BOKF-2014.03.31-10Q


 

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 March 31, 2014
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ______________                 

Commission File No. 0-19341

BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Oklahoma
 
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  ¨

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: 69,140,210 shares of common stock ($.00006 par value) as of March 31, 2014.
 




BOK Financial Corporation
Form 10-Q
Quarter Ended March 31, 2014

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 $76.6 million or $1.11 per diluted share for the first quarter of 2014, compared to $88.0 million or $1.28 per diluted share for the first quarter of 2013 and $73.0 million or $1.06 per diluted share for the fourth quarter of 2013. 

Highlights of the first quarter of 2014 included:
•
Net interest revenue totaled $162.6 million for the first quarter of 2014, compared to $171.5 million for the first quarter of 2013 and $166.2 million for the fourth quarter of 2013. Net interest margin was 2.71% for the first quarter of 2014. Net interest margin was 2.90% for the first quarter of 2013 and 2.74% for the fourth quarter of 2013. 
•
Fees and commissions revenue totaled $140.9 million for the first quarter of 2014, compared to $157.1 million for the first quarter of 2013 and $142.4 million for the fourth quarter of 2013. Mortgage banking revenue decreased $17.1 million compared to the first quarter of 2013 and increased $968 thousand over the fourth quarter of 2013. Mortgage production volume decreased compared to the first quarter of 2013 due to higher interest rates. Gain on sale margin decreased compared to the prior year, but improved compared to the fourth quarter. Fiduciary and asset management revenue also grew over the prior year and prior quarter.
•
Operating expenses totaled $185.1 million for the first quarter of 2014, a decrease of $18.9 million compared to the first quarter of 2013 and a decrease of $30.3 million compared to the previous quarter. Personnel costs decreased $21.2 million compared to both the first quarter of 2013 and the prior quarter. The Company reversed $15.5 million accrued during 2011 through 2013 for amounts payable to certain executive officers under the 2011 True-Up Plan. Non-personnel expense increased $2.3 million over the first quarter of 2013 primarily due to a $2.4 million discretionary contribution of appreciated stock to the BOKF Foundation during the first quarter of 2014. Non-personnel expenses decreased $9.1 million compared to the prior quarter. Mortgage banking expenses were down primarily due to lower provision for losses related to repurchases of mortgage loans. Other expense, professional fees and services and occupancy expense also decreased compared to the prior quarter. 
•
No provision for credit losses was recorded in the first quarter of 2014 compared to an $8.0 million negative provision for credit losses in the first quarter of 2013 and an $11.4 million negative provision for credit losses in the fourth quarter of 2013. Gross charge-offs were $2.8 million in the first quarter of 2014, $8.9 million in the first quarter of 2013 and $3.1 million in the fourth quarter of 2013. Recoveries were $5.4 million in the first quarter of 2014, compared to $6.6 million in the first quarter of 2013 and $6.1 million in the fourth quarter of 2013.
•
The combined allowance for credit losses totaled $190 million or 1.45% of outstanding loans at March 31, 2014 compared to $187 million or 1.47% of outstanding loans at December 31, 2013. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $153 million or 1.18% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2014 and $155 million or 1.23% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at December 31, 2013.
•
Outstanding loan balances were $13.1 billion at March 31, 2014, an increase of $286 million over December 31, 2013. Commercial loan balances grew by $108 million and commercial real estate loan balances were up $216 million during the first quarter. Residential mortgage loans decreased by $33 million and consumer loans were down $5.6 million compared to December 31, 2013.
•
Period end deposits totaled $20.4 billion at March 31, 2014, a $120 million increase over December 31, 2013. Demand deposit account balances increased $156 million during the first quarter, partially offset by a $34 million decrease in interest-bearing transaction accounts and a $34 million decrease in time deposits.
•
The Company's Tier 1 common equity ratio, as defined by banking regulations, was 13.59% at both March 31, 2014 and December 31, 2013. The Company and its subsidiary bank continue to exceed the regulatory definition of well capitalized. The Company's Tier 1 capital ratio was 13.77% at both March 31, 2014 and December 31, 2013. Total capital ratio was 15.55% at March 31, 2014 and 15.56% at December 31, 2013. The Company's leverage ratio was 10.17% at March 31, 2014 and 10.05% at December 31, 2013.

- 1 -



•
The Company paid a regular quarterly cash dividend of $28 million or $0.40 per common share during the first quarter of 2014. On April 29, 2014, the board of directors approved a quarterly cash dividend of $0.40 per common share payable on or about May 30, 2014 to shareholders of record as of May 16, 2014.
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 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 $162.6 million for the first quarter of 2014 compared to $171.5 million for the first quarter of 2013 and $166.2 million for the fourth quarter of 2013. Net interest margin was 2.71% for the first quarter of 2014, 2.90% for the first quarter of 2013 and 2.74% for the fourth quarter of 2013.

Net interest revenue decreased $8.8 million compared to the first quarter of 2013. Net interest revenue decreased $13.5 million primarily due to a narrowing of interest rate spreads. Net interest revenue increased $4.7 million primarily due to the growth in average outstanding loans and a decrease in the average balance of other borrowings, partially offset by a decrease in average securities balances.

The tax-equivalent yield on earning assets was 2.99% for the first quarter of 2014, down 22 basis points from the first quarter of 2013. Loan yields decreased 31 basis points. Credit spreads have narrowed due to market pricing pressure and improved credit quality in our loan portfolio. The available for sale securities portfolio yield decreased 20 basis points to 1.91%. Cash flows received from payments on residential mortgage-backed securities are currently being reinvested in short-duration securities that yield nearly 2%. Funding costs were down 5 basis points from the first quarter of 2013. The cost of interest-bearing deposits decreased 5 basis points and the cost of other borrowed funds decreased 3 basis points. Additionally, the benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 13 basis points in the first quarter of 2014 compared to 15 basis points in the first quarter of 2013.

Average earning assets for the first quarter of 2014 decreased $350 million or 1% compared to the first quarter of 2013. Average loans, net of allowance for loan losses, increased $750 million due primarily to growth in average commercial and commercial real estate loans. The average balance of available for sale securities decreased $1.2 billion. We intend to allow the size of our bond portfolio to decrease to better position the balance sheet for a longer-term rising rate environment. We anticipate a $1 billion reduction in our bond portfolio over the full year of 2014. This reduction in earning assets is expected to be partially offset by loan growth in the mid to high single digits. The resulting shift in earning asset mix should be supportive of net interest margin. The average balance of investment securities was up over the prior year, offset by a decrease in the average balance of fair value option securities primarily held as an economic hedge of our mortgage servicing rights and a decrease in the average balance of our trading portfolio.

Average deposits increased $187 million over the first quarter of 2013, including a $310 million increase in average demand deposit balances and a $65 million increase in average interest-bearing transaction accounts, partially offset by a $228 million decrease in average time deposits. Average borrowed funds decreased $64 million compared to the first quarter of 2013. Decreased borrowings from the Federal Home Loan Banks and funds purchased and repurchase agreements was partially offset by increased borrowings from the Federal Reserve.

Net interest margin decreased 3 basis points from the fourth quarter of 2013.  The yield on average earning assets decreased 3 basis points. The loan portfolio yield decreased 12 basis points to 3.89% primarily due to market pricing pressure. The yield on the available for sale securities portfolio increased 2 basis points to 1.91%. Funding costs decreased 1 basis point to 0.41%. Rates paid on time deposits and savings accounts each increased 1 basis point. Rates paid on interest-bearing transaction accounts decreased a basis point. The cost of other borrowed funds was unchanged compared to the fourth quarter and the benefit to net interest margin from earning assets funded by non-interest bearing liabilities decreased a basis point.

- 2 -



Average earning assets increased $16 million during the first quarter of 2014. Growth in average outstanding loans of $486 million was partially offset by a $358 million decrease in the available for sale securities portfolio. Average commercial loan balances were up $234 million and average commercial real estate loan balances increased $252 million. The average balance of restricted equity securities was down $38 million, the average trading securities balance decreased $35 million and the average balance of residential mortgage loans held for sale decreased $33 million.
Average deposits increased $360 million over the previous quarter. Interest-bearing transaction account balances increased $415 million primarily due to a normal seasonal increase in public funds. Demand deposit balances decreased $44 million and time deposit account balances decreased $24 million. The average balance of borrowed funds decreased $218 million compared to the fourth quarter of 2013.

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 ¾ of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will re-price within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that re-price more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that assets generally re-price more quickly than liabilities. Among the strategies that we use to manage toward a relatively rate-neutral position, we purchase fixed rate residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market rate sensitive liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also may use derivative instruments to manage our interest rate risk. 

The effectiveness of these strategies is reflected in the overall change in net interest revenue due to changes in interest rates as shown in Table 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
Mar. 31, 2014 / 2013
 
 
 
 
Change Due To1
 
 
Change
 
Volume
 
Yield /
Rate
Tax-equivalent interest revenue:
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
81

 
$
74

 
$
7

Trading securities
 
(176
)
 
(359
)
 
183

Investment securities:
 
 
 
 
 
 
Taxable securities
 
(516
)
 
(367
)
 
(149
)
Tax-exempt securities
 
347

 
950

 
(603
)
Total investment securities
 
(169
)
 
583

 
(752
)
Available for sale securities:
 
 
 
 
 
 
Taxable securities
 
(7,752
)
 
(2,844
)
 
(4,908
)
Tax-exempt securities
 
(172
)
 
(101
)
 
(71
)
Total available for sale securities
 
(7,924
)
 
(2,945
)
 
(4,979
)
Fair value option securities
 
(326
)
 
(289
)
 
(37
)
Restricted equity securities
 
132

 
(8
)
 
140

Residential mortgage loans held for sale
 
(202
)
 
(250
)
 
48

Loans
 
(2,410
)
 
7,211

 
(9,621
)
Total tax-equivalent interest revenue
 
(10,994
)
 
4,017

 
(15,011
)
Interest expense:
 
 
 
 
 
 
Transaction deposits
 
(587
)
 
81

 
(668
)
Savings deposits
 
(22
)
 
12

 
(34
)
Time deposits
 
(1,286
)
 
(883
)
 
(403
)
Funds purchased
 
(203
)
 
(23
)
 
(180
)
Repurchase agreements
 
5

 
(17
)
 
22

Other borrowings
 
(22
)
 
191

 
(213
)
Subordinated debentures
 
(1
)
 
—

 
(1
)
Total interest expense
 
(2,116
)
 
(639
)
 
(1,477
)
Tax-equivalent net interest revenue
 
(8,878
)
 
4,656

 
(13,534
)
Change in tax-equivalent adjustment
 
(68
)
 
 
 
 
Net interest revenue
 
$
(8,810
)
 
 
 
 
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 $137.0 million for the first quarter of 2014, a $23.7 million decrease compared to the first quarter of 2013 and a $10.0 million decrease compared to the fourth quarter of 2013. Fees and commissions revenue decreased $16.2 million compared to the first quarter of 2013 and $1.5 million compared to the prior quarter. The change in the fair value of mortgage servicing rights, net of the change in the fair value of securities and derivative contracts held as an economic hedge, decreased other operating revenue by $908 thousand in the first quarter of 2014, increased other operating revenue $2.1 million in the fourth quarter of 2013 and decreased operating revenue $2.2 million in the first quarter of 2013. Net gains on available for sale securities decreased $3.6 million compared to the prior year and decreased $394 thousand compared to the previous quarter. The loss on other assets in the first quarter of 2014 was primarily due to changes in the value of assets held as an economic hedge of a deferred compensation liability and charges related to certain merchant banking equity investments.

Table 2 – Other Operating Revenue 
(In thousands)
 
 
Three Months Ended
Mar. 31,
 
 
 
 
 
Three Months Ended
Dec. 31, 2013
 
 
 
 
 
 
2014
 
2013
 
Increase(Decrease)
 
% Increase(Decrease)
 
 
Increase(Decrease)
 
% Increase(Decrease)
Brokerage and trading revenue
 
$
29,516

 
$
31,751

 
$
(2,235
)
 
(7
)%
 
$
28,515

 
$
1,001

 
4
 %
Transaction card revenue
 
29,134

 
27,692

 
1,442

 
5
 %
 
29,134

 
—

 
—
 %
Fiduciary and asset management revenue
 
25,722

 
22,313

 
3,409

 
15
 %
 
25,074

 
648

 
3
 %
Deposit service charges and fees
 
22,689

 
22,966

 
(277
)
 
(1
)%
 
23,440

 
(751
)
 
(3
)%
Mortgage banking revenue
 
22,844

 
39,976

 
(17,132
)
 
(43
)%
 
21,876

 
968

 
4
 %
Bank-owned life insurance
 
2,106

 
3,226

 
(1,120
)
 
(35
)%
 
2,285

 
(179
)
 
(8
)%
Other revenue
 
8,852

 
9,140

 
(288
)
 
(3
)%
 
12,048

 
(3,196
)
 
(27
)%
Total fees and commissions revenue
 
140,863

 
157,064

 
(16,201
)
 
(10
)%
 
142,372

 
(1,509
)
 
(1
)%
Gain (loss) on other assets, net
 
(4,264
)
 
467

 
(4,731
)
 
N/A

 
651

 
(4,915
)
 
N/A

Gain (loss) on derivatives, net
 
968

 
(941
)
 
1,909

 
N/A

 
(930
)
 
1,898

 
N/A

Gain (loss) on fair value option securities, net
 
2,660

 
(3,171
)
 
5,831

 
N/A

 
(2,805
)
 
5,465

 
N/A

Change in fair value of mortgage servicing rights
 
(4,461
)
 
2,658

 
(7,119
)
 
N/A

 
6,093

 
(10,554
)
 
N/A

Gain on available for sale securities
 
1,240

 
4,855

 
(3,615
)
 
N/A

 
1,634

 
(394
)
 
N/A

Total other-than-temporary impairment
 
—

 
—

 
—

 
N/A

 
—

 
—

 
N/A

Portion of loss recognized in (reclassified from) other comprehensive income
 
—

 
(247
)
 
247

 
N/A

 
—

 
—

 
N/A

Net impairment losses recognized in earnings
 
—

 
(247
)
 
247

 
N/A

 
—

 
—

 
N/A

Total other operating revenue
 
$
137,006

 
$
160,685

 
$
(23,679
)
 
(15
)%
 
$
147,015

 
$
(10,009
)
 
(7
)%
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 46% of total revenue for the first quarter of 2014, 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 also may 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.

- 5 -




Brokerage and trading revenue, which includes revenues from securities trading, retail brokerage, customer hedging and investment banking decreased $2.2 million compared to the first quarter of 2013. 

Securities trading revenue totaled $15.1 million for the first quarter of 2014, a $2.0 million decrease compared to the first quarter of 2013. Securities trading revenue represents net realized and unrealized gains primarily related to sales of U.S. government securities, residential mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers. 

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 decreased $1.3 million compared to the prior year to $1.5 million for the first quarter of 2014, primarily due to decreased activity by our energy and mortgage banking customers.

Revenue earned from retail brokerage transactions grew by $1.3 million or 15% over the first quarter of 2013 to $9.5 million. Retail brokerage revenue is primarily based on fees and commissions earned on sales of fixed income securities, annuities and mutual funds to retail customers. Revenue is primarily based on the volume of customer transactions during the quarter. The number of transactions typically increases with market volatility and decreases with market stability.

Investment banking, which includes fees earned upon completion of underwriting and financial advisory services and loan syndication fees, totaled $3.5 million for the first quarter of 2014, a $182 thousand or 5% decrease over the first quarter of 2013 related to the timing and volume of completed transactions.

Brokerage and trading revenue increased $1.0 million over the fourth quarter of 2013. Retail brokerage fees were up $2.4 million and investment banking fees grew by $1.1 million. Customer hedging revenue decreased $2.3 million. In addition, we received recoveries from the Lehman Brothers and MF Global bankruptcies of $1.5 million during the fourth quarter of 2013. Securities trading revenue was largely unchanged compared to the prior quarter.

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 first quarter of 2014 increased $1.4 million or 5% over the first quarter of 2013. Revenues from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ("EFT") network totaled $15.1 million, up $254 thousand or 2%, due to increased transaction volumes and increased dollar amounts per transaction. Merchant services fees totaled $9.5 million, up $871 thousand or 10% on increased transaction activity. Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the Company totaled $4.5 million, an increase of $317 thousand or 8% over the first quarter of 2013.

Transaction card revenue was largely unchanged compared to the fourth quarter of 2013. Growth in merchant services fees was offset primarily by a seasonal decrease in interchange fee revenue from debit cards issued by the Company.

Effective October 1, 2011, the Federal Reserve issued its final rule to implement provisions of the Dodd-Frank Act commonly know as the Durbin Amendment. These provisions established a cap on interchange fees that larger banks can charge merchants for certain debit card transactions. A challenge of this final rule by retail merchants and merchant trade groups was overturned by an appellate court during the first quarter of 2014.

Fiduciary and asset management revenue grew by $3.4 million or 15% over the first quarter of 2013. The acquisition of Topeka, Kansas-based GTRUST Financial Corporation by BOK Financial in the first quarter of 2014 added $371 thousand of revenue and $631 million of fiduciary assets as of March 31, 2014. The remaining increase was primarily due to the growth in the fair value of fiduciary assets administered by the Company. Fiduciary assets are assets for which the Company possesses investment discretion on behalf of another or any other similar capacity. The fair value of fiduciary assets administered by the Company totaled $31.3 billion at March 31, 2014, $27.6 billion at March 31, 2013 and $30.1 billion at December 31, 2013. Fiduciary and asset management revenue increased $648 thousand over the fourth quarter of 2013.


- 6 -



We also earn fees as administrator to and investment adviser for the Cavanal Hill Funds, a diversified, open-ended investment company established as a business trust under the Investment Company Act of 1940. The Bank is custodian and BOSC, Inc. is distributor for the Cavanal Hill Funds. Products of the Cavanal Hill Funds are offered to customers, employee benefit plans, trusts and the general public in the ordinary course of business. We have voluntarily waived administration fees on the Cavanal Hill money market funds in order to maintain positive yields on these funds in the current low short-term interest rate environment. Waived fees totaled $2.2 million for the first quarter of 2014 compared to $1.8 million for the first quarter of 2013 and $2.2 million for the fourth quarter of 2013.

Deposit service charges and fees were $22.7 million for the first quarter of 2014 compared to $23.0 million for the first quarter of 2013. Overdraft fees totaled $11.0 million for the first quarter of 2014, a decrease of $833 thousand or 7% compared to the first quarter of 2013. Consumers are generally maintaining higher average balances and better managing their accounts to reduce overdraft fees. Commercial account service charge revenue totaled $9.8 million, an increase of $753 thousand or 8% over the prior year. Service charges on deposit accounts with a standard monthly fee were $1.8 million, a decrease of $198 thousand or 10% compared to the first quarter of 2013. Deposit service charges and fees decreased $751 thousand compared to the prior quarter primarily due to decreased overdraft fee volumes, partially offset by increased commercial account service charges.

Mortgage banking revenue decreased $17.1 million compared to the first quarter of 2013. Mortgage production revenue totaled $11.5 million, a decrease of $18.5 million compared to the first quarter of 2013. Average primary mortgage interest rates were 4.36% for the first quarter of 2014, up 86 basis points over the first quarter of 2013. This increase in interest rates reduced loan production volume. Mortgage loans funded for sale totaled $728 million in the first quarter of 2014, a decrease of $229 million compared to the first quarter of 2013. Outstanding commitments to originate mortgage loans were down $79 million or 17% compared to March 31, 2013. In addition to the effect of lower production volume, mortgage banking revenue decreased due to an overall narrowing of gain on sale margins and a shift in product mix toward loans with narrower margins. Approximately 38% of loans originated in the first quarter of 2014 were through correspondent channels, up from 21% for the first quarter of 2013. Mortgage loans funded through Home Direct Mortgage, our online loan channel increased to 7% of total originations in the first quarter of 2014. Refinanced mortgage loans decreased to 32% of loans originated in the first quarter of 2014 compared to 62% of loans originated in the first quarter of 2013.

Mortgage servicing revenue grew by $1.3 million or 13% over the first quarter of 2013. The outstanding principal balance of mortgage loans serviced for others totaled $14.0 billion, an increase of $1.8 billion or 14% over March 31, 2013.

Mortgage banking revenue increased $968 thousand over the fourth quarter of 2013. Mortgage production revenue was up $721 thousand driven by a $129 million or 50% increase in outstanding commitments to originate mortgage loans. This increase was partially offset by a $121 million decrease in loans funded for sale. Gain on sale margins also improved over the previous quarter.

Mortgage servicing revenue increased $247 thousand over the prior quarter. The outstanding balance of mortgage loans serviced for others increased $327 million over December 31, 2013.


- 7 -



Table 3 – Mortgage Banking Revenue 
(In thousands)
 
 
Three Months Ended
Mar. 31,
 
Increase (Decrease)
 
% Increase (Decrease)
 
Three Months Ended
Dec. 31, 2013
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
2014
 
2013
 
 
 
 
 
Mortgage production revenue
 
$
11,452

 
$
29,910

 
$
(18,458
)
 
(62
)%
 
$
10,731

 
$
721

 
7
 %
Servicing revenue
 
11,392

 
10,066

 
1,326

 
13
 %
 
11,145

 
247

 
2
 %
Total mortgage revenue
 
$
22,844

 
$
39,976

 
$
(17,132
)
 
(43
)%
 
$
21,876

 
$
968

 
4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period end outstanding mortgage commitments
 
$
387,755

 
$
466,571

 
$
(78,816
)
 
(17
)%
 
$
258,873

 
$
128,882

 
50
 %
Mortgage loans funded for sale
 
727,516

 
956,315

 
(228,799
)
 
(24
)%
 
848,870

 
(121,354
)
 
(14
)%
Average primary residential mortgage interest rate
 
4.36
%
 
3.50
%
 
86
 bp
 
25
 %
 
4.29
%
 
7
 bp
 
2
 %
Mortgage loan refinances to total funded
 
32
%
 
62
%
 
 

 
 

 
29
%
 
 

 
 

Outstanding principal balance of mortgage loans serviced for others
 
$
14,045,642

 
$
12,272,691

 
$
1,772,951

 
14
 %
 
$
13,718,942

 
$
326,700

 
2
 %
Net gains on securities, derivatives and other assets

In the first quarter of 2014, we recognized a $1.2 million net gain from sales of $531 million of available for sale securities. Securities were sold either because they had reached their expected maximum potential return or sold to reinvest those proceeds into shorter average life securities. In the first quarter of 2013, we recognized a $4.9 million net gain from sales of $728 million of available for sale securities and in the fourth quarter of 2013, we recognized a $1.6 million net gain on sales of $270 million of available for sale securities.

We also maintain a portfolio of residential mortgage-backed securities issued by U.S. government agencies and interest rate derivative contracts designated as an economic hedge of the changes in the fair value of our mortgage servicing rights. The fair value of our mortgage servicing rights fluctuate due to changes in prepayment speeds and other assumptions as more fully described in Note 6 to the Consolidated Financial Statements. As benchmark mortgage rates increase, prepayment speeds slow and the value of our mortgage servicing rights increases. As benchmark mortgage rates fall, prepayment speeds increase and the value of our mortgage servicing rights decreases.

Changes in the fair value of mortgage servicing rights are highly dependent on changes in primary mortgage rates, rates offered to borrowers, and assumptions about servicing revenues, servicing costs and discount rates. Changes in the fair value of residential mortgage-backed securities and interest rate derivative contracts are highly dependent on changes in secondary mortgage rates, or rates required by investors. While primary and secondary mortgage rates generally move in the same direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in assumptions and the spread between the primary and secondary rates can cause significant quarterly earnings volatility.

Table 4 following shows the relationship between changes in the fair value of mortgage servicing rights and the fair value of fair value option residential mortgage-backed securities and interest rate derivative contracts designated as an economic hedge.


- 8 -



Table 4 -- Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 
 
Three Months Ended
 
 
March 31,
2014
 
December 31,
2013
 
March 31,
2013
Gain (loss) on mortgage hedge derivative contracts, net
 
$
968

 
$
(931
)
 
$
(1,654
)
Gain (loss) on fair value option securities, net
 
2,585

 
(3,013
)
 
(3,232
)
Gain (loss) on economic hedge of mortgage servicing rights
 
3,553

 
(3,944
)
 
(4,886
)
Gain (loss) on change in fair value of mortgage servicing rights
 
(4,461
)
 
6,093

 
2,658

Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges
 
$
(908
)
 
$
2,149

 
$
(2,228
)
 
 
 
 
 
 
 
Net interest revenue on fair value option securities
 
$
790

 
$
811

 
$
828

 
 
 
 
 
 
 
Primary residential mortgage interest rate at period end
 
4.40
%
 
4.48
%
 
3.57
%
Secondary residential mortgage interest rate at period end
 
3.42
%
 
3.61
%
 
2.62
%

Primary rates disclosed in Table 4 above represent rates generally available to borrowers on 30 year conforming mortgage loans and affect the value of our mortgage servicing rights. Secondary rates represent rates generally paid on 30 year residential mortgage-backed securities guaranteed by U.S. government agencies and affect the value of securities and derivative contracts used as an economic hedge of our mortgage servicing rights.

Gain (loss) on other assets included changes in the fair value of certain equity investments the Company holds as an economic hedge of a deferred compensation liability. During the first quarter of 2014, the value of certain of these investments was adjusted downward by $1.7 million. Gain (loss) on other assets for the first quarter of 2014 also included a $1.5 million charge against a merchant-banking investment that is accounted for by the equity method. An indirect wholly-owned subsidiary of the Company is the general partner of two private equity funds. These investments are generally illiquid and do not readily provide for redemption or transfer. The impact of regulations issued to implement the Volcker Rule resulted in a $1.4 million impairment charge in the fourth quarter of 2013 based primarily on the expectation that we will be required to divest some or all of these investments by June 30, 2015.


- 9 -



Other Operating Expense

Other operating expense for the first quarter of 2014 totaled $185.1 million, a decrease of $18.9 million or 9% compared to the first quarter of 2013. Personnel expenses decreased $21.2 million or 17%. The Company reversed $15.5 million accrued during 2011 through 2013 for amounts payable to certain executive officers under the 2011 True-Up Plan. Non-personnel expenses increased $2.3 million or 3% over the prior year.

Operating expenses decreased $30.3 million compared to the previous quarter. Personnel expense decreased $21.2 million. Non-personnel expense decreased $9.1 million.

Table 5 -- Other Operating Expense
(In thousands)
 
 
Three Months Ended
Mar. 31,
 
Increase (Decrease)
 
%
Increase (Decrease)
 
Three Months Ended
Dec. 31, 2013
 
Increase (Decrease)
 
%
Increase (Decrease)
 
 
2014
 
2013
 
 
 
 
 
Regular compensation
 
$
72,367

 
$
68,834

 
$
3,533

 
5
 %
 
$
72,007

 
$
360

 
—
 %
Incentive compensation:
 
 
 
 
 


 


 
 
 
 
 
 
Cash-based
 
24,727

 
26,069

 
(1,342
)
 
(5
)%
 
27,295

 
(2,568
)
 
(9
)%
Stock-based
 
(13,193
)
 
10,700

 
(23,893
)
 
(223
)%
 
8,611

 
(21,804
)
 
(253
)%
Total incentive compensation
 
11,534

 
36,769

 
(25,235
)
 
(69
)%
 
35,906

 
(24,372
)
 
(68
)%
Employee benefits
 
20,532

 
20,051

 
481

 
2
 %
 
17,749

 
2,783

 
16
 %
Total personnel expense
 
104,433

 
125,654

 
(21,221
)
 
(17
)%
 
125,662

 
(21,229
)
 
(17
)%
Business promotion
 
5,841

 
5,453

 
388

 
7
 %
 
6,020

 
(179
)
 
(3
)%
Charitable contributions to BOKF Foundation
 
2,420

 
—

 
2,420

 
N/A

 
—

 
2,420

 
N/A

Professional fees and services
 
7,565

 
6,985

 
580

 
8
 %
 
10,003

 
(2,438
)
 
(24
)%
Net occupancy and equipment
 
16,896

 
16,481

 
415

 
3
 %
 
19,103

 
(2,207
)
 
(12
)%
Insurance
 
4,541

 
3,745

 
796

 
21
 %
 
4,394

 
147

 
3
 %
Data processing and communications
 
27,135

 
25,450

 
1,685

 
7
 %
 
28,196

 
(1,061
)
 
(4
)%
Printing, postage and supplies
 
3,541

 
3,674

 
(133
)
 
(4
)%
 
3,126

 
415

 
13
 %
Net losses and operating expenses of repossessed assets
 
1,432

 
1,246

 
186

 
15
 %
 
1,618

 
(186
)
 
(11
)%
Amortization of intangible assets
 
816

 
876

 
(60
)
 
(7
)%
 
842

 
(26
)
 
(3
)%
Mortgage banking costs
 
3,634

 
7,354

 
(3,720
)
 
(51
)%
 
7,071

 
(3,437
)
 
(49
)%
Other expense
 
6,850

 
7,064

 
(214
)
 
(3
)%
 
9,384

 
(2,534
)
 
(27
)%
Total other operating expense
 
$
185,104

 
$
203,982

 
$
(18,878
)
 
(9
)%
 
$
215,419

 
$
(30,315
)
 
(14
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average number of employees (full-time equivalent)
 
4,640

 
4,720

 
(80
)
 
(2
)%
 
4,638

 
2

 
—
 %
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, increased $3.5 million or 5% over the first quarter of 2013. Although the average number of employees decreased 2% compared to the prior year, we continue to invest in higher-costing wealth management, compliance and risk management positions. Growth in these positions was partially offset by a decrease in the average number of employees in consumer banking. In addition, standard annual merit increases in regular compensation were effective for the majority of our staff March 1.


- 10 -



Incentive compensation decreased $25.2 million compared to the first quarter of 2013. Cash-based incentive compensation plans are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions. Total cash-based incentive compensation decreased $1.3 million or 5% compared to the first quarter of 2013. 

The Company also provides stock-based incentive compensation plans. Stock-based compensation plans include both equity and liability awards. Compensation expense for equity awards increased $3.6 million over the first quarter of 2013. The first quarter of 2013 included a reversal of compensation costs for awards that did not vest because the performance criteria were not met. Expense for equity awards is based on the grant-date fair value of the awards and is unaffected by subsequent changes in fair value.

Stock-based compensation expense also includes deferred compensation that will ultimately be settled in cash indexed to the investment performance or changes in earnings per share. Certain executive officers are permitted to defer recognition of taxable income from their stock-based compensation. Deferred compensation may also be diversified into investments other than BOK Financial common stock. Compensation expense reflects changes in the market value of BOK Financial common stock and other investments. Expenses based on changes in the fair value of BOK Financial common stock and other investments decreased $2.9 million compared to the the first quarter of 2013. During the first quarter of 2014 a $1.7 million decrease in the fair value of investments held for deferred compensation purposes was recorded in gain / loss on other assets, net. This decrease was offset by a decrease in compensation expense. Substantially all deferred compensation will be distributed by the end of 2014.

In addition, the accrual for amounts payable to certain executive officers of the Company under the 2011 True-Up Plan was reduced by $15.5 million during the first quarter of 2014. We accrued $9.5 million for the 2011 True-Up Plan in the first quarter of 2013. Approved by shareholders on April 26, 2011, the True-Up Plan is designed to adjust annual and long-term performance-based incentive compensation for certain senior executives either upward or downward based on the earnings per share performance and compensation of comparable senior executives at peer banks for 2006 through 2013. The peer group of banks is determined based on asset size and includes an equal number of publicly-traded SEC registered bank holding companies with the Company being the median bank. Based on the annual Form 10-K and proxy statements filed by our peer banks in the first quarter of 2014, the composition of the peer group and the compensation levels of comparable senior executives used in determining the amounts payable both changed. These changes reduced the required accrual for the 2011 True-Up Plan to $54 million at March 31, 2014 which will be paid in May 2014.

Employee benefit expense increased $481 thousand or 2% over the first quarter of 2013 primarily due to increased employee medical costs. The Company self-insures a portion of its employee health care coverage and these costs may be volatile.
Personnel costs decreased $21.2 million compared to the fourth quarter of 2013 primarily due to the adjustment to the 2011 True-Up Plan accrual. Regular compensation expense was largely unchanged compared to the prior year. Incentive compensation expense decreased $21.8 million. Cash-based incentive compensation, which rewards employees as they generate business opportunities for the Company by growing loans, deposits, customer relationships or other measurable metrics, was largely unchanged compared to the prior quarter. We accrued $4.5 million in the fourth quarter of 2013 related to the 2011 True-Up Plan. Employee benefits expense increased $2.8 million primarily due to a $3.5 million seasonal increase in payroll taxes, partially offset by a $1.1 million decrease in employee medical costs.


Non-personnel operating expenses

Non-personnel operating expenses increased $2.3 million or 3% over the first quarter of 2013. BOK Financial made a $2.4 million discretionary contribution of appreciated stock to the BOKF Foundation during the first quarter of 2014. This contribution also resulted in a $1.2 million reduction in income tax expense. Mortgage banking costs decreased $3.7 million primarily due to lower provisions for losses related to mortgage loans sold with standard representations and warranties and losses related to repurchases of loans sold to U.S. government agencies that no longer qualify for sale accounting. The Company also finalized hold-back claims related to purchased mortgage loan servicing rights which reduced expenses by $1.3 million in the first quarter. This decrease was offset by increased data processing and communications expense, FDIC insurance expense, professional fees and services expense and occupancy costs.

- 11 -



Non-personnel expense decreased $9.1 million compared to the fourth quarter of 2013. Mortgage banking costs decreased $3.4 million compared to the prior quarter. Other expenses decreased $2.5 million, professional fees and services expense decreased $2.4 million and net occupancy expense decreased $2.2 million compared to the fourth quarter. The decrease was largely due to the timing of accruals for regulatory and compliance projects, recruiting and relocation commitments, and facilities repairs. There were no contributions to the BOK Foundation in the fourth quarter of 2013.
Income Taxes

Income tax expense was $37.5 million or 33% of book taxable income for the first quarter of 2014 compared to $47.1 million or 35% of book taxable income for the first quarter of 2013 and $35.3 million or 32% of book taxable income for the fourth quarter of 2013. The Company made a charitable contribution of appreciated securities to the BOKF Foundation in the first quarter of 2014, which reduced income tax expense by $1.2 million.

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 $12 million at March 31, 2014, $12 million at December 31, 2013 and $13 million at March 31, 2013.
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 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 conjunction with the previously announced change in our chief executive officer and other changes to the executive leadership team, we re-evaluated the reporting units within our principal lines of business. We defined reporting units to align with the various products and services offered by our lines of business rather than geographic region. This definition change better represents how the current executive team evaluates the Company's performance and growth beyond our traditional markets.

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. Corporate expense allocations were updated in the first quarter of 2014. The allocations for 2013 have been revised on a comparable basis.

The cost of funds borrowed from the Funds Management unit by the operating lines of business is transfer priced at rates that approximate market rates for funds with similar duration. Market rates are generally based on the applicable LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of transfer-pricing funds that support assets of the operating lines of business tends to insulate them from interest rate risk.

The value of funds provided by the operating lines of business to the Funds Management unit is also based on rates which approximate wholesale market rates for funds with similar duration and re-pricing characteristics. Market rates are generally based on LIBOR or interest rate swap rates. The funds credit formula applied to deposit products with indeterminate maturities is established based on their re-pricing characteristics reflected in a combination of the short-term LIBOR rate and a moving average of an intermediate term swap rate, with an appropriate spread applied to both. Shorter duration products are weighted towards the short term LIBOR rate and longer duration products are weighted towards the intermediate swap rates. The expected duration ranges from 30 days for certain rate-sensitive deposits to five years.

- 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 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 6, net income attributable to our lines of business decreased $7.7 million or 14% compared to the first quarter of 2013. The decrease was primarily due to lower mortgage banking revenue, partially offset by growth in other fee-based revenue and lower credit losses.

Table 6 -- Net Income by Line of Business
(In thousands)
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Commercial Banking
 
$
36,342

 
$
35,137

Consumer Banking
 
8,381

 
17,884

Wealth Management
 
2,476

 
1,884

Subtotal
 
47,199

 
54,905

Funds Management and other
 
29,391

 
33,059

Total
 
$
76,590

 
$
87,964



- 13 -



Commercial Banking

Commercial Banking contributed $36.3 million to consolidated net income in the first quarter of 2014, up $1.2 million or 3% compared to the first quarter of 2013. Decreased net loans charged off was partially offset by increased operating expenses. Net interest revenue and fees and commissions grew over the prior year and corporate expense allocations decreased. The loss on financial instruments and other assets was due to a charge against a merchant banking investment accounted for by the equity method.

Table 7 -- Commercial Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
 
 
March 31,
 
 
 
 
2014
 
2013
 
 
Net interest revenue from external sources
 
$
91,009

 
$
90,882

 
$
127

 
Net interest expense from internal sources
 
(8,857
)
 
(9,145
)
 
288

 
Total net interest revenue
 
82,152

 
81,737

 
415

 
Net loans charged off (recovered)
 
(3,312
)
 
1,021

 
(4,333
)
 
Net interest revenue after net loans charged off (recovered)
 
85,464

 
80,716

 
4,748

 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
42,165

 
41,432

 
733

 
Gain (loss) on financial instruments and other assets, net
 
(1,476
)
 
19

 
(1,495
)
 
Other operating revenue
 
40,689

 
41,451

 
(762
)
 
 
 
 
 
 
 
 
 
Personnel expense
 
26,951

 
25,469

 
1,482

 
Net losses and expenses of repossessed assets
 
2,192

 
1,170

 
1,022

 
Other non-personnel expense
 
20,246

 
20,022

 
224

 
Other operating expense
 
49,389

 
46,661

 
2,728

 
 
 
 
 
 
 
 
 
Net direct contribution
 
76,764

 
75,506

 
1,258

 
Corporate expense allocations
 
17,285

 
17,999

 
(714
)
 
Income before taxes
 
59,479

 
57,507

 
1,972

 
Federal and state income tax
 
23,137

 
22,370

 
767

 
Net income
 
$
36,342

 
$
35,137

 
$
1,205

 
 
 
 
 
 
 
 
 
Average assets
 
$
10,956,107

 
$
10,629,342

 
$
326,765

 
Average loans
 
10,280,418

 
9,579,451

 
700,967

 
Average deposits
 
9,599,824

 
9,245,666

 
354,158

 
Average invested capital
 
934,328

 
890,844

 
43,484

 
Return on average assets
 
1.35
 %
 
1.34
%
 
1

bp
Return on invested capital
 
15.77
 %
 
16.00
%
 
(23
)
bp
Efficiency ratio
 
39.67
 %
 
37.82
%
 
185

bp
Net charge-offs (annualized) to average loans
 
(0.13
)%
 
0.04
%
 
(17
)
bp

Net interest revenue increased $415 thousand or 1% over the prior year. Growth in net interest revenue was primarily due to a $701 million increase in average loan balances and a $354 million increase in average deposits over the first quarter of 2013, partially offset by reduced yields on loans and deposits sold to our Funds Management unit. The Commercial Banking unit experienced a net recovery of $3.3 million in the first quarter of 2014 compared to net loans charged off of $1.0 million in the first quarter of 2013.


- 14 -



Fees and commissions revenue increased $733 thousand or 2% over the first quarter of 2013 primarily due to a $1.5 million increase in transaction card revenues from our TransFund electronic funds transfer network and a $664 thousand increase in commercial service charges and fees over the prior year. Brokerage and trading revenue decreased $940 thousand primarily due to lower customer hedging revenue compared to the first quarter of 2013.

Operating expenses increased $2.7 million or 6% over the first quarter of 2013. Personnel costs increased $1.5 million or 6% primarily due to standard annual merit increases and increased incentive compensation. Net losses and operating expenses on repossessed assets increased $1.0 million over the first quarter of 2013, primarily due to an increase in impairment charges based on regularly scheduled appraisal updates. Other non-personnel expenses were largely unchanged. Corporate expense allocations decreased $714 thousand compared to the prior year.

The average outstanding balance of loans attributed to Commercial Banking grew by $701 million during the first quarter of 2014 to $10.3 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 $9.6 billion for the first quarter of 2014, up $354 million or 4% over the first quarter of 2013. Average balances attributed to our commercial & industrial loan customers increased $471 million or 16%. Balances related to healthcare customers grew by $122 million or 33% and balances related to small business customers were up $115 million or 6%. Balances from treasury services customers increased $67 million or 4%. This growth was partially offset by a $226 million or 14% decrease in balances attributed to energy customers and a $149 million or 28% decrease in commercial real estate balances. Commercial customers continue to maintain high account balances due to continued economic uncertainty and persistently low yields available on high quality investments.


Consumer Banking

Consumer Banking provides retail banking services through five primary distribution channels:  traditional branches, supermarket branches, the 24-hour ExpressBank call center, Internet banking and mobile banking. Consumer Banking also conducts mortgage banking activities through offices located outside of our consumer banking markets, through correspondent loan originators and through Home Direct Mortgage, an on-line origination channel.

Consumer Banking contributed $8.4 million to consolidated net income for the first quarter of 2014, down $9.5 million compared to the first quarter of 2013 primarily due to a decrease in mortgage banking revenue and higher corporate expense allocations, partially offset by lower mortgage banking costs.


- 15 -



Table 8 -- Consumer Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
 
 
March 31,
 
 
 
 
2014
 
2013
 
 
Net interest revenue from external sources
 
$
24,657

 
$
24,095

 
$
562

 
Net interest revenue from internal sources
 
4,193

 
5,483

 
(1,290
)
 
Total net interest revenue
 
28,850

 
29,578

 
(728
)
 
Net loans charged off
 
861

 
930

 
(69
)
 
Net interest revenue after net loans charged off
 
27,989

 
28,648

 
(659
)
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
46,142

 
63,205

 
(17,063
)
 
Gain (loss) on financial instruments and other assets, net
 
1,730

 
(6,063
)
 
7,793

 
Change in fair value of mortgage servicing rights
 
(4,461
)
 
2,657

 
(7,118
)
 
Other operating revenue
 
43,411

 
59,799

 
(16,388
)
 
 
 
 
 
 
 
 
 
Personnel expense
 
23,438

 
22,456

 
982

 
Net gains and expenses of repossessed assets
 
(568
)
 
(250
)
 
(318
)
 
Other non-personnel expense
 
18,974

 
22,802

 
(3,828
)
 
Total other operating expense
 
41,844

 
45,008

 
(3,164
)
 
 
 
 
 
 
 
 
 
Net direct contribution
 
29,556

 
43,439

 
(13,883
)
 
Corporate expense allocations
 
15,839

 
14,169

 
1,670

 
Income before taxes
 
13,717

 
29,270

 
(15,553
)
 
Federal and state income tax
 
5,336

 
11,386

 
(6,050
)
 
Net income
 
$
8,381

 
$
17,884

 
$
(9,503
)
 
 
 
 
 
 
 
 
 
Average assets
 
$
5,615,816

 
$
5,723,956

 
$
(108,140
)
 
Average loans
 
2,406,523

 
2,354,479

 
52,044

 
Average deposits
 
5,585,123

 
5,642,594

 
(57,471
)
 
Average invested capital
 
285,086

 
297,073

 
(11,987
)
 
Return on average assets
 
0.61
%
 
1.27
%
 
(66
)
bp
Return on invested capital
 
11.92
%
 
24.41
%
 
(1,249
)
bp
Efficiency ratio
 
52.22
%
 
46.58
%
 
564

bp
Net charge-offs (annualized) to average loans
 
0.15
%
 
0.16
%
 
(1
)
bp
Residential mortgage loans funded for sale
 
$
727,516

 
$
956,315

 
$
(228,799
)
 

 
 
March 31,
2014
 
March 31,
2013
 
Increase
(Decrease)
Banking locations
 
202

 
190

 
12

Residential mortgage loan servicing portfolio1
 
$
15,156,948

 
$
13,365,991

 
$
1,790,957

1 
Includes outstanding principal for loans serviced for affiliates

Net interest revenue from Consumer Banking activities decreased $728 thousand or 2% compared to the first quarter of 2013. Average loan balances were up $52 million or 2% over the prior year. Decreased balances of indirect automobile loans were offset by growth in other consumer loans.


- 16 -



Fees and commissions revenue decreased $17.1 million or 27% compared to the first quarter of 2013 primarily due to a $17.2 million decrease in mortgage banking revenue as residential mortgages funded for sale contracted and gains on sale margins narrowed compared to the prior year. The first quarter of 2013 had high mortgage refinance levels that tapered in the second half of the second quarter when long-term interest rates spiked. Deposit service charges and fees decreased $933 thousand compared to the prior year primarily due to lower overdraft fees.

Operating expenses decreased $3.2 million compared to the first quarter of 2013. Personnel expenses were up $982 thousand or 4%. Net losses and operating expenses of repossessed assets were down $318 thousand compared to the prior year. Non-personnel expense decreased $3.8 million or 17% primarily due to decreased mortgage banking expenses. Provisions for potential credit losses on loans sold to U.S. government agencies under standard representations and warranties and losses related to repurchases of loans sold to U.S. government agencies that no longer qualify for sale accounting were lower compared to the prior year. Corporate expense allocations were up $1.7 million over the first quarter of 2013.

Average consumer deposits were largely unchanged compared to the first quarter of 2013. Average demand deposit balances were unchanged. Average interest-bearing transaction accounts increased $92 million or 3%. Average time deposit balances were down $172 million or 10% compared to the prior year.

Mortgage banking activities include the origination, marketing and servicing of conventional and government-sponsored residential mortgage loans. We funded $751 million of residential mortgage loans in the first quarter of 2014 and $1.0 billion in the first quarter of 2013. Mortgage loan fundings included $728 million of mortgage loans funded for sale in the secondary market and $23 million funded for retention within the consolidated group. Approximately 18% of our mortgage loans funded were in the Oklahoma market and 16% in the Texas market. In addition, 36% of our mortgage loan fundings came from correspondent lenders compared to 20% in the first quarter of 2013 and 7% was originated from our new Home Direct Mortgage on-line sales channel launched in the fourth quarter of 2013.

At March 31, 2014, we serviced $14.0 billion of mortgage loans for others and $1.1 billion of loans retained within the consolidated group. Approximately 92% of the mortgage loans serviced were to borrowers in our primary geographical market areas. Loans past due 90 days or more totaled $71 million or 0.51% of loans serviced for others at March 31, 2014 compared to $80 million or 0.58% of loans serviced for others at December 31, 2013. Mortgage servicing revenue, including revenue on loans serviced for the consolidated group, totaled $11.8 million, up $1.0 million or 9% over the first quarter of 2013. Changes in the fair value of our mortgage servicing rights, net of economic hedge, resulted in a $555 thousand decrease in Consumer Banking net income in the first quarter of 2014, compared to a $1.4 million decrease in Consumer Banking net income in the first quarter of 2013.


- 17 -



Wealth Management

Wealth Management contributed $2.5 million to consolidated net income in first quarter of 2014 compared to $1.9 million in the first quarter of 2013. Increased operating expenses and lower net interest revenue were partially offset by growth in fees and commissions revenue.

Table 9 -- Wealth Management
(Dollars in thousands)
 
Three Months Ended
 
Increase (Decrease)
 
 
March 31,
 
 
 
2014
 
2013
 
 
Net interest revenue from external sources
$
5,828

 
$
6,480

 
$
(652
)
 
Net interest revenue from internal sources
4,683

 
5,295

 
(612
)
 
Total net interest revenue
10,511

 
11,775

 
(1,264
)
 
Net loans charged off
49

 
519

 
(470
)
 
Net interest revenue after net loans charged off
10,462

 
11,256

 
(794
)
 
 
 
 
 
 
 
 
Fees and commissions revenue
54,670

 
52,095

 
2,575

 
Loss on financial instruments and other assets, net
(409
)
 
(605
)
 
196

 
Other operating revenue
54,261

 
51,490

 
2,771

 
 
 
 
 
 
 
 
Personnel expense
39,588

 
38,349

 
1,239

 
Net losses and expenses of repossessed assets
327

 
31

 
296

 
Other non-personnel expense
9,333

 
8,742

 
591

 
Other operating expense
49,248

 
47,122

 
2,126

 
 
 
 
 
 
 
 
Net direct contribution
15,475

 
15,624

 
(149
)
 
Corporate expense allocations
11,422

 
12,540

 
(1,118
)
 
Income before taxes
4,053

 
3,084

 
969

 
Federal and state income tax
1,577

 
1,200

 
377

 
Net income
$
2,476

 
$
1,884

 
$
592

 
 
 
 
 
 
 
 
Average assets
$
4,621,817

 
$
4,687,067

 
$
(65,250
)
 
Average loans
936,663

 
927,671

 
8,992

 
Average deposits
4,499,265

 
4,613,053

 
(113,788
)
 
Average invested capital
202,191

 
202,313

 
(122
)
 
Return on average assets
0.22
%
 
0.16
%
 
6

bp
Return on invested capital
4.97
%
 
3.78
%
 
119

bp
Efficiency ratio
75.42
%
 
73.55
%
 
187

bp
Net charge-offs (annualized) to average loans
0.02
%
 
0.23
%
 
(21
)
bp

 
 
March 31,
2014
 
March 31,
2013
 
Increase
(Decrease)
Fiduciary assets in custody for which BOKF has sole or joint discretionary authority
 
$
13,467,695

 
$
11,608,502

 
$
1,859,193

Fiduciary assets not in custody for which BOKF has sole or joint discretionary authority
 
1,746,634

 
1,955,313

 
(208,679
)
Non-managed trust assets in custody
 
16,082,236

 
14,042,365

 
2,039,871

Total fiduciary assets
 
31,296,565

 
27,606,180

 
3,690,385

Assets held in safekeeping
 
22,779,187

 
21,562,010

 
1,217,177

Brokerage accounts under BOKF administration
 
5,012,365

 
4,528,168

 
484,197

Assets under management or in custody
 
$
59,088,117

 
$
53,696,358

 
$
5,391,759


- 18 -




Net interest revenue for the first quarter of 2014 was down $1.3 million or 11% compared to the first quarter of 2013. Average deposit balances were $114 million or 2% lower than in the first quarter of 2013 and yields on funds sold to the Funds Management unit were down compared to the prior year. Interest-bearing transaction account balances decreased $32 million and non-interest bearing demand deposits decreased $22 million. Higher-costing time deposit balances decreased $66 million. Average loan balances were largely unchanged compared to the prior year. Residential mortgage loans previously originated by our Wealth Management division decreased, offset by growth in lower yielding consumer loan balances. Net loans charged off decreased $470 thousand compared to the first quarter of 2013 to $49 thousand or 0.02% of average loans on an annualized basis. 

Fees and commissions revenue was up $2.6 million or 5% over the first quarter of 2013. Fiduciary and asset management revenue grew by $3.4 million or 15%. The increase was primarily due to the growth in the fair value of fiduciary assets administered by the Company. In addition, the acquisition of The GTrust Financial Corporation, a Topeka, Kansas based independent trust and asset management company in the first quarter of 2014 added $371 thousand of revenue. Brokerage and trading revenue decreased $929 thousand or 3%. Growth in retail brokerage revenue was offset by the effect of decreased securities trading and hedging activity by mortgage banking customers.

Other operating revenue includes fees earned from state and municipal bond underwriting and financial advisory services, primarily in the Oklahoma and Texas markets. In the first quarter of 2014, the Wealth Management division participated in 76 underwritings that totaled $872 million. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately $461 million of these underwritings. In the first quarter of 2013, the Wealth Management division participated in 88 underwritings that totaled approximately $1.3 billion. Our interest in these underwritings totaled approximately $537 million.

Operating expenses increased $2.1 million or 5% over the first quarter of 2013. Personnel expenses increased $1.2 million, including a $1.4 million increase in regular compensation and a $358 thousand increase in employee benefits primarily related to investments in Wealth Management talent, partially offset by a $497 thousand decrease in incentive compensation. Non-personnel expenses increased $591 thousand, including increased business promotion and amortization of identifiable intangible assets. Corporate expense allocations decreased $1.1 million compared to the prior year.

- 19 -



Financial Condition
Securities

We maintain a securities portfolio to enhance profitability, support customer transactions, 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 March 31, 2014, December 31, 2013 and March 31, 2013.

At March 31, 2014, the carrying value of investment (held-to-maturity) securities was $669 million and the fair value was $685 million. Investment securities consist primarily of long-term, fixed rate Oklahoma 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 $80 million of the Texas school construction bonds are also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board of Education for the State of Texas.

Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of available for sale securities totaled $9.9 billion at March 31, 2014, a decrease of $267 million from December 31, 2013. The decrease was primarily in U.S. government agency residential mortgage-backed securities partially offset by an increase in U.S. government agency commercial mortgage-backed securities. Commercial mortgage-backed securities have prepayment penalties similar to commercial loans. At March 31, 2014, residential mortgage-backed securities represented 77% of total available for sale securities.

A primary risk of holding residential mortgage-backed securities comes from extension during periods of rising interest rates or prepayment during periods of falling interest rates. We evaluate this risk through extensive modeling of risk both before making an investment and throughout the life of the security. Our best estimate of the duration of the combined residential mortgage-backed securities portfolio held in investment and available for sale securities at March 31, 2014 is 3.2 years. Management estimates the duration extends to 3.4 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 3.1 years assuming a 50 basis point decline in the current rate environment.

Residential mortgage-backed securities also have credit risk from delinquency or default of the underlying loans. We mitigate this risk by primarily investing in securities issued by U.S. government agencies. Principal and interest payments on the underlying loans are fully guaranteed. At March 31, 2014, approximately $7.4 billion of the amortized cost of the Company’s residential mortgage-backed securities were issued by U.S. government agencies. The fair value of these residential mortgage-backed securities totaled $7.5 billion at March 31, 2014.

We also hold amortized cost of $180 million in residential mortgage-backed securities privately issued by publicly-owned financial institutions, a decrease of $35 million from December 31, 2013. The decrease was due to the sale of approximately $28 million in amortized cost during the first quarter and cash payments received. The fair value of our portfolio of privately issued residential mortgage-backed securities totaled $189 million at March 31, 2014.

The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $106 million of Jumbo-A residential mortgage loans and $73 million of Alt-A residential mortgage loans. Jumbo-A residential mortgage loans generally meet government underwriting standards, but have loan balances that exceed agency maximums. Alt-A mortgage loans generally do not have sufficient documentation to meet government agency underwriting standards. Credit risk on residential mortgage-backed securities originated by private issuers is mitigated by investment in senior tranches with additional collateral support. All of our Alt-A residential mortgage-backed securities were issued with credit support from additional layers of loss-absorbing subordinated tranches, including all Alt-A residential mortgage-backed securities held that were originated in 2007 and 2006. The weighted average original credit enhancement of the Alt-A residential mortgage-backed securities was 9.5% and has been fully absorbed as of March 31, 2014. The Jumbo-A residential mortgage-backed securities had original credit enhancement of 9.7% and the current level is 3.5%. Approximately 91% of our Alt-A mortgage-backed securities represent pools of fixed rate residential mortgage loans. None of the adjustable rate mortgages are payment option adjustable rate mortgages (“ARMs”). Approximately 33% of our Jumbo-A residential mortgage-backed securities represent pools of fixed rate residential mortgage loans and none of the adjustable rate mortgages are payment option ARMs.


- 20 -



The aggregate gross amount of unrealized losses on available for sale securities totaled $102 million at March 31, 2014, compared to $158 million at December 31, 2013. On a quarterly basis, we perform separate evaluations on debt and equity securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial Statements. No other-than-temporary impairment charges were recognized in earnings in the first quarter of 2014.

Certain residential mortgage-backed securities issued by U.S. government agencies and included in fair value option securities on the Consolidated Balance Sheets, have been segregated and designated as economic hedges of changes in the fair value of our mortgage servicing rights. We have elected to carry these securities at fair value with changes in fair value recognized in current period income. These securities are held with the intent that gains or losses will offset changes in the fair value of mortgage servicing rights and related derivative contracts.

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 are restricted and they lack a market. Federal Reserve Bank stock totaled $34 million and holdings of FHLB stock totaled $52 million at March 31, 2014.
Bank-Owned Life Insurance

We have approximately $287 million of bank-owned life insurance at March 31, 2014. This investment is expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $255 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 March 31, 2014, the cash surrender value represented by the underlying fair value of investments held in separate accounts was approximately $267 million. As the underlying fair value of the investments held in a separate account at March 31, 2014 exceeded the net book value of the investments, no cash surrender value was supported by the stable value wrap. The stable value wrap is provided by a domestic financial institution. The remaining cash surrender value of $32 million primarily represents the cash surrender value of policies held in general accounts and other amounts due from various insurance companies.

- 21 -



Loans

The aggregate loan portfolio before allowance for loan losses totaled $13.1 billion at March 31, 2014, an increase of $286 million over December 31, 2013. Outstanding commercial loans grew by $108 million over December 31, 2013, largely due to growth in healthcare sector loans. Commercial real estate loan balances were up $216 million with growth in nearly all sectors of the portfolio, partially offset by a decrease in residential construction and land development loans. Residential mortgage loans decreased $33 million and consumer loans decreased $5.6 million compared to December 31, 2013. 

Table 10 -- Loans
(In thousands)
 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,344,072

 
$
2,351,760

 
$
2,311,991

 
$
2,384,746

 
$
2,349,432

Services
 
2,232,471

 
2,282,210

 
2,148,551

 
2,204,253

 
2,114,799

Wholesale/retail
 
1,225,990

 
1,201,364

 
1,181,806

 
1,175,543

 
1,085,000

Manufacturing
 
444,215

 
391,751

 
382,460

 
386,133

 
399,818

Healthcare
 
1,396,562

 
1,274,246

 
1,160,212

 
1,118,810

 
1,081,636

Integrated food services
 
126,514

 
150,494

 
141,440

 
163,551

 
173,800

Other commercial and industrial
 
281,882

 
291,396

 
244,615

 
275,084

 
213,820

Total commercial
 
8,051,706

 
7,943,221

 
7,571,075

 
7,708,120

 
7,418,305

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
184,820

 
206,258

 
216,456

 
225,654

 
237,829

Retail
 
640,506

 
586,047

 
556,918

 
553,412

 
584,279

Office
 
436,264

 
411,499

 
422,043

 
459,558

 
420,644

Multifamily
 
662,674

 
576,502

 
520,454

 
500,452

 
460,474

Industrial
 
305,207

 
243,877

 
245,022

 
253,990

 
237,049

Other commercial real estate
 
401,936

 
391,170

 
388,336

 
324,030

 
344,885

Total commercial real estate
 
2,631,407

 
2,415,353

 
2,349,229

 
2,317,096

 
2,285,160

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
1,033,572

 
1,062,744

 
1,078,661

 
1,095,871

 
1,091,575

Permanent mortgages guaranteed by U.S. government agencies
 
184,822

 
181,598

 
163,919

 
156,887

 
162,419

Home equity
 
800,281

 
807,684

 
792,185

 
787,027

 
758,456

Total residential mortgage
 
2,018,675

 
2,052,026

 
2,034,765

 
2,039,785

 
2,012,450

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
376,066

 
381,664

 
395,031

 
375,781

 
377,649

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,077,854

 
$
12,792,264

 
$
12,350,100

 
$
12,440,782

 
$
12,093,564











- 22 -



Commercial

Commercial loans represent loans for working capital, facilities acquisition or expansion, purchases of equipment and other needs of commercial customers primarily located within our geographical footprint. Commercial loans are underwritten individually and represent on-going relationships based on a thorough knowledge of the customer, the customer’s industry and market. While commercial loans are generally secured by the customer’s assets including real property, inventory, accounts receivable, operating equipment, interests in mineral rights and other property and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the on-going cash flow from operations of the customer’s business. Inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with commercial lending policies.

Commercial loans totaled $8.1 billion or 62% of the loan portfolio at March 31, 2014, an increase of $108 million over December 31, 2013. Healthcare sector loans grew by $122 million over December 31, 2013. Manufacturing sector loans were up $52 million and wholesale/retail sector loans were up $25 million. This growth was partially offset by a $50 million decrease in service sector loans and a $24 million decrease in integrated food service sector loans.

Table 11 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. The majority of the collateral securing our commercial loan portfolio is located within our geographical footprint with 36% concentrated in the Texas market and 22% concentrated in the Oklahoma market. The Other category is primarily composed of two states, California and Louisiana, which represent $191 million or 2% of the commercial loan portfolio and $147 million or 2% of the commercial loan portfolio, respectively, at March 31, 2014. All other states individually represent less than one percent of total commercial loans.

Table 11 -- Commercial Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Energy
 
$
471,953

 
$
1,118,691

 
$
61,789

 
$
8,175

 
$
309,065

 
$
16,397

 
$
86,374

 
$
271,628

 
$
2,344,072

Services
 
547,194

 
734,932

 
183,903

 
19,340

 
195,898

 
161,521

 
121,759

 
267,924

 
2,232,471

Wholesale/retail
 
323,614

 
517,395

 
26,592

 
61,903

 
46,253

 
52,372

 
60,410

 
137,451

 
1,225,990

Manufacturing
 
124,782

 
121,992

 
5,717

 
6,358

 
15,498

 
36,737

 
55,758

 
77,373

 
444,215

Healthcare
 
228,404

 
263,365

 
107,615

 
79,099

 
116,366

 
77,635

 
198,606

 
325,472

 
1,396,562

Integrated food services
 
5,003

 
7,565

 
—

 
—

 
31,090

 
—

 
13,519

 
69,337

 
126,514

Other commercial and industrial
 
69,058

 
99,031

 
12,625

 
11,100

 
3,437

 
1,566

 
35,305

 
49,760

 
281,882

Total commercial loans
 
$
1,770,008

 
$
2,862,971

 
$
398,241

 
$
185,975

 
$
717,607

 
$
346,228

 
$
571,731

 
$
1,198,945

 
$
8,051,706

 
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.


- 23 -



Outstanding energy loans totaled $2.3 billion or 18% of total loans at March 31, 2014. Unfunded energy loan commitments increased by $117 million to $2.6 billion at March 31, 2014. Approximately $2.1 billion of energy loans were to oil and gas producers, up $35 million over December 31, 2013. Approximately 59% of the committed production loans are secured by properties primarily producing oil and 41% of the committed production loans are secured by properties primarily producing natural gas. Loans to midstream oil and gas companies totaled $81 million at March 31, 2014. Loans to borrowers engaged in wholesale or retail energy sales decreased $107 million from December 31, 2013 to $96 million. Loans to borrowers that provide services to the energy industry decreased $6.5 million to $79 million. At March 31, 2014, loans to borrowers that manufacture equipment primarily for the energy industry totaled $21 million, down $3.6 million compared to the prior quarter.

The services sector of the loan portfolio totaled $2.2 billion or 17% of total loans and consists of a large number of loans to a variety of businesses, including gaming, utilities, governmental, insurance and not-for-profit entities. Service sector loans decreased $50 million from December 31, 2013. Approximately $1.2 billion of the services category is made up of loans with individual balances of less than $10 million. Service sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s business. 

We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $20 million and with three or more non-affiliated banks as participants. At March 31, 2014, the outstanding principal balance of these loans totaled $2.5 billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 14% 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 32% and 17% of the total commercial real estate portfolio at March 31, 2014, 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 $2.6 billion or 20% of the loan portfolio at March 31, 2014. The outstanding balance of commercial real estate loans increased $216 million during the first quarter of 2014. Loans secured by multifamily residential properties grew by $86 million. Loans secured by industrial facilities increased $61 million. Retail sector loans grew by $54 million and loans secured by office buildings increased $25 million over the prior quarter. Residential construction and land development loan balances decreased $21 million. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 18% to 22% over the past five years. The commercial real estate sector of our loan portfolio distributed by collateral location follows in Table 12.


- 24 -



Table 12 -- Commercial Real Estate Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Residential construction and land development
 
$
51,543

 
$
36,859

 
$
34,038

 
$
13,423

 
$
39,107

 
$
5,376

 
$
3,773

 
$
701

 
$
184,820

Retail
 
103,960

 
201,958

 
62,536

 
10,548

 
26,335

 
59,350

 
26,185

 
149,634

 
640,506

Office
 
83,453

 
175,708

 
40,162

 
5,330

 
51,055

 
35,619

 
12,891

 
32,046

 
436,264

Multifamily
 
83,708

 
266,905

 
44,417

 
25,467

 
61,149

 
54,943

 
62,037

 
64,048

 
662,674

Industrial
 
53,134

 
68,279

 
35,407

 
354

 
6,395

 
8,862

 
42,411

 
90,365

 
305,207

Other real estate
 
71,755

 
99,204

 
44,774

 
16,631

 
31,590

 
47,501

 
24,485

 
65,996

 
401,936

Total commercial real estate loans
 
$
447,553

 
$
848,913

 
$
261,334

 
$
71,753

 
$
215,631

 
$
211,651

 
$
171,782

 
$
402,790

 
$
2,631,407

Residential Mortgage and Consumer

Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. Residential mortgage loans are secured by a first or second-mortgage on the customer’s primary residence. Consumer loans include direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as other unsecured loans.  Residential mortgage and consumer loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.

Residential mortgage loans totaled $2.0 billion, a $33 million decrease compared to December 31, 2013. 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 98% 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. The aggregate outstanding balance of loans in these programs is $900 million. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans exceed maximums set under government sponsored entity standards, but otherwise generally conform to those standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38%. Loan-to-value ratios (“LTV”) are tiered from 60% to 100%, depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.

At March 31, 2014, $185 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 increased $3.2 million over December 31, 2013.


- 25 -



Home equity loans totaled $800 million at March 31, 2014, a $7.4 million decrease from December 31, 2013. 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 40%. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 5 year revolving period followed by a 15 year term of amortizing repayment. Interest-only home equity loans may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term subject to an update of certain credit information. A summary of our home equity loan portfolio at March 31, 2014 by lien position and amortizing status follows in Table 13.

Table 13 -- Home Equity Loans
(In thousands)
 
 
Revolving
 
Amortizing
 
Total
First lien
 
$
39,044

 
$
518,462

 
$
557,506

Junior lien
 
64,291

 
178,484

 
242,775

Total home equity
 
$
103,335

 
$
696,946

 
$
800,281


The distribution of residential mortgage and consumer loans at March 31, 2014 is as follows in Table 14. Residential mortgage loans are distributed by collateral location. Consumer loans are generally distributed by borrower location.

Table 14 -- Residential Mortgage and Consumer Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
$
232,561

 
$
387,409

 
$
43,516

 
$
20,573

 
$
161,444

 
$
100,108

 
$
60,526

 
$
27,435

 
$
1,033,572

Permanent mortgages guaranteed by U.S. government agencies
 
61,097

 
20,068

 
64,443

 
6,875

 
9,397

 
2,826

 
13,410

 
6,706

 
184,822

Home equity
 
476,219

 
142,272

 
125,893

 
4,658

 
32,668

 
9,986

 
8,029

 
556

 
800,281

Total residential mortgage
 
$
769,877

 
$
549,749

 
$
233,852

 
$
32,106

 
$
203,509

 
$
112,920

 
$
81,965

 
$
34,697

 
$
2,018,675

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
$
182,471

 
$
134,836

 
$
13,084

 
$
2,698

 
$
21,953

 
$
7,996

 
$
10,300

 
$
2,728

 
$
376,066





- 26 -



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 15 -- Loans Managed by Primary Geographical Market
(In thousands)
 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
2,782,997

 
$
2,902,140

 
$
2,801,979

 
$
2,993,247

 
$
2,853,608

Commercial real estate
 
593,282

 
602,010

 
564,141

 
569,780

 
568,500

Residential mortgage
 
1,505,702

 
1,524,212

 
1,497,027

 
1,503,457

 
1,468,434

Consumer
 
179,733

 
192,283

 
207,360

 
211,744

 
207,662

Total Bank of Oklahoma
 
5,061,714

 
5,220,645

 
5,070,507

 
5,278,228

 
5,098,204

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
3,161,203

 
3,052,274

 
2,858,970

 
2,849,888

 
2,718,050

Commercial real estate
 
969,804

 
816,574

 
853,857

 
813,659

 
800,577

Residential mortgage
 
256,332

 
260,544

 
263,945

 
263,916

 
272,406

Consumer
 
136,782

 
131,297

 
129,144

 
105,390

 
110,060

Total Bank of Texas
 
4,524,121

 
4,260,689

 
4,105,916

 
4,032,853

 
3,901,093

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 

 
 

 
 

 
 

 
 

Commercial
 
351,454

 
342,336

 
325,542

 
296,036

 
271,075

Commercial real estate
 
305,080

 
308,829

 
306,914

 
314,871

 
332,928

Residential mortgage
 
131,932

 
133,900

 
131,756

 
133,058

 
129,727

Consumer
 
12,972

 
13,842

 
14,583

 
14,364

 
14,403

Total Bank of Albuquerque
 
801,438

 
798,907

 
778,795

 
758,329

 
748,133

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
73,804

 
81,556

 
73,063

 
61,414

 
54,191

Commercial real estate
 
81,181

 
78,264

 
84,364

 
85,546

 
88,264

Residential mortgage
 
7,898

 
7,922

 
10,466

 
10,691

 
11,285

Consumer
 
6,881

 
8,023

 
9,426

 
11,819

 
13,943

Total Bank of Arkansas
 
169,764

 
175,765

 
177,319

 
169,470

 
167,683

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 

 
 

 
 

 
 

 
 

Commercial
 
825,315

 
735,626

 
748,331

 
786,262

 
822,942

Commercial real estate
 
213,850

 
190,355

 
158,320

 
146,137

 
171,251

Residential mortgage
 
57,345

 
62,821

 
66,475

 
62,490

 
56,052

Consumer
 
22,095

 
22,686

 
22,592

 
23,148

 
20,990

Total Colorado State Bank & Trust
 
1,118,605

 
1,011,488

 
995,718

 
1,018,037

 
1,071,235

 
 
 
 
 
 
 
 
 
 
 
Bank of Arizona:
 
 

 
 

 
 

 
 

 
 

Commercial
 
453,799

 
417,702

 
379,817

 
355,698

 
326,266

Commercial real estate
 
301,266

 
257,477

 
250,129

 
258,938

 
229,020

Residential mortgage
 
42,899

 
47,111

 
49,109

 
51,774

 
54,285

Consumer
 
7,145

 
7,887

 
7,059

 
4,947

 
5,664

Total Bank of Arizona
 
805,109

 
730,177

 
686,114

 
671,357

 
615,235

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 

 
 

 
 

 
 

 
 

Commercial
 
403,134

 
411,587

 
383,373

 
365,575

 
372,173

Commercial real estate
 
166,944

 
161,844

 
131,504

 
128,165

 
94,620

Residential mortgage
 
16,567

 
15,516

 
15,987

 
14,399

 
20,261

Consumer
 
10,458

 
5,646

 
4,867

 
4,369

 
4,927

Total Bank of Kansas City
 
597,103

 
594,593

 
535,731

 
512,508

 
491,981

 
 
 
 
 
 
 
 
 
 
 
Total BOK Financial loans
 
$
13,077,854

 
$
12,792,264

 
$
12,350,100

 
$
12,440,782

 
$
12,093,564



- 27 -



Loan Commitments

We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded loan commitments which totaled $7.1 billion and standby letters of credit which totaled $440 million at March 31, 2014. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Approximately $624 thousand of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at March 31, 2014.

As more fully described in Note 6 to the Consolidated Financial Statements, we have off-balance sheet commitments related to certain residential mortgage loans originated under community development loan programs that were sold to a U.S. government agency with full recourse. These mortgage loans were underwritten to standards approved by the agencies, including full documentation and originated under programs available only for owner-occupied properties. The Company no longer sells residential mortgage loans with recourse other than obligations under standard representations and warranties. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. At March 31, 2014, the principal balance of residential mortgage loans sold subject to recourse obligations totaled $187 million, down from $191 million at December 31, 2013. Substantially all of these loans are to borrowers in our primary markets including $129 million to borrowers in Oklahoma, $20 million to borrowers in Arkansas, $13 million to borrowers in New Mexico and $2 million to borrowers in the Kansas/Missouri market.

We also have an off-balance sheet obligation to repurchase residential mortgage loans sold to government sponsored entities through our mortgage banking activities due to standard representations and warranties made under contractual agreements as described further in Note 6 to the Consolidated Financial Statements. For the period from 2010 through the first quarter of 2014 combined, approximately 14% of repurchase requests have currently resulted in actual repurchases or indemnification by the Company. The accrual for credit losses related to potential loan repurchases under representations and warranties totaled $7.9 million at March 31, 2014 and $8.8 million at December 31, 2013.

- 28 -



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 options to determine the maximum exposure we are willing to have individually to any customer. Customers may also be required to provide cash margin or other collateral in conjunction with our credit agreements to further limit our credit risk.

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

A deterioration of the credit standing of one or more of the customers or 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 counterparty’s ability to provide margin collateral was impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statement of Earnings.

Derivative contracts are carried at fair value. At March 31, 2014, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $222 million compared to $274 million at December 31, 2013. Derivative contracts carried as assets included to-be-announced residential mortgage-backed securities sold to our mortgage banking customers considered interest rate derivative contracts. At March 31, 2014, the fair value of our derivative contracts included $11 million related to these to-be-announced residential mortgage-backed securities, $41 million for interest rate swaps, $26 million for energy contracts, and $123 million for foreign exchange contracts.  The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $217 million at March 31, 2014 and $268 million at December 31, 2013.

At March 31, 2014, total derivative assets were reduced by $3.4 million of cash collateral received from counterparties and total derivative liabilities were reduced by $34 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 March 31, 2014 follows in Table 16.


Table 16 -- Fair Value of Derivative Contracts
(In thousands)
Customers
 
$
115,146

Banks and other financial institutions
 
99,790

Exchanges and clearing organizations
 
3,571

Fair value of customer risk management program asset derivative contracts, net
 
$
218,507

 

- 29 -



At March 31, 2014, our largest exposure was to an internationally active domestic financial institution for equity option contracts which totaled $12 million. At March 31, 2014, our aggregate gross exposure to internationally active domestic financial institutions was approximately $210 million comprised of $196 million of cash and securities positions and $14 million of gross derivative positions. We have no direct exposure to European sovereign debt and our aggregate gross exposure to European financial institutions totaled $6.2 million at March 31, 2014.

Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain counterparties when the net negative fair value of the contracts exceeds established limits. Also, changes in commodity prices affect the amount of regulatory capital we are required to hold as support for the fair value of our derivative assets. These risks are modeled as part of the management of these programs. Based on current prices, a decrease in market prices equivalent to $31.07 per barrel of oil would decrease the fair value of derivative assets by $3.1 million. An increase in prices equivalent to $165.41 per barrel of oil would increase the fair value of derivative assets by $403 million as current prices move away from the fixed prices embedded in our existing contracts. Liquidity requirements of this program are also affected by our credit rating. A decrease in our credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $26 million. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of March 31, 2014, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.

- 30 -



Summary of Loan Loss Experience

We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. The combined allowance for loan losses and off-balance sheet credit losses totaled $190 million or 1.45% of outstanding loans and 181% of nonaccruing loans at March 31, 2014. The allowance for loans losses was $188 million and the accrual for off-balance sheet credit losses was $1.7 million. At December 31, 2013, the combined allowance for credit losses was $187 million or 1.47% of outstanding loans and 185% of nonaccruing loans. The allowance for loan losses was $185 million and the accrual for off-balance sheet credit losses was $2.1 million. 

The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the combined charge to expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. All losses incurred from lending activities will ultimately be reflected in charge-offs against the allowance for loan losses following funds advanced against outstanding commitments. After evaluating all credit factors, the Company determined that no provision for credit losses was necessary during the first quarter of 2014. An $11.4 million negative provision for credit losses was recorded in the fourth quarter of 2013 and an $8.0 million negative provision for credit losses was recorded in the first quarter of 2013.

Table 17 -- Summary of Loan Loss Experience
(In thousands)
 
 
Three Months Ended
 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
185,396

 
$
194,325

 
$
203,124

 
$
205,965

 
$
215,507

Loans charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
(144
)
 
(145
)
 
(1,354
)
 
(4,538
)
 
(298
)
Commercial real estate
 
(220
)
 
(176
)
 
(419
)
 
(450
)
 
(4,800
)
Residential mortgage
 
(996
)
 
(956
)
 
(961
)
 
(2,057
)
 
(1,779
)
Consumer
 
(1,488
)
 
(1,836
)
 
(1,974
)
 
(1,507
)
 
(2,032
)
Total
 
(2,848
)
 
(3,113
)
 
(4,708
)
 
(8,552
)
 
(8,909
)
Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
1,985

 
1,291

 
864

 
1,940

 
3,393

Commercial real estate
 
1,827

 
3,496

 
2,073

 
2,727

 
1,124

Residential mortgage
 
354

 
354

 
188

 
444

 
572

Consumer
 
1,194

 
927

 
1,284

 
1,099

 
1,468

Total
 
5,360

 
6,068

 
4,409

 
6,210

 
6,557

Net loans recovered (charged off)
 
2,512

 
2,955

 
(299
)
 
(2,342
)
 
(2,352
)
Provision for loan losses
 
410

 
(11,884
)
 
(8,500
)
 
(499
)
 
(7,190
)
Ending balance
 
$
188,318

 
$
185,396

 
$
194,325

 
$
203,124

 
$
205,965

Accrual for off-balance sheet credit losses:
 
 
 
 
 
 
 
 
 
 

Beginning balance
 
$
2,088

 
$
1,604

 
$
1,604

 
$
1,105

 
$
1,915

Provision for off-balance sheet credit losses
 
(410
)
 
484

 
—

 
499

 
(810
)
Ending balance
 
$
1,678

 
$
2,088

 
$
1,604

 
$
1,604

 
$
1,105

Total combined provision for credit losses
 
$
—

 
$
(11,400
)
 
$
(8,500
)
 
$
—

 
$
(8,000
)
Allowance for loan losses to loans outstanding at period-end
 
1.44
 %
 
1.45
 %
 
1.57
 %
 
1.63
%
 
1.70
 %
Net charge-offs (annualized) to average loans
 
(0.08
)%
 
(0.09
)%
 
0.01
 %
 
0.08
%
 
0.08
 %
Total provision for credit losses (annualized) to average loans
 
—
 %
 
(0.37
)%
 
(0.27
)%
 
—
%
 
(0.26
)%
Recoveries to gross charge-offs
 
188.20
 %
 
194.92
 %
 
93.65
 %
 
72.61
%
 
73.60
 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments
 
0.02
 %
 
0.03
 %
 
0.02
 %
 
0.02
%
 
0.02
 %
Combined allowance for credit losses to loans outstanding at period-end
 
1.45
 %
 
1.47
 %
 
1.59
 %
 
1.65
%
 
1.71
 %

- 31 -



Allowance for Loan Losses

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

Loans are considered to be impaired when it is probable that we will not collect all amounts due according to the contractual terms of the loan agreement. This includes all nonaccruing loans, all loans modified in troubled debt restructurings and all government guaranteed loans repurchased from GNMA pools. At March 31, 2014, impaired loans totaled $288 million, including $5.5 million with specific allowances of $4.2 million and $282 million with no specific allowances because the loan balances represent the amounts we expect to recover. At December 31, 2013, impaired loans totaled $282 million, including $2.1 million of impaired loans with specific allowances of $1.0 million and $280 million with no specific allowances.

General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rates for risk-graded loans are either increased or decreased based on changes in risk grading for each loan class. Estimated loss rates for both risk-graded and non-risk graded loans may be further adjusted for inherent 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 $157 million at March 31, 2014 compared to $156 million at December 31, 2013. The general allowance related to commercial loans increased $3.2 million primarily due to a shift in mix from loan classes with lower historic loss rates such as energy to loan classes with higher historic loss rates such as healthcare. The general allowance related to residential mortgage loans decreased $1.5 million and the general allowance related to consumer loans decreased $754 thousand.

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 $27 million at March 31, 2014, a decrease of $1.2 million compared to December 31, 2013. The nonspecific allowance also considers the possible impact of the European debt crisis and similar economic factors on our loan portfolio. Risks related to the European debt crisis and domestic economic risks remain stable compared to the previous quarter.

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

Our loan monitoring process also identified loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements, and no loss of principal or interest is anticipated, these loans were not included in nonperforming assets. Known information does, however, cause management concern as to the borrowers’ ability to comply with current repayment terms. The potential problem loans totaled $74 million at March 31, 2014, primarily composed of $14 million of residential construction and land development loans, $14 million of service sector loans, $14 million of loans secured by multifamily residential properties and $11 million of manufacturing sector loans. Potential problem loans totaled $74 million at December 31, 2013.
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 a net recovery of $2.5 million in the first quarter of 2014 compared to a net recovery of $3.0 million in the fourth quarter of 2013 and net charge-offs of $2.4 million in the first quarter of 2013. The ratio of net loans charged off to average loans on an annualized basis was (0.08)% for the first quarter of 2014 compared with (0.09)% for the fourth quarter of 2013 and 0.08% for the first quarter of 2013. The net recovery in the first quarter of 2014 was $443 thousand less than the previous quarter.


- 32 -



Net commercial loans recoveries totaled $1.8 million in the first quarter of 2014 compared to a net commercial loan recoveries of $1.1 million in the fourth quarter of 2013. Net commercial real estate loan recoveries were $1.6 million in the first quarter and $3.3 million in the fourth quarter. Residential mortgage net charge-offs were $642 thousand and consumer net charge-offs were $294 thousand for the first quarter. Consumer loan net charge-offs include indirect auto loan and deposit account overdraft losses. 

Nonperforming Assets

Table 18 -- Nonperforming Assets
(In thousands)
 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Nonaccruing loans:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
19,047

 
$
16,760

 
$
19,522

 
$
20,869

 
$
19,861

Commercial real estate
 
39,305

 
40,850

 
52,502

 
58,693

 
65,175

Residential mortgage
 
45,380

 
42,320

 
39,256

 
40,534

 
45,426

Consumer
 
974

 
1,219

 
1,624

 
2,037

 
2,171

Total nonaccruing loans
 
104,706

 
101,149

 
112,904

 
122,133

 
132,633

Accruing renegotiated loans guaranteed by U.S. government agencies
 
55,507

 
54,322

 
50,099

 
48,733

 
47,942

Total nonperforming loans
 
160,213

 
155,471

 
163,003

 
170,866

 
180,575

Real estate and other repossessed assets:
 
 
 
 
 
 
 
 
 
 
Guaranteed by U.S. government agencies
 
45,638

 
37,431

 
37,906

 
32,155

 
27,864

Other
 
49,877

 
54,841

 
70,216

 
77,957

 
74,837

Real estate and other repossessed assets
 
95,515

 
92,272

 
108,122

 
110,112

 
102,701

Total nonperforming assets
 
$
255,728

 
$
247,743

 
$
271,125

 
$
280,978

 
$
283,276

Total nonperforming assets excluding those guaranteed by U.S. government agencies
 
$
153,011

 
$
155,213

 
$
182,543

 
$
200,007

 
$
207,256

 
 
 
 
 
 
 
 
 
 
 
Nonaccruing loans by loan portfolio segment and class:
 
 
 
 
 
 

 
 

Commercial:
 
 
 
 
 
 
 
 

 
 

Energy
 
$
1,759

 
$
1,860

 
$
1,953

 
$
2,277

 
$
2,377

Services
 
4,581

 
4,922

 
6,927

 
7,448

 
9,474

Wholesale / retail
 
6,854

 
6,969

 
7,223

 
6,700

 
2,239

Manufacturing
 
3,565

 
592

 
843

 
876

 
1,848

Healthcare
 
1,443

 
1,586

 
1,733

 
2,670

 
2,962

Integrated food services
 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
845

 
831

 
843

 
898

 
961

Total commercial
 
19,047

 
16,760

 
19,522

 
20,869

 
19,861

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 

 
 

Residential construction and land development
 
16,547

 
17,377

 
20,784

 
21,135

 
23,462

Retail
 
4,626

 
4,857

 
7,914

 
8,406

 
8,921

Office
 
6,301

 
6,391

 
6,838

 
7,828

 
12,851

Multifamily
 
—

 
7

 
4,350

 
6,447

 
4,501

Industrial
 
886

 
252

 
—

 
—

 
2,198

Other commercial real estate
 
10,945

 
11,966

 
12,616

 
14,877

 
13,242

Total commercial real estate
 
39,305

 
40,850

 
52,502

 
58,693

 
65,175

 
 
 
 
 
 
 
 
 
 
 

- 33 -



 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Residential mortgage:
 
 
 
 
 
 
 
 

 
 

Permanent mortgage
 
36,342

 
34,279

 
31,797

 
32,747

 
38,153

Permanent mortgage guaranteed by U.S. government agencies
 
1,572

 
777

 
577

 
83

 
214

Home equity
 
7,466

 
7,264

 
6,882

 
7,704

 
7,059

Total residential mortgage
 
45,380

 
42,320

 
39,256

 
40,534

 
45,426

Consumer
 
974

 
1,219

 
1,624

 
2,037

 
2,171

Total nonaccruing loans
 
$
104,706

 
$
101,149

 
$
112,904

 
$
122,133

 
$
132,633

 
 
 
 
 
 
 
 
 
 
 
Nonaccruing loans as % of outstanding balance for class:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
0.08
%
 
0.08
%
 
0.08
%
 
0.10
%
 
0.10
%
Services
 
0.21
%
 
0.22
%
 
0.32
%
 
0.34
%
 
0.45
%
Wholesale / retail
 
0.56
%
 
0.58
%
 
0.61
%
 
0.57
%
 
0.21
%
Manufacturing
 
0.80
%
 
0.15
%
 
0.22
%
 
0.23
%
 
0.46
%
Healthcare
 
0.10
%
 
0.12
%
 
0.15
%
 
0.24
%
 
0.27
%
Integrated food services
 
—
%
 
—
%
 
—
%
 
—
%
 
—
%
Other commercial and industrial
 
0.30
%
 
0.29
%
 
0.34
%
 
0.33
%
 
0.45
%
Total commercial
 
0.24
%
 
0.21
%
 
0.26
%
 
0.27
%
 
0.27
%
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
8.95
%
 
8.42
%
 
9.60
%
 
9.37
%
 
9.87
%
Retail
 
0.72
%
 
0.83
%
 
1.42
%
 
1.52
%
 
1.53
%
Office
 
1.44
%
 
1.55
%
 
1.62
%
 
1.70
%
 
3.06
%
Multifamily
 
—
%
 
—
%
 
0.84
%
 
1.29
%
 
0.98
%
Industrial
 
0.29
%
 
0.10
%
 
—
%
 
—
%
 
0.93
%
Other commercial real estate
 
2.72
%
 
3.06
%
 
3.25
%
 
4.59
%
 
3.84
%
Total commercial real estate
 
1.49
%
 
1.69
%
 
2.23
%
 
2.53
%
 
2.85
%
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
3.52
%
 
3.23
%
 
2.95
%
 
2.99
%
 
3.50
%
Permanent mortgage guaranteed by U.S. government agencies
 
0.85
%
 
0.43
%
 
0.35
%
 
0.05
%
 
0.13
%
Home equity
 
0.93
%
 
0.90
%
 
0.87
%
 
0.98
%
 
0.93
%
Total residential mortgage
 
2.25
%
 
2.06
%
 
1.93
%
 
1.99
%
 
2.26
%
Consumer
 
0.26
%
 
0.32
%
 
0.41
%
 
0.54
%
 
0.57
%
Total nonaccruing loans
 
0.80
%
 
0.79
%
 
0.91
%
 
0.98
%
 
1.10
%
 
 
 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 

 
 

Allowance for loan losses to nonaccruing loans
 
179.86
%
 
183.29
%
 
172.12
%
 
166.31
%
 
155.29
%
Nonaccruing loans to period-end loans
 
0.80
%
 
0.79
%
 
0.91
%
 
0.98
%
 
1.10
%
Accruing loans 90 days or more past due1
 
$
1,991

 
$
1,415

 
$
188

 
$
2,460

 
$
4,229

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


- 34 -



Nonperforming assets totaled $256 million or 1.94% of outstanding loans and repossessed assets at March 31, 2014. Nonaccruing loans totaled $105 million, accruing renegotiated residential mortgage loans totaled $56 million and real estate and other repossessed assets totaled $96 million. All accruing renegotiated residential mortgage loans, $1.6 million of nonaccruing loans and $46 million of real estate and other repossessed assets are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $2.2 million during the first quarter. The Company generally retains nonperforming assets to maximize potential recovery which may cause future nonperforming assets to decrease more slowly.

Loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. As more fully discussed in Note 4 to the Consolidated Financial Statements, we may modify loans in 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 nonaccuring 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 consumer loans to troubled borrowers. Consumer loans modified at the direction of bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.

At March 31, 2014, renegotiated loans consist solely of accruing residential mortgage loans guaranteed by U.S. government agencies that have been modified in troubled debt restructurings. See Note 4 to the Consolidated Financial Statements for additional discussion of troubled debt restructurings. Generally, we modify residential mortgage loans primarily by reducing interest rates and extending the number of payments in accordance with U.S. government agency guidelines. 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 first quarter of 2014 follows in Table 19.

Table 19 -- Rollforward of Nonperforming Assets
(In thousands)
 
 
Three Months Ended
 
 
March 31, 2014
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, December 31, 2013
 
$
101,149

 
$
54,322

 
$
92,272

 
$
247,743

Additions
 
16,220

 
12,819

 
—

 
29,039

Payments
 
(7,548
)
 
(329
)
 
—

 
(7,877
)
Charge-offs
 
(2,848
)
 
—

 
—

 
(2,848
)
Net gains and write-downs
 
—

 
—

 
(85
)
 
(85
)
Foreclosure of nonperforming loans
 
(2,270
)
 
—

 
2,270

 
—

Foreclosure of loans guaranteed by U.S. government agencies
 
—

 
(3,189
)
 
17,307

 
14,118

Proceeds from sales
 
—

 
(7,893
)
 
(7,110
)
 
(15,003
)
Conveyance to U.S. government agencies
 
—

 
—

 
(9,100
)
 
(9,100
)
Net transfers to nonaccruing loans
 
—

 
—

 
—

 
—

Return to accrual status
 
—

 
—

 
—

 
—

Other, net
 
3

 
(223
)
 
(39
)
 
(259
)
Balance, March 31, 2014
 
$
104,706

 
$
55,507

 
$
95,515

 
$
255,728



- 35 -



We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans are not eligible for modification programs or have failed to comply with modified loan terms. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is minimal. These properties will be conveyed to the agencies once applicable criteria have been met. During the first quarter of 2014, $17 million of properties guaranteed by U.S. government agencies were foreclosed on and $9.1 million of properties were conveyed to the applicable U.S. government agencies.

Nonaccruing loans totaled $105 million or 0.80% of outstanding loans at March 31, 2014 and $101 million or 0.79% of outstanding loans at December 31, 2013. Nonaccruing loans increased $3.6 million over December 31, 2013. Newly identified nonaccruing loans totaled $16 million for the first quarter of 2014, partially offset by $7.5 million of payments, $2.8 million of charge-offs and $2.3 million of foreclosures.
Commercial

Nonaccruing commercial loans totaled $19 million or 0.24% of total commercial loans at March 31, 2014, compared to $17 million or 0.21% of total commercial loans at December 31, 2013. Nonaccruing commercial loans increased $2.3 million in the first quarter of 2014. Newly identified nonaccruing commercial loans of $3.3 million were partially offset by $909 thousand in payments and $144 thousand of charge-offs during the first quarter.

Nonaccruing commercial loans at March 31, 2014 were primarily composed of $6.9 million or 0.56% of wholesale/retail sector loans and $4.6 million or 0.21% of total services sector loans. Over half of the balance of nonaccruing wholesale/retail sector loans was comprised of a single customer in the New Mexico market.
Commercial Real Estate

Nonaccruing commercial real estate loans totaled $39 million or 1.49% of outstanding commercial real estate loans at March 31, 2014 compared to $41 million or 1.69% of outstanding commercial real estate loans at December 31, 2013. Newly identified nonaccruing commercial real estate loans totaled $1.3 million, offset by $3.0 million of cash payments received and $220 thousand of charge-offs. 

Nonaccruing commercial real estate loans continue to be largely concentrated in residential construction and land development loans, totaling $17 million or 8.95% of residential construction and land development loans. Other commercial real estate loans totaled $11 million or 2.72% of other commercial real estate loans and $6.3 million or 1.44% of commercial real estate loans secured by office buildings.

Residential Mortgage and Consumer

Nonaccruing residential mortgage loans totaled $45 million or 2.25% of outstanding residential mortgage loans at March 31, 2014 compared to $42 million or 2.06% of outstanding residential mortgage loans at December 31, 2013. Newly identified nonaccruing residential mortgage loans totaled $9.2 million, offset by $3.3 million of payments, $1.9 million of foreclosures and $1.0 million of loans charged off during the quarter. 

Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans which totaled $36 million or 3.52% of outstanding non-guaranteed permanent residential mortgage loans at March 31, 2014. Nonaccruing home equity loans totaled $7.5 million or 0.93% of total home equity loans.

Payments of accruing residential mortgage loans and consumer loans may be delinquent. The composition of residential mortgage loans and consumer loans past due but still accruing is included in the following Table 20. Substantially all non-guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 89 days past due decreased $3.6 million in the first quarter to $9.3 million at March 31, 2014. Consumer loans past due 30 to 89 days decreased $454 thousand from December 31, 2013.


- 36 -



Table 20 -- Residential Mortgage and Consumer Loans Past Due
(In thousands)
 
 
March 31, 2014
 
December 31, 2013
 
 
90 Days or More
 
30 to 89 Days
 
90 Days or More
 
30 to 89 Days
Residential mortgage:
 
 
 
 
 
 
 
 
   Permanent mortgage1
 
$
12

 
$
5,732

 
$
—

 
$
9,795

Home equity
 
25

 
3,556

 
34

 
3,087

Total residential mortgage
 
$
37

 
$
9,288

 
34

 
$
12,882

 
 
 

 
 

 
 

 
 

Consumer
 
$
1

 
$
573

 
$
1

 
$
1,027

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

Real Estate and Other Repossessed Assets

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

Real estate and other repossessed assets totaled $96 million at March 31, 2014, an increase of $3.2 million over December 31, 2013. The distribution of real estate and other repossessed assets attributed by geographical market is included in Table 21 following.

Table 21 -- 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 guaranteed by U.S. government agencies
 
$
14,100

 
$
2,134

 
$
1,549

 
$
1,276

 
$
22,830

 
$
360

 
$
2,841

 
$
549

 
$
45,639

Developed commercial real estate properties
 
2,287

 
242

 
1,109

 
1,050

 
4,076

 
595

 
731

 
5,073

 
15,163

1-4 family residential properties
 
5,046

 
957

 
161

 
775

 
1,915

 
4,782

 
401

 
262

 
14,299

Undeveloped land
 
272

 
3,698

 
2,635

 
57

 
—

 
5,691

 
1,114

 
—

 
13,467

Residential land development properties
 
260

 
30

 
1,556

 
1,283

 
—

 
3,243

 
136

 
—

 
6,508

Oil and gas properties
 
—

 
66

 
—

 
—

 
—

 
—

 
—

 
—

 
66

Vehicles
 
5

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5

Other
 
—

 
—

 
—

 
—

 
—

 
324

 
—

 
44

 
368

Total real estate and other repossessed assets
 
$
21,970

 
$
7,127

 
$
7,010

 
$
4,441

 
$
28,821

 
$
14,995

 
$
5,223

 
$
5,928

 
$
95,515


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 the subsidiary bank. Based on the average balances for the first quarter of 2014, approximately 74% of our funding was provided by deposit accounts, 10% from borrowed funds, 1% from long-term subordinated debt and 11% from equity. Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks and other banks, provide adequate liquidity to meet our operating needs.

Deposit accounts represent our largest funding source. We compete for retail and commercial deposits by offering a broad range of products and services and focusing on customer convenience. Retail deposit growth is supported through our Perfect Banking sales and customer service program, free checking, online bill paying services, mobile banking services, an extensive network of branch locations and ATMs and a 24-hour Express Bank call center. Commercial deposit growth is supported by offering treasury management and lockbox services. We also acquire brokered deposits when the cost of funds is advantageous to other funding sources.

Average deposits for the first quarter of 2014 totaled $20.2 billion and represented approximately 74% of total liabilities and capital compared with $19.9 billion and 73% of total liabilities and capital for the fourth quarter of 2013. Average deposits increased $360 million over the fourth quarter of 2013. Interest-bearing transaction deposit accounts increased $415 million, demand deposits decreased $44 million and average time deposits decreased $24 million. 

Average Commercial Banking deposit balances increased $283 million over the fourth quarter of 2013. Balances related to commercial & industrial customers increased $220 million, balances related to our treasury services customers increased $117 million and balances related to energy customers increased $28 million over the fourth quarter of 2013. Healthcare customer balances decreased $51 million and commercial real estate customer balances decreased $37 million compared to the fourth quarter. Commercial customers continue to retain large cash reserves primarily due to low yields available on other high quality investment alternatives and to minimize deposit service charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. Average Consumer Banking deposit balances increased $30 million. Interest-bearing transaction deposits grew by $33 million, demand deposit balances grew by $18 million, and savings account balances were up $14 million. This growth was partially offset by a $36 million decrease in time deposits. Average Wealth Management deposits increased $78 million over the fourth quarter of 2013 primarily due to an increase in interest-bearing transaction deposit account balances, partially offset by a decrease in demand deposit balances.

Brokered deposits included in time deposits averaged $194 million for the first quarter of 2014, an increase of $19 million over the fourth quarter of 2013. Average interest-bearing transaction accounts for the first quarter include $215 million of brokered deposits, a decrease of $21 million compared to the fourth quarter of 2013.


- 38 -



The distribution of our period end deposit account balances among principal markets follows in Table 22.

Table 22 -- Period End Deposits by Principal Market Area
(In thousands)
 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Demand
 
$
3,476,876

 
$
3,432,940

 
$
3,442,831

 
$
3,552,328

 
$
3,591,661

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
6,148,712

 
6,318,045

 
5,565,462

 
5,644,959

 
6,132,736

Savings
 
211,770

 
191,880

 
189,186

 
185,345

 
185,363

Time
 
1,209,002

 
1,214,507

 
1,197,617

 
1,179,869

 
1,264,365

Total interest-bearing
 
7,569,484

 
7,724,432

 
6,952,265

 
7,010,173

 
7,582,464

Total Bank of Oklahoma
 
11,046,360

 
11,157,372

 
10,395,096

 
10,562,501

 
11,174,125

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 
 
 
 
 
 
 
 
 
Demand
 
2,513,729

 
2,481,603

 
2,498,668

 
2,299,632

 
2,098,891

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
1,967,107

 
1,966,580

 
1,853,586

 
1,931,758

 
1,979,318

Savings
 
70,890

 
64,632

 
63,368

 
63,745

 
63,218

Time
 
621,925

 
638,465

 
667,873

 
692,888

 
717,974

Total interest-bearing
 
2,659,922

 
2,669,677

 
2,584,827

 
2,688,391

 
2,760,510

Total Bank of Texas
 
5,173,651

 
5,151,280

 
5,083,495

 
4,988,023

 
4,859,401

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 
 
 
 
 
 
 
 
 
Demand
 
524,191

 
502,395

 
491,894

 
455,580

 
446,841

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
516,734

 
529,140

 
541,565

 
525,481

 
513,774

Savings
 
37,481

 
33,944

 
34,003

 
34,096

 
35,560

Time
 
320,352

 
327,281

 
334,946

 
346,506

 
354,303

Total interest-bearing
 
874,567

 
890,365

 
910,514

 
906,083

 
903,637

Total Bank of Albuquerque
 
1,398,758

 
1,392,760

 
1,402,408

 
1,361,663

 
1,350,478

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 
 
 
 
 
 
 
 
 
Demand
 
40,026

 
38,566

 
33,378

 
31,778

 
32,761

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
212,144

 
144,018

 
205,891

 
187,223

 
156,079

Savings
 
2,264

 
1,986

 
1,919

 
1,974

 
2,642

Time
 
32,312

 
32,949

 
35,184

 
37,272

 
41,613

Total interest-bearing
 
246,720

 
178,953

 
242,994

 
226,469

 
200,334

Total Bank of Arkansas
 
286,746

 
217,519

 
276,372

 
258,247

 
233,095

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 
 
 
 
 
 
 
 
 
Demand
 
399,820

 
409,942

 
375,060

 
367,407

 
298,470

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
536,438

 
541,675

 
536,734

 
519,584

 
528,060

Savings
 
28,973

 
26,880

 
27,782

 
27,948

 
27,187

Time
 
399,948

 
407,088

 
424,225

 
451,168

 
461,496

Total interest-bearing
 
965,359

 
975,643

 
988,741

 
998,700

 
1,016,743

Total Colorado State Bank & Trust
 
1,365,179

 
1,385,585

 
1,363,801

 
1,366,107

 
1,315,213

 
 
 
 
 
 
 
 
 
 
 

- 39 -



 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Bank of Arizona:
 
 
 
 
 
 
 
 
 
 
Demand
 
265,149

 
204,092

 
188,365

 
186,382

 
157,754

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
409,200

 
364,736

 
339,158

 
376,305

 
378,420

Savings
 
2,711

 
2,432

 
2,511

 
2,238

 
2,122

Time
 
37,989

 
34,391

 
36,285

 
35,490

 
34,690

Total interest-bearing
 
449,900

 
401,559

 
377,954

 
414,033

 
415,232

Total Bank of Arizona
 
715,049

 
605,651

 
566,319

 
600,415

 
572,986

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 
 
 
 
 
 
 
 
 
Demand
 
252,496

 
246,739

 
301,780

 
252,216

 
274,482

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
109,321

 
69,857

 
77,414

 
81,250

 
53,915

Savings
 
1,507

 
1,252

 
1,080

 
1,029

 
983

Time
 
40,646

 
41,312

 
23,890

 
24,779

 
25,613

Total interest-bearing
 
151,474

 
112,421

 
102,384

 
107,058

 
80,511

Total Bank of Kansas City
 
403,970

 
359,160

 
404,164

 
359,274

 
354,993

Total BOK Financial deposits
 
$
20,389,713

 
$
20,269,327

 
$
19,491,655

 
$
19,496,230

 
$
19,860,291


In addition to deposits, subsidiary bank liquidity is provided primarily by federal funds purchased, securities repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured, overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers’ banks and Federal Home Loan banks from across the country. The largest single source of federal funds purchased totaled $325 million at March 31, 2014. Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities. Federal Home Loan Bank borrowings are generally short term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $1.0 billion during the quarter, unchanged compared to the fourth quarter of 2013.

At March 31, 2014, the estimated unused credit available to the subsidiary bank from collateralized sources was approximately $8.8 billion.

A summary of other borrowings by the subsidiary bank follows in Table 23.


- 40 -



Table 23 -- Borrowed Funds
(In thousands)
 
 
 
 
Three Months Ended
 
 
 
Three Months Ended
 
 
 
 
March 31, 2014
 
 
 
December 31, 2013
 
 
March 31, 2014
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
December 31, 2013
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
Subsidiary Bank:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds purchased
 
1,166,178

 
1,021,755

 
0.06
%
 
1,548,676

 
868,081

 
748,074

 
0.08
%
 
914,008

Repurchase agreements
 
777,108

 
773,127

 
0.08
%
 
800,802

 
813,454

 
752,286

 
0.06
%
 
813,623

Other borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank advances
 
1,002,500

 
1,005,370

 
0.20
%
 
1,005,650

 
1,005,650

 
1,517,013

 
0.20
%
 
2,006,622

GNMA repurchase liability
 
12,834

 
17,082

 
5.37
%
 
17,721

 
18,113

 
17,891

 
5.39
%
 
19,522

Other
 
16,359

 
16,295

 
3.29
%
 
16,159

 
16,590

 
16,687

 
2.84
%
 
17,092

Total other borrowings
 
1,031,693

 
1,038,747

 
0.34
%
 


 
1,040,353

 
1,551,591

 
0.29
%
 


Subordinated debentures
 
347,846

 
347,824

 
2.52
%
 
347,846

 
347,802

 
347,781

 
2.48
%
 
347,802

Total Subsidiary Bank
 
3,322,825

 
3,181,453

 
0.44
%
 
 
 
3,069,690

 
3,399,732

 
0.42
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Borrowed Funds
 
$
3,322,825

 
$
3,181,453

 
0.44
%
 
 
 
$
3,069,690

 
$
3,399,732

 
0.40
%
 
 
In 2007, the Company issued $250 million of subordinated debt due May 15, 2017 to fund the Worth National Bank and First United Bank acquisitions and fund continued asset growth. Interest on this debt was based on a fixed rate of 5.75% through May 14, 2012 which then converted to a floating rate of three-month LIBOR plus 0.69%. At March 31, 2014, $227 million of this subordinated debt remains outstanding.
In 2005, the Bank issued $150 million of 10-year, fixed rate subordinated debt. The cost of this subordinated debt, including issuance discounts and hedge loss is 5.56%. The proceeds of this debt were used to repay $95 million of BOK Financial's unsecured revolving line of credit and to provide additional capital to support assets growth. At March 31, 2014, $122 million of this subordinated debt remains outstanding.
The Bank also has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold in GNMA mortgage pools. Interest is payable monthly at rates contractually due to investors.
Parent Company

The primary sources of liquidity for BOK Financial are cash on hand and dividends from the subsidiary bank. Dividends from the subsidiary bank are limited by various banking regulations to net profits, as defined, for the year plus retained profits for the two preceding years. Dividends are further restricted by minimum capital requirements. At March 31, 2014, based on the most restrictive limitations as well as management’s internal capital policy, the subsidiary bank could declare up to $209 million of dividends without regulatory approval. Future losses or increases in required regulatory capital at the subsidiary bank could affect its ability to pay dividends to the parent company.


- 41 -



The Company has a $100 million senior unsecured 364 day revolving credit facility with Wells Fargo Bank, National Association, administrative agent and other commercial banks (“the Credit Facility”). Interest on amounts outstanding under the Credit Facility is to be paid at a defined base rate minus 1.25% or LIBOR plus 1.00% based upon the Company’s option. Interest on amounts borrowed for certain acquisitions converted to a term loan at the Company's option is to be paid at a defined base rate minus 1.25% or LIBOR plus 1.25%. A commitment fee equal to 0.20% shall be paid quarterly on the unused portion of the credit commitment under the Credit Facility and there are no prepayment penalties. Any amounts outstanding at the end of the Credit Facility term shall be converted into a term loan which, except for amounts borrowed for certain acquisitions, shall be payable June 5, 2014. The Credit Agreement contains customary representations and warranties, as well as affirmative and negative covenants including limits on the Company’s ability to borrow additional funds, make investments and sell assets. These covenants also require BOKF to maintain minimum capital levels. No amounts were outstanding under the Credit Facility at March 31, 2014 and the Company met all of the covenants.

Our equity capital at March 31, 2014 was $3.1 billion, an increase of $90 million over December 31, 2013. Net income less cash dividends paid increased equity $49 million during the first quarter of 2014 and accumulated other comprehensive income increased $32 million primarily related to the change in unrealized gains on available for sale securities. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt issuance, share repurchase and stock and cash dividends.

On April 24, 2012, the Board of Directors authorized the Company to purchase up to two million shares of our common stock. The specific timing and amount of shares repurchased will vary based on market conditions, regulatory limitations and other factors. Repurchases may be made over time in open market or privately negotiated transactions. The repurchase program may be suspended or discontinued at any time without prior notice. As of March 31, 2014, the Company has repurchased 39,496 shares for $2.1 million under this program. No shares were repurchased in the first quarter of 2014.

BOK Financial and the subsidiary bank are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory and 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.

For a banking institution to qualify as well capitalized, its Tier 1, Total and Leverage capital ratios must be at least 6%, 10% and 5%, respectively. The Company’s banking subsidiary exceeded the regulatory definitions of well capitalized. The capital ratios for BOK Financial on a consolidated basis are presented in Table 24.

Table 24 -- Capital Ratios
 
 
Well Capitalized
Minimums
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Average total equity to average assets
 
—

 
11.40
%
 
11.27
%
 
10.88
%
 
10.95
%
 
10.90
%
Tangible common equity ratio
 
—

 
10.06
%
 
9.90
%
 
9.73
%
 
9.38
%
 
9.70
%
Tier 1 common equity ratio
 
—

 
13.59
%
 
13.59
%
 
13.33
%
 
13.19
%
 
13.16
%
Risk-based capital:
 
 

 
 
 
 
 
 
 
 

 
 

Tier 1 capital
 
6.00
%
 
13.77
%
 
13.77
%
 
13.51
%
 
13.37
%
 
13.35
%
Total capital
 
10.00
%
 
15.55
%
 
15.56
%
 
15.35
%
 
15.28
%
 
15.68
%
Leverage
 
5.00
%
 
10.17
%
 
10.05
%
 
9.80
%
 
9.43
%
 
9.28
%
In July 2013, banking regulators issued the final rule revising regulatory capital rules for substantially all U.S. banking organizations. The new capital rule will be effective for BOK Financial on January 1, 2015 and components of the rule will phase in through January 1, 2019. The new capital rule establishes a 7% threshold for the Tier 1 common equity ratio consisting of a minimum level plus capital conservation buffer. The Company expects to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital, consistent with the treatment under current capital rules. BOK Financial's Tier 1 common equity ratio based on the existing Basel I standards was 13.59% as of March 31, 2014. Based on our interpretation of the new capital rule, our estimated Tier 1 common equity ratio is approximately 12.60%, nearly 560 basis points above the 7% regulatory threshold.


- 42 -



The rule also changes both the Tier 1 risk based capital requirements and the total risk based requirements to a minimum of 6% and 8%, respectively, plus a capital conservation buffer of 2.5% totaling 8.5% and 10.5%, respectively. The leverage ratio requirement under the rule is 4%. A 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.

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.

In accordance with the Dodd-Frank Act, the Federal Reserve must publish regulations that require bank holding companies with $10 billion to $50 billion in assets to perform annual capital stress tests. The requirements for annual capital stress tests became effective for the Company in the fourth quarter of 2013. Specified results will be made public in June of 2015. The resulting capital stress test process may place constraints on capital distributions or increases in required regulatory capital under certain circumstances.

Table 25 provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.

Table 25 -- Non-GAAP Measure
(Dollars in thousands)
 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
Tangible common equity ratio:
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
$
3,109,925

 
$
3,020,049

 
$
2,991,244

 
$
2,957,637

 
$
3,011,958

Less: Goodwill and intangible assets, net
 
396,131

 
384,323

 
385,166

 
386,001

 
386,876

Tangible common equity
 
2,713,794

 
2,635,726

 
2,606,078

 
2,571,636

 
2,625,082

Total assets
 
27,364,711

 
27,015,432

 
27,166,367

 
27,808,200

 
27,447,158

Less: Goodwill and intangible assets, net
 
396,131

 
384,323

 
385,166

 
386,001

 
386,876

Tangible assets
 
$
26,968,580

 
$
26,631,109

 
$
26,781,201

 
$
27,422,199

 
$
27,060,282

Tangible common equity ratio
 
10.06
%
 
9.90
%
 
9.73
%
 
9.38
%
 
9.70
%

Off-Balance Sheet Arrangements

See Note 8 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet commitments.

- 43 -



Market Risk

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading. Market risk excludes changes in fair value due to credit of the individual issuers of financial instruments.

BOK Financial is subject to market risk primarily through the effect of changes in interest rates on both its assets held for purposes other than trading and trading assets. The effects of other changes, such as foreign exchange rates, commodity prices or equity prices do not pose significant market risk to BOK Financial. BOK Financial has no material investments in assets that are affected by changes in foreign exchange rates or equity prices. Energy and agricultural product derivative contracts, which are affected by changes in commodity prices, are matched against offsetting contracts as previously discussed.

The Asset / Liability Committee is responsible for managing market risk in accordance with policy guidelines established by the Board of Directors. The Committee monitors projected variation in net interest revenue, net income and economic value of equity due to specified changes in interest rates. The internal policy limit for net interest revenue variation is a maximum decline of 5% to an up or down 200 basis point change over twelve months. These guidelines also set maximum levels for short-term borrowings, short-term assets, public funds and brokered deposits and establish minimum levels for unpledged assets, among other things. Compliance with these internal guidelines is reviewed monthly.
Interest Rate Risk – Other than Trading
 
As previously noted in the Net Interest Revenue section of this report, management has implemented strategies to manage the Company’s balance sheet to have relatively limited exposure to changes in interest rates over a twelve-month period. The effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions, on net interest revenue, net income and economic value of equity. A simulation model is used to estimate the effect of changes in interest rates on the Company's performance across multiple interest rate scenarios. While the current internal policy limit for net interest revenue variation is a maximum decline of 5% or 200 basis points change over twelve months, the results of a 200 basis point decrease in interest rates in the current low-rate environment are not meaningful. We report the effect of a 50 basis point decrease in the interim.

The Company’s primary interest rate exposures include the Federal Funds rate, which affects short-term borrowings, and the prime lending rate and LIBOR, which are the basis for much of the variable rate loan pricing. Additionally, residential mortgage rates directly affect the prepayment speeds for residential mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. In addition, the impact on the level and composition of DDA and other core deposit balances resulting from a significant increase in short-term market interest rates and the overall interest rate environment is likely to be material. The simulation incorporates assumptions regarding the effects of such changes based on a combination of historical analysis and expected behavior. The impact of planned growth and new business activities is factored into the simulation model. The effects of changes in interest rates on the value of mortgage servicing rights are excluded from Table 26 due to the extreme volatility over such a large rate range and our active risk management approach for that asset. The effects of interest rate changes on the value of mortgage servicing rights and financial instruments identified as economic hedges are presented in Note 6 to the Consolidated Financial Statements.

The simulations used to manage market risk are based on numerous assumptions regarding the effects of changes in interest rates on the timing and extent of re-pricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, market conditions and management strategies, among other factors.
 

- 44 -



Table 26 -- Interest Rate Sensitivity
(Dollars in thousands)
 
 
200 bp Increase
 
50 bp Decrease
 
 
2014
 
2013
 
2014
 
2013
Anticipated impact over the next twelve months on net interest revenue
 
$
(11,626
)
 
$
(528
)
 
$
(13,161
)
 
$
(17,420
)
 
 
(1.66
)%
 
(0.08
)%
 
(1.88
)%
 
(2.50
)%
Trading Activities

BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an intermediary, BOK Financial will take positions in securities, generally residential mortgage-backed securities, government agency securities and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. On a limited basis, BOK Financial may also take trading positions in U.S. Treasury securities, residential mortgage-backed securities, municipal bonds and derivative contracts to enhance returns on its securities portfolios. Both of these activities involve interest rate 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 manage the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs.

Management uses a Value at Risk ("VaR") methodology to measure market risk due to changes in interest rates inherent in its trading activities. VaR is calculated based upon historical simulations over the past five years using a variance/covariance matrix of interest rate changes, a 10 business day holding period and a 99% confidence interval. It represents an amount of market loss that is likely to be exceeded in only one out of every 100 two-week periods. Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the VaR to $7.3 million. There were no instances of VaR being exceeded during the three months ended March 31, 2014 and 2013. At March 31, 2014, there were no trading positions for the purposes of enhancing returns on the Company's securities portfolio.

The average, high and low VaR amounts for three months ended March 31, 2014 and March 31, 2013 are as follows in Table 27.

Table 27 -- Value at Risk (VaR)
(In thousands)
 
Three Months Ended
Mar. 31,
 
2014
 
2013
Average
$
1,480

 
$
3,569

High
3,731

 
5,453

Low
984

 
2,525


- 45 -



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,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for loan losses involve judgments as to expected events and are inherently forward-looking statements. Assessments that BOK Financial’s acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events, based in part on information provided by others that BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to: (1) the ability to fully realize expected cost savings from mergers within the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies, and assessments, (7) the impact of technological advances and (8) trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

- 46 -



     
Consolidated Statements of Earnings (Unaudited)
 
 
 
 
(In thousands, except share and per share data)
 
Three Months Ended
 
 
March 31,
Interest revenue
 
2014
 
2013
Loans
 
$
122,471

 
$
125,113

Residential mortgage loans held for sale
 
1,590

 
1,792

Trading securities
 
411

 
478

Taxable securities
 
3,282

 
3,798

Tax-exempt securities
 
1,504

 
1,028

Total investment securities
 
4,786

 
4,826

Taxable securities
 
47,255

 
55,007

Tax-exempt securities
 
494

 
604

Total available for sale securities
 
47,749

 
55,611

Fair value option securities
 
851

 
1,177

Restricted equity securities
 
997

 
865

Interest-bearing cash and cash equivalents
 
265

 
184

Total interest revenue
 
179,120

 
190,046

Interest expense
 
 

 
 

Deposits
 
12,986

 
14,881

Borrowed funds
 
1,334

 
1,554

Subordinated debentures
 
2,158

 
2,159

Total interest expense
 
16,478

 
18,594

Net interest revenue
 
162,642

 
171,452

Provision for credit losses
 
—

 
(8,000
)
Net interest revenue after provision for credit losses
 
162,642

 
179,452

Other operating revenue
 
 

 
 

Brokerage and trading revenue
 
29,516

 
31,751

Transaction card revenue
 
29,134

 
27,692

Fiduciary and asset management revenue
 
25,722

 
22,313

Deposit service charges and fees
 
22,689

 
22,966

Mortgage banking revenue
 
22,844

 
39,976

Bank-owned life insurance
 
2,106

 
3,226

Other revenue
 
8,852

 
9,140

Total fees and commissions
 
140,863

 
157,064

Gain (loss) on assets, net
 
(4,264
)
 
467

Gain (loss) on derivatives, net
 
968

 
(941
)
Gain (loss) on fair value option securities, net
 
2,660

 
(3,171
)
Change in fair value of mortgage servicing rights
 
(4,461
)
 
2,658

Gain on available for sale securities, net
 
1,240

 
4,855

Total other-than-temporary impairment losses
 
—

 
—

Portion of loss recognized in (reclassified from) other comprehensive income
 
—

 
(247
)
Net impairment losses recognized in earnings
 
—

 
(247
)
Total other operating revenue
 
137,006

 
160,685

Other operating expense
 
 

 
 

Personnel
 
104,433

 
125,654

Business promotion
 
5,841

 
5,453

Charitable contributions to BOKF Foundation
 
2,420

 
—

Professional fees and services
 
7,565

 
6,985

Net occupancy and equipment
 
16,896

 
16,481

Insurance
 
4,541

 
3,745

Data processing and communications
 
27,135

 
25,450

Printing, postage and supplies
 
3,541

 
3,674

Net losses and operating expenses of repossessed assets
 
1,432

 
1,246

Amortization of intangible assets
 
816

 
876

Mortgage banking costs
 
3,634

 
7,354

Other expense
 
6,850

 
7,064

Total other operating expense
 
185,104

 
203,982

Net income before taxes
 
114,544

 
136,155

Federal and state income taxes
 
37,501

 
47,096

Net income
 
77,043

 
89,059

Net income attributable to non-controlling interest
 
453

 
1,095

Net income attributable to BOK Financial Corporation shareholders
 
$
76,590

 
$
87,964

Earnings per share:
 
 

 
 

Basic
 
$
1.11

 
$
1.28

Diluted
 
$
1.11

 
$
1.28

Average shares used in computation:
 
 
 
 
Basic
 
68,273,685

 
67,814,550

Diluted
 
68,436,478

 
68,040,180

Dividends declared per share
 
$
0.40

 
$
0.38

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
 
 
 
March 31,
 
 
 
2014
 
2013
 
Net income
 
$
77,043

 
$
89,059

 
Other comprehensive income before income taxes:
 
 
 
 
 
Net change in unrealized gain (loss)
 
54,613

 
(21,359
)
 
Reclassification adjustments included in earnings:
 
 
 
 
 
Interest revenue, Investments securities, Taxable securities
 
(403
)
 
(1,148
)
 
Interest expense, Subordinated debentures
 
83

 
52

 
Net impairment losses recognized in earnings
 
—

 
247

 
Gain on available for sale securities, net
 
(1,240
)
 
(4,855
)
 
Other comprehensive income (loss) before income taxes
 
53,053

 
(27,063
)
 
Federal and state income taxes
 
(20,635
)
 
10,526

 
Other comprehensive income (loss), net of income taxes
 
32,418

 
(16,537
)
 
Comprehensive income
 
109,461

 
72,522

 
Comprehensive income attributable to non-controlling interests
 
453

 
1,095

 
Comprehensive income attributed to BOK Financial Corp. shareholders
 
$
109,008

 
$
71,427

 

See accompanying notes to consolidated financial statements.

- 48 -



Consolidated Balance Sheets
(In thousands, except share data)
 
 
March 31,
2014
 
Dec 31,
2013
 
March 31,
2013
 
 
(Unaudited)
 
(Footnote 1)
 
(Unaudited)
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
645,435

 
$
512,931

 
$
458,471

Interest-bearing cash and cash equivalents
 
708,571

 
574,282

 
487,146

Trading securities
 
86,571

 
91,616

 
206,598

Investment securities (fair value:  Mar. 31, 2014 – $685,063; December 31, 2013 – $687,127 ; Mar. 31, 2013 – $615,194)
 
668,976

 
677,878

 
589,271

Available for sale securities
 
9,933,723

 
10,147,162

 
11,059,145

Fair value option securities
 
160,884

 
167,125

 
210,192

Restricted Equity Securities
 
85,643

 
85,240

 
119,988

Residential mortgage loans held for sale
 
226,512

 
200,546

 
286,211

Loans
 
13,077,854

 
12,792,264

 
12,093,564

Allowance for loan losses
 
(188,318
)
 
(185,396
)
 
(205,965
)
Loans, net of allowance
 
12,889,536

 
12,606,868

 
11,887,599

Premises and equipment, net
 
279,257

 
277,849

 
270,130

Receivables
 
114,437

 
117,126

 
116,028

Goodwill
 
364,570

 
359,759

 
359,759

Intangible assets, net
 
31,561

 
24,564

 
27,117

Mortgage servicing rights, net
 
153,774

 
153,333

 
109,840

Real estate and other repossessed assets, net of allowance (Mar. 31, 2014 – $23,555; December 31, 2013 – $24,195; Mar. 31, 2013 – $36,004)
 
95,515

 
92,272

 
102,701

Derivative contracts
 
218,507

 
265,012

 
320,473

Cash surrender value of bank-owned life insurance
 
286,932

 
284,801

 
277,776

Receivable on unsettled securities sales
 
18,199

 
17,174

 
190,688

Other assets
 
396,111

 
359,894

 
368,025

Total assets
 
$
27,364,714

 
$
27,015,432

 
$
27,447,158

 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
7,472,287

 
$
7,316,277

 
$
6,900,860

Interest-bearing deposits:
 
 

 
 

 
 

Transaction
 
9,899,656

 
9,934,051

 
9,742,302

Savings
 
355,596

 
323,006

 
317,075

Time
 
2,662,174

 
2,695,993

 
2,900,054

Total deposits
 
20,389,713

 
20,269,327

 
19,860,291

Funds purchased
 
1,166,178

 
868,081

 
853,843

Repurchase agreements
 
777,108

 
813,454

 
806,526

Other borrowings
 
1,031,693

 
1,040,353

 
1,733,047

Subordinated debentures
 
347,846

 
347,802

 
347,674

Accrued interest, taxes and expense
 
160,351

 
194,870

 
192,358

Derivative contracts
 
185,499

 
247,185

 
251,836

Due on unsettled securities purchases
 
39,641

 
45,740

 
158,984

Other liabilities
 
122,086

 
133,647

 
194,707

Total liabilities
 
24,220,115

 
23,960,459

 
24,399,266

Shareholders' equity:
 
 

 
 

 
 

Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: Mar. 31, 2014 – 73,547,801 ; December 31, 2013 – 73,163,275; Mar. 31, 2013 – 72,945,798)
 
4

 
4

 
4

Capital surplus
 
913,642

 
898,586

 
876,368

Retained earnings
 
2,398,636

 
2,349,428

 
2,199,722

Treasury stock (shares at cost:  Mar. 31, 2014 – 4,407,591 ; December 31, 2013 – 4,304,782;  Mar. 31, 2013 – 4,258,080)
 
(209,152
)
 
(202,346
)
 
(197,519
)
Accumulated other comprehensive income (loss)
 
6,795

 
(25,623
)
 
133,383

Total shareholders’ equity
 
3,109,925

 
3,020,049

 
3,011,958

Non-controlling interests
 
34,674

 
34,924

 
35,934

Total equity
 
3,144,599

 
3,054,973

 
3,047,892

Total liabilities and equity
 
$
27,364,714

 
$
27,015,432

 
$
27,447,158


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, 2012
 
72,415

 
$
4

 
$
859,278

 
$
2,137,541

 
4,088

 
$
(188,883
)
 
$
149,920

 
$
2,957,860

 
$
35,821

 
$
2,993,681

Net income
 
—

 
—

 
—

 
87,964

 
—

 
—

 
—

 
87,964

 
1,095

 
89,059

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
—

 
(16,537
)
 
(16,537
)
 
—

 
(16,537
)
Issuance of shares for equity compensation
 
531

 
—

 
18,178

 
—

 
170

 
(8,636
)
 
—

 
9,542

 
—

 
9,542

Tax effect from equity compensation, net
 
—

 
—

 
(337
)
 
—

 
—

 
—

 
—

 
(337
)
 
—

 
(337
)
Stock-based compensation
 
—

 
—

 
(751
)
 
—

 
—

 
—

 
—

 
(751
)
 
—

 
(751
)
Cash dividends on common stock
 
—

 
—

 
—

 
(25,783
)
 
—

 
—

 
—

 
(25,783
)
 
—

 
(25,783
)
Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(982
)
 
(982
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2013
 
72,946

 
$
4

 
$
876,368

 
$
2,199,722

 
4,258

 
$
(197,519
)
 
$
133,383

 
$
3,011,958

 
$
35,934

 
$
3,047,892

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2013
 
73,163

 
$
4

 
$
898,586

 
$
2,349,428

 
4,305

 
$
(202,346
)
 
$
(25,623
)
 
$
3,020,049

 
$
34,924

 
$
3,054,973

Net income
 
—

 
—

 
—

 
76,590

 
—

 
—

 
—

 
76,590

 
453

 
77,043

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
32,418

 
32,418

 
—

 
32,418

Issuance of shares for equity compensation
 
385

 
—

 
10,461

 
—

 
103

 
(6,806
)
 
—

 
3,655

 
—

 
3,655

Tax effect from equity compensation, net
 
—

 
—

 
1,732

 
—

 
—

 
—

 
—

 
1,732

 
—

 
1,732

Stock-based compensation
 
—

 
—

 
2,863

 
—

 
—

 
—

 
—

 
2,863

 
—

 
2,863

Cash dividends on common stock
 
—

 
—

 
—

 
(27,382
)
 
—

 
—

 
—

 
(27,382
)
 
—

 
(27,382
)
Capital calls and distributions, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(703
)
 
(703
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2014
 
73,548

 
$
4

 
$
913,642

 
$
2,398,636

 
4,408

 
$
(209,152
)
 
$
6,795

 
$
3,109,925

 
$
34,674

 
$
3,144,599


See accompanying notes to consolidated financial statements.

- 50 -



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

 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
77,043

 
$
89,059

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Provision for credit losses
 
—

 
(8,000
)
Change in fair value of mortgage servicing rights
 
4,461

 
(2,658
)
Unrealized losses from derivative contracts
 
563

 
9,334

Tax effect from equity compensation, net
 
(1,732
)
 
337

Change in bank-owned life insurance
 
(2,106
)
 
(3,226
)
Stock-based compensation
 
2,863

 
(751
)
Depreciation and amortization
 
12,362

 
13,392

Net amortization of securities discounts and premiums
 
14,560

 
16,507

Net realized gains on financial instruments and other assets
 
(1,202
)
 
(5,436
)
Net gain on mortgage loans held for sale
 
(11,968
)
 
(30,235
)
Mortgage loans originated for sale
 
(727,516
)
 
(956,315
)
Proceeds from sale of mortgage loans held for sale
 
713,002

 
993,776

Capitalized mortgage servicing rights
 
(8,644
)
 
(11,433
)
Change in trading and fair value option securities
 
10,890

 
81,022

Change in receivables
 
3,246

 
(2,554
)
Change in other assets
 
14,111

 
7,376

Change in accrued interest, taxes and expense
 
(41,114
)
 
15,680

Change in other liabilities
 
1,555

 
33,543

Net cash provided by operating activities
 
60,374

 
239,418

Cash Flows From Investing Activities:
 
 

 
 

Proceeds from maturities or redemptions of investment securities
 
13,019

 
20,485

Proceeds from maturities or redemptions of available for sale securities
 
403,191

 
991,514

Purchases of investment securities
 
(5,834
)
 
(110,957
)
Purchases of available for sale securities
 
(679,171
)
 
(1,529,068
)
Proceeds from sales of available for sale securities
 
531,385

 
728,424

Change in amount receivable on unsettled securities transactions
 
(1,025
)
 
20,364

Loans originated net of principal collected
 
(271,214
)
 
221,433

Net payments on derivative asset contracts
 
40,220

 
17,454

Acquisitions, net of cash acquired
 
(12,624
)
 
—

Proceeds from disposition of assets
 
20,071

 
26,870

Purchases of assets
 
(20,945
)
 
(73,612
)
Net cash provided by investing activities
 
17,073

 
312,907

Cash Flows From Financing Activities:
 
 

 
 

Net change in demand deposits, transaction deposits and savings accounts
 
154,205

 
(1,250,831
)
Net change in time deposits
 
(33,819
)
 
(67,938
)
Net change in other borrowed funds
 
221,650

 
659,003

Net proceeds on derivative liability contracts
 
(40,228
)
 
(20,893
)
Net change in derivative margin accounts
 
(84,368
)
 
(57,241
)
Change in amount due on unsettled security transactions
 
(6,099
)
 
(138,469
)
Issuance of common and treasury stock, net
 
3,655

 
9,542

Tax effect from equity compensation, net
 
1,732

 
(337
)
Dividends paid
 
(27,382
)
 
(25,783
)
Net cash provided by (used in) financing activities
 
189,346

 
(892,947
)
Net increase (decrease) in cash and cash equivalents
 
266,793

 
(340,622
)
Cash and cash equivalents at beginning of period
 
1,087,213

 
1,286,239

Cash and cash equivalents at end of period
 
$
1,354,006

 
$
945,617

 
 
 
 
 
Cash paid for interest
 
$
14,394

 
$
16,390

Cash paid for taxes
 
$
56

 
$
5,953

Net loans and bank premises transferred to repossessed real estate and other assets
 
$
19,577

 
$
22,299

Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period
 
$
31,441

 
$
28,192

Conveyance of other real estate owned guaranteed by U.S. government agencies
 
$
9,100

 
$
11,155

See accompanying notes to consolidated financial statements.

- 51 -



Notes to Consolidated Financial Statements (Unaudited)

(1) Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed 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”), BOSC, 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, Bank of Kansas City, 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 2013 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 2013 have been derived from the audited financial statements included in BOK Financial’s 2013 Form 10-K but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the three-month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Newly Adopted and Pending Accounting Policies

Financial Accounting Standards Board (“FASB”)

FASB Accounting Standards Update No. 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements (ASU 2013-08)

On June 7, 2013, the FASB issued ASU 2013-08 which amends the criteria an entity would need to meet to qualify as an investment company under ASC 946, Financial Services - Investment Companies. ASU 2013-08 also provides additional implementation guidance for the assessment and requires additional disclosures. ASU 2013-08 was effective prospectively during interim and annual periods beginning after December 15, 2013, with early adoption prohibited. The adoption of ASU 2013-08 did not have a material impact on the Company's consolidated financial statements.

FASB Accounting Standards Update No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects (ASU 2014-01)

On January 15, 2014, the FASB issued ASU 2014-01 to simplify the amortization method an entity uses and modify the criteria to elect a measurement and presentation alternative, including the simplified amortization method, for certain investments in qualified affordable housing projects. This alternative permits the entity to present the investment's performance net of the related tax benefits as part of income tax expense. ASU 2014-01 is effective for the Company for interim and annual periods beginning after December 15, 2014. Early adoption is permitted. Adoption of ASU 2014-01 may affect income statement presentation, but otherwise is not expected to have a material impact on the Company's consolidated financial statements.


- 52 -



FASB Accounting Standards Update No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure

On January 17, 2014, the FASB issued ASU 2014-04 to clarify when an entity is considered to have obtained physical possession (from an in-substance possession or foreclosure) of a residential real estate property collateralizing a mortgage loan. Upon physical possession of such real property, an entity is required to reclassify the nonperforming mortgage loan to other real estate owned. ASU 2014-04 is effective for the Company for interim and annual periods beginning after December 15, 2014. Early adoption is permitted. Adoption of ASU 2014-04 is not expected to have a material impact on the Company's consolidated financial statements.

(2) Securities
Trading Securities
 
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
 
 
 
March 31, 2014
 
December 31, 2013
 
March 31, 2013
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair
Value
 
Net Unrealized Gain (Loss)
U.S. Government agency debentures
 
$
28,588

 
$
14

 
$
34,120

 
$
77

 
$
55,358

 
$
48

U.S. agency residential mortgage-backed securities
 
23,595

 
83

 
21,011

 
123

 
33,106

 
160

Municipal and other tax-exempt securities
 
27,280

 
58

 
27,350

 
(182
)
 
90,710

 
(10
)
Other trading securities
 
7,108

 
(19
)
 
9,135

 
(7
)
 
27,424

 
41

Total
 
$
86,571

 
$
136

 
$
91,616

 
$
11

 
$
206,598

 
$
239

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

 
 
March 31, 2014
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
440,303

 
$
440,303

 
$
441,532

 
$
3,182

 
$
(1,953
)
U.S. agency residential mortgage-backed securities – Other
 
44,489

 
45,917

 
47,834

 
1,957

 
(40
)
Other debt securities
 
182,756

 
182,756

 
195,697

 
13,114

 
(173
)
Total
 
$
667,548

 
$
668,976

 
$
685,063

 
$
18,253

 
$
(2,166
)
1 
Carrying value includes $1.4 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

- 53 -



 
 
December 31, 2013
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
440,187

 
$
440,187

 
$
439,870

 
$
2,452

 
$
(2,769
)
U.S. agency residential mortgage-backed securities – Other
 
48,351

 
50,182

 
51,864

 
1,738

 
(56
)
Other debt securities
 
187,509

 
187,509

 
195,393

 
8,497

 
(613
)
Total
 
$
676,047

 
$
677,878

 
$
687,127

 
$
12,687

 
$
(3,438
)
1 
Carrying value includes $1.8 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
 
 
March 31, 2013
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
339,003

 
$
339,003

 
$
341,940

 
$
3,518

 
$
(581
)
U.S. agency residential mortgage-backed securities – Other
 
69,075

 
72,968

 
76,851

 
3,883

 
—

Other debt securities
 
177,300

 
177,300

 
196,403

 
19,153

 
(50
)
Total
 
$
585,378

 
$
589,271

 
$
615,194

 
$
26,554

 
$
(631
)
1 
Carrying value includes $3.9 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

During the three months ended September 30, 2011, the Company transferred certain U.S. government agency residential mortgage-backed securities from the available for sale portfolio to the investment securities (held-to-maturity) portfolio as the Company has the positive intent and ability to hold these securities to maturity. No gains or losses were recognized in the Consolidated Statement of Earnings at the time of the transfer. Transfers of debt securities into the investment securities portfolio (held-to-maturity) are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the investment securities portfolio.  Such amounts are amortized over the estimated remaining life of the security as an adjustment to yield, offsetting the related amortization of the premium or accretion of the discount on the transferred securities. At the time of transfer, the fair value totaled $131 million, amortized cost totaled $118 million and the pretax unrealized gain totaled $13 million.


- 54 -



The amortized cost and fair values of investment securities at March 31, 2014, 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:
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value
 
$
39,986

 
$
311,019

 
$
50,118

 
$
39,180

 
$
440,303

 
4.21

Fair value
 
40,099

 
311,262

 
49,968

 
40,203

 
441,532

 
 
Nominal yield¹
 
2.61
%
 
1.72
%
 
2.91
%
 
5.35
%
 
2.26
%
 
 
Other debt securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
13,360

 
32,359

 
47,576

 
89,461

 
182,756

 
8.56

Fair value
 
13,416

 
33,002

 
49,626

 
99,653

 
195,697

 
 
Nominal yield
 
3.41
%
 
4.85
%
 
5.37
%
 
6.32
%
 
5.60
%
 
 
Total fixed maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
$
53,346

 
$
343,378

 
$
97,694

 
$
128,641

 
$
623,059

 
5.48

Fair value
 
53,515

 
344,264

 
99,594

 
139,856

 
637,229

 
 

Nominal yield
 
2.81
%
 
2.01
%
 
4.11
%
 
6.02
%
 
3.24
%
 
 

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
45,917

 
³

Fair value
 
 

 
 

 
 

 
 

 
47,834

 
 

Nominal yield4
 
 

 
 

 
 

 
 

 
2.73
%
 
 

Total investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
668,976

 
 

Fair value
 
 

 
 

 
 

 
 

 
685,063

 
 

Nominal yield
 
 

 
 

 
 

 
 

 
3.20
%
 
 

1 
Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 
Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
3 
The average expected lives of residential mortgage-backed securities were 3.0 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.

- 55 -



Available for Sale Securities 

The amortized cost and fair value of available for sale securities are as follows (in thousands):
 
 
March 31, 2014
 
 
Amortized
 
Fair
 
Gross Unrealized1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,033

 
$
1,034

 
$
1

 
$
—

 
$
—

Municipal and other tax-exempt
 
69,434

 
70,065

 
1,548

 
(917
)
 
—

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
4,380,066

 
4,409,566

 
65,393

 
(35,893
)
 
—

FHLMC
 
2,158,750

 
2,162,580

 
25,644

 
(21,814
)
 
—

GNMA
 
885,058

 
888,989

 
9,612

 
(5,681
)
 
—

Other
 
13,426

 
14,434

 
1,008

 
—

 
—

Total U.S. government agencies
 
7,437,300

 
7,475,569

 
101,657

 
(63,388
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
73,244

 
77,557

 
4,597

 
—

 
(284
)
Jumbo-A loans
 
106,258

 
111,691

 
5,741

 
—

 
(308
)
Total private issue
 
179,502

 
189,248

 
10,338

 
—

 
(592
)
Total residential mortgage-backed securities
 
7,616,802

 
7,664,817

 
111,995

 
(63,388
)
 
(592
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,159,704

 
2,123,762

 
1,329

 
(37,271
)
 
—

Other debt securities
 
35,031

 
35,119

 
275

 
(187
)
 
—

Perpetual preferred stock
 
22,171

 
24,281

 
2,110

 
—

 
—

Equity securities and mutual funds
 
14,102

 
14,645

 
602

 
(59
)
 
—

Total
 
$
9,918,277

 
$
9,933,723

 
$
117,860

 
$
(101,822
)
 
$
(592
)
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.

- 56 -



 
 
December 31, 2013
 
 
Amortized
 
Fair
 
Gross Unrealized¹
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,042

 
$
1,042

 
$
—

 
$
—

 
$
—

Municipal and other tax-exempt
 
73,232

 
73,775

 
1,606

 
(1,063
)
 
—

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
4,224,327

 
4,232,332

 
68,154

 
(60,149
)
 
—

FHLMC
 
2,308,341

 
2,293,943

 
25,813

 
(40,211
)
 
—

GNMA
 
1,151,225

 
1,152,128

 
9,435

 
(8,532
)
 
—

Other
 
36,296

 
37,607

 
1,311

 
—

 
—

Total U.S. government agencies
 
7,720,189

 
7,716,010

 
104,713

 
(108,892
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
104,559

 
107,212

 
4,386

 
—

 
(1,733
)
Jumbo-A loans
 
109,622

 
113,887

 
4,974

 
—

 
(709
)
Total private issue
 
214,181

 
221,099

 
9,360

 
—

 
(2,442
)
Total residential mortgage-backed securities
 
7,934,370

 
7,937,109

 
114,073

 
(108,892
)
 
(2,442
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,100,146

 
2,055,804

 
1,042

 
(45,384
)
 
—

Other debt securities
 
35,061

 
35,241

 
368

 
(188
)
 
—

Perpetual preferred stock
 
22,171

 
22,863

 
705

 
(13
)
 
—

Equity securities and mutual funds
 
19,069

 
21,328

 
2,326

 
(67
)
 
—

Total
 
$
10,185,091

 
$
10,147,162

 
$
120,120

 
$
(155,607
)
 
$
(2,442
)
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.

 
 
March 31, 2013
 
 
Amortized
 
Fair
 
Gross Unrealized1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,000

 
$
1,000

 
$
—

 
$
—

 
$
—

Municipal and other tax-exempt
 
84,831

 
85,447

 
2,377

 
(1,263
)
 
(498
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
5,036,888

 
5,161,971

 
127,362

 
(2,279
)
 
—

FHLMC
 
2,747,896

 
2,809,286

 
61,390

 
—

 
—

GNMA
 
1,044,086

 
1,060,870

 
16,784

 
—

 
—

Other
 
128,519

 
133,085

 
4,566

 
—

 
—

Total U.S. government agencies
 
8,957,389

 
9,165,212

 
210,102

 
(2,279
)
 
—

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
119,373

 
124,164

 
5,198

 
—

 
(407
)
Jumbo-A loans
 
188,065

 
192,044

 
6,032

 
(139
)
 
(1,914
)
Total private issue
 
307,438

 
316,208

 
11,230

 
(139
)
 
(2,321
)
Total residential mortgage-backed securities
 
9,264,827

 
9,481,420

 
221,332

 
(2,418
)
 
(2,321
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
1,402,594

 
1,405,346

 
4,693

 
(1,941
)
 
—

Other debt securities
 
35,650

 
36,079

 
635

 
(206
)
 
—

Perpetual preferred stock
 
22,171

 
26,832

 
4,661

 
—

 
—

Equity securities and mutual funds
 
19,452

 
23,021

 
3,574

 
(5
)
 
—

Total
 
$
10,830,525

 
$
11,059,145

 
$
237,272

 
$
(5,833
)
 
$
(2,819
)
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 -




The amortized cost and fair values of available for sale securities at March 31, 2014, 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
Maturity5
U.S. Treasuries:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$
1,033

 
$
—

 
$
—

 
$
—

 
$
1,033

 
0.88

Fair value
1,034

 
—

 
—

 
—

 
1,034

 
 
Nominal yield
0.24
%
 
—
%
 
—
%
 
—
%
 
0.24
%
 
 
Municipal and other tax-exempt:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
3,204

 
$
33,928

 
$
2,751

 
$
29,551

 
$
69,434

 
9.85

Fair value
3,245

 
35,096

 
2,967

 
28,757

 
70,065

 
 
Nominal yield¹
4.11
%
 
3.97
%
 
6.26
%
 
1.59
%
6 
3.05
%
 
 
Commercial mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$
—

 
$
738,616

 
$
1,059,505

 
$
361,583

 
$
2,159,704

 
9.02

Fair value
—

 
731,428

 
1,036,404

 
355,930

 
2,123,762

 
 
Nominal yield
—
%
 
1.25
%
 
1.47
%
 
1.26
%
 
1.36
%
 
 
Other debt securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
24,994

 
$
5,137

 
$
—

 
$
4,900

 
$
35,031

 
5.07

Fair value
25,194

 
5,213

 
—

 
4,712

 
35,119

 
 
Nominal yield
1.74
%
 
2.12
%
 
—
%
 
1.64
%
6 
1.78
%
 
 
Total fixed maturity securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
29,231

 
$
777,681

 
$
1,062,256

 
$
396,034

 
$
2,265,202

 
8.98

Fair value
29,473

 
771,737

 
1,039,371

 
389,399

 
2,229,980

 
 
Nominal yield
2.01
%
 
1.37
%
 
1.48
%
 
1.29
%
 
1.42
%
 
 
Residential mortgage-backed securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
 

 
 

 
 

 
 

 
$
7,616,802

 
2 

Fair value
 

 
 

 
 

 
 

 
7,664,817

 
 
Nominal yield4
 

 
 

 
 

 
 

 
1.87
%
 
 
Equity securities and mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Amortized cost
 

 
 

 
 

 
 

 
$
36,273

 
³

Fair value
 

 
 

 
 

 
 

 
38,926

 
 

Nominal yield
 

 
 

 
 

 
 

 
1.44
%
 
 

Total available-for-sale securities:
 

 
 

 
 

 
 

 
 
 
 

Amortized cost
 

 
 

 
 

 
 

 
$
9,918,277

 
 

Fair value
 

 
 

 
 

 
 

 
9,933,723

 
 

Nominal yield
 

 
 

 
 

 
 

 
1.76
%
 
 

1 
Calculated on a taxable equivalent basis using a 39% effective tax rate.
2 
The average expected lives of mortgage-backed securities were 3.5 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.


- 58 -



Sales of available for sale securities resulted in gains and losses as follows (in thousands):
 
Three Months Ended
 
March 31,
 
2014
 
2013
Proceeds
$
531,385

 
$
728,424

Gross realized gains
6,433

 
5,792

Gross realized losses
(5,193
)
 
(936
)
Related federal and state income tax expense
482

 
1,889


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):
 
March 31,
2014
 
December 31,
2013
 
March 31,
2013
Investment:
 
 
 
 
 
Carrying value
$
87,757

 
$
89,087

 
$
112,990

Fair value
90,765

 
91,804

 
118,054

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
Amortized cost
5,177,411

 
5,171,782

 
4,415,455

Fair value
5,169,432

 
5,133,530

 
4,524,553


The secured parties do not have the right to sell or re-pledge these securities. In addition, securities may be pledged as collateral on a line of credit for the trading activities of BOSC, Inc. Under the terms of the credit agreement, the creditor has the right to sell or repledge the collateral. There were no securities pledged under this line of credit at March 31, 2014, December 31, 2013 or March 31, 2013.


- 59 -



Temporarily Impaired Securities as of March 31, 2014
(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
 
96

 
$
78,833

 
$
601

 
$
117,909

 
$
1,352

 
$
196,742

 
$
1,953

U.S. Agency residential mortgage-backed securities – Other
 
1

 
9,645

 
40

 
—

 
—

 
9,645

 
40

Other debt securities
 
31

 
12,516

 
130

 
798

 
43

 
13,314

 
173

Total investment
 
128

 
$
100,994

 
$
771

 
$
118,707

 
$
1,395

 
$
219,701

 
$
2,166


 
 
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:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Municipal and other tax-exempt
 
29

 
$
13,750

 
$
198

 
$
16,601

 
$
719

 
$
30,351

 
$
917

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

 


 


U. S. agencies:
 
 
 
 

 
 

 
 

 
 

 


 


FNMA
 
77

 
2,075,587

 
35,893

 
—

 
—

 
2,075,587

 
35,893

FHLMC
 
45

 
1,236,653

 
21,814

 
—

 
—

 
1,236,653

 
21,814

GNMA
 
14

 
423,725

 
5,681

 
—

 
—

 
423,725

 
5,681

Total U.S. agencies
 
136

 
3,735,965

 
63,388

 
—

 
—

 
3,735,965

 
63,388

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
5

 
—

 
—

 
15,725

 
284

 
15,725

 
284

Jumbo-A loans
 
8

 
11,744

 
308

 
—

 
—

 
11,744

 
308

Total private issue
 
13

 
11,744

 
308

 
15,725

 
284

 
27,469

 
592

Total residential mortgage-backed securities
 
149

 
3,747,709

 
63,696

 
15,725

 
284

 
3,763,434

 
63,980

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
128

 
1,545,035

 
30,151

 
207,246

 
7,120

 
1,752,281

 
37,271

Other debt securities
 
3

 
481

 
19

 
4,231

 
168

 
4,712

 
187

Perpetual preferred stocks
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity securities and mutual   funds
 
106

 
1,778

 
48

 
172

 
11

 
1,950

 
59

Total available for sale
 
415

 
$
5,308,753


$
94,112


$
243,975


$
8,302


$
5,552,728


$
102,414

1Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income:
Alt-A loans
 
5

 
—

 
—

 
15,725

 
284

 
15,725

 
284

Jumbo-A loans
 
8

 
11,744

 
308

 
—

 
—

 
11,744

 
308


- 60 -



Temporarily Impaired Securities as of December 31, 2013
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
107

 
$
166,382

 
$
1,921

 
$
53,073

 
$
848

 
$
219,455

 
$
2,769

U.S. Agency residential mortgage-backed securities – Other
 
2

 
15,224

 
56

 
—

 
—

 
15,224

 
56

Other debt securities
 
30

 
10,932

 
549

 
777

 
64

 
11,709

 
613

Total investment
 
139

 
$
192,538

 
$
2,526

 
$
53,850

 
$
912

 
$
246,388

 
$
3,438


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

 
 

 
 

 
 

 
 

 


 


Municipal and other tax-exempt
 
27

 
$
13,286

 
$
245

 
$
17,805

 
$
818

 
$
31,091

 
$
1,063

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
81

 
2,281,491

 
60,149

 
—

 
—

 
2,281,491

 
60,149

FHLMC
 
50

 
1,450,588

 
40,211

 
—

 
—

 
1,450,588

 
40,211

GNMA
 
27

 
647,058

 
8,532

 
—

 
—

 
647,058

 
8,532

Total U.S. agencies
 
158

 
4,379,137

 
108,892

 
—

 
—

 
4,379,137

 
108,892

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
7

 
11,043

 
756

 
30,774

 
977

 
41,817

 
1,733

Jumbo-A loans
 
9

 
14,642

 
709

 
—

 
—

 
14,642

 
709

Total private issue
 
16

 
25,685

 
1,465

 
30,774

 
977

 
56,459

 
2,442

Total residential mortgage-backed securities
 
174

 
4,404,822

 
110,357

 
30,774

 
977

 
4,435,596

 
111,334

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
123

 
1,800,717

 
45,302

 
2,286

 
82

 
1,803,003

 
45,384

Other debt securities
 
3

 
4,712

 
188

 
—

 
—

 
4,712

 
188

Perpetual preferred stocks
 
1

 
4,988

 
13

 
—

 
—

 
4,988

 
13

Equity securities and mutual funds
 
118

 
2,070

 
67

 
—

 
—

 
2,070

 
67

Total available for sale
 
446

 
$
6,230,595

 
$
156,172

 
$
50,865

 
$
1,877

 
$
6,281,460

 
$
158,049

1 
Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income:
Alt-A loans
 
7

 
$
11,043

 
$
756

 
$
30,774

 
$
977

 
$
41,817

 
$
1,733

Jumbo-A loans
 
9

 
14,642

 
709

 
—

 
—

 
14,642

 
709



- 61 -



Temporarily Impaired Securities as of March 31, 2013
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
63

 
$
141,778

 
$
581

 
$
—

 
$
—

 
$
141,778

 
$
581

U.S. Agency residential mortgage-backed securities – Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other debt securities
 
14

 
852

 
50

 
—

 
—

 
852

 
50

Total investment
 
77

 
$
142,630

 
$
631

 
$
—

 
$
—

 
$
142,630

 
$
631


 
 
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:
 
 

 
 

 
 

 
 

 
 

 


 


Municipal and other tax-exempt1
 
53

 
$
10,390

 
$
397

 
$
29,724

 
$
1,364

 
$
40,114

 
$
1,761

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
26

 
875,087

 
2,279

 
—

 
—

 
875,087

 
2,279

FHLMC
 
—

 
—

 
—

 
—

 
—

 
—

 
—

GNMA
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total U.S. agencies
 
26

 
875,087

 
2,279

 
—

 
—

 
875,087

 
2,279

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
1

 
—

 
—

 
3,500

 
407

 
3,500

 
407

Jumbo-A loans
 
11

 
39,462

 
1,327

 
26,440

 
726

 
65,902

 
2,053

Total private issue
 
12

 
39,462

 
1,327

 
29,940

 
1,133

 
69,402

 
2,460

Total residential mortgage-backed securities
 
38

 
914,549

 
3,606

 
29,940

 
1,133

 
944,489

 
4,739

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
49

 
604,290

 
1,941

 
—

 
—

 
604,290

 
1,941

Other debt securities
 
4

 
4,712

 
187

 
481

 
19

 
5,193

 
206

Perpetual preferred stocks
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity securities and mutual funds
 
3

 
598

 
5

 
—

 
—

 
598

 
5

Total available for sale
 
147

 
$
1,534,539

 
$
6,136

 
$
60,145

 
$
2,516

 
$
1,594,684

 
$
8,652

1 
Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income:
Municipal and other tax-exempt
 
21

 
$
7,424

 
$
310

 
$
4,462

 
$
188

 
$
11,886

 
$
498

Alt-A loans
 
1

 
—

 
—

 
3,500

 
407

 
3,500

 
407

Jumbo-A loans
 
10

 
39,462

 
1,327

 
13,248

 
587

 
52,710

 
1,914


On a quarterly basis, the Company performs separate evaluations of impaired debt and equity investments and available for sale securities to determine if the unrealized losses are temporary.
 

- 62 -



For debt securities, management determines whether it intends to sell or if it is more-likely-than-not that it will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. Based on this evaluation as of March 31, 2014, 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.

Impairment of debt securities rated investment grade by all nationally-recognized rating agencies are considered temporary unless specific contrary information is identified. None of the debt securities rated investment grade were considered to be other-than-temporarily impaired at March 31, 2014.

- 63 -



At March 31, 2014, the composition of the Company’s investment and available for sale securities portfolios by the lowest current credit rating assigned by any of the three nationally-recognized rating agencies is as follows (in thousands):
 
 
 
U.S. Govt / GSE 1
 

AAA - AA
 
 
A - BBB
 
 
Below Investment Grade
 
 
Not Rated
 
 
Total
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
$
—

 
$
—

 
$
280,508

 
$
279,497

 
$
18,107

 
$
18,298

 
$
—

 
$
—

 
$
141,688

 
$
143,737

 
$
440,303

 
$
441,532

Mortgage-backed securities -- other
 
45,917

 
47,834

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
45,917

 
47,834

Other debt securities
 
—

 
—

 
160,353

 
173,378

 
—

 
—

 
—

 
—

 
22,403

 
22,319

 
182,756

 
195,697

Total investment securities
 
$
45,917

 
$
47,834

 
$
440,861

 
$
452,875

 
$
18,107

 
$
18,298

 
$
—

 
$
—

 
$
164,091

 
$
166,056

 
$
668,976

 
$
685,063

 
 
U.S. Govt / GSE 1
 
AAA - AA
 
 
A - BBB
 
Below Investment Grade
 
Not Rated
 
Total
 
 
Amortized Cost
 
Fair
Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair
Value
Available for Sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
1,033

 
$
1,034

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,033

 
$
1,034

Municipal and other tax-exempt
 
—

 
—

 
46,208

 
47,268

 
11,491

 
11,206

 
—

 
—

 
11,735

 
11,591

 
69,434

 
70,065

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
4,380,066

 
4,409,566

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4,380,066

 
4,409,566

FHLMC
 
2,158,750

 
2,162,580

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,158,750

 
2,162,580

GNMA
 
885,058

 
888,989

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
885,058

 
888,989

Other
 
13,426

 
14,434

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
13,426

 
14,434

Total U.S. government agencies
 
7,437,300

 
7,475,569

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7,437,300

 
7,475,569

Private issue:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
73,244

 
77,557

 
—

 
—

 
73,244

 
77,557

Jumbo-A loans
 
—

 
—

 
—

 
—

 
—

 
—

 
106,258

 
111,691

 
—

 
—

 
106,258

 
111,691

Total private issue
 
—

 
—

 
—

 
—

 
—

 
—

 
179,502

 
189,248

 
—

 
—

 
179,502

 
189,248

Total residential mortgage-backed securities
 
7,437,300

 
7,475,569

 
—

 
—

 
—

 
—

 
179,502

 
189,248

 
—

 
—

 
7,616,802

 
7,664,817

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,159,704

 
2,123,762

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,159,704

 
2,123,762

Other debt securities
 
—

 
—

 
4,900

 
4,712

 
30,131

 
30,407

 
—

 
—

 
—

 
—

 
35,031

 
35,119

Perpetual preferred stock
 
—

 
—

 
—

 
—

 
11,406

 
12,469

 
10,765

 
11,812

 
—

 
—

 
22,171

 
24,281

Equity securities and mutual funds
 
—

 
—

 
4

 
462

 
—

 
—

 
—

 
—

 
14,098

 
14,183

 
14,102

 
14,645

Total available for sale securities
 
$
9,598,037

 
$
9,600,365

 
$
51,112

 
$
52,442

 
$
53,028

 
$
54,082

 
$
190,267

 
$
201,060

 
$
25,833

 
$
25,774

 
$
9,918,277

 
$
9,933,723

1 
U.S. government and government sponsored enterprises are not rated by the nationally-recognized rating agencies as these securities are guaranteed by agencies of the U.S. government or government-sponsored enterprises.

- 64 -



At March 31, 2014, the entire portfolio of privately issued residential mortgage-backed securities was rated below investment grade. The gross unrealized loss on these securities totaled $592 thousand. Ratings by the nationally-recognized rating agencies are subjective in nature and accordingly ratings can vary significantly amongst the agencies. Limitations generally expressed by the rating agencies include statements that ratings do not predict the specific percentage default likelihood over any given period of time and that ratings do not opine on expected loss severity of an obligation should the issuer default. As such, the impairment of securities rated below investment grade was evaluated to determine if we expect not to recover the entire amortized cost basis of the security. This evaluation was based on projections of estimated cash flows based on individual loans underlying each security using current and anticipated increases in unemployment and default rates, decreases in housing prices and estimated liquidation costs at foreclosure.

The primary assumptions used in this evaluation were:

 
March 31,
2014
 
December 31,
2013
 
March 31,
2013
 
 
 
 
 
 
Unemployment rate
Held constant at 7.3% over the next 12 months and remains at 7.3% thereafter.
 
Increasing to 7.3% over the next 12 months and remain at 7.3% thereafter.
 
Increasing to 8% over the next 12 months and remain at 8% thereafter.
Housing price appreciation/depreciation
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 4% over the next 12 months, then flat for the following 12 months and then appreciating at 2% per year thereafter.
 
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 4% over the next 12 months, then flat for the following 12 months and then appreciating at 2% per year thereafter.
 
Starting with current depreciated housing prices based on information derived from the FHFA1, depreciating 2% over the next 12 months, then flat for he following 12 months and then appreciating at 2% per year thereafter.
Estimated liquidation costs
Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.
 
Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.
 
Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.
Discount rates
Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.
 
Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.
 
Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.
1 
Federal Housing Finance Agency

We also consider the current loan-to-value ratio and remaining credit enhancement as part of the assessment of the cash flows available to recover the amortized cost of the debt securities. Each factor is considered in the evaluation.

The Company calculates the current loan-to-value ratio for each mortgage-backed security using loan-level data. The current loan-to-value ratio is the current outstanding loan amount divided by an estimate of the current home value. The current home value is derived from FHFA data. FHFA provides historical information on home price depreciation at both the Metropolitan Statistical Area and state level.  This information is matched to each loan to estimate the home price depreciation. Data is accumulated from the loan level to determine the current loan-to-value ratio for the security as a whole.

Remaining credit enhancement is the amount of credit enhancement available to absorb current projected losses within the pool of loans that support the security. The Company acquires the benefit of credit enhancement by investing in senior or super-senior tranches for many of our residential mortgage-backed securities. Subordinated tranches held by other investors are specifically designed to absorb losses before the senior or super-senior tranches, which effectively increases the typical credit support for these types of bonds. Current projected losses consider depreciation of home prices based on FHFA data, estimated costs and additional losses to liquidate collateral and delinquency status of the individual loans underlying the security.

Credit loss impairment is recorded as a charge to earnings. Additional impairment based on the difference between the total unrealized loss and the estimated credit loss on these securities is charged against other comprehensive income, net of deferred taxes. No credit loss impairments were recognized in earnings on privately issued residential mortgage-backed securities during the three months ended March 31, 2014.


- 65 -



A distribution of the amortized cost (after recognition of the other-than-temporary impairment), fair value and credit loss impairments recognized on our privately issued residential mortgage-backed securities is as follows (in thousands, except for number of securities):
 
 
 
 
 
 
 
 
Credit Losses Recognized
 
 
 
 
 
 
 
 
Three months ended
 
 
 
 
 
 
 
 
 
 
March 31, 2014
 
Life-to-date
 
 
Number of Securities
 
Amortized Cost
 
Fair Value
 
Number of
Securities
 
Amount
 
Number of Securities
 
Amount
Alt-A
 
14

 
$
73,244

 
$
77,557

 
—

 
$
—

 
14

 
$
36,127

Jumbo-A
 
31

 
106,258

 
111,691

 
—

 
—

 
29

 
18,220

Total
 
45

 
$
179,502

 
$
189,248

 
—

 
$
—

 
43

 
$
54,347


Impaired equity securities, including perpetual preferred stocks, are evaluated based on management's ability and intent to hold the securities until fair value recovers over periods not to exceed three years. The assessment of the ability and intent to hold these securities focuses on the liquidity needs, asset/liability management objectives and securities portfolio objectives. Factors considered when assessing recovery include forecasts of general economic conditions and specific performance of the issuer, analyst ratings and credit spreads for preferred stocks which have debt-like characteristics. The Company has evaluated the near-term prospects of the investments in relation to the severity and duration of the impairment and based on that evaluation has the ability and intent to hold these investments until a recovery in fair value. Accordingly, all impairment of equity securities was considered temporary at March 31, 2014.

The following is a tabular roll forward of the amount of credit-related OTTI recognized on available for sale debt securities in earnings (in thousands):
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Balance of credit-related OTTI recognized on available for sale debt, beginning of period
 
$
67,346

 
$
75,228

Additions for credit-related OTTI not previously recognized
 
—

 
—

Additions for increases in credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost
 
—

 
247

Reductions for change in intent to hold before recovery
 
—

 
—

Sales
 
(12,999
)
 
—

Balance of credit-related OTTI recognized on available for sale debt securities, end of period
 
$
54,347

 
$
75,475


Additions above exclude other-than-temporary impairment recorded due to change in intent to hold before recovery.

- 66 -



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 residential mortgage-backed securities issued by U.S. government agencies and derivative contracts are held as an economic hedge of the mortgage servicing rights. In addition, certain corporate debt securities are economically hedged by derivative contracts to manage interest rate risk. Derivative contracts that have not been designated as hedging instruments effectively modify these fixed rate securities into variable rate securities.

The fair value and net unrealized gain (loss) included in fair value option securities is as follows (in thousands):
 
 
March 31, 2014
 
December 31, 2013
 
March 31, 2013
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain
 
Fair
Value
 
Net Unrealized Gain
U.S. agency residential mortgage-backed securities
 
$
156,525

 
$
(5,794
)
 
$
157,431

 
$
(8,378
)
 
$
208,900

 
$
726

Other securities
 
4,359

 
284

 
9,694

 
209

 
1,292

 
46

Total
 
$
160,884

 
$
(5,510
)
 
$
167,125

 
$
(8,169
)
 
$
210,192

 
$
772



Restricted Equity Securities

Restricted equity securities include stock we are required to hold as members of the Federal Reserve system and the Federal Home Loan Banks ("FHLB"). Restricted equity securities are carried at cost as theses securities do not have a readily determined fair value because ownership of these shares are restricted and lacks a market. A summary of restricted equity securities follows (in thousands):

 
March 31, 2014
 
December 31, 2013
 
March 31, 2013
Federal Reserve stock
$
33,741

 
$
33,742

 
$
33,695

Federal Home Loan Bank stock
51,902

 
51,498

 
86,293

Total
$
85,643

 
$
85,240

 
$
119,988



- 67 -



(3) Derivatives
 
Derivative instruments may be used by the Company as part of its interest rate risk management programs or may be offered to customers. All derivative instruments are carried at fair value 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. As of March 31, 2014, a decrease in BOK Financial's credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $26 million.
 
None of these derivative contracts have been designated as hedging instruments.

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, and foreign exchange rates, or to take positions in 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.
 
Interest Rate Risk Management Programs
 
BOK Financial may use derivative contracts in managing its interest rate sensitivity and as part of its economic hedge of the change in the fair value of mortgage servicing rights. Interest rate swaps are generally used to reduce overall asset sensitivity by converting specific fixed-rate liabilities to floating-rate based on LIBOR. As of March 31, 2014, BOK Financial had interest rate swaps with a notional value of $47 million used as part of the economic hedge of the change in the fair value of the mortgage servicing rights.

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. Forward sales contracts are not considered swaps under the Commodity and Futures Trading Commission final rules.



- 68 -



The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at March 31, 2014 (in thousands):
 
 
Assets
 
 
Notional1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
10,859,613

 
$
30,897

 
$
(20,219
)
 
$
10,678

 
$
—

 
$
10,678

Interest rate swaps
 
1,266,880

 
41,331

 
—

 
41,331

 
—

 
41,331

Energy contracts
 
1,207,861

 
53,440

 
(27,112
)
 
26,328

 
—

 
26,328

Agricultural contracts
 
111,960

 
4,208

 
(1,875
)
 
2,333

 
—

 
2,333

Foreign exchange contracts
 
123,278

 
123,278

 
—

 
123,278

 
—

 
123,278

Equity option contracts
 
208,977

 
17,939

 
—

 
17,939

 
(3,380
)
 
14,559

Total customer risk management programs
 
13,778,569

 
271,093

 
(49,206
)
 
221,887

 
(3,380
)
 
218,507

Interest rate risk management programs
 
—

 
—

 
—

 
—

 
—

 
—

Total derivative contracts
 
$
13,778,569

 
$
271,093

 
$
(49,206
)
 
$
221,887

 
$
(3,380
)
 
$
218,507

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
11,398,442

 
$
27,966

 
$
(20,219
)
 
$
7,747

 
$
—

 
$
7,747

Interest rate swaps
 
1,266,880

 
41,596

 
—

 
41,596

 
(17,388
)
 
24,208

Energy contracts
 
1,134,208

 
51,308

 
(27,112
)
 
24,196

 
(14,202
)
 
9,994

Agricultural contracts
 
105,518

 
4,174

 
(1,875
)
 
2,299

 
(2,287
)
 
12

Foreign exchange contracts
 
122,939

 
122,939

 
—

 
122,939

 
—

 
122,939

Equity option contracts
 
208,977

 
17,939

 
—

 
17,939

 
—

 
17,939

Total customer risk management programs
 
14,236,964

 
265,922

 
(49,206
)
 
216,716

 
(33,877
)
 
182,839

Interest rate risk management programs
 
47,000

 
2,660

 
—

 
2,660

 
—

 
2,660

Total derivative contracts
 
$
14,283,964

 
$
268,582

 
$
(49,206
)
 
$
219,376

 
$
(33,877
)
 
$
185,499

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



- 69 -



The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2013 (in thousands):

 
 
Assets
 
 
Notional
 
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
 
$
10,817,159

 
$
102,921

 
$
(46,623
)
 
$
56,298

 
$
—

 
$
56,298

Interest rate swaps
 
1,283,379

 
44,124

 
—

 
44,124

 
(731
)
 
43,393

Energy contracts
 
1,263,266

 
48,078

 
(29,957
)
 
18,121

 
(2,575
)
 
15,546

Agricultural contracts
 
100,886

 
2,060

 
(1,166
)
 
894

 
—

 
894

Foreign exchange contracts
 
136,543

 
136,543

 
—

 
136,543

 
(2,147
)
 
134,396

Equity option contracts
 
210,816

 
17,957

 
—

 
17,957

 
(3,472
)
 
14,485

Total customer risk management programs
 
13,812,049

 
351,683

 
(77,746
)
 
273,937

 
(8,925
)
 
265,012

Interest rate risk management programs
 
—

 
—

 
—

 
—

 
—

 
—

Total derivative contracts
 
$
13,812,049

 
$
351,683

 
$
(77,746
)
 
$
273,937

 
$
(8,925
)
 
$
265,012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
Notional
 
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
 
$
10,982,049

 
$
99,830

 
$
(46,623
)
 
$
53,207

 
$
—

 
$
53,207

Interest rate swaps
 
1,283,379

 
44,377

 
—

 
44,377

 
(17,853
)
 
26,524

Energy contracts
 
1,216,426

 
46,095

 
(29,957
)
 
16,138

 
(6,055
)
 
10,083

Agricultural contracts
 
99,191

 
2,009

 
(1,166
)
 
843

 
—

 
843

Foreign exchange contracts
 
135,237

 
135,237

 
—

 
135,237

 
(294
)
 
134,943

Equity option contracts
 
210,816

 
17,957

 
—

 
17,957

 
—

 
17,957

Total customer risk management programs
 
13,927,098

 
345,505

 
(77,746
)
 
267,759

 
(24,202
)
 
243,557

Interest rate risk management programs
 
47,000

 
3,628

 
—

 
3,628

 
—

 
3,628

Total derivative contracts
 
$
13,974,098

 
$
349,133

 
$
(77,746
)
 
$
271,387

 
$
(24,202
)
 
$
247,185

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





- 70 -



The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at March 31, 2013 (in thousands):
 
 
Assets
 
 
Notional1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
12,428,736

 
$
59,599

 
$
(21,727
)
 
$
37,872

 
$
—

 
$
37,872

Interest rate swaps
 
1,380,439

 
65,654

 
—

 
65,654

 
—

 
65,654

Energy contracts
 
1,415,266

 
62,426

 
(35,440
)
 
26,986

 
(1,622
)
 
25,364

Agricultural contracts
 
167,652

 
4,174

 
(3,444
)
 
730

 
—

 
730

Foreign exchange contracts
 
176,617

 
176,617

 
—

 
176,617

 
—

 
176,617

Equity option contracts
 
212,147

 
14,054

 
—

 
14,054

 
—

 
14,054

Total customer risk management programs
 
15,780,857

 
382,524

 
(60,611
)
 
321,913

 
(1,622
)
 
320,291

Interest rate risk management programs
 
22,000

 
182

 
—

 
182

 
—

 
182

Total derivative contracts
 
$
15,802,857

 
$
382,706

 
$
(60,611
)
 
$
322,095

 
$
(1,622
)
 
$
320,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
12,827,390

 
$
56,565

 
$
(21,727
)
 
$
34,838

 
$
(21,657
)
 
$
13,181

Interest rate swaps
 
1,380,439

 
66,149

 
—

 
66,149

 
(35,127
)
 
31,022

Energy contracts
 
1,388,495

 
62,185

 
(35,440
)
 
26,745

 
(10,433
)
 
16,312

Agricultural contracts
 
167,642

 
4,157

 
(3,444
)
 
713

 
—

 
713

Foreign exchange contracts
 
176,170

 
176,170

 
—

 
176,170

 
—

 
176,170

Equity option contracts
 
212,147

 
14,054

 
—

 
14,054

 
—

 
14,054

Total customer risk management programs
 
16,152,283

 
379,280

 
(60,611
)
 
318,669

 
(67,217
)
 
251,452

Interest rate risk management programs
 
25,000

 
384

 
—

 
384

 
—

 
384

Total derivative contracts
 
$
16,177,283

 
$
379,664

 
$
(60,611
)
 
$
319,053

 
$
(67,217
)
 
$
251,836

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







- 71 -



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
 
 
March 31, 2014
 
March 31, 2013
 
 
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
 
$
(160
)
 
$
—

 
$
(15
)
 
$
—

Interest rate swaps
 
507

 
—

 
767

 
—

Energy contracts
 
871

 
—

 
1,783

 
—

Agricultural contracts
 
63

 
—

 
108

 
—

Foreign exchange contracts
 
219

 
—

 
188

 
—

Equity option contracts
 
—

 
—

 
—

 
—

Total customer risk management programs
 
1,500

 
—

 
2,831

 
—

Interest Rate Risk Management Programs
 
—

 
968

 
—

 
6,118

Total Derivative Contracts
 
$
1,500

 
$
968

 
$
2,831

 
$
6,118


Net interest revenue was not significantly impacted by the settlement of amounts receivable or payable on interest rate swaps for the three months ended March 31, 2014 and 2013, respectively. 

- 72 -



(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. 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 then 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 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. 


- 73 -



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

 
 
March 31, 2014
 
December 31, 2013
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,649,164

 
$
6,383,495

 
$
19,047

 
$
8,051,706

 
$
1,637,620

 
$
6,288,841

 
$
16,760

 
$
7,943,221

Commercial real estate
 
764,688

 
1,827,414

 
39,305

 
2,631,407

 
770,908

 
1,603,595

 
40,850

 
2,415,353

Residential mortgage
 
1,749,693

 
223,602

 
45,380

 
2,018,675

 
1,783,615

 
226,092

 
42,319

 
2,052,026

Consumer
 
125,757

 
249,335

 
974

 
376,066

 
135,494

 
244,950

 
1,220

 
381,664

Total
 
$
4,289,302

 
$
8,683,846

 
$
104,706

 
$
13,077,854

 
$
4,327,637

 
$
8,363,478

 
$
101,149

 
$
12,792,264

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
1,991

 
 

 
 

 
 

 
$
1,415

 
 
March 31, 2013
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,382,309

 
$
6,016,135

 
$
19,861

 
$
7,418,305

Commercial real estate
 
712,275

 
1,507,710

 
65,175

 
2,285,160

Residential mortgage
 
1,732,058

 
234,966

 
45,426

 
2,012,450

Consumer
 
154,079

 
221,399

 
2,171

 
377,649

Total
 
$
3,980,721

 
$
7,980,210

 
$
132,633

 
$
12,093,564

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
4,229

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

At March 31, 2014, $4.4 billion or 34% of our total loan portfolio is to businesses and individuals attributed to the Texas market and $3.2 billion or 24% 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 on-going relationships based on a thorough knowledge of the customer, the customer’s industry and market. While commercial loans are generally secured by the customer’s assets including real property, inventory, accounts receivable, operating equipment, interest in mineral rights and other property and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the on-going cash flow from operations of the customer’s business. Inherent lending risk is centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with commercial lending policies.

At March 31, 2014, commercial loans attributed to the Texas market totaled $2.9 billion or 36% of the commercial loan portfolio segment and commercial loans attributed to the Oklahoma market totaled $1.8 billion or 22% of the commercial loan portfolio segment.

The commercial loan portfolio segment is further divided into loan classes. The energy loan class totaled $2.3 billion or 18% of total loans at March 31, 2014, including $2.1 billion of outstanding loans to energy producers. Approximately 59% of committed production loans are secured by properties primarily producing oil and 41% are secured by properties producing natural gas. The services loan class totaled $2.2 billion at March 31, 2014. Approximately $1.2 billion of loans in the services category consist of loans with individual balances of less than $10 million.  Businesses included in the services class include gaming, educational, public finance, insurance and community foundations.


- 74 -



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 March 31, 2014, 32% of commercial real estate loans are secured by properties primarily located in the Dallas and Houston areas of Texas. An additional 17% of commercial real estate loans are secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma. 

Residential Mortgage and Consumer

Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. Residential mortgage loans are secured by a first or second mortgage on the customer’s primary residence. Consumer loans include direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as other unsecured loans. Consumer loans also include indirect automobile loans made through primary dealers. Residential mortgage and consumer loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability. Residential mortgage loans retained in the Company’s portfolio are primarily composed of various mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth individuals and certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. Jumbo loans generally conform to government sponsored entity standards, except that the loan size exceeds maximums required under these standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38%.  Loan-to-value (“LTV”) ratios are tiered from 60% to 100%, depending on the market. Special mortgage programs include fixed and variable fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter. 

At March 31, 2014, residential mortgage loans included $185 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 $800 million at March 31, 2014. Approximately, 70% of the home equity loan portfolio is comprised of first lien loans and 30% of the home equity portfolio is comprised of junior lien loans. Junior lien loans are distributed 74% to amortizing term loans and 26% to revolving lines of credit. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 40%. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 5 year revolving period followed by 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 March 31, 2014, outstanding commitments totaled $7.2 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.


- 75 -



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 March 31, 2014, outstanding standby letters of credit totaled $440 million. Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At March 31, 2014, outstanding commercial letters of credit totaled $12 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 on-going 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 months ended March 31, 2014.

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.


- 76 -



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 March 31, 2014 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Consumer
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
79,180

 
$
41,573

 
$
29,465

 
$
6,965

 
$
28,213

 
$
185,396

Provision for loan losses
 
4,225

 
(1,591
)
 
(516
)
 
(460
)
 
(1,248
)
 
410

Loans charged off
 
(144
)
 
(220
)
 
(996
)
 
(1,488
)
 
—

 
(2,848
)
Recoveries
 
1,985

 
1,827

 
354

 
1,194

 
—

 
5,360

Ending balance
 
$
85,246

 
$
41,589

 
$
28,307

 
$
6,211

 
$
26,965

 
$
188,318

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
119

 
$
1,876

 
$
90

 
$
3

 
$
—

 
$
2,088

Provision for off-balance sheet credit losses
 
457

 
(836
)
 
(28
)
 
(3
)
 
—

 
(410
)
Ending balance
 
$
576

 
$
1,040

 
$
62

 
$
—

 
$
—

 
$
1,678

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
4,682

 
$
(2,427
)
 
$
(544
)
 
$
(463
)
 
$
(1,248
)
 
$
—





- 77 -



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 March 31, 2013 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Consumer
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
65,280

 
$
54,884

 
$
41,703

 
$
9,453

 
$
44,187

 
$
215,507

Provision for loan losses
 
(1,956
)
 
(2,680
)
 
(274
)
 
(905
)
 
(1,375
)
 
(7,190
)
Loans charged off
 
(298
)
 
(4,800
)
 
(1,779
)
 
(2,032
)
 
—

 
(8,909
)
Recoveries
 
3,393

 
1,124

 
572

 
1,468

 
—

 
6,557

Ending balance
 
$
66,419

 
$
48,528

 
$
40,222

 
$
7,984

 
$
42,812

 
$
205,965

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
475

 
$
1,353

 
$
78

 
$
9

 
$
—

 
$
1,915

Provision for off-balance sheet credit losses
 
(70
)
 
(735
)
 
(6
)
 
1

 
—

 
(810
)
Ending balance
 
$
405

 
$
618

 
$
72

 
$
10

 
$
—

 
$
1,105

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
(2,026
)
 
$
(3,415
)
 
$
(280
)
 
$
(904
)
 
$
(1,375
)
 
$
(8,000
)



The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at March 31, 2014 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
8,032,659

 
$
81,813

 
$
19,047

 
$
3,433

 
$
8,051,706

 
$
85,246

Commercial real estate
 
2,592,102

 
41,404

 
39,305

 
185

 
2,631,407

 
41,589

Residential mortgage
 
1,973,295

 
27,766

 
45,380

 
541

 
2,018,675

 
28,307

Consumer
 
375,092

 
6,211

 
974

 
—

 
376,066

 
6,211

Total
 
12,973,148

 
157,194

 
104,706

 
4,159

 
13,077,854

 
161,353

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
26,965

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,973,148

 
$
157,194

 
$
104,706

 
$
4,159

 
$
13,077,854

 
$
188,318




- 78 -



The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2013 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
7,926,461

 
$
78,607

 
$
16,760

 
$
573

 
$
7,943,221

 
$
79,180

Commercial real estate
 
2,374,503

 
41,440

 
40,850

 
133

 
2,415,353

 
41,573

Residential mortgage
 
2,010,483

 
29,217

 
41,543

 
248

 
2,052,026

 
29,465

Consumer
 
380,445

 
6,965

 
1,219

 
—

 
381,664

 
6,965

Total
 
12,691,892

 
156,229

 
100,372

 
954

 
12,792,264

 
157,183

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,213

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,691,892

 
$
156,229

 
$
100,372

 
$
954

 
$
12,792,264

 
$
185,396



The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at March 31, 2013 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
7,398,444

 
$
66,071

 
$
19,861

 
$
348

 
$
7,418,305

 
$
66,419

Commercial real estate
 
2,219,985

 
48,270

 
65,175

 
258

 
2,285,160

 
48,528

Residential mortgage
 
1,967,238

 
39,923

 
45,212

 
299

 
2,012,450

 
40,222

Consumer
 
375,477

 
7,862

 
2,172

 
122

 
377,649

 
7,984

Total
 
11,961,144

 
162,126

 
132,420

 
1,027

 
12,093,564

 
163,153

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
42,812

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,961,144

 
$
162,126

 
$
132,420

 
$
1,027

 
$
12,093,564

 
$
205,965


- 79 -



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 March 31, 2014 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
8,029,443

 
$
84,333

 
$
22,263

 
$
913

 
$
8,051,706

 
$
85,246

Commercial real estate
 
2,631,407

 
41,589

 
—

 
—

 
2,631,407

 
41,589

Residential mortgage
 
209,608

 
4,695

 
1,809,067

 
23,612

 
2,018,675

 
28,307

Consumer
 
269,985

 
2,765

 
106,081

 
3,446

 
376,066

 
6,211

Total
 
11,140,443

 
133,382

 
1,937,411

 
27,971

 
13,077,854

 
161,353

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
26,965

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,140,443

 
$
133,382

 
$
1,937,411

 
$
27,971

 
$
13,077,854

 
$
188,318

 
The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at December 31, 2013 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
7,888,219

 
$
78,250

 
$
55,002

 
$
930

 
$
7,943,221

 
$
79,180

Commercial real estate
 
2,415,353

 
41,573

 
—

 
—

 
2,415,353

 
41,573

Residential mortgage
 
220,635

 
5,481

 
1,831,391

 
23,984

 
2,052,026

 
29,465

Consumer
 
265,533

 
2,657

 
116,131

 
4,308

 
381,664

 
6,965

Total
 
10,789,740

 
127,961

 
2,002,524

 
29,222

 
12,792,264

 
157,183

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
28,213

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
10,789,740

 
$
127,961

 
$
2,002,524

 
$
29,222

 
$
12,792,264

 
$
185,396



- 80 -



The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at March 31, 2013 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
7,400,848

 
$
65,320

 
$
17,457

 
$
1,099

 
$
7,418,305

 
$
66,419

Commercial real estate
 
2,285,160

 
48,528

 
—

 
—

 
2,285,160

 
48,528

Residential mortgage
 
247,814

 
4,600

 
1,764,636

 
35,622

 
2,012,450

 
40,222

Consumer
 
237,152

 
3,163

 
140,497

 
4,821

 
377,649

 
7,984

Total
 
10,170,974

 
121,611

 
1,922,590

 
41,542

 
12,093,564

 
163,153

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 
—

 
—

 
—

 
—

 
—

 
42,812

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
10,170,974

 
$
121,611

 
$
1,922,590

 
$
41,542

 
$
12,093,564

 
$
205,965


Loans are considered to be performing if they are in compliance with the original terms of the agreement, which is consistent with the regulatory guideline of “pass.” Performing also includes loans considered to be “other loans especially mentioned” by regulatory guidelines. Other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management’s close attention. Performing loans also include past due residential mortgages that are guaranteed by agencies of the U.S. government.

The risk grading process identified certain criticized loans as potential problem loans. These loans have a well-defined weakness (e.g. inadequate debt service coverage or liquidity or marginal capitalization; repayment may depend on collateral or other risk mitigation) that may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial condition of the borrower. This is consistent with the regulatory guideline for “substandard.” Because the borrowers are still performing in accordance with the original terms of the loan agreements, these loans were not placed in nonaccruing status. Known information does, however, cause concern as to the borrowers’ continued compliance with current repayment terms. Nonaccruing loans represent loans for which full collection of principal and interest 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.


- 81 -



The following table summarizes the Company’s loan portfolio at March 31, 2014 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,339,578

 
$
2,735

 
$
1,759

 
$
—

 
$
—

 
$
2,344,072

Services
 
2,213,569

 
14,321

 
4,581

 
—

 
—

 
2,232,471

Wholesale/retail
 
1,216,725

 
2,411

 
6,854

 
—

 
—

 
1,225,990

Manufacturing
 
429,523

 
11,127

 
3,565

 
—

 
—

 
444,215

Healthcare
 
1,392,315

 
2,804

 
1,443

 
—

 
—

 
1,396,562

Integrated food services
 
122,314

 
4,200

 
—

 
—

 
—

 
126,514

Other commercial and industrial
 
258,888

 
—

 
731

 
22,149

 
114

 
281,882

Total commercial
 
7,972,912

 
37,598

 
18,933

 
22,149

 
114

 
8,051,706

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
153,836

 
14,437

 
16,547

 
—

 
—

 
184,820

Retail
 
634,253

 
1,627

 
4,626

 
—

 
—

 
640,506

Office
 
428,815

 
1,148

 
6,301

 
—

 
—

 
436,264

Multifamily
 
648,999

 
13,675

 
—

 
—

 
—

 
662,674

Industrial
 
304,321

 
—

 
886

 
—

 
—

 
305,207

Other commercial real estate
 
388,122

 
2,869

 
10,945

 
—

 
—

 
401,936

Total commercial real estate
 
2,558,346

 
33,756

 
39,305

 
—

 
—

 
2,631,407

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
200,662

 
2,704

 
6,242

 
793,864

 
30,100

 
1,033,572

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
183,250

 
1,572

 
184,822

Home equity
 
—

 
—

 
—

 
792,815

 
7,466

 
800,281

Total residential mortgage
 
200,662

 
2,704

 
6,242

 
1,769,929

 
39,138

 
2,018,675

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
269,764

 
27

 
194

 
105,301

 
780

 
376,066

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,001,684

 
$
74,085

 
$
64,674

 
$
1,897,379

 
$
40,032

 
$
13,077,854



- 82 -



The following table summarizes the Company’s loan portfolio at December 31, 2013 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,347,519

 
$
2,381

 
$
1,860

 
$
—

 
$
—

 
$
2,351,760

Services
 
2,265,984

 
11,304

 
4,922

 
—

 
—

 
2,282,210

Wholesale/retail
 
1,191,791

 
2,604

 
6,969

 
—

 
—

 
1,201,364

Manufacturing
 
381,794

 
9,365

 
592

 
—

 
—

 
391,751

Healthcare
 
1,272,626

 
34

 
1,586

 
—

 
—

 
1,274,246

Integrated food services
 
145,758

 
4,736

 
—

 
—

 
—

 
150,494

Other commercial and industrial
 
235,636

 
—

 
758

 
54,929

 
73

 
291,396

Total commercial
 
7,841,108

 
30,424

 
16,687

 
54,929

 
73

 
7,943,221

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
173,488

 
15,393

 
17,377

 
—

 
—

 
206,258

Retail
 
579,506

 
1,684

 
4,857

 
—

 
—

 
586,047

Office
 
403,951

 
1,157

 
6,391

 
—

 
—

 
411,499

Multifamily
 
562,800

 
13,695

 
7

 
—

 
—

 
576,502

Industrial
 
243,625

 
—

 
252

 
—

 
—

 
243,877

Other commercial real estate
 
371,628

 
7,576

 
11,966

 
—

 
—

 
391,170

Total commercial real estate
 
2,334,998

 
39,505

 
40,850

 
—

 
—

 
2,415,353

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
210,142

 
3,283

 
7,210

 
815,040

 
27,069

 
1,062,744

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
180,821

 
777

 
181,598

Home equity
 
—

 
—

 
—

 
800,420

 
7,264

 
807,684

Total residential mortgage
 
210,142

 
3,283

 
7,210

 
1,796,281

 
35,110

 
2,052,026

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
264,536

 
795

 
202

 
115,114

 
1,017

 
381,664

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
10,650,784

 
$
74,007

 
$
64,949

 
$
1,966,324

 
$
36,200

 
$
12,792,264



- 83 -



The following table summarizes the Company’s loan portfolio at March 31, 2013 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,342,500

 
$
4,555

 
$
2,377

 
$
—

 
$
—

 
$
2,349,432

Services
 
2,074,198

 
31,127

 
9,474

 
—

 
—

 
2,114,799

Wholesale/retail
 
1,071,954

 
10,807

 
2,239

 
—

 
—

 
1,085,000

Manufacturing
 
387,346

 
10,624

 
1,848

 
—

 
—

 
399,818

Healthcare
 
1,078,550

 
124

 
2,962

 
—

 
—

 
1,081,636

Integrated food services
 
173,800

 
—

 
—

 
—

 
—

 
173,800

Other commercial and industrial
 
190,758

 
4,716

 
889

 
17,385

 
72

 
213,820

Total commercial
 
7,319,106

 
61,953

 
19,789

 
17,385

 
72

 
7,418,305

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
194,944

 
19,423

 
23,462

 
—

 
—

 
237,829

Retail
 
572,761

 
2,597

 
8,921

 
—

 
—

 
584,279

Office
 
401,070

 
6,723

 
12,851

 
—

 
—

 
420,644

Multifamily
 
453,822

 
2,151

 
4,501

 
—

 
—

 
460,474

Industrial
 
234,590

 
261

 
2,198

 
—

 
—

 
237,049

Other commercial real estate
 
321,304

 
10,339

 
13,242

 
—

 
—

 
344,885

Total commercial real estate
 
2,178,491

 
41,494

 
65,175

 
—

 
—

 
2,285,160

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
230,595

 
6,555

 
10,664

 
816,272

 
27,489

 
1,091,575

Permanent mortgages guaranteed by U.S. government agencies
 
—

 
—

 
—

 
162,205

 
214

 
162,419

Home equity
 
—

 
—

 
—

 
751,397

 
7,059

 
758,456

Total residential mortgage
 
230,595

 
6,555

 
10,664

 
1,729,874

 
34,762

 
2,012,450

 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
235,495

 
1,249

 
408

 
138,734

 
1,763

 
377,649

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
9,963,687

 
$
111,251

 
$
96,036

 
$
1,885,993

 
$
36,597

 
$
12,093,564




- 84 -



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
 
March 31, 2014
 
Three Months Ended
 
 
 
Recorded Investment
 
 
 
March 31, 2014
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
1,787

 
$
1,759

 
$
1,759

 
$
—

 
$
—

 
$
1,809

 
$
—

Services
7,475

 
4,581

 
3,544

 
1,037

 
424

 
4,752

 
—

Wholesale/retail
11,765

 
6,853

 
6,821

 
32

 
9

 
6,911

 
—

Manufacturing
3,806

 
3,565

 
565

 
3,000

 
3,000

 
2,078

 
—

Healthcare
2,466

 
1,443

 
1,443

 
—

 
—

 
1,514

 
—

Integrated food services
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
8,510

 
845

 
845

 
—

 
—

 
838

 
—

Total commercial
35,809

 
19,046

 
14,977

 
4,069

 
3,433

 
17,902

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
20,866

 
16,547

 
15,893

 
654

 
162

 
16,962

 
—

Retail
6,462

 
4,626

 
4,626

 
—

 
—

 
4,742

 
—

Office
8,688

 
6,301

 
6,296

 
5

 
5

 
6,346

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
3

 
—

Industrial
1,043

 
886

 
886

 
—

 
—

 
569

 
—

Other real estate loans
17,692

 
10,945

 
10,761

 
184

 
18

 
11,455

 
—

Total commercial real estate
54,751

 
39,305

 
38,462

 
843

 
185

 
40,077

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 

 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
45,215

 
36,342

 
35,747

 
595

 
541

 
35,310

 
345

Permanent mortgage guaranteed by U.S. government agencies1
191,067

 
184,822

 
184,822

 
—

 
—

 
186,987

 
2,136

Home equity
7,475

 
7,466

 
7,466

 
—

 
—

 
7,365

 
—

Total residential mortgage
243,757

 
228,630

 
228,035

 
595

 
541

 
229,662

 
2,481

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
989

 
974

 
974

 
—

 
—

 
1,097

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
335,306

 
$
287,955

 
$
282,448

 
$
5,507

 
$
4,159

 
$
288,738

 
$
2,481

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 March 31, 2014, $1.6 million of these loans were nonaccruing and $183 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.


- 85 -



A summary of impaired loans at December 31, 2013 follows (in thousands): 
 
 
 
 
Recorded Investment
 
 
 
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
1,860

 
$
1,860

 
$
1,860

 
$
—

 
$
—

Services
 
6,486

 
4,922

 
3,791

 
1,131

 
516

Wholesale/retail
 
11,009

 
6,969

 
6,937

 
32

 
9

Manufacturing
 
746

 
592

 
592

 
—

 
—

Healthcare
 
2,193

 
1,586

 
1,538

 
48

 
48

Integrated food services
 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
8,532

 
831

 
831

 
—

 
—

Total commercial
 
30,826

 
16,760

 
15,549

 
1,211

 
573

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
20,804

 
17,377

 
17,050

 
327

 
107

Retail
 
6,133

 
4,857

 
4,857

 
—

 
—

Office
 
7,848

 
6,391

 
6,383

 
8

 
8

Multifamily
 
7

 
7

 
7

 
—

 
—

Industrial
 
252

 
252

 
252

 
—

 
—

Other real estate loans
 
14,593

 
11,966

 
11,779

 
187

 
18

Total commercial real estate
 
49,637

 
40,850

 
40,328

 
522

 
133

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
41,870

 
34,279

 
33,869

 
410

 
248

Permanent mortgage guaranteed by U.S. government agencies1
 
188,436

 
181,598

 
181,598

 
—

 
—

Home equity
 
7,537

 
7,264

 
7,264

 
—

 
—

Total residential mortgage
 
237,843

 
223,141

 
222,731

 
410

 
248

 
 
 
 
 
 
 
 
 
 
 
Total consumer
 
1,228

 
1,219

 
1,219

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
319,534

 
$
281,970

 
$
279,827

 
$
2,143

 
$
954

1 
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At December 31, 2013, $777 thousand of these loans were nonaccruing and $181 million were accruing based on the guarantee by U.S. government agencies.


- 86 -



A summary of impaired loans at March 31, 2013 follows (in thousands): 
 
As of
 
For the
 
As of March 31, 2013
 
Three Months Ended
 
 
 
Recorded Investment
 
 
 
March 31, 2013
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
2,377

 
$
2,377

 
$
2,377

 
$
—

 
$
—

 
$
2,419

 
$
—

Services
12,592

 
9,474

 
8,502

 
972

 
292

 
10,782

 
—

Wholesale/retail
2,545

 
2,239

 
2,187

 
52

 
13

 
2,658

 
—

Manufacturing
2,140

 
1,848

 
1,848

 
—

 
—

 
1,928

 
—

Healthcare
3,649

 
2,962

 
2,919

 
43

 
43

 
3,064

 
—

Integrated food services
—

 
—

 
—

 
—

 
—

 
342

 
—

Other commercial and industrial
8,461

 
961

 
961

 
—

 
—

 
972

 
—

Total commercial
31,764

 
19,861

 
18,794

 
1,067

 
348

 
22,165

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 

Residential construction and land development
28,913

 
23,462

 
22,967

 
495

 
155

 
24,797

 
—

Retail
11,375

 
8,921

 
8,921

 
—

 
—

 
8,519

 
—

Office
16,169

 
12,851

 
12,617

 
234

 
30

 
9,840

 
—

Multifamily
4,501

 
4,501

 
4,501

 
—

 
—

 
3,604

 
—

Industrial
3,875

 
2,198

 
2,198

 
—

 
—

 
3,083

 
—

Other real estate loans
15,546

 
13,242

 
12,642

 
600

 
73

 
13,059

 
—

Total commercial real estate
80,379

 
65,175

 
63,846

 
1,329

 
258

 
62,902

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 

Permanent mortgage
48,613

 
38,153

 
37,605

 
548

 
299

 
39,008

 
318

Permanent mortgage guaranteed by U.S. government agencies1
171,887

 
162,419

 
162,419

 
—

 
—

 
161,432

 
1,276

Home equity
7,059

 
7,059

 
7,059

 
—

 
—

 
6,658

 
—

Total residential mortgage
227,559

 
207,631

 
207,083

 
548

 
299

 
207,098

 
1,594

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consumer
2,237

 
2,171

 
2,049

 
122

 
122

 
2,441

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
341,939

 
$
294,838

 
$
291,772

 
$
3,066

 
$
1,027

 
$
294,606

 
$
1,594

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 March 31, 2013, $214 thousand of these loans were nonaccruing and $162 million were accruing based on the guarantee by U.S. government agencies.

- 87 -



Troubled Debt Restructurings

A summary of troubled debt restructurings ("TDRs") by accruing status as of March 31, 2014 is as follows (in thousands):

 
 
As of March 31, 2014
 
 
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Amounts Charged Off During the Three Months Ended March 31, 2014
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
 
1,811

 
761

 
1,050

 
148

 
—

Wholesale/retail
 
207

 
73

 
134

 
9

 
—

Manufacturing
 
3,384

 
384

 
3,000

 
3,000

 
—

Healthcare
 
—

 
—

 
—

 
—

 
—

Integrated food services
 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
750

 
194

 
556

 
—

 
—

Total commercial
 
6,152

 
1,412

 
4,740

 
3,157

 
—

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
10,083

 
1,839

 
8,244

 
162

 
—

Retail
 
4,140

 
2,584

 
1,556

 
—

 
—

Office
 
5,029

 
3,848

 
1,181

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
4,818

 
3,277

 
1,541

 
—

 
67

Total commercial real estate
 
24,070

 
11,548

 
12,522

 
162

 
67

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
18,755

 
13,117

 
5,638

 
85

 
208

Permanent mortgage guaranteed by U.S. government agencies
 
474

 
181

 
293

 
—

 
—

Home equity
 
4,037

 
3,451

 
586

 
—

 
14

Total residential mortgage
 
23,266

 
16,749

 
6,517

 
85

 
222

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
759

 
583

 
176

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
54,247

 
$
30,292

 
$
23,955

 
$
3,404

 
$
289

 
 
 
 
 
 
 
 
 
 
 

- 88 -



 
 
As of March 31, 2014
 
 
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Amounts Charged Off During the Three Months Ended March 31, 2014
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
—

 
—

 
—

 
—

 
—

Permanent mortgages guaranteed by U.S. government agencies
 
55,507

 
15,649

 
39,858

 
—

 
—

Total residential mortgage
 
55,507

 
15,649

 
39,858

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total accruing TDRs
 
55,507

 
15,649

 
39,858

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
109,754

 
$
45,941

 
$
63,813

 
$
3,404

 
$
289



- 89 -



A summary of troubled debt restructurings by accruing status as of December 31, 2013 is as follows (in thousands):

 
 
As of
 
 
December 31, 2013
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

Services
 
2,235

 
852

 
1,383

 
237

Wholesale/retail
 
235

 
89

 
146

 
9

Manufacturing
 
391

 
—

 
391

 
—

Healthcare
 
—

 
—

 
—

 
—

Integrated food services
 
—

 
—

 
—

 
—

Other commercial and industrial
 
771

 
173

 
598

 
—

Total commercial
 
3,632

 
1,114

 
2,518

 
246

 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

Residential construction and land development
 
10,148

 
1,444

 
8,704

 
107

Retail
 
4,359

 
3,141

 
1,218

 
—

Office
 
5,059

 
3,872

 
1,187

 
—

Multifamily
 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

Other real estate loans
 
5,011

 
2,885

 
2,126

 
—

Total commercial real estate
 
24,577

 
11,342

 
13,235

 
107

 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

Permanent mortgage
 
18,697

 
12,214

 
6,483

 
88

Home equity
 
4,045

 
3,531

 
514

 
—

Total residential mortgage
 
22,742

 
15,745

 
6,997

 
88

 
 
 
 
 
 
 
 
 
Consumer
 
1,008

 
758

 
250

 
—

 
 
 
 
 
 
 
 
 
Total nonaccuring TDRs
 
$
51,959

 
$
28,959

 
$
23,000

 
$
441

 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
Permanent mortgage
 
—

 
—

 
—

 
—

Permanent mortgages guaranteed by U.S. government agencies
 
54,322

 
13,384

 
40,938

 
—

Total residential mortgage
 
54,322

 
13,384

 
40,938

 
—

 
 
 
 
 
 
 
 
 
Total accruing TDRs
 
54,322

 
13,384

 
40,938

 
—

 
 
 
 
 
 
 
 
 
Total TDRs
 
$
106,281

 
$
42,343

 
$
63,938

 
$
441



- 90 -



A summary of troubled debt restructurings by accruing status as of March 31, 2013 is as follows (in thousands):
 
 
As of March 31, 2013
 
 
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Amount Charged Off During the Three Months Ended March 31, 2013
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
 
2,441

 
1,195

 
1,246

 
292

 
—

Wholesale/retail
 
1,481

 
1,015

 
466

 
13

 
—

Manufacturing
 
—

 
—

 
—

 
—

 
—

Healthcare
 
—

 
—

 
—

 
—

 
—

Integrated food services
 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
 
856

 
163

 
693

 
—

 
—

Total commercial
 
4,778

 
2,373

 
2,405

 
305

 
—

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
12,770

 
2,479

 
10,291

 
76

 
—

Retail
 
6,139

 
2,359

 
3,780

 
—

 
627

Office
 
2,966

 
1,883

 
1,083

 
—

 
—

Multifamily
 
—

 
—

 
—

 
—

 
—

Industrial
 
—

 
—

 
—

 
—

 
—

Other real estate loans
 
4,889

 
3,281

 
1,608

 
—

 
—

Total commercial real estate
 
26,764

 
10,002

 
16,762

 
76

 
627

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
19,230

 
12,670

 
6,560

 
54

 
370

Home equity
 
1,976

 
1,844

 
132

 
—

 
—

Total residential mortgage
 
21,206

 
14,514

 
6,692

 
54

 
370

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
923

 
759

 
164

 
80

 
—

 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
53,671

 
$
27,648

 
$
26,023

 
$
515

 
$
997


- 91 -



 
 
As of March 31, 2013
 
 
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
 
Amount Charged Off During the Three Months Ended March 31, 2013
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
—

 
—

 
—

 
—

 
—

Permanent mortgages guaranteed by U.S. government agencies
 
47,942

 
13,184

 
34,758

 
—

 
—

Total residential mortgage
 
47,942

 
13,184

 
34,758

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total accruing TDRs
 
47,942

 
13,184

 
34,758

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
101,613

 
$
40,832

 
$
60,781

 
$
515

 
$
997


- 92 -



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 March 31, 2014 by class that were restructured during the three months ended March 31, 2014 by primary type of concession (in thousands):

 
Three Months Ended
Mar. 31, 2014
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Interest Rate
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
3,000

 
—

 
3,000

 
3,000

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Integrated food services
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
—

 
—

 
29

 
29

 
29

Total commercial
—

 
—

 
—

 
—

 
3,000

 
29

 
3,029

 
3,029

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 

 

Residential construction and land development
—

 
—

 
—

 
—

 
428

 
—

 
428

 
428

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
428

 
—

 
428

 
428

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
—

 
64

 
461

 
525

 
525

Permanent mortgage guaranteed by U.S. government agencies
1,653

 
2,891

 
4,544

 
—

 
—

 
—

 
—

 
4,544

Home equity
—

 
—

 
—

 
—

 
—

 
346

 
346

 
346

Total residential mortgage
1,653

 
2,891

 
4,544

 
—

 
64

 
807

 
871

 
5,415

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
—

 
—

 
—

 
—

 
—

 
36

 
36

 
36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
1,653

 
$
2,891

 
$
4,544

 
$
—

 
$
3,492

 
$
872

 
$
4,364

 
$
8,908





- 93 -



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 the three months ended March 31, 2013 by primary type of concession (in thousands):

 
Three Months Ended
Mar. 31, 2013
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Interest Rate
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Services
—

 
—

 
—

 
—

 
56

 
—

 
56

 
56

Wholesale/retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Manufacturing
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Healthcare
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Integrated food services
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

 
151

 
—

 
—

 
151

 
151

Total commercial
—

 
—

 
—

 
151

 
56

 
—

 
207

 
207

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Retail
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Office
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Industrial
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other real estate loans
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
—

 
—

 
—

 
—

 
62

 
509

 
571

 
571

Permanent mortgage guaranteed by U.S. government agencies
5,431

 
3,241

 
8,672

 
—

 
—

 
—

 
—

 
8,672

Home equity
—

 
—

 
—

 
—

 
—

 
339

 
339

 
339

Total residential mortgage
5,431

 
3,241

 
8,672

 
—

 
62

 
848

 
910

 
9,582

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
—

 
—

 
—

 
93

 
—

 
57

 
150

 
150

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
5,431

 
$
3,241

 
$
8,672

 
$
244

 
$
118

 
$
905

 
$
1,267

 
$
9,939





- 94 -



The following table summarizes, by loan class, the recorded investment at March 31, 2014 of loans modified as TDRs within the previous 12 months and for which there was a payment default during the three months ended March 31, 2014 (in thousands):

 
Three Months Ended
Mar. 31, 2014
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

Services
—

 
1,050

 
1,050

Wholesale/retail
—

 
—

 
—

Manufacturing
—

 
3,000

 
3,000

Healthcare
—

 
—

 
—

Integrated food services
—

 
—

 
—

Other commercial and industrial
—

 
—

 
—

Total commercial
—

 
4,050

 
4,050

 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
Residential construction and land development
—

 
—

 
—

Retail
—

 
473

 
473

Office
—

 
206

 
206

Multifamily
—

 
—

 
—

Industrial
—

 
—

 
—

Other real estate loans
—

 
—

 
—

Total commercial real estate
—

 
679

 
679

 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
Permanent mortgage
—

 
445

 
445

Permanent mortgage guaranteed by U.S. government agencies
13,686

 
293

 
13,979

Home equity
—

 
427

 
427

Total residential mortgage
13,686

 
1,165

 
14,851

 
 
 
 
 
 
Consumer
—

 
45

 
45

 
 
 
 
 
 
Total
$
13,686

 
$
5,939

 
$
19,625


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.


- 95 -



The following table summarizes, by loan class, the recorded investment at March 31, 2013 of loans modified as TDRs within the previous 12 months and for which there was a payment default during the three months ended March 31, 2013 (in thousands):
 
Three Months Ended
Mar. 31, 2013
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
Energy
$
—

 
$
—

 
$
—

Services
—

 
875

 
875

Wholesale/retail
—

 
—

 
—

Manufacturing
—

 
—

 
—

Healthcare
—

 
—

 
—

Integrated food services
—

 
—

 
—

Other commercial and industrial
—

 
38

 
38

Total commercial
—

 
913

 
913

 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
Residential construction and land development
—

 
8,065

 
8,065

Retail
—

 
—

 
—

Office
—

 
—

 
—

Multifamily
—

 
—

 
—

Industrial
—

 
—

 
—

Other real estate loans
—

 
—

 
—

Total commercial real estate
—

 
8,065

 
8,065

 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
Permanent mortgage
—

 
2,773

 
2,773

Permanent mortgage guaranteed by U.S. government agencies
18,575

 
—

 
18,575

Home equity
—

 
—

 
—

Total residential mortgage
18,575

 
2,773

 
21,348

 
 
 
 
 
 
Consumer
—

 
27

 
27

 
 
 
 
 
 
Total
$
18,575

 
$
11,778

 
$
30,353


- 96 -



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 March 31, 2014 is as follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,341,923

 
$
390

 
$
—

 
$
1,759

 
$
2,344,072

Services
 
2,227,008

 
882

 
—

 
4,581

 
2,232,471

Wholesale/retail
 
1,219,058

 
78

 
—

 
6,854

 
1,225,990

Manufacturing
 
437,707

 
2,943

 
—

 
3,565

 
444,215

Healthcare
 
1,394,479

 
640

 
—

 
1,443

 
1,396,562

Integrated food services
 
126,414

 
100

 
—

 
—

 
126,514

Other commercial and industrial
 
280,659

 
378

 
—

 
845

 
281,882

Total commercial
 
8,027,248

 
5,411

 
—

 
19,047

 
8,051,706

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
168,043

 
230

 
—

 
16,547

 
184,820

Retail
 
634,497

 
—

 
1,383

 
4,626

 
640,506

Office
 
429,700

 
263

 
—

 
6,301

 
436,264

Multifamily
 
662,674

 
—

 
—

 
—

 
662,674

Industrial
 
304,321

 
—

 
—

 
886

 
305,207

Other real estate loans
 
390,421

 
—

 
570

 
10,945

 
401,936

Total commercial real estate
 
2,589,656

 
493

 
1,953

 
39,305

 
2,631,407

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
991,486

 
5,732

 
12

 
36,342

 
1,033,572

Permanent mortgages guaranteed by U.S. government agencies
 
26,919

 
20,544

 
135,787

 
1,572

 
184,822

Home equity
 
789,234

 
3,556

 
25

 
7,466

 
800,281

Total residential mortgage
 
1,807,639

 
29,832

 
135,824

 
45,380

 
2,018,675

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
374,518

 
573

 
1

 
974

 
376,066

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,799,061

 
$
36,309

 
$
137,778

 
$
104,706

 
$
13,077,854



- 97 -



A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2013 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,347,267

 
$
2,483

 
$
150

 
$
1,860

 
$
2,351,760

Services
 
2,276,036

 
1,210

 
42

 
4,922

 
2,282,210

Wholesale/retail
 
1,193,905

 
338

 
152

 
6,969

 
1,201,364

Manufacturing
 
391,159

 
—

 
—

 
592

 
391,751

Healthcare
 
1,272,660

 
—

 
—

 
1,586

 
1,274,246

Integrated food services
 
150,494

 
—

 
—

 
—

 
150,494

Other commercial and industrial
 
290,479

 
81

 
5

 
831

 
291,396

Total commercial
 
7,922,000

 
4,112

 
349

 
16,760

 
7,943,221

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
188,434

 
428

 
19

 
17,377

 
206,258

Retail
 
580,926

 
264

 
—

 
4,857

 
586,047

Office
 
404,505

 
603

 
—

 
6,391

 
411,499

Multifamily
 
576,495

 
—

 
—

 
7

 
576,502

Industrial
 
243,625

 
—

 
—

 
252

 
243,877

Other real estate loans
 
376,699

 
1,493

 
1,012

 
11,966

 
391,170

Total commercial real estate
 
2,370,684

 
2,788

 
1,031

 
40,850

 
2,415,353

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
1,018,670

 
9,795

 
—

 
34,279

 
1,062,744

Permanent mortgages guaranteed by U.S. government agencies
 
21,916

 
17,290

 
141,615

 
777

 
181,598

Home equity
 
797,299

 
3,087

 
34

 
7,264

 
807,684

Total residential mortgage
 
1,837,885

 
30,172

 
141,649

 
42,320

 
2,052,026

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
379,417

 
1,027

 
1

 
1,219

 
381,664

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,509,986

 
$
38,099

 
$
143,030

 
$
101,149

 
$
12,792,264


- 98 -



A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of March 31, 2013 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,346,530

 
$
525

 
$
—

 
$
2,377

 
$
2,349,432

Services
 
2,103,111

 
1,697

 
517

 
9,474

 
2,114,799

Wholesale/retail
 
1,082,491

 
270

 
—

 
2,239

 
1,085,000

Manufacturing
 
397,746

 
224

 
—

 
1,848

 
399,818

Healthcare
 
1,073,804

 
4,806

 
64

 
2,962

 
1,081,636

Integrated food services
 
173,800

 
—

 
—

 
—

 
173,800

Other commercial and industrial
 
212,777

 
82

 
—

 
961

 
213,820

Total commercial
 
7,390,259

 
7,604

 
581

 
19,861

 
7,418,305

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
214,367

 
—

 
—

 
23,462

 
237,829

Retail
 
575,239

 
119

 
—

 
8,921

 
584,279

Office
 
404,401

 
436

 
2,956

 
12,851

 
420,644

Multifamily
 
455,973

 
—

 
—

 
4,501

 
460,474

Industrial
 
234,851

 
—

 
—

 
2,198

 
237,049

Other real estate loans
 
329,517

 
1,748

 
378

 
13,242

 
344,885

Total commercial real estate
 
2,214,348

 
2,303

 
3,334

 
65,175

 
2,285,160

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
1,047,648

 
5,774

 
—

 
38,153

 
1,091,575

Permanent mortgages guaranteed by U.S. government agencies
 
25,915

 
17,669

 
118,621

 
214

 
162,419

Home equity
 
748,759

 
2,638

 
—

 
7,059

 
758,456

Total residential mortgage
 
1,822,322

 
26,081

 
118,621

 
45,426

 
2,012,450

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
372,970

 
2,194

 
314

 
2,171

 
377,649

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
11,799,899

 
$
38,182

 
$
122,850

 
$
132,633

 
$
12,093,564

(5) Acquisitions

On February 28, 2014, the Company acquired GTRUST Financial Corporation ("GTRUST"), a Topeka-based independent trust and asset management company with approximately $631 million of assets under management or custody.

On April 30, 2014, the Company acquired MBM Advisors, a Houston-based independent, full service retirement and pension plan investment firm and an SEC registered investment adviser with approximately $1.3 billion of assets under management.

The purchase price for these acquisitions totaled approximately $27 million including $23 million paid in cash and $4 million of contingent consideration. The preliminary purchase price allocation included $16 million of identifiable intangible assets and $13 million of goodwill. The pro-forma impact of these transactions was not material to the Company's consolidated financial statements.


- 99 -



(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 held for investment. All residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sale commitments which are considered derivative contracts that have not been designated as hedging instruments. The volume of mortgage loans originated for sale and secondary market prices are the primary drivers of originating and marketing revenue.

Residential mortgage loan commitments are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan commitments are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially managed through forward sales of residential mortgage-backed securities and forward sales contracts. These latter contracts set the price for loans that will be delivered in the next 60 to 90 days.

The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to residential mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held for sale on the Consolidated Balance Sheets were (in thousands):
 
 
March 31, 2014
 
December 31, 2013
 
March 31, 2013
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid
Principal
 Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
215,959

 
$
220,074

 
$
192,266

 
$
193,584

 
$
264,608

 
$
274,710

Residential mortgage loan commitments
 
387,755

 
6,035

 
258,873

 
2,656

 
466,571

 
13,343

Forward sales contracts
 
571,458

 
403

 
435,867

 
4,306

 
712,144

 
(1,842
)
 
 
 

 
$
226,512

 
 

 
$
200,546

 
 

 
$
286,211


No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of March 31, 2014, December 31, 2013 or March 31, 2013. No credit losses were recognized on residential mortgage loans held for sale for the three month periods ended March 31, 2014 and 2013.

Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
 
 
 
March 31,
2014
 
March 31,
2013
 
Production revenue:
 
 
 
 
 
Residential mortgages loan held for sale
 
$
11,968

 
$
30,235

 
Residential mortgage loan commitments
 
3,387

 
610

 
Forward sales contracts
 
(3,903
)
 
(935
)
 
Total production revenue
 
11,452

 
29,910

 
Servicing revenue
 
11,392

 
10,066

 
Total mortgage banking revenue
 
$
22,844

 
$
39,976

 

Production revenue includes gain (loss) on residential mortgage loans held for sale and changes in the fair value of derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.


- 100 -



Residential Mortgage Servicing

Mortgage servicing rights may be recognized when mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are sold. Mortgage servicing rights may also be 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):
 
 
March 31,
2014
 
December 31,
2013
 
March 31,
2013
Number of residential mortgage loans serviced for others
 
107,660

 
106,137

 
99,438

Outstanding principal balance of residential mortgage loans serviced for others
 
$
14,045,642

 
$
13,718,942

 
$
12,272,691

Weighted average interest rate
 
4.38
%
 
4.40
%
 
4.59
%
Remaining term (in months)
 
292

 
292

 
290


Activity in capitalized mortgage servicing rights during the three months ended March 31, 2014 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, December 31, 2013
 
$
15,935

 
$
137,398

 
$
153,333

Additions, net
 
—

 
8,644

 
8,644

Change in fair value due to loan runoff
 
(515
)
 
(3,227
)
 
(3,742
)
Change in fair value due to market changes
 
(630
)
 
(3,831
)
 
(4,461
)
Balance, March 31, 2014
 
$
14,790

 
$
138,984

 
$
153,774


Activity in capitalized mortgage servicing rights during the three months ended March 31, 2013 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, December 31, 2012
 
$
12,976

 
$
87,836

 
$
100,812

Additions, net
 
—

 
11,433

 
11,433

Change in fair value due to loan runoff
 
(871
)
 
(4,192
)
 
(5,063
)
Change in fair value due to market changes
 
1,098

 
1,560

 
2,658

Balance, March 31, 2013
 
$
13,203

 
$
96,637

 
$
109,840


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 loan runoff are included in Mortgage banking costs. Changes in fair value due to market changes are reported separately. Changes in fair value due to market 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:

 
 
March 31,
2014
 
December 31,
2013
 
March 31,
2013
Discount rate – risk-free rate plus a market premium
 
10.21%
 
10.21%
 
10.27%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
    Performing loans
 
$60 - $105
 
$60 - $105
 
$55 - $105
    Delinquent loans
 
$150 - $500
 
$150 - $500
 
$135 - $500
    Loans in foreclosure
 
$1,000 - $4,250
 
$1,000 - $4,250
 
$875 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
1.81%
 
1.80%
 
0.97%


- 101 -



The Company is exposed to interest rate risk as benchmark residential mortgage interest rates directly affect the prepayment speeds used in valuing our mortgage servicing rights, which is partially managed through forward sales of residential mortgage-backed securities and forward sales contracts. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated daily for changes in market conditions and adjusted to better correlate with actual performance of BOK Financial’s servicing portfolio.

Stratification of the residential mortgage loan servicing portfolio and outstanding principal of loans serviced for others by interest rate at March 31, 2014 follows (in thousands):
 
 
< 4.00%
 
4.00% - 4.99%

 
5.00% - 5.99%

 
> 5.99%
 
Total
Fair value
 
$
62,501

 
$
59,449

 
$
25,394

 
$
6,430

 
$
153,774

Outstanding principal of loans serviced for others
 
$
5,536,840

 
$
5,101,982

 
$
2,272,475

 
$
1,134,345

 
$
14,045,642

Weighted average prepayment rate1
 
6.85
%
 
7.98
%
 
10.55
%
 
26.17
%
 
9.42
%
1 
Annual prepayment estimates based upon loan interest rate, original term and loan type. Weighted average prepayment rate is determined by weighting the prepayment speed for each loan by its unpaid principal balance.

The interest rate sensitivity of our mortgage servicing rights and securities and derivative contracts held as an economic hedge is modeled over a range of +/- 50 basis points. At March 31, 2014, a 50 basis point increase in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights, net of economic hedge by $3.3 million. A 50 basis point decrease in mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights, net of economic hedge by $3.6 million. In the model, changes in the value of servicing rights due to changes in interest rates assume stable relationships between residential mortgage rates and prepayment speeds. Changes in market conditions can cause variations from these assumptions. These factors and others may cause changes in the value of our mortgage servicing rights to differ from our expectations.

The aging status of our mortgage loans serviced for others by investor at March 31, 2014 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
4,572,606

 
$
30,870

 
$
11,860

 
$
31,729

 
$
4,647,065

FNMA
 
4,338,847

 
19,954

 
6,469

 
21,933

 
4,387,203

GNMA
 
4,475,395

 
99,668

 
26,366

 
12,616

 
4,614,045

Other
 
384,507

 
5,849

 
1,877

 
5,096

 
397,329

Total
 
$
13,771,355

 
$
156,341

 
$
46,572

 
$
71,374

 
$
14,045,642


The Company has off-balance sheet credit risk related to residential mortgage loans sold to U.S. government agencies with recourse prior to 2008 under various community development programs. These loans consist of first lien, fixed-rate residential mortgage loans underwritten to standards approved by the agencies including full documentation and originated under programs available only for owner-occupied properties. However, these loans have a higher risk of delinquency and loss given default than traditional residential mortgage loans. The Company no longer sells residential mortgage loans with recourse other than obligations under standard representations and warranties. The recourse obligation relates to loan performance for the life of the loan and the Company is obligated to repurchase the loan at the time of foreclosure for the unpaid principal balance plus unpaid interest. The principal balance of residential mortgage loans sold subject to recourse obligations totaled $187 million at March 31, 2014, $191 million at December 31, 2013 and $220 million at March 31, 2013. A separate accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets totaling $8.8 million at March 31, 2014, $9 million at December 31, 2013 and $10 million at March 31, 2013. At March 31, 2014, approximately 3% of the loans sold with recourse with an outstanding principal balance of $5.9 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 4% with an outstanding balance of $7.7 million were past due 30 to 89 days. The provision for credit losses on loans sold with recourse is included in Mortgage banking costs in the Consolidated Statements of Earnings.


- 102 -



The activity in the allowance for losses on loans sold with recourse included in Other liabilities in the Consolidated Balance Sheets is summarized as follows (in thousands):
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
 
Beginning balance
$
9,041

 
$
11,359

 
Provision for recourse losses
(14
)
 
(761
)
 
Loans charged off, net
(224
)
 
(523
)
 
Ending balance
$
8,803

 
$
10,075

 

The Company also has an off-balance sheet obligation to repurchase or provide indemnification for residential mortgage loans sold to government sponsored entities due to standard representations and warranties made under contractual agreements. The Company has established an accrual for credit losses related to potential loan repurchases under representations and warranties that is included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated Statements of Earnings. The level of repurchases and indemnifications related to standard representations and warranties has remained low. The Company repurchased 11 loans from the agencies for $1.3 million during the first quarter of 2014 and had no related losses. There were seven indemnifications on loans paid during the first quarter of 2014. Losses recognized on indemnifications were insignificant.

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 
March 31,
2014
 
March 31,
2013
Number of unresolved deficiency requests
647

 
430

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
81,909

 
$
50,861

Unpaid principal balance subject to indemnification by the Company
1,561

 
1,414


The activity in the accrual for credit losses related to potential loan repurchases and indemnifications under representations and warranties is summarized as follows (in thousands).
 
Three Months Ended
 
March 31,
 
2014
 
2013
Beginning balance
$
8,845

 
$
5,291

Provision for repurchase losses
(842
)
 
976

Losses on repurchases and indemnifications, net
(126
)
 
(390
)
Ending balance
$
7,877

 
$
5,877

(7) Employee Benefits

BOK Financial has sponsored a defined benefit Pension Plan for all employees who satisfied certain age and service requirements.  Pension Plan benefits were curtailed as of April 1, 2006. The Company recognized periodic pension expense of $149 thousand and $500 thousand for the three months ended March 31, 2014 and 2013, respectively. The Company made no Pension Plan contributions during the three months ended March 31, 2014 and 2013.

No minimum contribution is required for 2014.

- 103 -



(8)  Commitments and Contingent Liabilities

Litigation Contingencies

As a member of Visa, BOK Financial is obligated for a proportionate share of certain covered litigation losses incurred by Visa under a retrospective responsibility plan. A contingent liability was recognized for the Company’s share of Visa’s covered litigation liabilities. Visa funded an escrow account to cover litigation claims, including covered litigation losses under the retrospective responsibility plan, with proceeds from its initial public offering in 2008 and from available cash. 

BOK Financial currently owns 251,837 Visa Class B shares which are convertible into Visa Class A shares after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may be assigned until the Class B shares are converted into a known number of Class A shares.

In July 2012, Visa announced it had reached an agreement in principle to resolve pending litigation and provide for settlement payments from the previously funded litigation escrow account. In conjunction with this agreement, Visa deposited an additional $150 million to the litigation escrow account which reduced the exchange rate to approximately 0.4206 Class A shares for each Class B share.

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

Alternative Investment Commitments

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

BOKF Equity, LLC, an indirect wholly-owned subsidiary, is the general partner of two consolidated private equity funds (“the Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related parties, through unaffiliated limited partnerships. These unaffiliated limited partnerships generally invest in distressed assets, asset buy-outs or venture capital companies. As general partner, BOKF Equity, LLC has the power to direct activities that most significantly affect the Funds' performance and contingent obligations to make additional investments totaling $5.9 million at March 31, 2014. Substantially all of the obligations are offset by limited partner commitments. The Company does not accrue its contingent liability to fund investments. The Volcker Rule in Title VI of the Dodd-Frank Act will limit both the amount and structure of these 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.

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.


- 104 -



A summary of consolidated and unconsolidated alternative investments as of March 31, 2014, December 31, 2013 and March 31, 2013 is as follows (in thousands):

 
 
March 31, 2014
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
27,466

 
$
—

 
$
—

 
$
22,979

Tax credit entities
 
10,000

 
13,292

 
—

 
10,964

 
9,869

Other
 
—

 
7,070

 
—

 
—

 
1,826

Total consolidated
 
$
10,000

 
$
47,828

 
$
—

 
$
10,964

 
$
34,674

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
19,787

 
$
88,301

 
$
24,826

 
$
—

 
$
—

Other
 
—

 
5,593

 
1,657

 
—

 
—

Total unconsolidated
 
$
19,787

 
$
93,894

 
$
26,483

 
$
—

 
$
—


 
 
December 31, 2013
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
27,341

 
$
—

 
$
—

 
$
23,036

Tax credit entities
 
10,000

 
13,448

 
—

 
10,964

 
9,869

Other
 
—

 
9,178

 
—

 
—

 
2,019

Total consolidated
 
$
10,000

 
$
49,967

 
$
—

 
$
10,964

 
$
34,924

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
27,319

 
$
90,260

 
$
35,776

 
$
—

 
$
—

Other
 
—

 
9,257

 
1,681

 
—

 
—

Total unconsolidated
 
$
27,319

 
$
99,517

 
$
37,457

 
$
—

 
$
—


 
 
March 31, 2013
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$
—

 
$
29,216

 
$
—

 
$
—

 
$
24,182

Tax credit entities
 
10,000

 
13,836

 
—

 
10,964

 
10,000

Other
 
—

 
8,838

 
—

 
—

 
1,752

Total consolidated
 
$
10,000

 
$
51,890

 
$
—

 
$
10,964

 
$
35,934

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
28,100

 
$
80,788

 
$
40,400

 
$
—

 
$
—

Other
 
—

 
9,293

 
1,775

 
—

 
—

Total unconsolidated
 
$
28,100

 
$
90,081

 
$
42,175

 
$
—

 
$
—




- 105 -



Other Commitments and Contingencies

At March 31, 2014, Cavanal Hill Funds’ assets included $937 million of U.S. Treasury, $1.2 billion of cash management and $285 million of tax-free money market funds. Assets of these funds consist of highly-rated, short-term obligations of the U.S. Treasury, corporate issuers and U.S. states and municipalities. The net asset value of units in these funds was $1.00 at March 31, 2014. An investment in these funds is not insured by the Federal Deposit Insurance Corporation or guaranteed by BOK Financial or any of its subsidiaries. BOK Financial may, but is not obligated to purchase assets from these funds to maintain the net asset value at $1.00. No assets were purchased from the funds in 2014 or 2013.

Cottonwood Valley Ventures, Inc. (“CVV, Inc.”), an indirectly wholly-owned subsidiary of BOK Financial, is being audited by the Oklahoma Tax Commission (“OTC”) for tax years 2007 through 2009. CVV, Inc. is a qualified venture capital company under the applicable Oklahoma statute. As authorized by the statute, CVV, Inc. guarantees transferable Oklahoma state income tax credits by providing direct debt financing to private companies which qualify as statutory business ventures. Due to certain statutory limitations on utilization of such credits, CVV, Inc. must sell the majority of the credits to provide the economic incentives provided for by the statute. During the third quarter of 2012, CVV, Inc. and credit purchasers settled the assessment related to the 2008 tax credits disallowed with no material adverse impact to the consolidated financial statements. Management does not anticipate that the remaining issue under audit will have a material adverse impact to the consolidated financial statements.

The Company agreed to guarantee rents totaling $29 million through September of 2017 to the City of Tulsa as owner of a building immediately adjacent to the Bank’s main office for space currently rented by third-party tenants in the building. All rent payments are current. Remaining guaranteed rents totaled $10 million at March 31, 2014. Current leases expire or are subject to lessee termination options in 2014. Our obligation under the agreement would be affected by lessee decisions to exercise these options. In return for this guarantee, the Company will receive 80% of net cash flow as defined in an agreement with the City of Tulsa through September 2017 from rental of space that was vacant at the inception of the agreement. The maximum amount that the Company may receive under this agreement is $4.5 million.

The Company has agreed to purchase approximately $13 million of Oklahoma income tax credits from certain operators of zero emission power facilities during 2014 related to power produced during 2013. Tax credits are generated based on power sold to unrelated third parties and are transferable for a period of ten years following the year of creation. Tax credits will be sold to qualifying taxpayers as BOK Financial is limited by statute on the amount of credits that may be utilized. Oklahoma statutes were amended in May 2013, so that beginning in the year 2014, transferable credits will no longer be generated by zero emission power facilities. Prior to the amended statute, the Company anticipated credits would be purchased through 2022 under long term contracts with the producers. The agreements contained provisions that they may be terminated in the event of changes in federal law or Oklahoma statutes invalidating the tax credits or their transferability.

- 106 -



(9) Shareholders' Equity

On April 29, 2014, the Company declared a a quarterly cash dividend of $0.40 per common share on or about May 30, 2014 to shareholders of record as of May 16, 2014.

Dividends declared were $0.40 per share during the three months ended March 31, 2014 and $0.38 per share during the three months ended March 31, 2013.

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. Accumulated losses on the interest rate lock hedge of the 2005 subordinated debt issuance are being reclassified into income over the ten-year life of the debt. Gains and losses in AOCI are net of deferred income taxes.

A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):
 
 
Unrealized Gain (Loss) on
 
 
 
 
 
 
Available for Sale Securities
 
Investment Securities Transferred from AFS
 
Employee Benefit Plans
 
Loss on Effective Cash Flow Hedges
 
Total
Balance, December 31, 2012
 
$
155,553

 
$
3,078

 
$
(8,296
)
 
$
(415
)
 
$
149,920

Net change in unrealized gain (loss)
 
(21,359
)
 
—

 
—

 
—

 
(21,359
)
Reclassification adjustments included in earnings:
 
 
 
 
 
 
 
 
 
 
Interest revenue, Investment securities, Taxable securities
 
—

 
(1,148
)
 
—

 
—

 
(1,148
)
Interest expense, Subordinated debentures
 
—

 
—

 
—

 
52

 
52

Net impairment losses recognized in earnings
 
247

 
—

 
—

 
—

 
247

Gain on available for sale securities, net
 
(4,855
)
 
—

 
—

 
—

 
(4,855
)
Other comprehensive income (loss), before income taxes
 
(25,967
)
 
(1,148
)
 
—

 
52

 
(27,063
)
Federal and state income taxes1
 
10,100

 
446

 
—

 
(20
)
 
10,526

Other comprehensive income (loss), net of income taxes
 
(15,867
)
 
(702
)
 
—

 
32

 
(16,537
)
Balance, March 31, 2013
 
$
139,686

 
$
2,376

 
$
(8,296
)
 
$
(383
)
 
$
133,383

 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2013
 
$
(23,175
)
 
$
1,118

 
$
(3,311
)
 
$
(255
)
 
$
(25,623
)
Net change in unrealized gains (losses)
 
54,615

 
—

 
(2
)
 
—

 
54,613

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

 
(403
)
 
—

 
—

 
(403
)
Interest expense, Subordinated debentures
 
—

 
—

 
—

 
83

 
83

Gain on available for sale securities, net
 
(1,240
)
 
—

 
—

 
—

 
(1,240
)
Other comprehensive income (loss), before income taxes
 
53,375

 
(403
)
 
(2
)
 
83

 
53,053

Federal and state income taxes1
 
(20,762
)
 
158

 
1

 
(32
)
 
(20,635
)
Other comprehensive income (loss), net of income taxes
 
32,613

 
(245
)
 
(1
)
 
51

 
32,418

Balance, March 31, 2014
 
$
9,438

 
$
873

 
$
(3,312
)
 
$
(204
)
 
$
6,795

1 
Calculated using a 39% effective tax rate.

- 107 -



(10)  Earnings Per Share
 
(In thousands, except share and per share amounts)
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Numerator:
 
 
 
 
Net income attributable to BOK Financial Corp. shareholders
 
$
76,590

 
$
87,964

Less: Earnings allocated to participating securities
 
698

 
971

Numerator for basic earnings per share – income available to common shareholders
 
75,892

 
86,993

Effect of reallocating undistributed earnings of participating securities
 
1

 
5

Numerator for diluted earnings per share – income available to common shareholders
 
$
75,893

 
$
86,998

 
 
 
 
 
Denominator:
 
 

 
 

Weighted average shares outstanding
 
68,899,746

 
68,569,475

Less:  Participating securities included in weighted average shares outstanding
 
626,061

 
754,925

Denominator for basic earnings per common share
 
68,273,685

 
67,814,550

Dilutive effect of employee stock compensation plans1
 
162,793

 
225,630

Denominator for diluted earnings per common share
 
68,436,478

 
68,040,180

 
 
 
 
 
Basic earnings per share
 
$
1.11

 
$
1.28

Diluted earnings per share
 
$
1.11

 
$
1.28

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

 
87,377


- 108 -



(11)  Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended March 31, 2014 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
91,009

 
$
24,657

 
$
5,828

 
$
41,148

 
$
162,642

Net interest revenue (expense) from internal sources
 
(8,857
)
 
4,193

 
$
4,683

 
(19
)
 
—

Net interest revenue
 
82,152

 
28,850

 
10,511

 
41,129

 
162,642

Provision for credit losses
 
(3,312
)
 
861

 
49

 
2,402

 
—

Net interest revenue after provision for credit losses
 
85,464

 
27,989

 
10,462

 
38,727

 
162,642

Other operating revenue
 
40,689

 
43,411

 
54,261

 
(1,355
)
 
137,006

Other operating expense
 
49,389

 
41,844

 
49,248

 
44,623

 
185,104

Net direct contribution
 
76,764

 
29,556

 
15,475

 
(7,251
)
 
114,544

Corporate expense allocations
 
17,285

 
15,839

 
11,422

 
(44,546
)
 
—

Net income before taxes
 
59,479

 
13,717

 
4,053

 
37,295

 
114,544

Federal and state income taxes
 
23,137

 
5,336

 
1,577

 
7,451

 
37,501

Net income
 
36,342

 
8,381

 
2,476

 
29,844

 
77,043

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

 
—

 
—

 
453

 
453

Net income attributable to BOK Financial Corp. shareholders
 
$
36,342

 
$
8,381

 
$
2,476

 
$
29,391

 
$
76,590

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
10,956,107

 
$
5,615,816

 
$
4,621,817

 
$
6,045,028

 
$
27,238,768

Average invested capital
 
934,328

 
285,086

 
202,191

 
1,683,469

 
3,105,074

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.35
%
 
0.61
%
 
0.22
%
 


 
1.14
%
Return on average invested capital
 
15.77
%
 
11.92
%
 
4.97
%
 


 
10.00
%
Efficiency ratio
 
39.67
%
 
52.22
%
 
75.42
%
 


 
59.69
%





- 109 -



Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended March 31, 2013 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
90,882

 
$
24,095

 
$
6,480

 
$
49,995

 
$
171,452

Net interest revenue (expense) from internal sources
 
(9,145
)
 
5,483

 
5,295

 
(1,633
)
 
—

Net interest revenue
 
81,737

 
29,578

 
11,775

 
48,362

 
171,452

Provision for credit losses
 
1,021

 
930

 
519

 
(10,470
)
 
(8,000
)
Net interest revenue after provision for credit losses
 
80,716

 
28,648

 
11,256

 
58,832

 
179,452

Other operating revenue
 
41,451

 
59,799

 
51,490

 
7,945

 
160,685

Other operating expense
 
46,661

 
45,008

 
47,122

 
65,191

 
203,982

Net direct contribution
 
75,506

 
43,439

 
15,624

 
1,586

 
136,155

Corporate expense allocations
 
17,999

 
14,169

 
12,540

 
(44,708
)
 
—

Net income before taxes
 
57,507

 
29,270

 
3,084

 
46,294

 
136,155

Federal and state income taxes
 
22,370

 
11,386

 
1,200

 
12,140

 
47,096

Net income
 
35,137

 
17,884

 
1,884

 
34,154

 
89,059

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

 
—

 
—

 
1,095

 
1,095

Net income attributable to BOK Financial Corp. shareholders
 
$
35,137

 
$
17,884

 
$
1,884

 
$
33,059

 
$
87,964

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
10,629,342

 
$
5,723,956

 
$
4,687,067

 
$
6,473,066

 
$
27,513,431

Average invested capital
 
890,844

 
297,073

 
202,313

 
1,607,609

 
2,997,839

 
 
 
 
 
 
 
 
 
 
 
Performance measurements:
 
 

 
 

 
 

 
 

 
 

Return on average assets
 
1.34
%
 
1.27
%
 
0.16
%
 
 
 
1.30
%
Return on average invested capital
 
16.00
%
 
24.41
%
 
3.78
%
 
 
 
11.90
%
Efficiency ratio
 
37.82
%
 
46.58
%
 
73.55
%
 
 
 
61.04
%



- 110 -



(12) 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, significant other observable inputs or significant unobservable inputs during the three months ended March 31, 2014 and 2013, respectively.

The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market. No significant adjustments were made to prices provided by third-party pricing services at March 31, 2014, December 31, 2013 or March 31, 2013.


- 111 -



Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of financial assets and liabilities that are measured on a recurring basis is as follows as of March 31, 2014 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
28,588

 
$
—

 
$
28,588

 
$
—

U.S. agency residential mortgage-backed securities
 
23,595

 
—

 
23,595

 
—

Municipal and other tax-exempt securities
 
27,280

 
—

 
27,280

 
—

Other trading securities
 
7,108

 
—

 
7,108

 
—

Total trading securities
 
86,571

 
—

 
86,571

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,034

 
1,034

 
—

 
—

Municipal and other tax-exempt
 
70,065

 
—

 
54,542

 
15,523

U.S. agency residential mortgage-backed securities
 
7,475,569

 
—

 
7,475,569

 
—

Privately issued residential mortgage-backed securities
 
189,248

 
—

 
189,248

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,123,762

 
—

 
2,123,762

 
—

Other debt securities
 
35,119

 
—

 
30,407

 
4,712

Perpetual preferred stock
 
24,281

 
—

 
24,281

 
—

Equity securities and mutual funds
 
14,645

 
—

 
14,645

 
—

Total available for sale securities
 
9,933,723

 
1,034

 
9,912,454

 
20,235

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
156,525

 
—

 
156,525

 
—

     Other securities
 
4,359

 
—

 
4,359

 
—

Total fair value option securities
 
160,884

 
—

 
160,884

 
—

Residential mortgage loans held for sale
 
226,512

 
—

 
226,512

 
—

Mortgage servicing rights1
 
153,774

 
—

 
—

 
153,774

Derivative contracts, net of cash margin2
 
218,507

 
1,363

 
217,144

 
—

Other assets – private equity funds
 
27,466

 
—

 
—

 
27,466

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash margin2
 
185,499

 
—

 
185,499

 
—

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 exchange-traded energy and interest rate derivative contacts, net of cash margin. Derivative contacts in liability positions that were valued using quoted prices in active market for identical instruments are exchange-traded energy, agricultural and interest rate derivative contracts that were fully offset by cash margin.


- 112 -



The fair value of financial assets and liabilities that are measured on a recurring basis is as follows as of December 31, 2013 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
34,120

 
$
—

 
$
34,120

 
$
—

U.S. agency residential mortgage-backed securities
 
21,011

 
—

 
21,011

 
—

Municipal and other tax-exempt securities
 
27,350

 
—

 
27,350

 
—

Other trading securities
 
9,135

 
—

 
9,135

 
—

Total trading securities
 
91,616

 
—

 
91,616

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,042

 
1,042

 
—

 
—

Municipal and other tax-exempt
 
73,775

 
—

 
55,970

 
17,805

U.S. agency residential mortgage-backed securities
 
7,716,010

 
—

 
7,716,010

 
—

Privately issued residential mortgage-backed securities
 
221,099

 
—

 
221,099

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,055,804

 
—

 
2,055,804

 
—

Other debt securities
 
35,241

 
—

 
30,529

 
4,712

Perpetual preferred stock
 
22,863

 
—

 
22,863

 
—

Equity securities and mutual funds
 
21,328

 
—

 
17,121

 
4,207

Total available for sale securities
 
10,147,162

 
1,042

 
10,119,396

 
26,724

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
157,431

 
—

 
157,431

 
—

     Other securities
 
9,694

 
—

 
9,694

 
—

Total fair value option securities
 
167,125

 
—

 
167,125

 
—

Residential mortgage loans held for sale
 
200,546

 
—

 
200,546

 
—

Mortgage servicing rights1
 
153,333

 
—

 
—

 
153,333

Derivative contracts, net of cash margin2
 
265,012

 
2,712

 
262,300

 
—

Other assets – private equity funds
 
27,341

 
—

 
—

 
27,341

Liabilities:
 


 
 
 
 
 
 
Derivative contracts, net of cash margin 2
 
247,185

 
—

 
247,185

 
—

1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 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 derivative contacts, net of cash margin.



- 113 -



The fair value of financial assets and liabilities that are measured on a recurring basis is as follows as of March 31, 2013 (in thousands):
 
 
Total
 
Quoted Prices in
Active Markets for Identical Instruments
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
55,358

 
$
—

 
$
55,358

 
$
—

U.S. agency residential mortgage-backed securities
 
33,106

 
—

 
33,106

 
—

Municipal and other tax-exempt securities
 
90,710

 
—

 
90,710

 
—

Other trading securities
 
27,424

 
—

 
27,424

 
—

Total trading securities
 
206,598

 
—

 
206,598

 
—

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,000

 
1,000

 
—

 
—

Municipal and other tax-exempt
 
85,447

 
—

 
46,440

 
39,007

U.S. agency residential mortgage-backed securities
 
9,165,212

 
—

 
9,165,212

 
—

Privately issued residential mortgage-backed securities
 
316,208

 
—

 
316,208

 
—

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
1,405,346

 
—

 
1,405,346

 
—

Other debt securities
 
36,079

 
—

 
30,886

 
5,193

Perpetual preferred stock
 
26,832

 
—

 
26,832

 
—

Equity securities and mutual funds
 
23,021

 
4,571

 
15,978

 
2,472

Total available for sale securities
 
11,059,145

 
5,571

 
11,006,902

 
46,672

Fair value option securities:
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
208,900

 
—

 
208,900

 
—

Other securities
 
1,292

 
—

 
1,292

 
—

Total fair value option securities
 
210,192

 
—

 
210,192

 
—

Residential mortgage loans held for sale
 
286,211

 
—

 
286,211

 
—

Mortgage servicing rights1
 
109,840

 
—

 
—

 
109,840

Derivative contracts, net of cash margin 2
 
320,473

 
457

 
320,016

 
—

Other assets – private equity funds
 
29,216

 
—

 
—

 
29,216

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash margin 2
 
251,836

 
—

 
251,836

 
—

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.



- 114 -



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

The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on reference to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar securities. A summary of significant inputs used to value these securities follows. A management committee composed of senior members from the Company's Capital Markets, Risk Management and Finance departments assess the appropriateness of these inputs monthly.

Derivatives

All derivative instruments are carried on the balance sheet at fair value. Fair values for exchange-traded contracts are based on quoted prices. Fair values for over-the-counter interest rate, commodity and foreign exchange contracts are based on valuations provided either by third-party dealers in the contracts, quotes provided by independent pricing services, or a third-party provided pricing model that uses significant other observable market inputs.

Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments based on various risk factors including but not limited to counterparty credit rating or equivalent loan grading, derivative contract notional size, price volatility of the underlying commodity, duration of the derivative contracts and expected loss severity. Expected loss severity is based on historical losses for similarly risk graded commercial loan customers. Decreases in counterparty credit rating or grading and increases in price volatility and expected loss severity all tend to increase the credit quality adjustment which reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during the current period.

We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities would increase. The change in the fair value would be recognized in earnings in the current period.
Residential Mortgage Loans Held for Sale
Residential mortgage loans held for sale are carried on the balance sheet at fair value. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments.

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


- 115 -



The following represents the changes for the three months ended March 31, 2014 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
 
Other debt securities
 
Equity securities and mutual funds
 
Other assets – private equity funds
Balance, December 31, 2013
 
$
17,805

 
$
4,712

 
$
4,207

 
$
27,341

Transfer to Level 3 from Level 2
 
—

 
—

 
—

 
—

Purchases and capital calls
 
—

 
—

 
—

 
205

Redemptions and distributions
 
(2,322
)
 
—

 
—

 
(1,105
)
Gain (loss) recognized in earnings:
 
 
 
 
 
 
 
 
Gain on other assets, net
 
—

 
—

 
—

 
1,025

Gain on available for sale securities, net
 
(78
)
 
—

 
—

 
—

Other-than-temporary impairment losses
 
—

 
—

 
—

 
—

Charitable contributions to BOKF Foundation
 
—

 
—

 
(2,420
)
 
—

Other comprehensive gain (loss)
 
118

 
—

 
(1,787
)
 
—

Balance, March 31, 2014
 
$
15,523

 
$
4,712

 
$
—

 
$
27,466


The following represents the changes for the three months ended March 31, 2013 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
 
Other debt securities
 
Equity securities and mutual funds
 
Other assets – private equity funds
Balance, December 31, 2012
 
$
40,702

 
$
5,399

 
$
2,161

 
$
28,169

Transfer to Level 3 from Level 2
 
—

 
—

 
—

 
—

Purchases, and capital calls
 
—

 
—

 
—

 
492

Redemptions and distributions
 
(98
)
 
—

 
—

 
(830
)
Gain (loss) recognized in earnings
 
 
 
 
 
 
 
 
Gain on other assets, net
 
—

 
—

 
—

 
1,385

Gain on available for sale securities, net
 
—

 
—

 
—

 
—

Other-than-temporary impairment losses
 
—

 
—

 
—

 
—

Other comprehensive (loss)
 
(1,597
)
 
(206
)
 
311

 
—

Balance, March 31, 2013
 
$
39,007

 
$
5,193

 
$
2,472

 
$
29,216





- 116 -



A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2014 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Par
Value
 
Amortized
Cost
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
16,295

 
$
16,224

 
$
15,523

 
Discounted cash flows
1 
Interest rate spread
 
4.95%-5.25% (5.13%)
2 
95.05%-95.49% (95.26%)
3 
Other debt securities
 
4,900

 
4,900

 
4,712

 
Discounted cash flows
1 
Interest rate spread
 
5.46%-5.66% (5.63%)
4 
96.16% (96.16%)
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other assets - private equity funds
 
N/A
 
N/A
 
27,466

 
Net asset value reported by underlying fund
 
Net asset value reported by underlying fund
 
N/A
 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 468 to 515 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%.




- 117 -



The fair value of these securities measured at fair value using significant unobservable inputs are sensitive primarily to changes in interest rate spreads. At March 31, 2014, for tax-exempt securities rated investment grade by all nationally-recognized rating agencies, a 100 basis point increase in the spreads over average yields for comparable securities would result in an additional decrease in the fair value of $150 thousand. For taxable securities rated investment grade by all nationally-recognized rating agencies, a 100 basis point increase in the spreads over average yield for comparable securities would result in an additional decrease in the fair value of $45 thousand. For municipal and other tax-exempt securities rated below investment grade by at least one of the nationally-recognized rating agencies, a 100 basis point increase in the spread over average yields for comparable securities would significantly change the fair value of these securities.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2013 follows (in thousands):
Quantitative Information about Level 3 Recurring Fair Value Measurements
 
 
Par
Value
 
Amortized
Cost
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
18,695

 
$
18,624

 
$
17,805

 
Discounted cash flows
1 
Interest rate spread
 
4.97%-5.27% (5.16%)
2 
95.02%-95.50% (95.24%)
3 
Other debt securities
 
4,900

 
4,900

 
4,712

 
Discounted cash flows
1 
Interest rate spread
 
5.67% (5.67%)
4 
96.16% (96.16%)
3 
Equity securities and mutual funds
 
N/A
 
2,420

 
4,207

 
Publicly announced preliminary purchase price information from acquirer.
 
Discount for settlement uncertainty.
 
N/A
5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other assets - private equity funds
 
N/A
 
N/A
 
27,341

 
Net asset value reported by underlying fund
 
Net asset value reported by underlying fund
 
N/A
 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 467 to 518 basis points over average yields for comparable tax-exempt securities.
3 
Represents fair value as a percentage of par value
4 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.
5 
Fair value of shares of a smaller privately-held financial institution were valued using preliminary announced purchase information by a publicly-traded acquirer.




- 118 -



A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of March 31, 2013 follows (in thousands):

Quantitative Information about Level 3 Recurring Fair Value Measurements
 
 
Par
Value
 
Amortized
Cost6
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment grade
 
$
28,470

 
$
28,374

 
$
27,120

 
Discounted cash flows
1 
Interest rate spread
 
5.00%-5.50% (5.25%)
2 
95.01%-95.59% (95.26%)
3 
Below investment grade
 
17,000

 
12,384

 
11,887

 
Discounted cash flows
1 
Interest rate spread
 
8.80%-11.20% (9.54%)
4 
69.86%-70.04% (69.92%)
3 
Total municipal and other tax-exempt securities
 
45,470

 
40,758

 
39,007

 
 
 
 
 
 
 
Other debt securities
 
5,400

 
5,400

 
5,193

 
Discounted cash flows
1 
Interest rate spread
 
5.44%-5.71% (5.68%)
5 
96.16% (96.16%)
3 
Equity securities and mutual funds
 
N/A
 
2,420

 
2,472

 
Tangible book value per share of publicly traded financial institutions of similar size, less liquidity discount.
 
Peer group tangible book per share and liquidity discount.
 
N/A
7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other assets - private equity funds
 
N/A
 
N/A
 
29,216

 
Net asset value reported by underlying fund
 
Net asset value reported by underlying fund
 
N/A
 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 458 to 519 basis points over average yields for comparable tax-exempt securities.
3 
Represents fair value as a percentage of par value
4 
Interest rate yields determined using a spread of 700 basis points over comparable municipal securities of varying durations.
5 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.
6 
Amortized cost reduced by other-than-temporary impairments recorded in earnings. See Note 2 for additional discussion.
7 
Fair value of shares of a smaller privately-held financial institution were valued using the tangible book value per share of similarly sized financial institutions within the immediate geographical market with a discount of 20% due to the liquidity of the shares.


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 March 31, 2014 for which the fair value was adjusted during the three months ended March 31, 2014:
 
 
 
 
 
 
 
Fair Value Adjustments for the
 
Carrying Value at March 31, 2014
 
Three Months Ended
March 31, 2014
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$
—

 
$
3,015

 
$
1,541

 
$
953

 
$
—

Real estate and other repossessed assets
—

 
4,833

 
—

 
—

 
1,251

 

- 119 -



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 March 31, 2013 for which the fair value was adjusted during the three months ended March 31, 2013:
 
 
 
 
 
 
 
Fair Value Adjustments for the
 
Carrying Value at March 31, 2013
 
Three Months Ended
March 31, 2013
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$
—

 
$
14,448

 
$
2,197

 
$
7,485

 
$
—

Real estate and other repossessed assets
—

 
5,166

 
607

 
—

 
661


The fair value of collateral-dependent impaired loans and real estate and other repossessed assets and the related fair value adjustments are generally based on unadjusted third-party appraisals. Our appraisal review policies require appraised values to be supported by observed inputs derived principally from or corroborated by observable market data. Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on significant unobservable inputs. Non-recurring fair value measurements of collateral-dependent impaired loans and real estate and other repossessed assets based on significant unobservable inputs are generally due to estimates of current fair values between appraisal dates. Significant unobservable inputs include listing prices for the same or comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. These inputs are developed by asset management and workout professionals and approved by senior Credit Administration executives.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of March 31, 2014 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
1,541

 
Appraised value, as adjusted
 
Broker quotes and management's knowledge of industry and collateral.
 
N/A


A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of March 31, 2013 follows (in thousands):
Quantitative Information about Level 3 Non-recurring Fair Value Measurements
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
2,197

 
Appraised value, as adjusted
 
Broker quotes and management's knowledge of industry and collateral.
 
N/A
Real estate and other repossessed assets
 
607

 
Listing value, less cost to sell
 
Marketability adjustments off appraised value
 
73%-85% (77%)1
1 
Marketability adjustments include consideration of estimated costs to sell which is approximately 15% of fair value.

- 120 -



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 March 31, 2014 (dollars in thousands):
 
 
Carrying
Value
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
 
Estimated
Fair
Value
Cash and due from banks
 
$
645,435

 
 
 
 
 
 
 
$
645,435

Interest-bearing cash and cash equivalents
 
708,571

 
 
 
 
 
 
 
708,571

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
28,588

 
 
 
 
 
 
 
28,588

U.S. agency residential mortgage-backed securities
 
23,595

 
 
 
 
 
 
 
23,595

Municipal and other tax-exempt securities
 
27,280

 
 
 
 
 
 
 
27,280

Other trading securities
 
7,108

 
 
 
 
 
 
 
7,108

Total trading securities
 
86,571

 
 
 
 
 
 
 
86,571

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
440,303

 
 
 
 
 
 
 
441,532

U.S. agency residential mortgage-backed securities
 
45,917

 
 
 
 
 
 
 
47,834

Other debt securities
 
182,756

 
 
 
 
 
 
 
195,697

Total investment securities
 
668,976

 
 
 
 
 
 
 
685,063

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,034

 
 
 
 
 
 
 
1,034

Municipal and other tax-exempt
 
70,065

 
 
 
 
 
 
 
70,065

U.S. agency residential mortgage-backed securities
 
7,475,569

 
 
 
 
 
 
 
7,475,569

Privately issued residential mortgage-backed securities
 
189,248

 
 
 
 
 
 
 
189,248

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,123,762

 
 
 
 
 
 
 
2,123,762

Other debt securities
 
35,119

 
 
 
 
 
 
 
35,119

Perpetual preferred stock
 
24,281

 
 
 
 
 
 
 
24,281

Equity securities and mutual funds
 
14,645

 
 
 
 
 
 
 
14,645

Total available for sale securities
 
9,933,723

 
 
 
 
 
 
 
9,933,723

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
156,525

 
 
 
 
 
 
 
156,525

      Other securities
 
4,359

 
 
 
 
 
 
 
4,359

Total fair value option securities
 
160,884

 
 
 
 
 
 
 
160,884

Residential mortgage loans held for sale
 
226,512

 
 
 
 
 
 
 
226,512

Loans:
 
 

 
 
 
 
 
 
 
 

Commercial
 
8,051,706

 
0.15% - 30.00%
 
0.52

 
0.55% - 4.28%

 
7,941,638

Commercial real estate
 
2,631,407

 
0.38% - 18.00%
 
0.74

 
1.15% - 3.54%

 
2,609,622

Residential mortgage
 
2,018,675

 
0.01% - 18.00%
 
2.60

 
0.57% - 4.54%

 
2,040,336

Consumer
 
376,066

 
0.38% - 21.00%
 
0.50

 
1.14% - 3.80%

 
370,885

Total loans
 
13,077,854

 
 
 
 

 
 

 
12,962,481

Allowance for loan losses
 
(188,318
)
 
 
 
 

 
 

 
—

Net loans
 
12,889,536

 
 
 
 

 
 

 
12,962,481

Mortgage servicing rights
 
153,774

 
 
 
 

 
 

 
153,774

Derivative instruments with positive fair value, net of cash margin
 
218,507

 
 
 
 

 
 

 
218,507

Other assets – private equity funds
 
27,466

 
 
 
 

 
 

 
27,466

Deposits with no stated maturity
 
17,727,539

 
 
 
 

 
 

 
17,727,539

Time deposits
 
2,662,174

 
0.03% - 9.64%
 
2.08

 
0.74% - 1.32%

 
2,664,770

Other borrowed funds
 
2,974,979

 
0.23% - 4.50%
 
0.11

 
0.06% - 2.62%

 
2,960,177

Subordinated debentures
 
347,846

 
0.95% - 5.00%
 
2.40

 
2.21
%
 
344,717

Derivative instruments with negative fair value, net of cash margin
 
185,499

 
 
 
 

 
 

 
185,499


- 121 -



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, 2013 (dollars in thousands):
 
 
Carrying
Value
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
 
Estimated
Fair
Value
Cash and due from banks
 
$
512,931

 
 
 
 
 
 
 
$
512,931

Interest-bearing cash and cash equivalents
 
574,282

 
 
 
 
 
 
 
574,282

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
34,120

 
 
 
 
 
 
 
34,120

U.S. agency residential mortgage-backed securities
 
21,011

 
 
 
 
 
 
 
21,011

Municipal and other tax-exempt securities
 
27,350

 
 
 
 
 
 
 
27,350

Other trading securities
 
9,135

 
 
 
 
 
 
 
9,135

Total trading securities
 
91,616

 
 
 
 
 
 
 
91,616

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
440,187

 
 
 
 
 
 
 
439,870

U.S. agency residential mortgage-backed securities
 
50,182

 
 
 
 
 
 
 
51,864

Other debt securities
 
187,509

 
 
 
 
 
 
 
195,393

Total investment securities
 
677,878

 
 
 
 
 
 
 
687,127

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,042

 
 
 
 
 
 
 
1,042

Municipal and other tax-exempt
 
73,775

 
 
 
 
 
 
 
73,775

U.S. agency residential mortgage-backed securities
 
7,716,010

 
 
 
 
 
 
 
7,716,010

Privately issued residential mortgage-backed securities
 
221,099

 
 
 
 
 
 
 
221,099

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,055,804

 
 
 
 
 
 
 
2,055,804

Other debt securities
 
35,241

 
 
 
 
 
 
 
35,241

Perpetual preferred stock
 
22,863

 
 
 
 
 
 
 
22,863

Equity securities and mutual funds
 
21,328

 
 
 
 
 
 
 
21,328

Total available for sale securities
 
10,147,162

 
 
 
 
 
 
 
10,147,162

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
157,431

 
 
 
 
 
 
 
157,431

      Other securities
 
9,694

 
 
 
 
 
 
 
9,694

Total fair value option securities
 
167,125

 
 
 
 
 
 
 
167,125

Residential mortgage loans held for sale
 
200,546

 
 
 
 
 
 
 
200,546

Loans:
 
 

 
 
 
 

 
 

 
 

Commercial
 
7,943,221

 
0.04% - 30.00%
 
0.49

 
0.48% - 4.33%

 
7,835,325

Commercial real estate
 
2,415,353

 
0.38% - 18.00%
 
0.78

 
1.21% - 3.49%

 
2,394,443

Residential mortgage
 
2,052,026

 
0.38% - 18.00%
 
2.63

 
0.59% - 4.73%

 
2,068,690

Consumer
 
381,664

 
0.38% - 21.00%
 
0.55

 
1.22% - 3.75%

 
375,962

Total loans
 
12,792,264

 
 
 
 

 
 

 
12,674,420

Allowance for loan losses
 
(185,396
)
 
 
 
 

 
 

 
—

Net loans
 
12,606,868

 
 
 
 

 
 

 
12,674,420

Mortgage servicing rights
 
153,333

 
 
 
 

 
 

 
153,333

Derivative instruments with positive fair value, net of cash margin
 
265,012

 
 
 
 

 
 

 
265,012

Other assets – private equity funds
 
27,341

 
 
 
 

 
 

 
27,341

Deposits with no stated maturity
 
17,573,334

 
 
 
 

 
 

 
17,573,334

Time deposits
 
2,695,993

 
0.01% - 9.64%
 
2.12

 
0.75% - 1.33%

 
2,697,290

Other borrowed funds
 
2,721,888

 
0.25% - 4.78%
 
0.03

 
0.08% - 2.64%

 
2,693,788

Subordinated debentures
 
347,802

 
0.95% - 5.00%
 
2.63

 
2.22
%
 
344,783

Derivative instruments with negative fair value, net of cash margin
 
247,185

 
 
 
 

 
 

 
247,185



- 122 -



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 March 31, 2013 (dollars in thousands):
 
 
Carrying
Value
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
 
Estimated
Fair
Value
Cash and due from banks
 
$
458,471

 
 
 
 
 
 
 
$
458,471

Interest-bearing cash and cash equivalents
 
487,146

 
 
 
 
 
 
 
487,146

Trading securities:
 
 
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
55,358

 
 
 
 
 
 
 
55,358

U.S. agency residential mortgage-backed securities
 
33,106

 
 
 
 
 
 
 
33,106

Municipal and other tax-exempt securities
 
90,710

 
 
 
 
 
 
 
90,710

Other trading securities
 
27,424

 
 
 
 
 
 
 
27,424

Total trading securities
 
206,598

 
 
 
 
 
 
 
206,598

Investment securities:
 
 

 
 
 
 
 
 
 
 

Municipal and other tax-exempt
 
339,003

 
 
 
 
 
 
 
341,940

U.S. agency residential mortgage-backed securities
 
72,968

 
 
 
 
 
 
 
76,851

Other debt securities
 
177,300

 
 
 
 
 
 
 
196,403

Total investment securities
 
589,271

 
 
 
 
 
 
 
615,194

Available for sale securities:
 
 

 
 
 
 
 
 
 
 

U.S. Treasury
 
1,000

 
 
 
 
 
 
 
1,000

Municipal and other tax-exempt
 
85,447

 
 
 
 
 
 
 
85,447

U.S. agency residential mortgage-backed securities
 
9,165,212

 
 
 
 
 
 
 
9,165,212

Privately issued residential mortgage-backed securities
 
316,208

 
 
 
 
 
 
 
316,208

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
1,405,346

 
 
 
 
 
 
 
1,405,346

Other debt securities
 
36,079

 
 
 
 
 
 
 
36,079

Perpetual preferred stock
 
26,832

 
 
 
 
 
 
 
26,832

Equity securities and mutual funds
 
23,021

 
 
 
 
 
 
 
23,021

Total available for sale securities
 
11,059,145

 
 
 
 
 
 
 
11,059,145

Fair value option securities:
 
 
 
 
 
 
 
 
 
 
U.S. agency residential mortgage-backed securities
 
208,900

 
 
 
 
 
 
 
208,900

Other securities
 
1,292

 
 
 
 
 
 
 
1,292

Total fair value option securities
 
210,192

 
 
 
 
 
 
 
210,192

Residential mortgage loans held for sale
 
286,211

 
 
 
 
 
 
 
286,211

Loans:
 
 

 
 
 
 
 
 
 
 

Commercial
 
7,418,305

 
0.25% - 30.00%
 
0.66

 
0.55% - 3.69%

 
7,372,375

Commercial real estate
 
2,285,160

 
0.38% - 18.00%
 
0.84

 
1.19% - 3.21%

 
2,266,433

Residential mortgage
 
2,012,450

 
0.38% - 18.00%
 
3.53

 
0.74% - 3.29%

 
2,062,801

Consumer
 
377,649

 
0.38% - 21.00%
 
0.31

 
1.28% - 3.53%

 
371,771

Total loans
 
12,093,564

 
 
 
 

 
 

 
12,073,380

Allowance for loan losses
 
(205,965
)
 
 
 
 

 
 

 
—

Net loans
 
11,887,599

 
 
 
 

 
 

 
12,073,380

Mortgage servicing rights
 
109,840

 
 
 
 

 
 

 
109,840

Derivative instruments with positive fair value, net of cash margin
 
320,473

 
 
 
 

 
 

 
320,473

Other assets – private equity funds
 
29,216

 
 
 
 

 
 

 
29,216

Deposits with no stated maturity
 
16,960,237

 
 
 
 

 
 

 
16,960,237

Time deposits
 
2,900,054

 
0.03% - 9.64%
 
2.14

 
0.78% - 1.15%

 
2,958,570

Other borrowed funds
 
3,393,416

 
0.13% - 5.25%
 
—

 
0.13% - 2.67%

 
3,398,902

Subordinated debentures
 
347,674

 
0.98% - 5.00%
 
3.33

 
2.22
%
 
345,527

Derivative instruments with negative fair value, net of cash margin
 
251,836

 
 
 
 

 
 

 
251,836



- 123 -



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 $161 million at March 31, 2014, $157 million at December 31, 2013 and $163 million at March 31, 2013.
 
Deposits
 
The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions which are considered Significant Unobservable Inputs. Estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, is equal to the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, adjusting fair value for the expected benefit of these deposits is prohibited. Accordingly, the positive effect of such deposits is not included in the tables above.
 
Other Borrowings and Subordinated Debentures
 
The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments which are considered Significant Unobservable Inputs.

Off-Balance Sheet Instruments
 
The fair values of commercial loan commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance sheet instruments were not significant at March 31, 2014, December 31, 2013 or March 31, 2013.
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 which have been designated as economic hedges against changes in the fair value of mortgage servicing rights, certain corporate debt securities economically hedged by derivative contracts to manage interest rate risk and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.

- 124 -



(13) Federal and State Income Taxes

The reconciliations of income (loss) attributable to continuing operations at the U.S. federal statutory tax rate to income tax expense are as follows (in thousands):
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Amount:
 
 
 
 
Federal statutory tax
 
$
40,090

 
$
47,654

Tax exempt revenue
 
(1,991
)
 
(1,742
)
Effect of state income taxes, net of federal benefit
 
2,870

 
3,378

Utilization of tax credits
 
(2,630
)
 
(1,722
)
Bank-owned life insurance
 
(768
)
 
(885
)
Charitable contributions to BOKF Foundation
 
(427
)
 
—

Other, net
 
357

 
413

Total
 
$
37,501

 
$
47,096


 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Percent of pretax income:
 
 
 
 
Federal statutory tax
 
35
 %
 
35
 %
Tax exempt revenue
 
(2
)
 
(1
)
Effect of state income taxes, net of federal benefit
 
3

 
3

Utilization of tax credits
 
(2
)
 
(1
)
Bank-owned life insurance
 
(1
)
 
(1
)
Charitable contributions to BOKF Foundation
 
—

 
—

Other, net
 
—

 
—

Total
 
33
 %
 
35
 %
(14) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on March 31, 2014 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q. Other than as disclosed in Note 5, no events were identified requiring recognition in and/or disclosure in the consolidated financial statements.


- 125 -



Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Three Months Ended
 
 
March 31, 2014
 
December 31, 2013
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
549,473

 
$
265

 
0.20
%
 
$
559,918

 
$
258

 
0.18
%
Trading securities
 
92,409

 
531

 
2.85
%
 
127,011

 
472

 
1.73
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
232,646

 
3,282

 
5.64
%
 
238,306

 
3,424

 
5.75
%
Tax-exempt
 
439,110

 
1,830

 
1.67
%
 
434,416

 
1,772

 
1.66
%
Total investment securities
 
671,756

 
5,112

 
3.04
%
 
672,722

 
5,196

 
3.12
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
9,980,069

 
47,255

 
1.90
%
 
10,322,624

 
48,295

 
1.89
%
Tax-exempt
 
96,873

 
735

 
3.11
%
 
112,186

 
751

 
2.74
%
Total available for sale securities
 
10,076,942

 
47,990

 
1.91
%
 
10,434,810

 
49,046

 
1.89
%
Fair value option securities
 
165,515

 
851

 
1.99
%
 
167,490

 
892

 
2.06
%
Restricted equity securities
 
85,234

 
997

 
4.68
%
 
123,009

 
1,555

 
5.06
%
Residential mortgage loans held for sale
 
185,196

 
1,590

 
3.46
%
 
217,811

 
2,251

 
4.16
%
Loans2
 
12,947,926

 
124,335

 
3.89
%
 
12,461,576

 
125,917

 
4.01
%
Less allowance for loan losses
 
(186,979
)
 
 
 
 
 
(193,309
)
 
 
 
 
Loans, net of allowance
 
12,760,947

 
124,335

 
3.95
%
 
12,268,267

 
125,917

 
4.07
%
Total earning assets
 
24,587,472

 
181,671

 
2.99
%
 
24,571,038

 
185,587

 
3.02
%
Receivable on unsettled securities sales
 
114,708

 
 
 
 
 
83,016

 
 
 
 
Cash and other assets
 
2,536,588

 
 
 
 
 
2,448,734

 
 
 
 
Total assets
 
$
27,238,768

 
 
 
 
 
$
27,102,788

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
9,900,823

 
$
2,559

 
0.10
%
 
$
9,486,136

 
$
2,566

 
0.11
%
Savings
 
336,576

 
98

 
0.12
%
 
323,123

 
95

 
0.12
%
Time
 
2,686,041

 
10,329

 
1.56
%
 
2,710,019

 
10,587

 
1.55
%
Total interest-bearing deposits
 
12,923,440

 
12,986

 
0.41
%
 
12,519,278

 
13,248

 
0.42
%
Funds purchased
 
1,021,755

 
161

 
0.06
%
 
748,074

 
145

 
0.08
%
Repurchase agreements
 
773,127

 
151

 
0.08
%
 
752,286

 
105

 
0.06
%
Other borrowings
 
1,038,747

 
1,022

 
0.40
%
 
1,551,591

 
1,205

 
0.31
%
Subordinated debentures
 
347,824

 
2,158

 
2.52
%
 
347,781

 
2,173

 
2.48
%
Total interest-bearing liabilities
 
16,104,893

 
16,478

 
0.41
%
 
15,919,010

 
16,876

 
0.42
%
Non-interest bearing demand deposits
 
7,312,076

 
 
 
 
 
7,356,063

 
 
 
 
Due on unsettled securities
 
116,295

 
 
 
 
 
152,078

 
 
 
 
Other liabilities
 
600,430

 
 
 
 
 
621,834

 
 
 
 
Total equity
 
3,105,074

 
 
 
 
 
3,053,803

 
 
 
 
Total liabilities and equity
 
$
27,238,768

 
 
 
 
 
$
27,102,788

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
165,193

 
2.58
%
 
 
 
$
168,711

 
2.60
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
 
 
2.71
%
 
 
 
 
 
2.74
%
Less tax-equivalent adjustment
 
 
 
2,551

 
 
 
 
 
2,467

 
 
Net Interest Revenue
 
 
 
162,642

 
 
 
 
 
166,244

 
 
Reduction of allowance for credit losses
 
 
 
—

 
 
 
 
 
(11,400
)
 
 
Other operating revenue
 
 
 
137,006

 
 
 
 
 
147,015

 
 
Other operating expense
 
 
 
185,104

 
 
 
 
 
215,419

 
 
Income before taxes
 
 
 
114,544

 
 
 
 
 
109,240

 
 
Federal and state income tax
 
 
 
37,501

 
 
 
 
 
35,318

 
 
Net income before non-controlling interest
 
 
 
77,043

 
 
 
 
 
73,922

 
 
Net income (loss) attributable to non-controlling interest
 
 
 
453

 
 
 
 
 
946

 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
76,590

 
 
 
 
 
$
72,976

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Net income:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
1.11

 
 

 
 

 
$
1.06

 
 

Diluted
 
 

 
$
1.11

 
 

 
 

 
$
1.06

 
 

Yield calculations are shown on a tax equivalent at the statutory federal and state rates for the periods presented.The yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income and the unrealized gains and losses. The yield calculation also include average loan balances for which the accrual of interest has been discontinued and are net of unearned income. Yield / rate calculations are generally based on the conventions that determine how interest income and expense is accrued.

- 126 -



Three Months Ended
September 30, 2013
 
June 30, 2013
 
March 31, 2013
Average Balance
 
Revenue /Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
654,591

 
$
355

 
0.22
%
 
$
408,224

 
$
278

 
0.27
%
 
$
388,132

 
$
184

 
0.19
%
124,689

 
688

 
2.25
%
 
181,866

 
829

 
2.40
%
 
162,353

 
707

 
2.13
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
237,487

 
3,434

 
5.78
%
 
245,311

 
3,604

 
5.88
%
 
258,196

 
3,798

 
5.88
%
383,617

 
1,501

 
1.60
%
 
365,629

 
1,568

 
1.88
%
 
276,576

 
1,483

 
2.38
%
621,104

 
4,935

 
3.22
%
 
610,940

 
5,172

 
3.58
%
 
534,772

 
5,281

 
4.17
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10,439,353

 
50,167

 
1.92
%
 
10,940,486

 
51,360

 
1.94
%
 
11,179,674

 
55,007

 
2.09
%
119,324

 
828

 
2.81
%
 
120,214

 
1,013

 
3.59
%
 
112,507

 
907

 
3.39
%
10,558,677

 
50,995

 
1.93
%
 
11,060,700

 
52,373

 
1.96
%
 
11,292,181

 
55,914

 
2.11
%
169,299

 
814

 
1.80
%
 
216,312

 
1,024

 
1.92
%
 
251,725

 
1,177

 
2.06
%
155,938

 
1,189

 
3.05
%
 
144,332

 
1,462

 
4.05
%
 
80,433

 
865

 
4.30
%
225,789

 
2,168

 
3.87
%
 
261,977

 
2,294

 
3.54
%
 
216,816

 
1,792

 
3.36
%
12,402,096

 
126,849

 
4.06
%
 
12,277,444

 
125,992

 
4.12
%
 
12,224,960

 
126,745

 
4.20
%
(201,616
)
 
 
 
 
 
(206,807
)
 
 
 
 
 
(214,017
)
 
 
 
 
12,200,480

 
126,849

 
4.13
%
 
12,070,637

 
125,992

 
4.19
%
 
12,010,943

 
126,745

 
4.27
%
24,710,567

 
187,993

 
3.03
%
 
24,954,988

 
189,424

 
3.10
%
 
24,937,355

 
192,665

 
3.21
%
90,014

 
 
 
 
 
135,964

 
 
 
 
 
178,561

 
 
 
 
2,454,151

 
 
 
 
 
2,568,372

 
 
 
 
 
2,397,515

 
 
 
 
$
27,254,732

 
 
 
 
 
$
27,659,324

 
 
 
 
 
$
27,513,431

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
9,276,136

 
$
2,681

 
0.11
%
 
$
9,504,128

 
$
2,762

 
0.12
%
 
$
9,836,204

 
$
3,146

 
0.13
%
317,912

 
107

 
0.13
%
 
315,421

 
120

 
0.15
%
 
296,319

 
120

 
0.16
%
2,742,970

 
10,738

 
1.55
%
 
2,818,533

 
11,027

 
1.57
%
 
2,913,999

 
11,615

 
1.62
%
12,337,018

 
13,526

 
0.43
%
 
12,638,082

 
13,909

 
0.44
%
 
13,046,522

 
14,881

 
0.46
%
776,356

 
134

 
0.07
%
 
789,302

 
205

 
0.10
%
 
1,155,983

 
364

 
0.13
%
799,175

 
123

 
0.06
%
 
819,373

 
129

 
0.06
%
 
878,679

 
146

 
0.07
%
2,175,747

 
1,547

 
0.28
%
 
2,172,417

 
1,442

 
0.27
%
 
863,360

 
1,044

 
0.49
%
347,737

 
2,209

 
2.52
%
 
347,695

 
2,200

 
2.54
%
 
347,654

 
2,159

 
2.52
%
16,436,033

 
17,539

 
0.42
%
 
16,766,869

 
17,885

 
0.43
%
 
16,292,198

 
18,594

 
0.46
%
7,110,079

 
 
 
 
 
6,888,983

 
 
 
 
 
7,002,046

 
 
 
 
111,998

 
 
 
 
 
330,926

 
 
 
 
 
665,175

 
 
 
 
631,699

 
 
 
 
 
644,892

 
 
 
 
 
556,173

 
 
 
 
2,964,923

 
 
 
 
 
3,027,654

 
 
 
 
 
2,997,839

 
 
 
 
$
27,254,732

 
 
 
 
 
$
27,659,324

 
 
 
 
 
$
27,513,431

 
 
 
 
 
 
$
170,454

 
2.61
%
 
 
 
$
171,539

 
2.67
%
 
 
 
$
174,071

 
2.75
%
 
 
 
 
2.75
%
 
 
 
 
 
2.80
%
 
 
 
 
 
2.90
%
 
 
2,565

 
 
 
 
 
2,647

 
 
 
 
 
2,619

 
 
 
 
167,889

 
 
 
 
 
168,892

 
 
 
 
 
171,452

 
 
 
 
(8,500
)
 
 
 
 
 
—

 
 
 
 
 
(8,000
)
 
 
 
 
143,432

 
 
 
 
 
163,340

 
 
 
 
 
160,685

 
 
 
 
210,298

 
 
 
 
 
210,921

 
 
 
 
 
203,982

 
 
 
 
109,523

 
 
 
 
 
121,311

 
 
 
 
 
136,155

 
 
 
 
33,461

 
 
 
 
 
41,423

 
 
 
 
 
47,096

 
 
 
 
76,062

 
 
 
 
 
79,888

 
 
 
 
 
89,059

 
 
 
 
324

 
 
 
 
 
(43
)
 
 
 
 
 
1,095

 
 
 
 
$
75,738

 
 
 
 
 
$
79,931

 
 
 
 
 
$
87,964

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
$
1.10

 
 

 
 

 
$
1.16

 
 

 
 

 
$
1.28

 
 

 

 
$
1.10

 
 

 
 

 
$
1.16

 
 

 
 

 
$
1.28

 
 




- 127 -




Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
 
 
Three Months Ended
 
 
March 31,
2014
 
December 31,
2013
 
September 30,
2013
 
June 30,
2013
 
March 31,
2013
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
179,120

 
$
183,120

 
$
185,428

 
$
186,777

 
$
190,046

Interest expense
 
16,478

 
16,876

 
17,539

 
17,885

 
18,594

Net interest revenue
 
162,642

 
166,244

 
167,889

 
168,892

 
171,452

Provision for credit losses
 
—

 
(11,400
)
 
(8,500
)
 
—

 
(8,000
)
Net interest revenue after provision for credit losses
 
162,642

 
177,644

 
176,389

 
168,892

 
179,452

Other operating revenue
 
 

 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
29,516

 
28,515

 
32,338

 
32,874

 
31,751

Transaction card revenue
 
29,134

 
29,134

 
30,055

 
29,942

 
27,692

Fiduciary and asset management revenue
 
25,722

 
25,074

 
23,892

 
24,803

 
22,313

Deposit service charges and fees
 
22,689

 
23,440

 
24,742

 
23,962

 
22,966

Mortgage banking revenue
 
22,844

 
21,876

 
23,486

 
36,596

 
39,976

Bank-owned life insurance
 
2,106

 
2,285

 
2,408

 
2,236

 
3,226

Other revenue
 
8,852

 
12,048

 
8,314

 
8,760

 
9,140

Total fees and commissions
 
140,863

 
142,372

 
145,235

 
159,173

 
157,064

Gain (loss) on other assets, net
 
(4,264
)
 
651

 
(377
)
 
(1,666
)
 
467

Gain (loss) on derivatives, net
 
968

 
(930
)
 
31

 
(2,527
)
 
(941
)
Gain (loss) on fair value option securities, net
 
2,660

 
(2,805
)
 
(80
)
 
(9,156
)
 
(3,171
)
Change in fair value of mortgage servicing rights
 
(4,461
)
 
6,093

 
(346
)
 
14,315

 
2,658

Gain on available for sale securities, net
 
1,240

 
1,634

 
478

 
3,753

 
4,855

Total other-than-temporary impairment losses
 
—

 
—

 
(1,436
)
 
(1,138
)
 
—

Portion of loss recognized in (reclassified from) other comprehensive income
 
—

 
—

 
(73
)
 
586

 
(247
)
Net impairment losses recognized in earnings
 
—

 
—

 
(1,509
)
 
(552
)
 
(247
)
Total other operating revenue
 
137,006

 
147,015

 
143,432

 
163,340

 
160,685

Other operating expense
 
 

 
 

 
 

 
 

 
 

Personnel
 
104,433

 
125,662

 
125,799

 
128,110

 
125,654

Business promotion
 
5,841

 
6,020

 
5,355

 
5,770

 
5,453

Charitable contributions to BOKF Foundation
 
2,420

 
—

 
2,062

 
—

 
—

Professional fees and services
 
7,565

 
10,003

 
7,183

 
8,381

 
6,985

Net occupancy and equipment
 
16,896

 
19,103

 
17,280

 
16,909

 
16,481

Insurance
 
4,541

 
4,394

 
3,939

 
4,044

 
3,745

Data processing and communications
 
27,135

 
28,196

 
25,695

 
26,734

 
25,450

Printing, postage and supplies
 
3,541

 
3,126

 
3,505

 
3,580

 
3,674

Net losses and operating expenses of repossessed assets
 
1,432

 
1,618

 
2,014

 
282

 
1,246

Amortization of intangible assets
 
816

 
842

 
835

 
875

 
876

Mortgage banking costs
 
3,634

 
7,071

 
8,753

 
7,910

 
7,354

Other expense
 
6,850

 
9,384

 
7,878

 
8,326

 
7,064

Total other operating expense
 
185,104

 
215,419

 
210,298

 
210,921

 
203,982

Net income before taxes
 
114,544

 
109,240

 
109,523

 
121,311

 
136,155

Federal and state income taxes
 
37,501

 
35,318

 
33,461

 
41,423

 
47,096

Net income before non-controlling interest
 
77,043

 
73,922

 
76,062

 
79,888

 
89,059

Net income (loss) attributable to non-controlling interest
 
453

 
946

 
324

 
(43
)
 
1,095

Net income attributable to BOK Financial Corporation
 
$
76,590

 
$
72,976

 
$
75,738

 
$
79,931

 
$
87,964

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 

 
 

 
 

Basic
 
$1.11

$1.06

$1.10

$1.16

$1.28
Diluted
 
$1.11

$1.06

$1.10

$1.16

$1.28
Average shares used in computation:
 
 
 
 
 
 
 
 
 
 
Basic
 
68,273,685

 
68,095,254

 
68,049,179

 
67,993,822

 
67,814,550

Diluted
 
68,436,478

 
68,293,758

 
68,272,861

 
68,212,497

 
68,040,180


- 128 -





- 129 -



PART II. Other Information

Item 1. Legal Proceedings
 
See discussion of legal proceedings at Note 8 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 March 31, 2014.
 
Period
 
Total Number of Shares Purchased2
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans
January 1 to January 31, 2014
 
69,889

 
$
66.27

 
—

 
1,960,504

February 1 to February 28, 2014
 
986

 
$
64.46

 
—

 
1,960,504

March 1 to March 31, 2014
 
31,934

 
$
66.11

 
—

 
1,960,504

Total
 
102,809

 
 

 
—

 
 

1 
On April 24, 2012, the Company’s board of directors authorizing the Company to repurchase up to two million shares of the Company’s common stock. As of March 31, 2014, the Company had repurchased 39,496 shares under this plan.
2 
The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee stock option exercises.

Item 6. Exhibits

31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act   of 2002

31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.



- 130 -



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:        May 2, 2014                                                                  



/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


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