturing
 
486,383

 
7,181

 
16,823

 
9,059

 
—

 
—

 
519,446

Healthcare
 
2,150,099

 
31,855

 
33,051

 
24,446

 
—

 
—

 
2,239,451

Other commercial and industrial
 
458,796

 
52

 
9,820

 
29,500

 
45,132

 
145

 
543,445

Total commercial
 
10,102,018

 
188,546

 
283,338

 
176,755

 
45,132

 
145

 
10,795,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
110,178

 
—

 
—

 
1,924

 
—

 
—

 
112,102

Retail
 
724,887

 
689

 
—

 
289

 
—

 
—

 
725,865

Office
 
788,539

 
8,275

 
—

 
275

 
—

 
—

 
797,089

Multifamily
 
998,125

 
—

 
884

 
—

 
—

 
—

 
999,009

Industrial
 
591,080

 
—

 
—

 
—

 
—

 
—

 
591,080

Other commercial real estate
 
292,509

 
—

 
1

 
487

 
—

 
—

 
292,997

Total commercial real estate
 
3,505,318

 
8,964

 
885

 
2,975

 
—

 
—

 
3,518,142

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
224,235

 
393

 
462

 
1,216

 
764,252

 
23,407

 
1,013,965

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
—

 
178,479

 
8,891

 
187,370

Home equity
 
—

 
—

 
—

 
—

 
732,423

 
11,992

 
744,415

Total residential mortgage
 
224,235

 
393

 
462

 
1,216

 
1,675,154

 
44,290

 
1,945,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
855,857

 
49

 
38

 
86

 
90,809

 
169

 
947,008

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,687,428

 
$
197,952

 
$
284,723

 
$
181,032

 
$
1,811,095

 
$
44,604

 
$
17,206,834



- 79 -


The following table summarizes the Company’s loan portfolio at December 31, 2016 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
 
 
 
 
 
 
 
 
 
Pass
 
Other Loans Especially Mentioned
 
Accruing Substandard
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
1,937,790

 
$
119,583

 
$
307,996

 
$
132,499

 
$
—

 
$
—

 
$
2,497,868

Services
 
3,052,002

 
10,960

 
37,855

 
8,173

 
—

 
—

 
3,108,990

Wholesale/retail
 
1,535,463

 
16,886

 
13,062

 
11,407

 
—

 
—

 
1,576,818

Manufacturing
 
468,314

 
26,532

 
15,198

 
4,931

 
—

 
—

 
514,975

Healthcare
 
2,140,458

 
44,472

 
16,161

 
825

 
—

 
—

 
2,201,916

Other commercial and industrial
 
433,789

 
5,309

 
—

 
21,060

 
30,041

 
58

 
490,257

Total commercial
 
9,567,816

 
223,742

 
390,272

 
178,895

 
30,041

 
58

 
10,390,824

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
131,630

 
—

 
470

 
3,433

 
—

 
—

 
135,533

Retail
 
756,418

 
4,745

 
399

 
326

 
—

 
—

 
761,888

Office
 
798,462

 
—

 
—

 
426

 
—

 
—

 
798,888

Multifamily
 
898,800

 
—

 
4,434

 
38

 
—

 
—

 
903,272

Industrial
 
871,673

 
—

 
—

 
76

 
—

 
—

 
871,749

Other commercial real estate
 
336,488

 
—

 
6

 
1,222

 
—

 
—

 
337,716

Total commercial real estate
 
3,793,471

 
4,745

 
5,309

 
5,521

 
—

 
—

 
3,809,046

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
238,769

 
1,186

 
2,331

 
1,417

 
741,679

 
21,438

 
1,006,820

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
—

 
187,541

 
11,846

 
199,387

Home equity
 
—

 
—

 
—

 
—

 
732,106

 
11,519

 
743,625

Total residential mortgage
 
238,769

 
1,186

 
2,331

 
1,417

 
1,661,326

 
44,803

 
1,949,832

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
743,451

 
—

 
1,054

 
97

 
95,163

 
193

 
839,958

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,343,507

 
$
229,673

 
$
398,966

 
$
185,930

 
$
1,786,530

 
$
45,054

 
$
16,989,660



- 80 -


The following table summarizes the Company’s loan portfolio at September 30, 2016 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
 
 
 
 
 
 
 
 
 
Pass
 
Other Loans Especially Mentioned
 
Accruing Substandard
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
1,869,598

 
$
147,153

 
$
361,087

 
$
142,966

 
$
—

 
$
—

 
$
2,520,804

Services
 
2,882,065

 
14,861

 
31,196

 
8,477

 
—

 
—

 
2,936,599

Wholesale/retail
 
1,557,067

 
15,337

 
27,173

 
2,453

 
—

 
—

 
1,602,030

Manufacturing
 
470,702

 
8,774

 
19,736

 
274

 
—

 
—

 
499,486

Healthcare
 
2,022,757

 
42,224

 
19,210

 
855

 
—

 
—

 
2,085,046

Other commercial and industrial
 
415,769

 
2,478

 
10,302

 
21,370

 
26,210

 
69

 
476,198

Total commercial
 
9,217,958

 
230,827

 
468,704

 
176,395

 
26,210

 
69

 
10,120,163

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
155,737

 
—

 
470

 
3,739

 
—

 
—

 
159,946

Retail
 
794,920

 
4,802

 
406

 
1,249

 
—

 
—

 
801,377

Office
 
750,924

 
899

 
—

 
882

 
—

 
—

 
752,705

Multifamily
 
868,501

 
—

 
5,221

 
51

 
—

 
—

 
873,773

Industrial
 
837,945

 
—

 
—

 
76

 
—

 
—

 
838,021

Other commercial real estate
 
366,416

 
—

 
7

 
1,353

 
—

 
—

 
367,776

Total commercial real estate
 
3,774,443

 
5,701

 
6,104

 
7,350

 
—

 
—

 
3,793,598

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
200,590

 
1,192

 
2,134

 
2,514

 
739,686

 
23,442

 
969,558

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
—

 
174,877

 
15,432

 
190,309

Home equity
 
—

 
—

 
—

 
—

 
701,862

 
11,064

 
712,926

Total residential mortgage
 
200,590

 
1,192

 
2,134

 
2,514

 
1,616,425

 
49,938

 
1,872,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
585,287

 
228

 
923

 
431

 
91,108

 
255

 
678,232

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,778,278

 
$
237,948

 
$
477,865

 
$
186,690

 
$
1,733,743

 
$
50,262

 
$
16,464,786




- 81 -


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 TDR and all loans repurchased from GNMA pools.

A summary of impaired loans follows (in thousands):
 
As of
 
For the
 
For the
 
September 30, 2017
 
Three Months Ended
 
Nine Months Ended
 
 
 
Recorded Investment
 
 
 
September 30, 2017
 
September 30, 2017
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
133,643

 
$
110,683

 
$
45,169

 
$
65,514

 
$
4,944

 
$
117,338

 
$
—

 
$
121,591

 
$
—

Services
3,838

 
1,174

 
1,174

 
—

 
—

 
4,464

 
—

 
4,674

 
—

Wholesale/retail
8,418

 
1,893

 
1,893

 
—

 
—

 
6,256

 
—

 
6,650

 
—

Manufacturing
9,674

 
9,059

 
9,059

 
—

 
—

 
9,357

 
—

 
6,995

 
—

Healthcare
24,591

 
24,446

 
474

 
23,972

 
8,323

 
24,476

 
—

 
12,635

 
—

Other commercial and industrial
38,222

 
29,645

 
29,626

 
19

 
17

 
25,138

 
—

 
25,382

 
—

Total commercial
218,386

 
176,900

 
87,395

 
89,505

 
13,284

 
187,029

 
—

 
177,927

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
3,532

 
1,924

 
1,924

 
—

 
—

 
1,988

 
—

 
2,679

 
—

Retail
513

 
289

 
289

 
—

 
—

 
295

 
—

 
308

 
—

Office
287

 
275

 
275

 
—

 
—

 
335

 
—

 
351

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
5

 
—

 
19

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
38

 
—

Other commercial real estate
671

 
487

 
487

 
—

 
—

 
752

 
—

 
855

 
—

Total commercial real estate
5,003

 
2,975

 
2,975

 
—

 
—

 
3,375

 
—

 
4,250

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
29,861

 
24,623

 
24,623

 
—

 
—

 
24,019

 
315

 
23,739

 
912

Permanent mortgage guaranteed by U.S. government agencies 1
193,594

 
187,370

 
187,370

 
—

 
—

 
188,461

 
1,884

 
199,532

 
5,809

Home equity
13,332

 
11,992

 
11,992

 
—

 
—

 
11,880

 
—

 
11,755

 
—

Total residential mortgage
236,787

 
223,985

 
223,985

 
—

 
—

 
224,360

 
2,199

 
235,026

 
6,721

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
290

 
255

 
255

 
—

 
—

 
263

 
—

 
273

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
460,466

 
$
404,115

 
$
314,610

 
$
89,505

 
$
13,284

 
$
415,027

 
$
2,199

 
$
417,476

 
$
6,721

1  
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At September 30, 2017 , $8.9 million of these loans were nonaccruing and $178 million were 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, are recovered.


- 82 -


A summary of impaired loans at December 31, 2016 follows (in thousands): 
 
 
 
 
Recorded Investment
 
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
146,897

 
$
132,499

 
$
121,418

 
$
11,081

 
$
762

Services
 
11,723

 
8,173

 
8,173

 
—

 
—

Wholesale/retail
 
17,669

 
11,407

 
11,407

 
—

 
—

Manufacturing
 
5,320

 
4,931

 
4,931

 
—

 
—

Healthcare
 
1,147

 
825

 
825

 
—

 
—

Other commercial and industrial
 
29,006

 
21,118

 
21,083

 
35

 
35

Total commercial
 
211,762

 
178,953

 
167,837

 
11,116

 
797

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
4,951

 
3,433

 
3,433

 
—

 
—

Retail
 
530

 
326

 
326

 
—

 
—

Office
 
521

 
426

 
426

 
—

 
—

Multifamily
 
1,000

 
38

 
38

 
—

 
—

Industrial
 
76

 
76

 
76

 
—

 
—

Other commercial real estate
 
7,349

 
1,222

 
1,222

 
—

 
—

Total commercial real estate
 
14,427

 
5,521

 
5,521

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
28,830

 
22,855

 
22,809

 
46

 
46

Permanent mortgage guaranteed by U.S. government agencies 1
 
205,564

 
199,387

 
199,387

 
—

 
—

Home equity
 
12,611

 
11,519

 
11,519

 
—

 
—

Total residential mortgage
 
247,005

 
233,761

 
233,715

 
46

 
46

 
 
 
 
 
 
 
 
 
 
 
Personal
 
332

 
290

 
290

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
473,526

 
$
418,525

 
$
407,363

 
$
11,162

 
$
843

1  
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At December 31, 2016 , $12 million of these loans were nonaccruing and $188 million were accruing based on the guarantee by U.S. government agencies.


- 83 -


A summary of impaired loans at September 30, 2016 follows (in thousands): 
 
 
 
For the
 
For the
 
As of September 30, 2016
 
Three Months Ended
 
Nine Months Ended
 
 
 
Recorded Investment
 
 
 
September 30, 2016
 
September 30, 2016
 
Unpaid Principal Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
179,578

 
$
142,966

 
$
100,300

 
$
42,666

 
$
6,502

 
$
155,555

 
$
—

 
$
85,333

 
$
—

Services
11,858

 
8,477

 
8,477

 
—

 
—

 
8,932

 
—

 
9,384

 
—

Wholesale/retail
8,528

 
2,453

 
2,453

 
—

 
—

 
2,613

 
—

 
2,686

 
—

Manufacturing
642

 
274

 
274

 
—

 
—

 
284

 
—

 
303

 
—

Healthcare
1,168

 
855

 
855

 
—

 
—

 
865

 
—

 
964

 
—

Other commercial and industrial
29,176

 
21,439

 
21,439

 
—

 
—

 
10,978

 
—

 
11,031

 
—

Total commercial
230,950

 
176,464

 
133,798

 
42,666

 
6,502

 
179,227

 
—

 
109,701

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Residential construction and land development
6,090

 
3,739

 
3,739

 
—

 
—

 
4,000

 
—

 
4,074

 
—

Retail
1,914

 
1,249

 
1,249

 
—

 
—

 
1,257

 
—

 
1,284

 
—

Office
1,187

 
882

 
882

 
—

 
—

 
744

 
—

 
766

 
—

Multifamily
1,000

 
51

 
51

 
—

 
—

 
58

 
—

 
163

 
—

Industrial
76

 
76

 
76

 
—

 
—

 
76

 
—

 
76

 
—

Other commercial real estate
7,375

 
1,353

 
1,353

 
—

 
—

 
1,430

 
—

 
1,813

 
—

Total commercial real estate
17,642

 
7,350

 
7,350

 
—

 
—

 
7,565

 
—

 
8,176

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Permanent mortgage
32,372

 
25,956

 
25,847

 
109

 
62

 
26,592

 
292

 
27,470

 
923

Permanent mortgage guaranteed by U.S. government agencies 1
196,162

 
190,309

 
190,309

 
—

 
—

 
190,547

 
2,098

 
193,879

 
5,893

Home equity
12,099

 
11,064

 
11,064

 
—

 
—

 
10,578

 
—

 
10,710

 
—

Total residential mortgage
240,633

 
227,329

 
227,220

 
109

 
62

 
227,717

 
2,390

 
232,059

 
6,816

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
724

 
686

 
686

 
—

 
—

 
520

 
—

 
575

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
489,949

 
$
411,829

 
$
369,054

 
$
42,775

 
$
6,564

 
$
415,029

 
$
2,390

 
$
350,511

 
$
6,816

1  
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At September 30, 2016 , $15 million of these loans were nonaccruing and $175 million were accruing based on the guarantee by U.S. government agencies.


- 84 -


Troubled Debt Restructurings

A summary of troubled debt restructurings ("TDRs") by accruing status as of September 30, 2017 is as follows (in thousands):
 
 
As of September 30, 2017
 
Amounts Charged Off During:
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Three Months Ended
Sept. 30, 2017
 
Nine Months Ended
Sept. 30, 2017
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
9,582

 
$
9,506

 
$
76

 
$
—

 
$
4,322

 
$
4,322

Services
 
720

 
103

 
617

 
—

 
7

 
10

Wholesale/retail
 
1,802

 
—

 
1,802

 
—

 
—

 
—

Manufacturing
 
180

 
180

 
—

 
—

 
—

 
—

Healthcare
 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
20,097

 
19,890

 
207

 
—

 
—

 
—

Total commercial
 
32,381

 
29,679

 
2,702

 
—

 
4,329

 
4,332

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
327

 
91

 
236

 
—

 
—

 
—

Retail
 
289

 
289

 
—

 
—

 
—

 
—

Office
 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
 
353

 
353

 
—

 
—

 
—

 
—

Total commercial real estate
 
969

 
733

 
236

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
14,765

 
10,188

 
4,577

 
—

 
—

 
—

Permanent mortgage guaranteed by U.S. government agencies
 
5,601

 
523

 
5,078

 
—

 
—

 
—

Home equity
 
5,625

 
4,213

 
1,412

 
—

 
39

 
70

Total residential mortgage
 
25,991

 
14,924

 
11,067

 
—

 
39

 
70

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
205

 
195

 
10

 
—

 
2

 
10

 
 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
59,546

 
$
45,531

 
$
14,015

 
$
—

 
$
4,370

 
$
4,412

 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
69,440

 
14,948

 
54,492

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
128,986

 
$
60,479

 
$
68,507

 
$
—

 
$
4,370

 
$
4,412



- 85 -


A summary of troubled debt restructurings by accruing status as of December 31, 2016 is as follows (in thousands):
 
 
As of
 
 
December 31, 2016
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
Energy
 
$
16,893

 
$
10,867

 
$
6,026

 
$
—

Services
 
7,527

 
6,830

 
697

 
—

Wholesale/retail
 
11,291

 
11,251

 
40

 
—

Manufacturing
 
224

 
224

 
—

 
—

Healthcare
 
607

 
—

 
607

 
—

Other commercial and industrial
 
337

 
53

 
284

 
—

Total commercial
 
36,879

 
29,225

 
7,654

 
—

 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

Residential construction and land development
 
690

 
97

 
593

 
—

Retail
 
326

 
326

 
—

 
—

Office
 
143

 
143

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

Other commercial real estate
 
548

 
548

 
—

 
—

Total commercial real estate
 
1,707

 
1,114

 
593

 
—

 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

Permanent mortgage
 
14,876

 
10,175

 
4,701

 
46

Permanent mortgage guaranteed by U.S. government agencies
 
6,702

 
2,241

 
4,461

 
—

Home equity
 
5,346

 
4,458

 
888

 
—

Total residential mortgage
 
26,924

 
16,874

 
10,050

 
46

 
 
 
 
 
 
 
 
 
Personal
 
237

 
236

 
1

 
—

 
 
 
 
 
 
 
 
 
Total nonaccuring TDRs
 
$
65,747

 
$
47,449

 
$
18,298

 
$
46

 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
81,370

 
27,289

 
54,081

 
—

 
 
 
 
 
 
 
 
 
Total TDRs
 
$
147,117

 
$
74,738

 
$
72,379

 
$
46



- 86 -


A summary of troubled debt restructurings by accruing status as of September 30, 2016 is as follows (in thousands):
 
 
As of September 30, 2016
 
Amounts Charged Off During:
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Three Months Ended
Sept. 30, 2016
 
Nine Months Ended
Sept. 30, 2016
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
1,746

 
$
—

 
$
1,746

 
$
—

 
$
500

 
$
1,000

Services
 
7,761

 
7,034

 
727

 
—

 
—

 
—

Wholesale/retail
 
2,327

 
2,287

 
40

 
—

 
—

 
—

Manufacturing
 
238

 
238

 
—

 
—

 
—

 
—

Healthcare
 
623

 
—

 
623

 
—

 
—

 
—

Other commercial and industrial
 
497

 
61

 
436

 
—

 
—

 
57

Total commercial
 
13,192

 
9,620

 
3,572

 
—

 
500

 
1,057

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
794

 
359

 
435

 
—

 
—

 
—

Retail
 
1,249

 
892

 
357

 
—

 
—

 
—

Office
 
149

 
149

 
—

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
 
666

 
666

 
—

 
—

 
—

 
—

Total commercial real estate
 
2,858

 
2,066

 
792

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
16,109

 
11,944

 
4,165

 
62

 
—

 
2

Permanent mortgage guaranteed by U.S. government agencies
 
8,220

 
2,331

 
5,889

 
—

 
—

 
—

Home equity
 
5,168

 
4,667

 
501

 
—

 
34

 
153

Total residential mortgage
 
29,497

 
18,942

 
10,555

 
62

 
34

 
155

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
273

 
271

 
2

 
—

 
9

 
18

 
 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
45,820

 
$
30,899

 
$
14,921

 
$
62

 
$
543

 
$
1,230

 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
80,306

 
29,020

 
51,286

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
126,126

 
$
59,919

 
$
66,207

 
$
62

 
$
543

 
$
1,230



- 87 -


Troubled debt restructurings generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed borrowers. The following tables detail the recorded balance of loans at September 30, 2017 by class that were restructured during the three months ended September 30, 2017 by primary type of concession (in thousands):

 
Three Months Ended
Sept. 30, 2017
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
60

 
60

 
60

Total commercial
—

 
—

 
—

 
—

 
60

 
60

 
60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
969

 
506

 
1,475

 
1,475

Permanent mortgage guaranteed by U.S. government agencies
8,205

 
620

 
8,825

 
315

 
—

 
315

 
9,140

Home equity
—

 
—

 
—

 
—

 
469

 
469

 
469

Total residential mortgage
8,205

 
620

 
8,825

 
1,284

 
975

 
2,259

 
11,084

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
—

 
—

 
—

 
4

 
4

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
8,205

 
$
620

 
$
8,825

 
$
1,284

 
$
1,039

 
$
2,323

 
$
11,148



- 88 -


 
Nine Months Ended
Sept. 30, 2017
 
Accruing
Nonaccrual
 
Total
 
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
7,781

 
$
—

 
$
7,781

 
$
7,781

Services
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
—

 
—

 
—

 
19,825

 
60

 
19,885

 
19,885

Total commercial
 
—

 
—

 
—

 
27,606

 
60

 
27,666

 
27,666

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
—

 
—

 
—

 
153

 
1,559

 
1,712

 
1,712

Permanent mortgage guaranteed by U.S. government agencies
 
18,678

 
2,649

 
21,327

 
443

 
85

 
528

 
21,855

Home equity
 
—

 
—

 
—

 
104

 
1,468

 
1,572

 
1,572

Total residential mortgage
 
18,678

 
2,649

 
21,327

 
700

 
3,112

 
3,812

 
25,139

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
—

 
—

 
—

 
—

 
48

 
48

 
48

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
18,678

 
$
2,649

 
$
21,327

 
$
28,306

 
$
3,220

 
$
31,526

 
$
52,853



- 89 -


Troubled debt restructurings generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed borrowers. The following tables detail the recorded balance of loans by class that were restructured during three months ended September 30, 2016 by primary type of concession (in thousands):

 
Three Months Ended
Sept. 30, 2016
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
—

 
151

 
151

 
151

Permanent mortgage guaranteed by U.S. government agencies
3,527

 
4,211

 
7,738

 
—

 
287

 
287

 
8,025

Home equity
—

 
—

 
—

 
—

 
920

 
920

 
920

Total residential mortgage
3,527

 
4,211

 
7,738

 
—

 
1,358

 
1,358

 
9,096

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
—

 
—

 
—

 
19

 
19

 
19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
3,527

 
$
4,211

 
$
7,738

 
$
—

 
$
1,377

 
$
1,377

 
$
9,115



- 90 -


 
Nine Months Ended
Sept. 30, 2016
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
501

 
$
—

 
$
501

 
$
501

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
—

 
—

 
501

 
—

 
501

 
501

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
1,037

 
1,051

 
2,088

 
2,088

Permanent mortgage guaranteed by U.S. government agencies
9,687

 
9,350

 
19,037

 
—

 
982

 
982

 
20,019

Home equity
—

 
—

 
—

 
48

 
1,630

 
1,678

 
1,678

Total residential mortgage
9,687

 
9,350

 
19,037

 
1,085

 
3,663

 
4,748

 
23,785

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
—

 
—

 
—

 
82

 
82

 
82

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
9,687

 
$
9,350

 
$
19,037

 
$
1,586

 
$
3,745

 
$
5,331

 
$
24,368



- 91 -


The following table summarizes, by loan class, the recorded investment at September 30, 2017 and 2016 , respectively, of loans modified as TDRs within the previous 12 months and for which there was a payment default during the three months ended September 30, 2017 and 2016 , respectively (in thousands):

 
Three Months Ended
Sept. 30, 2017
 
Nine Months Ended
Sept. 30, 2017
 
Accruing
 
Nonaccrual
 
Total
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
7,857

 
$
7,857

 
$
—

 
$
9,582

 
$
9,582

Services
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
19,825

 
19,825

Total commercial
—

 
7,857

 
7,857

 
—

 
29,407

 
29,407

 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
1,511

 
1,511

 
—

 
1,511

 
1,511

Permanent mortgage guaranteed by U.S. government agencies
23,620

 
878

 
24,498

 
24,349

 
878

 
25,227

Home equity
—

 
1,030

 
1,030

 
—

 
1,139

 
1,139

Total residential mortgage
23,620

 
3,419

 
27,039

 
24,349

 
3,528

 
27,877

 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
10

 
10

 
—

 
10

 
10

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
23,620

 
$
11,286

 
$
34,906

 
$
24,349

 
$
32,945

 
$
57,294


A payment default is defined as being 30 days or more past due. The table above includes loans that experienced a payment default during the period, but may be performing in accordance with the modified terms as of the balance sheet date.

- 92 -


 
Three Months Ended
Sept. 30, 2016
 
Nine Months Ended
Sept. 30, 2016
 
Accruing
 
Nonaccrual
 
Total
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
1,746

 
$
1,746

 
$
—

 
$
1,746

 
$
1,746

Services
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
1,746

 
1,746

 
—

 
1,746

 
1,746

 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

Other commercial real estate
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
298

 
298

 
—

 
542

 
542

Permanent mortgage guaranteed by U.S. government agencies
17,491

 
1,095

 
18,586

 
19,352

 
1,121

 
20,473

Home equity
—

 
258

 
258

 
—

 
258

 
258

Total residential mortgage
17,491

 
1,651

 
19,142

 
19,352

 
1,921

 
21,273

 
 
 
 
 
 
 
 
 
 
 
 
Personal
—

 
11

 
11

 
—

 
11

 
11

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
17,491

 
$
3,408

 
$
20,899

 
$
19,352

 
$
3,678

 
$
23,030


- 93 -


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 September 30, 2017 is as follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89 Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,752,259

 
$
—

 
$
5,039

 
$
—

 
$
110,683

 
$
2,867,981

Services
 
2,963,746

 
2,343

 
250

 
—

 
1,174

 
2,967,513

Wholesale/retail
 
1,654,018

 
1,748

 
409

 
30

 
1,893

 
1,658,098

Manufacturing
 
508,231

 
—

 
2,156

 
—

 
9,059

 
519,446

Healthcare
 
2,214,849

 
156

 
—

 
—

 
24,446

 
2,239,451

Other commercial and industrial
 
513,748

 
52

 
—

 
—

 
29,645

 
543,445

Total commercial
 
10,606,851

 
4,299

 
7,854

 
30

 
176,900

 
10,795,934

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 
 
 

 
 

 
 

Residential construction and land development
 
109,994

 
184

 
—

 
—

 
1,924

 
112,102

Retail
 
724,850

 
726

 
—

 
—

 
289

 
725,865

Office
 
796,687

 
127

 
—

 
—

 
275

 
797,089

Multifamily
 
999,009

 
—

 
—

 
—

 
—

 
999,009

Industrial
 
591,080

 
—

 
—

 
—

 
—

 
591,080

Other commercial real estate
 
292,322

 
1

 
—

 
187

 
487

 
292,997

Total commercial real estate
 
3,513,942

 
1,038

 
—

 
187

 
2,975

 
3,518,142

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 
 
 

 
 

 
 

Permanent mortgage
 
985,183

 
3,705

 
454

 
—

 
24,623

 
1,013,965

Permanent mortgages guaranteed by U.S. government agencies
 
25,169

 
17,346

 
13,343

 
122,621

 
8,891

 
187,370

Home equity
 
728,884

 
3,066

 
445

 
28

 
11,992

 
744,415

Total residential mortgage
 
1,739,236

 
24,117

 
14,242

 
122,649

 
45,506

 
1,945,750

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
943,368

 
3,296

 
81

 
8

 
255

 
947,008

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
16,803,397

 
$
32,750

 
$
22,177

 
$
122,874

 
$
225,636

 
$
17,206,834



- 94 -


A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2016 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89 Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,364,890

 
$
479

 
—

 
$
—

 
$
132,499

 
$
2,497,868

Services
 
3,099,605

 
191

 
1,021

 
—

 
8,173

 
3,108,990

Wholesale/retail
 
1,561,650

 
3,761

 
—

 
—

 
11,407

 
1,576,818

Manufacturing
 
509,662

 
382

 
—

 
—

 
4,931

 
514,975

Healthcare
 
2,201,050

 
—

 
41

 
—

 
825

 
2,201,916

Other commercial and industrial
 
468,981

 
155

 
3

 
—

 
21,118

 
490,257

Total commercial
 
10,205,838

 
4,968

 
1,065

 
—

 
178,953

 
10,390,824

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 
 
 

 
 

 
 

Residential construction and land development
 
132,100

 
—

 
—

 
—

 
3,433

 
135,533

Retail
 
761,562

 
—

 
—

 
—

 
326

 
761,888

Office
 
798,462

 
—

 
—

 
—

 
426

 
798,888

Multifamily
 
903,234

 
—

 
—

 
—

 
38

 
903,272

Industrial
 
871,673

 
—

 
—

 
—

 
76

 
871,749

Other commercial real estate
 
336,488

 
6

 
—

 
—

 
1,222

 
337,716

Total commercial real estate
 
3,803,519

 
6

 
—

 
—

 
5,521

 
3,809,046

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 
 
 

 
 

 
 

Permanent mortgage
 
979,386

 
3,299

 
1,280

 
—

 
22,855

 
1,006,820

Permanent mortgages guaranteed by U.S. government agencies
 
40,594

 
17,465

 
13,803

 
115,679

 
11,846

 
199,387

Home equity
 
729,493

 
2,276

 
337

 
—

 
11,519

 
743,625

Total residential mortgage
 
1,749,473

 
23,040

 
15,420

 
115,679

 
46,220

 
1,949,832

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
838,811

 
589

 
263

 
5

 
290

 
839,958

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
16,597,641

 
$
28,603

 
16,748

 
$
115,684

 
$
230,984

 
$
16,989,660



- 95 -


A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of September 30, 2016 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89 Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,365,850

 
$
11,988

 
—

 
$
—

 
$
142,966

 
$
2,520,804

Services
 
2,923,874

 
502

 
39

 
3,707

 
8,477

 
2,936,599

Wholesale/retail
 
1,599,356

 
221

 
—

 
—

 
2,453

 
1,602,030

Manufacturing
 
499,212

 
—

 
—

 
—

 
274

 
499,486

Healthcare
 
2,083,556

 
635

 
—

 
—

 
855

 
2,085,046

Other commercial and industrial
 
454,538

 
34

 
68

 
119

 
21,439

 
476,198

Total commercial
 
9,926,386

 
13,380

 
107

 
3,826

 
176,464

 
10,120,163

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
156,207

 
—

 
—

 
—

 
3,739

 
159,946

Retail
 
796,362

 
3,766

 
—

 
—

 
1,249

 
801,377

Office
 
751,823

 
—

 
—

 
—

 
882

 
752,705

Multifamily
 
868,591

 
—

 
5,131

 
—

 
51

 
873,773

Industrial
 
837,945

 
—

 
—

 
—

 
76

 
838,021

Other commercial real estate
 
366,416

 
7

 
—

 
—

 
1,353

 
367,776

Total commercial real estate
 
3,777,344

 
3,773

 
5,131

 
—

 
7,350

 
3,793,598

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
939,853

 
3,547

 
202

 
—

 
25,956

 
969,558

Permanent mortgages guaranteed by U.S. government agencies
 
41,150

 
17,364

 
12,963

 
103,400

 
15,432

 
190,309

Home equity
 
700,031

 
1,526

 
305

 
—

 
11,064

 
712,926

Total residential mortgage
 
1,681,034

 
22,437

 
13,470

 
103,400

 
52,452

 
1,872,793

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
677,194

 
191

 
148

 
13

 
686

 
678,232

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
16,061,958

 
$
39,781

 
18,856

 
$
107,239

 
$
236,952

 
$
16,464,786


- 96 -


( 5 ) Acquisitions

On December 1, 2016 , the Company acquired MBT Bancshares (“MBT”), parent company of Missouri Bank and Trust of Kansas City (“Mobank”) following regulatory approval of the transaction. Mobank operated four banking branches in the Kansas City, Mo. area. BOK Financial paid $102.5 million in an all-cash deal for all outstanding shares of MBT stock. MBT was merged into BOK Financial and Mobank became a wholly owned subsidiary of BOK Financial on December 1, 2016. On February 21, 2017, Mobank was merged with the Bank of Kansas City division of BOKF, NA. All branches in the Kansas City market will operate under the Mobank name. The preliminary purchase price allocation was updated in the first quarter of 2017 resulting in a $2.0 million increase in identifiable intangibles, $1.5 million decrease in premises and equipment and other repossessed assets, and a $526 thousand decrease in goodwill.
( 6 ) 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 retained for investment. Residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sale commitments which are considered derivative contracts that have not been designated as hedging instruments for accounting purposes. 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):
 
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid
Principal
 Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
261,868

 
$
265,783

 
$
286,414

 
$
286,971

 
$
422,523

 
$
433,040

Residential mortgage loan commitments
 
334,337

 
9,066

 
318,359

 
9,733

 
630,804

 
18,598

Forward sales contracts
 
524,878

 
794

 
569,543

 
5,193

 
929,907

 
(4,046
)
 
 
 

 
$
275,643

 
 

 
$
301,897

 
 

 
$
447,592


No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of September 30, 2017 , December 31, 2016 or September 30, 2016 . No credit losses were recognized on residential mortgage loans held for sale for the three and nine month periods ended September 30, 2017 and 2016 .

- 97 -


Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Production revenue:
 
 
 
 
 
 
 
 
Net realized gains on sale of mortgage loans
 
$
12,041

 
$
23,110

 
$
32,443

 
$
47,424

Net change in unrealized gain on mortgage loans held for sale
 
(1,492
)
 
(2,518
)
 
3,335

 
4,649

Net change in the fair value of mortgage loan commitments
 
(1,927
)
 
(6,901
)
 
(667
)
 
10,464

Net change in the fair value of forward sales contracts
 
(293
)
 
8,267

 
(4,399
)
 
(4,846
)
Total production revenue
 
8,329

 
21,958

 
30,712

 
57,691

Servicing revenue
 
16,561

 
16,558

 
49,645

 
47,809

Total mortgage banking revenue
 
$
24,890

 
$
38,516

 
$
80,357

 
$
105,500


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 for accounting purposes related to residential mortgage loan commitments and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.

Residential Mortgage Servicing

Mortgage servicing rights may be originated or purchased. Both originated and purchased mortgage servicing rights are initially recognized at fair value. The Company has elected to carry all mortgage servicing rights at fair value. Changes in the fair value are recognized in earnings as they occur. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights (Dollars in thousands):
 
 
September 30,
2017
 
December 31, 2016
 
September 30,
2016
Number of residential mortgage loans serviced for others
 
137,359

 
139,340

 
139,587

Outstanding principal balance of residential mortgage loans serviced for others
 
$
22,063,121

 
$
21,997,568

 
$
21,851,536

Weighted average interest rate
 
3.95
%
 
3.97
%
 
4.01
%
Remaining term (in months)
 
298

 
301

 
302


Activity in capitalized mortgage servicing rights during the three months ended September 30, 2017 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2017
 
$
7,995

 
$
237,244

 
$
245,239

Additions, net
 
—

 
9,925

 
9,925

Change in fair value due to principal payments
 
(470
)
 
(8,197
)
 
(8,667
)
Change in fair value due to market assumption changes
 
303

 
(942
)
 
(639
)
Balance, September 30, 2017
 
$
7,828

 
$
238,030

 
$
245,858

 
 
Purchased
 
Originated
 
Total
Balance, December 31, 2016
 
$
8,909

 
$
238,164

 
$
247,073

Additions, net
 
—

 
29,439

 
29,439

Change in fair value due to principal payments
 
(1,443
)
 
(23,485
)
 
(24,928
)
Change in fair value due to market assumption changes
 
362

 
(6,088
)
 
(5,726
)
Balance, September 30, 2017
 
$
7,828

 
$
238,030

 
$
245,858


- 98 -


Activity in capitalized mortgage servicing rights during the three months ended September 30, 2016 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2016
 
$
4,067

 
$
186,680

 
$
190,747

Additions, net
 
—

 
21,990

 
21,990

Change in fair value due to scheduled payments and full-balance payoffs
 
(753
)
 
(10,690
)
 
(11,443
)
Change in fair value due to market assumption changes
 
251

 
2,076

 
2,327

Balance, September 30, 2016
 
$
3,565

 
$
200,056

 
$
203,621

 
 
Purchased
 
Originated
 
Total
Balance, December 31, 2015
 
$
9,911

 
$
208,694

 
$
218,605

Additions, net
 
—

 
56,345

 
56,345

Change in fair value due to scheduled payments and full-balance payoffs
 
(2,109
)
 
(27,276
)
 
(29,385
)
Change in fair value due to market assumption changes
 
(4,237
)
 
(37,707
)
 
(41,944
)
Balance, September 30, 2016
 
$
3,565

 
$
200,056

 
$
203,621


Changes in the fair value of mortgage servicing rights are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to actual loan payments are included in Mortgage banking costs. Changes in fair value due to market assumption changes are reported separately. Changes in fair value due to market assumption changes during the period relate to assets held at the reporting date.

There is no active market for trading in mortgage servicing rights after origination. Fair value is determined by discounting the projected net cash flows. Significant assumptions used to determine fair value based on significant unobservable inputs were as follows:
 
 
September 30,
2017
 
December 31, 2016
 
September 30,
2016
Discount rate – risk-free rate plus a market premium
 
9.84%
 
10.08%
 
10.08%
Prepayment rate - based upon loan interest rate, original term and loan type
 
8.71%-15.43%
 
8.98%-16.91%
 
9.16%-47.15%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
Performing loans
 
$65-$120
 
$63 - $120
 
$63 - $120
Delinquent loans
 
$150-$500
 
$150 - $500
 
$150 - $500
Loans in foreclosure
 
$1,000-$4,250
 
$650 - $4,250
 
$650 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
2.00%
 
1.98%
 
1.18%
Primary/secondary mortgage rate spread
 
105 bps
 
105 bps
 
115 bps

Changes in primary residential mortgage interest rates directly affect the prepayment speeds used in valuing our mortgage servicing rights. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated periodically for changes in market conditions and adjusted to better correlate with actual performance of BOK Financial’s servicing portfolio.

The aging status of our mortgage loans serviced for others by investor at September 30, 2017 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
8,021,016

 
$
78,542

 
$
13,100

 
$
26,171

 
$
8,138,829

FNMA
 
6,635,428

 
76,065

 
10,398

 
20,596

 
6,742,487

GNMA
 
6,376,127

 
215,506

 
59,659

 
20,925

 
6,672,217

Other
 
502,768

 
3,492

 
1,167

 
2,161

 
509,588

Total
 
$
21,535,339

 
$
373,605

 
$
84,324

 
$
69,853

 
$
22,063,121



- 99 -


( 7 )   Commitments and Contingent Liabilities

Litigation Contingencies

As a member of Visa, BOK Financial is obligated for a proportionate share of certain covered litigation losses incurred by Visa under a retrospective responsibility plan. A contingent liability was recognized for the Company’s share of Visa’s covered litigation liabilities. Visa funded an escrow account to cover litigation claims, including covered litigation losses under the retrospective responsibility plan, with proceeds from its initial public offering in 2008 and from available cash.
BOK Financial currently owns 252,233 Visa Class B shares which are convertible into 415,755 shares of Visa Class A shares after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may be assigned until the Class B shares are converted into a known number of Class A shares.
On June 24, 2015, the Bank received a complaint alleging that an employee had colluded with a bond issuer and an individual in misusing revenues pledged to municipal bonds for which the Bank served as trustee under the bond indenture. The Company conducted an investigation and concluded that employees in one of its Corporate Trust offices had, with respect to a single group of affiliated bond issuances, violated Company policies and procedures by waiving financial covenants, granting forbearances and accepting without disclosure to the bondholders, debt service payments from sources other than pledged revenues. The relationship manager was terminated. The Company reported the circumstances to, and cooperated with an investigation by, the Securities and Exchange Commission ("SEC"). On December 28, 2015, in an action brought by the SEC, the United States District Court for the District of New Jersey entered a judgment against the principals involved in issuing the bonds, precluding the principals from denying the alleged violations of the federal securities laws and requiring the principals to pay all outstanding principal, accrued interest, and other amounts required under the bond documents (now estimated to be approximately $48 million , less the value of the facilities securing repayment of the bonds), subject to oversight by a court appointed monitor. On September 7, 2016, the Bank agreed, and the SEC entered, a consent order finding that the Bank had violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring the Bank to disgorge $1,067,721 of fees and pay a civil penalty of $600,000 . The Bank has disgorged the fees and paid the penalty. 
On August 26, 2016, the Bank was sued in the United States District Court for New Jersey by two bondholders in a putative class action on behalf of all holders of the bonds alleging the Bank participated in the fraudulent sale of securities by the principals. On September 14, 2016, the Bank was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders alleging the Bank participated in the fraudulent sale of securities by the principals. Management has been advised by counsel that the Bank has valid defenses to the claims.
On September 15, 2017, the principal filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Georgia. The obligation of the principal to pay all principal and interest on the bonds is non-dischargeable in bankruptcy. The Bank expects the Court ordered payment plan will result in the payment of the bonds by the principals. Accordingly, no loss is probable at this time and no provision for loss has been made. If the payment plan does not result in payment of the bonds, a loss could become probable. A reasonable estimate cannot be made at this time though the amount could be material to the Company. 
On March 14, 2017, the Bank 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 the Bank also served as indenture trustee. The bondholders allege the Bank failed to disclose that the seller of the purchased facilities had engaged in the conduct complained of in the New Jersey action. The Bank 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 the Bank has valid defenses to the claims of these bondholders. It is the opinion of management that no loss is probable at this time.
The County of Bernalillo, New Mexico, commenced arbitration pursuant to the Arbitration Rules of FINRA seeking recovery of $5.6 million alleging that various municipal bonds purchased by the elected County Treasurer of Bernalillo County, New Mexico, from BOK Financial Securities, Inc. were unsuitable. The arbitration was conducted in July 2017. The arbitration panel found the County of Bernalillo’s complaint frivolous and awarded BOK Financial Securities, Inc. attorney fees and costs.  The County has sued in the United States District Court for New Mexico to set aside the award of fees and costs to BOK Financial Securities but not the finding that the County's complaint was frivolous.



- 100 -


On March 30, 2017, two deposit customers of the Bank sued the Bank in the District Court of Harris County, Texas. A judgment creditor had served a garnishment summons on the Bank. The deposit customers allege that, because the Bank was unable to produce adequate documentation of ownership of a series of deposit accounts at the Bank owned by them, they were compelled to enter into a settlement agreement with the judgment creditor pursuant to which the Bank paid $4.2 million from the accounts to the judgment creditor. The two deposit customers seek $7 million . Management has been advised by counsel that a loss is not probable and that the amount of the liability, if any, cannot be quantified at this time.
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. BOKF, NA was previously sued in a class action in the United States District Court for the Northern District of Oklahoma making the same allegations.  Pursuant to a motion to dismiss, the Northern District of Oklahoma Court action was dismissed. Other courts considering the question whether extended overdraft fees are interest have likewise determined such fees are not interest. BOKF, NA has moved to dismiss the action. Management is advised by counsel that a loss is not probable and that the loss, if any, cannot be reasonably estimated.

In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings, will not have a material effect on the Company’s financial condition, results of operations or cash flows.
                           
Alternative Investment Commitments

The Company sponsors two private equity funds and invests in several tax credit entities and other funds as permitted by banking regulations. Consolidation of these investments is based on the variable interest model determined by the nature of the entity. Variable interest entities are generally defined as entities that either do not have sufficient equity to finance their activities without support from other parties or whose equity investors lack a controlling financial interest. Variable interest entities are consolidated based on the determination that the Company is the primary beneficiary including the power to direct the activities that most significantly impact the variable interest's economic performance and the obligation to absorb losses of the variable interest or the right to receive benefits of the variable interest that could be significant to the variable interest.

BOKF Equity, LLC, an indirect wholly-owned subsidiary, is the general partner of two consolidated private equity funds (“the Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related parties, through unaffiliated limited partnerships. These unaffiliated limited partnerships generally invest in distressed assets, asset buy-outs or venture capital companies. As general partner, BOKF Equity, LLC has the power to direct activities that most significantly affect the Funds' performance and contingent obligations to make additional investments totaling $3.4 million at September 30, 2017 . Substantially all of the obligations are offset by limited partner commitments. The Company does not accrue its contingent liability to fund investments. The Volcker Rule in Title VI of the Dodd-Frank Act will limit both the amount and structure of these types of investments.

Consolidated tax credit investment entities represent the Company's interest in entities earning federal new market tax credits related to qualifying loans. The Company has the power to direct the activities that most significantly impact the variable interest's economic performance of the entity including being the primary beneficiary of or the obligation to absorb losses of the variable interest that could be significant to the variable interest.

Other consolidated alternative investments include entities held under merchant banking authority. While the Company owns a majority of the voting interest in these entities, its ability to manage daily operations is limited by applicable banking regulations. Consolidated other assets includes total tangible assets, identifiable intangible assets and goodwill held by these entities.

The Company also has interests in various unrelated alternative investments generally consisting of unconsolidated limited partnership interests in or loans to entities for which investment return is primarily in the form of tax credits or that invest in distressed real estate loans and properties, energy development, venture capital and other activities. The Company is prohibited by banking regulations from controlling or actively managing the activities of these investments and the Company's maximum exposure to loss is restricted to its investment balance. The Company's obligation to fund alternative investments is included in Other liabilities in the Consolidated Balance Sheets.


- 101 -


A summary of consolidated and unconsolidated alternative investments as of September 30, 2017 , December 31, 2016 and September 30, 2016 is as follows (in thousands):

 
 
September 30, 2017
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
15,621

 
$
—

 
$
—

 
$
12,806

Tax credit entities
 
10,000

 
11,119

 
—

 
10,963

 
10,000

Other
 
—

 
15,618

 
1,588

 
3,104

 
2,819

Total consolidated
 
$
10,000

 
$
42,358

 
$
1,588

 
$
14,067

 
$
25,625

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
65,247

 
$
145,479

 
$
61,364

 
$
—

 
$
—

Other
 
—

 
32,462

 
13,657

 
—

 
—

Total unconsolidated
 
$
65,247

 
$
177,941

 
$
75,021

 
$
—

 
$
—


 
 
December 31, 2016
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
17,357

 
$
—

 
$
—

 
$
13,237

Tax credit entities
 
10,000

 
11,585

 
—

 
10,964

 
10,000

Other
 
—

 
29,783

 
3,189

 
1,092

 
8,266

Total consolidated
 
$
10,000

 
$
58,725

 
$
3,189

 
$
12,056

 
$
31,503

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
44,488

 
$
143,715

 
$
63,329

 
$
—

 
$
—

Other
 
—

 
31,675

 
15,028

 
—

 
—

Total unconsolidated
 
$
44,488

 
$
175,390

 
$
78,357

 
$
—

 
$
—


 
 
September 30, 2016
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
18,420

 
$
—

 
$
—

 
$
15,946

Tax credit entities
 
10,000

 
11,740

 
—

 
10,964

 
10,000

Other
 
—

 
30,978

 
2,346

 
1,063

 
8,154

Total consolidated
 
$
10,000

 
$
61,138

 
$
2,346

 
$
12,027

 
$
34,100

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
39,849

 
$
129,715

 
$
57,026

 
$
—

 
$
—

Other
 
—

 
30,272

 
13,653

 
—

 
—

Total unconsolidated
 
$
39,849

 
$
159,987

 
$
70,679

 
$
—

 
$
—



- 102 -


Other Commitments and Contingencies

At September 30, 2017 , Cavanal Hill Funds’ assets included U.S. Treasury, cash management and tax-free money market funds. Assets of these funds consist of highly-rated, short-term obligations of the U.S. Treasury, corporate issuers and U.S. states and municipalities. The net asset value of units in these funds was $1.00 at September 30, 2017 . 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 2017 or 2016 .
( 8 ) Shareholders' Equity

On October 31, 2017 , the Company declared a quarterly cash dividend of $0.45 per common share on or about November 27, 2017 to shareholders of record as of November 13, 2017 .

Dividends declared were $0.44 per share and $1.32 per share during the three and nine months ended September 30, 2017 and $0.43 per share and $1.29 per share during the three and nine months ended September 30, 2016 .

Accumulated Other Comprehensive Income (Loss)

AOCI includes unrealized gains and losses on available for sale ("AFS") securities and non-credit related unrealized losses on AFS securities for which an other-than-temporary impairment has been recorded in earnings. AOCI also includes unrealized gains on AFS securities that were transferred from AFS to investment securities in the third quarter of 2011. Such amounts are being amortized over the estimated remaining life of the security as an adjustment to yield, offsetting the related amortization of premium on the transferred securities. Unrealized losses on employee benefit plans will be reclassified into income as pension plan costs are recognized over the remaining service period of plan participants. Gains and losses in AOCI are net of deferred income taxes.

A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):
 
 
Unrealized Gain (Loss) on
 
 
 
 
Available for Sale Securities
 
Investment Securities Transferred from AFS
 
Employee Benefit Plans
 
Total
Balance, December 31, 2015
 
$
23,284

 
$
68

 
$
(1,765
)
 
$
21,587

Net change in unrealized gain (loss)
 
133,108

 
—

 
—

 
133,108

Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
Interest revenue, Investment securities, Taxable securities
 
—

 
(112
)
 
—

 
(112
)
Gain on available for sale securities, net
 
(11,684
)
 
—

 
—

 
(11,684
)
Other comprehensive income (loss), before income taxes
 
121,424

 
(112
)
 
—

 
121,312

Federal and state income taxes 1
 
47,216

 
(44
)
 
—

 
47,172

Other comprehensive income (loss), net of income taxes
 
74,208

 
(68
)
 
—

 
74,140

Balance, September 30, 2016
 
$
97,492

 
$
—

 
$
(1,765
)
 
$
95,727

 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
$
(9,087
)
 
$
—

 
$
(1,880
)
 
$
(10,967
)
Net change in unrealized gain (loss)
 
33,876

 
—

 
5

 
33,881

Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
Gain on available for sale securities, net
 
(4,916
)
 
—

 
—

 
(4,916
)
Other comprehensive income, before income taxes
 
28,960

 
—

 
5

 
28,965

Federal and state income taxes 1
 
11,239

 


 
2

 
11,241

Other comprehensive income, net of income taxes
 
17,721

 
—

 
3

 
17,724

Balance, September 30, 2017
 
$
8,634

 
$
—

 
$
(1,877
)
 
$
6,757

1  
Calculated using a 39 percent effective tax rate.

- 103 -


( 9 )   Earnings Per Share
 
(In thousands, except share and per share amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to BOK Financial Corp. shareholders
 
$
85,649

 
$
74,277

 
$
262,152

 
$
182,642

Less: Earnings allocated to participating securities
 
888

 
916

 
2,817

 
2,275

Numerator for basic earnings per share – income available to common shareholders
 
84,761

 
73,361

 
259,335

 
180,367

Effect of reallocating undistributed earnings of participating securities
 
1

 
1

 
2

 
1

Numerator for diluted earnings per share – income available to common shareholders
 
$
84,762

 
$
73,362

 
$
259,337

 
$
180,368

 
 
 
 
 
 
 
 
 
Denominator:
 
 

 
 

 
 

 
 

Weighted average shares outstanding
 
65,423,258

 
65,895,430

 
65,432,313

 
66,031,497

Less:  Participating securities included in weighted average shares outstanding
 
680,436

 
810,038

 
702,922

 
822,723

Denominator for basic earnings per common share
 
64,742,822

 
65,085,392

 
64,729,391

 
65,208,774

Dilutive effect of employee stock compensation plans 1
 
62,350

 
72,449

 
64,502

 
54,792

Denominator for diluted earnings per common share
 
64,805,172

 
65,157,841

 
64,793,893

 
65,263,566

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.31

 
$
1.13

 
$
4.01

 
$
2.77

Diluted earnings per share
 
$
1.31

 
$
1.13

 
$
4.00

 
$
2.76

1   Excludes employee stock options with exercise prices greater than current market price.
 
—

 
—

 
—

 
—



- 104 -


( 10 )   Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended September 30, 2017 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
157,080

 
$
25,576

 
$
11,169

 
$
24,627

 
$
218,452

Net interest revenue (expense) from internal sources
 
(24,173
)
 
12,213

 
9,604

 
2,356

 
—

Net interest revenue
 
132,907

 
37,789

 
20,773

 
26,983

 
218,452

Provision for credit losses
 
3,217

 
1,315

 
(623
)
 
(3,909
)
 
—

Net interest revenue after provision for credit losses
 
129,690

 
36,474

 
21,396

 
30,892

 
218,452

Other operating revenue
 
54,091

 
47,033

 
75,707

 
(1,121
)
 
175,710

Other operating expense
 
56,952

 
56,785

 
61,791

 
90,406

 
265,934

Net direct contribution
 
126,829

 
26,722

 
35,312

 
(60,635
)
 
128,228

Gain on financial instruments, net
 
4

 
1,686

 
—

 
(1,690
)
 
—

Change in fair value of mortgage servicing rights
 
—

 
(639
)
 
—

 
639

 
—

Gain (loss) on repossessed assets, net
 
(4,126
)
 
292

 
—

 
3,834

 
—

Corporate expense allocations
 
8,650

 
17,039

 
9,819

 
(35,508
)
 
—

Net income before taxes
 
114,057

 
11,022

 
25,493

 
(22,344
)
 
128,228

Federal and state income taxes
 
44,368

 
4,288

 
9,917

 
(16,135
)
 
42,438

Net income
 
69,689

 
6,734

 
15,576

 
(6,209
)
 
85,790

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
141

 
141

Net income attributable to BOK Financial Corp. shareholders
 
$
69,689

 
$
6,734

 
$
15,576

 
$
(6,350
)
 
$
85,649

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
17,558,390

 
$
9,115,319

 
$
6,992,021

 
$
(657,560
)
 
$
33,008,170



- 105 -


Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2017 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
435,946

 
$
70,208

 
$
33,130

 
$
85,554

 
$
624,838

Net interest revenue (expense) from internal sources
 
(61,803
)
 
35,002

 
28,784

 
(1,983
)
 
—

Net interest revenue
 
374,143

 
105,210

 
61,914

 
83,571

 
624,838

Provision for credit losses
 
2,983

 
3,512

 
(676
)
 
(5,819
)
 
—

Net interest revenue after provision for credit losses
 
371,160

 
101,698

 
62,590

 
89,390

 
624,838

Other operating revenue
 
156,139

 
146,440

 
225,434

 
245

 
528,258

Other operating expense
 
168,517

 
166,027

 
182,816

 
244,170

 
761,530

Net direct contribution
 
358,782

 
82,111

 
105,208

 
(154,535
)
 
391,566

Gain on financial instruments, net
 
46

 
5,242

 
—

 
(5,288
)
 
—

Change in fair value of mortgage servicing rights
 
—

 
(5,726
)
 
—

 
5,726

 
—

Gain (loss) on repossessed assets, net
 
(2,728
)
 
253

 
—

 
2,475

 
—

Corporate expense allocations
 
26,144

 
50,947

 
30,438

 
(107,529
)
 
—

Net income before taxes
 
329,956

 
30,933

 
74,770

 
(44,093
)
 
391,566

Federal and state income taxes
 
128,353

 
12,033

 
29,086

 
(41,226
)
 
128,246

Net income
 
201,603

 
18,900

 
45,684

 
(2,867
)
 
263,320

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
1,168

 
1,168

Net income attributable to BOK Financial Corp. shareholders
 
$
201,603

 
$
18,900

 
$
45,684

 
$
(4,035
)
 
$
262,152

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
17,525,658

 
$
8,871,470

 
$
6,971,369

 
$
(591,059
)
 
$
32,777,438


Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended September 30, 2016 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
123,599

 
$
22,098

 
$
9,274

 
$
32,875

 
$
187,846

Net interest revenue (expense) from internal sources
 
(15,052
)
 
9,263

 
$
7,401

 
(1,612
)
 
—

Net interest revenue
 
108,547

 
31,361

 
16,675

 
31,263

 
187,846

Provision for credit losses
 
5,601

 
1,157

 
(89
)
 
3,331

 
10,000

Net interest revenue after provision for credit losses
 
102,946

 
30,204

 
16,764

 
27,932

 
177,846

Other operating revenue
 
49,642

 
60,603

 
73,523

 
3,542

 
187,310

Other operating expense
 
53,375

 
60,964

 
64,426

 
79,323

 
258,088

Net direct contribution
 
99,213

 
29,843

 
25,861

 
(47,849
)
 
107,068

Gain (loss) on financial instruments, net
 
—

 
(1,087
)
 
(42
)
 
1,129

 
—

Change in fair value of mortgage servicing rights
 
—

 
2,327

 
—

 
(2,327
)
 
—

Gain on repossessed assets, net
 
1,486

 
161

 
—

 
(1,647
)
 
—

Corporate expense allocations
 
9,054

 
16,905

 
10,912

 
(36,871
)
 
—

Net income before taxes
 
91,645

 
14,339

 
14,907

 
(13,823
)
 
107,068

Federal and state income taxes
 
35,650

 
5,578

 
5,799

 
(15,071
)
 
31,956

Net income
 
55,995

 
8,761

 
9,108

 
1,248

 
75,112

Net income attributable to non-controlling interests
 
—

 
—

 
—

 
835

 
835

Net income attributable to BOK Financial Corp. shareholders
 
$
55,995

 
$
8,761

 
$
9,108

 
$
413

 
$
74,277

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
16,934,587

 
$
8,827,816

 
$
6,413,735

 
$
470,335

 
$
32,646,473


- 106 -



Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2016 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
358,713

 
$
65,897

 
$
21,620

 
$
106,800

 
$
553,030

Net interest revenue (expense) from internal sources
 
(44,259
)
 
27,492

 
$
22,258

 
(5,491
)
 
—

Net interest revenue
 
314,454

 
93,389

 
43,878

 
101,309

 
553,030

Provision for credit losses
 
34,024

 
4,177

 
(479
)
 
27,278

 
65,000

Net interest revenue after provision for credit losses
 
280,430

 
89,212

 
44,357

 
74,031

 
488,030

Other operating revenue
 
146,248

 
172,072

 
218,042

 
(6,096
)
 
530,266

Other operating expense
 
162,039

 
179,487

 
186,524

 
223,993

 
752,043

Net direct contribution
 
264,639

 
81,797

 
75,875

 
(156,058
)
 
266,253

Gain (loss) on financial instruments, net
 
—

 
30,539

 
(42
)
 
(30,497
)
 
—

Change in fair value of mortgage servicing rights
 
—

 
(41,944
)
 
—

 
41,944

 
—

Gain on repossessed assets, net
 
806

 
566

 
—

 
(1,372
)
 
—

Corporate expense allocations
 
26,681

 
49,513

 
31,864

 
(108,058
)
 
—

Net income before taxes
 
238,764

 
21,445

 
43,969

 
(37,925
)
 
266,253

Federal and state income taxes
 
92,879

 
8,342

 
17,104

 
(34,444
)
 
83,881

Net income
 
145,885

 
13,103

 
26,865

 
(3,481
)
 
182,372

Net loss attributable to non-controlling interests
 
—

 
—

 
—

 
(270
)
 
(270
)
Net income attributable to BOK Financial Corp. shareholders
 
$
145,885

 
$
13,103

 
$
26,865

 
$
(3,211
)
 
$
182,642

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
16,958,999

 
$
8,763,564

 
$
5,916,545

 
$
410,075

 
$
32,049,183


- 107 -


( 11 ) Fair Value Measurements

Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market for the given asset or liability at the measurement date based on market conditions at that date. Certain assets and liabilities are recorded in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.

For some assets and liabilities, observable market transactions and market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. A hierarchy for fair value has been established which categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels are as follows:

Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) - Fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities.

Significant Other Observable Inputs (Level 2) - Fair value is based on significant other observable inputs which are generally determined based on a single price for each financial instrument provided to us by an applicable third-party pricing service and is based on one or more of the following:

•
Quoted prices for similar, but not identical, assets or liabilities in active markets;
•
Quoted prices for identical or similar assets or liabilities in inactive markets;
•
Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates;
•
Other inputs derived from or corroborated by observable market inputs.

Significant Unobservable Inputs (Level 3) - Fair value is based upon model-based valuation techniques for which at least one significant assumption is not observable in the market.

Transfers between levels are recognized as of the end of the reporting period. 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 three and nine months ended September 30, 2017 and 2016 , respectively. Transfers between significant other observable inputs and significant unobservable inputs during the three and nine months ended September 30, 2017 and 2016 are included in the summary of changes in recurring fair values measured using unobservable inputs.

The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market. No significant adjustments were made to prices provided by third-party pricing services at September 30, 2017 , December 31, 2016 or September 30, 2016 .


- 108 -


Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of financial assets and liabilities measured on a recurring basis was as follows as of September 30, 2017 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. government agency debentures
 
$
30,162

 
$
—

 
$
30,162

 
$
—

U.S. government agency residential mortgage-backed securities
 
516,760

 
—

 
516,760

 
—

Municipal and other tax-exempt securities
 
56,148

 
—

 
56,148

 
—

Other trading securities
 
11,047

 
—

 
11,047

 
—

Total trading securities
 
614,117

 
—

 
614,117

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
999

 
999

 
—

 
—

Municipal and other tax-exempt securities
 
28,368

 
—

 
23,583

 
4,785

U.S. government agency residential mortgage-backed securities
 
5,326,384

 
—

 
5,326,384

 
—

Privately issued residential mortgage-backed securities
 
99,994

 
—

 
99,994

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,889,346

 
—

 
2,889,346

 
—

Other debt securities
 
4,153

 
—

 
—

 
4,153

Perpetual preferred stock
 
16,245

 
—

 
16,245

 
—

Equity securities and mutual funds
 
17,710

 
2,578

 
15,132

 
—

Total available for sale securities
 
8,383,199

 
3,577

 
8,370,684

 
8,938

Fair value option securities – U.S. government agency residential mortgage-backed securities
 
819,531

 
—

 
819,531

 
—

Residential mortgage loans held for sale
 
275,643

 
—

 
263,543

 
12,100

Mortgage servicing rights 1
 
245,858

 
—

 
—

 
245,858

Derivative contracts, net of cash collateral 2
 
352,559

 
8,498

 
344,061

 
—

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral 2
 
336,327

 
6,903

 
329,424

 
—

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 6 , Mortgage Banking Activities.
2  
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions that were valued based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded interest rate, energy and agricultural derivative contacts. Derivative contacts in liability positions that were valued using quoted prices in active markets for identical instruments are exchange-traded interest rate derivative contracts, net of cash margin.


- 109 -


The fair value of financial assets and liabilities measured on a recurring basis was as follows as of December 31, 2016 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. government agency debentures
 
$
6,234

 
$
—

 
$
6,234

 
$
—

U.S. government agency residential mortgage-backed securities
 
310,067

 
—

 
310,067

 
—

Municipal and other tax-exempt securities
 
14,427

 
—

 
14,427

 
—

Other trading securities
 
6,900

 
—

 
6,900

 
—

Total trading securities
 
337,628

 
—

 
337,628

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
999

 
999

 
—

 
—

Municipal and other tax-exempt securities
 
40,993

 
—

 
35,204

 
5,789

U.S. government agency residential mortgage-backed securities
 
5,460,386

 
—

 
5,460,386

 
—

Privately issued residential mortgage-backed securities
 
115,535

 
—

 
115,535

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
3,017,933

 
—

 
3,017,933

 
—

Other debt securities
 
4,152

 
—

 
—

 
4,152

Perpetual preferred stock
 
18,474

 
—

 
18,474

 
—

Equity securities and mutual funds
 
18,357

 
3,495

 
14,862

 
—

Total available for sale securities
 
8,676,829

 
4,494

 
8,662,394

 
9,941

Fair value option securities – U.S. government agency residential mortgage-backed securities
 
77,046

 
—

 
77,046

 
—

Residential mortgage loans held for sale
 
301,897

 
—

 
290,280

 
11,617

Mortgage servicing rights 1
 
247,073

 
—

 
—

 
247,073

Derivative contracts, net of cash collateral 2
 
689,872

 
7,541

 
682,331

 
—

Liabilities:
 


 
 
 
 
 
 
Derivative contracts, net of cash collateral 2
 
664,531

 
6,972

 
657,559

 
—

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 6 , Mortgage Banking Activities.
2  
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest-rate and energy derivative contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate, energy and agricultural derivative contracts, net of cash margin.



- 110 -


The fair value of financial assets and liabilities measured on a recurring basis was as follows as of September 30, 2016 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. government agency debentures
 
$
15,705

 
$
—

 
$
15,705

 
$
—

U.S. government agency residential mortgage-backed securities
 
464,749

 
—

 
464,749

 
—

Municipal and other tax-exempt securities
 
54,856

 
—

 
54,856

 
—

Other trading securities
 
11,305

 
—

 
11,305

 
—

Total trading securities
 
546,615

 
—

 
546,615

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,002

 
1,002

 
—

 
—

Municipal and other tax-exempt securities
 
42,092

 
—

 
36,379

 
5,713

U.S. government agency residential mortgage-backed securities
 
5,668,672

 
—

 
5,668,672

 
—

Privately issued residential mortgage-backed securities
 
121,603

 
—

 
121,603

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,986,495

 
—

 
2,986,495

 
—

Other debt securities
 
4,151

 
—

 
—

 
4,151

Perpetual preferred stock
 
19,578

 
—

 
19,578

 
—

Equity securities and mutual funds
 
18,690

 
3,544

 
15,146

 
—

Total available for sale securities
 
8,862,283

 
4,546

 
8,847,873

 
9,864

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
222,409

 
222,409

 
—

 
—

U.S. government agency residential mortgage-backed securities
 
—

 
—

 
—

 
—

Total fair value option securities
 
222,409

 
222,409

 
—

 
—

Residential mortgage loans held for sale
 
447,592

 
—

 
438,291

 
9,301

Mortgage servicing rights 1
 
203,621

 
—

 
—

 
203,621

Derivative contracts, net of cash collateral 2
 
655,078

 
5,575

 
649,503

 
—

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral 2
 
573,987

 
1,308

 
572,679

 
—

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 6 , Mortgage Banking Activities.
2  
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy and agricultural derivative contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and energy derivative contracts, net cash margin.



- 111 -


Following is a description of the Company's valuation methodologies used for assets and liabilities measured on a recurring basis:
Securities
The fair values of trading, available for sale and fair value option securities are based on quoted prices for identical instruments in active markets, when available. If quoted prices for identical instruments are not available, fair values are based on significant other observable inputs such as quoted prices of comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities.

The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on references 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 assesses 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. The reduction in fair value is recognized in earnings during the current period.

We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities would increase. The change in the fair value would be recognized in earnings in the current period.
Residential Mortgage Loans Held for Sale
Residential mortgage loans held for sale are carried on the balance sheet at fair value. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and forward sales contracts. The fair value of mortgage loans that were unable to be sold to U.S. government agencies were determined using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied.

Other Assets - Private Equity Funds
The fair value of the portfolio investments of the Company's two private equity funds is based upon net asset value reported by the underlying funds, as adjusted by the general partner when necessary, as a practical expedient to measure the fair value of the investments in the underlying funds. The Company's private equity funds provide customers alternative investment opportunities as limited partners of the funds. As fund of funds, the private equity funds invest in other limited partnerships or limited liability companies that invest substantially all of their assets in U.S. companies pursuing diversified investment strategies including early-stage venture capital, distressed securities and corporate or asset buy-outs. Private equity fund assets are long-term, illiquid investments. No secondary market exists for these assets. The private equity funds typically invest in funds that provide no redemption rights to investors. The fair value of the private equity investments may only be realized through cash distributions from the underlying funds.

See Note 7 for disclosure of the fair value of the private equity funds using the net asset value per share of the underlying investments, as a practical expedient, included in Other assets in the Consolidated Balance Sheets of the Company.

- 112 -


The following represents the changes for the three and nine months ended September 30, 2017 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 
 
Available for Sale Securities
 
 
 
 
Municipal and other tax-exempt securities
 
Other debt securities
 
Residential mortgage loans held for sale
Balance, June 30, 2017
 
$
4,655

 
$
4,152

 
$
12,735

Transfer to Level 3 from Level 2 1
 
—

 
—

 
176

Purchases
 
—

 
—

 
—

Proceeds from sales
 
—

 
—

 
(847
)
Redemptions and distributions
 
—

 
—

 
—

Gain recognized in earnings:
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
36

Other comprehensive income:
 
 
 
 
 
 
Net change in unrealized gain
 
130

 
1

 
—

Balance, September 30, 2017
 
$
4,785

 
$
4,153

 
$
12,100

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 meet conforming standards.
 
 
Available for Sale Securities
 
 
 
 
Municipal and other tax-exempt
 
Other debt securities
 
Residential mortgage loans held for sale
Balance, December 31, 2016
 
$
5,789

 
$
4,152

 
$
11,617

Transfer to Level 3 from Level 2 1
 
—

 
—

 
2,916

Purchases
 
—

 
—

 
—

Proceeds from sales
 
—

 
—

 
(2,549
)
Redemptions and distributions
 
(1,100
)
 
—

 
—

Gain (loss) recognized in earnings:
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
116

Other comprehensive income (loss):
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
96

 
1

 
—

Balance, September 30, 2017
 
$
4,785

 
$
4,153

 
$
12,100

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 meet conforming standards.

- 113 -


The following represents the changes for the three and six months ended September 30, 2016 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 
 
Available for Sale Securities
 
 
 
 
Municipal and other tax-exempt securities
 
Other debt securities
 
Residential mortgage loans held for sale
Balance, June 30, 2016
 
$
9,600

 
$
4,151

 
$
9,749

Transfer to Level 3 from Level 2 1
 
—

 
—

 
442

Purchases
 
—

 
—

 
—

Proceeds from sales
 
—

 
—

 
(1,003
)
Redemptions and distributions
 
(3,975
)
 
—

 
—

Gain (loss) recognized in earnings:
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
113

Other comprehensive income (loss):
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
88

 
—

 
—

Balance, September 30, 2016
 
$
5,713

 
$
4,151

 
$
9,301

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 meet conforming standards.

 
 
Available for Sale Securities
 
 
 
 
Municipal and other tax-exempt
 
Other debt securities
 
Residential mortgage loans held for sale
Balance, December 31, 2015
 
$
9,610

 
$
4,151

 
$
7,874

Transfer to Level 3 from Level 2 1
 
—

 
—

 
3,982

Purchases
 
—

 
—

 
—

Proceeds from sales
 
—

 
—

 
(2,365
)
Redemptions and distributions
 
(3,975
)
 
—

 
—

Gain (loss) recognized in earnings
 
 
 
 
 
 
Mortgage banking revenue
 
—

 
—

 
(190
)
Other comprehensive income (loss):
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
78

 
—

 
—

Balance, September 30, 2016
 
$
5,713

 
$
4,151

 
$
9,301

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 meet conforming standards.



- 114 -


A summary of quantitative information about assets measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3) as of September 30, 2017 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost/Unpaid Principal Balance
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
5,095

 
$
5,067

 
$
4,785

 
Discounted cash flows
1  
Interest rate spread
 
6.05%-6.05% (6.05%)
2  
92.25%-95.02% (93.91%)
3  
Other debt securities
 
4,400

 
4,400

 
4,153

 
Discounted cash flows
1  
Interest rate spread
 
6.65%-6.73% (6.72%)
4  
94.38% - 94.38 (94.38%)
3  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans held for sale
 
N/A

 
12,612

 
12,100

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
95.94%
 
1  
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2  
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 352 to 467 basis points over average yields for comparable tax-exempt securities.
3  
Represents fair value as a percentage of par value.
4  
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 3 percent .


A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2016 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost/Unpaid Principal Balance
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
6,195

 
$
6,163

 
$
5,789

 
Discounted cash flows
1  
Interest rate spread
 
5.91%-6.21% (6.16%)
2  
90.00%-93.40% (92.20%)
3  
Other debt securities
 
4,400

 
4,400

 
4,152

 
Discounted cash flows
1  
Interest rate spread
 
6.01%-6.26% (6.23%)
4  
94.34% - 94.36 (94.36%)
3  
Residential mortgage loans held for sale
 
N/A

 
12,431

 
11,617

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
93.45%
 
1  
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2  
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 467 to 525 basis points over average yields for comparable tax-exempt securities.
3  
Represents fair value as a percentage of par value.
4  
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1 percent .


- 115 -


A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2016 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
6,195

 
$
6,162

 
$
5,713

 
Discounted cash flows
1  
Interest rate spread
 
5.60%-5.90% (5.85%)
2  
90.00%-93.79% (92.22%)
3  
Other debt securities
 
4,400

 
4,400

 
4,151

 
Discounted cash flows
1  
Interest rate spread
 
5.98%-6.03% (6.02%)
4  
94.34% - 94.34 (94.34%)
3  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans held for sale
 
N/A

 
9,957

 
9,301

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
93.41%
 
1  
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2  
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 437 to 484 basis points over average yields for comparable tax-exempt securities.
3  
Represents fair value as a percentage of par value.
4  
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1 percent .


Fair Value of Assets and Liabilities Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis include 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) during the period. The carrying value represents only those assets with a balance at September 30, 2017 for which the fair value was adjusted during the nine months ended September 30, 2017 :
 
 
 
 
 
 
 
Fair Value Adjustments for the
 
Carrying Value at September 30, 2017
 
Three Months Ended
September 30, 2017
Recognized in:
 
Nine Months Ended
September 30, 2017
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$
—

 
$
423

 
$
10,960

 
$
4,397

 
$
—

 
$
5,058

 
$
—

Real estate and other repossessed assets
—

 
4,392

 
6,845

 
—

 
4,683

 
—

 
4,915

 

- 116 -


The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at September 30, 2016 for which the fair value was adjusted during the nine months ended September 30, 2016 :
 
Carrying Value at September 30, 2016
 
Fair Value Adjustments for the Three Months Ended
September 30, 2016
Recognized in:
 
Nine Months Ended
September 30, 2016
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$
—

 
$
436

 
$
23,089

 
$
6,334

 
$
—

 
$
30,200

 
$
—

Real estate and other repossessed assets
—

 
6,048

 
1,927

 
—

 
480

 
—

 
1,260


The fair value of collateral-dependent impaired loans secured by real estate 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 the same or 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.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2017 follows (in thousands):
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
10,960

 
Discounted cash flows
 
Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs
 
64% - 88% (68%) 1
Real estate and other repossessed assets
 
6,845

 
Appraised value, as adjusted
 
Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs
 
N/A
1  
Represents fair value as a percentage of the unpaid principal balance.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2016 follows (in thousands):
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
23,089

 
Discounted cash flows
 
Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs
 
23% - 59% (43%) 1
Real estate and other repossessed assets
 
1,927

 
Appraised value, as adjusted
 
Marketability adjustments off appraised value2
 
68% - 80% (71%)
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.


- 117 -


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 basis as of September 30, 2017 (dollars in thousands):
 
 
Carrying
Value
 
Estimated
Fair
Value
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Cash and due from banks
 
$
547,203

 
$
547,203

 
$
547,203

 
$
—

 
$
—

Interest-bearing cash and cash equivalents
 
1,926,779

 
1,926,779

 
1,926,779

 
—

 
—

Trading securities:
 
 
 
 
 
 
 
—

 
 
U.S. government agency debentures
 
30,162

 
30,162

 
—

 
30,162

 
—

U.S. government agency residential mortgage-backed securities
 
516,760

 
516,760

 
—

 
516,760

 
—

Municipal and other tax-exempt securities
 
56,148

 
56,148

 
—

 
56,148

 
—

Other trading securities
 
11,047

 
11,047

 
—

 
11,047

 
—

Total trading securities
 
614,117

 
614,117

 
—

 
614,117

 
—

Investment securities:
 
 

 
 

 
 
 
 
 
 
Municipal and other tax-exempt securities
 
246,000

 
249,250

 
—

 
249,250

 
—

U.S. government agency residential mortgage-backed securities
 
16,926

 
17,458

 
—

 
17,458

 
—

Other debt securities
 
203,636

 
223,187

 
—

 
223,187

 
—

Total investment securities
 
466,562

 
489,895

 
—

 
489,895

 
—

Available for sale securities:
 
 

 
 

 
 
 
 
 
 
U.S. Treasury
 
999

 
999

 
999

 
—

 
—

Municipal and other tax-exempt securities
 
28,368

 
28,368

 
—

 
23,583

 
4,785

U.S. government agency residential mortgage-backed securities
 
5,326,384

 
5,326,384

 
—

 
5,326,384

 
—

Privately issued residential mortgage-backed securities
 
99,994

 
99,994

 
—

 
99,994

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,889,346

 
2,889,346

 
—

 
2,889,346

 
—

Other debt securities
 
4,153

 
4,153

 
—

 
—

 
4,153

Perpetual preferred stock
 
16,245

 
16,245

 
—

 
16,245

 
—

Equity securities and mutual funds
 
17,710

 
17,710

 
2,578

 
15,132

 
—

Total available for sale securities
 
8,383,199

 
8,383,199

 
3,577

 
8,370,684

 
8,938

Fair value option securities – U.S. government agency residential mortgage-backed securities
 
819,531

 
819,531

 
—

 
819,531

 
—

Residential mortgage loans held for sale
 
275,643

 
275,643

 
—

 
263,543

 
12,100

Loans:
 
 

 
 

 
 
 
 
 
 
Commercial
 
10,795,934

 
10,574,720

 
—

 
—

 
10,574,720

Commercial real estate
 
3,518,142

 
3,467,009

 
—

 
—

 
3,467,009

Residential mortgage
 
1,945,750

 
1,958,632

 
—

 
—

 
1,958,632

Personal
 
947,008

 
938,819

 
—

 
—

 
938,819

Total loans
 
17,206,834

 
16,939,180

 
—

 
—

 
16,939,180

Allowance for loan losses
 
(247,703
)
 
—

 
—

 
—

 
—

Loans, net of allowance
 
16,959,131

 
16,939,180

 
—

 
—

 
16,939,180

Mortgage servicing rights
 
245,858

 
245,858

 
—

 
—

 
245,858

Derivative instruments with positive fair value, net of cash collateral
 
352,559

 
352,559

 
8,498

 
344,061

 
—

Deposits with no stated maturity
 
19,675,790

 
19,675,790

 
—

 
—

 
19,675,790

Time deposits
 
2,172,289

 
2,138,367

 
—

 
—

 
2,138,367

Other borrowed funds
 
6,631,820

 
6,609,642

 
—

 
—

 
6,609,642

Subordinated debentures
 
144,668

 
146,693

 
—

 
146,693

 
—

Derivative instruments with negative fair value, net of cash collateral
 
336,327

 
336,327

 
6,903

 
329,424

 
—


- 118 -


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 basis as of December 31, 2016 (dollars in thousands):
 
 
Carrying
Value
 
Estimated
Fair
Value
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Cash and due from banks
 
$
620,846

 
$
620,846

 
$
620,846

 
$
—

 
$
—

Interest-bearing cash and cash equivalents
 
1,916,651

 
1,916,651

 
1,916,651

 
—

 
—

Trading securities:
 
 
 
 
 
 
 
—

 
 
U.S. government agency debentures
 
6,234

 
6,234

 
—

 
6,234

 
—

U.S. government agency residential mortgage-backed securities
 
310,067

 
310,067

 
—

 
310,067

 
—

Municipal and other tax-exempt securities
 
14,427

 
14,427

 
—

 
14,427

 
—

Other trading securities
 
6,900

 
6,900

 
—

 
6,900

 
—

Total trading securities
 
337,628

 
337,628

 
—

 
337,628

 
—

Investment securities:
 
 

 
 

 
 
 
 
 
 
Municipal and other tax-exempt securities
 
320,364

 
321,225

 
—

 
321,225

 
—

U.S. government agency residential mortgage-backed securities
 
20,777

 
21,473

 
—

 
21,473

 
—

Other debt securities
 
205,004

 
222,795

 
—

 
222,795

 
—

Total investment securities
 
546,145

 
565,493

 
—

 
565,493

 
—

Available for sale securities:
 
 

 
 

 
 
 
 
 
 
U.S. Treasury
 
999

 
999

 
999

 
—

 
—

Municipal and other tax-exempt securities
 
40,993

 
40,993

 
—

 
35,204

 
5,789

U.S. government agency residential mortgage-backed securities
 
5,460,386

 
5,460,386

 
—

 
5,460,386

 
—

Privately issued residential mortgage-backed securities
 
115,535

 
115,535

 
—

 
115,535

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
3,017,933

 
3,017,933

 
—

 
3,017,933

 
—

Other debt securities
 
4,152

 
4,152

 
—

 
—

 
4,152

Perpetual preferred stock
 
18,474

 
18,474

 
—

 
18,474

 
—

Equity securities and mutual funds
 
18,357

 
18,357

 
3,495

 
14,862

 
—

Total available for sale securities
 
8,676,829

 
8,676,829

 
4,494

 
8,662,394

 
9,941

Fair value option securities – U.S. government agency residential mortgage-backed securities
 
77,046

 
77,046

 
—

 
77,046

 
—

Residential mortgage loans held for sale
 
301,897

 
301,897

 
—

 
290,280

 
11,617

Loans:
 
 

 
 

 
 
 
 
 
 
Commercial
 
10,390,824

 
10,437,016

 
—

 
—

 
10,437,016

Commercial real estate
 
3,809,046

 
3,850,981

 
—

 
—

 
3,850,981

Residential mortgage
 
1,949,832

 
2,025,159

 
—

 
—

 
2,025,159

Personal
 
839,958

 
864,904

 
—

 
—

 
864,904

Total loans
 
16,989,660

 
17,178,060

 
—

 
—

 
17,178,060

Allowance for loan losses
 
(246,159
)
 
—

 
—

 
—

 
—

Loans, net of allowance
 
16,743,501

 
17,178,060

 
—

 
—

 
17,178,060

Mortgage servicing rights
 
247,073

 
247,073

 
—

 
—

 
247,073

Derivative instruments with positive fair value, net of cash collateral
 
689,872

 
689,872

 
7,541

 
682,331

 
—

Deposits with no stated maturity
 
20,526,295

 
20,526,295

 
—

 
—

 
20,526,295

Time deposits
 
2,221,800

 
2,218,303

 
—

 
—

 
2,218,303

Other borrowed funds
 
5,572,662

 
5,556,327

 
—

 
—

 
5,556,327

Subordinated debentures
 
144,640

 
128,903

 
—

 
128,903

 
—

Derivative instruments with negative fair value, net of cash collateral
 
664,531

 
664,531

 
6,972

 
657,559

 
—



- 119 -


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 basis as of September 30, 2016 (dollars in thousands):
 
 
Carrying
Value
 
Estimated
Fair
Value
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Cash and due from banks
 
$
535,916

 
$
535,916

 
$
535,916

 
$
—

 
$
—

Interest-bearing cash and cash equivalents
 
2,080,978

 
2,080,978

 
2,080,978

 
—

 
—

Trading securities:
 
 
 
 
 
 
 
—

 
 
U.S. government agency debentures
 
15,705

 
15,705

 
—

 
15,705

 
—

U.S. government agency residential mortgage-backed securities
 
464,749

 
464,749

 
—

 
464,749

 
—

Municipal and other tax-exempt securities
 
54,856

 
54,856

 
—

 
54,856

 
—

Other trading securities
 
11,305

 
11,305

 
—

 
11,305

 
—

Total trading securities
 
546,615

 
546,615

 
—

 
546,615

 
—

Investment securities:
 
 

 
 

 
 
 
 
 
 
Municipal and other tax-exempt securities
 
323,225

 
327,788

 
—

 
327,788

 
—

U.S. government agency residential mortgage-backed securities
 
22,166

 
23,452

 
—

 
23,452

 
—

Other debt securities
 
201,066

 
229,070

 
—

 
229,070

 
—

Total investment securities
 
546,457

 
580,310

 
—

 
580,310

 
—

Available for sale securities:
 
 

 
 

 
 
 
 
 
 
U.S. Treasury
 
1,002

 
1,002

 
1,002

 
—

 
—

Municipal and other tax-exempt securities
 
42,092

 
42,092

 
—

 
36,379

 
5,713

U.S. government agency residential mortgage-backed securities
 
5,668,672

 
5,668,672

 
—

 
5,668,672

 
—

Privately issued residential mortgage-backed securities
 
121,603

 
121,603

 
—

 
121,603

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,986,495

 
2,986,495

 
—

 
2,986,495

 
—

Other debt securities
 
4,151

 
4,151

 
—

 
—

 
4,151

Perpetual preferred stock
 
19,578

 
19,578

 
—

 
19,578

 
—

Equity securities and mutual funds
 
18,690

 
18,690

 
3,544

 
15,146

 
—

Total available for sale securities
 
8,862,283

 
8,862,283

 
4,546

 
8,847,873

 
9,864

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
 
222,409

 
222,409

 
222,409

 
—

 
—

U.S. government agency residential mortgage-backed securities
 
—

 
—

 
—

 
—

 
—

Total fair value option securities
 
222,409

 
222,409

 
222,409

 
—

 
—

Residential mortgage loans held for sale
 
447,592

 
447,592

 
—

 
438,291

 
9,301

Loans:
 
 

 
 

 
 
 
 
 
 
Commercial
 
10,120,163

 
9,926,548

 
—

 
—

 
9,926,548

Commercial real estate
 
3,793,598

 
3,769,427

 
—

 
—

 
3,769,427

Residential mortgage
 
1,872,793

 
1,905,786

 
—

 
—

 
1,905,786

Personal
 
678,232

 
671,421

 
—

 
—

 
671,421

Total loans
 
16,464,786

 
16,273,182

 
—

 
—

 
16,273,182

Allowance for loan losses
 
(245,103
)
 
—

 
—

 
—

 
—

Loans, net of allowance
 
16,219,683

 
16,273,182

 
—

 
—

 
16,273,182

Mortgage servicing rights
 
203,621

 
203,621

 
—

 
—

 
203,621

Derivative instruments with positive fair value, net of cash collateral
 
655,078

 
655,078

 
5,575

 
649,503

 
—

Deposits with no stated maturity
 
18,925,873

 
18,925,873

 
—

 
—

 
18,925,873

Time deposits
 
2,169,631

 
2,163,947

 
—

 
—

 
2,163,947

Other borrowed funds
 
7,147,047

 
7,079,737

 
—

 
—

 
7,079,737

Subordinated debentures
 
144,631

 
148,360

 
—

 
148,360

 
—

Derivative instruments with negative fair value, net of cash collateral
 
573,987

 
573,987

 
1,308

 
572,679

 
—



- 120 -


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.

The following methods and assumptions were used in estimating the fair value of these financial instruments:
 
Cash and Cash Equivalents
 
The book value reported in the consolidated balance sheets for cash and short-term instruments approximates those assets’ fair values.
 
Securities
 
The fair values of securities are generally based on Significant Other Observable Inputs such as quoted prices for comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities. 

Loans
 
The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates and credit and liquidity spreads currently being offered for loans with similar remaining terms to maturity and risk, adjusted for the impact of interest rate floors and ceilings, which are classified as Significant Unobservable Inputs. The fair values of loans were estimated to approximate their discounted cash flows less loan loss allowances allocated to these loans of $220 million at September 30, 2017 , $218 million at December 31, 2016 and $217 million at September 30, 2016 . A summary of assumptions used in determining the fair value of loans follows:

 
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
September 30, 2017:
 
 
 
 
 
 
Commercial
 
0.38% - 30.00%
 
0.62
 
0.78% - 4.59%
Commercial real estate
 
0.38% - 18.00%
 
0.77
 
1.04% - 4.38%
Residential mortgage
 
1.74% - 18.00%
 
2.12
 
1.79% - 4.09%
Personal
 
0.25% - 21.00%
 
0.24
 
0.55% - 4.78%
 
 
 
 
 
 
 
December 31, 2016:
 
 
 
 
 
 
Commercial
 
0.38% - 30.00%
 
0.70
 
0.64% - 4.60%
Commercial real estate
 
0.38% - 18.00%
 
0.71
 
0.94% - 4.27%
Residential mortgage
 
1.74% - 18.00%
 
2.27
 
1.71% - 4.26%
Personal
 
0.25% - 21.00%
 
0.40
 
1.03% - 4.59%
 
 
 
 
 
 
 
September 30, 2016:
 
 
 
 
 
 
Commercial
 
0.38% - 30.00%
 
0.69
 
0.54% - 3.93%
Commercial real estate
 
0.38% - 18.00%
 
0.72
 
0.80% - 3.90%
Residential mortgage
 
1.74% - 18.00%
 
1.95
 
1.57% - 3.55%
Personal
 
0.25% - 21.00%
 
0.35
 
0.75% - 4.15%
 
Deposits
 
The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions which are considered Significant Unobservable Inputs. Estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, is equal to the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, adjusting fair value for the expected benefit of these deposits is prohibited. Accordingly, the positive effect of such deposits is not included in the tables above.


- 121 -


A summary of assumptions used in determining the fair value of time deposits follows:

 
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
September 30, 2017
 
0.03% - 9.64%
 
1.95
 
1.86% - 2.18%
December 31, 2016
 
0.02% - 9.65%
 
1.96
 
1.57% - 2.00%
September 30, 2016
 
0.03% - 9.65%
 
2.10
 
1.37% - 1.66%

  Other Borrowings and Subordinated Debentures
 
The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments, which are considered Significant Unobservable Inputs. A summary of assumptions used in determining the fair value of other borrowings and subordinated debentures follows:

 
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
September 30, 2017:
 
 
 
 
 
 
Other borrowed funds
 
0.25% - 6.25%
 
0.02
 
1.06% - 3.70%
Subordinated debentures
 
5.38%
 
16.85
 
4.96%
 
 
 
 
 
 
 
December 31, 2016:
 
 
 
 
 
 
Other borrowed funds
 
0.25% - 3.50%
 
0.00
 
0.55% - 3.22%
Subordinated debentures
 
5.38%
 
16.86
 
6.11%
 
 
 
 
 
 
 
September 30, 2016:
 
 
 
 
 
 
Other borrowed funds
 
0.25% - 3.81%
 
0.02
 
0.29% - 2.99%
Subordinated debentures
 
5.38%
 
18.37
 
5.38%

Off-Balance Sheet Instruments
 
The fair values of commercial loan commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance sheet instruments were not significant at September 30, 2017 , December 31, 2016 or September 30, 2016 .
Fair Value Election

As more fully disclosed in Note 2 and Note 6 to the Consolidated Financial Statements, the Company has elected to carry all residential mortgage-backed securities guaranteed by U.S. government agencies and U.S. Treasury 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.



- 122 -


( 12 ) Federal and State Income Taxes

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):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Amount:
 
 
 
 
 
 
 
 
Federal statutory tax
 
$
44,880

 
$
37,474

 
$
137,048

 
$
93,189

Tax exempt revenue
 
(3,001
)
 
(2,391
)
 
(9,336
)
 
(7,491
)
Effect of state income taxes, net of federal benefit
 
2,486

 
1,364

 
7,875

 
5,222

Utilization of tax credits:
 
 
 
 
 
 
 
 
Low-income housing tax credit, net of amortization
 
(23
)
 
(623
)
 
(2,272
)
 
(2,505
)
Other tax credits
 
(364
)
 
(522
)
 
(1,091
)
 
(1,564
)
Bank-owned life insurance
 
(705
)
 
(813
)
 
(2,252
)
 
(2,414
)
Share-based compensation
 
(169
)
 
—

 
(2,470
)
 
—

Other, net
 
(666
)
 
(2,533
)
 
744

 
(556
)
Total income tax expense
 
$
42,438

 
$
31,956

 
$
128,246

 
$
83,881



 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Percent of pretax income:
 
 
 
 
 
 
 
 
Federal statutory tax
 
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
Tax exempt revenue
 
(2.3
)
 
(2.2
)
 
(2.4
)
 
(2.8
)
Effect of state income taxes, net of federal benefit
 
1.9

 
1.3

 
2.0

 
2.0

Utilization of tax credits:
 
 
 
 
 
 
 
 
Low-income housing tax credit, net of amortization
 
—

 
(0.6
)
 
(0.6
)
 
(0.9
)
Other tax credits
 
(0.3
)
 
(0.5
)
 
(0.3
)
 
(0.6
)
Bank-owned life insurance
 
(0.5
)
 
(0.8
)
 
(0.6
)
 
(0.9
)
Share-based compensation
 
(0.1
)
 
—

 
(0.6
)
 
—

Other, net
 
(0.6
)
 
(2.4
)
 
0.3

 
(0.3
)
Total
 
33.1
 %
 
29.8
 %
 
32.8
 %
 
31.5
 %
( 13 ) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on September 30, 2017 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q. No events were identified requiring recognition in and/or disclosure in the consolidated financial statements.


- 123 -


Nine-Month Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Nine Months Ended
 
 
September 30, 2017
 
September 30, 2016
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
2,020,003

 
$
15,817

 
1.05
%
 
$
2,040,978

 
$
7,926

 
0.52
%
Trading securities
 
508,741

 
13,008

 
3.55
%
 
264,525

 
4,659

 
2.48
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
220,892

 
8,886

 
5.36
%
 
227,136

 
9,244

 
5.43
%
Tax-exempt
 
280,910

 
5,300

 
2.52
%
 
340,292

 
5,713

 
2.24
%
Total investment securities
 
501,802

 
14,186

 
3.77
%
 
567,428

 
14,957

 
3.52
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,407,421

 
130,426

 
2.09
%
 
8,831,032

 
130,790

 
2.02
%
Tax-exempt
 
51,891

 
2,019

 
5.58
%
 
70,205

 
2,605

 
5.15
%
Total available for sale securities
 
8,459,312

 
132,445

 
2.11
%
 
8,901,237

 
133,395

 
2.04
%
Fair value option securities
 
526,714

 
10,985

 
2.77
%
 
361,623

 
6,182

 
2.11
%
Restricted equity securities
 
312,365

 
13,534

 
5.78
%
 
316,563

 
12,684

 
5.34
%
Residential mortgage loans held for sale
 
240,822

 
6,317

 
3.55
%
 
379,174

 
9,823

 
3.49
%
Loans
 
17,174,450

 
523,764

 
4.08
%
 
16,235,071

 
436,966

 
3.59
%
Allowance for loan losses
 
(250,538
)
 
 
 
 
 
(242,508
)
 
 
 
 
Loans, net of allowance
 
16,923,912

 
523,764

 
4.14
%
 
15,992,563

 
436,966

 
3.65
%
Total earning assets
 
29,493,671

 
730,056

 
3.32
%
 
28,824,091

 
626,592

 
2.92
%
Receivable on unsettled securities sales
 
72,888

 
 
 
 
 
141,957

 
 
 
 
Cash and other assets
 
3,210,879

 
 
 
 
 
3,083,135

 
 
 
 
Total assets
 
$
32,777,438

 
 
 
 
 
$
32,049,183

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
10,246,125

 
$
19,713

 
0.26
%
 
$
9,666,048

 
$
9,994

 
0.14
%
Savings
 
455,740

 
272

 
0.08
%
 
411,568

 
295

 
0.10
%
Time
 
2,213,090

 
18,521

 
1.12
%
 
2,286,844

 
20,062

 
1.17
%
Total interest-bearing deposits
 
12,914,955

 
38,506

 
0.40
%
 
12,364,460

 
30,351

 
0.33
%
Funds purchased
 
56,161

 
276

 
0.66
%
 
83,668

 
142

 
0.23
%
Repurchase agreements
 
436,882

 
240

 
0.07
%
 
598,631

 
214

 
0.05
%
Other borrowings
 
5,825,764

 
47,026

 
1.08
%
 
6,002,018

 
25,587

 
0.57
%
Subordinated debentures
 
144,653

 
6,098

 
5.64
%
 
238,415

 
4,056

 
2.27
%
Total interest-bearing liabilities
 
19,378,415

 
92,146

 
0.64
%
 
19,287,192

 
60,350

 
0.42
%
Non-interest bearing demand deposits
 
9,277,820

 
 
 
 
 
8,255,859

 
 
 
 
Due on unsettled securities purchases
 
131,571

 
 
 
 
 
150,994

 
 
 
 
Other liabilities
 
581,901

 
 
 
 
 
1,001,282

 
 
 
 
Total equity
 
3,407,731

 
 
 
 
 
3,353,856

 
 
 
 
Total liabilities and equity
 
$
32,777,438

 
 
 
 
 
$
32,049,183

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
637,910

 
2.68
%
 
 
 
$
566,242

 
2.50
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
2.90
%
 
 
 
 
 
2.64
%
Less tax-equivalent adjustment
 
 
 
13,072

 
 
 
 
 
13,212

 
 
Net Interest Revenue
 
 
 
624,838

 
 
 
 
 
553,030

 
 
Provision for credit losses
 
 
 
—

 
 
 
 
 
65,000

 
 
Other operating revenue
 
 
 
528,258

 
 
 
 
 
530,266

 
 
Other operating expense
 
 
 
761,530

 
 
 
 
 
752,043

 
 
Income before taxes
 
 
 
391,566

 
 
 
 
 
266,253

 
 
Federal and state income taxes
 
 
 
128,246

 
 
 
 
 
83,881

 
 
Net income
 
 
 
263,320

 
 
 
 
 
182,372

 
 
Net income (loss) attributable to non-controlling interests
 
 
 
1,168

 
 
 
 
 
(270
)
 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
262,152

 
 
 
 
 
$
182,642

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Net income:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
4.01

 
 

 
 

 
$
2.77

 
 

Diluted
 
 

 
$
4.00

 
 

 
 

 
$
2.76

 
 

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 includes 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.

- 124 -


























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- 125 -


Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Three Months Ended
 
 
September 30, 2017
 
June 30, 2017
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
1,965,645

 
$
6,375

 
1.29
%
 
$
2,007,746

 
$
5,198

 
1.04
%
Trading securities
 
491,613

 
4,122

 
3.47
%
 
456,028

 
3,517

 
3.23
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
221,609

 
2,942

 
5.31
%
 
219,385

 
2,931

 
5.34
%
Tax-exempt
 
254,096

 
1,650

 
2.60
%
 
279,987

 
1,757

 
2.51
%
Total investment securities
 
475,705

 
4,592

 
3.86
%
 
499,372

 
4,688

 
3.76
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,381,536

 
44,579

 
2.16
%
 
8,332,709

 
42,920

 
2.09
%
Tax-exempt
 
46,817

 
566

 
5.27
%
 
51,348

 
725

 
6.09
%
Total available for sale securities
 
8,428,353

 
45,145

 
2.17
%
 
8,384,057

 
43,645

 
2.11
%
Fair value option securities
 
684,571

 
5,066

 
2.97
%
 
476,102

 
3,539

 
2.92
%
Restricted equity securities
 
328,677

 
4,826

 
5.87
%
 
295,743

 
4,399

 
5.95
%
Residential mortgage loans held for sale
 
256,343

 
2,095

 
3.36
%
 
245,401

 
2,386

 
3.92
%
Loans
 
17,256,663

 
187,506

 
4.31
%
 
17,129,533

 
172,139

 
4.03
%
Allowance for loan losses
 
(250,590
)
 
 
 
 
 
(251,632
)
 
 
 
 
Loans, net of allowance
 
17,006,073

 
187,506

 
4.38
%
 
16,877,901

 
172,139

 
4.09
%
Total earning assets
 
29,636,980

 
259,727

 
3.50
%
 
29,242,350

 
239,511

 
3.30
%
Receivable on unsettled securities sales
 
76,622

 
 
 
 
 
79,248

 
 
 
 
Cash and other assets
 
3,294,568

 
 
 
 
 
3,046,973

 
 
 
 
Total assets
 
$
33,008,170

 
 
 
 
 
$
32,368,571

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
10,088,522

 
$
8,062

 
0.32
%
 
$
10,087,640

 
$
6,437

 
0.26
%
Savings
 
464,130

 
90

 
0.08
%
 
461,586

 
95

 
0.08
%
Time
 
2,176,820

 
6,378

 
1.16
%
 
2,204,422

 
6,090

 
1.11
%
Total interest-bearing deposits
 
12,729,472

 
14,530

 
0.45
%
 
12,753,648

 
12,622

 
0.40
%
Funds purchased
 
49,774

 
116

 
0.92
%
 
63,263

 
96

 
0.61
%
Repurchase agreements
 
361,512

 
140

 
0.15
%
 
427,353

 
68

 
0.06
%
Other borrowings
 
6,162,641

 
20,105

 
1.29
%
 
5,572,031

 
15,188

 
1.09
%
Subordinated debentures
 
144,663

 
2,070

 
5.68
%
 
144,654

 
2,003

 
5.55
%
Total interest-bearing liabilities
 
19,448,062

 
36,961

 
0.75
%
 
18,960,949

 
29,977

 
0.63
%
Non-interest bearing demand deposits
 
9,389,849

 
 
 
 
 
9,338,683

 
 
 
 
Due on unsettled securities purchases
 
145,155

 
 
 
 
 
157,438

 
 
 
 
Other liabilities
 
540,463

 
 
 
 
 
502,068

 
 
 
 
Total equity
 
3,484,641

 
 
 
 
 
3,409,433

 
 
 
 
Total liabilities and equity
 
$
33,008,170

 
 
 
 
 
$
32,368,571

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
222,766

 
2.75
%
 
 
 
$
209,534

 
2.67
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
 
 
3.01
%
 
 
 
 
 
2.89
%
Less tax-equivalent adjustment
 
 
 
4,314

 
 
 
 
 
4,330

 
 
Net Interest Revenue
 
 
 
218,452

 
 
 
 
 
205,204

 
 
Provision for credit losses
 
 
 
—

 
 
 
 
 
—

 
 
Other operating revenue
 
 
 
175,710

 
 
 
 
 
182,252

 
 
Other operating expense
 
 
 
265,934

 
 
 
 
 
250,885

 
 
Income before taxes
 
 
 
128,228

 
 
 
 
 
136,571

 
 
Federal and state income taxes
 
 
 
42,438

 
 
 
 
 
47,705

 
 
Net income
 
 
 
85,790

 
 
 
 
 
88,866

 
 
Net income (loss) attributable to non-controlling interests
 
 
 
141

 
 
 
 
 
719

 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
85,649

 
 
 
 
 
$
88,147

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
1.31

 
 

 
 

 
$
1.35

 
 

Diluted
 
 

 
$
1.31

 
 

 
 

 
$
1.35

 
 

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 includes 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.

- 126 -


Three Months Ended
March 31, 2017
 
December 31, 2016
 
September 30, 2016
Average Balance
 
Revenue /Expense
 
Yield / Rate
 
Average Balance
 
Revenue / Expense
 
Yield / Rate
 
Average Balance
 
Revenue / Expense
 
Yield / Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
2,087,964

 
$
4,244

 
0.82
%
 
$
2,032,785

 
$
2,800

 
0.55
%
 
$
2,047,991

 
$
2,651

 
0.51
%
579,549

 
5,369

 
3.87
%
 
476,498

 
4,554

 
3.91
%
 
366,545

 
3,157

 
2.71
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
221,684

 
3,013

 
5.44
%
 
224,376

 
3,024

 
5.39
%
 
224,518

 
3,000

 
5.34
%
309,252

 
1,893

 
2.45
%
 
318,493

 
1,854

 
2.33
%
 
328,074

 
1,851

 
2.26
%
530,936

 
4,906

 
3.70
%
 
542,869

 
4,878

 
3.60
%
 
552,592

 
4,851

 
3.51
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,509,423

 
42,927

 
2.02
%
 
8,706,449

 
42,482

 
1.98
%
 
8,795,869

 
42,513

 
1.99
%
57,626

 
728

 
5.37
%
 
60,106

 
748

 
5.27
%
 
66,721

 
867

 
5.47
%
8,567,049

 
43,655

 
2.05
%
 
8,766,555

 
43,230

 
2.00
%
 
8,862,590

 
43,380

 
2.01
%
416,524

 
2,380

 
2.27
%
 
210,733

 
541

 
0.99
%
 
266,998

 
1,531

 
1.70
%
312,498

 
4,309

 
5.52
%
 
334,114

 
4,554

 
5.45
%
 
335,812

 
4,510

 
5.37
%
220,325

 
1,836

 
3.35
%
 
345,066

 
2,835

 
3.31
%
 
445,930

 
3,615

 
3.28
%
17,135,825

 
164,119

 
3.88
%
 
16,723,588

 
156,734

 
3.67
%
 
16,447,750

 
150,077

 
3.63
%
(249,379
)
 
 
 
 
 
(246,977
)
 
 
 
 
 
(247,901
)
 
 
 
 
16,886,446

 
164,119

 
3.94
%
 
16,476,611

 
156,734

 
3.72
%
 
16,199,849

 
150,077

 
3.69
%
29,601,291

 
230,818

 
3.15
%
 
29,185,231

 
220,126

 
2.98
%
 
29,078,307

 
213,772

 
2.93
%
62,641

 
 
 
 
 
33,813

 
 
 
 
 
259,906

 
 
 
 
3,291,057

 
 
 
 
 
3,742,032

 
 
 
 
 
3,308,260

 
 
 
 
$
32,954,989

 
 
 
 
 
$
32,961,076

 
 
 
 
 
$
32,646,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
10,567,475

 
$
5,214

 
0.20
%
 
$
9,980,132

 
$
3,912

 
0.16
%
 
$
9,650,618

 
$
3,417

 
0.14
%
441,254

 
87

 
0.08
%
 
421,654

 
91

 
0.09
%
 
420,009

 
100

 
0.09
%
2,258,930

 
6,053

 
1.09
%
 
2,177,035

 
6,140

 
1.12
%
 
2,197,350

 
6,295

 
1.14
%
13,267,659

 
11,354

 
0.35
%
 
12,578,821

 
10,143

 
0.32
%
 
12,267,977

 
9,812

 
0.32
%
55,508

 
64

 
0.47
%
 
62,004

 
44

 
0.28
%
 
68,280

 
33

 
0.19
%
523,561

 
32

 
0.02
%
 
560,891

 
34

 
0.02
%
 
522,822

 
53

 
0.04
%
5,737,955

 
11,733

 
0.83
%
 
6,072,150

 
9,315

 
0.61
%
 
6,342,369

 
9,105

 
0.57
%
144,644

 
2,025

 
5.68
%
 
144,635

 
2,003

 
5.51
%
 
255,890

 
2,468

 
3.84
%
19,729,327

 
25,208

 
0.52
%
 
19,418,501

 
21,539

 
0.44
%
 
19,457,338

 
21,471

 
0.44
%
9,101,763

 
 
 
 
 
9,124,595

 
 
 
 
 
8,497,037

 
 
 
 
91,529

 
 
 
 
 
77,575

 
 
 
 
 
200,574

 
 
 
 
704,978

 
 
 
 
 
1,004,212

 
 
 
 
 
1,099,858

 
 
 
 
3,327,392

 
 
 
 
 
3,336,193

 
 
 
 
 
3,391,666

 
 
 
 
$
32,954,989

 
 
 
 
 
$
32,961,076

 
 
 
 
 
$
32,646,473

 
 
 
 
 
 
$
205,610

 
2.63
%
 
 
 
$
198,587

 
2.54
%
 
 
 
$
192,301

 
2.49
%
 
 
 
 
2.81
%
 
 
 
 
 
2.69
%
 
 
 
 
 
2.64
%
 
 
4,428

 
 
 
 
 
4,389

 
 
 
 
 
4,455

 
 
 
 
201,182

 
 
 
 
 
194,198

 
 
 
 
 
187,846

 
 
 
 
—

 
 
 
 
 
—

 
 
 
 
 
10,000

 
 
 
 
170,296

 
 
 
 
 
143,754

 
 
 
 
 
187,310

 
 
 
 
244,711

 
 
 
 
 
265,547

 
 
 
 
 
258,088

 
 
 
 
126,767

 
 
 
 
 
72,405

 
 
 
 
 
107,068

 
 
 
 
38,103

 
 
 
 
 
22,496

 
 
 
 
 
31,956

 
 
 
 
88,664

 
 
 
 
 
49,909

 
 
 
 
 
75,112

 
 
 
 
308

 
 
 
 
 
(117
)
 
 
 
 
 
835

 
 
 
 
$
88,356

 
 
 
 
 
$
50,026

 
 
 
 
 
$
74,277

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
$
1.35

 
 

 
 

 
$
0.76

 
 

 
 

 
$
1.13

 
 

 

 
$
1.35

 
 

 
 

 
$
0.76

 
 

 
 

 
$
1.13

 
 




- 127 -


Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
 
 
Three Months Ended
 
 
Sept. 30, 2017
 
June 30, 2017
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
255,413

 
$
235,181

 
$
226,390

 
$
215,737

 
$
209,317

Interest expense
 
36,961

 
29,977

 
25,208

 
21,539

 
21,471

Net interest revenue
 
218,452

 
205,204

 
201,182

 
194,198

 
187,846

Provision for credit losses
 
—

 
—

 
—

 
—

 
10,000

Net interest revenue after provision for credit losses
 
218,452

 
205,204

 
201,182

 
194,198

 
177,846

Other operating revenue
 
 

 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
33,169

 
31,764

 
33,623

 
28,500

 
38,006

Transaction card revenue
 
37,826

 
35,296

 
32,127

 
34,521

 
33,933

Fiduciary and asset management revenue
 
40,687

 
41,808

 
38,631

 
34,535

 
34,073

Deposit service charges and fees
 
23,209

 
23,354

 
23,030

 
23,365

 
23,668

Mortgage banking revenue
 
24,890

 
30,276

 
25,191

 
28,414

 
38,516

Other revenue
 
13,670

 
14,984

 
11,752

 
12,693

 
13,080

Total fees and commissions
 
173,451

 
177,482

 
164,354

 
162,028

 
181,276

Other gains, net
 
(1,283
)
 
6,108

 
3,627

 
(1,279
)
 
2,442

Gain (loss) on derivatives, net
 
1,033

 
3,241

 
(450
)
 
(35,815
)
 
2,226

Gain (loss) on fair value option securities, net
 
661

 
1,984

 
(1,140
)
 
(20,922
)
 
(3,355
)
Change in fair value of mortgage servicing rights
 
(639
)
 
(6,943
)
 
1,856

 
39,751

 
2,327

Gain (loss) on available for sale securities, net
 
2,487

 
380

 
2,049

 
(9
)
 
2,394

Total other operating revenue
 
175,710

 
182,252

 
170,296

 
143,754

 
187,310

Other operating expense
 
 

 
 

 
 

 
 

 
 

Personnel
 
147,910

 
143,744

 
136,425

 
141,132

 
139,212

Business promotion
 
7,105

 
7,738

 
6,717

 
7,344

 
6,839

Charitable contributions to BOKF Foundation
 
—

 
—

 
—

 
2,000

 
—

Professional fees and services
 
11,887

 
12,419

 
11,417

 
16,828

 
14,038

Net occupancy and equipment
 
21,325

 
21,125

 
21,624

 
21,470

 
20,111

Insurance
 
6,005

 
689

 
6,404

 
8,705

 
9,390

Data processing and communications
 
37,327

 
36,330

 
34,902

 
33,691

 
33,331

Printing, postage and supplies
 
3,917

 
4,140

 
3,851

 
3,998

 
3,790

Net losses (gains) and operating expenses of repossessed assets
 
6,071

 
2,267

 
1,009

 
1,627

 
(926
)
Amortization of intangible assets
 
1,744

 
1,803

 
1,802

 
1,558

 
1,521

Mortgage banking costs
 
13,450

 
12,072

 
13,003

 
17,348

 
15,963

Other expense
 
9,193

 
8,558

 
7,557

 
9,846

 
14,819

Total other operating expense
 
265,934

 
250,885

 
244,711

 
265,547

 
258,088

Net income before taxes
 
128,228

 
136,571

 
126,767

 
72,405

 
107,068

Federal and state income taxes
 
42,438

 
47,705

 
38,103

 
22,496

 
31,956

Net income
 
85,790

 
88,866

 
88,664

 
49,909

 
75,112

Net income (loss) attributable to non-controlling interests
 
141

 
719

 
308

 
(117
)
 
835

Net income attributable to BOK Financial Corporation shareholders
 
$
85,649

 
$
88,147

 
$
88,356

 
$
50,026

 
$
74,277

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 

 
 

 
 

Basic
 
$1.31
 
$1.35
 
$1.35
 
$0.76
 
$1.13
Diluted
 
$1.31
 
$1.35
 
$1.35
 
$0.76
 
$1.13
Average shares used in computation:
 
 
 
 
 
 
 
 
 
 
Basic
 
64,742,822

 
64,729,752

 
64,715,964

 
64,719,018

 
65,085,392

Diluted
 
64,805,172

 
64,793,134

 
64,783,737

 
64,787,728

 
65,157,841


- 128 -


PART II. Other Information

Item 1. Legal Proceedings
 
See discussion of legal proceedings at Note 7 to the Consolidated Financial Statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
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 September 30, 2017 .

 
Period
 
Total Number of Shares Purchased 2
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 1
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans
July 1 to July 31, 2017
 
—

 
$
—

 
—

 
2,120,757

August 1 to August 31, 2017
 
—

 
$
—

 
—

 
2,120,757

September 1 to September 30, 2017
 
—

 
$
—

 
—

 
2,120,757

Total
 
—

 
 

 
—

 
 

1  
On October 1, 2015, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock. As of September 30, 2017 , the Company had repurchased 2,879,243 shares under this plan. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors.
2  
The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee equity compensation.
Item 6. Exhibits

31.1

31.2

32

101
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 Consolidated Financial Statements


Items 1A, 3, 4 and 5 are not applicable and have been omitted.



- 129 -


Signatures


Pursuant to the requirements 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
(Registrant)



Date:          October 31, 2017                                                                   



/s/ Steven E. Nell
Steven E. Nell
Executive Vice President and
Chief Financial Officer

    
/s/ John C. Morrow
John C. Morrow
Senior Vice President and
Chief Accounting Officer


- 130 -


Exhibit 31.1
 
CERTIFICATION PURSUANT TO
  SECTION 302  
OF THE SARBANES-OXLEY ACT OF 2002  
FOR THE CHIEF EXECUTIVE OFFICER
 
I, Steven G. Bradshaw, President and Chief Executive Officer of BOK Financial Corporation (“BOK Financial”), certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q 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:   October 31, 2017

 
/s/ Steven G. Bradshaw
Steven G. Bradshaw
President
Chief Executive Officer
BOK Financial Corporation




Exhibit 31.2
 
CERTIFICATION PURSUANT TO
  SECTION 302
  OF THE SARBANES-OXLEY ACT OF 2002
  FOR THE CHIEF FINANCIAL OFFICER
  
I, Steven E. Nell, Chief Financial Officer of BOK Financial Corporation (“BOK Financial”), certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q 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:   October 31, 2017  

/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation





Exhibit 32
 
 
CERTIFICATION PURSUANT TO
  18 U.S.C. SECTION 1350,
  AS ADOPTED PURSUANT TO
  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Quarterly Report of BOK Financial Corporation (“BOK Financial”) on Form 10-Q for the fiscal period ending September 30, 2017 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.

 
 
October 31, 2017
 

 
/s/ Steven G. Bradshaw
Steven G. Bradshaw
President
Chief Executive Officer
BOK Financial Corporation


 
/s/ Steven E. Nell
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation