10-Q


 

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, 2016
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ______________                 

Commission File No. 0-19341

BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Oklahoma
 
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: 66,155,103 shares of common stock ($.00006 par value) as of March 31, 2016.
 





BOK Financial Corporation
Form 10-Q
Quarter Ended March 31, 2016

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 $42.6 million or $0.64 per diluted share for the first quarter of 2016, compared to $74.8 million or $1.08 per diluted share for the first quarter of 2015 and $59.6 million or $0.89 per diluted share for the fourth quarter of 2015. The decrease in net income was largely based on an increase in the provision for credit losses and a decrease in the fair value of mortgage servicing rights, net of economic hedges.

Highlights of the first quarter of 2016 included:
Net interest revenue totaled $182.6 million for the first quarter of 2016, compared to $167.7 million for the first quarter of 2015 and $181.3 million for the fourth quarter of 2015. Net interest revenue increased over the prior year primarily due to growth in average earning assets. Average earning assets were $28.6 billion for the first quarter of 2016 and $27.3 billion for the first quarter of 2015. Net interest margin was 2.65 percent for the first quarter of 2016. Net interest margin was 2.55 percent for the first quarter of 2015 and 2.64 percent for the fourth quarter of 2015
Fees and commissions revenue totaled $165.6 million for the first quarter of 2016, largely unchanged compared to the first quarter of 2015. Mortgage banking revenue decreased $4.9 million primarily due to lower loan production volume. This decrease was offset by increases in all other revenue categories. Fees and commissions revenue increased $9.8 million over the fourth quarter of 2015, primarily due to a $9.4 million increase in mortgage banking revenue.
Changes in the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income in the first quarter of 2016 by $11.4 million, decreased pre-tax net income in the first quarter of 2015 by $5.0 million and increased pre-tax net income by $2.6 million in the fourth quarter of 2015. Net changes in the fair value of mortgage servicing rights for the first quarter of 2016 were largely driven by a decrease in mortgage interest rates during the first quarter and a narrowing in the forward-looking spread between the primary mortgage interest rates offered to borrowers and secondary mortgage interest rates required by investors.
Operating expenses totaled $244.9 million for the first quarter of 2016, an increase of $24.6 million over the first quarter of 2015. Personnel expense increased $7.3 million and non-personnel expense increased $17.3 million. The first quarter of 2016 included several litigation accruals and post-acquisition valuation adjustments to a consolidated merchant banking investment. Deposit insurance expense increased due to increased criticized and classified assets levels, an input into the deposit insurance assessment calculation. Operating expenses increased $12.3 million compared to the previous quarter.
The Company recorded a $35.0 million provision for credit losses in the first quarter of 2016. The additional provision was largely a result of the extended decline in commodity prices and its impact on our energy loan portfolio. The Company recorded a $22.5 million provision in the fourth quarter of 2015. No provision for credit losses was recorded in the first quarter of 2015. Gross charge-offs were $24.0 million in the first quarter of 2016, $2.2 million in the first quarter of 2015 and $4.9 million in the fourth quarter of 2015. Recoveries were $1.5 million in the first quarter of 2016, compared to $10.5 million in the first quarter of 2015 and $1.9 million in the fourth quarter of 2015.
The combined allowance for credit losses totaled $240 million or 1.50 percent of outstanding loans at March 31, 2016, compared to $227 million or 1.43 percent of outstanding loans at December 31, 2015. The portion of the combined allowance attributed to the energy portfolio totaled 3.19 percent of outstanding energy loans at March 31, 2016, an increase from 2.89 percent of outstanding energy loans at December 31, 2015.
Nonperforming assets that are not guaranteed by U.S. government agencies totaled $252 million or 1.59 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2016 and $156 million or 0.99 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at December 31, 2015. Nonperforming energy loans increased $98 million during the first quarter.
Average loans increased by $405 million over the previous quarter due primarily to a $244 million increase in commercial loans and a $177 million increase in commercial real estate loans. Period-end outstanding loan balances were $16.0 billion at March 31, 2016, a $81 million increase over December 31, 2015. Commercial real estate loans increased $111 million, and commercial loan balances increased $36 million. Personal loans decreased $58 million.

- 1 -



Average deposit balances were largely unchanged compared to the previous quarter. Decreased demand and time deposit balances were offset by growth in interest-bearing transaction accounts. Period-end deposits were $20.4 billion at March 31, 2016, a decrease of $670 million compared to December 31, 2015. The overall decrease in period-end deposits was due to normal post-year-end activity and reductions in balances held by energy-related customers.
The Company's common equity Tier 1 ratio was 12.00% at March 31, 2016. In addition, the Company's Tier 1 capital ratio was 12.00%, total capital ratio was 13.21% and leverage ratio was 9.12% at March 31, 2016. The Company's common equity Tier 1 ratio was 12.13% at December 31, 2015. In addition, the Company's Tier 1 capital ratio was 12.13%, total capital ratio was 13.30% and leverage ratio was 9.25% at December 31, 2015.
The Company paid a regular quarterly cash dividend of $28 million or $0.43 per common share during the first quarter of 2016. On April 26, 2016, the board of directors approved a regular quarterly cash dividend of $0.43 per common share payable on or about May 27, 2016 to shareholders of record as of May 13, 2016.
Results of Operations
Net Interest Revenue and Net Interest Margin

Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing tax-equivalent net interest revenue by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest spread due to interest income earned on assets funded by non-interest bearing liabilities such as demand deposits and equity.

Net interest revenue totaled $182.6 million for the first quarter of 2016 compared to $167.7 million for the first quarter of 2015 and $181.3 million for the fourth quarter of 2015. Net interest margin was 2.65 percent for the first quarter of 2016, 2.55 percent for the first quarter of 2015 and 2.64 percent for the fourth quarter of 2015.

Net interest revenue increased $14.8 million over the first quarter of 2015. Net interest revenue increased $12.9 million primarily due to the growth in average loan balances, partially offset by increased borrowings. Net interest revenue increased $3.4 million due to a change in rates primarily from the full quarter impact of the increase in the federal funds rate by the Federal Reserve in the fourth quarter of 2015.

The tax-equivalent yield on earning assets was 2.92 percent for the first quarter of 2016, up 12 basis points over the first quarter of 2015. The available for sale securities portfolio yield increased 10 basis points to 2.08 percent. The yield on interest-bearing cash and cash equivalents increased 26 basis points. Loan yields decreased 2 basis points, primarily due to growth in variable-rate loans and continued repricing in the low rate environment. Funding costs were up 2 basis points over the first quarter of 2015. The cost of interest-bearing deposits decreased 3 basis points and the cost of other borrowed funds increased 25 basis points largely due to the mix of funding sources. The cost of subordinated debentures decreased 126 basis points as $122 million of fixed-rate subordinated debt matured on June 1, 2015. The cost of this subordinated debt was 5.56 percent. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 13 basis points for the first quarter of 2016, unchanged compared to the first quarter of 2015.

Average earning assets for the first quarter of 2016 increased $1.3 billion or 5 percent over the first quarter of 2015. Average loans, net of allowance for loan losses, increased $1.4 billion due primarily to growth in average commercial and commercial real estate loans. The average balance of available for sale securities decreased $150 million and the average balance of restricted equity securities increased $115 million. The average balances of trading securities and fair value option securities held as an economic hedge of our mortgage servicing rights also increased, offset by decreases in residential mortgage loans held for sale, investment securities and interest-bearing cash and cash equivalents.

Average deposits decreased $622 million over the first quarter of 2015. Average interest-bearing transaction accounts decreased $582 million and average time deposits decreased $293 million, partially offset by a $220 million increase in average demand deposit balances. Average savings account balances also grew over the prior year. Average borrowed funds increased $2.2 billion over the first quarter of 2015, primarily due to increased borrowings from the Federal Home Loan Banks. The average balance of subordinated debentures decreased $122 million.


- 2 -



Net interest margin increased 1 basis point over the fourth quarter of 2015. The yield on average earning assets increased 6 basis points. The loan portfolio yield increased 2 basis points to 3.57 percent. The yield on the available for sale securities portfolio increased 4 basis points to 2.08 percent. Funding costs were 0.40 percent, up 6 basis points over the prior quarter. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities increased 1 basis point. Increased earning asset yields and funding costs were primarily related to the full quarter impact of the increase in the federal funds rate by the Federal Reserve in the fourth quarter of 2015.
Average earning assets increased $464 million during the first quarter of 2016, primarily due to growth in average outstanding loans of $405 million over the previous quarter. Average commercial loan balances increased $244 million and average commercial real estate loan balances increased $177 million. The average balance of interest-bearing cash and cash equivalents increased $57 million. Trading securities balances were up $38 million and the average balance of restricted equity securities increased $32 million. This growth was partially offset by a $21 million decrease in the average balance of residential mortgage loans held for sale, a $20 million decrease in the average balance of the available for sale securities portfolio and a $15 million decrease in average investment securities balances.
Average deposits decreased $79 million compared to the previous quarter. Demand deposit balances decreased $207 million and time deposit balances decreased $116 million, partially offset by a $229 million increase in interest-bearing transaction account balances. The average balance of borrowed funds increased $704 million over the fourth quarter of 2015, primarily due to increased borrowings from the Federal Home Loan Banks and increased federal funds sold and repurchase agreement balances.

Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates as is further described in the Market Risk section of this report. More than three-fourths 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
March 31, 2016 / 2015
 
 
 
 
Change Due To1
 
 
Change
 
Volume
 
Yield /
Rate
Tax-equivalent interest revenue:
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
1,284

 
$
(48
)
 
$
1,332

Trading securities
 
42

 
64

 
(22
)
Investment securities:
 
 
 
 
 
 
Taxable securities
 
(151
)
 
(161
)
 
10

Tax-exempt securities
 
420

 
(205
)
 
625

Total investment securities
 
269

 
(366
)
 
635

Available for sale securities:
 
 
 
 
 
 
Taxable securities
 
1,827

 
(528
)
 
2,355

Tax-exempt securities
 
(45
)
 
(152
)
 
107

Total available for sale securities
 
1,782

 
(680
)
 
2,462

Fair value option securities
 
586

 
486

 
100

Restricted equity securities
 
1,714

 
1,662

 
52

Residential mortgage loans held for sale
 
(249
)
 
(519
)
 
270

Loans
 
13,228

 
13,410

 
(182
)
Total tax-equivalent interest revenue
 
18,656

 
14,009

 
4,647

Interest expense:
 
 
 
 
 
 
Transaction deposits
 
852

 
(162
)
 
1,014

Savings deposits
 
(1
)
 
8

 
(9
)
Time deposits
 
(2,414
)
 
(911
)
 
(1,503
)
Funds purchased
 
60

 
19

 
41

Repurchase agreements
 
(15
)
 
(37
)
 
22

Other borrowings
 
5,354

 
2,751

 
2,603

Subordinated debentures
 
(1,455
)
 
(563
)
 
(892
)
Total interest expense
 
2,381

 
1,105

 
1,276

Tax-equivalent net interest revenue
 
16,275

 
12,904

 
3,371

Change in tax-equivalent adjustment
 
1,429

 
 
 
 
Net interest revenue
 
$
14,846

 
 
 
 
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 $159.7 million for the first quarter of 2016, a $6.3 million decrease compared to the first quarter of 2015 and a $1.4 million decrease compared to the fourth quarter of 2015. Fees and commissions revenue decreased $364 thousand over the first quarter of 2015 and increased $9.8 million compared to the prior quarter. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other operating revenue by $11.4 million in the first quarter of 2016, decreased other operating revenue by $5.0 million in the first quarter of 2015 and increased other operating revenue by $2.6 million in the fourth quarter of 2015.

Table 2Other Operating Revenue 
(In thousands)
 
 
Three Months Ended
March 31,
 
 
 
 
 
Three Months Ended
Dec. 31, 2015
 
 
 
 
 
 
2016
 
2015
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
Increase (Decrease)
 
% Increase (Decrease)
Brokerage and trading revenue
 
$
32,341

 
$
31,707

 
$
634

 
2
 %
 
$
30,255

 
$
2,086

 
7
 %
Transaction card revenue
 
32,354

 
31,010

 
1,344

 
4
 %
 
32,319

 
35

 
 %
Fiduciary and asset management revenue
 
32,056

 
31,469

 
587

 
2
 %
 
31,165

 
891

 
3
 %
Deposit service charges and fees
 
22,542

 
21,684

 
858

 
4
 %
 
22,813

 
(271
)
 
(1
)%
Mortgage banking revenue
 
34,430

 
39,320

 
(4,890
)
 
(12
)%
 
25,039

 
9,391

 
38
 %
Bank-owned life insurance
 
2,170

 
2,198

 
(28
)
 
(1
)%
 
2,348

 
(178
)
 
(8
)%
Other revenue
 
9,734

 
8,603

 
1,131

 
13
 %
 
11,885

 
(2,151
)
 
(18
)%
Total fees and commissions revenue
 
165,627

 
165,991

 
(364
)
 
 %
 
155,824

 
9,803

 
6
 %
Other gains, net
 
1,560

 
755

 
805

 
N/A

 
2,329

 
(769
)
 
N/A

Gain (loss) on derivatives, net
 
7,138

 
911

 
6,227

 
N/A

 
(732
)
 
7,870

 
N/A

Gain (loss) on fair value option securities, net
 
9,443

 
2,647

 
6,796

 
N/A

 
(4,127
)
 
13,570

 
N/A

Change in fair value of mortgage servicing rights
 
(27,988
)
 
(8,522
)
 
(19,466
)
 
N/A

 
7,416

 
(35,404
)
 
N/A

Gain on available for sale securities, net
 
3,964

 
4,327

 
(363
)
 
N/A

 
2,132

 
1,832

 
N/A

Total other-than-temporary impairment
 

 
(781
)
 
781

 
N/A

 
(2,114
)
 
2,114

 
N/A

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

 
689

 
(689
)
 
N/A

 
387

 
(387
)
 
N/A

Net impairment losses recognized in earnings
 

 
(92
)
 
92

 
N/A

 
(1,727
)
 
1,727

 
N/A

Total other operating revenue
 
$
159,744

 
$
166,017

 
$
(6,273
)
 
(4
)%
 
$
161,115

 
$
(1,371
)
 
(1
)%
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 48 percent of total revenue for the first quarter of 2016, excluding provision for credit losses and gains and losses on other assets, securities and derivatives and the change in the fair value of mortgage servicing rights. We believe that a variety of fee revenue sources provides an offset to changes in interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be volatile. As an example of this strength, many of the economic factors that cause net interest revenue compression such as falling interest rates may also drive growth in our mortgage banking revenue. We expect growth in other operating revenue to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

Brokerage and trading revenue includes revenues from securities trading, customer hedging, retail brokerage and investment banking. Brokerage and trading revenue increased $634 thousand over the first quarter of 2015

- 5 -



Securities trading revenue was $12.9 million for the first quarter of 2016, an increase of $3.0 million or 30 percent over the first quarter of 2015. Securities trading revenue includes net realized and unrealized gains primarily related to sales of U.S. government securities, residential mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers. 

Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Derivative Programs in Note 3 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Customer hedging revenue totaled $8.9 million for the first quarter of 2016, a $1.5 million decrease compared to the first quarter of 2015 primarily due to lower hedging activity by our mortgage banking and energy customers.

Revenue earned from retail brokerage transactions decreased $334 thousand or 5 percent compared to the first quarter of 2015 to $6.5 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 and applicable commission rate for each product type. The decrease in revenue from changes in product mix to products that pay a lower commission rate was partially offset by transaction volume growth. In addition, volume has shifted from sales of products that pay a one-time transaction fee to accounts that pay us an on-going management fee.

Investment banking revenue, which includes fees earned upon completion of underwriting and financial advisory services and loan syndication fees, totaled $4.1 million for the first quarter of 2016, a $556 thousand or 12 percent decrease compared to the first quarter of 2015, primarily related to the timing and volume of completed transactions.

Brokerage and trading revenue increased $2.1 million over the fourth quarter of 2015. Securities trading revenue increased $1.2 million primarily related to increased transaction volume in mortgage-backed and U.S. Treasury securities. Investment banking fees increased $936 thousand compared to the prior quarter primarily due to increased financial advisory fees. Retail brokerage fees were up $691 thousand over the prior quarter and customer hedging revenue decreased $779 thousand.

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 2016 increased $1.3 million or 4 percent over the first quarter of 2015. Revenues from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ("EFT") network totaled $16.5 million, a $514 thousand or 3 percent increase over the prior year. Merchant services fees totaled $11.2 million, an increase of $743 thousand or 7 percent based on increased transaction activity. Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the Company totaled $4.7 million, an increase of $87 thousand or 2 percent over the first quarter of 2015.

Transaction card revenue was largely unchanged compared to the fourth quarter of 2015. Growth in merchant services fees was offset by lower interchange fee revenue from debit cards issued by the Company and decreased EFT network revenues.

Fiduciary and asset management revenue increased $587 thousand or 2 percent over the first quarter of 2015 primarily due to decreased fee waivers. We earn fees as administrator to and investment adviser for the Cavanal Hill Funds, a diversified, open-ended investment company established as a business trust under the Investment Company Act of 1940. The 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 $2.0 million for the first quarter of 2016 compared to $2.7 million for the first quarter of 2015 and $3.5 million for the fourth quarter of 2015. The decrease in fee waivers was related to increased interest rates as a result of the Federal Reserve's federal funds rate increase in the fourth quarter of 2015.

Fiduciary and asset management revenue increased $891 thousand over the fourth quarter of 2015 primarily due decreased fee waivers.

The fair value of fiduciary assets administered by the Company totaled $39.1 billion at March 31, 2016, $37.5 billion at March 31, 2015 and $38.3 billion at December 31, 2015. Fiduciary assets are assets for which the Company possesses investment discretion on behalf of another or any other similar capacity.


- 6 -



Deposit service charges and fees were $22.5 million for the first quarter of 2016, an increase of $858 thousand or 4 percent over the first quarter of 2015. Overdraft fees were $9.6 million for the first quarter of 2016, an increase of $180 thousand or 2 percent compared to the first quarter of 2015. Commercial account service charge revenue totaled $11.3 million, up $786 thousand or 8 percent over the prior year. Service charges on deposit accounts with a standard monthly fee were $1.7 million, a decrease of $112 thousand or 6 percent compared to the first quarter of 2015. Deposit service charges and fees decreased by $271 thousand compared to the prior quarter primarily due to a seasonal decrease in overdraft fee volumes.

Mortgage banking revenue decreased $4.9 million compared to the first quarter of 2015. Mortgage production revenue decreased $7.1 million largely due to lower production activity and decreased percentage of higher-margin mortgage loan refinances. The percentage of refinanced mortgage loans was 49 percent in the first quarter of 2016 compared to 56 percent in the first quarter of 2015. Mortgage servicing revenue grew by $2.2 million or 16 percent over the first quarter of 2015. The outstanding principal balance of mortgage loans serviced for others totaled $20.3 billion, an increase of $3.4 billion or 20 percent.
Mortgage banking revenue increased $9.4 million over the fourth quarter of 2015. Mortgage production revenue increased $8.9 million primarily due to the increased volume of mortgage loan commitments during the quarter. Outstanding mortgage loan commitments at March 31, 2016 were $302 million higher than at December 31, 2015. Total mortgage loans originated during the first quarter of 2016 decreased $121 million compared to the previous quarter. Revenue from mortgage loan servicing grew by $504 thousand due to an increase in the volume of loans serviced. The outstanding balance of mortgage loans serviced for others increased $616 million over December 31, 2015.

Table 3Mortgage Banking Revenue 
(In thousands)
 
 
Three Months Ended
March 31,
 
Increase (Decrease)
 
% Increase (Decrease)
 
Three Months Ended
Dec. 31, 2015
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
2016
 
2015
 
 
 
 
Net realized gains on mortgage loans sold
 
$
10,779

 
$
17,251

 
$
(6,472
)
 
(38
)%
 
$
15,705

 
$
(4,926
)
 
(31
)%
Change in net unrealized gains on mortgage loans held for sale
 
8,198

 
8,789

 
(591
)
 
(7
)%
 
(5,615
)
 
13,813

 
246
 %
Total mortgage production revenue
 
18,977

 
26,040

 
(7,063
)
 
(27
)%
 
10,090

 
8,887

 
88
 %
Servicing revenue
 
15,453

 
13,280

 
2,173

 
16
 %
 
14,949

 
504

 
3
 %
Total mortgage revenue
 
$
34,430

 
$
39,320

 
$
(4,890
)
 
(12
)%
 
$
25,039

 
$
9,391

 
38
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans funded for sale
 
$
1,244,015

 
$
1,565,016

 
$
(321,001
)
 
(21
)%
 
$
1,365,431

 
$
(121,416
)
 
(9
)%
Mortgage loans sold
 
1,239,391

 
1,382,042

 
(142,651
)
 
(10
)%
 
1,424,527

 
(185,136
)
 
(13
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period end outstanding mortgage commitments, net
 
902,986

 
824,036

 
78,950

 
10
 %
 
601,147

 
301,839

 
50
 %
Outstanding principal balance of mortgage loans serviced for others
 
20,294,662

 
16,937,128

 
3,357,534

 
20
 %
 
19,678,226

 
616,436

 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary residential mortgage interest rate – period end
 
3.71
%
 
3.69
%
 
2
 bps
 
 
 
3.96
%
 
(25
) bps
 
 
Primary residential mortgage interest rate – average
 
3.74
%
 
3.73
%
 
1
 bps
 
 
 
3.89
%
 
(15
) bps
 
 
Secondary residential mortgage interest rate – period end
 
2.57
%
 
2.75
%
 
(18
) bps
 
 
 
3.03
%
 
(46
) bps
 
 
Secondary residential mortgage interest rate – average
 
2.70
%
 
2.69
%
 
1
 bps
 
 
 
2.91
%
 
(21
) bps
 
 

Primary rates disclosed in Table 3 above represent rates generally available to borrowers on 30 year conforming mortgage loans. Secondary rates generally represent yields on 30 year residential mortgage-backed securities guaranteed by U.S. government agencies.

Other revenue increased $1.1 million over the first quarter of 2015, primarily due to revenue from a merchant banking investment acquired in the second quarter of 2015. Other revenue decreased $2.2 million compared to the fourth quarter of 2015.

- 7 -



Net gains on securities, derivatives and other assets

In the first quarter of 2016, we recognized a $4.0 million net gain from sales of $469 million of available for sale securities. Securities were sold either because they had reached their expected maximum potential or to move into securities that are expected to perform better in the current rate environment. In the first quarter of 2015, we recognized a $4.3 million net gain from sales of $335 million of available for sale securities and in the fourth quarter of 2015, we recognized a $2.1 million net gain on sales of $436 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 fluctuates 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 are highly dependent on changes in secondary mortgage rates, or rates required by investors and interest rate derivative contracts are highly dependent on changes in other market interest rates. While primary and secondary mortgage rates generally move in the same direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in the forward-looking spread between the primary and secondary rates can cause significant earnings volatility. Additionally, the fair value of mortgage servicing rights is dependent on short-term interest rates that affect the value of custodial funds. Changes in the spread between short-term and long-term interest rates can also cause significant 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. Both period end primary and secondary mortgage rates fell during the first quarter of 2016. However, we observed a narrowing in the forward-looking spread between primary and secondary mortgage interest rates. A narrowing spread between primary and secondary mortgage interest rates decreases the fair value of mortgage servicing rights and is a risk that we cannot effectively hedge.


Table 4 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 
 
Three Months Ended
 
 
March 31, 2016
 
Dec. 31, 2015
 
March 31, 2015
Gain (loss) on mortgage hedge derivative contracts, net
 
$
7,138

 
$
(732
)
 
$
911

Gain (loss) on fair value option securities, net
 
9,443

 
(4,127
)
 
2,647

Gain (loss) on economic hedge of mortgage servicing rights, net
 
16,581

 
(4,859
)
 
3,558

Gain (loss) on change in fair value of mortgage servicing rights
 
(27,988
)
 
7,416

 
(8,522
)
Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges
 
$
(11,407
)
 
$
2,557

 
$
(4,964
)
 
 
 
 
 
 
 
Net interest revenue on fair value option securities
 
$
2,033

 
$
2,137

 
$
1,739







- 8 -



Other Operating Expense

Other operating expense for the first quarter of 2016 totaled $244.9 million, a $24.6 million or 11 percent increase over the first quarter of 2015. Personnel expenses increased $7.3 million or 6 percent. Non-personnel expenses increased $17.3 million or 19 percent over the prior year.

Operating expenses increased $12.3 million compared to the previous quarter. Personnel expense increased $2.7 million. Non-personnel expense increased $9.7 million.

Table 5 -- Other Operating Expense
(In thousands)
 
 
Three Months Ended
March 31,
 
Increase (Decrease)
 
%
Increase (Decrease)
 
Three Months Ended
Dec. 31, 2015
 
Increase (Decrease)
 
%
Increase (Decrease)
 
 
2016
 
2015
 
 
 
 
 
Regular compensation
 
$
81,167

 
$
77,762

 
$
3,405

 
4
 %
 
$
80,314

 
$
853

 
1
 %
Incentive compensation:
 
 
 
 
 


 


 
 
 
 
 
 
Cash-based
 
30,444

 
26,941

 
3,503

 
13
 %
 
30,137

 
307

 
1
 %
Share-based
 
2,022

 
2,140

 
(118
)
 
(6
)%
 
4,276

 
(2,254
)
 
(53
)%
Deferred compensation
 
69

 
130

 
(61
)
 
N/A

 
652

 
(583
)
 
N/A

Total incentive compensation
 
32,535

 
29,211

 
3,324

 
11
 %
 
35,065

 
(2,530
)
 
(7
)%
Employee benefits
 
22,141

 
21,575

 
566

 
3
 %
 
17,803

 
4,338

 
24
 %
Total personnel expense
 
135,843

 
128,548

 
7,295

 
6
 %
 
133,182

 
2,661

 
2
 %
Business promotion
 
5,696

 
5,748

 
(52
)
 
(1
)%
 
8,416

 
(2,720
)
 
(32
)%
Professional fees and services
 
11,759

 
10,059

 
1,700

 
17
 %
 
10,357

 
1,402

 
14
 %
Net occupancy and equipment
 
18,766

 
19,044

 
(278
)
 
(1
)%
 
19,356

 
(590
)
 
(3
)%
Insurance
 
7,265

 
4,980

 
2,285

 
46
 %
 
5,415

 
1,850

 
34
 %
Data processing and communications
 
32,017

 
29,772

 
2,245

 
8
 %
 
31,248

 
769

 
2
 %
Printing, postage and supplies
 
3,907

 
3,461

 
446

 
13
 %
 
3,108

 
799

 
26
 %
Net losses and operating expenses of repossessed assets
 
1,070

 
613

 
457

 
75
 %
 
343

 
727

 
212
 %
Amortization of intangible assets
 
1,159

 
1,090

 
69

 
6
 %
 
1,090

 
69

 
6
 %
Mortgage banking costs
 
12,379

 
10,167

 
2,212

 
22
 %
 
11,496

 
883

 
8
 %
Other expense
 
15,039

 
6,783

 
8,256

 
122
 %
 
8,547

 
6,492

 
76
 %
Total other operating expense
 
$
244,900

 
$
220,265

 
$
24,635

 
11
 %
 
$
232,558

 
$
12,342

 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average number of employees (full-time equivalent)
 
4,821

 
4,744

 
77

 
2
 %
 
4,819

 
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 $3.4 million or 4 percent over the first quarter of 2015. The average number of employees increased 2 percent over the prior year. Recent additions have primarily been higher-costing positions in compliance and risk management and technology. In addition, standard annual merit increases in regular compensation were effective for the majority of our staff on March 1.

Incentive compensation increased $3.3 million or 11 percent over the first quarter of 2015. Cash-based incentive compensation plans are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions. Total cash-based incentive compensation increased $3.5 million or 13 percent over the first quarter of 2015


- 9 -



Share-based compensation expense represents expense for equity awards based on grant-date fair value. Non-vested shares awarded prior to 2013 generally cliff vest in 5 years. Non-vested shares awarded since January 1, 2013 generally cliff vest in 3 years and are subject to a two year holding period after vesting. Share-based compensation expense decreased $118 thousand compared to the prior year.

Employee benefit expense increased $566 thousand or 3 percent over the first quarter of 2015 primarily due to increased employee retirement plan and payroll tax expense, partially offset by lower employee medical costs.
Personnel costs increased by $2.7 million over the fourth quarter of 2015, primarily due to a $4.2 million seasonal increase in payroll taxes, partially offset by a $2.5 million decrease in incentive compensation expense. Regular compensation expense increased $853 thousand over the prior quarter.

Non-personnel operating expenses

Non-personnel operating expenses increased $17.3 million or 19 percent over the first quarter of 2015. Other expense increased $8.3 million. We increased litigation accruals by $4.1 million during the first quarter of 2016 for matters previously disclosed in notes to our financial statements due to additional information received during the quarter. We also recorded $2.7 million of post-acquisition valuation adjustments to a consolidated merchant banking investment, $1.1 million of which is attributable to non-controlling interests. Deposit insurance expense increased $2.3 million, primarily due to an increase in criticized and classified assets, an input to the deposit insurance assessment. The increase in criticized and classified assets was related to falling energy prices and overall asset growth. Data processing and communications expense increased $2.2 million due to increased transaction activity. Mortgage banking costs increased $2.2 million due to increased mortgage servicing costs. Professional fees and services expense increased $1.7 million.
Non-personnel expense increased $9.7 million compared to the fourth quarter of 2015. Other expense increased $6.5 million due to litigation accruals and post-acquisition valuation adjustments to a consolidated merchant banking investment. Deposit insurance expense increased $1.9 million and professional fees and services expense increased $1.4 million, partially offset by a $2.7 million seasonal decrease in business promotion expense.
Income Taxes

Income tax expense was $21.4 million or 34.3% of book taxable income for the first quarter of 2016 compared to $38.4 million or 33.8% of book taxable income for the first quarter of 2015 and $26.2 million or 30.1% of book taxable income for the fourth quarter of 2015. Income tax expense as a percentage of net income before taxes was lower in the first quarter of 2016 compared to the first quarter of 2015 primarily due to lower income before taxes. Income tax expense as a percentage of net income before taxes was lower in the fourth quarter of 2015 compared to the first quarter of 2015 primarily due to a decrease in net income before taxes during the fourth quarter of 2015. This resulted in a year-to-date decrease in income tax expense that was recognized in the fourth quarter of 2015.

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

BOK Financial operates in numerous jurisdictions, which requires judgment regarding the allocation of income, expense and earnings under various laws and regulations of each of these taxing jurisdictions. Each jurisdiction may audit our tax returns and may take different positions with respect to these allocations. The reserve for uncertain tax positions was $13 million at March 31, 2016, $13 million at December 31, 2015, and $14 million at March 31, 2015.

- 10 -



Lines of Business

We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial Banking includes lending, treasury and cash management services and customer risk management products for small businesses, middle market and larger commercial customers. Commercial Banking also includes the TransFund EFT network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small business customers served through our consumer branch network and all mortgage banking activities. Wealth Management provides fiduciary services, private banking services and investment advisory services in all markets. Wealth Management also underwrites state and municipal securities and engages in brokerage and trading activities.

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

We allocate resources and evaluate the performance of our lines of business using the net direct contribution which includes the allocation of funds, actual net credit losses and capital costs. In addition, we measure the performance of our business lines after allocation of certain indirect expenses and taxes based on statutory rates.

The cost of funds borrowed from the Funds Management unit by the operating lines of business is transfer priced at rates that approximate market rates for funds with similar 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.

Economic capital is assigned to the business units by a capital allocation model that reflects management’s assessment of risk. This model assigns capital based upon credit, operating, interest rate and other market risk inherent in our business lines and recognizes the diversification benefits among the units. The level of assigned economic capital is a combination of the risk taken by each business line, based on its actual exposures and calibrated to its own loss history where possible. Average invested capital includes economic capital and amounts we have invested in the lines of business.


- 11 -



As shown in Table 6, net income attributable to our lines of business decreased $20.2 million or 31 percent compared to the first quarter of 2015. Net interest revenue grew by $19.1 million over the prior year. This was offset by a $30.6 million increase in net charge-offs primarily due to energy loans and an $18.9 million increase in operating expense primarily due to increased litigation accruals, increased mortgage banking expense, and a post-acquisition valuation adjustment on a consolidated merchant banking investment.

Table 6 -- Net Income by Line of Business
(In thousands)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Commercial Banking
 
$
37,115

 
$
48,603

Consumer Banking
 
119

 
7,281

Wealth Management
 
6,977

 
8,526

Subtotal
 
44,211

 
64,410

Funds Management and other
 
(1,647
)
 
10,433

Total
 
$
42,564

 
$
74,843


- 12 -



Commercial Banking

Commercial Banking contributed $37.1 million to consolidated net income in the first quarter of 2016, a decrease of $11.5 million or 24% compared to the first quarter of 2015. Increased loan charge-offs and higher operating expenses were partially offset by growth in net interest revenue and fees and commissions revenue. Commercial Banking net loans charged off were $21.6 million in the first quarter of 2016 compared to a net recovery $8.9 million in the first quarter of 2015. The increase was primarily related to energy portfolio loans.

Table 7 -- Commercial Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
 
March 31,
 
 
 
2016
 
2015
 
Net interest revenue from external sources
 
$
116,637

 
$
101,175

 
$
15,462

Net interest expense from internal sources
 
(14,534
)
 
(12,635
)
 
(1,899
)
Total net interest revenue
 
102,103

 
88,540

 
13,563

Net loans charged off (recovered)
 
21,572

 
(8,902
)
 
30,474

Net interest revenue after net loans charged off (recovered)
 
80,531

 
97,442

 
(16,911
)
 
 
 
 
 
 
 
Fees and commissions revenue
 
45,476

 
42,302

 
3,174

Other gains (losses), net
 
(368
)
 
144

 
(512
)
Other operating revenue
 
45,108

 
42,446

 
2,662

 
 
 
 
 
 
 
Personnel expense
 
26,628

 
26,250

 
378

Non-personnel expense
 
29,441

 
22,895

 
6,546

Other operating expense
 
56,069

 
49,145

 
6,924

 
 
 
 
 
 
 
Net direct contribution
 
69,570

 
90,743

 
(21,173
)
Gain (loss) on repossessed assets, net
 
(82
)
 
45

 
(127
)
Corporate expense allocations
 
8,744

 
11,241

 
(2,497
)
Income before taxes
 
60,744

 
79,547

 
(18,803
)
Federal and state income tax
 
23,629

 
30,944

 
(7,315
)
Net income
 
$
37,115

 
$
48,603

 
$
(11,488
)
 
 
 
 
 
 
 
Average assets
 
$
16,969,015

 
$
16,270,266

 
$
698,749

Average loans
 
13,317,338

 
11,892,703

 
1,424,635

Average deposits
 
8,457,750

 
8,995,036

 
(537,286
)
Average invested capital
 
1,155,572

 
994,596

 
160,976


Net interest revenue increased $13.6 million or 15% over the prior year. Growth in net interest revenue was primarily due to a $1.4 billion or 12% increase in average loan balances and a $537 million or 6% decrease in average deposit balances.

Fees and commissions revenue grew by $3.2 million or 8% over the first quarter of 2015. Other revenue increased $1.6 million primarily related to merchant banking activity. Transaction card revenues from our TransFund electronic funds transfer network increased $1.2 million. Commercial deposit service charge revenue was up $701 thousand.

Operating expenses increased $6.9 million or 14% over the the first quarter of 2015. Personnel expense increased $378 thousand or 1% primarily due to increased incentive compensation expense and standard annual merit increases. Non-personnel expense grew by $6.5 million or 29%. The first quarter of 2016 included $3.9 million of litigation settlements and $2.7 million of post-acquisition valuation adjustments to a consolidated merchant banking investment. Corporate expense allocations decreased $2.5 million compared to the prior year.


- 13 -



The average outstanding balance of loans attributed to Commercial Banking grew by $1.4 billion or 12% over the first quarter of 2015 to $13.3 billion. See the Loans section of Management’s Discussion and Analysis of Financial Condition following for additional discussion of changes in commercial and commercial real estate loans which are primarily attributed to the Commercial Banking segment. 
 
Average deposits attributed to Commercial Banking were $8.5 billion for the first quarter of 2016, a decrease of $537 million or 6% compared to the first quarter of 2015. 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 four primary distribution channels:  traditional branches, the 24-hour ExpressBank call center, Internet banking and mobile banking. Consumer Banking also conducts mortgage banking activities through offices located outside of our consumer banking markets, through correspondent loan originators and through Home Direct Mortgage, an online origination channel.

Consumer Banking contributed $119 thousand to consolidated net income for the first quarter of 2016 compared to $7.3 million in the first quarter of 2015.

Changes in the fair value of our mortgage servicing rights, net of economic hedge, resulted in a $7.0 million decrease in Consumer Banking net income in the first quarter of 2016 compared to a $3.0 million decrease in Consumer Banking net income in the first quarter of 2015. Mortgage banking revenue was $4.9 million lower than in the prior year. Growth in net interest revenue and lower corporate expense allocations were partially offset by increased operating expense.


- 14 -



Table 8 -- Consumer Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
 
March 31,
 
 
 
2016
 
2015
 
Net interest revenue from external sources
 
$
21,465

 
$
20,719

 
$
746

Net interest revenue from internal sources
 
9,353

 
6,819

 
2,534

Total net interest revenue
 
30,818

 
27,538

 
3,280

Net loans charged off
 
1,702

 
1,422

 
280

Net interest revenue after net loans charged off
 
29,116

 
26,116

 
3,000

 
 
 
 
 
 
 
Fees and commissions revenue
 
56,501

 
61,510

 
(5,009
)
Other losses, net
 
(142
)
 
(315
)
 
173

Other operating revenue
 
56,359

 
61,195

 
(4,836
)
 
 
 
 
 
 
 
Personnel expense
 
27,125

 
25,782

 
1,343

Non-personnel expense
 
30,923

 
26,524

 
4,399

Total other operating expense
 
58,048

 
52,306

 
5,742

 
 
 
 
 
 
 
Net direct contribution
 
27,427

 
35,005

 
(7,578
)
Gain on financial instruments, net
 
16,581

 
3,558

 
13,023

Change in fair value of mortgage servicing rights
 
(27,988
)
 
(8,522
)
 
(19,466
)
Gain on repossessed assets, net
 
153

 
78

 
75

Corporate expense allocations
 
15,978

 
18,202

 
(2,224
)
Income before taxes
 
195

 
11,917

 
(11,722
)
Federal and state income tax
 
76

 
4,636

 
(4,560
)
Net income
 
$
119

 
$
7,281

 
$
(7,162
)
 
 
 
 
 
 
 
Average assets
 
$
8,687,289

 
$
8,798,913

 
$
(111,624
)
Average loans
 
1,883,904

 
1,940,293

 
(56,389
)
Average deposits
 
6,575,893

 
6,621,377

 
(45,484
)
Average invested capital
 
258,888

 
272,315

 
(13,427
)

Net interest revenue from Consumer Banking activities grew by $3.3 million or 12% over the the first quarter of 2015 primarily due to increased rates on deposit balances sold to the Funds Management unit, partially offset by a $45 million or 1% decrease in average deposit balances. Average loan balances were $56 million or 3% lower than the prior year.

Fees and commissions revenue decreased $5.0 million or 8% compared to the first quarter of 2015, primarily due to a $4.9 million decrease in mortgage banking revenue. Mortgage loans funded for sale in the first quarter of 2016 were $321 million or 21% lower than in the first quarter of 2015. Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the Company increased $152 thousand or 3%. Deposit service charges and fees were largely unchanged compared to the prior year.

Operating expenses increased $5.7 million or 11% over the first quarter of 2015. Personnel expenses increased $1.3 million or 5%, primarily due to increases in regular compensation expense. Non-personnel expense increased $4.4 million or 17% over the prior year. Mortgage banking expense was up $2.2 million over the prior year due to increased mortgage repurchase accruals. Data processing and communications expense increased $1.1 million. Non-personnel expense also included $1.8 million of litigation settlements during the first quarter of 2016. Professional fees and services expense was $644 thousand lower than in the prior year.

Corporate expense allocations decreased $2.2 million compared to the first quarter of 2015.


- 15 -



Average consumer deposits decreased $45 million or 1% compared to the first quarter of 2015. Average time deposit balances decreased $199 million or 14%. Average demand deposit balances grew by $74 million or 5%, average interest-bearing transaction accounts increased $51 million or 2% and average savings account balances increased $28 million or 8%.


Wealth Management

Wealth Management contributed $7.0 million to consolidated net income in the first quarter of 2016, up $1.5 million or 18% over the first quarter of 2015. Net interest revenue, brokerage and trading revenue and fiduciary and asset management revenue all grew over the prior year. This was partially offset by increased operating expenses and corporate expense allocations.

Table 9 -- Wealth Management
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
 
March 31,
 
 
 
2016
 
2015
 
Net interest revenue from external sources
 
$
6,078

 
$
5,376

 
$
702

Net interest revenue from internal sources
 
7,663

 
6,079

 
1,584

Total net interest revenue
 
13,741

 
11,455

 
2,286

Net loans charged off (recovered)
 
(150
)
 

 
(150
)
Net interest revenue after net loans charged off (recovered)
 
13,891

 
11,455

 
2,436

 
 
 
 
 
 
 
Fees and commissions revenue
 
68,721

 
66,904

 
1,817

Other gains, net
 
26

 
57

 
(31
)
Other operating revenue
 
68,747

 
66,961

 
1,786

 
 
 
 
 
 
 
Personnel expense
 
45,119

 
42,415

 
2,704

Non-personnel expense
 
15,565

 
12,065

 
3,500

Other operating expense
 
60,684

 
54,480

 
6,204

 
 
 
 
 
 
 
Net direct contribution
 
21,954

 
23,936

 
(1,982
)
Corporate expense allocations
 
10,535

 
9,982

 
553

Income before taxes
 
11,419

 
13,954

 
(2,535
)
Federal and state income tax
 
4,442

 
5,428

 
(986
)
Net income
 
$
6,977

 
$
8,526

 
$
(1,549
)
 
 
 
 
 
 
 
Average assets
 
$
5,565,047

 
$
5,451,695

 
$
113,352

Average loans
 
1,090,326

 
1,035,229

 
55,097

Average deposits
 
4,696,013

 
4,701,302

 
(5,289
)
Average invested capital
 
233,079

 
223,967

 
9,112


 
 
March 31,
 
Increase
(Decrease)
 
 
2016
 
2015
 
Fiduciary assets in custody for which BOKF has sole or joint discretionary authority
 
$
13,847,023

 
$
15,197,567

 
$
(1,350,544
)
Fiduciary assets not in custody for which BOKF has sole or joint discretionary authority
 
3,653,228

 
3,442,421

 
210,807

Non-managed trust assets in custody
 
21,613,054

 
18,871,758

 
2,741,296

Total fiduciary assets
 
39,113,305

 
37,511,746

 
1,601,559

Assets held in safekeeping
 
27,115,904

 
23,311,704

 
3,804,200

Brokerage accounts under BOKF administration
 
5,639,804

 
5,854,364

 
(214,560
)
Assets under management or in custody
 
$
71,869,013

 
$
66,677,814

 
$
5,191,199



- 16 -



Net interest revenue for the first quarter of 2016 increased $2.3 million or 20% over the first quarter of 2015. Average deposit balances were largely unchanged compared to the first quarter of 2015. Interest-bearing transaction account balances decreased $195 million or 7% and time deposit balances decreased $50 million or 7%. Non-interest bearing demand deposits grew by $239 million or 27%. Average loan balances increased $55 million or 5% over the prior year and rates improved.

Fees and commissions revenue was up $1.8 million or 3% over the first quarter of 2015, primarily due to a $1.6 million or 6% increase in brokerage and trading revenue. Fiduciary and asset management revenue increased $527 thousand or 2% over the prior year, partially offset by a $382 thousand or 8% decrease in other revenue.

Other operating revenue includes fees earned from state and municipal bond and corporate debt underwriting and financial advisory services, primarily in the Oklahoma and Texas markets. In the first quarter of 2016, the Wealth Management division participated in 74 state and municipal bond underwritings that totaled $5.4 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately $598 million of these underwritings. In the first quarter of 2015, the Wealth Management division participated in 93 state and municipal bond underwritings that totaled approximately $1.7 billion. Our interest in these underwritings totaled approximately $609 million. The Wealth Management division also participated in 5 corporate debt underwritings that totaled $5.9 billion. Our interest in these underwritings was $149 million.

Operating expenses increased $6.2 million or 11% over the first quarter of 2015. Personnel expenses increased $2.7 million, primarily due to incentive compensation expense. Non-personnel expense increased $3.5 million including $1.6 million of litigation accruals. Professional fees and services expense increased $1.3 million. Occupancy and equipment costs increased $454 thousand and data processing and communications expense increased $397 thousand.

Corporate expense allocations increased $553 thousand or 6% over the prior year.
Financial Condition
Securities

We maintain a securities portfolio to enhance profitability, manage interest rate risk, provide liquidity and comply with regulatory requirements. Securities are classified as trading, held for investment, or available for sale. See Note 2 to the consolidated financial statements for the composition of the securities portfolio as of March 31, 2016, December 31, 2015 and March 31, 2015.

At March 31, 2016, the carrying value of investment (held-to-maturity) securities was $576 million and the fair value was $610 million. Investment securities consist primarily of long-term, fixed rate Oklahoma and Texas municipal bonds, taxable Texas school construction bonds and residential mortgage-backed securities issued by U.S. government agencies. The investment security portfolio is diversified among issuers. The largest obligation of any single issuer is $30 million. Substantially all of these bonds are general obligations of the issuers. Approximately $105 million of the Texas school construction bonds are also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board of Education for the State of Texas.

Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of available for sale securities totaled $8.7 billion at March 31, 2016, a decrease of $274 million compared to December 31, 2015. Available for sale securities consist primarily of U.S. government agency residential mortgage-backed securities and U.S. government agency commercial mortgage-backed securities. Commercial mortgage-backed securities have prepayment penalties similar to commercial loans. At March 31, 2016, residential mortgage-backed securities represented 66 percent 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, 2016 is 2.8 years. Management estimates the duration extends to 3.4 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 2.5 years assuming a 50 basis point decline in the current low rate environment.


- 17 -



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, 2016, approximately $5.6 billion of the amortized cost of the Company’s residential mortgage-backed securities were issued by U.S. government agencies. The fair value of these residential mortgage-backed securities totaled $5.7 billion at March 31, 2016.

We also hold amortized cost of $123 million in residential mortgage-backed securities privately issued by publicly-owned financial institutions, a decrease of $5.1 million from December 31, 2015. The decrease was due to cash payments received during the quarter. The fair value of our portfolio of privately issued residential mortgage-backed securities totaled $133 million at March 31, 2016.

The amortized cost of our portfolio of privately issued residential mortgage-backed securities included $69 million of Jumbo-A residential mortgage loans and $54 million of Alt-A residential mortgage loans. Jumbo-A residential mortgage loans generally meet government underwriting standards, but have loan balances that exceed agency maximums. Alt-A mortgage loans generally do not have sufficient documentation to meet government agency underwriting standards. Approximately 90 percent of our Alt-A mortgage-backed securities represent pools of fixed rate residential mortgage loans. None of the adjustable rate mortgages are payment option adjustable rate mortgages (“ARMs”). Approximately 30 percent 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.

The aggregate gross amount of unrealized losses on available for sale securities totaled $5.9 million at March 31, 2016, compared to $42 million at December 31, 2015. On a quarterly basis, we perform separate evaluations on debt and equity securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial Statements. No other-than-temporary impairment charges were recognized in earnings during the first quarter of 2016.

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

BOK Financial is required to hold stock as members of the Federal Reserve system and the Federal Home Loan Banks ("FHLB"). These restricted equity securities are carried at cost as these securities do not have a readily determined fair value because the ownership of these shares is restricted and they lack a market. Federal Reserve Bank stock totaled $36 million and holdings of FHLB stock totaled $278 million at March 31, 2016. Holdings of FHLB stock increased $41 million over December 31, 2015. We are required to hold stock in the FHLB in proportion to our borrowings with the FHLB.

- 18 -



Bank-Owned Life Insurance

We have approximately $306 million of bank-owned life insurance at March 31, 2016. This investment is expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $275 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, 2016, the fair value of investments held in separate accounts was approximately $290 million. As the underlying fair value of the investments held in a separate account at March 31, 2016 exceeded the net book value of the investments, no cash surrender value was supported by the stable value wrap. The stable value wrap is provided by a domestic financial institution. The remaining cash surrender value of $31 million primarily represents the cash surrender value of policies held in general accounts and other amounts due from various insurance companies.

Loans

The aggregate loan portfolio before allowance for loan losses totaled $16 billion at March 31, 2016, an increase of $81 million over December 31, 2015. Outstanding commercial loans grew by $36 million over December 31, 2015, largely due to growth in healthcare, manufacturing and wholesale/retail sectors loans, partially offset by a decrease in services and energy loan balances. Commercial real estate loan balances were up $111 million primarily related to growth in loans secured by office buildings and other other commercial real estate loans. Residential mortgage loans decreased $7.6 million compared to December 31, 2015 and personal loans decreased $58 million compared to December 31, 2015

Table 10 -- Loans
(In thousands)
 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
3,029,420

 
$
3,097,328

 
$
2,838,167

 
$
2,902,143

 
$
2,902,994

Services
 
2,728,891

 
2,784,276

 
2,706,624

 
2,681,126

 
2,592,876

Healthcare
 
1,995,425

 
1,883,380

 
1,741,680

 
1,646,025

 
1,511,177

Wholesale/retail
 
1,451,846

 
1,422,064

 
1,461,936

 
1,533,730

 
1,405,800

Manufacturing
 
600,645

 
556,729

 
555,677

 
579,549

 
560,925

Other commercial and industrial
 
482,198

 
508,754

 
493,338

 
433,148

 
417,391

Total commercial
 
10,288,425

 
10,252,531

 
9,797,422

 
9,775,721

 
9,391,163

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Retail
 
810,522

 
796,499

 
769,449

 
688,447

 
658,860

Multifamily
 
733,689

 
751,085

 
758,658

 
711,333

 
749,986

Office
 
695,552

 
637,707

 
626,151

 
563,085

 
513,862

Industrial
 
564,467

 
563,169

 
563,871

 
488,054

 
478,584

Residential construction and land development
 
171,949

 
160,426

 
153,510

 
148,574

 
139,152

Other commercial real estate
 
394,328

 
350,147

 
363,428

 
434,004

 
395,020

Total commercial real estate
 
3,370,507

 
3,259,033

 
3,235,067

 
3,033,497

 
2,935,464

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
948,405

 
945,336

 
937,664

 
946,324

 
964,264

Permanent mortgages guaranteed by U.S. government agencies
 
197,350

 
196,937

 
192,712

 
190,839

 
200,179

Home equity
 
723,554

 
734,620

 
738,619

 
747,565

 
762,556

Total residential mortgage
 
1,869,309

 
1,876,893

 
1,868,995

 
1,884,728

 
1,926,999

 
 
 
 
 
 
 
 
 
 
 
Personal
 
494,325

 
552,697

 
465,957

 
430,190

 
430,510

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
16,022,566

 
$
15,941,154

 
$
15,367,441

 
$
15,124,136

 
$
14,684,136



- 19 -




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 $10.3 billion or 64 percent of the loan portfolio at March 31, 2016, an increase of $36 million over December 31, 2015. Healthcare sector loans grew by $112 million, manufacturing sector loans increased $44 million and wholesale/retail sector loans increased $30 million. Service sector loans decreased by $55 million and energy loan balances decreased $68 million compared to December 31, 2015.

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 34 percent concentrated in the Texas market and 23 percent concentrated in the Oklahoma market. The Other category is primarily composed of two states, California and Louisiana, which represent $252 million or 2 percent of the commercial loan portfolio and $162 million or 2 percent of the commercial loan portfolio, respectively, at March 31, 2016. All other states individually represent one percent or less 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
 
$
826,856

 
$
1,380,625

 
$
19,429

 
$
5,811

 
$
319,099

 
$
10,756

 
$
88,485

 
$
378,359

 
$
3,029,420

Services
 
688,722

 
855,175

 
222,131

 
2,945

 
258,866

 
187,378

 
167,911

 
345,763

 
2,728,891

Healthcare
 
283,249

 
343,187

 
125,158

 
88,418

 
153,712

 
116,670

 
224,686

 
660,345

 
1,995,425

Wholesale/retail
 
377,520

 
568,058

 
37,564

 
39,989

 
59,758

 
53,607

 
29,889

 
285,461

 
1,451,846

Manufacturing
 
139,592

 
209,249

 
3,591

 
8,766

 
44,050

 
47,025

 
71,186

 
77,186

 
600,645

Other commercial and industrial
 
80,413

 
137,510

 
4,545

 
71,916

 
34,905

 
29,600

 
74,235

 
49,074

 
482,198

Total commercial loans
 
$
2,396,352

 
$
3,493,804

 
$
412,418

 
$
217,845

 
$
870,390

 
$
445,036

 
$
656,392

 
$
1,796,188

 
$
10,288,425

 
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.


- 20 -



Outstanding energy loans totaled $3 billion or 19 percent of total loans at March 31, 2016. Unfunded energy loan commitments decreased by $269 million to $2.1 billion at March 31, 2016. Approximately $2.5 billion of energy loans were to oil and gas producers, down $68 million compared to December 31, 2015. The majority of this portfolio is first lien, senior secured, reserve-based lending, which we believe is the lowest risk form of energy lending. The Company has largely avoided higher-risk energy lending areas including second-lien financing, mezzanine debt and subordinated debt. In addition, the Company has no direct exposure to energy company equity or to borrowers with deepwater offshore exposure. Approximately 60 percent of the committed production loans are secured by properties primarily producing oil and 40 percent of the committed production loans are secured by properties primarily producing natural gas. Loans to borrowers that provide services to the energy industry were largely unchanged from the prior quarter at $278 million at March 31, 2016. Loans to midstream oil and gas companies totaled $202 million at March 31, 2016, an increase of $9.1 million over December 31, 2015. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $78 million, a $7.7 million decrease compared to the prior quarter.

The services sector of the loan portfolio totaled $2.7 billion or 17 percent of total loans and consists of a large number of loans to a variety of businesses, including governmental, finance and insurance, educational services, not-for-profit and loans to entities providing services for real estate and construction. Service sector loans decreased by $55 million compared to December 31, 2015. Service sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s business. 

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

We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $20 million and with three or more non-affiliated banks as participants. At March 31, 2016, the outstanding principal balance of these loans totaled $3.5 billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 18 percent of our shared national credits, based on dollars committed. We hold shared credits to the same standard of analysis and perform the same level of review as internally originated credits. Our lending policies generally avoid loans in which we do not have the opportunity to maintain or achieve other business relationships with the customer. In addition to management’s quarterly assessment of credit risk, banking regulators annually review a sample of shared national credits for proper risk grading.

Commercial Real Estate

Commercial real estate represents loans for the construction of buildings or other improvements to real estate and property held by borrowers for investment purposes generally within our geographical footprint, with larger concentrations in Texas and Oklahoma which represent 30 percent and 13 percent of the total commercial real estate portfolio at March 31, 2016, respectively. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

Commercial real estate loans totaled $3.4 billion or 21 percent of the loan portfolio at March 31, 2016. The outstanding balance of commercial real estate loans increased $111 million during the first quarter of 2016. Loans secured by office buildings increased $58 million and other commercial real estate loan balances increased $44 million. Retail sector loans increased $14 million and residential construction and land development loans grew by $12 million, partially offset by a $17 million decrease in loans secured by multifamily residential properties. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 18 percent to 21 percent over the past five years. The commercial real estate sector of our loan portfolio distributed by collateral location follows in Table 12.


- 21 -



Table 12 -- Commercial Real Estate Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Retail
 
84,702

 
290,377

 
108,674

 
3,764

 
65,492

 
40,173

 
9,405

 
207,935

 
810,522

Multifamily
 
90,627

 
257,546

 
33,795

 
18,195

 
57,627

 
77,322

 
66,075

 
132,502

 
733,689

Office
 
118,744

 
183,847

 
55,025

 
1,851

 
55,834

 
54,557

 
69,050

 
156,644

 
695,552

Industrial
 
64,328

 
161,043

 
26,068

 
206

 
5,320

 
15,031

 
35,827

 
256,644

 
564,467

Residential construction and land development
 
20,441

 
35,951

 
23,372

 
5,109

 
36,637

 
2,901

 
5,402

 
42,136

 
171,949

Other real estate
 
69,741

 
73,602

 
13,810

 
9,857

 
15,077

 
30,702

 
2,335

 
179,204

 
394,328

Total commercial real estate loans
 
$
448,583

 
$
1,002,366

 
$
260,744

 
$
38,982

 
$
235,987

 
$
220,686

 
$
188,094

 
$
975,065

 
$
3,370,507

Residential Mortgage and Personal

Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. Residential mortgage loans are secured by a first or second-mortgage on the customer’s primary residence. Personal loans consist primarily of loans to wealth management clients secured by the cash surrender value of insurance policies and marketable securities. It also includes direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans. Residential mortgage and personal loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.

Residential mortgage loans totaled $1.9 billion, a $7.6 million decrease compared to December 31, 2015. 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 percent of our residential mortgage loan portfolio is located within our geographical footprint.

The majority of our permanent mortgage loan portfolio is composed of various non-conforming mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth individuals or certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans 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 percent. Loan-to-value ratios (“LTV”) are tiered from 60 percent to 100 percent, depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.

At March 31, 2016, $197 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 were largely unchanged compared to December 31, 2015.


- 22 -



Home equity loans totaled $724 million at March 31, 2016, a decrease of $11 million compared to December 31, 2015. 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 percent. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 5 year revolving period followed by a 15 year term of amortizing 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, 2016 by lien position and amortizing status follows in Table 13.

Table 13 -- Home Equity Loans
(In thousands)
 
 
Revolving
 
Amortizing
 
Total
First lien
 
$
41,825

 
$
446,400

 
$
488,225

Junior lien
 
86,374

 
148,955

 
235,329

Total home equity
 
$
128,199

 
$
595,355

 
$
723,554


The distribution of residential mortgage and personal loans at March 31, 2016 is as follows in Table 14. Residential mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.

Table 14 -- Residential Mortgage and Personal Loans by Collateral Location
(In thousands)
 
 
Oklahoma
 
Texas
 
New Mexico
 
Arkansas
 
Colorado
 
Arizona
 
Kansas/Missouri
 
Other
 
Total
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
$
196,443

 
$
390,512

 
$
39,881

 
$
13,707

 
$
141,932

 
$
94,172

 
$
48,132

 
$
23,626

 
$
948,405

Permanent mortgages  guaranteed by U.S. government agencies
 
63,244

 
23,478

 
63,319

 
6,357

 
8,106

 
1,533

 
11,730

 
19,583

 
197,350

Home equity
 
423,210

 
132,233

 
112,997

 
5,425

 
32,162

 
9,259

 
7,821

 
447

 
723,554

Total residential mortgage
 
$
682,897

 
$
546,223

 
$
216,197

 
$
25,489

 
$
182,200

 
$
104,964

 
$
67,683

 
$
43,656

 
$
1,869,309

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
$
201,978

 
$
208,878

 
$
10,813

 
$
918

 
$
25,712

 
$
18,031

 
$
25,044

 
$
2,951

 
$
494,325



- 23 -



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, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
3,656,034

 
$
3,782,687

 
$
3,514,391

 
$
3,529,406

 
$
3,276,553

Commercial real estate
 
747,689

 
739,829

 
677,372

 
614,995

 
612,639

Residential mortgage
 
1,411,409

 
1,409,114

 
1,405,235

 
1,413,690

 
1,442,340

Personal
 
204,158

 
255,387

 
185,463

 
190,909

 
205,496

Total Bank of Oklahoma
 
6,019,290

 
6,187,017

 
5,782,461

 
5,749,000

 
5,537,028

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
3,936,809

 
3,908,425

 
3,752,193

 
3,738,742

 
3,709,467

Commercial real estate
 
1,211,978

 
1,204,202

 
1,257,741

 
1,158,056

 
1,130,973

Residential mortgage
 
217,539

 
219,126

 
222,395

 
228,683

 
237,985

Personal
 
210,456

 
203,496

 
194,051

 
156,260

 
149,827

Total Bank of Texas
 
5,576,782

 
5,535,249

 
5,426,380

 
5,281,741

 
5,228,252

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 

 
 

 
 

 
 

 
 

Commercial
 
402,082

 
375,839

 
368,027

 
392,362

 
388,005

Commercial real estate
 
323,059

 
313,422

 
312,953

 
291,953

 
296,696

Residential mortgage
 
117,655

 
120,507

 
121,232

 
123,376

 
127,326

Personal
 
10,823

 
11,557

 
10,477

 
11,939

 
12,095

Total Bank of Albuquerque
 
853,619

 
821,325

 
812,689

 
819,630

 
824,122

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 

 
 

 
 

 
 

 
 

Commercial
 
79,808

 
92,359

 
76,044

 
99,086

 
91,485

Commercial real estate
 
66,674

 
69,320

 
82,225

 
85,997

 
87,034

Residential mortgage
 
7,212

 
8,169

 
8,063

 
6,999

 
6,807

Personal
 
918

 
819

 
4,921

 
5,189

 
5,114

Total Bank of Arkansas
 
154,612

 
170,667

 
171,253

 
197,271

 
190,440

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 

 
 

 
 

 
 

 
 

Commercial
 
1,030,348

 
987,076

 
1,029,694

 
1,019,454

 
1,008,316

Commercial real estate
 
219,078

 
223,946

 
229,835

 
229,721

 
209,272

Residential mortgage
 
52,961

 
53,782

 
50,138

 
54,135

 
55,925

Personal
 
24,497

 
23,384

 
30,683

 
30,373

 
27,792

Total Colorado State Bank & Trust
 
1,326,884

 
1,288,188

 
1,340,350

 
1,333,683

 
1,301,305

 
 
 
 
 
 
 
 
 
 
 
Bank of Arizona:
 
 

 
 

 
 

 
 

 
 

Commercial
 
656,527

 
606,733

 
608,235

 
572,477

 
519,767

Commercial real estate
 
605,383

 
507,523

 
482,918

 
472,061

 
432,269

Residential mortgage
 
40,338

 
44,047

 
41,722

 
37,493

 
36,161

Personal
 
18,372

 
31,060

 
17,609

 
12,875

 
12,394

Total Bank of Arizona
 
1,320,620

 
1,189,363

 
1,150,484

 
1,094,906

 
1,000,591

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 

 
 

 
 

 
 

 
 

Commercial
 
526,817

 
499,412

 
448,838

 
424,194

 
397,570

Commercial real estate
 
196,646

 
200,791

 
192,023

 
180,714

 
166,581

Residential mortgage
 
22,195

 
22,148

 
20,210

 
20,352

 
20,455

Personal
 
25,101

 
26,994

 
22,753

 
22,645

 
17,792

Total Bank of Kansas City
 
770,759

 
749,345

 
683,824

 
647,905

 
602,398

 
 
 
 
 
 
 
 
 
 
 
Total BOK Financial loans
 
$
16,022,566

 
$
15,941,154

 
$
15,367,441

 
$
15,124,136

 
$
14,684,136


- 24 -



Loan Commitments

We enter into certain off-balance sheet arrangements in the normal course of business. These arrangements included unfunded loan commitments which totaled $8.6 billion and standby letters of credit which totaled $510 million at March 31, 2016. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Approximately $1.6 million of the outstanding standby letters of credit were issued on behalf of customers whose loans are nonperforming at March 31, 2016.

Table 16Off-Balance Sheet Credit Commitments
(In thousands)
 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Loan commitments
 
$
8,567,017

 
$
8,455,037

 
$
8,325,540

 
$
8,064,841

 
$
8,116,482

Standby letters of credit
 
509,902

 
507,988

 
479,638

 
444,947

 
394,282

Mortgage loans sold with recourse
 
152,843

 
155,489

 
161,897

 
168,581

 
174,386


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. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. Substantially all of these loans are to borrowers in our primary markets including $99 million to borrowers in Oklahoma, $16 million to borrowers in Arkansas and $12 million to borrowers in New Mexico.

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 2016 combined, approximately 21 percent 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 $3.0 million at March 31, 2016 and $3.4 million at December 31, 2015.
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

- 25 -



contracts. This occurs if the credit standing of the customer or counterparty deteriorated such that either the fair value of underlying collateral no longer supported the contract or the customer or the counterparty’s ability to provide margin collateral was impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statement of Earnings.

Derivative contracts are carried at fair value. At March 31, 2016, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $800 million compared to $611 million at December 31, 2015. At March 31, 2016, the fair value of our derivative contracts included $639 million for foreign exchange contracts, $67 million related to to-be-announced residential mortgage-backed securities, $48 million for interest rate swaps and $41 million for energy contracts. The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $796 million at March 31, 2016 and $606 million at December 31, 2015.

At March 31, 2016, total derivative assets were reduced by $17 million of cash collateral received from counterparties and total derivative liabilities were reduced by $91 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, 2016 follows in Table 17.

Table 17 -- Fair Value of Derivative Contracts
(In thousands)
Customers
 
$
425,342

Banks and other financial institutions
 
330,824

Exchanges and clearing organizations
 
27,039

Fair value of customer risk management program asset derivative contracts, net
 
$
783,205

 
At March 31, 2016, our largest derivative exposure was to an exchange for energy derivative contracts which totaled $20 million. At March 31, 2016, our aggregate gross exposure to internationally active domestic financial institutions was approximately $57 million comprised of $40 million of cash and securities positions and $17 million of gross derivative positions. We have no direct exposure to European sovereign debt and our aggregate gross exposure to European financial institutions totaled $14 million at March 31, 2016.

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 $21.67 per barrel of oil would decrease the fair value of derivative assets by $477 thousand. An increase in prices equivalent to $60.40 per barrel of oil would increase the fair value of derivative assets by $52 million as current prices move towards 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 $18 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, 2016, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.

- 26 -



Summary of Loan Loss Experience

We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. At March 31, 2016, the combined allowance for loan losses and off-balance sheet credit losses totaled $240 million or 1.50 percent of outstanding loans and 108 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $233 million and the accrual for off-balance sheet credit losses was $6.6 million. At December 31, 2015, the combined allowance for credit losses was $227 million or 1.43 percent of outstanding loans and 181 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $226 million and the accrual for off-balance sheet credit losses was $1.7 million. The portion of the combined allowance for credit losses attributed to the energy portfolio totaled 3.19 percent of outstanding energy loans at March 31, 2016, an increase from 2.89 percent of outstanding energy loans at December 31, 2015.

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, we recorded a $35.0 million provision for credit losses during the first quarter of 2016, primarily due to continued credit migration in the energy portfolio. Low energy prices persisted during the first quarter and no meaningful recovery is expected in the near term. A $22.5 million provision for credit losses was recorded in the fourth quarter of 2015 and no provision for credit losses was necessary in the first quarter of 2015.


- 27 -



Table 18 -- Summary of Loan Loss Experience
(In thousands)
 
 
Three Months Ended
 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
225,524

 
$
204,116

 
$
201,087

 
$
197,686

 
$
189,056

Loans charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
(22,126
)
 
(2,182
)
 
(3,497
)
 
(881
)
 
(174
)
Commercial real estate
 

 
(900
)
 

 
(16
)
 
(28
)
Residential mortgage
 
(474
)
 
(421
)
 
(446
)
 
(714
)
 
(624
)
Personal
 
(1,391
)
 
(1,348
)
 
(1,331
)
 
(1,266
)
 
(1,343
)
Total
 
(23,991
)
 
(4,851
)
 
(5,274
)
 
(2,877
)
 
(2,169
)
Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 

Commercial
 
488

 
928

 
759

 
685

 
357

Commercial real estate
 
85

 
120

 
1,865

 
275

 
8,819

Residential mortgage
 
163

 
137

 
205

 
481

 
437

Personal
 
783

 
685

 
692

 
765

 
910

Total
 
1,519

 
1,870

 
3,521

 
2,206

 
10,523

Net loans recovered (charged off)
 
(22,472
)
 
(2,981
)
 
(1,753
)
 
(671
)
 
8,354

Provision for loan losses
 
30,104

 
24,389

 
4,782

 
4,072

 
276

Ending balance
 
$
233,156

 
$
225,524

 
$
204,116

 
$
201,087

 
$
197,686

Accrual for off-balance sheet credit losses:
 
 
 
 
 
 
 
 
 
 

Beginning balance
 
$
1,711

 
$
3,600

 
$
882

 
$
954

 
$
1,230

Provision for off-balance sheet credit losses
 
4,896

 
(1,889
)
 
2,718

 
(72
)
 
(276
)
Ending balance
 
$
6,607

 
$
1,711

 
$
3,600

 
$
882

 
$
954

Total combined provision for credit losses
 
$
35,000

 
$
22,500

 
$
7,500

 
$
4,000

 
$

Allowance for loan losses to loans outstanding at period-end
 
1.46
%
 
1.41
%
 
1.33
%
 
1.33
%
 
1.35
 %
Net charge-offs (annualized) to average loans
 
0.56
%
 
0.08
%
 
0.05
%
 
0.02
%
 
(0.23
)%
Total provision for credit losses (annualized) to average loans
 
0.88
%
 
0.58
%
 
0.20
%
 
0.11
%
 
 %
Recoveries to gross charge-offs
 
6.33
%
 
38.55
%
 
66.76
%
 
76.68
%
 
485.15
 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments
 
0.07
%
 
0.02
%
 
0.04
%
 
0.01
%
 
0.01
 %
Combined allowance for credit losses to loans outstanding at period-end
 
1.50
%
 
1.43
%
 
1.35
%
 
1.34
%
 
1.35
 %
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. A specific allowance is required when the outstanding principal balance of the loan is not supported by either the discounted cash flows expected to be received from the borrower or the fair value of collateral for collateral dependent loans. At March 31, 2016, impaired loans totaled $420 million, including $35 million with specific allowances of $2.7 million and $385 million with no specific allowances. At December 31, 2015, impaired loans totaled $322 million, including $44 million of impaired loans with specific allowances of $16 million and $278 million with no specific allowances.


- 28 -



Following the most recent 2016 shared national credit review and release of the updated Office of the Comptroller of the Currency ("OCC") Oil and Gas Lending Handbook, we have made adjustments to how loans are risk rated. Previously, the ability to repay senior secured revolving loans was heavily weighted in determining risk ratings. New guidelines heavily weight ability to repay total borrower debt, regardless of collateral position. This change in grading methodology has increased loans especially mentioned, potential problem loans and nonaccrual loans at March 31, 2016. The results of the shared national credit review have been fully included in our first quarter risk ratings. As we continue to evaluate credits, or, as a result of the current targeted energy review being conducted by our banking regulators, additional rating changes could continue through the first half of 2016. Because substantially all of our energy portfolio is supported by senior lien positions that, in general, have substantially lower loss exposure, the historical relationship between loan classification and loss exposure may be more difficult to correlate.

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 $205 million at March 31, 2016, an increase of $26 million over December 31, 2015, primarily due to a $23 million increase in the general allowance attributed to the commercial loan segment related to exposure to low energy prices.

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 $25 million at March 31, 2016, compared to $30 million at December 31, 2015. The nonspecific allowance includes consideration of the indirect impact of falling energy prices on the broader economies within our geographical footprint that are highly dependent on the energy industry. The decrease in nonspecific allowances was due to lower risk of losses from an increase in interest rates and international exposure.

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

Our loan monitoring process also identified loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements, and no loss of principal or interest is anticipated, these loans were not included in nonperforming assets. Known information does, however, cause management concern as to the borrowers’ ability to comply with current repayment terms. These potential problem loans totaled $460 million at March 31, 2016, primarily composed of $403 million of energy loans, $20 million of wholesale/retail sector loans, $12 million of manufacturing sector loans, $7.8 million of healthcare sector loans, $6.9 million of service sector loans and $6.5 million of loans secured by multifamily residential properties. Potential problem loans totaled $155 million at December 31, 2015 including $130 million of potential problem energy loans.

Performing loan totals include loans that management considers to be "other loans especially mentioned" based on regulatory guidelines. Other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management's close attention. Energy loans classified as other loans especially mentioned totaled $269 million or 9 percent of outstanding energy loans at March 31, 2016 and $326 million or 11 percent of outstanding energy loans at December 31, 2015.

We updated our energy loan portfolio stress test at quarter end to estimate how the energy portfolio may respond in a prolonged low-price environment. Stress test assumptions include a starting price of $1.65 per million BTUs for natural gas and $34.00 per barrel of oil, gradually escalating over five years to a maximum of $2.50 and $40.00, respectively. In this scenario, the energy portfolio exhibits greater stress than we have experienced to date and losses would be expected to exceed our 15 year historical loss rate on energy loans of 8 basis points. The results of the stress test are factored into our expectation that the loan loss provision could range from $60 to $80 million for 2016, which includes a significant increase in the loan loss provision for energy-related loans. Based on currently available information, we expect the majority of the provision for 2016 will be recognized in the first half of the year. The provision could be modestly higher than this range if the borrowing base redetermination, the oil and gas market, and other factors prove more negative over the next several months.

- 29 -



Net Loans Charged Off

Loans are charged off against the allowance for loan losses when the loan balance or a portion of the loan balance is no longer covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Internally risk graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans are generally charged off when payments are between 60 days and 180 days past due, depending on loan class. In addition, non-risk graded loans are generally charged-down to collateral value within 60 days of being notified of a borrower's bankruptcy filing, regardless of payment status.

BOK Financial had net loans charged off of $22.5 million in the first quarter of 2016, compared to net loans charged off of $3.0 million in the fourth quarter of 2015 and net recoveries of $8.4 million in the first quarter of 2015. The ratio of net loans charged off (recovered) to average loans on an annualized basis was 0.56 percent for the first quarter of 2016, compared with 0.08 percent for the fourth quarter of 2015 and (0.23) percent for the first quarter of 2015

Net commercial loans charged off totaled $21.6 million in the first quarter of 2016, compared to net loans charged off of $1.3 million in the fourth quarter of 2015. First quarter of 2016 charge-offs resulted primarily from energy loans, including $15 million from a single credit identified in the previous quarter. Net commercial real estate loan recoveries were $85 thousand in the first quarter, compared to net charge-offs of $780 thousand in the fourth quarter. Residential mortgage net charge-offs were $311 thousand and personal loan net charge-offs were $608 thousand for the first quarter. Personal loan net charge-offs include deposit account overdraft losses. 


- 30 -



Nonperforming Assets

Table 19 -- Nonperforming Assets
(In thousands)
 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Nonaccruing loans:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
174,652

 
$
76,424

 
$
33,798

 
$
24,233

 
$
13,880

Commercial real estate
 
9,270

 
9,001

 
10,956

 
20,139

 
19,902

Residential mortgage
 
57,577

 
61,240

 
44,099

 
45,969

 
46,487

Personal
 
331

 
463

 
494

 
550

 
464

Total nonaccruing loans
 
241,830

 
147,128

 
89,347

 
90,891

 
80,733

Accruing renegotiated loans guaranteed by U.S. government agencies
 
77,597

 
74,049

 
81,598

 
82,368

 
80,287

Real estate and other repossessed assets
 
29,896

 
30,731

 
33,116

 
35,499

 
45,551

Total nonperforming assets
 
$
349,323

 
$
251,908

 
$
204,061

 
$
208,758

 
$
206,571

Total nonperforming assets excluding those guaranteed by U.S. government agencies
 
$
252,176

 
$
155,959

 
$
118,578

 
$
122,673

 
$
123,028

 
 
 
 
 
 
 
 
 
 
 
Nonaccruing loans by loan portfolio segment and class:
 
 
 
 
 
 

 
 

Commercial:
 
 
 
 
 
 
 
 

 
 

Energy
 
$
159,553

 
$
61,189

 
$
17,880

 
$
6,841

 
$
1,875

Services
 
9,512

 
10,290

 
10,692

 
10,944

 
4,744

Wholesale / retail
 
3,685

 
2,919

 
3,058

 
4,166

 
4,401

Manufacturing
 
312

 
331

 
352

 
379

 
417

Healthcare
 
1,023

 
1,072

 
1,218

 
1,278

 
1,558

Other commercial and industrial
 
567

 
623

 
598

 
625

 
885

Total commercial
 
174,652

 
76,424

 
33,798

 
24,233

 
13,880

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 

 
 

Residential construction and land development
 
4,789

 
4,409

 
4,748

 
9,367

 
9,598

Retail
 
1,302

 
1,319

 
1,648

 
3,826

 
3,857

Office
 
629

 
651

 
684

 
2,360

 
2,410

Multifamily
 
250

 
274

 
185

 
195

 

Industrial
 
76

 
76

 
76

 
76

 
76

Other commercial real estate
 
2,224

 
2,272

 
3,615

 
4,315

 
3,961

Total commercial real estate
 
9,270

 
9,001

 
10,956

 
20,139

 
19,902

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 

 
 

Permanent mortgage
 
27,497

 
28,984

 
30,660

 
32,187

 
33,365

Permanent mortgage guaranteed by U.S. government agencies
 
19,550

 
21,900

 
3,885

 
3,717

 
3,256

Home equity
 
10,530

 
10,356

 
9,554

 
10,065

 
9,866

Total residential mortgage
 
57,577

 
61,240

 
44,099

 
45,969

 
46,487

Personal
 
331

 
463

 
494

 
550

 
464

Total nonaccruing loans
 
$
241,830

 
$
147,128

 
$
89,347

 
$
90,891

 
$
80,733

 
 
 
 
 
 
 
 
 
 
 

- 31 -



 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Nonaccruing loans as % of outstanding balance for class:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
5.27
%
 
1.98
%
 
0.63
%
 
0.24
%
 
0.06
%
Services
 
0.35
%
 
0.37
%
 
0.40
%
 
0.41
%
 
0.18
%
Wholesale / retail
 
0.25
%
 
0.21
%
 
0.21
%
 
0.27
%
 
0.31
%
Manufacturing
 
0.05
%
 
0.06
%
 
0.06
%
 
0.07
%
 
0.07
%
Healthcare
 
0.05
%
 
0.06
%
 
0.07
%
 
0.08
%
 
0.10
%
Other commercial and industrial
 
0.12
%
 
0.12
%
 
0.12
%
 
0.14
%
 
0.21
%
Total commercial
 
1.70
%
 
0.75
%
 
0.34
%
 
0.25
%
 
0.15
%
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 
2.79
%
 
2.75
%
 
3.09
%
 
6.30
%
 
6.90
%
Retail
 
0.16
%
 
0.17
%
 
0.21
%
 
0.56
%
 
0.59
%
Office
 
0.09
%
 
0.10
%
 
0.11
%
 
0.42
%
 
0.47
%
Multifamily
 
0.03
%
 
0.04
%
 
0.02
%
 
0.03
%
 
%
Industrial
 
0.01
%
 
0.01
%
 
0.01
%
 
0.02
%
 
0.02
%
Other commercial real estate
 
0.56
%
 
0.65
%
 
0.99
%
 
0.99
%
 
1.00
%
Total commercial real estate
 
0.28
%
 
0.28
%
 
0.34
%
 
0.66
%
 
0.68
%
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 
2.90
%
 
3.07
%
 
3.27
%
 
3.40
%
 
3.46
%
Permanent mortgage guaranteed by U.S. government agencies
 
9.91
%
 
11.12
%
 
2.02
%
 
1.95
%
 
1.63
%
Home equity
 
1.46
%
 
1.41
%
 
1.29
%
 
1.35
%
 
1.29
%
Total residential mortgage
 
3.08
%
 
3.26
%
 
2.36
%
 
2.44
%
 
2.41
%
Personal
 
0.07
%
 
0.08
%
 
0.11
%
 
0.13
%
 
0.11
%
Total nonaccruing loans
 
1.51
%
 
0.92
%
 
0.58
%
 
0.60
%
 
0.55
%
 
 
 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 

 
 

Allowance for loan losses to nonaccruing loans1
 
104.89
%
 
180.09
%
 
238.84
%
 
230.67
%
 
255.15
%
Accruing loans 90 days or more past due1
 
$
8,019

 
$
1,207

 
$
101

 
$
99

 
$
523

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

Nonperforming assets totaled $349 million or 2.18 percent of outstanding loans and repossessed assets at March 31, 2016. Nonaccruing loans totaled $242 million, accruing renegotiated residential mortgage loans totaled $78 million and real estate and other repossessed assets totaled $30 million. All accruing renegotiated residential mortgage loans and $20 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets increased $96 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.


- 32 -



Loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. As more fully discussed in Note 4 to the Consolidated Financial Statements, we may modify loans in troubled debt restructurings. Modifications may include extension of payment terms and rate concessions. We generally do not forgive principal or accrued but unpaid interest. All loans modified in troubled debt restructurings, except for residential mortgage loans guaranteed by U.S. government agencies, are classified as nonaccruing. We may also renew matured nonaccruing loans. All nonaccruing loans, including those renewed or modified in troubled debt restructurings, are charged off when the loan balance is no longer covered by the paying capacity of the borrower based on a quarterly evaluation of available cash resources and collateral value. All nonaccruing loans generally remain on nonaccrual status until full collection of principal and interest in accordance with the original terms, including principal previously charged off, is probable. We generally do not voluntarily modify personal loans to troubled borrowers. Personal loans modified at the direction of bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.

At March 31, 2016, renegotiated loans consist solely of accruing residential mortgage loans guaranteed by U.S. government agencies that have been modified in troubled debt restructurings. See Note 4 to the Consolidated Financial Statements for additional discussion of troubled debt restructurings. Generally, we modify residential mortgage loans primarily by reducing interest rates and extending the number of payments in accordance with U.S. government agency guidelines. Generally, no unpaid principal or interest is forgiven. Interest continues to accrue based on the modified terms of the loan. Modified loans guaranteed by U.S. government agencies under residential mortgage loan programs may be sold once they become eligible according to U.S. government agency guidelines.

A rollforward of nonperforming assets for the three months ended March 31, 2016 follows in Table 20.

Table 20 -- Rollforward of Nonperforming Assets
(In thousands)
 
 
Three Months Ended
 
 
March 31, 2016
 
 
 
Nonaccruing Loans
 
 
Renegotiated Loans
 
Real Estate and Other Repossessed Assets
 
Total Nonperforming Assets
Balance, Dec. 31, 2015
 
$
147,128

 
$
74,049

 
$
30,731

 
$
251,908

Additions
 
179,162

 
13,097

 

 
192,259

Payments
 
(54,886
)
 
(504
)
 

 
(55,390
)
Charge-offs
 
(23,991
)
 

 

 
(23,991
)
Net gains and write-downs
 

 

 
71

 
71

Foreclosure of nonperforming loans
 
(2,211
)
 

 
2,211

 

Foreclosure of loans guaranteed by U.S. government agencies
 
(3,327
)
 
(2,301
)
 

 
(5,628
)
Proceeds from sales
 

 
(6,904
)
 
(3,117
)
 
(10,021
)
Return to accrual status
 
(45
)
 

 

 
(45
)
Other, net
 

 
160

 

 
160

Balance, March 31, 2016
 
$
241,830

 
$
77,597

 
$
29,896

 
$
349,323

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

Commercial

Nonaccruing commercial loans totaled $175 million or 1.70 percent of total commercial loans at March 31, 2016 and $76 million or 0.75 percent of commercial loans at December 31, 2015. There were $155 million in newly identified nonaccruing commercial loans during the quarter, offset by $34 million in payments and $22 million of charge-offs.

Nonaccruing commercial loans at March 31, 2016 were primarily composed of $160 million or 5.27 percent of total energy loans, and $9.5 million or 0.35 percent of total services sector loans.

- 33 -



Commercial Real Estate

Nonaccruing commercial real estate loans totaled $9.3 million or 0.28 percent of outstanding commercial real estate loans at March 31, 2016, compared to $9.0 million or 0.28 percent of outstanding commercial real estate loans at December 31, 2015. Newly identified nonaccruing commercial real estate loans of $1.3 million were offset by $1.1 million of cash payments received. There were no charge-offs or foreclosures of nonaccruing commercial real estate loans during the first quarter.

Nonaccruing commercial real estate loans were primarily composed of $4.8 million or 2.79 percent of residential construction and land development loans.

Residential Mortgage and Personal

Nonaccruing residential mortgage loans totaled $58 million or 3.08 percent of outstanding residential mortgage loans at March 31, 2016, compared to $61 million or 3.26 percent of outstanding residential mortgage loans at December 31, 2015. Newly identified nonaccruing residential mortgage loans totaled $22 million, offset by $19 million of payments, $5.3 million of foreclosures and $474 thousand of loans charged off during the quarter. 

Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans which totaled $27 million or 2.90 percent of outstanding non-guaranteed permanent residential mortgage loans at March 31, 2016. Nonaccruing home equity loans totaled $11 million or 1.46 percent of total home equity loans.

Payments of accruing residential mortgage loans and personal loans may be delinquent. The composition of residential mortgage loans and personal loans past due but still accruing is included in the following Table 21. Substantially all non-guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 89 days past due decreased $2.2 million in the first quarter to $4.1 million at March 31, 2016. Personal loans past due 30 to 89 days also decreased $422 thousand compared to December 31, 2015.

Table 21 -- Residential Mortgage and Personal Loans Past Due
(In thousands)
 
 
March 31, 2016
 
December 31, 2015
 
 
90 Days or More
 
30 to 89 Days
 
90 Days or More
 
30 to 89 Days
Residential mortgage:
 
 
 
 
 
 
 
 
   Permanent mortgage1
 
$

 
$
1,943

 
$

 
$
3,290

Home equity
 

 
2,200

 
20

 
3,095

Total residential mortgage
 
$

 
$
4,143

 
20

 
$
6,385

 
 
 

 
 

 
 

 
 

Personal
 
$
1

 
$
271

 
$
8

 
$
693

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


- 34 -



Real Estate and Other Repossessed Assets

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

Real estate and other repossessed assets totaled $30 million at March 31, 2016, a decrease of $835 thousand compared to December 31, 2015. The distribution of real estate and other repossessed assets attributed by geographical market is included in Table 22 following.

Table 22 -- 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
 
$
5,186

 
$
2,190

 
$

 
$
801

 
$
1,990

 
$
3,999

 
$
972

 
$
69

 
$
15,207

Developed commercial real estate properties
 
64

 
882

 
3,456

 

 
756

 
221

 
3,024

 
1,734

 
10,137

Undeveloped land
 
265

 
1,521

 

 

 

 
432

 

 

 
2,218

Residential land development properties
 
54

 

 
381

 

 

 
1,570

 
2

 

 
2,007

Other
 

 
2

 

 

 

 
324

 

 
1

 
327

Total real estate and other repossessed assets
 
$
5,569

 
$
4,595

 
$
3,837

 
$
801

 
$
2,746

 
$
6,546

 
$
3,998

 
$
1,804

 
$
29,896


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

- 35 -



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 2016, approximately 65 percent of our funding was provided by deposit accounts, 20 percent from borrowed funds, and 11 percent from equity. Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks and other banks, provide adequate liquidity to meet our operating needs.

Deposit accounts represent our largest funding source. We compete for retail and commercial deposits by offering a broad range of products and services and focusing on customer convenience. Retail deposit growth is supported through 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.

Table 23 - Average Deposits by Line of Business
(In thousands)
 
Three Months Ended
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Commercial Banking
$
8,457,750

 
$
8,549,240

 
$
8,627,281

 
$
8,928,997

 
$
8,995,036

Consumer Banking
6,575,893

 
6,652,104

 
6,675,990

 
6,724,188

 
6,621,377

Wealth Management
4,696,013

 
4,583,474

 
4,490,082

 
4,522,197

 
4,701,302

Subtotal
19,729,656

 
19,784,818

 
19,793,353

 
20,175,382

 
20,317,715

Funds Management and other
896,965

 
920,632

 
899,795

 
918,577

 
931,324

Total
$
20,626,621

 
$
20,705,450

 
$
20,693,148

 
$
21,093,959

 
$
21,249,039


Average deposits for the first quarter of 2016 totaled $20.6 billion and represented approximately 65 percent of total liabilities and capital, compared with $20.7 billion and 67 percent of total liabilities and capital for the fourth quarter of 2015. Average deposits decreased $79 million from the fourth quarter of 2015. Average demand deposits decreased $207 million and average time deposit balances decreased $116 million, partially offset by a $229 million increase in average interest-bearing transaction accounts.

Average Commercial Banking deposit balances decreased $91 million compared to the fourth quarter of 2015, primarily due to $105 million decrease in energy customer balances and a $38 million decrease in small business customer deposit balances. These decreases were partially offset by a $41 million increase in healthcare customer balances. 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. If economic activity were to improve significantly or if short-term interest rates were to increase, deposits may decline as customers deploy funds into projects or shift demand deposits into money market instruments.

Average Consumer Banking deposit balances decreased $76 million. Time deposits decreased $81 million and demand deposit balances decreased $17 million. Interest-bearing transaction deposits were largely unchanged compared to the prior quarter. Average Wealth Management deposits increased $113 million over the fourth quarter of 2015 primarily due to a $125 million increase in interest-bearing transaction account balances and a $22 million increase in demand deposits, partially offset by a $34 million decrease in time deposit balances.

Brokered deposits, included in time deposits, averaged $362 million for the first quarter of 2016, a decrease of $40 million compared to the fourth quarter of 2015. Average interest-bearing transaction accounts for the first quarter included $553 million of brokered deposits, a decrease of $4.9 million compared to the fourth quarter of 2015. Changes in average brokered deposits largely affect Funds Management and Other.


- 36 -



The distribution of our period end deposit account balances among principal markets follows in Table 24.

Table 24 -- Period End Deposits by Principal Market Area
(In thousands)
 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Bank of Oklahoma:
 
 
 
 
 
 
 
 
 
 
Demand
 
$
3,813,128

 
$
4,133,520

 
$
3,834,145

 
$
4,068,088

 
$
3,982,534

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
5,706,067

 
5,971,819

 
5,783,258

 
6,018,381

 
6,199,468

Savings
 
246,122

 
226,733

 
225,580

 
225,694

 
227,855

Time
 
1,198,022

 
1,202,274

 
1,253,137

 
1,380,566

 
1,372,250

Total interest-bearing
 
7,150,211

 
7,400,826

 
7,261,975

 
7,624,641

 
7,799,573

Total Bank of Oklahoma
 
10,963,339

 
11,534,346

 
11,096,120

 
11,692,729

 
11,782,107

 
 
 
 
 
 
 
 
 
 
 
Bank of Texas:
 
 
 
 
 
 
 
 
 
 
Demand
 
2,571,883

 
2,627,764

 
2,689,493

 
2,565,234

 
2,511,032

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
2,106,905

 
2,132,099

 
1,996,223

 
2,020,817

 
2,062,063

Savings
 
83,263

 
77,902

 
74,674

 
74,373

 
76,128

Time
 
530,657

 
549,740

 
554,106

 
536,844

 
547,371

Total interest-bearing
 
2,720,825

 
2,759,741

 
2,625,003

 
2,632,034

 
2,685,562

Total Bank of Texas
 
5,292,708

 
5,387,505

 
5,314,496

 
5,197,268

 
5,196,594

 
 
 
 
 
 
 
 
 
 
 
Bank of Albuquerque:
 
 
 
 
 
 
 
 
 
 
Demand
 
557,200

 
487,286

 
520,785

 
508,224

 
537,466

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
560,684

 
563,723

 
529,862

 
537,156

 
535,791

Savings
 
47,187

 
43,672

 
41,380

 
41,802

 
42,088

Time
 
259,630

 
267,821

 
281,426

 
285,890

 
290,706

Total interest-bearing
 
867,501

 
875,216

 
852,668

 
864,848

 
868,585

Total Bank of Albuquerque
 
1,424,701

 
1,362,502

 
1,373,453

 
1,373,072

 
1,406,051

 
 
 
 
 
 
 
 
 
 
 
Bank of Arkansas:
 
 
 
 
 
 
 
 
 
 
Demand
 
31,318

 
27,252

 
25,397

 
19,731

 
31,002

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
265,803

 
202,857

 
290,728

 
284,349

 
253,691

Savings
 
1,929

 
1,747

 
1,573

 
1,712

 
1,677

Time
 
21,035

 
24,983

 
26,203

 
28,220

 
28,277

Total interest-bearing
 
288,767

 
229,587

 
318,504

 
314,281

 
283,645

Total Bank of Arkansas
 
320,085

 
256,839

 
343,901

 
334,012

 
314,647

 
 
 
 
 
 
 
 
 
 
 
Colorado State Bank & Trust:
 
 
 
 
 
 
 
 
 
 
Demand
 
413,506

 
497,318

 
430,675

 
403,491

 
412,532

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
610,077

 
616,697

 
655,206

 
601,741

 
604,665

Savings
 
33,108

 
31,927

 
31,398

 
31,285

 
31,524

Time
 
271,475

 
296,224

 
320,279

 
322,432

 
340,006

Total interest-bearing
 
914,660

 
944,848

 
1,006,883

 
955,458

 
976,195

Total Colorado State Bank & Trust
 
1,328,166

 
1,442,166

 
1,437,558

 
1,358,949

 
1,388,727

 
 
 
 
 
 
 
 
 
 
 

- 37 -



 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Bank of Arizona:
 
 
 
 
 
 
 
 
 
 
Demand
 
341,828

 
326,324

 
306,425

 
352,024

 
271,091

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
313,825

 
358,556

 
293,319

 
298,073

 
295,480

Savings
 
3,277

 
2,893

 
4,121

 
2,726

 
2,900

Time
 
29,053

 
29,498

 
26,750

 
28,165

 
28,086

Total interest-bearing
 
346,155

 
390,947

 
324,190

 
328,964

 
326,466

Total Bank of Arizona
 
687,983

 
717,271

 
630,615

 
680,988

 
597,557

 
 
 
 
 
 
 
 
 
 
 
Bank of Kansas City:
 
 
 
 
 
 
 
 
 
 
Demand
 
221,812

 
197,424

 
234,847

 
239,609

 
263,920

Interest-bearing:
 
 
 
 
 
 
 
 
 
 
Transaction
 
146,405

 
153,203

 
150,253

 
139,260

 
157,044

Savings
 
1,619

 
1,378

 
1,570

 
1,580

 
1,618

Time
 
31,502

 
35,524

 
36,630

 
42,262

 
45,082

Total interest-bearing
 
179,526

 
190,105

 
188,453

 
183,102

 
203,744

Total Bank of Kansas City
 
401,338

 
387,529

 
423,300

 
422,711

 
467,664

Total BOK Financial deposits
 
$
20,418,320

 
$
21,088,158

 
$
20,619,443

 
$
21,059,729

 
$
21,153,347


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. There were no wholesale federal funds purchased outstanding at March 31, 2016. Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities. Federal Home Loan Bank borrowings are generally short term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and agency mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $5.5 billion during the quarter, compared to $4.9 billion in the fourth quarter of 2015.

At March 31, 2016, the estimated unused credit available to the subsidiary bank from collateralized sources was approximately $4.4 billion.

A summary of other borrowings by the subsidiary bank follows in Table 25.


- 38 -



Table 25 -- Borrowed Funds
(In thousands)
 
 
 
 
Three Months Ended
March 31, 2016
 
 
 
Three Months Ended
December 31, 2015
 
 
March 31, 2016
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
December 31, 2015
 
Average
Balance
During the
Quarter
 
Rate
 
Maximum
Outstanding
At Any Month
End During
the Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds purchased
 
$
62,755

 
$
112,211

 
0.27
%
 
$
567,103

 
$
491,192

 
$
73,220

 
0.11
%
 
$
491,192

Repurchase agreements
 
630,101

 
662,640

 
0.05
%
 
649,579

 
722,444

 
623,921

 
0.04
%
 
722,444

Other borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank advances
 
5,600,000

 
5,547,803

 
0.53
%
 
5,600,000

 
4,800,000

 
4,921,739

 
0.34
%
 
5,000,000

GNMA repurchase liability
 
15,491

 
17,594

 
4.91
%
 
19,520

 
19,478

 
16,668

 
4.81
%
 
19,478

Other
 
18,371

 
18,520

 
2.45
%
 
18,747

 
18,402

 
18,768

 
2.29
%
 
18,906

Total other borrowings
 
5,633,862

 
5,583,917

 
0.56
%
 


 
4,837,880

 
4,957,175

 
0.38
%
 


Subordinated debentures
 
226,385

 
226,368

 
1.26
%
 
226,385

 
226,350

 
226,332

 
1.13
%
 
226,350

Total Borrowed Funds
 
$
6,553,103

 
$
6,585,136

 
0.53
%
 
 
 
$
6,277,866

 
$
5,880,648

 
0.34
%
 
 
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 percent through May 14, 2012 which then converted to a floating rate of three-month LIBOR plus 0.69 percent. At March 31, 2016, $227 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

At March 31, 2016, cash and interest-bearing cash and cash equivalents held by the Parent Company totaled $267 million. 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, 2016, based upon the most restrictive limitations as well as management's internal capital policy, the subsidiary bank could declare up to $126 million of dividends without regulatory approval. Dividend constraints may be alleviated through increases in retained earnings, capital issuances or changes in risk weighted assets. Future losses or increases in required regulatory capital at the subsidiary bank could affect its ability to pay dividends to the parent company.

Our equity capital at March 31, 2016 was $3.4 billion, an increase of $89 million over December 31, 2015. Net income less cash dividends paid increased equity $14 million during the first quarter of 2016. Accumulated other comprehensive income increased $72 million primarily related to the change in unrealized gains on available for sale securities due to changes in interest rates. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt issuance, share repurchase and stock and cash dividends.

On October 27, 2015, the board of directors authorized the Company to purchase up to five million common shares, subject to market conditions, securities law and other regulatory compliance limitations. As of March 31, 2016, a cumulative total of 1,874,074 shares have been repurchased under this authorization. No shares were repurchased in the first quarter of 2016.

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.

- 39 -



Effective January 1, 2015 for BOK Financial, regulatory capital rules establish a 7 percent threshold for the common equity Tier 1 ratio consisting of a minimum level plus capital conservation buffer. The Company has elected to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital, consistent with the treatment under previous capital rules.

The minimum Tier 1 risk based capital requirements and the total risk based requirements are 6 percent and 8 percent, respectively, plus a capital conservation buffer of 2.5 percent totaling 8.5 percent and 10.5 percent, respectively. The leverage ratio requirement under the rule is 4 percent. A bank which falls below these levels, including the capital conservation buffer, would be subject to regulatory restrictions on capital distributions (including but not limited to dividends and share repurchases) and executive bonus payments.

The capital ratios for BOK Financial on a consolidated basis are presented in Table 26.

Table 26 -- Capital Ratios
 
 
Minimum Capital Requirement1
 
Capital Conservation Buffer2
 
Minimum Capital Requirement Including Capital Conservation Buffer
 
March 31, 2016
 
Dec. 31, 2015
 
March 31, 2015
Risk-based capital:
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1
 
4.50
%
 
2.50
%
 
7.00
%
 
12.00
%
 
12.13
%
 
13.07
%
Tier 1 capital
 
6.00
%
 
2.50
%
 
8.50
%
 
12.00
%
 
12.13
%
 
13.07
%
Total capital
 
8.00
%
 
2.50
%
 
10.50
%
 
13.21
%
 
13.30
%
 
14.39
%
Tier 1 Leverage
 
4.00
%
 
N/A

 
4.00
%
 
9.12
%
 
9.25
%
 
9.74
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Average total equity to average assets
 
 
 
 
 
 
 
10.55
%
 
10.81
%
 
11.18
%
Tangible common equity ratio
 
 
 
 
 
 
 
9.34
%
 
9.02
%
 
9.86
%
1 
Effective January 1, 2015
2 
Effective January 1, 2016

Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity ratio. Tangible common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principles in the United States of America (“GAAP”) less intangible assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes preferred equity. This non-GAAP measure is a valuable indicator of a financial institution’s capital strength since it eliminates intangible assets from shareholders’ equity and retains the effect of unrealized losses on securities and other components of accumulated other comprehensive income in shareholders’ equity.

Table 27 provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.

Table 27 -- Non-GAAP Measure
(Dollars in thousands)
 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
Tangible common equity ratio:
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
$
3,321,555

 
$
3,230,556

 
$
3,377,226

 
$
3,375,632

 
$
3,357,161

Less: Goodwill and intangible assets, net
 
428,733

 
429,370

 
430,460

 
431,515

 
411,066

Tangible common equity
 
2,892,822

 
2,801,186

 
2,946,766

 
2,944,117

 
2,946,095

Total assets
 
31,413,945

 
31,476,128

 
30,566,905

 
30,725,563

 
30,299,978

Less: Goodwill and intangible assets, net
 
428,733

 
429,370

 
430,460

 
431,515

 
411,066

Tangible assets
 
$
30,985,212

 
$
31,046,758

 
$
30,136,445

 
$
30,294,048

 
$
29,888,912

Tangible common equity ratio
 
9.34
%
 
9.02
%
 
9.78
%
 
9.72
%
 
9.86
%

Off-Balance Sheet Arrangements

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

- 40 -



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 the 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 percent 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. The Asset/Liabilty Committee is also responsible for monitoring market risk limits for mortgage banking production and mortgage servicing assets inclusive of economic hedge benefits. Each of these desks must limit projected exposure from a 50 basis point change in interest rates.

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 percent due to a 200 basis point 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 28 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 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.
 

- 41 -



Table 28 -- Interest Rate Sensitivity
(Dollars in thousands)
 
 
200 bp Increase
 
50 bp Decrease
 
 
March 31,
 
March 31,
 
 
2016
 
2015
 
2016
 
2015
Anticipated impact over the next twelve months on net interest revenue
 
$
(2,153
)
 
$
(5,364
)
 
$
(24,184
)
 
$
(20,193
)
 
 
(0.28
)%
 
(0.72
)%
 
(3.14
)%
 
(2.73
)%

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 and municipal bonds 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. Economic hedges in either the futures, over the counter derivatives 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 percent 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, 2016 and 2015. At March 31, 2016, 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 the three months ended March 31, 2016 and March 31, 2015 are as follows in Table 29.

Table 29 -- Value at Risk (VaR)
(In thousands)
 
Three Months Ended
March 31,
 
2016
 
2015
Average
$
1,814

 
$
1,475

High
4,130

 
2,053

Low
774

 
782

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.

- 42 -



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.

- 43 -



     
Consolidated Statements of Earnings (Unaudited)
 
 
 
 
(In thousands, except share and per share data)
 
Three Months Ended
 
 
March 31,
Interest revenue
 
2016
 
2015
Loans
 
$
139,112

 
$
126,696

Residential mortgage loans held for sale
 
2,700

 
2,949

Trading securities
 
524

 
507

Taxable securities
 
3,175

 
3,326

Tax-exempt securities
 
1,212

 
1,344

Total investment securities
 
4,387

 
4,670

Taxable securities
 
44,932

 
43,105

Tax-exempt securities
 
535

 
620

Total available for sale securities
 
45,467

 
43,725

Fair value option securities
 
2,589

 
2,003

Restricted equity securities
 
4,311

 
2,597

Interest-bearing cash and cash equivalents
 
2,706

 
1,422

Total interest revenue
 
201,796

 
184,569

Interest expense
 
 

 
 

Deposits
 
10,542

 
12,105

Borrowed funds
 
7,972

 
2,573

Subordinated debentures
 
710

 
2,165

Total interest expense
 
19,224

 
16,843

Net interest revenue
 
182,572

 
167,726

Provision for credit losses
 
35,000

 

Net interest revenue after provision for credit losses
 
147,572

 
167,726

Other operating revenue
 
 

 
 

Brokerage and trading revenue
 
32,341

 
31,707

Transaction card revenue
 
32,354

 
31,010

Fiduciary and asset management revenue
 
32,056

 
31,469

Deposit service charges and fees
 
22,542

 
21,684

Mortgage banking revenue
 
34,430

 
39,320

Other revenue
 
11,904

 
10,801

Total fees and commissions
 
165,627

 
165,991

Other gains, net
 
1,560

 
755

Gain on derivatives, net
 
7,138

 
911

Gain on fair value option securities, net
 
9,443

 
2,647

Change in fair value of mortgage servicing rights
 
(27,988
)
 
(8,522
)
Gain on available for sale securities, net
 
3,964

 
4,327

Total other-than-temporary impairment losses
 

 
(781
)
Portion of loss recognized in other comprehensive income
 

 
689

Net impairment losses recognized in earnings
 

 
(92
)
Total other operating revenue
 
159,744

 
166,017

Other operating expense
 
 

 
 

Personnel
 
135,843

 
128,548

Business promotion
 
5,696

 
5,748

Professional fees and services
 
11,759

 
10,059

Net occupancy and equipment
 
18,766

 
19,044

Insurance
 
7,265

 
4,980

Data processing and communications
 
32,017

 
29,772

Printing, postage and supplies
 
3,907

 
3,461

Net losses and operating expenses of repossessed assets
 
1,070

 
613

Amortization of intangible assets
 
1,159

 
1,090

Mortgage banking costs
 
12,379

 
10,167

Other expense
 
15,039

 
6,783

Total other operating expense
 
244,900

 
220,265

Net income before taxes
 
62,416

 
113,478

Federal and state income taxes
 
21,428

 
38,384

Net income
 
40,988

 
75,094

Net income (loss) attributable to non-controlling interests
 
(1,576
)
 
251

Net income attributable to BOK Financial Corporation shareholders
 
$
42,564

 
$
74,843

Earnings per share:
 
 

 
 

Basic
 
$
0.64

 
$
1.08

Diluted
 
$
0.64

 
$
1.08

Average shares used in computation:
 
 
 
 
Basic
 
65,296,541

 
68,254,780

Diluted
 
65,331,428

 
68,344,886

Dividends declared per share
 
$
0.43

 
$
0.42


See accompanying notes to consolidated financial statements.

- 44 -



Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands, except share and per share data)
 
 
 
 
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Net income
 
$
40,988

 
$
75,094

Other comprehensive income before income taxes:
 
 
 
 
Net change in unrealized gain (loss)
 
121,091

 
59,387

Reclassification adjustments included in earnings:
 
 
 
 
Interest revenue, Investments securities, Taxable securities
 
(69
)
 
(179
)
Interest expense, Subordinated debentures
 

 
65

Net impairment losses recognized in earnings
 

 
92

Gain on available for sale securities, net
 
(3,964
)
 
(4,327
)
Other comprehensive income before income taxes
 
117,058

 
55,038

Federal and state income taxes
 
45,536

 
21,408

Other comprehensive income, net of income taxes
 
71,522


33,630

Comprehensive income
 
112,510

 
108,724

Comprehensive income (loss) attributable to non-controlling interests
 
(1,576
)
 
251

Comprehensive income attributable to BOK Financial Corp. shareholders
 
$
114,086

 
$
108,473


See accompanying notes to consolidated financial statements.

- 45 -



Consolidated Balance Sheets
(In thousands, except share data)
 
 
Mar. 31, 2016
 
Dec. 31, 2015
 
Mar. 31, 2015
 
 
(Unaudited)
 
(Footnote 1)
 
(Unaudited)
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
481,510

 
$
573,699

 
$
490,683

Interest-bearing cash and cash equivalents
 
1,831,162

 
2,069,900

 
2,119,987

Trading securities
 
279,539

 
122,404

 
118,044

Investment securities (fair value:  March 31, 2016 – $609,743; December 31, 2015 – $629,159 ; March 31, 2015 – $657,971)
 
576,047

 
597,836

 
634,587

Available for sale securities
 
8,886,036

 
9,042,733

 
9,158,175

Fair value option securities
 
418,887

 
444,217

 
434,077

Restricted equity securities
 
314,590

 
273,684

 
212,685

Residential mortgage loans held for sale
 
332,040

 
308,439

 
513,196

Loans
 
16,022,566

 
15,941,154

 
14,684,136

Allowance for loan losses
 
(233,156
)
 
(225,524
)
 
(197,686
)
Loans, net of allowance
 
15,789,410

 
15,715,630

 
14,486,450

Premises and equipment, net
 
311,161

 
306,490

 
279,075

Receivables
 
167,209

 
163,480

 
183,447

Goodwill
 
383,789

 
385,461

 
377,780

Intangible assets, net
 
44,944

 
43,909

 
33,286

Mortgage servicing rights
 
196,055

 
218,605

 
175,051

Real estate and other repossessed assets, net of allowance (March 31, 2016 – $11,913; December 31, 2015 – $12,622; March 31, 2015 – $18,886)
 
29,896

 
30,731

 
45,551

Derivative contracts, net
 
790,146

 
586,270

 
462,386

Cash surrender value of bank-owned life insurance
 
305,510

 
303,335

 
296,192

Receivable on unsettled securities sales
 
5,640

 
40,193

 
9,598

Other assets
 
270,374

 
249,112

 
269,728

Total assets
 
$
31,413,945

 
$
31,476,128

 
$
30,299,978

 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
7,950,675

 
$
8,296,888

 
$
8,009,577

Interest-bearing deposits:
 
 

 
 

 
 

Transaction
 
9,709,766

 
9,998,954

 
10,108,202

Savings
 
416,505

 
386,252

 
383,790

Time
 
2,341,374

 
2,406,064

 
2,651,778

Total deposits
 
20,418,320

 
21,088,158

 
21,153,347

Funds purchased
 
62,755

 
491,192

 
66,320

Repurchase agreements
 
630,101

 
722,444

 
897,663

Other borrowings
 
5,633,862

 
4,837,879

 
3,727,050

Subordinated debentures
 
226,385

 
226,350

 
348,030

Accrued interest, taxes and expense
 
148,711

 
119,584

 
147,184

Derivative contracts, net
 
705,578

 
581,701

 
419,351

Due on unsettled securities purchases
 
19,508

 
16,897

 
25,935

Other liabilities
 
212,460

 
124,284

 
124,846

Total liabilities
 
28,057,680

 
28,208,489

 
26,909,726

Shareholders' equity:
 
 

 
 

 
 

Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: March 31, 2016 – 74,800,772; December 31, 2015 – 74,530,364; March 31, 2015 – 74,351,392)
 
4

 
4

 
4

Capital surplus
 
987,046

 
982,009

 
959,650

Retained earnings
 
2,718,301

 
2,704,121

 
2,576,953

Treasury stock (shares at cost:  March 31, 2016 – 8,645,669 ; December 31, 2015 – 8,636,332;  March 31, 2015 – 5,429,078)
 
(476,905
)
 
(477,165
)
 
(269,749
)
Accumulated other comprehensive income
 
93,109

 
21,587

 
90,303

Total shareholders’ equity
 
3,321,555

 
3,230,556

 
3,357,161

Non-controlling interests
 
34,710

 
37,083

 
33,091

Total equity
 
3,356,265

 
3,267,639

 
3,390,252

Total liabilities and equity
 
$
31,413,945

 
$
31,476,128

 
$
30,299,978


See accompanying notes to consolidated financial statements.

- 46 -



Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
 
 
Common Stock
 
Capital
Surplus
 
Retained
Earnings
 
Treasury Stock
 
Accumulated
Other
Comprehensive
Income
 
Total
Shareholders’
Equity
 
Non-
Controlling
Interests
 
Total Equity
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, Dec. 31, 2014
 
74,004

 
$
4

 
$
954,644

 
$
2,530,837

 
4,890

 
$
(239,979
)
 
$
56,673

 
$
3,302,179

 
$
34,027

 
$
3,336,206

Net income
 

 

 

 
74,843

 

 

 

 
74,843

 
251

 
75,094

Other comprehensive income
 

 

 

 

 

 

 
33,630

 
33,630

 

 
33,630

Repurchase of common stock
 

 

 

 

 
502

 
(29,484
)
 

 
(29,484
)
 

 
(29,484
)
Issuance of shares for equity compensation
 
347

 

 
2,926

 

 
37

 
(286
)
 

 
2,640

 

 
2,640

Tax effect from equity compensation, net
 

 

 
215

 

 

 

 

 
215

 

 
215

Share-based compensation
 

 

 
1,865

 

 

 

 

 
1,865

 

 
1,865

Cash dividends on common stock
 

 

 

 
(28,727
)
 

 

 

 
(28,727
)
 

 
(28,727
)
Capital calls and distributions, net
 

 

 

 

 

 

 

 

 
(1,187
)
 
(1,187
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2015
 
74,351

 
$
4

 
$
959,650

 
$
2,576,953

 
5,429

 
$
(269,749
)
 
$
90,303

 
$
3,357,161

 
$
33,091

 
$
3,390,252

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, Dec. 31, 2015
 
74,530

 
$
4

 
$
982,009

 
$
2,704,121

 
8,636

 
$
(477,165
)
 
$
21,587

 
$
3,230,556

 
$
37,083

 
$
3,267,639

Net income
 

 

 

 
42,564

 

 

 

 
42,564

 
(1,576
)
 
40,988

Other comprehensive income
 

 

 

 

 

 

 
71,522

 
71,522

 

 
71,522

Repurchase of common stock
 

 

 

 

 

 

 

 

 

 

Issuance of shares for equity compensation
 
271

 

 
1,191

 

 
10

 
260

 

 
1,451

 

 
1,451

Tax effect from equity compensation, net
 

 

 
1,816

 

 

 

 

 
1,816

 

 
1,816

Share-based compensation
 

 

 
2,030

 

 

 

 

 
2,030

 

 
2,030

Cash dividends on common stock
 

 

 

 
(28,384
)
 

 

 

 
(28,384
)
 

 
(28,384
)
Capital calls and distributions, net
 

 

 

 

 

 

 

 

 
(797
)
 
(797
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2016
 
74,801

 
$
4

 
$
987,046

 
$
2,718,301

 
8,646

 
$
(476,905
)
 
$
93,109

 
$
3,321,555

 
$
34,710

 
$
3,356,265


See accompanying notes to consolidated financial statements.

- 47 -



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

 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
40,988

 
$
75,094

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

 
 

Provision for credit losses
 
35,000

 

Change in fair value of mortgage servicing rights
 
27,988

 
8,522

Unrealized losses (gains) from derivative contracts
 
(13,788
)
 
641

Tax effect from equity compensation, net
 
(1,816
)
 
(215
)
Change in bank-owned life insurance
 
(2,170
)
 
(2,198
)
Share-based compensation
 
2,030

 
1,865

Depreciation and amortization
 
18,907

 
16,800

Net amortization of securities discounts and premiums
 
11,213

 
14,511

Net realized gains on financial instruments and other net gains
 
(4,035
)
 
(5,956
)
Net gain on mortgage loans held for sale
 
(10,779
)
 
(20,702
)
Mortgage loans originated for sale
 
(1,244,015
)
 
(1,565,016
)
Proceeds from sale of mortgage loans held for sale
 
1,239,391

 
1,382,042

Capitalized mortgage servicing rights
 
(13,582
)
 
(19,150
)
Change in trading and fair value option securities
 
(132,436
)
 
(52,479
)
Change in receivables
 
(3,264
)
 
(16,008
)
Change in other assets
 
3,145

 
(6,293
)
Change in accrued interest, taxes and expense
 
(13,132
)
 
5,521

Change in other liabilities
 
65,593

 
8,173

Net cash provided by (used in) operating activities
 
5,238

 
(174,848
)
Cash Flows From Investing Activities:
 
 

 
 

Proceeds from maturities or redemptions of investment securities
 
32,308

 
19,378

Proceeds from maturities or redemptions of available for sale securities
 
335,565

 
513,939

Purchases of investment securities
 
(12,189
)
 
(3,363
)
Purchases of available for sale securities
 
(536,078
)
 
(980,768
)
Proceeds from sales of available for sale securities
 
469,382

 
334,825

Change in amount receivable on unsettled securities transactions
 
34,553

 
64,661

Loans originated, net of principal collected
 
(92,648
)
 
(458,118
)
Net payments on derivative asset contracts
 
(155,263
)
 
(83,354
)
Acquisitions, net of cash acquired
 
(7,700
)
 

Proceeds from disposition of assets
 
38,903

 
66,111

Purchases of assets
 
(75,893
)
 
(108,579
)
Net cash provided by (used in) investing activities
 
30,940

 
(635,268
)
Cash Flows From Financing Activities:
 
 

 
 

Net change in demand deposits, transaction deposits and savings accounts
 
(605,148
)
 
(30,574
)
Net change in time deposits
 
(64,690
)
 
43,062

Net change in other borrowed funds
 
246,609

 
1,283,330

Net proceeds on derivative liability contracts
 
154,506

 
70,377

Net change in derivative margin accounts
 
(75,876
)
 
(101,290
)
Change in amount due on unsettled security transactions
 
2,611

 
(264,605
)
Issuance of common and treasury stock, net
 
1,451

 
2,640

Tax effect from equity compensation, net
 
1,816

 
215

Repurchase of common stock
 

 
(29,484
)
Dividends paid
 
(28,384
)
 
(28,727
)
Net cash provided by (used in) financing activities
 
(367,105
)
 
944,944

Net increase (decrease) in cash and cash equivalents
 
(330,927
)
 
134,828

Cash and cash equivalents at beginning of period
 
2,643,599

 
2,475,842

Cash and cash equivalents at end of period
 
$
2,312,672

 
$
2,610,670

 
 
 
 
 
Supplemental Cash Flow Information:
 
 
 
 
Cash paid for interest
 
$
19,934

 
$
15,380

Cash paid for taxes
 
$
6,004

 
$
3,232

Net loans and bank premises transferred to repossessed real estate and other assets
 
$
2,211

 
$
2,768

Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period
 
$
28,594

 
$
29,409

Conveyance of other real estate owned guaranteed by U.S. government agencies
 
$
15,147

 
$
66,912

See accompanying notes to consolidated financial statements.

- 48 -



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 2015 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 2015 have been derived from the audited financial statements included in BOK Financial’s 2015 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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Newly Adopted and Pending Accounting Policies

Financial Accounting Standards Board (“FASB”)

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

On May 28, 2014, the FASB issued ASU 2014-09 to clarify the principles for recognizing revenue by providing a more robust framework that will give greater consistency and comparability in revenue recognition practices. In the new framework, an entity recognizes revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. The new model requires the identification of performance obligations included in contracts with customers, a determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes revenue when performance obligations are satisfied. ASU 2014-09 is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the impact the adoption of ASU 2014-09 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity ("ASU 2014-16")

On November 3, 2014, the FASB issued ASU 2014-16 to eliminate the use of different methods and reduce diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. For hybrid financial instruments issued in the form of a share, an entity should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument. The entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. For public business entities, the ASU is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. Adoption of ASU 2014-16 did not have a material impact on the Company's consolidated financial statements.





- 49 -



FASB Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02")

On February 18, 2015, the FASB issued ASU 2015-02 to address concerns that current U.S. GAAP may require a reporting entity to consolidate another legal entity where the reporting entity's contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entity's voting rights, or the reporting entity is not exposed to a majority of the legal entity's economic benefits or obligations. The amendments affect limited partnerships and similar legal entities, the evaluation of fees paid to a decision maker or a service provider as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination, and certain investment funds. The ASU will be effective for periods beginning after December 15, 2015 for public companies. Adoption of ASU 2015-02 did not have a material impact on the Company's consolidated financial statements.

FASB Accounting Standards Update No. 2015-07, Fair Value Measurements (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-07")

On May 1, 2015, the FASB issued ASU 2015-07 to gain consistency within the categorization of the fair value hierarchy. The update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The ASU is effective for the Company for interim and annual periods beginning January 1, 2016 and should be applied retrospectively to all periods presented. Adoption of ASU 2015-07 did not have a material impact on the Company's consolidated financial statements.

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

On January 5, 2016, the FASB issued ASU 2016-01 over the recognition and measurement of financial assets and liabilities. The update requires equity investments, in general, to be measured at fair value with changes in fair value recognized in earnings. It also eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires entities to use the exit price notion when measuring fair value, requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the fair value option has been elected, requires separate presentation of financial assets and liabilities by measurement category and form on the balance sheet or accompanying notes, clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets, and simplifies the impairment assessment of equity investments without readily determinable fair values. The ASU is effective for the Company for interim and annual periods beginning after December 15, 2017. Upon adoption, unrealized gains and losses from equity securities will be reclassified from other comprehensive income to retained earnings. As of March 31, 2016, the Company had $2.0 million of unrealized gains and losses from equity securities in other comprehensive income.

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

On February 25, 2016, the FASB issued ASU 2016-02 to increase transparency and comparability by recognizing lease assets and liabilities on the balance and disclosing key information about leasing arrangements. The final guidance requires lessees to put most leases on their balance sheets and may affect the presentation and timing of expense recognition, eliminates the current real estate-specific provisions, modifies the classification criteria and the accounting for sales-type and direct financing leases for lessors. The ASU is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application of the amendments is permitted. The Company is evaluating the impact the adoption of ASU 2016-02 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships ("ASU 2016-05")


- 50 -



On March 10, 2016, the FASB issued ASU 2016-05 which clarifies that "a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would no, in and of itself, be considered a termination of the derivative instrument" or "a change in a critical term of the hedging relationship." If all other hedge accounting criteria in ASC 815 are met, a hedging relationship where the hedging derivative instrument is novated would not be discontinued or need to be redesignated. The ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. An entity would apply the guidance prospectively unless modified retrospective transition is elected. Early adoption is permitted. The Company is evaluating the impact the adoption of ASU 2016-05 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2016-07, Investments - Equity Method and Joint Ventures ("ASU 2016-07")

On March 15, 2016, the FASB issued ASU 2016-07 to simplify the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as result of an increase in the level of ownership interest or degree of influence. The ASU also requires that unrealized holding gains or losses in accumulated other comprehensive income related to an available for sale security that becomes eligible for the equity method be recognized in earnings as of the date the investment qualifies for the equity method. The ASU is effective for all entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact the adoption of ASU 2016-07 will have on the Company's financial statements.

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

On March 17, 2016, the FASB Issued ASU 2016-08 to amend the principal versus agent implementation guidance in ASU 2014-09. The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. ASU 2016-08 is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the impact the adoption of ASU 2016-08 will have on the Company's financial statements along with ASU 2014-09.

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

On March 30, 2016, the FASB issued ASU 2016-09 to simplify multiple aspects of accounting for employee share-based payment transactions including accounting income taxes, forfeitures, and statutory tax withholding requirements. The ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company is evaluating the impact the adoption of ASU 2016-09 will have on the Company's financial statements.
 

FASB Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ("ASU 2016-10")

On April 14, 2016, the FASB issued ASU 2016-10 which amends certain sections of ASU 2014-09 related to identifying performance obligations and licensing implementation. ASU 2016-10 is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the impact the adoption of ASU 2016-10 will have on the Company's financial statements along with ASU 2014-09.


- 51 -



(2) Securities
Trading Securities
 
The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):
 
 
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair
Value
 
Net Unrealized Gain (Loss)
U.S. Government agency debentures
 
$
59,733

 
$
71

 
$
61,295

 
$
(71
)
 
$
26,283

 
$
40

U.S. agency residential mortgage-backed securities
 
146,896

 
821

 
10,989

 
17

 
17,179

 
5

Municipal and other tax-exempt securities
 
58,797

 
546

 
31,901

 
210

 
54,164

 
(4
)
Other trading securities
 
14,113

 
107

 
18,219

 
(16
)
 
20,418

 
53

Total trading securities
 
$
279,539

 
$
1,545

 
$
122,404

 
$
140

 
$
118,044

 
$
94

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

 
 
March 31, 2016
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
347,684

 
$
347,684

 
$
352,542

 
$
4,952

 
$
(94
)
U.S. agency residential mortgage-backed securities – Other
 
25,323

 
25,366

 
26,794

 
1,428

 

Other debt securities
 
202,997

 
202,997

 
230,407

 
27,448

 
(38
)
Total investment securities
 
$
576,004

 
$
576,047

 
$
609,743

 
$
33,828

 
$
(132
)
1 
Carrying value includes $43 thousand 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 in 2011.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.
 
 
December 31, 2015
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
365,258

 
$
365,258

 
$
368,910

 
$
3,935

 
$
(283
)
U.S. agency residential mortgage-backed securities – Other
 
26,721

 
26,833

 
27,874

 
1,063

 
(22
)
Other debt securities
 
205,745

 
205,745

 
232,375

 
26,689

 
(59
)
Total investment securities
 
$
597,724

 
$
597,836

 
$
629,159

 
$
31,687

 
$
(364
)
1 
Carrying value includes $112 thousand 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 in 2011.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

- 52 -



 
 
March 31, 2015
 
 
Amortized
 
Carrying
 
Fair
 
Gross Unrealized2
 
 
Cost
 
Value1
 
Value
 
Gain
 
Loss
Municipal and other tax-exempt
 
$
396,063

 
$
396,063

 
$
400,112

 
$
4,443

 
$
(394
)
U.S. agency residential mortgage-backed securities – Other
 
33,109

 
33,545

 
35,253

 
1,708

 

Other debt securities
 
204,979

 
204,979

 
222,606

 
18,500

 
(873
)
Total investment securities
 
$
634,151

 
$
634,587

 
$
657,971

 
$
24,651

 
$
(1,267
)
1 
Carrying value includes $436 thousand 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 in 2011.
2 
Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

The amortized cost and fair values of investment securities at March 31, 2016, by contractual maturity, are as shown in the following table (dollars in thousands):
 
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 
Total
 
Weighted
Average
Maturity²
Municipal and other tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value
 
$
66,228

 
$
234,480

 
$
13,406

 
$
33,570

 
$
347,684

 
3.14

Fair value
 
66,280

 
236,135

 
13,692

 
36,435

 
352,542

 
 
Nominal yield¹
 
1.39
%
 
1.92
%
 
2.89
%
 
5.77
%
 
2.23
%
 
 
Other debt securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
14,387

 
42,985

 
95,825

 
49,800

 
202,997

 
7.31

Fair value
 
14,679

 
46,855

 
109,580

 
59,293

 
230,407

 
 
Nominal yield
 
3.65
%
 
4.89
%
 
5.57
%
 
6.05
%
 
5.41
%
 
 
Total fixed maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 
Carrying value
 
$
80,615

 
$
277,465

 
$
109,231

 
$
83,370

 
$
550,681

 
4.67

Fair value
 
80,959

 
282,990

 
123,272

 
95,728

 
582,949

 
 

Nominal yield
 
1.79
%
 
2.38
%
 
5.24
%
 
5.94
%
 
3.40
%
 
 

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
25,366

 
³

Fair value
 
 

 
 

 
 

 
 

 
26,794

 
 

Nominal yield4
 
 

 
 

 
 

 
 

 
2.75
%
 
 

Total investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

Carrying value
 
 

 
 

 
 

 
 

 
$
576,047

 
 

Fair value
 
 

 
 

 
 

 
 

 
609,743

 
 

Nominal yield
 
 

 
 

 
 

 
 

 
3.37
%
 
 

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 3.9 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.


- 53 -



Available for Sale Securities 

The amortized cost and fair value of available for sale securities are as follows (in thousands):
 
 
March 31, 2016
 
 
Amortized
 
Fair
 
Gross Unrealized1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,000

 
$
1,003

 
$
3

 
$

 
$

Municipal and other tax-exempt
 
51,197

 
51,308

 
814

 
(703
)
 

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
2,983,694

 
3,051,280

 
68,479

 
(893
)
 

FHLMC
 
1,870,002

 
1,903,789

 
34,098

 
(311
)
 

GNMA
 
758,979

 
761,456

 
3,558

 
(1,081
)
 

Other
 

 

 

 

 

Total U.S. government agencies
 
5,612,675

 
5,716,525

 
106,135

 
(2,285
)
 

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
54,288

 
59,049

 
5,434

 

 
(673
)
Jumbo-A loans
 
68,725

 
73,981

 
5,919

 
(59
)
 
(604
)
Total private issue
 
123,013

 
133,030

 
11,353

 
(59
)
 
(1,277
)
Total residential mortgage-backed securities
 
5,735,688

 
5,849,555

 
117,488

 
(2,344
)
 
(1,277
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,904,149

 
2,942,404

 
39,518

 
(1,263
)
 

Other debt securities
 
4,400

 
4,151

 

 
(249
)
 

Perpetual preferred stock
 
17,171

 
19,575

 
2,404

 

 

Equity securities and mutual funds
 
17,195

 
18,040

 
915

 
(70
)
 

Total available for sale securities
 
$
8,730,800

 
$
8,886,036

 
$
161,142

 
$
(4,629
)
 
$
(1,277
)
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.

- 54 -



 
 
December 31, 2015
 
 
Amortized
 
Fair
 
Gross Unrealized¹
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,000

 
$
995

 
$

 
$
(5
)
 
$

Municipal and other tax-exempt
 
56,681

 
56,817

 
873

 
(737
)
 

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

FNMA
 
3,156,214

 
3,187,215

 
41,502

 
(10,501
)
 

FHLMC
 
1,940,915

 
1,949,335

 
14,727

 
(6,307
)
 

GNMA
 
763,967

 
761,801

 
2,385

 
(4,551
)
 

Other
 

 

 

 

 

Total U.S. government agencies
 
5,861,096

 
5,898,351

 
58,614

 
(21,359
)
 

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
56,387

 
62,574

 
6,574

 

 
(387
)
Jumbo-A loans
 
71,724

 
76,544

 
5,260

 

 
(440
)
Total private issue
 
128,111

 
139,118

 
11,834

 

 
(827
)
Total residential mortgage-backed securities
 
5,989,207

 
6,037,469

 
70,448

 
(21,359
)
 
(827
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,919,044

 
2,905,796

 
5,396

 
(18,644
)
 

Other debt securities
 
4,400

 
4,151

 

 
(249
)
 

Perpetual preferred stock
 
17,171

 
19,672

 
2,501

 

 

Equity securities and mutual funds
 
17,121

 
17,833

 
752

 
(40
)
 

Total available for sale securities
 
$
9,004,624

 
$
9,042,733

 
$
79,970

 
$
(41,034
)
 
$
(827
)
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, 2015
 
 
Amortized
 
Fair
 
Gross Unrealized1
 
 
 
 
Cost
 
Value
 
Gain
 
Loss
 
OTTI²
U.S. Treasury
 
$
1,000

 
$
1,001

 
$
1

 
$

 
$

Municipal and other tax-exempt
 
60,298

 
60,818

 
1,242

 
(722
)
 

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

 
 

 
 

 
 

 
 

FNMA
 
3,844,253

 
3,930,186

 
87,993

 
(2,060
)
 

FHLMC
 
2,040,364

 
2,079,310

 
39,989

 
(1,043
)
 

GNMA
 
698,346

 
703,206

 
6,031

 
(1,171
)
 

Other
 
4,533

 
4,867

 
334

 

 

Total U.S. government agencies
 
6,587,496

 
6,717,569

 
134,347

 
(4,274
)
 

Private issue:
 
 

 
 

 
 

 
 

 
 

Alt-A loans
 
63,765

 
69,369

 
6,601

 

 
(997
)
Jumbo-A loans
 
85,269

 
90,662

 
5,769

 

 
(376
)
Total private issue
 
149,034

 
160,031

 
12,370

 

 
(1,373
)
Total residential mortgage-backed securities
 
6,736,530

 
6,877,600

 
146,717

 
(4,274
)
 
(1,373
)
Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,157,985

 
2,164,842

 
13,849

 
(6,992
)
 

Other debt securities
 
9,405

 
9,155

 

 
(250
)
 

Perpetual preferred stock
 
22,171

 
24,983

 
2,812

 

 

Equity securities and mutual funds
 
18,679

 
19,776

 
1,117

 
(20
)
 

Total available for sale securities
 
$
9,006,068

 
$
9,158,175

 
$
165,738

 
$
(12,258
)
 
$
(1,373
)
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.

- 55 -



The amortized cost and fair values of available for sale securities at March 31, 2016, by contractual maturity, are as shown in the following table (dollars in thousands):
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 
Total
 
Weighted
Average
Maturity5
U.S. Treasuries:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$

 
$
1,000

 
$

 
$

 
$
1,000

 
1.79

Fair value

 
1,003

 

 

 
1,003

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

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
9,829

 
$
16,841

 
$
2,791

 
$
21,736

 
$
51,197

 
8.62

Fair value
9,958

 
17,235

 
2,859

 
21,256

 
51,308

 
 
Nominal yield¹
4.43
%
 
4.01
%
 
3.69
%
 
2.01
%
6 
3.22
%
 
 
Commercial mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Amortized cost
$

 
$
903,717

 
$
1,797,361

 
$
203,071

 
$
2,904,149

 
7.18

Fair value

 
911,758

 
1,826,793

 
203,853

 
2,942,404

 
 
Nominal yield
%
 
1.63
%
 
1.89
%
 
1.48
%
 
1.78
%
 
 
Other debt securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
$

 
$

 
$

 
$
4,400

 
$
4,400

 
31.41

Fair value

 

 

 
4,151

 
4,151

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

 
 

 
 

 
 

 
 
 
 
Amortized cost
$
9,829

 
$
921,558

 
$
1,800,152

 
$
229,207

 
$
2,960,746

 
7.24

Fair value
9,958

 
929,996

 
1,829,652

 
229,260

 
2,998,866

 
 
Nominal yield
4.43
%
 
1.67
%
 
1.89
%
 
1.53
%
 
1.80
%
 
 
Residential mortgage-backed securities:
 

 
 

 
 

 
 

 
 
 
 
Amortized cost
 

 
 

 
 

 
 

 
$
5,735,688

 
2 

Fair value
 

 
 

 
 

 
 

 
5,849,555

 
 
Nominal yield4
 

 
 

 
 

 
 

 
1.94
%
 
 
Equity securities and mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Amortized cost
 

 
 

 
 

 
 

 
$
34,366

 
³

Fair value
 

 
 

 
 

 
 

 
37,615

 
 

Nominal yield
 

 
 

 
 

 
 

 
%
 
 

Total available-for-sale securities:
 

 
 

 
 

 
 

 
 
 
 

Amortized cost
 

 
 

 
 

 
 

 
$
8,730,800

 
 

Fair value
 

 
 

 
 

 
 

 
8,886,036

 
 

Nominal yield
 

 
 

 
 

 
 

 
1.88
%
 
 

1 
Calculated on a taxable equivalent basis using a 39 percent effective tax rate.
2 
The average expected lives of mortgage-backed securities were 3.4 years years based upon current prepayment assumptions.
3 
Primarily common stock and preferred stock of corporate issuers with no stated maturity.
4 
The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary –– Unaudited following for current yields on available for sale securities portfolio.
5 
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
6 
Nominal yield on municipal and other tax-exempt securities and other debt securities with contractual maturity dates over ten years are based on variable rates which generally are reset within 35 days.


- 56 -



Sales of available for sale securities resulted in gains and losses as follows (in thousands):
 
Three Months Ended
March 31,
 
2016
 
2015
Proceeds
$
469,382

 
$
334,825

Gross realized gains
3,964

 
4,900

Gross realized losses

 
(573
)
Related federal and state income tax expense
1,542

 
1,683


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, 2016
 
Dec. 31, 2015
 
March 31, 2015
Investment:
 
 
 
 
 
Carrying value
$
263,720

 
$
231,033

 
$
63,425

Fair value
268,422

 
234,382

 
65,723

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
Amortized cost
7,307,788

 
6,831,743

 
6,065,705

Fair value
7,424,702

 
6,849,524

 
6,155,570


The secured parties do not have the right to sell or re-pledge these securities.


- 57 -



Temporarily Impaired Securities as of March 31, 2016
(in thousands):
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
19

 
$
14,175

 
$
8

 
$
4,364

 
$
86

 
$
18,539

 
$
94

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

 

 

 

 

 

 

Other debt securities
 
7

 

 

 
1,876

 
38

 
1,876

 
38

Total investment securities
 
26

 
$
14,175

 
$
8

 
$
6,240

 
$
124

 
$
20,415

 
$
132


 
 
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
 
17

 
$
1,010

 
$
3

 
$
10,307

 
$
700

 
$
11,317

 
$
703

Residential mortgage-backed securities:
 
 
 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 
 
 

 
 

 
 

 
 

 


 


FNMA
 
4

 
70,069

 
794

 
51,457

 
99

 
121,526

 
893

FHLMC
 
1

 

 

 
23,914

 
311

 
23,914

 
311

GNMA
 
12

 
265,293

 
585

 
99,088

 
496

 
364,381

 
1,081

Total U.S. government agencies
 
17

 
335,362

 
1,379

 
174,459

 
906

 
509,821

 
2,285

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
5

 
8,870

 
137

 
8,625

 
536

 
17,495

 
673

Jumbo-A loans
 
9

 
7,169

 
59

 
7,959

 
604

 
15,128

 
663

Total private issue
 
14

 
16,039

 
196

 
16,584

 
1,140

 
32,623

 
1,336

Total residential mortgage-backed securities
 
31

 
351,401

 
1,575

 
191,043

 
2,046

 
542,444

 
3,621

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
31

 
157,662

 
197

 
260,945

 
1,066

 
418,607

 
1,263

Other debt securities
 
2

 

 

 
4,151

 
249

 
4,151

 
249

Perpetual preferred stocks
 

 

 

 

 

 

 

Equity securities and mutual funds
 
37

 
3,241

 
49

 
1,029

 
21

 
4,270

 
70

Total available for sale securities
 
118

 
$
513,314


$
1,824


$
467,475


$
4,082


$
980,789


$
5,906

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


- 58 -



Temporarily Impaired Securities as of December 31, 2015
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
73

 
$
127,319

 
$
207

 
$
13,380

 
$
77

 
$
140,699

 
$
284

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

 
5,533

 
22

 

 

 
5,533

 
22

Other debt securities
 
11

 
1,082

 
41

 
1,715

 
18

 
2,797

 
59

Total investment securities
 
85

 
$
133,934

 
$
270

 
$
15,095

 
$
95

 
$
149,029

 
$
365


 
 
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:
 
 

 
 

 
 

 
 

 
 

 


 


Treasury
 
1

 
$
995

 
$
5

 
$

 
$

 
$
995

 
$
5

Municipal and other tax-exempt
 
20

 
$
9,909

 
$
27

 
$
11,664

 
$
710

 
$
21,573

 
$
737

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
55

 
1,188,022

 
10,262

 
18,236

 
239

 
1,206,258

 
10,501

FHLMC
 
40

 
726,713

 
4,827

 
77,545

 
1,480

 
804,258

 
6,307

GNMA
 
15

 
364,919

 
1,951

 
102,109

 
2,600

 
467,028

 
4,551

Total U.S. government agencies
 
110

 
2,279,654

 
17,040

 
197,890

 
4,319

 
2,477,544

 
21,359

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
4

 

 

 
9,264

 
387

 
9,264

 
387

Jumbo-A loans
 
8

 

 

 
8,482

 
440

 
8,482

 
440

Total private issue
 
12

 

 

 
17,746

 
827

 
17,746

 
827

Total residential mortgage-backed securities
 
122

 
2,279,654

 
17,040

 
215,636

 
5,146

 
2,495,290

 
22,186

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
213

 
1,582,469

 
11,419

 
484,258

 
7,225

 
2,066,727

 
18,644

Other debt securities
 
2

 

 

 
4,151

 
249

 
4,151

 
249

Perpetual preferred stocks
 

 

 

 

 

 

 

Equity securities and mutual funds
 
61

 
782

 
5

 
991

 
35

 
1,773

 
40

Total available for sale securities
 
419

 
$
3,873,809


$
28,496


$
716,700


$
13,365


$
4,590,509


$
41,861

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



- 59 -



Temporarily Impaired Securities as of March 31, 2015
(In thousands)
 
 
Number of Securities
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
 
37

 
$
41,048

 
$
173

 
$
53,662

 
$
221

 
$
94,710

 
$
394

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

 

 

 

 

 

 

Other debt securities
 
97

 
31,451

 
846

 
2,478

 
27

 
33,929

 
873

Total investment securities
 
134

 
$
72,499

 
$
1,019

 
$
56,140

 
$
248

 
$
128,639

 
$
1,267


 
 
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
 
20

 
$
10,217

 
$
27

 
$
11,705

 
$
695

 
$
21,922

 
$
722

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 


 


U. S. government agencies:
 
 

 
 

 
 

 
 

 
 

 


 


FNMA
 
8

 
90,133

 
464

 
125,166

 
1,596

 
215,299

 
2,060

FHLMC
 
6

 
17,511

 
34

 
124,912

 
1,009

 
142,423

 
1,043

GNMA
 
4

 

 

 
123,884

 
1,171

 
123,884

 
1,171

Total U.S. government agencies
 
18

 
107,644

 
498

 
373,962

 
3,776

 
481,606

 
4,274

Private issue1:
 
 

 
 

 
 

 
 

 
 

 


 


Alt-A loans
 
4

 
10,154

 
997

 

 

 
10,154

 
997

Jumbo-A loans
 
8

 

 

 
9,570

 
376

 
9,570

 
376

Total private issue
 
12

 
10,154

 
997

 
9,570

 
376

 
19,724

 
1,373

Total residential mortgage-backed securities
 
30

 
117,798

 
1,495

 
383,532

 
4,152

 
501,330

 
5,647

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
68

 
97,374

 
151

 
894,815

 
6,841

 
992,189

 
6,992

Other debt securities
 
2

 

 

 
4,150

 
250

 
4,150

 
250

Perpetual preferred stocks
 

 

 

 

 

 

 

Equity securities and mutual funds
 
66

 
24

 

 
1,007

 
20

 
1,031

 
20

Total available for sale securities
 
186

 
$
225,413

 
$
1,673

 
$
1,295,209

 
$
11,958

 
$
1,520,622

 
$
13,631

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

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.
 
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, 2016, 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.


- 60 -



Impairment of debt securities rated investment grade by all nationally-recognized rating agencies is 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, 2016.

At March 31, 2016, the composition of the Company’s investment and available for sale securities portfolios by the lowest current credit rating assigned by any of the three nationally-recognized rating agencies is as follows (in thousands):
 

AAA - AA
 
 
A - BBB
 
 
Below Investment Grade
 
 
Not Rated
 
 
Total
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt
$
225,162

 
$
226,757

 
$
5,273

 
$
5,294

 
$

 
$

 
$
117,249

 
$
120,491

 
$
347,684

 
$
352,542

U.S. agency residential mortgage-backed securities 1

 

 

 

 

 

 
25,366

 
26,794

 
25,366

 
26,794

Other debt securities
140,184

 
164,008

 

 

 

 

 
62,813

 
66,399

 
202,997

 
230,407

Total investment securities
$
365,346

 
$
390,765

 
$
5,273

 
$
5,294

 
$

 
$

 
$
205,428

 
$
213,684

 
$
576,047

 
$
609,743

 
 
AAA - AA
 
 
A - BBB
 
Below Investment Grade
 
Not Rated
 
Total
 
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair
Value
Available for Sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$

 
$

 
$

 
$

 
$

 
$

 
$
1,000

 
$
1,003

 
$
1,000

 
$
1,003

Municipal and other tax-exempt
 
28,543

 
29,187

 
9,917

 
9,350

 

 

 
12,737

 
12,771

 
51,197

 
51,308

U.S. agency residential mortgage-backed securities 1
 

 

 

 

 

 

 
5,612,675

 
5,716,525

 
5,612,675

 
5,716,525

Privately issued residential mortgage-backed securities
 

 

 

 

 
123,013

 
133,030

 

 

 
123,013

 
133,030

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

 

 

 

 

 

 
2,904,149

 
2,942,404

 
2,904,149

 
2,942,404

Other debt securities
 
4,400

 
4,151

 

 

 

 

 

 

 
4,400

 
4,151

Perpetual preferred stock
 

 

 
6,406

 
7,455

 
10,765

 
12,120

 

 

 
17,171

 
19,575

Equity securities and mutual funds
 
4

 
465

 

 

 

 

 
17,191

 
17,575

 
17,195

 
18,040

Total available for sale securities
 
$
32,947


$
33,803


$
16,323


$
16,805


$
133,778


$
145,150


$
8,547,752


$
8,690,278


$
8,730,800


$
8,886,036

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.

At March 31, 2016, the entire portfolio of privately issued residential mortgage-backed securities was rated below investment grade by the nationally-recognized rating agencies. The gross unrealized loss on these securities totaled $1.3 million. Impairment of securities rated below investment grade was evaluated based on projections of estimated cash flows from individual loans underlying each security using current and anticipated unemployment and default rates, changes in housing prices and estimated liquidation costs at foreclosure. Each factor is considered in the evaluation.


- 61 -



The primary assumptions used in this evaluation were:

 
March 31, 2016
 
Dec. 31, 2015
 
March 31, 2015
 
 
 
 
 
 
Unemployment rate
Moving down to 4.8 percent over the next 12 months and remain at 4.8 percent thereafter.
 
Decreasing to 4.8 percent over the next 12 months and remain at 4.8 percent thereafter.
 
Held constant at 5.6 percent over the next 12 months and remain at 5.6 percent thereafter.
Housing price appreciation/depreciation
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 3.5 percent over the next 12 months, then flat for the following 12 months and then appreciating at 2 percent per year thereafter.
 
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 3.5 percent over the next 12 months, then flat for the following 12 months and then appreciating at 2 percent per year thereafter.
 
Starting with current depreciated housing prices based on information derived from the FHFA1, appreciating 3.2 percent over the next 12 months, then flat for the following 12 months and then appreciating at 2 percent 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 percent to 6.25 percent based on our current expected yields.
 
Estimated cash flows were discounted at rates that range from 2.00 percent to 6.25 percent based on our current expected yields.
 
Estimated cash flows were discounted at rates that range from 2.00 percent to 6.25 percent based on our current expected yields.
1 
Federal Housing Finance Agency

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, 2016.

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, 2016
 
Life-to-date
 
 
Number of Securities
 
Amortized Cost
 
Fair Value
 
Number of
Securities
 
Amount
 
Number of Securities
 
Amount
Alt-A
 
14

 
$
54,288

 
$
59,049

 

 
$

 
14

 
$
36,284

Jumbo-A
 
30

 
68,725

 
73,981

 

 

 
29

 
18,220

Total
 
44

 
$
123,013

 
$
133,030

 

 
$

 
43

 
$
54,504


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, 2016.


- 62 -



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,
 
 
2016
 
2015
Balance of credit-related OTTI recognized on available for sale debt securities, beginning of period
 
$
54,504

 
$
54,347

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
 

 
92

Reductions for change in intent to hold before recovery
 

 

Sales
 

 

Balance of credit-related OTTI recognized on available for sale debt securities, end of period
 
$
54,504

 
$
54,439


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

The fair value and net unrealized gain (loss) included in fair value option securities is as follows (in thousands):
 
 
March 31, 2016
 
Dec. 31, 2015
 
March 31, 2015
 
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair Value
 
Net Unrealized Gain (Loss)
 
Fair
Value
 
Net Unrealized Gain (Loss)
U.S. agency residential mortgage-backed securities
 
$
418,887

 
$
4,136

 
$
444,217

 
$
(2,060
)
 
$
434,077

 
$
4,271



Restricted Equity Securities

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

 
March 31, 2016
 
Dec. 31, 2015
 
March 31, 2015
Federal Reserve stock
$
36,148

 
$
36,148

 
$
35,018

Federal Home Loan Bank stock
278,271

 
237,365

 
177,667

Other
171

 
171

 

Total
$
314,590


$
273,684


$
212,685


- 63 -



(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, 2016, 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 $18 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. As of March 31, 2016, derivative contracts under the interest rate risk management program were primarily 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.

- 64 -



The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at March 31, 2016 (in thousands):
 
 
Assets
 
 
Notional1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
16,235,517

 
$
111,188

 
$
(44,570
)
 
$
66,618

 
$

 
$
66,618

Interest rate swaps
 
1,335,259

 
48,270

 

 
48,270

 

 
48,270

Energy contracts
 
533,355

 
62,365

 
(21,374
)
 
40,991

 
(11,340
)
 
29,651

Agricultural contracts
 
104,927

 
1,859

 
(1,175
)
 
684

 

 
684

Foreign exchange contracts
 
682,457

 
639,322

 

 
639,322

 
(4,970
)
 
634,352

Equity option contracts
 
128,623

 
4,006

 

 
4,006

 
(376
)
 
3,630

Total customer risk management programs
 
19,020,138

 
867,010

 
(67,119
)
 
799,891

 
(16,686
)
 
783,205

Interest rate risk management programs
 
772,000

 
6,941

 

 
6,941

 

 
6,941

Total derivative contracts
 
$
19,792,138

 
$
873,951

 
$
(67,119
)
 
$
806,832

 
$
(16,686
)
 
$
790,146

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
16,323,807

 
$
107,541

 
$
(44,570
)
 
$
62,971

 
$
(61,380
)
 
$
1,591

Interest rate swaps
 
1,335,259

 
48,619

 

 
48,619

 
(28,572
)
 
20,047

Energy contracts
 
526,103

 
62,528

 
(21,374
)
 
41,154

 

 
41,154

Agricultural contracts
 
104,922

 
1,847

 
(1,175
)
 
672

 
(420
)
 
252

Foreign exchange contracts
 
682,354

 
638,892

 

 
638,892

 
(364
)
 
638,528

Equity option contracts
 
128,623

 
4,006

 

 
4,006

 

 
4,006

Total customer risk management programs
 
19,101,068

 
863,433

 
(67,119
)
 
796,314

 
(90,736
)
 
705,578

Interest rate risk management programs
 

 

 

 

 

 

Total derivative contracts
 
$
19,101,068

 
$
863,433

 
$
(67,119
)
 
$
796,314

 
$
(90,736
)
 
$
705,578

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



- 65 -



The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2015 (in thousands):

 
 
Assets
 
 
Notional 1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
14,583,052

 
$
43,270

 
$
(28,305
)
 
$
14,965

 
$

 
$
14,965

Interest rate swaps
 
1,332,044

 
31,744

 

 
31,744

 
(1,424
)
 
30,320

Energy contracts
 
470,613

 
83,045

 
(22,970
)
 
60,075

 
(18,606
)
 
41,469

Agricultural contracts
 
61,662

 
2,591

 
(1,158
)
 
1,433

 

 
1,433

Foreign exchange contracts
 
546,572

 
498,830

 

 
498,830

 
(4,140
)
 
494,690

Equity option contracts
 
137,278

 
3,780

 

 
3,780

 
(470
)
 
3,310

Total customer risk management programs
 
17,131,221

 
663,260

 
(52,433
)
 
610,827

 
(24,640
)
 
586,187

Interest rate risk management programs
 
22,000

 
83

 

 
83

 

 
83

Total derivative contracts
 
$
17,153,221

 
$
663,343

 
$
(52,433
)
 
$
610,910

 
$
(24,640
)
 
$
586,270

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
Notional 1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
14,168,927

 
$
40,141

 
$
(28,305
)
 
$
11,836

 
$
(1,308
)
 
$
10,528

Interest rate swaps
 
1,332,044

 
31,928

 

 
31,928

 
(20,530
)
 
11,398

Energy contracts
 
463,703

 
81,869

 
(22,970
)
 
58,899

 

 
58,899

Agricultural contracts
 
61,657

 
2,579

 
(1,158
)
 
1,421

 
(1,248
)
 
173

Foreign exchange contracts
 
546,405

 
498,574

 

 
498,574

 
(1,951
)
 
496,623

Equity option contracts
 
137,278

 
3,780

 

 
3,780

 

 
3,780

Total customer risk management programs
 
16,710,014

 
658,871

 
(52,433
)
 
606,438

 
(25,037
)
 
581,401

Interest rate risk management programs
 
75,000

 
300

 

 
300

 

 
300

Total derivative contracts
 
$
16,785,014

 
$
659,171

 
$
(52,433
)
 
$
606,738

 
$
(25,037
)
 
$
581,701

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





- 66 -



The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at March 31, 2015 (in thousands):
 
 
Assets
 
 
Notional1
 
Gross Fair Value
 
Netting Adjustments
 
Net Fair Value Before Cash Collateral
 
Cash Collateral
 
Fair Value Net of Cash Collateral
Customer risk management programs:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
To-be-announced residential mortgage-backed securities
 
$
18,144,202

 
$
115,693

 
$
(38,135
)
 
$
77,558

 
$

 
$
77,558

Interest rate swaps
 
1,174,975

 
39,880

 

 
39,880

 

 
39,880

Energy contracts
 
651,548

 
133,391

 
(47,576
)
 
85,815

 
(62,118
)
 
23,697

Agricultural contracts
 
37,545

 
837

 
(367
)
 
470

 

 
470

Foreign exchange contracts
 
379,243

 
311,739

 

 
311,739

 

 
311,739

Equity option contracts
 
185,043

 
8,939

 

 
8,939

 
(100
)
 
8,839

Total customer risk management programs
 
20,572,556

 
610,479

 
(86,078
)
 
524,401

 
(62,218
)
 
462,183

Interest rate risk management programs
 
22,000

 
203

 

 
203

 

 
203

Total derivative contracts
 
$
20,594,556

 
$
610,682

 
$
(86,078
)
 
$
524,604

 
$
(62,218
)
 
$
462,386

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
17,920,104

 
$
111,977

 
$
(38,135
)
 
$
73,842

 
$
(61,094
)
 
$
12,748

Interest rate swaps
 
1,174,975

 
40,134

 

 
40,134

 
(23,121
)
 
17,013

Energy contracts
 
634,459

 
130,396

 
(47,576
)
 
82,820

 

 
82,820

Agricultural contracts
 
37,536

 
830

 
(367
)
 
463

 

 
463

Foreign exchange contracts
 
378,406

 
310,940

 

 
310,940

 
(13,716
)
 
297,224

Equity option contracts
 
185,043

 
8,939

 

 
8,939

 

 
8,939

Total customer risk management programs
 
20,330,523

 
603,216

 
(86,078
)
 
517,138

 
(97,931
)
 
419,207

Interest rate risk management programs
 
25,000

 
144

 

 
144

 

 
144

Total derivative contracts
 
$
20,355,523

 
$
603,360

 
$
(86,078
)
 
$
517,282

 
$
(97,931
)
 
$
419,351

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







- 67 -



The following 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, 2016
 
March 31, 2015
 
 
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
 
$
7,440

 
$

 
$
8,250

 
$

Interest rate swaps
 
325

 

 
473

 

Energy contracts
 
696

 

 
1,341

 

Agricultural contracts
 
29

 

 
12

 

Foreign exchange contracts
 
378

 

 
245

 

Equity option contracts
 

 

 

 

Total customer risk management programs
 
8,868

 

 
10,321

 

Interest rate risk management programs
 

 
7,138

 

 
911

Total derivative contracts
 
$
8,868

 
$
7,138

 
$
10,321

 
$
911

 
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, 2016 and 2015, respectively. 

- 68 -



(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 the current collateral value, debt service ratio and other underwriting standards. Nonaccruing loans may be renewed and will remain classified as nonaccruing. 

All loans are charged off when the loan balance or a portion of the loan balance is no longer supported by the paying capacity of the borrower or when the required cash flow is reduced in a TDR. The charge-off amount is determined through a quarterly evaluation of available cash resources and collateral value and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans that are past due between 60 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. 


- 69 -



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

 
 
March 31, 2016
 
December 31, 2015
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,932,757

 
$
8,181,016

 
$
174,652

 
$
10,288,425

 
$
1,850,548

 
$
8,325,559

 
$
76,424

 
$
10,252,531

Commercial real estate
 
643,033

 
2,718,204

 
9,270

 
3,370,507

 
627,678

 
2,622,354

 
9,001

 
3,259,033

Residential mortgage
 
1,592,706

 
219,026

 
57,577

 
1,869,309

 
1,598,992

 
216,661

 
61,240

 
1,876,893

Personal
 
87,092

 
406,902

 
331

 
494,325

 
91,816

 
460,418

 
463

 
552,697

Total
 
$
4,255,588

 
$
11,525,148

 
$
241,830

 
$
16,022,566

 
$
4,169,034

 
$
11,624,992

 
$
147,128

 
$
15,941,154

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
8,019

 
 

 
 

 
 

 
$
1,207

 
 
March 31, 2015
 
 
Fixed
Rate
 
Variable
Rate
 
Non-accrual
 
Total
Commercial
 
$
1,807,837

 
$
7,569,446

 
$
13,880

 
$
9,391,163

Commercial real estate
 
703,511

 
2,212,051

 
19,902

 
2,935,464

Residential mortgage
 
1,679,211

 
201,301

 
46,487

 
1,926,999

Personal
 
100,719

 
329,327

 
464

 
430,510

Total
 
$
4,291,278

 
$
10,312,125

 
$
80,733

 
$
14,684,136

Accruing loans past due (90 days)1
 
 

 
 

 
 

 
$
523

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

At March 31, 2016, $5.3 billion or 33 percent of our total loan portfolio is to businesses and individuals attributed to the Texas market and $3.7 billion or 23 percent of the total loan portfolio is to businesses and individuals attributed to the Oklahoma market. These geographic concentrations subject the loan portfolio to the general economic conditions within these areas.

Commercial

Commercial loans represent loans for working capital, facilities acquisition or expansion, purchases of equipment and other needs of commercial customers primarily located within our geographical footprint. Commercial loans are underwritten individually and represent 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, 2016, commercial loans attributed to the Texas market totaled $3.5 billion or 34 percent of the commercial loan portfolio segment and commercial loans attributed to the Oklahoma market totaled $2.4 billion or 23 percent of the commercial loan portfolio segment.

The commercial loan portfolio segment is further divided into loan classes. The energy loan class totaled $3.0 billion or 19 percent of total loans at March 31, 2016, including $2.5 billion of outstanding loans to energy producers. Approximately 60 percent of committed production loans are secured by properties primarily producing oil and 40 percent are secured by properties producing natural gas. The services loan class totaled $2.7 billion at March 31, 2016. Approximately $1.3 billion of loans in the services category consist of loans with individual balances of less than $10 million.  Businesses included in the services class include governmental, finance and insurance, not-for-profit, educational services and loans to entities providing services for real estate and construction.


- 70 -



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, 2016, 30 percent of commercial real estate loans are secured by properties primarily located in the Dallas and Houston areas of Texas. An additional 13 percent of commercial real estate loans are secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma. 

Residential Mortgage and Personal

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

At March 31, 2016, residential mortgage loans included $197 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 $724 million at March 31, 2016. Approximately, 67 percent of the home equity loan portfolio is comprised of first lien loans and 33 percent of the home equity portfolio is comprised of junior lien loans. Junior lien loans are distributed 63 percent to amortizing term loans and 37 percent to revolving lines of credit. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 40 percent. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 5 year revolving period followed by a 15 year term of amortizing repayments. Interest-only home equity loans may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term, subject to an update of certain credit information.

Credit Commitments
 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At March 31, 2016, outstanding commitments totaled $8.6 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.


- 71 -



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, 2016, outstanding standby letters of credit totaled $510 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, 2016, outstanding commercial letters of credit totaled $7.8 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, 2016.

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.


- 72 -



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, 2016 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
130,334

 
$
41,391

 
$
19,509

 
$
4,164

 
$
30,126

 
$
225,524

Provision for loan losses
 
31,097

 
2,977

 
(731
)
 
1,466

 
(4,705
)
 
30,104

Loans charged off
 
(22,126
)
 

 
(474
)
 
(1,391
)
 

 
(23,991
)
Recoveries
 
488

 
85

 
163

 
783

 

 
1,519

Ending balance
 
$
139,793

 
$
44,453

 
$
18,467

 
$
5,022

 
$
25,421

 
$
233,156

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,506

 
$
153

 
$
30

 
$
22

 
$

 
$
1,711

Provision for off-balance sheet credit losses
 
4,813

 
75

 
28

 
(20
)
 

 
4,896

Ending balance
 
$
6,319

 
$
228

 
$
58

 
$
2

 
$

 
$
6,607

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
35,910

 
$
3,052

 
$
(703
)
 
$
1,446

 
$
(4,705
)
 
$
35,000

 

- 73 -



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, 2015 is summarized as follows (in thousands):
 
 
Commercial
 
Commercial Real Estate
 
Residential Mortgage
 
Personal
 
Nonspecific Allowance
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
90,875

 
$
42,445

 
$
23,458

 
$
4,233

 
$
28,045

 
$
189,056

Provision for loan losses
 
10,353

 
(10,417
)
 
(27
)
 
339

 
28

 
276

Loans charged off
 
(174
)
 
(28
)
 
(624
)
 
(1,343
)
 

 
(2,169
)
Recoveries
 
357

 
8,819

 
437

 
910

 

 
10,523

Ending balance
 
$
101,411

 
$
40,819

 
$
23,244

 
$
4,139

 
$
28,073

 
$
197,686

Allowance for off-balance sheet credit losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
475

 
$
707

 
$
28

 
$
20

 
$

 
$
1,230

Provision for off-balance sheet credit losses
 
102

 
(374
)
 
(4
)
 

 

 
(276
)
Ending balance
 
$
577

 
$
333

 
$
24

 
$
20

 
$

 
$
954

 
 
 
 
 
 
 
 
 
 
 
 
 
Total provision for credit losses
 
$
10,455

 
$
(10,791
)
 
$
(31
)
 
$
339

 
$
28

 
$

 

The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at March 31, 2016 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,113,773

 
$
137,191

 
$
174,652

 
$
2,602

 
$
10,288,425

 
$
139,793

Commercial real estate
 
3,361,237

 
44,435

 
9,270

 
18

 
3,370,507

 
44,453

Residential mortgage
 
1,811,732

 
18,401

 
57,577

 
66

 
1,869,309

 
18,467

Personal
 
493,994

 
5,022

 
331

 

 
494,325

 
5,022

Total
 
15,780,736

 
205,049

 
241,830

 
2,686

 
16,022,566

 
207,735

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 

 

 

 

 

 
25,421

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,780,736

 
$
205,049

 
$
241,830

 
$
2,686

 
$
16,022,566

 
$
233,156




- 74 -



The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2015 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,176,107

 
$
114,027

 
$
76,424

 
$
16,307

 
$
10,252,531

 
$
130,334

Commercial real estate
 
3,250,032

 
41,373

 
9,001

 
18

 
3,259,033

 
41,391

Residential mortgage
 
1,815,653

 
19,441

 
61,240

 
68

 
1,876,893

 
19,509

Personal
 
552,234

 
4,164

 
463

 

 
552,697

 
4,164

Total
 
15,794,026

 
179,005

 
147,128

 
16,393

 
15,941,154

 
195,398

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 

 

 

 

 

 
30,126

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,794,026

 
$
179,005

 
$
147,128

 
$
16,393

 
$
15,941,154

 
$
225,524



The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at March 31, 2015 is as follows (in thousands):

 
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
9,377,283

 
$
101,214

 
$
13,880

 
$
197

 
$
9,391,163

 
$
101,411

Commercial real estate
 
2,915,562

 
40,801

 
19,902

 
18

 
2,935,464

 
40,819

Residential mortgage
 
1,880,512

 
23,142

 
46,487

 
102

 
1,926,999

 
23,244

Personal
 
430,046

 
4,139

 
464

 

 
430,510

 
4,139

Total
 
14,603,403

 
169,296

 
80,733

 
317

 
14,684,136

 
169,613

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 

 

 

 

 

 
28,073

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,603,403

 
$
169,296

 
$
80,733

 
$
317

 
$
14,684,136

 
$
197,686


- 75 -



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, 2016 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,264,965

 
$
138,887

 
$
23,460

 
$
906

 
$
10,288,425

 
$
139,793

Commercial real estate
 
3,370,507

 
44,453

 

 

 
3,370,507

 
44,453

Residential mortgage
 
192,658

 
2,822

 
1,676,651

 
15,645

 
1,869,309

 
18,467

Personal
 
410,318

 
2,954

 
84,007

 
2,068

 
494,325

 
5,022

Total
 
14,238,448

 
189,116

 
1,784,118

 
18,619

 
16,022,566

 
207,735

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 

 

 

 

 

 
25,421

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,238,448

 
$
189,116

 
$
1,784,118

 
$
18,619

 
$
16,022,566

 
$
233,156

 
The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at December 31, 2015 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
10,227,303

 
$
129,426

 
$
25,228

 
$
908

 
$
10,252,531

 
$
130,334

Commercial real estate
 
3,259,033

 
41,391

 

 

 
3,259,033

 
41,391

Residential mortgage
 
196,701

 
2,883

 
1,680,192

 
16,626

 
1,876,893

 
19,509

Personal
 
467,955

 
1,390

 
84,742

 
2,774

 
552,697

 
4,164

Total
 
14,150,992

 
175,090

 
1,790,162

 
20,308

 
15,941,154

 
195,398

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 

 

 

 

 

 
30,126

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,150,992

 
$
175,090

 
$
1,790,162

 
$
20,308

 
$
15,941,154

 
$
225,524



- 76 -



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, 2015 is as follows (in thousands):

 
 
Internally Risk Graded
 
Non-Graded
 
Total
 
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related Allowance
 
Recorded Investment
 
Related
Allowance
Commercial
 
$
9,367,119

 
$
100,592

 
$
24,044

 
$
819

 
$
9,391,163

 
$
101,411

Commercial real estate
 
2,935,464

 
40,819

 

 

 
2,935,464

 
40,819

Residential mortgage
 
196,782

 
3,028

 
1,730,217

 
20,216

 
1,926,999

 
23,244

Personal
 
341,530

 
1,386

 
88,980

 
2,753

 
430,510

 
4,139

Total
 
12,840,895

 
145,825

 
1,843,241

 
23,788

 
14,684,136

 
169,613

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonspecific allowance
 

 

 

 

 

 
28,073

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,840,895

 
$
145,825

 
$
1,843,241

 
$
23,788

 
$
14,684,136

 
$
197,686


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.


- 77 -



The following table summarizes the Company’s loan portfolio at March 31, 2016 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,466,909

 
$
402,958

 
$
159,553

 
$

 
$

 
$
3,029,420

Services
 
2,712,494

 
6,885

 
9,512

 

 

 
2,728,891

Wholesale/retail
 
1,428,215

 
19,946

 
3,685

 

 

 
1,451,846

Manufacturing
 
588,827

 
11,506

 
312

 

 

 
600,645

Healthcare
 
1,986,598

 
7,804

 
1,023

 

 

 
1,995,425

Other commercial and industrial
 
458,255

 

 
483

 
23,376

 
84

 
482,198

Total commercial
 
9,641,298

 
449,099

 
174,568

 
23,376

 
84

 
10,288,425

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
166,237

 
923

 
4,789

 

 

 
171,949

Retail
 
808,800

 
420

 
1,302

 

 

 
810,522

Office
 
694,923

 

 
629

 

 

 
695,552

Multifamily
 
726,933

 
6,506

 
250

 

 

 
733,689

Industrial
 
564,391

 

 
76

 

 

 
564,467

Other commercial real estate
 
392,095

 
9

 
2,224

 

 

 
394,328

Total commercial real estate
 
3,353,379

 
7,858

 
9,270

 

 

 
3,370,507

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
187,166

 
3,146

 
2,346

 
730,596

 
25,151

 
948,405

Permanent mortgages guaranteed by U.S. government agencies
 

 

 

 
177,800

 
19,550

 
197,350

Home equity
 

 

 

 
713,024

 
10,530

 
723,554

Total residential mortgage
 
187,166

 
3,146

 
2,346

 
1,621,420

 
55,231

 
1,869,309

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
410,095

 
100

 
123

 
83,799

 
208

 
494,325

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,591,938

 
$
460,203

 
$
186,307

 
$
1,728,595

 
$
55,523

 
$
16,022,566



- 78 -



The following table summarizes the Company’s loan portfolio at December 31, 2015 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,906,357

 
$
129,782

 
$
61,189

 
$

 
$

 
$
3,097,328

Services
 
2,767,225

 
6,761

 
10,290

 

 

 
2,784,276

Wholesale/retail
 
1,412,780

 
6,365

 
2,919

 

 

 
1,422,064

Manufacturing
 
554,526

 
1,872

 
331

 

 

 
556,729

Healthcare
 
1,882,308

 

 
1,072

 

 

 
1,883,380

Other commercial and industrial
 
483,030

 

 
496

 
25,101

 
127

 
508,754

Total commercial
 
10,006,226

 
144,780

 
76,297

 
25,101

 
127

 
10,252,531

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
155,724

 
293

 
4,409

 

 

 
160,426

Retail
 
794,754

 
426

 
1,319

 

 

 
796,499

Office
 
636,501

 
555

 
651

 

 

 
637,707

Multifamily
 
744,299

 
6,512

 
274

 

 

 
751,085

Industrial
 
563,093

 

 
76

 

 

 
563,169

Other commercial real estate
 
347,864

 
11

 
2,272

 

 

 
350,147

Total commercial real estate
 
3,242,235

 
7,797

 
9,001

 

 

 
3,259,033

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
192,456

 
1,932

 
2,313

 
721,964

 
26,671

 
945,336

Permanent mortgages guaranteed by U.S. government agencies
 

 

 

 
175,037

 
21,900

 
196,937

Home equity
 

 

 

 
724,264

 
10,356

 
734,620

Total residential mortgage
 
192,456

 
1,932

 
2,313

 
1,621,265

 
58,927

 
1,876,893

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
467,811

 
14

 
130

 
84,409

 
333

 
552,697

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
13,908,728

 
$
154,523

 
$
87,741

 
$
1,730,775

 
$
59,387

 
$
15,941,154



- 79 -



The following table summarizes the Company’s loan portfolio at March 31, 2015 by the risk grade categories (in thousands): 
 
 
Internally Risk Graded
 
Non-Graded
 
 
 
 
Performing
 
Potential Problem
 
Nonaccrual
 
Performing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,857,004

 
$
44,115

 
$
1,875

 
$

 
$

 
$
2,902,994

Services
 
2,573,879

 
14,253

 
4,744

 

 

 
2,592,876

Wholesale/retail
 
1,377,439

 
23,960

 
4,401

 

 

 
1,405,800

Manufacturing
 
546,566

 
13,942

 
417

 

 

 
560,925

Healthcare
 
1,505,072

 
4,547

 
1,558

 

 

 
1,511,177

Other commercial and industrial
 
392,549

 

 
798

 
23,957

 
87

 
417,391

Total commercial
 
9,252,509

 
100,817

 
13,793

 
23,957

 
87

 
9,391,163

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
128,795

 
759

 
9,598

 

 

 
139,152

Retail
 
654,429

 
574

 
3,857

 

 

 
658,860

Office
 
510,881

 
571

 
2,410

 

 

 
513,862

Multifamily
 
737,750

 
12,236

 

 

 

 
749,986

Industrial
 
478,508

 

 
76

 

 

 
478,584

Other commercial real estate
 
390,345

 
714

 
3,961

 

 

 
395,020

Total commercial real estate
 
2,900,708

 
14,854

 
19,902

 

 

 
2,935,464

 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
192,473

 
2,069

 
2,240

 
736,357

 
31,125

 
964,264

Permanent mortgages guaranteed by U.S. government agencies
 

 

 

 
196,923

 
3,256

 
200,179

Home equity
 

 

 

 
752,690

 
9,866

 
762,556

Total residential mortgage
 
192,473

 
2,069

 
2,240

 
1,685,970

 
44,247

 
1,926,999

 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
341,355

 
17

 
158

 
88,674

 
306

 
430,510

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
12,687,045

 
$
117,757

 
$
36,093

 
$
1,798,601

 
$
44,640

 
$
14,684,136




- 80 -



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, 2016
 
Three Months Ended
 
 
 
Recorded Investment
 
 
 
March 31, 2016
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
182,224

 
$
159,553

 
$
125,072

 
$
34,481

 
$
2,558

 
$
93,627

 
$

Services
12,824

 
9,512

 
9,512

 

 

 
9,901

 

Wholesale/retail
9,502

 
3,685

 
3,673

 
12

 
9

 
3,302

 

Manufacturing
658

 
312

 
312

 

 

 
322

 

Healthcare
1,338

 
1,023

 
905

 
118

 
35

 
1,048

 

Other commercial and industrial
8,235

 
567

 
567

 

 

 
595

 

Total commercial
214,781

 
174,652

 
140,041

 
34,611

 
2,602

 
108,795

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential construction and land development
7,621

 
4,789

 
4,789

 

 

 
4,599

 

Retail
1,923

 
1,302

 
1,302

 

 

 
1,311

 

Office
920

 
629

 
629

 

 

 
640

 

Multifamily
1,192

 
250

 
250

 

 

 
262

 

Industrial
76

 
76

 
76

 

 

 
76

 

Other real estate loans
8,348

 
2,224

 
2,068

 
156

 
18

 
2,248

 

Total commercial real estate
20,080

 
9,270

 
9,114

 
156

 
18

 
9,136

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 

 
 

 
 

 
 

 
 

 
 

 
 

Permanent mortgage
35,149

 
27,497

 
27,383

 
114

 
66

 
28,240

 
327

Permanent mortgage guaranteed by U.S. government agencies1
203,396

 
197,350

 
197,350

 

 

 
199,697

 
1,772

Home equity
11,321

 
10,530

 
10,530

 

 

 
10,443

 

Total residential mortgage
249,866

 
235,377

 
235,263

 
114

 
66

 
238,380

 
2,099

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
363

 
331

 
331

 

 

 
397

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
485,090

 
$
419,630

 
$
384,749

 
$
34,881

 
$
2,686

 
$
356,708

 
$
2,099

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, 2016, $19.6 million of these loans were nonaccruing and $178 million were accruing based on the guarantee by U.S. government agencies.

Generally, no interest income is recognized on impaired loans until all principal balances, including amounts charged-off, are recovered.


- 81 -



A summary of impaired loans at December 31, 2015 follows (in thousands): 
 
 
 
 
Recorded Investment
 
 
 
 
Unpaid
Principal
Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
63,910

 
$
61,189

 
$
18,330

 
$
42,859

 
$
16,115

Services
 
13,449

 
10,290

 
9,657

 
633

 
148

Wholesale/retail
 
8,582

 
2,919

 
2,907

 
12

 
9

Manufacturing
 
665

 
331

 
331

 

 

Healthcare
 
1,352

 
1,072

 
931

 
141

 
35

Other commercial and industrial
 
8,304

 
623

 
623

 

 

Total commercial
 
96,262

 
76,424

 
32,779

 
43,645

 
16,307

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
8,963

 
4,409

 
4,409

 

 

Retail
 
1,923

 
1,319

 
1,319

 

 

Office
 
937

 
651

 
651

 

 

Multifamily
 
1,192

 
274

 
274

 

 

Industrial
 
76

 
76

 
76

 

 

Other real estate loans
 
8,363

 
2,272

 
2,113

 
159

 
18

Total commercial real estate
 
21,454

 
9,001

 
8,842

 
159

 
18

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
37,273

 
28,984

 
28,868

 
116

 
68

Permanent mortgage guaranteed by U.S. government agencies1
 
202,984

 
196,937

 
196,937

 

 

Home equity
 
10,988

 
10,356

 
10,356

 

 

Total residential mortgage
 
251,245

 
236,277

 
236,161

 
116

 
68

 
 
 
 
 
 
 
 
 
 
 
Personal
 
489

 
463

 
463

 

 

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
369,450

 
$
322,165

 
$
278,245

 
$
43,920

 
$
16,393

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, 2015, $21.9 million of these loans were nonaccruing and $175 million were accruing based on the guarantee by U.S. government agencies.


- 82 -



A summary of impaired loans at March 31, 2015 follows (in thousands): 
 
 
 
For the
 
As of March 31, 2015
 
Three Months Ended
 
 
 
Recorded Investment
 
 
 
March 31, 2015
 
Unpaid Principal Balance
 
Total
 
With No
Allowance
 
With Allowance
 
Related Allowance
 
Average Recorded
Investment
 
Interest Income Recognized
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$
1,884

 
$
1,875

 
$
1,875

 
$

 
$

 
$
1,646

 
$

Services
7,698

 
4,744

 
4,051

 
693

 
153

 
4,972

 

Wholesale/retail
9,953

 
4,401

 
4,369

 
32

 
9

 
4,275

 

Manufacturing
716

 
417

 
417

 

 

 
433

 

Healthcare
2,626

 
1,558

 
1,362

 
196

 
35

 
1,469

 

Other commercial and industrial
8,559

 
885

 
885

 

 

 
908

 

Total commercial
31,436

 
13,880

 
12,959

 
921

 
197

 
13,703

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 

Residential construction and land development
14,367

 
9,598

 
9,598

 

 

 
7,449

 

Retail
5,376

 
3,857

 
3,857

 

 

 
3,892

 

Office
4,464

 
2,410

 
2,410

 

 

 
2,915

 

Multifamily

 

 

 

 

 

 

Industrial
76

 
76

 
76

 

 

 
38

 

Other real estate loans
9,950

 
3,961

 
3,791

 
170

 
18

 
4,936

 

Total commercial real estate
34,233

 
19,902

 
19,732

 
170

 
18

 
19,230

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 

Permanent mortgage
42,011

 
33,365

 
33,200

 
165

 
102

 
34,105

 
315

Permanent mortgage guaranteed by U.S. government agencies1
207,133

 
200,179

 
200,179

 

 

 
207,795

 
2,256

Home equity
10,129

 
9,866

 
9,866

 

 

 
9,715

 

Total residential mortgage
259,273

 
243,410

 
243,245

 
165

 
102

 
251,615

 
2,571

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
482

 
464

 
464

 

 

 
515

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
325,424

 
$
277,656

 
$
276,400

 
$
1,256

 
$
317

 
$
285,063

 
$
2,571

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, 2015, $3.3 million of these loans were nonaccruing and $197 million were accruing based on the guarantee by U.S. government agencies.


- 83 -



Troubled Debt Restructurings

A summary of troubled debt restructurings ("TDRs") by accruing status as of March 31, 2016 is as follows (in thousands):
 
 
As of March 31, 2016
 
 
 
 
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, 2016
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,829

 
$

 
$
2,829

 
$

 
$

Services
 
8,863

 
8,076

 
787

 

 

Wholesale/retail
 
2,619

 
2,567

 
52

 
9

 

Manufacturing
 
267

 
267

 

 

 

Healthcare
 
656

 
656

 

 

 

Other commercial and industrial
 
548

 
65

 
483

 

 
57

Total commercial
 
15,782

 
11,631

 
4,151

 
9

 
57

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
1,871

 
296

 
1,575

 

 

Retail
 
1,302

 
925

 
377

 

 

Office
 
160

 
160

 

 

 

Multifamily
 

 

 

 

 

Industrial
 

 

 

 

 

Other real estate loans
 
909

 
478

 
431

 

 

Total commercial real estate
 
4,242

 
1,859

 
2,383

 

 

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
16,242

 
11,451

 
4,791

 
66

 
3

Permanent mortgage guaranteed by U.S. government agencies
 
9,809

 
851

 
8,958

 

 

Home equity
 
5,078

 
4,207

 
871

 

 
66

Total residential mortgage
 
31,129

 
16,509

 
14,620

 
66

 
69

 
 
 
 
 
 
 
 
 
 
 
Personal
 
284

 
262

 
22

 

 
7

 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
51,437

 
$
30,261

 
$
21,176

 
$
75

 
$
133

 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
77,598

 
28,415

 
49,183

 

 

 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
129,035

 
$
58,676

 
$
70,359

 
$
75

 
$
133


- 84 -



A summary of troubled debt restructurings by accruing status as of December 31, 2015 is as follows (in thousands):

 
 
As of
 
 
December 31, 2015
 
 
Recorded
Investment
 
Performing in Accordance With Modified Terms
 
Not
Performing in Accordance With Modified Terms
 
Specific
Allowance
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
Energy
 
$
2,304

 
$
2,304

 
$

 
$

Services
 
9,027

 
8,210

 
817

 
148

Wholesale/retail
 
2,758

 
2,706

 
52

 
9

Manufacturing
 
282

 
282

 

 

Healthcare
 
673

 
673

 

 

Other commercial and industrial
 
621

 
89

 
532

 

Total commercial
 
15,665

 
14,264

 
1,401

 
157

 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

Residential construction and land development
 
2,328

 
1,556

 
772

 

Retail
 
1,319

 
942

 
377

 

Office
 
165

 
165

 

 

Multifamily
 

 

 

 

Industrial
 

 

 

 

Other real estate loans
 
920

 
478

 
442

 

Total commercial real estate
 
4,732

 
3,141

 
1,591

 

 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

Permanent mortgage
 
16,618

 
9,043

 
7,575

 
68

Permanent mortgage guaranteed by U.S. government agencies
 
11,136

 
139

 
10,997

 

Home equity
 
5,159

 
4,218

 
941

 

Total residential mortgage
 
32,913

 
13,400

 
19,513

 
68

 
 
 
 
 
 
 
 
 
Personal
 
324

 
297

 
27

 

 
 
 
 
 
 
 
 
 
Total nonaccuring TDRs
 
$
53,634

 
$
31,102

 
$
22,532

 
$
225

 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
74,050

 
23,029

 
51,021

 

 
 
 
 
 
 
 
 
 
Total TDRs
 
$
127,684

 
$
54,131

 
$
73,553

 
$
225



- 85 -



A summary of troubled debt restructurings by accruing status as of March 31, 2015 is as follows (in thousands):
 
 
As of March 31, 2015
 
 
 
 
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, 2015
Nonaccruing TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$

 
$

 
$

 
$

 
$

Services
 
1,617

 
687

 
930

 
148

 

Wholesale/retail
 
3,224

 
3,131

 
93

 
9

 

Manufacturing
 
325

 
325

 

 

 

Healthcare
 

 

 

 

 

Other commercial and industrial
 
636

 
87

 
549

 

 

Total commercial
 
5,802

 
4,230

 
1,572

 
157

 

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
7,234

 
5,724

 
1,510

 

 

Retail
 
3,543

 
1,384

 
2,159

 

 

Office
 
1,364

 
182

 
1,182

 

 

Multifamily
 

 

 

 

 

Industrial
 

 

 

 

 

Other real estate loans
 
1,474

 
1,001

 
473

 

 

Total commercial real estate
 
13,615

 
8,291

 
5,324

 

 

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
15,680

 
11,667

 
4,013

 
102

 
5

Permanent mortgage guaranteed by U.S. government agencies
 
1,579

 
320

 
1,259

 

 

Home equity
 
5,298

 
4,333

 
965

 

 
24

Total residential mortgage
 
22,557

 
16,320

 
6,237

 
102

 
29

 
 
 
 
 
 
 
 
 
 
 
Personal
 
410

 
254

 
156

 

 
4

 
 
 
 
 
 
 
 
 
 
 
Total nonaccruing TDRs
 
$
42,384

 
$
29,095

 
$
13,289

 
$
259

 
$
33

 
 
 
 
 
 
 
 
 
 
 
Accruing TDRs:
 
 
 
 
 
 
 
 
 
 
Permanent mortgages guaranteed by U.S. government agencies
 
80,225

 
24,483

 
55,742

 

 

 
 
 
 
 
 
 
 
 
 
 
Total TDRs
 
$
122,609

 
$
53,578

 
$
69,031

 
$
259

 
$
33


- 86 -



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, 2016 by class that were restructured during the three months ended March 31, 2016 by primary type of concession (in thousands):

 
Three Months Ended
March 31, 2016
 
Accruing
 
Nonaccrual
 
Total
 
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
$

 
$

 
$

 
$
525

 
$

 
$
525

 
$
525

Services
 

 

 

 

 

 

 

Wholesale/retail
 

 

 

 

 

 

 

Manufacturing
 

 

 

 

 

 

 

Healthcare
 

 

 

 

 

 

 

Other commercial and industrial
 

 

 

 

 

 

 

Total commercial
 

 

 

 
525

 

 
525

 
525

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development
 

 

 

 

 

 

 

Retail
 

 

 

 

 

 

 

Office
 

 

 

 

 

 

 

Multifamily
 

 

 

 

 

 

 

Industrial
 

 

 

 

 

 

 

Other real estate loans
 

 

 

 

 

 

 

Total commercial real estate
 

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage
 

 

 

 
367

 
62

 
429

 
429

Permanent mortgage guaranteed by U.S. government agencies
 
4,331

 
4,658

 
8,989

 

 
90

 
90

 
9,079

Home equity
 

 

 

 

 
622

 
622

 
622

Total residential mortgage
 
4,331

 
4,658

 
8,989

 
367

 
774

 
1,141

 
10,130

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 

 

 

 

 
10

 
10

 
10

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
4,331

 
$
4,658

 
$
8,989

 
$
892

 
$
784

 
$
1,676

 
$
10,665





- 87 -



Troubled debt restructurings generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed borrowers. The following tables detail the recorded balance of loans by class that were restructured during three months ended March 31, 2015 by primary type of concession (in thousands):

 
Three Months Ended
March 31, 2015
 
Accruing
 
Nonaccrual
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Payment Stream
 
Combination & Other
 
Total
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
$

 
$

 
$

 
$

 
$

 
$

 
$

Services

 

 

 

 

 

 

Wholesale/retail

 

 

 

 

 

 

Manufacturing

 

 

 

 

 

 

Healthcare

 

 

 

 

 

 

Other commercial and industrial

 

 

 

 

 

 

Total commercial

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development

 

 

 
4,649

 

 
4,649

 
4,649

Retail

 

 

 

 

 

 

Office

 

 

 

 

 

 

Multifamily

 

 

 

 

 

 

Industrial

 

 

 

 

 

 

Other real estate loans

 

 

 

 

 

 

Total commercial real estate

 

 

 
4,649

 

 
4,649

 
4,649

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage

 

 

 
659

 
622

 
1,281

 
1,281

Permanent mortgage guaranteed by U.S. government agencies
7,990

 
6,308

 
14,298

 

 
142

 
142

 
14,440

Home equity

 

 

 
152

 
842

 
994

 
994

Total residential mortgage
7,990

 
6,308

 
14,298

 
811

 
1,606

 
2,417

 
16,715

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal

 

 

 

 
63

 
63

 
63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
7,990

 
$
6,308

 
$
14,298

 
$
5,460

 
$
1,669

 
$
7,129

 
$
21,427



 


- 88 -



The following table summarizes, by loan class, the recorded investment at March 31, 2016 and 2015, respectively, of loans modified as TDRs within the previous 12 months and for which there was a payment default during the three months ended March 31, 2016 and 2015, respectively (in thousands):

 
Three Months Ended
March 31, 2016
 
Three Months Ended
March 31, 2015
 
Accruing
 
Nonaccrual
 
Total
 
Accruing
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Energy
$

 
$
2,829

 
$
2,829

 
$

 
$

 
$

Services

 

 

 

 

 

Wholesale/retail

 

 

 

 

 

Manufacturing

 

 

 

 

 

Healthcare

 

 

 

 

 

Other commercial and industrial

 

 

 

 

 

Total commercial

 
2,829

 
2,829

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Residential construction and land development

 

 

 

 
363

 
363

Retail

 

 

 

 

 

Office

 

 

 

 

 

Multifamily

 

 

 

 

 

Industrial

 

 

 

 

 

Other real estate loans

 

 

 

 

 

Total commercial real estate

 

 

 

 
363

 
363

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
 
 
 
Permanent mortgage

 
1,597

 
1,597

 

 
2,383

 
2,383

Permanent mortgage guaranteed by U.S. government agencies
22,606

 
1,346

 
23,952

 
33,920

 
673

 
34,593

Home equity

 
365

 
365

 

 
693

 
693

Total residential mortgage
22,606

 
3,308

 
25,914

 
33,920

 
3,749

 
37,669

 
 
 
 
 
 
 
 
 
 
 
 
Personal

 

 

 

 
24

 
24

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
22,606

 
$
6,137

 
$
28,743

 
$
33,920

 
$
4,136

 
$
38,056


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.
 

- 89 -



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, 2016 is as follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,864,408

 
$
3,001

 
$
2,458

 
$
159,553

 
$
3,029,420

Services
 
2,714,697

 
4,682

 

 
9,512

 
2,728,891

Wholesale/retail
 
1,443,503

 
4,658

 

 
3,685

 
1,451,846

Manufacturing
 
600,029

 

 
304

 
312

 
600,645

Healthcare
 
1,994,402

 

 

 
1,023

 
1,995,425

Other commercial and industrial
 
481,286

 
345

 

 
567

 
482,198

Total commercial
 
10,098,325

 
12,686

 
2,762

 
174,652

 
10,288,425

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
167,160

 

 

 
4,789

 
171,949

Retail
 
809,220

 

 

 
1,302

 
810,522

Office
 
694,923

 

 

 
629

 
695,552

Multifamily
 
728,183

 

 
5,256

 
250

 
733,689

Industrial
 
564,391

 

 

 
76

 
564,467

Other real estate loans
 
392,104

 

 

 
2,224

 
394,328

Total commercial real estate
 
3,355,981

 

 
5,256

 
9,270

 
3,370,507

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
918,965

 
1,943

 

 
27,497

 
948,405

Permanent mortgages guaranteed by U.S. government agencies
 
43,259

 
27,325

 
107,216

 
19,550

 
197,350

Home equity
 
710,824

 
2,200

 

 
10,530

 
723,554

Total residential mortgage
 
1,673,048

 
31,468

 
107,216

 
57,577

 
1,869,309

 
 
 
 
 
 
 
 
 
 
 
Personal
 
493,722

 
271

 
1

 
331

 
494,325

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,621,076

 
$
44,425

 
$
115,235

 
$
241,830

 
$
16,022,566



- 90 -



A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2015 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
3,033,504

 
$
2,635

 
$

 
$
61,189

 
$
3,097,328

Services
 
2,769,895

 
4,091

 

 
10,290

 
2,784,276

Wholesale/retail
 
1,418,396

 
49

 
700

 
2,919

 
1,422,064

Manufacturing
 
556,398

 

 

 
331

 
556,729

Healthcare
 
1,879,873

 
2,435

 

 
1,072

 
1,883,380

Other commercial and industrial
 
507,929

 
100

 
102

 
623

 
508,754

Total commercial
 
10,165,995

 
9,310

 
802

 
76,424

 
10,252,531

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
156,017

 

 

 
4,409

 
160,426

Retail
 
795,180

 

 

 
1,319

 
796,499

Office
 
637,056

 

 

 
651

 
637,707

Multifamily
 
742,697

 
8,114

 

 
274

 
751,085

Industrial
 
563,093

 

 

 
76

 
563,169

Other real estate loans
 
347,498

 

 
377

 
2,272

 
350,147

Total commercial real estate
 
3,241,541

 
8,114

 
377

 
9,001

 
3,259,033

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
913,062

 
3,290

 

 
28,984

 
945,336

Permanent mortgages guaranteed by U.S. government agencies
 
33,653

 
30,383

 
111,001

 
21,900

 
196,937

Home equity
 
721,149

 
3,095

 
20

 
10,356

 
734,620

Total residential mortgage
 
1,667,864

 
36,768

 
111,021

 
61,240

 
1,876,893

 
 
 
 
 
 
 
 
 
 
 
Personal
 
551,533

 
693

 
8

 
463

 
552,697

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
15,626,933

 
$
54,885

 
$
112,208

 
$
147,128

 
$
15,941,154



- 91 -



A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of March 31, 2015 is as follows (in thousands):

 
 
 
 
Past Due
 
 
 
 
 
 
Current
 
30 to 89
Days
 
90 Days
or More
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Energy
 
$
2,894,332

 
$
6,787

 
$

 
$
1,875

 
$
2,902,994

Services
 
2,587,668

 
415

 
49

 
4,744

 
2,592,876

Wholesale/retail
 
1,401,399

 

 

 
4,401

 
1,405,800

Manufacturing
 
560,008

 
500

 

 
417

 
560,925

Healthcare
 
1,509,594

 
25

 

 
1,558

 
1,511,177

Other commercial and industrial
 
416,362

 
115

 
29

 
885

 
417,391

Total commercial
 
9,369,363

 
7,842

 
78

 
13,880

 
9,391,163

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 

 
 

 
 

 
 

 
 

Residential construction and land development
 
129,554

 

 

 
9,598

 
139,152

Retail
 
654,558

 

 
445

 
3,857

 
658,860

Office
 
511,452

 

 

 
2,410

 
513,862

Multifamily
 
745,247

 
4,739

 

 

 
749,986

Industrial
 
478,508

 

 

 
76

 
478,584

Other real estate loans
 
390,411

 
648

 

 
3,961

 
395,020

Total commercial real estate
 
2,909,730

 
5,387

 
445

 
19,902

 
2,935,464

 
 
 
 
 
 
 
 
 
 
 
Residential mortgage:
 
 

 
 

 
 

 
 

 
 

Permanent mortgage
 
926,848

 
4,051

 

 
33,365

 
964,264

Permanent mortgages guaranteed by U.S. government agencies
 
39,309

 
22,370

 
135,244

 
3,256

 
200,179

Home equity
 
749,618

 
3,072

 

 
9,866

 
762,556

Total residential mortgage
 
1,715,775

 
29,493

 
135,244

 
46,487

 
1,926,999

 
 
 
 
 
 
 
 
 
 
 
Personal
 
429,618

 
428

 

 
464

 
430,510

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
14,424,486

 
$
43,150

 
$
135,767

 
$
80,733

 
$
14,684,136


- 92 -



(5) Acquisitions

On December 8, 2015, the Company announced the signing of a definitive purchase agreement with MBT Bancshares (“MBT”). MBT is headquartered in Kansas City, Mo. and is the parent company of Missouri Bank and Trust of Kansas City (“mobank”). mobank operates four banking branches in the Kansas City, Mo. area. Under terms of the definitive agreement, BOK Financial will pay $102.5 million in an all-cash deal for all outstanding shares of MBT stock, subject to certain conditions and potential adjustments. The transaction has been approved by the boards of directors of both companies and is expected to close in the third quarter of 2016, subject to customary closing conditions, including regulatory approval.

In the first quarter of 2016, the Company acquired Weaver and Tidwell Financial Advisors LTD d/b/a Weaver Wealth Management, a registered investment advisor and E-Spectrum Advisors, an energy investment banking firm in Texas. The cash purchase price for these acquisitions was $7.7 million. The preliminary purchase price allocation included $5.3 million of identifiable intangible assets and $3.3 million of goodwill.

On May 4, 2015, the Company acquired a majority voting interest in Heartland Food Products, LLC, a Kansas-based food product and restaurant equipment company. The cash purchase price for this acquisition was $18 million. The final purchase price allocation included $11 million of identifiable intangible assets and $2.7 million of goodwill.

The pro-forma impact of these transactions was not material to the Company's consolidated financial statements.
(6) Mortgage Banking Activities

Residential Mortgage Loan Production

The Company originates, markets and services conventional and government-sponsored residential mortgage loans. Generally, conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-rate residential mortgage loans are retained for investment. Residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sale commitments which are considered derivative contracts that have not been designated as hedging instruments. 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, 2016
 
Dec. 31, 2015
 
March 31, 2015
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid
Principal
 Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
309,040

 
$
318,191

 
$
293,637

 
$
299,505

 
$
491,762

 
$
501,888

Residential mortgage loan commitments
 
902,986

 
20,170

 
601,147

 
8,134

 
824,036

 
17,500

Forward sales contracts
 
1,012,041

 
(6,321
)
 
884,710

 
800

 
1,200,769

 
(6,192
)
 
 
 

 
$
332,040

 
 

 
$
308,439

 
 

 
$
513,196


No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of March 31, 2016, December 31, 2015 or March 31, 2015. No credit losses were recognized on residential mortgage loans held for sale for the three month periods ended March 31, 2016 and 2015.

- 93 -



Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2016
 
2015
Production revenue:
 
 
 
 
Net realized gains on sale of mortgage loans
 
$
10,779

 
$
17,251

Net change in unrealized gain on mortgage loans held for sale
 
3,283

 
3,451

Net change in the fair value of mortgage loan commitments
 
12,036

 
7,529

Net change in the fair value of forward sales contracts
 
(7,121
)
 
(2,191
)
Total production revenue
 
18,977

 
26,040

Servicing revenue
 
15,453

 
13,280

Total mortgage banking revenue
 
$
34,430

 
$
39,320


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

Residential Mortgage Servicing

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

The following represents a summary of mortgage servicing rights (Dollars in thousands):
 
 
March 31,
2016
 
Dec. 31,
2015
 
March 31,
2015
Number of residential mortgage loans serviced for others
 
134,040

 
131,859

 
120,653

Outstanding principal balance of residential mortgage loans serviced for others
 
$
20,294,662

 
$
19,678,226

 
$
16,937,128

Weighted average interest rate
 
4.10
%
 
4.12
%
 
4.24
%
Remaining term (in months)
 
300

 
300

 
297


Activity in capitalized mortgage servicing rights during the three months ended March 31, 2016 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Dec. 31, 2015
 
$
9,911

 
$
208,694

 
$
218,605

Additions, net
 

 
13,582

 
13,582

Change in fair value due to loan runoff
 
(626
)
 
(7,518
)
 
(8,144
)
Change in fair value due to market changes
 
(3,336
)
 
(24,652
)
 
(27,988
)
Balance, March 31, 2016
 
$
5,949

 
$
190,106

 
$
196,055

 
 
Activity in capitalized mortgage servicing rights during the three months ended March 31, 2015 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Dec. 31, 2014
 
$
11,114

 
$
160,862

 
$
171,976

Additions, net
 

 
19,150

 
19,150

Change in fair value due to loan runoff
 
(781
)
 
(6,772
)
 
(7,553
)
Change in fair value due to market changes
 
(740
)
 
(7,782
)
 
(8,522
)
Balance, March 31, 2015
 
$
9,593

 
$
165,458

 
$
175,051

 

- 94 -



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,
2016
 
Dec. 31,
2015
 
March 31,
2015
Discount rate – risk-free rate plus a market premium
 
10.11%
 
10.11%
 
10.15%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
    Performing loans
 
$63-$120
 
$63 - $105
 
$60 - $105
    Delinquent loans
 
$150 - $500
 
$150 - $500
 
$150 - $500
    Loans in foreclosure
 
$650 - $4,250
 
$650 - $4,250
 
$1000 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
1.19%
 
1.73%
 
1.54%
Primary/secondary mortgage rate spread
 
120 bps
 
130 bps
 
138 bps

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, 2016 follows (in thousands):
 
 
< 4.00%
 
4.00% - 4.99%

 
5.00% - 5.99%

 
> 5.99%
 
Total
Fair value
 
$
98,157

 
$
85,587

 
$
8,969

 
$
3,342

 
$
196,055

Outstanding principal of loans serviced for others
 
$
9,938,179

 
$
8,107,804

 
$
1,393,590

 
$
855,089

 
$
20,294,662

Weighted average prepayment rate1
 
8.88
%
 
9.95
%
 
23.48
%
 
35.21
%
 
11.42
%
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 is modeled over a range of +/- 50 basis points. At March 31, 2016, a 50 basis point decrease in mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights by $36.4 million. A 50 basis point increase in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights by $27.4 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, 2016 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
6,767,400

 
$
34,920

 
$
7,482

 
$
25,224

 
$
6,835,026

FNMA
 
6,835,689

 
29,996

 
5,252

 
17,303

 
6,888,240

GNMA
 
5,851,935

 
109,046

 
33,308

 
15,338

 
6,009,627

Other
 
555,737

 
3,587

 
475

 
1,970

 
561,769

Total
 
$
20,010,761

 
$
177,549

 
$
46,517

 
$
59,835

 
$
20,294,662


- 95 -



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 $153 million at March 31, 2016, $155 million at December 31, 2015 and $174 million at March 31, 2015. A separate accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. At March 31, 2016, approximately 3 percent of the loans sold with recourse with an outstanding principal balance of $4.0 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 4 percent with an outstanding balance of $5.8 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.

The activity in the accrual for losses on loans sold with recourse included in Other liabilities in the Consolidated Balance Sheets is summarized as follows (in thousands):
 
Three Months Ended
March 31,
 
2016
 
2015
Beginning balance
$
4,649

 
$
7,299

Provision for recourse losses
146

 
170

Loans charged off, net
(352
)
 
(448
)
Ending balance
$
4,443

 
$
7,021


The Company also has obligations to repurchase or provide indemnification for residential mortgage loans sold to government sponsored entities due to standard representations and warranties made under contractual agreements and to service loans in accordance with investor guidelines. The Company has established accruals for losses related to these obligations that are included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated Statements of Earnings. 

The Company repurchased 3 loans from the agencies for $508 thousand during the first quarter of 2016. There was one indemnification on loans paid during the first quarter of 2016. Losses recognized on indemnifications and repurchases were insignificant.

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 
March 31,
2016
 
March 31,
2015
Number of unresolved deficiency requests
220

 
213

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
20,292

 
$
17,979

Unpaid principal balance subject to indemnification by the Company
4,668

 
4,212


The activity in the accruals for mortgage losses is summarized as follows (in thousands).
 
Three Months Ended
March 31,
 
2016
 
2015
Beginning balance
$
7,732

 
$
11,868

Provision for losses
1,350

 
(788
)
Charge-offs, net
(953
)
 
60

Ending balance
$
8,129


$
11,140


- 96 -



(7)  Commitments and Contingent Liabilities

Litigation Contingencies

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

BOK Financial currently owns 251,837 Visa Class B shares which are convertible into 415,103 shares of Visa Class A shares after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may be assigned until the Class B shares are converted into a known number of Class A shares.

On March 3, 2015, the Bank and the Company were named as defendants in a putative class action alleging (1) that the manner in which the Bank posted charges to its consumer deposit accounts was improper from September 1, 2011 through July 8, 2014, the period after which the Bank and BOK Financial had settled a class action respecting a similar claim, and before it made changes to its posting order and (2) that the manner in which the Bank posted charges to its small business deposit accounts was improper from July 9, 2009 through July 8, 2014. The Court has denied the Bank’s motion to dismiss the claims as pre-empted by federal law, but limited the plaintiffs’ claim to a only breach of contract action involving Oklahoma customers.  Discovery is on-going.  Based on currently available information, management has established an accrual within a reasonable range of probable losses and anticipates the claims will be resolved without material loss to the Company. 
 
On June 24, 2015, the Bank received a complaint alleging that an employee had colluded with a borrower and an individual in misusing revenues pledged to municipal bonds for which the Bank served as trustee under the bond indenture. The Company conducted an investigation and concluded that employees in one of its Corporate Trust offices had, with respect to a single group of affiliated bond issuances, violated Company policies and procedures by waiving financial covenants, granting forbearances and accepting without disclosure to the bondholders, debt service payments from sources other than pledged revenues. The relationship manager was terminated.  The Company reported the circumstances to, and is cooperating with an investigation by, the Securities and Exchange Commission. On December 28, 2015, in an action brought by the SEC, the United States District Court for the District of New Jersey entered a judgment against the principals involved in the issuing the bonds, precluding the principals from denying the alleged violations of the federal securities laws and requiring the principals to pay all outstanding principal, accrued interest, and other amounts required under the bond documents, subject to oversight by a court appointed monitor.  The terminated employee has filed an action against the Bank alleging the Bank defamed the employee and made a demand for indemnification respecting the SEC investigation which demand the respective boards of directors of the Company and the Bank have denied. The Bank has been advised by its counsel that there is no basis for the employee’s action and that any recovery by the employee is remote.    
 
The Director of the New Mexico Securities Division of the State of New Mexico Regulation and Licensing Department ("the Director") has issued a Notice of Contemplated Action in connection with the purchase of various municipal bonds by the elected County Treasurer of Bernalillo County, New Mexico, from BOSC, Inc., the Company’s broker-dealer affiliate. The Director seeks to determine whether to seek sanctions, which could include a fine and/or the suspension or revocation of registration, on the grounds that the Company’s broker-dealer affiliate violated the suitability rule. The County of Bernalillo, New Mexico, has commenced arbitration pursuant to the Arbitration Rules of FINRA seeking recovery of $5.6 million dollars arising out of the purchase. The Company has been advised by its counsel that there is no basis to suggest the Director should make such a determination and that any recovery by the County is remote.
 
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.
                           

- 97 -



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 $4.9 million at March 31, 2016. Substantially all of the obligations are offset by limited partner commitments. The Company does not accrue its contingent liability to fund investments. The Volcker Rule in Title VI of the Dodd-Frank Act will limit both the amount and structure of these types of investments.

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

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

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

A summary of consolidated and unconsolidated alternative investments as of March 31, 2016, December 31, 2015 and March 31, 2015 is as follows (in thousands):

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

 
$
22,120

 
$

 
$

 
$
17,166

Tax credit entities
 
10,000

 
12,051

 

 
10,964

 
10,000

Other
 

 
36,238

 
2,663

 
2,738

 
7,544

Total consolidated
 
$
10,000

 
$
70,409

 
$
2,663

 
$
13,702

 
$
34,710

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
32,679

 
$
105,505

 
$
33,091

 
$

 
$

Other
 

 
15,298

 
6,303

 

 

Total unconsolidated
 
$
32,679

 
$
120,803

 
$
39,394

 
$

 
$



- 98 -



 
 
Dec. 31, 2015
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$

 
$
22,472

 
$

 
$

 
$
17,823

Tax credit entities
 
10,000

 
12,206

 

 
10,964

 
10,000

Other
 

 
40,453

 
2,198

 
2,831

 
9,260

Total consolidated
 
$
10,000

 
$
75,131

 
$
2,198

 
$
13,795

 
$
37,083

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
16,916

 
$
85,274

 
$
14,572

 
$

 
$

Other
 

 
15,506

 
6,319

 

 

Total unconsolidated
 
$
16,916

 
$
100,780

 
$
20,891

 
$

 
$


 
 
March 31, 2015
 
 
Loans
 
Other
assets
 
Other
liabilities
 
Other
borrowings
 
Non-controlling
interests
Consolidated:
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
$

 
$
25,565

 
$

 
$

 
$
20,885

Tax credit entities
 
10,000

 
12,672

 

 
10,964

 
10,000

Other
 

 
5,861

 

 

 
2,206

Total consolidated
 
$
10,000

 
$
44,098

 
$

 
$
10,964

 
$
33,091

 
 
 
 
 
 
 
 
 
 
 
Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Tax credit entities
 
$
18,185

 
$
94,033

 
$
25,042

 
$

 
$

Other
 

 
9,217

 
4,041

 

 

Total unconsolidated
 
$
18,185

 
$
103,250

 
$
29,083

 
$

 
$


Other Commitments and Contingencies

At March 31, 2016, Cavanal Hill Funds’ assets included U.S. Treasury, cash management and tax-free money market funds. Assets of these funds consist of highly-rated, short-term obligations of the U.S. Treasury, corporate issuers and U.S. states and municipalities. The net asset value of units in these funds was $1.00 at March 31, 2016. An investment in these funds is not insured by the Federal Deposit Insurance Corporation or guaranteed by BOK Financial or any of its subsidiaries. BOK Financial may, but is not obligated to purchase assets from these funds to maintain the net asset value at $1.00. No assets were purchased from the funds in 2016 or 2015.
(8) Shareholders' Equity

On April 26, 2016, the Company declared a quarterly cash dividend of $0.43 per common share on or about May 27, 2016 to shareholders of record as of May 13, 2016.

Dividends declared were $0.43 per share during the three months ended March 31, 2016 and $0.42 per share during the three months ended March 31, 2015.


- 99 -



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 were reclassified into income over the ten-year life of the debt. Gains and losses in AOCI are net of deferred income taxes.

A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):
 
 
Unrealized Gain (Loss) on
 
 
 
 
 
 
Available for Sale Securities
 
Investment Securities Transferred from AFS
 
Employee Benefit Plans
 
Loss on Effective Cash Flow Hedges
 
Total
Balance, Dec. 31, 2014
 
$
59,239

 
$
376

 
$
(2,868
)
 
$
(74
)
 
$
56,673

Net change in unrealized gain (loss)
 
59,387

 

 

 

 
59,387

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

 
(179
)
 

 

 
(179
)
Interest expense, Subordinated debentures
 

 

 

 
65

 
65

Net impairment losses recognized in earnings
 
92

 

 

 

 
92

Gain on available for sale securities, net
 
(4,327
)
 

 

 

 
(4,327
)
Other comprehensive income (loss), before income taxes
 
55,152

 
(179
)
 

 
65

 
55,038

Federal and state income taxes1
 
21,452

 
(69
)
 

 
25

 
21,408

Other comprehensive income (loss), net of income taxes
 
33,700

 
(110
)
 

 
40

 
33,630

Balance, March 31, 2015
 
$
92,939

 
$
266

 
$
(2,868
)
 
$
(34
)
 
$
90,303

 
 
 
 
 
 
 
 
 
 
 
Balance, Dec. 31, 2015
 
$
23,284

 
$
68

 
$
(1,765
)
 
$

 
$
21,587

Net change in unrealized gain (loss)
 
121,091

 

 

 

 
121,091

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

 
(69
)
 

 

 
(69
)
Interest expense, Subordinated debentures
 

 

 

 

 

Net impairment losses recognized in earnings
 

 

 

 

 

Gain on available for sale securities, net
 
(3,964
)
 

 

 

 
(3,964
)
Other comprehensive income (loss), before income taxes
 
117,127

 
(69
)
 

 

 
117,058

Federal and state income taxes1
 
45,563

 
(27
)
 

 

 
45,536

Other comprehensive income (loss), net of income taxes
 
71,564

 
(42
)
 

 

 
71,522

Balance, March 31, 2016
 
$
94,848

 
$
26

 
$
(1,765
)
 
$

 
$
93,109

1 
Calculated using a 39 percent effective tax rate.

- 100 -



(9)  Earnings Per Share
 
(In thousands, except share and per share amounts)
 
Three Months Ended
March 31,
 
 
2016
 
2015
Numerator:
 
 
 
 
Net income attributable to BOK Financial Corp. shareholders
 
$
42,564

 
$
74,843

Less: Earnings allocated to participating securities
 
538

 
814

Numerator for basic earnings per share – income available to common shareholders
 
42,026

 
74,029

Effect of reallocating undistributed earnings of participating securities
 

 
1

Numerator for diluted earnings per share – income available to common shareholders
 
$
42,026

 
$
74,030

 
 
 
 
 
Denominator:
 
 

 
 

Weighted average shares outstanding
 
66,131,166

 
69,002,576

Less:  Participating securities included in weighted average shares outstanding
 
834,625

 
747,796

Denominator for basic earnings per common share
 
65,296,541

 
68,254,780

Dilutive effect of employee stock compensation plans1
 
34,887

 
90,106

Denominator for diluted earnings per common share
 
65,331,428

 
68,344,886

 
 
 
 
 
Basic earnings per share
 
$
0.64

 
$
1.08

Diluted earnings per share
 
$
0.64

 
$
1.08

1  Excludes employee stock options with exercise prices greater than current market price.
 
244,019

 
78,209


- 101 -



(10)  Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended March 31, 2016 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
116,637

 
$
21,465

 
$
6,078

 
$
38,392

 
$
182,572

Net interest revenue (expense) from internal sources
 
(14,534
)
 
9,353

 
7,663

 
(2,482
)
 

Net interest revenue
 
102,103

 
30,818

 
13,741

 
35,910

 
182,572

Provision for credit losses
 
21,572

 
1,702

 
(150
)
 
11,876

 
35,000

Net interest revenue after provision for credit losses
 
80,531

 
29,116

 
13,891

 
24,034

 
147,572

Other operating revenue
 
45,108

 
56,359

 
68,747

 
(10,470
)
 
159,744

Other operating expense
 
56,069

 
58,048

 
60,684

 
70,099

 
244,900

Net direct contribution
 
69,570

 
27,427

 
21,954

 
(56,535
)
 
62,416

Gain (loss) on financial instruments, net
 

 
16,581

 

 
(16,581
)
 

Change in fair value of mortgage servicing rights
 

 
(27,988
)
 

 
27,988

 

Gain (loss) on repossessed assets, net
 
(82
)
 
153

 

 
(71
)
 

Corporate expense allocations
 
8,744

 
15,978

 
10,535

 
(35,257
)
 

Net income before taxes
 
60,744

 
195

 
11,419

 
(9,942
)
 
62,416

Federal and state income taxes
 
23,629

 
76

 
4,442

 
(6,719
)
 
21,428

Net income
 
37,115

 
119

 
6,977

 
(3,223
)
 
40,988

Net income attributable to non-controlling interests
 

 

 

 
(1,576
)
 
(1,576
)
Net income attributable to BOK Financial Corp. shareholders
 
$
37,115

 
$
119

 
$
6,977

 
$
(1,647
)
 
$
42,564

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
16,969,015

 
$
8,687,289

 
$
5,565,047

 
$
287,120

 
$
31,508,471

Average invested capital
 
1,155,572

 
258,888

 
233,079

 
1,640,808

 
3,288,347



- 102 -



Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended March 31, 2015 is as follows (in thousands):
 
 
Commercial
 
Consumer
 
Wealth
Management
 
Funds Management and Other
 
BOK
Financial
Consolidated
Net interest revenue from external sources
 
$
101,175

 
$
20,719

 
$
5,376

 
$
40,456

 
$
167,726

Net interest revenue (expense) from internal sources
 
(12,635
)
 
6,819

 
$
6,079

 
(263
)
 

Net interest revenue
 
88,540

 
27,538

 
11,455

 
40,193

 
167,726

Provision for credit losses
 
(8,902
)
 
1,422

 

 
7,480

 

Net interest revenue after provision for credit losses
 
97,442

 
26,116

 
11,455

 
32,713

 
167,726

Other operating revenue
 
42,446

 
61,195

 
66,961

 
(4,585
)
 
166,017

Other operating expense
 
49,145

 
52,306

 
54,480

 
64,334

 
220,265

Net direct contribution
 
90,743

 
35,005

 
23,936

 
(36,206
)
 
113,478

Gain (loss) on financial instruments, net
 

 
3,558

 

 
(3,558
)
 

Change in fair value of mortgage servicing rights
 

 
(8,522
)
 

 
8,522

 

Gain on repossessed assets, net
 
45

 
78

 

 
(123
)
 

Corporate expense allocations
 
11,241

 
18,202

 
9,982

 
(39,425
)
 

Net income before taxes
 
79,547

 
11,917

 
13,954

 
8,060

 
113,478

Federal and state income taxes
 
30,944

 
4,636

 
5,428

 
(2,624
)
 
38,384

Net income
 
48,603

 
7,281

 
8,526

 
10,684

 
75,094

Net income attributable to non-controlling interests
 

 

 

 
251

 
251

Net income attributable to BOK Financial Corp. shareholders
 
$
48,603

 
$
7,281

 
$
8,526

 
$
10,433

 
$
74,843

 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
16,270,266

 
$
8,798,913

 
$
5,451,695

 
$
(550,170
)
 
$
29,970,704

Average invested capital
 
994,596

 
272,315

 
223,967

 
1,827,384

 
3,318,262



- 103 -



(11) Fair Value Measurements

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

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

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

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

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

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

Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out of quoted prices in active markets for identical instruments to significant other observable inputs or significant unobservable inputs during the three months ended March 31, 2016 and 2015, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the three months ended March 31, 2016 and 2015 are included in the summary of changes in recurring fair values measured using unobservable inputs.

The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market. No significant adjustments were made to prices provided by third-party pricing services at March 31, 2016, December 31, 2015 or March 31, 2015.


- 104 -



Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of financial assets and liabilities measured on a recurring basis was as follows as of March 31, 2016 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
59,733

 
$

 
$
59,733

 
$

U.S. agency residential mortgage-backed securities
 
146,896

 

 
146,896

 

Municipal and other tax-exempt securities
 
58,797

 

 
58,797

 

Other trading securities
 
14,113

 

 
14,113

 

Total trading securities
 
279,539

 

 
279,539

 

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,003

 
1,003

 

 

Municipal and other tax-exempt
 
51,308

 

 
41,694

 
9,614

U.S. agency residential mortgage-backed securities
 
5,716,525

 

 
5,716,525

 

Privately issued residential mortgage-backed securities
 
133,030

 

 
133,030

 

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,942,404

 

 
2,942,404

 

Other debt securities
 
4,151

 

 

 
4,151

Perpetual preferred stock
 
19,575

 

 
19,575

 

Equity securities and mutual funds
 
18,040

 
3,216

 
14,824

 

Total available for sale securities
 
8,886,036

 
4,219

 
8,868,052

 
13,765

Fair value option securities – U.S. agency residential mortgage-backed securities
 
418,887

 

 
418,887

 

Residential mortgage loans held for sale
 
332,040

 

 
323,941

 
8,099

Mortgage servicing rights1
 
196,055

 

 

 
196,055

Derivative contracts, net of cash collateral2
 
790,146

 
29,533

 
760,613

 

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
705,578

 
3,084

 
702,494

 

1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.
2 
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions that were valued based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded energy and agricultural derivative contacts, net of cash margin. Derivative contacts in liability positions that were valued using quoted prices in active markets for identical instruments are exchange-traded interest rate derivative contracts, net of cash margin.


- 105 -



The fair value of financial assets and liabilities measured on a recurring basis was as follows as of December 31, 2015 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
61,295

 
$

 
$
61,295

 
$

U.S. agency residential mortgage-backed securities
 
10,989

 

 
10,989

 

Municipal and other tax-exempt securities
 
31,901

 

 
31,901

 

Other trading securities
 
18,219

 

 
18,219

 

Total trading securities
 
122,404

 

 
122,404

 

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
995

 
995

 

 

Municipal and other tax-exempt
 
56,817

 

 
47,207

 
9,610

U.S. agency residential mortgage-backed securities
 
5,898,351

 

 
5,898,351

 

Privately issued residential mortgage-backed securities
 
139,118

 

 
139,118

 

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,905,796

 

 
2,905,796

 

Other debt securities
 
4,151

 

 

 
4,151

Perpetual preferred stock
 
19,672

 

 
19,672

 

Equity securities and mutual funds
 
17,833

 
3,265

 
14,568

 

Total available for sale securities
 
9,042,733

 
4,260

 
9,024,712

 
13,761

Fair value option securities – U.S. agency residential mortgage-backed securities
 
444,217

 

 
444,217

 

Residential mortgage loans held for sale
 
308,439

 

 
300,565

 
7,874

Mortgage servicing rights1
 
218,605

 

 

 
218,605

Derivative contracts, net of cash collateral2
 
586,270

 
38,530

 
547,740

 

Liabilities:
 


 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
581,701

 

 
581,701

 

1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 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. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and agricultural derivative contracts, net of cash margin.



- 106 -



The fair value of financial assets and liabilities measured on a recurring basis was as follows as of March 31, 2015 (in thousands):
 
 
Total
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
U.S. Government agency debentures
 
$
26,283

 
$

 
$
26,283

 
$

U.S. agency residential mortgage-backed securities
 
17,179

 

 
17,179

 

Municipal and other tax-exempt securities
 
54,164

 

 
54,164

 

Other trading securities
 
20,418

 

 
20,418

 

Total trading securities
 
118,044

 

 
118,044

 

Available for sale securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
1,001

 
1,001

 

 

Municipal and other tax-exempt
 
60,818

 

 
51,195

 
9,623

U.S. agency residential mortgage-backed securities
 
6,717,569

 

 
6,717,569

 

Privately issued residential mortgage-backed securities
 
160,031

 

 
160,031

 

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,164,842

 

 
2,164,842

 

Other debt securities
 
9,155

 

 
5,005

 
4,150

Perpetual preferred stock
 
24,983

 

 
24,983

 

Equity securities and mutual funds
 
19,776

 
5,071

 
14,705

 

Total available for sale securities
 
9,158,175

 
6,072

 
9,138,330

 
13,773

Fair value option securities – U.S. agency residential mortgage-backed securities
 
434,077

 

 
434,077

 

Residential mortgage loans held for sale
 
513,196

 

 
506,326

 
6,870

Mortgage servicing rights1
 
175,051

 

 

 
175,051

Derivative contracts, net of cash collateral2
 
462,386

 
21,369

 
441,017

 

Liabilities:
 
 

 
 
 
 
 
 
Derivative contracts, net of cash collateral2
 
419,351

 

 
419,351

 

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. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) were exchange-traded interest rate and agricultural derivative contracts.



- 107 -



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

The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on references to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar securities. A summary of significant inputs used to value these securities follows. A management committee composed of senior members from the Company's Capital Markets, Risk Management and Finance departments assesses the appropriateness of these inputs 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 and forward sales contracts. The fair value of mortgage loans that were unable to be sold to U.S. government agencies were determined using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied.

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

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

- 108 -



The following represents the changes for the three months ended March 31, 2016 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 
 
Available for Sale Securities
 
 
 
 
Municipal and other tax-exempt
 
Other debt securities
 
Residential mortgage loans held for sale
Balance, Dec. 31, 2015
 
$
9,610

 
$
4,151

 
$
7,874

Transfer to Level 3 from Level 2
 

 

 
460

Purchases and capital calls
 

 

 

Proceeds from sales
 

 

 
(113
)
Redemptions and distributions
 

 

 

Gain (loss) recognized in earnings:
 
 
 
 
 
 
Mortgage banking revenue
 

 

 
(122
)
Other comprehensive gain (loss):
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
4

 

 

Balance, March 31, 2016
 
$
9,614

 
$
4,151

 
$
8,099

 
The following represents the changes for the three months ended March 31, 2015 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
 
Residential mortgage loans held for sale
Balance, Dec. 31, 2014
 
$
10,093

 
$
4,150

 
$
11,856

Transfer to Level 3 from Level 2
 

 

 
243

Purchases and capital calls
 

 

 

Proceeds from sales
 

 

 
(5,288
)
Redemptions and distributions
 
(500
)
 

 

Gain (loss) recognized in earnings:
 
 
 
 
 
 
Mortgage banking revenue
 

 

 
59

Other comprehensive gain (loss):
 
 
 
 
 
 
Net change in unrealized gain (loss)
 
30

 

 

Balance, March 31, 2015
 
$
9,623

 
$
4,150

 
$
6,870


 



- 109 -



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, 2016 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost/Unpaid Principal Balance
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
10,370

 
$
10,311

 
$
9,614

 
Discounted cash flows
1 
Interest rate spread
 
5.40%-5.70% (5.66%)
2 
90.00%-93.20% (92.72%)
3 
Other debt securities
 
4,400

 
4,400

 
4,151

 
Discounted cash flows
1 
Interest rate spread
 
5.51%-5.93% (5.88%)
4 
94.32% - 94.34 (94.34%)
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans held for sale
 
N/A

 
8,742

 
8,099

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
92.64%
 
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 480 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 used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1 percent.



A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2015 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost/Unpaid Principal Balance
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
10,370

 
$
10,311

 
$
9,610

 
Discounted cash flows
1 
Interest rate spread
 
5.47%-5.77% (5.73%)
2 
92.34%-92.93% (92.67%)
3 
Other debt securities
 
4,400

 
4,400

 
4,151

 
Discounted cash flows
1 
Interest rate spread
 
5.80%-5.92% (5.90%)
4 
94.33% - 94.34 (94.34%)
3 
Residential mortgage loans held for sale
 
N/A

 
8,395

 
7,874

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
93.79%
 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 499 to 541 basis points over average yields for comparable tax-exempt securities.
3 
Represents fair value as a percentage of par value.
4 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1 percent.


- 110 -



A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of March 31, 2015 follows (in thousands):
 
 
Par
Value
 
Amortized
Cost
 
Fair
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal and other tax-exempt securities
 
$
10,370

 
$
10,309

 
$
9,623

 
Discounted cash flows
1 
Interest rate spread
 
4.99%-5.29% (5.25%)
2 
92.63%-92.99% (92.80%)
3 
Other debt securities
 
4,400

 
4,400

 
4,150

 
Discounted cash flows
1 
Interest rate spread
 
5.42%-5.67% (5.64%)
4 
94.31% - 94.32 (94.32%)
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans held for sale
 
N/A

 
7,444

 
6,870

 
Quoted prices of loans sold in securitization transactions, with a liquidity discount applied
 
Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.
 
92.29%
 
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 491 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 percent.


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

Assets measured at fair value on a non-recurring basis include collateral for certain impaired loans and real property and other assets acquired to satisfy loans, which are based primarily on comparisons to completed sales of similar assets.

The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at March 31, 2016 for which the fair value was adjusted during the three months ended March 31, 2016:
 
Carrying Value at March 31, 2016
 
Fair Value Adjustments for the Three Months Ended
March 31, 2016
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$

 
$
604

 
$
32,836

 
$
22,157

 
$

Real estate and other repossessed assets

 
3,577

 

 

 
458

 

- 111 -



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, 2015 for which the fair value was adjusted during the three months ended March 31, 2015:
 
Carrying Value at March 31, 2015
 
Fair Value Adjustments for the Three Months Ended
March 31, 2015
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Gross charge-offs against allowance for loan losses
 
Net losses and expenses of repossessed assets, net
Impaired loans
$

 
$
2,248

 
$

 
$
468

 
$

Real estate and other repossessed assets

 
7,623

 

 

 
1,161


The fair value of collateral-dependent impaired loans secured by real estate and real estate and other repossessed assets and the related fair value adjustments are generally based on unadjusted third-party appraisals. Our appraisal review policies require appraised values to be supported by observed inputs derived principally from or corroborated by observable market data. Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on significant unobservable inputs. Non-recurring fair value measurements of collateral-dependent impaired loans and real estate and other repossessed assets based on significant unobservable inputs are generally due to estimates of current fair values between appraisal dates. Significant unobservable inputs include listing prices for the same or comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. Non-recurring fair value measurements of collateral dependent loans secured by mineral rights are generally determined by our internal staff of engineers on projected cash flows under current market conditions and are based on significant unobservable inputs. Projected cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Assets are evaluated to demonstrate with reasonable certainty that crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and operating conditions at current prices with existing conventional equipment, operating methods and costs. Significant unobservable inputs are developed by asset management and workout professionals and approved by senior Credit Administration executives.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of March 31, 2016 follows (in thousands):
 
 
Fair Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
(Weighted Average)
Impaired loans
 
$
32,836

 
Discounted cash flows
 
Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs
 
55% - 73% (60%)1
1 
Represents fair value as a percentage of the unpaid principal balance.
 


- 112 -



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, 2016 (dollars in thousands):
 
 
Carrying
Value
 
Estimated
Fair
Value
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Cash and due from banks
 
$
481,510

 
$
481,510

 
$
481,510

 
$

 
$

Interest-bearing cash and cash equivalents
 
1,831,162

 
1,831,162

 
1,831,162

 

 

Trading securities:
 
 
 
 
 
 
 

 
 
U.S. Government agency debentures
 
59,733

 
59,733

 

 
59,733

 

U.S. agency residential mortgage-backed securities
 
146,896

 
146,896

 

 
146,896

 

Municipal and other tax-exempt securities
 
58,797

 
58,797

 

 
58,797

 

Other trading securities
 
14,113

 
14,113

 

 
14,113

 

Total trading securities
 
279,539

 
279,539

 

 
279,539

 

Investment securities:
 
 

 
 

 
 
 
 
 
 
Municipal and other tax-exempt
 
347,684

 
352,542

 

 
352,542

 

U.S. agency residential mortgage-backed securities
 
25,366

 
26,794

 

 
26,794

 

Other debt securities
 
202,997

 
230,407

 

 
230,407

 

Total investment securities
 
576,047

 
609,743

 

 
609,743

 

Available for sale securities:
 
 

 
 

 
 
 
 
 
 
U.S. Treasury
 
1,003

 
1,003

 
1,003

 

 

Municipal and other tax-exempt
 
51,308

 
51,308

 

 
41,694

 
9,614

U.S. agency residential mortgage-backed securities
 
5,716,525

 
5,716,525

 

 
5,716,525

 

Privately issued residential mortgage-backed securities
 
133,030

 
133,030

 

 
133,030

 

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,942,404

 
2,942,404

 

 
2,942,404

 

Other debt securities
 
4,151

 
4,151

 

 

 
4,151

Perpetual preferred stock
 
19,575

 
19,575

 

 
19,575

 

Equity securities and mutual funds
 
18,040

 
18,040

 
3,216

 
14,824

 

Total available for sale securities
 
8,886,036

 
8,886,036

 
4,219

 
8,868,052

 
13,765

Fair value option securities – U.S. agency residential mortgage-backed securities
 
418,887

 
418,887

 

 
418,887

 

Residential mortgage loans held for sale
 
332,040

 
332,040

 

 
323,941

 
8,099

Loans:
 
 

 
 

 
 
 
 
 
 
Commercial
 
10,288,425

 
10,092,121

 

 

 
10,092,121

Commercial real estate
 
3,370,507

 
3,351,250

 

 

 
3,351,250

Residential mortgage
 
1,869,309

 
1,906,310

 

 

 
1,906,310

Personal
 
494,325

 
490,166

 

 

 
490,166

Total loans
 
16,022,566

 
15,839,847

 

 

 
15,839,847

Allowance for loan losses
 
(233,156
)
 

 

 

 

Loans, net of allowance
 
15,789,410

 
15,839,847

 

 

 
15,839,847

Mortgage servicing rights
 
196,055

 
196,055

 

 

 
196,055

Derivative instruments with positive fair value, net of cash margin
 
790,146

 
790,146

 
29,533

 
760,613

 

Deposits with no stated maturity
 
18,076,946

 
18,076,946

 

 

 
18,076,946

Time deposits
 
2,341,374

 
2,339,734

 

 

 
2,339,734

Other borrowed funds
 
6,326,718

 
6,309,208

 

 

 
6,309,208

Subordinated debentures
 
226,385

 
224,314

 

 

 
224,314

Derivative instruments with negative fair value, net of cash margin
 
705,578

 
705,578

 
3,084

 
702,494

 



- 113 -



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, 2015 (dollars in thousands):
 
 
Carrying
Value
 
Estimated
Fair
Value
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Cash and due from banks
 
$
573,699

 
$
573,699

 
$
573,699

 
$

 
$

Interest-bearing cash and cash equivalents
 
2,069,900

 
2,069,900

 
2,069,900

 

 

Trading securities:
 
 
 
 
 
 
 

 
 
U.S. Government agency debentures
 
61,295

 
61,295

 

 
61,295

 

U.S. agency residential mortgage-backed securities
 
10,989

 
10,989

 

 
10,989

 

Municipal and other tax-exempt securities
 
31,901

 
31,901

 

 
31,901

 

Other trading securities
 
18,219

 
18,219

 

 
18,219

 

Total trading securities
 
122,404

 
122,404

 

 
122,404

 

Investment securities:
 
 

 
 

 
 
 
 
 
 
Municipal and other tax-exempt
 
365,258

 
368,910

 

 
368,910

 

U.S. agency residential mortgage-backed securities
 
26,833

 
27,874

 

 
27,874

 

Other debt securities
 
205,745

 
232,375

 

 
232,375

 

Total investment securities
 
597,836

 
629,159

 

 
629,159

 

Available for sale securities:
 
 

 
 

 
 
 
 
 
 
U.S. Treasury
 
995

 
995

 
995

 

 

Municipal and other tax-exempt
 
56,817

 
56,817

 

 
47,207

 
9,610

U.S. agency residential mortgage-backed securities
 
5,898,351

 
5,898,351

 

 
5,898,351

 

Privately issued residential mortgage-backed securities
 
139,118

 
139,118

 

 
139,118

 

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,905,796

 
2,905,796

 

 
2,905,796

 

Other debt securities
 
4,151

 
4,151

 

 

 
4,151

Perpetual preferred stock
 
19,672

 
19,672

 

 
19,672

 

Equity securities and mutual funds
 
17,833

 
17,833

 
3,265

 
14,568

 

Total available for sale securities
 
9,042,733

 
9,042,733

 
4,260

 
9,024,712

 
13,761

Fair value option securities – U.S. agency residential mortgage-backed securities
 
444,217

 
444,217

 

 
444,217

 

Residential mortgage loans held for sale
 
308,439

 
308,439

 

 
300,565

 
7,874

Loans:
 
 

 
 

 
 
 
 
 
 
Commercial
 
10,252,531

 
10,053,952

 

 

 
10,053,952

Commercial real estate
 
3,259,033

 
3,233,476

 

 

 
3,233,476

Residential mortgage
 
1,876,893

 
1,902,976

 

 

 
1,902,976

Personal
 
552,697

 
549,068

 

 

 
549,068

Total loans
 
15,941,154

 
15,739,472

 

 

 
15,739,472

Allowance for loan losses
 
(225,524
)
 

 

 

 

Loans, net of allowance
 
15,715,630

 
15,739,472

 

 

 
15,739,472

Mortgage servicing rights
 
218,605

 
218,605

 

 

 
218,605

Derivative instruments with positive fair value, net of cash margin
 
586,270

 
586,270

 
38,530

 
547,740

 

Deposits with no stated maturity
 
18,682,094

 
18,682,094

 

 

 
18,682,094

Time deposits
 
2,406,064

 
2,394,562

 

 

 
2,394,562

Other borrowed funds
 
6,051,515

 
5,600,932

 

 

 
5,600,932

Subordinated debentures
 
226,350

 
223,758

 

 

 
223,758

Derivative instruments with negative fair value, net of cash margin
 
581,701

 
581,701

 

 
581,701

 



- 114 -



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, 2015 (dollars in thousands):
 
 
Carrying
Value
 
Estimated
Fair
Value
 
Quoted Prices in Active Markets for Identical Instruments (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Cash and due from banks
 
$
490,683

 
$
490,683

 
$
490,683

 
$

 
$

Interest-bearing cash and cash equivalents
 
2,119,987

 
2,119,987

 
2,119,987

 

 

Trading securities:
 
 
 
 
 
 
 

 
 
U.S. Government agency debentures
 
26,283

 
26,283

 

 
26,283

 

U.S. agency residential mortgage-backed securities
 
17,179

 
17,179

 

 
17,179

 

Municipal and other tax-exempt securities
 
54,164

 
54,164

 

 
54,164

 

Other trading securities
 
20,418

 
20,418

 

 
20,418

 

Total trading securities
 
118,044

 
118,044

 

 
118,044

 

Investment securities:
 
 

 
 

 
 
 
 
 
 
Municipal and other tax-exempt
 
396,063

 
400,112

 

 
400,112

 

U.S. agency residential mortgage-backed securities
 
33,545

 
35,253

 

 
35,253

 

Other debt securities
 
204,979

 
222,606

 

 
222,606

 

Total investment securities
 
634,587

 
657,971

 

 
657,971

 

Available for sale securities:
 
 

 
 

 
 
 
 
 
 
U.S. Treasury
 
1,001

 
1,001

 
1,001

 

 

Municipal and other tax-exempt
 
60,818

 
60,818

 

 
51,195

 
9,623

U.S. agency residential mortgage-backed securities
 
6,717,569

 
6,717,569

 

 
6,717,569

 

Privately issued residential mortgage-backed securities
 
160,031

 
160,031

 

 
160,031

 

Commercial mortgage-backed securities guaranteed by U.S. government agencies
 
2,164,842

 
2,164,842

 

 
2,164,842

 

Other debt securities
 
9,155

 
9,155

 

 
5,005

 
4,150

Perpetual preferred stock
 
24,983

 
24,983

 

 
24,983

 

Equity securities and mutual funds
 
19,776

 
19,776

 
5,071

 
14,705

 

Total available for sale securities
 
9,158,175

 
9,158,175

 
6,072

 
9,138,330

 
13,773

Fair value option securities – U.S. agency residential mortgage-backed securities
 
434,077

 
434,077

 

 
434,077

 

Residential mortgage loans held for sale
 
513,196

 
513,196

 

 
506,326

 
6,870

Loans:
 
 

 
 

 
 
 
 
 
 
Commercial
 
9,391,163

 
8,943,332

 

 

 
8,943,332

Commercial real estate
 
2,935,464

 
2,708,850

 

 

 
2,708,850

Residential mortgage
 
1,926,999

 
1,990,722

 

 

 
1,990,722

Personal
 
430,510

 
431,521

 

 

 
431,521

Total loans
 
14,684,136

 
14,074,425

 

 

 
14,074,425

Allowance for loan losses
 
(197,686
)
 

 

 

 

Loans, net of allowance
 
14,486,450

 
14,074,425

 

 

 
14,074,425

Mortgage servicing rights
 
175,051

 
175,051

 

 

 
175,051

Derivative instruments with positive fair value, net of cash margin
 
462,386

 
462,386

 
21,369

 
441,017

 

Deposits with no stated maturity
 
18,501,569

 
18,501,569

 

 

 
18,501,569

Time deposits
 
2,651,778

 
2,659,907

 

 

 
2,659,907

Other borrowed funds
 
4,691,033

 
4,657,770

 

 

 
4,657,770

Subordinated debentures
 
348,030

 
344,599

 

 

 
344,599

Derivative instruments with negative fair value, net of cash margin
 
419,351

 
419,351

 

 
419,351

 



- 115 -



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 $208 million at March 31, 2016, $195 million at December 31, 2015 and $170 million at March 31, 2015. A summary of assumptions used in determining the fair value of loans follows:

 
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
March 31, 2016:
 
 
 
 
 
 
Commercial
 
0.38% - 30.00%
 
0.73
 
0.46% - 3.92%
Commercial real estate
 
0.38% - 18.00%
 
0.72
 
0.85% - 3.60%
Residential mortgage
 
1.68% - 18.00%
 
2.07
 
1.23% - 3.73%
Personal
 
0.38% - 21.00%
 
0.37
 
0.78% - 4.01%
 
 
 
 
 
 
 
December 31, 2015:
 
 
 
 
 
 
Commercial
 
0.25% - 30.00%
 
0.62
 
0.52% - 4.34%
Commercial real estate
 
0.38% - 18.00%
 
0.73
 
0.95% - 3.93%
Residential mortgage
 
1.67% - 18.00%
 
2.42
 
0.86% - 4.25%
Personal
 
0.38% - 21.00%
 
0.37
 
1.19% - 4.11%
 
 
 
 
 
 
 
March 31, 2015:
 
 
 
 
 
 
Commercial
 
0.18% - 30.00%
 
0.69
 
0.49% - 4.15%
Commercial real estate
 
0.38% - 18.00%
 
0.83
 
1.03% - 3.63%
Residential mortgage
 
1.20% - 18.00%
 
2.21
 
0.7% - 3.84%
Personal
 
0.38% - 21.00%
 
0.43
 
0.99% - 3.88%
 
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.


- 116 -



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

 
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
March 31, 2016
 
0.02% - 10.00%
 
2.05
 
1.15% - 1.47%
December 31, 2015
 
0.02% - 5.50%
 
1.78
 
1.11% - 1.57%
March 31, 2015
 
0.02% - 9.64%
 
1.79
 
0.78% - 1.24%

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

 
 
Range of
Contractual
Yields
 
Average
Re-pricing
(in years)
 
Discount
Rate
March 31, 2016:
 
 
 
 
 
 
Other borrowed funds
 
0.25% - 0.80%
 
0.00
 
0.25% - 2.89%
Subordinated debentures
 
1.31%
 
1.12
 
2.13%
 
 
 
 
 
 
 
December 31, 2015:
 
 
 
 
 
 
Other borrowed funds
 
0.25% - 3.40%
 
0.00
 
0.20% - 2.89%
Subordinated debentures
 
1.05%
 
1.37
 
2.12%
 
 
 
 
 
 
 
March 31, 2015:
 
 
 
 
 
 
Other borrowed funds
 
0.25% - 4.78%
 
0.02
 
0.06% - 2.64%
Subordinated debentures
 
0.92% - 5.00%
 
1.43
 
2.11%

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, 2016, December 31, 2015 or March 31, 2015.
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 and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.



- 117 -



(12) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on March 31, 2016 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q. No events were identified requiring recognition in and/or disclosure in the consolidated financial statements.


- 118 -



Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)
 
Three Months Ended
 
 
March 31, 2016
 
December 31, 2015
 
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
2,052,840

 
$
2,706

 
0.53
%
 
$
1,995,945

 
$
1,466

 
0.29
%
Trading securities
 
188,100

 
727

 
2.47
%
 
150,402

 
840

 
2.86
%
Investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
229,817

 
3,175

 
5.53
%
 
232,566

 
3,144

 
5.41
%
Tax-exempt
 
357,648

 
1,984

 
2.22
%
 
369,803

 
1,413

 
1.53
%
Total investment securities
 
587,465

 
5,159

 
3.51
%
 
602,369

 
4,557

 
3.03
%
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,878,478

 
44,932

 
2.06
%
 
8,894,019

 
43,649

 
2.02
%
Tax-exempt
 
72,958

 
876

 
4.95
%
 
77,071

 
786

 
4.22
%
Total available for sale securities
 
8,951,435

 
45,808

 
2.08
%
 
8,971,090

 
44,435

 
2.04
%
Fair value option securities
 
450,478

 
2,589

 
2.38
%
 
435,449

 
2,461

 
2.32
%
Restricted equity securities
 
294,529

 
4,311

 
5.85
%
 
262,461

 
3,905

 
5.95
%
Residential mortgage loans held for sale
 
289,743

 
2,700

 
3.75
%
 
310,425

 
2,968

 
3.85
%
Loans2
 
15,991,993

 
142,181

 
3.57
%
 
15,586,998

 
139,372

 
3.55
%
Allowance for loan losses
 
(234,116
)
 
 
 
 
 
(207,156
)
 
 
 
 
Loans, net of allowance
 
15,757,877

 
142,181

 
3.63
%
 
15,379,842

 
139,372

 
3.60
%
Total earning assets
 
28,572,467

 
206,181

 
2.92
%
 
28,107,983

 
200,004

 
2.86
%
Receivable on unsettled securities sales
 
115,101

 
 
 
 
 
62,228

 
 
 
 
Cash and other assets
 
2,820,903

 
 
 
 
 
2,909,965

 
 
 
 
Total assets
 
$
31,508,471

 
 
 
 
 
$
31,080,176

 
 
 
 
Liabilities and equity
 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

Transaction
 
$
9,756,843

 
$
3,317

 
0.14
%
 
$
9,527,491

 
$
2,098

 
0.09
%
Savings
 
397,479

 
93

 
0.09
%
 
382,284

 
89

 
0.09
%
Time
 
2,366,543

 
7,132

 
1.21
%
 
2,482,714

 
7,881

 
1.26
%
Total interest-bearing deposits
 
12,520,865

 
10,542

 
0.34
%
 
12,392,489

 
10,068

 
0.32
%
Funds purchased
 
112,211

 
76

 
0.27
%
 
73,220

 
21

 
0.11
%
Repurchase agreements
 
662,640

 
89

 
0.05
%
 
623,921

 
68

 
0.04
%
Other borrowings
 
5,583,917

 
7,807

 
0.56
%
 
4,957,175

 
4,720

 
0.38
%
Subordinated debentures
 
226,368

 
710

 
1.26
%
 
226,332

 
644

 
1.13
%
Total interest-bearing liabilities
 
19,106,001

 
19,224

 
0.40
%
 
18,273,137

 
15,521

 
0.34
%
Non-interest bearing demand deposits
 
8,105,756

 
 
 
 
 
8,312,961

 
 
 
 
Due on unsettled securities purchases
 
158,050

 
 
 
 
 
248,811

 
 
 
 
Other liabilities
 
813,427

 
 
 
 
 
884,652

 
 
 
 
Total equity
 
3,325,237

 
 
 
 
 
3,360,615

 
 
 
 
Total liabilities and equity
 
$
31,508,471

 
 
 
 
 
$
31,080,176

 
 
 
 
Tax-equivalent Net Interest Revenue
 
 
 
$
186,957

 
2.52
%
 
 
 
$
184,483

 
2.52
%
Tax-equivalent Net Interest Revenue to Earning Assets
 
 
 
 
 
2.65
%
 
 
 
 
 
2.64
%
Less tax-equivalent adjustment
 
 
 
4,385

 
 
 
 
 
3,222

 
 
Net Interest Revenue
 
 
 
182,572

 
 
 
 
 
181,261

 
 
Provision for credit losses
 
 
 
35,000

 
 
 
 
 
22,500

 
 
Other operating revenue
 
 
 
159,744

 
 
 
 
 
161,115

 
 
Other operating expense
 
 
 
244,900

 
 
 
 
 
232,558

 
 
Income before taxes
 
 
 
62,416

 
 
 
 
 
87,318

 
 
Federal and state income taxes
 
 
 
21,428

 
 
 
 
 
26,242

 
 
Net income
 
 
 
40,988

 
 
 
 
 
61,076

 
 
Net income (loss) attributable to non-controlling interests
 
 
 
(1,576
)
 
 
 
 
 
1,475

 
 
Net income attributable to BOK Financial Corp. shareholders
 
 
 
$
42,564

 
 
 
 
 
$
59,601

 
 
Earnings Per Average Common Share Equivalent:
 
 

 
 

 
 

 
 

 
 

 
 

Basic
 
 

 
$
0.64

 
 

 
 

 
$
0.89

 
 

Diluted
 
 

 
$
0.64

 
 

 
 

 
$
0.89

 
 

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

- 119 -



Three Months Ended
September 30, 2015
 
June 30, 2015
 
March 31, 2015
Average Balance
 
Revenue /Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
Average Balance
 
Revenue / Expense1
 
Yield / Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
2,038,611

 
$
1,442

 
0.28
%
 
$
2,002,456

 
$
1,250

 
0.25
%
 
$
2,089,546

 
$
1,422

 
0.27
%
179,098

 
945

 
2.70
%
 
127,391

 
585

 
1.85
%
 
140,968

 
685

 
2.55
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
233,914

 
3,211

 
5.49
%
 
236,956

 
3,251

 
5.49
%
 
241,458

 
3,326

 
5.51
%
382,177

 
1,468

 
1.54
%
 
391,533

 
1,526

 
1.56
%
 
401,367

 
1,564

 
1.56
%
616,091

 
4,679

 
3.04
%
 
628,489

 
4,777

 
3.05
%
 
642,825

 
4,890

 
3.04
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,862,917

 
43,473

 
1.99
%
 
8,980,312

 
42,355

 
1.92
%
 
9,014,566

 
43,105

 
1.95
%
79,344

 
796

 
4.15
%
 
82,694

 
838

 
4.21
%
 
86,899

 
921

 
4.40
%
8,942,261

 
44,269

 
2.01
%
 
9,063,006

 
43,193

 
1.94
%
 
9,101,464

 
44,026

 
1.98
%
429,951

 
2,480

 
2.30
%
 
435,294

 
2,320

 
2.17
%
 
404,775

 
2,003

 
2.28
%
255,610

 
3,802

 
5.95
%
 
221,911

 
3,228

 
5.82
%
 
179,385

 
2,597

 
5.79
%
401,359

 
3,793

 
3.79
%
 
464,269

 
3,892

 
3.37
%
 
348,054

 
2,949

 
3.41
%
15,192,311

 
135,498

 
3.54
%
 
14,905,352

 
135,603

 
3.65
%
 
14,554,582

 
128,953

 
3.59
%
(202,829
)
 
 
 
 
 
(198,400
)
 
 
 
 
 
(194,948
)
 
 
 
 
14,989,482

 
135,498

 
3.59
%
 
14,706,952

 
135,603

 
3.70
%
 
14,359,634

 
128,953

 
3.64
%
27,852,463

 
196,908

 
2.83
%
 
27,649,768

 
194,848

 
2.84
%
 
27,266,651

 
187,525

 
2.80
%
64,591

 
 
 
 
 
94,374

 
 
 
 
 
99,706

 
 
 
 
2,852,679

 
 
 
 
 
2,719,930

 
 
 
 
 
2,604,347

 
 
 
 
$
30,769,733

 
 
 
 
 
$
30,464,072

 
 
 
 
 
$
29,970,704

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
9,760,839

 
$
2,061

 
0.08
%
 
$
10,063,589

 
$
2,197

 
0.09
%
 
$
10,338,396

 
$
2,465

 
0.10
%
379,828

 
97

 
0.10
%
 
381,833

 
103

 
0.11
%
 
365,835

 
94

 
0.10
%
2,557,874

 
8,573

 
1.33
%
 
2,651,820

 
8,966

 
1.36
%
 
2,659,323

 
9,546

 
1.46
%
12,698,541

 
10,731

 
0.34
%
 
13,097,242

 
11,266

 
0.35
%
 
13,363,554

 
12,105

 
0.37
%
70,281

 
15

 
0.08
%
 
63,312

 
13

 
0.08
%
 
69,730

 
16

 
0.09
%
672,085

 
49

 
0.03
%
 
773,977

 
61

 
0.03
%
 
1,000,839

 
104

 
0.04
%
4,779,981

 
3,637

 
0.30
%
 
4,001,479

 
3,047

 
0.31
%
 
3,084,214

 
2,453

 
0.32
%
226,296

 
596

 
1.04
%
 
307,903

 
1,695

 
2.21
%
 
348,007

 
2,165

 
2.52
%
18,447,184

 
15,028

 
0.32
%
 
18,243,913

 
16,082

 
0.35
%
 
17,866,344

 
16,843

 
0.38
%
7,994,607

 
 
 
 
 
7,996,717

 
 
 
 
 
7,885,485

 
 
 
 
90,135

 
 
 
 
 
151,369

 
 
 
 
 
205,096

 
 
 
 
838,612

 
 
 
 
 
690,604

 
 
 
 
 
662,218

 
 
 
 
3,399,195

 
 
 
 
 
3,381,469

 
 
 
 
 
3,351,561

 
 
 
 
$
30,769,733

 
 
 
 
 
$
30,464,072

 
 
 
 
 
$
29,970,704

 
 
 
 
 
 
$
181,880

 
2.51
%
 
 
 
$
178,766

 
2.49
%
 
 
 
$
170,682

 
2.42
%
 
 
 
 
2.61
%
 
 
 
 
 
2.61
%
 
 
 
 
 
2.55
%
 
 
3,244

 
 
 
 
 
3,035

 
 
 
 
 
2,956

 
 
 
 
178,636

 
 
 
 
 
175,731

 
 
 
 
 
167,726

 
 
 
 
7,500

 
 
 
 
 
4,000

 
 
 
 
 

 
 
 
 
163,436

 
 
 
 
 
176,285

 
 
 
 
 
166,017

 
 
 
 
224,628

 
 
 
 
 
227,113

 
 
 
 
 
220,265

 
 
 
 
109,944

 
 
 
 
 
120,903

 
 
 
 
 
113,478

 
 
 
 
34,128

 
 
 
 
 
40,630

 
 
 
 
 
38,384

 
 
 
 
75,816

 
 
 
 
 
80,273

 
 
 
 
 
75,094

 
 
 
 
925

 
 
 
 
 
1,043

 
 
 
 
 
251

 
 
 
 
$
74,891

 
 
 
 
 
$
79,230

 
 
 
 
 
$
74,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
$
1.09

 
 

 
 

 
$
1.15

 
 

 
 

 
$
1.08

 
 

 

 
$
1.09

 
 

 
 

 
$
1.15

 
 

 
 

 
$
1.08

 
 




- 120 -




Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
 
 
Three Months Ended
 
 
March 31, 2016
 
Dec. 31, 2015
 
Sept. 30, 2015
 
June 30, 2015
 
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
201,796

 
$
196,782

 
$
193,664

 
$
191,813

 
$
184,569

Interest expense
 
19,224

 
15,521

 
15,028

 
16,082

 
16,843

Net interest revenue
 
182,572

 
181,261

 
178,636

 
175,731

 
167,726

Provision for credit losses
 
35,000

 
22,500

 
7,500

 
4,000

 

Net interest revenue after provision for credit losses
 
147,572

 
158,761

 
171,136

 
171,731

 
167,726

Other operating revenue
 
 

 
 

 
 

 
 

 
 

Brokerage and trading revenue
 
32,341

 
30,255

 
31,582

 
36,012

 
31,707

Transaction card revenue
 
32,354

 
32,319

 
32,514

 
32,778

 
31,010

Fiduciary and asset management revenue
 
32,056

 
31,165

 
30,807

 
32,712

 
31,469

Deposit service charges and fees
 
22,542

 
22,813

 
23,606

 
22,328

 
21,684

Mortgage banking revenue
 
34,430

 
25,039

 
33,170

 
36,846

 
39,320

Other revenue
 
11,904

 
14,233

 
12,978

 
11,871

 
10,801

Total fees and commissions
 
165,627

 
155,824

 
164,657

 
172,547

 
165,991

Other gains, net
 
1,560

 
2,329

 
1,161

 
1,457

 
755

Gain (loss) on derivatives, net
 
7,138

 
(732
)
 
1,283

 
(1,032
)
 
911

Gain (loss) on fair value option securities, net
 
9,443

 
(4,127
)
 
5,926

 
(8,130
)
 
2,647

Change in fair value of mortgage servicing rights
 
(27,988
)
 
7,416

 
(11,757
)
 
8,010

 
(8,522
)
Gain on available for sale securities, net
 
3,964

 
2,132

 
2,166

 
3,433

 
4,327

Total other-than-temporary impairment losses
 

 
(2,114
)
 

 

 
(781
)
Portion of loss recognized in other comprehensive income
 

 
387

 

 

 
689

Net impairment losses recognized in earnings
 

 
(1,727
)
 

 

 
(92
)
Total other operating revenue
 
159,744

 
161,115

 
163,436

 
176,285

 
166,017

Other operating expense
 
 

 
 

 
 

 
 

 
 

Personnel
 
135,843

 
133,182

 
129,062

 
132,695

 
128,548

Business promotion
 
5,696

 
8,416

 
5,922

 
7,765

 
5,748

Charitable contributions to BOKF Foundation
 

 

 
796

 

 

Professional fees and services
 
11,759

 
10,357

 
10,147

 
9,560

 
10,059

Net occupancy and equipment
 
18,766

 
19,356

 
18,689

 
18,927

 
19,044

Insurance
 
7,265

 
5,415

 
4,864

 
5,116

 
4,980

Data processing and communications
 
32,017

 
31,248

 
30,708

 
30,655

 
29,772

Printing, postage and supplies
 
3,907

 
3,108

 
3,376

 
3,553

 
3,461

Net losses and operating expenses of repossessed assets
 
1,070

 
343

 
267

 
223

 
613

Amortization of intangible assets
 
1,159

 
1,090

 
1,089

 
1,090

 
1,090

Mortgage banking costs
 
12,379

 
11,496

 
9,107

 
8,227

 
10,167

Other expense
 
15,039

 
8,547

 
10,601

 
9,302

 
6,783

Total other operating expense
 
244,900

 
232,558

 
224,628

 
227,113

 
220,265

Net income before taxes
 
62,416

 
87,318

 
109,944

 
120,903

 
113,478

Federal and state income taxes
 
21,428

 
26,242

 
34,128

 
40,630

 
38,384

Net income
 
40,988

 
61,076

 
75,816

 
80,273

 
75,094

Net income (loss) attributable to non-controlling interests
 
(1,576
)
 
1,475

 
925

 
1,043

 
251

Net income attributable to BOK Financial Corporation shareholders
 
$
42,564

 
$
59,601

 
$
74,891

 
$
79,230

 
$
74,843

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 

 
 

 
 

Basic
 
$0.64
 
$0.89
 
$1.09
 
$1.15
 
$1.08
Diluted
 
$0.64
 
$0.89
 
$1.09
 
$1.15
 
$1.08
Average shares used in computation:
 
 
 
 
 
 
 
 
 
 
Basic
 
65,296,541

 
66,378,380

 
67,668,076

 
68,096,341

 
68,254,780

Diluted
 
65,331,428

 
66,467,729

 
67,762,483

 
68,210,353

 
68,344,886


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PART II. Other Information

Item 1. Legal Proceedings
 
See discussion of legal proceedings at Note 7 to the Consolidated Financial Statements.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended March 31, 2016.

 
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, 2016
 
9,337

 
$
52.68

 

 
3,125,926

February 1 to February 29, 2016
 

 
$

 

 
3,125,926

March 1 to March 31, 2016
 

 
$

 

 
3,125,926

Total
 
9,337

 
 

 

 
 

1 
On October 1, 2015, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock. As of March 31, 2016, the Company had repurchased 1,874,074 shares under this plan. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors.
2 
The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee 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.



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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:        April 29, 2016                                                                  



/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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