000.890.750.850.840.410.550.760.080.28P90DP90DP90DP90DP60DP60DP60DP60DP90DP90D0.07880.07880.07880.07460.07460.07460.94440.94440.94440.94420.94420.9442001501505005004000400010001000939467680.15740.17220.08050.0831false--12-31Q3201900008753570.000060.000062500000000250000000075711492757570097571149275757009136650001127800035885604898999 0000875357 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-09-30 0000875357 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:ResidentialPortfolioSegmentMember 2019-09-300000875357bokf:InsurancebrokeragerevenueMemberus-gaap:CorporateNonSegmentMember2019-07-012019-09-30


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 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) 
Oklahoma73-1373454
(State or other jurisdiction

of Incorporation or Organization)
(IRS Employer

Identification No.)
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa,Oklahoma74192
(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: 70,858,01070,305,833 shares of common stock ($.00006 par value) as of September 30, 2019.2020.




BOK Financial Corporation
Form 10-Q
Quarter Ended September 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$154.0 million or $2.19 per diluted share for the third quarter of 2020. Net income was $142.2 million or $2.00 per diluted share for the third quarter of 2019. Net income was $117.32019 and $64.7 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. Net income was $137.6 million or $1.93$0.92 per diluted share for the second quarter of 2020. No provision for expected credit losses was necessary in the third quarter of 2020. The Company recorded a pre-tax provision for expected credit losses of $135.3 million in the second quarter of 2020. A pre-tax provision for incurred credit losses of $12.0 million was recorded in the third quarter of 2019.

Highlights of the third quarter of 20192020 included:

•Net interest revenue totaled $279.1$271.8 million, up $38.2a decrease of $7.3 million over the third quarter of 2018. The acquisition of CoBiz Financial ("CoBiz") in the fourth quarter of 2018 added $40.6 millioncompared to net interest revenue in the third quarter of 2019. Net interest margin was 2.81 percent for the third quarter of 2020 compared to 3.01 percent for the third quarter of 2019. Discount accretion on acquired loans totaled $13.3 million in the third quarter of 2020, $10.9 million in the third quarter of 2019 comparedand $3.3 million in the second quarter of 2020. While the company has been proactive in reducing deposit costs and implementing LIBOR floors in loan agreements, recent interest rate cuts continue to 3.21 percentcompress the net interest margin. Average earning assets were $39.6 billion for the third quarter of 2018. Average earning assets were2020 compared to $37.7 billion for the third quarter of 2019 compared to $30.0 billion for the third quarter of 2018.2019. Net interest revenue decreased $6.3$6.4 million compared to the second quarter of 2019 while2020. Net interest margin decreased 2 basis points. Excluding discount accretion, net interest margin decreased 29 basis points. Falling interest rates compressed the margin by 9 basis pointswas 2.67 percent compared to 2.80 percent in the second quarter of 2019.prior quarter.
•Fees and commissions revenue totaled $186.1$222.9 million, an increase of $35.3$36.7 million over the third quarter of 2018.2019. Brokerage and trading revenue increased $20.8$25.7 million and mortgage banking revenue increased $6.6 million as lower$21.8 million. Low mortgage interest rates have increaseddrove increases in mortgage production and related U.S. agency mortgage-backed trading activity. These increases were partially offset by a reduction in deposit service charges and fiduciary and asset management revenue. We have voluntarily waived certain administration fees in the third quarter of 2020. Fees and commissions revenue increased $10.0$9.2 million over the second quarter of 20192020, largely due to increasesgrowth in brokeragetrading revenue, customer hedging revenue and tradingloan syndication activity. Deposit service charges also increased as many "Stay at Home" orders have been lifted and mortgage banking revenue.customer activity starts to return to more normal levels.
•Other operating expense totaled $279.3$301.3 million, a $26.7$22.0 million increase overcompared to the third quarter of 2018. Expenses related to CoBiz operations added $20.8 million in the third 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$17.3 million, withlargely due to an increase in incentive compensation partiallycosts. This increase reflects the growth in our trading activity as well as changes related to vesting assumptions regarding the Company's earnings per share growth relative to a defined peer group. Non-personnel expense increased $4.7 million over the third quarter of 2019. Net losses and expenses of repossessed assets increased $4.5 million due to write-downs on two repossessed properties. Other increases in data processing and communications expense, deposit insurance expense, and professional fees were mostly offset by a decrease in employee benefits. Non-personnelbusiness promotion expense. Operating 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 $5.2increased $5.9 million compared to the second quarter of 2019 primarily due2020. Personnel expense increased $3.6 million. Incentive compensation increased $5.6 million. Non-personnel expense increased $2.3 million compared to the completion of 2018 tax filings and tax credit projects.
The Company recorded a provision for 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 20192020. Increases in net losses and expenses on two repossessed properties, professional fees, and data processing and communications expense were partially offset by decreases in occupancy and equipment expense and other expenses. In addition, the second quarter of 2020 included a provision$3.0 million charitable contribution to the BOKF Foundation.
���Period-end outstanding loan balances totaled $23.8 billion at September 30, 2020, a decrease of $4.0$353 million was recordedcompared to June 30, 2020, largely due to repayment of defensive draws taken earlier in the thirdyear and purposeful deleveraging by our customers. Average loan balances were relatively consistent with the prior quarter at $24.1 billion.
•The allowance for loan losses totaled $420 million or 1.76 percent of 2018. outstanding loans and 195 percent of nonaccruing loans at September 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 $448 million or 1.88 percent of outstanding loans at September 30, 2020. Excluding Paycheck Protection Program ("PPP") loans, the allowance for loan losses was 1.93 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.06 percent. Excluding PPP loans, the allowance for loan losses was $436 million or 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 $469 million or 2.12 percent of outstanding loans at June 30, 2020.
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•Nonperforming assets not guaranteed by U.S. government agencies decreased $6.8$17 million compared to June 30, 2019.2020. Potential problem loans decreased $18$2.9 million while other loans especially mentioned increased $38decreased $42 million. Net charge-offs were $10.6$22.4 million or 0.190.41 percent of average loans on an annualized basis for the third quarter of 2019, compared to net2020, excluding PPP loans. Net charge-offs of $7.7 million or 0.14were 0.30 percent of average loans, excluding PPP loans, over the last four quarters. Net charge-offs were $14.1 million or 0.25 percent of average loans on an annualized basis for the second quarter of 2019. The combined allowance for credit losses totaled $206 million or 0.92 percent of outstanding loans at September 30, 2019 compared to $204 million or 0.92 percent of outstanding loans at June 30, 2019.2020, excluding PPP loans.
•Period-end outstanding loan balances totaled $22.3deposits were $35.0 billion at September 30, 2019, an increase of $30 million over June 30, 2019. Average loan balances grew $409 million to $22.42020, a $1.1 billion at September 30, 2019.
Period-end deposits were $26.2 billion at September 30, 2019, an $862 million increase compared to June 30, 2019.2020. Interest-bearing transaction deposits increased $670 million while demand deposit balances increased $177 million.$1.3 billion. Average deposits increased $538 million,$2.0 billion, including a $619 million$1.7 billion increase in interest-bearing deposits partially offset by a $124 million decreasetransaction deposits. Continued deposit growth was due primarily to customers retaining higher balances in demand deposits.the current economic environment.
•The common equity Tier 1 capital ratio at September 30, 20192020 was 11.0612.07 percent. Other regulatory capital ratios were Tier 1 capital ratio, 11.0612.07 percent, total capital ratio, 12.5614.05 percent, and leverage ratio, 8.418.39 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, 2019,2020, the common equity Tier 1 capital ratio was 10.8411.44 percent, the Tier 1 capital ratio was 10.8411.44 percent, total capital ratio was 12.3413.43 percent, and leverage ratio was 8.757.74 percent.



•The Company paid a regular cash dividend of $35.5$35.8 million or $0.50$0.51 per common share during the third quarter of 2019.2020. On October 29, 2019,November 3, 2020, the board of directors approved a quarterly cash dividend of $0.51$0.52 per common share payable on or about November 27, 201924, 2020 to shareholders of record as of November 12, 2019.
16, 2020.

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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.

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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.
•Global health concerns including ongoing pandemics or potential for widespread health issues, the future course of a pandemic and the potential for medical advances.
•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.

- 4 -

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$274.2 million for the third quarter of 2019, up from $242.82020 and $282.0 million in the third quarter of 2018. CoBiz added $40.6 million to net interest revenue, including $10.9 million of net2019. Net purchase accounting discount accretion was $13.3 million in the third quarter of 2020 and $10.9 million in the third 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 2.81 percent for the third quarter of 2020, compared to 3.01 percent for the third quarter of 2019, compared2019. Loan discount accretion added 14 basis points to 3.21 percent fornet interest margin in the third quarter of 2018.2020 and 12 basis points in the third quarter of 2019. Recent rate cuts in response to the economic environment resulting from the COVID-19 pandemic have compressed the net interest margin. While the company has been proactive in reducing deposit costs and implementing LIBOR floors in loan agreements to support the margin, the continued decline in average LIBOR during the third quarter reduced the yield on both floating-rate loans and securities. Principal cash flows received from maturities of the available-for-sale securities portfolio continue to be reinvested at lower rates. The tax-equivalent yield on earning assets was 4.253.04 percent, up 21a decrease of 121 basis points overcompared to the third quarter of 2018.2019. Loan yields increased 32decreased 152 basis points to 5.12 percent primarily due to an increase in short-term interest rates and higher yields on acquired loans. The yield on interest-bearing cash and cash equivalents increased 443.60 percent. This includes a 19 basis points to 2.42 percent.point benefit from PPP loan fees. The available for sale securities portfolio yield increased 23decreased 49 basis points to 2.60 percent. The2.11 percent and the yield on trading securities decreased 49157 basis points to 3.49 percent and the1.92 percent. The yield on fair value option securities decreased 4687 basis points to 2.791.92 percent.

Funding costs were up 43decreased 137 basis points overcompared to the third quarter of 2018.2019. The cost of interest-bearing deposits increased 40other borrowed funds decreased 200 basis points and the cost of other borrowed funds increased 27interest-bearing deposits decreased 91 basis points. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 448 basis points for the third quarter of 2019, up 22020, a decrease of 36 basis points overcompared to the third quarter of 2018.2019.
Average earning assets for the third quarter of 20192020 increased $7.7$1.9 billion or 265 percent over the third 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$1.8 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. The majority of our mortgage servicing rights, increased $1.1 billion. Approximately $1.7 billion of these lower yielding fixed-rate assets were addedthis increase occurred in the secondfourth quarter of 2019 and third quartersthe first quarter of 20192020 in order to reduce our exposure to falling short-term interest rates. Interest-bearing cashAverage loans, net of allowance for loan losses, increased $1.5 billion, largely due to the inflow of Paycheck Protection Program ("PPP") loans. Fair vale option securities decreased $1.2 billion. Receivables from unsettled securities sales, primarily related to our U.S. agency residential mortgage-backed trading operations, increased $2.8 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$8.9 billion compared to the third quarter of 2018, including acquired deposits. Interest bearing2019. Deposit growth is largely due to the combination of focused deposit gathering initiatives, stimulus-related deposits, and customers retaining elevated balances in the current economic environment. Interest-bearing deposits increased $3.3$6.8 billion while demand deposit balances increased $435 million. Average borrowed funds increased $4.3 billion over the third quarter of 2018.$2.2 billion.
Tax-equivalent net interest revenue decreased $6.9$6.5 million compared to the second quarter of 2019. Recoveries2020. Net purchase accounting discount accretion on acquired loans totaled $13.3 million in the third quarter of foregone interest on nonaccruing loans added $3.42020 and $3.3 million toin the second quarter of 2019. The2020. We perform an annual reassessment of the performance of certain pooled acquired loans during the third quarter. At September 30, 2020, unamortized loan purchase discount totaled $53 million, $29 million attributed to individual credits and $24 million attributed to loan pools. Amortization of loan purchase discount may be impacted by timing of early payoffs and loan size. PPP loan fee recognition contributed $11.3 million to net interest revenue in the third quarter of 2019 included $10.92020 compared to $10.8 million of purchase accounting discount accretion whilein the second quarter of 2019 included $13.4 million.prior quarter.
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Average earning assets increased $2.3 billion compared to the second quarter of 2019. Average available for sale securities increased $1.3 billion due to repositioning the balance sheet for additional interest rate decreases. Average fair value option securities balances increased $655 million. Average loan balances were up $409 million. Average borrowed funds increased $2.0 billion and average interest-bearing deposit balances increased $662decreased $681 million compared to the second quarter of 2019.2020. Fair value option securities, held as an economic hedge of the changes in fair value of our mortgage servicing rights, decreased $399 million and restricted equity securities decreased $130 million. Residential mortgage loans held for sale decreased $75 million while interest-bearing cash and cash equivalents decreased $67 million. Average loan balances remained largely unchanged. Available for sale securities increased $101 million. Average interest-bearing deposits grew by $1.5 billion, primarily due to interest-bearing transaction deposits. Funds purchased and repurchase agreements decreased $3.0 billion and other borrowings decreased $145 million.
Net interest margin was 3.012.81 percent compared to 3.302.83 percent in the previous quarter. Netsecond quarter of 2020. Excluding discount accretion on acquired loans, net interest margin was reduced 9 basis points due2.67 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.prior quarter.
Excluding recoveries of forgone interest, theThe yield on average earning assets decreased 22was 3.04 percent, an 8 basis points whilepoint decrease from the yield on the loan portfolio decreased 21 basis points.prior quarter. The yield on the available for sale securities portfolio decreased 18 basis points to 2.11 percent and the loan portfolio yield decreased 3 basis points to 3.60 percent. Excluding loan discount accretion, the yield on average earning assets was 2.91 percent, down 18 basis points and the loan portfolio yield was 3.38 percent, down 20 basis points from the previous quarter. The yield on the tradingfair value option securities portfolio was down 10decreased 8 basis points.


points to 1.92 percent.
Funding costs decreased 2were 0.31 percent, down 6 basis points. The cost of interest-bearing deposits increased 4decreased 8 basis points and theto 0.26 percent. The cost of other borrowed funds decreased 22was down 1 basis points.point to 0.31 percent. The benefit to net interest margin from assets funded by non-interest liabilities decreased 5was 8 basis points to 44 basis points.

for the third quarter of 2020, consistent with the prior quarter.
Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates as is further described in the Market Risk section of this report. Approximately 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.

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Table 1 -- Volume/Rate Analysis
(In thousands)
Three Months Ended
Sept. 30, 2020 / 2019		Nine Months Ended
Sept. 30, 2020 / 2019
  
Change Due To1
 
Change Due To1
ChangeVolumeYield/RateChangeVolumeYield/Rate
Tax-equivalent interest revenue:      
Interest-bearing cash and cash equivalents$(2,883)$165 $(3,048)$(7,207)$1,231 $(8,438)
Trading securities(5,780)1,102 (6,882)(16,851)(130)(16,721)
Investment securities(293)(527)234 (1,228)(1,753)525 
Available for sale securities(5,207)8,580 (13,787)16,110 41,417 (25,307)
Fair value option securities(8,722)(6,616)(2,106)(5,644)(301)(5,343)
Restricted equity securities(6,645)(5,000)(1,645)(11,732)(7,849)(3,883)
Residential mortgage loans held for sale(306)67 (373)(460)659 (1,119)
Loans(71,191)18,145 (89,336)(186,253)46,076 (232,329)
Total tax-equivalent interest revenue(101,027)15,916 (116,943)(213,265)79,350 (292,615)
Interest expense:
Transaction deposits(27,514)10,248 (37,762)(42,580)28,638 (71,218)
Savings deposits(102)38 (140)(225)76 (301)
Time deposits(4,643)(31)(4,612)(6,150)1,438 (7,588)
Funds purchased and repurchase agreements(14,532)(901)(13,631)(22,712)16,153 (38,865)
Other borrowings(45,993)(17,099)(28,894)(108,246)(40,420)(67,826)
Subordinated debentures(418)(4)(414)(792)4 (796)
Total interest expense(93,202)(7,749)(85,453)(180,705)5,889 (186,594)
Tax-equivalent net interest revenue(7,825)23,665 (31,490)(32,560)73,461 (106,021)
Change in tax-equivalent adjustment(479)(1,144)
Net interest revenue$(7,346)$(31,416)
1    Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
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  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
    
1

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


Other Operating Revenue

Other operating revenue was $186.5$234.2 million for the third quarter of 2019, an $18.52020, a $47.7 million increase over the third quarter of 20182019 and a $14.4$1.5 million increase over the second quarter of 2019. The third 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$25.7 million and $6.6$21.8 million, respectively, over the third quarter of 2018, respectively, and $3.3 million and $2.0 million over the second quarter of 2019, respectively.2019.

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 September 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
June 30, 2020		Increase (Decrease)% Increase (Decrease)
 2019 2018  20202019
Brokerage and trading revenue $43,840
 $23,086
 $20,754
 90 % $40,526
 $3,314
 8 %Brokerage and trading revenue$69,526 $43,840 $25,686 59 %$62,022 $7,504 12 %
Transaction card revenue 22,015
 21,396
 619
 3 % 21,915
 100
 — %Transaction card revenue23,465 22,015 1,450 7 %22,940 525 2 %
Fiduciary and asset management revenue 43,621
 57,514
 (13,893) (24)% 45,025
 (1,404) (3)%Fiduciary and asset management revenue39,931 43,621 (3,690)(8)%41,257 (1,326)(3)%
Deposit service charges and fees 28,837
 27,765
 1,072
 4 % 28,074
 763
 3 %Deposit service charges and fees24,286 28,837 (4,551)(16)%22,046 2,240 10 %
Mortgage banking revenue 30,180
 23,536
 6,644
 28 % 28,131
 2,049
 7 %Mortgage banking revenue51,959 30,180 21,779 72 %53,936 (1,977)(4)%
Other revenue 17,626
 12,900
 4,726
 37 % 12,437
 5,189
 42 %Other revenue13,698 17,626 (3,928)(22)%11,479 2,219 19 %
Total fees and commissions revenue 186,119
 166,197

19,922
 12 % 176,108

10,011
 6 %Total fees and commissions revenue222,865 186,119 36,746 20 %213,680 9,185 4 %
Other gains (losses), net 4,544
 2,754
 1,790
 N/A
 3,480
 1,064
 N/A
Gain (loss) on derivatives, net 3,778
 (2,847) 6,625
 N/A
 11,150
 (7,372) N/A
Other gains, netOther gains, net6,265 4,544 1,721 N/A6,768 (503)N/A
Gain on derivatives, netGain on derivatives, net2,354 3,778 (1,424)N/A21,885 (19,531)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(754)4,597 (5,351)N/A(14,459)13,705 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 rights3,441 (12,593)16,034 N/A(761)4,202 N/A
Gain (loss) on available for sale securities, net 5
 250
 (245) N/A
 1,029
 (1,024) N/A
Gain (loss) on available for sale securities, net(12)5 (17)N/A5,580 (5,592)N/A
Total other operating revenue $186,450
 $167,941
 $18,509
 11 % $172,065
 $14,385
 8 %Total other operating revenue$234,159 $186,450 $47,709 26 %$232,693 $1,466 1 %
              
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.

Fees and commissions revenue

Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 4045 percent of total revenue for the third 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$25.7 million or 9059 percent compared to the third quarter of 2018.2019.


- 8 -

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$46.9 million for the third quarter of 2019,2020, a $19.3$22.8 million or 39995 percent increase compared to the third quarter of 2018. Lower2019. Industry-wide mortgage interestloan production has increased in 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$8.6 million for the third quarter of 2019,2020, a $3.8$4.0 million or 4585 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 third quarter of 2018. Changes2019 as energy customers increased hedging activity 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.volatile environment.
Brokerage and trading revenue increased $3.3$7.5 million compared to the previous quarter, primarilyquarter. Trading revenue grew $3.0 million. The low mortgage interest rate environment continues to drive our U.S. agency mortgage-backed securities trading activity. Customer hedging revenue also increased $2.4 million as energy customers increased hedging activities. Investment banking revenue also grew by $1.8 million largely due to increased trading activity as a result of lower mortgage interest rates combined with increasedloan syndication activity.

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 $3.7 million or 48 percent compared to the third quarter of 2018.2019. The decrease is largely due to the decline in mutual fund fees combined with the addition of approximately $1.7 million in fee waivers as a result of the significant decline in interest rates. We have voluntarily waived certain administration fees in the third quarter of 2020 on the Cavanal Hill money market funds in order to maintain positive yields on these funds in the current low short-term interest rate environment. Fiduciary and asset management revenue decreased $1.4$1.3 million or 3 percent compared to the second quarter of 2019,2020, primarily due to a decrease in seasonal tax preparation fees earned in the second quarter.



A distribution of assets under management or administration and related fiduciary and asset management revenue follows:
- 9 -


Table 3 -- Assets Under Management or Administration
(In thousands)
Three Months Ended
September 30, 2020September 30, 2019June 30, 2020
 Balance
Revenue1
Margin2
Balance
Revenue1
Margin2
Balance
Revenue1
Margin2
Managed fiduciary assets:
Personal$10,242,506 $22,990 0.90 %$8,513,380 $23,619 1.11 %$9,786,686 $23,826 0.97 %
Institutional14,210,768 7,479 0.21 %14,796,223 5,846 0.16 %13,568,898 6,872 0.20 %
Total managed fiduciary assets24,453,274 30,469 0.50 %23,309,603 29,465 0.51 %23,355,584 30,698 0.53 %
Non-managed assets:
Fiduciary28,482,372 9,016 0.13 %25,950,094 13,910 0.21 %27,205,000 10,142 0.15 %
Non-fiduciary12,746,853 446 0.01 %15,133,544 246 0.01 %12,831,130 417 0.01 %
Safekeeping and brokerage assets under administration16,737,433 — — %16,403,708 — — %16,060,788 — — %
Total non-managed assets57,966,658 9,462 0.07 %57,487,346 14,156 0.10 %56,096,918 10,559 0.08 %
Total assets under management or administration$82,419,932 $39,931 0.19 %$80,796,949 $43,621 0.22 %$79,452,502 $41,257 0.21 %
1    
 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%
Institutional14,796,223
 5,846
 0.16% 13,568,115
 5,504
 0.16% 14,286,046
 6,283
 0.18%
Total managed fiduciary assets23,309,603
 29,465
 0.51% 21,644,427
 28,425
 0.53% 22,802,122
 32,417
 0.57%
                  
Non-managed assets:
Fiduciary25,950,094
 13,910
 0.21% 23,915,680
 28,591
3 
0.48% 26,494,774
 12,275
 0.19%
Non-fiduciary15,133,544
 246
 0.01% 16,146,102
 498
 0.01% 15,894,874
 333
 0.01%
Safekeeping and brokerage assets under administration16,403,708
 —
 —% 15,921,806
 —
 —% 16,582,832
 —
 —%
Total non-managed assets57,487,346
 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
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 September 30, 20192020 and 20182019 follows:

Table 4 -- Changes in Assets Under Management or Administration
(In thousands)
Three Months Ended September 30,
20202019
Beginning balance$79,452,502 $81,774,602 
Net inflows (outflows)287,132 (1,230,466)
Net change in fair value2,680,298 252,813 
Ending balance$82,419,932 $80,796,949 
  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$21.8 million or 2872 percent compared to the third quarter of 2018.2019. Mortgage loan production volumes increased $315$134 million or 5315 percent as average primary mortgage interest rates have decreased. The gain on sale margin increased 30216 basis points to 1.513.67 percent in the third quarter of 2019.2020. A rapid decrease in interest rates has led to increased application demand and industry-wide capacity constraints.

Mortgage banking revenue increaseddecreased $2.0 million or 74 percent compared to the second quarter of 2019. Lower2020, primarily due to a reduction of mortgage interest rates duringservicing revenue. During the second quarter ledof 2020, we completed a sale of mortgage servicing rights on $1.6 billion of unpaid principal balance, primarily related to an increase in mortgage production. Gain on sale margin improved 5 basis points overloans guaranteed by the prior quarter.Veteran's Administration.


- 10 -

Table 5 – Mortgage Banking Revenue 
(In thousands)
 Three Months Ended September 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
June 30, 2020		Increase (Decrease)% Increase (Decrease)
 20202019
Mortgage production revenue$38,431 $13,814 $24,617 178 %$39,185 $(754)(2)%
Mortgage loans funded for sale$1,032,472 $877,280 $1,184,249 
Add: Current period end outstanding commitments560,493 379,377 546,304 
Less: Prior period end outstanding commitments546,304 344,087 657,570 
Total mortgage production volume$1,046,661 $912,570 $134,091 15 %$1,072,983 $(26,322)(2)%
Mortgage loan refinances to mortgage loans funded for sale54 %56 %(200) bps71 %(1,700) bps
Gains on sale margin3.67 %1.51 %216  bps3.65 %2  bps
Primary mortgage interest rates:
Average2.95 %3.66 %(71) bps3.24 %(29) bps
Period end2.90 %3.64 %(74) bps3.13 %(23) bps
Mortgage servicing revenue$13,528 $16,366 $(2,838)(17)%$14,751 $(1,223)(8)%
Average outstanding principal balance of mortgage loans serviced for others17,434,215 21,172,874 (3,738,659)(18)%19,319,872 (1,885,657)(10)%
Average mortgage servicing revenue rates0.31 %0.31 %—  bp0.31 %—  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.

Net gains on other assets, securitiesDeposit Service Charges and derivativesFees

Deposit service charges and fees decreased $4.6 million compared to the third quarter of 2019. During these uncertain times, we proactively waived certain fees. In addition, the pandemic has resulted in customers retaining cash and not maintaining the usual level of spending, which has decreased overdraft fees compared to the prior year. Deposit service charges increased $2.2 million compared to the second quarter. As many "Stay at Home" orders have been lifted and customer activity starts to return to normal, we have seen service charges increase.

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. The increase inIn the total economic costsecond quarter of changes in the fair value2020, we completed a sale of mortgage servicing rights neton $1.6 billion of economic hedges is dueunpaid principal balance, primarily related to loans guaranteed by the combinationVeteran's Administration. This sale was completed to reduce exposure to out of unhedgeable factorsfootprint MSRs with higher credit risk where no other relationships with the borrower exist. Interest rate movements between the date we established the transaction price and significant mortgage interest rate volatility during the year.closing date of the sale produced positive results in the second quarter.

- 11 -

Table 6 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 Three Months Ended
 Sept. 30, 2020June 30, 2020Sept. 30, 2019
Gain on mortgage hedge derivative contracts, net$2,295 $21,815 $3,742 
Gain (loss) on fair value option securities, net(754)(14,459)4,597 
Gain on economic hedge of mortgage servicing rights, net1,541 7,356 8,339 
Gain (loss) on change in fair value of mortgage servicing rights3,441 (761)(12,593)
Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue4,982 6,595 (4,254)
Net interest revenue on fair value option securities1
1,565 2,702 1,245 
Total economic benefit (cost) of changes in the fair value of mortgage servicing rights, net of economic hedges$6,547 $9,297 $(3,009)
1Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

- 12 -
  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)
1

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



Other Operating Expense

Other operating expense for the third quarter of 20192020 totaled $279.3$301.3 million, up $26.7an increase of $22.0 million compared to the third quarter of 20182019 and $2.2$5.9 million compared to the second quarter of 2019. Operating expenses in the third quarter of 2019 included $20.8 million of CoBiz operating expenses. 

2020.

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 September 30,Increase (Decrease)%
Increase (Decrease)		Three Months Ended
June 30, 2020		Increase (Decrease)%
Increase (Decrease)
 2019 2018  20202019
Regular compensation $97,014
 $86,262
 $10,752
 12 % $98,247
 $(1,233) (1)%Regular compensation$96,703 $97,014 $(311)— %$99,267 $(2,564)(3)%
Incentive compensation:     

 

      Incentive compensation:
Cash-based 38,316
 31,430
 6,886
 22 % 33,155
 5,161
 16 %Cash-based50,326 38,316 12,010 31 %47,209 3,117 7 %
Share-based 3,471
 3,935
 (464) (12)% 2,734
 737
 (27)%Share-based8,754 3,471 5,283 152 %2,815 5,939 (211)%
Deferred compensation 1,124
 2,126
 (1,002) N/A
 1,534
 (410) N/A
Deferred compensation2,450 1,124 1,326 N/A5,932 (3,482)N/A
Total incentive compensation 42,911
 37,491
 5,420
 14 % 37,423
 5,488
 15 %Total incentive compensation61,530 42,911 18,619 43 %55,956 5,574 10 %
Employee benefits 22,648
 19,778
 2,870
 15 % 24,672
 (2,024) (8)%Employee benefits21,627 22,648 (1,021)(5)%21,012 615 3 %
Total personnel expense 162,573
 143,531
 19,042
 13 % 160,342
 2,231
 1 %Total personnel expense179,860 162,573 17,287 11 %176,235 3,625 2 %
Business promotion 8,859
 7,620
 1,239
 16 % 10,142
 (1,283) (13)%Business promotion2,633 8,859 (6,226)(70)%1,935 698 36 %
Charitable contributions to BOKF Foundation —
 —
 —
 N/A
 1,000
 (1,000) N/A
Charitable contributions to BOKF Foundation— — — N/A3,000 (3,000)N/A
Professional fees and services 12,312
 13,209
 (897) (7)% 13,002
 (690) (5)%Professional fees and services14,074 12,312 1,762 14 %12,161 1,913 16 %
Net occupancy and equipment 27,558
 23,394
 4,164
 18 % 26,880
 678
 3 %Net occupancy and equipment28,111 27,558 553 2 %30,675 (2,564)(8)%
Insurance 4,220
 6,232
 (2,012) (32)% 6,454
 (2,234) (35)%Insurance5,848 4,220 1,628 39 %5,156 692 13 %
Data processing and communications 31,915
 31,665
 250
 1 % 29,735
 2,180
 7 %Data processing and communications34,751 31,915 2,836 9 %32,942 1,809 5 %
Printing, postage and supplies 3,825
 3,837
 (12) — % 4,107
 (282) (7)%Printing, postage and supplies3,482 3,825 (343)(9)%3,502 (20)(1)%
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 assets6,244 1,728 4,516 261 %1,766 4,478 254 %
Amortization of intangible assets 5,064
 1,603
 3,461
 216 % 5,138
 (74) (1)%Amortization of intangible assets5,071 5,064 7 — %5,190 (119)(2)%
Mortgage banking costs 14,975
 11,741
 3,234
 28 % 11,545
 3,430
 30 %Mortgage banking costs15,803 14,975 828 6 %15,598 205 1 %
Other expense 6,263
 5,741
 522
 9 % 8,212
 (1,949) (24)%Other expense5,388 6,263 (875)(14)%7,227 (1,839)(25)%
Total other operating expense $279,292
 $252,617
 $26,675
 11 % $277,137
 $2,155
 1 %Total other operating expense$301,265 $279,292 $21,973 8 %$295,387 $5,878 2 %
              
Average number of employees (full-time equivalent) 5,101
 4,870
 231
 5 % 5,123
 (22) — %Average number of employees (full-time equivalent)4,926 5,101 (175)(3)%5,037 (111)(2)%
Certain percentage increases (decreases) are not meaningful for comparison purposes.

Personnel expense

Personnel expense increased $19.0$17.3 million compared to the third quarter of 2019. Incentive compensation increased $18.6 million. Cash based incentive compensation increased $12.0 million, largely due to increased U.S. agency residential mortgage-backed securities and related derivative trading activity. Stock based compensation increased $5.3 million due to changes related to vesting assumptions regarding the Company's earnings per share growth relative to a defined peer group.
Personnel expense increased $3.6 million compared the second quarter of 2020. Stock based incentive compensation increased $5.9 million due to changes related to vesting assumptions regarding the Company's earnings per share growth relative to a defined peer group. Cash based incentive compensation increased $3.1 million, primarily due to increased trading activity. Deferred compensation, which is largely offset by a decrease in the value of related investments included in Other gains (losses), net, decreased $3.5 million. Regular compensation decreased $2.6 million, primarily related to unfilled positions due to attrition. We have managed personnel costs by challenging the need to fill open positions and add new positions.

- 13 -

Non-personnel operating expense

Non-personnel operating expense increased $4.7 million over the third quarter of 2018. CoBiz operating expenses added $13.4 million 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 million led by an increase in cash based incentive compensation primarily due to increased sales activities in wealth management and commercial banking. Increased incentive compensation was partially offset by a decrease in regular compensation of $1.2 million and employee benefits of $2.0 million. Employee benefits expense was down largely due to a seasonal decrease in payroll taxes.



Non-personnel operating expense

Non-personnel operating expense increased $7.6 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 $2.3increased $4.5 million due to decreased expenseswrite-downs on certaina set of 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 million primarily due to an increase in amortization of mortgage servicing rights as lower interest rates drive an increase in prepayment speeds. In addition, dataretail commercial real estate property. Data processing and communications expense increased $2.2$2.8 million, primarily due to investments in technology. Professional fees increased $1.8 million and netinsurance expense increased $1.6 million. These increases were partially offset by a decrease of $6.2 million in business promotion expense, largely related to the pandemic.
Non-personnel expense increased $2.3 million over the second quarter of 2020. Net losses and expenses of repossessed assets increased $1.1 million.
Insurance$4.5 million, largely due to write-downs of two properties. Professional fees and services expense decreased $2.2 million, other expense decreasedincreased $1.9 million and business promotiondata processing and communications expense increased $1.8 million. Occupancy and equipment expense decreased $1.3$2.6 million, all following higher activityprimarily related to impairment charges incurred in the second quarter and other expense decreased $1.8 million. We also made a charitable contribution of 2019 largely related$3.0 million to the CoBiz acquisition.BOKF Foundation in the second quarter.
Income Taxes

The effective tax rate was 24.7 percent for the third quarter of 2020, 18.6 percent for the third quarter of 2019 22.8and 19.7 percent for the second quarter of 2020. An increase in forecasted pre-tax income for 2020 and the completion of 2019 tax returns drove the increase in effective tax rate for the third quarter of 2018 and 21.4 percent second quarter of 2019. Income2020. The effective 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.rate excluding these items was 21.7 percent. 
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.

- 14 -

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 $19.6 million or 16 percent over the third quarter of 2018. Net interest revenue grew by $38.7 million over the prior year, primarily due to the CoBiz acquisition combined with growth in average loan balances. Other operating revenue increased by $21.3 million and operating expense increased by $28.2decreased $8.3 million compared to the third quarter of 2018.2019. Net interest revenue decreased by $44.4 million compared to the prior year, primarily due to decreases in the short-term interest rate related to a 225 basis point reduction in the federal funds rate by the Federal Reserve since the middle of 2019. Net charge-offs increased $11.3 million compared to the third quarter of 2019. Other operating revenue increased by $41.8 million led by our brokerage and trading and mortgage banking businesses. Operating expense increased $9.1 million compared to the third quarter of 2019, largely due to increased incentive compensation related to trading activities.

Net interest revenue decreased $5.2 million compared to the second quarter of 2020, largely due to the effects of recent rate cuts by the Federal Reserve. Other operating revenue increased $9.2 million, led by an increase in brokerage and trading revenue. Other operating expense increased $7.1 million. Net income attributed to Funds Management and other in the third quarter was positively affected by the provision for expected credit losses in excess of net charge-offs of $121.2 million in the second quarter of 2020. The remaining increase in our available-for-sale securities portfolio andfunds management in the impactthird quarter of 2020 is due to a lower deposit funding credit to the lines of business caused by reductions in short-term interest rates on the transfer pricing of funds provided by the operating segments.

rates.

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 September 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
June 30, 2020		Increase (Decrease)% Increase (Decrease)
 2019 2018  20202019
Commercial Banking $101,573
 $84,964
 $16,609
 20 % $106,936
 $(5,363) (5)%Commercial Banking$75,097 $100,986 $(25,889)(26)%$80,992 $(5,895)(7)%
Consumer Banking 16,640
 8,015
 8,625
 108 % 16,342
 298
 2 %Consumer Banking26,256 16,640 9,616 58 %31,900 (5,644)(18)%
Wealth Management 23,206
 28,866
 (5,660) (20)% 25,544
 (2,338) (9)%Wealth Management31,212 23,206 8,006 34 %33,394 (2,182)(7)%
Subtotal 141,419
 121,845
 19,574
 16 % 148,822
 (7,403) (5)%Subtotal132,565 140,832 (8,267)(6)%146,286 (13,721)(9)%
Funds Management and other 812
 (4,589) 5,401
 N/A
 (11,259) 12,071
 N/A
Funds Management and other21,469 1,399 20,070 N/A(81,593)103,062 N/A
Total $142,231
 $117,256
 $24,975
 21 % $137,563
 $4,668
 3 %Total$154,034 $142,231 $11,803 8 %$64,693 $89,341 138 %
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.


- 15 -

Commercial Banking

Commercial Banking contributed $101.6$75.1 million to consolidated net income in the third quarter of 2019, an increase2020, a decrease of $16.6$25.9 million or 2026 percent overcompared to the third quarter of 2018. Growth in net interest revenue and fees and commissions revenue was partially offset by increased operating expense.

2019.

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 September 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
June 30, 2020		Increase (Decrease)% Increase (Decrease)
 2019 2018  20202019
Net interest revenue from external sources $243,944
 $187,417
 $56,527
 30% $251,084
 $(7,140) (3)%Net interest revenue from external sources$173,248 $243,944 $(70,696)(29)%$174,314 $(1,066)(1)%
Net interest expense from internal sources (63,797) (42,270) (21,527) 51% (65,470) 1,673
 (3)%Net interest expense from internal sources(23,302)(64,984)41,682 (64)%(29,205)5,903 (20)%
Total net interest revenue 180,147
 145,147
 35,000
 24% 185,614
 (5,467) (3)%Total net interest revenue149,946 178,960 (29,014)(16)%145,109 4,837 3 %
Net loans charged off 9,505
 8,047
 1,458
 18% 6,823
 2,682
 39 %Net loans charged off22,599 9,505 13,094 138 %13,762 8,837 64 %
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 off127,347 169,455 (42,108)(25)%131,347 (4,000)(3)%
              
Fees and commissions revenue 46,159
 39,391
 6,768
 17% 41,105
 5,054
 12 %Fees and commissions revenue50,085 46,159 3,926 9 %46,515 3,570 8 %
Other gains, net 2,673
 1,131
 1,542
 N/A
 506
 2,167
 N/A
Other gains, net1,936 2,673 (737)N/A1,383 553 N/A
Other operating revenue 48,832
 40,522
 8,310
 21% 41,611
 7,221
 17 %Other operating revenue52,021 48,832 3,189 7 %47,898 4,123 9 %
              
Personnel expense 43,705
 31,263
 12,442
 40% 42,268
 1,437
 3 %Personnel expense40,963 44,040 (3,077)(7)%39,873 1,090 3 %
Non-personnel expense 24,980
 19,776
 5,204
 26% 20,679
 4,301
 21 %Non-personnel expense25,883 25,087 796 3 %23,060 2,823 12 %
Other operating expense 68,685
 51,039
 17,646
 35% 62,947
 5,738
 9 %Other operating expense66,846 69,127 (2,281)(3)%62,933 3,913 6 %
              
Net direct contribution 150,789
 126,583
 24,206
 19% 157,455
 (6,666) (4)%Net direct contribution112,522 149,160 (36,638)(25)%116,312 (3,790)(3)%
Gain (loss) on financial instruments, net 28
 (3) 31
 N/A
 20
 8
 N/A
Gain on financial instruments, netGain on financial instruments, net38 28 10 N/A48 (10)N/A
Gain (loss) on repossessed assets, net 802
 (1,869) 2,671
 N/A
 2
 800
 N/A
Gain (loss) on repossessed assets, net(4,332)802 (5,134)N/A191 (4,523)N/A
Corporate expense allocations 12,613
 9,124
 3,489
 38% 11,385
 1,228
 11 %Corporate expense allocations5,172 11,772 (6,600)(56)%5,437 (265)(5)%
Income before taxes 139,006
 115,587
 23,419
 20% 146,092
 (7,086) (5)%Income before taxes103,056 138,218 (35,162)(25)%111,114 (8,058)(7)%
Federal and state income tax 37,433
 30,623
 6,810
 22% 39,156
 (1,723) (4)%Federal and state income tax27,959 37,232 (9,273)(25)%30,122 (2,163)(7)%
Net income $101,573
 $84,964
 $16,609
 20% $106,936
 $(5,363) (5)%Net income$75,097 $100,986 $(25,889)(26)%$80,992 $(5,895)(7)%
              
Average assets $23,973,067
 $18,499,979
 $5,473,088
 30% $22,910,071
 $1,062,996
 5 %Average assets$28,000,183 $23,973,925 $4,026,258 17 %$27,575,652 $424,531 2 %
Average loans 19,226,347
 15,321,600
 3,904,747
 25% 18,812,800
 413,547
 2 %Average loans18,677,401 19,226,347 (548,946)(3)%19,262,827 (585,426)(3)%
Average deposits 10,833,057
 8,633,204
 2,199,853
 25% 10,724,206
 108,851
 1 %Average deposits15,375,450 10,833,057 4,542,393 42 %14,599,225 776,225 5 %
Average invested capital 2,217,828
 1,382,983
 834,845
 60% 2,222,032
 (4,204) — %Average invested capital2,249,075 2,217,828 31,247 1 %2,230,707 18,368 1 %
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 $29.0 million or 24 percent overcompared to the prior year, primarilythird quarter of 2019. Net interest revenue decreased due to 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$13.1 million.

Fees and commissions revenue increased $6.8$3.9 million or 179 percent largely due to an increase in loan syndication fees based oncustomer energy hedging revenue as customers increased hedges due to the timing of completed transactions.volatile price environment. Operating expense increased $17.6expenses decreased $2.3 million or 353 percent, primarily due to a decrease in incentive compensation expense. Corporate expense allocations decreased $6.6 million or 56 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 billiondecreased $549 million or 253 percent overcompared to the third quarter of 20182019 to $19.2$18.7 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. 
- 16 -

 
Average deposits attributed to Commercial Banking were $10.8$15.4 billion for the third quarter of 2019,2020, a 25$4.5 billion or 42 percent increase compared toover the third quarter of 2018.2019. Continued deposit growth is primarily due to higher balance retention by customers in the current economic environment. See Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital for further discussion of change.

Net interest revenue decreased $5.5increased $4.8 million or 3 percent compared to the second quarter of 2019 largely as a result of a decrease in interest recoveries paired with a change in the deposit mix from non-interest bearing to interest bearing.2020, including higher discount accretion. Fees and commissions revenue increased $5.1$3.6 million, largely due toled by an increase in loancustomer energy hedging revenue and increased syndication fees based onactivity. Operating expense increased $3.9 million or 6 percent compared to the timingsecond quarter of completed transactions2020, primarily due to incentive compensation costs and an increase in revenue earned ondeposit insurance expense. Net losses and expenses of repossessed assets relatedalso increased $4.5 million due to certainimpairment of a set of oil and gas properties. Operating expense increased $5.7properties and a retail commercial real estate property.

Average loan balances decreased $585 million or 93 percent and average customer deposits increased $776 million or 5 percent over the second quarter of 2019 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.2020.
Average loan balances increased $414 million or 2 percent and average customer deposits increased $109 million or 1 percent over the second quarter of 2019.


- 17 -



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$26.3 million to consolidated net income for the third quarter of 2019,2020, an increase of $8.6$9.6 million over the third 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 September 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
June 30, 2020		Increase (Decrease)% Increase (Decrease)
 2019 2018  20202019
Net interest revenue from external sources $27,580
 $20,005
 $7,575
 38% $25,300
 $2,280
 9 %Net interest revenue from external sources$15,821 $27,580 $(11,759)(43)%$18,795 $(2,974)(16)%
Net interest revenue from internal sources 20,882
 19,039
 1,843
 10% 27,415
 (6,533) (24)%Net interest revenue from internal sources17,309 20,882 (3,573)(17)%20,475 (3,166)(15)%
Total net interest revenue 48,462
 39,044
 9,418
 24% 52,715
 (4,253) (8)%Total net interest revenue33,130 48,462 (15,332)(32)%39,270 (6,140)(16)%
Net loans charged off 1,841
 1,451
 390
 27% 1,728
 113
 7 %Net loans charged off79 1,841 (1,762)(96)%535 (456)(85)%
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 off33,051 46,621 (13,570)(29)%38,735 (5,684)(15)%
              
Fees and commissions revenue 51,460
 44,039
 7,421
 17% 48,830
 2,630
 5 %Fees and commissions revenue67,974 51,461 16,513 32 %67,192 782 1 %
Other losses, net (239) (15) (224) N/A
 (19) (220) N/A
Other losses, net(166)(240)74 N/A— (166)N/A
Other operating revenue 51,221
 44,024
 7,197
 16% 48,811
 2,410
 5 %Other operating revenue67,808 51,221 16,587 32 %67,192 616 1 %
              
Personnel expense 23,665
 23,543
 122
 1% 24,377
 (712) (3)%Personnel expense23,271 23,665 (394)(2)%23,821 (550)(2)%
Non-personnel expense 36,034
 34,939
 1,095
 3% 33,317
 2,717
 8 %Non-personnel expense36,568 36,034 534 1 %35,115 1,453 4 %
Total other operating expense 59,699
 58,482
 1,217
 2% 57,694
 2,005
 3 %Total other operating expense59,839 59,699 140 — %58,936 903 2 %
              
Net direct contribution 38,143
 23,135
 15,008
 65% 42,104
 (3,961) (9)%Net direct contribution41,020 38,143 2,877 8 %46,991 (5,971)(13)%
Gain (loss) on financial instruments, net 8,339
 (7,229) 15,568
 N/A
 20,981
 (12,642) N/A
Gain on financial instruments, netGain on financial instruments, net1,540 8,339 (6,799)N/A7,356 (5,816)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 rights3,441 (12,593)16,034 N/A(761)4,202 N/A
Gain (loss) on repossessed assets, net 214
 (87) 301
 N/A
 92
 122
 N/A
Gain on repossessed assets, netGain on repossessed assets, net41 214 (173)N/A27 14 N/A
Corporate expense allocations 11,776
 11,037
 739
 7% 11,695
 81
 1 %Corporate expense allocations10,812 11,776 (964)(8)%10,812 — — %
Income before taxes 22,327
 10,754
 11,573
 108% 21,927
 400
 2 %Income before taxes35,230 22,327 12,903 58 %42,801 (7,571)(18)%
Federal and state income tax 5,687
 2,739
 2,948
 108% 5,585
 102
 2 %Federal and state income tax8,974 5,687 3,287 58 %10,901 (1,927)(18)%
Net income $16,640
 $8,015
 $8,625
 108% $16,342
 $298
 2 %Net income$26,256 $16,640 $9,616 58 %$31,900 $(5,644)(18)%
              
Average assets $9,827,130
 $8,323,543
 $1,503,587
 18% $9,212,667
 $614,463
 7 %Average assets$9,898,119 $9,827,130 $70,989 1 %$9,920,005 $(21,886)— %
Average loans 1,773,831
 1,719,679
 54,152
 3% 1,796,823
 (22,992) (1)%Average loans1,825,865 1,773,831 52,034 3 %1,679,164 146,701 9 %
Average deposits 6,983,018
 6,580,395
 402,623
 6% 6,998,677
 (15,659) — %Average deposits7,940,973 6,983,018 957,955 14 %7,587,246 353,727 5 %
Average invested capital 288,216
 285,521
 2,695
 1% 304,990
 (16,774) (5)%Average invested capital263,299 288,216 (24,917)(9)%258,558 4,741 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 from Consumer Banking activities grewdeclined by $9.4$15.3 million or 2432 percent over thecompared to the third quarter of 2018,2019, primarily due to an increasea decrease in the yield on deposits sold to our Funds Management unit.unit and compressed loans spreads. Average consumer deposits grew $403$958 million over the third quarter of 20182019 with demand deposit balances increasing $330$629 million or 17 percent, largely due to the allocation of acquired deposits.28 percent.
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Fees and commissions revenue increased $7.4$16.5 million or 1732 percent over the third quarter of 2018.2019. Lower mortgage interest rates increased mortgage loan origination volumes. Mortgage production volume increased $315$134 million or 5315 percent and gain on sale margin increased 30216 basis points.points due to industry-wide capacity constraints. Deposit service charges decreased $4.9 million. During these uncertain times, we proactively waived certain fees. In addition, the pandemic has resulted in customers retaining cash and not maintaining the usual level of spending, which has decreased overdraft fees compared to the prior year. Operating expense increased by $1.2 million. An increase in mortgage banking costs was partially offset by decreasesrelatively consistent with the third quarter of 2019. Increases in occupancy and equipment expense and professional fees and services.mortgage banking costs were offset by a decrease in business promotion expense. Corporate expense allocations were $739$964 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 third quarter of 20192020 by $4.3$5.0 million compared to a $1.3$4.3 million decrease in pre-tax net income in the third quarter of 2018.2019.

Net interest revenue from Consumer Banking activities decreased $4.3$6.1 million or 816 percent compared to the second quarter of 2019, primarily2020, largely due to an decrease in the yieldlower yields on deposits sold to our Funds Management unit.
unit and compressed loan spreads. Operating revenue increased $2.4 million or 5 percent compared towas relatively consistent with the second quarter of 2019. Revenues from mortgage banking activities increased $2.0 million due to lower interest rates that drove an2020. An increase in mortgage origination. Mortgage production volume increased $102 million or 13 percent and gain on sale margins climbed to 1.51 percent from 1.46 percent.
Operating expenses increased $2.0 million, nearly all related to non-personnel expenses. Mortgage banking costs increased $3.4 million related to increased payoffs as mortgage interest rates declined during the quarter. This increasedeposit service charges was partiallymostly offset by a decrease in business promotion expense and personnel expense.mortgage servicing revenue. Operating expenses were also largely unchanged compared to the previous quarter.

Average consumer loans decreased $23increased $147 million or 19 percent. Average deposits were consistent compared to the prior quarter.increased $354 million or 5 percent.

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Wealth Management

Wealth Management contributed $23.2$31.2 million to consolidated net income in the third quarter of 2019, down $5.72020, an increase of $8.0 million or 2034 percent compared to the third 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.


U.S. agency residential mortgage-backed securities and related derivatives trading, was partially offset by related incentive compensation costs.


Table 11 -- Wealth Management
(Dollars in thousands)
 Three Months Ended September 30,Increase (Decrease)% Increase (Decrease)Three Months Ended
June 30, 2020		Increase (Decrease)% Increase (Decrease)
 20202019
Net interest revenue from external sources$34,098 $12,343 $21,755 176 %$34,359 $(261)(1)%
Net interest revenue from internal sources(11,113)10,723 (21,836)(204)%(7,479)(3,634)49 %
Total net interest revenue22,985 23,066 (81)— %26,880 (3,895)(14)%
Net loans charged off (recovered)(51)(42)(9)21 %(89)38 (43)%
Net interest revenue after net loans charged off (recovered)23,036 23,108 (72)— %26,969 (3,933)(15)%
Fees and commissions revenue111,655 89,422 22,233 25 %106,757 4,898 5 %
Other gains (losses), net(503)(262)(241)N/A(83)(420)N/A
Other operating revenue111,152 89,160 21,992 25 %106,674 4,478 4 %
Personnel expense62,508 52,316 10,192 19 %61,909 599 1 %
Non-personnel expense20,360 19,303 1,057 5 %18,658 1,702 9 %
Other operating expense82,868 71,619 11,249 16 %80,567 2,301 3 %
Net direct contribution51,320 40,649 10,671 26 %53,076 (1,756)(3)%
Corporate expense allocations9,397 9,416 (19)— %8,204 1,193 15 %
Income before taxes41,923 31,233 10,690 34 %44,872 (2,949)(7)%
Federal and state income tax10,711 8,027 2,684 33 %11,478 (767)(7)%
Net income$31,212 $23,206 $8,006 34 %$33,394 $(2,182)(7)%
Average assets$16,206,522 $10,391,225 $5,815,297 56 %$15,721,452 $485,070 3 %
Average loans1,777,008 1,671,102 105,906 6 %1,709,363 67,645 4 %
Average deposits9,090,116 6,590,332 2,499,784 38 %8,385,681 704,435 8 %
Average invested capital299,217 279,782 19,435 7 %295,245 3,972 1 %
  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 percentwas largely unchanged compared to the third 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.our Funds Management unit. Average loans attributed to the Wealth Management segment increased $231$106 million or 16 percent and average6 percent. Average deposits increased $1.1$2.5 billion or 2038 percent, largely due to core growth as customers are retaining higher balances in the allocation of acquired loans and deposits.current economic environment.

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Fees and commissions revenue increased $21.3$22.2 million or 3125 percent over the third quarter of 2018.2019. Brokerage and trading revenue increased $17.3$21.6 million due to increased trading activity as a result of lower mortgage interest rates. Operating expenseWe increased $9.4 million or 15 percent comparedour trading pipeline for U.S. agency mortgage-backed securities 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 $6.2 billion for the third quarter of 2018. Personnel2020 compared to $3.4 billion for the third quarter of 2019. Fiduciary and asset management revenue decreased $3.7 million related to a combination of lower mutual fund fees and waived fees. Operating 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$11.2 million or 16 percent compared to the third 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 or 15 percentwere relatively consistent compared to the prior year.



Net income for Wealth Management decreased $2.3$2.2 million or 97 percent compared to the second 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 $3.9 million primarily due to a lower yieldyields on trading securities and deposits sold to our funds management unit and an increase in unsettled securities receivables.Funds Management unit. Brokerage and trading revenue increased $4.0 million. Increases in trading revenue of $3.0 million due to an increaseand other revenue of $2.3 million were partially offset by a decrease in trading activity and volumes due to favorable interest rate changes. Fiduciaryfiduciary and asset management revenue decreased $1.4 million largely duerevenue. We continue to a seasonal increase relatedmaintain an increased trading pipeline to tax fees collected inprovide greater liquidity to the second quarter. Operating expenses increased $2.2 million, largely due to increased incentive compensation.housing market during this time of low interest rates.

Average loans increased $23 million or 1 percent to $1.7maintained at $1.8 billion and average deposits increased $369$704 million or 68 percent to $6.6$9.1 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 September 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 millionincreased $1.0 billion to $1.7$2.2 billion during the third 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 September 30, 2019,2020, the carrying value of investment (held-to-maturity) securities was $304$256 million, and theincluding a $739 thousand allowance for expected credit losses compared to $268 million at June 30, 2020 with a $1.6 million allowance for expected credit losses. The fair value of investment securities was $324 million.$285 million at September 30, 2020 and $296 million at June 30, 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$12.3 billion at September 30, 2019,2020, a $464$348 million increase compared to June 30, 2019 as a measure to protect for a down rate environment.2020. 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 September 30, 20192020 is 3.02.3 years. Management estimates the duration extends to 4.03.8 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.

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Loans

The aggregate loan portfolio before allowance for loan losses totaled $22.3$23.8 billion at September 30, 2019, up $302020, a $353 million overdecrease compared to June 30, 2019. Growth2020, primarily due to paydowns in the commercial and personal loans was partially offset by a decrease in commercial real estate and residential mortgage loans.

portfolio.

Table 12 -- Loans
(In thousands)
Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Commercial: 
Energy$3,717,101 $3,974,174 $4,111,676 $3,973,377 $4,114,269 
Services3,545,825 3,779,881 3,955,748 3,832,031 4,011,089 
Healthcare3,325,790 3,289,343 3,165,096 3,033,916 3,032,968 
General business2,976,990 3,115,112 3,563,455 3,192,326 3,266,299 
Total commercial13,565,706 14,158,510 14,795,975 14,031,650 14,424,625 
Commercial real estate:
Multifamily1,387,461 1,407,107 1,282,457 1,265,562 1,324,839 
Office1,099,563 973,995 962,004 928,379 1,014,275 
Retail786,211 780,467 774,198 775,521 799,169 
Industrial792,389 723,005 728,026 856,117 873,536 
Residential construction and land development121,258 136,911 138,958 150,879 135,361 
Other commercial real estate506,818 532,659 564,442 457,325 478,877 
Total commercial real estate4,693,700 4,554,144 4,450,085 4,433,783 4,626,057 
Paycheck protection program2,097,325 2,081,428 — — — 
Loans to individuals: 
Residential mortgage1,849,144 1,813,442 1,844,555 1,886,378 1,925,539 
Residential mortgage guaranteed by U.S. government agencies384,247 322,269 197,889 197,794 191,764 
Personal1,213,178 1,226,097 1,175,466 1,201,382 1,117,382 
Total loans to individuals3,446,569 3,361,808 3,217,910 3,285,554 3,234,685 
Total$23,803,300 $24,155,890 $22,463,970 $21,750,987 $22,285,367 
  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$13.6 billion or 6557 percent of the loan portfolio at September 30, 2019, an $882020, a $593 million increase overdecrease compared to June 30, 2019. Energy loan balances grew by $193 million. Healthcare2020, primarily due to continued paydowns in the third quarter.

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Approximately 78 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$3.7 billion or 1816 percent of total loans at September 30, 2019. Unfunded energy loan commitments were $3.2 billion at September 30, 2019,2020, a $44$257 million decrease compared to June 30, 2019 primarily due to increased utilization in the third quarter.2020. Approximately $3.3$2.8 billion of energy loans were to oil and gas producers, growing $165down $236 million overcompared to June 30, 2019.2020. 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 5867 percent of the committed production loans are secured by properties primarily producing oil and 4233 percent of the committed production loans are secured by properties primarily producing natural gas.

Loans to midstream oil and gas companies totaled $574$711 million at September 30, 2019,2020, up $4.9$23 million over June 30, 2019.2020. Loans to borrowers that provide services to the energy industry totaled $190$113 million at September 30, 2019, an increase of $7.12020, down $29 million. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $69$48 million, a $16$15 million increase overdecrease compared to the prior quarter.

Unfunded energy loan commitments were $2.3 billion at September 30, 2020, a $214 million decrease compared to June 30, 2020, and a $660 million decrease compared to December 31, 2019, largely as a result of the semi-annual borrowing base redetermination process in the second quarter.

The serviceshealthcare sector of the loan portfolio totaled $3.3 billion or 14 percent of total loans. Healthcare loans increased $36 million over June 30, 2020, primarily due to growth in loans to senior housing and care facilities. Healthcare sector loans consist primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Generally we loan to borrowers with a portfolio of multiple facilities that serves to help diversify risks specific to a single facility. 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 $234 million to $3.5 billion or 15 percent of total loans. Service sector loans and consistsconsist 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 totaledGeneral business loans decreased $138 million to $3.0 billion or 1413 percent of total loans. General business loans primarily consist of $1.7 billion of wholesale/retail loans and consists primarily$748 million of loans forfrom other commercial industries.

Our services and general business loans include areas we consider to be more exposed to the developmenteconomic slowdown as a result of the social distancing measures in place to combat the COVID-19 pandemic such as entertainment and operationrecreation, retail, hotels, churches, airline travel, and higher education that are dependent on large social gatherings to remain profitable. This represents less than 7 percent of senior housing and care facilities, including independent living, assisted living and skilled nursing. Healthcare also includes loansour total portfolio. Some of these borrowers have participated in the PPP, which has provided some measure of relief. We will continue to hospitals and other medical service providers.monitor these areas closely in the coming months.

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We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $100 million and with three or more non-affiliated banks as participants. At September 30, 2019,2020, the outstanding principal balance of these loans totaled $4.8 billion.$4.2 billion, including $1.9 billion of energy loans. Substantially all of these loans are to borrowers with local market relationships. We serve as the agent lender in approximately 1719 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 $140 million over June 30, 2020. Continued friction in the permanent financing market continued to constrain paydown activity. Loans secured by office buildings increased $126 million to $1.1 billion. Loans secured by industrial facilities increased $69 million. Loans secured by other commercial real estate properties decreased $26 million to $507 million. Multifamily residential loans, our largest exposure in commercial real estate, decreased $20 million to $1.4 billion at September 30, 2020. Loans secured by retail facilities were $786 million at September 30, 2020, largely unchanged from the prior quarter.

Approximately 68 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 8 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. PersonalThese loans consistare made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.

In general, we sell the majority of our conforming fixed rate loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Home equity loans are primarily of loans to wealth management clients secured by the cash surrender value of insurance policiesfirst-lien 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. fully amortizing.

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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.

Residential mortgagePersonal loans totaled $2.1 billion, a decreaseconsist primarily of $54 million comparedloans to June 30, 2019. In general, we sellWealth Management clients secured by the majoritycash surrender value of our conforming fixed rate loan originationsinsurance 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 92 percent of the loans 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 thatthis segment are below market. Collateral for 93% of our residential mortgage loan portfolio issecured 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.

Oklahoma market.

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Table 17 --13-- Loans Managed by Primary Geographical Market
(In thousands)
Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Texas:
Commercial$5,545,158 $5,771,691 $6,350,690 $6,174,894 $6,220,227 
Commercial real estate1,499,630 1,389,547 1,296,266 1,259,117 1,292,116 
Paycheck protection program614,970 612,133 — — — 
Loans to individuals792,994 748,474 756,634 727,175 749,361 
Total Texas8,452,752 8,521,845 8,403,590 8,161,186 8,261,704 
Oklahoma:
Commercial4,901,666 5,086,934 3,886,086 3,454,825 3,690,100 
Commercial real estate647,228 636,021 593,473 631,026 679,786 
Paycheck protection program487,247 442,518 — — — 
Loans to individuals2,036,452 1,967,665 1,788,518 1,854,864 1,753,698 
Total Oklahoma8,072,593 8,133,138 6,268,077 5,940,715 6,123,584 
Colorado:
Commercial1,501,821 1,600,382 2,181,309 2,169,598 2,247,798 
Commercial real estate890,746 937,742 955,608 927,826 975,066 
Paycheck protection program494,910 488,279 — — — 
Loans to individuals257,345 264,872 268,674 276,939 303,605 
Total Colorado3,144,822 3,291,275 3,405,591 3,374,363 3,526,469 
Arizona:
Commercial956,047 1,036,862 1,396,582 1,307,073 1,276,534 
Commercial real estate692,987 689,121 714,161 728,832 771,425 
Paycheck protection program272,114 318,961 — — — 
Loans to individuals166,115 177,066 181,821 186,539 170,815 
Total Arizona2,087,263 2,222,010 2,292,564 2,222,444 2,218,774 
Kansas/Missouri:
Commercial414,038 404,860 556,255 527,872 566,969 
Commercial real estate352,241 314,504 310,799 322,541 374,795 
Paycheck protection program80,230 76,724 — — — 
Loans to individuals96,358 102,577 116,734 131,069 146,522 
Total Kansas/Missouri942,867 898,665 983,788 981,482 1,088,286 
New Mexico:
Commercial157,322 182,688 327,164 305,320 335,409 
Commercial real estate471,505 455,574 434,150 402,148 374,331 
Paycheck protection program133,244 128,058 — — — 
Loans to individuals79,890 83,470 87,110 90,257 92,270 
Total New Mexico841,961 849,790 848,424 797,725 802,010 
Arkansas:
Commercial89,654 75,093 97,889 92,068 87,588 
Commercial real estate139,363 131,635 145,628 162,293 158,538 
Paycheck protection program14,610 14,755 — — — 
Loans to individuals17,415 17,684 18,419 18,711 18,414 
Total Arkansas261,042 239,167 261,936 273,072 264,540 
Total BOK Financial loans$23,803,300 $24,155,890 $22,463,970 $21,750,987 $22,285,367 
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  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 September 30, 2020, agency-serviced loans in forbearance included 3,436 borrowers with an unpaid principal balance of $567 million. For certain contracts, we must advance principal and interest payments during the forbearance period. Advances as of September 30, 2020 totaled $5.8 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 September 30, 2020, 25 percent of borrowers in forbearance remained current.

Table 1814 – Off-Balance Sheet Credit Commitments
(In thousands)
 Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Loan commitments$10,430,160 $10,298,572 $9,960,678 $11,065,649 $11,259,366 
Standby letters of credit678,136 693,177 683,516 645,505 712,944 
Unpaid principal balance of residential mortgage loans sold with recourse77,225 82,305 86,336 88,808 92,139 
Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs1,574,272 1,715,025 3,217,567 3,375,451 3,472,375 
  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.

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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 September 30, 2019,2020, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $401$615 million compared to $389$658 million at June 30, 2019.2020. At September 30, 2019,2020, the net fair value of our derivative contracts included $207$309 million for foreign exchange contracts, $124$171 million for energy contracts and $67$132 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$589 million at September 30, 20192020 and $369$620 million at June 30, 2019.2020.

At September 30, 2019,2020, total derivative assets were reduced by $67$93 million of cash collateral received from counterparties and total derivative liabilities were reduced by $63$160 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 September 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$345,460 
Banks and other financial institutions177,114 
Fair value of customer risk management program asset derivative contracts, net$522,574 
 
At September 30, 2019,2020, our largest derivative exposure was to a borrower for an exchange for energy contracts, netinterest rate swap of cash margin, of $35$12 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$25.91 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$52.67 per barrel of oil would increase the fair value of derivative assets by $55 million.$347 million as margin received falls faster than the asset values. Further increases in price to the equivalent of $79.46$71.23 per barrel of oil would increase the fair value of our derivative assets by $268$831 million with lending customers comprising the bulk of     the assets. Liquidity requirements of this program may also be affected by our credit rating. At September 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 September 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.
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Summary of LoanCredit Loss Experience

We maintainTable 16 -- Summary of Credit Loss Experience
(In thousands)
Three Months Ended
Sept. 30, 2020June 30, 2020Mar. 31, 2020
Allowance for loan losses:
Beginning balance$435,597 $315,311 210,759 
CECL transition adjustment1
— — 25,809 
Beginning balance, adjusted435,597 315,311 236,568 
Loans charged off(26,661)(15,570)(18,917)
Recoveries of loans previously charged off4,232 1,491 1,696 
Net loans charged off(22,429)(14,079)(17,221)
Provision for credit losses6,609 134,365 95,964 
Ending balance$419,777 $435,597 315,311 
Accrual for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$32,919 $28,514 1,585 
CECL transition adjustment— — 23,552 
Beginning balance, adjusted32,919 28,514 25,137 
Provision for credit losses(4,950)4,405 3,377 
Ending balance$27,969 $32,919 28,514 
Accrual for off-balance sheet credit risk associated with mortgage banking activities:
Beginning balance$6,041 $9,660 4,820 
CECL transition adjustment— — 10,915 
Beginning balance, adjusted6,041 9,660 15,735 
Loans charged off(25)(44)(55)
Provision for credit losses(770)(3,575)(6,020)
Ending balance$5,246 $6,041 9,660 
Allowance for credit losses related to held-to-maturity (investment) securities:
Beginning balance$1,628 $1,502 $— 
CECL transition adjustment— — 1,052 
Beginning balance, adjusted1,628 1,502 1,052 
Provision for credit losses(889)126 450 
Ending balance$739 $1,628 $1,502 
Total provision for credit losses$— $135,321 $93,771 
Net charge-offs (annualized) to average loans0.37 %0.23 %0.31 %
Net charge-offs (annualized) to average loans excluding PPP loans2
0.41 %0.25 %0.31 %
Recoveries to gross charge-offs15.87 %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-end1.76 %1.80 %1.40 %
Allowance for loan losses to loans outstanding at period-end excluding PPP loans2
1.93 %1.97 %1.40 %
Accrual for unfunded loan commitments to loan commitments0.27 %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-end1.88 %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
2.06 %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.
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 Three Months Ended
Dec. 31, 2019Sept. 30, 2019
Allowance for loan losses: 
Beginning balance$204,432 $202,534 
Loans charged off(14,268)(11,707)
Recoveries of loans previously charged off1,816 1,066 
Net loans charged off(12,452)(10,641)
Provision for loan losses18,779 12,539 
Ending balance$210,759 $204,432 
Accrual for off-balance sheet credit losses:
Beginning balance$1,364 $1,903 
Provision for off-balance sheet credit losses221 (539)
Ending balance$1,585 $1,364 
Total combined provision for credit losses$19,000 $12,000 
Net charge-offs (recoveries) (annualized) to average loans0.22 %0.19 %
Recoveries to gross charge-offs12.73 %9.11 %
Provision for loan losses (annualized) to average loans0.34 %0.21 %
Allowance for loan losses to loans outstanding at period-end0.97 %0.92 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments0.01 %0.01 %
Combined allowance for credit losses and off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end0.98 %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.
No provision for credit losses was necessary for the third quarter of 2020. A $1.7 million provision related to lending activities was offset by a decrease in the accrual for expected credit losses from mortgage banking activities and allowance for credit losses from investment securities. Changes in our reasonable and supportable forecasts of macroeconomic variables, primarily due to an improved economic outlook related to the anticipated impact of the on-going COVID-19 pandemic, and other assumptions, resulted in a $12.8 million decrease in the provision for credit losses from lending activities. Changes in the loan portfolio characteristics, including specific impairment and losses, loan balances and risk grading resulted in a $14.5 million increase in the provision for credit losses from lending activities.

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Our reasonable and supportable forecast of macroeconomic variables are significantly influenced by the COVID-19 pandemic developments and related government stimulus policies. A summary of macroeconomic variables considered in developing our estimate of expected credit losses at September 30, 2020 follows:

BaseDownsideUpside
Scenario probability weighting50%25%25%
COVID-19 trajectoryTrajectory of COVID-19 maintains current level with localized and state-level hotspots and second waves emerging. This leads to isolated shutdowns; FDA approval of at least one vaccine before the end of 2020 and large share of U.S. population vaccinated by end of third quarter of 2021.Trajectory of COVID-19 pandemic worsens moving into fall and winter months; widespread second wave emerges throughout the fourth quarter of 2020 and first quarter of 2021. As cases rise, highly impacted states/regions enact shutdowns, though a nation-wide shutdown is not re-implemented. FDA approves at least one vaccine by the first quarter of 2021, but slow distribution delays widespread vaccination in the U.S. until early 2022.Trajectory of COVID-19 continues to improve from peak experienced in summer. This leads to isolated shutdowns, even at a more localized level.
Economic recovery (driven by COVID-19 trajectory)After a strong bounce back in third quarter of 2020, GDP moderates to rates consistent with historical averages and recovers to pre-COVID-19 levels by the end of 2021.Deteriorated COVID-19 situation, slow vaccine distribution and lack of fiscal stimulus in 2020 cause the economy to fall back into recession. GDP does not recover to pre-COVID-19 levels until early 2023.After a strong bounce back in third quarter of 2020, GDP continues to grow at levels above historical averages, especially in the first quarter of 2021. GDP recovers to pre-COVID-19 levels by mid-year 2021.
Fiscal stimulus (driven by economic recovery)No additional fiscal stimulus packages are enacted in 2020. First quarter 2021 additional fiscal stimulus package enacted just under $1.0 trillion. Stimulus will be more targeted and include a less generous round of unemployment benefits, additional small business support and modest state fiscal aid, but no further payments to individuals.No additional fiscal stimulus packages are enacted in 2020. Large-scale fiscal stimulus package of $1.5 to $2.0 trillion enacted in the first quarter of 2021. Stimulus will be more targeted and include a less generous round of unemployment benefits, additional small business support and state fiscal aid and payments to individuals.No additional fiscal stimulus packages are enacted in 2020 or 2021.
Macro-economic factors
–GDP is forecasted to grow by 4.0 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 improves to 6.9 percent by the third quarter of 2021.
–WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of September 2020 and are expected to average $41.65 per barrel over the next 12 months.
–GDP is forecasted to contract 0.8 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 increases in the next two quarters then improving to 9.5 percent by the third quarter of 2021.
–WTI oil prices are projected to average $33.61 over the next 12 months.
–GDP is forecasted to grow by 7.0 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 quickly improves to 5.9 percent by the third quarter of 2021.
–WTI oil prices are projected to average $44.60 per barrel over the next 12 months.
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Net charge-offs and changes in specific impairments attributed to certain credits required a $17.8 million provision during the third quarter. This provision was partially offset by a change in risk grading and outstanding loan balances to measure the provision for credit losses related to changes in loan portfolio characteristics. A summary of outstanding loan balances by risk grade is included in Note 4 to the Consolidated Financial Statements. Non-pass grade loans include other loans especially mentioned, defined by regulatory guidelines as loans that are currently performing in compliance with original terms but may have a potential weakness that deserves management’s close attention, accruing substandard loans, and nonaccruing loans. Non-pass grade loans totaled $1.5 billion at September 30, a $79 million decrease from June 30. Non-pass graded energy loans totaled $1.0 billion at September 30, a $99 million decrease from June 30.

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 of 2020. 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. At the peak, deferral request totaled $1.6 billion or 8 percent of total loans. More than 80 percent of loans have since returned to regular payment status. At September 30, 2020, $264 million or 1 percent of loans remain in deferral status, including $99 million or 1 percent of commercial loans, primarily small business and healthcare loans; $123 million or 3 percent of commercial real estate loans and $42 million or 1 percent of personal loans.

The allowance for loan losses totaled $420 million or 1.76 percent of outstanding loans and 195 percent of nonaccruing loans at September 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. Atrisk from unfunded loan commitments was $448 million or 1.88 percent of outstanding loans and 208 percent of nonaccruing loans at September 30, 2019,2020. Excluding PPP loans, the allowance for loan losses was 1.93 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.06 percent.

The allowance for credit losses totaled $206attributed to energy was 4.30 percent of outstanding energy loans at September 30. Our semi-annual borrowing base redeterminations during the second quarter of 2020 were based on forward pricing curves that existed at that time, which 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, 93 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 $135.3 million provision for credit losses in the second quarter of 2020. The allowance for loan losses was $436 million or 0.921.80 percent of outstanding loans and 124175 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies.agencies at June 30, 2020. 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 core nonaccruing loans. Excluding acquiredPPP loans, measured at acquisition date fair value,the allowance for loan losses was 1.97 percent of outstanding loans and 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 against 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 lossescommitments 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.




2.12 percent.
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 1 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 sector 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 $140 million over June 30, 2020. Continued friction in the permanent financing market continued to constrain paydown activity. Loans secured by office buildings increased $126 million to $1.1 billion. Loans secured by industrial facilities increased $69 million. Loans secured by other commercial real estate properties decreased $26 million to $507 million. Multifamily residential loans, our largest exposure in commercial real estate, decreased $20 million to $1.4 billion at September 30, 2020. Loans secured by retail facilities were $786 million at September 30, 2020, largely unchanged from the prior quarter.

Approximately 68 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 8 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. 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.

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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 92 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.

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Table 13-- Loans Managed by Primary Geographical Market
(In thousands)
Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Texas:
Commercial$5,545,158 $5,771,691 $6,350,690 $6,174,894 $6,220,227 
Commercial real estate1,499,630 1,389,547 1,296,266 1,259,117 1,292,116 
Paycheck protection program614,970 612,133 — — — 
Loans to individuals792,994 748,474 756,634 727,175 749,361 
Total Texas8,452,752 8,521,845 8,403,590 8,161,186 8,261,704 
Oklahoma:
Commercial4,901,666 5,086,934 3,886,086 3,454,825 3,690,100 
Commercial real estate647,228 636,021 593,473 631,026 679,786 
Paycheck protection program487,247 442,518 — — — 
Loans to individuals2,036,452 1,967,665 1,788,518 1,854,864 1,753,698 
Total Oklahoma8,072,593 8,133,138 6,268,077 5,940,715 6,123,584 
Colorado:
Commercial1,501,821 1,600,382 2,181,309 2,169,598 2,247,798 
Commercial real estate890,746 937,742 955,608 927,826 975,066 
Paycheck protection program494,910 488,279 — — — 
Loans to individuals257,345 264,872 268,674 276,939 303,605 
Total Colorado3,144,822 3,291,275 3,405,591 3,374,363 3,526,469 
Arizona:
Commercial956,047 1,036,862 1,396,582 1,307,073 1,276,534 
Commercial real estate692,987 689,121 714,161 728,832 771,425 
Paycheck protection program272,114 318,961 — — — 
Loans to individuals166,115 177,066 181,821 186,539 170,815 
Total Arizona2,087,263 2,222,010 2,292,564 2,222,444 2,218,774 
Kansas/Missouri:
Commercial414,038 404,860 556,255 527,872 566,969 
Commercial real estate352,241 314,504 310,799 322,541 374,795 
Paycheck protection program80,230 76,724 — — — 
Loans to individuals96,358 102,577 116,734 131,069 146,522 
Total Kansas/Missouri942,867 898,665 983,788 981,482 1,088,286 
New Mexico:
Commercial157,322 182,688 327,164 305,320 335,409 
Commercial real estate471,505 455,574 434,150 402,148 374,331 
Paycheck protection program133,244 128,058 — — — 
Loans to individuals79,890 83,470 87,110 90,257 92,270 
Total New Mexico841,961 849,790 848,424 797,725 802,010 
Arkansas:
Commercial89,654 75,093 97,889 92,068 87,588 
Commercial real estate139,363 131,635 145,628 162,293 158,538 
Paycheck protection program14,610 14,755 — — — 
Loans to individuals17,415 17,684 18,419 18,711 18,414 
Total Arkansas261,042 239,167 261,936 273,072 264,540 
Total BOK Financial loans$23,803,300 $24,155,890 $22,463,970 $21,750,987 $22,285,367 
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Off-Balance Sheet Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 14. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

We have off-balance sheet commitments related to certain residential mortgage loans sold into mortgage-backed securities as part of our mortgage banking activities. We retain off-balance sheet credit risk related to losses in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA"). 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 September 30, 2020, agency-serviced loans in forbearance included 3,436 borrowers with an unpaid principal balance of $567 million. For certain contracts, we must advance principal and interest payments during the forbearance period. Advances as of September 30, 2020 totaled $5.8 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 September 30, 2020, 25 percent of borrowers in forbearance remained current.

Table 14 – Off-Balance Sheet Credit Commitments
(In thousands)
 Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Loan commitments$10,430,160 $10,298,572 $9,960,678 $11,065,649 $11,259,366 
Standby letters of credit678,136 693,177 683,516 645,505 712,944 
Unpaid principal balance of residential mortgage loans sold with recourse77,225 82,305 86,336 88,808 92,139 
Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs1,574,272 1,715,025 3,217,567 3,375,451 3,472,375 
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 depending on loan class. In addition, non-risk graded loansto changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are generally charged-downidentical 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 value within 60 days of being notified of a borrower's bankruptcy filing, regardless of payment status.in conjunction with our credit agreements to further limit our credit risk.

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Counterparty credit risk is evaluated through existing policies and procedures. This evaluation considers the total relationship between BOK Financial had net charge-offsand each of $10.6 millionthe 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 third quartercounterparties’ credit ratings, these limits may be reduced and additional margin collateral may be required.

A deterioration of 2019,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 September 30, 2020, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $615 million compared to $658 million at June 30, 2020. At September 30, 2020, the net charge-offsfair value of $7.7our derivative contracts included $309 million infor foreign exchange contracts, $171 million for energy contracts and $132 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 $589 million at September 30, 2020 and $620 million at June 30, 2020.

At September 30, 2020, total derivative assets were reduced by $93 million of cash collateral received from counterparties and total derivative liabilities were reduced by $160 million of cash collateral paid to counterparties related to instruments executed with the second quartersame counterparty under a master netting agreement.

A table showing the notional and fair value of 2019derivative assets and liabilities on both a gross and net charge-offsbasis is presented in Note 3 to the Consolidated Financial Statements.

The fair value of $9.0derivative contracts reported as assets under these programs, net of cash margin held by the Company, by category of debtor at September 30, 2020 follows in Table 15.

Table 15 -- Fair Value of Derivative Contracts
(In thousands)
Customers$345,460 
Banks and other financial institutions177,114 
Fair value of customer risk management program asset derivative contracts, net$522,574 
At September 30, 2020, our largest derivative exposure was to a borrower for an interest rate swap of $12 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 $25.91 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 $52.67 per barrel of oil would increase the fair value of derivative assets by $347 million as margin received falls faster than the asset values. Further increases in price to the third quarterequivalent of 2018.$71.23 per barrel of oil would increase the fair value of our derivative assets by $831 million with lending customers comprising the bulk of     the assets. Liquidity requirements of this program may also be affected by our credit rating. At September 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 ratiofair value of net loans charged offour 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 September 30, 2020, changes in interest rates would not materially impact regulatory capital or liquidity needed to average loanssupport this portion of our customer derivative program.
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Summary of Credit Loss Experience

Table 16 -- Summary of Credit Loss Experience
(In thousands)
Three Months Ended
Sept. 30, 2020June 30, 2020Mar. 31, 2020
Allowance for loan losses:
Beginning balance$435,597 $315,311 210,759 
CECL transition adjustment1
— — 25,809 
Beginning balance, adjusted435,597 315,311 236,568 
Loans charged off(26,661)(15,570)(18,917)
Recoveries of loans previously charged off4,232 1,491 1,696 
Net loans charged off(22,429)(14,079)(17,221)
Provision for credit losses6,609 134,365 95,964 
Ending balance$419,777 $435,597 315,311 
Accrual for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$32,919 $28,514 1,585 
CECL transition adjustment— — 23,552 
Beginning balance, adjusted32,919 28,514 25,137 
Provision for credit losses(4,950)4,405 3,377 
Ending balance$27,969 $32,919 28,514 
Accrual for off-balance sheet credit risk associated with mortgage banking activities:
Beginning balance$6,041 $9,660 4,820 
CECL transition adjustment— — 10,915 
Beginning balance, adjusted6,041 9,660 15,735 
Loans charged off(25)(44)(55)
Provision for credit losses(770)(3,575)(6,020)
Ending balance$5,246 $6,041 9,660 
Allowance for credit losses related to held-to-maturity (investment) securities:
Beginning balance$1,628 $1,502 $— 
CECL transition adjustment— — 1,052 
Beginning balance, adjusted1,628 1,502 1,052 
Provision for credit losses(889)126 450 
Ending balance$739 $1,628 $1,502 
Total provision for credit losses$— $135,321 $93,771 
Net charge-offs (annualized) to average loans0.37 %0.23 %0.31 %
Net charge-offs (annualized) to average loans excluding PPP loans2
0.41 %0.25 %0.31 %
Recoveries to gross charge-offs15.87 %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-end1.76 %1.80 %1.40 %
Allowance for loan losses to loans outstanding at period-end excluding PPP loans2
1.93 %1.97 %1.40 %
Accrual for unfunded loan commitments to loan commitments0.27 %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-end1.88 %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
2.06 %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 an annualized basisacquired loans.
2    Metric meaningful due to the unique characteristics and short-term nature of the PPP loans.
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 Three Months Ended
Dec. 31, 2019Sept. 30, 2019
Allowance for loan losses: 
Beginning balance$204,432 $202,534 
Loans charged off(14,268)(11,707)
Recoveries of loans previously charged off1,816 1,066 
Net loans charged off(12,452)(10,641)
Provision for loan losses18,779 12,539 
Ending balance$210,759 $204,432 
Accrual for off-balance sheet credit losses:
Beginning balance$1,364 $1,903 
Provision for off-balance sheet credit losses221 (539)
Ending balance$1,585 $1,364 
Total combined provision for credit losses$19,000 $12,000 
Net charge-offs (recoveries) (annualized) to average loans0.22 %0.19 %
Recoveries to gross charge-offs12.73 %9.11 %
Provision for loan losses (annualized) to average loans0.34 %0.21 %
Allowance for loan losses to loans outstanding at period-end0.97 %0.92 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments0.01 %0.01 %
Combined allowance for credit losses and off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end0.98 %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.
No provision for credit losses was 0.19 percentnecessary for the third quarter of 2019, compared with 0.14 percent2020. A $1.7 million provision related to lending activities was offset by a decrease in the accrual for expected credit losses from mortgage banking activities and allowance for credit losses from investment securities. Changes in our reasonable and supportable forecasts of macroeconomic variables, primarily due to an improved economic outlook related to the second quarteranticipated impact of 2019the on-going COVID-19 pandemic, and 0.20 percentother assumptions, resulted in a $12.8 million decrease in the provision for credit losses from lending activities. Changes in the third quarterloan portfolio characteristics, including specific impairment and losses, loan balances and risk grading resulted in a $14.5 million increase in the provision for credit losses from lending activities.

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Our reasonable and supportable forecast of 2018. 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 at September 30, 2020 follows:

BaseDownsideUpside
Scenario probability weighting50%25%25%
COVID-19 trajectoryTrajectory of COVID-19 maintains current level with localized and state-level hotspots and second waves emerging. This leads to isolated shutdowns; FDA approval of at least one vaccine before the end of 2020 and large share of U.S. population vaccinated by end of third quarter of 2021.Trajectory of COVID-19 pandemic worsens moving into fall and winter months; widespread second wave emerges throughout the fourth quarter of 2020 and first quarter of 2021. As cases rise, highly impacted states/regions enact shutdowns, though a nation-wide shutdown is not re-implemented. FDA approves at least one vaccine by the first quarter of 2021, but slow distribution delays widespread vaccination in the U.S. until early 2022.Trajectory of COVID-19 continues to improve from peak experienced in summer. This leads to isolated shutdowns, even at a more localized level.
Economic recovery (driven by COVID-19 trajectory)After a strong bounce back in third quarter of 2020, GDP moderates to rates consistent with historical averages and recovers to pre-COVID-19 levels by the end of 2021.Deteriorated COVID-19 situation, slow vaccine distribution and lack of fiscal stimulus in 2020 cause the economy to fall back into recession. GDP does not recover to pre-COVID-19 levels until early 2023.After a strong bounce back in third quarter of 2020, GDP continues to grow at levels above historical averages, especially in the first quarter of 2021. GDP recovers to pre-COVID-19 levels by mid-year 2021.
Fiscal stimulus (driven by economic recovery)No additional fiscal stimulus packages are enacted in 2020. First quarter 2021 additional fiscal stimulus package enacted just under $1.0 trillion. Stimulus will be more targeted and include a less generous round of unemployment benefits, additional small business support and modest state fiscal aid, but no further payments to individuals.No additional fiscal stimulus packages are enacted in 2020. Large-scale fiscal stimulus package of $1.5 to $2.0 trillion enacted in the first quarter of 2021. Stimulus will be more targeted and include a less generous round of unemployment benefits, additional small business support and state fiscal aid and payments to individuals.No additional fiscal stimulus packages are enacted in 2020 or 2021.
Macro-economic factors
–GDP is forecasted to grow by 4.0 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 improves to 6.9 percent by the third quarter of 2021.
–WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of September 2020 and are expected to average $41.65 per barrel over the next 12 months.
–GDP is forecasted to contract 0.8 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 increases in the next two quarters then improving to 9.5 percent by the third quarter of 2021.
–WTI oil prices are projected to average $33.61 over the next 12 months.
–GDP is forecasted to grow by 7.0 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 quickly improves to 5.9 percent by the third quarter of 2021.
–WTI oil prices are projected to average $44.60 per barrel over the next 12 months.
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Net charge-offs of commercial loans were $9.6and changes in specific impairments attributed to certain credits required a $17.8 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 million forprovision during 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 percent 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 wereThis provision was partially offset by an increasea change in nonaccruing energy loans. The Company generally retains nonperforming assetsrisk grading and outstanding loan balances to maximize potential recovery, which may cause future nonperforming assetsmeasure the provision for credit losses related 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 discussedchanges in loan portfolio characteristics. A summary of outstanding loan balances by risk grade is included in Note 4 to the Consolidated Financial Statements,Statements. Non-pass grade loans include other loans especially mentioned, defined by regulatory guidelines as loans that are currently performing in compliance with original terms but may have a potential weakness that deserves management’s close attention, accruing substandard loans, and nonaccruing loans. Non-pass grade loans totaled $1.5 billion at September 30, a $79 million decrease from June 30. Non-pass graded energy loans totaled $1.0 billion at September 30, a $99 million decrease from June 30.

Although fiscal stimulus through PPP, SBA support and other CARES Act programs have had a positive impact on credit quality, we may modifyreceived a number of deferral or forbearance requests early in the second quarter of 2020. 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. At the peak, deferral request totaled $1.6 billion or 8 percent of total loans. More than 80 percent of loans have since returned to regular payment status. At September 30, 2020, $264 million or 1 percent of loans remain in troubled debt restructurings. Modifications may include extensiondeferral status, including $99 million or 1 percent of payment termscommercial loans, primarily small business and rate concessions. We generally do not forgive principalhealthcare loans; $123 million or accrued but unpaid interest. Generally3 percent of commercial real estate loans modified in troubled debt restructurings, exceptand $42 million or 1 percent of personal loans.

The allowance for loan losses totaled $420 million or 1.76 percent of outstanding loans and 195 percent of nonaccruing loans at September 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 $448 million or 1.88 percent of outstanding loans and 208 percent of nonaccruing loans including those renewed or modifiedat September 30, 2020. Excluding PPP loans, the allowance for loan losses was 1.93 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.06 percent.

The allowance for credit losses attributed to energy was 4.30 percent of outstanding energy loans at September 30. Our semi-annual borrowing base redeterminations during the second quarter of 2020 were based on forward pricing curves that existed at that time, which 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, 93 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 $135.3 million provision for credit losses in the second quarter of 2020. The allowance for loan losses was $436 million or 1.80 percent of outstanding loans generally remain on nonaccrual status until full collectionand 175 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 Statements for additional discussion of troubled debt restructurings. Generally, we modify residential mortgage loans primarily by reducing interest rates and extending the number of payments in accordance with U.S. government agency guidelines. Generally, no unpaid principal or interest is forgiven. Interest continues to accrue based on the modified terms of the loan. Modified loans guaranteed by U.S. government agencies under residential mortgage loan programs may be sold once they become eligible according to U.S. government agency guidelines.

A rollforward of nonperforming assets for the three and 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 and credit risk is limited. These properties will be conveyed to the agencies once applicable criteria have been met. 
Commercial

Nonaccruing commercial loans totaled $112 million or 0.77 percent of total commercial loans at September 30, 2019 compared to $123 million or 0.86 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-offs2020. The combined allowance for loan losses and $5.5 million of foreclosures of nonaccruing commercial loans during the third quarter.

Nonaccruing commercial loans at September 30, 2019 were primarily composed of $89accrual for off-balance sheet credit risk from unfunded loan commitments was $469 million or 2.161.94 percent of total energyoutstanding loans and 188 percent of core nonaccruing loans. 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.

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 increased $140 million over June 30, 2020. Continued friction in the permanent financing market continued to constrain paydown activity. Loans secured by office buildings increased $126 million to $1.1 billion. Loans secured by industrial facilities increased $69 million. Loans secured by other commercial real estate properties decreased $26 million to $507 million. Multifamily residential loans, our largest exposure in commercial real estate, decreased $20 million to $1.4 billion at September 30, 2020. Loans secured by retail facilities were $786 million at September 30, 2020, largely unchanged from the prior quarter.

Approximately 68 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 8 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 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. 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.

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

Residential mortgage loans guaranteed by U.S. government agencies have limited credit exposure because of the agency guarantee. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet.

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

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Table 13-- Loans Managed by Primary Geographical Market
(In thousands)
Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Texas:
Commercial$5,545,158 $5,771,691 $6,350,690 $6,174,894 $6,220,227 
Commercial real estate1,499,630 1,389,547 1,296,266 1,259,117 1,292,116 
Paycheck protection program614,970 612,133 — — — 
Loans to individuals792,994 748,474 756,634 727,175 749,361 
Total Texas8,452,752 8,521,845 8,403,590 8,161,186 8,261,704 
Oklahoma:
Commercial4,901,666 5,086,934 3,886,086 3,454,825 3,690,100 
Commercial real estate647,228 636,021 593,473 631,026 679,786 
Paycheck protection program487,247 442,518 — — — 
Loans to individuals2,036,452 1,967,665 1,788,518 1,854,864 1,753,698 
Total Oklahoma8,072,593 8,133,138 6,268,077 5,940,715 6,123,584 
Colorado:
Commercial1,501,821 1,600,382 2,181,309 2,169,598 2,247,798 
Commercial real estate890,746 937,742 955,608 927,826 975,066 
Paycheck protection program494,910 488,279 — — — 
Loans to individuals257,345 264,872 268,674 276,939 303,605 
Total Colorado3,144,822 3,291,275 3,405,591 3,374,363 3,526,469 
Arizona:
Commercial956,047 1,036,862 1,396,582 1,307,073 1,276,534 
Commercial real estate692,987 689,121 714,161 728,832 771,425 
Paycheck protection program272,114 318,961 — — — 
Loans to individuals166,115 177,066 181,821 186,539 170,815 
Total Arizona2,087,263 2,222,010 2,292,564 2,222,444 2,218,774 
Kansas/Missouri:
Commercial414,038 404,860 556,255 527,872 566,969 
Commercial real estate352,241 314,504 310,799 322,541 374,795 
Paycheck protection program80,230 76,724 — — — 
Loans to individuals96,358 102,577 116,734 131,069 146,522 
Total Kansas/Missouri942,867 898,665 983,788 981,482 1,088,286 
New Mexico:
Commercial157,322 182,688 327,164 305,320 335,409 
Commercial real estate471,505 455,574 434,150 402,148 374,331 
Paycheck protection program133,244 128,058 — — — 
Loans to individuals79,890 83,470 87,110 90,257 92,270 
Total New Mexico841,961 849,790 848,424 797,725 802,010 
Arkansas:
Commercial89,654 75,093 97,889 92,068 87,588 
Commercial real estate139,363 131,635 145,628 162,293 158,538 
Paycheck protection program14,610 14,755 — — — 
Loans to individuals17,415 17,684 18,419 18,711 18,414 
Total Arkansas261,042 239,167 261,936 273,072 264,540 
Total BOK Financial loans$23,803,300 $24,155,890 $22,463,970 $21,750,987 $22,285,367 
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Off-Balance Sheet Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 14. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

We have off-balance sheet commitments related to certain residential mortgage loans sold into mortgage-backed securities as part of our mortgage banking activities. We retain off-balance sheet credit risk related to losses in excess of amounts guaranteed by the U.S. Department of Veteran's Affairs ("VA"). 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 September 30, 2020, agency-serviced loans in forbearance included 3,436 borrowers with an unpaid principal balance of $567 million. For certain contracts, we must advance principal and interest payments during the forbearance period. Advances as of September 30, 2020 totaled $23$5.8 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 September 30, 2020, 25 percent of borrowers in forbearance remained current.

Table 14 – Off-Balance Sheet Credit Commitments
(In thousands)
 Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Loan commitments$10,430,160 $10,298,572 $9,960,678 $11,065,649 $11,259,366 
Standby letters of credit678,136 693,177 683,516 645,505 712,944 
Unpaid principal balance of residential mortgage loans sold with recourse77,225 82,305 86,336 88,808 92,139 
Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs1,574,272 1,715,025 3,217,567 3,375,451 3,472,375 
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.

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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 September 30, 2020, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $615 million compared to $658 million at June 30, 2020. At September 30, 2020, the net fair value of our derivative contracts included $309 million for foreign exchange contracts, $171 million for energy contracts and $132 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 $589 million at September 30, 2020 and $620 million at June 30, 2020.

At September 30, 2020, total derivative assets were reduced by $93 million of cash collateral received from counterparties and total derivative liabilities were reduced by $160 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 September 30, 2020 follows in Table 15.

Table 15 -- Fair Value of Derivative Contracts
(In thousands)
Customers$345,460 
Banks and other financial institutions177,114 
Fair value of customer risk management program asset derivative contracts, net$522,574 
At September 30, 2020, our largest derivative exposure was to a borrower for an interest rate swap of $12 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 $25.91 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 $52.67 per barrel of oil would increase the fair value of derivative assets by $347 million as margin received falls faster than the asset values. Further increases in price to the equivalent of $71.23 per barrel of oil would increase the fair value of our derivative assets by $831 million with lending customers comprising the bulk of     the assets. Liquidity requirements of this program may also be affected by our credit rating. At September 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 September 30, 2020, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.
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Summary of Credit Loss Experience

Table 16 -- Summary of Credit Loss Experience
(In thousands)
Three Months Ended
Sept. 30, 2020June 30, 2020Mar. 31, 2020
Allowance for loan losses:
Beginning balance$435,597 $315,311 210,759 
CECL transition adjustment1
— — 25,809 
Beginning balance, adjusted435,597 315,311 236,568 
Loans charged off(26,661)(15,570)(18,917)
Recoveries of loans previously charged off4,232 1,491 1,696 
Net loans charged off(22,429)(14,079)(17,221)
Provision for credit losses6,609 134,365 95,964 
Ending balance$419,777 $435,597 315,311 
Accrual for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$32,919 $28,514 1,585 
CECL transition adjustment— — 23,552 
Beginning balance, adjusted32,919 28,514 25,137 
Provision for credit losses(4,950)4,405 3,377 
Ending balance$27,969 $32,919 28,514 
Accrual for off-balance sheet credit risk associated with mortgage banking activities:
Beginning balance$6,041 $9,660 4,820 
CECL transition adjustment— — 10,915 
Beginning balance, adjusted6,041 9,660 15,735 
Loans charged off(25)(44)(55)
Provision for credit losses(770)(3,575)(6,020)
Ending balance$5,246 $6,041 9,660 
Allowance for credit losses related to held-to-maturity (investment) securities:
Beginning balance$1,628 $1,502 $— 
CECL transition adjustment— — 1,052 
Beginning balance, adjusted1,628 1,502 1,052 
Provision for credit losses(889)126 450 
Ending balance$739 $1,628 $1,502 
Total provision for credit losses$— $135,321 $93,771 
Net charge-offs (annualized) to average loans0.37 %0.23 %0.31 %
Net charge-offs (annualized) to average loans excluding PPP loans2
0.41 %0.25 %0.31 %
Recoveries to gross charge-offs15.87 %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-end1.76 %1.80 %1.40 %
Allowance for loan losses to loans outstanding at period-end excluding PPP loans2
1.93 %1.97 %1.40 %
Accrual for unfunded loan commitments to loan commitments0.27 %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-end1.88 %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
2.06 %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.
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 Three Months Ended
Dec. 31, 2019Sept. 30, 2019
Allowance for loan losses: 
Beginning balance$204,432 $202,534 
Loans charged off(14,268)(11,707)
Recoveries of loans previously charged off1,816 1,066 
Net loans charged off(12,452)(10,641)
Provision for loan losses18,779 12,539 
Ending balance$210,759 $204,432 
Accrual for off-balance sheet credit losses:
Beginning balance$1,364 $1,903 
Provision for off-balance sheet credit losses221 (539)
Ending balance$1,585 $1,364 
Total combined provision for credit losses$19,000 $12,000 
Net charge-offs (recoveries) (annualized) to average loans0.22 %0.19 %
Recoveries to gross charge-offs12.73 %9.11 %
Provision for loan losses (annualized) to average loans0.34 %0.21 %
Allowance for loan losses to loans outstanding at period-end0.97 %0.92 %
Accrual for off-balance sheet credit losses to off-balance sheet credit commitments0.01 %0.01 %
Combined allowance for credit losses and off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end0.98 %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.
No provision for credit losses was necessary for the third quarter of 2020. A $1.7 million provision related to lending activities was offset by a decrease in the accrual for expected credit losses from mortgage banking activities and allowance for credit losses from investment securities. Changes in our reasonable and supportable forecasts of macroeconomic variables, primarily due to an improved economic outlook related to the anticipated impact of the on-going COVID-19 pandemic, and other assumptions, resulted in a $12.8 million decrease in the provision for credit losses from lending activities. Changes in the loan portfolio characteristics, including specific impairment and losses, loan balances and risk grading resulted in a $14.5 million increase in the provision for credit losses from lending activities.

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Our reasonable and supportable forecast of macroeconomic variables are significantly influenced by the COVID-19 pandemic developments and related government stimulus policies. A summary of macroeconomic variables considered in developing our estimate of expected credit losses at September 30, 2020 follows:

BaseDownsideUpside
Scenario probability weighting50%25%25%
COVID-19 trajectoryTrajectory of COVID-19 maintains current level with localized and state-level hotspots and second waves emerging. This leads to isolated shutdowns; FDA approval of at least one vaccine before the end of 2020 and large share of U.S. population vaccinated by end of third quarter of 2021.Trajectory of COVID-19 pandemic worsens moving into fall and winter months; widespread second wave emerges throughout the fourth quarter of 2020 and first quarter of 2021. As cases rise, highly impacted states/regions enact shutdowns, though a nation-wide shutdown is not re-implemented. FDA approves at least one vaccine by the first quarter of 2021, but slow distribution delays widespread vaccination in the U.S. until early 2022.Trajectory of COVID-19 continues to improve from peak experienced in summer. This leads to isolated shutdowns, even at a more localized level.
Economic recovery (driven by COVID-19 trajectory)After a strong bounce back in third quarter of 2020, GDP moderates to rates consistent with historical averages and recovers to pre-COVID-19 levels by the end of 2021.Deteriorated COVID-19 situation, slow vaccine distribution and lack of fiscal stimulus in 2020 cause the economy to fall back into recession. GDP does not recover to pre-COVID-19 levels until early 2023.After a strong bounce back in third quarter of 2020, GDP continues to grow at levels above historical averages, especially in the first quarter of 2021. GDP recovers to pre-COVID-19 levels by mid-year 2021.
Fiscal stimulus (driven by economic recovery)No additional fiscal stimulus packages are enacted in 2020. First quarter 2021 additional fiscal stimulus package enacted just under $1.0 trillion. Stimulus will be more targeted and include a less generous round of unemployment benefits, additional small business support and modest state fiscal aid, but no further payments to individuals.No additional fiscal stimulus packages are enacted in 2020. Large-scale fiscal stimulus package of $1.5 to $2.0 trillion enacted in the first quarter of 2021. Stimulus will be more targeted and include a less generous round of unemployment benefits, additional small business support and state fiscal aid and payments to individuals.No additional fiscal stimulus packages are enacted in 2020 or 2021.
Macro-economic factors
–GDP is forecasted to grow by 4.0 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 improves to 6.9 percent by the third quarter of 2021.
–WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of September 2020 and are expected to average $41.65 per barrel over the next 12 months.
–GDP is forecasted to contract 0.8 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 increases in the next two quarters then improving to 9.5 percent by the third quarter of 2021.
–WTI oil prices are projected to average $33.61 over the next 12 months.
–GDP is forecasted to grow by 7.0 percent over the next 12 months.
–Civilian unemployment rate of 9.0 percent in the third quarter of 2020 quickly improves to 5.9 percent by the third quarter of 2021.
–WTI oil prices are projected to average $44.60 per barrel over the next 12 months.
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Net charge-offs and changes in specific impairments attributed to certain credits required a $17.8 million provision during the third quarter. This provision was partially offset by a change in risk grading and outstanding loan balances to measure the provision for credit losses related to changes in loan portfolio characteristics. A summary of outstanding loan balances by risk grade is included in Note 4 to the Consolidated Financial Statements. Non-pass grade loans include other loans especially mentioned, defined by regulatory guidelines as loans that are currently performing in compliance with original terms but may have a potential weakness that deserves management’s close attention, accruing substandard loans, and nonaccruing loans. Non-pass grade loans totaled $1.5 billion at September 30, a $79 million decrease from June 30. Non-pass graded energy loans totaled $1.0 billion at September 30, a $99 million decrease from June 30.

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 of 2020. 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. At the peak, deferral request totaled $1.6 billion or 8 percent of total loans. More than 80 percent of loans have since returned to regular payment status. At September 30, 2020, $264 million or 0.501 percent of outstandingloans remain in deferral status, including $99 million or 1 percent of commercial loans, primarily small business and healthcare loans; $123 million or 3 percent of commercial real estate loans at September 30, 2019, largely unchanged compared to $22and $42 million or 0.461 percent of outstanding commercial real estate loans at June 30, 2019. personal loans.

Nonaccruing commercial real estate loans were primarily composed of $20 million or 2.52 percent of loans secured by retail facilities.

Residential Mortgage and Personal

Nonaccruing residential mortgage loansThe allowance for loan losses totaled $37$420 million or 1.76 percent of outstanding residential mortgageloans and 195 percent of nonaccruing loans at September 30, 2019, a $1.2 million decrease compared to June 30, 2019. Newly identified nonaccruing2020, excluding residential mortgage loans totaling $3.9 million were offsetguaranteed by $3.6 million of payments. 

Nonaccruing residential mortgage loans primarily consist of non-guaranteed permanent residential mortgage loans, which totaled $20U.S. government agencies. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $448 million or 1.891.88 percent of outstanding non-guaranteed permanent residential mortgageloans and 208 percent of nonaccruing loans at September 30, 2019. Nonaccruing home equity2020. Excluding PPP loans, totaled $11the allowance for loan losses was 1.93 percent of outstanding loans and the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.06 percent.

The allowance for credit losses attributed to energy was 4.30 percent of outstanding energy loans at September 30. Our semi-annual borrowing base redeterminations during the second quarter of 2020 were based on forward pricing curves that existed at that time, which 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, 93 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 $135.3 million provision for credit losses in the second quarter of 2020. The allowance for loan losses was $436 million or 1.261.80 percent of total home equity loans.



Payments of accruing residential mortgageoutstanding loans and personal175 percent of nonaccruing loans, may be delinquent.excluding loans guaranteed by U.S. government agencies at June 30, 2020. The compositioncombined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $469 million or 1.94 percent of residential mortgageoutstanding loans and personal188 percent of core nonaccruing loans. Excluding PPP loans, past due but still accruing is included in the following Table 23. Substantially all non-guaranteed residentialallowance for loan losses was 1.97 percent of outstanding loans past due 90 days or more are nonaccruing. Residential mortgageand the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was 2.12 percent.

Net Loans Charged Off

Net charge-offs of commercial loans 30 to 59 days past due increased $3.4were $22.3 million in the third quarter of 2020, primarily related to $8.4 million at September 30, 2019. Residentiala single energy production borrower and a single commercial service sector borrower. Net commercial real estate loan charge-offs were $299 thousand and net recoveries of loans to individuals were $123 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 60sold 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 89 days past due increaseda U.S. government agency with full recourse.

- 32 -

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 $3.2 million. Personalthe VA. This result is combined with probability of default output from our mortgage servicing rights model to estimate total expected loss. Then, we estimate the VA's guarantee percentage to determine our portion of the credit risk. Qualitative adjustment may be used, if necessary.

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

The expected credit losses principles apply to all financial assets measured at cost, including our held-to-maturity (investment) debt securities portfolio. Our investment portfolio includes municipal and other tax-exempt securities and other debt securities. Expected credit losses for these assets is based on probability of default and loss given default assumptions that align with similarly graded loans. Qualitative adjustment may be used, if necessary.
- 33 -

Nonperforming Assets

As more fully described in Note 4 to the Consolidated Financial Statements, loans past due 30are 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 59 days decreased by $2.4 millionaccrue based on the modified terms of the loan and personal loans 60may be sold once they become eligible according to 89 days increased $6 thousand.

Table 23 -- Residential Mortgage and Personal Loans Past Due
(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
1
Excludes past due residential mortgage loans guaranteed by agencies of the U.S. government.

Real Estate and Other Repossessed Assets

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)
Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Nonaccruing loans:    
Commercial:  
Energy$126,816 $162,989 $96,448 $91,722 $88,894 
Healthcare3,645 3,645 4,070 4,480 5,978 
Services25,817 21,032 8,425 7,483 6,119 
General business13,675 14,333 9,681 11,731 10,715 
Total commercial169,953 201,999 118,624 115,416 111,706 
Commercial real estate12,952 13,956 8,545 27,626 23,185 
Loans to individuals:  
Residential mortgage31,599 33,098 30,721 31,522 30,972 
Residential mortgage guaranteed by U.S. government agencies6,397 6,110 5,005 6,100 6,332 
Personal252 233 277 287 271 
Total loans to individuals38,248 39,441 36,003 37,909 37,575 
Total nonaccruing loans$221,153 $255,396 $163,172 $180,951 $172,466 
Accruing renegotiated loans guaranteed by U.S. government agencies142,770 114,571 91,757 92,452 92,718 
Real estate and other repossessed assets52,847 35,330 36,744 20,359 21,026 
Total nonperforming assets$416,770 $405,297 $291,673 $293,762 $286,210 
Total nonperforming assets excluding those guaranteed by U.S. government agencies$267,603 $284,616 $194,911 $195,210 $187,160 
Allowance for loan losses to nonaccruing loans1,3
195.47 %174.74 %199.35 %120.54 %123.05 %
Nonperforming assets to outstanding loans and repossessed assets1.75 %1.68 %1.30 %1.35 %1.28 %
Nonperforming assets to outstanding loans and repossessed assets excluding residential mortgage and PPP loans guaranteed by U.S. government agencies2,3
1.25 %1.31 %0.87 %0.90 %0.85 %
Nonaccruing commercial loans to outstanding commercial loans1.25 %1.43 %0.80 %0.82 %0.77 %
Nonaccruing commercial real estate loans to outstanding commercial real estate loans0.28 %0.31 %0.19 %0.62 %0.50 %
Nonaccruing loans to individuals to outstanding loans to individuals3
1.04 %1.10 %1.03 %1.03 %1.03 %
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.
- 34 -

Excluding assets guaranteed by U.S. government agencies, nonperforming assets decreased $17 million from June 30, 2020, primarily due to a $36 million decrease in nonaccruing energy loans, partially offset by a $4.8 million increase in nonaccruing services loans and an $18 million increase in real estate and other repossessed assets. Newly identified nonaccruing loans totaled $50 million, partially offset by $35 million of payments, $27 million of charge-offs and $23 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 nine months ended September 30, 2020 follows in Table 18.

- 35 -

Table 18 -- Rollforward of Nonperforming Assets
(In thousands)
 Three Months Ended
September 30, 2020
Nonaccruing Loans
 CommercialCommercial Real EstateLoan to IndividualsTotal
 
Renegotiated Loans
Real Estate and Other Repossessed AssetsTotal Nonperforming Assets
Balance, June 30, 2020$201,999 $13,956 $39,441 $255,396 $114,571 $35,330 $405,297 
Additions45,119 10 4,762 49,891 36,468 — 86,359 
Payments(30,433)(106)(4,416)(34,955)(550)— (35,505)
Charge-offs(25,319)(413)(929)(26,661)— — (26,661)
Net losses and write-downs— — — — — (4,221)(4,221)
Foreclosure of nonperforming loans(21,413)(495)(635)(22,543)— 22,543 — 
Foreclosure of loans guaranteed by U.S. government agencies— — (318)(318)(719)— (1,037)
Proceeds from sales— — — — (7,581)(805)(8,386)
Net transfers to nonaccruing loans— — 343 343 — — 343 
Return to accrual status— — — — — — — 
Other, net— — — — 581 — 581 
Balance, September 30, 2020$169,953 $12,952 $38,248 $221,153 $142,770 $52,847 $416,770 
Nine Months Ended
September 30, 2020
Nonaccruing Loans
CommercialCommercial Real EstateLoan to IndividualsTotal
 
Renegotiated Loans
Real Estate and Other Repossessed AssetsTotal Nonperforming Assets
Balance, Dec. 31, 2019$115,416 $27,626 $37,909 $180,951 $92,452 $20,359 $293,762 
Additions184,755 5,460 14,885 205,100 77,317 — 282,417 
Payments(51,085)(294)(9,001)(60,380)(2,135)— (62,515)
Charge-offs(56,421)(1,300)(3,427)(61,148)— — (61,148)
Net losses and write-downs— — — — — (3,639)(3,639)
Foreclosure of nonperforming loans(22,493)(18,540)(1,066)(42,099)— 42,099 — 
Foreclosure of loans guaranteed by U.S. government agencies— — (1,395)(1,395)(2,881)— (4,276)
Proceeds from sales— — — — (22,316)(5,972)(28,288)
Net transfers to nonaccruing loans— — 343 343 — — 343 
Return to accrual status(219)— — (219)(933)— (1,152)
Other, net— — — — 1,266 — 1,266 
Balance, September 30, 2020$169,953 $12,952 $38,248 $221,153 $142,770 $52,847 $416,770 

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. 
- 36 -


Real Estate and Other Repossessed Assets

Real estate and other repossessed assets totaled $21$53 million at September 30, 2019,2020, composed primarily of $9.2$23 million of developed commercial real estate, $5.6$23 million of oil and gas properties, $3.8 million of 1-4 family residential properties and $2.1$5.0 million of undeveloped land primarily zoned for commercial development.development and $1.6 million of 1-4 family residential properties. Real estate and other repossessed assets totaled $17$35 million at June 30, 2019.2020. The increase over June 30 was primarily due to repossessed oil and gas properties.


- 37 -

Liquidity and Capital

Based on the average balances for the third quarter of 2019,2020, approximately 5971 percent of our funding was provided by deposit accounts, 2613 percent from borrowed funds, less than 1 percent from long-term subordinated debt and 11 percent from equity. Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks and other banks, provide adequate liquidity to meet our operating needs.

Subsidiary Bank

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

Average deposits for the third quarter of 20192020 totaled $25.7$34.6 billion, a $538 million$2.0 billion increase over the second quarter of 2019.2020. Continued deposit growth was primarily due to customers maintaining higher balances in the current economic environment. Interest-bearing transaction account balances increased $619 million and time$1.7 billion. Demand deposits increased $44$440 million while certificate of deposit balances decreased $214 million. Demand deposits decreased $124 million compared to the second quarter of 2019.

Table 2419 - Average Deposits by Line of Business
(In thousands)
Three Months Ended
 Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Commercial Banking$15,375,450 $14,599,225 $11,907,386 $11,419,558 $10,833,057 
Consumer Banking7,940,973 7,587,246 6,869,481 6,974,453 6,983,018 
Wealth Management9,090,116 8,385,681 7,623,986 7,301,391 6,590,332 
Subtotal32,406,539 30,572,152 26,400,853 25,695,402 24,406,407 
Funds Management and other2,233,394 2,078,802 1,794,715 1,404,838 1,293,767 
Total$34,639,933 $32,650,954 $28,195,568 $27,100,240 $25,700,174 
 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 Banking6,983,018
 6,998,677
 6,544,665
 6,542,188
 6,580,395
Wealth Management6,590,332
 6,220,848
 5,659,771
 5,483,455
 5,492,048
Subtotal24,406,407
 23,943,731
 20,465,979
 20,418,659
 20,705,647
Funds Management and other1,293,767
 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$776 million over the second quarter of 2019.2020. Interest-bearing transaction account balances increased $241 million and demand$679 million. Demand deposit balances were up $215 million. Time deposits decreased $138 million.$119 million compared to the prior quarter. Commercial customers continue to retain large cash reserves primarily due to a combination of factors including uncertainty about the economic environment and potential for growth, lack of preferable liquid alternatives and a desire to minimize deposit service charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. Commercial deposit balances may decrease as the economic outlook improves and if short-term rates move higher, enhancing their investment alternatives.

Average Consumer Banking deposit balances were largely unchanged compared to the prior quarter. Growth in time deposit balances of $23increased $354 million over the prior quarter was offset by a $26quarter. A $151 million decreaseincrease in interest-bearing transaction deposit balances, a $220 million increase in demand deposit balances and an $11a $51 million increase in savings account balances were partially offset by a $69 million decrease in demandtime deposit balances.

Average Wealth Management deposits increased $369$704 million over the second quarter of 2019. Interest-bearing2020, primarily due to interest-bearing transaction account balances were up $397 million. Demand deposit balances decreased $48 million. Time deposit balances were up $16 million.accounts.

Average time deposits for the third quarter of 20192020 included $249$86 million of brokered deposits, a $5.2$72 million decrease compared to the second quarter of 2019.2020. Average interest-bearing transaction accounts for the third quarter included $1.1$1.9 billion of brokered deposits, an $8.3a $69 million increase over the second quarter of 2019.2020.


- 38 -

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

20.

Table 2520 -- Period End Deposits by Principal Market Area
(In thousands)
Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Oklahoma:  
Demand$4,493,691 $4,378,559 $3,669,558 $3,257,337 $3,515,312 
Interest-bearing:
Transaction12,586,401 11,438,489 9,955,697 8,574,912 7,447,799 
Savings401,062 387,557 329,631 306,194 308,103 
Time1,081,176 1,330,619 1,137,802 1,125,446 1,198,170 
Total interest-bearing14,068,639 13,156,665 11,423,130 10,006,552 8,954,072 
Total Oklahoma18,562,330 17,535,224 15,092,688 13,263,889 12,469,384 
Texas:
Demand3,152,393 3,070,955 2,767,399 2,757,376 2,867,915 
Interest-bearing:
Transaction3,482,603 3,358,090 2,874,362 2,911,731 2,589,063 
Savings136,787 128,892 115,039 102,456 100,597 
Time438,337 476,867 505,565 495,343 464,264 
Total interest-bearing4,057,727 3,963,849 3,494,966 3,509,530 3,153,924 
Total Texas7,210,120 7,034,804 6,262,365 6,266,906 6,021,839 
Colorado:
Demand2,057,603 2,096,075 1,579,764 1,729,674 1,694,044 
Interest-bearing:
Transaction1,861,763 1,816,604 1,759,384 1,769,037 1,910,874 
Savings68,230 67,477 58,000 53,307 60,107 
Time226,780 254,845 279,105 283,517 273,622 
Total interest-bearing2,156,773 2,138,926 2,096,489 2,105,861 2,244,603 
Total Colorado4,214,376 4,235,001 3,676,253 3,835,535 3,938,647 
New Mexico:
Demand964,908 965,877 750,052 623,722 645,698 
Interest-bearing:
Transaction713,418 752,565 563,891 558,493 539,260 
Savings85,463 80,242 67,553 63,999 62,863 
Time200,525 222,370 235,778 238,140 236,135 
Total interest-bearing999,406 1,055,177 867,222 860,632 838,258 
Total New Mexico1,964,314 2,021,054 1,617,274 1,484,354 1,483,956 
- 39 -

Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 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
Demand928,671 985,757 665,396 681,268 705,895 
Interest-bearing:          Interest-bearing:
Transaction 7,447,799
 7,020,484
 6,542,548
 6,445,831
 6,010,972
Transaction771,319 780,500 729,603 684,929 600,103 
Savings 308,103
 307,785
 309,875
 288,210
 288,080
Savings11,498 15,669 8,832 10,314 12,487 
Time 1,198,170
 1,253,804
 1,217,371
 1,118,643
 1,128,810
Time36,929 42,318 47,081 49,676 44,347 
Total interest-bearing 8,954,072
 8,582,073
 8,069,794
 7,852,684
 7,427,862
Total interest-bearing819,746 838,487 785,516 744,919 656,937 
Total Oklahoma 12,469,384
 11,861,432
 11,502,033
 11,463,277
 10,992,169
Total ArizonaTotal Arizona1,748,417 1,824,244 1,450,912 1,426,187 1,362,832 
          
Texas:          
Kansas/Missouri:Kansas/Missouri:
Demand 2,870,429
 2,974,005
 2,966,743
 3,291,433
 3,357,669
Demand405,360 427,795 318,985 384,533 376,020 
Interest-bearing:          Interest-bearing:
Transaction 2,589,511
 2,453,619
 2,385,305
 2,295,169
 2,182,114
Transaction616,797 526,635 537,552 784,574 284,940 
Savings 100,597
 103,125
 101,849
 99,624
 97,909
Savings15,520 15,033 12,888 12,169 11,689 
Time 464,264
 425,253
 419,269
 423,880
 453,119
Time16,430 17,746 19,137 17,877 19,126 
Total interest-bearing 3,154,372
 2,981,997
 2,906,423
 2,818,673
 2,733,142
Total interest-bearing648,747 559,414 569,577 814,620 315,755 
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/MissouriTotal Kansas/Missouri1,054,107 987,209 888,562 1,199,153 691,775 
          
Arkansas:          Arkansas:
Demand 39,513
 29,176
 31,624
 36,800
 36,579
Demand44,712 67,147 70,428 27,381 39,513 
Interest-bearing:          Interest-bearing:
Transaction 149,506
 148,485
 147,964
 91,593
 128,001
Transaction164,439 177,535 175,803 108,076 149,506 
Savings 1,747
 1,783
 1,785
 1,632
 1,826
Savings2,389 2,101 1,862 1,837 1,747 
Time 7,877
 7,810
 8,321
 8,726
 10,214
Time7,796 7,995 8,005 7,850 7,877 
Total interest-bearing 159,130
 158,078
 158,070
 101,951
 140,041
Total interest-bearing174,624 187,631 185,670 117,763 159,130 
Total Arkansas 198,643
 187,254
 189,694
 138,751
 176,620
Total Arkansas219,336 254,778 256,098 145,144 198,643 
          
Total BOK Financial depositsTotal BOK Financial deposits$34,973,000 $33,892,314 $29,244,152 $27,621,168 $26,167,076 


  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 September 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$1.2 billion during the quarter, compared to $7.2$2.7 billion in the second quarter of 2019.2020.

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 September 30, 2019,2020, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $10.1$15.3 billion.

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



21.

- 40 -

Table 2621 -- Borrowed Funds
(In thousands)
  Three Months Ended
September 30, 2020		 Three Months Ended
June 30, 2020
Sept. 30, 2020Average
Balance
During the
Quarter		RateMaximum
Outstanding
At Any Month
End During
the Quarter		June 30, 2020Average
Balance
During the
Quarter		RateMaximum
Outstanding
At Any Month
End During
the Quarter
Funds purchased516,048 1,665,046 0.19 %1,741,707 830,732 2,411,533 0.15 %3,311,938 
Repurchase agreements457,604 1,117,104 0.14 %570,563 526,870 3,404,951 0.14 %3,230,097 
Other borrowings:
Federal Home Loan Bank advances700,000 1,228,261 0.35 %700,000 1,000,000 2,658,242 0.53 %2,300,000 
GNMA repurchase liability26,130 108,910 1.07 %124,444 126,569 21,229 4.28 %126,569 
Federal Reserve Bank advances— — — %— — 135,165 0.25 %— 
Paycheck protection program liquidity facility2,013,414 2,013,414 0.35 %2,013,414 2,013,414 678,645 0.36 %2,013,414 
Other31,885 32,103 5.64 %32,346 33,580 34,022 3.51 %49,376 
Total other borrowings2,771,429 3,382,688 0.43 %3,173,563 3,527,303 0.56 %
Subordinated debentures1
275,986 275,980 4.89 %275,986 275,973 275,949 5.16 %275,973 
Total other borrowed funds and subordinated debentures$4,021,067 $6,440,818 0.51 %$4,807,138 $9,619,736 0.44 %
    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%  
1Parent Company only.
BOKF, NA also has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold in GNMA mortgage pools. Interest is payable monthly at rates contractually due to investors. 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 September 30, 2019,2020, cash and interest-bearing cash and cash equivalents held by the parent company totaled $185$197 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 September 30, 2019,2020, based upon the most restrictive limitations as well as management's internal capital policy, BOKF, NA could declare up to $151$402 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 September 30, 20192020 was $4.8$5.2 billion, a $119$122 million increase over June 30, 2019.2020. Net income less cash dividends paid increased equity $107$118 million during the third quarter of 2019.2020. Changes in interest rates resulted in a $35$5.1 million increasedecrease in accumulated other comprehensive gain overcompared to June 30, 2019.2020. 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.


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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 September 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 third quarter of 2019 at an average price2020. We view share buybacks opportunistically, but within the context of $77.03 per share.

maintaining our strong capital position.
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 September 30, 2020.

The capital ratios for BOK Financial on a consolidated basis are presented in Table 27.22.

Table 2722 -- Capital Ratios
Minimum Capital RequirementCapital Conservation BufferMinimum Capital Requirement Including Capital Conservation BufferSept. 30, 2020June 30, 2020Sept. 30, 2019
Risk-based capital:
Common equity Tier 14.50 %2.50 %7.00 %12.07 %11.44 %11.06 %
Tier 1 capital6.00 %2.50 %8.50 %12.07 %11.44 %11.06 %
Total capital8.00 %2.50 %10.50 %14.05 %13.43 %12.56 %
Tier 1 Leverage4.00 %N/A4.00 %8.39 %7.74 %8.41 %
Average total equity to average assets10.55 %10.19 %10.97 %
Tangible common equity ratio9.02 %8.79 %8.72 %
  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.


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Table 2823 -- Non-GAAP Measure
(Dollars in thousands)
Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Tangible common equity ratio:     
Total shareholders' equity$5,218,787 $5,096,995 $5,026,248 $4,855,795 $4,829,016 
Less: Goodwill and intangible assets, net1,166,615 1,171,686 1,169,898 1,173,362 1,172,411 
Tangible common equity4,052,172 3,925,309 3,856,350 3,682,433 3,656,605 
Total assets46,067,224 45,819,874 47,119,162 42,172,021 43,127,205 
Less: Goodwill and intangible assets, net1,166,615 1,171,686 1,169,898 1,173,362 1,172,411 
Tangible assets$44,900,609 $44,648,188 $45,949,264 $40,998,659 $41,954,794 
Tangible common equity ratio9.02 %8.79 %8.39 %8.98 %8.72 %
  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.


- 43 -

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 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)%
 
200 bp Increase1
100 bp Decrease2
September 30,September 30,
 2020201920202019
Anticipated impact over the next twelve months on net interest revenue$27,973 $(20,916)N/A$(28,509)
 2.69 %(1.89)%N/A(2.57)%
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)
September 30,
 20202019
Up 50 bpDown 50 bpUp 50 bpDown 50 bp
MSR Asset$26,917 $(11,991)$33,176 $(42,387)
MSR Hedge(18,361)17,534 (41,744)39,600 
Net Exposure8,556 5,543 (8,568)(2,787)

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  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 September 30,Nine Months Ended September 30,
 2020201920202019
Up 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bp
Average1
$(407)$(696)$(84)$(171)$(339)$(308)$(97)$(382)
Low2
344 314 528 293 582 998 528 330 
High3
(1,044)(1,160)(411)(478)(1,344)(1,483)(664)(1,343)
Period End(543)(705)25 (164)(543)(705)25 (164)
  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)
1    Average represents the simple average of each daily value observed during the reporting period.
1
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.

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.

- 45 -



Table 3227 -- Trading Sensitivity Analysis
(Dollars in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Up 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bpUp 50 bpDown 50 bp
Average1
$(178)$1,461 $(1,244)$1,361 $(2,280)$3,965 $(1,800)$1,820 
Low2
7,893 8,762 2,939 3,065 7,893 15,309 2,939 5,378 
High3
(7,371)(4,058)(3,359)(4,747)(12,490)(4,058)(5,153)(4,747)
Period End(5,837)5,698 (1,719)1,371 (5,837)5,698 (1,719)1,371 
  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
1    Average represents the simple average of each daily value observed during the reporting period.
1
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.

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.
- 46 -

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.


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Consolidated Statements of Earnings (Unaudited)
(In thousands, except share and per share data)Three Months EndedNine Months Ended
 September 30,September 30,
Interest revenue2020201920202019
Loans$215,977 $286,694 $674,633 $859,898 
Residential mortgage loans held for sale1,585 1,891 4,848 5,308 
Trading securities8,723 14,452 31,890 48,645 
Investment securities2,939 3,221 9,060 10,160 
Available for sale securities62,369 67,633 200,386 184,344 
Fair value option securities1,986 10,708 17,804 23,448 
Restricted equity securities913 7,558 8,687 20,419 
Interest-bearing cash and cash equivalents167 3,050 2,672 9,879 
Total interest revenue294,659 395,207 949,980 1,162,101 
Interest expense    
Deposits14,658 46,917 78,562 127,517 
Borrowed funds4,856 65,381 49,637 180,595 
Subordinated debentures3,395 3,813 10,567 11,359 
Total interest expense22,909 116,111 138,766 319,471 
Net interest revenue271,750 279,096 811,214 842,630 
Provision for credit losses0 12,000 229,092 25,000 
Net interest revenue after provision for credit losses271,750 267,096 582,122 817,630 
Other operating revenue    
Brokerage and trading revenue69,526 43,840 182,327 115,983 
Transaction card revenue23,465 22,015 68,286 64,668 
Fiduciary and asset management revenue39,931 43,621 125,646 132,004 
Deposit service charges and fees24,286 28,837 72,462 85,154 
Mortgage banking revenue51,959 30,180 143,062 82,145 
Other revenue13,698 17,626 37,486 42,825 
Total fees and commissions222,865 186,119 629,269 522,779 
Other gains, net6,265 4,544 2,292 11,000 
Gain on derivatives, net2,354 3,778 42,659 19,595 
Gain (loss) on fair value option securities, net(754)4,597 53,180 24,115 
Change in fair value of mortgage servicing rights3,441 (12,593)(85,800)(62,814)
Gain (loss) on available for sale securities, net(12)5 5,571 1,110 
Total other operating revenue234,159 186,450 647,171 515,785 
Other operating expense    
Personnel179,860 162,573 512,276 492,143 
Business promotion2,633 8,859 10,783 26,875 
Charitable contributions to BOKF Foundation0 0 3,000 1,000 
Professional fees and services14,074 12,312 39,183 41,453 
Net occupancy and equipment28,111 27,558 84,847 83,959 
Insurance5,848 4,220 15,984 15,513 
Data processing and communications34,751 31,915 100,436 93,099 
Printing, postage and supplies3,482 3,825 11,256 12,817 
Net losses and operating expenses of repossessed assets6,244 1,728 9,541 4,304 
Amortization of intangible assets5,071 5,064 15,355 15,393 
Mortgage banking costs15,803 14,975 41,946 36,426 
Other expense5,388 6,263 20,669 20,604 
Total other operating expense301,265 279,292 865,276 843,586 
Net income before taxes204,644 174,254 364,017 489,829 
Federal and state income taxes50,552 32,396 83,655 99,926 
Net income154,092 141,858 280,362 389,903 
Net income (loss) attributable to non-controlling interests58 (373)(444)(503)
Net income attributable to BOK Financial Corporation shareholders$154,034 $142,231 $280,806 $390,406 
Earnings per share:    
Basic$2.19 $2.00 $3.99 $5.47 
Diluted$2.19 $2.00 $3.99 $5.47 
Average shares used in computation:
Basic69,877,866 70,596,307 69,958,944 70,953,544 
Diluted69,879,290 70,609,924 69,962,053 70,968,845 
Dividends declared per share$0.51 $0.50 $1.53 $1.50 
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.

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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 EndedNine Months Ended
 September 30, September 30,September 30,September 30,
 2019 2018 2019 2018 2020201920202019
Net income $141,858
 $117,545
 $389,903
 $338,047
Net income$154,092 $141,858 $280,362 $389,903 
Other comprehensive income (loss) before income taxes:        Other comprehensive income (loss) before income taxes:    
Net change in unrealized gain (loss) 46,285
 (35,941) 274,441
 (166,464)Net change in unrealized gain (loss)(6,783)46,285 347,985 274,441 
Reclassification adjustments included in earnings:        Reclassification adjustments included in earnings:
Loss (gain) on available for sale securities, net (5) (250) (1,110) 802
Loss (gain) on available for sale securities, net12 (5)(5,571)(1,110)
Other comprehensive income (loss) before income taxes 46,280
 (36,191) 273,331
 (165,662)Other comprehensive income (loss) before income taxes(6,771)46,280 342,414 273,331 
Federal and state income taxes 11,096
 (9,134) 66,993
 (42,183)Federal and state income taxes(1,625)11,096 82,167 66,993 
Other comprehensive income (loss), net of income taxes 35,184

(27,057)
206,338

(123,479)Other comprehensive income (loss), net of income taxes(5,146)35,184 260,247 206,338 
Comprehensive income 177,042
 90,488
 596,241
 214,568
Comprehensive income148,946 177,042 540,609 596,241 
Comprehensive income (loss) attributable to non-controlling interests (373) 289
 (503) 857
Comprehensive income (loss) attributable to non-controlling interests58 (373)(444)(503)
Comprehensive income attributable to BOK Financial Corp. shareholders $177,415
 $90,199
 $596,744
 $213,711
Comprehensive income attributable to BOK Financial Corp. shareholders$148,888 $177,415 $541,053 $596,744 

See accompanying notes to consolidated financial statements.

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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
Consolidated Balance Sheets
(In thousands, except share data)
 Sept. 30, 2020Dec. 31, 2019
 (Unaudited)(Footnote 1)
Assets  
Cash and due from banks$658,612 $735,836 
Interest-bearing cash and cash equivalents347,759 522,985 
Trading securities2,245,480 1,623,921 
Investment securities, net of allowance (fair value: September 30, 2020 – $284,929; December 31, 2019 – $314,402)
256,001 293,418 
Available for sale securities12,817,269 11,269,643 
Fair value option securities134,756 1,098,577 
Restricted equity securities111,656 460,552 
Residential mortgage loans held for sale295,290 182,271 
Loans23,803,300 21,750,987 
Allowance for loan losses(419,777)(210,759)
Loans, net of allowance23,383,523 21,540,228 
Premises and equipment, net542,625 535,519 
Receivables245,514 231,811 
Goodwill1,048,091 1,048,091 
Intangible assets, net118,524 125,271 
Mortgage servicing rights97,644 201,886 
Real estate and other repossessed assets, net of allowance (September 30, 2020 – $14,910; December 31, 2019 –
         $11,013)
52,847 20,359 
Derivative contracts, net593,568 323,375 
Cash surrender value of bank-owned life insurance396,497 389,879 
Receivable on unsettled securities sales1,934,495 1,020,404 
Other assets787,073 547,995 
Total assets$46,067,224 $42,172,021 
Liabilities and Equity
Liabilities:
Noninterest-bearing demand deposits$12,047,338 $9,461,291 
Interest-bearing deposits:  
Transaction20,196,740 15,391,752 
Savings720,949 550,276 
Time2,007,973 2,217,849 
Total deposits34,973,000 27,621,168 
Funds purchased and repurchase agreements973,652 3,818,350 
Other borrowings2,771,429 4,527,055 
Subordinated debentures275,986 275,923 
Accrued interest, taxes and expense335,914 259,701 
Derivative contracts, net446,328 251,128 
Due on unsettled securities purchases641,817 182,547 
Other liabilities422,989 372,230 
Total liabilities40,841,115 37,308,102 
Shareholders' equity:  
Common stock ($0.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: September 30,
         2020 – 75,998,338; December 31, 2019 – 75,758,597)
5 5 
Capital surplus1,366,460 1,350,995 
Retained earnings3,856,046 3,729,778 
Treasury stock (shares at cost: September 30, 2020 – 5,692,505; December 31, 2019 – 5,178,999)
(368,894)(329,906)
Accumulated other comprehensive gain365,170 104,923 
Total shareholders’ equity5,218,787 4,855,795 
Non-controlling interests7,322 8,124 
Total equity5,226,109 4,863,919 
Total liabilities and equity$46,067,224 $42,172,021 

See accompanying notes to consolidated financial statements.
- 50 -

Consolidated Statements of Changes in Equity (Unaudited)
(In thousands)
 Common StockCapital
Surplus		Retained
Earnings		Treasury StockAccumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity		Non-
Controlling
Interests		Total Equity
 SharesAmountSharesAmount
Balance, June 30, 202075,999 $5 $1,357,706 $3,737,862 5,693 $(368,894)$370,316 $5,096,995 $7,428 $5,104,423 
Net income— — — 154,034 — — — 154,034 58 154,092 
Other comprehensive loss— — — — — — (5,146)(5,146)— (5,146)
Repurchase of common stock— — — — 0 0 — 0 — 0 
Share-based compensation plans:
Stock options exercised0 — 0 — — — — 0 — 0 
Non-vested shares awarded,
net		(1)— 0 — — — — — — — 
Vesting of non-vested
shares		— — — — 0 0 — 0 — 0 
Share-based compensation— — 8,754 — — — — 8,754 — 8,754 
Cash dividends on common
stock		— — — (35,850)— — — (35,850)— (35,850)
Capital calls and distributions,
net		— — — — — — — — (164)(164)
Balance, September 30, 202075,998 $5 $1,366,460 $3,856,046 5,693 $(368,894)$365,170 $5,218,787 $7,322 $5,226,109 
Balance, December 31, 201975,759 $5 $1,350,995 $3,729,778 5,179 $(329,906)$104,923 $4,855,795 $8,124 $4,863,919 
Transition adjustment - CECL— — — (46,696)— — — (46,696)— (46,696)
Balance, January 1, 2020,
Adjusted		75,759 5 1,350,995 3,683,082 5,179 (329,906)104,923 4,809,099 8,124 4,817,223 
Net income (loss)— — — 280,806 — — — 280,806 (444)280,362 
Other comprehensive income— — — — — — 260,247 260,247 — 260,247 
Repurchase of common stock— — — — 442 (33,380)— (33,380)— (33,380)
Share-based compensation
plans:
Stock options exercised10 — 586 — — — — 586 — 586 
Non-vested shares awarded,
net		229 — 0 — — — — — — — 
Vesting of non-vested
shares		— — — — 72 (5,608)— (5,608)— (5,608)
Share-based compensation— — 14,879 — — — — 14,879 — 14,879 
Cash dividends on common
stock		— — — (107,842)— — — (107,842)— (107,842)
Capital calls and distributions,
net		— — — — — — — — (358)(358)
Balance, September 30, 202075,998 $5 $1,366,460 $3,856,046 5,693 $(368,894)$365,170 $5,218,787 $7,322 $5,226,109 
- 51 -


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, 201975,756
 $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 exercised3
 —
 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, 201975,757
 $5
 $1,346,730
 $3,655,590
 4,899
 $(307,062) $133,753
 $4,829,016
 $8,649
 $4,837,665
                    
Balance, December 31, 201875,711
 $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, Adjusted75,711
 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 exercised21
 —
 1,080
 —
 —
 —
 —
 1,080
 —
 1,080
Non-vested shares awarded, net25
 —
 —
 —
 —
 —
 —
 —
 —
 —
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, 201975,757
 $5
 $1,346,730
 $3,655,590
 4,899
 $(307,062) $133,753
 $4,829,016
 $8,649
 $4,837,665
                    
Balance, June 30, 201875,314
 $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 exercised3
 —
 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, 201875,309
 $4
 $1,044,430
 $3,297,083
 9,874
 $(564,123) $(162,362) $3,615,032
 $10,728
 $3,625,760
                    
Balance, December 31, 201775,148
 $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, Adjusted75,148
 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 exercised49
 —
 2,560
 —
 —
 —
 —
 2,560
 —
 2,560
Non-vested shares awarded, net112
 —
 —
 —
 —
 —
 —
 —
 —
 —
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, 201875,309
 $4
 $1,044,430
 $3,297,083
 9,874
 $(564,123) $(162,362) $3,615,032
 $10,728
 $3,625,760



 Common StockCapital
Surplus		Retained
Earnings		Treasury StockAccumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity		Non-
Controlling
Interests		Total Equity
 SharesAmountSharesAmount
Balance, June 30, 201975,756 $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 exercised3 — 177 — — — — 177 — 177 
Non-vested shares awarded,
net		(2)— 0 — — — — — — — 
Vesting of non-vested
shares		— — — — 0 0 — 0 — 0 
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, 201975,757 $5 $1,346,730 $3,655,590 4,899 $(307,062)$133,753 $4,829,016 $8,649 $4,837,665 
Balance, December 31, 201875,711 $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 exercised21 — 1,080 — — — — 1,080 — 1,080 
Non-vested shares awarded,
net		25 — 0 — — — — — — — 
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, 201975,757 $5 $1,346,730 $3,655,590 4,899 $(307,062)$133,753 $4,829,016 $8,649 $4,837,665 
See accompanying notes to consolidated financial statements.

- 52 -


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
 $—
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Nine Months Ended
 September 30,
 20202019
Cash Flows From Operating Activities:  
Net income$280,362 $389,903 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses229,092 25,000 
Change in fair value of mortgage servicing rights due to market assumption changes85,800 62,814 
Change in the fair value of mortgage servicing rights due to principal payments28,971 27,600 
Net unrealized (gains) losses from derivative contracts(51,323)(25,306)
Share-based compensation14,879 11,620 
Depreciation and amortization74,330 69,762 
Net amortization of discounts and premiums1,921 (16,648)
Net losses (gains) on financial instruments and other losses (gains), net(4,216)(2,656)
Net gain on mortgage loans held for sale(77,039)(25,803)
Mortgage loans originated for sale(2,773,686)(2,170,287)
Proceeds from sale of mortgage loans held for sale2,757,412 2,070,572 
Capitalized mortgage servicing rights(21,330)(24,821)
Change in trading and fair value option securities338,992 (1,251,759)
Change in receivables(936,428)(613,872)
Change in other assets(8,574)12,981 
Change in accrued interest, taxes and expense8,678 (15,600)
Change in other liabilities412,686 419,982 
Net cash provided by (used in) operating activities360,527 (1,056,518)
Cash Flows From Investing Activities:  
Proceeds from maturities or redemptions of investment securities35,967 49,621 
Proceeds from maturities or redemptions of available for sale securities1,813,057 1,267,190 
Purchases of available for sale securities(3,238,556)(3,802,635)
Proceeds from sales of available for sale securities206,979 628,385 
Change in amount receivable on unsettled available for sale securities transactions3,988 29,010 
Loans originated, net of principal collected(1,894,663)(590,196)
Net payments on derivative asset contracts(96,109)40,922 
Proceeds from disposition of assets1,302,013 127,476 
Purchases of assets(1,007,240)(308,630)
Net cash used in investing activities(2,874,564)(2,558,857)
Cash Flows From Financing Activities:  
Net change in demand deposits, transaction deposits and savings accounts7,561,708 773,152 
Net change in time deposits(209,876)129,980 
Net change in other borrowed funds(4,839,524)3,027,298 
Net proceeds on derivative liability contracts102,064 (43,932)
Net change in derivative margin accounts(260,949)(85,468)
Change in amount due on unsettled available for sale securities transactions54,408 111,828 
Issuance of common and treasury stock, net(5,022)(348)
Repurchase of common stock(33,380)(106,639)
Dividends paid(107,842)(107,332)
Net cash provided by financing activities2,261,587 3,698,539 
Net increase (decrease) in cash and cash equivalents(252,450)83,164 
Cash and cash equivalents at beginning of period1,258,821 1,143,424 
Cash and cash equivalents at end of period$1,006,371 $1,226,588 
Supplemental Cash Flow Information:
Cash paid for interest$138,877 $316,481 
Cash paid for taxes$91,977 $77,912 
Net loans and bank premises transferred to repossessed real estate and other assets$42,099 $8,489 
Residential mortgage loans guaranteed by U.S. government agencies that became eligible for repurchase during the period$239,200 $65,286 
Conveyance of other real estate owned guaranteed by U.S. government agencies$9,165 $22,449 
Right-of-use assets obtained in exchange for operating lease liabilities$9,481 $58,766 
See accompanying notes to consolidated financial statements.

- 53 -

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-month period ended September 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.








- 54 -

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.

- 55 -

(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

 September 30, 2020December 31, 2019
 Fair ValueNet Unrealized Gain (Loss)Fair ValueNet Unrealized Gain (Loss)
U.S. government agency debentures$5,181 $(1)$44,264 $6 
Residential agency mortgage-backed securities2,150,759 (693)1,504,651 2,293 
Municipal and other tax-exempt securities30,533 (44)26,196 60 
Asset-backed securities0 0 14,084 (21)
Other debt securities59,007 61 34,726 21 
Total trading securities$2,245,480 $(677)$1,623,921 $2,359 
Investment Securities
 
The amortized cost and fair values of investment securities are as follows (in thousands):

 September 30, 2020
 AmortizedFairGross Unrealized
 CostValueGainLoss
Municipal and other tax-exempt$76,109 $80,368 $4,259 $0 
Residential agency mortgage-backed securities9,317 10,219 902 0 
Other debt securities171,314 194,342 23,227 (199)
Total investment securities256,740 284,929 28,388 (199)
Allowance for credit losses1
(739)
Investment securities, net of allowance256,001 284,929 28,388 (199)
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 AmortizedFairGross Unrealized
 Cost Value Gain Loss CostValueGainLoss
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 securities10,676 11,164 488 0 
Other debt securities 188,681
 204,724
 16,457
 (414)Other debt securities189,089 206,341 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)
- 56 -





The amortized cost and fair values of investment securities at September 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$30,455 $87,606 $120,073 $9,289 $247,423 4.94 
Fair value30,761 95,912 138,580 9,457 274,710  
Residential mortgage-backed securities:      
Amortized cost    $9,317 2
Fair value    10,219  
Total investment securities:      
Amortized cost    $256,740  
Fair value    284,929  
  
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
  
1Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.
1
2The average expected lives of residential mortgage-backed securities were 4.58 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
(in thousands):
 September 30, 2019September 30, 2020
 Number of Securities Less Than 12 Months 12 Months or Longer Total Number of SecuritiesLess Than 12 Months12 Months or LongerTotal
 
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 securities8 3,026 68 2,043 131 5,069 199 
Total investment securities 37
 $12,895
 $7
 $13,110
 $428
 $26,005
 $435
Total investment securities8 $3,026 $68 $2,043 $131 $5,069 $199 

  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 SecuritiesLess Than 12 Months12 Months or LongerTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Investment:       
Municipal and other tax-exempt4 $1,001 $1 $1,706 $5 $2,707 $6 
Other debt securities13 275 1 8,041 294 8,316 295 
Total investment securities17 $1,276 $2 $9,747 $299 $11,023 $301 



- 57 -

Available for Sale Securities 

The amortized cost and fair value of available for sale securities are as follows (in thousands):
 September 30, 2020
 AmortizedFairGross Unrealized
 CostValueGainLoss
U.S. Treasury$500 $509 $9 $0 
Municipal and other tax-exempt50,050 51,601 1,648 (97)
Mortgage-backed securities:    
Residential agency9,033,728 9,384,998 354,669 (3,399)
Residential non-agency19,954 34,873 14,919 0 
Commercial agency3,221,538 3,334,409 114,244 (1,373)
Other debt securities10,936 10,879 0 (57)
Total available for sale securities$12,336,706 $12,817,269 $485,489 $(4,926)
 September 30, 2019 December 31, 2019
 Amortized Fair Gross Unrealized AmortizedFairGross Unrealized
 Cost Value Gain Loss CostValueGainLoss
U.S. Treasury $2,294
 $2,296
 $2
 $—
U.S. Treasury$1,598 $1,600 $2 $0 
Municipal and other tax-exempt 1,772
 1,848
 76
 —
Municipal and other tax-exempt1,789 1,861 72 0 
Mortgage-backed securities:  
  
  
  
Mortgage-backed securities:   
Residential agency 7,636,923
 7,740,461
 114,646
 (11,108)Residential agency7,956,297 8,046,096 104,912 (15,113)
Residential non-agency 28,814
 44,803
 15,989
 —
Residential non-agency25,968 41,609 15,641 0 
Commercial agency 3,176,188
 3,234,671
 61,003
 (2,520)Commercial agency3,145,342 3,178,005 37,808 (5,145)
Other debt securities 500
 472
 —
 (28)Other debt securities500 472 0 (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 September 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$70,791 $1,326,715 $1,282,122 $603,396 $3,283,024 8.02 
Fair value71,123 1,383,695 1,313,942 628,638 3,397,398 
Residential mortgage-backed securities:
Amortized cost$9,053,682 2
Fair value9,419,871 
Total available-for-sale securities:
Amortized cost$12,336,706 
Fair value12,817,269 
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 3.02 years based upon current prepayment assumptions.

- 58 -
 
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 value35,806
 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
  
1

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 September 30,Nine Months Ended September 30,
 2020201920202019
Proceeds$1,034 $261,028 $206,979 $628,385 
Gross realized gains54 989 5,637 7,316 
Gross realized losses(66)(984)(66)(6,206)
Related federal and state income tax expense (benefit)(3)1 1,419 282 
 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 gains989
 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$12.5 billion at September 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)
September 30, 2020
 Number of SecuritiesLess Than 12 Months12 Months or LongerTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available for sale:       
Municipal and other tax-exempt11 $19,768 $97 $0 $0 $19,768 $97 
Mortgage-backed securities:    
Residential agency32 630,460 3,178 165,726 221 796,186 3,399 
Commercial agency29 264,836 923 253,378 450 518,214 1,373 
Other debt securities5 10,407 29 472 28 10,879 57 
Total available for sale securities77 $925,471 $4,227 $419,576 $699 $1,345,047 $4,926 
  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 SecuritiesLess Than 12 Months12 Months or LongerTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available for sale:     
Mortgage-backed securities:     
Residential agency133 $1,352,597 $6,690 $686,002 $8,423 $2,038,599 $15,113 
Commercial agency69 830,047 4,238 210,877 907 1,040,924 5,145 
Other debt securities1 0 0 472 28 472 28 
Total available for sale securities203 $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 September 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.



- 59 -

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):
 September 30, 2020December 31, 2019
 Fair ValueNet Unrealized Gain (Loss)Fair ValueNet Unrealized Gain (Loss)
U.S. Treasury$0 $0 $9,917 $(48)
Residential agency mortgage-backed securities134,756 4,926 1,088,660 14,109 
Total$134,756 $4,926 $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



- 60 -

(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.

- 61 -

The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at September 30, 20192020 (in thousands):
Assets
 
Notional1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts3,179,414 132,320 (107)132,213 0 132,213 
Energy contracts3,482,226 400,646 (229,433)171,213 (92,170)79,043 
Agricultural contracts13,611 1,870 0 1,870 0 1,870 
Foreign exchange contracts311,626 309,130 0 309,130 (400)308,730 
Equity option contracts73,447 937 0 937 (219)718 
Total customer risk management programs7,060,324 844,903 (229,540)615,363 (92,789)522,574 
Trading65,290,962 235,176 (173,680)61,496 (3,824)57,672 
Internal risk management programs734,142 19,357 (6,035)13,322 0 13,322 
Total derivative contracts$73,085,428 $1,099,436 $(409,255)$690,181 $(96,613)$593,568 
Liabilities
 
Notional1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts3,179,414 132,689 (107)132,582 (121,212)11,370 
Energy contracts3,277,670 374,542 (229,433)145,109 (37,276)107,833 
Agricultural contracts13,627 1,856 0 1,856 (1,856)0 
Foreign exchange contracts311,098 308,493 0 308,493 0 308,493 
Equity option contracts73,447 937 0 937 0 937 
Total customer risk management programs6,855,256 818,517 (229,540)588,977 (160,344)428,633 
Trading64,972,263 229,013 (173,680)55,333 (38,999)16,334 
Internal risk management programs559,452 7,655 (6,035)1,620 (259)1,361 
Total derivative contracts$72,386,971 $1,055,185 $(409,255)$645,930 $(199,602)$446,328 
1    Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.


- 62 -
  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
1

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




The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 20182019 (in thousands):
Assets
 
Notional 1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts2,464,478 49,100 (1,839)47,261 0 47,261 
Energy contracts2,151,096 144,906 (107,591)37,315 (38)37,277 
Agricultural contracts16,118 1,522 (22)1,500 0 1,500 
Foreign exchange contracts214,119 213,007 0 213,007 0 213,007 
Equity option contracts81,455 3,233 0 3,233 (660)2,573 
Total customer risk management programs4,927,266 411,768 (109,452)302,316 (698)301,618 
Trading69,721,932 131,561 (115,949)15,612 0 15,612 
Internal risk management programs1,268,180 6,226 (81)6,145 0 6,145 
Total derivative contracts$75,917,378 $549,555 $(225,482)$324,073 $(698)$323,375 
Liabilities
 
Notional 1
Gross Fair ValueNetting AdjustmentsNet Fair Value Before Cash CollateralCash CollateralFair Value Net of Cash Collateral
Customer risk management programs:   
Interest rate contracts2,464,478 49,194 (1,839)47,355 (43,932)3,423 
Energy contracts2,105,391 139,311 (107,591)31,720 (6,031)25,689 
Agricultural contracts16,139 1,507 (22)1,485 (1,485)0 
Foreign exchange contracts207,919 207,020 0 207,020 0 207,020 
Equity option contracts81,455 3,233 0 3,233 0 3,233 
Total customer risk management programs4,875,382 400,265 (109,452)290,813 (51,448)239,365 
Trading65,144,388 125,535 (115,949)9,586 0 9,586 
Internal risk management programs380,401 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.

- 63 -
  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
1

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



The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the income statement (in thousands):
 Three Months Ended
September 30, 2020September 30, 2019
 Brokerage
and Trading Revenue		Gain (Loss) on Derivatives, NetBrokerage
and Trading
Revenue		Gain (Loss)on Derivatives, Net
Customer risk management programs:    
Interest rate contracts
To-be-announced residential mortgage-backed securities$0 $0 $1,667 $0 
Interest rate swaps1,014 0 1,252 0 
Energy contracts7,460 0 1,611 0 
Agricultural contracts6 0 16 0 
Foreign exchange contracts162 0 138 0 
Equity option contracts0 0 0 0 
Total customer risk management programs8,642 0 4,684 0 
Trading1
(468)0 3,630 0 
Internal risk management programs0 2,354 0 3,778 
Total derivative contracts$8,174 $2,354 $8,314 $3,778 
  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)
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, 2020September 30, 2019
 Brokerage
and Trading Revenue		Gain (Loss) on Derivatives, NetBrokerage
and Trading
Revenue		Gain (Loss) on Derivatives, Net
Customer risk management programs:    
Interest rate contracts
To-be-announced residential mortgage-backed securities$0 $0 $9,579 $0 
Interest rate swaps2,702 0 2,787 0 
Energy contracts14,850 0 3,923 0 
Agricultural contracts27 0 24 0 
Foreign exchange contracts527 0 392 0 
Equity option contracts0 0 0 0 
Total customer risk management programs18,106 0 16,705 0 
Trading1
(8,546)0 4,365 0 
Internal risk management programs0 42,659 0 19,595 
Total derivative contracts$9,560 $42,659 $21,070 $19,595 
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)



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(4) Loans and Allowances for Credit Losses

Loans

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

Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccruing status when, in the opinion of management, full collection of principal or interest is uncertain. Internally risk graded loans are individually evaluated for nonaccruing status quarterly. Non-risk graded loans are generally placed on nonaccruing status when more than 90 days past due or within 60 days of being notified of the borrower's bankruptcy filing. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccruing status. 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.

- 65 -

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):

 September 30, 2020
Fixed
Rate		Variable
Rate		Non-accrualTotal
Commercial1,424,416 11,971,337 169,953 $13,565,706 
Commercial real estate1,012,882 3,667,866 12,952 4,693,700 
Paycheck protection program2,097,325 0 0 2,097,325 
Loans to individuals2,132,653 1,275,668 38,248 3,446,569 
Total$6,667,276 $16,914,871 $221,153 $23,803,300 
  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 September 30, 2019,2020, outstanding commitments totaled $11$10.4 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 September 30, 2019,2020, outstanding standby letters of credit totaled $713$678 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.

- 66 -

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.

- 67 -

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
September 30, 2020
 CommercialCommercial Real EstatePaycheck Protection ProgramLoans to IndividualsNonspecific AllowanceTotal
Allowance for loan losses:     
Beginning balance$310,422 $68,756 $0 $56,419 $0 $435,597 
Provision for loan losses2,108 3,118 0 1,383 0 6,609 
Loans charged off(25,319)(413)0 (929)0 (26,661)
Recoveries of loans previously charged off3,066 114 0 1,052 0 4,232 
Ending Balance$290,277 $71,575 $0 $57,925 0 $419,777 
Allowance for off-balance sheet credit risk from unfunded loan commitments:
Beginning balance$14,582 $16,419 $0 $1,918 $0 $32,919 
Provision for off-balance sheet credit risk(2,618)(2,426)0 94 0 (4,950)
Ending Balance$11,964 $13,993 $0 $2,012 $0 $27,969 

- 68 -

Nine Months Ended
September 30, 2020
 Commercial Commercial Real Estate Residential Mortgage Personal Nonspecific Allowance Total CommercialCommercial Real EstatePaycheck Protection ProgramLoans to IndividualsNonspecific AllowanceTotal
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 $0 $23,572 $17,195 $210,759 
Transition adjustmentTransition adjustment33,681 (4,620)0 13,943 (17,195)25,809 
Beginning balance, adjustedBeginning balance, adjusted151,868 47,185 0 37,515 0 236,568 
Provision for loan losses 34,740
 (10,075) (2,660) 3,434
 (13) 25,426
Provision for loan losses190,984 25,454 0 20,500 0 236,938 
Loans charged off (31,728) (118) (192) (4,671) —
 (36,709)Loans charged off(56,421)(1,300)0 (3,427)0 (61,148)
Recoveries 1,405
 4,517
 422
 1,914
 —
 8,258
Recoveries3,846 236 0 3,337 0 7,419 
Ending balance $106,643
 $54,350
 $15,534
 $10,150
 $17,755
 $204,432
Ending balance$290,277 $71,575 $0 $57,925 $0 $419,777 
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 $0 $44 $0 $1,585 
Transition adjustmentTransition adjustment10,144 11,660 0 1,748 0 23,552 
Beginning balance, adjustedBeginning balance, adjusted11,578 11,767 0 1,792 0 25,137 
Provision for off-balance sheet credit losses (449) 61
 (8) (30) —
 (426)Provision for off-balance sheet credit losses386 2,226 0 220 0 2,832 
Ending balance $1,206
 $113
 $44
 $1
 $—
 $1,364
Ending balance$11,964 $13,993 $0 $2,012 $0 $27,969 
            
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 anticipated impact of the on-going COVID-19 pandemic, and other assumptions, resulted in a $12.8 million reduction in the allowance for lending activities during the third quarter of 2020. Changes in the loan portfolio characteristics, including specific impairment and losses, loan balances 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, 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 activityrisk grading resulted in a $14.5 million increase 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, 2018 is summarized as follows (in thousands):lending activities.
  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 September 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 InvestmentRelated AllowanceRecorded InvestmentRelated AllowanceRecorded InvestmentRelated
Allowance
Commercial$13,395,753 $271,122 $169,953 $19,155 $13,565,706 $290,277 
Commercial real estate4,680,748 71,035 12,952 540 4,693,700 71,575 
Paycheck protection program2,097,325 0 0 0 2,097,325 0 
Loans to individuals3,408,321 57,925 38,248 0 3,446,569 57,925 
Total23,582,147 400,082 221,153 19,695 23,803,300 419,777 
  
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
- 69 -





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.

- 70 -

The following table summarizes the Company’s loan portfolio at September 30, 20192020 by the risk grade categories and vintage (in thousands): 
Origination Year
20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
Commercial:
Energy
Pass$57,239 $58,923 $93,066 $7,959 $1,131 $6,716 $2,474,328 $0 $2,699,362 
Special Mention0 0 0 0 0 0 465,643 0 465,643 
Accruing Substandard295 0 951 0 14,406 0 409,628 0 425,280 
Nonaccrual1,652 6,541 15,496 0 0 28,349 74,778 0 126,816 
Total energy59,186 65,464 109,513 7,959 15,537 35,065 3,424,377 0 3,717,101 
Healthcare
Pass356,834 619,693 625,047 429,314 241,452 749,439 236,118 0 3,257,897 
Special Mention0 27,500 0 3,019 0 13,393 3,255 0 47,167 
Accruing Substandard0 2,843 1,705 947 143 11,443 0 0 17,081 
Nonaccrual0 18 183 0 0 2,935 509 0 3,645 
Total healthcare356,834 650,054 626,935 433,280 241,595 777,210 239,882 0 3,325,790 
Services
Pass356,443 445,488 406,761 345,936 380,205 758,036 689,917 651 3,383,437 
Special Mention344 11,778 1,734 597 8,415 5,410 10,043 0 38,321 
Accruing Substandard94 8,067 27,957 9,662 2,568 15,185 34,717 0 98,250 
Nonaccrual0 3,420 0 13,898 1,147 6,726 626 0 25,817 
Total services356,881 468,753 436,452 370,093 392,335 785,357 735,303 651 3,545,825 
General business
Pass327,729 446,214 342,469 242,267 126,259 229,142 1,145,429 2,766 2,862,275 
Special Mention0 4,335 13,235 7,126 3,876 3,457 4,782 21 36,832 
Accruing Substandard1,005 15,955 11,316 11,007 7,501 8,526 8,894 4 64,208 
Nonaccrual1,675 3,853 4,865 1,647 787 118 659 71 13,675 
Total general business330,409 470,357 371,885 262,047 138,423 241,243 1,159,764 2,862 2,976,990 
Total commercial1,103,310 1,654,628 1,544,785 1,073,379 787,890 1,838,875 5,559,326 3,513 13,565,706 
Commercial real estate:
Pass578,864 1,184,368 1,021,832 517,976 347,920 780,900 207,440 0 4,639,300 
Special Mention0 0 261 12,326 2,571 8,903 0 0 24,061 
Accruing Substandard0 8,349 0 4,187 0 4,824 27 0 17,387 
Nonaccrual0 0 0 232 6,575 6,145 0 0 12,952 
Total commercial real estate578,864 1,192,717 1,022,093 534,721 357,066 800,772 207,467 0 4,693,700 
  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
- 71 -

Origination Year
20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
Paycheck protection program:
Pass2,097,325 0 0 0 0 0 0 0 2,097,325 
Total paycheck protection program2,097,325 0 0 0 0 0 0 0 2,097,325 
Loans to individuals:
Residential mortgage
Pass414,273 166,795 138,524 157,514 178,830 390,803 341,673 26,129 1,814,541 
Special Mention0 47 1,879 20 0 309 527 12 2,794 
Accruing Substandard0 0 0 0 0 39 159 12 210 
Nonaccrual0 43 1,509 735 2,057 24,431 2,066 758 31,599 
Total residential mortgage414,273 166,885 141,912 158,269 180,887 415,582 344,425 26,911 1,849,144 
Residential mortgage guaranteed by U.S. government agencies
Pass2,385 29,819 29,745 43,690 57,322 214,889 0 0 377,850 
Nonaccrual0 0 404 0 0 5,993 0 0 6,397 
Total residential mortgage guaranteed by U.S. government agencies2,385 29,819 30,149 43,690 57,322 220,882 0 0 384,247 
Personal:
Pass182,066 204,478 79,041 104,217 70,812 98,598 471,503 1,498 1,212,213 
Special Mention42 24 11 53 46 45 1 0 222 
Accruing Substandard0 211 0 265 0 0 15 0 491 
Nonaccrual0 17 49 53 59 44 30 0 252 
Total personal182,108 204,730 79,101 104,588 70,917 98,687 471,549 1,498 1,213,178 
Total loans to individuals598,766 401,434 251,162 306,547 309,126 735,151 815,974 28,409 3,446,569 
Total loans$4,378,265 $3,248,779 $2,818,040 $1,914,647 $1,454,082 $3,374,798 $6,582,767 $31,922 $23,803,300 

- 72 -


Nonaccruing Loans

A summary of nonaccruing loans at September 30, 2020 follows (in thousands): 
As of September 30, 2020
 TotalWith No
Allowance		With AllowanceRelated Allowance
Commercial:    
Energy$126,816 $86,793 $40,023 $16,504 
Healthcare3,645 3,645 0 0 
Services25,817 20,456 5,361 2,574 
General business13,675 13,177 498 77 
Total commercial169,953 124,071 45,882 19,155 
Commercial real estate12,952 7,584 5,368 540 
Loans to individuals:    
Residential mortgage31,599 31,599 0 0 
Residential mortgage guaranteed by U.S. government agencies6,397 6,397 0 0 
Personal252 252 0 0 
Total loans to individuals38,248 38,248 0 0 
Total$221,153 $169,903 $51,250 $19,695 


Troubled Debt Restructurings

At September 30, 2020 the Company had $184 million in troubled debt restructurings ("TDRs"), of which $143 million were accruing residential mortgage loans guaranteed by U.S. government agencies, $11 million were nonaccruing energy loans with a related specific allowance of $2.0 million and $19 million were nonaccruing residential mortgage loans with 0 specific allowance necessary. Approximately $65 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 nine months ended September 30, 2020, $36 million and $76 million of loans were restructured and $6.4 million and $16.1 million of loans designated as TDRs were charged off. During the three and nine months ended September 30, 2019, $6.2 million and $40 million of loans were restructured and $2.5 million and $15.1 million of loans designated as TDRs were charged off.














- 73 -

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 September 30, 2020 is as follows (in thousands):
  Past Due Past Due 90 Days or More and Accruing
 Current30 to 59
Days		60 to 89 Days90 Days
or More		Total
Commercial:    
Energy$3,603,548 $27,064 $0 $86,489 $3,717,101 $0 
Healthcare3,316,556 5,419 0 3,815 3,325,790 171 
Services3,521,644 6,503 5,168 12,510 3,545,825 58 
General business2,955,752 14,002 342 6,894 2,976,990 443 
Total commercial13,397,500 52,988 5,510 109,708 13,565,706 672 
Commercial real estate4,673,416 2,029 532 17,723 4,693,700 4,771 
Paycheck protection program2,097,325 0 0 0 2,097,325 0 
Loans to individuals:    
Residential mortgage1,830,005 8,299 1,128 9,712 1,849,144 2,241 
Residential mortgage guaranteed by U.S. government agencies172,678 56,264 34,355 120,950 384,247 117,188 
Personal1,212,488 99 520 71 1,213,178 0 
Total loans to individuals3,215,171 64,662 36,003 130,733 3,446,569 119,429 
Total$23,383,412 $119,679 $42,045 $258,164 $23,803,300 $124,872 

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-accrualTotal
Commercial$3,231,485 $10,684,749 $115,416 $14,031,650 
Commercial real estate1,056,321 3,349,836 27,626 4,433,783 
Residential mortgage1,652,653 393,897 37,622 2,084,172 
Personal193,903 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


- 74 -

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
September 30, 2019
 CommercialCommercial Real EstateResidential MortgagePersonalNonspecific AllowanceTotal
Allowance for loan losses:      
Beginning balance$106,397 $54,188 $15,724 $9,388 $16,837 $202,534 
Provision for loan losses9,861 102 (253)1,911 918 12,539 
Loans charged off(9,875)0 (56)(1,776)0 (11,707)
Recoveries260 60 119 627 0 1,066 
Ending balance$106,643 $54,350 $15,534 $10,150 $17,755 $204,432 
Allowance for off-balance sheet credit losses:      
Beginning balance1,742 116 44 1 0 $1,903 
Provision for off-balance sheet credit losses(536)(3)0 0 0 (539)
Ending balance$1,206 $113 $44 $1 $0 $1,364 
Total provision for credit losses$9,325 $99 $(253)$1,911 $918 $12,000 

Nine Months Ended
September 30, 2019
 CommercialCommercial Real EstateResidential MortgagePersonalNonspecific AllowanceTotal
Allowance for loan losses:      
Beginning balance$102,226 $60,026 $17,964 $9,473 $17,768 $207,457 
Provision for loan losses34,740 (10,075)(2,660)3,434 (13)25,426 
Loans charged off(31,728)(118)(192)(4,671)0 (36,709)
Recoveries1,405 4,517 422 1,914 0 8,258 
Ending balance$106,643 $54,350 $15,534 $10,150 $17,755 $204,432 
Allowance for off-balance sheet credit losses:      
Beginning balance$1,655 $52 $52 $31 $0 $1,790 
Provision for off-balance sheet credit losses(449)61 (8)(30)0 (426)
Ending balance$1,206 $113 $44 $1 $0 $1,364 
Total provision for credit losses$34,291 $(10,014)$(2,668)$3,404 $(13)$25,000 
- 75 -

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 InvestmentRelated AllowanceRecorded InvestmentRelated AllowanceRecorded InvestmentRelated
Allowance
Commercial$13,916,234 $100,773 $115,416 $17,414 $14,031,650 $118,187 
Commercial real estate4,406,157 51,805 27,626 0 4,433,783 51,805 
Residential mortgage2,046,550 14,400 37,622 0 2,084,172 14,400 
Personal1,201,095 9,172 287 0 1,201,382 9,172 
Total21,570,036 176,150 180,951 17,414 21,750,987 193,564 
Nonspecific allowance0 0 0 0 0 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 GradedNon-GradedTotal
 Recorded InvestmentRelated AllowanceRecorded InvestmentRelated AllowanceRecorded InvestmentRelated
Allowance
Commercial$13,997,538 $117,236 $34,112 $951 $14,031,650 $118,187 
Commercial real estate4,433,783 51,805 0 0 4,433,783 51,805 
Residential mortgage279,113 3,085 1,805,059 11,315 2,084,172 14,400 
Personal1,116,297 7,003 85,085 2,169 1,201,382 9,172 
Total19,826,731 179,129 1,924,256 14,435 21,750,987 193,564 
Nonspecific allowance0 0 0 0 0 17,195 
Total$19,826,731 $179,129 $1,924,256 $14,435 $21,750,987 $210,759 

- 76 -

The following table summarizes the Company’s loan portfolio at December 31, 20182019 by the risk grade categories (in thousands): 
 Internally Risk GradedNon-Graded 
Performing
 PassOther Loans Especially MentionedAccruing SubstandardNonaccrualPerformingNonaccrualTotal
Commercial:      
Energy$3,700,406 $117,298 $63,951 $91,722 $0 $0 $3,973,377 
Services3,050,946 29,943 33,791 7,483 0 0 3,122,163 
Wholesale/retail1,749,023 5,281 5,399 1,163 0 0 1,760,866 
Manufacturing623,219 18,214 13,883 10,133 0 0 665,449 
Healthcare2,995,514 13,117 20,805 4,480 0 0 3,033,916 
Public finance709,868 0 0 0 0 0 709,868 
Other commercial and industrial709,729 4,028 17,744 398 34,075 37 766,011 
Total commercial13,538,705 187,881 155,573 115,379 34,075 37 14,031,650 
Commercial real estate:      
Residential construction and land development150,529 0 0 350 0 0 150,879 
Retail743,343 12,067 1,243 18,868 0 0 775,521 
Office923,202 5,177 0 0 0 0 928,379 
Multifamily1,257,005 1,604 95 6,858 0 0 1,265,562 
Industrial852,539 1,658 1,011 909 0 0 856,117 
Other commercial real estate455,045 1,639 0 641 0 0 457,325 
Total commercial real estate4,381,663 22,145 2,349 27,626 0 0 4,433,783 
Residential mortgage:      
Permanent mortgage276,138 78 2,404 493 758,260 19,948 1,057,321 
Permanent mortgage guaranteed by U.S. government agencies0 0 0 0 191,694 6,100 197,794 
Home equity0 0 0 0 817,976 11,081 829,057 
Total residential mortgage276,138 78 2,404 493 1,767,930 37,129 2,084,172 
Personal1,116,196 45 0 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

- 77 -





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		TotalWith No
Allowance		With AllowanceRelated 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 
Services9,390
 6,119
 6,093
 26
 26
 8,103
 —
 5,172
 —
Services10,923 7,483 6,301 1,182 240 
Wholesale/retail1,718
 1,504
 1,243
 261
 101
 1,447
 —
 1,087
 —
Wholesale/retail1,980 1,163 902 261 101 
Manufacturing1
9,153
 8,741
 8,511
 230
 230
 8,677
 —
 8,448
 —
ManufacturingManufacturing10,848 10,133 9,914 219 219 
Healthcare17,786
 5,978
 5,978
 —
 —
 11,063
 —
 8,547
 —
Healthcare13,774 4,480 4,480 0 0 
Public finance—
 —
 —
 —
 —
 —
 —
 —
 —
Public finance0 0 0 0 0 
Other commercial and industrial8,261
 470
 470
 —
 —
 7,998
 —
 8,585
 —
Other commercial and industrial8,227 435 435 0 0 
Total commercial186,205
 111,706
 85,276
 26,430
 7,533
 117,551
 —
 99,544
 —
Total commercial195,193 115,416 66,276 49,140 17,414 
                 
Commercial real estate: 
  
  
  
  
  
  
  
  
Commercial real estate:     
Residential construction and land development1,306
 350
 350
 —
 —
 350
 —
 350
 —
Residential construction and land development1,306 350 350 0 0 
Retail20,516
 20,132
 20,132
 —
 —
 20,094
 —
 20,206
 —
Retail20,265 18,868 18,868 0 0 
Office855
 855
 855
 —
 —
 855
 —
 427
 —
Office0 0 0 0 0 
Multifamily286
 286
 286
 —
 —
 281
 —
 294
 —
Multifamily6,858 6,858 6,858 0 0 
Industrial909
 909
 909
 —
 —
 454
 —
 454
 —
Industrial909 909 909 0 0 
Other commercial real estate813
 653
 653
 —
 —
 393
 —
 672
 —
Other commercial real estate801 641 641 0 0 
Total commercial real estate24,685
 23,185
 23,185
 —
 —
 22,427
 —
 22,403
 —
Total commercial real estate30,139 27,626 27,626 0 0 
                 
Residential mortgage: 
  
  
  
  
  
  
  
  
Residential mortgage:     
Permanent mortgage24,639
 20,165
 20,165
 —
 —
 20,984
 280
 22,058
 894
Permanent mortgage24,868 20,441 20,441 0 0 
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 0 0 
Home equity12,621
 10,807
 10,807
 —
 —
 10,369
 —
 10,639
 —
Home equity12,967 11,081 11,081 0 0 
Total residential mortgage235,107
 222,736
 222,736
 —
 —
 227,663
 2,300
 227,448
 6,757
Total residential mortgage242,022 229,316 229,316 0 0 
                 
Personal338
 271
 271
 —
 —
 254
 —
 251
 —
Personal360 287 287 0 0 
                 
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.
2 1All 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): 
- 78 -
    Recorded Investment
  
Unpaid
Principal
Balance
 Total 
With No
Allowance
 With Allowance Related Allowance
Commercial:          
Energy $79,675
 $47,494
 $18,639
 $28,855
 $5,362
Services 13,437
 8,567
 8,489
 78
 74
Wholesale/retail 1,722
 1,316
 1,015
 301
 101
Manufacturing 10,055
 8,919
 8,673
 246
 246
Healthcare 24,319
 16,538
 10,563
 5,975
 2,949
Public finance —
 —
 —
 —
 —
Other commercial and industrial 26,955
 17,007
 17,007
 —
 —
Total commercial 156,163
 99,841
 64,386
 35,455
 8,732
           
Commercial real estate:  
  
  
  
  
Residential construction and land development 1,306
 350
 350
 —
 —
Retail 27,680
 20,279
 20,279
 —
 —
Office —
 —
 —
 —
 —
Multifamily 301
 301
 301
 —
 —
Industrial —
 —
 —
 —
 —
Other commercial real estate 851
 691
 691
 —
 —
Total commercial real estate 30,138
 21,621
 21,621
 —
 —
           
Residential mortgage:  
  
  
  
  
Permanent mortgage 28,716
 23,951
 23,951
 —
 —
Permanent mortgage guaranteed by U.S. government agencies1
 196,296
 190,866
 190,866
 —
 —
Home equity 12,196
 10,472
 10,472
 —
 —
Total residential mortgage 237,208
 225,289
 225,289
 —
 —
           
Personal 278
 230
 230
 —
 —
           
Total $423,787
 $346,981
 $311,526
 $35,455
 $8,732
1

All permanent mortgage loans guaranteed by U.S. government agencies are considered impaired as we do not expect full collection of contractual principal and interest. At 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 
 Current30 to 59
Days		60 to 89 Days90 Days
or More		NonaccrualTotal
Commercial:    
Energy$3,881,244 $401 $10 $0 91,722 $3,973,377 
Services3,105,621 1,737 523 6,799 7,483 3,122,163 
Wholesale1,758,878 712 113 0 1,163 1,760,866 
Manufacturing654,329 410 190 387 10,133 665,449 
Healthcare3,027,329 2,039 0 68 4,480 3,033,916 
Public finance707,638 2,230 0 0 0 709,868 
Other commercial and industrial764,390 414 772 0 435 766,011 
Total commercial13,899,429 7,943 1,608 7,254 115,416 14,031,650 
Commercial real estate:
Residential construction and land development147,379 3,093 0 57 350 150,879 
Retail756,653 0 0 0 18,868 775,521 
Office928,379 0 0 0 0 928,379 
Multifamily1,258,704 0 0 0 6,858 1,265,562 
Industrial855,208 0 0 0 909 856,117 
Other commercial real estate454,253 1,827 250 354 641 457,325 
Total commercial real estate4,400,576 4,920 250 411 27,626 4,433,783 
Residential Mortgage:
Permanent mortgage1,034,716 2,011 153 0 20,441 1,057,321 
Permanent mortgage guaranteed by U.S. government agencies46,898 24,203 18,187 102,406 6,100 197,794 
Home equity814,325 3,343 308 0 11,081 829,057 
Total residential mortgage1,895,939 29,557 18,648 102,406 37,622 2,084,172 
Personal1,196,362 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


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(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):
 September 30, 2020December 31, 2019
 Unpaid Principal Balance/
Notional		Fair ValueUnpaid Principal Balance/
Notional		Fair Value
Residential mortgage loans held for sale$259,076 $268,575 $175,117 $177,703 
Residential mortgage loan commitments560,493 29,224 158,460 5,233 
Forward sales contracts765,994 (2,509)315,203 (665)
  $295,290  $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


NoNaN residential mortgage loans held for sale were 90 days or more past due or considered impaired as of September 30, 20192020 or December 31, 2018. No2019. NaN credit losses were recognized on residential mortgage loans held for sale for the nine month period ended September 30, 20192020 and 2018.2019.



Mortgage banking revenue was as follows (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Production revenue:  
Net realized gains on sale of mortgage loans$36,300 $8,971 $70,126 $24,838 
Net change in unrealized gain (loss) on mortgage loans held for sale(1,672)97 6,913 965 
Net change in the fair value of mortgage loan commitments1,593 514 23,991 4,733 
Net change in the fair value of forward sales contracts2,210 4,232 (1,844)3,015 
Total production revenue38,431 13,814 99,186 33,551 
Servicing revenue13,528 16,366 43,876 48,594 
Total mortgage banking revenue$51,959 $30,180 $143,062 $82,145 
  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.

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Residential Mortgage Servicing

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

The following represents a summary of mortgage servicing rights (dollars in thousands):
 September 30, 2020December 31, 2019
Number of residential mortgage loans serviced for others111,008 126,828 
Outstanding principal balance of residential mortgage loans serviced for others$17,116,204 $20,727,106 
Weighted average interest rate3.91 %3.98 %
Remaining term (in months)281289
  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 September 30,Nine Months Ended September 30,
2020201920202019
Beginning Balance$97,971 $208,308 $201,886 $259,254 
Additions7,424 9,882 21,330 24,821 
Disposals0 0 (10,801)0 
Change in fair value due to principal payments(11,192)(11,936)(28,971)(27,600)
Change in fair value due to market assumption changes3,441 (12,593)(85,800)(62,814)
Ending Balance$97,644 $193,661 $97,644 $193,661 
  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:
 September 30, 2020December 31, 2019
Discount rate – risk-free rate plus a market premium9.15%9.81%
Prepayment rate - based upon loan interest rate, original term and loan type9.90% - 24.02%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 life0.34%1.73%
Primary/secondary mortgage rate spread105 bps104 bps
Delinquency rate3.72%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.



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(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 beenremains stayed until December 17, 2019.with no current deadlines pending. On September 14, 2016, BOKF, NA was sued in the District Court of Tulsa County, Oklahoma by 19 bondholders alleging BOKF, NA participated in the fraudulent sale of securities by the principals. The Tulsa County District Court Action is pending on BOKF, NA’s motion to dismiss. 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 Third 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. On September 24, 2020, the SEC filed multiple garnishments on entities either related to or holding assets for the debtor. If the individual principal and his wife do not have the financial ability to pay the bonds in full, a bondholder loss could become probable. Management has been advised by counsel that BOKF, NA has valid defenses to claims of bondholders and that no loss to the company is probable. No provision for losses has been made at this time. BOKF, NA estimates that, upon sale of all facilitiesremaining collateral 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 remains pending. BOKF, NA is advised by counsel that BOKF, NA has valid defenses to the plaintiffs’ claims and no loss is probable.


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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. On July 8, 2020, the Court ruled on the motion and dismissed six of Plaintiffs’ seven causes of action. On September 9, 2020 the Court entered a Scheduling Order for proceeding on the remaining claim with a January 18, 2022 trial date.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 September 30, 2019,2020, the Company has $245$270 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$89 million of unfunded commitments included in Other liabilities on the Consolidated Balance Sheets.


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(7) Shareholders' Equity
(8) Shareholders' Equity

On October 29, 2019,November 3, 2020, the Company declared a quarterly cash dividend of $0.51$0.52 per common share payable on or about November 27, 201924, 2020 to shareholders of record as of November 12, 2019.16, 2020.

Dividends declared were $0.51 and $1.53 per share during the three and nine months ended September 30, 2020 and $0.50 and $1.50 per share during the three and nine months ended September 30, 2019 and $0.50 and $1.40 per share during the three and nine months ended September 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 SecuritiesEmployee Benefit PlansTotal
Balance, Dec. 31, 2018$(70,999)$(1,586)$(72,585)
Net change in unrealized gain (loss)274,441 0 274,441 
Reclassification adjustments included in earnings:
Gain on available for sale securities, net(1,110)0 (1,110)
Other comprehensive income, before income taxes273,331 0 273,331 
Federal and state income taxes1
66,993 0 66,993 
Other comprehensive income, net of income taxes206,338 0 206,338 
Balance, September 30, 2019$135,339 $(1,586)$133,753 
Balance, Dec. 31, 2019$104,996 $(73)$104,923 
Net change in unrealized gain (loss)347,985 0 347,985 
Reclassification adjustments included in earnings:
Gain on available for sale securities, net(5,571)0 (5,571)
Other comprehensive income, before income taxes342,414 0 342,414 
Federal and state income taxes1
82,167 0 82,167 
Other comprehensive income, net of income taxes260,247 0 260,247 
Balance, September 30, 2020$365,243 $(73)$365,170 
  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.

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


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(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 September 30,Nine Months Ended September 30,
 2019 2018 2019 2018 2020201920202019
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$154,034 $142,231 $280,806 $390,406 
Less: Earnings allocated to participating securities 875
 963
 2,553
 2,940
Less: Earnings allocated to participating securities938 875 1,678 2,553 
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 shareholders153,096 141,356 279,128 387,853 
Effect of reallocating undistributed earnings of participating securities 1
 1
 1
 1
Effect of reallocating undistributed earnings of participating securities0 1 0 1 
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$153,096 $141,357 $279,128 $387,854 
        
Denominator:  
  
  
  
Denominator:    
Weighted average shares outstanding 71,033,405
 65,438,849
 71,425,855
 65,455,306
Weighted average shares outstanding70,306,233 71,033,405 70,375,628 71,425,855 
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 outstanding428,367 437,098 416,684 472,311 
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 share69,877,866 70,596,307 69,958,944 70,953,544 
Dilutive effect of employee stock compensation plans1
 13,617
 33,256
 15,301
 36,409
Dilutive effect of employee stock compensation plans1
1,424 13,617 3,109 15,301 
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 share69,879,290 70,609,924 69,962,053 70,968,845 
        
Basic earnings per share $2.00
 $1.79
 $5.47
 $5.15
Basic earnings per share$2.19 $2.00 $3.99 $5.47 
Diluted earnings per share $2.00
 $1.79
 $5.47
 $5.15
Diluted earnings per share$2.19 $2.00 $3.99 $5.47 
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.
19,227 0 0 0 


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(9) Reportable Segments

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended September 30, 2020 is as follows (in thousands):
 CommercialConsumerWealth
Management		Funds Management and OtherBOK
Financial
Consolidated
Net interest revenue from external sources$173,248 $15,821 $34,098 $48,583 $271,750 
Net interest revenue (expense) from internal sources(23,302)17,309 (11,113)17,106 0 
Net interest revenue149,946 33,130 22,985 65,689 271,750 
Provision for credit losses22,599 79 (51)(22,627)0 
Net interest revenue after provision for credit losses127,347 33,051 23,036 88,316 271,750 
Other operating revenue52,021 67,808 111,152 3,178 234,159 
Other operating expense66,846 59,839 82,868 91,712 301,265 
Net direct contribution112,522 41,020 51,320 (218)204,644 
Gain (loss) on financial instruments, net38 1,540 0 (1,578)0 
Change in fair value of mortgage servicing rights0 3,441 0 (3,441)0 
Gain (loss) on repossessed assets, net(4,332)41 0 4,291 0 
Corporate expense allocations5,172 10,812 9,397 (25,381)0 
Net income before taxes103,056 35,230 41,923 24,435 204,644 
Federal and state income taxes27,959 8,974 10,711 2,908 50,552 
Net income75,097 26,256 31,212 21,527 154,092 
Net income attributable to non-controlling interests0 0 0 58 58 
Net income attributable to BOK Financial Corp. shareholders$75,097 $26,256 $31,212 $21,469 $154,034 
Average assets$28,000,183 $9,898,119 $16,206,522 $(5,171,057)$48,933,767 
- 86 -


Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2020 is as follows (in thousands):
 CommercialConsumerWealth
Management		Funds Management and OtherBOK
Financial
Consolidated
Net interest revenue from external sources$549,464 $60,492 $82,823 $118,435 $811,214 
Net interest revenue (expense) from internal sources(103,002)55,840 (14,054)61,216 0 
Net interest revenue446,462 116,332 68,769 179,651 811,214 
Provision for credit losses53,241 1,870 (188)174,169 229,092 
Net interest revenue after provision for credit losses393,221 114,462 68,957 5,482 582,122 
Other operating revenue138,139 190,062 315,707 3,263 647,171 
Other operating expense190,531 173,568 241,627 259,550 865,276 
Net direct contribution340,829 130,956 143,037 (250,805)364,017 
Gain (loss) on financial instruments, net135 95,660 7 (95,802)0 
Change in fair value of mortgage servicing rights0 (85,800)0 85,800 0 
Gain (loss) on repossessed assets, net(4,132)81 0 4,051 0 
Corporate expense allocations19,514 32,111 25,866 (77,491)0 
Net income before taxes317,318 108,786 117,178 (179,265)364,017 
Federal and state income taxes86,254 27,709 29,999 (60,307)83,655 
Net income231,064 81,077 87,179 (118,958)280,362 
Net income (loss) attributable to non-controlling interests0 0 0 (444)(444)
Net income attributable to BOK Financial Corp. shareholders$231,064 $81,077 $87,179 $(118,514)$280,806 
Average assets$26,759,150 $9,889,690 $14,888,623 $(3,397,417)$48,140,046 
(10)  Reportable Segments



























- 87 -

Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended September 30, 2019 is as follows (in thousands):
 Commercial Consumer 
Wealth
Management
 Funds Management and Other 
BOK
Financial
Consolidated
 CommercialConsumerWealth
Management		Funds Management and OtherBOK
Financial
Consolidated
Net interest revenue from external sources $243,944
 $27,580
 $12,343
 $(4,771) $279,096
Net interest revenue from external sources$243,944 $27,580 $12,343 $(4,771)$279,096 
Net interest revenue (expense) from internal sources (63,797) 20,882
 10,723
 32,192
 —
Net interest revenue (expense) from internal sources(64,984)20,882 10,723 33,379 0 
Net interest revenue 180,147
 48,462
 23,066
 27,421
 279,096
Net interest revenue178,960 48,462 23,066 28,608 279,096 
Provision for credit losses 9,505
 1,841
 (42) 696
 12,000
Provision for credit losses9,505 1,841 (42)696 12,000 
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 losses169,455 46,621 23,108 27,912 267,096 
Other operating revenue 48,832
 51,221
 89,160
 (2,763) 186,450
Other operating revenue48,832 51,221 89,160 (2,763)186,450 
Other operating expense 68,685
 59,699
 71,619
 79,289
 279,292
Other operating expense69,127 59,699 71,619 78,847 279,292 
Net direct contribution 150,789
 38,143
 40,649
 (55,327) 174,254
Net direct contribution149,160 38,143 40,649 (53,698)174,254 
Gain on financial instruments, net 28
 8,339
 —
 (8,367) —
Gain (loss) on financial instruments, netGain (loss) on financial instruments, net28 8,339 0 (8,367)0 
Change in fair value of mortgage servicing rights —
 (12,593) —
 12,593
 —
Change in fair value of mortgage servicing rights0 (12,593)0 12,593 0 
Gain on repossessed assets, net 802
 214
 —
 (1,016) —
Gain (loss) on repossessed assets, netGain (loss) on repossessed assets, net802 214 0 (1,016)0 
Corporate expense allocations 12,613
 11,776
 9,416
 (33,805) —
Corporate expense allocations11,772 11,776 9,416 (32,964)0 
Net income before taxes 139,006
 22,327
 31,233
 (18,312) 174,254
Net income before taxes138,218 22,327 31,233 (17,524)174,254 
Federal and state income taxes 37,433
 5,687
 8,027
 (18,751) 32,396
Federal and state income taxes37,232 5,687 8,027 (18,550)32,396 
Net income 101,573
 16,640
 23,206
 439
 141,858
Net income100,986 16,640 23,206 1,026 141,858 
Net income (loss) attributable to non-controlling interests —
 —
 —
 (373) (373)Net income (loss) attributable to non-controlling interests0 0 0 (373)(373)
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$100,986 $16,640 $23,206 $1,399 $142,231 
          
Average assets $23,973,067
 $9,827,130
 $10,392,988
 $(611,075) $43,582,110
Average assets$23,973,925 $9,827,130 $10,391,225 $(611,932)$43,580,348 






























- 88 -

Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2019 is as follows (in thousands):
 CommercialConsumerWealth
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(185,235)76,925 27,213 81,097 0 
Net interest revenue514,004 152,278 78,267 98,081 842,630 
Provision for credit losses27,574 4,654 (209)(7,019)25,000 
Net interest revenue after provision for credit losses486,430 147,624 78,476 105,100 817,630 
Other operating revenue128,055 142,780 248,591 (3,641)515,785 
Other operating expense183,169 171,214 202,579 286,624 843,586 
Net direct contribution431,316 119,190 124,488 (185,165)489,829 
Gain (loss) on financial instruments, net67 43,416 0 (43,483)0 
Change in fair value of mortgage servicing rights0 (62,814)0 62,814 0 
Gain (loss) on repossessed assets, net455 409 0 (864)0 
Corporate expense allocations31,880 35,369 26,943 (94,192)0 
Net income before taxes399,958 64,832 97,545 (72,506)489,829 
Federal and state income taxes107,171 16,513 25,076 (48,834)99,926 
Net income292,787 48,319 72,469 (23,672)389,903 
Net income (loss) attributable to non-controlling interests0 0 0 (503)(503)
Net income attributable to BOK Financial Corp. shareholders$292,787 $48,319 $72,469 $(23,169)$390,406 
Average assets$22,288,960 $9,142,491 $9,860,427 $88,371 $41,380,249 
  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 are1CoBiz operations were 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 September 30, 2018 is as follows (in thousands):first quarter of 2019.
  Commercial Consumer 
Wealth
Management
 Funds Management and Other 
BOK
Financial
Consolidated
Net interest revenue from external sources $187,417
 $20,005
 $22,509
 $10,952
 $240,883
Net interest revenue (expense) from internal sources (42,270) 19,039
 6,267
 16,964
 —
Net interest revenue 145,147
 39,044
 28,776
 27,916
 240,883
Provision for credit losses 8,047
 1,451
 (84) (5,414) 4,000
Net interest revenue after provision for credit losses 137,100
 37,593
 28,860
 33,330
 236,883
Other operating revenue 40,522
 44,024
 83,357
 38
 167,941
Other operating expense 51,039
 58,482
 62,256
 80,840
 252,617
Net direct contribution 126,583
 23,135
 49,961
 (47,472) 152,207
Gain (loss) on financial instruments, net (3) (7,229) 7
 7,225
 —
Change in fair value of mortgage servicing rights —
 5,972
 —
 (5,972) —
Gain (loss) on repossessed assets, net (1,869) (87) —
 1,956
 —
Corporate expense allocations 9,124
 11,037
 11,127
 (31,288) —
Net income before taxes 115,587
 10,754
 38,841
 (12,975) 152,207
Federal and state income taxes 30,623
 2,739
 9,975
 (8,675) 34,662
Net income 84,964
 8,015
 28,866
 (4,300) 117,545
Net income attributable to non-controlling interests —
 —
 —
 289
 289
Net income (loss) attributable to BOK Financial Corp. shareholders $84,964
 $8,015
 $28,866
 $(4,589) $117,256
           
Average assets $18,499,979
 $8,323,543
 $8,498,363
 $(1,626,068) $33,695,817
- 89 -


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


- 90 -

Fees and commissions revenue by reportable segment and primary service line is as follows for the three months ended September 30, 2020.
CommercialConsumerWealth ManagementFunds Management & OtherConsolidated
Out of Scope1
In Scope2
Trading revenue$0 $0 $46,890 $(1)$46,889 $46,889 $0 
Customer hedging revenue7,999 0 123 520 8,642 8,642 0 
Retail brokerage revenue0 0 3,787 0 3,787 0 3,787 
Insurance brokerage revenue0 0 3,124 0 3,124 0 3,124 
Investment banking revenue2,314 0 4,770 0 7,084 2,280 4,804 
Brokerage and trading revenue10,313 0 58,694 519 69,526 57,811 11,715 
TransFund EFT network revenue18,840 913 (14)2 19,741 0 19,741 
Merchant services revenue3,019 19 0 0 3,038 0 3,038 
Corporate card revenue583 0 21 82 686 0 686 
Transaction card revenue22,442 932 7 84 23,465 0 23,465 
Personal trust revenue0 0 20,130 0 20,130 0 20,130 
Corporate trust revenue0 0 4,613 0 4,613 0 4,613 
Institutional trust & retirement plan services revenue0 0 11,030 0 11,030 0 11,030 
Investment management services and other revenue0 0 4,198 (40)4,158 0 4,158 
Fiduciary and asset management revenue0 0 39,971 (40)39,931 0 39,931 
Commercial account service charge revenue11,209 419 572 0 12,200 0 12,200 
Overdraft fee revenue32 5,411 16 4 5,463 0 5,463 
Check card revenue0 5,565 0 0 5,565 0 5,565 
Automated service charge and other deposit fee revenue27 1,007 24 0 1,058 0 1,058 
Deposit service charges and fees11,268 12,402 612 4 24,286 0 24,286 
Mortgage production revenue0 38,431 0 0 38,431 38,431 0 
Mortgage servicing revenue0 13,952 0 (424)13,528 13,528 0 
Mortgage banking revenue0 52,383 0 (424)51,959 51,959 0 
Other revenue6,062 2,257 12,371 (6,992)13,698 10,427 3,271 
Total fees and commissions revenue$50,085 $67,974 $111,655 $(6,849)$222,865 $120,197 $102,668 
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.
- 91 -

Fees and commissions revenue by reportable segment and primary service line is as follows for the nine months ended September 30, 2020.
CommercialConsumerWealth ManagementFunds Management & OtherConsolidated
Out of Scope1
In Scope2
Trading revenue$0 $0 $125,189 $0 $125,189 $125,189 $0 
Customer hedging revenue17,417 0 321 368 18,106 18,106 0 
Retail brokerage revenue0 0 11,524 0 11,524 0 11,524 
Insurance brokerage revenue0 0 10,066 0 10,066 0 10,066 
Investment banking revenue5,325 0 12,117 0 17,442 4,959 12,483 
Brokerage and trading revenue22,742 0 159,217 368 182,327 148,254 34,073 
TransFund EFT network revenue56,699 2,300 (42)4 58,961 0 58,961 
Merchant services revenue7,554 46 0 0 7,600 0 7,600 
Corporate card revenue1,588 0 55 82 1,725 0 1,725 
Transaction card revenue65,841 2,346 13 86 68,286 0 68,286 
Personal trust revenue0 0 62,460 0 62,460 0 62,460 
Corporate trust revenue0 0 15,579 0 15,579 0 15,579 
Institutional trust & retirement plan services revenue0 0 33,510 0 33,510 0 33,510 
Investment management services and other revenue0 0 14,220 (123)14,097 0 14,097 
Fiduciary and asset management revenue0 0 125,769 (123)125,646 0 125,646 
Commercial account service charge revenue33,317 1,218 1,715 0 36,250 0 36,250 
Overdraft fee revenue101 16,223 54 7 16,385 0 16,385 
Check card revenue0 15,916 0 0 15,916 0 15,916 
Automated service charge and other deposit fee revenue285 3,572 54 0 3,911 0 3,911 
Deposit service charges and fees33,703 36,929 1,823 7 72,462 0 72,462 
Mortgage production revenue0 99,186 0 0 99,186 99,186 0 
Mortgage servicing revenue0 45,158 0 (1,282)43,876 43,876 0 
Mortgage banking revenue0 144,344 0 (1,282)143,062 143,062 0 
Other revenue15,773 6,609 29,471 (14,367)37,486 27,805 9,681 
Total fees and commissions revenue$138,059 $190,228 $316,293 $(15,311)$629,269 $319,121 $310,148 
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.
- 92 -

Fees and commissions revenue by reportable segment and primary service line is as follows for the three months ended September 30, 2019.
CommercialConsumerWealth Management
Funds Management & Other3
Consolidated
Out of Scope1
In Scope2
Trading revenue$0 $0 $24,091 $0 $24,091 $24,091 $0 
Customer hedging revenue2,283 0 1,810 591 4,684 4,684 0 
Retail brokerage revenue0 0 4,204 0 4,204 0 4,204 
Insurance brokerage revenue0 0 3,375 (513)2,862 0 2,862 
Investment banking revenue4,408 0 3,590 1 7,999 3,762 4,237 
Brokerage and trading revenue6,691 0 37,070 79 43,840 32,537 11,303 
TransFund EFT network revenue18,465 1,020 (23)2 19,464 0 19,464 
Merchant services revenue2,203 14 0 0 2,217 0 2,217 
Corporate card revenue328 0 6 0 334 0 334 
Transaction card revenue20,996 1,034 (17)2 22,015 0 22,015 
Personal trust revenue0 0 20,239 (1)20,238 0 20,238 
Corporate trust revenue0 0 6,204 1 6,205 0 6,205 
Institutional trust & retirement plan services revenue0 0 10,740 0 10,740 0 10,740 
Investment management services and other revenue0 0 6,480 (42)6,438 0 6,438 
Fiduciary and asset management revenue0 0 43,663 (42)43,621 0 43,621 
Commercial account service charge revenue10,609 467 540 (3)11,613 0 11,613 
Overdraft fee revenue81 9,603 45 3 9,732 0 9,732 
Check card revenue0 5,721 0 0 5,721 0 5,721 
Automated service charge and other deposit fee revenue197 1,519 53 2 1,771 0 1,771 
Deposit service charges and fees10,887 17,310 638 2 28,837 0 28,837 
Mortgage production revenue0 13,815 0 (1)13,814 13,814 0 
Mortgage servicing revenue0 16,828 0 (462)16,366 16,366 0 
Mortgage banking revenue0 30,643 0 (463)30,180 30,180 0 
Other revenue7,585 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 
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.

- 93 -
 Commercial Consumer Wealth Management 
Funds Management & Other3
 Consolidated 
Out of Scope1
 
In Scope2
Trading revenue$—
 $—
 $24,091
 $—
 $24,091
 $24,091
 $—
Customer hedging revenue2,283
 —
 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 revenue4,408
 —
 3,590
 1
 7,999
 3,762
 4,237
Brokerage and trading revenue6,691
 —
 37,070
 79
 43,840
 32,537
 11,303
TransFund EFT network revenue18,465
 1,020
 (23) 2
 19,464
 —
 19,464
Merchant services revenue2,203
 14
 —
 —
 2,217
 —
 2,217
Corporate card revenue328
 —
 6
 —
 334
 —
 334
Transaction card revenue20,996
 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 revenue10,609
 467
 540
 (3) 11,613
 —
 11,613
Overdraft fee revenue81
 9,603
 45
 3
 9,732
 —
 9,732
Check card revenue—
 5,721
 —
 —
 5,721
 —
 5,721
Automated service charge and other deposit fee revenue197
 1,519
 53
 2
 1,771
 —
 1,771
Deposit service charges and fees10,887
 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 revenue7,585
 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
1

Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting guidance.
2
In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.
3
CoBiz operations are included in Funds Management and Other for the first quarter of 2019.



Fees and commissions revenue by reportable segment and primary service line is as follows for the nine months ended September 30, 2019.
CommercialConsumerWealth Management
Funds Management & Other3
Consolidated
Out of Scope1
In Scope2
Trading revenue$0 $0 $58,890 $0 $58,890 $58,890 $0 
Customer hedging revenue6,243 0 9,444 1,019 16,706 16,706 0 
Retail brokerage revenue0 0 12,192 (65)12,127 0 12,127 
Insurance brokerage revenue0 0 7,063 3,729 10,792 0 10,792 
Investment banking revenue8,345 0 9,123 0 17,468 7,189 10,279 
Brokerage and trading revenue14,588 0 96,712 4,683 115,983 82,785 33,198 
TransFund EFT network revenue54,623 2,975 (60)3 57,541 0 57,541 
Merchant services revenue6,351 43 0 122 6,516 0 6,516 
Corporate card revenue598 0 11 2 611 0 611 
Transaction card revenue61,572 3,018 (49)127 64,668 0 64,668 
Personal trust revenue0 0 61,028 0 61,028 0 61,028 
Corporate trust revenue0 0 18,736 0 18,736 0 18,736 
Institutional trust & retirement plan services revenue0 0 32,919 0 32,919 0 32,919 
Investment management services and other revenue0 0 17,730 1,591 19,321 0 19,321 
Fiduciary and asset management revenue0 0 130,413 1,591 132,004 0 132,004 
Commercial account service charge revenue31,296 1,283 1,605 1,804 35,988 0 35,988 
Overdraft fee revenue248 26,971 108 (231)27,096 0 27,096 
Check card revenue0 16,299 0 165 16,464 0 16,464 
Automated service charge and other deposit fee revenue569 4,762 228 47 5,606 0 5,606 
Deposit service charges and fees32,113 49,315 1,941 1,785 85,154 0 85,154 
Mortgage production revenue0 33,554 0 (3)33,551 33,551 0 
Mortgage servicing revenue0 50,014 0 (1,420)48,594 48,594 0 
Mortgage banking revenue0 83,568 0 (1,423)82,145 82,145 0 
Other revenue17,037 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 
 Commercial Consumer Wealth Management 
Funds Management & Other3
 Consolidated 
Out of Scope1
 
In Scope2
Trading revenue$—
 $—
 $58,890
 $—
 $58,890
 $58,890
 $—
Customer hedging revenue6,243
 —
 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 revenue8,345
 —
 9,123
 —
 17,468
 7,189
 10,279
Brokerage and trading revenue14,588
 —
 96,712
 4,683
 115,983
 82,785
 33,198
TransFund EFT network revenue54,623
 2,975
 (60) 3
 57,541
 —
 57,541
Merchant services revenue6,351
 43
 —
 122
 6,516
 —
 6,516
Corporate card revenue598
 —
 11
 2
 611
 —
 611
Transaction card revenue61,572
 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 revenue31,296
 1,283
 1,605
 1,804
 35,988
 —
 35,988
Overdraft fee revenue248
 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 revenue569
 4,762
 228
 47
 5,606
 —
 5,606
Deposit service charges and fees32,113
 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 revenue17,037
 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
1     Out of scope revenue generally relates to financial instruments or contractual rights and obligations within the scope of other applicable accounting guidance.
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
2    In scope revenue represents revenue subject to FASB ASC Topic 606, Revenue from Contracts with Customers.
3CoBiz 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 September 30, 2018.first quarter of 2019.
 Commercial Consumer Wealth Management Funds Management & Other Consolidated 
Out of Scope1
 
In Scope2
Trading revenue$—
 $—
 $4,830
 $—
 $4,830
 $4,830
 $—
Customer hedging revenue1,350
 —
 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 revenue1,765
 —
 3,482
 —
 5,247
 1,410
 3,837
Brokerage and trading revenue3,115
 —
 19,815
 156
 23,086
 14,754
 8,332
TransFund EFT network revenue18,397
 1,009
 (21) 2
 19,387
 —
 19,387
Merchant services revenue1,995
 14
 —
 —
 2,009
 —
 2,009
Corporate card revenue—
 —
 —
 —
 —
 —
 —
Transaction card revenue20,392
 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 revenue10,294
 366
 587
 (3) 11,244
 —
 11,244
Overdraft fee revenue95
 9,413
 30
 3
 9,541
 —
 9,541
Check card revenue—
 5,254
 —
 —
 5,254
 —
 5,254
Automated service charge and other deposit fee revenue35
 1,661
 22
 8
 1,726
 —
 1,726
Deposit service charges and fees10,424
 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 revenue5,460
 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

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.



Fees and commissions revenue by reportable segment and primary service line is as follows for the nine months ended September 30, 2018.
- 94 -
 Commercial Consumer Wealth Management Funds Management & Other Consolidated 
Out of Scope1
 
In Scope2
Trading revenue$—
 $—
 $21,562
 $—
 $21,562
 $21,562
 $—
Customer hedging revenue6,264
 —
 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 revenue5,729
 —
 9,655
 —
 15,384
 4,772
 10,612
Brokerage and trading revenue11,993
 —
 67,034
 1,195
 80,222
 55,550
 24,672
TransFund EFT network revenue54,647
 3,005
 (61) 5
 57,596
 —
 57,596
Merchant services revenue5,720
 45
 —
 —
 5,765
 —
 5,765
Corporate card revenue—
 —
 —
 —
 —
 —
 —
Transaction card revenue60,367
 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 revenue32,150
 1,087
 1,802
 (3) 35,036
 —
 35,036
Overdraft fee revenue283
 26,665
 96
 13
 27,057
 —
 27,057
Check card revenue—
 15,515
 —
 —
 15,515
 —
 15,515
Automated service charge and other deposit fee revenue110
 4,953
 72
 17
 5,152
 —
 5,152
Deposit service charges and fees32,543
 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 revenue17,379
 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 nine months ended September 30, 20192020 and 2018,2019, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the three and nine months ended September 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 September 30, 20192020 or December 31, 2018.2019.


- 95 -

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 September 30, 20192020 (in thousands):
 TotalQuoted Prices in Active Markets for Identical Instruments (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs
(Level 3)
Assets:    
Trading securities:
U.S. government agency debentures$5,181 $0 $5,181 $0 
Residential agency mortgage-backed securities2,150,759 0 2,150,759 0 
Municipal and other tax-exempt securities30,533 0 30,533 0 
Other trading securities59,007 0 59,007 0 
Total trading securities2,245,480 0 2,245,480 0 
Available for sale securities:    
U.S. Treasury509 509 0 0 
Municipal and other tax-exempt securities51,601 0 51,601 0 
Residential agency mortgage-backed securities9,384,998 0 9,384,998 0 
Residential non-agency mortgage-backed securities34,873 0 34,873 0 
Commercial agency mortgage-backed securities3,334,409 0 3,334,409 0 
Other debt securities10,879 0 10,407 472 
Total available for sale securities12,817,269 509 12,816,288 472 
Fair value option securities – Residential agency mortgage-backed securities134,756 0 134,756 0 
Residential mortgage loans held for sale295,290 0 286,785 8,505 
Mortgage servicing rights1
97,644 0 0 97,644 
Derivative contracts, net of cash collateral2
593,568 11,713 581,855 0 
Liabilities: 
Derivative contracts, net of cash collateral2
446,328 0 446,328 0 
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 interest rate derivative contracts. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments are exchange-traded interest rate, energy and agricultural derivative contracts, fully offset by cash margin.

- 96 -
  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
 —
1

A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.
2
See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in asset positions that were valued based on quoted prices in active markets for identical instruments (Level 1) are primarily exchange-traded energy, 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):
 TotalQuoted Prices in Active Markets for Identical Instruments (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs
(Level 3)
Assets:    
Trading securities:
U.S. government agency debentures$44,264 $0 $44,264 $0 
Residential agency mortgage-backed securities1,504,651 0 1,504,651 0 
Municipal and other tax-exempt securities26,196 0 26,196 0 
Asset-backed securities14,084 0 14,084 0 
Other trading securities34,726 0 34,726 0 
Total trading securities1,623,921 0 1,623,921 0 
Available for sale securities:    
U.S. Treasury1,600 1,600 0 0 
Municipal and other tax-exempt securities1,861 0 1,861 0 
Residential agency mortgage-backed securities8,046,096 0 8,046,096 0 
Residential non-agency mortgage-backed securities41,609 0 41,609 0 
Commercial agency mortgage-backed securities3,178,005 0 3,178,005 0 
Other debt securities472 0 0 472 
Total available for sale securities11,269,643 1,600 11,267,571 472 
Fair value option securities:
U.S. Treasury9,917 9,917 0 0 
Residential agency mortgage-backed securities1,088,660 0 1,088,660 0 
Total fair value option securities1,098,577 9,917 1,088,660 0 
Residential mortgage loans held for sale182,271 0 173,958 8,313 
Mortgage servicing rights1
201,886 0 0 201,886 
Derivative contracts, net of cash collateral2
323,375 8,944 314,431 0 
Liabilities:
Derivative contracts, net of cash collateral2
251,128 0 251,128 0 
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 contracts, 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.



- 97 -
  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
 —
1

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


- 98 -

The following represents the changes for the three and nine months ended September 30, 2020 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
 Available for sale - Other debt securitiesResidential mortgage loans held for sale
Balance, June 30, 2020$472 $9,685 
Transfer to Level 3 from Level 21
0 304 
Purchases0 0 
Proceeds from sales0 (1,612)
Redemptions and distributions0 0 
Gain (loss) recognized in earnings:
Mortgage banking revenue0 128 
Other comprehensive income (loss):
Net change in unrealized gain (loss)0 0 
Balance, September 30, 2020$472 $8,505 
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 securitiesResidential mortgage loans held for sale
Balance, December 31, 2019$472 $8,313 
Transfer to Level 3 from Level 21
0 3,896 
Purchases0 0 
Proceeds from sales0 (3,200)
Redemptions and distributions0 0 
Gain (loss) recognized in earnings:
Mortgage banking revenue0 (504)
Other comprehensive income (loss):
Net change in unrealized gain (loss)0 0 
Balance, September 30, 2020$472 $8,505 
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 nine months ended September 30, 2019 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):

 Available for sale - Other debt securitiesResidential mortgage loans held for sale
Balance, June 30, 2019$472 $16,073 
Transfer to Level 3 from Level 21
0 261 
Purchases0 0 
Proceeds from sales0 (3,152)
Redemptions and distributions0 0 
Gain (loss) recognized in earnings:
Mortgage banking revenue0 386 
Other comprehensive income (loss):
Net change in unrealized gain (loss)0 0 
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.
- 99 -
  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 securitiesResidential mortgage loans held for sale
Balance, Dec. 31, 2018$472 $15,207 
Transfer to Level 3 from Level 21
0 2,150 
Purchases0 0 
Proceeds from sales0 (4,531)
Redemptions and distributions0 0 
Gain (loss) recognized in earnings
Mortgage banking revenue0 742 
Other comprehensive income (loss):
Net change in unrealized gain (loss)0 0 
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.
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

1

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




A summary of quantitative information about assets measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3) as of September 30, 20192020 follows (in thousands):
Fair
Value		Valuation Technique(s)Unobservable InputRange
(Weighted Average)
Available for sale securities – Other debt securities$472 Discounted cash flows1Interest rate spread5.61%-5.61% (5.61%)3
94.32%-94.32% (94.32%)2
Residential mortgage loans held for sale8,505 Quoted prices of loans sold in securitization transactions, with a liquidity discount appliedLiquidity 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% 
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.
1
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 2 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 InputRange
(Weighted Average)
Available for sale securities – Other debt securities$472 Discounted cash flows1Interest rate spread7.08%-7.08% (7.08%)3
94.40%-94.40% (94.40%)2
Residential mortgage loans held for sale8,313 Quoted prices of loans sold in securitization transactions, with a liquidity discount appliedLiquidity 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.



- 100 -
  
Fair
Value
 Valuation Technique(s) Unobservable Input 
Range
(Weighted Average)
 
          
Available for sale securities – Other debt securities 472
 Discounted cash flows
1 
Interest rate spread 7.88%-7.88% (7.88%)
3 
94.44%-94.44% (94.44%)
2 
Residential mortgage loans held for sale 15,207
 Quoted prices of loans sold in securitization transactions, with a liquidity discount applied Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies. 92.38% 
1

Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume
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 September 30, 2020 for which the fair value was adjusted during the nine months ended September 30, 2020:
Fair Value Adjustments for the
 Carrying Value at September 30, 2020Three Months Ended
Sept. 30, 2020 Recognized in:		Nine Months Ended
Sept. 30, 2020 Recognized in:
 Quoted Prices
in Active Markets for Identical Instruments		Significant
Other
Observable
Inputs		Significant
Unobservable
Inputs		Gross charge-offs against allowance for loan lossesNet losses (gains) and operating expenses of repossessed assetsGross charge-offs against allowance for loan lossesNet losses (gains) and operating expenses of repossessed assets
Nonaccruing loans$0 $396 $13,001 $6,371 $0 $28,624 $0 
Real estate and other repossessed assets0 16,828 2,993 0 (4,370)0 (4,452)
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 September 30, 2019 for which the fair value was adjusted during the nine months ended September 30, 2019:
Fair Value Adjustments for the
 Carrying Value at September 30, 2019Three 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 lossesNet losses (gains) and operating expenses of repossessed assetsGross charge-offs against allowance for loan lossesNet losses (gains) and operating expenses of repossessed assets
Nonaccruing loans$0 $79 $9,810 $2,644 $0 $13,868 $0 
Real estate and other repossessed assets0 5,044 936 0 (979)0 (532)
       Fair Value Adjustments for the
 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 (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
 $—
Real estate and other repossessed assets—
 5,044
 936
 —
 (979) —
 (532)
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 September 30, 2018 for which the fair value was adjusted during the nine months ended September 30, 2018:
       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.


- 101 -

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2020 follows (in thousands):

Fair ValueValuation Technique(s)Unobservable InputRange
(Weighted Average)
Nonaccruing loans$13,001 Discounted cash flowsManagement knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs
0% - 73% (18%)1
Real estate and other repossessed assets2,993 Discounted cash flowsManagement knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costsN/A
1 Represents fair value as a percentage of the unpaid principal balance.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2019 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 ValueValuation Technique(s)Unobservable InputRange
(Weighted Average)
Nonaccruing loans$9,810 Discounted cash flowsManagement knowledge of industry and non-real estate collateral including but not limited to recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs
8% - 76% (28%)1
Real estate and other repossessed assets936 Appraised value, as adjusted
Marketability adjustments off appraised value2
Represents fair value as a percentage of the unpaid principal balance.75% - 89% (85%)
2
Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.

A summary1 Represents fair value as a percentage of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) asthe unpaid principal balance.
2    Marketability adjustments include consideration of September 30, 2018 follows (in thousands):estimated costs to sell which is approximately 10% of the fair value.
  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

1

- 102 -

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



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 September 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$658,612 $658,612 $658,612 $0 $0 
Interest-bearing cash and cash equivalents347,759 347,759 347,759 0 0 
Trading securities:
U.S. government agency debentures5,181 5,181 0 5,181 0 
Residential agency mortgage-backed securities2,150,759 2,150,759 0 2,150,759 0 
Municipal and other tax-exempt securities30,533 30,533 0 30,533 0 
Other trading securities59,007 59,007 0 59,007 0 
Total trading securities2,245,480 2,245,480 0 2,245,480 0 
Investment securities:  
Municipal and other tax-exempt securities76,109 80,368 0 80,368 0 
Residential agency mortgage-backed securities9,317 10,219 0 10,219 0 
Other debt securities171,314 194,342 0 7,376 186,966 
Total investment securities256,740 284,929 0 97,963 186,966 
Allowance for credit losses(739)0 0 0 0 
Investment securities, net of allowance256,001 284,929 0 97,963 186,966 
Available for sale securities:  
U.S. Treasury509 509 509 0 0 
Municipal and other tax-exempt securities51,601 51,601 0 51,601 0 
Residential agency mortgage-backed securities9,384,998 9,384,998 0 9,384,998 0 
Residential non-agency mortgage-backed securities34,873 34,873 0 34,873 0 
Commercial agency mortgage-backed securities3,334,409 3,334,409 0 3,334,409 0 
Other debt securities10,879 10,879 0 10,407 472 
Total available for sale securities12,817,269 12,817,269 509 12,816,288 472 
Fair value option securities – Residential agency mortgage-backed securities134,756 134,756 0 134,756 0 
Residential mortgage loans held for sale295,290 295,290 0 286,785 8,505 
Loans:  
Commercial13,565,706 13,500,846 0 0 13,500,846 
Commercial real estate4,693,700 4,673,857 0 0 4,673,857 
Paycheck protection program2,097,325 2,070,466 0 0 2,070,466 
Loans to individuals3,446,569 3,452,042 0 0 3,452,042 
Total loans23,803,300 23,697,211 0 0 23,697,211 
Allowance for loan losses(419,777)0 0 0 0 
Loans, net of allowance23,383,523 23,697,211 0 0 23,697,211 
Mortgage servicing rights97,644 97,644 0 0 97,644 
Derivative instruments with positive fair value, net of cash collateral593,568 593,568 11,713 581,855 0 
Deposits with no stated maturity32,965,027 32,965,027 0 0 32,965,027 
Time deposits2,007,973 2,019,474 0 0 2,019,474 
Other borrowed funds3,745,081 3,741,686 0 0 3,741,686 
Subordinated debentures275,986 269,083 0 269,083 0 
Derivative instruments with negative fair value, net of cash collateral446,328 446,328 0 446,328 0 

- 103 -
  
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 $0 $0 
Interest-bearing cash and cash equivalents522,985 522,985 522,985 0 0 
Trading securities:
U.S. government agency debentures44,264 44,264 0 44,264 0 
Residential agency mortgage-backed securities1,504,651 1,504,651 0 1,504,651 0 
Municipal and other tax-exempt securities26,196 26,196 0 26,196 0 
Asset-backed securities14,084 14,084 0 14,084 0 
Other trading securities34,726 34,726 0 34,726 0 
Total trading securities1,623,921 1,623,921 0 1,623,921 0 
Investment securities:  
Municipal and other tax-exempt securities93,653 96,897 0 96,897 0 
Residential agency mortgage-backed securities10,676 11,164 0 11,164 0 
Other debt securities189,089 206,341 0 8,206 198,135 
Total investment securities293,418 314,402 0 116,267 198,135 
Available for sale securities:  
U.S. Treasury1,600 1,600 1,600 0 0 
Municipal and other tax-exempt securities1,861 1,861 0 1,861 0 
Residential agency mortgage-backed securities8,046,096 8,046,096 0 8,046,096 0 
Residential non-agency mortgage-backed securities41,609 41,609 0 41,609 0 
Commercial agency mortgage-backed securities3,178,005 3,178,005 0 3,178,005 0 
Other debt securities472 472 0 0 472 
Total available for sale securities11,269,643 11,269,643 1,600 11,267,571 472 
Fair value option securities:
U.S. Treasury9,917 9,917 9,917 0 0 
Residential agency mortgage-backed securities1,088,660 1,088,660 0 1,088,660 0 
Total fair value option securities1,098,577 1,098,577 9,917 1,088,660 0 
Residential mortgage loans held for sale182,271 182,271 0 173,958 8,313 
Loans:  
Commercial14,031,650 13,966,221 0 0 13,966,221 
Commercial real estate4,433,783 4,422,717 0 0 4,422,717 
Residential mortgage2,084,172 2,098,093 0 0 2,098,093 
Personal1,201,382 1,202,298 0 0 1,202,298 
Total loans21,750,987 21,689,329 0 0 21,689,329 
Allowance for loan losses(210,759)0 0 0 0 
Loans, net of allowance21,540,228 21,689,329 0 0 21,689,329 
Mortgage servicing rights201,886 201,886 0 0 201,886 
Derivative instruments with positive fair value, net of cash collateral323,375 323,375 8,944 314,431 0 
Deposits with no stated maturity25,403,319 25,403,319 0 0 25,403,319 
Time deposits2,217,849 2,212,467 0 0 2,212,467 
Other borrowed funds8,345,405 8,315,860 0 0 8,315,860 
Subordinated debentures275,923 284,627 0 284,627 0 
Derivative instruments with negative fair value, net of cash collateral251,128 251,128 0 251,128 0 
  
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.



- 104 -

(12) Subsequent Events
(13) Subsequent Events

The Company evaluated events from the date of the consolidated financial statements on September 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.


- 105 -


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
  
Nine-Month Financial Summary – Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands, Except Per Share Data)Nine Months Ended
 September 30, 2020September 30, 2019
Average
Balance		Revenue/
Expense		Yield/
Rate		Average
Balance		Revenue/
Expense		Yield/
Rate
Assets      
Interest-bearing cash and cash equivalents$631,203 $2,672 0.57 %$524,603 $9,879 2.52 %
Trading securities1,798,767 32,094 2.41 %1,806,438 48,945 3.66 %
Investment securities270,018 9,689 4.78 %326,489 10,917 4.46 %
Available for sale securities12,243,049 200,519 2.29 %9,695,550 184,409 2.60 %
Fair value option securities987,145 17,804 2.39 %1,019,182 23,448 3.10 %
Restricted equity securities281,986 8,687 4.11 %428,973 20,419 6.35 %
Residential mortgage loans held for sale210,484 4,848 3.15 %180,367 5,308 3.93 %
Loans23,386,976 681,469 3.89 %22,063,499 867,722 5.26 %
Allowance for loan losses(353,574)(204,430)
Loans, net of allowance23,033,402 681,469 3.95 %21,859,069 867,722 5.31 %
Total earning assets39,456,054 957,782 3.29 %35,840,671 1,171,047 4.40 %
Receivable on unsettled securities sales4,080,342 1,470,217 
Cash and other assets4,602,974 4,069,361 
Total assets$48,139,370 $41,380,249 
Liabilities and equity      
Interest-bearing deposits:      
Transaction$17,990,429 $53,377 0.40 %$12,529,517 $95,957 1.02 %
Savings642,773 298 0.06 %552,535 523 0.13 %
Time2,318,101 24,887 1.43 %2,204,517 31,037 1.88 %
Total interest-bearing deposits20,951,303 78,562 0.50 %15,286,569 127,517 1.12 %
Funds purchased and repurchase agreements4,133,243 14,079 0.45 %2,405,981 36,791 2.04 %
Other borrowings4,480,085 35,558 1.06 %7,450,707 143,804 2.58 %
Subordinated debentures275,954 10,567 5.11 %276,129 11,359 5.50 %
Total interest-bearing liabilities29,840,585 138,766 0.62 %25,419,386 319,471 1.68 %
Non-interest bearing demand deposits10,887,775 9,876,418 
Due on unsettled securities purchases1,123,319 674,909 
Other liabilities1,239,723 789,256 
Total equity5,047,968 4,620,280 
Total liabilities and equity$48,139,370 $41,380,249 
Tax-equivalent Net Interest Revenue$819,016 2.67 %$851,576 2.72 %
Tax-equivalent Net Interest Revenue to Earning Assets2.81 %3.20 %
Less tax-equivalent adjustment7,802 8,946 
Net Interest Revenue811,214 842,630 
Provision for credit losses229,092 25,000 
Other operating revenue647,171 515,785 
Other operating expense865,276 843,586 
Income before taxes364,017 489,829 
Federal and state income taxes83,655 99,926 
Net income280,362 389,903 
Net income (loss) attributable to non-controlling interests(444)(503)
Net income attributable to BOK Financial Corp. shareholders$280,806 $390,406 
Earnings Per Average Common Share Equivalent:      
Net income:      
Basic $3.99   $5.47  
Diluted $3.99   $5.47  
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.
- 106 -


Quarterly Financial Summary – Unaudited

Consolidated Daily Average Balances, Average Yields and Rates

(In Thousands, Except Per Share Data)Three Months Ended
 September 30, 2020June 30, 2020
Average
Balance		Revenue/
Expense		Yield/
Rate		Average
Balance		Revenue/
Expense		Yield/
Rate
Assets      
Interest-bearing cash and cash equivalents$553,070 $167 0.12 %$619,737 $112 0.07 %
Trading securities1,834,160 8,766 1.92 %1,871,647 11,473 2.46 %
Investment securities, net of allowance258,965 3,141 4.85 %268,947 3,210 4.77 %
Available for sale securities12,580,850 62,433 2.11 %12,480,065 68,358 2.29 %
Fair value option securities387,784 1,986 1.92 %786,757 4,110 2.00 %
Restricted equity securities144,415 913 2.53 %273,922 1,880 2.75 %
Residential mortgage loans held for sale213,125 1,585 3.01 %288,588 2,140 3.10 %
Loans24,110,463 218,125 3.60 %24,099,492 217,731 3.63 %
Allowance for loan losses(441,831)(367,583)
Loans, net of allowance23,668,632 218,125 3.67 %23,731,909 217,731 3.69 %
Total earning assets39,641,001 297,116 3.04 %40,321,572 309,014 3.12 %
Receivable on unsettled securities sales4,563,301 4,626,307 
Cash and other assets4,727,453 4,809,152 
Total assets$48,931,755 $49,757,031 
Liabilities and equity      
Interest-bearing deposits:      
Transaction$19,752,106 $8,199 0.17 %$18,040,170 $9,321 0.21 %
Savings707,121 88 0.05 %656,669 84 0.05 %
Time2,251,012 6,371 1.13 %2,464,793 8,340 1.36 %
Total interest-bearing deposits22,710,239 14,658 0.26 %21,161,632 17,745 0.34 %
Funds purchased and repurchase agreements2,782,150 1,199 0.17 %5,816,484 2,042 0.14 %
Other borrowings3,382,688 3,657 0.43 %3,527,303 4,954 0.56 %
Subordinated debentures275,980 3,395 4.89 %275,949 3,539 5.16 %
Total interest-bearing liabilities29,151,057 22,909 0.31 %30,781,368 28,280 0.37 %
Non-interest bearing demand deposits11,929,694 11,489,322 
Due on unsettled securities purchases1,516,880 887,973 
Other liabilities1,171,064 1,526,754 
Total equity5,163,060 5,071,614 
Total liabilities and equity$48,931,755 $49,757,031 
Tax-equivalent Net Interest Revenue$274,207 2.73 %$280,734 2.75 %
Tax-equivalent Net Interest Revenue to Earning Assets2.81 %2.83 %
Less tax-equivalent adjustment2,457 2,630 
Net Interest Revenue271,750 278,104 
Provision for credit losses— 135,321 
Other operating revenue234,159 232,693 
Other operating expense301,265 295,387 
Income before taxes204,644 80,089 
Federal and state income taxes50,552 15,803 
Net income154,092 64,286 
Net income (loss) attributable to non-controlling interests58 (407)
Net income attributable to BOK Financial Corp. shareholders$154,034 $64,693 
Earnings Per Average Common Share Equivalent:      
Basic $2.19   $0.92  
Diluted $2.19   $0.92  
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
  
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.
- 107 -

Three Months Ended
March 31, 2020December 31, 2019September 30, 2019
Average BalanceRevenue /ExpenseYield / RateAverage BalanceRevenue / ExpenseYield / RateAverage BalanceRevenue / ExpenseYield / Rate
$721,659 $2,393 1.33 %$573,203 $2,335 1.62 %$500,823 $3,050 2.42 %
1,690,104 11,855 2.89 %1,672,426 13,015 3.19 %1,696,568 14,546 3.49 %
282,265 3,338 4.73 %298,567 3,500 4.69 %308,090 3,434 4.46 %
11,664,521 69,728 2.48 %11,333,524 69,692 2.52 %10,747,439 67,640 2.60 %
1,793,480 11,708 2.67 %1,521,528 9,488 2.62 %1,553,879 10,708 2.79 %
429,133 5,894 5.49 %479,687 6,441 5.37 %476,781 7,558 6.34 %
129,708 1,123 3.50 %203,535 1,797 3.55 %203,319 1,891 3.73 %
21,943,023 245,613 4.50 %22,236,000 266,315 4.75 %22,412,918 289,316 5.12 %
(250,338)(205,417)(201,714)
21,692,685 245,613 4.55 %22,030,583 266,315 4.80 %22,211,204 289,316 5.17 %
38,403,555 351,652 3.73 %38,113,053 372,583 3.93 %37,698,103 398,143 4.25 %
3,046,111 1,973,604 1,742,794 
4,270,952 4,126,697 4,139,451 
$45,720,618 $44,213,354 $43,580,348 
$16,159,654 $35,857 0.89 %$14,685,385 $36,897 1.00 %$13,131,542 $35,713 1.08 %
563,821 126 0.09 %554,605 154 0.11 %557,122 190 0.14 %
2,239,234 10,176 1.83 %2,247,717 10,970 1.94 %2,251,800 11,014 1.94 %
18,962,709 46,159 0.98 %17,487,707 48,021 1.09 %15,940,464��46,917 1.17 %
3,815,941 10,838 1.14 %4,120,610 16,212 1.56 %3,106,163 15,731 2.01 %
6,542,325 26,947 1.66 %6,247,194 31,621 2.01 %8,125,023 49,650 2.42 %
275,932 3,633 5.30 %275,916 3,754 5.40 %275,900 3,813 5.48 %
29,596,907 87,577 1.19 %28,131,427 99,608 1.40 %27,447,550 116,111 1.68 %
9,232,859 9,612,533 9,759,710 
960,780 784,174 745,893 
1,022,106 837,732 847,195 
4,907,966 4,847,488 4,780,000 
$45,720,618 $44,213,354 $43,580,348 
$264,075 2.54 %$272,975 2.53 %$282,032 2.57 %
2.80 %2.88 %3.01 %
2,715 2,726 2,936 
261,360 270,249 279,096 
93,771 19,000 12,000 
180,319 178,585 186,450 
268,624 288,795 279,292 
79,284 141,039 174,254 
17,300 30,257 32,396 
61,984 110,782 141,858 
(95)430 (373)
$62,079 $110,352 $142,231 
 $0.88   $1.56   $2.00  
 $0.88   $1.56   $2.00  



- 108 -
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
 Sept. 30, 2020June 30, 2020Mar. 31, 2020Dec. 31, 2019Sept. 30, 2019
Interest revenue$294,659 $306,384 $348,937 $369,857 $395,207 
Interest expense22,909 28,280 87,577 99,608 116,111 
Net interest revenue271,750 278,104 261,360 270,249 279,096 
Provision for credit losses— 135,321 93,771 19,000 12,000 
Net interest revenue after provision for credit losses271,750 142,783 167,589 251,249 267,096 
Other operating revenue     
Brokerage and trading revenue69,526 62,022 50,779 43,843 43,840 
Transaction card revenue23,465 22,940 21,881 22,548 22,015 
Fiduciary and asset management revenue39,931 41,257 44,458 45,021 43,621 
Deposit service charges and fees24,286 22,046 26,130 27,331 28,837 
Mortgage banking revenue51,959 53,936 37,167 25,396 30,180 
Other revenue13,698 11,479 12,309 15,283 17,626 
Total fees and commissions222,865 213,680 192,724 179,422 186,119 
Other gains (losses), net6,265 6,768 (10,741)(1,649)4,544 
Gain (loss) on derivatives, net2,354 21,885 18,420 (4,644)3,778 
Gain (loss) on fair value option securities, net(754)(14,459)68,393 (8,328)4,597 
Change in fair value of mortgage servicing rights3,441 (761)(88,480)9,297 (12,593)
Gain (loss) on available for sale securities, net(12)5,580 3 4,487 5 
Total other operating revenue234,159 232,693 180,319 178,585 186,450 
Other operating expense     
Personnel179,860 176,235 156,181 168,422 162,573 
Business promotion2,633 1,935 6,215 8,787 8,859 
Charitable contributions to BOKF Foundation— 3,000 — 2,000 — 
Professional fees and services14,074 12,161 12,948 13,408 12,312 
Net occupancy and equipment28,111 30,675 26,061 26,316 27,558 
Insurance5,848 5,156 4,980 5,393 4,220 
Data processing and communications34,751 32,942 32,743 31,884 31,915 
Printing, postage and supplies3,482 3,502 4,272 3,700 3,825 
Net losses and operating expenses of repossessed assets6,244 1,766 1,531 2,403 1,728 
Amortization of intangible assets5,071 5,190 5,094 5,225 5,064 
Mortgage banking costs15,803 15,598 10,545 14,259 14,975 
Other expense5,388 7,227 8,054 6,998 6,263 
Total other operating expense301,265 295,387 268,624 288,795 279,292 
Net income before taxes204,644 80,089 79,284 141,039 174,254 
Federal and state income taxes50,552 15,803 17,300 30,257 32,396 
Net income154,092 64,286 61,984 110,782 141,858 
Net income (loss) attributable to non-controlling interests58 (407)(95)430 (373)
Net income attributable to BOK Financial Corporation shareholders$154,034 $64,693 $62,079 $110,352 $142,231 
Earnings per share:     
Basic$2.19$0.92$0.88$1.56$2.00
Diluted$2.19$0.92$0.88$1.56$2.00
Average shares used in computation:
Basic69,877,866 69,876,043 70,123,685 70,295,899 70,596,307 
Diluted69,879,290 69,877,467 70,130,166 70,309,644 70,609,924 


- 109 -
  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
- 110 -

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 September 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
1Total Number of Shares Purchased2
On April 30, 2019,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 Company's board of directors authorized the CompanyPlans
July 1 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.July 31, 2020
— $— — 3,691,287 
2August 1 to August 31, 2020
The Company may repurchase mature shares from employees— $— — 3,691,287 
September 1 to cover the exercise price and taxes in connection with employee equity compensation.September 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 September 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

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

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

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

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.

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

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

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

101Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements. The XBRL instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


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



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Signatures


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


BOK FINANCIAL CORPORATION
(Registrant)



Date:        October 30, 2019November 3, 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


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