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BOK FINANCIAL CORP - Quarter Report: 2021 June (Form 10-Q)


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

FORM 10-Q
(Mark One) 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ______________                 

Commission File No. 0-19341

BOK FINANCIAL CORP
(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: 69,078,458 shares of common stock ($.00006 par value) as of June 30, 2021.

BOK Financial Corporation
Form 10-Q
Quarter Ended June 30, 2021

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


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

BOK Financial Corporation (“the Company”) reported net income of $166.4 million or $2.40 per diluted share for the second quarter of 2021. Net income was $64.7 million or $0.92 per diluted share for the second quarter of 2020 and $146.1 million or $2.10 per diluted share for the first quarter of 2021. Forecasts for improving macroeconomic factors, including stabilizing energy prices, and improving credit quality metrics resulted in a negative provision for expected credit losses of $35.0 million and $25.0 million in the second quarter of 2021 and first quarter of 2021, respectively. A provision for expected credit losses of $135.3 million was recorded in the second quarter of 2020.

Pre-provision net revenue ("PPNR"), a non-GAAP measure, was $179.9 million for the second quarter of 2021 compared to $215.8 million for the second quarter of 2020. The decrease in PPNR was due to lower combined net interest revenue and fees and commission revenue. This was largely driven by lower average loan balances due to customer deleveraging during the current economic uncertainty, narrowing net interest margin and compressed margins from our mortgage banking activities. PPNR improved $16.5 million over the first quarter of 2021. Growth in much of our fee-based business, led by brokerage and trading and fiduciary and asset management revenues, was partially offset by lower mortgage banking revenue.

Highlights of the second quarter of 2021 included:

•Net interest revenue totaled $280.3 million, an increase of $2.2 million over the second quarter of 2020. Average earning assets were $43.9 billion for the second quarter of 2021 compared to $40.3 billion for the second quarter of 2020, largely driven by growth in trading securities. Net interest margin was 2.60 percent for the second quarter of 2021 compared to 2.83 percent for the second quarter of 2020. The Federal Reserve reduced the federal funds rate to near zero in March 2020. Other short-term market interest rates followed, reducing the yield on floating-rate assets by more than the amount by which funding costs could be reduced, compressing the margin. Net interest revenue was consistent with the first quarter of 2021. Net interest margin decreased 2 basis points.
•Fees and commissions revenue totaled $169.4 million, a decrease of $44.3 million compared to the second quarter of 2020. Mortgage banking revenue decreased $32.7 million due to a combination of lower mortgage production volume and margin compression. Brokerage and trading revenue decreased $32.6 million, largely due to a shift from trading revenue to net interest revenue on trading securities. These decreases were partially offset by higher operating revenue from repossessed oil and gas assets and smaller increases in deposit service charges revenue, fiduciary and asset management fees, and transaction card revenue. Fees and commissions revenue increased $7.3 million compared to the first quarter of 2021, including a $9.3 million increase in trading revenue due to an increase in higher margin residential mortgage trading volume.
•Other operating expense totaled $291.2 million, a decrease of $4.8 million compared to the second quarter of 2020. Personnel expense decreased $4.2 million, due to decreases in regular compensation expense, incentive compensation expense and deferred compensation costs. These decreases were partially offset by an increase in employee insurance costs. Non-personnel expense was relatively consistent compared to the second quarter of 2020. Operating expense decreased $4.6 million compared to the first quarter of 2021. The first quarter of 2021 included a $4.0 million charitable contribution to the BOKF Foundation that did not recur in the second quarter.
•Period-end outstanding loan balances totaled $21.4 billion at June 30, 2021, a decrease of $1.1 billion compared to March 31, 2021. Loans originated as part of the Small Business Administration's Paycheck Protection Program ("PPP") decreased $727 million to $1.1 billion. Paydowns of energy loans and commercial real estate loans were partially offset by an increase in healthcare and personal loans. Average loan balances decreased $590 million to $22.2 billion compared to the previous quarter.
•The combined allowance for credit losses totaled $336 million or 1.66 percent of outstanding loans, excluding PPP loans, at June 30, 2021. The combined allowance for credit losses was $385 million or 1.86 percent of outstanding loans, excluding PPP loans, at March 31, 2021.
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•Nonperforming assets not guaranteed by U.S. government agencies decreased $51 million compared to March 31, 2021. Potential problem loans decreased $38 million while other loans especially mentioned decreased $134 million. Net charge-offs were $15.4 million or 0.30 percent of average loans on an annualized basis for the second quarter of 2021, excluding PPP loans. Net charge-offs were 0.32 percent of average loans, excluding PPP loans, over the last four quarters. Net charge-offs were $14.5 million or 0.28 percent of average loans on an annualized basis for the first quarter of 2021, excluding PPP loans.
•Period-end deposits were $37.4 billion at June 30, 2021, a $413 million decrease compared to March 31, 2021. Average deposits increased $968 million, including an $877 million increase in demand deposits. Clients across all of our business segments continued to maintain higher deposit balances during this period of economic uncertainty, supplemented by inflows from government stimulus.
•The common equity Tier 1 capital ratio at June 30, 2021 was 11.95 percent. Other regulatory capital ratios were Tier 1 capital ratio, 12.01 percent, total capital ratio, 13.61 percent, and leverage ratio, 8.58 percent. At March 31, 2021, the common equity Tier 1 capital ratio was 12.14 percent, the Tier 1 capital ratio was 12.21 percent, total capital ratio was 13.98 percent, and leverage ratio was 8.42 percent.
•The Company repurchased 492,994 shares of common stock at an average price of $88.84 per share in the second quarter of 2021 and 260,000 shares at an average price of $77.20 in the first quarter of 2021. We view share buybacks opportunistically but within the context of maintaining our strong capital position.
•On July 23, 2021, the Company notified holders that it will exercise its option to redeem all $150 million of its 5.375 percent Subordinated Notes on August 23, 2021. The Company will use existing capital for the redemption. The Notes carried an unamortized discount at June 30, 2021 of $4.0 million which will be recognized at redemption. Redemption of the Notes will reduce annual interest expense by approximately $8.0 million.
•The Company paid a regular cash dividend of $35.9 million or $0.52 per common share during the second quarter of 2021. On August 3, 2021, the board of directors approved a quarterly cash dividend of $0.52 per common share payable on or about August 26, 2021 to shareholders of record as of August 16, 2021.

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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.

Tax-equivalent net interest revenue totaled $282.6 million for the second quarter of 2021 and $280.7 million for the second quarter of 2020. Net interest revenue increased $13.9 million from growth in average earning assets and decreased $12.0 million due to changes in interest rates. An increase in trading securities balances was partially offset by a decrease in loan balances. 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.

Net interest margin was 2.60 percent for the second quarter of 2021, compared to 2.83 percent for the second quarter of 2020. In response to the anticipated impact to the economy from the COVID-19 pandemic, the Federal Reserve reduced the federal funds rate to near zero in March, 2020. Other short-term market interest rates followed, reducing the yield on floating-rate assets by more than the amount by which funding costs could be reduced, compressing the margin. The tax-equivalent yield on earning assets was 2.75 percent, a decrease of 37 basis points compared to the second quarter of 2020. The available for sale securities portfolio yield decreased 44 basis points to 1.85 percent as principal cash flows received from maturities of the available for sale securities portfolio continue to be reinvested at lower rates. Loan yields decreased 9 basis points to 3.54 percent, largely due to the decrease in short-term interest rates partially offset by the addition of PPP loan fees. PPP loan fees of $11.1 million were recognized in the second quarter of 2021. As discussed in the Management's Discussion and Analysis - Loan section following, $27.8 million of deferred loans fees remain to be recognized in future periods, including $3.8 million related to loans originated in 2020 that mature in 2022. The yield on trading securities decreased 51 basis points to 1.95 percent.

Funding costs decreased 16 basis points compared to the second quarter of 2020. The cost of other borrowed funds decreased 2 basis points and the cost of interest-bearing deposits decreased 20 basis points. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 6 basis points for the second quarter of 2021, a decrease of 2 basis points compared to the second quarter of 2020.
Average earning assets for the second quarter of 2021 increased $3.5 billion or 9 percent over the second quarter of 2020. This increase was largely due to growth in our trading of U.S. government issued mortgage-backed securities and the expansion of the available for sale securities portfolio, partially offset by a decrease in loans and fair value option securities. Average trading securities increased $5.6 billion. The average balance of available for sale securities, which consists largely of residential and commercial mortgage-backed securities guaranteed by U.S. government agencies, increased $763 million. We purchase securities to supplement earnings and to manage interest rate risk. Average loans, net of allowance for loan losses, decreased $1.9 billion, largely due to purposeful deleveraging by our customers as borrowers continue to pay down during this time of economic uncertainty. Fair value option securities that we hold as an economic hedge against changes in the fair value of mortgage servicing rights decreased $722 million.

Average deposits increased $4.8 billion compared to the second quarter of 2020. Deposit growth is largely due to customers retaining elevated balances in the current economic environment, supplemented by the most recent government stimulus payments. Interest-bearing deposits increased $3.1 billion while demand deposit balances increased $1.7 billion. Other borrowed funds decreased $3.9 billion.
Tax-equivalent net interest revenue was $282.6 million, largely unchanged compared to the first quarter of 2021. Net interest margin was 2.60 percent compared to 2.62 percent in the first quarter of 2021.
Average earning assets decreased $354 million compared to the first quarter of 2021. Average loan balances decreased $590 million, primarily from energy and commercial real estate loan paydowns. Available for sale securities decreased $190 million. Average trading securities grew by $467 million. Other borrowed funds decreased $824 million.
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The yield on average earning assets was 2.75 percent, a 3 basis point decrease from the prior quarter. The yield on the available for sale securities portfolio increased 1 basis point to 1.85 percent and the loan portfolio yield decreased 1 basis point to 3.54 percent.
Funding costs were 0.21 percent, down 3 basis points. The cost of interest-bearing deposits decreased 3 basis points to 0.14 percent. The cost of other borrowed funds was down 2 basis points to 0.28 percent. The benefit to net interest margin from assets funded by non-interest liabilities was 6 basis points for the second quarter of 2021, a decrease of 2 basis points compared to the prior quarter.
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 75% of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will reprice within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that reprice more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that assets generally reprice more quickly than liabilities. One of the strategies that we use to manage toward a relative rate-neutral position is to purchase fixed rate residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market-rate-sensitive liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also may use derivative instruments to manage our interest rate risk. 

The effectiveness of these strategies is reflected in the overall change in net interest revenue due to changes in interest rates as shown in Table 1 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.

Table 1 -- Volume/Rate Analysis
(In thousands)
Three Months Ended
June 30, 2021 / 2020		Six Months Ended
June 30, 2021 / 2020
  
Change Due To1
 
Change Due To1
ChangeVolumeYield/RateChangeVolumeYield/Rate
Tax-equivalent interest revenue:      
Interest-bearing cash and cash equivalents
$46 $3 $43 $(2,173)$21 $(2,194)
Trading securities25,229 31,144 (5,915)49,343 63,648 (14,305)
Investment securities
(439)(552)113 (884)(1,059)175 
Available for sale securities
(9,369)4,414 (13,783)(20,417)12,519 (32,936)
Fair value option securities(3,708)(4,363)655 (14,920)(13,985)(935)
Restricted equity securities
(129)(498)369 (4,664)(3,348)(1,316)
Residential mortgage loans held for sale
(571)(452)(119)(314)114 (428)
Loans(21,860)(16,970)(4,890)(67,884)(11,034)(56,850)
Total tax-equivalent interest revenue(10,801)12,726 (23,527)(61,913)46,876 (108,789)
Interest expense:
Transaction deposits(3,782)1,486 (5,268)(33,316)6,882 (40,198)
Savings deposits12 28 (16)(28)70 (98)
Time deposits(5,550)(1,274)(4,276)(12,285)(2,191)(10,094)
Funds purchased and repurchase agreements(1,320)(1,508)188 (10,810)(4,465)(6,345)
Other borrowings(1,870)89 (1,959)(25,543)(6,366)(19,177)
Subordinated debentures(186)7 (193)(472)(2)(470)
Total interest expense(12,696)(1,172)(11,524)(82,454)(6,072)(76,382)
Tax-equivalent net interest revenue1,895 13,898 (12,003)20,541 52,948 (32,407)
Change in tax-equivalent adjustment(310)(724)
Net interest revenue$2,205 $21,265 
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 $191.4 million for the second quarter of 2021, a decrease of $41.8 million compared to the second quarter of 2020. Mortgage production revenue was negatively impacted by a decline in mortgage production volumes and margin compression. Brokerage and trading revenue decreased largely due to a shift of trading revenue to interest income from trading securities.

Other operating revenue increased $14.4 million compared to the first quarter of 2021. Brokerage and trading revenue increased $8.6 million. An increase in agency residential mortgage trading volumes and higher margin market opportunities combined to grow trading revenue.

Table 2 – Other Operating Revenue 
(In thousands)
 Three Months Ended June 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
 Mar. 31, 2021		Increase (Decrease)% Increase (Decrease)
 20212020
Brokerage and trading revenue
$29,408 $62,022 $(32,614)(53)%$20,782 $8,626 42 %
Transaction card revenue24,923 22,940 1,983 9 %22,430 2,493 11 %
Fiduciary and asset management revenue
44,832 41,257 3,575 9 %41,322 3,510 8 %
Deposit service charges and fees
25,861 22,046 3,815 17 %24,209 1,652 7 %
Mortgage banking revenue21,219 53,936 (32,717)(61)%37,113 (15,894)(43)%
Other revenue23,172 11,479 11,693 102 %16,296 6,876 42 %
Total fees and commissions revenue
169,415 213,680 (44,265)(21)%162,152 7,263 4 %
Other gains, net16,449 7,347 9,102 N/A10,121 6,328 N/A
Gain (loss) on derivatives, net18,820 21,885 (3,065)N/A(27,650)46,470 N/A
Loss on fair value option securities, net(1,627)(14,459)12,832 N/A(1,910)283 N/A
Change in fair value of mortgage servicing rights
(13,041)(761)(12,280)N/A33,874 (46,915)N/A
Gain on available for sale securities, net1,430 5,580 (4,150)N/A467 963 N/A
Total other operating revenue
$191,446 $233,272 $(41,826)(18)%$177,054 $14,392 8 %
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 38 percent of total revenue for the second quarter of 2021, 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 banking production volumes and related trading. 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, including the recent impact of the COVID-19 pandemic, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

Brokerage and Trading Revenue

Brokerage and trading revenue, which includes revenues from trading, customer hedging, retail brokerage and investment banking, decreased $32.6 million or 53 percent compared to the second quarter of 2020.

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Trading revenue includes net realized and unrealized gains and losses primarily related to sales of residential mortgage-backed securities guaranteed by U.S. government agencies and related derivative instruments that enable our mortgage banking customers to manage their production risk. Trading revenue also includes net realized and unrealized gains and losses on municipal securities and other financial instruments that we sell to institutional customers, along with changes in the fair value of financial instruments we hold as economic hedges against market risk of our trading securities. Trading revenue was $13.0 million for the second quarter of 2021, a $30.9 million or 70 percent decrease compared to the second quarter of 2020, primarily due to a shift from fee revenue to net interest revenue on trading securities. See additional discussion in "Lines of Business" section of Management's Discussion and Analysis.

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 $1.8 million for the second quarter of 2021, a $4.4 million or 71 percent decrease compared to the second quarter of 2020, primarily attributed to energy customers. Customer hedging revenue includes credit valuation adjustments of the fair value of derivatives to reflect the risk of counterparty default.

Revenue earned from retail brokerage transactions totaled $4.5 million for the second quarter of 2021, an increase of $1.1 million compared to the second quarter of 2020 due to increased trading activity.

Investment banking, which includes fees earned upon completion of underwriting, financial advisory services and loan syndication fees, totaled $7.1 million for the second quarter of 2021, an increase of $1.8 million or 33 percent compared to the second quarter of 2020, related to the timing and volume of completed transactions.
Brokerage and trading revenue increased $8.6 million compared to the previous quarter, including a $9.3 million increase in trading revenue, primarily due to the combination of an increase in agency residential mortgage trading volumes and higher margin market opportunities.

Transaction Card Revenue

Transaction card revenue increased $2.0 million over the second quarter of 2020 and $2.5 million over the previous quarter, largely due to stimulus measures and the broader reopening of the U.S. economy, as we saw both merchant and ATM transaction volume increase this quarter.

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 90 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 increased $3.6 million or 9 percent compared to the second quarter of 2020. An increase in trust and managed account fees from higher client asset balances was partially offset by a decrease in mutual fund fees as the low rate environment has put pressure on our mutual fund revenue streams. We had approximately $2.9 million in fee waivers during the second quarter of 2021 compared to approximately $1.1 million in the second quarter of 2020. We have voluntarily waived certain administration fees on the Cavanal Hill money market funds in order to maintain positive yields on these funds in the current short-term interest rate environment.

Fiduciary and asset management revenue increased $3.5 million or 8 percent compared to the first quarter of 2021 due to seasonal tax preparation fees collected in the second quarter and higher client asset balances. A distribution of assets under management or administration and related fiduciary and asset management revenue follows:
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Table 3 -- Assets Under Management or Administration
(In thousands)
Three Months Ended
June 30, 2021June 30, 2020March 31, 2021
 Balance
Revenue1
Margin2
Balance
Revenue1
Margin2
Balance
Revenue1
Margin2
Managed fiduciary assets:
Personal$11,973,758 $28,634 0.96 %$9,786,686 $24,131 0.99 %$11,369,467 $23,608 0.83 %
Institutional16,339,627 7,257 0.18 %13,565,799 6,129 0.18 %15,144,797 6,818 0.18 %
Total managed fiduciary assets
28,313,385 35,891 0.51 %23,352,485 30,260 0.52 %26,514,264 30,426 0.46 %
Non-managed assets:
Fiduciary30,341,404 6,643 0.09 %23,395,807 9,031 0.15 %29,713,004 8,983 0.12 %
Non-fiduciary19,480,250 2,298 0.05 %16,643,422 1,966 0.05 %18,421,279 1,913 0.04 %
Safekeeping and brokerage assets under administration
18,497,709 — — %16,060,788 — — %17,307,641 — — %
Total non-managed assets
68,319,363 8,941 0.05 %56,100,017 10,997 0.08 %65,441,924 10,896 0.07 %
Total assets under management or administration
$96,632,748 $44,832 0.19 %$79,452,502 $41,257 0.21 %$91,956,188 $41,322 0.18 %
1    Fiduciary and asset management revenue includes asset-based and other fees associated with the assets.
2    Annualized revenue divided by period-end balance.

A summary of changes in assets under management or administration for the three months ended June 30, 2021 and 2020 follows:

Table 4 -- Changes in Assets Under Management or Administration
(In thousands)
Three Months Ended June 30,
20212020
Beginning balance$91,956,188 $75,783,829 
Net inflows (outflows)1,191,390 (1,219,567)
Net change in fair value3,485,170 4,888,240 
Ending balance$96,632,748 $79,452,502 

Deposit Service Charges and Fees

Deposit service charges and fees increased $3.8 million compared to the second quarter of 2020 and $1.7 million over the first quarter of 2021. This increase was primarily due to commercial accounts where lower earnings credit rates caused by the low interest rate environment have resulted in higher service charges.

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Mortgage Banking Revenue

Mortgage banking revenue decreased $32.7 million or 61 percent compared to the second quarter of 2020 and $15.9 million or 43 percent compared to the first quarter of 2021. Mortgage loan production volume decreased $429 million or 40 percent compared to second quarter of 2020 and decreased $206 million or 24 percent compared to first quarter of 2021. The decline in mortgage production volume was largely due to industry-wide housing inventory constraints, changes to government-sponsored entity delivery limits on second homes and investment properties, and overall market conditions. The realized margin on funded mortgage loans decreased 35 basis points to 2.75 percent compared to first quarter of 2021 while the gain on sale margin, which includes unrealized gains and losses on our mortgage commitment pipeline and related hedges, decreased 143 basis points to 1.55 percent. Margins were compressed largely due to competitive pricing pressure and timing of settlements.

Table 5 – Mortgage Banking Revenue 
(In thousands)
 Three Months Ended
June 30, 2021		Increase (Decrease)% Increase (Decrease)Three Months Ended
 Mar. 31, 2021		Increase (Decrease)% Increase (Decrease)
 20212020
Mortgage production revenue
$10,004 $39,185 $(29,181)(74)%$25,287 $(15,283)(60)%
Mortgage loans funded for sale$754,893 $1,184,249 $843,053 
Add: Current period end outstanding commitments
276,154 546,304 387,465 
Less: Prior period end outstanding commitments
387,465 657,570 380,637 
Total mortgage production volume
$643,582 $1,072,983 $(429,401)(40)%$849,881 $(206,299)(24)%
Mortgage loan refinances to mortgage loans funded for sale
48 %71 %(2,300) bps65 %(1,700) bps
Realized margin on funded mortgage loans2.75 %2.04 %71  bps3.10 %(35) bps
Gain on sale margin1.55 %3.65 %(210) bps2.98 %(143) bps
Primary mortgage interest rates:
Average
3.00 %3.24 %(24) bps2.88 %12  bps
Period end
3.02 %3.13 %(11) bps3.17 %(15) bps
Mortgage servicing revenue
$11,215 $14,751 $(3,536)(24)%$11,826 $(611)(5)%
Average outstanding principal balance of mortgage loans serviced for others
15,065,173 19,319,872 (4,254,699)(22)%15,723,231 (658,058)(4)%
Average mortgage servicing revenue rates
0.30 %0.31 %(1) bp0.31 %(1) bp

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

Other Revenue

Other revenue increased $11.7 million over the second quarter of 2020 and $6.9 million compared to the first quarter of 2021. The increase was primarily due to higher production revenue from repossessed oil and gas properties; however, this is partially offset by increased operating expenses on these properties. Revenue and expense from repossessed oil and gas properties will decrease as the properties are sold.

Net gains on other assets, securities and derivatives

Other net gains totaled $16.4 million in the second quarter of 2021 compared to $7.3 million in the second quarter of 2020. The fluctuation is related to increased gains on alternative investments and sales of repossessed assets. Other net gains totaled $10.1 million in the first quarter of 2021. Increases in gains on alternative investments and the sale of fixed assets were partially offset by a decrease in gains on sales of repossessed assets.

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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.

Historically low mortgage rates in 2020 and early 2021 resulted in a favorable risk profile for our MSRs that supported hedge performance during that time period. Increases in longer-term interest rates during 2021 has returned the risk profile of our MSRs to a more balanced profile, as can be seen in Table 25 of the Market Risk section.

Table 6 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 Three Months Ended
 June 30, 2021Mar. 31, 2021June 30, 2020
Gain (loss) on mortgage hedge derivative contracts, net$18,764 $(27,705)$21,815 
Loss on fair value option securities, net(1,627)(1,910)(14,459)
Gain (loss) on economic hedge of mortgage servicing rights, net17,137 (29,615)7,356 
Gain (loss) on change in fair value of mortgage servicing rights(13,041)33,874 (761)
Gain on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue4,096 4,259 6,595 
Net interest revenue on fair value option securities1
341 393 2,702 
Total economic benefit of changes in the fair value of mortgage servicing rights, net of economic hedges$4,437 $4,652 $9,297 
1    Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

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Other Operating Expense

Other operating expense for the second quarter of 2021 totaled $291.2 million, a decrease of $4.8 million compared to the second quarter of 2020 and a decrease of $4.6 million compared to the first quarter of 2021.

Table 7 – Other Operating Expense
(In thousands)
Three Months Ended June 30,Increase (Decrease)%
Increase (Decrease)		Three Months Ended
 Mar. 31, 2021		Increase (Decrease)%
Increase (Decrease)
 20212020
Regular compensation
$96,081 $99,267 $(3,186)(3)%$97,211 $(1,130)(1)%
Incentive compensation:
Cash-based45,668 46,569 (901)(2)%42,259 3,409 8 %
Share-based251 3,455 (3,204)(93)%4,570 (4,319)95 %
Deferred compensation3,906 5,932 (2,026)N/A2,263 1,643 N/A
Total incentive compensation49,825 55,956 (6,131)(11)%49,092 733 1 %
Employee benefits26,129 21,012 5,117 24 %26,707 (578)(2)%
Total personnel expense172,035 176,235 (4,200)(2)%173,010 (975)(1)%
Business promotion2,744 1,935 809 42 %2,154 590 27 %
Charitable contributions to BOKF Foundation
— 3,000 (3,000)N/A4,000 (4,000)N/A
Professional fees and services
12,361 12,161 200 2 %11,980 381 3 %
Net occupancy and equipment26,633 30,675 (4,042)(13)%26,662 (29)— %
Insurance3,660 5,156 (1,496)(29)%4,620 (960)(21)%
Data processing and communications
36,418 32,942 3,476 11 %37,467 (1,049)(3)%
Printing, postage and supplies4,285 3,502 783 22 %3,440 845 25 %
Amortization of intangible assets4,578 5,190 (612)(12)%4,807 (229)(5)%
Mortgage banking costs11,126 15,598 (4,472)(29)%13,943 (2,817)(20)%
Other expense17,312 9,572 7,740 81 %13,701 3,611 26 %
Total other operating expense$291,152 $295,966 $(4,814)(2)%$295,784 $(4,632)(2)%
Average number of employees (full-time equivalent)
4,817 5,037 (220)(4)%4,902 (85)(2)%
Certain percentage increases (decreases) are not meaningful for comparison purposes.

Personnel expense

Personnel expense decreased $4.2 million compared to the second quarter of 2020. Incentive compensation decreased $6.1 million. Share-based compensation expense decreased $3.2 million based on changes in assumptions of certain performance-based equity awards. Deferred compensation expense decreased $2.0 million; however, this is largely offset by a decrease in the value of related investments included in Other gains (losses), net. Regular compensation expense decreased $3.2 million as we have managed personnel costs by challenging the need to fill open positions and add new positions. These decreases were partially offset by an increase of $5.1 million in employee benefits expense due to increased healthcare costs as healthcare spending returned to normal levels following the earlier months of the pandemic.
Personnel expense decreased $1.0 million compared to the first quarter of 2021, primarily due to a decrease of $1.1 million in regular compensation expense. A $3.0 million seasonal decrease in payroll tax expense was almost fully offset by a $2.8 million increase in employee healthcare costs, which reflects more normal pre-pandemic healthcare levels.

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Non-personnel operating expense

Non-personnel operating expense was relatively consistent with the second quarter of 2020. Mortgage banking costs decreased $4.5 million, substantially due to a decrease in accruals related to default servicing and loss mitigation costs on loans serviced for others. Occupancy and equipment expenses decreased $4.0 million as the second quarter of 2020 included impairment of two leases where assumptions regarding subleasing changed due to deteriorating economic conditions. Also, a $3.0 million charitable contribution was made to the BOKF Foundation in the second quarter of 2020. These expense decreases were almost entirely offset by an increase of $7.7 million in other expense, largely due to increased operating expenses on repossessed oil and gas properties, and a $3.5 million increase in data processing and communications expense, primarily due to continued investment in technology upgrades.
Non-personnel expense decreased $3.7 million compared to the first quarter of 2021. The first quarter of 2021 included a $4.0 million charitable donation to the BOKF Foundation. Mortgage banking costs decreased $2.8 million due to a decrease in prepayments combined with lower accruals related to default servicing and loss mitigation costs on loans serviced for others. Data processing and communications expense decreased $1.0 million as a result of a reduction of system conversion expenses. These decreases were partially offset by an increase of $3.6 million in other expense, primarily due to increased operating expenses on repossessed assets.
Income Taxes

The effective tax rate was 22.5 percent for the second quarter of 2021, 19.7 percent for the second quarter of 2020 and 22.7 percent for the first quarter of 2021. The effective tax rate for the second quarter of 2020 was lower compared the second quarter of 2021, primarily due to lower forecasted pre-tax income for 2020. The lower forecasted pre-tax income for 2020 was primarily due to the larger provision for credit losses. Income tax expense for the second quarter of 2021 increased $6.1 million compared to the first quarter of 2021, primarily due to the increase in net income before tax for the second quarter of 2021.
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, insurance and investment advisory services in all markets. Wealth Management also underwrites state and municipal securities and engages in brokerage and trading activities.

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

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 updated annually at the beginning of the year and 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.

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The value of funds provided by the operating lines of business to the Funds Management unit is updated annually at the beginning of the year and is 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.

As shown in Table 8, net income attributable to our lines of business decreased $41.5 million compared to the second quarter of 2020. Net interest revenue decreased by $3.1 million compared to the prior year, primarily driven by lower average outstanding loan balances. Net charge-offs increased $2.4 million compared to the second quarter of 2020. Other operating revenue decreased by $39.6 million due to a combination of inventory constraints and compressed margins that negatively impacted mortgage banking revenue and a shift from trading revenue from our agency residential mortgage trading activities to net interest revenue. Operating expense increased $1.5 million compared to the second quarter of 2020, primarily in Commercial Banking.

Net interest revenue increased $8.8 million compared to the first quarter of 2021, primarily due to higher earnings from deposits sold to the Funds Management unit. Other operating revenue increased $17.1 million. Growth in our fee-based business, led by brokerage and trading and fiduciary and asset management revenues, were partially offset by lower mortgage banking revenue. Higher operating revenue from repossessed oil and gas assets also contributed to the increase. Other operating expense increased $2.1 million.

Net income attributable to our Funds Management unit was impacted by the negative provision for credit losses in the second quarter of 2021, compared to a provision for credit losses in excess of charge-offs in the second quarter of 2020.

Table 8 -- Net Income by Line of Business
(In thousands)
 Three Months Ended June 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
 Mar. 31, 2021		Increase (Decrease)% Increase (Decrease)
 20212020
Commercial Banking
$72,632 $80,992 $(8,360)(10)%$69,673 $2,959 4 %
Consumer Banking1,698 32,501 (30,803)(95)%6,948 (5,250)(76)%
Wealth Management31,061 33,394 (2,333)(7)%19,382 11,679 60 %
Subtotal105,391 146,887 (41,496)(28)%96,003 9,388 10 %
Funds Management and other61,030 (82,194)143,224 N/A50,057 10,973 N/A
Total$166,421 $64,693 $101,728 157 %$146,060 $20,361 14 %
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.

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Commercial Banking

Commercial Banking contributed $72.6 million to consolidated net income in the second quarter of 2021, a decrease of $8.4 million or 10 percent compared to the second quarter of 2020.

Table 9 -- Commercial Banking
(Dollars in thousands)
 Three Months Ended June 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
 Mar. 31, 2021		Increase (Decrease)% Increase (Decrease)
 20212020
Net interest revenue from external sources
$151,942 $174,314 $(22,372)(13)%$155,799 $(3,857)(2)%
Net interest expense from internal sources
(21,041)(29,205)8,164 (28)%(25,794)4,753 (18)%
Total net interest revenue
130,901 145,109 (14,208)(10)%130,005 896 1 %
Net loans charged off
16,268 13,762 2,506 18 %13,985 2,283 16 %
Net interest revenue after net loans charged off
114,633 131,347 (16,714)(13)%116,020 (1,387)(1)%
Fees and commissions revenue
63,368 46,515 16,853 36 %49,847 13,521 27 %
Other gains (losses), net1,901 1,383 518 N/A(3,268)5,169 N/A
Other operating revenue
65,269 47,898 17,371 36 %46,579 18,690 40 %
Personnel expense
39,848 39,873 (25)— %39,252 596 2 %
Non-personnel expense
31,503 23,060 8,443 37 %27,727 3,776 14 %
Other operating expense
71,351 62,933 8,418 13 %66,979 4,372 7 %
Net direct contribution
108,551 116,312 (7,761)(7)%95,620 12,931 14 %
Gain on financial instruments, net
34 48 (14)N/A33 1 N/A
Gain on repossessed assets, net3,565 191 3,374 N/A12,737 (9,172)N/A
Corporate expense allocations
12,512 5,437 7,075 130 %12,734 (222)(2)%
Income before taxes
99,638 111,114 (11,476)(10)%95,656 3,982 4 %
Federal and state income tax
27,006 30,122 (3,116)(10)%25,983 1,023 4 %
Net income
$72,632 $80,992 $(8,360)(10)%$69,673 $2,959 4 %
Average assets
$28,160,594 $27,575,652 $584,942 2 %$28,047,052 $113,542 — %
Average loans
16,981,888 19,262,827 (2,280,939)(12)%17,522,520 (540,632)(3)%
Average deposits
17,049,772 14,599,225 2,450,547 17 %16,130,168 919,604 6 %
Average invested capital
2,094,022 2,230,707 (136,685)(6)%2,157,062 (63,040)(3)%
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.

Net interest revenue decreased $14.2 million compared to the second quarter of 2020, primarily due to reduced loan balances coupled with a reduction in the spread on deposits sold to our Funds Management unit. This was partially offset by increased deposit balances. Growth in average deposits and decreases in average loans caused Commercial Banking to be a net provider of funds to Funds Management in the second quarter of 2021 compared to a net user of funds in the second quarter of 2020 and the first quarter of 2021. Net loans charged-off increased $2.5 million.

Fees and commissions revenue increased $16.9 million or 36 percent while operating expenses increased $8.4 million or 13 percent. An increase in production revenue from repossessed oil and gas properties was partially offset by an increase in related operating expenses. Deposit service charges and fees, syndication fees, and transaction card revenues were also up over the second quarter of 2020.

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During the second quarter of 2021, a gain of $7.3 million was realized on the sale of repossessed assets, which was partially offset by impairment taken on a certain repossessed oil and gas property. Corporate expense allocations increased $7.1 million or 130 percent compared to the prior year. The Commercial team provided resources to originate and service the PPP loan activity outside of the Commercial Banking segment throughout 2020, which lowered allocations to Commercial Banking in the prior year.

The average outstanding balance of loans attributed to Commercial Banking decreased $2.3 billion or 12 percent to $17.0 billion compared to the second quarter of 2020. 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 $17.0 billion for the second quarter of 2021, a $2.5 billion or 17 percent increase over the second quarter of 2020. Continued deposit growth is primarily due to higher balance retention by customers in the current economic environment. See Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital for further discussion of change.

Net interest revenue was relatively consistent with first quarter of 2021. Fees and commissions revenue increased $13.5 million over the first quarter of 2021. Operating expense increased $4.4 million or 7 percent compared to the first quarter of 2021. Both increases were primarily due to the operation of repossessed oil and gas properties. Net gain on repossessed assets also decreased $9.2 million as first quarter of 2021 included a $14.1 million gain on the sale of repossessed oil and gas assets.

Average loan balances decreased $541 million or 3 percent and average customer deposits increased $920 million or 6 percent over the first quarter of 2021.



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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.

Consumer Banking contributed $1.7 million to consolidated net income for the second quarter of 2021, a decrease of $30.8 million compared to the second quarter of 2020, largely due to lower mortgage production volumes combined with lower spreads on deposits sold to our Funds Management unit.

Table 10 -- Consumer Banking
(Dollars in thousands)
 Three Months Ended June 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
 Mar. 31, 2021		Increase (Decrease)% Increase (Decrease)
 20212020
Net interest revenue from external sources
$17,552 $18,795 $(1,243)(7)%$16,686 $866 5 %
Net interest revenue from internal sources
7,393 20,475 (13,082)(64)%4,288 3,105 72 %
Total net interest revenue24,945 39,270 (14,325)(36)%20,974 3,971 19 %
Net loans charged off425 535 (110)(21)%1,136 (711)(63)%
Net interest revenue after net loans charged off
24,520 38,735 (14,215)(37)%19,838 4,682 24 %
Fees and commissions revenue37,714 67,192 (29,478)(44)%52,300 (14,586)(28)%
Other losses, net
— — — N/A(18)18 N/A
Other operating revenue37,714 67,192 (29,478)(44)%52,282 (14,568)(28)%
Personnel expense21,108 23,306 (2,198)(9)%21,908 (800)(4)%
Non-personnel expense31,345 34,943 (3,598)(10)%33,714 (2,369)(7)%
Total other operating expense52,453 58,249 (5,796)(10)%55,622 (3,169)(6)%
Net direct contribution9,781 47,678 (37,897)(79)%16,498 (6,717)(41)%
Gain (loss) on financial instruments, net17,137 7,356 9,781 N/A(29,616)46,753 N/A
Change in fair value of mortgage servicing rights
(13,041)(761)(12,280)N/A33,874 (46,915)N/A
Gain on repossessed assets, net— 27 (27)N/A41 (41)N/A
Corporate expense allocations11,599 10,692 907 8 %11,475 124 1 %
Income before taxes2,278 43,608 (41,330)(95)%9,322 (7,044)(76)%
Federal and state income tax580 11,107 (10,527)(95)%2,374 (1,794)(76)%
Net income$1,698 $32,501 $(30,803)(95)%$6,948 $(5,250)(76)%
Average assets$10,087,488 $9,920,005 $167,483 2 %$9,755,539 $331,949 3 %
Average loans1,786,242 1,679,164 107,078 6 %1,823,732 (37,490)(2)%
Average deposits8,469,043 7,587,246 881,797 12 %8,082,443 386,600 5 %
Average invested capital249,061 258,558 (9,497)(4)%256,188 (7,127)(3)%
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.

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Net interest revenue from Consumer Banking activities declined by $14.3 million or 36 percent compared to the second quarter of 2020, primarily due to a decrease in the spread on deposits sold to our Funds Management unit and a decrease in volume of securities held as an economic hedge of our mortgage servicing rights. Average consumer deposits grew $882 million over the second quarter of 2020 with interest-bearing transaction deposit balances increasing $471 million or 14 percent and demand deposit balances increasing $405 million or 15 percent.

Fees and commissions revenue decreased $29.5 million or 44 percent compared to the second quarter of 2020. Mortgage banking revenue decreased $32.7 million from the first quarter of 2020 due to lower mortgage production volume and gain on sale margin compression. Deposit service charges increased $2.2 million. Customer spending levels increased with the broader reopening of the U.S. economy, which resulted in increased overdraft fees and check card revenue compared to the prior year. Operating expense decreased $5.8 million due to a decrease in mortgage banking costs and personnel expense. Corporate expense allocations were consistent with the second quarter of 2020.

Changes in the fair value of mortgage servicing rights, net of economic hedges, increased pre-tax net income for the second quarter of 2021 by $4.1 million compared to a $6.6 million increase in pre-tax net income in the second quarter of 2020.

Net interest revenue from Consumer Banking activities increased $4.0 million or 19 percent compared to the first quarter of 2021, mainly due to favorable spreads on deposits sold to our Funds Management unit. Operating revenue decreased $14.6 million compared to the first quarter of 2021 as mortgage production volume declined and margins compressed. Operating expense decreased $3.2 million, primarily due to a decrease mortgage banking costs.

Average consumer loans decreased $37 million or 2 percent. Average deposits increased $387 million or 5 percent.

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Wealth Management

Wealth Management contributed $31.1 million to consolidated net income in the second quarter of 2021, a decrease of $2.3 million or 7 percent compared to the second quarter of 2020. Revenue attributed to the Wealth Management segment totaled $131.1 million for the second quarter of 2021, a $2.5 million or 2 percent decrease compared to the second quarter of 2020. A seasonal increase in fiduciary and asset management revenue was offset by decreased revenue related to agency mortgage-backed trading activities.


Table 11 -- Wealth Management
(Dollars in thousands)
 Three Months Ended June 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
 Mar. 31, 2021		Increase (Decrease)% Increase (Decrease)
 20212020
Net interest revenue from external sources
$52,966 $34,359 $18,607 54 %$48,554 $4,412 9 %
Net interest revenue from internal sources
(673)(7,479)6,806 (91)%(200)(473)237 %
Total net interest revenue52,293 26,880 25,413 95 %48,354 3,939 8 %
Net loans charged off (recovered)(54)(89)35 (39)%(29)(25)86 %
Net interest revenue after net loans charged off (recovered)
52,347 26,969 25,378 94 %48,383 3,964 8 %
Fees and commissions revenue78,841 106,757 (27,916)(26)%65,684 13,157 20 %
Other gains (losses), net308 (83)391 N/A439 (131)N/A
Other operating revenue79,149 106,674 (27,525)(26)%66,123 13,026 20 %
Personnel expense58,721 61,909 (3,188)(5)%57,414 1,307 2 %
Non-personnel expense20,708 18,658 2,050 11 %21,151 (443)(2)%
Other operating expense79,429 80,567 (1,138)(1)%78,565 864 1 %
Net direct contribution52,067 53,076 (1,009)(2)%35,941 16,126 45 %
Corporate expense allocations10,343 8,204 2,139 26 %9,887 456 5 %
Income before taxes41,724 44,872 (3,148)(7)%26,054 15,670 60 %
Federal and state income tax10,663 11,478 (815)(7)%6,672 3,991 60 %
Net income$31,061 $33,394 $(2,333)(7)%$19,382 $11,679 60 %
Average assets$19,201,041 $15,721,452 $3,479,589 22 %$18,645,865 $555,176 3 %
Average loans1,968,513 1,709,363 259,150 15 %1,917,973 50,540 3 %
Average deposits9,695,319 8,385,681 1,309,638 16 %9,706,295 (10,976)— %
Average invested capital312,148 295,245 16,903 6 %313,355 (1,207)— %

Combined net interest revenue and fee revenue from our agency mortgage-backed securities trading activities decreased by $2.6 million or 4 percent compared to the prior year. Fiduciary and asset management revenue increased $3.7 million. Growth in trust fees and managed account fees as a result of higher client asset balances, was partially offset by a combination of lower mutual fund fees and increased fee waivers. Other Wealth Management revenue decreased primarily related to a decrease in the spread on deposits sold to our Funds Management unit, partially offset by growth in private banking average loan balances.

Operating expense decreased $1.1 million as a $3.2 million decrease in personnel expense was partially offset by a $2.1 million increase in non-personnel expense. Corporate expense allocations increased $2.1 million compared to the second quarter of 2020.

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Average loans attributed to the Wealth Management segment increased $259 million or 15 percent. Average deposits increased $1.3 billion or 16 percent, largely due to core growth as customers are retaining higher balances in the current economic environment.

Net income for Wealth Management increased $11.7 million or 60 percent compared to the first quarter of 2021. Combined net interest revenue and fee revenue increased $17.1 million. Brokerage and trading revenue and related net interest revenue increased $10.5 million to $62.2 million due to growth in agency residential mortgage trading volumes and higher margin market opportunities. Fiduciary and asset management fees grew as a result of higher client asset balances. Assets under management were $96.6 billion, an increase of $4.7 billion compared to the prior quarter.

Average loans grew 3 percent to $2.0 billion and average deposits were consistent with prior quarter.
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, 2021 and December 31, 2020.

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 $613 million to $5.7 billion during the second quarter of 2021. 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 relatively unchanged from levels set before our expanded trading activities.

At June 30, 2021, the carrying value of investment (held-to-maturity) securities was $221 million, including a $493 thousand allowance for expected credit losses compared to $226 million at March 31, 2021 with a $617 thousand allowance for expected credit losses. The fair value of investment securities was $246 million at June 30, 2021 and $253 million at March 31, 2021. Investment securities consist primarily of residential mortgage-backed securities issued by U.S. government agencies, long-term, fixed rate Oklahoma and Texas municipal bonds, and taxable Texas school construction bonds.

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 $13.0 billion at June 30, 2021, a $99 million decrease compared to March 31, 2021. At June 30, 2021, 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, 2021 is 2.7 years. Management estimates the duration extends to 4.1 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 1.8 years assuming a 100 basis point decline in the current low rate environment.

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Loans

The aggregate loan portfolio before allowance for loan losses totaled $21.4 billion at June 30, 2021, a $1.1 billion decrease compared to March 31, 2021, primarily due to a decrease in PPP loan balances. Paydowns of energy and commercial real estate portfolios, were partially offset by an increase in healthcare and personal loans.

Table 12 -- Loans
(In thousands)
June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Commercial: 
Services$3,389,756 $3,421,948 $3,508,583 $3,545,825 $3,779,881 
Healthcare3,381,261 3,290,758 3,305,990 3,325,790 3,289,343 
Energy3,011,331 3,202,488 3,469,194 3,717,101 3,974,174 
General business2,690,559 2,742,590 2,793,768 2,976,990 3,115,112 
Total commercial12,472,907 12,657,784 13,077,535 13,565,706 14,158,510 
Commercial real estate:
Office1,073,346 1,094,060 1,085,257 1,099,563 973,995 
Multifamily964,824 1,227,915 1,328,045 1,387,461 1,407,107 
Industrial824,577 789,437 810,510 792,389 723,005 
Retail784,445 787,648 796,223 786,211 780,467 
Residential construction and land development
128,939 119,079 119,394 121,258 136,911 
Other commercial real estate470,861 485,208 559,109 506,818 532,659 
Total commercial real estate4,246,992 4,503,347 4,698,538 4,693,700 4,554,144 
Paycheck protection program1,121,583 1,848,550 1,682,310 2,097,325 2,081,428 
Loans to individuals: 
Residential mortgage1,772,627 1,797,478 1,863,003 1,849,144 1,813,442 
Residential mortgage guaranteed by U.S. government agencies
413,806 420,051 408,687 384,247 322,269 
Personal1,388,534 1,306,637 1,277,447 1,213,178 1,226,097 
Total loans to individuals3,574,967 3,524,166 3,549,137 3,446,569 3,361,808 
Total$21,416,449 $22,533,847 $23,007,520 $23,803,300 $24,155,890 
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. These 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. In addition, revolving lines of credit are generally governed by a borrowing base. 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 $12.5 billion or 58 percent of the loan portfolio at June 30, 2021, a $185 million decrease compared to March 31, 2021, primarily due to paydowns in the energy loan portfolio.

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Approximately 76 percent of loans in this segment are located within our geographic footprint, based on collateral location. Loans for which the collateral location is less relevant, such as unsecured loans and reserve-based energy loans are categorized by the borrower's primary operating location. The largest concentration of loans in this segment outside of our footprint is California, totaling 5 percent of the segment.

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 used 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 $3.0 billion or 14 percent of total loans at June 30, 2021, a $191 million decrease compared to March 31, 2021. Approximately $2.2 billion of energy loans were to oil and gas producers, a $148 million decrease compared to March 31, 2021. While commodity prices have continued to improve and stabilize, sourcing new loans sufficient to offset paydowns remains a challenge as existing borrowers continue to reduce leverage. 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 66 percent of the committed production loans are secured by properties primarily producing oil and 34 percent of the committed production loans are secured by properties primarily producing natural gas.

Loans to midstream oil and gas companies totaled $645 million at June 30, 2021, largely unchanged compared to March 31, 2021. Loans to borrowers that provide services to the energy industry totaled $103 million at June 30, 2021, a decrease of $33 million. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $27 million, a $7.0 million decrease compared to the prior quarter.

Unfunded energy loan commitments were $2.6 billion at June 30, 2021, a $247 million increase over March 31, 2021.

The healthcare sector of the loan portfolio totaled $3.4 billion or 16 percent of total loans. Healthcare loans grew by $91 million over March 31, 2021, primarily driven by our senior housing sector. Balances to hospital systems were also up over the prior quarter. Healthcare sector loans consist primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Generally we loan to borrowers with a portfolio of multiple facilities that serves to help diversify risks specific to a single facility.
The services sector of the loan portfolio totaled $3.4 billion or 16 percent of total loans, largely unchanged compared to the prior quarter. Service sector loans consist of a large number of loans to a variety of businesses, including Native American tribal and state and local governments, Native American tribal casino operations, foundations and not-for-profit organizations, educational services and specialty trade contractors. Approximately $1.7 billion of the services category is made up of loans with individual balances of less than $10 million. Services 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. 

General business loans decreased $52 million to $2.7 billion or 13 percent of total loans. General business loans consist of $1.4 billion of wholesale/retail loans and $1.3 billion of loans from other commercial industries.

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 $100 million or more and with three or more non-affiliated banks as participants. At June 30, 2021, the outstanding principal balance of these loans totaled $3.8 billion, including $1.6 billion of energy loans. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 22 percent of our shared national credits, based on dollars committed. We hold shared national credits to the same standard of analysis and perform the same level of review as internally originated credits. Our lending policies generally avoid loans in which we do not have the opportunity to maintain or achieve other business relationships with the customer. In addition to management’s quarterly assessment of credit risk, banking regulators annually review a sample of shared national credits for proper risk grading.

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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. 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.

The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 20 percent to 22 percent over the past five years. The outstanding balance of commercial real estate loans decreased $256 million compared to March 31, 2021. Borrowers continue to use this low interest rate environment to refinance to long-term, non-recourse markets. Multifamily residential loans decreased $263 million to $965 million at June 30, 2021. Loans secured by office buildings decreased $21 million to $1.1 billion. Loans secured by other commercial real estate properties decreased $14 million to $471 million. Loans secured by industrial facilities increased $35 million to $825 million. Loans secured by retail facilities were largely unchanged compared to March 31, 2021.

Approximately 69 percent of loans in this segment are in our geographic footprint based on collateral location. The largest concentration of loans in this segment outside our footprint is Utah, totaling 9 percent of the segment, followed by California at 5 percent. All other states represent less than 5 percent individually.
Paycheck Protection Program
We actively participate in programs initiated by the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), including the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") that began on April 3, 2020. PPP provides fully forgivable loans when utilized for qualified expenditures, including to help small businesses maintain payrolls during the COVID-19 pandemic. These loans have a contractual term of two years, though most are expected to be forgiven prior to maturity after completion of a compliance period. Loans are guaranteed and amounts forgiven will be reimbursed to the Company by the SBA. The loans carry a fixed interest rate of 1 percent. Interest plus loan fees, which vary depending on loan size, are accrued over the contractual life of the loan. Any unaccreted origination fees will be recognized when the loan is paid. The pace of forgiveness activity for the initial rounds of PPP loans has been slower than initially anticipated. At June 30, 2021, approximately $461 million of PPP loans from the initial rounds remains, with an unaccreted origination fee balance of $3.8 million.
The Company also participated in the most recent round of PPP, originating $661 million of new PPP loans during this year, maintaining a focus on our existing client base to timely support their needs. The newest round of loans have a fixed interest rate of 1 percent and a contractual term of five years, but are expected to be forgiven prior to maturity. Unaccreted origination fees related to the 2021 vintage of PPP loans totaled $24 million at June 30, 2021.
Loans to Individuals

Loans to individuals include residential mortgage and personal loans. Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. These loans are secured by a first or second mortgage on the customer's primary residence. These 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.

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. 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. Home equity loans are primarily first-lien and fully amortizing.

Residential mortgage, which includes home equity loans, 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.

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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.

Approximately 90 percent of the loans in this segment are secured by collateral located within our geographical footprint. Loans for which the collateral location is less relevant, such as unsecured loans are categorized by the borrower’s primary operating location.

Residential mortgage loans guaranteed by U.S. government agencies have limited credit exposure because of the agency guarantee. 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.

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 Oklahoma market.

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Table 13-- Loans Managed by Primary Geographical Market
(In thousands)
June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Texas:
Commercial$5,690,901 $5,748,345 $5,926,534 $6,135,471 $6,359,206 
Commercial real estate1,403,751 1,511,714 1,519,217 1,523,226 1,413,108 
Paycheck protection program342,933 537,899 501,079 614,970 612,133 
Loans to individuals885,619 848,194 855,410 794,055 749,531 
Total Texas8,323,204 8,646,152 8,802,240 9,067,722 9,133,978 
Oklahoma:
Commercial2,840,560 2,975,477 3,144,782 3,332,244 3,489,259 
Commercial real estate552,673 597,840 597,733 608,448 596,419 
Paycheck protection program242,880 468,002 413,108 487,247 442,518 
Loans to individuals2,063,419 2,043,705 2,052,784 2,034,576 1,966,032 
Total Oklahoma5,699,532 6,085,024 6,208,407 6,462,515 6,494,228 
Colorado:
Commercial1,904,182 1,910,826 1,929,320 1,993,364 2,085,294 
Commercial real estate656,521 777,786 879,648 893,626 940,622 
Paycheck protection program299,712 436,540 377,111 494,910 488,279 
Loans to individuals262,796 264,759 264,295 257,832 265,359 
Total Colorado3,123,211 3,389,911 3,450,374 3,639,732 3,779,554 
Arizona:
Commercial1,239,270 1,207,089 1,219,072 1,218,769 1,346,037 
Commercial real estate705,497 667,766 726,111 702,291 698,818 
Paycheck protection program104,946 208,481 211,725 272,114 318,961 
Loans to individuals178,481 179,031 177,948 166,203 177,155 
Total Arizona2,228,194 2,262,367 2,334,856 2,359,377 2,540,971 
Kansas/Missouri:
Commercial388,291 421,974 455,914 493,606 481,162 
Commercial real estate406,055 395,590 366,821 352,663 314,926 
Paycheck protection program41,954 60,741 56,011 80,230 76,724 
Loans to individuals103,092 104,954 105,995 96,598 102,577 
Total Kansas/Missouri939,392 983,259 984,741 1,023,097 975,389 
New Mexico:
Commercial304,804 307,395 303,833 288,374 308,090 
Commercial real estate437,996 448,298 473,204 473,697 458,230 
Paycheck protection program86,716 124,059 109,881 133,244 128,058 
Loans to individuals68,177 70,491 75,665 79,890 83,470 
Total New Mexico897,693 950,243 962,583 975,205 977,848 
Arkansas:
Commercial104,899 86,678 98,080 103,878 89,462 
Commercial real estate84,499 104,353 135,804 139,749 132,021 
Paycheck protection program2,442 12,828 13,395 14,610 14,755 
Loans to individuals13,383 13,032 17,040 17,415 17,684 
Total Arkansas205,223 216,891 264,319 275,652 253,922 
Total BOK Financial loans$21,416,449 $22,533,847 $23,007,520 $23,803,300 $24,155,890 
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Off-Balance Sheet Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 14. 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.

We have off-balance sheet commitments related to certain residential mortgage loans sold into mortgage-backed securities as part of our mortgage banking activities. We retain off-balance sheet credit risk related to losses in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA").

We also have off-balance sheet credit risk related to certain residential mortgage loans primarily originated under community development loan programs that were sold to a U.S. government agency with full recourse prior to 2007. 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. The majority of our conforming fixed rate loan originations are sold in the secondary market and we only retain repurchase obligations under standard underwriting representations and warranties.

Table 14 – Off-Balance Sheet Credit Commitments
(In thousands)
 June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Loan commitments$11,518,158 $11,151,650 $10,967,546 $10,430,106 $10,298,572 
Standby letters of credit671,878 713,834 681,467 678,136 693,177 
Unpaid principal balance of residential mortgage loans sold with recourse
63,545 68,393 73,055 77,225 82,305 
Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs
1,225,100 1,326,300 1,442,504 1,574,272 1,715,025 
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.
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Derivative contracts are carried at fair value. At June 30, 2021, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $1.6 billion compared to $880 million at March 31, 2021. At June 30, 2021, the net fair value of our derivative contracts included $992 million for energy contracts, $569 million for foreign exchange contracts and $72 million for interest rate swaps. The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $1.6 billion at June 30, 2021 and $865 million at March 31, 2021.

At June 30, 2021, total derivative assets were reduced by $1.2 million of cash collateral received from counterparties and total derivative liabilities were reduced by $1.0 billion of cash collateral paid to counterparties related to instruments executed with the same counterparty under a master netting agreement. Derivative contracts executed with customers may be secured by non-cash collateral in conjunction with a credit agreement with that customer, such as proven producing oil and gas properties. Access to this collateral in event of default is reasonably assured.

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, 2021 follows in Table 15.

Table 15 -- Fair Value of Derivative Contracts
(In thousands)
Customers$1,334,782 
Banks and other financial institutions298,076 
Fair value of customer risk management program asset derivative contracts, net$1,632,858 
 
At June 30, 2021, our largest derivative exposure was to an energy customer for $82 million.

Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain counterparties when the net negative fair value of the contracts exceeds established limits. Also, changes in commodity prices 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 $58.86 per barrel of oil would decrease the fair value of derivative assets by $447 million, with dealer counterparties comprising the bulk of the assets. An increase in prices equivalent to $87.10 per barrel of oil would increase the fair value of derivative assets by $373 million as margin received falls faster than the asset values. Liquidity requirements of this program may also be affected by our credit rating. At June 30, 2021, a decrease in our credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $10 million. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of June 30, 2021, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
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Summary of Credit Loss Experience

Table 16 -- Summary of Credit Loss Experience
(In thousands)
Three Months Ended
June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Allowance for loan losses:  
Beginning balance$352,402 $388,640 419,777 435,597 315,311 
Loans charged off(18,304)(16,905)(18,251)(26,661)(15,570)
Recoveries of loans previously charged off2,856 2,437 1,592 4,232 1,491 
Net loans charged off(15,448)(14,468)(16,659)(22,429)(14,079)
Provision for credit losses
(25,064)(21,770)(14,478)6,609 134,365 
Ending balance$311,890 $352,402 $388,640 $419,777 $435,597 
Accrual for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$32,877 $36,921 27,969 32,919 28,514 
Provision for credit losses
(8,590)(4,044)8,952 (4,950)4,405 
Ending balance$24,287 $32,877 $36,921 $27,969 $32,919 
Accrual for off-balance sheet credit risk associated with mortgage banking activities:
Beginning balance
$5,135 $4,282 5,246 6,041 9,660 
Loans charged off
(85)(32)(41)(25)(44)
Provision for credit losses
(1,222)885 (923)(770)(3,575)
Ending balance
$3,828 $5,135 $4,282 $5,246 $6,041 
Allowance for credit losses related to held-to-maturity (investment) securities:
Beginning balance
$617 $688 $739 $1,628 $1,502 
Provision for credit losses
(124)(71)(51)(889)126 
Ending balance$493 $617 $688 $739 $1,628 
Total provision for credit losses
$(35,000)$(25,000)$(6,500)$— $135,195 
Net charge-offs (annualized) to average loans0.28 %0.25 %0.28 %0.37 %0.23 %
Net charge-offs (annualized) to average loans excluding PPP loans1
0.30 %0.28 %0.31 %0.41 %0.25 %
Recoveries to gross charge-offs
15.60 %14.42 %8.72 %15.87 %9.58 %
Provision for loan losses (annualized) to average loans
(0.45)%(0.38)%(0.25)%0.11 %2.23 %
Allowance for loan losses to loans outstanding at period-end
1.46 %1.56 %1.69 %1.76 %1.80 %
Allowance for loan losses to loans outstanding at period-end excluding PPP loans1
1.54 %1.70 %1.82 %1.93 %1.97 %
Accrual for unfunded loan commitments to loan commitments
0.21 %0.29 %0.34 %0.27 %0.32 %
Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end
1.57 %1.71 %1.85 %1.88 %1.94 %
Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end excluding PPP loans1
1.66 %1.86 %2.00 %2.06 %2.12 %
1    Metric meaningful due to the unique characteristics of the PPP loans.
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Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Unfunded Loan Commitments
Expected credit losses on assets carried at amortized cost are recognized over their expected lives based on models that measure the probability of default and loss given default over a 12-month reasonable and supportable forecast period. Models incorporate base case, downside and upside macroeconomic variables such as real gross domestic product ("GDP") growth, civilian unemployment rate and West Texas Intermediate ("WTI") oil prices on a probability weighted basis. See Note 4 to the consolidated financial statements for additional discussion of methodology of allowance for loan losses.
A $35.0 million negative provision for credit losses was recorded the second quarter of 2021, primarily due to changes in our reasonable and supportable forecasts of macroeconomic variables as a result of continued improvement in the economic outlook related to the anticipated impact of the on-going COVID-19 pandemic and improving credit quality metrics. Decreased allowance due to lower loan balances and decreased specific impairment were offset by charge-offs during the quarter.

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Our reasonable and supportable forecast of macroeconomic variables are significantly influenced by the COVID-19 pandemic developments and related government stimulus policies, which remain highly uncertain. A summary of macroeconomic variables considered in developing our estimate of expected credit losses at June 30, 2021 follows:
BaseDownsideUpside
Scenario probability weighting70%20%10%
COVID-19 trajectoryCOVID-19 case levels continue to improve and normalize as virus immunity becomes increasingly widespread and proves effective against new virus strains. Trajectory of COVID-19 pandemic worsens as additional surges stemming from new virus strains in areas of the country with lower vaccination rates as the U.S. enters the fall and winters months. The severity of the situation is compounded by uncertainty around vaccine durability and many states/regions are forced to reinstate restrictions.COVID-19 case levels continue to improve and normalize as virus immunity becomes increasingly widespread and proves effective against new virus strains.
Economic recovery (driven by COVID-19 trajectory)Continued easing of restrictions and the release of pent-up consumer demand results in GDP growth above historical averages through 2021, but begins to moderate in 2022.Deteriorated COVID-19 situation, slow vaccine distribution and lack of Congressional support for additional fiscal stimulus results in a mild recession with conditions beginning to improve in the spring of 2022.Continued easing of restrictions, the release of pent-up consumer demand and prolonged spending of excess savings results in GDP growth above historical averages for 2021 and 2022.
Macro-economic factors
–GDP is forecasted to grow by 4.8 percent over the next 12 months.
–Civilian unemployment rate of 5.5 percent in the third quarter of 2021 improves to 4.7 percent by the second quarter of 2022.
–WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of June 2021 and are expected to average $67.04 per barrel over the next 12 months.
–GDP is forecasted to grow 1.3 percent over the next 12 months.
–Civilian unemployment rate of 5.7 percent in the third quarter of 2021 increases in the next two quarters then levels off at 7.6 percent in the second quarter of 2022.
–WTI oil prices are projected to average $52.58 over the next 12 months.
–GDP is forecasted to grow by 6.4 percent over the next 12 months.
–Civilian unemployment rate of 5.1 percent in the third quarter of 2021 improves to 4.0 percent by the second quarter of 2022.
–WTI oil prices are projected to average $72.28 per barrel over the next 12 months.

Net charge-offs and changes in specific impairments attributed to certain credits required a $9.2 million provision during the second quarter of 2021. This provision was offset primarily by a decrease in allowance related to lower outstanding loan balances and changes in payment profile. There was a slight decrease in the provision for credit losses related to improved risk grading during the quarter. Significant improvement in energy loans credit risk grading was partially offset by credit risk grade migration in commercial real estate and residential mortgage loans. A summary of outstanding loan balances by risk grade is included in Note 4 to the Consolidated Financial Statements. Non-pass grade loans include other loans especially mentioned, defined by regulatory guidelines as loans that are currently performing in compliance with original terms but may have a potential weakness that deserves management’s close attention, accruing substandard loans, and nonaccruing loans. Non-pass grade loans totaled $652 million at June 30, 2021, a $208 million decrease compared to March 31. Non-pass graded loans were primarily composed of $325 million or 11 percent of energy loans, $117 million or 3 percent of services loans, $62 million or 2 percent of general business loans and $59 million or 1 percent of commercial real estate loans.

The allowance for loan losses totaled $312 million or 1.46 percent of outstanding loans and 183 percent of nonaccruing loans at June 30, 2021, excluding residential mortgage loans guaranteed by U.S. government agencies. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $336 million or 1.57 percent of outstanding loans and 197 percent of nonaccruing loans at June 30, 2021. Excluding PPP loans, the allowance for loan losses was 1.54 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 1.66 percent.
- 28 -


The allowance for credit losses attributed to energy was 2.68 percent of outstanding energy loans at June 30, 2021. Our semi-annual borrowing base redeterminations during the second quarter of 2021 were based on forward pricing curves that existed at that time and resulted in improved credit risk grading in our energy loan portfolio. Although energy prices have continued to improve, the pricing environment remains fragile and tied to the continued economic recovery from the impact of the COVID-19 pandemic.

The Company recorded a $25.0 million negative provision for credit losses in the first quarter of 2021. The allowance for loan losses was $352 million or 1.56 percent of outstanding loans and 170 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies at March 31, 2021. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $385 million or 1.71 percent of outstanding loans and 186 percent of nonaccruing loans. Excluding PPP loans, the allowance for loan losses was 1.70 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 1.86 percent.

Net Loans Charged Off

Net charge-offs of commercial loans were $14.6 million in the second quarter of 2021, primarily related to three energy production borrowers. Net commercial real estate loan charge-offs were $624 thousand and net charge-offs of loans to individuals were $197 thousand. Net charge-offs of loans to individuals include deposit account overdraft losses.

Accrual for Off-Balance Sheet Credit Risk Associated with Mortgage Banking Activities

The accrual for off-balance sheet credit risk associated with mortgage banking activities includes consideration of credit risk related to certain residential mortgage loans sold into mortgage-backed securities in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA") and mortgage loans originated under community development loan programs that were sold to a U.S. government agency with full recourse.

We use publicly available long-term national data to estimate total loss given default for our off-balance sheet credit risk related to losses in excess of amounts guaranteed by the VA. This result is combined with probability of default output from our mortgage servicing rights model to estimate total expected loss. Then, we estimate the VA's guarantee percentage to determine our portion of the credit risk. Qualitative adjustment may be used, if necessary.

Allowance for Credit Losses Related to Held-to-Maturity (Investment) Securities

The expected credit losses principles apply to all financial assets measured at cost, including our held-to-maturity (investment) debt securities portfolio. Our investment portfolio includes municipal and other tax-exempt securities and other debt securities. Expected credit losses for these assets is based on probability of default and loss given default assumptions that align with similarly graded loans. Qualitative adjustment may be used, if necessary.
- 29 -

Nonperforming Assets

As more fully described in Note 4 to the Consolidated Financial Statements, loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. Accruing renegotiated loans guaranteed by U.S. government agencies represent residential mortgage loans that have been modified in troubled debt restructurings. Interest continues to accrue based on the modified terms of the loan and loans may be sold once they become eligible according to U.S. government agency guidelines. 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. A summary of nonperforming assets follows in Table 17:

Table 17 -- Nonperforming Assets
(In thousands)
June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Nonaccruing loans:    
Commercial:  
Energy$70,341 $101,800 $125,059 $126,816 $162,989 
Healthcare527 3,187 3,645 3,645 3,645 
Services29,913 28,033 25,598 25,817 21,032 
General business11,823 14,053 12,857 13,675 14,333 
Total commercial112,604 147,073 167,159 169,953 201,999 
Commercial real estate26,123 27,243 27,246 12,952 13,956 
Loans to individuals:  
Residential mortgage31,473 32,884 32,228 31,599 33,098 
Residential mortgage guaranteed by U.S. government agencies
9,207 8,564 7,741 6,397 6,110 
Personal229 255 319 252 233 
Total loans to individuals40,909 41,703 40,288 38,248 39,441 
Total nonaccruing loans179,636 216,019 234,693 221,153 255,396 
Accruing renegotiated loans guaranteed by U.S. government agencies
171,324 154,591 151,775 142,770 114,571 
Real estate and other repossessed assets57,337 70,911 90,526 52,847 35,330 
Total nonperforming assets$408,297 $441,521 $476,994 $416,770 $405,297 
Total nonperforming assets excluding those guaranteed by U.S. government agencies
$227,766 $278,366 $317,478 $267,603 $284,616 
Allowance for loan losses to nonaccruing loans1
183.00 %169.87 %171.24 %195.47 %174.74 %
Nonperforming assets to outstanding loans and repossessed assets
1.90 %1.95 %2.07 %1.75 %1.68 %
Nonperforming assets to outstanding loans and repossessed assets excluding residential mortgage and PPP loans guaranteed by U.S. government agencies1,2
1.14 %1.37 %1.51 %1.25 %1.31 %
Nonaccruing commercial loans to outstanding commercial loans
0.90 %1.16 %1.28 %1.25 %1.43 %
Nonaccruing commercial real estate loans to outstanding commercial real estate loans
0.62 %0.60 %0.58 %0.28 %0.31 %
Nonaccruing loans to individuals to outstanding loans to individuals1
1.00 %1.07 %1.04 %1.04 %1.10 %
1     Excludes residential mortgages guaranteed by U.S. government agencies.
2     Excludes residential mortgage and PPP loans guaranteed by U.S. government agencies.

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Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $51 million from March 31, 2021, primarily due to a $31 million decrease in nonaccruing energy loans and a $14 million decrease in real estate and other repossessed assets. Newly identified nonaccruing loans totaled $13 million, offset by $31 million of payments and $18 million of charge-offs. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.

A rollforward of nonperforming assets for the three and six months ended June 30, 2021 follows in Table 18.
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Table 18 -- Rollforward of Nonperforming Assets
(In thousands)
 Three Months Ended
June 30, 2021
Nonaccruing Loans
 CommercialCommercial Real EstateLoan to IndividualsTotal
 
Renegotiated Loans
Real Estate and Other Repossessed AssetsTotal Nonperforming Assets
Balance, March 31, 2021$147,073 $27,243 $41,703 $216,019 $154,591 $70,911 $441,521 
Additions6,866 — 6,275 13,141 23,852 — 36,993 
Payments(24,833)(320)(5,499)(30,652)(929)— (31,581)
Charge-offs(16,502)(800)(1,002)(18,304)— — (18,304)
Net gains (losses) and write-downs— — — — — 3,624 3,624 
Foreclosure of nonperforming loans
— — (142)(142)— 142 — 
Foreclosure of loans guaranteed by U.S. government agencies
— — (994)(994)— — (994)
Proceeds from sales— — — — (5,831)(17,340)(23,171)
Net transfers to nonaccruing loans— — 714 714 (714)— — 
Return to accrual status— — (146)(146)— — (146)
Other, net— — — — 355 — 355 
Balance, June 30, 2021$112,604 $26,123 $40,909 $179,636 $171,324 $57,337 $408,297 
Six Months Ended
June 30, 2021
Nonaccruing Loans
CommercialCommercial Real EstateLoan to IndividualsTotal
 
Renegotiated Loans
Real Estate and Other Repossessed AssetsTotal Nonperforming Assets
Balance, Dec. 31, 2020$167,159 $27,246 $40,288 $234,693 $151,775 $90,526 $476,994 
Additions25,794 327 11,605 37,726 36,552 8,688 82,966 
Payments(48,502)(387)(8,021)(56,910)(1,628)— (58,538)
Charge-offs(31,847)(1,063)(2,299)(35,209)— — (35,209)
Net gains (losses) and write-downs— — — — — 16,782 16,782 
Foreclosure of nonperforming loans
— — (289)(289)— 289 — 
Foreclosure of loans guaranteed by U.S. government agencies
— — (1,220)(1,220)(122)— (1,342)
Proceeds from sales— — — — (14,745)(58,948)(73,693)
Net transfers to nonaccruing loans— — 1,138 1,138 (1,138)— — 
Return to accrual status— — (293)(293)— — (293)
Other, net— — — — 630 — 630 
Balance, June 30, 2021$112,604 $26,123 $40,909 $179,636 $171,324 $57,337 $408,297 

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. At foreclosure, these amounts are transferred to claims receivable accounts. These properties will be conveyed to the agencies once applicable criteria have been met. 
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Real Estate and Other Repossessed Assets

Real estate and other repossessed assets totaled $57 million at June 30, 2021, composed primarily of $36 million of oil and gas properties, including a consolidated limited liability corporation that is 60% owned by the Company and 40% owned by an unrelated financial institution. The remaining balance of real estate and repossessed assets included $18 million of developed commercial real estate, $1.7 million of equipment, $1.6 million of undeveloped land primarily zoned for commercial development and $374 thousand of 1-4 family residential properties. Real estate and other repossessed assets totaled $71 million at March 31, 2021. The decrease compared to March 31 was primarily due to the sale of certain repossessed oil and gas properties.

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Liquidity and Capital

Based on the average balances for the second quarter of 2021, approximately 75 percent of our funding was provided by deposit accounts, 11 percent from borrowed funds, less than 1 percent from long-term subordinated debt and 11 percent from equity. Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks and other banks, provide adequate liquidity to meet our operating needs.

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 2021 totaled $37.5 billion, a $968 million increase over the first quarter of 2021. Continued deposit growth was primarily due to customers maintaining higher balances in the current economic environment, supplemented by inflows from government stimulus payments. Interest-bearing transaction account balances increased $58 million. Demand deposits grew by $877 million and savings account balances were up $83 million. Interest-bearing transaction account balances increased $58 million while certificate of deposit balances decreased $50 million.

Table 19 - Average Deposits by Line of Business
(In thousands)
Three Months Ended
 June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Commercial Banking$17,049,772 $16,130,168 $15,373,673 $15,375,450 $14,599,225 
Consumer Banking8,469,043 8,082,443 7,993,971 7,940,973 7,587,246 
Wealth Management9,695,319 9,706,295 9,589,814 9,090,116 8,385,681 
Subtotal35,214,134 33,918,906 32,957,458 32,406,539 30,572,152 
Funds Management and other2,276,093 2,603,210 2,565,171 2,233,394 2,078,802 
Total$37,490,227 $36,522,116 $35,522,629 $34,639,933 $32,650,954 

Average Commercial Banking deposit balances increased $920 million over the first quarter of 2021. Demand deposit balances were up $517 million. Interest-bearing transaction account balances increased $390 million. Time deposits increased $11 million compared to the prior quarter. 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 improves and if short-term rates move higher, enhancing their investment alternatives.

Average Consumer Banking deposit balances increased $387 million over the prior quarter. Demand deposit balances grew by $188 million. A $145 million increase in interest-bearing transaction deposit balances and an $80 million increase in savings account balances were partially offset by a $25 million decrease in time deposit balances.

Average Wealth Management deposits decreased $11 million compared to the first quarter of 2021. A $179 million increase in demand deposit balances was offset by a $158 million decrease in interest-bearing transaction accounts and a $33 million decrease in time deposit balances.

Average time deposits for the second quarter of 2021 included $67 million of brokered deposits, a $25 million decrease compared to the first quarter of 2021. Average interest-bearing transaction accounts for the second quarter included $2.0 billion of brokered deposits, a $323 million decrease compared to the first quarter of 2021.

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The distribution of our period end deposit account balances among principal markets follows in Table 20.

Table 20 -- Period End Deposits by Principal Market Area
(In thousands)
June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Oklahoma:  
Demand$4,985,542 $4,823,436 $4,329,205 $4,493,978 $4,378,786 
Interest-bearing:
Transaction12,065,844 12,828,070 12,603,658 12,586,449 11,438,549 
Savings500,344 487,862 420,996 401,062 387,557 
Time1,139,980 1,197,517 1,134,453 1,081,176 1,330,619 
Total interest-bearing13,706,168 14,513,449 14,159,107 14,068,687 13,156,725 
Total Oklahoma18,691,710 19,336,885 18,488,312 18,562,665 17,535,511 
Texas:
Demand3,752,790 3,592,969 3,449,882 3,152,106 3,070,728 
Interest-bearing:
Transaction4,335,113 4,257,234 3,800,427 3,482,555 3,358,030 
Savings160,805 154,406 139,173 136,787 128,892 
Time346,577 368,086 383,062 438,337 476,867 
Total interest-bearing4,842,495 4,779,726 4,322,662 4,057,679 3,963,789 
Total Texas8,595,285 8,372,695 7,772,544 7,209,785 7,034,517 
Colorado:
Demand1,991,343 2,115,354 2,168,404 2,057,603 2,096,075 
Interest-bearing:
Transaction2,159,819 2,100,135 2,170,485 1,861,763 1,816,604 
Savings73,990 73,446 69,384 68,230 67,477 
Time193,787 204,973 208,778 226,780 254,845 
Total interest-bearing2,427,596 2,378,554 2,448,647 2,156,773 2,138,926 
Total Colorado4,418,939 4,493,908 4,617,051 4,214,376 4,235,001 
New Mexico:
Demand1,197,412 1,131,713 941,074 964,908 965,877 
Interest-bearing:
Transaction723,757 736,923 733,007 713,418 752,565 
Savings105,837 103,591 91,646 85,463 80,242 
Time174,665 181,863 186,307 200,525 222,370 
Total interest-bearing1,004,259 1,022,377 1,010,960 999,406 1,055,177 
Total New Mexico2,201,671 2,154,090 1,952,034 1,964,314 2,021,054 
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June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Arizona:
Demand943,511 915,439 905,201 928,671 985,757 
Interest-bearing:
Transaction820,901 835,795 768,220 771,319 780,500 
Savings13,496 13,235 12,174 11,498 15,669 
Time30,012 30,997 32,721 36,929 42,318 
Total interest-bearing864,409 880,027 813,115 819,746 838,487 
Total Arizona1,807,920 1,795,466 1,718,316 1,748,417 1,824,244 
Kansas/Missouri:
Demand463,339 478,370 426,738 405,360 427,795 
Interest-bearing:
Transaction978,160 991,510 960,237 616,797 526,635 
Savings17,539 18,686 16,286 15,520 15,033 
Time13,509 13,898 14,610 16,430 17,746 
Total interest-bearing1,009,208 1,024,094 991,133 648,747 559,414 
Total Kansas/Missouri1,472,547 1,502,464 1,417,871 1,054,107 987,209 
Arkansas:
Demand46,472 45,889 45,834 44,712 67,147 
Interest-bearing:
Transaction195,125 141,207 122,388 164,439 177,535 
Savings3,445 3,000 2,333 2,389 2,101 
Time6,819 7,022 7,197 7,796 7,995 
Total interest-bearing205,389 151,229 131,918 174,624 187,631 
Total Arkansas251,861 197,118 177,752 219,336 254,778 
Total BOK Financial deposits$37,439,933 $37,852,626 $36,143,880 $34,973,000 $33,892,314 

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 Company has no wholesale federal funds purchased at June 30, 2021. Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale and trading 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 $2.1 billion during the quarter, compared to $1.8 billion in the first quarter of 2021.

On April 13, 2020, the banking agencies published an interim final rule which permits banking organizations to exclude from regulatory capital requirements PPP covered loans pledged to the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPLF"). The Company initially funded PPP loans from deposits and Federal Home Loan Bank borrowings, but transitioned to the PPLF in June 2020 in order to realize this regulatory capital relief.

At June 30, 2021, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $16.9 billion.

A summary of other borrowings for BOK Financial on a consolidated basis follows in Table 21.

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Table 21 -- Borrowed Funds
(In thousands)
  Three Months Ended
June 30, 2021		 Three Months Ended
Mar. 31, 2021
June 30, 2021Average
Balance
During the
Quarter		RateMaximum
Outstanding
At Any Month
End During
the Quarter		Mar. 31, 2021Average
Balance
During the
Quarter		RateMaximum
Outstanding
At Any Month
End During
the Quarter
Funds purchased185,315 591,112 0.40 %395,416 236,151 874,576 0.39 %542,465 
Repurchase agreements544,868 1,199,378 0.05 %544,868 559,010 1,955,801 0.11 %1,073,237 
Other borrowings:
Federal Home Loan Bank advances
500,000 2,138,462 0.27 %2,600,000 — 1,836,667 0.29 %1,400,000 
GNMA repurchase liability
7,625 11,306 3.73 %10,895 14,044 20,979 4.08 %23,856 
Paycheck protection program liquidity facility
1,010,560 1,430,522 0.35 %1,529,788 1,662,598 1,505,930 0.35 %1,662,598 
Other28,046 28,079 5.53 %28,757 31,875 28,771 5.59 %31,875 
Total other borrowings1,546,231 3,608,369 0.34 %1,708,517 3,392,347 0.39 %
Subordinated debentures1
276,043 276,034 4.87 %276,043 276,024 276,015 4.92 %276,024 
Total other borrowed funds and subordinated debentures
$2,552,457 $5,674,893 0.50 %$2,779,702 $6,498,739 0.50 %
1 Parent Company only.
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, 2021, cash and interest-bearing cash and cash equivalents held by the parent company totaled $168 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, 2021, based upon the most restrictive limitations as well as management's internal capital policy, BOKF, NA could declare up to $504 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, 2021 was $5.4 billion, a $92 million increase compared to March 31, 2021. Net income less cash dividends paid increased equity $131 million during the second quarter of 2021. Changes in interest rates resulted in a $5.4 million increase in accumulated other comprehensive gain compared to March 31, 2021. We also repurchased $44 million of common stock during the second quarter of 2021. 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 April 30, 2019, 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, 2021, 2,726,807 shares have been repurchased under this authorization. The Company repurchased 492,994 shares of common stock at an average price of $88.84 a share in the second quarter of 2021. We view share buybacks opportunistically, but within the context of maintaining our strong capital position.

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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.

A summary of minimum capital requirements, including capital conservation buffer follows in Table 22. 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.

In March 2020, in response to the impact on the financial markets by the COVID-19 pandemic, the banking agencies issued an interim final rule permitting banking organizations that implement CECL the option to delay for two years an estimate of the CECL methodology's effect on regulatory capital, followed by a three-year transition period. The estimate includes the implementation date adjustment as of January 1, 2020 plus an estimate of the impact of the change for a two year period following implementation of CECL. We have elected to delay the regulatory capital impact of the transition in accordance with the interim final rule. Deferral of the impact of CECL added 19 basis points to the Company's Common equity Tier 1 capital at June 30, 2021.

The capital ratios for BOK Financial on a consolidated basis are presented in Table 22.

Table 22 -- Capital Ratios
Minimum Capital RequirementCapital Conservation BufferMinimum Capital Requirement Including Capital Conservation BufferJune 30, 2021Mar. 31, 2021June 30, 2020
Risk-based capital:
Common equity Tier 14.50 %2.50 %7.00 %11.95 %12.14 %11.44 %
Tier 1 capital6.00 %2.50 %8.50 %12.01 %12.21 %11.44 %
Total capital8.00 %2.50 %10.50 %13.61 %13.98 %13.43 %
Tier 1 Leverage4.00 %N/A4.00 %8.58 %8.42 %7.74 %
Average total equity to average assets10.62 %10.48 %10.19 %
Tangible common equity ratio9.09 %8.82 %8.79 %

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

- 38 -

Table 23 -- Non-GAAP Measure
(Dollars in thousands)
June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Tangible common equity ratio:     
Total shareholders' equity$5,332,977 $5,239,462 $5,266,266 $5,218,787 $5,096,995 
Less: Goodwill and intangible assets, net1,153,785 1,158,676 1,161,527 1,166,615 1,171,686 
Tangible common equity4,179,192 4,080,786 4,104,739 4,052,172 3,925,309 
Total assets47,154,375 47,442,513 46,671,088 46,067,224 45,819,874 
Less: Goodwill and intangible assets, net1,153,785 1,158,676 1,161,527 1,166,615 1,171,686 
Tangible assets$46,000,590 $46,283,837 $45,509,561 $44,900,609 $44,648,188 
Tangible common equity ratio9.09 %8.82 %9.02 %9.02 %8.79 %
Pre-provision net revenue:
Net income before taxes$215,603 $186,690 $199,847 $204,644 $80,089 
Provision for expected credit losses(35,000)(25,000)(6,500)— 135,321 
Net income (loss) attributable to non-controlling interests686 (1,752)485 58 (407)
Pre-provision net revenue$179,917 $163,442 $192,862 $204,586 $215,817 

Pre-provision net revenue is a measure of revenue less expenses, and is calculated before provision for credit losses and income tax expense. This financial measure is frequently used by investors and analysts to enable them to assess a company's ability to generate earnings to cover credit losses through a credit cycle. It also provides an additional basis for comparing the results of operations between periods by isolating the impact of the provision for credit losses, which can vary significantly between periods.

Off-Balance Sheet Arrangements

See Note 4 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 the credit of the individual issuers of financial instruments.

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

The Asset/Liability Committee is responsible for managing market risk in accordance with policy 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
- 39 -

rates. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, market conditions and management strategies, among other factors.

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

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 24 -- Interest Rate Sensitivity
(Dollars in thousands)
 200 bp Increase
100 bp Decrease1
June 30,June 30,
 2021202020212020
Anticipated impact over the next twelve months on net interest revenue$57,142 $35,746 N/AN/A
 5.15 %3.47 %N/AN/A
1 The results of a decrease in the current low-rate environment are not meaningful.

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.


- 40 -

Table 25 -- MSR Asset and Hedge Sensitivity Analysis
(Dollars in thousands)
June 30,
 20212020
Up 50 bpDown 50 bpUp 50 bpDown 50 bp
MSR Asset$31,064 $(31,446)$28,466 $(13,198)
MSR Hedge(33,420)30,976 (25,186)23,542 
Net Exposure(2,356)(470)3,280 10,344 

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 26 -- Mortgage Pipeline Sensitivity Analysis
(Dollars in thousands)
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Up 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bp
Average1
$(467)$(485)$(393)$(49)$(555)$(547)$(304)$(107)
Low2
(231)13 403 723 (17)13 582 998 
High3
(980)(709)(1,310)(823)(1,244)(1,097)(1,344)(1,483)
Period End(291)(408)(195)10 (291)(408)(195)10 
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 engages in trading activities both as an intermediary for customers and for its own account. As an intermediary, we take positions in securities, generally U.S. government agency residential mortgage-backed securities, government agency securities and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. On a limited basis, we may also take trading positions in U.S. Treasury securities, residential mortgage-backed securities, and municipal bonds to enhance returns on securities portfolios. Both of these activities involve interest rate, liquidity and price risk. BOK Financial has an insignificant exposure to foreign exchange risk and does not take positions in commodity derivatives.

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

Management performs a stress test to measure market risk from changes in interest rates on its trading portfolio. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity that may result. The Board has approved an $11 million market risk limit for the trading portfolio, net of economic hedges.
- 41 -


Table 27 -- Trading Sensitivity Analysis
(Dollars in thousands)
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Up 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bp
Average1
$(803)$3,901 $(2,161)$3,314 $(1,692)$3,747 $(3,371)$5,266 
Low2
4,984 13,323 2,919 14,163 5,818 13,323 2,919 15,309 
High3
(9,345)(3,817)(12,490)(2,049)(9,345)(4,618)(12,490)(2,049)
Period End3,941 (283)704 463 3,941 (283)704 463 
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.

We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. In 2017, the U.K. Financial Conduct Authority announced that it would no longer persuade or compel banks to submit to LIBOR after 2021. U.S. regulatory authorities have voiced similar support for phasing out LIBOR. The Federal Reserve Bank of New York’s Alternative Reference Rate Committee has recommended the Secured Overnight Financing Rate (“SOFR”) as an alternative for LIBOR. However, for two key reasons, SOFR is a secured rate while LIBOR is an unsecured rate and SOFR is an overnight rate while LIBOR is published for different maturities, SOFR is not the economic equivalent of LIBOR.
On March 5, 2021, the Financial Conduct Authority officially confirmed the adoption of recommendations made in November of 2020 by the ICE Benchmark Administration (IBA), the FCA-regulated and authorized administrator of LIBOR. At that time, the IBA had announced its intention to cease USD LIBOR for one-week and two-month tenors at the end of 2021, but to extend the anticipated cessation date for the remaining USD LIBOR tenors to the end of June 2023. Regulators were supportive and issued a joint statement that communicated their expectation for banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.
Management has established a LIBOR Transition Working Group (the “Group”) whose purpose is to guide the overall transition process for the Company. The Group is an internal, cross-functional team with representatives from all business lines, support and control functions and legal counsel. Key loan provisions have been modified to ensure that new and renewed loans include appropriate LIBOR fallback language to ensure the smoothest possible transition from LIBOR to the new benchmark when such transition occurs. All direct exposures resulting from existing financial contracts that mature after planned cessation dates have been inventoried and are monitored on an ongoing basis. Remediation of these exposures will be consistent with industry timing. The Group has also inventoried indirect LIBOR exposures within the Company's systems, models and processes, and remediation of critical items is nearing completion.
Consistent with the regulatory guidance, the Company plans to cease originating loans indexed to LIBOR later this year, and in any event, no later than December 31, 2021. There are currently several viable alternative reference rates that we are evaluating to replace LIBOR. We do not currently expect there to be a material financial impact to the Company or our customers regardless of which index or indices the Company selects to replace LIBOR later this year.

Controls and Procedures
 
As required by Rule 13a-15(b), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by their report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.
- 42 -

Forward-Looking Statements

This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial Corporation, the financial services industry, the economy generally and the expected or potential impact of the novel coronavirus (COVID-19) pandemic, and the related responses of the government, consumers, and others, on our business, financial condition and results of operations. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” “will,” “intends,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses, allowance for uncertain tax positions, accruals for loss contingencies and valuation of mortgage servicing rights involve judgments as to expected events and are inherently forward-looking statements. Assessments that acquisitions and growth endeavors will be profitable are necessary statements of belief as to the outcome of future events based in part on information provided by others which BOK Financial has not independently verified. These various forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to changes in government, consumer or business responses to, and ability to treat or prevent further outbreak of, the COVID-19 pandemic, changes in commodity prices, interest rates and interest rate relationships, inflation, demand for products and services, the degree of competition by traditional and nontraditional competitors, changes in banking regulations, tax laws, prices, levies and assessments, the impact of technological advances, and trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

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 measures. 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.

- 43 -


Consolidated Statements of Earnings (Unaudited)
(In thousands, except share and per share data)Three Months EndedSix Months Ended
 June 30,June 30,
Interest revenue2021202020212020
Loans$193,841 $215,438 $391,415 $458,656 
Residential mortgage loans held for sale1,569 2,140 2,949 3,263 
Trading securities36,655 11,407 72,577 23,167 
Investment securities2,608 3,000 5,334 6,121 
Available for sale securities58,909 68,297 117,517 138,017 
Fair value option securities402 4,110 898 15,818 
Restricted equity securities1,751 1,880 3,110 7,774 
Interest-bearing cash and cash equivalents158 112 332 2,505 
Total interest revenue295,893 306,384 594,132 655,321 
Interest expense    
Deposits8,425 17,745 18,275 63,904 
Borrowed funds3,806 6,996 8,428 44,781 
Subordinated debentures3,353 3,539 6,700 7,172 
Total interest expense15,584 28,280 33,403 115,857 
Net interest revenue280,309 278,104 560,729 539,464 
Provision for credit losses(35,000)135,321 (60,000)229,092 
Net interest revenue after provision for credit losses
315,309 142,783 620,729 310,372 
Other operating revenue    
Brokerage and trading revenue29,408 62,022 50,190 112,801 
Transaction card revenue24,923 22,940 47,353 44,821 
Fiduciary and asset management revenue44,832 41,257 86,154 85,715 
Deposit service charges and fees25,861 22,046 50,070 48,176 
Mortgage banking revenue21,219 53,936 58,332 91,103 
Other revenue23,172 11,479 39,468 23,788 
Total fees and commissions169,415 213,680 331,567 406,404 
Other gains (losses), net16,449 7,347 26,570 (3,391)
Gain (loss) on derivatives, net18,820 21,885 (8,830)40,305 
Gain (loss) on fair value option securities, net(1,627)(14,459)(3,537)53,934 
Change in fair value of mortgage servicing rights(13,041)(761)20,833 (89,241)
Gain on available for sale securities, net1,430 5,580 1,897 5,583 
Total other operating revenue191,446 233,272 368,500 413,594 
Other operating expense    
Personnel172,035 176,235 345,045 332,416 
Business promotion2,744 1,935 4,898 8,150 
Charitable contributions to BOKF Foundation— 3,000 4,000 3,000 
Professional fees and services12,361 12,161 24,341 25,109 
Net occupancy and equipment26,633 30,675 53,295 56,736 
Insurance3,660 5,156 8,280 10,136 
Data processing and communications36,418 32,942 73,885 65,685 
Printing, postage and supplies4,285 3,502 7,725 7,774 
Amortization of intangible assets4,578 5,190 9,385 10,284 
Mortgage banking costs11,126 15,598 25,069 26,143 
Other expense17,312 9,572 31,013 19,160 
Total other operating expense291,152 295,966 586,936 564,593 
Net income before taxes215,603 80,089 402,293 159,373 
Federal and state income taxes48,496 15,803 90,878 33,103 
Net income167,107 64,286 311,415 126,270 
Net income (loss) attributable to non-controlling interests686 (407)(1,066)(502)
Net income attributable to BOK Financial Corporation shareholders$166,421 $64,693 $312,481 $126,772 
Earnings per share:    
Basic$2.40 $0.92 $4.50 $1.80 
Diluted$2.40 $0.92 $4.50 $1.80 
Average shares used in computation:
Basic68,815,666 69,876,043 68,975,743 69,999,865 
Diluted68,817,442 69,877,467 68,978,798 70,003,817 
Dividends declared per share$0.52 $0.51 $1.04 $1.02 

See accompanying notes to consolidated financial statements.
- 44 -

Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands, except share and per share data)  
 Three Months EndedSix Months Ended
June 30,June 30,
 2021202020212020
Net income$167,107 $64,286 $311,415 $126,270 
Other comprehensive income (loss) before income taxes:    
Net change in unrealized gain (loss)8,480 56,922 (141,651)354,765 
Reclassification adjustments included in earnings:
Gain on available for sale securities, net(1,430)(5,580)(1,897)(5,583)
Other comprehensive income (loss) before income taxes7,050 51,342 (143,548)349,182 
Federal and state income taxes1,691 12,318 (34,448)83,789 
Other comprehensive income (loss), net of income taxes5,359 39,024 (109,100)265,393 
Comprehensive income172,466 103,310 202,315 391,663 
Comprehensive income (loss) attributable to non-controlling interests686 (407)(1,066)(502)
Comprehensive income attributable to BOK Financial Corp. shareholders$171,780 $103,717 $203,381 $392,165 

See accompanying notes to consolidated financial statements.
- 45 -

Consolidated Balance Sheets
(In thousands, except share data)
 June 30, 2021Dec. 31, 2020
 (Unaudited)(Footnote 1)
Assets  
Cash and due from banks$678,998 $798,757 
Interest-bearing cash and cash equivalents580,457 381,816 
Trading securities5,699,070 4,707,975 
Investment securities, net of allowance (fair value: June 30, 2021 – $246,034; December 31, 2020 – $272,431)
220,832 244,843 
Available for sale securities13,317,922 13,050,665 
Fair value option securities60,432 114,982 
Restricted equity securities134,885 171,391 
Residential mortgage loans held for sale200,842 252,316 
Loans21,416,449 23,007,520 
Allowance for loan losses(311,890)(388,640)
Loans, net of allowance21,104,559 22,618,880 
Premises and equipment, net556,400 551,308 
Receivables195,763 245,880 
Goodwill1,048,091 1,048,091 
Intangible assets, net105,694 113,436 
Mortgage servicing rights117,629 101,172 
Real estate and other repossessed assets, net of allowance (June 30, 2021 – $18,662; December 31, 2020 –
         $15,060)
57,337 90,526 
Derivative contracts, net1,701,443 810,688 
Cash surrender value of bank-owned life insurance401,163 398,758 
Receivable on unsettled securities sales70,954 62,386 
Other assets901,904 907,218 
Total assets$47,154,375 $46,671,088 
Liabilities and Equity
Liabilities:
Noninterest-bearing demand deposits$13,380,409 $12,266,338 
Interest-bearing deposits:  
Transaction21,278,719 21,158,422 
Savings875,456 751,992 
Time1,905,349 1,967,128 
Total deposits37,439,933 36,143,880 
Funds purchased and repurchase agreements730,183 1,662,386 
Other borrowings1,546,231 1,882,970 
Subordinated debentures276,043 276,005 
Accrued interest, taxes and expense199,014 323,667 
Derivative contracts, net612,261 405,779 
Due on unsettled securities purchases576,536 257,627 
Other liabilities419,623 427,213 
Total liabilities41,799,824 41,379,527 
Shareholders' equity:  
Common stock ($0.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: June 30, 2021 – 76,257,743; December 31, 2020 – 75,995,205)
5 5 
Capital surplus1,373,101 1,368,062 
Retained earnings4,214,130 3,973,675 
Treasury stock (shares at cost: June 30, 2021 – 7,179,285; December 31, 2020 – 6,357,605)
(481,027)(411,344)
Accumulated other comprehensive gain226,768 335,868 
Total shareholders’ equity5,332,977 5,266,266 
Non-controlling interests21,574 25,295 
Total equity5,354,551 5,291,561 
Total liabilities and equity$47,154,375 $46,671,088 

See accompanying notes to consolidated financial statements.
- 46 -

Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
 Common StockCapital
Surplus		Retained
Earnings		Treasury StockAccumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity		Non-
Controlling
Interests		Total Equity
 SharesAmountSharesAmount
Balance, March 31, 202176,244 $5 $1,371,735 $4,083,543 6,686 $(437,230)$221,409 $5,239,462 $22,882 $5,262,344 
Net income (loss)— — — 166,421 — — — 166,421 686 167,107 
Other comprehensive loss— — — — — — 5,359 5,359 — 5,359 
Repurchase of common stock— — — — 493 (43,797)— (43,797)— (43,797)
Share-based compensation plans:
Stock options exercised— — — — — — — — — — 
Non-vested shares awarded,
     net		14 — — — — — — — — — 
Vesting of non-vested
     shares		— — — — — — — — — — 
Share-based compensation— — 1,366 — — — — 1,366 — 1,366 
Cash dividends on common
     stock		— — — (35,834)— — — (35,834)— (35,834)
Capital calls and distributions,
     net		— — — — — — — — (1,994)(1,994)
Balance, June 30, 202176,258 $5 $1,373,101 $4,214,130 7,179 $(481,027)$226,768 $5,332,977 $21,574 $5,354,551 
Balance, December 31, 202075,995 $5 $1,368,062 $3,973,675 6,358 $(411,344)$335,868 $5,266,266 $25,295 $5,291,561 
Net income— — — 312,481 — — — 312,481 (1,066)311,415 
Other comprehensive income— — — — — — (109,100)(109,100)— (109,100)
Repurchase of common stock— — — — 753 (63,868)— (63,868)— (63,868)
Share-based compensation
     plans:
Stock options exercised17 — 949 — — — — 949 — 949 
Non-vested shares awarded,
     net		246 — — — — — — — — — 
Vesting of non-vested
     shares		— — — — 68 (5,815)— (5,815)— (5,815)
Share-based compensation— — 4,090 — — — — 4,090 — 4,090 
Cash dividends on common
     stock		— — — (72,026)— — — (72,026)— (72,026)
Capital calls and distributions,
     net		— — — — — — — — (2,655)(2,655)
Balance, June 30, 202176,258 $5 $1,373,101 $4,214,130 7,179 $(481,027)$226,768 $5,332,977 $21,574 $5,354,551 
- 47 -

 Common StockCapital
Surplus		Retained
Earnings		Treasury StockAccumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity		Non-
Controlling
Interests		Total Equity
 SharesAmountSharesAmount
Balance, March 31, 202076,001 $5 $1,354,826 $3,709,019 5,692 $(368,894)$331,292 $5,026,248 $7,912 $5,034,160 
Net income (loss)— — — 64,693 — — — 64,693 (407)64,286 
Other comprehensive income— — — — — — 39,024 39,024 — 39,024 
Repurchase of common stock— — — — — — — — — — 
Share-based compensation
     plans:
Stock options exercised— — — — — — — — — — 
Non-vested shares awarded,
     net		(2)— — — — — — — — — 
Vesting of non-vested
     shares		— — — — 1 — — — — — 
Share-based compensation— — 2,880 — — — — 2,880 — 2,880 
Cash dividends on common
     stock		— — — (35,850)— — — (35,850)— (35,850)
Capital calls and distributions,
     net		— — — — — — — — (77)(77)
Balance, June 30, 202075,999 $5 $1,357,706 $3,737,862 5,693 $(368,894)$370,316 $5,096,995 $7,428 $5,104,423 
Balance, December 31, 201975,759 $5 $1,350,995 $3,729,778 5,179 $(329,906)$104,923 $4,855,795 $8,124 $4,863,919 
Transition adjustment - CECL— — — (46,696)— — — (46,696)— (46,696)
Balance, January 1, 2020,
     Adjusted		75,759 5 1,350,995 3,683,082 5,179 (329,906)104,923 4,809,099 8,124 4,817,223 
Net income (loss)— — — 126,772 — — — 126,772 (502)126,270 
Other comprehensive income— — — — — — 265,393 265,393 — 265,393 
Repurchase of common stock— — — — 442 (33,380)— (33,380)— (33,380)
Share-based compensation
     plans:
Stock options exercised10 — 586 — — — — 586 — 586 
Non-vested shares awarded,
     net		230 — — — — — — — — — 
Vesting of non-vested
     shares		— — — — 72 (5,608)— (5,608)— (5,608)
Share-based compensation— — 6,125 — — — — 6,125 — 6,125 
Cash dividends on common
     stock		— — — (71,992)— — — (71,992)— (71,992)
Capital calls and distributions,
     net		— — — — — — — — (194)(194)
Balance, June 30, 202075,999 $5 $1,357,706 $3,737,862 5,693 $(368,894)$370,316 $5,096,995 $7,428 $5,104,423 
See accompanying notes to consolidated financial statements.
- 48 -

Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
 June 30,
 20212020
Cash Flows From Operating Activities:  
Net income$311,415 $126,270 
Adjustments to reconcile net income to net cash provided used in operating activities:
Provision for credit losses(60,000)229,092 
Change in fair value of mortgage servicing rights due to market assumption changes(20,833)89,241 
Change in the fair value of mortgage servicing rights due to principal payments22,143 17,779 
Net unrealized (gains) losses from derivative contracts40,581 (56,678)
Share-based compensation4,090 6,125 
Depreciation and amortization50,185 47,016 
Net amortization of discounts and premiums9,607 7,199 
Net losses (gains) on financial instruments and other losses (gains), net(28,463)(2,186)
Net gain on mortgage loans held for sale(41,611)(42,411)
Mortgage loans originated for sale(1,597,946)(1,733,205)
Proceeds from sale of mortgage loans held for sale1,684,711 1,654,433 
Capitalized mortgage servicing rights(17,767)(13,906)
Change in trading and fair value option securities(936,759)801,215 
Change in receivables60,286 (724,486)
Change in other assets(16)(29,352)
Change in other liabilities32,611 410,314 
Net cash provided by (used in) operating activities(487,766)786,460 
Cash Flows From Investing Activities:  
Proceeds from maturities or redemptions of investment securities23,870 23,296 
Proceeds from maturities or redemptions of available for sale securities1,782,153 1,070,585 
Purchases of available for sale securities(2,602,658)(2,139,775)
Proceeds from sales of available for sale securities394,146 205,945 
Change in amount receivable on unsettled available for sale securities transactions(19,509)(118,744)
Loans originated, net of principal collected1,621,847 (2,294,658)
Net payments on derivative asset contracts(232,861)(67,105)
Net change in restricted equity securities36,506 334,869 
Proceeds from disposition of assets70,443 41,269 
Purchases of assets(95,077)(82,684)
Net cash provided by (used in) investing activities978,860 (3,027,002)
Cash Flows From Financing Activities:  
Net change in demand deposits, transaction deposits and savings accounts1,357,832 6,136,235 
Net change in time deposits(61,779)134,911 
Net change in other borrowed funds(1,324,500)(3,971,540)
Net proceeds on derivative liability contracts234,074 60,851 
Net change in derivative margin accounts(649,717)(96,114)
Change in amount due on unsettled available for sale securities transactions172,638 75,544 
Issuance of common and treasury stock, net(4,866)(5,022)
Repurchase of common stock(63,868)(33,380)
Dividends paid(72,026)(71,992)
Net cash provided by (used in) financing activities(412,212)2,229,493 
Net increase (decrease) in cash and cash equivalents78,882 (11,049)
Cash and cash equivalents at beginning of period1,180,573 1,258,821 
Cash and cash equivalents at end of period$1,259,455 $1,247,772 
Supplemental Cash Flow Information:
Cash paid for interest$32,161 $117,471 
Cash paid for taxes$96,994 $5,470 
Net loans and bank premises transferred to repossessed real estate and other assets$289 $19,556 
Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period
$55,558 $157,300 
Conveyance of other real estate owned guaranteed by U.S. government agencies$3,009 $6,255 
Right-of-use assets obtained in exchange for operating lease liabilities$6,192 $9,151 

See accompanying notes to consolidated financial statements.
- 49 -

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., and BOK Financial Private Wealth, Inc. Operating divisions of the Bank include Bank of Albuquerque, Bank of Oklahoma, Bank of Texas, BOK Financial in Arizona, Arkansas, Colorado and Kansas/Missouri, 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 2020 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 2020 have been derived from the audited financial statements included in BOK Financial’s 2020 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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Newly Adopted and Pending Accounting Policies

Financial Accounting Standards Board (“FASB”)

FASB Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04")

On March 12, 2020, the FASB issued ASU 2020-04 which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued, subject to meeting certain criteria. Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of a contract affected by reference rate reform as a continuation of the existing contract, if certain conditions are met. In addition, the new guidance allows an entity to elect on a hedge-by-hedge basis to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain conditions are met. A one-time election to sell and/or transfer held-to-maturity debt securities that reference a rate affected by reference rate reform is also allowed. ASU 2020-04 became effective for all entities as of March 12, 2020 and will apply to all LIBOR reference rate modifications through December 31, 2022. Adoption of ASU 2020-04 is not expected to have a material impact on the Company's financial statements.

FASB Accounting Standards Update No. 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01")

On January 7, 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in this update are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments also optionally apply to all entities that designate receive-variable rate, pay-variable-rate cross-currency interest rate swaps as hedging instruments in net investment hedges that are modified as a result of reference rate reform. ASU 2021-01 is effective immediately for all entities and amendments may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. Adoption of ASU 2021-01 is not expected to have a material impact on the Company's financial statements.
- 50 -

(2) Securities
Trading Securities
 
The fair value and net unrealized gain (loss) included in trading securities are as follows (in thousands):
 
 June 30, 2021December 31, 2020
 Fair ValueNet Unrealized Gain (Loss)Fair ValueNet Unrealized Gain (Loss)
U.S. government securities$13,481 $(1)$9,183 $— 
Residential agency mortgage-backed securities
5,577,986 (9,598)4,669,148 (3,624)
Municipal securities49,636 (20)19,172 42 
Other debt securities57,967 (25)10,472 22 
Total trading securities$5,699,070 $(9,644)$4,707,975 $(3,560)
Investment Securities
 
The amortized cost and fair values of investment securities are as follows (in thousands):
 June 30, 2021
 AmortizedFairGross Unrealized
 CostValueGainLoss
Municipal securities$211,725 $235,697 $23,986 $(14)
Residential agency mortgage-backed securities
7,863 8,601 738 — 
Other debt securities1,737 1,736 — (1)
Total investment securities221,325 246,034 24,724 (15)
Allowance for credit losses(493)
Investment securities, net of allowance$220,832 $246,034 $24,724 $(15)
 December 31, 2020
 AmortizedFairGross Unrealized
 CostValueGainLoss
Municipal securities$229,245 $255,270 $26,169 $(144)
Residential agency mortgage-backed securities
8,913 9,790 877 — 
Other debt securities7,373 7,371 — (2)
Total investment securities245,531 272,431 27,046 (146)
Allowance for credit losses(688)
Investment securities, net of allowance$244,843 $272,431 $27,046 $(146)



- 51 -

The amortized cost and fair values of investment securities at June 30, 2021, 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
Maturity1
Fixed maturity debt securities:     
Amortized cost$24,344 $106,071 $76,287 $6,760 $213,462 4.81 
Fair value24,881 122,166 83,482 6,904 237,433  
Residential mortgage-backed securities:      
Amortized cost    $7,863 2
Fair value    8,601  
Total investment securities:      
Amortized cost    $221,325  
Fair value    246,034  
1Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
2The average expected lives of residential mortgage-backed securities were 4.3 years based upon current prepayment assumptions.

Temporarily Impaired Investment Securities
(in thousands):
June 30, 2021
 Number of SecuritiesLess Than 12 Months12 Months or LongerTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Investment:       
Municipal securities1 $— $— $587 $14 $587 $14 
Other debt securities2 275 1 — — 275 1 
Total investment securities3 $275 $1 $587 $14 $862 $15 

December 31, 2020
 Number of SecuritiesLess Than 12 Months12 Months or LongerTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Investment:       
Municipal securities6 $2,451 $40 $2,043 $104 $4,494 $144 
Other debt securities2 250 1 25 1 275 2 
Total investment securities8 $2,701 $41 $2,068 $105 $4,769 $146 


- 52 -

Available for Sale Securities 

The amortized cost and fair value of available for sale securities are as follows (in thousands):
 June 30, 2021
 AmortizedFairGross Unrealized
 CostValueGainLoss
U.S. Treasury$500 $504 $4 $— 
Municipal securities387,257 386,509 1,798 (2,546)
Mortgage-backed securities:    
Residential agency8,406,672 8,624,876 247,171 (28,967)
Residential non-agency13,468 28,261 14,793 — 
Commercial agency4,212,258 4,277,301 75,310 (10,267)
Other debt securities500 471 — (29)
Total available for sale securities$13,020,655 $13,317,922 $339,076 $(41,809)
 December 31, 2020
 AmortizedFairGross Unrealized
 CostValueGainLoss
U.S. Treasury$500 $508 $8 $— 
Municipal securities165,318 167,979 2,666 (5)
Mortgage-backed securities:   
Residential agency9,019,013 9,340,471 328,183 (6,725)
Residential non-agency17,563 32,770 15,207 — 
Commercial agency3,406,956 3,508,465 103,590 (2,081)
Other debt securities500 472 — (28)
Total available for sale securities$12,609,850 $13,050,665 $449,654 $(8,839)

The amortized cost and fair values of available for sale securities at June 30, 2021, 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
Maturity1
Fixed maturity debt securities:
Amortized cost$85,688 $1,714,881 $2,116,584 $683,362 $4,600,515 7.82 
Fair value86,175 1,764,174 2,116,490 697,946 4,664,785 
Residential mortgage-backed securities:
Amortized cost$8,420,140 2
Fair value8,653,137 
Total available for sale securities:
Amortized cost$13,020,655 
Fair value13,317,922 
1Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
2The average expected lives of residential mortgage-backed securities were 3.3 years based upon current prepayment assumptions.

- 53 -

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,
 2021202020212020
Proceeds$338,109 $179,051 $394,146 $205,945 
Gross realized gains1,767 5,580 2,240 5,583 
Gross realized losses(337)— (343)— 
Related federal and state income tax expense (benefit)336 1,421 455 1,422 

The fair value of debt securities pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes, as required by law was $9.5 billion at June 30, 2021 and $11.6 billion at December 31, 2020. The secured parties do not have the right to sell or repledge these securities.

Temporarily Impaired Available for Sale Securities
(in thousands)
June 30, 2021
 Number of SecuritiesLess Than 12 Months12 Months or LongerTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available for sale:       
Municipal securities91 $260,980 $2,546 $— $— $260,980 $2,546 
Mortgage-backed securities:
    
Residential agency88 2,508,370 27,595 190,052 1,372 2,698,422 28,967 
Commercial agency80 1,046,798 9,879 344,518 388 1,391,316 10,267 
Other debt securities1 — — 471 29 471 29 
Total available for sale securities260 $3,816,148 $40,020 $535,041 $1,789 $4,351,189 $41,809 

December 31, 2020
 Number of SecuritiesLess Than 12 Months12 Months or LongerTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available for sale:     
Municipal securities1 $6,166 $5 $— $— $6,166 $5 
Mortgage-backed securities:
     
Residential agency
38 786,890 6,605 160,747 120 947,637 6,725 
Commercial agency
37 350,506 1,587 277,627 494 628,133 2,081 
Other debt securities1 — — 472 28 472 28 
Total available for sale securities
77 $1,143,562 $8,197 $438,846 $642 $1,582,408 $8,839 

Based on evaluations of impaired securities as of June 30, 2021, 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.


- 54 -

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, 2021December 31, 2020
 Fair ValueNet Unrealized Gain (Loss)Fair ValueNet Unrealized Gain (Loss)
Residential agency mortgage-backed securities
$60,432 $2,596 $114,982 $4,463 

- 55 -

(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. 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.
 
Trading

BOK Financial may offer derivative instruments such as to-be-announced securities to mortgage banking customers to enable them to manage their market risk or to mitigate the Company's market risk of holding trading securities. Changes in the fair value of derivative instruments for trading purposes or used to mitigate the market risk of holding trading securities are included in Other operating revenue – Brokerage and trading revenue.

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. 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.

As discussed in Note 5, 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 5 for additional discussion of notional, fair value and impact on earnings of these contracts.
- 56 -

The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at June 30, 2021 (in thousands):
Assets
 
Notional1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts$2,983,763 $78,138 $(6,342)$71,796 $— $71,796 
Energy contracts5,049,908 1,206,874 (215,206)991,668 — 991,668 
Agricultural contracts7,983 382 (350)32 — 32 
Foreign exchange contracts571,224 569,144 — 569,144 (900)568,244 
Equity option contracts59,014 1,418 — 1,418 (300)1,118 
Total customer risk management programs8,671,892 1,855,956 (221,898)1,634,058 (1,200)1,632,858 
Trading57,953,169 189,111 (125,437)63,674 (4,416)59,258 
Internal risk management programs783,074 17,116 (7,789)9,327 — 9,327 
Total derivative contracts$67,408,135 $2,062,183 $(355,124)$1,707,059 $(5,616)$1,701,443 
Liabilities
 
Notional1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts$2,983,763 $78,401 $(6,342)$72,059 $(65,484)$6,575 
Energy contracts5,051,395 1,205,095 (215,206)989,889 (975,704)14,185 
Agricultural contracts7,977 372 (350)22 (22)— 
Foreign exchange contracts571,037 568,758 — 568,758 (519)568,239 
Equity option contracts59,014 1,418 — 1,418 — 1,418 
Total customer risk management programs8,673,186 1,854,044 (221,898)1,632,146 (1,041,729)590,417 
Trading54,179,938 171,344 (125,437)45,907 (25,390)20,517 
Internal risk management programs783,110 9,116 (7,789)1,327 — 1,327 
Total derivative contracts$63,636,234 $2,034,504 $(355,124)$1,679,380 $(1,067,119)$612,261 
1    Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.


- 57 -

The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2020 (in thousands):
Assets
 
Notional 1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts$3,212,469 $113,524 $(144)$113,380 $— $113,380 
Energy contracts3,791,565 386,008 (211,468)174,540 — 174,540 
Agricultural contracts14,765 3,859 — 3,859 — 3,859 
Foreign exchange contracts337,001 332,257 — 332,257 (420)331,837 
Equity option contracts70,199 1,222 — 1,222 (285)937 
Total customer risk management programs7,425,999 836,870 (211,612)625,258 (705)624,553 
Trading84,997,593 440,627 (240,655)199,972 (26,958)173,014 
Internal risk management programs995,123 17,352 (4,231)13,121 — 13,121 
Total derivative contracts$93,418,715 $1,294,849 $(456,498)$838,351 $(27,663)$810,688 
Liabilities
 
Notional 1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts$3,212,469 $113,900 $(144)$113,756 $(104,202)$9,554 
Energy contracts3,617,678 361,334 (211,468)149,866 (114,070)35,796 
Agricultural contracts14,781 3,844 — 3,844 (3,844)— 
Foreign exchange contracts336,223 331,035 — 331,035 (1,165)329,870 
Equity option contracts70,199 1,222 — 1,222 — 1,222 
Total customer risk management programs7,251,350 811,335 (211,612)599,723 (223,281)376,442 
Trading88,929,916 414,801 (240,655)174,146 (145,692)28,454 
Internal risk management programs145,256 5,529 (4,231)1,298 (415)883 
Total derivative contracts$96,326,522 $1,231,665 $(456,498)$775,167 $(369,388)$405,779 
1    Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.

- 58 -

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, 2021June 30, 2020
 Brokerage
and Trading Revenue		Gain (Loss) on Derivatives, NetBrokerage
and Trading
Revenue		Gain (Loss) on Derivatives, Net
Customer risk management programs:    
Interest rate contracts$1,016 $— $746 $— 
Energy contracts594 — 5,383 — 
Agricultural contracts10 — 6 — 
Foreign exchange contracts185 — 107 — 
Equity option contracts— — — — 
Total customer risk management programs1,805 — 6,242 — 
Trading1
59,331 — 32,577 — 
Internal risk management programs— 18,820 — 21,885 
Total derivative contracts$61,136 $18,820 $38,819 $21,885 
1    Represents changes in fair value of to-be-announced securities and other derivative instruments held to mitigate market risk of trading securities portfolio, which is offset by changes in fair value of trading securities also included in Brokerage and Trading Revenue in the Consolidated Statements of Earnings.
 Six Months Ended
June 30, 2021June 30, 2020
 Brokerage
and Trading Revenue		Gain (Loss) on Derivatives, NetBrokerage
and Trading
Revenue		Gain (Loss) on Derivatives, Net
Customer risk management programs:    
Interest rate contracts2,404 — 1,688 — 
Energy contracts1,614 — 7,390 — 
Agricultural contracts28 — 21 — 
Foreign exchange contracts351 — 365 — 
Equity option contracts— — — — 
Total customer risk management programs4,397 — 9,464 — 
Trading1
(11,928)— (8,078)— 
Internal risk management programs— (8,830)— 40,305 
Total derivative contracts$(7,531)$(8,830)$1,386 $40,305 
1    Represents changes in fair value of to-be-announced securities and other derivative instruments held to mitigate market risk of trading securities portfolio, which is offset by changes in fair value of trading securities also included in Brokerage and Trading Revenue in the Consolidated Statements of Earnings.
- 59 -

(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. Accrued but not paid interest receivable is included in Receivables in the Consolidated Balance Sheets. 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.

For loans acquired with no evidence of credit deterioration, discounts are accreted on either an individual basis for loans with unique characteristics or on a pool basis for groups of homogeneous loans. Accretion is discontinued when a loan with an individually attributed discount is placed on nonaccruing status.

Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ("TDRs"). Primarily 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. Payment deferrals up to six months are generally considered to be short-term modifications. 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 Consolidated 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. Internally risk graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans that are past due between 60 days and 180 days, based on the loan product type, are charged off. Loans to borrowers whose personal obligation has been discharged through Chapter 7 bankruptcy proceedings are charged off within 60 days of notice of the bankruptcy filing, regardless of payment status.

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

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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. We do not expect to receive all principal and interest based on the loan's contractual terms. A portion of the principal balance continues to be guaranteed; however, interest accrues at a curtailed rate as specified in the programs. The carrying value of these loans is reduced based on an estimate of the expected cash flows discounted at the original note rate plus a liquidity spread. Guaranteed loans may be modified in TDRs in accordance with U.S. government agency guidelines. Interest continues to accrue based on the modified rate. Guaranteed loans may either be resold into GNMA pools after a performance period specified by the programs or foreclosed and conveyed to the guarantors.

Loans are disaggregated into portfolio segments and further disaggregated into classes. The portfolio segment is the level at which the Company develops and documents a systematic method for determining its allowance for credit losses. Classes are a further disaggregation of portfolio segments based on the risk characteristics of the loans and the Company’s method for monitoring and assessing credit risk. 

Portfolio segments of the loan portfolio are as follows (in thousands):
 June 30, 2021December 31, 2020
Fixed
Rate		Variable
Rate		Non-accrualTotalFixed
Rate		Variable
Rate		Non-accrualTotal
Commercial$3,277,687 $9,082,616 $112,604 $12,472,907 $3,174,203 $9,736,173 $167,159 $13,077,535 
Commercial real estate
1,028,432 3,192,437 26,123 4,246,992 1,047,486 3,623,806 27,246 4,698,538 
Paycheck protection program1,121,583 — — 1,121,583 1,682,310 — — 1,682,310 
Loans to individuals2,133,502 1,400,556 40,909 3,574,967 2,174,874 1,333,975 40,288 3,549,137 
Total$7,561,204 $13,675,609 $179,636 $21,416,449 $8,078,873 $14,693,954 $234,693 $23,007,520 


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, 2021, outstanding commitments totaled $11.5 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, 2021, outstanding standby letters of credit totaled $672 million. 

Allowances for Credit Losses and Accrual for Off-balance Sheet Credit Risk from Unfunded Loans Commitments

The allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments represent the portion of the amortized cost basis of loans that we do not expect to collect over the asset’s contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions. The appropriateness of the allowance for credit losses, including industry and product adjustments, is assessed quarterly by a senior management Allowance Committee. This review is based on an on-going evaluation of the estimated expected credit losses in the portfolio and on unused commitments to provide financing. A well-documented methodology has been developed and is applied by an independent Credit Administration department to assure consistency across the Company.

The allowance for loan losses consists of specific allowances attributed to certain individual loans, generally nonaccruing loans, with dissimilar risk characteristics that have not yet been charged down to amounts we expect to recover and general allowances for estimated credit losses on pools of loans that share similar risk characteristics.
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When full collection of principal or interest is uncertain, the loan’s risk characteristics have changed, and we exclude the loan from the general allowance pool, typically designating it as nonaccruing. For these loans, a specific allowance reflects the expected credit loss.

We measure specific allowances for loans excluded from the general allowance pool by an evaluation of estimated future cash flows discounted at the loan's initial effective interest rate or the fair value of collateral for certain collateral dependent loans. For a non-collateral dependent loan, the specific allowance is the amount by which the loan’s amortized cost basis exceeds its net realizable value. We measure the specific allowance for collateral dependent loans as the amount by which the loan’s amortized cost basis exceeds its fair value. When repayment is expected to be provided substantially through the sale of collateral, we deduct estimated selling costs from the collateral’s fair value. Generally, third party appraisals that conform to Uniform Standards of Professional Appraisal Practice serve as the basis for the fair value of real property held as collateral. These appraised values are on an “as-is” basis and generally are not adjusted by the Company. We obtain updated appraisals at least annually or more frequently if market conditions indicate collateral values may have declined. For energy loans, our internal staff of engineers generally determines collateral value of mineral rights based on projected cash flows from proven oil and gas reserves under existing economic and operating conditions. For real property held as collateral for other loans, third party appraisals that conform to Uniform Standards of Professional Appraisal Practice generally serve as the basis for the fair value. These appraised values are on an “as-is” basis and generally are not adjusted by the Company. We obtain updated appraisals at least annually or more frequently if market conditions indicate collateral values may have declined. Our special assets staff generally determines the value of other collateral based on projected liquidation cash flows under current market conditions. We evaluate collateral values and available cash resources quarterly. Historical statistics may be used to estimate specific allowances in limited situations, such as when a collateral dependent loan is removed from the general allowance pool near the end of a reporting period until an appraisal of collateral value is received or a full assessment of future cash flows is completed.

General allowances estimate expected credit losses on pools of loans sharing similar risk characteristics that are expected to occur over the loan’s estimated remaining life. The loan’s estimated remaining life represents the contractual term adjusted for amortization, estimates of prepayments, and borrower-owned extension options. Approximately 90 percent of the committed dollars in the loan portfolio is risk graded loans with general allowance model inputs that include probability of default, loss given default, and exposure at default. Probability of default is based on the migration of loans from performing to nonperforming using historical life of loan analysis periods. Loss given default is based on the aggregate losses incurred, net of estimated recoveries. Exposure at default represents an estimate of the outstanding amount of credit exposure at the time a default may occur.

Charge-off migration is used to calculate the general allowance for the majority of non-risk graded loans to individuals. The expected credit loss on less than 10 percent of the committed dollars in the portfolio is calculated using charge-off migration.

The expected credit loss on approximately 1 percent of the committed dollars in the portfolio is calculated using a non-modeled approach. Specifically, the calculation applies a long-term net charge-off rate to the loan balances, adjusted for the weighted average remaining maturity of each portfolio.
    
In estimating the expected credit losses for general allowances on performing risk-graded loans, each portfolio class is assigned relevant economic loss drivers which best explain variations in portfolio net loss rates. The probability of default estimates for each portfolio class are adjusted for current and forecasted economic conditions. The result is applied to the exposure at default and loss given default to calculate the lifetime expected credit loss estimate. Selection of relevant economic loss drivers is re-evaluated periodically and involves statistical analysis as well as management judgment. The unemployment rate factors significantly in the allowance for loan losses calculation, affecting commercial and loans to individuals segments. Other primary factors impacting the commercial portfolio include BBB corporate spreads, real gross domestic product growth rate, and energy commodity prices. The primary commercial real estate variables are vacancy rate and BBB corporate spreads. In addition to the unemployment rate, the forecast for loans to individuals is tied to home price index. The forecasts may include regional economic factors when localized conditions diverge from national conditions.

An Economic Forecast Committee, consisting of senior management with members largely independent of the allowance process develops a twelve-month forward-looking forecast for the relevant economic loss drivers. Management develops these forecasts based on external data as well as a view of future economic conditions, which may include adjustments for regional conditions. The forecast includes three economic scenarios and probability weights for each scenario. The base forecast represents management's view of the most likely outcome, while the downside forecast reflects reasonably possible worsening economic conditions, and the upside forecast projects reasonably possible improving conditions.

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At the end of the one-year reasonable and supportable forecast period, we transition from shorter-term expected losses to long-term loss averages for the loan’s estimated remaining life. The difference between short-term loss forecasts and long-term loss averages is run-off over the reversion horizon, up to three years, depending on the forecasted economic scenarios.

General allowances also consider the estimated impact of factors that are not captured in the modeled results or historical experience. These factors may increase or decrease modeled results by amounts determined by the Allowance Committee. Factors not captured in modeled results or historical experience may include for example, new lines of business, market conditions that have not been previously encountered, observed changes in credit risk that are not yet reflected in macro-economic factors, or economic conditions that impact loss given default assumptions.

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 that are not unconditionally cancelable by the bank. This accrual is included in other liabilities in the Consolidated Balance Sheets. The appropriateness of the accrual is determined in the same manner as the allowance for loan losses, with the added consideration of commitment usage over the remaining life for those loans that the bank can not unconditionally cancel.

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 is summarized as follows (in thousands):
Three Months Ended
June 30, 2021
 CommercialCommercial Real EstatePaycheck Protection ProgramLoans to IndividualsNonspecific AllowanceTotal
Allowance for loan losses:     
Beginning balance$231,372 $81,746 $— $39,284 $— $352,402 
Provision for loan losses(18,442)(10,582)— 3,960 — (25,064)
Loans charged off(16,502)(800)— (1,002)— (18,304)
Recoveries of loans previously charged off
1,875 176 — 805 — 2,856 
Ending Balance$198,303 $70,540 $— $43,047 — $311,890 
Allowance for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$12,736 $18,298 $— $1,843 $— $32,877 
Provision for off-balance sheet credit risk
(2,642)(5,950)— 2 — (8,590)
Ending Balance$10,094 $12,348 $— $1,845 $— $24,287 

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Six Months Ended
June 30, 2021
 CommercialCommercial Real EstatePaycheck Protection ProgramLoans to IndividualsNonspecific AllowanceTotal
Allowance for loan losses:      
Beginning balance$254,934 $86,558 $— $47,148 $— $388,640 
Provision for loan losses(28,335)(15,161)— (3,338)— (46,834)
Loans charged off(31,847)(1,063)— (2,299)— (35,209)
Recoveries3,551 206 — 1,536 — 5,293 
Ending balance$198,303 $70,540 $— $43,047 $— $311,890 
Allowance for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$14,422 $20,571 $— $1,928 $— $36,921 
Transition adjustment— — — — — — 
Beginning balance, adjusted14,422 20,571 — 1,928 — 36,921 
Provision for off-balance sheet credit losses
(4,328)(8,223)— (83)— (12,634)
Ending balance$10,094 $12,348 $— $1,845 $— $24,287 
Three Months Ended
June 30, 2020
 CommercialCommercial Real EstatePaycheck Protection ProgramLoans to IndividualsNonspecific AllowanceTotal
Allowance for loan losses:     
Beginning balance$213,438 $51,461 $— $50,412 $— $315,311 
Provision for loan losses111,153 17,221 — 5,991 — 134,365 
Loans charged off(14,487)(1)— (1,082)— (15,570)
Recoveries of loans previously charged off
318 75 — 1,098 — 1,491 
Ending Balance$310,422 $68,756 $— $56,419 — $435,597 
Allowance for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$14,040 $12,575 $— $1,899 $— $28,514 
Transition adjustment— — — — — — 
Beginning balance, adjusted14,040 12,575 — 1,899 — 28,514 
Provision for off-balance sheet credit risk
542 3,844 — 19 — 4,405 
Ending Balance$14,582 $16,419 $— $1,918 — $32,919 

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Six Months Ended
June 30, 2020
CommercialCommercial Real EstatePaycheck Protection ProgramLoans to IndividualsNonspecific AllowanceTotal
Allowance for loan losses:
Beginning balance$118,187 $51,805 $— $23,572 $17,195 $210,759 
Transition adjustment33,681 (4,620)— 13,943 (17,195)25,809 
Beginning balance, adjusted151,868 47,185 — 37,515 — 236,568 
Provision for loan losses188,876 22,336 — 19,117 — 230,329 
Loans charged off(31,102)(887)— (2,498)— (34,487)
Recoveries of loans previously charged off780 122 — 2,285 — 3,187 
Ending Balance$310,422 $68,756 $— $56,419 — $435,597 
Allowance for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$1,434 $107 $— $44 $— $1,585 
Transition adjustment10,144 11,660 — 1,748 — 23,552 
Beginning balance, adjusted11,578 11,767 — 1,792 — 25,137 
Provision for off-balance sheet credit risk3,004 4,652 — 126 — 7,782 
Ending Balance$14,582 $16,419 $— $1,918 — $32,919 

Changes in our reasonable and supportable forecasts of macroeconomic variables, primarily due to the anticipated impact of the on-going COVID-19 pandemic, and other assumptions, resulted in a $34.2 million negative provision for credit losses related to lending activities during the second quarter of 2021. Changes in the loan portfolio characteristics, including specific impairment and losses, loan balances, risk grading and changes in payment profile resulted in a $579 thousand provision for credit losses related to lending activities.

The allowance for loan losses and recorded investment of the related loans by portfolio segment for each measurement method at June 30, 2021 is as follows (in thousands):
 Collectively Measured
for General Allowances		Individually Measured
for Specific Allowances		Total
 Recorded InvestmentRelated AllowanceRecorded InvestmentRelated AllowanceRecorded InvestmentRelated
Allowance
Commercial$12,360,303 $188,227 $112,604 $10,076 $12,472,907 $198,303 
Commercial real estate4,220,869 66,841 26,123 3,699 4,246,992 70,540 
Paycheck protection program1,121,583 — — — 1,121,583 — 
Loans to individuals3,534,058 43,047 40,909 — 3,574,967 43,047 
Total$21,236,813 $298,115 $179,636 $13,775 $21,416,449 $311,890 
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The allowance for loan losses and recorded investment of the related loans by portfolio segment for each measurement method at December 31, 2020 is as follows (in thousands):

 Collectively Measured
for General Allowances		Individually Measured
for Specific Allowances		Total
 Recorded InvestmentRelated AllowanceRecorded InvestmentRelated AllowanceRecorded InvestmentRelated
Allowance
Commercial$12,910,376 $235,882 $167,159 $19,052 $13,077,535 $254,934 
Commercial real estate4,671,292 83,169 27,246 3,389 4,698,538 86,558 
Paycheck protection program1,682,310 — — — 1,682,310 — 
Loans to individuals3,508,849 47,148 40,288 — 3,549,137 47,148 
Total$22,772,827 $366,199 $234,693 $22,441 $23,007,520 $388,640 

Credit Quality Indicators

The Company utilizes risk grading as primary credit quality indicators as it influences the probability of default which is a key attribute in the expected credit losses calculation. Substantially all commercial as well as commercial real estate loans and certain loans to individuals are risk graded based on a quarterly evaluation of the borrowers’ ability to repay the loans. Certain commercial loans and most loans to individuals are small, homogeneous pools that are not risk-graded. The credit quality of these loans is based on past due days in accordance with regulatory guidelines.

We have included in the credit quality indicator “pass” loans that 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.” This also includes 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 ("Special Mention") 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. Non-graded loans 30 to 59 days past due are categorized as Special Mention.

The risk grading process identified certain loans that have a well-defined weakness (for example, 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 remain on accruing status. Non-graded loans 60 to 89 days past due are categorized as Accruing Substandard.

Nonaccruing loans represent loans for which full collection of principal and interest is uncertain. This includes certain loans considered “substandard” and all loans considered “doubtful” by regulatory guidelines. Non-graded loans 90 or more days past due are categorized as Nonaccrual.

Probability of default is lowest for pass graded loans and increases for each credit quality indicator, Special Mention, and Accruing Substandard.

Vintage represents the year of origination, except for revolving loans which are considered in aggregate. Loans that were once revolving but have converted to term loans without additional underwriting appear in a separate vintage column.

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The following table summarizes the Company’s loan portfolio at June 30, 2021 by the risk grade categories and vintage (in thousands): 
Origination Year
20212020201920182017PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
Commercial:
Energy
Pass$72,827 $57,881 $37,638 $72,773 $5,221 $8,948 $2,431,488 $— $2,686,776 
Special Mention— — — — — — 21,947 — 21,947 
Accruing Substandard
— 24,000 1,275 1,219 — 10,843 194,930 — 232,267 
Nonaccrual— 20,911 2,404 — — 11,238 35,788 — 70,341 
Total energy
72,827 102,792 41,317 73,992 5,221 31,029 2,684,153 — 3,011,331 
Healthcare
Pass296,227 569,385 613,579 569,118 380,741 756,261 149,129 — 3,334,440 
Special Mention— — — 6,646 — 346 4 — 6,996 
Accruing Substandard
— — 27,444 871 — 10,983 — — 39,298 
Nonaccrual— — 18 — — — 509 — 527 
Total healthcare296,227 569,385 641,041 576,635 380,741 767,590 149,642 — 3,381,261 
Services
Pass334,227 521,732 363,415 322,526 271,369 921,002 537,942 550 3,272,763 
Special Mention222 126 1,752 90 3,279 11,247 1,370 — 18,086 
Accruing Substandard
39 412 10,869 16,505 1,891 9,053 30,225 — 68,994 
Nonaccrual— 4,631 447 758 16,950 6,445 682 — 29,913 
Total services334,488 526,901 376,483 339,879 293,489 947,747 570,219 550 3,389,756 
General business
Pass318,504 313,185 332,890 221,590 197,124 267,409 975,933 2,081 2,628,716 
Special Mention818 259 2,719 134 4,010 1,026 7,275 — 16,241 
Accruing Substandard
— 2,088 2,802 9,119 8,628 7,329 3,705 108 33,779 
Nonaccrual— 1,659 1,790 5,834 1,417 547 547 29 11,823 
Total general business
319,322 317,191 340,201 236,677 211,179 276,311 987,460 2,218 2,690,559 
Total commercial
1,022,864 1,516,269 1,399,042 1,227,183 890,630 2,022,677 4,391,474 2,768 12,472,907 
Commercial real estate:
Pass193,724 796,606 1,169,633 590,116 362,500 923,860 151,418 36 4,187,893 
Special Mention— — — 3,184 14,052 6,830 — — 24,066 
Accruing Substandard
— — — — 4,467 4,416 27 — 8,910 
Nonaccrual— — 8,300 — — 17,823 — — 26,123 
Total commercial real estate
193,724 796,606 1,177,933 593,300 381,019 952,929 151,445 36 4,246,992 
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Origination Year
20212020201920182017PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
Paycheck protection program:
Pass660,775 460,808 — — — — — — 1,121,583 
Total paycheck protection program660,775 460,808 — — — — — — 1,121,583 
Loans to individuals:
Residential mortgage
Pass231,814 516,761 106,498 86,327 84,853 370,185 318,569 24,610 1,739,617 
Special Mention249 — — 26 — 239 218 10 742 
Accruing Substandard
— — 117 — — 121 545 12 795 
Nonaccrual— 627 241 1,049 675 25,754 2,213 914 31,473 
Total residential mortgage
232,063 517,388 106,856 87,402 85,528 396,299 321,545 25,546 1,772,627 
Residential mortgage guaranteed by U.S. government agencies
Pass349 9,236 29,888 35,932 42,705 286,489 — — 404,599 
Nonaccrual— — 82 404 143 8,578 — — 9,207 
Total residential mortgage guaranteed by U.S. government agencies
349 9,236 29,970 36,336 42,848 295,067 — — 413,806 
Personal:
Pass114,228 203,538 190,723 71,862 98,950 144,502 562,863 1,002 1,387,668 
Special Mention63 96 — 9 2 45 — — 215 
Accruing Substandard
— — 175 20 — 227 — — 422 
Nonaccrual— 1 31 42 53 76 26 — 229 
Total personal
114,291 203,635 190,929 71,933 99,005 144,850 562,889 1,002 1,388,534 
Total loans to individuals
346,703 730,259 327,755 195,671 227,381 836,216 884,434 26,548 3,574,967 
Total loans
$2,224,066 $3,503,942 $2,904,730 $2,016,154 $1,499,030 $3,811,822 $5,427,353 $29,352 $21,416,449 




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The following table summarizes the Company’s loan portfolio at December 31, 2020 by the risk grade categories and vintage (in thousands): 
Origination Year
20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
Commercial:
Energy
Pass$112,614 $51,863 $89,346 $7,178 $1,148 $7,956 $2,548,663 $— $2,818,768 
Special Mention— — — — — — 202,590 — 202,590 
Accruing Substandard
24,000 1,363 1,453 — 12,667 — 283,294 — 322,777 
Nonaccrual21,076 2,607 — — — 21,064 80,312 — 125,059 
Total energy
157,690 55,833 90,799 7,178 13,815 29,020 3,114,859 — 3,469,194 
Healthcare
Pass536,745 615,221 638,302 422,834 234,399 658,286 147,132 — 3,252,919 
Special Mention— 27,500 — — — 8,282 5 — 35,787 
Accruing Substandard
— — 1,191 929 132 11,387 — — 13,639 
Nonaccrual— 18 183 — — 2,935 509 — 3,645 
Total healthcare536,745 642,739 639,676 423,763 234,531 680,890 147,646 — 3,305,990 
Services
Pass534,853 436,384 372,867 307,374 373,785 683,936 665,491 682 3,375,372 
Special Mention150 9,057 389 291 2,038 2,000 3,063 — 16,988 
Accruing Substandard
429 6,380 26,008 6,027 5,030 7,954 38,797 — 90,625 
Nonaccrual4,833 448 — 12,590 1,049 6,138 540 — 25,598 
Total services540,265 452,269 399,264 326,282 381,902 700,028 707,891 682 3,508,583 
General business
Pass419,756 394,985 310,273 236,222 103,987 186,600 1,055,878 2,316 2,710,017 
Special Mention197 4,519 9,713 7,803 2,511 3,159 2,483 19 30,404 
Accruing Substandard
1,432 3,069 6,694 10,935 10,042 3,729 4,449 140 40,490 
Nonaccrual1,675 3,728 4,863 1,436 530 107 477 41 12,857 
Total general business
423,060 406,301 331,543 256,396 117,070 193,595 1,063,287 2,516 2,793,768 
Total commercial
1,657,760 1,557,142 1,461,282 1,013,619 747,318 1,603,533 5,033,683 3,198 13,077,535 
Commercial real estate:
Pass725,577 1,211,338 954,226 489,193 314,899 722,475 223,131 38 4,640,877 
Special Mention— — 259 12,311 2,725 5,831 — — 21,126 
Accruing Substandard
— — — 4,410 — 4,852 27 — 9,289 
Nonaccrual— 8,300 — 232 7,468 11,246 — — 27,246 
Total commercial real estate
725,577 1,219,638 954,485 506,146 325,092 744,404 223,158 38 4,698,538 
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Origination Year
20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
Paycheck protection program:
Pass1,682,310 — — — — — — — 1,682,310 
Total paycheck protection program1,682,310 — — — — — — — 1,682,310 
Loans to individuals:
Residential mortgage
Pass564,325 149,832 120,875 124,930 158,801 348,292 335,259 24,553 1,826,867 
Special Mention33 11 2,094 — 59 318 950 10 3,475 
Accruing Substandard
— — 51 — — 34 272 76 433 
Nonaccrual648 104 1,658 784 2,010 22,415 3,835 774 32,228 
Total residential mortgage
565,006 149,947 124,678 125,714 160,870 371,059 340,316 25,413 1,863,003 
Residential mortgage guaranteed by U.S. government agencies
Pass4,859 33,880 34,464 43,099 58,264 226,380 — — 400,946 
Nonaccrual— — 545 — 309 6,887 — — 7,741 
Total residential mortgage guaranteed by U.S. government agencies
4,859 33,880 35,009 43,099 58,573 233,267 — — 408,687 
Personal:
Pass219,873 200,580 76,246 100,229 64,104 102,126 510,571 1,510 1,275,239 
Special Mention39 55 66 — 469 31 965 — 1,625 
Accruing Substandard
11 214 10 — — — 29 — 264 
Nonaccrual28 17 57 73 50 49 45 — 319 
Total personal
219,951 200,866 76,379 100,302 64,623 102,206 511,610 1,510 1,277,447 
Total loans to individuals
789,816 384,693 236,066 269,115 284,066 706,532 851,926 26,923 3,549,137 
Total loans
$4,855,463 $3,161,473 $2,651,833 $1,788,880 $1,356,476 $3,054,469 $6,108,767 $30,159 $23,007,520 

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Nonaccruing Loans

A summary of nonaccruing loans at June 30, 2021 follows (in thousands): 
As of June 30, 2021
 TotalWith No
Allowance		With AllowanceRelated Allowance
Commercial:    
Energy$70,341 $70,341 $— $— 
Healthcare527 527 — — 
Services29,913 21,484 8,429 5,234 
General business11,823 6,981 4,842 4,842 
Total commercial112,604 99,333 13,271 10,076 
Commercial real estate26,123 13,388 12,735 3,699 
Loans to individuals:    
Residential mortgage31,473 31,473 — — 
Residential mortgage guaranteed by U.S. government agencies
9,207 9,207 — — 
Personal229 229 — — 
Total loans to individuals40,909 40,909 — — 
Total$179,636 $153,630 $26,006 $13,775 


A summary of nonaccruing loans at December 31, 2020 follows (in thousands): 
As of December 31, 2020
 TotalWith No
Allowance		With AllowanceRelated Allowance
Commercial:    
Energy$125,059 $76,633 $48,426 $16,478 
Healthcare3,645 3,645 — — 
Services25,598 20,810 4,788 2,574 
General business12,857 12,857 — — 
Total commercial167,159 113,945 53,214 19,052 
Commercial real estate27,246 13,645 13,601 3,389 
Loans to individuals:    
Residential mortgage32,228 32,228 — — 
Residential mortgage guaranteed by U.S. government agencies
7,741 7,741 — — 
Personal319 319 — — 
Total loans to individuals40,288 40,288 — — 
Total$234,693 $167,878 $66,815 $22,441 

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Troubled Debt Restructurings

At June 30, 2021 the Company had $234 million in troubled debt restructurings ("TDRs"), of which $171 million were accruing residential mortgage loans guaranteed by U.S. government agencies, $16 million were nonaccruing residential mortgage loans with no specific allowance necessary and $15 million were commercial real estate loans with a related specific allowance of $2.3 million. Approximately $131 million of TDRs were performing in accordance with the modified terms.

At December 31, 2020, the Company had $187 million in TDRs, of which $152 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $95 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, 2021, $55 million and $66 million of loans were restructured and $35 thousand and $311 thousand of loans designated as TDRs were charged off. During the three and six months ended June 30, 2020, $35 million and $59 million of loans were restructured and $7.7 million and $9.7 million of loans designated as TDRs were charged off.

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, as modified for short-term payment deferral forbearance.

A summary of loans currently performing and past due as of June 30, 2021 is as follows (in thousands):
  Past Due Past Due 90 Days or More and Accruing
 Current30 to 59
Days		60 to 89 Days90 Days
or More		Total
Commercial:    
Energy$2,993,105 $— $— $18,226 $3,011,331 $— 
Healthcare3,380,557 — 177 527 3,381,261 — 
Services3,377,109 336 — 12,311 3,389,756 212 
General business2,683,645 915 292 5,707 2,690,559 — 
Total commercial12,434,416 1,251 469 36,771 12,472,907 212 
Commercial real estate4,236,417 1,604 39 8,932 4,246,992 — 
Paycheck protection program1,121,583 — — — 1,121,583 — 
Loans to individuals:    
Residential mortgage1,757,711 4,780 898 9,238 1,772,627 — 
Residential mortgage guaranteed by U.S. government agencies
259,023 41,355 18,265 95,163 413,806 89,121 
Personal1,388,201 176 30 127 1,388,534 40 
Total loans to individuals3,404,935 46,311 19,193 104,528 3,574,967 89,161 
Total$21,197,351 $49,166 $19,701 $150,231 $21,416,449 $89,373 
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A summary of loans currently performing and past due as of December 31, 2020 is as follows (in thousands):
  Past Due Past Due 90 Days or More and Accruing
 Current30 to 59
Days		60 to 89 Days90 Days
or More		Total
Commercial:    
Energy$3,410,995 $12,735 $4,050 $41,414 $3,469,194 $— 
Healthcare3,302,345 — — 3,645 3,305,990 — 
Services3,489,423 3,278 177 15,705 3,508,583 326 
General business2,776,038 1,206 6,277 10,247 2,793,768 4,495 
Total commercial12,978,801 17,219 10,504 71,011 13,077,535 4,821 
Commercial real estate4,672,279 276 5,310 20,673 4,698,538 5,126 
Paycheck protection program1,682,310 — — — 1,682,310 — 
Loans to individuals:    
Residential mortgage1,849,304 5,812 837 7,050 1,863,003 181 
Residential mortgage guaranteed by U.S. government agencies
262,102 41,389 22,041 83,155 408,687 78,349 
Personal1,273,702 3,317 90 338 1,277,447 241 
Total loans to individuals3,385,108 50,518 22,968 90,543 3,549,137 78,771 
Total$22,718,498 $68,013 $38,782 $182,227 $23,007,520 $88,718 



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(5) 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, 2021December 31, 2020
 Unpaid Principal Balance/
Notional		Fair ValueUnpaid Principal Balance/
Notional		Fair Value
Residential mortgage loans held for sale$187,179 $191,290 $227,161 $236,444 
Residential mortgage loan commitments276,154 10,202 380,637 20,435 
Forward sales contracts427,566 (650)549,414 (4,563)
  $200,842  $252,316 

No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of June 30, 2021 or December 31, 2020. No credit losses were recognized on residential mortgage loans held for sale for the six month period ended June 30, 2021 and 2020.

Mortgage banking revenue was as follows (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Production revenue:  
Net realized gains on sale of mortgage loans$20,783 $24,109 $46,783 $33,826 
Net change in unrealized gain (loss) on mortgage loans held for sale1,783 5,024 (5,172)8,585 
Net change in the fair value of mortgage loan commitments(1,253)3,381 (10,233)22,398 
Net change in the fair value of forward sales contracts(11,309)6,671 3,913 (4,054)
Total production revenue10,004 39,185 35,291 60,755 
Servicing revenue11,215 14,751 23,041 30,348 
Total mortgage banking revenue$21,219 $53,936 $58,332 $91,103 

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.

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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, 2021December 31, 2020
Number of residential mortgage loans serviced for others98,287 106,201 
Outstanding principal balance of residential mortgage loans serviced for others$14,887,909 $16,228,449 
Weighted average interest rate3.73 %3.84 %
Remaining term (in months)278280

The following represents activity in capitalized mortgage servicing rights (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Beginning Balance$132,915 $110,828 $101,172 $201,886 
Additions7,937 8,465 17,767 13,906 
Disposals— (10,801)— (10,801)
Change in fair value due to principal payments(10,182)(9,760)(22,143)(17,779)
Change in fair value due to market assumption changes(13,041)(761)20,833 (89,241)
Ending Balance$117,629 $97,971 $117,629 $97,971 

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. 

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, 2021December 31, 2020
Discount rate – risk-free rate plus a market premium8.87%9.14%
Prepayment rate - based upon loan interest rate, original term and loan type
7.81% - 19.08%
9.41% - 21.87%
Loan servicing costs – annually per loan based upon loan type:
Performing loans
$69 - $94
$69 - $94
Delinquent loans
$150 - $500
$150 - $500
Loans in foreclosure
$1,000 - $4,000
$1,000 - $4,000
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
0.95%0.43%
Primary/secondary mortgage rate spread
105 bps105 bps
Delinquency rate
2.67%3.54%

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.


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(6) Commitments and Contingent Liabilities

Litigation Contingencies

On June 24, 2015, BOKF, NA received a complaint alleging that an employee had colluded with a bond issuer and an individual in misusing revenues pledged to municipal bonds for which BOKF, NA served as trustee under the bond indenture. The Company conducted an investigation and concluded that employees in one of its Corporate Trust offices had, with respect to a single group of affiliated bond issuances, violated Company policies and procedures by waiving financial covenants, granting forbearances and accepting without disclosure to the bondholders, debt service payments from sources other than pledged revenues. The relationship manager was terminated. The Company reported the circumstances to, and cooperated with an investigation by, the Securities and Exchange Commission ("SEC"). On September 7, 2016, BOKF, NA agreed, and the SEC entered, a consent order finding that BOKF, NA had violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring BOKF, NA to disgorge $1,067,721 of fees and pay a civil penalty of $600,000. BOKF, NA disgorged the fees and paid the penalty.

On December 28, 2015, in an action brought by the SEC, the United States District Court for the District of New Jersey entered a judgment against the principals involved in issuing the bonds, precluding the principals from denying the alleged violations of the federal securities laws and requiring the principals to pay all outstanding principal, accrued interest, and other amounts required under the bond documents, less the value of the facilities securing repayment of the bonds, subject to oversight by a court appointed monitor (“Payment Plan”).

On August 26, 2016, BOKF, NA was sued in the United States District Court for New Jersey by two bondholders in a putative class action on behalf of all holders of the bonds alleging BOKF, NA participated in the fraudulent sale of securities by the principals. The New Jersey Federal District Action remains stayed with no current deadlines pending. On September 14, 2016, BOKF, NA was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders alleging BOKF, NA participated in the fraudulent sale of securities by the principals. The Tulsa County District Court Action is pending on BOKF, NA’s motion to dismiss the plaintiff's Third Amended Petition.

On January 8, 2020, the New Jersey District Court entered judgment against the principal individual and his wife for $36,805,051 in principal amount and $10,937,831 in pre-judgment interest. On January 17, 2020, the New Jersey Federal District Court formally terminated the Payment Plan. Management is no longer able to conclude that the individual principal and his wife will be successful in paying the obligations they have to pay the bonds in full but such obligations remain and are not dischargeable in bankruptcy. The SEC continues to aggressively pursue collection of the judgment garnishments on entities either related to or holding assets for the debtor and recently obtained a charging order against equity interests in multiple entities owned by the debtor. If the individual principal and his wife do not have the financial ability to pay the bonds in full, a bondholder loss could become probable. Management has been advised by counsel that BOKF, NA has valid defenses to claims of bondholders and that no loss to the Company is probable. No provision for losses has been made at this time. BOKF, NA estimates that, upon sale of all remaining collateral securing payment of the bonds, approximately $20 million will remain outstanding. A reasonable estimate cannot be made of the amount of any bondholder loss, though the amount of bondholder loss could be material to the Company in the event a loss to the Company becomes probable.
On March 5, 2018, BOKF, NA was sued in the Fulton, Georgia County District Court by a Wrongful Death Judgment Creditor of 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 this conduct prevented her from collecting on her judgment. On April 19, 2019, the Court granted BOKF, NA's Motion to Dismiss. On May 3, 2019, the plaintiff filed a Motion for Reconsideration which remains pending. BOKF, NA is advised by counsel that BOKF, NA has valid defenses to the plaintiffs’ claims and no loss is probable.

On March 7, 2017, a plaintiff filed a putative class action in the United States District Court for the Northern District of Texas alleging an extended overdraft fee charged by BOKF, NA is interest and exceeds permitted rates. On September 18, 2018, the District Court dismissed the Texas action and the plaintiff appealed the dismissal to the United States Court of Appeals for the Fifth Circuit which heard argument on October 8, 2019. On August 22, 2018, a plaintiff filed a second putative class action in the United States District Court for New Mexico making the same allegations as the Texas action. The District Court dismissed the plaintiff's action. The plaintiff has appealed to the United States Court of Appeals for the Tenth Circuit. Management is advised by counsel that a loss is not probable in either the now dismissed Texas action or the New Mexico action and that the loss, if any, cannot be reasonably estimated.

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On March 7, 2020, three former employees sued BOKF, NA, the Plan Committee of the BOKF, NA 401k Plan, and Cavanal Hill Investment Management, Inc., a subsidiary of BOKF, NA, alleging that the Defendants included proprietary investment products as investment options in the BOKF, NA 401k Plan, whose fees were too high and performance too low, for the purpose of earning fees. The action is brought as a putative class action on behalf of all Plan Participants. The action is pending on the defendants' motion to dismiss. Management is advised by counsel that a loss is not probable and that the loss, if any, cannot be reasonably estimated.

In 2019, a limited liability partnership sued BOKF, NA in Colorado District Court alleging that the Bank breached various fiduciary duties acting in its capacity as trustee of a trust that was a co-general partner of the partnership, claiming in excess of $60 million in damages. From 2000 to 2009, BOKF was serving as personal representative of the estate of the creator of the trust. In 2009, BOKF moved to close the probate of the estate in the Colorado Probate Court. The members of the partnership who now sue BOKF objected to the closing of the estate, making the same allegations in 2009 in probate as they now make in 2019 in the Colorado District Court. In 2009, the Colorado Probate Court entered summary judgment against the beneficiaries and the estate was closed. In the current action, the Colorado District Court has now denied BOKF’s motions for summary judgment and the matter will proceed to trial. Management is advised by counsel that a loss is not probable and that the loss, if any, cannot be reasonably estimated.

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

Alternative Investment Commitments

The Company sponsors a private equity fund and invests in several tax credit entities and other funds as permitted by banking regulations. Consolidation of these investments is based on the variable interest model.

At June 30, 2021, the Company has $342 million in interests in various alternative investments generally consisting of unconsolidated limited partnership interests in entities for which investment return is in the form of low income housing tax credits or other investments in merchant banking activities. This investment balance also includes $117 million of unfunded commitments included in Other liabilities on the Consolidated Balance Sheets.

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(7) Shareholders' Equity

On August 3, 2021, the Company declared a quarterly cash dividend of $0.52 per common share payable on or about August 26, 2021 to shareholders of record as of August 16, 2021.

Dividends declared were $0.52 and $1.04 per share during the three and six months ended June 30, 2021 and $0.51 and 1.02 per share during the three and six months ended June 30, 2020.

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 SecuritiesEmployee Benefit PlansTotal
Balance, Dec. 31, 2019$104,996 $(73)$104,923 
Net change in unrealized gain (loss)
354,765 — 354,765 
Reclassification adjustments included in earnings:
Gain on available for sale securities, net
(5,583)— (5,583)
Other comprehensive income, before income taxes
349,182 — 349,182 
Federal and state income taxes83,789 — 83,789 
Other comprehensive income, net of income taxes265,393 — 265,393 
Balance, June 30, 2020$370,389 $(73)$370,316 
Balance, Dec. 31, 2020$335,032 $836 $335,868 
Net change in unrealized gain (loss)
(141,651)— (141,651)
Reclassification adjustments included in earnings:
Gain on available for sale securities, net
(1,897)— (1,897)
Other comprehensive income, before income taxes
(143,548)— (143,548)
Federal and state income taxes(34,448)— (34,448)
Other comprehensive income (loss), net of income taxes(109,100)— (109,100)
Balance, June 30, 2021$225,932 $836 $226,768 

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(8) Earnings Per Share
 
(In thousands, except share and per share amounts)Three Months Ended June 30,Six Months Ended
June 30,
 2021202020212020
Numerator:    
Net income attributable to BOK Financial Corp. shareholders$166,421 $64,693 $312,481 $126,772 
Less: Earnings allocated to participating securities1,170 397 2,107 740 
Numerator for basic earnings per share – income available to common shareholders
165,251 64,296 310,374 126,032 
Effect of reallocating undistributed earnings of participating securities1 — — — 
Numerator for diluted earnings per share – income available to common shareholders
$165,252 $64,296 $310,374 $126,032 
Denominator:    
Weighted average shares outstanding69,302,245 70,307,606 69,442,239 70,410,707 
Less:  Participating securities included in weighted average shares outstanding
486,579 431,563 466,496 410,842 
Denominator for basic earnings per common share68,815,666 69,876,043 68,975,743 69,999,865 
Dilutive effect of employee stock compensation plans1
1,776 1,424 3,055 3,952 
Denominator for diluted earnings per common share68,817,442 69,877,467 68,978,798 70,003,817 
Basic earnings per share$2.40 $0.92 $4.50 $1.80 
Diluted earnings per share$2.40 $0.92 $4.50 $1.80 
1 Excludes employee stock options with exercise prices greater than current market price.
— 22,238 — — 

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(9) Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2021 is as follows (in thousands):
 CommercialConsumerWealth
Management		Funds Management and OtherBOK
Financial
Consolidated
Net interest revenue from external sources
$151,942 $17,552 $52,966 $57,849 $280,309 
Net interest revenue (expense) from internal sources
(21,041)7,393 (673)14,321 — 
Net interest revenue130,901 24,945 52,293 72,170 280,309 
Provision for credit losses
16,268 425 (54)(51,639)(35,000)
Net interest revenue after provision for credit losses
114,633 24,520 52,347 123,809 315,309 
Other operating revenue65,269 37,714 79,149 9,314 191,446 
Other operating expense71,351 52,453 79,429 87,919 291,152 
Net direct contribution108,551 9,781 52,067 45,204 215,603 
Gain (loss) on financial instruments, net34 17,137 — (17,171)— 
Change in fair value of mortgage servicing rights— (13,041)— 13,041 — 
Gain (loss) on repossessed assets, net3,565 — — (3,565)— 
Corporate expense allocations12,512 11,599 10,343 (34,454)— 
Net income before taxes99,638 2,278 41,724 71,963 215,603 
Federal and state income taxes27,006 580 10,663 10,247 48,496 
Net income
72,632 1,698 31,061 61,716 167,107 
Net income (loss) attributable to non-controlling interests— — — 686 686 
Net income attributable to BOK Financial Corp. shareholders
$72,632 $1,698 $31,061 $61,030 $166,421 
Average assets$28,160,594 $10,087,488 $19,201,041 $(7,252,201)$50,196,922 
- 80 -

Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2021 is as follows (in thousands):
 CommercialConsumerWealth
Management		Funds Management and OtherBOK
Financial
Consolidated
Net interest revenue from external sources$307,741 $34,238 $101,520 $117,230 $560,729 
Net interest revenue (expense) from internal sources(46,835)11,681 (873)36,027 — 
Net interest revenue260,906 45,919 100,647 153,257 560,729 
Provision for credit losses
30,253 1,561 (83)(91,731)(60,000)
Net interest revenue after provision for credit losses
230,653 44,358 100,730 244,988 620,729 
Other operating revenue111,848 89,996 145,272 21,384 368,500 
Other operating expense138,330 108,076 157,994 182,536 586,936 
Net direct contribution204,171 26,278 88,008 83,836 402,293 
Gain (loss) on financial instruments, net67 (12,479)— 12,412 — 
Change in fair value of mortgage servicing rights— 20,833 — (20,833)— 
Gain (loss) on repossessed assets, net16,302 41 — (16,343)— 
Corporate expense allocations25,246 23,073 20,230 (68,549)— 
Net income before taxes195,294 11,600 67,778 127,621 402,293 
Federal and state income taxes52,989 2,954 17,335 17,600 90,878 
Net income
142,305 8,646 50,443 110,021 311,415 
Net income (loss) attributable to non-controlling interests
— — — (1,066)(1,066)
Net income attributable to BOK Financial Corp. shareholders
$142,305 $8,646 $50,443 $111,087 $312,481 
Average assets$28,104,137 $9,922,431 $18,924,987 $(6,698,092)$50,253,463 





























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Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2020 is as follows (in thousands):
 CommercialConsumerWealth
Management		Funds Management and OtherBOK
Financial
Consolidated
Net interest revenue from external sources$174,314 $18,795 $34,359 $50,636 $278,104 
Net interest revenue (expense) from internal sources(29,205)20,475 (7,479)16,209 — 
Net interest revenue145,109 39,270 26,880 66,845 278,104 
Provision for credit losses
13,762 535 (89)121,113 135,321 
Net interest revenue after provision for credit losses
131,347 38,735 26,969 (54,268)142,783 
Other operating revenue47,898 67,192 106,674 11,508 233,272 
Other operating expense62,933 58,249 80,567 94,217 295,966 
Net direct contribution116,312 47,678 53,076 (136,977)80,089 
Gain (loss) on financial instruments, net48 7,356 — (7,404)— 
Change in fair value of mortgage servicing rights— (761)— 761 — 
Gain (loss) on repossessed assets, net191 27 — (218)— 
Corporate expense allocations5,437 10,692 8,204 (24,333)— 
Net income before taxes111,114 43,608 44,872 (119,505)80,089 
Federal and state income taxes30,122 11,107 11,478 (36,904)15,803 
Net income
80,992 32,501 33,394 (82,601)64,286 
Net income (loss) attributable to non-controlling interests— — — (407)(407)
Net income attributable to BOK Financial Corp. shareholders$80,992 $32,501 $33,394 $(82,194)$64,693 
Average assets$27,575,652 $9,920,005 $15,721,452 $(3,460,078)$49,757,031 




























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Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2020 is as follows (in thousands):
 CommercialConsumerWealth
Management
Funds Management and Other1
BOK
Financial
Consolidated
Net interest revenue from external sources$376,216 $44,671 $48,725 $69,852 $539,464 
Net interest revenue (expense) from internal sources(79,700)38,531 (2,941)44,110 — 
Net interest revenue296,516 83,202 45,784 113,962 539,464 
Provision for credit losses
30,642 1,791 (137)196,796 229,092 
Net interest revenue after provision for credit losses
265,874 81,411 45,921 (82,834)310,372 
Other operating revenue86,118 122,254 204,555 667 413,594 
Other operating expense123,685 112,017 158,759 170,132 564,593 
Net direct contribution228,307 91,648 91,717 (252,299)159,373 
Gain (loss) on financial instruments, net97 94,120 7 (94,224)— 
Change in fair value of mortgage servicing rights— (89,241)— 89,241 — 
Gain (loss) on repossessed assets, net200 40 — (240)— 
Corporate expense allocations14,342 21,059 16,469 (51,870)— 
Net income before taxes214,262 75,508 75,255 (205,652)159,373 
Federal and state income taxes58,295 19,232 19,288 (63,712)33,103 
Net income
155,967 56,276 55,967 (141,940)126,270 
Net income (loss) attributable to non-controlling interests— — — (502)(502)
Net income attributable to BOK Financial Corp. shareholders
$155,967 $56,276 $55,967 $(141,438)$126,772 
Average assets$26,131,814 $9,885,429 $14,222,432 $(2,500,850)$47,738,825 

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(10) 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. Insurance brokerage revenues represents fees and commissions earned on placement of insurance products with carriers for property and casualty and health coverage.
 
Transaction card revenue includes merchant discount fees and electronic funds transfer network fees, net of interchange fees paid to card issuers and assessments paid to card networks. Merchant discount fees represent fees paid by customers for account management and electronic processing of card transactions. Merchant discount fees are recognized at the time the customer’s transactions are processed or other services are performed. The Company also maintains the TransFund electronic funds transfer network for the benefit of its members, which includes 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, 2021.
CommercialConsumerWealth ManagementFunds Management & OtherConsolidated
Out of Scope1
In Scope2
Trading revenue$— $— $13,002 $(1)$13,001 $13,001 $— 
Customer hedging revenue
5,693 — 55 (3,943)1,805 1,805 — 
Retail brokerage revenue
— — 4,528 — 4,528 — 4,528 
Insurance brokerage revenue
— — 2,996 — 2,996 — 2,996 
Investment banking revenue
3,935 — 3,626 (483)7,078 2,721 4,357 
Brokerage and trading revenue
9,628 — 24,207 (4,427)29,408 17,527 11,881 
TransFund EFT network revenue19,374 924 (17)1 20,282 — 20,282 
Merchant services revenue3,434 17 — 1 3,452 — 3,452 
Corporate card revenue1,063 — 37 89 1,189 — 1,189 
Transaction card revenue23,871 941 20 91 24,923 — 24,923 
Personal trust revenue— — 25,156 — 25,156 — 25,156 
Corporate trust revenue— — 3,435 — 3,435 — 3,435 
Institutional trust & retirement plan services revenue
— — 12,828 — 12,828 — 12,828 
Investment management services and other revenue
— — 3,543 (130)3,413 — 3,413 
Fiduciary and asset management revenue
— — 44,962 (130)44,832 — 44,832 
Commercial account service charge revenue
12,710 469 607 (1)13,785 — 13,785 
Overdraft fee revenue22 4,916 17 2 4,957 — 4,957 
Check card revenue
— 6,030 — (1)6,029 — 6,029 
Automated service charge and other deposit fee revenue
25 1,042 20 3 1,090 — 1,090 
Deposit service charges and fees
12,757 12,457 644 3 25,861 — 25,861 
Mortgage production revenue— 10,004 — — 10,004 10,004 — 
Mortgage servicing revenue— 11,668 — (453)11,215 11,215 — 
Mortgage banking revenue— 21,672 — (453)21,219 21,219 — 
Other revenue17,112 2,644 9,008 (5,592)23,172 20,041 3,131 
Total fees and commissions revenue
$63,368 $37,714 $78,841 $(10,508)$169,415 $58,787 $110,628 
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, 2021.

CommercialConsumerWealth ManagementFunds Management & OtherConsolidated
Out of Scope1
In Scope2
Trading revenue$— $— $16,718 $(1)$16,717 $16,717 $— 
Customer hedging revenue
9,900 — 146 (5,649)4,397 4,397 — 
Retail brokerage revenue
— — 9,269 — 9,269 — 9,269 
Insurance brokerage revenue
— — 5,912 — 5,912 — 5,912 
Investment banking revenue
6,193 — 8,394 (692)13,895 4,770 9,125 
Brokerage and trading revenue
16,093 — 40,439 (6,342)50,190 25,884 24,306 
TransFund EFT network revenue37,817 1,758 (30)3 39,548 — 39,548 
Merchant services revenue5,700 33 — — 5,733 — 5,733 
Corporate card revenue1,867 — 65 140 2,072 — 2,072 
Transaction card revenue45,384 1,791 35 143 47,353 — 47,353 
Personal trust revenue— — 47,133 — 47,133 — 47,133 
Corporate trust revenue— — 7,224 — 7,224 — 7,224 
Institutional trust & retirement plan services revenue
— — 25,438 — 25,438 — 25,438 
Investment management services and other revenue
— — 6,446 (87)6,359 — 6,359 
Fiduciary and asset management revenue— — 86,241 (87)86,154 — 86,154 
Commercial account service charge revenue
24,698 903 1,188 — 26,789 — 26,789 
Overdraft fee revenue48 9,551 36 2 9,637 — 9,637 
Check card revenue
— 11,357 — (1)11,356 — 11,356 
Automated service charge and other deposit fee revenue
51 2,192 43 2 2,288 — 2,288 
Deposit service charges and fees
24,797 24,003 1,267 3 50,070 — 50,070 
Mortgage production revenue— 35,291 — — 35,291 35,291 — 
Mortgage servicing revenue— 23,945 — (904)23,041 23,041 — 
Mortgage banking revenue— 59,236 — (904)58,332 58,332 — 
Other revenue26,941 4,984 16,543 (9,000)39,468 33,184 6,284 
Total fees and commissions revenue
$113,215 $90,014 $144,525 $(16,187)$331,567 $117,400 $214,167 
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 three months ended June 30, 2020.
CommercialConsumerWealth ManagementFunds Management & OtherConsolidated
Out of Scope1
In Scope2
Trading revenue$— $— $43,915 $— $43,915 $43,915 $— 
Customer hedging revenue
6,893 — 63 (714)6,242 6,242 — 
Retail brokerage revenue
— — 3,394 — 3,394 — 3,394 
Insurance brokerage revenue
— — 3,153 — 3,153 — 3,153 
Investment banking revenue
1,131 — 4,187 — 5,318 851 4,467 
Brokerage and trading revenue
8,024 — 54,712 (714)62,022 51,008 11,014 
TransFund EFT network revenue19,647 556 (9)— 20,194 — 20,194 
Merchant services revenue2,230 13 — — 2,243 — 2,243 
Corporate card revenue485 — 18 — 503 — 503 
Transaction card revenue22,362 569 9 — 22,940 — 22,940 
Personal trust revenue— — 21,681 — 21,681 — 21,681 
Corporate trust revenue— — 4,604 — 4,604 — 4,604 
Institutional trust & retirement plan services revenue
— — 10,723 191 10,914 — 10,914 
Investment management services and other revenue
— — 4,291 (233)4,058 — 4,058 
Fiduciary and asset management revenue
— — 41,299 (42)41,257 — 41,257 
Commercial account service charge revenue
11,069 389 598 — 12,056 — 12,056 
Overdraft fee revenue20 3,607 16 — 3,643 — 3,643 
Check card revenue
— 5,122 — — 5,122 — 5,122 
Automated service charge and other deposit fee revenue
29 1,179 17 — 1,225 — 1,225 
Deposit service charges and fees
11,118 10,297 631 — 22,046 — 22,046 
Mortgage production revenue— 39,186 — — 39,186 39,186 — 
Mortgage servicing revenue— 15,164 — (414)14,750 14,750 — 
Mortgage banking revenue— 54,350 — (414)53,936 53,936 — 
Other revenue5,011 1,976 10,106 (5,614)11,479 8,970 2,509 
Total fees and commissions revenue
$46,515 $67,192 $106,757 $(6,784)$213,680 $113,914 $99,766 
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, 2020.
CommercialConsumerWealth Management
Funds Management & Other3
Consolidated
Out of Scope1
In Scope2
Trading revenue$— $— $78,299 $— $78,299 $78,299 $— 
Customer hedging revenue
9,418 — 198 (151)9,465 9,465 — 
Retail brokerage revenue
— — 7,737 — 7,737 — 7,737 
Insurance brokerage revenue
— — 6,942 — 6,942 — 6,942 
Investment banking revenue
3,011 — 7,347 — 10,358 2,679 7,679 
Brokerage and trading revenue
12,429 — 100,523 (151)112,801 90,443 22,358 
TransFund EFT network revenue37,859 1,387 (28)2 39,220 — 39,220 
Merchant services revenue4,535 27 — — 4,562 — 4,562 
Corporate card revenue1,005 — 34 — 1,039 — 1,039 
Transaction card revenue43,399 1,414 6 2 44,821 — 44,821 
Personal trust revenue— — 42,330 — 42,330 — 42,330 
Corporate trust revenue— — 10,966 — 10,966 — 10,966 
Institutional trust & retirement plan services revenue
— — 22,480 330 22,810 — 22,810 
Investment management services and other revenue
— — 10,022 (413)9,609 — 9,609 
Fiduciary and asset management revenue
— — 85,798 (83)85,715 — 85,715 
Commercial account service charge revenue
22,108 799 1,143 (1)24,049 — 24,049 
Overdraft fee revenue69 10,812 38 2 10,921 — 10,921 
Check card revenue
— 10,351 — — 10,351 — 10,351 
Automated service charge and other deposit fee revenue
258 2,565 30 2 2,855 — 2,855 
Deposit service charges and fees
22,435 24,527 1,211 3 48,176 — 48,176 
Mortgage production revenue— 60,755 — — 60,755 60,755 — 
Mortgage servicing revenue— 31,206 — (858)30,348 30,348 — 
Mortgage banking revenue— 91,961 — (858)91,103 91,103 — 
Other revenue9,711 4,352 17,100 (7,375)23,788 17,378 6,410 
Total fees and commissions revenue
$87,974 $122,254 $204,638 $(8,462)$406,404 $198,924 $207,480 
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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(11) Fair Value Measurements

Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market for the given asset or liability at the measurement date based on market conditions at that date. 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, 2021 and 2020, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the six months ended June 30, 2021 and 2020 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, 2021 or December 31, 2020.

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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, 2021 (in thousands):
 TotalQuoted 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 securities$13,481 $4,999 $8,482 $— 
Residential agency mortgage-backed securities5,577,986 — 5,577,986 — 
Municipal securities49,636 — 49,636 — 
Other trading securities57,967 — 57,967 — 
Total trading securities5,699,070 4,999 5,694,071 — 
Available for sale securities:    
U.S. Treasury504 504 — — 
Municipal securities386,509 — 386,509 — 
Residential agency mortgage-backed securities8,624,876 — 8,624,876 — 
Residential non-agency mortgage-backed securities28,261 — 28,261 — 
Commercial agency mortgage-backed securities
4,277,301 — 4,277,301 — 
Other debt securities471 — — 471 
Total available for sale securities13,317,922 504 13,316,947 471 
Fair value option securities – Residential agency mortgage-backed securities60,432 — 60,432 — 
Residential mortgage loans held for sale1
200,842 — 195,692 5,150 
Mortgage servicing rights2
117,629 — — 117,629 
Derivative contracts, net of cash collateral3
1,701,443 7,704 1,693,739 — 
Liabilities: 
Derivative contracts, net of cash collateral3
612,261 218 612,043 — 
1Residential mortgage loans held for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards and are valued at 95.57% of the unpaid principal balance.
2A 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 5, Mortgage Banking Activities.
3See Note 3 for detail of fair value of derivative contracts by contract type. Fair values based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded 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, 2020 (in thousands):
 TotalQuoted 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 securities$9,183 $4,999 $4,184 $— 
Residential agency mortgage-backed securities4,669,148 — 4,669,148 — 
Municipal securities19,172 — 19,172 — 
Other trading securities10,472 — 10,472 — 
Total trading securities4,707,975 4,999 4,702,976 — 
Available for sale securities:    
U.S. Treasury508 508 — — 
Municipal securities167,979 — 167,979 — 
Residential agency mortgage-backed securities9,340,471 — 9,340,471 — 
Residential non-agency mortgage-backed securities32,770 — 32,770 — 
Commercial agency mortgage-backed securities
3,508,465 — 3,508,465 — 
Other debt securities472 — — 472 
Total available for sale securities13,050,665 508 13,049,685 472 
Fair value option securities — Residential agency mortgage-backed securities114,982 — 114,982 — 
Residential mortgage loans held for sale1
252,316 — 245,299 7,017 
Mortgage servicing rights2
101,172 — — 101,172 
Derivative contracts, net of cash collateral3
810,688 10,780 799,908 — 
Liabilities:
Derivative contracts, net of cash collateral3
405,779 — 405,779 — 
1Residential mortgage loans held for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards and are valued at 94.57% of the unpaid principal balance.
2A 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 5, Mortgage Banking Activities.
3See Note 3 for detail of fair value of derivative contracts by contract type. Fair values based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded derivative contracts, net of 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 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 at fair value with changes in the fair value recognized in earnings.

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 Company has elected to carry all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings. 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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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 nonaccruing 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, 2021 for which the fair value was adjusted during the six months ended June 30, 2021:
Fair Value Adjustments for the
 Carrying Value at June 30, 2021Three Months Ended
June 30, 2021 Recognized in:		Six Months Ended
June 30, 2021 Recognized in:
 Quoted Prices
in Active Markets for Identical Instruments		Significant
Other
Observable
Inputs		Significant
Unobservable
Inputs		Gross charge-offs against allowance for loan lossesOther gains (losses), netGross charge-offs against allowance for loan lossesOther gains (losses), net
Nonaccruing loans$— $4,730 $42,453 $17,362 $— $24,721 $— 
Real estate and other repossessed assets
— 1,706 36,010 — (3,966)— (6,166)
 
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, 2020 for which the fair value was adjusted during the six months ended June 30, 2020:
Fair Value Adjustments for the
 Carrying Value at June 30, 2020Three Months Ended
June 30, 2020 Recognized in:		Six Months Ended
June 30, 2020 Recognized in:
 Quoted Prices
in Active Markets for Identical Instruments		Significant
Other
Observable
Inputs		Significant
Unobservable
Inputs		Gross charge-offs against allowance for loan lossesOther gains (losses), netGross charge-offs against allowance for loan lossesOther gains (losses), net
Nonaccruing loans$— $400 $32,448 $13,871 $— $29,659 $— 
Real estate and other repossessed assets
— 918 400 — (5)— (131)

The fair value of collateral-dependent nonaccruing 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 nonaccruing 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.

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A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2021 follows (in thousands):

Fair ValueValuation Technique(s)Unobservable InputRange
(Weighted Average)
Nonaccruing loans$42,453 Discounted cash flowsManagement 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
4% - 96% (47%)1
Real estate and other repossessed assets36,010 Discounted cash flowsManagement knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costsN/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, 2020 follows (in thousands):

Fair ValueValuation Technique(s)Unobservable InputRange
(Weighted Average)
Nonaccruing loans$32,448 Discounted cash flowsManagement 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
—% - 83% (35%)1
Real estate and other repossessed assets400 Appraised value, as adjusted
Marketability adjustments off appraised value2
87% - 87% (87%)
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, 2021 (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$678,998 $678,998 $678,998 $— $— 
Interest-bearing cash and cash equivalents580,457 580,457 580,457 — — 
Trading securities:
U.S. government securities13,481 13,481 4,999 8,482 — 
Residential agency mortgage-backed securities5,577,986 5,577,986 — 5,577,986 — 
Municipal securities49,636 49,636 — 49,636 — 
Other trading securities57,967 57,967 — 57,967 — 
Total trading securities5,699,070 5,699,070 4,999 5,694,071 — 
Investment securities:  
Municipal securities211,725 235,697 — 64,401 171,296 
Residential agency mortgage-backed securities7,863 8,601 — 8,601 — 
Other debt securities1,737 1,736 — 1,736 — 
Total investment securities221,325 246,034 — 74,738 171,296 
Allowance for credit losses(493)— — — — 
Investment securities, net of allowance220,832 246,034 — 74,738 171,296 
Available for sale securities:  
U.S. Treasury504 504 504 — — 
Municipal securities386,509 386,509 — 386,509 — 
Residential agency mortgage-backed securities8,624,876 8,624,876 — 8,624,876 — 
Residential non-agency mortgage-backed securities28,261 28,261 — 28,261 — 
Commercial agency mortgage-backed securities
4,277,301 4,277,301 — 4,277,301 — 
Other debt securities471 471 — — 471 
Total available for sale securities13,317,922 13,317,922 504 13,316,947 471 
Fair value option securities – Residential agency mortgage-backed securities60,432 60,432 — 60,432 — 
Residential mortgage loans held for sale200,842 200,842 — 195,692 5,150 
Loans:  
Commercial12,472,907 12,357,430 — — 12,357,430 
Commercial real estate4,246,992 4,192,793 — — 4,192,793 
Paycheck protection program1,121,583 1,107,172 — — 1,107,172 
Loans to individuals3,574,967 3,570,855 — — 3,570,855 
Total loans21,416,449 21,228,250 — — 21,228,250 
Allowance for loan losses(311,890)— — — — 
Loans, net of allowance21,104,559 21,228,250 — — 21,228,250 
Mortgage servicing rights117,629 117,629 — — 117,629 
Derivative instruments with positive fair value, net of cash collateral
1,701,443 1,701,443 7,704 1,693,739 — 
Deposits with no stated maturity35,534,584 35,534,584 — — 35,534,584 
Time deposits1,905,349 1,908,847 — — 1,908,847 
Other borrowed funds2,276,414 2,273,466 — — 2,273,466 
Subordinated debentures276,043 291,334 — 291,334 — 
Derivative instruments with negative fair value, net of cash collateral
612,261 612,261 218 612,043 — 

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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, 2020 (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$798,757 $798,757 $798,757 $— $— 
Interest-bearing cash and cash equivalents381,816 381,816 381,816 — — 
Trading securities:
U.S. government securities9,183 9,183 4,999 4,184 — 
Residential agency mortgage-backed securities4,669,148 4,669,148 — 4,669,148 — 
Municipal securities19,172 19,172 — 19,172 — 
Other trading securities10,472 10,472 — 10,472 — 
Total trading securities4,707,975 4,707,975 4,999 4,702,976 — 
Investment securities:  
Municipal securities229,245 255,270 — 69,404 185,866 
Residential agency mortgage-backed securities8,913 9,790 — 9,790 — 
Other debt securities7,373 7,371 — 7,371 — 
Total investment securities245,531 272,431 — 86,565 185,866 
Allowance for credit losses(688)— — — — 
Investment securities, net of allowance244,843 272,431 — 86,565 185,866 
Available for sale securities:  
U.S. Treasury508 508 508 — — 
Municipal securities167,979 167,979 — 167,979 — 
Residential agency mortgage-backed securities9,340,471 9,340,471 — 9,340,471 — 
Residential non-agency mortgage-backed securities32,770 32,770 — 32,770 — 
Commercial agency mortgage-backed securities
3,508,465 3,508,465 — 3,508,465 — 
Other debt securities472 472 — — 472 
Total available for sale securities13,050,665 13,050,665 508 13,049,685 472 
Fair value option securities — Residential agency mortgage-backed securities114,982 114,982 — 114,982 — 
Residential mortgage loans held for sale252,316 252,316 — 245,299 7,017 
Loans:  
Commercial13,077,535 13,003,383 — — 13,003,383 
Commercial real estate4,698,538 4,649,763 — — 4,649,763 
Paycheck protection program1,682,310 1,669,461 — — 1,669,461 
Loans to individuals3,549,137 3,563,199 — — 3,563,199 
Total loans23,007,520 22,885,806 — — 22,885,806 
Allowance for loan losses(388,640)— — — — 
Loans, net of allowance22,618,880 22,885,806 — — 22,885,806 
Mortgage servicing rights101,172 101,172 — — 101,172 
Derivative instruments with positive fair value, net of cash collateral
810,688 810,688 10,780 799,908 — 
Deposits with no stated maturity34,176,752 34,176,752 — — 34,176,752 
Time deposits1,967,128 1,976,936 — — 1,976,936 
Other borrowed funds3,545,356 3,542,489 — — 3,542,489 
Subordinated debentures276,005 269,544 — 269,544 — 
Derivative instruments with negative fair value, net of cash collateral
405,779 405,779 — 405,779 — 

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.
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(12) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on June 30, 2021 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q. On July 23, 2021, the Company notified holders that it will exercise its option to redeem all $150 million of its 5.375 percent Subordinated Notes on August 23, 2021. The Company will use existing capital for the redemption. No additional 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, 2021June 30, 2020
Average
Balance		Revenue/
Expense		Yield/
Rate		Average
Balance		Revenue/
Expense		Yield/
Rate
Assets      
Interest-bearing cash and cash equivalents$685,037 $332 0.10 %$670,698 $2,505 0.75 %
Trading securities7,198,206 72,671 2.00 %1,780,875 23,328 2.66 %
Investment securities229,313 5,664 4.94 %275,606 6,548 4.75 %
Available for sale securities13,338,129 117,669 1.84 %12,072,293 138,086 2.39 %
Fair value option securities84,653 898 2.20 %1,290,119 15,818 2.46 %
Restricted equity securities199,358 3,110 3.12 %351,527 7,774 4.42 %
Residential mortgage loans held for sale212,638 2,949 2.81 %209,149 3,263 3.23 %
Loans22,460,418 395,460 3.55 %23,021,258 463,344 4.05 %
Allowance for loan losses(363,898)(308,961)
Loans, net of allowance22,096,520 395,460 3.61 %22,712,297 463,344 4.10 %
Total earning assets
44,043,854 598,753 2.77 %39,362,564 660,666 3.42 %
Receivable on unsettled securities sales726,039 3,836,209 
Cash and other assets5,483,570 4,540,052 
Total assets$50,253,463 $47,738,825 
Liabilities and equity      
Interest-bearing deposits:      
Transaction$21,462,436 $11,862 0.11 %$17,099,912 $45,178 0.53 %
Savings831,366 182 0.04 %610,245 210 0.07 %
Time1,961,329 6,231 0.64 %2,352,014 18,516 1.58 %
Total interest-bearing deposits24,255,131 18,275 0.15 %20,062,171 63,904 0.64 %
Funds purchased and repurchase agreements2,307,562 2,070 0.18 %4,816,213 12,880 0.54 %
Other borrowings3,500,953 6,358 0.37 %5,034,813 31,901 1.27 %
Subordinated debentures276,025 6,700 4.89 %275,940 7,172 5.23 %
Total interest-bearing liabilities30,339,671 33,403 0.22 %30,189,137 115,857 0.77 %
Non-interest bearing demand deposits12,753,715 10,361,090 
Due on unsettled securities purchases807,862 924,377 
Other liabilities1,050,157 1,274,430 
Total equity5,302,058 4,989,791 
Total liabilities and equity$50,253,463 $47,738,825 
Tax-equivalent Net Interest Revenue$565,350 2.55 %$544,809 2.65 %
Tax-equivalent Net Interest Revenue to Earning Assets
2.61 %2.82 %
Less tax-equivalent adjustment4,621 5,345 
Net Interest Revenue560,729 539,464 
Provision for credit losses
(60,000)229,092 
Other operating revenue368,500 413,594 
Other operating expense586,936 564,593 
Income before taxes402,293 159,373 
Federal and state income taxes90,878 33,103 
Net income311,415 126,270 
Net income (loss) attributable to non-controlling interests
(1,066)(502)
Net income attributable to BOK Financial Corp. shareholders
$312,481 $126,772 
Earnings Per Average Common Share Equivalent:
      
Net income:      
Basic $4.50   $1.80  
Diluted $4.50   $1.80  
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, 2021March 31, 2021
Average
Balance		Revenue/
Expense		Yield/
Rate		Average
Balance		Revenue/
Expense		Yield/
Rate
Assets      
Interest-bearing cash and cash equivalents$659,312 $158 0.10 %$711,047 $174 0.10 %
Trading securities7,430,217 36,702 1.95 %6,963,617 35,969 2.06 %
Investment securities, net of allowance221,401 2,771 5.01 %237,313 2,893 4.88 %
Available for sale securities13,243,542 58,989 1.85 %13,433,767 58,680 1.84 %
Fair value option securities64,864 402 2.60 %104,662 496 1.95 %
Restricted equity securities208,692 1,751 3.36 %189,921 1,359 2.86 %
Residential mortgage loans held for sale218,200 1,569 2.91 %207,013 1,380 2.71 %
Loans22,167,089 195,871 3.54 %22,757,007 199,589 3.55 %
Allowance for loan losses(345,269)(382,734)
Loans, net of allowance21,821,820 195,871 3.60 %22,374,273 199,589 3.62 %
Total earning assets
43,868,048 298,213 2.75 %44,221,613 300,540 2.78 %
Receivable on unsettled securities sales716,700 735,482 
Cash and other assets5,612,174 5,353,538 
Total assets$50,196,922 $50,310,633 
Liabilities and equity      
Interest-bearing deposits:      
Transaction$21,491,145 $5,539 0.10 %$21,433,406 $6,323 0.12 %
Savings872,618 96 0.04 %789,656 86 0.04 %
Time1,936,510 2,790 0.58 %1,986,425 3,441 0.70 %
Total interest-bearing deposits24,300,273 8,425 0.14 %24,209,487 9,850 0.17 %
Funds purchased and repurchase agreements1,790,490 722 0.16 %2,830,378 1,348 0.19 %
Other borrowings3,608,369 3,084 0.34 %3,392,346 3,274 0.39 %
Subordinated debentures276,034 3,353 4.87 %276,015 3,347 4.92 %
Total interest-bearing liabilities29,975,166 15,584 0.21 %30,708,226 17,819 0.24 %
Non-interest bearing demand deposits13,189,954 12,312,629 
Due on unsettled securities purchases701,495 915,410 
Other liabilities1,000,662 1,100,203 
Total equity5,329,645 5,274,165 
Total liabilities and equity$50,196,922 $50,310,633 
Tax-equivalent Net Interest Revenue$282,629 2.54 %$282,721 2.54 %
Tax-equivalent Net Interest Revenue to Earning Assets
2.60 %2.62 %
Less tax-equivalent adjustment2,320 2,301 
Net Interest Revenue280,309 280,420 
Provision for credit losses
(35,000)(25,000)
Other operating revenue191,446 177,054 
Other operating expense291,152 295,784 
Income before taxes215,603 186,690 
Federal and state income taxes48,496 42,382 
Net income167,107 144,308 
Net income (loss) attributable to non-controlling interests
686 (1,752)
Net income attributable to BOK Financial Corp. shareholders
$166,421 $146,060 
Earnings Per Average Common Share Equivalent:
      
Basic $2.40   $2.10  
Diluted $2.40   $2.10  
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, 2020September 30, 2020June 30, 2020
Average BalanceRevenue /ExpenseYield / RateAverage BalanceRevenue / ExpenseYield / RateAverage BalanceRevenue / ExpenseYield / Rate
$643,926 $158 0.10 %$553,070 $167 0.12 %$619,737 $112 0.07 %
6,888,189 35,848 2.02 %1,834,160 8,766 1.92 %1,871,647 11,473 2.46 %
251,863 3,071 4.88 %258,965 3,141 4.85 %268,947 3,210 4.77 %
12,949,702 60,885 1.98 %12,580,850 62,433 2.11 %12,480,065 68,358 2.29 %
122,329 671 2.27 %387,784 1,986 1.92 %786,757 4,110 2.00 %
280,428 2,276 3.25 %144,415 913 2.53 %273,922 1,880 2.75 %
229,631 1,549 2.75 %213,125 1,585 3.01 %288,588 2,140 3.10 %
23,447,518 216,976 3.68 %24,110,463 218,125 3.60 %24,099,492 217,731 3.63 %
(414,225)(441,831)(367,583)
23,033,293 216,976 3.75 %23,668,632 218,125 3.67 %23,731,909 217,731 3.69 %
44,399,361 321,434 2.92 %39,641,001 297,116 3.04 %40,321,572 309,014 3.12 %
1,094,198 4,563,301 4,626,307 
4,893,605 4,727,453 4,809,152 
$50,387,164 $48,931,755 $49,757,031 
$20,718,390 $7,047 0.14 %$19,752,106 $8,199 0.17 %$18,040,170 $9,321 0.21 %
737,360 87 0.05 %707,121 88 0.05 %656,669 84 0.05 %
1,930,808 4,300 0.89 %2,251,012 6,371 1.13 %2,464,793 8,340 1.36 %
23,386,558 11,434 0.19 %22,710,239 14,658 0.26 %21,161,632 17,745 0.34 %
2,153,254 1,526 0.28 %2,782,150 1,199 0.17 %5,816,484 2,042 0.14 %
5,193,656 5,453 0.42 %3,382,688 3,657 0.43 %3,527,303 4,954 0.56 %
275,998 3,377 4.87 %275,980 3,395 4.89 %275,949 3,539 5.16 %
31,009,466 21,790 0.28 %29,151,057 22,909 0.31 %30,781,368 28,280 0.37 %
12,136,071 11,929,694 11,489,322 
957,642 1,516,880 887,973 
1,055,623 1,171,064 1,526,754 
5,228,362 5,163,060 5,071,614 
$50,387,164 $48,931,755 $49,757,031 
$299,644 2.64 %$274,207 2.73 %$280,734 2.75 %
2.72 %2.81 %2.83 %
2,414 2,457 2,630 
297,230 271,750 278,104 
(6,500)— 135,321 
198,789 229,938 233,272 
302,672 297,044 295,966 
199,847 204,644 80,089 
45,138 50,552 15,803 
154,709 154,092 64,286 
485 58 (407)
$154,224 $154,034 $64,693 
 $2.21   $2.19   $0.92  
 $2.21   $2.19   $0.92  


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Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
 Three Months Ended
 June 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020
Interest revenue$295,893 $298,239 $319,020 $294,659 $306,384 
Interest expense15,584 17,819 21,790 22,909 28,280 
Net interest revenue280,309 280,420 297,230 271,750 278,104 
Provision for credit losses(35,000)(25,000)(6,500)— 135,321 
Net interest revenue after provision for credit losses
315,309 305,420 303,730 271,750 142,783 
Other operating revenue     
Brokerage and trading revenue29,408 20,782 39,506 69,526 62,022 
Transaction card revenue24,923 22,430 21,896 23,465 22,940 
Fiduciary and asset management revenue44,832 41,322 41,799 39,931 41,257 
Deposit service charges and fees25,861 24,209 24,343 24,286 22,046 
Mortgage banking revenue21,219 37,113 39,298 51,959 53,936 
Other revenue23,172 16,296 14,209 13,698 11,479 
Total fees and commissions169,415 162,152 181,051 222,865 213,680 
Other gains, net16,449 10,121 7,394 2,044 7,347 
Gain (loss) on derivatives, net18,820 (27,650)(339)2,354 21,885 
Gain (loss) on fair value option securities, net(1,627)(1,910)68 (754)(14,459)
Change in fair value of mortgage servicing rights(13,041)33,874 6,276 3,441 (761)
Gain (loss) on available for sale securities, net1,430 467 4,339 (12)5,580 
Total other operating revenue191,446 177,054 198,789 229,938 233,272 
Other operating expense     
Personnel172,035 173,010 176,198 179,860 176,235 
Business promotion2,744 2,154 3,728 2,633 1,935 
Charitable contributions to BOKF Foundation— 4,000 6,000 — 3,000 
Professional fees and services12,361 11,980 14,254 14,074 12,161 
Net occupancy and equipment26,633 26,662 27,875 28,111 30,675 
Insurance3,660 4,620 4,006 5,848 5,156 
Data processing and communications36,418 37,467 35,061 34,751 32,942 
Printing, postage and supplies4,285 3,440 3,805 3,482 3,502 
Amortization of intangible assets4,578 4,807 5,088 5,071 5,190 
Mortgage banking costs11,126 13,943 14,765 15,803 15,598 
Other expense17,312 13,701 11,892 7,411 9,572 
Total other operating expense291,152 295,784 302,672 297,044 295,966 
Net income before taxes215,603 186,690 199,847 204,644 80,089 
Federal and state income taxes48,496 42,382 45,138 50,552 15,803 
Net income167,107 144,308 154,709 154,092 64,286 
Net income (loss) attributable to non-controlling interests
686 (1,752)485 58 (407)
Net income attributable to BOK Financial Corporation shareholders
$166,421 $146,060 $154,224 $154,034 $64,693 
Earnings per share:     
Basic$2.40$2.10$2.21$2.19$0.92
Diluted$2.40$2.10$2.21$2.19$0.92
Average shares used in computation:
Basic68,815,666 69,137,375 69,489,597 69,877,866 69,876,043 
Diluted68,817,442 69,141,710 69,493,050 69,879,290 69,877,467 


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PART II. Other Information

Item 1. Legal Proceedings
 
See discussion of legal proceedings at Note 6 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, 2021.
 
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, 2021170,000 $88.70 170,000 2,596,187 
May 1 to May 31, 2021227,994 $88.82 227,994 2,368,193 
June 1 to June 30, 202195,000 $89.14 95,000 2,273,193 
Total492,994  492,994  
1On April 30, 2019, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock. As of June 30, 2021, the Company had repurchased 2,726,807 shares under this plan. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors.
2The Company may repurchase mature shares from employees to cover the exercise price and taxes in connection with employee equity compensation.
Item 6. Exhibits

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

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

32Certification 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

101Interactive 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. The XBRL instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

104    Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

Items 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:        August 4, 2021                                                                  


/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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