0000875357 bokf:MisuseofRevenuesPledgedtoMunicipalBondsMember us-gaap:JudicialRulingMember 2019-03-31




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


FORM 10-Q
(Mark One) 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018March 31, 2019
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ______________                 


Commission File No. 0-19341


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


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


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


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


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


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


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


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 65,439,09071,449,982 shares of common stock ($.00006 par value) as of June 30, 2018.March 31, 2019.







BOK Financial Corporation
Form 10-Q
Quarter Ended June 30, 2018March 31, 2019


Index


Part I.  Financial Information
Management’s Discussion and Analysis (Item 2)        
1
Market Risk (Item 3)                                                                                              
4337
Controls and Procedures (Item 4)
4640
Consolidated Financial Statements – Unaudited (Item 1)
4841
Quarterly Financial Summary – Unaudited (Item 2)
12093
Quarterly Earnings Trend – Unaudited
12397
  
Part II.  Other Information
Item 1.  Legal Proceedings
12397
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
12397
Item 6.  Exhibits
12397
Signatures
12498





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


BOK Financial Corporation (“the Company”) reported net income of $114.4110.6 million or $1.75$1.54 per diluted share for the secondfirst quarter of 2018, compared to $88.1 million or $1.35 per diluted share for the second quarter of 2017 and2019. Net income was $105.6 million or $1.61 per diluted share for the first quarter of 2018.  and $108.5 million or $1.50 per diluted share for the fourth quarter of 2018. 


On June 18,October 1, 2018, the Company announced the signing of a definitive merger agreement withacquired CoBiz Financial, Inc. CoBiz is headquartered("CoBiz"). We incurred $12.7 million of integration costs in Denver withthe first quarter of 2019 and $14.5 million in the fourth quarter of 2018, resulting in a presenceper share reduction of 13 cents and 15 cents, respectively. The fluctuation discussion in Colorado and Arizona and has approximately $3.8 billion in assets. Upon completionthe highlights below excludes the impact of the merger, CoBiz shareholders will receive 0.17 shares of BOK Financial common stock and $5.70 in cash for each share of CoBiz common stock. The merger is subject to customary closing conditions including regulatory approval.these items.


Highlights of the secondfirst quarter of 20182019 included:
Net interest revenue totaled $238.6$278.1 million, up from $205.2$58.4 million inover the second quarter of 2017 and $219.7 million in the first quarter of 2018.2018. CoBiz added $42.8 million to net interest revenue. The remaining increase in net interest revenue over the prior year was driven by both improving yields and growth in average earning assets.assets and improving yields. Net interest margin was 3.173.30 percent for the secondfirst quarter of 2018. Net interest margin was 2.89 percent for the second quarter of 2017 and2019 compared to 2.99 percent for the first quarter of 2018.2018. Average earning assets were $30.3$34.4 billion for the secondfirst quarter of 20182019 compared to $29.2$29.9 billion for the secondfirst quarter of 2017.
2018. Net interest revenue decreased $7.6 million compared to the fourth quarter of 2018. Net interest margin decreased by 10 basis points. A decrease in average non-interest bearing demand deposits and an increase in average trading securities and related receivables combined to decrease net interest revenue and to compress the net interest margin.
Fees and commissions revenue totaled $157.9 million. Adoption$160.6 million, an increase of the new revenue recognition accounting standard in the first quarter of 2018 resulted in interchange fees we pay to issuing banks being netted against transaction card revenue. Previously these fees were included in data processing and communications expense. Excluding this impact, fees and commissions revenue decreased $9.4 million compared to the second quarter of 2017. Brokerage and trading revenue decreased $5.3 million while mortgage banking revenue decreased $3.9 million, both affected by rising interest rates. Fees and commissions revenue decreased $1.1 million$938 thousand compared to the first quarter of 2018. Modest changesIncreases in revenue from other business lines wasbrokerage and trading, fiduciary and asset management and deposit service charges were partially offset by decreased mortgage banking revenue. Fees and commissions revenue were consistent with the fourth quarter of 2018. Increases in brokerage and trading and mortgage banking revenue were offset by a decrease in other revenue.
Other operating expense totaled $246.5$274.4 million, a $5.8$30.0 million or 2 percent increase over the secondfirst quarter of 2017 on a comparable basis. Personnel2018. Expenses related to CoBiz operations added $26.6 million in the first quarter of 2019. Excluding CoBiz operations, personnel expense decreased $4.8increased $9.6 million, primarily due to decreased incentive compensation expense.an increase in regular and share-based compensation. Non-personnel expense decreased $6.4 million, largely due to a decrease in net losses and expenses related to repossessed assets. Operating expense increased $10.6$4.3 million over the fourth quarter of 2018. Personnel expense increased $10.9 million, primarily due largely to an increase in deposit insuranceshare-based compensation expense asdue to changes in vesting assumptions. Non-personnel expense decreased $6.6 million.
The Company recorded a resultprovision for credit losses of credits$8.0 million in the second quarter of 2017 along with increased project and acquisition costs. Operating expense increased $2.0 million compared to the first quarter of 2018 on a comparable basis. Personnel expense decreased $1.02019 and $9.0 million and non-personnel expense increased $3.0 million. Professional fees and services expense and mortgage banking costs were higher in the second quarter.
Income tax expense was $33.3 million or 22.4 percent of net income before taxes for the second quarter of 2018 compared to $47.7 million or 34.9 percent for the second quarter of 2017. Beginning January 1, 2018, the Tax Cuts and Jobs Act ("the Act") decreased the corporate income tax rate from 35% to 21%.
The Company recorded no provision for credit losses in the secondfourth quarter of 2018. A $5.0 million negative provision for credit lossesof $5.0 million was recorded in the first quarter of 2018. Nonperforming assets not guaranteed by U.S. government agencies decreased $10.8 million compared to December 31, 2018. Potential problem loans decreased $46 million while other loans especially mentioned increased $14 million. Net charge-offs totaled $10.5were $10.1 million or 0.240.19 percent of average loans on an annualized basis infor the secondfirst quarter of 20182019, compared to net charge-offs of $1.3$12.3 million or 0.03 percent0.23% of average loans on an annualized basis for the firstfourth quarter of 2018. Net charge-offs were $26.9 million or 0.16 percent of average loans over the last four quarters.
The combined allowance for credit losses totaled $218$207 million or 1.21 percent of outstanding loans at June 30, 2018 compared to $228 million or 1.320.95 percent of outstanding loans at March 31, 2018.
Nonperforming assets that are not guaranteed by U.S. government agencies totaled $1862019 compared to $209 million or 1.040.97 percent of outstanding loans and repossessed assets at June 30, 2018 and $195 million or 1.13 percent of outstanding loans and repossessed assets at MarchDecember 31, 2018. Potential problem loans decreased $82 million to $140 million at June 30, 2018.
Average loan balances grew by $490 million over the previous quarter, primarily due to growth in commercial and commercial real estate loan balances. Period-end outstanding loan balances totaled $18.0$21.8 billion at June 30, 2018,March 31, 2019, an increase of more than $665$102 million over MarchDecember 31, 2018.


AveragePeriod-end deposits were largely unchanged$25.3 billion at March 31, 2019, a $68 million increase compared to the previous quarter. AverageDecember 31, 2018. Interest-bearing transaction deposits increased $270 million while demand deposit balances decreased $318 million. Savings and time deposits balances increased $72 million, while interest-bearing transaction deposit balances decreased $155$116 million. Period-end deposits were $22.2 billion at June 30, 2018, a $36 million decrease compared to March 31, 2018.
The common equity Tier 1 capital ratio at June 30, 2018March 31, 2019 was 11.9210.71 percent. Other regulatory capital ratios were Tier 1 capital ratio, 11.9210.71 percent, total capital ratio, 13.2612.24 percent, and leverage ratio, 9.578.76 percent. At MarchDecember 31, 2018, the common equity Tier 1 capital ratio was 12.0610.92 percent, the Tier 1 capital ratio was 12.0610.92 percent, total capital ratio was 13.4912.50 percent, and leverage ratio was 9.408.96 percent.



•
The Company repurchased 705,609 shares at an average price of $85.85 per share during the first quarter of 2019 and 525,000 thousand shares at an average price of $85.82 in the fourth quarter of 2018.
The company paid a regular cash dividend of $29.3$35.9 million or $0.45$0.50 per common share during the secondfirst quarter of 2018.2019. On July 24, 2018,April 30, 2019, the board of directors approved an increase in thea quarterly cash dividend toof $0.50 per common share payable on or about August 27, 2018May 28, 2019 to shareholders of record as of AugustMay 13, 2018.2019.
The company repurchased 8,257 common shares at an average price of $99.84 per share during the second quarter of 2018. The company repurchased 82,583 common shares at an average price of $91.83 per share during the first quarter of 2018.




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.


NetTax-equivalent net interest revenue totaled $238.6$281.3 million for the second quarter of 2018, up from $205.2 million in the second quarter of 2017 and $219.7 million in the first quarter of 2018. Net interest margin was 3.17 percent for the second quarter of 2018, 2.89 percent for the second quarter of 2017 and 2.99 percent for the first quarter of 2018. Recoveries of foregone interest on nonaccruing loans added $5.32019, up from $221.7 million or 7 basis points to net interest margin in the second quarter of 2018. Recoveries of foregone interest were not significant in the first quarter of 2018 or2018. CoBiz added $42.8 million to net interest revenue, including $7.8 million of net purchase accounting discount accretion in the secondfirst quarter of 2017. The discussion following excludes the impact of recoveries of foregone2019. Net interest revenue increased $15.6 million primarily due to three 25 basis point increases in the secondfederal funds rate by the Federal Reserve since the end of the first quarter of 2018 on net interest margin.

In addition to the impact of foregone interest recoveries on the second quarter of 2018, net interest margin was 4 basis points lower in the second quarter of 2018 compared to the second quarter of 2017and $43.9 million primarily due to the impact of lower effective tax rates from the implementation of the Tax Cut and Jobs Act on the tax-equivalent yield of our tax-exempt loans and securities. However, net interest margin was 4 basis points highergrowth in the second quarter of 2018 as we reduced our excess cashaverage loan balances, at the Federal Reserve. Beginning in 2014, the Company increased borrowings from the Federal Home Loan Banks, depositing the excess cash balances in the Federal Reserve to earn a spread. In conjunction with the Federal Reserve's monetary policy normalization, this spread narrowed in the second quarter of 2018.

Tax-equivalent net interest revenue increased $31.0 million over the second quarter of 2017.including acquired loans. Table 1 shows the effect on net interest revenue from changes in average balances and interest rates for various types of earning assets and interest-bearing liabilities. Changes in

Net interest rates and yields increased net interest revenue by $20.5 million. The benefitmargin was 3.30 percent for the first quarter of an increase in short-term interest rates on2019, compared to 2.99 percent for the floating-rate earning assets was partially offset by higher borrowing costs. Tax-equivalent net interest revenue increased $10.5 million due to growth in average assets. Growth in the average balancesfirst quarter of trading securities and loans was partially offset by decreases in interest-bearing cash and cash equivalents.

2018. The tax-equivalent yield on earning assets was 3.844.46 percent, up 5485 basis points over the secondfirst quarter of 2017,2018. Loan yields increased 81 basis points to 5.26 percent primarily due to increasesan increase in short-term interest rates resulting from three 25 basis point increases in the federal funds rate by the Federal Reserve. Loan yields increased 65 basis points to 4.68 percent.rates. The yield on interest-bearing cash and cash equivalents increased 8299 basis points to 2.56 percent. Yield on trading securities increased 48 basis points. The available for sale securities portfolio yield was up 19increased 34 basis points to 2.30 percent.2.57 percent and the yield on fair value option securities was up 67 basis points. Funding costs were up 4873 basis points over the secondfirst quarter of 2017.2018. The cost of interest-bearing deposits increased 2647 basis points and the cost of other borrowed funds increased 82104 basis points. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 3750 basis points for the secondfirst quarter of 2018,2019, up 1519 basis points over the secondfirst quarter of 2017.2018.

Average earning assets for the secondfirst quarter of 20182019 increased $1.1$4.5 billion or 415 percent over the secondfirst quarter of 2017.2018. Average loans, net of allowance for loan losses, increased $4.5 billion, including acquired loans. The legacy BOKF portfolio grew $1.6 billion mainly due to growth in commercial and commercial real estate loans. Available for sale securities increased $646 million. The average balance of trading securities grew by $1.0 billion, primarily due to expansion of U.S. agency residential mortgage-backed securities trading activities. Average loans, net of allowance for loan losses, increased $650 million, due primarily to growth in commercial loans. Restricted equity security balances were up $53 million. Interest-bearing cash and cash equivalent balances decreased $334 million. Available for sale securities decreased$221 million. Investment securities$1.5 billion. The Company reduced excess cash balances decreased $100 million.held at the Federal Reserve, including cash used in our purchase of CoBiz.


Average deposits decreased $37 millionincreased $2.5 billion compared to the secondfirst quarter of 2017. Demand2018, including $3.2 billion related to CoBiz. Excluding acquired deposits, demand deposit balances decreased $115$694 million and time deposit balancesdeposits decreased $66 million. Interest-bearing transaction account balances increased $102 million and savings account balances increased $42$72 million. Average borrowed funds increased $1.0$2.2 billion over the secondfirst quarter of 2017,2018, primarily due to the net impact of increased borrowings from the Federal Home Loan Banks. Fundsfunds purchased and repurchase agreement balances also increased overbalances.
Tax-equivalent net interest revenue decreased $7.5 million compared to the prior year.



fourth quarter of 2018. Net interest margin decreased 10 basis points compared to the fourth quarter of 2018. A decrease in average non-interest bearing demand deposits and an increase in average trading securities and related receivables combined to decrease net interest revenue and to compress the net interest margin. Due to the nature of trading activity, the increase in revenue associated with the increase in trading securities is recognized as brokerage and trading revenue, while the related funding costs remain in interest expense.
The yield on average earning assets was 3.84 percent, a 23up 13 basis point increasepoints over the prior quarter. The loan portfolio yield also increased 2317 basis points. The yield on interest-bearing cash and cash equivalents increased 33 basis points. The yield on the trading securities portfolio was down 22 basis points to 4.68 percent. Theand the yield on the available for sale securities portfolio increased 7 basis points to 2.30 percent. The yield on interest-bearing cash and cash equivalents increased 296 basis points. Funding costs were 1.111.66 percent, up 1824 basis points. The cost of interest-bearing deposits increased 917 basis points to 0.661.04 percent. The cost of other borrowed funds was up 3421 basis points to 1.842.54 percent. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities increased 61 basis pointspoint over the prior quarter.
Average earning assets increased $423$675 million overcompared to the firstfourth quarter of 2018. Trading securities balances increased $549 million. Average loan balances grew by $490$187 million. Average interest-bearing cash and cash equivalents balances decreased $386 million. Fairfair value option securities held as an economic hedge of our mortgage servicing rights decreased $139increased $317 million. AvailableAverage available for sale securities decreased $74increased $178 million. Trading securities balances increased $39 million.


Average depositsdeposit balances decreased $72$481 million compared to the previous quarter. Interest-bearingfourth quarter of 2018. Demand deposit balances decreased $661 million, partially offset by an increase in interest-bearing transaction account balances decreased by $155 million. Demand deposit balances increased $72of $158 million. The average balance of borrowed funds increased $231 million over the first quarter of 2018,$1.5 billion. The decrease in non-interest bearing demand deposits appears to have been driven primarily dueby seasonal factors along with commercial customers putting their cash to increased borrowings from the Federal Home Loan Banks and funds purchased and repurchase agreement balances.use.


Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates as is further described in the Market Risk section of this report. Approximately 82%77% of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will reprice within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that reprice more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that assets generally reprice more quickly than liabilities. One of the strategies that we use to manage toward a relative rate-neutral position is to purchase fixed-rate residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market-rate-sensitive liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also may use derivative instruments to manage our interest rate risk. For the remainder of 2018, we expect low-to-mid single digit expansion in net interest margin for each 25 basis point increase in the federal funds rate.


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




Table 1 -- Volume/Rate Analysis
(In thousands)
 Three Months Ended
June 30, 2018 / 2017		 Six Months Ended
June 30, 2018 / 2017		 Three Months Ended
March 31, 2019 / 2018
   
Change Due To1
   
Change Due To1
   
Change Due To1
 Change Volume Yield/Rate Change Volume Yield/Rate Change Volume Yield/Rate
Tax-equivalent interest revenue:                  
Interest-bearing cash and cash equivalents $2,542
 $(1,215) $3,757
 $6,280
 $(1,190) $7,470
 $(4,585) $(7,753) $3,168
Trading securities 9,567
 8,625
 942
 12,007
 12,203
 (196) 10,981
 9,224
 1,757
Investment securities:            
Taxable securities (86) (24) (62) (143) 45
 (188)
Tax-exempt securities (661) (609) (52) (1,346) (1,160) (186)
Total investment securities (747) (633) (114) (1,489) (1,115) (374)
Available for sale securities:            
Taxable securities 4,402
 247
 4,155
 7,290
 (1,009) 8,299
Tax-exempt securities (584) (354) (230) (1,119) (681) (438)
Total available for sale securities 3,818
 (107) 3,925
 6,171
 (1,690) 7,861
Investment securities 317
 (966) 1,283
Available for sale securities 10,873
 2,780
 8,093
Fair value option securities 388
 93
 295
 2,827
 1,725
 1,102
 418
 (597) 1,015
Restricted equity securities 1,009
 817
 192
 1,817
 1,376
 441
 1,228
 811
 417
Residential mortgage loans held for sale (53) (260) 207
 (45) (438) 393
 (181) (549) 368
Loans 40,127
 6,745
 33,382
 65,682
 8,062
 57,620
 92,754
 53,853
 38,901
Total tax-equivalent interest revenue 56,651
 14,065
 42,586
 93,250
 18,933
 74,317
 111,805
 56,803
 55,002
Interest expense:                  
Transaction deposits 7,556
 164
 7,392
 13,836
 (29) 13,865
 16,210
 2,736
 13,474
Savings deposits —
 4
 (4) 1
 9
 (8) 72
 12
 60
Time deposits 785
 (193) 978
 1,369
 (492) 1,861
 2,916
 3
 2,913
Funds purchased and repurchase agreements 618
 81
 537
 1,044
 39
 1,005
 9,834
 4,561
 5,273
Other borrowings 16,637
 3,532
 13,105
 29,831
 5,223
 24,608
 21,527
 3,746
 17,781
Subordinated debentures 45
 (1) 46
 23
 1
 22
 1,742
 1,796
 (54)
Total interest expense 25,641
 3,587
 22,054
 46,104
 4,751
 41,353
 52,301
 12,854
 39,447
Tax-equivalent net interest revenue 31,010
 10,478
 20,532
 47,146
 14,182
 32,964
 59,504
 43,949
 15,555
Change in tax-equivalent adjustment (2,348)     (4,766)     1,138
    
Net interest revenue $33,358
     $51,912
     $58,366
    
1 
Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.




Other Operating Revenue


Other operating revenue was $156.4$157.3 million for the secondfirst quarter of 2018,2019, a $15.6$1.3 million decrease compared toincrease over the second quarter of 2017 and largely unchanged compared to the first quarter of 2018. Fees and commissionsa $20.8 million increase over the fourth quarter of 2018. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other operating revenue decreased $9.4by $6.6 million in the first quarter of 2018 and $12.4 million in the fourth quarter of 2018. In addition, other net gains and losses improved $11.3 million compared to the secondfourth quarter of 2017 and was very consistent compared2018, largely related to the prior quarter. assets held to offset changes in deferred compensation.


Table 2 – Other Operating Revenue 
(In thousands)
  Three Months Ended
June 30,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Mar 31, 2018 Increase (Decrease) % Increase (Decrease)
  2018 2017     
Brokerage and trading revenue $26,488
 $31,764
 $(5,276) (17)% $30,648
 $(4,160) (14)%
Transaction card revenue1
 20,975
 20,009
 966
 5 % 20,990
 (15) — %
Fiduciary and asset management revenue 41,699
 41,808
 (109) — % 41,832
 (133) — %
Deposit service charges and fees 27,827
 28,422
 (595) (2)% 27,161
 666
 2 %
Mortgage banking revenue 26,346
 30,276
 (3,930) (13)% 26,025
 321
 1 %
Other revenue 14,518
 14,984
 (466) (3)% 12,330
 2,188
 18 %
Total fees and commissions revenue 157,853
 167,263

(9,410) (6)% 158,986

(1,133) (1)%
Other gains (losses), net 3,983
 6,108
 (2,125) N/A
 (664) 4,647
 N/A
Loss on derivatives, net (3,057) 3,241
 (6,298) N/A
 (5,685) 2,628
 N/A
Loss on fair value option securities, net (3,341) 1,984
 (5,325) N/A
 (17,564) 14,223
 N/A
Change in fair value of mortgage servicing rights 1,723
 (6,943) 8,666
 N/A
 21,206
 (19,483) N/A
Gain (loss) on available for sale securities, net (762) 380
 (1,142) N/A
 (290) (472) N/A
Total other operating revenue $156,399
 $172,033
 $(15,634) (9)% $155,989
 $410
 — %
               
Non-GAAP Reconciliation:1
              
Transaction card revenue on income statement $20,975
 $30,228
 N/A
 N/A
 $20,990
 N/A
 N/A
Netting adjustment —
 (10,219) N/A
 N/A
 —
 N/A
 N/A
Transaction card revenue after netting adjustment $20,975
 $20,009
 966
 5 % $20,990
 (15) — %
1
Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and communications expense. This measure has no effect on net income or earnings per share.

  Three Months Ended
March 31,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Dec. 31, 2018 Increase (Decrease) % Increase (Decrease)
  2019 2018     
Brokerage and trading revenue $31,617
 $30,648
 $969
 3 % $28,101
 $3,516
 13 %
Transaction card revenue 20,738
 20,990
 (252) (1)% 20,664
 74
 — %
Fiduciary and asset management revenue 43,358
 41,832
 1,526
 4 % 43,665
 (307) (1)%
Deposit service charges and fees 28,243
 27,161
 1,082
 4 % 29,393
 (1,150) (4)%
Mortgage banking revenue 23,834
 26,025
 (2,191) (8)% 21,880
 1,954
 9 %
Other revenue 12,762
 12,958
 (196) (2)% 16,404
 (3,642) (22)%
Total fees and commissions revenue 160,552
 159,614

938
 1 % 160,107

445
 — %
Other gains (losses), net 2,976
 (1,292) 4,268
 N/A
 (8,305) 11,281
 N/A
Loss on derivatives, net 4,667
 (5,685) 10,352
 N/A
 11,167
 (6,500) N/A
Gain (loss) on fair value option securities, net 9,665
 (17,564) 27,229
 N/A
 (282) 9,947
 N/A
Change in fair value of mortgage servicing rights (20,666) 21,206
 (41,872) N/A
 (24,233) 3,567
 N/A
Gain (loss) on available for sale securities, net 76
 (290) 366
 N/A
 (1,999) 2,075
 N/A
Total other operating revenue $157,270
 $155,989
 $1,281
 1 % $136,455
 $20,815
 15 %
               
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 4037 percent of total revenue for the secondfirst quarter of 2018,2019, excluding provision for credit losses and gains and losses on other assets, securities and derivatives and the change in the fair value of mortgage servicing rights. We believe that a variety of fee revenue sources provides an offset to changes in interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be volatile. As an example of this strength, many of the economic factors such as rising interest rates resulting in growth in net interest revenue or fiduciary and asset management revenue, may also decrease mortgage production volumes. We expect growth in other operating revenue to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.




Brokerage and Trading Revenue


Brokerage and trading revenue, which includes revenues from trading, customer hedging, retail brokerage and investment banking, decreased $5.3 millionincreased $969 thousand or 173 percent compared to the secondfirst quarter of 2017.2018.



Trading revenue includes net realized and unrealized gains and losses primarily related to sales of U.S. government securities, residential mortgage-backed securities guaranteed by U.S. government agencies, municipal securities and municipalasset-backed securities to institutional customers and related derivative instruments. Trading revenue was $6.3$12.9 million for the secondfirst quarter of 2018,2019, a $3.7$2.5 million or 3724 percent decreaseincrease compared to the secondfirst quarter of 2017. Rising mortgage interest rates narrowed trading margins and slowed turnover of our trading inventory. However, the longer average hold time of2018. Average trading securities increased net interest revenue by $3.1 million.$1.0 billion compared to the first quarter of 2018.


Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Derivative Programs in Note 3 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Customer hedging revenue totaled $9.8$6.7 million for the secondfirst quarter of 2018,2019, a $1.8$4.2 million or 1639 percent decrease compared to the secondfirst quarter of 2017.

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

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

Brokerage and trading revenue decreased $4.2increased $3.5 million compared to the firstprevious quarter, of 2018, largely driven by a decrease in trading revenue due primarily to customer reaction to higher interest rates.

Transaction Card Revenue

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


Fiduciary and Asset Management Revenue


Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing transactions or providing related services. Approximately 80 percent of fiduciary and asset management revenue is primarily based on the fair value of assets. Rates applied to asset values vary based on the nature of the relationship. Fiduciary relationships and managed asset relationships generally have higher fee rates than non-fiduciary and/or managed relationships. Fiduciary and asset management revenue increased $1.5 million or 4 percent over the first quarter of 2018 and was largely unchangedconsistent compared to the secondfourth quarter of 2017 and the first quarter of 2018.2018.




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


Table 3 -- Assets Under Management or Administration
Three Months EndedThree Months Ended
June 30, 2018 June 30, 2017 Mar. 31, 2018March 31, 2019 March 31, 2018 December 31, 2018
Balance 
Revenue1
 
Margin2
 Balance 
Revenue1
 
Margin2
 Balance 
Revenue1
 
Margin2
Balance 
Revenue1
 
Margin2
 Balance 
Revenue1
 
Margin2
 Balance 
Revenue1
 
Margin2
Managed fiduciary assets:                                  
Personal$7,791,094
 $23,307
 1.20% $7,581,555
 $21,698
 1.14% $7,577,717
 22,632
 1.19%$8,428,218
 $23,276
 1.10% $7,577,717
 $22,632
 1.19% $8,115,503
 $23,773
 1.17%
Institutional13,448,068
 5,596
 0.17% 12,265,037
 5,475
 0.18% 13,322,472
 5,469
 0.16%14,026,020
 6,138
 0.18% 13,322,472
 5,469
 0.16% 13,119,497
 5,918
 0.18%
Total managed fiduciary assets21,239,162
 28,903
 0.54% 19,846,592
 27,173
 0.55% 20,900,189
 28,101
 0.54%22,454,238
 29,414
 0.52% 20,900,189
 28,101
 0.54% 21,235,000
 29,691
 0.56%
                                  
Non-managed assets:                                  
Fiduciary25,292,738
 12,426
 0.20% 25,242,561
 14,049
 0.22% 25,748,101
 12,997
 0.20%23,946,911
 13,528
 0.23% 25,748,101
 12,997
 0.20% 23,606,339
 13,454
 0.23%
Non-fiduciary16,422,810
 370
 0.01% 16,579,586
 586
 0.01% 16,321,458
 734
 0.02%16,215,999
 416
 0.01% 16,321,458
 734
 0.02% 15,964,854
 521
 0.01%
Safekeeping and brokerage assets under administration15,918,736
 —
 —% 16,143,023
 —
 —% 15,909,241
 —
 —%16,235,136
 —
 —% 15,909,241
 —
 —% 15,473,584
 —
 —%
Total non-managed assets57,634,284
 12,796
 0.09% 57,965,170
 14,635
 0.10% 57,978,800
 13,731
 0.09%56,398,046
 13,944
 0.10% 57,978,800
 13,731
 0.09% 55,044,777
 13,975
 0.10%
                                  
Total assets under management or administration$78,873,446
 $41,699
 0.21% $77,811,762
 $41,808
 0.21% $78,878,989
 $41,832
 0.21%$78,852,284
 $43,358
 0.22% $78,878,989
 $41,832
 0.21% $76,279,777
 $43,666
 0.23%
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,March 31, 2019 and 2018 and 2017 follows:


Table 4 -- Changes in Assets Under Management or Administration
 Three Months Ended
June 30,		 Three Months Ended
March 31,
 2018 2017 2019 2018
Beginning balance $78,878,989
 $77,418,956
 $76,279,777
 $81,827,797
Net inflows (outflows) (746,477) (918,076) (989,398) (3,434,649)
Net change in fair value 740,934
 1,310,882
 3,561,905
 485,841
Ending balance $78,873,446
 $77,811,762
 $78,852,284
 $78,878,989


Mortgage Banking Revenue


Mortgage banking revenue decreased $3.9$2.2 million or 138 percent compared to the secondfirst quarter of 2017 due to a decrease in mortgage production revenue.2018. Mortgage loan production volumes decreased $157$127 million or 18 percent. Production volumes decreased compared to the prior year17 percent as average primary mortgage interest rates were up 56 basis points over the second quarter of 2017. have increased.

Mortgage servicingbanking revenue was relatively consistentincreased $2.0 million or 9 percent compared to the secondfourth quarter of 2017. The outstanding principal balance of2018. Lower mortgage loans serviced for others totaled $22.0 billion, consistent withinterest rates during the second quarter of 2017.led to an increase in mortgage applications.





Table 5 – Mortgage Banking Revenue 
(In thousands)
 Three Months Ended
June 30,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Mar. 31, 2018 Increase (Decrease) % Increase (Decrease) Three Months Ended
March 31,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Dec. 31, 2018 Increase (Decrease) % Increase (Decrease)
 2018 2017  2019 2018 
Mortgage production revenue $9,915
 $13,840
 $(3,925) (28)% $9,452
 $463
 5 % $7,868
 $9,452
 $(1,584) (17)% $5,073
 $2,795
 55 %
                            
Mortgage loans funded for sale $773,910
 $902,978
 

 

 $664,958
     $510,527
 $664,958
 

 

 $497,353
    
Add: Current period end outstanding commitments 251,231
 362,088
     298,318
     263,434
 298,318
     160,848
    
Less: Prior period end outstanding commitments 298,318
 381,732
     222,919
     160,848
 222,919
     197,752
    
Total mortgage production volume $726,823
 $883,334
 $(156,511) (18)% $740,357
 $(13,534) (2)% $613,113
 $740,357
 $(127,244) (17)% $460,449
 $152,664
 33 %
                            
Mortgage loan refinances to mortgage loans funded for sale 22% 33% (1,100) bps   42% (2,000) bps   30% 42% (1,200) bps   23% 700 bps  
Gains on sale margin 1.36% 1.57% (21) bps   1.28% 8 bps   1.28% 1.28% —
   1.10% 18 bps  
Primary mortgage interest rates:                            
Average 4.54% 3.98% 56 bps   4.28% 26 bps   4.37% 4.28% 9 bps   4.78% (41) bps  
Period end 4.55% 3.88% 67 bps   4.44% 11 bps   4.06% 4.44% (38) bps   4.55% (49) bps  
                            
Mortgage servicing revenue $16,431
 $16,436
 $(5) — % $16,573
 $(142) (1)% $15,966
 $16,573
 $(607) (4)% $16,807
 $(841) (5)%
Average outstanding principal balance of mortgage loans serviced for others 21,986,065
 22,055,127
 (69,062) — % 22,027,726
 (41,661) — % 21,581,835
 22,027,726
 (445,891) (2)% 21,706,541
 (124,706) (1)%
                            
Average mortgage servicing revenue rates 0.30% 0.30% —
   0.31% (1) bp   0.30% 0.31% (1) bp   0.31% (1) bp  
1
Actual interest earned on fair value option securities less internal transfer-priced cost of funds.


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


Net gains on other assets, securities and derivatives


Other net gains totaled $4.0$3.0 million in the secondfirst quarter of 20182019 compared to net gainslosses of $6.1$1.3 million in the second quarter of 2017. The second quarter of 2017 included the sale of a merchant banking investment. Other net losses totaled $664 thousand in the first quarter of 2018. Other net losses totaled $8.3 million in the fourth quarter of 2018. These fluctuations are primarily related to changes in the fair value of investments related to deferred compensation that are largely offset by deferred compensation expense.


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.




Table 6 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 Three Months Ended Three Months Ended
 June 30, 2018 Mar. 31, 2018 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Mar. 31, 2018
Gain (loss) on mortgage hedge derivative contracts, net $(3,070) $(5,698) $3,241
 $4,432
 $12,162
 $(5,698)
Gain (loss) on fair value option securities, net (3,341) (17,564) 1,984
 9,665
 (282) (17,564)
Gain (loss) on economic hedge of mortgage servicing rights, net (6,411) (23,262) 5,225
 14,097
 11,880
 (23,262)
Gain (loss) on change in fair value of mortgage servicing rights 1,723
 21,206
 (6,943) (20,666) (24,233) 21,206
Loss on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue (4,688) (2,056) (1,718)
Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue (6,569) (12,353) (2,056)
Net interest revenue on fair value option securities1
 1,203
 1,800
 1,965
 1,129
 695
 1,800
Total economic benefit (cost) of changes in the fair value of mortgage servicing rights, net of economic hedges $(3,485) $(256) $247
 $(5,440) $(11,658) $(256)
1
Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

1 Actual interest earned on fair value option securities less internal transfer-priced cost of funds.
During the second quarter of 2018, we changed certain assumptions used in our prepayment speed model to better align with current market expectations. During the second quarter of 2018 the fair value of our mortgage servicing rights was reduced by $3.7 million due primarily to an update of assumptions in our prepayment model designed to better align our model with current market behavior and observed portfolio performance.





Other Operating Expense


Other operating expense for the secondfirst quarter of 20182019 totaled $246.5$287.2 million, an increase of $5.8up $42.7 million or 2 percent compared to the secondfirst quarter of 2017. Personnel expense decreased $4.82018. Operating expenses in the first quarter of 2019 included $12.7 million or 3 percent. Non-personnel expense increased $10.6of CoBiz integration costs and $26.6 million or 11 percent compared toof CoBiz operating expenses. CoBiz added $14.5 million in integration costs and $29.7 million in operating costs during the prior year.fourth quarter of 2018.


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

Table 7 – Other Operating Expense
(In thousands)
  Three Months Ended
June 30,		 Increase (Decrease) 
%
Increase (Decrease)
 Three Months Ended Mar. 31, 2018 Increase (Decrease) 
%
Increase (Decrease)
  2018 2017     
Regular compensation $86,231
 $83,630
 $2,601
 3 % $84,991
 $1,240
 1 %
Incentive compensation:     

 

      
Cash-based 31,933
 29,954
 1,979
 7 % 29,549
 2,384
 8 %
Share-based (1,361) 7,380
 (8,741) (118)% 2,902
 (4,263) (147)%
Deferred compensation 900
 1,000
 (100) N/A
 44
 856
 N/A
Total incentive compensation 31,472
 38,334
 (6,862) (18)% 32,495
 (1,023) (3)%
Employee benefits 21,244
 21,780
 (536) (2)% 22,461
 (1,217) (5)%
Total personnel expense 138,947
 143,744
 (4,797) (3)% 139,947
 (1,000) (1)%
Business promotion 7,686
 7,738
 (52) (1)% 6,010
 1,676
 28 %
Professional fees and services 14,978
 12,419
 2,559
 21 % 10,200
 4,778
 47 %
Net occupancy and equipment 22,761
 21,125
 1,636
 8 % 24,046
 (1,285) (5)%
Insurance 6,245
 689
 5,556
 806 % 6,593
 (348) (5)%
Data processing and communications1
 27,739
 26,111
 1,628
 6 % 27,817
 (78) — %
Printing, postage and supplies 4,011
 4,140
 (129) (3)% 4,089
 (78) (2)%
Net losses (gains) and operating expenses of repossessed assets 2,722
 2,267
 455
 20 % 7,705
 (4,983) (65)%
Amortization of intangible assets 1,386
 1,803
 (417) (23)% 1,300
 86
 7 %
Mortgage banking costs 12,890
 12,072
 818
 7 % 10,149
 2,741
 27 %
Other expense 7,111
 8,558
 (1,447) (17)% 6,574
 537
 8 %
Total other operating expense $246,476
 $240,666
 $5,810
 2 % $244,430
 $2,046
 1 %
               
Average number of employees (full-time equivalent) 4,875
 4,910
 (35) (1)% 4,899
 (24) — %
               
Non-GAAP Reconciliation:1
              
Data processing and communications expense on income statement 27,739
 36,330
 N/A
 N/A
 27,817
 N/A
 N/A
Netting adjustment —
 (10,219) N/A
 N/A
 —
 N/A
 N/A
Data processing and communications expense after netting adjustment 27,739
 26,111
 N/A
 N/A
 27,817
 N/A
 N/A
1
Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and communications expense. This measure has no effect on net income or earnings per share.

  Three Months Ended
March 31,		 Increase (Decrease) 
%
Increase (Decrease)
 Three Months Ended Dec. 31, 2018 Increase (Decrease) 
%
Increase (Decrease)
  2019 2018     
Regular compensation $100,650
 $84,991
 $15,659
 18 % $100,796
 $(146) — %
Incentive compensation:     

 

      
Cash-based 32,137
 29,549
 2,588
 9 % 39,681
 (7,544) (19)%
Share-based 5,162
 2,902
 2,260
 78 % (1,904) 7,066
 371 %
Deferred compensation 3,911
 44
 3,867
 N/A
 (3,489) 7,400
 N/A
Total incentive compensation 41,210
 32,495
 8,715
 27 % 34,288
 6,922
 20 %
Employee benefits 27,368
 22,461
 4,907
 22 % 25,622
 1,746
 7 %
Total personnel expense 169,228
 139,947
 29,281
 21 % 160,706
 8,522
 5 %
Business promotion 7,874
 6,010
 1,864
 31 % 9,207
 (1,333) (14)%
Charitable contributions to BOKF Foundation —
 —
 —
 N/A
 2,846
 (2,846) N/A
Professional fees and services 16,139
 10,200
 5,939
 58 % 20,712
 (4,573) (22)%
Net occupancy and equipment 29,521
 24,046
 5,475
 23 % 27,780
 1,741
 6 %
Insurance 4,839
 6,593
 (1,754) (27)% 4,248
 591
 14 %
Data processing and communications 31,449
 27,817
 3,632
 13 % 27,575
 3,874
 14 %
Printing, postage and supplies 4,885
 4,089
 796
 19 % 5,232
 (347) (7)%
Net losses and operating expenses of repossessed assets 1,996
 7,705
 (5,709) (74)% 2,581
 (585) (23)%
Amortization of intangible assets 5,191
 1,300
 3,891
 299 % 5,331
 (140) (3)%
Mortgage banking costs 9,906
 10,149
 (243) (2)% 11,518
 (1,612) (14)%
Other expense 6,129
 6,574
 (445) (7)% 6,907
 (778) (11)%
Total other operating expense $287,157
 $244,430
 $42,727
 17 % $284,643
 $2,514
 1 %
               
Average number of employees (full-time equivalent) 5,291
 4,899
 392
 8 % 4,974
 317
 6 %
Certain percentage increases (decreases) are not meaningful for comparison purposes.




Personnel expense


Regular compensation, which consists of salaries and wages, overtime pay and temporary personnel costs,Personnel expense increased $2.6$29.3 million or 3 percent over the secondfirst quarter of 2017. The average number of employees was relatively unchanged compared2018. CoBiz integration costs added $3.3 million and CoBiz operating expenses added $16.4 million to the prior year. Standardfirst quarter of 2019. The remaining increase of $9.6 million is largely attributed to standard annual merit increases in regular compensation were effective for the majority of our staff on March 1.

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

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

Employee benefits expense decreased $536 thousand or 2 percent compared to the second quarter of 2017.compensation.
Personnel expense decreased $1.0increased $8.5 million comparedover the fourth quarter of 2018. CoBiz integration costs added $3.3 million to the first quarter of 2019 and $5.7 million to the fourth quarter of 2018. IncentiveThe remaining $10.9 million increase is primarily due to incentive compensation expense decreased $1.0 million. Regular compensation expense increased $1.2 million. A $2.3 millionand a seasonal decreaseincrease in payroll tax expense was partially offset by a $1.3 million increase in employee healthcare costs. The Company is self-insured and these costs may be volatile.expense.



Non-personnel operating expense


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

Deposit insurance expense increased $5.6$13.4 million over the secondfirst quarter of 2017. The second quarter of 2017 included $5.12018. CoBiz integration costs added $9.4 million in credits related to the revision of certain inputs to the assessment calculation filed for years 2013 through 2016.

Professional fees and services expense increased $2.6CoBiz operating expenses added $10.2 million or 21 percent mainly due to the inclusion of CoBiz acquisition costs and an increase in Consumer Banking related project costs in the second quarter of 2018.

Data processing and communications expense increased $1.6 million or 6 percent. Occupancy and equipment expense increased $1.6 million or 8 percent. These increases were primarily related to increased project costs and data processing transaction activity.
Non-personnel expense increased $3.0 million compared to the first quarter of 2018. Professional fees and services expense increased $4.82019. The remaining decrease of $6.2 million mainly dueis largely attributed to expenses related to project costs of $1.8 million, CoBiz acquisition expenses of $1.0 million and $953 thousand in seasonal tax preparation charges from trust operations. Mortgage banking costs increased $2.7 million primarily due to a $1.9 million increase in accruals related to default servicing and loss mitigation costs on loans serviced for others.
Netnet losses and operating expenses of repossessed assets decreasedassets. The first quarter of 2018 included a $5.0 million primarily due to a write-down of a set of repossessedcertain oil and gas propertiesproperties.
Non-personnel expense decreased $6.0 million compared to the fourth quarter of 2018. CoBiz integration costs added $9.4 million in the first quarter of 2019 and $8.8 million to the fourth quarter of 2018. The remaining $6.6 million decrease is related to a $2.8 million charitable donation to the BOKF Foundation made in the fourth quarter combined with decreases in business promotion and mortgage banking related to seasonality. These were partially offset by an increase in data processing and communications expense.



Income Taxes


The Company's incomeIncome tax expense was $33.3$30.0 million or 22.421 percent of net income before taxes for the secondfirst quarter of 20182019, compared to $47.7$30.9 million or 34.923 percent of net income before taxes for the secondfirst quarter of 20172018 and $30.9$20.1 million or 22.716 percent of net income before taxes for the first quarter of 2018.

The Tax Cut and Jobs Act ("the Act") enacted on December 22, 2017 reduced the federal corporate tax rate from 35 percent to 21 percent beginning January 1, 2018. The Company continues to evaluate the impact the Act will have on its financial position and results of operations, including recognition and measurement of deferred tax assets and liabilities and the determination of effective current and deferred federal and state income tax rates. We initially recorded provisional adjustments of $11.7 million as a charge to income tax expense in the fourth quarter of 2017. We recorded an additional $1.9 million2018.

In 2018, we completed our accounting for uncertainties that resulted from the Tax Reform Act. Resolution of net incomethese uncertainties and revaluation of deferred taxes increased tax expense for changes in provisional adjustments identified in the first quarter of 2018. No2018 by $1.9 million. Excluding these adjustments, to provisional amounts were made during the second quarter of 2018.

The Company's effective tax rate is affected by recurring items such as tax-exempt income, net amortization related to its investments in low-income housing tax credit investments and share-based compensation. The effective tax rate is also affected by items that may occur in any given period but are not consistent from period to period. Accordingly, the comparability of the effective tax rate from period to period may be impacted.for the first quarter of 2018 would have been 21.3%. Resolution of uncertainties decreased fourth quarter of 2018 tax expense by $7.8 million. Excluding these adjustments, the fourth quarter 2018 effective tax rate would have been 21.7%.


Unrecognized tax benefits totaled $19.5 million at March 31, 2019, $18.9 million at December 31, 2018 and $19.6 million at March 31, 2018. BOK Financial operates in numerous jurisdictions, which requires judgment regarding the allocation of income, expense and earnings under various laws and regulations of each of these taxing jurisdictions. Each jurisdiction may audit our tax returns and may take different positions with respect to these allocations. The reserve for uncertain tax positions was $20 million at June 30, 2018, $20 million at March 31, 2018 and $17 million at June 30, 2017.



Lines of Business


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


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


The operations of CoBiz were not yet allocated to the operating segments at March 31, 2019 and are included in Funds Management and other.

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



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


The value of funds provided by the operating lines of business to the Funds Management unit is also based on rates that approximate wholesale market rates for funds with similar repricing and cash flow characteristics. Market rates are generally based on LIBOR or interest rate swap rates. The funds credit formula applied to deposit products with indeterminate maturities is established based on their repricing characteristics reflected in a combination of the short-term LIBOR rate and a moving average of an intermediate-term swap rate, with an appropriate spread applied to both. Shorter duration products are weighted towards the short-term LIBOR rate and longer duration products are weighted towards the intermediate-term swap rates. The expected duration ranges from 30 days for certain rate-sensitive deposits to five years. During 2018 the funds transfer pricing rates for non–maturity deposits became inverted due to the flattening of the yield curve. Short term rates continued to increase while long term rates remained relatively flat. In order to appropriately reflect the organizational value of these deposits to the lines of business, effective January 1, 2019 we made adjustments that push more deposit credit value to the business lines, with the offset to Funds Management and other.


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 was up $20.4$17.2 million or 22%16 percent over the secondfirst quarter of 2017.2018. Net interest revenue grew by $25.6$36.6 million over the prior year, primarily due to the change in the deposit funding credit noted above, combined with growth in average loan growth.balances. Net charge-offs increased $10.3 million. Other operating revenue decreased by $12.4$5.6 million primarily due to decreased mortgage banking revenue and brokerage and trading revenue. The second quarter of 2017 included a gain on a merchant banking investment. Operatingoperating expense decreased by $153 thousand. Income tax expense attributable$2.8 million compared to the linesfirst quarter of business was down $23 million, primarily due to lower corporate tax rates related to tax reform.2018.


Table 8 -- Net Income by Line of Business
(In thousands)
 Three Months Ended Six Months Ended
 June 30, June 30, Three Months Ended
March 31,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Dec. 31, 2018 Increase (Decrease) % Increase (Decrease)
 2018 2017 2018 2017 2019 2018 
Commercial Banking $87,577
 $71,345
 $166,822
 $139,756
 $86,143
 $79,247
 $6,896
 9% $84,588
 $1,555
 2%
Consumer Banking 6,102
 6,332
 15,478
 9,577
 15,584
 9,374
 6,210
 66% 2,741
 12,843
 469%
Wealth Management 20,119
 15,689
 39,728
 29,848
 23,719
 19,609
 4,110
 21% 17,472
 6,247
 36%
Subtotal 113,798
 93,366
 222,028
 179,181
 125,446
 108,230
 17,216
 16% 104,801
 20,645
 20%
Funds Management and other 574
 (5,219) (2,094) (2,678) (14,834) (2,668) (12,166) N/A
 3,655
 (18,489) N/A
Total $114,372
 $88,147
 $219,934
 $176,503
 $110,612
 $105,562
 $5,050
 5% $108,456
 $2,156
 2%
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.




Commercial Banking


Commercial Banking contributed $87.6$86.1 million to consolidated net income in the secondfirst quarter of 2018,2019, an increase of $16.2$6.9 million or 239 percent over the secondfirst quarter of 2017.2018. Growth in net interest revenue was partially offset by higherincreased net charge-offs. In addition, the second quarter of 2017 included a $5.6 million gain on the sale of a merchant banking investment.loans charged off.


Table 9 -- Commercial Banking
(Dollars in thousands)
 Three Months Ended Increase (Decrease) Six Months Ended Increase (Decrease)
 June 30,  June 30,  Three Months Ended
March 31,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Dec. 31, 2018 Increase (Decrease) % Increase (Decrease)
 2018 2017 2018 2017  2019 2018 
Net interest revenue from external sources $182,127
 $154,377
 $27,750
 $342,541
 $301,753
 $40,788
 $204,209
 $160,414
 $43,795
 27 % $196,897
 $7,312
 4 %
Net interest expense from internal sources (37,102) (21,715) (15,387) (65,445) (39,831) (25,614) (52,562) (28,343) (24,219) 85 % (48,538) (4,024) 8 %
Total net interest revenue 145,025
 132,662
 12,363
 277,096
 261,922
 15,174
 151,647
 132,071
 19,576
 15 % 148,359
 3,288
 2 %
Net loans charged off (recovered) 10,108
 1,228
 8,880
 10,735
 (236) 10,971
Net interest revenue after net loans charged off (recovered) 134,917
 131,434
 3,483
 266,361
 262,158
 4,203
Net loans charged off 11,245
 627
 10,618
 1,693 % 11,577
 (332) (3)%
Net interest revenue after net loans charged off 140,402
 131,444
 8,958
 7 % 136,782
 3,620
 3 %
                          
Fees and commissions revenue1
 42,874
 40,303
 2,571
 82,891
 76,303
 6,588
Fees and commissions revenue 38,046
 40,017
 (1,971) (5)% 39,667
 (1,621) (4)%
Other gains (losses), net 173
 5,831
 (5,658) (169) 7,473
 (7,642) (434) (341) (93) N/A
 173
 (607) N/A
Other operating revenue 43,047
 46,134
 (3,087) 82,722
 83,776
 (1,054) 37,612
 39,676
 (2,064) (5)% 39,840
 (2,228) (6)%
                          
Personnel expense 29,584
 28,271
 1,313
 58,505
 55,633
 2,872
 31,217
 28,921
 2,296
 8 % 31,918
 (701) (2)%
Non-personnel expense1
 17,899
 21,021
 (3,122) 35,445
 37,361
 (1,916)
Non-personnel expense 18,960
 19,449
 (489) (3)% 19,710
 (750) (4)%
Other operating expense 47,483
 49,292
 (1,809) 93,950
 92,994
 956
 50,177
 48,370
 1,807
 4 % 51,628
 (1,451) (3)%
                          
Net direct contribution 130,481
 128,276
 2,205
 255,133
 252,940
 2,193
 127,837
 122,750
 5,087
 4 % 124,994
 2,843
 2 %
Gain on financial instruments, net 9
 3
 6
 16
 41
 (25) 18
 7
 11
 N/A
 13
 5
 N/A
Gain (loss) on repossessed assets, net (67) 1,403
 (1,470) (4,232) 1,398
 (5,630)
Loss on repossessed assets, net (346) (4,166) 3,820
 N/A
 (431) 85
 N/A
Corporate expense allocations 11,269
 8,955
 2,314
 23,776
 17,674
 6,102
 10,148
 10,603
 (455) (4)% 9,112
 1,036
 11 %
Income before taxes 119,154
 120,727
 (1,573) 227,141
 236,705
 (9,564) 117,361
 107,988
 9,373
 9 % 115,464
 1,897
 2 %
Federal and state income tax 31,577
 49,382
 (17,805) 60,319
 96,949
 (36,630) 31,218
 28,741
 2,477
 9 % 30,492
 726
 2 %
Net income $87,577
 $71,345
 $16,232
 $166,822
 $139,756
 $27,066
 $86,143
 $79,247
 $6,896
 9 % $84,972
 $1,171
 1 %
                          
Average assets $18,072,155
 $17,791,671
 $280,484
 $17,933,756
 $17,716,738
 $217,018
 $19,330,249
 $17,793,820
 $1,536,429
 9 % $18,766,165
 $564,084
 3 %
Average loans 14,900,918
 14,390,452
 510,466
 14,665,144
 14,297,634
 367,510
 15,992,749
 14,426,750
 1,565,999
 11 % 15,628,731
 364,018
 2 %
Average deposits 8,379,584
 8,696,691
 (317,107) 8,521,231
 8,688,028
 (166,797) 8,261,543
 8,664,452
 (402,909) (5)% 8,393,016
 (131,473) (2)%
Average invested capital 1,345,840
 1,290,167
 55,673
 1,352,648
 1,313,997
 38,651
 1,638,130
 1,335,896
 302,234
 23 % 1,519,983
 118,147
 8 %
1
Fees and commission revenue for 2017 has been adjusted on a comparable basis with 2018 (Non-GAAP measure) to net $10.2 million and $19.4 million of interchange fees paid to issuing banks on card transactions processed by our TransFund merchant processing services for the three and six months ended June 30, 2017, respectively. The discussion following is based on this comparable basis.

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 increased $12.4$19.6 million or 915 percent over the prior year. Growth in net interest revenue was primarily due to increased yields on commercial loans rising in excess of funding costs and a $510 million or 4 percentan increase in average loan balances. Yields on deposits sold to the funds management unit also went up due to the increase in short-term interest rates. Net loans charged-off increased $8.9$10.6 million. Over half of 2018 net charge-offs was from an energy loan previously identified as impaired and appropriately reserved.


Fees and commissions revenue increased $2.6decreased $2.0 million or 65 percent over the second quarter of 2017, primarily due to increases in transaction card volumes. In addition, loan syndication fees and commercial deposit service charges and fees were up over the prior year.


Operating expenses decreasedwhile operating expense increased $1.8 million or 4 percent compared to the first quarter of 2018. Corporate expense allocations decreased $455 thousand or 4 percent compared to the second quarter of 2017. Personnel expense increased $1.3 million or 5 percent, primarily due to incentive compensation expense. Non-personnel expense decreased $3.1 million or 15 percent.prior year.


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

The average outstanding balance of loans attributed to Commercial Banking were up $510 million$1.6 billion or 411 percent over the secondfirst quarter of 20172018 to $14.9$16.0 billion. See the Loans section of Management’s Discussion and Analysis of Financial Condition following for additional discussion of changes in commercial and commercial real estate loans, which are primarily attributed to the Commercial Banking segment. 
 
Average deposits attributed to Commercial Banking were $8.4$8.3 billion for the secondfirst quarter of 2018,2019, a 4%5 percent decrease compared to the secondfirst quarter of 2017.2018. See Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital for further discussion of change.
Net interest revenue increased $3.3 million or 2 percent over the fourth quarter of 2018. Fees and commissions revenue decreased $1.6 million or 4 percent, offset by a decrease in operating expense of $1.5 million.
Average loan balances increased $364 million or 2 percent, largely impacted by acquired loans. Average customer deposits decreased $131 million or 2 percent. The deposit mix continues to shift with a $411 million decrease in demand deposit balances partially offset by a $277 million increase in interest-bearing transaction account balances.








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 andConsumer Banking markets. In the first quarter of 2019, the strategic decision was made to exit our online lead buying business, HomeDirect, to focus more on our high margin, core competency of developing complete, long-term relationships with our clients through Home Direct Mortgage, an onlineour traditional mortgage origination channel.


Consumer Banking contributed $6.1$15.6 million to consolidated net income for the secondfirst quarter of 2019, an increase of $6.2 million over the first quarter of 2018. Improved performance by Consumer Banking was largely due to the effect of changes in pricing of funds sold to the Funds Management unit, partially offset by net changes in the fair value of mortgage servicing rights.

Table 10 -- Consumer Banking
(Dollars in thousands)
  Three Months Ended
March 31,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Dec. 31, 2018 Increase (Decrease) % Increase (Decrease)
  2019 2018     
Net interest revenue from external sources $21,595
 $21,753
 $(158) (1)% $19,727
 $1,868
 9 %
Net interest revenue from internal sources 29,507
 15,224
 14,283
 94 % 21,637
 7,870
 36 %
Total net interest revenue 51,102
 36,977
 14,125
 38 % 41,364
 9,738
 24 %
Net loans charged off 1,085
 1,300
 (215) (17)% 1,253
 (168) (13)%
Net interest revenue after net loans charged off 50,017
 35,677
 14,340
 40 % 40,111
 9,906
 25 %
               
Fees and commissions revenue 42,821
 44,963
 (2,142) (5)% 42,839
 (18) — %
Other losses, net (73) (16) (57) N/A
 (7) (66) N/A
Other operating revenue 42,748
 44,947
 (2,199) (5)% 42,832
 (84) — %
               
Personnel expense 24,330
 24,341
 (11) — % 22,765
 1,565
 7 %
Non-personnel expense 29,176
 30,354
 (1,178) (4)% 33,316
 (4,140) (12)%
Total other operating expense 53,506
 54,695
 (1,189) (2)% 56,081
 (2,575) (5)%
               
Net direct contribution 39,259
 25,929
 13,330
 51 % 26,862
 12,397
 46 %
Gain (loss) on financial instruments, net 14,097
 (23,262) 37,359
 N/A
 11,880
 2,217
 N/A
Change in fair value of mortgage servicing rights (20,666) 21,206
 (41,872) N/A
 (24,234) 3,568
 N/A
Gain (loss) on repossessed assets, net 103
 (108) 211
 N/A
 267
 (164) N/A
Corporate expense allocations 11,883
 11,188
 695
 6 % 11,098
 785
 7 %
Income before taxes 20,910
 12,577
 8,333
 66 % 3,677
 17,233
 469 %
Federal and state income tax 5,326
 3,203
 2,123
 66 % 936
 4,390
 469 %
Net income $15,584
 $9,374
 $6,210
 66 % $2,741
 $12,843
 469 %
               
Average assets $8,371,683
 $8,468,101
 $(96,418) (1)% $8,071,978
 $299,705
 4 %
Average loans 1,750,642
 1,746,136
 4,506
 — % 1,745,642
 5,000
 — %
Average deposits 6,544,665
 6,538,096
 6,569
 — % 6,542,188
 2,477
 — %
Average invested capital 302,195
 298,438
 3,757
 1 % 291,846
 10,349
 4 %
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 from Consumer Banking activities grew by $14.1 million or 38 percent over the the first quarter of 2018,, primarily due to increased rates received on deposit balances sold to the Funds Management unit. Average consumer deposits were relatively consistent compared to the first quarter of 2018. Demand deposit balances grew by $131 million or 7 percent, offset by a decrease of $230 thousand$133 million or 4 percent in interest-bearing transaction account balances.

Fees and commissions revenue decreased $2.1 million or 5 percent compared to the secondfirst quarter of 2017. Growth in net2018. Higher average interest revenuerates decreased mortgage loan origination volumes. This was partially offset by decreased mortgage banking revenue. a decrease of $1.2 million in operating expense. Corporate expense allocations were $695 thousand or 6 percent higher than the prior year.

Changes in the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income for secondfirst quarter of 2018 $4.72019 by $6.6 million compared to a $1.7$2.1 million decrease in pre-tax net income in the secondfirst quarter of 2017.2018.

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

Net interest revenue from Consumer Banking activities grew by $5.1increased $9.7 million or 1524 percent over the the secondfourth quarter of 2017,2018, primarily due to increased rates receivedyields on deposit balancesdeposits sold to the Funds Management unit. In addition, lower recent interest rates increased mortgage application volume in the first quarter of 2019.



Fees and commissions revenueRevenues from mortgage banking activities increased $1.9 million over the prior quarter, partially offset by a decrease of $1.6 million in service charges driven by two less days in the quarter. Operating expense decreased $4.4$2.6 million or 9 percent compared5 percent. Personnel expenses increased $1.6 million mainly due to the second quarter of 2017. Higher interest rates in the second quarter of 2018increased incentive compensation costs. Non-personnel expense decreased mortgage loan production volumes$4.1 million. Mortgage banking costs decreased $1.6 million primarily affected by seasonality. Occupancy and gains on sale margin were lowerequipment costs decreased $1.0 million.
Average consumer loans and deposits remained relatively consistent compared to the prior year.quarter at $1.8 billion and $6.5 billion, respectively.




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

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

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




Wealth Management


Wealth Management contributed $20.1$23.7 million to consolidated net income in the secondfirst quarter of 2018,2019, up $4.4$4.1 million or 2821 percent over the secondfirst quarter of 2017. Growth2018. Improved performance by Wealth Management was primarily due to an increase in net interest revenue was partially offset byand a decrease in brokerage and trading revenue.operating expenses.


Table 11 -- Wealth Management
(Dollars in thousands)
 Three Months Ended Increase (Decrease) Six Months Ended Increase (Decrease)
 June 30,  June 30,  Three Months Ended
March 31,		 Increase (Decrease) % Increase (Decrease) Three Months Ended Dec. 31, 2018 Increase (Decrease) % Increase (Decrease)
 2018 2017  2018 2017  2019 2018 
Net interest revenue from external sources $18,754
 $10,475
 $8,279
 $34,161
 $21,960
 $12,201
 $21,486
 $15,407
 $6,079
 39 % $24,218
 $(2,732) (11)%
Net interest revenue from internal sources 10,232
 10,325
 (93) 20,164
 19,181
 983
 6,770
 9,932
 (3,162) (32)% 5,074
 1,696
 33 %
Total net interest revenue 28,986
 20,800
 8,186
 54,325
 41,141
 13,184
 28,256
 25,339
 2,917
 12 % 29,292
 (1,036) (4)%
Net loans charged off (recovered) (105) (92) (13) (153) (53) (100) (119) (48) (71) 148 % (52) (67) 129 %
Net interest revenue after net loans charged off (recovered) 29,091
 20,892
 8,199
 54,478
 41,194
 13,284
 28,375
 25,387
 2,988
 12 % 29,344
 (969) (3)%
                          
Fees and commissions revenue 70,489
 75,553
 (5,064) 145,296
 149,474
 (4,178) 73,256
 74,807
 (1,551) (2)% 67,607
 5,649
 8 %
Other gains, net 153
 16
 137
 113
 253
 (140)
Other gains (losses), net 158
 (41) 199
 N/A
 (4) 162
 N/A
Other operating revenue 70,642
 75,569
 (4,927) 145,409
 149,727
 (4,318) 73,414
 74,766
 (1,352) (2)% 67,603
 5,811
 9 %
                          
Personnel expense 45,653
 45,477
 176
 92,600
 90,264
 2,336
 43,991
 46,947
 (2,956) (6)% 45,973
 (1,982) (4)%
Non-personnel expense 15,838
 15,139
 699
 31,695
 30,761
 934
 17,516
 17,995
 (479) (3)% 18,576
 (1,060) (6)%
Other operating expense 61,491
 60,616
 875
 124,295
 121,025
 3,270
 61,507
 64,942
 (3,435) (5)% 64,549
 (3,042) (5)%
                          
Net direct contribution 38,242
 35,845
 2,397
 75,592
 69,896
 5,696
 40,282
 35,211
 5,071
 14 % 32,398
 7,884
 24 %
Corporate expense allocations 11,142
 9,947
 1,195
 22,097
 20,619
 1,478
 8,360
 8,815
 (455) (5)% 8,828
 (468) (5)%
Income before taxes 27,100
 25,898
 1,202
 53,495
 49,277
 4,218
 31,922
 26,396
 5,526
 21 % 23,570
 8,352
 35 %
Federal and state income tax 6,981
 10,209
 (3,228) 13,767
 19,429
 (5,662) 8,203
 6,787
 1,416
 21 % 6,098
 2,105
 35 %
Net income $20,119
 $15,689
 $4,430
 $39,728
 $29,848
 $9,880
 $23,719
 $19,609
 $4,110
 21 % $17,472
 $6,247
 36 %
                          
Average assets $8,495,557
 $6,960,872
 $1,534,685
 $8,296,780
 $6,960,872
 $1,335,908
 $9,312,154
 $8,095,794
 $1,216,360
 15 % $8,687,234
 $624,920
 7 %
Average loans 1,413,170
 1,289,846
 123,324
 1,401,613
 1,289,846
 111,767
 1,448,718
 1,389,926
 58,792
 4 % 1,448,805
 (87) — %
Average deposits 5,834,669
 5,556,680
 277,989
 5,749,045
 5,556,680
 192,365
 5,659,771
 5,662,470
 (2,699) — % 5,483,455
 176,316
 3 %
Average invested capital 248,367
 230,228
 18,139
 249,827
 230,228
 19,599
 265,572
 246,673
 18,899
 8 % 255,948
 9,624
 4 %


Net interest revenue increased $8.2$2.9 million or 3912 percent over the secondfirst quarter of 2017.2018. Average trading securities balances increased $1.0 billion and average loans attributed to the Wealth Management segment increased $123$59 million or 104 percent. Average deposit balances increased by $278 million or 5 percent overwere largely unchanged compared to the secondfirst quarter of 2017, primarily due to a $217 million or 6 percent increase2018. Growth in interest-bearing transaction account balances and a $75of $118 million or 103 percent increasewas offset by a decrease of $90 million in demand deposit balances and $34 million in time deposit balances.


Fees and commissions revenue was relatively unchanged compared to the first quarter of 2018. Operating expense decreased $5.1$3.4 million or 75 percent compared to the secondfirst quarter of 2017. Rising mortgage interest rates narrowed margins on securities and slowed turnover of our trading inventory.



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

Operating2018. Corporate expense increased $875allocations decreased $455 thousand or 15 percent over the second quarter of 2017. Personnel expense was largely unchanged compared to the prior year. Non-personnel expense

Net interest revenue decreased $1.0 million or 4 percent compared to the fourth quarter of 2018. Brokerage and trading revenue increased $699 thousand$6.4 million or 5 percent.33 percent compared to the fourth quarter of 2018. This increase was partially offset by a decrease in interest received on trading securities and an increase in funding costs.

Corporate expense allocations
Average loans were up $1.2largely unchanged at $1.4 billion. Average deposits increased $176 million or 123 percent, over the prior year.primarily due to an increase of $150 million in interest-bearing transaction account balances.
Financial Condition
Securities


We maintain a securities portfolio to enhance profitability, manage interest rate risk, provide liquidity and comply with regulatory requirements. Securities are classified as trading, held for investment, or available for sale. See Note 2 to the Consolidated Financial Statements for the composition of the securities portfolio as of June 30, 2018, March 31, 2019 and December 31, 2017 and June 30, 2017.2018.


We hold an inventory of trading securities in support of sales to a variety of customers, including banks, corporations, insurance companies, money managers and others. Trading securities increased $617$183 million to $1.9$2.1 billion during the secondfirst quarter of 2018 in response to expanded relationships with mortgage loan originator clients as well as slower inventory turnover rates.2019. As discussed in the Market Risk section of this report, trading activities involve risk of loss from adverse price movement. We mitigate this risk within board-approved limits through the use of derivative contracts, short-sales and other techniques. These limits remain unchanged from levels set before our expanded trading activities.


At June 30, 2018,March 31, 2019, the carrying value of investment (held-to-maturity) securities was $392$331 million and the fair value was $403$348 million. 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 and residential mortgage-backed securities issued by U.S. government agencies. The investment security portfolio is diversified among issuers. The largest obligation of any single issuer is $30 million. Substantially all of these bonds are general obligations of the issuers. Approximately $92 million of the $199 million portfolio of Texas school construction bonds is also guaranteed by the Texas Permanent School Fund Guarantee Program supervised by the State Board of Education for the State of Texas.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 $8.3$9.0 billion at June 30, 2018,March 31, 2019, a $54$75 million decreaseincrease compared to MarchDecember 31, 2018. At June 30, 2018,March 31, 2019, 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, 2018March 31, 2019 is 3.53.0 years. Management estimates the duration extends to 4.23.8 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 3.22.5 years assuming a 50100 basis point decline in the current low rate environment.




The aggregate gross amount of unrealized losses on available for sale securities totaled $20569 million at June 30, 2018,March 31, 2019, compared to $177138 million at MarchDecember 31, 2018.2018. On a quarterly basis, we perform an evaluation on debt securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial Statements. No other-than-temporary impairment charges were recognized in earnings during the secondfirst quarter of 2018.2019.

BOK Financial is required to hold stock as members of the Federal Reserve system and the Federal Home Loan Banks ("FHLB"). These restricted equity securities are carried at cost as these securities do not have a readily determined fair value because the ownership of these shares is restricted and they lack a market. We are required to hold stock in the FHLB in proportion to our borrowings with the FHLB.




Loans


The aggregate loan portfolio before allowance for loan losses totaled $18.0$21.8 billion at June 30, 2018,March 31, 2019, up more than $665$102 million over MarchDecember 31, 2018, primarily due to growth in commercial andloans, partially offset by a decrease in commercial real estate loan balances. Personal loan balances grew slightly while residential mortgage loans were largely unchanged.loans.


Table 12 -- Loans
(In thousands)
 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Commercial:                    
Energy $3,147,219
 $2,969,618
 $2,930,156
 $2,867,981
 $2,847,240
 $3,705,099
 $3,590,333
 $3,294,867
 $3,147,219
 $2,969,618
Services 2,944,499
 2,928,294
 2,986,949
 2,967,513
 2,958,827
 3,287,563
 3,258,192
 2,603,862
 2,516,676
 2,488,065
Healthcare 2,353,722
 2,359,928
 2,314,753
 2,239,451
 2,221,518
 2,915,885
 2,799,277
 2,437,323
 2,353,722
 2,359,928
Wholesale/retail 1,699,554
 1,531,576
 1,471,256
 1,658,098
 1,543,695
 1,706,900
 1,621,158
 1,650,729
 1,699,554
 1,531,576
Public finance 803,083
 804,550
 418,578
 433,408
 445,814
Manufacturing 647,816
 559,695
 496,774
 519,446
 546,137
 742,374
 730,521
 660,582
 647,816
 559,695
Other commercial and industrial 556,229
 570,556
 534,087
 543,445
 520,538
 801,071
 832,047
 510,160
 550,644
 564,971
Total commercial 11,349,039
 10,919,667
 10,733,975
 10,795,934
 10,637,955
 13,961,975
 13,636,078
 11,576,101
 11,349,039
 10,919,667
                    
Commercial real estate:  
  
  
  
  
  
  
  
  
  
Multifamily 1,056,984
 1,008,903
 980,017
 999,009
 952,380
 1,210,358
 1,288,065
 1,120,166
 1,056,984
 1,008,903
Office 820,127
 737,144
 831,770
 797,089
 862,973
 1,033,158
 1,072,920
 824,829
 820,127
 737,144
Retail 768,024
 750,396
 691,532
 725,865
 722,805
 890,685
 919,082
 759,423
 768,024
 750,396
Industrial 653,384
 613,608
 573,014
 591,080
 693,635
 767,757
 778,106
 696,774
 653,384
 613,608
Residential construction and land development 118,999
 117,458
 117,245
 112,102
 141,592
 149,686
 148,584
 101,872
 118,999
 117,458
Other commercial real estate 294,702
 279,273
 286,409
 292,997
 315,207
 549,007
 558,056
 301,611
 294,702
 279,273
Total commercial real estate 3,712,220
 3,506,782
 3,479,987
 3,518,142
 3,688,592
 4,600,651
 4,764,813
 3,804,675
 3,712,220
 3,506,782
                    
Residential mortgage:  
  
  
  
  
  
  
  
  
  
Permanent mortgage 1,068,412
 1,047,785
 1,043,435
 1,013,965
 989,040
 1,098,481
 1,122,610
 1,094,926
 1,068,412
 1,047,785
Permanent mortgages guaranteed by U.S. government agencies 169,653
 177,880
 197,506
 187,370
 191,729
 193,308
 190,866
 180,718
 169,653
 177,880
Home equity 704,185
 720,104
 732,745
 744,415
 758,429
 900,831
 916,557
 696,098
 704,185
 720,104
Total residential mortgage 1,942,250
 1,945,769
 1,973,686
 1,945,750
 1,939,198
 2,192,620
 2,230,033
 1,971,742
 1,942,250
 1,945,769
                    
Personal 1,000,187
 965,632
 965,776
 947,008
 917,900
 1,003,734
 1,025,806
 996,941
 1,000,187
 965,632
                    
Total $18,003,696
 $17,337,850
 $17,153,424
 $17,206,834
 $17,183,645
 $21,758,980
 $21,656,730
 $18,349,459
 $18,003,696
 $17,337,850


Commercial


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


Commercial loans totaled $11.3$14.0 billion or 6364 percent of the loan portfolio at June 30, 2018,March 31, 2019, an increase of $429$326 million over MarchDecember 31, 2018. Healthcare sector loan balances were up $117 million. Energy loan balances grew by $178$115 million. Wholesale/retail sector loan balances grew by $168 million. Manufacturing sector loan balances were up $88 million. Service sector loans increased $16 million, mostly$86 million. This growth was partially offset by a $14$31 million decrease in other commercial and industrial loans.




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


Table 13 -- Commercial Loans by Collateral Location
(In thousands)
 Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total
Energy $632,907
 $1,709,471
 $40,449
 $2,926
 $340,671
 $3,966
 $72,024
 $344,805
 $3,147,219
 $765,840
 $2,089,600
 $34,802
 $2,483
 $353,639
 $4,564
 $108,588
 $345,583
 $3,705,099
Services 716,767
 781,431
 169,346
 9,984
 346,505
 235,767
 303,911
 380,788
 2,944,499
 615,903
 761,921
 168,742
 3,971
 634,929
 433,433
 280,158
 388,506
 3,287,563
Healthcare 247,040
 344,481
 112,149
 79,734
 161,539
 109,858
 259,972
 1,038,949
 2,353,722
 217,785
 382,523
 128,468
 81,713
 333,306
 235,783
 251,574
 1,284,733
 2,915,885
Wholesale/retail 403,298
 598,929
 41,197
 29,880
 92,243
 63,295
 80,879
 389,833
 1,699,554
 239,075
 678,453
 38,597
 29,436
 175,128
 111,786
 65,831
 368,594
 1,706,900
Public finance 87,663
 157,819
 42,604
 —
 167,447
 121,124
 —
 226,426
 803,083
Manufacturing 86,310
 197,925
 157
 4,638
 95,007
 91,147
 90,100
 82,532
 647,816
 97,019
 172,356
 697
 5,761
 185,771
 130,571
 70,249
 79,950
 742,374
Other commercial and industrial 107,355
 142,321
 2,504
 61,951
 8,341
 1,288
 61,947
 170,522
 556,229
 111,899
 165,405
 3,404
 49,514
 120,115
 45,155
 63,255
 242,324
 801,071
Total commercial loans $2,193,677
 $3,774,558
 $365,802
 $189,113
 $1,044,306
 $505,321
 $868,833
 $2,407,429
 $11,349,039
 $2,135,184
 $4,408,077
 $417,314
 $172,878
 $1,970,335
 $1,082,416
 $839,655
 $2,936,116
 $13,961,975
 
The majority of the collateral securing our commercial loan portfolio is located within our geographical footprint with 3332 percent concentrated in the Texas market, and 1915 percent concentrated in the Oklahoma market and 14 percent in the Colorado market. At June 30, 2018,March 31, 2019, the Other category is primarily composed of California - $287$561 million or 34 percent of the commercial loan portfolio, Florida - $228$279 million or 2 percent of the commercial loan portfolio, Louisiana - $160 million or 1 percent of the commercial loan portfolio, Pennsylvania - $142$167 million or 1 percent of the commercial loan portfolio, Ohio - $125$162 million or 1 percent of the commercial loan portfolio and North CarolinaLouisiana - $111$155 million or 1 percent of the commercial loan portfolio. All other states individually represent less than one percent of total commercial loans.


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


Outstanding energy loans totaled $3.1$3.7 billion or 17 percent of total loans at June 30, 2018.March 31, 2019. Unfunded energy loan commitments were $3.0$3.4 billion at June 30, 2018,March 31, 2019, up $80$221 million over MarchDecember 31, 2018. Approximately $2.6$3.0 billion of energy loans were to oil and gas producers, growing $104$77 million over MarchDecember 31, 2018. The majority of this portfolio is first lien, senior secured, reserve-based lending, which we believe is the lowest risk form of energy lending. Approximately 5657 percent of the committed production loans are secured by properties primarily producing oil and 4443 percent of the committed production loans are secured by properties primarily producing natural gas. Loans to midstream oil and gas companies totaled $370$463 million at June 30, 2018,March 31, 2019, an increase of $71$43 million over MarchDecember 31, 2018. Loans to borrowers that provide services to the energy industry totaled $139$173 million at June 30, 2018, up $26 million overMarch 31, 2019, unchanged compared to the prior quarter. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $36$60 million, a $23$2.0 million decrease compared to the prior quarter.


The services sector of the loan portfolio totaled $2.9$3.3 billion or 1615 percent of total loans and consists of a large number of loans to a variety of businesses, including governmental, educationalcommercial services, consumer services,Native American tribal governments, entertainment & recreation, financial services and loans to entities providing services for real estate and construction.consumer services. Service sector loans increased by $16$29 million over Marchcompared to December 31, 2018. Loans to governmental entities totaled $537 million at June 30, 2018. Approximately $1.4$1.7 billion of the services category is made up of loans with individual balances of less than $10 million. Service sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s business. 



The healthcare sector of the loan portfolio totaled $2.4$2.9 billion or 13 percent of total loans and consists primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Healthcare also includes loans to hospitals and other medical service providers.



We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $100 million and with three or more non-affiliated banks as participants. At June 30, 2018,March 31, 2019, the outstanding principal balance of these loans totaled $3.9$4.4 billion. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 1618 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.


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, withfootprint. Our larger concentrations are in Texas, Colorado and Oklahoma which represent 33%representing 27 percent, 13 percent and 12%10 percent of the total commercial real estate portfolio at June 30, 2018,March 31, 2019, respectively. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.


Commercial real estate loans totaled $3.7$4.6 billion or 21%21 percent of the loan portfolio at June 30, 2018.March 31, 2019. The outstanding balance of commercial real estate loans increased $205decreased $164 million during the second quarter ofcompared to December 31, 2018. Loans secured by multifamily residential properties decreased $78 million. Loans secured by office buildings increased $83 million. Multifamily residential loans increased $48 million. Loans secured by industrial properties grew bydecreased $40 million. Loans secured by retail facilities and other commercial real estate loans increased $18 million and $15 million, respectively.decreased $28 million. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 19 percent to 2321 percent over the past five years. 


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


Table 14 -- Commercial Real Estate Loans by Collateral Location
(In thousands)
 Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total
Multifamily $127,373
 $485,735
 $26,653
 $26,641
 $81,571
 $66,414
 $129,248
 $113,349
 $1,056,984
 $160,566
 $434,105
 $31,706
 $49,405
 $63,150
 $118,339
 $176,069
 $177,018
 $1,210,358
Office 106,169
 222,686
 88,374
 12,870
 31,988
 72,274
 40,348
 245,418
 820,127
 107,021
 275,583
 96,161
 16,669
 130,895
 73,767
 36,288
 296,774
 1,033,158
Retail 56,301
 284,347
 121,079
 7,338
 42,941
 29,617
 15,620
 210,781
 768,024
 56,621
 255,901
 136,992
 5,469
 102,068
 73,138
 14,057
 246,439
 890,685
Industrial 71,500
 180,920
 23,278
 104
 9,087
 7,142
 43,777
 317,576
 653,384
 83,536
 207,516
 19,203
 92
 78,359
 43,181
 41,248
 294,622
 767,757
Residential construction and land development 18,049
 20,601
 18,216
 2,102
 23,817
 2,026
 12,908
 21,280
 118,999
 5,243
 13,890
 13,385
 559
 59,999
 13,278
 11,097
 32,235
 149,686
Other commercial real estate 51,810
 35,019
 10,956
 1,580
 12,102
 24,035
 20,183
 139,017
 294,702
 49,323
 40,185
 11,264
 2,218
 155,721
 78,063
 39,969
 172,264
 549,007
Total commercial real estate loans $431,202
 $1,229,308
 $288,556
 $50,635
 $201,506
 $201,508
 $262,084
 $1,047,421
 $3,712,220
 $462,310
 $1,227,180
 $308,711
 $74,412
 $590,192
 $399,766
 $318,728
 $1,219,352
 $4,600,651


The Other category is primarily composed of California - $203$285 million or 56 percent of the commercial real estate portfolio, FloridaUtah - $114$137 million or 3 percent of the commercial real estate portfolio and UtahNevada - $103$108 million or 32 percent of the commercial real estate portfolio. All other states represent less than 3%2% individually.


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



Residential Mortgage and Personal


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


Residential mortgage loans totaled $1.9$2.2 billion,, a decrease of $3.5$37 million compared to MarchDecember 31, 2018.2018. In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Collateral for 95%92% of our residential mortgage loan portfolio is located within our geographical footprint.


The majority of our permanent mortgage loan portfolio is composed of various non-conforming mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth individuals or certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans exceeds maximums set under government sponsored entity standards, but otherwise generally conform to those standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38 percent. Loan-to-value ratios (“LTV”) are tiered from 60 percent to 100to100 percent, depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.


At June 30, 2018, $170March 31, 2019, $193 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We have limited credit exposure on loans guaranteed by the agencies. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet. Permanent residential mortgage loans guaranteed by U.S. government agencies decreased $8.2increased $2.4 million compared to Marchover December 31, 2018.2018.


Home equity loans totaled $704$901 million at June 30, 2018,March 31, 2019, a $16 million decrease compared to MarchDecember 31, 2018.2018. Our home equity loan portfolio is primarily composed of first-lien, fully amortizing home equity loans. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 50 percent. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 10 year revolving period followed by a 15 year term of amortizing repayment. Interest-only home equity loans have a 5 year revolving period followed by a 15 year term of amortizing repayments and may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term subject to an update of certain credit information. A summary of our home equity loan portfolio at June 30, 2018March 31, 2019 by lien position and amortizing status follows in Table 15.15.


Table 15 -- Home Equity Loans
(In thousands)
 Revolving Amortizing Total Revolving Amortizing Total
First lien $69,587
 $363,904
 $433,491
 $87,364
 $520,691
 $608,055
Junior lien 149,676
 121,018
 270,694
 175,625
 117,151
 292,776
Total home equity $219,263
 $484,922
 $704,185
 $262,989
 $637,842
 $900,831







The distribution of residential mortgage and personal loans at June 30, 2018March 31, 2019 is as follows in Table 16.16. Residential mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.


Table 16 -- Residential Mortgage and Personal Loans by Collateral Location
(In thousands)
 Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total
Residential mortgage:                                    
Permanent mortgage $170,130
 $434,582
 $52,890
 $13,430
 $186,125
 $100,536
 $61,394
 $49,325
 $1,068,412
 $168,755
 $436,600
 $60,691
 $12,960
 $196,222
 $106,324
 $63,996
 $52,933
 $1,098,481
Permanent mortgages guaranteed by U.S. government agencies 42,443
 31,875
 33,138
 7,374
 3,781
 843
 11,065
 39,134
 169,653
 45,406
 31,333
 34,218
 9,998
 5,201
 1,264
 15,821
 50,067
 193,308
Home equity 373,250
 132,689
 85,643
 5,794
 39,189
 9,921
 55,093
 2,606
 704,185
 360,862
 137,082
 80,170
 7,973
 156,039
 39,547
 52,389
 66,769
 900,831
Total residential mortgage $585,823
 $599,146
 $171,671
 $26,598
 $229,095
 $111,300
 $127,552
 $91,065
 $1,942,250
 $575,023
 $605,015
 $175,079
 $30,931
 $357,462
 $147,135
 $132,206
 $169,769
 $2,192,620
                                    
Personal $316,308
 $420,736
 $11,251
 $12,480
 $62,136
 $59,626
 $64,596
 $53,054
 $1,000,187
 $316,266
 $418,582
 $12,210
 $11,696
 $72,738
 $55,643
 $52,910
 $63,689
 $1,003,734





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


Table 17 -- Loans Managed by Primary Geographical Market
(In thousands)
 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Bank of Oklahoma:          
Oklahoma:          
Commercial $3,465,407
 $3,265,013
 $3,238,720
 $3,408,973
 $3,369,967
 $3,551,054
 $3,491,117
 $3,609,109
 $3,465,407
 $3,265,013
Commercial real estate 662,665
 668,031
 682,037
 712,915
 667,932
 665,190
 700,756
 651,315
 662,665
 668,031
Residential mortgage 1,403,658
 1,419,281
 1,435,432
 1,405,900
 1,398,021
 1,417,381
 1,440,566
 1,429,843
 1,403,658
 1,419,281
Personal 362,846
 353,128
 342,212
 322,320
 318,016
 374,807
 375,543
 376,201
 362,846
 353,128
Total Bank of Oklahoma 5,894,576
 5,705,453
 5,698,401
 5,850,108
 5,753,936
Total Oklahoma 6,008,432
 6,007,982
 6,066,468
 5,894,576
 5,705,453
                    
Bank of Texas:  
  
  
  
  
Texas:  
  
  
  
  
Commercial 4,922,451
 4,715,841
 4,520,401
 4,434,595
 4,339,634
 5,754,018
 5,438,133
 5,115,646
 4,922,451
 4,715,841
Commercial real estate 1,336,101
 1,254,421
 1,261,864
 1,236,702
 1,360,164
 1,344,810
 1,341,783
 1,354,679
 1,336,101
 1,254,421
Residential mortgage 243,400
 229,761
 233,675
 229,993
 232,074
 265,927
 266,805
 253,265
 243,400
 229,761
Personal 394,021
 363,608
 375,084
 375,173
 354,222
 396,794
 394,743
 381,452
 394,021
 363,608
Total Bank of Texas 6,895,973
 6,563,631
 6,391,024
 6,276,463
 6,286,094
Total Texas 7,761,549
 7,441,464
 7,105,042
 6,895,973
 6,563,631
                    
Bank of Albuquerque:  
  
  
  
  
New Mexico:  
  
  
  
  
Commercial 305,167
 315,701
 343,296
 367,747
 369,370
 342,915
 340,489
 325,048
 305,167
 315,701
Commercial real estate 386,878
 348,485
 341,282
 319,208
 324,405
 371,416
 383,670
 392,494
 386,878
 348,485
Residential mortgage 90,581
 93,490
 98,018
 101,983
 103,849
 85,326
 87,346
 88,110
 90,581
 93,490
Personal 11,107
 11,667
 11,721
 12,953
 12,439
 11,065
 10,662
 11,659
 11,107
 11,667
Total Bank of Albuquerque 793,733
 769,343
 794,317
 801,891
 810,063
Total New Mexico 810,722
 822,167
 817,311
 793,733
 769,343
                    
Bank of Arkansas:  
  
  
  
  
Arkansas:  
  
  
  
  
Commercial 93,217
 94,430
 95,644
 91,051
 85,020
 79,286
 111,338
 102,237
 93,217
 94,430
Commercial real estate 90,807
 88,700
 87,393
 80,917
 73,943
 142,551
 141,898
 106,701
 90,807
 88,700
Residential mortgage 6,927
 7,033
 6,596
 6,318
 6,395
 7,731
 7,537
 7,278
 6,927
 7,033
Personal 12,331
 9,916
 9,992
 10,388
 11,993
 11,550
 11,955
 12,126
 12,331
 9,916
Total Bank of Arkansas 203,282
 200,079
 199,625
 188,674
 177,351
Total Arkansas 241,118
 272,728
 228,342
 203,282
 200,079
                    
Colorado State Bank & Trust:  
  
  
  
  
Colorado:  
  
  
  
  
Commercial 1,165,721
 1,180,655
 1,130,714
 1,124,200
 1,065,780
 2,231,703
 2,275,069
 1,132,500
 1,165,721
 1,180,655
Commercial real estate 267,065
 210,801
 174,201
 186,427
 255,379
 957,348
 963,575
 354,543
 267,065
 210,801
Residential mortgage 64,839
 64,530
 63,350
 63,734
 63,346
 241,722
 251,849
 68,694
 64,839
 64,530
Personal 60,504
 63,118
 63,115
 60,513
 56,187
 65,812
 72,916
 56,999
 60,504
 63,118
Total Colorado State Bank & Trust 1,558,129
 1,519,104
 1,431,380
 1,434,874
 1,440,692
Total Colorado 3,496,585
 3,563,409
 1,612,736
 1,558,129
 1,519,104
                    
Bank of Arizona:  
  
  
  
  
Arizona:  
  
  
  
  
Commercial 681,852
 624,106
 687,792
 634,809
 617,759
 1,335,140
 1,320,139
 621,658
 681,852
 624,106
Commercial real estate 710,784
 672,319
 660,094
 706,188
 705,858
 791,466
 889,903
 666,562
 710,784
 672,319
Residential mortgage 47,010
 39,227
 41,771
 40,730
 37,034
 98,973
 97,959
 44,659
 47,010
 39,227
Personal 65,541
 57,023
 57,140
 55,050
 55,528
 61,875
 68,546
 67,280
 65,541
 57,023
Total Bank of Arizona 1,505,187
 1,392,675
 1,446,797
 1,436,777
 1,416,179
Total Arizona 2,287,454
 2,376,547
 1,400,159
 1,505,187
 1,392,675
                    
Mobank (Kansas City):  
  
  
  
  
Kansas/Missouri:  
  
  
  
  
Commercial 715,224
 723,921
 717,408
 734,559
 790,425
 667,859
 659,793
 669,903
 715,224
 723,921
Commercial real estate 257,920
 264,025
 273,116
 275,785
 300,911
 327,870
 343,228
 278,381
 257,920
 264,025
Residential mortgage 85,835
 92,447
 94,844
 97,092
 98,479
 75,560
 77,971
 79,893
 85,835
 92,447
Personal 93,837
 107,172
 106,512
 110,611
 109,515
 81,831
 91,441
 91,224
 93,837
 107,172
Total Mobank (Kansas City) 1,152,816
 1,187,565
 1,191,880
 1,218,047
 1,299,330
Total Kansas/Missouri 1,153,120
 1,172,433
 1,119,401
 1,152,816
 1,187,565
                    
Total BOK Financial loans $18,003,696
 $17,337,850
 $17,153,424
 $17,206,834
 $17,183,645
 $21,758,980
 $21,656,730
 $18,349,459
 $18,003,696
 $17,337,850




Loan Commitments


We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 18. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.


Table 18 – Off-Balance Sheet Credit Commitments
(In thousands)
 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Loan commitments $10,294,211
 $10,249,729
 $9,958,080
 $9,693,489
 $9,632,911
 $12,243,886
 $11,944,524
 $10,715,964
 $10,294,211
 $10,249,729
Standby letters of credit 659,867
 664,342
 647,653
 665,513
 614,852
 720,451
 582,196
 671,844
 659,867
 664,342
Mortgage loans sold with recourse 116,269
 121,197
 125,127
 128,681
 133,896
 94,938
 98,623
 101,512
 116,269
 121,197

We have off-balance sheet commitments related to certain residential mortgage loans originated under community development loan programs that were sold to a U.S. government agency with full recourse. These mortgage loans were underwritten to standards approved by the agencies, including full documentation and originated under programs available only for owner-occupied properties. The Company no longer sells residential mortgage loans with recourse. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. Substantially all of these loans are to borrowers in our primary markets including $70 million to borrowers in Oklahoma, $12 million to borrowers in Arkansas and $12 million to borrowers in New Mexico. An accrual related to this off-balance sheet risk is included in Other liabilities in the Consolidated Balance Sheets and totaled $3.5 million at June 30, 2018 and 3.7 million at March 31, 2018 and $3.9 million at June 30, 2017.

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

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

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 June 30,
 2018 2017
Number of unresolved deficiency requests179
 206
Aggregate outstanding principal balance subject to unresolved deficiency requests$8,394
 $13,370
Unpaid principal balance subject to indemnification by the Company4,741
 5,074

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


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


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


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


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


Derivative contracts are carried at fair value. At June 30, 2018,March 31, 2019, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $382354 million compared to $292427 million at December 31, 2018. At March 31, 2018. At June 30, 2018,2019, the net fair value of our derivative contracts included $171$223 million for foreign exchange contracts, $131 million for energy contracts, $41 million for interest rate swaps and $35$58 million of to-be-announced residential mortgage-backed securities.securities, $39 million for energy contracts and $28 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 $364343 million at June 30, 2018 and $280 million at March 31, 2018.2019 and $413 million at December 31, 2018.


At June 30, 2018,March 31, 2019, total derivative assets were reduced by $13$12 million of cash collateral received from counterparties and total derivative liabilities were reduced by $15075 million of cash collateral paid to counterparties related to instruments executed with the same counterparty under a master netting agreement.


A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note 3 to the Consolidated Financial Statements.



The fair value of derivative contracts reported as assets under these programs, net of cash margin held by the Company, by category of debtor at June 30, 2018March 31, 2019 follows in Table 19.19.


Table 19 -- Fair Value of Derivative Contracts
(In thousands)
Customers $253,096
 $212,147
Banks and other financial institutions 96,206
 129,213
Exchanges and clearing organizations 19,724
 1,141
Fair value of customer risk management program asset derivative contracts, net $369,026
 $342,501
 
At June 30, 2018,March 31, 2019, our largest derivative exposure was to an exchangea counterparty for interest rate swap derivativeenergy contracts of $19$8.5 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 $34.26$29.10 per barrel of oil would decrease the fair value of derivative assetsnot be great enough to create a scenario in which we are owed by $106 million.our customers. An increase in prices equivalent to $84.27$72.05 per barrel of oil would increase the fair value of derivative assets by $118$127 million. Further increases in price to the equivalent of $89.92 per barrel of oil would increase the fair value of our derivative assets by $320 million as current prices move further away fromwith lending customers comprising the fixed prices embedded in our existing contracts.bulk of the assets. Liquidity requirements of this program may also be affected by our credit rating. At June 30, 2018,March 31, 2019, a decrease in our credit rating to below investment grade did not have a significant impact on our obligation to post cash margin on existing contracts. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of June 30, 2018,March 31, 2019, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
Summary of Loan Loss Experience


We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. At June 30, 2018,March 31, 2019, the combined allowance for loan losses and off-balance sheet credit losses totaled $218$207 million or 1.210.95 percent of outstanding loans and 138142 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measured at acquisition date fair value, the combined allowance for loan losses was 1.09 percent of outstanding loans and 159 percent of nonaccruing loans. The allowance for loan losses was $215$205 million and the accrual for off-balance sheet credit losses was $2.4 million.$1.8 million. At MarchDecember 31, 2018,, the combined allowance for credit losses was $228$209 million or 1.320.97 percent of outstanding loans and 133134 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measured at acquisition date fair value, the combined allowance for loan losses was 1.12 percent of outstanding loans and 146 percent of nonaccruing loans. The allowance for loan losses was $224$207 million and the accrual for off-balance sheet credit losses was $4.1 million. $1.8 million. 


The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the combined charge to expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. All losses incurred from lending activities will ultimately be reflected in charge-offs against the allowance for loan losses following funds advanced against outstanding commitments. Based on an evaluation of all credit factors, including overall loan growth, the continued trend of improvementstrends in nonaccruing andloans, potential problem loans and net charge-offs, the Company determined that no$8.0 million provision for credit losses was appropriate for the secondfirst quarter of 2018.2019. The Company recorded a $5.0$9.0 million negative provision for credit losses in the firstfourth quarter of 2018.







Table 20 -- Summary of Loan Loss Experience
(In thousands)
 Three Months Ended Three Months Ended
 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Allowance for loan losses:                    
Beginning balance $223,967
 $230,682
 $247,703
 $250,061
 $248,710
 $207,457
 $210,569
 $215,142
 $223,967
 $230,682
Loans charged off:          
          
Commercial (13,775) (1,563) (13,254) (4,429) (1,703) (10,468) (12,940) (9,602) (13,775) (1,563)
Commercial real estate —
 —
 —
 —
 (76) —
 —
 —
 —
 —
Residential mortgage (135) (100) (205) (168) (40) (42) (52) (91) (135) (100)
Personal (1,195) (1,227) (1,290) (1,228) (1,053) (1,265) (1,523) (1,380) (1,195) (1,227)
Total (15,105) (2,890) (14,749) (5,825) (2,872) (11,775) (14,515) (11,073) (15,105) (2,890)
Recoveries of loans previously charged off:          
          
Commercial 298
 488
 1,982
 1,014
 283
 711
 1,267
 1,263
 298
 488
Commercial real estate 3,097
 183
 258
 739
 208
 112
 232
 40
 3,097
 183
Residential mortgage 505
 242
 229
 134
 169
 154
 71
 229
 505
 242
Personal 678
 663
 592
 550
 554
 712
 598
 560
 678
 663
Total 4,578
 1,576
 3,061
 2,437
 1,214
 1,689
 2,168
 2,092
 4,578
 1,576
Net loans recovered (charged off) (10,527) (1,314) (11,688) (3,388) (1,658) (10,086) (12,347) (8,981) (10,527) (1,314)
Provision for loan losses 1,702
 (5,401) (5,333) 1,030
 3,009
 7,969
 9,235
 4,408
 1,702
 (5,401)
Ending balance $215,142
 $223,967
 $230,682
 $247,703
 $250,061
 $205,340
 $207,457
 $210,569
 $215,142
 $223,967
Accrual for off-balance sheet credit losses:          
          
Beginning balance $4,135
 $3,734
 $5,401
 $6,431
 $9,440
 $1,790
 $2,025
 $2,433
 $4,135
 $3,734
Provision for off-balance sheet credit losses (1,702) 401
 (1,667) (1,030) (3,009) 31
 (235) (408) (1,702) 401
Ending balance $2,433
 $4,135
 $3,734
 $5,401
 $6,431
 $1,821
 $1,790
 $2,025
 $2,433
 $4,135
Total combined provision for credit losses $—
 $(5,000) $(7,000) $—
 $—
 $8,000
 $9,000
 $4,000
 $—
 $(5,000)
Allowance for loan losses to loans outstanding at period-end 1.19% 1.29 % 1.34 % 1.44% 1.46% 0.94% 0.96% 1.15% 1.19% 1.29 %
Net charge-offs (recoveries) (annualized) to average loans 0.24% 0.03 % 0.27 % 0.08% 0.04% 0.19% 0.23% 0.20% 0.24% 0.03 %
Total provision for credit losses (annualized) to average loans —% (0.12)% (0.16)% —% —% 0.15% 0.17% 0.09% —% (0.12)%
Recoveries to gross charge-offs 30.31% 54.53 % 20.75 % 41.84% 42.27% 14.34% 14.94% 18.89% 30.31% 54.53 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments 0.02% 0.04 % 0.04 % 0.05% 0.06% 0.01% 0.01% 0.02% 0.02% 0.04 %
Combined allowance for credit losses to loans outstanding at period-end 1.21% 1.32 % 1.37 % 1.47% 1.49% 0.95% 0.97% 1.16% 1.21% 1.32 %
Allowance for Loan Losses


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


Loans are considered to be impaired when it is probable that we will not collect all amounts due according to the original contractual terms of the loan agreement. This includes all nonaccruing loans, all loans modified in troubled debt restructurings and all government guaranteed loans repurchased from GNMA pools. A specific allowance is required when the outstanding principal balance of the loan is not supported by either the discounted cash flows expected to be received from the borrower or the fair value of collateral for collateral dependent loans. At June 30, 2018,March 31, 2019, impaired loans totaled $328$339 million,, including $60$8.0 million with specific allowances of $15$3.5 million and $268$331 million with no specific allowances. At MarchDecember 31, 2018,, impaired loans totaled $349$347 million,, including $74$35 million of impaired loans with specific allowances of $13$8.7 million and $275$312 million with no specific allowances.



General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rates for risk-graded loans are either increased or decreased based on changes in risk grading for each loan class. Estimated loss rates for both risk-graded and non-risk graded loans may be further adjusted for inherent risk identified for the given loan class which have not yet been captured in the loss rate.


The aggregate amount of general allowances for all unimpaired loans totaled $184$183 million at June 30, 2018.March 31, 2019. The general allowance for unimpaired loans decreased $6.2increased $2 million compared to MarchDecember 31, 2018,, primarily due to a decrease in general allowances related to residential mortgage loans, partially offset by an increase in general allowances related to the commercial loan segment, partially offset by an increase related to the commercial real estate segment.


Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other relevant factors. Nonspecific allowances totaled $15$19 million at June 30, 2018, a $4.5 million decrease compared to March 31, 2018. The nonspecific allowance decreased related to the reversal of the nonspecific allowance related to the estimated long-term impact of Hurricane Harvey in 2017 on the Houston, Texas market as this impact is now fully reflected in estimated loss rates.2019, a $1.4 million increase over December 31, 2018.


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


Our loan monitoring process also identified certain accruing substandard loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements, and no loss of principal or interest is anticipated, these loans were not included in nonperforming assets. Known information does, however, cause management concern as to the borrowers’ ability to comply with current repayment terms. These potential problem loans totaled $140$169 million at June 30, 2018March 31, 2019 and were primarily composed of $93$81 million or 32.19 percent of energy loans, $17$28 million or 3less than 1 percent of service sector loans, $21 million or 2.87 percent of manufacturing sector loans and $17$14 million or less than 1 percent of healthcare sector loans. Potential problem loans totaled $222$215 million at MarchDecember 31, 2018.2018.


Based on regulatory guidelines, other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management's close attention. Other loans especially mentioned totaled $124$196 million at June 30, 2018March 31, 2019 and were composed primarily of $52$60 million or 21.84 percent of outstanding energyservice sector loans, $31$39 million or 11.06 percent of serviceenergy sector loans, $34 million or 4.58 percent of manufacturing sector loans and $21 million or 31.24 percent of commercial real estatewholesale/retail sector loans secured by retail facilities.and $14 million or 0.47 percent healthcare sector loans. Other loans especially mentioned totaled $78$182 million at MarchDecember 31, 2018.

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


LoansCommercial 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. Our larger concentrations are charged off againstin Texas, Colorado and Oklahoma representing 27 percent, 13 percent and 10 percent of the allowance for loan losses whentotal commercial real estate portfolio at March 31, 2019, respectively. We require collateral values in excess of the loan balance oramounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the loan balance is no longer covered byproject 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 paying capacityrisks 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 borrower based on an evaluationloan for compliance with applicable lending policies.

Commercial real estate loans totaled $4.6 billion or 21 percent of available cash resources and collateral value. Internally risk gradedthe loan portfolio at March 31, 2019. The outstanding balance of commercial real estate loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans are generally charged off when payments are between 60 days and 180 days past due, depending on loan class. In addition, non-risk graded loans are generally charged-down to collateral value within 60 days of being notified of a borrower's bankruptcy filing, regardless of payment status.

BOK Financial had net charge-offs of $10.5decreased $164 million in the second quarter of 2018, compared to net charge-offs of $1.3 million in the first quarter of 2018 and a net charge-offs of $1.7 million in the second quarter of 2017.December 31, 2018. Loans secured by multifamily residential properties decreased $78 million. Loans secured by office buildings decreased $40 million. Loans secured by retail facilities decreased $28 million. The ratio of net loans charged off to average loans on an annualized basis was 0.24 percent for the second quarter of 2018, compared with 0.03 percent for the first quarter of 2018 and 0.04 percent for the second quarter of 2017. 

Net charge-offs of commercial loans were $13.5 million in the second quarter of 2018, primarily related to a single energy production borrower and single healthcare sector borrower. Net commercial real estate loan recoveries were $3.1 millionbalance as a percentage of our total loan portfolio has ranged from 19 percent to 21 percent over the past five years. 

The commercial real estate sector of our loan portfolio distributed by collateral location follows in the second quarter of 2018. Net charge-offs of residential mortgage loans were $370 thousand and net charge-offs of personal loans were $517 thousand for the second quarter. Personal loan net charge-offs include deposit account overdraft losses.

Table 14.


Nonperforming Assets

Table 2114 -- Nonperforming AssetsCommercial Real Estate Loans by Collateral Location
(In thousands)
  June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017
Nonaccruing loans:          
Commercial $120,978
 $131,460
 $137,303
 $176,900
 $197,157
Commercial real estate 1,996
 2,470
 2,855
 2,975
 3,775
Residential mortgage 42,343
 45,794
 47,447
 45,506
 44,235
Personal 340
 340
 269
 255
 272
Total nonaccruing loans 165,657
 180,064
 187,874
 225,636
 245,439
Accruing renegotiated loans guaranteed by U.S. government agencies 75,374
 74,418
 73,994
 69,440
 80,624
Real estate and other repossessed assets 27,891
 23,652
 28,437
 32,535
 39,436
Total nonperforming assets $268,922
 $278,134
 $290,305
 $327,611
 $365,499
Total nonperforming assets excluding those guaranteed by U.S. government agencies $185,981
 $194,833
 $207,132
 $249,280
 $275,823
           
Nonaccruing loans by loan portfolio segment and class:      
  
Commercial:        
  
Energy $65,597
 $89,942
 $92,284
 $110,683
 $123,992
Services 4,377
 2,109
 2,620
 1,174
 7,754
Healthcare 16,125
 15,342
 14,765
 24,446
 24,505
Wholesale/retail 14,095
 2,564
 2,574
 1,893
 10,620
Manufacturing 2,991
 3,002
 5,962
 9,059
 9,656
Other commercial and industrial 17,793
 18,501
 19,098
 29,645
 20,630
Total commercial 120,978
 131,460
 137,303
 176,900
 197,157
           
Commercial real estate:        
  
Multifamily —
 —
 —
 —
 10
Retail 1,068
 264
 276
 289
 301
Office 275
 275
 275
 275
 396
Industrial —
 —
 —
 —
 —
Residential construction and land development 350
 1,613
 1,832
 1,924
 2,051
Other commercial real estate 303
 318
 472
 487
 1,017
Total commercial real estate 1,996
 2,470
 2,855
 2,975
 3,775
           
Residential mortgage:        
  
Permanent mortgage 23,105
 24,578
 25,193
 24,623
 23,415
Permanent mortgage guaranteed by U.S. government agencies 7,567
 8,883
 9,179
 8,891
 9,052
Home equity 11,671
 12,333
 13,075
 11,992
 11,768
Total residential mortgage 42,343
 45,794
 47,447
 45,506
 44,235
Personal 340
 340
 269
 255
 272
Total nonaccruing loans $165,657
 $180,064
 $187,874
 $225,636
 $245,439
           
Ratios:        
  
Allowance for loan losses to nonaccruing loans1
 136.09% 130.84% 129.09% 114.28% 105.78%
Accruing loans 90 days or more past due1
 $879
 $90
 $633
 $253
 $1,414
  Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total
Multifamily $160,566
 $434,105
 $31,706
 $49,405
 $63,150
 $118,339
 $176,069
 $177,018
 $1,210,358
Office 107,021
 275,583
 96,161
 16,669
 130,895
 73,767
 36,288
 296,774
 1,033,158
Retail 56,621
 255,901
 136,992
 5,469
 102,068
 73,138
 14,057
 246,439
 890,685
Industrial 83,536
 207,516
 19,203
 92
 78,359
 43,181
 41,248
 294,622
 767,757
Residential construction and land development 5,243
 13,890
 13,385
 559
 59,999
 13,278
 11,097
 32,235
 149,686
Other commercial real estate 49,323
 40,185
 11,264
 2,218
 155,721
 78,063
 39,969
 172,264
 549,007
Total commercial real estate loans $462,310
 $1,227,180
 $308,711
 $74,412
 $590,192
 $399,766
 $318,728
 $1,219,352
 $4,600,651
1
Excludes residential mortgages guaranteed by agencies of the U.S. Government.


The Other category is primarily composed of California - $285 million or 6 percent of the commercial real estate portfolio, Utah - $137 million or 3 percent of the commercial real estate portfolio and Nevada - $108 million or 2 percent of the commercial real estate portfolio. All other states represent less than 2% individually.

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



Nonperforming assets totaled $269 millionResidential Mortgage and Personal

Residential mortgage loans provide funds for our customers to purchase or 1.49 percentrefinance their primary residence or to borrow against the equity in their home. Residential mortgage loans are secured by a first or second-mortgage on the customer’s primary residence. Personal loans consist primarily of outstanding loans to wealth management clients secured by the cash surrender value of insurance policies and repossessed assets at June 30, 2018. Nonaccruingmarketable securities. It also includes direct loans totaled $166 million, accruing renegotiatedsecured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans. Residential mortgage and personal loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.

Residential mortgage loans totaled $75$2.2 billion, a decrease of $37 million compared to December 31, 2018. In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and real estateretain the majority of our non-conforming and other repossessed assets totaled $28 million. All accruing renegotiatedadjustable-rate mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Collateral for 92% of our residential mortgage loan portfolio is located within our geographical footprint.

The majority of our permanent mortgage loan portfolio is composed of various non-conforming mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and $7.6special loan programs for high net worth individuals or certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans exceeds maximums set under government sponsored entity standards, but otherwise generally conform to those standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38 percent. Loan-to-value ratios (“LTV”) are tiered from 60 percent to100 percent, depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.

At March 31, 2019, $193 million of nonaccruingpermanent residential mortgage loans are guaranteed by U.S. government agencies. Excluding assetsWe have limited credit exposure on loans guaranteed by U.S. government agencies, nonperforming assets decreased $8.9 million comparedthe agencies. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to the first quarter, primarily due to a decrease in nonaccruing energyhave regained effective control over these loans and wholesale/retail sector loans. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.

Loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. As more fully discussed in Note 4 tomust include them on the Consolidated Financial Statements, we may modify loans in troubled debt restructurings. Modifications may include extension of payment terms and rate concessions. We generally do not forgive principal or accrued but unpaid interest. All loans modified in troubled debt restructurings, except forBalance Sheet. Permanent residential mortgage loans guaranteed by U.S. government agencies increased $2.4 million over December 31, 2018.

Home equity loans totaled $901 million at March 31, 2019, a $16 million decrease compared to December 31, 2018. Our home equity loan portfolio is primarily composed of first-lien, fully amortizing home equity loans. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 50 percent. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 10 year revolving period followed by a 15 year term of amortizing repayment. Interest-only home equity loans have a 5 year revolving period followed by a 15 year term of amortizing repayments and may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term subject to an update of certain credit information. A summary of our home equity loan portfolio at March 31, 2019 by lien position and amortizing status follows in Table 15.

Table 15 -- Home Equity Loans
(In thousands)
  Revolving Amortizing Total
First lien $87,364
 $520,691
 $608,055
Junior lien 175,625
 117,151
 292,776
Total home equity $262,989
 $637,842
 $900,831




The distribution of residential mortgage and personal loans at March 31, 2019 is as follows in Table 16. Residential mortgage loans are currently classifieddistributed by collateral location. Personal loans are generally distributed by borrower location.

Table 16 -- Residential Mortgage and Personal Loans by Collateral Location
(In thousands)
  Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total
Residential mortgage:                  
Permanent mortgage $168,755
 $436,600
 $60,691
 $12,960
 $196,222
 $106,324
 $63,996
 $52,933
 $1,098,481
Permanent mortgages  guaranteed by U.S. government agencies 45,406
 31,333
 34,218
 9,998
 5,201
 1,264
 15,821
 50,067
 193,308
Home equity 360,862
 137,082
 80,170
 7,973
 156,039
 39,547
 52,389
 66,769
 900,831
Total residential mortgage $575,023
 $605,015
 $175,079
 $30,931
 $357,462
 $147,135
 $132,206
 $169,769
 $2,192,620
                   
Personal $316,266
 $418,582
 $12,210
 $11,696
 $72,738
 $55,643
 $52,910
 $63,689
 $1,003,734



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

Table 17 -- Loans Managed by Primary Geographical Market
(In thousands)
  Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Oklahoma:          
Commercial $3,551,054
 $3,491,117
 $3,609,109
 $3,465,407
 $3,265,013
Commercial real estate 665,190
 700,756
 651,315
 662,665
 668,031
Residential mortgage 1,417,381
 1,440,566
 1,429,843
 1,403,658
 1,419,281
Personal 374,807
 375,543
 376,201
 362,846
 353,128
Total Oklahoma 6,008,432
 6,007,982
 6,066,468
 5,894,576
 5,705,453
           
Texas:  
  
  
  
  
Commercial 5,754,018
 5,438,133
 5,115,646
 4,922,451
 4,715,841
Commercial real estate 1,344,810
 1,341,783
 1,354,679
 1,336,101
 1,254,421
Residential mortgage 265,927
 266,805
 253,265
 243,400
 229,761
Personal 396,794
 394,743
 381,452
 394,021
 363,608
Total Texas 7,761,549
 7,441,464
 7,105,042
 6,895,973
 6,563,631
           
New Mexico:  
  
  
  
  
Commercial 342,915
 340,489
 325,048
 305,167
 315,701
Commercial real estate 371,416
 383,670
 392,494
 386,878
 348,485
Residential mortgage 85,326
 87,346
 88,110
 90,581
 93,490
Personal 11,065
 10,662
 11,659
 11,107
 11,667
Total New Mexico 810,722
 822,167
 817,311
 793,733
 769,343
           
Arkansas:  
  
  
  
  
Commercial 79,286
 111,338
 102,237
 93,217
 94,430
Commercial real estate 142,551
 141,898
 106,701
 90,807
 88,700
Residential mortgage 7,731
 7,537
 7,278
 6,927
 7,033
Personal 11,550
 11,955
 12,126
 12,331
 9,916
Total Arkansas 241,118
 272,728
 228,342
 203,282
 200,079
           
Colorado:  
  
  
  
  
Commercial 2,231,703
 2,275,069
 1,132,500
 1,165,721
 1,180,655
Commercial real estate 957,348
 963,575
 354,543
 267,065
 210,801
Residential mortgage 241,722
 251,849
 68,694
 64,839
 64,530
Personal 65,812
 72,916
 56,999
 60,504
 63,118
Total Colorado 3,496,585
 3,563,409
 1,612,736
 1,558,129
 1,519,104
           
Arizona:  
  
  
  
  
Commercial 1,335,140
 1,320,139
 621,658
 681,852
 624,106
Commercial real estate 791,466
 889,903
 666,562
 710,784
 672,319
Residential mortgage 98,973
 97,959
 44,659
 47,010
 39,227
Personal 61,875
 68,546
 67,280
 65,541
 57,023
Total Arizona 2,287,454
 2,376,547
 1,400,159
 1,505,187
 1,392,675
           
Kansas/Missouri:  
  
  
  
  
Commercial 667,859
 659,793
 669,903
 715,224
 723,921
Commercial real estate 327,870
 343,228
 278,381
 257,920
 264,025
Residential mortgage 75,560
 77,971
 79,893
 85,835
 92,447
Personal 81,831
 91,441
 91,224
 93,837
 107,172
Total Kansas/Missouri 1,153,120
 1,172,433
 1,119,401
 1,152,816
 1,187,565
           
Total BOK Financial loans $21,758,980
 $21,656,730
 $18,349,459
 $18,003,696
 $17,337,850


Loan Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as nonaccruing. shown in Table 18. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Table 18 – Off-Balance Sheet Credit Commitments
(In thousands)
  Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Loan commitments $12,243,886
 $11,944,524
 $10,715,964
 $10,294,211
 $10,249,729
Standby letters of credit 720,451
 582,196
 671,844
 659,867
 664,342
Mortgage loans sold with recourse 94,938
 98,623
 101,512
 116,269
 121,197
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 renew maturedbe required to provide cash margin or other collateral in conjunction with our credit agreements to further limit our credit risk.

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

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

Derivative contracts are carried at fair value. At March 31, 2019, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $354 million compared to $427 million at December 31, 2018. At March 31, 2019, the net fair value of our derivative contracts included $223 million for foreign exchange contracts, $58 million of to-be-announced residential mortgage-backed securities, $39 million for energy contracts and $28 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 $343 million at March 31, 2019 and $413 million at December 31, 2018.

At March 31, 2019, total derivative assets were reduced by $12 million of cash collateral received from counterparties and total derivative liabilities were reduced by $75 million of cash collateral paid to counterparties related to instruments executed with the same counterparty under a master netting agreement.

A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note 3 to the Consolidated Financial Statements.



The fair value of derivative contracts reported as assets under these programs, net of cash margin held by the Company, by category of debtor at March 31, 2019 follows in Table 19.

Table 19 -- Fair Value of Derivative Contracts
(In thousands)
Customers $212,147
Banks and other financial institutions 129,213
Exchanges and clearing organizations 1,141
Fair value of customer risk management program asset derivative contracts, net $342,501
At March 31, 2019, our largest derivative exposure was to a counterparty for energy contracts of $8.5 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 $29.10 per barrel of oil would not be great enough to create a scenario in which we are owed by our customers. An increase in prices equivalent to $72.05 per barrel of oil would increase the fair value of derivative assets by $127 million. Further increases in price to the equivalent of $89.92 per barrel of oil would increase the fair value of our derivative assets by $320 million with lending customers comprising the bulk of the assets. Liquidity requirements of this program may also be affected by our credit rating. At March 31, 2019, a decrease in our credit rating to below investment grade did not have a significant impact on our obligation to post cash margin on existing contracts. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of March 31, 2019, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
Summary of Loan Loss Experience

We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. At March 31, 2019, the combined allowance for loan losses and off-balance sheet credit losses totaled $207 million or 0.95 percent of outstanding loans and 142 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measured at acquisition date fair value, the combined allowance for loan losses was 1.09 percent of outstanding loans and 159 percent of nonaccruing loans. AllThe allowance for loan losses was $205 million and the accrual for off-balance sheet credit losses was $1.8 million. At December 31, 2018, the combined allowance for credit losses was $209 million or 0.97 percent of outstanding loans and 134 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measured at acquisition date fair value, the combined allowance for loan losses was 1.12 percent of outstanding loans and 146 percent of nonaccruing loans. The allowance for loan losses was $207 million and the accrual for off-balance sheet credit losses was $1.8 million. 

The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the combined charge to expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. All losses incurred from lending activities will ultimately be reflected in charge-offs against the allowance for loan losses following funds advanced against outstanding commitments. Based on an evaluation of all credit factors, including those renewed oroverall loan growth, the trends in nonaccruing loans, potential problem loans and net charge-offs, the Company determined that $8.0 million provision for credit losses was appropriate for the first quarter of 2019. The Company recorded $9.0 million provision for credit losses in the fourth quarter of 2018.




Table 20 -- Summary of Loan Loss Experience
(In thousands)
  Three Months Ended
  Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Allowance for loan losses:          
Beginning balance $207,457
 $210,569
 $215,142
 $223,967
 $230,682
Loans charged off:          
Commercial (10,468) (12,940) (9,602) (13,775) (1,563)
Commercial real estate —
 —
 —
 —
 —
Residential mortgage (42) (52) (91) (135) (100)
Personal (1,265) (1,523) (1,380) (1,195) (1,227)
Total (11,775) (14,515) (11,073) (15,105) (2,890)
Recoveries of loans previously charged off:          
Commercial 711
 1,267
 1,263
 298
 488
Commercial real estate 112
 232
 40
 3,097
 183
Residential mortgage 154
 71
 229
 505
 242
Personal 712
 598
 560
 678
 663
Total 1,689
 2,168
 2,092
 4,578
 1,576
Net loans recovered (charged off) (10,086) (12,347) (8,981) (10,527) (1,314)
Provision for loan losses 7,969
 9,235
 4,408
 1,702
 (5,401)
Ending balance $205,340
 $207,457
 $210,569
 $215,142
 $223,967
Accrual for off-balance sheet credit losses:          
Beginning balance $1,790
 $2,025
 $2,433
 $4,135
 $3,734
Provision for off-balance sheet credit losses 31
 (235) (408) (1,702) 401
Ending balance $1,821
 $1,790
 $2,025
 $2,433
 $4,135
Total combined provision for credit losses $8,000
 $9,000
 $4,000
 $—
 $(5,000)
Allowance for loan losses to loans outstanding at period-end 0.94% 0.96% 1.15% 1.19% 1.29 %
Net charge-offs (recoveries) (annualized) to average loans 0.19% 0.23% 0.20% 0.24% 0.03 %
Total provision for credit losses (annualized) to average loans 0.15% 0.17% 0.09% —% (0.12)%
Recoveries to gross charge-offs 14.34% 14.94% 18.89% 30.31% 54.53 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments 0.01% 0.01% 0.02% 0.02% 0.04 %
Combined allowance for credit losses to loans outstanding at period-end 0.95% 0.97% 1.16% 1.21% 1.32 %
Allowance for Loan Losses

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

Loans are considered to be impaired when it is probable that we will not collect all amounts due according to the original contractual terms of the loan agreement. This includes all nonaccruing loans, all loans modified in troubled debt restructurings are charged offand all government guaranteed loans repurchased from GNMA pools. A specific allowance is required when the outstanding principal balance of the loan balance is not supported by either the discounted cash flows expected to be received from the borrower or the fair value of collateral for collateral dependent loans. At March 31, 2019, impaired loans totaled $339 million, including $8.0 million with specific allowances of $3.5 million and $331 million with no longer coveredspecific allowances. At December 31, 2018, impaired loans totaled $347 million, including $35 million of impaired loans with specific allowances of $8.7 million and $312 million with no specific allowances.


General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rates for risk-graded loans are either increased or decreased based on changes in risk grading for each loan class. Estimated loss rates for both risk-graded and non-risk graded loans may be further adjusted for inherent risk identified for the paying capacitygiven loan class which have not yet been captured in the loss rate.

The aggregate amount of general allowances for all unimpaired loans totaled $183 million at March 31, 2019. The general allowance for unimpaired loans increased $2 million compared to December 31, 2018, primarily due to a decrease in general allowances related to residential mortgage loans, partially offset by an increase in general allowances related to the commercial loan segment.

Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other relevant factors. Nonspecific allowances totaled $19 million at March 31, 2019, a $1.4 million increase over December 31, 2018.

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

Our loan monitoring process also identified certain accruing substandard loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower based on a quarterly evaluationor the value of available cash resources and collateral value. Nonaccruing loans generally remain on nonaccrual status until full collection of principal and interestthe collateral. Because the borrowers are still performing in accordance with the original terms including principal previously charged off, is probable. We generally do not voluntarily modify personal loans to troubled borrowers. Personal loans modified atof the directionloan agreements, and no loss of bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.

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

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

Table 22 -- Rollforward of Nonperforming Assets
(In thousands)
  Three Months Ended
  June 30, 2018
  
 
Nonaccruing Loans
 
 
Renegotiated Loans
 Real Estate and Other Repossessed Assets Total Nonperforming Assets
Balance, March 31, 2018 $180,064
 $74,418
 $23,652
 $278,134
Additions 41,728
 13,600
 —
 55,328
Payments (31,099) (707) —
 (31,806)
Charge-offs (15,105) —
 —
 (15,105)
Net gains, losses and write-downs —
 —
 180
 180
Foreclosure of nonperforming loans (6,587) —
 6,587
 —
Foreclosure of loans guaranteed by U.S. government agencies (1,658) (1,964) —
 (3,622)
Proceeds from sales —
 (10,362) (3,069) (13,431)
Net transfers to nonaccruing loans 153
 (153) —
 —
Return to accrual status (1,839) —
 —
 (1,839)
Other, net —
 542
 541
 1,083
Balance, June 30, 2018 $165,657
 $75,374
 $27,891
 $268,922


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

We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generallyanticipated, these loans arewere not eligible for modification programs or have failedincluded in nonperforming assets. Known information does, however, cause management concern as to the borrowers’ ability to comply with modified loancurrent repayment terms. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is limited. These properties will be conveyed to the agencies once applicable criteria have been met. 
Commercial

Nonaccruing commercialpotential problem loans totaled $121$169 million or 1.07 percent of total commercial loans at June 30, 2018 and $131 million or 1.20 percent of commercial loans at March 31, 2018. There were $36 million in newly identified nonaccruing commercial loans during the quarter, offset by $26 million in payments $14 million of charge-offs2019 and $4.9 million foreclosures of nonaccruing commercial loans during the second quarter.

Nonaccruing commercial loans at June 30, 2018 were primarily composed of $66$81 million or 2.082.19 percent of total energy loans, $18$28 million or 3.20less than 1 percent of total other commercial and industrialservice sector loans, $16$21 million or 0.692.87 percent of total healthcaremanufacturing sector loans and $14 million or 0.83less than 1 percent of totalhealthcare sector loans. Potential problem loans totaled $215 million at December 31, 2018.

Based on regulatory guidelines, other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management's close attention. Other loans especially mentioned totaled $196 million at March 31, 2019 and were composed primarily of $60 million or 1.84 percent of service sector loans, $39 million or 1.06 percent of energy sector loans, $34 million or 4.58 percent of manufacturing sector loans and $21 million or 1.24 percent of wholesale/retail sector loans and $14 million or 0.47 percent healthcare sector loans. Other loans especially mentioned totaled $182 million at December 31, 2018.
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. Our larger concentrations are in Texas, Colorado and Oklahoma representing 27 percent, 13 percent and 10 percent of the total commercial real estate portfolio at March 31, 2019, respectively. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

Commercial real estate loans totaled $4.6 billion or 21 percent of the loan portfolio at March 31, 2019. The outstanding balance of commercial real estate loans decreased $164 million compared to December 31, 2018. Loans secured by multifamily residential properties decreased $78 million. Loans secured by office buildings decreased $40 million. Loans secured by retail facilities decreased $28 million. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 19 percent to 21 percent over the past five years. 

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

Table 14 -- Commercial Real Estate Loans by Collateral Location
(In thousands)
  Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total
Multifamily $160,566
 $434,105
 $31,706
 $49,405
 $63,150
 $118,339
 $176,069
 $177,018
 $1,210,358
Office 107,021
 275,583
 96,161
 16,669
 130,895
 73,767
 36,288
 296,774
 1,033,158
Retail 56,621
 255,901
 136,992
 5,469
 102,068
 73,138
 14,057
 246,439
 890,685
Industrial 83,536
 207,516
 19,203
 92
 78,359
 43,181
 41,248
 294,622
 767,757
Residential construction and land development 5,243
 13,890
 13,385
 559
 59,999
 13,278
 11,097
 32,235
 149,686
Other commercial real estate 49,323
 40,185
 11,264
 2,218
 155,721
 78,063
 39,969
 172,264
 549,007
Total commercial real estate loans $462,310
 $1,227,180
 $308,711
 $74,412
 $590,192
 $399,766
 $318,728
 $1,219,352
 $4,600,651

The Other category is primarily composed of California - $285 million or 6 percent of the commercial real estate portfolio, Utah - $137 million or 3 percent of the commercial real estate portfolio and Nevada - $108 million or 2 percent of the commercial real estate portfolio. All other states represent less than 2% individually.

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


Residential Mortgage and Personal

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

Residential mortgage loans totaled $2.2 billion, a decrease of $37 million compared to December 31, 2018. In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. We have no concentration in sub-prime residential mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Collateral for 92% of our residential mortgage loan portfolio is located within our geographical footprint.

The majority of our permanent mortgage loan portfolio is composed of various non-conforming mortgage programs to support customer relationships including jumbo mortgage loans, non-builder construction loans and special loan programs for high net worth individuals or certain professionals. Jumbo loans may be fixed or variable rate and are fully amortizing. The size of jumbo loans exceeds maximums set under government sponsored entity standards, but otherwise generally conform to those standards. These loans generally require a minimum FICO score of 720 and a maximum debt-to-income ratio (“DTI”) of 38 percent. Loan-to-value ratios (“LTV”) are tiered from 60 percent to100 percent, depending on the market. Special mortgage programs include fixed and variable rate fully amortizing loans tailored to the needs of certain healthcare professionals. Variable rate loans are fully indexed at origination and may have fixed rates for three to ten years, then adjust annually thereafter.

At March 31, 2019, $193 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. We have limited credit exposure on loans guaranteed by the agencies. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet. Permanent residential mortgage loans guaranteed by U.S. government agencies increased $2.4 million over December 31, 2018.

Home equity loans totaled $901 million at March 31, 2019, a $16 million decrease compared to December 31, 2018. Our home equity loan portfolio is primarily composed of first-lien, fully amortizing home equity loans. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 50 percent. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 10 year revolving period followed by a 15 year term of amortizing repayment. Interest-only home equity loans have a 5 year revolving period followed by a 15 year term of amortizing repayments and may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term subject to an update of certain credit information. A summary of our home equity loan portfolio at March 31, 2019 by lien position and amortizing status follows in Table 15.

Table 15 -- Home Equity Loans
(In thousands)
  Revolving Amortizing Total
First lien $87,364
 $520,691
 $608,055
Junior lien 175,625
 117,151
 292,776
Total home equity $262,989
 $637,842
 $900,831




The distribution of residential mortgage and personal loans at March 31, 2019 is as follows in Table 16. Residential mortgage loans are distributed by collateral location. Personal loans are generally distributed by borrower location.

Table 16 -- Residential Mortgage and Personal Loans by Collateral Location
(In thousands)
  Oklahoma Texas New Mexico Arkansas Colorado Arizona Kansas/Missouri Other Total
Residential mortgage:                  
Permanent mortgage $168,755
 $436,600
 $60,691
 $12,960
 $196,222
 $106,324
 $63,996
 $52,933
 $1,098,481
Permanent mortgages  guaranteed by U.S. government agencies 45,406
 31,333
 34,218
 9,998
 5,201
 1,264
 15,821
 50,067
 193,308
Home equity 360,862
 137,082
 80,170
 7,973
 156,039
 39,547
 52,389
 66,769
 900,831
Total residential mortgage $575,023
 $605,015
 $175,079
 $30,931
 $357,462
 $147,135
 $132,206
 $169,769
 $2,192,620
                   
Personal $316,266
 $418,582
 $12,210
 $11,696
 $72,738
 $55,643
 $52,910
 $63,689
 $1,003,734



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

Table 17 -- Loans Managed by Primary Geographical Market
(In thousands)
  Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Oklahoma:          
Commercial $3,551,054
 $3,491,117
 $3,609,109
 $3,465,407
 $3,265,013
Commercial real estate 665,190
 700,756
 651,315
 662,665
 668,031
Residential mortgage 1,417,381
 1,440,566
 1,429,843
 1,403,658
 1,419,281
Personal 374,807
 375,543
 376,201
 362,846
 353,128
Total Oklahoma 6,008,432
 6,007,982
 6,066,468
 5,894,576
 5,705,453
           
Texas:  
  
  
  
  
Commercial 5,754,018
 5,438,133
 5,115,646
 4,922,451
 4,715,841
Commercial real estate 1,344,810
 1,341,783
 1,354,679
 1,336,101
 1,254,421
Residential mortgage 265,927
 266,805
 253,265
 243,400
 229,761
Personal 396,794
 394,743
 381,452
 394,021
 363,608
Total Texas 7,761,549
 7,441,464
 7,105,042
 6,895,973
 6,563,631
           
New Mexico:  
  
  
  
  
Commercial 342,915
 340,489
 325,048
 305,167
 315,701
Commercial real estate 371,416
 383,670
 392,494
 386,878
 348,485
Residential mortgage 85,326
 87,346
 88,110
 90,581
 93,490
Personal 11,065
 10,662
 11,659
 11,107
 11,667
Total New Mexico 810,722
 822,167
 817,311
 793,733
 769,343
           
Arkansas:  
  
  
  
  
Commercial 79,286
 111,338
 102,237
 93,217
 94,430
Commercial real estate 142,551
 141,898
 106,701
 90,807
 88,700
Residential mortgage 7,731
 7,537
 7,278
 6,927
 7,033
Personal 11,550
 11,955
 12,126
 12,331
 9,916
Total Arkansas 241,118
 272,728
 228,342
 203,282
 200,079
           
Colorado:  
  
  
  
  
Commercial 2,231,703
 2,275,069
 1,132,500
 1,165,721
 1,180,655
Commercial real estate 957,348
 963,575
 354,543
 267,065
 210,801
Residential mortgage 241,722
 251,849
 68,694
 64,839
 64,530
Personal 65,812
 72,916
 56,999
 60,504
 63,118
Total Colorado 3,496,585
 3,563,409
 1,612,736
 1,558,129
 1,519,104
           
Arizona:  
  
  
  
  
Commercial 1,335,140
 1,320,139
 621,658
 681,852
 624,106
Commercial real estate 791,466
 889,903
 666,562
 710,784
 672,319
Residential mortgage 98,973
 97,959
 44,659
 47,010
 39,227
Personal 61,875
 68,546
 67,280
 65,541
 57,023
Total Arizona 2,287,454
 2,376,547
 1,400,159
 1,505,187
 1,392,675
           
Kansas/Missouri:  
  
  
  
  
Commercial 667,859
 659,793
 669,903
 715,224
 723,921
Commercial real estate 327,870
 343,228
 278,381
 257,920
 264,025
Residential mortgage 75,560
 77,971
 79,893
 85,835
 92,447
Personal 81,831
 91,441
 91,224
 93,837
 107,172
Total Kansas/Missouri 1,153,120
 1,172,433
 1,119,401
 1,152,816
 1,187,565
           
Total BOK Financial loans $21,758,980
 $21,656,730
 $18,349,459
 $18,003,696
 $17,337,850


Loan Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 18. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Table 18 – Off-Balance Sheet Credit Commitments
(In thousands)
  Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Loan commitments $12,243,886
 $11,944,524
 $10,715,964
 $10,294,211
 $10,249,729
Standby letters of credit 720,451
 582,196
 671,844
 659,867
 664,342
Mortgage loans sold with recourse 94,938
 98,623
 101,512
 116,269
 121,197
Customer Derivative Programs
We offer programs that permit our customers to hedge various risks, including fluctuations in energy, cattle and other agricultural product prices, interest rates and foreign exchange rates. Each of these programs work essentially the same way. Derivative contracts are executed between the customers and the Company. Offsetting contracts are executed between the Company and selected counterparties to minimize market risk due to changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to the customer contracts, except for a fixed pricing spread or a fee paid to us as compensation for administrative costs, credit risk and profit.

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

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

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

Derivative contracts are carried at fair value. At March 31, 2019, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $354 million compared to $427 million at December 31, 2018. At March 31, 2019, the net fair value of our derivative contracts included $223 million for foreign exchange contracts, $58 million of to-be-announced residential mortgage-backed securities, $39 million for energy contracts and $28 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 $343 million at March 31, 2019 and $413 million at December 31, 2018.

At March 31, 2019, total derivative assets were reduced by $12 million of cash collateral received from counterparties and total derivative liabilities were reduced by $75 million of cash collateral paid to counterparties related to instruments executed with the same counterparty under a master netting agreement.

A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note 3 to the Consolidated Financial Statements.



The fair value of derivative contracts reported as assets under these programs, net of cash margin held by the Company, by category of debtor at March 31, 2019 follows in Table 19.

Table 19 -- Fair Value of Derivative Contracts
(In thousands)
Customers $212,147
Banks and other financial institutions 129,213
Exchanges and clearing organizations 1,141
Fair value of customer risk management program asset derivative contracts, net $342,501
At March 31, 2019, our largest derivative exposure was to a counterparty for energy contracts of $8.5 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 $29.10 per barrel of oil would not be great enough to create a scenario in which we are owed by our customers. An increase in prices equivalent to $72.05 per barrel of oil would increase the fair value of derivative assets by $127 million. Further increases in price to the equivalent of $89.92 per barrel of oil would increase the fair value of our derivative assets by $320 million with lending customers comprising the bulk of the assets. Liquidity requirements of this program may also be affected by our credit rating. At March 31, 2019, a decrease in our credit rating to below investment grade did not have a significant impact on our obligation to post cash margin on existing contracts. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of March 31, 2019, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
Summary of Loan Loss Experience

We maintain an allowance for loan losses and an accrual for off-balance sheet credit risk. At March 31, 2019, the combined allowance for loan losses and off-balance sheet credit losses totaled $207 million or 0.95 percent of outstanding loans and 142 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measured at acquisition date fair value, the combined allowance for loan losses was 1.09 percent of outstanding loans and 159 percent of nonaccruing loans. The allowance for loan losses was $205 million and the accrual for off-balance sheet credit losses was $1.8 million. At December 31, 2018, the combined allowance for credit losses was $209 million or 0.97 percent of outstanding loans and 134 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measured at acquisition date fair value, the combined allowance for loan losses was 1.12 percent of outstanding loans and 146 percent of nonaccruing loans. The allowance for loan losses was $207 million and the accrual for off-balance sheet credit losses was $1.8 million. 

The provision for credit losses is the amount necessary to maintain the allowance for loan losses and an accrual for off-balance sheet credit risk at an amount determined by management to be appropriate based on its evaluation. The provision includes the combined charge to expense for both the allowance for loan losses and the accrual for off-balance sheet credit risk. All losses incurred from lending activities will ultimately be reflected in charge-offs against the allowance for loan losses following funds advanced against outstanding commitments. Based on an evaluation of all credit factors, including overall loan growth, the trends in nonaccruing loans, potential problem loans and net charge-offs, the Company determined that $8.0 million provision for credit losses was appropriate for the first quarter of 2019. The Company recorded $9.0 million provision for credit losses in the fourth quarter of 2018.




Table 20 -- Summary of Loan Loss Experience
(In thousands)
  Three Months Ended
  Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Allowance for loan losses:          
Beginning balance $207,457
 $210,569
 $215,142
 $223,967
 $230,682
Loans charged off:          
Commercial (10,468) (12,940) (9,602) (13,775) (1,563)
Commercial real estate —
 —
 —
 —
 —
Residential mortgage (42) (52) (91) (135) (100)
Personal (1,265) (1,523) (1,380) (1,195) (1,227)
Total (11,775) (14,515) (11,073) (15,105) (2,890)
Recoveries of loans previously charged off:          
Commercial 711
 1,267
 1,263
 298
 488
Commercial real estate 112
 232
 40
 3,097
 183
Residential mortgage 154
 71
 229
 505
 242
Personal 712
 598
 560
 678
 663
Total 1,689
 2,168
 2,092
 4,578
 1,576
Net loans recovered (charged off) (10,086) (12,347) (8,981) (10,527) (1,314)
Provision for loan losses 7,969
 9,235
 4,408
 1,702
 (5,401)
Ending balance $205,340
 $207,457
 $210,569
 $215,142
 $223,967
Accrual for off-balance sheet credit losses:          
Beginning balance $1,790
 $2,025
 $2,433
 $4,135
 $3,734
Provision for off-balance sheet credit losses 31
 (235) (408) (1,702) 401
Ending balance $1,821
 $1,790
 $2,025
 $2,433
 $4,135
Total combined provision for credit losses $8,000
 $9,000
 $4,000
 $—
 $(5,000)
Allowance for loan losses to loans outstanding at period-end 0.94% 0.96% 1.15% 1.19% 1.29 %
Net charge-offs (recoveries) (annualized) to average loans 0.19% 0.23% 0.20% 0.24% 0.03 %
Total provision for credit losses (annualized) to average loans 0.15% 0.17% 0.09% —% (0.12)%
Recoveries to gross charge-offs 14.34% 14.94% 18.89% 30.31% 54.53 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments 0.01% 0.01% 0.02% 0.02% 0.04 %
Combined allowance for credit losses to loans outstanding at period-end 0.95% 0.97% 1.16% 1.21% 1.32 %
Allowance for Loan Losses

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

Loans are considered to be impaired when it is probable that we will not collect all amounts due according to the original contractual terms of the loan agreement. This includes all nonaccruing loans, all loans modified in troubled debt restructurings and all government guaranteed loans repurchased from GNMA pools. A specific allowance is required when the outstanding principal balance of the loan is not supported by either the discounted cash flows expected to be received from the borrower or the fair value of collateral for collateral dependent loans. At March 31, 2019, impaired loans totaled $339 million, including $8.0 million with specific allowances of $3.5 million and $331 million with no specific allowances. At December 31, 2018, impaired loans totaled $347 million, including $35 million of impaired loans with specific allowances of $8.7 million and $312 million with no specific allowances.


General allowances for unimpaired loans are based on an estimated loss rate by loan class. Estimated loss rates for risk-graded loans are either increased or decreased based on changes in risk grading for each loan class. Estimated loss rates for both risk-graded and non-risk graded loans may be further adjusted for inherent risk identified for the given loan class which have not yet been captured in the loss rate.

The aggregate amount of general allowances for all unimpaired loans totaled $183 million at March 31, 2019. The general allowance for unimpaired loans increased $2 million compared to December 31, 2018, primarily due to a decrease in general allowances related to residential mortgage loans, partially offset by an increase in general allowances related to the commercial loan segment.

Nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class. These factors include trends in the economy in our primary lending areas, concentrations in loans with large balances and other relevant factors. Nonspecific allowances totaled $19 million at March 31, 2019, a $1.4 million increase over December 31, 2018.

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

Our loan monitoring process also identified certain accruing substandard loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements, and no loss of principal or interest is anticipated, these loans were not included in nonperforming assets. Known information does, however, cause management concern as to the borrowers’ ability to comply with current repayment terms. These potential problem loans totaled $169 million at March 31, 2019 and were primarily composed of $81 million or 2.19 percent of energy loans, $28 million or less than 1 percent of service sector loans, $21 million or 2.87 percent of manufacturing sector loans and $14 million or less than 1 percent of healthcare sector loans. Potential problem loans totaled $215 million at December 31, 2018.

Based on regulatory guidelines, other loans especially mentioned are in compliance with the original terms of the agreement but may have a weakness that deserves management's close attention. Other loans especially mentioned totaled $196 million at March 31, 2019 and were composed primarily of $60 million or 1.84 percent of service sector loans, $39 million or 1.06 percent of energy sector loans, $34 million or 4.58 percent of manufacturing sector loans and $21 million or 1.24 percent of wholesale/retail sector loans and $14 million or 0.47 percent healthcare sector loans. Other loans especially mentioned totaled $182 million at December 31, 2018.
Net Loans Charged Off

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

BOK Financial had net charge-offs of $10.1 million in the first quarter of 2019, compared to net charge-offs of $12.3 million in the fourth quarter of 2018 and net charge-offs of $1.3 million in the first quarter of 2018. The ratio of net loans charged off to average loans on an annualized basis was 0.19 percent for the first quarter of 2019, compared with 0.23 percent for the fourth quarter of 2018 and 0.03 percent for the first quarter of 2018. 

Net charge-offs of commercial loans were $10 million in the first quarter of 2019, primarily related to a single energy production borrower and a single healthcare sector borrower. Net commercial real estate loan recoveries were $112 thousand in the first quarter of 2019. Net recoveries of residential mortgage loans were $112 thousand and net charge-offs of personal loans were $553 thousand for the first quarter. Personal loan net charge-offs include deposit account overdraft losses.


Nonperforming Assets

Table 21 -- Nonperforming Assets
(In thousands)
  Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Nonaccruing loans:          
Commercial $90,358
 $99,841
 $109,490
 $120,978
 $131,460
Commercial real estate 21,508
 21,621
 1,316
 1,996
 2,470
Residential mortgage 40,409
 41,555
 41,917
 42,343
 45,794
Personal 302
 230
 269
 340
 340
Total nonaccruing loans 152,577
 163,247
 152,992
 165,657
 180,064
Accruing renegotiated loans guaranteed by U.S. government agencies 91,787
 86,428
 83,347
 75,374
 74,418
Real estate and other repossessed assets 17,139
 17,487
 24,515
 27,891
 23,652
Total nonperforming assets $261,503
 $267,162
 $260,854
 $268,922
 $278,134
Total nonperforming assets excluding those guaranteed by U.S. government agencies $162,770
 $173,602
 $169,717
 $185,981
 $194,833
           
Nonaccruing loans by loan portfolio segment and class:      
  
Commercial:        
  
Energy $35,332
 $47,494
 $54,033
 $65,597
 $89,942
Healthcare 18,768
 16,538
 15,704
 16,125
 15,342
Manufacturing 9,548
 8,919
 9,202
 2,991
 3,002
Services 9,555
 8,567
 4,097
 4,377
 2,109
Wholesale/retail 1,425
 1,316
 9,249
 14,095
 2,564
Public finance —
 —
 —
 —
 —
Other commercial and industrial 15,730
 17,007
 17,205
 17,793
 18,501
Total commercial 90,358
 99,841
 109,490
 120,978
 131,460
           
Commercial real estate:        
  
Retail 20,159
 20,279
 777
 1,068
 264
Residential construction and land development 350
 350
 350
 350
 1,613
Multifamily —
 301
 —
 —
 —
Office 855
 —
 —
 275
 275
Industrial —
 —
 —
 —
 —
Other commercial real estate 144
 691
 189
 303
 318
Total commercial real estate 21,508
 21,621
 1,316
 1,996
 2,470
           
Residential mortgage:        
  
Permanent mortgage 22,937
 23,951
 22,855
 23,105
 24,578
Permanent mortgage guaranteed by U.S. government agencies 6,946
 7,132
 7,790
 7,567
 8,883
Home equity 10,526
 10,472
 11,272
 11,671
 12,333
Total residential mortgage 40,409
 41,555
 41,917
 42,343
 45,794
Personal 302
 230
 269
 340
 340
Total nonaccruing loans $152,577
 $163,247
 $152,992
 $165,657
 $180,064
           
Ratios:        
  
Allowance for loan losses to nonaccruing loans1
 141.00% 132.89% 145.02% 136.09% 130.84%
Accruing loans 90 days or more past due1
 $610
 $1,338
 $518
 $879
 $90
1
Excludes residential mortgages guaranteed by agencies of the U.S. Government.


Nonperforming assets totaled $262 million or 1.20 percent of outstanding loans and repossessed assets at March 31, 2019. Nonaccruing loans totaled $153 million, accruing renegotiated residential mortgage loans totaled $92 million and real estate and other repossessed assets totaled $17 million. All accruing renegotiated residential mortgage loans and $6.9 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $11 million compared to the fourth quarter of 2018, primarily due to a decrease in nonaccruing energy loans. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.

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

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

A rollforward of nonperforming assets for the three months ended March 31, 2019 follows in Table 22.

Table 22 -- Rollforward of Nonperforming Assets
(In thousands)
  Three Months Ended
  March 31, 2019
  
 
Nonaccruing Loans
 
 
Renegotiated Loans
 Real Estate and Other Repossessed Assets Total Nonperforming Assets
Balance, December 31, 2018 $163,247
 $86,428
 $17,487
 $267,162
Additions 26,868
 14,316
 —
 41,184
Payments (22,175) (633) —
 (22,808)
Charge-offs (11,775) —
 —
 (11,775)
Net losses and write-downs —
 —
 (245) (245)
Foreclosure of nonperforming loans (1,032) —
 1,032
 —
Foreclosure of loans guaranteed by U.S. government agencies (680) (2,524) —
 (3,204)
Proceeds from sales —
 (6,054) (1,135) (7,189)
Return to accrual status (1,876) —
 —
 (1,876)
Other, net —
 254
 —
 254
Balance, March 31, 2019 $152,577
 $91,787
 $17,139
 $261,503
We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans are not eligible for modification programs or have failed to comply with modified loan terms. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is limited. These properties will be conveyed to the agencies once applicable criteria have been met. 


Commercial

Nonaccruing commercial loans totaled $90 million or 0.65 percent of total commercial loans at March 31, 2019 and $100 million or 0.73 percent of commercial loans at December 31, 2018. There were $20 million in newly identified nonaccruing commercial loans during the quarter, offset by $20 million in payments and $10 million of charge-offs of nonaccruing commercial loans during the first quarter.

Nonaccruing commercial loans at March 31, 2019 were primarily composed of $35 million or 0.95 percent of total energy loans, $19 million or 0.64 percent of total healthcare sector loans and $16 million or 1.96 percent of total other commercial and industrial sector loans.
Commercial Real Estate

Nonaccruing commercial real estate loans totaled $2.0$22 million or 0.050.47 percent of outstanding commercial real estate loans at June 30, 2018,March 31, 2019, compared to $2.5$22 million or 0.070.45 percent of outstanding commercial real estate loans at MarchDecember 31, 2018.2018. Newly identified nonaccruing commercial real estate loans of $902$855 thousand were offset by $1.3 million$132 thousand of cash payments received and $1.8 million of loans returned to accruing status. There were no charge-offs or foreclosures of nonaccruing commercial real estate loans during the second quarter.received.


Nonaccruing commercial real estate loans were primarily composed of $1.1$20 million or 0.142.26 percent of loans secured by retail facilities.


Residential Mortgage and Personal


Nonaccruing residential mortgage loans totaled $42$40 million or 2.181.84 percent of outstanding residential mortgage loans at June 30, 2018,March 31, 2019, a $3.5$1.1 million decrease compared to MarchDecember 31, 2018.2018. Newly identified nonaccruing residential mortgage loans totaling $3.2$4.1 million were offset by $3.3 million of foreclosures, $3.3$2.5 million of payments and $135$931 thousand of loans charged off during the quarter. foreclosures. 


Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans, which totaled $23$23 million or 2.162.09 percent of outstanding non-guaranteed permanent residential mortgage loans at June 30, 2018.March 31, 2019. Nonaccruing home equity loans totaled $12$11 million or 1.661.17 percent of total home equity loans.




Payments of accruing residential mortgage loans and personal loans may be delinquent. The composition of residential mortgage loans and personal loans past due but still accruing is included in the following Table 23.23. Substantially all non-guaranteed residential loans past due 90 days or more are nonaccruing. Residential mortgage loans 30 to 59 days past due increased $481 thousand$5.2 million in the secondfirst quarter to $4.2$10 million at June 30, 2018.March 31, 2019. Residential mortgage loans 60 to 89 days past due increaseddecreased by $504$550 thousand. Personal loans past due 30 to 59 days decreased by $616$132 thousand and personal loans 60 to 89 days increased $136decreased $780 thousand.


Table 23 -- Residential Mortgage and Personal Loans Past Due
(In thousands)
 June 30, 2018 March 31, 2018 March 31, 2019 December 31, 2018
 90 Days or More 60 to 89 Days 30 to 59 Days 90 Days or More 60 to 89 Days 30 to 59 Days 90 Days or More 60 to 89 Days 30 to 59 Days 90 Days or More 60 to 89 Days 30 to 59 Days
Residential mortgage:                        
Permanent mortgage1
 $84
 $796
 $2,568
 $—
 $—
 $2,322
 $—
 $—
 $5,394
 $—
 $366
 $3,196
Home equity 65
 94
 1,612
 22
 386
 1,377
 —
 168
 4,118
 59
 352
 1,102
Total residential mortgage $149
 $890
 $4,180
 22
 $386
 $3,699
 $—
 $168
 $9,512
 59
 $718
 $4,298
  
    
  
    
  
    
  
    
Personal $—
 $150
 $178
 $62
 $14
 $794
 $—
 $16
 $347
 $3
 $796
 $479
1 
Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.



Real Estate and Other Repossessed Assets


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


Real estate and other repossessed assets totaled $28$17 million at June 30, 2018,March 31, 2019, composed primarily of $12$6.0 million of oil and gas properties, $6.0$4.6 million of 1-4 family residential properties, $5.4$3.3 million of developed commercial real estate and $4.5$3.3 million of undeveloped land primarily zoned for commercial development. Real estate and other repossessed assets totaled $24$17 million at MarchDecember 31, 2018.






Liquidity and Capital


Based on the average balances for the secondfirst quarter of 2018,2019, approximately 6562 percent of our funding was provided by deposit accounts, 2123 percent from borrowed funds, less than 1 percent is from long-term subordinated debt and 1011 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 secondfirst quarter of 20182019 totaled $22.1$25 billion, largely unchangeda decrease of $481 million compared to the firstfourth quarter of 2018. Demand deposit balances increased $72 million and saving account balances were up $24 million. This growth was offset by a $155 million decrease in interest-bearing2018. Interest-bearing transaction account balances increased $158 million and a $12time deposits increased $6 million. Demand deposits decreased $661 million decrease in time deposits.compared to the fourth quarter of 2018.
Table 24 - Average Deposits by Line of Business
(In thousands)
Three Months EndedThree Months Ended
June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Commercial Banking$8,379,584
 $8,664,452
 $8,799,166
 $8,727,221
 $8,696,691
$8,261,543
 $8,393,016
 $8,633,204
 $8,379,584
 $8,664,452
Consumer Banking6,579,635
 6,538,096
 6,622,149
 6,663,969
 6,618,958
6,544,665
 6,542,188
 6,580,395
 6,579,635
 6,538,096
Wealth Management5,834,669
 5,662,470
 5,457,566
 5,495,250
 5,531,091
5,659,771
 5,483,455
 5,492,048
 5,834,669
 5,662,470
Subtotal20,793,888
 20,865,018
 20,878,881
 20,886,440
 20,846,740
20,465,979
 20,418,659
 20,705,647
 20,793,888
 20,865,018
Funds Management and other1,261,344
 1,261,877
 1,282,179
 1,232,881
 1,245,591
4,148,500
 4,676,736
 1,230,648
 1,261,344
 1,261,877
Total$22,055,232
 $22,126,895
 $22,161,060
 $22,119,321
 $22,092,331
$24,614,479
 $25,095,395
 $21,936,295
 $22,055,232
 $22,126,895


Average Commercial Banking deposit balances decreased $285$131 million compared to the firstfourth quarter of 2018. Interest-bearingDemand deposit balances decreased $411 million and interest-bearing transaction account balances decreased $231 million and demand deposit balances decreased $55increased $277 million. CommercialDespite the series of federal funds rate increases from the Federal Reserve, as well as modest increases in our earnings credit, commercial customers continue to retain large cash reserves primarily due to a combination of factors including uncertainty about the economic environment and potential for growth, lack of preferable liquid alternatives and a desire to minimize deposit service charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. Commercial deposit balances may decrease as the economic outlook continues to improve and customers deploy cash orif short-term rates continue to move higher, enhancing their investment alternatives. As short-term rates move higher, related increases to the earnings credit rates rise, reducingrate may be appropriate, which will reduce the amount of deposits required to offset service charges.


Average Consumer Banking deposit balances increased $42$2.5 million over the prior quarter. Demand deposit and time deposit balances grew by $81$11 million and savings deposit balances were up $22 million.$6.9 million, respectively. This growth was offset by a $55decrease of $31 million decrease in time deposits. Interest-bearinginterest-bearing transaction deposit balances were largely unchanged.account balances.


Average Wealth Management deposits increased $172$176 million over the firstfourth quarter of 2018.2018 primarily due to customers deploying funds in other off-balance sheet investment alternatives. Interest-bearing transaction account balances grew by $90were up $150 million, demand deposit balances increased $12 million, and time deposits balances were up $45 million, and demand deposit balances increased $36$12 million.


Average time deposits for the secondfirst quarter of 20182019 included $252$270 million of brokered deposits, a decreasean increase of $406$23 million compared toover the firstfourth quarter of 2018.2018. Average interest-bearing transaction accounts for the secondfirst quarter included $828$819 million of brokered deposits, a decreaseincrease of $783$2.7 million compared toover the firstfourth quarter of 2018. The decrease in average brokered deposits balances was largely driven by a change in the regulatory definition of brokered deposits in the second quarter of 2018.



The distribution of our period end deposit account balances among principal markets follows in Table 25.25.





Table 25 -- Period End Deposits by Principal Market Area
(In thousands)
 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Bank of Oklahoma:          
Oklahoma:          
Demand $3,867,933
 $4,201,842
 $3,885,008
 $4,061,612
 $4,353,421
 $3,432,239
 $3,610,593
 $3,564,307
 $3,867,934
 $4,201,843
Interest-bearing:                    
Transaction 5,968,460
 6,051,302
 5,901,293
 5,909,259
 5,998,787
 6,542,548
 6,445,831
 6,010,972
 5,968,459
 6,051,301
Savings 289,202
 289,351
 265,870
 265,023
 263,664
 309,875
 288,210
 288,080
 289,202
 289,351
Time 1,207,471
 1,203,534
 1,092,133
 1,131,547
 1,170,014
 1,217,371
 1,118,643
 1,128,810
 1,207,471
 1,203,534
Total interest-bearing 7,465,133
 7,544,187
 7,259,296
 7,305,829
 7,432,465
 8,069,794
 7,852,684
 7,427,862
 7,465,132
 7,544,186
Total Bank of Oklahoma 11,333,066
 11,746,029
 11,144,304
 11,367,441
 11,785,886
Total Oklahoma 11,502,033
 11,463,277
 10,992,169
 11,333,066
 11,746,029
                    
Bank of Texas:          
Texas:          
Demand 3,317,656
 3,015,869
 3,239,098
 3,094,184
 3,121,890
 2,966,743
 3,291,433
 3,357,669
 3,321,980
 3,019,483
Interest-bearing:                    
Transaction 2,168,488
 2,208,480
 2,397,071
 2,272,987
 2,272,185
 2,385,305
 2,295,169
 2,182,114
 2,169,155
 2,208,892
Savings 97,809
 98,852
 93,620
 93,400
 91,491
 101,849
 99,624
 97,909
 97,809
 98,852
Time 445,500
 475,967
 502,879
 521,072
 502,128
 419,269
 423,880
 453,119
 445,500
 475,967
Total interest-bearing 2,711,797
 2,783,299
 2,993,570
 2,887,459
 2,865,804
 2,906,423
 2,818,673
 2,733,142
 2,712,464
 2,783,711
Total Bank of Texas 6,029,453
 5,799,168
 6,232,668
 5,981,643
 5,987,694
Total Texas 5,873,166
 6,110,106
 6,090,811
 6,034,444
 5,803,194
                    
Bank of Albuquerque:          
New Mexico:          
Demand 770,974
 695,060
 663,353
 659,793
 612,117
 662,362
 691,692
 722,188
 770,974
 695,060
Interest-bearing:                    
Transaction 586,593
 555,414
 552,393
 551,884
 558,523
 573,203
 571,347
 593,760
 586,593
 555,414
Savings 59,415
 60,596
 55,647
 53,532
 54,136
 61,497
 58,194
 57,794
 59,415
 60,596
Time 212,689
 216,306
 216,743
 224,773
 229,616
 228,212
 224,515
 221,513
 212,689
 216,306
Total interest-bearing 858,697
 832,316
 824,783
 830,189
 842,275
 862,912
 854,056
 873,067
 858,697
 832,316
Total Bank of Albuquerque 1,629,671
 1,527,376
 1,488,136
 1,489,982
 1,454,392
Total New Mexico 1,525,274
 1,545,748
 1,595,255
 1,629,671
 1,527,376
                    
Bank of Arkansas:          
Arkansas:          
Demand 39,896
 35,291
 30,384
 31,442
 40,511
 31,624
 36,800
 36,579
 39,896
 35,291
Interest-bearing:                    
Transaction 143,298
 94,206
 85,095
 126,746
 129,848
 147,964
 91,593
 128,001
 143,298
 94,206
Savings 1,885
 1,960
 1,881
 1,876
 2,135
 1,785
 1,632
 1,826
 1,885
 1,960
Time 10,771
 11,878
 14,045
 14,434
 14,876
 8,321
 8,726
 10,214
 10,771
 11,878
Total interest-bearing 155,954
 108,044
 101,021
 143,056
 146,859
 158,070
 101,951
 140,041
 155,954
 108,044
Total Bank of Arkansas 195,850
 143,335
 131,405
 174,498
 187,370
Total Arkansas 189,694
 138,751
 176,620
 195,850
 143,335
                    



 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Colorado State Bank & Trust:          
Colorado:          
Demand 529,912
 521,963
 633,714
 540,300
 577,617
 1,897,547
 1,658,473
 593,442
 529,912
 521,963
Interest-bearing:                    
Transaction 701,362
 687,785
 657,629
 628,807
 626,343
 1,844,632
 1,899,203
 622,520
 701,362
 687,785
Savings 38,176
 37,232
 35,223
 34,776
 35,651
 58,919
 57,289
 40,308
 38,176
 37,232
Time 208,049
 215,330
 224,962
 231,927
 228,458
 261,235
 274,877
 217,628
 208,049
 215,330
Total interest-bearing 947,587
 940,347
 917,814
 895,510
 890,452
 2,164,786
 2,231,369
 880,456
 947,587
 940,347
Total Colorado State Bank & Trust 1,477,499
 1,462,310
 1,551,528
 1,435,810
 1,468,069
Total Colorado 4,062,333
 3,889,842
 1,473,898
 1,477,499
 1,462,310
                    
Bank of Arizona:          
Arizona:          
Demand 387,952
 330,196
 334,701
 335,740
 366,866
 695,238
 707,402
 365,878
 383,627
 326,581
Interest-bearing:                    
Transaction 194,353
 248,337
 274,846
 174,010
 154,457
 621,735
 575,567
 130,105
 193,687
 247,926
Savings 3,935
 4,116
 3,343
 4,105
 3,638
 12,144
 10,545
 3,559
 3,935
 4,116
Time 22,447
 21,009
 20,394
 20,831
 19,911
 44,004
 43,051
 23,927
 22,447
 21,009
Total interest-bearing 220,735
 273,462
 298,583
 198,946
 178,006
 677,883
 629,163
 157,591
 220,069
 273,051
Total Bank of Arizona 608,687
 603,658
 633,284
 534,686
 544,872
Total Arizona 1,373,121
 1,336,565
 523,469
 603,696
 599,632
                    
Mobank (Kansas City):          
Kansas/Missouri:          
Demand 459,636
 505,802
 457,080
 462,410
 496,473
 410,799
 418,199
 423,560
 459,636
 505,802
Interest-bearing:                    
Transaction 401,545
 381,447
 382,066
 361,391
 346,996
 361,590
 327,866
 322,747
 401,545
 381,447
Savings 13,052
 13,845
 13,574
 12,513
 13,603
 13,815
 13,721
 13,125
 13,052
 13,845
Time 20,805
 22,230
 27,260
 27,705
 31,119
 19,977
 19,688
 20,635
 20,805
 22,230
Total interest-bearing 435,402
 417,522
 422,900
 401,609
 391,718
 395,382
 361,275
 356,507
 435,402
 417,522
Total Mobank (Kansas City) 895,038
 923,324
 879,980
 864,019
 888,191
Total Kansas/Missouri 806,181
 779,474
 780,067
 895,038
 923,324
Total BOK Financial deposits $22,169,264
 $22,205,200
 $22,061,305
 $21,848,079
 $22,316,474
 $25,331,802
 $25,263,763
 $21,632,289
 $22,169,264
 $22,205,200


In addition to deposits, liquidity is provided primarily by federal funds purchased, securities repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured, overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers’ banks and Federal Home Loan banks from across the country. The largest single source of wholesale federal funds purchased totaled $200$490 million at June 30, 2018.March 31, 2019. Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale securities. Federal Home Loan Bank borrowings are generally short-term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and agency mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $6.5$5.7 billion during the quarter, up from $6.3compared to $6.5 billion in the firstfourth quarter of 2018.2018.


At June 30, 2018,March 31, 2019, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $6.5$7.1 billion.


A summary of other borrowings for BOK Financial on a consolidated basis follows in Table 26.26.





Table 26 -- Borrowed Funds
(In thousands)
   Three Months Ended
June 30, 2018		   Three Months Ended
March 31, 2018		   Three Months Ended
March 31, 2019		   Three Months Ended
December 31, 2018
 Jun 30,
2018		 
Average
Balance
During the
Quarter
 Rate 
Maximum
Outstanding
At Any Month
End During
the Quarter
 Mar 31,
2018		 
Average
Balance
During the
Quarter
 Rate 
Maximum
Outstanding
At Any Month
End During
the Quarter
 Mar. 31, 2019 
Average
Balance
During the
Quarter
 Rate 
Maximum
Outstanding
At Any Month
End During
the Quarter
 Dec. 31, 2018 
Average
Balance
During the
Quarter
 Rate 
Maximum
Outstanding
At Any Month
End During
the Quarter
                                
Parent Company and Other Non-Bank Subsidiaries:
Other borrowings 25,946
 5,877
 1.25% $25,946
 5,207
 5,254
 1.06% 5,255
Subordinated debentures 144,697
 144,692
 5.67% $144,697
 144,687
 144,682
 5.61% 144,687
 275,880
 275,882
 5.51% $275,880
 275,913
 276,378
 5.38% 276,141
Total parent company and other non-bank subsidiaries 301,826
 281,759
 5.43%   281,120
 281,632
 5.35% 

                                
BOKF, NA:                                
Funds purchased 305,668
 133,064
 1.44% 305,668
 130,561
 106,362
 1.20% 160,087
 1,018,117
 1,622,580
 2.47% 1,862,316
 402,450
 658,539
 2.19% 488,823
Repurchase agreements 574,359
 460,186
 0.26% 574,359
 415,763
 426,051
 0.20% 415,763
 421,556
 410,456
 0.46% 421,556
 615,961
 547,029
 0.36% 615,961
Other borrowings:                                
Federal Home Loan Bank advances 5,900,000
 6,470,330
 1.96% 6,500,000
 5,700,000
 6,295,556
 1.58% 5,700,000
 7,300,000
 7,013,333
 2.67% 7,300,000
 6,100,000
 6,335,946
 2.50% 6,100,000
GNMA repurchase liability 14,386
 11,658
 4.47% 14,386
 12,020
 16,434
 4.64% 15,011
 11,466
 17,413
 4.51% 19,581
 15,552
 15,844
 4.41% 16,529
Other 15,059
 15,032
 2.35% 15,059
 15,005
 14,977
 2.33% 15,005
 3,681
 3,656
 5.55% 3,681
 3,631
 4,097
 5.33% 4,187
Total other borrowings 5,929,445
 6,497,020
 1.96% 

 5,727,025
 6,326,967
 1.60% 

 7,315,147
 7,034,402
 2.67% 

 6,119,183
 6,355,887
 2.50% 

Total BOKF, NA 6,809,472
 7,090,270
 1.84%   6,273,349
 6,859,380
 1.50%   8,754,820
 9,067,438
 2.54%   7,137,594
 7,561,455
 2.32%  
                                
Total other borrowed funds and subordinated debentures $6,954,169
 $7,234,962
 1.92%   $6,418,036
 $7,004,062
 1.59%   $9,056,646
 $9,349,197
 2.63%   $7,418,714
 $7,843,087
 2.43%  
BOKF, NA also has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold in GNMA mortgage pools. Interest is payable monthly at rates contractually due to investors.

Parent Company


At June 30, 2018,March 31, 2019, cash and interest-bearing cash and cash equivalents held by the parent company totaled $241$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, 2018,March 31, 2019, based upon the most restrictive limitations as well as management's internal capital policy, the bankBOKF, NA could declare up to $248$67 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, 2018March 31, 2019 was $3.6$4.5 billion, a $58an $89 million increase over MarchDecember 31, 2018.2018. Net income less cash dividends paid increased equity $85$77 million during the secondfirst quarter of 2018.2019. Changes in interest rates resulted in an increasea decrease in the accumulated other comprehensive loss to $135$3.5 million at June 30, 2018,March 31, 2019, compared to $111$73 million at MarchDecember 31, 2018. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings including expected benefits from lower federal income tax rates, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt or perpetual preferred stock issuance, share repurchase and stock and cash dividends.



On October 27, 2015, the board of directors authorized the Company to purchase up to five million common shares, subject to market conditions, securities law and other regulatory compliance limitations. As of June 30, 2018,March 31, 2019, a cumulative total of 3,050,0834,280,692 shares have been repurchased under this authorization. The Company repurchased 8,257705,609 shares in the secondfirst quarter of 20182019 at an average price of $99.84 per share.$85.85. The Company repurchased 82,583525,000 shares in the firstfourth quarter of 2018 at an average price of $91.83$85.82 per share.




BOK Financial and BOKF, NA are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that could have a material impact on operations. These capital requirements include quantitative measures of assets, liabilities and off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators.
Regulatory capital rules establish a 7 percent threshold for the common equity Tier 1 ratio consisting of a minimum level plus capital conservation buffer. The Company has elected to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital. Components of the capital rules effective January 1, 2015 for the Company will phase in through January 1, 2019, with certain exceptions.


A summary of minimum capital requirements, including capital conservation buffer follows in Table 27. A bank which falls below these levels, including the capital conservation buffer, would be subject to regulatory restrictions on capital distributions (including but not limited to dividends and share repurchases) and executive bonus payments.


The capital ratios for BOK Financial on a consolidated basis are presented in Table 27.27.


Table 27 -- Capital Ratios
 Minimum Capital Requirement Capital Conservation Buffer Minimum Capital Requirement Including Capital Conservation Buffer June 30, 2018 Mar. 31, 2018 June 30, 2017 Minimum Capital Requirement Capital Conservation Buffer Minimum Capital Requirement Including Capital Conservation Buffer Mar. 31, 2019 Dec. 31, 2018 Mar. 31, 2018
Risk-based capital:                        
Common equity Tier 1 4.50% 2.50% 7.00% 11.92% 12.06% 11.76% 4.50% 2.50% 7.00% 10.71% 10.92% 12.06%
Tier 1 capital 6.00% 2.50% 8.50% 11.92% 12.06% 11.76% 6.00% 2.50% 8.50% 10.71% 10.92% 12.06%
Total capital 8.00% 2.50% 10.50% 13.26% 13.49% 13.36% 8.00% 2.50% 10.50% 12.24% 12.50% 13.49%
Tier 1 Leverage 4.00% N/A
 4.00% 9.57% 9.40% 9.27% 4.00% N/A
 4.00% 8.76% 8.96% 9.40%
                        
Average total equity to average assets       10.36% 10.31% 10.53%       11.29% 11.31% 10.31%
Tangible common equity ratio       9.21% 9.18% 9.24%       8.64% 8.82% 9.18%

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


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


Table 28 provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.




Table 28 -- Non-GAAP Measure
(Dollars in thousands)
 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
Tangible common equity ratio:                    
Total shareholders' equity $3,553,431
 $3,495,029
 $3,495,367
 $3,488,814
 $3,422,469
 $4,522,873
 $4,432,109
 $3,615,032
 $3,553,431
 $3,495,029
Less: Goodwill and intangible assets, net 481,366
 477,088
 476,088
 485,710
 487,452
 1,177,573
 1,184,112
 480,800
 481,366
 477,088
Tangible common equity 3,072,065
 3,017,941
 3,019,279
 3,003,104
 2,935,017
 3,345,300
 3,247,997
 3,134,232
 3,072,065
 3,017,941
Total assets 33,833,107
 33,361,492
 32,272,160
 33,005,515
 32,263,532
 39,882,962
 38,020,504
 33,289,864
 33,833,107
 33,361,492
Less: Goodwill and intangible assets, net 481,366
 477,088
 476,088
 485,710
 487,452
 1,177,573
 1,184,112
 480,800
 481,366
 477,088
Tangible assets $33,351,741
 $32,884,404
 $31,796,072
 $32,519,805
 $31,776,080
 $38,705,389
 $36,836,392
 $32,809,064
 $33,351,741
 $32,884,404
Tangible common equity ratio 9.21% 9.18% 9.50% 9.23% 9.24% 8.64% 8.82% 9.55% 9.21% 9.18%



Off-Balance Sheet Arrangements


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


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


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


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


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




Interest Rate Risk – Other than Trading
 
As previously noted in the Net Interest Revenue section of this report, management has implemented strategies to manage the Company’s balance sheet to have relatively limited exposure to changes in interest rates over a twelve-month period. The effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions, on net interest revenue. A simulation model is used to estimate the effect of changes in interest rates on our performance across multiple interest rate scenarios. Our current internal policy limit for net interest revenue variation due to a 200 basis point parallel change in market interest rates over twelve months is a maximum decline of 5%. The results of a 200 basis point decrease in interest rates in the current low-rate environment are not meaningful. Until such time as it becomes meaningful, we will instead report the effect of a 50100 basis point decrease in interest rates.


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



Table 29 -- Interest Rate Sensitivity
(Dollars in thousands)
  200 bp Increase 50 bp Decrease
  June 30, June 30,
  2018 2017 2018 2017
Anticipated impact over the next twelve months on net interest revenue $1,118
 $(104) $(17,227) $(17,632)
  0.11% (0.01)% (1.75)% (2.07)%
  200 bp Increase 
100 bp Decrease1
  March 31, March 31,
  2019 2018 2019 2018
Anticipated impact over the next twelve months on net interest revenue $(4,451) $(1,846) $42,977
 $(36,571)
  (0.38)% (0.20)% (3.70)% (3.87)%

1 The results of a 200 basis point decrease in interest rates in the low-rate environment are not meaningful, therefore we will instead report the effect of a 100 basis point decrease in interest rates.

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.






Table30 -- MSR Asset and Hedge Sensitivity Analysis
(Dollars in thousands)
 June 30, March 31,
 2018 2017 2019 2018
 Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp
MSR Asset $22,858
 $(25,967) $25,977
 $(31,851) $25,936
 $(33,750) $23,504
 $(26,145)
MSR Hedge (23,730) 21,281
 (31,507) 32,312
 (31,698) 26,211
 (24,994) 22,132
Net Exposure (872) (4,686) (5,530) 461
 (5,762) (7,539) (1,490) (4,013)


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.


Table31-- Mortgage Pipeline Sensitivity Analysis
(Dollars in thousands)
 Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
 2018 2017 2018 2017 2019 2018
 Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp
Average1
 $663
 $(1,240) $(3) $(1,439) $422
 $(932) $117
 $(1,316) $29
 $(810) $185
 $(619)
Low2
 2,077
 (567) 1,030
 (679) 2,077
 699
 1,030
 (398) 436
 (344) 942
 699
High3
 (374) (2,447) (810) (2,377) (1,015) (2,447) (810) (2,377) (405) (1,343) (1,015) (1,504)
Period End 216
 (678) (263) (1,025) 216
 (678) (263) (1,025) 127
 (1,013) 390
 (1,201)
1 
Average represents the simple average of each daily value observed during the reporting period.
2 
Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.
3 
High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.


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


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




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


Table 32 -- Trading Sensitivity Analysis
(Dollars in thousands)
 Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
 2018 2017 2018 2017 2019 2018
 Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp Up 50 bp Down 50 bp
Average1
 $(1,566) $1,405
 $(1,359) $1,592
 $(1,062) $874
 $(1,991) $2,241
 $(1,707) $1,577
 $(563) $358
Low2
 1,518
 4,333
 (219) 3,833
 1,518
 4,333
 86
 5,210
 857
 3,440
 849
 2,321
High3
 (4,242) (2,472) (2,916) 91
 (4,242) (2,472) (4,386) 2
 (3,665) (729) (2,808) (1,206)
Period End (2,602) 2,719
 (1,842) 1,727
 (2,602) 2,719
 (1,842) 1,727
 127
 (1,013) 579
 (841)
1 
Average represents the simple average of each daily value observed during the reporting period.
2 
Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.
3 
High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.


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


This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, CoBiz Financial Inc.’sthat are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial, Corporation’s expectations or predictions of futurethe financial or business performance or conditions. Forward-looking statements are typically identified by wordsservices industry and the economy generally. Words such as “believe,“anticipates,” “expect,“believes,” “anticipate,“estimates,” “intend,“expects,” “target,“forecasts,” “estimate,“plans,” “continue,” “positions,” “plan,” “predict,” “project,” “forecast,” “guidance,” “goal,” “objective,” “prospects,” “possible” or “potential,” by future conditional verbs such as “assume,“projects,” “will,” “would,“intends,” “should,” “could” or “may”, or by variations of such words orand similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses, allowance for uncertain tax positions, accruals for loss contingencies and valuation of mortgage servicing rights involve judgments as to expected events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions, including its latest acquisition of CoBiz Financial, Inc., and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events based in part on information provided by similar expressions.others which BOK Financial has not independently verified. These forward-looking statements are subjectnot guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to numerous assumptions, riskspredict with regard to timing, extent, likelihood and uncertainties, which change over time. Forward-looking statements speak only asdegree of the date they are madeoccurrence. Therefore, actual results and we assume no duty to updateoutcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Actual results may differ materially from current projections.

In additionInternal and external factors that might cause such a difference include, but are not limited to factors previously disclosedchanges in CoBiz Financial Inc.’scommodity prices, interest rates and BOK Financial Corporation’s reports filed withinterest rate relationships, inflation, demand for products and services, the SECdegree of competition by traditional and those identified elsewherenontraditional competitors, changes in this communication,banking regulations, tax laws, prices, levies and assessments, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: theimpact of technological advances, and trends in customer behavior as well as their ability to obtain regulatory approvals and meet other closing conditions to the merger, including approval by CoBiz Financial Inc.’s shareholders on the expected terms and schedule, including the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated; delay in closing the merger;repay loans. There may also be difficulties and delays in integrating CoBiz Financial Inc.’s's business or fully realizing cost savings and other benefits;benefits including, but not limited to, business disruption following the merger; changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of BOK Financial Corporation’sCorporation's products and services; customer borrowing, repayment, investmentservices. BOK Financial and deposit practices; customer disintermediation; the introduction, withdrawal, success and timingits affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of business initiatives; competitive conditions; the inability to realize cost savingsnew information, future events, or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; economic conditions; and the impact, extent and timing ofotherwise.


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


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


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


IMPORTANT ADDITIONAL INFORMATION AND WHERE TO FIND IT

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


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

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




     
Consolidated Statements of Earnings (Unaudited)            
(In thousands, except share and per share data) Three Months Ended Six Months Ended Three Months Ended
 June 30, June 30, March 31,
Interest revenue 2018 2017 2018 2017 2019 2018
Loans $210,694
 $168,952
 $398,785
 $329,847
 $279,872
 $188,091
Residential mortgage loans held for sale 2,333
 2,386
 4,177
 4,222
 1,663
 1,844
Trading securities 12,988
 3,339
 20,726
 8,522
 18,695
 7,738
Investment securities 3,663
 4,005
 7,520
 8,176
 4,034
 3,857
Available for sale securities 47,427
 43,363
 93,386
 86,735
 56,831
 45,959
Fair value option securities 3,927
 3,539
 8,746
 5,919
 5,237
 4,819
Restricted equity securities 5,408
 4,399
 10,525
 8,708
 6,345
 5,117
Interest-bearing cash and cash equivalents 7,740
 5,198
 15,722
 9,442
 3,397
 7,982
Total interest revenue 294,180
 235,181
 559,587
 461,571
 376,074
 265,407
Interest expense  
  
  
  
  
  
Deposits 20,963
 12,622
 39,182
 23,976
 37,417
 18,219
Borrowed funds 32,607
 15,352
 58,056
 27,181
 56,810
 25,449
Subordinated debentures 2,048
 2,003
 4,051
 4,028
 3,745
 2,003
Total interest expense 55,618
 29,977
 101,289
 55,185
 97,972
 45,671
Net interest revenue 238,562
 205,204
 458,298
 406,386
 278,102
 219,736
Provision for credit losses —
 —
 (5,000) —
 8,000
 (5,000)
Net interest revenue after provision for credit losses 238,562
 205,204
 463,298
 406,386
 270,102
 224,736
Other operating revenue  
  
  
  
  
  
Brokerage and trading revenue 26,488
 31,764
 57,136
 65,387
 31,617
 30,648
Transaction card revenue 20,975
 30,228
 41,965
 57,608
 20,738
 20,990
Fiduciary and asset management revenue 41,699
 41,808
 83,531
 80,439
 43,358
 41,832
Deposit service charges and fees 27,827
 28,422
 54,988
 56,199
 28,243
 27,161
Mortgage banking revenue 26,346
 30,276
 52,371
 55,467
 23,834
 26,025
Other revenue 14,518
 14,984
 26,848
 26,736
 12,762
 12,958
Total fees and commissions 157,853
 177,482
 316,839
 341,836
 160,552
 159,614
Other gains, net 3,983
 6,108
 3,319
 9,735
Other gains (losses), net 2,976
 (1,292)
Gain (loss) on derivatives, net (3,057) 3,241
 (8,742) 2,791
 4,667
 (5,685)
Gain (loss) on fair value option securities, net (3,341) 1,984
 (20,905) 844
 9,665
 (17,564)
Change in fair value of mortgage servicing rights 1,723
 (6,943) 22,929
 (5,087) (20,666) 21,206
Gain (loss) on available for sale securities, net (762) 380
 (1,052) 2,429
 76
 (290)
Total other operating revenue 156,399
 182,252
 312,388
 352,548
 157,270
 155,989
Other operating expense  
  
  
  
  
  
Personnel 138,947
 143,744
 278,894
 280,169
 169,228
 139,947
Business promotion 7,686
 7,738
 13,696
 14,455
 7,874
 6,010
Professional fees and services 14,978
 12,419
 25,178
 23,836
 16,139
 10,200
Net occupancy and equipment 22,761
 21,125
 46,807
 42,749
 29,521
 24,046
Insurance 6,245
 689
 12,838
 7,093
 4,839
 6,593
Data processing and communications 27,739
 36,330
 55,556
 71,232
 31,449
 27,817
Printing, postage and supplies 4,011
 4,140
 8,100
 7,991
 4,885
 4,089
Net losses and operating expenses of repossessed assets 2,722
 2,267
 10,427
 3,276
 1,996
 7,705
Amortization of intangible assets 1,386
 1,803
 2,686
 3,605
 5,191
 1,300
Mortgage banking costs 12,890
 12,072
 23,039
 25,075
 9,906
 10,149
Other expense 7,111
 8,558
 13,685
 16,115
 6,129
 6,574
Total other operating expense 246,476
 250,885
 490,906
 495,596
 287,157
 244,430
Net income before taxes 148,485
 136,571
 284,780
 263,338
 140,215
 136,295
Federal and state income taxes 33,330
 47,705
 64,278
 85,808
 29,950
 30,948
Net income 115,155
 88,866
 220,502
 177,530
 110,265
 105,347
Net income attributable to non-controlling interests 783
 719
 568
 1,027
 (347) (215)
Net income attributable to BOK Financial Corporation shareholders $114,372
 $88,147
 $219,934
 $176,503
 $110,612
 $105,562
Earnings per share:  
  
  
  
  
  
Basic $1.75
 $1.35
 $3.36
 $2.70
 $1.54
 $1.61
Diluted $1.75
 $1.35
 $3.36
 $2.69
 $1.54
 $1.61
Average shares used in computation:            
Basic 64,901,975
 64,729,752
 64,874,567
 64,722,744
 71,387,070
 64,847,334
Diluted 64,937,226
 64,793,134
 64,912,552
 64,788,322
 71,404,388
 64,888,033
Dividends declared per share $0.45
 $0.44
 $0.90
 $0.88
 $0.50
 $0.45


See accompanying notes to consolidated financial statements.




Consolidated Statements of Comprehensive Income (Unaudited)Consolidated Statements of Comprehensive Income (Unaudited)    Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands, except share and per share data)            
 Three Months Ended Six Months Ended Three Months Ended
 June 30, June 30, March 31,
 2018 2017 2018 2017 2019 2018
Net income $115,155
 $88,866
 $220,502
 $177,530
 $110,265
 $105,347
Other comprehensive income (loss) before income taxes:            
Net change in unrealized gain (loss) (33,117) 21,958
 (130,523) 33,369
 92,739
 (97,406)
Reclassification adjustments included in earnings:            
Loss (gain) on available for sale securities, net 762
 (380) 1,052
 (2,429) (76) 290
Other comprehensive income (loss) before income taxes (32,355) 21,578
 (129,471) 30,940
 92,663
 (97,116)
Federal and state income taxes (8,241) 8,393
 (33,049) 12,009
 23,609
 (24,808)
Other comprehensive income (loss), net of income taxes (24,114)
13,185

(96,422)
18,931
 69,054

(72,308)
Comprehensive income 91,041
 102,051
 124,080
 196,461
 179,319
 33,039
Comprehensive income attributable to non-controlling interests 783
 719
 568
 1,027
 (347) (215)
Comprehensive income attributable to BOK Financial Corp. shareholders $90,258
 $101,332
 $123,512
 $195,434
 $179,666
 $33,254


See accompanying notes to consolidated financial statements.




Consolidated Balance Sheets
(In thousands, except share data)
Consolidated Balance Sheets
(In thousands, except share data)
Consolidated Balance Sheets
(In thousands, except share data)
 June 30, 2018 Dec. 31, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018
 (Unaudited) (Footnote 1) (Unaudited) (Unaudited) (Footnote 1)
Assets          
Cash and due from banks $585,801
 $602,510
 $561,587
 $718,297
 $741,749
Interest-bearing cash and cash equivalents 872,999
 1,714,544
 2,078,831
 564,404
 401,675
Trading securities 1,909,615
 462,676
 441,414
 2,140,326
 1,956,923
Investment securities (fair value: June 30, 2018 – $403,384; December 31, 2017 – $480,035 ; June 30, 2017 – $515,675)
 392,013
 461,793
 490,426
Investment securities (fair value: March 31, 2019 – $348,488; December 31, 2018 – $367,298)
 331,466
 355,187
Available for sale securities 8,162,866
 8,321,578
 8,341,041
 9,025,198
 8,857,120
Fair value option securities 482,227
 755,054
 445,169
 707,994
 283,235
Restricted equity securities 347,721
 320,189
 311,033
 376,429
 344,447
Residential mortgage loans held for sale 223,301
 221,378
 287,259
 160,157
 149,221
Loans 18,003,696
 17,153,424
 17,183,645
 21,758,980
 21,656,730
Allowance for loan losses (215,142) (230,682) (250,061) (205,340) (207,457)
Loans, net of allowance 17,788,554
 16,922,742
 16,933,584
 21,553,640
 21,449,273
Premises and equipment, net 320,810
 317,335
 321,038
 468,293
 330,033
Receivables 212,893
 178,800
 170,094
 224,887
 204,960
Goodwill 453,093
 447,430
 446,697
 1,048,091
 1,049,263
Intangible assets, net 28,273
 28,658
 40,755
 129,482
 134,849
Mortgage servicing rights 278,719
 252,867
 245,239
 238,193
 259,254
Real estate and other repossessed assets, net of allowance (June 30, 2018 – $17,656; December 31, 2017 – $12,648; June 30, 2017 – $8,576)
 27,891
 28,437
 39,436
Real estate and other repossessed assets, net of allowance (March 31, 2019 – $12,586; December 31, 2018 – $13,665)
 17,139
 17,487
Derivative contracts, net 373,373
 220,502
 280,289
 359,223
 320,929
Cash surrender value of bank-owned life insurance 321,024
 316,498
 312,774
 384,174
 381,608
Receivable on unsettled securities sales 604,552
 340,077
 158,125
 966,455
 336,400
Other assets 447,382
 359,092
 358,741
 469,114
 446,891
Total assets $33,833,107
 $32,272,160
 $32,263,532
 $39,882,962
 $38,020,504
          
Liabilities and Equity          
Liabilities:          
Noninterest-bearing demand deposits $9,373,959
 $9,243,338
 $9,568,895
 $10,096,552
 $10,414,592
Interest-bearing deposits:  
  
  
  
  
Transaction 10,164,099
 10,250,393
 10,087,139
 12,476,977
 12,206,576
Savings 503,474
 469,158
 464,318
 559,884
 529,215
Time 2,127,732
 2,098,416
 2,196,122
 2,198,389
 2,113,380
Total deposits 22,169,264
 22,061,305
 22,316,474
 25,331,802
 25,263,763
Funds purchased and repurchase agreements 880,027
 574,964
 464,323
 1,439,673
 1,018,411
Other borrowings 5,929,445
 5,134,897
 5,232,343
 7,341,093
 6,124,390
Subordinated debentures 144,697
 144,677
 144,658
 275,880
 275,913
Accrued interest, taxes and expense 160,568
 164,895
 133,198
 173,434
 192,826
Derivative contracts, net 234,856
 171,963
 285,819
 299,698
 362,306
Due on unsettled securities purchases 571,034
 338,745
 31,214
 186,401
 156,370
Other liabilities 167,171
 162,380
 205,958
 303,272
 183,480
Total liabilities 30,257,062
 28,753,826
 28,813,987
 35,351,253
 33,577,459
Shareholders' equity:  
  
  
  
  
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: June 30, 2018 – 75,313,559; December 31, 2017 – 75,147,686; June 30, 2017 – 75,089,152)
 4
 4
 4
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: March 31, 2019 – 75,762,268; December 31, 2018 – 75,711,492)
 5
 5
Capital surplus 1,040,202
 1,035,895
 1,017,495
 1,340,323
 1,334,030
Retained earnings 3,212,653
 3,048,487
 2,942,447
 3,447,076
 3,369,654
Treasury stock (shares at cost: June 30, 2018 – 9,874,469; December 31, 2017 – 9,752,749; June 30, 2017 – 9,672,749)
 (564,123) (552,845) (545,441)
Accumulated other comprehensive gain (loss) (135,305) (36,174) 7,964
Treasury stock (shares at cost: March 31, 2019 – 4,312,286; December 31, 2018 – 3,588,560)
 (261,000) (198,995)
Accumulated other comprehensive loss (3,531) (72,585)
Total shareholders’ equity 3,553,431
 3,495,367
 3,422,469
 4,522,873
 4,432,109
Non-controlling interests 22,614
 22,967
 27,076
 8,836
 10,936
Total equity 3,576,045
 3,518,334
 3,449,545
 4,531,709
 4,443,045
Total liabilities and equity $33,833,107
 $32,272,160
 $32,263,532
 $39,882,962
 $38,020,504


See accompanying notes to consolidated financial statements.




Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
 Common Stock 
Capital
Surplus
 
Retained
Earnings
 Treasury Stock Accumulated
Other
Comprehensive
Income (Loss)		 
Total
Shareholders’
Equity
 
Non-
Controlling
Interests
 Total Equity Common Stock 
Capital
Surplus
 
Retained
Earnings
 Treasury Stock Accumulated
Other
Comprehensive
Income (Loss)		 
Total
Shareholders’
Equity
 
Non-
Controlling
Interests
 Total Equity
 Shares Amount Shares Amount  Shares Amount Shares Amount 
                                        
Balance, December 31, 2016 74,993
 $4
 $1,006,535
 $2,823,334
 9,656
 $(544,052) $(10,967) $3,274,854
 $31,503
 $3,306,357
Balance, December 31, 2017 75,148
 $4
 $1,035,895
 $3,048,487
 9,753
 $(552,845) $(36,174) $3,495,367
 $22,967
 $3,518,334
Transition adjustment of net unrealized gains on equity securities —
 —
 —
 2,709
 —
 —
 (2,709) —
 —
 —
Balance, December 31, 2017, Adjusted 75,148
 4
 1,035,895
 3,051,196
 9,753
 (552,845) (38,883) 3,495,367
 22,967
 3,518,334
Net income —
 —
 —
 176,503
 —
 —
 —
 176,503
 1,027
 177,530
 —
 —
 —
 105,562
 —
 —
 —
 105,562
 (215) 105,347
Other comprehensive income —
 —
 —
 —
 —
 —
 18,931
 18,931
 —
 18,931
 —
 —
 —
 —
 —
 —
 (72,308) (72,308) —
 (72,308)
Repurchase of common stock —
 —
 —
 —
 83
 (7,584) —
 (7,584) —
 (7,584)
Share-based compensation plans:                                        
Stock options exercised 41
 —
 1,977
 —
 —
 —
 —
 1,977
 —
 1,977
 43
 —
 2,274
 —
 —
 —
 —
 2,274
 —
 2,274
Non-vested shares awarded, net 55
 —
 —
 —
 —
 —
 —
 —
 —
 —
 127
 —
 —
 —
 —
 —
 —
 —
 —
 —
Vesting of non-vested shares —
 —
 —
 —
 17
 (1,389) —
 (1,389) —
 (1,389) —
 —
 —
 —
 23
 (2,172) —
 (2,172) —
 (2,172)
Share-based compensation —
 —
 8,983
 —
 —
 —
 —
 8,983
 —
 8,983
 —
 —
 3,073
 —
 —
 —
 —
 3,073
 —
 3,073
Cash dividends on common stock —
 —
 —
 (57,390) —
 —
 —
 (57,390) —
 (57,390) —
 —
 —
 (29,183) —
 —
 —
 (29,183) —
 (29,183)
Capital calls and distributions, net —
 —
 —
 —
 —
 —
 —
 —
 (5,454) (5,454) —
 —
 —
 —
 —
 —
 —
 —
 (439) (439)
Balance, June 30, 2017 75,089
 $4
 $1,017,495
 $2,942,447
 9,673
 $(545,441) $7,964
 $3,422,469
 $27,076
 $3,449,545
Balance, March 31, 2018 75,318
 $4
 $1,041,242
 $3,127,575
 9,859
 $(562,601) $(111,191) $3,495,029
 $22,313
 $3,517,342
                                        
Balance, December 31, 2017 75,148
 $4
 $1,035,895
 $3,048,487
 9,753
 $(552,845) $(36,174) $3,495,367
 $22,967
 $3,518,334
Transition adjustment of net unrealized gains on equity securities —
 —
 —
 2,709
 —
 —
 (2,709) —
 —
 —
Balance, December 31, 2017, Adjusted 75,148

4

1,035,895

3,051,196

9,753

(552,845)
(38,883)
3,495,367

22,967

3,518,334
Net income (loss) —
 —
 —
 219,934
 —
 —
 —
 219,934
 568
 220,502
Balance, December 31, 2018 75,711
 $5
 $1,334,030
 $3,369,654
 3,589
 $(198,995) $(72,585) $4,432,109
 $10,936
 $4,443,045
Transition adjustment - Leasing Standard —
 —
 —
 2,862
 —
 —
 —
 2,862
 —
 2,862
Balance, January 1, 2019, Adjusted 75,711
 5
 1,334,030
 3,372,516
 3,589
 (198,995) (72,585) 4,434,971
 10,936
 4,445,907
Net income —
 —
 —
 110,612
 —
 —
 —
 110,612
 (347) 110,265
Other comprehensive loss —
 —
 —
 —
 —
 —
 (96,422) (96,422) —
 (96,422) —
 —
 —
 —
 —
 —
 69,054
 69,054
 —
 69,054
Repurchase of common stock —
 —
 —
 —
 90
 (8,408) —
 (8,408) —
 (8,408) —
 —
 —
 —
 705
 (60,577) —
 (60,577) —
 (60,577)
Share-based compensation plans:                                        
Stock options exercised 46
 —
 2,426
 —
 —
 —
 —
 2,426
 —
 2,426
 18
 —
 879
 —
 —
 —
 —
 879
 —
 879
Non-vested shares awarded, net 120
 —
 —
 —
 —
 —
 —
 —
 —
 —
 33
 —
 —
 —
 —
 —
 —
 —
 —
 —
Vesting of non-vested shares —
 —
 —
 —
 31
 (2,870) —
 (2,870) —
 (2,870) —
 —
 —
 —
 18
 (1,428) —
 (1,428) —
 (1,428)
Share-based compensation —
 —
 1,881
 —
 —
 —
 —
 1,881
 —
 1,881
 —
 —
 5,414
 —
 —
 —
 —
 5,414
 —
 5,414
Cash dividends on common stock —
 —
 —
 (58,477) —
 —
 —
 (58,477) —
 (58,477) —
 —
 —
 (36,052) —
 —
 —
 (36,052) —
 (36,052)
Capital calls and distributions, net —
 —
 —
 —
 —
 —
 —
 —
 (921) (921) —
 —
 —
 —
 —
 —
 —
 —
 (1,753) (1,753)
Balance, June 30, 2018 75,314

4

1,040,202

3,212,653

9,874

(564,123)
(135,305)
3,553,431

22,614

3,576,045
Balance, March 31, 2019 75,762

$5

$1,340,323

$3,447,076

4,312

$(261,000)
$(3,531)
$4,522,873

$8,836

$4,531,709


See accompanying notes to consolidated financial statements.




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

 Six Months Ended Three Months Ended
 June 30, March 31,
 2018 2017 2019 2018
Cash Flows From Operating Activities:        
Net income $220,502
 $177,530
 $110,265
 $105,347
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
  
Adjustments to reconcile net income to net cash used in operating activities:    
Provision for credit losses (5,000) —
 8,000
 (5,000)
Change in fair value of mortgage servicing rights due to market changes (22,929) 5,087
 20,666
 (21,206)
Change in the fair value of mortgage servicing rights due to principal payments 16,797
 16,261
 6,583
 7,995
Net unrealized losses (gains) from derivative contracts 6,674
 (5,928) 695
 2,222
Share-based compensation 1,881
 8,983
 5,414
 3,073
Depreciation and amortization 27,459
 25,864
 19,412
 13,561
Net amortization of securities discounts and premiums 12,855
 15,377
 4,339
 6,555
Net losses (gains) on financial instruments and other losses (gains), net 4,530
 (4,351) 1,872
 5,593
Net gain on mortgage loans held for sale (19,314) (25,229) (5,640) (7,549)
Mortgage loans originated for sale (1,438,868) (1,613,997) (510,527) (664,958)
Proceeds from sale of mortgage loans held for sale 1,456,312
 1,651,018
 507,459
 670,598
Capitalized mortgage servicing rights (19,720) (19,514) (6,188) (8,900)
Change in trading and fair value option securities (1,174,526) (472,682) (608,232) (588,588)
Change in receivables (335,369) 479,774
 (682,957) (33,631)
Change in other assets 1,737
 (17,548) (5,074) (4,349)
Change in accrued interest, taxes and expense (4,327) (19,703) (18,220) (8,749)
Change in other liabilities 334,765
 27,420
 46,147
 379,649
Net cash provided by (used in) operating activities (936,541) 228,362
Net cash used in operating activities (1,105,986) (148,337)
Cash Flows From Investing Activities:  
  
  
  
Proceeds from maturities or redemptions of investment securities 71,722
 71,654
 23,227
 44,031
Proceeds from maturities or redemptions of available for sale securities 819,596
 899,096
 337,822
 412,391
Purchases of investment securities (3,968) (18,802)
Purchases of available for sale securities (1,020,018) (1,242,070) (663,193) (518,361)
Proceeds from sales of available for sale securities 187,533
 700,412
 245,259
 44,790
Change in amount receivable on unsettled available for sale securities transactions 38,075
 (25,989) 31,618
 72,342
Loans originated, net of principal collected (847,351) (159,924) (97,656) (180,381)
Net payments on derivative asset contracts (70,987) 420,996
 (33,781) (40,537)
Acquisitions, net of cash acquired (13,870) —
Proceeds from disposition of assets 97,027
 127,699
 70,379
 44,620
Purchases of assets (121,889) (106,362) (116,692) (59,788)
Net cash provided by (used in) investing activities (864,130) 666,710
Net cash used in investing activities (203,017) (180,893)
Cash Flows From Financing Activities:  
  
  
  
Net change in demand deposits, transaction deposits and savings accounts 78,643
 (405,943) (16,970) 76,057
Net change in time deposits 29,316
 (25,678) 84,828
 67,838
Net change in other borrowed funds 1,057,118
 64,833
 1,614,995
 544,157
Net proceeds on derivative liability contracts 64,144
 (422,016) 36,250
 41,486
Net change in derivative margin accounts (118,628) 27,327
 (150,722) (24,490)
Change in amount due on unsettled available for sale securities transactions (100,847) 26,128
 (22,923) (56,774)
Issuance of common and treasury stock, net (444) 588
 (549) 102
Repurchase of common stock (8,408) —
 (60,577) (7,584)
Dividends paid (58,477) (57,390) (36,052) (29,183)
Net cash provided by (used in) financing activities 942,417
 (792,151)
Net increase (decrease) in cash and cash equivalents (858,254) 102,921
Net cash provided by financing activities 1,448,280
 611,609
Net increase in cash and cash equivalents 139,277
 282,379
Cash and cash equivalents at beginning of period 2,317,054
 2,537,497
 1,143,424
 2,317,054
Cash and cash equivalents at end of period $1,458,800
 $2,640,418
 $1,282,701
 $2,599,433
        
Supplemental Cash Flow Information:        
Cash paid for interest $100,532
 $54,881
 $94,660
 $47,165
Cash paid for taxes $29,623
 $60,654
 $898
 $1,548
Net loans and bank premises transferred to repossessed real estate and other assets $3,886
 $2,049
 $1,032
 $2,156
Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period $42,493
 $59,171
 $22,970
 $19,332
Conveyance of other real estate owned guaranteed by U.S. government agencies $23,845
 $22,602
 $8,404
 $11,817
See accompanying notes to consolidated financial statements.




Notes to Consolidated Financial Statements (Unaudited)


(1) (1) Significant Accounting Policies


Basis of Presentation


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


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


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


The financial information should be read in conjunction with BOK Financial’s 20172018 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 20172018 have been derived from the audited financial statements included in BOK Financial’s 20172018 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-monththree-month period ended June 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019.


Newly Adopted and Pending Accounting Policies


Financial Accounting Standards Board (“FASB”)


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

On May 28, 2014, the FASB issued ASU 2014-09 to clarify the principles for recognizing revenue by providing a more robust framework that will give greater consistency and comparability in revenue recognition practices. In the new framework, an entity recognizes revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. The new model requires the identification of performance obligations included in contracts with customers, a determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes revenue when performance obligations are satisfied. Revenue from financial assets and liabilities is explicitly excluded from the scope of ASU 2014-09. Management adopted the standard in the first quarter of 2018 using the modified retrospective transition method. There were no significant cumulative effect adjustments as a result of implementation as of January 1, 2018 as our current revenue recognition policies generally conform with the principals in ASU 2014-09.

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

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



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

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

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


On February 25, 2016, the FASB issued ASU 2016-02 to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Lessees will beare required to recognize an obligation for future lease payments measured on a discounted basis and a right-of-use asset. The ASU is effective forCompany adopted the Company for interim and annual periods beginning after December 15, 2018 and requires transitionnew standard January 1, 2019 through a modified retrospective approach for leases existing at or entered into after January 1, 2017.cumulative effect adjustment to retained earnings. Prior periods were not restated. BOKF elected to apply all practical expedients other than the lessee’s practical expedient to combine lease and non-lease components which would further gross up lease liability and the related right-of-use asset. The Company currently estimates that implementation of ASU 2016-02 will increaseincreased the reported right of use assetsright-of-use asset and liabilitieslease liability by approximately $100 million to $150$137 million. The effect on retained earnings was immaterial.

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


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


The Company has established a CECL implementation team in order to evaluate the impact the adoption of ASU 2016-13 will have onto the Company's financial statements. The CECL implementation team, overseen by the Chief Credit Officer, Chief Financial Officer, and Chief Risk Officer, has developed a project plan that incorporates input from various departments within the bank including Credit, Financial Reporting, Risk, and Information Technology among others. The Audit Committee and Credit Committee of the Board of Directors is periodically updated on project progress. Key implementation activities for 20182019 include portfolio segmentation, model validation and quarterly parallel runs with development of governance, control, and disclosure frameworks. The Company will adopt the standard on January 1, 2020 through a cumulative-effect adjustment to retained earnings. The impact of adoption will depend on the composition of the loan and securities portfolios as well as processcurrent and information systems enhancements.expected economic conditions at that time.



FASB Accounting Standards Update No. 2016-15, Statement of Cash Flows2019-01, Leases (Topic 230)842): Classification of Certain Cash Receipts and Cash PaymentsCodification Improvements ("ASU 2016-15"2019-01")


On August 26, 2016,March 5, 2019, the FASB issued ASU 2016-15,2019-01 which amends certain aspects of leasing standard ASU 2016-02. ASU 2019-01 provides guidance infor determining fair value of the underlying asset by lessors that are not manufacturers or dealers. The ASU also requires depository and lending lessors within the scope of ASC 230942 to classify principal payments received from sales-type and direct financing leases within "investing activities" on the classification of certain cash receipts and payments in the statement of cash flows. The amendments address eight cash flow issues. Management adoptedFor the standard in first quarter of 2018. Adoption oftwo issues above, the ASU 2016-15 did not have a material impact on the Company's financial statements.



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

On August 28, 2017, the FASB issued ASU 2017-12, which amends the hedge accounting recognition and presentation requirements in ASC 815 in order to improve transparency and understandability of information and reduce the complexity. The update expands the types of transactions eligible for hedge accounting, eliminates the requirement to separately measure and present hedge ineffectiveness, simplifies hedge effectiveness assessments and updates documentation and presentation requirements. The update allows the reclassification of certain debt securities from held to maturity to available for sale if the debt security is eligible to be hedged under the last-of-layer method. ASU 2017-12 is effective for the Company for fiscal years beginning after December 15, 2018,2019, and interim periods therein; however early adoption is permitted. The CompanyAdditionally, ASU 2019-01 also clarifies interim disclosure requirements during transition and is evaluatingeffective with the impact the adoptionoriginal transition requirements in Topic 842. Adoption of ASU 2017-12 will2019-01 is not expected to have a material impact on the Company's financial statements.

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



On March 13, 2018, the FASB issued ASU 2018-05, which adds SEC guidance related to SAB 118 - Income Tax Accounting Implications of the Tax Cuts and Jobs Act. ASU 2018-05 was effective upon issuance.(2) Securities



(2) Securities
Trading Securities
 
The fair value and net unrealized gain (loss) included in trading securities are as follows (in thousands):
 
  March 31, 2019 December 31, 2018
  Fair Value Net Unrealized Gain (Loss) Fair Value Net Unrealized Gain (Loss)
U.S. government agency debentures $51,576
 $52
 $63,765
 $254
U.S. government agency residential mortgage-backed securities 1,952,742
 12,377
 1,791,584
 9,966
Municipal and other tax-exempt securities 50,637
 225
 34,507
 (1)
Asset-backed securities 40,890
 128
 42,656
 685
Other trading securities 44,481
 116
 24,411
 65
Total trading securities $2,140,326
 $12,898
 $1,956,923
 $10,969
  June 30, 2018 December 31, 2017 June 30, 2017
  Fair Value Net Unrealized Gain (Loss) Fair Value Net Unrealized Gain (Loss) 
Fair
Value
 Net Unrealized Gain (Loss)
U.S. government agency debentures $28,750
 $10
 $21,196
 $8
 $20,954
 $(9)
U.S. government agency residential mortgage-backed securities 1,605,001
 1,923
 392,673
 (517) 365,171
 (1,032)
Municipal and other tax-exempt securities 70,606
 231
 13,559
 83
 45,444
 230
Asset-backed securities 193,271
 250
 23,885
 (26) —
 —
Other trading securities 11,987
 32
 11,363
 4
 9,845
 (175)
Total trading securities $1,909,615
 $2,446
 $462,676
 $(448) $441,414
 $(986)

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


  March 31, 2019
  Amortized Fair Gross Unrealized
  Cost Value Gain Loss
Municipal and other tax-exempt $126,544
 $129,072
 $2,712
 $(184)
U.S. government agency residential mortgage-backed securities 12,106
 12,388
 349
 (67)
Other debt securities 192,816
 207,028
 15,091
 (879)
Total investment securities $331,466
 $348,488
 $18,152
 $(1,130)
  June 30, 2018
  Amortized Fair Gross Unrealized
  Cost Value Gain Loss
Municipal and other tax-exempt $173,097
 $174,205
 $1,779
 $(671)
U.S. government agency residential mortgage-backed securities 13,989
 13,984
 232
 (237)
Other debt securities 204,927
 215,195
 12,259
 (1,991)
Total investment securities $392,013
 $403,384
 $14,270
 $(2,899)

  December 31, 2018
  Amortized Fair Gross Unrealized
  Cost Value Gain Loss
Municipal and other tax-exempt $137,296
 $138,562
 $1,858
 $(592)
U.S. government agency residential mortgage-backed securities 12,612
 12,770
 293
 (135)
Other debt securities 205,279
 215,966
 12,257
 (1,570)
Total investment securities $355,187
 $367,298
 $14,408
 $(2,297)
  December 31, 2017
  Amortized Fair Gross Unrealized
  Cost Value Gain Loss
Municipal and other tax-exempt $228,186
 $230,349
 $2,967
 $(804)
U.S. government agency residential mortgage-backed securities 15,891
 16,242
 446
 (95)
Other debt securities 217,716
 233,444
 17,095
 (1,367)
Total investment securities $461,793
 $480,035
 $20,508
 $(2,266)


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







The amortized cost and fair values of investment securities at June 30, 2018,March 31, 2019, by contractual maturity, are as shown in the following table (dollars in thousands):
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 Total 
Weighted
Average
Maturity²
 
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 Total 
Weighted
Average
Maturity1
Municipal and other tax-exempt:            
Fixed maturity debt securities:  
  
  
  
  
  
Amortized cost $60,535
 $62,005
 $28,117
 $22,440
 $173,097
 4.02
 $52,230
 $105,189
 $136,731
 $25,210
 $319,360
 5.23
Fair value 60,487
 61,736
 29,038
 22,944
 174,205
   52,406
 108,571
 149,919
 25,204
 336,100
  
Nominal yield¹ 2.07% 2.58% 5.81% 5.12% 3.25%  
Other debt securities:  
  
  
  
  
  
Amortized cost 14,877
 52,170
 123,762
 14,118
 204,927
 5.99
Fair value 15,023
 54,233
 132,912
 13,027
 215,195
  
Nominal yield 3.99% 4.69% 5.67% 4.34% 5.21%  
Total fixed maturity securities:  
  
  
  
  
  
Amortized cost $75,412
 $114,175
 $151,879
 $36,558
 $378,024
 5.08
Fair value 75,510
 115,969
 161,950
 35,971
 389,400
  
Nominal yield 2.45% 3.54% 5.69% 4.82% 4.31%  
Residential mortgage-backed securities:  
  
  
  
  
  
  
  
  
  
  
  
Amortized cost  
  
  
  
 $13,989
 ³
  
  
  
  
 $12,106
 
2 

Fair value  
  
  
  
 13,984
  
  
  
  
  
 12,388
  
Nominal yield4
  
  
  
  
 2.76%  
Total investment securities:  
  
  
  
  
  
  
  
  
  
  
  
Amortized cost  
  
  
  
 $392,013
  
  
  
  
  
 $331,466
  
Fair value  
  
  
  
 403,384
  
  
  
  
  
 348,488
  
Nominal yield  
  
  
  
 4.26%  
1 
Calculated on a taxable equivalent basis using a 25 percent effective tax rate.
2
Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
32 
The average expected lives of residential mortgage-backed securities were 5.04.7 years based upon current prepayment assumptions.
4
The nominal yield on residential mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary - Unaudited for current yields on the investment securities portfolio.




Available for Sale Securities


The amortized cost and fair value of available for sale securities are as follows (in thousands):
  June 30, 2018
  Amortized Fair Gross Unrealized  
  Cost Value Gain Loss OTTI
U.S. Treasury $494
 $490
 $—
 $(4) $—
Municipal and other tax-exempt 10,590
 10,697
 111
 (4) —
Residential mortgage-backed securities:  
  
  
  
  
U. S. government agencies:  
  
  
  
  
FNMA 3,088,585
 3,007,885
 2,774
 (83,474) —
FHLMC 1,580,185
 1,538,582
 738
 (42,341) —
GNMA 772,785
 758,093
 915
 (15,607) —
Total U.S. government agencies 5,441,555
 5,304,560
 4,427
 (141,422) —
Private issue 65,376
 83,224
 18,221
 —
 (373)
Total residential mortgage-backed securities 5,506,931

5,387,784

22,648

(141,422)
(373)
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,799,953
 2,738,451
 1,815
 (63,317) —
Other debt securities 25,500
 25,444
 12
 (68) —
Total available for sale securities $8,343,468
 $8,162,866
 $24,586
 $(204,815) $(373)
  March 31, 2019
  Amortized Fair Gross Unrealized
  Cost Value Gain Loss
U.S. Treasury $1,880
 $1,878
 $—
 $(2)
Municipal and other tax-exempt 2,365
 2,447
 82
 —
Mortgage-backed securities:  
  
  
  
Residential agency 6,056,710
 6,040,086
 35,131
 (51,755)
Residential non-agency 33,305
 47,958
 14,653
 —
Commercial agency 2,933,046
 2,932,357
 17,022
 (17,711)
Other debt securities 500
 472
 —
 (28)
Total available for sale securities $9,027,806
 $9,025,198
 $66,888
 $(69,496)

  December 31, 2018
  Amortized Fair Gross Unrealized
  Cost Value Gain Loss
U.S. Treasury $496
 $493
 $—
 $(3)
Municipal and other tax-exempt 2,782
 2,864
 82
 —
Mortgage-backed securities:    
  
  
Residential agency 5,886,323
 5,804,708
 16,149
 (97,764)
Residential non-agency 40,948
 59,736
 18,788
 —
Commercial agency 2,986,297
 2,953,889
 7,955
 (40,363)
Other debt securities 35,545
 35,430
 12
 (127)
Total available for sale securities $8,952,391
 $8,857,120
 $42,986
 $(138,257)





  December 31, 2017
  Amortized Fair Gross Unrealized  
  Cost Value Gain Loss OTTI
U.S. Treasury $1,000
 $1,000
 $—
 $—
 $—
Municipal and other tax-exempt 27,182
 27,080
 181
 (283) —
Residential mortgage-backed securities:    
  
  
  
U. S. government agencies:  
  
  
  
  
FNMA 3,021,551
 2,997,563
 11,549
 (35,537) —
FHLMC 1,545,971
 1,531,009
 3,148
 (18,110) —
GNMA 787,626
 780,580
 1,607
 (8,653) —
Total U.S. government agencies 5,355,148
 5,309,152
 16,304
 (62,300) —
Private issue 74,311
 93,221
 19,301
 —
 (391)
Total residential mortgage-backed securities 5,429,459

5,402,373

35,605

(62,300)
(391)
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,858,885
 2,834,961
 1,963
 (25,887) —
Other debt securities 25,500
 25,481
 50
 (69) —
Perpetual preferred stock 12,562
 15,767
 3,205
 —
 —
Equity securities and mutual funds 14,487
 14,916
 515
 (86) —
Total available for sale securities $8,369,075
 $8,321,578
 $41,519
 $(88,625) $(391)



  June 30, 2017
  Amortized Fair Gross Unrealized  
  Cost Value Gain Loss OTTI
U.S. Treasury $1,000
 $998
 $—
 $(2) $—
Municipal and other tax-exempt 32,885
 32,765
 293
 (413) —
Residential mortgage-backed securities:          
U. S. government agencies:  
  
  
  
  
FNMA 3,005,920
 3,008,531
 24,213
 (21,602) —
FHLMC 1,412,376
 1,412,472
 7,785
 (7,689) —
GNMA 938,086
 936,365
 3,641
 (5,362) —
Other 25,000
 25,009
 52
 (43) —
Total U.S. government agencies 5,381,382
 5,382,377
 35,691
 (34,696) —
Private issue 86,656
 103,383
 16,727
 —
 —
Total residential mortgage-backed securities 5,468,038

5,485,760

52,418

(34,696)
—
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,788,543
 2,782,070
 7,804
 (14,277) —
Other debt securities 4,400
 4,152
 —
 (248) —
Perpetual preferred stock 12,562
 16,568
 4,006
 —
 —
Equity securities and mutual funds 17,572
 18,728
 1,219
 (63) —
Total available for sale securities $8,325,000
 $8,341,041
 $65,740
 $(49,699) $—



The amortized cost and fair values of available for sale securities at June 30, 2018,March 31, 2019, by contractual maturity, are as shown in the following table (dollars in thousands):
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 Total 
Weighted
Average
Maturity4
Less than
One Year
 
One to
Five Years
 
Six to
Ten Years
 
Over
Ten Years
 Total 
Weighted
Average
Maturity1
U.S. Treasuries:           
Fixed maturity debt securities: 
  
  
  
    
Amortized cost$—
 $494
 $—
 $—
 $494
 1.59
$94,933
 $983,438
 $1,467,481
 $391,939
 $2,937,791
 7.30
Fair value—
 490
 —
 —
 490
  94,398
 976,737
 1,473,499
 392,520
 2,937,154
  
Nominal yield—% 1.99% —% —% 1.99%  
Municipal and other tax-exempt: 
  
  
  
    
Amortized cost$4,574
 $2,303
 $—
 $3,713
 $10,590
 6.53
Fair value4,580
 2,401
 —
 3,716
 10,697
  
Nominal yield¹3.45% 6.27% —% 3.98%
5 
4.25%  
Commercial mortgage-backed securities:           
Amortized cost$8,070
 $987,244
 $1,548,520
 $256,119
 $2,799,953
 6.89
Fair value8,041
 968,540
 1,512,106
 249,764
 2,738,451
  
Nominal yield1.67% 1.96% 2.17% 2.20% 2.10%  
Other debt securities: 
  
  
  
    
Amortized cost$—
 $—
 $—
 $25,500
 $25,500
 14.18
Fair value—
 —
 —
 25,444
 25,444
  
Nominal yield—% —% —% 1.59%
5 
1.59%  
Total fixed maturity securities: 
  
  
  
    
Amortized cost$12,644
 $990,041
 $1,548,520
 $285,332
 $2,836,537
 6.95
Fair value12,621
 971,431
 1,512,106
 278,924
 2,775,082
  
Nominal yield2.31% 1.97% 2.17% 2.17% 2.10%  
Residential mortgage-backed securities: 
  
  
  
     
  
  
  
    
Amortized cost 
  
  
  
 $5,506,931
 
2 

 
  
  
  
 $6,090,015
 
2 

Fair value 
  
  
  
 5,387,784
   
  
  
  
 6,088,044
  
Nominal yield3
 
  
  
  
 2.16%  
Total available-for-sale securities: 
  
  
  
    
 
  
  
  
    
Amortized cost 
  
  
  
 $8,343,468
  
 
  
  
  
 $9,027,806
  
Fair value 
  
  
  
 8,162,866
  
 
  
  
  
 9,025,198
  
Nominal yield 
  
  
  
 2.14%  
1 
Calculated on a taxable equivalent basis using a 25 percent effective tax rate.
2
The average expected lives of mortgage-backed securities were 4.3 years years based upon current prepayment assumptions.
3
The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary –– Unaudited following for current yields on available for sale securities portfolio.
4
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
52 
Nominal yield on municipal and other tax-exemptThe average expected lives of mortgage-backed securities and other debt securities with contractual maturity dates over tenwere 4.1 years are based on variable rates which generally are reset within 35.upon current prepayment assumptions.


Sales of available for sale securities resulted in gains and losses as follows (in thousands):
 Three Months Ended
March 31,
 2019 2018
Proceeds$245,259
 $44,790
Gross realized gains5,298
 193
Gross realized losses(5,222) (483)
Related federal and state income tax expense (benefit)19
 (74)

 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Proceeds$142,743
 $460,402
 $187,533
 $700,412
Gross realized gains257
 2,763
 450
 4,855
Gross realized losses(1,019) (2,383) (1,502) (2,426)
Related federal and state income tax expense (benefit)(194) 148
 (268) 945




A summaryThe fair value of investment and available for saledebt securities that have been pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes, as required by law was as follows (in thousands):
 June 30, 2018 Dec. 31, 2017 June 30, 2017
Investment:     
Amortized cost$172,906
 $226,852
 $251,684
Fair value174,240
 229,429
 255,097
      
Available for sale:     
Amortized cost6,821,287
 7,151,468
 6,327,666
Fair value6,653,875
 7,089,346
 6,317,623

$10.3 billion at March 31, 2019 and $9.1 billion at December 31, 2018. The secured parties do not have the right to sell or repledge these securities.


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

























Temporarily Impaired Securities as of June 30, 2018March 31, 2019
(in thousands):
 Number of Securities Less Than 12 Months 12 Months or Longer Total Number of Securities Less Than 12 Months 12 Months or Longer Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:                            
Municipal and other tax-exempt 84
 $98,325
 $484
 $5,007
 $187
 $103,332
 $671
 50
 $234
 $1
 $52,434
 $183
 $52,668
 $184
U.S. government agency residential mortgage-backed securities 3
 6,979
 110
 2,809
 127
 9,788
 237
 2
 —
 —
 5,468
 67
 5,468
 67
Other debt securities 80
 36,131
 1,795
 3,324
 196
 39,455
 1,991
 30
 25
 1
 16,932
 878
 16,957
 879
Total investment securities 167
 $141,435
 $2,389
 $11,140
 $510
 $152,575
 $2,899
 82
 $259
 $2
 $74,834
 $1,128
 $75,093
 $1,130


  Number of Securities Less Than 12 Months 12 Months or Longer Total
   
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:  
  
  
  
  
  
  
U.S. Treasury 1
 $—
 $—
 $495
 $2
 $495
 $2
Mortgage-backed securities:    
  
  
  
 

 

Residential agency 244

300,369

1,016

3,251,359

50,739

3,551,728

51,755
Commercial agency 169
 432,254
 833
 1,590,803
 16,878
 2,023,057
 17,711
Other debt securities 1
 —
 —
 472
 28
 472
 28
Total available for sale securities 415
 $732,623

$1,849

$4,843,129

$67,647

$5,575,752

$69,496

  Number of Securities Less Than 12 Months 12 Months or Longer Total
   
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available for sale:  
  
  
  
  
  
  
U.S. Treasury 1
 $490
 $4
 $—
 $—
 $490
 $4
Municipal and other tax-exempt 10
 4,784
 3
 495
 1
 5,279
 4
Residential mortgage-backed securities:    
  
  
  
 

 

U. S. government agencies:    
  
  
  
 

 

FNMA 174
 2,049,432
 44,860
 710,962
 38,614
 2,760,394
 83,474
FHLMC 93
 1,116,337
 26,663
 339,515
 15,678
 1,455,852
 42,341
GNMA 33
 275,104
 5,611
 220,740
 9,996
 495,844
 15,607
Total U.S. government agencies 300

3,440,873

77,134

1,271,217

64,288

4,712,090

141,422
Private issue1
 8
 5,409
 373
 —
 —
 5,409
 373
Total residential mortgage-backed securities 308
 3,446,282
 77,507
 1,271,217
 64,288
 4,717,499
 141,795
Commercial mortgage-backed securities guaranteed by U.S. government agencies 211
 1,675,839
 42,732
 554,819
 20,585
 2,230,658
 63,317
Other debt securities 2
 —
 —
 20,434
 68
 20,434
 68
Total available for sale securities 532
 $5,127,395

$120,246

$1,846,965

$84,942

$6,974,360

$205,188
1
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.




Temporarily Impaired Securities as of December 31, 20172018
(In thousands)
 Number of Securities Less Than 12 Months 12 Months or Longer Total Number of Securities Less Than 12 Months 12 Months or Longer Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:                            
Municipal and other tax-exempt 100
 $145,960
 $643
 $5,833
 $161
 $151,793
 $804
 72
 $18,255
 $69
 $66,141
 $523
 $84,396
 $592
U.S. government agency residential mortgage-backed securities 1
 —
 —
 3,356
 95
 3,356
 95
 2
 —
 —
 5,633
 135
 5,633
 135
Other debt securities 49
 20,091
 1,238
 3,076
 129
 23,167
 1,367
 72
 13,372
 64
 23,028
 1,506
 36,400
 1,570
Total investment securities 150
 $166,051
 $1,881
 $12,265
 $385
 $178,316
 $2,266
 146
 $31,627
 $133
 $94,802
 $2,164
 $126,429
 $2,297


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

 

U.S. Treasury 1
 $—
 $—
 $493
 $3
 $493
 $3
Mortgage-backed securities:  
  
  
  
  
 

 

Residential agency 289
 510,824
 1,158
 3,641,370
 96,606
 4,152,194
 97,764
Commercial agency 197
 179,258
 394
 1,969,504
 39,969
 2,148,762
 40,363
Other debt securities 3
 9,982
 63
 20,436
 64
 30,418
 127
Total available for sale securities 490
 $700,064

$1,615

$5,631,803

$136,642

$6,331,867

$138,257

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

 

U.S. Treasury —
 $—
 $—
 $—
 $—
 $—
 $—
Municipal and other tax-exempt 19
 12,765
 18
 4,802
 265
 17,567
 283
Residential mortgage-backed securities:  
  
  
  
  
 

 

U. S. government agencies:  
  
  
  
  
 

 

FNMA 113
 1,203,041
 9,618
 824,029
 25,919
 2,027,070
 35,537
FHLMC 69
 863,778
 7,297
 385,816
 10,813
 1,249,594
 18,110
GNMA 27
 201,887
 1,452
 248,742
 7,201
 450,629
 8,653
Total U.S. government agencies 209
 2,268,706
 18,367
 1,458,587
 43,933
 3,727,293
 62,300
Private issue1
 8
 5,898
 391
 —
 —
 5,898
 391
Total residential mortgage-backed securities 217
 2,274,604
 18,758
 1,458,587
 43,933
 3,733,191
 62,691
Commercial mortgage-backed securities guaranteed by U.S. government agencies 185
 1,465,703
 11,824
 652,296
 14,063
 2,117,999
 25,887
Other debt securities 2
 19,959
 41
 472
 28
 20,431
 69
Perpetual preferred stocks —
 —
 —
 —
 —
 —
 —
Equity securities and mutual funds 111
 911
 7
 2,203
 79
 3,114
 86
Total available for sale securities 534
 $3,773,942

$30,648

$2,118,360

$58,368

$5,892,302

$89,016
1
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.



Temporarily Impaired Securities as of June 30, 2017
(In thousands)
  Number of Securities Less Than 12 Months 12 Months or Longer Total
   
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Investment:              
Municipal and other tax-exempt 82
 $111,078
 $149
 $3,000
 $79
 $114,078
 $228
U.S. government agency residential mortgage-backed securities 1
 3,810
 61
 —
 —
 3,810
 61
Other debt securities 22
 8,384
 554
 —
 —
 8,384
 554
Total investment securities 105
 $123,272
 $764
 $3,000
 $79
 $126,272
 $843

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

 

U.S. Treasury 1
 $997
 $2
 $—
 $—
 $997
 $2
Municipal and other tax-exempt 13
 1,957
 1
 4,655
 412
 6,612
 413
Residential mortgage-backed securities:  
  
  
  
  
 

 

U. S. government agencies:  
  
  
  
  
 

 

FNMA 75
 1,381,687
 20,288
 87,371
 1,314
 1,469,058
 21,602
FHLMC 42
 731,853
 7,213
 16,388
 476
 748,241
 7,689
GNMA 21
 291,806
 3,766
 76,605
 1,596
 368,411
 5,362
Other 1
 19,957
 43
 —
 —
 19,957
 43
Total U.S. government agencies 139
 2,425,303
 31,310
 180,364
 3,386
 2,605,667
 34,696
Private issue1
 —
 —
 —
 —
 —
 —
 —
Total residential mortgage-backed securities 139
 2,425,303
 31,310
 180,364
 3,386
 2,605,667
 34,696
Commercial mortgage-backed securities guaranteed by U.S. government agencies 121
 1,388,406
 12,690
 78,828
 1,587
 1,467,234
 14,277
Other debt securities 2
 —
 —
 4,152
 248
 4,152
 248
Perpetual preferred stocks —
 —
 —
 —
 —
 —
 —
Equity securities and mutual funds 91
 1,668
 22
 887
 41
 2,555
 63
Total available for sale securities 367
 $3,818,331
 $44,025
 $268,886
 $5,674
 $4,087,217
 $49,699
1
Includes securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income.


Based on evaluations of impaired securities as of June 30, 2018,March 31, 2019, 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.




Fair Value Option Securities
Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on the Consolidated Balance Sheets. Changes in the fair value are recognized in earnings as they occur. Certain securities are held as an economic hedge of the mortgage servicing rights. 

The fair value and net unrealized gain (loss) included in fair value option securities is as follows (in thousands):
  June 30, 2018 December 31, 2017 June 30, 2017
  Fair Value Net Unrealized Gain (Loss) Fair Value Net Unrealized Gain (Loss) 
Fair
Value
 Net Unrealized Gain (Loss)
U.S. government agency residential mortgage-backed securities $482,227
 $(5,509) $755,054
 $(1,877) $445,169
 $1,247


Restricted Equity Securities

Restricted equity securities primarily include stock we are required to hold as members of the Federal Reserve system and the Federal Home Loan Banks. Restricted equity securities are carried at cost as these securities do not have a readily determined fair value because ownership of these shares are restricted and they lack a market. A summary of restricted equity securities follows (in thousands):
 June 30, 2018 Dec. 31, 2017 June 30, 2017
Federal Reserve stock$41,178
 $40,746
 $36,676
Federal Home Loan Bank stock306,543
 279,200
 274,113
Other—
 243
 244
Total$347,721

$320,189

$311,033


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


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


Derivative contracts may require the Company to provide or receive cash margin as collateral for derivative assets and liabilities. Derivative assets and liabilities are reported net of cash margin when certain conditions are met. In addition, derivative contracts executed with customers under Customer Risk Management Programs may be secured by non-cash collateral in conjunction with a credit agreement with that customer. Access to collateral in the event of default is reasonably assured.
 
None of these derivative contracts have been designated as hedging instruments for accounting purposes.


Customer Risk Management Programs
 
BOK Financial offers programs to permit its customers to manage various risks, including fluctuations in energy, cattle and other agricultural products, interest rates and foreign exchange rates with derivative contracts. Customers may also manage interest rate risk through interest rate swaps used by borrowers to modify interest rate terms of their loans or to-be-announced securities used by mortgage banking customers to hedge their loan production. Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other selected counterparties to minimize the risk of changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to BOK Financial as profit and compensation for administrative costs and credit risk which is recognized over the life of the contracts and included in Other operating revenue – Brokerage and trading revenue in the Consolidated Statements of Earnings.
 
Internal Risk Management Programs
 
BOK Financial may use derivative contracts in managing its interest rate sensitivity, as part of its economic hedge of the change in the fair value of mortgage servicing rights and to mitigate the market risk of holding trading securities. Changes in the fair value of derivative instruments used in managing interest rate sensitivity and as part of the economic hedge of changes in the fair value of mortgage servicing rights are included in Other operating revenue – Gain (loss) on derivatives, net in the Consolidated Statements of Earnings. Changes in the fair value of derivative instruments used to mitigate the market risk of holding trading securities are included in Other operating revenue – Brokerage and trading revenue.


As discussed in Note 6,, certain derivative contracts not designated as hedging instruments related to mortgage loan commitments and forward sales contracts are included in Residential mortgage loans held for sale on the Consolidated Balance Sheets. See Note 6 for additional discussion of notional, fair value and impact on earnings of these contracts.



The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at June 30, 2018March 31, 2019 (in thousands):
 Assets Assets
 
Notional1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral 
Notional1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral
Customer risk management programs:                        
Interest rate contracts                        
To-be-announced residential mortgage-backed securities $15,027,678
 $52,681
 $(17,382) $35,299
 $—
 $35,299
 $11,338,256
 $91,727
 $(33,983) $57,744
 $—
 $57,744
Interest rate swaps 1,745,237
 43,040
 (2,193) 40,847
 (11,737) 29,110
 2,047,117
 36,602
 (8,296) 28,306
 (593) 27,713
Energy contracts 1,465,826
 200,640
 (69,991) 130,649
 —
 130,649
 1,501,876
 123,485
 (84,482) 39,003
 (10,130) 28,873
Agricultural contracts 23,508
 1,164
 (181) 983
 (741) 242
 23,660
 2,696
 (64) 2,632
 —
 2,632
Foreign exchange contracts 174,851
 170,556
 —
 170,556
 (290) 170,266
 224,741
 223,329
 —
 223,329
 —
 223,329
Equity option contracts 93,943
 4,121
 —
 4,121
 (660) 3,461
 86,944
 3,140
 —
 3,140
 (930) 2,210
Total customer risk management programs 18,531,043
 472,202
 (89,747) 382,455
 (13,428) 369,027
 15,222,594
 480,979
 (126,825) 354,154
 (11,653) 342,501
Internal risk management programs 9,672,639
 14,760
 (10,413) 4,347
 —
 4,347
 25,928,716
 132,974
 (116,252) 16,722
 —
 16,722
Total derivative contracts $28,203,682
 $486,962
 $(100,160) $386,802
 $(13,428) $373,374
 $41,151,310
 $613,953
 $(243,077) $370,876
 $(11,653) $359,223
                        
 Liabilities Liabilities
 Notional¹ Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral Notional¹ Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral
Customer risk management programs:                        
Interest rate contracts                        
To-be-announced residential mortgage-backed securities $14,443,478
 $49,343
 $(17,382) $31,961
 $(31,808) $153
 $11,140,756
 $89,929
 $(33,983) $55,946
 $(55,879) $67
Interest rate swaps 1,745,237
 43,043
 (2,193) 40,850
 (4,946) 35,904
 2,047,117
 36,644
 (8,296) 28,348
 (14,345) 14,003
Energy contracts 1,434,980
 199,119
 (69,990) 129,129
 (112,481) 16,648
 1,433,137
 119,097
 (84,482) 34,615
 (4,608) 30,007
Agricultural contracts 23,496
 1,142
 (181) 961
 —
 961
 23,636
 2,662
 (64) 2,598
 —
 2,598
Foreign exchange contracts 161,567
 157,174
 (1) 157,173
 (517) 156,656
 219,893
 218,400
 —
 218,400
 (414) 217,986
Equity option contracts 93,943
 4,121
 —
 4,121
 —
 4,121
 86,944
 3,140
 —
 3,140
 —
 3,140
Total customer risk management programs 17,902,701
 453,942
 (89,747) 364,195
 (149,752) 214,443
 14,951,483
 469,872
 (126,825) 343,047
 (75,246) 267,801
Internal risk management programs 11,648,514
 30,826
 (10,413) 20,413
 —
 20,413
 27,041,772
 151,686
 (116,252) 35,434
 (3,537) 31,897
Total derivative contracts $29,551,215
 $484,768
 $(100,160) $384,608
 $(149,752) $234,856
 $41,993,255
 $621,558
 $(243,077) $378,481
 $(78,783) $299,698
1 
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.







The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 20172018 (in thousands):


 Assets Assets
 
Notional 1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral 
Notional 1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral
Customer risk management programs:                        
Interest rate contracts                        
To-be-announced residential mortgage-backed securities $12,347,542
 $23,606
 $(18,096) $5,510
 $—
 $5,510
 $10,671,151
 $92,231
 $(26,787) $65,444
 $—
 $65,444
Interest rate swaps 1,478,944
 28,278
 —
 28,278
 (4,964) 23,314
 1,924,131
 36,112
 (6,688) 29,424
 (7,934) 21,490
Energy contracts 1,190,067
 103,044
 (47,873) 55,171
 (196) 54,975
 1,472,209
 206,418
 (60,983) 145,435
 (106,752) 38,683
Agricultural contracts 53,238
 1,576
 (960) 616
 —
 616
 21,210
 842
 (201) 641
 —
 641
Foreign exchange contracts 132,397
 129,551
 —
 129,551
 (448) 129,103
 184,990
 183,759
 —
 183,759
 —
 183,759
Equity option contracts 99,633
 5,503
 —
 5,503
 (920) 4,583
 89,085
 2,021
 —
 2,021
 (648) 1,373
Total customer risk management programs 15,301,821
 291,558
 (66,929) 224,629
 (6,528) 218,101
 14,362,776
 521,383
 (94,659) 426,724
 (115,334) 311,390
Internal risk management programs 4,736,701
 9,494
 (7,093) 2,401
 —
 2,401
 15,909,988
 50,410
 (40,871) 9,539
 —
 9,539
Total derivative contracts $20,038,522
 $301,052
 $(74,022) $227,030
 $(6,528) $220,502
 $30,272,764
 $571,793
 $(135,530) $436,263
 $(115,334) $320,929
                        
 Liabilities Liabilities
 
Notional 1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral 
Notional 1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral
Customer risk management programs:                        
Interest rate contracts                        
To-be-announced residential mortgage-backed securities $11,537,742
 $20,367
 $(18,096) $2,271
 $(704) $1,567
 $10,558,151
 $90,388
 $(26,787) $63,601
 $(63,596) $5
Interest rate swaps 1,478,944
 28,298
 —
 28,298
 (12,896) 15,402
 1,924,131
 36,288
 (6,688) 29,600
 (4,110) 25,490
Energy contracts 1,166,924
 101,603
 (47,873) 53,730
 (42,767) 10,963
 1,434,247
 202,494
 (60,983) 141,511
 (1,490) 140,021
Agricultural contracts 48,552
 1,551
 (960) 591
 —
 591
 21,214
 812
 (201) 611
 —
 611
Foreign exchange contracts 126,251
 123,321
 —
 123,321
 (53) 123,268
 177,423
 175,922
 —
 175,922
 —
 175,922
Equity option contracts 99,633
 5,503
 —
 5,503
 —
 5,503
 89,085
 2,021
 —
 2,021
 —
 2,021
Total customer risk management programs 14,458,046
 280,643
 (66,929) 213,714
 (56,420) 157,294
 14,204,251
 507,925
 (94,659) 413,266
 (69,196) 344,070
Internal risk management programs 5,728,421
 21,762
 (7,093) 14,669
 —
 14,669
 19,634,642
 66,422
 (40,871) 25,551
 (7,315) 18,236
Total derivative contracts $20,186,467
 $302,405
 $(74,022) $228,383
 $(56,420) $171,963
 $33,838,893
 $574,347
 $(135,530) $438,817
 $(76,511) $362,306
1 
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.










The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at June 30, 2017 (in thousands):
  Assets
  
Notional1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral
Customer risk management programs:            
Interest rate contracts            
To-be-announced residential mortgage-backed securities $16,174,687
 $57,948
 $(29,034) $28,914
 $—
 $28,914
Interest rate swaps 1,450,193
 29,932
 —
 29,932
 (2,206) 27,726
Energy contracts 891,480
 56,824
 (20,546) 36,278
 (21,267) 15,011
Agricultural contracts 45,250
 3,541
 (1,027) 2,514
 —
 2,514
Foreign exchange contracts 169,529
 162,429
 —
 162,429
 (7) 162,422
Equity option contracts 100,159
 4,437
 —
 4,437
 (920) 3,517
Total customer risk management programs 18,831,298
 315,111
 (50,607) 264,504
 (24,400) 240,104
Internal risk management programs 10,680,498
 40,185
 —
 40,185
 —
 40,185
Total derivative contracts $29,511,796
 $355,296
 $(50,607) $304,689
 $(24,400) $280,289
             
  Liabilities
  
Notional1
 Gross Fair Value Netting Adjustments Net Fair Value Before Cash Collateral Cash Collateral Fair Value Net of Cash Collateral
Customer risk management programs:            
Interest rate contracts            
To-be-announced residential mortgage-backed securities $16,174,687
 $53,829
 $(29,034) $24,795
 $—
 $24,795
Interest rate swaps 1,450,193
 29,982
 —
 29,982
 (15,396) 14,586
Energy contracts 874,625
 53,895
 (20,546) 33,349
 —
 33,349
Agricultural contracts 45,262
 3,538
 (1,027) 2,511
 (2,511) —
Foreign exchange contracts 169,553
 162,276
 —
 162,276
 (3,188) 159,088
Equity option contracts 100,159
 4,437
 —
 4,437
 ���
 4,437
Total customer risk management programs 18,814,479
 307,957
 (50,607) 257,350
 (21,095) 236,255
Internal risk management programs 8,310,950
 49,564
 —
 49,564
 —
 49,564
Total derivative contracts $27,125,429
 $357,521
 $(50,607) $306,914
 $(21,095) $285,819
1
Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.
















The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the income statement (in thousands):
  Three Months Ended
  March 31, 2019 March 31, 2018
  
Brokerage
and Trading Revenue
 Gain (Loss) on Derivatives, Net 
Brokerage
and Trading
Revenue
 Gain (Loss)on Derivatives, Net
Customer risk management programs:        
Interest rate contracts        
To-be-announced residential mortgage-backed securities $5,700
 $—
 $6,819
 $—
Interest rate swaps 593
 —
 756
 —
Energy contracts 226
 —
 3,140
 —
Agricultural contracts 4
 —
 15
 —
Foreign exchange contracts 154
 —
 176
 —
Equity option contracts —
 —
 —
 —
Total customer risk management programs 6,677
 —
 10,906
 —
Internal risk management programs (7,295) 4,667
 (1,883) (5,685)
Total derivative contracts $(618) $4,667
 $9,023
 $(5,685)




  Three Months Ended
  June 30, 2018 June 30, 2017
  
Brokerage
and Trading Revenue
 Gain (Loss) on Derivatives, Net 
Brokerage
and Trading
Revenue
 Gain (Loss)on Derivatives, Net
Customer risk management programs:        
Interest rate contracts        
To-be-announced residential mortgage-backed securities $7,586
 $—
 $9,205
 $—
Interest rate swaps 683
 —
 665
 —
Energy contracts 1,416
 —
 1,666
 —
Agricultural contracts 15
 —
 11
 —
Foreign exchange contracts 96
 —
 90
 —
Equity option contracts —
 —
 —
 —
Total customer risk management programs 9,796
 —
 11,637
 —
Internal risk management programs (981) (3,057) 6,485
 3,241
Total derivative contracts $8,815
 $(3,057) $18,122
 $3,241

         
  Six Months Ended
  June 30, 2018 June 30, 2017
  
Brokerage
and Trading Revenue
 Gain (Loss) on Derivatives, Net 
Brokerage
and Trading
Revenue
 Gain (Loss) on Derivatives, Net
Customer risk management programs:        
Interest rate contracts        
To-be-announced residential mortgage-backed securities $14,405
 $—
 $17,232
 $—
Interest rate swaps 1,439
 —
 1,124
 —
Energy contracts 4,556
 —
 4,539
 —
Agricultural contracts 30
 —
 20
 —
Foreign exchange contracts 272
 —
 360
 —
Equity option contracts —
 —
 —
 —
Total customer risk management programs 20,702
 —
 23,275
 —
Internal risk management programs (2,864) (8,742) 6,018
 2,791
Total derivative contracts $17,838
 $(8,742) $29,293
 $2,791



(4) (4) Loans and Allowances for Credit Losses


Loans


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


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


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


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


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


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


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


Qualifying residential mortgage loans guaranteed by U.S. government agencies have been sold into GNMA pools. Under certain performance conditions specified in government programs, the Company may have the right, but not the obligation to repurchase loans from GNMA pools. These loans no longer qualify for sale accounting and are recognized in the Consolidated Balance Sheets. Guaranteed loans are considered impaired because we do not expect to receive all principal and interest based on the loan's contractual terms. The original principal balance continues to be guaranteed;guarantee remains; 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, 2018 December 31, 2017
  
Fixed
Rate
 
Variable
Rate
 Non-accrual Total 
Fixed
Rate
 
Variable
Rate
 Non-accrual Total
Commercial $2,206,735
 $9,021,326
 $120,978
 $11,349,039
 $2,217,432
 $8,379,240
 $137,303
 $10,733,975
Commercial real estate 583,782
 3,126,442
 1,996
 3,712,220
 548,692
 2,928,440
 2,855
 3,479,987
Residential mortgage 1,567,216
 332,691
 42,343
 1,942,250
 1,608,655
 317,584
 47,447
 1,973,686
Personal 168,171
 831,676
 340
 1,000,187
 154,517
 810,990
 269
 965,776
Total $4,525,904
 $13,312,135
 $165,657
 $18,003,696
 $4,529,296
 $12,436,254
 $187,874
 $17,153,424
Accruing loans past due (90 days)1
  
  
  
 $879
  
  
  
 $633
 June 30, 2017 March 31, 2019 December 31, 2018
 
Fixed
Rate
 
Variable
Rate
 Non-accrual Total 
Fixed
Rate
 
Variable
Rate
 Non-accrual Total 
Fixed
Rate
 
Variable
Rate
 Non-accrual Total
Commercial $2,198,066
 $8,242,732
 $197,157
 $10,637,955
 $3,336,747
 $10,534,870
 $90,358
 $13,961,975
 $2,251,188
 $11,285,049
 $99,841
 $13,636,078
Commercial real estate 594,542
 3,090,275
 3,775
 3,688,592
 1,004,692
 3,574,451
 21,508
 4,600,651
 1,477,274
 3,265,918
 21,621
 4,764,813
Residential mortgage 1,597,587
 297,376
 44,235
 1,939,198
 1,777,510
 374,701
 40,409
 2,192,620
 1,830,224
 358,254
 41,555
 2,230,033
Personal 150,728
 766,900
 272
 917,900
 160,472
 842,960
 302
 1,003,734
 190,687
 834,889
 230
 1,025,806
Total $4,540,923
 $12,397,283
 $245,439
 $17,183,645
 $6,279,421
 $15,326,982
 $152,577
 $21,758,980
 $5,749,373
 $15,744,110
 $163,247
 $21,656,730
Accruing loans past due (90 days)1
  
  
  
 $1,414
  
  
  
 $610
  
  
  
 $1,338
1 
Excludes residential mortgage loans guaranteed by agencies of the U.S. government


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

Commercial

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

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



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

Commercial Real Estate

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

At June 30, 2018, 33 percent of commercial real estate loans are secured by properties primarily located in the Dallas and Houston areas of Texas. An additional 12 percent of commercial real estate loans are secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma. 

Residential Mortgage and Personal

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

At June 30, 2018, residential mortgage loans included $170 million of loans guaranteed by U.S. government agencies previously sold into GNMA mortgage pools. These loans either have been repurchased or are eligible to be repurchased by the Company when certain defined delinquency criteria are met. Although payments on these loans generally are past due more than 90 days, interest continues to accrue based on the government guarantee.

Home equity loans totaled $704 million at June 30, 2018. Approximately 62 percent of the home equity loan portfolio is comprised of first lien loans and 38 percent of the home equity portfolio is comprised of junior lien loans. Junior lien loans are distributed 45 percent to amortizing term loans and 55 percent to revolving lines of credit. Home equity loans generally require a minimum FICO score of 700 and a maximum DTI of 40 percent. The maximum loan amount available for our home equity loan products is generally $400 thousand. Revolving loans have a 5 year revolving period followed by a 15 year term of amortizing repayments. Interest-only home equity loans may not be extended for any additional revolving time. All other home equity loans may be extended at management's discretion for an additional 5 year revolving term, subject to an update of certain credit information.



Credit Commitments
 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At June 30, 2018,March 31, 2019, outstanding commitments totaled $10.3$12 billion. Because some commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans.


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


Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Because the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. The term of these standby letters of credit is defined in each commitment and typically corresponds with the underlying loan commitment. At June 30, 2018,March 31, 2019, outstanding standby letters of credit totaled $660 million. $720 million. 


Allowances for Credit Losses


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


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


The allowance for loan losses consists of specific allowances attributed to impaired loans that have not yet been charged down to amounts we expect to recover, general allowances for unimpaired loans based on estimated loss rates by loan class and nonspecific allowances based on general economic conditions, risk concentration and related factors. There have been no material changes in the approach or techniques utilized in developing the allowance for loan losses and the accrual for off-balance sheet credit losses for the three and six months ended June 30, 2018.March 31, 2019.



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


Specific allowances for impaired loans are measured by an evaluation of estimated future cash flows discounted at the loans’ initial effective interest rate or the fair value of collateral for certain collateral dependent loans. Collateral value of real property is generally based on third party appraisals that conform to Uniform Standards of Professional Appraisal Practice, less estimated selling costs. Appraised values are on an "as-is" basis and are generally not adjusted by the Company. Updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values have declined. Collateral value of mineral rights is generally determined by our internal staff of engineers based on projected cash flows under current market conditions. Collateral values and available cash resources that support impaired loans are evaluated quarterly. Historical statistics may be used as a practical way to estimate impairment in limited situations, such as when a collateral dependent loan is identified as impaired at the end of a reporting period, until an updated appraisal of collateral value is received or a full assessment of future cash flows is completed. Estimates of future cash flows and collateral values require significant judgments and may be volatile.




General allowances for unimpaired loans are based on estimated loss rates by loan class. The gross loss rate for each loan class is determined by the greater of the current gross loss rate based on the most recent twelve months or a ten-year gross loss rate. Recoveries are not directly considered in the estimation of loss rates. Recoveries generally do not follow predictable patterns and are not received until well after the charge-off date as a result of protracted legal actions. For risk graded loans, gross loss rates are adjusted for changes in risk grading. For each loan class, the current weighted average risk grade is compared to the long-term average risk grade. This comparison determines whether credit risk in each loan class is increasing or decreasing. Loss rates are adjusted upward or downward in proportion to changes in average risk grading. General allowances for unimpaired loans also consider inherent risks identified for each loan class. Inherent risks consider loss rates that most appropriately represent the current credit cycle and other factors attributable to specific loan classes which have not yet been represented in the gross loss rates or risk grading. These factors include changes in commodity prices or engineering imprecision, which may affect the value of reserves that secure our energy loan portfolio, construction risk that may affect commercial real estate loans, changes in regulations and public policy that may disproportionately impact health care loans and changes in loan products.


Nonspecific allowances are maintained for risks beyond factors specific to a particular loan or loan class. These factors include trends in the economy of our primary lending areas, concentrations in large balance loans and other relevant factors.


An accrual for off-balance sheet credit losses is included in Other liabilities in the Consolidated Balance Sheets. The appropriateness of this accrual is determined in the same manner as the allowance for loan losses.


A provision for credit losses is charged against or credited to earnings in amounts necessary to maintain an appropriate allowance for credit losses. Recoveries of loans previously charged off are added to the allowance when received.



The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the three months ended June 30, 2018March 31, 2019 is summarized as follows (in thousands):
  Commercial Commercial Real Estate Residential Mortgage Personal Nonspecific Allowance Total
Allowance for loan losses:            
Beginning balance $102,226
 $60,026
 $17,964
 $9,473
 $17,768
 $207,457
Provision for loan losses 11,108
 (2,004) (2,408) (137) 1,410
 7,969
Loans charged off (10,468) —
 (42) (1,265) —
 (11,775)
Recoveries 711
 112
 154
 712
 —
 1,689
Ending balance $103,577
 $58,134
 $15,668
 $8,783
 $19,178
 $205,340
Allowance for off-balance sheet credit losses:  
  
  
  
  
  
Beginning balance $1,655
 $52
 $52
 $31
 $—
 $1,790
Provision for off-balance sheet credit losses 70
 (4) (5) (30) —
 31
Ending balance $1,725
 $48
 $47
 $1
 $—
 $1,821
             
Total provision for credit losses $11,178
 $(2,008) $(2,413) $(167) $1,410
 $8,000
  Commercial Commercial Real Estate Residential Mortgage Personal Nonspecific Allowance Total
Allowance for loan losses:            
Beginning balance $120,083
 $57,070
 $18,431
 $8,408
 $19,975
 $223,967
Provision for loan losses 7,116
 (1,409) (257) 755
 (4,503) 1,702
Loans charged off (13,775) —
 (135) (1,195) —
 (15,105)
Recoveries 298
 3,097
 505
 678
 —
 4,578
Ending balance $113,722
 $58,758
 $18,544
 $8,646
 $15,472
 $215,142
Allowance for off-balance sheet credit losses:  
  
  
  
  
  
Beginning balance $4,027
 $44
 $62
 $2
 $—
 $4,135
Provision for off-balance sheet credit losses (1,666) (27) (9) —
 —
 (1,702)
Ending balance $2,361
 $17
 $53
 $2
 $—
 $2,433
             
Total provision for credit losses $5,450
 $(1,436) $(266) $755
 $(4,503) $—



The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the six months ended June 30, 2018 is summarized as follows (in thousands):
  Commercial Commercial Real Estate Residential Mortgage Personal Nonspecific Allowance Total
Allowance for loan losses:            
Beginning balance $124,269
 $56,621
 $18,451
 $9,124
 $22,217
 $230,682
Provision for loan losses 4,005
 (1,143) (419) 603
 (6,745) (3,699)
Loans charged off (15,338) —
 (235) (2,422) —
 (17,995)
Recoveries 786
 3,280
 747
 1,341
 —
 6,154
Ending balance $113,722
 $58,758
 $18,544
 $8,646
 $15,472
 $215,142
Allowance for off-balance sheet credit losses:  
  
  
  
  
  
Beginning balance $3,644
 $45
 $43
 $2
 $—
 $3,734
Provision for off-balance sheet credit losses (1,283) (28) 10
 —
 —
 (1,301)
Ending balance $2,361
 $17
 $53
 $2
 $—
 $2,433
             
Total provision for credit losses $2,722
 $(1,171) $(409) $603
 $(6,745) $(5,000)


The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the three months ended June 30, 2017March 31, 2018 is summarized as follows (in thousands):
 Commercial Commercial Real Estate Residential Mortgage Personal Nonspecific Allowance Total Commercial Commercial Real Estate Residential Mortgage Personal Nonspecific Allowance Total
Allowance for loan losses:                        
Beginning balance $137,616
 $58,343
 $18,177
 $7,247
 $27,327
 $248,710
 $124,269
 $56,621
 $18,451
 $9,124
 $22,217
 $230,682
Provision for loan losses 1,546
 105
 (47) 1,358
 47
 3,009
 (3,111) 266
 (162) (152) (2,242) (5,401)
Loans charged off (1,703) (76) (40) (1,053) —
 (2,872) (1,563) —
 (100) (1,227) —
 (2,890)
Recoveries 283
 208
 169
 554
 —
 1,214
 488
 183
 242
 663
 —
 1,576
Ending balance $137,742
 $58,580
 $18,259
 $8,106
 $27,374
 $250,061
 $120,083
 $57,070
 $18,431
 $8,408
 $19,975
 $223,967
Allowance for off-balance sheet credit losses:  
  
  
  
  
  
  
  
  
  
  
  
Beginning balance $9,288
 $106
 $40
 $6
 $—
 $9,440
 $3,644
 $45
 $43
 $2
 $—
 $3,734
Provision for off-balance sheet credit losses (2,987) (22) (2) 2
 —
 (3,009) 383
 (1) 19
 —
 —
 401
Ending balance $6,301
 $84
 $38
 $8
 $—
 $6,431
 $4,027
 $44
 $62
 $2
 $—
 $4,135
                        
Total provision for credit losses $(1,441) $83
 $(49) $1,360
 $47
 $—
 $(2,728) $265
 $(143) $(152) $(2,242) $(5,000)





The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the six months ended June 30, 2017 is summarized as follows (in thousands):

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

The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at June 30, 2018March 31, 2019 is as follows (in thousands):
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 Total 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 Total
 Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
 Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
Commercial $11,228,061
 $98,522
 $120,978
 $15,200
 $11,349,039
 $113,722
 $13,871,617
 $100,034
 $90,358
 $3,543
 $13,961,975
 $103,577
Commercial real estate 3,710,224
 58,758
 1,996
 —
 3,712,220
 58,758
 4,579,143
 58,134
 21,508
 —
 4,600,651
 58,134
Residential mortgage 1,899,907
 18,544
 42,343
 —
 1,942,250
 18,544
 2,152,211
 15,668
 40,409
 —
 2,192,620
 15,668
Personal 999,847
 8,646
 340
 —
 1,000,187
 8,646
 1,003,432
 8,783
 302
 —
 1,003,734
 8,783
Total 17,838,039
 184,470
 165,657
 15,200
 18,003,696
 199,670
 21,606,403
 182,619
 152,577
 3,543
 21,758,980
 186,162
                        
Nonspecific allowance —
 —
 —
 —
 —
 15,472
 —
 —
 —
 —
 —
 19,178
                        
Total $17,838,039
 $184,470
 $165,657
 $15,200
 $18,003,696
 $215,142
 $21,606,403
 $182,619
 $152,577
 $3,543
 $21,758,980
 $205,340


The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 20172018 is as follows (in thousands):
 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 Total 
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 Total
 Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
 Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
Commercial $10,596,672
 $115,438
 $137,303
 $8,831
 $10,733,975
 $124,269
 $13,536,237
 $93,494
 $99,841
 $8,732
 $13,636,078
 $102,226
Commercial real estate 3,477,132
 56,621
 2,855
 —
 3,479,987
 56,621
 4,743,192
 60,026
 21,621
 —
 4,764,813
 60,026
Residential mortgage 1,926,239
 18,451
 47,447
 —
 1,973,686
 18,451
 2,188,478
 17,964
 41,555
 —
 2,230,033
 17,964
Personal 965,507
 9,124
 269
 —
 965,776
 9,124
 1,025,576
 9,473
 230
 —
 1,025,806
 9,473
Total 16,965,550
 199,634
 187,874
 8,831
 17,153,424
 208,465
 21,493,483
 180,957
 163,247
 8,732
 21,656,730
 189,689
                        
Nonspecific allowance —
 —
 —
 —
 —
 22,217
 —
 —
 —
 —
 —
 17,768
                        
Total $16,965,550
 $199,634
 $187,874
 $8,831
 $17,153,424
 $230,682
 $21,493,483
 $180,957
 $163,247
 $8,732
 $21,656,730
 $207,457




The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at June 30, 2017 is as follows (in thousands):
  
Collectively Measured
for Impairment
 
Individually Measured
for Impairment
 Total
  Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
Commercial $10,440,798
 $128,049
 $197,157
 $9,693
 $10,637,955
 $137,742
Commercial real estate 3,684,817
 58,580
 3,775
 —
 3,688,592
 58,580
Residential mortgage 1,894,963
 18,259
 44,235
 —
 1,939,198
 18,259
Personal 917,628
 8,106
 272
 —
 917,900
 8,106
Total 16,938,206
 212,994
 245,439
 9,693
 17,183,645
 222,687
             
Nonspecific allowance —
 —
 —
 —
 —
 27,374
             
Total $16,938,206
 $212,994
 $245,439
 $9,693
 $17,183,645
 $250,061

Credit Quality Indicators


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


The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at June 30, 2018March 31, 2019 is as follows (in thousands):
 Internally Risk Graded Non-Graded Total Internally Risk Graded Non-Graded Total
 Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
 Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
Commercial $11,323,917
 $112,842
 $25,122
 $880
 $11,349,039
 $113,722
 $13,931,425
 $102,646
 $30,550
 $931
 $13,961,975
 $103,577
Commercial real estate 3,712,220
 58,758
 —
 —
 3,712,220
 58,758
 4,600,651
 58,134
 —
 —
 4,600,651
 58,134
Residential mortgage 250,081
 3,082
 1,692,169
 15,462
 1,942,250
 18,544
 275,875
 3,176
 1,916,745
 12,492
 2,192,620
 15,668
Personal 917,620
 6,621
 82,567
 2,025
 1,000,187
 8,646
 912,343
 6,627
 91,391
 2,156
 1,003,734
 8,783
Total 16,203,838
 181,303
 1,799,858
 18,367
 18,003,696
 199,670
 19,720,294
 170,583
 2,038,686
 15,579
 21,758,980
 186,162
                        
Nonspecific allowance —
 —
 —
 —
 —
 15,472
 —
 —
 —
 —
 —
 19,178
                        
Total $16,203,838
 $181,303
 $1,799,858
 $18,367
 $18,003,696
 $215,142
 $19,720,294
 $170,583
 $2,038,686
 $15,579
 $21,758,980
 $205,340
 


The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at December 31, 20172018 is as follows (in thousands):
  Internally Risk Graded Non-Graded Total
  Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
Commercial $10,706,035
 $123,383
 $27,940
 $886
 $10,733,975
 $124,269
Commercial real estate 3,479,987
 56,621
 —
 —
 3,479,987
 56,621
Residential mortgage 234,477
 2,947
 1,739,209
 15,504
 1,973,686
 18,451
Personal 877,390
 6,461
 88,386
 2,663
 965,776
 9,124
Total 15,297,889
 189,412
 1,855,535
 19,053
 17,153,424
 208,465
             
Nonspecific allowance —
 —
 —
 —
 —
 22,217
             
Total $15,297,889
 $189,412
 $1,855,535
 $19,053
 $17,153,424
 $230,682

The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at June 30, 2017 is as follows (in thousands):
  Internally Risk Graded Non-Graded Total
  Recorded Investment Related Allowance Recorded Investment Related Allowance Recorded Investment 
Related
Allowance
Commercial $13,586,654
 $101,303
 $49,424
 $923
 $13,636,078
 $102,226
Commercial real estate 4,764,813
 60,026
 —
 —
 4,764,813
 60,026
Residential mortgage 505,046
 3,310
 1,724,987
 14,654
 2,230,033
 17,964
Personal 948,890
 6,633
 76,916
 2,840
 1,025,806
 9,473
Total 19,805,403
 171,272
 1,851,327
 18,417
 21,656,730
 189,689
             
Nonspecific allowance —
 —
 —
 —
 —
 17,768
             
Total $19,805,403
 $171,272
 $1,851,327
 $18,417
 $21,656,730
 $207,457

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


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


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



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




The following table summarizes the Company’s loan portfolio at June 30, 2018March 31, 2019 by the risk grade categories (in thousands): 
  Internally Risk Graded Non-Graded  
  Performing        
  Pass Other Loans Especially Mentioned Accruing Substandard Nonaccrual Performing Nonaccrual Total
Commercial:              
Energy $3,549,167
 $39,285
 $81,315
 $35,332
 $—
 $—
 $3,705,099
Services 3,189,490
 60,361
 28,157
 9,555
 —
 —
 3,287,563
Wholesale/retail 1,675,248
 21,100
 9,127
 1,425
 —
 —
 1,706,900
Manufacturing 677,497
 34,033
 21,296
 9,548
 —
 —
 742,374
Healthcare 2,869,515
 13,748
 13,854
 18,768
 —
 —
 2,915,885
Public finance 803,083
 —
 —
 —
 —
 —
 803,083
Other commercial and industrial 744,082
 3,190
 7,580
 15,669
 30,489
 61
 801,071
Total commercial 13,508,082
 171,717
 161,329
 90,297
 30,489
 61
 13,961,975
               
Commercial real estate:  
    
  
  
  
  
Residential construction and land development 149,336
 —
 —
 350
 —
 —
 149,686
Retail 857,698
 11,549
 1,279
 20,159
 —
 —
 890,685
Office 1,024,892
 4,219
 3,192
 855
 —
 —
 1,033,158
Multifamily 1,203,220
 7,136
 2
 —
 —
 —
 1,210,358
Industrial 767,757
 —
 —
 —
 —
 —
 767,757
Other commercial real estate 546,942
 1,071
 850
 144
 —
 —
 549,007
Total commercial real estate 4,549,845
 23,975
 5,323
 21,508
 —
 —
 4,600,651
               
Residential mortgage:  
    
  
  
  
  
Permanent mortgage 272,741
 —
 2,225
 909
 800,578
 22,028
 1,098,481
Permanent mortgages guaranteed by U.S. government agencies —
 —
 —
 —
 186,362
 6,946
 193,308
Home equity —
 —
 —
 —
 890,305
 10,526
 900,831
Total residential mortgage 272,741
 —
 2,225
 909
 1,877,245
 39,500
 2,192,620
               
Personal 912,187
 47
 33
 76
 91,165
 226
 1,003,734
               
Total $19,242,855
 $195,739
 $168,910
 $112,790
 $1,998,899
 $39,787
 $21,758,980

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





The following table summarizes the Company’s loan portfolio at December 31, 20172018 by the risk grade categories (in thousands): 
 Internally Risk Graded Non-Graded   Internally Risk Graded Non-Graded  
 Performing         Performing        
 Pass Other Loans Especially Mentioned Accruing Substandard Nonaccrual Performing Nonaccrual Total Pass Other Loans Especially Mentioned Accruing Substandard Nonaccrual Performing Nonaccrual Total
Commercial:                            
Energy $2,632,986
 $60,288
 $144,598
 $92,284
 $—
 $—
 $2,930,156
 $3,414,039
 $42,176
 $86,624
 $47,494
 $—
 $—
 $3,590,333
Services 2,943,869
 13,927
 26,533
 2,620
 —
 —
 2,986,949
 3,167,203
 49,761
 32,661
 8,567
 —
 —
 3,258,192
Wholesale/retail 1,443,917
 19,263
 5,502
 2,574
 —
 —
 1,471,256
 1,593,902
 18,809
 7,131
 1,316
 —
 —
 1,621,158
Manufacturing 472,869
 6,653
 11,290
 5,962
 —
 —
 496,774
 668,438
 30,934
 22,230
 8,919
 —
 —
 730,521
Healthcare 2,253,497
 3,186
 43,305
 14,765
 —
 —
 2,314,753
 2,730,121
 14,920
 37,698
 16,538
 —
 —
 2,799,277
Public finance 804,550
 —
 —
 —
 —
 —
 804,550
Other commercial and industrial 478,951
 7
 8,161
 19,028
 27,870
 70
 534,087
 756,815
 1,266
 7,588
 16,954
 49,371
 53
 832,047
Total commercial 10,226,089
 103,324
 239,389
 137,233
 27,870
 70
 10,733,975
 13,135,068
 157,866
 193,932
 99,788
 49,371
 53
 13,636,078
                            
Commercial real estate:  
    
  
  
  
  
  
    
  
  
  
  
Residential construction and land development 113,190
 1,828
 395
 1,832
 —
 —
 117,245
 148,234
 —
 —
 350
 —
 —
 148,584
Retail 686,915
 4,243
 98
 276
 —
 —
 691,532
 885,588
 11,926
 1,289
 20,279
 —
 —
 919,082
Office 824,408
 7,087
 —
 275
 —
 —
 831,770
 1,059,334
 10,532
 3,054
 —
 —
 —
 1,072,920
Multifamily 979,969
 —
 48
 —
 —
 —
 980,017
 1,287,471
 281
 12
 301
 —
 —
 1,288,065
Industrial 573,014
 —
 —
 —
 —
 —
 573,014
 776,898
 —
 1,208
 —
 —
 —
 778,106
Other commercial real estate 285,506
 145
 286
 472
 —
 —
 286,409
 555,301
 1,188
 876
 691
 —
 —
 558,056
Total commercial real estate 3,463,002
 13,303
 827
 2,855
 —
 —
 3,479,987
 4,712,826
 23,927
 6,439
 21,621
 —
 —
 4,764,813
                            
Residential mortgage:  
    
  
  
  
  
  
    
  
  
  
  
Permanent mortgage 232,492
 —
 822
 1,163
 784,928
 24,030
 1,043,435
 269,678
 52
 9,730
 1,991
 819,199
 21,960
 1,122,610
Permanent mortgages guaranteed by U.S. government agencies —
 —
 —
 —
 188,327
 9,179
 197,506
 —
 —
 —
 —
 183,734
 7,132
 190,866
Home equity —
 —
 —
 —
 719,670
 13,075
 732,745
 223,298
 —
 296
 —
 682,491
 10,472
 916,557
Total residential mortgage 232,492
 —
 822
 1,163
 1,692,925
 46,284
 1,973,686
 492,976
 52
 10,026
 1,991
 1,685,424
 39,564
 2,230,033
                            
Personal 875,696
 1,548
 63
 83
 88,200
 186
 965,776
 944,256
 115
 4,443
 76
 76,762
 154
 1,025,806
                            
Total $14,797,279
 $118,175
 $241,101
 $141,334
 $1,808,995
 $46,540
 $17,153,424
 $19,285,126
 $181,960
 $214,840
 $123,476
 $1,811,557
 $39,771
 $21,656,730






The following table summarizes the Company’s loan portfolio at June 30, 2017 by the risk grade categories (in thousands): 
  Internally Risk Graded Non-Graded  
  Performing        
  Pass Other Loans Especially Mentioned Accruing Substandard Nonaccrual Performing Nonaccrual Total
Commercial:              
Energy $2,376,368
 $120,473
 $226,407
 $123,992
 $—
 $—
 $2,847,240
Services 2,921,510
 12,452
 17,111
 7,754
 —
 —
 2,958,827
Wholesale/retail 1,507,063
 16,224
 9,788
 10,620
 —
 —
 1,543,695
Manufacturing 513,442
 6,540
 16,499
 9,656
 —
 —
 546,137
Healthcare 2,130,339
 33,554
 33,120
 24,505
 —
 —
 2,221,518
Other commercial and industrial 453,712
 2,961
 17,861
 20,526
 25,374
 104
 520,538
Total commercial 9,902,434
 192,204
 320,786
 197,053
 25,374
 104
 10,637,955
               
Commercial real estate:  
    
  
  
  
  
Residential construction and land development 138,790
 —
 751
 2,051
 —
 —
 141,592
Retail 720,730
 1,774
 —
 301
 —
 —
 722,805
Office 859,722
 2,855
 —
 396
 —
 —
 862,973
Multifamily 947,950
 —
 4,420
 10
 —
 —
 952,380
Industrial 693,635
 —
 —
 —
 —
 —
 693,635
Other commercial real estate 314,187
 —
 3
 1,017
 —
 —
 315,207
Total commercial real estate 3,675,014
 4,629
 5,174
 3,775
 —
 —
 3,688,592
               
Residential mortgage:  
    
  
  
  
  
Permanent mortgage 212,563
 1,693
 478
 1,273
 750,891
 22,142
 989,040
Permanent mortgages guaranteed by U.S. government agencies —
 —
 —
 —
 182,677
 9,052
 191,729
Home equity —
 —
 —
 —
 746,661
 11,768
 758,429
Total residential mortgage 212,563
 1,693
 478
 1,273
 1,680,229
 42,962
 1,939,198
               
Personal 823,304
 49
 877
 88
 93,398
 184
 917,900
               
Total $14,613,315
 $198,575
 $327,315
 $202,189
 $1,799,001
 $43,250
 $17,183,645





Impaired Loans


Loans are considered to be impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. This generally includes all nonaccruing loans, all loans modified in a TDR and all loans repurchased from GNMA pools.


A summary of impaired loans at March 31, 2019 follows (in thousands):
As of For the For theAs of For the
June 30, 2018 Three Months Ended Six Months EndedMarch 31, 2019 Three Months Ended
  Recorded Investment   June 30, 2018 June 30, 2018  Recorded Investment   March 31, 2019
Unpaid
Principal
Balance
 Total With No
Allowance		 With Allowance Related Allowance Average Recorded
Investment		 Interest Income Recognized Average Recorded
Investment		 Interest Income Recognized
Unpaid
Principal
Balance
 Total With No
Allowance		 With Allowance Related Allowance Average Recorded
Investment		 Interest Income Recognized
Commercial:                              
Energy$84,285
 $65,597
 $19,735
 $45,862
 $9,460
 $77,770
 $—
 $78,940
 $—
$72,615
 $35,332
 $31,332
 $4,000
 $675
 $45,627
 $—
Services7,211
 4,377
 4,296
 81
 79
 3,243
 —
 3,498
 —
13,744
 9,555
 9,529
 26
 26
 7,378
 —
Wholesale/retail14,523
 14,095
 2,822
 11,273
 4,075
 8,329
 —
 8,334
 —
1,642
 1,425
 1,142
 283
 101
 1,047
 —
Manufacturing2,995
 2,991
 2,734
 257
 257
 2,996
 —
 4,476
 —
Manufacturing1
9,697
 9,548
 9,307
 241
 241
 8,851
 —
Healthcare26,212
 16,125
 13,583
 2,542
 1,329
 15,734
 —
 15,445
 —
30,189
 18,768
 15,270
 3,498
 2,500
 14,926
 —
Public finance—
 —
 —
 —
 —
 —
 —
Other commercial and industrial26,983
 17,793
 17,793
 —
 —
 18,147
 —
 18,446
 —
25,899
 15,730
 15,730
 —
 —
 16,215
 —
Total commercial162,209
 120,978
 60,963
 60,015
 15,200
 126,219
 —
 129,139
 —
153,786
 90,358
 82,310
 8,048
 3,543
 94,044
 —
                              
Commercial real estate: 
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
Residential construction and land development1,764
 350
 350
 —
 —
 982
 —
 1,091
 —
1,306
 350
 350
 —
 —
 350
 —
Retail8,134
 1,068
 1,068
 —
 —
 666
 —
 672
 —
20,491
 20,159
 20,159
 —
 —
 20,219
 —
Office287
 275
 275
 —
 —
 275
 —
 275
 —
855
 855
 855
 —
 —
 427
 —
Multifamily—
 —
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 151
 —
Industrial—
 —
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
Other commercial real estate509
 303
 303
 —
 —
 311
 —
 387
 —
305
 144
 144
 —
 —
 418
 —
Total commercial real estate10,694
 1,996
 1,996
 —
 —
 2,234
 —
 2,425
 —
22,957
 21,508
 21,508
 —
 —
 21,565
 —
                              
Residential mortgage: 
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
Permanent mortgage28,402
 23,105
 23,105
 —
 —
 23,841
 322
 24,149
 628
27,658
 22,937
 22,937
 —
 —
 23,444
 298
Permanent mortgage guaranteed by U.S. government agencies1
174,589
 169,653
 169,653
 —
 —
 170,856
 1,574
 180,671
 3,422
Permanent mortgage guaranteed by U.S. government agencies2
198,882
 193,308
 193,308
 —
 —
 196,407
 1,905
Home equity13,362
 11,671
 11,671
 —
 —
 12,002
 —
 12,373
 —
12,279
 10,526
 10,526
 —
 —
 10,499
 —
Total residential mortgage216,353
 204,429
 204,429
 —
 —
 206,699
 1,896
 217,193
 4,050
238,819
 226,771
 226,771
 —
 —
 230,350
 2,203
                              
Personal387
 340
 340
 —
 —
 340
 —
 305
 —
358
 302
 302
 —
 —
 266
 —
                              
Total$389,643
 $327,743
 $267,728
 $60,015
 $15,200
 $335,492
 $1,896
 $349,062
 $4,050
$415,920
 $338,939
 $330,891
 $8,048
 $3,543
 $346,225
 $2,203
1 
Impaired manufacturing sector loans included $4.7 million of loans from an affiliated entity, with no allowance as the fair value of the collateral exceeded the outstanding principal balance at March 31, 2019.
2 All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At March 31, 2019, the majority were accruing based on the guarantee by U.S. government agencies.


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



A summary of impaired loans at December 31, 2018 follows (in thousands): 
    Recorded Investment
  
Unpaid
Principal
Balance
 Total 
With No
Allowance
 With Allowance Related Allowance
Commercial:          
Energy $79,675
 $47,494
 $18,639
 $28,855
 $5,362
Services 13,437
 8,567
 8,489
 78
 74
Wholesale/retail 1,722
 1,316
 1,015
 301
 101
Manufacturing 10,055
 8,919
 8,673
 246
 246
Healthcare 24,319
 16,538
 10,563
 5,975
 2,949
Public finance —
 —
 —
 —
 —
Other commercial and industrial 26,955
 17,007
 17,007
 —
 —
Total commercial 156,163
 99,841
 64,386
 35,455
 8,732
           
Commercial real estate:  
  
  
  
  
Residential construction and land development 1,306
 350
 350
 —
 —
Retail 27,680
 20,279
 20,279
 —
 —
Office —
 —
 —
 —
 —
Multifamily 301
 301
 301
 —
 —
Industrial —
 —
 —
 —
 —
Other commercial real estate 851
 691
 691
 —
 —
Total commercial real estate 30,138
 21,621
 21,621
 —
 —
           
Residential mortgage:  
  
  
  
  
Permanent mortgage 28,716
 23,951
 23,951
 —
 —
Permanent mortgage guaranteed by U.S. government agencies1
 196,296
 190,866
 190,866
 —
 —
Home equity 12,196
 10,472
 10,472
 —
 —
Total residential mortgage 237,208
 225,289
 225,289
 —
 —
           
Personal 278
 230
 230
 —
 —
           
Total $423,787
 $346,981
 $311,526
 $35,455
 $8,732
1
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At June 30,December 31, 2018, $7.6 million of these loans were nonaccruing and $162 millionthe majority were accruing based on the guarantee by U.S. government agencies.


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




A summary of impaired loans at December 31, 2017 follows (in thousands): 
    Recorded Investment
  
Unpaid
Principal
Balance
 Total 
With No
Allowance
 With Allowance Related Allowance
Commercial:          
Energy $111,011
 $92,284
 $40,968
 $51,316
 $8,814
Services 5,324
 2,620
 2,620
 —
 —
Wholesale/retail 9,099
 2,574
 2,574
 —
 —
Manufacturing 6,073
 5,962
 5,962
 —
 —
Healthcare 25,140
 14,765
 14,765
 —
 —
Other commercial and industrial 27,957
 19,098
 19,080
 18
 17
Total commercial 184,604
 137,303
 85,969
 51,334
 8,831
           
Commercial real estate:  
  
  
  
  
Residential construction and land development 3,285
 1,832
 1,832
 —
 —
Retail 509
 276
 276
 —
 —
Office 287
 275
 275
 —
 —
Multifamily —
 —
 —
 —
 —
Industrial —
 —
 —
 —
 —
Other commercial real estate 670
 472
 472
 —
 —
Total commercial real estate 4,751
 2,855
 2,855
 —
 —
           
Residential mortgage:  
  
  
  
  
Permanent mortgage 30,435
 25,193
 25,193
 —
 —
Permanent mortgage guaranteed by U.S. government agencies1
 203,814
 197,506
 197,506
 —
 —
Home equity 14,548
 13,075
 13,075
 —
 —
Total residential mortgage 248,797
 235,774
 235,774
 —
 —
           
Personal 307
 269
 269
 —
 —
           
Total $438,459
 $376,201
 $324,867
 $51,334
 $8,831
1
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At December 31, 2017, $9.2 million of these loans were nonaccruing and $188 million were accruing based on the guarantee by U.S. government agencies.



A summary of impaired loans at June 30, 2017 follows (in thousands): 
   For the For the
 As of June 30, 2017 Three Months Ended Six Months Ended
   Recorded Investment   June 30, 2017 June 30, 2017
 Unpaid Principal Balance Total 
With No
Allowance
 With Allowance Related Allowance 
Average Recorded
Investment
 Interest Income Recognized 
Average Recorded
Investment
 Interest Income Recognized
Commercial:                 
Energy$141,091
 $123,992
 $56,988
 $67,004
 $8,874
 $117,209
 $—
 $128,246
 $—
Services11,209
 7,754
 7,754
 —
 —
 7,734
 —
 7,964
 —
Wholesale/retail17,392
 10,620
 10,620
 —
 —
 10,855
 —
 11,013
 —
Manufacturing10,223
 9,656
 9,656
 —
 —
 7,781
 —
 7,293
 —
Healthcare24,795
 24,505
 18,883
 5,622
 802
 12,707
 —
 12,665
 —
Other commercial and industrial28,933
 20,630
 20,609
 21
 17
 20,706
 —
 20,874
 —
Total commercial233,643
 197,157
 124,510
 72,647
 9,693
 176,992
 —
 188,055
 —
                  
Commercial real estate:             
    
Residential construction and land development3,676
 2,051
 2,051
 —
 —
 2,334
 —
 2,742
 —
Retail518
 301
 301
 —
 —
 308
 —
 314
 —
Office499
 396
 396
 —
 —
 404
 —
 411
 —
Multifamily1,000
 10
 10
 —
 —
 17
 —
 24
 —
Industrial—
 —
 —
 —
 —
 38
 —
 38
 —
Other commercial real estate1,212
 1,017
 1,017
 —
 —
 1,024
 —
 1,119
 —
Total commercial real estate6,905
 3,775
 3,775
 —
 —
 4,125
 —
 4,648
 —
                  
Residential mortgage:             
    
Permanent mortgage28,603
 23,415
 23,415
 —
 —
 23,801
 307
 23,135
 598
Permanent mortgage guaranteed by U.S. government agencies1
197,659
 191,729
 191,729
 —
 —
 202,946
 2,021
 205,159
 3,925
Home equity13,064
 11,768
 11,768
 —
 —
 11,776
 —
 11,643
 —
Total residential mortgage239,326
 226,912
 226,912
 —
 —
 238,523
 2,328
 239,937
 4,523
                  
Personal307
 272
 272
 —
 —
 253
 —
 281
 —
                  
Total$480,181
 $428,116
 $355,469
 $72,647
 $9,693
 $419,893
 $2,328
 $432,921
 $4,523
1
All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At June 30, 2017, $9.1 million of these loans were nonaccruing and $183 million were accruing based on the guarantee by U.S. government agencies.




Troubled Debt Restructurings


At June 30, 2018March 31, 2019 the Company had $152$159 million in troubled debt restructurings (TDRs), of which $75$92 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $80 million of TDRs were performing in accordance with the modified terms.

At December 31, 2017, the Company had $126 million in TDRs, of which $74 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $48$81 million of TDRs were performing in accordance with the modified terms.


At June 30, 2017,December 31, 2018, the Company had $166 million in TDRs, totaled $169 million, of which $81$86 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $71 million of TDRs were performing in accordance with the modified terms.


TDRs generally consist of interest rate concessions, payment stream concessions or a combination of concessions to distressed borrowers. During the three and six months ended June 30, 2018, $19 million and $32March 31, 2019, $18 million of loans were restructured and $5.5 million and $5.6 million of loans designated as TDRs were charged off.restructured. During the three and six months ended June 30, 2017, $34 million and $53March 31, 2018, $37 million of loans were restructured and $10 thousand and $42 thousand of loans designated as TDRs were charged off.restructured.










Nonaccrual & Past Due Loans


Past due status for all loan classes is based on the actual number of days since the last payment was due according to the contractual terms of the loans.


A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of June 30, 2018March 31, 2019 is as follows (in thousands):
   Past Due       Past Due    
 Current 
30 to 59
Days
 60 to 89 Days 
90 Days
or More
 Nonaccrual Total Current 
30 to 59
Days
 60 to 89 Days 
90 Days
or More
 Nonaccrual Total
Commercial:                        
Energy $3,081,622
 $—
 $—
 $—
 $65,597
 $3,147,219
 $3,669,767
 $—
 $—
 $—
 $35,332
 $3,705,099
Services 2,937,699
 1,619
 106
 698
 4,377
 2,944,499
 3,257,230
 20,214
 442
 122
 9,555
 3,287,563
Wholesale/retail 1,685,175
 284
 —
 —
 14,095
 1,699,554
 1,704,415
 833
 227
 —
 1,425
 1,706,900
Manufacturing 644,825
 —
 —
 —
 2,991
 647,816
 732,644
 182
 —
 —
 9,548
 742,374
Healthcare 2,322,580
 —
 15,017
 —
 16,125
 2,353,722
 2,888,579
 7,837
 701
 —
 18,768
 2,915,885
Public finance 803,083
 —
 —
 —
 —
 803,083
Other commercial and industrial 538,269
 52
 105
 10
 17,793
 556,229
 782,507
 2,695
 —
 139
 15,730
 801,071
Total commercial 11,210,170
 1,955
 15,228
 708
 120,978
 11,349,039
 13,838,225
 31,761
 1,370
 261
 90,358
 13,961,975
                        
Commercial real estate:  
  
    
  
  
  
  
    
  
  
Residential construction and land development 118,649
 —
 —
 —
 350
 118,999
 143,184
 6,152
 —
 —
 350
 149,686
Retail 766,956
 —
 —
 —
 1,068
 768,024
 870,526
 —
 —
 —
 20,159
 890,685
Office 819,852
 —
 —
 —
 275
 820,127
 1,032,239
 —
 64
 —
 855
 1,033,158
Multifamily 1,056,984
 —
 —
 —
 —
 1,056,984
 1,209,726
 283
 —
 349
 —
 1,210,358
Industrial 653,384
 —
 —
 —
 —
 653,384
 767,757
 —
 —
 —
 —
 767,757
Other commercial real estate 294,377
 —
 —
 22
 303
 294,702
 547,563
 1,187
 113
 —
 144
 549,007
Total commercial real estate 3,710,202
 —
 —
 22
 1,996
 3,712,220
 4,570,995
 7,622
 177
 349
 21,508
 4,600,651
                        
Residential mortgage:  
  
    
  
  
  
  
    
  
  
Permanent mortgage 1,041,859
 2,568
 796
 84
 23,105
 1,068,412
 1,070,150
 5,394
 —
 —
 22,937
 1,098,481
Permanent mortgages guaranteed by U.S. government agencies 38,717
 14,757
 12,878
 95,734
 7,567
 169,653
 47,639
 38,748
 —
 99,975
 6,946
 193,308
Home equity 690,743
 1,612
 94
 65
 11,671
 704,185
 886,019
 4,118
 168
 —
 10,526
 900,831
Total residential mortgage 1,771,319
 18,937
 13,768
 95,883
 42,343
 1,942,250
 2,003,808
 48,260
 168
 99,975
 40,409
 2,192,620
                        
Personal 999,519
 178
 150
 —
 340
 1,000,187
 1,003,069
 347
 16
 —
 302
 1,003,734
                        
Total $17,691,210
 $21,070
 $29,146
 $96,613
 $165,657
 $18,003,696
 $21,416,097
 $87,990
 $1,731
 $100,585
 $152,577
 $21,758,980





A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 20172018 is as follows (in thousands):

    Past Due    
  Current 
30 to 59
Days
 60 to 89 Days 
90 Days
or More
 Nonaccrual Total
Commercial:            
Energy $3,542,839
 $—
 $—
 $—
 $47,494
 $3,590,333
Services 3,237,578
 6,009
 6,038
 —
 8,567
 3,258,192
Wholesale/retail 1,619,290
 515
 37
 —
 1,316
 1,621,158
Manufacturing 721,204
 392
 6
 —
 8,919
 730,521
Healthcare 2,781,944
 241
 —
 554
 16,538
 2,799,277
Public finance 804,550
 —
 —
 —
 —
 804,550
Other commercial and industrial 814,489
 518
 25
 8
 17,007
 832,047
Total commercial 13,521,894
 7,675
 6,106
 562
 99,841
 13,636,078
             
Commercial real estate:  
  
    
  
  
Residential construction and land development 147,705
 249
 280
 —
 350
 148,584
Retail 884,424
 14,379
 —
 —
 20,279
 919,082
Office 1,072,920
 —
 —
 —
 —
 1,072,920
Multifamily 1,287,483
 281
 —
 —
 301
 1,288,065
Industrial 776,898
 1,208
 —
 —
 —
 778,106
Other commercial real estate 556,239
 412
 —
 714
 691
 558,056
Total commercial real estate 4,725,669
 16,529
 280
 714
 21,621
 4,764,813
             
Residential mortgage:  
  
    
  
  
Permanent mortgage 1,095,097
 3,196
 366
 —
 23,951
 1,122,610
Permanent mortgages guaranteed by U.S. government agencies 37,459
 24,369
 16,345
 105,561
 7,132
 190,866
Home equity 904,572
 1,102
 352
 59
 10,472
 916,557
Total residential mortgage 2,037,128
 28,667
 17,063
 105,620
 41,555
 2,230,033
             
Personal 1,024,298
 479
 796
 3
 230
 1,025,806
             
Total $21,308,989
 $53,350
 $24,245
 $106,899
 $163,247
 $21,656,730


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




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


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


(5)Acquisitions

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

On May 1, 2018, the Company acquired a majority voting interest in Switchgrass Holdings, LLC, a restaurant franchise owner and operator, pursuant to merchant banking regulations and restrictions. The purchase price for this acquisition was $14 million. The preliminary purchase price allocation included $6.1 million of goodwill.
(6)


(5) Leasing

Effective January 1, 2019, premises and equipment included right-of-use assets for leased office space and facilities. Leases are at market rates at inception and may contain escalations based on consumer price index or similar benchmarks and options to renew at then market rates. Renewal options, variable lease payments and residual value guarantees are included in the measurement of right-of-use assets when certain conditions are met. Lease component cash flows are discounted at the applicable FHLB advance rate.

Right-of-use assets initially recognized in the first quarter of 2019 were $137 million.

The following represents a summary of operating lease activities (dollars in thousands):
  March 31, 2019
Operating lease cost recognized as occupancy and equipment expense $6,419
Operating cash flows from operating leases 5,914
Weighted-average remaining lease term 10.1 years
Weighted-average discount rate operating leases 3.50%

At March 31, 2019, un-discounted operating lease liabilities are scheduled to mature as follows: $30.2 million in 2019, $28.4 million in 2020, $25.1 million in 2021, $17.7 million in 2022, $15.3 million in 2023 and $97.6 million thereafter. Operating expense and short term lease costs total $2.4 million for the three months ended March 31, 2019.

The Company may lease owned properties or sublease unoccupied leased facilities. Income on these leases is immaterial.

(6) Mortgage Banking Activities


Residential Mortgage Loan Production


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


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


The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to residential mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held for sale on the Consolidated Balance Sheets were (in thousands):
  June 30, 2018 December 31, 2017 June 30, 2017
  
Unpaid Principal Balance/
Notional
 Fair Value 
Unpaid Principal Balance/
Notional
 Fair Value 
Unpaid
Principal
 Balance/
Notional
 Fair Value
Residential mortgage loans held for sale $214,717
 $216,983
 $212,525
 $215,113
 $269,772
 $275,179
Residential mortgage loan commitments 251,231
 7,473
 222,919
 6,523
 362,088
 10,993
Forward sales contracts 440,735
 (1,155) 380,159
 (258) 587,595
 1,087
   
 $223,301
  
 $221,378
  
 $287,259


  March 31, 2019 December 31, 2018
  
Unpaid Principal Balance/
Notional
 Fair Value 
Unpaid Principal Balance/
Notional
 Fair Value
Residential mortgage loans held for sale $153,818
 $155,679
 $145,057
 $146,971
Residential mortgage loan commitments 263,434
 8,091
 160,848
 5,378
Forward sales contracts 376,411
 (3,613) 274,000
 (3,128)
   
 $160,157
  
 $149,221


No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of June 30, 2018, March 31, 2019 or December 31, 2017 or June 30, 2017.2018. No credit losses were recognized on residential mortgage loans held for sale for the sixthree month period ended June 30, 2018March 31, 2019 and 2017.2018.




Mortgage banking revenue was as follows (in thousands):
  Three Months Ended
March 31,
  2019 2018
Production revenue:    
Net realized gains on sale of mortgage loans $5,693
 $8,918
Net change in unrealized gain on mortgage loans held for sale (53) (1,369)
Net change in the fair value of mortgage loan commitments 2,713
 2,074
Net change in the fair value of forward sales contracts (485) (171)
Total production revenue 7,868
 9,452
Servicing revenue 15,966
 16,573
Total mortgage banking revenue $23,834
 $26,025

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


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


Residential Mortgage Servicing


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



The following represents a summary of mortgage servicing rights (Dollars(dollars in thousands):
  March 31, 2019 December 31, 2018
Number of residential mortgage loans serviced for others 131,636,000
 132,463,000
Outstanding principal balance of residential mortgage loans serviced for others $21,544,295
 $21,658,335
Weighted average interest rate 4.00% 3.99%
Remaining term (in months) 292
 293

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


The following represents activity in capitalized mortgage servicing rights (in thousands):
Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
2018 2017 2018 2017 2019 2018
Beginning Balance$274,978
 $249,403
 $252,867
 $247,073
 $259,254
 $252,867
Additions, net10,820
 11,078
 19,720
 19,514
 6,188
 8,900
Change in fair value due to principal payments(8,802) (8,299) (16,797) (16,261) (6,583) (7,995)
Change in fair value due to market assumption changes1,723
 (6,943) 22,929
 (5,087) (20,666) 21,206
Ending Balance$278,719
 $245,239
 $278,719
 $245,239
 $238,193
 $274,978


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:
  March 31, 2019 December 31, 2018
Discount rate – risk-free rate plus a market premium 9.83% 9.90%
Prepayment rate - based upon loan interest rate, original term and loan type 8.14% - 16.02% 8.05% - 15.74%
Loan servicing costs – annually per loan based upon loan type:    
Performing loans $68 - $94 $67 - $93
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 2.29% 2.57%
Primary/secondary mortgage rate spread 105 bps 105 bps

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


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


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

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



(7)  (7)  Commitments and Contingent Liabilities


Litigation Contingencies

As a member of Visa, BOK Financial is obligated for a proportionate share of certain covered litigation losses incurred by Visa under a retrospective responsibility plan. A contingent liability was recognized for the Company’s share of Visa’s covered litigation liabilities. Visa funded an escrow account to cover litigation claims, including covered litigation losses under the retrospective responsibility plan, with proceeds from its initial public offering in 2008 and from available cash.
BOK Financial currently owns 252,233 Visa Class B shares which are convertible into 411,089 shares of Visa Class A shares after the final settlement of all covered litigation. Class B shares may be diluted in the future if the escrow fund is not adequate to cover future covered litigation costs. Therefore, no value has been currently assigned to the Class B shares and no value may be assigned until the Class B shares are converted into a known number of Class A shares.
On June 24, 2015, the BankBOKF, 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 the BankBOKF, 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 December 28, 2015, in an action brought by the SEC, the United States District Court for the District of New Jersey entered a judgment against the principals involved in issuing the bonds, precluding the principals from denying the alleged violations of the federal securities laws and requiring the principals to pay all outstanding principal, accrued interest, and other amounts required under the bond documents (now estimated to be approximately $40 million, less the value of the facilities securing repayment of the bonds), subject to oversight by a court appointed monitor. The obligation of the principal to pay all principal and interest on the bonds is non-dischargeable in bankruptcy. On September 7, 2016, the BankBOKF, NA agreed, and the SEC entered, a consent order finding that the BankBOKF, NA had violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring the BankBOKF, NA to disgorge $1,067,721 of fees and pay a civil penalty of $600,000. The Bank hasBOKF, NA disgorged the fees and paid the penalty. 

On August 26, 2016, the BankBOKF, 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 the BankBOKF, NA participated in the fraudulent sale of securities by the principals. On September 14, 2016, the BankBOKF, NA was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders alleging the BankBOKF, NA participated in the fraudulent sale of securities by the principals. Two separate small groups of bondholders have filed arbitration complaints with the Financial Institutions Regulatory Association respecting the bonds and other bonds for which the BankBOKF, NA served as indenture trustee. Management has been advised by counsel that the BankBOKF, NA has valid defenses to the claims.
On September 15, 2017, The time by which the principal ofmust perform the bond issuances filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Georgia. The principal subsequently sought and obtained an order dismissing the Chapter 11 proceeding. The obligation of the principal to pay all principal and interestordered payment plan currently expires on the bonds is non-dischargeable in bankruptcy. The BankJune 20, 2019. BOKF, NA expects the Court ordered payment plan will result into be continued from time to time until the principals complete the payment of the bonds, by the principals. Accordingly,though there is no assurance that it will be. No loss is probable at this time and no provision for loss has been made. If the payment plan does not result in payment of the bonds, a loss could become probable. A reasonable estimate cannot be made at this time though the amount could be material to the Company. 
On March 5, 2018, the BankBOKF, NA was sued in the Fulton, Georgia County District Court by the administratrix of a deceased resident who had sued for and obtained a judgment for wrongful death against one of the operators of a nursing home financed by one of the bonds which are the subject of the litigation discussed above. The judgment is alleged to total approximately $8 million in principal and interest at this time. Plaintiff alleges that BOKF, in its capacity as indenture trustee for the bonds, colluded with the borrower and others to defraud creditors of the nursing home by misleading the public about the solvency of the nursing home. Plaintiff alleges that this conduct has prevented her from collecting on her judgment. The BankBOKF, NA is advised by counsel that the BankBOKF, NA has valid defenses to the plaintiffs’ claims and no loss is probable.



On March 14, 2017, the BankBOKF, NA was sued in the United States District Court for the Northern District of Oklahoma by bondholders in a second putative class action representing a different set of municipal securities. The bondholders in this second action allege two individuals purchased facilities from the principals who are the subject of the SEC New Jersey proceedings by means of the fraudulent sale of $60 million of municipal securities for which the BankBOKF, NA also served as indenture trustee. The bondholders allege the BankBOKF, NA failed to disclose that the seller of the purchased facilities had engaged in the conduct complained of in the New Jersey action. The BankBOKF, NA properly performed all duties as indenture trustee of this second set of municipal securities, timely commenced proceedings against the issuer of the securities when default occurred, is cooperating with the SEC in actions against the two principals, is not a target of the SEC proceedings, and has been advised by counsel that the BankBOKF, NA has valid defenses to the claims of these bondholders. ItManagement is the opinion of managementadvised by counsel that noa loss is not probable at this time.and that the loss, if any, cannot be reasonably estimated.

On March 7, 2017, a plaintiff filed a putative class action in the United States District Court for the Northern District of Texas alleging an extended overdraft fee charged by the BankBOKF, NA is interest and exceeds permitted rates. The Bank was previously sued inThis action makes the same allegations as a putative class action inthat was dismissed by the United States District Court for the Northern District of Oklahoma on October 19, 2015. 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. Pursuant to a motion to dismiss,allegations as the NorthernTexas action. On September 18, 2018, the District of Oklahoma Court action was dismissed. Other courts consideringdismissed the question whether extended overdraft fees are interest have likewise determined such fees are not interest. The Bank has moved to dismiss theTexas action. The Northern District of Texas Action was dismissed upon motion by the Bank with leave granted the plaintiff to file an amended complaint. The plaintiff filed an amended complaint. The Bank has again moved to dismiss the complaint, which motion to dismiss is pending before the Court. Management is advised by counsel that a loss is not probable in the New Mexico action or the Texas action and that the loss, if any, cannot be reasonably estimated.



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


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


The Company sponsors two private equity funds and invests in several tax credit entities and other funds as permitted by banking regulations. Consolidation of these investments is based on the variable interest model determined by the nature of the entity. Variable interest entities are generally defined as entities that either do not have sufficient equity to finance their activities without support from other parties or whose equity investors lack a controlling financial interest. Variable interest entities are consolidated based on the determination thatmodel.

At March 31, 2019, the Company is the primary beneficiary including the power to direct the activities that most significantly impact the variable interest's economic performance and the obligation to absorb losses of the variable interest or the right to receive benefits of the variable interest that could be significant to the variable interest.

BOKF Equity, LLC, an indirect wholly-owned subsidiary, is the general partner of two consolidated private equity funds (“the Funds”). The Funds provide alternative investment opportunities to certain customers, some of which are related parties, through unaffiliated limited partnerships. These unaffiliated limited partnerships generally investhas $232 million in distressed assets, asset buy-outs or venture capital companies. As general partner, BOKF Equity, LLC has the power to direct activities that most significantly affect the Funds' performance and contingent obligations to make additional investments totaling $3.4 million at June 30, 2018. Substantially all of the obligations are offset by limited partner commitments. The Company does not accrue its contingent liability to fund investments. The Volcker Rule in Title VI of the Dodd-Frank Act will limit both the amount and structure of these types of investments.

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

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


The Company also has interests in various unrelated alternative investments generally consisting of unconsolidated limited partnership interests in or loans to entities for which investment return is primarily in the form of low income housing tax credits or that investother investments in distressed real estate loans and properties, energy development, venture capital and othermerchant banking activities. The Company is prohibited by banking regulations from controlling or actively managing the activitiesThis investment balance also includes $67 million of these investments and the Company's maximum exposure to loss is restricted to its investment balance. The Company's obligation to fund alternative investments isunfunded commitments included in Other liabilities inon the Consolidated Balance Sheets.

A summary of consolidated and unconsolidated alternative investments as of June 30, 2018, December 31, 2017 and June 30, 2017 is as follows (in thousands):




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


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



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



(8) (8) Shareholders' Equity


On July 24, 2018,April 30, 2019, the Company declared a quarterly cash dividend of $0.50$0.50 per common share payable on or about August 27, 2018May 28, 2019 to shareholders of record as of AugustMay 13, 20182019.


Dividends declared were $0.45 and $0.900.50 per share during the three and six months ended June 30, 2018March 31, 2019 and $0.44 and $0.880.45 per share during the three and six months ended June 30, 2017.March 31, 2018.


Accumulated Other Comprehensive Income (Loss)


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


A rollforward of the components of accumulated other comprehensive income (loss) is included as follows (in thousands):
  Unrealized Gain (Loss) on  
  Available for Sale Securities Employee Benefit Plans Total
Balance, December 31, 2017 $(35,385) $(789) $(36,174)
Transition adjustment for net unrealized gains on equity securities (2,709) —
 (2,709)
Net change in unrealized gain (loss) (97,406) —
 (97,406)
Reclassification adjustments included in earnings:     
Loss on available for sale securities, net 290
 —
 290
Other comprehensive income (loss), before income taxes (97,116) —
 (97,116)
Federal and state income taxes1
 (24,808) —
 (24,808)
Other comprehensive income (loss), net of income taxes (72,308) —
 (72,308)
Balance, March 31, 2018 $(110,402) $(789) $(111,191)
      
Balance, December 31, 2018 $(70,999) $(1,586) $(72,585)
Net change in unrealized gain (loss) 92,739
 —
 92,739
Reclassification adjustments included in earnings:     
Gain on available for sale securities, net (76) —
 (76)
Other comprehensive income (loss), before income taxes 92,663
 —
 92,663
Federal and state income taxes1
 23,609
 —
 23,609
Other comprehensive income (loss), net of income taxes 69,054
 —
 69,054
Balance, March 31, 2019 $(1,945)
$(1,586) $(3,531)
  Unrealized Gain (Loss) on  
  Available for Sale Securities Employee Benefit Plans Total
Balance, December 31, 2016 $(9,087) $(1,880) $(10,967)
Net change in unrealized gain (loss) 33,369
 —
 33,369
Reclassification adjustments included in earnings:     
Gain on available for sale securities, net (2,429) —
 (2,429)
Other comprehensive income (loss), before income taxes 30,940
 —
 30,940
Federal and state income taxes1
 12,009
 —
 12,009
Other comprehensive income (loss), net of income taxes 18,931
 —
 18,931
Balance, June 30, 2017 $9,844
 $(1,880) $7,964
      
Balance, December 31, 2017 $(35,385) $(789) $(36,174)
Transition adjustment for net unrealized gains on equity securities (2,709) —
 (2,709)
Net change in unrealized gain (loss) (130,523) —
 (130,523)
Reclassification adjustments included in earnings:     
Loss on available for sale securities, net 1,052
 —
 1,052
Other comprehensive income (loss), before income taxes (129,471) —
 (129,471)
Federal and state income taxes2
 (33,049) —
 (33,049)
Other comprehensive income (loss), net of income taxes (96,422) —
 (96,422)
Balance, June 30, 2018 $(134,516)
$(789) $(135,305)

1 
Calculated using a 39 percent blended federal and state statutory tax rate.
2
Calculated using a 25 percent blended federal and state statutory tax rate.




(9)  
(9) Earnings Per Share
(In thousands, except share and per share amounts) Three Months Ended
March 31,
  2019 2018
Numerator:    
Net income attributable to BOK Financial Corp. shareholders $110,612
 $105,562
Less: Earnings allocated to participating securities 828
 1,022
Numerator for basic earnings per share – income available to common shareholders 109,784
 104,540
Effect of reallocating undistributed earnings of participating securities —
 —
Numerator for diluted earnings per share – income available to common shareholders $109,784
 $104,540
     
Denominator:  
  
Weighted average shares outstanding $71,926,041
 $65,479,482
Less:  Participating securities included in weighted average shares outstanding 538,971
 632,148
Denominator for basic earnings per common share 71,387,070
 64,847,334
Dilutive effect of employee stock compensation plans1
 17,318
 40,699
Denominator for diluted earnings per common share $71,404,388
 $64,888,033
     
Basic earnings per share $1.54
 $1.61
Diluted earnings per share $1.54
 $1.61
1  Excludes employee stock options with exercise prices greater than current market price.
 —
 —



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




(10)  (10)  Reportable Segments


Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2018March 31, 2019 is as follows (in thousands):
 Commercial Consumer 
Wealth
Management
 Funds Management and Other 
BOK
Financial
Consolidated
 Commercial Consumer 
Wealth
Management
 
Funds Management and Other1
 
BOK
Financial
Consolidated
Net interest revenue from external sources $182,127
 $21,746
 $18,754
 $15,935
 $238,562
 $204,209
 $21,595
 $21,486
 $30,812
 $278,102
Net interest revenue (expense) from internal sources (37,102) 17,548
 10,232
 9,322
 —
 (52,562) 29,507
 6,770
 16,285
 —
Net interest revenue 145,025
 39,294
 28,986
 25,257
 238,562
 151,647
 51,102
 28,256
 47,097
 278,102
Provision for credit losses 10,108
 1,139
 (105) (11,142) —
 11,245
 1,085
 (119) (4,211) 8,000
Net interest revenue after provision for credit losses 134,917
 38,155
 29,091
 36,399
 238,562
 140,402
 50,017
 28,375
 51,308
 270,102
Other operating revenue 43,047
 46,320
 70,642
 (3,610) 156,399
 37,612
 42,748
 73,414
 3,496
 157,270
Other operating expense 47,483
 55,906
 61,491
 81,596
 246,476
 50,177
 53,506
 61,507
 121,967
 287,157
Net direct contribution 130,481
 28,569
 38,242
 (48,807) 148,485
 127,837
 39,259
 40,282
 (67,163) 140,215
Gain (loss) on financial instruments, net 9
 (6,411) —
 6,402
 —
 18
 14,097
 —
 (14,115) —
Change in fair value of mortgage servicing rights —
 1,723
 —
 (1,723) —
 —
 (20,666) —
 20,666
 —
Gain (loss) on repossessed assets, net (67) 174
 —
 (107) —
 (346) 103
 —
 243
 —
Corporate expense allocations 11,269
 15,867
 11,142
 (38,278) —
 10,148
 11,883
 8,360
 (30,391) —
Net income before taxes 119,154
 8,188
 27,100
 (5,957) 148,485
 117,361
 20,910
 31,922
 (29,978) 140,215
Federal and state income taxes 31,577
 2,086
 6,981
 (7,314) 33,330
 31,218
 5,326
 8,203
 (14,797) 29,950
Net income 87,577
 6,102
 20,119
 1,357
 115,155
 86,143
 15,584
 23,719
 (15,181) 110,265
Net income attributable to non-controlling interests —
 —
 —
 783
 783
 —
 —
 —
 (347) (347)
Net income attributable to BOK Financial Corp. shareholders $87,577
 $6,102
 $20,119
 $574
 $114,372
 $86,143
 $15,584
 $23,719
 $(14,834) $110,612
                    
Average assets $18,072,155
 $8,353,558
 $8,495,557
 $(1,015,235) $33,906,035
 $19,330,249
 $8,371,683
 $9,312,154
 $2,658,595
 $39,672,681



Reportable segments reconciliation to the Consolidated Financial Statements1 CoBiz operations are included in Funds Management and Other for the six months ended June 30, 2018 is as follows (in thousands):first quarter of 2019.

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



Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended June 30, 2017March 31, 2018 is as follows (in thousands):
  Commercial Consumer 
Wealth
Management
 Funds Management and Other 
BOK
Financial
Consolidated
Net interest revenue from external sources $160,414
 $21,753
 $15,407
 $22,162
 $219,736
Net interest revenue (expense) from internal sources (28,343) 15,224
 9,932
 3,187
 —
Net interest revenue 132,071
 36,977
 25,339
 25,349
 219,736
Provision for credit losses 627
 1,300
 (48) (6,879) (5,000)
Net interest revenue after provision for credit losses 131,444
 35,677
 25,387
 32,228
 224,736
Other operating revenue 39,676
 44,947
 74,766
 (3,400) 155,989
Other operating expense 48,370
 54,695
 64,942
 76,423
 244,430
Net direct contribution 122,750
 25,929
 35,211
 (47,595) 136,295
Gain (loss) on financial instruments, net 7
 (23,262) —
 23,255
 —
Change in fair value of mortgage servicing rights —
 21,206
 —
 (21,206) —
Gain (loss) on repossessed assets, net (4,166) (108) —
 4,274
 —
Corporate expense allocations 10,603
 11,188
 8,815
 (30,606) —
Net income before taxes 107,988
 12,577
 26,396
 (10,666) 136,295
Federal and state income taxes 28,741
 3,203
 6,787
 (7,783) 30,948
Net income 79,247
 9,374
 19,609
 (2,883) 105,347
Net income attributable to non-controlling interests —
 —
 —
 (215) (215)
Net income (loss) attributable to BOK Financial Corp. shareholders $79,247
 $9,374
 $19,609
 $(2,668) $105,562
           
Average assets $17,793,820
 $8,468,101
 $8,095,794
 $(632,763) $33,724,952


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




Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2017 is as follows (in thousands):
  Commercial Consumer 
Wealth
Management
 Funds Management and Other 
BOK
Financial
Consolidated
Net interest revenue from external sources $301,753
 $39,348
 $21,960
 $43,325
 $406,386
Net interest revenue (expense) from internal sources (39,831) 25,864
 19,181
 (5,214) —
Net interest revenue 261,922
 65,212
 41,141
 38,111
 406,386
Provision for credit losses (236) 2,199
 (53) (1,910) —
Net interest revenue after provision for credit losses 262,158
 63,013
 41,194
 40,021
 406,386
Other operating revenue 103,198
 95,879
 149,727
 3,744
 352,548
Other operating expense 112,416
 107,991
 121,025
 154,164
 495,596
Net direct contribution 252,940
 50,901
 69,896
 (110,399) 263,338
Gain (loss) on financial instruments, net 41
 3,557
 —
 (3,598) —
Change in fair value of mortgage servicing rights —
 (5,087) —
 5,087
 —
Gain (loss) on repossessed assets, net 1,398
 (39) —
 (1,359) —
Corporate expense allocations 17,674
 33,658
 20,619
 (71,951) —
Net income before taxes 236,705
 15,674
 49,277
 (38,318) 263,338
Federal and state income taxes 96,949
 6,097
 19,429
 (36,667) 85,808
Net income 139,756
 9,577
 29,848
 (1,651) 177,530
Net income attributable to non-controlling interests —
 —
 —
 1,027
 1,027
Net income attributable to BOK Financial Corp. shareholders $139,756
 $9,577
 $29,848
 $(2,678) $176,503
           
Average assets $17,716,738
 $8,360,022
 $6,960,872
 $(377,472) $32,660,160


(11) Fees and Commissions Revenue


Fees and commissions revenue is generated through the sales of products, consisting primarily of financial instruments, and the performance of services for customers under contractual obligations. Revenue from providing services for customers is recognized at the time services are provided in an amount that reflects the consideration we expect to be entitled to for those services. Revenue is recognized based on the application of five steps:
Identify the contract with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the Company satisfies a performance obligation


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


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





Fees and commissions revenue by reportable segment and primary service line is as follows for the three months ended June 30, 2018.March 31, 2019.
Commercial Consumer Wealth Management Funds Management & Other Consolidated 
Out of Scope1
 
In Scope2
Commercial Consumer Wealth Management 
Funds Management & Other3
 Consolidated 
Out of Scope1
 
In Scope2
Trading revenue$—
 $—
 $6,338
 $—
 $6,338
 $6,338
 $—
$—
 $—
 $12,920
 $—
 $12,920
 $12,920
 $—
Customer hedging revenue2,892
 —
 7,611
 (708) 9,795
 9,795
 —
1,575
 —
 5,728
 (626) 6,677
 6,677
 —
Retail brokerage revenue—
 —
 4,886
 (75) 4,811
 —
 4,811
—
 —
 4,074
 (52) 4,022
 —
 4,022
Insurance brokerage revenue—
 —
 379
 3,729
 4,108
 —
 4,108
Investment banking revenue2,903
 —
 2,641
 —
 5,544
 2,300
 3,244
1,389
 —
 2,501
 —
 3,890
 1,229
 2,661
Brokerage and trading revenue5,795
 —
 21,476
 (783) 26,488
 18,433
 8,055
2,964
 —
 25,602
 3,051
 31,617
 20,826
 10,791
TransFund EFT network revenue18,048
 1,009
 (21) 2
 19,038
 —
 19,038
17,654
 958
 (17) 1
 18,596
 —
 18,596
Merchant services revenue1,921
 16
 —
 —
 1,937
 —
 1,937
1,925
 14
 —
 123
 2,062
 —
 2,062
Corporate card revenue80
 —
 —
 —
 80
 —
 80
Transaction card revenue19,969
 1,025
 (21) 2
 20,975
 —
 20,975
19,659
 972
 (17) 124
 20,738
 —
 20,738
Personal trust revenue—
 —
 20,558
 —
 20,558
 —
 20,558
—
 —
 19,574
 —
 19,574
 —
 19,574
Corporate trust revenue—
 —
 4,935
 —
 4,935
 —
 4,935
—
 —
 6,201
 —
 6,201
 —
 6,201
Institutional trust & retirement plan services revenue—
 —
 11,039
 —
 11,039
 —
 11,039
—
 —
 11,107
 —
 11,107
 —
 11,107
Investment management services and other—
 —
 5,217
 (50) 5,167
 —
 5,167
—
 —
 4,801
 1,675
 6,476
 —
 6,476
Fiduciary and asset management revenue—
 —
 41,749
 (50) 41,699
 —
 41,699
—
 —
 41,683
 1,675
 43,358
 —
 43,358
Commercial account service charge revenue10,912
 362
 610
 —
 11,884
 —
 11,884
10,062
 387
 527
 1,807
 12,783
 —
 12,783
Overdraft fee revenue98
 8,768
 32
 7
 8,905
 —
 8,905
74
 8,395
 27
 (236) 8,260
 —
 8,260
Check card revenue—
 5,343
 —
 —
 5,343
 —
 5,343
—
 4,992
 —
 164
 5,156
 —
 5,156
Automated service charge and other deposit fee revenue38
 1,633
 24
 —
 1,695
 —
 1,695
158
 1,665
 177
 44
 2,044
 —
 2,044
Deposit service charges and fees11,048
 16,106
 666
 7
 27,827
 —
 27,827
10,294
 15,439
 731
 1,779
 28,243
 —
 28,243
Mortgage production revenue—
 9,915
 —
 —
 9,915
 9,915
 —
—
 7,868
 —
 —
 7,868
 7,868
 —
Mortgage servicing revenue—
 16,902
 —
 (471) 16,431
 16,431
 —
—
 16,445
��—
 (479) 15,966
 15,966
 —
Mortgage banking revenue—
 26,817
 —
 (471) 26,346
 26,346
 —
—
 24,313
 —
 (479) 23,834
 23,834
 —
Other revenue6,062
 2,384
 6,619
 (547) 14,518
 9,372
 5,146
5,129
 2,097
 5,257
 279
 12,762
 8,720
 4,042
Total fees and commissions revenue$42,874
 $46,332
 $70,489
 $(1,842) $157,853
 $54,151
 $103,702
$38,046
 $42,821
 $73,256
 $6,429
 $160,552
 $53,380
 $107,172
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.
3
CoBiz operations are included in Funds Management and Other for the first quarter of 2019.





Fees and commissions revenue by reportable segment and primary service line is as follows for the sixthree months ended June 30,March 31, 2018.
 Commercial Consumer Wealth Management Funds Management & Other Consolidated 
Out of Scope1
 
In Scope2
Trading revenue$—
 $—
 $10,394
 $—
 $10,394
 $10,394
 $—
Customer hedging revenue2,022
 —
 6,965
 1,920
 10,907
 10,907
 —
Retail brokerage revenue—
 —
 4,697
 (98) 4,599
 —
 4,599
Insurance brokerage revenue—
 —
 155
 —
 155
 —
 155
Investment banking revenue1,061
 —
 3,532
 —
 4,593
 1,061
 3,532
Brokerage and trading revenue3,083
 —
 25,743
 1,822
 30,648
 22,362
 8,286
TransFund EFT network revenue18,202
 987
 (19) 1
 19,171
 —
 19,171
Merchant services revenue1,804
 15
 —
 —
 1,819
 —
 1,819
Corporate card revenue—
 —
 —
 —
 —
 —
 —
Transaction card revenue20,006
 1,002
 (19) 1
 20,990
 —
 20,990
Personal trust revenue—
 —
 20,100
 —
 20,100
 —
 20,100
Corporate trust revenue—
 —
 5,641
 —
 5,641
 —
 5,641
Institutional trust & retirement plan services revenue—
 —
 11,450
 —
 11,450
 —
 11,450
Investment management services and other—
 —
 4,689
 (48) 4,641
 —
 4,641
Fiduciary and asset management revenue—
 —
 41,880
 (48) 41,832
 —
 41,832
Commercial account service charge revenue10,944
 359
 605
 —
 11,908
 —
 11,908
Overdraft fee revenue90
 8,484
 34
 4
 8,612
 —
 8,612
Check card revenue—
 4,918
 —
 —
 4,918
 —
 4,918
Automated service charge and other deposit fee revenue37
 1,659
 26
 1
 1,723
 —
 1,723
Deposit service charges and fees11,071
 15,420
 665
 5
 27,161
 —
 27,161
Mortgage production revenue—
 9,452
 —
 —
 9,452
 9,452
 —
Mortgage servicing revenue—
 17,027
 —
 (454) 16,573
 16,573
 —
Mortgage banking revenue—
 26,479
 —
 (454) 26,025
 26,025
 —
Other revenue5,857
 2,062
 6,538
 (1,499) 12,958
 8,984
 3,974
Total fees and commissions revenue$40,017
 $44,963
 $74,807
 $(173) $159,614
 $57,371
 $102,243
 Commercial Consumer Wealth Management Funds Management & Other Consolidated 
Out of Scope1
 
In Scope2
Trading revenue$—
 $—
 $16,732
 $—
 $16,732
 $16,732
 $—
Customer hedging revenue4,914
 —
 14,576
 1,212
 20,702
 20,702
 —
Retail brokerage revenue—
 —
 9,738
 (173) 9,565
 —
 9,565
Investment banking revenue3,964
 —
 6,173
 —
 10,137
 3,361
 6,776
Brokerage and trading revenue8,878
 —
 47,219
 1,039
 57,136
 40,795
 16,341
TransFund EFT network revenue36,250
 1,996
 (40) 3
 38,209
 —
 38,209
Merchant services revenue3,725
 31
 —
 —
 3,756
 —
 3,756
Transaction card revenue39,975
 2,027
 (40) 3
 41,965
 —
 41,965
Personal trust revenue—
 —
 40,658
 —
 40,658
 —
 40,658
Corporate trust revenue—
 —
 10,576
 —
 10,576
 —
 10,576
Institutional trust & retirement plan services revenue—
 —
 22,489
 —
 22,489
 —
 22,489
Investment management services and other—
 —
 9,906
 (98) 9,808
 —
 9,808
Fiduciary and asset management revenue—
 —
 83,629
 (98) 83,531
 —
 83,531
Commercial account service charge revenue21,856
 721
 1,215
 —
 23,792
 —
 23,792
Overdraft fee revenue188
 17,252
 66
 10
 17,516
 —
 17,516
Check card revenue—
 10,261
 —
 —
 10,261
 —
 10,261
Automated service charge and other deposit fee revenue75
 3,292
 50
 2
 3,419
 —
 3,419
Deposit service charges and fees22,119
 31,526
 1,331
 12
 54,988
 —
 54,988
Mortgage production revenue—
 19,367
 —
 —
 19,367
 19,367
 —
Mortgage servicing revenue—
 33,929
 —
 (925) 33,004
 33,004
 —
Mortgage banking revenue—
 53,296
 —
 (925) 52,371
 52,371
 —
Other revenue11,919
 4,447
 13,157
 (2,675) 26,848
 17,727
 9,121
Total fees and commissions revenue$82,891
 $91,296
 $145,296
 $(2,644) $316,839
 $110,893
 $205,946

1  
Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting guidance.
2 
In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.








(12) Federal and State Income Taxes


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


The reconciliationsreconciliation of income attributable to continuing operations at the U.S. federal statutory tax rate to income tax expense are as follows (in thousands):
Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
2018 2017 2018 20172019 2018
Amount:          
Federal statutory tax$31,182
 $47,800
 $59,804
 $92,168
$29,445
 $28,622
Tax exempt revenue(1,653) (3,224) (3,465) (6,335)(2,757) (1,812)
Effect of state income taxes, net of federal benefit3,288
 2,944
 6,945
 5,389
3,851
 3,657
Utilization of tax credits, net of proportional amortization of low-income housing limited partnership investments(1,334) (889) (2,667) (2,976)(1,608) (1,458)
Share-based compensation(424) 1,636
 (2,044) (2,301)(529) (1,620)
Adjustment to provisional amounts related to tax reform—
 —
 1,895
 —
Implementation of Tax Reform Act—
 1,895
Other, net2,271
 (562) 3,810
 (137)1,548
 1,664
Total income tax expense$33,330
 $47,705
 $64,278
 $85,808
$29,950
 $30,948


 Three Months Ended
March 31,
 2019 2018
Percent of pretax income:   
Federal statutory tax21.0 % 21.0 %
Tax exempt revenue(2.0) (1.3)
Effect of state income taxes, net of federal benefit2.7
 2.7
Utilization of tax credits, net of proportional amortization of low-income housing limited partnership investments(1.1) (1.1)
Share-based compensation(0.4) (1.2)
Implementation of Tax Reform Act—
 1.4
Other, net1.2
 1.2
Total21.4 % 22.7 %


 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Percent of pretax income:       
Federal statutory tax21.0 % 35.0 % 21.0 % 35.0 %
Tax exempt revenue(1.1) (2.4) (1.2) (2.4)
Effect of state income taxes, net of federal benefit2.2
 2.2
 2.4
 2.0
Utilization of tax credits, net of proportional amortization of low-income housing limited partnership investments(0.9) (0.7) (0.9) (1.1)
Share-based compensation(0.3) 1.2
 (0.7) (0.9)
Adjustment to provisional amounts related to tax reform—
 —
 0.7
 —
Other, net1.5
 (0.4) 1.3
 —
Total22.4 % 34.9 % 22.6 % 32.6 %



(13) (13) Fair Value Measurements


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


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


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


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


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


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


Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out of quoted prices in active markets for identical instruments to significant other observable inputs or significant unobservable inputs during the sixthree months ended June 30,March 31, 2019 and 2018, and 2017, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the sixthree months ended June 30,March 31, 2019 and 2018 and 2017 are included in the summary of changes in recurring fair values measured using unobservable inputs.


The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market. No significant adjustments were made to prices provided by third-party pricing services at June 30, 2018, March 31, 2019 or December 31, 2017 or June 30, 2017.2018.





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, 2018March 31, 2019 (in thousands):
 Total Quoted Prices in Active Markets for Identical Instruments (Level 1) Significant Other Observable Inputs (Level 2) 
Significant Unobservable Inputs
(Level 3)
 Total Quoted Prices in Active Markets for Identical Instruments (Level 1) Significant Other Observable Inputs (Level 2) 
Significant Unobservable Inputs
(Level 3)
Assets:                
Trading securities:                
U.S. government agency debentures $28,750
 $—
 $28,750
 $—
 $51,576
 $—
 $51,576
 $—
U.S. government agency residential mortgage-backed securities 1,605,001
 —
 1,605,001
 —
 1,952,742
 —
 1,952,742
 —
Municipal and other tax-exempt securities 70,606
 —
 70,606
 —
 50,637
 —
 50,637
 —
Asset-backed securities 193,271
 —
 193,271
 —
 40,890
 —
 40,890
 —
Other trading securities 11,987
 —
 11,987
 —
 44,481
 —
 44,481
 —
Total trading securities 1,909,615
 —
 1,909,615
 —
 2,140,326
 —
 2,140,326
 —
Available for sale securities:  
  
  
  
  
  
  
  
U.S. Treasury 490
 490
 —
 —
 1,878
 1,878
 —
 —
Municipal and other tax-exempt securities 10,697
 —
 8,667
 2,030
 2,447
 —
 2,447
 —
U.S. government agency residential mortgage-backed securities 5,304,560
 —
 5,304,560
 —
Privately issued residential mortgage-backed securities 83,224
 —
 83,224
 —
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,738,451
 —
 2,738,451
 —
Residential agency mortgage-backed securities 6,040,086
 —
 6,040,086
 —
Residential non-agency mortgage-backed securities 47,958
 —
 47,958
 —
Commercial agency mortgage-backed securities 2,932,357
 —
 2,932,357
 —
Other debt securities 25,444
 —
 24,973
 471
 472
 —
 —
 472
Total available for sale securities 8,162,866
 490
 8,159,875
 2,501
 9,025,198
 1,878
 9,022,848
 472
Fair value option securities – U.S. government agency residential mortgage-backed securities 482,227
 —
 482,227
 —
 707,994
 —
 707,994
 —
Residential mortgage loans held for sale 223,301
 —
 209,058
 14,243
 160,157
 —
 144,381
 15,776
Mortgage servicing rights1
 278,719
 —
 —
 278,719
 238,193
 —
 —
 238,193
Derivative contracts, net of cash collateral2
 373,373
 21,056
 352,317
 —
 359,223
 4,720
 354,503
 —
Liabilities:  
        
      
Derivative contracts, net of cash collateral2
 234,856
 17,214
 217,642
 —
 299,698
 —
 299,698
 —
1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6,, Mortgage Banking Activities.
2 
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions that were valued based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded interest rate and agricultural derivative contacts, net of cahcash margin. Derivative contacts in liability positions that were valued using quoted prices in active markets for identical instruments are exchange-traded energy and interest rate and energy derivative contracts, net offully offset by cash margin.





The fair value of financial assets and liabilities measured on a recurring basis was as follows as of December 31, 20172018 (in thousands):
 Total Quoted Prices in Active Markets for Identical Instruments (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs
(Level 3)		 Total Quoted Prices in Active Markets for Identical Instruments (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs
(Level 3)
Assets:                
Trading securities:                
U.S. government agency debentures $21,196
 $—
 $21,196
 $—
 $63,765
 $—
 $63,765
 $—
U.S. government agency residential mortgage-backed securities 392,673
 —
 392,673
 —
 1,791,584
 —
 1,791,584
 —
Municipal and other tax-exempt securities 13,559
 —
 13,559
 —
 34,507
 —
 34,507
 —
Asset-backed securities 23,885
 —
 23,885
 —
 42,656
 —
 42,656
 —
Other trading securities 11,363
 —
 11,363
 —
 24,411
 —
 24,411
 —
Total trading securities 462,676
 —
 462,676
 —
 1,956,923
 —
 1,956,923
 —
Available for sale securities:  
  
  
  
  
  
  
  
U.S. Treasury 1,000
 1,000
 —
 —
 493
 493
 —
 —
Municipal and other tax-exempt securities 27,080
 —
 22,278
 4,802
 2,864
 —
 2,864
 —
U.S. government agency residential mortgage-backed securities 5,309,152
 —
 5,309,152
 —
Privately issued residential mortgage-backed securities 93,221
 —
 93,221
 —
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,834,961
 —
 2,834,961
 —
Residential agency mortgage-backed securities 5,804,708
 —
 5,804,708
 —
Residential non-agency mortgage-backed securities 59,736
 —
 59,736
 —
Commercial agency mortgage-backed securities 2,953,889
 —
 2,953,889
 —
Other debt securities 25,481
 —
 25,009
 472
 35,430
 —
 34,958
 472
Perpetual preferred stock 15,767
 —
 15,767
 —
Equity securities and mutual funds 14,916
 —
 14,916
 —
Total available for sale securities 8,321,578
 1,000
 8,315,304
 5,274
 8,857,120
 493
 8,856,155
 472
Fair value option securities – U.S. government agency residential mortgage-backed securities 755,054
 —
 755,054
 —
 283,235
 —
 283,235
 —
Residential mortgage loans held for sale 221,378
 —
 209,079
 12,299
 149,221
 —
 134,014
 15,207
Mortgage servicing rights1
 252,867
 —
 —
 252,867
 259,254
 —
 —
 259,254
Derivative contracts, net of cash collateral2
 220,502
 8,179
 212,323
 —
 320,929
 44,074
 276,855
 —
Liabilities: 

       

      
Derivative contracts, net of cash collateral2
 171,963
 —
 171,963
 —
 362,306
 —
 362,306
 —
1 
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6,, Mortgage Banking Activities.
2 
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate, energy and agricultural derivative contacts.contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and energy derivative contracts, fully offset by cash margin.



The fair value of financial assets and liabilities measured on a recurring basis was as follows as of June 30, 2017 (in thousands):
  Total Quoted Prices in Active Markets for Identical Instruments (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs
(Level 3)
Assets:        
Trading securities:        
U.S. government agency debentures $20,954
 $—
 $20,954
 $—
U.S. government agency residential mortgage-backed securities 365,171
 —
 365,171
 —
Municipal and other tax-exempt securities 45,444
 —
 45,444
 —
Other trading securities 9,845
 —
 9,845
 —
Total trading securities 441,414
 —
 441,414
 —
Available for sale securities:  
  
  
  
U.S. Treasury 998
 998
 —
 —
Municipal and other tax-exempt securities 32,765
 —
 28,110
 4,655
U.S. government agency residential mortgage-backed securities 5,382,377
 —
 5,382,377
 —
Privately issued residential mortgage-backed securities 103,383
 —
 103,383
 —
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,782,070
 —
 2,782,070
 —
Other debt securities 4,152
 —
 —
 4,152
Perpetual preferred stock 16,568
 —
 16,568
 —
Equity securities and mutual funds 18,728
 3,516
 15,212
 —
Total available for sale securities 8,341,041
 4,514
 8,327,720
 8,807
Fair value option securities – U.S. government agency residential mortgage-backed securities 445,169
 —
 445,169
 —
Residential mortgage loans held for sale 287,259
 —
 274,524
 12,735
Mortgage servicing rights1
 245,239
 —
 —
 245,239
Derivative contracts, net of cash collateral2
 280,289
 46,366
 233,923
 —
Liabilities:  
      
Derivative contracts, net of cash collateral2
 285,819
 20,915
 264,904
 —
1
A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.
2

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






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


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


Derivatives


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


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


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


Residential Mortgage Loans Held for Sale


Residential mortgage loans held for sale are carried on the balance sheet at fair value. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and forward sales contracts. The fair value of mortgage loans that were unable to be sold to U.S. government agencies were determined using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied.





The following represents the changes for the three and six months ended June 30, 2018March 31, 2019 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 Available for Sale Securities   Available for Sale Securities  
 Municipal and other tax-exempt securities Other debt securities Residential mortgage loans held for sale Municipal and other tax-exempt securities Other debt securities Residential mortgage loans held for sale
Balance, March 31, 2018 $1,891
 $472
 $13,871
Balance, December 31, 2018 $—
 $472
 $15,207
Transfer to Level 3 from Level 21
 —
 —
 687
 —
 —
 982
Purchases —
 —
 —
 —
 —
 —
Proceeds from sales —
 —
 (488) —
 —
 (381)
Redemptions and distributions —
 —
 —
 —
 —
 —
Gain (loss) recognized in earnings:            
Mortgage banking revenue —
 —
 173
 —
 —
 (32)
Other comprehensive income:      
Net change in unrealized gain 139
 (1) —
Balance, June 30, 2018 $2,030
 $471
 $14,243
Other comprehensive income (loss):      
Net change in unrealized gain (loss) —
 —
 —
Balance, March 31, 2019 $—
 $472
 $15,776
1  
Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.


The following represents the changes for the three months ended March 31, 2018 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 Available for Sale Securities   Available for Sale Securities  
 Municipal and other tax-exempt Other debt securities Residential mortgage loans held for sale Municipal and other tax-exempt securities Other debt securities Residential mortgage loans held for sale
Balance, December 31, 2017 $4,802
 $472
 $12,299
 $4,802
 $472
 $12,299
Transfer to Level 3 from Level 21
 —
 —
 2,843
 —
 —
 2,156
Purchases —
 —
 —
 —
 —
 —
Proceeds from sales —
 —
 (812) —
 —
 (324)
Redemptions and distributions (3,045) —
 —
 (3,045) —
 —
Gain (loss) recognized in earnings:            
Mortgage banking revenue —
 —
 (87) —
 —
 (260)
Other comprehensive income (loss):            
Net change in unrealized gain (loss) 273
 (1) —
 134
 —
 —
Balance, June 30, 2018 $2,030
 $471
 $14,243
Balance, March 31, 2018 $1,891
 $472
 $13,871
1
Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.



The following represents the changes for the three and six months ended June 30, 2017 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
  Available for Sale Securities  
  Municipal and other tax-exempt securities Other debt securities Residential mortgage loans held for sale
Balance, March 31, 2017 $5,722
 $4,153
 $12,679
Transfer to Level 3 from Level 21
 —
 —
 853
Purchases —
 —
 —
Proceeds from sales —
 —
 (1,030)
Redemptions and distributions (1,100) —
 —
Gain (loss) recognized in earnings:      
Mortgage banking revenue —
 —
 233
Other comprehensive income (loss):      
Net change in unrealized gain (loss) 33
 (1) —
Balance, June 30, 2017 $4,655
 $4,152
 $12,735
1
Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.



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





A summary of quantitative information about assets measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3) as of June 30, 2018March 31, 2019 follows (in thousands):
  
Par
Value
 
Amortized
Cost/Unpaid Principal Balance
 
Fair
Value
 Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
 
              
Available for sale securities             
Municipal and other tax-exempt securities $2,050
 $2,033
 $2,030
 Discounted cash flows
1 
Interest rate spread 6.69%-6.69% (6.69%)
2 
99.00%-99.00% (99.00%)
3 
Other debt securities 500
 500
 471
 Discounted cash flows
1 
Interest rate spread 6.32%-6.32% (6.32%)
4 
94.36% - 94.36 (94.36%)
3 
              
Residential mortgage loans held for sale N/A
 15,025
 14,252
 Quoted prices of loans sold in securitization transactions, with a liquidity discount applied Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies. 94.86% 
  
Fair
Value
 Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
 
          
Available for sale securities – Other debt securities 472
 Discounted cash flows
1 
Interest rate spread 6.83%-6.83% (6.83%)
3 
94.39%-94.39% (94.39%)
2 
Residential mortgage loans held for sale 15,766
 Quoted prices of loans sold in securitization transactions, with a liquidity discount applied Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies. 92.40% 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 413 basis points over average yields for comparable tax-exempt securities.
3
Represents fair value as a percentage of par value.
43 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 3 percent.


A summary of quantitative information about Recurring Fair Value Measurements basedassets measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3) as of December 31, 20172018 follows (in thousands):
  
Par
Value
 Amortized
Cost/Unpaid Principal Balance		 
Fair
Value
 Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
 
              
Available for sale securities             
Municipal and other tax-exempt securities $5,095
 $5,068
 $4,802
 Discounted cash flows
1 
Interest rate spread 6.60%-6.60% (6.60%)
2 
92.25%-94.76% (93.75%)
3 
Other debt securities 500
 500
 472
 Discounted cash flows
1 
Interest rate spread 6.85%-6.85% (6.85%)
4 
94.39% - 94.39 (94.39%)
3 
Residential mortgage loans held for sale N/A
 12,981
 12,299
 Quoted prices of loans sold in securitization transactions, with a liquidity discount applied Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies. 94.75% 
  
Fair
Value
 Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
 
          
Available for sale securities – Other debt securities 472
 Discounted cash flows
1 
Interest rate spread 7.88%-7.88% (7.88%)
3 
94.44%-94.44% (94.44%)
2 
Residential mortgage loans held for sale 15,207
 Quoted prices of loans sold in securitization transactions, with a liquidity discount applied Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies. 92.38% 
1 
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.volume
2 
Interest rate yields used to value investment grade tax-exempt securities represent a spread of 372 to 466 basis points over average yields for comparable tax-exempt securities.
3
Represents fair value as a percentage of par value.
43 
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 3 percent.




A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2017 follows (in thousands):
  
Par
Value
 
Amortized
Cost
 
Fair
Value
 Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
 
              
Available for sale securities             
Municipal and other tax-exempt securities $5,095
 $5,067
 $4,655
 Discounted cash flows
1 
Interest rate spread 5.98%-5.98% (5.98%)
2 
90.00%-94.90% (92.93%)
3 
Other debt securities 4,400
 4,400
 4,152
 Discounted cash flows
1 
Interest rate spread 5.41%-6.72% (6.57%)
4 
94.31% - 94.38 (94.37%)
3 
              
Residential mortgage loans held for sale N/A
 13,274
 12,735
 Quoted prices of loans sold in securitization transactions, with a liquidity discount applied Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies. 95.94% 
1
Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.
2


Interest rate yields used to value investment grade tax-exempt securities represent a spread of 360 to 446 basis points over average yields for comparable tax-exempt securities.
3
Represents fair value as a percentage of par value.
4
Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 3 percent.


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


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


The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at June 30, 2018March 31, 2019 for which the fair value was adjusted during the sixthree months ended June 30, 2018:March 31, 2019:
      Fair Value Adjustments for the      Fair Value Adjustments for the
Carrying Value at June 30, 2018 Three Months Ended
June 30, 2018
Recognized in:		 Six Months Ended
June 30, 2018
Recognized in:		Carrying Value at March 31, 2019 Three Months Ended
March 31, 2019
Recognized in:
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 Gross charge-offs against allowance for loan losses Net losses and expenses of repossessed assets, net Gross charge-offs against allowance for loan losses Net losses and expenses of repossessed assets, net
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 Gross charge-offs against allowance for loan losses Net losses and expenses of repossessed assets, net
Impaired loans$—
 $1,045
 $11,763
 $6,701
 $—
 $7,198
 $—
$—
 $—
 $9,712
 $9,581
 $—
Real estate and other repossessed assets—
 1,996
 6,838
 —
 118
 —
 5,242
—
 2,688
 144
 —
 434
 


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, 2017March 31, 2018 for which the fair value was adjusted during the sixthree months ended June 30, 2017:March 31, 2018:
       Fair Value Adjustments for the
 Carrying Value at March 31, 2018 Three Months Ended
March 31, 2018
Recognized in:
 
Quoted Prices
in Active Markets for Identical Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 Gross charge-offs against allowance for loan losses Net losses and expenses of repossessed assets, net
Impaired loans$—
 $32
 $410
 $497
 $—
Real estate and other repossessed assets—
 863
 7,094
 —
 5,192

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


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



A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2018March 31, 2019 follows (in thousands):
 Fair Value Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
 Fair Value Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
Impaired loans $11,763
 Discounted cash flows Management knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs 
43% - 84% (53%)1
 $9,712
 Discounted cash flows Management knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs 
14% - 74% (31%)1
Real estate and other repossessed assets 6,838
 Discounted cash flows Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs N/A 144
 Appraised value, as adjusted 
Marketability adjustments off appraised value2
 75% - 85% (79%)
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.


A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 30, 2017December 31, 2018 follows (in thousands):
  Fair Value Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
Impaired loans $17,401
 Discounted cash flows Management knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs 
35% - 80% (50%)1
Real estate and other repossessed assets 6,366
 Discounted cash flows Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs N/A
  Fair Value Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
Impaired loans $3,570
 Discounted cash flows Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs 
75% - 90% (83%)1
Real estate and other repossessed assets 530
 Appraised value, as adjusted Marketability adjustments off appraised value2 65% - 88% (80%)

1  
Represents fair value as a percentage of the unpaid principal balance.
2
Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.





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, 2018March 31, 2019 (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)		 
Carrying
Value
 
Estimated
Fair
Value
 Quoted Prices in Active Markets for Identical Instruments (Level 1) 
Significant Other Observable Inputs
(Level 2)
 Significant Unobservable Inputs
(Level 3)
Cash and due from banks $585,801
 $585,801
 $585,801
 $—
 $—
 $718,297
 $718,297
 $718,297
 $—
 $—
Interest-bearing cash and cash equivalents 872,999
 872,999
 872,999
 —
 —
 564,404
 564,404
 564,404
 —
 —
Trading securities:                    
U.S. government agency debentures 28,750
 28,750
 —
 28,750
 —
 51,576
 51,576
 —
 51,576
 —
U.S. government agency residential mortgage-backed securities 1,605,001
 1,605,001
 —
 1,605,001
 —
 1,952,742
 1,952,742
 —
 1,952,742
 —
Municipal and other tax-exempt securities 70,606
 70,606
 —
 70,606
 —
 50,637
 50,637
 —
 50,637
 —
Asset-backed securities 193,271
 193,271
 —
 193,271
 —
 40,890
 40,890
 —
 40,890
 —
Other trading securities 11,987
 11,987
 —
 11,987
 —
 44,481
 44,481
 —
 44,481
 —
Total trading securities 1,909,615
 1,909,615
 —
 1,909,615
 —
 2,140,326
 2,140,326
 —
 2,140,326
 —
Investment securities:  
  
        
  
      
Municipal and other tax-exempt securities 173,097
 174,205
 —
 174,205
 —
 126,544
 129,072
 —
 129,072
 —
U.S. government agency residential mortgage-backed securities 13,989
 13,984
 —
 13,984
 —
 12,106
 12,388
 —
 12,388
 —
Other debt securities 204,927
 215,195
 —
 215,195
 —
 192,816
 207,028
 —
 8,209
 198,819
Total investment securities 392,013
 403,384
 —
 403,384
 —
 331,466
 348,488
 —
 149,669
 198,819
Available for sale securities:  
  
        
  
      
U.S. Treasury 490
 490
 490
 —
 —
 1,878
 1,878
 1,878
 —
 —
Municipal and other tax-exempt securities 10,697
 10,697
 —
 8,667
 2,030
 2,447
 2,447
 —
 2,447
 —
U.S. government agency residential mortgage-backed securities 5,304,560
 5,304,560
 —
 5,304,560
 —
Privately issued residential mortgage-backed securities 83,224
 83,224
 —
 83,224
 —
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,738,451
 2,738,451
 —
 2,738,451
 —
Residential agency mortgage-backed securities 6,040,086
 6,040,086
 —
 6,040,086
 —
Residential non-agency mortgage-backed securities 47,958
 47,958
 —
 47,958
 —
Commercial agency mortgage-backed securities 2,932,357
 2,932,357
 —
 2,932,357
 —
Other debt securities 25,444
 25,444
 —
 24,973
 471
 472
 472
 —
 —
 472
Total available for sale securities 8,162,866
 8,162,866
 490
 8,159,875
 2,501
 9,025,198
 9,025,198
 1,878
 9,022,848
 472
Fair value option securities – U.S. government agency residential mortgage-backed securities 482,227
 482,227
 —
 482,227
 —
 707,994
 707,994
 —
 707,994
 —
Residential mortgage loans held for sale 223,301
 223,301
 —
 209,058
 14,243
 160,157
 160,157
 —
 144,381
 15,776
Loans:  
  
        
  
      
Commercial 11,349,039
 11,116,828
 —
 —
 11,116,828
 13,961,975
 13,886,769
 —
 —
 13,886,769
Commercial real estate 3,712,220
 3,639,121
 —
 —
 3,639,121
 4,600,651
 4,589,189
 —
 —
 4,589,189
Residential mortgage 1,942,250
 1,917,099
 —
 —
 1,917,099
 2,192,620
 2,196,914
 —
 —
 2,196,914
Personal 1,000,187
 990,419
 —
 —
 990,419
 1,003,734
 1,001,193
 —
 —
 1,001,193
Total loans 18,003,696
 17,663,467
 —
 —
 17,663,467
 21,758,980
 21,674,065
 —
 —
 21,674,065
Allowance for loan losses (215,142) —
 —
 —
 —
 (205,340) —
 —
 —
 —
Loans, net of allowance 17,788,554
 17,663,467
 —
 —
 17,663,467
 21,553,640
 21,674,065
 —
 —
 21,674,065
Mortgage servicing rights 278,719
 278,719
 —
 —
 278,719
 238,193
 238,193
 —
 —
 238,193
Derivative instruments with positive fair value, net of cash collateral 373,373
 373,373
 21,056
 352,317
 —
 359,223
 359,223
 4,720
 354,503
 —
Deposits with no stated maturity 20,041,532
 20,041,532
 —
 —
 20,041,532
 23,133,413
 23,133,413
 —
 —
 23,133,413
Time deposits 2,127,732
 2,078,486
 —
 —
 2,078,486
 2,198,389
 2,181,872
 —
 —
 2,181,872
Other borrowed funds 6,809,472
 6,571,762
 —
 —
 6,571,762
 8,780,766
 8,750,845
 —
 —
 8,750,845
Subordinated debentures 144,697
 148,112
 —
 148,112
 —
 275,880
 273,656
 —
 273,656
 —
Derivative instruments with negative fair value, net of cash collateral 234,856
 234,856
 17,214
 217,642
 —
 299,698
 299,698
 —
 299,698
 —



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, 20172018 (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 $741,749
 $741,749
 $741,749
 $—
 $—
Interest-bearing cash and cash equivalents 401,675
 401,675
 401,675
 —
 —
Trading securities:          
U.S. government agency debentures 63,765
 63,765
 —
 63,765
 —
U.S. government agency residential mortgage-backed securities 1,791,584
 1,791,584
 —
 1,791,584
 —
Municipal and other tax-exempt securities 34,507
 34,507
 —
 34,507
 —
Asset-backed securities 42,656
 42,656
 —
 42,656
 —
Other trading securities 24,411
 24,411
 —
 24,411
 —
Total trading securities 1,956,923
 1,956,923
 —
 1,956,923
 —
Investment securities:  
  
      
Municipal and other tax-exempt securities 137,296
 138,562
 —
 138,562
 —
U.S. government agency residential mortgage-backed securities 12,612
 12,770
 —
 12,770
 —
Other debt securities 205,279
 215,966
 —
 7,905
 208,061
Total investment securities 355,187
 367,298
 —
 159,237
 208,061
Available for sale securities:  
  
      
U.S. Treasury 493
 493
 493
 —
 —
Municipal and other tax-exempt securities 2,864
 2,864
 —
 2,864
 —
Residential agency mortgage-backed securities 5,804,708
 5,804,708
 —
 5,804,708
 —
Residential non-agency mortgage-backed securities 59,736
 59,736
 —
 59,736
 —
Commercial agency mortgage-backed securities 2,953,889
 2,953,889
 —
 2,953,889
 —
Other debt securities 35,430
 35,430
 —
 34,958
 472
Total available for sale securities 8,857,120
 8,857,120
 493
 8,856,155
 472
Fair value option securities – U.S. government agency residential mortgage-backed securities 283,235
 283,235
 —
 283,235
 —
Residential mortgage loans held for sale 149,221
 149,221
 —
 134,014
 15,207
Loans:  
  
      
Commercial 13,636,078
 13,526,162
 —
 —
 13,526,162
Commercial real estate 4,764,813
 4,713,747
 —
 —
 4,713,747
Residential mortgage 2,230,033
 2,213,951
 —
 —
 2,213,951
Personal 1,025,806
 1,024,368
 —
 —
 1,024,368
Total loans 21,656,730
 21,478,228
 —
 —
 21,478,228
Allowance for loan losses (207,457) —
 —
 —
 —
Loans, net of allowance 21,449,273
 21,478,228
 —
 —
 21,478,228
Mortgage servicing rights 259,254
 259,254
 —
 —
 259,254
Derivative instruments with positive fair value, net of cash collateral 320,929
 320,929
 44,074
 276,855
 —
Deposits with no stated maturity 23,150,383
 23,150,383
 —
 —
 23,150,383
Time deposits 2,113,380
 2,073,538
 —
 —
 2,073,538
Other borrowed funds 7,142,801
 7,071,953
 —
 —
 7,071,953
Subordinated debentures 275,913
 261,977
 —
 261,977
 —
Derivative instruments with negative fair value, net of cash collateral 362,306
 362,306
 —
 362,306
 —
  
Carrying
Value
 
Estimated
Fair
Value
 Quoted Prices in Active Markets for Identical Instruments (Level 1) 
Significant Other Observable Inputs
(Level 2)
 Significant Unobservable Inputs
(Level 3)
Cash and due from banks $602,510
 $602,510
 $602,510
 $—
 $—
Interest-bearing cash and cash equivalents 1,714,544
 1,714,544
 1,714,544
 —
 —
Trading securities:          
U.S. government agency debentures 21,196
 21,196
 —
 21,196
 —
U.S. government agency residential mortgage-backed securities 392,673
 392,673
 —
 392,673
 —
Municipal and other tax-exempt securities 13,559
 13,559
 —
 13,559
 —
Asset-backed securities 23,885
 23,885
 —
 23,885
 —
Other trading securities 11,363
 11,363
 —
 11,363
 —
Total trading securities 462,676
 462,676
 —
 462,676
 —
Investment securities:  
  
      
Municipal and other tax-exempt securities 228,186
 230,349
 —
 230,349
 —
U.S. government agency residential mortgage-backed securities 15,891
 16,242
 —
 16,242
 —
Other debt securities 217,716
 233,444
 —
 233,444
 —
Total investment securities 461,793
 480,035
 —
 480,035
 —
Available for sale securities:  
  
      
U.S. Treasury 1,000
 1,000
 1,000
 —
 —
Municipal and other tax-exempt securities 27,080
 27,080
 —
 22,278
 4,802
U.S. government agency residential mortgage-backed securities 5,309,152
 5,309,152
 —
 5,309,152
 —
Privately issued residential mortgage-backed securities 93,221
 93,221
 —
 93,221
 —
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,834,961
 2,834,961
 —
 2,834,961
 —
Other debt securities 25,481
 25,481
 —
 25,009
 472
Perpetual preferred stock 15,767
 15,767
 —
 15,767
 —
Equity securities and mutual funds 14,916
 14,916
 —
 14,916
 —
Total available for sale securities 8,321,578
 8,321,578
 1,000
 8,315,304
 5,274
Fair value option securities – U.S. government agency residential mortgage-backed securities 755,054
 755,054
 —
 755,054
 —
Residential mortgage loans held for sale 221,378
 221,378
 —
 209,079
 12,299
Loans:  
  
      
Commercial 10,733,975
 10,524,627
 —
 —
 10,524,627
Commercial real estate 3,479,987
 3,428,733
 —
 —
 3,428,733
Residential mortgage 1,973,686
 1,977,721
 —
 —
 1,977,721
Personal 965,776
 956,706
 —
 —
 956,706
Total loans 17,153,424
 16,887,787
 —
 —
 16,887,787
Allowance for loan losses (230,682) —
 —
 —
 —
Loans, net of allowance 16,922,742
 16,887,787
 —
 —
 16,887,787
Mortgage servicing rights 252,867
 252,867
 —
 —
 252,867
Derivative instruments with positive fair value, net of cash collateral 220,502
 220,502
 8,179
 212,323
 —
Deposits with no stated maturity 19,962,889
 19,962,889
 —
 —
 19,962,889
Time deposits 2,098,416
 2,064,558
 —
 —
 2,064,558
Other borrowed funds 5,709,861
 5,703,121
 —
 —
 5,703,121
Subordinated debentures 144,677
 148,207
 —
 148,207
 —
Derivative instruments with negative fair value, net of cash collateral 171,963
 171,963
 —
 171,963
 —



The following table presents the carrying values and estimated fair values of all financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis as of June 30, 2017 (dollars in thousands):
  
Carrying
Value
 
Estimated
Fair
Value
 Quoted Prices in Active Markets for Identical Instruments (Level 1) 
Significant Other Observable Inputs
(Level 2)
 Significant Unobservable Inputs
(Level 3)
Cash and due from banks $561,587
 $561,587
 $561,587
 $—
 $—
Interest-bearing cash and cash equivalents 2,078,831
 2,078,831
 2,078,831
 —
 —
Trading securities:          
U.S. government agency debentures 20,954
 20,954
 —
 20,954
 —
U.S. government agency residential mortgage-backed securities 365,171
 365,171
 —
 365,171
 —
Municipal and other tax-exempt securities 45,444
 45,444
 —
 45,444
 —
Other trading securities 9,845
 9,845
 —
 9,845
 —
Total trading securities 441,414
 441,414
 —
 441,414
 —
Investment securities:  
  
      
Municipal and other tax-exempt securities 267,375
 270,531
 —
 270,531
 —
U.S. government agency residential mortgage-backed securities 18,035
 18,642
 —
 18,642
 —
Other debt securities 205,016
 226,502
 —
 226,502
 —
Total investment securities 490,426
 515,675
 —
 515,675
 —
Available for sale securities:  
  
      
U.S. Treasury 998
 998
 998
 —
 —
Municipal and other tax-exempt securities 32,765
 32,765
 —
 28,110
 4,655
U.S. government agency residential mortgage-backed securities 5,382,377
 5,382,377
 —
 5,382,377
 —
Privately issued residential mortgage-backed securities 103,383
 103,383
 —
 103,383
 —
Commercial mortgage-backed securities guaranteed by U.S. government agencies 2,782,070
 2,782,070
 —
 2,782,070
 —
Other debt securities 4,152
 4,152
 —
 —
 4,152
Perpetual preferred stock 16,568
 16,568
 —
 16,568
 —
Equity securities and mutual funds 18,728
 18,728
 3,516
 15,212
 —
Total available for sale securities 8,341,041
 8,341,041
 4,514
 8,327,720
 8,807
Fair value option securities – U.S. government agency residential mortgage-backed securities 445,169
 445,169
 —
 445,169
 —
Residential mortgage loans held for sale 287,259
 287,259
 —
 274,524
 12,735
Loans:  
  
      
Commercial 10,637,955
 10,413,704
 —
 —
 10,413,704
Commercial real estate 3,688,592
 3,636,365
 —
 —
 3,636,365
Residential mortgage 1,939,198
 1,950,577
 —
 —
 1,950,577
Personal 917,900
 909,055
 —
 —
 909,055
Total loans 17,183,645
 16,909,701
 —
 —
 16,909,701
Allowance for loan losses (250,061) —
 —
 —
 —
Loans, net of allowance 16,933,584
 16,909,701
 —
 —
 16,909,701
Mortgage servicing rights 245,239
 245,239
 —
 —
 245,239
Derivative instruments with positive fair value, net of cash collateral 280,289
 280,289
 46,366
 233,923
 —
Deposits with no stated maturity 20,120,352
 20,120,352
 —
 —
 20,120,352
Time deposits 2,196,122
 2,164,115
 —
 —
 2,164,115
Other borrowed funds 5,696,666
 5,664,273
 —
 —
 5,664,273
Subordinated debentures 144,658
 147,204
 —
 147,204
 —
Derivative instruments with negative fair value, net of cash collateral 285,819
 285,819
 20,915
 264,904
 —




Because no market exists for certain of these financial instruments and management does not intend to sell these financial instruments, the fair values shown in the tables above may not represent values at which the respective financial instruments could be sold individually or in the aggregate at the given reporting date.



Fair Value Election


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


The Company evaluated events from the date of the consolidated financial statements on June 30, 2018March 31, 2019 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q. No events were identified requiring recognition in and/or disclosure in the consolidated financial statements.

































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Six-Month Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data) Six Months Ended Three Months Ended
 June 30, 2018 June 30, 2017 March 31, 2019 December 31, 2018
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets                        
Interest-bearing cash and cash equivalents $1,865,385
 $15,722
 1.70% $2,047,633
 $9,442
 0.93% $537,903
 $3,397
 2.56% $563,132
 $3,170
 2.23%
Trading securities 1,209,369
 20,893
 3.53% 517,447
 8,886
 3.59% 1,968,399
 18,790
 3.88% 1,929,601
 19,636
 4.10%
Investment securities             343,282
 4,481
 5.22% 364,737
 3,887
 4.26%
Taxable 222,299
 5,801
 5.22% 220,528
 5,944
 5.39%
Tax-exempt 197,733
 2,304
 2.33% 294,539
 3,650
 2.48%
Total investment securities 420,032
 8,105
 3.86% 515,067
 9,594
 3.73%
Available for sale securities             8,883,054
 56,881
 2.57% 8,704,963
 55,085
 2.51%
Taxable 8,179,361
 93,137
 2.26% 8,420,578
 85,847
 2.06%
Tax-exempt 20,476
 334
 3.26% 54,470
 1,453
 5.71%
Total available for sale securities 8,199,837
 93,471
 2.26% 8,475,048
 87,300
 2.08%
Fair value option securities 556,337
 8,746
 3.05% 446,478
 5,919
 2.62% 594,349
 5,237
 3.62% 277,575
 2,578
 3.56%
Restricted equity securities 349,134
 10,525
 6.03% 304,074
 8,708
 5.73% 395,432
 6,345
 6.42% 362,729
 5,798
 6.39%
Residential mortgage loans held for sale 209,043
 4,177
 4.01% 232,932
 4,222
 3.65% 145,040
 1,663
 4.58% 179,553
 1,795
 4.00%
Loans 17,507,714
 401,940
 4.63% 17,132,662
 336,258
 3.96% 21,766,065
 282,428
 5.26% 21,579,331
 276,711
 5.09%
Allowance for loan losses (225,909)     (250,512)     (206,092)     (209,613)    
Loans, net of allowance 17,281,805
 401,940
 4.69% 16,882,150
 336,258
 4.01% 21,559,973
 282,428
 5.31% 21,369,718
 276,711
 5.14%
Total earning assets 30,090,942
 563,579
 3.76% 29,420,829
 470,329
 3.23% 34,427,432
 379,222
 4.46% 33,752,008
 368,660
 4.33%
Receivable on unsettled securities sales 807,470
     373,022
     1,224,700
     799,548
    
Cash and other assets 2,917,582
     2,866,309
     4,020,549
     3,834,187
    
Total assets $33,815,994
     $32,660,160
     $39,672,681
     $38,385,743
    
Liabilities and equity  
  
  
  
  
  
  
  
  
  
  
  
Interest-bearing deposits:  
  
  
  
  
  
  
  
  
  
  
  
Transaction $10,266,484
 $25,487
 0.50% $10,326,232
 $11,651
 0.23% $11,931,539
 $27,704
 0.94% $11,773,651
 $23,343
 0.79%
Savings 491,955
 183
 0.08% 451,476
 182
 0.08% 541,575
 160
 0.12% 526,275
 148
 0.11%
Time 2,144,928
 13,512
 1.27% 2,231,526
 12,143
 1.10% 2,153,277
 9,553
 1.80% 2,146,786
 8,309
 1.54%
Total interest-bearing deposits 12,903,367
 39,182
 0.61% 13,009,234
 23,976
 0.37% 14,626,391
 37,417
 1.04% 14,446,712
 31,800
 0.87%
Funds purchased and repurchase agreements 562,999
 1,304
 0.47% 534,599
 260
 0.10% 2,033,036
 10,356
 2.07% 1,205,568
 4,135
 1.36%
Other borrowings 6,412,463
 56,752
 1.78% 5,654,534
 26,921
 0.96% 7,040,279
 46,454
 2.68% 6,361,141
 40,220
 2.51%
Subordinated debentures 144,687
 4,051
 5.65% 144,649
 4,028
 5.62% 275,882
 3,745
 5.51% 276,378
 3,752
 5.38%
Total interest-bearing liabilities 20,023,516
 101,289
 1.02% 19,343,015
 55,185
 0.58% 23,975,588
 97,972
 1.66% 22,289,799
 79,907
 1.42%
Non-interest bearing demand deposits 9,187,499
     9,220,877
     9,988,088
     10,648,683
    
Due on unsettled securities purchases 543,265
     127,824
     453,937
     493,887
    
Other liabilities 566,248
     599,806
     775,574
     610,286
    
Total equity 3,495,466
     3,368,638
     4,479,494
     4,343,088
    
Total liabilities and equity $33,815,994
     $32,660,160
     $39,672,681
     $38,385,743
    
Tax-equivalent Net Interest Revenue   $462,290
 2.74%   $415,144
 2.65%   $281,250
 2.80%   $288,753
 2.91%
Tax-equivalent Net Interest Revenue to Earning AssetsTax-equivalent Net Interest Revenue to Earning Assets   3.08%     2.85%     3.30%     3.40%
Less tax-equivalent adjustment   3,992
     8,758
     3,148
     3,067
  
Net Interest Revenue   458,298
     406,386
     278,102
     285,686
  
Provision for credit losses   (5,000)     —
     8,000
     9,000
  
Other operating revenue   312,388
     352,548
     157,270
     136,455
  
Other operating expense   490,906
     495,596
     287,157
     284,643
  
Income before taxes   284,780
     263,338
     140,215
     128,498
  
Federal and state income taxes   64,278
     85,808
     29,950
     20,121
  
Net income   220,502
     177,530
     110,265
     108,377
  
Net income (loss) attributable to non-controlling interests   568
     1,027
     (347)     (79)  
Net income attributable to BOK Financial Corp. shareholders   $219,934
     $176,503
     $110,612
     $108,456
  
Earnings Per Average Common Share Equivalent:  
  
  
  
  
  
  
  
  
  
  
  
Net income:  
  
  
  
  
  
Basic  
 $3.36
  
  
 $2.70
  
  
 $1.54
  
  
 $1.50
  
Diluted  
 $3.36
  
  
 $2.69
  
  
 $1.54
  
  
 $1.50
  
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.


Quarterly Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data) Three Months Ended
  June 30, 2018 March 31, 2018
  
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
 
Average
Balance
 
Revenue/
Expense
 
Yield/
Rate
Assets            
Interest-bearing cash and cash equivalents $1,673,387
 $7,740
 1.86% $2,059,517
 $7,982
 1.57%
Trading securities 1,482,302
 13,084
 3.63% 933,404
 7,809
 3.40%
Investment securities            
Taxable 217,770
 2,845
 5.23% 226,877
 2,956
 5.21%
Tax-exempt 181,318
 1,096
 2.42% 214,330
 1,208
 2.25%
Total investment securities 399,088
 3,941
 3.95% 441,207
 4,164
 3.78%
Available for sale securities            
Taxable 8,145,748
 47,322
 2.29% 8,213,346
 45,815
 2.22%
Tax-exempt 17,394
 141
 3.26% 23,592
 193
 3.26%
Total available for sale securities 8,163,142
 47,463
 2.30% 8,236,938
 46,008
 2.23%
Fair value option securities 487,192
 3,927
 3.16% 626,251
 4,819
 2.95%
Restricted equity securities 348,546
 5,408
 6.21% 349,176
 5,117
 5.86%
Residential mortgage loans held for sale 218,600
 2,333
 4.28% 199,380
 1,844
 3.71%
Loans 17,751,242
 212,266
 4.80% 17,261,481
 189,674
 4.45%
Allowance for loan losses (222,856)     (228,996)    
Loans, net of allowance 17,528,386
 212,266
 4.86% 17,032,485
 189,674
 4.51%
Total earning assets 30,301,191
 296,162
 3.91% 29,878,358
 267,417
 3.61%
Receivable on unsettled securities sales 618,240
     998,803
    
Cash and other assets 2,986,604
     2,847,791
    
Total assets $33,906,035
     $33,724,952
    
Liabilities and equity  
  
  
  
  
  
Interest-bearing deposits:  
  
  
  
  
  
Transaction $10,189,354
 $13,993
 0.55% $10,344,469
 $11,494
 0.45%
Savings 503,671
 95
 0.08% 480,110
 88
 0.07%
Time 2,138,880
 6,875
 1.29% 2,151,044
 6,637
 1.25%
Total interest-bearing deposits 12,831,905
 20,963
 0.66% 12,975,623
 18,219
 0.57%
Funds purchased and repurchase agreements 593,250
 782
 0.53% 532,412
 522
 0.40%
Other borrowings 6,497,020
 31,825
 1.96% 6,326,967
 24,927
 1.60%
Subordinated debentures 144,692
 2,048
 5.67% 144,682
 2,003
 5.61%
Total interest-bearing liabilities 20,066,867
 55,618
 1.11% 19,979,684
 45,671
 0.93%
Non-interest bearing demand deposits 9,223,327
     9,151,272
    
Due on unsettled securities purchases 527,804
     558,898
    
Other liabilities 575,865
     556,524
    
Total equity 3,512,172
     3,478,574
    
Total liabilities and equity $33,906,035
     $33,724,952
    
Tax-equivalent Net Interest Revenue   $240,544
 2.80%   $221,746
 2.68%
Tax-equivalent Net Interest Revenue to Earning Assets     3.17%     2.99%
Less tax-equivalent adjustment   1,983
     2,010
  
Net Interest Revenue   238,562
     219,736
  
Provision for credit losses   —
     (5,000)  
Other operating revenue   156,399
     155,989
  
Other operating expense   246,476
     244,430
  
Income before taxes   148,485
     136,295
  
Federal and state income taxes   33,330
     30,948
  
Net income   115,155
     105,347
  
Net income (loss) attributable to non-controlling interests   783
     (215)  
Net income attributable to BOK Financial Corp. shareholders   $114,372
     $105,562
  
Earnings Per Average Common Share Equivalent:  
  
  
  
  
  
Basic  
 $1.75
  
  
 $1.61
  
Diluted  
 $1.75
  
  
 $1.61
  
Yield calculations are shown on a tax equivalent at the statutory federal and state rates for the periods presented. The yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income and the unrealized gains and losses. The yield calculation also includes average loan balances for which the accrual of interest has been discontinued and are net of unearned income. Yield / rate calculations are generally based on the conventions that determine how interest income and expense is accrued.



Three Months Ended
December 31, 2017 September 30, 2017 June 30, 2017
Average Balance Revenue /Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate
                 
$1,976,395
 $6,311
 1.27% $1,965,645
 $6,375
 1.29% $2,007,746
 $5,198
 1.04%
560,321
 4,629
 3.38% 491,613
 4,122
 3.47% 456,028
 3,517
 3.23%
                 
228,388
 3,029
 5.31% 221,609
 2,942
 5.31% 219,385
 2,931
 5.34%
234,481
 1,577
 2.69% 254,096
 1,650
 2.60% 279,987
 1,757
 2.51%
462,869
 4,606
 3.98% 475,705
 4,592
 3.86% 499,372
 4,688
 3.76%
                 
8,392,231
 45,078
 2.19% 8,381,536
 44,579
 2.16% 8,332,709
 42,920
 2.09%
43,685
 545
 5.41% 46,817
 566
 5.27% 51,348
 725
 6.09%
8,435,916
 45,623
 2.21% 8,428,353
 45,145
 2.17% 8,384,057
 43,645
 2.11%
792,647
 5,770
 2.90% 684,571
 5,066
 2.97% 476,102
 3,539
 2.92%
337,673
 4,956
 5.87% 328,677
 4,826
 5.87% 295,743
 4,399
 5.95%
257,927
 2,389
 3.72% 256,343
 2,095
 3.36% 245,401
 2,386
 3.92%
17,181,007
 185,614
 4.29% 17,256,663
 187,506
 4.31% 17,129,533
 172,139
 4.03%
(246,143)     (250,590)     (251,632)    
16,934,864
 185,614
 4.35% 17,006,073
 187,506
 4.38% 16,877,901
 172,139
 4.09%
29,758,612
 259,898
 3.49% 29,636,980
 259,727
 3.50% 29,242,350
 239,511
 3.30%
821,275
     608,412
     372,894
    
2,872,228
     2,762,778
     2,753,327
    
$33,452,115
     $33,008,170
     $32,368,571
    
                 
                 
$10,142,744
 $8,914
 0.35% $10,088,522
 $8,062
 0.32% $10,087,640
 $6,437
 0.26%
466,496
 87
 0.07% 464,130
 90
 0.08% 461,586
 95
 0.08%
2,134,469
 6,296
 1.17% 2,176,820
 6,378
 1.16% 2,204,422
 6,090
 1.11%
12,743,709
 15,297
 0.48% 12,729,472
 14,530
 0.45% 12,753,648
 12,622
 0.40%
488,330
 340
 0.28% 411,286
 256
 0.25% 490,616
 164
 0.13%
6,209,903
 21,242
 1.36% 6,162,641
 20,105
 1.29% 5,572,031
 15,188
 1.09%
144,673
 2,025
 5.55% 144,663
 2,070
 5.68% 144,654
 2,003
 5.55%
19,586,615
 38,904
 0.79% 19,448,062
 36,961
 0.75% 18,960,949
 29,977
 0.63%
9,417,351
     9,389,849
     9,338,683
    
332,155
     145,977
     162,348
    
600,604
     539,641
     497,158
    
3,515,390
     3,484,641
     3,409,433
    
$33,452,115
     $33,008,170
     $32,368,571
    
  $220,994
 2.70%   $222,766
 2.75%   $209,534
 2.67%
    2.97%     3.01%     2.89%
  4,131
     4,314
     4,330
  
  216,863
     218,452
     205,204
  
  (7,000)     —
     —
  
  166,836
     175,710
     182,252
  
  263,987
     265,934
     250,885
  
  126,712
     128,228
     136,571
  
  54,347
     42,438
     47,705
  
  72,365
     85,790
     88,866
  
  (127)     141
     719
  
  $72,492
     $85,649
     $88,147
  
                 
 
 $1.11
  
  
 $1.31
  
  
 $1.35
  
 
 $1.11
  
  
 $1.31
  
  
 $1.35
  
Three Months Ended
September 30, 2018 June 30, 2018 March 31, 2018
Average Balance Revenue /Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate
                 
$688,872
 $3,441
 1.98% $1,673,387
 $7,740
 1.86% $2,059,517
 $7,982
 1.57%
1,762,794
 17,419
 3.98% 1,482,302
 13,084
 3.63% 933,404
 7,809
 3.40%
379,566
 3,856
 4.06% 399,088
 3,941
 3.95% 441,207
 4,164
 3.78%
8,129,214
 48,916
 2.37% 8,163,142
 47,463
 2.30% 8,236,938
 46,008
 2.23%
469,398
 3,881
 3.25% 487,192
 3,927
 3.16% 626,251
 4,819
 2.95%
328,842
 5,232
 6.36% 348,546
 5,408
 6.21% 349,176
 5,117
 5.86%
207,488
 2,151
 4.27% 218,600
 2,333
 4.28% 199,380
 1,844
 3.71%
18,203,785
 220,245
 4.80% 17,751,242
 212,266
 4.80% 17,261,481
 189,674
 4.45%
(214,160)     (222,856)     (228,996)    
17,989,625
 220,245
 4.86% 17,528,386
 212,266
 4.86% 17,032,485
 189,674
 4.51%
29,955,799
 305,141
 4.04% 30,301,191
 296,162
 3.91% 29,878,358
 267,417
 3.61%
768,785
     618,240
     998,803
    
2,971,233
     2,986,604
     2,847,791
    
$33,695,817
     $33,906,035
     $33,724,952
    
                 
                 
$10,010,031
 $17,029
 0.67% $10,189,354
 $13,993
 0.55% $10,344,469
 $11,494
 0.45%
503,821
 108
 0.09% 503,671
 95
 0.08% 480,110
 88
 0.07%
2,097,441
 7,398
 1.40% 2,138,880
 6,875
 1.29% 2,151,044
 6,637
 1.25%
12,611,293
 24,535
 0.77% 12,831,905
 20,963
 0.66% 12,975,623
 18,219
 0.57%
1,193,583
 3,768
 1.25% 593,250
 782
 0.53% 532,412
 522
 0.40%
5,765,440
 32,036
 2.20% 6,497,020
 31,825
 1.96% 6,326,967
 24,927
 1.60%
144,702
 2,025
 5.55% 144,692
 2,047
 5.67% 144,682
 2,003
 5.61%
19,715,018
 62,364
 1.25% 20,066,867
 55,617
 1.11% 19,979,684
 45,671
 0.93%
9,325,002
     9,223,327
     9,151,272
    
544,263
     527,804
     558,898
    
496,634
     575,865
     556,524
    
3,614,900
     3,512,172
     3,478,574
    
$33,695,817
     $33,906,035
     $33,724,952
    
  $242,777
 2.79%   $240,545
 2.80%   $221,746
 2.68%
    3.21%     3.17%     2.99%
  1,894
     1,983
     2,010
  
  240,883
     238,562
     219,736
  
  4,000
     —
     (5,000)  
  167,941
     156,399
     155,989
  
  252,617
     246,476
     244,430
  
  152,207
     148,485
     136,295
  
  34,662
     33,330
     30,948
  
  117,545
     115,155
     105,347
  
  289
     783
     (215)  
  $117,256
     $114,372
     $105,562
  
                 
 
 $1.79
  
  
 $1.75
  
  
 $1.61
  
 
 $1.79
  
  
 $1.75
  
  
 $1.61
  








Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
 Three Months Ended Three Months Ended
 June 30, 2018 Mar. 31, 2018 Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
                    
Interest revenue $294,180
 $265,407
 $255,767
 $255,413
 $235,181
 $376,074
 $365,592
 $303,247
 $294,180
 $265,407
Interest expense 55,618
 45,671
 38,904
 36,961
 29,977
 97,972
 79,906
 62,364
 55,618
 45,671
Net interest revenue 238,562
 219,736
 216,863
 218,452
 205,204
 278,102
 285,686
 240,883
 238,562
 219,736
Provision for credit losses —
 (5,000) (7,000) —
 —
 8,000
 9,000
 4,000
 —
 (5,000)
Net interest revenue after provision for credit losses 238,562
 224,736
 223,863
 218,452
 205,204
 270,102
 276,686
 236,883
 238,562
 224,736
Other operating revenue  
  
  
  
  
  
  
  
  
  
Brokerage and trading revenue 26,488
 30,648
 33,045
 33,169
 31,764
 31,617
 28,101
 23,086
 26,488
 30,648
Transaction card revenue1
 20,975
 20,990
 20,028
 22,929
 20,009
Transaction card revenue 20,738
 20,664
 21,396
 20,975
 20,990
Fiduciary and asset management revenue 41,699
 41,832
 41,767
 40,687
 41,808
 43,358
 43,665
 57,514
 41,692
 41,832
Deposit service charges and fees 27,827
 27,161
 27,685
 28,191
 28,422
 28,243
 29,393
 27,765
 27,834
 27,161
Mortgage banking revenue 26,346
 26,025
 24,362
 24,890
 30,276
 23,834
 21,880
 23,536
 26,346
 26,025
Other revenue 14,518
 12,330
 11,762
 13,670
 14,984
 12,762
 16,404
 12,900
 13,923
 12,958
Total fees and commissions 157,853
 158,986
 158,649
 163,536
 167,263
 160,552
 160,107
 166,197
 157,258
 159,614
Other gains (losses), net 3,983
 (664) 552
 (1,283) 6,108
 2,976
 (8,305) 2,754
 4,578
 (1,292)
Gain (loss) on derivatives, net (3,057) (5,685) (3,045) 1,033
 3,241
 4,667
 11,167
 (2,847) (3,057) (5,685)
Gain (loss) on fair value option securities, net (3,341) (17,564) (4,238) 661
 1,984
 9,665
 (282) (4,385) (3,341) (17,564)
Change in fair value of mortgage servicing rights 1,723
 21,206
 5,898
 (639) (6,943) (20,666) (24,233) 5,972
 1,723
 21,206
Gain (loss) on available for sale securities, net (762) (290) (488) 2,487
 380
 76
 (1,999) 250
 (762) (290)
Total other operating revenue 156,399
 155,989
 157,328
 165,795
 172,033
 157,270
 136,455
 167,941
 156,399
 155,989
Other operating expense  
  
  
  
  
  
  
  
  
  
Personnel 138,947
 139,947
 145,329
 147,910
 143,744
 169,228
 160,706
 143,531
 138,947
 139,947
Business promotion 7,686
 6,010
 7,317
 7,105
 7,738
 7,874
 9,207
 7,620
 7,686
 6,010
Charitable contributions to BOKF Foundation —
 —
 2,000
 —
 —
 —
 2,846
 —
 —
 —
Professional fees and services 14,978
 10,200
 15,344
 11,887
 12,419
 16,139
 20,712
 13,209
 14,978
 10,200
Net occupancy and equipment 22,761
 24,046
 22,403
 21,325
 21,125
 29,521
 27,780
 23,394
 22,761
 24,046
Insurance 6,245
 6,593
 6,555
 6,005
 689
 4,839
 4,248
 6,232
 6,245
 6,593
Data processing and communications1
 27,739
 27,817
 28,903
 27,412
 26,111
Data processing and communications 31,449
 27,575
 31,665
 27,739
 27,817
Printing, postage and supplies 4,011
 4,089
 3,781
 3,917
 4,140
 4,885
 5,232
 3,837
 4,011
 4,089
Net losses (gains) and operating expenses of repossessed assets 2,722
 7,705
 340
 6,071
 2,267
 1,996
 2,581
 4,044
 2,722
 7,705
Amortization of intangible assets 1,386
 1,300
 1,430
 1,744
 1,803
 5,191
 5,331
 1,603
 1,386
 1,300
Mortgage banking costs 12,890
 10,149
 14,331
 13,450
 12,072
 9,906
 11,518
 11,741
 12,890
 10,149
Other expense 7,111
 6,574
 6,746
 9,193
 8,558
 6,129
 6,907
 5,741
 7,111
 6,574
Total other operating expense 246,476
 244,430
 254,479
 256,019
 240,666
 287,157
 284,643
 252,617
 246,476
 244,430
Net income before taxes 148,485
 136,295
 126,712
 128,228
 136,571
 140,215
 128,498
 152,207
 148,485
 136,295
Federal and state income taxes 33,330
 30,948
 54,347
 42,438
 47,705
 29,950
 20,121
 34,662
 33,330
 30,948
Net income 115,155
 105,347
 72,365
 85,790
 88,866
 110,265
 108,377
 117,545
 115,155
 105,347
Net income (loss) attributable to non-controlling interests 783
 (215) (127) 141
 719
 (347) (79) 289
 783
 (215)
Net income attributable to BOK Financial Corporation shareholders $114,372
 $105,562
 $72,492
 $85,649
 $88,147
 $110,612
 $108,456
 $117,256
 $114,372
 $105,562
                    
Earnings per share:  
  
  
  
  
  
  
  
  
  
Basic $1.75 $1.61 $1.11 $1.31 $1.35 $1.54 $1.50 $1.79 $1.75 $1.61
Diluted $1.75 $1.61 $1.11 $1.31 $1.35 $1.54 $1.50 $1.79 $1.75 $1.61
Average shares used in computation:                    
Basic 64,901,975
 64,847,334
 64,793,005
 64,742,822
 64,729,752
 71,387,070
 71,808,029
 64,901,095
 64,901,975
 64,847,334
Diluted 64,937,226
 64,888,033
 64,843,179
 64,805,172
 64,793,134
 71,404,388
 71,833,334
 64,934,351
 64,937,226
 64,888,033


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





PART II. Other Information


Item 1. Legal Proceedings
 
See discussion of legal proceedings at Note 7 to the Consolidated Financial Statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended June 30, 2018.March 31, 2019.


 
Period
 
Total Number of Shares Purchased2
 Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1
 Maximum Number of Shares that May Yet Be Purchased Under the Plans
April 1 to April 30, 2018 7,629
 $91.46
 —
 1,958,174
May 1 to May 31, 2018 8,257
 $99.84
 8,257
 1,949,917
June 1 to June 30, 2018 —
 $—
 —
 1,949,917
Total 15,886
  
 8,257
  
 
Period
 
Total Number of Shares Purchased2
 Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1
 Maximum Number of Shares that May Yet Be Purchased Under the Plans
January 1 to January 31, 2019 18,117
 $79.33
 —
 1,424,917
February 1 to February 28, 2019 555,609
 $87.54
 555,609
 869,308
March 1 to March 31, 2019 150,000
 $79.58
 150,000
 719,308
Total 723,726
  
 705,609
  
1 
On October 1, 2015, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock. As of June 30, 2018,March 31, 2019, the Company had repurchased 3,050,0834,280,692 shares under this plan. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors.
2 
The Company routinely repurchases mature shares from employees to cover the exercise price and taxes in connection with employee equity compensation.
Item 6. Exhibits


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


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


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

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


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




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








Signatures




Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




BOK FINANCIAL CORPORATION
(Registrant)






Date:   July 31, 2018     May 1, 2019           






/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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