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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| | | | | | | |
| ☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedSeptember June 30, 20192020
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
0-19341
BOK FINANCIAL CORP ET AL
(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: 70,858,01070,306,690 shares of common stock ($.00006 par value) as of SeptemberJune 30, 2019.2020.
BOK Financial Corporation
Form 10-Q
Quarter Ended SeptemberJune 30, 20192020
Index
|
| | | | |
| Part I. Financial Information | |
| Management’s Discussion and Analysis (Item 2) | |
| Market Risk (Item 3) | |
| Controls and Procedures (Item 4) | |
| Consolidated Financial Statements – Unaudited (Item 1) | |
| |
| Quarterly Financial Summary – Unaudited (Item 2) | |
| Quarterly Earnings Trend – Unaudited | |
| |
| Part II. Other Information | |
| Item 1. Legal Proceedings | |
| Item 1A. Risk Factors | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 6. Exhibits | |
| Signatures | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Performance Summary
BOK Financial Corporation (“the Company”) reported net income of $142.2$64.7 million or $2.00$0.92 per diluted share for the thirdsecond quarter of 2019. Net income was $117.3 million or $1.79 per diluted share for the third quarter of 2018, including $11.5 million or 18 cents per share from a client asset management fee. The discussion below excludes the impact of this fee.2020. Net income was $137.6 million or $1.93 per diluted share for the second quarter of 2019.
Highlights of2019 and $62.1 million or $0.88 per diluted share for the thirdfirst quarter of 2019 included:
Net interest revenue totaled $279.12020. The Company recorded a pre-tax provision for expected credit losses of $135.3 million up $38.2 million over the third quarter of 2018. The acquisition of CoBiz Financial ("CoBiz") in the fourth quarter of 2018 added $40.6 million to net interest revenue in the third quarter of 2019. Net interest margin was 3.01 percent for the third quarter of 2019 compared to 3.21 percent for the third quarter of 2018. Average earning assets were $37.7 billion for the third quarter of 2019 compared to $30.0 billion for the third quarter of 2018. Net interest revenue decreased $6.3 million compared to the second quarter of 2019 while net interest margin decreased 29 basis points. Falling interest rates compressed the margin by 9 basis points compared to the second quarter of 2019.
Fees2020 and commissions revenue totaled $186.1 million, an increase of $35.3 million over the third quarter of 2018. Brokerage and trading revenue increased $20.8 million and mortgage banking revenue increased $6.6 million as lower mortgage interest rates have increased mortgage production and related trading activity. Fees and commissions revenue increased $10.0 million over the second quarter of 2019 largely due to increases in brokerage and trading and mortgage banking revenue.
Other operating expense totaled $279.3 million, a $26.7 million increase over the third quarter of 2018. Expenses related to CoBiz operations added $20.8$93.8 million in the thirdfirst quarter of 2019. Excluding CoBiz operations, personnel expense increased $5.7 million, primarily due to an increase in regular compensation. Non-personnel expense remained relatively consistent with the third quarter of 2018. Operating expense increased $2.2 million over the second quarter of 2019. Personnel expense increased $2.2 million with an increase in incentive compensation partially offset by a decrease in employee benefits. Non-personnel expense was largely unchanged compared to the second quarter of 2019.
The effective tax rate was 18.6 percent for the third quarter of 2019, 22.8 percent for the third quarter of 2018 and 21.4 percent for the second quarter of 2019. Income tax expense decreased $5.2 million compared to the second quarter of 2019 primarily due to the completion of 2018 tax filings and tax credit projects.
The Company recorded a2020. A pre-tax provision for incurred credit losses of $12.0 million in the third quarter of 2019. A provision of $5.0 million was recorded in the second quarter of 2019.
Highlights of the second quarter of 2020 included:
•Net interest revenue totaled $278.1 million, a decrease of $7.3 million compared to the second quarter of 2019. Net interest margin was 2.83 percent for the second quarter of 2020 compared to 3.30 percent for the second quarter of 2019. The Federal Reserve decreased the federal funds rate a total of 225 basis points since the middle of 2019. Three 25 basis point cuts were made in the second half of 2019 and a provisionan additional 150 basis points in emergency cuts were made in March 2020 in response to the economic environment resulting from the COVID-19 pandemic. Average earning assets were $40.3 billion for the second quarter of $4.02020 compared to $35.4 billion for the second quarter of 2019. Net interest revenue increased $16.7 million was recordedcompared to the first quarter of 2020, largely due to the addition of loans related to the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") that began on April 3, 2020. Net interest margin increased 3 basis points, primarily due to our ability to move deposit costs down, along with LIBOR remaining elevated early in the thirdsecond quarter and the strategic positioning of our balance sheet.
•Fees and commissions revenue totaled $213.7 million, an increase of $37.6 million over the second quarter of 2018. 2019. Mortgage banking revenue increased $25.8 million and brokerage and trading revenue increased $21.5 million. Low mortgage interest rates continued to drive increases in mortgage production and related bond trading activity. These increases were partially offset by a reduction in service charges and fiduciary and asset management revenue. We waived certain fees during the second quarter as a result of the pandemic and lower interest rates. Fees and commissions revenue increased $21.0 million over the first quarter of 2020, largely due to increases in mortgage banking and brokerage and trading revenue.
•Other operating expense totaled $295.4 million, an $18.3 million increase compared to the second quarter of 2019. Personnel expense increased $15.9 million, largely due to an increase in incentive compensation costs reflecting the growth in our trading activity. Non-personnel expense increased $2.4 million over the second quarter of 2019. Increases in mortgage banking costs, occupancy and equipment expense, data processing and communications expense and charitable contributions were partially offset by a decrease in business promotion expenses. Operating expense increased $26.8 million compared to the first quarter of 2020. Personnel expense increased $20.1 million including an $11.0 million increase in incentive compensation expense related to increased trading activity. Non-personnel expense increased $6.7 million compared to the first quarter of 2020, led by increases in mortgage banking costs, occupancy and equipment expenses, and charitable contributions, partially offset by a decrease in business promotion expenses.
•Changes in the fair value of mortgage servicing rights and related economic hedges provided $9.3 million during the second quarter of 2020. A $7.4 million increase in the fair value of securities and derivative contracts held as an economic hedge and $2.7 million of related net interest revenue, was partially offset by a $761 thousand decrease in the fair value of mortgage servicing rights. The net economic cost of the changes in fair value of mortgage servicing rights and related economic hedges was $7.3 million during the second quarter of 2019, including a $21.0 million increase in the fair value of securities and derivatives contracts held as an economic hedge, $29.6 million decrease in the fair value of mortgage servicing rights, and $1.3 million of related net interest revenue.
•We have implemented programs to help our customers through the pandemic and resulting uncertain times. We are actively participating in programs initiated by the CARES Act, including the SBA's PPP. Period-end outstanding loan balances totaled $24.2 billion at June 30, 2020, an increase of $1.7 billion over March 31, 2020. Average loan balances increased $2.2 billion to $24.1 billion at June 30, 2020. Period-end PPP loans were $2.1 billion and average PPP loans for the second quarter were $1.7 billion. We have also granted $1.2 billion in forbearance requests from customers as of June 30, including $704 million in commercial loans, $398 million in commercial real estate loans and $143 million in loans to individuals.
•The allowance for loan losses totaled $436 million or 1.80 percent of outstanding loans and 175 percent of nonaccruing loans at June 30, 2020, excluding residential mortgage loans guaranteed by U.S. government agencies. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $469 million or 1.94 percent of outstanding loans at June 30, 2020. Excluding PPP loans, the allowance for loan losses was 1.97 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.12 percent. At March 31, 2020, the allowance for loan losses was $315 million or 1.40 percent of outstanding loans and 199 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $344 million or 1.53 percent of outstanding loans.
•Nonperforming assets not guaranteed by U.S. government agencies decreased $6.8increased $90 million compared to June 30, 2019.March 31, 2020. Potential problem loans decreased $18increased $333 million while other loans especially mentioned increased $38$391 million. Net charge-offs were $10.6$14.1 million or 0.190.25 percent of average loans for the third quarter of 2019, compared to net charge-offs of $7.7 million or 0.14 percent of average loanson an annualized basis for the second quarter of 2019. The combined allowance for credit losses totaled $2062020, excluding PPP loans, compared to $17.2 million or 0.920.31 percent of outstandingaverage loans at September 30, 2019 compared to $204 million or 0.92 percenton an annualized basis for the first quarter of outstanding loans2020.
•Period-end deposits were $33.9 billion at June 30, 2019.
Period-end outstanding loan balances totaled $22.32020, a $4.6 billion at September 30, 2019, an increase of $30 million over June 30, 2019. Average loan balances grew $409 million to $22.4 billion at September 30, 2019.
Period-end deposits were $26.2 billion at September 30, 2019, an $862 million increase compared to June 30, 2019.March 31, 2020. Interest-bearing transaction deposits increased $670 million$2.3 billion while demand deposit balances increased $177 million.$2.2 billion. Average deposits increased $538 million,$4.5 billion, including a $619 million$2.3 billion increase in demand deposits and a $1.9 billion increase in interest-bearing deposits partially offset by a $124 million decrease in demand deposits. An estimated $2.7 billion of this growth was related to funding of PPP loans and other CARES Act stimulus initiatives, with the remainder due to growth from our broader customer base.
•The common equity Tier 1 capital ratio at SeptemberJune 30, 20192020 was 11.0611.44 percent. Other regulatory capital ratios were Tier 1 capital ratio, 11.0611.44 percent, total capital ratio, 12.5613.39 percent, and leverage ratio, 8.417.74 percent. We have elected to implement relief afforded by the CARES Act, which allows us to defer a portion of the impact to regulatory capital resulting from our adoption of CECL over the next two years, followed by a phase out of that deferral over the following three years. At June 30, 2019,March 31, 2020, the common equity Tier 1 capital ratio was 10.8410.98 percent, the Tier 1 capital ratio was 10.8410.98 percent, total capital ratio was 12.3412.65 percent, and leverage ratio was 8.758.15 percent.
•The Company paid a regular cash dividend of $35.5$35.8 million or $0.50$0.51 per common share during the thirdsecond quarter of 2019.2020. On October 29, 2019,August 4, 2020, the board of directors approved a quarterly cash dividend of $0.51 per common share payable on or about November 27, 2019August 26, 2020 to shareholders of record as of November 12, 2019.
Critical Accounting Policies & Estimates
The Consolidated Financial Statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company's accounting policies are more fully described in Note 1 of the Consolidated Financial Statements included in the 2019 Form 10-K. Management makes significant assumptions and estimates in the preparation of the Consolidated Financial Statements and accompanying notes in conformity with GAAP that may be highly subjective, complex and subject to variability. Actual results could differ significantly from these assumptions and estimates. The following discussion represents significant changes to critical accounting policies and estimates during 2020 in the most critical areas where these assumptions and estimates could affect the financial condition, results of operations and cash flows of the Company. Significant changes to critical accounting policies and estimates have been discussed with the appropriate committees of the Board of Directors.
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Loan Commitments
The allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments represent the portion of amortized cost basis of loans and related unfunded commitments we do not expect to collect over the asset’s contractual life, considering past events, current conditions, as well as reasonable and supportable forecasts of future economic conditions. Determining appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments requires management judgment about effects of uncertain matters, resulting in a subjective calculation which contains a certain amount of imprecision. Because of the subjective forward-looking nature of the calculation, changes in these measures may not directly correlate with actual economic events. In future periods, management judgment may consider new or changed information which may cause significant changes in these allowances in those future periods.
As of January 1, 2020 BOK Financial’s accounting policies have changed significantly with the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Assets Measured at Amortized Cost ("ASU 2016-13" or "CECL"). Prior years are not restated. Prior to January 1, 2020, general allowances and nonspecific allowances were based on incurred credit losses. See Note 4 to the Consolidated Financial Statements for the description of the expected credit losses calculation of the allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments.
For the majority of risk-graded loans, the accruing loan’s expected credit loss estimate is sensitive to management judgment, particularly probability of default and loss given default assumptions, changes in specific macroeconomic factor forecasts, the probability weight assigned to each economic scenario, and judgmental allocations for risks otherwise not captured in the calculation.
Probability of default and loss given default measurements are based on historical data that may not be a good predictor of future performance or actual losses. Probability of default is based on risk grades, a subjective measurement of the risk of a loan. This subjective assessment of risk may not reflect actual risk of loss.
Other subjective measures include the forecast for each relevant economic loss driver and the probability weighting of economic scenarios, both of which are overseen by a senior management committee with members independent of the allowance process. Determining appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments requires management judgment about effects of uncertain matters which may be reflected as industry or product judgmental allocations or nonspecific allowances. This results in a subjective calculation which is inherently imprecise.
Although the resulting expected credit loss estimate represents management’s best estimates at the time, actual credit losses will differ from management’s estimate. Portfolio composition will change over time, actual economic conditions will differ from probability-weighted assumptions, borrower-specific circumstances will change, as well as other factors. Differences between actual losses and management's estimates may materially affect the Company's results of operations.
Goodwill Impairment
Goodwill for each reporting unit is evaluated for impairment annually as of October 1st or more frequently if conditions indicate that impairment may have occurred. The evaluation of possible goodwill impairment involves significant judgment based upon short-term and long-term projections of future performance.
During the evaluation for impairment, management qualitatively assesses whether it is more likely than not that the fair value of the reporting units is less than their carrying value, including goodwill. Reporting unit carrying value includes sufficient capital to exceed regulatory requirements. This assessment includes consideration of relevant events and circumstances including, but not limited to, macroeconomic conditions, industry and market conditions, the financial and stock performance of the Company and other relevant factors. Specifically, the analysis may include:
•General economic conditions including overall economic activity, consumer spending and mobility, unemployment rates, consumer confidence, and duration and severity of any current market moving instability.
•Regional economic conditions including demand for oil and price stability of oil, other overarching conditions that may be affecting any of the Company's primary states such as weather or other catastrophes, pandemics and health related lockdowns, or other state mandates.
•Industry conditions including federal funds rate movement by the Federal Reserve, the interest rate environment and the resulting effect on net interest revenue and operating revenue, and regulatory mandates that hinder or provide relief to the financial services industry.
•Company specific conditions including current and forecasted income, changes in stock price, the Company's stock price compared to peers and other indexes, book value per share compared to fair value per share, goodwill compared to total shareholders' equity, current capital and liquidity position, demand for products and services, health of the loan portfolio and other credit related factors, and current credit ratings with the ratings agencies, and regulatory ratings.
•Reporting unit performance and forecasts including any event that may significantly impact a reporting unit.
If management concludes based on the qualitative assessment that goodwill may be impaired, a quantitative impairment test will be applied to goodwill at all reporting units. The quantitative analysis compares the fair value of the reporting unit with its carrying value, including goodwill. The fair value of each reporting unit is estimated by the discounted future earnings method. Goodwill is considered impaired if the fair value of the reporting unit is less than the carrying value of the reporting unit, including goodwill.
Both the qualitative assessment and quantitative analysis require significant management judgment, including estimates of changes in future economic conditions and their underlying causes and duration, the reasonableness and effectiveness of management's responses to those changes, changes in governmental fiscal and monetary policies, and fair value measurements based largely on significant unobservable inputs. The results of these judgments may have a significant impact on the Company's reported results of operations.
Results of Operations
Net Interest Revenue and Net Interest Margin
Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing tax-equivalent net interest revenue by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest spread due to interest income earned on assets funded by non-interest bearing liabilities such as demand deposits and equity.
Tax-equivalent net interest revenue totaled $282.0$280.7 million for the thirdsecond quarter of 2019, up from $242.82020 and $288.9 million in the thirdsecond quarter of 2018. CoBiz2019. PPP loans added $40.6$13.6 million to net interest revenue including $10.9 millionin the second quarter of net2020. Net purchase accounting discount accretion was $3.3 million in the thirdsecond quarter of 2020 and $13.4 million in the second quarter of 2019. Table 1 shows the effect on net interest revenue from changes in average balances and interest rates for various types of earning assets and interest-bearing liabilities.
Net interest margin was 3.012.83 percent for the thirdsecond quarter of 2019,2020, compared to 3.213.30 percent for the thirdsecond quarter of 2018.2019. Loan discount accretion added 3 basis points to net interest margin in the second quarter of 2020 and 15 basis points in the second quarter of 2019. The tax-equivalent yield on earning assets was 4.253.12 percent, up 21a decrease of 139 basis points overcompared to the thirdsecond quarter of 2018.2019. The Federal Reserve decreased the federal funds rate a total of 225 basis points since the middle of 2019. Three 25 basis point cuts were made in the second half of 2019 and an additional 150 basis points in emergency cuts were made in March 2020 in response to the economic environment resulting from the COVID-19 pandemic. The latest reductions reduced the federal funds rate to nearly zero. Loan yields increased 32decreased 176 basis points to 5.12 percent primarily due3.63 percent. The yield on trading securities decreased 113 basis points to an increase in short-term interest rates and higher yields on acquired loans.2.46 percent. The yield on interest-bearing cash and cash equivalents increased 44decreased 250 basis points to 2.420.07 percent. The available for sale securities portfolio yield increased 23decreased 34 basis points to 2.60 percent. The yield on trading securities decreased 49 basis points to 3.492.29 percent and the yield on fair value option securities decreased 46134 basis points to 2.792.00 percent.
Funding costs were up 43decreased 133 basis points overcompared to the thirdsecond quarter of 2018.2019. The cost of interest-bearing deposits increased 40other borrowed funds decreased 223 basis points and the cost of other borrowed funds increased 27interest-bearing deposits decreased 79 basis points. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 448 basis points for the thirdsecond quarter of 2019, up 22020, a decrease of 41 basis points overcompared to the thirdsecond quarter of 2018.2019.
Average earning assets for the thirdsecond quarter of 20192020 increased $7.7$5.0 billion or 2614 percent over the thirdsecond quarter of 2018. Average loans, net2019. The average balance of allowance for loan losses, increased $4.2 billion, including acquired loans. Availableavailable for sale securities, which consists largely of residential and commercial mortgage-backed securities guaranteed by U.S. government agencies, increased $2.6 billion$3.0 billion. We purchase securities to supplement earnings and fair value option securities, which we hold as an economic hedge against changes in fair valueto manage interest rate risk. We have increased the size of our mortgage servicing rights, increased $1.1 billion. Approximately $1.7 billion of these lower yielding fixed-rate assets were added in the second and third quarters of 2019bond portfolio in order to reduce our exposure to falling short-term interest rates. Interest-bearing cashAverage loans, net of allowance for loan losses, increased $1.9 billion, largely due to the inflow of PPP loans. Receivables from unsettled securities sales, primarily related to our U.S. agency residential mortgage-backed trading operations, increased $3.2 billion. Growth in average earning assets and cash equivalent balances decreased $188 million.non-interest bearing receivables was primarily funded by an increase in average deposits.
Average deposits increased $3.8 billion compared to the third quarter of 2018, including acquired deposits. Interest bearing deposits increased $3.3 billion while demand deposit balances increased $435 million. Average borrowed funds increased $4.3 billion over the third quarter of 2018.
Tax-equivalent net interest revenue decreased $6.9 million compared to the second quarter of 2019. Recoveries of foregone interest on nonaccruing loans added $3.4 million to the second quarter of 2019. The third quarter of 2019 included $10.9 million of purchase accounting discount accretion while the second quarter of 2019 included $13.4 million.
Average earning assets increased $2.3$7.5 billion compared to the second quarter of 2019. Not only have we focused on acquiring and growing deposits to enhance liquidity and support balance sheet growth, but we also saw a large inflow of deposits with the funding of PPP loans and other CARES Act related stimulus initiatives. Interest-bearing deposits increased $5.9 billion while demand deposit balances increased $1.6 billion.
Tax-equivalent net interest revenue increased $16.7 million compared to the first quarter of 2020. PPP loans also added $13.6 million to net interest revenue in the second quarter.
Average availableearning assets increased $1.9 billion compared to the first quarter of 2020. Average loan balances increased $2.2 billion, largely due to the influx of PPP loans. Available for sale securities increased $1.3 billion due to repositioning the$816 million as we have adjusted our balance sheet for additional interestthe current rate decreases. Average fairenvironment. Fair value option securities, balancesheld as an economic hedge of the changes in fair value of our mortgage servicing rights, decreased $1.0 billion. In addition, receivables from unsettled securities sales, primarily related to our U.S. agency residential mortgage-backed trading operations, increased $655 million. Average loan balances were up $409 million. Average$1.6 billion. Growth in average earning assets and non-interest bearing receivables was largely funded by a $2.2 billion increase in interest-bearing deposits. Other borrowings decreased $3.0 billion, primarily due to a decrease in funds borrowed fundsfrom the Federal Home Loan Bank partially offset by an increase in PPP loans funded through the Federal Reserve's PPP Liquidity Facility. Funds purchased and repurchase agreements increased $2.0 billion and average interest-bearing deposit balances increased $662 million compared to the second quarter of 2019.billion.
Net interest margin was 3.012.83 percent compared to 3.302.80 percent in the previous quarter. NetThe reduction in deposit costs, LIBOR remaining elevated early in the second quarter, and the strategic positioning of our balance sheet, have combined to reduce the pressure on margin. Excluding the impact of PPP loans, net interest margin was reduced 9 basis points due2.82 percent compared to available for sale securities expansion and 4 basis points due to the increase2.80 percent in the fair value hedge portfolio. In addition, lower foregone interest recoveries and discount accretion reduced net interest margin by 7 basis points. Falling interest rates compressed the net interest margin by an additional 9 basis points.previous quarter.
Excluding recoveries of forgone interest, theThe yield on average earning assets decreased 2261 basis points whilefrom the yield onprior quarter as we start to see the effects of the recent Federal Reserve rate cuts. The loan portfolio decreased 21yield was down 87 basis points. The yield on the available for sale securities portfolio decreased 319 basis points and the yield on the trading securities portfolio was down 10 basis points.
Funding costs decreased 282 basis points. The cost of interest-bearing deposits increased 4decreased 64 basis points and the cost of other borrowed funds decreased 22was down 117 basis points. The benefit to net interest margin from assets funded by non-interest liabilities decreased 5was 8 basis points for the second quarter of 2020 compared to 4426 basis points.
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 78%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.
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, 2020 / 2019 | | | | | | Six Months Ended
June 30, 2020 / 2019 | | | | |
| | | | | Change Due To1 | | | | | | Change Due To1 | | |
| | Change | | Volume | | Yield/Rate | | Change | | Volume | | Yield/Rate |
| Tax-equivalent interest revenue: | | | | | | | | | | | | |
| Interest-bearing cash and cash equivalents | | $ | (3,320) | | | $ | 273 | | | $ | (3,593) | | | $ | (4,324) | | | $ | 1,123 | | | $ | (5,447) | |
| Trading securities | | (4,136) | | | 953 | | | (5,089) | | | (11,071) | | | (1,392) | | | (9,679) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Investment securities | | (411) | | | (604) | | | 193 | | | (935) | | | (1,225) | | | 290 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Available for sale securities | | 8,470 | | | 17,363 | | | (8,893) | | | 21,317 | | | 32,947 | | | (11,630) | |
| Fair value option securities | | (3,393) | | | (517) | | | (2,876) | | | 3,078 | | | 8,061 | | | (4,983) | |
| Restricted equity securities | | (4,636) | | | (2,565) | | | (2,071) | | | (5,087) | | | (2,570) | | | (2,517) | |
| Residential mortgage loans held for sale | | 386 | | | 704 | | | (318) | | | (154) | | | 602 | | | (756) | |
| Loans | | (78,247) | | | 23,060 | | | (101,307) | | | (115,062) | | | 27,167 | | | (142,229) | |
| Total tax-equivalent interest revenue | | (85,287) | | | 38,667 | | | (123,954) | | | (112,238) | | | 64,713 | | | (176,951) | |
| Interest expense: | | | | | | | | | | | | |
| Transaction deposits | | (23,219) | | | 8,448 | | | (31,667) | | | (15,066) | | | 18,450 | | | (33,516) | |
| Savings deposits | | (89) | | | 19 | | | (108) | | | (123) | | | 25 | | | (148) | |
| Time deposits | | (2,130) | | | 1,025 | | | (3,155) | | | (1,507) | | | 1,499 | | | (3,006) | |
| Funds purchased and repurchase agreements | | (8,662) | | | 10,349 | | | (19,011) | | | (8,180) | | | 17,945 | | | (26,125) | |
| Other borrowings | | (42,746) | | | (14,660) | | | (28,086) | | | (62,253) | | | (20,147) | | | (42,106) | |
| Subordinated debentures | | (262) | | | (4) | | | (258) | | | (374) | | | 1 | | | (375) | |
| Total interest expense | | (77,108) | | | 5,177 | | | (82,285) | | | (87,503) | | | 17,773 | | | (105,276) | |
| Tax-equivalent net interest revenue | | (8,179) | | | 33,490 | | | (41,669) | | | (24,735) | | | 46,940 | | | (71,675) | |
| Change in tax-equivalent adjustment | | (851) | | | | | | | (665) | | | | | |
| Net interest revenue | | $ | (7,328) | | | | | | | $ | (24,070) | | | | | |
1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
Sept. 30, 2019 / 2018 | | Nine Months Ended
Sept. 30, 2019 / 2018 |
| | | | | Change Due To1 | | | | Change Due To1 |
| | | Change | | Volume | | Yield/Rate | | Change | | Volume | | Yield/Rate |
| Tax-equivalent interest revenue: | | | | | | | | | | | | |
| Interest-bearing cash and cash equivalents | | $ | (391 | ) | | $ | (1,047 | ) | | $ | 656 |
| | $ | (9,284 | ) | | $ | (15,071 | ) | | $ | 5,787 |
|
| Trading securities | | (2,873 | ) | | (764 | ) | | (2,109 | ) | | 10,633 |
| | 11,295 |
| | (662 | ) |
| Investment securities | | (422 | ) | | (605 | ) | | 183 |
| | (1,044 | ) | | (1,958 | ) | | 914 |
|
| Available for sale securities | | 18,724 |
| | 13,469 |
| | 5,255 |
| | 42,022 |
| | 21,303 |
| | 20,719 |
|
| Fair value option securities | | 6,827 |
| | 8,021 |
| | (1,194 | ) | | 10,821 |
| | 10,850 |
| | (29 | ) |
| Restricted equity securities | | 2,326 |
| | 2,354 |
| | (28 | ) | | 4,662 |
| | 4,159 |
| | 503 |
|
| Residential mortgage loans held for sale | | (260 | ) | | 14 |
| | (274 | ) | | (1,020 | ) | | (782 | ) | | (238 | ) |
| Loans | | 69,071 |
| | 52,657 |
| | 16,414 |
| | 245,537 |
| | 160,739 |
| | 84,798 |
|
| Total tax-equivalent interest revenue | | 93,002 |
| | 74,099 |
| | 18,903 |
| | 302,327 |
| | 190,535 |
| | 111,792 |
|
| Interest expense: | | | | | | | | | | | | |
| Transaction deposits | | 18,684 |
| | 6,805 |
| | 11,879 |
| | 53,441 |
| | 14,128 |
| | 39,313 |
|
| Savings deposits | | 82 |
| | 15 |
| | 67 |
| | 232 |
| | 40 |
| | 192 |
|
| Time deposits | | 3,616 |
| | 653 |
| | 2,963 |
| | 10,127 |
| | 896 |
| | 9,231 |
|
| Funds purchased and repurchase agreements | | 11,963 |
| | 7,851 |
| | 4,112 |
| | 31,719 |
| | 17,771 |
| | 13,948 |
|
| Other borrowings | | 17,614 |
| | 13,751 |
| | 3,863 |
| | 55,016 |
| | 21,239 |
| | 33,777 |
|
| Subordinated debentures | | 1,788 |
| | 1,824 |
| | (36 | ) | | 5,283 |
| | 5,459 |
| | (176 | ) |
| Total interest expense | | 53,747 |
| | 30,899 |
| | 22,848 |
| | 155,818 |
| | 59,533 |
| | 96,285 |
|
| Tax-equivalent net interest revenue | | 39,255 |
| | 43,200 |
| | (3,945 | ) | | 146,509 |
| | 131,002 |
| | 15,507 |
|
| Change in tax-equivalent adjustment | | 1,042 |
| | | | | | 3,060 |
| | | | |
| Net interest revenue | | $ | 38,213 |
| | | | | | $ | 143,449 |
| | | | |
| |
| 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 $186.5$232.7 million for the thirdsecond quarter of 2019, an $18.5 million increase over the third quarter of 2018 and2020, a $14.4$60.6 million increase over the second quarter of 2019. The third2019 and a $52.4 million increase over the first quarter of 2018 included a $15.4 million fee earned through the sale of client assets. This fee is excluded from the discussion below.2020. Lower mortgage interest rates have positively affected both our brokerage and trading and mortgage banking revenue, leading to increases of $20.8$21.5 million and $6.6 million over the third quarter of 2018, respectively, and $3.3 million and $2.0$25.8 million over the second quarter of 2019, respectively, and $11.2 million and $16.8 million over the first quarter of 2020, respectively.
Table 2 – Other Operating Revenue
(In thousands)
| | | | | Three Months Ended
September 30, | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, 2019 | | Increase (Decrease) | | % Increase (Decrease) | | | Three Months Ended June 30, | | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended
Mar. 31, 2020 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2019 | | 2018 | | | | 2020 | | 2019 | | | | | | | | | | |
| Brokerage and trading revenue | | $ | 43,840 |
| | $ | 23,086 |
| | $ | 20,754 |
| | 90 | % | | $ | 40,526 |
| | $ | 3,314 |
| | 8 | % | Brokerage and trading revenue | | $ | 62,022 | | | $ | 40,526 | | | $ | 21,496 | | | 53 | % | | $ | 50,779 | | | $ | 11,243 | | | 22 | % |
| Transaction card revenue | | 22,015 |
| | 21,396 |
| | 619 |
| | 3 | % | | 21,915 |
| | 100 |
| | — | % | Transaction card revenue | | 22,940 | | | 21,915 | | | 1,025 | | | 5 | % | | 21,881 | | | 1,059 | | | 5 | % |
| Fiduciary and asset management revenue | | 43,621 |
| | 57,514 |
| | (13,893 | ) | | (24 | )% | | 45,025 |
| | (1,404 | ) | | (3 | )% | Fiduciary and asset management revenue | | 41,257 | | | 45,025 | | | (3,768) | | | (8) | % | | 44,458 | | | (3,201) | | | (7) | % |
| Deposit service charges and fees | | 28,837 |
| | 27,765 |
| | 1,072 |
| | 4 | % | | 28,074 |
| | 763 |
| | 3 | % | Deposit service charges and fees | | 22,046 | | | 28,074 | | | (6,028) | | | (21) | % | | 26,130 | | | (4,084) | | | (16) | % |
| Mortgage banking revenue | | 30,180 |
| | 23,536 |
| | 6,644 |
| | 28 | % | | 28,131 |
| | 2,049 |
| | 7 | % | Mortgage banking revenue | | 53,936 | | | 28,131 | | | 25,805 | | | 92 | % | | 37,167 | | | 16,769 | | | 45 | % |
| Other revenue | | 17,626 |
| | 12,900 |
| | 4,726 |
| | 37 | % | | 12,437 |
| | 5,189 |
| | 42 | % | Other revenue | | 11,479 | | | 12,437 | | | (958) | | | (8) | % | | 12,309 | | | (830) | | | (7) | % |
| Total fees and commissions revenue | | 186,119 |
| | 166,197 |
|
| 19,922 |
| | 12 | % | | 176,108 |
|
| 10,011 |
| | 6 | % | Total fees and commissions revenue | | 213,680 | | | 176,108 | | | 37,572 | | | 21 | % | | 192,724 | | | 20,956 | | | 11 | % |
| Other gains (losses), net | | 4,544 |
| | 2,754 |
| | 1,790 |
| | N/A |
| | 3,480 |
| | 1,064 |
| | N/A |
| Other gains (losses), net | | 6,768 | | | 3,480 | | | 3,288 | | | N/A | | (10,741) | | | 17,509 | | | N/A |
| Gain (loss) on derivatives, net | | 3,778 |
| | (2,847 | ) | | 6,625 |
| | N/A |
| | 11,150 |
| | (7,372 | ) | | N/A |
| |
| Gain on derivatives, net | | Gain on derivatives, net | | 21,885 | | | 11,150 | | | 10,735 | | | N/A | | 18,420 | | | 3,465 | | | N/A |
| Gain (loss) on fair value option securities, net | | 4,597 |
| | (4,385 | ) | | 8,982 |
| | N/A |
| | 9,853 |
| | (5,256 | ) | | N/A |
| Gain (loss) on fair value option securities, net | | (14,459) | | | 9,853 | | | (24,312) | | | N/A | | 68,393 | | | (82,852) | | | N/A |
| Change in fair value of mortgage servicing rights | | (12,593 | ) | | 5,972 |
| | (18,565 | ) | | N/A |
| | (29,555 | ) | | 16,962 |
| | N/A |
| Change in fair value of mortgage servicing rights | | (761) | | | (29,555) | | | 28,794 | | | N/A | | (88,480) | | | 87,719 | | | N/A |
| Gain (loss) on available for sale securities, net | | 5 |
| | 250 |
| | (245 | ) | | N/A |
| | 1,029 |
| | (1,024 | ) | | N/A |
| |
| Gain on available for sale securities, net | | Gain on available for sale securities, net | | 5,580 | | | 1,029 | | | 4,551 | | | N/A | | 3 | | | 5,577 | | | N/A |
| | Total other operating revenue | | $ | 186,450 |
| | $ | 167,941 |
| | $ | 18,509 |
| | 11 | % | | $ | 172,065 |
| | $ | 14,385 |
| | 8 | % | Total other operating revenue | | $ | 232,693 | | | $ | 172,065 | | | $ | 60,628 | | | 35 | % | | $ | 180,319 | | | $ | 52,374 | | | 29 | % |
| | | | | | | | | | | | | | | | |
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 4043 percent of total revenue for the thirdsecond quarter of 2019,2020, 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 growtha decline in mortgage related trading activities and mortgage production volumes, may also increase net interest revenue or fiduciary and asset management revenue, may also decrease mortgage production volumes.revenue. We expect growth in other operating revenue to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, including the recent impact of the COVID-19 pandemic, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.
Brokerage and Trading Revenue
Brokerage and trading revenue, which includes revenues from trading, customer hedging, retail brokerage and investment banking, increased $20.8$21.5 million or 9053 percent compared to the thirdsecond quarter of 2018.2019.
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 and related derivative instruments that enable our mortgage-banking customers to manage their market risk. Trading revenue also includes net realized and unrealized gains and losses on municipal securities, and asset-backed securities and other financial instruments that we sell to institutional customers, and related derivative instruments.along with changes in the fair value of financial instruments we hold as economic hedges against market risk of our trading securities. Trading revenue was $24.1$43.9 million for the thirdsecond quarter of 2019,2020, a $19.3$22.0 million or 399101 percent increase compared to the thirdsecond quarter of 2018. Lower2019. Industry-wide mortgage interestloan production grew in the second quarter of 2020 driven by lower rates have ledas the Federal Reserve stepped in to provide market stability. We increased our bond trading activity. This increase also includespipeline to provide greater liquidity to the housing market during a shift from our customer hedging portfolio.time of record loan production volumes.
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 $4.7$6.2 million for the thirdsecond quarter of 2019, a $3.8 million2020, an $896 thousand or 4517 percent decrease compared to the third quarter of 2018. The decrease is primarily due to a shift in the mix of our to-be-announced residential mortgage backed securities contracts from our customer hedging program to our U.S. government agency residential mortgage-backed trading program. The resulting increased activity remains within our established market risk limits as discussed further in Management's Discussion & Analysis – Market Risk section following.
Investment banking revenue, which includes fees earned upon completion of underwriting and financial advisory services and loan syndication fees, totaled $3.9 million, a $2.8 million increase compared to the thirdsecond quarter of 2018. Changes in investment banking revenue are primarily related to the timing and volume of completed transactions.
Insurance brokerage fees increased $2.7 million compared to the third quarter of 2018 due to the addition of CoBiz.2019.
Brokerage and trading revenue increased $3.3$11.2 million compared to the previous quarter, primarily due to increased trading activity as a result of lowerquarter. Continued low mortgage interest rates combined withhave increased syndication activity.mortgage production as well as related trading activity, which grew trading revenue $9.5 million. Customer hedging revenue also increased $3.0 million as existing customers increased energy hedging activities in the volatile environment.
Fiduciary and Asset Management Revenue
Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing transactions or providing related services. Approximately 90 percent of fiduciary and asset management revenue is primarily based on the fair value of assets. Rates applied to asset values vary based on the nature of the relationship. Fiduciary relationships and managed asset relationships generally have higher fee rates than non-fiduciary and/or managed relationships. Fiduciary and asset management revenue increased $1.5decreased $3.8 million or 48 percent compared to the third quarter of 2018. Fiduciary and asset management revenue decreased $1.4 million or 3 percent compared the second quarter of 2019 primarilyand $3.2 million compared to the first quarter of 2020. The decrease is largely due to seasonal tax fees earnedthe decline in the second quarter.
fair value of average assets combined with the addition of approximately $1.1 million in fee waivers. A distribution of assets under management or administration and related fiduciary and asset management revenue follows:
Table 3 -- Assets Under Management or Administration
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | June 30, 2019 | | | | | | March 31, 2020 | | | | |
| | Balance | | Revenue1 | | Margin2 | | Balance | | Revenue1 | | Margin2 | | Balance | | Revenue1 | | Margin2 |
| Managed fiduciary assets: | | | | | | | | | | | | | | | | | |
| Personal | $ | 9,786,686 | | | $ | 23,826 | | | 0.97 | % | | $ | 8,516,076 | | | $ | 26,134 | | | 1.23 | % | | $ | 8,796,030 | | | $ | 23,609 | | | 1.07 | % |
| Institutional | 13,568,898 | | | 6,872 | | | 0.20 | % | | 14,286,046 | | | 6,283 | | | 0.18 | % | | 12,186,588 | | | 7,347 | | | 0.24 | % |
| Total managed fiduciary assets | 23,355,584 | | | 30,698 | | | 0.53 | % | | 22,802,122 | | | 32,417 | | | 0.57 | % | | 20,982,618 | | | 30,956 | | | 0.59 | % |
| | | | | | | | | | | | | | | | | |
| Non-managed assets: | | | | | | | | | | | | | | | | | |
| Fiduciary | 27,205,000 | | | 10,142 | | | 0.15 | % | | 26,494,774 | | | 12,275 | | | 0.19 | % | | 26,070,483 | | | 13,132 | | | 0.20 | % |
| Non-fiduciary | 12,831,130 | | | 417 | | | 0.01 | % | | 15,894,874 | | | 333 | | | 0.01 | % | | 13,176,722 | | | 370 | | | 0.01 | % |
| Safekeeping and brokerage assets under administration | 16,060,788 | | | — | | | — | % | | 16,582,832 | | | — | | | — | % | | 15,554,006 | | | — | | | — | % |
| Total non-managed assets | 56,096,918 | | | 10,559 | | | 0.08 | % | | 58,972,480 | | | 12,608 | | | 0.09 | % | | 54,801,211 | | | 13,502 | | | 0.10 | % |
| | | | | | | | | | | | | | | | | |
| Total assets under management or administration | $ | 79,452,502 | | | $ | 41,257 | | | 0.21 | % | | $ | 81,774,602 | | | $ | 45,025 | | | 0.22 | % | | $ | 75,783,829 | | | $ | 44,458 | | | 0.23 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2019 | | September 30, 2018 | | June 30, 2019 |
| | Balance | | Revenue1 | | Margin2 | | Balance | | Revenue1 | | Margin2 | | Balance | | Revenue1 | | Margin2 |
| Managed fiduciary assets: |
| Personal | $ | 8,513,380 |
| | $ | 23,619 |
| | 1.11 | % | | $ | 8,076,312 |
| | $ | 22,921 |
| | 1.14 | % | | $ | 8,516,076 |
| | $ | 26,134 |
| | 1.23 | % |
| Institutional | 14,796,223 |
| | 5,846 |
| | 0.16 | % | | 13,568,115 |
| | 5,504 |
| | 0.16 | % | | 14,286,046 |
| | 6,283 |
| | 0.18 | % |
| Total managed fiduciary assets | 23,309,603 |
| | 29,465 |
| | 0.51 | % | | 21,644,427 |
| | 28,425 |
| | 0.53 | % | | 22,802,122 |
| | 32,417 |
| | 0.57 | % |
| | | | | | | | | | | | | | | | | | |
| Non-managed assets: |
| Fiduciary | 25,950,094 |
| | 13,910 |
| | 0.21 | % | | 23,915,680 |
| | 28,591 |
| 3 | 0.48 | % | | 26,494,774 |
| | 12,275 |
| | 0.19 | % |
| Non-fiduciary | 15,133,544 |
| | 246 |
| | 0.01 | % | | 16,146,102 |
| | 498 |
| | 0.01 | % | | 15,894,874 |
| | 333 |
| | 0.01 | % |
| Safekeeping and brokerage assets under administration | 16,403,708 |
| | — |
| | — | % | | 15,921,806 |
| | — |
| | — | % | | 16,582,832 |
| | — |
| | — | % |
| Total non-managed assets | 57,487,346 |
| | 14,156 |
| | 0.10 | % | | 55,983,588 |
| | 29,089 |
| | 0.21 | % | | 58,972,480 |
| | 12,608 |
| | 0.09 | % |
| | | | | | | | | | | | | | | | | | |
| Total assets under management or administration | $ | 80,796,949 |
| | $ | 43,621 |
| | 0.22 | % | | $ | 77,628,015 |
| | $ | 57,514 |
| | 0.30 | % | | $ | 81,774,602 |
| | $ | 45,025 |
| | 0.22 | % |
| |
1 1 | Fiduciary and asset management revenue includes asset-based and other fees associated with the assets. |
| |
2
| Annualized revenue divided by period-end balance. |
3 A $15.4 million fee earned through client asset management added 8 basis points torevenue includes asset-based and other fees associated with the margin in the third quarter of 2018.assets.
2 Annualized revenue divided by period-end balance.
A summary of changes in assets under management or administration for the three months ended SeptemberJune 30, 20192020 and 20182019 follows:
Table 4 -- Changes in Assets Under Management or Administration
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | | |
| | 2020 | | 2019 | | | | |
| Beginning balance | | $ | 75,783,829 | | | $ | 78,852,284 | | | | | |
| Net inflows (outflows) | | (1,219,567) | | | 1,075,070 | | | | | |
| | | | | | | | |
| Net change in fair value | | 4,888,240 | | | 1,847,248 | | | | | |
| Ending balance | | $ | 79,452,502 | | | $ | 81,774,602 | | | | | |
|
| | | | | | | | |
| | | Three Months Ended
September 30, |
| | | 2019 | | 2018 |
| Beginning balance | | $ | 81,774,602 |
| | $ | 78,873,446 |
|
| Net inflows (outflows) | | (1,230,466 | ) | | (2,921,653 | ) |
| Net change in fair value | | 252,813 |
| | 1,676,222 |
|
| Ending balance | | $ | 80,796,949 |
| | $ | 77,628,015 |
|
Mortgage Banking Revenue
Mortgage banking revenue increased $6.6$25.8 million or 2892 percent compared to the thirdsecond quarter of 2018.2019. Mortgage loan production volumes increased $315$262 million or 5332 percent as average primary mortgage interest rates have decreased. The gain on sale margin increased 30219 basis points to 1.513.65 percent in the thirdsecond quarter of 2019.2020. A rapid decrease in interest rates has led to increased application demand, especially refinance demand, and industry-wide capacity constraints.
Mortgage banking revenue increased $2.0$16.8 million or 745 percent compared to the secondfirst quarter of 2019.2020. Lower mortgage interest rates during the quarter led to an increase in mortgage production.production of 2 percent over an already strong first quarter. Gain on sale margin improved 5159 basis points over the prior quarter.quarter due to industry-wide capacity constraints.
Table 5 – Mortgage Banking Revenue
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended
Mar. 31, 2020 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2020 | | 2019 | | | | | | | | | | |
| Mortgage production revenue | | $ | 39,185 | | | $ | 11,869 | | | $ | 27,316 | | | 230 | % | | $ | 21,570 | | | $ | 17,615 | | | 82 | % |
| | | | | | | | | | | | | | |
| Mortgage loans funded for sale | | $ | 1,184,249 | | | $ | 729,841 | | | | | | | $ | 548,956 | | | | | |
| Add: Current period end outstanding commitments | | 546,304 | | | 344,087 | | | | | | | 657,570 | | | | | |
| Less: Prior period end outstanding commitments | | 657,570 | | | 263,434 | | | | | | | 158,460 | | | | | |
| Total mortgage production volume | | $ | 1,072,983 | | | $ | 810,494 | | | $ | 262,489 | | | 32 | % | | $ | 1,048,066 | | | $ | 24,917 | | | 2 | % |
| | | | | | | | | | | | | | |
| Mortgage loan refinances to mortgage loans funded for sale | | 71 | % | | 31 | % | | 4,000 | bps | | | | 57 | % | | 1,400 | bps | | |
| Gains on sale margin | | 3.65 | % | | 1.46 | % | | 219 | bps | | | | 2.06 | % | | 159 | bps | | |
| Primary mortgage interest rates: | | | | | | | | | | | | | | |
| Average | | 3.24 | % | | 4.01 | % | | (77) | bps | | | | 3.51 | % | | (27) | bps | | |
| Period end | | 3.13 | % | | 3.73 | % | | (60) | bps | | | | 3.33 | % | | (20) | bps | | |
| | | | | | | | | | | | | | |
| Mortgage servicing revenue | | $ | 14,751 | | | $ | 16,262 | | | $ | (1,511) | | | (9) | % | | $ | 15,597 | | | $ | (846) | | | (5) | % |
| Average outstanding principal balance of mortgage loans serviced for others | | 19,319,872 | | | 21,418,690 | | | (2,098,818) | | | (10) | % | | 20,416,546 | | | (1,096,674) | | | (5) | % |
| | | | | | | | | | | | | | |
| Average mortgage servicing revenue rates | | 0.31 | % | | 0.30 | % | | 1 | bp | | | | 0.31 | % | | — | bp | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, 2019 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2019 | | 2018 | | | | |
| Mortgage production revenue | | $ | 13,814 |
| | $ | 7,250 |
| | $ | 6,564 |
| | 91 | % | | $ | 11,869 |
| | $ | 1,945 |
| | 16 | % |
| | | | | | | | | | | | | | | |
| Mortgage loans funded for sale | | $ | 877,280 |
| | $ | 651,076 |
| |
|
| |
|
| | $ | 729,841 |
| | | | |
| Add: Current period end outstanding commitments | | 379,377 |
| | 197,752 |
| | | | | | 344,087 |
| | | | |
| Less: Prior period end outstanding commitments | | 344,087 |
| | 251,231 |
| | | | | | 263,434 |
| | | | |
| Total mortgage production volume | | $ | 912,570 |
| | $ | 597,597 |
| | $ | 314,973 |
| | 53 | % | | $ | 810,494 |
| | $ | 102,076 |
| | 13 | % |
| | | | | | | | | | | | | | | |
| Mortgage loan refinances to mortgage loans funded for sale | | 56 | % | | 23 | % | | 3,300 | bps | | | | 31 | % | | 2,500 | bps | | |
| Gains on sale margin | | 1.51 | % | | 1.21 | % | | 30 | bps | | | | 1.46 | % | | 5 | bps | | |
| Primary mortgage interest rates: | | | | | | | | | | | | | | |
| Average | | 3.66 | % | | 4.57 | % | | (91 | ) bps | | | | 4.01 | % | | (35 | ) bps | | |
| Period end | | 3.64 | % | | 4.72 | % | | (108 | ) bps | | | | 3.73 | % | | (9 | ) bps | | |
| | | | | | | | | | | | | | | |
| Mortgage servicing revenue | | $ | 16,366 |
| | $ | 16,286 |
| | $ | 80 |
| | — | % | | $ | 16,262 |
| | $ | 104 |
| | 1 | % |
| Average outstanding principal balance of mortgage loans serviced for others | | 21,172,874 |
| | 21,895,041 |
| | (722,167 | ) | | (3 | )% | | 21,418,690 |
| | (245,816 | ) | | (1 | )% |
| | | | | | | | | | | | | | | |
| Average mortgage servicing revenue rates | | 0.31 | % | | 0.30 | % | | 1 | bp | | | | 0.30 | % | | 1 | bp | | |
Primary rates disclosed in Table 5 above represent rates generally available to borrowers on 30 year conforming mortgage loans.
Service Charges
Deposit service charges and fees decreased $6.0 million compared to the second quarter of 2019 and $4.1 million compared to the first quarter of 2020. This decrease was due in part to "shelter in place" orders that led to lower activity and also to certain fee waivers in order to help our customers during uncertain times caused by the pandemic.
Net gains on other assets, securities and derivatives
Other net gains totaled $6.8 million in the second quarter of 2020 compared to other net gains of $3.5 million in the second quarter of 2019 and other net losses of $10.7 million in the first quarter of 2020. These fluctuations are primarily related to changes in the fair value of investments related to deferred compensation that are largely offset in deferred compensation expense. The first quarter of 2020 also included a $3.1 million impairment of an energy fund investment.
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. In the second quarter of 2020, we completed a sale of mortgage servicing rights on $1.6 billion of unpaid principal balance, primarily related to loans guaranteed by the Veteran's Administration. This sale was completed to reduce exposure to out of footprint MSRs with higher credit risk where no other relationships with the borrower exist. The increasefair value of contracts held as an economic hedge increased in the total economic costsecond quarter of changes in2020 while the fair value of mortgage servicing rights, netMSRs was largely unchanged. Interest rate movements between the date we established the transaction price and the closing date of economic hedges is due to the combination of unhedgeable factors and significant mortgage interest rate volatility during the year.sale produced positive results.
Table 6 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | |
| | | June 30, 2020 | | Mar. 31, 2020 | | June 30, 2019 |
| Gain on mortgage hedge derivative contracts, net | | $ | 21,815 | | | $ | 18,371 | | | $ | 11,128 | |
| Gain (loss) on fair value option securities, net | | (14,459) | | | 68,393 | | | 9,853 | |
| Gain on economic hedge of mortgage servicing rights, net | | 7,356 | | | 86,764 | | | 20,981 | |
| Loss on change in fair value of mortgage servicing rights | | (761) | | | (88,480) | | | (29,555) | |
| Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue | | 6,595 | | | (1,716) | | | (8,574) | |
Net interest revenue on fair value option securities1 | | 2,702 | | | 4,268 | | | 1,296 | |
| Total economic benefit (cost) of changes in the fair value of mortgage servicing rights, net of economic hedges | | $ | 9,297 | | | $ | 2,552 | | | $ | (7,278) | |
1Actual interest earned on fair value option securities less internal transfer-priced cost of funds.
|
| | | | | | | | | | | | |
| | | Three Months Ended |
| | | Sept. 30, 2019 | | June 30, 2019 | | Sept. 30, 2018 |
| Gain (loss) on mortgage hedge derivative contracts, net | | $ | 3,742 |
| | $ | 11,128 |
| | $ | (2,843 | ) |
| Gain (loss) on fair value option securities, net | | 4,597 |
| | 9,853 |
| | (4,385 | ) |
| Gain (loss) on economic hedge of mortgage servicing rights, net | | 8,339 |
| | 20,981 |
| | (7,228 | ) |
| Gain (loss) on change in fair value of mortgage servicing rights | | (12,593 | ) | | (29,555 | ) | | 5,972 |
|
| Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue | | (4,254 | ) | | (8,574 | ) | | (1,256 | ) |
Net interest revenue on fair value option securities1 | | 1,245 |
| | 1,296 |
| | 1,100 |
|
| Total economic benefit (cost) of changes in the fair value of mortgage servicing rights, net of economic hedges | | $ | (3,009 | ) | | $ | (7,278 | ) | | $ | (156 | ) |
| |
| Actual interest earned on fair value option securities less internal transfer-priced cost of funds. |
Other Operating Expense
Other operating expense for the thirdsecond quarter of 20192020 totaled $279.3$295.4 million, up $26.7 million compared to the third quarteran increase of 2018 and $2.2$18.3 million compared to the second quarter of 2019. Operating expenses in2019 and $26.8 million compared to the thirdfirst quarter of 2019 included $20.8 million of CoBiz operating expenses.
Table 7 – Other Operating Expense
(In thousands)
| | | | | Three Months Ended
September 30, | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, 2019 | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, | | | Increase (Decrease) | | %
Increase (Decrease) | | Three Months Ended
Mar. 31, 2020 | | Increase (Decrease) | | %
Increase (Decrease) |
| | | 2019 | | 2018 | | | | 2020 | | 2019 | | | | | | | | | | |
| Regular compensation | | $ | 97,014 |
| | $ | 86,262 |
| | $ | 10,752 |
| | 12 | % | | $ | 98,247 |
| | $ | (1,233 | ) | | (1 | )% | Regular compensation | | $ | 99,267 | | | $ | 98,247 | | | $ | 1,020 | | | 1 | % | | $ | 97,760 | | | $ | 1,507 | | | 2 | % |
| Incentive compensation: | | | | | |
|
| |
|
| | | | | | | Incentive compensation: | |
| Cash-based | | 38,316 |
| | 31,430 |
| | 6,886 |
| | 22 | % | | 33,155 |
| | 5,161 |
| | 16 | % | Cash-based | | 47,209 | | | 33,155 | | | 14,054 | | | 42 | % | | 36,189 | | | 11,020 | | | 30 | % |
| Share-based | | 3,471 |
| | 3,935 |
| | (464 | ) | | (12 | )% | | 2,734 |
| | 737 |
| | (27 | )% | Share-based | | 2,815 | | | 2,734 | | | 81 | | | 3 | % | | 3,108 | | | (293) | | | 9 | % |
| Deferred compensation | | 1,124 |
| | 2,126 |
| | (1,002 | ) | | N/A |
| | 1,534 |
| | (410 | ) | | N/A |
| Deferred compensation | | 5,932 | | | 1,534 | | | 4,398 | | | N/A | | (5,673) | | | 11,605 | | | N/A |
| Total incentive compensation | | 42,911 |
| | 37,491 |
| | 5,420 |
| | 14 | % | | 37,423 |
| | 5,488 |
| | 15 | % | Total incentive compensation | | 55,956 | | | 37,423 | | | 18,533 | | | 50 | % | | 33,624 | | | 22,332 | | | 66 | % |
| Employee benefits | | 22,648 |
| | 19,778 |
| | 2,870 |
| | 15 | % | | 24,672 |
| | (2,024 | ) | | (8 | )% | Employee benefits | | 21,012 | | | 24,672 | | | (3,660) | | | (15) | % | | 24,797 | | | (3,785) | | | (15) | % |
| Total personnel expense | | 162,573 |
| | 143,531 |
| | 19,042 |
| | 13 | % | | 160,342 |
| | 2,231 |
| | 1 | % | Total personnel expense | | 176,235 | | | 160,342 | | | 15,893 | | | 10 | % | | 156,181 | | | 20,054 | | | 13 | % |
| Business promotion | | 8,859 |
| | 7,620 |
| | 1,239 |
| | 16 | % | | 10,142 |
| | (1,283 | ) | | (13 | )% | Business promotion | | 1,935 | | | 10,142 | | | (8,207) | | | (81) | % | | 6,215 | | | (4,280) | | | (69) | % |
| Charitable contributions to BOKF Foundation | | — |
| | — |
| | — |
| | N/A |
| | 1,000 |
| | (1,000 | ) | | N/A |
| Charitable contributions to BOKF Foundation | | 3,000 | | | 1,000 | | | 2,000 | | | N/A | | — | | | 3,000 | | | N/A |
| Professional fees and services | | 12,312 |
| | 13,209 |
| | (897 | ) | | (7 | )% | | 13,002 |
| | (690 | ) | | (5 | )% | Professional fees and services | | 12,161 | | | 13,002 | | | (841) | | | (6) | % | | 12,948 | | | (787) | | | (6) | % |
| Net occupancy and equipment | | 27,558 |
| | 23,394 |
| | 4,164 |
| | 18 | % | | 26,880 |
| | 678 |
| | 3 | % | Net occupancy and equipment | | 30,675 | | | 26,880 | | | 3,795 | | | 14 | % | | 26,061 | | | 4,614 | | | 18 | % |
| Insurance | | 4,220 |
| | 6,232 |
| | (2,012 | ) | | (32 | )% | | 6,454 |
| | (2,234 | ) | | (35 | )% | Insurance | | 5,156 | | | 6,454 | | | (1,298) | | | (20) | % | | 4,980 | | | 176 | | | 4 | % |
| Data processing and communications | | 31,915 |
| | 31,665 |
| | 250 |
| | 1 | % | | 29,735 |
| | 2,180 |
| | 7 | % | Data processing and communications | | 32,942 | | | 29,735 | | | 3,207 | | | 11 | % | | 32,743 | | | 199 | | | 1 | % |
| Printing, postage and supplies | | 3,825 |
| | 3,837 |
| | (12 | ) | | — | % | | 4,107 |
| | (282 | ) | | (7 | )% | Printing, postage and supplies | | 3,502 | | | 4,107 | | | (605) | | | (15) | % | | 4,272 | | | (770) | | | (18) | % |
| Net losses and operating expenses of repossessed assets | | 1,728 |
| | 4,044 |
| | (2,316 | ) | | (57 | )% | | 580 |
| | 1,148 |
| | 198 | % | Net losses and operating expenses of repossessed assets | | 1,766 | | | 580 | | | 1,186 | | | 204 | % | | 1,531 | | | 235 | | | 15 | % |
| Amortization of intangible assets | | 5,064 |
| | 1,603 |
| | 3,461 |
| | 216 | % | | 5,138 |
| | (74 | ) | | (1 | )% | Amortization of intangible assets | | 5,190 | | | 5,138 | | | 52 | | | 1 | % | | 5,094 | | | 96 | | | 2 | % |
| Mortgage banking costs | | 14,975 |
| | 11,741 |
| | 3,234 |
| | 28 | % | | 11,545 |
| | 3,430 |
| | 30 | % | Mortgage banking costs | | 15,598 | | | 11,545 | | | 4,053 | | | 35 | % | | 10,545 | | | 5,053 | | | 48 | % |
| Other expense | | 6,263 |
| | 5,741 |
| | 522 |
| | 9 | % | | 8,212 |
| | (1,949 | ) | | (24 | )% | Other expense | | 7,227 | | | 8,212 | | | (985) | | | (12) | % | | 8,054 | | | (827) | | | (10) | % |
| Total other operating expense | | $ | 279,292 |
| | $ | 252,617 |
| | $ | 26,675 |
| | 11 | % | | $ | 277,137 |
| | $ | 2,155 |
| | 1 | % | Total other operating expense | | $ | 295,387 | | | $ | 277,137 | | | $ | 18,250 | | | 7 | % | | $ | 268,624 | | | $ | 26,763 | | | 10 | % |
| | | | | | | | | | | | | | | | |
| Average number of employees (full-time equivalent) | | 5,101 |
| | 4,870 |
| | 231 |
| | 5 | % | | 5,123 |
| | (22 | ) | | — | % | Average number of employees (full-time equivalent) | | 5,037 | | | 5,123 | | | (86) | | | (2) | % | | 5,075 | | | (38) | | | (1) | % |
Certain percentage increases (decreases) are not meaningful for comparison purposes.
Personnel expense
Personnel expense increased $19.0$15.9 million over the third quarter of 2018. CoBiz operating expenses added $13.4 millioncompared to the third quarter of 2019. The remaining increase of $5.7 million is largely attributed to standard annual merit increases in regular compensation and incentive compensation.
Personnel expense increased $2.2 million compared the second quarter of 2019. Incentive compensation increased $5.5$18.5 million. Cash based incentive compensation increased $14.1 million, ledlargely due to increased mortgage-backed securities trading activity. Deferred compensation increased $4.4 million; however, this is largely offset by an increase in cashthe value of related investments included in Other gains (losses). Employee benefits decreased $3.7 million. Due to the COVID-19 pandemic, many elective procedures have been put on hold and only essential services performed driving down employee healthcare costs.
Personnel expense increased $20.1 million compared the first quarter of 2020. Incentive compensation increased $22.3 million. Cash based incentive compensation increased $11.0 million, primarily due to increased sales activities in wealth management and commercial banking. Increased incentivemortgage-backed securities trading activity. Deferred compensation was partiallyincreased $11.6 million. This is largely offset by a decreasean increase in regular compensationthe value of $1.2 million and employee benefits of $2.0 million.related investments included in Other gains (losses). Employee benefits expense was down largely due todecreased $3.8 million led by a seasonal decrease in payroll taxes.taxes and retirement plan expenses.
Non-personnel operating expense
Non-personnel operating expense increased $7.6$2.4 million over the third quarter of 2018. CoBiz operating expenses added $7.4 million to the third quarter of 2019. Mortgage banking costs increased $3.2 million due to increased prepayment speeds as mortgage interest rates decline resulting in increased amortization of mortgage servicing rights. Occupancy and equipment expense increased $2.2 million, largely related to the Cobiz acquisition. Insurance expense decreased $2.6 million primarily due to the elimination of a large bank deposit insurance surcharge assessed by the FDIC. Net losses and expenses on repossessed assets decreased $2.3 million due to decreased expenses on certain oil and gas properties and a writedown on a healthcare property in the third quarter of 2018. Professional fees and services decreased $1.2 million largely due to CoBiz acquisition costs in the third quarter of 2018.
Non-personnel expense was relatively consistent compared to the second quarter of 2019. Mortgage banking costs increased $3.4$4.1 million primarily due to an increase in amortizationadditional accruals related to default servicing and loss mitigation costs on loans serviced for others. Occupancy and equipment expenses increased $3.8 million, largely due to the impairment of mortgage servicing rights as lower interest rates drive an increase in prepayment speeds. In addition, datatwo leases where assumptions regarding subleasing changed due to deteriorating economic conditions. Data processing and communications expense increased $2.2$3.2 million, and net losses and expensesprimarily due to technology project costs. A $3.0 million charitable contribution was also made to the BOKF Foundation in the second quarter of repossessed assets increased $1.1 million.
Insurance expense decreased $2.22020. These increases were partially offset by a decrease of $8.2 million other expense decreased $1.9 million, andin business promotion expense, primarily related to a combination of decreased $1.3 million, all followingtravel and entertainment expense due to the pandemic and decreased advertising costs. We experienced higher activitythan usual advertising costs in the second quarter of 2019 largely related toas we worked on brand recognition advertising in our Arizona and Colorado markets following the CoBiz acquisition.
Non-personnel expense increased $6.7 million compared to the first quarter of 2020. Mortgage banking costs increased $5.1 million. Accruals related to default servicing and loss mitigation costs on loans serviced for others increased $2.8 million due to changes in our portfolio and loan counts, delinquency levels, and additional accruals related to losses on loans in forbearance. Increased amortization of mortgage servicing rights from actual prepayments also added $1.7 million to mortgage banking costs during the second quarter of 2020. Occupancy and equipment expense increased $4.6 million as impairment charges were incurred on two leases. These increases were partially offset by a decrease of $4.3 million in business promotion costs, largely related to reduced travel and entertainment expenses. Income Taxes
The effective tax rate was 18.619.7 percent for the third quarter of 2019, 22.8 percent for the third quarter of 2018 and 21.4 percent second quarter of 2019. Income tax expense decreased $5.2 million compared to2020, 21.4 percent for the second quarter of 2019 primarily due toand 21.8 percent for the completionfirst quarter of 20182020. The effective tax filings andrate decreased for the second quarter of 2020 as a result of a decrease in forecasted net income before tax credit projects.for 2020.
Lines of Business
We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial Banking includes lending, treasury and cash management services and customer risk management products for small businesses, middle market and larger commercial customers. Commercial Banking also includes the TransFund EFT network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small business customers served through our consumer branch network and all mortgage banking activities. Wealth Management provides fiduciary services, private banking services, insurance and investment advisory services in all markets. Wealth Management also underwrites state and municipal securities and engages in brokerage and trading activities.
In addition to our lines of business, we have a Funds Management unit. The primary purpose of this unit is to manage our overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the Funds Management unit as needed to support their operations. Operating results for Funds Management and other include the effect of interest rate risk positions and risk management activities, securities gains and losses including impairment charges, the provision for credit losses in excess of net loans charged off, tax planning strategies and certain executive compensation costs that are not attributed to the lines of business.
The operations of CoBiz were allocated to the operating segments in the second quarter of 2019. Prior to April 1, 2019, CoBiz operations were 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 $19.6decreased $1.9 million or 16 percent overcompared to the thirdsecond quarter of 2018.2019. Net interest revenue grewdecreased by $38.7$52.9 million overcompared to the prior year, primarily due to decreases in the CoBiz acquisition combined with growthshort-term interest rate related to a 225 basis point reduction in average loan balances.the federal funds rate by the Federal Reserve since the middle of 2019. Other operating revenue increased by $21.3$45.3 million led by our brokerage and operatingtrading and mortgage banking businesses. Operating expense increased by $28.2$11.9 million compared to the thirdsecond quarter of 2018.2019, largely due to increased incentive compensation related to trading activities.
Net interest revenue decreased $3.0 million compared to the first quarter of 2020 as we started to see some of the effects of recent rate cuts by the Federal Reserve. Other operating revenue increased $30.6 million. Continued low mortgage interest rates drove increases in mortgage banking revenue of $16.7 million and brokerage and trading revenue of $12.5 million. Other operating expense increased $8.7 million, largely driven by increased incentive compensation related to trading activities. Net income attributed to Funds Management and other in the third quarter was positively affected by the increaseprovision for expected credit losses in our available-for-sale securities portfolioexcess of net charge-offs of $121.2 million in the second quarter of 2020 and $76.6 million in the impactfirst quarter of lower interest rates on the transfer pricing of funds provided by the operating segments.
Table 8 -- Net Income by Line of Business
(In thousands)
| | | | | Three Months Ended
September 30, | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, 2019 | | Increase (Decrease) | | % Increase (Decrease) | | | Three Months Ended June 30, | | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended
Mar. 31, 2020 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2019 | | 2018 | | | | 2020 | | 2019 | | | | | | | | | | |
| Commercial Banking | | $ | 101,573 |
| | $ | 84,964 |
| | $ | 16,609 |
| | 20 | % | | $ | 106,936 |
| | $ | (5,363 | ) | | (5 | )% | Commercial Banking | | $ | 80,992 | | | $ | 106,280 | | | $ | (25,288) | | | (24) | % | | $ | 74,975 | | | $ | 6,017 | | | 8 | % |
| Consumer Banking | | 16,640 |
| | 8,015 |
| | 8,625 |
| | 108 | % | | 16,342 |
| | 298 |
| | 2 | % | Consumer Banking | | 31,900 | | | 16,342 | | | 15,558 | | | 95 | % | | 22,921 | | | 8,979 | | | 39 | % |
| Wealth Management | | 23,206 |
| | 28,866 |
| | (5,660 | ) | | (20 | )% | | 25,544 |
| | (2,338 | ) | | (9 | )% | Wealth Management | | 33,394 | | | 25,544 | | | 7,850 | | | 31 | % | | 22,573 | | | 10,821 | | | 48 | % |
| Subtotal | | 141,419 |
| | 121,845 |
| | 19,574 |
| | 16 | % | | 148,822 |
| | (7,403 | ) | | (5 | )% | Subtotal | | 146,286 | | | 148,166 | | | (1,880) | | | (1) | % | | 120,469 | | | 25,817 | | | 21 | % |
| Funds Management and other | | 812 |
| | (4,589 | ) | | 5,401 |
| | N/A |
| | (11,259 | ) | | 12,071 |
| | N/A |
| Funds Management and other | | (81,593) | | | (10,603) | | | (70,990) | | | N/A | | (58,390) | | | (23,203) | | | N/A |
| Total | | $ | 142,231 |
| | $ | 117,256 |
| | $ | 24,975 |
| | 21 | % | | $ | 137,563 |
| | $ | 4,668 |
| | 3 | % | Total | | $ | 64,693 | | | $ | 137,563 | | | $ | (72,870) | | | (53) | % | | $ | 62,079 | | | $ | 2,614 | | | 4 | % |
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 $101.6$81.0 million to consolidated net income in the thirdsecond quarter of 2019, an increase2020, a decrease of $16.6$25.3 million or 2024 percent overcompared to the thirdsecond quarter of 2018. Growth in net interest revenue and fees and commissions revenue was partially offset by increased operating expense.
Table 9 -- Commercial Banking
(Dollars in thousands)
| | | | | Three Months Ended
September 30, | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, 2019 | | Increase (Decrease) | | % Increase (Decrease) | | | Three Months Ended June 30, | | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended
Mar. 31, 2020 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2019 | | 2018 | | | | 2020 | | 2019 | | | | | | | | | | |
| Net interest revenue from external sources | | $ | 243,944 |
| | $ | 187,417 |
| | $ | 56,527 |
| | 30 | % | | $ | 251,084 |
| | $ | (7,140 | ) | | (3 | )% | Net interest revenue from external sources | | $ | 174,314 | | | $ | 251,084 | | | $ | (76,770) | | | (31) | % | | $ | 201,902 | | | $ | (27,588) | | | (14) | % |
| Net interest expense from internal sources | | (63,797 | ) | | (42,270 | ) | | (21,527 | ) | | 51 | % | | (65,470 | ) | | 1,673 |
| | (3 | )% | Net interest expense from internal sources | | (29,205) | | | (66,613) | | | 37,408 | | | (56) | % | | (50,495) | | | 21,290 | | | (42) | % |
| Total net interest revenue | | 180,147 |
| | 145,147 |
| | 35,000 |
| | 24 | % | | 185,614 |
| | (5,467 | ) | | (3 | )% | Total net interest revenue | | 145,109 | | | 184,471 | | | (39,362) | | | (21) | % | | 151,407 | | | (6,298) | | | (4) | % |
| Net loans charged off | | 9,505 |
| | 8,047 |
| | 1,458 |
| | 18 | % | | 6,823 |
| | 2,682 |
| | 39 | % | Net loans charged off | | 13,762 | | | 6,823 | | | 6,939 | | | 102 | % | | 16,880 | | | (3,118) | | | (18) | % |
| Net interest revenue after net loans charged off | | 170,642 |
| | 137,100 |
| | 33,542 |
| | 24 | % | | 178,791 |
| | (8,149 | ) | | (5 | )% | Net interest revenue after net loans charged off | | 131,347 | | | 177,648 | | | (46,301) | | | (26) | % | | 134,527 | | | (3,180) | | | (2) | % |
| | | | | | | | | | | | | | | | |
| Fees and commissions revenue | | 46,159 |
| | 39,391 |
| | 6,768 |
| | 17 | % | | 41,105 |
| | 5,054 |
| | 12 | % | Fees and commissions revenue | | 46,515 | | | 41,105 | | | 5,410 | | | 13 | % | | 41,459 | | | 5,056 | | | 12 | % |
| Other gains, net | | 2,673 |
| | 1,131 |
| | 1,542 |
| | N/A |
| | 506 |
| | 2,167 |
| | N/A |
| |
| Other gains (losses), net | | Other gains (losses), net | | 1,383 | | | 506 | | | 877 | | | N/A | | (3,239) | | | 4,622 | | | N/A |
| Other operating revenue | | 48,832 |
| | 40,522 |
| | 8,310 |
| | 21 | % | | 41,611 |
| | 7,221 |
| | 17 | % | Other operating revenue | | 47,898 | | | 41,611 | | | 6,287 | | | 15 | % | | 38,220 | | | 9,678 | | | 25 | % |
| | | | | | | | | | | | | | | | |
| Personnel expense | | 43,705 |
| | 31,263 |
| | 12,442 |
| | 40 | % | | 42,268 |
| | 1,437 |
| | 3 | % | Personnel expense | | 39,873 | | | 42,620 | | | (2,747) | | | (6) | % | | 37,020 | | | 2,853 | | | 8 | % |
| Non-personnel expense | | 24,980 |
| | 19,776 |
| | 5,204 |
| | 26 | % | | 20,679 |
| | 4,301 |
| | 21 | % | Non-personnel expense | | 23,060 | | | 20,795 | | | 2,265 | | | 11 | % | | 23,732 | | | (672) | | | (3) | % |
| Other operating expense | | 68,685 |
| | 51,039 |
| | 17,646 |
| | 35 | % | | 62,947 |
| | 5,738 |
| | 9 | % | Other operating expense | | 62,933 | | | 63,415 | | | (482) | | | (1) | % | | 60,752 | | | 2,181 | | | 4 | % |
| | | | | | | | | | | | | | | | |
| Net direct contribution | | 150,789 |
| | 126,583 |
| | 24,206 |
| | 19 | % | | 157,455 |
| | (6,666 | ) | | (4 | )% | Net direct contribution | | 116,312 | | | 155,844 | | | (39,532) | | | (25) | % | | 111,995 | | | 4,317 | | | 4 | % |
| Gain (loss) on financial instruments, net | | 28 |
| | (3 | ) | | 31 |
| | N/A |
| | 20 |
| | 8 |
| | N/A |
| |
| Gain (loss) on repossessed assets, net | | 802 |
| | (1,869 | ) | | 2,671 |
| | N/A |
| | 2 |
| | 800 |
| | N/A |
| |
| Gain on financial instruments, net | | Gain on financial instruments, net | | 48 | | | 20 | | | 28 | | | N/A | | 49 | | | (1) | | | N/A |
| Gain on repossessed assets, net | | Gain on repossessed assets, net | | 191 | | | — | | | 191 | | | N/A | | 9 | | | 182 | | | N/A |
| Corporate expense allocations | | 12,613 |
| | 9,124 |
| | 3,489 |
| | 38 | % | | 11,385 |
| | 1,228 |
| | 11 | % | Corporate expense allocations | | 5,437 | | | 10,652 | | | (5,215) | | | (49) | % | | 8,905 | | | (3,468) | | | (39) | % |
| Income before taxes | | 139,006 |
| | 115,587 |
| | 23,419 |
| | 20 | % | | 146,092 |
| | (7,086 | ) | | (5 | )% | Income before taxes | | 111,114 | | | 145,212 | | | (34,098) | | | (23) | % | | 103,148 | | | 7,966 | | | 8 | % |
| Federal and state income tax | | 37,433 |
| | 30,623 |
| | 6,810 |
| | 22 | % | | 39,156 |
| | (1,723 | ) | | (4 | )% | Federal and state income tax | | 30,122 | | | 38,932 | | | (8,810) | | | (23) | % | | 28,173 | | | 1,949 | | | 7 | % |
| Net income | | $ | 101,573 |
| | $ | 84,964 |
| | $ | 16,609 |
| | 20 | % | | $ | 106,936 |
| | $ | (5,363 | ) | | (5 | )% | Net income | | $ | 80,992 | | | $ | 106,280 | | | $ | (25,288) | | | (24) | % | | $ | 74,975 | | | $ | 6,017 | | | 8 | % |
| | | | | | | | | | | | | | | | |
| Average assets | | $ | 23,973,067 |
| | $ | 18,499,979 |
| | $ | 5,473,088 |
| | 30 | % | | $ | 22,910,071 |
| | $ | 1,062,996 |
| | 5 | % | Average assets | | $ | 27,575,652 | | | $ | 22,910,724 | | | $ | 4,664,928 | | | 20 | % | | $ | 24,687,976 | | | $ | 2,887,676 | | | 12 | % |
| Average loans | | 19,226,347 |
| | 15,321,600 |
| | 3,904,747 |
| | 25 | % | | 18,812,800 |
| | 413,547 |
| | 2 | % | Average loans | | 19,262,827 | | | 18,812,800 | | | 450,027 | | | 2 | % | | 18,812,015 | | | 450,812 | | | 2 | % |
| Average deposits | | 10,833,057 |
| | 8,633,204 |
| | 2,199,853 |
| | 25 | % | | 10,724,206 |
| | 108,851 |
| | 1 | % | Average deposits | | 14,599,225 | | | 10,724,206 | | | 3,875,019 | | | 36 | % | | 11,907,386 | | | 2,691,839 | | | 23 | % |
| Average invested capital | | 2,217,828 |
| | 1,382,983 |
| | 834,845 |
| | 60 | % | | 2,222,032 |
| | (4,204 | ) | | — | % | Average invested capital | | 2,230,707 | | | 2,222,032 | | | 8,675 | | | — | % | | 2,188,242 | | | 42,465 | | | 2 | % |
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 $35.0decreased $39.4 million or 24 percent overcompared to the prior year, primarilysecond quarter of 2019. Net interest revenue decreased due to a combination of compressed loan spreads and lower deposit related net interest revenue as the allocationvalue of CoBiz to the business lines and an increase in average originated loan balances, split almost equally, along with increased yields. Yields on deposits sold to the funds management unit also went up due to the increase in short-termwas impacted by falling interest rates. Net loans charged-off increased $1.5$6.9 million.
Fees and commissions revenue increased $6.8$5.4 million or 1713 percent largely due to an increase in loan syndication fees based oncustomer energy hedging revenue as customers increased hedges due to the timingvolatile price environment. Operating expenses were relatively consistent with the second quarter of completed transactions. Operating2019. Corporate expense increased $17.6allocations decreased $5.2 million or 3549 percent compared to the third quarter of 2018. Personnel expense increased $12.4 million primarily due to the incorporation of CoBiz employees combined with standard annual merit increases. Non-personnel expense increased $5.2 million, primarily due to increased intangible asset amortization related to CoBiz. Corporate expense allocations increased $3.5 million or 38 percent over the prior year.
The average outstanding balance of loans attributed to Commercial Banking was up $3.9 billion$450 million or 252 percent over the thirdsecond quarter of 20182019 to $19.2$19.3 billion. See the Loans section of Management’s Discussion and Analysis of Financial Condition following for additional discussion of changes in commercial and commercial real estate loans, which are primarily attributed to the Commercial Banking segment.
Average deposits attributed to Commercial Banking were $10.8$14.6 billion for the thirdsecond quarter of 2020, a $3.9 billion or 36 percent increase over the second quarter of 2019, a 25 percent increase comparedlargely related to the third quarterinflow of 2018.deposits from the CARES Act and other government stimulus initiatives along with core customer growth. See Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital for further discussion of change.
Net interest revenue decreased $5.5$6.3 million or 34 percent compared to the secondfirst quarter of 20192020 largely as a result ofdue to a decrease in interest recoveries pairedloan spreads combined with a changedecline in the deposit mixvalue of deposits, as short term rates fell, from non-interest bearingthe Funds Management unit compared to interest bearing.the prior quarter. Fees and commissions revenue increased $5.1 million, largely due toled by an increase in loan syndication fees based oncustomer energy hedging revenue of $4.4 million. Other gains (losses), net also increased over the timingfirst quarter of completed transactions and an increase in revenue earned on repossessed assets2020, primarily related to certain oil and gas properties.an impairment charge recognized on an energy fund in the first quarter. Operating expense increased $5.7$2.2 million or 94 percent overcompared to the secondfirst quarter of 20192020, primarily due to a $1.4 million increase in personnel expense largely due to incentive compensation. Non-personnel expense increased $4.3 million largely due to expenses related to repossessed assets on certain oil and gas properties mentioned above.compensation costs.
Average loan balances increased $414$451 million or 2 percent and average customer deposits increased $109 million$2.7 billion or 123 percent over the secondfirst quarter of 2019.2020.
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. 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 our traditional mortgage origination channel.
Consumer Banking contributed $16.6$31.9 million to consolidated net income for the thirdsecond quarter of 2019,2020, an increase of $8.6$15.6 million over the thirdsecond quarter of 2018.2019. Improved performance by Consumer Banking was largely due to the effect of lower mortgage interest rates, which has increased mortgage banking activity and related revenue.
Table 10 -- Consumer Banking
(Dollars in thousands)
| | | | | Three Months Ended
September 30, | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, 2019 | | Increase (Decrease) | | % Increase (Decrease) | | | Three Months Ended June 30, | | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended
Mar. 31, 2020 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2019 | | 2018 | | | | 2020 | | 2019 | | | | | | | | | | |
| Net interest revenue from external sources | | $ | 27,580 |
| | $ | 20,005 |
| | $ | 7,575 |
| | 38 | % | | $ | 25,300 |
| | $ | 2,280 |
| | 9 | % | Net interest revenue from external sources | | $ | 18,795 | | | $ | 25,300 | | | $ | (6,505) | | | (26) | % | | $ | 25,876 | | | $ | (7,081) | | | (27) | % |
| Net interest revenue from internal sources | | 20,882 |
| | 19,039 |
| | 1,843 |
| | 10 | % | | 27,415 |
| | (6,533 | ) | | (24 | )% | Net interest revenue from internal sources | | 20,475 | | | 27,415 | | | (6,940) | | | (25) | % | | 18,056 | | | 2,419 | | | 13 | % |
| Total net interest revenue | | 48,462 |
| | 39,044 |
| | 9,418 |
| | 24 | % | | 52,715 |
| | (4,253 | ) | | (8 | )% | Total net interest revenue | | 39,270 | | | 52,715 | | | (13,445) | | | (26) | % | | 43,932 | | | (4,662) | | | (11) | % |
| Net loans charged off | | 1,841 |
| | 1,451 |
| | 390 |
| | 27 | % | | 1,728 |
| | 113 |
| | 7 | % | Net loans charged off | | 535 | | | 1,728 | | | (1,193) | | | (69) | % | | 1,256 | | | (721) | | | (57) | % |
| Net interest revenue after net loans charged off | | 46,621 |
| | 37,593 |
| | 9,028 |
| | 24 | % | | 50,987 |
| | (4,366 | ) | | (9 | )% | Net interest revenue after net loans charged off | | 38,735 | | | 50,987 | | | (12,252) | | | (24) | % | | 42,676 | | | (3,941) | | | (9) | % |
| | | | | | | | | | | | | | | | |
| Fees and commissions revenue | | 51,460 |
| | 44,039 |
| | 7,421 |
| | 17 | % | | 48,830 |
| | 2,630 |
| | 5 | % | Fees and commissions revenue | | 67,192 | | | 48,830 | | | 18,362 | | | 38 | % | | 55,062 | | | 12,130 | | | 22 | % |
| Other losses, net | | (239 | ) | | (15 | ) | | (224 | ) | | N/A |
| | (19 | ) | | (220 | ) | | N/A |
| Other losses, net | | — | | | (19) | | | 19 | | | N/A | | — | | | — | | | N/A |
| Other operating revenue | | 51,221 |
| | 44,024 |
| | 7,197 |
| | 16 | % | | 48,811 |
| | 2,410 |
| | 5 | % | Other operating revenue | | 67,192 | | | 48,811 | | | 18,381 | | | 38 | % | | 55,062 | | | 12,130 | | | 22 | % |
| | | | | | | | | | | | | | | | |
| Personnel expense | | 23,665 |
| | 23,543 |
| | 122 |
| | 1 | % | | 24,377 |
| | (712 | ) | | (3 | )% | Personnel expense | | 23,821 | | | 24,377 | | | (556) | | | (2) | % | | 23,620 | | | 201 | | | 1 | % |
| Non-personnel expense | | 36,034 |
| | 34,939 |
| | 1,095 |
| | 3 | % | | 33,317 |
| | 2,717 |
| | 8 | % | Non-personnel expense | | 35,115 | | | 33,317 | | | 1,798 | | | 5 | % | | 31,173 | | | 3,942 | | | 13 | % |
| Total other operating expense | | 59,699 |
| | 58,482 |
| | 1,217 |
| | 2 | % | | 57,694 |
| | 2,005 |
| | 3 | % | Total other operating expense | | 58,936 | | | 57,694 | | | 1,242 | | | 2 | % | | 54,793 | | | 4,143 | | | 8 | % |
| | | | | | | | | | | | | | | | |
| Net direct contribution | | 38,143 |
| | 23,135 |
| | 15,008 |
| | 65 | % | | 42,104 |
| | (3,961 | ) | | (9 | )% | Net direct contribution | | 46,991 | | | 42,104 | | | 4,887 | | | 12 | % | | 42,945 | | | 4,046 | | | 9 | % |
| Gain (loss) on financial instruments, net | | 8,339 |
| | (7,229 | ) | | 15,568 |
| | N/A |
| | 20,981 |
| | (12,642 | ) | | N/A |
| |
| Gain on financial instruments, net | | Gain on financial instruments, net | | 7,356 | | | 20,981 | | | (13,625) | | | N/A | | 86,764 | | | (79,408) | | | N/A |
| Change in fair value of mortgage servicing rights | | (12,593 | ) | | 5,972 |
| | (18,565 | ) | | N/A |
| | (29,555 | ) | | 16,962 |
| | N/A |
| Change in fair value of mortgage servicing rights | | (761) | | | (29,555) | | | 28,794 | | | N/A | | (88,480) | | | 87,719 | | | N/A |
| Gain (loss) on repossessed assets, net | | 214 |
| | (87 | ) | | 301 |
| | N/A |
| | 92 |
| | 122 |
| | N/A |
| |
| Gain on repossessed assets, net | | Gain on repossessed assets, net | | 27 | | | 92 | | | (65) | | | N/A | | 13 | | | 14 | | | N/A |
| Corporate expense allocations | | 11,776 |
| | 11,037 |
| | 739 |
| | 7 | % | | 11,695 |
| | 81 |
| | 1 | % | Corporate expense allocations | | 10,812 | | | 11,695 | | | (883) | | | (8) | % | | 10,487 | | | 325 | | | 3 | % |
| Income before taxes | | 22,327 |
| | 10,754 |
| | 11,573 |
| | 108 | % | | 21,927 |
| | 400 |
| | 2 | % | Income before taxes | | 42,801 | | | 21,927 | | | 20,874 | | | 95 | % | | 30,755 | | | 12,046 | | | 39 | % |
| Federal and state income tax | | 5,687 |
| | 2,739 |
| | 2,948 |
| | 108 | % | | 5,585 |
| | 102 |
| | 2 | % | Federal and state income tax | | 10,901 | | | 5,585 | | | 5,316 | | | 95 | % | | 7,834 | | | 3,067 | | | 39 | % |
| Net income | | $ | 16,640 |
| | $ | 8,015 |
| | $ | 8,625 |
| | 108 | % | | $ | 16,342 |
| | $ | 298 |
| | 2 | % | Net income | | $ | 31,900 | | | $ | 16,342 | | | $ | 15,558 | | | 95 | % | | $ | 22,921 | | | $ | 8,979 | | | 39 | % |
| | | | | | | | | | | | | | | | |
| Average assets | | $ | 9,827,130 |
| | $ | 8,323,543 |
| | $ | 1,503,587 |
| | 18 | % | | $ | 9,212,667 |
| | $ | 614,463 |
| | 7 | % | Average assets | | $ | 9,920,005 | | | $ | 9,212,667 | | | $ | 707,338 | | | 8 | % | | $ | 9,850,853 | | | $ | 69,152 | | | 1 | % |
| Average loans | | 1,773,831 |
| | 1,719,679 |
| | 54,152 |
| | 3 | % | | 1,796,823 |
| | (22,992 | ) | | (1 | )% | Average loans | | 1,679,164 | | | 1,796,823 | | | (117,659) | | | (7) | % | | 1,711,703 | | | (32,539) | | | (2) | % |
| Average deposits | | 6,983,018 |
| | 6,580,395 |
| | 402,623 |
| | 6 | % | | 6,998,677 |
| | (15,659 | ) | | — | % | Average deposits | | 7,587,246 | | | 6,998,677 | | | 588,569 | | | 8 | % | | 6,869,481 | | | 717,765 | | | 10 | % |
| Average invested capital | | 288,216 |
| | 285,521 |
| | 2,695 |
| | 1 | % | | 304,990 |
| | (16,774 | ) | | (5 | )% | Average invested capital | | 258,558 | | | 304,990 | | | (46,432) | | | (15) | % | | 274,384 | | | (15,826) | | | (6) | % |
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 grewdeclined by $9.4$13.4 million or 2426 percent overcompared to the the thirdsecond quarter of 2018,2019, primarily due to an increasea decrease in the yield on deposits sold to our Funds Management unit. Average consumer deposits grew $403$589 million over the thirdsecond quarter of 20182019 with demand deposit balances increasing $330$398 million or 17 percent, largely due18 percent. Deposit growth was related to the allocation of acquired deposits.CARES Act funding and government stimulus payments in addition to core growth.
Fees and commissions revenue increased $7.4$18.4 million or 1738 percent over the thirdsecond quarter of 2018.2019. Lower mortgage interest rates increased mortgage loan origination volumes.volumes, particularly refinance volumes, which jumped to 71 percent of originations in the second quarter of 2020. Mortgage production volume increased $315$262 million or 5332 percent and gain on sale margin increased 30219 basis points.points due to industry-wide capacity constraints. Deposit service charges decreased $6.3 million, primarily due to reduced activity as a result of "shelter in place" initiatives as well as waived fees as a result of the pandemic. Operating expense increased by $1.2 million. An increase in mortgagemillion or 2 percent. Mortgage banking costs increased $4.0 million, largely related to accruals related to default servicing and loss mitigation costs on loans serviced for others. This was partiallylargely offset by decreasesa decrease in occupancy and equipmentbusiness promotion expense and professional fees and services.of 2.7 million, primarily due to rebranding efforts in the second quarter of 2019 following the CoBiz acquisition. Corporate expense allocations were $739$883 thousand or 78 percent higherlower than the prior year.
Changes in the fair value of mortgage servicing rights, net of economic hedges, decreasedincreased pre-tax net income for the thirdsecond quarter of 20192020 by $4.3$6.6 million compared to a $1.3an $8.6 million decrease in pre-tax net income in the thirdsecond quarter of 2018.2019. The completion of a sale of mortgage servicing rights on $1.6 billion of unpaid principal balance, primarily related to loans guaranteed by the Veteran's Administration, was a large contributor. The fair value of contracts held as an economic hedge increased while the fair value of the servicing rights was largely unchanged. Interest rate movements between the date the transaction price was established and the closing date of the sale produced positive results.
Net interest revenue from Consumer Banking activities decreased $4.3$4.7 million or 811 percent compared to the secondfirst quarter of 2019, primarily due to an decrease in the yield on deposits sold to our Funds Management unit.
2020. Operating revenue increased $2.4$12.1 million or 522 percent compared toover the secondfirst quarter of 2019.2020. Revenues from mortgage banking activities increased $2.0 million due to lower interest rates that drove an increase in mortgage origination.$16.7 million. Mortgage production volume increased $102$25 million or 132 percent and gainas a result of lower interest rates. Gain on sale margins climbed to 1.513.65 percent from 1.462.06 percent. Deposit service charge revenue decreased $3.9 million compared to the first quarter of 2020. We proactively waived certain fees in the second quarter to help customers throughout the uncertain time caused by the pandemic.
Operating expenses increased $2.0$4.1 million, nearly alllargely related to non-personnel expenses. Mortgage banking costs increased $3.4 millionhigher amortization of mortgage servicing rights and accruals related to increased payoffs as mortgage interest rates declined during the quarter. This increase was partially offset by a decrease in business promotion expensedefault servicing and personnel expense.loss mitigation costs on loans serviced for others.
Average consumer loans decreased $23$33 million or 12 percent. Average deposits were consistent comparedincreased $718 million or 10 percent, primarily due to funding related to the prior quarter.CARES Act as well as core growth.
Wealth Management
Wealth Management contributed $23.2$33.4 million to consolidated net income in the thirdsecond quarter of 2019, down $5.72020, an increase of $7.9 million or 2031 percent compared to the thirdsecond quarter of 2018. The third quarter of 2018 included an after tax benefit of $11.5 million as a result of a fee earned on the sale of client assets. This fee is excluded2019. Increased fees and commissions revenue, primarily from the discussion below.
Table 11 -- Wealth Management
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended
Mar. 31, 2020 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2020 | | 2019 | | | | | | | | | | |
| Net interest revenue from external sources | | $ | 34,359 | | | $ | 17,222 | | | $ | 17,137 | | | 100 | % | | $ | 14,366 | | | $ | 19,993 | | | 139 | % |
| Net interest revenue from internal sources | | (7,479) | | | 9,719 | | | (17,198) | | | (177) | % | | 4,538 | | | (12,017) | | | (265) | % |
| Total net interest revenue | | 26,880 | | | 26,941 | | | (61) | | | — | % | | 18,904 | | | 7,976 | | | 42 | % |
| Net loans charged off (recovered) | | (89) | | | (48) | | | (41) | | | 85 | % | | (48) | | | (41) | | | 85 | % |
| Net interest revenue after net loans charged off (recovered) | | 26,969 | | | 26,989 | | | (20) | | | — | % | | 18,952 | | | 8,017 | | | 42 | % |
| | | | | | | | | | | | | | |
| Fees and commissions revenue | | 106,757 | | | 85,925 | | | 20,832 | | | 24 | % | | 97,881 | | | 8,876 | | | 9 | % |
| Other gains (losses), net | | (83) | | | 92 | | | (175) | | | N/A | | — | | | (83) | | | N/A |
| Other operating revenue | | 106,674 | | | 86,017 | | | 20,657 | | | 24 | % | | 97,881 | | | 8,793 | | | 9 | % |
| | | | | | | | | | | | | | |
| Personnel expense | | 61,909 | | | 50,080 | | | 11,829 | | | 24 | % | | 56,443 | | | 5,466 | | | 10 | % |
| Non-personnel expense | | 18,658 | | | 19,372 | | | (714) | | | (4) | % | | 21,749 | | | (3,091) | | | (14) | % |
| Other operating expense | | 80,567 | | | 69,452 | | | 11,115 | | | 16 | % | | 78,192 | | | 2,375 | | | 3 | % |
| | | | | | | | | | | | | | |
| Net direct contribution | | 53,076 | | | 43,554 | | | 9,522 | | | 22 | % | | 38,641 | | | 14,435 | | | 37 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Corporate expense allocations | | 8,204 | | | 9,168 | | | (964) | | | (11) | % | | 8,265 | | | (61) | | | (1) | % |
| Income before taxes | | 44,872 | | | 34,386 | | | 10,486 | | | 30 | % | | 30,383 | | | 14,489 | | | 48 | % |
| Federal and state income tax | | 11,478 | | | 8,842 | | | 2,636 | | | 30 | % | | 7,810 | | | 3,668 | | | 47 | % |
| Net income | | $ | 33,394 | | | $ | 25,544 | | | $ | 7,850 | | | 31 | % | | $ | 22,573 | | | $ | 10,821 | | | 48 | % |
| | | | | | | | | | | | | | |
| Average assets | | $ | 15,721,452 | | | $ | 9,849,396 | | | $ | 5,872,056 | | | 60 | % | | $ | 12,723,412 | | | $ | 2,998,040 | | | 24 | % |
| Average loans | | 1,709,363 | | | 1,647,680 | | | 61,683 | | | 4 | % | | 1,705,735 | | | 3,628 | | | — | % |
| Average deposits | | 8,385,681 | | | 6,220,848 | | | 2,164,833 | | | 35 | % | | 7,623,986 | | | 761,695 | | | 10 | % |
| Average invested capital | | 295,245 | | | 274,050 | | | 21,195 | | | 8 | % | | 288,264 | | | 6,981 | | | 2 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Increase (Decrease) | | % Increase (Decrease) | | Three Months Ended June 30, 2019 | | Increase (Decrease) | | % Increase (Decrease) |
| | | 2019 | | 2018 | | | | | |
| Net interest revenue from external sources | | $ | 12,343 |
| | $ | 22,509 |
| | $ | (10,166 | ) | | (45 | )% | | $ | 17,222 |
| | $ | (4,879 | ) | | (28 | )% |
| Net interest revenue from internal sources | | 10,723 |
| | 6,267 |
| | 4,456 |
| | 71 | % | | 9,719 |
| | 1,004 |
| | 10 | % |
| Total net interest revenue | | 23,066 |
| | 28,776 |
| | (5,710 | ) | | (20 | )% | | 26,941 |
| | (3,875 | ) | | (14 | )% |
| Net loans charged off (recovered) | | (42 | ) | | (84 | ) | | 42 |
| | (50 | )% | | (48 | ) | | 6 |
| | (13 | )% |
| Net interest revenue after net loans charged off (recovered) | | 23,108 |
| | 28,860 |
| | (5,752 | ) | | (20 | )% | | 26,989 |
| | (3,881 | ) | | (14 | )% |
| | | | | | | | | | | | | | | |
| Fees and commissions revenue | | 89,422 |
| | 83,562 |
| | 5,860 |
| | 7 | % | | 85,925 |
| | 3,497 |
| | 4 | % |
| Other gains (losses), net | | (262 | ) | | (205 | ) | | (57 | ) | | N/A |
| | 92 |
| | (354 | ) | | N/A |
|
| Other operating revenue | | 89,160 |
| | 83,357 |
| | 5,803 |
| | 7 | % | | 86,017 |
| | 3,143 |
| | 4 | % |
| | | | | | | | | | | | | | | |
| Personnel expense | | 52,316 |
| | 45,572 |
| | 6,744 |
| | 15 | % | | 50,080 |
| | 2,236 |
| | 4 | % |
| Non-personnel expense | | 19,303 |
| | 16,684 |
| | 2,619 |
| | 16 | % | | 19,372 |
| | (69 | ) | | — | % |
| Other operating expense | | 71,619 |
| | 62,256 |
| | 9,363 |
| | 15 | % | | 69,452 |
| | 2,167 |
| | 3 | % |
| | | | | | | | | | | | | | | |
| Net direct contribution | | 40,649 |
| | 49,961 |
| | (9,312 | ) | | (19 | )% | | 43,554 |
| | (2,905 | ) | | (7 | )% |
| Corporate expense allocations | | 9,416 |
| | 11,127 |
| | (1,711 | ) | | (15 | )% | | 9,168 |
| | 248 |
| | 3 | % |
| Income before taxes | | 31,233 |
| | 38,841 |
| | (7,608 | ) | | (20 | )% | | 34,386 |
| | (3,153 | ) | | (9 | )% |
| Federal and state income tax | | 8,027 |
| | 9,975 |
| | (1,948 | ) | | (20 | )% | | 8,842 |
| | (815 | ) | | (9 | )% |
| Net income | | $ | 23,206 |
| | $ | 28,866 |
| | $ | (5,660 | ) | | (20 | )% | | $ | 25,544 |
| | $ | (2,338 | ) | | (9 | )% |
| | | | | | | | | | | | | | | |
| Average assets | | $ | 10,392,988 |
| | $ | 8,498,363 |
| | $ | 1,894,625 |
| | 22 | % | | $ | 9,849,396 |
| | $ | 543,592 |
| | 6 | % |
| Average loans | | 1,671,102 |
| | 1,439,774 |
| | 231,328 |
| | 16 | % | | 1,647,680 |
| | 23,422 |
| | 1 | % |
| Average deposits | | 6,590,332 |
| | 5,492,048 |
| | 1,098,284 |
| | 20 | % | | 6,220,848 |
| | 369,484 |
| | 6 | % |
| Average invested capital | | 279,782 |
| | 252,961 |
| | 26,821 |
| | 11 | % | | 274,050 |
| | 5,732 |
| | 2 | % |
Net interest revenue decreased $5.7 million or 20 percent comparedwas relatively consistent with the thirdsecond quarter of 2018, largely due to decreased spreads on trading securities. Further, Wealth Management incurred additional funding costs2019. Increased net interest revenue related to an increasegrowth in non-interest bearing receivables relatedtrading activity was offset by a reduction in the value of deposits sold to unsettled securities.the Funds Management unit. Average loans attributed to the Wealth Management segment increased $231$62 million or 16 percent and average4 percent. Average deposits increased $1.1$2.2 billion or 2035 percent, largely due to the allocation of acquired loans and deposits.core growth.
Fees and commissions revenue increased $21.3$20.8 million or 3124 percent over the thirdsecond quarter of 2018.2019. Brokerage and trading revenue increased $17.3$20.7 million due to increased trading activity as a result of lower mortgage interest rates. We increased our bond trading pipeline in the second quarter of 2020 to provide greater liquidity to the housing market during a time of record volumes. Average trading assets, which includes trading securities inventory and receivables from unsettled securities sales, were $6.3 billion for the second quarter of 2020 compared to $3.1 billion for the second quarter of 2019. Fiduciary and asset management revenue decreased $3.8 million related to a combination of lower average asset values and waived fees. Operating expense increased $9.4 million or 15 percent compared to the third quarter of 2018. Personnel expense increased $6.7 million primarily due to the combination of standard annual merit increases and the increase of incentive compensation as a result of higher trading activity. Non-personnel expense increased $2.6$11.1 million or 16 percent compared to the thirdsecond quarter of 2018 largely2019, primarily related to occupancy and equipmentincentive
compensation expense related to CoBiz.on higher trading activity. Corporate expense allocations decreased $1.7 million$964 thousand or 1511 percent compared to the prior year.
Net income for Wealth Management decreased $2.3increased $10.8 million or 948 percent compared to the secondfirst quarter of 2019. An increase in brokerage and trading revenue was partially offset by a decrease in net interest revenue and an increase in operating expenses.2020.
Net interest revenue decreased $3.9increased $8.0 million primarily due to a lower yield onhigher net interest revenue related to residential mortgage-backed trading activities and increased deposit balances, partially offset by the decline in the value of deposits sold to our funds management unit and an increase in unsettled securities receivables.the Funds Management unit. Brokerage and trading revenue increased $3.0$8.9 million due to an increase in trading activity and volumes due to favorable interest rate changes. Fiduciary and asset management revenue decreased $1.4market volatility. Operating expenses increased $2.4 million, largely due to a seasonal increasevariable incentive compensation related to tax fees collected in the second quarter. Operating expenses increased $2.2 million, largely due to increased incentive compensation.revenue growth, partially offset by lower business promotion expense.
Average loans increased $23 million or 1 percent tomaintained at $1.7 billion and average deposits increased $369$762 million or 610 percent to $6.6$8.4 billion.
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 SeptemberJune 30, 20192020 and December 31, 2018.2019.
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 decreased $225$914 million to $1.7$1.2 billion during the thirdsecond quarter of 2019.2020. As discussed in the Market Risk section of this report, trading activities involve risk of loss from adverse price movement. We mitigate this risk within board-approved limits through the use of derivative contracts, short-sales and other techniques. These limits remain relatively unchanged from levels set before our expanded trading activities.
At SeptemberJune 30, 2019,2020, the carrying value of investment (held-to-maturity) securities was $304$268 million, and theincluding a $1.6 million allowance for expected credit losses compared to $274 million at March 31, 2020 with a $1.5 million allowance for expected credit losses. The fair value of investment securities was $324 million.$299 million at June 30, 2020 and $296 million at March 31, 2020. Investment securities consist primarily of residential mortgage-backed securities issued by U.S. government agencies, long-term, fixed rate Oklahoma and Texas municipal bonds, and taxable Texas school construction bonds.
Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes, are recorded as accumulated other comprehensive income in shareholders’ equity. The amortized cost of available for sale securities totaled $10.8$12.0 billion at SeptemberJune 30, 2019,2020, a $464$270 million increasedecrease compared to March 31, 2020. At June 30, 2019 as a measure to protect for a down rate environment. At September 30, 2019,2020, 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 SeptemberJune 30, 20192020 is 3.02.4 years. Management estimates the duration extends to 4.03.7 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 2.42.1 years assuming a 100 basis point decline in the current low rate environment.
The aggregate gross amount of unrealized losses on available for sale securities totaled $14 million at September 30, 2019, compared to $19 million at June 30, 2019. 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 third quarter of 2019.
Loans
The aggregate loan portfolio before allowance for loan losses totaled $22.3$24.2 billion at September 30, 2019, up $30 million over June 30, 2019. Growth in commercial and personal2020, up $1.7 billion over March 31, 2020, primarily due to a $2.1 billion increase from PPP loans, was partially offset by a decreasepaydowns in the commercial real estate and residential mortgage loans.
Table 12 -- Loans
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Commercial: | | | | | | | | | | |
| Energy | | $ | 3,974,174 | | | $ | 4,111,676 | | | $ | 3,973,377 | | | $ | 4,114,269 | | | $ | 3,921,353 | |
| Services | | 3,779,881 | | | 3,955,748 | | | 3,832,031 | | | 4,011,089 | | | 4,105,117 | |
| Healthcare | | 3,289,343 | | | 3,165,096 | | | 3,033,916 | | | 3,032,968 | | | 2,926,510 | |
| General business | | 3,115,112 | | | 3,563,455 | | | 3,192,326 | | | 3,266,299 | | | 3,383,928 | |
| Total commercial | | 14,158,510 | | | 14,795,975 | | | 14,031,650 | | | 14,424,625 | | | 14,336,908 | |
| | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | |
| Multifamily | | 1,407,107 | | | 1,282,457 | | | 1,265,562 | | | 1,324,839 | | | 1,300,372 | |
| Office | | 973,995 | | | 962,004 | | | 928,379 | | | 1,014,275 | | | 1,056,306 | |
| Retail | | 780,467 | | | 774,198 | | | 775,521 | | | 799,169 | | | 825,399 | |
| Industrial | | 723,005 | | | 728,026 | | | 856,117 | | | 873,536 | | | 828,569 | |
| Residential construction and land development | | 136,911 | | | 138,958 | | | 150,879 | | | 135,361 | | | 141,509 | |
| Other commercial real estate | | 532,659 | | | 564,442 | | | 457,325 | | | 478,877 | | | 557,878 | |
| Total commercial real estate | | 4,554,144 | | | 4,450,085 | | | 4,433,783 | | | 4,626,057 | | | 4,710,033 | |
| | | | | | | | | | |
| Paycheck protection program | | 2,081,428 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | |
| Loans to individuals: | | | | | | | | | | |
| Residential mortgage | | 1,813,442 | | | 1,844,555 | | | 1,886,378 | | | 1,925,539 | | | 1,975,449 | |
| Residential mortgage guaranteed by U.S. government agencies | | 322,269 | | | 197,889 | | | 197,794 | | | 191,764 | | | 195,373 | |
| Personal | | 1,226,097 | | | 1,175,466 | | | 1,201,382 | | | 1,117,382 | | | 1,037,889 | |
| Total loans to individuals | | 3,361,808 | | | 3,217,910 | | | 3,285,554 | | | 3,234,685 | | | 3,208,711 | |
| | | | | | | | | | |
| Total | | $ | 24,155,890 | | | $ | 22,463,970 | | | $ | 21,750,987 | | | $ | 22,285,367 | | | $ | 22,255,652 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Commercial: | | | | | | | | | | |
| Energy | | $ | 4,114,269 |
| | $ | 3,921,353 |
| | $ | 3,705,099 |
| | $ | 3,590,333 |
| | $ | 3,294,867 |
|
| Services | | 3,266,249 |
| | 3,309,458 |
| | 3,287,563 |
| | 3,258,192 |
| | 2,603,862 |
|
| Healthcare | | 3,032,968 |
| | 2,926,510 |
| | 2,915,885 |
| | 2,799,277 |
| | 2,437,323 |
|
| Wholesale/retail | | 1,848,617 |
| | 1,793,118 |
| | 1,706,900 |
| | 1,621,158 |
| | 1,650,729 |
|
| Public finance | | 744,840 |
| | 795,659 |
| | 803,083 |
| | 804,550 |
| | 418,578 |
|
| Manufacturing | | 698,408 |
| | 761,357 |
| | 742,374 |
| | 730,521 |
| | 660,582 |
|
| Other commercial and industrial | | 719,274 |
| | 829,453 |
| | 801,071 |
| | 832,047 |
| | 510,160 |
|
| Total commercial | | 14,424,625 |
| | 14,336,908 |
| | 13,961,975 |
| | 13,636,078 |
| | 11,576,101 |
|
| | | | | | | | | | | |
| Commercial real estate: | | |
| | |
| | |
| | |
| | |
|
| Multifamily | | 1,324,839 |
| | 1,300,372 |
| | 1,210,358 |
| | 1,288,065 |
| | 1,120,166 |
|
| Office | | 1,014,275 |
| | 1,056,306 |
| | 1,033,158 |
| | 1,072,920 |
| | 824,829 |
|
| Industrial | | 873,536 |
| | 828,569 |
| | 767,757 |
| | 778,106 |
| | 696,774 |
|
| Retail | | 799,169 |
| | 825,399 |
| | 890,685 |
| | 919,082 |
| | 759,423 |
|
| Residential construction and land development | | 135,361 |
| | 141,509 |
| | 149,686 |
| | 148,584 |
| | 101,872 |
|
| Other commercial real estate | | 478,877 |
| | 557,878 |
| | 549,007 |
| | 558,056 |
| | 301,611 |
|
| Total commercial real estate | | 4,626,057 |
| | 4,710,033 |
| | 4,600,651 |
| | 4,764,813 |
| | 3,804,675 |
|
| | | | | | | | | | | |
| Residential mortgage: | | |
| | |
| | |
| | |
| | |
|
| Permanent mortgage | | 1,066,460 |
| | 1,088,370 |
| | 1,098,481 |
| | 1,122,610 |
| | 1,094,926 |
|
| Permanent mortgages guaranteed by U.S. government agencies | | 191,764 |
| | 195,373 |
| | 193,308 |
| | 190,866 |
| | 180,718 |
|
| Home equity | | 859,079 |
| | 887,079 |
| | 900,831 |
| | 916,557 |
| | 696,098 |
|
| Total residential mortgage | | 2,117,303 |
| | 2,170,822 |
| | 2,192,620 |
| | 2,230,033 |
| | 1,971,742 |
|
| | | | | | | | | | | |
| Personal | | 1,117,382 |
| | 1,037,889 |
| | 1,003,734 |
| | 1,025,806 |
| | 996,941 |
|
| | | | | | | | | | | |
| Total | | $ | 22,285,367 |
| | $ | 22,255,652 |
| | $ | 21,758,980 |
| | $ | 21,656,730 |
| | $ | 18,349,459 |
|
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. CommercialThese loans are underwritten individually and represent ongoing relationships based on a thorough knowledge of the customer, the customer’s industry and market. While commercial loans are generally secured by the customer’s assets including real property, inventory, accounts receivable, operating equipment, interests in mineral rights and other property and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the ongoing cash flow from operations of the customer’s business. In addition, revolving lines of credit are generally governed by a borrowing base. Inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with commercial lending policies.
Commercial loans totaled $14.4$14.2 billion or 6559 percent of the loan portfolio at September 30, 2019, an $88 million increase over June 30, 2019. Energy loan balances grew by $193 million. Healthcare2020, a $637 million decrease compared to March 31, 2020, primarily due to paydowns in the second quarter.
Approximately 79 percent of loans increased $106 million and wholesale/retail sector loans increased $55 million. Other commercial and industrial loans decreased $110 million, manufacturing loans decreased $63 million and public finance loans decreased by $51 million.
Table 13 presents the commercial sector ofin this segment are located within our loan portfolio distributed primarily bygeographic footprint, based on collateral location. Loans for which the collateral location is less relevant, such as unsecured loans and reserve-based energy loans are distributedcategorized by the borrower's primary operating location.
Table 13 -- Commercial Loans by Collateral Location
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Oklahoma | | Texas | | New Mexico | | Arkansas | | Colorado | | Arizona | | Kansas/Missouri | | Other | | Total |
| Energy | | $ | 751,519 |
| | $ | 2,322,908 |
| | $ | 57,593 |
| | $ | 122 |
| | $ | 519,377 |
| | $ | 542 |
| | $ | 105,908 |
| | $ | 356,300 |
| | $ | 4,114,269 |
|
| Services | | 658,970 |
| | 758,554 |
| | 164,103 |
| | 8,564 |
| | 591,793 |
| | 475,357 |
| | 259,999 |
| | 348,909 |
| | 3,266,249 |
|
| Healthcare | | 239,676 |
| | 436,571 |
| | 148,217 |
| | 77,861 |
| | 336,865 |
| | 259,439 |
| | 255,925 |
| | 1,278,414 |
| | 3,032,968 |
|
| Wholesale/retail | | 315,869 |
| | 726,422 |
| | 35,523 |
| | 31,778 |
| | 168,007 |
| | 107,826 |
| | 60,447 |
| | 402,745 |
| | 1,848,617 |
|
| Public finance | | 73,038 |
| | 162,869 |
| | 37,240 |
| | — |
| | 184,005 |
| | 87,319 |
| | — |
| | 200,369 |
| | 744,840 |
|
| Manufacturing | | 106,422 |
| | 180,837 |
| | 990 |
| | 5,055 |
| | 160,769 |
| | 123,256 |
| | 52,522 |
| | 68,557 |
| | 698,408 |
|
| Other commercial and industrial | | 115,567 |
| | 115,144 |
| | 3,174 |
| | 56,466 |
| | 115,776 |
| | 37,674 |
| | 57,881 |
| | 217,592 |
| | 719,274 |
|
| Total commercial loans | | $ | 2,261,061 |
| | $ | 4,703,305 |
| | $ | 446,840 |
| | $ | 179,846 |
| | $ | 2,076,592 |
| | $ | 1,091,413 |
| | $ | 792,682 |
| | $ | 2,872,886 |
| | $ | 14,424,625 |
|
The majoritylargest concentration of the collateral securingloans in this segment outside of our commercial loan portfoliofootprint is located within our geographical footprint with 33 percent concentrated in the Texas market, 16 percent concentrated in the Oklahoma market and 14 percent in the Colorado market. At September 30, 2019, the Other category is primarily composed of California, - $578 million ortotaling 4 percent of the commercial loan portfolio, Florida - $261 million or 2 percent of the commercial loan portfolio, Louisiana - $163 million or 1 percent of the commercial loan portfolio, Pennsylvania - $159 million or 1 percent of the commercial loan portfolio, Ohio - $154 million or 1 percent of the commercial loan portfolio and North Carolina - $141 million or 1 percent of the commercial loan portfolio. All other states individually represent less than one percent of total commercial loans.segment.
Supporting the energy industry with loans to producers and other energy-related entities has been a hallmark of the Company since its founding and represents a large portion of our commercial loan portfolio. In addition, energy production and related industries have a significant impact on the economy in our primary markets. Loans collateralized by oil and gas properties are subject to a semi-annual engineering review by our internal staff of petroleum engineers. This review is utilizedused 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 $4.1$4.0 billion or 1816 percent of total loans at SeptemberJune 30, 2019. Unfunded energy loan commitments were $3.2 billion at September 30, 2019,2020, a $44$138 million decrease compared to June 30, 2019 primarily due to increased utilization in the third quarter.March 31, 2020. Approximately $3.3$3.1 billion of energy loans were to oil and gas producers, growing $165down $105 million over June 30, 2019.compared to March 31, 2020. 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 5862 percent of the committed production loans are secured by properties primarily producing oil and 4238 percent of the committed production loans are secured by properties primarily producing natural gas.
Loans to midstream oil and gas companies totaled $574$688 million at SeptemberJune 30, 2019,2020, up $4.9$17 million over June 30, 2019.March 31, 2020. Loans to borrowers that provide services to the energy industry totaled $190$142 million at SeptemberJune 30, 2019, an increase of $7.12020, down $42 million. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $69$63 million, a $16$7.3 million increase overdecrease compared to the prior quarter.
Unfunded energy loan commitments were $2.5 billion at June 30, 2020, a $222 million decrease compared to March 31, 2020 primarily due to semi-annual borrowing base redeterminations completed during the second quarter.
The serviceshealthcare sector of the loan portfolio totaled $3.3 billion or 1514 percent of total loans. Healthcare loans increased $124 million over March 31, 2020, primarily due to growth in balances from medical service providers. Healthcare sector loans consist primarily of loans for the development and consistsoperation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Generally we loan to borrowers with a portfolio of multiple facilities that serves to help diversify risks specific to a single facility. Healthcare also includes loans to hospitals and other medical service providers impacted by a deferral of elective procedures. The CARES Act includes multiple revenue enhancement measures for both hospitals and skilled nursing facilities as they manage through the risks of the virus.
The services sector of the loan portfolio decreased $176 million to $3.8 billion or 16 percent of total loans. Service sector loans consist of a large number of loans to a variety of businesses, including Native American tribal and state and local governments, entertainmentNative American tribal casino operations, educational services, foundations and recreation, financial services, technologynot-for-profit organizations and media, and real estate services. Services sector loans decreased $43 million compared to June 30, 2019.specialty trade contractors. Approximately $1.6$1.9 billion of the services category is made up of loans with individual balances of less than $10 million. Services sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s business.
The healthcare sector of the loan portfolio totaled $3.0General business loans decreased $448 million to $3.1 billion or 1413 percent of total loans. General business loans and consists primarilyconsist of $1.7 billion of wholesale/retail loans, $780 million of loans forfrom other commercial industries, and the developmentremainder from manufacturing loans.
Our services and operationgeneral business loans include areas we consider to be more exposed to the economic slowdown as a result of senior housingthe social distancing measures in place to combat the COVID-19 pandemic such as entertainment and care facilities, including independent living, assisted livingrecreation, retail, hotels, churches, airline travel, and skilled nursing. Healthcare also includes loanshigher education that are dependent on large social gatherings to hospitals and other medical service providers.remain profitable. This represents less than 7 percent of our total portfolio. Some of these borrowers have participated in the PPP, which has provided some measure of relief. We will continue to monitor these areas closely in the coming months.
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 SeptemberJune 30, 2019,2020, the outstanding principal balance of these loans totaled $4.8 billion.$4.7 billion, including $2.2 billion of energy loans. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 1721 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. Our larger concentrations are in Texas, Colorado and Oklahoma representing 24 percent, 11 percent and 11 percent of the total commercial real estate portfolio at September 30, 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 September 30, 2019. The outstanding balance of commercial real estate loans decreased $84 million compared to June 30, 2019. Loans secured by industrial properties increased $45 million. Loans secured by multifamily residential properties increased $24 million. Other real estate loans decreased $79 million. Loans secured by office buildings decreased $42 million and loans secured by retail properties decreased $26 million. The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 19 percent to 22 percent over the past five years.
The outstanding balance of commercial real estate sectorloans increased $104 million over March 31, 2020. Multifamily residential loans, our largest exposure in commercial real estate, increased $125 million to $1.4 billion at June 30, 2020. Pay downs from refinances into the permanent market slowed during the second quarter. Loans secured by office buildings increased $12 million to $974 million. Loans secured by other commercial real estate properties decreased $32 million to $533 million. Loans secured by retail facilities were $780 million at June 30, 2020, largely unchanged from the prior quarter.
Approximately 71 percent of loans in this segment are in our loan portfolio distributed bygeographic footprint based on collateral location followslocation. The largest concentration of loans 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 | | $ | 162,666 |
| | $ | 394,684 |
| | $ | 25,380 |
| | $ | 52,240 |
| | $ | 73,430 |
| | $ | 168,366 |
| | $ | 198,761 |
| | $ | 249,312 |
| | $ | 1,324,839 |
|
| Office | | 124,991 |
| | 208,216 |
| | 102,960 |
| | 19,612 |
| | 88,703 |
| | 77,374 |
| | 52,204 |
| | 340,215 |
| | 1,014,275 |
|
| Industrial | | 102,854 |
| | 216,462 |
| | 19,430 |
| | 81 |
| | 77,952 |
| | 36,662 |
| | 39,285 |
| | 380,810 |
| | 873,536 |
|
| Retail | | 53,155 |
| | 251,683 |
| | 146,256 |
| | 5,310 |
| | 103,654 |
| | 55,399 |
| | 13,862 |
| | 169,850 |
| | 799,169 |
|
| Residential construction and land development | | 6,880 |
| | 20,108 |
| | 12,903 |
| | 157 |
| | 52,220 |
| | 9,012 |
| | 7,002 |
| | 27,079 |
| | 135,361 |
|
| Other commercial real estate | | 47,856 |
| | 38,947 |
| | 9,550 |
| | 1,988 |
| | 123,759 |
| | 71,214 |
| | 51,439 |
| | 134,124 |
| | 478,877 |
|
| Total commercial real estate loans | | $ | 498,402 |
| | $ | 1,130,100 |
| | $ | 316,479 |
| | $ | 79,388 |
| | $ | 519,718 |
| | $ | 418,027 |
| | $ | 362,553 |
| | $ | 1,301,390 |
| | $ | 4,626,057 |
|
The Other categorythis segment outside our footprint is primarily composed of Utah, - $265 million or 6totaling 7 percent of the commercial real estate portfolio,segment, followed by California - $247 million or 5 percent of the commercial real estate portfolio, Georgia - $116 million or 3 percent of the commercial real estate portfolio, Nevada - $99 million or 2 percent of the commercial real estate portfolio and Virginia - $84 million or 2 percent of the commercial real estate portfolio.at 6 percent. All other states represent less than 2%5 percent individually.
While recentLoans secured by retail facilities and office buildings may be adversely impacted by measures being taken to hinder the spread of the virus as well as changes nationally in consumer purchasing trends from brick-and-mortar storesbehavior.
Payment Protection Program
We are actively participating in programs initiated by the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), including the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") that began on April 3, 2020. PPP provided fully forgivable loans when utilized for qualified expenditures, including to online has created concern with regardshelp small business maintain payrolls during the COVID-19 pandemic. These loans have a contractual term of two years, though most are expected to retail lending, our credit quality remains very good.be forgiven prior to maturity after completion of a compliance period. Loans are guaranteed and amounts forgiven will be reimbursed to the Company by the SBA. The portfolioloans carry a rate of 1 percent. Interest plus loan fees, which vary depending on loan size, are accrued over the contractual life of the loan. Any unaccreted origination fees will be recognized when the loan is highly diversified with no material exposurepaid.
Loans to a single borrower or tenant.Individuals
Residential Mortgage
Loans to individuals include residential mortgage and Personal
personal loans. Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. Residential mortgageThese loans are secured by a first or second-mortgagesecond mortgage on the customer’scustomer'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 personalThese 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 $2.1 billion, a decrease of $54 million compared to June 30, 2019. 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. CollateralHome equity loans are primarily first-lien and fully amortizing.
Residential mortgage, which includes home equity loans, and personal loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.
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 93%the purchase of our residential mortgage loan portfolio isautomobiles, recreational and marine equipment as well as unsecured loans.
Approximately 93 percent of the loans in this segment are secured by collateral located within our geographical footprint. Loans for which the collateral location is less relevant, such as unsecured loans are categorized by the borrower’s primary operating location.
The majority of our permanent mortgage loan portfolio is composed of various non-conforming mortgage programs to support customer relationships including jumboResidential 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 September 30, 2019, $192 million of permanent residential mortgage loans are guaranteed by U.S. government agencies. Weagencies have limited credit exposure on loans guaranteed bybecause of the agencies.agency guarantee. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet. Permanent residential mortgage loans guaranteed by U.S. government agencies decreased $3.6 million compared to June 30, 2019.
Home equity loans totaled $859 million at September 30, 2019, a $28 million decrease compared to June 30, 2019. 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 September 30, 2019 by lien position and amortizing status follows in Table 15.
Table 15 -- Home Equity Loans
(In thousands)
|
| | | | | | | | | | | | |
| | | Revolving | | Amortizing | | Total |
| First lien | | $ | 91,591 |
| | $ | 463,681 |
| | $ | 555,272 |
|
| Junior lien | | 193,195 |
| | 110,612 |
| | 303,807 |
|
| Total home equity | | $ | 284,786 |
| | $ | 574,293 |
| | $ | 859,079 |
|
The distribution of residential mortgage and personal loans at September 30, 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 | | $ | 163,590 |
| | $ | 423,298 |
| | $ | 62,563 |
| | $ | 13,100 |
| | $ | 194,677 |
| | $ | 104,603 |
| | $ | 55,998 |
| | $ | 48,631 |
| | $ | 1,066,460 |
|
| Permanent mortgages guaranteed by U.S. government agencies | | 49,434 |
| | 29,960 |
| | 30,655 |
| | 9,307 |
| | 5,305 |
| | 1,115 |
| | 15,868 |
| | 50,120 |
| | 191,764 |
|
| Home equity | | 353,310 |
| | 137,625 |
| | 76,564 |
| | 7,485 |
| | 137,024 |
| | 36,847 |
| | 52,291 |
| | 57,933 |
| | 859,079 |
|
| Total residential mortgage | | $ | 566,334 |
| | $ | 590,883 |
| | $ | 169,782 |
| | $ | 29,892 |
| | $ | 337,006 |
| | $ | 142,565 |
| | $ | 124,157 |
| | $ | 156,684 |
| | $ | 2,117,303 |
|
| | | | | | | | | | | | | | | | | | | |
| Personal | | $ | 321,875 |
| | $ | 491,363 |
| | $ | 11,948 |
| | $ | 11,048 |
| | $ | 81,496 |
| | $ | 70,531 |
| | $ | 54,136 |
| | $ | 74,985 |
| | $ | 1,117,382 |
|
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 --13-- Loans Managed by Primary Geographical Market
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Texas: | | | | | | | | | | |
| Commercial | | $ | 5,771,691 | | | $ | 6,350,690 | | | $ | 6,174,894 | | | $ | 6,220,227 | | | $ | 5,877,265 | |
| Commercial real estate | | 1,389,547 | | | 1,296,266 | | | 1,259,117 | | | 1,292,116 | | | 1,341,609 | |
| Paycheck protection program | | 612,133 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 748,474 | | | 756,634 | | | 727,175 | | | 749,361 | | | 673,463 | |
| Total Texas | | 8,521,845 | | | 8,403,590 | | | 8,161,186 | | | 8,261,704 | | | 7,892,337 | |
| | | | | | | | | | |
| Oklahoma: | | | | | | | | | | |
| Commercial | | 5,086,934 | | | 3,886,086 | | | 3,454,825 | | | 3,690,100 | | | 3,762,234 | |
| Commercial real estate | | 636,021 | | | 593,473 | | | 631,026 | | | 679,786 | | | 717,970 | |
| Paycheck protection program | | 442,518 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 1,967,665 | | | 1,788,518 | | | 1,854,864 | | | 1,753,698 | | | 1,786,162 | |
| Total Oklahoma | | 8,133,138 | | | 6,268,077 | | | 5,940,715 | | | 6,123,584 | | | 6,266,366 | |
| | | | | | | | | | |
| Colorado: | | | | | | | | | | |
| Commercial | | 1,600,382 | | | 2,181,309 | | | 2,169,598 | | | 2,247,798 | | | 2,325,742 | |
| Commercial real estate | | 937,742 | | | 955,608 | | | 927,826 | | | 975,066 | | | 1,023,410 | |
| Paycheck protection program | | 488,279 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 264,872 | | | 268,674 | | | 276,939 | | | 303,605 | | | 314,317 | |
| Total Colorado | | 3,291,275 | | | 3,405,591 | | | 3,374,363 | | | 3,526,469 | | | 3,663,469 | |
| | | | | | | | | | |
| Arizona: | | | | | | | | | | |
| Commercial | | 1,036,862 | | | 1,396,582 | | | 1,307,073 | | | 1,276,534 | | | 1,330,415 | |
| Commercial real estate | | 689,121 | | | 714,161 | | | 728,832 | | | 771,425 | | | 761,243 | |
| Paycheck protection program | | 318,961 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 177,066 | | | 181,821 | | | 186,539 | | | 170,815 | | | 168,019 | |
| Total Arizona | | 2,222,010 | | | 2,292,564 | | | 2,222,444 | | | 2,218,774 | | | 2,259,677 | |
| | | | | | | | | | |
| Kansas/Missouri: | | | | | | | | | | |
| Commercial | | 404,860 | | | 556,255 | | | 527,872 | | | 566,969 | | | 602,836 | |
| Commercial real estate | | 314,504 | | | 310,799 | | | 322,541 | | | 374,795 | | | 331,443 | |
| Paycheck protection program | | 76,724 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 102,577 | | | 116,734 | | | 131,069 | | | 146,522 | | | 155,453 | |
| Total Kansas/Missouri | | 898,665 | | | 983,788 | | | 981,482 | | | 1,088,286 | | | 1,089,732 | |
| | | | | | | | | | |
| New Mexico: | | | | | | | | | | |
| Commercial | | 182,688 | | | 327,164 | | | 305,320 | | | 335,409 | | | 350,520 | |
| Commercial real estate | | 455,574 | | | 434,150 | | | 402,148 | | | 374,331 | | | 385,058 | |
| Paycheck protection program | | 128,058 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 83,470 | | | 87,110 | | | 90,257 | | | 92,270 | | | 92,626 | |
| Total New Mexico | | 849,790 | | | 848,424 | | | 797,725 | | | 802,010 | | | 828,204 | |
| | | | | | | | | | |
| Arkansas: | | | | | | | | | | |
| Commercial | | 75,093 | | | 97,889 | | | 92,068 | | | 87,588 | | | 87,896 | |
| Commercial real estate | | 131,635 | | | 145,628 | | | 162,293 | | | 158,538 | | | 149,300 | |
| Paycheck protection program | | 14,755 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 17,684 | | | 18,419 | | | 18,711 | | | 18,414 | | | 18,671 | |
| Total Arkansas | | 239,167 | | | 261,936 | | | 273,072 | | | 264,540 | | | 255,867 | |
| | | | | | | | | | |
| Total BOK Financial loans | | $ | 24,155,890 | | | $ | 22,463,970 | | | $ | 21,750,987 | | | $ | 22,285,367 | | | $ | 22,255,652 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Oklahoma: | | | | | | | | | | |
| Commercial | | $ | 3,690,100 |
| | $ | 3,762,234 |
| | $ | 3,551,054 |
| | $ | 3,491,117 |
| | $ | 3,609,109 |
|
| Commercial real estate | | 679,786 |
| | 717,970 |
| | 665,190 |
| | 700,756 |
| | 651,315 |
|
| Residential mortgage | | 1,370,452 |
| | 1,403,398 |
| | 1,417,381 |
| | 1,440,566 |
| | 1,429,843 |
|
| Personal | | 383,246 |
| | 382,764 |
| | 374,807 |
| | 375,543 |
| | 376,201 |
|
| Total Oklahoma | | 6,123,584 |
| | 6,266,366 |
| | 6,008,432 |
| | 6,007,982 |
| | 6,066,468 |
|
| | | | | | | | | | | |
| Texas: | | |
| | |
| | |
| | |
| | |
|
| Commercial | | 6,220,227 |
| | 5,877,265 |
| | 5,754,018 |
| | 5,438,133 |
| | 5,115,646 |
|
| Commercial real estate | | 1,292,116 |
| | 1,341,609 |
| | 1,344,810 |
| | 1,341,783 |
| | 1,354,679 |
|
| Residential mortgage | | 273,931 |
| | 272,878 |
| | 265,927 |
| | 266,805 |
| | 253,265 |
|
| Personal | | 475,430 |
| | 400,585 |
| | 396,794 |
| | 394,743 |
| | 381,452 |
|
| Total Texas | | 8,261,704 |
| | 7,892,337 |
| | 7,761,549 |
| | 7,441,464 |
| | 7,105,042 |
|
| | | | | | | | | | | |
| New Mexico: | | |
| | |
| | |
| | |
| | |
|
| Commercial | | 335,409 |
| | 350,520 |
| | 342,915 |
| | 340,489 |
| | 325,048 |
|
| Commercial real estate | | 374,331 |
| | 385,058 |
| | 371,416 |
| | 383,670 |
| | 392,494 |
|
| Residential mortgage | | 81,383 |
| | 82,390 |
| | 85,326 |
| | 87,346 |
| | 88,110 |
|
| Personal | | 10,887 |
| | 10,236 |
| | 11,065 |
| | 10,662 |
| | 11,659 |
|
| Total New Mexico | | 802,010 |
| | 828,204 |
| | 810,722 |
| | 822,167 |
| | 817,311 |
|
| | | | | | | | | | | |
| Arkansas: | | |
| | |
| | |
| | |
| | |
|
| Commercial | | 87,588 |
| | 87,896 |
| | 79,286 |
| | 111,338 |
| | 102,237 |
|
| Commercial real estate | | 158,538 |
| | 149,300 |
| | 142,551 |
| | 141,898 |
| | 106,701 |
|
| Residential mortgage | | 7,509 |
| | 7,463 |
| | 7,731 |
| | 7,537 |
| | 7,278 |
|
| Personal | | 10,905 |
| | 11,208 |
| | 11,550 |
| | 11,955 |
| | 12,126 |
|
| Total Arkansas | | 264,540 |
| | 255,867 |
| | 241,118 |
| | 272,728 |
| | 228,342 |
|
| | | | | | | | | | | |
| Colorado: | | |
| | |
| | |
| | |
| | |
|
| Commercial | | 2,247,798 |
| | 2,325,742 |
| | 2,231,703 |
| | 2,275,069 |
| | 1,132,500 |
|
| Commercial real estate | | 975,066 |
| | 1,023,410 |
| | 957,348 |
| | 963,575 |
| | 354,543 |
|
| Residential mortgage | | 224,872 |
| | 241,780 |
| | 241,722 |
| | 251,849 |
| | 68,694 |
|
| Personal | | 78,733 |
| | 72,537 |
| | 65,812 |
| | 72,916 |
| | 56,999 |
|
| Total Colorado | | 3,526,469 |
| | 3,663,469 |
| | 3,496,585 |
| | 3,563,409 |
| | 1,612,736 |
|
| | | | | | | | | | | |
| Arizona: | | |
| | |
| | |
| | |
| | |
|
| Commercial | | 1,276,534 |
| | 1,330,415 |
| | 1,335,140 |
| | 1,320,139 |
| | 621,658 |
|
| Commercial real estate | | 771,425 |
| | 761,243 |
| | 791,466 |
| | 889,903 |
| | 666,562 |
|
| Residential mortgage | | 92,121 |
| | 91,684 |
| | 98,973 |
| | 97,959 |
| | 44,659 |
|
| Personal | | 78,694 |
| | 76,335 |
| | 61,875 |
| | 68,546 |
| | 67,280 |
|
| Total Arizona | | 2,218,774 |
| | 2,259,677 |
| | 2,287,454 |
| | 2,376,547 |
| | 1,400,159 |
|
| | | | | | | | | | | |
| Kansas/Missouri: | | |
| | |
| | |
| | |
| | |
|
| Commercial | | 566,969 |
| | 602,836 |
| | 667,859 |
| | 659,793 |
| | 669,903 |
|
| Commercial real estate | | 374,795 |
| | 331,443 |
| | 327,870 |
| | 343,228 |
| | 278,381 |
|
| Residential mortgage | | 67,035 |
| | 71,229 |
| | 75,560 |
| | 77,971 |
| | 79,893 |
|
| Personal | | 79,487 |
| | 84,224 |
| | 81,831 |
| | 91,441 |
| | 91,224 |
|
| Total Kansas/Missouri | | 1,088,286 |
| | 1,089,732 |
| | 1,153,120 |
| | 1,172,433 |
| | 1,119,401 |
|
| | | | | | | | | | | |
| Total BOK Financial loans | | $ | 22,285,367 |
| | $ | 22,255,652 |
| | $ | 21,758,980 |
| | $ | 21,656,730 |
| | $ | 18,349,459 |
|
LoanOff-Balance Sheet Commitments
We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 18.14. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
We have off-balance sheet commitments related to certain residential mortgage loans sold into mortgage-backed securities as part of our mortgage banking activities. We retain off-balance sheet credit risk related to losses in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA"). During the second quarter, we sold mortgage servicing rights related to residential mortgage loans primarily guaranteed by the VA with an unpaid principal balance of $1.6 billion.
We also have off-balance sheet credit risk related to certain residential mortgage loans primarily originated under community development loan programs that were sold to a U.S. government agency with full recourse prior to 2007. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. The majority of our conforming fixed rate loan originations are sold in the secondary market and we only retain repurchase obligations under standard underwriting representations and warranties.
The CARES Act provided protections for borrowers with agency-backed residential mortgages that are serviced by the Company. Forbearance must be granted upon receiving a request from a borrower and the borrower's attestation to a financial hardship associated with the COVID-19 emergency. The Bank is required to offer up to a 6 month forbearance, with the possibility of an additional 6 month extension. This program was available to all current and delinquent borrowers, including those in bankruptcy and/or foreclosure. As of June 30, 2020, agency-serviced loans in forbearance included 4,503 borrowers with an unpaid principal balance of $792 million. For certain contracts, we must advance principal and interest payments during the forbearance period. Advances as of June 30, 2020 totaled $6.2 million. Advances are generally reimbursed to us by the appropriate agencies. Loans in forbearance are considered delinquent when payments are not made for purposes of valuing mortgage servicing rights and for purposes of determining GNMA loans that are eligible to be repurchased. As of June 30, 2020, 40% of borrowers in forbearance remained current.
Table 1814 – Off-Balance Sheet Credit Commitments
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Loan commitments | | $ | 10,298,572 | | | $ | 9,960,678 | | | $ | 11,065,649 | | | $ | 11,259,366 | | | $ | 11,411,819 | |
| Standby letters of credit | | 693,177 | | | 683,516 | | | 645,505 | | | 712,944 | | | 698,527 | |
| Unpaid principal balance of residential mortgage loans sold with recourse | | 82,305 | | | 86,336 | | | 88,808 | | | 92,139 | | | 93,606 | |
| Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs | | 1,715,025 | | | 3,217,567 | | | 3,375,451 | | | 3,472,375 | | | 3,568,408 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Loan commitments | | $ | 11,259,366 |
| | $ | 11,411,819 |
| | $ | 12,243,886 |
| | $ | 11,944,524 |
| | $ | 10,715,964 |
|
| Standby letters of credit | | 712,944 |
| | 698,527 |
| | 720,451 |
| | 582,196 |
| | 671,844 |
|
| Mortgage loans sold with recourse | | 92,139 |
| | 93,606 |
| | 94,938 |
| | 98,623 |
| | 101,512 |
|
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 SeptemberJune 30, 2019,2020, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $401$658 million compared to $389$929 million at March 31, 2020. At June 30, 2019. At September 30, 2019,2020, the net fair value of our derivative contracts included $207$282 million for foreign exchange contracts, $124$235 million for energy contracts and $67$140 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 $385 million at September 30, 2019 and $369$620 million at June 30, 2019.2020 and $893 million at March 31, 2020.
At SeptemberJune 30, 2019,2020, total derivative assets were reduced by $67$156 million of cash collateral received from counterparties and total derivative liabilities were reduced by $63$132 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 SeptemberJune 30, 20192020 follows in Table 19.15.
Table 1915 -- Fair Value of Derivative Contracts
(In thousands)
|
| | | | |
| Customers | | $ | 152,530 |
|
| Banks and other financial institutions | | 146,466 |
|
| Exchanges and clearing organizations | | 35,096 |
|
| Fair value of customer risk management program asset derivative contracts, net | | $ | 334,092 |
|
| | | | | | | | |
| Customers | | $ | 292,957 | |
| Banks and other financial institutions | | 162,132 | |
| Exchanges and clearing organizations | | 46,645 | |
| Fair value of customer risk management program asset derivative contracts, net | | $ | 501,734 | |
At SeptemberJune 30, 2019,2020, our largest derivative exposure was to an exchange for energy contracts net of cash margin, of $35$47 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 $28.62$26.16 per barrel of oil would not be great enough to create a scenario in which we are owed by our customers. This is due to the price of oil being within the weighted average fixed price of the portfolio. Rather, we would be owed by the counterparties, however, due to our margining status with counterparties, one would not see any impact here. An increase in prices equivalent to $64.92$53.24 per barrel of oil would increase the fair value of derivative assets by $55 million.$127 million as margin received falls faster than the asset values. Further increases in price to the equivalent of $79.46$70.65 per barrel of oil would increase the fair value of our derivative assets by $268$312 million with lending customers comprising the bulk of the assets. Liquidity requirements of this program may also be affected by our credit rating. At SeptemberJune 30, 2019,2020, a decrease in our credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $10 million. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of SeptemberJune 30, 2019,2020, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
Summary of LoanCredit Loss Experience
Table 16 -- Summary of Credit Loss Experience
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | |
| June 30, 2020 | | Mar. 31, 2020 | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | |
| Beginning balance | $ | 315,311 | | | $ | 210,759 | | | | | | | | | |
CECL transition adjustment1 | — | | | 25,809 | | | | | | | | | |
| Beginning balance, adjusted | 315,311 | | | 236,568 | | | | | | | | | |
| Loans charged off | (15,570) | | | (18,917) | | | | | | | | | |
| Recoveries of loans previously charged off | 1,491 | | | 1,696 | | | | | | | | | |
| Net loans charged off | (14,079) | | | (17,221) | | | | | | | | | |
| Provision for credit losses | 134,365 | | | 95,964 | | | | | | | | | |
| Ending balance | $ | 435,597 | | | $ | 315,311 | | | | | | | | | |
| | | | | | | | | | | |
| Accrual for off-balance sheet credit risk from unfunded loan commitments: | | | | | | | | | | | |
| Beginning balance | $ | 28,514 | | | $ | 1,585 | | | | | | | | | |
| CECL transition adjustment | — | | | 23,552 | | | | | | | | | |
| Beginning balance, adjusted | 28,514 | | | 25,137 | | | | | | | | | |
| Provision for credit losses | 4,405 | | | 3,377 | | | | | | | | | |
| Ending balance | $ | 32,919 | | | $ | 28,514 | | | | | | | | | |
| | | | | | | | | | | |
| Accrual for off-balance sheet credit risk associated with mortgage banking activities: | | | | | | | | | | | |
| Beginning balance | $ | 9,660 | | | $ | 4,820 | | | | | | | | | |
| CECL transition adjustment | — | | | 10,915 | | | | | | | | | |
| Beginning balance, adjusted | 9,660 | | | 15,735 | | | | | | | | | |
| Loans charged off | (44) | | | (55) | | | | | | | | | |
| Provision for credit losses | (3,575) | | | (6,020) | | | | | | | | | |
| Ending balance | $ | 6,041 | | | $ | 9,660 | | | | | | | | | |
| | | | | | | | | | | |
| Allowance for credit losses related to held-to-maturity (investment) securities: | | | | | | | | | | | |
| Beginning balance | $ | 1,502 | | | $ | — | | | | | | | | | |
| CECL transition adjustment | — | | | 1,052 | | | | | | | | | |
| Beginning balance, adjusted | 1,502 | | | 1,052 | | | | | | | | | |
| Provision for credit losses | 126 | | | 450 | | | | | | | | | |
| Ending balance | $ | 1,628 | | | $ | 1,502 | | | | | | | | | |
| | | | | | | | | | | |
| Total provision for credit losses | $ | 135,321 | | | $ | 93,771 | | | | | | | | | |
| Net charge-offs (recoveries) (annualized) to average loans | 0.23 | % | | 0.31 | % | | | | | | | | |
Net charge-offs (recoveries) (annualized) to average loans excluding PPP loans2 | 0.25 | % | | 0.31 | % | | | | | | | | |
| Recoveries to gross charge-offs | 9.58 | % | | 8.97 | % | | | | | | | | |
| Provision for loan losses (annualized) to average loans | 2.25 | % | | 1.71 | % | | | | | | | | |
| Allowance for loan losses to loans outstanding at period-end | 1.80 | % | | 1.40 | % | | | | | | | | |
Allowance for loan losses to loans outstanding at period-end excluding PPP loans2 | 1.97 | % | | 1.40 | % | | | | | | | | |
| Accrual for unfunded loan commitments to loan commitments | 0.32 | % | | 0.29 | % | | | | | | | | |
| Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end | 1.94 | % | | 1.53 | % | | | | | | | | |
Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end excluding PPP loans2 | 2.12 | % | | 1.53 | % | | | | | | | | |
1 Included $1.3 million related to measurement changes to the allowance attributed to outstanding loan balances and $24.5 million related to recognition of expected credit losses on acquired loans.
2 Metric meaningful due to the unique characteristics and short-term nature of the PPP loans.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Allowance for loan losses: | | | | | |
| Beginning balance | $ | 204,432 | | | $ | 202,534 | | | $ | 205,340 | |
| Loans charged off | (14,268) | | | (11,707) | | | (13,227) | |
| Recoveries of loans previously charged off | 1,816 | | | 1,066 | | | 5,503 | |
| Net loans charged off | (12,452) | | | (10,641) | | | (7,724) | |
| Provision for loan losses | 18,779 | | | 12,539 | | | 4,918 | |
| Ending balance | $ | 210,759 | | | $ | 204,432 | | | $ | 202,534 | |
| Accrual for off-balance sheet credit losses: | | | | | |
| Beginning balance | $ | 1,364 | | | $ | 1,903 | | | $ | 1,821 | |
| Provision for off-balance sheet credit losses | 221 | | | (539) | | | 82 | |
| Ending balance | $ | 1,585 | | | $ | 1,364 | | | $ | 1,903 | |
| Total combined provision for credit losses | $ | 19,000 | | | $ | 12,000 | | | $ | 5,000 | |
| Net charge-offs (recoveries) (annualized) to average loans | 0.22 | % | | 0.19 | % | | 0.14 | % |
| Recoveries to gross charge-offs | 12.73 | % | | 9.11 | % | | 41.60 | % |
| Provision for loan losses (annualized) to average loans | 0.34 | % | | 0.21 | % | | 0.09 | % |
| Allowance for loan losses to loans outstanding at period-end | 0.97 | % | | 0.92 | % | | 0.91 | % |
| Accrual for off-balance sheet credit losses to off-balance sheet credit commitments | 0.01 | % | | 0.01 | % | | 0.02 | % |
| Combined allowance for credit losses and off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end | 0.98 | % | | 0.92 | % | | 0.92 | % |
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Unfunded Loan Commitments
The Company adopted FASB Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Assets Measured at Amortized Cost ("CECL") on January 1, 2020 through a pre-tax cumulative-effect adjustment to equity of $61.4 million. CECL requires recognition of expected credit losses on assets carried at amortized cost over their expected lives. The previous incurred loss model incorporated only known information as of the balance sheet date. Prior years reported under the incurred loss model have not been restated. CECL uses models to measure the probability of default and loss given default over a 12-month reasonable and supportable forecast period. Models incorporate base case, downside and upside macroeconomic variables such as real gross domestic product ("GDP") growth, civilian unemployment rate and West Texas Intermediate ("WTI") oil prices on a probability weighted basis. See Note 4 to the consolidated financial statements for additional discussion of methodology of allowance for loan losses.
The provision for credit losses was $135.3 million for the second quarter of 2020, with $138.8 million related to lending activities. Changes in our reasonable and supportable forecasts of macroeconomic variables, primarily due to the anticipated impact of the on-going COVID-19 pandemic, and other assumptions, required a provision of $54.6 million. All other changes totaled $84.2 million, which included $14.4 million primarily due to increased specific impairment of energy loans, portfolio changes of $55.7 million primarily due to changes in risk grades related to energy loans partially offset by the impact of a decrease in loan balances, and net charge-offs of $14.1 million. The provision related to lending activities was decreased by a $3.6 million reduction in the accrual for expected credit losses from mortgage banking activities. During the second quarter, the Company sold certain mortgage servicing rights related to residential mortgage loans transferred to mortgage-backed securities. These servicing rights expose the Company to credit risk for amounts that exceed the U.S. government agency guarantees.
Our reasonable and supportable forecast of macroeconomic variables are significantly influenced by the COVID-19 pandemic developments and related government stimulus policies. A summary of macroeconomic variables considered in developing our estimate of expected credit losses follows:
| | | | | | | | | | | |
| Base | Downside | Upside |
| Scenario probability weighting | 50% | 25% | 25% |
| COVID-19 trajectory | Localized and state-level hotspots with second waves emerging. This leads to more targeted shutdowns; however, widespread shutdown is not enacted. | A broader second wave emerges in the second half of 2020. As cases rise, a widespread shutdown is implemented. | Improves more quickly than currently expected and the severity of the illness abates. Minimal shutdowns occur, even at a more localized level. |
| Economic recovery (driven by COVID-19 trajectory) | Swoosh shaped recovery. A gradual and measured reopening of the economy after a significant second quarter decline. GDP recovering to pre-COVID-19 levels by mid-year 2022. | U-shaped recovery. Pace of recovery is slow. Economic activity and the labor market struggle significantly though improved from April trough. GDP does not recover to pre-COVID-19 levels until late 2023. | V-shaped recovery. A more confident and full reopening of the economy. GDP recovering to pre-COVID-19 levels by mid-year 2021. |
| Fiscal stimulus (driven by economic recovery) | Additional fiscal stimulus of $1.3 trillion to $1.6 trillion is expected to be deployed over the next 6 to 9 months. Stimulus will be more targeted and include a less generous round of unemployment benefits and additional direct payment to individuals, state fiscal aid, and support for specifically impacted business sectors. | Additional broad-based fiscal stimulus of $2.0 trillion to $2.5 trillion is deployed. | Smaller, more-targeted stimulus package of $1.0 trillion to $1.2 trillion is deployed focused on state aid and specific business support. |
| Macro-eocnomic factors | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 is forecasted to contract 2.4 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 gradually improves to 8.5 percent by the second quarter of 2021. –WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of June 2020 and are expected to average $39.58 per barrel over the next 12 months. | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 is forecasted to contract 7.0 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 slowly improves to 10.0 percent by the second quarter of 2021. –WTI oil prices are projected to average $32.90 over the next 12 months. | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 forecasted to grow by 0.7 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 quickly improves to 6.8 percent by the second quarter of 2021. –WTI oil prices are projected to average $42.78 per barrel over the next 12 months. |
The civilian unemployment rate is used in estimating expected credit losses for a number of our portfolios because historically it has been a good indicator of financial difficulty. The upward change in unemployment rates during the first half of 2020 was unprecedented and has been considered within the context of the government’s response through the CARES Act. These enacted economic stimulus programs, which expire in the third quarter of 2020, have increased benefits available and broadened definitions of those eligible for unemployment benefits. As a result, the historical relationship between unemployment rates and credit losses is currently not a reliable indicator of future expected credit losses. Instead, management developed a forecast for civilian unemployment rates then analyzed the effect of enacted economic stimulus. This analysis showed current expected credit losses are likely more similar to unemployment rates 2 to 4 percentage points lower than forecasted rates. We maintainreduced the base case forecasted civilian unemployment rate for the third quarter of 2020 to 8.4 percent, the downside case to 9.7 percent, and the upside case to 7.4 percent.
Management took a similar approach in estimating the impact of possible future government stimulus programs deployed after the third quarter of 2020 for the remainder of the forecast period. Expected credit losses are likely to be more similar to unemployment rates that are 1 percentage point lower than forecasted rates causing management to reduce its estimate of expected credit losses through a qualitative adjustment of $15 million.
The second quarter provision for credit losses was also affected by changes in risk grading. A summary of loans by risk grade is included in Note 4 to the Consolidated Financial Statements. Non-pass grade loans which include other loans especially mentioned, defined by regulatory guidelines as loans that are currently performing in compliance with original terms but may have a potential weakness that deserves management’s close attention, accruing substandard loans, and nonaccruing loans totaled $1.5 billion at June 30, an $816 million increase from March 31. Non-pass graded energy loans totaled $1.1 billion at June 30, a $716 million increase from March 31. The recent oil price decline, coupled with the capital markets environment requiring certain customers to work through their liquidity needs weighed on some energy borrowers. The forward price curve for energy, particularly oil, remained depressed throughout most of the second quarter, but recovered somewhat in June. This risk grade migration was realized as we completed most of our energy borrowing base redeterminations in April and May. Prices have improved since, but do remain fragile and closely tied to the continued economic recovery. Should current price levels hold into our next semi-annual borrowing base redetermination in the fall, we would anticipate positive credit quality migration in this portfolio.
Although fiscal stimulus through PPP, SBA support and other CARES Act programs have had a positive impact on credit quality, we received a number of deferral or forbearance requests early in the second quarter. All requests were evaluated on a case-by-case basis and all loans greater than $1 million that requested forbearance were reviewed for proper grading. We granted $1.2 billion in forbearance requests from customers as of June 30, including $704 million, or 5 percent of commercial loans, primarily in small business and healthcare, $398 million, or 9 percent of commercial real estate loans and $143 million, or 4 percent of loans to individuals. As of mid-July, we are approaching the expiration of the first 90-day deferral period. Upon request, we will consider an additional 90-day deferral. To date, over 60 percent of the loans with payment deferrals are going back to regular payments.
The allowance for loan losses totaled $436 million or 1.80 percent of outstanding loans and 175 percent of nonaccruing loans at June 30, 2020, excluding residential mortgage loans guaranteed by U.S. government agencies. The combined allowance for loan losses and an accrual for off-balance sheet credit risk. At Septemberrisk from unfunded loan commitments was $469 million or 1.94 percent of outstanding loans and 188 percent of nonaccruing loans at June 30, 2019,2020. Excluding PPP loans, the allowance for loan losses was 1.97 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.12 percent.
The allowance for credit losses totaled $206attributed to energy was 4.44 percent of outstanding energy loans at June 30. Our semi-annual borrowing base redeterminations based on forward pricing curves that existed at that time resulted in credit quality migration. While forward prices subsequently improved, the pricing environment remains fragile and tied to the continued economic recovery from the impact of the COVID-19 pandemic. We believe the duration of the downturn is a more significant factor affecting performance than the level of prices.
We also conduct quarterly stress tests of our energy borrowers with more than 50 percent funding on their lines of credit and all non-pass graded loans using a current price deck discounted at 20 percent. This stress test helps us identify potential issues, although the most recent test corroborated the risk grading of energy borrowers evaluated once hedging was taken into consideration. Of all the energy customers that we stress test, which makes up 96 percent of production loans outstanding, 91 percent of our customers have some level of hedging in the 12-month range and many of them carry into the 24-month range.
The company recorded a $93.8 million provision for credit losses in the first quarter of 2020. The allowance for loan losses was $315 million or 0.921.40 percent of outstanding loans and 124199 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. Excluding acquired loans measuredagencies at acquisition date fair value, theMarch 31, 2020. The combined allowance for loan losses was 1.02 percent of outstanding loans and 130 percent of nonaccruing loans. The allowance for loan losses was $204 million and the accrual for off-balance sheet credit losses was $1.4 million. At June 30, 2019, the combined allowance for credit losses was $204 million or 0.92 percent of outstanding loans and 115 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 1.03 percent of outstanding loans and 126 percent of nonaccruing loans. The allowance for loan losses was $203 million and the accrual for off-balance sheet credit losses was $1.9 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 forfrom unfunded 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 againstcommitments was $344 million or 1.53 percent of outstanding commitments. Based on an evaluation of all credit factors, including overall growth in the originated loan portfolio, the trends in nonaccruing loans, potential problem loans and net charge-offs, the Company determined that a $12.0 million provision for credit losses was appropriate for the third quarter of 2019. The Company recorded a $5.0 million provision for credit losses in the second quarter of 2019.
Table 20 -- Summary of Loan Loss Experience
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Allowance for loan losses: | | | | | | | | | | |
| Beginning balance | | $ | 202,534 |
| | $ | 205,340 |
| | $ | 207,457 |
| | $ | 210,569 |
| | $ | 215,142 |
|
| Loans charged off: | | | | | | | | | | |
|
| Commercial | | (9,875 | ) | | (11,385 | ) | | (10,468 | ) | | (12,940 | ) | | (9,602 | ) |
| Commercial real estate | | — |
| | (118 | ) | | — |
| | — |
| | — |
|
| Residential mortgage | | (56 | ) | | (94 | ) | | (42 | ) | | (52 | ) | | (91 | ) |
| Personal | | (1,776 | ) | | (1,630 | ) | | (1,265 | ) | | (1,523 | ) | | (1,380 | ) |
| Total | | (11,707 | ) | | (13,227 | ) | | (11,775 | ) | | (14,515 | ) | | (11,073 | ) |
| Recoveries of loans previously charged off: | | | | | | | | | | |
|
| Commercial | | 260 |
| | 434 |
| | 711 |
| | 1,267 |
| | 1,263 |
|
| Commercial real estate | | 60 |
| | 4,345 |
| | 112 |
| | 232 |
| | 40 |
|
| Residential mortgage | | 119 |
| | 149 |
| | 154 |
| | 71 |
| | 229 |
|
| Personal | | 627 |
| | 575 |
| | 712 |
| | 598 |
| | 560 |
|
| Total | | 1,066 |
| | 5,503 |
| | 1,689 |
| | 2,168 |
| | 2,092 |
|
| Net loans recovered (charged off) | | (10,641 | ) | | (7,724 | ) | | (10,086 | ) | | (12,347 | ) | | (8,981 | ) |
| Provision for loan losses | | 12,539 |
| | 4,918 |
| | 7,969 |
| | 9,235 |
| | 4,408 |
|
| Ending balance | | $ | 204,432 |
| | $ | 202,534 |
| | $ | 205,340 |
| | $ | 207,457 |
| | $ | 210,569 |
|
| Accrual for off-balance sheet credit losses: | | | | | | | | | | |
|
| Beginning balance | | $ | 1,903 |
| | $ | 1,821 |
| | $ | 1,790 |
| | $ | 2,025 |
| | $ | 2,433 |
|
| Provision for off-balance sheet credit losses | | (539 | ) | | 82 |
| | 31 |
| | (235 | ) | | (408 | ) |
| Ending balance | | $ | 1,364 |
| | $ | 1,903 |
| | $ | 1,821 |
| | $ | 1,790 |
| | $ | 2,025 |
|
| Total combined provision for credit losses | | $ | 12,000 |
| | $ | 5,000 |
| | $ | 8,000 |
| | $ | 9,000 |
| | $ | 4,000 |
|
| Allowance for loan losses to loans outstanding at period-end | | 0.92 | % | | 0.91 | % | | 0.94 | % | | 0.96 | % | | 1.15 | % |
| Net charge-offs (recoveries) (annualized) to average loans | | 0.19 | % | | 0.14 | % | | 0.19 | % | | 0.23 | % | | 0.20 | % |
| Total provision for credit losses (annualized) to average loans | | 0.21 | % | | 0.09 | % | | 0.15 | % | | 0.17 | % | | 0.09 | % |
| Recoveries to gross charge-offs | | 9.11 | % | | 41.60 | % | | 14.34 | % | | 14.94 | % | | 18.89 | % |
| Accrual for off-balance sheet credit losses to off-balance sheet credit commitments | | 0.01 | % | | 0.02 | % | | 0.01 | % | | 0.01 | % | | 0.02 | % |
| Combined allowance for credit losses to loans outstanding at period-end | | 0.92 | % | | 0.92 | % | | 0.95 | % | | 0.97 | % | | 1.16 | % |
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 September 30, 2019, impaired loans totaled $358 million, including $26 million with specific allowances of $7.5 million and $331 million with no specific allowances. At June 30, 2019, impaired loans totaled $372 million, including $9.3 million of impaired loans with specific allowances of $4.0 million and $363 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 $179 million at September 30, 2019, a $2.5 million decrease compared to June 30, 2019. A decrease in general allowances related to the commercial loan segment was partially offset by an increase in general allowances related to the personal 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 $18 million at September 30, 2019, a $918 thousand increase compared to June 30, 2019.
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 $143 million at September 30, 2019 and were primarily composed of $38 million or less than 1217 percent of energy loans, $37 million or 1.12 percent of service sector loans, $17 million or less than 1 percent of healthcare sector loans, $17 million or 2.31 percent of other commercial and industrial loans and $13 million or 1.81 percent of manufacturing sectornonaccruing loans. Potential problem loans totaled $161 million at June 30, 2019.
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 $179 million at September 30, 2019 and were composed primarily of $60 million or 1.47 percent of energy sector loans, $38 million or 1.17 percent of service sector loans, $25 million or 0.83 percent healthcare sector loans, $24 million or 3.47 percent of manufacturing sector loans and $12 million or 1.51 percent of commercial real estate loans secured by retail facilities. Other loans especially mentioned totaled $141 million at June 30, 2019.
Net Loans Charged OffCommercial Real Estate
Loans are charged off againstCommercial real estate represents loans for the allowanceconstruction of buildings or other improvements to real estate and property held by borrowers for loan losses wheninvestment purposes generally within our geographical footprint. 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 project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.
The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 19 percent to 22 percent over the past five years. The outstanding balance of commercial real estate loans increased $104 million over March 31, 2020. Multifamily residential loans, our largest exposure in commercial real estate, increased $125 million to $1.4 billion at June 30, 2020. Pay downs from refinances into the permanent market slowed during the second quarter. Loans secured by office buildings increased $12 million to $974 million. Loans secured by other commercial real estate properties decreased $32 million to $533 million. Loans secured by retail facilities were $780 million at June 30, 2020, largely unchanged from the prior quarter.
Approximately 71 percent of loans in this segment are in our geographic footprint based on collateral location. The largest concentration of loans in this segment outside our footprint is no longer coveredUtah, totaling 7 percent of the segment, followed by California at 6 percent. All other states represent less than 5 percent individually.
Loans secured by retail facilities and office buildings may be adversely impacted by measures being taken to hinder the spread of the virus as well as changes in consumer behavior.
Payment Protection Program
We are actively participating in programs initiated by the paying capacityCoronavirus Aid, Relief and Economic Security Act ("CARES Act"), including the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") that began on April 3, 2020. PPP provided fully forgivable loans when utilized for qualified expenditures, including to help small business maintain payrolls during the COVID-19 pandemic. These loans have a contractual term of two years, though most are expected to be forgiven prior to maturity after completion of a compliance period. Loans are guaranteed and amounts forgiven will be reimbursed to the Company by the SBA. The loans carry a rate of 1 percent. Interest plus loan fees, which vary depending on loan size, are accrued over the contractual life of the loan. Any unaccreted origination fees will be recognized when the loan is paid.
Loans to Individuals
Loans to individuals include residential mortgage and personal loans. Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. These loans are secured by a first or second mortgage on the customer's primary residence. These loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.
In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. 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. Home equity loans are primarily first-lien and fully amortizing.
Residential mortgage, which includes home equity loans, and personal loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.
Personal loans consist primarily of loans to Wealth Management clients secured by the cash surrender value of insurance policies and marketable securities. It also includes direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans.
Approximately 93 percent of the loans in this segment are secured by collateral located within our geographical footprint. Loans for which the collateral location is less relevant, such as unsecured loans are categorized by the borrower’s primary operating location.
Residential mortgage loans guaranteed by U.S. government agencies have limited credit exposure because of the agency guarantee. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet.
The Company secondarily evaluates loan portfolio performance based on the primary geographical market managing the loan. Loans attributed to a geographical market may not represent the location of the borrower based on an evaluation of available cash resourcesor the collateral. All permanent mortgage loans serviced by our mortgage banking unit and collateral value. Internally risk graded loansheld for investment by the Company are evaluated quarterly and charge-offs are takencentrally managed by the Oklahoma market.
Table 13-- Loans Managed by Primary Geographical Market
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Texas: | | | | | | | | | | |
| Commercial | | $ | 5,771,691 | | | $ | 6,350,690 | | | $ | 6,174,894 | | | $ | 6,220,227 | | | $ | 5,877,265 | |
| Commercial real estate | | 1,389,547 | | | 1,296,266 | | | 1,259,117 | | | 1,292,116 | | | 1,341,609 | |
| Paycheck protection program | | 612,133 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 748,474 | | | 756,634 | | | 727,175 | | | 749,361 | | | 673,463 | |
| Total Texas | | 8,521,845 | | | 8,403,590 | | | 8,161,186 | | | 8,261,704 | | | 7,892,337 | |
| | | | | | | | | | |
| Oklahoma: | | | | | | | | | | |
| Commercial | | 5,086,934 | | | 3,886,086 | | | 3,454,825 | | | 3,690,100 | | | 3,762,234 | |
| Commercial real estate | | 636,021 | | | 593,473 | | | 631,026 | | | 679,786 | | | 717,970 | |
| Paycheck protection program | | 442,518 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 1,967,665 | | | 1,788,518 | | | 1,854,864 | | | 1,753,698 | | | 1,786,162 | |
| Total Oklahoma | | 8,133,138 | | | 6,268,077 | | | 5,940,715 | | | 6,123,584 | | | 6,266,366 | |
| | | | | | | | | | |
| Colorado: | | | | | | | | | | |
| Commercial | | 1,600,382 | | | 2,181,309 | | | 2,169,598 | | | 2,247,798 | | | 2,325,742 | |
| Commercial real estate | | 937,742 | | | 955,608 | | | 927,826 | | | 975,066 | | | 1,023,410 | |
| Paycheck protection program | | 488,279 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 264,872 | | | 268,674 | | | 276,939 | | | 303,605 | | | 314,317 | |
| Total Colorado | | 3,291,275 | | | 3,405,591 | | | 3,374,363 | | | 3,526,469 | | | 3,663,469 | |
| | | | | | | | | | |
| Arizona: | | | | | | | | | | |
| Commercial | | 1,036,862 | | | 1,396,582 | | | 1,307,073 | | | 1,276,534 | | | 1,330,415 | |
| Commercial real estate | | 689,121 | | | 714,161 | | | 728,832 | | | 771,425 | | | 761,243 | |
| Paycheck protection program | | 318,961 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 177,066 | | | 181,821 | | | 186,539 | | | 170,815 | | | 168,019 | |
| Total Arizona | | 2,222,010 | | | 2,292,564 | | | 2,222,444 | | | 2,218,774 | | | 2,259,677 | |
| | | | | | | | | | |
| Kansas/Missouri: | | | | | | | | | | |
| Commercial | | 404,860 | | | 556,255 | | | 527,872 | | | 566,969 | | | 602,836 | |
| Commercial real estate | | 314,504 | | | 310,799 | | | 322,541 | | | 374,795 | | | 331,443 | |
| Paycheck protection program | | 76,724 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 102,577 | | | 116,734 | | | 131,069 | | | 146,522 | | | 155,453 | |
| Total Kansas/Missouri | | 898,665 | | | 983,788 | | | 981,482 | | | 1,088,286 | | | 1,089,732 | |
| | | | | | | | | | |
| New Mexico: | | | | | | | | | | |
| Commercial | | 182,688 | | | 327,164 | | | 305,320 | | | 335,409 | | | 350,520 | |
| Commercial real estate | | 455,574 | | | 434,150 | | | 402,148 | | | 374,331 | | | 385,058 | |
| Paycheck protection program | | 128,058 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 83,470 | | | 87,110 | | | 90,257 | | | 92,270 | | | 92,626 | |
| Total New Mexico | | 849,790 | | | 848,424 | | | 797,725 | | | 802,010 | | | 828,204 | |
| | | | | | | | | | |
| Arkansas: | | | | | | | | | | |
| Commercial | | 75,093 | | | 97,889 | | | 92,068 | | | 87,588 | | | 87,896 | |
| Commercial real estate | | 131,635 | | | 145,628 | | | 162,293 | | | 158,538 | | | 149,300 | |
| Paycheck protection program | | 14,755 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 17,684 | | | 18,419 | | | 18,711 | | | 18,414 | | | 18,671 | |
| Total Arkansas | | 239,167 | | | 261,936 | | | 273,072 | | | 264,540 | | | 255,867 | |
| | | | | | | | | | |
| Total BOK Financial loans | | $ | 24,155,890 | | | $ | 22,463,970 | | | $ | 21,750,987 | | | $ | 22,285,367 | | | $ | 22,255,652 | |
Off-Balance Sheet Commitments
We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 14. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
We have off-balance sheet commitments related to certain residential mortgage loans sold into mortgage-backed securities as part of our mortgage banking activities. We retain off-balance sheet credit risk related to losses in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA"). During the second quarter, we sold mortgage servicing rights related to residential mortgage loans primarily guaranteed by the VA with an unpaid principal balance of $1.6 billion.
We also have off-balance sheet credit risk related to certain residential mortgage loans primarily originated under community development loan programs that were sold to a U.S. government agency with full recourse prior to 2007. We are obligated to repurchase these loans for the life of these loans in which the lossevent of foreclosure for the unpaid principal and interest at the time of foreclosure. The majority of our conforming fixed rate loan originations are sold in the secondary market and we only retain repurchase obligations under standard underwriting representations and warranties.
The CARES Act provided protections for borrowers with agency-backed residential mortgages that are serviced by the Company. Forbearance must be granted upon receiving a request from a borrower and the borrower's attestation to a financial hardship associated with the COVID-19 emergency. The Bank is identified. Non-risk gradedrequired to offer up to a 6 month forbearance, with the possibility of an additional 6 month extension. This program was available to all current and delinquent borrowers, including those in bankruptcy and/or foreclosure. As of June 30, 2020, agency-serviced loans in forbearance included 4,503 borrowers with an unpaid principal balance of $792 million. For certain contracts, we must advance principal and interest payments during the forbearance period. Advances as of June 30, 2020 totaled $6.2 million. Advances are generally charged offreimbursed to us by the appropriate agencies. Loans in forbearance are considered delinquent when payments are not made for purposes of valuing mortgage servicing rights and for purposes of determining GNMA loans that are eligible to be repurchased. As of June 30, 2020, 40% of borrowers in forbearance remained current.
Table 14 – Off-Balance Sheet Credit Commitments
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Loan commitments | | $ | 10,298,572 | | | $ | 9,960,678 | | | $ | 11,065,649 | | | $ | 11,259,366 | | | $ | 11,411,819 | |
| Standby letters of credit | | 693,177 | | | 683,516 | | | 645,505 | | | 712,944 | | | 698,527 | |
| Unpaid principal balance of residential mortgage loans sold with recourse | | 82,305 | | | 86,336 | | | 88,808 | | | 92,139 | | | 93,606 | |
| Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs | | 1,715,025 | | | 3,217,567 | | | 3,375,451 | | | 3,472,375 | | | 3,568,408 | |
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 60 daysthe customers and 180 days pastthe Company. Offsetting contracts are executed between the Company and selected counterparties to minimize market risk due dependingto 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, 2020, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $658 million compared to $929 million at March 31, 2020. At June 30, 2020, the net fair value of our derivative contracts included $282 million for foreign exchange contracts, $235 million for energy contracts and $140 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 $620 million at June 30, 2020 and $893 million at March 31, 2020.
At June 30, 2020, total derivative assets were reduced by $156 million of cash collateral received from counterparties and total derivative liabilities were reduced by $132 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, 2020 follows in Table 15.
Table 15 -- Fair Value of Derivative Contracts
(In thousands)
| | | | | | | | |
| Customers | | $ | 292,957 | |
| Banks and other financial institutions | | 162,132 | |
| Exchanges and clearing organizations | | 46,645 | |
| Fair value of customer risk management program asset derivative contracts, net | | $ | 501,734 | |
At June 30, 2020, our largest derivative exposure was to an exchange for energy contracts of $47 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 $26.16 per barrel of oil would not be great enough to create a scenario in which we are owed by our customers. This is due to the price of oil being within the weighted average fixed price of the portfolio. Rather, we would be owed by the counterparties, however, due to our margining status with counterparties, one would not see any impact here. An increase in prices equivalent to $53.24 per barrel of oil would increase the fair value of derivative assets by $127 million as margin received falls faster than the asset values. Further increases in price to the equivalent of $70.65 per barrel of oil would increase the fair value of our derivative assets by $312 million with lending customers comprising the bulk of the assets. Liquidity requirements of this program may also be affected by our credit rating. At June 30, 2020, a decrease in our credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $10 million. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of June 30, 2020, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
Summary of Credit Loss Experience
Table 16 -- Summary of Credit Loss Experience
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | |
| June 30, 2020 | | Mar. 31, 2020 | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | |
| Beginning balance | $ | 315,311 | | | $ | 210,759 | | | | | | | | | |
CECL transition adjustment1 | — | | | 25,809 | | | | | | | | | |
| Beginning balance, adjusted | 315,311 | | | 236,568 | | | | | | | | | |
| Loans charged off | (15,570) | | | (18,917) | | | | | | | | | |
| Recoveries of loans previously charged off | 1,491 | | | 1,696 | | | | | | | | | |
| Net loans charged off | (14,079) | | | (17,221) | | | | | | | | | |
| Provision for credit losses | 134,365 | | | 95,964 | | | | | | | | | |
| Ending balance | $ | 435,597 | | | $ | 315,311 | | | | | | | | | |
| | | | | | | | | | | |
| Accrual for off-balance sheet credit risk from unfunded loan commitments: | | | | | | | | | | | |
| Beginning balance | $ | 28,514 | | | $ | 1,585 | | | | | | | | | |
| CECL transition adjustment | — | | | 23,552 | | | | | | | | | |
| Beginning balance, adjusted | 28,514 | | | 25,137 | | | | | | | | | |
| Provision for credit losses | 4,405 | | | 3,377 | | | | | | | | | |
| Ending balance | $ | 32,919 | | | $ | 28,514 | | | | | | | | | |
| | | | | | | | | | | |
| Accrual for off-balance sheet credit risk associated with mortgage banking activities: | | | | | | | | | | | |
| Beginning balance | $ | 9,660 | | | $ | 4,820 | | | | | | | | | |
| CECL transition adjustment | — | | | 10,915 | | | | | | | | | |
| Beginning balance, adjusted | 9,660 | | | 15,735 | | | | | | | | | |
| Loans charged off | (44) | | | (55) | | | | | | | | | |
| Provision for credit losses | (3,575) | | | (6,020) | | | | | | | | | |
| Ending balance | $ | 6,041 | | | $ | 9,660 | | | | | | | | | |
| | | | | | | | | | | |
| Allowance for credit losses related to held-to-maturity (investment) securities: | | | | | | | | | | | |
| Beginning balance | $ | 1,502 | | | $ | — | | | | | | | | | |
| CECL transition adjustment | — | | | 1,052 | | | | | | | | | |
| Beginning balance, adjusted | 1,502 | | | 1,052 | | | | | | | | | |
| Provision for credit losses | 126 | | | 450 | | | | | | | | | |
| Ending balance | $ | 1,628 | | | $ | 1,502 | | | | | | | | | |
| | | | | | | | | | | |
| Total provision for credit losses | $ | 135,321 | | | $ | 93,771 | | | | | | | | | |
| Net charge-offs (recoveries) (annualized) to average loans | 0.23 | % | | 0.31 | % | | | | | | | | |
Net charge-offs (recoveries) (annualized) to average loans excluding PPP loans2 | 0.25 | % | | 0.31 | % | | | | | | | | |
| Recoveries to gross charge-offs | 9.58 | % | | 8.97 | % | | | | | | | | |
| Provision for loan losses (annualized) to average loans | 2.25 | % | | 1.71 | % | | | | | | | | |
| Allowance for loan losses to loans outstanding at period-end | 1.80 | % | | 1.40 | % | | | | | | | | |
Allowance for loan losses to loans outstanding at period-end excluding PPP loans2 | 1.97 | % | | 1.40 | % | | | | | | | | |
| Accrual for unfunded loan commitments to loan commitments | 0.32 | % | | 0.29 | % | | | | | | | | |
| Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end | 1.94 | % | | 1.53 | % | | | | | | | | |
Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end excluding PPP loans2 | 2.12 | % | | 1.53 | % | | | | | | | | |
1 Included $1.3 million related to measurement changes to the allowance attributed to outstanding loan class. In addition, non-risk gradedbalances and $24.5 million related to recognition of expected credit losses on acquired loans.
2 Metric meaningful due to the unique characteristics and short-term nature of the PPP loans.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Allowance for loan losses: | | | | | |
| Beginning balance | $ | 204,432 | | | $ | 202,534 | | | $ | 205,340 | |
| Loans charged off | (14,268) | | | (11,707) | | | (13,227) | |
| Recoveries of loans previously charged off | 1,816 | | | 1,066 | | | 5,503 | |
| Net loans charged off | (12,452) | | | (10,641) | | | (7,724) | |
| Provision for loan losses | 18,779 | | | 12,539 | | | 4,918 | |
| Ending balance | $ | 210,759 | | | $ | 204,432 | | | $ | 202,534 | |
| Accrual for off-balance sheet credit losses: | | | | | |
| Beginning balance | $ | 1,364 | | | $ | 1,903 | | | $ | 1,821 | |
| Provision for off-balance sheet credit losses | 221 | | | (539) | | | 82 | |
| Ending balance | $ | 1,585 | | | $ | 1,364 | | | $ | 1,903 | |
| Total combined provision for credit losses | $ | 19,000 | | | $ | 12,000 | | | $ | 5,000 | |
| Net charge-offs (recoveries) (annualized) to average loans | 0.22 | % | | 0.19 | % | | 0.14 | % |
| Recoveries to gross charge-offs | 12.73 | % | | 9.11 | % | | 41.60 | % |
| Provision for loan losses (annualized) to average loans | 0.34 | % | | 0.21 | % | | 0.09 | % |
| Allowance for loan losses to loans outstanding at period-end | 0.97 | % | | 0.92 | % | | 0.91 | % |
| Accrual for off-balance sheet credit losses to off-balance sheet credit commitments | 0.01 | % | | 0.01 | % | | 0.02 | % |
| Combined allowance for credit losses and off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end | 0.98 | % | | 0.92 | % | | 0.92 | % |
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Unfunded Loan Commitments
The Company adopted FASB Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Assets Measured at Amortized Cost ("CECL") on January 1, 2020 through a pre-tax cumulative-effect adjustment to equity of $61.4 million. CECL requires recognition of expected credit losses on assets carried at amortized cost over their expected lives. The previous incurred loss model incorporated only known information as of the balance sheet date. Prior years reported under the incurred loss model have not been restated. CECL uses models to measure the probability of default and loss given default over a 12-month reasonable and supportable forecast period. Models incorporate base case, downside and upside macroeconomic variables such as real gross domestic product ("GDP") growth, civilian unemployment rate and West Texas Intermediate ("WTI") oil prices on a probability weighted basis. See Note 4 to the consolidated financial statements for additional discussion of methodology of allowance for loan losses.
The provision for credit losses was $135.3 million for the second quarter of 2020, with $138.8 million related to lending activities. Changes in our reasonable and supportable forecasts of macroeconomic variables, primarily due to the anticipated impact of the on-going COVID-19 pandemic, and other assumptions, required a provision of $54.6 million. All other changes totaled $84.2 million, which included $14.4 million primarily due to increased specific impairment of energy loans, are generally charged-downportfolio changes of $55.7 million primarily due to collateral value within 60 days of being notifiedchanges in risk grades related to energy loans partially offset by the impact of a borrower's bankruptcy filing, regardless of payment status.
BOK Financial haddecrease in loan balances, and net charge-offs of $10.6$14.1 million. The provision related to lending activities was decreased by a $3.6 million reduction in the accrual for expected credit losses from mortgage banking activities. During the second quarter, the Company sold certain mortgage servicing rights related to residential mortgage loans transferred to mortgage-backed securities. These servicing rights expose the Company to credit risk for amounts that exceed the U.S. government agency guarantees.
Our reasonable and supportable forecast of macroeconomic variables are significantly influenced by the COVID-19 pandemic developments and related government stimulus policies. A summary of macroeconomic variables considered in developing our estimate of expected credit losses follows:
| | | | | | | | | | | |
| Base | Downside | Upside |
| Scenario probability weighting | 50% | 25% | 25% |
| COVID-19 trajectory | Localized and state-level hotspots with second waves emerging. This leads to more targeted shutdowns; however, widespread shutdown is not enacted. | A broader second wave emerges in the second half of 2020. As cases rise, a widespread shutdown is implemented. | Improves more quickly than currently expected and the severity of the illness abates. Minimal shutdowns occur, even at a more localized level. |
| Economic recovery (driven by COVID-19 trajectory) | Swoosh shaped recovery. A gradual and measured reopening of the economy after a significant second quarter decline. GDP recovering to pre-COVID-19 levels by mid-year 2022. | U-shaped recovery. Pace of recovery is slow. Economic activity and the labor market struggle significantly though improved from April trough. GDP does not recover to pre-COVID-19 levels until late 2023. | V-shaped recovery. A more confident and full reopening of the economy. GDP recovering to pre-COVID-19 levels by mid-year 2021. |
| Fiscal stimulus (driven by economic recovery) | Additional fiscal stimulus of $1.3 trillion to $1.6 trillion is expected to be deployed over the next 6 to 9 months. Stimulus will be more targeted and include a less generous round of unemployment benefits and additional direct payment to individuals, state fiscal aid, and support for specifically impacted business sectors. | Additional broad-based fiscal stimulus of $2.0 trillion to $2.5 trillion is deployed. | Smaller, more-targeted stimulus package of $1.0 trillion to $1.2 trillion is deployed focused on state aid and specific business support. |
| Macro-eocnomic factors | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 is forecasted to contract 2.4 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 gradually improves to 8.5 percent by the second quarter of 2021. –WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of June 2020 and are expected to average $39.58 per barrel over the next 12 months. | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 is forecasted to contract 7.0 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 slowly improves to 10.0 percent by the second quarter of 2021. –WTI oil prices are projected to average $32.90 over the next 12 months. | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 forecasted to grow by 0.7 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 quickly improves to 6.8 percent by the second quarter of 2021. –WTI oil prices are projected to average $42.78 per barrel over the next 12 months. |
The civilian unemployment rate is used in estimating expected credit losses for a number of our portfolios because historically it has been a good indicator of financial difficulty. The upward change in unemployment rates during the first half of 2020 was unprecedented and has been considered within the context of the government’s response through the CARES Act. These enacted economic stimulus programs, which expire in the third quarter of 2019, compared2020, have increased benefits available and broadened definitions of those eligible for unemployment benefits. As a result, the historical relationship between unemployment rates and credit losses is currently not a reliable indicator of future expected credit losses. Instead, management developed a forecast for civilian unemployment rates then analyzed the effect of enacted economic stimulus. This analysis showed current expected credit losses are likely more similar to net charge-offs of $7.7 million inunemployment rates 2 to 4 percentage points lower than forecasted rates. We reduced the second quarter of 2019 and net charge-offs of $9.0 million in the third quarter of 2018. The ratio of net loans charged off to average loans on an annualized basis was 0.19 percentbase case forecasted civilian unemployment rate for the third quarter of 2019, compared with 0.142020 to 8.4 percent, for the second quarterdownside case to 9.7 percent, and the upside case to 7.4 percent.
Management took a similar approach in estimating the impact of 2019 and 0.20 percent forpossible future government stimulus programs deployed after the third quarter of 2018.
Net charge-offs of commercial loans were $9.6 million in the third quarter of 2019, primarily related to a single energy production borrower, a single healthcare sector borrower and a single other commercial and industrial sector borrower. Net commercial real estate loan recoveries were $60 thousand in the third quarter of 2019. Net recoveries of residential mortgage loans were $63 thousand and net charge-offs of personal loans were $1.1 million2020 for the third quarter. Personal loan net charge-offs include deposit account overdraft losses.
Nonperforming Assets
Table 21 -- Nonperforming Assets
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Nonaccruing loans: | | | | | | | | | | |
| Commercial | | $ | 111,706 |
| | $ | 123,395 |
| | $ | 90,358 |
| | $ | 99,841 |
| | $ | 109,490 |
|
| Commercial real estate | | 23,185 |
| | 21,670 |
| | 21,508 |
| | 21,621 |
| | 1,316 |
|
| Residential mortgage | | 37,304 |
| | 38,477 |
| | 40,409 |
| | 41,555 |
| | 41,917 |
|
| Personal | | 271 |
| | 237 |
| | 302 |
| | 230 |
| | 269 |
|
| Total nonaccruing loans | | 172,466 |
| | 183,779 |
| | 152,577 |
| | 163,247 |
| | 152,992 |
|
| Accruing renegotiated loans guaranteed by U.S. government agencies | | 92,718 |
| | 95,989 |
| | 91,787 |
| | 86,428 |
| | 83,347 |
|
| Real estate and other repossessed assets | | 21,026 |
| | 16,940 |
| | 17,139 |
| | 17,487 |
| | 24,515 |
|
| Total nonperforming assets | | $ | 286,210 |
| | $ | 296,708 |
| | $ | 261,503 |
| | $ | 267,162 |
| | $ | 260,854 |
|
| Total nonperforming assets excluding those guaranteed by U.S. government agencies | | $ | 187,160 |
| | $ | 193,976 |
| | $ | 162,770 |
| | $ | 173,602 |
| | $ | 169,717 |
|
| | | | | | | | | | | |
| Nonaccruing loans by loan portfolio segment and class: | | | | | | |
| | |
|
| Commercial: | | | | | | | | |
| | |
|
| Energy | | $ | 88,894 |
| | $ | 71,632 |
| | $ | 35,332 |
| | $ | 47,494 |
| | $ | 54,033 |
|
| Manufacturing | | 8,741 |
| | 8,613 |
| | 9,548 |
| | 8,919 |
| | 9,202 |
|
| Services | | 6,119 |
| | 10,087 |
| | 9,555 |
| | 8,567 |
| | 4,097 |
|
| Healthcare | | 5,978 |
| | 16,148 |
| | 18,768 |
| | 16,538 |
| | 15,704 |
|
| Wholesale/retail | | 1,504 |
| | 1,390 |
| | 1,425 |
| | 1,316 |
| | 9,249 |
|
| Public finance | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other commercial and industrial | | 470 |
| | 15,525 |
| | 15,730 |
| | 17,007 |
| | 17,205 |
|
| Total commercial | | 111,706 |
| | 123,395 |
| | 90,358 |
| | 99,841 |
| | 109,490 |
|
| | | | | | | | | | | |
| Commercial real estate: | | | | | | | | |
| | |
|
| Retail | | 20,132 |
| | 20,057 |
| | 20,159 |
| | 20,279 |
| | 777 |
|
| Industrial | | 909 |
| | — |
| | — |
| | — |
| | — |
|
| Office | | 855 |
| | 855 |
| | 855 |
| | — |
| | — |
|
| Residential construction and land development | | 350 |
| | 350 |
| | 350 |
| | 350 |
| | 350 |
|
| Multifamily | | 286 |
| | 275 |
| | — |
| | 301 |
| | — |
|
| Other commercial real estate | | 653 |
| | 133 |
| | 144 |
| | 691 |
| | 189 |
|
| Total commercial real estate | | 23,185 |
| | 21,670 |
| | 21,508 |
| | 21,621 |
| | 1,316 |
|
| | | | | | | | | | | |
| Residential mortgage: | | | | | | | | |
| | |
|
| Permanent mortgage | | 20,165 |
| | 21,803 |
| | 22,937 |
| | 23,951 |
| | 22,855 |
|
| Permanent mortgage guaranteed by U.S. government agencies | | 6,332 |
| | 6,743 |
| | 6,946 |
| | 7,132 |
| | 7,790 |
|
| Home equity | | 10,807 |
| | 9,931 |
| | 10,526 |
| | 10,472 |
| | 11,272 |
|
| Total residential mortgage | | 37,304 |
| | 38,477 |
| | 40,409 |
| | 41,555 |
| | 41,917 |
|
| Personal | | 271 |
| | 237 |
| | 302 |
| | 230 |
| | 269 |
|
| Total nonaccruing loans | | $ | 172,466 |
| | $ | 183,779 |
| | $ | 152,577 |
| | $ | 163,247 |
| | $ | 152,992 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
Allowance for loan losses to nonaccruing loans1 | | 123.05 | % | | 114.40 | % | | 141.00 | % | | 132.89 | % | | 145.02 | % |
Accruing loans 90 days or more past due1 | | $ | 1,541 |
| | $ | 2,698 |
| | $ | 610 |
| | $ | 1,338 |
| | $ | 518 |
|
| |
1
| Excludes residential mortgages guaranteed by agencies of the U.S. Government. |
Nonperforming assets totaled $286 million or 1.28 percentThe second quarter provision for credit losses was also affected by changes in risk grading. A summary of outstanding loans and repossessed assets at September 30, 2019. Nonaccruing loans totaled $172 million, accruing renegotiated residential mortgage loans totaled $93 million and real estate and other repossessed assets totaled $21 million. All accruing renegotiated residential mortgage loans and $6.3 million of nonaccruing loans are guaranteed by U.S. government agencies. Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $6.8 million compared to June 30, 2019. Decreases in nonaccruing commercial and industrial loans and healthcare sector loans were partially offset by an increase 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 discussedrisk grade is included in Note 4 to the Consolidated Financial Statements,Statements. Non-pass grade loans which include other loans especially mentioned, defined by regulatory guidelines as loans that are currently performing in compliance with original terms but may have a potential weakness that deserves management’s close attention, accruing substandard loans, and nonaccruing loans totaled $1.5 billion at June 30, an $816 million increase from March 31. Non-pass graded energy loans totaled $1.1 billion at June 30, a $716 million increase from March 31. The recent oil price decline, coupled with the capital markets environment requiring certain customers to work through their liquidity needs weighed on some energy borrowers. The forward price curve for energy, particularly oil, remained depressed throughout most of the second quarter, but recovered somewhat in June. This risk grade migration was realized as we may modifycompleted most of our energy borrowing base redeterminations in April and May. Prices have improved since, but do remain fragile and closely tied to the continued economic recovery. Should current price levels hold into our next semi-annual borrowing base redetermination in the fall, we would anticipate positive credit quality migration in this portfolio.
Although fiscal stimulus through PPP, SBA support and other CARES Act programs have had a positive impact on credit quality, we received a number of deferral or forbearance requests early in the second quarter. All requests were evaluated on a case-by-case basis and all loans greater than $1 million that requested forbearance were reviewed for proper grading. We granted $1.2 billion in troubled debt restructurings. Modifications may include extensionforbearance requests from customers as of June 30, including $704 million, or 5 percent of commercial loans, primarily in small business and healthcare, $398 million, or 9 percent of commercial real estate loans and $143 million, or 4 percent of loans to individuals. As of mid-July, we are approaching the expiration of the first 90-day deferral period. Upon request, we will consider an additional 90-day deferral. To date, over 60 percent of the loans with payment termsdeferrals are going back to regular payments.
The allowance for loan losses totaled $436 million or 1.80 percent of outstanding loans and rate concessions. We generally do not forgive principal or accrued but unpaid interest. Generally175 percent of nonaccruing loans modified in troubled debt restructurings, except forat June 30, 2020, excluding residential mortgage loans guaranteed by U.S. government agencies, are currently classified as nonaccruing. We may also renew matured nonaccruing loans. Allagencies. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $469 million or 1.94 percent of outstanding loans and 188 percent of nonaccruing loans including those renewed or modifiedat June 30, 2020. Excluding PPP loans, the allowance for loan losses was 1.97 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.12 percent.
The allowance for credit losses attributed to energy was 4.44 percent of outstanding energy loans at June 30. Our semi-annual borrowing base redeterminations based on forward pricing curves that existed at that time resulted in troubled debt restructurings, are charged off whencredit quality migration. While forward prices subsequently improved, the loan balance is no longer covered bypricing environment remains fragile and tied to the paying capacitycontinued economic recovery from the impact of the borrower basedCOVID-19 pandemic. We believe the duration of the downturn is a more significant factor affecting performance than the level of prices.
We also conduct quarterly stress tests of our energy borrowers with more than 50 percent funding on their lines of credit and all non-pass graded loans using a quarterly evaluationcurrent price deck discounted at 20 percent. This stress test helps us identify potential issues, although the most recent test corroborated the risk grading of available cash resourcesenergy borrowers evaluated once hedging was taken into consideration. Of all the energy customers that we stress test, which makes up 96 percent of production loans outstanding, 91 percent of our customers have some level of hedging in the 12-month range and collateral value. Nonaccruingmany of them carry into the 24-month range.
The company recorded a $93.8 million provision for credit losses in the first quarter of 2020. The allowance for loan losses was $315 million or 1.40 percent of outstanding loans generally remain on nonaccrual status until full collectionand 199 percent of principal and interest in accordance with the original terms, including principal previously charged off, is probable. We generally do not voluntarily modify personalnonaccruing loans, to troubled borrowers. Personal loans modified at the direction of bankruptcy court orders are identified as troubled debt restructurings and classified as nonaccruing.
Accruing renegotiatedexcluding loans guaranteed by U.S. government agencies represent residential mortgage loans that have been modified in troubled debt restructurings. See Note 4 to the Consolidated Financial Statementsat March 31, 2020. The combined allowance for additional discussion of troubled debt restructurings. Generally, we modify residential mortgage loans primarily by reducing interest ratesloan losses 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 assetsaccrual for the three and nine months ended September 30, 2019 follows in Table 22.
Table 22 -- Rollforward of Nonperforming Assets
(In thousands)
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | September 30, 2019 |
| | | Nonaccruing Loans | | Renegotiated Loans | | Real Estate and Other Repossessed Assets | | Total Nonperforming Assets |
| Balance, June 30, 2019 | | $ | 183,779 |
| | $ | 95,989 |
| | $ | 16,940 |
| | $ | 296,708 |
|
| Additions | | 35,799 |
| | 9,371 |
| | — |
| | 45,170 |
|
| Payments | | (27,549 | ) | | (765 | ) | | — |
| | (28,314 | ) |
| Charge-offs | | (11,707 | ) | | — |
| | — |
| | (11,707 | ) |
| Net gains (losses) and write-downs | | — |
| | — |
| | 1,064 |
| | 1,064 |
|
| Foreclosure of nonperforming loans | | (5,883 | ) | | — |
| | 5,883 |
| | — |
|
| Foreclosure of loans guaranteed by U.S. government agencies | | (967 | ) | | (2,685 | ) | | — |
| | (3,652 | ) |
| Proceeds from sales | | — |
| | (9,508 | ) | | (2,861 | ) | | (12,369 | ) |
| Return to accrual status | | — |
| | — |
| | — |
| | — |
|
| Other, net | | — |
| | 316 |
| | — |
| | 316 |
|
| Balance, September 30, 2019 | | $ | 173,472 |
| | $ | 92,718 |
| | $ | 21,026 |
| | $ | 287,216 |
|
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | Nine Months Ended |
| | | September 30, 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 | | 115,602 |
| | 36,182 |
| | — |
| | 151,784 |
|
| Payments | | (56,852 | ) | | (1,971 | ) | | — |
| | (58,823 | ) |
| Charge-offs | | (36,709 | ) | | — |
| | — |
| | (36,709 | ) |
| Net gains (losses) and write-downs | | — |
| | — |
| | 901 |
| | 901 |
|
| Foreclosure of nonperforming loans | | (8,489 | ) | | — |
| | 8,489 |
| | — |
|
| Foreclosure of loans guaranteed by U.S. government agencies | | (2,457 | ) | | (8,103 | ) | | — |
| | (10,560 | ) |
| Proceeds from sales | | — |
| | (20,731 | ) | | (5,851 | ) | | (26,582 | ) |
| Return to accrual status | | (1,876 | ) | | — |
| | — |
| | (1,876 | ) |
| Other, net | | — |
| | 913 |
| | — |
| | 913 |
|
| Balance, September 30, 2019 | | $ | 172,466 |
| | $ | 92,718 |
| | $ | 21,026 |
| | $ | 286,210 |
|
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 andoff-balance sheet credit risk is limited. These properties will be conveyed to the agencies once applicable criteria have been met.
Commercial
Nonaccruing commercial loans totaled $112from unfunded loan commitments was $344 million or 0.771.53 percent of total commercialoutstanding loans at September 30, 2019 compared to $123 million or 0.86and 217 percent of commercial loans at June 30, 2019. There were $27 million in newly identified nonaccruing commercial loans during the quarter, offset by $24 million in payments, $10 million of charge-offs and $5.5 million of foreclosures of nonaccruing commercial loans during the third quarter.loans.
Nonaccruing commercial loans at September 30, 2019 were primarily composed of $89 million or 2.16 percent of total energy loans.
Commercial Real Estate
NonaccruingCommercial real estate represents loans for the construction of buildings or other improvements to real estate and property held by borrowers for investment purposes generally within our geographical footprint. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.
The commercial real estate loan balance as a percentage of our total loan portfolio has ranged from 19 percent to 22 percent over the past five years. The outstanding balance of commercial real estate loans totaled $23increased $104 million or 0.50 percent of outstandingover March 31, 2020. Multifamily residential loans, our largest exposure in commercial real estate, loansincreased $125 million to $1.4 billion at SeptemberJune 30, 2019, largely unchanged compared2020. Pay downs from refinances into the permanent market slowed during the second quarter. Loans secured by office buildings increased $12 million to $22 million or 0.46 percent of outstanding$974 million. Loans secured by other commercial real estate loansproperties decreased $32 million to $533 million. Loans secured by retail facilities were $780 million at June 30, 2019. 2020, largely unchanged from the prior quarter.
Nonaccruing commercial real estate loans were primarily composed of $20 million or 2.52Approximately 71 percent of loans in this segment are in our geographic footprint based on collateral location. The largest concentration of loans in this segment outside our footprint is Utah, totaling 7 percent of the segment, followed by California at 6 percent. All other states represent less than 5 percent individually.
Loans secured by retail facilities.facilities and office buildings may be adversely impacted by measures being taken to hinder the spread of the virus as well as changes in consumer behavior.
Payment Protection Program
We are actively participating in programs initiated by the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), including the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") that began on April 3, 2020. PPP provided fully forgivable loans when utilized for qualified expenditures, including to help small business maintain payrolls during the COVID-19 pandemic. These loans have a contractual term of two years, though most are expected to be forgiven prior to maturity after completion of a compliance period. Loans are guaranteed and amounts forgiven will be reimbursed to the Company by the SBA. The loans carry a rate of 1 percent. Interest plus loan fees, which vary depending on loan size, are accrued over the contractual life of the loan. Any unaccreted origination fees will be recognized when the loan is paid.
Loans to Individuals
Loans to individuals include residential mortgage and personal loans. Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. These loans are secured by a first or second mortgage on the customer's primary residence. These loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.
In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. 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. Home equity loans are primarily first-lien and fully amortizing.
Residential Mortgagemortgage, which includes home equity loans, and Personalpersonal 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.
NonaccruingPersonal loans consist primarily of loans to Wealth Management clients secured by the cash surrender value of insurance policies and marketable securities. It also includes direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans.
Approximately 93 percent of the loans in this segment are secured by collateral located within our geographical footprint. Loans for which the collateral location is less relevant, such as unsecured loans are categorized by the borrower’s primary operating location.
Residential mortgage loans guaranteed by U.S. government agencies have limited credit exposure because of the agency guarantee. This amount includes residential mortgage loans totaled $37 millionpreviously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet.
The Company secondarily evaluates loan portfolio performance based on the primary geographical market managing the loan. Loans attributed to a geographical market may not represent the location of the borrower or 1.76 percentthe collateral. All permanent mortgage loans serviced by our mortgage banking unit and held for investment by the Company are centrally managed by the Oklahoma market.
Table 13-- Loans Managed by Primary Geographical Market
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Texas: | | | | | | | | | | |
| Commercial | | $ | 5,771,691 | | | $ | 6,350,690 | | | $ | 6,174,894 | | | $ | 6,220,227 | | | $ | 5,877,265 | |
| Commercial real estate | | 1,389,547 | | | 1,296,266 | | | 1,259,117 | | | 1,292,116 | | | 1,341,609 | |
| Paycheck protection program | | 612,133 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 748,474 | | | 756,634 | | | 727,175 | | | 749,361 | | | 673,463 | |
| Total Texas | | 8,521,845 | | | 8,403,590 | | | 8,161,186 | | | 8,261,704 | | | 7,892,337 | |
| | | | | | | | | | |
| Oklahoma: | | | | | | | | | | |
| Commercial | | 5,086,934 | | | 3,886,086 | | | 3,454,825 | | | 3,690,100 | | | 3,762,234 | |
| Commercial real estate | | 636,021 | | | 593,473 | | | 631,026 | | | 679,786 | | | 717,970 | |
| Paycheck protection program | | 442,518 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 1,967,665 | | | 1,788,518 | | | 1,854,864 | | | 1,753,698 | | | 1,786,162 | |
| Total Oklahoma | | 8,133,138 | | | 6,268,077 | | | 5,940,715 | | | 6,123,584 | | | 6,266,366 | |
| | | | | | | | | | |
| Colorado: | | | | | | | | | | |
| Commercial | | 1,600,382 | | | 2,181,309 | | | 2,169,598 | | | 2,247,798 | | | 2,325,742 | |
| Commercial real estate | | 937,742 | | | 955,608 | | | 927,826 | | | 975,066 | | | 1,023,410 | |
| Paycheck protection program | | 488,279 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 264,872 | | | 268,674 | | | 276,939 | | | 303,605 | | | 314,317 | |
| Total Colorado | | 3,291,275 | | | 3,405,591 | | | 3,374,363 | | | 3,526,469 | | | 3,663,469 | |
| | | | | | | | | | |
| Arizona: | | | | | | | | | | |
| Commercial | | 1,036,862 | | | 1,396,582 | | | 1,307,073 | | | 1,276,534 | | | 1,330,415 | |
| Commercial real estate | | 689,121 | | | 714,161 | | | 728,832 | | | 771,425 | | | 761,243 | |
| Paycheck protection program | | 318,961 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 177,066 | | | 181,821 | | | 186,539 | | | 170,815 | | | 168,019 | |
| Total Arizona | | 2,222,010 | | | 2,292,564 | | | 2,222,444 | | | 2,218,774 | | | 2,259,677 | |
| | | | | | | | | | |
| Kansas/Missouri: | | | | | | | | | | |
| Commercial | | 404,860 | | | 556,255 | | | 527,872 | | | 566,969 | | | 602,836 | |
| Commercial real estate | | 314,504 | | | 310,799 | | | 322,541 | | | 374,795 | | | 331,443 | |
| Paycheck protection program | | 76,724 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 102,577 | | | 116,734 | | | 131,069 | | | 146,522 | | | 155,453 | |
| Total Kansas/Missouri | | 898,665 | | | 983,788 | | | 981,482 | | | 1,088,286 | | | 1,089,732 | |
| | | | | | | | | | |
| New Mexico: | | | | | | | | | | |
| Commercial | | 182,688 | | | 327,164 | | | 305,320 | | | 335,409 | | | 350,520 | |
| Commercial real estate | | 455,574 | | | 434,150 | | | 402,148 | | | 374,331 | | | 385,058 | |
| Paycheck protection program | | 128,058 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 83,470 | | | 87,110 | | | 90,257 | | | 92,270 | | | 92,626 | |
| Total New Mexico | | 849,790 | | | 848,424 | | | 797,725 | | | 802,010 | | | 828,204 | |
| | | | | | | | | | |
| Arkansas: | | | | | | | | | | |
| Commercial | | 75,093 | | | 97,889 | | | 92,068 | | | 87,588 | | | 87,896 | |
| Commercial real estate | | 131,635 | | | 145,628 | | | 162,293 | | | 158,538 | | | 149,300 | |
| Paycheck protection program | | 14,755 | | | — | | | — | | | — | | | — | |
| Loans to individuals | | 17,684 | | | 18,419 | | | 18,711 | | | 18,414 | | | 18,671 | |
| Total Arkansas | | 239,167 | | | 261,936 | | | 273,072 | | | 264,540 | | | 255,867 | |
| | | | | | | | | | |
| Total BOK Financial loans | | $ | 24,155,890 | | | $ | 22,463,970 | | | $ | 21,750,987 | | | $ | 22,285,367 | | | $ | 22,255,652 | |
Off-Balance Sheet Commitments
We enter into certain off-balance sheet arrangements in the normal course of outstandingbusiness as shown in Table 14. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
We have off-balance sheet commitments related to certain residential mortgage loans at September 30, 2019, a $1.2 million decrease comparedsold into mortgage-backed securities as part of our mortgage banking activities. We retain off-balance sheet credit risk related to June 30, 2019. Newly identified nonaccruing residentiallosses in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA"). During the second quarter, we sold mortgage loans totaling $3.9 million were offset by $3.6 million of payments.
Nonaccruingservicing rights related to residential mortgage loans primarily consistguaranteed by the VA with an unpaid principal balance of non-guaranteed permanent$1.6 billion.
We also have off-balance sheet credit risk related to certain residential mortgage loans whichprimarily originated under community development loan programs that were sold to a U.S. government agency with full recourse prior to 2007. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. The majority of our conforming fixed rate loan originations are sold in the secondary market and we only retain repurchase obligations under standard underwriting representations and warranties.
The CARES Act provided protections for borrowers with agency-backed residential mortgages that are serviced by the Company. Forbearance must be granted upon receiving a request from a borrower and the borrower's attestation to a financial hardship associated with the COVID-19 emergency. The Bank is required to offer up to a 6 month forbearance, with the possibility of an additional 6 month extension. This program was available to all current and delinquent borrowers, including those in bankruptcy and/or foreclosure. As of June 30, 2020, agency-serviced loans in forbearance included 4,503 borrowers with an unpaid principal balance of $792 million. For certain contracts, we must advance principal and interest payments during the forbearance period. Advances as of June 30, 2020 totaled $20 million$6.2 million. Advances are generally reimbursed to us by the appropriate agencies. Loans in forbearance are considered delinquent when payments are not made for purposes of valuing mortgage servicing rights and for purposes of determining GNMA loans that are eligible to be repurchased. As of June 30, 2020, 40% of borrowers in forbearance remained current.
Table 14 – Off-Balance Sheet Credit Commitments
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Loan commitments | | $ | 10,298,572 | | | $ | 9,960,678 | | | $ | 11,065,649 | | | $ | 11,259,366 | | | $ | 11,411,819 | |
| Standby letters of credit | | 693,177 | | | 683,516 | | | 645,505 | | | 712,944 | | | 698,527 | |
| Unpaid principal balance of residential mortgage loans sold with recourse | | 82,305 | | | 86,336 | | | 88,808 | | | 92,139 | | | 93,606 | |
| Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs | | 1,715,025 | | | 3,217,567 | | | 3,375,451 | | | 3,472,375 | | | 3,568,408 | |
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 1.89 percentforeign 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 outstanding non-guaranteed permanent residential mortgage loans at September 30, 2019. Nonaccruing home equity loans totaled $11 millionchanges in commodity prices, interest rates or 1.26 percentforeign 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 home equity loans.
Paymentsrelationship between BOK Financial and each of accruing residential mortgage loansthe counterparties. Individual limits are established by management, approved by Credit Administration and personal loansreviewed 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 delinquent. The compositionreduced and additional margin collateral may be required.
A deterioration of residential mortgage loansthe 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 personal loans past due but still accruing is includedtrading revenue in the following Table 23. Substantially all non-guaranteed residential loans past due 90 days or moreConsolidated Statements of Earnings.
Derivative contracts are nonaccruing. Residential mortgage loanscarried at fair value. At June 30, 2020, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $658 million compared to 59 days past due increased $3.4 million in the third quarter to $8.4$929 million at SeptemberMarch 31, 2020. At June 30, 2019. Residential mortgage loans 602020, the net fair value of our derivative contracts included $282 million for foreign exchange contracts, $235 million for energy contracts and $140 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 $620 million at June 30, 2020 and $893 million at March 31, 2020.
At June 30, 2020, total derivative assets were reduced by $156 million of cash collateral received from counterparties and total derivative liabilities were reduced by $132 million of cash collateral paid to 89 days past due increasedcounterparties 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 $3.2 million. Personal loans past duethe Company, by category of debtor at June 30, to 59 days decreased by $2.4 million and personal loans 60 to 89 days increased $6 thousand.2020 follows in Table 15.
Table 2315 -- Residential Mortgage and Personal Loans Past DueFair Value of Derivative Contracts
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | June 30, 2019 |
| | | 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 | | $ | — |
| | $ | 3,405 |
| | $ | 6,097 |
| | $ | 37 |
| | $ | — |
| | $ | 3,641 |
|
| Home equity | | — |
| | 374 |
| | 2,282 |
| | — |
| | 553 |
| | 1,380 |
|
| Total residential mortgage | | $ | — |
| | $ | 3,779 |
| | $ | 8,379 |
| | 37 |
| | $ | 553 |
| | $ | 5,021 |
|
| | | |
| | | | |
| | |
| | | | |
|
| Personal | | $ | 29 |
| | $ | 94 |
| | $ | 100 |
| | $ | 10 |
| | $ | 88 |
| | $ | 2,509 |
|
| | | | | | | | |
1Customers
| Excludes past due residential mortgage loans guaranteed by agencies | $ | 292,957 | |
| Banks and other financial institutions | | 162,132 | |
| Exchanges and clearing organizations | | 46,645 | |
Fair value of the U.S. government.customer risk management program asset derivative contracts, net | | $ | 501,734 | |
Real Estate
At June 30, 2020, our largest derivative exposure was to an exchange for energy contracts of $47 million.
Our customer derivative program also introduces liquidity and Other Repossessedcapital 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 $26.16 per barrel of oil would not be great enough to create a scenario in which we are owed by our customers. This is due to the price of oil being within the weighted average fixed price of the portfolio. Rather, we would be owed by the counterparties, however, due to our margining status with counterparties, one would not see any impact here. An increase in prices equivalent to $53.24 per barrel of oil would increase the fair value of derivative assets by $127 million as margin received falls faster than the asset values. Further increases in price to the equivalent of $70.65 per barrel of oil would increase the fair value of our derivative assets by $312 million with lending customers comprising the bulk of the assets. Liquidity requirements of this program may also be affected by our credit rating. At June 30, 2020, a decrease in our credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $10 million. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of June 30, 2020, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
Summary of Credit Loss Experience
Table 16 -- Summary of Credit Loss Experience
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | |
| June 30, 2020 | | Mar. 31, 2020 | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | |
| Beginning balance | $ | 315,311 | | | $ | 210,759 | | | | | | | | | |
CECL transition adjustment1 | — | | | 25,809 | | | | | | | | | |
| Beginning balance, adjusted | 315,311 | | | 236,568 | | | | | | | | | |
| Loans charged off | (15,570) | | | (18,917) | | | | | | | | | |
| Recoveries of loans previously charged off | 1,491 | | | 1,696 | | | | | | | | | |
| Net loans charged off | (14,079) | | | (17,221) | | | | | | | | | |
| Provision for credit losses | 134,365 | | | 95,964 | | | | | | | | | |
| Ending balance | $ | 435,597 | | | $ | 315,311 | | | | | | | | | |
| | | | | | | | | | | |
| Accrual for off-balance sheet credit risk from unfunded loan commitments: | | | | | | | | | | | |
| Beginning balance | $ | 28,514 | | | $ | 1,585 | | | | | | | | | |
| CECL transition adjustment | — | | | 23,552 | | | | | | | | | |
| Beginning balance, adjusted | 28,514 | | | 25,137 | | | | | | | | | |
| Provision for credit losses | 4,405 | | | 3,377 | | | | | | | | | |
| Ending balance | $ | 32,919 | | | $ | 28,514 | | | | | | | | | |
| | | | | | | | | | | |
| Accrual for off-balance sheet credit risk associated with mortgage banking activities: | | | | | | | | | | | |
| Beginning balance | $ | 9,660 | | | $ | 4,820 | | | | | | | | | |
| CECL transition adjustment | — | | | 10,915 | | | | | | | | | |
| Beginning balance, adjusted | 9,660 | | | 15,735 | | | | | | | | | |
| Loans charged off | (44) | | | (55) | | | | | | | | | |
| Provision for credit losses | (3,575) | | | (6,020) | | | | | | | | | |
| Ending balance | $ | 6,041 | | | $ | 9,660 | | | | | | | | | |
| | | | | | | | | | | |
| Allowance for credit losses related to held-to-maturity (investment) securities: | | | | | | | | | | | |
| Beginning balance | $ | 1,502 | | | $ | — | | | | | | | | | |
| CECL transition adjustment | — | | | 1,052 | | | | | | | | | |
| Beginning balance, adjusted | 1,502 | | | 1,052 | | | | | | | | | |
| Provision for credit losses | 126 | | | 450 | | | | | | | | | |
| Ending balance | $ | 1,628 | | | $ | 1,502 | | | | | | | | | |
| | | | | | | | | | | |
| Total provision for credit losses | $ | 135,321 | | | $ | 93,771 | | | | | | | | | |
| Net charge-offs (recoveries) (annualized) to average loans | 0.23 | % | | 0.31 | % | | | | | | | | |
Net charge-offs (recoveries) (annualized) to average loans excluding PPP loans2 | 0.25 | % | | 0.31 | % | | | | | | | | |
| Recoveries to gross charge-offs | 9.58 | % | | 8.97 | % | | | | | | | | |
| Provision for loan losses (annualized) to average loans | 2.25 | % | | 1.71 | % | | | | | | | | |
| Allowance for loan losses to loans outstanding at period-end | 1.80 | % | | 1.40 | % | | | | | | | | |
Allowance for loan losses to loans outstanding at period-end excluding PPP loans2 | 1.97 | % | | 1.40 | % | | | | | | | | |
| Accrual for unfunded loan commitments to loan commitments | 0.32 | % | | 0.29 | % | | | | | | | | |
| Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end | 1.94 | % | | 1.53 | % | | | | | | | | |
Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end excluding PPP loans2 | 2.12 | % | | 1.53 | % | | | | | | | | |
1 Included $1.3 million related to measurement changes to the allowance attributed to outstanding loan balances and $24.5 million related to recognition of expected credit losses on acquired loans.
2 Metric meaningful due to the unique characteristics and short-term nature of the PPP loans.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Allowance for loan losses: | | | | | |
| Beginning balance | $ | 204,432 | | | $ | 202,534 | | | $ | 205,340 | |
| Loans charged off | (14,268) | | | (11,707) | | | (13,227) | |
| Recoveries of loans previously charged off | 1,816 | | | 1,066 | | | 5,503 | |
| Net loans charged off | (12,452) | | | (10,641) | | | (7,724) | |
| Provision for loan losses | 18,779 | | | 12,539 | | | 4,918 | |
| Ending balance | $ | 210,759 | | | $ | 204,432 | | | $ | 202,534 | |
| Accrual for off-balance sheet credit losses: | | | | | |
| Beginning balance | $ | 1,364 | | | $ | 1,903 | | | $ | 1,821 | |
| Provision for off-balance sheet credit losses | 221 | | | (539) | | | 82 | |
| Ending balance | $ | 1,585 | | | $ | 1,364 | | | $ | 1,903 | |
| Total combined provision for credit losses | $ | 19,000 | | | $ | 12,000 | | | $ | 5,000 | |
| Net charge-offs (recoveries) (annualized) to average loans | 0.22 | % | | 0.19 | % | | 0.14 | % |
| Recoveries to gross charge-offs | 12.73 | % | | 9.11 | % | | 41.60 | % |
| Provision for loan losses (annualized) to average loans | 0.34 | % | | 0.21 | % | | 0.09 | % |
| Allowance for loan losses to loans outstanding at period-end | 0.97 | % | | 0.92 | % | | 0.91 | % |
| Accrual for off-balance sheet credit losses to off-balance sheet credit commitments | 0.01 | % | | 0.01 | % | | 0.02 | % |
| Combined allowance for credit losses and off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end | 0.98 | % | | 0.92 | % | | 0.92 | % |
Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Unfunded Loan Commitments
The Company adopted FASB Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Assets Measured at Amortized Cost ("CECL") on January 1, 2020 through a pre-tax cumulative-effect adjustment to equity of $61.4 million. CECL requires recognition of expected credit losses on assets carried at amortized cost over their expected lives. The previous incurred loss model incorporated only known information as of the balance sheet date. Prior years reported under the incurred loss model have not been restated. CECL uses models to measure the probability of default and loss given default over a 12-month reasonable and supportable forecast period. Models incorporate base case, downside and upside macroeconomic variables such as real gross domestic product ("GDP") growth, civilian unemployment rate and West Texas Intermediate ("WTI") oil prices on a probability weighted basis. See Note 4 to the consolidated financial statements for additional discussion of methodology of allowance for loan losses.
The provision for credit losses was $135.3 million for the second quarter of 2020, with $138.8 million related to lending activities. Changes in our reasonable and supportable forecasts of macroeconomic variables, primarily due to the anticipated impact of the on-going COVID-19 pandemic, and other assumptions, required a provision of $54.6 million. All other changes totaled $84.2 million, which included $14.4 million primarily due to increased specific impairment of energy loans, portfolio changes of $55.7 million primarily due to changes in risk grades related to energy loans partially offset by the impact of a decrease in loan balances, and net charge-offs of $14.1 million. The provision related to lending activities was decreased by a $3.6 million reduction in the accrual for expected credit losses from mortgage banking activities. During the second quarter, the Company sold certain mortgage servicing rights related to residential mortgage loans transferred to mortgage-backed securities. These servicing rights expose the Company to credit risk for amounts that exceed the U.S. government agency guarantees.
Our reasonable and supportable forecast of macroeconomic variables are significantly influenced by the COVID-19 pandemic developments and related government stimulus policies. A summary of macroeconomic variables considered in developing our estimate of expected credit losses follows:
| | | | | | | | | | | |
| Base | Downside | Upside |
| Scenario probability weighting | 50% | 25% | 25% |
| COVID-19 trajectory | Localized and state-level hotspots with second waves emerging. This leads to more targeted shutdowns; however, widespread shutdown is not enacted. | A broader second wave emerges in the second half of 2020. As cases rise, a widespread shutdown is implemented. | Improves more quickly than currently expected and the severity of the illness abates. Minimal shutdowns occur, even at a more localized level. |
| Economic recovery (driven by COVID-19 trajectory) | Swoosh shaped recovery. A gradual and measured reopening of the economy after a significant second quarter decline. GDP recovering to pre-COVID-19 levels by mid-year 2022. | U-shaped recovery. Pace of recovery is slow. Economic activity and the labor market struggle significantly though improved from April trough. GDP does not recover to pre-COVID-19 levels until late 2023. | V-shaped recovery. A more confident and full reopening of the economy. GDP recovering to pre-COVID-19 levels by mid-year 2021. |
| Fiscal stimulus (driven by economic recovery) | Additional fiscal stimulus of $1.3 trillion to $1.6 trillion is expected to be deployed over the next 6 to 9 months. Stimulus will be more targeted and include a less generous round of unemployment benefits and additional direct payment to individuals, state fiscal aid, and support for specifically impacted business sectors. | Additional broad-based fiscal stimulus of $2.0 trillion to $2.5 trillion is deployed. | Smaller, more-targeted stimulus package of $1.0 trillion to $1.2 trillion is deployed focused on state aid and specific business support. |
| Macro-eocnomic factors | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 is forecasted to contract 2.4 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 gradually improves to 8.5 percent by the second quarter of 2021. –WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of June 2020 and are expected to average $39.58 per barrel over the next 12 months. | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 is forecasted to contract 7.0 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 slowly improves to 10.0 percent by the second quarter of 2021. –WTI oil prices are projected to average $32.90 over the next 12 months. | –Cumulative GDP from the fourth quarter of 2019 (pre-COVID-19) through the second quarter of 2021 forecasted to grow by 0.7 percent. –Civilian unemployment rate of 13.7 percent in the second quarter of 2020 quickly improves to 6.8 percent by the second quarter of 2021. –WTI oil prices are projected to average $42.78 per barrel over the next 12 months. |
The civilian unemployment rate is used in estimating expected credit losses for a number of our portfolios because historically it has been a good indicator of financial difficulty. The upward change in unemployment rates during the first half of 2020 was unprecedented and has been considered within the context of the government’s response through the CARES Act. These enacted economic stimulus programs, which expire in the third quarter of 2020, have increased benefits available and broadened definitions of those eligible for unemployment benefits. As a result, the historical relationship between unemployment rates and credit losses is currently not a reliable indicator of future expected credit losses. Instead, management developed a forecast for civilian unemployment rates then analyzed the effect of enacted economic stimulus. This analysis showed current expected credit losses are likely more similar to unemployment rates 2 to 4 percentage points lower than forecasted rates. We reduced the base case forecasted civilian unemployment rate for the third quarter of 2020 to 8.4 percent, the downside case to 9.7 percent, and the upside case to 7.4 percent.
Management took a similar approach in estimating the impact of possible future government stimulus programs deployed after the third quarter of 2020 for the remainder of the forecast period. Expected credit losses are likely to be more similar to unemployment rates that are 1 percentage point lower than forecasted rates causing management to reduce its estimate of expected credit losses through a qualitative adjustment of $15 million.
The second quarter provision for credit losses was also affected by changes in risk grading. A summary of loans by risk grade is included in Note 4 to the Consolidated Financial Statements. Non-pass grade loans which include other loans especially mentioned, defined by regulatory guidelines as loans that are currently performing in compliance with original terms but may have a potential weakness that deserves management’s close attention, accruing substandard loans, and nonaccruing loans totaled $1.5 billion at June 30, an $816 million increase from March 31. Non-pass graded energy loans totaled $1.1 billion at June 30, a $716 million increase from March 31. The recent oil price decline, coupled with the capital markets environment requiring certain customers to work through their liquidity needs weighed on some energy borrowers. The forward price curve for energy, particularly oil, remained depressed throughout most of the second quarter, but recovered somewhat in June. This risk grade migration was realized as we completed most of our energy borrowing base redeterminations in April and May. Prices have improved since, but do remain fragile and closely tied to the continued economic recovery. Should current price levels hold into our next semi-annual borrowing base redetermination in the fall, we would anticipate positive credit quality migration in this portfolio.
Although fiscal stimulus through PPP, SBA support and other CARES Act programs have had a positive impact on credit quality, we received a number of deferral or forbearance requests early in the second quarter. All requests were evaluated on a case-by-case basis and all loans greater than $1 million that requested forbearance were reviewed for proper grading. We granted $1.2 billion in forbearance requests from customers as of June 30, including $704 million, or 5 percent of commercial loans, primarily in small business and healthcare, $398 million, or 9 percent of commercial real estate loans and $143 million, or 4 percent of loans to individuals. As of mid-July, we are approaching the expiration of the first 90-day deferral period. Upon request, we will consider an additional 90-day deferral. To date, over 60 percent of the loans with payment deferrals are going back to regular payments.
The allowance for loan losses totaled $436 million or 1.80 percent of outstanding loans and 175 percent of nonaccruing loans at June 30, 2020, excluding residential mortgage loans guaranteed by U.S. government agencies. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $469 million or 1.94 percent of outstanding loans and 188 percent of nonaccruing loans at June 30, 2020. Excluding PPP loans, the allowance for loan losses was 1.97 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.12 percent.
The allowance for credit losses attributed to energy was 4.44 percent of outstanding energy loans at June 30. Our semi-annual borrowing base redeterminations based on forward pricing curves that existed at that time resulted in credit quality migration. While forward prices subsequently improved, the pricing environment remains fragile and tied to the continued economic recovery from the impact of the COVID-19 pandemic. We believe the duration of the downturn is a more significant factor affecting performance than the level of prices.
We also conduct quarterly stress tests of our energy borrowers with more than 50 percent funding on their lines of credit and all non-pass graded loans using a current price deck discounted at 20 percent. This stress test helps us identify potential issues, although the most recent test corroborated the risk grading of energy borrowers evaluated once hedging was taken into consideration. Of all the energy customers that we stress test, which makes up 96 percent of production loans outstanding, 91 percent of our customers have some level of hedging in the 12-month range and many of them carry into the 24-month range.
The company recorded a $93.8 million provision for credit losses in the first quarter of 2020. The allowance for loan losses was $315 million or 1.40 percent of outstanding loans and 199 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies at March 31, 2020. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $344 million or 1.53 percent of outstanding loans and 217 percent of nonaccruing loans.
Net Loans Charged Off
Net charge-offs of commercial loans were $14.2 million in the second quarter of 2020, primarily related to energy production loans. Net commercial real estate loan recoveries were $74 thousand and net recoveries of loans to individuals were $16 thousand. Net charge-offs of loans to individuals include deposit account overdraft losses.
Accrual for Off-Balance Sheet Credit Risk Associated with Mortgage Banking Activities
The accrual for off-balance sheet credit risk associated with mortgage banking activities includes consideration of credit risk related to certain residential mortgage loans sold into mortgage-backed securities in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA") and mortgage loans originated under community development loan programs that were sold to a U.S. government agency with full recourse.
We use publicly available long-term national data to estimate total loss given default for our off-balance sheet credit risk related to losses in excess of amounts guaranteed by the VA. This result is combined with probability of default output from our mortgage servicing rights model to estimate total expected loss. Then, we estimate the VA's guarantee percentage to determine our portion of the credit risk. Qualitative adjustment may be used, if necessary.
The accrual for off-balance sheet credit risk associated with mortgage banking activities decreased $3.6 million during the second quarter, primarily due to the sale of mortgage servicing rights related to $1.6 billion of residential mortgage loans during the quarter. These servicing rights expose the Company to credit risk for amounts that exceed the U.S. government agency guarantees.
Allowance for Credit Losses Related to Held-to-Maturity (Investment) Securities
The expected credit losses principles apply to all financial assets measured at cost, including our held-to-maturity (investment) debt securities portfolio. Our investment portfolio includes municipal and other tax-exempt securities and other debt securities. Expected credit losses for these assets is based on probability of default and loss given default assumptions that align with similarly graded loans. Qualitative adjustment may be used, if necessary.
Nonperforming Assets
As more fully described in Note 4 to the Consolidated Financial Statements, loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. Accruing renegotiated loans guaranteed by U.S. government agencies represent residential mortgage loans that have been modified in troubled debt restructurings. Interest continues to accrue based on the modified terms of the loan and loans may be sold once they become eligible according to U.S. government agency guidelines. Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. The assets are carried at the lower of cost as determined by fair value at the date of foreclosure or current fair value, less estimated selling costs. A summary of nonperforming assets follows in Table 17:
Table 17 -- Nonperforming Assets
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Nonaccruing loans: | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| Energy | | $ | 162,989 | | | $ | 96,448 | | | $ | 91,722 | | | $ | 88,894 | | | $ | 71,632 | |
| Healthcare | | 3,645 | | | 4,070 | | | 4,480 | | | 5,978 | | | 16,148 | |
| Services | | 21,032 | | | 8,425 | | | 7,483 | | | 6,119 | | | 10,087 | |
| General business | | 14,333 | | | 9,681 | | | 11,731 | | | 10,715 | | | 25,528 | |
| Total commercial | | 201,999 | | | 118,624 | | | 115,416 | | | 111,706 | | | 123,395 | |
| | | | | | | | | | |
| Commercial real estate | | 13,956 | | | 8,545 | | | 27,626 | | | 23,185 | | | 21,670 | |
| | | | | | | | | | |
| Loans to individuals: | | | | | | | | | | |
| Residential mortgage | | 33,098 | | | 30,721 | | | 31,522 | | | 30,972 | | | 31,734 | |
| Residential mortgage guaranteed by U.S. government agencies | | 6,110 | | | 5,005 | | | 6,100 | | | 6,332 | | | 6,743 | |
| Personal | | 233 | | | 277 | | | 287 | | | 271 | | | 237 | |
| Total loans to individuals | | 39,441 | | | 36,003 | | | 37,909 | | | 37,575 | | | 38,714 | |
| Total nonaccruing loans | | $ | 255,396 | | | $ | 163,172 | | | $ | 180,951 | | | $ | 172,466 | | | $ | 183,779 | |
| Accruing renegotiated loans guaranteed by U.S. government agencies | | 114,571 | | | 91,757 | | | 92,452 | | | 92,718 | | | 95,989 | |
| Real estate and other repossessed assets | | 35,330 | | | 36,744 | | | 20,359 | | | 21,026 | | | 16,940 | |
| Total nonperforming assets | | $ | 405,297 | | | $ | 291,673 | | | $ | 293,762 | | | $ | 286,210 | | | $ | 296,708 | |
| Total nonperforming assets excluding those guaranteed by U.S. government agencies | | $ | 284,616 | | | $ | 194,911 | | | $ | 195,210 | | | $ | 187,160 | | | $ | 193,976 | |
| | | | | | | | | | |
Allowance for loan losses to nonaccruing loans1,2 | | 174.74 | % | | 199.35 | % | | 120.54 | % | | 123.05 | % | | 114.40 | % |
| Nonperforming assets to outstanding loans and repossessed assets | | 1.68 | % | | 1.30 | % | | 1.35 | % | | 1.28 | % | | 1.33 | % |
Nonperforming assets to outstanding loans and repossessed assets excluding residential mortgage and PPP loans guaranteed by U.S. government agencies2 | | 1.31 | % | | 0.87 | % | | 0.90 | % | | 0.85 | % | | 0.88 | % |
| Nonaccruing commercial loans to outstanding commercial loans | | 1.43 | % | | 0.80 | % | | 0.82 | % | | 0.77 | % | | 0.86 | % |
| Nonaccruing commercial real estate loans to outstanding commercial real estate loans | | 0.31 | % | | 0.19 | % | | 0.62 | % | | 0.50 | % | | 0.46 | % |
Nonaccruing loans to individuals to outstanding loans to individuals3 | | 1.10 | % | | 1.03 | % | | 1.03 | % | | 1.03 | % | | 1.06 | % |
1Effective January 1, 2020, the Company adopted the required expected credit loss approach for the allowance as required by ASU 2016-13, Financial Instruments - Credit Losses. All periods prior to January 1, 2020 reflect the incurred loss approach in effect at that time.
2 Excludes residential mortgage and PPP loans guaranteed by U.S. government agencies.
3 Excludes residential mortgages guaranteed by U.S. government agencies.
Excluding assets guaranteed by U.S. government agencies, nonperforming assets increased $90 million over March 31, 2020, primarily due to a $67 million increase in nonaccruing energy loans and a $13 million increase in nonaccruing services loans. Newly identified nonaccruing loans totaled $124 million, partially offset by $16 million of payments, $16 million of charge-offs and $1.1 million of foreclosures. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.
A rollforward of nonperforming assets for the three and six months ended June 30, 2020 follows in Table 18.
Table 18 -- Rollforward of Nonperforming Assets
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | | | | | | | |
| | June 30, 2020 | | | | | | | | | | | | |
| | Nonaccruing Loans | | | | | | | | | | | | |
| | | Commercial | | Commercial Real Estate | | Loan to Individuals | | Total | | Renegotiated Loans | | Real Estate and Other Repossessed Assets | | Total Nonperforming Assets |
| Balance, Mar. 31, 2020 | | $ | 118,624 | | | $ | 8,545 | | | $ | 36,003 | | | $ | 163,172 | | | $ | 91,757 | | | $ | 36,744 | | | $ | 291,673 | |
| Additions | | 112,947 | | | 5,446 | | | 6,044 | | | 124,437 | | | 31,992 | | | — | | | 156,429 | |
| | | | | | | | | | | | | | |
| Payments | | (14,005) | | | (34) | | | (2,455) | | | (16,494) | | | (671) | | | — | | | (17,165) | |
| Charge-offs | | (14,487) | | | (1) | | | (1,082) | | | (15,570) | | | — | | | — | | | (15,570) | |
| Net gains (losses) and write-downs | | — | | | — | | | — | | | — | | | — | | | 579 | | | 579 | |
| Foreclosure of nonperforming loans | | (1,080) | | | — | | | (2) | | | (1,082) | | | — | | | 1,082 | | | — | |
| Foreclosure of loans guaranteed by U.S. government agencies | | — | | | — | | | — | | | — | | | (323) | | | — | | | (323) | |
| Proceeds from sales | | — | | | — | | | — | | | — | | | (7,592) | | | (3,075) | | | (10,667) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Return to accrual status | | — | | | — | | | 933 | | | 933 | | | (933) | | | — | | | — | |
| Other, net | | — | | | — | | | — | | | — | | | 341 | | | — | | | 341 | |
| Balance, June 30, 2020 | | $ | 201,999 | | | $ | 13,956 | | | $ | 39,441 | | | $ | 255,396 | | | $ | 114,571 | | | $ | 35,330 | | | $ | 405,297 | |
| | | | | | | | | | | | | | |
| | Six Months Ended | | | | | | | | | | | | |
| | June 30, 2020 | | | | | | | | | | | | |
| | Nonaccruing Loans | | | | | | | | | | | | |
| | Commercial | | Commercial Real Estate | | Loan to Individuals | | Total | | Renegotiated Loans | | Real Estate and Other Repossessed Assets | | Total Nonperforming Assets |
| Balance, Dec. 31, 2019 | | $ | 115,416 | | | $ | 27,626 | | | $ | 37,909 | | | $ | 180,951 | | | $ | 92,452 | | | $ | 20,359 | | | $ | 293,762 | |
| Additions | | 139,636 | | | 5,450 | | | 9,190 | | | 154,276 | | | 40,849 | | | — | | | 195,125 | |
| Payments | | (20,652) | | | (188) | | | (4,585) | | | (25,425) | | | (1,585) | | | — | | | (27,010) | |
| Charge-offs | | (31,102) | | | (887) | | | (2,498) | | | (34,487) | | | — | | | — | | | (34,487) | |
| Net gains (losses) and write-downs | | — | | | — | | | — | | | — | | | — | | | 582 | | | 582 | |
| Foreclosure of nonperforming loans | | (1,080) | | | (18,045) | | | (431) | | | (19,556) | | | — | | | 19,556 | | | — | |
| Foreclosure of loans guaranteed by U.S. government agencies | | — | | | — | | | (1,077) | | | (1,077) | | | (2,162) | | | — | | | (3,239) | |
| Proceeds from sales | | — | | | — | | | — | | | — | | | (14,735) | | | (5,167) | | | (19,902) | |
| Return to accrual status | | (219) | | | — | | | 933 | | | 714 | | | (933) | | | — | | | (219) | |
| Other, net | | — | | | — | | | — | | | — | | | 685 | | | — | | | 685 | |
| Balance, June 30, 2020 | | $ | 201,999 | | | $ | 13,956 | | | $ | 39,441 | | | $ | 255,396 | | | $ | 114,571 | | | $ | 35,330 | | | $ | 405,297 | |
We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans are not eligible for modification programs or have failed to comply with modified loan terms. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is limited. At foreclosure, these amounts are transferred to claims receivable accounts. These properties will be conveyed to the agencies once applicable criteria have been met.
Real Estate and Other Repossessed Assets
Real estate and other repossessed assets totaled $21$35 million at SeptemberJune 30, 2019,2020, composed primarily of $9.2$23 million of developed commercial real estate, $5.6 million of oil and gas properties, $3.8 million of 1-4 family residential properties and $2.1 million of undeveloped land primarily zoned for commercial development.development, $5.1 million of oil and gas properties and $1.6 million of 1-4 family residential properties. Real estate and other repossessed assets totaled $17$37 million at June 30, 2019.March 31, 2020.
Liquidity and Capital
Based on the average balances for the thirdsecond quarter of 2019,2020, approximately 5966 percent of our funding was provided by deposit accounts, 2619 percent from borrowed funds, less than 1 percent from long-term subordinated debt and 1110 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 thirdsecond quarter of 20192020 totaled $25.7$32.7 billion, a $538 million$4.5 billion increase over the secondfirst quarter of 2019. Interest-bearing2020. Inflows resulting from PPP loans and other government stimulus payments provided to customers by the CARES Act during the pandemic, along with additional core deposit growth as customer's maintain higher balances, have all contributed to the significant increase in deposits. Demand deposits increased $2.3 billion, interest-bearing transaction account balances increased $619 million and time deposits increased $44 million. Demand deposits decreased $124 million compared to the second quarter of 2019.$1.9 billion.
Table 2419 - Average Deposits by Line of Business
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Commercial Banking | $ | 14,599,225 | | | $ | 11,907,386 | | | $ | 11,419,558 | | | $ | 10,833,057 | | | $ | 10,724,206 | |
| Consumer Banking | 7,587,246 | | | 6,869,481 | | | 6,974,453 | | | 6,983,018 | | | 6,998,677 | |
| Wealth Management | 8,385,681 | | | 7,623,986 | | | 7,301,391 | | | 6,590,332 | | | 6,220,848 | |
| Subtotal | 30,572,152 | | | 26,400,853 | | | 25,695,402 | | | 24,406,407 | | | 23,943,731 | |
| Funds Management and other | 2,078,802 | | | 1,794,715 | | | 1,404,838 | | | 1,293,767 | | | 1,218,645 | |
| Total | $ | 32,650,954 | | | $ | 28,195,568 | | | $ | 27,100,240 | | | $ | 25,700,174 | | | $ | 25,162,376 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | Sept. 30, 2019 | | Jun. 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Commercial Banking | $ | 10,833,057 |
| | $ | 10,724,206 |
| | $ | 8,261,543 |
| | $ | 8,393,016 |
| | $ | 8,633,204 |
|
| Consumer Banking | 6,983,018 |
| | 6,998,677 |
| | 6,544,665 |
| | 6,542,188 |
| | 6,580,395 |
|
| Wealth Management | 6,590,332 |
| | 6,220,848 |
| | 5,659,771 |
| | 5,483,455 |
| | 5,492,048 |
|
| Subtotal | 24,406,407 |
| | 23,943,731 |
| | 20,465,979 |
| | 20,418,659 |
| | 20,705,647 |
|
| Funds Management and other | 1,293,767 |
| | 1,218,645 |
| | 4,148,500 |
| | 4,676,736 |
| | 1,230,648 |
|
| Total | $ | 25,700,174 |
| | $ | 25,162,376 |
| | $ | 24,614,479 |
| | $ | 25,095,395 |
| | $ | 21,936,295 |
|
Acquired deposits were allocated to the lines of business from funds management and other in the second quarter of 2019. The fluctuations following include those deposits. Average Commercial Banking deposit balances increased $109 million$2.7 billion over the secondfirst quarter of 2019. Interest-bearing2020. Demand deposit balances increased $1.6 billion and interest-bearing transaction account balances increased $241$723 million. Time deposits were up $358 million and demand deposit balances decreased $138 million.over the prior quarter. Commercial customers continue to retain large cash reserves primarily due to a combination of factors including uncertainty about the economic environment and potential for growth, lack of preferable liquid alternatives and a desire to minimize deposit service charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. Commercial deposit balances may decrease as the economic outlook improves and if short-term rates move higher, enhancing their investment alternatives.
Average Consumer Banking deposit balances were largely unchangedincreased $718 million compared to the prior quarter. GrowthA $502 million increase in timedemand deposit balances, of $23a $153 million over the prior quarter was offset by a $26 million decreaseincrease in interest-bearing transaction deposit balances and an $11$81 million increase in savings account balances was partially offset by an $18 million decrease in demandtime deposit balances.
Average Wealth Management deposits increased $369$762 million over the secondfirst quarter of 2019.2020. Interest-bearing transaction account balances were up $397$603 million. Demand deposit balances decreased $48 million. Time deposit balances were up $16increased $163 million.
Average time deposits for the thirdsecond quarter of 20192020 included $249$158 million of brokered deposits, a $5.2an $89 million decrease compared to the secondfirst quarter of 2019.2020. Average interest-bearing transaction accounts for the thirdsecond quarter included $1.1$1.8 billion of brokered deposits, an $8.3a $448 million increase over the secondfirst quarter of 2019.2020.
The distribution of our period end deposit account balances among principal markets follows in Table 25.
Table 2520 -- Period End Deposits by Principal Market Area
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Oklahoma: | | | | | | | | | | |
| Demand | | $ | 4,378,559 | | | $ | 3,669,558 | | | $ | 3,257,337 | | | $ | 3,515,312 | | | $ | 3,279,360 | |
| Interest-bearing: | | | | | | | | | | |
| Transaction | | 11,438,489 | | | 9,955,697 | | | 8,574,912 | | | 7,447,799 | | | 7,020,484 | |
| Savings | | 387,557 | | | 329,631 | | | 306,194 | | | 308,103 | | | 307,785 | |
| Time | | 1,330,619 | | | 1,137,802 | | | 1,125,446 | | | 1,198,170 | | | 1,253,804 | |
| Total interest-bearing | | 13,156,665 | | | 11,423,130 | | | 10,006,552 | | | 8,954,072 | | | 8,582,073 | |
| Total Oklahoma | | 17,535,224 | | | 15,092,688 | | | 13,263,889 | | | 12,469,384 | | | 11,861,433 | |
| | | | | | | | | | |
| Texas: | | | | | | | | | | |
| Demand | | 3,070,955 | | | 2,767,399 | | | 2,757,376 | | | 2,867,915 | | | 2,970,340 | |
| Interest-bearing: | | | | | | | | | | |
| Transaction | | 3,358,090 | | | 2,874,362 | | | 2,911,731 | | | 2,589,063 | | | 2,453,187 | |
| Savings | | 128,892 | | | 115,039 | | | 102,456 | | | 100,597 | | | 103,125 | |
| Time | | 476,867 | | | 505,565 | | | 495,343 | | | 464,264 | | | 425,253 | |
| Total interest-bearing | | 3,963,849 | | | 3,494,966 | | | 3,509,530 | | | 3,153,924 | | | 2,981,565 | |
| Total Texas | | 7,034,804 | | | 6,262,365 | | | 6,266,906 | | | 6,021,839 | | | 5,951,905 | |
| | | | | | | | | | |
| Colorado: | | | | | | | | | | |
| Demand | | 2,096,075 | | | 1,579,764 | | | 1,729,674 | | | 1,694,044 | | | 1,621,820 | |
| Interest-bearing: | | | | | | | | | | |
| Transaction | | 1,816,604 | | | 1,759,384 | | | 1,769,037 | | | 1,910,874 | | | 1,800,271 | |
| Savings | | 67,477 | | | 58,000 | | | 53,307 | | | 60,107 | | | 57,263 | |
| Time | | 254,845 | | | 279,105 | | | 283,517 | | | 273,622 | | | 246,198 | |
| Total interest-bearing | | 2,138,926 | | | 2,096,489 | | | 2,105,861 | | | 2,244,603 | | | 2,103,732 | |
| Total Colorado | | 4,235,001 | | | 3,676,253 | | | 3,835,535 | | | 3,938,647 | | | 3,725,552 | |
| | | | | | | | | | |
| New Mexico: | | | | | | | | | | |
| Demand | | 965,877 | | | 750,052 | | | 623,722 | | | 645,698 | | | 630,861 | |
| Interest-bearing: | | | | | | | | | | |
| Transaction | | 752,565 | | | 563,891 | | | 558,493 | | | 539,260 | | | 557,881 | |
| Savings | | 80,242 | | | 67,553 | | | 63,999 | | | 62,863 | | | 62,636 | |
| Time | | 222,370 | | | 235,778 | | | 238,140 | | | 236,135 | | | 232,569 | |
| Total interest-bearing | | 1,055,177 | | | 867,222 | | | 860,632 | | | 838,258 | | | 853,086 | |
| Total New Mexico | | 2,021,054 | | | 1,617,274 | | | 1,484,354 | | | 1,483,956 | | | 1,483,947 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 | |
| Oklahoma: | | | | | | | | | | | |
| Arizona: | | Arizona: | |
| Demand | | $ | 3,515,312 |
| | $ | 3,279,359 |
| | $ | 3,432,239 |
| | $ | 3,610,593 |
| | $ | 3,564,307 |
| Demand | | 985,757 | | | 665,396 | | | 681,268 | | | 705,895 | | | 704,144 | |
| Interest-bearing: | | | | | | | | | | | Interest-bearing: | |
| Transaction | | 7,447,799 |
| | 7,020,484 |
| | 6,542,548 |
| | 6,445,831 |
| | 6,010,972 |
| Transaction | | 780,500 | | | 729,603 | | | 684,929 | | | 600,103 | | | 560,861 | |
| Savings | | 308,103 |
| | 307,785 |
| | 309,875 |
| | 288,210 |
| | 288,080 |
| Savings | | 15,669 | | | 8,832 | | | 10,314 | | | 12,487 | | | 11,966 | |
| Time | | 1,198,170 |
| | 1,253,804 |
| | 1,217,371 |
| | 1,118,643 |
| | 1,128,810 |
| Time | | 42,318 | | | 47,081 | | | 49,676 | | | 44,347 | | | 43,099 | |
| Total interest-bearing | | 8,954,072 |
| | 8,582,073 |
| | 8,069,794 |
| | 7,852,684 |
| | 7,427,862 |
| Total interest-bearing | | 838,487 | | | 785,516 | | | 744,919 | | | 656,937 | | | 615,926 | |
| Total Oklahoma | | 12,469,384 |
| | 11,861,432 |
| | 11,502,033 |
| | 11,463,277 |
| | 10,992,169 |
| |
| Total Arizona | | Total Arizona | | 1,824,244 | | | 1,450,912 | | | 1,426,187 | | | 1,362,832 | | | 1,320,070 | |
| | | | | | | | | | | | |
| Texas: | | | | | | | | | | | |
| Kansas/Missouri: | | Kansas/Missouri: | |
| Demand | | 2,870,429 |
| | 2,974,005 |
| | 2,966,743 |
| | 3,291,433 |
| | 3,357,669 |
| Demand | | 427,795 | | | 318,985 | | | 384,533 | | | 376,020 | | | 431,856 | |
| Interest-bearing: | | | | | | | | | | | Interest-bearing: | |
| Transaction | | 2,589,511 |
| | 2,453,619 |
| | 2,385,305 |
| | 2,295,169 |
| | 2,182,114 |
| Transaction | | 526,635 | | | 537,552 | | | 784,574 | | | 284,940 | | | 310,774 | |
| Savings | | 100,597 |
| | 103,125 |
| | 101,849 |
| | 99,624 |
| | 97,909 |
| Savings | | 15,033 | | | 12,888 | | | 12,169 | | | 11,689 | | | 13,125 | |
| Time | | 464,264 |
| | 425,253 |
| | 419,269 |
| | 423,880 |
| | 453,119 |
| Time | | 17,746 | | | 19,137 | | | 17,877 | | | 19,126 | | | 19,205 | |
| Total interest-bearing | | 3,154,372 |
| | 2,981,997 |
| | 2,906,423 |
| | 2,818,673 |
| | 2,733,142 |
| Total interest-bearing | | 559,414 | | | 569,577 | | | 814,620 | | | 315,755 | | | 343,104 | |
| Total Texas | | 6,024,801 |
| | 5,956,002 |
| | 5,873,166 |
| | 6,110,106 |
| | 6,090,811 |
| |
| | | | | | | | | | | | |
| New Mexico: | | | | | | | | | | | |
| Demand | | 645,698 |
| | 630,861 |
| | 662,362 |
| | 691,692 |
| | 722,188 |
| |
| Interest-bearing: | | | | | | | | | | | |
| Transaction | | 539,260 |
| | 557,881 |
| | 573,203 |
| | 571,347 |
| | 593,760 |
| |
| Savings | | 62,863 |
| | 62,636 |
| | 61,497 |
| | 58,194 |
| | 57,794 |
| |
| Time | | 236,135 |
| | 232,569 |
| | 228,212 |
| | 224,515 |
| | 221,513 |
| |
| Total interest-bearing | | 838,258 |
| | 853,086 |
| | 862,912 |
| | 854,056 |
| | 873,067 |
| |
| Total New Mexico | | 1,483,956 |
| | 1,483,947 |
| | 1,525,274 |
| | 1,545,748 |
| | 1,595,255 |
| |
| Total Kansas/Missouri | | Total Kansas/Missouri | | 987,209 | | | 888,562 | | | 1,199,153 | | | 691,775 | | | 774,960 | |
| | | | | | | | | | | | |
| Arkansas: | | | | | | | | | | | Arkansas: | |
| Demand | | 39,513 |
| | 29,176 |
| | 31,624 |
| | 36,800 |
| | 36,579 |
| Demand | | 67,147 | | | 70,428 | | | 27,381 | | | 39,513 | | | 29,176 | |
| Interest-bearing: | | | | | | | | | | | Interest-bearing: | |
| Transaction | | 149,506 |
| | 148,485 |
| | 147,964 |
| | 91,593 |
| | 128,001 |
| Transaction | | 177,535 | | | 175,803 | | | 108,076 | | | 149,506 | | | 148,485 | |
| Savings | | 1,747 |
| | 1,783 |
| | 1,785 |
| | 1,632 |
| | 1,826 |
| Savings | | 2,101 | | | 1,862 | | | 1,837 | | | 1,747 | | | 1,783 | |
| Time | | 7,877 |
| | 7,810 |
| | 8,321 |
| | 8,726 |
| | 10,214 |
| Time | | 7,995 | | | 8,005 | | | 7,850 | | | 7,877 | | | 7,810 | |
| Total interest-bearing | | 159,130 |
| | 158,078 |
| | 158,070 |
| | 101,951 |
| | 140,041 |
| Total interest-bearing | | 187,631 | | | 185,670 | | | 117,763 | | | 159,130 | | | 158,078 | |
| Total Arkansas | | 198,643 |
| | 187,254 |
| | 189,694 |
| | 138,751 |
| | 176,620 |
| Total Arkansas | | 254,778 | | | 256,098 | | | 145,144 | | | 198,643 | | | 187,254 | |
| | | | | | | | | | | | |
| Total BOK Financial deposits | | Total BOK Financial deposits | | $ | 33,892,314 | | | $ | 29,244,152 | | | $ | 27,621,168 | | | $ | 26,167,076 | | | $ | 25,305,121 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Colorado: | | | | | | | | | | |
| Demand | | 1,694,044 |
| | 1,621,820 |
| | 1,897,547 |
| | 1,658,473 |
| | 593,442 |
|
| Interest-bearing: | | | | | | | | | | |
| Transaction | | 1,910,874 |
| | 1,800,271 |
| | 1,844,632 |
| | 1,899,203 |
| | 622,520 |
|
| Savings | | 60,107 |
| | 57,263 |
| | 58,919 |
| | 57,289 |
| | 40,308 |
|
| Time | | 273,622 |
| | 246,198 |
| | 261,235 |
| | 274,877 |
| | 217,628 |
|
| Total interest-bearing | | 2,244,603 |
| | 2,103,732 |
| | 2,164,786 |
| | 2,231,369 |
| | 880,456 |
|
| Total Colorado | | 3,938,647 |
| | 3,725,552 |
| | 4,062,333 |
| | 3,889,842 |
| | 1,473,898 |
|
| | | | | | | | | | | |
| Arizona: | | | | | | | | | | |
| Demand | | 703,381 |
| | 700,480 |
| | 695,238 |
| | 707,402 |
| | 365,878 |
|
| Interest-bearing: | | | | | | | | | | |
| Transaction | | 599,655 |
| | 560,429 |
| | 621,735 |
| | 575,567 |
| | 130,105 |
|
| Savings | | 12,487 |
| | 11,966 |
| | 12,144 |
| | 10,545 |
| | 3,559 |
|
| Time | | 44,347 |
| | 43,099 |
| | 44,004 |
| | 43,051 |
| | 23,927 |
|
| Total interest-bearing | | 656,489 |
| | 615,494 |
| | 677,883 |
| | 629,163 |
| | 157,591 |
|
| Total Arizona | | 1,359,870 |
| | 1,315,974 |
| | 1,373,121 |
| | 1,336,565 |
| | 523,469 |
|
| | | | | | | | | | | |
| Kansas/Missouri: | | | | | | | | | | |
| Demand | | 376,020 |
| | 431,856 |
| | 410,799 |
| | 418,199 |
| | 423,560 |
|
| Interest-bearing: | | | | | | | | | | |
| Transaction | | 284,940 |
| | 310,774 |
| | 361,590 |
| | 327,866 |
| | 322,747 |
|
| Savings | | 11,689 |
| | 13,125 |
| | 13,815 |
| | 13,721 |
| | 13,125 |
|
| Time | | 19,126 |
| | 19,205 |
| | 19,977 |
| | 19,688 |
| | 20,635 |
|
| Total interest-bearing | | 315,755 |
| | 343,104 |
| | 395,382 |
| | 361,275 |
| | 356,507 |
|
| Total Kansas/Missouri | | 691,775 |
| | 774,960 |
| | 806,181 |
| | 779,474 |
| | 780,067 |
|
| Total BOK Financial deposits | | $ | 26,167,076 |
| | $ | 25,305,121 |
| | $ | 25,331,802 |
| | $ | 25,263,763 |
| | $ | 21,632,289 |
|
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 $600$200 million at SeptemberJune 30, 2019.2020. Securities repurchase agreements generally mature within 90 days and are secured by certain available for sale and trading securities. Federal Home Loan Bank borrowings are generally short-term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and agency mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $8.1$2.7 billion during the quarter, compared to $7.2$6.5 billion in the secondfirst quarter of 2019.2020.
On March 15, 2020, the Federal Reserve announced changes to the Discount Window, including narrowing the spread of the primary credit rate relative to the general level of overnight interest to help encourage more active use of the Discount Window by depository institutions. We increased our collateral at the Discount Window and maintained a modest amount of borrowings in late March into early April. On April 13, 2020, the banking agencies published an interim final rule which permits banking organizations to exclude from regulatory capital requirements PPP covered loans pledged to the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPLF"). The Company initially funded PPP loans from deposits and Federal Home Loan Bank borrowings, but transitioned to the PPLF in June in order to realize this regulatory capital relief.
At SeptemberJune 30, 2019,2020, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $10.1$14.6 billion.
A summary of other borrowings for BOK Financial on a consolidated basis follows in Table 26.
Table 2621 -- Borrowed Funds
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended
June 30, 2020 | | | | | | | | Three Months Ended
Mar. 31, 2020 | | | | |
| | June 30, 2020 | | Average
Balance
During the
Quarter | | Rate | | Maximum
Outstanding
At Any Month
End During
the Quarter | | Mar. 31, 2020 | | Average
Balance
During the
Quarter | | Rate | | Maximum
Outstanding
At Any Month
End During
the Quarter |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Funds purchased | | 830,732 | | | 2,411,533 | | | 0.15 | % | | 3,311,938 | | | 1,827,134 | | | 2,848,816 | | | 1.25 | % | | 2,608,315 | |
| Repurchase agreements | | 526,870 | | | 3,404,951 | | | 0.14 | % | | 3,230,097 | | | 2,756,634 | | | 967,125 | | | 0.82 | % | | 2,756,634 | |
| Other borrowings: | | | | | | | | | | | | | | | | |
| Federal Home Loan Bank advances | | 1,000,000 | | | 2,658,242 | | | 0.53 | % | | 2,300,000 | | | 5,500,000 | | | 6,474,725 | | | 1.65 | % | | 7,500,000 | |
| GNMA repurchase liability | | 126,569 | | | 21,229 | | | 4.28 | % | | 126,569 | | | 15,030 | | | 14,304 | | | 4.41 | % | | 15,030 | |
| Federal Reserve Bank advances | | — | | | 135,165 | | | 0.25 | % | | — | | | — | | | 36,264 | | | 0.31 | % | | — | |
| Paycheck protection program liquidity facility | | 2,013,414 | | | 678,645 | | | 0.36 | % | | 2,013,414 | | | — | | | — | | | — | % | | — | |
| Other | | 33,580 | | | 34,022 | | | 3.51 | % | | 49,376 | | | 14,524 | | | 17,032 | | | 4.13 | % | | 14,524 | |
| Total other borrowings | | 3,173,563 | | | 3,527,303 | | | 0.56 | % | | | | 5,529,554 | | | 6,542,325 | | | 1.66 | % | | |
Subordinated debentures1 | | 275,973 | | | 275,949 | | | 5.16 | % | | 275,973 | | | 275,942 | | | 275,932 | | | 5.30 | % | | 275,942 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total other borrowed funds and subordinated debentures | | $ | 4,807,138 | | | $ | 9,619,736 | | | 0.44 | % | | | | $ | 10,389,264 | | | $ | 10,634,198 | | | 1.57 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended
September 30, 2019 | | | | Three Months Ended
June 30, 2019 |
| | | Sept. 30, 2019 | | Average Balance During the Quarter | | Rate | | Maximum Outstanding At Any Month End During the Quarter | | June 30, 2019 | | Average Balance During the Quarter | | Rate | | Maximum Outstanding At Any Month End During the Quarter |
| | | | | | | | | | | | | | | | | |
| Parent Company and Other Non-Bank Subsidiaries: |
| Other borrowings | | 8,132 |
| | 5,515 |
| | 3.54 | % | | $ | 8,132 |
| | 5,578 |
| | 6,593 |
| | 3.22 | % | | 6,593 |
|
| Subordinated debentures | | 275,909 |
| | 275,900 |
| | 5.48 | % | | $ | 275,909 |
| | 275,892 |
| | 275,887 |
| | 5.53 | % | | 275,893 |
|
| Total parent company and other non-bank subsidiaries | | 284,041 |
| | 281,415 |
| | 5.44 | % | | | | 281,470 |
| | 282,480 |
| | 5.47 | % | |
|
|
| | | | | | | | | | | | | | | | | |
| BOKF, NA: | | | | | | | | | | | | | | | | |
| Funds purchased | | 3,030,691 |
| | 2,653,752 |
| | 2.25 | % | | 3,030,691 |
| | 1,975,086 |
| | 1,650,046 |
| | 2.46 | % | | 1,975,086 |
|
| Repurchase agreements | | 382,360 |
| | 452,411 |
| | 0.58 | % | | 507,111 |
| | 356,861 |
| | 416,904 |
| | 0.56 | % | | 388,760 |
|
| Other borrowings: | | | | | | | | | | | | | | | | |
| Federal Home Loan Bank advances | | 6,800,000 |
| | 8,102,174 |
| | 2.41 | % | | 8,000,000 |
| | 7,800,000 |
| | 7,153,846 |
| | 2.65 | % | | 7,800,000 |
|
| GNMA repurchase liability | | 10,419 |
| | 13,577 |
| | 4.53 | % | | 13,577 |
| | 14,499 |
| | 10,755 |
| | 4.44 | % | | 14,499 |
|
| Other | | 3,783 |
| | 3,757 |
| | 5.82 | % | | 3,783 |
| | 3,732 |
| | 4,423 |
| | 4.62 | % | | 3,732 |
|
| Total other borrowings | | 6,814,202 |
| | 8,119,508 |
| | 2.42 | % | |
|
| | 7,818,231 |
| | 7,169,024 |
| | 2.67 | % | |
|
|
| Total BOKF, NA | | 10,227,253 |
| | 11,225,671 |
| | 2.30 | % | | | | 10,150,178 |
| | 9,235,974 |
| | 2.53 | % | | |
| | | | | | | | | | | | | | | | | |
| Total other borrowed funds and subordinated debentures | | $ | 10,511,294 |
| | $ | 11,507,086 |
| | 2.39 | % | | | | $ | 10,431,648 |
| | $ | 9,518,454 |
| | 2.62 | % | | |
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. This liability increased over the prior quarter primarily due to GNMA loans serviced by the Company that are participating in the forbearance program included in the CARES Act, which began in the second quarter. As delinquencies increase, the GNMA repurchase liability will also increase.
Parent Company
At SeptemberJune 30, 2019,2020, cash and interest-bearing cash and cash equivalents held by the parent company totaled $185$180 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 SeptemberJune 30, 2019,2020, based upon the most restrictive limitations as well as management's internal capital policy, BOKF, NA could declare up to $151$134 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 SeptemberJune 30, 20192020 was $4.8$5.1 billion, a $119$70 million increase over June 30, 2019.March 31, 2020. Net income less cash dividends paid increased equity $107$29 million during the thirdsecond quarter of 2019.2020. Changes in interest rates resulted in a $35$39 million increase in accumulated other comprehensive gain over June 30, 2019.March 31, 2020. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings including expected benefits from lower federal income tax rates, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt or perpetual preferred stock issuance, share repurchase and stock and cash dividends.
On April 30, 2019, the board of directors authorized the Company to purchase up to five million common shares, subject to market conditions, securities law and other regulatory compliance limitations. As of SeptemberJune 30, 2019, 586,7132020, 1,308,713 shares have been repurchased under this new authorization. The Company repurchased 336,713 shares duringpaused share repurchases through the thirdsecond quarter of 2019 at an average price2020. We view share buybacks opportunistically, but within the context of $77.03 per share.
On June 16, 2016, the FASB issued FASB Accounting Standards Update No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Assets Measured at Amortized Cost ("ASU 2016-13" or "CECL") to provide more-timely recording of credit losses on loans and other financial assets measured at amortized cost, effective for the Company’s annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company will adopt the standard on January 1, 2020 through a cumulative-effect adjustment to retained earnings. The ASU broadens the scope of the allowance for credit losses to include acquired loans and certain serviced loans, among others. Specifically, CECL requires recognition of an allowance for credit losses on acquired loans that were initially recognized at fair value, which included an estimate of expected credit losses. This requirement will result in duplicate recognition of an allowance for expected credit losses on approximately $2.0 billion of acquired loans. The principles of CECL also apply to expected credit losses on residential mortgage loans the company has transferred into mortgage-backed securities, primarily expected losses on approximately $3.5 billion of residential mortgage loans that exceed amounts guaranteed by the U.S. Department of Veterans Affairs.
We expect the pre-tax transition adjustment from the CECL implementation will be between $50 million and $75 million. We plan to adopt the three year transition approach for regulatory capital. The ultimate impact will depend on the composition of our portfolio of assets measured at amortized cost as well as economic conditions and forecasts at adoption.
BOK Financial and BOKF, NA are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that could have a material impact on operations. These capital requirements include quantitative measures of assets, liabilities and off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators.
A summary of minimum capital requirements, including capital conservation buffer follows in Table 27.22. A bank which falls below these levels, including the capital conservation buffer, would be subject to regulatory restrictions on capital distributions (including but not limited to dividends and share repurchases) and executive bonus payments.
In March 2020, in response to the impact on the financial markets by the COVID-19 pandemic, the banking agencies issued an interim final rule permitting banking organizations that implement CECL the option to delay for two years an estimate of the CECL methodology's effect on regulatory capital, followed by a three-year transition period. The estimate includes the implementation date adjustment as of January 1, 2020 plus an estimate of the impact of the change for a two year period following implementation of CECL. We have elected to delay the regulatory capital impact of the transition in accordance with the interim final rule. Deferral of the impact of CECL added 30 basis points to the Company's Common equity Tier 1 capital at June 30, 2020.
The capital ratios for BOK Financial on a consolidated basis are presented in Table 27.22.
Table 2722 -- Capital Ratios
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Minimum Capital Requirement | | Capital Conservation Buffer | | Minimum Capital Requirement Including Capital Conservation Buffer | | June 30, 2020 | | Mar. 31, 2020 | | June 30, 2019 |
| Risk-based capital: | | | | | | | | | | | | |
| Common equity Tier 1 | | 4.50 | % | | 2.50 | % | | 7.00 | % | | 11.44 | % | | 10.98 | % | | 10.84 | % |
| Tier 1 capital | | 6.00 | % | | 2.50 | % | | 8.50 | % | | 11.44 | % | | 10.98 | % | | 10.84 | % |
| Total capital | | 8.00 | % | | 2.50 | % | | 10.50 | % | | 13.43 | % | | 12.65 | % | | 12.34 | % |
| Tier 1 Leverage | | 4.00 | % | | N/A | | 4.00 | % | | 7.74 | % | | 8.15 | % | | 8.75 | % |
| | | | | | | | | | | | |
| Average total equity to average assets | | | | | | | | 10.19 | % | | 10.73 | % | | 11.26 | % |
| Tangible common equity ratio | | | | | | | | 8.79 | % | | 8.39 | % | | 8.69 | % |
|
| | | | | | | | | | | | | | | | | | |
| | | Minimum Capital Requirement | | Capital Conservation Buffer | | Minimum Capital Requirement Including Capital Conservation Buffer | | Sept. 30, 2019 | | June 30, 2019 | | Sept. 30, 2018 |
| Risk-based capital: | | | | | | | | | | | | |
| Common equity Tier 1 | | 4.50 | % | | 2.50 | % | | 7.00 | % | | 11.06 | % | | 10.84 | % | | 12.07 | % |
| Tier 1 capital | | 6.00 | % | | 2.50 | % | | 8.50 | % | | 11.06 | % | | 10.84 | % | | 12.07 | % |
| Total capital | | 8.00 | % | | 2.50 | % | | 10.50 | % | | 12.56 | % | | 12.34 | % | | 13.37 | % |
| Tier 1 Leverage | | 4.00 | % | | N/A |
| | 4.00 | % | | 8.41 | % | | 8.75 | % | | 9.90 | % |
| | | | | | | | | | | | | |
| Average total equity to average assets | | | | | | | | 10.97 | % | | 11.26 | % | | 10.73 | % |
| Tangible common equity ratio | | | | | | | | 8.72 | % | | 8.69 | % | | 9.55 | % |
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 2823 provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.
Table 2823 -- Non-GAAP Measure
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| Tangible common equity ratio: | | | | | | | | | | |
| Total shareholders' equity | | $ | 5,096,995 | | | $ | 5,026,248 | | | $ | 4,855,795 | | | $ | 4,829,016 | | | $ | 4,709,438 | |
| Less: Goodwill and intangible assets, net | | 1,171,686 | | | 1,169,898 | | | 1,173,362 | | | 1,172,411 | | | 1,172,564 | |
| Tangible common equity | | 3,925,309 | | | 3,856,350 | | | 3,682,433 | | | 3,656,605 | | | 3,536,874 | |
| Total assets | | 45,819,874 | | | 47,119,162 | | | 42,172,021 | | | 43,127,205 | | | 41,893,073 | |
| Less: Goodwill and intangible assets, net | | 1,171,686 | | | 1,169,898 | | | 1,173,362 | | | 1,172,411 | | | 1,172,564 | |
| Tangible assets | | $ | 44,648,188 | | | $ | 45,949,264 | | | $ | 40,998,659 | | | $ | 41,954,794 | | | $ | 40,720,509 | |
| Tangible common equity ratio | | 8.79 | % | | 8.39 | % | | 8.98 | % | | 8.72 | % | | 8.69 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| Tangible common equity ratio: | | | | | | | | | | |
| Total shareholders' equity | | $ | 4,829,016 |
| | $ | 4,709,438 |
| | $ | 4,522,873 |
| | $ | 4,432,109 |
| | $ | 3,615,032 |
|
| Less: Goodwill and intangible assets, net | | 1,172,411 |
| | 1,172,564 |
| | 1,177,573 |
| | 1,184,112 |
| | 480,800 |
|
| Tangible common equity | | 3,656,605 |
| | 3,536,874 |
| | 3,345,300 |
| | 3,247,997 |
| | 3,134,232 |
|
| Total assets | | 43,127,205 |
| | 41,893,073 |
| | 39,882,962 |
| | 38,020,504 |
| | 33,289,864 |
|
| Less: Goodwill and intangible assets, net | | 1,172,411 |
| | 1,172,564 |
| | 1,177,573 |
| | 1,184,112 |
| | 480,800 |
|
| Tangible assets | | $ | 41,954,794 |
| | $ | 40,720,509 |
| | $ | 38,705,389 |
| | $ | 36,836,392 |
| | $ | 32,809,064 |
|
| Tangible common equity ratio | | 8.72 | % | | 8.69 | % | | 8.64 | % | | 8.82 | % | | 9.55 | % |
Off-Balance Sheet Arrangements
See Note 74 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet commitments.
Market Risk
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading. Market risk excludes changes in fair value due to the credit of the individual issuers of financial instruments.
BOK Financial is subject to market risk primarily through the effect of changes in interest rates on both its assets held for purposes other than trading and trading assets. The effects of other changes, such as foreign exchange rates, commodity prices or equity prices do not pose significant market risk to BOK Financial. BOK Financial has no material investments in assets that are affected by changes in foreign exchange rates or equity prices. Energy and agricultural product derivative contracts, which are affected by changes in commodity prices, are matched against offsetting contracts as previously discussed.
The Asset/Liability Committee is responsible for managing market risk in accordance with policy limits established by the Board of Directors. The Committee monitors projected variation in net interest revenue, net income and economic value of equity due to specified changes in interest rates. These limits also set maximum levels for short-term borrowings, short-term assets, public funds and brokered deposits and establish minimum levels for un-pledged assets, among other things. Further, the Board approved market risk limits for fixed income trading, mortgage pipeline and mortgage servicing assets inclusive of economic hedge benefits. Exposure is measured daily and compliance is reviewed monthly. Deviations from the Board approved limits, which periodically occur throughout the reporting period, may require management to develop and execute plans to reduce exposure. These plans are subject to escalation to and approval by the Board.
The simulations used to manage market risk are based on numerous assumptions regarding the effects of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, models cannot precisely estimate or precisely predict the impact of higher or lower interest rates. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, market conditions and management strategies, among other factors.
Interest Rate Risk – Other than Trading
As previously noted in the Net Interest Revenue section of this report, management has implemented strategies to manage the Company’s balance sheet to have relatively limited exposure to changes in interest rates over a twelve-month period. The effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions, on net interest revenue. A simulation model is used to estimate the effect of changes in interest rates on our performance across multiple interest rate scenarios. Our current internal policy limit for net interest revenue variation due to a 200 basis point parallel change in market interest rates over twelve months is a maximum decline of 5 percent. The results of a 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 100 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 2924 -- Interest Rate Sensitivity
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 200 bp Increase1 | | | | 100 bp Decrease2 | | |
| | June 30, | | | | June 30, | | |
| | | 2020 | | 2019 | | 2020 | | 2019 |
| Anticipated impact over the next twelve months on net interest revenue | | $ | 35,746 | | | $ | (15,527) | | | N/A | | $ | (32,930) | |
| | | 3.47 | % | | (1.38) | % | | N/A | | (2.93) | % |
|
| | | | | | | | | | | | | | | | |
| | | 200 bp Increase | | 100 bp Decrease1 |
| | | September 30, | | September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Anticipated impact over the next twelve months on net interest revenue | | $ | (20,916 | ) | | $ | 979 |
| | $ | (28,509 | ) | | $ | (36,275 | ) |
| | | (1.89 | )% | | 0.10 | % | | (2.57 | )% | | (3.65 | )% |
1 Repricing assumptions for non-maturity deposits were updated in the second quarter of 2020 to better represent observed historical performance.
2 The results of a decrease in the current low-rate environment in 2020 are not meaningful. The results of a 200 basis point decrease in interest rates in the low-rate environment arein 2019 were not meaningful, therefore we will instead reportreported the effect of a 100 basis point decrease in interest rates.decrease.
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.
Table 3025 -- MSR Asset and Hedge Sensitivity Analysis
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, | | | | | | |
| | | 2020 | | | | 2019 | | |
| | Up 50 bp | | Down 50 bp | | Up 50 bp | | Down 50 bp |
| MSR Asset | | $ | 28,466 | | | $ | (13,198) | | | $ | 32,153 | | | $ | (41,160) | |
| MSR Hedge | | (25,186) | | | 23,542 | | | (36,192) | | | 33,383 | |
| Net Exposure | | 3,280 | | | 10,344 | | | (4,039) | | | (7,777) | |
|
| | | | | | | | | | | | | | | | |
| | | September 30, |
| | | 2019 | | 2018 |
| | | Up 50 bp | | Down 50 bp | | Up 50 bp | | Down 50 bp |
| MSR Asset | | $ | 33,176 |
| | $ | (42,387 | ) | | $ | 14,068 |
| | $ | (23,080 | ) |
| MSR Hedge | | (41,744 | ) | | 39,600 |
| | (21,712 | ) | | 19,921 |
|
| Net Exposure | | (8,568 | ) | | (2,787 | ) | | (7,644 | ) | | (3,159 | ) |
Trading Activities
The Company bears market risk by originating residential mortgages held for sale ("RMHFS"). RMHFS are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a loan to sale of the closed loan to an investor. Primary mortgage interest rate changes during this period affect the value of RMHFS commitments and loans. We use forward sale contracts to mitigate market risk on all closed mortgage loans held for sale and on an estimate of mortgage loan commitments that are expected to result in closed loans.
A variety of methods are used to monitor market risk of mortgage origination activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and revenue sensitivity limits.
Management performs a stress test to measure market risk due to changes in interest rates inherent in the mortgage production pipeline. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity that may result. The Board has approved a $7 million market risk limit for the mortgage production pipeline, net of forward sale contracts.
Table 3126 -- Mortgage Pipeline Sensitivity Analysis
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | | | | Six Months Ended June 30, | | | | | | |
| | | 2020 | | | | 2019 | | | | 2020 | | | | 2019 | | |
| | 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 | | $ | (393) | | | $ | (49) | | | $ | (229) | | | $ | (190) | | | $ | (304) | | | $ | (107) | | | $ | (104) | | | $ | (490) | |
Low2 | | 403 | | | 723 | | | 189 | | | 330 | | | 582 | | | 998 | | | 436 | | | 330 | |
High3 | | (1,310) | | | (823) | | | (664) | | | (1,163) | | | (1,344) | | | (1,483) | | | (664) | | | (1,343) | |
| Period End | | (195) | | | 10 | | | (278) | | | (169) | | | (195) | | | 10 | | | (278) | | | (169) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 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 |
Average1 | | $ | (84 | ) | | $ | (171 | ) | | $ | 156 |
| | $ | (655 | ) | | $ | (97 | ) | | $ | (382 | ) | | $ | 335 |
| | $ | (841 | ) |
Low2 | | 528 |
| | 293 |
| | 596 |
| | (347 | ) | | 528 |
| | 330 |
| | 2,077 |
| | 699 |
|
High3 | | (411 | ) | | (478 | ) | | (101 | ) | | (1,025 | ) | | (664 | ) | | (1,343 | ) | | (1,015 | ) | | (2,447 | ) |
| Period End | | 25 |
| | (164 | ) | | 139 |
| | (601 | ) | | 25 |
| | (164 | ) | | 139 |
| | (601 | ) |
| |
12 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.
| Average represents the simple average of each daily value observed during the reporting period. |
| |
2
| Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period. |
| |
3
| High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period. |
BOK Financial engages in trading activities both as an intermediary for customers and for its own account. As an intermediary, we take positions in securities, generally U.S. government agency residential mortgage-backed securities, government agency securities and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. On a limited basis, we may also take trading positions in U.S. Treasury securities, residential mortgage-backed securities, and municipal bonds to enhance returns on securities portfolios. Both of these activities involve interest rate, liquidity and price risk. BOK Financial has an insignificant exposure to foreign exchange risk and does not take positions in commodity derivatives.
A variety of methods are used to monitor the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Economic hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs.
Management performs a stress test to measure market risk from changes in interest rates on its trading portfolio. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity that may result. The Board has approved an $8$11 million market risk limit for the trading portfolio, net of economic hedges.
Table 3227 -- Trading Sensitivity Analysis
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | | | | Six Months Ended June 30, | | | | | | |
| | | 2020 | | | | 2019 | | | | 2020 | | | | 2019 | | |
| | 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 | | $ | (2,161) | | | $ | 3,314 | | | $ | (2,436) | | | $ | 2,503 | | | $ | (3,371) | | | $ | 5,266 | | | $ | (2,080) | | | $ | 2,051 | |
Low2 | | 2,919 | | | 14,163 | | | (202) | | | 5,378 | | | 2,919 | | | 15,309 | | | 857 | | | 5,378 | |
High3 | | (12,490) | | | (2,049) | | | (5,153) | | | 267 | | | (12,490) | | | (2,049) | | | (5,153) | | | (729) | |
| Period End | | 704 | | | 463 | | | (629) | | | 936 | | | 704 | | | 463 | | | 629 | | | 936 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 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 |
Average1 | | $ | (1,244 | ) | | $ | 1,361 |
| | $ | (897 | ) | | $ | (55 | ) | | $ | (1,800 | ) | | $ | 1,820 |
| | $ | (1,329 | ) | | $ | 714 |
|
Low2 | | 2,939 |
| | 3,065 |
| | 2,041 |
| | 3,447 |
| | 2,939 |
| | 5,378 |
| | 2,041 |
| | 4,423 |
|
High3 | | (3,359 | ) | | (4,747 | ) | | (4,005 | ) | | (3,463 | ) | | (5,153 | ) | | (4,747 | ) | | (4,534 | ) | | (3,463 | ) |
| Period End | | (1,719 | ) | | 1,371 |
| | (2,116 | ) | | 1,573 |
| | (1,719 | ) | | 1,371 |
| | (2,116 | ) | | 1,573 |
|
| |
12 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.
| Average represents the simple average of each daily value observed during the reporting period. |
| |
2
| Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period. |
| |
3
| High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period. |
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. In 2017, the U.K. Financial Conduct Authority announced that it would no longer persuade or compel banks to submit to LIBOR after 2021. U.S. regulatory authorities have voiced similar support for phasing out LIBOR. The Federal Reserve Bank of New York’s Alternative Reference Rate Committee has recommended the Secured Overnight Financing Rate (“SOFR”) as an alternative for LIBOR. However, for two key reasons, SOFR is a secured rate while LIBOR is an unsecured rate and SOFR is an overnight rate while LIBOR is published for different maturities, SOFR is not the economic equivalent of LIBOR. The impact of SOFR or other alternatives to LIBOR on the valuations, pricing and operation of our financial instruments is not yet known.
Management has established a LIBOR Transition Working Group (the “Group”) whose purpose is to guide the overall transition process for the company. The Group is an internal, cross-functional team with representatives from all business lines, support and control functions and legal counsel. Key loan provisions have been modified to ensure that new and renewed loans include appropriate LIBOR fallback language to ensure the smoothest possible transition from LIBOR to the new benchmark when such transition occurs. All direct exposures resulting from existing financial contracts primarily focusing on loans that mature after 2021 have been inventoried and are being assessed for direct exposure to LIBOR.monitored on an ongoing basis. Remediation of these exposures will begin once this assessment is completed.be consistent with industry timing. The Group ishas also preparing for a risk assessment forinventoried indirect LIBOR exposures such as financial risk models.within the Company's systems, models and processes. The results of this assessment will drive development and prioritization of actions.remediation plans.
Controls and Procedures
As required by Rule 13a-15(b), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by their report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), BOK Financial’s management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.
Forward-Looking Statements
This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial Corporation, the financial services industry, the economy generally and the economy generally.expected or potential impact of the novel coronavirus (COVID-19) pandemic, and the related responses of the government, consumers, and others, on our business, financial condition and results of operations. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” “will,” “intends,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses, allowance for uncertain tax positions, accruals for loss contingencies and valuation of mortgage servicing rights involve judgments as to expected events and are inherently forward-looking statements. Assessments that 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 others which BOK Financial has not independently verified. These various forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to changes in government, consumer or business responses to, and ability to treat or prevent further outbreak of, the COVID-19 pandemic, changes in commodity prices, interest rates and interest rate relationships, inflation, demand for products and services, the degree of competition by traditional and nontraditional competitors, changes in banking regulations, tax laws, prices, levies and assessments, the impact of technological advances, and trends in customer behavior as well as their ability to repay loans. There may also be difficulties and delays in integrating CoBiz Financial Inc.'s business or fully realizing cost savings and other benefits including, but not limited to, business disruption and customer acceptance of BOK Financial Corporation's products and services. BOK Financial and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.
In this report we may sometimes use non-GAAP Financial information.financial measures. Please note that although non-GAAP financial measures provide useful insight to analysts, investors and regulators, they should not be considered in isolation or relied upon as a substitute for analysis using GAAP measures. If applicable, we provide GAAP reconciliations for non-GAAP financial measures.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Earnings (Unaudited) | | | | | | | | |
| (In thousands, except share and per share data) | | Three Months Ended | | | | Six Months Ended | | |
| | | June 30, | | | | June 30, | | |
| Interest revenue | | 2020 | | 2019 | | 2020 | | 2019 |
| Loans | | $ | 215,438 | | | $ | 293,332 | | | $ | 458,656 | | | $ | 573,204 | |
| Residential mortgage loans held for sale | | 2,140 | | | 1,754 | | | 3,263 | | | 3,417 | |
| Trading securities | | 11,407 | | | 15,498 | | | 23,167 | | | 34,193 | |
| Investment securities | | 3,000 | | | 2,905 | | | 6,121 | | | 6,939 | |
| Available for sale securities | | 68,297 | | | 59,880 | | | 138,017 | | | 116,711 | |
| Fair value option securities | | 4,110 | | | 7,503 | | | 15,818 | | | 12,740 | |
| Restricted equity securities | | 1,880 | | | 6,516 | | | 7,774 | | | 12,861 | |
| Interest-bearing cash and cash equivalents | | 112 | | | 3,432 | | | 2,505 | | | 6,829 | |
| Total interest revenue | | 306,384 | | | 390,820 | | | 655,321 | | | 766,894 | |
| Interest expense | | | | | | | | |
| Deposits | | 17,745 | | | 43,183 | | | 63,904 | | | 80,600 | |
| Borrowed funds | | 6,996 | | | 58,404 | | | 44,781 | | | 115,214 | |
| Subordinated debentures | | 3,539 | | | 3,801 | | | 7,172 | | | 7,546 | |
| Total interest expense | | 28,280 | | | 105,388 | | | 115,857 | | | 203,360 | |
| Net interest revenue | | 278,104 | | | 285,432 | | | 539,464 | | | 563,534 | |
| Provision for credit losses | | 135,321 | | | 5,000 | | | 229,092 | | | 13,000 | |
| Net interest revenue after provision for credit losses | | 142,783 | | | 280,432 | | | 310,372 | | | 550,534 | |
| Other operating revenue | | | | | | | | |
| Brokerage and trading revenue | | 62,022 | | | 40,526 | | | 112,801 | | | 72,143 | |
| Transaction card revenue | | 22,940 | | | 21,915 | | | 44,821 | | | 42,653 | |
| Fiduciary and asset management revenue | | 41,257 | | | 45,025 | | | 85,715 | | | 88,383 | |
| Deposit service charges and fees | | 22,046 | | | 28,074 | | | 48,176 | | | 56,317 | |
| Mortgage banking revenue | | 53,936 | | | 28,131 | | | 91,103 | | | 51,965 | |
| Other revenue | | 11,479 | | | 12,437 | | | 23,788 | | | 25,199 | |
| Total fees and commissions | | 213,680 | | | 176,108 | | | 406,404 | | | 336,660 | |
| Other gains (losses), net | | 6,768 | | | 3,480 | | | (3,973) | | | 6,456 | |
| Gain on derivatives, net | | 21,885 | | | 11,150 | | | 40,305 | | | 15,817 | |
| Gain (loss) on fair value option securities, net | | (14,459) | | | 9,853 | | | 53,934 | | | 19,518 | |
| Change in fair value of mortgage servicing rights | | (761) | | | (29,555) | | | (89,241) | | | (50,221) | |
| Gain on available for sale securities, net | | 5,580 | | | 1,029 | | | 5,583 | | | 1,105 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total other operating revenue | | 232,693 | | | 172,065 | | | 413,012 | | | 329,335 | |
| Other operating expense | | | | | | | | |
| Personnel | | 176,235 | | | 160,342 | | | 332,416 | | | 329,570 | |
| Business promotion | | 1,935 | | | 10,142 | | | 8,150 | | | 18,016 | |
| Charitable contributions to BOKF Foundation | | 3,000 | | | 1,000 | | | 3,000 | | | 1,000 | |
| Professional fees and services | | 12,161 | | | 13,002 | | | 25,109 | | | 29,141 | |
| Net occupancy and equipment | | 30,675 | | | 26,880 | | | 56,736 | | | 56,401 | |
| Insurance | | 5,156 | | | 6,454 | | | 10,136 | | | 11,293 | |
| Data processing and communications | | 32,942 | | | 29,735 | | | 65,685 | | | 61,184 | |
| Printing, postage and supplies | | 3,502 | | | 4,107 | | | 7,774 | | | 8,992 | |
| Net losses and operating expenses of repossessed assets | | 1,766 | | | 580 | | | 3,297 | | | 2,576 | |
| Amortization of intangible assets | | 5,190 | | | 5,138 | | | 10,284 | | | 10,329 | |
| Mortgage banking costs | | 15,598 | | | 11,545 | | | 26,143 | | | 21,451 | |
| Other expense | | 7,227 | | | 8,212 | | | 15,281 | | | 14,341 | |
| Total other operating expense | | 295,387 | | | 277,137 | | | 564,011 | | | 564,294 | |
| Net income before taxes | | 80,089 | | | 175,360 | | | 159,373 | | | 315,575 | |
| Federal and state income taxes | | 15,803 | | | 37,580 | | | 33,103 | | | 67,530 | |
| Net income | | 64,286 | | | 137,780 | | | 126,270 | | | 248,045 | |
| Net income (loss) attributable to non-controlling interests | | (407) | | | 217 | | | (502) | | | (130) | |
| Net income attributable to BOK Financial Corporation shareholders | | $ | 64,693 | | | $ | 137,563 | | | $ | 126,772 | | | $ | 248,175 | |
| Earnings per share: | | | | | | | | |
| Basic | | $ | 0.92 | | | $ | 1.93 | | | $ | 1.80 | | | $ | 3.47 | |
| Diluted | | $ | 0.92 | | | $ | 1.93 | | | $ | 1.80 | | | $ | 3.46 | |
| Average shares used in computation: | | | | | | | | |
| Basic | | 69,876,043 | | | 70,887,063 | | | 69,999,865 | | | 71,135,414 | |
| Diluted | | 69,877,467 | | | 70,902,033 | | | 70,003,817 | | | 71,151,558 | |
| Dividends declared per share | | $ | 0.51 | | | $ | 0.50 | | | $ | 1.02 | | | $ | 1.00 | |
|
| | | | | | | | | | | | | | | | |
| Consolidated Statements of Earnings (Unaudited) | | | | | | | | |
| (In thousands, except share and per share data) | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| Interest revenue | | 2019 | | 2018 | | 2019 | | 2018 |
| Loans | | $ | 286,694 |
| | $ | 218,732 |
| | $ | 859,898 |
| | $ | 617,517 |
|
| Residential mortgage loans held for sale | | 1,891 |
| | 2,151 |
| | 5,308 |
| | 6,328 |
|
| Trading securities | | 14,452 |
| | 17,295 |
| | 48,645 |
| | 38,021 |
|
| Investment securities | | 3,221 |
| | 3,598 |
| | 10,160 |
| | 11,118 |
|
| Available for sale securities | | 67,633 |
| | 48,917 |
| | 184,344 |
| | 142,303 |
|
| Fair value option securities | | 10,708 |
| | 3,881 |
| | 23,448 |
| | 12,627 |
|
| Restricted equity securities | | 7,558 |
| | 5,232 |
| | 20,419 |
| | 15,757 |
|
| Interest-bearing cash and cash equivalents | | 3,050 |
| | 3,441 |
| | 9,879 |
| | 19,163 |
|
| Total interest revenue | | 395,207 |
| | 303,247 |
| | 1,162,101 |
| | 862,834 |
|
| Interest expense | | |
| | |
| | |
| | |
|
| Deposits | | 46,917 |
| | 24,535 |
| | 127,517 |
| | 63,717 |
|
| Borrowed funds | | 65,381 |
| | 35,804 |
| | 180,595 |
| | 93,860 |
|
| Subordinated debentures | | 3,813 |
| | 2,025 |
| | 11,359 |
| | 6,076 |
|
| Total interest expense | | 116,111 |
| | 62,364 |
| | 319,471 |
| | 163,653 |
|
| Net interest revenue | | 279,096 |
| | 240,883 |
| | 842,630 |
| | 699,181 |
|
| Provision for credit losses | | 12,000 |
| | 4,000 |
| | 25,000 |
| | (1,000 | ) |
| Net interest revenue after provision for credit losses | | 267,096 |
| | 236,883 |
| | 817,630 |
| | 700,181 |
|
| Other operating revenue | | |
| | |
| | |
| | |
|
| Brokerage and trading revenue | | 43,840 |
| | 23,086 |
| | 115,983 |
| | 80,222 |
|
| Transaction card revenue | | 22,015 |
| | 21,396 |
| | 64,668 |
| | 63,361 |
|
| Fiduciary and asset management revenue | | 43,621 |
| | 57,514 |
| | 132,004 |
| | 141,038 |
|
| Deposit service charges and fees | | 28,837 |
| | 27,765 |
| | 85,154 |
| | 82,760 |
|
| Mortgage banking revenue | | 30,180 |
| | 23,536 |
| | 82,145 |
| | 75,907 |
|
| Other revenue | | 17,626 |
| | 12,900 |
| | 42,825 |
| | 39,781 |
|
| Total fees and commissions | | 186,119 |
| | 166,197 |
| | 522,779 |
| | 483,069 |
|
| Other gains, net | | 4,544 |
| | 2,754 |
| | 11,000 |
| | 6,040 |
|
| Gain (loss) on derivatives, net | | 3,778 |
| | (2,847 | ) | | 19,595 |
| | (11,589 | ) |
| Gain (loss) on fair value option securities, net | | 4,597 |
| | (4,385 | ) | | 24,115 |
| | (25,290 | ) |
| Change in fair value of mortgage servicing rights | | (12,593 | ) | | 5,972 |
| | (62,814 | ) | | 28,901 |
|
| Gain (loss) on available for sale securities, net | | 5 |
| | 250 |
| | 1,110 |
| | (802 | ) |
| Total other operating revenue | | 186,450 |
| | 167,941 |
| | 515,785 |
| | 480,329 |
|
| Other operating expense | | |
| | |
| | |
| | |
|
| Personnel | | 162,573 |
| | 143,531 |
| | 492,143 |
| | 422,425 |
|
| Business promotion | | 8,859 |
| | 7,620 |
| | 26,875 |
| | 21,316 |
|
| Charitable contributions to BOKF Foundation | | — |
| | — |
| | 1,000 |
| | — |
|
| Professional fees and services | | 12,312 |
| | 13,209 |
| | 41,453 |
| | 38,387 |
|
| Net occupancy and equipment | | 27,558 |
| | 23,394 |
| | 83,959 |
| | 70,201 |
|
| Insurance | | 4,220 |
| | 6,232 |
| | 15,513 |
| | 19,070 |
|
| Data processing and communications | | 31,915 |
| | 31,665 |
| | 93,099 |
| | 87,221 |
|
| Printing, postage and supplies | | 3,825 |
| | 3,837 |
| | 12,817 |
| | 11,937 |
|
| Net losses and operating expenses of repossessed assets | | 1,728 |
| | 4,044 |
| | 4,304 |
| | 14,471 |
|
| Amortization of intangible assets | | 5,064 |
| | 1,603 |
| | 15,393 |
| | 4,289 |
|
| Mortgage banking costs | | 14,975 |
| | 11,741 |
| | 36,426 |
| | 34,780 |
|
| Other expense | | 6,263 |
| | 5,741 |
| | 20,604 |
| | 19,426 |
|
| Total other operating expense | | 279,292 |
| | 252,617 |
| | 843,586 |
| | 743,523 |
|
| Net income before taxes | | 174,254 |
| | 152,207 |
| | 489,829 |
| | 436,987 |
|
| Federal and state income taxes | | 32,396 |
| | 34,662 |
| | 99,926 |
| | 98,940 |
|
| Net income | | 141,858 |
| | 117,545 |
| | 389,903 |
| | 338,047 |
|
| Net income (loss) attributable to non-controlling interests | | (373 | ) | | 289 |
| | (503 | ) | | 857 |
|
| Net income attributable to BOK Financial Corporation shareholders | | $ | 142,231 |
| | $ | 117,256 |
| | $ | 390,406 |
| | $ | 337,190 |
|
| Earnings per share: | | |
| | |
| | |
| | |
|
| Basic | | $ | 2.00 |
| | $ | 1.79 |
| | $ | 5.47 |
| | $ | 5.15 |
|
| Diluted | | $ | 2.00 |
| | $ | 1.79 |
| | $ | 5.47 |
| | $ | 5.15 |
|
| Average shares used in computation: | | | | | | | | |
| Basic | | 70,596,307 |
| | 64,901,095 |
| | 70,953,544 |
| | 64,883,319 |
|
| Diluted | | 70,609,924 |
| | 64,934,351 |
| | 70,968,845 |
| | 64,919,728 |
|
| Dividends declared per share | | $ | 0.50 |
| | $ | 0.50 |
| | $ | 1.50 |
| | $ | 1.40 |
|
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) | | | | | | | | | (In thousands, except share and per share data) | | | | |
| | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | | Six Months Ended | |
| | | September 30, | | September 30, | | June 30, | | | June 30, | |
| | | 2019 | | 2018 | | 2019 | | 2018 | | | 2020 | | 2019 | | 2020 | | 2019 |
| Net income | | $ | 141,858 |
| | $ | 117,545 |
| | $ | 389,903 |
| | $ | 338,047 |
| Net income | | $ | 64,286 | | | $ | 137,780 | | | $ | 126,270 | | | $ | 248,045 | |
| Other comprehensive income (loss) before income taxes: | | | | | | | | | |
| Other comprehensive income before income taxes: | | Other comprehensive income before income taxes: | | | | | | | | |
| Net change in unrealized gain (loss) | | 46,285 |
| | (35,941 | ) | | 274,441 |
| | (166,464 | ) | Net change in unrealized gain (loss) | | 56,922 | | | 135,417 | | | 354,765 | | | 228,156 | |
| Reclassification adjustments included in earnings: | | | | | | | | | Reclassification adjustments included in earnings: | |
| Loss (gain) on available for sale securities, net | | (5 | ) | | (250 | ) | | (1,110 | ) | | 802 |
| |
| Other comprehensive income (loss) before income taxes | | 46,280 |
| | (36,191 | ) | | 273,331 |
| | (165,662 | ) | |
| | Gain on available for sale securities, net | | Gain on available for sale securities, net | | (5,577) | | | (1,029) | | | (5,580) | | | (1,105) | |
| Other comprehensive income before income taxes | | Other comprehensive income before income taxes | | 51,345 | | | 134,388 | | | 349,185 | | | 227,051 | |
| Federal and state income taxes | | 11,096 |
| | (9,134 | ) | | 66,993 |
| | (42,183 | ) | Federal and state income taxes | | 12,321 | | | 32,288 | | | 83,792 | | | 55,897 | |
| Other comprehensive income (loss), net of income taxes | | 35,184 |
|
| (27,057 | ) |
| 206,338 |
|
| (123,479 | ) | |
| Other comprehensive income, net of income taxes | | Other comprehensive income, net of income taxes | | 39,024 | | | 102,100 | | | 265,393 | | | 171,154 | |
| Comprehensive income | | 177,042 |
| | 90,488 |
| | 596,241 |
| | 214,568 |
| Comprehensive income | | 103,310 | | | 239,880 | | | 391,663 | | | 419,199 | |
| Comprehensive income (loss) attributable to non-controlling interests | | (373 | ) | | 289 |
| | (503 | ) | | 857 |
| Comprehensive income (loss) attributable to non-controlling interests | | (407) | | | 217 | | | (502) | | | (130) | |
| Comprehensive income attributable to BOK Financial Corp. shareholders | | $ | 177,415 |
| | $ | 90,199 |
| | $ | 596,744 |
| | $ | 213,711 |
| Comprehensive income attributable to BOK Financial Corp. shareholders | | $ | 103,717 | | | $ | 239,663 | | | $ | 392,165 | | | $ | 419,329 | |
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets (In thousands, except share data) |
| | | | | | | | |
| | | Sept. 30, 2019 | | Dec. 31, 2018 |
| | | (Unaudited) | | (Footnote 1) |
| Assets | | | | |
| Cash and due from banks | | $ | 761,130 |
| | $ | 741,749 |
|
| Interest-bearing cash and cash equivalents | | 465,458 |
| | 401,675 |
|
| Trading securities | | 1,675,212 |
| | 1,956,923 |
|
Investment securities (fair value: September 30, 2019 – $324,021; December 31, 2018 – $367,298) | | 304,224 |
| | 355,187 |
|
| Available for sale securities | | 11,024,551 |
| | 8,857,120 |
|
| Fair value option securities | | 1,816,398 |
| | 283,235 |
|
| Restricted equity securities | | 479,018 |
| | 344,447 |
|
| Residential mortgage loans held for sale | | 282,487 |
| | 149,221 |
|
| Loans | | 22,285,367 |
| | 21,656,730 |
|
| Allowance for loan losses | | (204,432 | ) | | (207,457 | ) |
| Loans, net of allowance | | 22,080,935 |
| | 21,449,273 |
|
| Premises and equipment, net | | 516,597 |
| | 330,033 |
|
| Receivables | | 219,420 |
| | 204,960 |
|
| Goodwill | | 1,048,091 |
| | 1,049,263 |
|
| Intangible assets, net | | 124,320 |
| | 134,849 |
|
| Mortgage servicing rights | | 193,661 |
| | 259,254 |
|
Real estate and other repossessed assets, net of allowance (September 30, 2019 – $11,278; December 31, 2018 – $13,665) | | 21,026 |
| | 17,487 |
|
| Derivative contracts, net | | 352,019 |
| | 320,929 |
|
| Cash surrender value of bank-owned life insurance | | 387,035 |
| | 381,608 |
|
| Receivable on unsettled securities sales | | 904,630 |
| | 336,400 |
|
| Other assets | | 470,993 |
| | 446,891 |
|
| Total assets | | $ | 43,127,205 |
| | $ | 38,020,504 |
|
| | | | | |
| Liabilities and Equity | | | | |
| Liabilities: | | | | |
| Noninterest-bearing demand deposits | | $ | 9,844,397 |
| | $ | 10,414,592 |
|
| Interest-bearing deposits: | | |
| | |
|
| Transaction | | 13,521,545 |
| | 12,206,576 |
|
| Savings | | 557,593 |
| | 529,215 |
|
| Time | | 2,243,541 |
| | 2,113,380 |
|
| Total deposits | | 26,167,076 |
| | 25,263,763 |
|
| Funds purchased and repurchase agreements | | 3,413,051 |
| | 1,018,411 |
|
| Other borrowings | | 6,822,334 |
| | 6,124,390 |
|
| Subordinated debentures | | 275,909 |
| | 275,913 |
|
| Accrued interest, taxes and expense | | 218,775 |
| | 192,826 |
|
| Derivative contracts, net | | 336,791 |
| | 362,306 |
|
| Due on unsettled securities purchases | | 703,448 |
| | 156,370 |
|
| Other liabilities | | 352,156 |
| | 183,480 |
|
| Total liabilities | | 38,289,540 |
| | 33,577,459 |
|
| Shareholders' equity: | | |
| | |
|
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: September 30, 2019 – 75,757,009; December 31, 2018 – 75,711,492) | | 5 |
| | 5 |
|
| Capital surplus | | 1,346,730 |
| | 1,334,030 |
|
| Retained earnings | | 3,655,590 |
| | 3,369,654 |
|
Treasury stock (shares at cost: September 30, 2019 – 4,898,999; December 31, 2018 – 3,588,560) | | (307,062 | ) | | (198,995 | ) |
| Accumulated other comprehensive gain (loss) | | 133,753 |
| | (72,585 | ) |
| Total shareholders’ equity | | 4,829,016 |
| | 4,432,109 |
|
| Non-controlling interests | | 8,649 |
| | 10,936 |
|
| Total equity | | 4,837,665 |
| | 4,443,045 |
|
| Total liabilities and equity | | $ | 43,127,205 |
| | $ | 38,020,504 |
|
(In thousands, except share data)
| | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | Dec. 31, 2019 | | |
| | | (Unaudited) | | (Footnote 1) | | |
| Assets | | | | | | |
| Cash and due from banks | | $ | 762,453 | | | $ | 735,836 | | | |
| Interest-bearing cash and cash equivalents | | 485,319 | | | 522,985 | | | |
| Trading securities | | 1,196,105 | | | 1,623,921 | | | |
Investment securities, net of allowance (fair value: June 30, 2020 – $299,126; December 31, 2019 – $314,402) | | 267,988 | | | 293,418 | | | |
| Available for sale securities | | 12,475,919 | | | 11,269,643 | | | |
| Fair value option securities | | 722,657 | | | 1,098,577 | | | |
| Restricted equity securities | | 125,683 | | | 460,552 | | | |
| Residential mortgage loans held for sale | | 319,357 | | | 182,271 | | | |
| Loans | | 24,155,890 | | | 21,750,987 | | | |
| Allowance for loan losses | | (435,597) | | | (210,759) | | | |
| Loans, net of allowance | | 23,720,293 | | | 21,540,228 | | | |
| Premises and equipment, net | | 550,230 | | | 535,519 | | | |
| Receivables | | 226,934 | | | 231,811 | | | |
| Goodwill | | 1,048,091 | | | 1,048,091 | | | |
| Intangible assets, net | | 123,595 | | | 125,271 | | | |
| Mortgage servicing rights | | 97,971 | | | 201,886 | | | |
Real estate and other repossessed assets, net of allowance (June 30, 2020 – $10,861; December 31, 2019 – $11,013) | | 35,330 | | | 20,359 | | | |
| Derivative contracts, net | | 651,553 | | | 323,375 | | | |
| Cash surrender value of bank-owned life insurance | | 393,741 | | | 389,879 | | | |
| Receivable on unsettled securities sales | | 1,863,719 | | | 1,020,404 | | | |
| Other assets | | 752,936 | | | 547,995 | | | |
| Total assets | | $ | 45,819,874 | | | $ | 42,172,021 | | | |
| | | | | | |
| Liabilities and Equity | | | | | | |
| Liabilities: | | | | | | |
| Noninterest-bearing demand deposits | | $ | 11,992,165 | | | $ | 9,461,291 | | | |
| Interest-bearing deposits: | | | | | | |
| Transaction | | 18,850,418 | | | 15,391,752 | | | |
| Savings | | 696,971 | | | 550,276 | | | |
| Time | | 2,352,760 | | | 2,217,849 | | | |
| Total deposits | | 33,892,314 | | | 27,621,168 | | | |
| Funds purchased and repurchase agreements | | 1,357,602 | | | 3,818,350 | | | |
| Other borrowings | | 3,173,563 | | | 4,527,055 | | | |
| Subordinated debentures | | 275,973 | | | 275,923 | | | |
| Accrued interest, taxes and expense | | 365,634 | | | 259,701 | | | |
| Derivative contracts, net | | 610,020 | | | 251,128 | | | |
| Due on unsettled securities purchases | | 599,510 | | | 182,547 | | | |
| Other liabilities | | 440,835 | | | 372,230 | | | |
| Total liabilities | | 40,715,451 | | | 37,308,102 | | | |
| Shareholders' equity: | | | | | | |
Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: June 30, 2020 – 75,999,195; December 31, 2019 – 75,758,597) | | 5 | | | 5 | | | |
| Capital surplus | | 1,357,706 | | | 1,350,995 | | | |
| Retained earnings | | 3,737,862 | | | 3,729,778 | | | |
Treasury stock (shares at cost: June 30, 2020 – 5,692,505; December 31, 2019 – 5,178,999) | | (368,894) | | | (329,906) | | | |
| Accumulated other comprehensive gain | | 370,316 | | | 104,923 | | | |
| Total shareholders’ equity | | 5,096,995 | | | 4,855,795 | | | |
| Non-controlling interests | | 7,428 | | | 8,124 | | | |
| Total equity | | 5,104,423 | | | 4,863,919 | | | |
| Total liabilities and equity | | $ | 45,819,874 | | | $ | 42,172,021 | | | |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | Capital
Surplus | | Retained
Earnings | | Treasury Stock | | | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Shareholders’
Equity | | Non-
Controlling
Interests | | Total Equity |
| | | Shares | | Amount | | | | | | Shares | | Amount | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, March 31, 2020 | | 76,001 | | | $ | 5 | | | $ | 1,354,826 | | | $ | 3,709,019 | | | 5,692 | | | $ | (368,894) | | | $ | 331,292 | | | $ | 5,026,248 | | | $ | 7,912 | | | $ | 5,034,160 | |
| Net income (loss) | | — | | | — | | | — | | | 64,693 | | | — | | | — | | | — | | | 64,693 | | | (407) | | | 64,286 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 39,024 | | | 39,024 | | | — | | | 39,024 | |
| Repurchase of common stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation plans: | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Non-vested shares awarded,
net | | (2) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Vesting of non-vested
shares | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation | | — | | | — | | | 2,880 | | | — | | | — | | | — | | | — | | | 2,880 | | | — | | | 2,880 | |
Cash dividends on common
stock | | — | | | — | | | — | | | (35,850) | | | — | | | — | | | — | | | (35,850) | | | — | | | (35,850) | |
Capital calls and distributions,
net | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (77) | | | (77) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2020 | | 75,999 | | | $ | 5 | | | $ | 1,357,706 | | | $ | 3,737,862 | | | 5,693 | | | $ | (368,894) | | | $ | 370,316 | | | $ | 5,096,995 | | | $ | 7,428 | | | $ | 5,104,423 | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2019 | | 75,759 | | | $ | 5 | | | $ | 1,350,995 | | | $ | 3,729,778 | | | 5,179 | | | $ | (329,906) | | | $ | 104,923 | | | $ | 4,855,795 | | | $ | 8,124 | | | $ | 4,863,919 | |
| Transition adjustment - CECL | | — | | | — | | | — | | | (46,696) | | | — | | | — | | | — | | | (46,696) | | | — | | | (46,696) | |
Balance, January 1, 2020,
Adjusted | | 75,759 | | | 5 | | | 1,350,995 | | | 3,683,082 | | | 5,179 | | | (329,906) | | | 104,923 | | | 4,809,099 | | | 8,124 | | | 4,817,223 | |
| Net income (loss) | | — | | | — | | | — | | | 126,772 | | | — | | | — | | | — | | | 126,772 | | | (502) | | | 126,270 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 265,393 | | | 265,393 | | | — | | | 265,393 | |
| Repurchase of common stock | | — | | | — | | | — | | | — | | | 442 | | | (33,380) | | | — | | | (33,380) | | | — | | | (33,380) | |
Share-based compensation
plans: | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | | 10 | | | — | | | 586 | | | — | | | — | | | — | | | — | | | 586 | | | — | | | 586 | |
Non-vested shares awarded,
net | | 230 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Vesting of non-vested
shares | | — | | | — | | | — | | | — | | | 72 | | | (5,608) | | | — | | | (5,608) | | | — | | | (5,608) | |
| Share-based compensation | | — | | | — | | | 6,125 | | | — | | | — | | | — | | | — | | | 6,125 | | | — | | | 6,125 | |
Cash dividends on common
stock | | — | | | — | | | — | | | (71,992) | | | — | | | — | | | — | | | (71,992) | | | — | | | (71,992) | |
Capital calls and distributions,
net | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (194) | | | (194) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2020 | | 75,999 | | | $ | 5 | | | $ | 1,357,706 | | | $ | 3,737,862 | | | 5,693 | | | $ | (368,894) | | | $ | 370,316 | | | $ | 5,096,995 | | | $ | 7,428 | | | $ | 5,104,423 | |
| | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Changes in Equity (Unaudited) (In thousands) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Capital Surplus | | Retained Earnings | | Treasury Stock | | Accumulated
Other
Comprehensive
Income (Loss) | | Total Shareholders’ Equity | | Non- Controlling Interests | | Total Equity |
| | Shares | | Amount | | | | Shares | | Amount | | | |
| Balance, June 30, 2019 | 75,756 |
| | $ | 5 |
| | $ | 1,343,082 |
| | $ | 3,548,907 |
| | 4,562 |
| | $ | (281,125 | ) | | $ | 98,569 |
| | $ | 4,709,438 |
| | $ | 9,037 |
| | $ | 4,718,475 |
|
| Net income (loss) | — |
| | — |
| | — |
| | 142,231 |
| | — |
| | — |
| | — |
| | 142,231 |
| | (373 | ) | | 141,858 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35,184 |
| | 35,184 |
| | — |
| | 35,184 |
|
| Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | 337 |
| | (25,937 | ) | | — |
| | (25,937 | ) | | — |
| | (25,937 | ) |
| Share-based compensation plans: | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock options exercised | 3 |
| | — |
| | 177 |
| | — |
| | — |
| | — |
| | — |
| | 177 |
| | — |
| | 177 |
|
| Non-vested shares awarded, net | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Vesting of non-vested shares | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Share-based compensation | — |
| | — |
| | 3,471 |
| | — |
| | — |
| | — |
| | — |
| | 3,471 |
| | — |
| | 3,471 |
|
| Cash dividends on common stock | — |
| | — |
| | — |
| | (35,548 | ) | | — |
| | — |
| | — |
| | (35,548 | ) | | — |
| | (35,548 | ) |
| Capital calls and distributions, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (15 | ) | | (15 | ) |
| Balance, September 30, 2019 | 75,757 |
| | $ | 5 |
| | $ | 1,346,730 |
| | $ | 3,655,590 |
| | 4,899 |
| | $ | (307,062 | ) | | $ | 133,753 |
| | $ | 4,829,016 |
| | $ | 8,649 |
| | $ | 4,837,665 |
|
| | | | | | | | | | | | | | | | | | | | |
| 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 (loss) | — |
| | — |
| | — |
| | 390,406 |
| | — |
| | — |
| | — |
| | 390,406 |
| | (503 | ) | | 389,903 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 206,338 |
| | 206,338 |
| | — |
| | 206,338 |
|
| Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | 1,292 |
| | (106,639 | ) | | — |
| | (106,639 | ) | | — |
| | (106,639 | ) |
| Share-based compensation plans: | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock options exercised | 21 |
| | — |
| | 1,080 |
| | — |
| | — |
| | — |
| | — |
| | 1,080 |
| | — |
| | 1,080 |
|
| Non-vested shares awarded, net | 25 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Vesting of non-vested shares | — |
| | — |
| | — |
| | — |
| | 18 |
| | (1,428 | ) | | — |
| | (1,428 | ) | | — |
| | (1,428 | ) |
| Share-based compensation | — |
| | — |
| | 11,620 |
| | — |
| | — |
| | — |
| | — |
| | 11,620 |
| | — |
| | 11,620 |
|
| Cash dividends on common stock | — |
| | — |
| | — |
| | (107,332 | ) | | — |
| | — |
| | — |
| | (107,332 | ) | | — |
| | (107,332 | ) |
| Capital calls and distributions, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,784 | ) | | (1,784 | ) |
| Balance, September 30, 2019 | 75,757 |
| | $ | 5 |
| | $ | 1,346,730 |
| | $ | 3,655,590 |
| | 4,899 |
| | $ | (307,062 | ) | | $ | 133,753 |
| | $ | 4,829,016 |
| | $ | 8,649 |
| | $ | 4,837,665 |
|
| | | | | | | | | | | | | | | | | | | | |
| 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 |
|
| Net income (loss) | — |
| | — |
| | — |
| | 117,256 |
| | — |
| | — |
| | — |
| | 117,256 |
| | 289 |
| | 117,545 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (27,057 | ) | | (27,057 | ) | | — |
| | (27,057 | ) |
| Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Share-based compensation plans: | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock options exercised | 3 |
| | — |
| | 134 |
| | — |
| | — |
| | — |
| | — |
| | 134 |
| | — |
| | 134 |
|
| Non-vested shares awarded, net | (8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Vesting of non-vested shares | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Share-based compensation | — |
| | — |
| | 4,094 |
| | — |
| | — |
| | — |
| | — |
| | 4,094 |
| | — |
| | 4,094 |
|
| Cash dividends on common stock | — |
| | — |
| | — |
| | (32,826 | ) | | — |
| | — |
| | — |
| | (32,826 | ) | | — |
| | (32,826 | ) |
| Capital calls and distributions, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (12,175 | ) | | (12,175 | ) |
| Balance, September 30, 2018 | 75,309 |
| | $ | 4 |
| | $ | 1,044,430 |
| | $ | 3,297,083 |
| | 9,874 |
| | $ | (564,123 | ) | | $ | (162,362 | ) | | $ | 3,615,032 |
| | $ | 10,728 |
| | $ | 3,625,760 |
|
| | | | | | | | | | | | | | | | | | | | |
| 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) | — |
| | — |
| | — |
| | 337,190 |
| | — |
| | — |
| | — |
| | 337,190 |
| | 857 |
| | 338,047 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (123,479 | ) | | (123,479 | ) | | — |
| | (123,479 | ) |
| Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | 90 |
| | (8,408 | ) | | — |
| | (8,408 | ) | | — |
| | (8,408 | ) |
| Share-based compensation plans: | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock options exercised | 49 |
| | — |
| | 2,560 |
| | — |
| | — |
| | — |
| | — |
| | 2,560 |
| | — |
| | 2,560 |
|
| Non-vested shares awarded, net | 112 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Vesting of non-vested shares | — |
| | — |
| | — |
| | — |
| | 31 |
| | (2,870 | ) | | — |
| | (2,870 | ) | | — |
| | (2,870 | ) |
| Share-based compensation | — |
| | — |
| | 5,975 |
| | — |
| | — |
| | — |
| | — |
| | 5,975 |
| | — |
| | 5,975 |
|
| Cash dividends on common stock | — |
| | — |
| | — |
| | (91,303 | ) | | — |
| | — |
| | — |
| | (91,303 | ) | | — |
| | (91,303 | ) |
| Capital calls and distributions, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (13,096 | ) | | (13,096 | ) |
| Balance, September 30, 2018 | 75,309 |
| | $ | 4 |
| | $ | 1,044,430 |
| | $ | 3,297,083 |
| | 9,874 |
| | $ | (564,123 | ) | | $ | (162,362 | ) | | $ | 3,615,032 |
| | $ | 10,728 |
| | $ | 3,625,760 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | Capital
Surplus | | Retained
Earnings | | Treasury Stock | | | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Shareholders’
Equity | | Non-
Controlling
Interests | | Total Equity |
| | | Shares | | Amount | | | | | | Shares | | Amount | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, 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 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | — | | | 137,563 | | | — | | | — | | | — | | | 137,563 | | | 217 | | | 137,780 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 102,100 | | | 102,100 | | | — | | | 102,100 | |
| Repurchase of common stock | | — | | | — | | | — | | | — | | | 250 | | | (20,125) | | | — | | | (20,125) | | | — | | | (20,125) | |
Share-based compensation
plans: | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | | — | | | — | | | 24 | | | — | | | — | | | — | | | — | | | 24 | | | — | | | 24 | |
Non-vested shares awarded,
net | | (6) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Vesting of non-vested
shares | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation | | — | | | — | | | 2,735 | | | — | | | — | | | — | | | — | | | 2,735 | | | — | | | 2,735 | |
Cash dividends on common
stock | | — | | | — | | | — | | | (35,732) | | | — | | | — | | | — | | | (35,732) | | | — | | | (35,732) | |
Capital calls and distributions,
net | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (16) | | | (16) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2019 | | 75,756 | | | $ | 5 | | | $ | 1,343,082 | | | $ | 3,548,907 | | | 4,562 | | | $ | (281,125) | | | $ | 98,569 | | | $ | 4,709,438 | | | $ | 9,037 | | | $ | 4,718,475 | |
| | | | | | | | | | | | | | | | | | | | |
| 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 (loss) | | — | | | — | | | — | | | 248,175 | | | — | | | — | | | — | | | 248,175 | | | (130) | | | 248,045 | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | 171,154 | | | 171,154 | | | — | | | 171,154 | |
| Repurchase of common stock | | — | | | — | | | — | | | — | | | 955 | | | (80,702) | | | — | | | (80,702) | | | — | | | (80,702) | |
Share-based compensation
plans: | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | | 18 | | | — | | | 903 | | | — | | | — | | | — | | | — | | | 903 | | | — | | | 903 | |
Non-vested shares awarded,
net | | 27 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Vesting of non-vested
shares | | — | | | — | | | — | | | — | | | 18 | | | (1,428) | | | — | | | (1,428) | | | — | | | (1,428) | |
| Share-based compensation | | — | | | — | | | 8,149 | | | — | | | — | | | — | | | — | | | 8,149 | | | — | | | 8,149 | |
Cash dividends on common
stock | | — | | | — | | | — | | | (71,784) | | | — | | | — | | | — | | | (71,784) | | | — | | | (71,784) | |
Capital calls and distributions,
net | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,769) | | | (1,769) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2019 | | 75,756 | | | $ | 5 | | | $ | 1,343,082 | | | $ | 3,548,907 | | | 4,562 | | | $ | (281,125) | | | $ | 98,569 | | | $ | 4,709,438 | | | $ | 9,037 | | | $ | 4,718,475 | |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows (Unaudited) (in thousands) |
| | | | | | | | |
| | Nine Months Ended |
| | | September 30, |
| | | 2019 | | 2018 |
| Cash Flows From Operating Activities: | | | | |
| Net income | | $ | 389,903 |
| | $ | 338,047 |
|
| Adjustments to reconcile net income to net cash used in operating activities: | | | | |
| Provision for credit losses | | 25,000 |
| | (1,000 | ) |
| Change in fair value of mortgage servicing rights due to market changes | | 62,814 |
| | (28,901 | ) |
| Change in the fair value of mortgage servicing rights due to principal payments | | 27,600 |
| | 25,783 |
|
| Net unrealized losses (gains) from derivative contracts | | (25,306 | ) | | 3,309 |
|
| Share-based compensation | | 11,620 |
| | 5,975 |
|
| Depreciation and amortization | | 69,762 |
| | 41,999 |
|
| Net amortization of discounts and premiums | | (16,648 | ) | | 19,001 |
|
| Net losses (gains) on financial instruments and other losses (gains), net | | (2,656 | ) | | 5,581 |
|
| Net gain on mortgage loans held for sale | | (25,803 | ) | | (26,242 | ) |
| Mortgage loans originated for sale | | (2,170,287 | ) | | (2,093,860 | ) |
| Proceeds from sale of mortgage loans held for sale | | 2,070,572 |
| | 2,165,989 |
|
| Capitalized mortgage servicing rights | | (24,821 | ) | | (28,688 | ) |
| Change in trading and fair value option securities | | (1,251,759 | ) | | (848,409 | ) |
| Change in receivables | | (613,872 | ) | | (249,347 | ) |
| Change in other assets | | 12,981 |
| | (15,157 | ) |
| Change in accrued interest, taxes and expense | | (15,600 | ) | | 66,697 |
|
| Change in other liabilities | | 419,982 |
| | 229,815 |
|
| Net cash used in operating activities | | (1,056,518 | ) | | (389,408 | ) |
| Cash Flows From Investing Activities: | | |
| | |
|
| Proceeds from maturities or redemptions of investment securities | | 49,621 |
| | 89,099 |
|
| Proceeds from maturities or redemptions of available for sale securities | | 1,267,190 |
| | 1,208,373 |
|
| Purchases of investment securities | | — |
| | (4,218 | ) |
| Purchases of available for sale securities | | (3,802,635 | ) | | (1,404,291 | ) |
| Proceeds from sales of available for sale securities | | 628,385 |
| | 232,826 |
|
| Change in amount receivable on unsettled available for sale securities transactions | | 29,010 |
| | 67,775 |
|
| Loans originated, net of principal collected | | (590,196 | ) | | (1,187,762 | ) |
| Net payments on derivative asset contracts | | 40,922 |
| | (39,485 | ) |
| Acquisitions, net of cash acquired | | — |
| | (13,870 | ) |
| Proceeds from disposition of assets | | 127,476 |
| | 265,786 |
|
| Purchases of assets | | (308,630 | ) | | (250,447 | ) |
| Net cash used in investing activities | | (2,558,857 | ) | | (1,036,214 | ) |
| Cash Flows From Financing Activities: | | |
| | |
|
| Net change in demand deposits, transaction deposits and savings accounts | | 773,152 |
| | (406,446 | ) |
| Net change in time deposits | | 129,980 |
| | (22,570 | ) |
| Net change in other borrowed funds | | 3,027,298 |
| | 1,035,549 |
|
| Net proceeds on derivative liability contracts | | (43,932 | ) | | 42,883 |
|
| Net change in derivative margin accounts | | (85,468 | ) | | (46,390 | ) |
| Change in amount due on unsettled available for sale securities transactions | | 111,828 |
| | (148,190 | ) |
| Issuance of common and treasury stock, net | | (348 | ) | | (310 | ) |
| Repurchase of common stock | | (106,639 | ) | | (8,408 | ) |
| Dividends paid | | (107,332 | ) | | (91,303 | ) |
| Net cash provided by financing activities | | 3,698,539 |
| | 354,815 |
|
| Net increase (decrease) in cash and cash equivalents | | 83,164 |
| | (1,070,807 | ) |
| Cash and cash equivalents at beginning of period | | 1,143,424 |
| | 2,317,054 |
|
| Cash and cash equivalents at end of period | | $ | 1,226,588 |
| | $ | 1,246,247 |
|
| | | | | |
| Supplemental Cash Flow Information: | | | | |
| Cash paid for interest | | $ | 316,481 |
| | $ | 163,381 |
|
| Cash paid for taxes | | $ | 77,912 |
| | $ | 77,373 |
|
| Net loans and bank premises transferred to repossessed real estate and other assets | | $ | 8,489 |
| | $ | 9,513 |
|
| Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period | | $ | 65,286 |
| | $ | 70,814 |
|
| Conveyance of other real estate owned guaranteed by U.S. government agencies | | $ | 22,449 |
| | $ | 32,206 |
|
| Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 58,766 |
| | $ | — |
|
(in thousands)
| | | | | | | | | | | | | | |
| | Six Months Ended | | |
| | | June 30, | | |
| | | 2020 | | 2019 |
| Cash Flows From Operating Activities: | | | | |
| Net income | | $ | 126,270 | | | $ | 248,045 | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | |
| Provision for credit losses | | 229,092 | | | 13,000 | |
| Change in fair value of mortgage servicing rights due to market assumption changes | | 89,241 | | | 50,221 | |
| Change in the fair value of mortgage servicing rights due to principal payments | | 17,779 | | | 15,664 | |
| Net unrealized (gains) losses from derivative contracts | | (56,678) | | | (17,095) | |
| Share-based compensation | | 6,125 | | | 8,149 | |
| Depreciation and amortization | | 47,016 | | | 45,926 | |
| Net amortization of discounts and premiums | | 7,199 | | | (10,913) | |
| Net losses (gains) on financial instruments and other losses (gains), net | | (2,186) | | | 564 | |
| Net gain on mortgage loans held for sale | | (42,411) | | | (16,735) | |
| Mortgage loans originated for sale | | (1,733,205) | | | (1,240,368) | |
| Proceeds from sale of mortgage loans held for sale | | 1,654,433 | | | 1,215,756 | |
| Capitalized mortgage servicing rights | | (13,906) | | | (14,939) | |
| | | | |
| Change in trading and fair value option securities | | 801,215 | | | (799,241) | |
| Change in receivables | | (724,486) | | | (228,973) | |
| Change in other assets | | (29,352) | | | (4,965) | |
| Change in accrued interest, taxes and expense | | 36,773 | | | (41,866) | |
| Change in other liabilities | | 373,541 | | | 100,731 | |
| Net cash provided by (used in) operating activities | | 786,460 | | | (677,039) | |
| Cash Flows From Investing Activities: | | | | |
| Proceeds from maturities or redemptions of investment securities | | 23,296 | | | 26,513 | |
| Proceeds from maturities or redemptions of available for sale securities | | 1,070,585 | | | 704,542 | |
| | | | |
| Purchases of available for sale securities | | (2,139,775) | | | (2,510,271) | |
| Proceeds from sales of available for sale securities | | 205,945 | | | 367,357 | |
| Change in amount receivable on unsettled available for sale securities transactions | | (118,744) | | | (28,580) | |
| Loans originated, net of principal collected | | (2,294,658) | | | (569,075) | |
| Net payments on derivative asset contracts | | (67,105) | | | (10,838) | |
| | | | |
| Proceeds from disposition of assets | | 710,269 | | | 116,163 | |
| Purchases of assets | | (416,815) | | | (250,911) | |
| Net cash used in investing activities | | (3,027,002) | | | (2,155,100) | |
| Cash Flows From Financing Activities: | | | | |
| Net change in demand deposits, transaction deposits and savings accounts | | 6,136,235 | | | (73,200) | |
| Net change in time deposits | | 134,911 | | | 114,377 | |
| Net change in other borrowed funds | | (3,971,540) | | | 2,968,697 | |
| | | | |
| | | | |
| Net proceeds on derivative liability contracts | | 60,851 | | | 6,140 | |
| Net change in derivative margin accounts | | (96,114) | | | (152,533) | |
| Change in amount due on unsettled available for sale securities transactions | | 75,544 | | | 313,736 | |
| Issuance of common and treasury stock, net | | (5,022) | | | (525) | |
| | | | |
| Repurchase of common stock | | (33,380) | | | (80,702) | |
| Dividends paid | | (71,992) | | | (71,784) | |
| Net cash provided by financing activities | | 2,229,493 | | | 3,024,206 | |
| Net increase (decrease) in cash and cash equivalents | | (11,049) | | | 192,067 | |
| Cash and cash equivalents at beginning of period | | 1,258,821 | | | 1,143,424 | |
| Cash and cash equivalents at end of period | | $ | 1,247,772 | | | $ | 1,335,491 | |
| | | | |
| Supplemental Cash Flow Information: | | | | |
| Cash paid for interest | | $ | 117,471 | | | $ | 203,513 | |
| Cash paid for taxes | | $ | 5,470 | | | $ | 54,722 | |
| Net loans and bank premises transferred to repossessed real estate and other assets | | $ | 19,556 | | | $ | 2,606 | |
| Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period | | $ | 157,300 | | | $ | 44,258 | |
| Conveyance of other real estate owned guaranteed by U.S. government agencies | | $ | 6,255 | | | $ | 15,484 | |
| Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 9,151 | | | $ | 12,754 | |
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements (Unaudited)
(1) Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of BOK Financial Corporation (“BOK Financial” or “the Company”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The unaudited consolidated financial statements include accounts of BOK Financial and its subsidiaries, principally BOKF, NA (“the Bank”), BOK Financial Securities, Inc., and BOK Financial Private Wealth, Inc. Operating divisions of the Bank include Bank of Albuquerque, Bank of Oklahoma, Bank of Texas, BOK Financial in Arizona, Arkansas, Colorado and Kansas/Missouri, BOK Financial Mortgage and the TransFund electronic funds network.
Certain reclassifications have been made to conform to the current period presentation.
The financial information should be read in conjunction with BOK Financial’s 20182019 Form 10-K filed with the Securities and Exchange Commission, which contains audited financial statements. Amounts presented as of December 31, 20182019 have been derived from the audited financial statements included in BOK Financial’s 20182019 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 nine-monthsix-month period ended SeptemberJune 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.
Newly Adopted and Pending Accounting Policies
Financial Accounting Standards Board (“FASB”)
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 are required to recognize an obligation for future lease payments measured on a discounted basis and a right-of-use asset. The Company adopted the new standard January 1, 2019 through a 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 implementation of ASU 2016-02 increased the reported right-of-use asset and lease liability by $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" or "CECL")
On June 16, 2016, the FASB issued ASU 2016-13 to provide more timely recording of credit losses on loans and other financial assets measured at amortized cost, effective for the Company's annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.
The company has established a CECL implementation team to evaluate the impact to 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. In the second half of 2019, the implementation team is focused on design and operation of internal controls over the expected credit losses estimate and formalizing governance and approval processes. This includes finalizing model validation, refinement of model assumptions and qualitative framework, as well as drafting policies, reporting, and disclosures. These activities support our parallel runs and related results.cost. The Company will adoptadopted the new standard on January 1, 2020, through a cumulative-effectcumulative effect adjustment to retained earnings. Prior periods were not restated.
Under ASU 2016-13, acquired loans must be reserved in a manner consistent with originated loans while the incurred loss model excluded purchased loans because the loans had been marked to fair value at acquisition. Under ASU 2016-13, the fair value discount will remain in place and be accreted into interest income over the life of any acquired loans in the portfolio.
Another transition adjustment component is related to expected credit losses for residential mortgage loans sold that exceed amounts guaranteed by the U.S. Department of Veterans Affairs as we retain the credit risk for any amounts exceeding the guarantee as well as for recourse loans.
Prior to ASU 2016-13, held-to-maturity non-agency securities carried no reserve for credit losses.
Note 4 disaggregates the transition adjustment for loans and unfunded loan commitments among portfolio segments as well as on-and off-balance sheet reserves.
FASB Accounting Standards Update No. 2019-01, Leases (Topic 842): Codification Improvements ("ASU 2019-01")
On March 5, 2019, the FASB issued ASU 2019-01 which amends certain aspects of leasing standard ASU 2016-02. ASU 2019-01 provides guidance for determining the 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 942 to classify principal payments received from sales-type and direct financing leases within "investing activities" on the statement of cash flows. For the two issues above, the ASU is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods therein; however early adoption is permitted. Additionally, ASU 2019-01 also clarifies interim disclosure requirements during transition and is effective with the original transition requirements in Topic 842. The Company adopted ASU 2019-01 in the first quarter of 2020. Adoption of ASU 2019-01 isdid not expected to have a material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ("ASU 2019-04")
On April 25, 2019, the FASB issued ASU 2019-04 which clarifies certain aspects of the accounting for credit losses, hedging activities, and financial instruments addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively. Significant amendments made to the provisions of ASU 2016-13 by ASU 2019-04 include providing certain alternatives for the measurement of the allowance for credit losses on accrued interest receivable and clarifying steps entities should take when recording the transfer of loans or debt securities between measurement classification or categories. ASU 2019-04 further clarifies the expectation that entities include recoveries of financial assets in the calculation of the current expected credit losses allowance for both pools of financial assets and individual financial assets. Significant amendments made to the provisions of ASU 2017-12 by ASU 2019-04 include clarification on partial-term fair value hedges of interest rate risk, amortization of fair value hedge basis adjustments and disclosure of fair value hedge basis adjustments. Significant amendments made to provisions of ASU 2016-01include2016-01 include clarification of the measurement alternative practice for equity securities and remeasurement of equity securities at historical exchange rates. ASU 2019-04 includes other amendments which clarify various provisions within the codification. The Company adopted ASU 2019-04 is effective forin the Company for fiscal years beginning after December 15, 2019 and interim periods therein.first quarter of 2020. Adoption of ASU 2019-04 isdid not expected to have a material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief ("ASU 2019-05")
On May 15, 2019, the FASB issued ASU 2019-05 which provides transition relief for entities adopting the Board's credit losses standard, ASU 2016-13. ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that meet specific requirements and is effective for the Company for annual reporting periods beginning after December 15, 2019. The Company did not elect the fair value option for additional financial instruments.
FASB Accounting Standards Update No. 2019-11, Codification Improvements to Topic 326: Financial Instruments-Credit Losses ("ASU 2019-11")
On November 27, 2019, the FASB issued ASU 2019-11 which revises certain aspects of new guidance on credit losses. Topics addressed include purchased credit-deteriorated assets, transition relief for troubled debt restructurings, disclosure relief for accrued interest receivable, and financial assets secured by collateral maintenance provisions. ASU 2019-11 is effective for the Company for annual reporting periods beginning after December 15, 2019. The Company adopted ASU 2019-11 in the first quarter of 2020. Adoption of ASU 2019-05 is2019-11 did not expected to have a material impact on the Company's financial statements.
FASB Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12")
On December 18, 2019, the FASB issued ASU 2019-12 which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company for annual reporting periods beginning after December 15, 2020, and interim periods within; however, early adoption is permitted. The Company adopted ASU 2019-12 in the first quarter of 2020. Adoption of ASU 2019-12 did not have a material impact on the Company's financial statements.
(2) Securities
Trading Securities
The fair value and net unrealized gain (loss) included in trading securities are as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| | | Fair Value | | Net Unrealized Gain (Loss) | | Fair Value | | Net Unrealized Gain (Loss) |
| U.S. government agency debentures | | $ | 63,334 |
| | $ | 23 |
| | $ | 63,765 |
| | $ | 254 |
|
| Residential agency mortgage-backed securities | | 1,480,458 |
| | 3,851 |
| | 1,791,584 |
| | 9,966 |
|
| Municipal and other tax-exempt securities | | 44,105 |
| | (99 | ) | | 34,507 |
| | (1 | ) |
| Asset-backed securities | | 36,928 |
| | 50 |
| | 42,656 |
| | 685 |
|
| Other debt securities | | 50,387 |
| | 116 |
| | 24,411 |
| | 65 |
|
| Total trading securities | | $ | 1,675,212 |
| | $ | 3,941 |
| | $ | 1,956,923 |
| | $ | 10,969 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | | | December 31, 2019 | | |
| | | Fair Value | | Net Unrealized Gain (Loss) | | Fair Value | | Net Unrealized Gain (Loss) |
| U.S. government agency debentures | | $ | 4,237 | | | $ | 19 | | | $ | 44,264 | | | $ | 6 | |
| Residential agency mortgage-backed securities | | 1,146,454 | | | 3,589 | | | 1,504,651 | | | 2,293 | |
| Municipal and other tax-exempt securities | | 22,710 | | | 116 | | | 26,196 | | | 60 | |
| Asset-backed securities | | 5 | | | — | | | 14,084 | | | (21) | |
| Other debt securities | | 22,699 | | | 127 | | | 34,726 | | | 21 | |
| Total trading securities | | $ | 1,196,105 | | | $ | 3,851 | | | $ | 1,623,921 | | | $ | 2,359 | |
Investment Securities
The amortized cost and fair values of investment securities are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | | | | | |
| | | Amortized | | Fair | | Gross Unrealized | | |
| | | Cost | | Value | | Gain | | Loss |
| Municipal and other tax-exempt | | $ | 84,239 | | | $ | 88,623 | | | $ | 4,384 | | | $ | — | |
| Residential agency mortgage-backed securities | | 9,812 | | | 10,734 | | | 922 | | | — | |
| Other debt securities | | 175,565 | | | 199,769 | | | 24,235 | | | (31) | |
| Total investment securities | | 269,616 | | | 299,126 | | | 29,541 | | | (31) | |
Allowance for credit losses1 | | (1,628) | | | | | | | |
| Investment securities, net of allowance | | 267,988 | | | 299,126 | | | 29,541 | | | (31) | |
1 Effective with the adoption of FASB ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) on January 1, 2020.
| | | | | September 30, 2019 | | | December 31, 2019 | |
| | | Amortized | | Fair | | Gross Unrealized | | | Amortized | | Fair | | Gross Unrealized | |
| | | Cost | | Value | | Gain | | Loss | | | Cost | | Value | | Gain | | Loss |
| Municipal and other tax-exempt | | $ | 104,418 |
| | $ | 107,647 |
| | $ | 3,247 |
| | $ | (18 | ) | Municipal and other tax-exempt | | $ | 93,653 | | | $ | 96,897 | | | $ | 3,250 | | | $ | (6) | |
| Residential agency mortgage-backed securities | | 11,125 |
| | 11,650 |
| | 528 |
| | (3 | ) | Residential agency mortgage-backed securities | | 10,676 | | | 11,164 | | | 488 | | | — | |
| Other debt securities | | 188,681 |
| | 204,724 |
| | 16,457 |
| | (414 | ) | Other debt securities | | 189,089 | | | 206,341 | | | 17,547 | | | (295) | |
| Total investment securities | | $ | 304,224 |
| | $ | 324,021 |
| | $ | 20,232 |
| | $ | (435 | ) | Total investment securities | | $ | 293,418 | | | $ | 314,402 | | | $ | 21,285 | | | $ | (301) | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | Amortized | | Fair | | Gross Unrealized |
| | | Cost | | Value | | Gain | | Loss |
| Municipal and other tax-exempt | | $ | 137,296 |
| | $ | 138,562 |
| | $ | 1,858 |
| | $ | (592 | ) |
| Residential agency 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 | ) |
- 54 -
The amortized cost and fair values of investment securities at SeptemberJune 30, 2019,2020, by contractual maturity, are as shown in the following table (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than
One Year | | One to
Five Years | | Six to
Ten Years | | Over
Ten Years | | Total | | Weighted Average Maturity1 |
| Fixed maturity debt securities: | | | | | | | | | | | | |
| Amortized cost | | $ | 39,734 | | | $ | 87,863 | | | $ | 122,309 | | | $ | 9,898 | | | $ | 259,804 | | | 4.95 | |
| Fair value | | 40,151 | | | 96,615 | | | 141,378 | | | 10,248 | | | 288,392 | | | |
| Residential mortgage-backed securities: | | | | | | | | | | | | |
| Amortized cost | | | | | | | | | | $ | 9,812 | | | 2 |
| Fair value | | | | | | | | | | 10,734 | | | |
| Total investment securities: | | | | | | | | | | | | |
| Amortized cost | | | | | | | | | | $ | 269,616 | | | |
| Fair value | | | | | | | | | | 299,126 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Less than One Year | | One to Five Years | | Six to Ten Years | | Over Ten Years | | Total | | Weighted Average Maturity1 |
| Fixed maturity debt securities: | | |
| | |
| | |
| | |
| | |
| | |
| Amortized cost | | $ | 42,266 |
| | $ | 93,139 |
| | $ | 145,046 |
| | $ | 12,648 |
| | $ | 293,099 |
| | 5.16 |
|
| Fair value | | 42,426 |
| | 96,704 |
| | 160,698 |
| | 12,543 |
| | 312,371 |
| | |
|
| Residential mortgage-backed securities: | | |
| | |
| | |
| | |
| | |
| | |
|
| Amortized cost | | |
| | |
| | |
| | |
| | $ | 11,125 |
| | 2 |
| Fair value | | |
| | |
| | |
| | |
| | 11,650 |
| | |
|
| Total investment securities: | | |
| | |
| | |
| | |
| | |
| | |
|
| Amortized cost | | |
| | |
| | |
| | |
| | $ | 304,224 |
| | |
|
| Fair value | | |
| | |
| | |
| | |
| | 324,021 |
| | |
|
| |
12The average expected lives of residential mortgage-backed securities were 4.6 years based upon current prepayment assumptions.
| Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty. |
| |
2
| The average expected lives of residential mortgage-backed securities were 4.5 years based upon current prepayment assumptions. |
Temporarily Impaired Investment Securities
| | | | | September 30, 2019 | | June 30, 2020 | |
| | | 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: | | | | | | | | | | | | | | | Investment: | | | | | | | | | | | | | | |
| Municipal and other tax-exempt | | 18 |
| | $ | 10,302 |
| | $ | 3 |
| | $ | 2,213 |
| | $ | 15 |
| | $ | 12,515 |
| | $ | 18 |
| |
| Residential agency mortgage-backed securities | | 1 |
| | 2,318 |
| | 3 |
| | — |
| | — |
| | 2,318 |
| | 3 |
| |
| | Other debt securities | | 18 |
| | 275 |
| | 1 |
| | 10,897 |
| | 413 |
| | 11,172 |
| | 414 |
| Other debt securities | | 4 | | | — | | | — | | | 2,142 | | | 31 | | | 2,142 | | | 31 | |
| Total investment securities | | 37 |
| | $ | 12,895 |
| | $ | 7 |
| | $ | 13,110 |
| | $ | 428 |
| | $ | 26,005 |
| | $ | 435 |
| Total investment securities | | 4 | | | $ | — | | | $ | — | | | $ | 2,142 | | | $ | 31 | | | $ | 2,142 | | | $ | 31 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | 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 | | 72 |
| | $ | 18,255 |
| | $ | 69 |
| | $ | 66,141 |
| | $ | 523 |
| | $ | 84,396 |
| | $ | 592 |
|
| Residential agency mortgage-backed securities | | 2 |
| | — |
| | — |
| | 5,633 |
| | 135 |
| | 5,633 |
| | 135 |
|
| Other debt securities | | 72 |
| | 13,372 |
| | 64 |
| | 23,028 |
| | 1,506 |
| | 36,400 |
| | 1,570 |
|
| Total investment securities | | 146 |
| | $ | 31,627 |
| | $ | 133 |
| | $ | 94,802 |
| | $ | 2,164 |
| | $ | 126,429 |
| | $ | 2,297 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | | | | | | | | | | | |
| | | 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 | | 4 | | | $ | 1,001 | | | $ | 1 | | | $ | 1,706 | | | $ | 5 | | | $ | 2,707 | | | $ | 6 | |
| | | | | | | | | | | | | | |
| Other debt securities | | 13 | | | 275 | | | 1 | | | 8,041 | | | 294 | | | 8,316 | | | 295 | |
| Total investment securities | | 17 | | | $ | 1,276 | | | $ | 2 | | | $ | 9,747 | | | $ | 299 | | | $ | 11,023 | | | $ | 301 | |
Available for Sale Securities
The amortized cost and fair value of available for sale securities are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | | | | | | | |
| | | Amortized | | Fair | | Gross Unrealized | | | | |
| | | Cost | | Value | | Gain | | Loss | | |
| U.S. Treasury | | $ | 900 | | | $ | 912 | | | $ | 12 | | | $ | — | | | |
| Municipal and other tax-exempt | | 29,670 | | | 31,240 | | | 1,570 | | | — | | | |
| Mortgage-backed securities: | | | | | | | | | | |
| Residential agency | | 8,789,466 | | | 9,147,238 | | | 360,056 | | | (2,284) | | | |
| Residential non-agency | | 21,941 | | | 35,250 | | | 13,318 | | | (9) | | | |
| Commercial agency | | 3,146,108 | | | 3,260,807 | | | 116,042 | | | (1,343) | | | |
| Other debt securities | | 500 | | | 472 | | | — | | | (28) | | | |
| Total available for sale securities | | $ | 11,988,585 | | | $ | 12,475,919 | | | $ | 490,998 | | | $ | (3,664) | | | |
| | | | | September 30, 2019 | | | December 31, 2019 | |
| | | Amortized | | Fair | | Gross Unrealized | | | Amortized | | Fair | | Gross Unrealized | |
| | | Cost | | Value | | Gain | | Loss | | | Cost | | Value | | Gain | | Loss | |
| U.S. Treasury | | $ | 2,294 |
| | $ | 2,296 |
| | $ | 2 |
| | $ | — |
| U.S. Treasury | | $ | 1,598 | | | $ | 1,600 | | | $ | 2 | | | $ | — | | |
| Municipal and other tax-exempt | | 1,772 |
| | 1,848 |
| | 76 |
| | — |
| Municipal and other tax-exempt | | 1,789 | | | 1,861 | | | 72 | | | — | | |
| Mortgage-backed securities: | | |
| | |
| | |
| | |
| Mortgage-backed securities: | | | | | | | |
| Residential agency | | 7,636,923 |
| | 7,740,461 |
| | 114,646 |
| | (11,108 | ) | Residential agency | | 7,956,297 | | | 8,046,096 | | | 104,912 | | | (15,113) | | |
| Residential non-agency | | 28,814 |
| | 44,803 |
| | 15,989 |
| | — |
| Residential non-agency | | 25,968 | | | 41,609 | | | 15,641 | | | — | | |
| Commercial agency | | 3,176,188 |
| | 3,234,671 |
| | 61,003 |
| | (2,520 | ) | Commercial agency | | 3,145,342 | | | 3,178,005 | | | 37,808 | | | (5,145) | | |
| Other debt securities | | 500 |
| | 472 |
| | — |
| | (28 | ) | Other debt securities | | 500 | | | 472 | | | — | | | (28) | | |
| Total available for sale securities | | $ | 10,846,491 |
| | $ | 11,024,551 |
| | $ | 191,716 |
| | $ | (13,656 | ) | Total available for sale securities | | $ | 11,131,494 | | | $ | 11,269,643 | | | $ | 158,435 | | | $ | (20,286) | | |
|
| | | | | | | | | | | | | | | | |
| | | 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 | ) |
The amortized cost and fair values of available for sale securities at SeptemberJune 30, 2019,2020, by contractual maturity, are as shown in the following table (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than
One Year | | One to
Five Years | | Six to
Ten Years | | Over
Ten Years | | Total | | Weighted Average Maturity1 |
| Fixed maturity debt securities: | | | | | | | | | | | |
| Amortized cost | $ | 34,044 | | | $ | 1,321,471 | | | $ | 1,241,310 | | | $ | 580,353 | | | $ | 3,177,178 | | | 8.03 | |
| Fair value | 34,144 | | | 1,375,128 | | | 1,280,251 | | | 603,908 | | | 3,293,431 | | | |
| Residential mortgage-backed securities: | | | | | | | | | | | |
| Amortized cost | | | | | | | | | $ | 8,811,407 | | | 2 |
| Fair value | | | | | | | | | 9,182,488 | | | |
| Total available-for-sale securities: | | | | | | | | | | | |
| Amortized cost | | | | | | | | | $ | 11,988,585 | | | |
| Fair value | | | | | | | | | 12,475,919 | | | |
1Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
2The average expected lives of residential mortgage-backed securities were 3.1 years based upon current prepayment assumptions.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Less than One Year | | One to Five Years | | Six to Ten Years | | Over Ten Years | | Total | | Weighted Average Maturity1 |
| Fixed maturity debt securities: | | | | | | | | | | | |
| Amortized cost | $ | 35,845 |
| | $ | 1,069,415 |
| | $ | 1,476,121 |
| | $ | 599,373 |
| | $ | 3,180,754 |
| | 8.29 |
|
| Fair value | 35,806 |
| | 1,081,571 |
| | 1,512,308 |
| | 609,602 |
| | 3,239,287 |
| | |
| Residential mortgage-backed securities: | | | | | | | | | | | |
| Amortized cost | | | | | | | | | $ | 7,665,737 |
| | 2 |
| Fair value | | | | | | | | | 7,785,264 |
| | |
| Total available-for-sale securities: | | | | | | | | | | | |
| Amortized cost | | | | | | | | | $ | 10,846,491 |
| | |
| Fair value | | | | | | | | | 11,024,551 |
| | |
| |
| Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty. |
| |
2
| The average expected lives of residential mortgage-backed securities were 4.0 years based upon current prepayment assumptions. |
Sales of available for sale securities resulted in gains and losses as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Proceeds | $ | 179,051 | | | $ | 122,098 | | | $ | 205,945 | | | $ | 367,357 | |
| Gross realized gains | 5,580 | | | 1,029 | | | 5,583 | | | 6,327 | |
| Gross realized losses | — | | | — | | | — | | | (5,222) | |
| Related federal and state income tax expense (benefit) | 1,421 | | | 262 | | | 1,422 | | | 281 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Proceeds | $ | 261,028 |
| | $ | 45,293 |
| | $ | 628,385 |
| | $ | 232,826 |
|
| Gross realized gains | 989 |
| | 250 |
| | 7,316 |
| | 700 |
|
| Gross realized losses | (984 | ) | | — |
| | (6,206 | ) | | (1,502 | ) |
| Related federal and state income tax expense (benefit) | 1 |
| | 64 |
| | 282 |
| | (204 | ) |
The fair value of debt securities pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes, as required by law was $10.8$12.3 billion at SeptemberJune 30, 20192020 and $9.1$10.1 billion at December 31, 2018.2019. The secured parties do not have the right to sell or repledge these securities.
Temporarily Impaired Available for Sale Securities
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | | | | | | | | | |
| | | 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: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | |
| Residential agency | | 36 | | | 492,864 | | | 1,375 | | | 173,997 | | | 909 | | | 666,861 | | | 2,284 | |
| Residential non-agency | | 1 | | | 1,695 | | | 9 | | | — | | | — | | | 1,695 | | | 9 | |
| Commercial agency | | 22 | | | 271,735 | | | 902 | | | 160,806 | | | 441 | | | 432,541 | | | 1,343 | |
| Other debt securities | | 1 | | | — | | | — | | | 472 | | | 28 | | | 472 | | | 28 | |
| Total available for sale securities | | 60 | | | $ | 766,294 | | | $ | 2,286 | | | $ | 335,275 | | | $ | 1,378 | | | $ | 1,101,569 | | | $ | 3,664 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 |
| | | 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 | | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Mortgage-backed securities: | | | | |
| | |
| | |
| | |
| |
|
| |
|
|
| Residential agency | | 108 |
|
| 931,248 |
|
| 3,260 |
|
| 753,448 |
|
| 7,848 |
|
| 1,684,696 |
|
| 11,108 |
|
| Commercial agency | | 57 |
| | 449,798 |
| | 1,612 |
| | 224,409 |
| | 908 |
| | 674,207 |
| | 2,520 |
|
| Other debt securities | | 1 |
| | — |
| | — |
| | 472 |
| | 28 |
| | 472 |
| | 28 |
|
| Total available for sale securities | | 166 |
| | $ | 1,381,046 |
|
| $ | 4,872 |
|
| $ | 978,329 |
|
| $ | 8,784 |
|
| $ | 2,359,375 |
|
| $ | 13,656 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | | | | | | | | | | | |
| | | 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: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | |
| Residential agency | | 133 | | | $ | 1,352,597 | | | $ | 6,690 | | | $ | 686,002 | | | $ | 8,423 | | | $ | 2,038,599 | | | $ | 15,113 | |
| | | | | | | | | | | | | | |
| Commercial agency | | 69 | | | 830,047 | | | 4,238 | | | 210,877 | | | 907 | | | 1,040,924 | | | 5,145 | |
| Other debt securities | | 1 | | | — | | | — | | | 472 | | | 28 | | | 472 | | | 28 | |
| Total available for sale securities | | 203 | | | $ | 2,182,644 | | | $ | 10,928 | | | $ | 897,351 | | | $ | 9,358 | | | $ | 3,079,995 | | | $ | 20,286 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | 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 |
|
Based on evaluations of impaired securities as of SeptemberJune 30, 2019,2020, 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, 2020 | | | | December 31, 2019 | | |
| | | Fair Value | | Net Unrealized Gain (Loss) | | Fair Value | | Net Unrealized Gain (Loss) |
| U.S. Treasury | | $ | 92,742 | | | $ | 307 | | | $ | 9,917 | | | $ | (48) | |
| Residential agency mortgage-backed securities | | 629,915 | | | 16,549 | | | 1,088,660 | | | 14,109 | |
| | | | | | | | |
| Total | | $ | 722,657 | | | $ | 16,856 | | | $ | 1,098,577 | | | $ | 14,061 | |
|
| | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| | | Fair Value | | Net Unrealized Gain (Loss) | | Fair Value | | Net Unrealized Gain (Loss) |
| U.S. Treasury | | $ | 552,536 |
| | $ | 927 |
| | $ | — |
| | $ | — |
|
| Residential agency mortgage-backed securities | | 1,263,862 |
| | 18,588 |
| | 283,235 |
| | 2,766 |
|
| Total | | $ | 1,816,398 |
| | $ | 19,515 |
| | $ | 283,235 |
| | $ | 2,766 |
|
(3) Derivatives
Derivative instruments may be used by the Company as part of its internal risk management programs or may be offered to customers. All derivative instruments are carried at fair value and changes in fair value are reported in earnings as they occur. Credit risk is also considered in determining fair value. Deterioration in the credit rating of customer or other counterparties reduced the fair value of asset contracts. Deterioration of our credit rating could decrease the fair value of our derivative liabilities.
When bilateral netting agreements or similar arrangements exist between the Company and its counterparties that create a single legal claim or obligation to pay or receive the net amount in settlement of the individual derivative contracts, the Company reports derivative assets and liabilities on a net by derivative contract type by counterparty basis.
Derivative contracts may require the Company to provide or receive cash margin as collateral for derivative assets and liabilities. Derivative assets and liabilities are reported net of cash margin when certain conditions are met. In addition, derivative contracts executed with customers under Customer Risk Management Programs may be secured by non-cash collateral in conjunction with a credit agreement with that customer. Access to collateral in the event of default is reasonably assured.
None of these derivative contracts have been designated as hedging instruments for accounting purposes.
Customer Risk Management Programs
BOK Financial offers programs to permit its customers to manage various risks, including fluctuations in energy, cattle and other agricultural products, interest rates and foreign exchange rates with derivative contracts. Customers may also manage interest rate risk through interest rate swaps used by borrowers to modify interest rate terms of their loans. Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other selected counterparties to minimize the risk of changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to BOK Financial as profit and compensation for administrative costs and credit risk which is recognized over the life of the contracts and included in Other operating revenue – Brokerage and trading revenue in the Consolidated Statements of Earnings.
Trading
BOK Financial may offer derivative instruments such as to-be-announced securities to mortgage banking customers to hedgeenable them to manage their loan productionmarket risk or to mitigate the Company's market risk of holding trading securities. Changes in the fair value of derivative instruments for trading purposes or used to mitigate the market risk of holding trading securities are included in Other operating revenue – Brokerage and trading revenue.
Internal Risk Management Programs
BOK Financial may use derivative contracts in managing its interest rate sensitivity, as part of its economic hedge of the change in the fair value of mortgage servicing rights and to mitigate the market risk of holding trading securities.rights. Changes in the fair value of derivative instruments used in managing interest rate sensitivity and as part of the economic hedge of changes in the fair value of mortgage servicing rights are included in Other operating revenue – Gain (loss) on derivatives, net in the Consolidated Statements of Earnings.
As discussed in Note 6,5, certain derivative contracts not designated as hedging instruments related to mortgage loan commitments and forward sales contracts are included in Residential mortgage loans held for sale on the Consolidated Balance Sheets. See Note 65 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 SeptemberJune 30, 20192020 (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 | | 2,772,027 | | | 140,157 | | | (42) | | | 140,115 | | | — | | | 140,115 | |
| Energy contracts | | 2,912,225 | | | 434,455 | | | (199,805) | | | 234,650 | | | (155,160) | | | 79,490 | |
| Agricultural contracts | | 13,183 | | | 59 | | | (35) | | | 24 | | | — | | | 24 | |
| Foreign exchange contracts | | 283,424 | | | 281,801 | | | — | | | 281,801 | | | (507) | | | 281,294 | |
| Equity option contracts | | 75,987 | | | 1,097 | | | — | | | 1,097 | | | (286) | | | 811 | |
| Total customer risk management programs | | 6,056,846 | | | 857,569 | | | (199,882) | | | 657,687 | | | (155,953) | | | 501,734 | |
| Trading | | 50,132,348 | | | 219,647 | | | (91,830) | | | 127,817 | | | — | | | 127,817 | |
| Internal risk management programs | | 865,964 | | | 23,823 | | | (1,821) | | | 22,002 | | | — | | | 22,002 | |
| Total derivative contracts | | $ | 57,055,158 | | | $ | 1,101,039 | | | $ | (293,533) | | | $ | 807,506 | | | $ | (155,953) | | | $ | 651,553 | |
| | | | | | | | | | | | |
| | 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 | | 2,772,027 | | | 140,509 | | | (42) | | | 140,467 | | | (129,094) | | | 11,373 | |
| Energy contracts | | 2,718,690 | | | 408,813 | | | (199,805) | | | 209,008 | | | (3,298) | | | 205,710 | |
| Agricultural contracts | | 13,191 | | | 50 | | | (35) | | | 15 | | | (15) | | | — | |
| Foreign exchange contracts | | 270,594 | | | 269,013 | | | — | | | 269,013 | | | — | | | 269,013 | |
| Equity option contracts | | 75,987 | | | 1,097 | | | — | | | 1,097 | | | — | | | 1,097 | |
| Total customer risk management programs | | 5,850,489 | | | 819,482 | | | (199,882) | | | 619,600 | | | (132,407) | | | 487,193 | |
| Trading | | 52,408,519 | | | 213,170 | | | (91,830) | | | 121,340 | | | — | | | 121,340 | |
| Internal risk management programs | | 168,491 | | | 3,308 | | | (1,821) | | | 1,487 | | | — | | | 1,487 | |
| Total derivative contracts | | $ | 58,427,499 | | | $ | 1,035,960 | | | $ | (293,533) | | | $ | 742,427 | | | $ | (132,407) | | | $ | 610,020 | |
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest rate swaps | | 2,399,788 |
| | 67,157 |
| | (240 | ) | | 66,917 |
| | (277 | ) | | 66,640 |
|
| Energy contracts | | 1,980,406 |
| | 183,204 |
| | (59,139 | ) | | 124,065 |
| | (66,149 | ) | | 57,916 |
|
| Agricultural contracts | | 15,538 |
| | 470 |
| | (302 | ) | | 168 |
| | — |
| | 168 |
|
| Foreign exchange contracts | | 209,515 |
| | 206,914 |
| | — |
| | 206,914 |
| | — |
| | 206,914 |
|
| Equity option contracts | | 82,860 |
| | 3,114 |
| | — |
| | 3,114 |
| | (660 | ) | | 2,454 |
|
| Total customer risk management programs | | 4,688,107 |
| | 460,859 |
| | (59,681 | ) | | 401,178 |
| | (67,086 | ) | | 334,092 |
|
| Trading | | 73,658,685 |
| | 205,188 |
| | (193,306 | ) | | 11,882 |
| | — |
| | 11,882 |
|
| Internal risk management programs | | 433,804 |
| | 9,037 |
| | (2,992 | ) | | 6,045 |
| | — |
| | 6,045 |
|
| Total derivative contracts | | $ | 78,780,596 |
| | $ | 675,084 |
| | $ | (255,979 | ) | | $ | 419,105 |
| | $ | (67,086 | ) | | $ | 352,019 |
|
| | | | | | | | | | | | | |
| | | 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 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest rate swaps | | 2,399,788 |
| | 67,296 |
| | (240 | ) | | 67,056 |
| | (61,563 | ) | | 5,493 |
|
| Energy contracts | | 1,936,369 |
| | 175,613 |
| | (59,139 | ) | | 116,474 |
| | (784 | ) | | 115,690 |
|
| Agricultural contracts | | 15,547 |
| | 451 |
| | (302 | ) | | 149 |
| | — |
| | 149 |
|
| Foreign exchange contracts | | 200,347 |
| | 197,807 |
| | — |
| | 197,807 |
| | (433 | ) | | 197,374 |
|
| Equity option contracts | | 82,860 |
| | 3,114 |
| | — |
| | 3,114 |
| | — |
| | 3,114 |
|
| Total customer risk management programs | | 4,634,911 |
| | 444,281 |
| | (59,681 | ) | | 384,600 |
| | (62,780 | ) | | 321,820 |
|
| Trading | | 75,247,769 |
| | 207,542 |
| | (193,306 | ) | | 14,236 |
| | — |
| | 14,236 |
|
| Internal risk management programs | | 483,370 |
| | 5,435 |
| | (2,992 | ) | | 2,443 |
| | (1,708 | ) | | 735 |
|
| Total derivative contracts | | $ | 80,366,050 |
| | $ | 657,258 |
| | $ | (255,979 | ) | | $ | 401,279 |
| | $ | (64,488 | ) | | $ | 336,791 |
|
| |
| 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, 20182019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Assets | | | | | | | | | | |
| | | Notional 1 | | Gross Fair Value | | Netting Adjustments | | Net Fair Value Before Cash Collateral | | Cash Collateral | | Fair Value Net of Cash Collateral |
| Customer risk management programs: | | | | | | | | | | | | |
| Interest rate contracts | | 2,464,478 | | | 49,100 | | | (1,839) | | | 47,261 | | | — | | | 47,261 | |
| Energy contracts | | 2,151,096 | | | 144,906 | | | (107,591) | | | 37,315 | | | (38) | | | 37,277 | |
| Agricultural contracts | | 16,118 | | | 1,522 | | | (22) | | | 1,500 | | | — | | | 1,500 | |
| Foreign exchange contracts | | 214,119 | | | 213,007 | | | — | | | 213,007 | | | — | | | 213,007 | |
| Equity option contracts | | 81,455 | | | 3,233 | | | — | | | 3,233 | | | (660) | | | 2,573 | |
| Total customer risk management programs | | 4,927,266 | | | 411,768 | | | (109,452) | | | 302,316 | | | (698) | | | 301,618 | |
| Trading | | 69,721,932 | | | 131,561 | | | (115,949) | | | 15,612 | | | — | | | 15,612 | |
| Internal risk management programs | | 1,268,180 | | | 6,226 | | | (81) | | | 6,145 | | | — | | | 6,145 | |
| Total derivative contracts | | $ | 75,917,378 | | | $ | 549,555 | | | $ | (225,482) | | | $ | 324,073 | | | $ | (698) | | | $ | 323,375 | |
| | | | | | | | | | | | |
| | Liabilities | | | | | | | | | | |
| | | Notional 1 | | Gross Fair Value | | Netting Adjustments | | Net Fair Value Before Cash Collateral | | Cash Collateral | | Fair Value Net of Cash Collateral |
| Customer risk management programs: | | | | | | | | | | | | |
| Interest rate contracts | | 2,464,478 | | | 49,194 | | | (1,839) | | | 47,355 | | | (43,932) | | | 3,423 | |
| Energy contracts | | 2,105,391 | | | 139,311 | | | (107,591) | | | 31,720 | | | (6,031) | | | 25,689 | |
| Agricultural contracts | | 16,139 | | | 1,507 | | | (22) | | | 1,485 | | | (1,485) | | | — | |
| Foreign exchange contracts | | 207,919 | | | 207,020 | | | — | | | 207,020 | | | — | | | 207,020 | |
| Equity option contracts | | 81,455 | | | 3,233 | | | — | | | 3,233 | | | — | | | 3,233 | |
| Total customer risk management programs | | 4,875,382 | | | 400,265 | | | (109,452) | | | 290,813 | | | (51,448) | | | 239,365 | |
| Trading | | 65,144,388 | | | 125,535 | | | (115,949) | | | 9,586 | | | — | | | 9,586 | |
| Internal risk management programs | | 380,401 | | | 3,121 | | | (81) | | | 3,040 | | | (863) | | | 2,177 | |
| Total derivative contracts | | $ | 70,400,171 | | | $ | 528,921 | | | $ | (225,482) | | | $ | 303,439 | | | $ | (52,311) | | | $ | 251,128 | |
1 Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets |
| | | Notional 1 | | Gross Fair Value | | Netting Adjustments | | Net Fair Value Before Cash Collateral | | Cash Collateral | | Fair Value Net of Cash Collateral |
| Customer risk management programs: | | | | | | | | | | | | |
| Interest rate contracts | | | | | | | | | | | | |
| To-be-announced residential mortgage-backed securities | | $ | 10,671,151 |
| | $ | 92,231 |
| | $ | (26,787 | ) | | $ | 65,444 |
| | $ | — |
| | $ | 65,444 |
|
| Interest rate swaps | | 1,924,131 |
| | 36,112 |
| | (6,688 | ) | | 29,424 |
| | (7,934 | ) | | 21,490 |
|
| Energy contracts | | 1,472,209 |
| | 206,418 |
| | (60,983 | ) | | 145,435 |
| | (106,752 | ) | | 38,683 |
|
| Agricultural contracts | | 21,210 |
| | 842 |
| | (201 | ) | | 641 |
| | — |
| | 641 |
|
| Foreign exchange contracts | | 184,990 |
| | 183,759 |
| | — |
| | 183,759 |
| | — |
| | 183,759 |
|
| Equity option contracts | | 89,085 |
| | 2,021 |
| | — |
| | 2,021 |
| | (648 | ) | | 1,373 |
|
| Total customer risk management programs | | 14,362,776 |
| | 521,383 |
| | (94,659 | ) | | 426,724 |
| | (115,334 | ) | | 311,390 |
|
| Trading | | 15,356,909 |
| | 45,346 |
| | (39,521 | ) | | 5,825 |
| | — |
| | 5,825 |
|
| Internal risk management programs | | 553,079 |
| | 5,064 |
| | (1,350 | ) | | 3,714 |
| | — |
| | 3,714 |
|
| Total derivative contracts | | $ | 30,272,764 |
| | $ | 571,793 |
| | $ | (135,530 | ) | | $ | 436,263 |
| | $ | (115,334 | ) | | $ | 320,929 |
|
| | | | | | | | | | | | | |
| | | Liabilities |
| | | Notional 1 | | Gross Fair Value | | Netting Adjustments | | Net Fair Value Before Cash Collateral | | Cash Collateral | | Fair Value Net of Cash Collateral |
| Customer risk management programs: | | | | | | | | | | | | |
| Interest rate contracts | | | | | | | | | | | | |
| To-be-announced residential mortgage-backed securities | | $ | 10,558,151 |
| | $ | 90,388 |
| | $ | (26,787 | ) | | $ | 63,601 |
| | $ | (63,596 | ) | | $ | 5 |
|
| Interest rate swaps | | 1,924,131 |
| | 36,288 |
| | (6,688 | ) | | 29,600 |
| | (4,110 | ) | | 25,490 |
|
| Energy contracts | | 1,434,247 |
| | 202,494 |
| | (60,983 | ) | | 141,511 |
| | (1,490 | ) | | 140,021 |
|
| Agricultural contracts | | 21,214 |
| | 812 |
| | (201 | ) | | 611 |
| | — |
| | 611 |
|
| Foreign exchange contracts | | 177,423 |
| | 175,922 |
| | — |
| | 175,922 |
| | — |
| | 175,922 |
|
| Equity option contracts | | 89,085 |
| | 2,021 |
| | — |
| | 2,021 |
| | — |
| | 2,021 |
|
| Total customer risk management programs | | 14,204,251 |
| | 507,925 |
| | (94,659 | ) | | 413,266 |
| | (69,196 | ) | | 344,070 |
|
| Trading | | 19,374,294 |
| | 56,983 |
| | (39,521 | ) | | 17,462 |
| | — |
| | 17,462 |
|
| Internal risk management programs | | 260,348 |
| | 9,439 |
| | (1,350 | ) | | 8,089 |
| | (7,315 | ) | | 774 |
|
| Total derivative contracts | | $ | 33,838,893 |
| | $ | 574,347 |
| | $ | (135,530 | ) | | $ | 438,817 |
| | $ | (76,511 | ) | | $ | 362,306 |
|
| |
| 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 | | | | | | |
| | June 30, 2020 | | | | June 30, 2019 | | |
| | | 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 | | $ | — | | | $ | — | | | $ | 2,212 | | | $ | — | |
| Interest rate swaps | | 746 | | | — | | | 942 | | | — | |
| Energy contracts | | 5,383 | | | — | | | 2,086 | | | — | |
| Agricultural contracts | | 6 | | | — | | | 4 | | | — | |
| Foreign exchange contracts | | 107 | | | — | | | 100 | | | — | |
| Equity option contracts | | — | | | — | | | — | | | — | |
| Total customer risk management programs | | 6,242 | | | — | | | 5,344 | | | — | |
Trading1 | | 32,577 | | | — | | | 8,030 | | | — | |
| Internal risk management programs | | — | | | 21,885 | | | — | | | 11,150 | |
| Total derivative contracts | | $ | 38,819 | | | $ | 21,885 | | | $ | 13,374 | | | $ | 11,150 | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | September 30, 2019 | | September 30, 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 | | $ | 1,667 |
| | $ | — |
| | $ | 7,272 |
| | $ | — |
|
| Interest rate swaps | | 1,252 |
| | — |
| | 618 |
| | — |
|
| Energy contracts | | 1,611 |
| | — |
| | 541 |
| | — |
|
| Agricultural contracts | | 16 |
| | — |
| | 6 |
| | — |
|
| Foreign exchange contracts | | 138 |
| | — |
| | 78 |
| | — |
|
| Equity option contracts | | — |
| | — |
| | — |
| | — |
|
| Total customer risk management programs | | 4,684 |
| | — |
| | 8,515 |
| | — |
|
| Trading | | 3,630 |
| | — |
| | 6,124 |
| | — |
|
| Internal risk management programs | | — |
| | 3,778 |
| | — |
| | (2,847 | ) |
| Total derivative contracts | | $ | 8,314 |
| | $ | 3,778 |
| | $ | 14,639 |
| | $ | (2,847 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | Six Months Ended | | | | | | |
| | June 30, 2020 | | | | June 30, 2019 | | |
| | | 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 | | $ | — | | | $ | — | | | $ | 7,912 | | | $ | — | |
| Interest rate swaps | | 1,688 | | | — | | | 1,535 | | | — | |
| Energy contracts | | 7,390 | | | — | | | 2,312 | | | — | |
| Agricultural contracts | | 21 | | | — | | | 8 | | | — | |
| Foreign exchange contracts | | 365 | | | — | | | 254 | | | — | |
| Equity option contracts | | — | | | — | | | — | | | — | |
| Total customer risk management programs | | 9,464 | | | — | | | 12,021 | | | — | |
Trading1 | | (8,078) | | | — | | | 735 | | | — | |
| Internal risk management programs | | — | | | 40,305 | | | — | | | 15,817 | |
| Total derivative contracts | | $ | 1,386 | | | $ | 40,305 | | | $ | 12,756 | | | $ | 15,817 | |
1 Represents changes in fair value of to-be-announced securities and other derivative instruments held to mitigate market risk of trading securities portfolio, which is offset by changes in fair value of trading securities also include in Brokerage and Trading Revenue in the Consolidated Statements of Earnings.
|
| | | | | | | | | | | | | | | | |
| | | Nine Months Ended |
| | | September 30, 2019 | | September 30, 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 | | $ | 9,579 |
| | $ | — |
| | $ | 21,677 |
| | $ | — |
|
| Interest rate swaps | | 2,787 |
| | — |
| | 2,057 |
| | — |
|
| Energy contracts | | 3,923 |
| | — |
| | 5,097 |
| | — |
|
| Agricultural contracts | | 24 |
| | — |
| | 36 |
| | — |
|
| Foreign exchange contracts | | 392 |
| | — |
| | 350 |
| | — |
|
| Equity option contracts | | — |
| | — |
| | — |
| | — |
|
| Total customer risk management programs | | 16,705 |
| | — |
| | 29,217 |
| | — |
|
| Trading | | 4,365 |
| | — |
| | 3,260 |
| | — |
|
| Internal risk management programs | | — |
| | 19,595 |
| | — |
| | (11,589 | ) |
| Total derivative contracts | | $ | 21,070 |
| | $ | 19,595 |
| | $ | 32,477 |
| | $ | (11,589 | ) |
(4) Loans and Allowances for Credit Losses
Loans
Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower. BOK Financial is exposed to risk of loss on loans due to the borrower’s difficulties, which may arise from any number of factors, including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Accounting policies for all loans, excluding residential mortgage loans guaranteed by U.S. government agencies, are as follows.
Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccruing status when, in the opinion of management, full collection of principal or interest is uncertain. Internally risk graded loans are individually evaluated for nonaccruing status quarterly. Non-risk graded loans are generally placed on nonaccruing status when more than 90 days past due or within 60 days of being notified of the borrower's bankruptcy filing. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccruing status. Accrued but not paid interest receivable is included in Receivables in the Consolidated Balance Sheets. Payments on nonaccruing loans are applied to principal or recognized as interest income, according to management’s judgment as to the collectability of principal. Loans may be returned to accruing status when, in the opinion of management, full collection of principal and interest, including principal previously charged off, is probable based on improvements in the borrower’s financial condition or a sustained period of performance.
For loans acquired with no evidence of credit deterioration, discounts are accreted on either an individual basis for loans with unique characteristics or on a pool basis for groups of homogeneous loans. Accretion is discontinued when a loan with an individually attributed discount is placed on nonaccruing status.
Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ("TDRs"). Primarily all TDRs are classified as nonaccruing, excluding loans guaranteed by U.S. government agencies. Modifications generally consist of extension of payment terms or interest rate concessions and may result either voluntarily through negotiations with the borrower or involuntarily through court order. Generally, principal and accrued but unpaid interest is not voluntarily forgiven. In accordance with the guidance provided by the banking agencies on April 7, 2020 concerning loan modifications for customers impacted by the COVID-19 pandemic, short-term (six months or less) payment deferrals made in good faith to borrowers current prior to the relief are not considered TDRs.
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 otherOther gains (losses), net in the Consolidated Statements of Earnings.
All loans are charged off when the loan balance or a portion of the loan balance is no longer supported by the paying capacity of the borrower or when the required cash flow is reduced in a TDR. The charge-off amount is determined through a quarterly evaluation of available cash resources and collateral value 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 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, 2020 | | | | | | |
| | Fixed
Rate | | Variable
Rate | | Non-accrual | | Total |
| Commercial | | 3,215,865 | | | 10,740,646 | | | 201,999 | | | $ | 14,158,510 | |
| Commercial real estate | | 1,029,544 | | | 3,510,644 | | | 13,956 | | | 4,554,144 | |
| Paycheck protection program | | 2,081,428 | | | — | | | — | | | 2,081,428 | |
| Loans to individuals | | 2,038,990 | | | 1,283,377 | | | 39,441 | | | 3,361,808 | |
| Total | | $ | 8,365,827 | | | $ | 15,534,667 | | | $ | 255,396 | | | $ | 24,155,890 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| | | Fixed Rate | | Variable Rate | | Non-accrual | | Total | | Fixed Rate | | Variable Rate | | Non-accrual | | Total |
| Commercial | | $ | 3,184,237 |
| | $ | 11,128,682 |
| | $ | 111,706 |
| | $ | 14,424,625 |
| | $ | 2,251,188 |
| | $ | 11,285,049 |
| | $ | 99,841 |
| | $ | 13,636,078 |
|
| Commercial real estate | | 1,070,050 |
| | 3,532,822 |
| | 23,185 |
| | 4,626,057 |
| | 1,477,274 |
| | 3,265,918 |
| | 21,621 |
| | 4,764,813 |
|
| Residential mortgage | | 1,690,286 |
| | 389,713 |
| | 37,304 |
| | 2,117,303 |
| | 1,830,224 |
| | 358,254 |
| | 41,555 |
| | 2,230,033 |
|
| Personal | | 191,827 |
| | 925,284 |
| | 271 |
| | 1,117,382 |
| | 190,687 |
| | 834,889 |
| | 230 |
| | 1,025,806 |
|
| Total | | $ | 6,136,400 |
| | $ | 15,976,501 |
| | $ | 172,466 |
| | $ | 22,285,367 |
| | $ | 5,749,373 |
| | $ | 15,744,110 |
| | $ | 163,247 |
| | $ | 21,656,730 |
|
Accruing loans past due (90 days)1 | | |
| | |
| | |
| | $ | 1,541 |
| | |
| | |
| | |
| | $ | 1,338 |
|
| |
1
| Excludes residential mortgage loans guaranteed by agencies of the U.S. government |
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 SeptemberJune 30, 2019,2020, outstanding commitments totaled $11$10.3 billion. Because some commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans.
The amount of collateral obtained, if deemed necessary, is based upon management’s credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Because the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. The term of these standby letters of credit is defined in each commitment and typically corresponds with the underlying loan commitment. At SeptemberJune 30, 2019,2020, outstanding standby letters of credit totaled $713$693 million.
Allowances for Credit Losses and Accrual for Off-balance Sheet Credit Risk from Unfunded Loans Commitments
BOK Financial’s accounting policies have changed significantly with the adoption of CECL as of January 1, 2020. Prior periods are not restated. Prior to January 1, 2020, general allowances and nonspecific allowances were based on incurred credit losses in accordance with accounting policies disclosed in Note 1 of the Consolidated Financial maintains anStatements included in the 2019 Form 10-K.
The allowance for loan losses and an accrual for off-balance sheet credit risk. risk from unfunded loan commitments represent the portion of the amortized cost basis of loans that we do not expect to collect over the asset’s contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions. The appropriateness of the allowance for credit losses, including industry and product adjustments, is assessed quarterly by a senior management Allowance Committee. This review is based on an on-going evaluation of the estimated expected credit losses in the portfolio and on unused commitments to provide financing. A well-documented methodology has been developed and is applied by an independent Credit Administration department to assure consistency across the Company.
The allowance for loan losses consists of specific allowances attributed to certain individual loans, generally nonaccruing loans, with dissimilar risk characteristics that have not yet been charged down to amounts we expect to recover and general allowances for estimated credit losses on pools of loans that share similar risk characteristics.
When full collection of principal or interest is uncertain, the loan’s risk characteristics have changed, and we exclude the loan from the general allowance pool, typically designating it as nonaccruing. For these loans, a specific allowance reflects the expected credit loss.
We measure specific allowances for loans excluded from the general allowance pool by an evaluation of estimated future cash flows discounted at the loans initial effective interest rate or the fair value of collateral for certain collateral dependent loans. For a non-collateral dependent loan, the specific allowance is the amount by which the loan’s amortized cost basis exceeds its net realizable value. We measure the specific allowance for collateral dependent loans as the amount by which the loan’s amortized costs basis exceeds its fair value. When repayment is expected to be provided substantially through the sale of collateral, we deduct estimated selling costs from the collateral’s fair value. Generally, third party appraisals that conform to Uniform Standards of Professional Appraisal Practice serve as the basis for the fair value of real property held as collateral. These appraised values are on an “as-is” basis and generally are not adjusted by the Company. We obtain updated appraisals at least annually or more frequently if market conditions indicate collateral values may have declined. For energy loans, our internal staff of engineers generally determines collateral value of mineral rights based on projected cash flows from proven oil and gas reserves under existing economic and operating conditions. For real property held as collateral for other loans, third party appraisals that conform to Uniform Standards of Professional Appraisal Practice generally serve as the basis for the fair value. These appraised values are on an “as-is” basis and generally are not adjusted by the Company. We obtain updated appraisals at least annually or more frequently if market conditions indicate collateral values may have declined. Our special assets staff generally determines the value of other collateral based on projected liquidation cash flows under current market conditions. We evaluate collateral values and available cash resources quarterly. Historical statistics may be used to estimate specific allowances in limited situations, such as when a collateral dependent loan is removed from the general allowance pool near the end of a reporting period until an appraisal of collateral value is received or a full assessment of future cash flows is completed.
General allowances estimate expected credit losses on pools of loans sharing similar risk characteristics that are expected to occur over the loan’s estimated remaining life. The loan’s estimated remaining life represents the contractual term adjusted for amortization, estimates of prepayments, and borrower-owned extension options. Approximately 90 percent of the committed dollars in the loan portfolio is risk graded loans with general allowance model inputs that include probability of default, loss given default, and exposure at default. Probability of default is based on the migration of loans from performing to nonperforming using historical life of loan analysis periods. Loss given default is based on the aggregate losses incurred, net of estimated recoveries. Exposure at default represents an estimate of the outstanding amount of credit exposure at the time a default may occur.
Charge-off migration is used to calculate the general allowance for the majority of non-risk graded loans to individuals. The expected credit loss on less than 10 percent of the committed dollars in the portfolio is calculated using charge-off migration.
The expected credit loss on approximately 1 percent of the committed dollars in the portfolio is calculated using a non-modeled approach. Specifically, the calculation applies a long-term net charge-off rate to the loan balances, adjusted for the weighted average remaining maturity of each portfolio.
In estimating the expected credit losses for general allowances on performing risk-graded loans, each portfolio class is assigned relevant economic loss drivers which best explain variations in portfolio net loss rates. The probability of default estimates for each portfolio class are adjusted for current and forecasted economic conditions. The result is applied to the exposure at default and loss given default to calculate the lifetime expected credit loss estimate. Selection of relevant economic loss drivers is re-evaluated periodically and involves statistical analysis as well as management judgment. The unemployment rate factors significantly in the allowance for loan losses calculation, affecting commercial and loans to individuals segments. Other primary factors impacting the commercial portfolio include BBB corporate spreads, real gross domestic product growth rate, and energy commodity prices. The primary commercial real estate variables are vacancy rate and BBB corporate spreads. In addition to the unemployment rate, the forecast for loans to individuals is tied to home price index. The forecasts may include regional economic factors when localized conditions diverge from national conditions.
An Economic Forecast Committee, consisting of senior management with members largely independent of the allowance process develops a twelve-month forward-looking forecast for the relevant economic loss drivers. Management develops these forecasts based on external data as well as a view of future economic conditions, which may include adjustments for regional conditions. The forecast includes three economic scenarios and probability weights for each scenario. The base forecast represents management's view of the most likely outcome, while the downside forecast reflects reasonably possible worsening economic conditions, and the upside forecast projects reasonably possible improving conditions.
At the end of the one-year reasonable and supportable forecast period, we transition from shorter-term expected losses to long-term loss averages for the loan’s estimated remaining life. The difference between short-term loss forecasts and long-term loss averages is run-off over the reversion horizon, up to three years, depending on the forecasted economic scenarios.
General allowances also consider the estimated impact of factors that are not captured in the modeled results or historical experience. These qualitative adjustments, determined by the Allowance Committee, may increase or decrease the allowance estimated by modeled results. Factors not captured in modeled results or historical experience may include for example, new lines of business, market conditions that have not been previously encountered, observed changes in credit risk that are not yet reflected in macro-economic factors, or economic conditions that impact loss given default assumptions.
The accrual for off-balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees. 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 nine months ended September 30, 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 loansguarantees 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 adjustedunconditionally cancelable 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 long-term 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.bank. 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 Otherother liabilities in the Consolidated Balance Sheets. The appropriateness of thisthe accrual is determined in the same manner as the allowance for loan losses.losses, with the added consideration of commitment usage over the remaining life for those loans that the bank can not unconditionally cancel.
A provision for credit losses is charged against or credited to earnings in amounts necessary to maintain an appropriate allowanceAllowance for credit losses.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 September 30, 2019 is summarized as follows (in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Commercial | | Commercial Real Estate | | Residential Mortgage | | Personal | | Nonspecific Allowance | | Total |
| Allowance for loan losses: | | | | | | | | | | | | |
| Beginning balance | | $ | 106,397 |
| | $ | 54,188 |
| | $ | 15,724 |
| | $ | 9,388 |
| | $ | 16,837 |
| | $ | 202,534 |
|
| Provision for loan losses | | 9,861 |
| | 102 |
| | (253 | ) | | 1,911 |
| | 918 |
| | 12,539 |
|
| Loans charged off | | (9,875 | ) | | — |
| | (56 | ) | | (1,776 | ) | | — |
| | (11,707 | ) |
| Recoveries | | 260 |
| | 60 |
| | 119 |
| | 627 |
| | — |
| | 1,066 |
|
| Ending balance | | $ | 106,643 |
| | $ | 54,350 |
| | $ | 15,534 |
| | $ | 10,150 |
| | $ | 17,755 |
| | $ | 204,432 |
|
| Allowance for off-balance sheet credit losses: | | |
| | |
| | |
| | |
| | |
| | |
|
| Beginning balance | | $ | 1,742 |
| | $ | 116 |
| | $ | 44 |
| | $ | 1 |
| | $ | — |
| | $ | 1,903 |
|
| Provision for off-balance sheet credit losses | | (536 | ) | | (3 | ) | | — |
| | — |
| | — |
| | (539 | ) |
| Ending balance | | $ | 1,206 |
| | $ | 113 |
| | $ | 44 |
| | $ | 1 |
| | $ | — |
| | $ | 1,364 |
|
| | | | | | | | | | | | | |
| Total provision for credit losses | | $ | 9,325 |
| | $ | 99 |
| | $ | (253 | ) | | $ | 1,911 |
| | $ | 918 |
| | $ | 12,000 |
|
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 nine months ended September 30, 2019 is summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | | | | |
| | June 30, 2020 | | | | | | | | | | |
| | | Commercial | | Commercial Real Estate | | Paycheck Protection Program | | Loans to Individuals | | Nonspecific Allowance | | Total |
| Allowance for loan losses: | | | | | | | | | | | | |
| Beginning balance | | $ | 213,438 | | | $ | 51,461 | | | $ | — | | | $ | 50,412 | | | $ | — | | | $ | 315,311 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Provision for loan losses | | 111,153 | | | 17,221 | | | — | | | 5,991 | | | — | | | 134,365 | |
| Loans charged off | | (14,487) | | | (1) | | | — | | | (1,082) | | | — | | | (15,570) | |
| Recoveries of loans previously charged off | | 318 | | | 75 | | | — | | | 1,098 | | | — | | | 1,491 | |
| Ending Balance | | $ | 310,422 | | | $ | 68,756 | | | $ | — | | | $ | 56,419 | | | — | | | $ | 435,597 | |
| | | | | | | | | | | | |
| Allowance for off-balance sheet credit risk from unfunded loan commitments: | | | | | | | | | | | | |
| Beginning balance | | $ | 14,040 | | | $ | 12,575 | | | $ | — | | | $ | 1,899 | | | $ | — | | | $ | 28,514 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Provision for off-balance sheet credit risk | | 542 | | | 3,844 | | | — | | | 19 | | | — | | | 4,405 | |
| Ending Balance | | $ | 14,582 | | | $ | 16,419 | | | $ | — | | | $ | 1,918 | | | $ | — | | | $ | 32,919 | |
| | | | Six Months Ended | |
| | | | | | | | | | | | | | | June 30, 2020 | |
| | | Commercial | | Commercial Real Estate | | Residential Mortgage | | Personal | | Nonspecific Allowance | | Total | | | Commercial | | Commercial Real Estate | | Paycheck Protection Program | | Loans to Individuals | | Nonspecific Allowance | | Total |
| Allowance for loan losses: | | | | | | | | | | | | | Allowance for loan losses: | | | | | | | | | | | | |
| Beginning balance | | $ | 102,226 |
| | $ | 60,026 |
| | $ | 17,964 |
| | $ | 9,473 |
| | $ | 17,768 |
| | $ | 207,457 |
| Beginning balance | | $ | 118,187 | | | $ | 51,805 | | | $ | — | | | $ | 23,572 | | | $ | 17,195 | | | $ | 210,759 | |
| Transition adjustment | | Transition adjustment | | 33,681 | | | (4,620) | | | — | | | 13,943 | | | (17,195) | | | 25,809 | |
| Beginning balance, adjusted | | Beginning balance, adjusted | | 151,868 | | | 47,185 | | | — | | | 37,515 | | | — | | | 236,568 | |
| Provision for loan losses | | 34,740 |
| | (10,075 | ) | | (2,660 | ) | | 3,434 |
| | (13 | ) | | 25,426 |
| Provision for loan losses | | 188,876 | | | 22,336 | | | — | | | 19,117 | | | — | | | 230,329 | |
| Loans charged off | | (31,728 | ) | | (118 | ) | | (192 | ) | | (4,671 | ) | | — |
| | (36,709 | ) | Loans charged off | | (31,102) | | | (887) | | | — | | | (2,498) | | | — | | | (34,487) | |
| Recoveries | | 1,405 |
| | 4,517 |
| | 422 |
| | 1,914 |
| | — |
| | 8,258 |
| Recoveries | | 780 | | | 122 | | | — | | | 2,285 | | | — | | | 3,187 | |
| Ending balance | | $ | 106,643 |
| | $ | 54,350 |
| | $ | 15,534 |
| | $ | 10,150 |
| | $ | 17,755 |
| | $ | 204,432 |
| Ending balance | | $ | 310,422 | | | $ | 68,756 | | | $ | — | | | $ | 56,419 | | | $ | — | | | $ | 435,597 | |
| Allowance for off-balance sheet credit losses: | | |
| | |
| | |
| | |
| | |
| | |
| |
| | Allowance for off-balance sheet credit risk from unfunded loan commitments: | | Allowance for off-balance sheet credit risk from unfunded loan commitments: | | | | | | | | | | | | |
| Beginning balance | | $ | 1,655 |
| | $ | 52 |
| | $ | 52 |
| | $ | 31 |
| | $ | — |
| | $ | 1,790 |
| Beginning balance | | $ | 1,434 | | | $ | 107 | | | $ | — | | | $ | 44 | | | $ | — | | | $ | 1,585 | |
| Transition adjustment | | Transition adjustment | | 10,144 | | | 11,660 | | | — | | | 1,748 | | | — | | | 23,552 | |
| Beginning balance, adjusted | | Beginning balance, adjusted | | 11,578 | | | 11,767 | | | — | | | 1,792 | | | — | | | 25,137 | |
| Provision for off-balance sheet credit losses | | (449 | ) | | 61 |
| | (8 | ) | | (30 | ) | | — |
| | (426 | ) | Provision for off-balance sheet credit losses | | 3,004 | | | 4,652 | | | — | | | 126 | | | — | | | 7,782 | |
| Ending balance | | $ | 1,206 |
| | $ | 113 |
| | $ | 44 |
| | $ | 1 |
| | $ | — |
| | $ | 1,364 |
| Ending balance | | $ | 14,582 | | | $ | 16,419 | | | $ | — | | | $ | 1,918 | | | $ | — | | | $ | 32,919 | |
| | | | | | | | | | | | | | |
| Total provision for credit losses | | $ | 34,291 |
| | $ | (10,014 | ) | | $ | (2,668 | ) | | $ | 3,404 |
| | $ | (13 | ) | | $ | 25,000 |
| |
The activityChanges in our reasonable and supportable forecasts of macroeconomic variables, primarily due to the allowance for loan lossesanticipated impact of the on-going COVID-19 pandemic, and other assumptions, required a provision of $54.6 million during the allowance for off-balance sheet credit lossessecond quarter of 2020. All other changes totaled $84.2 million, $14.4 million related to loan commitments and standby letters of credit for the three months ended September 30, 2018 is summarized as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Commercial | | Commercial Real Estate | | Residential Mortgage | | Personal | | Nonspecific Allowance | | Total |
| Allowance for loan losses: | | | | | | | | | | | | |
| Beginning balance | | $ | 113,722 |
| | $ | 58,758 |
| | $ | 18,544 |
| | $ | 8,646 |
| | $ | 15,472 |
| | $ | 215,142 |
|
| Provision for loan losses | | (1,285 | ) | | 1,391 |
| | 1 |
| | 883 |
| | 3,418 |
| | 4,408 |
|
| Loans charged off | | (9,602 | ) | | — |
| | (91 | ) | | (1,380 | ) | | — |
| | (11,073 | ) |
| Recoveries | | 1,263 |
| | 40 |
| | 229 |
| | 560 |
| | — |
| | 2,092 |
|
| Ending balance | | $ | 104,098 |
| | $ | 60,189 |
| | $ | 18,683 |
| | $ | 8,709 |
| | $ | 18,890 |
| | $ | 210,569 |
|
| Allowance for off-balance sheet credit losses: | | |
| | |
| | |
| | |
| | |
| | |
|
| Beginning balance | | 2,361 |
| | 17 |
| | 53 |
| | 2 |
| | — |
| | $ | 2,433 |
|
| Provision for off-balance sheet credit losses | | (424 | ) | | 19 |
| | (3 | ) | | — |
| | — |
| | (408 | ) |
| Ending balance | | $ | 1,937 |
| | $ | 36 |
| | $ | 50 |
| | $ | 2 |
| | $ | — |
| | $ | 2,025 |
|
| | | | | | | | | | | | | |
| Total provision for credit losses | | $ | (1,709 | ) | | $ | 1,410 |
| | $ | (2 | ) | | $ | 883 |
| | $ | 3,418 |
| | $ | 4,000 |
|
The activitychanges in the allowance for loan losses and the allowance for off-balance sheet credit lossesimpairment, $55.7 million related to loan commitmentsrisk grading and standby lettersother portfolio changes and net charge-offs of credit for the nine months ended September 30, 2018 is summarized as follows (in thousands):$14.1 million.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | 2,720 |
| | 248 |
| | (418 | ) | | 1,486 |
| | (3,327 | ) | | 709 |
|
| Loans charged off | | (24,940 | ) | | — |
| | (326 | ) | | (3,802 | ) | | — |
| | (29,068 | ) |
| Recoveries | | 2,049 |
| | 3,320 |
| | 976 |
| | 1,901 |
| | — |
| | 8,246 |
|
| Ending balance | | $ | 104,098 |
| | $ | 60,189 |
| | $ | 18,683 |
| | $ | 8,709 |
| | $ | 18,890 |
| | $ | 210,569 |
|
| Allowance for off-balance sheet credit losses: | | |
| | |
| | |
| | |
| | |
| | |
|
| Beginning balance | | $ | 3,644 |
| | $ | 45 |
| | $ | 43 |
| | $ | 2 |
| | $ | — |
| | $ | 3,734 |
|
| Provision for off-balance sheet credit losses | | (1,707 | ) | | (9 | ) | | 7 |
| | — |
| | — |
| | (1,709 | ) |
| Ending balance | | $ | 1,937 |
| | $ | 36 |
| | $ | 50 |
| | $ | 2 |
| | $ | — |
| | $ | 2,025 |
|
| | | | | | | | | | | | | |
| Total provision for credit losses | | $ | 1,013 |
| | $ | 239 |
| | $ | (411 | ) | | $ | 1,486 |
| | $ | (3,327 | ) | | $ | (1,000 | ) |
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at SeptemberJune 30, 20192020 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 | | $ | 14,312,919 |
| | $ | 99,110 |
| | $ | 111,706 |
| | $ | 7,533 |
| | $ | 14,424,625 |
| | $ | 106,643 |
|
| Commercial real estate | | 4,602,872 |
| | 54,350 |
| | 23,185 |
| | — |
| | 4,626,057 |
| | 54,350 |
|
| Residential mortgage | | 2,079,999 |
| | 15,534 |
| | 37,304 |
| | — |
| | 2,117,303 |
| | 15,534 |
|
| Personal | | 1,117,111 |
| | 10,150 |
| | 271 |
| | — |
| | 1,117,382 |
| | 10,150 |
|
| Total | | 22,112,901 |
| | 179,144 |
| | 172,466 |
| | 7,533 |
| | 22,285,367 |
| | 186,677 |
|
| | | | | | | | | | | | | |
| Nonspecific allowance | | — |
| | — |
| | — |
| | — |
| | — |
| | 17,755 |
|
| | | | | | | | | | | | | |
| Total | | $ | 22,112,901 |
| | $ | 179,144 |
| | $ | 172,466 |
| | $ | 7,533 |
| | $ | 22,285,367 |
| | $ | 204,432 |
|
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2018 is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Collectively Measured
for General Allowances | | | | Individually Measured
for Specific Allowances | | | | Total | | |
| | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related
Allowance |
| Commercial | | $ | 13,956,511 | | | $ | 286,639 | | | $ | 201,999 | | | $ | 23,783 | | | $ | 14,158,510 | | | $ | 310,422 | |
| Commercial real estate | | 4,540,188 | | | 68,216 | | | 13,956 | | | 540 | | | 4,554,144 | | | 68,756 | |
| Paycheck protection program | | 2,081,428 | | | — | | | — | | | — | | | 2,081,428 | | | — | |
| Loans to individuals | | 3,322,367 | | | 56,419 | | | 39,441 | | | — | | | 3,361,808 | | | 56,419 | |
| Total | | 23,900,494 | | | 411,274 | | | 255,396 | | | 24,323 | | | 24,155,890 | | | 435,597 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Collectively Measured for Impairment | | Individually Measured for Impairment | | Total |
| | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance |
| Commercial | | $ | 13,536,237 |
| | $ | 93,494 |
| | $ | 99,841 |
| | $ | 8,732 |
| | $ | 13,636,078 |
| | $ | 102,226 |
|
| Commercial real estate | | 4,743,192 |
| | 60,026 |
| | 21,621 |
| | — |
| | 4,764,813 |
| | 60,026 |
|
| Residential mortgage | | 2,188,478 |
| | 17,964 |
| | 41,555 |
| | — |
| | 2,230,033 |
| | 17,964 |
|
| Personal | | 1,025,576 |
| | 9,473 |
| | 230 |
| | — |
| | 1,025,806 |
| | 9,473 |
|
| Total | | 21,493,483 |
| | 180,957 |
| | 163,247 |
| | 8,732 |
| | 21,656,730 |
| | 189,689 |
|
| | | | | | | | | | | | | |
| Nonspecific allowance | | — |
| | — |
| | — |
| | — |
| | — |
| | 17,768 |
|
| | | | | | | | | | | | | |
| Total | | $ | 21,493,483 |
| | $ | 180,957 |
| | $ | 163,247 |
| | $ | 8,732 |
| | $ | 21,656,730 |
| | $ | 207,457 |
|
- 67 -
Credit Quality Indicators
The Company utilizes loan class and risk grading as primary credit quality indicators.indicators as it influences the probability of default which is a key attribute in the expected credit losses calculation. Substantially all commercial andas well as commercial real estate loans and certain residential mortgage and consumer loans to individuals 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 to individuals are small, homogeneous pools that are not risk graded. risk-graded. The credit quality of these loans is based on past due days in accordance with regulatory guidelines.
The allowance for loan losses and recorded investment of the related loans by portfolio segment for risk graded and non-risk graded loans at September 30, 2019 is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Internally Risk Graded | | Non-Graded | | Total |
| | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance |
| Commercial | | $ | 14,396,278 |
| | $ | 105,714 |
| | $ | 28,347 |
| | $ | 929 |
| | $ | 14,424,625 |
| | $ | 106,643 |
|
| Commercial real estate | | 4,626,057 |
| | 54,350 |
| | — |
| | — |
| | 4,626,057 |
| | 54,350 |
|
| Residential mortgage | | 283,297 |
| | 3,375 |
| | 1,834,006 |
| | 12,159 |
| | 2,117,303 |
| | 15,534 |
|
| Personal | | 1,032,522 |
| | 7,836 |
| | 84,860 |
| | 2,314 |
| | 1,117,382 |
| | 10,150 |
|
| Total | | 20,338,154 |
| | 171,275 |
| | 1,947,213 |
| | 15,402 |
| | 22,285,367 |
| | 186,677 |
|
| | | | | | | | | | | | | |
| Nonspecific allowance | | — |
| | — |
| | — |
| | — |
| | — |
| | 17,755 |
|
| | | | | | | | | | | | | |
| Total | | $ | 20,338,154 |
| | $ | 171,275 |
| | $ | 1,947,213 |
| | $ | 15,402 |
| | $ | 22,285,367 |
| | $ | 204,432 |
|
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, 2018 is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Internally Risk Graded | | Non-Graded | | Total |
| | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance |
| Commercial | | $ | 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 |
|
Loans are considered to be performing if theyWe have included in the credit quality indicator “pass” loans that are in compliance with the original terms of the agreement and currently exhibit no factors that cause management to have doubts about the borrowers'borrowers’ ability to remain in compliance with the original terms of the agreement, which is consistent with the regulatory guideline of “pass.” Performing loansThis also includeincludes 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'guarantors’ programs.
Other loans especially mentioned ("Special Mention") are currently performing in compliance with the original terms of the agreement but may have a potential weakness that deserves management’s close attention, consistent with regulatory guidelines. Non-graded loans 30 to 59 days past due are categorized as Special Mention.
The risk grading process identified certain loans that have a well-defined weakness (e.g.(for example, inadequate debt service coverage or liquidity or marginal capitalization; repayment may depend on collateral or other risk mitigation) that may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial condition of the borrower. This is consistent with the regulatory guideline for “substandard.” Because the borrowers are still performing in accordance with the original terms of the loan agreements, these loans were not placed in nonaccruingremain on accruing status. Non-graded loans 60 to 89 days past due are categorized as Accruing Substandard.
Nonaccruing loans represent loans for which full collection of principal and interest is uncertain. This 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. Non-graded loans 90 or more days past due are categorized as Nonaccrual.
Probability of default is lowest for pass graded loans and increases for each credit quality indicator, Special Mention, and Accruing Substandard.
Vintage represents the year of origination, except for revolving loans which are considered in aggregate. Loans that were once revolving but have converted to term loans without additional underwriting appear in a separate vintage column.
The following table summarizes the Company’s loan portfolio at SeptemberJune 30, 20192020 by the risk grade categories and vintage (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Origination Year | | | | | | | | |
| 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total |
| Commercial: | | | | | | | | | |
| Energy | | | | | | | | | |
| Pass | $ | 23,119 | | $ | 62,250 | | $ | 94,216 | | $ | 8,344 | | $ | 1,427 | | $ | 2,908 | | $ | 2,664,680 | | $ | — | | $ | 2,856,944 | |
| Special Mention | — | | — | | 9,720 | | — | | — | | — | | 493,719 | | — | | 503,439 | |
| Accruing Substandard | — | | — | | 194 | | — | | 49 | | — | | 450,559 | | — | | 450,802 | |
| Nonaccrual | — | | 6,586 | | 15,496 | | — | | — | | 38,325 | | 102,582 | | — | | 162,989 | |
| Total energy | 23,119 | | 68,836 | | 119,626 | | 8,344 | | 1,476 | | 41,233 | | 3,711,540 | | — | | 3,974,174 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Healthcare | | | | | | | | | |
| Pass | 212,781 | | 609,757 | | 641,607 | | 489,096 | | 248,094 | | 767,193 | | 245,123 | | — | | 3,213,651 | |
| Special Mention | — | | 27,500 | | — | | 3,714 | | — | | 13,771 | | 3,515 | | — | | 48,500 | |
| Accruing Substandard | — | | 3,176 | | 7,746 | | 973 | | 161 | | 11,491 | | — | | — | | 23,547 | |
| Nonaccrual | — | | 18 | | 183 | | — | | — | | 2,935 | | 509 | | — | | 3,645 | |
| Total healthcare | 212,781 | | 640,451 | | 649,536 | | 493,783 | | 248,255 | | 795,390 | | 249,147 | | — | | 3,289,343 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Services | | | | | | | | | |
| Pass | 335,961 | | 475,608 | | 437,812 | | 366,772 | | 400,480 | | 857,564 | | 743,258 | | 673 | | 3,618,128 | |
| Special Mention | — | | 3,919 | | 1,474 | | 170 | | 4,513 | | 3,626 | | 35,203 | | — | | 48,905 | |
| Accruing Substandard | 98 | | 12,077 | | 26,814 | | 12,393 | | 8,123 | | 4,753 | | 27,558 | | — | | 91,816 | |
| Nonaccrual | — | | 2,978 | | — | | 8,647 | | 1,153 | | 7,529 | | 725 | | — | | 21,032 | |
| Total services | 336,059 | | 494,582 | | 466,100 | | 387,982 | | 414,269 | | 873,472 | | 806,744 | | 673 | | 3,779,881 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| General business | | | | | | | | | |
| Pass | 256,821 | | 485,956 | | 359,249 | | 256,403 | | 147,056 | | 251,326 | | 1,258,843 | | 2,671 | | 3,018,325 | |
| Special Mention | — | | 10,196 | | 763 | | 11,244 | | 941 | | 4,046 | | 3,404 | | — | | 30,594 | |
| Accruing Substandard | 21 | | 13,906 | | 13,989 | | 2,353 | | 6,216 | | 5,206 | | 10,165 | | 4 | | 51,860 | |
| Nonaccrual | 1,675 | | 3,713 | | 5,168 | | 1,938 | | 1,315 | | 140 | | 369 | | 15 | | 14,333 | |
| Total general business | 258,517 | | 513,771 | | 379,169 | | 271,938 | | 155,528 | | 260,718 | | 1,272,781 | | 2,690 | | 3,115,112 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total commercial | 830,476 | | 1,717,640 | | 1,614,431 | | 1,162,047 | | 819,528 | | 1,970,813 | | 6,040,212 | | 3,363 | | 14,158,510 | |
| | | | | | | | | |
| Commercial real estate: | | | | | | | | | |
| Pass | 345,439 | | 1,131,573 | | 1,037,584 | | 536,047 | | 378,852 | | 852,020 | | 234,148 | | — | | 4,515,663 | |
| Special Mention | — | | — | | — | | 12,200 | | 1,622 | | 3,283 | | 100 | | — | | 17,205 | |
| Accruing Substandard | — | | — | | — | | 7,228 | | — | | 65 | | 27 | | — | | 7,320 | |
| Nonaccrual | — | | — | | — | | 232 | | 7,477 | | 803 | | 5,444 | | — | | 13,956 | |
| Total commercial real estate | 345,439 | | 1,131,573 | | 1,037,584 | | 555,707 | | 387,951 | | 856,171 | | 239,719 | | — | | 4,554,144 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Internally Risk Graded | | Non-Graded | | |
| | | Performing | | | | | | | | |
| | | Pass | | Other Loans Especially Mentioned | | Accruing Substandard | | Nonaccrual | | Performing | | Nonaccrual | | Total |
| Commercial: | | | | | | | | | | | | | | |
| Energy | | $ | 3,927,285 |
| | $ | 60,405 |
| | $ | 37,685 |
| | $ | 88,894 |
| | $ | — |
| | $ | — |
| | $ | 4,114,269 |
|
| Services | | 3,185,367 |
| | 38,118 |
| | 36,645 |
| | 6,119 |
| | — |
| | — |
| | 3,266,249 |
|
| Wholesale/retail | | 1,829,614 |
| | 9,757 |
| | 7,742 |
| | 1,504 |
| | — |
| | — |
| | 1,848,617 |
|
| Manufacturing | | 652,804 |
| | 24,229 |
| | 12,634 |
| | 8,741 |
| | — |
| | — |
| | 698,408 |
|
| Healthcare | | 2,984,306 |
| | 25,205 |
| | 17,479 |
| | 5,978 |
| | — |
| | — |
| | 3,032,968 |
|
| Public finance | | 744,840 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 744,840 |
|
| Other commercial and industrial | | 671,819 |
| | 2,053 |
| | 16,632 |
| | 423 |
| | 28,300 |
| | 47 |
| | 719,274 |
|
| Total commercial | | 13,996,035 |
| | 159,767 |
| | 128,817 |
| | 111,659 |
| | 28,300 |
| | 47 |
| | 14,424,625 |
|
| | | | | | | | | | | | | | | |
| Commercial real estate: | | |
| | | | |
| | |
| | |
| | |
| | |
|
| Residential construction and land development | | 135,011 |
| | — |
| | — |
| | 350 |
| | — |
| | — |
| | 135,361 |
|
| Retail | | 765,708 |
| | 12,067 |
| | 1,262 |
| | 20,132 |
| | — |
| | — |
| | 799,169 |
|
| Office | | 1,007,136 |
| | 5,203 |
| | 1,081 |
| | 855 |
| | — |
| | — |
| | 1,014,275 |
|
| Multifamily | | 1,316,856 |
| | 1,196 |
| | 6,501 |
| | 286 |
| | — |
| | — |
| | 1,324,839 |
|
| Industrial | | 872,627 |
| | — |
| | — |
| | 909 |
| | — |
| | — |
| | 873,536 |
|
| Other commercial real estate | | 474,465 |
| | 784 |
| | 2,975 |
| | 653 |
| | — |
| | — |
| | 478,877 |
|
| Total commercial real estate | | 4,571,803 |
| | 19,250 |
| | 11,819 |
| | 23,185 |
| | — |
| | — |
| | 4,626,057 |
|
| | | | | | | | | | | | | | | |
| Residential mortgage: | | |
| | | | |
| | |
| | |
| | |
| | |
|
| Permanent mortgage | | 280,243 |
| | 326 |
| | 2,191 |
| | 537 |
| | 763,535 |
| | 19,628 |
| | 1,066,460 |
|
| Permanent mortgages guaranteed by U.S. government agencies | | — |
| | — |
| | — |
| | — |
| | 185,432 |
| | 6,332 |
| | 191,764 |
|
| Home equity | | — |
| | — |
| | — |
| | — |
| | 848,272 |
| | 10,807 |
| | 859,079 |
|
| Total residential mortgage | | 280,243 |
| | 326 |
| | 2,191 |
| | 537 |
| | 1,797,239 |
| | 36,767 |
| | 2,117,303 |
|
| | | | | | | | | | | | | | | |
| Personal | | 1,032,381 |
| | 46 |
| | 33 |
| | 63 |
| | 84,651 |
| | 208 |
| | 1,117,382 |
|
| | | | | | | | | | | | | | | |
| Total | | $ | 19,880,462 |
| | $ | 179,389 |
| | $ | 142,860 |
| | $ | 135,444 |
| | $ | 1,910,190 |
| | $ | 37,022 |
| | $ | 22,285,367 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Origination Year | | | | | | | | |
| 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total |
| Paycheck protection program: | | | | | | | | | |
| Pass | 2,081,428 | | — | | — | | — | | — | | — | | — | | — | | 2,081,428 | |
| Total paycheck protection program | 2,081,428 | | — | | — | | — | | — | | — | | — | | — | | 2,081,428 | |
| Loans to individuals: | | | | | | | | | |
| Residential mortgage | | | | | | | | | |
| Pass | 226,396 | | 191,344 | | 161,193 | | 187,649 | | 196,218 | | 438,056 | | 349,610 | | 26,679 | | 1,777,145 | |
| Special Mention | — | | — | | 2,011 | | 192 | | 12 | | 437 | | 329 | | — | | 2,981 | |
| Accruing Substandard | — | | — | | 123 | | — | | 40 | | 4 | | — | | 51 | | 218 | |
| Nonaccrual | — | | 588 | | 1,614 | | 554 | | 1,142 | | 26,339 | | 2,170 | | 691 | | 33,098 | |
| Total residential mortgage | 226,396 | | 191,932 | | 164,941 | | 188,395 | | 197,412 | | 464,836 | | 352,109 | | 27,421 | | 1,813,442 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Residential mortgage guaranteed by U.S. government agencies | | | | | | | | | |
| Pass | 751 | | 6,794 | | 19,678 | | 24,184 | | 46,676 | | 218,076 | | — | | — | | 316,159 | |
| | | | | | | | | |
| | | | | | | | | |
| Nonaccrual | — | | — | | 244 | | — | | — | | 5,866 | | — | | — | | 6,110 | |
| Total residential mortgage guaranteed by U.S. government agencies | 751 | | 6,794 | | 19,922 | | 24,184 | | 46,676 | | 223,942 | | — | | — | | 322,269 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Personal: | | | | | | | | | |
| Pass | 123,394 | | 246,327 | | 83,000 | | 115,562 | | 71,036 | | 99,322 | | 479,958 | | 1,738 | | 1,220,337 | |
| Special Mention | — | | 50 | | 16 | | 28 | | 55 | | 5,087 | | 10 | | — | | 5,246 | |
| Accruing Substandard | 19 | | 229 | | 11 | | 6 | | — | | — | | 16 | | — | | 281 | |
| Nonaccrual | — | | 22 | | 60 | | 29 | | 47 | | 44 | | 31 | | — | | 233 | |
| Total personal | 123,413 | | 246,628 | | 83,087 | | 115,625 | | 71,138 | | 104,453 | | 480,015 | | 1,738 | | 1,226,097 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total loans to individuals | 350,560 | | 445,354 | | 267,950 | | 328,204 | | 315,226 | | 793,231 | | 832,124 | | 29,159 | | 3,361,808 | |
| Total loans | $ | 3,607,903 | | $ | 3,294,567 | | $ | 2,919,965 | | $ | 2,045,958 | | $ | 1,522,705 | | $ | 3,620,215 | | $ | 7,112,055 | | $ | 32,522 | | $ | 24,155,890 | |
Nonaccruing Loans
A summary of nonaccruing loans at June 30, 2020 follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2020 | | | | | | |
| | Total | | With No
Allowance | | With Allowance | | Related Allowance |
| Commercial: | | | | | | | |
| Energy | $ | 162,989 | | | $ | 85,171 | | | $ | 77,818 | | | $ | 20,863 | |
| Healthcare | 3,645 | | | 3,645 | | | — | | | — | |
| Services | 21,032 | | | 15,503 | | | 5,529 | | | 2,574 | |
| General business | 14,333 | | | 13,014 | | | 1,319 | | | 346 | |
| Total commercial | 201,999 | | | 117,333 | | | 84,666 | | | 23,783 | |
| | | | | | | |
| Commercial real estate | 13,956 | | | 8,511 | | | 5,445 | | | 540 | |
| | | | | | | |
| Loans to individuals: | | | | | | | |
| Residential mortgage | 33,098 | | | 33,098 | | | — | | | — | |
| Residential mortgage guaranteed by U.S. government agencies | 6,110 | | | 6,110 | | | — | | | — | |
| Personal | 233 | | | 233 | | | — | | | — | |
| Total loans to individuals | 39,441 | | | 39,441 | | | — | | | — | |
| | | | | | | |
| Total | $ | 255,396 | | | $ | 165,285 | | | $ | 90,111 | | | $ | 24,323 | |
Troubled Debt Restructurings
At June 30, 2020 the Company had $166 million in troubled debt restructurings ("TDRs"), of which $118 million were accruing residential mortgage loans guaranteed by U.S. government agencies, $21 million were nonaccruing energy loans with a related specific allowance of $3.7 million and $20 million were nonaccruing residential mortgage loans with 0 specific allowance necessary. Approximately $55 million of TDRs were performing in accordance with the modified terms.
At December 31, 2019, the Company had $132 million in TDRs, of which $92 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $57 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, 2020, $35 million and $59 million of loans were restructured and $7.7 million and $9.7 million of loans designated as TDRs were charged off. During the three and six months ended June 30, 2019, $21 million and $38 million of loans were restructured and $10 thousand and $12.6 million of loans designated as TDRs were charged off.
Past Due Loans
Past due status for all loan classes is based on the actual number of days since the last payment was due according to the contractual terms of the loans, as modified for short-term payment deferral forbearance.
A summary of loans currently performing and past due as of June 30, 2020 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Past Due | | | | | | | | Past Due 90 Days or More and Accruing |
| | | Current | | 30 to 59
Days | | 60 to 89 Days | | 90 Days
or More | | Total | | |
| Commercial: | | | | | | | | | | | | |
| Energy | | $ | 3,893,481 | | | $ | 32,439 | | | $ | 3,889 | | | $ | 44,365 | | | $ | 3,974,174 | | | $ | — | |
| Healthcare | | 3,284,305 | | | 1,216 | | | 177 | | | 3,645 | | | 3,289,343 | | | — | |
| Services | | 3,754,841 | | | 7,357 | | | 4,440 | | | 13,243 | | | 3,779,881 | | | 632 | |
| General business | | 3,087,741 | | | 9,235 | | | 1,169 | | | 16,967 | | | 3,115,112 | | | 9,833 | |
| Total commercial | | 14,020,368 | | | 50,247 | | | 9,675 | | | 78,220 | | | 14,158,510 | | | 10,465 | |
| | | | | | | | | | | | |
| Commercial real estate | | 4,536,541 | | | 2,749 | | | 5,874 | | | 8,980 | | | 4,554,144 | | | 469 | |
| | | | | | | | | | | | |
| Paycheck protection program | | 2,081,428 | | | — | | | — | | | — | | | 2,081,428 | | | — | |
| | | | | | | | | | | | |
| Loans to individuals: | | | | | | | | | | | | |
| Residential mortgage | | 1,797,197 | | | 7,254 | | | 1,360 | | | 7,631 | | | 1,813,442 | | | 42 | |
| Residential mortgage guaranteed by U.S. government agencies | | 60,121 | | | 20,494 | | | 15,908 | | | 225,746 | | | 322,269 | | | 221,201 | |
| Personal | | 1,225,469 | | | 477 | | | 58 | | | 93 | | | 1,226,097 | | | 16 | |
| Total loans to individuals | | 3,082,787 | | | 28,225 | | | 17,326 | | | 233,470 | | | 3,361,808 | | | 221,259 | |
| | | | | | | | | | | | |
| Total | | $ | 23,721,124 | | | $ | 81,221 | | | $ | 32,875 | | | $ | 320,670 | | | $ | 24,155,890 | | | $ | 232,193 | |
Following is disclosure of loans and the combined allowance for loan losses and accrual for off-balance sheet credit losses under the previous incurred loss model.
Portfolio segments of the loan portfolio are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | | | | | |
| | Fixed
Rate | | Variable
Rate | | Non-accrual | | Total |
| Commercial | | $ | 3,231,485 | | | $ | 10,684,749 | | | $ | 115,416 | | | $ | 14,031,650 | |
| Commercial real estate | | 1,056,321 | | | 3,349,836 | | | 27,626 | | | 4,433,783 | |
| Residential mortgage | | 1,652,653 | | | 393,897 | | | 37,622 | | | 2,084,172 | |
| Personal | | 193,903 | | | 1,007,192 | | | 287 | | | 1,201,382 | |
| Total | | $ | 6,134,362 | | | $ | 15,435,674 | | | $ | 180,951 | | | $ | 21,750,987 | |
Accruing loans past due (90 days)1 | | | | | | | | $ | 7,680 | |
1Excludes residential mortgage loans guaranteed by agencies of the U.S. government
The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit is summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | | | | |
| | June 30, 2019 | | | | | | | | | | |
| | | Commercial | | Commercial Real Estate | | Residential Mortgage | | Personal | | Nonspecific Allowance | | Total |
| Allowance for loan losses: | | | | | | | | | | | | |
| Beginning balance | | $ | 103,577 | | | $ | 58,134 | | | $ | 15,668 | | | $ | 8,783 | | | $ | 19,178 | | | $ | 205,340 | |
| Provision for loan losses | | 13,771 | | | (8,173) | | | 1 | | | 1,660 | | | (2,341) | | | 4,918 | |
| Loans charged off | | (11,385) | | | (118) | | | (94) | | | (1,630) | | | — | | | (13,227) | |
| Recoveries | | 434 | | | 4,345 | | | 149 | | | 575 | | | — | | | 5,503 | |
| Ending balance | | $ | 106,397 | | | $ | 54,188 | | | $ | 15,724 | | | $ | 9,388 | | | $ | 16,837 | | | $ | 202,534 | |
| Allowance for off-balance sheet credit losses: | | | | | | | | | | | | |
| Beginning balance | | 1,725 | | | 48 | | | 47 | | | 1 | | | — | | | $ | 1,821 | |
| Provision for off-balance sheet credit losses | | 17 | | | 68 | | | (3) | | | — | | | — | | | 82 | |
| Ending balance | | $ | 1,742 | | | $ | 116 | | | $ | 44 | | | $ | 1 | | | $ | — | | | $ | 1,903 | |
| | | | | | | | | | | | |
| Total provision for credit losses | | $ | 13,788 | | | $ | (8,105) | | | $ | (2) | | | $ | 1,660 | | | $ | (2,341) | | | $ | 5,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended | | | | | | | | | | |
| | June 30, 2019 | | | | | | | | | | |
| | | 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 | | 24,879 | | | (10,177) | | | (2,407) | | | 1,523 | | | (931) | | | 12,887 | |
| Loans charged off | | (21,853) | | | (118) | | | (136) | | | (2,895) | | | — | | | (25,002) | |
| Recoveries | | 1,145 | | | 4,457 | | | 303 | | | 1,287 | | | — | | | 7,192 | |
| Ending balance | | $ | 106,397 | | | $ | 54,188 | | | $ | 15,724 | | | $ | 9,388 | | | $ | 16,837 | | | $ | 202,534 | |
| Allowance for off-balance sheet credit losses: | | | | | | | | | | | | |
| Beginning balance | | $ | 1,655 | | | $ | 52 | | | $ | 52 | | | $ | 31 | | | $ | — | | | $ | 1,790 | |
| Provision for off-balance sheet credit losses | | 87 | | | 64 | | | (8) | | | (30) | | | — | | | 113 | |
| Ending balance | | $ | 1,742 | | | $ | 116 | | | $ | 44 | | | $ | 1 | | | $ | — | | | $ | 1,903 | |
| | | | | | | | | | | | |
| Total provision for credit losses | | $ | 24,966 | | | $ | (10,113) | | | $ | (2,415) | | | $ | 1,493 | | | $ | (931) | | | $ | 13,000 | |
| | | | | | | | | | | | |
The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2019 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 | | $ | 13,916,234 | | | $ | 100,773 | | | $ | 115,416 | | | $ | 17,414 | | | $ | 14,031,650 | | | $ | 118,187 | |
| Commercial real estate | | 4,406,157 | | | 51,805 | | | 27,626 | | | — | | | 4,433,783 | | | 51,805 | |
| Residential mortgage | | 2,046,550 | | | 14,400 | | | 37,622 | | | — | | | 2,084,172 | | | 14,400 | |
| Personal | | 1,201,095 | | | 9,172 | | | 287 | | | — | | | 1,201,382 | | | 9,172 | |
| Total | | 21,570,036 | | | 176,150 | | | 180,951 | | | 17,414 | | | 21,750,987 | | | 193,564 | |
| | | | | | | | | | | | |
| Nonspecific allowance | | — | | | — | | | — | | | — | | | — | | | 17,195 | |
| | | | | | | | | | | | |
| Total | | $ | 21,570,036 | | | $ | 176,150 | | | $ | 180,951 | | | $ | 17,414 | | | $ | 21,750,987 | | | $ | 210,759 | |
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, 2019 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Internally Risk Graded | | | | Non-Graded | | | | Total | | |
| | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related Allowance | | Recorded Investment | | Related
Allowance |
| Commercial | | $ | 13,997,538 | | | $ | 117,236 | | | $ | 34,112 | | | $ | 951 | | | $ | 14,031,650 | | | $ | 118,187 | |
| Commercial real estate | | 4,433,783 | | | 51,805 | | | — | | | — | | | 4,433,783 | | | 51,805 | |
| Residential mortgage | | 279,113 | | | 3,085 | | | 1,805,059 | | | 11,315 | | | 2,084,172 | | | 14,400 | |
| Personal | | 1,116,297 | | | 7,003 | | | 85,085 | | | 2,169 | | | 1,201,382 | | | 9,172 | |
| Total | | 19,826,731 | | | 179,129 | | | 1,924,256 | | | 14,435 | | | 21,750,987 | | | 193,564 | |
| | | | | | | | | | | | |
| Nonspecific allowance | | — | | | — | | | — | | | — | | | — | | | 17,195 | |
| | | | | | | | | | | | |
| Total | | $ | 19,826,731 | | | $ | 179,129 | | | $ | 1,924,256 | | | $ | 14,435 | | | $ | 21,750,987 | | | $ | 210,759 | |
The following table summarizes the Company’s loan portfolio at December 31, 20182019 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 | | $ | 3,700,406 | | | $ | 117,298 | | | $ | 63,951 | | | $ | 91,722 | | | $ | — | | | $ | — | | | $ | 3,973,377 | |
| Services | | 3,050,946 | | | 29,943 | | | 33,791 | | | 7,483 | | | — | | | — | | | 3,122,163 | |
| Wholesale/retail | | 1,749,023 | | | 5,281 | | | 5,399 | | | 1,163 | | | — | | | — | | | 1,760,866 | |
| Manufacturing | | 623,219 | | | 18,214 | | | 13,883 | | | 10,133 | | | — | | | — | | | 665,449 | |
| Healthcare | | 2,995,514 | | | 13,117 | | | 20,805 | | | 4,480 | | | — | | | — | | | 3,033,916 | |
| Public finance | | 709,868 | | | — | | | — | | | — | | | — | | | — | | | 709,868 | |
| Other commercial and industrial | | 709,729 | | | 4,028 | | | 17,744 | | | 398 | | | 34,075 | | | 37 | | | 766,011 | |
| Total commercial | | 13,538,705 | | | 187,881 | | | 155,573 | | | 115,379 | | | 34,075 | | | 37 | | | 14,031,650 | |
| | | | | | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | | | | | |
| Residential construction and land development | | 150,529 | | | — | | | — | | | 350 | | | — | | | — | | | 150,879 | |
| Retail | | 743,343 | | | 12,067 | | | 1,243 | | | 18,868 | | | — | | | — | | | 775,521 | |
| Office | | 923,202 | | | 5,177 | | | — | | | — | | | — | | | — | | | 928,379 | |
| Multifamily | | 1,257,005 | | | 1,604 | | | 95 | | | 6,858 | | | — | | | — | | | 1,265,562 | |
| Industrial | | 852,539 | | | 1,658 | | | 1,011 | | | 909 | | | — | | | — | | | 856,117 | |
| Other commercial real estate | | 455,045 | | | 1,639 | | | — | | | 641 | | | — | | | — | | | 457,325 | |
| Total commercial real estate | | 4,381,663 | | | 22,145 | | | 2,349 | | | 27,626 | | | — | | | — | | | 4,433,783 | |
| | | | | | | | | | | | | | |
| Residential mortgage: | | | | | | | | | | | | | | |
| Permanent mortgage | | 276,138 | | | 78 | | | 2,404 | | | 493 | | | 758,260 | | | 19,948 | | | 1,057,321 | |
| Permanent mortgage guaranteed by U.S. government agencies | | — | | | — | | | — | | | — | | | 191,694 | | | 6,100 | | | 197,794 | |
| Home equity | | — | | | — | | | — | | | — | | | 817,976 | | | 11,081 | | | 829,057 | |
| Total residential mortgage | | 276,138 | | | 78 | | | 2,404 | | | 493 | | | 1,767,930 | | | 37,129 | | | 2,084,172 | |
| | | | | | | | | | | | | | |
| Personal | | 1,116,196 | | | 45 | | | — | | | 56 | | | 84,853 | | | 232 | | | 1,201,382 | |
| | | | | | | | | | | | | | |
| Total | | $ | 19,312,702 | | | $ | 210,149 | | | $ | 160,326 | | | $ | 143,554 | | | $ | 1,886,858 | | | $ | 37,398 | | | $ | 21,750,987 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Internally Risk Graded | | Non-Graded | | |
| | | Performing | | | | | | | | |
| | | Pass | | Other Loans Especially Mentioned | | Accruing Substandard | | Nonaccrual | | Performing | | Nonaccrual | | Total |
| Commercial: | | | | | | | | | | | | | | |
| Energy | | $ | 3,414,039 |
| | $ | 42,176 |
| | $ | 86,624 |
| | $ | 47,494 |
| | $ | — |
| | $ | — |
| | $ | 3,590,333 |
|
| Services | | 3,167,203 |
| | 49,761 |
| | 32,661 |
| | 8,567 |
| | — |
| | — |
| | 3,258,192 |
|
| Wholesale/retail | | 1,593,902 |
| | 18,809 |
| | 7,131 |
| | 1,316 |
| | — |
| | — |
| | 1,621,158 |
|
| Manufacturing | | 668,438 |
| | 30,934 |
| | 22,230 |
| | 8,919 |
| | — |
| | — |
| | 730,521 |
|
| Healthcare | | 2,730,121 |
| | 14,920 |
| | 37,698 |
| | 16,538 |
| | — |
| | — |
| | 2,799,277 |
|
| Public finance | | 804,550 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 804,550 |
|
| Other commercial and industrial | | 756,815 |
| | 1,266 |
| | 7,588 |
| | 16,954 |
| | 49,371 |
| | 53 |
| | 832,047 |
|
| Total commercial | | 13,135,068 |
| | 157,866 |
| | 193,932 |
| | 99,788 |
| | 49,371 |
| | 53 |
| | 13,636,078 |
|
| | | | | | | | | | | | | | | |
| Commercial real estate: | | |
| | | | |
| | |
| | |
| | |
| | |
|
| Residential construction and land development | | 148,234 |
| | — |
| | — |
| | 350 |
| | — |
| | — |
| | 148,584 |
|
| Retail | | 885,588 |
| | 11,926 |
| | 1,289 |
| | 20,279 |
| | — |
| | — |
| | 919,082 |
|
| Office | | 1,059,334 |
| | 10,532 |
| | 3,054 |
| | — |
| | — |
| | — |
| | 1,072,920 |
|
| Multifamily | | 1,287,471 |
| | 281 |
| | 12 |
| | 301 |
| | — |
| | — |
| | 1,288,065 |
|
| Industrial | | 776,898 |
| | — |
| | 1,208 |
| | — |
| | — |
| | — |
| | 778,106 |
|
| Other commercial real estate | | 555,301 |
| | 1,188 |
| | 876 |
| | 691 |
| | — |
| | — |
| | 558,056 |
|
| Total commercial real estate | | 4,712,826 |
| | 23,927 |
| | 6,439 |
| | 21,621 |
| | — |
| | — |
| | 4,764,813 |
|
| | | | | | | | | | | | | | | |
| Residential mortgage: | | |
| | | | |
| | |
| | |
| | |
| | |
|
| Permanent mortgage | | 269,678 |
| | 52 |
| | 9,730 |
| | 1,991 |
| | 819,199 |
| | 21,960 |
| | 1,122,610 |
|
| Permanent mortgages guaranteed by U.S. government agencies | | — |
| | — |
| | — |
| | — |
| | 183,734 |
| | 7,132 |
| | 190,866 |
|
| Home equity | | 223,298 |
| | — |
| | 296 |
| | — |
| | 682,491 |
| | 10,472 |
| | 916,557 |
|
| Total residential mortgage | | 492,976 |
| | 52 |
| | 10,026 |
| | 1,991 |
| | 1,685,424 |
| | 39,564 |
| | 2,230,033 |
|
| | | | | | | | | | | | | | | |
| Personal | | 944,256 |
| | 115 |
| | 4,443 |
| | 76 |
| | 76,762 |
| | 154 |
| | 1,025,806 |
|
| | | | | | | | | | | | | | | |
| Total | | $ | 19,285,126 |
| | $ | 181,960 |
| | $ | 214,840 |
| | $ | 123,476 |
| | $ | 1,811,557 |
| | $ | 39,771 |
| | $ | 21,656,730 |
|
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.
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
September 30,December 31, 2019 follows (in thousands):
| | | | As of | | For the | | For the | |
| | September 30, 2019 | | Three Months Ended | | Nine Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Recorded Investment | | | | September 30, 2019 | | September 30, 2019 | | | | | Recorded Investment | |
| | 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 |
| Commercial: | | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | |
| Energy | $ | 139,897 |
| | $ | 88,894 |
| | $ | 62,981 |
| | $ | 25,913 |
| | $ | 7,176 |
| | $ | 80,263 |
| | $ | — |
| | $ | 67,705 |
| | $ | — |
| Energy | | $ | 149,441 | | | $ | 91,722 | | | $ | 44,244 | | | $ | 47,478 | | | $ | 16,854 | |
| Services | 9,390 |
| | 6,119 |
| | 6,093 |
| | 26 |
| | 26 |
| | 8,103 |
| | — |
| | 5,172 |
| | — |
| Services | | 10,923 | | | 7,483 | | | 6,301 | | | 1,182 | | | 240 | |
| Wholesale/retail | 1,718 |
| | 1,504 |
| | 1,243 |
| | 261 |
| | 101 |
| | 1,447 |
| | — |
| | 1,087 |
| | — |
| Wholesale/retail | | 1,980 | | | 1,163 | | | 902 | | | 261 | | | 101 | |
Manufacturing1 | 9,153 |
| | 8,741 |
| | 8,511 |
| | 230 |
| | 230 |
| | 8,677 |
| | — |
| | 8,448 |
| | — |
| |
| Manufacturing | | Manufacturing | | 10,848 | | | 10,133 | | | 9,914 | | | 219 | | | 219 | |
| Healthcare | 17,786 |
| | 5,978 |
| | 5,978 |
| | — |
| | — |
| | 11,063 |
| | — |
| | 8,547 |
| | — |
| Healthcare | | 13,774 | | | 4,480 | | | 4,480 | | | — | | | — | |
| Public finance | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Public finance | | — | | | — | | | — | | | — | | | — | |
| Other commercial and industrial | 8,261 |
| | 470 |
| | 470 |
| | — |
| | — |
| | 7,998 |
| | — |
| | 8,585 |
| | — |
| Other commercial and industrial | | 8,227 | | | 435 | | | 435 | | | — | | | — | |
| Total commercial | 186,205 |
| | 111,706 |
| | 85,276 |
| | 26,430 |
| | 7,533 |
| | 117,551 |
| | — |
| | 99,544 |
| | — |
| Total commercial | | 195,193 | | | 115,416 | | | 66,276 | | | 49,140 | | | 17,414 | |
| | | | | | | | | | | | | | | | | | | |
| Commercial real estate: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Commercial real estate: | | | | | | | | | | |
| Residential construction and land development | 1,306 |
| | 350 |
| | 350 |
| | — |
| | — |
| | 350 |
| | — |
| | 350 |
| | — |
| Residential construction and land development | | 1,306 | | | 350 | | | 350 | | | — | | | — | |
| Retail | 20,516 |
| | 20,132 |
| | 20,132 |
| | — |
| | — |
| | 20,094 |
| | — |
| | 20,206 |
| | — |
| Retail | | 20,265 | | | 18,868 | | | 18,868 | | | — | | | — | |
| Office | 855 |
| | 855 |
| | 855 |
| | — |
| | — |
| | 855 |
| | — |
| | 427 |
| | — |
| Office | | — | | | — | | | — | | | — | | | — | |
| Multifamily | 286 |
| | 286 |
| | 286 |
| | — |
| | — |
| | 281 |
| | — |
| | 294 |
| | — |
| Multifamily | | 6,858 | | | 6,858 | | | 6,858 | | | — | | | — | |
| Industrial | 909 |
| | 909 |
| | 909 |
| | — |
| | — |
| | 454 |
| | — |
| | 454 |
| | — |
| Industrial | | 909 | | | 909 | | | 909 | | | — | | | — | |
| Other commercial real estate | 813 |
| | 653 |
| | 653 |
| | — |
| | — |
| | 393 |
| | — |
| | 672 |
| | — |
| Other commercial real estate | | 801 | | | 641 | | | 641 | | | — | | | — | |
| Total commercial real estate | 24,685 |
| | 23,185 |
| | 23,185 |
| | — |
| | — |
| | 22,427 |
| | — |
| | 22,403 |
| | — |
| Total commercial real estate | | 30,139 | | | 27,626 | | | 27,626 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Residential mortgage: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Residential mortgage: | | | | | | | | | | |
| Permanent mortgage | 24,639 |
| | 20,165 |
| | 20,165 |
| | — |
| | — |
| | 20,984 |
| | 280 |
| | 22,058 |
| | 894 |
| Permanent mortgage | | 24,868 | | | 20,441 | | | 20,441 | | | — | | | — | |
Permanent mortgage guaranteed by U.S. government agencies2 | 197,847 |
| | 191,764 |
| | 191,764 |
| | — |
| | — |
| | 196,310 |
| | 2,020 |
| | 194,751 |
| | 5,863 |
| |
Permanent mortgage guaranteed by U.S. government agencies1 | | Permanent mortgage guaranteed by U.S. government agencies1 | | 204,187 | | | 197,794 | | | 197,794 | | | — | | | — | |
| Home equity | 12,621 |
| | 10,807 |
| | 10,807 |
| | — |
| | — |
| | 10,369 |
| | — |
| | 10,639 |
| | — |
| Home equity | | 12,967 | | | 11,081 | | | 11,081 | | | — | | | — | |
| Total residential mortgage | 235,107 |
| | 222,736 |
| | 222,736 |
| | — |
| | — |
| | 227,663 |
| | 2,300 |
| | 227,448 |
| | 6,757 |
| Total residential mortgage | | 242,022 | | | 229,316 | | | 229,316 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Personal | 338 |
| | 271 |
| | 271 |
| | — |
| | — |
| | 254 |
| | — |
| | 251 |
| | — |
| Personal | | 360 | | | 287 | | | 287 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Total | $ | 446,335 |
| | $ | 357,898 |
| | $ | 331,468 |
| | $ | 26,430 |
| | $ | 7,533 |
| | $ | 367,895 |
| | $ | 2,300 |
| | $ | 349,646 |
| | $ | 6,757 |
| Total | | $ | 467,714 | | | $ | 372,645 | | | $ | 323,505 | | | $ | 49,140 | | | $ | 17,414 | |
| |
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 September 30, 2019. |
12 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 September 30,December 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 |
|
| |
| 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, 2018, the majority were accruing based on the guarantee by U.S. government agencies. |
Troubled Debt Restructurings
At September 30, 2019 the Company had $145 million in troubled debt restructurings (TDRs), of which $93 million were accruing residential mortgage loans guaranteed by U.S. government agencies. Approximately $70 million of TDRs were performing in accordance with the modified terms.
At December 31, 2018, the Company had $166 million in TDRs, of which $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 nine months ended September 30, 2019, $6.2 million and $40 million of loans were restructured. During the three and nine months ended September 30, 2018, $31 million and $76 million of loans were 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 September 30, 2019 is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Past Due | | | | |
| | | Current | | 30 to 59 Days | | 60 to 89 Days | | 90 Days or More | | Nonaccrual | | Total |
| Commercial: | | | | | | | | | | | | |
| Energy | | $ | 4,025,375 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 88,894 |
| | $ | 4,114,269 |
|
| Services | | 3,249,994 |
| | 7,305 |
| | 2,096 |
| | 735 |
| | 6,119 |
| | 3,266,249 |
|
| Wholesale/retail | | 1,844,203 |
| | 2,910 |
| | — |
| | — |
| | 1,504 |
| | 1,848,617 |
|
| Manufacturing | | 687,358 |
| | 2,309 |
| | — |
| | — |
| | 8,741 |
| | 698,408 |
|
| Healthcare | | 3,026,838 |
| | 94 |
| | 2 |
| | 56 |
| | 5,978 |
| | 3,032,968 |
|
| Public finance | | 744,840 |
| | — |
| | — |
| | — |
| | — |
| | 744,840 |
|
| Other commercial and industrial | | 718,419 |
| | 337 |
| | 48 |
| | — |
| | 470 |
| | 719,274 |
|
| Total commercial | | 14,297,027 |
| | 12,955 |
| | 2,146 |
| | 791 |
| | 111,706 |
| | 14,424,625 |
|
| | | | | | | | | | | | | |
| Commercial real estate: | | |
| | |
| | | | |
| | |
| | |
|
| Residential construction and land development | | 134,947 |
| | — |
| | — |
| | 64 |
| | 350 |
| | 135,361 |
|
| Retail | | 779,037 |
| | — |
| | — |
| | — |
| | 20,132 |
| | 799,169 |
|
| Office | | 1,013,420 |
| | — |
| | — |
| | — |
| | 855 |
| | 1,014,275 |
|
| Multifamily | | 1,318,148 |
| | 6,405 |
| | — |
| | — |
| | 286 |
| | 1,324,839 |
|
| Industrial | | 872,627 |
| | — |
| | — |
| | — |
| | 909 |
| | 873,536 |
|
| Other commercial real estate | | 477,126 |
| | 335 |
| | 106 |
| | 657 |
| | 653 |
| | 478,877 |
|
| Total commercial real estate | | 4,595,305 |
| | 6,740 |
| | 106 |
| | 721 |
| | 23,185 |
| | 4,626,057 |
|
| | | | | | | | | | | | | |
| Residential mortgage: | | |
| | |
| | | | |
| | |
| | |
|
| Permanent mortgage | | 1,036,793 |
| | 6,097 |
| | 3,405 |
| | — |
| | 20,165 |
| | 1,066,460 |
|
| Permanent mortgages guaranteed by U.S. government agencies | | 47,207 |
| | 23,412 |
| | 21,676 |
| | 93,137 |
| | 6,332 |
| | 191,764 |
|
| Home equity | | 845,616 |
| | 2,282 |
| | 374 |
| | — |
| | 10,807 |
| | 859,079 |
|
| Total residential mortgage | | 1,929,616 |
| | 31,791 |
| | 25,455 |
| | 93,137 |
| | 37,304 |
| | 2,117,303 |
|
| | | | | | | | | | | | | |
| Personal | | 1,116,888 |
| | 100 |
| | 94 |
| | 29 |
| | 271 |
| | 1,117,382 |
|
| | | | | | | | | | | | | |
| Total | | $ | 21,938,836 |
| | $ | 51,586 |
| | $ | 27,801 |
| | $ | 94,678 |
| | $ | 172,466 |
| | $ | 22,285,367 |
|
A summary of loans currently performing, loans past due and accruing and nonaccrual loans as of December 31, 20182019 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Past Due | | | | | | | | |
| | | Current | | 30 to 59
Days | | 60 to 89 Days | | 90 Days
or More | | Nonaccrual | | Total |
| Commercial: | | | | | | | | | | | | |
| Energy | | $ | 3,881,244 | | | $ | 401 | | | $ | 10 | | | $ | — | | | 91,722 | | | $ | 3,973,377 | |
| Services | | 3,105,621 | | | 1,737 | | | 523 | | | 6,799 | | | 7,483 | | | 3,122,163 | |
| Wholesale | | 1,758,878 | | | 712 | | | 113 | | | — | | | 1,163 | | | 1,760,866 | |
| Manufacturing | | 654,329 | | | 410 | | | 190 | | | 387 | | | 10,133 | | | 665,449 | |
| Healthcare | | 3,027,329 | | | 2,039 | | | — | | | 68 | | | 4,480 | | | 3,033,916 | |
| Public finance | | 707,638 | | | 2,230 | | | — | | | — | | | — | | | 709,868 | |
| Other commercial and industrial | | 764,390 | | | 414 | | | 772 | | | — | | | 435 | | | 766,011 | |
| Total commercial | | 13,899,429 | | | 7,943 | | | 1,608 | | | 7,254 | | | 115,416 | | | 14,031,650 | |
| | | | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | | | |
| Residential construction and land development | | 147,379 | | | 3,093 | | | — | | | 57 | | | 350 | | | 150,879 | |
| Retail | | 756,653 | | | — | | | — | | | — | | | 18,868 | | | 775,521 | |
| Office | | 928,379 | | | — | | | — | | | — | | | — | | | 928,379 | |
| Multifamily | | 1,258,704 | | | — | | | — | | | — | | | 6,858 | | | 1,265,562 | |
| Industrial | | 855,208 | | | — | | | — | | | — | | | 909 | | | 856,117 | |
| Other commercial real estate | | 454,253 | | | 1,827 | | | 250 | | | 354 | | | 641 | | | 457,325 | |
| Total commercial real estate | | 4,400,576 | | | 4,920 | | | 250 | | | 411 | | | 27,626 | | | 4,433,783 | |
| | | | | | | | | | | | |
| Residential Mortgage: | | | | | | | | | | | | |
| Permanent mortgage | | 1,034,716 | | | 2,011 | | | 153 | | | — | | | 20,441 | | | 1,057,321 | |
| Permanent mortgage guaranteed by U.S. government agencies | | 46,898 | | | 24,203 | | | 18,187 | | | 102,406 | | | 6,100 | | | 197,794 | |
| Home equity | | 814,325 | | | 3,343 | | | 308 | | | — | | | 11,081 | | | 829,057 | |
| Total residential mortgage | | 1,895,939 | | | 29,557 | | | 18,648 | | | 102,406 | | | 37,622 | | | 2,084,172 | |
| | | | | | | | | | | | |
| Personal | | 1,196,362 | | | 4,664 | | | 54 | | | 15 | | | 287 | | | 1,201,382 | |
| | | | | | | | | | | | |
| Total | | $ | 21,392,306 | | | $ | 47,084 | | | $ | 20,560 | | | $ | 110,086 | | | $ | 180,951 | | | $ | 21,750,987 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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 |
|
(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.
At September 30, 2019, right-of-use assets were $180 million, the weighted-average remaining lease term was 11.0 years and the weighted average discount rate on operating leases was 3.2 percent. Operating lease costs recognized as occupancy and equipment expense were $7.1 million and $19.3 million for the three and nine months ended September 30, 2019. Operating cash flows from operating leases were $5.9 million and $17.3 million for the three and nine months ended September 30, 2019.
At September 30, 2019, un-discounted operating lease liabilities are scheduled to mature as follows: $7.0 million in 2019, $29.6 million in 2020, $27.4 million in 2021, $20.3 million in 2022, $18.6 million in 2023 and $136.3 million thereafter. Operating expense and short term lease costs total $3.3 million and $10.9 million for the three and nine months ended September 30, 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, 2020 | | | | December 31, 2019 | | |
| | | Unpaid Principal Balance/
Notional | | Fair Value | | Unpaid Principal Balance/
Notional | | Fair Value |
| Residential mortgage loans held for sale | | $ | 285,274 | | | $ | 296,445 | | | $ | 175,117 | | | $ | 177,703 | |
| Residential mortgage loan commitments | | 546,304 | | | 27,631 | | | 158,460 | | | 5,233 | |
| Forward sales contracts | | 825,775 | | | (4,719) | | | 315,203 | | | (665) | |
| | | | | $ | 319,357 | | | | | $ | 182,271 | |
|
| | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| | | Unpaid Principal Balance/ Notional | | Fair Value | | Unpaid Principal Balance/ Notional | | Fair Value |
| Residential mortgage loans held for sale | | $ | 269,610 |
| | $ | 272,489 |
| | $ | 145,057 |
| | $ | 146,971 |
|
| Residential mortgage loan commitments | | 379,377 |
| | 10,111 |
| | 160,848 |
| | 5,378 |
|
| Forward sales contracts | | 649,161 |
| | (113 | ) | | 274,000 |
| | (3,128 | ) |
| | | |
| | $ | 282,487 |
| | |
| | $ | 149,221 |
|
No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of SeptemberJune 30, 20192020 or December 31, 2018.2019. No credit losses were recognized on residential mortgage loans held for sale for the ninesix month period ended SeptemberJune 30, 20192020 and 2018.2019.
Mortgage banking revenue was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | | 2020 | | 2019 | | 2020 | | 2019 |
| Production revenue: | | | | | | | | |
| Net realized gains on sale of mortgage loans | | $ | 24,109 | | | $ | 10,174 | | | $ | 33,826 | | | $ | 15,867 | |
| Net change in unrealized gain on mortgage loans held for sale | | 5,024 | | | 921 | | | 8,585 | | | 868 | |
| Net change in the fair value of mortgage loan commitments | | 3,381 | | | 1,506 | | | 22,398 | | | 4,219 | |
| Net change in the fair value of forward sales contracts | | 6,671 | | | (732) | | | (4,054) | | | (1,217) | |
| Total production revenue | | 39,185 | | | 11,869 | | | 60,755 | | | 19,737 | |
| Servicing revenue | | 14,751 | | | 16,262 | | | 30,348 | | | 32,228 | |
| Total mortgage banking revenue | | $ | 53,936 | | | $ | 28,131 | | | $ | 91,103 | | | $ | 51,965 | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Production revenue: | | | | | | | | |
| Net realized gains on sale of mortgage loans | | $ | 8,971 |
| | $ | 9,063 |
| | $ | 24,838 |
| | $ | 28,699 |
|
| Net change in unrealized gain on mortgage loans held for sale | | 97 |
| | (2,135 | ) | | 965 |
| | (2,457 | ) |
| Net change in the fair value of mortgage loan commitments | | 514 |
| | (2,446 | ) | | 4,733 |
| | (1,496 | ) |
| Net change in the fair value of forward sales contracts | | 4,232 |
| | 2,768 |
| | 3,015 |
| | 1,871 |
|
| Total production revenue | | 13,814 |
| | 7,250 |
| | 33,551 |
| | 26,617 |
|
| Servicing revenue | | 16,366 |
| | 16,286 |
| | 48,594 |
| | 49,290 |
|
| Total mortgage banking revenue | | $ | 30,180 |
| | $ | 23,536 |
| | $ | 82,145 |
| | $ | 75,907 |
|
Production revenue includes gain (loss) on residential mortgage loans held for sale and changes in the fair value of derivative contracts not designated as hedging instruments for accounting purposes related to residential mortgage loan commitments and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.
Residential Mortgage Servicing
Mortgage servicing rights may be originated or purchased. Both originated and purchased mortgage servicing rights are initially recognized at fair value. The Company has elected to carry all mortgage servicing rights at fair value. Changes in the fair value are recognized in earnings as they occur. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights (dollars in thousands):
| | | | | | | | | | | | | | |
| | | June 30, 2020 | | December 31, 2019 |
| Number of residential mortgage loans serviced for others | | 116,232 | | | 126,828 | |
| Outstanding principal balance of residential mortgage loans serviced for others | | $ | 18,038,428 | | | $ | 20,727,106 | |
| Weighted average interest rate | | 3.96 | % | | 3.98 | % |
| Remaining term (in months) | | 283 | | 289 |
|
| | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| Number of residential mortgage loans serviced for others | | 128,463 |
| | 132,463 |
|
| Outstanding principal balance of residential mortgage loans serviced for others | | $ | 21,046,136 |
| | $ | 21,658,335 |
|
| Weighted average interest rate | | 3.99 | % | | 3.99 | % |
| Remaining term (in months) | | 290 |
| | 293 |
|
The following represents activity in capitalized mortgage servicing rights (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Beginning Balance | | $ | 110,828 | | | $ | 238,193 | | | $ | 201,886 | | | $ | 259,254 | |
| Additions | | 8,465 | | | 8,751 | | | 13,906 | | | 14,939 | |
| Disposals | | (10,801) | | | — | | | (10,801) | | | — | |
| Change in fair value due to principal payments | | (9,760) | | | (9,081) | | | (17,779) | | | (15,664) | |
| Change in fair value due to market assumption changes | | (761) | | | (29,555) | | | (89,241) | | | (50,221) | |
| Ending Balance | | $ | 97,971 | | | $ | 208,308 | | | $ | 97,971 | | | $ | 208,308 | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Beginning Balance | | $ | 208,308 |
| | $ | 278,719 |
| | $ | 259,254 |
| | $ | 252,867 |
|
| Additions, net | | 9,882 |
| | 8,968 |
| | 24,821 |
| | 28,688 |
|
| Change in fair value due to principal payments | | (11,936 | ) | | (8,986 | ) | | (27,600 | ) | | (25,783 | ) |
| Change in fair value due to market assumption changes | | (12,593 | ) | | 5,972 |
| | (62,814 | ) | | 28,901 |
|
| Ending Balance | | $ | 193,661 |
| | $ | 284,673 |
| | $ | 193,661 |
| | $ | 284,673 |
|
Changes in the fair value of mortgage servicing rights due to market assumption changes are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to principal payments are included in Mortgage banking costs.
Mortgage servicing rights are not traded in active markets. Fair value is determined by discounting the projected net cash flows. Significant market assumptions used to determine fair value based on significant unobservable inputs were as follows:
| | | | | | | | | | | | | | |
| | | June 30, 2020 | | December 31, 2019 |
| Discount rate – risk-free rate plus a market premium | | 9.67% | | 9.81% |
| Prepayment rate - based upon loan interest rate, original term and loan type | | 9.04% - 30.87% | | 8.28% - 16.05% |
| Loan servicing costs – annually per loan based upon loan type: | | | | |
| Performing loans | | $69 - $94 | | $68 - $94 |
| Delinquent loans | | $150 - $500 | | $150 - $500 |
| Loans in foreclosure | | $1,000 - $4,000 | | $1,000 - $4,000 |
| Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life | | 0.33% | | 1.73% |
| Primary/secondary mortgage rate spread | | 105 bps | | 104 bps |
| Delinquency rate | | 4.51% | | 2.73% |
|
| | | | |
| | | September 30, 2019 | | December 31, 2018 |
| Discount rate – risk-free rate plus a market premium | | 9.82% | | 9.90% |
| Prepayment rate - based upon loan interest rate, original term and loan type | | 8.31% - 17.22% | | 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 | | 1.51% | | 2.57% |
| Primary/secondary mortgage rate spread | | 102 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.
(7)(6) Commitments and Contingent Liabilities
Litigation Contingencies
On June 24, 2015, BOKF, NA received a complaint alleging that an employee had colluded with a bond issuer and an individual in misusing revenues pledged to municipal bonds for which BOKF, NA served as trustee under the bond indenture. The Company conducted an investigation and concluded that employees in one of its Corporate Trust offices had, with respect to a single group of affiliated bond issuances, violated Company policies and procedures by waiving financial covenants, granting forbearances and accepting without disclosure to the bondholders, debt service payments from sources other than pledged revenues. The relationship manager was terminated. The Company reported the circumstances to, and cooperated with an investigation by, the Securities and Exchange Commission ("SEC").
On December 28, 2015, in an action brought by the SEC, the United States District Court for the District of New Jersey entered a judgment against the principals involved in issuing the bonds, precluding the principals from denying the alleged violations of the federal securities laws and requiring the principals to pay all outstanding principal, accrued interest, and other amounts required under the bond documents, less the value of the facilities securing repayment of the bonds),bonds, subject to oversight by a court appointed monitor (“Payment Plan”).
On September 7, 2016, BOKF, NA agreed, and the SEC entered, a consent orderConsent Order finding that BOKF, NA had violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and requiring BOKF, NA to disgorge
$1,067,721 of fees and pay a civil penalty of $600,000. BOKF, NA disgorged the fees and paid the penalty.
On August 26, 2016, BOKF, NA was sued in the United States District Court for New Jersey by 2 bondholders in a putative class action on behalf of all holders of the bonds alleging BOKF, NA participated in the fraudulent sale of securities by the principals. The New Jersey Federal District Action has been stayed until December 17, 2019.September 25, 2020. On September 14, 2016, BOKF, NA was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders alleging BOKF, NA participated in the fraudulent sale of securities by the principals. The Tulsa County District Court Action is pending on BOKF, NA’s motion to dismiss. Four separate small groups of bondholders filed arbitration complaints withdismiss the Financial Institutions Regulatory Association respecting the bonds and other bonds for which BOKF, NA served as indenture trustee. BOKF, NA challenged the FINRA proceedings in the United States District Court of Nevada. On appeal, the United States Court of Appeals for the Ninth Circuit held BOKF, NA was not subject to FINRA jurisdiction. The four FINRA complaints were then dismissed.plaintiff's Second Amended Petition.
On July 9, 2019,January 8, 2020, the New Jersey Federal District Court upon motion of the SEC, terminated the Payment Plan except with respect to facilities then under contract to be sold. The SEC has announced its intention to seekentered judgment against the principal individual and his wife for $36,805,051 in principal amount and $10,937,831 in pre-judgment interest. On January 19, 2020, the amount remaining onNew Jersey Federal District Court formally terminated the bonds. As a result, managementPayment Plan. Management is no longer able to conclude that the individual principal and his wife will be successful in paying the obligations he hasthey have to pay the bonds in full.full but such obligations remain and are not dischargeable in bankruptcy. If the individual principal and his wife do not have the financial ability to pay the bonds in full, a bondholder loss could become probable. Management has been advised by counsel that BOKF, NA has valid defenses to claims of bondholders and that no loss to the company is probable. No provision for losses has been made at this time. BOKF, NA estimates that, upon sale of all facilitiescollateral securing payment of the bonds, including those currently under contract and those not currently under contract, approximately $20 million will remain outstanding. BOKF, NA is unable at this time to assess whether the individual principal and his wife will have the financial capacity to pay in full the balance due on the bonds. If the individual principal and his wife do not have the financial ability to pay the bonds in full, a bondholder loss could become probable. Under all circumstances, the obligation of the principals to repay the bonds continues as an obligation not dischargeable in bankruptcy. A reasonable estimate cannot be made of the amount of any bondholder loss, though the amount of bondholder loss could be material to the company in the event a loss to the company becomes probable.
On March 5, 2018, BOKF, NA was sued in the Fulton, Georgia County District Court by the administratrixa Wrongful Death Judgment Creditor 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,Trustee, 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. On April 19, 2019, the Court granted BOKF, NA's Motion to Dismiss. On May 3, 2019, the plaintiff filed a Motion for Reconsideration which is pending. BOKF, NA is advised by counsel that BOKF, NA has valid defenses to the plaintiffs’ claims and no loss is probable.
On March 14, 2017, BOKF, 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 2 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 BOKF, NA also served as indenture trustee. The bondholders allege BOKF, NA failed to disclose that the seller of the purchased facilities had engaged in the conduct complained of in the New Jersey action. BOKF, 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 2 principals, is not a target of the SEC proceedings, and has been advised by counsel that BOKF, NA has valid defenses to the claims of these bondholders. Management is advised by counsel that a loss is not probable 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 BOKF, NA is interest and exceeds permitted rates. On September 18, 2018, the District Court dismissed the Texas action and the plaintiff appealed the dismissal to the United States Court of Appeals for the Fifth Circuit which heard argument on October 8, 2019. On August 22, 2018, a plaintiff filed a second putative class action in the United States District Court for New Mexico making the same allegations as the Texas action. The District Court dismissed the plaintiff's action. The plaintiff has appealed to the United States Court of Appeals for the Tenth Circuit. Management is advised by counsel that a loss is not probable in either the now dismissed Texas action or the New Mexico action and that the loss, if any, cannot be reasonably estimated.
On July 6, 2018,March 7, 2020, 3 former employees sued BOKF, NA, the Plan Committee of the BOKF, NA 401k Plan, and Cavanal Hill Investment Management, Inc., a plaintiff served a petitionsubsidiary of BOKF, NA, alleging that the Defendants included proprietary investment products as investment options in the BOKF, NA 401k Plan, whose fees were too high and performance too low, for the purpose of earning fees. The action is brought as a putative class action 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 accountson behalf of all Plan Participants. The action is pending on the day of the transaction triggering the fee and by the bank's debit hold process causing overdraft fees.defendants' motion to dismiss. Management is advised by counsel that a loss is not probable and that the loss, if any, cannot be reasonably estimated.
On May 12, 2020, an accounting firm filed a putative class action in the District Court of Colorado alleging that BOKF, NA failed to pay the agents of borrowers making application through the Bank to the Small Business Administration for Paycheck Protection Program (CARES Act) loans. BOKF, NA implemented a policy to pay, and paid, all agents of PPP borrowers where the principals agreed the principals had agents. 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 twoa private equity fundsfund and invests in several tax credit entities and other funds as permitted by banking regulations. Consolidation of these investments is based on the variable interest model.
At SeptemberJune 30, 2019,2020, the Company has $245$260 million in interests in various alternative investments generally consisting of unconsolidated limited partnership interests in entities for which investment return is in the form of low income housing tax credits or other investments in merchant banking activities. This investment balance also includes $70$78 million of unfunded commitments included in Other liabilities on the Consolidated Balance Sheets.
(7) Shareholders' Equity
(8) Shareholders' Equity
On October 29, 2019,August 4, 2020, the Company declared a quarterly cash dividend of $0.51 per common share payable on or about November 27, 2019August 26, 2020 to shareholders of record as of November 12, 2019.August 17, 2020.
Dividends declared were $0.50$0.51 and $1.50$1.02 per share during the three and ninesix months ended SeptemberJune 30, 20192020 and $0.50 and $1.40$1.00 per share during the three and ninesix months ended SeptemberJune 30, 2018.2019.
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, Dec. 31, 2018 | | $ | (70,999) | | | $ | (1,586) | | | | | $ | (72,585) | |
| Net change in unrealized gain (loss) | | 228,156 | | | — | | | | | 228,156 | |
| Reclassification adjustments included in earnings: | | | | | | | | |
| | | | | | | | |
| Gain on available for sale securities, net | | (1,105) | | | — | | | | | (1,105) | |
| Other comprehensive income, before income taxes | | 227,051 | | | — | | | | | 227,051 | |
Federal and state income taxes1 | | 55,897 | | | — | | | | | 55,897 | |
| Other comprehensive income, net of income taxes | | 171,154 | | | — | | | | | 171,154 | |
| Balance, June 30, 2019 | | $ | 100,155 | | | $ | (1,586) | | | | | $ | 98,569 | |
| | | | | | | | |
| Balance, Dec. 31, 2019 | | $ | 104,996 | | | $ | (73) | | | | | $ | 104,923 | |
| Net change in unrealized gain (loss) | | 354,765 | | | — | | | | | 354,765 | |
| Reclassification adjustments included in earnings: | | | | | | | | |
| Gain on available for sale securities, net | | (5,580) | | | — | | | | | (5,580) | |
| Other comprehensive income, before income taxes | | 349,185 | | | — | | | | | 349,185 | |
Federal and state income taxes1 | | 83,792 | | | — | | | | | 83,792 | |
| Other comprehensive income, net of income taxes | | 265,393 | | | — | | | | | 265,393 | |
| Balance, June 30, 2020 | | $ | 370,389 | | | $ | (73) | | | | | $ | 370,316 | |
|
| | | | | | | | | | | | |
| | | 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) | | (166,464 | ) | | — |
| | (166,464 | ) |
| Reclassification adjustments included in earnings: | | | | | |
|
| Loss on available for sale securities, net | | 802 |
| | — |
| | 802 |
|
| Other comprehensive loss, before income taxes | | (165,662 | ) | | — |
| | (165,662 | ) |
Federal and state income taxes1 | | (42,183 | ) | | — |
| | (42,183 | ) |
| Other comprehensive loss, net of income taxes | | (123,479 | ) | | — |
| | (123,479 | ) |
| Balance, September 30, 2018 | | $ | (161,573 | ) | | $ | (789 | ) | | $ | (162,362 | ) |
| | | | | | |
|
| Balance, December 31, 2018 | | $ | (70,999 | ) | | $ | (1,586 | ) | | $ | (72,585 | ) |
| Net change in unrealized gain (loss) | | 274,441 |
| | — |
| | 274,441 |
|
| Reclassification adjustments included in earnings: | | | | | |
|
| Gain on available for sale securities, net | | (1,110 | ) | | — |
| | (1,110 | ) |
| Other comprehensive income, before income taxes | | 273,331 |
| | — |
| | 273,331 |
|
Federal and state income taxes1 | | 66,993 |
| | — |
| | 66,993 |
|
| Other comprehensive income, net of income taxes | | 206,338 |
| | — |
| | 206,338 |
|
| Balance, September 30, 2019 | | $ | 135,339 |
|
| $ | (1,586 | ) | | $ | 133,753 |
|
| |
1
| Calculated using a 25 percent blended federal and state statutory tax rate. |
(9)(8) Earnings Per Share
| | | (In thousands, except share and per share amounts) | | Three Months Ended
September 30, | | Nine Months Ended September 30, | (In thousands, except share and per share amounts) | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2019 | | 2018 | | 2019 | | 2018 | | | 2020 | | 2019 | | 2020 | | 2019 |
| Numerator: | | | | | | | | | Numerator: | | | | | | | | |
| Net income attributable to BOK Financial Corp. shareholders | | $ | 142,231 |
| | $ | 117,256 |
| | $ | 390,406 |
| | $ | 337,190 |
| Net income attributable to BOK Financial Corp. shareholders | | $ | 64,693 | | | $ | 137,563 | | | $ | 126,772 | | | $ | 248,175 | |
| Less: Earnings allocated to participating securities | | 875 |
| | 963 |
| | 2,553 |
| | 2,940 |
| Less: Earnings allocated to participating securities | | 397 | | | 850 | | | 740 | | | 1,678 | |
| Numerator for basic earnings per share – income available to common shareholders | | 141,356 |
| | 116,293 |
| | 387,853 |
| | 334,250 |
| Numerator for basic earnings per share – income available to common shareholders | | 64,296 | | | 136,713 | | | 126,032 | | | 246,497 | |
| Effect of reallocating undistributed earnings of participating securities | | 1 |
| | 1 |
| | 1 |
| | 1 |
| Effect of reallocating undistributed earnings of participating securities | | — | | | — | | | — | | | — | |
| Numerator for diluted earnings per share – income available to common shareholders | | $ | 141,357 |
| | $ | 116,294 |
| | $ | 387,854 |
| | $ | 334,251 |
| Numerator for diluted earnings per share – income available to common shareholders | | $ | 64,296 | | | $ | 136,713 | | | $ | 126,032 | | | $ | 246,497 | |
| | | | | | | | | | |
| Denominator: | | |
| | |
| | |
| | |
| Denominator: | | | | | | | | |
| Weighted average shares outstanding | | 71,033,405 |
| | 65,438,849 |
| | 71,425,855 |
| | 65,455,306 |
| Weighted average shares outstanding | | 70,307,606 | | | 71,327,928 | | | 70,410,707 | | | 71,625,332 | |
| Less: Participating securities included in weighted average shares outstanding | | 437,098 |
| | 537,754 |
| | 472,311 |
| | 571,987 |
| Less: Participating securities included in weighted average shares outstanding | | 431,563 | | | 440,865 | | | 410,842 | | | 489,918 | |
| Denominator for basic earnings per common share | | 70,596,307 |
| | 64,901,095 |
| | 70,953,544 |
| | 64,883,319 |
| Denominator for basic earnings per common share | | 69,876,043 | | | 70,887,063 | | | 69,999,865 | | | 71,135,414 | |
Dilutive effect of employee stock compensation plans1 | | 13,617 |
| | 33,256 |
| | 15,301 |
| | 36,409 |
| Dilutive effect of employee stock compensation plans1 | | 1,424 | | | 14,970 | | | 3,952 | | | 16,144 | |
| Denominator for diluted earnings per common share | | 70,609,924 |
| | 64,934,351 |
| | 70,968,845 |
| | 64,919,728 |
| Denominator for diluted earnings per common share | | 69,877,467 | | | 70,902,033 | | | 70,003,817 | | | 71,151,558 | |
| | | | | | | | | | |
| Basic earnings per share | | $ | 2.00 |
| | $ | 1.79 |
| | $ | 5.47 |
| | $ | 5.15 |
| Basic earnings per share | | $ | 0.92 | | | $ | 1.93 | | | $ | 1.80 | | | $ | 3.47 | |
| Diluted earnings per share | | $ | 2.00 |
| | $ | 1.79 |
| | $ | 5.47 |
| | $ | 5.15 |
| Diluted earnings per share | | $ | 0.92 | | | $ | 1.93 | | | $ | 1.80 | | | $ | 3.46 | |
1 Excludes employee stock options with exercise prices greater than current market price. | | — |
| | — |
| | — |
| | — |
| 1 Excludes employee stock options with exercise prices greater than current market price. | | 22,238 | | | — | | | — | | | — | |
(9) Reportable Segments
(10) Reportable Segments
Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended SeptemberJune 30, 20192020 is as follows (in thousands):
| | | | | Commercial | | Consumer | | Wealth Management | | Funds Management and Other | | BOK Financial Consolidated | | | Commercial | | Consumer | | Wealth
Management | | Funds Management and Other | | BOK
Financial
Consolidated |
| Net interest revenue from external sources | | $ | 243,944 |
| | $ | 27,580 |
| | $ | 12,343 |
| | $ | (4,771 | ) | | $ | 279,096 |
| Net interest revenue from external sources | | $ | 174,314 | | | $ | 18,795 | | | $ | 34,359 | | | $ | 50,636 | | | $ | 278,104 | |
| Net interest revenue (expense) from internal sources | | (63,797 | ) | | 20,882 |
| | 10,723 |
| | 32,192 |
| | — |
| Net interest revenue (expense) from internal sources | | (29,205) | | | 20,475 | | | (7,479) | | | 16,209 | | | — | |
| Net interest revenue | | 180,147 |
| | 48,462 |
| | 23,066 |
| | 27,421 |
| | 279,096 |
| Net interest revenue | | 145,109 | | | 39,270 | | | 26,880 | | | 66,845 | | | 278,104 | |
| Provision for credit losses | | 9,505 |
| | 1,841 |
| | (42 | ) | | 696 |
| | 12,000 |
| Provision for credit losses | | 13,762 | | | 535 | | | (89) | | | 121,113 | | | 135,321 | |
| Net interest revenue after provision for credit losses | | 170,642 |
| | 46,621 |
| | 23,108 |
| | 26,725 |
| | 267,096 |
| Net interest revenue after provision for credit losses | | 131,347 | | | 38,735 | | | 26,969 | | | (54,268) | | | 142,783 | |
| Other operating revenue | | 48,832 |
| | 51,221 |
| | 89,160 |
| | (2,763 | ) | | 186,450 |
| Other operating revenue | | 47,898 | | | 67,192 | | | 106,674 | | | 10,929 | | | 232,693 | |
| Other operating expense | | 68,685 |
| | 59,699 |
| | 71,619 |
| | 79,289 |
| | 279,292 |
| Other operating expense | | 62,933 | | | 58,936 | | | 80,567 | | | 92,951 | | | 295,387 | |
| Net direct contribution | | 150,789 |
| | 38,143 |
| | 40,649 |
| | (55,327 | ) | | 174,254 |
| Net direct contribution | | 116,312 | | | 46,991 | | | 53,076 | | | (136,290) | | | 80,089 | |
| Gain on financial instruments, net | | 28 |
| | 8,339 |
| | — |
| | (8,367 | ) | | — |
| Gain on financial instruments, net | | 48 | | | 7,356 | | | — | | | (7,404) | | | — | |
| Change in fair value of mortgage servicing rights | | — |
| | (12,593 | ) | | — |
| | 12,593 |
| | — |
| Change in fair value of mortgage servicing rights | | — | | | (761) | | | — | | | 761 | | | — | |
| Gain on repossessed assets, net | | 802 |
| | 214 |
| | — |
| | (1,016 | ) | | — |
| Gain on repossessed assets, net | | 191 | | | 27 | | | — | | | (218) | | | — | |
| Corporate expense allocations | | 12,613 |
| | 11,776 |
| | 9,416 |
| | (33,805 | ) | | — |
| Corporate expense allocations | | 5,437 | | | 10,812 | | | 8,204 | | | (24,453) | | | — | |
| Net income before taxes | | 139,006 |
| | 22,327 |
| | 31,233 |
| | (18,312 | ) | | 174,254 |
| Net income before taxes | | 111,114 | | | 42,801 | | | 44,872 | | | (118,698) | | | 80,089 | |
| Federal and state income taxes | | 37,433 |
| | 5,687 |
| | 8,027 |
| | (18,751 | ) | | 32,396 |
| Federal and state income taxes | | 30,122 | | | 10,901 | | | 11,478 | | | (36,698) | | | 15,803 | |
| Net income | | 101,573 |
| | 16,640 |
| | 23,206 |
| | 439 |
| | 141,858 |
| Net income | | 80,992 | | | 31,900 | | | 33,394 | | | (82,000) | | | 64,286 | |
| Net income (loss) attributable to non-controlling interests | | — |
| | — |
| | — |
| | (373 | ) | | (373 | ) | Net income (loss) attributable to non-controlling interests | | — | | | — | | | — | | | (407) | | | (407) | |
| Net income attributable to BOK Financial Corp. shareholders | | $ | 101,573 |
| | $ | 16,640 |
| | $ | 23,206 |
| | $ | 812 |
| | $ | 142,231 |
| Net income attributable to BOK Financial Corp. shareholders | | $ | 80,992 | | | $ | 31,900 | | | $ | 33,394 | | | $ | (81,593) | | | $ | 64,693 | |
| | | | | | | | | | | | |
| Average assets | | $ | 23,973,067 |
| | $ | 9,827,130 |
| | $ | 10,392,988 |
| | $ | (611,075 | ) | | $ | 43,582,110 |
| Average assets | | $ | 27,575,652 | | | $ | 9,920,005 | | | $ | 15,721,452 | | | $ | (3,460,078) | | | $ | 49,757,031 | |
Reportable segments reconciliation to the Consolidated Financial Statements for the ninesix months ended SeptemberJune 30, 20192020 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Commercial | | Consumer | | Wealth
Management | | Funds Management and Other | | BOK
Financial
Consolidated |
| Net interest revenue from external sources | | $ | 376,216 | | | $ | 44,671 | | | $ | 48,725 | | | $ | 69,852 | | | $ | 539,464 | |
| Net interest revenue (expense) from internal sources | | (79,700) | | | 38,531 | | | (2,941) | | | 44,110 | | | — | |
| Net interest revenue | | 296,516 | | | 83,202 | | | 45,784 | | | 113,962 | | | 539,464 | |
| Provision for credit losses | | 30,642 | | | 1,791 | | | (137) | | | 196,796 | | | 229,092 | |
| Net interest revenue after provision for credit losses | | 265,874 | | | 81,411 | | | 45,921 | | | (82,834) | | | 310,372 | |
| Other operating revenue | | 86,118 | | | 122,254 | | | 204,555 | | | 85 | | | 413,012 | |
| Other operating expense | | 123,685 | | | 113,729 | | | 158,759 | | | 167,838 | | | 564,011 | |
| Net direct contribution | | 228,307 | | | 89,936 | | | 91,717 | | | (250,587) | | | 159,373 | |
| Gain on financial instruments, net | | 97 | | | 94,120 | | | 7 | | | (94,224) | | | — | |
| Change in fair value of mortgage servicing rights | | — | | | (89,241) | | | — | | | 89,241 | | | — | |
| Gain on repossessed assets, net | | 200 | | | 40 | | | — | | | (240) | | | — | |
| Corporate expense allocations | | 14,342 | | | 21,299 | | | 16,469 | | | (52,110) | | | — | |
| Net income before taxes | | 214,262 | | | 73,556 | | | 75,255 | | | (203,700) | | | 159,373 | |
| Federal and state income taxes | | 58,295 | | | 18,735 | | | 19,288 | | | (63,215) | | | 33,103 | |
| Net income | | 155,967 | | | 54,821 | | | 55,967 | | | (140,485) | | | 126,270 | |
| Net income (loss) attributable to non-controlling interests | | — | | | — | | | — | | | (502) | | | (502) | |
| Net income attributable to BOK Financial Corp. shareholders | | $ | 155,967 | | | $ | 54,821 | | | $ | 55,967 | | | $ | (139,983) | | | $ | 126,772 | |
| | | | | | | | | | |
| Average assets | | $ | 26,131,814 | | | $ | 9,885,429 | | | $ | 14,222,432 | | | $ | (2,500,850) | | | $ | 47,738,825 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Commercial | | Consumer | | Wealth Management | | Funds Management and Other1 | | BOK Financial Consolidated |
| Net interest revenue from external sources | | $ | 699,239 |
| | $ | 75,353 |
| | $ | 51,054 |
| | $ | 16,984 |
| | $ | 842,630 |
|
| Net interest revenue (expense) from internal sources | | (181,829 | ) | | 76,925 |
| | 27,213 |
| | 77,691 |
| | — |
|
| Net interest revenue | | 517,410 |
| | 152,278 |
| | 78,267 |
| | 94,675 |
| | 842,630 |
|
| Provision for credit losses | | 27,574 |
| | 4,654 |
| | (209 | ) | | (7,019 | ) | | 25,000 |
|
| Net interest revenue after provision for credit losses | | 489,836 |
| | 147,624 |
| | 78,476 |
| | 101,694 |
| | 817,630 |
|
| Other operating revenue | | 128,055 |
| | 142,780 |
| | 248,591 |
| | (3,641 | ) | | 515,785 |
|
| Other operating expense | | 181,809 |
| | 171,214 |
| | 202,579 |
| | 287,984 |
| | 843,586 |
|
| Net direct contribution | | 436,082 |
| | 119,190 |
| | 124,488 |
| | (189,931 | ) | | 489,829 |
|
| Gain on financial instruments, net | | 67 |
| | 43,416 |
| | — |
| | (43,483 | ) | | — |
|
| Change in fair value of mortgage servicing rights | | — |
| | (62,814 | ) | | — |
| | 62,814 |
| | — |
|
| Gain on repossessed assets, net | | 455 |
| | 409 |
| | — |
| | (864 | ) | | — |
|
| Corporate expense allocations | | 34,146 |
| | 35,369 |
| | 26,943 |
| | (96,458 | ) | | — |
|
| Net income before taxes | | 402,458 |
| | 64,832 |
| | 97,545 |
| | (75,006 | ) | | 489,829 |
|
| Federal and state income taxes | | 107,807 |
| | 16,513 |
| | 25,076 |
| | (49,470 | ) | | 99,926 |
|
| Net income | | 294,651 |
| | 48,319 |
| | 72,469 |
| | (25,536 | ) | | 389,903 |
|
| Net income (loss) attributable to non-controlling interests | | — |
| | — |
| | — |
| | (503 | ) | | (503 | ) |
| Net income attributable to BOK Financial Corp. shareholders | | $ | 294,651 |
| | $ | 48,319 |
| | $ | 72,469 |
| | $ | (25,033 | ) | | $ | 390,406 |
|
| | | | | | | | | | | |
| Average assets | | $ | 22,288,129 |
| | $ | 9,142,491 |
| | $ | 9,861,021 |
| | $ | 89,202 |
| | $ | 41,380,843 |
|
| |
1
| CoBiz operations are included in Funds Management and Other for the first quarter of 2019 and subsequently allocated to the respective segments in the second quarter of 2019. |
Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended SeptemberJune 30, 20182019 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 | | $ | 187,417 |
| | $ | 20,005 |
| | $ | 22,509 |
| | $ | 10,952 |
| | $ | 240,883 |
| Net interest revenue from external sources | | $ | 251,084 | | | $ | 25,300 | | | $ | 17,222 | | | $ | (8,174) | | | $ | 285,432 | |
| Net interest revenue (expense) from internal sources | | (42,270 | ) | | 19,039 |
| | 6,267 |
| | 16,964 |
| | — |
| Net interest revenue (expense) from internal sources | | (66,613) | | | 27,415 | | | 9,719 | | | 29,479 | | | — | |
| Net interest revenue | | 145,147 |
| | 39,044 |
| | 28,776 |
| | 27,916 |
| | 240,883 |
| Net interest revenue | | 184,471 | | | 52,715 | | | 26,941 | | | 21,305 | | | 285,432 | |
| Provision for credit losses | | 8,047 |
| | 1,451 |
| | (84 | ) | | (5,414 | ) | | 4,000 |
| Provision for credit losses | | 6,823 | | | 1,728 | | | (48) | | | (3,503) | | | 5,000 | |
| Net interest revenue after provision for credit losses | | 137,100 |
| | 37,593 |
| | 28,860 |
| | 33,330 |
| | 236,883 |
| Net interest revenue after provision for credit losses | | 177,648 | | | 50,987 | | | 26,989 | | | 24,808 | | | 280,432 | |
| Other operating revenue | | 40,522 |
| | 44,024 |
| | 83,357 |
| | 38 |
| | 167,941 |
| Other operating revenue | | 41,611 | | | 48,811 | | | 86,017 | | | (4,374) | | | 172,065 | |
| Other operating expense | | 51,039 |
| | 58,482 |
| | 62,256 |
| | 80,840 |
| | 252,617 |
| Other operating expense | | 63,415 | | | 57,694 | | | 69,452 | | | 86,576 | | | 277,137 | |
| Net direct contribution | | 126,583 |
| | 23,135 |
| | 49,961 |
| | (47,472 | ) | | 152,207 |
| Net direct contribution | | 155,844 | | | 42,104 | | | 43,554 | | | (66,142) | | | 175,360 | |
| Gain (loss) on financial instruments, net | | (3 | ) | | (7,229 | ) | | 7 |
| | 7,225 |
| | — |
| Gain (loss) on financial instruments, net | | 20 | | | 20,981 | | | — | | | (21,001) | | | — | |
| Change in fair value of mortgage servicing rights | | — |
| | 5,972 |
| | — |
| | (5,972 | ) | | — |
| Change in fair value of mortgage servicing rights | | — | | | (29,555) | | | — | | | 29,555 | | | — | |
| Gain (loss) on repossessed assets, net | | (1,869 | ) | | (87 | ) | | — |
| | 1,956 |
| | — |
| Gain (loss) on repossessed assets, net | | — | | | 92 | | | — | | | (92) | | | — | |
| Corporate expense allocations | | 9,124 |
| | 11,037 |
| | 11,127 |
| | (31,288 | ) | | — |
| Corporate expense allocations | | 10,652 | | | 11,695 | | | 9,168 | | | (31,515) | | | — | |
| Net income before taxes | | 115,587 |
| | 10,754 |
| | 38,841 |
| | (12,975 | ) | | 152,207 |
| Net income before taxes | | 145,212 | | | 21,927 | | | 34,386 | | | (26,165) | | | 175,360 | |
| Federal and state income taxes | | 30,623 |
| | 2,739 |
| | 9,975 |
| | (8,675 | ) | | 34,662 |
| Federal and state income taxes | | 38,932 | | | 5,585 | | | 8,842 | | | (15,779) | | | 37,580 | |
| Net income | | 84,964 |
| | 8,015 |
| | 28,866 |
| | (4,300 | ) | | 117,545 |
| Net income | | 106,280 | | | 16,342 | | | 25,544 | | | (10,386) | | | 137,780 | |
| Net income attributable to non-controlling interests | | — |
| | — |
| | — |
| | 289 |
| | 289 |
| Net income attributable to non-controlling interests | | — | | | — | | | — | | | 217 | | | 217 | |
| Net income (loss) attributable to BOK Financial Corp. shareholders | | $ | 84,964 |
| | $ | 8,015 |
| | $ | 28,866 |
| | $ | (4,589 | ) | | $ | 117,256 |
| Net income (loss) attributable to BOK Financial Corp. shareholders | | $ | 106,280 | | | $ | 16,342 | | | $ | 25,544 | | | $ | (10,603) | | | $ | 137,563 | |
| | | | | | | | | | | | |
| Average assets | | $ | 18,499,979 |
| | $ | 8,323,543 |
| | $ | 8,498,363 |
| | $ | (1,626,068 | ) | | $ | 33,695,817 |
| Average assets | | $ | 22,910,724 | | | $ | 9,212,667 | | | $ | 9,849,396 | | | $ | (1,128,010) | | | $ | 40,844,777 | |
Reportable segments reconciliation to the Consolidated Financial Statements for the ninesix months ended SeptemberJune 30, 20182019 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Commercial | | Consumer | | Wealth
Management | | Funds Management and Other1 | | BOK
Financial
Consolidated |
| Net interest revenue from external sources | | $ | 455,293 | | | $ | 47,775 | | | $ | 38,708 | | | $ | 21,758 | | | $ | 563,534 | |
| Net interest revenue (expense) from internal sources | | (120,251) | | | 56,042 | | | 16,489 | | | 47,720 | | | — | |
| Net interest revenue | | 335,042 | | | 103,817 | | | 55,197 | | | 69,478 | | | 563,534 | |
| Provision for credit losses | | 18,069 | | | 2,813 | | | (167) | | | (7,715) | | | 13,000 | |
| Net interest revenue after provision for credit losses | | 316,973 | | | 101,004 | | | 55,364 | | | 77,193 | | | 550,534 | |
| Other operating revenue | | 79,223 | | | 91,559 | | | 159,431 | | | (878) | | | 329,335 | |
| Other operating expense | | 114,042 | | | 111,515 | | | 130,959 | | | 207,778 | | | 564,294 | |
| Net direct contribution | | 282,154 | | | 81,048 | | | 83,836 | | | (131,463) | | | 315,575 | |
| Gain (loss) on financial instruments, net | | 38 | | | 35,078 | | | — | | | (35,116) | | | — | |
| Change in fair value of mortgage servicing rights | | — | | | (50,221) | | | — | | | 50,221 | | | — | |
| Gain (loss) on repossessed assets, net | | (346) | | | 195 | | | — | | | 151 | | | — | |
| Corporate expense allocations | | 20,107 | | | 23,595 | | | 17,528 | | | (61,230) | | | — | |
| Net income before taxes | | 261,739 | | | 42,505 | | | 66,308 | | | (54,977) | | | 315,575 | |
| Federal and state income taxes | | 69,938 | | | 10,826 | | | 17,045 | | | (30,279) | | | 67,530 | |
| Net income | | 191,801 | | | 31,679 | | | 49,263 | | | (24,698) | | | 248,045 | |
| Net income attributable to non-controlling interests | | — | | | — | | | — | | | (130) | | | (130) | |
| Net income attributable to BOK Financial Corp. shareholders | | $ | 191,801 | | | $ | 31,679 | | | $ | 49,263 | | | $ | (24,568) | | | $ | 248,175 | |
| | | | | | | | | | |
| Average assets | | $ | 21,432,513 | | | $ | 8,794,498 | | | $ | 9,590,629 | | | $ | 444,327 | | | $ | 40,261,967 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Commercial | | Consumer | | Wealth Management | | Funds Management and Other | | BOK Financial Consolidated |
| Net interest revenue from external sources | | $ | 529,958 |
| | $ | 63,504 |
| | $ | 56,990 |
| | $ | 48,729 |
| | $ | 699,181 |
|
| Net interest revenue (expense) from internal sources | | (107,715 | ) | | 51,811 |
| | 26,431 |
| | 29,473 |
| | — |
|
| Net interest revenue | | 422,243 |
| | 115,315 |
| | 83,421 |
| | 78,202 |
| | 699,181 |
|
| Provision for credit losses | | 18,781 |
| | 3,890 |
| | (238 | ) | | (23,433 | ) | | (1,000 | ) |
| Net interest revenue after provision for credit losses | | 403,462 |
| | 111,425 |
| | 83,659 |
| | 101,635 |
| | 700,181 |
|
| Other operating revenue | | 123,245 |
| | 135,291 |
| | 228,766 |
| | (6,973 | ) | | 480,329 |
|
| Other operating expense | | 148,796 |
| | 174,728 |
| | 188,691 |
| | 231,308 |
| | 743,523 |
|
| Net direct contribution | | 377,911 |
| | 71,988 |
| | 123,734 |
| | (136,646 | ) | | 436,987 |
|
| Gain (loss) on financial instruments, net | | 13 |
| | (36,901 | ) | | 7 |
| | 36,881 |
| | — |
|
| Change in fair value of mortgage servicing rights | | — |
| | 28,901 |
| | — |
| | (28,901 | ) | | — |
|
| Gain (loss) on repossessed assets, net | | (6,102 | ) | | (21 | ) | | — |
| | 6,123 |
| | — |
|
| Corporate expense allocations | | 29,092 |
| | 33,283 |
| | 31,084 |
| | (93,459 | ) | | — |
|
| Net income before taxes | | 342,730 |
| | 30,684 |
| | 92,657 |
| | (29,084 | ) | | 436,987 |
|
| Federal and state income taxes | | 90,943 |
| | 7,816 |
| | 23,824 |
| | (23,643 | ) | | 98,940 |
|
| Net income | | 251,787 |
| | 22,868 |
| | 68,833 |
| | (5,441 | ) | | 338,047 |
|
| Net income attributable to non-controlling interests | | — |
| | — |
| | — |
| | 857 |
| | 857 |
|
| Net income attributable to BOK Financial Corp. shareholders | | $ | 251,787 |
| | $ | 22,868 |
| | $ | 68,833 |
| | $ | (6,298 | ) | | $ | 337,190 |
|
| | | | | | | | | | | |
| Average assets | | $ | 18,124,571 |
| | $ | 8,381,205 |
| | $ | 8,364,712 |
| | $ | (1,094,993 | ) | | $ | 33,775,495 |
|
(11)(10) Fees and Commissions Revenue
Fees and commissions revenue is generated through the sales of products, consisting primarily of financial instruments, and the performance of services for customers under contractual obligations. Revenue from providing services for customers is recognized at the time services are provided in an amount that reflects the consideration we expect to be entitled to for those services. Revenue is recognized based on the application of five steps:
•Identify the contract with a customer
•Identify the performance obligations in the contract
•Determine the transaction price
•Allocate the transaction price to the performance obligations in the contract
•Recognize revenue when (or as) the Company satisfies a performance obligation
For contracts with multiple performance obligations, individual performance obligations are accounted for separately if the customer can benefit from the good or service on its own or with other resources readily available to the customer and the promise to transfer goods and services to the customer is separately identifiable in the contract. The transaction price is allocated to the performance obligations based on relative standalone selling prices.
Revenue is recognized on a gross basis whenever we have primary responsibility and risk in providing the services or products to our customers and have discretion in establishing the price for the services or products. Revenue is recognized on a net basis whenever we act as an agent for products or services of others.
Brokerage and trading revenue includes revenues from trading, customer hedging, retail brokerage and investment banking. Trading revenue includes net realized and unrealized gains primarily related to sales of securities to institutional customers and related derivative contracts. Customer hedging revenue includes realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs including credit valuation adjustments, as necessary. We offer commodity, interest rate, foreign exchange and equity derivatives to our customers. These customer contracts are offset with contracts with selected counterparties and exchanges to minimize changes in market risk from changes in commodity prices, interest rates or foreign exchange rates. Retail brokerage revenue represents fees and commissions earned on sales of fixed income securities, annuities, mutual funds and other financial instruments to retail customers. Investment banking revenue includes fees earned upon completion of underwriting and financial advisory services. Investment banking revenue also includes fees earned in conjunction with loan syndications. Insurance brokerage revenues represents fees and commissions earned on placement of insurance products with carriers for property and casualty and health coverage.
Transaction card revenue includes merchant discount fees and electronic funds transfer network fees, net of interchange fees paid to card issuers and assessments paid to card networks. Merchant discount fees represent fees paid by customers for account management and electronic processing of card transactions. Merchant discount fees are recognized at the time the customer’s transactions are processed or other services are performed. The Company also maintains the TransFund electronic funds transfer network for the benefit of its members, which includes the Bank. Electronic funds transfer fees are recognized as electronic transactions processed on behalf of its members.
Fiduciary and asset management revenue includes fees from asset management, custody, recordkeeping, investment advisory and administration services. Revenue is recognized on an accrual basis at the time the services are performed and may be based on either the fair value of the account or the service provided.
Deposit service charges and fees include commercial account service charges, overdraft fees, check card fee revenue and automated service charge and other deposit service fees. Fees are recognized at least quarterly in accordance with published deposit account agreements and disclosure statements for retail accounts or contractual agreements for commercial accounts. Item charges for overdraft or non-sufficient funds items are recognized as items are presented for payment. Account balance charges and activity fees are accrued monthly and collected in arrears. Commercial account activity fees may be offset by an earnings credit based on account balances. Check card fees represent interchange fees paid by a merchant bank for transactions processed from cards issued by the Company. Check card fees are recognized when transactions are processed.
Mortgage banking revenue includes revenues recognized in conjunction with the origination, marketing and servicing of conventional and government-sponsored residential mortgage loans. Mortgage production revenue includes net realized gains (losses) on sales of residential mortgage loans in the secondary market and the net change in unrealized gains (losses) on residential mortgage loans held for sale. Mortgage production revenue also includes changes in the fair value of derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts. Mortgage servicing revenue includes servicing fee income and late charges on loans serviced for others.
Fees and commissions revenue by reportable segment and primary service line is as follows for the three months ended SeptemberJune 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | Consumer | | Wealth Management | | Funds Management & Other | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — | | | $ | — | | | $ | 43,915 | | | $ | — | | | $ | 43,915 | | | $ | 43,915 | | | $ | — | |
| Customer hedging revenue | 6,893 | | | — | | | 63 | | | (714) | | | 6,242 | | | 6,242 | | | — | |
| Retail brokerage revenue | — | | | — | | | 3,394 | | | — | | | 3,394 | | | — | | | 3,394 | |
| Insurance brokerage revenue | — | | | — | | | 3,153 | | | — | | | 3,153 | | | — | | | 3,153 | |
| Investment banking revenue | 1,131 | | | — | | | 4,187 | | | — | | | 5,318 | | | 851 | | | 4,467 | |
| Brokerage and trading revenue | 8,024 | | | — | | | 54,712 | | | (714) | | | 62,022 | | | 51,008 | | | 11,014 | |
| TransFund EFT network revenue | 19,647 | | | 556 | | | (9) | | | — | | | 20,194 | | | — | | | 20,194 | |
| Merchant services revenue | 2,230 | | | 13 | | | — | | | — | | | 2,243 | | | — | | | 2,243 | |
| Corporate card revenue | 485 | | | — | | | 18 | | | — | | | 503 | | | — | | | 503 | |
| Transaction card revenue | 22,362 | | | 569 | | | 9 | | | — | | | 22,940 | | | — | | | 22,940 | |
| Personal trust revenue | — | | | — | | | 21,681 | | | — | | | 21,681 | | | — | | | 21,681 | |
| Corporate trust revenue | — | | | — | | | 4,604 | | | — | | | 4,604 | | | — | | | 4,604 | |
| Institutional trust & retirement plan services revenue | — | | | — | | | 10,723 | | | — | | | 10,723 | | | — | | | 10,723 | |
| Investment management services and other revenue | — | | | — | | | 4,291 | | | (42) | | | 4,249 | | | — | | | 4,249 | |
| Fiduciary and asset management revenue | — | | | — | | | 41,299 | | | (42) | | | 41,257 | | | — | | | 41,257 | |
| Commercial account service charge revenue | 11,069 | | | 389 | | | 598 | | | — | | | 12,056 | | | — | | | 12,056 | |
| Overdraft fee revenue | 20 | | | 3,607 | | | 16 | | | — | | | 3,643 | | | — | | | 3,643 | |
| Check card revenue | — | | | 5,122 | | | — | | | — | | | 5,122 | | | — | | | 5,122 | |
| Automated service charge and other deposit fee revenue | 29 | | | 1,179 | | | 17 | | | — | | | 1,225 | | | — | | | 1,225 | |
| Deposit service charges and fees | 11,118 | | | 10,297 | | | 631 | | | — | | | 22,046 | | | — | | | 22,046 | |
| Mortgage production revenue | — | | | 39,186 | | | — | | | — | | | 39,186 | | | 39,186 | | | — | |
| Mortgage servicing revenue | — | | | 15,164 | | | — | | | (414) | | | 14,750 | | | 14,750 | | | — | |
| Mortgage banking revenue | — | | | 54,350 | | | — | | | (414) | | | 53,936 | | | 53,936 | | | — | |
| Other revenue | 5,011 | | | 1,976 | | | 10,106 | | | (5,614) | | | 11,479 | | | 8,970 | | | 2,509 | |
| Total fees and commissions revenue | $ | 46,515 | | | $ | 67,192 | | | $ | 106,757 | | | $ | (6,784) | | | $ | 213,680 | | | $ | 113,914 | | | $ | 99,766 | |
1 Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting guidance.
2 In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Consumer | | Wealth Management | | Funds Management & Other3 | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — |
| | $ | — |
| | $ | 24,091 |
| | $ | — |
| | $ | 24,091 |
| | $ | 24,091 |
| | $ | — |
|
| Customer hedging revenue | 2,283 |
| | — |
| | 1,810 |
| | 591 |
| | 4,684 |
| | 4,684 |
| | — |
|
| Retail brokerage revenue | — |
| | — |
| | 4,204 |
| | — |
| | 4,204 |
| | — |
| | 4,204 |
|
| Insurance brokerage revenue | — |
| | — |
| | 3,375 |
| | (513 | ) | | 2,862 |
| | — |
| | 2,862 |
|
| Investment banking revenue | 4,408 |
| | — |
| | 3,590 |
| | 1 |
| | 7,999 |
| | 3,762 |
| | 4,237 |
|
| Brokerage and trading revenue | 6,691 |
| | — |
| | 37,070 |
| | 79 |
| | 43,840 |
| | 32,537 |
| | 11,303 |
|
| TransFund EFT network revenue | 18,465 |
| | 1,020 |
| | (23 | ) | | 2 |
| | 19,464 |
| | — |
| | 19,464 |
|
| Merchant services revenue | 2,203 |
| | 14 |
| | — |
| | — |
| | 2,217 |
| | — |
| | 2,217 |
|
| Corporate card revenue | 328 |
| | — |
| | 6 |
| | — |
| | 334 |
| | — |
| | 334 |
|
| Transaction card revenue | 20,996 |
| | 1,034 |
| | (17 | ) | | 2 |
| | 22,015 |
| | — |
| | 22,015 |
|
| Personal trust revenue | — |
| | — |
| | 20,239 |
| | (1 | ) | | 20,238 |
| | — |
| | 20,238 |
|
| Corporate trust revenue | — |
| | — |
| | 6,204 |
| | 1 |
| | 6,205 |
| | — |
| | 6,205 |
|
| Institutional trust & retirement plan services revenue | — |
| | — |
| | 10,740 |
| | — |
| | 10,740 |
| | — |
| | 10,740 |
|
| Investment management services and other revenue | — |
| | — |
| | 6,480 |
| | (42 | ) | | 6,438 |
| | — |
| | 6,438 |
|
| Fiduciary and asset management revenue | — |
| | — |
| | 43,663 |
| | (42 | ) | | 43,621 |
| | — |
| | 43,621 |
|
| Commercial account service charge revenue | 10,609 |
| | 467 |
| | 540 |
| | (3 | ) | | 11,613 |
| | — |
| | 11,613 |
|
| Overdraft fee revenue | 81 |
| | 9,603 |
| | 45 |
| | 3 |
| | 9,732 |
| | — |
| | 9,732 |
|
| Check card revenue | — |
| | 5,721 |
| | — |
| | — |
| | 5,721 |
| | — |
| | 5,721 |
|
| Automated service charge and other deposit fee revenue | 197 |
| | 1,519 |
| | 53 |
| | 2 |
| | 1,771 |
| | — |
| | 1,771 |
|
| Deposit service charges and fees | 10,887 |
| | 17,310 |
| | 638 |
| | 2 |
| | 28,837 |
| | — |
| | 28,837 |
|
| Mortgage production revenue | — |
| | 13,815 |
| | — |
| | (1 | ) | | 13,814 |
| | 13,814 |
| | — |
|
| Mortgage servicing revenue | — |
| | 16,828 |
| | — |
| | (462 | ) | | 16,366 |
| | 16,366 |
| | — |
|
| Mortgage banking revenue | — |
| | 30,643 |
| | — |
| | (463 | ) | | 30,180 |
| | 30,180 |
| | — |
|
| Other revenue | 7,585 |
| | 2,474 |
| | 8,068 |
| | (501 | ) | | 17,626 |
| | 11,812 |
| | 5,814 |
|
| Total fees and commissions revenue | $ | 46,159 |
| | $ | 51,461 |
| | $ | 89,422 |
| | $ | (923 | ) | | $ | 186,119 |
| | $ | 74,529 |
| | $ | 111,590 |
|
| |
| 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 ninesix months ended SeptemberJune 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | Consumer | | Wealth Management | | Funds Management & Other | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — | | | $ | — | | | $ | 78,299 | | | $ | — | | | $ | 78,299 | | | $ | 78,299 | | | $ | — | |
| Customer hedging revenue | 9,418 | | | — | | | 198 | | | (151) | | | 9,465 | | | 9,465 | | | — | |
| Retail brokerage revenue | — | | | — | | | 7,737 | | | — | | | 7,737 | | | — | | | 7,737 | |
| Insurance brokerage revenue | — | | | — | | | 6,942 | | | — | | | 6,942 | | | — | | | 6,942 | |
| Investment banking revenue | 3,011 | | | — | | | 7,347 | | | — | | | 10,358 | | | 2,679 | | | 7,679 | |
| Brokerage and trading revenue | 12,429 | | | — | | | 100,523 | | | (151) | | | 112,801 | | | 90,443 | | | 22,358 | |
| TransFund EFT network revenue | 37,859 | | | 1,387 | | | (28) | | | 2 | | | 39,220 | | | — | | | 39,220 | |
| Merchant services revenue | 4,535 | | | 27 | | | — | | | — | | | 4,562 | | | — | | | 4,562 | |
| Corporate card revenue | 1,005 | | | — | | | 34 | | | — | | | 1,039 | | | — | | | 1,039 | |
| Transaction card revenue | 43,399 | | | 1,414 | | | 6 | | | 2 | | | 44,821 | | | — | | | 44,821 | |
| Personal trust revenue | — | | | — | | | 42,330 | | | — | | | 42,330 | | | — | | | 42,330 | |
| Corporate trust revenue | — | | | — | | | 10,966 | | | — | | | 10,966 | | | — | | | 10,966 | |
| Institutional trust & retirement plan services revenue | — | | | — | | | 22,480 | | | — | | | 22,480 | | | — | | | 22,480 | |
| Investment management services and other revenue | — | | | — | | | 10,022 | | | (83) | | | 9,939 | | | — | | | 9,939 | |
| Fiduciary and asset management revenue | — | | | — | | | 85,798 | | | (83) | | | 85,715 | | | — | | | 85,715 | |
| Commercial account service charge revenue | 22,108 | | | 799 | | | 1,143 | | | (1) | | | 24,049 | | | — | | | 24,049 | |
| Overdraft fee revenue | 69 | | | 10,812 | | | 38 | | | 2 | | | 10,921 | | | — | | | 10,921 | |
| Check card revenue | — | | | 10,351 | | | — | | | — | | | 10,351 | | | — | | | 10,351 | |
| Automated service charge and other deposit fee revenue | 258 | | | 2,565 | | | 30 | | | 2 | | | 2,855 | | | — | | | 2,855 | |
| Deposit service charges and fees | 22,435 | | | 24,527 | | | 1,211 | | | 3 | | | 48,176 | | | — | | | 48,176 | |
| Mortgage production revenue | — | | | 60,755 | | | — | | | — | | | 60,755 | | | 60,755 | | | — | |
| Mortgage servicing revenue | — | | | 31,206 | | | — | | | (858) | | | 30,348 | | | 30,348 | | | — | |
| Mortgage banking revenue | — | | | 91,961 | | | — | | | (858) | | | 91,103 | | | 91,103 | | | — | |
| Other revenue | 9,711 | | | 4,352 | | | 17,100 | | | (7,375) | | | 23,788 | | | 17,378 | | | 6,410 | |
| Total fees and commissions revenue | $ | 87,974 | | | $ | 122,254 | | | $ | 204,638 | | | $ | (8,462) | | | $ | 406,404 | | | $ | 198,924 | | | $ | 207,480 | |
1 Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting guidance.
2 In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Consumer | | Wealth Management | | Funds Management & Other3 | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — |
| | $ | — |
| | $ | 58,890 |
| | $ | — |
| | $ | 58,890 |
| | $ | 58,890 |
| | $ | — |
|
| Customer hedging revenue | 6,243 |
| | — |
| | 9,444 |
| | 1,019 |
| | 16,706 |
| | 16,706 |
| | — |
|
| Retail brokerage revenue | — |
| | — |
| | 12,192 |
| | (65 | ) | | 12,127 |
| | — |
| | 12,127 |
|
| Insurance brokerage revenue | — |
| | — |
| | 7,063 |
| | 3,729 |
| | 10,792 |
| | — |
| | 10,792 |
|
| Investment banking revenue | 8,345 |
| | — |
| | 9,123 |
| | — |
| | 17,468 |
| | 7,189 |
| | 10,279 |
|
| Brokerage and trading revenue | 14,588 |
| | — |
| | 96,712 |
| | 4,683 |
| | 115,983 |
| | 82,785 |
| | 33,198 |
|
| TransFund EFT network revenue | 54,623 |
| | 2,975 |
| | (60 | ) | | 3 |
| | 57,541 |
| | — |
| | 57,541 |
|
| Merchant services revenue | 6,351 |
| | 43 |
| | — |
| | 122 |
| | 6,516 |
| | — |
| | 6,516 |
|
| Corporate card revenue | 598 |
| | — |
| | 11 |
| | 2 |
| | 611 |
| | — |
| | 611 |
|
| Transaction card revenue | 61,572 |
| | 3,018 |
| | (49 | ) | | 127 |
| | 64,668 |
| | — |
| | 64,668 |
|
| Personal trust revenue | — |
| | — |
| | 61,028 |
| | — |
| | 61,028 |
| | — |
| | 61,028 |
|
| Corporate trust revenue | — |
| | — |
| | 18,736 |
| | — |
| | 18,736 |
| | — |
| | 18,736 |
|
| Institutional trust & retirement plan services revenue | — |
| | — |
| | 32,919 |
| | — |
| | 32,919 |
| | — |
| | 32,919 |
|
| Investment management services and other revenue | — |
| | — |
| | 17,730 |
| | 1,591 |
| | 19,321 |
| | — |
| | 19,321 |
|
| Fiduciary and asset management revenue | — |
| | — |
| | 130,413 |
| | 1,591 |
| | 132,004 |
| | — |
| | 132,004 |
|
| Commercial account service charge revenue | 31,296 |
| | 1,283 |
| | 1,605 |
| | 1,804 |
| | 35,988 |
| | — |
| | 35,988 |
|
| Overdraft fee revenue | 248 |
| | 26,971 |
| | 108 |
| | (231 | ) | | 27,096 |
| | — |
| | 27,096 |
|
| Check card revenue | — |
| | 16,299 |
| | — |
| | 165 |
| | 16,464 |
| | — |
| | 16,464 |
|
| Automated service charge and other deposit fee revenue | 569 |
| | 4,762 |
| | 228 |
| | 47 |
| | 5,606 |
| | — |
| | 5,606 |
|
| Deposit service charges and fees | 32,113 |
| | 49,315 |
| | 1,941 |
| | 1,785 |
| | 85,154 |
| | — |
| | 85,154 |
|
| Mortgage production revenue | — |
| | 33,554 |
| | — |
| | (3 | ) | | 33,551 |
| | 33,551 |
| | — |
|
| Mortgage servicing revenue | — |
| | 50,014 |
| | — |
| | (1,420 | ) | | 48,594 |
| | 48,594 |
| | — |
|
| Mortgage banking revenue | — |
| | 83,568 |
| | — |
| | (1,423 | ) | | 82,145 |
| | 82,145 |
| | — |
|
| Other revenue | 17,037 |
| | 7,211 |
| | 19,586 |
| | (1,009 | ) | | 42,825 |
| | 28,655 |
| | 14,170 |
|
| Total fees and commissions revenue | $ | 125,310 |
| | $ | 143,112 |
| | $ | 248,603 |
| | $ | 5,754 |
| | $ | 522,779 |
| | $ | 193,585 |
| | $ | 329,194 |
|
| |
| 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 three months ended SeptemberJune 30, 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | Consumer | | Wealth Management | | Funds Management & Other3 | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — | | | $ | — | | | $ | 21,879 | | | $ | — | | | $ | 21,879 | | | $ | 21,879 | | | $ | — | |
| Customer hedging revenue | 2,385 | | | — | | | 1,906 | | | 1,054 | | | 5,345 | | | 5,345 | | | — | |
| Retail brokerage revenue | — | | | — | | | 3,914 | | | (13) | | | 3,901 | | | — | | | 3,901 | |
| Insurance brokerage revenue | — | | | — | | | 3,309 | | | 513 | | | 3,822 | | | — | | | 3,822 | |
| Investment banking revenue | 2,548 | | | — | | | 3,032 | | | (1) | | | 5,579 | | | 2,198 | | | 3,381 | |
| Brokerage and trading revenue | 4,933 | | | — | | | 34,040 | | | 1,553 | | | 40,526 | | | 29,422 | | | 11,104 | |
| TransFund EFT network revenue | 18,504 | | | 997 | | | (20) | | | — | | | 19,481 | | | — | | | 19,481 | |
| Merchant services revenue | 2,223 | | | 15 | | | — | | | (1) | | | 2,237 | | | — | | | 2,237 | |
| Corporate card revenue | 190 | | | — | | | 5 | | | 2 | | | 197 | | | — | | | 197 | |
| Transaction card revenue | 20,917 | | | 1,012 | | | (15) | | | 1 | | | 21,915 | | | — | | | 21,915 | |
| Personal trust revenue | — | | | — | | | 21,215 | | | 1 | | | 21,216 | | | — | | | 21,216 | |
| Corporate trust revenue | — | | | — | | | 6,331 | | | (1) | | | 6,330 | | | — | | | 6,330 | |
| Institutional trust & retirement plan services revenue | — | | | — | | | 11,072 | | | — | | | 11,072 | | | — | | | 11,072 | |
| Investment management services and other revenue | — | | | — | | | 6,449 | | | (42) | | | 6,407 | | | — | | | 6,407 | |
| Fiduciary and asset management revenue | — | | | — | | | 45,067 | | | (42) | | | 45,025 | | | — | | | 45,025 | |
| Commercial account service charge revenue | 10,625 | | | 429 | | | 538 | | | — | | | 11,592 | | | — | | | 11,592 | |
| Overdraft fee revenue | 93 | | | 8,973 | | | 36 | | | 2 | | | 9,104 | | | — | | | 9,104 | |
| Check card revenue | — | | | 5,586 | | | — | | | 1 | | | 5,587 | | | — | | | 5,587 | |
| Automated service charge and other deposit fee revenue | 214 | | | 1,578 | | | (2) | | | 1 | | | 1,791 | | | — | | | 1,791 | |
| Deposit service charges and fees | 10,932 | | | 16,566 | | | 572 | | | 4 | | | 28,074 | | | — | | | 28,074 | |
| Mortgage production revenue | — | | | 11,871 | | | — | | | (2) | | | 11,869 | | | 11,869 | | | — | |
| Mortgage servicing revenue | — | | | 16,741 | | | — | | | (479) | | | 16,262 | | | 16,262 | | | — | |
| Mortgage banking revenue | — | | | 28,612 | | | — | | | (481) | | | 28,131 | | | 28,131 | | | — | |
| Other revenue | 4,323 | | | 2,640 | | | 6,261 | | | (787) | | | 12,437 | | | 8,123 | | | 4,314 | |
| Total fees and commissions revenue | $ | 41,105 | | | $ | 48,830 | | | $ | 85,925 | | | $ | 248 | | | $ | 176,108 | | | $ | 65,676 | | | $ | 110,432 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Consumer | | Wealth Management | | Funds Management & Other | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — |
| | $ | — |
| | $ | 4,830 |
| | $ | — |
| | $ | 4,830 |
| | $ | 4,830 |
| | $ | — |
|
| Customer hedging revenue | 1,350 |
| | — |
| | 6,935 |
| | 229 |
| | 8,514 |
| | 8,514 |
| | — |
|
| Retail brokerage revenue | — |
| | — |
| | 4,398 |
| | (73 | ) | | 4,325 |
| | — |
| | 4,325 |
|
| Insurance brokerage revenue | — |
| | — |
| | 170 |
| | — |
| | 170 |
| | — |
| | 170 |
|
| Investment banking revenue | 1,765 |
| | — |
| | 3,482 |
| | — |
| | 5,247 |
| | 1,410 |
| | 3,837 |
|
| Brokerage and trading revenue | 3,115 |
| | — |
| | 19,815 |
| | 156 |
| | 23,086 |
| | 14,754 |
| | 8,332 |
|
| TransFund EFT network revenue | 18,397 |
| | 1,009 |
| | (21 | ) | | 2 |
| | 19,387 |
| | — |
| | 19,387 |
|
| Merchant services revenue | 1,995 |
| | 14 |
| | — |
| | — |
| | 2,009 |
| | — |
| | 2,009 |
|
| Corporate card revenue | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transaction card revenue | 20,392 |
| | 1,023 |
| | (21 | ) | | 2 |
| | 21,396 |
| | — |
| | 21,396 |
|
| Personal trust revenue | — |
| | — |
| | 35,822 |
| | 1 |
| | 35,823 |
| | — |
| | 35,823 |
|
| Corporate trust revenue | — |
| | — |
| | 5,741 |
| | — |
| | 5,741 |
| | — |
| | 5,741 |
|
| Institutional trust & retirement plan services revenue | — |
| | — |
| | 11,095 |
| | (1 | ) | | 11,094 |
| | — |
| | 11,094 |
|
| Investment management services and other revenue | — |
| | — |
| | 4,903 |
| | (47 | ) | | 4,856 |
| | — |
| | 4,856 |
|
| Fiduciary and asset management revenue | — |
| | — |
| | 57,561 |
| | (47 | ) | | 57,514 |
| | — |
| | 57,514 |
|
| Commercial account service charge revenue | 10,294 |
| | 366 |
| | 587 |
| | (3 | ) | | 11,244 |
| | — |
| | 11,244 |
|
| Overdraft fee revenue | 95 |
| | 9,413 |
| | 30 |
| | 3 |
| | 9,541 |
| | — |
| | 9,541 |
|
| Check card revenue | — |
| | 5,254 |
| | — |
| | — |
| | 5,254 |
| | — |
| | 5,254 |
|
| Automated service charge and other deposit fee revenue | 35 |
| | 1,661 |
| | 22 |
| | 8 |
| | 1,726 |
| | — |
| | 1,726 |
|
| Deposit service charges and fees | 10,424 |
| | 16,694 |
| | 639 |
| | 8 |
| | 27,765 |
| | — |
| | 27,765 |
|
| Mortgage production revenue | — |
| | 7,250 |
| | — |
| | — |
| | 7,250 |
| | 7,250 |
| | — |
|
| Mortgage servicing revenue | — |
| | 16,748 |
| | — |
| | (462 | ) | | 16,286 |
| | 16,286 |
| | — |
|
| Mortgage banking revenue | — |
| | 23,998 |
| | — |
| | (462 | ) | | 23,536 |
| | 23,536 |
| | — |
|
| Other revenue | 5,460 |
| | 2,323 |
| | 5,568 |
| | (451 | ) | | 12,900 |
| | 8,799 |
| | 4,101 |
|
| Total fees and commissions revenue | $ | 39,391 |
| | $ | 44,038 |
| | $ | 83,562 |
| | $ | (794 | ) | | $ | 166,197 |
| | $ | 47,089 |
| | $ | 119,108 |
|
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.
| |
| 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.
|
Fees and commissions revenue by reportable segment and primary service line is as follows for the ninesix months ended SeptemberJune 30, 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | Consumer | | Wealth Management | | Funds Management & Other3 | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — | | | $ | — | | | $ | 34,799 | | | $ | — | | | $ | 34,799 | | | $ | 34,799 | | | $ | — | |
| Customer hedging revenue | 3,960 | | | — | | | 7,634 | | | 428 | | | 12,022 | | | 12,022 | | | — | |
| Retail brokerage revenue | — | | | — | | | 7,988 | | | (65) | | | 7,923 | | | — | | | 7,923 | |
| Insurance brokerage revenue | — | | | — | | | 3,688 | | | 4,242 | | | 7,930 | | | — | | | 7,930 | |
| Investment banking revenue | 3,937 | | | — | | | 5,533 | | | (1) | | | 9,469 | | | 3,427 | | | 6,042 | |
| Brokerage and trading revenue | 7,897 | | | — | | | 59,642 | | | 4,604 | | | 72,143 | | | 50,248 | | | 21,895 | |
| TransFund EFT network revenue | 36,158 | | | 1,955 | | | (37) | | | 1 | | | 38,077 | | | — | | | 38,077 | |
| Merchant services revenue | 4,148 | | | 29 | | | — | | | 122 | | | 4,299 | | | — | | | 4,299 | |
| Corporate card revenue | 270 | | | — | | | 5 | | | 2 | | | 277 | | | — | | | 277 | |
| Transaction card revenue | 40,576 | | | 1,984 | | | (32) | | | 125 | | | 42,653 | | | — | | | 42,653 | |
| Personal trust revenue | — | | | — | | | 40,789 | | | 1 | | | 40,790 | | | — | | | 40,790 | |
| Corporate trust revenue | — | | | — | | | 12,532 | | | (1) | | | 12,531 | | | — | | | 12,531 | |
| Institutional trust & retirement plan services revenue | — | | | — | | | 22,179 | | | — | | | 22,179 | | | — | | | 22,179 | |
| Investment management services and other revenue | — | | | — | | | 11,250 | | | 1,633 | | | 12,883 | | | — | | | 12,883 | |
| Fiduciary and asset management revenue | — | | | — | | | 86,750 | | | 1,633 | | | 88,383 | | | — | | | 88,383 | |
| Commercial account service charge revenue | 20,687 | | | 816 | | | 1,065 | | | 1,807 | | | 24,375 | | | — | | | 24,375 | |
| Overdraft fee revenue | 167 | | | 17,368 | | | 63 | | | (234) | | | 17,364 | | | — | | | 17,364 | |
| Check card revenue | — | | | 10,578 | | | — | | | 165 | | | 10,743 | | | — | | | 10,743 | |
| Automated service charge and other deposit fee revenue | 372 | | | 3,243 | | | 175 | | | 45 | | | 3,835 | | | — | | | 3,835 | |
| Deposit service charges and fees | 21,226 | | | 32,005 | | | 1,303 | | | 1,783 | | | 56,317 | | | — | | | 56,317 | |
| Mortgage production revenue | — | | | 19,739 | | | — | | | (2) | | | 19,737 | | | 19,737 | | | — | |
| Mortgage servicing revenue | — | | | 33,186 | | | — | | | (958) | | | 32,228 | | | 32,228 | | | — | |
| Mortgage banking revenue | — | | | 52,925 | | | — | | | (960) | | | 51,965 | | | 51,965 | | | — | |
| Other revenue | 9,452 | | | 4,737 | | | 11,518 | | | (508) | | | 25,199 | | | 16,843 | | | 8,356 | |
| Total fees and commissions revenue | $ | 79,151 | | | $ | 91,651 | | | $ | 159,181 | | | $ | 6,677 | | | $ | 336,660 | | | $ | 119,056 | | | $ | 217,604 | |
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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Consumer | | Wealth Management | | Funds Management & Other | | Consolidated | | Out of Scope1 | | In Scope2 |
| Trading revenue | $ | — |
| | $ | — |
| | $ | 21,562 |
| | $ | — |
| | $ | 21,562 |
| | $ | 21,562 |
| | $ | — |
|
| Customer hedging revenue | 6,264 |
| | — |
| | 21,511 |
| | 1,441 |
| | 29,216 |
| | 29,216 |
| | — |
|
| Retail brokerage revenue | — |
| | — |
| | 13,751 |
| | (246 | ) | | 13,505 |
| | — |
| | 13,505 |
|
| Insurance brokerage revenue | — |
| | — |
| | 555 |
| | — |
| | 555 |
| | — |
| | 555 |
|
| Investment banking revenue | 5,729 |
| | — |
| | 9,655 |
| | — |
| | 15,384 |
| | 4,772 |
| | 10,612 |
|
| Brokerage and trading revenue | 11,993 |
| | — |
| | 67,034 |
| | 1,195 |
| | 80,222 |
| | 55,550 |
| | 24,672 |
|
| TransFund EFT network revenue | 54,647 |
| | 3,005 |
| | (61 | ) | | 5 |
| | 57,596 |
| | — |
| | 57,596 |
|
| Merchant services revenue | 5,720 |
| | 45 |
| | — |
| | — |
| | 5,765 |
| | — |
| | 5,765 |
|
| Corporate card revenue | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transaction card revenue | 60,367 |
| | 3,050 |
| | (61 | ) | | 5 |
| | 63,361 |
| | — |
| | 63,361 |
|
| Personal trust revenue | — |
| | — |
| | 76,481 |
| | (2 | ) | | 76,479 |
| | — |
| | 76,479 |
|
| Corporate trust revenue | — |
| | — |
| | 16,317 |
| | — |
| | 16,317 |
| | — |
| | 16,317 |
|
| Institutional trust & retirement plan services revenue | — |
| | — |
| | 33,584 |
| | 3 |
| | 33,587 |
| | — |
| | 33,587 |
|
| Investment management services and other revenue | — |
| | — |
| | 14,808 |
| | (153 | ) | | 14,655 |
| | — |
| | 14,655 |
|
| Fiduciary and asset management revenue | — |
| | — |
| | 141,190 |
| | (152 | ) | | 141,038 |
| | — |
| | 141,038 |
|
| Commercial account service charge revenue | 32,150 |
| | 1,087 |
| | 1,802 |
| | (3 | ) | | 35,036 |
| | — |
| | 35,036 |
|
| Overdraft fee revenue | 283 |
| | 26,665 |
| | 96 |
| | 13 |
| | 27,057 |
| | — |
| | 27,057 |
|
| Check card revenue | — |
| | 15,515 |
| | — |
| | — |
| | 15,515 |
| | — |
| | 15,515 |
|
| Automated service charge and other deposit fee revenue | 110 |
| | 4,953 |
| | 72 |
| | 17 |
| | 5,152 |
| | — |
| | 5,152 |
|
| Deposit service charges and fees | 32,543 |
| | 48,220 |
| | 1,970 |
| | 27 |
| | 82,760 |
| | — |
| | 82,760 |
|
| Mortgage production revenue | — |
| | 26,617 |
| | — |
| | — |
| | 26,617 |
| | 26,617 |
| | — |
|
| Mortgage servicing revenue | — |
| | 50,677 |
| | — |
| | (1,387 | ) | | 49,290 |
| | 49,290 |
| | — |
|
| Mortgage banking revenue | — |
| | 77,294 |
| | — |
| | (1,387 | ) | | 75,907 |
| | 75,907 |
| | — |
|
| Other revenue | 17,379 |
| | 6,770 |
| | 18,725 |
| | (3,093 | ) | | 39,781 |
| | 27,552 |
| | 12,229 |
|
| Total fees and commissions revenue | $ | 122,282 |
| | $ | 135,334 |
| | $ | 228,858 |
| | $ | (3,405 | ) | | $ | 483,069 |
| | $ | 159,009 |
| | $ | 324,060 |
|
| |
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)(11) Fair Value Measurements
Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market for the given asset or liability at the measurement date based on market conditions at that date. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale. Certain assets and liabilities are recorded in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.
For some assets and liabilities, observable market transactions and market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. A hierarchy for fair value has been established which categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels are as follows:
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) - Fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities.
Significant Other Observable Inputs (Level 2) - Fair value is based on significant other observable inputs which are generally determined based on a single price for each financial instrument provided to us by an applicable third-party pricing service and is based on one or more of the following:
•Quoted prices for similar, but not identical, assets or liabilities in active markets;
•Quoted prices for identical or similar assets or liabilities in inactive markets;
•Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates;
•Other inputs derived from or corroborated by observable market inputs.
Significant Unobservable Inputs (Level 3) - Fair value is based upon model-based valuation techniques for which at least one significant assumption is not observable in the market.
Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out of quoted prices in active markets for identical instruments to significant other observable inputs or significant unobservable inputs during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 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 SeptemberJune 30, 20192020 or December 31, 2018.2019.
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 SeptemberJune 30, 20192020 (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 | | $ | 4,237 | | | $ | — | | | $ | 4,237 | | | $ | — | |
| Residential agency mortgage-backed securities | | 1,146,454 | | | — | | | 1,146,454 | | | — | |
| Municipal and other tax-exempt securities | | 22,710 | | | — | | | 22,710 | | | — | |
| Asset-backed securities | | 5 | | | — | | | 5 | | | — | |
| Other trading securities | | 22,699 | | | — | | | 22,699 | | | — | |
| Total trading securities | | 1,196,105 | | | — | | | 1,196,105 | | | — | |
| Available for sale securities: | | | | | | | | |
| U.S. Treasury | | 912 | | | 912 | | | — | | | — | |
| Municipal and other tax-exempt securities | | 31,240 | | | — | | | 31,240 | | | — | |
| Residential agency mortgage-backed securities | | 9,147,238 | | | — | | | 9,147,238 | | | — | |
| Residential non-agency mortgage-backed securities | | 35,250 | | | — | | | 35,250 | | | — | |
| Commercial agency mortgage-backed securities | | 3,260,807 | | | — | | | 3,260,807 | | | — | |
| Other debt securities | | 472 | | | — | | | — | | | 472 | |
| Total available for sale securities | | 12,475,919 | | | 912 | | | 12,474,535 | | | 472 | |
| Fair value option securities: | | | | | | | | |
| U.S. Treasury | | 92,742 | | | 92,742 | | | — | | | — | |
| Residential agency mortgage-backed securities | | 629,915 | | | — | | | 629,915 | | | — | |
| Total fair value option securities | | 722,657 | | | 92,742 | | | 629,915 | | | — | |
| Residential mortgage loans held for sale | | 319,357 | | | — | | | 309,672 | | | 9,685 | |
Mortgage servicing rights1 | | 97,971 | | | — | | | — | | | 97,971 | |
Derivative contracts, net of cash collateral2 | | 651,553 | | | 66,207 | | | 585,346 | | | — | |
| Liabilities: | | | | | | | | |
Derivative contracts, net of cash collateral2 | | 610,020 | | | — | | | 610,020 | | | — | |
1A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 5, Mortgage Banking Activities.
2See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions that were valued based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded energy and interest rate derivative contacts, net of cash margin. Derivative contacts in liability positions that were valued using quoted prices in active markets for identical instruments are exchange-traded interest rate and agricultural derivative contracts, fully offset by cash margin.
|
| | | | | | | | | | | | | | | | |
| | | 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 | | $ | 63,334 |
| | $ | — |
| | $ | 63,334 |
| | $ | — |
|
| Residential agency mortgage-backed securities | | 1,480,458 |
| | — |
| | 1,480,458 |
| | — |
|
| Municipal and other tax-exempt securities | | 44,105 |
| | — |
| | 44,105 |
| | — |
|
| Asset-backed securities | | 36,928 |
| | — |
| | 36,928 |
| | — |
|
| Other trading securities | | 50,387 |
| | — |
| | 50,387 |
| | — |
|
| Total trading securities | | 1,675,212 |
| | — |
| | 1,675,212 |
| | — |
|
| Available for sale securities: | | |
| | |
| | |
| | |
|
| U.S. Treasury | | 2,296 |
| | 2,296 |
| | — |
| | — |
|
| Municipal and other tax-exempt securities | | 1,848 |
| | — |
| | 1,848 |
| | — |
|
| Residential agency mortgage-backed securities | | 7,740,461 |
| | — |
| | 7,740,461 |
| | — |
|
| Residential non-agency mortgage-backed securities | | 44,803 |
| | — |
| | 44,803 |
| | — |
|
| Commercial agency mortgage-backed securities | | 3,234,671 |
| | — |
| | 3,234,671 |
| | — |
|
| Other debt securities | | 472 |
| | — |
| | — |
| | 472 |
|
| Total available for sale securities | | 11,024,551 |
| | 2,296 |
| | 11,021,783 |
| | 472 |
|
| Fair value option securities: | | | | | | | | |
| U.S. Treasury | | 552,536 |
| | 552,536 |
| | — |
| | — |
|
| Residential agency mortgage-backed securities | | 1,263,862 |
| | — |
| | 1,263,862 |
| | — |
|
| Total fair value option securities | | 1,816,398 |
| | 552,536 |
| | 1,263,862 |
| | — |
|
| Residential mortgage loans held for sale | | 282,487 |
| | — |
| | 268,919 |
| | 13,568 |
|
Mortgage servicing rights1 | | 193,661 |
| | — |
| | — |
| | 193,661 |
|
Derivative contracts, net of cash collateral2 | | 352,019 |
| | 40,491 |
| | 311,528 |
| | — |
|
| Liabilities: | | |
| | | | | | |
Derivative contracts, net of cash collateral2 | | 336,791 |
| | — |
| | 336,791 |
| | — |
|
| |
| A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities. |
| |
2
| See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions that were valued based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded energy, interest rate and agricultural derivative contacts, net of cash margin. Derivative contacts in liability positions that were valued using quoted prices in active markets for identical instruments are exchange-traded interest rate derivative contracts, fully offset by cash margin. |
The fair value of financial assets and liabilities measured on a recurring basis was as follows as of December 31, 20182019 (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 | | $ | 44,264 | | | $ | — | | | $ | 44,264 | | | $ | — | |
| Residential agency mortgage-backed securities | | 1,504,651 | | | — | | | 1,504,651 | | | — | |
| Municipal and other tax-exempt securities | | 26,196 | | | — | | | 26,196 | | | — | |
| Asset-backed securities | | 14,084 | | | — | | | 14,084 | | | — | |
| Other trading securities | | 34,726 | | | — | | | 34,726 | | | — | |
| Total trading securities | | 1,623,921 | | | — | | | 1,623,921 | | | — | |
| Available for sale securities: | | | | | | | | |
| U.S. Treasury | | 1,600 | | | 1,600 | | | — | | | — | |
| Municipal and other tax-exempt securities | | 1,861 | | | — | | | 1,861 | | | — | |
| Residential agency mortgage-backed securities | | 8,046,096 | | | — | | | 8,046,096 | | | — | |
| Residential non-agency mortgage-backed securities | | 41,609 | | | — | | | 41,609 | | | — | |
| Commercial agency mortgage-backed securities | | 3,178,005 | | | — | | | 3,178,005 | | | — | |
| Other debt securities | | 472 | | | — | | | — | | | 472 | |
| Total available for sale securities | | 11,269,643 | | | 1,600 | | | 11,267,571 | | | 472 | |
| Fair value option securities: | | | | | | | | |
| U.S. Treasury | | 9,917 | | | 9,917 | | | — | | | — | |
| Residential agency mortgage-backed securities | | 1,088,660 | | | — | | | 1,088,660 | | | — | |
| Total fair value option securities | | 1,098,577 | | | 9,917 | | | 1,088,660 | | | — | |
| Residential mortgage loans held for sale | | 182,271 | | | — | | | 173,958 | | | 8,313 | |
Mortgage servicing rights1 | | 201,886 | | | — | | | — | | | 201,886 | |
Derivative contracts, net of cash collateral2 | | 323,375 | | | 8,944 | | | 314,431 | | | — | |
| Liabilities: | | | | | | | | |
Derivative contracts, net of cash collateral2 | | 251,128 | | | — | | | 251,128 | | | — | |
1A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 5, Mortgage Banking Activities.
2See 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 and energy derivative contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and agricultural contracts, fully offset by cash margin.
|
| | | | | | | | | | | | | | | | |
| | | 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 | | $ | 63,765 |
| | $ | — |
| | $ | 63,765 |
| | $ | — |
|
| Residential agency mortgage-backed securities | | 1,791,584 |
| | — |
| | 1,791,584 |
| | — |
|
| Municipal and other tax-exempt securities | | 34,507 |
| | — |
| | 34,507 |
| | — |
|
| Asset-backed securities | | 42,656 |
| | — |
| | 42,656 |
| | — |
|
| Other trading securities | | 24,411 |
| | — |
| | 24,411 |
| | — |
|
| Total trading securities | | 1,956,923 |
| | — |
| | 1,956,923 |
| | — |
|
| Available for sale securities: | | |
| | |
| | |
| | |
|
| U.S. Treasury | | 493 |
| | 493 |
| | — |
| | — |
|
| Municipal and other tax-exempt securities | | 2,864 |
| | — |
| | 2,864 |
| | — |
|
| 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 | | 35,430 |
| | — |
| | 34,958 |
| | 472 |
|
| Total available for sale securities | | 8,857,120 |
| | 493 |
| | 8,856,155 |
| | 472 |
|
| Fair value option securities – Residential agency mortgage-backed securities | | 283,235 |
| | — |
| | 283,235 |
| | — |
|
| Residential mortgage loans held for sale | | 149,221 |
| | — |
| | 134,014 |
| | 15,207 |
|
Mortgage servicing rights1 | | 259,254 |
| | — |
| | — |
| | 259,254 |
|
Derivative contracts, net of cash collateral2 | | 320,929 |
| | 44,074 |
| | 276,855 |
| | — |
|
| Liabilities: | |
|
| | | | | | |
Derivative contracts, net of cash collateral2 | | 362,306 |
| | — |
| | 362,306 |
| | — |
|
| |
| 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, 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 contracts, fully offset by 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 Company has elected to carry all residential mortgage-backed securities guaranteed by U.S. government agencies held as economic hedges against changes in the fair value of mortgage servicing rights at fair value with changes in the fair value recognized in earnings.
The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on references to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar securities. A summary of significant inputs used to value these securities follows. A management committee composed of senior members from the Company's Capital Markets, Risk Management and Finance departments assesses the appropriateness of these inputs quarterly.
Derivatives
All derivative instruments are carried on the balance sheet at fair value. Fair values for exchange-traded contracts are based on quoted prices. Fair values for over-the-counter interest rate, commodity and foreign exchange contracts are based on valuations provided either by third-party dealers in the contracts, quotes provided by independent pricing services, or a third-party provided pricing model that uses significant other observable market inputs.
Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments based on various risk factors including but not limited to current fair value, probability of default and loss given default.
We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities would increase.
Residential Mortgage Loans Held for Sale
Residential mortgage loans held for sale are carried on the balance sheet at fair value. The Company has elected to carry all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and forward sales contracts. The fair value of mortgage loans that were unable to be sold to U.S. government agencies were determined using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied.
The following represents the changes for the three and ninesix months ended SeptemberJune 30, 2020 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | Available for sale - Other debt securities | | Residential mortgage loans held for sale |
| Balance, Mar. 31, 2020 | | | | $ | 472 | | | $ | 9,574 | |
Transfer to Level 3 from Level 21 | | | | — | | | 1,328 | |
| Purchases | | | | — | | | — | |
| Proceeds from sales | | | | — | | | (648) | |
| Redemptions and distributions | | | | — | | | — | |
| Gain (loss) recognized in earnings: | | | | | | |
| Mortgage banking revenue | | | | — | | | (569) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other comprehensive income (loss): | | | | | | |
| Net change in unrealized gain (loss) | | | | — | | | — | |
| Balance, June 30, 2020 | | | | $ | 472 | | | $ | 9,685 | |
1Recurring 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 - Other debt securities | | Residential mortgage loans held for sale |
| Balance, December 31, 2019 | | | | $ | 472 | | | $ | 8,313 | |
Transfer to Level 3 from Level 21 | | | | — | | | 3,592 | |
| Purchases | | | | — | | | — | |
| Proceeds from sales | | | | — | | | (1,588) | |
| Redemptions and distributions | | | | — | | | — | |
| Gain (loss) recognized in earnings: | | | | | | |
| Mortgage banking revenue | | | | — | | | (632) | |
| | | | | | |
| | | | | | |
| Other comprehensive income (loss): | | | | | | |
| Net change in unrealized gain (loss) | | | | — | | | — | |
| Balance, June 30, 2020 | | | | $ | 472 | | | $ | 9,685 | |
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, 2019 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | Available for sale - Other debt securities | | Residential mortgage loans held for sale |
| Balance, Mar. 31, 2019 | | | | $ | 472 | | | $ | 15,776 | |
Transfer to Level 3 from Level 21 | | | | — | | | 907 | |
| Purchases | | | | — | | | — | |
| Proceeds from sales | | | | — | | | (998) | |
| Redemptions and distributions | | | | — | | | — | |
| Gain (loss) recognized in earnings: | | | | | | |
| Mortgage banking revenue | | | | — | | | 388 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other comprehensive income (loss): | | | | | | |
| Net change in unrealized gain (loss) | | | | — | | | — | |
| Balance, June 30, 2019 | | | | $ | 472 | | | $ | 16,073 | |
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 - Other debt securities | | Residential mortgage loans held for sale |
| Balance, June 30, 2019 | | $ | 472 |
| | $ | 16,073 |
|
Transfer to Level 3 from Level 21 | | — |
| | 261 |
|
| Purchases | | — |
| | — |
|
| Proceeds from sales | | — |
| | (3,152 | ) |
| Redemptions and distributions | | — |
| | — |
|
| Gain (loss) recognized in earnings: | | | | |
| Mortgage banking revenue | | — |
| | 386 |
|
| Other comprehensive income (loss): | | | | |
| Net change in unrealized gain (loss) | | — |
| | — |
|
| Balance, September 30, 2019 | | $ | 472 |
| | $ | 13,568 |
|
| |
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 - Other debt securities | | Residential mortgage loans held for sale |
| Balance, December 31, 2018 | | $ | 472 |
| | $ | 15,207 |
|
Transfer to Level 3 from Level 21 | | — |
| | 2,150 |
|
| Purchases | | — |
| | — |
|
| Proceeds from sales | | — |
| | (4,531 | ) |
| Redemptions and distributions | | — |
| | — |
|
| Gain (loss) recognized in earnings: | | | | |
| Mortgage banking revenue | | — |
| | 742 |
|
| Other comprehensive income (loss): | | | | |
| Net change in unrealized gain (loss) | | — |
| | — |
|
| Balance, September 30, 2019 | | $ | 472 |
| | $ | 13,568 |
|
| |
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 - Other debt securities | | Residential mortgage loans held for sale |
| Balance, Dec. 31, 2018 | | | | $ | 472 | | | $ | 15,207 | |
Transfer to Level 3 from Level 21 | | | | — | | | 1,889 | |
| Purchases | | | | — | | | — | |
| Proceeds from sales | | | | — | | | (1,379) | |
| Redemptions and distributions | | | | — | | | — | |
| Gain (loss) recognized in earnings | | | | | | |
| Mortgage banking revenue | | | | — | | | 356 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other comprehensive income (loss): | | | | | | |
| Net change in unrealized gain (loss) | | | | — | | | — | |
| Balance, June 30, 2019 | | | | $ | 472 | | | $ | 16,073 | |
The following represents the changes for the three and nine months ended September 30, 2018 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
|
| | | | | | | | | | | | |
| | | Available for Sale Securities | | |
| | | Municipal and other tax-exempt securities | | Other debt securities | | Residential mortgage loans held for sale |
| Balance, June 30, 2018 | | $ | 2,030 |
| | $ | 471 |
| | $ | 14,243 |
|
Transfer to Level 3 from Level 21 | | — |
| | — |
| | 2,862 |
|
| Purchases | | — |
| | — |
| | — |
|
| Proceeds from sales | | — |
| | — |
| | (143 | ) |
| Redemptions and distributions | | (2,050 | ) | | — |
| | — |
|
| Gain (loss) recognized in earnings: | | | | | | |
| Mortgage banking revenue | | — |
| | — |
| | (124 | ) |
| Other comprehensive income (loss): | | | | | | |
| Net change in unrealized gain (loss) | | 20 |
| | 1 |
| | — |
|
| Balance, September 30, 2018 | | $ | — |
| | $ | 472 |
| | $ | 16,838 |
|
| |
1
| Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.
|
|
| | | | | | | | | | | | |
| | | Available for Sale Securities | | |
| | | Municipal and other tax-exempt | | Other debt securities | | Residential mortgage loans held for sale |
| Balance, December 31, 2017 | | $ | 4,802 |
| | $ | 472 |
| | $ | 12,299 |
|
Transfer to Level 3 from Level 21 | | — |
| | — |
| | 5,603 |
|
| Purchases | | — |
| | — |
| | — |
|
| Proceeds from sales | | — |
| | — |
| | (853 | ) |
| Redemptions and distributions | | (5,095 | ) | | — |
| | — |
|
| Gain (loss) recognized in earnings | | | | | | |
| Mortgage banking revenue | | — |
| | — |
| | (211 | ) |
| Other comprehensive income (loss): | | | | | | |
| Net change in unrealized gain (loss) | | 293 |
| | — |
| | — |
|
| Balance, September 30, 2018 | | $ | — |
| | $ | 472 |
| | $ | 16,838 |
|
| |
| 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 SeptemberJune 30, 20192020 follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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 | | 5.23%-5.23% (5.23%) | 3 |
| | | | | | | | | | | | 94.30%-94.30% (94.30%) | 2 |
| Residential mortgage loans held for sale | | | | | | 9,685 | | | 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. | | 90.24% | |
|
| | | | | | | | | | |
| | | 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 | | 7.46%-7.46% (7.46%) | 3 |
| 94.42%-94.42% (94.42%) | 2 |
| Residential mortgage loans held for sale | | 13,568 |
| | 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. | | 96.36% | |
| |
12Represents fair value as a percentage of par value. 3Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding approximately 1 percent.
| 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
| Represents fair value as a percentage of par value. |
| |
3
| Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding approximately 3 percent. |
A summary of quantitative information about assets measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3) as of December 31, 20182019 follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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 | | 7.08%-7.08% (7.08%) | 3 |
| | | | | | | | | | | | 94.40%-94.40% (94.40%) | 2 |
| Residential mortgage loans held for sale | | | | | | 8,313 | | | 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. | | 95.23% | |
1Discounted 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
2Represents fair value as a percentage of par value.
3Interest 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 | | 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% | |
| |
| 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
| Represents fair value as a percentage of par value. |
| |
3
| 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 impairednonaccruing 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 SeptemberJune 30, 20192020 for which the fair value was adjusted during the ninesix months ended SeptemberJune 30, 2019:2020:
| | | | | | | | | | | | | | | | | | Fair Value Adjustments for the | |
| | | | | | | | Fair Value Adjustments for the | | Carrying Value at June 30, 2020 | | | Three Months Ended
June 30, 2020 Recognized in: | | | Six Months Ended
June 30, 2020 Recognized in: | |
| | Carrying Value at September 30, 2019 | | Three Months Ended
Sept. 30, 2019
Recognized in: | | Nine Months Ended
Sept. 30, 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 operating expenses of repossessed assets | | Gross charge-offs against allowance for loan losses | | Net losses (gains) and operating expenses of repossessed assets |
| | 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 (gains) and operating expenses of repossessed assets | | Gross charge-offs against allowance for loan losses | | Net losses (gains) and operating expenses of repossessed assets | |
| Impaired loans | $ | — |
| | $ | 79 |
| | $ | 9,810 |
| | $ | 2,644 |
| | $ | — |
| | $ | 13,868 |
| | $ | — |
| |
| Nonaccruing loans | | Nonaccruing loans | $ | — | | | $ | 400 | | | $ | 32,448 | | | $ | 13,871 | | | $ | — | | | $ | 29,659 | | | $ | — | |
| Real estate and other repossessed assets | — |
| | 5,044 |
| | 936 |
| | — |
| | (979 | ) | | — |
| | (532 | ) | Real estate and other repossessed assets | — | | | 918 | | | 400 | | | — | | | 5 | | | — | | | 131 | |
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 SeptemberJune 30, 20182019 for which the fair value was adjusted during the ninesix months ended SeptemberJune 30, 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Fair Value Adjustments for the | | | | | | |
| | Carrying Value at June 30, 2019 | | | | | | Three Months Ended
June 30, 2019 Recognized in: | | | | Six Months Ended
June 30, 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 operating expenses of repossessed assets | | Gross charge-offs against allowance for loan losses | | Net losses and operating expenses of repossessed assets |
| Nonaccruing loans | $ | — | | | $ | — | | | $ | 29,187 | | | $ | 11,335 | | | $ | — | | | $ | 20,917 | | | $ | — | |
| Real estate and other repossessed assets | — | | | 2,642 | | | 427 | | | — | | | 86 | | | — | | | 512 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Fair Value Adjustments for the |
| | Carrying Value at September 30, 2018 | | Three Months Ended
Sept. 30, 2018
Recognized in: | | Nine Months Ended
Sept. 30, 2018
Recognized in: |
| | Quoted Prices in Active Markets for Identical Instruments | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Gross charge-offs against allowance for loan losses | | Net losses and operating expenses of repossessed assets | | Gross charge-offs against allowance for loan losses | | Net losses and operating expenses of repossessed assets |
| Impaired loans | $ | — |
| | $ | 1,065 |
| | $ | 24,428 |
| | $ | 9,086 |
| | $ | — |
| | $ | 16,279 |
| | $ | — |
|
| Real estate and other repossessed assets | — |
| | 4,608 |
| | 6,545 |
| | — |
| | 2,161 |
| | — |
| | 7,388 |
|
The fair value of collateral-dependent impairednonaccruing 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 impairednonaccruing 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 SeptemberJune 30, 20192020 follows (in thousands):
|
| | | | | | | | | | |
| | | Fair Value | | Valuation Technique(s) | | Unobservable Input | | Range (Weighted Average) |
| Impaired loans | | $ | 9,810 |
| | 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 | | 8% - 76% (28%)1 |
| Real estate and other repossessed assets | | 936 |
| | Appraised value, as adjusted | | Marketability adjustments off appraised value2 | | 75% - 89% (85%) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Valuation Technique(s) | | Unobservable Input | | Range
(Weighted Average) |
| Nonaccruing loans | | $ | 32,448 | | | 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 | | 0% - 83% (35%)1 |
| Real estate and other repossessed assets | | 400 | Represents fair | | Appraised value, as a percentage of the unpaid principal balance.adjusted |
| |
2
| Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.off appraised value2 | | 87% - 87% (87%) |
1 Represents fair value as a percentage of the unpaid principal balance.
2 Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.
A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of SeptemberJune 30, 20182019 follows (in thousands):
|
| | | | | | | | | | |
| | | Fair Value | | Valuation Technique(s) | | Unobservable Input | | Range (Weighted Average) |
| Impaired loans | | $ | 24,428 |
| | 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 | | 41% - 84% (55%)1 |
| Real estate and other repossessed assets | | 6,545 |
| | 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) |
| Nonaccruing loans | | $ | 29,187 | | | 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 | | 12% - 76% (47%)1 |
Represents fairReal estate and other repossessed assets | | 427 | | | Appraised value, as a percentage of the unpaid principal balance.adjusted
| | Marketability adjustments off appraised value2 | | 75% - 89% (88%) |
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 SeptemberJune 30, 20192020 (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 | | $ | 762,453 | | | $ | 762,453 | | | $ | 762,453 | | | $ | — | | | $ | — | |
| Interest-bearing cash and cash equivalents | | 485,319 | | | 485,319 | | | 485,319 | | | — | | | — | |
| Trading securities: | | | | | | | | | | |
| U.S. government agency debentures | | 4,237 | | | 4,237 | | | — | | | 4,237 | | | — | |
| Residential agency mortgage-backed securities | | 1,146,454 | | | 1,146,454 | | | — | | | 1,146,454 | | | — | |
| Municipal and other tax-exempt securities | | 22,710 | | | 22,710 | | | — | | | 22,710 | | | — | |
| Asset-backed securities | | 5 | | | 5 | | | — | | | 5 | | | — | |
| Other trading securities | | 22,699 | | | 22,699 | | | — | | | 22,699 | | | — | |
| Total trading securities | | 1,196,105 | | | 1,196,105 | | | — | | | 1,196,105 | | | — | |
| Investment securities: | | | | | | | | | | |
| Municipal and other tax-exempt securities | | 84,239 | | | 88,623 | | | — | | | 88,623 | | | — | |
| Residential agency mortgage-backed securities | | 9,812 | | | 10,734 | | | — | | | 10,734 | | | — | |
| Other debt securities | | 175,565 | | | 199,769 | | | — | | | 8,048 | | | 191,721 | |
| Total investment securities | | 269,616 | | | 299,126 | | | — | | | 107,405 | | | 191,721 | |
| Allowance for credit losses | | (1,628) | | | — | | | — | | | — | | | — | |
| Investment securities, net of allowance | | 267,988 | | | 299,126 | | | — | | | 107,405 | | | 191,721 | |
| Available for sale securities: | | | | | | | | | | |
| U.S. Treasury | | 912 | | | 912 | | | 912 | | | — | | | — | |
| Municipal and other tax-exempt securities | | 31,240 | | | 31,240 | | | — | | | 31,240 | | | — | |
| Residential agency mortgage-backed securities | | 9,147,238 | | | 9,147,238 | | | — | | | 9,147,238 | | | — | |
| Residential non-agency mortgage-backed securities | | 35,250 | | | 35,250 | | | — | | | 35,250 | | | — | |
| Commercial agency mortgage-backed securities | | 3,260,807 | | | 3,260,807 | | | — | | | 3,260,807 | | | — | |
| Other debt securities | | 472 | | | 472 | | | — | | | — | | | 472 | |
| Total available for sale securities | | 12,475,919 | | | 12,475,919 | | | 912 | | | 12,474,535 | | | 472 | |
| Fair value option securities: | | | | | | | | | | |
| U.S. Treasury | | 92,742 | | | 92,742 | | | 92,742 | | | — | | | — | |
| Residential agency mortgage-backed securities | | 629,915 | | | 629,915 | | | — | | | 629,915 | | | — | |
| Total fair value option securities | | 722,657 | | | 722,657 | | | 92,742 | | | 629,915 | | | — | |
| Residential mortgage loans held for sale | | 319,357 | | | 319,357 | | | — | | | 309,672 | | | 9,685 | |
| Loans: | | | | | | | | | | |
| Commercial | | 14,158,510 | | | 14,038,257 | | | — | | | — | | | 14,038,257 | |
| Commercial real estate | | 4,554,144 | | | 4,558,274 | | | — | | | — | | | 4,558,274 | |
| Paycheck protection program | | 2,081,428 | | | 2,062,278 | | | — | | | — | | | 2,062,278 | |
| Loans to individuals | | 3,361,808 | | | 3,393,293 | | | — | | | — | | | 3,393,293 | |
| Total loans | | 24,155,890 | | | 24,052,102 | | | — | | | — | | | 24,052,102 | |
| Allowance for loan losses | | (435,597) | | | — | | | — | | | — | | | — | |
| Loans, net of allowance | | 23,720,293 | | | 24,052,102 | | | — | | | — | | | 24,052,102 | |
| Mortgage servicing rights | | 97,971 | | | 97,971 | | | — | | | — | | | 97,971 | |
| Derivative instruments with positive fair value, net of cash collateral | | 651,553 | | | 651,553 | | | 66,207 | | | 585,346 | | | — | |
| Deposits with no stated maturity | | 31,539,554 | | | 31,539,554 | | | — | | | — | | | 31,539,554 | |
| Time deposits | | 2,352,760 | | | 2,367,446 | | | — | | | — | | | 2,367,446 | |
| Other borrowed funds | | 4,531,165 | | | 4,527,814 | | | — | | | — | | | 4,527,814 | |
| Subordinated debentures | | 275,973 | | | 273,293 | | | — | | | 273,293 | | | — | |
| Derivative instruments with negative fair value, net of cash collateral | | 610,020 | | | 610,020 | | | — | | | 610,020 | | | — | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | 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 | | $ | 761,130 |
| | $ | 761,130 |
| | $ | 761,130 |
| | $ | — |
| | $ | — |
|
| Interest-bearing cash and cash equivalents | | 465,458 |
| | 465,458 |
| | 465,458 |
| | — |
| | — |
|
| Trading securities: | | | | | | | | | | |
| U.S. government agency debentures | | 63,334 |
| | 63,334 |
| | — |
| | 63,334 |
| | — |
|
| Residential agency mortgage-backed securities | | 1,480,458 |
| | 1,480,458 |
| | — |
| | 1,480,458 |
| | — |
|
| Municipal and other tax-exempt securities | | 44,105 |
| | 44,105 |
| | — |
| | 44,105 |
| | — |
|
| Asset-backed securities | | 36,928 |
| | 36,928 |
| | — |
| | 36,928 |
| | — |
|
| Other trading securities | | 50,387 |
| | 50,387 |
| | — |
| | 50,387 |
| | — |
|
| Total trading securities | | 1,675,212 |
| | 1,675,212 |
| | — |
| | 1,675,212 |
| | — |
|
| Investment securities: | | |
| | |
| | | | | | |
| Municipal and other tax-exempt securities | | 104,418 |
| | 107,647 |
| | — |
| | 107,647 |
| | — |
|
| Residential agency mortgage-backed securities | | 11,125 |
| | 11,650 |
| | — |
| | 11,650 |
| | — |
|
| Other debt securities | | 188,681 |
| | 204,724 |
| | — |
| | 7,702 |
| | 197,022 |
|
| Total investment securities | | 304,224 |
| | 324,021 |
| | — |
| | 126,999 |
| | 197,022 |
|
| Available for sale securities: | | |
| | |
| | | | | | |
| U.S. Treasury | | 2,296 |
| | 2,296 |
| | 2,296 |
| | — |
| | — |
|
| Municipal and other tax-exempt securities | | 1,848 |
| | 1,848 |
| | — |
| | 1,848 |
| | — |
|
| Residential agency mortgage-backed securities | | 7,740,461 |
| | 7,740,461 |
| | — |
| | 7,740,461 |
| | — |
|
| Residential non-agency mortgage-backed securities | | 44,803 |
| | 44,803 |
| | — |
| | 44,803 |
| | — |
|
| Commercial agency mortgage-backed securities | | 3,234,671 |
| | 3,234,671 |
| | — |
| | 3,234,671 |
| | — |
|
| Other debt securities | | 472 |
| | 472 |
| | — |
| | — |
| | 472 |
|
| Total available for sale securities | | 11,024,551 |
| | 11,024,551 |
| | 2,296 |
| | 11,021,783 |
| | 472 |
|
| Fair value option securities: | | | | | | | | | | |
| U.S. Treasury | | 552,536 |
| | 552,536 |
| | 552,536 |
| | — |
| | — |
|
| Residential agency mortgage-backed securities | | 1,263,862 |
| | 1,263,862 |
| | — |
| | 1,263,862 |
| | — |
|
| Total fair value option securities | | 1,816,398 |
| | 1,816,398 |
| | 552,536 |
| | 1,263,862 |
| | — |
|
| Residential mortgage loans held for sale | | 282,487 |
| | 282,487 |
| | — |
| | 268,919 |
| | 13,568 |
|
| Loans: | | |
| | |
| | | | — |
| | |
| Commercial | | 14,424,625 |
| | 14,397,846 |
| | — |
| | — |
| | 14,397,846 |
|
| Commercial real estate | | 4,626,057 |
| | 4,626,804 |
| | — |
| | — |
| | 4,626,804 |
|
| Residential mortgage | | 2,117,303 |
| | 2,132,158 |
| | — |
| | — |
| | 2,132,158 |
|
| Personal | | 1,117,382 |
| | 1,108,984 |
| | — |
| | — |
| | 1,108,984 |
|
| Total loans | | 22,285,367 |
| | 22,265,792 |
| | — |
| | — |
| | 22,265,792 |
|
| Allowance for loan losses | | (204,432 | ) | | — |
| | — |
| | — |
| | — |
|
| Loans, net of allowance | | 22,080,935 |
| | 22,265,792 |
| | — |
| | — |
| | 22,265,792 |
|
| Mortgage servicing rights | | 193,661 |
| | 193,661 |
| | — |
| | — |
| | 193,661 |
|
| Derivative instruments with positive fair value, net of cash collateral | | 352,019 |
| | 352,019 |
| | 40,491 |
| | 311,528 |
| | — |
|
| Deposits with no stated maturity | | 23,923,535 |
| | 23,923,535 |
| | — |
| | — |
| | 23,923,535 |
|
| Time deposits | | 2,243,541 |
| | 2,241,778 |
| | — |
| | — |
| | 2,241,778 |
|
| Other borrowed funds | | 10,235,385 |
| | 10,193,602 |
| | — |
| | — |
| | 10,193,602 |
|
| Subordinated debentures | | 275,909 |
| | 276,393 |
| | — |
| | 276,393 |
| | — |
|
| Derivative instruments with negative fair value, net of cash collateral | | 336,791 |
| | 336,791 |
| | — |
| | 336,791 |
| | — |
|
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, 20182019 (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 | | $ | 735,836 | | | $ | 735,836 | | | $ | 735,836 | | | $ | — | | | $ | — | |
| Interest-bearing cash and cash equivalents | | 522,985 | | | 522,985 | | | 522,985 | | | — | | | — | |
| Trading securities: | | | | | | | | | | |
| U.S. government agency debentures | | 44,264 | | | 44,264 | | | — | | | 44,264 | | | — | |
| Residential agency mortgage-backed securities | | 1,504,651 | | | 1,504,651 | | | — | | | 1,504,651 | | | — | |
| Municipal and other tax-exempt securities | | 26,196 | | | 26,196 | | | — | | | 26,196 | | | — | |
| Asset-backed securities | | 14,084 | | | 14,084 | | | — | | | 14,084 | | | — | |
| Other trading securities | | 34,726 | | | 34,726 | | | — | | | 34,726 | | | — | |
| Total trading securities | | 1,623,921 | | | 1,623,921 | | | — | | | 1,623,921 | | | — | |
| Investment securities: | | | | | | | | | | |
| Municipal and other tax-exempt securities | | 93,653 | | | 96,897 | | | — | | | 96,897 | | | — | |
| Residential agency mortgage-backed securities | | 10,676 | | | 11,164 | | | — | | | 11,164 | | | — | |
| Other debt securities | | 189,089 | | | 206,341 | | | — | | | 8,206 | | | 198,135 | |
| Total investment securities | | 293,418 | | | 314,402 | | | — | | | 116,267 | | | 198,135 | |
| Available for sale securities: | | | | | | | | | | |
| U.S. Treasury | | 1,600 | | | 1,600 | | | 1,600 | | | — | | | — | |
| Municipal and other tax-exempt securities | | 1,861 | | | 1,861 | | | — | | | 1,861 | | | — | |
| Residential agency mortgage-backed securities | | 8,046,096 | | | 8,046,096 | | | — | | | 8,046,096 | | | — | |
| Residential non-agency mortgage-backed securities | | 41,609 | | | 41,609 | | | — | | | 41,609 | | | — | |
| Commercial agency mortgage-backed securities | | 3,178,005 | | | 3,178,005 | | | — | | | 3,178,005 | | | — | |
| Other debt securities | | 472 | | | 472 | | | — | | | — | | | 472 | |
| Total available for sale securities | | 11,269,643 | | | 11,269,643 | | | 1,600 | | | 11,267,571 | | | 472 | |
| Fair value option securities: | | | | | | | | | | |
| U.S. Treasury | | 9,917 | | | 9,917 | | | 9,917 | | | — | | | — | |
| Residential agency mortgage-backed securities | | 1,088,660 | | | 1,088,660 | | | — | | | 1,088,660 | | | — | |
| Total fair value option securities | | 1,098,577 | | | 1,098,577 | | | 9,917 | | | 1,088,660 | | | — | |
| Residential mortgage loans held for sale | | 182,271 | | | 182,271 | | | — | | | 173,958 | | | 8,313 | |
| Loans: | | | | | | | | | | |
| Commercial | | 14,031,650 | | | 13,966,221 | | | — | | | — | | | 13,966,221 | |
| Commercial real estate | | 4,433,783 | | | 4,422,717 | | | — | | | — | | | 4,422,717 | |
| Residential mortgage | | 2,084,172 | | | 2,098,093 | | | — | | | — | | | 2,098,093 | |
| Personal | | 1,201,382 | | | 1,202,298 | | | — | | | — | | | 1,202,298 | |
| Total loans | | 21,750,987 | | | 21,689,329 | | | — | | | — | | | 21,689,329 | |
| Allowance for loan losses | | (210,759) | | | — | | | — | | | — | | | — | |
| Loans, net of allowance | | 21,540,228 | | | 21,689,329 | | | — | | | — | | | 21,689,329 | |
| Mortgage servicing rights | | 201,886 | | | 201,886 | | | — | | | — | | | 201,886 | |
| Derivative instruments with positive fair value, net of cash collateral | | 323,375 | | | 323,375 | | | 8,944 | | | 314,431 | | | — | |
| Deposits with no stated maturity | | 25,403,319 | | | 25,403,319 | | | — | | | — | | | 25,403,319 | |
| Time deposits | | 2,217,849 | | | 2,212,467 | | | — | | | — | | | 2,212,467 | |
| Other borrowed funds | | 8,345,405 | | | 8,315,860 | | | — | | | — | | | 8,315,860 | |
| Subordinated debentures | | 275,923 | | | 284,627 | | | — | | | 284,627 | | | — | |
| Derivative instruments with negative fair value, net of cash collateral | | 251,128 | | | 251,128 | | | — | | | 251,128 | | | — | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | 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 |
| | — |
|
| Residential agency 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 |
| | — |
|
| Residential agency 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 – Residential agency 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 |
| | — |
|
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.
(12) Subsequent Events
(13) Subsequent Events
The Company evaluated events from the date of the consolidated financial statements on SeptemberJune 30, 20192020 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.
Nine-Month Financial Summary – Unaudited Consolidated Daily Average Balances, Average Yields and Rates |
| | | | | | | | | | | | | | | | | | | | | | |
| (In Thousands, Except Per Share Data) | | Nine Months Ended |
| | | September 30, 2019 | | September 30, 2018 |
| | | Average Balance | | Revenue/ Expense | | Yield/ Rate | | Average Balance | | Revenue/ Expense | | Yield/ Rate |
| Assets | | | | | | | | | | | | |
| Interest-bearing cash and cash equivalents | | $ | 524,603 |
| | $ | 9,879 |
| | 2.52 | % | | $ | 1,468,904 |
| | $ | 19,163 |
| | 1.74 | % |
| Trading securities | | 1,806,438 |
| | 48,945 |
| | 3.66 | % | | 1,395,871 |
| | 38,312 |
| | 3.72 | % |
| Investment securities | | 326,489 |
| | 10,917 |
| | 4.46 | % | | 406,395 |
| | 11,961 |
| | 3.93 | % |
| Available for sale securities | | 9,695,550 |
| | 184,409 |
| | 2.60 | % | | 8,176,037 |
| | 142,387 |
| | 2.30 | % |
| Fair value option securities | | 1,019,182 |
| | 23,448 |
| | 3.10 | % | | 527,039 |
| | 12,627 |
| | 3.11 | % |
| Restricted equity securities | | 428,973 |
| | 20,419 |
| | 6.35 | % | | 342,297 |
| | 15,757 |
| | 6.14 | % |
| Residential mortgage loans held for sale | | 180,367 |
| | 5,308 |
| | 3.93 | % | | 208,519 |
| | 6,328 |
| | 4.09 | % |
| Loans | | 22,063,499 |
| | 867,722 |
| | 5.26 | % | | 17,742,288 |
| | 622,185 |
| | 4.69 | % |
| Allowance for loan losses | | (204,430 | ) | | | | | | (221,949 | ) | | | | |
| Loans, net of allowance | | 21,859,069 |
| | 867,722 |
| | 5.31 | % | | 17,520,339 |
| | 622,185 |
| | 4.75 | % |
| Total earning assets | | 35,840,671 |
| | 1,171,047 |
| | 4.40 | % | | 30,045,401 |
| | 868,720 |
| | 3.85 | % |
| Receivable on unsettled securities sales | | 1,470,217 |
| | | | | | 794,434 |
| | | | |
| Cash and other assets | | 4,069,361 |
| | | | | | 2,935,660 |
| | | | |
| Total assets | | $ | 41,380,249 |
| | | | | | $ | 33,775,495 |
| | | | |
| Liabilities and equity | | |
| | |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits: | | |
| | |
| | |
| | |
| | |
| | |
|
| Transaction | | $ | 12,529,517 |
| | $ | 95,957 |
| | 1.02 | % | | $ | 10,180,060 |
| | $ | 42,516 |
| | 0.56 | % |
| Savings | | 552,535 |
| | 523 |
| | 0.13 | % | | 495,954 |
| | 291 |
| | 0.08 | % |
| Time | | 2,204,517 |
| | 31,037 |
| | 1.88 | % | | 2,128,925 |
| | 20,910 |
| | 1.31 | % |
| Total interest-bearing deposits | | 15,286,569 |
| | 127,517 |
| | 1.12 | % | | 12,804,939 |
| | 63,717 |
| | 0.67 | % |
| Funds purchased and repurchase agreements | | 2,405,981 |
| | 36,791 |
| | 2.04 | % | | 775,504 |
| | 5,072 |
| | 0.87 | % |
| Other borrowings | | 7,450,707 |
| | 143,804 |
| | 2.58 | % | | 6,194,418 |
| | 88,788 |
| | 1.92 | % |
| Subordinated debentures | | 276,129 |
| | 11,359 |
| | 5.50 | % | | 144,692 |
| | 6,076 |
| | 5.61 | % |
| Total interest-bearing liabilities | | 25,419,386 |
| | 319,471 |
| | 1.68 | % | | 19,919,553 |
| | 163,653 |
| | 1.10 | % |
| Non-interest bearing demand deposits | | 9,876,418 |
| | | | | | 9,233,837 |
| | | | |
| Due on unsettled securities purchases | | 674,909 |
| | | | | | 543,601 |
| | | | |
| Other liabilities | | 789,256 |
| | | | | | 542,790 |
| | | | |
| Total equity | | 4,620,280 |
| | | | | | 3,535,714 |
| | | | |
| Total liabilities and equity | | $ | 41,380,249 |
| | | | | | $ | 33,775,495 |
| | | | |
| Tax-equivalent Net Interest Revenue | | | | $ | 851,576 |
| | 2.72 | % | | | | $ | 705,067 |
| | 2.75 | % |
| Tax-equivalent Net Interest Revenue to Earning Assets | | | | 3.20 | % | | | | | | 3.13 | % |
| Less tax-equivalent adjustment | | | | 8,946 |
| | | | | | 5,886 |
| | |
| Net Interest Revenue | | | | 842,630 |
| | | | | | 699,181 |
| | |
| Provision for credit losses | | | | 25,000 |
| | | | | | (1,000 | ) | | |
| Other operating revenue | | | | 515,785 |
| | | | | | 480,329 |
| | |
| Other operating expense | | | | 843,586 |
| | | | | | 743,523 |
| | |
| Income before taxes | | | | 489,829 |
| | | | | | 436,987 |
| | |
| Federal and state income taxes | | | | 99,926 |
| | | | | | 98,940 |
| | |
| Net income | | | | 389,903 |
| | | | | | 338,047 |
| | |
| Net income (loss) attributable to non-controlling interests | | | | (503 | ) | | | | | | 857 |
| | |
| Net income attributable to BOK Financial Corp. shareholders | | | | $ | 390,406 |
| | | | | | $ | 337,190 |
| | |
| Earnings Per Average Common Share Equivalent: | | |
| | |
| | |
| | |
| | |
| | |
|
| Net income: | | |
| | |
| | |
| | |
| | |
| | |
|
| Basic | | |
| | $ | 5.47 |
| | |
| | |
| | $ | 5.15 |
| | |
|
| Diluted | | |
| | $ | 5.47 |
| | |
| | |
| | $ | 5.15 |
| | |
|
Consolidated Daily Average Balances, Average Yields and Rates
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In Thousands, Except Per Share Data) | | Six Months Ended | | | | | | | | | | |
| | | June 30, 2020 | | | | | | June 30, 2019 | | | | |
| | Average
Balance | | Revenue/
Expense | | Yield/
Rate | | Average
Balance | | Revenue/
Expense | | Yield/
Rate |
| Assets | | | | | | | | | | | | |
| Interest-bearing cash and cash equivalents | | $ | 670,698 | | | $ | 2,505 | | | 0.75 | % | | $ | 536,690 | | | $ | 6,829 | | | 2.57 | % |
| Trading securities | | 1,780,875 | | | 23,328 | | | 2.66 | % | | 1,862,284 | | | 34,399 | | | 3.74 | % |
| Investment securities | | 275,606 | | | 6,548 | | | 4.75 | % | | 335,841 | | | 7,483 | | | 4.46 | % |
| Available for sale securities | | 12,072,293 | | | 138,086 | | | 2.39 | % | | 9,160,887 | | | 116,769 | | | 2.60 | % |
| Fair value option securities | | 1,290,119 | | | 15,818 | | | 2.46 | % | | 747,401 | | | 12,740 | | | 3.45 | % |
| Restricted equity securities | | 351,527 | | | 7,774 | | | 4.42 | % | | 404,673 | | | 12,861 | | | 6.36 | % |
| Residential mortgage loans held for sale | | 209,149 | | | 3,263 | | | 3.23 | % | | 168,702 | | | 3,417 | | | 4.05 | % |
| Loans | | 23,021,258 | | | 463,344 | | | 4.05 | % | | 21,885,894 | | | 578,406 | | | 5.33 | % |
| Allowance for loan losses | | (308,961) | | | | | | | (205,811) | | | | | |
| Loans, net of allowance | | 22,712,297 | | | 463,344 | | | 4.10 | % | | 21,680,083 | | | 578,406 | | | 5.38 | % |
| Total earning assets | | 39,362,564 | | | 660,666 | | | 3.42 | % | | 34,896,561 | | | 772,904 | | | 4.48 | % |
| Receivable on unsettled securities sales | | 3,836,209 | | | | | | | 1,331,669 | | | | | |
| Cash and other assets | | 4,540,052 | | | | | | | 4,033,737 | | | | | |
| Total assets | | $ | 47,738,825 | | | | | | | $ | 40,261,967 | | | | | |
| Liabilities and equity | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | |
| Transaction | | $ | 17,099,912 | | | $ | 45,178 | | | 0.53 | % | | $ | 12,223,515 | | | $ | 60,244 | | | 0.99 | % |
| Savings | | 610,245 | | | 210 | | | 0.07 | % | | 550,204 | | | 333 | | | 0.12 | % |
| Time | | 2,352,014 | | | 18,516 | | | 1.58 | % | | 2,180,483 | | | 20,023 | | | 1.85 | % |
| Total interest-bearing deposits | | 20,062,171 | | | 63,904 | | | 0.64 | % | | 14,954,202 | | | 80,600 | | | 1.09 | % |
| Funds purchased and repurchase agreements | | 4,816,213 | | | 12,880 | | | 0.54 | % | | 2,050,087 | | | 21,060 | | | 2.07 | % |
| Other borrowings | | 5,034,813 | | | 31,901 | | | 1.27 | % | | 7,107,961 | | | 94,154 | | | 2.67 | % |
| Subordinated debentures | | 275,940 | | | 7,172 | | | 5.23 | % | | 276,245 | | | 7,546 | | | 5.51 | % |
| Total interest-bearing liabilities | | 30,189,137 | | | 115,857 | | | 0.77 | % | | 24,388,495 | | | 203,360 | | | 1.68 | % |
| Non-interest bearing demand deposits | | 10,361,090 | | | | | | | 9,935,739 | | | | | |
| Due on unsettled securities purchases | | 924,377 | | | | | | | 638,829 | | | | | |
| Other liabilities | | 1,274,430 | | | | | | | 759,808 | | | | | |
| Total equity | | 4,989,791 | | | | | | | 4,539,096 | | | | | |
| Total liabilities and equity | | $ | 47,738,825 | | | | | | | $ | 40,261,967 | | | | | |
| Tax-equivalent Net Interest Revenue | | | | $ | 544,809 | | | 2.65 | % | | | | $ | 569,544 | | | 2.80 | % |
| Tax-equivalent Net Interest Revenue to Earning Assets | | | | | | 2.82 | % | | | | | | 3.30 | % |
| Less tax-equivalent adjustment | | | | 5,345 | | | | | | | 6,010 | | | |
| Net Interest Revenue | | | | 539,464 | | | | | | | 563,534 | | | |
| Provision for credit losses | | | | 229,092 | | | | | | | 13,000 | | | |
| Other operating revenue | | | | 413,012 | | | | | | | 329,335 | | | |
| Other operating expense | | | | 564,011 | | | | | | | 564,294 | | | |
| Income before taxes | | | | 159,373 | | | | | | | 315,575 | | | |
| Federal and state income taxes | | | | 33,103 | | | | | | | 67,530 | | | |
| Net income | | | | 126,270 | | | | | | | 248,045 | | | |
| Net income (loss) attributable to non-controlling interests | | | | (502) | | | | | | | (130) | | | |
| Net income attributable to BOK Financial Corp. shareholders | | | | $ | 126,772 | | | | | | | $ | 248,175 | | | |
| Earnings Per Average Common Share Equivalent: | | | | | | | | | | | | |
| Net income: | | | | | | | | | | | | |
| Basic | | | | $ | 1.80 | | | | | | | $ | 3.47 | | | |
| Diluted | | | | $ | 1.80 | | | | | | | $ | 3.46 | | | |
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, 2020 | | | | | | March 31, 2020 | | | | |
| | Average
Balance | | Revenue/
Expense | | Yield/
Rate | | Average
Balance | | Revenue/
Expense | | Yield/
Rate |
| Assets | | | | | | | | | | | | |
| Interest-bearing cash and cash equivalents | | $ | 619,737 | | | $ | 112 | | | 0.07 | % | | $ | 721,659 | | | $ | 2,393 | | | 1.33 | % |
| Trading securities | | 1,871,647 | | | 11,473 | | | 2.46 | % | | 1,690,104 | | | 11,855 | | | 2.89 | % |
| Investment securities, net of allowance | | 268,947 | | | 3,210 | | | 4.77 | % | | 282,265 | | | 3,338 | | | 4.73 | % |
| Available for sale securities | | 12,480,065 | | | 68,358 | | | 2.29 | % | | 11,664,521 | | | 69,728 | | | 2.48 | % |
| Fair value option securities | | 786,757 | | | 4,110 | | | 2.00 | % | | 1,793,480 | | | 11,708 | | | 2.67 | % |
| Restricted equity securities | | 273,922 | | | 1,880 | | | 2.75 | % | | 429,133 | | | 5,894 | | | 5.49 | % |
| Residential mortgage loans held for sale | | 288,588 | | | 2,140 | | | 3.10 | % | | 129,708 | | | 1,123 | | | 3.50 | % |
| Loans | | 24,099,492 | | | 217,731 | | | 3.63 | % | | 21,943,023 | | | 245,613 | | | 4.50 | % |
| Allowance for loan losses | | (367,583) | | | | | | | (250,338) | | | | | |
| Loans, net of allowance | | 23,731,909 | | | 217,731 | | | 3.69 | % | | 21,692,685 | | | 245,613 | | | 4.55 | % |
| Total earning assets | | 40,321,572 | | | 309,014 | | | 3.12 | % | | 38,403,555 | | | 351,652 | | | 3.73 | % |
| Receivable on unsettled securities sales | | 4,626,307 | | | | | | | 3,046,111 | | | | | |
| Cash and other assets | | 4,809,152 | | | | | | | 4,270,952 | | | | | |
| Total assets | | $ | 49,757,031 | | | | | | | $ | 45,720,618 | | | | | |
| Liabilities and equity | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | |
| Transaction | | $ | 18,040,170 | | | $ | 9,321 | | | 0.21 | % | | $ | 16,159,654 | | | $ | 35,857 | | | 0.89 | % |
| Savings | | 656,669 | | | 84 | | | 0.05 | % | | 563,821 | | | 126 | | | 0.09 | % |
| Time | | 2,464,793 | | | 8,340 | | | 1.36 | % | | 2,239,234 | | | 10,176 | | | 1.83 | % |
| Total interest-bearing deposits | | 21,161,632 | | | 17,745 | | | 0.34 | % | | 18,962,709 | | | 46,159 | | | 0.98 | % |
| Funds purchased and repurchase agreements | | 5,816,484 | | | 2,042 | | | 0.14 | % | | 3,815,941 | | | 10,838 | | | 1.14 | % |
| Other borrowings | | 3,527,303 | | | 4,954 | | | 0.56 | % | | 6,542,325 | | | 26,947 | | | 1.66 | % |
| Subordinated debentures | | 275,949 | | | 3,539 | | | 5.16 | % | | 275,932 | | | 3,633 | | | 5.30 | % |
| Total interest-bearing liabilities | | 30,781,368 | | | 28,280 | | | 0.37 | % | | 29,596,907 | | | 87,577 | | | 1.19 | % |
| Non-interest bearing demand deposits | | 11,489,322 | | | | | | | 9,232,859 | | | | | |
| Due on unsettled securities purchases | | 887,973 | | | | | | | 960,780 | | | | | |
| Other liabilities | | 1,526,754 | | | | | | | 1,022,106 | | | | | |
| Total equity | | 5,071,614 | | | | | | | 4,907,966 | | | | | |
| Total liabilities and equity | | $ | 49,757,031 | | | | | | | $ | 45,720,618 | | | | | |
| Tax-equivalent Net Interest Revenue | | | | $ | 280,734 | | | 2.75 | % | | | | $ | 264,075 | | | 2.54 | % |
| Tax-equivalent Net Interest Revenue to Earning Assets | | | | | | 2.83 | % | | | | | | 2.80 | % |
| Less tax-equivalent adjustment | | | | 2,630 | | | | | | | 2,715 | | | |
| Net Interest Revenue | | | | 278,104 | | | | | | | 261,360 | | | |
| Provision for credit losses | | | | 135,321 | | | | | | | 93,771 | | | |
| Other operating revenue | | | | 232,693 | | | | | | | 180,319 | | | |
| Other operating expense | | | | 295,387 | | | | | | | 268,624 | | | |
| Income before taxes | | | | 80,089 | | | | | | | 79,284 | | | |
| Federal and state income taxes | | | | 15,803 | | | | | | | 17,300 | | | |
| Net income | | | | 64,286 | | | | | | | 61,984 | | | |
| Net income (loss) attributable to non-controlling interests | | | | (407) | | | | | | | (95) | | | |
| Net income attributable to BOK Financial Corp. shareholders | | | | $ | 64,693 | | | | | | | $ | 62,079 | | | |
| Earnings Per Average Common Share Equivalent: | | | | | | | | | | | | |
| Basic | | | | $ | 0.92 | | | | | | | $ | 0.88 | | | |
| Diluted | | | | $ | 0.92 | | | | | | | $ | 0.88 | | | |
Quarterly Financial Summary – Unaudited Consolidated Daily Average Balances, Average Yields and Rates |
| | | | | | | | | | | | | | | | | | | | | | |
| (In Thousands, Except Per Share Data) | | Three Months Ended |
| | | September 30, 2019 | | June 30, 2019 |
| | | Average Balance | | Revenue/ Expense | | Yield/ Rate | | Average Balance | | Revenue/ Expense | | Yield/ Rate |
| Assets | | | | | | | | | | | | |
| Interest-bearing cash and cash equivalents | | $ | 500,823 |
| | $ | 3,050 |
| | 2.42 | % | | $ | 535,491 |
| | $ | 3,432 |
| | 2.57 | % |
| Trading securities | | 1,696,568 |
| | 14,546 |
| | 3.49 | % | | 1,757,335 |
| | 15,609 |
| | 3.59 | % |
| Investment securities | | 308,090 |
| | 3,434 |
| | 4.46 | % | | 328,482 |
| | 3,621 |
| | 4.41 | % |
| Available for sale securities | | 10,747,439 |
| | 67,640 |
| | 2.60 | % | | 9,435,668 |
| | 59,888 |
| | 2.63 | % |
| Fair value option securities | | 1,553,879 |
| | 10,708 |
| | 2.79 | % | | 898,772 |
| | 7,503 |
| | 3.34 | % |
| Restricted equity securities | | 476,781 |
| | 7,558 |
| | 6.34 | % | | 413,812 |
| | 6,516 |
| | 6.30 | % |
| Residential mortgage loans held for sale | | 203,319 |
| | 1,891 |
| | 3.73 | % | | 192,102 |
| | 1,754 |
| | 3.65 | % |
| Loans | | 22,412,918 |
| | 289,316 |
| | 5.12 | % | | 22,004,405 |
| | 295,978 |
| | 5.39 | % |
| Allowance for loan losses | | (201,714 | ) | | | | | | (205,532 | ) | | | | |
| Loans, net of allowance | | 22,211,204 |
| | 289,316 |
| | 5.17 | % | | 21,798,873 |
| | 295,978 |
| | 5.45 | % |
| Total earning assets | | 37,698,103 |
| | 398,143 |
| | 4.25 | % | | 35,360,535 |
| | 394,301 |
| | 4.51 | % |
| Receivable on unsettled securities sales | | 1,742,794 |
| | | | | | 1,437,462 |
| | | | |
| Cash and other assets | | 4,139,451 |
| | | | | | 4,046,780 |
| | | | |
| Total assets | | $ | 43,580,348 |
| | | | | | $ | 40,844,777 |
| | | | |
| Liabilities and equity | | |
| | |
| | |
| | |
| | |
| | |
|
| Interest-bearing deposits: | | |
| | |
| | |
| | |
| | |
| | |
|
| Transaction | | $ | 13,131,542 |
| | $ | 35,713 |
| | 1.08 | % | | $ | 12,512,282 |
| | $ | 32,540 |
| | 1.04 | % |
| Savings | | 557,122 |
| | 190 |
| | 0.14 | % | | 558,738 |
| | 173 |
| | 0.12 | % |
| Time | | 2,251,800 |
| | 11,014 |
| | 1.94 | % | | 2,207,391 |
| | 10,470 |
| | 1.90 | % |
| Total interest-bearing deposits | | 15,940,464 |
| | 46,917 |
| | 1.17 | % | | 15,278,411 |
| | 43,183 |
| | 1.13 | % |
| Funds purchased and repurchase agreements | | 3,106,163 |
| | 15,731 |
| | 2.01 | % | | 2,066,950 |
| | 10,704 |
| | 2.08 | % |
| Other borrowings | | 8,125,023 |
| | 49,650 |
| | 2.42 | % | | 7,175,617 |
| | 47,700 |
| | 2.67 | % |
| Subordinated debentures | | 275,900 |
| | 3,813 |
| | 5.48 | % | | 275,887 |
| | 3,801 |
| | 5.53 | % |
| Total interest-bearing liabilities | | 27,447,550 |
| | 116,111 |
| | 1.68 | % | | 24,796,865 |
| | 105,388 |
| | 1.70 | % |
| Non-interest bearing demand deposits | | 9,759,710 |
| | | | | | 9,883,965 |
| | | | |
| Due on unsettled securities purchases | | 745,893 |
| | | | | | 821,688 |
| | | | |
| Other liabilities | | 847,195 |
| | | | | | 744,216 |
| | | | |
| Total equity | | 4,780,000 |
| | | | | | 4,598,043 |
| | | | |
| Total liabilities and equity | | $ | 43,580,348 |
| | | | | | $ | 40,844,777 |
| | | | |
| Tax-equivalent Net Interest Revenue | | | | $ | 282,032 |
| | 2.57 | % | | | | $ | 288,913 |
| | 2.81 | % |
| Tax-equivalent Net Interest Revenue to Earning Assets | | | | | | 3.01 | % | | | | | | 3.30 | % |
| Less tax-equivalent adjustment | | | | 2,936 |
| | | | | | 3,481 |
| | |
| Net Interest Revenue | | | | 279,096 |
| | | | | | 285,432 |
| | |
| Provision for credit losses | | | | 12,000 |
| | | | | | 5,000 |
| | |
| Other operating revenue | | | | 186,450 |
| | | | | | 172,065 |
| | |
| Other operating expense | | | | 279,292 |
| | | | | | 277,137 |
| | |
| Income before taxes | | | | 174,254 |
| | | | | | 175,360 |
| | |
| Federal and state income taxes | | | | 32,396 |
| | | | | | 37,580 |
| | |
| Net income | | | | 141,858 |
| | | | | | 137,780 |
| | |
| Net income (loss) attributable to non-controlling interests | | | | (373 | ) | | | | | | 217 |
| | |
| Net income attributable to BOK Financial Corp. shareholders | | | | $ | 142,231 |
| | | | | | $ | 137,563 |
| | |
| Earnings Per Average Common Share Equivalent: | | |
| | |
| | |
| | |
| | |
| | |
|
| Basic | | |
| | $ | 2.00 |
| | |
| | |
| | $ | 1.93 |
| | |
|
| Diluted | | |
| | $ | 2.00 |
| | |
| | |
| | $ | 1.93 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | September 30, 2019 | | | | | | June 30, 2019 | | | | |
| Average Balance | | Revenue /Expense | | Yield / Rate | | Average Balance | | Revenue / Expense | | Yield / Rate | | Average Balance | | Revenue / Expense | | Yield / Rate |
| | | | | | | | | | | | | | | | |
| $ | 573,203 | | | $ | 2,335 | | | 1.62 | % | | $ | 500,823 | | | $ | 3,050 | | | 2.42 | % | | $ | 535,491 | | | $ | 3,432 | | | 2.57 | % |
| 1,672,426 | | | 13,015 | | | 3.19 | % | | 1,696,568 | | | 14,546 | | | 3.49 | % | | 1,757,335 | | | 15,609 | | | 3.59 | % |
| 298,567 | | | 3,500 | | | 4.69 | % | | 308,090 | | | 3,434 | | | 4.46 | % | | 328,482 | | | 3,621 | | | 4.41 | % |
| 11,333,524 | | | 69,692 | | | 2.52 | % | | 10,747,439 | | | 67,640 | | | 2.60 | % | | 9,435,668 | | | 59,888 | | | 2.63 | % |
| 1,521,528 | | | 9,488 | | | 2.62 | % | | 1,553,879 | | | 10,708 | | | 2.79 | % | | 898,772 | | | 7,503 | | | 3.34 | % |
| 479,687 | | | 6,441 | | | 5.37 | % | | 476,781 | | | 7,558 | | | 6.34 | % | | 413,812 | | | 6,516 | | | 6.30 | % |
| 203,535 | | | 1,797 | | | 3.55 | % | | 203,319 | | | 1,891 | | | 3.73 | % | | 192,102 | | | 1,754 | | | 3.65 | % |
| 22,236,000 | | | 266,315 | | | 4.75 | % | | 22,412,918 | | | 289,316 | | | 5.12 | % | | 22,004,405 | | | 295,978 | | | 5.39 | % |
| (205,417) | | | | | | | (201,714) | | | | | | | (205,532) | | | | | |
| 22,030,583 | | | 266,315 | | | 4.80 | % | | 22,211,204 | | | 289,316 | | | 5.17 | % | | 21,798,873 | | | 295,978 | | | 5.45 | % |
| 38,113,053 | | | 372,583 | | | 3.93 | % | | 37,698,103 | | | 398,143 | | | 4.25 | % | | 35,360,535 | | | 394,301 | | | 4.51 | % |
| 1,973,604 | | | | | | | 1,742,794 | | | | | | | 1,437,462 | | | | | |
| 4,126,697 | | | | | | | 4,139,451 | | | | | | | 4,046,780 | | | | | |
| $ | 44,213,354 | | | | | | | $ | 43,580,348 | | | | | | | $ | 40,844,777 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| $ | 14,685,385 | | | $ | 36,897 | | | 1.00 | % | | $ | 13,131,542 | | | $ | 35,713 | | | 1.08 | % | | $ | 12,512,282 | | | $ | 32,540 | | | 1.04 | % |
| 554,605 | | | 154 | | | 0.11 | % | | 557,122 | | | 190 | | | 0.14 | % | | 558,738 | | | 173 | | | 0.12 | % |
| 2,247,717 | | | 10,970 | | | 1.94 | % | | 2,251,800 | | | 11,014 | | | 1.94 | % | | 2,207,391 | | | 10,470 | | | 1.90 | % |
| 17,487,707 | | | 48,021 | | | 1.09 | % | | 15,940,464 | | | 46,917 | | | 1.17 | % | | 15,278,411 | | | 43,183 | | | 1.13 | % |
| 4,120,610 | | | 16,212 | | | 1.56 | % | | 3,106,163 | | | 15,731 | | | 2.01 | % | | 2,066,950 | | | 10,704 | | | 2.08 | % |
| 6,247,194 | | | 31,621 | | | 2.01 | % | | 8,125,023 | | | 49,650 | | | 2.42 | % | | 7,175,617 | | | 47,700 | | | 2.67 | % |
| 275,916 | | | 3,754 | | | 5.40 | % | | 275,900 | | | 3,813 | | | 5.48 | % | | 275,887 | | | 3,801 | | | 5.53 | % |
| 28,131,427 | | | 99,608 | | | 1.40 | % | | 27,447,550 | | | 116,111 | | | 1.68 | % | | 24,796,865 | | | 105,388 | | | 1.70 | % |
| 9,612,533 | | | | | | | 9,759,710 | | | | | | | 9,883,965 | | | | | |
| 784,174 | | | | | | | 745,893 | | | | | | | 821,688 | | | | | |
| 837,732 | | | | | | | 847,195 | | | | | | | 744,216 | | | | | |
| 4,847,488 | | | | | | | 4,780,000 | | | | | | | 4,598,043 | | | | | |
| $ | 44,213,354 | | | | | | | $ | 43,580,348 | | | | | | | $ | 40,844,777 | | | | | |
| | $ | 272,975 | | | 2.53 | % | | | | $ | 282,032 | | | 2.57 | % | | | | $ | 288,913 | | | 2.81 | % |
| | | | 2.88 | % | | | | | | 3.01 | % | | | | | | 3.30 | % |
| | 2,726 | | | | | | | 2,936 | | | | | | | 3,481 | | | |
| | 270,249 | | | | | | | 279,096 | | | | | | | 285,432 | | | |
| | 19,000 | | | | | | | 12,000 | | | | | | | 5,000 | | | |
| | 178,585 | | | | | | | 186,450 | | | | | | | 172,065 | | | |
| | 288,795 | | | | | | | 279,292 | | | | | | | 277,137 | | | |
| | 141,039 | | | | | | | 174,254 | | | | | | | 175,360 | | | |
| | 30,257 | | | | | | | 32,396 | | | | | | | 37,580 | | | |
| | 110,782 | | | | | | | 141,858 | | | | | | | 137,780 | | | |
| | 430 | | | | | | | (373) | | | | | | | 217 | | | |
| | $ | 110,352 | | | | | | | $ | 142,231 | | | | | | | $ | 137,563 | | | |
| | | | | | | | | | | | | | | | |
| | | $ | 1.56 | | | | | | | $ | 2.00 | | | | | | | $ | 1.93 | | | |
| | | $ | 1.56 | | | | | | | $ | 2.00 | | | | | | | $ | 1.93 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
| Average Balance | | Revenue /Expense | | Yield / Rate | | Average Balance | | Revenue / Expense | | Yield / Rate | | Average Balance | | Revenue / Expense | | Yield / Rate |
| | | | | | | | | | | | | | | | | |
| $ | 537,903 |
| | $ | 3,397 |
| | 2.56 | % | | $ | 563,132 |
| | $ | 3,170 |
| | 2.23 | % | | $ | 688,872 |
| | $ | 3,441 |
| | 1.98 | % |
| 1,968,399 |
| | 18,790 |
| | 3.88 | % | | 1,929,601 |
| | 19,636 |
| | 4.10 | % | | 1,762,794 |
| | 17,419 |
| | 3.98 | % |
| 343,282 |
| | 3,862 |
| | 4.50 | % | | 364,737 |
| | 3,887 |
| | 4.26 | % | | 379,566 |
| | 3,856 |
| | 4.06 | % |
| 8,883,054 |
| | 56,881 |
| | 2.57 | % | | 8,704,963 |
| | 55,085 |
| | 2.51 | % | | 8,129,214 |
| | 48,916 |
| | 2.37 | % |
| 594,349 |
| | 5,237 |
| | 3.62 | % | | 277,575 |
| | 2,578 |
| | 3.56 | % | | 469,398 |
| | 3,881 |
| | 3.25 | % |
| 395,432 |
| | 6,345 |
| | 6.42 | % | | 362,729 |
| | 5,798 |
| | 6.39 | % | | 328,842 |
| | 5,232 |
| | 6.36 | % |
| 145,040 |
| | 1,663 |
| | 4.58 | % | | 179,553 |
| | 1,795 |
| | 4.00 | % | | 207,488 |
| | 2,151 |
| | 4.27 | % |
| 21,766,065 |
| | 282,428 |
| | 5.26 | % | | 21,579,331 |
| | 276,711 |
| | 5.09 | % | | 18,203,785 |
| | 220,245 |
| | 4.80 | % |
| (206,092 | ) | | | | | | (209,613 | ) | | | | | | (214,160 | ) | | | | |
| 21,559,973 |
| | 282,428 |
| | 5.31 | % | | 21,369,718 |
| | 276,711 |
| | 5.14 | % | | 17,989,625 |
| | 220,245 |
| | 4.86 | % |
| 34,427,432 |
| | 378,603 |
| | 4.46 | % | | 33,752,008 |
| | 368,660 |
| | 4.33 | % | | 29,955,799 |
| | 305,141 |
| | 4.04 | % |
| 1,224,700 |
| | | | | | 799,548 |
| | | | | | 768,785 |
| | | | |
| 4,020,549 |
| | | | | | 3,834,187 |
| | | | | | 2,971,233 |
| | | | |
| $ | 39,672,681 |
| | | | | | $ | 38,385,743 |
| | | | | | $ | 33,695,817 |
| | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| $ | 11,931,539 |
| | $ | 27,704 |
| | 0.94 | % | | $ | 11,773,651 |
| | $ | 23,343 |
| | 0.79 | % | | $ | 10,010,031 |
| | $ | 17,029 |
| | 0.67 | % |
| 541,575 |
| | 160 |
| | 0.12 | % | | 526,275 |
| | 148 |
| | 0.11 | % | | 503,821 |
| | 108 |
| | 0.09 | % |
| 2,153,277 |
| | 9,553 |
| | 1.80 | % | | 2,146,786 |
| | 8,309 |
| | 1.54 | % | | 2,097,441 |
| | 7,398 |
| | 1.40 | % |
| 14,626,391 |
| | 37,417 |
| | 1.04 | % | | 14,446,712 |
| | 31,800 |
| | 0.87 | % | | 12,611,293 |
| | 24,535 |
| | 0.77 | % |
| 2,033,036 |
| | 10,356 |
| | 2.07 | % | | 1,205,568 |
| | 4,135 |
| | 1.36 | % | | 1,193,583 |
| | 3,768 |
| | 1.25 | % |
| 7,040,279 |
| | 46,454 |
| | 2.68 | % | | 6,361,141 |
| | 40,220 |
| | 2.51 | % | | 5,765,440 |
| | 32,036 |
| | 2.20 | % |
| 275,882 |
| | 3,745 |
| | 5.51 | % | | 276,378 |
| | 3,752 |
| | 5.38 | % | | 144,702 |
| | 2,025 |
| | 5.55 | % |
| 23,975,588 |
| | 97,972 |
| | 1.66 | % | | 22,289,799 |
| | 79,907 |
| | 1.42 | % | | 19,715,018 |
| | 62,364 |
| | 1.25 | % |
| 9,988,088 |
| | | | | | 10,648,683 |
| | | | | | 9,325,002 |
| | | | |
| 453,937 |
| | | | | | 493,887 |
| | | | | | 544,263 |
| | | | |
| 775,574 |
| | | | | | 610,286 |
| | | | | | 496,634 |
| | | | |
| 4,479,494 |
| | | | | | 4,343,088 |
| | | | | | 3,614,900 |
| | | | |
| $ | 39,672,681 |
| | | | | | $ | 38,385,743 |
| | | | | | $ | 33,695,817 |
| | | | |
| | | $ | 280,631 |
| | 2.80 | % | | | | $ | 288,753 |
| | 2.91 | % | | | | $ | 242,777 |
| | 2.79 | % |
| | | | | 3.30 | % | | | | | | 3.40 | % | | | | | | 3.21 | % |
| | | 2,529 |
| | | | | | 3,067 |
| | | | | | 1,894 |
| | |
| | | 278,102 |
| | | | | | 285,686 |
| | | | | | 240,883 |
| | |
| | | 8,000 |
| | | | | | 9,000 |
| | | | | | 4,000 |
| | |
| | | 157,270 |
| | | | | | 136,455 |
| | | | | | 167,941 |
| | |
| | | 287,157 |
| | | | | | 284,643 |
| | | | | | 252,617 |
| | |
| | | 140,215 |
| | | | | | 128,498 |
| | | | | | 152,207 |
| | |
| | | 29,950 |
| | | | | | 20,121 |
| | | | | | 34,662 |
| | |
| | | 110,265 |
| | | | | | 108,377 |
| | | | | | 117,545 |
| | |
| | | (347 | ) | | | | | | (79 | ) | | | | | | 289 |
| | |
| | | $ | 110,612 |
| | | | | | $ | 108,456 |
| | | | | | $ | 117,256 |
| | |
| | | | | | | | | | | | | | | | | |
| |
| | $ | 1.54 |
| | |
| | |
| | $ | 1.50 |
| | |
| | |
| | $ | 1.79 |
| | |
|
| |
| | $ | 1.54 |
| | |
| | |
| | $ | 1.50 |
| | |
| | |
| | $ | 1.79 |
| | |
|
Quarterly Earnings Trends – Unaudited
(In thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | | | |
| | | June 30, 2020 | | Mar. 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 |
| | | | | | | | | | |
| Interest revenue | | $ | 306,384 | | | $ | 348,937 | | | $ | 369,857 | | | $ | 395,207 | | | $ | 390,820 | |
| Interest expense | | 28,280 | | | 87,577 | | | 99,608 | | | 116,111 | | | 105,388 | |
| Net interest revenue | | 278,104 | | | 261,360 | | | 270,249 | | | 279,096 | | | 285,432 | |
| Provision for credit losses | | 135,321 | | | 93,771 | | | 19,000 | | | 12,000 | | | 5,000 | |
| Net interest revenue after provision for credit losses | | 142,783 | | | 167,589 | | | 251,249 | | | 267,096 | | | 280,432 | |
| Other operating revenue | | | | | | | | | | |
| Brokerage and trading revenue | | 62,022 | | | 50,779 | | | 43,843 | | | 43,840 | | | 40,526 | |
| Transaction card revenue | | 22,940 | | | 21,881 | | | 22,548 | | | 22,015 | | | 21,915 | |
| Fiduciary and asset management revenue | | 41,257 | | | 44,458 | | | 45,021 | | | 43,621 | | | 45,025 | |
| Deposit service charges and fees | | 22,046 | | | 26,130 | | | 27,331 | | | 28,837 | | | 28,074 | |
| Mortgage banking revenue | | 53,936 | | | 37,167 | | | 25,396 | | | 30,180 | | | 28,131 | |
| Other revenue | | 11,479 | | | 12,309 | | | 15,283 | | | 17,626 | | | 12,437 | |
| Total fees and commissions | | 213,680 | | | 192,724 | | | 179,422 | | | 186,119 | | | 176,108 | |
| Other gains (losses), net | | 6,768 | | | (10,741) | | | (1,649) | | | 4,544 | | | 3,480 | |
| Gain (loss) on derivatives, net | | 21,885 | | | 18,420 | | | (4,644) | | | 3,778 | | | 11,150 | |
| Gain (loss) on fair value option securities, net | | (14,459) | | | 68,393 | | | (8,328) | | | 4,597 | | | 9,853 | |
| Change in fair value of mortgage servicing rights | | (761) | | | (88,480) | | | 9,297 | | | (12,593) | | | (29,555) | |
| Gain on available for sale securities, net | | 5,580 | | | 3 | | | 4,487 | | | 5 | | | 1,029 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total other operating revenue | | 232,693 | | | 180,319 | | | 178,585 | | | 186,450 | | | 172,065 | |
| Other operating expense | | | | | | | | | | |
| Personnel | | 176,235 | | | 156,181 | | | 168,422 | | | 162,573 | | | 160,342 | |
| Business promotion | | 1,935 | | | 6,215 | | | 8,787 | | | 8,859 | | | 10,142 | |
| Charitable contributions to BOKF Foundation | | 3,000 | | | — | | | 2,000 | | | — | | | 1,000 | |
| Professional fees and services | | 12,161 | | | 12,948 | | | 13,408 | | | 12,312 | | | 13,002 | |
| Net occupancy and equipment | | 30,675 | | | 26,061 | | | 26,316 | | | 27,558 | | | 26,880 | |
| Insurance | | 5,156 | | | 4,980 | | | 5,393 | | | 4,220 | | | 6,454 | |
| Data processing and communications | | 32,942 | | | 32,743 | | | 31,884 | | | 31,915 | | | 29,735 | |
| Printing, postage and supplies | | 3,502 | | | 4,272 | | | 3,700 | | | 3,825 | | | 4,107 | |
| Net losses and operating expenses of repossessed assets | | 1,766 | | | 1,531 | | | 2,403 | | | 1,728 | | | 580 | |
| Amortization of intangible assets | | 5,190 | | | 5,094 | | | 5,225 | | | 5,064 | | | 5,138 | |
| Mortgage banking costs | | 15,598 | | | 10,545 | | | 14,259 | | | 14,975 | | | 11,545 | |
| Other expense | | 7,227 | | | 8,054 | | | 6,998 | | | 6,263 | | | 8,212 | |
| Total other operating expense | | 295,387 | | | 268,624 | | | 288,795 | | | 279,292 | | | 277,137 | |
| Net income before taxes | | 80,089 | | | 79,284 | | | 141,039 | | | 174,254 | | | 175,360 | |
| Federal and state income taxes | | 15,803 | | | 17,300 | | | 30,257 | | | 32,396 | | | 37,580 | |
| Net income | | 64,286 | | | 61,984 | | | 110,782 | | | 141,858 | | | 137,780 | |
| Net income (loss) attributable to non-controlling interests | | (407) | | | (95) | | | 430 | | | (373) | | | 217 | |
| Net income attributable to BOK Financial Corporation shareholders | | $ | 64,693 | | | $ | 62,079 | | | $ | 110,352 | | | $ | 142,231 | | | $ | 137,563 | |
| | | | | | | | | | |
| Earnings per share: | | | | | | | | | | |
| Basic | | $0.92 | | $0.88 | | $1.56 | | $2.00 | | $1.93 |
| Diluted | | $0.92 | | $0.88 | | $1.56 | | $2.00 | | $1.93 |
| Average shares used in computation: | | | | | | | | | | |
| Basic | | 69,876,043 | | | 70,123,685 | | | 70,295,899 | | | 70,596,307 | | | 70,887,063 | |
| Diluted | | 69,877,467 | | | 70,130,166 | | | 70,309,644 | | | 70,609,924 | | | 70,902,033 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | Sept. 30, 2019 | | June 30, 2019 | | Mar. 31, 2019 | | Dec. 31, 2018 | | Sept. 30, 2018 |
| | | | | | | | | | | |
| Interest revenue | | $ | 395,207 |
| | $ | 390,820 |
| | $ | 376,074 |
| | $ | 365,592 |
| | $ | 303,247 |
|
| Interest expense | | 116,111 |
| | 105,388 |
| | 97,972 |
| | 79,906 |
| | 62,364 |
|
| Net interest revenue | | 279,096 |
| | 285,432 |
| | 278,102 |
| | 285,686 |
| | 240,883 |
|
| Provision for credit losses | | 12,000 |
| | 5,000 |
| | 8,000 |
| | 9,000 |
| | 4,000 |
|
| Net interest revenue after provision for credit losses | | 267,096 |
| | 280,432 |
| | 270,102 |
| | 276,686 |
| | 236,883 |
|
| Other operating revenue | | |
| | |
| | |
| | |
| | |
|
| Brokerage and trading revenue | | 43,840 |
| | 40,526 |
| | 31,617 |
| | 28,101 |
| | 23,086 |
|
| Transaction card revenue | | 22,015 |
| | 21,915 |
| | 20,738 |
| | 20,664 |
| | 21,396 |
|
| Fiduciary and asset management revenue | | 43,621 |
| | 45,025 |
| | 43,358 |
| | 43,665 |
| | 57,514 |
|
| Deposit service charges and fees | | 28,837 |
| | 28,074 |
| | 28,243 |
| | 29,393 |
| | 27,765 |
|
| Mortgage banking revenue | | 30,180 |
| | 28,131 |
| | 23,834 |
| | 21,880 |
| | 23,536 |
|
| Other revenue | | 17,626 |
| | 12,437 |
| | 12,762 |
| | 16,404 |
| | 12,900 |
|
| Total fees and commissions | | 186,119 |
| | 176,108 |
| | 160,552 |
| | 160,107 |
| | 166,197 |
|
| Other gains (losses), net | | 4,544 |
| | 3,480 |
| | 2,976 |
| | (8,305 | ) | | 2,754 |
|
| Gain (loss) on derivatives, net | | 3,778 |
| | 11,150 |
| | 4,667 |
| | 11,167 |
| | (2,847 | ) |
| Gain (loss) on fair value option securities, net | | 4,597 |
| | 9,853 |
| | 9,665 |
| | (282 | ) | | (4,385 | ) |
| Change in fair value of mortgage servicing rights | | (12,593 | ) | | (29,555 | ) | | (20,666 | ) | | (24,233 | ) | | 5,972 |
|
| Gain (loss) on available for sale securities, net | | 5 |
| | 1,029 |
| | 76 |
| | (1,999 | ) | | 250 |
|
| Total other operating revenue | | 186,450 |
| | 172,065 |
| | 157,270 |
| | 136,455 |
| | 167,941 |
|
| Other operating expense | | |
| | |
| | |
| | |
| | |
|
| Personnel | | 162,573 |
| | 160,342 |
| | 169,228 |
| | 160,706 |
| | 143,531 |
|
| Business promotion | | 8,859 |
| | 10,142 |
| | 7,874 |
| | 9,207 |
| | 7,620 |
|
| Charitable contributions to BOKF Foundation | | — |
| | 1,000 |
| | — |
| | 2,846 |
| | — |
|
| Professional fees and services | | 12,312 |
| | 13,002 |
| | 16,139 |
| | 20,712 |
| | 13,209 |
|
| Net occupancy and equipment | | 27,558 |
| | 26,880 |
| | 29,521 |
| | 27,780 |
| | 23,394 |
|
| Insurance | | 4,220 |
| | 6,454 |
| | 4,839 |
| | 4,248 |
| | 6,232 |
|
| Data processing and communications | | 31,915 |
| | 29,735 |
| | 31,449 |
| | 27,575 |
| | 31,665 |
|
| Printing, postage and supplies | | 3,825 |
| | 4,107 |
| | 4,885 |
| | 5,232 |
| | 3,837 |
|
| Net losses (gains) and operating expenses of repossessed assets | | 1,728 |
| | 580 |
| | 1,996 |
| | 2,581 |
| | 4,044 |
|
| Amortization of intangible assets | | 5,064 |
| | 5,138 |
| | 5,191 |
| | 5,331 |
| | 1,603 |
|
| Mortgage banking costs | | 14,975 |
| | 11,545 |
| | 9,906 |
| | 11,518 |
| | 11,741 |
|
| Other expense | | 6,263 |
| | 8,212 |
| | 6,129 |
| | 6,907 |
| | 5,741 |
|
| Total other operating expense | | 279,292 |
| | 277,137 |
| | 287,157 |
| | 284,643 |
| | 252,617 |
|
| Net income before taxes | | 174,254 |
| | 175,360 |
| | 140,215 |
| | 128,498 |
| | 152,207 |
|
| Federal and state income taxes | | 32,396 |
| | 37,580 |
| | 29,950 |
| | 20,121 |
| | 34,662 |
|
| Net income | | 141,858 |
| | 137,780 |
| | 110,265 |
| | 108,377 |
| | 117,545 |
|
| Net income (loss) attributable to non-controlling interests | | (373 | ) | | 217 |
| | (347 | ) | | (79 | ) | | 289 |
|
| Net income attributable to BOK Financial Corporation shareholders | | $ | 142,231 |
| | $ | 137,563 |
| | $ | 110,612 |
| | $ | 108,456 |
| | $ | 117,256 |
|
| | | | | | | | | | | |
| Earnings per share: | | |
| | |
| | |
| | |
| | |
|
| Basic | | $2.00 | | $1.93 | | $1.54 | | $1.50 | | $1.79 |
| Diluted | | $2.00 | | $1.93 | | $1.54 | | $1.50 | | $1.79 |
| Average shares used in computation: | | | | | | | | | | |
| Basic | | 70,596,307 |
| | 70,887,063 |
| | 71,387,070 |
| | 71,808,029 |
| | 64,901,095 |
|
| Diluted | | 70,609,924 |
| | 70,902,033 |
| | 71,404,388 |
| | 71,833,334 |
| | 64,934,351 |
|
PART II. Other Information
Item 1. Legal Proceedings
See discussion of legal proceedings at Note 76 to the Consolidated Financial Statements.
Item 1A. Risk Factors
The following risk factor supplements the “Risk Factors” section in Item 1A of our 2019 Form 10-K.
Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.
The Coronavirus Disease 2019 (“COVID-19”) pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, BOKF’s business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and the effectiveness of actions taken by governmental authorities and other third parties in response to the pandemic.
The spread of the COVID-19 virus and the resulting "stay at home" orders, travel restrictions, and closed schools and work places caused severe disruptions in the U.S. economy, which has in turn disrupted the business activities and operations of our customers, as well as our business and operations. The COVID-19 outbreak was first reported in Wuhan, Hubei Province, China in December 2019, and has resulted in millions of confirmed cases identified around the world, many in the U.S. As a result of the pandemic, many businesses were shut down or continue to be shut down, supply chains were interrupted, slowed, or rendered inoperable, and many individuals have become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions.
Specific to our operations, we face the following risks:
•The pandemic, combined with pre-existing factors, including, but not limited to, international trade disputes, inflation risks, and oil price volatility, could further destabilize the financial markets and markets in which the Company operates. The resulting impacts on consumers, including the sudden increase in the unemployment rate, could cause changes in consumer and business spending, borrowing needs, and saving habits, which will likely affect the demand for loans and other products or services the Company offers, as well as the creditworthiness of potential and current borrowers.
•Governmental mandates forced shutdowns of many of our customers' and vendors' facilities. While some have reopened, others may extend for indefinite periods. This may cause customers, third-party service providers, and counterparties to be unable to meet existing payment or other obligations to the Company.
•The COVID-19 virus may have an adverse effect on customer deposits, the ability of our borrowers to satisfy their obligations, the demand for our loans or other products and services, or on financial markets, real estate markets, or economic growth, which could adversely affect our liquidity, financial condition and results of operations.
•The Federal Reserve reduced the target federal funds rate to 0.00% to 0.25% on March 15, 2020 and announced a $700 billion quantitative easing program in response to the economic downturn caused by COVID-19. These reductions, especially if prolonged, could adversely affect our net interest income and margins, the value of mortgage servicing rights, and our profitability.
•Widespread outbreaks of the COVID-19 virus in our primary geographies could adversely affect our workforce resulting in serious health issues and absenteeism. Social distancing measures enacted for working employees such as working from home, working in different locations, and working different shifts could further disrupt the workforce and normal internal control environment. This could lead to the inability to adequately meet customer needs, maintain adequate financial controls and cybersecurity controls, and meet regulatory deadlines.
•The determination of the appropriate level of allowance for credit losses involves a high degree of subjectivity and requires management to make significant estimates of current expected credit losses. The COVID-19 pandemic and the
unprecedented governmental response could make these subjective judgments even more difficult. The economic impact of the pandemic and government responses may have an adverse effect on current and forward prices for oil and natural gas, which could result in significant credit losses. The value of real estate and other collateral securing loans may also be adversely affected.
As a result of the preceding and other risks, if the COVID-19 virus continues to spread and the response to contain the pandemic is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, and results of operations. These adverse impacts could lead to a material impairment of goodwill and other intangible assets assigned to our reporting units.
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 SeptemberJune 30, 2019.2020.
|
| | | | | | | | | | | | | |
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 |
| July 1 to July 31, 2019 | | — |
| | $ | — |
| | — |
| | 4,750,000 |
|
| August 1 to August 31, 2019 | | 311,713 |
| | $ | 77.23 |
| | 311,713 |
| | 4,438,287 |
|
| September 1 to September 30, 2019 | | 25,000 |
| | $ | 74.46 |
| | 25,000 |
| | 4,413,287 |
|
| Total | | 336,713 |
| | |
| | 336,713 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased2 | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | On | Maximum Number of Shares that May Yet Be Purchased Under the Plans |
April 1 to April 30, 2019, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock. As of September 30, 2019, the Company had repurchased 586,713 shares under this plan. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors.2020 |
| — | | | $ | — | | | — | | | 3,691,287 | |
2May 1 to May 31, 2020
| The Company may repurchase mature shares from employees | — | | | $ | — | | | — | | | 3,691,287 | |
June 1 to cover the exercise price and taxes in connection with employee equity compensation.June 30, 2020 | | — | | | $ | — | | | — | | | 3,691,287 | |
| Total | | — | | | | | — | | | |
1On April 30, 2019, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock. As of June 30, 2020, the Company had repurchased 1,308,713 shares under this plan. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors. 2The Company may repurchase mature shares from employees to cover the exercise price and taxes in connection with employee equity compensation.
Item 6. Exhibits
| |
101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements. The XBRL instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements. The XBRL instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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: October 30, 2019August 4, 2020
|
| |
| /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 |