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 June 30, 2018

OR

¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to ______________                 

Commission File No. 0-19341

BOK FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter) 

Oklahoma		73-1373454
(State or other jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma		74192
(Address of Principal Executive Offices)		(Zip Code)

 

(918) 588-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes  ý  No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  ý  No  ¨

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

Large accelerated filer  ý                                               Accelerated filer           ¨                                   

Non-accelerated filer   ¨ (Do not check if a smaller reporting company)    Smaller reporting company ¨

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  ¨  No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 65,439,090 shares of common stock ($.00006 par value) as of June 30, 2018.

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BOK Financial Corporation

Form 10-Q

Quarter Ended June 30, 2018

Index

Part I.  Financial Information
Management’s Discussion and Analysis (Item 2)	1
Market Risk (Item 3)	43
Controls and Procedures (Item 4)	46
Consolidated Financial Statements – Unaudited (Item 1)	48
Quarterly Financial Summary – Unaudited (Item 2)	120
Quarterly Earnings Trend – Unaudited	123
Part II.  Other Information
Item 1.  Legal Proceedings	123
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	123
Item 6.  Exhibits	123
Signatures	124

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

Performance Summary

BOK Financial Corporation (“the Company”) reported net income of $114.4 million or $1.75 per diluted share for the second quarter of 2018, compared to $88.1 million or $1.35 per diluted share for the second quarter of 2017 and $105.6 million or $1.61 per diluted share for the first quarter of 2018. 

On June 18, 2018, the Company announced the signing of a definitive merger agreement with CoBiz Financial Inc. CoBiz is headquartered in Denver with a presence in Colorado and Arizona and has approximately $3.8 billion in assets. Upon completion of the merger, CoBiz shareholders will receive 0.17 shares of BOK Financial common stock and $5.70 in cash for each share of CoBiz common stock. The merger is subject to customary closing conditions including regulatory approval.

Highlights of the second quarter of 2018 included:

•

Net interest revenue totaled $238.6 million, up from $205.2 million in the second quarter of 2017 and $219.7 million in the first quarter of 2018. The increase in net interest revenue over the prior year was driven by both improving yields and growth in average earning assets. Net interest margin was 3.17 percent for the second quarter of 2018. Net interest margin was 2.89 percent for the second quarter of 2017 and 2.99 percent for the first quarter of 2018. Average earning assets were $30.3 billion for the second quarter of 2018 compared to $29.2 billion for the second quarter of 2017.

•

Fees and commissions revenue totaled $157.9 million. Adoption of the new revenue recognition accounting standard in the first quarter of 2018 resulted in interchange fees we pay to issuing banks being netted against transaction card revenue. Previously these fees were included in data processing and communications expense. Excluding this impact, fees and commissions revenue decreased $9.4 million compared to the second quarter of 2017. Brokerage and trading revenue decreased $5.3 million while mortgage banking revenue decreased $3.9 million, both affected by rising interest rates. Fees and commissions revenue decreased $1.1 million compared to the first quarter of 2018. Modest changes in revenue from other business lines was offset by decreased brokerage and trading revenue.

•

Other operating expense totaled $246.5 million, a $5.8 million or 2 percent increase over the second quarter of 2017 on a comparable basis. Personnel expense decreased $4.8 million, primarily due to decreased incentive compensation expense. Non-personnel expense increased $10.6 million due largely to an increase in deposit insurance expense as a result of credits in the second quarter of 2017 along with increased project and acquisition costs. Operating expense increased $2.0 million compared to the first quarter of 2018 on a comparable basis. Personnel expense decreased $1.0 million and non-personnel expense increased $3.0 million. Professional fees and services expense and mortgage banking costs were higher in the second quarter.

•	Income tax expense was $33.3 million or 22.4 percent of net income before taxes for the second quarter of 2018 compared to $47.7 million or 34.9 percent for the second quarter of 2017. Beginning January 1, 2018, the Tax Cuts and Jobs Act ("the Act") decreased the corporate income tax rate from 35% to 21%.

•

The Company recorded no provision for credit losses in the second quarter of 2018. A $5.0 million negative provision for credit losses was recorded in the first quarter of 2018. Net charge-offs totaled $10.5 million or 0.24 percent of average loans on an annualized basis in the second quarter of 2018 compared to net charge-offs of $1.3 million or 0.03 percent of average loans on an annualized basis for the first quarter of 2018. Net charge-offs were $26.9 million or 0.16 percent of average loans over the last four quarters.

•	The combined allowance for credit losses totaled $218 million or 1.21 percent of outstanding loans at June 30, 2018 compared to $228 million or 1.32 percent of outstanding loans at March 31, 2018.

•	Nonperforming assets that are not guaranteed by U.S. government agencies totaled $186 million or 1.04 percent of outstanding loans and repossessed assets at June 30, 2018 and $195 million or 1.13 percent of outstanding loans and repossessed assets at March 31, 2018. Potential problem loans decreased $82 million to $140 million at June 30, 2018.

•	Average loan balances grew by $490 million over the previous quarter, primarily due to growth in commercial and commercial real estate loan balances. Period-end outstanding loan balances totaled $18.0 billion at June 30, 2018, an increase of more than $665 million over March 31, 2018.

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•	Average deposits were largely unchanged compared to the previous quarter. Average demand deposit balances increased $72 million, while interest-bearing transaction deposit balances decreased $155 million. Period-end deposits were $22.2 billion at June 30, 2018, a $36 million decrease compared to March 31, 2018.

•

The common equity Tier 1 capital ratio at June 30, 2018 was 11.92 percent. Other regulatory capital ratios were Tier 1 capital ratio, 11.92 percent, total capital ratio, 13.26 percent, and leverage ratio, 9.57 percent. At March 31, 2018, the common equity Tier 1 capital ratio was 12.06 percent, the Tier 1 capital ratio was 12.06 percent, total capital ratio was 13.49 percent, and leverage ratio was 9.40 percent.

•	The company paid a regular cash dividend of $29.3 million or $0.45 per common share during the second quarter of 2018. On July 24, 2018, the board of directors approved an increase in the quarterly cash dividend to $0.50 per common share payable on or about August 27, 2018 to shareholders of record as of August 13, 2018.

•	The company repurchased 8,257 common shares at an average price of $99.84 per share during the second quarter of 2018. The company repurchased 82,583 common shares at an average price of $91.83 per share during the first quarter of 2018.

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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 $238.6 million for the second quarter of 2018, up from $205.2 million in the second quarter of 2017 and $219.7 million in the first quarter of 2018. Net interest margin was 3.17 percent for the second quarter of 2018, 2.89 percent for the second quarter of 2017 and 2.99 percent for the first quarter of 2018. Recoveries of foregone interest on nonaccruing loans added $5.3 million or 7 basis points to net interest margin in the second quarter of 2018. Recoveries of foregone interest were not significant in the first quarter of 2018 or the second quarter of 2017. The discussion following excludes the impact of recoveries of foregone interest in the second quarter of 2018 on net interest margin.

In addition to the impact of foregone interest recoveries on the second quarter of 2018, net interest margin was 4 basis points lower in the second quarter of 2018 compared to the second quarter of 2017 due to the impact of lower effective tax rates from the implementation of the Tax Cut and Jobs Act on the tax-equivalent yield of our tax-exempt loans and securities. However, net interest margin was 4 basis points higher in the second quarter of 2018 as we reduced our excess cash balances at the Federal Reserve. Beginning in 2014, the Company increased borrowings from the Federal Home Loan Banks, depositing the excess cash balances in the Federal Reserve to earn a spread. In conjunction with the Federal Reserve's monetary policy normalization, this spread narrowed in the second quarter of 2018.

Tax-equivalent net interest revenue increased $31.0 million over the second quarter of 2017. Table 1 shows the effect on net interest revenue from changes in average balances and interest rates for various types of earning assets and interest-bearing liabilities. Changes in interest rates and yields increased net interest revenue by $20.5 million. The benefit of an increase in short-term interest rates on the floating-rate earning assets was partially offset by higher borrowing costs. Tax-equivalent net interest revenue increased $10.5 million due to growth in average assets. Growth in the average balances of trading securities and loans was partially offset by decreases in interest-bearing cash and cash equivalents.

The tax-equivalent yield on earning assets was 3.84 percent, up 54 basis points over the second quarter of 2017, primarily due to increases in short-term interest rates resulting from three 25 basis point increases in the federal funds rate by the Federal Reserve. Loan yields increased 65 basis points to 4.68 percent. The yield on interest-bearing cash and cash equivalents increased 82 basis points. The available for sale securities portfolio yield was up 19 basis points to 2.30 percent. Funding costs were up 48 basis points over the second quarter of 2017. The cost of interest-bearing deposits increased 26 basis points and the cost of other borrowed funds increased 82 basis points. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 37 basis points for the second quarter of 2018, up 15 basis points over the second quarter of 2017.

Average earning assets for the second quarter of 2018 increased $1.1 billion or 4 percent over the second quarter of 2017. The average balance of trading securities grew by $1.0 billion, primarily due to expansion of U.S. agency residential mortgage-backed securities trading activities. Average loans, net of allowance for loan losses, increased $650 million, due primarily to growth in commercial loans. Restricted equity security balances were up $53 million. Interest-bearing cash and cash equivalent balances decreased $334 million. Available for sale securities decreased $221 million. Investment securities balances decreased $100 million.

Average deposits decreased $37 million compared to the second quarter of 2017. Demand deposit balances decreased $115 million and time deposit balances decreased $66 million. Interest-bearing transaction account balances increased $102 million and savings account balances increased $42 million. Average borrowed funds increased $1.0 billion over the second quarter of 2017, primarily due to the net impact of increased borrowings from the Federal Home Loan Banks. Funds purchased and repurchase agreement balances also increased over the prior year.

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The yield on average earning assets was 3.84 percent, a 23 basis point increase over the prior quarter. The loan portfolio yield also increased 23 basis points to 4.68 percent. The yield on the available for sale securities portfolio increased 7 basis points to 2.30 percent. The yield on interest-bearing cash and cash equivalents increased 29 basis points. Funding costs were 1.11 percent, up 18 basis points. The cost of interest-bearing deposits increased 9 basis points to 0.66 percent. The cost of other borrowed funds was up 34 basis points to 1.84 percent. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities increased 6 basis points over the prior quarter.

Average earning assets increased $423 million over the first quarter of 2018. Trading securities balances increased $549 million. Average loan balances grew by $490 million. Average interest-bearing cash and cash equivalents balances decreased $386 million. Fair value option securities held as an economic hedge of our mortgage servicing rights decreased $139 million. Available for sale securities decreased $74 million.

Average deposits decreased $72 million compared to the previous quarter. Interest-bearing transaction account balances decreased by $155 million. Demand deposit balances increased $72 million. The average balance of borrowed funds increased $231 million over the first quarter of 2018, primarily due to increased borrowings from the Federal Home Loan Banks and funds purchased 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. Approximately 82% of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will reprice within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that reprice more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that assets generally reprice more quickly than liabilities. One of the strategies that we use to manage toward a relative rate-neutral position is to purchase fixed-rate residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market-rate-sensitive liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also may use derivative instruments to manage our interest rate risk. For the remainder of 2018, we expect low-to-mid single digit expansion in net interest margin for each 25 basis point increase in the federal funds rate.

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.

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Table 1 -- Volume/Rate Analysis

(In thousands)

		Three Months Ended June 30, 2018 / 2017												Six Months Ended June 30, 2018 / 2017
						Change Due To1												Change Due To1
		Change				Volume				Yield/Rate				Change				Volume				Yield/Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents		$	2,542			$	(1,215	)		$	3,757			$	6,280			$	(1,190	)		$	7,470
Trading securities		9,567				8,625				942				12,007				12,203				(196		)
Investment securities:
Taxable securities		(86		)		(24		)		(62		)		(143		)		45				(188		)
Tax-exempt securities		(661		)		(609		)		(52		)		(1,346		)		(1,160		)		(186		)
Total investment securities		(747		)		(633		)		(114		)		(1,489		)		(1,115		)		(374		)
Available for sale securities:
Taxable securities		4,402				247				4,155				7,290				(1,009		)		8,299
Tax-exempt securities		(584		)		(354		)		(230		)		(1,119		)		(681		)		(438		)
Total available for sale securities		3,818				(107		)		3,925				6,171				(1,690		)		7,861
Fair value option securities		388				93				295				2,827				1,725				1,102
Restricted equity securities		1,009				817				192				1,817				1,376				441
Residential mortgage loans held for sale		(53		)		(260		)		207				(45		)		(438		)		393
Loans		40,127				6,745				33,382				65,682				8,062				57,620
Total tax-equivalent interest revenue		56,651				14,065				42,586				93,250				18,933				74,317
Interest expense:
Transaction deposits		7,556				164				7,392				13,836				(29		)		13,865
Savings deposits		—				4				(4		)		1				9				(8		)
Time deposits		785				(193		)		978				1,369				(492		)		1,861
Funds purchased and repurchase agreements		618				81				537				1,044				39				1,005
Other borrowings		16,637				3,532				13,105				29,831				5,223				24,608
Subordinated debentures		45				(1		)		46				23				1				22
Total interest expense		25,641				3,587				22,054				46,104				4,751				41,353
Tax-equivalent net interest revenue		31,010				10,478				20,532				47,146				14,182				32,964
Change in tax-equivalent adjustment		(2,348		)										(4,766		)
Net interest revenue		$	33,358											$	51,912

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

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Other Operating Revenue

Other operating revenue was $156.4 million for the second quarter of 2018, a $15.6 million decrease compared to the second quarter of 2017 and largely unchanged compared to the first quarter of 2018. Fees and commissions revenue decreased $9.4 million compared to the second quarter of 2017 and was very consistent compared to the prior quarter. 

Table 2 – Other Operating Revenue 

(In thousands)

		Three Months Ended June 30,								Increase (Decrease)				% Increase (Decrease)			Three Months Ended Mar 31, 2018				Increase (Decrease)				% Increase (Decrease)
		2018				2017
Brokerage and trading revenue		$	26,488			$	31,764			$	(5,276	)		(17	)%		$	30,648			$	(4,160	)		(14	)%
Transaction card revenue1		20,975				20,009				966				5	%		20,990				(15		)		—	%
Fiduciary and asset management revenue		41,699				41,808				(109		)		—	%		41,832				(133		)		—	%
Deposit service charges and fees		27,827				28,422				(595		)		(2	)%		27,161				666				2	%
Mortgage banking revenue		26,346				30,276				(3,930		)		(13	)%		26,025				321				1	%
Other revenue		14,518				14,984				(466		)		(3	)%		12,330				2,188				18	%
Total fees and commissions revenue		157,853				167,263				(9,410		)		(6	)%		158,986				(1,133		)		(1	)%
Other gains (losses), net		3,983				6,108				(2,125		)		N/A			(664		)		4,647				N/A
Loss on derivatives, net		(3,057		)		3,241				(6,298		)		N/A			(5,685		)		2,628				N/A
Loss on fair value option securities, net		(3,341		)		1,984				(5,325		)		N/A			(17,564		)		14,223				N/A
Change in fair value of mortgage servicing rights		1,723				(6,943		)		8,666				N/A			21,206				(19,483		)		N/A
Gain (loss) on available for sale securities, net		(762		)		380				(1,142		)		N/A			(290		)		(472		)		N/A
Total other operating revenue		$	156,399			$	172,033			$	(15,634	)		(9	)%		$	155,989			$	410			—	%
Non-GAAP Reconciliation:1
Transaction card revenue on income statement		$	20,975			$	30,228			N/A				N/A			$	20,990			N/A				N/A
Netting adjustment		—				(10,219		)		N/A				N/A			—				N/A				N/A
Transaction card revenue after netting adjustment		$	20,975			$	20,009			966				5	%		$	20,990			(15		)		—	%

1	Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and communications expense. This measure has no effect on net income or earnings per share.

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 40 percent of total revenue for the second quarter of 2018, 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 such as rising interest rates resulting in growth in net interest revenue or fiduciary and asset management revenue, may also decrease mortgage production volumes. We expect growth in other operating revenue to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

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Brokerage and Trading Revenue

Brokerage and trading revenue, which includes revenues from trading, customer hedging, retail brokerage and investment banking, decreased $5.3 million or 17 percent compared to the second quarter of 2017.

Trading revenue includes net realized and unrealized gains primarily related to sales of U.S. government securities, residential mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers and related derivative instruments. Trading revenue was $6.3 million for the second quarter of 2018, a $3.7 million or 37 percent decrease compared to the second quarter of 2017. Rising mortgage interest rates narrowed trading margins and slowed turnover of our trading inventory. However, the longer average hold time of trading securities increased net interest revenue by $3.1 million.

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 $9.8 million for the second quarter of 2018, a $1.8 million or 16 percent decrease compared to the second quarter of 2017.

Revenue earned from retail brokerage transactions decreased $1.2 million or 20 percent compared to the second quarter of 2017 to $4.8 million. Retail brokerage revenue includes fees and commissions earned on sales of fixed income securities, annuities, mutual funds and other financial instruments to retail customers. Revenue is primarily based on the volume of customer transactions and applicable commission rate for each product type. The implementation of the new Department of Labor ("DOL") fiduciary rule in the second quarter of 2017 has negatively impacted retail brokerage revenue.

Investment banking revenue, which includes fees earned upon completion of underwriting and financial advisory services and loan syndication fees, totaled $5.5 million for the second quarter of 2018, a $1.5 million or 37 percent increase over the second quarter of 2017. Changes in investment banking revenue are primarily related to the timing and volume of completed transactions.

Brokerage and trading revenue decreased $4.2 million compared to the first quarter of 2018, largely driven by a decrease in trading revenue due primarily to customer reaction to higher interest rates.

Transaction Card Revenue

Transaction card revenue depends largely on the volume and amount of transactions processed, the number of TransFund automated teller machine (“ATM”) locations and the number of merchants served. Transaction card revenue increased $966 thousand or 5 percent over the second quarter of 2017, primarily due to increases in transaction volumes. Transaction card was largely unchanged compared to the first quarter of 2018. The increase in transaction card revenue from the first quarter of 2018 due to an early customer termination fee was matched in the second quarter of 2017 with a seasonal increase in the volume of transactions processed.

Fiduciary and Asset Management Revenue

Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing transactions or providing related services. Approximately 80 percent of fiduciary and asset management revenue is primarily based on the fair value of assets. Rates applied to asset values vary based on the nature of the relationship. Fiduciary relationships and managed asset relationships generally have higher fee rates than non-fiduciary and/or managed relationships. Fiduciary and asset management revenue was largely unchanged compared to the second quarter of 2017 and the first quarter of 2018.

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

Table 3 -- Assets Under Management or Administration

	Three Months Ended
	June 30, 2018											June 30, 2017											Mar. 31, 2018
	Balance				Revenue1				Margin2			Balance				Revenue1				Margin2			Balance				Revenue1				Margin2
Managed fiduciary assets:
Personal	$	7,791,094			$	23,307			1.20	%		$	7,581,555			$	21,698			1.14	%		$	7,577,717			22,632				1.19	%
Institutional	13,448,068				5,596				0.17	%		12,265,037				5,475				0.18	%		13,322,472				5,469				0.16	%
Total managed fiduciary assets	21,239,162				28,903				0.54	%		19,846,592				27,173				0.55	%		20,900,189				28,101				0.54	%
Non-managed assets:
Fiduciary	25,292,738				12,426				0.20	%		25,242,561				14,049				0.22	%		25,748,101				12,997				0.20	%
Non-fiduciary	16,422,810				370				0.01	%		16,579,586				586				0.01	%		16,321,458				734				0.02	%
Safekeeping and brokerage assets under administration	15,918,736				—				—	%		16,143,023				—				—	%		15,909,241				—				—	%
Total non-managed assets	57,634,284				12,796				0.09	%		57,965,170				14,635				0.10	%		57,978,800				13,731				0.09	%
Total assets under management or administration	$	78,873,446			$	41,699			0.21	%		$	77,811,762			$	41,808			0.21	%		$	78,878,989			$	41,832			0.21	%

1	Fiduciary and asset management revenue includes asset-based and other fees associated with the assets.

2	Annualized revenue divided by period-end balance.

A summary of changes in assets under management or administration for the three months ended June 30, 2018 and 2017 follows:

Table 4 -- Changes in Assets Under Management or Administration

		Three Months Ended June 30,
		2018				2017
Beginning balance		$	78,878,989			$	77,418,956
Net inflows (outflows)		(746,477		)		(918,076		)
Net change in fair value		740,934				1,310,882
Ending balance		$	78,873,446			$	77,811,762

Mortgage Banking Revenue

Mortgage banking revenue decreased $3.9 million or 13 percent compared to the second quarter of 2017 due to a decrease in mortgage production revenue. Mortgage loan production volumes decreased $157 million or 18 percent. Production volumes decreased compared to the prior year as average primary mortgage interest rates were up 56 basis points over the second quarter of 2017. Mortgage servicing revenue was relatively consistent compared to the second quarter of 2017. The outstanding principal balance of mortgage loans serviced for others totaled $22.0 billion, consistent with the second quarter of 2017.

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Table 5 – Mortgage Banking Revenue 

(In thousands)

		Three Months Ended June 30,								Increase (Decrease)				% Increase (Decrease)			Three Months Ended Mar. 31, 2018				Increase (Decrease)				% Increase (Decrease)
		2018				2017
Mortgage production revenue		$	9,915			$	13,840			$	(3,925	)		(28	)%		$	9,452			$	463			5	%
Mortgage loans funded for sale		$	773,910			$	902,978										$	664,958
Add: Current period end outstanding commitments		251,231				362,088											298,318
Less: Prior period end outstanding commitments		298,318				381,732											222,919
Total mortgage production volume		$	726,823			$	883,334			$	(156,511	)		(18	)%		$	740,357			$	(13,534	)		(2	)%
Mortgage loan refinances to mortgage loans funded for sale		22		%		33		%		(1,100		) bps					42		%		(2,000		) bps
Gains on sale margin		1.36		%		1.57		%		(21		) bps					1.28		%		8		bps
Primary mortgage interest rates:
Average		4.54		%		3.98		%		56		bps					4.28		%		26		bps
Period end		4.55		%		3.88		%		67		bps					4.44		%		11		bps
Mortgage servicing revenue		$	16,431			$	16,436			$	(5	)		—	%		$	16,573			$	(142	)		(1	)%
Average outstanding principal balance of mortgage loans serviced for others		21,986,065				22,055,127				(69,062		)		—	%		22,027,726				(41,661		)		—	%
Average mortgage servicing revenue rates		0.30		%		0.30		%		—							0.31		%		(1		) bp

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

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

Net gains on other assets, securities and derivatives

Other net gains totaled $4.0 million in the second quarter of 2018 compared to net gains of $6.1 million in the second quarter of 2017. The second quarter of 2017 included the sale of a merchant banking investment. Other net losses totaled $664 thousand in the first quarter of 2018.

As discussed in the Market Risk section following, the fair value of our mortgage servicing rights ("MSRs") changes in response to changes in primary mortgage loan rates and other assumptions. We attempt to mitigate the earnings volatility caused by changes in the fair value of MSRs by designating certain financial instruments as an economic hedge. Changes in the fair value of these instruments are generally expected to partially offset changes in the fair value of MSRs.

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Table 6 - Gain (Loss) on Mortgage Servicing Rights

(In thousands)

		Three Months Ended
		June 30, 2018				Mar. 31, 2018				June 30, 2017
Gain (loss) on mortgage hedge derivative contracts, net		$	(3,070	)		$	(5,698	)		$	3,241
Gain (loss) on fair value option securities, net		(3,341		)		(17,564		)		1,984
Gain (loss) on economic hedge of mortgage servicing rights, net		(6,411		)		(23,262		)		5,225
Gain (loss) on change in fair value of mortgage servicing rights		1,723				21,206				(6,943		)
Loss on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue		(4,688		)		(2,056		)		(1,718		)
Net interest revenue on fair value option securities1		1,203				1,800				1,965
Total economic benefit (cost) of changes in the fair value of mortgage servicing rights, net of economic hedges		$	(3,485	)		$	(256	)		$	247

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

During the second quarter of 2018, we changed certain assumptions used in our prepayment speed model to better align with current market expectations. During the second quarter of 2018 the fair value of our mortgage servicing rights was reduced by $3.7 million due primarily to an update of assumptions in our prepayment model designed to better align our model with current market behavior and observed portfolio performance.

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Other Operating Expense

Other operating expense for the second quarter of 2018 totaled $246.5 million, an increase of $5.8 million or 2 percent compared to the second quarter of 2017. Personnel expense decreased $4.8 million or 3 percent. Non-personnel expense increased $10.6 million or 11 percent compared to the prior year.

Other operating expense increased $2.0 million over the previous quarter. Personnel expense decreased $1.0 million and non-personnel expense increased $3.0 million.

Table 7 – Other Operating Expense

(In thousands)

		Three Months Ended June 30,								Increase (Decrease)				% Increase (Decrease)			Three Months Ended Mar. 31, 2018				Increase (Decrease)				% Increase (Decrease)
		2018				2017
Regular compensation		$	86,231			$	83,630			$	2,601			3	%		$	84,991			$	1,240			1	%
Incentive compensation:
Cash-based		31,933				29,954				1,979				7	%		29,549				2,384				8	%
Share-based		(1,361		)		7,380				(8,741		)		(118	)%		2,902				(4,263		)		(147	)%
Deferred compensation		900				1,000				(100		)		N/A			44				856				N/A
Total incentive compensation		31,472				38,334				(6,862		)		(18	)%		32,495				(1,023		)		(3	)%
Employee benefits		21,244				21,780				(536		)		(2	)%		22,461				(1,217		)		(5	)%
Total personnel expense		138,947				143,744				(4,797		)		(3	)%		139,947				(1,000		)		(1	)%
Business promotion		7,686				7,738				(52		)		(1	)%		6,010				1,676				28	%
Professional fees and services		14,978				12,419				2,559				21	%		10,200				4,778				47	%
Net occupancy and equipment		22,761				21,125				1,636				8	%		24,046				(1,285		)		(5	)%
Insurance		6,245				689				5,556				806	%		6,593				(348		)		(5	)%
Data processing and communications1		27,739				26,111				1,628				6	%		27,817				(78		)		—	%
Printing, postage and supplies		4,011				4,140				(129		)		(3	)%		4,089				(78		)		(2	)%
Net losses (gains) and operating expenses of repossessed assets		2,722				2,267				455				20	%		7,705				(4,983		)		(65	)%
Amortization of intangible assets		1,386				1,803				(417		)		(23	)%		1,300				86				7	%
Mortgage banking costs		12,890				12,072				818				7	%		10,149				2,741				27	%
Other expense		7,111				8,558				(1,447		)		(17	)%		6,574				537				8	%
Total other operating expense		$	246,476			$	240,666			$	5,810			2	%		$	244,430			$	2,046			1	%
Average number of employees (full-time equivalent)		4,875				4,910				(35		)		(1	)%		4,899				(24		)		—	%
Non-GAAP Reconciliation:1
Data processing and communications expense on income statement		27,739				36,330				N/A				N/A			27,817				N/A				N/A
Netting adjustment		—				(10,219		)		N/A				N/A			—				N/A				N/A
Data processing and communications expense after netting adjustment		27,739				26,111				N/A				N/A			27,817				N/A				N/A

1	Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and communications expense. This measure has no effect on net income or earnings per share.

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

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Personnel expense

Regular compensation, which consists of salaries and wages, overtime pay and temporary personnel costs, increased $2.6 million or 3 percent over the second quarter of 2017. The average number of employees was relatively unchanged compared to the prior year. Standard annual merit increases in regular compensation were effective for the majority of our staff on March 1.

Incentive compensation decreased $6.9 million or 18 percent compared to the second quarter of 2017, primarily due to decreased share-based compensation expense based on changes in assumptions of certain performance-based equity awards. Share-based compensation expense represents expense for equity awards based on grant-date fair value. Non-vested shares generally cliff vest in 3 years and are subject to a two year holding period after vesting. The number of shares that will ultimately vest is determined by BOKF's change in earnings per share relative to a defined group of peer banks. In addition, compensation costs related to certain shares are variable based on changes in the the fair value of BOK Financial common shares.

Cash-based incentive compensation plans are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions. Cash-based incentive compensation expense increased $2.0 million or 7 percent over the second quarter of 2017.

Employee benefits expense decreased $536 thousand or 2 percent compared to the second quarter of 2017.

Personnel expense decreased $1.0 million compared to the first quarter of 2018. Incentive compensation expense decreased $1.0 million. Regular compensation expense increased $1.2 million. A $2.3 million seasonal decrease in payroll tax expense was partially offset by a $1.3 million increase in employee healthcare costs. The Company is self-insured and these costs may be volatile.

Non-personnel operating expense

Non-personnel operating expense increased $10.6 million or 11 percent compared to the second quarter of 2017.

Deposit insurance expense increased $5.6 million over the second quarter of 2017. The second quarter of 2017 included $5.1 million in credits related to the revision of certain inputs to the assessment calculation filed for years 2013 through 2016.

Professional fees and services expense increased $2.6 million or 21 percent mainly due to the inclusion of CoBiz acquisition costs and an increase in Consumer Banking related project costs in the second quarter of 2018.

Data processing and communications expense increased $1.6 million or 6 percent. Occupancy and equipment expense increased $1.6 million or 8 percent. These increases were primarily related to increased project costs and data processing transaction activity.

Non-personnel expense increased $3.0 million compared to the first quarter of 2018. Professional fees and services expense increased $4.8 million mainly due to expenses related to project costs of $1.8 million, CoBiz acquisition expenses of $1.0 million and $953 thousand in seasonal tax preparation charges from trust operations. Mortgage banking costs increased $2.7 million primarily due to a $1.9 million increase in accruals related to default servicing and loss mitigation costs on loans serviced for others.

Net losses and operating expenses of repossessed assets decreased $5.0 million, primarily due to a write-down of a set of repossessed oil and gas properties in the first quarter of 2018.

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Income Taxes

The Company's income tax expense was $33.3 million or 22.4 percent of net income before taxes for the second quarter of 2018 compared to $47.7 million or 34.9 percent of net income before taxes for the second quarter of 2017 and $30.9 million or 22.7 percent of net income before taxes for the first quarter of 2018.

The Tax Cut and Jobs Act ("the Act") enacted on December 22, 2017 reduced the federal corporate tax rate from 35 percent to 21 percent beginning January 1, 2018. The Company continues to evaluate the impact the Act will have on its financial position and results of operations, including recognition and measurement of deferred tax assets and liabilities and the determination of effective current and deferred federal and state income tax rates. We initially recorded provisional adjustments of $11.7 million as a charge to income tax expense in the fourth quarter of 2017. We recorded an additional $1.9 million of net income tax expense for changes in provisional adjustments identified in the first quarter of 2018. No adjustments to provisional amounts were made during the second quarter of 2018.

The Company's effective tax rate is affected by recurring items such as tax-exempt income, net amortization related to its investments in low-income housing tax credit investments and share-based compensation. 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 $20 million at June 30, 2018, $20 million at March 31, 2018 and $17 million at June 30, 2017.

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Lines of Business

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

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

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

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

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

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.

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As shown in Table 8, net income attributable to our lines of business was up $20.4 million or 22% percent over the second quarter of 2017. Net interest revenue grew by $25.6 million over the prior year, primarily due to loan growth. Other operating revenue decreased by $12.4 million primarily due to decreased mortgage banking revenue and brokerage and trading revenue. The second quarter of 2017 included a gain on a merchant banking investment. Operating expense decreased by $153 thousand. Income tax expense attributable to the lines of business was down $23 million, primarily due to lower corporate tax rates related to tax reform.

Table 8 -- Net Income by Line of Business

(In thousands)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
Commercial Banking		$	87,577			$	71,345			$	166,822			$	139,756
Consumer Banking		6,102				6,332				15,478				9,577
Wealth Management		20,119				15,689				39,728				29,848
Subtotal		113,798				93,366				222,028				179,181
Funds Management and other		574				(5,219		)		(2,094		)		(2,678		)
Total		$	114,372			$	88,147			$	219,934			$	176,503

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Commercial Banking

Commercial Banking contributed $87.6 million to consolidated net income in the second quarter of 2018, an increase of $16.2 million or 23 percent over the second quarter of 2017. Growth in net interest revenue was partially offset by higher net charge-offs. In addition, the second quarter of 2017 included a $5.6 million gain on the sale of a merchant banking investment.

Table 9 -- Commercial Banking

(Dollars in thousands)

		Three Months Ended								Increase (Decrease)				Six Months Ended								Increase (Decrease)
		June 30,												June 30,
		2018				2017								2018				2017
Net interest revenue from external sources		$	182,127			$	154,377			$	27,750			$	342,541			$	301,753			$	40,788
Net interest expense from internal sources		(37,102		)		(21,715		)		(15,387		)		(65,445		)		(39,831		)		(25,614		)
Total net interest revenue		145,025				132,662				12,363				277,096				261,922				15,174
Net loans charged off (recovered)		10,108				1,228				8,880				10,735				(236		)		10,971
Net interest revenue after net loans charged off (recovered)		134,917				131,434				3,483				266,361				262,158				4,203
Fees and commissions revenue1		42,874				40,303				2,571				82,891				76,303				6,588
Other gains (losses), net		173				5,831				(5,658		)		(169		)		7,473				(7,642		)
Other operating revenue		43,047				46,134				(3,087		)		82,722				83,776				(1,054		)
Personnel expense		29,584				28,271				1,313				58,505				55,633				2,872
Non-personnel expense1		17,899				21,021				(3,122		)		35,445				37,361				(1,916		)
Other operating expense		47,483				49,292				(1,809		)		93,950				92,994				956
Net direct contribution		130,481				128,276				2,205				255,133				252,940				2,193
Gain on financial instruments, net		9				3				6				16				41				(25		)
Gain (loss) on repossessed assets, net		(67		)		1,403				(1,470		)		(4,232		)		1,398				(5,630		)
Corporate expense allocations		11,269				8,955				2,314				23,776				17,674				6,102
Income before taxes		119,154				120,727				(1,573		)		227,141				236,705				(9,564		)
Federal and state income tax		31,577				49,382				(17,805		)		60,319				96,949				(36,630		)
Net income		$	87,577			$	71,345			$	16,232			$	166,822			$	139,756			$	27,066
Average assets		$	18,072,155			$	17,791,671			$	280,484			$	17,933,756			$	17,716,738			$	217,018
Average loans		14,900,918				14,390,452				510,466				14,665,144				14,297,634				367,510
Average deposits		8,379,584				8,696,691				(317,107		)		8,521,231				8,688,028				(166,797		)
Average invested capital		1,345,840				1,290,167				55,673				1,352,648				1,313,997				38,651

1	Fees and commission revenue for 2017 has been adjusted on a comparable basis with 2018 (Non-GAAP measure) to net $10.2 million and $19.4 million of interchange fees paid to issuing banks on card transactions processed by our TransFund merchant processing services for the three and six months ended June 30, 2017, respectively. The discussion following is based on this comparable basis.

Net interest revenue increased $12.4 million or 9 percent over the prior year. Growth in net interest revenue was primarily due to yields on commercial loans rising in excess of funding costs and a $510 million or 4 percent increase in average loan balances. Yields on deposits sold to the funds management unit also went up due to the increase in short-term interest rates. Net loans charged-off increased $8.9 million. Over half of 2018 net charge-offs was from an energy loan previously identified as impaired and appropriately reserved.

Fees and commissions revenue increased $2.6 million or 6 percent over the second quarter of 2017, primarily due to increases in transaction card volumes. In addition, loan syndication fees and commercial deposit service charges and fees were up over the prior year.

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Operating expenses decreased $1.8 million or 4 percent percent compared to the second quarter of 2017. Personnel expense increased $1.3 million or 5 percent, primarily due to incentive compensation expense. Non-personnel expense decreased $3.1 million or 15 percent.

Corporate expense allocations were up $2.3 million or 26 percent over the prior year, primarily due to enhancements of activity based costing drivers to better reflect services being utilized by the Commercial Banking line of business.

The average outstanding balance of loans attributed to Commercial Banking were up $510 million or 4 percent over the second quarter of 2017 to $14.9 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 $8.4 billion for the second quarter of 2018, a 4% decrease compared to the second quarter of 2017. See Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital for further discussion of change.

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Consumer Banking

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

Consumer Banking contributed $6.1 million to consolidated net income for the second quarter of 2018, a decrease of $230 thousand compared to the second quarter of 2017. Growth in net interest revenue was partially offset by decreased mortgage banking revenue. Changes in the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income for second quarter of 2018 $4.7 million compared to a $1.7 million decrease in pre-tax net income in the second quarter of 2017.

Table 10 -- Consumer Banking

(Dollars in thousands)

		Three Months Ended								Increase (Decrease)				Six Months Ended								Increase (Decrease)
		June 30,												June 30,
		2018				2017								2018				2017
Net interest revenue from external sources		$	21,746			$	20,756			$	990			$	43,499			$	39,348			$	4,151
Net interest revenue from internal sources		17,548				13,447				4,101				32,772				25,864				6,908
Total net interest revenue		39,294				34,203				5,091				76,271				65,212				11,059
Net loans charged off		1,139				926				213				2,440				2,199				241
Net interest revenue after net loans charged off		38,155				33,277				4,878				73,831				63,013				10,818
Fees and commissions revenue		46,332				50,745				(4,413		)		91,296				95,939				(4,643		)
Other losses, net		(12		)		(1		)		(11		)		(27		)		(60		)		33
Other operating revenue		46,320				50,744				(4,424		)		91,269				95,879				(4,610		)
Personnel expense		24,995				25,133				(138		)		49,336				50,052				(716		)
Non-personnel expense		30,911				29,992				919				56,424				57,939				(1,515		)
Total other operating expense		55,906				55,125				781				105,760				107,991				(2,231		)
Net direct contribution		28,569				28,896				(327		)		59,340				50,901				8,439
Gain (loss) on financial instruments, net		(6,411		)		5,224				(11,635		)		(29,672		)		3,557				(33,229		)
Change in fair value of mortgage servicing rights		1,723				(6,943		)		8,666				22,929				(5,087		)		28,016
Gain (loss) on repossessed assets, net		174				98				76				66				(39		)		105
Corporate expense allocations		15,867				16,912				(1,045		)		31,897				33,658				(1,761		)
Income before taxes		8,188				10,363				(2,175		)		20,766				15,674				5,092
Federal and state income tax		2,086				4,031				(1,945		)		5,288				6,097				(809		)
Net income		$	6,102			$	6,332			$	(230	)		$	15,478			$	9,577			$	5,901
Average assets		$	8,353,558			$	8,441,831			$	(88,273	)		$	8,410,513			$	8,360,022			$	50,491
Average loans		1,716,259				1,733,165				(16,906		)		1,731,115				1,736,870				(5,755		)
Average deposits		6,579,635				6,618,958				(39,323		)		6,558,980				6,576,664				(17,684		)
Average invested capital		293,420				298,165				(4,745		)		284,797				300,990				(16,193		)

Net interest revenue from Consumer Banking activities grew by $5.1 million or 15 percent over the the second quarter of 2017, primarily due to increased rates received on deposit balances sold to the Funds Management unit.

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Fees and commissions revenue decreased $4.4 million or 9 percent compared to the second quarter of 2017. Higher interest rates in the second quarter of 2018 decreased mortgage loan production volumes and gains on sale margin were lower compared to the prior year.

Operating expenses increased $781 thousand or 1 percent over the second quarter of 2017. Personnel expenses were largely unchanged compared to the second quarter of 2017. Non-personnel expenses increased $919 thousand or 3 percent over the prior year. Professional fees increased $904 thousand. Mortgage banking costs were up $818 thousand, primarily due to a decrease in accruals related to default servicing and loss mitigation costs on loans serviced for others. These increases were partially offset by lower data processing and communications expense and miscellaneous expense.

Corporate expense allocations were $1.0 million or 6 percent lower than the prior year.

Average consumer deposits were largely unchanged compared to the second quarter of 2017. Demand deposit balances grew by $126 million or 7 percent and savings deposit balances were up $42 million or 10 percent. Higher-costing time deposit balances decreased $129 million or 13 percent and interest-bearing transaction account balances decreased $79 million or 2 percent.

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Wealth Management

Wealth Management contributed $20.1 million to consolidated net income in the second quarter of 2018, up $4.4 million or 28 percent over the second quarter of 2017. Growth in net interest revenue was partially offset by a decrease in brokerage and trading revenue.

Table 11 -- Wealth Management

(Dollars in thousands)

		Three Months Ended								Increase (Decrease)				Six Months Ended								Increase (Decrease)
		June 30,												June 30,
		2018				2017								2018				2017
Net interest revenue from external sources		$	18,754			$	10,475			$	8,279			$	34,161			$	21,960			$	12,201
Net interest revenue from internal sources		10,232				10,325				(93		)		20,164				19,181				983
Total net interest revenue		28,986				20,800				8,186				54,325				41,141				13,184
Net loans charged off (recovered)		(105		)		(92		)		(13		)		(153		)		(53		)		(100		)
Net interest revenue after net loans charged off (recovered)		29,091				20,892				8,199				54,478				41,194				13,284
Fees and commissions revenue		70,489				75,553				(5,064		)		145,296				149,474				(4,178		)
Other gains, net		153				16				137				113				253				(140		)
Other operating revenue		70,642				75,569				(4,927		)		145,409				149,727				(4,318		)
Personnel expense		45,653				45,477				176				92,600				90,264				2,336
Non-personnel expense		15,838				15,139				699				31,695				30,761				934
Other operating expense		61,491				60,616				875				124,295				121,025				3,270
Net direct contribution		38,242				35,845				2,397				75,592				69,896				5,696
Corporate expense allocations		11,142				9,947				1,195				22,097				20,619				1,478
Income before taxes		27,100				25,898				1,202				53,495				49,277				4,218
Federal and state income tax		6,981				10,209				(3,228		)		13,767				19,429				(5,662		)
Net income		$	20,119			$	15,689			$	4,430			$	39,728			$	29,848			$	9,880
Average assets		$	8,495,557			$	6,960,872			$	1,534,685			$	8,296,780			$	6,960,872			$	1,335,908
Average loans		1,413,170				1,289,846				123,324				1,401,613				1,289,846				111,767
Average deposits		5,834,669				5,556,680				277,989				5,749,045				5,556,680				192,365
Average invested capital		248,367				230,228				18,139				249,827				230,228				19,599

Net interest revenue increased $8.2 million or 39 percent over the second quarter of 2017. Average trading securities increased $1.0 billion and average loans attributed to the Wealth Management segment increased $123 million or 10 percent. Average deposit balances increased by $278 million or 5 percent over the second quarter of 2017, primarily due to a $217 million or 6 percent increase in interest-bearing transaction account balances and a $75 million or 10 percent increase in time deposit balances.

Fees and commissions revenue decreased $5.1 million or 7 percent compared to the second quarter of 2017. Rising mortgage interest rates narrowed margins on securities and slowed turnover of our trading inventory.

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Fees and commissions revenue above includes fees earned from state and municipal bond and corporate debt underwritings and financial advisory services, primarily in the Oklahoma and Texas markets. In the second quarter of 2018, the Wealth Management division participated in 93 state and municipal bond underwritings that totaled $1.3 billion. As a participant, the Wealth Management division was responsible for facilitating the sale of approximately $493 million of these underwritings. The Wealth Management division also participated in 6 corporate debt underwritings that totaled $3.0 billion. Our interest in these underwritings was $55 million. In the second quarter of 2017, the Wealth Management division participated in 74 state and municipal bond underwritings that totaled approximately $1.4 billion. Our interest in these underwritings totaled approximately $397 million. The Wealth Management division also participated in 6 corporate debt underwritings that totaled $2.3 billion. Our interest in these underwritings was $47 million.

Operating expense increased $875 thousand or 1 percent over the second quarter of 2017. Personnel expense was largely unchanged compared to the prior year. Non-personnel expense increased $699 thousand or 5 percent.

Corporate expense allocations were up $1.2 million or 12 percent 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 June 30, 2018, December 31, 2017 and June 30, 2017.

We hold an inventory of trading securities in support of sales to a variety of customers, including banks, corporations, insurance companies, money managers and others. Trading securities increased $617 million to $1.9 billion during the second quarter of 2018 in response to expanded relationships with mortgage loan originator clients as well as slower inventory turnover rates. As discussed in the Market Risk section of this report, trading activities involve risk of loss from adverse price movement. We mitigate this risk within board-approved limits through the use of derivative contracts, short-sales and other techniques. These limits remain unchanged from levels set before our expanded trading activities.

At June 30, 2018, the carrying value of investment (held-to-maturity) securities was $392 million and the fair value was $403 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 $92 million of the $199 million portfolio of Texas school construction bonds is also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board of Education for the State of Texas.

Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of available for sale securities totaled $8.3 billion at June 30, 2018, a $54 million decrease compared to March 31, 2018. At June 30, 2018, the available for sale securities portfolio consisted primarily of U.S. government agency residential mortgage-backed securities and U.S. government agency commercial mortgage-backed securities. Both residential and commercial mortgage-backed securities have credit risk from delinquency or default of the underlying loans. We mitigate this risk by primarily investing in securities issued by U.S. government agencies. Principal and interest payments on the underlying loans are fully guaranteed. Commercial mortgage-backed securities have prepayment penalties similar to commercial loans.

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 June 30, 2018 is 3.5 years. Management estimates the duration extends to 4.2 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 3.2 years assuming a 50 basis point decline in the current low rate environment.

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The aggregate gross amount of unrealized losses on available for sale securities totaled $205 million at June 30, 2018, compared to $177 million at March 31, 2018. On a quarterly basis, we perform an evaluation on debt securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial Statements. No other-than-temporary impairment charges were recognized in earnings during the second quarter of 2018.

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. We are required to hold stock in the FHLB in proportion to our borrowings with the FHLB.

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Loans

The aggregate loan portfolio before allowance for loan losses totaled $18.0 billion at June 30, 2018, up more than $665 million over March 31, 2018, primarily due to growth in commercial and commercial real estate loan balances. Personal loan balances grew slightly while residential mortgage loans were largely unchanged.

Table 12 -- Loans

(In thousands)

		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Commercial:
Energy		$	3,147,219			$	2,969,618			$	2,930,156			$	2,867,981			$	2,847,240
Services		2,944,499				2,928,294				2,986,949				2,967,513				2,958,827
Healthcare		2,353,722				2,359,928				2,314,753				2,239,451				2,221,518
Wholesale/retail		1,699,554				1,531,576				1,471,256				1,658,098				1,543,695
Manufacturing		647,816				559,695				496,774				519,446				546,137
Other commercial and industrial		556,229				570,556				534,087				543,445				520,538
Total commercial		11,349,039				10,919,667				10,733,975				10,795,934				10,637,955
Commercial real estate:
Multifamily		1,056,984				1,008,903				980,017				999,009				952,380
Office		820,127				737,144				831,770				797,089				862,973
Retail		768,024				750,396				691,532				725,865				722,805
Industrial		653,384				613,608				573,014				591,080				693,635
Residential construction and land development		118,999				117,458				117,245				112,102				141,592
Other commercial real estate		294,702				279,273				286,409				292,997				315,207
Total commercial real estate		3,712,220				3,506,782				3,479,987				3,518,142				3,688,592
Residential mortgage:
Permanent mortgage		1,068,412				1,047,785				1,043,435				1,013,965				989,040
Permanent mortgages guaranteed by U.S. government agencies		169,653				177,880				197,506				187,370				191,729
Home equity		704,185				720,104				732,745				744,415				758,429
Total residential mortgage		1,942,250				1,945,769				1,973,686				1,945,750				1,939,198
Personal		1,000,187				965,632				965,776				947,008				917,900
Total		$	18,003,696			$	17,337,850			$	17,153,424			$	17,206,834			$	17,183,645

Commercial

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

Commercial loans totaled $11.3 billion or 63 percent of the loan portfolio at June 30, 2018, an increase of $429 million over March 31, 2018. Energy loan balances grew by $178 million. Wholesale/retail sector loan balances grew by $168 million. Manufacturing sector loan balances were up $88 million. Service sector loans increased $16 million, mostly offset by a $14 million decrease in other commercial and industrial loans.

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

Table 13 -- Commercial Loans by Collateral Location

(In thousands)

		Oklahoma				Texas				New Mexico				Arkansas				Colorado				Arizona				Kansas/Missouri				Other				Total
Energy		$	632,907			$	1,709,471			$	40,449			$	2,926			$	340,671			$	3,966			$	72,024			$	344,805			$	3,147,219
Services		716,767				781,431				169,346				9,984				346,505				235,767				303,911				380,788				2,944,499
Healthcare		247,040				344,481				112,149				79,734				161,539				109,858				259,972				1,038,949				2,353,722
Wholesale/retail		403,298				598,929				41,197				29,880				92,243				63,295				80,879				389,833				1,699,554
Manufacturing		86,310				197,925				157				4,638				95,007				91,147				90,100				82,532				647,816
Other commercial and industrial		107,355				142,321				2,504				61,951				8,341				1,288				61,947				170,522				556,229
Total commercial loans		$	2,193,677			$	3,774,558			$	365,802			$	189,113			$	1,044,306			$	505,321			$	868,833			$	2,407,429			$	11,349,039

 

The majority of the collateral securing our commercial loan portfolio is located within our geographical footprint with 33 percent concentrated in the Texas market and 19 percent concentrated in the Oklahoma market. At June 30, 2018, the Other category is primarily composed of California - $287 million or 3 percent of the commercial loan portfolio, Florida - $228 million or 2 percent of the commercial loan portfolio, Louisiana - $160 million or 1 percent of the commercial loan portfolio, Pennsylvania - $142 million or 1 percent of the commercial loan portfolio, Ohio - $125 million or 1 percent of the commercial loan portfolio and North Carolina - $111 million or 1 percent of the commercial loan portfolio. All other states individually represent less than one percent of total commercial loans.

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

Outstanding energy loans totaled $3.1 billion or 17 percent of total loans at June 30, 2018. Unfunded energy loan commitments were $3.0 billion at June 30, 2018, up $80 million over March 31, 2018. Approximately $2.6 billion of energy loans were to oil and gas producers, growing $104 million over March 31, 2018. The majority of this portfolio is first lien, senior secured, reserve-based lending, which we believe is the lowest risk form of energy lending. Approximately 56 percent of the committed production loans are secured by properties primarily producing oil and 44 percent of the committed production loans are secured by properties primarily producing natural gas. Loans to midstream oil and gas companies totaled $370 million at June 30, 2018, an increase of $71 million over March 31, 2018. Loans to borrowers that provide services to the energy industry totaled $139 million at June 30, 2018, up $26 million over the prior quarter. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $36 million, a $23 million decrease compared to the prior quarter.

The services sector of the loan portfolio totaled $2.9 billion or 16 percent of total loans and consists of a large number of loans to a variety of businesses, including governmental, educational services, consumer services, financial services and loans to entities providing services for real estate and construction. Service sector loans increased by $16 million over March 31, 2018. Loans to governmental entities totaled $537 million at June 30, 2018. Approximately $1.4 billion of the services category is made up of loans with individual balances of less than $10 million. Service sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s business. 

The healthcare sector of the loan portfolio totaled $2.4 billion or 13 percent of total loans and consists primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Healthcare also includes loans to hospitals and other medical service providers.

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We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $100 million and with three or more non-affiliated banks as participants. At June 30, 2018, the outstanding principal balance of these loans totaled $3.9 billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 16 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 33% and 12% of the total commercial real estate portfolio at June 30, 2018, respectively. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

Commercial real estate loans totaled $3.7 billion or 21% of the loan portfolio at June 30, 2018. The outstanding balance of commercial real estate loans increased $205 million during the second quarter of 2018. Loans secured by office buildings increased $83 million. Multifamily residential loans increased $48 million. Loans secured by industrial properties grew by $40 million. Loans secured by retail facilities and other commercial real estate loans increased $18 million and $15 million, respectively. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 19 percent to 23 percent over the past five years. 

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

Table 14 -- Commercial Real Estate Loans by Collateral Location

(In thousands)

		Oklahoma				Texas				New Mexico				Arkansas				Colorado				Arizona				Kansas/Missouri				Other				Total
Multifamily		$	127,373			$	485,735			$	26,653			$	26,641			$	81,571			$	66,414			$	129,248			$	113,349			$	1,056,984
Office		106,169				222,686				88,374				12,870				31,988				72,274				40,348				245,418				820,127
Retail		56,301				284,347				121,079				7,338				42,941				29,617				15,620				210,781				768,024
Industrial		71,500				180,920				23,278				104				9,087				7,142				43,777				317,576				653,384
Residential construction and land development		18,049				20,601				18,216				2,102				23,817				2,026				12,908				21,280				118,999
Other commercial real estate		51,810				35,019				10,956				1,580				12,102				24,035				20,183				139,017				294,702
Total commercial real estate loans		$	431,202			$	1,229,308			$	288,556			$	50,635			$	201,506			$	201,508			$	262,084			$	1,047,421			$	3,712,220

The Other category is primarily composed of California - $203 million or 5 percent of the commercial real estate portfolio, Florida - $114 million or 3 percent of the commercial real estate portfolio and Utah - $103 million or 3 percent of the commercial real estate portfolio. All other states represent less than 3% individually.

While recent changes nationally in consumer purchasing trends from brick-and-mortar stores to online has created concern with regards to retail lending, our credit quality remains very good. The portfolio is highly diversified with no material exposure to a single borrower or tenant.

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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 decrease of $3.5 million compared to March 31, 2018. 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 95% of our residential mortgage loan portfolio is located within our geographical footprint.

The majority of our permanent mortgage loan portfolio is composed of various non-conforming mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth individuals or certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans exceeds maximums set under government sponsored entity standards, but otherwise generally conform to those standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38 percent. Loan-to-value ratios (“LTV”) are tiered from 60 percent to 100 percent, depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.

At June 30, 2018, $170 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We have limited 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 decreased $8.2 million compared to March 31, 2018.

Home equity loans totaled $704 million at June 30, 2018, a $16 million decrease compared to March 31, 2018. Our home equity loan portfolio is primarily composed of first-lien, fully amortizing home equity loans. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 50 percent. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 10 year revolving period followed by a 15 year term of amortizing repayment. Interest-only home equity loans have a 5 year revolving period followed by a 15 year term of amortizing repayments and may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term subject to an update of certain credit information. A summary of our home equity loan portfolio at June 30, 2018 by lien position and amortizing status follows in Table 15.

Table 15 -- Home Equity Loans

(In thousands)

		Revolving				Amortizing				Total
First lien		$	69,587			$	363,904			$	433,491
Junior lien		149,676				121,018				270,694
Total home equity		$	219,263			$	484,922			$	704,185

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The distribution of residential mortgage and personal loans at June 30, 2018 is as follows in Table 16. Residential mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.

Table 16 -- Residential Mortgage and Personal Loans by Collateral Location

(In thousands)

		Oklahoma				Texas				New Mexico				Arkansas				Colorado				Arizona				Kansas/Missouri				Other				Total
Residential mortgage:
Permanent mortgage		$	170,130			$	434,582			$	52,890			$	13,430			$	186,125			$	100,536			$	61,394			$	49,325			$	1,068,412
Permanent mortgages  guaranteed by U.S. government agencies		42,443				31,875				33,138				7,374				3,781				843				11,065				39,134				169,653
Home equity		373,250				132,689				85,643				5,794				39,189				9,921				55,093				2,606				704,185
Total residential mortgage		$	585,823			$	599,146			$	171,671			$	26,598			$	229,095			$	111,300			$	127,552			$	91,065			$	1,942,250
Personal		$	316,308			$	420,736			$	11,251			$	12,480			$	62,136			$	59,626			$	64,596			$	53,054			$	1,000,187

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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 Company are centrally managed by the Bank of Oklahoma.

Table 17 -- Loans Managed by Primary Geographical Market

(In thousands)

		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Bank of Oklahoma:
Commercial		$	3,465,407			$	3,265,013			$	3,238,720			$	3,408,973			$	3,369,967
Commercial real estate		662,665				668,031				682,037				712,915				667,932
Residential mortgage		1,403,658				1,419,281				1,435,432				1,405,900				1,398,021
Personal		362,846				353,128				342,212				322,320				318,016
Total Bank of Oklahoma		5,894,576				5,705,453				5,698,401				5,850,108				5,753,936
Bank of Texas:
Commercial		4,922,451				4,715,841				4,520,401				4,434,595				4,339,634
Commercial real estate		1,336,101				1,254,421				1,261,864				1,236,702				1,360,164
Residential mortgage		243,400				229,761				233,675				229,993				232,074
Personal		394,021				363,608				375,084				375,173				354,222
Total Bank of Texas		6,895,973				6,563,631				6,391,024				6,276,463				6,286,094
Bank of Albuquerque:
Commercial		305,167				315,701				343,296				367,747				369,370
Commercial real estate		386,878				348,485				341,282				319,208				324,405
Residential mortgage		90,581				93,490				98,018				101,983				103,849
Personal		11,107				11,667				11,721				12,953				12,439
Total Bank of Albuquerque		793,733				769,343				794,317				801,891				810,063
Bank of Arkansas:
Commercial		93,217				94,430				95,644				91,051				85,020
Commercial real estate		90,807				88,700				87,393				80,917				73,943
Residential mortgage		6,927				7,033				6,596				6,318				6,395
Personal		12,331				9,916				9,992				10,388				11,993
Total Bank of Arkansas		203,282				200,079				199,625				188,674				177,351
Colorado State Bank & Trust:
Commercial		1,165,721				1,180,655				1,130,714				1,124,200				1,065,780
Commercial real estate		267,065				210,801				174,201				186,427				255,379
Residential mortgage		64,839				64,530				63,350				63,734				63,346
Personal		60,504				63,118				63,115				60,513				56,187
Total Colorado State Bank & Trust		1,558,129				1,519,104				1,431,380				1,434,874				1,440,692
Bank of Arizona:
Commercial		681,852				624,106				687,792				634,809				617,759
Commercial real estate		710,784				672,319				660,094				706,188				705,858
Residential mortgage		47,010				39,227				41,771				40,730				37,034
Personal		65,541				57,023				57,140				55,050				55,528
Total Bank of Arizona		1,505,187				1,392,675				1,446,797				1,436,777				1,416,179
Mobank (Kansas City):
Commercial		715,224				723,921				717,408				734,559				790,425
Commercial real estate		257,920				264,025				273,116				275,785				300,911
Residential mortgage		85,835				92,447				94,844				97,092				98,479
Personal		93,837				107,172				106,512				110,611				109,515
Total Mobank (Kansas City)		1,152,816				1,187,565				1,191,880				1,218,047				1,299,330
Total BOK Financial loans		$	18,003,696			$	17,337,850			$	17,153,424			$	17,206,834			$	17,183,645

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Loan Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 18. 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.

Table 18 – Off-Balance Sheet Credit Commitments

(In thousands)

		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Loan commitments		$	10,294,211			$	10,249,729			$	9,958,080			$	9,693,489			$	9,632,911
Standby letters of credit		659,867				664,342				647,653				665,513				614,852
Mortgage loans sold with recourse		116,269				121,197				125,127				128,681				133,896

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 $70 million to borrowers in Oklahoma, $12 million to borrowers in Arkansas and $12 million to borrowers in New Mexico. An accrual related to this off-balance sheet risk is included in Other liabilities in the Consolidated Balance Sheets and totaled $3.5 million at June 30, 2018 and 3.7 million at March 31, 2018 and $3.9 million at June 30, 2017.

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

For the period from 2010 through the second quarter of 2018 combined, approximately 17% of repurchase requests have currently resulted in actual repurchases or indemnification by the Company. There were no loans repurchased from the agencies during the second quarter of 2018. There were no loans with indemnification paid during the second quarter of 2018. 

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):

	June 30,
	2018				2017
Number of unresolved deficiency requests	179				206
Aggregate outstanding principal balance subject to unresolved deficiency requests	$	8,394			$	13,370
Unpaid principal balance subject to indemnification by the Company	4,741				5,074

The accrual for potential loan repurchases under representations and warranties totaled $1.1 million at June 30, 2018, $1.2 million at March 31, 2018, and $1.6 million at June 30, 2017.

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Customer Derivative Programs

 

We offer programs that permit our customers to hedge various risks, including fluctuations in energy, cattle and other agricultural product prices, interest rates and foreign exchange rates. Each of these programs work essentially the same way. Derivative contracts are executed between the customers and the Company. Offsetting contracts are executed between the Company and selected counterparties to minimize market risk due to changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to the customer contracts, except for a fixed pricing spread or a fee paid to us as compensation for administrative costs, credit risk and profit.

The customer derivative programs create credit risk for potential amounts due to the Company from our customers and from the counterparties. Customer credit risk is monitored through existing credit policies and procedures. The effects of changes in commodity prices, interest rates or foreign exchange rates are evaluated across a range of possible scenarios to determine the maximum exposure we are willing to have individually to any customer. Customers may also be required to provide cash margin or other collateral in conjunction with our credit agreements to further limit our credit risk.

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

A deterioration of the credit standing of one or more of the customers or counterparties to these contracts may result in BOK Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting contracts. This occurs if the credit standing of the customer or counterparty deteriorated such that either the fair value of underlying collateral no longer supported the contract or the customer or the counterparty’s ability to provide margin collateral was impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statements of Earnings.

Derivative contracts are carried at fair value. At June 30, 2018, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $382 million compared to $292 million at March 31, 2018. At June 30, 2018, the net fair value of our derivative contracts included $171 million for foreign exchange contracts, $131 million for energy contracts, $41 million for interest rate swaps and $35 million of to-be-announced residential mortgage-backed securities. The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $364 million at June 30, 2018 and $280 million at March 31, 2018.

At June 30, 2018, total derivative assets were reduced by $13 million of cash collateral received from counterparties and total derivative liabilities were reduced by $150 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 June 30, 2018 follows in Table 19.

Table 19 -- Fair Value of Derivative Contracts

(In thousands)

Customers		$	253,096
Banks and other financial institutions		96,206
Exchanges and clearing organizations		19,724
Fair value of customer risk management program asset derivative contracts, net		$	369,026

 

At June 30, 2018, our largest derivative exposure was to an exchange for interest rate swap derivative contracts of $19 million.

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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 $34.26 per barrel of oil would decrease the fair value of derivative assets by $106 million. An increase in prices equivalent to $84.27 per barrel of oil would increase the fair value of derivative assets by $118 million as current prices move further away from the fixed prices embedded in our existing contracts. Liquidity requirements of this program may also be affected by our credit rating. At June 30, 2018, a decrease in our credit rating to below investment grade did not have a significant impact on our obligation to post cash margin on existing contracts. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of June 30, 2018, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.

Summary of Loan Loss Experience

We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. At June 30, 2018, the combined allowance for loan losses and off-balance sheet credit losses totaled $218 million or 1.21 percent of outstanding loans and 138 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $215 million and the accrual for off-balance sheet credit losses was $2.4 million. At March 31, 2018, the combined allowance for credit losses was $228 million or 1.32 percent of outstanding loans and 133 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $224 million and the accrual for off-balance sheet credit losses was $4.1 million. 

The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the combined charge to expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. All losses incurred from lending activities will ultimately be reflected in charge-offs against the allowance for loan losses following funds advanced against outstanding commitments. Based on an evaluation of all credit factors, including overall loan growth, the continued trend of improvements in nonaccruing and potential problem loans, and net charge-offs, the Company determined that no provision for credit losses was appropriate for the second quarter of 2018. The Company recorded a $5.0 million negative provision for the first quarter of 2018.

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Table 20 -- Summary of Loan Loss Experience

(In thousands)

		Three Months Ended
		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Allowance for loan losses:
Beginning balance		$	223,967			$	230,682			$	247,703			$	250,061			$	248,710
Loans charged off:
Commercial		(13,775		)		(1,563		)		(13,254		)		(4,429		)		(1,703		)
Commercial real estate		—				—				—				—				(76		)
Residential mortgage		(135		)		(100		)		(205		)		(168		)		(40		)
Personal		(1,195		)		(1,227		)		(1,290		)		(1,228		)		(1,053		)
Total		(15,105		)		(2,890		)		(14,749		)		(5,825		)		(2,872		)
Recoveries of loans previously charged off:
Commercial		298				488				1,982				1,014				283
Commercial real estate		3,097				183				258				739				208
Residential mortgage		505				242				229				134				169
Personal		678				663				592				550				554
Total		4,578				1,576				3,061				2,437				1,214
Net loans recovered (charged off)		(10,527		)		(1,314		)		(11,688		)		(3,388		)		(1,658		)
Provision for loan losses		1,702				(5,401		)		(5,333		)		1,030				3,009
Ending balance		$	215,142			$	223,967			$	230,682			$	247,703			$	250,061
Accrual for off-balance sheet credit losses:
Beginning balance		$	4,135			$	3,734			$	5,401			$	6,431			$	9,440
Provision for off-balance sheet credit losses		(1,702		)		401				(1,667		)		(1,030		)		(3,009		)
Ending balance		$	2,433			$	4,135			$	3,734			$	5,401			$	6,431
Total combined provision for credit losses		$	—			$	(5,000	)		$	(7,000	)		$	—			$	—
Allowance for loan losses to loans outstanding at period-end		1.19		%		1.29		%		1.34		%		1.44		%		1.46		%
Net charge-offs (recoveries) (annualized) to average loans		0.24		%		0.03		%		0.27		%		0.08		%		0.04		%
Total provision for credit losses (annualized) to average loans		—		%		(0.12		)%		(0.16		)%		—		%		—		%
Recoveries to gross charge-offs		30.31		%		54.53		%		20.75		%		41.84		%		42.27		%
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments		0.02		%		0.04		%		0.04		%		0.05		%		0.06		%
Combined allowance for credit losses to loans outstanding at period-end		1.21		%		1.32		%		1.37		%		1.47		%		1.49		%

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 original 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 June 30, 2018, impaired loans totaled $328 million, including $60 million with specific allowances of $15 million and $268 million with no specific allowances. At March 31, 2018, impaired loans totaled $349 million, including $74 million of impaired loans with specific allowances of $13 million and $275 million with no specific allowances.

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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 $184 million at June 30, 2018. The general allowance for unimpaired loans decreased $6.2 million compared to March 31, 2018, primarily related to the commercial loan segment, partially offset by an increase related to the commercial real estate segment.

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 $15 million at June 30, 2018, a $4.5 million decrease compared to March 31, 2018. The nonspecific allowance decreased related to the reversal of the nonspecific allowance related to the estimated long-term impact of Hurricane Harvey in 2017 on the Houston, Texas market as this impact is now fully reflected in estimated loss rates.

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

Our loan monitoring process also identified certain accruing substandard loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements, and no loss of principal or interest is anticipated, these loans were not included in nonperforming assets. Known information does, however, cause management concern as to the borrowers’ ability to comply with current repayment terms. These potential problem loans totaled $140 million at June 30, 2018 and were primarily composed of $93 million or 3 percent of energy loans, $17 million or 3 percent of manufacturing sector loans and $17 million or 1 percent of healthcare sector loans. Potential problem loans totaled $222 million at March 31, 2018.

Based on regulatory guidelines, other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management's close attention. Other loans especially mentioned totaled $124 million at June 30, 2018 and were composed primarily of $52 million or 2 percent of outstanding energy loans, $31 million or 1 percent of service sector loans and $21 million or 3 percent of commercial real estate loans secured by retail facilities. Other loans especially mentioned totaled $78 million at March 31, 2018.

We updated our semi-annual energy loan portfolio stress test at June 30, 2018 to estimate how the energy portfolio may respond in a prolonged low-price environment. Stress test assumptions applied the five year forward pricing curve which decreases from a starting price of $2.29 per million BTUs for natural gas and $51.70 per barrel of oil to $2.17 per million BTUs for natural gas and $43.37 per barrel of oil in year 5 and then escalated 3 percent annually for years six through ten to a maximum of $2.50 and $49.99, respectively. Results of the stress test were considered in conjunction with the determination of the allowance for credit losses.

Net Loans Charged Off

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

BOK Financial had net charge-offs of $10.5 million in the second quarter of 2018, compared to net charge-offs of $1.3 million in the first quarter of 2018 and a net charge-offs of $1.7 million in the second quarter of 2017. The ratio of net loans charged off to average loans on an annualized basis was 0.24 percent for the second quarter of 2018, compared with 0.03 percent for the first quarter of 2018 and 0.04 percent for the second quarter of 2017. 

Net charge-offs of commercial loans were $13.5 million in the second quarter of 2018, primarily related to a single energy production borrower and single healthcare sector borrower. Net commercial real estate loan recoveries were $3.1 million in the second quarter of 2018. Net charge-offs of residential mortgage loans were $370 thousand and net charge-offs of personal loans were $517 thousand for the second quarter. Personal loan net charge-offs include deposit account overdraft losses.

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Nonperforming Assets

Table 21 -- Nonperforming Assets

(In thousands)

		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Nonaccruing loans:
Commercial		$	120,978			$	131,460			$	137,303			$	176,900			$	197,157
Commercial real estate		1,996				2,470				2,855				2,975				3,775
Residential mortgage		42,343				45,794				47,447				45,506				44,235
Personal		340				340				269				255				272
Total nonaccruing loans		165,657				180,064				187,874				225,636				245,439
Accruing renegotiated loans guaranteed by U.S. government agencies		75,374				74,418				73,994				69,440				80,624
Real estate and other repossessed assets		27,891				23,652				28,437				32,535				39,436
Total nonperforming assets		$	268,922			$	278,134			$	290,305			$	327,611			$	365,499
Total nonperforming assets excluding those guaranteed by U.S. government agencies		$	185,981			$	194,833			$	207,132			$	249,280			$	275,823
Nonaccruing loans by loan portfolio segment and class:
Commercial:
Energy		$	65,597			$	89,942			$	92,284			$	110,683			$	123,992
Services		4,377				2,109				2,620				1,174				7,754
Healthcare		16,125				15,342				14,765				24,446				24,505
Wholesale/retail		14,095				2,564				2,574				1,893				10,620
Manufacturing		2,991				3,002				5,962				9,059				9,656
Other commercial and industrial		17,793				18,501				19,098				29,645				20,630
Total commercial		120,978				131,460				137,303				176,900				197,157
Commercial real estate:
Multifamily		—				—				—				—				10
Retail		1,068				264				276				289				301
Office		275				275				275				275				396
Industrial		—				—				—				—				—
Residential construction and land development		350				1,613				1,832				1,924				2,051
Other commercial real estate		303				318				472				487				1,017
Total commercial real estate		1,996				2,470				2,855				2,975				3,775
Residential mortgage:
Permanent mortgage		23,105				24,578				25,193				24,623				23,415
Permanent mortgage guaranteed by U.S. government agencies		7,567				8,883				9,179				8,891				9,052
Home equity		11,671				12,333				13,075				11,992				11,768
Total residential mortgage		42,343				45,794				47,447				45,506				44,235
Personal		340				340				269				255				272
Total nonaccruing loans		$	165,657			$	180,064			$	187,874			$	225,636			$	245,439
Ratios:
Allowance for loan losses to nonaccruing loans1		136.09		%		130.84		%		129.09		%		114.28		%		105.78		%
Accruing loans 90 days or more past due1		$	879			$	90			$	633			$	253			$	1,414

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

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Nonperforming assets totaled $269 million or 1.49 percent of outstanding loans and repossessed assets at June 30, 2018. Nonaccruing loans totaled $166 million, accruing renegotiated residential mortgage loans totaled $75 million and real estate and other repossessed assets totaled $28 million. All accruing renegotiated residential mortgage loans and $7.6 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $8.9 million compared to the first quarter, primarily due to a decrease in nonaccruing energy and wholesale/retail sector loans. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.

Loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. As more fully discussed in Note 4 to the Consolidated Financial Statements, we may modify loans in 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 currently 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. Nonaccruing loans generally remain on nonaccrual status until full collection of principal and interest in accordance with the original terms, including principal previously charged off, is probable. We generally do not voluntarily modify personal loans to troubled borrowers. Personal loans modified at the direction of bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.

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

A rollforward of nonperforming assets for the three and six months ended June 30, 2018 follows in Table 22.

Table 22 -- Rollforward of Nonperforming Assets

(In thousands)

		Three Months Ended
		June 30, 2018
		Nonaccruing Loans				Renegotiated Loans				Real Estate and Other Repossessed Assets				Total Nonperforming Assets
Balance, March 31, 2018		$	180,064			$	74,418			$	23,652			$	278,134
Additions		41,728				13,600				—				55,328
Payments		(31,099		)		(707		)		—				(31,806		)
Charge-offs		(15,105		)		—				—				(15,105		)
Net gains, losses and write-downs		—				—				180				180
Foreclosure of nonperforming loans		(6,587		)		—				6,587				—
Foreclosure of loans guaranteed by U.S. government agencies		(1,658		)		(1,964		)		—				(3,622		)
Proceeds from sales		—				(10,362		)		(3,069		)		(13,431		)
Net transfers to nonaccruing loans		153				(153		)		—				—
Return to accrual status		(1,839		)		—				—				(1,839		)
Other, net		—				542				541				1,083
Balance, June 30, 2018		$	165,657			$	75,374			$	27,891			$	268,922

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		Six Months Ended
		June 30, 2018
		Nonaccruing Loans				Renegotiated Loans				Real Estate and Other Repossessed Assets				Total Nonperforming Assets
Balance, December 31, 2017		$	187,874			$	73,994			$	28,437			$	290,305
Additions		52,148				30,621				—				82,769
Payments		(43,538		)		(1,375		)		—				(44,913		)
Charge-offs		(17,995		)		—				—				(17,995		)
Net gains, losses and write-downs		—				—				(4,006		)		(4,006		)
Foreclosure of nonperforming loans		(8,743		)		—				8,743				—
Foreclosure of loans guaranteed by U.S. government agencies		(3,186		)		(3,791		)		—				(6,977		)
Proceeds from sales		—				(24,085		)		(5,516		)		(29,601		)
Net transfers to nonaccruing loans		936				(936		)		—				—
Return to accrual status		(1,839		)		—				—				(1,839		)
Other, net		—				946				233				1,179
Balance, June 30, 2018		$	165,657			$	75,374			$	27,891			$	268,922

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

Commercial

Nonaccruing commercial loans totaled $121 million or 1.07 percent of total commercial loans at June 30, 2018 and $131 million or 1.20 percent of commercial loans at March 31, 2018. There were $36 million in newly identified nonaccruing commercial loans during the quarter, offset by $26 million in payments $14 million of charge-offs and $4.9 million foreclosures of nonaccruing commercial loans during the second quarter.

Nonaccruing commercial loans at June 30, 2018 were primarily composed of $66 million or 2.08 percent of total energy loans, $18 million or 3.20 percent of total other commercial and industrial sector loans, $16 million or 0.69 percent of total healthcare sector loans and $14 million or 0.83 percent of total wholesale/retail sector loans.

Commercial Real Estate

Nonaccruing commercial real estate loans totaled $2.0 million or 0.05 percent of outstanding commercial real estate loans at June 30, 2018, compared to $2.5 million or 0.07 percent of outstanding commercial real estate loans at March 31, 2018. Newly identified nonaccruing commercial real estate loans of $902 thousand were offset by $1.3 million of cash payments received and $1.8 million of loans returned to accruing status. There were no charge-offs or foreclosures of nonaccruing commercial real estate loans during the second quarter.

Nonaccruing commercial real estate loans were primarily composed of $1.1 million or 0.14 percent of loans secured by retail facilities.

Residential Mortgage and Personal

Nonaccruing residential mortgage loans totaled $42 million or 2.18 percent of outstanding residential mortgage loans at June 30, 2018, a $3.5 million decrease compared to March 31, 2018. Newly identified nonaccruing residential mortgage loans totaling $3.2 million were offset by $3.3 million of foreclosures, $3.3 million of payments and $135 thousand of loans charged off during the quarter. 

Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans, which totaled $23 million or 2.16 percent of outstanding non-guaranteed permanent residential mortgage loans at June 30, 2018. Nonaccruing home equity loans totaled $12 million or 1.66 percent of total home equity loans.

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Payments of accruing residential mortgage loans and personal loans may be delinquent. The composition of residential mortgage loans and personal loans past due but still accruing is included in the following Table 23. Substantially all non-guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 59 days past due increased $481 thousand in the second quarter to $4.2 million at June 30, 2018. Residential mortgage loans 60 to 89 days past due increased by $504 thousand. Personal loans past due 30 to 59 days decreased by $616 thousand and personal loans 60 to 89 days increased $136 thousand.

Table 23 -- Residential Mortgage and Personal Loans Past Due

(In thousands)

		June 30, 2018												March 31, 2018
		90 Days or More				60 to 89 Days				30 to 59 Days				90 Days or More				60 to 89 Days				30 to 59 Days
Residential mortgage:
Permanent mortgage1		$	84			$	796			$	2,568			$	—			$	—			$	2,322
Home equity		65				94				1,612				22				386				1,377
Total residential mortgage		$	149			$	890			$	4,180			22				$	386			$	3,699
Personal		$	—			$	150			$	178			$	62			$	14			$	794

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

Real Estate and Other Repossessed Assets

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

Real estate and other repossessed assets totaled $28 million at June 30, 2018, composed primarily of $12 million of oil and gas properties, $6.0 million of 1-4 family residential properties, $5.4 million of developed commercial real estate and $4.5 million of undeveloped land primarily zoned for commercial development. Real estate and other repossessed assets totaled $24 million at March 31, 2018.

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Liquidity and Capital

Based on the average balances for the second quarter of 2018, approximately 65 percent of our funding was provided by deposit accounts, 21 percent from borrowed funds, less than 1 percent is from long-term subordinated debt and 10 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.

Subsidiary Bank

Deposits and borrowed funds are the primary sources of liquidity for BOKF, NA, the wholly owned subsidiary bank of BOK Financial. We compete for retail and commercial deposits by offering a broad range of products and services and focusing on customer convenience. Retail deposit growth is supported through personal and small business checking, online bill paying services, mobile banking services, an extensive network of branch locations and ATMs and our ExpressBank call center. Commercial deposit growth is supported by offering treasury management and lockbox services. We also acquire brokered deposits when the cost of funds is advantageous to other funding sources.

Average deposits for the second quarter of 2018 totaled $22.1 billion, largely unchanged compared to the first quarter of 2018. Demand deposit balances increased $72 million and saving account balances were up $24 million. This growth was offset by a $155 million decrease in interest-bearing transaction account balances and a $12 million decrease in time deposits.

Table 24 - Average Deposits by Line of Business

(In thousands)

	Three Months Ended
	June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Commercial Banking	$	8,379,584			$	8,664,452			$	8,799,166			$	8,727,221			$	8,696,691
Consumer Banking	6,579,635				6,538,096				6,622,149				6,663,969				6,618,958
Wealth Management	5,834,669				5,662,470				5,457,566				5,495,250				5,531,091
Subtotal	20,793,888				20,865,018				20,878,881				20,886,440				20,846,740
Funds Management and other	1,261,344				1,261,877				1,282,179				1,232,881				1,245,591
Total	$	22,055,232			$	22,126,895			$	22,161,060			$	22,119,321			$	22,092,331

Average Commercial Banking deposit balances decreased $285 million compared to the first quarter of 2018. Interest-bearing transaction account balances decreased $231 million and demand deposit balances decreased $55 million. Commercial customers continue to retain large cash reserves primarily due to a combination of factors including uncertainty about the economic environment and potential for growth, lack of preferable liquid alternatives and a desire to minimize deposit service charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. Commercial deposit balances may decrease as the economic outlook continues to improve and customers deploy cash or related earnings credit rates rise, reducing the amount of deposits required to offset service charges.

Average Consumer Banking deposit balances increased $42 million over the prior quarter. Demand deposit balances grew by $81 million and savings deposit balances were up $22 million. This growth was offset by a $55 million decrease in time deposits. Interest-bearing transaction deposit balances were largely unchanged.

Average Wealth Management deposits increased $172 million over the first quarter of 2018. Interest-bearing transaction account balances grew by $90 million, time deposits balances were up $45 million, and demand deposit balances increased $36 million.

Average time deposits for the second quarter of 2018 included $252 million of brokered deposits, a decrease of $406 million compared to the first quarter of 2018. Average interest-bearing transaction accounts for the second quarter included $828 million of brokered deposits, a decrease of $783 million compared to the first quarter of 2018. The decrease in average brokered deposits balances was largely driven by a change in the regulatory definition of brokered deposits in the second quarter of 2018.

The distribution of our period end deposit account balances among principal markets follows in Table 25.

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Table 25 -- Period End Deposits by Principal Market Area

(In thousands)

		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Bank of Oklahoma:
Demand		$	3,867,933			$	4,201,842			$	3,885,008			$	4,061,612			$	4,353,421
Interest-bearing:
Transaction		5,968,460				6,051,302				5,901,293				5,909,259				5,998,787
Savings		289,202				289,351				265,870				265,023				263,664
Time		1,207,471				1,203,534				1,092,133				1,131,547				1,170,014
Total interest-bearing		7,465,133				7,544,187				7,259,296				7,305,829				7,432,465
Total Bank of Oklahoma		11,333,066				11,746,029				11,144,304				11,367,441				11,785,886
Bank of Texas:
Demand		3,317,656				3,015,869				3,239,098				3,094,184				3,121,890
Interest-bearing:
Transaction		2,168,488				2,208,480				2,397,071				2,272,987				2,272,185
Savings		97,809				98,852				93,620				93,400				91,491
Time		445,500				475,967				502,879				521,072				502,128
Total interest-bearing		2,711,797				2,783,299				2,993,570				2,887,459				2,865,804
Total Bank of Texas		6,029,453				5,799,168				6,232,668				5,981,643				5,987,694
Bank of Albuquerque:
Demand		770,974				695,060				663,353				659,793				612,117
Interest-bearing:
Transaction		586,593				555,414				552,393				551,884				558,523
Savings		59,415				60,596				55,647				53,532				54,136
Time		212,689				216,306				216,743				224,773				229,616
Total interest-bearing		858,697				832,316				824,783				830,189				842,275
Total Bank of Albuquerque		1,629,671				1,527,376				1,488,136				1,489,982				1,454,392
Bank of Arkansas:
Demand		39,896				35,291				30,384				31,442				40,511
Interest-bearing:
Transaction		143,298				94,206				85,095				126,746				129,848
Savings		1,885				1,960				1,881				1,876				2,135
Time		10,771				11,878				14,045				14,434				14,876
Total interest-bearing		155,954				108,044				101,021				143,056				146,859
Total Bank of Arkansas		195,850				143,335				131,405				174,498				187,370

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		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Colorado State Bank & Trust:
Demand		529,912				521,963				633,714				540,300				577,617
Interest-bearing:
Transaction		701,362				687,785				657,629				628,807				626,343
Savings		38,176				37,232				35,223				34,776				35,651
Time		208,049				215,330				224,962				231,927				228,458
Total interest-bearing		947,587				940,347				917,814				895,510				890,452
Total Colorado State Bank & Trust		1,477,499				1,462,310				1,551,528				1,435,810				1,468,069
Bank of Arizona:
Demand		387,952				330,196				334,701				335,740				366,866
Interest-bearing:
Transaction		194,353				248,337				274,846				174,010				154,457
Savings		3,935				4,116				3,343				4,105				3,638
Time		22,447				21,009				20,394				20,831				19,911
Total interest-bearing		220,735				273,462				298,583				198,946				178,006
Total Bank of Arizona		608,687				603,658				633,284				534,686				544,872
Mobank (Kansas City):
Demand		459,636				505,802				457,080				462,410				496,473
Interest-bearing:
Transaction		401,545				381,447				382,066				361,391				346,996
Savings		13,052				13,845				13,574				12,513				13,603
Time		20,805				22,230				27,260				27,705				31,119
Total interest-bearing		435,402				417,522				422,900				401,609				391,718
Total Mobank (Kansas City)		895,038				923,324				879,980				864,019				888,191
Total BOK Financial deposits		$	22,169,264			$	22,205,200			$	22,061,305			$	21,848,079			$	22,316,474

In addition to deposits, liquidity is provided primarily by federal funds purchased, securities repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured, overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers’ banks and Federal Home Loan banks from across the country. The largest single source of wholesale federal funds purchased totaled $200 million at June 30, 2018. Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities. Federal Home Loan Bank borrowings are generally short-term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and agency mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $6.5 billion during the quarter, up from $6.3 billion in the first quarter of 2018.

At June 30, 2018, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $6.5 billion.

A summary of other borrowings for BOK Financial on a consolidated basis follows in Table 26.

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Table 26 -- Borrowed Funds

(In thousands)

						Three Months Ended June 30, 2018															Three Months Ended March 31, 2018
		Jun 30, 2018				Average Balance During the Quarter				Rate			Maximum Outstanding At Any Month End During the Quarter				Mar 31, 2018				Average Balance During the Quarter				Rate			Maximum Outstanding At Any Month End During the Quarter
Parent Company and Other Non-Bank Subsidiaries:
Subordinated debentures		144,697				144,692				5.67	%		$	144,697			144,687				144,682				5.61	%		144,687
BOKF, NA:
Funds purchased		305,668				133,064				1.44	%		305,668				130,561				106,362				1.20	%		160,087
Repurchase agreements		574,359				460,186				0.26	%		574,359				415,763				426,051				0.20	%		415,763
Other borrowings:
Federal Home Loan Bank advances		5,900,000				6,470,330				1.96	%		6,500,000				5,700,000				6,295,556				1.58	%		5,700,000
GNMA repurchase liability		14,386				11,658				4.47	%		14,386				12,020				16,434				4.64	%		15,011
Other		15,059				15,032				2.35	%		15,059				15,005				14,977				2.33	%		15,005
Total other borrowings		5,929,445				6,497,020				1.96	%						5,727,025				6,326,967				1.60	%
Total BOKF, NA		6,809,472				7,090,270				1.84	%						6,273,349				6,859,380				1.50	%
Total other borrowed funds and subordinated debentures		$	6,954,169			$	7,234,962			1.92	%						$	6,418,036			$	7,004,062			1.59	%

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

Parent Company

At June 30, 2018, cash and interest-bearing cash and cash equivalents held by the parent company totaled $241 million. The primary sources of liquidity for BOK Financial are cash on hand and dividends from BOKF, NA. Dividends from the bank are limited by various banking regulations to net profits, as defined, for the year plus retained profits for the two preceding years. Dividends are further restricted by minimum capital requirements. At June 30, 2018, based upon the most restrictive limitations as well as management's internal capital policy, the bank could declare up to $248 million of dividends without regulatory approval. Dividend constraints may be alleviated through increases in retained earnings, capital issuances or changes in risk weighted assets. Future losses or increases in required regulatory capital at the bank could affect its ability to pay dividends to the parent company.

Our equity capital at June 30, 2018 was $3.6 billion, a $58 million increase over March 31, 2018. Net income less cash dividends paid increased equity $85 million during the second quarter of 2018. Changes in interest rates resulted in an increase in the accumulated other comprehensive loss to $135 million at June 30, 2018, compared to $111 million at March 31, 2018. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings including expected benefits from lower federal income tax rates, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt or perpetual preferred stock 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 June 30, 2018, a cumulative total of 3,050,083 shares have been repurchased under this authorization. The Company repurchased 8,257 shares in the second quarter of 2018 at an average of $99.84 per share. The Company repurchased 82,583 shares in the first quarter of 2018 at an average price of $91.83 per share.

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BOK Financial and BOKF, NA are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that could have a material impact on operations. These capital requirements include quantitative measures of assets, liabilities and off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators.

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. Components of the capital rules effective January 1, 2015 for the Company will phase in through January 1, 2019, with certain exceptions.

A summary of minimum capital requirements, including capital conservation buffer follows in Table 27. 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 27.

Table 27 -- Capital Ratios

		Minimum Capital Requirement			Capital Conservation Buffer			Minimum Capital Requirement Including Capital Conservation Buffer			June 30, 2018			Mar. 31, 2018			June 30, 2017
Risk-based capital:
Common equity Tier 1		4.50	%		2.50	%		7.00	%		11.92	%		12.06	%		11.76	%
Tier 1 capital		6.00	%		2.50	%		8.50	%		11.92	%		12.06	%		11.76	%
Total capital		8.00	%		2.50	%		10.50	%		13.26	%		13.49	%		13.36	%
Tier 1 Leverage		4.00	%		N/A			4.00	%		9.57	%		9.40	%		9.27	%
Average total equity to average assets											10.36	%		10.31	%		10.53	%
Tangible common equity ratio											9.21	%		9.18	%		9.24	%

At March 31, 2018, the company exceeded the $1 billion regulatory capital rules threshold for trading assets plus liabilities. This subjects the company to the market risk rule, which imposes additional modeling, systems, oversight and reporting requirements effective for the second quarter of 2018 and results in an increase in risk weighted assets associated with trading.

Capital resources of financial institutions are also regularly measured by the tangible common shareholders’ equity ratio. Tangible common shareholders’ equity is shareholders’ equity as defined by generally accepted accounting principles in the United States of America (“GAAP”) 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 28 provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.

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Table 28 -- Non-GAAP Measure

(Dollars in thousands)

		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Tangible common equity ratio:
Total shareholders' equity		$	3,553,431			$	3,495,029			$	3,495,367			$	3,488,814			$	3,422,469
Less: Goodwill and intangible assets, net		481,366				477,088				476,088				485,710				487,452
Tangible common equity		3,072,065				3,017,941				3,019,279				3,003,104				2,935,017
Total assets		33,833,107				33,361,492				32,272,160				33,005,515				32,263,532
Less: Goodwill and intangible assets, net		481,366				477,088				476,088				485,710				487,452
Tangible assets		$	33,351,741			$	32,884,404			$	31,796,072			$	32,519,805			$	31,776,080
Tangible common equity ratio		9.21		%		9.18		%		9.50		%		9.23		%		9.24		%

Off-Balance Sheet Arrangements

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

Market Risk

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

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

The Asset/Liability Committee is responsible for managing market risk in accordance with policy limits established by the Board of Directors. The Committee monitors projected variation in net interest revenue, net income and economic value of equity due to specified changes in interest rates. These limits also set maximum levels for short-term borrowings, short-term assets, public funds and brokered deposits and establish minimum levels for un-pledged assets, among other things. Further, the Board approved market risk limits for fixed income trading, mortgage pipeline and mortgage servicing assets inclusive of economic hedge benefits. Exposure is measured daily and compliance is reviewed monthly. Deviations from the Board approved limits, which periodically occur throughout the reporting period, may require management to develop and execute plans to reduce exposure. These plans are subject to escalation to and approval by the Board.

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

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Interest Rate Risk – Other than Trading

 

As previously noted in the Net Interest Revenue section of this report, management has implemented strategies to manage the Company’s balance sheet to have relatively limited exposure to changes in interest rates over a twelve-month period. The effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions, on net interest revenue. A simulation model is used to estimate the effect of changes in interest rates on our performance across multiple interest rate scenarios. Our current internal policy limit for net interest revenue variation due to a 200 basis point parallel change in market interest rates over twelve months is a maximum decline of 5%. The results of a 200 basis point decrease in interest rates in the current low-rate environment are not meaningful. Until such time as it becomes meaningful, we will instead report the effect of a 50 basis point decrease in interest rates.

The Company’s primary interest rate exposures include the Federal Funds rate, which affects short-term borrowings, and the prime lending rate and LIBOR, which are the basis for much of the variable rate loan pricing. Additionally, residential mortgage rates directly affect the prepayment speeds for residential mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. In addition, the impact on the level and composition of demand deposit accounts and other core deposit balances resulting from a significant increase in short-term market interest rates and the overall interest rate environment is likely to be material. The simulation incorporates assumptions regarding the effects of such changes based on a combination of historical analysis and expected behavior. The impact of planned growth and new business activities is factored into the simulation model. 

Table 29 -- Interest Rate Sensitivity

(Dollars in thousands)

		200 bp Increase								50 bp Decrease
		June 30,								June 30,
		2018				2017				2018				2017
Anticipated impact over the next twelve months on net interest revenue		$	1,118			$	(104	)		$	(17,227	)		$	(17,632	)
		0.11		%		(0.01		)%		(1.75		)%		(2.07		)%

BOK Financial is also subjected to market risk through changes in the fair value of mortgage servicing rights. Changes in the fair value of mortgage servicing rights are highly dependent on changes in primary mortgage rates offered to borrowers, intermediate-term interest rates that affect the value of custodial funds, and assumptions about servicing revenues, servicing costs and discount rates. As primary mortgage rates increase, prepayment speeds slow and the value of our mortgage servicing rights increases. As primary mortgage rates fall, prepayment speeds increase and the value of our mortgage servicing rights decreases.

We maintain a portfolio of financial instruments, which may include debt securities issued by the U.S. government or its agencies and interest rate derivative contracts held as an economic hedge of the changes in the fair value of our mortgage servicing rights. Composition of this portfolio will change based on our assessment of market risk. Changes in the fair value of residential mortgage-backed securities are highly dependent on changes in secondary mortgage rates required by investors, and interest rate derivative contracts are highly dependent on changes in other market interest rates. While primary and secondary mortgage rates generally move in the same direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in the forward-looking spread between the primary and secondary rates can cause significant earnings volatility.

Management performs a stress test to measure market risk due to changes in interest rates inherent in its MSR portfolio and hedges. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity, that may result. The Board has approved a $20 million market risk limit for mortgage servicing rights, net of economic hedges.

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Table 30 -- MSR Asset and Hedge Sensitivity Analysis

(Dollars in thousands)

		June 30,
		2018								2017
		Up 50 bp				Down 50 bp				Up 50 bp				Down 50 bp
MSR Asset		$	22,858			$	(25,967	)		$	25,977			$	(31,851	)
MSR Hedge		(23,730		)		21,281				(31,507		)		32,312
Net Exposure		(872		)		(4,686		)		(5,530		)		461

Trading Activities

The Company bears market risk by originating residential mortgages held for sale ("RMHFS"). RMHFS are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a loan to sale of the closed loan to an investor. Primary mortgage interest rate changes during this period affect the value of RMHFS commitments and loans. We use forward sale contracts to mitigate market risk on all closed mortgage loans held for sale and on an estimate of mortgage loan commitments that are expected to result in closed loans.

A variety of methods are used to monitor market risk of mortgage origination activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and revenue sensitivity limits.

Management performs a stress test to measure market risk due to changes in interest rates inherent in the mortgage production pipeline. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity that may result. The Board has approved a $7 million market risk limit for the mortgage production pipeline, net of forward sale contracts.

Table 31 -- Mortgage Pipeline Sensitivity Analysis

(Dollars in thousands)

		Three Months Ended June 30,																Six Months Ended June 30,
		2018								2017								2018								2017
		Up 50 bp				Down 50 bp				Up 50 bp				Down 50 bp				Up 50 bp				Down 50 bp				Up 50 bp				Down 50 bp
Average1		$	663			$	(1,240	)		$	(3	)		$	(1,439	)		$	422			$	(932	)		$	117			$	(1,316	)
Low2		2,077				(567		)		1,030				(679		)		2,077				699				1,030				(398		)
High3		(374		)		(2,447		)		(810		)		(2,377		)		(1,015		)		(2,447		)		(810		)		(2,377		)
Period End		216				(678		)		(263		)		(1,025		)		216				(678		)		(263		)		(1,025		)

1	Average represents the simple average of each daily value observed during the reporting period.

2	Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.

3	High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.

BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an intermediary, we take positions in securities, generally residential mortgage-backed securities, government agency securities and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. On a limited basis, we may also take trading positions in U.S. Treasury securities, residential mortgage-backed securities, and municipal bonds to enhance returns on securities portfolios. Both of these activities involve interest rate, liquidity and price risk. BOK Financial has an insignificant exposure to foreign exchange risk and does not take positions in commodity derivatives.

A variety of methods are used to monitor the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Economic hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs.

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Management performs a stress test to measure market risk from changes in interest rates on its trading portfolio. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity that may result. The Board has approved an $8 million market risk limit for the trading portfolio, net of economic hedges.

Table 32 -- Trading Sensitivity Analysis

(Dollars in thousands)

		Three Months Ended June 30,																Six Months Ended June 30,
		2018								2017								2018								2017
		Up 50 bp				Down 50 bp				Up 50 bp				Down 50 bp				Up 50 bp				Down 50 bp				Up 50 bp				Down 50 bp
Average1		$	(1,566	)		$	1,405			$	(1,359	)		$	1,592			$	(1,062	)		$	874			$	(1,991	)		$	2,241
Low2		1,518				4,333				(219		)		3,833				1,518				4,333				86				5,210
High3		(4,242		)		(2,472		)		(2,916		)		91				(4,242		)		(2,472		)		(4,386		)		2
Period End		(2,602		)		2,719				(1,842		)		1,727				(2,602		)		2,719				(1,842		)		1,727

1	Average represents the simple average of each daily value observed during the reporting period.

2	Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.

3	High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.

Controls and Procedures

 

As required by Rule 13a-15(b), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by their report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, CoBiz Financial Inc.’s and BOK Financial Corporation’s expectations or predictions of future financial or business performance or conditions. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “plan,” “predict,” “project,” “forecast,” “guidance,” “goal,” “objective,” “prospects,” “possible” or “potential,” by future conditional verbs such as “assume,” “will,” “would,” “should,” “could” or “may”, or by variations of such words or by similar expressions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made and we assume no duty to update forward-looking statements. Actual results may differ materially from current projections.

In addition to factors previously disclosed in CoBiz Financial Inc.’s and BOK Financial Corporation’s reports filed with the SEC and those identified elsewhere in this communication, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the ability to obtain regulatory approvals and meet other closing conditions to the merger, including approval by CoBiz Financial Inc.’s shareholders on the expected terms and schedule, including the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated; delay in closing the merger; difficulties and delays in integrating CoBiz Financial Inc.’s business or fully realizing cost savings and other benefits; business disruption following the merger; changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of BOK Financial Corporation’s products and services; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and timing of business initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; economic conditions; and the impact, extent and timing of

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technological changes, capital management activities, and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms.

Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.

In this report we may sometimes use non-GAAP Financial information. Please note that although non-GAAP financial measures provide useful insight to analysts, investors and regulators, they should not be considered in isolation or relied upon as a substitute for analysis using GAAP measures. If applicable, we provide GAAP reconciliations for non-GAAP financial measures.

IMPORTANT ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed merger, BOK Financial Corporation has filed with the SEC a Registration Statement on Form S-4 that will include the Proxy Statement of CoBiz Financial Inc. and a Prospectus of BOK Financial Corporation, as well as other relevant documents concerning the proposed transaction. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. INVESTORS AND SHAREHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER E AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.

A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about BOK Financial Corporation and CoBiz Financial Inc., may be obtained at the SEC’s Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from CoBiz Financial Inc. at ir.cobizfinancial.com or from BOK Financial Corporation by accessing BOK Financial Corporation’s website at www.bokf.com. Copies of the Proxy Statement/Prospectus can also be obtained, free of charge, by directing a request to CoBiz Financial Inc. Investor Relations at CoBiz Financial Inc. Investor Relations, 1401 Lawrence Street, Suite 1200, Denver, CO, by calling (303) 312-3412, or by sending an e-mail to info@cobizfinancial.com or to BOK Financial Corporation Investor Relations at Bank of Oklahoma Tower, Boston Avenue at Second Street, Tulsa, Oklahoma, by calling (918) 588-6000 or by sending an e-mail to investorrelations@bokf.com.

CoBiz Financial Inc. and BOK Financial Corporation and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of CoBiz Financial Inc. in respect of the transaction described in the Proxy Statement/Prospectus. Information regarding CoBiz Financial Inc.’s directors and executive officers is contained in CoBiz Financial Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017 and its Proxy Statement on Schedule 14A, dated March 9, 2018, which are filed with the SEC.  Information regarding BOK Financial Corporation’s directors and executive officers is contained in BOK Financial Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017 and its Proxy Statement on Schedule 14A, dated March 15, 2018, which are filed with the SEC. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

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Consolidated Statements of Earnings (Unaudited)
(In thousands, except share and per share data)		Three Months Ended								Six Months Ended
		June 30,								June 30,
Interest revenue		2018				2017				2018				2017
Loans		$	210,694			$	168,952			$	398,785			$	329,847
Residential mortgage loans held for sale		2,333				2,386				4,177				4,222
Trading securities		12,988				3,339				20,726				8,522
Investment securities		3,663				4,005				7,520				8,176
Available for sale securities		47,427				43,363				93,386				86,735
Fair value option securities		3,927				3,539				8,746				5,919
Restricted equity securities		5,408				4,399				10,525				8,708
Interest-bearing cash and cash equivalents		7,740				5,198				15,722				9,442
Total interest revenue		294,180				235,181				559,587				461,571
Interest expense
Deposits		20,963				12,622				39,182				23,976
Borrowed funds		32,607				15,352				58,056				27,181
Subordinated debentures		2,048				2,003				4,051				4,028
Total interest expense		55,618				29,977				101,289				55,185
Net interest revenue		238,562				205,204				458,298				406,386
Provision for credit losses		—				—				(5,000		)		—
Net interest revenue after provision for credit losses		238,562				205,204				463,298				406,386
Other operating revenue
Brokerage and trading revenue		26,488				31,764				57,136				65,387
Transaction card revenue		20,975				30,228				41,965				57,608
Fiduciary and asset management revenue		41,699				41,808				83,531				80,439
Deposit service charges and fees		27,827				28,422				54,988				56,199
Mortgage banking revenue		26,346				30,276				52,371				55,467
Other revenue		14,518				14,984				26,848				26,736
Total fees and commissions		157,853				177,482				316,839				341,836
Other gains, net		3,983				6,108				3,319				9,735
Gain (loss) on derivatives, net		(3,057		)		3,241				(8,742		)		2,791
Gain (loss) on fair value option securities, net		(3,341		)		1,984				(20,905		)		844
Change in fair value of mortgage servicing rights		1,723				(6,943		)		22,929				(5,087		)
Gain (loss) on available for sale securities, net		(762		)		380				(1,052		)		2,429
Total other operating revenue		156,399				182,252				312,388				352,548
Other operating expense
Personnel		138,947				143,744				278,894				280,169
Business promotion		7,686				7,738				13,696				14,455
Professional fees and services		14,978				12,419				25,178				23,836
Net occupancy and equipment		22,761				21,125				46,807				42,749
Insurance		6,245				689				12,838				7,093
Data processing and communications		27,739				36,330				55,556				71,232
Printing, postage and supplies		4,011				4,140				8,100				7,991
Net losses and operating expenses of repossessed assets		2,722				2,267				10,427				3,276
Amortization of intangible assets		1,386				1,803				2,686				3,605
Mortgage banking costs		12,890				12,072				23,039				25,075
Other expense		7,111				8,558				13,685				16,115
Total other operating expense		246,476				250,885				490,906				495,596
Net income before taxes		148,485				136,571				284,780				263,338
Federal and state income taxes		33,330				47,705				64,278				85,808
Net income		115,155				88,866				220,502				177,530
Net income attributable to non-controlling interests		783				719				568				1,027
Net income attributable to BOK Financial Corporation shareholders		$	114,372			$	88,147			$	219,934			$	176,503
Earnings per share:
Basic		$	1.75			$	1.35			$	3.36			$	2.70
Diluted		$	1.75			$	1.35			$	3.36			$	2.69
Average shares used in computation:
Basic		64,901,975				64,729,752				64,874,567				64,722,744
Diluted		64,937,226				64,793,134				64,912,552				64,788,322
Dividends declared per share		$	0.45			$	0.44			$	0.90			$	0.88

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands, except share and per share data)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
Net income		$	115,155			$	88,866			$	220,502			$	177,530
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain (loss)		(33,117		)		21,958				(130,523		)		33,369
Reclassification adjustments included in earnings:
Loss (gain) on available for sale securities, net		762				(380		)		1,052				(2,429		)
Other comprehensive income (loss) before income taxes		(32,355		)		21,578				(129,471		)		30,940
Federal and state income taxes		(8,241		)		8,393				(33,049		)		12,009
Other comprehensive income (loss), net of income taxes		(24,114		)		13,185				(96,422		)		18,931
Comprehensive income		91,041				102,051				124,080				196,461
Comprehensive income attributable to non-controlling interests		783				719				568				1,027
Comprehensive income attributable to BOK Financial Corp. shareholders		$	90,258			$	101,332			$	123,512			$	195,434

See accompanying notes to consolidated financial statements.

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Consolidated Balance Sheets (In thousands, except share data)
		June 30, 2018				Dec. 31, 2017				June 30, 2017
		(Unaudited)				(Footnote 1)				(Unaudited)
Assets
Cash and due from banks		$	585,801			$	602,510			$	561,587
Interest-bearing cash and cash equivalents		872,999				1,714,544				2,078,831
Trading securities		1,909,615				462,676				441,414
Investment securities (fair value:  June 30, 2018 – $403,384; December 31, 2017 – $480,035 ; June 30, 2017 – $515,675)		392,013				461,793				490,426
Available for sale securities		8,162,866				8,321,578				8,341,041
Fair value option securities		482,227				755,054				445,169
Restricted equity securities		347,721				320,189				311,033
Residential mortgage loans held for sale		223,301				221,378				287,259
Loans		18,003,696				17,153,424				17,183,645
Allowance for loan losses		(215,142		)		(230,682		)		(250,061		)
Loans, net of allowance		17,788,554				16,922,742				16,933,584
Premises and equipment, net		320,810				317,335				321,038
Receivables		212,893				178,800				170,094
Goodwill		453,093				447,430				446,697
Intangible assets, net		28,273				28,658				40,755
Mortgage servicing rights		278,719				252,867				245,239
Real estate and other repossessed assets, net of allowance (June 30, 2018 – $17,656; December 31, 2017 – $12,648; June 30, 2017 – $8,576)		27,891				28,437				39,436
Derivative contracts, net		373,373				220,502				280,289
Cash surrender value of bank-owned life insurance		321,024				316,498				312,774
Receivable on unsettled securities sales		604,552				340,077				158,125
Other assets		447,382				359,092				358,741
Total assets		$	33,833,107			$	32,272,160			$	32,263,532
Liabilities and Equity
Liabilities:
Noninterest-bearing demand deposits		$	9,373,959			$	9,243,338			$	9,568,895
Interest-bearing deposits:
Transaction		10,164,099				10,250,393				10,087,139
Savings		503,474				469,158				464,318
Time		2,127,732				2,098,416				2,196,122
Total deposits		22,169,264				22,061,305				22,316,474
Funds purchased and repurchase agreements		880,027				574,964				464,323
Other borrowings		5,929,445				5,134,897				5,232,343
Subordinated debentures		144,697				144,677				144,658
Accrued interest, taxes and expense		160,568				164,895				133,198
Derivative contracts, net		234,856				171,963				285,819
Due on unsettled securities purchases		571,034				338,745				31,214
Other liabilities		167,171				162,380				205,958
Total liabilities		30,257,062				28,753,826				28,813,987
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: June 30, 2018 – 75,313,559; December 31, 2017 – 75,147,686; June 30, 2017 – 75,089,152)		4				4				4
Capital surplus		1,040,202				1,035,895				1,017,495
Retained earnings		3,212,653				3,048,487				2,942,447
Treasury stock (shares at cost:  June 30, 2018 – 9,874,469; December 31, 2017 – 9,752,749;  June 30, 2017 – 9,672,749)		(564,123		)		(552,845		)		(545,441		)
Accumulated other comprehensive gain (loss)		(135,305		)		(36,174		)		7,964
Total shareholders’ equity		3,553,431				3,495,367				3,422,469
Non-controlling interests		22,614				22,967				27,076
Total equity		3,576,045				3,518,334				3,449,545
Total liabilities and equity		$	33,833,107			$	32,272,160			$	32,263,532

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Changes in Equity (Unaudited) (In thousands)
		Common Stock							Capital Surplus				Retained Earnings				Treasury Stock							Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity				Non- Controlling Interests				Total Equity
		Shares			Amount												Shares			Amount
Balance, December 31, 2016		74,993			$	4			$	1,006,535			$	2,823,334			9,656			$	(544,052	)		$	(10,967	)		$	3,274,854			$	31,503			$	3,306,357
Net income		—			—				—				176,503				—			—				—				176,503				1,027				177,530
Other comprehensive income		—			—				—				—				—			—				18,931				18,931				—				18,931
Share-based compensation plans:
Stock options exercised		41			—				1,977				—				—			—				—				1,977				—				1,977
Non-vested shares awarded, net		55			—				—				—				—			—				—				—				—				—
Vesting of non-vested shares		—			—				—				—				17			(1,389		)		—				(1,389		)		—				(1,389		)
Share-based compensation		—			—				8,983				—				—			—				—				8,983				—				8,983
Cash dividends on common stock		—			—				—				(57,390		)		—			—				—				(57,390		)		—				(57,390		)
Capital calls and distributions, net		—			—				—				—				—			—				—				—				(5,454		)		(5,454		)
Balance, June 30, 2017		75,089			$	4			$	1,017,495			$	2,942,447			9,673			$	(545,441	)		$	7,964			$	3,422,469			$	27,076			$	3,449,545
Balance, December 31, 2017		75,148			$	4			$	1,035,895			$	3,048,487			9,753			$	(552,845	)		$	(36,174	)		$	3,495,367			$	22,967			$	3,518,334
Transition adjustment of net unrealized gains on equity securities		—			—				—				2,709				—			—				(2,709		)		—				—				—
Balance, December 31, 2017, Adjusted		75,148			4				1,035,895				3,051,196				9,753			(552,845		)		(38,883		)		3,495,367				22,967				3,518,334
Net income (loss)		—			—				—				219,934				—			—				—				219,934				568				220,502
Other comprehensive loss		—			—				—				—				—			—				(96,422		)		(96,422		)		—				(96,422		)
Repurchase of common stock		—			—				—				—				90			(8,408		)		—				(8,408		)		—				(8,408		)
Share-based compensation plans:
Stock options exercised		46			—				2,426				—				—			—				—				2,426				—				2,426
Non-vested shares awarded, net		120			—				—				—				—			—				—				—				—				—
Vesting of non-vested shares		—			—				—				—				31			(2,870		)		—				(2,870		)		—				(2,870		)
Share-based compensation		—			—				1,881				—				—			—				—				1,881				—				1,881
Cash dividends on common stock		—			—				—				(58,477		)		—			—				—				(58,477		)		—				(58,477		)
Capital calls and distributions, net		—			—				—				—				—			—				—				—				(921		)		(921		)
Balance, June 30, 2018		75,314			4				1,040,202				3,212,653				9,874			(564,123		)		(135,305		)		3,553,431				22,614				3,576,045

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows (Unaudited) (in thousands)
		Six Months Ended
		June 30,
		2018				2017
Cash Flows From Operating Activities:
Net income		$	220,502			$	177,530
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses		(5,000		)		—
Change in fair value of mortgage servicing rights due to market changes		(22,929		)		5,087
Change in the fair value of mortgage servicing rights due to principal payments		16,797				16,261
Net unrealized losses (gains) from derivative contracts		6,674				(5,928		)
Share-based compensation		1,881				8,983
Depreciation and amortization		27,459				25,864
Net amortization of securities discounts and premiums		12,855				15,377
Net losses (gains) on financial instruments and other losses (gains), net		4,530				(4,351		)
Net gain on mortgage loans held for sale		(19,314		)		(25,229		)
Mortgage loans originated for sale		(1,438,868		)		(1,613,997		)
Proceeds from sale of mortgage loans held for sale		1,456,312				1,651,018
Capitalized mortgage servicing rights		(19,720		)		(19,514		)
Change in trading and fair value option securities		(1,174,526		)		(472,682		)
Change in receivables		(335,369		)		479,774
Change in other assets		1,737				(17,548		)
Change in accrued interest, taxes and expense		(4,327		)		(19,703		)
Change in other liabilities		334,765				27,420
Net cash provided by (used in) operating activities		(936,541		)		228,362
Cash Flows From Investing Activities:
Proceeds from maturities or redemptions of investment securities		71,722				71,654
Proceeds from maturities or redemptions of available for sale securities		819,596				899,096
Purchases of investment securities		(3,968		)		(18,802		)
Purchases of available for sale securities		(1,020,018		)		(1,242,070		)
Proceeds from sales of available for sale securities		187,533				700,412
Change in amount receivable on unsettled available for sale securities transactions		38,075				(25,989		)
Loans originated, net of principal collected		(847,351		)		(159,924		)
Net payments on derivative asset contracts		(70,987		)		420,996
Acquisitions, net of cash acquired		(13,870		)		—
Proceeds from disposition of assets		97,027				127,699
Purchases of assets		(121,889		)		(106,362		)
Net cash provided by (used in) investing activities		(864,130		)		666,710
Cash Flows From Financing Activities:
Net change in demand deposits, transaction deposits and savings accounts		78,643				(405,943		)
Net change in time deposits		29,316				(25,678		)
Net change in other borrowed funds		1,057,118				64,833
Net proceeds on derivative liability contracts		64,144				(422,016		)
Net change in derivative margin accounts		(118,628		)		27,327
Change in amount due on unsettled available for sale securities transactions		(100,847		)		26,128
Issuance of common and treasury stock, net		(444		)		588
Repurchase of common stock		(8,408		)		—
Dividends paid		(58,477		)		(57,390		)
Net cash provided by (used in) financing activities		942,417				(792,151		)
Net increase (decrease) in cash and cash equivalents		(858,254		)		102,921
Cash and cash equivalents at beginning of period		2,317,054				2,537,497
Cash and cash equivalents at end of period		$	1,458,800			$	2,640,418
Supplemental Cash Flow Information:
Cash paid for interest		$	100,532			$	54,881
Cash paid for taxes		$	29,623			$	60,654
Net loans and bank premises transferred to repossessed real estate and other assets		$	3,886			$	2,049
Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period		$	42,493			$	59,171
Conveyance of other real estate owned guaranteed by U.S. government agencies		$	23,845			$	22,602

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements (Unaudited)

(1) Significant Accounting Policies

Basis of Presentation

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

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

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

The financial information should be read in conjunction with BOK Financial’s 2017 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 2017 have been derived from the audited financial statements included in BOK Financial’s 2017 Form 10-K but do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the six-month period ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

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. Revenue from financial assets and liabilities is explicitly excluded from the scope of ASU 2014-09. Management adopted the standard in the first quarter of 2018 using the modified retrospective transition method. There were no significant cumulative effect adjustments as a result of implementation as of January 1, 2018 as our current revenue recognition policies generally conform with the principals in ASU 2014-09.

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

On March 17, 2016, the FASB Issued ASU 2016-08 to amend the principal versus agent implementation guidance in ASU 2014-09. The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. Management adopted the standard in the first quarter of 2018. Interchange fees paid to issuing banks for card transactions processed related to its merchant processing services previously included in data processing and communication expense are now netted against the amounts charged to the merchant in transaction card processing revenue.

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

On January 5, 2016, the FASB issued ASU 2016-01 over the recognition and measurement of financial assets and liabilities. The update requires equity investments, in general, to be measured at fair value with changes in fair value recognized in earnings. It also eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires entities to use the exit price notion when measuring fair value, requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the fair value option has been elected, requires separate presentation of financial assets and liabilities by measurement category and form on the balance sheet or accompanying notes, clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets, and simplifies the impairment assessment of equity investments without readily determinable fair values. Management adopted the standard in the first quarter of 2018. Upon adoption, net unrealized gains of $2.7 million from equity securities were reclassified from other comprehensive income to retained earnings.

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

On February 25, 2016, the FASB issued ASU 2016-02 to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Lessees will be required to recognize an obligation for future lease payments measured on a discounted basis and a right-of-use asset. The ASU is effective for the Company for interim and annual periods beginning after December 15, 2018 and requires transition through a modified retrospective approach for leases existing at or entered into after January 1, 2017. The Company currently estimates that implementation of ASU 2016-02 will increase reported right of use assets and liabilities by approximately $100 million to $150 million.

 

FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Assets Measured at Amortized Cost ("ASU 2016-13")

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

The Company has established a CECL implementation team in order to evaluate the impact the adoption of ASU 2016-13 will have on the Company's financial statements. The CECL implementation team, overseen by the Chief Credit Officer, Chief Financial Officer, and Chief Risk Officer, has developed a project plan that incorporates input from various departments within the bank including Credit, Financial Reporting, Risk, and Information Technology among others. Key implementation activities for 2018 include portfolio segmentation, model development, as well as process and information systems enhancements.

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

On August 26, 2016, the FASB issued ASU 2016-15, which amends guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The amendments address eight cash flow issues. Management adopted the standard in first quarter of 2018. Adoption of ASU 2016-15 did not have a material impact on the Company's financial statements.

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

On August 28, 2017, the FASB issued ASU 2017-12, which amends the hedge accounting recognition and presentation requirements in ASC 815 in order to improve transparency and understandability of information and reduce the complexity. The update expands the types of transactions eligible for hedge accounting, eliminates the requirement to separately measure and present hedge ineffectiveness, simplifies hedge effectiveness assessments and updates documentation and presentation requirements. The update allows the reclassification of certain debt securities from held to maturity to available for sale if the debt security is eligible to be hedged under the last-of-layer method. ASU 2017-12 is effective for the Company for fiscal years beginning after December 15, 2018, and interim periods therein; however, early adoption is permitted. The Company is evaluating the impact the adoption of ASU 2017-12 will have on the Company's financial statements.

FASB Accounting Standards Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SAB 118).

On March 13, 2018, the FASB issued ASU 2018-05, which adds SEC guidance related to SAB 118 - Income Tax Accounting Implications of the Tax Cuts and Jobs Act. ASU 2018-05 was effective upon issuance.

 

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(2) Securities

Trading Securities

 

The fair value and net unrealized gain (loss) included in trading securities are as follows (in thousands):

 

		June 30, 2018								December 31, 2017								June 30, 2017
		Fair Value				Net Unrealized Gain (Loss)				Fair Value				Net Unrealized Gain (Loss)				Fair Value				Net Unrealized Gain (Loss)
U.S. government agency debentures		$	28,750			$	10			$	21,196			$	8			$	20,954			$	(9	)
U.S. government agency residential mortgage-backed securities		1,605,001				1,923				392,673				(517		)		365,171				(1,032		)
Municipal and other tax-exempt securities		70,606				231				13,559				83				45,444				230
Asset-backed securities		193,271				250				23,885				(26		)		—				—
Other trading securities		11,987				32				11,363				4				9,845				(175		)
Total trading securities		$	1,909,615			$	2,446			$	462,676			$	(448	)		$	441,414			$	(986	)

Investment Securities

 

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

		June 30, 2018
		Amortized				Fair				Gross Unrealized
		Cost				Value				Gain				Loss
Municipal and other tax-exempt		$	173,097			$	174,205			$	1,779			$	(671	)
U.S. government agency residential mortgage-backed securities		13,989				13,984				232				(237		)
Other debt securities		204,927				215,195				12,259				(1,991		)
Total investment securities		$	392,013			$	403,384			$	14,270			$	(2,899	)

		December 31, 2017
		Amortized				Fair				Gross Unrealized
		Cost				Value				Gain				Loss
Municipal and other tax-exempt		$	228,186			$	230,349			$	2,967			$	(804	)
U.S. government agency residential mortgage-backed securities		15,891				16,242				446				(95		)
Other debt securities		217,716				233,444				17,095				(1,367		)
Total investment securities		$	461,793			$	480,035			$	20,508			$	(2,266	)

		June 30, 2017
		Amortized				Fair				Gross Unrealized
		Cost				Value				Gain				Loss
Municipal and other tax-exempt		$	267,375			$	270,531			$	3,384			$	(228	)
U.S. government agency residential mortgage-backed securities		18,035				18,642				668				(61		)
Other debt securities		205,016				226,502				22,040				(554		)
Total investment securities		$	490,426			$	515,675			$	26,092			$	(843	)

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The amortized cost and fair values of investment securities at June 30, 2018, by contractual maturity, are as shown in the following table (dollars in thousands):

		Less than One Year				One to Five Years				Six to Ten Years				Over Ten Years				Total				Weighted Average Maturity²
Municipal and other tax-exempt:
Amortized cost		$	60,535			$	62,005			$	28,117			$	22,440			$	173,097			4.02
Fair value		60,487				61,736				29,038				22,944				174,205
Nominal yield¹		2.07		%		2.58		%		5.81		%		5.12		%		3.25		%
Other debt securities:
Amortized cost		14,877				52,170				123,762				14,118				204,927				5.99
Fair value		15,023				54,233				132,912				13,027				215,195
Nominal yield		3.99		%		4.69		%		5.67		%		4.34		%		5.21		%
Total fixed maturity securities:
Amortized cost		$	75,412			$	114,175			$	151,879			$	36,558			$	378,024			5.08
Fair value		75,510				115,969				161,950				35,971				389,400
Nominal yield		2.45		%		3.54		%		5.69		%		4.82		%		4.31		%
Residential mortgage-backed securities:
Amortized cost																		$	13,989			³
Fair value																		13,984
Nominal yield4																		2.76		%
Total investment securities:
Amortized cost																		$	392,013
Fair value																		403,384
Nominal yield																		4.26		%

1	Calculated on a taxable equivalent basis using a 25 percent effective tax rate.

2	Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.

3	The average expected lives of residential mortgage-backed securities were 5.0 years based upon current prepayment assumptions.

4	The nominal yield on residential mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary - Unaudited for current yields on the investment securities portfolio.

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Available for Sale Securities 

The amortized cost and fair value of available for sale securities are as follows (in thousands):

		June 30, 2018
		Amortized				Fair				Gross Unrealized
		Cost				Value				Gain				Loss				OTTI
U.S. Treasury		$	494			$	490			$	—			$	(4	)		$	—
Municipal and other tax-exempt		10,590				10,697				111				(4		)		—
Residential mortgage-backed securities:
U. S. government agencies:
FNMA		3,088,585				3,007,885				2,774				(83,474		)		—
FHLMC		1,580,185				1,538,582				738				(42,341		)		—
GNMA		772,785				758,093				915				(15,607		)		—
Total U.S. government agencies		5,441,555				5,304,560				4,427				(141,422		)		—
Private issue		65,376				83,224				18,221				—				(373		)
Total residential mortgage-backed securities		5,506,931				5,387,784				22,648				(141,422		)		(373		)
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,799,953				2,738,451				1,815				(63,317		)		—
Other debt securities		25,500				25,444				12				(68		)		—
Total available for sale securities		$	8,343,468			$	8,162,866			$	24,586			$	(204,815	)		$	(373	)

		December 31, 2017
		Amortized				Fair				Gross Unrealized
		Cost				Value				Gain				Loss				OTTI
U.S. Treasury		$	1,000			$	1,000			$	—			$	—			$	—
Municipal and other tax-exempt		27,182				27,080				181				(283		)		—
Residential mortgage-backed securities:
U. S. government agencies:
FNMA		3,021,551				2,997,563				11,549				(35,537		)		—
FHLMC		1,545,971				1,531,009				3,148				(18,110		)		—
GNMA		787,626				780,580				1,607				(8,653		)		—
Total U.S. government agencies		5,355,148				5,309,152				16,304				(62,300		)		—
Private issue		74,311				93,221				19,301				—				(391		)
Total residential mortgage-backed securities		5,429,459				5,402,373				35,605				(62,300		)		(391		)
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,858,885				2,834,961				1,963				(25,887		)		—
Other debt securities		25,500				25,481				50				(69		)		—
Perpetual preferred stock		12,562				15,767				3,205				—				—
Equity securities and mutual funds		14,487				14,916				515				(86		)		—
Total available for sale securities		$	8,369,075			$	8,321,578			$	41,519			$	(88,625	)		$	(391	)

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		June 30, 2017
		Amortized				Fair				Gross Unrealized
		Cost				Value				Gain				Loss				OTTI
U.S. Treasury		$	1,000			$	998			$	—			$	(2	)		$	—
Municipal and other tax-exempt		32,885				32,765				293				(413		)		—
Residential mortgage-backed securities:
U. S. government agencies:
FNMA		3,005,920				3,008,531				24,213				(21,602		)		—
FHLMC		1,412,376				1,412,472				7,785				(7,689		)		—
GNMA		938,086				936,365				3,641				(5,362		)		—
Other		25,000				25,009				52				(43		)		—
Total U.S. government agencies		5,381,382				5,382,377				35,691				(34,696		)		—
Private issue		86,656				103,383				16,727				—				—
Total residential mortgage-backed securities		5,468,038				5,485,760				52,418				(34,696		)		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,788,543				2,782,070				7,804				(14,277		)		—
Other debt securities		4,400				4,152				—				(248		)		—
Perpetual preferred stock		12,562				16,568				4,006				—				—
Equity securities and mutual funds		17,572				18,728				1,219				(63		)		—
Total available for sale securities		$	8,325,000			$	8,341,041			$	65,740			$	(49,699	)		$	—

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The amortized cost and fair values of available for sale securities at June 30, 2018, by contractual maturity, are as shown in the following table (dollars in thousands):

	Less than One Year				One to Five Years				Six to Ten Years				Over Ten Years				Total				Weighted Average Maturity4
U.S. Treasuries:
Amortized cost	$	—			$	494			$	—			$	—			$	494			1.59
Fair value	—				490				—				—				490
Nominal yield	—		%		1.99		%		—		%		—		%		1.99		%
Municipal and other tax-exempt:
Amortized cost	$	4,574			$	2,303			$	—			$	3,713			$	10,590			6.53
Fair value	4,580				2,401				—				3,716				10,697
Nominal yield¹	3.45		%		6.27		%		—		%		3.98		%	5	4.25		%
Commercial mortgage-backed securities:
Amortized cost	$	8,070			$	987,244			$	1,548,520			$	256,119			$	2,799,953			6.89
Fair value	8,041				968,540				1,512,106				249,764				2,738,451
Nominal yield	1.67		%		1.96		%		2.17		%		2.20		%		2.10		%
Other debt securities:
Amortized cost	$	—			$	—			$	—			$	25,500			$	25,500			14.18
Fair value	—				—				—				25,444				25,444
Nominal yield	—		%		—		%		—		%		1.59		%	5	1.59		%
Total fixed maturity securities:
Amortized cost	$	12,644			$	990,041			$	1,548,520			$	285,332			$	2,836,537			6.95
Fair value	12,621				971,431				1,512,106				278,924				2,775,082
Nominal yield	2.31		%		1.97		%		2.17		%		2.17		%		2.10		%
Residential mortgage-backed securities:
Amortized cost																	$	5,506,931			2
Fair value																	5,387,784
Nominal yield3																	2.16		%
Total available-for-sale securities:
Amortized cost																	$	8,343,468
Fair value																	8,162,866
Nominal yield																	2.14		%

1	Calculated on a taxable equivalent basis using a 25 percent effective tax rate.

2	The average expected lives of mortgage-backed securities were 4.3 years years based upon current prepayment assumptions.

3	The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary –– Unaudited following for current yields on available for sale securities portfolio.

4	Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

5	Nominal yield on 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.

Sales of available for sale securities resulted in gains and losses as follows (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017
Proceeds	$	142,743			$	460,402			$	187,533			$	700,412
Gross realized gains	257				2,763				450				4,855
Gross realized losses	(1,019		)		(2,383		)		(1,502		)		(2,426		)
Related federal and state income tax expense (benefit)	(194		)		148				(268		)		945

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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):

	June 30, 2018				Dec. 31, 2017				June 30, 2017
Investment:
Amortized cost	$	172,906			$	226,852			$	251,684
Fair value	174,240				229,429				255,097
Available for sale:
Amortized cost	6,821,287				7,151,468				6,327,666
Fair value	6,653,875				7,089,346				6,317,623

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

At June 30, 2018, trading securities and receivables collateralized by securities with a fair value of $889 million were pledged as collateral at the Federal Home Loan Bank (FHLB) for the trading activities. No trading securities were pledged as collateral as of December 31, 2017 and no trading securities were pledged as collateral at June 30, 2017.

Temporarily Impaired Securities as of June 30, 2018

(in thousands):

		Number of Securities			Less Than 12 Months								12 Months or Longer								Total
					Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
Investment:
Municipal and other tax-exempt		84			$	98,325			$	484			$	5,007			$	187			$	103,332			$	671
U.S. government agency residential mortgage-backed securities		3			6,979				110				2,809				127				9,788				237
Other debt securities		80			36,131				1,795				3,324				196				39,455				1,991
Total investment securities		167			$	141,435			$	2,389			$	11,140			$	510			$	152,575			$	2,899

		Number of Securities			Less Than 12 Months								12 Months or Longer								Total
					Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
Available for sale:
U.S. Treasury		1			$	490			$	4			$	—			$	—			$	490			$	4
Municipal and other tax-exempt		10			4,784				3				495				1				5,279				4
Residential mortgage-backed securities:
U. S. government agencies:
FNMA		174			2,049,432				44,860				710,962				38,614				2,760,394				83,474
FHLMC		93			1,116,337				26,663				339,515				15,678				1,455,852				42,341
GNMA		33			275,104				5,611				220,740				9,996				495,844				15,607
Total U.S. government agencies		300			3,440,873				77,134				1,271,217				64,288				4,712,090				141,422
Private issue1		8			5,409				373				—				—				5,409				373
Total residential mortgage-backed securities		308			3,446,282				77,507				1,271,217				64,288				4,717,499				141,795
Commercial mortgage-backed securities guaranteed by U.S. government agencies		211			1,675,839				42,732				554,819				20,585				2,230,658				63,317
Other debt securities		2			—				—				20,434				68				20,434				68
Total available for sale securities		532			$	5,127,395			$	120,246			$	1,846,965			$	84,942			$	6,974,360			$	205,188

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

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Temporarily Impaired Securities as of December 31, 2017

(In thousands)

		Number of Securities			Less Than 12 Months								12 Months or Longer								Total
					Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
Investment:
Municipal and other tax-exempt		100			$	145,960			$	643			$	5,833			$	161			$	151,793			$	804
U.S. government agency residential mortgage-backed securities		1			—				—				3,356				95				3,356				95
Other debt securities		49			20,091				1,238				3,076				129				23,167				1,367
Total investment securities		150			$	166,051			$	1,881			$	12,265			$	385			$	178,316			$	2,266

		Number of Securities			Less Than 12 Months								12 Months or Longer								Total
					Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
Available for sale:
U.S. Treasury		—			$	—			$	—			$	—			$	—			$	—			$	—
Municipal and other tax-exempt		19			12,765				18				4,802				265				17,567				283
Residential mortgage-backed securities:
U. S. government agencies:
FNMA		113			1,203,041				9,618				824,029				25,919				2,027,070				35,537
FHLMC		69			863,778				7,297				385,816				10,813				1,249,594				18,110
GNMA		27			201,887				1,452				248,742				7,201				450,629				8,653
Total U.S. government agencies		209			2,268,706				18,367				1,458,587				43,933				3,727,293				62,300
Private issue1		8			5,898				391				—				—				5,898				391
Total residential mortgage-backed securities		217			2,274,604				18,758				1,458,587				43,933				3,733,191				62,691
Commercial mortgage-backed securities guaranteed by U.S. government agencies		185			1,465,703				11,824				652,296				14,063				2,117,999				25,887
Other debt securities		2			19,959				41				472				28				20,431				69
Perpetual preferred stocks		—			—				—				—				—				—				—
Equity securities and mutual funds		111			911				7				2,203				79				3,114				86
Total available for sale securities		534			$	3,773,942			$	30,648			$	2,118,360			$	58,368			$	5,892,302			$	89,016

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

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Temporarily Impaired Securities as of June 30, 2017

(In thousands)

		Number of Securities			Less Than 12 Months								12 Months or Longer								Total
					Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
Investment:
Municipal and other tax-exempt		82			$	111,078			$	149			$	3,000			$	79			$	114,078			$	228
U.S. government agency residential mortgage-backed securities		1			3,810				61				—				—				3,810				61
Other debt securities		22			8,384				554				—				—				8,384				554
Total investment securities		105			$	123,272			$	764			$	3,000			$	79			$	126,272			$	843

		Number of Securities			Less Than 12 Months								12 Months or Longer								Total
					Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
Available for sale:
U.S. Treasury		1			$	997			$	2			$	—			$	—			$	997			$	2
Municipal and other tax-exempt		13			1,957				1				4,655				412				6,612				413
Residential mortgage-backed securities:
U. S. government agencies:
FNMA		75			1,381,687				20,288				87,371				1,314				1,469,058				21,602
FHLMC		42			731,853				7,213				16,388				476				748,241				7,689
GNMA		21			291,806				3,766				76,605				1,596				368,411				5,362
Other		1			19,957				43				—				—				19,957				43
Total U.S. government agencies		139			2,425,303				31,310				180,364				3,386				2,605,667				34,696
Private issue1		—			—				—				—				—				—				—
Total residential mortgage-backed securities		139			2,425,303				31,310				180,364				3,386				2,605,667				34,696
Commercial mortgage-backed securities guaranteed by U.S. government agencies		121			1,388,406				12,690				78,828				1,587				1,467,234				14,277
Other debt securities		2			—				—				4,152				248				4,152				248
Perpetual preferred stocks		—			—				—				—				—				—				—
Equity securities and mutual funds		91			1,668				22				887				41				2,555				63
Total available for sale securities		367			$	3,818,331			$	44,025			$	268,886			$	5,674			$	4,087,217			$	49,699

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

Based on evaluations of impaired securities as of June 30, 2018, the Company does not intend to sell any impaired available for sale debt 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.

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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 securities 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):

		June 30, 2018								December 31, 2017								June 30, 2017
		Fair Value				Net Unrealized Gain (Loss)				Fair Value				Net Unrealized Gain (Loss)				Fair Value				Net Unrealized Gain (Loss)
U.S. government agency residential mortgage-backed securities		$	482,227			$	(5,509	)		$	755,054			$	(1,877	)		$	445,169			$	1,247

Restricted Equity Securities

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

	June 30, 2018				Dec. 31, 2017				June 30, 2017
Federal Reserve stock	$	41,178			$	40,746			$	36,676
Federal Home Loan Bank stock	306,543				279,200				274,113
Other	—				243				244
Total	$	347,721			$	320,189			$	311,033

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(3) Derivatives

 

Derivative instruments may be used by the Company as part of its internal risk management programs or may be offered to customers. All derivative instruments are carried at fair value and changes in fair value are reported in earnings as they occur. Credit risk is also considered in determining fair value. Deterioration in the credit rating of customer or other counterparties reduced the fair value of asset contracts. Deterioration of our credit rating could decrease the fair value of our derivative liabilities.

When bilateral netting agreements or similar arrangements exist between the Company and its counterparties that create a single legal claim or obligation to pay or receive the net amount in settlement of the individual derivative contracts, the Company reports derivative assets and liabilities on a net by derivative contract type by counterparty basis.

Derivative contracts may require the Company to provide or receive cash margin as collateral for derivative assets and liabilities. Derivative assets and liabilities are reported net of cash margin when certain conditions are met. In addition, derivative contracts executed with customers under Customer Risk Management Programs may be secured by non-cash collateral in conjunction with a credit agreement with that customer. Access to collateral in the event of default is reasonably assured.

 

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

Customer Risk Management Programs

 

BOK Financial offers programs to permit its customers to manage various risks, including fluctuations in energy, cattle and other agricultural products, interest rates and foreign exchange rates with derivative contracts. Customers may also manage interest rate risk through interest rate swaps used by borrowers to modify interest rate terms of their loans or to-be-announced securities used by mortgage banking customers to hedge their loan production. Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other selected counterparties to minimize the risk of changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to BOK Financial as profit and compensation for administrative costs and credit risk which is recognized over the life of the contracts and included in Other operating revenue – Brokerage and trading revenue in the Consolidated Statements of Earnings.

 

Internal Risk Management Programs

 

BOK Financial may use derivative contracts in managing its interest rate sensitivity, as part of its economic hedge of the change in the fair value of mortgage servicing rights and to mitigate the market risk of holding trading securities. Changes in the fair value of derivative instruments used in managing interest rate sensitivity and as part of the economic hedge of changes in the fair value of mortgage servicing rights are included in Other operating revenue – Gain (loss) on derivatives, net in the Consolidated Statements of Earnings. Changes in the fair value of derivative instruments used to mitigate the market risk of holding trading securities are included in Other operating revenue – Brokerage and trading revenue.

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.

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The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at June 30, 2018 (in thousands):

		Assets
		Notional1				Gross Fair Value				Netting Adjustments				Net Fair Value Before Cash Collateral				Cash Collateral				Fair Value Net of Cash Collateral
Customer risk management programs:
Interest rate contracts
To-be-announced residential mortgage-backed securities		$	15,027,678			$	52,681			$	(17,382	)		$	35,299			$	—			$	35,299
Interest rate swaps		1,745,237				43,040				(2,193		)		40,847				(11,737		)		29,110
Energy contracts		1,465,826				200,640				(69,991		)		130,649				—				130,649
Agricultural contracts		23,508				1,164				(181		)		983				(741		)		242
Foreign exchange contracts		174,851				170,556				—				170,556				(290		)		170,266
Equity option contracts		93,943				4,121				—				4,121				(660		)		3,461
Total customer risk management programs		18,531,043				472,202				(89,747		)		382,455				(13,428		)		369,027
Internal risk management programs		9,672,639				14,760				(10,413		)		4,347				—				4,347
Total derivative contracts		$	28,203,682			$	486,962			$	(100,160	)		$	386,802			$	(13,428	)		$	373,374
		Liabilities
		Notional¹				Gross Fair Value				Netting Adjustments				Net Fair Value Before Cash Collateral				Cash Collateral				Fair Value Net of Cash Collateral
Customer risk management programs:
Interest rate contracts
To-be-announced residential mortgage-backed securities		$	14,443,478			$	49,343			$	(17,382	)		$	31,961			$	(31,808	)		$	153
Interest rate swaps		1,745,237				43,043				(2,193		)		40,850				(4,946		)		35,904
Energy contracts		1,434,980				199,119				(69,990		)		129,129				(112,481		)		16,648
Agricultural contracts		23,496				1,142				(181		)		961				—				961
Foreign exchange contracts		161,567				157,174				(1		)		157,173				(517		)		156,656
Equity option contracts		93,943				4,121				—				4,121				—				4,121
Total customer risk management programs		17,902,701				453,942				(89,747		)		364,195				(149,752		)		214,443
Internal risk management programs		11,648,514				30,826				(10,413		)		20,413				—				20,413
Total derivative contracts		$	29,551,215			$	484,768			$	(100,160	)		$	384,608			$	(149,752	)		$	234,856

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

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The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2017 (in thousands):

		Assets
		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		$	12,347,542			$	23,606			$	(18,096	)		$	5,510			$	—			$	5,510
Interest rate swaps		1,478,944				28,278				—				28,278				(4,964		)		23,314
Energy contracts		1,190,067				103,044				(47,873		)		55,171				(196		)		54,975
Agricultural contracts		53,238				1,576				(960		)		616				—				616
Foreign exchange contracts		132,397				129,551				—				129,551				(448		)		129,103
Equity option contracts		99,633				5,503				—				5,503				(920		)		4,583
Total customer risk management programs		15,301,821				291,558				(66,929		)		224,629				(6,528		)		218,101
Internal risk management programs		4,736,701				9,494				(7,093		)		2,401				—				2,401
Total derivative contracts		$	20,038,522			$	301,052			$	(74,022	)		$	227,030			$	(6,528	)		$	220,502
		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		$	11,537,742			$	20,367			$	(18,096	)		$	2,271			$	(704	)		$	1,567
Interest rate swaps		1,478,944				28,298				—				28,298				(12,896		)		15,402
Energy contracts		1,166,924				101,603				(47,873		)		53,730				(42,767		)		10,963
Agricultural contracts		48,552				1,551				(960		)		591				—				591
Foreign exchange contracts		126,251				123,321				—				123,321				(53		)		123,268
Equity option contracts		99,633				5,503				—				5,503				—				5,503
Total customer risk management programs		14,458,046				280,643				(66,929		)		213,714				(56,420		)		157,294
Internal risk management programs		5,728,421				21,762				(7,093		)		14,669				—				14,669
Total derivative contracts		$	20,186,467			$	302,405			$	(74,022	)		$	228,383			$	(56,420	)		$	171,963

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

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The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at June 30, 2017 (in thousands):

		Assets
		Notional1				Gross Fair Value				Netting Adjustments				Net Fair Value Before Cash Collateral				Cash Collateral				Fair Value Net of Cash Collateral
Customer risk management programs:
Interest rate contracts
To-be-announced residential mortgage-backed securities		$	16,174,687			$	57,948			$	(29,034	)		$	28,914			$	—			$	28,914
Interest rate swaps		1,450,193				29,932				—				29,932				(2,206		)		27,726
Energy contracts		891,480				56,824				(20,546		)		36,278				(21,267		)		15,011
Agricultural contracts		45,250				3,541				(1,027		)		2,514				—				2,514
Foreign exchange contracts		169,529				162,429				—				162,429				(7		)		162,422
Equity option contracts		100,159				4,437				—				4,437				(920		)		3,517
Total customer risk management programs		18,831,298				315,111				(50,607		)		264,504				(24,400		)		240,104
Internal risk management programs		10,680,498				40,185				—				40,185				—				40,185
Total derivative contracts		$	29,511,796			$	355,296			$	(50,607	)		$	304,689			$	(24,400	)		$	280,289
		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		$	16,174,687			$	53,829			$	(29,034	)		$	24,795			$	—			$	24,795
Interest rate swaps		1,450,193				29,982				—				29,982				(15,396		)		14,586
Energy contracts		874,625				53,895				(20,546		)		33,349				—				33,349
Agricultural contracts		45,262				3,538				(1,027		)		2,511				(2,511		)		—
Foreign exchange contracts		169,553				162,276				—				162,276				(3,188		)		159,088
Equity option contracts		100,159				4,437				—				4,437				—				4,437
Total customer risk management programs		18,814,479				307,957				(50,607		)		257,350				(21,095		)		236,255
Internal risk management programs		8,310,950				49,564				—				49,564				—				49,564
Total derivative contracts		$	27,125,429			$	357,521			$	(50,607	)		$	306,914			$	(21,095	)		$	285,819

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

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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
		June 30, 2018								June 30, 2017
		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		$	7,586			$	—			$	9,205			$	—
Interest rate swaps		683				—				665				—
Energy contracts		1,416				—				1,666				—
Agricultural contracts		15				—				11				—
Foreign exchange contracts		96				—				90				—
Equity option contracts		—				—				—				—
Total customer risk management programs		9,796				—				11,637				—
Internal risk management programs		(981		)		(3,057		)		6,485				3,241
Total derivative contracts		$	8,815			$	(3,057	)		$	18,122			$	3,241

		Six Months Ended
		June 30, 2018								June 30, 2017
		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		$	14,405			$	—			$	17,232			$	—
Interest rate swaps		1,439				—				1,124				—
Energy contracts		4,556				—				4,539				—
Agricultural contracts		30				—				20				—
Foreign exchange contracts		272				—				360				—
Equity option contracts		—				—				—				—
Total customer risk management programs		20,702				—				23,275				—
Internal risk management programs		(2,864		)		(8,742		)		6,018				2,791
Total derivative contracts		$	17,838			$	(8,742	)		$	29,293			$	2,791

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(4) Loans and Allowances for Credit Losses

Loans

Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower. BOK Financial is exposed to risk of loss on loans due to the borrower’s difficulties, which may arise from any number of factors, including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Accounting policies for all loans, excluding residential mortgage loans guaranteed by U.S. government agencies, are as follows.

Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccruing status when, in the opinion of management, full collection of principal or interest is uncertain. Internally risk graded loans are individually evaluated for nonaccruing status quarterly. Non-risk graded loans are generally placed on nonaccruing status when more than 90 days past due or within 60 days of being notified of the borrower's bankruptcy filing. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccruing status. Payments on nonaccruing loans are applied to principal or recognized as interest income, according to management’s judgment as to the collectability of principal. Loans may be returned to accruing status when, in the opinion of management, full collection of principal and interest, including principal previously charged off, is probable based on improvements in the borrower’s financial condition or a sustained period of performance.

Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ("TDRs"). All TDRs are classified as nonaccruing, excluding loans guaranteed by U.S. government agencies. Modifications generally consist of extension of payment terms or interest rate concessions and may result either voluntarily through negotiations with the borrower or involuntarily through court order. Generally, principal and accrued but unpaid interest is not voluntarily forgiven.

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

Occasionally, loans, other than residential mortgage loans, may be held for sale in order to manage credit concentration. These loans are carried at the lower of cost or fair value with gains or losses recognized in other gains (losses), net in the Statements of Earnings.

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

Loan origination and commitment fees and direct loan acquisition and origination costs are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. Amortization does not anticipate loan prepayments. Net unamortized fees are recognized in full at time of payoff.

Qualifying residential mortgage loans guaranteed by U.S. government agencies have been sold into GNMA pools. Under certain performance conditions specified in government programs, the Company 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.

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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. 

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

		June 30, 2018																December 31, 2017
		Fixed Rate				Variable Rate				Non-accrual				Total				Fixed Rate				Variable Rate				Non-accrual				Total
Commercial		$	2,206,735			$	9,021,326			$	120,978			$	11,349,039			$	2,217,432			$	8,379,240			$	137,303			$	10,733,975
Commercial real estate		583,782				3,126,442				1,996				3,712,220				548,692				2,928,440				2,855				3,479,987
Residential mortgage		1,567,216				332,691				42,343				1,942,250				1,608,655				317,584				47,447				1,973,686
Personal		168,171				831,676				340				1,000,187				154,517				810,990				269				965,776
Total		$	4,525,904			$	13,312,135			$	165,657			$	18,003,696			$	4,529,296			$	12,436,254			$	187,874			$	17,153,424
Accruing loans past due (90 days)1														$	879															$	633

		June 30, 2017
		Fixed Rate				Variable Rate				Non-accrual				Total
Commercial		$	2,198,066			$	8,242,732			$	197,157			$	10,637,955
Commercial real estate		594,542				3,090,275				3,775				3,688,592
Residential mortgage		1,597,587				297,376				44,235				1,939,198
Personal		150,728				766,900				272				917,900
Total		$	4,540,923			$	12,397,283			$	245,439			$	17,183,645
Accruing loans past due (90 days)1														$	1,414

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

At June 30, 2018, $6.0 billion or 33 percent of our total loan portfolio is to businesses and individuals attributed to the Texas market and $3.5 billion or 20 percent of the total loan portfolio is to businesses and individuals attributed to the Oklahoma market. These geographic concentrations subject the loan portfolio to the general economic conditions within these areas.

Commercial

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

At June 30, 2018, commercial loans attributed to the Texas market totaled $3.8 billion or 33 percent of the commercial loan portfolio segment and commercial loans attributed to the Oklahoma market totaled $2.2 billion or 19 percent of the commercial loan portfolio segment.

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The commercial loan portfolio segment is further divided into loan classes. The energy loan class totaled $3.1 billion or 17 percent of total loans at June 30, 2018, including $2.6 billion of outstanding loans to energy producers. Approximately 56 percent of committed production loans are secured by properties primarily producing oil and 44 percent are secured by properties producing natural gas. The services loan class totaled $2.9 billion or 16 percent of total loans at June 30, 2018. Approximately $1.4 billion of loans in the services category consist of loans with individual balances of less than $10 million. Businesses included in the services class include governmental, educational services, consumer services, financial services and loans to entities providing services for real estate and construction. The healthcare loan class totaled $2.4 billion or 13 percent of total loans at June 30, 2018. The healthcare loan class consists primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Healthcare also includes loans to hospitals and other medical service providers.

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 June 30, 2018, 33 percent of commercial real estate loans are secured by properties primarily located in the Dallas and Houston areas of Texas. An additional 12 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 June 30, 2018, residential mortgage loans included $170 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 $704 million at June 30, 2018. Approximately 62 percent of the home equity loan portfolio is comprised of first lien loans and 38 percent of the home equity portfolio is comprised of junior lien loans. Junior lien loans are distributed 45 percent to amortizing term loans and 55 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.

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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 June 30, 2018, outstanding commitments totaled $10.3 billion. Because some commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans.

The amount of collateral obtained, if deemed necessary, is based upon management’s credit evaluation of the borrower.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Because the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. The term of these standby letters of credit is defined in each commitment and typically corresponds with the underlying loan commitment. At June 30, 2018, outstanding standby letters of credit totaled $660 million. 

Allowances for Credit Losses

BOK Financial maintains an allowance for loan losses and an accrual for off-balance sheet credit risk. The accrual for off-balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees. As discussed in greater detail in Note 6, the Company also has separate accruals for off-balance sheet credit risk related to residential mortgage loans previously sold with full or partial recourse and for residential mortgage loans sold to government sponsored agencies under standard representations and warranties.

The appropriateness of the allowance for loan losses and accrual for off-balance sheet credit losses (collectively "allowance for credit losses") is assessed by management based on an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, including probable losses on both outstanding loans and unused commitments.

The allowance for loan losses consists of specific allowances attributed to impaired loans that have not yet been charged down to amounts we expect to recover, general allowances for unimpaired loans based on estimated loss rates by loan class and nonspecific allowances based on general economic conditions, risk concentration and related factors. There have been no material changes in the approach or techniques utilized in developing the allowance for loan losses and the accrual for off-balance sheet credit losses for the three and six months ended June 30, 2018.

Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due according to the contractual terms of the loan agreements. Internally risk graded loans are evaluated individually for impairment. Substantially all commercial and commercial real estate loans and certain residential mortgage and 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.

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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 June 30, 2018 is summarized as follows (in thousands):

		Commercial				Commercial Real Estate				Residential Mortgage				Personal				Nonspecific Allowance				Total
Allowance for loan losses:
Beginning balance		$	120,083			$	57,070			$	18,431			$	8,408			$	19,975			$	223,967
Provision for loan losses		7,116				(1,409		)		(257		)		755				(4,503		)		1,702
Loans charged off		(13,775		)		—				(135		)		(1,195		)		—				(15,105		)
Recoveries		298				3,097				505				678				—				4,578
Ending balance		$	113,722			$	58,758			$	18,544			$	8,646			$	15,472			$	215,142
Allowance for off-balance sheet credit losses:
Beginning balance		$	4,027			$	44			$	62			$	2			$	—			$	4,135
Provision for off-balance sheet credit losses		(1,666		)		(27		)		(9		)		—				—				(1,702		)
Ending balance		$	2,361			$	17			$	53			$	2			$	—			$	2,433
Total provision for credit losses		$	5,450			$	(1,436	)		$	(266	)		$	755			$	(4,503	)		$	—

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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 six months ended June 30, 2018 is summarized as follows (in thousands):

		Commercial				Commercial Real Estate				Residential Mortgage				Personal				Nonspecific Allowance				Total
Allowance for loan losses:
Beginning balance		$	124,269			$	56,621			$	18,451			$	9,124			$	22,217			$	230,682
Provision for loan losses		4,005				(1,143		)		(419		)		603				(6,745		)		(3,699		)
Loans charged off		(15,338		)		—				(235		)		(2,422		)		—				(17,995		)
Recoveries		786				3,280				747				1,341				—				6,154
Ending balance		$	113,722			$	58,758			$	18,544			$	8,646			$	15,472			$	215,142
Allowance for off-balance sheet credit losses:
Beginning balance		$	3,644			$	45			$	43			$	2			$	—			$	3,734
Provision for off-balance sheet credit losses		(1,283		)		(28		)		10				—				—				(1,301		)
Ending balance		$	2,361			$	17			$	53			$	2			$	—			$	2,433
Total provision for credit losses		$	2,722			$	(1,171	)		$	(409	)		$	603			$	(6,745	)		$	(5,000	)

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 June 30, 2017 is summarized as follows (in thousands):

		Commercial				Commercial Real Estate				Residential Mortgage				Personal				Nonspecific Allowance				Total
Allowance for loan losses:
Beginning balance		$	137,616			$	58,343			$	18,177			$	7,247			$	27,327			$	248,710
Provision for loan losses		1,546				105				(47		)		1,358				47				3,009
Loans charged off		(1,703		)		(76		)		(40		)		(1,053		)		—				(2,872		)
Recoveries		283				208				169				554				—				1,214
Ending balance		$	137,742			$	58,580			$	18,259			$	8,106			$	27,374			$	250,061
Allowance for off-balance sheet credit losses:
Beginning balance		$	9,288			$	106			$	40			$	6			$	—			$	9,440
Provision for off-balance sheet credit losses		(2,987		)		(22		)		(2		)		2				—				(3,009		)
Ending balance		$	6,301			$	84			$	38			$	8			$	—			$	6,431
Total provision for credit losses		$	(1,441	)		$	83			$	(49	)		$	1,360			$	47			$	—

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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 six months ended June 30, 2017 is summarized as follows (in thousands):

		Commercial				Commercial Real Estate				Residential Mortgage				Personal				Nonspecific Allowance				Total
Allowance for loan losses:
Beginning balance		$	140,213			$	50,749			$	18,224			$	8,773			$	28,200			$	246,159
Provision for loan losses		(1,809		)		6,964				(86		)		570				(826		)		4,813
Loans charged off		(2,127		)		(76		)		(276		)		(2,546		)		—				(5,025		)
Recoveries		1,465				943				397				1,309				—				4,114
Ending balance		$	137,742			$	58,580			$	18,259			$	8,106			$	27,374			$	250,061
Allowance for off-balance sheet credit losses:
Beginning balance		$	11,063			$	123			$	50			$	8			$	—			$	11,244
Provision for off-balance sheet credit losses		(4,762		)		(39		)		(12		)		—				—				(4,813		)
Ending balance		$	6,301			$	84			$	38			$	8			$	—			$	6,431
Total provision for credit losses		$	(6,571	)		$	6,925			$	(98	)		$	570			$	(826	)		$	—

The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at June 30, 2018 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		$	11,228,061			$	98,522			$	120,978			$	15,200			$	11,349,039			$	113,722
Commercial real estate		3,710,224				58,758				1,996				—				3,712,220				58,758
Residential mortgage		1,899,907				18,544				42,343				—				1,942,250				18,544
Personal		999,847				8,646				340				—				1,000,187				8,646
Total		17,838,039				184,470				165,657				15,200				18,003,696				199,670
Nonspecific allowance		—				—				—				—				—				15,472
Total		$	17,838,039			$	184,470			$	165,657			$	15,200			$	18,003,696			$	215,142

The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2017 is as follows (in thousands):

		Collectively Measured for Impairment								Individually Measured for Impairment								Total
		Recorded Investment				Related Allowance				Recorded Investment				Related Allowance				Recorded Investment				Related Allowance
Commercial		$	10,596,672			$	115,438			$	137,303			$	8,831			$	10,733,975			$	124,269
Commercial real estate		3,477,132				56,621				2,855				—				3,479,987				56,621
Residential mortgage		1,926,239				18,451				47,447				—				1,973,686				18,451
Personal		965,507				9,124				269				—				965,776				9,124
Total		16,965,550				199,634				187,874				8,831				17,153,424				208,465
Nonspecific allowance		—				—				—				—				—				22,217
Total		$	16,965,550			$	199,634			$	187,874			$	8,831			$	17,153,424			$	230,682

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The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at June 30, 2017 is as follows (in thousands):

		Collectively Measured for Impairment								Individually Measured for Impairment								Total
		Recorded Investment				Related Allowance				Recorded Investment				Related Allowance				Recorded Investment				Related Allowance
Commercial		$	10,440,798			$	128,049			$	197,157			$	9,693			$	10,637,955			$	137,742
Commercial real estate		3,684,817				58,580				3,775				—				3,688,592				58,580
Residential mortgage		1,894,963				18,259				44,235				—				1,939,198				18,259
Personal		917,628				8,106				272				—				917,900				8,106
Total		16,938,206				212,994				245,439				9,693				17,183,645				222,687
Nonspecific allowance		—				—				—				—				—				27,374
Total		$	16,938,206			$	212,994			$	245,439			$	9,693			$	17,183,645			$	250,061

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 June 30, 2018 is as follows (in thousands):

		Internally Risk Graded								Non-Graded								Total
		Recorded Investment				Related Allowance				Recorded Investment				Related Allowance				Recorded Investment				Related Allowance
Commercial		$	11,323,917			$	112,842			$	25,122			$	880			$	11,349,039			$	113,722
Commercial real estate		3,712,220				58,758				—				—				3,712,220				58,758
Residential mortgage		250,081				3,082				1,692,169				15,462				1,942,250				18,544
Personal		917,620				6,621				82,567				2,025				1,000,187				8,646
Total		16,203,838				181,303				1,799,858				18,367				18,003,696				199,670
Nonspecific allowance		—				—				—				—				—				15,472
Total		$	16,203,838			$	181,303			$	1,799,858			$	18,367			$	18,003,696			$	215,142

 

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The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at December 31, 2017 is as follows (in thousands):

		Internally Risk Graded								Non-Graded								Total
		Recorded Investment				Related Allowance				Recorded Investment				Related Allowance				Recorded Investment				Related Allowance
Commercial		$	10,706,035			$	123,383			$	27,940			$	886			$	10,733,975			$	124,269
Commercial real estate		3,479,987				56,621				—				—				3,479,987				56,621
Residential mortgage		234,477				2,947				1,739,209				15,504				1,973,686				18,451
Personal		877,390				6,461				88,386				2,663				965,776				9,124
Total		15,297,889				189,412				1,855,535				19,053				17,153,424				208,465
Nonspecific allowance		—				—				—				—				—				22,217
Total		$	15,297,889			$	189,412			$	1,855,535			$	19,053			$	17,153,424			$	230,682

The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at June 30, 2017 is as follows (in thousands):

		Internally Risk Graded								Non-Graded								Total
		Recorded Investment				Related Allowance				Recorded Investment				Related Allowance				Recorded Investment				Related Allowance
Commercial		$	10,612,477			$	136,819			$	25,478			$	923			$	10,637,955			$	137,742
Commercial real estate		3,688,592				58,580				—				—				3,688,592				58,580
Residential mortgage		216,007				2,976				1,723,191				15,283				1,939,198				18,259
Personal		824,318				5,742				93,582				2,364				917,900				8,106
Total		15,341,394				204,117				1,842,251				18,570				17,183,645				222,687
Nonspecific allowance		—				—				—				—				—				27,374
Total		$	15,341,394			$	204,117			$	1,842,251			$	18,570			$	17,183,645			$	250,061

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

The risk grading process identified certain loans that have a well-defined weakness (e.g. inadequate debt service coverage or liquidity or marginal capitalization; repayment may depend on collateral or other risk mitigation) that may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial condition of the borrower. This is consistent with the regulatory guideline for “substandard.” Because the borrowers are still performing in accordance with the original terms of the loan agreements, these loans were not placed in nonaccruing status. 

Nonaccruing loans represent loans for which full collection of principal and interest is uncertain. This is substantially the same criteria used to determine whether a loan is impaired and includes certain loans considered “substandard” and all loans considered “doubtful” by regulatory guidelines.

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The following table summarizes the Company’s loan portfolio at June 30, 2018 by the risk grade categories (in thousands): 

		Internally Risk Graded																Non-Graded
		Performing
		Pass				Other Loans Especially Mentioned				Accruing Substandard				Nonaccrual				Performing				Nonaccrual				Total
Commercial:
Energy		$	2,936,184			$	52,350			$	93,088			$	65,597			$	—			$	—			$	3,147,219
Services		2,903,168				30,564				6,390				4,377				—				—				2,944,499
Wholesale/retail		1,679,834				900				4,725				14,095				—				—				1,699,554
Manufacturing		620,687				7,559				16,579				2,991				—				—				647,816
Healthcare		2,319,035				2,030				16,532				16,125				—				—				2,353,722
Other commercial and industrial		513,027				400				—				17,680				25,009				113				556,229
Total commercial		10,971,935				93,803				137,314				120,865				25,009				113				11,349,039
Commercial real estate:
Residential construction and land development		116,821				1,828				—				350				—				—				118,999
Retail		745,691				21,173				92				1,068				—				—				768,024
Office		812,848				7,004				—				275				—				—				820,127
Multifamily		1,056,953				—				31				—				—				—				1,056,984
Industrial		653,384				—				—				—				—				—				653,384
Other commercial real estate		294,399				—				—				303				—				—				294,702
Total commercial real estate		3,680,096				30,005				123				1,996				—				—				3,712,220
Residential mortgage:
Permanent mortgage		246,470				—				2,555				1,056				796,282				22,049				1,068,412
Permanent mortgages guaranteed by U.S. government agencies		—				—				—				—				162,086				7,567				169,653
Home equity		—				—				—				—				692,514				11,671				704,185
Total residential mortgage		246,470				—				2,555				1,056				1,650,882				41,287				1,942,250
Personal		917,459				48				34				79				82,306				261				1,000,187
Total		$	15,815,960			$	123,856			$	140,026			$	123,996			$	1,758,197			$	41,661			$	18,003,696

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The following table summarizes the Company’s loan portfolio at December 31, 2017 by the risk grade categories (in thousands): 

		Internally Risk Graded																Non-Graded
		Performing
		Pass				Other Loans Especially Mentioned				Accruing Substandard				Nonaccrual				Performing				Nonaccrual				Total
Commercial:
Energy		$	2,632,986			$	60,288			$	144,598			$	92,284			$	—			$	—			$	2,930,156
Services		2,943,869				13,927				26,533				2,620				—				—				2,986,949
Wholesale/retail		1,443,917				19,263				5,502				2,574				—				—				1,471,256
Manufacturing		472,869				6,653				11,290				5,962				—				—				496,774
Healthcare		2,253,497				3,186				43,305				14,765				—				—				2,314,753
Other commercial and industrial		478,951				7				8,161				19,028				27,870				70				534,087
Total commercial		10,226,089				103,324				239,389				137,233				27,870				70				10,733,975
Commercial real estate:
Residential construction and land development		113,190				1,828				395				1,832				—				—				117,245
Retail		686,915				4,243				98				276				—				—				691,532
Office		824,408				7,087				—				275				—				—				831,770
Multifamily		979,969				—				48				—				—				—				980,017
Industrial		573,014				—				—				—				—				—				573,014
Other commercial real estate		285,506				145				286				472				—				—				286,409
Total commercial real estate		3,463,002				13,303				827				2,855				—				—				3,479,987
Residential mortgage:
Permanent mortgage		232,492				—				822				1,163				784,928				24,030				1,043,435
Permanent mortgages guaranteed by U.S. government agencies		—				—				—				—				188,327				9,179				197,506
Home equity		—				—				—				—				719,670				13,075				732,745
Total residential mortgage		232,492				—				822				1,163				1,692,925				46,284				1,973,686
Personal		875,696				1,548				63				83				88,200				186				965,776
Total		$	14,797,279			$	118,175			$	241,101			$	141,334			$	1,808,995			$	46,540			$	17,153,424

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The following table summarizes the Company’s loan portfolio at June 30, 2017 by the risk grade categories (in thousands): 

		Internally Risk Graded																Non-Graded
		Performing
		Pass				Other Loans Especially Mentioned				Accruing Substandard				Nonaccrual				Performing				Nonaccrual				Total
Commercial:
Energy		$	2,376,368			$	120,473			$	226,407			$	123,992			$	—			$	—			$	2,847,240
Services		2,921,510				12,452				17,111				7,754				—				—				2,958,827
Wholesale/retail		1,507,063				16,224				9,788				10,620				—				—				1,543,695
Manufacturing		513,442				6,540				16,499				9,656				—				—				546,137
Healthcare		2,130,339				33,554				33,120				24,505				—				—				2,221,518
Other commercial and industrial		453,712				2,961				17,861				20,526				25,374				104				520,538
Total commercial		9,902,434				192,204				320,786				197,053				25,374				104				10,637,955
Commercial real estate:
Residential construction and land development		138,790				—				751				2,051				—				—				141,592
Retail		720,730				1,774				—				301				—				—				722,805
Office		859,722				2,855				—				396				—				—				862,973
Multifamily		947,950				—				4,420				10				—				—				952,380
Industrial		693,635				—				—				—				—				—				693,635
Other commercial real estate		314,187				—				3				1,017				—				—				315,207
Total commercial real estate		3,675,014				4,629				5,174				3,775				—				—				3,688,592
Residential mortgage:
Permanent mortgage		212,563				1,693				478				1,273				750,891				22,142				989,040
Permanent mortgages guaranteed by U.S. government agencies		—				—				—				—				182,677				9,052				191,729
Home equity		—				—				—				—				746,661				11,768				758,429
Total residential mortgage		212,563				1,693				478				1,273				1,680,229				42,962				1,939,198
Personal		823,304				49				877				88				93,398				184				917,900
Total		$	14,613,315			$	198,575			$	327,315			$	202,189			$	1,799,001			$	43,250			$	17,183,645

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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 generally includes all nonaccruing loans, all loans modified in a TDR and all loans repurchased from GNMA pools.

A summary of impaired loans follows (in thousands):

	As of																				For the								For the
	June 30, 2018																				Three Months Ended								Six Months Ended
					Recorded Investment																June 30, 2018								June 30, 2018
	Unpaid Principal Balance				Total				With No Allowance				With Allowance				Related Allowance				Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized
Commercial:
Energy	$	84,285			$	65,597			$	19,735			$	45,862			$	9,460			$	77,770			$	—			$	78,940			$	—
Services	7,211				4,377				4,296				81				79				3,243				—				3,498				—
Wholesale/retail	14,523				14,095				2,822				11,273				4,075				8,329				—				8,334				—
Manufacturing	2,995				2,991				2,734				257				257				2,996				—				4,476				—
Healthcare	26,212				16,125				13,583				2,542				1,329				15,734				—				15,445				—
Other commercial and industrial	26,983				17,793				17,793				—				—				18,147				—				18,446				—
Total commercial	162,209				120,978				60,963				60,015				15,200				126,219				—				129,139				—
Commercial real estate:
Residential construction and land development	1,764				350				350				—				—				982				—				1,091				—
Retail	8,134				1,068				1,068				—				—				666				—				672				—
Office	287				275				275				—				—				275				—				275				—
Multifamily	—				—				—				—				—				—				—				—				—
Industrial	—				—				—				—				—				—				—				—				—
Other commercial real estate	509				303				303				—				—				311				—				387				—
Total commercial real estate	10,694				1,996				1,996				—				—				2,234				—				2,425				—
Residential mortgage:
Permanent mortgage	28,402				23,105				23,105				—				—				23,841				322				24,149				628
Permanent mortgage guaranteed by U.S. government agencies1	174,589				169,653				169,653				—				—				170,856				1,574				180,671				3,422
Home equity	13,362				11,671				11,671				—				—				12,002				—				12,373				—
Total residential mortgage	216,353				204,429				204,429				—				—				206,699				1,896				217,193				4,050
Personal	387				340				340				—				—				340				—				305				—
Total	$	389,643			$	327,743			$	267,728			$	60,015			$	15,200			$	335,492			$	1,896			$	349,062			$	4,050

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 June 30, 2018, $7.6 million of these loans were nonaccruing and $162 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.

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A summary of impaired loans at December 31, 2017 follows (in thousands): 

						Recorded Investment
		Unpaid Principal Balance				Total				With No Allowance				With Allowance				Related Allowance
Commercial:
Energy		$	111,011			$	92,284			$	40,968			$	51,316			$	8,814
Services		5,324				2,620				2,620				—				—
Wholesale/retail		9,099				2,574				2,574				—				—
Manufacturing		6,073				5,962				5,962				—				—
Healthcare		25,140				14,765				14,765				—				—
Other commercial and industrial		27,957				19,098				19,080				18				17
Total commercial		184,604				137,303				85,969				51,334				8,831
Commercial real estate:
Residential construction and land development		3,285				1,832				1,832				—				—
Retail		509				276				276				—				—
Office		287				275				275				—				—
Multifamily		—				—				—				—				—
Industrial		—				—				—				—				—
Other commercial real estate		670				472				472				—				—
Total commercial real estate		4,751				2,855				2,855				—				—
Residential mortgage:
Permanent mortgage		30,435				25,193				25,193				—				—
Permanent mortgage guaranteed by U.S. government agencies1		203,814				197,506				197,506				—				—
Home equity		14,548				13,075				13,075				—				—
Total residential mortgage		248,797				235,774				235,774				—				—
Personal		307				269				269				—				—
Total		$	438,459			$	376,201			$	324,867			$	51,334			$	8,831

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, 2017, $9.2 million of these loans were nonaccruing and $188 million were accruing based on the guarantee by U.S. government agencies.

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A summary of impaired loans at June 30, 2017 follows (in thousands): 

																					For the								For the
	As of June 30, 2017																				Three Months Ended								Six Months Ended
					Recorded Investment																June 30, 2017								June 30, 2017
	Unpaid Principal Balance				Total				With No Allowance				With Allowance				Related Allowance				Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized
Commercial:
Energy	$	141,091			$	123,992			$	56,988			$	67,004			$	8,874			$	117,209			$	—			$	128,246			$	—
Services	11,209				7,754				7,754				—				—				7,734				—				7,964				—
Wholesale/retail	17,392				10,620				10,620				—				—				10,855				—				11,013				—
Manufacturing	10,223				9,656				9,656				—				—				7,781				—				7,293				—
Healthcare	24,795				24,505				18,883				5,622				802				12,707				—				12,665				—
Other commercial and industrial	28,933				20,630				20,609				21				17				20,706				—				20,874				—
Total commercial	233,643				197,157				124,510				72,647				9,693				176,992				—				188,055				—
Commercial real estate:
Residential construction and land development	3,676				2,051				2,051				—				—				2,334				—				2,742				—
Retail	518				301				301				—				—				308				—				314				—
Office	499				396				396				—				—				404				—				411				—
Multifamily	1,000				10				10				—				—				17				—				24				—
Industrial	—				—				—				—				—				38				—				38				—
Other commercial real estate	1,212				1,017				1,017				—				—				1,024				—				1,119				—
Total commercial real estate	6,905				3,775				3,775				—				—				4,125				—				4,648				—
Residential mortgage:
Permanent mortgage	28,603				23,415				23,415				—				—				23,801				307				23,135				598
Permanent mortgage guaranteed by U.S. government agencies1	197,659				191,729				191,729				—				—				202,946				2,021				205,159				3,925
Home equity	13,064				11,768				11,768				—				—				11,776				—				11,643				—
Total residential mortgage	239,326				226,912				226,912				—				—				238,523				2,328				239,937				4,523
Personal	307				272				272				—				—				253				—				281				—
Total	$	480,181			$	428,116			$	355,469			$	72,647			$	9,693			$	419,893			$	2,328			$	432,921			$	4,523

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 June 30, 2017, $9.1 million of these loans were nonaccruing and $183 million were accruing based on the guarantee by U.S. government agencies.

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Troubled Debt Restructurings

At June 30, 2018 the Company had $152 million in troubled debt restructurings (TDRs), of which $75 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $80 million of TDRs were performing in accordance with the modified terms.

At December 31, 2017, the Company had $126 million in TDRs, of which $74 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $48 million of TDRs were performing in accordance with the modified terms.

At June 30, 2017, TDRs totaled $169 million, of which $81 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $71 million of TDRs were performing in accordance with the modified terms.

TDRs generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed borrowers. During the three and six months ended June 30, 2018, $19 million and $32 million of loans were restructured and $5.5 million and $5.6 million of loans designated as TDRs were charged off. During the three and six months ended June 30, 2017, $34 million and $53 million of loans were restructured and $10 thousand and $42 thousand of loans designated as TDRs were charged off.

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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 June 30, 2018 is as follows (in thousands):

						Past Due
		Current				30 to 59 Days				60 to 89 Days				90 Days or More				Nonaccrual				Total
Commercial:
Energy		$	3,081,622			$	—			$	—			$	—			$	65,597			$	3,147,219
Services		2,937,699				1,619				106				698				4,377				2,944,499
Wholesale/retail		1,685,175				284				—				—				14,095				1,699,554
Manufacturing		644,825				—				—				—				2,991				647,816
Healthcare		2,322,580				—				15,017				—				16,125				2,353,722
Other commercial and industrial		538,269				52				105				10				17,793				556,229
Total commercial		11,210,170				1,955				15,228				708				120,978				11,349,039
Commercial real estate:
Residential construction and land development		118,649				—				—				—				350				118,999
Retail		766,956				—				—				—				1,068				768,024
Office		819,852				—				—				—				275				820,127
Multifamily		1,056,984				—				—				—				—				1,056,984
Industrial		653,384				—				—				—				—				653,384
Other commercial real estate		294,377				—				—				22				303				294,702
Total commercial real estate		3,710,202				—				—				22				1,996				3,712,220
Residential mortgage:
Permanent mortgage		1,041,859				2,568				796				84				23,105				1,068,412
Permanent mortgages guaranteed by U.S. government agencies		38,717				14,757				12,878				95,734				7,567				169,653
Home equity		690,743				1,612				94				65				11,671				704,185
Total residential mortgage		1,771,319				18,937				13,768				95,883				42,343				1,942,250
Personal		999,519				178				150				—				340				1,000,187
Total		$	17,691,210			$	21,070			$	29,146			$	96,613			$	165,657			$	18,003,696

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A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 2017 is as follows (in thousands):

						Past Due
		Current				30 to 59 Days				60 to 89 Days			90 Days or More				Nonaccrual				Total
Commercial:
Energy		$	2,833,668			$	—			4,204			$	—			$	92,284			$	2,930,156
Services		2,983,222				514				486			107				2,620				2,986,949
Wholesale/retail		1,468,284				398				—			—				2,574				1,471,256
Manufacturing		490,739				—				73			—				5,962				496,774
Healthcare		2,284,770				15,218				—			—				14,765				2,314,753
Other commercial and industrial		514,701				85				78			125				19,098				534,087
Total commercial		10,575,384				16,215				4,841			232				137,303				10,733,975
Commercial real estate:
Residential construction and land development		115,213				200				—			—				1,832				117,245
Retail		691,256				—				—			—				276				691,532
Office		831,118				254				—			123				275				831,770
Multifamily		979,625				22				370			—				—				980,017
Industrial		573,014				—				—			—				—				573,014
Other commercial real estate		285,937				—				—			—				472				286,409
Total commercial real estate		3,476,163				476				370			123				2,855				3,479,987
Residential mortgage:
Permanent mortgage		1,014,588				3,435				219			—				25,193				1,043,435
Permanent mortgages guaranteed by U.S. government agencies		22,692				18,978				13,468			133,189				9,179				197,506
Home equity		717,007				2,206				440			17				13,075				732,745
Total residential mortgage		1,754,287				24,619				14,127			133,206				47,447				1,973,686
Personal		964,374				681				191			261				269				965,776
Total		$	16,770,208			$	41,991			19,529			$	133,822			$	187,874			$	17,153,424

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A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of June 30, 2017 is as follows (in thousands):

						Past Due
		Current				30 to 59 Days				60 to 89 Days			90 Days or More				Nonaccrual				Total
Commercial:
Energy		$	2,723,248			$	—			—			$	—			$	123,992			$	2,847,240
Services		2,949,562				50				180			1,281				7,754				2,958,827
Wholesale/retail		1,532,986				89				—			—				10,620				1,543,695
Manufacturing		536,481				—				—			—				9,656				546,137
Healthcare		2,196,088				925				—			—				24,505				2,221,518
Other commercial and industrial		499,743				45				119			1				20,630				520,538
Total commercial		10,438,108				1,109				299			1,282				197,157				10,637,955
Commercial real estate:
Residential construction and land development		139,070				471				—			—				2,051				141,592
Retail		722,504				—				—			—				301				722,805
Office		862,577				—				—			—				396				862,973
Multifamily		952,370				—				—			—				10				952,380
Industrial		693,635				—				—			—				—				693,635
Other commercial real estate		314,187				3				—			—				1,017				315,207
Total commercial real estate		3,684,343				474				—			—				3,775				3,688,592
Residential mortgage:
Permanent mortgage		962,443				2,024				1,026			132				23,415				989,040
Permanent mortgages guaranteed by U.S. government agencies		36,867				18,416				13,581			113,813				9,052				191,729
Home equity		744,735				1,564				362			—				11,768				758,429
Total residential mortgage		1,744,045				22,004				14,969			113,945				44,235				1,939,198
Personal		916,852				487				289			—				272				917,900
Total		$	16,783,348			$	24,074			15,557			$	115,227			$	245,439			$	17,183,645

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(5) Acquisitions

On June 18, 2018, the Company announced the signing of a definitive merger agreement with CoBiz Financial Inc. CoBiz is headquartered in Denver with a presence in Colorado and Arizona and has approximately $3.8 billion in assets. Upon completion of the merger, CoBiz shareholders will receive 0.17 shares of BOK Financial common stock and $5.70 in cash for each share of CoBiz common stock. The merger is subject to customary closing conditions including regulatory approval.

On May 1, 2018, the Company acquired a majority voting interest in Switchgrass Holdings, LLC, a restaurant franchise owner and operator, pursuant to merchant banking regulations and restrictions. The purchase price for this acquisition was $14 million. The preliminary purchase price allocation included $6.1 million of goodwill.

(6) Mortgage Banking Activities

Residential Mortgage Loan Production

The Company originates, markets and services conventional and government-sponsored residential mortgage loans. Generally, conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-rate residential mortgage loans are retained for investment. Residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sales commitments, which are considered derivative contracts that have not been designated as hedging instruments for accounting purposes. The volume of mortgage loans originated for sale and secondary market prices are the primary drivers of originating and marketing revenue.

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

The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to residential mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held for sale on the Consolidated Balance Sheets were (in thousands):

		June 30, 2018								December 31, 2017								June 30, 2017
		Unpaid Principal Balance/ Notional				Fair Value				Unpaid Principal Balance/ Notional				Fair Value				Unpaid Principal  Balance/ Notional				Fair Value
Residential mortgage loans held for sale		$	214,717			$	216,983			$	212,525			$	215,113			$	269,772			$	275,179
Residential mortgage loan commitments		251,231				7,473				222,919				6,523				362,088				10,993
Forward sales contracts		440,735				(1,155		)		380,159				(258		)		587,595				1,087
						$	223,301							$	221,378							$	287,259

No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of June 30, 2018, December 31, 2017 or June 30, 2017. No credit losses were recognized on residential mortgage loans held for sale for the six month period ended June 30, 2018 and 2017.

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Mortgage banking revenue was as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Production revenue:
Net realized gains on sale of mortgage loans		$	10,718			$	11,787			$	19,636			$	20,402
Net change in unrealized gain on mortgage loans held for sale		1,047				985				(322		)		4,827
Net change in the fair value of mortgage loan commitments		(1,124		)		(3,274		)		950				1,260
Net change in the fair value of forward sales contracts		(726		)		4,342				(897		)		(4,106		)
Total production revenue		9,915				13,840				19,367				22,383
Servicing revenue		16,431				16,436				33,004				33,084
Total mortgage banking revenue		$	26,346			$	30,276			$	52,371			$	55,467

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

Residential Mortgage Servicing

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

The following represents a summary of mortgage servicing rights (Dollars in thousands):

		June 30, 2018				December 31, 2017				June 30, 2017
Number of residential mortgage loans serviced for others		134,868				136,528				138,335
Outstanding principal balance of residential mortgage loans serviced for others		$	21,963,309			$	22,046,632			$	22,095,232
Weighted average interest rate		3.96		%		3.94		%		3.95		%
Remaining term (in months)		295				297				299

The following represents activity in capitalized mortgage servicing rights (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017
Beginning Balance	$	274,978			$	249,403			$	252,867			$	247,073
Additions, net	10,820				11,078				19,720				19,514
Change in fair value due to principal payments	(8,802		)		(8,299		)		(16,797		)		(16,261		)
Change in fair value due to market assumption changes	1,723				(6,943		)		22,929				(5,087		)
Ending Balance	$	278,719			$	245,239			$	278,719			$	245,239

Changes in the fair value of mortgage servicing rights due to market assumption changes are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to principal payments are included in Mortgage banking costs. 

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Mortgage servicing rights are not traded in active markets. Fair value is determined by discounting the projected net cash flows. Significant market assumptions used to determine fair value based on significant unobservable inputs were as follows:

		June 30, 2018		December 31, 2017		June 30, 2017
Discount rate – risk-free rate plus a market premium		9.91%		9.84%		9.84%
Prepayment rate - based upon loan interest rate, original term and loan type		8.12% - 15.08%		8.72% - 15.16%		8.61%-15.91%
Loan servicing costs – annually per loan based upon loan type:
Performing loans		$65 - $88		$65 - $88		$65-$120
Delinquent loans		$150 - $500		$150 - $500		$150-$500
Loans in foreclosure		$1,000 - $4,000		$1,000 - $4,000		$1,000-$4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life		2.88%		2.24%		1.95%
Primary/secondary mortgage rate spread		105 bps		105 bps		105 bps

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

The aging status of our mortgage loans serviced for others by investor at June 30, 2018 follows (in thousands):

						Past Due
		Current				30 to 59 Days				60 to 89 Days				90 Days or More				Total
FHLMC		$	7,932,832			$	68,996			$	9,405			$	25,129			$	8,036,362
FNMA		6,491,492				77,424				9,118				20,918				6,598,952
GNMA		6,624,862				198,852				47,791				15,204				6,886,709
Other		433,830				4,989				221				2,246				441,286
Total		$	21,483,016			$	350,261			$	66,535			$	63,497			$	21,963,309

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(7)  Commitments and Contingent Liabilities

Litigation Contingencies

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

BOK Financial currently owns 252,233 Visa Class B shares which are convertible into 411,089 shares of Visa Class A shares after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may be assigned until the Class B shares are converted into a known number of Class A shares.

On June 24, 2015, the Bank received a complaint alleging that an employee had colluded with a bond issuer and an individual in misusing revenues pledged to municipal bonds for which the Bank served as trustee under the bond indenture. The Company conducted an investigation and concluded that employees in one of its Corporate Trust offices had, with respect to a single group of affiliated bond issuances, violated Company policies and procedures by waiving financial covenants, granting forbearances and accepting without disclosure to the bondholders, debt service payments from sources other than pledged revenues. The relationship manager was terminated. The Company reported the circumstances to, and cooperated with an investigation by, the Securities and Exchange Commission ("SEC"). On December 28, 2015, in an action brought by the SEC, the United States District Court for the District of New Jersey entered a judgment against the principals involved in issuing the bonds, precluding the principals from denying the alleged violations of the federal securities laws and requiring the principals to pay all outstanding principal, accrued interest, and other amounts required under the bond documents (now estimated to be approximately $40 million, less the value of the facilities securing repayment of the bonds), subject to oversight by a court appointed monitor. On September 7, 2016, the Bank agreed, and the SEC entered, a consent order finding that the Bank had violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring the Bank to disgorge $1,067,721 of fees and pay a civil penalty of $600,000. The Bank has disgorged the fees and paid the penalty. 

On August 26, 2016, the Bank was sued in the United States District Court for New Jersey by two bondholders in a putative class action on behalf of all holders of the bonds alleging the Bank participated in the fraudulent sale of securities by the principals. On September 14, 2016, the Bank was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders alleging the Bank participated in the fraudulent sale of securities by the principals. Two separate small groups of bondholders have filed arbitration complaints with the Financial Institutions Regulatory Association respecting the bonds and other bonds for which the Bank served as indenture trustee. Management has been advised by counsel that the Bank has valid defenses to the claims.

On September 15, 2017, the principal of the bond issuances filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Georgia. The principal subsequently sought and obtained an order dismissing the Chapter 11 proceeding. The obligation of the principal to pay all principal and interest on the bonds is non-dischargeable in bankruptcy. The Bank expects the Court ordered payment plan will result in the payment of the bonds by the principals. Accordingly, no loss is probable at this time and no provision for loss has been made. If the payment plan does not result in payment of the bonds, a loss could become probable. A reasonable estimate cannot be made at this time though the amount could be material to the Company. 

On March 5, 2018, the Bank was sued in the Fulton, Georgia County District Court by the administratrix of a deceased resident who had sued for and obtained a judgment for wrongful death against one of the operators of a nursing home financed by one of the bonds which are the subject of the litigation discussed above. The judgment is alleged to total approximately $8 million in principal and interest at this time. Plaintiff alleges that BOKF, in its capacity as indenture trustee for the bonds, colluded with the borrower and others to defraud creditors of the nursing home by misleading the public about the solvency of the nursing home. Plaintiff alleges that this conduct has prevented her from collecting on her judgment. The Bank is advised by counsel that the Bank has valid defenses to the plaintiffs’ claims and no loss is probable.

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On March 14, 2017, the Bank was sued in the United States District Court for the Northern District of Oklahoma by bondholders in a second putative class action representing a different set of municipal securities. The bondholders in this second action allege two individuals purchased facilities from the principals who are the subject of the SEC New Jersey proceedings by means of the fraudulent sale of $60 million of municipal securities for which the Bank also served as indenture trustee. The bondholders allege the Bank failed to disclose that the seller of the purchased facilities had engaged in the conduct complained of in the New Jersey action. The Bank properly performed all duties as indenture trustee of this second set of municipal securities, timely commenced proceedings against the issuer of the securities when default occurred, is cooperating with the SEC in actions against the two principals, is not a target of the SEC proceedings, and has been advised by counsel that the Bank has valid defenses to the claims of these bondholders. It is the opinion of management that no loss is probable at this time.

On March 7, 2017, a plaintiff filed a putative class action in the United States District Court for the Northern District of Texas alleging an extended overdraft fee charged by the Bank is interest and exceeds permitted rates. The Bank was previously sued in a class action in the United States District Court for the Northern District of Oklahoma making the same allegations. Pursuant to a motion to dismiss, the Northern District of Oklahoma Court action was dismissed. Other courts considering the question whether extended overdraft fees are interest have likewise determined such fees are not interest. The Bank has moved to dismiss the action. The Northern District of Texas Action was dismissed upon motion by the Bank with leave granted the plaintiff to file an amended complaint. The plaintiff filed an amended complaint. The Bank has again moved to dismiss the complaint, which motion to dismiss is pending before the Court. Management is advised by counsel that a loss is not probable and that the loss, if any, cannot be reasonably estimated.

On July 6, 2018, a plaintiff served a petition in a putative class action in the Oklahoma District Court for Tulsa County Oklahoma alleging BOKF NA breached its Demand Deposit Agreements by charging overdraft and not sufficient funds fees to deposit accounts on the day of the transaction triggering the fee and by the bank's debit hold process causing overdraft fees. Management is advised by counsel that a loss is not probable and that the loss, if any, cannot be reasonably estimated.

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

                        

Alternative Investment Commitments

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

BOKF Equity, LLC, an indirect wholly-owned subsidiary, is the general partner of two consolidated private equity funds (“the Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related parties, through unaffiliated limited partnerships. These unaffiliated limited partnerships generally invest in distressed assets, asset buy-outs or venture capital companies. As general partner, BOKF Equity, LLC has the power to direct activities that most significantly affect the Funds' performance and contingent obligations to make additional investments totaling $3.4 million at June 30, 2018. 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.

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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 June 30, 2018, December 31, 2017 and June 30, 2017 is as follows (in thousands):

		June 30, 2018
		Loans				Other assets				Other liabilities				Other borrowings				Non-controlling interests
Consolidated:
Private equity funds		$	—			$	14,150			$	—			$	—			$	10,747
Tax credit entities		10,000				10,964				—				10,964				10,000
Other		—				17,608				1,871				—				1,867
Total consolidated		$	10,000			$	42,722			$	1,871			$	10,964			$	22,614
Unconsolidated:
Tax credit entities		$	62,188			$	147,071			$	49,472			$	—			$	—
Other		—				45,070				19,786				—				—
Total unconsolidated		$	62,188			$	192,141			$	69,258			$	—			$	—

		December 31, 2017
		Loans				Other assets				Other liabilities				Other borrowings				Non-controlling interests
Consolidated:
Private equity funds		$	—			$	14,783			$	—			$	—			$	11,927
Tax credit entities		10,000				10,964				—				10,964				10,000
Other		—				1,040				—				—				1,040
Total consolidated		$	10,000			$	26,787			$	—			$	10,964			$	22,967
Unconsolidated:
Tax credit entities		$	52,852			$	153,506			$	47,859			$	—			$	—
Other		—				38,397				22,968				—				—
Total unconsolidated		$	52,852			$	191,903			$	70,827			$	—			$	—

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		June 30, 2017
		Loans				Other assets				Other liabilities				Other borrowings				Non-controlling interests
Consolidated:
Private equity funds		$	—			$	16,905			$	—			$	—			$	14,199
Tax credit entities		10,000				11,274				—				10,964				10,000
Other		—				15,894				1,621				878				2,877
Total consolidated		$	10,000			$	44,073			$	1,621			$	11,842			$	27,076
Unconsolidated:
Tax credit entities		$	59,744			$	148,525			$	63,822			$	—			$	—
Other		—				33,155				13,680				—				—
Total unconsolidated		$	59,744			$	181,680			$	77,502			$	—			$	—

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(8) Shareholders' Equity

On July 24, 2018, the Company declared a quarterly cash dividend of $0.50 per common share payable on or about August 27, 2018 to shareholders of record as of August 13, 2018.

Dividends declared were $0.45 and $0.90 per share during the three and six months ended June 30, 2018 and $0.44 and $0.88 per share during the three and six months ended June 30, 2017.

Accumulated Other Comprehensive Income (Loss)

AOCI includes unrealized gains and losses on available for sale ("AFS") securities and non-credit related unrealized losses on AFS securities for which an other-than-temporary impairment has been recorded in earnings. Unrealized losses on employee benefit plans will be reclassified into income as pension plan costs are recognized over the remaining service period of plan participants. Gains and losses in AOCI are net of deferred income taxes.

A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):

		Unrealized Gain (Loss) on
		Available for Sale Securities				Employee Benefit Plans				Total
Balance, December 31, 2016		$	(9,087	)		$	(1,880	)		$	(10,967	)
Net change in unrealized gain (loss)		33,369				—				33,369
Reclassification adjustments included in earnings:
Gain on available for sale securities, net		(2,429		)		—				(2,429		)
Other comprehensive income (loss), before income taxes		30,940				—				30,940
Federal and state income taxes1		12,009				—				12,009
Other comprehensive income (loss), net of income taxes		18,931				—				18,931
Balance, June 30, 2017		$	9,844			$	(1,880	)		$	7,964
Balance, December 31, 2017		$	(35,385	)		$	(789	)		$	(36,174	)
Transition adjustment for net unrealized gains on equity securities		(2,709		)		—				(2,709		)
Net change in unrealized gain (loss)		(130,523		)		—				(130,523		)
Reclassification adjustments included in earnings:
Loss on available for sale securities, net		1,052				—				1,052
Other comprehensive income (loss), before income taxes		(129,471		)		—				(129,471		)
Federal and state income taxes2		(33,049		)		—				(33,049		)
Other comprehensive income (loss), net of income taxes		(96,422		)		—				(96,422		)
Balance, June 30, 2018		$	(134,516	)		$	(789	)		$	(135,305	)

1	Calculated using a 39 percent blended federal and state statutory tax rate.

2	Calculated using a 25 percent blended federal and state statutory tax rate.

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(9)  Earnings Per Share

 

(In thousands, except share and per share amounts)		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Numerator:
Net income attributable to BOK Financial Corp. shareholders		$	114,372			$	88,147			$	219,934			$	176,503
Less: Earnings allocated to participating securities		956				926				1,978				1,929
Numerator for basic earnings per share – income available to common shareholders		113,416				87,221				217,956				174,574
Effect of reallocating undistributed earnings of participating securities		1				1				1				1
Numerator for diluted earnings per share – income available to common shareholders		$	113,417			$	87,222			$	217,957			$	174,575
Denominator:
Weighted average shares outstanding		65,448,035				65,416,274				65,463,671				65,436,909
Less:  Participating securities included in weighted average shares outstanding		546,060				686,522				589,104				714,165
Denominator for basic earnings per common share		64,901,975				64,729,752				64,874,567				64,722,744
Dilutive effect of employee stock compensation plans1		35,251				63,382				37,985				65,578
Denominator for diluted earnings per common share		64,937,226				64,793,134				64,912,552				64,788,322
Basic earnings per share		$	1.75			$	1.35			$	3.36			$	2.70
Diluted earnings per share		$	1.75			$	1.35			$	3.36			$	2.69
1  Excludes employee stock options with exercise prices greater than current market price.		—				—				—				—

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(10)  Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2018 is as follows (in thousands):

		Commercial				Consumer				Wealth Management				Funds Management and Other				BOK Financial Consolidated
Net interest revenue from external sources		$	182,127			$	21,746			$	18,754			$	15,935			$	238,562
Net interest revenue (expense) from internal sources		(37,102		)		17,548				10,232				9,322				—
Net interest revenue		145,025				39,294				28,986				25,257				238,562
Provision for credit losses		10,108				1,139				(105		)		(11,142		)		—
Net interest revenue after provision for credit losses		134,917				38,155				29,091				36,399				238,562
Other operating revenue		43,047				46,320				70,642				(3,610		)		156,399
Other operating expense		47,483				55,906				61,491				81,596				246,476
Net direct contribution		130,481				28,569				38,242				(48,807		)		148,485
Gain (loss) on financial instruments, net		9				(6,411		)		—				6,402				—
Change in fair value of mortgage servicing rights		—				1,723				—				(1,723		)		—
Gain (loss) on repossessed assets, net		(67		)		174				—				(107		)		—
Corporate expense allocations		11,269				15,867				11,142				(38,278		)		—
Net income before taxes		119,154				8,188				27,100				(5,957		)		148,485
Federal and state income taxes		31,577				2,086				6,981				(7,314		)		33,330
Net income		87,577				6,102				20,119				1,357				115,155
Net income attributable to non-controlling interests		—				—				—				783				783
Net income attributable to BOK Financial Corp. shareholders		$	87,577			$	6,102			$	20,119			$	574			$	114,372
Average assets		$	18,072,155			$	8,353,558			$	8,495,557			$	(1,015,235	)		$	33,906,035

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Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2018 is as follows (in thousands):

		Commercial				Consumer				Wealth Management				Funds Management and Other				BOK Financial Consolidated
Net interest revenue from external sources		$	342,541			$	43,499			$	34,161			$	38,097			$	458,298
Net interest revenue (expense) from internal sources		(65,445		)		32,772				20,164				12,509				—
Net interest revenue		277,096				76,271				54,325				50,606				458,298
Provision for credit losses		10,735				2,440				(153		)		(18,022		)		(5,000		)
Net interest revenue after provision for credit losses		266,361				73,831				54,478				68,628				463,298
Other operating revenue		82,722				91,269				145,409				(7,012		)		312,388
Other operating expense		93,950				105,760				124,295				166,901				490,906
Net direct contribution		255,133				59,340				75,592				(105,285		)		284,780
Gain on financial instruments, net		16				(29,672		)		—				29,656				—
Change in fair value of mortgage servicing rights		—				22,929				—				(22,929		)		—
Gain (loss) on repossessed assets, net		(4,232		)		66				—				4,166				—
Corporate expense allocations		23,776				31,897				22,097				(77,770		)		—
Net income before taxes		227,141				20,766				53,495				(16,622		)		284,780
Federal and state income taxes		60,319				5,288				13,767				(15,096		)		64,278
Net income		166,822				15,478				39,728				(1,526		)		220,502
Net income attributable to non-controlling interests		—				—				—				568				568
Net income attributable to BOK Financial Corp. shareholders		$	166,822			$	15,478			$	39,728			$	(2,094	)		$	219,934
Average assets		$	17,933,756			$	8,410,513			$	8,296,780			$	(825,055	)		$	33,815,994

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2017 is as follows (in thousands):

		Commercial				Consumer				Wealth Management				Funds Management and Other				BOK Financial Consolidated
Net interest revenue from external sources		$	154,377			$	20,756			$	10,475			$	19,596			$	205,204
Net interest revenue (expense) from internal sources		(21,715		)		13,447				10,325				(2,057		)		—
Net interest revenue		132,662				34,203				20,800				17,539				205,204
Provision for credit losses		1,228				926				(92		)		(2,062		)		—
Net interest revenue after provision for credit losses		131,434				33,277				20,892				19,601				205,204
Other operating revenue		56,353				50,744				75,569				(414		)		182,252
Other operating expense		59,511				55,125				60,616				75,633				250,885
Net direct contribution		128,276				28,896				35,845				(56,446		)		136,571
Gain (loss) on financial instruments, net		3				5,224				—				(5,227		)		—
Change in fair value of mortgage servicing rights		—				(6,943		)		—				6,943				—
Gain (loss) on repossessed assets, net		1,403				98				—				(1,501		)		—
Corporate expense allocations		8,955				16,912				9,947				(35,814		)		—
Net income before taxes		120,727				10,363				25,898				(20,417		)		136,571
Federal and state income taxes		49,382				4,031				10,209				(15,917		)		47,705
Net income		71,345				6,332				15,689				(4,500		)		88,866
Net income attributable to non-controlling interests		—				—				—				719				719
Net income (loss) attributable to BOK Financial Corp. shareholders		$	71,345			$	6,332			$	15,689			$	(5,219	)		$	88,147
Average assets		$	17,791,671			$	8,441,831			$	6,960,872			$	(825,803	)		$	32,368,571

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Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2017 is as follows (in thousands):

		Commercial				Consumer				Wealth Management				Funds Management and Other				BOK Financial Consolidated
Net interest revenue from external sources		$	301,753			$	39,348			$	21,960			$	43,325			$	406,386
Net interest revenue (expense) from internal sources		(39,831		)		25,864				19,181				(5,214		)		—
Net interest revenue		261,922				65,212				41,141				38,111				406,386
Provision for credit losses		(236		)		2,199				(53		)		(1,910		)		—
Net interest revenue after provision for credit losses		262,158				63,013				41,194				40,021				406,386
Other operating revenue		103,198				95,879				149,727				3,744				352,548
Other operating expense		112,416				107,991				121,025				154,164				495,596
Net direct contribution		252,940				50,901				69,896				(110,399		)		263,338
Gain (loss) on financial instruments, net		41				3,557				—				(3,598		)		—
Change in fair value of mortgage servicing rights		—				(5,087		)		—				5,087				—
Gain (loss) on repossessed assets, net		1,398				(39		)		—				(1,359		)		—
Corporate expense allocations		17,674				33,658				20,619				(71,951		)		—
Net income before taxes		236,705				15,674				49,277				(38,318		)		263,338
Federal and state income taxes		96,949				6,097				19,429				(36,667		)		85,808
Net income		139,756				9,577				29,848				(1,651		)		177,530
Net income attributable to non-controlling interests		—				—				—				1,027				1,027
Net income attributable to BOK Financial Corp. shareholders		$	139,756			$	9,577			$	29,848			$	(2,678	)		$	176,503
Average assets		$	17,716,738			$	8,360,022			$	6,960,872			$	(377,472	)		$	32,660,160

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(11) Fees and Commissions Revenue

Fees and commissions revenue is generated through the sales of products, consisting primarily of financial instruments, and the performance of services for customers under contractual obligations. Revenue from providing services for customers is recognized at the time services are provided in an amount that reflects the consideration we expect to be entitled to for those services. Revenue is recognized based on the application of five steps:

•	Identify the contract with a customer

•	Identify the performance obligations in the contract

•	Determine the transaction price

•	Allocate the transaction price to the performance obligations in the contract

•	Recognize revenue when (or as) the Company satisfies a performance obligation

For contracts with multiple performance obligations, individual performance obligations are accounted for separately if the customer can benefit from the good or service on its own or with other resources readily available to the customer and the promise to transfer goods and services to the customer is separately identifiable in the contract. The transaction price is allocated to the performance obligations based on relative standalone selling prices.

Revenue is recognized on a gross basis whenever we have primary responsibility and risk in providing the services or products to our customers and have discretion in establishing the price for the services or products. Revenue is recognized on a net basis whenever we act as an agent for products or services of others. 

 

Brokerage and trading revenue includes revenues from trading, customer hedging, retail brokerage and investment banking. Trading revenue includes net realized and unrealized gains primarily related to sales of securities to institutional customers and related derivative contracts. Customer hedging revenue includes realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs including credit valuation adjustments, as necessary. We offer commodity, interest rate, foreign exchange and equity derivatives to our customers. These customer contracts are offset with contracts with selected counterparties and exchanges to minimize changes in market risk from changes in commodity prices, interest rates or foreign exchange rates. Retail brokerage revenue represents fees and commissions earned on sales of fixed income securities, annuities, mutual funds and other financial instruments to retail customers. Investment banking revenue includes fees earned upon completion of underwriting and financial advisory services. Investment banking revenue also includes fees earned in conjunction with loan syndications.

 

Transaction card revenue includes merchant discount fees and electronic funds transfer network fees, net of interchange fees paid to card issuers and assessments paid to card networks. Merchant discount fees represent fees paid by customers for account management and electronic processing of card transactions. Merchant discount fees are recognized at the time the customer’s transactions are processed or other services are performed. The Company also maintains the TransFund electronic funds transfer network for the benefit of its members, which includes the Bank. Electronic funds transfer fees are recognized as electronic transactions processed on behalf of its members. 

 

Fiduciary and asset management revenue includes fees from asset management, custody, recordkeeping, investment advisory and administration services. Revenue is recognized on an accrual basis at the time the services are performed and may be based on either the fair value of the account or the service provided.

 

Deposit service charges and fees include commercial account service charges, overdraft fees, check card fee revenue and automated service charge and other deposit service fees. Fees are recognized at least quarterly in accordance with published deposit account agreements and disclosure statements for retail accounts or contractual agreements for commercial accounts. Item charges for overdraft or non-sufficient funds items are recognized as items are presented for payment. Account balance charges and activity fees are accrued monthly and collected in arrears. Commercial account activity fees may be offset by an earnings credit based on account balances. Check card fees represent interchange fees paid by a merchant bank for transactions processed from cards issued by the Company. Check card fees are recognized when transactions are processed.  

Mortgage banking revenue includes revenues recognized in conjunction with the origination, marketing and servicing of conventional and government-sponsored residential mortgage loans. Mortgage production revenue includes net realized gains (losses) on sales of residential mortgage loans in the secondary market and the net change in unrealized gains (losses) on residential mortgage loans held for sale. Mortgage production revenue also includes changes in the fair value of derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts. Mortgage servicing revenue includes servicing fee income and late charges on loans serviced for others.

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Fees and commissions revenue by reportable segment and primary service line is as follows for the three months ended June 30, 2018.

	Commercial				Consumer				Wealth Management				Funds Management & Other				Consolidated				Out of Scope1				In Scope2
Trading revenue	$	—			$	—			$	6,338			$	—			$	6,338			$	6,338			$	—
Customer hedging revenue	2,892				—				7,611				(708		)		9,795				9,795				—
Retail brokerage revenue	—				—				4,886				(75		)		4,811				—				4,811
Investment banking revenue	2,903				—				2,641				—				5,544				2,300				3,244
Brokerage and trading revenue	5,795				—				21,476				(783		)		26,488				18,433				8,055
TransFund EFT network revenue	18,048				1,009				(21		)		2				19,038				—				19,038
Merchant services revenue	1,921				16				—				—				1,937				—				1,937
Transaction card revenue	19,969				1,025				(21		)		2				20,975				—				20,975
Personal trust revenue	—				—				20,558				—				20,558				—				20,558
Corporate trust revenue	—				—				4,935				—				4,935				—				4,935
Institutional trust & retirement plan services revenue	—				—				11,039				—				11,039				—				11,039
Investment management services and other	—				—				5,217				(50		)		5,167				—				5,167
Fiduciary and asset management revenue	—				—				41,749				(50		)		41,699				—				41,699
Commercial account service charge revenue	10,912				362				610				—				11,884				—				11,884
Overdraft fee revenue	98				8,768				32				7				8,905				—				8,905
Check card revenue	—				5,343				—				—				5,343				—				5,343
Automated service charge and other deposit fee revenue	38				1,633				24				—				1,695				—				1,695
Deposit service charges and fees	11,048				16,106				666				7				27,827				—				27,827
Mortgage production revenue	—				9,915				—				—				9,915				9,915				—
Mortgage servicing revenue	—				16,902				—				(471		)		16,431				16,431				—
Mortgage banking revenue	—				26,817				—				(471		)		26,346				26,346				—
Other revenue	6,062				2,384				6,619				(547		)		14,518				9,372				5,146
Total fees and commissions revenue	$	42,874			$	46,332			$	70,489			$	(1,842	)		$	157,853			$	54,151			$	103,702

1	Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting guidance.

2	In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.

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Fees and commissions revenue by reportable segment and primary service line is as follows for the six months ended June 30, 2018.

	Commercial				Consumer				Wealth Management				Funds Management & Other				Consolidated				Out of Scope1				In Scope2
Trading revenue	$	—			$	—			$	16,732			$	—			$	16,732			$	16,732			$	—
Customer hedging revenue	4,914				—				14,576				1,212				20,702				20,702				—
Retail brokerage revenue	—				—				9,738				(173		)		9,565				—				9,565
Investment banking revenue	3,964				—				6,173				—				10,137				3,361				6,776
Brokerage and trading revenue	8,878				—				47,219				1,039				57,136				40,795				16,341
TransFund EFT network revenue	36,250				1,996				(40		)		3				38,209				—				38,209
Merchant services revenue	3,725				31				—				—				3,756				—				3,756
Transaction card revenue	39,975				2,027				(40		)		3				41,965				—				41,965
Personal trust revenue	—				—				40,658				—				40,658				—				40,658
Corporate trust revenue	—				—				10,576				—				10,576				—				10,576
Institutional trust & retirement plan services revenue	—				—				22,489				—				22,489				—				22,489
Investment management services and other	—				—				9,906				(98		)		9,808				—				9,808
Fiduciary and asset management revenue	—				—				83,629				(98		)		83,531				—				83,531
Commercial account service charge revenue	21,856				721				1,215				—				23,792				—				23,792
Overdraft fee revenue	188				17,252				66				10				17,516				—				17,516
Check card revenue	—				10,261				—				—				10,261				—				10,261
Automated service charge and other deposit fee revenue	75				3,292				50				2				3,419				—				3,419
Deposit service charges and fees	22,119				31,526				1,331				12				54,988				—				54,988
Mortgage production revenue	—				19,367				—				—				19,367				19,367				—
Mortgage servicing revenue	—				33,929				—				(925		)		33,004				33,004				—
Mortgage banking revenue	—				53,296				—				(925		)		52,371				52,371				—
Other revenue	11,919				4,447				13,157				(2,675		)		26,848				17,727				9,121
Total fees and commissions revenue	$	82,891			$	91,296			$	145,296			$	(2,644	)		$	316,839			$	110,893			$	205,946

1	Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting guidance.

2	In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.

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(12) Federal and State Income Taxes

The Tax Cuts and Jobs Act (the "Act") enacted on December 22, 2017, reduced the federal corporate income tax rate from 35% to 21% beginning January 1, 2018. Provisions of the Act are broad and complex, and we continue to evaluate its effect on the Company's financial statements. Results of this evaluation did not significantly impact the Company's financial position or results of operations for the three and six months ended June 30, 2018.

The reconciliations of income attributable to continuing operations at the U.S. federal statutory tax rate to income tax expense are as follows (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017
Amount:
Federal statutory tax	$	31,182			$	47,800			$	59,804			$	92,168
Tax exempt revenue	(1,653		)		(3,224		)		(3,465		)		(6,335		)
Effect of state income taxes, net of federal benefit	3,288				2,944				6,945				5,389
Utilization of tax credits, net of proportional amortization of low-income housing limited partnership investments	(1,334		)		(889		)		(2,667		)		(2,976		)
Share-based compensation	(424		)		1,636				(2,044		)		(2,301		)
Adjustment to provisional amounts related to tax reform	—				—				1,895				—
Other, net	2,271				(562		)		3,810				(137		)
Total income tax expense	$	33,330			$	47,705			$	64,278			$	85,808

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Percent of pretax income:
Federal statutory tax	21.0	%		35.0	%		21.0	%		35.0	%
Tax exempt revenue	(1.1	)		(2.4	)		(1.2	)		(2.4	)
Effect of state income taxes, net of federal benefit	2.2			2.2			2.4			2.0
Utilization of tax credits, net of proportional amortization of low-income housing limited partnership investments	(0.9	)		(0.7	)		(0.9	)		(1.1	)
Share-based compensation	(0.3	)		1.2			(0.7	)		(0.9	)
Adjustment to provisional amounts related to tax reform	—			—			0.7			—
Other, net	1.5			(0.4	)		1.3			—
Total	22.4	%		34.9	%		22.6	%		32.6	%

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(13) Fair Value Measurements

Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market for the given asset or liability at the measurement date based on market conditions at that date. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale. Certain assets and liabilities are recorded in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.

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

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

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

•	Quoted prices for similar, but not identical, assets or liabilities in active markets;

•	Quoted prices for identical or similar assets or liabilities in inactive markets;

•	Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates;

•	Other inputs derived from or corroborated by observable market inputs.

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

Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out of quoted prices in active markets for identical instruments to significant other observable inputs or significant unobservable inputs during the six months ended June 30, 2018 and 2017, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the six months ended June 30, 2018 and 2017 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 June 30, 2018, December 31, 2017 or June 30, 2017.

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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 June 30, 2018 (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		$	28,750			$	—			$	28,750			$	—
U.S. government agency residential mortgage-backed securities		1,605,001				—				1,605,001				—
Municipal and other tax-exempt securities		70,606				—				70,606				—
Asset-backed securities		193,271				—				193,271				—
Other trading securities		11,987				—				11,987				—
Total trading securities		1,909,615				—				1,909,615				—
Available for sale securities:
U.S. Treasury		490				490				—				—
Municipal and other tax-exempt securities		10,697				—				8,667				2,030
U.S. government agency residential mortgage-backed securities		5,304,560				—				5,304,560				—
Privately issued residential mortgage-backed securities		83,224				—				83,224				—
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,738,451				—				2,738,451				—
Other debt securities		25,444				—				24,973				471
Total available for sale securities		8,162,866				490				8,159,875				2,501
Fair value option securities – U.S. government agency residential mortgage-backed securities		482,227				—				482,227				—
Residential mortgage loans held for sale		223,301				—				209,058				14,243
Mortgage servicing rights1		278,719				—				—				278,719
Derivative contracts, net of cash collateral2		373,373				21,056				352,317				—
Liabilities:
Derivative contracts, net of cash collateral2		234,856				17,214				217,642				—

1	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.

2

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

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The fair value of financial assets and liabilities measured on a recurring basis was as follows as of December 31, 2017 (in thousands):

		Total				Quoted Prices in Active Markets for Identical Instruments (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets:
Trading securities:
U.S. government agency debentures		$	21,196			$	—			$	21,196			$	—
U.S. government agency residential mortgage-backed securities		392,673				—				392,673				—
Municipal and other tax-exempt securities		13,559				—				13,559				—
Asset-backed securities		23,885				—				23,885				—
Other trading securities		11,363				—				11,363				—
Total trading securities		462,676				—				462,676				—
Available for sale securities:
U.S. Treasury		1,000				1,000				—				—
Municipal and other tax-exempt securities		27,080				—				22,278				4,802
U.S. government agency residential mortgage-backed securities		5,309,152				—				5,309,152				—
Privately issued residential mortgage-backed securities		93,221				—				93,221				—
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,834,961				—				2,834,961				—
Other debt securities		25,481				—				25,009				472
Perpetual preferred stock		15,767				—				15,767				—
Equity securities and mutual funds		14,916				—				14,916				—
Total available for sale securities		8,321,578				1,000				8,315,304				5,274
Fair value option securities – U.S. government agency residential mortgage-backed securities		755,054				—				755,054				—
Residential mortgage loans held for sale		221,378				—				209,079				12,299
Mortgage servicing rights1		252,867				—				—				252,867
Derivative contracts, net of cash collateral2		220,502				8,179				212,323				—
Liabilities:
Derivative contracts, net of cash collateral2		171,963				—				171,963				—

1	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.

2

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

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The fair value of financial assets and liabilities measured on a recurring basis was as follows as of June 30, 2017 (in thousands):

		Total				Quoted Prices in Active Markets for Identical Instruments (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets:
Trading securities:
U.S. government agency debentures		$	20,954			$	—			$	20,954			$	—
U.S. government agency residential mortgage-backed securities		365,171				—				365,171				—
Municipal and other tax-exempt securities		45,444				—				45,444				—
Other trading securities		9,845				—				9,845				—
Total trading securities		441,414				—				441,414				—
Available for sale securities:
U.S. Treasury		998				998				—				—
Municipal and other tax-exempt securities		32,765				—				28,110				4,655
U.S. government agency residential mortgage-backed securities		5,382,377				—				5,382,377				—
Privately issued residential mortgage-backed securities		103,383				—				103,383				—
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,782,070				—				2,782,070				—
Other debt securities		4,152				—				—				4,152
Perpetual preferred stock		16,568				—				16,568				—
Equity securities and mutual funds		18,728				3,516				15,212				—
Total available for sale securities		8,341,041				4,514				8,327,720				8,807
Fair value option securities – U.S. government agency residential mortgage-backed securities		445,169				—				445,169				—
Residential mortgage loans held for sale		287,259				—				274,524				12,735
Mortgage servicing rights1		245,239				—				—				245,239
Derivative contracts, net of cash collateral2		280,289				46,366				233,923				—
Liabilities:
Derivative contracts, net of cash collateral2		285,819				20,915				264,904				—

1	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.

2

See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy and interest rate derivative contacts. 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 cash margin.

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Following is a description of the Company's valuation methodologies used for assets and liabilities measured on a recurring basis:

Securities

The fair values of trading, available for sale and fair value option securities are based on quoted prices for identical instruments in active markets, when available. If quoted prices for identical instruments are not available, fair values are based on significant other observable inputs such as quoted prices of comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities.

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

Derivatives

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

Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments based on various risk factors including but not limited to current fair value, probability of default and loss given default.

We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities would increase.

Residential Mortgage Loans Held for Sale

Residential mortgage loans held for sale are carried on the balance sheet at fair value. The fair values of 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.

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The following represents the changes for the three and six months ended June 30, 2018 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):

		Available for Sale Securities
		Municipal and other tax-exempt securities				Other debt securities				Residential mortgage loans held for sale
Balance, March 31, 2018		$	1,891			$	472			$	13,871
Transfer to Level 3 from Level 21		—				—				687
Purchases		—				—				—
Proceeds from sales		—				—				(488		)
Redemptions and distributions		—				—				—
Gain (loss) recognized in earnings:
Mortgage banking revenue		—				—				173
Other comprehensive income:
Net change in unrealized gain		139				(1		)		—
Balance, June 30, 2018		$	2,030			$	471			$	14,243

1	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.

		Available for Sale Securities
		Municipal and other tax-exempt				Other debt securities				Residential mortgage loans held for sale
Balance, December 31, 2017		$	4,802			$	472			$	12,299
Transfer to Level 3 from Level 21		—				—				2,843
Purchases		—				—				—
Proceeds from sales		—				—				(812		)
Redemptions and distributions		(3,045		)		—				—
Gain (loss) recognized in earnings:
Mortgage banking revenue		—				—				(87		)
Other comprehensive income (loss):
Net change in unrealized gain (loss)		273				(1		)		—
Balance, June 30, 2018		$	2,030			$	471			$	14,243

1	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.

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The following represents the changes for the three and six months ended June 30, 2017 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):

		Available for Sale Securities
		Municipal and other tax-exempt securities				Other debt securities				Residential mortgage loans held for sale
Balance, March 31, 2017		$	5,722			$	4,153			$	12,679
Transfer to Level 3 from Level 21		—				—				853
Purchases		—				—				—
Proceeds from sales		—				—				(1,030		)
Redemptions and distributions		(1,100		)		—				—
Gain (loss) recognized in earnings:
Mortgage banking revenue		—				—				233
Other comprehensive income (loss):
Net change in unrealized gain (loss)		33				(1		)		—
Balance, June 30, 2017		$	4,655			$	4,152			$	12,735

1	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.

		Available for Sale Securities
		Municipal and other tax-exempt				Other debt securities				Residential mortgage loans held for sale
Balance, December 31, 2016		$	5,789			$	4,152			$	11,617
Transfer to Level 3 from Level 21		—				—				2,740
Purchases		—				—				—
Proceeds from sales		—				—				(1,702		)
Redemptions and distributions		(1,100		)		—				—
Gain (loss) recognized in earnings
Mortgage banking revenue		—				—				80
Other comprehensive income (loss):
Net change in unrealized gain (loss)		(34		)		—				—
Balance, June 30, 2017		$	4,655			$	4,152			$	12,735

1	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.

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A summary of quantitative information about assets measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3) as of June 30, 2018 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		$	2,050			$	2,033			$	2,030			Discounted cash flows	1	Interest rate spread		6.69%-6.69% (6.69%)	2
																		99.00%-99.00% (99.00%)	3
Other debt securities		500				500				471				Discounted cash flows	1	Interest rate spread		6.32%-6.32% (6.32%)	4
																		94.36% - 94.36 (94.36%)	3
Residential mortgage loans held for sale		N/A				15,025				14,252				Quoted prices of loans sold in securitization transactions, with a liquidity discount applied		Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies.		94.86%

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 413 basis points over average yields for comparable tax-exempt securities.

3	Represents fair value as a percentage of par value.

4	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 3 percent.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2017 follows (in thousands):

		Par Value				Amortized Cost/Unpaid Principal Balance				Fair Value				Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Available for sale securities
Municipal and other tax-exempt securities		$	5,095			$	5,068			$	4,802			Discounted cash flows	1	Interest rate spread		6.60%-6.60% (6.60%)	2
																		92.25%-94.76% (93.75%)	3
Other debt securities		500				500				472				Discounted cash flows	1	Interest rate spread		6.85%-6.85% (6.85%)	4
																		94.39% - 94.39 (94.39%)	3
Residential mortgage loans held for sale		N/A				12,981				12,299				Quoted prices of loans sold in securitization transactions, with a liquidity discount applied		Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies.		94.75%

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 372 to 466 basis points over average yields for comparable tax-exempt securities.

3	Represents fair value as a percentage of par value.

4	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 3 percent.

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A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2017 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		$	5,095			$	5,067			$	4,655			Discounted cash flows	1	Interest rate spread		5.98%-5.98% (5.98%)	2
																		90.00%-94.90% (92.93%)	3
Other debt securities		4,400				4,400				4,152				Discounted cash flows	1	Interest rate spread		5.41%-6.72% (6.57%)	4
																		94.31% - 94.38 (94.37%)	3
Residential mortgage loans held for sale		N/A				13,274				12,735				Quoted prices of loans sold in securitization transactions, with a liquidity discount applied		Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.		95.94%

1	Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.

2	Interest rate yields used to value investment grade tax-exempt securities represent a spread of 360 to 446 basis points over average yields for comparable tax-exempt securities.

3	Represents fair value as a percentage of par value.

4	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 3 percent.

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 June 30, 2018 for which the fair value was adjusted during the six months ended June 30, 2018:

													Fair Value Adjustments for the
	Carrying Value at June 30, 2018												Three Months Ended June 30, 2018 Recognized in:								Six Months Ended June 30, 2018 Recognized in:
	Quoted Prices in Active Markets for Identical Instruments				Significant Other Observable Inputs				Significant Unobservable Inputs				Gross charge-offs against allowance for loan losses				Net losses and expenses of repossessed assets, net				Gross charge-offs against allowance for loan losses				Net losses and expenses of repossessed assets, net
Impaired loans	$	—			$	1,045			$	11,763			$	6,701			$	—			$	7,198			$	—
Real estate and other repossessed assets	—				1,996				6,838				—				118				—				5,242

 

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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 June 30, 2017 for which the fair value was adjusted during the six months ended June 30, 2017:

													Fair Value Adjustments for the
	Carrying Value at June 30, 2017												Three Months Ended June 30, 2017 Recognized in:								Six Months Ended June 30, 2017 Recognized in:
	Quoted Prices in Active Markets for Identical Instruments				Significant Other Observable Inputs				Significant Unobservable Inputs				Gross charge-offs against allowance for loan losses				Net losses and expenses of repossessed assets, net				Gross charge-offs against allowance for loan losses				Net losses and expenses of repossessed assets, net
Impaired loans	$	—			$	464			$	3,570			$	232			$	—			$	676			$	—
Real estate and other repossessed assets	—				3,488				530				—				772				—				906

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 June 30, 2018 follows (in thousands):

		Fair Value				Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Impaired loans		$	11,763			Discounted cash flows		Management knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs		43% - 84% (53%)1
Real estate and other repossessed assets		6,838				Discounted cash flows		Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs		N/A

1	Represents fair value as a percentage of the unpaid principal balance.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2017 follows (in thousands):

		Fair Value				Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Impaired loans		$	3,570			Discounted cash flows		Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs		75% - 90% (83%)1
Real estate and other repossessed assets		530				Appraised value, as adjusted		Marketability adjustments off appraised value2		65% - 88% (80%)

1	Represents fair value as a percentage of the unpaid principal balance.

2	Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.

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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 June 30, 2018 (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		$	585,801			$	585,801			$	585,801			$	—			$	—
Interest-bearing cash and cash equivalents		872,999				872,999				872,999				—				—
Trading securities:
U.S. government agency debentures		28,750				28,750				—				28,750				—
U.S. government agency residential mortgage-backed securities		1,605,001				1,605,001				—				1,605,001				—
Municipal and other tax-exempt securities		70,606				70,606				—				70,606				—
Asset-backed securities		193,271				193,271				—				193,271				—
Other trading securities		11,987				11,987				—				11,987				—
Total trading securities		1,909,615				1,909,615				—				1,909,615				—
Investment securities:
Municipal and other tax-exempt securities		173,097				174,205				—				174,205				—
U.S. government agency residential mortgage-backed securities		13,989				13,984				—				13,984				—
Other debt securities		204,927				215,195				—				215,195				—
Total investment securities		392,013				403,384				—				403,384				—
Available for sale securities:
U.S. Treasury		490				490				490				—				—
Municipal and other tax-exempt securities		10,697				10,697				—				8,667				2,030
U.S. government agency residential mortgage-backed securities		5,304,560				5,304,560				—				5,304,560				—
Privately issued residential mortgage-backed securities		83,224				83,224				—				83,224				—
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,738,451				2,738,451				—				2,738,451				—
Other debt securities		25,444				25,444				—				24,973				471
Total available for sale securities		8,162,866				8,162,866				490				8,159,875				2,501
Fair value option securities – U.S. government agency residential mortgage-backed securities		482,227				482,227				—				482,227				—
Residential mortgage loans held for sale		223,301				223,301				—				209,058				14,243
Loans:
Commercial		11,349,039				11,116,828				—				—				11,116,828
Commercial real estate		3,712,220				3,639,121				—				—				3,639,121
Residential mortgage		1,942,250				1,917,099				—				—				1,917,099
Personal		1,000,187				990,419				—				—				990,419
Total loans		18,003,696				17,663,467				—				—				17,663,467
Allowance for loan losses		(215,142		)		—				—				—				—
Loans, net of allowance		17,788,554				17,663,467				—				—				17,663,467
Mortgage servicing rights		278,719				278,719				—				—				278,719
Derivative instruments with positive fair value, net of cash collateral		373,373				373,373				21,056				352,317				—
Deposits with no stated maturity		20,041,532				20,041,532				—				—				20,041,532
Time deposits		2,127,732				2,078,486				—				—				2,078,486
Other borrowed funds		6,809,472				6,571,762				—				—				6,571,762
Subordinated debentures		144,697				148,112				—				148,112				—
Derivative instruments with negative fair value, net of cash collateral		234,856				234,856				17,214				217,642				—

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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, 2017 (dollars in thousands):

		Carrying Value				Estimated Fair Value				Quoted Prices in Active Markets for Identical Instruments (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash and due from banks		$	602,510			$	602,510			$	602,510			$	—			$	—
Interest-bearing cash and cash equivalents		1,714,544				1,714,544				1,714,544				—				—
Trading securities:
U.S. government agency debentures		21,196				21,196				—				21,196				—
U.S. government agency residential mortgage-backed securities		392,673				392,673				—				392,673				—
Municipal and other tax-exempt securities		13,559				13,559				—				13,559				—
Asset-backed securities		23,885				23,885				—				23,885				—
Other trading securities		11,363				11,363				—				11,363				—
Total trading securities		462,676				462,676				—				462,676				—
Investment securities:
Municipal and other tax-exempt securities		228,186				230,349				—				230,349				—
U.S. government agency residential mortgage-backed securities		15,891				16,242				—				16,242				—
Other debt securities		217,716				233,444				—				233,444				—
Total investment securities		461,793				480,035				—				480,035				—
Available for sale securities:
U.S. Treasury		1,000				1,000				1,000				—				—
Municipal and other tax-exempt securities		27,080				27,080				—				22,278				4,802
U.S. government agency residential mortgage-backed securities		5,309,152				5,309,152				—				5,309,152				—
Privately issued residential mortgage-backed securities		93,221				93,221				—				93,221				—
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,834,961				2,834,961				—				2,834,961				—
Other debt securities		25,481				25,481				—				25,009				472
Perpetual preferred stock		15,767				15,767				—				15,767				—
Equity securities and mutual funds		14,916				14,916				—				14,916				—
Total available for sale securities		8,321,578				8,321,578				1,000				8,315,304				5,274
Fair value option securities – U.S. government agency residential mortgage-backed securities		755,054				755,054				—				755,054				—
Residential mortgage loans held for sale		221,378				221,378				—				209,079				12,299
Loans:
Commercial		10,733,975				10,524,627				—				—				10,524,627
Commercial real estate		3,479,987				3,428,733				—				—				3,428,733
Residential mortgage		1,973,686				1,977,721				—				—				1,977,721
Personal		965,776				956,706				—				—				956,706
Total loans		17,153,424				16,887,787				—				—				16,887,787
Allowance for loan losses		(230,682		)		—				—				—				—
Loans, net of allowance		16,922,742				16,887,787				—				—				16,887,787
Mortgage servicing rights		252,867				252,867				—				—				252,867
Derivative instruments with positive fair value, net of cash collateral		220,502				220,502				8,179				212,323				—
Deposits with no stated maturity		19,962,889				19,962,889				—				—				19,962,889
Time deposits		2,098,416				2,064,558				—				—				2,064,558
Other borrowed funds		5,709,861				5,703,121				—				—				5,703,121
Subordinated debentures		144,677				148,207				—				148,207				—
Derivative instruments with negative fair value, net of cash collateral		171,963				171,963				—				171,963				—

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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 June 30, 2017 (dollars in thousands):

		Carrying Value				Estimated Fair Value				Quoted Prices in Active Markets for Identical Instruments (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash and due from banks		$	561,587			$	561,587			$	561,587			$	—			$	—
Interest-bearing cash and cash equivalents		2,078,831				2,078,831				2,078,831				—				—
Trading securities:
U.S. government agency debentures		20,954				20,954				—				20,954				—
U.S. government agency residential mortgage-backed securities		365,171				365,171				—				365,171				—
Municipal and other tax-exempt securities		45,444				45,444				—				45,444				—
Other trading securities		9,845				9,845				—				9,845				—
Total trading securities		441,414				441,414				—				441,414				—
Investment securities:
Municipal and other tax-exempt securities		267,375				270,531				—				270,531				—
U.S. government agency residential mortgage-backed securities		18,035				18,642				—				18,642				—
Other debt securities		205,016				226,502				—				226,502				—
Total investment securities		490,426				515,675				—				515,675				—
Available for sale securities:
U.S. Treasury		998				998				998				—				—
Municipal and other tax-exempt securities		32,765				32,765				—				28,110				4,655
U.S. government agency residential mortgage-backed securities		5,382,377				5,382,377				—				5,382,377				—
Privately issued residential mortgage-backed securities		103,383				103,383				—				103,383				—
Commercial mortgage-backed securities guaranteed by U.S. government agencies		2,782,070				2,782,070				—				2,782,070				—
Other debt securities		4,152				4,152				—				—				4,152
Perpetual preferred stock		16,568				16,568				—				16,568				—
Equity securities and mutual funds		18,728				18,728				3,516				15,212				—
Total available for sale securities		8,341,041				8,341,041				4,514				8,327,720				8,807
Fair value option securities – U.S. government agency residential mortgage-backed securities		445,169				445,169				—				445,169				—
Residential mortgage loans held for sale		287,259				287,259				—				274,524				12,735
Loans:
Commercial		10,637,955				10,413,704				—				—				10,413,704
Commercial real estate		3,688,592				3,636,365				—				—				3,636,365
Residential mortgage		1,939,198				1,950,577				—				—				1,950,577
Personal		917,900				909,055				—				—				909,055
Total loans		17,183,645				16,909,701				—				—				16,909,701
Allowance for loan losses		(250,061		)		—				—				—				—
Loans, net of allowance		16,933,584				16,909,701				—				—				16,909,701
Mortgage servicing rights		245,239				245,239				—				—				245,239
Derivative instruments with positive fair value, net of cash collateral		280,289				280,289				46,366				233,923				—
Deposits with no stated maturity		20,120,352				20,120,352				—				—				20,120,352
Time deposits		2,196,122				2,164,115				—				—				2,164,115
Other borrowed funds		5,696,666				5,664,273				—				—				5,664,273
Subordinated debentures		144,658				147,204				—				147,204				—
Derivative instruments with negative fair value, net of cash collateral		285,819				285,819				20,915				264,904				—

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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.

Fair Value Election

As more fully disclosed in Note 2 and Note 6 to the Consolidated Financial Statements, the Company has elected to carry all residential mortgage-backed securities guaranteed by U.S. government agencies held as economic hedges against changes in the fair value of mortgage servicing rights and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.

(14) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on June 30, 2018 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.

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Six-Month Financial Summary – Unaudited Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)		Six Months Ended
		June 30, 2018											June 30, 2017
		Average Balance				Revenue/ Expense				Yield/ Rate			Average Balance				Revenue/ Expense				Yield/ Rate
Assets
Interest-bearing cash and cash equivalents		$	1,865,385			$	15,722			1.70	%		$	2,047,633			$	9,442			0.93	%
Trading securities		1,209,369				20,893				3.53	%		517,447				8,886				3.59	%
Investment securities
Taxable		222,299				5,801				5.22	%		220,528				5,944				5.39	%
Tax-exempt		197,733				2,304				2.33	%		294,539				3,650				2.48	%
Total investment securities		420,032				8,105				3.86	%		515,067				9,594				3.73	%
Available for sale securities
Taxable		8,179,361				93,137				2.26	%		8,420,578				85,847				2.06	%
Tax-exempt		20,476				334				3.26	%		54,470				1,453				5.71	%
Total available for sale securities		8,199,837				93,471				2.26	%		8,475,048				87,300				2.08	%
Fair value option securities		556,337				8,746				3.05	%		446,478				5,919				2.62	%
Restricted equity securities		349,134				10,525				6.03	%		304,074				8,708				5.73	%
Residential mortgage loans held for sale		209,043				4,177				4.01	%		232,932				4,222				3.65	%
Loans		17,507,714				401,940				4.63	%		17,132,662				336,258				3.96	%
Allowance for loan losses		(225,909		)									(250,512		)
Loans, net of allowance		17,281,805				401,940				4.69	%		16,882,150				336,258				4.01	%
Total earning assets		30,090,942				563,579				3.76	%		29,420,829				470,329				3.23	%
Receivable on unsettled securities sales		807,470											373,022
Cash and other assets		2,917,582											2,866,309
Total assets		$	33,815,994										$	32,660,160
Liabilities and equity
Interest-bearing deposits:
Transaction		$	10,266,484			$	25,487			0.50	%		$	10,326,232			$	11,651			0.23	%
Savings		491,955				183				0.08	%		451,476				182				0.08	%
Time		2,144,928				13,512				1.27	%		2,231,526				12,143				1.10	%
Total interest-bearing deposits		12,903,367				39,182				0.61	%		13,009,234				23,976				0.37	%
Funds purchased and repurchase agreements		562,999				1,304				0.47	%		534,599				260				0.10	%
Other borrowings		6,412,463				56,752				1.78	%		5,654,534				26,921				0.96	%
Subordinated debentures		144,687				4,051				5.65	%		144,649				4,028				5.62	%
Total interest-bearing liabilities		20,023,516				101,289				1.02	%		19,343,015				55,185				0.58	%
Non-interest bearing demand deposits		9,187,499											9,220,877
Due on unsettled securities purchases		543,265											127,824
Other liabilities		566,248											599,806
Total equity		3,495,466											3,368,638
Total liabilities and equity		$	33,815,994										$	32,660,160
Tax-equivalent Net Interest Revenue						$	462,290			2.74	%						$	415,144			2.65	%
Tax-equivalent Net Interest Revenue to Earning Assets										3.08	%										2.85	%
Less tax-equivalent adjustment						3,992											8,758
Net Interest Revenue						458,298											406,386
Provision for credit losses						(5,000		)									—
Other operating revenue						312,388											352,548
Other operating expense						490,906											495,596
Income before taxes						284,780											263,338
Federal and state income taxes						64,278											85,808
Net income						220,502											177,530
Net income (loss) attributable to non-controlling interests						568											1,027
Net income attributable to BOK Financial Corp. shareholders						$	219,934										$	176,503
Earnings Per Average Common Share Equivalent:
Net income:
Basic						$	3.36										$	2.70
Diluted						$	3.36										$	2.69

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.

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Quarterly Financial Summary – Unaudited Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)		Three Months Ended
		June 30, 2018											March 31, 2018
		Average Balance				Revenue/ Expense				Yield/ Rate			Average Balance				Revenue/ Expense				Yield/ Rate
Assets
Interest-bearing cash and cash equivalents		$	1,673,387			$	7,740			1.86	%		$	2,059,517			$	7,982			1.57	%
Trading securities		1,482,302				13,084				3.63	%		933,404				7,809				3.40	%
Investment securities
Taxable		217,770				2,845				5.23	%		226,877				2,956				5.21	%
Tax-exempt		181,318				1,096				2.42	%		214,330				1,208				2.25	%
Total investment securities		399,088				3,941				3.95	%		441,207				4,164				3.78	%
Available for sale securities
Taxable		8,145,748				47,322				2.29	%		8,213,346				45,815				2.22	%
Tax-exempt		17,394				141				3.26	%		23,592				193				3.26	%
Total available for sale securities		8,163,142				47,463				2.30	%		8,236,938				46,008				2.23	%
Fair value option securities		487,192				3,927				3.16	%		626,251				4,819				2.95	%
Restricted equity securities		348,546				5,408				6.21	%		349,176				5,117				5.86	%
Residential mortgage loans held for sale		218,600				2,333				4.28	%		199,380				1,844				3.71	%
Loans		17,751,242				212,266				4.80	%		17,261,481				189,674				4.45	%
Allowance for loan losses		(222,856		)									(228,996		)
Loans, net of allowance		17,528,386				212,266				4.86	%		17,032,485				189,674				4.51	%
Total earning assets		30,301,191				296,162				3.91	%		29,878,358				267,417				3.61	%
Receivable on unsettled securities sales		618,240											998,803
Cash and other assets		2,986,604											2,847,791
Total assets		$	33,906,035										$	33,724,952
Liabilities and equity
Interest-bearing deposits:
Transaction		$	10,189,354			$	13,993			0.55	%		$	10,344,469			$	11,494			0.45	%
Savings		503,671				95				0.08	%		480,110				88				0.07	%
Time		2,138,880				6,875				1.29	%		2,151,044				6,637				1.25	%
Total interest-bearing deposits		12,831,905				20,963				0.66	%		12,975,623				18,219				0.57	%
Funds purchased and repurchase agreements		593,250				782				0.53	%		532,412				522				0.40	%
Other borrowings		6,497,020				31,825				1.96	%		6,326,967				24,927				1.60	%
Subordinated debentures		144,692				2,048				5.67	%		144,682				2,003				5.61	%
Total interest-bearing liabilities		20,066,867				55,618				1.11	%		19,979,684				45,671				0.93	%
Non-interest bearing demand deposits		9,223,327											9,151,272
Due on unsettled securities purchases		527,804											558,898
Other liabilities		575,865											556,524
Total equity		3,512,172											3,478,574
Total liabilities and equity		$	33,906,035										$	33,724,952
Tax-equivalent Net Interest Revenue						$	240,544			2.80	%						$	221,746			2.68	%
Tax-equivalent Net Interest Revenue to Earning Assets										3.17	%										2.99	%
Less tax-equivalent adjustment						1,983											2,010
Net Interest Revenue						238,562											219,736
Provision for credit losses						—											(5,000		)
Other operating revenue						156,399											155,989
Other operating expense						246,476											244,430
Income before taxes						148,485											136,295
Federal and state income taxes						33,330											30,948
Net income						115,155											105,347
Net income (loss) attributable to non-controlling interests						783											(215		)
Net income attributable to BOK Financial Corp. shareholders						$	114,372										$	105,562
Earnings Per Average Common Share Equivalent:
Basic						$	1.75										$	1.61
Diluted						$	1.75										$	1.61

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.

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Three Months Ended
December 31, 2017											September 30, 2017											June 30, 2017
Average Balance				Revenue /Expense				Yield / Rate			Average Balance				Revenue / Expense				Yield / Rate			Average Balance				Revenue / Expense				Yield / Rate
$	1,976,395			$	6,311			1.27	%		$	1,965,645			$	6,375			1.29	%		$	2,007,746			$	5,198			1.04	%
560,321				4,629				3.38	%		491,613				4,122				3.47	%		456,028				3,517				3.23	%
228,388				3,029				5.31	%		221,609				2,942				5.31	%		219,385				2,931				5.34	%
234,481				1,577				2.69	%		254,096				1,650				2.60	%		279,987				1,757				2.51	%
462,869				4,606				3.98	%		475,705				4,592				3.86	%		499,372				4,688				3.76	%
8,392,231				45,078				2.19	%		8,381,536				44,579				2.16	%		8,332,709				42,920				2.09	%
43,685				545				5.41	%		46,817				566				5.27	%		51,348				725				6.09	%
8,435,916				45,623				2.21	%		8,428,353				45,145				2.17	%		8,384,057				43,645				2.11	%
792,647				5,770				2.90	%		684,571				5,066				2.97	%		476,102				3,539				2.92	%
337,673				4,956				5.87	%		328,677				4,826				5.87	%		295,743				4,399				5.95	%
257,927				2,389				3.72	%		256,343				2,095				3.36	%		245,401				2,386				3.92	%
17,181,007				185,614				4.29	%		17,256,663				187,506				4.31	%		17,129,533				172,139				4.03	%
(246,143		)									(250,590		)									(251,632		)
16,934,864				185,614				4.35	%		17,006,073				187,506				4.38	%		16,877,901				172,139				4.09	%
29,758,612				259,898				3.49	%		29,636,980				259,727				3.50	%		29,242,350				239,511				3.30	%
821,275											608,412											372,894
2,872,228											2,762,778											2,753,327
$	33,452,115										$	33,008,170										$	32,368,571
$	10,142,744			$	8,914			0.35	%		$	10,088,522			$	8,062			0.32	%		$	10,087,640			$	6,437			0.26	%
466,496				87				0.07	%		464,130				90				0.08	%		461,586				95				0.08	%
2,134,469				6,296				1.17	%		2,176,820				6,378				1.16	%		2,204,422				6,090				1.11	%
12,743,709				15,297				0.48	%		12,729,472				14,530				0.45	%		12,753,648				12,622				0.40	%
488,330				340				0.28	%		411,286				256				0.25	%		490,616				164				0.13	%
6,209,903				21,242				1.36	%		6,162,641				20,105				1.29	%		5,572,031				15,188				1.09	%
144,673				2,025				5.55	%		144,663				2,070				5.68	%		144,654				2,003				5.55	%
19,586,615				38,904				0.79	%		19,448,062				36,961				0.75	%		18,960,949				29,977				0.63	%
9,417,351											9,389,849											9,338,683
332,155											145,977											162,348
600,604											539,641											497,158
3,515,390											3,484,641											3,409,433
$	33,452,115										$	33,008,170										$	32,368,571
				$	220,994			2.70	%						$	222,766			2.75	%						$	209,534			2.67	%
								2.97	%										3.01	%										2.89	%
				4,131											4,314											4,330
				216,863											218,452											205,204
				(7,000		)									—											—
				166,836											175,710											182,252
				263,987											265,934											250,885
				126,712											128,228											136,571
				54,347											42,438											47,705
				72,365											85,790											88,866
				(127		)									141											719
				$	72,492										$	85,649										$	88,147
				$	1.11										$	1.31										$	1.35
				$	1.11										$	1.31										$	1.35

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Quarterly Earnings Trends – Unaudited

(In thousands, except share and per share data)

		Three Months Ended
		June 30, 2018				Mar. 31, 2018				Dec. 31, 2017				Sept. 30, 2017				June 30, 2017
Interest revenue		$	294,180			$	265,407			$	255,767			$	255,413			$	235,181
Interest expense		55,618				45,671				38,904				36,961				29,977
Net interest revenue		238,562				219,736				216,863				218,452				205,204
Provision for credit losses		—				(5,000		)		(7,000		)		—				—
Net interest revenue after provision for credit losses		238,562				224,736				223,863				218,452				205,204
Other operating revenue
Brokerage and trading revenue		26,488				30,648				33,045				33,169				31,764
Transaction card revenue1		20,975				20,990				20,028				22,929				20,009
Fiduciary and asset management revenue		41,699				41,832				41,767				40,687				41,808
Deposit service charges and fees		27,827				27,161				27,685				28,191				28,422
Mortgage banking revenue		26,346				26,025				24,362				24,890				30,276
Other revenue		14,518				12,330				11,762				13,670				14,984
Total fees and commissions		157,853				158,986				158,649				163,536				167,263
Other gains (losses), net		3,983				(664		)		552				(1,283		)		6,108
Gain (loss) on derivatives, net		(3,057		)		(5,685		)		(3,045		)		1,033				3,241
Gain (loss) on fair value option securities, net		(3,341		)		(17,564		)		(4,238		)		661				1,984
Change in fair value of mortgage servicing rights		1,723				21,206				5,898				(639		)		(6,943		)
Gain (loss) on available for sale securities, net		(762		)		(290		)		(488		)		2,487				380
Total other operating revenue		156,399				155,989				157,328				165,795				172,033
Other operating expense
Personnel		138,947				139,947				145,329				147,910				143,744
Business promotion		7,686				6,010				7,317				7,105				7,738
Charitable contributions to BOKF Foundation		—				—				2,000				—				—
Professional fees and services		14,978				10,200				15,344				11,887				12,419
Net occupancy and equipment		22,761				24,046				22,403				21,325				21,125
Insurance		6,245				6,593				6,555				6,005				689
Data processing and communications1		27,739				27,817				28,903				27,412				26,111
Printing, postage and supplies		4,011				4,089				3,781				3,917				4,140
Net losses (gains) and operating expenses of repossessed assets		2,722				7,705				340				6,071				2,267
Amortization of intangible assets		1,386				1,300				1,430				1,744				1,803
Mortgage banking costs		12,890				10,149				14,331				13,450				12,072
Other expense		7,111				6,574				6,746				9,193				8,558
Total other operating expense		246,476				244,430				254,479				256,019				240,666
Net income before taxes		148,485				136,295				126,712				128,228				136,571
Federal and state income taxes		33,330				30,948				54,347				42,438				47,705
Net income		115,155				105,347				72,365				85,790				88,866
Net income (loss) attributable to non-controlling interests		783				(215		)		(127		)		141				719
Net income attributable to BOK Financial Corporation shareholders		$	114,372			$	105,562			$	72,492			$	85,649			$	88,147
Earnings per share:
Basic		$1.75				$1.61				$1.11				$1.31				$1.35
Diluted		$1.75				$1.61				$1.11				$1.31				$1.35
Average shares used in computation:
Basic		64,901,975				64,847,334				64,793,005				64,742,822				64,729,752
Diluted		64,937,226				64,888,033				64,843,179				64,805,172				64,793,134

1	Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and communications expense. This measure has no effect on net income or earnings per share.

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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 June 30, 2018.

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
April 1 to April 30, 2018		7,629			$	91.46			—			1,958,174
May 1 to May 31, 2018		8,257			$	99.84			8,257			1,949,917
June 1 to June 30, 2018		—			$	—			—			1,949,917
Total		15,886							8,257

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 June 30, 2018, the Company had repurchased 3,050,083 shares under this plan. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors.

2	The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee equity compensation.

Item 6. Exhibits

31.1	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

99.1	Agreement and Plan of Merger by and among CoBiz Financial Inc., BOK Financial Corporation and BOKF Merger Corporation Number Sixteen, dated as of June 17, 2018

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:        July 31, 2018                                                                  

/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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